Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs (2022)

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2022 N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP RESEARCH REPORT 1023 Federal Funding Flexibility USE OF FEDERAL-AID HIGHWAY FUND TRANSFERS BY STATE DOTS Jim Redeker James Redeker Consulting, LLC Cheshire, CT Scott Baker Viktor Zhong AECOM Arlington, VA Susan Binder Cambridge Systematics, Inc. Bethesda, MD Sherri LeBas G.E.C., Inc. Baton Rouge, LA Eric Peterson Vienna, VA Sarah Siwek Sarah Siwek & Associates, Inc. Marina del Rey, CA Subscriber Categories Highways • Public Transportation • Finance Research sponsored by the American Association of State Highway and Transportation Ofcials in cooperation with the Federal Highway Administration

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed, and implementable research is the most effective way to solve many problems facing state departments of transportation (DOTs) administrators and engineers. Often, highway problems are of local or regional interest and can best be studied by state DOTs individually or in cooperation with their state universities and others. However, the accelerating growth of highway transporta- tion results in increasingly complex problems of wide interest to high- way authorities. These problems are best studied through a coordinated program of cooperative research. Recognizing this need, the leadership of the American Association of State Highway and Transportation Officials (AASHTO) in 1962 ini- tiated an objective national highway research program using modern scientific techniques—the National Cooperative Highway Research Program (NCHRP). NCHRP is supported on a continuing basis by funds from participating member states of AASHTO and receives the full cooperation and support of the Federal Highway Administration (FHWA), United States Department of Transportation, under Agree- ment No. 693JJ31950003. The Transportation Research Board (TRB) of the National Academies of Sciences, Engineering, and Medicine was requested by AASHTO to administer the research program because of TRB’s recognized objectivity and understanding of modern research practices. TRB is uniquely suited for this purpose for many reasons: TRB maintains an extensive com- mittee structure from which authorities on any highway transportation subject may be drawn; TRB possesses avenues of communications and cooperation with federal, state, and local governmental agencies, univer- sities, and industry; TRB’s relationship to the National Academies is an insurance of objectivity; and TRB maintains a full-time staff of special- ists in highway transportation matters to bring the findings of research directly to those in a position to use them. The program is developed on the basis of research needs iden- tified by chief administrators and other staff of the highway and transportation departments, by committees of AASHTO, and by the FHWA. Topics of the highest merit are selected by the AASHTO Special Committee on Research and Innovation (R&I), and each year R&I’s recommendations are proposed to the AASHTO Board of Direc- tors and the National Academies. Research projects to address these topics are defined by NCHRP, and qualified research agencies are selected from submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Academies and TRB. The needs for highway research are many, and NCHRP can make significant contributions to solving highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement, rather than to substitute for or duplicate, other highway research programs. Published research reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet by going to https://www.mytrb.org/MyTRB/Store/default.aspx Printed in the United States of America NCHRP RESEARCH REPORT 1023 Project 19-17 ISSN 2572-3766 (Print) ISSN 2572-3774 (Online) ISBN 978-0-309-68763-8 Library of Congress Control Number 2022949125 © 2022 by the National Academy of Sciences. National Academies of Sciences, Engineering, and Medicine and the graphical logo are trade- marks of the National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, APTA, FAA, FHWA, FTA, GHSA, or NHTSA endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The research report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the National Academies of Sciences, Engineering, and Medicine. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; the FHWA; or the program sponsors. The Transportation Research Board does not develop, issue, or publish standards or speci- fications. The Transportation Research Board manages applied research projects which provide the scientific foundation that may be used by Transportation Research Board sponsors, industry associations, or other organizations as the basis for revised practices, procedures, or specifications. The Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. 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e National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, non- governmental institution to advise the nation on issues related to science and technology. Members are elected by their peers for outstanding contributions to research. Dr. Marcia McNutt is president. e National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. John L. Anderson is president. e National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of Sciences to advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president. e three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. e National Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine. Learn more about the National Academies of Sciences, Engineering, and Medicine at www.nationalacademies.org. e Transportation Research Board is one of seven major programs of the National Academies of Sciences, Engineering, and Medicine. e mission of the Transportation Research Board is to provide leadership in transportation improvements and innovation through trusted, timely, impartial, and evidence-based information exchange, research, and advice regarding all modes of transportation. e Board’s varied activities annually engage about 8,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. e program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. Learn more about the Transportation Research Board at www.TRB.org.

