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9  C H A P T E R  1 Historically, federal funding for transportation investment in the United States has been dis- tributed through multiyear authorization acts providing predictable levels of funding to state departments of transportation (DOTs) and local transportation agencies, including metropoli- tan planning organizations (MPOs). This funding was underwritten by revenues from the fed- eral motor fuel tax flowing into the Highway Trust Fund. Predictable funding levels allowed transportation agencies to devise optimal long-term capital investment plans, forecast future asset conditions, set realistic performance targets, and deliver on their commitments to their communities and stakeholders. Since the 1990s, the traditional funding model has evolved as a broader array of expenditures became eligible for federal transportation funding and as the purchasing power of the federal motor fuel tax failed to support the growth in investment needs. Having remained unchanged at 18.4¢ per gallon of gasoline and 24.4¢ per gallon of diesel fuel since 1993, federal motor fuel tax revenue has not kept pace with inflation, and this trend has accelerated with increases in vehicular fuel efficiency and the increasing market penetration of alternative fuel vehicles. In addition, as the construction of the Interstate Highway System neared completion, policymakers lost a clear consensus on the nationâs transportation investment priorities, resulting in increasingly long gaps between the expiration of one transportation authorization act and the passage of its successor. The effects of uncertain federal funding have the potential to impact the transportation system in different ways, such as slowing transportation program and project delivery, exacerbating degraded pavement and bridge conditions, reducing system performance, and worsening transportation service. While recent federal regulations and acts have placed increased emphasis on performance- based outcomes, the time frames needed to achieve these outcomes exceed the current time frame of funding certainty. Another potential consequence of funding uncertainty is erosion of public trust, given that commitments to maintain or improve the transportation system may not be met. As they face these uncertainties, transportation agencies have employed a range of strategies to manage their systems and continue to deliver their investment programs. The intent of NCHRP Project 19-16 is to characterize the nature and extent to which the risk of uncertain federal funds has affected state, regional, and local transportation programs; investigate the methods agencies have used to mitigate, manage, and adapt to these risks; and assess the outcomes of federal funding uncertainty on the ability of state and local transportation agencies to deliver their programs. 1.1 Objective of the Research NCHRP Project 19-16 explores the impacts of federal funding uncertainty on state, regional, and local DOTs, and the strategies to mitigate these impacts. The research is intended to provide transportation agencies useful knowledge of the effects of federal funding uncertainty on seven key Introduction
10 Federal Funding Uncertainty in State, Local, and Regional Departments of Transportation: Impacts, Responses, and Adaptations functions: transportation planning, asset management, system operational management, design and construction, financial management, economic impacts, and meeting federal performance requirements. The research documents the following points: ⢠Recent history of federal funding and how funding certainty has changedânumber of con- tinuing resolutions, resolution time frames, and relationship between funding apportion- ment and obligation levels ⢠Nature and extent of the effects of funding uncertainty on a state DOTâs capital priorities ⢠Immediate and long-term consequences of requirements associated with federal funding, including financial planning, asset management, performance management, fund distribu- tion, and planning and programming ⢠Nature and extent of the effects of funding uncertainty on other sectors of the economy and stakeholders, including the public ⢠Measures and strategies states and regions have implemented to manage federal funding uncertainty, among which risk management, deferred investments, and nonfederal funding sources 1.2 Structure of the Research The study was completed in three phases. The first provided the historical context needed to understand the origins of federal funding uncertainty and how this dynamic has evolved into the current context. The second and most intensive phase involved primary research and extensive interviews with staff from 17 state DOTs, MPOs, and regional planning organizations (RPOs) to understand the effects on their work and the strategies they use to mitigate and manage the uncertainty. The final phase involved condensing the information derived from the research into the findings conveyed in this report: ⢠Identifying the effects of federal funding uncertainty ⢠Identifying the strategies employed by states and regions to mitigate the effects of federal funding uncertainty ⢠Assessing the ramifications of federal funding uncertainty on the ability of state and local transportation agencies to deliver their programs 1.2.1 The Context of Federal Funding Uncertainty The research began by reviewing the evolution of the uncertainty surrounding federal trans- portation funding, identifying five key phases: 1. The Interstate Era and the Highway Trust Fund: with the advent of the Interstate Highway Act of 1956, states received a 90% federal match for interstate highway projects from the Highway Trust Fund, which benefitted from growing federal motor fuel tax revenues. 2. The Pre-ISTEA (Intermodal Surface Transportation Efficiency Act) Transition: federal transportation funding failed to keep pace with growing investment needs in real dollars. 3. The ISTEA Phase of Program Reform: important shifts changed the nature of funding distributions to include a wider variety of programs. 4. The Post-ISTEA Era: filled with political uncertainty, delays, and aversion to dedicated fuel tax increases in each successive reauthorization. 5. The Trust Fund Crisis: extending from the default of the Highway Trust Fund in 2008 to the present day, where no permanent solution has been adopted to bridge the significant deficit and periodic draws from the General Fund and other one-time accounting opportunities are used to make up the difference.
