Skip to contentUnited States Department of Transportation - Federal Highway AdministrationSearch FHWAFeedback


FHWA Financial Plan Guidance: Attachments

MAY 2000


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." The act requires 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.

Projects costing over $1 billion (Mega Projects) are often implemented over a number of years and may involve numerous individual elements and segments1. These project segments may or may not have independent utility. Thus a decision to initiate a Mega Project may require a commitment of significant future financial resources in order to achieve the transportation benefits of the initial investment.

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 and revenue performance in comparison to initial estimates as well as updated estimates of future years 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.


A Financial Plan is a comprehensive document which reflects the cost (requirement) and revenue structure (capability) of a project and provides a reasonable assurance that there will be sufficient financial resources available to implement and complete the project as planned. Identified funding shortfalls should be highlighted along with proposed resource solutions.

In essence, a Financial Plan provides a description of how a Mega 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.

Which Projects Must Have a Financial Plan?

Financial plans must be prepared for all Federal-aid (Title 23) projects with an estimated total cost of $1 billion or more. This threshold should be measured in year-of-expenditure dollars (also called nominal dollars) and be applied to projects reasonably expected to cost at least $1 billion. A "project" would generally be defined as that work described in the environmental document with independent utility between logical termini. A project could comprise several segments, and each segment could be constructed by one or more construction contracts. If there are questions concerning the application of this definition to a particular project, the Division Administrator (DA) should consult with the Major Projects Team2 prior to making a final determination.

In the case of Mega Projects funded jointly by FHWA and FTA it is expected that the State Transportation Department (STD) will submit a single Financial Plan meeting the requirements of both agencies. The Major Projects Team will assist in coordinating with FTA to reach this goal.

Although financial plans are required for only those projects estimated to cost over $1 billion, STDs may find it advantageous to prepare a financial plan on other very large, complex projects. For projects estimated to cost less than $1 billion, the following factors may indicate that a financial plan would be advisable: Total project cost is greater than the State's current annual Federal-aid apportionment, construction expenditures extend beyond the time frame of the STIP, and/or annual construction costs exceed 50 percent of the STD total construction budget.

When Should The Financial Plan Be Prepared?

The Initial Financial Plan

The Initial Financial Plan should be prepared as early in the project development process as practical. In some cases preparation of the financial plan could begin during the environmental phase; in others it could await issuance of the Record of Decision. Usually the Initial Financial Plan will be accepted by FHWA prior to right-of-way acquisition, but, in all cases the Initial Financial Plan must be accepted by FHWA before authorization of Federal-aid funding for project construction. On a design-build project the Initial Financial Plan must be accepted prior to FHWA concurrence in the issuance of a "Request for Proposal." If there are questions concerning the timing of the Initial Financial Plan acceptance by FHWA, the DA should consult with the Major Projects Team.

Annual Updates

Financial plans must be updated annually. The scheduled timing of the updates should be shown in the Initial Plan. These updates must reflect changes in total and remaining project cost and/or available funding. The update is to be submitted to FHWA for acceptance within 30 days of the date scheduled in the Initial 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. 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. The State's decision concerning the necessary scope of the reassessment contained in the updated plan is to be coordinated with the FHWA Division Office.


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 DA and the Major Projects Team.

State Approval

The content of the Initial Financial Plan and each Annual Update should be certified as "accurate and reasonable to the best of my knowledge and belief" and signed by the Chief Executive Officer of the STD prior to submission to FHWA. (See attachment B sample Letter of Certification)

FHWA Review and Acceptance

The Initial Financial Plan and each Annual Update will be submitted to the FHWA DA for review and acceptance. The DA will forward a copy of each document to the FHWA "Major Projects Team" for concurrent review and will consult with that team prior to making a formal response to the STD. Acceptance will be based upon an independent review conducted by the FHWA Division Office with the assistance of the Major Projects Team. The independent review will evaluate such items as; the reasonableness of the cost projections, the viability of the identified funding sources, 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.

Content of the Financial Plan

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

Annual Updates to the initial plan should include revisions to the five main sections mentioned above, and should also include sections covering: (6) the cost history of the project, (7) a presentation and analysis of cost and revenue trends that may result in additional funding needs or cost reductions, (8) 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), (9) a report on any significant reductions in cost during the past year and the potential for such reductions in future years, (10) a listing of significant increases in project costs both in the past year and projected for the future which would result in changes of $10 million or more as compared to the original estimated costs. The cost changes reported in sections 9 and 10 may be for any reason including changes in project scope or design, construction changes, and 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 plan.

