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Financial Plans: FHWA Financial Plans Guidance (January 2007)


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Title 23, Section 106(h) requires recipients of federal financial assistance for certain projects to develop an annual financial plan for the Project. There are two types of projects that require the annual preparation: 1) Major Projects and 2) projects with a total cost of between $100 million to $500 million. The requirement for Major Project financial plans was established when Section 1305(b) of the Transportation Equity Act for the 21st Century (TEA-21) modified Section 106 of Title 23 by adding subsection "(h)" which requires "... A recipient of Federal financial assistance for a project ...with an estimated total cost of $1,000,000,000 or more shall submit to the Secretary an annual financial plan for the project." TEA-21 required that the plan be based on detailed annual estimates of the cost to complete the remaining elements of the project and on reasonable assumptions of future increases in the cost to complete the project. In May 2000, FHWA Financial Plan Guidance was issued and was the basis of determining which projects would be classified as Major and whether the submitted financial plans satisfied the requirements of Section 106(h).

In 2005, Section 1904(a)(2) of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy For Users (SAFETEA-LU) amended 23USC106(h) by reducing the threshold for the submission of a Major Project annual financial plan to $500 million or more. SAFETEA-LU also added a new Section, 23USC106(i), which required recipients of federal financial assistance for projects with a total cost of between $100 million and up to $500 million to prepare an annual financial plan. A memorandum was issued on December 8, 2005, Project Financial Plan Requirements under SAFETEA-LU, which provided details for implementing the Finance Plan requirements. That memorandum and the FHWA Financial Plan Guidance issued in May 2000 are superceded by the issuance of this Guidance.

Major Projects are often implemented over a number of years and may involve numerous individual elements and segments [1]. These individual segments may be progressed as individual contracts but, in total, they make up the Project. The decision to initiate and complete a Major Project will require a commitment of significant future financial resources in order to achieve the transportation benefits of the initial investment. This decision will impact the local community and, often, the entire region and/or State as the Project advances.

The Initial Financial Plan will provide information on the immediate and longer-term financial implications resulting from project initiation. The annual updates of the Financial Plan should provide information on actual cost, expenditure, and revenue performance in comparison to initial estimates as well as updated estimates of future year's obligations and expenditures. The annual updates will provide information on cost and revenue trends, current and potential funding shortfalls and the financial adjustments necessary to assure completion of the project. The Financial Plan and its subsequent Annual Updates will also provide assurance that the Project's impact on the State's transportation capital improvement program will have been assessed. The projected uses of funding for the Project must meet the fiscal constraint requirements for the State's planning process.


A Financial Plan is a comprehensive document that reflects the Project's cost estimate and revenue structure and provides a reasonable assurance that there will be sufficient financial resources available to implement and complete the project as planned. A Financial Plan provides a description of how a project will be implemented over time by identifying project costs and the financial resources to be utilized in meeting those costs. The plan should clearly explain the assumptions about both cost and revenue upon which the plan is based. In addition, the annual updates to the plan will enable decision makers to track the financial progress of the project over time by highlighting significant deviations from the Initial Financial Plan and the subsequent annual updates and explaining the mitigating actions taken to adjust for those deviations. In essence, the financial plan process is a subset of the overall Project Management Plan that is required for every Major Project.

Which Projects Must Have a Financial Plan?

Major Projects

These transportation improvements are defined as Projects receiving Federal financial assistance 1) with an estimated total cost of $500 million or more or 2) that have been identified by the FHWA as being a Major Project. The designated projects may include those: 1) that require a substantial amount of a State Transportation Agency's (STA) program resources, 2) that have a high level of public or congressional attention, or 3) that have extraordinary implications for the national transportation system. For the purposes of determining whether the project costs exceed $500 million, FHWA will look at the total cost estimate for the project limits as set forth in the ROD or final environmental determination. An exception may exist if the "NEPA-defined" project scope is comprised of distinct and operationally independent phases. FHWA may determine that each separate, operationally independent and non-concurrent phase of construction be defined as separate "projects" for the purpose of assigning Major Project status. (Non-concurrent in this context means the phases of work will not be constructed at the same time, and the phase or phases that are scheduled for construction are not functionally dependent on those that have received NEPA approval but may or may not be constructed.) This determination will require careful judgment and an appreciation for how NEPA commitments will be delivered during the delivery of the NEPA-defined project scope. The Division Administrator will make this determination after consultation with the Major Projects Team (MPT) and the Office of Project Development and Environmental Review.

