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Guidance on Section 308 of the NHS Act
Advance Construction of Federal-Aid Projects
(May 1996)

NHS Act Provision

Advance construction is a technique which allows a State to initiate a project using non- federal funds while preserving eligibility for future Federal-aid funds. Eligibility means that FHWA has determined that the project technically qualifies for Federal-aid; however, no present or future Federal funds are committed to the project. After an advance construction project is authorized, the State may convert the project to regular Federal- aid funding provided Federal funds are made available for the project.

Section 308 of the NHS Act replaced 23 U.S.C.115(d) relating to the amount of advance construction that may be authorized. The previous limitation required that future year authorizations be in effect one year beyond the fiscal year for which an advance construction application was sought, thus limiting the States' flexibility to advance construct during the final year of an authorization act.

The NHS Act replaces that limitation with a requirement that advance construction projects be on the approved Statewide Transportation Improvement Program (STIP). The STIP covers a period of at least three years and is a financially constrained program which is not limited to the period of the authorization act. This change in the advance construction limitation will provide the States with more flexibility in financing projects and developing financial plans. From a State and local perspective, this provision allows more projects to begin construction sooner.

Eligible Projects

The following programs are eligible for advance construction:

  • National Highway System (includes Interstate Construction and Interstate Maintenance)

  • Interstate Substitute

  • Congestion Mitigation and Air Quality Improvement Program

  • Surface Transportation Program

  • Bridge Replacement and Rehabilitation

  • State Planning and Research, and Metropolitan Planning.

Except for projects using National Highway System, Interstate Construction, or Interstate Maintenance funds, one of the following conditions must be met to qualify for advance construction:

  • the State has obligated all the funds apportioned or allocated for the specific program,

  • the State has used its obligation authority, or

  • the State can demonstrate it will use it obligation authority before the end of the fiscal year.

Procedures

An advance construction project must meet the same requirements and be processed in the same manner as a regular Federal-aid project, except the FHWA authorization does not constitute a commitment of Federal funds on the project.

At the time of project approval, FHWA and the State will execute a project agreement. The project agreement contains provisions for advance construction project and specifies that the total cost of the project is an obligation of the State. No Federal obligation is created until the project is converted to a regular Federal-aid project.

The projects must be included on the STIP and meet the tests of financial constraint required by 23 U.S.C. 135(f). The total amount that may be advance constructed will be limited as follows: the Federal share of all advance construction projects (amount not converted to Federal-aid) cannot exceed the sum of the State's current unobligated balance of apportionments plus the amount of Federal funds anticipated in the subsequent fiscal years of an approved STIP, i.e., the amount used in developing the approved STIP. If this limit is reached, the FHWA Division Administrator will not approve any additional advance construction projects.

State planning and research, and metropolitan planning projects authorized under 23 U.S.C. 307(c) and 23 U.S.C. 104(f) are not required to be included on the STIP to be eligible for advance construction.

Conversion to a Regular Federal-aid Project

The State may submit a written request to the FHWA that a project be converted to a regular Federal-aid project at any time provided that sufficient Federal-aid funds and obligation authority are available. The State may request a partial conversion where only a portion of the Federal share of project costs is obligated and the remainder may be converted at a later time provided funds are available. Only the amount converted is an obligation of the Federal Government. The project should be identified on the STIP each year a conversion occurs.

Payment for Bond Interest on Advance Construction Projects

For projects authorized before November 28, 1995, interest earned and payable on bonds issued by a State is an eligible cost of construction but is limited as follows:

Participating interest cost is based on the actual expenditure of bond proceeds on the Federal-aid project. The interest on the bonds is applied to the amount of bond proceeds expended on the project from the date of expenditure.

The amount of interest determined in the previous paragraph cannot exceed the estimated increase in the physical construction cost of the project which would have occurred had the project been authorized on the date of conversion. The estimated increase in the physical construction cost is determined by applying the increase, if any, in the national construction cost index in effect on the date of conversion over the index in effect on the date of the FHWA authorization to the actual cost of physical construction.

For projects authorized on or after November 28, 1995, all bond related costs authorized by 23 U.S.C. 122 are eligible.

[Questions relating to this guidance should be directed to Dale Gray, Director of Financial Management Office, at 202-366-0978.]