Section IV

Highway Finance

This section chronicles the financing of highways, roads and streets by Federal, State and local governments. The tables in this section show highway funding, disbursements, debt status, and other financial information. Highway finance data begins with the last decade of the nineteenth century and are for differing time periods.

The tables are arranged by level of government, starting with a series that summarizes the combined highway finance activities of all units of government. A series of tables follows for the individual levels of government, i.e., Federal, State, and local.

Historical Perspective

State involvement in road building was limited until the 1890's and the formation of State highway departments. In the late 1700's and early 1800's, States mainly chartered private toll and turnpike companies to construct, maintain and operate many of the major roads in this country. With competition from the railroads and a lack of profitability, many of the private toll companies went out of existence. By 1850, most roads were the responsibility of local governments.

In the early 1800's, the Federal government was involved in the construction of the National Pike. By 1838, the coming of the railroads discouraged further Federal appropriations for road building. Roads remained a local issue as most long distance travel was by railroad.

Until the last decade of the nineteenth century, road construction was almost exclusively a function of local governments. As the use of the automobile became more general, the demand for more and better roads exceeded the ability of local governments to finance substantial road improvement programs. Road conditions were generally considered unsatisfactory and coordinated road systems had not been developed in any State.

Aware of the need for State action, New Jersey in 1891, Massachusetts in 1892, California and Connecticut in 1895 established what are considered the first State highway departments. The early highway departments acted mainly in an advisory capacity and as a means of appropriating State-aid funds to counties for road construction. By 1915, most States had established highway departments or commissions.

In 1916, Congress passed the first Federal-aid highway act which made Federal financial assistance conditional to the States creating adequately staffed State highway departments which had the authority and resources to conduct a highway construction program. By 1917 all States had established a separate department of State government to handle a highway construction program on a full-time basis and were providing highway aid to local governments.

The progress that has been made in improving the Nation's highways since 1921 is the result of the combined efforts of the Federal, State, and local governments. Although Federal and State governments provide the major share of highway funds, local governments continue to spend substantial amounts for roads and streets that are under their jurisdiction.

The main sources of road funds in the early decades of the 20th Century were property taxes and other general revenues supplemented by income from State and local highway bond issues. Vehicle registration fees were first levied by New York in 1901, and gasoline taxes by Oregon in 1919. By 1929, all States had levied a gasoline tax, and highway-user taxes became the predominant source of highway revenues.

Combined Finances

Table HF-210 combines, for all levels of government, the disbursements for highways and the revenues used to fund those disbursements. The table classifies funds by revenue source and the government level responsible for providing those funds. Information is included on the gross collections and disposition of highway-user revenues. Funds paid as grants-in-aid from one government level to another or that are shared are shown as intergovernmental payments and are included in the disbursements shown for that level of government. In some cases, table HF-210 reflects revisions to data not included in the more detailed tables. Combined capital outlay and maintenance expenditures are shown by State and by year in tables HF-202C and HF-202M.

Evolution of the Federal-aid Program

The first authorization of Federal funds for highways occurred in 1912 when Congress, in response to public demand for better roads, allocated $500,000 for an experimental rural post-road program. In 1916, the Federal-Aid Road Act established, on a continuing basis, the present cooperative Federal-State highway program. To accelerate the improvement of roads, Congress in 1921 authorized designation of a system of principal and inter-county roads, which was referred to as the Federal-aid Primary System, and limited the system in any State to 7 percent of the total rural mileage then existing in the State. The use of Federal aid was restricted to that system and to rural mileage only. The Federal-aid Primary System was made up of roads that today would be functionally classified as arterials.

Federal activity was centered on improvement of the Federal-aid system outside of cities until 1933 when, as an emergency measure, the program was broadened to include extensions of the Federal-aid system into and through municipalities. Urban highway improvement first came in for a specific share of Federal-aid funds in 1944 when Congress authorized the use of funds for Federal-aid highways in urban areas.

The 1944 act also provided for the designation of a Federal-aid Secondary System and a National System of Interstate and Defense Highways. In 1990, legislation changed the name of the National System of Interstate and Defense Highways to "The Dwight D. Eisenhower System of Interstate and Defense Highways." The Federal-aid Secondary System was comprised of roads that would be functionally classified as major collectors.