C O O P E R A T I V E R E S E A R C H P R O G R A M S CRP STAFF FOR NCHRP RESEARCH REPORT 1023 Christopher J. Hedges, Director, Cooperative Research Programs Waseem Dekelbab, Deputy Director, Cooperative Research Programs, and Manager, National Cooperative Highway Research Program Sid Mohan, Associate Program Manager, Implementation and Technology Transfer, National Cooperative Highway Research Program Dianne S. Schwagger, Senior Program Officer Dajaih Bias-Johnson, Senior Program Assistant Natalie Barnes, Director of Publications Heather DiAngelis, Associate Director of Publications NCHRP PROJECT 19-17 PANEL Field of Administration—Area of Finance Michelle T. Ho, Massachusetts Department of Transportation, Boston, MA (Chair) Connie Porter Betts, Louisiana Department of Transportation and Development, Baton Rouge, LA Travis L. Brouwer, Oregon Department of Transportation, Salem, OR Ryan M. Brumfield, North Carolina Department of Transportation, Raleigh, NC Brian Keith Gage, Minnesota Department of Transportation, St. Paul, MN Ivan Hartle, Utah Department of Transportation, Salt Lake City, UT Lisa J. Hurley, Montana Department of Transportation, Helena, MT Catherine Reddick, Mercator Advisors, LLC, Philadelphia, PA Stephen R. Stewart, Texas Department of Transportation, Austin, TX Lucia Olivera, FHWA Liaison Susan Howard, AASHTO Liaison

This report presents research on federal funding flexibility, specifically, Federal-Aid Highway Program (FAHP) transfers over the period from federal fiscal year (FFY)2013 to FFY2020. The use of fund transfers is widespread, with every state and the District of Columbia employing the flexibility provisions, at least to some degree. However, the prac- tices are unique to each situation, reflecting the specific mission, scope, goals, funding, and program needs of individual states. This report will be of immediate use to state department of transportation (DOT) and other transportation agency executives and technical staff engaged in planning, programming, financing, asset management, and project delivery. Federal-aid highway funding to DOTs changed substantially in 2012 with the transition from the Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users (SAFETEA-LU) to Moving Ahead for Progress in the 21st Century (MAP-21). Ninety federal transportation programs funded under SAFETEA-LU were consolidated into 30 new and existing programs under MAP-21. The majority of the funding was consolidated into five formula programs and many small focused programs were eliminated as separate programs. To give states the ability to address their priorities, MAP-21 gave states the flexibility to transfer up to 50 percent of a program’s annual apportionment among the four largest programs. This change built upon the existing authority of states to transfer federal-aid highway funds across modes and share funds with local and regional partners. In 2016, the passage of Fixing America’s Surface Transportation Act (FAST Act) extended this flexibility to additional programs. Under NCHRP Project 19-17, “Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs,” AECOM was asked to examine how states have used funding flexibility to advance federal and state priorities while efficiently and effectively utilizing avail- able resources. This research analyzed FAHP transfers and investigated the practices and policies related to fund transfers through surveys, case studies, and transportation industry workshops. FAHP is one of the largest grant programs in the federal domestic budget, with over $43 billion in FFY2020. The research identified two principal drivers for the use of the fund transfer provisions. • Addressing national and local policy goals. The most common policy-driven fund trans- fers related to providing more funding to support safety, asset condition, public transpor- tation, and air quality goals. • Ensuring effective financial management. Financial management transfers were used to optimize the funding opportunities provided to states through FAHP. For example, transfers were used to avoid the lapsing of funds at the end of their availability period, F O R E W O R D By Dianne S. Schwagger Staff Officer Transportation Research Board

