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Status of the Nation's Highways, Bridges, and Transit:
2004 Conditions and Performance
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Chapter 6 (Continued)

Highway and Bridge Finance

This section presents information on the revenue sources supporting public investment in highways and bridges and on the types of investments that are being made by all levels of government. This is followed by a discussion of the current and historic roles of Federal, State, and local governments in highway funding. The section concludes with a more detailed analysis of capital expenditures.

Revenue Sources

Exhibit 6-2 shows that all levels of government generated $134.8 billion in 2002 to be used for highways and bridges. Actual cash expenditures for highway and bridge purposes totaled $135.9 billion in 2002; $1.1 billion was drawn from reserves by various governmental units for additional expenditure on highways or bridges. The $4.2 billion shown as drawn from reserves in the Federal column indicates that the cash balance of the Highway Account of the Federal Highway Trust Fund (HTF) declined by that amount during 2002.

Exhibit 6-2 Revenue Sources for Highways, 2002 (Billions of Dollars)
  Federal State Local Total Percent
User Charges
Motor-Fuel Taxes$25.4 $27.8 $1.0 $54.2 40.2%
Motor-Vehicle Taxes and Fees1.5 16.7 0.7 18.8 14.0%
Tolls0.0 5.2 1.4 6.6 4.9%
Subtotal$26.8 $49.7 $3.1 $79.6 59.1%
Other
Property Taxes and Assessments0.0 0.0 6.5 6.5 4.8%
General Fund Appropriations1.5 4.7 14.1 20.3 15.1%
Other Taxes and Fees0.2 3.1 4.2 7.5 5.6%
Investment Income and Other Receipts0.0 2.9 5.2 8.1 6.0%
Bond Issue Proceeds0.0 8.0 4.7 12.7 9.5%
Subtotal$1.7 $18.7 $34.7 $55.2 40.9%
Total Revenues$28.6 $68.4 $37.8 $134.8 100.0%
Funds Drawn from or (Placed in) Reserves$4.2 $0.6 ($3.7)$1.1 0.8%
Total Expenditures Funded During 2002$32.8 $69.0 $34.1 $135.9 100.8%
Source: Highway Statistics 2002, Table HF-10, and unpublished FHWA data.

Highway-user charges, including motor-fuel taxes, motor-vehicle taxes and fees, and tolls, were the source of 59.1 percent of the $134.8 billion of total revenues for highways and bridges in 2002. The remaining 40.9 percent of revenues came from a number of sources, including local property taxes and assessments, other dedicated taxes, general funds, bond issues, investment income, and other miscellaneous sources. Development fees and special district assessments are included under "Investment Income and Other Receipts" in Exhibit 6-2.

Q. Were all revenues generated by motor-fuel taxes, motor-vehicle taxes and fees, and tolls in 2002 used for highways?
A.

No. The $79.6 billion identified as highway-user charges in Exhibit 6-2 represents only 79.2 percent of total highway-user revenues, defined as all revenues generated by motor-fuel taxes, motor-vehicle taxes, and tolls. Exhibit 6-3 shows that combined highway-user revenues collected in 2002 by all levels of government totaled $100.5 billion.

Exhibit 6-3 Disposition of Highway-User Revenue by Level of Government, 2002
Portion used for: Federal State Local Total
Highways26.849.73.179.6
Transit5.73.20.59.4
Other1.310.00.211.5
Total Collected33.862.93.8100.5
Source: Highway Statistics 2002, Table HF-10 and unpublished FHWA data.

In 2002, $9.4 billion of highway-user revenues were used for transit, and $11.5 billion were used for other purposes, such as ports, schools, collection costs, and general government activities. The $1.3 billion shown as Federal highway-user revenues used for other purposes includes fuel tax proceeds deposited into the Leaking Underground Storage Tank (LUST) trust fund, as well as the portion of gasohol tax receipts that was retained by the general fund for deficit reduction.

The $5.7 billion shown as Federal highway-user revenues used for transit includes $4.6 billion deposited into the Transit Account of the HTF, as well as $1.1 billion that was deposited in the Highway Account of the HTF that States elected to use for transit purposes. Flexible funding provisions that allow States to reprogram certain highway program funds for transit purposes are discussed in the "Transit Finance" section of this chapter.

The degree to which highway programs are funded by highway-user charges differs widely among the different levels of government. At the Federal level, 93.9 percent of highway revenues came from motor-fuel and motor-vehicle taxes in 2002. The remainder came from general fund appropriations, timber sales, lease of Federal lands, oil and mineral royalties, and motor carrier fines and penalties.

Highway-user charges also provided the largest share, 72.6 percent, of highway revenues at the State level in 2002. Bond issue proceeds were another significant source of funding, providing 11.7 percent of highway funds at the State level. The remaining 15.3 percent of State highway funding came from general fund appropriations, other State taxes and fees, investment income, and other miscellaneous revenue sources.

Many States do not permit local governments to impose motor-fuel and motor-vehicle taxes, or they cap them at relatively low levels. Therefore, at the local government level, only 8.2 percent of highway funding was provided by highway-user charges in 2002. Local general funds, property taxes, and other taxes and fees were the sources of 65.5 percent of local highway funding. Bond issue proceeds provided 12.5 percent of local highway funding, while investment income and miscellaneous receipts provided the remaining 13.8 percent.

