Resource Allocation of Available Funding to Programs of Work (2017)

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5 Determining resource allocation among various programs of work often is challenging for state depart- ments of transportation (DOTs). Determinations of program value and funding levels may be tied to long-term strategic goals of the agency but also have to balance political realities and the expectations of the internal and external stakeholders. The purpose of this synthesis is to document how state DOTs determine resource allocation to different programs of work. This topic has become increasingly important to state DOTs as available funding has consistently fallen short of the desired investment levels of most states and industry groups. Furthermore, as federal transportation policy imposes increasing performance-based planning requirements on agencies, decision makers are faced with federal requirements to achieve performance-based outcomes while sometimes lacking the discre- tion or authority to channel resources accordingly. In some cases, states are struggling to maintain systems in achieving the level of performance for which they originally were intended. Conse- quently, understanding trade-offs among programs of work and how states make resource allocation decisions is more important than ever. This report is offered to support transportation agency officials and staff involved in investment decision making by documenting the current processes, techniques, tools, and data used to evaluate and select funding allocations around the country. Definitions For the purpose of this synthesis document, several concepts are important to define. • Programs of work or program areas are defined as mode-specific groups or projects, geographic programs, DOT divisions, or investment areas, such as preservation or capacity, highway or bridge, and others. • Resource allocation is understood as the process by which funding is divided among different project types or other pools of projects that can be referred to as programs of work. • Programming is the selection and development of a specific program of investment projects, usu- ally recorded as line items in an accounting document, that an agency intends to undertake based on available funds. • Prioritization is defined as a process by which agencies select which specific projects to fund and may affect overall allocation among program areas if set pools of funding are not estab- lished before projects are selected. • Benchmarking is the process of comparing an observed or projected performance outcome against an established goal or target. For example, in a long-range planning process, states may compare modeled or predicted performance outcomes of competing investment mixes against a benchmark of today’s performance, or a state may record actual performance outcomes over time against an established performance benchmark to determine if and when reallocation of funds is needed to better achieve long-term goals. Figure 1 demonstrates a typical structure for a resource allocation framework and the way pro- gram investment levels may result from project-project prioritization methods or, by contrast, project resources may be constrained by predefined program budgets. DOTs often allocate resources among performance objectives or areas without rigidly defining specific programs per se, and DOTs often make investment decisions at the project level; however, they may base such decisions on rules or point systems designed to ensure balance among systemwide programmatic performance goals. The defini- tion of programs of work is complex because some agencies track and benchmark their allocation of chapter one introDuction

6 funds by performance or program categories after projects are prioritized and regard this allocation as significant for understanding and explaining their decision process even though they do not begin with a particular program-by-program allocation in mind. Resource allocation strategies may be explicit, formal, and well documented, or they may be infor- mal and implicit, arising from a mix of agency policies. This study emphasizes the process by which funding is assigned to pools of work containing multiple projects and is not especially interested in how individual projects are selected within programs. However, project prioritization processes may be relevant if they have a major impact on the final size of programs or the ultimate allocation that consistently occurs among different programs or investment types. Table 1 describes seven aspects of resource allocation that agencies consider when constructing or carrying out a formal or informal resource allocation strategy. Other important considerations exist, but these seven stand out as impor- tant aspects that are discussed through this synthesis report. BackgrounD As long as state and local transportation agencies have delivered programs, allocation of resources to programs of work has been an essential aspect of decision making. However, as transportation agency missions, multimodal systems, transportation markets, and the costs of preserving existing assets have grown, so too has the complexity of transportation program-level funding needs and trade-offs. Furthermore, layers of state and federal statutes and funding programs constrain how transporta- tion agencies can allocate available revenue to meet different transportation needs (tracking fund- ing sources and eligibility for programs and projects is often referred to as the color of money). For example, some federal dollars come to transportation agencies designated for particular programs or purposes and requiring agency matching funds, constraining the discretion an agency can have in where and how to allocate revenues. To understand the development of transportation investment paradigms that led to today’s situation, it is helpful to consider a framework by which investment deci- sion making has evolved through distinct periods from the mid-20th century to today. Limited consideration: Highway expansion focus—early 20th century to 1976 Beginning in the early decades of the 20th century with unpaved facilities (and especially increas- ing in the years after World War II with construction of the National Highway System and then the FIGURE 1 Typical resource allocation framework. Source : EDR Group.

