U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
Publication No. FHWA-PL-17-011
Chapter 2 described the foundation for the Federal-aid Highway Program (FAHP): the authorization act. This chapter covers the two different ways in which FHWA distributes the funds authorized for the FAHP’s various constituent programs: apportioning funds by statutory formula and allocating funds on some other basis. This includes a discussion of various topics that affect the distribution of these funds, such as penalties and set-asides.
This chapter also describes two general budget controls that apply (in selected circumstances) to the FAHP: rescission and sequestration. For a discussion of a third type of budget control, the obligation limitation, see Chapter 5.
Characteristics. Historically FHWA has referred to an “apportionment” as the distribution of funds using a formula provided in law. An apportionment is usually made on the first day of the Federal fiscal year (October 1) for which the funds are authorized. At that time, FHWA makes the funds available for obligation by the State in accordance with Federal law.
Each year, FHWA issues an apportionment certificate for the FAHP, generally to the State transportation agency. The certificate officially notifies the State of the new funding available to it for each program. As described earlier, this funding is contract authority, not cash, and represents Federal budgetary resources that are eligible to be paid to the State. Chapter 6 describes the process through which the Federal government eventually pays cash to liquidate an obligation of contract authority.
Once FHWA makes an apportionment to a State, there are typically only two situations in which FHWA may withdraw the funding. The first is a statutory rescission—an action by Congress that is described later in this chapter. The second is if the funding lapses. Lapsing of funding is described in Chapter 4.
Overview of apportionment. For much of the life of the FAHP, Federal law set a formula for each apportioned program, and each State received a total Federal apportionment equal to the sum of its apportionments under each of these program-specific formulas. This paradigm shifted under MAP-21. MAP-21 instituted a one-formula process, in which FHWA:
The FAST Act maintained MAP-21’s general approach to apportionment. As under MAP-21, the FAST Act authorized a single combined national amount for each year for all the apportioned highway programs: the National Highway Performance Program (NHPP), Surface Transportation Block Grant Program (STBG), Highway Safety Improvement Program (HSIP), Railway-Highway Grade Crossings Program (funded via a set-aside from each State's HSIP apportionment), Congestion Mitigation and Air Quality Improvement Program (CMAQ), Metropolitan Planning Program, and a new National Highway Freight Program (NHFP). Similarly, as under MAP-21, apportioned funds account for the overwhelming majority (in this case, 92 percent) of all FAST Act highway funds. Of this combined amount, FHWA calculates the share of funding to apportion to each of the States. In some cases, FHWA modifies those shares slightly, based on States’ relative contributions to the HTF; for more on this, see the discussion of “Attribution to the States and the question of ‘equity’” in Chapter 7. After determining each State’s share, FHWA then divides that amount among the individual apportioned programs
Appendix C provides additional detail on this process.
Penalties. In order to enforce certain national priorities, Congress has established a number of statutory penalties. If a State fails to comply with a required provision of law, these penalties allow, and in some cases require, the Secretary to take action that prevents a State from receiving or using its full apportionment. Potential penalties include the following:
Withholding of apportionments. Federal law requires FHWA to withhold a specified share of the apportionment from any State that fails to meet certain requirements, such as minimum drinking age, zero blood alcohol concentration (BAC) tolerance for minors, and commercial driver’s license provisions. For funds that are withheld, there may be a specific period of time by which the State must come into compliance before the withheld funds will lapse. In some cases the lapse occurs immediately. (See the discussion of lapsing in Chapter 4.).
Transfer of apportionments. Another type of penalty situation requires FHWA to transfer a portion of the noncompliant State’s apportionment to another program within the State. An example is the requirement to transfer funding from STBG to NHPP if a State fails to maintain minimum Interstate pavement conditions.
Dedication of apportionments. In some cases, FHWA must set aside a portion of a noncompliant State’s apportionment, to be obligated only for the projects that will help bring the State into compliance. An example of this type of action is the set-aside of NHPP and STBG funds if a State is not in compliance with bridge and tunnel inspection standards.
Suspending use of apportionments or project approval. FHWA may also impose a penalty on funds that it has already apportioned. For example, if a State fails to properly maintain a project financed with Federal-aid funds, FHWA may freeze (refuse to allow) project approvals in that State.
Appendix D provides a complete list of penalties associated with FHWA programs.
Set-asides. Federal highway law requires States to use certain sums of their apportionments only for special purposes.
State planning and research (SPR). Two percent of a State’s NHPP, STBG, HSIP, CMAQ, and NHFP funds may only be used for planning and research activities. One-fourth of this amount must be used for research, development, and technology transfer unless the State certifies that transportation planning expenditures will require more than 75 percent of the SPR amount (and the Secretary accepts the certification).
Transportation Alternatives (TA). FHWA sets aside a portion of each State’s STBG apportionments to fund TA. Under MAP-21, Federal law and FHWA referred to this program as the “Transportation Alternatives Program,” or “TAP.”
Off-system bridges. Bridges that are not located on Federal-aid highways are sometimes referred to as “off-system bridges”. Federal law requires FHWA to set aside for these bridges an amount of a State’s STBG apportionment equal to 15 percent of the State's fiscal year (FY) 2009 Highway Bridge Program apportionment. FHWA may waive or reduce this requirement if it determines that this expenditure is unnecessary in a particular State. 
