Highway and Transit Program Reauthorization: An Analysis of Environmental Protection Issues

CRS Report for Congress
Highway and Transit Program Reauthorization:
An Analysis of Environmental Protection Issues
Updated June 21, 2004
David M. Bearden
Analyst in Environmental Policy
Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Highway and Transit Program Reauthorization:
An Analysis of Environmental Protection Issues
Balancing public needs for surface transportation infrastructure with protecting
the environment has been a long-standing issue among states and local communities.
These two objectives can often conflict due to the rise in pollution that typically
results when new highways or roadways are constructed, or a highway is expanded,
to provide greater traffic capacity. Expanding highway capacity can be especially
challenging for states, if the resulting rise in pollution would be great enough to make
compliance with federal air quality standards more difficult. In order to receive
federal highway funds, the Clean Air Act requires states with air quality problems to
demonstrate that their transportation plans conform to their plans to control
emissions, referred to as “transportation conformity.”
To help reduce potential conflicts between highway capacity needs and
environmental requirements, Congress has authorized the use of federal highway
funds to alleviate some of the pollution resulting from highway construction and
travel. The most recent multi-year funding authorization for these activities was
provided in the Transportation Equity Act for the 21st Century (TEA-21, P.L. 105-
178), which expired at the end of FY2003. How to meet state needs for highway
infrastructure, while ensuring compliance with environmental requirements, is among
the key issues for reauthorization.
TEA-21 authorized a total of $218 billion for federal highway and transit
programs from FY1998 to FY2003. It set aside $9 billion for air quality projects,
including $8 billion for the Congestion Mitigation and Air Quality Improvement
Program (CMAQ) to offset some of the emissions from highway travel, as a means
to assist states in complying with federal air quality standards. The other $1 billion
was authorized for the purchase of clean fuel transit buses. TEA-21 also expanded
funding eligibility to allow states to use federal highway funds for mitigating water
pollution from highway runoff. The law also authorized funding for environmental
research and the development of advanced vehicle technologies, and it included
several other provisions related to environmental protection.
The use of federal highway funds to address environmental needs has focused
mostly on air quality projects, due primarily to requirements for states to demonstrate
conformity as a condition for receiving federal highway funds. Most of this funding
has been provided under the CMAQ program. While the program’s effectiveness has
been questioned, there is broad support for increasing its funding in response to an
upcoming rise in air quality needs among the states. Other air quality issues involve
the use of transit funding for the purchase of clean fuel buses, offering tax benefits
for cleaner-burning alcohol-based fuels, and exempting certain low-emission vehicles
from High Occupancy Vehicle (HOV) lane requirements. The extent to which water
pollution mitigation projects and environmental research and development activities
should be eligible for federal highway funds are issues as well.
This report provides background information and analysis of key issues to serve
as a resource document for the reauthorization debate. It will not be updated.

In troduction ......................................................1
Revenue and Financing Issues........................................2
Air Quality Issues..................................................3
Transportation Conformity......................................4
Background ..............................................4
Key Policy Issues..........................................5
Congestion Mitigation and Air Quality Improvement Program..........5
Background ..............................................6
Key Policy Issues..........................................6
Clean Fuel Buses..............................................7
Background ..............................................7
Key Policy Issues..........................................9
Federal Tax Benefits and Revenues for Renewable Alcohol-Based Fuels..9
Background .............................................10
Key Policy Issues.........................................11
Use of High Occupancy Vehicle (HOV) Lanes......................11
Background .............................................11
Key Policy Issues.........................................12
Water Quality Issues..............................................12
Surface Transportation Program.................................13
Background .............................................13
Key Policy Issues.........................................13
Transportation Enhancement Set-Aside............................14
Background .............................................14
Key Policy Issues.........................................15
Environmental Research and Development Issues.......................15
Surface Transportation-Environment Cooperative Research Program....16
Advanced Vehicle Technologies Program..........................16
Streamlining the Environmental Review Process........................16
Background .................................................17
Key Policy Issues.............................................18

Highway and Transit Program
Reauthorization: An Analysis of
Environmental Protection Issues
Meeting highway capacity needs while protecting the environment is a
challenging task for many states. In order to receive federal highway funding, several
environmental requirements must be met. The Clean Air Act requires states with
poor air quality to demonstrate that plans to expand highway capacity would conform
with their plans to control emissions, referred to as “transportation conformity.” A
state may be denied access to federal highway funds if conformity is not
demonstrated, or if air quality plans are determined to be inadequate. As required by
the National Environmental Policy Act of 1969 (NEPA), the potential environmental
impacts of all highway and transit projects are also subject to review prior to the
approval of federal highway funds for final project design, property acquisition, or
construction. While air quality impacts are a prominent consideration in the approval
of many projects, other common environmental impacts include water pollution from
contaminated runoff and the loss of wetlands or other natural habitat that may occur
from clearing the land for construction. Such impacts would need to be mitigated as
a condition of approval for federal highway funds. Environmental permits or other
documentation may also be required before certain aspects of a project may proceed.
To address potential conflicts between surface transportation needs and
environmental quality, Congress has established numerous programs and authorities
intended to help mitigate pollution resulting from highway construction and travel.
The most recent multi-year funding authorization for these activities was provided
in the Transportation Equity Act for the 21st Century (TEA-21, P.L. 105-178), which
expired on September 30, 2003. This law authorized a total of $218 billion for
federal highway and transit programs from FY1998 through FY2003. It set aside
approximately $9 billion of this amount for air quality projects, authorized tax
benefits for cleaner-burning alcohol-based fuels, and permitted states to exempt
certain low-emission vehicles from High Occupancy Vehicle (HOV) lane
requirements. TEA-21 also made funding available for mitigating water pollution
from highway runoff, and authorized funding for environmental research and the
development of advanced vehicle technologies.
The most controversial issues for the reauthorization of federal highway and
transit programs have been the amount of funding to provide for surface
transportation infrastructure needs and how to allocate this funding among the states.
Demonstration of conformity with air quality requirements and the performance of
environmental reviews are pertinent to these overall funding issues, as they play a
major role in the approval of federal highway funds for individual projects.