Major Projects that are initiated as a result of damage from a natural disaster and are funded with federal Emergency Relief (ER) funds will follow the established procedures of the ER Program. Major Project requirements will also be followed using a modified process where financial plan and project management plan actions may occur out of sequence in order for the ER Major Project to progress on a timely basis. FHWA will work with the STA to assure that the project is progressed appropriately and does meet all requirements.

In the case of Major Projects funded jointly by FHWA and FTA it is expected that the Project Owner, generally the STA, will submit a single Financial Plan meeting the requirements of both Federal Agencies to the FHWA Division Office for review and approval. The Major Projects Team will assist in coordinating with FTA to reach this goal.

Projects From $100 million up to $500 million

SAFETEA-LU required that Projects in this dollar range have Financial Plans and Annual Updates prepared by the Project Owner. It is expected that these projects will be less complex than Major Projects and will be completed in a shorter timeframe. There will often only be one main construction contract associated with this category of projects. The estimated total cost will be based on the full scope of the project for the limits defined by the environmental process or for the limits that are considered operationally independent. The financial plan content should address the same five sections as those for Major Projects (see Content of the Financial Plan). It is anticipated that the level of detail will be more straightforward for these plans. Also, optional reporting formats for these projects that present multiple projects within the Project Owners' geographical area will be considered on a case-by-case basis. FHWA will not approve these financial plans but they will be subject to review. As part of its ongoing stewardship and oversight responsibilities, FHWA will need to assure that they were completed in accordance with Title 23 requirements for content and timeliness.

TIFIA Projects

The Transportation Infrastructure Finance and Innovation Act (TIFIA) program was established in 1999 to provide Federal credit assistance (direct loans, loan guarantees, and lines of credit) to large-scale transportation projects of national significance. The program was created in response to a demonstrated lack of public funding to meet growing transportation needs, and is intended to leverage substantial private co-investment and accelerate schedules to complete the construction. Because the TIFIA program is geared toward large-scale transportation projects, many projects have been applying for and securing TIFIA loans as an additional source to help finance the construction. SAFETEA-LU lowered the threshold for TIFIA assistance to projects with a total cost of at least $50,000,000 and Intelligent Transportation Systems (ITS) projects of $15,000,000 or larger. The TIFIA assistance is limited to a maximum of 33% of the total project costs.

The TIFIA program requires that the Project Owner submit a "Plan of Finance", along with the loan application. Because the TIFIA application is done about the same time as the Initial Financial Plan would normally be done, a process was needed such that the Project Owner would only need to submit one Initial Financial Plan. The Major Projects Team, in conjunction with the TIFIA Joint Program Office (JPO), has developed the following general guidelines, which will apply to all TIFIA funded projects.

The TIFIA "Plan of Finance" will be the only initial financial plan submittal required. The requirements of the TIFIA "Plan of Finance" are for the most part the same as the FHWA Initial Financial Plan Guidance (Sections 1 through 5), but are ordered and formatted differently. During the review of the "Plan of Finance", the Project Owner may be required to submit any additional information that FHWA feels is necessary to fully comply with the FHWA Financial Plan Guidance. TIFIA also requires that updated Financial Plan information be submitted within 90 days of the signing of the Secured Loan Agreement. The Secretary of Transportation must approve the TIFIA loan prior to FHWA accepting the "Plan of Finance". FHWA acceptance of the "Plan of Finance" will be required prior to authorization of Federal funding for the project construction or prior to award of any design build contracts. The FHWA Division Office will approve all TIFIA-funded initial financial plan and annual update documents with the concurrence of the JPO and MPT regardless of dollar amount.