The Federal-Aid Highway Act of 1956 and the companion Highway Revenue Act of 1956 further defined the purpose and extent of the Interstate System and, as subsequently amended, provided funds for its completion. Interstate System funds were matched on a 90 percent Federal to a 10 percent State matching basis except that the Federal share was increased in the proportion that Federal land area was to total area in a particular State. The law also provided that the Interstate System shall be included in the Federal-aid Primary System. The Interstate System connects, as directly as practicable, the Nation's principal metropolitan areas, cities, and industrial centers; serves the national defense, and connects at border points with routes of international importance.

The Federal-aid Urban System was first authorized by the Federal-Aid Highway Act of 1970. Its definition was modified by the Federal-Aid Highway Act of 1973. The system served major centers of activity and included high traffic volume arterial and collector routes, including access roads to airports and other transportation terminals, so as to serve the goals and objectives of the community.

Federal-aid Primary, Secondary, and Urban System funds were matched on a 75 percent Federal to a 25 percent State matching basis except that the Federal share was increased in the proportion that Federal land area was to total area in a particular State. Beginning with FY 1973, part of the Urban System program was earmarked for urbanized areas with a population of 200,000 or more.

Prior to 1976, Federal funding had generally been limited to construction of roads on the Federal-aid system. By the mid 1970's, many highways had reached the end of their design life and the problem of deterioration was recognized. In the Federal-Aid Highway Act of 1976, a special category of Interstate funds was authorized specifically for resurfacing, restoration, and rehabilitation (3R) work. The Federal-Aid Highway Act of 1981 expanded the program to include reconstruction (4R), and funding was substantially increased.

The Surface Transportation Assistance Act of 1978 (STAA) amended the Primary and Secondary programs to require 3R type work. The STAA of 1982 added the fourth R (4R) and included the Urban System program. With the 3R/4R programs, a shift was taking place from new construction only to preserving and extending the service life of existing highways and bridges. Also during the 1970's and 1980's, other changes were occurring as new programs were authorized that were not for new roadway construction only on the Federal-aid system. Some of the new programs included: bridge preservation and reconstruction, Interstate substitution, 85 percent minimum allocation, and the highway safety construction. The matching ratios vary for each program.

The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) eliminated the Federal-aid Primary, Secondary, and Urban systems and created the National Highway System (NHS). In November 1995, Congress enacted legislation establishing the NHS. The NHS includes the existing Interstate System routes, a large percentage of urban and rural principal arterials, the Strategic Highway Network, and major connectors. The interim NHS consisted of the Interstate System and other principal arterials.

Under the ISTEA, resurfacing, restoration and rehabilitation are funded under the Interstate Maintenance (IM) program. The Federal share of IM projects is 90 percent. Minimum allocation was changed to 90 percent and several other equity adjustment categories were added including the Donor State Bonus and 90 percent of Payment Adjustments.

The ISTEA created a new flexible funding program, the Surface Transportation Program (STP), that can be used for roads and streets not functionally classified as local or rural minor collector, for bridges on any public road, and for transit capital projects. The Congestion Mitigation and Air Quality (CMAQ) program is one of several new programs created by the ISTEA.

Federal Financing

The Federal-aid highway program is financed from the proceeds of motor-fuel and other highway-related excise taxes deposited in the Federal Highway Trust Fund (HTF). The Federal-aid highway program is a federally assisted, State-administered program which distributes Federal funds to the States for the construction and improvement of urban and rural highway systems. On Federal-aid highway projects, a State develops the plans, lets the contracts, and supervises the construction. The roads remain under the administrative control of the State or local government responsible for their operation and maintenance.

The Federal Highway Trust Fund
The Federal Highway Trust Fund (HTF) is the funding source for the Federal-aid highway program. The HTF was established by the Highway Revenue Act of 1956. The Department of Treasury, Internal Revenue Service, collects the Federal road-user taxes and deposits the revenues in the Federal Highway Trust Fund. Table FE-101 provides a historical summary of the Federal excise tax rates, including the rates currently in effect.