Transportation stakeholders, including numerous state departments of transportation
and transportation advocacy organizations, argue that extending the time frame for
conformity would provide more time to control emissions and that streamlining the
environmental review process would be more efficient, thereby speeding project
delivery. On the other hand, some environmental organizations have expressed
concern that such changes may compromise environmental protection.
There also has been significant interest in the adequacy of funding for air quality
projects under the Congestion Mitigation and Air Quality Improvement Program
(CMAQ). States and environmental organizations advocate significantly increasing
the funding for this program, in light of emissions reductions that states may soon
need to make in order to attain stricter federal air quality standards for ozone and fine
particulates. Stakeholders have expressed differing levels of interest in other
environmental issues regarding the adequacy of funding for the mitigation of water
pollution from highway runoff, research on how surface transportation impacts the
environment, and the development of advanced-vehicle technologies. Whether to
extend tax benefits for renewable alcohol-based fuels, and whether to expand the
exemption for low-emission vehicles from HOV lane requirements, are also issues.
This report provides background information on activities intended to help
mitigate pollution resulting from highway construction and travel, and analyzes key
issues for Congress. This report is a resource document for the reauthorization
debate and will not be updated. (For a discussion of reauthorization legislation, see
CRS Report RL32454, Environmental Provisions in Surface Transportation
Reauthorization Legislation: SAFETEA (S. 1072) and TEA-LU (H.R. 3550); CRS
Report RL32226, Highway and Transit Program Reauthorization Legislation in the
2nd Session, 108th Congress; CRS Report RL32032, Streamlining Environmental
Reviews of Highway and Transit Projects: Analysis of SAFETEA and Recent
Legislative Activities; CRS Report RL32106, Transportation Conformity Under the
Clean Air Act: In Need of Reform?; and CRS Issue Brief IB10128, Alternative Fuels
and Advanced Technology Vehicles: Issues in Congress.)
Revenue and Financing Issues
Slower growth in motor fuels excise tax revenues that support the Federal
Highway Trust Fund is a significant consideration in determining how much funding
is available for surface transportation infrastructure and related environmental needs.
During the previous authorization cycle, robust gasoline sales led to a substantial
increase in trust fund revenues. Congress used the greater availability of funds to
significantly expand most highway and transit programs, including numerous
environmental activities. However, the fiscal climate of the current authorization
cycle is more restrictive, due to a smaller balance in the trust fund as a result of
slower growth in motor fuels excise tax revenues. The limitation on available
funding has made it more challenging to balance highway capacity needs with
protecting the environment and other competing priorities.
In addition to deciding how much funding is made available for environmental
activities, the category of funding under which these activities would be authorized

will be a critical factor in determining whether their support is insured. TEA-21
established a new budget category of discretionary spending guarantees that function
as a “firewall” to ensure a minimum level of funding for the majority of highway and
transit programs, including most environmental activities. Guaranteed funding is
separated from the rest of the discretionary budget in a way that prevents the use of
Federal Highway Trust Fund revenues for any other purpose, and as such, is not
subject to reduction in the annual appropriations process.1
In addition to guaranteed funding, TEA-21 authorized traditional discretionary
funding for certain programs, which is entirely subject to the annual appropriations
process. In appropriations subsequent to TEA-21, Congress did not fully support the
authorized levels for some of the traditional discretionary funding for environmental
programs, such as those for clean fuel buses, environmental research, and advanced
vehicle technologies. Consequently, an issue for the reauthorization of environmental
programs is the extent to which funding for them should be firewalled to guarantee
support for their implementation.
Air Quality Issues
Motor vehicles have become cleaner in operation with the gradual tightening of2
federal emission standards since 1965. However, the rise in the number of vehicle
miles traveled has offset some of the reductions in air pollution achieved by more3
advanced emission controls. As a result, motor vehicles continue to be major
sources of air pollution, including ground-level ozone, commonly referred to as4
smog. Emissions from motor vehicles continue to contribute significantly to poor

1 However, surplus revenues in the highway account of the trust fund that would exceed
the guaranteed funding levels are subject to the annual appropriations process as Revenue
Aligned Budget Authority (RABA). For further discussion, refer to CRS Report RS21164,
Highway Finance: RABA’s Double-Edged Sword.
2 Congress first required vehicle emissions to be regulated in amendments to the Clean Air
Act under the Motor Vehicle Air Pollution Control Act of 1965 (P.L. 89-272). Congress
subsequently amended the Clean Air Act in 1967, 1970, 1977, and 1990 to tighten controls
on vehicle emissions and establish other requirements. EPA promulgated the most recent
vehicle emission standards in February 2000 (65 FR 6698), which will be phased in between
model years 2004 and 2009. (For a history of the Clean Air Act, refer to CRS Report
RL30853, Clean Air Act: A Summary of the Act and Its Major Requirements.)
3 During the same period that vehicle emission standards have become more stringent, the
Department of Transportation reports that the number of highway miles traveled has tripled
from nearly 890 billion in 1965 to nearly 2.8 trillion in 2001, as indicated in National
Transportation Statistics, Table 1-32, available online at [http://www.bts.gov/publications/
4 According to emissions data compiled by EPA, on-road vehicles account for 62% of
carbon monoxide (CO) emissions in the United States, 37% of nitrogen oxides (NOx), and
27% of volatile organic compound (VOCs). NOx and VOCs contribute to ground-level
ozone pollution, commonly referred to as smog. These percentages are based on emissions
data released in February 2003 in Average Annual Emissions, All Criteria Pollutants, Years

