The Federal Highway Trust Fund provides funding for transportation improvements that included 100 percent of Federal funding for highway improvements and about 60 to 70 percent of federal funding for transit improvements. The major funding source for the Highway Trust Fund is the federal tax on motor fuels. In fiscal year 2000, federal taxes on motor fuels provided about $24.5 billion in revenue out of the total $30.3 billion deposited into the Highway Trust Fund. There are a number of initiatives that might affect future Highway Trust Fund revenue such as:

• Restoring the lost revenues from the federal subsidy for the use of gasohol in the place of petroleum based motor fuels (5.3 cents per gallon).
• Redirecting the 2.5 cents of the tax on gasohol that is currently deposited into the Federal General Fund to the Highway Trust Fund.
• Examining the legal prohibition in some states against using methyl tertiary butyl (MTBE) as an additive to petroleum motor fuels. MTBE is an additive to petroleum motor fuels used to meet Clean Air Act standards. MTBE is taxed as petroleum based motor fuels. The only current alternative to MTBE is gasohol, which includes a Federal subsidy as noted in the previous bullet.
• Studying hybrid vehicles that use a combination of electric and traditional motor fuel propulsion systems are now in production with a significant number of vehicle models planned in the near term. These vehicles can average in excess of 50 miles per gallon, which will reduce the consumption of petroleum based motor fuels. While not in mass production, these vehicles are beginning to appear on the nations highway and could grow to become a significant portion of the market in the future.
• The Bush Administration announced support for the development of a hydrogen-fueled vehicle, which also would eliminate the need for petroleum-based motor fuels. Although still a concept, this clearly indicates strong support for alternative fuel vehicles in the future.

The Highway Trust Fund will forego 7.8 cents per gallon (42 percent of the tax on petroleum-based motor fuels) for each gallon of gasohol consumed compared with the consumption of petroleum based motor fuels. In 1999 the consumption of gasohol was 14.3 billion gallons out of 162.9 billion gallons consumed for all types of motor fuels. The "diversion" was about $1 billion in 2000. For each increment of 1 billion gallons in the consumption of gasohol the Highway Trust Fund will forego $78 million in revenue. FHWA has reported the actual consumption compared to the U.S. Treasury forecast in federal fiscal year 2001 was 28 percent over the forecast for gasohol and 9 percent under the forecast for petroleum-based motor fuels. This was a contributing factor in the reported drop of the collections in the Highway Trust Fund by over 10 percent for federal fiscal year 2001 compared to 2000. The impact of alternative fuels has created a major threat to the primary funding source for transportation improvements by the federal government.

The objectives of this research project are to (a) define the impact in 2001 of the use of alternative fuels and other products both nationally and by state that resulted in the reduced consumption of petroleum based motor fuels; (b) assess the extent of increased use of alternative fuels and the reasons for the increased use where present; (c) identify procedures to forecast the use of alternative fuels in 2002 and beyond, and apply the procedures to forecast use of alternative fuels in fiscal years 2002 through 2009; and (d) prepare a report presenting findings and recommendations for agency staff.

Recent data reflect that increased use of alternative fuels is occurring much faster than forecasted in previous years. This increase has created a significant negative impact on revenue levels deposited in the Federal Highway Trust Fund. This results in the reduction of funds available for transportation improvements in Federal fiscal year 2003 and in years beyond. It also sets a new lower baseline for Highway Trust Fund revenue estimates just one year prior to beginning the debate on the reauthorization of TEA-21. It is essential that options be researched and prepared in a timely manner to be debated as part of the reauthorization of TEA-21 in 2003 to help ensure a solid level of funding is provided for transportation improvements in relationship to the use of the transportation system.

Status: The Final Report is published as NCHRP Web-Only Document  121 .