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

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9   Overview of Federal Highway Funds Transfer Authority This chapter reviews the funding transfer authority provided for by law, including the authority to transfer funds among FAHP categories, and to transfer funds from FHWA programs to programs of the U.S. DOT’s other modal administrations, in particular the FTA. This chapter also raises an allied practice that has developed to introduce greater flexibility in dealing with suballocated funding. States have adopted the practice of “swapping” FAHP funds that would be used at the local level for non-federal funds to allow states (with greater experience with federal requirements) to avoid issues that could complicate cash management. 3.1 History of Flexibility in FHWA Funding Federal funding for highways has been historically dominated by a categorical grant-in-aid approach, meaning that programs were structured to encourage grantees to achieve particular program goals. In 1916, Congress first passed legislation that established the basic federal-state partnership in providing federal aid to highways (39 Stat. 355). In 1956, Congress passed the Federal-Aid and Highway Revenue Acts (70 Stat. 374.378) to raise a fuel tax intended to fund a program to construct the Interstate Highway System. Beyond the Interstate Highway System, a growing number of programs were established beginning in the 1960s and continuing through to the Infrastructure Investment and Jobs Act (IIJA), which was enacted in November 2021. This categorical grant-in-aid approach contrasts with a more general-purpose block grant approach that has been adopted in other federal functions that supports expenditures in a functional area. The group of program categories funded through the Federal Highway Trust Fund, and generally known collectively as the FAHP, has evolved over time to contain a mix of stricter categorical programs as well as broader program categories for surface transportation purposes. The need to balance narrow adherence to the established national purpose of individual pro- grams and the desire by grantees to apply the funding to the widely diverging needs of their constituents has resulted in provisions in the law that allow greater degrees of flexibility in the use of federal funds, including grantees’ authority to shift funding among authorized program categories based on state and local priorities. Prior analysis had focused on the evolution of the transfer authority under various federal transportation legislations. For example, Table 3-1 is a summary of the transfer authority under various federal transportation acts since 1976, developed by the Eno Center for Transportation (2019). 3.2 Flexibility Features of FAST Act Federal-Aid Highway Programs On December 4, 2015, President Obama signed the Fixing America’s Surface Transporta- tion (FAST) Act into law (Pub. L. 114-94). Transferability of federal-aid highway funds per 23 U.S.C. § 126 provides for and has conditions on the transfer of funds apportioned under C H A P T E R 3

Category 1976 STAA, FY1977–1978 1978 STAA, FY1979–1982 1982 STAA, FY1983–1986 1987 STURAA, FY1987–1991 1991 ISTEA, FY1992–1998 1998 TEA-21, FY1999–2005 2005 SAFETEA-LU, FY2006–2012 2012 MAP-21 and 2015 FAST, FY2013–2020 Interstate None None 50% between Interstate and 4R Unlimited from open-to-traffic Interstate 4R All of Interstate construction to NHS or IM 50% of any IM, NHS, STP, Bridge, CMAQ, or Rec. Trails to any other of those programs (more with DOT approval) but CMAQ limited to program amount over $1.35 billion/year 50% of any IM, NHS, STP, Bridge, CMAQ, or Rec. Trails to any other of those programs (more for IM, NHS, and STBG with DOT approval) but CMAQ is limited to program amounts over $1.35 billion/year 50% of NHPP, STBG, HSIP, and CMAQ (and NHFP starting in 2015) except that STBG funds suballocated to specific metro areas may not be transferred 20% 4R to Primary All of IM to STBG or NHS with DOT ok Non- Interstate 40% between Primary and Secondary 50% between Primary and Secondary 50% between Primary and Secondary 50% between Primary and Secondary 50% from NHS to STP 20% between Primary and Urban 50% between Primary and Urban 50% between Primary and Urban 50% between Primary and Urban 40% of Bridge to either NHS or STBG Safety 40% between any of Bridge, Hazard Mitigation, and Grade Crossings 40% between any of Bridge, Hazard Mitigation, and Grade Crossings 40% between any of Bridge, Hazard Mitigation, and Grade Crossings 40% between any of Bridge, Hazard Mitigation, and Grade Crossings 40% between any of Bridge, Hazard Mitigation, and Grade Crossings No transferability of Hazard Mitigation and Grade Crossings 40% between Bridge and Grade Crossings None except per HSIP above Source: Eno Center for Transportation (2019) 4R = resurfacing, restoring, rehabilitating, and reconstructing CMAQ = Congestion Mitigation and Air Quality DOT = Department of Transportation FAST = Fixing America’s Surface Transportation Act HSIP = Highway Safety Improvement Program IM = Interstate Maintenance Program ISTEA = Intermodal Surface Transportation Efficiency Act MAP-21 = Moving Ahead for Progress in the 21st Century Act NHFP = National Highway Freight Program NHPP = National Highway Performance Program NHS = National Highway System SAFETEA-LU = Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users STAA = Surface Transportation Assistance Act STBG = Surface Transportation Block Grant Program STP = Surface Transportation Program STURAA = Surface Transportation and Uniform Relocation Assistance Act TEA-21 = Transportation Equity Act for the 21st Century Rec. = Recreational Table 3-1. Transferability percentage under various federal transportation acts, 1976–2020.