air quality in numerous metropolitan areas, making it difficult for some states to
comply with emissions limits in their State Implementation Plans (SIPs) to attain and
maintain the National Ambient Air Quality Standards (NAAQS).5 How to meet
public needs for greater highway capacity while controlling emissions is a major
issue for states with areas that are in nonattainment with the NAAQS and areas that
must maintain them, as the availability of federal highway funding in these areas is
dependent on the state demonstrating that its transportation plan conforms to the
emissions budget for motor vehicles in its air quality plan.
In order to reduce conflicts between highway capacity needs and air quality
requirements, Congress has authorized the use of federal highway funds for various
projects that would reduce vehicular emissions. The majority of the air quality
funding authorized in TEA-21 was allocated to the CMAQ program. Federal transit
funding has also been made available to local transit agencies for the purchase of
clean fuel buses. Congress has also authorized tax benefits to encourage the
production and sale of renewable alcohol-based fuels that reduce vehicular emissions
and petroleum consumption. In addition, states have had the flexibility to allow the
single-occupant use of certain low-emission vehicles in High Occupancy Vehicle
(HOV) lanes, in order to encourage the purchase of cleaner vehicles. Further
background information on transportation conformity and specific air quality
programs and authorities, and key issues for Congress, are discussed below.
Transportation Conformity
The Clean Air Act requires states and metropolitan planning organizations to
demonstrate that their transportation plans conform to their air quality plans. The
purpose of this requirement is to ensure that the change in emission levels resulting
from new transportation projects would not interfere with the state’s efforts to attain
or maintain federal air quality standards. Many states have experienced greater
challenges in demonstrating conformity as air quality requirements have become
more stringent.
Background. Section 176 of the Clean Air Act prohibits federal agencies
from funding projects in nonattainment or maintenance areas, unless those projects
conform to a state’s SIP.6 Because new highways generally lead to an increase in
emissions, both the statute and regulations currently require that a metropolitan
planning organization’s Transportation Improvement Program (TIP) demonstrate

4 (...continued)
Including 1980, 1985, 1989-2001, [http://www.epa.gov/airtrends].
5 The NAAQS set safe ambient levels for carbon monoxide, lead, nitrogen dioxide, ozone,
particulate matter, and sulfur dioxide. Localities that have exceeded the NAAQS for one
or more pollutants are classified as “nonattainment areas.” Once attainment is achieved, a
locality is reclassified as a “maintenance area.” States must develop plans to reduce
emissions and comply with the standards in nonattainment areas and to control emissions
and sustain air quality in maintenance areas. EPA reports that 107 areas with a combined
population of nearly 98 million are in violation of the NAAQS for one or more pollutants,
of which 85 million people reside in ozone nonattainment areas.
6 42 U.S.C. 7506.

conformity no less frequently than every two years. Highway and transit projects
cannot receive federal funds unless they are part of a conforming TIP. States also
must demonstrate that their long-term transportation plans conform to their air
quality plans over a 20-year time frame. In addition to conformity requirements,
Section 179 of the Clean Air Act authorizes federal highway funds to be withheld
from a state if an adequate SIP is not prepared or implemented properly.7 (For
additional discussion of conformity requirements, refer to CRS Report RL32106,
Transportation Conformity Under the Clean Air Act: In Need of Reform?)
Key Policy Issues. There has been increasing support for allowing states
more time to demonstrate conformity, due to the likelihood that the impact of
conformity requirements on states will grow in the next several years. Numerous
factors have made it more challenging for states to control emissions and demonstrate
conformity, such as (1) the growth of emissions from sport utility vehicles (SUVs)
and other light trucks whose emissions are not regulated as strictly as passenger
vehicles, (2) greater than expected increases in vehicle miles traveled, (3) recent court
decisions that tightened conformity rules, and (4) the implementation of more
stringent federal air quality standards for ozone and fine particulates, scheduled for

2004, which will result in more areas being subject to conformity demonstrations.

Numerous metropolitan areas may face a cutoff of highway and transit funds in
the future, unless they impose sharp reductions in emissions to demonstrate
conformity. During a lapse in conformity, a state may receive federal highway funds
only for a limited set of exempted projects (mostly safety-related or replacement and
repair of existing transit facilities). The rules do not even allow funding of new
projects that might reduce emissions, such as new transit lines. How conformity
requirements may affect a state’s access to federal highway funds has raised
significant concerns for the reauthorization of federal surface transportation
programs. While conformity requirements could be modified to provide greater
compliance flexibility for states, proposals to do so have been controversial because
conformity is the only current mechanism to ensure that states consider how their
transportation planning decisions might affect air quality.
Congestion Mitigation and Air Quality Improvement
Congress established the CMAQ program under the Intermodal Surface
Transportation Efficiency Act of 1991 (ISTEA, P.L. 102-240). This program is
based on the fundamental concept that lowering the number of miles traveled by
motor vehicles, and reducing congestion to make vehicles operate more efficiently,
can reduce emissions and improve overall air quality. The program has been widely
popular among local areas struggling to reduce air pollution, as it is the largest single
source of federal funding for air quality projects. While questions have been raised
about the program’s effectiveness, there appears to be broad support for increasing
its funding levels in response to concern that greater emission reductions will be
needed in many states when new nonattainment areas are designated.

7 42 U.S.C. 7509.

Background. Congress originally authorized $6 billion for the CMAQ
program from FY1992 through FY1997. In enacting TEA-21, Congress authorized
another $8.1 billion for continuing it from FY1998 through FY2003. CMAQ funding
is available only for projects that would reduce traffic congestion and assist states in
complying with the NAAQS for carbon monoxide, ozone, and particulate matter.
States with areas that are in nonattainment with the NAAQS for these pollutants, and
those that must maintain them, receive CMAQ funds according to a formula based
on the severity of air pollution in those areas and the population residing in them.
States that do not have any nonattainment or maintenance areas receive 0.5% of the
total annual CMAQ apportionment, and have the flexibility to use this amount for
transportation projects that are eligible under CMAQ or the Surface Transportation
Program. TEA-21 also allowed each state to transfer a portion of its CMAQ funds
to other highway programs that the state determines to have a higher priority, if
certain conditions are met.
Most transportation control measures identified in Section 108 of the Clean Air8
Act are eligible for funding. CMAQ projects generally fall into one of the following
eight categories: (1) mass transit; (2) traffic flow improvements; (3) rideshare
programs; (4) traffic demand management programs; (5) bicycle and pedestrian
projects; (6) public education; (7) vehicle inspection and maintenance programs; or
(8) alternative fuel conversions. According to the Federal Highway Administration,
more funding has been obligated for conventional mass transit projects than for any
other activity, approximately 44% of total CMAQ funds since FY1992.
Key Policy Issues. After more than a decade of implementation, questions
have been raised as to whether the CMAQ program has reduced emissions
significantly enough to help states comply with the NAAQS. Whether to modify
various elements of the program to improve its effectiveness, or possibly to shift its
focus, is an issue for reauthorization. Congress included a provision in TEA-21 that
required the National Academy of Sciences (NAS) to study whether the emission
reductions from CMAQ projects have been large enough to help states comply with
the NAAQS. The NAS released its report in the spring of 2002.9 The study indicated
that the air quality benefits of CMAQ projects were difficult to assess because of the
lack of quantitative data for all projects. For those with quantitative data, the NAS
concluded that the emission reductions were relatively small and that these projects
were less cost-effective than other pollution control measures. However, the NAS
also concluded that when these emission reductions are assessed collectively the
overall air quality benefits that they provide may be great enough to help states attain
and maintain the NAAQS in areas that are on the margin of compliance.
Consequently, the NAS recommended that the program be continued and suggested
various modifications to improve its effectiveness.
The findings of the NAS have raised numerous issues for reauthorization. Since
the impact of the program on air quality was difficult to quantify, some argue that the

8 42 U.S.C. 7408(f).
9 The National Academy Of Sciences. Transportation Research Board. The Congestion
Mitigation and Air Quality Improvement Program: Assessing 10 Years of Experience. 2002.

