The Highway Account within the Highway Trust Fund is the primary mechanism for funding federal highway programs. The account-- administered by the Federal Highway Administration (FHWA) within the Department of Transportation (DOT)--channels about $33 billion in highway user excise taxes annually to states for highway projects. Although DOT and others projected that the account could run out of funds in fiscal year 2009, the balance fell more rapidly than expected and a shortfall became imminent in August 2008. In September, Congress passed legislation to provide $8 billion to replenish the account, but DOT officials anticipate the account could reach a critical stage again in fiscal year 2009. This report (1) describes the events that led to the decline in the account balance, including how DOT responded, and (2) identifies potential improvements in mechanisms to manage account solvency. This report also includes information on strategies GAO has reported on in the past that could be used to better align account outlays and revenues. To conduct this work, GAO analyzed information in legal and budget documents, reviewed account estimates, and interviewed agency officials and stakeholders.

The Highway Account balance declined for several reasons. In 2005, estimated outlays from the account specified in legislation exceeded estimated revenues and, if these estimates were realized over the fiscal year 2005 to 2009 authorization period, would draw the account balance down to about $0.4 billion by the end of fiscal year 2009. However, actual revenues for fiscal year 2008 were about $4 billion lower than the estimates due to fewer purchases of trucks and motor fuel--two primary sources of account revenue. In the summer of 2008, DOT received indicators that the Highway Account balance was declining faster than expected and developed cash management practices to slow outlays to states but estimated that the account would remain solvent through the end of fiscal year 2008. Following a large downturn in revenues allocated to the account in August, DOT officials announced on Friday, September 5--three weeks later--that the practices to slow outlays would begin the following Monday, leaving states little time to adjust. DOT officials recognize that communication with stakeholders could be improved and are developing a plan to improve communication. Improving mechanisms intended to help maintain Highway Account solvency could reduce the likelihood of a funding shortfall. First, statutory mechanisms designed to make annual adjustments to the Highway Account could be modified and implemented to perform better. In fact, DOT analyses prepared at GAO's request show that these modifications could have prevented or at least signaled the fiscal year 2008 decline. Second, DOT could monitor additional indicators throughout the year--such as changes in vehicle miles traveled--to help anticipate sudden changes in account revenues. Despite improvements in mechanisms, without either reduced expenditures or increased revenues, or a combination of the two, account shortfalls will likely continue. DOT officials noted that improved solvency mechanisms would be effective only if the authorization act better aligns expenditures from the account with revenues. In the past, GAO has reported on strategies that could be used to align expenditures and revenues.

Status Legend:

Review Pending-GAO has not yet assessed implementation status.

Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.

Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.

Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.

• Review Pending
• Open
• Closed - implemented
• Closed - not implemented

Recommendations for Executive Action

Recommendation: To improve DOT's communication with stakeholders on the status of the Highway Account and the mechanisms the agency uses to help maintain account solvency, the Secretary of Transportation should identify changes to existing solvency mechanisms designed to make annual adjustments to the Highway Account and communicate to Congress the potential benefits and limitations of these changes.

Agency Affected: Department of Transportation

Status: Open

Comments: Due to delay in surface transportation program reauthorization, this recommendation has not been implemented. The Department of Transportation will work with Congress to explore appropriate solvency mechanisms as part of the surface transportation program reauthorization process. Such measures can best be designed in light of the funding mechanisms and levels under consideration for the upcoming legislation.

Recommendation: To improve DOT's communication with stakeholders on the status of the Highway Account and the mechanisms the agency uses to help maintain account solvency, the Secretary of Transportation should monitor additional indicators that can impact the account balance throughout the year to better anticipate sudden changes in the balance.

Agency Affected: Department of Transportation

Status: Closed - Implemented

Comments: In response to GAO's recommendation, DOT has implemented several efforts to more closely monitors the Highway Account balance of the Highway Trust Fund, including tracking biweekly deposits and weekly cash withdrawals.

Recommendation: To improve DOT's communication with stakeholders on the status of the Highway Account and the mechanisms the agency uses to help maintain account solvency, the Secretary of Transportation should include in its proposed communication plan a periodic reporting schedule that includes information on the status of the Highway Account balance--based, in part, on information gained from monitoring additional indicators--and actions that may be needed to maintain account solvency.

Agency Affected: Department of Transportation

Status: Closed - Implemented

Comments: In response to GAO's recommendation, DOT officials have proactively communicated with stakeholders about an anticipated Highway Account shortfall for fiscal year 2009.