Highway “Donor States” R.I.P.

Highway “Donor States” R.I.P.

November 16, 2021  | Jeff Davis

President Biden’s signature on the Infrastructure Investment and Jobs Act yesterday will open the financial floodgates on a total of $273 billion in apportionments of $273 billion in federal-aid highways contract authority over the next five years, including $52.5 billion in fiscal 2022 formula funding that should be apportioned to states in the next month.

The 2022 apportionment of formula contract authority will be $9.1 billion higher than the fiscal 2021 apportionment, an increase of 21 percent. And this increase will be followed by increases of over $1 billion per year in each of the following four years.

These funding increases mean that, no matter how you measure it, there are no more highway “donor states.” And there are unlikely to be any donor states ever again, unless Congress somehow finds the political courage to increase highway excise taxes to keep the Highway Trust Fund solvent after 2026 (which looks unlikely at this point).

Since the 1980s, Sun Belt states had complained that their “rate of return” on the excise tax dollars attributed to their state as part of Highway Trust Fund tax collections lagged significantly behind the new money their state was receiving. These complaints had some validity, but the 2008 bankruptcy of the Highway Trust Fund, which was the result of Congress refusing to increase Trust Fund excise taxes since 1993 while increasing Trust Fund spending levels every year, led to a general state of affairs by 2010 where all states were getting more highway money out of the Trust Fund than they were contributing in taxes to the Highway Account.

Except Texas.

The 2012 MAP-21 law changed the donor state “guarantee” from percentage shares of tax payments and formula apportionments to actual dollar payments, and created a new rule whereby each state was guaranteed a total annual formula apportionment, in dollars, equal to at least 95 percent of the tax dollars attributed to the state in the Highway Account in the most recent fiscal year.

Because apportionments are calculated a few months prior to an October 1 apportionment, there is a two-year lag between the tax year and the spending year. (The tax receipts for fiscal year 2016, which ended September 30, 2016, were used to make the 95 percent calculation for fiscal year 2018 apportionments, which were calculated in late summer 2017, in advance of the October 1, 2017 apportionment for fiscal year 2018.)

In fiscal 2014, both Texas and South Carolina triggered the 95 percent rule based on their 2012 tax payments, so their percentage shares of total formula funding were adjusted upwards, and the other 48 states and DC had their shares adjusted downwards slightly.

Then, starting in 2017, it was Texas, and Texas alone, that triggered a 95 percent adjustment, for funding in 2017, 2018, 2019, 2020 and 2021 (though in the final year, the adjustment for Texas pushed Colorado down below their 95 percent threshold, so they got an adjustment as well).

Last week, the Federal Highway Administration released the attributed Highway Trust Fund tax payments by state for fiscal year 2020. The table shows that the Lone Star State’s attributed tax payments to the HTF Highway Account totaled $4,435.891 million. 95 percent of that would be $4,214.096 million.

What will Texas’s apportionment of highway contract authority for fiscal 2022 be?

Why, an estimated $5.167.860 million. That is $954 million higher than 95 percent of Texas’s 2020 Highway Account taxes. It is even $897 million higher than 100 percent of Texas’s 2020 Highway Account taxes. It represents a rate of return on the entirety of Texas’s 2020 Highway Account taxes of 116.5 percent. This is the lowest rate of return of any state, but, you may note, it is much more than 95 percent.

Now that there are no more donor states by the measurement we have been using for the last decade, you can expect some Texans to try and change the terms of the argument so they can still say they are donor states. A few of those are predicted below.

“Well, using 2020 tax payments is wrong because COVID.” Tax deposits into the Highway Trust Fund did not shrink by nearly as much in fiscal 2020 as vehicle miles-traveled (VMT) did, but overall, they were still down $908 million in 2020 versus 2019 (both accounts combined). Highway Account receipts dropped by $798 million, and $66 million of that drop was attributed to Texas.

But if you compare Texas’s 2022 apportionment under IIJA to their 2019 (pre-COVID) Highway Account tax payments, their rate of return is still 115.0 percent, which is well above 95 as well as being well above 100.

“Well, if you include the Mass Transit Account, we are still getting screwed.” Au contraire. The Lone Star State’s total tax payments into the Highway Trust Fund – both accounts – totaled $5.019 billion in 2020. Their $5.168 billion highway formula apportionment is equal to 103.0 percent of their total unified Trust Fund tax payments in 2020. And if you compare the 2022 highway formula apportionment to the pre-COVID 2019 tax year, you still get a rate of return of 101.7 percent.

“Well, things may finally be all right now, but historically, we are still in the hole.” Maybe, maybe not. FHWA maintains a separate, cumulative table (FE-221) that compares all that compares all FHWA apportionments and allocations to each state out of the Highway Account to its estimated Highway Account tax payments, going back to the start of the Trust Fund in July 1957. The latest version of this table is current through September 2019. This is apportionments (formula) and allocated (earmarks, competitive project selections, and all other types of non-formula projects) combined.