508 p. Refer to [http://gulliver.trb.org/publications/sr/sr264.pdf] for the full text.

focus should be shifted to reducing traffic congestion in general, rather than linking
eligibility to air quality benefits that are questionable. There also are arguments that
the statutory formula should at least be amended to provide a higher amount of
minimum funding to states that do not have any air quality problems, but that would
still benefit from a reduction in traffic congestion. Rising traffic congestion and
progressively lengthier commuting times in some metropolitan areas have motivated
support for such options among some transportation stakeholders.
On the other hand, proponents of the program argue that areas on the verge of
attainment may benefit from the continued use of CMAQ funds for air quality
projects, even if the emission reductions are relatively small. They also argue that
more areas will be in need of emission reductions in order to comply with stricter
federal standards for ozone and fine particulates, scheduled to become effective in
2004, and that air quality benefits from CMAQ projects, no matter how small, would
be helpful. However, the current funding formula does not include a factor to
account for new areas that will be in nonattainment with these stricter standards.
Consequently, the formula would need to be changed during reauthorization, in order
to allow affected states to receive greater funding.
Clean Fuel Buses
In general, transit projects provide air quality benefits by reducing the number
of motor vehicles on the road and the emissions that are generated from their
operation. However, transit vehicles (mainly buses) produce emissions themselves.
In many local areas with air quality problems, transit agencies have purchased buses
that operate on cleaner-burning fuels as a means to control emissions. In enacting
TEA-21, Congress set aside funding for a program to assist transit agencies in
purchasing clean fuel buses, but subsequently redirected this funding to a more
general fund for bus purchases not restricted to fuel type.
While this program has not been implemented, many transit agencies have still
chosen to purchase clean fuel buses with federal funds at their discretion. The
upcoming designation of new nonattainment areas has sparked further interest in the
use of clean fuel buses, and some have advocated that a dedicated source of funding
should be established for acquiring them. This proposal has been controversial to
those who argue that local transit agencies should be allowed to decide what kinds
of buses best meet their capacity needs, rather than having a portion of federal transit
funds restricted to certain types of buses based on fuel type.
Background. TEA-21 authorized the Secretary of Transportation to establish
a Clean Fuels Formula Grant Program to assist transit agencies in acquiring low-
emission alternative-fueled buses, improving facilities to accommodate them, and
rebuilding pre-1993 engines with clean fuel technology. Under this authority, the
Secretary of Transportation may award competitive grants to transit agencies based
on a formula that factors in the number of vehicles in a transit system’s fleet, the
number of passenger miles traveled, and the severity of air pollution in a recipient’s
area. Eligible technologies include compressed natural gas (CNG), liquified natural
gas (LNG), biodiesel fuel, battery power, alcohol-based fuel, hybrid electric power,
fuel cells, clean diesel fuel, or similar technologies.

To support the program, TEA-21 authorized $200 million annually from
FY1999 through FY2003, for a total authorization of $1 billion over five years. Of
the $200 million annual authorization, $100 million was authorized as guaranteed
“firewalled” funds, and the remaining $100 million was authorized as traditional
discretionary funds subject to the annual appropriations process. In appropriations
bills subsequent to TEA-21, Congress has not appropriated any of the $100 million
in traditional discretionary funds that were annually authorized for the program, and
has redirected the $100 million in guaranteed annual funding to traditional capital bus
improvement projects. The Federal Transit Administration reports that data are not
available to determine the extent to which transit agencies have purchased
alternative-fueled buses with the redirected funding.
Even though there is no dedicated source of funding for the purchase of clean
fuel buses, they do receive preferential treatment under federal matching funds
requirements to help local areas attain or maintain federal air quality standards.
Generally, federal transit programs provide up to 80% of the cost of new bus
purchases, and local transit agencies are responsible for securing funding from state
or local sources to pay the remaining 20%. However, the federal contribution can be
increased to 90% to purchase buses that use “clean” or “alternative” fuels for the
purpose of complying with Clean Air Act requirements.10
The major capital assistance programs administered by the Federal Transit
Administration that have funded the purchase of alternative-fueled buses include the
Capital Investment Grants and Loans Program, Urbanized Area Formula Program,
Non-Urbanized Area Formula Program, Elderly Persons and Persons with
Disabilities Program, and the Job Access/Reverse Commute Program. Some funding
is also available under the “New Starts” Program. Of these programs, the Urbanized
Area Formula Program has been the largest source of funding for buses that operate
on alternative fuels.
Alternative-fueled buses have accounted for a significant share of Federal
Transit Administration funding obligations in recent years. The agency began
compiling data on new bus purchases by fuel type in FY2000. As indicated by the
data in the table below, an average of 34% of the federal funding obligated for the
purchase of new transit buses from FY2000 to FY2002 has been devoted to those that
operate on alternative fuels.
Air quality concerns are frequently among the most prominent factors in a
transit agency’s decision to purchase clean fuel buses, despite their typically higher
costs. For example, transit agencies located in metropolitan areas that need
emissions reductions to comply with federal air quality standards under the Clean Air
Act are more likely to choose cleaner buses that operate on alternative fuels. Other
factors may include the extent to which the purchase of cleaner buses would improve
the public’s perception of transit and increase ridership, and whether there are any
state or local mandates or incentives for the use of alternative fuels.

10 49 U.S.C. 5323(i).

