Testimony of

Thomas E. Stephens, P.E.

Director

Nevada Department of Transportation

On Behalf of

The American Association of State Highway and Transportation Officials[1]

Regarding

The Highway Trust Fund

And

the Fiscal Year 2003 Budget

Before the

Transportation and Infrastructure Subcommittee

Committee on Environment and Public Works

United States Senate

February 11, 2002

.

Mr. Chairman and Members of the Committee, my name is Tom Stephens.  For the past seven years I have been the Director of the Nevada Department of Transportation, and I am here today to testify on behalf of the American Association of State Highway and Transportation Officials (AASHTO).  I also am President of the 18-state Western Association of State Highway and Transportation Officials. 

 

I want to thank you for your leadership in scheduling a series of hearings over the coming year to address key policy, program and funding issues in preparation for the reauthorization of the Transportation Equity Act for the 21st Century (TEA-21).  I am also honored that you invited me to testify before your Subcommittee.  I believe that I can offer some real world experience from the field, especially on the subject of today’s hearing – funding the federal-aid highway program.

 

Mr. Chairman, I would like to start by giving your colleagues a brief picture of the great Silver State.  Nevada is the fastest growing state in the nation.  Since 1970, the state’s population has quadrupled from 500,000 to more than 2 million residents.  A majority of this growth has taken place in just five urbanized areas – Las Vegas, Reno, Sparks, Carson City and Elko.  In Clark County alone, where Las Vegas is located, we estimate that by 2010 we will have 400,000 additional residents.  Along with this population growth, we have seen a steady increase in the number of miles of congested highways. 

 

We are also a large state – with roughly the same land area as all the New England states combined.  Our state-maintained highways and bridges spread out across many rural miles as well as in the metro areas. Twenty-six percent of all Nevada’s improved roads are on the state-maintained system.  However, this 26 percent carries 61 percent of the total vehicle miles of travel.  The remaining 39 percent is on systems maintained by county, city or other governmental agencies.  Vehicle miles of travel on all Nevada roads more than quadrupled from 3.5 billion in 1970 to 17.4 billion in 2000.  The state-maintained system also carries 84 percent of all truck traffic.  With more cars, additional heavy trucks, and more vehicle miles of travel, our biggest challenge is preservation of our highways.

 

However, as the fastest growing state in the nation, and with much of that growth concentrated in just two counties – Washoe and Clark, we have an added capacity challenge.  In our metropolitan areas, we are working with our local officials to try to keep pace with our population growth and new demands on the system.  In Nevada, we are investing in new multi-modal strategies.  These include a privately funded $600 million monorail people mover system and a bus rapid transit system in Las Vegas which will feature low-floor, electric powered buses with an optical guidance system.  We will invest in innovative ITS technologies such as dynamic message signs, ramp meters, closed circuit television and traffic detection systems.  Other efforts include “low-tech” car-pooling, telecommuting and new bike and pedestrian facilities.   We will still need substantial additional highway capacity. 

 

With the growth in the federal-aid highway program provided by TEA-21, we have been able to make progress in our preservation and highway capacity needs.  At the beginning of fiscal year 2001, there was a $483 million backlog of highway and bridge preservation work.  This is significantly lower than the $670 million backlog we had at the beginning of fiscal year 1999.  We were able to reduce the backlog by investing significantly greater amounts in pavement preservation.  During fiscal years 1999 and 2000, our department spent $329 million on overlay and reconstruction work – our biggest pavement preservation program ever.

 

TEA-21’s highway program increases have also enabled us to undertake an aggressive effort to keep pace with our growing population and make a real difference in addressing congestion.  For example, the $99 million “Spaghetti Bowl” I-15/U.S. 95 interchange in Las Vegas opened in March, 2000, six months ahead of schedule.  The revamped interchange will reduce the congestion caused by the 330,000 vehicles using it each day.  It is now capable of accommodating 500,000 vehicles per day.

 

Mr. Chairman and Members of the Committee, let me now address how the funding of the federal aid highway program for FY 2003, and beyond, can be sustained at levels required to meet this nation’s needs.