For detailed information on TIFIA funded projects, refer to the TIFIA Project Oversight and Credit Monitoring Guidance that was issued in January 2005 and is located on the Major Projects website (

When Should The Financial Plan Be Prepared?

The Initial Financial Plan

As described in the Major Project Management Framework, the Initial Financial Plan should be prepared as early in the project development process as practical. As the cost estimate to determine if a Project meets the Major Project cost threshold of $500 million or more occurs at the completion of the environmental phase, a Financial Plan could be submitted to the FHWA Division Office at the issuance of the Record of Decision if all other elements of the Financial Plan have been completed. The Initial Financial Plan for a Major Project could also be submitted and approved by FHWA prior to right-of-way acquisition, but in all cases, the Initial Financial Plan should be submitted and approved by FHWA before authorization of Federal-aid funding for mainline project construction. On a design-build project the Initial Financial Plan should be approved prior to FHWA concurrence in the award of the design build contract. If there are questions concerning the timing of the Initial Financial Plan acceptance by FHWA, the Division Administrator (DA) should consult with the Major Projects Team. The FHWA Division Office will approve all financial plan documents even when the Major Projects Team is involved in the review and concurrence process. In those cases, the Associate Administrator for Infrastructure will give formal concurrence to the Division Administrator.

For projects in the $100-500 million range, the initial financial plan may be developed and completed at the earliest feasible point in the Project development process but it needs to be finalized by the Project Owner prior to construction contract authorization and obligation of federal funds for construction under the design/bid/build process and prior to contract award for design/build projects.

Annual Updates

Financial plans must be updated annually. The scheduled timing of the updates should be shown in the Initial Financial Plan by indication of the annual reporting date of the plan. The Project Owner has the option of determining the effective date of the Annual Update submission. They may choose one year after approval of the initial Financial Plan or, more commonly, the end of the Owner's Fiscal Year, or the end of the Federal Fiscal Year. These updates must reflect changes in total and remaining project cost and/or available funding. The annual update is to be submitted to FHWA for approval no more than 90 days after the effective date established in the Initial Financial Plan.

The scope of the annual update should be sufficient to identify and resolve any cost and/or funding (including cash flow) changes which have occurred since the previous submission. This would include any changes in project scope that impact the cost estimate and/or completion schedule of the project. In the instance of major cost or funding changes the update may need to revise the cost and funding figures for future years in addition to those for the current year.


Financial Plans and Updates should be prepared in accordance with the guidelines of this document and with recognized financial reporting standards such as the "Guide for Prospective Financial Information" of the "American Institute of Certified Public Accountants" (see attachment A). In unique or unusual circumstances, alternate formats may be acceptable with prior concurrence of the Division Office and the Major Projects Team.

Project Owner Certification

The content of the Initial Financial Plan (IFP) and each Annual Update (AU) should be certified as "accurate and reasonable to the best of my knowledge and belief" and signed by the Chief Executive Officer of the STA or the Project Sponsoring Agency prior to submission to the FHWA Division Office. These documents are the Project Owners' opportunities to present the details of the Project to its constituency as well as meeting the federal requirements for financial plan submission. (See attachment B sample Letter of Certification)

FHWA Review and Approval

The Initial Financial Plan and each Annual Update will be submitted to the FHWA Division Office for review and acceptance. The Division Office will coordinate with the Major Projects Team for concurrent review and concurrence of all Initial Finance Plans. Either the Division or Headquarters may request MPT involvement in a concurrent review process for Annual Updates. Acceptance and approval will be based upon a review performed by FHWA. The review will evaluate such items as; the reasonableness of the cost projections, the viability of the identified funding sources including whether they are contained in the fiscally constrained STIP/TIP/Long Range Plan, and the likelihood that the funding commitments will provide sufficient resources to complete the project as planned. The FHWA review and a determination of acceptability should be completed within 30 days from the date the document is received by the Division Office. When the Major Project Team is part of the review process, a concurrence memorandum from the Associate Administrator for Infrastructure (AA, Infrastructure), will be prepared and sent to the Division Office prior to approval of the document. If there is TIFIA funding in the project, the concurrence memorandum will be signed jointly by the AA, Infrastructure and the Director of the TIFIA JPO. In all cases, the FHWA approval of the Financial Plan or Annual Update will be by the Division Administrator.