In addition to these statutorily-required set-asides, the FAST Act authorizes the Governor of a State with an international land border, at his or her discretion, to reserve a specified portion of the State’s STBG funding for border infrastructure projects.
Further distribution. To promote the fair and equitable use of funds and to meet certain priorities, States are required by law to further distribute some programs within the State.
Suballocation of Surface Transportation Block Grant Program funds. After applying the SPR and TA set-asides, FHWA is required by law to reserve a specified percentage of a State’s remaining STBG funds for use in the following areas, in proportion to the relative share each area constitutes of the State’s population:
- Urbanized areas of the State with a population greater than 200,000 (further suballocated to each such area within a State based on the population of the area);
- Areas of the State with a population of 5,001 to 200,000; and
- Areas of the State with a population of 5,000 or fewer.
Under the FAST Act, this specified percentage varies by year (51 percent in FY 2016; 52 percent in FY 2017; 53 percent in FY 2018; 54 percent in FY 2019; 55 percent in FY 2020). The remaining STBG funds (including the off-system bridge set-aside) may be used anywhere in the State.
Appendix E outlines the flow of funds for STBG.
Suballocation of Transportation Alternatives funds. After TA funds are apportioned to a State, the State may either use part of its TA apportionment to fund the Recreational Trails Program or “opt out” of the Recreational Trails set-aside. A State that chooses to fund Recreational Trails must set aside for that purpose an amount equal to its FY 2009 Recreational Trails apportionment.
After accounting for the Recreational Trails set-aside, FHWA reserves 50 percent of a State’s remaining TA funds for use in the following areas, in proportion to the relative share each area constitutes of the State’s population:
- Urbanized areas of the State with a population greater than 200,000 further suballocated to each such area within a State based on the population of the area;
- Areas of the State with a population of 5,001 to 200,000; and
- Areas of the State with a population of 5,000 or fewer.
The remaining 50 percent of TA funds may be used anywhere in the State.
Appendix F outlines the flow of funds for TA.
Disadvantaged Business Enterprises. Unless the Secretary determines otherwise, not less than 10 percent of the FAST Act authorizations for highway, transit, and research programs must be spent with small business concerns owned and controlled by socially and economically disadvantaged individuals.
Transferability. States may have varying needs or priorities in the use of Federal-aid highway program funds. In recognition of this, Federal law provides flexibility by permitting States to make transfers among certain apportioned highway programs.
Under 23 U.S.C. 126, a State may transfer up to 50 percent of its funding under any apportioned program to any other apportioned program, with some exceptions. Appendix G contains a list of transfers and exceptions.
For ease of administration, the law also allows States to request that the Secretary transfer funds among entities (e.g., between FHWA and the Federal Transit Administration, and from one State to another or to FHWA to fund one or more eligible projects). In these instances, the transferred funds are still used for the original purpose; they are just administered by a different entity.
The distribution of Federal-aid highway funding on any basis other than a statutory formula is called an allocation. FHWA may make an allocation at any time during the fiscal year (as compared to apportionments, which FHWA, by law, makes on October 1). The FHWA also retains some funding, for example, funds for the agency’s administrative expenses and some research activities.
In most cases, FHWA divides allocated funds among States (or other eligible entities) for qualifying projects based on criteria provided in law. Some allocations are made entirely according to provisions in the law. Others, such as the FASTLANE grant program, authorize the Secretary to make discretionary grant awards to eligible recipients. Because of the limited funding for these programs, not every State will receive an allocation in a given fiscal year. If a State receiving an allocation does not use it within a specified period of time, FHWA may withdraw the funds by administrative action and reallocate them to other States.
Allocated programs and funding retained by FHWA combine to account for approximately 8 percent of FAST Act highway funding. Appendix B lists these programs (and apportioned programs, as well).
Prior to MAP-21, Congress frequently directed FHWA to allocate specific amounts of funding to particular projects, a practice known as “earmarking.” Congress did this either in legislative language, or by including statements of congressional intent in the committee reports that accompanied the legislation. For example, in SAFETEA-LU, enacted in 2005, Congress directed funding to individual projects under programs such as High Priority Projects and Transportation Improvements. In more recent years, House and Senate rules have prohibited earmarking. As a result, neither MAP-21 nor the FAST Act contained highway earmarks.
Through legislation, Congress may cancel an unused balance of previously authorized funds. This is called a rescission: a reduction in law of budgetary authority before that authority would otherwise expire. For example, Congress has required rescissions under a number of surface transportation authorization acts.
SAFETEA-LU. When SAFETEA-LU was enacted in 2005 it included a provision directing FHWA to rescind $8.5 billion in States’ unobligated highway apportionments on the last day of the Act (September 30, 2009). Prior to the rescission taking effect, Congress twice modified this requirement through later-enacted laws, and FHWA ultimately rescinded $8.7 billion in September 2009. Notably, in March 2010 Congress restored the rescinded amounts through yet another law, and FHWA returned the funding to the original apportionments.