7 Interstate system, as well as state networks), road mileage, auto ownership, and vehicle miles traveled increased steadily (Litman 2014). DOTs during this period largely managed the delivery of new road- way facilities (bridges and highways) as the U.S. economy became more centered on vehicular traffic rather than railroads (Lee 1982). This practice was significant because it made highway and bridge expansion programs the primary focus of statewide transportation agencies and brought transporta- tion infrastructure program funding solidly into the purview of federal and state policy. DOTs were tasked with supporting new residential, commercial, and industrial growth that relied on access to new highway capacity to move people and goods efficiently. During this period, most resources were allo- cated to meet increasing demand for additional capacity, especially for highways. Agencies also faced different funding constraints during the early portions of the highway expansion era, as new revenue streams were available and had not yet been diluted by high inflation and changes in travel patterns and vehicle efficiency. In the 1960s and 1970s, several changes began to signal a close to the highway expansion era. The 1962 Federal-Aid Highway Act created a planning process that included local stakeholders in urban areas, which would be strengthened over time. In 1969, the National Environmental Policy Act (NEPA) slowed the pace at which expansion projects could move forward and gave local stake- holders another means of involvement in the process. The 1970 Clean Air Act provided an addi- tional impetus to address congestion in urban areas. In the mid-20th century, mass transit programs remained largely local or private concerns, and programmatic trade-offs were not yet a significant aspect of agency decision making. The 1970 Urban Mass Transportation Assistance Act provided federal funding for urban transit, and the 1973 Federal-Aid Highway Act allocated funding to bicy- cle, pedestrian, and transit projects. By the latter part of the 20th century, especially in urban areas, the interrelationships among highways, transit, ports, and freight facilities became clear as the trans- portation system continued to grow in complexity and cost in the 1980s and 1990s. Agencies began Aspect Description 1. Preservation versus improvement balance Agencies face a tension between preserving existing assets and improving their networks to meet shifting or growing transportation demand. 2. Modal balance Agencies must decide if their resource allocation proposal will attempt explicitly to address multiple modal programs—such as transit projects, freight rail/marine, bicycle, or pedestrian projects—or let state and federal policy be the main drivers of those programs. 3. Geographic balance Agencies must decide how important geographic balance is to their allocation of resources. Agencies must decide how flexible their programs will be and what portion of the decisions of the allocation process will be made based on allocation to districts/regions or urban versus rural portions of the state. Some states’ discretion may be limited by state or federal programs that target specific areas. 4. Accountability (transparency versus complexity) Agencies’ decisions are often reviewed by a number of stakeholders. Although new technology and data-driven planning and performance tools may offer agencies additional insight in effective resource allocation, agencies must balance these tools with the need to communicate decisions and outcomes in a transparent manner to stakeholders. 5. Top-down versus bottom-up Resource allocation and program decisions can be developed based on identified projects and system deficiencies, which require a certain number of resources to be assigned to that program (bottom-up), or program funding levels can be set independent of specific project needs based on defined agency goals, long-term plans, or other policy instruments (top-down). 6. Agency discretion/flexibility versus policy/model-driven consistency Formal policies and reliance on models may produce more consistent results or at least provide reassurance that the results can be produced consistently. However, some agencies may decide that allocation strategies need more flexibility to make decisions based on factors not easily included in the models or policy frameworks. Agencies must work with stakeholders and policy makers to determine this balance. 7. Objectivity versus subjectivity Models and formal quantitative scoring policies may increase objectivity or the perception thereof, but in some cases subjective scoring, qualitative assessment, consideration of engineering judgment, and political considerations are important parts of agencies’ resource allocation strategies. TABLE 1 DESCRIPTION OF SEvEN ASPECTS OF RESOURCE ALLOCATION STRATEgIES

