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Federal Highway Administration
Supplemental Guidance on Recovery Act Section 1201 Maintenance of Effort – Highway Infrastructure Investment Appropriation
September 24, 2009
Types of Projects Funded by the Appropriation: Funds Administered at the State-Level
The FHWA assessment of States’ maintenance of effort (MOE) certifications identified a need to clarify the meaning of the section 1201 phrase “types of projects that are funded by the appropriation.” The interpretation of that phrase has a material impact on the scope of State funding that should be included in States’ MOE certifications.
For funds administered at the State level, State funding should be included in the MOE certified amount if the State funding is related to an activity that is one of the types of activities for which funds were appropriated under the Recovery Act and the State planned to expend the State funding on roads and bridges eligible to receive Federal-aid Highway Program funding (these facilities being the only ones where State funds could be supplanted by Recovery Act funds). The determination of “eligibility” for purposes of the MOE certified amount at the State level stops at these two criteria. No additional Federal eligibility criteria should be considered. [See “Treatment of State Funds Provided to Local Governments or Other Entities” (below) for guidance on this topic where State funds are provided to non-State entities.]
Types of Expenditures Included
The assessments of MOE certifications also suggested a need to further clarify the types of State expenditures that should be included in MOE. The MOE amount should include both construction and preconstruction expenditures. The MOE certified amount should be inclusive of, but not limited to, contractor payments the State expected to make from February 17, 2009 through September 30, 2010.
Treatment of State Funds Provided to Local Governments or Other Entities
Several States have questioned whether State funds provided to local governments or other entities for transportation projects need to be included in the State’s maintenance of effort certification. States raised concerns about the ability of States to track these funds once the funds are transferred to such entities, and to identify whether the entities used the funds on the types of projects funded under the Recovery Act. The Department of Transportation has balanced these concerns with the need to comply with the statutory requirements in section 1201(a) of the Recovery Act and provides the following guidance.
QUESTION: Should States include in their MOE certified amounts the funding the State provides to local governments or other entities for transportation projects?
ANSWER: Yes. Section 1201 requires inclusion in MOE of all State funding for the types of projects funded by the Recovery Act appropriation, regardless which State agency or other entity receives or expends the State transportation funds. States that provide funding to local governments or agencies other than the State DOT for transportation projects on roads and bridges eligible for Federal-aid Highway Program funds should include in their MOE certified amounts all State funds the State planned for those entities to expend on transportation projects during the covered period (February 17, 2009, through September 30, 2010). This includes transportation funds that are allocated to local entities by State constitutional or statutory law. The MOE certified amount should not include any locally-generated funds (i.e., funds produced by local taxes or assessments) even if such funds are transferred to a State DOT for purposes of carrying out a project for a local government.
QUESTION: Does this mean the State has to determine how much of the State funding for local transportation is for the “types of projects funded under the appropriation” in the Recovery Act?
ANSWER: No. We understand such allocation would be nearly impossible in a number of States. Any State that planned to provide transportation funds to other entities that could be used in whole or in part on roads and bridges should include all such transportation funding as part of the State's MOE certified amount. This should be done without distinguishing between eligible and non-eligible types of projects, and without distinguishing between roadways eligible for Federal-aid funding and those that are not. The over-inclusive effect this methodology has on the MOE certified amount is taken into account in the reporting of actual expenditures, discussed below.
QUESTION: How should States report on the expenditure of transportation funds provided to local governments? In other words, for purposes of section 1201(a) of the Recovery Act, when are these funds considered expended by the State?
ANSWER: The answer to this depends on the structure of the State funding program(s). We believe most State programs will fall under the first procedure described below, and that the second procedure will apply in very limited circumstances. We note both of these procedures are special practices adopted only for purposes section 1201 to track and report on State funds provided to local governments.
- If the State funding program provides funds to localities by means of either budgetary authority or funding transfers before the start of project work: The State should report State transportation funding to local governments as an actual expenditure when the localities receive the budget authority or the funds (i.e., once the locality has the power to expend the State funding).
- If the State funding program provides funds to localities on a reimbursement basis: The State should report the State funds as expended once the State has a binding commitment to pay the funds to the locality. This may be in the form of a reserve account or other mechanism that constitutes a binding State obligation to pay the locality. If a Division is uncertain whether the State has met this test, the Division should consult with the FHWA Office of Chief Counsel.
The decision to adopt these special practices is based on our conclusion that, if we were to apply normal Federal-aid highway practices relating to the expenditure of funds in this instance, it would impose unreasonable resource burdens on the States and still would fail to produce reliable expenditure data. Information from the States demonstrates that the way in which State funding is provided to localities varies from State to State, and there even are differences among funding programs within a State. Many States reported they have no means to identify or control the types of projects on which localities expend funds or the timing of the local expenditures. In addition, current economic conditions and the typical backlog of local transportation needs make it reasonable to conclude localities will expend the State-provided funds by the September 30, 2010, deadline. Such expenditures will avoid substitution of Recovery Act funds for State funds.
FHWA believes these special practices best balance the MOE requirements with the legal and practical constraints faced by the States in handling MOE requirements pertaining to State transportation funding for localities. However, FHWA recognizes a risk remains that State funds could be supplanted by Recovery Act money if the localities do not actually expend the State funds. Therefore, while FHWA is not requiring States to track the actual outlays of State funds by localities, FHWA does expect States to be aware of this risk and its potential effect on a State’s MOE performance. We ask the Divisions to work with their States to ensure the States understand these MOE issues.
FHWA believes it is in a State’s best interest to monitor what happens when Recovery Act funds are provided to local entities and used to replace State funds on a project. In some locations, measures already are in place to help ensure such displaced State funds are spent on other projects within the required time period. For example, at least one metropolitan planning organization currently requires localities receiving Recovery Act funds for a project in the transportation improvement program to identify the replacement project(s) that will use the displaced State funding.
In all cases, if a FHWA Division becomes aware of circumstances that indicate there may be a risk of Recovery Act funds supplanting State funding, the Division should alert the State about the situation immediately.
CONTACTS: If you need assistance on these issues, please contact Janet Myers (202-366-2019) or Nicolle Fleury (202-366-1379) in the FHWA Office of the Chief Counsel.