Historical Revenue Trends

Exhibits 6-4 and 6-5 show how highway revenue sources have varied over time. Exhibit 6-4 identifies the different sources of highway revenue since 1921 for all levels of government combined. Exhibit 6-5 identifies the percentage of highway revenue derived from user charges by each level of government since 1957. Some of the variation in revenue sources shown in the graph portion of Exhibit 6-4 is caused by changes in the share of funding provided by each level of government over time; this topic will be discussed later in this chapter. In the early 1920s, when local government bore much of the responsibility for highway funding, property taxes were the primary source of revenues for highways. Property taxes have, however, become a much less significant source of revenue over time, dropping to 4.8 percent of total highway revenues in 2002. The share of total highway revenues generated by bond proceeds has fluctuated over time, reaching a high of 32.4 percent in 1954. Since that time, combined highway and bridge programs have become less dependent on debt financing; this share has not exceeded 11 percent of revenues since 1971.

Exhibit 6-4, highway revenue sources by type, all units of government, 1921 to 2002. Line chart and data table. Trend lines plot percentage value for user charges, bond issues, and other income. User charges trend upwards from 10 percent in 1921 to above 60 percent in 1944, then drop to just above 40 percent in 1954. Values climb to above 70 percent in the mid 1960s, drop back to about 55 percent in the early 1980s, and end near 60 percent in 2002. Values for bond issues drop from an initial value near 25 percent in 1921, to near zero in the mid 1940s. They climb to above 30 percent by the mid 1950s, and then trend downward, reaching 10 percent in 2002. Other income starts near 70 percent in 1921 and drops to 20 percent in the mid 1950s through the early 1970s. After climbing to just below 40 percent in the early 1980s, the value reaches about 30 percent in 2002.
Billions of Dollars
YearFuel and Vehicle TaxesTollsProperty TaxesGeneral Fund Approps.Other Taxes and FeesInvestment Income
and Other
Issue ProceedsTotal
1921$0.1 $0.0 $0.7 $0.1 $0.0 $0.1 $0.4 $1.4
19250.4 0.0 0.9 0.2 0.0 0.0 0.4 2.0
19290.7 0.0 1.2 0.2 0.0 0.0 0.5 2.7
19330.7 0.0 0.6 0.4 0.0 0.0 0.2 1.9
19371.0 0.0 0.4 1.0 0.0 0.0 0.2 2.7
19411.2 0.1 0.4 0.8 0.0 0.0 0.1 2.6
19451.1 0.1 0.3 0.4 0.0 0.0 0.1 1.9
19492.1 0.1 0.4 1.0 0.0 0.1 0.5 4.3
19533.1 0.2 0.6 1.2 0.0 0.2 1.3 6.5
19575.6 0.4 0.8 0.7 0.0 0.2 1.2 9.0
19617.7 0.5 0.9 1.0 0.1 0.3 1.3 11.8
19659.8 0.7 1.1 1.1 0.2 0.4 1.1 14.3
196913.0 0.9 1.3 1.9 0.3 0.6 1.9 19.9
197317.0 1.2 1.5 3.0 0.4 1.1 2.0 26.2
197719.6 1.4 1.8 5.4 0.8 1.8 2.2 33.0
198121.8 1.8 2.5 8.8 1.4 3.7 2.6 42.5
198533.6 2.2 3.5 9.9 1.9 4.3 6.1 61.4
198941.4 2.9 4.3 10.8 2.9 5.5 5.2 72.8
199350.8 3.6 4.7 10.6 4.0 6.8 7.8 88.4
1995
55.4
3.9
4.9
13.2
3.7
6.6
8.6
96.3
199761.6 4.7 5.3 15.1 5.0 7.0 8.8 107.4
199864.3 4.7 5.8 14.5 5.1 8.2 9.0 111.6
199969.1 5.1 5.8 17.2 6.4 6.8 11.3 121.7
200075.6 5.7 6.1 19.3 5.7 7.3 11.3 131.1
200171.8 5.9 6.3 19.1 8.0 8.0 14.0 133.1
200273.1 6.6 6.5 20.3 7.5 8.1 12.7 134.8
Sources: Highway Statistics Summary to 1995 Table HF-210; Highway Statistics Tables HF-10A and HF-10, various years.

Since the passage of the Federal-Aid Highway Act of 1956 and the establishment of the Federal HTF, motor-fuel and motor-vehicle tax receipts have consistently provided a majority of the combined revenues raised for highway and bridge programs by all levels of government.

After peaking at an all-time high of 73.5 percent of highway revenues in 1965, the share represented by highway-user charges dropped to 55.2 percent in 1982. As shown in Exhibit 6-4, since that time, the percentage has rebounded and stabilized in a range of about 60 to 62 percent, though it was slightly below this range in 2001 and 2002.

A corresponding pattern can be observed in the percentage of Federal highway revenue derived from highway-user charges as shown by the Federal line in Exhibit 6-5. 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 early 1980s, this percentage declined, to a low of 61.6 percent in 1981. During this period, Federal motor-fuel taxes did not increase, and a growing percentage of Federal highway funding came from other sources. In 1981, general fund revenues of $2.6 billion provided 25.1 percent of total Federal highway funding. Since 1981, Federal motor-fuel taxes have increased significantly, and Federal general fund revenues used for highways have declined. As a result, the portion of Federal highway revenue derived from highway-user charges has increased, reaching an all-time high of 96.4 percent in 1999, and remaining at nearly 94 percent in 2002.