 

Mr. Chairman, we in the states are stunned by the FY 2003 budget proposal which, in the midst of a recession, would cut the federal aid highway program by $8.6 billion because apparent reductions in revenues to the Highway Trust Fund have triggered a Revenue Aligned Budgetary Authority (RABA) reduction.  To avoid a disastrous cutback in highway improvements, reducing our ability to meet basic highway needs, and to avoid the loss of thousands of jobs, we strongly support the bill you introduced last week to restore highway assistance to no less than the $27.8 billion level for FY 2003 authorized in TEA-21.  We commend you for your appreciation of how important sustained highway investment is to the country and thank you for your leadership in putting this legislation forward.

 

We also want to share with you our emphatic view that it is vital to sustain federal highway investment in FY 2003, at no less than the $31.8 billion level provided in FY 2002.  With 36 state governors and legislatures already contending with severe budget shortfalls, and the nation in an economic downturn, cutting the program by $4.3 billion makes no more sense than cutting it by $8.6 billion. This is especially so when there are more than sufficient reserves in the Highway Trust Fund to provide funding for FY 2003.  Let me outline what we believe the consequences would be unless current levels of funding are sustained.

 

As early as next month, state and local officials will begin the task of cutting billions of dollars in highway projects from their FY 2003 Transportation Improvement Programs.  Final decisions will be made public in September affecting nearly every community in the nation.

 

Construction contractors throughout the country will start making business plans on how to cut back their equipment purchases and lay off tens of thousands of well-paid construction workers.  The stock prices of several heavy equipment manufacturers and construction companies have already dropped. Engineering consulting firms, already hard hit by the recession, will almost immediately have to start laying off engineers and technicians as design work for next year’s projects is delayed or canceled.

 

Yet since the tragic events of September 11, traffic is up all over the country.  The most recent data shows a dramatic increase in annual traffic growth of nearly 3 percent.  For example on I-15 at the California-Nevada border, our vehicle count for the last three months is up nearly 10 percent.  This highway is really bottlenecked, especially in California where Interstate 15 and 40 converge into a single four-lane Interstate carrying the traffic from Arizona and Nevada to Los Angeles.  While this bottleneck is scheduled to be widened, the cut in TEA-21 funding could cause project delays resulting in hundreds of millions of dollars in congestion-related costs.

 

Numerous other projects will be delayed in every state.  This cut is proposed at a time of increasing need for highway preservation projects in every part of the country and capacity projects in rapidly growing states like Nevada.

 

State Impacts

 

AASHTO last week initiated a survey of state departments of transportation to assess the direct and indirect dollar and project impacts across all 50 states.  While that survey is still in progress, here is an example of what we found:

 

·                   In Ohio, approximately $187 million worth of construction projects would be delayed or canceled..  $47 million in preconstruction, right-of-way and/or environmental activities would be impacted.

 

·                   In Oklahoma, a total of $120 million in construction and right-of-way projects would be delayed or canceled. This could also impact the state’s proposed $1 billion GARVEE Bond Program, with the construction let dates for the proposed projects being delayed.

 

·                   In Montana,  $66.8 million reduction would result in a loss of 2,805 jobs – roughly equal to 25 percent of the new jobs created in Montana in 2001.  This drastic reduction will have significant impact on the many small construction and design firms in Montana.

 

·                   In Alaska, even if the program recovers in 2004, the reduction in design efforts in FY 2003 will translate into future delays in construction contracting of nearly $50 million.

 

·                   In Florida, a reduction of $324 million is equivalent to approximately 24 percent of the FY 2003 capacity construction program.  Implementation of these reductions would negate gains in jobs and transportation improvements achieved from recent transportation initiatives of the Governor and legislature.

 

One serious concern that must be addressed is the accuracy of the process used by the Department of the Treasury to determine the revenue estimates used in calculating RABA.  The correction of a $600 million error by the Department of Treasury has already reduced the proposed highway cutback to $8.6 billion.  Recent information on FY 2001 truck sales and fuel tax revenues at the state level call into question the Treasury forecasts, and leads us to believe that other adjustments in RABA could occur.

