until January 1961, when two important reports will be submitted to the Congress. The first of these is the report to be submitted pursuant to section 210 of the Highway Revenue Act of 1956. This report will present the conclusions derived from a 4-year study of highway user taxes, direct and indirect beneficiaries of the highway systems, and the findings regarding the equitable distribution of highway taxes among the various classes of users and those otherwise deriving benefits from highways. The other report is the second detailed estimate of the cost of completing the Interstate System. In 1961, therefore, the Congress, with the benefit of these two basic reports, will have the opportunity to consider what taxes should be imposed and the equitable distribution of taxes for highway purposes, and to provide for appropriate financing and schedule of authorizations to complete the Interstate System.

Mr. Bertram D. Tallamy, Federal Highway Administrator, will discuss the status of the financing of the Federal-aid highway program.

The CHAIRMAN. Mr. Allen, we thank you, sir, for your statement and your appearance before the committee with the information you have given us.

In accordance with the understanding at the beginning, the Chair will recognize Mr. Tallamy at this point, and then the committee may question both gentlemen at the conclusion of Mr. Tallamy's statement. Mr. Tallamy, we are pleased to have you with us, and you are recognized.

Mr. TALLAMY. Thank you, Mr. Chairman, and members of the committee, I appreciate the opportunity to present certain facts and views on the highway program which I hope will be helpful in your consideration of the highway financing proposals before you. It is noted that you are particularly interested in the immediate financing problem but that the hearings are also concerned with the long-range problem. Consequently, I propose to confine my remarks to those two primary concerns and matters intimately related to them.

By way of introduction, it might be helpful to mention briefly the scope of our Federal-aid highway programs, both physically and financially, and some of their historical aspects.

The 1956 Federal Aid Highway Act, as you know, substantially enlarged the program for the construction and reconstruction of primary and secondary highways and their urban extensions. We in the highway field call this the ABC program. It was increased from a previous high of $700 million per year to an apportionment of $900 million for the 1960 fiscal year. The 1956 act relating to the Interstate System was an outgrowth of previous acts and official reports of the executive department to the Congress going back as far as 1939. The initial concept of an Interstate Highway System was first officially presented to the Congress in that year. This concept developed and took shape through many reports and congressional and executive actions until it was embodied in the Federal-Aid Highway Act of 1944 with the act of 1956 providing financing and designating it as the National System of Interstate and Defense Highways. That system, as specified in these acts, is required to connect the principal metropolitan areas and industrial centers in the United States in the most direct manner consistent with giving local needs appropriate atten

tion, as well as the requirements of interregional traffic and the national defense.

The 1956 legislation, to accelerate the improvement of the Interstate System as well as the ABC program, established the highway trust fund as a depository for revenues from Federal motor fuel taxes and other highway user taxes, the receipts from which are being used to advance the highway program. This legislation also established authorizations of funds to be apportioned to the various States starting in fiscal 1957 and continuing through fiscal 1969 for construction of the Interstate System. These authorizations totaled $24.825 billion, which was estimated to be the Federal cost of completing the system on a 90-percent Federal, 10-percent State sharing basis.

However, an extremely important section of the Highway Revenue Act of 1956 stipulated that apportionments to the States of interstate authorizations were restricted to amounts that the highway trust fund could liquidate as the expenditures resulting from the apportionments came due. In other words, to the extent that the trust fund could not support the expenditures, the apportionment could not be made. The 1956 legislation recognized that this would actually restrict apportionments for the Interstate System during a part of the program considerably below the authorized levels.

As a matter of fact one of the first actions of the Bureau of Public Roads after enactment of the legislation of 1956 was to determine how the annual authorizations could be apportioned under that limiting provision, section 209 (g) of the Highway Revenue Act of 1956. The Department of Commerce and the Bureau of Public Road testified before the Senate and the House Committees on Public Works on numerous occasions, starting early in 1957, that under this provision and under the revenue provisions of the act, we would not be able to apportion more than $1.6 billion for the Interstate System for fiscal 1960.

However, the 1956 legislation recognized the need for expediting the construction of the Interstate System in view of increasing economic and national defense requirements by authorizing apportionments over a 13-year period and declaring the intent of completing construction in all of the States by 1972.

