FHWA and FTA Could Improve Monitoring of Highway Trust Fund

The U.S. House will likely pass another transportation funding extension this week. This three-month extension will buy the House more time to develop a long-range transportation bill. Any bill the House passes will need to be rectified with the Senate bill. It is unlikely that any bill will become law before November.

As a result, the solvency of the Highway Trust Fund remains an issue. The Trust Fund manages the federal gas taxes that each motorist pays. As the U.S. now spends more trust fund money than it receives, the fund will go bankrupt without transfers from the general fund. The fund is forecast to go bankrupt this September. Over the past four years $35 billion has been transferred from the general fund to the trust fund. Since Congress has pledged to eliminate further bailouts of the trust fund, proper management and monitoring is critical.

For this reason the Office of the Inspector General (OIG) analyzed DOT’s management of the Highway Trust Fund’s solvency to determine if the department could improve the understanding and accuracy of the projections. The OIG suggested several steps that the department could take. Both the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA) were found to have issues. The full report is available here.

In 2008 both FHWA and FTA instituted procedures to track shortfalls. FHWA also added a procedure to adjust the outlay of funds to State DOT’s. Although the tracking tools provide a rough job of estimating funds, a better system could improve tracking.

The OIG found three problems with the current procedure. First, the projections are established in the President’s annual budget and outside of the six-month review are not updated. The condition of the highway trust fund can change substantially in as little as three months. Second, while the long-term projections are accurate, current tools do not allow for determination of short-term deviations. Third, it is challenging especially for FTA to determine long-term estimates since program funds are spent over different time periods from as little as 12 months to as long as 10 years. Once a shortfall appears, FHWA invokes payment delays and proration. FTA has no such policies.

Determining how long the transportation fund will remain solvent is critical. Hopefully, the next transportation bill will fix the funding issues by reducing funding for programs without an interstate purpose including livability, non-motorized transportation, and transit. The lack of a long-term bill prevents States from undertaking major construction projects because there is no funding certainty. Temporary funding is less than ideal, but it still provides some guarantees. States are more likely to begin construction projects with funding certainty.

The inspector recommended that FHWA and FTA take three steps. First, provide in the weekly report to Congress a range of dates as opposed to a specific date when funding will end. Second, conduct an assessment of outlays to representative projects to identify deviations in outlay trends and adjust the forecast accordingly. Third, publish on each agency’s respective website its cash management procedures and what triggers the use of these procedures so stakeholders more fully understand the process.

The agencies agree with the first recommendation. The agencies also acknowledge the need for the second recommendation but want to choose a different evaluation procedure. This is appropriate if the procedure works; however, the agencies have not provided a date for conducting the assessment. The agencies need to select a date to make this process effective.

The third recommendation is more of a sticking point. DOT leaders do not want to identify their cash management procedures and implementation time since DOT leadership can change its cash procedures in response to external events. Striking a balance between flexible fiscal management procedures and public information is challenging. The agency does not want to draw a line in the sand that might cause panic or lead states to take shortcuts to receive funding when the state is not ready. However, the department has the responsibility to be open and honest with the public. Congress, construction companies, and citizens have concerns about federal resources that they support with gas taxes. DOT should be as open as possible about the process. OIG is satisfied with DOT’s response to the third recommendation, but the agency could go further.

Transportation extensions and excessive spending are poor ways to run a transportation system. However, the U.S. will have more of the same for at least the next eight months. With this reality, DOT needs to have a plan to effectively communicate available national transportation funding.