Overview of Federal Highway Funds Transfer Authority 11   23 U.S.C. § 104(b). Transferred funds are to be obligated for the same purposes and to meet the same requirements of the category to which they were transferred (FHWA, 2016b). This section provides an overview of the transfer authority for each FAHP category, including: • Congestion Mitigation and Air Quality (CMAQ) • National Highway Performance Program (NHPP) • Surface Transportation Block Grant Program (STBG), including Transportation Alterna- tives (TA) • Highway Safety Improvement Program (HSIP) • National Highway Freight Program (NHFP) For each of the program categories listed above, up to 50 percent of available funding apportionment, exclusive of state planning and research (SPR) set-aside and penalties, may be transferred to another program category with additional limitations specific to each program category (23 U.S.C. § 126). Penalties may be assessed if a state fails to comply with federal regulations. 3.2.1 Congestion Mitigation and Air Quality Improvement Program CMAQ funding is FHWA’s primary air quality program with a legacy rooted in the history of the Clean Air Act. The 1990 Clean Air Act amendments included provisions for attainment and maintenance of national ambient air quality standards. The Clean Air Act does not provide funding to help nonattainment areas reach the required standards. In 1991, the Intermodal Surface Transportation Efficiency Act (ISTEA) provided CMAQ as a means for states to address clean air mandates for on-road mobile sources of emissions. CMAQ funding is used to support surface transportation projects and related efforts that contribute to air quality improvements and provide congestion relief. Every state receives a minimum amount of CMAQ funding, and the balance of funding is distributed in a way that ensures that states with nonattainment or maintenance areas receive larger shares of funding. In most cases, the federal share is 80 percent federal formula funding with a 20 percent non-federal match. In states that have no nonattainment or maintenance areas, the CMAQ funding can be spent on any project eligible for STBG funds. For a state that has a nonattainment or maintenance area for fine particulate matter (PM2.5), an amount equal to 25 percent of the amount of a state’s CMAQ apportionment attributable to the weighted population of such areas in the state is set aside for use in reducing PM2.5; states with low population density will have a reduced set-aside under certain conditions [23 U.S.C. § 149(k)]. The FAST Act amended the eligible uses of CMAQ funds set aside for PM2.5 nonattainment and maintenance areas. PM2.5 set-aside funds may be used to reduce fine particulate matter emissions in a PM2.5 nonattainment or maintenance area, including: • Diesel retrofits. • Installation of diesel emission control technology on nonroad diesel equipment or on-road diesel equipment that is operated on highway construction projects. • The most cost-effective projects to reduce emissions from port-related landside nonroad or on-road equipment that is operated within the boundaries of the area [23 U.S.C. § 149(k)(2) and (4)]. • The PM2.5 set-aside does not apply to a nonattainment or maintenance area in a state with low population density (80 or fewer persons per square mile of land area) if the PM2.5 non- attainment or maintenance area does not have projects that are part of the emissions analysis of a metropolitan transportation plan or the Transportation Improvement Program (TIP). • The PM2.5 set-aside does not apply where regional motor vehicle emissions are an insignificant contributor to the air quality problem for the PM2.5 nonattainment or maintenance area [23 U.S.C. § 149(k)(3)].