Content of the Financial Plan

The initial plan should consist of at least five main sections: (1) Cost Estimate - in which the total cost and cost-to-complete for major project elements are presented in year of expenditure dollars, (2) Implementation Plan - in which the project schedule is presented and the cost-to-complete is presented in annual increments in year of expenditure dollars, (3) Financing and Revenues - presented by funding source as annual amounts available for project obligations, (4) Cash Flow - an annualized presentation of cash income and outgo to illustrate how periodic bills will be paid, and (5) Risk Identification and Mitigation Factors.

Annual Updates to the Initial Financial Plan should include revisions to the five main sections mentioned above and should also include data covering: the cost history (initial estimate versus actual expenditures) of the project, a presentation and analysis of cost and revenue trends that may result in additional funding needs or cost reductions, a discussion of additional funding increases or cost reductions necessary in the coming year to meet funding shortfalls which have become known since the last submission, including a discussion of their cash flow implications (this discussion should include a projection of any potential funding shortfalls in future years, including those based on the cost trends identified in the previous section), a discussion of any significant reductions in cost during the past year and the potential for such reductions in future years, and an identification of significant increases in project costs of $10 million or more as compared to the original estimated costs both in the past year and projected for the future. The cost changes reported may be for any reason including changes in project scope, design, right or way, construction, and/or changes to financing estimates.

The Financial Plan should include a narrative describing the assumptions used to develop the project cost estimates. All assumptions for the revenue forecasts and cash flow should also be included. The narrative descriptions should include the sources of information for the forecasts, the methodology used for developing the forecasts, and identify whether there has been any independent validation of the forecasts or sensitivity testing.

Any documentation that provides the basis for projected costs/revenues (e.g. revenue studies, feasibility studies, economic forecasts) should be included as attachments to the Financial Plan. They should also be included in the Annual Updates if they represent material changes from the attachments in the IFP.

A more detailed explanation of the content of each of the required sections is as follows.

The Initial Financial Plan

1. Cost Estimate

The purpose of this section is to present the current estimate of the total cost of the project and the remaining cost-to-complete. The total project cost can be considered the equivalent of the project purchase price. This should include all costs and the value of all resources necessary to perform the preliminary engineering including the cost of NEPA and other environmental documentation, right-of-way, environmental mitigation, construction, project management, Transportation Demand Management and Transportation System Management, public outreach, and costs of external third parties such as utility adjustments and railroad relocations. All costs should be calculated in accordance with standard accounting methods and generally do not include the costs of acquiring revenue (taxation, mortgage interest payments, etc). Major Project Program Cost Estimating Guidance can be located on the Major Projects website ( The total cost of the project should be presented as the sum of the costs for each major segment and element of the project. This section should include a narrative describing the assumptions used to arrive at the cost estimates.

All costs should be presented in "year of expenditure" dollars [2], as it is important that the Financial Plan be consistent in presenting both costs and revenues in comparable dollars.

2. Implementation Plan

This portion of the Financial Plan should present the schedule for completing the project. In compiling this schedule, estimated expenditures must be covered by projected revenues. The plan should show the schedule for both the initial financial plan that was established and the latest annual update. The methodology including assumptions for future inflation, cost escalation, etc. and reasonableness of the cost estimate should be described. In developing the implementation plan, the sponsor should discuss the likelihood and possible impacts on the implementation plan from a wide array of potential future cost and or revenue changes. For instance, cost changes might result from unforeseen environmental and subsurface conditions, inflation, litigation, technology/innovations, contractor problems, overtime costs to adhere to the schedule, changes in governmental rules impacting the project, value engineering savings, etc. Revenue changes could result from lower than expected toll or tax collections, or a diversion of funds to other projects on the Statewide program, etc.