8 to be concerned about the legislative changes and political trends that were resulting in resource allocation across modes and between urban and rural areas. Early studies of resource allocation focused on statewide planning processes that evolved in response to the legislative changes mentioned. Bellomo and colleagues assembled two NCHRP Reports (179 and 199) regarding the state of practice of early statewide plans that used various strategies for revenue and investment planning, including resource allocation issues (Bellomo et al. 1977, 1979). Other than these reports there is little record of major discussion of resource allocation as an issue. Resource allocations became increasingly complicated for state DOTs as aging infrastructure required agencies to balance the needs to preserve existing assets against ongoing demand to expand infrastructure to accommodate shifting geographic markets. The Federal-Aid Highway Act of 1970 provided bridge replacement funds for the first time, whereas the Federal-Aid Highway Act of 1976 established a resurfacing, restoration, and rehabilitation program for pavements (Williamson 2012). This growing emphasis at the federal policy level on preservation marks the transition from the expansion era to one of preservation of state highway assets and a broader transportation agenda. emphasis on Preservation and a Broader transportation agenda—1976 to 2000 This second era of transportation funding saw continuing growth of local involvement in urban trans- portation planning through the metropolitan planning organizations (MPOs) created in 1962 and an emphasis on goals other than capacity and mobility improvements to highway systems. The NEPA process required states to consider additional factors in the project planning and development process. Clean Air Act amendments in 1977 and 1990 further emphasized environmental aspects of transpor- tation planning, especially urban congestion issues. As most of the intercity portions of the Interstate highway system were completed, highway funding became more focused on urban areas, and empha- sis on other modal options increased. Surface transportation authorization acts in the 1980s included highway, transit, and safety programs in the same funding legislation for the first time and transitioned mass transit funding from general revenue sources to the fuel tax. The passage of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) expanded the roadway projects that could be allocated resources under the Surface Transportation Program. All of these changes brought addi- tional programs under the purview of state DOTs and additional partners to the programming process (especially MPOs), all of which increased the complexity of resource allocation. The costs of operating and maintaining the large number of new facilities began to challenge many states’ transportation budgets. Costs that initially were not considered during facility construction, such as repaving roads or repairing bridges, mounted as facilities began to age. Agencies began to struggle to balance the costs of expansion programs against capital preservation and routine maintenance and operations programs (U.S.DOT 1999). ISTEA provided a federal-led framework that affected how many transportation agencies thought about existing assets within their programming processes (Neumann et al. 1993; FHWA and FTA 1995; TRB 1996). At the federal and state levels, continued emphasis was given to how to balance maintenance of current assets with continuing needs for improv- ing the system in high-demand areas (FHWA 2004), especially in light of expectations that current trends and policy would lead to significant differences in available revenues and needs (National Sur- face Transportation Policy and Revenue Study Commission 2007). These challenges greatly empha- sized the importance of resource allocation strategies and increased interest in how to optimize a state’s programmatic allocations. In the 1990s, fiscal constraints and system conditions, as well as additional federal emphasis on the succession of transportation authorization acts after ISTEA, led to more and more states adopting a fix-it-first ethic that favored preservation and maintenance programs over expansion or new asset investments. Today, many DOT missions still focus on stewardship of existing facilities and protect- ing the “sunk costs” of current assets. NCHRP Report 545 shows that states using a variety of well- developed and sometimes complex tools and processes optimize system management (Cambridge Systematics 2005). Some states with rapidly growing populations have been able to keep up with

9 maintenance and continue to add new capacity in and around population centers through the early 21st century. However, most states with mature networks are faced with growing preservation back- logs in many programs, despite efforts to optimize preservation programs with a variety of asset man- agement methods (ASCE 2011; Pew Charitable Trusts 2014). These states also confronted a limited ability to address major bottlenecks and capacity issues (Duncan and Weisbrod 2015). the rise of Performance Measurement and strategic investment—2000 to Present Even as the asset management/preservation regimen continues, resource allocation policies are begin- ning to undergo another paradigm shift. Beginning in the early 2000s, several federal, state, and local agencies began to develop performance management systems to better track system conditions and program outcomes on all modes of transportation. These systems