Exhibit 6-5, percent of highway revenue derived from user charges, for each level of government, 1957-2002. Line chart and data table. The trend line for local highway revenue derived from user charges begins at 6.5 percent in 1957 and is flat across the graph, ending at 8.2 percent in 2002. The trend line for state highway revenue derived from user charges starts at 83.5 percent in 2002 and fluctuates up and down in the range of 87.7 percent, the peak in 1965, and 70.3 percent, the valley in 2001, ending at 72.6 percent in 2002. The trend line for federal highway revenue derived from user charges begins at 89.0 percent in 2002, rises slightly to 92.4 percent in 1865, and then trends downward to 78.8 percent in 1985. The trend is upward to peak at 96.4 percent in 1999, then downward to finish at 93.9 percent in 2002.
Year Federal State Local Total
195789.0%83.5%6.5%66.5%
196192.1%84.7%5.7%69.9%
196592.4%87.7%6.5%73.5%
196988.1%82.5%6.5%69.8%
197381.6%85.3%7.3%69.5%
197774.3%83.2%6.4%63.8%
198161.5%79.1%6.4%55.6%
198578.8%76.2%4.7%58.3%
198989.0%77.2%6.1%60.7%
199389.0%78.5%6.9%61.6%
1995
92.1%
78.5%
6.6%
61.6%
199791.0%76.3%8.1%61.7%
199890.7%75.9%7.5%61.8%
199996.4%73.6%7.9%61.0%
200095.5%73.9%8.3%62.0%
200194.6%70.3%8.1%58.4%
200293.9%72.6%8.2%59.1%
Sources: Highway Statistics Summary to 1995, Table HF-210; Highway Statistics, various years, Tables HF-10A and HF-10.

Exhibit 6-5 shows that the share of State government highway funding contributed by highway-user charges has generally declined over time. From 1995 to 2002, the percentage dropped from 78.5 percent to 72.6 percent. Over the same period, States grew more reliant on debt financing, as bond proceeds grew from 8.6 percent to 11.7 percent, and exceeding 13 percent in 1999 and 2001.

Highway-user charges have never been as significant a source of highway revenue at the local government level as at the Federal or State levels, for the reasons outlined earlier. In recent years, the share of local government highway funding derived from highway-user charges has been slightly higher than it was historically, exceeding 8 percent each year from 2000 to 2002.

Q. Why did the percentage of Federal revenue for highways derived from highway-user charges increase sharply between 1998 and 1999?
A.

In 1998, 4.8 percent of total Federal revenues for highways came from interest income credited to the Highway Account of the HTF based on its invested balance. Due to a legislative change, starting in Federal fiscal year (FY) 1999, the HTF no longer earns interest on its balances. With this revenue source eliminated, the Federal highway program now relies even more heavily on motor-fuel and motor-vehicle taxes for funding.

Highway Expenditures

Exhibit 6-2 indicates that total expenditures for highways in 2002 equaled $135.9 billion and identifies the portion of this total funded by each level of government. Exhibit 6-6 classifies this total by type of expenditure and by the level of government. The "Federal," "State," and "Local" columns in this table indicate which level of government made the direct expenditures, while "Funded by…" in the column "Current Expenditures" indicates the level of government that provided the funding for those expenditures. (Note that all figures cited as "expenditures," "spending," or "outlays" in this report represent cash expenditures rather than authorizations or obligations).

While the Federal government funded $32.8 billion (24.1 percent) of total highway expenditures of $135.9 billion in 2002, the majority of the Federal government's contribution to highways consists of grants to State and local governments. Direct Federal spending on capital outlay, maintenance, administration, and research amounted to only $1.8 billion (1.3 percent). The remaining $31.0 billion was in the form of transfers to State and local governments.

Exhibit 6-6 Direct Expenditures for Highways, by Expending Agencies and by Type
Billions of Dollars, 2002 Federal State Local Total Percent
Current Expenditures
Capital Outlay
Funded by Federal Government$0.4 $29.6 $1.5 $31.5 23.1%
Funded by State or Local Govt's0.0 22.2 14.5 36.7 27.0%
Subtotal$0.4 $51.8 $16.0 $68.2 50.2%
Noncapital Expenditures
Maintenance0.2 9.7 15.8 25.7 18.9%
Highway and Traffic Services0.0 3.9 3.6 7.5 5.5%
Administration1.2 5.9 3.6 10.7 7.9%
Highway Patrol and Safety0.0 6.3 5.4 11.7 8.6%
Interest on Debt0.0 3.7 1.8 5.4 4.0%
Subtotal$1.4 $29.5 $30.1 $61.0 44.9%
Total, Current Expenditures$1.8 $81.3 $46.1 $129.1 95.0%
Bond Retirement$0.0 $4.4 $2.4 $6.8 5.0%
Total All Expenditures
Funded by Federal Government1.8 29.6 1.5 32.8 24.1%
Funded by State Governments0.0 54.4 14.6 69.0 50.8%
Funded by Local Governments0.0 1.7 32.4 34.1 25.1%
Grand Total$1.8 $85.7 $48.5 $135.9 100.0%
Source: Highway Statistics 2002, Table HF-10 and unpublished FHWA data.

State governments combined $29.6 billion of Federal funds with $54.4 billion of State funds and $1.7 billion of local funds to make direct expenditures of $85.7 billion (63.0 percent). Local governments combined $1.5 billion of Federal funds with $14.6 billion of State funds and $32.4 billion of local funds to make direct expenditures of $48.5 billion (35.7 percent).

Types of Highway Expenditures

Current highway expenditures can be divided into two broad categories: noncapital and capital. Noncapital highway expenditures include maintenance of highways, highway and traffic services, administration, highway law enforcement, highway safety, and interest on debt. Highway capital outlay consists of those expenditures associated with highway improvements, including land acquisition and other right-of-way costs; preliminary and construction engineering; new construction, reconstruction, resurfacing, rehabilitation, and restoration costs of roadways, bridges, and other structures; and installation of traffic service facilities such as guardrails, fencing, signs, and signals. Bond retirement is not part of current expenditures, but it is included in the figures cited for total highway expenditures in this report.