12 Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs 3.2.2 National Highway Performance Program Established under MAP-21 as a new approach to core formula program funding, the NHPP authorizes a lump sum total to replace funding authorized under individual programs in prior legislations. Reauthorized under the FAST Act § 1106, 23 U.S.C. § 119, the purpose of the NHPP is to support the National Highway System (NHS) in its condition and performance, construction of new facilities, and achievement of associated NHS performance targets established in state asset management plans. Under 23 U.S.C. § 505, 2 percent of the state’s NHPP is to be set aside for SPR. In addition, in accordance with 23 U.S.C. § 120, the federal share is 80 percent, but up to 90 percent on Interstate projects; there is a special share if the project incorporates innovative project delivery. There are no additional limitations on states’ transfer authority specific to NHPP. 3.2.3 Surface Transportation Block Grant Program Formerly known as the Surface Transportation Program (STP), the STBG is considered to have the most flexible eligibilities among all the FAHP categories. The FAST Act amended the STP contained in 23 U.S.C. § 133 and changed the program name to STBG. Authorized under FAST Act § 1109, 23 U.S.C. § 133, the 2015 legislation changed the program name to better align with the FHWA’s administration process. The STBG authorized $12.137 billion in funding for FFY2020. The STBG is accompanied by set-asides and suballocations prescribed by law. Set-asides for the state’s apportionment go to three main areas: • Funding for TA [23 U.S.C. § 133(h)]. Note that the FAST Act eliminates the MAP-21 Trans- portation Alternatives Program (TAP) and replaces it with a set-aside of STBG program funding for transportation alternatives. These set-aside funds include all projects and activities that were previously eligible under TAP, encompassing a variety of smaller-scale transporta- tion projects, such as pedestrian and bicycle facilities, recreational trails, safe routes to school projects, community improvements such as historic preservation and vegetation manage- ment, and environmental mitigation related to stormwater and habitat connectivity. See FAST Act § 1109 and 23 U.S.C. 133(h). • Two percent for SPR (23 U.S.C. § 505). • Funding for bridges not located on federal-aid highways (off-system bridges) [23 U.S.C. § 133(f)]. • Governors of border states may voluntarily designate up to 5 percent of the state’s appor- tionment for border infrastructure projects. Such projects must be eligible under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) Coordinated Border Infrastructure Program (FAST Act § 1437). • Suballocations required to be obligated include the following: – Urbanized areas with populations greater than 200,000. – Areas with populations greater than 5,000 but no more than 200,000. – Areas with populations of 5,000 or less [23 U.S.C. § 133(d)]. Suballocations are obligated to areas in proportion to their relative shares of the state’s population. In FFY2020, the FAST Act set 55 percent of apportionments under the STBG to be suballocated. The remaining funds may be used in any area of the state providing flexible funding for federal-aid highway, bridge, and tunnel projects on any public road, pedestrian and bicycle infrastructure, and transit capital projects, including intercity bus terminals. The federal share is 80 percent, but up to 90 percent on Interstate projects. Unless the governor opts out in advance, FHWA sets aside for the state’s RTP an amount of TA funds equal to the state’s FFY2009 RTP apportionment [23 U.S.C. § 133(h)(5) and (6),

Overview of Federal Highway Funds Transfer Authority 13   23 U.S.C. § 206]. States may opt out of the RTP for any given fiscal year. For example, in FFY2020, Connecticut was the only state that opted out of the RTP. See FHWA, 2020b. 3.2.4 Highway Safety Improvement Program The HSIP is a core FHWA program that focuses on reducing fatalities and serious injuries on public roads, including non-state-owned public roads and roads on tribal lands. Codified by SAFETEA-LU as 23 U.S.C. § 148, the HSIP apportions funds to states for use on safety activities that focus heavily on infrastructure-related safety improvements. In 23 U.S.C. § 148(e), the opportunity is provided to use funds in areas where the greatest impact can be made as iden- tified in a state’s Strategic Highway Safety Plan (SHSP). The federal share is 90 percent with a 10 percent match. Programs for workforce development, training, and education activities are also eligible to use the program funds. HSIP funds have been used by agencies for various safety-related programs, including work zone safety messages, safe ride home programs to prevent impaired driving, overtime safety enforcement, radio public safety announcements, and outreach programs on the use of car seats. The HSIP has a requirement for a set-aside for the Railway-Highway Crossings program prior to apportionment. The set-aside for the Railway-Highway Crossings program cannot be transferred, but if a state demonstrates to the satisfaction of the Secretary of U.S. DOT that the state has met all its needs for installation of protective devices at railway-highway crossings, the state may use funds set aside for the Railway-Highway Crossings program for other eligible HSIP purposes [see 23 U.S.C. § 130(e)(2)]. In addition, the FAST Act authorizes an annual set- aside of $3.5 million for safety-related activities and to operate safety-related clearinghouses. 