same fiscal year to the highway trust fund. But, really, there is no relationship between those two items. The figure that you have just referred to, the $5.8 billion of unobligated contract authority, goes back again to this matter of contract authority. It has no relationship to cash in the highway trust fund.

Senator ERVIN. But it is a limitation on the contractual funds; is it not? In other words, are you not required to limit the discussion of your contractual authority to that extent? Is that not the order from the Office of Management and Budget?

Mr. TURNER. Well, yes; I am directed to make a limitation on the amount of new obligations. The difference between the total amount of money that has been authorized through the Public Works committees by the Congress, which amount of money we have already apportioned to the States, and the total amount that we have actually released, the amount the States can use for new obligations, is the $5.8-billion figure to which you make reference. It is a lag in contract authority rather than dollars or cash in the highway trust fund.

I think it would be well if perhaps you, in connection with what you are discussing, you might even forget the amount of money or cash in the highway trust fund, because it is not related to this contractual authority question at all.

Senator ERVIN. I understand that. This is a limitation, or at least a deferment until some future time, of the contractual authority of your division?

Mr. TURNER. That is correct.

Senator ERVIN. This is for the fiscal year that ends on June 30 this year; is it not?

Mr. TURNER. Yes, sir; that is correct.

Senator ERVIN. Can you tell us how much money has actually been appropriated by Congress that will be withheld under this limitation?

Mr. TURNER. I would have to change one word of your questionnot moneys appropriated, but moneys that have been authorized. The figure at the end of this fiscal year we estimate will be $5.5 billion instead of the $5.8 billion that is in the budget document. This is a revised figure.

Senator ERVIN. Now, what is done with the moneys as a practical matter where the obligational authority to spend it or to contract for the expenditure is limited or deferred?

Mr. TURNER. The obligating authority remains to the credit of the State unless by law, it lapses and, as I said, no case of that kind has ever occurred and we do not intend to let such a situation occur. The balance will be carried forward to some succeeding year.

The cash in the trust fund that I think you are really inquiring about, by law, is loaned out by the Secretary of the Treasury on the basis of certificates of indebtedness to the general fund of the Treasury.

Senator ERVIN. In other words, the general fund of the Treasury borrows the part of the highway fund which would otherwise be available for expenditures until the expiration of the period of deferment?

Mr. TURNER. There is an automatic loan made at the beginning of each month of any estimated excess amounts in the highway trust fund. They are automatically loaned to the general fund on a certificate of indebtedness bearing the rate of interest equal to the average rate that the Treasury has to pay for all other similar certificates of indebtedness. Those moneys, that note, is callable on demand by the highway trust fund if it is needed-if cash is needed to liquidate obligations.

Senator ERVIN. In other words, the highway trust funds, when they are borrowed, are expended for other purposes and then repaid later out of the general fund?

Mr. TURNER. That is right. The excess balances in the highway trust fund are transferred to the general fund for general purpose uses and lose their identity at that point.

Senator ERVIN. I do not claim to be much of an economist. but I never have understood how you fight inflation by refusing to spend the money you have and then spending some other money you do not have. That is what it seems to me we are doing.

Professor BICKEL. Would not the explanation be, Senator, that that money that they borrowed from the highway trust fund is money that the Treasury does not borrow from banks, and to that degree, you have less actual money in circulation in the economy, which would have, at least according to Milton Friedman, anyway, an impact on inflation?

Senator ERVIN. It would seem, though, to me, in my economic understanding, that it would be better to defer the expenditure of money that you do not have.

Professor BICKEL. Altogether.

Senator ERVIN. And spend that which you have.

Mr. TURNER. It is a concern, but I do not want to argue the point with you.

Mr. EDMISTEN. Mr. Turner, I notice here on page 1, you say that you are going to discuss with the subcommittee the action taken by the Federal Highway Administration pursuant to past directives to reduce spending in recognition of the need for curbing inflationary

pressures.

