How the Federal Budget Process Impacts the Local Highway Program By JOHN W. McCREE Illinois Department of Transportation

There has been an increasing awareness and concern by highway authorities, in recent years, regarding the effect of the federal budget process on the availability of federal-aid for highway construction. Most of this increased awareness and concern can be attributed to the Gramm-Rudman-Hollings (GRH) Deficit Reduction Act of 1985. As you may recall, the GRH Act initially was designed to reduce the federal budget deficit to zero by Fiscal Year 1991. The intent was for Congress to meet its annual deficit target by imposing program cuts, tax increases, or both. Soon after the GRH Act became law, cries of "Reduce the Highway Trust Fund Balance" and "Remove the Federal Highway Trust Fund from the Unified Federal Budget" were heard nationwide. This article is an attempt to explain the reason for these outcries and what effect such actions would have on the local highway program.

The Federal Highway Trust Fund is the "bank account" for the federal portion of motor fuel tax revenues. The Trust Fund provides almost all of the dollars for the federal-aid portion of highway projects. Funding levels included in Federal Highway Acts are established only after careful study of future projected financing capabilities of the Trust Fund. Also, Congress takes a close look at the Trust Fund balance prior to establishing a federal-aid highway program spending level (appropriation) each year.

An interesting fact is that the Trust Fund has a huge balance. Part of the reason the balance is so large is because Congress, in its recent annual appropriation bills, has limited Trust Fund spending to well below the levels established in the current Surface Transportation Act. This spending limitation has had two significant impacts:

1. Prevented full use of Trust Fund revenues for financing needed highway improvements.

2. The resultant large Trust Fund balance has made the federal deficit appear smaller, making it easier for Congress to meet budget deficit reduction targets.

By law, the Federal Highway Trust Fund must operate in the black. Consequently, it does not contribute to the federal deficit in any manner. In almost all of the recent AASHTO Transportation 2020 forums held across the country, witnesses strongly opposed the use of the Trust Fund to help "bail out" the federal budget.

Many highway officials believe that the Trust Fund could support a $15 billion-a-year highway program. Congress has established a $12 billion spending limit (exclusive of Demonstration Projects and Minimum Allocation funding totaling $1 billion plus) for the current fiscal year. This spending restriction causes the federal-aid funding available for local highway improvements in Illinois this year to be approximately equivalent to 90 percent of the amount of federal apportionment for local projects.

An analysis of the situation by the Illinois Department of Transportation indicates that, while a $15 billion-a-year federal-aid program may be somewhat overly optimistic, certainly the Trust Fund could support a spending limit substantially in excess of the current $12 billion figure. In addition, although there is a balance of approximately $9.5 billion in the Trust Fund, approximately half of this is needed to cover committed projects. However, the remaining excess could be drawn down at the rate of $1 billion per year until an appropriate level is reached that would provide an adequate cash flow cushion. The draw down (or reduction) of the Trust Fund balance can occur only if Congress increases the annual highway program spending level. Removal of the Trust Fund from the Unified Federal Budget would serve as the incentive for Congress to increase the spending level. This approach should result in almost all available apportionment for local projects being spendable through the remaining years of the current Surface Transportation Act. •

December 1988 / Illinois Municipal Review / Page 5