3. Financing and Revenues

The plan should describe all funding sources for the project and should clearly describe these funds as committed, or anticipated amounts, with an evaluation of the likelihood of anticipated amounts being realized. It should be noted where the funding sources are identified in the fiscally constrained STIP/TIP/Long Range Plan of the State.

Federal funds should be described by funding category under existing legislation and as potential amounts under future legislation. Projected expenditures of Federal-aid funds should be constrained by anticipated annual limitations on Federal-aid fund obligations.

If special funding techniques such as advance construction are to be utilized, the plan should include estimated annual conversion amounts.

Any portions of the project that are likely to be funded with funds other than Federal-aid should be presented. The amount and sources of revenue for the non-Federal share should be clearly discussed. If the availability of these funds is limited to certain parts or phases of the project, then those limits should be explained. The financial plan should never assume that there would be future discretionary allocation made for the Project. If and when discretionary allocations are enacted, they may be included in the Project revenue at the time of the next Annual Update.

The plan should address the potential for unanticipated changes in expected revenue and the impact on the project. Such changes might include delays or decreases in receipt of project funding, reductions in user fees earmarked for the project, changes in governmental rules impacting the project, etc.

4. Cash Flow

The key feature of this section is to demonstrate that revenue will be available to permit annual project fund obligations and expenditures as presented in the Implementation Plan consistent with the STIP/TIP/Long range Plan.

The plan should include an annual schedule of cash needs versus available cash to meet those needs. This will demonstrate that the project payout schedule for payments to construction contractors and others can be met. The cash flow analysis should extend through the point that all project expenditures have been met, and all Advance Construction conversions have been completed.

5. Risk Identification and Mitigation Factors

This section should discuss the risk analysis done for the Project. It should identify risks to project completion and revenue sufficiency. Identification of those risks and the potential mitigation actions should be described.

Major projects will significantly impact the capital program of the Project Owner, thus the Financial Plan for the project should be coordinated with the statewide long range transportation plan and the Statewide Transportation Improvement Program. This coordination will evaluate the impact to the transportation capital program in the State during the period of analysis covered by the Financial Plan.

All special project cost containment strategies being used or planned for later use should be described. These might include design-to-estimated cost for individual project elements (i.e., limit design so as not to exceed a target construction cost), design-build, use of cost control teams, management cost control strategies, vendor participation via warranties or guarantees, value engineering, incentive and disincentive clauses, etc.

The plan should describe the major responsibilities, financial and otherwise, of the various parties involved in the project and contain evidence of agreements or commitments.

The plan should describe any special or unique agreements, laws, rules, or regulations in addition to NEPA and Title 23, to which the project is subject. These could include compliance with Federal or State project-enabling legislation, financial agreements and covenants, accounting system reports and audits, etc.

If pertinent, the plan should discuss the liability for subsequent operation and maintenance costs as segments of the project come on line. On some major projects the opening to traffic of a segment of the project (for example, a tunnel or complex traffic management system) could require significant operational resources while other elements of the project are not complete and still require significant construction expenditures.

Generally, financial plans will not be approved if they include a State or local revenue source requiring future legislative action. This does not refer to the annual or biennial budgetary process used by most States. When the plan call for mechanisms other than existing revenue streams to meet the non-Federal revenue needs or to meet cash flow demands, the likelihood of implementing the mechanisms must be thoroughly analyzed. This would apply to mechanisms such as new taxes, future toll increases not currently authorized, contributions from third parties, and short or long-term borrowing. The analysis must address whether authority exists to pursue the mechanisms or must be granted through legislation or other means. In evaluating this portion of the finance plan the Federal interest will be in the likelihood of realizing the non-Federal revenues and cash flow as opposed to the choice of mechanism.