Right now, I do not see how that is working. How does this policy fit in with the administration's current expansionary budget policy? That does not quite hold together. Of course, you may not have any control over that.

After you finish that question, I would like to ask you where this control comes from, because I think Congress deserves to know who puts out the directives on the expenditures.

Mr. TURNER. The control comes from the OMB office to the Department of Transportation and thence to me.

Mr. EDMISTEN. How does that work? Could you give us the procedures? Because for years we have tried to get information out of OMB and only this year were we successful in getting them to tell the American people how much money they have impounded.

Mr. TURNER. Within the executive branch, any agency of the Federal Government, for many years, had to go to the old Bureau of the Budget, now the OMB, with what is called an apportionment

request, standard form 132. We prepare this quarterly, indicating our anticipated needs, send that to the OMB, and they approve either the amount which we have requested or some lesser amount. Mr. EDMISTEN. Would you say that the Anti-deficiency Act requires you to do that?

Mr. TURNER. That is correct.

They thus control the rate of obligations which any agency of the Federal Government can make under the authority of some legislative act. That is the way ours operates; that is the way all the other agencies operate.

Mr. EDMISTEN. So the Office of Management and Budget is probably the most powerful office in America today next to the Presidency. Mr. TURNER. Well, that is a conclusion that you can draw.

Mr. EDMISTEN. Who determines the priorities, though? Do they call you in and ask you to determine what road-building projects you are going to stop here or there? Is that done down at OMB?

Mr. TURNER. No; we do that. They give us a dollar figure and we administer the program within that figure.

Professor BICKEL. Mr. Edmisten, could I interrupt just on the point we had a moment before?

Mr. EDMISTEN. Yes.

Professor BICKEL. When they apportion to you under the Anti-deficiency Act that way, they apportion both obligational authority and cash spending: do they not?

Mr. TURNER. Well, the standard form 132 that I was referring to in this process is an obligational or contract authority rather than cash.

Professor BICKEL. Right.

Mr. TURNER. There is another apportionment of cash; yes.

Professor BICKEL. But both of your functions, then. obligating future expenditures or in making current ones, are subject to the apportionment power of the Office of Management and Budget?

Mr. TURNER. That is correct. The form not only releases the funds to us, but it does it by the establishment of an account with a number to which these obligations are charged and the usual control procedures.

Professor BICKEL. Thank you.

Mr. EDMISTEN. After OMB has told you how much money you can spend and your professionals determine what project will be initiated and completed, do you have any criteria you can share with us to shed some light for us on how you determine what roads will be built and what projects will be started?

Mr. TURNER. We do not do that. The program is a grant-in-aid program to the States. The individual States select the projects to be constructed within their apportionment of this total amount that we release to the States.

Senator ERVIN. If counsel will pardon my interrupting, the acts of Congress contain certain formulas which determine how the Highway Trust Fund, when collected, is to be allocated to the States. Is that not true?

Mr. TURNER. Yes.

Senator ERVIN. So the States themselves are permitted to select the projects subject to the approval of your division.

Mr. TURNER. That is correct. The Congress will set up certain categories of construction, funds for the improvement of the Interstate System, funds for the improvement of the Federal-aid primary system, the Federal-aid secondary system, the extensions of those routes into the urban areas, and various other general categories of funds. We distribute those funds to the individual States on a formula basis. Then the States are free to select in each of those categories the individual projects utilizing the funds that have been made available to them, subject, of course, to our concurrence and approval of their submissions. But we do not, ourselves, select projects.

Senator ERVIN. So, as a practical matter, the administration, when there is a deferment of funds at the instance of the Office of Management and Budget, just reduces the amounts which are presently available to the States. Is that not the result of it?

Mr. TURNER. Yes, sir. We pass along to the States their proportionate share of that reduction.

Professor MILLER. Mr. Turner, may I ask you just one brief question? You spoke of the formula for allocating money to States. Mr. TURNER. Yes, sir.

Professor MILLER. Could you tell us what that is, please?