That table shows that, from the creation of the Trust Fund to the end of fiscal year 2019, there had been $1.015 trillion in total Highway Account excise tax payments versus $1.228 trillion in total FHWA apportionments and allocations (thank you, general fund bailouts since 2008, as well as interest earned in the 1970s and 1980s).

When looking just at Texas, the report shows a total of $91.625 billion Highway Account excise tax payments versus $89.900 billion in funding apportionments and allocations, for a cumulative all-time deficit of $1.725 billion. We don’t know how much worse 2020 and 2021 will make that cumulative imbalance (it depends on a lot on the allocated part which we can’t know in advance).

But, over the five years of IIJA, Texas is guaranteed $26.894 billion in highway formula funding apportionments out of the Highway Account, and with total gas tax payments projected to be level of diminish slightly, even the Lone Star State’s oversized share of diesel and trucking taxes won’t increase at nearly the rate of spending, meaning that the $1.725 billion all-time Highway Account deficit will shrink substantially by the end of this bill.

A few years after Congress started bailing out the Highway Trust Fund with general fund revenues, transportation expert Mort Downey quipped that the only real donor state left was the People’s Republic of China. But, given who buys most of the US debt in the age of QE, we should say that the real donor state is the Federal Reserve…

State Rates of Return – 2022 Estimated IIJA Highway Contract Authority Formula Apportionments vs.
FY20 Taxes FY19 Taxes FY20 Taxes FY19 Taxes
to Highway to Highway to Entire to Entire
Account Account Trust Fund Trust Fund
Alabama 136.1% 136.9% 119.6% 120.4%
Alaska 785.5% 757.5% 698.1% 673.4%
Arizona 122.4% 123.2% 107.6% 108.2%
Arkansas 144.6% 142.0% 128.2% 126.0%
California 136.9% 135.1% 119.5% 117.7%
Colorado 118.1% 115.0% 103.6% 100.8%
Connecticut 201.1% 195.0% 174.8% 169.5%
Delaware 198.5% 203.1% 171.8% 176.1%
Dist. of Col. 886.3% 901.5% 765.7% 776.9%
Florida 125.4% 122.0% 109.1% 106.1%
Georgia 138.2% 134.9% 121.1% 118.1%
Hawaii 259.0% 249.0% 222.7% 214.3%
Idaho 161.1% 162.8% 142.6% 144.1%
Illinois 149.8% 140.3% 131.7% 123.5%
Indiana 137.0% 132.5% 121.2% 117.1%
Iowa 129.4% 127.4% 114.8% 113.0%
Kansas 129.7% 131.2% 114.4% 115.8%
Kentucky 138.7% 134.5% 122.3% 118.7%
Louisiana 153.5% 159.3% 135.2% 140.0%
Maine 142.0% 148.2% 124.2% 130.0%
Maryland 130.4% 128.3% 113.4% 111.7%
Massachusetts 137.9% 132.9% 119.5% 115.1%
Michigan 133.6% 126.1% 116.4% 110.0%
Minnesota 123.5% 119.7% 108.8% 105.3%
Mississippi 122.6% 121.5% 108.4% 107.6%
Missouri 143.5% 140.7% 126.5% 123.9%
Montana 304.6% 302.8% 271.3% 269.8%
Nebraska 121.6% 121.7% 108.3% 108.3%
Nevada 148.6% 148.8% 130.7% 130.7%
New Hampshire 152.0% 147.6% 131.4% 127.7%
New Jersey 149.3% 144.7% 130.0% 126.0%
New Mexico 130.2% 129.0% 116.3% 115.2%
New York 159.1% 148.5% 139.2% 130.1%
North Carolina 118.0% 116.7% 103.2% 102.0%
North Dakota 180.3% 176.2% 161.7% 158.3%
Ohio 130.6% 125.1% 114.9% 110.1%
Oklahoma 134.0% 129.2% 119.0% 114.9%
Oregon 148.1% 140.0% 130.6% 123.6%
Pennsylvania 166.1% 163.5% 146.0% 143.8%
Rhode Island 347.2% 337.9% 301.6% 293.4%
South Carolina 119.4% 119.4% 105.0% 104.8%
South Dakota 238.8% 229.0% 212.5% 203.6%
Tennessee 120.4% 122.3% 105.9% 107.4%
Texas 116.5% 115.0% 103.0% 101.7%
Utah 126.3% 122.4% 111.6% 108.3%
Vermont 375.3% 362.4% 327.7% 316.5%
Virginia 121.2% 128.9% 106.1% 112.8%
Washington 126.2% 123.6% 110.4% 108.1%
West Virginia 215.3% 179.9% 192.0% 160.8%
Wisconsin 141.7% 135.3% 124.7% 119.0%
Wyoming 187.1% 187.4% 169.5% 169.7%
TOTAL 139.7% 136.8% 122.7% 120.2%
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