TRIGGERING THE BYRD TEST - FY 2004

The Byrd Test¹ is a feature of the Highway Account of the Highway Trust Fund² and has its origins in the Highway Revenue Act of 1956, the legislation that created the Highway Trust Fund. It requires a comparison of the outstanding authorizations from the Highway Account of the Highway Trust Fund to the resources anticipated to be available from the Highway Account to liquidate the authorizations. If the anticipated resources are not sufficient, the Byrd Test is triggered. The triggering of the Byrd Test is an indication that the authorized funding levels are in excess of the anticipated capacity of the Highway Account of the Highway Trust Fund to liquidate them. Simply put—the Highway Account is "maxed out."

What is the purpose of the Byrd Test?

The Byrd Test is intended to ensure that the programs funding from the Highway Account of the Highway Trust Fund are self-financing. Most programs funded by trust funds are allowed to obligate only the resources currently available in the relevant trust fund. In recognition of the slow spending nature of highway capital projects, Highway Account programs are allowed to incur obligations in excess of the resources available at the time, knowing that future receipts would be available by the time the bills would come due. This has been the case since the Highway Trust Fund began. The Byrd Test provides fiscal discipline while still allowing recognition of the slow spending nature of the highway program, but limits the number of years—currently two years—of future receipts that can be counted on.

How is the Byrd Test calculated?

The Secretary of the Treasury consults with the Secretary of Transportation and estimates what the unfunded highway authorizations will be at the close of the fiscal year. Unfunded authorizations are authorizations in excess of cash on hand in the Highway Account. They are made up of both unobligated balances of contract authority and unpaid obligations.

If the unfunded authorizations are less than the receipts anticipated in the 24 months following the end of the fiscal year, the Byrd Test is passed. The amount by which the receipts exceed the unfunded authorizations is called the Byrd Test headroom. If the unfunded authorizations exceed the receipts anticipated in the 24 months following the end of the fiscal year, the Byrd Test is triggered.

The current calculation for FY 2004 is:

What happens when the Byrd Test is triggered?

The triggering of the Byrd Test is an indication of misalignment or Highway Account authorizations and resources and requires that action be taken. The triggering of the Byrd Test requires the Secretary of Transportation to reduce the amount of contract authority apportioned to States so that the total outstanding contract authority is within the estimated ability of the Highway Account to pay for it.

The current calculation indicates that to comply with the Byrd Test requirements, FHWA and NHTSA must withhold a total of $728,565,628 of the contract authority authorized for FY 2004 in the Surface Transportation Extension Act of 2004, Part IV (STEA04, Part IV). Apportionments for each such program will be 2.365 percent lower than they would have been if the full amount could be made available.

Which Federal Highway Administration (FHWA) programs are affected?

The reductions are made to all programs authorized from the Highway Account of the Highway Trust Fund that are apportioned, that is, distributed by statutory formulas.

FHWA will reduce the apportionments authorized by STEA04, Part IV as a single lump sum for most of the apportioned programs that is then programmatically distributed to the following:

Interstate Maintenance
National Highway System
Highway Bridge Replacement and Rehabilitation
Surface Transportation Program (STP)
Congestion Mitigation and Air Quality Improvement
Recreational Trails
Appalachian Development Highway System
Minimum Guarantee

Apportionments from the separate authorizations for Metropolitan Planning and the Safety Incentives to Prevent Operation of Motor Vehicles by Intoxicated Persons (administered by the National Highway Traffic Safety Administration (NHTSA)) will also be reduced.

FHWA's allocated programs, such as discretionary programs, research, Federal Lands, are not reduced.

How does this impact takedowns and setasides from the affected programs?

Under STEA04, Part IV there are no takedowns off the top of FHWA's apportioned programs. Programs normally funded as takedowns, like FHWA administrative expenses, Interstate Maintenance Discretionary Program, etc., are directly authorized and will be not be reduced.

Since each State's apportionments for the affected programs are reduced, percentage setasides from those apportionments will also be reduced. Examples are the 10 percent setasides from the STP for Transportation Enhancements and Safety, the suballocation of STP funds to areas, and the Bridge Program setaside for off-system bridges.

Are programs of other operating administrations affected?

Yes, NHTSA's State and Community Highway Safety Grants (Section 402 Program) will also be reduced.

None of the other operating administrations financed from the Highway Account of the Highway Trust Fund have apportioned programs. Thus there will be no reductions to the programs of Federal Motor Carrier Safety Administration or the Bureau of Transportation Statistics.

Is Federal-aid Highway Program obligation limitation reduced as well?

No, the triggering of the Byrd Test calls for the reduction of apportionments of contract authority only.

Is the contract authority withheld "gone for good"?

Not necessarily. The Byrd Test calculation uses estimated Highway Account receipts. The FY 2004 calculation used estimated receipts for FYs 2004, 2005, and 2006. The estimates used are those from the FY 2005 Mid-Session Review of the Budget released on July 30, 2004. New estimates are released twice a year, in February for the President's Budget and again in July for the Mid-Session Review. As long as the withheld funds have not yet lapsed, the FY 2004 calculation of the Byrd Test will be revised each time new estimates are available. If it is determined that, using the later estimates, no reduction or a smaller reduction of apportionments is required, all or part of the withheld funds will be released to the States. The period of availability for the released funds will be determined based on the fiscal year in which the funds are released so States will have the usual amount of time, 4 years for most programs, to obligate the funds.

Why Has the Byrd Test Been Triggered?

The margin by which we have passed the Byrd Test, called Byrd Test headroom, has been steadily declining. With enactment of the 5^th highway extension act, the Byrd Test headroom for FY 2004 is -$728.6 million, a negative number indicating that the Byrd Test has been triggered.

The FY 2004 funding levels in the short-term extensions were based on the FY 2004 Budget Resolution. The Budget Resolution assumed, effective October 1, 2003, the redirection to the Highway Account of the Highway Trust Fund of the 2.5 cents per gallon of the gasohol tax currently retained by the General Fund. This revenue enhancement has not yet been enacted.

Also, when it was determined that early Revenue Aligned Budget Authority calculations were based on revenue projections that proved to be overly optimistic, the automatic $4.4 billion downward adjustment of contract authority called for by TEA-21 was overridden by subsequent legislation.

Has the Byrd Test been triggered before?

Yes, the test was triggered for 1959, 1960, and 1961, but only for FY 1961 did it impact the apportionment of highway funds.

In the beginning (1956 Act), the Byrd Test required that the Highway Trust Fund be cash solvent at the end of each year. The Trust Fund could borrow from the General Fund during the year to meet short-term cash needs, but the Trust Fund had to be free of debt at the end of each fiscal year.

The Trust Fund was in shaky financial shape in the early years. The Byrd Test was triggered for 1959 and 1960, but section 9 of the Federal-aid Highway Act of 1958 (P.L. 85-381) waived the requirement that Interstate Construction apportionments be withheld pursuant to the Byrd Test calculation. The Byrd Test was triggered again for 1961, and $200 million of Interstate Construction funds were withheld from the States when 1961 Interstate Construction funds were apportioned in October 1959. Note that the Byrd Test of the time called for withholding only Interstate Construction funds, not all apportioned categories, as is the present law.

HPLS-10
8/24/2004

1 The "Byrd Test" is the common name given to the provision in 26 USC 9503(d). It is named for Senator Harry Flood Byrd of Virginia, the Chairman of the Senate Finance Committee at the time the Highway Trust Fund was created.

2 The Mass Transit Account of the Highway Trust Fund has a similar test, commonly referred to as the Rostenkowski Test. The Rostenkowski Test has not been triggered for FY 2004.

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