The First Time the Highway Trust Fund Went Broke – Part 1: the 1958 Highway Act Makes Spending Unsustainable
August 21, 2019|Jeff Davis
August 21, 2019
Everyone who habitually reads ETW knows that the federal Highway Trust Fund went bankrupt in September 2008 and has required over $140 billion in bailouts from other funds since then. But people may not remember that the Trust Fund actually had to be bailed out once before, in September 1959. We thought that the way that the political system responded to Trust Fund insolvency under Eisenhower-Rayburn-LBJ leadership would make a good contrast with the way that the political system has responded under Presidents George W. Bush, Barack Obama, and Donald Trump and the rotating team of Congressional leaders of both parties over the last 11 years.
Part 1 of the story is below and tells how the political system decided to waive budget rules and spend the Trust Fund into insolvency in response to an economic recession and an (already anticipated) program slowdown. It is based largely on original documents from the Eisenhower Presidential Library and the records of the Treasury Department at the National Archives, some of which have been posted online by Eno and can be viewed by clicking on the appropriate hyperlink. Part 2 of the series dealing with the Trust Fund bailout and subsequent gasoline tax increase in 1959 will be released in September 2019.
On July 29, 1957, a new United States Secretary of the Treasury was sworn into office. Robert Anderson, who had served as Secretary of the Navy and as Deputy Secretary of Defense in President Eisenhower’s first term, was replacing George Humphrey, Ike’s first Treasury Secretary, who had negotiated the Highway Revenue Act of 1956 with Congress.
On Secretary Anderson’s fourth day in office, he was given a letter for his signature by Dan Throop Smith, a tenured Harvard professor of finance who had taken leave in 1953 to come to Washington and run tax policy for the Eisenhower Administration as a deputy to the Treasury Secretary. The letter that Smith gave Anderson to sign was to go to the Secretary of Commerce to certify that Treasury’s projections of Highway Trust Fund tax receipts were sufficient to fund the pass the “Byrd Test” for trust fund self-sufficiency written into the 1956 highway law and thus prevent an across-the-board reduction in imminent Interstate Construction contract authority apportionments to states for fiscal year 1959.
Smith’s cover memo told the new Secretary, “This is an annual exchange of estimates between you and the Secretary of Commerce to the effect that the funds in the Highway Trust Fund will be adequate to cover the estimated expenditures from the current year’s allocation of the states. Some year soon, they may not be sufficient.” How right he was.
Background – “repayable advances” and the Byrd Test.
When the House of Representatives passed its initial version of the 1956 bill funding the Interstate Highway System, Interstate Construction contract authority was provided for 13 years (in advance) and it was anticipated that it would take up to 3 years afterwards for the contract authority to “spend out” and complete construction of the system, so the new Highway Trust Fund would have a 16-year lifespan (expiring June 30, 1972). But while the dedicated tax receipts, after being fully phased-in in fiscal 1958, were projected to rise slightly but steadily each year, construction spending would start slowly and then reach a massive peak in 1967 before trailing off. This meant that while total anticipated tax receipts and highway outlays would match up over a 16-year period, they would not match up year-to-year.
The House Ways and Means Committee’s solution was “repayable advances.” Section 209(d) of the Ways and Means version of the Highway Revenue Act “authorized to be appropriated to the Trust Fund, as repayable advances, such additional sums as may be required to make the expenditures,” and section 209 (f)(2) provided that the general fund of the Treasury should receive interest payments from the Trust Fund on those repayable advances at the same rate that the Trust Fund earned on any positive balances invested in Treasury securities.
The Ways and Means Committee anticipated that the Trust Fund would receive a total of $4.8 billion in such repayable advances starting in fiscal year 1962, to be repaid (with interest) over fiscal 1970-1972.
After the House passed the bill and it moved to the Senate, the House funding plan ran into an inexorable roadblock named Harry Flood Byrd. The Virginia Senator knew highway finances as well as anyone – he somehow became head of the Valley Turnpike Company at age 21, running the toll road between Winchester and Staunton that is now part of U.S. 11. As Senator, he had become chairman of the Finance Committee, controlling tax and debt policy. And Byrd had a lifelong, almost pathological, fear of debt.
The Treasury Department was already skeptical of the House plan. Immediately after the House bill was reported from committee (before it even went to the House floor), Treasury Secretary Humphrey wrote to Byrd on March 23, 1956 expressing concern about the repayable advances:
“1. Over the 16 years the bill takes almost $5 billion from the general revenues, over and above the gas and diesel fuel tax, by transferring to the trust fund the excise tax on tires and 3/5ths of the existing excise tax on trucks, beginning with the fiscal year 1958. This diversion from general revenues will have to be made up in one way or another or it will put us in trouble in the general budget.
“2. Though the revenues appear to cover the cost of road construction over a 16-year period, this is done only by cutting way back on the regular road program for the last two years to the extent of about $1.5 billion. This seems a poor way to show a balance.
“3. Though the program ostensibly balances over the 16 years on the basis of the two preceding actions, there would be some very substantial deficits running to about three-quarters of a billion dollars a year during the middle years of the program. This would make a bad drain on the general budget during this period. A motion to put the program on a real pay-as-you-build basis by keeping expenditures in line with receipts was defeated in the House Ways and Means Committee. I especially hope you will be able to do something about this part of the bill.”
At a May 17 Finance Committee hearing held by Byrd on the House-passed bill, Humphrey reiterated that point for the public, saying “for 10 full years these large deficits would be a charge on the general budget. This discrepancy in timing contradicts an essential part of a real pay-as-you-build program…I urge that the bill be amended to permit allocation of funds to be so timed that the estimated expenditures from the allocations will not exceed the estimated available amounts in the trust funds. With this change, the program could be kept from being a charge on the regular budget.”
The White House Bureau of the Budget followed up on May 21 with a letter to Byrd confirming that BoB “concurs with the Secretary’s comments thereon and strongly urges that the bill be modified along the lines he suggested.”