Q. What basis is used for distinguishing between capital expenditures and maintenance expenditures?
A.

The classification of the revenue and expenditure items in this report is based on definitions contained in A Guide to Reporting Highway Statistics, the instructional manual for States providing financial data for the Highway Statistics publication. This manual indicates that the classification of highway construction and maintenance expenditures should be based on criteria provided in the American Association of State Highway and Transportation Officials publication, AASHTO Maintenance Manual – 1987.

Other definitions of maintenance are used by different organizations. Some resurfacing, restoration, and rehabilitation projects that meet this report's definition of capital outlay might be classified as maintenance activities in internal State or local accounting systems.

As shown in Exhibit 6-6, all levels of government spent $68.2 billion on capital outlay in 2002, or 50.2 percent of total highway expenditures. Highway capital outlay expenditures are discussed in more detail later in this chapter.

Q. How are "maintenance" and "highway and traffic services" defined in this report?
A.

Maintenance in this report includes routine and regular expenditures required to keep the highway surface, shoulders, roadsides, structures, and traffic control devices in usable condition. This includes spot patching and crack sealing of roadways and bridge decks, and the maintenance and repair of highway utilities and safety devices such as route markers, signs, guardrails, fence, signals, and highway lighting.

Highway and traffic services include activities designed to improve the operation and appearance of the roadway. This includes items such as the operation of traffic control systems, snow and ice removal, highway beautification, litter pickup, mowing, toll collection, and air quality monitoring.

Current noncapital expenditures consumed $61.0 billion (44.9 percent), while the remaining $6.8 billion (5.0 percent) went for bond redemption. Most Federal funding for highways goes for capital items. Noncapital expenditures are funded primarily by State and local governments. In 2002, State and local noncapital expenditures were close to equal, as State governments spent $29.5 billion while local governments spent $30.1 billion. The majority of maintenance expenditures occurred at the local government level, or $15.8 billion (61.4 percent) of the $25.7 billion total.

Historical Expenditure and Funding Trends

Exhibits 6-7 and 6-8 provide historical perspective for the 2002 values shown in Exhibit 6-6. Exhibit 6-7 shows how the composition of highway expenditures by all levels of government combined has changed over time. Exhibit 6-8 shows the amounts provided by each level of government to finance those expenditures and the share of funding provided by the Federal government for total highway expenditures and for highway capital outlay.

The increased Federal funding for highways available under the Transportation Equity Act for the 21st Century (TEA-21) contributed to a 33.3 percent increase (from $102.0 billion to $135.9 billion) in total highway spending by all levels of government between 1997 and 2002. Capital outlay by all levels of government increased by 41.0 percent from $48.4 billion to $68.2 billion over the same period.

Exhibit 6-7, expenditures for highways by type, all units of government 1957-2002. Line chart and data table.  The trend line for bond retirement is flat, with all values about midway between 0 percent and 10 percent. The trend line for other non-capital expenditures starts at 10 percent in 1957, climbs to 20 percent in the mid 1970s, and hovers around 20 percent through the year 2002. The trend line for maintenance and services starts slightly above 20 percent in 1957 and is flat through the early 1970s. It rises to just above 30 percent on the early 1980s and trends downward to midway between 20 percent and 30 percent in 2002. The trend line for capital expenditures starts at about 60 percent in 1957 and hovers about this value through the mid 1960s. It trends downward to just above 40 percent in 1977 and upward to 50 percent in 2002.
(Billions of Dollars)
YearCapital OutlayMaintenance and ServicesOther Noncapital: AdministrationOther Noncapital: Highway Patrol & SafetyOther Noncapital: Interest on DebtTotal Other Non-capitalDebt RetirementTotal
1957$5.6 $2.2 $0.4 $0.3 $0.3 $0.9 $0.5 $9.3
1961$6.8 $2.7 $0.5 $0.3 $0.4 $1.3 $0.7 $11.5
1965$8.4 $3.3 $0.8 $0.5 $0.5 $1.8 $0.9 $14.3
1969$10.4 $4.3 $1.1 $1.1 $0.7 $2.9 $1.2 $18.8
1973$12.2 $5.9 $1.7 $1.9 $1.0 $4.7 $1.4 $24.2
1977$13.1 $8.6 $2.4 $2.8 $1.3 $6.5 $1.6 $29.8
1981$19.7 $12.2 $3.4 $3.9 $1.7 $9.0 $1.6 $42.4
1985$26.6 $16.6 $4.2 $5.2 $2.1 $11.5 $2.8 $57.5
1989$33.1 $19.0 $5.7 $6.6 $2.8 $15.2 $3.6 $70.9
1993$39.5 $22.9 $7.9 $7.2 $3.7 $18.8 $5.2 $86.4
1995$44.2 $24.3 $8.4 $8.2 $3.8 $20.4 $4.5 $93.5
1997$48.4 $26.8 $8.3 $9.8 $4.2 $22.2 $4.6 $102.0
1998$52.3 $28.2 $8.5 $9.4 $4.4 $22.3 $5.1 $108.0
1999$57.2 $30.0 $9.0 $10.4 $4.4 $23.7 $4.9 $115.9
2000$61.3 $30.6 $10.0 $11.0 $4.6 $25.6 $5.1 $122.7
2001$66.7 $32.4 $10.2 $11.4 $4.8 $26.4 $5.3 $130.8
2002$68.2 $33.2 $10.7 $11.7 $5.4 $27.8 $6.8 $135.9
Sources: Highway Statistics Summary to 1995, Table HF-210; Highway Statistics, various years, Tables HF-10A and HF-10.

