TABLE OF CONTENTS(Click on Section)

PURPOSE

BACKGROUND

CHAIRMAN'S OPENING STATEMENT

WITNESSES

This hearing is intended to provide Members of the Committee with information on the status of the Highway Trust Fund and on how the new revenue estimates released in the President’s FY 2007 Budget request will impact SAFETEA LU.

Treasury Receipt Estimates for the Highway Account of the Highway Trust Fund

House and Senate Conferees used the revenue estimates in the President’s FY 2006 Mid-Session Review – which were released in July, 2006 – as the baseline for developing the final SAFETEA LU Conference Report last summer. The President’s FY 2007 Budget released on February 6th contains drastic changes in revenue estimates for the Highway Account of the Highway Trust Fund in FY 2005 and FY 2006.

* Mid-Session Review revenue estimates include Treasury’s estimates for the increases in revenue derived from the U.S. Tax Code changes made by SAFTEA LU.

These drastic changes between estimates – over just 7 months – bring into question the reliability of the estimating process at the Department of the Treasury. The witness from Treasury will explain what factors influenced the fluctuations in revenue estimates between the Mid-Session Review and the President’s Budget.

How the President’s FY 2007 Budget Affects SAFETEA LU

The President’s Budget shows a negative balance of $2.3 billion in the Highway Account of the Highway Trust Fund at the end of FY 2009. When Congress passed SAFETEA LU last summer it was done with the expectation that the guaranteed funding levels prescribed in the bill would be honored for fiscal year 2005 through fiscal year 2009.

The Department of Transportation has said in the past that they will not allow the Highway Account of the Highway Trust Fund to run a negative balance. The witness from the Department of Transportation will address how they anticipate dealing with this projected negative balance – specifically, whether or not they will cut spending as authorized in SAFETEA LU and, if so, how such cuts will be applied and when they will occur.

While the President’s budget closely mirrors what was authorized in SAFETEA LU, there are some places where the Administration deviated from the authorizing statute. Most significantly, the Administration proposes to earmark $100 million in state highway formula dollars for a new Open Roads Financing Pilot Program. This program will allow up to five states to explore innovative mechanisms that can augment existing sources of highway funding, as well as improve highway performance and reduce congestion. In addition, the Budget proposes to reduce funding for highway programs by $37.8 million in FY 2007 and shift that money to research programs that were under funded in FY 2005 and 2006.

The Administration also proposes to fund all of NHTSA’s Operations and Research program from the Highway Trust Fund, using contract authority. Traditionally, vehicle safety activities within NHTSA were funded through the General Fund. To place additional burdens on the Highway Trust Fund during a time when the trust fund is projected to not be able to support its traditional activities is of concern.

The Administration’s requested level of funding for the Federal Transit Administration’s Capital Investment Grants program is $100 million less than the level authorized in SAFETEA LU. The proposed reduction is taken out of the Small Starts program set-aside from Capital Investment Grants. The Small Starts program is authorized at $200 million a year for fiscal years 2007, 2008, and 2009. Although the Administration questions the level of funding needed for the Small Starts program, which is highly competitive and oversubscribed, this does not justify a reduction in the overall funding level needed for the Capital Investment Grants program.

Under SAFTEA LU, Federal Transit Administration programs are guaranteed a total obligation limitation of $8.975 billion, with $1.712 billion to be derived from the General Fund. The Administration’s FTA budget request would decrease both the total obligation limitation and the General Fund share $100 million below the guaranteed levels.