This was music to Harry Byrd’s ears. On May 22, during the Finance markup of the Highway Revenue Act, Byrd offered an amendment to the House-passed bill that required periodic recalculations by the Treasury Department of future Trust Fund cash flow and then required the Commerce Department to reduce new highway contract authority apportionments pro rata in order to get outlays (then called expenditures) down to a level to prevent the projected Trust Fund insolvency. The money would not be permanently canceled – if projected balances to the Trust Fund came back to a level that could support the funding, the money would be apportioned to states at that later date.
Byrd’s amendment was adopted by the Finance Committee, and by the Senate as a whole. Interestingly, Byrd did not strike the House’s “repayable advance” provision from the bill, even though his own “Byrd Test” amendment would presumably make it unnecessary for the Trust Fund to ever need such advances. And Byrd’s committee did not issue any predictions as to when his amendment would start reducing highway apportionments and by how much, even though they could have. (The Finance Committee report included a Trust Fund cash flow table but it did not take into account the effects of Byrd Test reductions and instead called for a few smaller repayable advances, since the highway portion of the bill produced by the Senate Public Works Committee would have doled out Interstate Construction funds more slowly than the House bill).
While the bill was in House-Senate conference, the Bureau of Public Roads estimated that activation of the Byrd Test would begin with fiscal year 1961 and would reduce outlays by $305 million in that year. In total, BPR projected that the Byrd Test would reduce Interstate apportionments by enough to reduce the subsequent expenditures by $3.8 billion over the FY 1961-1969 period and that $3.8 billion would then be added back via extra apportionments over FY 1970-1972. The House-Senate conference committee did not amend the Senate’s Byrd Test self-sufficiency provision or the House’s repayable advances provision, and both were signed into law by President Eisenhower in June 1956.
As actual tax and spending numbers began to come in, the Bureau of Public Roads soon plotted out how much each year’s new apportionments would probably be reduced to comply with the Byrd Test. The head of the BPR, Bertram Tallamy, told the Senate Subcommittee on Roads in April 1957 that the full Interstate Construction apportionments for 1957 ($1.0 billion) and 1958 ($1.7 billion) had gone out, and the full 1959 apportionment of $2.0 billion was likely to go out as well. But, because of the Byrd Test, “instead of going to $2.2 billion in 1960, we can only go to $1.6 billion in actual apportionments. The following year we can only go to $1.4 billion in actual apportionments to the various States, and that will continue until 1963.”
The chart he submitted to the panel showed that the Byrd Test apportionment reductions would then decrease in magnitude in 1964-1977 and finally be restored over 1968-71 – turning the 13-year apportionment period envisioned by the 1956 Act into at least a 15-year period. The chart makes clear why Secretary Humphrey’s staff referred to Senator Byrd’s amendment as a “time-shifting” amendment – funding would not be canceled forever, only delayed until tax receipts trickled in to support the expenditures:
When Dan Smith sent his memo to the new Treasury Secretary in August 1957, the updated projections for Highway Trust Fund cash flow were a little better than they had been earlier:
Because the Trust Fund had a projected end-of-year balance for FY 1959 of $468 million, the Byrd Test was passed, and the Commerce Department did not have to reduce highway apportionments. Yet.
The Recession of 1958.
In the October-December quarter of 1957, the U.S. economy entered a short but sharp recession. Later estimates showed that nominal gross domestic product (GDP) contracted by $4.6 billion (1.0 percent) in that quarter, followed by a bigger contraction of $7.4 billion (1.6 percent) in the first three months of 1958. Tax receipts generally shrink during a recession, and this one was no exception.
In early 1958, the Bureau of Public Roads contacted the Treasury Department to reiterate the likelihood of a Byrd Test cut in 1960 apportionments that were due to be made in July 1958 of about $600 million. Senator Albert Gore (D-TN), chairman of the Senate Subcommittee on Roads, had already started off the new year with a bang, holding 6 days of hearings in January 1958 at which Commerce Secretary Sinclair Weeks and BPR chief Tallamy testified about the status and finances of the highway program.
Tallamy told the subcommittee that while a FY 1960 Interstate apportionment reduction of $600 million was still on track, the FY 1961 and 1962 Byrd Test reductions were now projected to be even worse than they had been projected in April 1967 (a full $1 billion reduction in 1961), and submitted the following chart:
The final column on the right-hand side of the chart represents $752 million in Interstate funding deferred under the Byrd Test that would not be able to be apportioned or spent at all, since the Trust Fund would be scheduled to come to an end before it could collect enough taxes to pay off the authorization. The Byrd Test was already scheduled to lengthen the construction authorization period for the Interstate system from 13 years to 15 and was also requiring that at least a 16th year be added in order to prevent the loss of the $752 million in funding.
In response to this discussion, Senator Gore said at his January 22 hearing: “I think the national interest requires that this system of interstate and defense highways be constructed on schedule, and I shall wage a relentless battle to make whatever appropriations are necessary, to suggest whatever legislation is necessary, repeal of the Byrd amendment or what not, to bring to completion this system of highways in the 13-year period, adequate for traffic in 1975.”
As if the Byrd Test wasn’t enough, on January 7, 1958, the Commerce Department sent Congress the first updated cost estimate for construction of the Interstate System. It showed that the federal share of the total cost of system construction was now expected to be $34.0 billion – but the 1954 and 1956 Acts had only provided $25.0 billion in Interstate Construction contract authority, a 36 percent increase. The Commerce report’s cover letter noted that “future estimates of cost will be made on a broader base of experience and these estimates will progressively become more accurate by reflecting actual trends in cost, either upward or downward, that cannot be forecast as well now. Until this additional experience is acquired, consideration of any adjustments in authorization of funds or revenues would be premature.”
On Friday, January 24, President Eisenhower held a Cabinet meeting to discuss three items: the economy, the highway program, and the rapid decline in the U.S. watchmaking industry (at that time still indispensable for marine and air navigation in order to plot longitude). The minutes of that Cabinet meeting show that the head of the Council of Economic Advisers, Raymond Saulnier, was misjudging the eventual severity of the recession (he said it “appears to be no more serious than 1954” when it was actually much worse) and that present policies, generally, should be continued. The Cabinet agreed that “The period between now and early April should be used to prepare for bolder measures which should be adopted if signs of improvement are not apparent.”