Apart from air quality concerns, an economic factor that transit agencies
typically consider in their planning process is the extent to which the purchase of
alternative-fueled buses would help to maximize the benefits of past investments in
the refueling infrastructure necessary for such vehicles. Consequently, transit
agencies that have invested in alternative-fueled buses in the past are more likely to
purchase additional ones in the future. Conversely, transit agencies that have not yet
invested in them are less likely to do so, as they would need to invest additional
resources in new refueling infrastructure.
Federal Funding Obligated by the Federal Transit Administration for the
Purchase of Buses by Type of Fuel from FY2000 to FY2002a
Diesel or GasolineAlternative Fuels bTotal
Fiscal YearBusesDollarsBusesDollarsBusesDollars
2000 9,568 $999,819,016 2,295 $669,627,704 11,863 $1,669,446,720
2001 8,192 $795,561,837 1,373 $272,687,218 9,565 $1,068,249,055
2002 8,465 $790,677,654 1,900 $450,271,569 10,365 $1,240,949,223
Source: Prepared by the Congressional Research Service using data from the Federal Transit Administration, Statistical
Summaries for FY2000, FY2001, and FY2002.
a Dollar amounts in the table reflect the amount of federal funding obligated to assist transit agencies in purchasing buses.
Dollar amounts do not include funds provided by transit agencies to meet matching funds requirements, and therefore
do not reflect the total cost of bus purchases.
b Alternative fuels include compressed natural gas, liquified natural gas, liquified petroleum gas, methanol, ethanol,
electric, biodiesel, dual fuel operation, fuel cell, and hybrid electric.
Key Policy Issues. As indicated by the above data, funding obligations for
alternative-fueled buses have significantly exceeded the original $200 million annual
authorization for the Clean Fuels Formula Grant Program. This trend has caused
some to argue that setting aside funding exclusively for the purchase of alternative-
fueled buses is not necessary to encourage their use, and that the favorable 10%
matching funds requirement is sufficient encouragement. Some also point out that
stricter standards for heavy-duty diesel engines and fuels, which are scheduled to be
phased in beginning in 2007 and 2006 respectively, will allow diesel buses to achieve
a level of emissions performance that is equivalent to alternative fuels such as CNG.
Such critics say that the cleaner performance of new diesel buses that are on the way
will negate the need for reserving a portion of transit funds for alternative-fueled
buses in order to reduce emissions. On the other hand, some environmental
organizations have expressed skepticism that diesel buses equipped with cleaner
engines will generate as few emissions in actual operation as those that operate on
alternative fuels. They argue that dedicated funding should be set aside in
reauthorization for alternative-fueled buses to ensure that transit agencies continue
to purchase them, as a means to improve air quality.
Federal Tax Benefits and Revenues for
Renewable Alcohol-Based Fuels
The federal government currently provides an excise tax reduction and an
income tax credit to promote the production, sale, and use of renewable alcohol-

based fuels, including ethanol and methanol.11 Vehicles operated on these fuels
typically produce fewer tailpipe emissions (particularly carbon monoxide) than those
operated on conventional gasoline or diesel. A reduction in tailpipe emissions can
help to reduce the impact of highway travel on air quality. However, alcohol-based
fuels can be more “volatile” than conventional gasoline or diesel, and the use of these
alternative fuels can result in higher evaporative emissions during refueling, which
could offset tailpipe emission reductions in some cases. While alcohol-based fuels
have the potential to improve air quality, the preferential treatment of these fuels in
the U.S. tax code has been controversial.
Background. The current authority for the tax benefits that apply to alcohol-
based fuels expires at the end of 2007. These benefits are available for alcohol-based
fuels if they are derived from renewable sources. Those produced from petroleum,
natural gas, or coal are specifically excluded from eligibility under the U.S. tax12
code. Ethanol is produced primarily from the distillation of corn and is therefore
renewable. While methanol can also be derived from renewable biomass or
municipal waste, it usually is produced from natural gas, which is not renewable.
Consequently, the tax benefits for alcohol-based fuels apply mostly to the sale of
Among alternative fuels, ethanol is the most commonly used. The majority of
the ethanol sold is not used in its pure form. Rather, it is blended with gasoline to
produce “gasohol,” which can be used in any conventional vehicle as a substitute for
ordinary gasoline. Ethanol is also used as an additive for various purposes. It is
commonly added to “reformulated” gasoline (RFG) to increase the oxygen content
of the fuel. RFG must be made available in certain areas to meet Clean Air Act
requirements to reduce vehicular emissions of precursors to ground-level ozone,
commonly referred to as smog. During the winter months, RFG also must be used
in certain areas to reduce emissions of carbon monoxide. In addition to meeting
oxygenate requirements for RFG, ethanol is added to gasoline in some areas to
increase octane levels. (For additional information on ethanol, refer to CRS Report
RL30369, Fuel Ethanol: Background and Public Policy Issues.)
The excise tax reduction for ethanol is most commonly taken at the blended
state by either fuel producers or distributors. The amount of the tax reduction
depends on the percentage of the blend that is composed of ethanol. The current tax
reduction is 5.2 cents per gallon for gasohol consisting of at least 10% ethanol, 4.0
cents per gallon for blends of at least 7.7% ethanol, and 3.0 cents per gallon for
blends of at least 5.7% ethanol. These amounts reduce the excise tax levied on the
sale of gasohol below the current tax rate of 18.4 cents per gallon for ordinary
gasoline. While nearly all of the excise taxes on gasoline are deposited into the
Federal Highway Trust Fund, 2.5 cents of the per gallon tax for gasohol are deposited
into general Treasury funds, and are therefore not dedicated to the support of federal
surface transportation programs.