Introduction 11  The research team developed a technical paper describing its analysis on the origins and evolving context of federal transportation funding uncertainty, which the TRB made available to the public as an interim product of the research effort. This information is provided in Chapter 2 of this final report. 1.2.2 Case Studies on the Effects of Federal Transportation Funding Uncertainty The second and most intensive phase of the research involved developing case studies exploring the effects of federal transportation funding uncertainty on state, regional, and local transporta- tion agencies. The work was conducted in three steps and centered around a set of interviews with six transportation agencies to provide a representative sample of the effects of funding and program uncertainty and the strategies being used to mitigate its effects. Executive Interviews Exploring Key Areas of Impact This process began in October 2019 with a set of interviews with senior executives from nine state DOTs, seven MPOs, and one RPO, as shown in Figure 1-1. The interviews explored the key areas of impact arising from the uncertainty of federal surface transportation funding and were guided by a list of 23 questions provided to the interviewees in advance (Appendix A). Before the interviews, the research team familiarized themselves with the organization and operation of the agencies. The purpose of the interviews was to better understand the agenciesâ project planning and programming processes, the effects of federal funding uncertainty on their operations, and the mitigation and risk management strategies they used to address funding uncertainty. The research team used the information from the interviews to prepare a technical memorandum identifying areas of impact resulting from funding uncertainty and to identify a set of candidate case study agencies. Figure 1-1. Case study and detailed interview states.
12 Federal Funding Uncertainty in State, Local, and Regional Departments of Transportation: Impacts, Responses, and Adaptations Case Study Selection and Guides The research team went through a vetting process to identify candidate case study agencies. The goal was to identify six diverse agencies that would each offer insights into the impacts of federal funding uncertainty and the strategies used by state DOTs, MPOs, and RPOs. The research team used a multistage assessment framework to classify the agencies based on finan- cial factors, programmatic factors, and compelling experiences from the executive interviews. Based on these criteria, the research team selected six agencies for case studies: 1. Missouri DOT (MoDOT): Missouri was selected because it is a moderately populated state, has moderate levels of federal funding but low state funding support for transportation rela- tive to other case study states, and a moderate level of state road ownership per capita. 2. South Dakota DOT (SDDOT): South Dakota was selected primarily because it is a sparsely populated state, relies on significant levels of federal funding for transportation, and has a large level of state road ownership per capita. 3. Virginia DOT (VDOT): Virginia was selected because it is a relatively dense state, has a large state-owned road network, and has significant levels of state funding for transportation, includ- ing a significant revenue increase in 2013 and another in 2020. 4. Washington State DOT (WSDOT): Washington was selected because, among other factors, it has a relatively low share of federal funding; it maintains and operates a diverse set of transportation assets; it has a relatively low level of state road ownership per capita; and it has a relatively robust construction program. 5. North Central Texas Council of Governments (NCTCOG, the MPO for the DallasâFort Worth metroplex): NCTCOG was selected because it serves the fastest-growing metropoli- tan region in the country and uses public-private partnerships (P3s), tolling, and other local revenue to supplement state and federal transportation funding to meet its significant trans- portation investment needs. 6. North Central Pennsylvania Regional Planning and Development Commission (NCPRPDC): NCPRPDC was selected as one of two regional case studies because it added to both the geographic and demographic diversity of the case studies; the Northeast is not represented by other case studies, and NCPRPDC represents a rural area with a population of just over 200,000, which has declined slightly since the 2010 census. In addition to selecting case study agencies, this portion of the research involved developing comprehensive interview guides containing research questions on the following functional areas: ⢠Asset management ⢠Design and construction ⢠Economic impacts ⢠Financial management ⢠Long-range planning ⢠Performance management ⢠System operational management Appendix A contains the interview guides. Case Study Interviews and Reports Interviews for a pilot case study were conducted in person in February 2020; the remaining case study interviews were conducted in June and August 2020 via teleconference, due to the COVID-19 pandemic. Initial discussions were held with each case study agency, followed by interviews by functional area. Depending on the organizational structure of the agency and staff experience, interviews for certain functional areas were combined.
Introduction 13  After the interviews, the research team developed a report for each agency. Appendix B con- tains the case study reports, which identify strategies the agencies commonly use to mitigate the impacts of federal funding uncertainty in the different functional areas. The mitigation strategies are broadly categorized as financial, contractual, or programmatic. 1.2.3 Final Report on the Effects of Federal Transportation Funding Uncertainty The research team used information gathered throughout the course of the study to develop this final report, which is organized into five chapters. ⢠Chapter 1: introduction. ⢠Chapter 2 provides a history of the evolution of federal transportation funding from the inception of the Interstate Highway System through the 2020s. ⢠Chapter 3 presents the different elements of federal transportation funding uncertainty identified during the researchâsome of these elements extend across the longer term and some are more immediate. The chapter describes the key areas of impact of federal funding uncertainty on state, regional, and local transportation agencies. Four types of uncertainty are explored: amount of funding, timing of funding, overall adequacy of funding, and federal requirements accompanying the funding. Chapter 3 also reviews the quantifiable economic impacts associated with federal funding uncertainty. ⢠Chapter 4 identifies mitigation strategies state, regional, and local transportation agencies are using to manage the effects of federal funding uncertainty. The mitigation strategies are cate- gorized into four core activities common across these agencies: project programming, project development and delivery, financial management, and revenue generation. ⢠Chapter 5 describes the outcomes of federal funding uncertainty on transportation agencies and the factors that make them more or less sensitive to it. Although a similar toolbox is in use around the country, some states and regions are better equipped than others to address fund- ing uncertainty. Managing funding uncertainty adds a layer of complication to the challenges facing transportation agencies, and it requires constant attention and adjustment. Short-term effects of funding uncertainty can be mitigated, but the uncertainty generates an array of del- eterious outcomes, and the requirements associated with the use of federal funding can affect the focus of state and local transportation programs. In the long term, drastic reductions in federal funding remain possible unless a permanent solution to the federal transportation revenue shortfall is put in place. The appendices include the interview guides for the case studies and the transportation agency executive interviews, the six case study reports, and the economic impacts study.