The percentage of total highway expenditures that went for capital outlay peaked at 61.3 percent in 1958. Subsequently, capital outlay's share of total spending gradually declined to a low of 43.8 percent in 1983. As shown in Exhibit 6-7, this share has climbed back up, exceeding 50 percent for the first time since 1975 in 2001 and 2002.

Exhibit 6-8 shows that the portion of total highway funding provided by the Federal government rose from 20.8 to 24.1 percent from 1997 to 2002. The Federal share of capital funding also increased significantly (from 41.6 to 46.1 percent) over this same period. Federal cash expenditures for capital purposes increased 56.3 percent from 1997 to 2002, while State and local capital investment increased by 29.7 percent. Federal support for highways increased dramatically following the passage of the Federal-Aid Highway Act of 1956 and the establishment of the HTF. The Federal share of total funding peaked in 1965 at 30.1 percent. Since that time, the Federal percentage of total funding has gradually declined, but remained above 20.0 percent until 1998, when it dropped to 19.0 percent. Because TEA-21 was not enacted until late in Federal FY 1998, the increased funding under the legislation did not translate immediately into increased cash outlays during that year. Because the Federal-aid highway program is a multiple-year reimbursable program, the impact of increases in obligation levels phases in gradually over a number of years. The Federal percentage of total funding rose steadily from 1998 to 2002, as the increased obligation authority provided under TEA-21 began to translate into higher cash outlays.

Exhibit 6-8, funding for highways by level of government, 1957-2002. Line chart and data table. The line chart shows the trends for federal highway funding only. The trend line for federal percent of total highway expenditures starts at 12.2 percent in 1957 and increases sharply to 30.1 percent in 1965. Values range from 30 percent to 20 percent through the late 1990s, and then increase to 24.1 percent in 2002. The trend line for federal percent of highway capital outlay starts at 19.4 percent in 1957 and climbs sharply to 50.7 percent in 1965. Values remain between 40 percent and 50 percent through 1973, then increase sharply to 57.6 percent in 1977, and range between 50 percent and 60 percent through the mid 1980s. Values hover just above 40 percent through the mid 1970s, drop to 37.1 percent in 1998, and increase to 46.1 percent in 2002.
Year Funding for Total Highway Expenditures
(Billions of Dollars)
Funding for Capital Outlay
(Billions of Dollars)
FederalState Local TotalPercent FederalFederal TotalPercent Federal
1957$1.1 $6.1 $2.0 $9.3 12.2%$1.1 $5.6 19.4%
1961$2.9 $6.2 $2.4 $11.5 24.8%$2.8 $6.8 41.1%
1965$4.3 $7.3 $2.7 $14.3 30.1%$4.2 $8.4 50.7%
1969$4.7 $10.4 $3.7 $18.8 25.1%$4.6 $10.4 44.2%
1973$5.8 $13.8 $4.6 $24.2 24.1%$5.6 $12.2 46.0%
1977$7.8 $15.1 $6.9 $29.8 26.3%$7.5 $13.1 57.6%
1981$11.9 $20.1 $10.4 $42.4 28.1%$11.5 $19.7 58.4%
1985$14.7 $27.9 $14.9 $57.5 25.7%$14.3 $26.6 53.8%
1989$14.5 $36.4 $19.9 $70.9 20.5%$14.1 $33.1 42.5%
1993$17.6 $46.5 $22.3 $86.4 20.4%$16.9 $39.5 42.7%
1995
$19.9
$48.8
$24.7
$93.5
21.3%
$18.9
$44.2
42.6%
1997$21.2 $54.2 $26.6 $102.0 20.8%$20.1 $48.4 41.6%
1998$20.5 $59.7 $27.8 $108.0 19.0%$19.4 $52.3 37.1%
1999$23.3 $61.0 $31.7 $116.0 20.1%$22.1 $57.2 38.7%
2000$27.5 $62.7 $32.6 $122.7 22.4%$26.1 $61.3 42.6%
2001$30.0 $66.3 $34.5 $130.8 23.0%$28.5 $66.7 42.8%
2002$32.8 $69.0 $34.1 $135.9 24.1%$31.5 $68.2 46.1%
Sources: Highway Statistics Summary to 1995, Table HF-210; Highway Statistics, various years, Tables HF-10A and HF-10.
Q. How does the pattern of Federal shares of capital outlay compare with what was predicted in prior reports?
A.

The 1999 C&P report had predicted that the Federal share would fall below the 41 to 46 percent range observed from 1987 to 1997, but would subsequently return to that range. This prediction was based on projections of HTF cash flows, recognizing that the ramp up of Federal funding under TEA-21 would take some time to translate into increased cash outlays.

The Federally funded portion of capital outlay by all levels of government rose above 40 percent in 1959, peaking at 58.3 percent in 1981. From 1987 through 1997, the Federal share remained in a range of 41 to 46 percent. The Federal percentage of capital outlay dropped below this range in 1998, falling to 37.1 percent, but has subsequently returned to it rising to 42.6 percent in 2000 (based on revised data, as discussion in the introduction to this Chapter) and 46.1 percent in 2002. Preliminary information suggests this percentage is likely to fall a bit in 2003.

Spending by all levels of government on maintenance and traffic services increased by 23.9 percent from 1997 to 2002, but declined as a percentage of total highway spending, since other types of expenditures grew even faster. As shown in Exhibit 6-7, maintenance and traffic services' share of total highway spending dropped to 24.4 percent, its lowest level since 1972. Spending on other noncapital expenditures including highway law enforcement and safety, administration and research, and interest payments also grew more slowly than overall highway spending from 1997 to 2002, falling from 21.8 percent of total spending to 20.4 percent.

