Conditions and Performance Chapter Listing

Conditions and Performance Home Page

Introduction

Summary

Highway and Bridge Finance

Transit Finance

Public Sector Highway

Funding - Trends

Federal support for highways increased dramatically following the passage of the Federal-Aid Highway Act of 1956 and the establishment of the HTF. During this period, the Federal share of total highway funding peaked in 1965 at 30.1 percent. From 1965 to 1991 there was a gradual downward trend in the Federal share, to a low of 20.0 percent in 1991. Since 1991 the Federal percentage of total spending has somewhat stabilized. Since 1995, the Federal share has dropped from 21.3 percent to 20.8 percent in 1997. [See Exhibit 6-4]

The State share of funding for total highway expenditures dropped as the Federal share grew in the late 1950s. The graph in Exhibit 6-4 also indicates that the local share of funding declined to its lowest level (18.4 percent) in 1964, but increased in subsequent years. Since 1982, the local share has varied within a range from 25 to 28 percent, while the State share has varied within a range from 48 to 54 percent.

Exhibit 6-4. Funding for Highways by Level of Government, 1957-1997

Exhibit 6-5

Percent of Highway Revenue Derived from User Charges, for Each Level of Government, 1977-1997

Sources: Highway Statistics Summary to 1995 Table HF-210; Highway Statistics 1996 Table HF-10A; Highway Funding Bulletin dated 3/16/99.

The sources of highway revenue for each level of government have changed over time. In 1965, 73.5 percent of revenues for highways was derived from highway user charges. Exhibit 6-5 shows the percentage of highway revenue derived from user charges for each level of government over the last 20 years. The graph in Exhibit 6-5 shows that this percentage declined to its lowest level in 1982 (55.3 percent). Since that time, the percentage has since rebounded and stabilized in a range of about 60 to 62 percent.

During the early years of the HTF, over 90 percent of highway revenues at the Federal level came from fuel and vehicle taxes. From the late 1960s to the early 1980s, this percentage declined, to a low of 61.55 percent in 1981. Federal motor-fuel taxes did not increase during this period, and the percentage of Federal highway funding derived from general fund revenues increased. In 1981, general fund revenues of $2.6 billion provided 25.1 percent of total Federal highway funding.

Since 1981, Federal general fund revenues used for highways have declined by two-thirds, and the portion of Federal highway revenue derived from highway user charges has increased. In 1995, 92.1 percent of Federal highway revenues were derived from fuel and vehicle taxes, the first time this percentage exceeded the 90 percent level since 1965.

Under TEA-21, motor-fuel and motor-vehicle tax revenue will comprise an even larger share of total Federal revenues for highways. Highway Account expenditures will increase significantly under TEA-21, while the level of general revenues used by various Federal agencies for highway-related activities not covered under TEA-21 are expected to grow more slowly. This will make the HTF's share of total Federal funding for highways larger. Also, as indicated earlier, beginning in Federal fiscal year 1999 the HTF will no longer be credited with investment income. In 1997, 3.7 percent of total Federal revenues for highways came from investment income credited to the highway account. With this revenue source eliminated, all expenditures from the HTF will be financed solely by motor-fuel and motor-vehicle revenues.

Q   If all "highway-user revenues" collected were used for highways, would they be sufficient to cover all highway expenditures?

A  No. As shown in Exhibit 6-6, if the full $89.9 billion collected from motor fuel taxes, motor vehicle taxes, and tolls had been used for highways in 1997, it would have been sufficient to cover only 88.8 percent of the total highway expenditures of $101.3 billion. This ratio is down from 89.9 percent in 1995 but up from a low of 62.3 percent in 1980. The most dramatic change in recent years has occurred at the Federal level. Since 1981, the ratio of Federal highway-user revenues to Federally-funded highway expenditures has climbed from 52.9 percent to 151.1 percent. In 1981, all Federal highway-user-revenues were used for highways, but generated only $6.3 billion in revenue for the HTF, while cash expenditures from the HTF totaled $9.2 billion. The difference was covered by HTF investment income and by drawing down on the invested balance of the HTF. An additional $2.8 billion of Federal expenditures for highways was financed from sources other than the HTF. Since 1981, the Federal gasoline tax has increased from 4 cents to 18.4 cents, and is now used for mass transit and other purposes as well as for highway purposes. Also, Federal expenditures for highways financed from sources other than the HTF have declined by two-thirds since 1981. Together, these two factors help explain why the ratio of Federal highway-user revenues to Federally-funded highway expenditures has increased so dramatically. In 1997, $31.9 billion was collected from Federal fuel and vehicle taxes, while cash expenditures for highways by the Federal government totaled $21.1 billion, resulting in a ratio of 151.1 percent. Under TEA-21, this ratio is expected to decline somewhat, as Federal highway expenditures increase and motor-fuel tax revenue that was formerly used for deficit reduction is credited to the Highway Trust Fund. Note that the revenue and expenditure figures shown in Exhibit 6-6 and elsewhere in this report are on a cash basis. The ratio of highway user revenues to highway expenditures will tend to fluctuate from year to year, since revenues collected in one year may not be spent immediately.

Exhibit 6-6

Ratio: Total Highway User Revenue Collected Compared to Total Highway Expenditures for Each Level of Government, 1977-1997

Sources: Highway Statistics Summary to 1995 Table HF-210; Highway Statistics 1996 Table HF-10A; Highway Funding Bulletin dated 3/16/99.