In the White House’s official file for that Cabinet meeting, there is an unsigned, 7-page summary of the highway discussion marked “Need to Know.” We don’t know which of the participants in the meeting wrote the notes, but it is clear that it wasn’t a Cabinet member or anyone from BPR. (It seems like something that White House public works czar John S. Bragdon would have written, but Bradgon wasn’t on the official list of meeting attendees.)
The anonymous note-taker summarized BPR chief Tallamy’s presentation to the Cabinet, which combined the issue of the Byrd Test reductions with the projected cost overruns as meaning that a 13-year program would now stretch as far as 21 years at current revenue levels. He also summarized President Eisenhower as saying, “since the gas tax was now only 3 cents and it was many, many times that in other countries, why not raise it one-half cent to help make up the deficit. He talked a moment on the need to find a way to finish the program on the 13-year basis since that was the original ballyhoo, the original promise to the people. He said he wanted to get back to the original schedule for many reasons, one of them being to finish the roads, since in his opinion they would have to be rebuilt within 25 years, he thought they should be finished before they started the rebuilding.”
From a political perspective, the anonymous note-taker said that Vice President Nixon “interjected that if the Administration didn’t get on top of this problem that Congress would; that there was considerable feeling as to the down-turn in the economy; and that he, Mr. Nixon, felt that the Administration had not received the credit due it for conceiving the Road Program that it should have; and that they should take the lead right now. Mr. Nixon said that it was important that the President do this, take the lead, before Gore did; that the Administration needed the credit.”
The note-taker wrote that President Eisenhower said “I think we should get back on our original [13-year] schedule” and that Vice President Nixon said “let’s get started” and “let’s get back on schedule.” But Secretary Weeks kept saying that he needed more time to study the situation.
At this point, our anonymous note-taker shared that
“Mr. Tallamy and I left the Cabinet Meeting at this point. We discussed the labor question again, but more the question that he, Tallamy, now had the go ahead to develop a reorganized financial plan and physical plan that the Administration could propose that would complete the system under the original 13-year basis. Tallamy remarked that both the President and the Vice President remarked so strongly on this point that he was ‘in business.’
“At some time during the discussion the President observed that in relation to the financial aspects that he was not perturbed over deficit financing if it was indicated in view of what he called ‘other problems.’
“It was my impression that Tallamy will go ahead full steam, although he may be subdued somewhat by Weeks who if he caught the implication of the President’s and Vice President’s remarks, did not respond to them, at least visibly.”
In case Weeks missed his cues, the formal Record of Action prepared by the Cabinet Secretary the following day noted that “The President indicated that it was his desire to carry through this program within the scheduled 13-year period. The Secretary of Commerce is to prepare proposals to accomplish this.”
By way of a follow-up, CEA chairman Saulnier wrote to White House Chief of Staff Sherman Adams on February 4 to say that he had “talked at length with Mr. Tallamy” and confirmed the projected Byrd Test cuts. Saulnier asked an important question: “Whether discrepancy between apportionments as originally planned and as now apparently possible will be a shock to the States is a debated question. Some claim it should be no surprise to those who have read the bill (especially the Byrd amendment), and Administration officials have emphasized the point in public speeches. However, the fact remains that any apportionment below the original plan may be a genuine surprise to some, and will be protested by nearly everyone.”
Saulnier listed three ways to avoid a cutback in highway apportionments:
- “By seeking [new appropriations or contract authority], year by year, to make up for the difference between trust fund accumulation and apportionments at the $2.2 billion level.
- “By levying additional earmarked excise taxes: e.g., a flat tax on all trucks; an addition to the Federal gas tax, etc.
- “By borrowing and repaying out of later trust fund receipts. Alternative borrowing methods are (i) directly from the Treasury; (ii) through a separate Highway Trust Fund Corporation (on the Fanny May pattern); (iii) by the States, on a Federal guarantee to reimburse later out of trust fund receipts (on the Housing Authority pattern).”
By the time the Cabinet met on February 28, the depth of the recession was becoming more clear, and the Cabinet discussed ways to combat the economic contraction. Saulnier discussed accelerating housing construction and federal procurements. Bragdon proposed a ”balanced program” of accelerated public works of between $4.5 and $5 billion. The Treasury Department gave an update on decreasing tax receipts. And, per the Cabinet Record of Decision:
“The Highway Program: In view of the report by the Secretary of Labor that there are States, beset by unemployment, where land acquisition, engineering, and construction capability have progressed to a stage at which highway construction can be expanded immediately, the President indicated he would see nothing against exceptional appropriations or authorizations which would allow this program to move ahead more rapidly. Legislative proposals regarding the Highway Program are being prepared for early consideration.”
Between the President’s direction to keep Interstate funding as close to the original 13-year construction schedule as possible, and the growing need to provide counter-cyclical economic stimulus through public works (including highway construction), suspension of the Byrd Test was clearly in sight. The question was, would suspension of the Byrd Test (an immediate $600+ million in extra Interstate Construction funding), plus the expedited release of the last year of non-Interstate contract authority provided by the 1956 Act, be enough?
Drafting the Federal-aid Highway Act of 1958.
Since 1948, the non-Interstate federal-aid highway program had been on a two-year authorization cycle. The 1948 Act provided contract authority for fiscal years 1950 and 1951 (remember that fiscal years started on July 1 back then, and Congress usually adjourned for the year in July or August), the 1950 Act provided funding for 1952 and 1953, etc. In addition to providing 13 years of Interstate Construction funding, the 1956 Act also provided contract authority for the regular program for 1958 and 1959 in the amount of $850 million in 1958 and $875 million in 1959.