Effective April 1983, the Highway Revenue Act of 1982 created the Mass Transit Account within the Highway Trust Fund. The Act provided that the equivalent of one cent per gallon of the motor-fuel taxes would be deposited in the Mass Transit Account for transit system capital expenditures. Table FE-201 shows the Federal HTF amounts dedicated to the Mass Transit Account within the Highway Trust Fund.

Tables in the FE series do not include Federal fuel tax revenues that are not deposited in the Highway Trust Fund. For example, the current 4.3 cents per gallon portion of fuel taxes dedicated to deficit reduction are not included. The receipts from gasoline consumed in motorboats are currently transferred from the Highway Trust Fund to the Aquatic Resources Trust Fund and the Land and Water Conservation Fund, which fund programs of U.S. Department of the Interior and U.S. Coast Guard.

Federal Highway Trust Fund revenues are derived from various Federal excise taxes on highway users. The historic attribution of these revenues to highway users in each State is shown in table FE-209. Since these revenues cannot be directly related to payments by highway users in each State, the receipts attributable to highway users in each State are estimated by the FHWA based on highway fuel consumption.

Federal Government Highway Finances

The terms commonly used in describing Federal-aid financing are authorization, apportionment, allocation, obligation, and expenditure. The initial step in the financing of Federal-aid highways is the congressional passage of a highway act. This legislation establishes the amount and purpose for which Federal-aid funds are to be expended, and the years of the authorization.

The apportionment of funds is the next step. This distributes the authorized funds among the various States in accordance with formulas that are defined in the latest highway act. Table FA-204 shows apportionments by major program type.

Allocations are the administrative distribution of funds that do not have a statutory distribution formula, i.e., emergency relief.

States cannot draw on the apportioned amounts until they have been given authority to make the obligation. Apportioned funds are available for obligation for more than one year to permit States time for planning and budgeting. The availability period for the various Federal programs is specified in law.
An obligation is a commitment of the Federal Government to pay, through reimbursement to the States, the Federal share of a project's eligible cost. The commitment is made when the plans, specifications and estimate for the project is approved. In some years, Congress has imposed a ceiling on obligations to limit spending. Table FA-204B shows obligations.

As portions of a Federal-aid project are completed, FHWA reimburses the State for the Federal share of costs incurred. The cash reimbursement or expenditure of the Federal funds may stretch on for several years after a project has been approved and funds obligated. These expenditures are shown in table FA-203 and identified by major program. This table also includes direct expenditures by the FHWA on Federal lands and for other costs incurred by the FHWA in administering the Federal-aid program.

Other Federal agencies also expend funds on roads. Table FA-205 shows the amounts expended for public highways by Federal agency since 1921. Table FA-205A shows combined expenditures for those Federal agencies by type of highway expenditure.

Construction Cost Index

Price trends in highway construction are recorded in table PT-201. This index covers three major construction cost items: excavation, resurfacing, and structures. The basic data for the index, are obtained from the contracts awarded for Federal-aid highway projects by the State highway departments. The indices shown in table PT-201 use 1987 quantities and prices as the base.

State Government Highway Finances
Highway fiscal surveys were conducted by the Federal Government as early as 1904, but it was not until 1921 that annual, systematic surveys of the finances of State highway departments were initiated. Between 1921 and the present, the quality of the basic records from which the information is derived, the practices of data gathering, and data evaluation have changed considerably.

Between 1921 and 1933, State highway finance data were reported on the various State fiscal year periods. From 1933 to the 1980's, these data were mainly compiled on a calendar year basis. From the mid 1980's, the States are returning to reporting on a State fiscal year basis. In 1937, a much broader and detailed classification of receipts and disbursements was adopted. In 1945, coverage was expanded to include finances of special toll facility authorities.

In compiling the summaries for an earlier version of this publication, the Federal Highway Administration staff reviewed historical data and adjusted that data to bring the pre 1945 statistical data of the States to the then current standards of classification and coverage. The present tables reflect the present standards of classification and coverage.

