FY20 Donor State Update: TX Adjustment Worsens CO, SC Rates of Return

FY20 Donor State Update: TX Adjustment Worsens CO, SC Rates of Return

October 15, 2019  | Jeff Davis

As ETW noted on October 2, the annual distribution of formula highway funding under the FAST Act is still largely determined by how much money states received in fiscal year 2009. The only variable is how much money each state pays into the Highway Account of the Highway Trust Fund (HTF-HA) in the form of excise taxes.

The fiscal year 2020 apportionment of $43.4 billion in Highway Trust Fund contract authority to states on October 2 by the Federal Highway Administration (FHWA) had to use HTF-HA estimated tax receipts for fiscal year 2018, which closed on September 30, 2018 but for which state-by-state allocations were not available until several months later. (The FY 2019 state-by-state tax estimates still haven’t been made, so there is no way that FHWA could have used them last month for calculations that, by law, have to take place prior to October 1.)

It was obvious (to ETW at least) that Texas was the only state to trigger the “95 percent rate of return” rule in 23 U.S.C. §104(c)1)(B) that requires each state to receive a total formula apportionment that is no less than 95 percent of the dollar amount of its most recently available prior year HTF-HA tax payments. But we couldn’t tell what the donor-donee situation was with other states.

Now we can. The official fiscal year 2018 HTF-HA revenue estimates total $37.292 billion, compared with total FY 2020 apportionments of $43.370 billion, which means that the rate of return for the entire federal-aid highway program, in the aggregate, was 116.3 percent. (Thanks, Federal Reserve!) That calculation is highway formula dollars only, so that means that allocated (non-formula) FHWA programs (admin, research, federal lands, Indian roads, ferries, territories and Puerto Rico, INFRA grants, TIFIA loans, emergency relief, etc.) as well as NHTSA and FMCSA programs are now entirely derived from general fund transfers to the Trust Fund, if you want to prioritize actual excise tax dollars for formula spending (as the §104(c)(1)(B) test implicitly does).

With regards to Texas, the Lone Star State had an estimated $4,234.7 million in HTF-HA tax payments in FY 2018. Their original FY 2009 (as adjusted through FY 2014) entitlement of 8.8142 percent of total formula funding would only have given them $3,822.7 million in FY 2020 formula money, which was only 90.1 percent of their estimated FY 2018 tax payment. So FHWA was forced to give Texas an extra $204.4 million to get them to a total apportionment of $4,031.1 million in FY 2020 funding, which is 95.0 percent of their FY 2018 estimated tax payment.

Texas’s $204.4 million bonus came at the expense of the other 49 states and the District of Columbia, each of which saw their total dollars reduced pro rata by their shares of $204.4 million – which forced their shares of total funding, and thus their rates of return, downwards.

As it turns out, there were two other states that also received FY 2020 highway formula funding that was less than 100 percent of their FY 2018 HTF-HA tax payments. Under the original calculations, Colorado and South Carolina had initial FY 2020 apportionments that totaled 99.4 percent and 99.7 percent, respectively, of their FY 2018 HTF-HA tax payments – but Texas’s adjustment to 95.0 percent had the effect of reducing  Colorado’s rate of return to 98.9 percent and reducing South Carolina’s rate of return to 98.9 percent. The five states with the lowest rates of return for 2020, before and after the Texas adjustment:

Before After
TX 95% Adjustment
Texas 90.1% 95.0%
Colorado 99.4% 98.9%
South Carolina 99.7% 99.1%
North Carolina 101.1% 100.6%
Mississippi 104.5% 104.0%

But in the bigger picture, there were only three states below a 100 percent rate of return on Highway Trust Fund Highway Account tax payments in fiscal year 2020, which means that real “donor states” only have 6 votes in the Senate. The rest of the Union consists of “donee” states (and D.C.) and their rates of return range from North Carolina’s 100.6 percent all the way up to five states with rates of return over 200 percent: Hawaii (205.8%), Montana (256.3%), Rhode Island (300.0%), Vermont (305.1%), and Alaska (626.1%), plus the District of Columbia at 891.9%. (See table at the end of this article.)

