This program was in no sense a Federal lending device; rather, it had the effect of postponing reimbursement of the Federal share of authorized Federal-aid projects. It had two advantages to the States:
- Programs involving Federal-aid work could be planned and financed in advance of the availability of Federal funds.
- Federal funds might be claimed at times and in amounts determined by the maturity schedule of the bond issue, reducing the demand for current State tax revenue for debt service during the time the bonds were maturing.
Financial Status in 1951
By 1951, the postwar pattern of highway financing was well established, except for the changes to come with the Federal-Aid Highway Act of 1956. The States were providing nearly two-thirds of the funds (exclusive of borrowings) applied to the highway program (about $2.7 billion), and motor-vehicle user taxes, including tolls, accounted for about 97 percent of these funds.
Contributions from Federal general funds were $492 million. This amount was about $60 million less than was available from this source in 1941, but the 1941 amount had come largely from special unemployment relief appropriations rather than from regular sources of highway aid.
Funds provided by rural and urban local governments had recovered to approximately the level of 1931: $483 million in local revenues of the rural governments and $585 million in local municipal revenues.
Bond issues for road and street purposes during 1951 totaled $794 million, of which $535 million was State borrowings. Beginning in 1948, the States resorted to heavy borrowing to expedite their accelerated highway improvement programs.
By 1951, the program for catching up on deferred maintenance and capital outlay was well underway. Total capital outlay on all systems, which bottomed out at $362 million in 1944, had reached a level of $2.5 billion and was climbing rapidly. Maintenance expenditures had recovered from a wartime low of $640 million to a total of $1.6 billion in 1951. Total highway expenditures were $4.6 billion.
Federal-Aid Funds and the 1956 Highway Legislation
Between 1944 and 1956, Federal legislation dictated few major policy changes. The first Interstate System construction was specifically authorized in the Federal-Aid Highway Act of 1952, which provided for apportionment of $25 million on the basis of a 50-50 Federal–State matching ratio in each of the fiscal years 1954 and 1955. These authorizations were increased to $175 million each year for fiscal 1956 and 1957 by the Federal-Aid Highway Act of 1954, which also raised the Federal share of project costs to 60 percent.
The twin 1956 Acts—the Federal-Aid Highway Act and the Highway Revenue Act—are a major landmark in the highway history of the United States. This legislation broke with tradition and established some new principles:
- It authorized and provided for financing an entire highway network, now designated the National System of Interstate and Defense Hghways.
- It departed from the traditional 50-50 sharing of project costs and the fixed formula for apportionment.
- It established a Highway Trust Fund fed from the proceeds of Federal excise taxes on motor-vehicle users, which thus directly linked to highway expenditures.
The Highway Revenue Act of 1956 continued the biennial authorizations of Federal-aid primary, secondary, and urban highways (popularly termed the ABC program). But the policy of authorizing Federal aid to the States for highways for 1- to 3-year periods was augmented by one of authorizing funds for a long-range program to complete the Interstate Highway System.
A total of $27 billion was authorized for the Interstate System, to be apportioned on the basis of 90–10 percent Federal–State shares of project costs. For the first 3 years of the program, apportionments among the States were to be made on the basis of total population (one-half). After this, the funds were to be apportioned according to the proportion that the estimated cost in each State bore to the total cost of completing the entire System.
It was recognized that some States might be willing and able, with current revenue or bond proceeds, to build their portions of the Interstate System faster than the annual Federal-aid apportionment would permit. The 1956 Act therefore provided for “advance” construction by arranging for later reimbursement to the State for the Federal share of the project costs from apportionments of succeeding years. Federal aid was also made available for the cost of relocating utilities displaced by federally aided highway construction.
In linking Federal excise taxes on highway users and Federal aid for highways, this Act sought to accomplish three objectives: To finance the long-range Federal-aid program, to provide the revenue wholly from user-tax revenues, and to preserve the program on a pay-as-you-go basis. Although automotive excise taxes of one type or another have been levied by the Federal Government since 1917, except for the period 1928–1932, no part of the proceeds of these taxes was earmarked for highways before 1956. Before that date, Federal aid for highways was appropriated from the General Fund of the Treasury and was not related to the income from taxes on motor vehicles or their operation.
In the Highway Revenue Act of 1956, Congress provided revenues for a program of highway expenditures on the Interstate and other Federal-aid highway systems. The mechanism by which this was done was to create a Highway Trust Fund into which were directed the proceeds of certain existing excise taxes on motor vehicles and automotive products and certain additional taxes imposed by the Act itself.
In particular, the Federal gasoline tax was increased from 2 to 3 cents and became the principal source of revenue of the Highway Trust Fund. In order to provide more revenues, certain changes were
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