11 The statutory authority for the income tax credit is codified at 26 U.S.C. 40, and the
statutory authority for the excise tax reduction is codified at 26 U.S.C. 4081.
12 26 U.S.C. 40(d)(1) for the income tax credit, and 26 U.S.C. 4081(b)(3) for the excise tax

Key Policy Issues. Since the wholesale cost of ethanol is relatively high, tax
benefits for the sale of ethanol are needed to make it competitive with other fuel
additives and with conventional fuels. However, there has been disagreement as to
whether these benefits are appropriate. Proponents argue that ensuring the
commercial viability, and resulting availability, of ethanol improves air quality due
to reduced vehicle emissions, lowers U.S. dependence on foreign oil, and provides
an additional market for corn farmers who grow the biomass needed to produce
ethanol. On the other hand, opponents argue that gasohol tax benefits are essentially
a subsidy for the ethanol industry, which reduces overall revenues for the Federal
Highway Trust Fund. Some also argue that the emissions and energy benefits of
ethanol can be offset by the energy needed to produce the fuel and the resulting
emissions from generating that energy. Key issues for reauthorization include (1)
whether to extend the tax benefits beyond this time frame, (2) whether to increase or
decrease the amount of the excise tax reduction and the income tax credit, and (3)
whether to continue the current policy of devoting a portion of alcohol fuel tax
revenues to general Treasury funds.
Use of High Occupancy Vehicle (HOV) Lanes
Many states have constructed HOV lanes as a means to reduce traffic
congestion. Through reducing congestion, these types of lanes also can provide air
quality benefits because vehicles typically generate fewer emissions when operating
more efficiently at steady speeds. In TEA-21, Congress approved a novel approach
to using HOV lanes for air quality purposes by allowing states to permit vehicles with
extremely low emissions to operate in an HOV lane with only one occupant. The
premise was to offer a benefit that would possibly encourage the purchase of cleaner
vehicles, thereby helping to improve air quality. This authority expired on October
1, 2003. Some have advocated that it should be renewed and expanded to include
other low-emission vehicles that were not clean enough to qualify under the previous
authority. However, others have expressed concern that expanding this benefit to
include a greater number of vehicles could cause traffic congestion to rise, impairing
the primary function of HOV lanes.
Background. TEA-21 provided the authority for states to permit a vehicle
with only one occupant to operate in an HOV lane, if the vehicle is certified under
federal regulations as an “inherently low-emission vehicle” (ILEV). The law
authorized states to implement this policy through September 30, 2003, and granted
each state the right to revoke this policy within its borders if HOV lane congestion
were to increase as a result of this practice. EPA established the ILEV category to
recognize the inherently low emissions of certain types of fuel and vehicle
technologies and to encourage their use. The ILEV standards are so strict that only
those vehicles without evaporative fuel emissions are able to meet them.
Consequently, a vehicle that burns any quantity of gasoline or diesel cannot meet the
standards, including hybrid vehicles that operate on a combination of gasoline or
diesel and electric batteries. Vehicles that operate entirely on alternative fuels with
no evaporative emissions, such as compressed natural gas (CNG), liquified natural
gas (LNG), or purely electric vehicles, are the only ones that are able to meet the
standards. Such vehicles account for a very small percentage of the on-road fleet.
Due to the limited availability of ILEVs, few motorists have been able to take
advantage of the HOV lane benefit provided in TEA-21.

Key Policy Issues. There has been growing interest among motorists, the
vehicle industry, and some states in renewing the HOV lane benefit and expanding
it to hybrid vehicles, which are more widely available. Proponents argue that hybrid
vehicles are almost as clean as ILEVs, and that expanding this benefit to include
them would encourage additional sales of “cleaner” vehicles that would help to
improve overall air quality. Over the short-term, allowing hybrid vehicles to use
HOV lanes with only one occupant may not cause HOV lanes to become noticeably
more congested in areas where there is excess HOV lane capacity to accommodate
them, because they currently represent a fairly small percentage of the vehicle fleet.
However, HOV lanes could become more congested in some areas over the long-
term, if the popularity and corresponding sales of these vehicles were to rise, making
them a larger share of the on-road fleet.
Water Quality Issues
In addition to contributing to air pollution, highway travel and construction
activities can impair water quality. Runoff from highways can deposit a variety of
petrochemicals and other potentially hazardous substances into adjacent waterways
and wetlands, which can migrate over time throughout a watershed and result in
violations of water quality standards. Highway runoff is basically a “nonpoint”
source that is more difficult to quantify and control than a conventional “point”
source, such as a water discharge pipe from a stationary facility.
In seeking federal funds for new highway construction, states must consider the
potential impacts of highway runoff on water quality and wetlands during the
environmental review process, required by NEPA. Depending on the extent of these
impacts, mitigation, such as storm water management systems, may be required to
prevent or minimize the potential for pollution. If wetlands would be lost as a result
of new highway construction, other measures, such as mitigation “banks” may be
required in order to make up for these losses. TEA-21 established a preference for
the use of these banks to address the impact of new highway construction on
wetlands.13 The costs of water pollution mitigation and the replacement of wetlands
is typically absorbed as part of the total costs for a new highway construction project.
However, many highways were constructed prior to more recent requirements
for the installation of storm water management systems, or other water pollution
mitigation measures. Consequently, many waterways adjacent to highways have
been contaminated from years of runoff and are in need of environmental restoration.
In response to these needs, Congress has provided authority for states to use federal
highway funds for environmental restoration or mitigation projects to address water
pollution from existing highways. Eligibility for these projects is provided under the
Surface Transportation Program in general, and under the Transportation
Enhancements set-aside within this program. The conditions of eligibility under each
authority and key issues for Congress are discussed below.

13 In July 2003, the Environmental Protection Agency, Federal Highway Administration, and
Army Corps of Engineers issued new guidance on the preference for the use of wetlands
mitigation banks, see [http://www.fhwa.dot.gov/environment/wetland/tea21bnk.htm].