 

The public policy questions Congress needs to address are these.  First, to assist in the nation’s economic recovery does it not make sense to sustain highway funding at $31.8 billion?   Second, are there reserves and cash flow in the Highway Trust Fund to make this possible in FY 2003?  The answers are "Yes" and "Yes!"

 

Funds Are Available to Sustain FY 2002 Levels

 

Four years ago we agreed to the fundamental principle that all the receipts going into the Highway Account would be fully used for transportation purpose, and not be used to offset other government expenditures.  But today there is a $20.3 billion cash balance in the Highway Trust Fund.  We seek to provide $8.6 billion in obligations which will restore the highway funding to the FY 2002 level.  The budget impact of this increase will only require $2.3 billion in outlays for FY 2003. Because highway funds are spent over a period of about seven years, $2.3 billion in additional outlays in FY 2003 will allow us to continue the momentum we have achieved in FY 2002. 

 

The table displayed below shows receipts and expenditures for the Highway Account of the Highway Trust Fund for Fiscal Year 1998 thorough Fiscal Year 2003.  Even accounting for unpaid obligations, it is clear that there is a substantial balance in the Highway Account with receipts exceeding outlays over the six-year period.  Mr. Chairman, we respectfully urge the Congress and the Administration to honor their commitment to spend all the receipts going into the Trust Fund, unlock the balances that have built up and make a positive contribution to the current economic recession.

 

1Highway Account Receipts and Outlays

Fiscal year

Receipts

Outlays

Difference

1998

 

24.3

 

20.3

 

4.0

 

1999

 

33.8

 

23.1

 

10.7

 

2000

 

30.3

 

27.0

 

3.3

 

2001

 

26.9

 

29.1

 

-2.2

 

*2002

 

27.7

 

30.2

 

-2.5

 

*2003

 

28.6

 

30.6

 

-2.0

 

Subtotal

171.6

 

160.3

 

11.3

 

Balance from ISTEA

8.0

 

 

 

 

 

Total

179.6

 

160.3

 

19.3

 

 

                        *Estimated

Note: The Highway account balance was $8 billion at the beginning of TEA-21. Therefore, the cash balance at the close of FY 2001 is $20.3 billion.

 

1Source:  Federal Highway Administration

 

Long-term Impacts  

 

In addition to the immediate impacts of reducing highway spending by more than a quarter, the RABA downward adjustment has longer-term consequences for the federal-aid highway program.  If the obligation level for Fiscal Year 2003 is adjusted downward from $31.7 to $23.2 billion, then the $23 billion level will become the baseline for reauthorization of TEA-21.  That would leave us at a starting point $8.6 billion below where we are today, and considerably lower that the $27.8 billion obligation level for FY 2003 contained in TEA-21.  Starting in such a deep hole, would make it much more difficult to maintain the federal-aid highway program at current levels, and perhaps impossible to expand it.

 

TEA-21 Reauthorization.  

 

As we look to reauthorization of TEA-21 and the future of the federal-aid highway program, we believe that, first, it is essential to preserve and reaffirm the principle of a user-based transportation financing system in which all receipts are guaranteed to be used for the purposes for which they were intended. 

 

To accomplish this, TEA-21 set highway obligations at levels based on then-current estimates of gasoline and related tax receipts, and established a new mechanism, Revenue Aligned Budget Authority (RABA), to annually adjust them based on updated revenue estimates.

 

To ensure that domestic discretionary caps would not prevent the use of all available revenues, a “firewall” provision was included in the Budget Enforcement Act to increase or decrease highway spending each year so that it would align itself with Highway Trust Fund receipts.  This provision provides for a “spending guarantee.”  Congress also guaranteed an annual funding level for transit programs, which are funded with a combination of highway tax receipts accruing to the Mass Transit Account of the Trust Fund and a general fund contribution.  I should add that we are pleased that in the just released Fiscal Year 2003 budget, the Administration honors the transit funding guarantee.

 

Mr. Chairman, this year the spending caps expire.  If and when Congress considers new caps, we urge you and the Members of the Subcommittee to lead the way in ensuring that the “firewall” provision is maintained.

 

These tools – RABA and the “firewall” provisions -- were designed to provide the long-term fiscal stability needed for state and local highway and transit agencies to finance, design and execute multi-year construction programs. 