Q. Do the relative Federal, State, and local shares of funding described in this chapter equate to a comparable relative degree of influence?
A.

No. As discussed earlier, there are significant intergovernmental transfers of funds occurring from the Federal government to State and local governments, from State governments to local governments, and from local governments to State governments. Depending on the specific grant program involved, State and local recipients of transfer payments from other governments have a varying degree of autonomy and discretion in how they use the funds. The implication of this is that the relative degree of influence that each level of government has on what individual projects are funded and what types of highway expenditures are made is not necessarily consistent with the share of highway funding that each level of government provides.

Expenditures for highway law enforcement and safety were the slowest-growing category of highway spending from 1997 to 2002, at just 19.6 percent. Expenditures for administration and research and for debt service grew slightly slower than overall highway spending over the same period. Debt retirement expenditures were the fastest-growing category of expenses between 1997 and 2002.

Constant Dollar Expenditures

Highway expenditures grew more quickly than inflation between 1997 and 2002. As noted earlier, total highway expenditures increased 33.3 percent from $102.0 billion to $135.9 billion between 1997 and 2002, which equates to an average annual growth rate of 5.9 percent. Over the same period, it is estimated that highway construction costs increased at an annual rate of 2.5 percent, and other costs rose at an annual rate of 2.3 percent. In constant dollar terms, total highway expenditures grew by 18.4 percent between 1997 and 2002.

Q. What indices are used to convert current dollars to constant dollars in this report?
A.

For capital outlay expenditures, the FHWA Construction Bid Price Index is used. For all other types of highway expenditures, the CPI is used.

Exhibit 6-9 shows that highway expenditures have grown in current dollar terms in each of the years from 1957 through 2002. In constant dollar terms, total highway expenditures by all levels of government reached a plateau in 1971. From 1972 to 1981, highway spending did not keep pace with inflation. Since 1981, constant dollar highway spending has increased; and by 1986, it had moved back above the 1971 level. Constant dollar spending reached an all-time high in 2002.

Exhibit 6-9, total highway expenditures in current and constant 2002 dollars, all units of government 1957 to 2002. Line chart. The trend line for total highway expenditures in constant 2002 dollars starts at above 50 billion and increases through the early 1970s, declines through the early 1980s, and then increases to midway between 125 billion and 150 billion in 2002. The trend line for total highway expenditures in current dollars starts about midway between 0 and 25 billion and curves gently upward to midway between 125 billion and 150 billion in 2002.

Much of the increase in constant dollar spending since 1981 has been driven by highway capital outlay expenditures, which have grown more quickly than maintenance and other noncapital expenditures in both current and constant dollar terms. Over this 21-year period, highway capital outlay grew at an average annual rate of 6.1 percent from $19.0 billion to $68.2 billion. In constant dollar terms, this equates to a 120.4 percent increase. Over this same period, maintenance and traffic services grew by 37.8 percent in constant dollar terms, and other noncapital expenditures grew by 56.3 percent in constant dollars. Highway construction costs grew more slowly than the CPI during this period, so the purchasing power of funds used for capital outlay expenditures has not eroded as quickly. Highway construction costs grew at an average annual rate of 2.2 percent since 1981, compared with an average annual increase in the CPI of 3.3 percent. Exhibit 6-10 compares current dollar and constant dollar spending for capital outlay, maintenance and traffic services, and other noncapital expenditures (including highway law enforcement and safety, administration and research, and interest payments).

Exhibit 6-10, highway capital, maintenance, and other non-capital expenditures in current and constant 2002 dollars, all units of government 1957 to 2002. Line charts plotting expenditures in billions over the years in current dollars and constant 2002 dollars. Highway capital expenditures in current dollars curve upward from above 30 billion in 1957 to above 50 billion in 1968, drop back to 30 billion in the mid 1970s to early 1980s, then increase to nearly 70 billion in 2002. The trend line in current dollars starts at about 5 billion in 1957 and gently curves upward to nearly 70 billion in 2002. Maintenance and service expenditures in constant dollars trend up from under 15 billion to more than 25 billion, drop to less than 25 billion in 1981, then increase to nearly 35 billion in 2002. In current dollars, the trend is from 0.25 billion in 1957 gently curving up to nearly 35 billion in 2002. Other non-capital expenditure in constant dollars starts at above 5 billion in 1957 and increases to 27 billion in 2002. In current dollars the trend line starts at about 1 billion and curves gently upward to 27 billion in 2002.

Constant Dollar Expenditures per VMT

While not all types of highway expenditures would necessarily be expected to grow in proportion to vehicle miles traveled (VMT), increases in VMT do increase the wear and tear on existing roads, leading to higher capital and maintenance costs. The addition of new lanes and roads to accommodate additional traffic results in one-time capital costs, as well as recurring costs for preservation and maintenance. Traffic supervision and safety costs are also related in part to traffic volume. As the highway system has grown and become more complex, the cost of administering the system has grown as well.

In current dollar terms, total expenditures per VMT have grown steadily over time. Between 1997 and 2000, expenditures per VMT rose from 4.0 cents to 4.8 cents. Expenditures per VMT in constant dollars also rose slightly in this period, increasing 6.2 percent. During the 1960s and 1970s, total expenditures per VMT declined steadily in constant dollar terms, but the rate of decline slowed during the 1980s and 1990s.

Capital outlay per VMT increased 11.7 percent between 1997 and 2002 in constant dollar terms. The 2001 and 2002 levels of approximately 2.4 cents per VMT were two of the three highest since 1976. As shown in Exhibit 6-11, over time, spending on maintenance and traffic services and other noncapital items has not kept pace with capital spending on a constant dollar per VMT basis. However, both have been very stable since 1995, at approximately 1.18 and 0.97 cents per VMT, respectively.