But 1958 was an even-numbered year, and in addition to whatever it was going to do regarding Interstates and the Byrd Test, Congress also had to reauthorize the regular federal-aid program for 1960 and 1961. On January 8, Rep. George Fallon (D-MD), chairman of the House Subcommittee on Roads, introduced his reauthorization bill (H.R. 9821, 85th Congress), which he said was “identical to the bill that was passed in 1956 for the [regular federal-aid] roads, with the exception, of course, that the dates are changed and the amounts are changed.” (Fallon’s bill increased funding for the regular program from 1959’s $875 million to $900 million in 1960 and $925 million in 1961.) He began holding hearings on his bill on January 28.
During those hearings, the problems with Interstate apportionments and the Byrd Test were scarcely mentioned. Fallon’s bill was approved by the Public Works Committee on March 6 without substantive amendment. The House passed the bill by voice vote on March 13 without amendment and without any discussion of the reductions in Interstate Construction apportionments. Meanwhile, Sen. Dennis Chavez (D-NM), chairman of the Senate Public Works Committee, introduced his own non-Interstate highway reauthorization bill on January 23 (S. 3088, 85th Congress) which was basically identical to the House bill – $900 million from the Trust Fund in 1960 and $925 million in 1962.
The White House held its regular meeting with Republican Congressional leaders on March 4, 1958. According to the notes taken by the assistant staff secretary, the Under Secretary of Transportation, Louis Rothschild, “outlined a plan for getting the Interstate Program back on the original thirteen year schedule. The immediate problem was to secure authorization for increased apportionments to the States for 1960, 1961 and 1962. Per Mr. Rothschild’s proposal, the Administration would support legislation that would authorize these larger apportionments and would express Congress’s intent to increase the gasoline tax later on (perhaps by 1 – 1 ½¢ per gallon) or adopt some other tax.”
Per the notes, President Eisenhower said he “thought the action might be accomplished by repealing the Byrd amendment so that the Trust Fund could get money from the Treasury’s general funds, and repay it later form the 3¢ gasoline tax receipts, Or, if there was a substantial increase of activity in the economy, it might be feasible in 1959 to get a gas tax increase.” (Suspension of the Byrd Test for fiscal years 1960, 1961 and 1962 would allow the full $2.2 billion in apportionments to go out on schedule for each year and prevent a cumulative $2.2 billion in estimated apportionment delays ($600 million in FY60, and $800 million each in FY61 and FY62).
Again, per the notes, Sen. Edward Martin (R-PA), the ranking Republican on Public Works, was “all in favor” of the idea, and Senate Minority Leader William Knowland (R-CA) also supported negating the Byrd Test and stated that “of course new taxes would become necessary if the program was to be kept on the ‘pay as you go’ basis.” But the House Republicans present (Minority Leader Joe Martin (R-MA) and Public Works ranking member Harry McGregor (R-PA)) were hesitant to endorse a tax increase.
According to the notes, Eisenhower finished off the discussion by saying something to the effect that “the first priority should go to getting the program done. He would prefer to have the tax increased if it were really necessary, but for the moment it would suffice to have the Byrd amendment lifted.”
Two days later, on March 6, the Commerce Department sent the White House Bureau of the Budget for legislative clearance a draft bill to suspend application of the Byrd Test for three years and also to approve the Interstate Cost Estimate that had been transmitted to Congress on January 7, another prerequisite for Interstate apportionment. (Congress could approve the latter either via concurrent resolution or via legislation.) The draft letter to be sent to Congress by the President accompanying the bill said “It is essential to the national interest that the highway program, including particularly the construction, reconstruction, and improvement of the Interstate System, be pressed vigorously. It is felt that, in order to assure the highway program will not be delayed, the full amounts authorized to be appropriated for the fiscal years 1960, 1961, and 1962 for the Interstate System and the Federal-aid primary and secondary systems, including extensions thereof in urban areas, should be apportioned to states.”
Also on March 6, Gore was holding more hearings on highway legislation, and Rothschild and Tallamy were testifying. Gore asked for the status of the Administration’s proposal to fix the Interstate funding problem and was told by Rothschild that the bill would be sent to Congress “shortly.” Gore responded that, in that case, he would also be introducing his own bill that day or the following day, and that “we do wish to pass a bill in the Senate before the Easter recess.”
In fact, Gore did introduce his own bill later that day (S. 3414, 85th Congress), and it made some major changes. Gore’s bill didn’t just waive the Byrd Test and allow the full $2.2 billion per year of Interstate Construction to be apportioned, as the Administration was proposing. Gore’s bill provided an additional $11.2 billion in IC funding over 11 years. The bill gave an extra $500 million in contract authority for the already-apportioned FY 1959 and then took the program to $3.0 billion in 1960 and $3.1 billion per year starting in 1962. This would have paid for the entire cost escalation from the January 1958 cost estimate.
In order to pull this off, the Gore bill threw the regular “ABC” federal-aid highway program out of the Trust Fund, making it supported by general revenues again, starting on July 1, 1958. The $900+ million per year saved would make the Interstate-only HTF roughly solvent, without negating the Byrd Test. The Gore bill also provided an immediate $450 million general fund supplement for the regular federal-aid program – and, to make sure that cash-strapped states could put the money to work immediately, authorized the appropriation of $450 million in loans that BPR could make to states to temporarily cover their half of the 50-50 matching grants, to be repaid within 10 years.
The following day, the White House released a statement from the President announcing their forthcoming Byrd Test suspension bill: “In the next few days, the administration will ask the Congress to amend the Highway Act to suspend certain expenditure limitations for 3 years. If enacted, this amendment will permit apportionment to states of an additional $2.2 billion of Federal funds, all of which will be placed under contract during the calendar years 1958-1961. Adoption of this amendment will permit the apportionment during each of these years of a total of $2.2 billion of Federal funds for Interstate highway construction alone (to 1961).”
On March 11, the White House held a 9 a.m. meeting with GOP legislative leaders, and this time they brought along Sen. Francis Case (R-SD), the ranking minority member on the Roads Subcommittee, to brief everyone on the Gore bill. Case warned that “Lyndon Johnson was pressing for action on this and that the Democrats seemed highly organized to do it.”