In conformance with this directive, State highway departments expanded their organizations. The highway contractors, the materials and equipment producers, and other members of the roadbuilding term greatly expanded their forces and built up inventories necessary to carry on the program in accordance with the intent of the

law.

Standards for constructing the Interstate System, based upon the experience of years of progressive development of that type of highway, were adopted and approved by the Department of Commerce in cooperation with all of the States, as required by the act. Plans were prepared, rights-of-way purchased, families moved, and business establishments relocated as necessary to make way for the expeditious advancement of the program. As a result we are on schedule today. Eight thousand miles of interstate highway construction projects have been undertaken at a cost of $3.8 billion in Federal funds and $0.5 billion in State funds, and 4,000 project miles have been com

pleted. In addition, State and Federal obligations to the extent of $2.1 billion have been made for the purchase of rights-of-way and for the development of necessary plans. The entire industry is geared to continuing the program efficiently as required under the 1956 legislation.

This very expedition, however, is the major part of our immediate problem today because the 1958 act added highway construction work for both the ABC program and the interstate program greatly in excess of that contemplated by the 1956 acts and in excess of the apparent ability of the trust fund to finance. For example, as stated before, by the terms of the 1956 legislation, only $1.6 billion of interstate funds could have been apportioned for fiscal 1960. The 1958 act raised that figure to $2.7 billion, or $900 million more than the trust fund could support. In addition, it directed that another $200 million be apportioned for the 1959 fiscal year. And for the ABC program, it directed that $400 million additional be apportioned for work on those systems in excess of the trust fund's capacity and furthermore provided another $115 milion in the form of loans for this special program. In other words, the 1958 act directed the apportionment of $1.6 billion more than the trust fund could support. Also, since it was an antirecession measure, the act stipulated that the $400 million item and the $115 million in loans were to be placed under construction contract by December 1, 1958, for completion by December 1, 1959. This item alone approximates the anticipated deficit for the fiscal 1960. The 1958 act, while directing those apportionments to be made for fiscal 1959 and 1960, did not for 1961 and subsequent apportionments, change the provisions of the 1956 acts relating to the need for obligations to be kept within the capacity of the trust fund to liquidate. Consequently, with deficits resulting from the apportionments under the 1958 act, none of the authorized $2.5 billion apportionment for the Interstate System work for fiscal 1961 can be made-which apportionment would normally be made about July or August 1959also according to our present estimate, only a maximum of $500 million can be apportioned for the 1962 fiscal year-which apportionment would normally be made about July or August 1960-as compared to the authorized $2.2 billion. Under these conditions of limited apportionment we anticipate a deficit of about $500 million for fiscal 1960, which would accumulate to $1 billion in 1961, be reduced to $600 million in 1962, and balance out in fiscal 1963. If the program were to go forward in accordance with authorized apportionments under existing legislation for the Interstate System, and disregarding section 209 (g) of the Highway Revenue Act of 1956, the accumulated deficits would increase to an estimated $1.3 billion for 1961, $2.1 billion for 1962, $3.1 billion for 1963, $3.9 billion for 1964, which deficits would not be eliminated until after 1972 based on present revenue estimates.

To meet the problem and also to continue the Interstate Highway construction work without interruption, the President has recommended a 111⁄2 cent motor fuel tax increase. Even so, it is unlikely that a tax increase could be made effective before September 1, and a temporary deficit of approximately $250 million would occur in the fund but would be erased by June 30, 1960.

If no action is taken this session to increase the trust fund revenues, it will be necessary, in order to avoid serious delinquencies in our payments to the States, to halt for a period of about 9 months all further approvals of construction, engineering, and purchase of right-of-way against apportionments which have been in previous years and now remain unobligated, in order to permit revenues to catch up with expenditures. Even then it would be impossible to reimburse the States promptly this fall by an amount which will accumulate to maximum of about $400 million in January but which would reduce to a deficit of about $150 million by the end of the year. This is a critical situation.