to ensure the maximization of obligation authority, to maximize the benefits of the annual end-of-year redistribution funds, and to minimize the impacts of a potential funding rescission. For the most part, state transportation executives rely upon their financial managers to achieve these outcomes. There is variation among the states in terms of the frequency and scale of use of fund transfers as well as the familiarity with the provisions; however, most states appear to have been successful in using the federal fund transfer provisions as their fiscal situations warranted. NCHRP Research Report 1023 documents the objectives, approach, and key findings and conclusions of this research. The findings address the following: • Transfer authority under the 2012 MAP-21 program and the 2015 FAST Act. • Historical trends of funding transfers by state, considerations that drive transfer decisions, and trade-offs, barriers, and opportunities for states and metropolitan planning organi- zations (MPOs) concerning the authority to transfer funds among FAHP categories and from FAHP to Federal Transit Administration (FTA) programs. Appendices A through F provide research tools and interim research products for reference. NCHRP Research Report 1023 is accompanied by a PowerPoint presentation and speaker’s notes that summarize the research and can be used for presentations and a recorded webinar, all of which can be obtained from the National Academies Press website (nap.national academies.org) by searching for NCHRP Research Report 1023: Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs.

1 Summary 4 Chapter 1 Introduction 6 Chapter 2 Research Approach 6 2.1 Data Analysis 7 2.2 Survey of State DOTs 7 2.3 State and MPO Case Studies 7 2.3.1 States 8 2.3.2 MPOs 8 2.4 Industry Group Workshops 9 Chapter 3 Overview of Federal Highway Funds Transfer Authority 9 3.1 History of Flexibility in FHWA Funding 9 3.2 Flexibility Features of FAST Act Federal-Aid Highway Programs 11 3.2.1 Congestion Mitigation and Air Quality Improvement Program 12 3.2.2 National Highway Performance Program 12 3.2.3 Surface Transportation Block Grant Program 13 3.2.4 Highway Safety Improvement Program 13 3.2.5 National Highway Freight Program 14 3.3 Flexibility to Transfer Funds from FHWA to Other Agencies 16 3.4 Managing Federal-Aid Highway Funds from State for Local and Regional Governments 16 3.4.1 Federal-Aid Highway Funds Suballocation 17 3.4.2 Fund Swapping 19 Chapter 4 Funding Transfer Among Federal-Aid Highway Program Categories 19 4.1 Historical Trends of Funding Transfer 19 4.1.1 National-Level Analysis 21 4.1.2 State-Level Analysis 24 4.2 Considerations That Drive Funding Transfer Decisions Among FAHP Categories 27 4.2.1 Balancing National and State Policy Goals 27 4.2.2 Fully Utilize Federal Funds 29 4.3 Trade-Offs, Barriers, and Opportunities of the Authority to Transfer Funds Among FAHP Categories 30 4.3.1 Trade-Offs: National Versus State Priorities 30 4.3.2 Alignment with Performance-Based Planning and Programming 31 4.3.3 Administrative Efficiency 31 4.3.4 Greater Flexibility in Transfer Authority C O N T E N T S

32 Chapter 5 Funding Transfer from FHWA to FTA 32 5.1 Historical Trends of Funding Transfer 38 5.2 Considerations That Drive Decisions of Funding Transfer from FHWA to FTA 38 5.2.1 State and Regional Priorities 38 5.2.2 Project Readiness and Capacity to Implement Projects 38 5.2.3 Federal Oversight 39 5.2.4 No 50 Percent Limit on Transfers 39 5.3 Trade-Offs, Barriers, and Opportunities of the Authority to Transfer Funds from FHWA to FTA 40 Chapter 6 Conclusions 41 References 43 Acronyms and Abbreviations A-1 Appendix A Literature Review B-1 Appendix B State Survey Questionnaire C-1 Appendix C Summary of State Survey Responses D-1 Appendix D Case Study Interview Guide E-1 Appendix E Case Study Summary F-1 Appendix F Industry Group Workshops Note: Photographs, figures, and tables in this report may have been converted from color to grayscale for printing. The electronic version of the report (posted on the web at nap.nationalacademies.org) retains the color versions.