Table MF-203 summarizes the annual disposition of all motor-fuel tax revenues collected by the States for State highway purposes, local road and street purposes, the costs of collecting and administering road-user tax laws, and non-highway purposes. Table MV-203 shows similar information for motor-vehicle revenues. Table DF-200 combines information from tables MF-203 and MV-203.

The SF table series summarizes the annual highway finance activities of State governments. These tables include the highway-related revenues and expenditures of State and quasi-State operated toll facilities. Table SF-201 summarizes the sources of revenues used by the States to fund their highway programs. These sources include funds from the Federal and local governments.

The disbursements of States for highway programs and activities are summarized in table SF-202 by type of disbursement. Table SF-202C shows capital outlay by State. Capital outlay includes expenditures for right-of-way, engineering and construction. Table SF-202M shows maintenance expenditures by State. Maintenance includes expenditures for physical maintenance and traffic services. Traffic services include expenditures for snow removal and sanding, traffic control operations, and the operation of toll facilities.

Table SF-204 summarizes the annual disbursements for State-administered highways. Table SF-206 includes both direct expenditures by the States on local roads and streets and transfers to local agencies. Table SF-212 shows highway capital outlay by functional system for the States. Table SF-212A shows capital outlay by type of improvement.

The SB table series summarizes the annual status of highway debt and the highway debt transactions of the States and State toll facilities. Table SB-202 shows the annual indebtedness of the States. Table SB-202E shows the par value of obligations outstanding at the end of the year. Table SB-202I shows the par value of highway debt issued by the States.

Table SF-203B summarizes the annual financial transactions of State and quasi-State toll facilities.

Local Government Highway Finances

The Federal Highway Administration in cooperation with the States began to compile comprehensive statistics of local government highway finances in 1937 by means of a canvass or selected sample of all local agency records. Later, to extend these summaries back to 1921, FHWA staff collected and analyzed many published and unpublished reports, and made some estimates to bridge substantial gaps in information.

Beginning in 1983, States had the option of reporting local government highway finance data on a biennial basis with FHWA staff estimating the year that data was not reported. About half of the States continued to report data on an annual basis. Some States use sampling and estimation to develop their local government highway finance data.

The annual highway finance activities of local governments are summarized in the LGF table series. These tables include data for toll facilities under the jurisdiction of local governments. Table LGF-201 shows the sources of revenues used by local governments in funding their road and street activities including funds provided by Federal and State governments. Table LGF-202 shows the types of highway disbursements that were made by local governments.

Table LGB-202 summarizes the annual status of local government highway debt and debt transactions.

Table LGF-203B summarizes the receipts and disbursements of toll facilities under the jurisdiction of local governments.

Information for Users

Highway finance information in Highway Statistics Summary to 1995 is statistical in nature and does not represent an accounting or audit statement of State and local governments. The published highway finance information presents a general overview of the funding of highway programs, highway-user taxation and the disposition of highway-user revenues.

All reports and information provided to FHWA were examined for completeness, reasonable consistency with present and past data reporting, and with data reporting instructions contained in a Guide to Reporting Highway Statistics or then current instructions. Because instructions and definitions have evolved over a period of time, users should consult texts of annual Highway Statistics publications in analyzing trends or making comparisons. The FHWA analysis process includes reclassification of State data to achieve greater consistency in the presentation of the data.

The reporting of information varies from State to State. How consistent States are in reporting data according to instructions contained in A Guide to Reporting Highway Statistics has an impact on the reliability of comparing the data of different States. Because reporting periods vary, data, even for the same year, may differ between tables.

Reporting period

Over the course of time, reporting periods have changed. Therefore, data shown for any particular year may actually represent a mix of data for calendar and fiscal years ending during the reporting period.

Interagency Coordination

The information on State government highway finance is based on reports coordinated through State highway agencies. Data and report forms were and are prepared by State personnel in the State highway agency and in a variety of other State agencies that have highway functions, such as tax and revenue agencies, motor vehicle agencies, public utility commissions, public safety departments, and highway police organizations. The completeness and consistency of State government level data are dependent upon the degree of cooperation among State agencies.