Meanwhile, Gore was holding a 10 a.m. hearing on his bill. Rothschild and Tallamy both appeared, and Rothschild told the panel “We strongly oppose the enactment of S. 3414…The highway program is of such magnitude and national importance that it cannot be permitted to fluctuate violently.” Rothschild went on to say that (a) the January 1958 increases in the cost estimate were preliminary and it was too soon to fund them, as the Gore bill would do; (b) he thought the $450 million in increased ABC funding was unnecessary; (c) the idea of loaning states money for their matching share had already been tried in 1930 and 1932 and the states never paid back the money; and (d) the Administration was “particularly” opposed to the idea of throwing the regular federal-aid program out of the Trust Fund.
Gore’s bill proved to be too aggressive for the other Democrats on the Public Works panel (much less the Republicans). The committee started its executive session to consider Gore’s bill the following morning, and continued it the following day (March 14), when they reported a much different version. The committee-approved version of S. 3414 left the issue of the increased Interstate cost estimate for another day – instead of increasing authorizations by $11.2 billion, the reported version of the bill only increased Interstate funding by $800 million ($200 million in FY 1959, $300 million in 1960, and $300 million in 1961). The reported bill, in section 9, did waive the Byrd Test, as requested by the Administration (but only for 1959 and 1960, not for 1961).
With regards to the regular (ABC) federal-aid program, the committee incorporated chairman Chavez’s two-year authorization bill for 1960 and 1961 (and kept the program in the Highway Trust Fund), but also included a $400 million recession-fighting FY 1959 supplement for the program (for projects where construction would be completed by December 1, 1959), at an effective 70 percent federal share (instead of the statutory 50 percent), plus up to $115 million in loans to states for another 20 percent of the share (meaning that the $400 million would effectively be on the same 90-10 cost share basis as the Interstate program). The committee also incorporated an unrelated provision into S. 3414 declaring a national policy against billboards near Interstate highways and creating an incentive program by increasing the federal share on Interstate projects from 90 percent to 90.5 percent for states that signed agreements with the Commerce Department for billboard control by July 1, 1961.
It took until March 24 for Majority Leader Johnson to get the bill on the Senate floor. Most of the debate focused on the billboard provision or a provision regarding the federal costs of utility relocation. Sen. A. Willis Robertson (D-VA) (father of future televangelist Pat) did offer an amendment to strike the increases in Interstate funding and the Byrd Test suspension from the bill, but that amendment was defeated on a division vote (basically a show of hands where the tally is not recorded).
At the regular White House meeting with GOP leaders on March 25, Francis Case summarized the committee-reported bill. Both he and Ed Martin spoke in favor of the $400 million in 90-10 money for the non-Interstate ABC program, but Secretary Weeks, Budget Director Maurice Stans, and the President himself were opposed. According to notes taken by the assistant staff secretary, Weeks and Stans “both opposed it on the grounds that a great deal of money was already being provided for ABC, and the 50-50 basis could be lost by this departure from it.” And Eisenhower “expressed his concern lest under the guise of legislation to relieve unemployment, the nation would get straight-jacketed into something terrible for years to come. The Democrats, he said, were promoting a philosophy of centralizing power and responsibility in the Federal government, and they were doing it in a way that appeals to people.”
Harry Byrd gave a floor speech on March 26 detailing his opposition to the bill, saying that “it would destroy the solvency of the Federal highway trust fund…” He discussed the pay-as-you-build principle that was established by the 1956 law: “At the personal invitation of Secretary Weeks and Secretary Humphrey, I joined sponsorship of this Federal policy [with his Byrd Test amendment that had been suggested by the Administration]. Now, 2 years later, Secretary Humphrey has left the Cabinet, and Secretary Weeks and the administration haver reversed their position. But my position ins unchanged…Section 9 of the pending bill suspends [the Byrd Test] and knocks the teeth out of the trust fund for fiscal years 1959 and 1960. The effect will be deficit financing of Federal highway construction.”
But while the billboard provision was divisive, the funding in the bill was broadly popular, and it passed the Senate on March 27 (as an substitute for H.R. 9821, the House version) by a vote of 84 to 4, with only Byrd, Robertson, Wallace Bennett (R-UT) and Carl Curtis (R-NE) voting “no.” The Senate then immediately requested a conference with the House and appointed conferees. The House agreed to the conference on Friday, March 28 and appointed its own conferees.
The House-Senate conference was extremely brief. The conferees met on Tuesday, April 1 and quickly reached agreement. The House receded to the Senate in most respects The Byrd Test was waived for FY 1959 and 1960, the Senate’s extra $800 million in Interstate Construction funding over three years was untouched, and the final agreement kept Gore’s $400 million in counter-cyclical ABC stimulus funding (except that the federal share was reduced from 70 percent to 66 and 2/3 percent, with the federal loans to temporarily reduce the state share of the $100 million down to 1/9.
The conference report (House Report 1591 of the 85th Congress) was filed the following day and when the House brought up the conference report on April 3, Republicans complained that the House conferees had simply accepted controversial provisions that the House had never debated and on which they had held no hearings. Rep. John Blatnik (D-MN) responded that, yes, it was regrettable, “But the circumstances were such that we were rushed into conference early in order to have the conference report up before the House before the Easter recess, so here we are.” Harry McGregor offered a motion to send the bill back to House-Senate conference, which failed on a vote of 109 yeas to 222 nays, and then the House agreed to the conference report by a vote of 300 yeas, 28 nays (enough to override a Presidential veto, which was doubtless why a recorded vote was ordered).
Later that day, the Senate agreed to the conference report by a voice vote before adjourning for a two-week recess. The enrolled bill was presented to the White House on April 4, which set in motion the 10-day clock (excluding Sundays) for Presidential consideration, meaning that Eisenhower had until midnight on April 16 to either sign or veto the bill, lest it become law without his signature.
But would he sign it?