Surface Transportation Program
Most federal highway programs are devoted to meeting specific needs, such
interstate maintenance, bridge repair, or highway safety, and states are generally not
permitted to use funds allocated to these programs for other purposes. The Surface
Transportation program is different in that it gives states broad flexibility to use
federal highway funds to meet multiple surface transportation needs. In enacting
TEA-21, Congress amended the eligibility requirements of the Surface
Transportation Program to include projects that would address the impacts of
highway travel on water quality.
Background. Under the Surface Transportation Program, the Federal
Highway Administration is authorized to make funds available to the states for
environmental restoration and pollution abatement projects that address water
contamination or environmental degradation attributed to runoff from an existing14
highway. For clarification purposes, the construction or retrofit of storm water
treatment systems is highlighted as an eligible activity. Surface Transportation
Program funds may be spent on environmental restoration and pollution abatement
activities only when an existing highway is undergoing “reconstruction,
rehabilitation, resurfacing, or restoration.” The portion of program funds that can be
spent on environmental restoration and pollution abatement activities for these types
of highway projects is limited to 20% of the total project cost. The law does not
provide the authority for states to expend program funds to mitigate water pollution
from past runoff, if improvements are not being made to the highway at the time.
While environmental restoration and pollution abatement activities are eligible
for funding, the law does not require states to expend their Surface Transportation
Program funds on these activities. Rather, a state may use program funds for these
activities at its discretion. Determining how many states have done so, and in what
amount, is not possible because states are not required to comprehensively track this
information. However, states may voluntarily supply this information to the Federal
Highway Administration. Based on the data that have been provided, the states
report that they have spent a total of $19 million in Surface Transportation Program
funds on environmental restoration and pollution abatement projects from FY1998
through mid-FY2003. However, the actual expenditure may be significantly greater
than this amount, due to the absence of complete data from all states. States also
must spend a portion of their federal funds for new highway construction to satisfy
water pollution mitigation requirements. Due to the scope of most new construction
and the extent of its impacts, these amounts mostly likely have exceeded the funding
that has been spent to mitigate pollution from older highways. However, data on the
specific amount of funding are not available because states do not typically separate
mitigation costs out from the total costs of new highway construction.
Key Policy Issues. Some of the relevant issues for the reauthorization of the
Surface Transportation Program are (1) whether to increase the limitation on the
portion of the total project cost that can be spent on environmental restoration and
pollution abatement activities, in order to accommodate cases in which mitigation

14 23 U.S.C. 133(b)(14).

costs may exceed the current 20% cap; (2) whether to establish a comprehensive
reporting mechanism for tracking the amount of STP funds expended by states on
these activities, so as to gain a better understanding of the extent to which
transportation facilities have impacted water quality and necessitated mitigation; and
(3) whether to permit STP funds to be used to address water pollution from highway
runoff, even if no highway improvements are underway at the time.
Transportation Enhancement Set-Aside
Although states have the flexibility to fund a wide variety of projects under the
Surface Transportation Program, they must set aside 10% of their annual
apportionment of funds under this program for “transportation enhancements” that
would improve the multimodal, environmental, cultural, or aesthetic aspects of the
nation’s surface transportation system. In enacting TEA-21, Congress modified the
definition of enhancements to include the mitigation of water pollution from highway
runoff as an eligible activity. While the use of enhancements funding to address
water quality needs has not been controversial, some criticisms have been raised
about the use of federal highway funds for some enhancements that are not directly
related to surface transportation infrastructure needs.
Background. States may choose to spend their enhancements funds on
numerous categories of eligible activities. The categories that have received the most
funding include bicycle paths and pedestrian walkways, preservation of historic15
transportation facilities, and landscaping and scenic beautification. Of the eligible
categories, mitigation of water pollution from highway runoff has received a
relatively small percentage of overall enhancements funding. TEA-21 authorized a
total of $3.3 billion for transportation enhancements from FY1998 through FY2003.
Of this amount, the National Transportation Enhancements Clearinghouse reports
that states had expended $66 million (or nearly 2%) on water pollution mitigation16
projects through mid-FY2003. While this amount represents a small fraction of
enhancements funding, it is more than three times the amount that states had
reportedly spent on these types of projects with general Surface Transportation
Program funds.
The federal contribution to the cost of projects funded under the Surface
Transportation Program, including pollution mitigation, is generally limited to 80%,

15 The categories of eligible transportation enhancements include (1) facilities for bicycles
and pedestrians; (2) acquisition of scenic easements and scenic or historic sites; (3) scenic
or historic highway programs; (4) landscaping and scenic beautification; (5) historic
preservation; (6) rehabilitation and operation of historic transportation structures or
facilities; (7) preservation of abandoned railway corridors; (8) control and removal of
outdoor advertising; (9) archaeological planning and research; (10) mitigation of water
pollution due to highway runoff; (11) transportation museums; and (12) measures to reduce
vehicle-caused wildlife mortality.
16 The National Transportation Enhancements Clearinghouse is sponsored jointly by the
Federal Highway Administration and the Rails-to-Trails Conservancy. The clearinghouse
compiles data from the states on the categories of transportation enhancements for which
federal funding is obligated.

as is the case with most other federal highway programs. However, states have the
flexibility to calculate the nonfederal share of the total cost of Transportation
Enhancements based on individual projects, multiple projects, or on a programmatic
level. States also can use funds from federal agencies other than the Department of
Transportation to count toward the nonfederal share of the cost of enhancements.17
Consequently, the federal share of the cost of an individual project can be as high as
100%, if the federal share for others is low enough to offset that amount and yield a
federal share of no more than 80% for an entire group of projects.
Key Policy Issues. While numerous states, local communities, historic
preservation interests, and environmental organizations have expressed support for
the diversity of activities that are supported with enhancements funding, some argue
that certain enhancements are an ineffective use of federal highway funds.
Opponents believe that federal highway funds should only be spent on improvements
to surface transportation infrastructure, rather than on projects that may provide some
related benefit, but that do not meet highway capacity needs, help to relieve traffic
congestion, or meet an environmental requirement necessary for project approval.
Limitations on federal highway funds as a result of a recent decline in trust fund
revenues have sparked some support for such arguments. If the funding for
transportation enhancements were reduced or eliminated, states would still be able
to use general Surface Transportation Program funds at their discretion for pollution
mitigation projects, assuming that current authority were not repealed.
Environmental Research and Development Issues
The majority of research and development activities that are supported with
federal highway funds focus on how to improve the overall function and safety of the
nation’s surface transportation system, in order to meet travel needs. A relatively
small fraction of federal highway funds has been devoted to researching the
environmental impacts of highway travel or developing environmentally beneficial
technologies. Some argue that more highway resources should be devoted to
environmental research and development in light of the impacts of vehicular travel
on air and water quality. Others counter that highway capacity and safety needs
should remain the focus of research funded with motor fuels tax revenues, and that
other federal agencies, such as EPA or the Department of Energy, already conduct
a variety of activities to research pollution from motor vehicles and develop
advanced vehicle technologies. While TEA-21 authorized the Secretary of
Transportation to establish an environmental research program, it was never
implemented due to lack of funding. TEA-21 also authorized a program to develop
advanced vehicle technologies, but its implementation has been limited due to
insufficient funding.

17 23 U.S.C. 133(e)(5)(C).

