Highway Funding:

Problems With Highway Trust Fund Information Can Affect State Highway Funds

RCED/AIMD-00-148: Published: Jun 29, 2000. Publicly Released: Jun 29, 2000.

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Pursuant to a congressional request, GAO reviewed the: (1) Department of the Treasury's process for allocating highway user tax receipts to the Highway Account of the Highway Trust Fund; (2) Federal Highway Administration (FHwA) process for estimating motor fuel usage and the contributions to the account that are attributable to highway users in each state; and (3) impact of these processes on the amount of highway program funds distributed to each state.

GAO noted that: (1) given the Transportation Equity Act for the 21st Century's increased linkage between the receipts in the Highway Account of the Highway Trust Fund and the level of highway program funds distributed to the states, the quality of information developed by the Treasury and FHwA is more critical than ever before in determining accurate funding amounts to be distributed to the states each year; (2) the processes used by Treasury and FHwA to estimate overall receipts and the portion of those receipts attributable to highway users in individual states are highly complex and susceptible to error, and the reliability of the estimates has not been demonstrated; (3) as a result, there is little assurance that the actual amounts distributed to the states are accurate, although there is no way of knowing the extent of over- or under-payments, if any, to individual states, given the information available from the two agencies; (4) although the Treasury and FHwA are taking actions to review and improve their estimating processes, these actions are not sufficient to correct all the weaknesses; (5) for example, although Treasury has a number of ongoing efforts aimed at improving its revenue allocation and reporting process for trust funds, it does not have a comprehensive plan, with timeframes, that addresses all of the policy and process changes needed to fully implement those efforts; and (6) furthermore, FHwA's efforts to improve the data and methodology used in its attribution process do not verify the accuracy of the information resulting from that process.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: IRS is in the process of revising its overall approach for modernizing its financial information systems and, as a result, is delaying the development of detailed plans for improving its revenue allocation process. The agency has not set a timeframe for developing these plans. Furthermore, the agency has no plans to evaluate or adopt incentives to encourage excise taxpayers to provide detailed data on the types of taxes they are paying at the time of their semimonthly deposits. Officials explained that the adoption of such incentives would face numerous obstacles, including issues of fairness and uncertainties regarding their legality.

    Recommendation: To reduce the risk of errors and increase the reliability of the information used to distribute highway program funds to the states, the Secretary of the Treasury should place greater emphasis and priority on the agency's efforts to improve its process for allocating receipts to the Highway Trust Fund and other excise-tax-related trust funds by developing a comprehensive plan that addresses all of the policy and process changes that will be needed to fully implement these efforts. In particular, the plan should include steps and timeframes for evaluating and deciding whether to use incentives as a near-term method for encouraging taxpayers to provide detailed data--at the time of deposit--on the specific types of excise taxes for which deposits are made.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: In 2002, IRS conducted a limited survey of 8 of the 30 largest excise taxpayers to determine if they could provide a breakdown on the types of taxes they are paying at the time of their semimonthly deposits, and found that they could not do so because they do not have this information available at the time of deposit. In addition, officials told us that they have recently conducted a study of tax type data voluntarily provided by some excise taxpayers at the time of deposit, using IRS' electronic payment system, and found that this data varied significantly from what these taxpayers ultimately reported on their tax returns. Based on the results of this survey and study, the agency has decided not to pursue a requirement for excise taxpayers to provide, at the time of deposit, detailed data on the types of taxes they are paying.

    Recommendation: To reduce the risk of errors and increase the reliability of the information used to distribute highway program funds to the states, the Secretary of the Treasury should place greater emphasis and priority on the agency's efforts to improve its process for allocating receipts to the Highway Trust Fund and other excise-tax-related trust funds by developing a comprehensive plan that addresses all of the policy and process changes that will be needed to fully implement these efforts. In particular, the plan should include steps and timeframes for reexamining taxpayer capabilities to provide these detailed data in several years and deciding whether to require the data from taxpayers at that time, considering the potential burden to taxpayers and the potential benefits to the government.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Not Implemented

    Comments: IRS has not made any plans for conducting such a study. Agency officials explained that, while such a review of the certification and adjustment process would be worthwhile once Treasury's new revenue allocation process is in place and its capabilities have been defined, it would be premature to schedule this review at this time because it is not clear when the new revenue allocation process will be implemented. However, IRS is planning some improvements in its certification process in response to recommendations in a July 2003 GAO report that identified internal control weaknesses in this process.

    Recommendation: To reduce the risk of errors and increase the reliability of the information used to distribute highway program funds to the states, the Secretary of the Treasury should place greater emphasis and priority on the agency's efforts to improve its process for allocating receipts to the Highway Trust Fund and other excise-tax-related trust funds by developing a comprehensive plan that addresses all of the policy and process changes that will be needed to fully implement these efforts. In particular, the plan should include steps and timeframes for determining what changes may be needed--as a result of changes being planned in the revenue allocation method--in Treasury's methods for certifying and adjusting the amounts allocated to the trust funds on the basis of analyses of tax return and payment data.

