Donor / Donee Status
Background:
We heard many times that Michigan is a donor state when it comes to road funding. We
read in the CRAM document titled Michigan’s County Road Commissions, Driving Our
Economy Forward that “Michigan receives approximately 92 cents on a dollar sent to
Washington D.C.” referring to the federal fuel tax of 18.4 cents per gallon. Last week, Ken
gathered information from FHWA for Brent regarding the donor/donee status of the 50
states. It showed a 0.919 return ratio for Michigan for 2008 and 0.84 for the period of 1956
to 2008 (HTF was established in 1956).
Similarly, we noted with regret the lack of sufficient state and local funds to provide the
required match to federal aid. The above-mentioned CRAM document states, “This means
tax revenues collected in Michigan will be given to other states…” There goes even more of
our money that we send in but never get back!
Thus, in a recent Washington Letter, the headline GAO Says “Donor” States Are
Disappearing was eye-catching. The information was provided by the Government
Accountability Office (GAO) in a report issued earlier this summer. The Washington Letter
quoted the report: “Since 2005, every state received as much or more funding for highway
programs than they contributed to the Highway Account of the trust fund. This was possible
because more funding was authorized and apportioned than was collected from the states
and the fund needed to be augmented with general revenues…”
Is Michigan a donor state or not? What are we overlooking here? Ken found the GAO
report, we did more digging, read more documents and we found interesting facts.
1.
How the federal fuel tax is collected
The fuel taxes, which make up over 80 percent of the Highway Trust Fund’s receipts,
are imposed when the fuel is first removed from bulk storage and the tax is paid by
the seller. Thus, the typical federal fuel taxpayer is an oil company. The Department
of Treasury collects fuel taxes from a small number of corporations located at a
relatively small number of places. The Treasury does not collect fuel taxes from
states. The cost of the tax become part of the purchase price of the product and
ultimately paid by the highway user.
2.
How the federal fuel tax contribution is attributed to each state
FHWA has to estimate the fuel tax contributions made to the fund by users in each
state. FHWA calculates motor fuel-related contributions based on estimates of the
gallons of fuel used on highways in each state. They rely on data gathered from state
revenue agencies, e.g., the monthly motor fuel use. The method of attributing HTF
receipts to each state has changed over time.
3.
The age of the data of contribution from the states used for apportioning
funds
The collection and estimation process takes place over several years. The data used
for apportioning funding to states by calculating the allocation formula are two years
old. For example, the data used to apportion funding to states in FY 2009 were based
on estimated collection attributable to each state in FY 2007.
4.
How some states became donors and others donees
Originally, funds for the principal federal-aid highway programs (STP, CMAQ, etc.)
were apportioned among the states using formulas or percentages found in Title 23,
US Code. The formulas were intended to distribute funds to support the national
interest in surface transportation. The apportionments of funds were made without
regard to the source of the funds and result in some states receiving less than the
highway users in the sate contributed while other states receiving more. Thus, some
JKW Sep.29, 2010
1
states became donors, others donees. This created a general interest by the 1980s
and FHWA modified the methodology used for allocation of funds to reflect the concern
of the donor states and employed use-based factors. Thus, the estimation process of
apportioning the contributions was born.
5.
Minimum allocation and the Equity Bonus Program
In 1982, the “minimum allocation” requirement was enacted. Each state (for certain
programs) received a minimum allocation of 85 percent of its share of estimated tax
payments to the Highway Account of HTF. Later the minimum allocation was raised
and a rate-of-return consideration was introduced. In 2005, through SAFETEA-LU the
Equity Bonus Program was implemented to bring all states up to a guaranteed return
of 92 percent by FY 2008.
6.
What the return ratio used in FHWA statistics is and why it is used
As part of the Equity Bonus Program of SAFETEA-LU, Congress defined a method for
FHWA to use for calculating rates of return for the purpose of apportioning highway
funding to the states. The relative rate of return shows how the proportion of each
state’s contribution compares to the proportion of funds received. The calculation
includes only formula funds and High Priority Projects. The result is not the state’s
absolute return expressed in dollars. There is a widespread confusion regarding this
indicator because it is mistakenly referred to as “cents on the dollar.”
Using the relative share method of calculation results in some states being winners
and other states being losers. Furthermore, a state can receive more than it
contributes to the HFT making it a donee under its rate of return per dollar, but a
donor under its relative share of return. The GAO report uses California as an example
supported by figures and calculation.
7.
There are other methods to calculate rate of return
The GAO report uses and compares four different calculations:
a) Comparing the funding the states received with the estimated dollars collected
in each state in the same year
b) Comparing the funding the states received with the estimated contribution data
that is available at the time the funds are apportioned to the sates (two-year
old contribution data are used)
c) States’ relative share (see No. 6 for explanation) using two-year old
contribution data
d) States’ relative share using same year contribution data
GAO calculation for Michigan resulted in the following outcomes:
a) $1.10 (same year comparison for 2005 to 2008)
b) $1.05 (year of apportionment comparison for 2005 to 2009)
c) 91.73% (year of apportionment comparison for 2005 to 2009)
d) 92.49% (same year comparison for 2005 to 2008)
Summary:
- A state’s contribution to the HTF is an estimate (apportioned by FHWA)
- Estimated state contribution shares are not known until 2 years after the allocation of
funds occurs for a given year
- The return ratio is not the ratio of $ contributed and $ received
- MI’s 92% return ratio indicates how MI’s relative share in contribution relates to its
relative share in fund allocation
- MI’s 92% return ratio does not mean that we receive 92 cents on a dollar we sent in
- Rate-of-return value varies depending on the calculation method used
- Congress defined the rate-of-return calculation method for SAFETEA-LU
JKW Sep.29, 2010
2