Gentlemen, this is the immediate problem. It is extremely acute, and I certainly hope it will be solved. But of itself it has no direct relation whatsoever to the long-range financing problem which is brought about by the 1958 estimate of the cost of completing the Interstate System. The same immediate problem would have prevailed as a result of the 1958 act if the cost estimate proposed in 1955 had been used. It would merely have meant under those circumstances that the equivalent dollar amount of increased work resulting from the 1958 act would correspondingly be eliminated in the last years of the program. In other words, expediting it in fiscal 1959, 1960, and 1961 would have meant reducing the size of the program during the late 1960's and early 1970's by the amount of the earlier acceleration.

The executive budget recommendation of a 12-cent increase in the motor fuel tax through fiscal 1964 is an interim financing measure, and was purposely not advanced as a solution to the long-range problem. The reason is that in 1961 a report, which has been under careful preparation and development since the 1956 acts, will be submitted to the Congress. This report will furnish information on both highway user and nonuser benefits so that an adjustment can be made between those benefits and existing taxes if such is found necessary. Another matter of significance is that a new estimate of the cost of completing the Interstate System will also be presented in 1961. Thus, at that time, the Congress will have the opportunity to develop a long-range financing plan in the light of factual, up-to-date information on all highway beneficiaries, the cost of completing the system, and existing revenues going into the trust fund.

Inaction by the Congress at this session regarding the temporary increasing of trust fund revenue would result in the following:

(1) a 9-month stoppage of all contracting for new highway construction and right-of-way acquisition;

(2) the delayed payment of many vouchers submitted by the States for reimbursement of money already expended by them for outstanding contracts; and

(3) nearly cut in two the total Interstate Highway construction authorized for the fiscal years 1960 through 1963.

The recommended temporary motor fuel tax increase would for all practical purposes solve all of those problems.

However, since the committee has indicated an interest in the longer range financing problem, we have worked out an analysis of what it would entail in the way of a construction stretchout in order to complete the Interstate System within the terms of the existing 1956 and

1958 acts, necessarily disregarding the specified date of completion of the entire system and termination of the trust fund. In order to do this we have projected the ABC program at an average of $925 million annually through the remaining expected life of the Interstate construction program, which amount is the authorized level for that work for fiscal 1961.

On the Interstate program, after the moratorium period, construction work could be resumed in 1961 at an annual $1.5 billion level, at which rate it could continue through fiscal 1964, and from which time on to the end of the program it could increase progressively until it reached a maximum $2.4 billion per year in 1975. This schedule would take until the middle of fiscal year 1978 to finish the program. It should be pointed out that the Interstate System is being designed to accommodate with top efficiency the traffic forecast of 1975, and thus these premises are not in precise balance.

The attached tables 1-A, 1-B, and 1-C are included for the record to show the apportionments that could be made, the obligations, the expenditures and condition of the trust fund under the various assumptions of conditions which I have indicated.

I strongly recommend that the Federal-aid programs continue at the authorized level. To hold both the ABC and the interstate highway program for a 9-months period would represent a serious setback in the construction of highways necessary to properly and safely serve the increase in motor vehicles and in traffic. It is even more important now that these highway improvements be quickly accompplished from a defense point of view, considering the increasing dependence upon adequate highways for every imaginable type of war and civilian survival efforts in case of enery attack.

A delay would seriously affect State highway department organizations, contractors, equipment, and material companies, all of whom have built their capacities of manpower, material, and equipment for a continuing program and one based on contemplated authorizations. The holding of many vouchers for reimbursement to the State for expenses to which they have been put, starting in October, of this year, and which there was an agreement to meet, will work financial hardships upon the States and the contractors.

We do not believe, however, that it is desirable at this time to develop a solution to the long-range financing problem in view of the desirability of predicating it upon the fundamental reports of cost and user and nonuser benefits to be submitted to the Congress in January of 1961. At that time, in the light of the most up-to-date basic information, a plan can be created which will probably reflect with greater certainty a proper distribution of highway costs.

I appreciate the opportunity the committee has afforded for the presentation of the problem as we see it and trust that the committee will take action at an early date to solve it.

The CHAIRMAN. Mr. Tallamy, you want these tables included in the record, do you not?

Mr. TALLAMY. Yes, I do, Mr. Chairman.

The CHAIRMAN. Very well. Without objection, they will be included at the conclusion of your statement. (The tables referred to follow :)