To Sign, or Veto, the 1958 Highway Bill?
When the White House Executive Clerk received the enrolled bill H.R. 9821 on April 4, 1958, he set in motion the usual routine where the Bureau of the Budget summarizes the bill for the President, asks all relevant federal agencies for their opinion on whether or not the President should sign the bill, and formulates its own recommendation. The White House enrolled bill file on H.R. 9821 contains all this memo traffic.
The first to respond was White House public works czar John S. Bragdon, who noted that the bill probably spent too much on highways (“there are many fields of public works where the relative needs are greater, such as schools, hospital and welfare institutions, water supply and sanitary systems”) and the Byrd Test suspension might be unwise, but “Since this is the biennial Federal-aid highway bill, the foregoing is not considered grounds to justify a veto.”
The Commerce Department responded on April 7, and recommended a veto. Under Secretary Rothschild’s letter acknowledged that “there is much in H.R. 9821 which must be enacted into law. [The Department] is convinced, however, that the increased authorizations would be felt too late to be of significantly greater assistance than proposals of the Administration in combatting the Nation’s current economic problems, could have a serious and unavoidable inflationary impact on the economy, and would disrupt the orderly and balanced nature of the Nation’s highway program.” The letter also included a seven-page draft veto message.
The Bureau of the Budget quickly edited down that veto message to three double-spaced pages. As edited down (by Budget staffer Gerald Morgan), the statement cited three main reasons for a veto:
- “It will, in the next four fiscal years add in expenditure for the Federal-aid highway system almost a billion dollars more than was proposed…this added expenditure to which we would be irrevocably committed could in the future have a serious and unavoidable inflationary impact upon the economy.
- “It changes the traditional 50-50 matching between the Federal and State Governments with respect to the additional $400 million it authorizes for fiscal 1959 for the primary, secondary, and urban Federal-aid system…the 50-50 matching formula has stood us well for many years. This bill, if enacted, would set a precedent for smaller financial participation by the States and could well be the start towards breaking down the traditional matching formula.
- “Regarding the $1.2 billion in additional contract authority, “Increasing authorizations without making, or at least indicating in the future to make, some provision for keeping our highway program on a self-sustaining basis reverses the sound policy established in 1956 of paying for our roads as we go.”
The draft message also expressed strong support for the idea of billboard control but complained about the lack of clear guidelines and standards in the bill.
Morgan sent the revised veto message to Rothschild and General Counsel Fred Nash at the Commerce Department on April 8, and they responded favorably with a few suggested tweaks. But Commerce noted that the sentence in point #3 (above) about the self-sustaining nature of the program “seems risky unless we say we are going to ask for taxes to finance our proposals referred to in the last sentence. As you know, we have not told anyone yet about our intentions.” This seems clear evidence that the Eisenhower Administration always intended to ask for a tax increase to pay for its accelerated highway spending – once the recession was over (and, possibly, once the 1958 elections were past). Recall that Eisenhower himself had volunteered a half-cent increase back in the January 24 Cabinet meeting.
However, the President’s Council of Economic Advisers responded on April 9 that “The legislation contains certain undesirable features but these are not, as we see it, sufficiently serious to warrant a veto by the President…In our judgment, the differences between the legislation as passed by the Congress and the Administration’s proposal are not sufficiently serious to warrant a veto of the legislation. We recommend that the bill be signed by the President.” Also on April 8 or 9, the Interior Department (National Park Service and Bureau of Indian Affairs) and Agriculture Department (Forest Service) recommended that the President sign the bill, and the Under Secretary of the Treasury sent a letter stating that they had no objections to a signature.
On April 10, the Budget Bureau added their own cover letter to the file summarizing the whole thing and stating that while parts of the bill were essential and had to be enacted sometime in 1958, “We are convinced, however, that the provisions of the bill which purport to use the highway program as a method of stimulating economic recovery are so unwise as to justify disapproval of the bill.” That day, the President spent from 10 a.m. to noon in a series of meetings on the highway bill – first with chief of staff Sherman Adams, John Bragdon, and Acting Budget Director Robert Merriam, then a one-on-one with Commerce Secretary Weeks, then a one-on-one with Budget’s Gerald Morgan, then an all-hands meeting with all of the above plus Bertram Tallamy from BPR and Louis Rothschild from Commerce.
We were unable to find any notes on that meeting in the Eisenhower Library, but apparently, a tentative decision to veto the bill was reached. Eisenhower called Bragdon on the phone later that afternoon and, according to his secretary’s notes, “said that General Bragdon should tell Mr. Tallamy and the others that if they wanted the President to sign a bill, they should see to it that the bill approximated the President’s recommendations. The President also said that the present bill was exorbitant.” (This seems to indicate that the Bureau of Public Roads disagreed with the Commerce front office on whether or not the bill should be signed.)
The economic advisors fought the move. CEA chairman Saulnier responded to the draft veto message on April 11 with a strong letter stating that “this bill should be signed by the President, and I therefore disagree with the veto message, root and branch…The fact is that the highway bill would stimulate our economy. While it would not serve to initiate a recovery, it would help to spur a recovery along, and this would be a very desirable result…I must confess that my reading of the draft veto message strengthens my conviction that the bill should be signed. It just does not seem fully persuasive.”
Meanwhile, the President flew to Augusta National golf course on Friday April 11 to play some golf, returning on Sunday night. On Monday the 14th, Congress returned from its two-week Easter recess, and on Tuesday morning the 15th at 9 a.m., the White House held its regular meeting with Republican legislative leaders at which the main topics of conversation were going to be two veto-bait public works bills: the highway bill, and the omnibus rivers and harbors authorization (S. 497, 85th Congress). The two bills had been presented to the President a day apart, so he had until midnight on April 15 to dispose of the rivers and harbors bill and until midnight on the 16th to deal with the highway bill.