Surface Transportation-Environment
Cooperative Research Program
TEA-21 authorized the Secretary of Transportation to establish a Surface
Transportation-Environment Cooperative Research Program to be carried out with
other federal agencies, state and local officials, scientists and engineers, and
environmental organizations. It was designed to examine the complex relationships
between surface transportation systems and the environment, and to improve methods
for assessing transportation needs and determining the environmental impacts of
transportation. The law authorized $592 million in guaranteed funds for surface
transportation research from FY1998 to FY2003, but a specific amount was not
allocated for the environmental research program. In subsequent appropriations,
Congress has not designated funding to implement the program, nor has the
Administration allocated funding for it within its discretion.
Advanced Vehicle Technologies Program
TEA-21 authorized the Secretary of Transportation to establish an Advanced
Vehicle Technologies Program to encourage the development of multimodal and
environmental technologies to improve the efficiency, safety, and cost-effectiveness
of the national transportation system. The law directed the Secretary of
Transportation to promote technological advances through contracts, cooperative
agreements, grants, and other transactions with other federal agencies, state and local
governments, businesses, and research or educational organizations. TEA-21
authorized a total of $250 million in general Treasury revenues to support the
program from FY1999 to FY2003, which was subject to the annual appropriations
process. Of the $250 million authorization, Congress has appropriated $10 million
to date. Consequently, the implementation of the program has been limited. The
projects that have been funded have focused on the development of low and zero
emission technologies, such as hybrid, all- electric, and fuel cell power trains.18
Streamlining the Environmental Review Process
Many stakeholders at the state and local level have expressed long-standing
concerns that the environmental review process for highway construction projects
can be overly time-consuming and can impose additional costs. Some state
transportation departments and transportation advocacy organizations support
revisions to certain elements of the process that could speed project delivery.
However, environmental organizations have expressed concern that changes to the
process might weaken environmental protections. They also argue that lengthy
environmental reviews are sometimes warranted due to the scope of proposed
alterations to the natural landscape and the potential effects of increased traffic
capacity on air and water quality.

18 For further information, refer to [http://scitech.dot.gov/partners/nextsur/avp/].

The National Environmental Policy Act of 1969 (NEPA, P.L. 91-190) requires
all federal agencies to consider the environmental impacts of their proposed actions.
To ensure that these impacts are considered before final decisions are made, NEPA
requires federal agencies to provide a detailed statement of environmental impacts
for every proposed federal action significantly affecting the quality of the
environment. The “detailed statement” has been subsequently referred to as an
Environmental Impact Statement (EIS). The EIS must include a description of the
project’s purpose and need, an analysis of all reasonable project alternatives, a
description of the affected environment, and the environmental consequences of
impacts to the affected environment of each alternative.19 The EIS must also
demonstrate that appropriate comments were solicited from relevant federal, state and
local agencies and from the public. Relevant agencies obligated to provide comments
are those with jurisdiction by law or special expertise with regard to the
environmental impacts of the project.
If it is not clear whether a project would have significant impacts, an
Environmental Assessment (EA) must be prepared. An EIS is required if significant
impacts are identified at any time during preparation of the EA. Otherwise, a Finding
of No Significant Impact (FONSI) will be issued. Projects that do not individually
or cumulatively have a significant social, economic, or environmental impact are
excluded from the requirement to prepare an EA or EIS. Such projects are processed
as a Categorical Exclusion (CE), which according to the Federal Highway
Administration, account for about 91% of all highway projects. State agencies are
required to provide FHWA with documentation to prove the action qualifies as a CE.
The type of documentation required will depend upon the project. Final design
activities, property acquisition, or project construction cannot proceed until one of
the following occurs: an action is classified as a CE, a FONSI is approved for an EA,
or an EIS is approved. (For further discussion, refer to CRS Report RL32024,
Background on NEPA Implementation for Highway Projects: Streamlining the
The Federal Highway Administration reports that approximately 3% of all
federally funded highway projects have a significant enough impact on the
environment to require the preparation of an EIS. These projects have received about
9% of all federal highway funds. While these amounts represent a relatively small
portion of projects and overall funding, projects requiring an EIS are usually large
and costly and affect sizeable populations. Consequently, construction delays can be
controversial. The Federal Highway Administration has indicated that the planning
and construction of a major highway project typically takes between 9 and 19 years,
depending on size and complexity. Of these projects, the preliminary design and
environmental review process accounts for one to five years of this time.

19 Federal Highway Administration regulations implementing the NEPA process are
specified at 23 CFR 771; further guidance is available on the “NEPA: Project Development
Process” web page at [http://environment.fhwa.dot.gov/projdev/index.htm].

Key Policy Issues
To reduce the approval time for highway projects and speed the delivery of
federal highway funds to states and local areas, Congress included provisions in
Section 1309 of TEA-21 which require the Secretary of Transportation to streamline
the environmental review process. Environmental streamlining can generally be
described as cooperatively establishing realistic project development time frames
among transportation and environmental agencies, and then working together to
adhere to those time frames. The Department of Transportation has taken numerous
administrative actions in response to this requirement, but has not issued final
regulations to put streamlining into practice on a national scale.
While the Clinton Administration did submit a streamlining regulatory proposal
in May 2000, it was widely criticized on numerous grounds by Congress, the states,
highway interest groups, and environmental organizations. The principal criticisms
were that it did not fully address the requirements of TEA21, and that it would have
added new elements to the planning and development process that may have resulted
in further project delays.
Due to the these concerns, the Bush Administration withdrew the proposal in
September 2002, and indicated that a new proposal would not be forthcoming until
it is clear how Congress may address the issue during surface transportation
reauthorization. In the interim, President Bush has issued an executive order which
directs federal agencies to expedite environmental reviews for high-priority
transportation projects, and has established specific goals to reduce the time frames
for review.20
Hearings were held during the 107th Congress to examine the streamlining issue,
and streamlining has been discussed in hearings on surface transportation
reauthorization during the 108th Congress. In the conference report on TEA-21
(H.Rept. 105-550), Congress stated its expectation that the Secretary of
Transportation would implement the streamlining requirements through the
regulatory process. Some Members have expressed their disappointment that five
years after the enactment of the law, streamlining regulations have yet to be finalized.
The lack of final regulations has increased interest in further legislative action to
speed project delivery and meet public demands for transportation infrastructure.

20 For more information, refer to [http://www.fhwa.dot.gov/stewardshipeo/index.htm].