But even though there are only three donor states left (and the big one is cannibalizing the smaller two), this exercise proves a larger point. Assuming that you cannot get a more timely correlation between tax receipts allocated to states and new contract authority than Tax Receipt Year X to Contract Authority Year X+2 (as we do today), only $37.3 billion of FY 2020 formula highway funding can actually be attributed to actual excise tax payments by highway users. The other $6.1 billion of highway formula funding for 2020 is presumably derived from the $51.9 billion in general fund bailouts of the Trust Fund contained in the FAST Act of 2015. So are the $3.7 billion in allocated (non-formula) FHWA funding for 2020, as is the $1.5 billion in FY 2020 contract authority for NHTSA and FMCSA.

If we are giving away $6+ billion of highway formula contract authority per year based entirely on general fund transfers taken from the Federal Reserve or borrowed on the bond market, should the bailout-supported money be distributed via different apportionment formulas and rules than the money that actually comes from highway user excise taxes in each state? A question to be asked (repeatedly) if Congress moves another surface transportation bill that doesn’t return the Highway Trust Fund to actual self-sufficiency from user tax receipts…

HTF Highway Account “Rates of Return” for Fiscal Year 2020

Millions of dollars.
FY 2018 Est. FY 2020 Ratio of
HTF-HA Actual Apportionments
State Tax Payments Apportionments to Tax Payments
Alabama $732.54 $835.77 114.1%
Alaska $88.22 $552.37 626.1%
Arizona $754.71 $806.01 106.8%
Arkansas $467.00 $570.35 122.1%
California $3,564.04 $4,043.26 113.4%
Colorado $595.74 $589.07 98.9%
Connecticut $332.35 $553.30 166.5%
Delaware $103.72 $186.35 179.7%
Dist. of Col. $19.71 $175.77 891.9%
Florida $1,978.18 $2,087.19 105.5%
Georgia $1,335.08 $1,422.41 106.5%
Hawaii $90.52 $186.32 205.8%
Idaho $228.61 $315.09 137.8%
Illinois $1,328.64 $1,566.22 117.9%
Indiana $944.81 $1,049.67 111.1%
Iowa $495.21 $541.40 109.3%
Kansas $353.44 $416.30 117.8%
Kentucky $634.97 $731.94 115.3%
Louisiana $580.25 $773.17 133.2%
Maine $182.62 $203.35 111.4%
Maryland $614.60 $662.00 107.7%
Massachusetts $592.15 $669.06 113.0%
Michigan $1,050.51 $1,159.86 110.4%
Minnesota $690.10 $718.34 104.1%
Mississippi $512.46 $532.79 104.0%
Missouri $870.34 $1,042.88 119.8%
Montana $176.34 $451.99 256.3%
Nebraska $304.61 $318.41 104.5%
Nevada $318.47 $400.02 125.6%
New Hampshire $145.19 $182.01 125.4%
New Jersey $920.44 $1,099.92 119.5%
New Mexico $361.41 $404.54 111.9%
New York $1,436.20 $1,849.12 128.8%
North Carolina $1,142.36 $1,148.93 100.6%
North Dakota $176.64 $273.49 154.8%
Ohio $1,381.39 $1,476.63 106.9%
Oklahoma $636.86 $698.66 109.7%
Oregon $457.03 $550.62 120.5%
Pennsylvania $1,326.67 $1,807.47 136.2%
Rhode Island $80.30 $240.92 300.0%
South Carolina $744.12 $737.67 99.1%
South Dakota $157.74 $310.67 197.0%
Tennessee $888.76 $930.90 104.7%
Texas $4,243.66 $4,031.15 95.0%
Utah $365.13 $382.53 104.8%
Vermont $73.28 $223.58 305.1%
Virginia $1,014.13 $1,121.02 110.5%
Washington $690.90 $746.80 108.1%
West Virginia $265.83 $481.42 181.1%
Wisconsin $676.58 $828.89 122.5%
Wyoming $167.60 $282.22 168.4%
TOTAL $37,292.15 $43,369.79 116.3%

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