Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

The financial statements of the Highway Trust Fund (HTF) are comprised of the Highway Corpus Trust Fund, held by the U.S. Department of Treasury Bureau of Public Debt, and certain accounts of the following Operating Administrations (Agencies) of the Department of Transportation (DOT): Bureau of Transportation Statistics (BTS), Federal Highway Administration (FHWA), Federal Motor Carrier Safety Administration (FMCSA), Federal Transit Administration (FTA), Federal Railroad Administration (FRA), and the National Highway Traffic Safety Administration (NHTSA). The financial statements have been prepared to report the financial position, net cost of operations, changes in net position, status and availability of budgetary resources, and the reconciliation of net cost to budgetary resources.

The financial statements have been prepared from the books and records of the DOT Agencies and the U.S. Department of the Treasury, Bureau of Public Debt. Such financial statements have been prepared in accordance with generally accepted accounting principles (GAAP), and the form and content requirements specified by the Office of Management and Budget's (OMB) Bulletin Form and Content of Agency Financial Statements (No. 01-09). GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board (FASAB), which has been designated as the official accounting standards-setting body for the U.S. Federal Government by the American Institute of Certified Public Accountants.

The statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records. The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity. One implication of this is that liabilities cannot be liquidated without legislation that provides resources to do so.

Reporting Entity

For purposes of this financial statement, the principal reporting entity is HTF, not the performing Agencies. Accordingly, all assets are considered “non-entity assets.” The financial statements report activity for all relevant funds and such activities under the "Ground Transportation" budget sub-function category. The HTF was created in 1956 with the Highway Revenue Act of 1956 with the main objective of funding the construction of the Dwight D. Eisenhower System of Interstate and Defense Highways. Over the years, use of the fund has been expanded to embrace highway safety.

The consolidated HTF financial statements represent the following organizations and programs:

Budgets and Budgetary Accounting

The HTF programs are financed from authorizations through enacted Highway and Transit legislation authorizing and codified in Title 23 of the United States Code (U.S.C.). Funds are apportioned to the States under Title 23 U.S.C. and Title 49, Subtitle III by the Secretary of Transportation for Highway and Transit construction, are provided in advance of the liquidation of appropriations, and are available for a specific time period. The annual appropriation acts establish the level of obligations that the States can obligate against the Federal Aid funds in any single year. Obligations are incurred based on these annual limitations under the allotment control procedures. Liquidating appropriations enable Federal Aid payments to be made to States as claims are submitted and approved for payment. The HTF Agencies recognize budgetary resources as assets, when cash funds held by the Department of Treasury are made available through a General Fund warrant and Trust Fund Transfers.

Basis of Accounting

The HTF Agencies use both the accrual and budgetary basis of accounting to record transactions. Under the accrual basis, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. The financial statements were prepared following accrual accounting. Budgetary account balances are included in certain statements as appropriate. Budgetary accounting principles ensure that funds are obligated according to legal requirements. Balances on these statements may therefore differ from those on financial reports prepared pursuant to other OMB directives that are primarily used to monitor and control the Agencies' use of budgetary resources.

All material intra-HTF Agency transactions and balances have been eliminated for presentation on a consolidated basis. However, the Statement of Budgetary Resources is presented on a combined basis in accordance with OMB Bulletin No. 01-09.

Use of Estimates

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, and expenses, and in the note disclosures.  Actual results could differ from those estimates.  Significant estimates underlying the accompanying financial statements include (a) the allocation of trust fund receipts by the Office of Tax Analysis (OTA), (b) year-end accruals of accounts and grants payable, (c) accrued workers' compensation, and (d) allowance for doubtful accounts receivables.  Actual results may differ from these estimates. Estimates will be adjusted with actual amounts in the year such actual amounts are known.

Revenue and Other Financing Sources

All programs and activities covered in these financial statements are financed from excise taxes collected on specific motor fuels, truck taxes, and fines and penalties. Annual appropriations make available these tax revenues collected for programs as authorized by law. A small portion of activties is financed from offsetting collections for reimbursible work performed under agreement. Taxes are recognized as revenues at the time they are deposited in the Corpus Highway Trust Fund account.

Funds with the U. S. Treasury and Cash

Funds appropriated for the Federal Aid Highways and Mass Transit programs remain invested in non-interest bearing securities by the Treasury. As approved claims are submitted and approved for payment, requests for cash are made to the Treasury, securities are divested and funds are made available for payment of claims. Small amounts of cash receipts are deposited daily in a commercial lockbox bank. No cash is held outside the United States in foreign currency, gold or other monetary assets.

Investments in U. S. Government Securities

It is the responsibility of the Secretary of the Treasury to invest such portions of the trust fund that exceed current needs. Such investments may only be made in non-marketable obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.

Accounts Receivable

Accounts receivable are reported net of an allowance for uncollectible accounts. The reported accounts receivable consist principally of services performed for other Federal agencies under general working agreements with Federal agencies responsible for designated Federal domain areas such as Park Roads and Parkways, Forest Highways, etc. Administrative reimbursable receivables represent technical services billed, Motor Carrier fines and penalties, reimbursements from employees, and miscellaneous refunds.