3.2.5 National Highway Freight Program The NHFP was established under the FAST Act § 1116, 23 U.S.C. § 167, to provide funding to improve the freight movement on the National Highway Freight Network (NHFN). The program also supports several national goals, including: • Investing in infrastructure and operational improvements that strengthen economic com- petitiveness, reduce congestion, reduce the cost of freight transportation, improve reliability, and increase productivity. • Improving the safety, security, efficiency, and resiliency of freight transportation in rural and urban areas. • Improving the state of good repair of the NHFN. • Using innovation and advanced technology to improve NHFN safety, efficiency, and reliability. • Improving the efficiency and productivity of the NHFN. • Improving state flexibility to support multistate corridor planning and address highway freight connectivity. • Reducing the environmental impacts of freight movement on the NHFN [23 U.S.C. § 167 (a), (b)]. Furthermore, NHFP funds must specifically contribute to efficient freight movement on the NHFN and on projects that are included in a state’s freight plan, which is required under 23 U.S.C. § 167(i)(4). The program may use up to 10 percent each year on intermodal freight projects or on freight rail projects. The current federal share is 80 percent formula funding with a 20 percent non-federal match.

14 Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs A proportionate share of each state’s NHFP funds is set aside for the state’s metropolitan planning program. This occurs prior to apportionment, and the set-aside funds are combined with the state’s regular metropolitan planning program funds. NHFP funds set aside for metro- politan planning are not transferable to other apportioned programs. Table 3-2 provides a summary of the key features of the FAHP, including the flexibility provisions. 3.3 Flexibility to Transfer Funds from FHWA to Other Agencies States may transfer FAHP funding to another state or programs of another federal agency. Along with the funds transferred, the administrative responsibilities of the funds are trans- ferred to the other agency as well. States may also spend FAHP funds on a non-highway project (e.g., public transportation) without transferring the funds to FTA for administration. This research focuses only on the transfer of funds to FTA for administration. FHWA Order 4551.1 provides that Congress has recognized and provided statutory authority for FHWA-administered funds to be transferred to another state or federal agency “for several reasons: another entity may have greater expertise to administer a project, there may be cost savings associated with a project that has multiple components, or in unique circumstances, a non-DOT entity may be better suited to be accountable for the appropriated funds.” Transferring funds to another federal or state agency does not eliminate applicable Title 23 requirements, including the non-federal share of the project costs (FHWA, 2013). For example, if the funds are transferred from a program with 10 percent non-federal share requirement, the same non-federal share requirement of 10 percent will apply even after the funds are transferred to another agency. Based on the FMIS data from FHWA, the majority of funding that grantees choose to move between modes is from FHWA to FTA ($13.3 billion out of total $14.6 billion transferred). The FAHP funds for which transit projects and transportation planning are eligible may be transferred to FTA and administered under Chapter 53 of Title 49, per 23 U.S.C. § 104(f )(1), except that the federal share and eligibility requirements of the original fund category continue to apply. Similarly, FHWA may accept transfers and administer FTA funds for highway projects or transportation planning per 23 U.S.C. § 104(f)(2) (FHWA, 2013). Authority to transfer funds from FHWA to FTA is a major element of states’ authority to transfer highway funds and is commonly used. The U.S. Government Accountability Office (GAO), in a 2012 report, documented trends in states’ use of their authority to transfer funds between federal highway and transit programs (GAO, 2012). The ISTEA introduced several FHWA programs that provided states and urbanized areas flexibility in selecting projects to be funded with federal-aid highway funds. As federal dollars are often tied to a single mode of transportation, these programs are distinctive in the flexibility they grant to states and urbanized areas to implement a variety of transportation projects. In particular, the STP and CMAQ funds could be used for transit projects at the time when this GAO report was written. Subsequent reauthorization acts have continued to provide this flexibility. This GAO report focused on transfer of funds from STP and CMAQ to transit programs (GAO, 2012). The GAO found that from 2007 to 2011, states transferred about $5 billion, or 10 percent of their STP and CMAQ apportionment, to FTA for transit projects. Four states—California, New Jersey, New York, and Virginia—accounted for the majority of flexible funding transferred to FTA for transit projects. Officials from the GAO’s selected states and urbanized areas told the