Different State agencies have different accounting and information systems which can lead to timing differences in the recording of revenues and expenditures. Timing differences are most apparent in the transfer of funds among the State agencies responsible for collecting revenues and the State agencies responsible for expending those revenues.

The information on local government highway finance is based on reports coordinated through State highway agencies from data provided by local governments. Some State highway agencies develop their local highway finance reports, in part or whole, from central State sources that routinely collect local finance data through legislated local government reporting requirements.

Jurisdictional responsibilities

Differences exist among States depending on the governmental level of responsibility for highway functions and the variation in agencies that perform the functions. Some States have jurisdictional authority over almost all highways in the State and perform almost all highway functions. In other States, local governments have jurisdictional authority over a significant portion of the highways. Comparisons are difficult to make among State governments which have vastly different highway responsibilities. Local government data tend to vary among States depending upon the degree of local government responsibility for highways.

Some States share a significant amount of highway-user revenue with their local governments. Other States assist local governments by transferring other revenue or by performing direct work on local jurisdiction roads. States performing direct work on local roads tend to report higher levels of capital outlay, maintenance and administration for the amount of revenues raised.

Financing mechanisms
Differences exist between States as to the types of revenues used in funding highways. State and local governments do not impose the same taxes and fees. The tax structure and distribution of tax revenues vary from State to State, and from local government to local government. These differences are often found in how States choose to finance their highway systems and in how States classify revenues.

For example, some States extend paying for a project into the future through bond financing. Large bond sales can greatly inflate the amount of revenue for highways in the year the bonds were sold, especially when total revenues are compared to prior and subsequent years. Similarly, total disbursements can vary greatly with the expenditure of the bond funds.

States which do not use bond financing pay for projects by either accumulating sufficient funds before beginning the project or pay for the project from current revenues. Those States tend to have a more consistent level of revenues and disbursements than States which use bond financing.

Another example involves toll financing. Not all States have toll facilities, and the size and financial scope of toll facilities varies significantly. A small toll facility may raise and spend a few thousand dollars a year. Some large toll facilities have cash flows of several hundred million dollars to more than a billion dollars a year. Toll facilities can represent a significant portion of a State's highway revenues and expenditures. Toll facilities also represent a significant source of revenues for mass transit and other purposes.

Revenue Classification

The classification of revenues varies from State to State. FHWA reclassifies some State revenue data to present tables with more uniform definitions. Revenues generated by taxes and fees that are specifically targeted at highway-users are classified as highway-user revenue.

Revenues whose origins were unidentified are typically classified as general funds. For example, when State highway agencies receive payments from other State agencies for expenditure on highways, it may not be possible to determine the original source of revenue of the transferred funds.

Expenditure Classification
State accounting and information systems assign expenditures based on internal State categories and definitions. To develop their expenditure reports to FHWA, States modify their internal data to correspond to FHWA categories and definitions. The reliability of the reconfigured data is dependent on the detail present in existing State records, and the amount of variation between State and FHWA definitions. One area in which States have difficulty in recompiling data is in defining types of capital improvements. Project records in some States do not contain a full breakdown of work types. This forces these States to manually assign projects to categories based on narrative descriptions of each project. Such narratives are of varying levels of detail and are subject to interpretation. This may cause data classification to be less consistent. States use a variety of definitions for capital outlay and physical maintenance. In some States, work performed by maintenance crews may be classified as physical maintenance, even if the project was extensive enough to meet the FHWA definition of capital outlay.

Another problem area is the assignment of indirect costs. FHWA requests that States assign incidental costs related to specific construction and maintenance projects to those categories. For example, salaries and benefits for engineers and construction workers detailed to a construction project should be assigned as construction expenditures. However, many State accounting systems do not assign costs in this manner. For example, salaries may be assigned to capital outlay while employee benefits may be assigned to general administration.


Any examination of highway finance information needs to take into account the normal changes that occur because of changes in revenue policies, program emphasis or funding, e.g., tax rate increases or greater tax compliance, establishment of a State highway trust fund, reallocation of highway-user revenue distributions, or special construction programs.