Forecasting Transportation Revenue Sources: Survey of State Practices (2015)

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3 ways to enhance future revenue, including the development of new methods of revenue generation. The primary audi- ence will be transportation officials, most of whom work at the state level and are involved in revenue forecasting and transportation funding. The report documents the range of revenue forecasting techniques and identifies promising new practices as reported by state DOTs. It also identifies short- comings in current methods and in practices used by state transportation agencies, and problems that states have had in overcoming them. The information that was synthesized and presented in this report was gathered in several ways. A literature review of recent academic research reports, articles in professional journals, agency newsletters, and websites provided a foun- dation of information related to current practices and broader contextual information about the dynamic policy challenges related to finance that are currently facing nearly every state. Based on the review, a survey was designed and sent to vot- ing members of the AASHTO Subcommittee on Transpor- tation Finance Policy, whose membership includes all 50 states, the District of Columbia, and Puerto Rico. Members were sent e-mail invitations to complete the on-line survey, which were addressed to each jurisdiction’s representative on the AASHTO Subcommittee on Finance. The recipient was also invited to forward the survey or particular questions to the DOT staff members most involved with revenue forecast- ing. Forty-five (45) of the organizations contacted, or 87%, provided at least one response to the survey. In a few cases, responses were obtained from more than one person because some individuals forwarded questions to others within their state DOTs. Respondents were almost exclusively employed by their state DOTs, and included directors of finance, chief financial officers, financial analysts, economists, program managers, and transportation revenue coordinators, as well as people holding other titles. The survey questionnaire (presented in Appendix A) included questions eliciting the objectives of and methods and data used in forecasting revenues at the state level. The survey also requested that respondents provide titles of reports of recent forecasts, descriptions of their forecast- ing methods, and manuals documenting forecasting meth- ods; and instructions as to how websites could be accessed to further document their methods. Telephone and e-mail con- tact information was requested so that the survey team could follow up when information in the surveys was found to be Almost all states estimate future revenues required for trans- portation planning, policy formulation, and management, though methods for doing so differ widely. But even as state and local governments develop their short- and long-range transportation programs and evaluate potential new or alterna- tive funding sources, there is a scarcity of published guidance on or consistency among the methods used to forecast tradi- tional revenue sources, such as fuel taxes and vehicle registra- tion fees. There is even less information available about how to forecast revenues from alternative sources which might be used in the future, such as mileage fees that could be imple- mented through electronic vehicle monitoring systems. The projection of revenue for short-range operational planning and long-range capital programming are central to policymaking, and methods of estimating future resources are essential tools for state and local officials. Federal trans- portation regulations impose an increasing variety of fiscal requirements on both state departments of transportation (DOTs) and metropolitan planning organizations (MPOs) for long-range plans, shorter-range programs, and major proj- ects for which compliance requires financial forecasting. For example, state DOTs must demonstrate that their short-term State Transportation Improvement Programs (STIPs) are “fis- cally constrained,” MPOs must establish “fiscal constraint” for both long-range plans and short-term programs, and major projects must also meet fiscal requirements. In addition, under MAP-21, the current national high- way law, states and MPOs must also measure, and plan to improve and report, their performance with respect to seven specified criteria. This makes the ability to forecast revenues that can be used to address these performance measures even more important (FHWA, Moving Ahead for Progress in the 21st Century: Statewide and Metropolitan Planning 2012). At the same time that these more stringent federal require- ments, revenue shortfalls, and vigorous competition for resources all make accuracy of forecasting increasingly impor- tant, financial managers and planners are faced with a range of dynamically changing issues affecting it, including dramatic fluctuations in federal funding of state programs, changes in fuel economy, fluctuating vehicle-miles traveled (VMT) growth rates, and volatility in vehicle registration growth rates. This synthesis report is intended to help agencies improve methods of forecasting and to assist DOTs as they explore chapter one INTRODUCTION

4 incomplete, contained apparent contradictions, or referred to reports, manuals, models, or databases that appeared relevant but had not been carefully explained. The survey was sent in late January 2014. As responses were assembled, several reminders were sent by e-mail and then telephone calls were made to agencies that had been slow to respond. By the end of March 2014, responses had been received from 45 agencies. A selection of illustrative responses is briefly summarized in Appendix B. Follow-up calls or e-mail requests were made to more than a dozen of the respondents. The calls did not have a set format or protocol and were designed to address particular questions left unresolved by the responses to the web-based questionnaire. Some calls lasted only a few minutes and led to the receipt of further materials by e-mail, whereas others lasted up to an hour and involved detailed discus- sions of forecasting models and data sources used in fore- casting. Some agencies were called several times in order to be sure that the synthesis information was complete and accurate. The survey responses were tallied to provide summary information that appears in tables and figures later in this report. In addition, based on their responses to the surveys and the literature that clearly identified some unique state practices, half a dozen states were selected for more detailed study and analysis. In these cases, additional telephone inter- views took place and more detailed studies were carried out using their manuals, websites, and in a few cases, consultants’ reports. To insure accuracy of the accounts in this report of specific procedures employed by states, a draft of this report was provided to each state whose procedures are presented as case examples, and five states provided corrections or com- ments that were incorporated into this final report. The remainder of this report presents the findings of this study. Chapter two summarizes some of the background and context for the study, including the growing sense of a national fiscal crisis in transportation and some of the federal and state responses that have been widely reported. Chapter three present the findings of the survey, including in-depth analyses of the types of revenue forecasting processes performed at the state level. Chapter three also examines the responses to the survey that discuss the shortcomings of current techniques and proposed new sources of revenue. Chapter four examines the institutional arrangements of transportation revenue forecasting, including state laws and statutes that govern reporting requirements, and responses from the survey relating to forecasting responsibilities, pro- cesses, and institutions. Chapter five offers conclusions about current practices, shortcomings, and innovations in forecast- ing techniques, especially as regards new sources of revenue, based on the data provided by the survey. The final chapter also suggests areas of research identified in the course of conducting the study.