Program Estimated 2021 Funding Non-Federal Match Requirement Percent Transferable Program Categories Eligible as Destinations of Fund Transfer Restrictions CMAQ [FAST Act § 1114; 23 U.S.C. § 149] $2.494 billion Non-Interstate System road projects: 20% Interstate System projects: 10% Up to 50% of apportionment NHPP NHFP STBG HSIP TA Set-aside for nonattainment or maintenance area for PM2.5 may not be transferred. NHPP [FAST Act § 1106; 23 U.S.C. § 119] $24.239 billion (sum of estimated individual state NHPP apportionments) Non-Interstate System road projects: 20% Interstate System projects: 10% Up to 50% of apportionment NHFP STBG TA HSIP CMAQ STBG [FAST Act § 1109; 23 U.S.C. § 133] $12.139 billion (sum of estimated individual state STBG apportionments) Non-Interstate System road projects: 20% Interstate System projects: 10% Up to 50% of apportionment NHPP NHFP HSIP CMAQ Set-asides for suballocation under 23 U.S.C. § 133(d)(1)(A), off-system bridges, and border infrastructure projects may not be transferred. TA [FAST Act § 1109; 23 U.S.C. § 133(h)] $850 million Non-Interstate System road projects: 20% Interstate System projects: 10% Up to 50% of apportionment NHPP NHFP STBG HSIP CMAQ Exclusive set-aside for Recreational Trails Program. TA funds suballocated under 23 U.S.C. § 133(d)(1)(A) may not be transferred. HSIP [FAST Act § 1113; 23 U.S.C. § 148] $2.408 billion Non-Interstate System road projects: 20% Interstate System projects: 10% Up to 50% of apportionment NHPP NHFP STBG TA CMAQ Set-asides for the Railway- Highway Crossings program and $3.5 million for safety- related activities and to operate safety-related clearinghouses may not be transferred. NHFP [FAST Act § 1116; 23 U.S.C. § 167] $1.487 billion (net amount after MPP set-aside) Non-Interstate System road projects: 20% Interstate System projects: 10% Up to 50% of apportionment NHPP STBG TA HSIP CMAQ Metropolitan Planning set- asides are not transferable. CMAQ = Congestion Mitigation and Air Quality FAST = Fixing America’s Surface Transportation Act HSIP = Highway Safety Improvement Program MPP = Metropolitan Planning Program NHFP = National Highway Freight Program NHPP = National Highway Performance Program STBG = Surface Transportation Block Grant Program TA = Transportation Alternatives U.S.C. = U.S. Code Table 3-2. Summary of FHWA programs and flexibility.

16 Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs GAO that they based their decisions on whether to use flexible funding for transit projects on state and local priorities, available funding sources, and state and local policies. In particular, the decision to use flexible funding for transit projects stems from state and metropolitan planning processes that identify priority transportation projects (GAO, 2012). States and MPOs made similar comments through the survey and workshop for this research, as documented in following sections. 3.4 Managing Federal-Aid Highway Funds from State for Local and Regional Governments With funding from multiple sources, states have varying degrees of flexibility in administering their transportation funds to best meet federal priorities and their needs and policy goals. Federal-aid highway funds come with some requirements that states suballocate a certain percentage of their STBG and TA funds to local areas, but otherwise states have a relatively high degree of flexibility in deciding how much of these funds to allocate to local and regional gov- ernments and how much to keep and administer at the state level, including the ability to “swap” federal and state funds. This section reviews literature that discusses the practices of suballocating federal-aid highway funds and federal-state fund swapping. 3.4.1 Federal-Aid Highway Funds Suballocation As summarized in Section 3.2.3, in FFY2020 55 percent of a state’s total apportioned funds under STBG is to be suballocated to the following areas in proportion to their relative shares of the population of the state: • Urbanized areas with populations greater than 200,000. • Areas with populations greater than 5,000 but no more than 200,000. • Areas with populations of 5,000 or less [23 U.S.C. § 133(d)]. States may suballocate other categories of federal-aid highway funds to local and regional governments as they see fit. As examples, the practices of California and Washington are pre- sented below. California In January 2020, Caltrans published the Local Assistance Program Guidelines (California Department of Transportation, 2020). Chapter 2 of the guidelines describes the actions required for financing the FHWA federal-aid projects on the national, state, and project levels. State-level actions cover the types of federal funds available for local federal-aid projects and how the state apportions federal funds to local and regional governments: • Some of the statewide pools of federal funds are set aside for local use, including, for exam- ple, the Highway Bridge Program, HSIP, and the Active Transportation Program. Projects are prioritized and placed on statewide program lists. Each one of these programs has its own method of determining its prioritizations for the statewide program lists based on program goals. • STBG funds and CMAQ funds are apportioned to regional transportation planning agencies (RTPAs) and MPOs. State law (Section 182.6 of the Streets and Highways Code) defines how the funds are apportioned to RTPAs and MPOs within California. Fund apportionment is based on historical level data and adjusted for current population (California Department of Transportation, 2020).