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 obtain the design, right-of-way, environmental mitigation, construction, project management, insurance, etc. as well as costs and resources paid to others for work related to the project 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. see DOT Order 4600.17A for guidance on the inclusion of interest payments). The total cost of the project should be presented as the sum of the costs for each major segment (or element) of the project. This section should include a narrative describing the assumptions used to arrive at the cost estimates.

    It is recommended that all costs be presented in "year of expenditure" dollars,3 but whatever method is used, it is important that the Financial Plan be consistent in presenting both costs and revenues in comparable dollars. If significant portions of the project are not to be financed with Federal-aid funding, these portions should be identified in the Financial Plan. However, financial planning for both the federal-aid and non-Federal-aid portions of the project should be done in an integrated manner for the entire undertaking.

    (The Cost Estimate narrative will be supplemented with exhibits, see Exhibit 1(a) in attachment "D")

  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 year 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 State-wide program, etc.

    (The Implementation Plan narrative will be supplemented with specific time lines depicted in a graph or table format, see Exhibits 2(a) and 2(b) in attachment "D")

  3. Construction 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.

    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 which 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 are limited to certain parts or phases of the project, then those limits should be explained.

    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.

    (The Construction Financing and Revenues narrative will be supplemented with a graph showing the amount and source of all revenue as compared to the cost estimate for the project. Displays should show both the Initial and the Current Year estimates, see exhibits 3(a), 3(b), 3(c) and 3(d) in attachment "D")

  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.

    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.

    (The Cash Flow narrative will be supplemented with a graph comparing the cash flow needs with the availability of cash over the life of the project, see Exhibits 4(a) and 4(b) in attachment "D")

  5. Other Factors

    These projects will significantly impact the budget of the STD, thus the Financial Plan for the project should be coordinated with the statewide "long range plan" and the "Statewide Transportation Improvement Program." This coordination will evaluate the need for other projects in the rest of the State during the period of analysis covered by the Financial Plan and consider the impact of the subject project on the remainder of the State's program.

    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 accepted if they include a State or local revenue source requiring future legislative action. Should 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, 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 plans 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 should set 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. 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:

    Sections 1 through 5. These sections should be updated as necessary.

  6. Cost and Revenue History

    This section should clearly summarize significant cost and/or revenue changes from the Initial Financial Plan estimates and discuss the reason(s) for these changes. Significant changes in project scope should also be discussed here 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.

    (In addition to the discussion in this section, the pertinent information summarizing the cost and revenue history of the project should also be shown graphically, see Exhibit 6(a) in attachment "D")

  7. Cost and Revenue Trends

    This section of the Annual Update should clearly identify the trends which 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 the adjustments which have been made to the Financial Plan in consideration of those trends.

    (An example of a graphical display of cost trend data is shown in Exhibit 7(a) in Attachment "D")

  8. Revenue Shortfall Mitigation

    This section should discuss any identified or potential funding shortfalls in more detail and the steps which have been taken, or will be available if needed, to deal with them. If these steps include items beyond the direct control of the STD, such as the need for additional legislation or Bond Issuances, then the likelihood of enactment of such legislation should also be discussed. As appropriate, this section should also discuss mitigating measures which increase project funding and / or reduce project costs, including changes in project scope and design that were undertaken specifically in response to revenue shortfall.

  9. Summary of Significant Cost Reductions

    This section should consist of a detailed listing of those changes which have reduced the cost of the project by at least $10 million. These should be presented individually, showing the original cost estimate, the reduced actual (or projected) cost, and a brief explanation of how ( why) the reduction was achieved. In compiling this list, those reductions in cost due to changes in the project scope or design should be grouped separately.

  10. Summary of Significant Cost Increases

    This section should be a detailed listing of those items which 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 due to changes in the project scope or design should be grouped separately.

    (The significant cost reductions and increases shown in Sections 9 and 10 should be combined with all other cost reductions and increases and shown graphically in a comparison of the original cost estimate for the project with the current cost estimate for the project.)


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 which would be useful in presenting typical financial plan data.)

  1. For the purposes of this document a Segment is portion of the overall project which can be defined by physical limits (i.e. an interchange), while an Element is a category of work which will be conducted on some or all of the segments (i.e. construction management).
  2. FHWA has established a Headquarters Major Projects Team to assist with the oversight of all Federal-aid Mega-Projects. The team, managed by the Office of Infrastructure, consists of individual specialists available to assist the divisions on an as-needed basis.
  3. 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.


Peter Kleskovic
Office of Program Administration
E-mail Peter

Updated: 04/07/2011

United States Department of Transportation - Federal Highway Administration