Property and Equipment

Property and equipment purchases are valued at cost and are capitalized when the cost is $25,000 or more with a useful life of more than two years.

Depreciation on equipment, buildings and capital improvements is computed using the straight-line method based on the useful life of the assets with one-half year's depreciation taken in the year of acquisition. Property and equipment is depreciated as follows: equipment over useful lives ranging from three to five years, ADP Software for five years, and structures, facilities and capital improvements for thirty years. Class lives for all property is based on the Internal Revenue Service classification system. Routine maintenance and repair costs are expensed as incurred. Depreciation expense is recouped through rates assessed against Federal Lands Highway projects.

Prepaid and Deferred Charges

Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of prepayment and recognized as expense when the related goods and services are received.

Liabilities

Liabilities covered by budgetary resources are those liabilities for which Congress has appropriated funds or funding is otherwise available to pay amounts due. Liabilities not covered by budgetary resources or other resources represent amounts owed in excess of available appropriated funds or other amounts. The liquidation of liabilities not covered by budgetary or other resources are dependent on future congressional appropriations or other funding. Intragovernmental liabilities are claims against HTF Agencies by other Federal entities.

Accounts Payable

Accounts Payable are amounts the HTF entities owe to other Federal agencies and the public. Accounts payable to Federal Agencies generally consist of amounts due under inter-agency reimbursable agreements. Accounts payable to the public primarily consist of estimated amounts incurred, but not yet claimed by the HTF contract recipients and unpaid goods and services received by the HTF agencies.

Grant Liability

The accrued grant liability consists of requests for payments from grantees outstanding at September 30, plus an accrual for grantee expenses incurred but yet not reported to the HTF Agency as of September 30.

Contingencies

A contingency is an existing condition, situation or set of circumstances involving uncertainty as to possible gain or loss to a HTF Agency. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. With the exception of pending, threatened or potential litigation, a contingent liability is recognized when (1) a past transaction or event has occurred, (2) a future outflow or other sacrifice of resources is more likely than not, (3) and the related future outflow or sacrifice of resources is measurable. For pending, threatened or potential litigation, a liability is recognized when a past transaction or event has occurred, a future outflow or other sacrifice of resources is likely, and the related future outflow or sacrifice of resources is measurable.

Annual, Sick and Other Leave

Annual leave is accrued as it is earned and the accrual is reduced as leave is taken. For each bi-weekly pay period, the balance in the accrued annual leave account is adjusted to reflect the latest pay rates and unused hours of leave. Liabilities associated with other types of vested leave, including compensatory, credit hours, restored leave, and sick leave in certain circumstances, are accrued at year-end based on the latest pay rates and unused hours of leave. Sick leave is generally nonvested, except for sick leave balances at retirement under the terms of certain union agreements. Funding will be obtained from future financing sources to the extent that current or prior year revenues are not available to fund annual and other types of vested leave earned, but not taken. Non-vested leave is expensed when used.

Accrued Workers' Compensation

A liability is recorded for actual and estimated future payments to be made for workers' compensation pursuant to the Federal Employees' Compensation Act (FECA). The actual costs incurred are reflected as a liability because Agencies will reimburse the Department of Labor (DOL) two years after the actual payment of expenses. Future revenues will be used for the reimbursement to DOL. The liability consists of (1) the net present value of estimated future payments calculated by the DOL, and (2) the unreimbursed cost paid by DOL for compensation to recipients under the FECA.

Retirement Plans

The majority of employees whose salaries are paid from the trust fund participate in the Federal Employees Retirement System (FERS). Other employees participate in the Civil Service Retirement System (CSRS). FERS went into effect pursuant to Pubic Law 99-335 on January 1, 1984. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to January 1, 1984, can elect to either join FERS and Social Security or remain in CSRS. A primary feature of FERS is that it offers a savings plan to which the Agencies automatically contributes 1 percent of pay and matches any employee contribution up to an additional 4 percent of pay. The remaining forty-five percent (45%) of employees whose salaries are paid from the trust fund participate in CSRS, to which agencies make matching contributions equal to seven percent (7%) of their pay.

For most employees hired since December 31, 1983, Agencies also contribute the employer's matching share for Social Security. Agencies do not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities, if any, applicable to its employees. Reporting such amounts is the responsibility of the Office of Personnel Management (OPM) and FERS.

The FASAB's SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” requires that employing agencies recognize the full cost of pensions, health and life insurance benefits, during their employees' active years of service. OPM, as the administrator of the CSRS and FERS plans, the Federal Employees Health Benefits Program and the Federal Employees Group Life Insurance Program, must provide the “cost factors” that adjust the agency contribution rate to the full cost for the applicable benefit programs. Accordingly, an imputed financing source and corresponding imputed personnel cost are reflected in the Statement of Changes in Net Position, the Statement of Net Cost, and the Statement of Financing, respectively. These imputed balances do not affect the net position of the HTF.

Taxes

The HTF Agencies are not subject to Federal, State or local income taxes and, accordingly, no provision for income taxes has been recorded in the accompanying financial statements.