Mr. TURNER. With respect to the Interstate System, the formula is the ratio of the approved cost of completing the Interstate System in each State to the total cost in all States. If, for example, the cost of completing the system in North Carolina is 2 percent of the total cost nationally, then North Carolina gets 2 percent of whatever the amount of funds is that we have available. In the case of what we call the ABC system-that is, the Federal aid primary system of highways, the Federal aid secondary system of highways, and the extension of those systems into the urban areas the distribution basically places one-third on the relative area of the State to the national area, one-third on population, and one-third on road mileage within that State. There are variations of that, but basically, it is one-third area, one-third population, and one-third road mileage. Professor MILLER. And there is no element of discretion in your office here to choose one State over another? It is all automatic; is that it?

Mr. TURNER. There is absolutely no discretion of any kind in our office with respect to how much any State gets in any of these categories of funds. The apportionment is specified in the law and we distribute it right to the dollar.

Professor STOLZ. Excuse me. Is the formula in terms of the total revenue to the highway tax fund, or is it in terms of the amount to be obligated that year?"

Mr. TURNER. It is in relationship to the amount of obligational authority for that year. That, in turn, is related to the estimated capability of the trust fund to finance. So that there is a relationship between the amounts that are authorized to be apportioned and the estimated income or resources of the trust fund.

Professor STOLZ. This goes back to the question I was asking you carlier: Would one effect of the limitation be, possibly, to authorize you to use the funds not pursuant to the apportionment fund limit, but in some other way? I am not sure my question is clear.

Mr. TURNER. Well, we cannot do anything with the funds except apportion them. We have no other control over the funding.

Professor STOLZ. I understand. But under the formula, if I understood you a moment ago, it has as one of the variables the revenue received by the gas tax fund.

Mr. TURNER. No; no.

Professor STOLZ. Well, then I misunderstood.

Mr. TURNER. What I was trying to say-I think this is what you have reference to. What I have said is that there is a certain amount of money authorized to be apportioned, this authorization coming from the legislative committees of the Congress. There is a restriction, however, that even though, let us say, $5 billion is authorized to be apportioned, if we estimate that the trust fund would not have sufficient revenues in it to support the $5 billion, we must reduce that $5 billion to whatever the amount is that we estimate the trust fund will have in it. If that is $4 billion, then the $5 billion authorized by the legislative committee becomes $4 billion instead of $5 billion.

Professor STOLZ. And if you got a limitation order, would you treat that as the equivalent, then, in terms of the formula, as the equivalent of a reduction in the revenues of the gas tax fund?

Mr. TURNER. We do not treat it as the equivalent of the formula, but we do treat as the equivalent of an authorizing amount by the legislative committee. The formula is the device by which we distribute whatever that ceiling figure is among the different States.

Professor STOLZ. My question really is in terms of the way you work out the formula so that, in deciding how much each State will get, you treat a limitation as the same as a decrease in the revenue to the fund.

Mr. TURNER. The net effect is the same. If the Congress had authorized $5 billion and the trust fund estimates would indicate we can only support $4 billion of that, it would be $4 billion that we would apportion. But we would distribute that $4 billion to each State in exactly the same relative ratio that we would have, had we had the $5 billion.

Likewise, if the OMB says that the maximum amount that you can release to the States is $4 billion, even though you had $5 billion authorized in the legislation, then $4 billion is all we distribute.

Professor STOLZ. Regardless of what you are legally bound to? Mr. TURNER. Let me correct the last comment. We will distribute it to the States, but then we will immediately freeze a certain amount of it and say you cannot create obligations against a certain amount of it.

Professor STOLZ. That certain amount figure would be the same. figure by the formula? It is very hard to talk about.

Mr. TURNER. We would treat the amount, the figure that OMB gives us, exactly the same as the ceiling amount that the legislative committee might impose. But again, I repeat, each individual State will get the same relative share of whatever the total amount is by the formula, whether it is OMB action or whether it is a legislative action.

Professor STOLZ. I have one other question, Senator, if I can interject it at this point.