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Federal-Aid Highway Act of 1956:

CREATING THE
INTERSTATE STYSTEM

by Richard F. Weingroff


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THE HIGHWAY TRUST FUND

When was the Fund Created and When Does It Expire?

The Highway Trust Fund, the source of revenue for the interstate highway system and other federal-aid highway programs, was created by the Highway Revenue Act of 1956. The 1956 act set an expiration date of 1972, which has been extended several times by later legislation. The taxes dedicated to the trust fund are scheduled to expire on Sept. 30, 1999, unless Congress extends the date.

What Is Taxed?

The motor fuel tax (currently 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel) is the best known highway user tax. Other products taxed are special fuel, gasohol, ethanol/methanol, truck tires, truck sales, and truck use. Amounts in excess of current expenditure requirements are invested in special Treasury securities with interest from these securities credited to the trust fund.

Where Does the Revenue Go?

The trust fund has two accounts: the highway account and the mass transit account. The dual accounts were established by the Surface Transportation Assistance Act of 1982, which increased the gas tax by a nickel (to 9 cents) and created the mass transit account to receive 1 cent of the new revenue. Most revenue from federal highway user taxes goes into the highway account. Of the 18.3 cents collected per gallon of gas, 12 cents goes into the highway account, 2 cents goes into the mass transit account, and 4.3 cents is credited to the general fund of the Treasury.

How Are the Taxes Collected?

Most excise taxes credited to the trust fund are not collected directly by the federal government from the consumer. They are, instead, paid to the Internal Revenue Service by the producer or importer of the taxable product (except for the tax on trucks and trailers, which is paid by the retailer, and for the heavy vehicle use tax, which is paid by the heavy vehicle owner). Hence, the 18.3-cent federal gasoline tax and the 24.3-cent diesel tax included in the price at the pump are, in effect, a reimbursement to the producers and distributors for taxes they have already paid. Recent efforts to reduce evasion of the motor fuel taxes, such as the program, begun in 1994, to dye untaxed diesel fuel (i.e., fuel not normally used for highway transportation), have increased trust fund revenue by more than $1 billion a year.

How Much Does Each State Contribute?

There is considerable interest in the amount of contributions to the trust fund made by highway users in each state. In addition, the amount per state is used in apportionment of some funding categories (namely, the equity adjustment categories of minimum allocation, donor state bonus, and 90 percent of payment). Therefore, estimates are made on the basis of use-related factors in each state.

Is the Revenue Kept in a Separate Account?

User taxes are deposited in the general fund of the Treasury, and non negotiable securities in amounts equivalent to these taxes are credited to the trust fund. Amounts in excess of current expenditure requirements are invested in special Treasury securities and interest from these securities is credited to the fund.

How Are the States Paid?

The federal-aid program operates on a reimbursement basis; that is, the federal government reimburses states only for the federal share of costs actually incurred. The amounts apportioned or allocated to the states represent lines of credit upon which states may draw as they advance federally assisted projects. They draw on the line of credit by obligating or committing some portion of it for a project. No cash is disbursed at this point. The states generally start a project using their own money, and they receive cash for the federal share of the project's cost by submitting vouchers during the course of the project. (This process may vary somewhat for certain innovative finance projects.)

Why Does the Trust Fund Have Such a Large Balance?

The trust fund is at its current level because of budget-driven limits on obligations - beginning with presidential deferrals in 1966 and continuing today in congressionally imposed obligation ceilings - that have restricted highway spending to a level less than the total authorized for the program. The amount of the current trust fund balance, however, should not be considered a "true" balance or surplus.

A comparison with a personal checking account may help to clarify this point. If a person has a checking account balance of $500, that amount cannot be considered excess if he or she has outstanding bills of $1,000, but neither is the account in a deficit situation since he or she will deposit a $1,200 paycheck at the end of the month. That is how the trust fund operates. Although the balance at the end of fiscal year 1995 was $9.4 billion, unpaid commitments against the trust fund (that is, unobligated funds plus unpaid obligations) totaled more than $44.2 billion. Therefore, the balance does not represent excess cash, any more than the $500 in the checking account was "found money." The "true" balance of the trust fund can be determined only by comparing total trust fund commitments (i.e., the total of all authorized amounts) to total income of the trust fund through the end of its current financed life. If the taxes expire on Sept. 30, 1999, as scheduled, and if income through that date exceeds commitments, there would be a surplus in the fund.


The Edge City

One of the unexpected consequences of the interstate highway system has been the creation of "edge cities." In Edge City: Life on the New Frontier (Doubleday, 1991), Joel Garreau explains that an edge city is any place that has 5 million square feet (464,500 square meters) or more of leasable office space (e.g., more than downtown Memphis), has 600,000 square feet (56,000 square meters) or more of leasable retail space, has more jobs than bedrooms, is perceived by the population as one place, and was nothing like a "city" as recently as 30 years ago.

That's about when the interstate system really started taking hold of the country. Dwight Eisenhower, as Garreau says, "changed America forever with the creation of the interstate highway system."
Edge cities thrive on interstate highways; no other mode of transportation serves as well. They "... are tied together not by locomotives and subways, but by jetways, freeways, and rooftop satellite dishes thirty feet across." Inside, edge cities vary from location to location, but they typically contain a mix of offices, shopping malls, corporate headquarters, hotels, and entertainment.

Edge cities are the product, not of urban planners who know how people should behave, but of developers who know precisely what people want and how people act. Accordingly, the debate over edge cities involves the impact of sprawling development not only on the environment but on our center cities. Garreau sees edge cities as a reflection of the American desire to push into new frontiers. First, Americans moved their homes out of the traditional city and commuted to their jobs in the city (suburbanization). The marketplaces followed when people wearied of driving downtown (the "malling" of America). Third, we moved our means of creating wealth - our jobs - out to "where most of us have lived and shopped for two generations." That is the edge city.

The force that drove the creation of the edge city was our search deep inside ourselves for a new balance of individualism and freedom. We wanted to build a world in which we could live in one place, work in another, and play in a third, in unlimited combinations, as a way to nurture our human potential. This demanded transportation that would allow us to go where we wanted, when we wanted. That enshrined the individual transportation system - the automobile - in our lives. And that led us to build our market meeting places in the fashion of today's malls.

Edge cities, in short, go "... to the core of what makes America `America.'"

Tysons Corner in Fairfax County, Va. is a classic example of an edge city

Tysons Corner in Fairfax County, Va., just off I-495, the Capital Beltway around metropolitan Washington, D.C., is a classic example of an edge city with office
buildings; shopping, including two large malls; restaurants; hotels; and entertainment.

Photo by Mark Pfoutz, Metropolitan Washington Council of Governments



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