According to the staff notes on the meeting, the rivers and harbors bill came up first. The President “stated his opposition to this since about fourteen projects had been authorized without any engineering or survey reports.” Framed in that way – Congress deviating from its own standards – it was hard for the legislators present to argue against a veto. “The President commented that he was perhaps getting too conservative for those at the table but that he was fighting against appropriating too much presently on the basis of potential but unconfirmed economic developments when greatly increased budgets were already in the offing.”
Then the conversation turned to the highway bill. Eisenhower appeared to be hung up on the non-Interstate FY59 stimulus money that exceeded the traditional 50-50 federal-state cost share, and “In the lengthy discussion that followed, the President stressed the unprincipled nature of this and the importance he attached to maintenance of principle as the basis of Republican strength.”
But the President did not get a lot of support from the room:
- Vice President Nixon “cited the great effort made by [Senator] Case and Senator Ed Martin to develop a proper bill, and also the fact that the Highway Bill contained much more of what the Administration had advocated than did others deserving of veto, such as the farm freeze bill.”
- Senate Minority Leader Knowland “doubted that any new legislation would be better than the present bill, indeed it would probably be worse by eliminating the billboard provision.”
- House Minority Leader Halleck “agreed that a veto would be in order if the two-to-one ratio were a permanent thing.”
Eventually, per the notes, “The President agreed that the decision was a much closer one than on the Rivers and Harbors Bill and that he would sign it quickly were it not for the two-to-one ratio. He added that he might be able to bring himself to approving even this if he could have any hope of correcting the ratio…The President concluded by saying that he would give the measure his utmost consideration and he directed Governor Adams to arrange the necessary conference with the President in the Oval Office.”
That meeting broke up at about 10:30 a.m. Eisenhower met with Saulnier (CEA), Rothschild (Commerce), Stand and Merriam (BoB), John Bragdon, and Sherman Adams for over a half-hour starting at 11:43 a.m., with Adams staying a few minutes later one-on-one. During that meeting, the President was apparently convinced to sign the highway bill. (Evidently the Commerce Department also came around – on the cover sheet in the enrolled bill file, there is a list of which agencies recommended signature or veto, and the while the cover sheet says “Department of Commerce – disapproval” there is hand-written entry next to that line in what looks like Eisenhower’s handwriting that says “changed his mind.”)
Shortly after that meeting broke up, Eisenhower placed a phone call to Senate Minority Leader Knowland, who was not available, but who returned the call at 3:24 p.m. that afternoon. When he spoke to Knowland, according to notes, the President “implied very strongly that after the Leaders’ meeting this morning he had decided that while he must veto the Omnibus [rivers and harbors] bill, he would approve the Highway Bill, but put in the message his objections. The Senator seemed very pleased.” Eisenhower vetoed the rivers and harbors bill that day.
On the morning of April 16, Sen. Styles Bridges (R-NH) (who had missed the meeting the day before) called the President to ask him to veto the highway bill but said he did not know whether or not the veto could be upheld. Eisenhower’s secretary Ann Whitman’s notes summed up her boss’s side of the conversation: “While the President is for a veto on a matter of principle, he is quite sure that to veto it and to have it over-ridden would be a definite loss of some influence. While he had to veto the Rivers and Harbors bill, the President is also afraid that veto of the Highway Bill would amount to a declaration of total war on Congress, and since the Republican Party is not in control, it would be disastrous.”
Later on April 16, President Eisenhower signed H.R. 9821 into law. His signing statement said that “I approve this bill with serious misgivings because of certain of its provisions which I regard as grave defects” and listed the two thirds – one-third split of the supplemental ABC money and the loans to states for part of their share, as well as the fact that the billboard control incentive program was ill-defined and was paid for out of the Trust Fund, not the general fund.
But, as shown by the debate in the legislative meeting, Eisenhower was supportive of the overall goal of keeping the highway program on schedule and suspending the Byrd Test, even though it would push the Highway Trust Fund towards insolvency. His statement closed with “It will be necessary for the Congress in its next session to return to the subject of highway legislation in order to provide funds for the enlarged federal assistance under this Act. Its action at that time should accord with the sound principles that established the Trust Fund as a means for keeping federal-aid highway expenditures on a self-sustaining basis.”
Part 2 of the story, which can be read here, deals with the President’s decision to request a 50 percent gasoline tax increase in January 1959 to fill the solvency gap and how Congress and state governments rallied against the proposal.
 Memo from Dan Throop Smith to Treasury Secretary Robert Anderson, August 1, 1957. Located in the “DC2 Highway Trust Fund 1956-1972” folder in Box 8 of the Office of Tax Policy – Subject Files, General Records of the Department of the Treasury, National Archives, College Park, Maryland.
 Letter from Transportation Secretary George Humphrey to Senator Harry F. Byrd dated May 23, 1956 and marked “Personal.” Located in the “Highway Program….Mr. Smith” folder in Box 7 of the Office of Tax Policy – Subject Files, General Records of the Department of the Treasury, National Archives, College Park, Maryland.
 U.S. Senate. Committee on Finance. “Highway Revenue Act” (hearings on H.R. 10660, 84th Congress, 2nd Session, May 17-18, 1956) pp. 67-71.
 White House Bureau of the Budget – letter from the Deputy Director (signature illegible) to Senate Finance Committee chairman Harry F. Byrd, dated May 21, 1956. Found in the Senate Finance Committee bill files on H.R. 10660, 84th Congress, in the National Archives, Washington, D.C.
 Table entitled “Effect of Senate amendment limiting interstate highway expenditures to amounts available in Trust Fund each year” dated June 4, 1956 and attributed to the Bureau of Public Roads. Located in the “DC2 Federal Aid Highway Act of 1956 (H.R. 10660 – 84th Cong.)” folder in Box 7 of the Office of Tax Policy – Subject Files, General Records of the Department of the Treasury, National Archives, College Park, Maryland.
 U.S. Senate. Committee on Public Works. “Progress and Status of the National Highway Program” (hearings held January 1 – April 2, 1957) p. 308.
