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Chapter 1: Introduction

1.1 Background

In June of 2000, the General Accounting Office (GAO) submitted a report to the Committee on Transportation and Infrastructure, House of Representatives [1]. In this GAO report, it was recommended that the Secretary of Transportation direct the Administrator of the Federal Highway Administration (FHWA) to improve the reliability of the attribution process for "... producing accurate, reliable data for use in distributing highway program funds to the states."

As one of the activities FHWA conducted in response to GAO's recommendation, a Federal Register notice [2] was issued on August 17, 2000 . This notice described several FHWA proposed refinements to methodologies on motor fuel reporting by states and the attribution process. It also served as a request for comments on the revised methodology. On the basis of this notice and subsequent comments received, a revised methodology for on-highway motor fuel data input from states will become effective when FHWA publishes written guidance, currently scheduled for March 2003. To better inform states on the new procedures, FHWA has prepared a document that describes the new processes for collecting data and attributing highway fuel usage entitled, "Attribution and Apportionment of Federal Highway Tax Revenues: Process Refinements" [3]. Attribution and apportionment processes conducted annually by the FHWA to distribute Federal Highway Trust Funds (HTF) monies to the states are clearly explained in this new booklet.

More than $12 billion annually in Transportation Equity Act for the 21st Century (TEA-21) funds are apportioned to the states based on state-reported motor fuel data and the results of the Federal Highway Administration (FHWA) Highway Trust Fund (HTF) attribution process. Furthermore, the minimum guarantee program guarantees each state's share of the sum of certain apportioned programs will be at least 90.5 percent of its share of highway account contributions. This program, which is based on state reported motor fuel as 100 percent factor, is the cornerstone factor in the federal aid highway program. The system to collect, analyze, and attribute HTF receipts to the states has evolved from a time when far less money relied on this data. To modernize this system, FHWA, in cooperation with the states, has reassessed the current motor fuel analyses system with a view toward bringing it up to the current state-of-the practice, making it at least as advanced as other comparable systems (i.e., nation-wide, complex systems that distribute more than $12 billion in Federal funds annually).

Under its Reassessment Action Plan, the FHWA has made a number of "ad hoc" improvements to its current system to eliminate processing errors and increase data quality. These include:

  • Development of written business rules
  • Duplicate data entry and data checking software enhancements
  • State review of 1999 motor fuel data used for FY 2002 apportionments.

Further, the Reassessment Action Plan calls for longer-term strategic improvements to design and develop a new "smart system" that integrates system enhancements, model improvement, and state oversight. To date the following has been accomplished:

  • Design, development, and implementation of a motor fuel data base management system (DBMS) beginning in November 2001
  • Enhanced FHWA oversight of state data reporting, to begin in FY 2002
  • Initial executive-level documentation fully completed
  • Intermediate-level documentation fully completed
  • Detailed documentation to parallel system development fully completed
  • Executive briefing with Internal Revenue Service ExFIRS System developers in July 2001.

A discussion of the issues associated with the fuel tax attribution process is presented in Appendix A of this report.

1.2 Project Objectives

Recognizing the increasing importance of accurate, timely reporting of motor fuel and related attribution data in determining state-funding shares, the FHWA is reviewing the motor fuel data reporting system used to collect this information. As part of the continuous improvement process, FHWA has implemented certain changes directed at improving the quality and timeliness of fuel tax data reported by the states.

This project is designed to conduct an independent comprehensive review of FHWA's methodology for analyzing state motor fuel data and attribution of HTF receipts to the states. The primary objective of the review is to allow the FHWA to better ensure that the motor fuel attribution process yields reliable information and the "best possible" estimates for use in distributing Federal highway programs funds to the states. The review examines data quality, efficiency of the system in processing motor fuel data, consistency of data processing and risk management processes with standard and best practices, and any institutional issues. This project focuses on the following areas:

  1. The impact of changes implemented by FHWA on the fuel tax data acquisition and analysis process - e.g., the use of (i) Smart Input tool by the states to submit fuel tax data, and (ii) oversight process to improve the quality of data submitted to the FHWA
  2. The consistency and reliability of the procedures and models used in the data analysis leading to attribution include such questions as: "Are the business rules logical and consistency applied?" This includes a review of the FHWA's instructions or guidelines to the states regarding reporting of fuel tax data.

1.3 Organization of Report

The remainder of the report is divided into several chapters. Chapter two presents a documentation of the fuel tax data analysis process leading to attribution of fuel tax revenues to the states. The description is presented at two levels of detail. The first, a high-level description, presents the major processes, inputs, outputs, and the relationships among them. The second is a detailed step-by-step description of the processes. This level includes descriptions of the estimation models that the FHWA uses in the fuel tax data analysis process.

Chapter three presents an evaluation of the impacts of the changes implemented as part of FHWA's continuous improvement model on the fuel tax attribution process. This includes a comparison of the new Smart Input Tool with the legacy paper-based data submission process. The potential impacts of state oversights are also evaluated. This chapter also presents action items directed at further improving the quality of furl tax data and efficiency of the attribution process.

Chapter four provides concluding remarks and recommendations.

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