were important to increasing the transparency of and accountability for public spending. The 2012 transportation bill, the Moving Ahead for Progress in the 21st Century Act (MAP-21), requires each state to submit a Transportation Asset Management Plan for the National Highway System. The measure began a major new push to move beyond the asset management paradigm to “performance-based planning and programming.” In 2015, the Fixing America’s Surface Transporta- tion Act (FAST Act) continued the emphasis on using additional performance data to make decisions on resource allocation. These initiatives attempt to address the unresolved tension between preserving asset condition and meeting transportation demand by leveraging additional information to inform investment decisions (Cambridge Systematics 2010a). Performance management is partially about expanding the success of many asset management programs to optimize additional portions of the DOT’s responsibilities (Cambridge Systematics 2012). Many DOTs and other agencies already track a variety of performance measures (at least within pavement, bridge, and transit groups), but increas- ing numbers are exploring how these can be used more effectively to make cross-programmatic deci- sions extending into freight, bicycle-pedestrian, and other program types. In addition to the mounting costs of preserving aging infrastructure at the expense of other needs, other trends are driving the need for more comprehensive resource allocation strategies. Since the expansion-era construction of many of the nation’s highway routes, there has been a change in settle- ment patterns. Cities and states have grown at different rates across the country as the largest portion of the economy has transitioned from manufacturing to service industries. Many states also have seen changing patterns of urban and rural settlement, which often are attributed to younger generations pre- ferring to live in urban settings for more years (McCahill and Spahr 2013). It has also been observed that freight traffic is becoming more concentrated on specific corridors (U.S. government Account- ability Office 2008). Some states are realizing that it may not be financially feasible or economically justified to maintain all assets in their current form and instead are considering rechanneling invest- ment among facilities and programs to reflect changing transportation markets. In addition, to meet the needs of growing urban areas and commercial and industrial demand, targeted improvements are needed in some areas for projects that appear difficult to fund. This raises new questions about the allocation of resources across programs overall. stuDy aPProacH In light of this background, this synthesis addresses how different states are responding to the need to allocate resources among programs to make strategic investments and improve overall system performance. These practices in terms of processes or methods are not consistently documented in a readily comprehensible way. This synthesis regarding resource allocation of available funding to programs of work draws on information from (1) a literature review of published programming studies, (2) a review of state agency practices as described by agency resources, (3) an online survey of state DOTs, and (4) in-depth interviews with resource allocation decision makers at state agen- cies. The synthesis documents the different types of processes used by agencies, the different ways that funding programs are structured, the tools and methods used to support decisions, and how trade-offs are communicated with stakeholders and the public.

10 synthesis organization—outline of report These issues are addressed in the following sections. • Chapter two, Review of Literature and Practice, broadly explores the literature on resource allo- cation and programming and investigates the current practices of state DOTs. This information was collected from documents on conference and meeting proceedings, agency documents, and other information submitted by agencies for use in the synthesis. • Chapter three, Survey of the State of the Practice, summarizes the results of the survey of DOTs. The focus is on how survey responses help explain how agencies are handling current challenges and the context of resource allocation decisions today. • Chapter four, Case Examples of Resource Allocation, focuses on observations of leading strate- gies used by DOTs and lessons learned from these cases. Agencies were selected for in-depth interviews based on responses to the survey and additional review of agency practice. • Chapter five, Conclusions, ties together the major findings of this synthesis and provides overall lessons learned about the state of practice and need for future research to fill key gaps in agency processes. • Appendix A, Case Example Screening Criteria and Discussion guide, describes the selection and interview process for developing these cases, which show current innovations and success- ful strategies for resource allocation in a variety of situations. • Appendix B, Survey Questionnaire, and Appendix C, Descriptive Summary of Survey Results, provide more detail on the survey methodology and responses.