 Memo from “Mr. Leahey” to Dan Throop Smith dated January 14, 1958 with subject line “Effect on highway construction of the provision that expenditures cannot exceed receipts in the trust fund.” Located in the “DC2 Highway Material – 1957-1962” folder in Box 7 of the Office of Tax Policy – Subject Files, General Records of the Department of the Treasury, National Archives, College Park, Maryland.
 U.S. Senate. Committee on Public Works. “Federal-aid Highway Act of 1958” (hearings on S. 2939, S. 3033, S. 3088, S. 3150, S. 3220, S. 3414, and S. 3429, 85th Congress, 1st Session, January 8 – March 11, 1958) p. 189.
 U.S. Department of Commerce. “A Report of Factors for Use in Apportioning Funds for the National System of Interstate and Defense Highways.” January 7, 1958. Printed as House Document 300, 85th Congress, 2nd Session.
 Documents entitled “Minutes of Cabinet Meeting – January 24, 1958” and “The Cabinet – Record of Action – January 25, 1958” located the “Cabinet Meeting of January 24, 1958” folder in Box 10 of the Cabinet Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Unsigned document entitled “Notes on Cabinet Meeting – January 24, 1958” located in the “Cabinet Meeting of January 24, 1958” folder in Box 10 of the Cabinet Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Memorandum from Raymond J. Saulnier to Sherman Adams dated February 4, 1953 with the subject line “Interstate Highway Program.” Located in the “OF 141-B Highways and Thoroughfares (Roads) (16)” folder in Box 612 of the Official File Series in White House Central Files of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Cabinet Paper RA-58-97, Record of Action of the Cabinet meeting of February 28, 1958. Located in the “Highway Program” folder in Box 3 of the White House Office, Cabinet Secretariat: Records, 1953-1961 series in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 U.S. House of Representatives. Committee on Public Works. “Federal-aid Highway Act of 1958” (hearings on H.R. 9821, 85th Congress, 2nd Session) p. 1.
 L.A. Minnich, Jr. memo entitled “Legislative Leadership Meeting – March 4, 1958 – Supplementary Notes.” Located in the “Legislative Meetings 1958 (2) [March-April]” folder in Box 3 of the Legislative Meetings Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Draft bill, letter and cover memo are located in the OF 141-B Highways and Thoroughfares (Roads) (16)” folder in Box 612 of the Official File Series, White House Central File, of the Eisenhower Records as President 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 U.S. Senate. Committee on Public Works. “Federal-aid Highway Act of 1958” (hearings on S. 2939, S. 3033, S. 3088, S. 3150, S. 3220, S. 3414, and S. 3429, 85th Congress, 1st Session, January 8 – March 11, 1958) pp. 494-495.
 Ibid p. 596.
 L.A. Minnich, Jr. memo entitled “Notes on Legislative Leadership Meeting – Tuesday, March 11, 1958.” Located in the “Staff Notes March 1958 (2)” folder in Box 31 of the DDE Diary Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 U.S. Senate. Committee on Public Works. “Federal-aid Highway Act of 1958” (hearings on S. 2939, S. 3033, S. 3088, S. 3150, S. 3220, S. 3414, and S. 3429, 85th Congress, 1st Session, January 8 – March 11, 1958) pp.589-591.
 L.A. Minnich, Jr. memo entitled “Legislative Leadership Meeting – March 25, 1958 – Supplementary Notes.” Located in the “Staff Notes March 1958 (1)” folder in Box 31 of the DDE Diary Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Congressional Record (bound edition), March 26, 1958, p. 5434.
 Congressional Record (bound edition), April 3, 1958, p. 6244.
 Memo from John S. Bragdon to Maurice H. Stans dated April 4, 1958. Located in the “Appr. 4/16/58 To amend and supplement the FEDERAL-AID ROAD Act approved July 11, 1916 (39 Stat. 355), as amended and supplemented, and the Act approved June 29, 1956 (70 Stat. 374), to authorize appropriations for continuing the construction of highways, and for other purposes. H.R. 9821” folder in Box 115 of the White House Office: Records Officer Reports to President on Pending Legislation 1953-1961 files in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas (hereinafter referred to as “H.R. 9821 enrolled bill file”).
 Letter from Louis Rothschild, Under Secretary of Commerce, to Maurice Stans, Director of the Bureau of the Budget, dated April 7, 1958. Located in the H.R. 9821 enrolled bill file, Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Statement is prefaced with “DRAFT GDM 4/8/58” at the top and has a cover memo attached of that same date from Gerald D. Morgan to Louis Rothschild and Fred Nash. Located in the H.R. 9821 enrolled bill file, Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Memo to Gerald D. Morgan from Frederick C. Nash, subject line “Draft Veto Message, H.R. 9821” dated April 8, 1958. Located in the H.R. 9821 enrolled bill file, Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Letter from Raymond J. Saulnier to Phillip S. Hughes, April 9, 1958. Located in the H.R. 9821 enrolled bill file, Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Letter to President Eisenhower from Acting Budget Director Robert Merriam dated April 10, 1958. Located in the H.R. 9821 enrolled bill file, Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Telephone call record dated April 10, 1958. Located in the “Telephone Calls April 1958” folder in Box 31 of the DDE Diary Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Letter from Raymond Saulnier to Gerald D. Morgan dated April 11, 1958. Located in the H.R. 9821 enrolled bill file, Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 L.A. Minnich, Jr. memo entitled “Notes on Legislative Meeting – April 15, 1958.” Located in the “Legislative Meetings 1958 (2) [March-April]” folder in Box 3 of the Legislative Meetings Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas. All subsequent references to what was said during this meeting are from this source.
 Telephone call record dated April 15, 1958. Located in the “Telephone Calls April 1958” folder in Box 31 of the DDE Diary Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Ann Whitman call sheet dated April 16, 1958, Located in “Telephone Calls April 1958” folder in Box 31 of the DDE Diary Series of the Ann Whitman File of the Eisenhower Presidential Papers 1953-1961 in the Dwight D. Eisenhower Presidential Library, Abilene, Kansas.
 Dwight D. Eisenhower, Statement by the President Upon Signing Federal Highway Act of 1958. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/234685
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