 

Recent experience has demonstrated, however, that there are unintended flaws in the RABA mechanism.  Changes in economic conditions that result in minor adjustments to estimated receipts cause wide swings in highway funding levels.  In reauthorizing TEA-21, we must carefully examine and refine the RABA mechanism, including its calculation methods and revenue estimating procedures.  We recommend that you consider replacing the current calculation method with one that simply compares actual previous year receipts to the assumptions made at the time the bill passed, with the difference becoming the RABA adjustment.

 

We also recommend that you consider instituting reforms to the Department of Treasury’s process for estimating tax receipts to the Highway Account.  This is not the first time that the Department of Treasury has made costly errors.  In 1994, a $1.3 billion error eventually cost $3.6 billion to correct.  This most recent $600 million error leaves us with absolutely no confidence in their accounting methods.  We are not alone in our concerns.  In June 2000, the U.S. General Accounting Office released a report[2] in which they indicated that “Treasury’s process for allocating tax receipts to the Highway Account of the Highway Trust Fund is complex and error prone.”  At the request of House Transportation and Infrastructure Chairman Don Young and Ranking Member James Oberstar, GAO is now engaged in a new review of Treasury’s methods for estimating receipts to the Highway Account.  We urge you carefully consider the results of GAO’s review, and consider appropriate reforms during reauthorization.

 

Revenues

 

Near term: Changes regarding gasohol revenues need to be addressed during TEA-21 reauthorization. A significant portion of the unanticipated downturn in FY 2001 revenues was due to increased gasohol sales, which grew by nearly 30 percent.  This accounted for a significant portion of the revenue reduction. Now that the use of MTBE is to be discontinued in several states, the only fuel additive approved to address the oxygenate requirements in the Clean Air Act is gasohol.  Prior to the change regarding MTBE, the most heavily affected state due to the lower tax rate charged for gasohol was Ohio, which lost over $175 million in FY 2001.  A recent study by the State of Wisconsin indicates that the impact may grow significantly worse in the near future, with the impact on California for example increasing to $450 million next year.  Areas such as New York and New England are expected to be hard hit as well.  This will become a priority issue to be addressed during reauthorization.  The Baucus Bill, for example, which would shift revenue from the 2.5 cents on gasohol now going to the General Fund to the Highway Trust Fund beginning in FY 2004, is a step in the right direction.  Still more may be required.

 

Long Term:  The second revenue issue is longer term in nature.  It is a concern for the future ability of gas tax revenues to sustain highway funding as increases in fuel efficiency reduce revenues relative to travel, and other technological changes occur such as a move to greater reliance on alternative fueled vehicles including fuel cells, compressed natural gas, and electricity.  We believe the time has come for Congress to mandate a study of this issue by GAO or the National Academy of Science and the development of alternatives for consideration during reauthorization deliberations in 2009.

 

 

Conclusions

 

In conclusion, I would like to state that the federal-aid highway program has been one of the most successful federal-state partnerships ever created.  It has contributed to the nation's mobility and to the unprecedented economic growth that the nation has experienced since the 1950's. 

 

TEA-21 is a major step forward in providing much-needed funding to the nation's highway and transit program.  It is essential that the RABA principle of fully spending Highway Trust Fund receipts and guaranteeing that spending be maintained.  However, it is also essential that in a time of recession, the consequences of the RABA mechanism not be permitted to eliminate hundreds of thousands of jobs while setting back much-needed transportation projects nationwide.

 

 We clearly have sufficient receipts in the Highway Trust Fund to sustain a higher program level. Authorizing a higher level is consistent with TEA-21, which provided more contract authority to the states to assure the Congresses could increase the program above the guarantee.  We urge the Congress to make this investment in America.

 

 

 

 

 

 

 



[1] Founded  in 1914, AASHTO represents the departments concerned with highway and transportation in the fifty States, the District of Columbia and Puerto Rico.  Its mission is a transportation system for the nation that balances mobility, economic prosperity, safety and the environment

[2] Highway Funding:  Problems with Highway Trust Fund Information Can Affect State Highway Funds (GAO/RCED/AIMD-00-148, June, 2000)