Exhibit 6-11, highway expenditures per vehicle mile traveled, all units of government 1957 to 2002. Line chart plotting expenditures in constant 2002 cents over the years 1957 to 2002. The trend line for capital outlay starts at about 8.8 cents in 1957, increases to about 9.8 cents in 1962 and then trends downward to below 5.0 cents in 1982. It climbs slightly in 1986 to above 5.0, then trends at or below 5.0 cents to 2002. The trend line for maintenance and services begins at just above 2.0 cents in 1957 and remains flat at 2.0 cents to 1967, then drops slowly to just above 1.0 cent in 2002. The trend line for other non-capital expenditures begins at 1.0 cent in 1957, rises gradually to a peak near 1.5 cents on 1972, and then trends along the 1.0 cent value from 1982 to 2002. The trend line for total expenditure mirrors that of capital outlay, starting at just under 9 cents in 1957 and rising to nearly 10 cents in 1962, then gradually falling to just below 5.0 cents in 1982, and trending at or below 5 cents from 1988 to 2002.

Highway Capital Outlay Expenditures

State governments directly spent $51.8 billion on highway capital outlay in 2002. As discussed earlier in the chapter, and as shown in Exhibit 6-6, this figure includes the $29.6 billion received in grants from the Federal government for highways. Exhibit 6-12 shows how States applied this $51.8 billion to different functional systems and also includes an estimate of how the total $68.2 billion spent by all levels of government was applied. State government capital outlay is concentrated on the higher-order functional systems; local governments apply the larger part of their capital expenditures to lower-order systems.

Total highway capital expenditures by all levels of government amounted to $8,190 per lane-mile in 2000, or 2.4 cents per VMT. Capital outlay per lane-mile was highest for the higher-order functional systems and was higher on urban roads than rural roads. Capital outlay per VMT ranged from 3.4 cents on rural other principal arterials to 1.6 cents on urban minor arterials. On a cents-per-VMT basis, capital outlay for rural roads is about 15 percent higher than for urban roads.

Exhibit 6-12 Highway Capital Outlay by Functional System, 2002
Functional Class Direct State Capital Outlay ($Billions) Capital Outlay, All Jurisdictions
Total ($Billions) Per Lane Mile (Dollars) Per VMT (Cents)
Rural Arterials and Collectors
Interstate$6.6$6.6$49,0702.4
Other Principal Arterial8.68.734,0133.4
Minor Arterial4.14.615,8522.6
Major Collector2.73.94,5401.8
Minor Collector0.41.22,2632.0
Subtotal$22.5$25.0$11,9972.5
Urban Arterials and Collectors
Interstate10.510.5140,0042.6
Other Freeway and Expressway4.85.0114,5502.6
Other Principal Arterial7.69.349,6482.3
Minor Arterial3.15.523,6681.6
Collector0.82.613,6201.8
Subtotal$26.8$32.9$45,1052.2
Subtotal, Rural and Urban$49.3$57.9$20,5662.3
Rural and Urban Local$2.4$10.3$1,8632.7
Total, All Systems$51.8$68.2$8,1902.4
Funded by Federal Government$29.6$31.5$3,7791.1
Source: Highway Statistics 2002 and unpublished FHWA data.

Capital Outlay by Improvement Type

States provide the FHWA with detailed data on what they spend on arterials and collectors, classifying expenditures on each functional system into 17 improvement types. For this report, these improvement types have been allocated among three groups: System Preservation, System Expansion, and System Enhancement.

Exhibit 6-13 shows the distribution of the $49.3 billion in State expenditures among these three categories. Detailed data on Federal Government and local expenditures are unavailable, so the combined $57.9 billion of capital outlay on arterials and collectors by all levels of government was classified based on the State expenditure patterns. Similarly, little information is available on the types of improvements being made by all levels of government on local functional system roads. To develop an estimate for the improvement type breakdown for the $68.2 billion invested on all systems in 2002, it was assumed that expenditure patterns were roughly equivalent to those observed for arterials and collectors.

In 2002, about $35.8 billion was spent on system preservation (52.6 percent of total capital outlay). As defined in this report, system preservation activities include capital improvements on existing roads and bridges that are designed to preserve the existing pavement and bridge infrastructure, but does not include routine maintenance.

Exhibit 6-13 Highway Capital Outlay by Improvement Type, 2002 (Billions of Dollars)
  System Preservation System Expansion System Enhancement Total
New Roads and Bridges Existing Roads
Direct State Expenditures on
Arterials and Collectors
Right-of Way $1.7 $1.7  $3.4
Engineering$3.71.21.2$0.6 6.7
New Construction 6.1  6.1
Relocation  1.0 1.0
Reconstruction—Added Capacity 1.6 3.6 5.2
Reconstruction—No Added Capacity3.2   3.2
Major Widening  2.4 2.4
Minor Widening0.4   0.4
Restoration and Rehabilitation8.1   8.1
Resurfacing0.5   0.5
New Bridge 0.8  0.8
Bridge Replacement3.7   3.7
Major Bridge Rehabilitation2.2   2.2
Minor Bridge Work2.1   2.1
Safety   1.31.3
Traffic Management/Engineering   0.80.8
Environmental and Other   1.41.4
Total, State Arterials and Collectors$25.5$9.8$9.9$4.1$49.3
Total, Arterials and Collectors, All Jurisdictions (estimated)*
Highways and Other20.910.011.55.047.4
Bridge9.61.0  10.5
Total, Arterials and Collectors$30.4$11.0$11.5$5.0$57.9
Total Capital Outlay on All Systems (estimated)*
Highways and Other24.511.813.65.955.8
Bridges11.31.1  12.4
Total, All Systems$35.8$12.9$13.6$5.9$68.2
Percent of Total52.6%18.9%19.9%8.6%100.0%
* Improvement type distribution was estimated based on State arterial and collector data.
Sources: Highway Statistics 2002, Table SF-12A and unpublished FHWA data.

