Discussion of Trust Funds
Discussion of Trust Funds
Trust funds are accounts established by law to record revenues collected from specific taxes and charges earmarked for financing special purposes and programs. There are five transportation-related federal trust funds established by law, namely, the Highway Trust Fund (HTF), Airport and Airways Trust Fund (AATF), Harbor Maintenance Trust Fund (HMTF), Inland Waterways Trust Fund (IWATF), and Oil Spill Liability Trust Fund (OSLTF). The trust-fund collections come from taxes and user charges such as fuel taxes, vehicle taxes, registration and licensing fees, and air passenger ticket taxes. Moreover, interest earned through fund balances is added back to these funds, along with any damage payments made by private parties and deposited in the funds to reimburse the government for related fund expenditures.
Highway Trust Fund (HTF)
The Highway Trust Fund (HTF) was established by the Highway Revenue Act of 1956. Highway Trust Fund revenues are derived from various excise taxes on highways users (e.g., motor fuel, motor vehicles, tires, and parts and accessories for trucks and buses) and interest earned on balances. The Transportation Equity Act for the 21st Century (TEA-21), which was enacted in June 1998, made the following important changes to the Federal Highway Trust Fund legislations (FHWA, 1999):
- provisions for deposit of almost all highway user taxes were extended through September 30, 2005;
- after September 30, 1998, the HTF would no longer earn interest on balances;
- federal-aid highway funds were keyed to receipts of the Highway Account of the HTF; and
- The Transit Account share of fuel tax was changed to 2.86 cents per gallon.
The excise tax on gasoline is the most important source of HTF revenues. The excise tax rate on gasoline has changed five times since 1985. It increased from 9 cents per gallon in 1985 to 9.1 cents per gallon on January 1, 1987; to 14.1 cents per gallon on December 1, 1990; 18.4 cents per gallon on October 1, 1993; 18.3 cents per gallon on January 1, 1996; and 18.4 cents per gallon on October 1, 1997 (FHWA, 1999).
The money paid into the fund is earmarked primarily for the Federal-aid Highway program, which is apportioned to states for planning, constructing, and improving the nations highway system, roads, and bridges. Effective April 1983, the Highway Revenue Act of 1982 created the Mass Transit Account within the HTF. The act provided one cent per gallon of the federal excise tax on gasoline sales to be set aside for the Mass Transit Account that will be used for transit capital projects. This was increased to 1.5 cents per gallon on December 1, 1990; 2 cents per gallon on January 1, 1996; and 2.86 cents per gallon on October 1, 1997 (FHWA, 1999).
Some portion of the HTF is dedicated to fund deficit reduction and the Leaking Underground Storage Tank Trust Fund (LUSTTF). For example, 4.3 cents per gallon of the federal excise tax on gasoline has been assigned to the General Fund since January 1, 1996 and 0.1 cents per gallon was apportioned to the LUSTTF since October 1, 1997 (FHWA, 1999). These funds are not considered as transportation in this report.
Airport and Airways Trust Fund (AATF)
The Tax Equity and Fiscal Responsibility Act of 1982, as amended by the Omnibus Budget Reconciliation Acts of 1990 and 1993, the Small Business Job Protection Act of 1996, and the Taxpayers Relief Act of 1997, provides for the receipts received in the Treasury from the passenger ticket tax and certain other taxes paid by airport and airway users to be transferred to the Airport and Airways Trust Fund (AATF). Effective October 1, 1997, the Taxpayers Relief Act of 1997 extends the aviation excise taxes for 10 years and includes the following major provisions (FAA, 1999):
- retains existing freight weigh bill, general aviation fuel and gas taxes, and 6 dollars departure tax on domestic flights to and from Alaska and Hawaii;
- converts the 10 percent ad valorem tax on domestic passenger tickets to a combination of ad valorem and flight segment tax over three years beginning October 1, 1997;
- imposes a new 7.5 percent tax on payments to airlines for frequent flyer and similar awards by banks and credit card companies, merchants, and frequent flyer program partners (other airlines, hotels, or rental car companies and other businesses);
- increases the current 6 dollars international departure tax to 12 dollars per passenger and adds a 12 dollars international arrival tax;
- lowers tax rates on flights to certain rural airports to 7.5 percent without a flight segment component; and
- transfers revenues from the 4.3 cents-per-gallon aviation fuel tax currently dedicated to reduce the national U.S. deficit from the General Fund to the AATF.
Most of this trust fund receipts is used to finance FAAs capital programs, namely, Facilities & Equipment; Research, Engineering & Development; and the Airport Improvement Program. Within certain limits set by Congress, some of the remaining money is used to cover operation and maintenance expenses of the FAA. The portion of the FAAs operation and maintenance expenses not paid from the trust fund revenues are financed by general funds of the Treasury.
Harbor Maintenance Trust Fund (HMTF)
The Harbor Maintenance Trust Fund was established in accordance with the Harbor Maintenance Revenue Act of 1986. Revenues for this fund are derived from receipts of a 0.125 percent ad valorem user fee imposed on commercial users of specified U.S. ports, Saint Lawrence Seaway tolls, and investment interest (OMB, 2000). On March 31, 1998, as per the U.S. Supreme Court ruling, the tax on exports was terminated (OMB, 2000). This fund is used to finance up to 100 percent of Corps of Engineers harbor operation and maintenance (O&M) costs, including O&M costs associated with Great Lakes navigational projects, and fully finances the operation and maintenance of the Saint Lawrence Seaway Development Corp.
Inland Waterways Trust Fund (IWATF)
The Inland Waterways Trust Fund was established by the Inland Waterways Revenue Act of 1978 and amended by the Water Resources Development Act of 1986. The trust fund has been in effect since fiscal year 1981. The sources for the fund are taxes imposed on fuel for vessels engaged in commercial waterway transportation and investment interest. From this tax of 24.3 cents per gallon, 4.3 cents goes for deficit reduction and a statutory maximum of 20 cents (raised to that level from the previous maximum of 19 cents at the beginning of 1995) goes to the Trust Fund. The funds are earmarked for financing one half of the construction and rehabilitation costs of specified inland waterway projects.
Oil Spill Liability Trust Fund (OSLTF)
The Oil Spill Liability Trust Fund was established by the Omnibus Budget Reconciliation Act of 1989. The Oil Pollution Act of 1990 consolidated balances from the Offshore Oil Pollution Compensation Fund and the Deepwater Port Liability Fund and Pollution Fund into the OSLTF. Revenues for this fund are raised through tax collection of 5 cents on each barrel of oil produced domestically or imported (OMB, 1999). The resources from this fund are used to finance oil pollution prevention and cleanup activities by various federal agencies. For the U.S. Coast Guard, this finances trust fund share of expenses, oil spill recovery, and payment of claims. Beginning in 1997, it also finances the annual disbursement to the Prince William Sound Oil Spill Recovery Institute.