    Agency Affected: Department of the Treasury

  4. Status: Closed - Implemented

    Comments: FHWA developed a methodology for conducting the reviews and verification of the state-reported data, and has begun carrying out the reviews. As of August 2002, FHWA had scheduled/initiated reviews in 32 states. To inform federal and state officials involved with the reviews about the methodology and the review results, FHWA has (1) published guidance for conducting the reviews, (2) sponsored workshops in Atlanta, Chicago, and Sacramento to provide outreach and training, and (3) established a "community of practice" web-site and electronic discussion group where federal and state officials can obtain information and share experiences and best practices.

    Recommendation: The Secretary of Transportation should direct the Administrator, FHwA, to improve the reliability of the attribution process by ensuring that detailed, independent verifications of motor fuel data are performed for each state, perhaps on a rotational basis over a period of years.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: FHWA completed several actions to implement this recommendation. First, it published a brochure that describes the attributions process in non-technical language. Second, it published a report that fully documents the attribution process, estimation procedures, process reassessment efforts, and action plan for process improvements. Third, it developed a "Smart Tool" to allow states to electronically report their motor fuel data to FHWA headquarters, thus ensuring a higher level of standard reporting by the states and increasing the quality and reliability of the data.

    Recommendation: The Secretary of Transportation should direct the Administrator, of FHwA, to improve the reliability of the attribution process by fully documenting FHwA's current methodology for analyzing the state motor fuel data used in the attribution process to explain its contents and rationale and to specify the procedures for carrying it out.

    Agency Affected: Department of Transportation

  6. Status: Closed - Implemented

    Comments: FHWA hired a contractor in the summer of 2001 to conduct the comprehensive review of this methodology. The contractor documented and evaluated the existing and revised procedures and models used in the methodology and submitted a draft report to FHWA in April 2003, making recommendations for changes to some of the models. FHWA agreed with the conclusions in the draft report, but may ask the contractor to clarify or change some of the recommendations. In response to the study, FHWA developed and implemented a new gasohol model in 2003. This model more accurately collects and analyzes state data to estimate gasohol usage--information that is used to allocate federal highway funds to the states.

    Recommendation: The Secretary of Transportation should direct the Administrator, FHwA, to improve the reliability of the attribution process by conducting an independent, comprehensive review of this methodology.

    Agency Affected: Department of Transportation

  7. Status: Closed - Implemented

    Comments: FHWA has been working with IRS for 3 years to develop Excise Files Information Retrieval System (ExFIRS) data that can be used to validate the state motor fuel data used in FHWA's attribution process. The first data became available in October 2001, but there were reliability problems with it which IRS has been correcting through its Data Perfection Team. In the spring of 2004, IRS generated 9 months of data for 2003, which DOT compared to 2002 motor fuel data (the most current data available at the time) Both IRS and DOT concluded that the ExFIRS data are sufficiently reliable to use as a validation tool for the attribution process. IRS expects to deliver the full data set for 2003 to DOT in July 2004 and DOT expects to complete its final validation of 2003 motor fuel data using ExFIRS by October, 2004.

    Recommendation: The Secretary of Transportation should direct the Administrator, FHwA, to improve the reliability of the attribution process by evaluating the potential reliability the Internal Revenue Service's Excise Files Information Retrieval System data, once they become available, for use as a tool to validate the state motor fuel data used in the attribution process.

    Agency Affected: Department of Transportation

  8. Status: Closed - Not Implemented

    Comments: FHWA officials prepared a draft of this report which was approved by the FHWA Administrator in December 2001 and sent to the Transportation Department's Office of the Secretary (OST)for review and comment. FHWA has made changes to the draft on several occasions in response to OST's comments, but it has never received approval to issue the report. FHWA officials say the report is now out-of-date and would have to be completely rewritten. They do not plan to rewrite it because they have no impetus from Congress or the Administration to do so.

    Recommendation: The Secretaries of the Treasury and Transportation should report to the cognizant highway-related authorizing committees in Congress--the Committee on Transportation and Infrastructure in the House of Representatives and the Committee on Environment and Public Works in the Senate--within 12 months, and annually thereafter, on their progress in implementing GAO recommendations and on the extent to which their processes for collecting and reporting information on Highway Account receipts are producing accurate, reliable data for use in distributing highway program funds to the states.

    Agency Affected: Department of Transportation

  9. Status: Closed - Not Implemented

    Comments: The Treasury Department does not believe that there is a need for annual reports to Congress at this time because it does not foresee, in the near-term, any significant changes in the process for allocating excise tax revenue to the trust funds. In particular, it does not believe that it would be appropriate, in the near future, to require taxpayers to provide a detailed breakdown, at the time of deposit, on the specific excise taxes being paid because affected companies continue to indicate that they do not have this information available at the time of deposit.

    Recommendation: The Secretaries of the Treasury and Transportation should report to the cognizant highway-related authorizing committees in Congress--the Committee on Transportation and Infrastructure in the House of Representatives and the Committee on Environment and Public Works in the Senate--within 12 months, and annually thereafter, on their progress in implementing GAO recommendations and on the extent to which their processes for collecting and reporting information on Highway Account receipts are producing accurate, reliable data for use in distributing highway program funds to the states.

    Agency Affected: Department of the Treasury

 

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