About $12.9 billion (18.9 percent of total capital outlay) was spent on the construction of new roads and bridges in 2002. An additional $13.6 billion (19.9 percent) is estimated to have been used to add lanes to existing roads. Another $5.9 billion (8.6 percent) was spent on system enhancement, including safety enhancements, traffic operations improvements, and environmental enhancements.

Exhibit 6-14 depicts the change, over time, in the share of capital outlay devoted to these major categories. After declining between 1995 and 1997, the overall share of highway capital improvements going toward system preservation increased significantly from 1997 to 2000, reaching 52.0 percent. From 2000 to 2002, the preservation share continued to increase slightly, to 52.6 percent. The share devoted to system enhancements increased between 2000 and 2002, but is slightly lower than the 1995 level.

Exhibit 6-14, highway capital outlay by improvement type, 1995, 1997, 2000, and 2002. Pie charts showing percentages for four improvement types. In 1995, values were system preservation at 50 percent, system enhancement at 9.2 percent, new roads and bridges at 15.2 percent, and other system expansion at 25.6 percent. In 1997, values were system preservation at 47.6 percent, system enhancement at 8 percent, new roads and bridges at 15.6 percent, and other system expansion at 28.8 percent. In 2000, values were system preservation at 52 percent, system enhancement at 7.9 percent, new roads and bridges at 18.9 percent, and other system expansion at 21.2 percent. In 2002, values were system preservation at 52.6 percent, system enhancement at 8.6 percent, new roads and bridges at 18.9 percent, and other system expansion at 19.9 percent.

Q. How are "system preservation," "system expansion," and "system enhancement" defined in this report?
A.

System preservation consists of capital improvements on existing roads and bridges, intended to preserve the existing pavement and bridge infrastructure. This includes reconstruction,resurfacing, pavement restoration or rehabilitation, widening of narrow lanes or shoulders, bridgereplacement, and bridge rehabilitation. Also included is the portion of widening projects estimated to be related to reconstructing or improving the existing lanes. System preservation does not include routine maintenance costs.

Note that system preservation as defined in this report does not include routine maintenance. As shown in Exhibit 6-6, an additional $25.7 billion was spent by all levels of government in 2002 on routine maintenance.

System expansion includes the construction of new roads and new bridges, as well as those costs associated with adding lanes to existing roads. This includes all "New Construction"," "New Bridge," "Major Widening," and most of the costs associated with "Reconstruction-Added Capacity," except for the portion of these expenditures estimated to be related to improving the existing lanes of a facility. As used in this report, "System Expansion" is the functional equivalent to "Capacity Expansion" used in some previous editions of the C&P report. The term was modified because some system preservation and system enhancement improvements may result in added capacity without the addition of new lanes.

System Enhancement includes safety enhancements, traffic operations improvements such as the installation of intelligent transportation systems, and environmental enhancements.

Expenditures for new roads and bridges relative to other improvement expenditures were steady between 2000 and 2002, at 18.9 percent. Other system expansion decreased significantly, however (19.9 percent in 2002 versus 21.2 percent in 2000, and down from 28.8 percent in 1997). As a result, overall outlays for system expansion continued to decrease proportionally, compared with preservation and enhancements.

Exhibit 6-15 shows significant variations in the types of capital expenditures made by States on different functional systems. The portion of capital outlay devoted to system preservation ranges from 39.1 percent on rural other principal arterials to 75.5 percent on rural major collectors. Overall, system preservation's share on arterials and collectors in rural areas (57.2 percent) was greater than in urban areas (49.0 percent), but the difference was much smaller than in 2000.

Q. Are there other definitions of the term "system preservation" in common use?
A.

Yes. One alternative definition currently in use within the asset management community is "a strategy of improvements on existing roads and bridges, intended to extend service life of the existing pavement and bridge infrastructure without increasing its structural capacity." That definition would include some items classified as maintenance expenditures in this report, but would not include heavy rehabilitation or reconstruction.

System expansion expenditures also vary significantly by functional class. The portion of capital used for construction of new roads and bridges is highest on rural other principal arterials, at 30.8 percent, while rural interstates have the largest share going to other system expansion improvements (24.7 percent). Rural other principal arterials have over 53 percent of capital investment devoted to system expansion. Total system expansion shares are lower on collectors (25.3 percent) than on interstates (38.2 percent) and other arterials (42.3 percent).

Exhibit 6-15, distribution of capital outlay by improvement type and functional system, 2002. Stacked bar chart plotting percentages for system preservation, system enhancement, new roads and bridges, and other system expansion. Breakdowns are given for components of rural and urban systems. For rural arterials and collectors, the outlay of $25 billion is shown at nearly 60 percent for preservation, a little over 5 percent for enhancement, less than 20 percent for new roads and bridges, and about 20 percent for other expansion. For urban arterials and collectors, the outlay of $32.9 billion is shown at 50 percent for preservation, 10 percent for enhancement, 20 percent for new roads and bridges, and 20 percent for other expansion. For total of all arterials and collectors, the outlay of $57.9 billion is shown as 52 percent for preservation, 8 percent for enhancement, 20 percent for new roads and bridges, and 20 percent for other expansion. The same relationship appears for rural and urban local components with an outlay of $10.3 billion, and for total, all systems, with an outlay of $68.2 billion.
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