FAST Act. The FAST Act included a provision directing FHWA to rescind $7.6 billion in States’ unobligated highway apportionments on July 1, 2020.
In recent years, Congress has also enacted rescissions in appropriations acts. Some of these rescissions have targeted particular programs or categories of programs—for example, rescissions of prior-year earmarked funding, or of unobligated prior-year highway apportionments (similar to the rescission in SAFETEA-LU). Other appropriations acts have rescinded funding via across-the-board cuts. Congress uses these cuts to bring the total amount appropriated in all the appropriations acts for the fiscal year into line with the overall amount agreed to in the budget resolution, or with some other spending target. The specifics of the cuts have varied.
Once funds are eliminated (by any mechanism) they cannot be obligated.
Sequestration is the cancellation of budgetary resources under a presidential order (but based on a legal requirement). Sequestration occurs when spending exceeds a limit or target amount and there is an across-the-board reduction in spending. Congress has required sequestration under four different acts:
Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA). The BBEDCA, often called Graham-Rudman-Hollings for its Congressional authors, was enacted to set out a process for achieving a balanced budget by FY 1991. The BBEDCA established a maximum deficit for each of FYs 1986-1991, with a target of no deficit in 1991. At the time, it was anticipated that Congress would act to ensure that the deficit targets would be met each year. Nonetheless, BBEDCA provided for sequesters to enforce the maximum deficit target, should Congress fail in that regard.
Under BBEDCA, half of any necessary cuts were required to be from defense spending and half from domestic spending, with the cuts applied proportionally across the covered programs, projects, and activities. For FHWA, cuts applied to most programs, including both appropriated budget authority and contract authority, obligation limitation (including the limitation on general operating expenses), and the loan limitation for the Right-of-Way Revolving Fund. In FYs 1986 and 1990, the Federal budget deficit targets were exceeded. In response, the President issued a sequester order for each of these years, reducing domestic spending (including highway spending) by 4.3 percent for FY 1986 and 5.3 percent for FY 1990.
The Budget Enforcement Act (BEA) of 1990. The BEA amended BBEDCA, replacing the deficit targets with caps on Federal discretionary budget authority and outlays and “pay-as-you-go” requirements which required that Congressional actions affecting mandatory spending or revenues be at least deficit-neutral. Contract authority from the HTF is considered mandatory (rather than discretionary) spending, so Federal-aid highway contract authority was exempt from sequestration to enforce the discretionary caps. However, obligation limitations for HTF programs were subject to sequester under the caps.
The discretionary cap was exceeded for FY 1991, requiring the President to issue a sequester order with an across-the-board reduction of 0.0013 percent of domestic discretionary accounts. That order reduced obligation limitations for the FAHP by approximately $200,000.
The BEA’s discretionary caps continued through FY 2002, and the pay-as-you-go requirements continued through FY 2006, but no further sequesters took place. In several instances during those periods, a sequester would have occurred under the discretionary limits and pay-as-you-go requirements. However, Congress prevented the potential sequesters through separate legislation.
The Pay-As-You-Go (PAYGO) Act of 2010. In 2010 and 2011 Congress passed two laws that re-enacted budget controls. The first of these was the PAYGO Act of 2010, which amended BBEDCA to re-establish pay-as-you-go requirements on legislation affecting mandatory spending and taxes, with sequestration of mandatory budget authority as an enforcement tool.
The PAYGO Act of 2010 exempted from its sequestration requirements a number of programs funded with contract authority from a trust fund, as long as the contract authority was subject to an obligation limitation. This exemption protects the vast majority of Federal-aid highway funding from sequester. However, two elements of the FAHP are subject to sequester under the PAYGO Act because they are exempt from obligation limitations:
Additionally, transfers to the HTF to maintain its solvency are considered mandatory, and are therefore also subject to sequestration under the PAYGO Act.
The Budget Control Act (BCA) of 2011. The second of the recent acts to re-establish budget controls was the BCA of 2011. The BCA re-established annual caps on discretionary budget authority, with sequestration of such budget authority if the caps are exceeded. The FAHP is funded primarily with contract authority, which falls on the mandatory side of the budget. However, supplemental appropriations from the General Fund for the ER Program (beyond the $100 million of annual contract authority) fall on the discretionary side of the budget and are subject to sequester if the discretionary caps are exceeded.
Congress also included a provision in the BCA of 2011 to create the Joint Select Committee on Deficit Reduction, often referred to as the “Super Committee.” The Committee was to propose legislation to reduce the deficit by $1.5 trillion over the period of FY 2012 through 2021. If the Committee was unable to reach agreement on a proposal, or if Congress failed to enact the legislation, the BCA would impose a special one-time sequester in FY 2013, followed by annual sequesters in each of FY 2014 through 2021. Subsequent laws extended this sequester requirement through FY 2024. As with the PAYGO Act of 2010, these sequesters would exempt contract authority subject to an obligation limitation—protecting the vast majority of the Federal-aid highway program from sequestration.
The Super Committee failed to reach agreement by the required deadline, triggering the BCA’s sequester mechanism. For FHWA this has, to date, led to the sequestration of the amounts indicated in Table 3.