Overview of Federal Highway Funds Transfer Authority 17   Washington The State of Washington published a multipart manual that, among other things, describes the distribution of FHWA funds administered by the Washington State Department of Trans- portation’s (WSDOT) Headquarters Local Programs, and presents the basic procedures for local agency participation (WSDOT, 2022). Washington splits federal highway funds between state and local governments. While the approach recognizes the federal requirements to suballocate about half of the STBG funding to local entities based on population and to MPOs, there is a history of state and MPO collabora- tion. The state provides more money to local governments than required by federal law. WSDOT’s policy is to distribute funds on a percentage basis with the overall state/local distribution based on an accumulation of the individual FAHP funds. Where applicable, the distribution of each of the federal program areas is based on a data-driven approach, while also considering ownership and whether the program benefits the state or local system. 3.4.2 Fund Swapping Federal fund swapping is an arrangement in which state DOTs allow local agencies to exchange their state’s proposed suballocation of federal-aid highway funds for state transportation funds. By swapping funds, local agencies complete a project with state funds instead of the federal funds. When swapping occurs, local agencies must comply with applicable state and local require- ments, not federal requirements. Concurrently, the state DOT applies the swapped federal funds to projects administered by the state, and, as a result, the state administers a greater amount of federal funds apportioned to it than it would have before the swapping occurred (GAO, 2020). The GAO found that because there is no federal statute or regulation that expressly authorizes or prohibits fund swapping programs, FHWA does not play an active role in fund swapping programs or their oversight. At the time of publication of this GAO report, there was no pending legislation that would authorize states to implement fund swapping programs, provided they already had state laws comparable to the Davis-Bacon Act and federal Buy America require- ments and that those comparable state laws applied to the projects that would have been federally funded if not for the fund exchange. However, Sec. 1106 of the House Investing in a New Vision for the Environment and Surface Transportation (INVEST) in America Act requires states to certify that prevailing wage and Buy America requirements comparable to federal requirements are in place in order to implement federal-state fund swap programs (AASHTO, 2020c). GAO Report 21-88 found that 15 states swapped funding in the past 5 years. For most states, the reported amount of federal funds swapped was a relatively small portion of the state’s overall federal-aid apportionment, ranging from less than 1 percent to 12 percent. However, Iowa swapped about 18 percent (or about $97 million) of its federal-aid funds in 2019 (GAO, 2020). The participants in this research reported that nine of the 15 states swapped STBG sub- allocated funds, three states swapped STBG discretionary funds, and three states swapped both. In addition to swapping STBG funds, officials from four state DOTs said they also swapped federal funds in three of the four other core highway programs. Oregon was the only state to swap funds in many core programs (GAO, 2020). Officials the GAO interviewed from state DOTs and selected local agencies said that they choose to participate in fund swapping because it reduces the risk that local agencies will not be able to comply with federal requirements, reduces resources required for state oversight, increases project flexibility and control for local agencies, and may result in project delivery

18 Federal Funding Flexibility: Use of Federal-Aid Highway Fund Transfers by State DOTs time and cost savings. The obstacles officials cited to participating in fund swapping included a lack of sufficient state funds to swap with local agencies, as well as the absence of state law authorizing fund swapping (GAO, 2020). Of the 15 states that swapped federal funds over the past 5 years, officials in two states, New Jersey and Wisconsin, stated that they ended their fund swapping programs in 2018. In addition, 37 states reported that they do not currently have a fund swapping program; however, seven of those states responded that they were or might be interested in establishing one. New Jersey state DOT officials said the reasons they ended their swap program included insuffi- cient state funds and lack of project readiness. Wisconsin state DOT officials said they ended their swap programs because the state’s authorizing legislation ended (GAO, 2020).