The initial submission of the plan will identify the schedule for the future annual updates. It may be advantageous to time the submission of these updates to coincide with the beginning of either the State's fiscal year or the Federal fiscal year rather than the anniversary of the approval of the Initial Financial Plan. If the plan is updated on a schedule that does not correspond to the Federal fiscal year, it will be permissible to display the Federal-aid obligations and expenditures on a Federal fiscal year basis.

The Annual Updates

Each annual update of the Financial Plan should be presented both in total cost (actual cost to date) and cost-to-complete estimates (shown in year of expenditure dollars). These updates should use the same project elements or segment breakpoints to present the cost and revenues as used in the initial Financial Plan estimate. Any significant change in the total project cost or revenue since the last estimate should be clearly presented and the major reasons for these significant changes should be provided. The update should be organized as follows:

Each of the 5 Main Sections should be updated to reflect any changes that have occurred since the approval of the IFP. The following areas should be addressed and incorporated into the appropriate section of the Annual Update

Cost and Revenue History

The presentation should clearly summarize significant cost and/or revenue changes from the Initial Financial Plan estimates and discuss the reason(s) for these changes. Any identified or potential funding shortfall should be discussed in detail along with the steps that have been taken, or will be available if needed, to deal with them. As appropriate, the Update should discuss mitigating measures that increase project funding and/or reduce project costs, including changes in project scope and design that were undertaken specifically in response to revenue shortfall. Significant changes in project scope should also be discussed and their impact on project costs, both to date and in the future, should be explained. Where appropriate, Financial Plan updates should track project milestones and compare initial cost and revenue estimates to the actual costs and revenues at these milestone points.

Cost and Revenue Trends

This discussion should clearly identify the trends that have impacted project costs and revenues in the past year(s), discuss the probable reasons for these trends, and assess the implications of the trends during the remainder of the project. This may be as simple as identifying a change in the anticipated rate of inflation, the availability of materials, the cost of supplies, or the wages paid to project personnel; or as complicated as assessing changes in the competitive arena which have impacted construction bid prices. For each of the trends identified, the Annual Update should discuss the implications of those trends during the remainder of the project and explain any adjustments that have been made to the Financial Plan in consideration of those trends.

Summary of Significant Cost Reductions

A listing of those changes that have reduced the cost of the project by at least $10 million should be presented. These should be presented individually, showing the original cost estimate, the reduced actual or projected cost, and a brief explanation of how or why the reduction was achieved. These changes should be presented by element and include any scope changes made to the Project.

Summary of Significant Cost Increases

There should be a detailed listing of those items that have increased the cost of the project by at least $10 million. These should be presented individually, showing the original cost estimate, the increased actual or projected cost, and a brief explanation of why the increase was necessary. In compiling this list, those increases in cost should be grouped by element and/or changes to the project scope.


  • Attachment A - Summary of AICPA "Guidelines for Preparation of Financial Forecasts"
  • Attachment B - Sample Letter of Certification
  • Attachment C - Financial Plan Checklist
  • Attachment D - Example Financial Plan Displays ( Note: The attachment "D" example is not intended to represent the same detail or the same depth of analysis as would be expected in an actual Financial Plan. Rather, its purpose is to introduce examples of the types of displays that would be useful in presenting typical financial plan data.)


1. For the purposes of this document an Element is a category of work, which will be conducted on some, or all of the segments (i.e. design, construction, etc.), while a Segment is portion of the overall project which can be defined by physical limits (i.e. an interchange or bridge).

2. Year of expenditure dollars are dollars that are already adjusted for inflation. For example, if two identical items each have a current value of $1000, it may in fact, cost $1,000 to purchase one of them in the first year of a project, while it is estimated to cost $1,200 to purchase the other in the fourth year of a project. Using year of expenditure dollars the total cost of these two purchases should be shown in the Initial Financial Plan as $2200. In some cases financial analyses will attempt to show the present value of a future stream of revenues and expenditures by converting all figures to a base year's dollars using an assumed discount rate. This method can present a misleading picture of future costs and is not recommended for presenting cash flows in financial plans.

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