Federal funding for surface transportation projects occurs mostly through the federal aid highway program. Under the program, the federal government distributes money to states for the construction and improvement of urban and rural highway systems and for transit system capital expenditures. The program is funded from proceeds of the federal motor-fuel tax, the federal heavy vehicle use tax, and federal motor carrier excise taxes (on truck and trailer sales and tires) collected in the Federal Highway Trust Fund (HTF) and in the Mass Transit Account within the HTF. On federal aid projects, although the federal government provides much of the funding, the state or local government retains some control. A state develops a plan that is in accordance with federal regulations, signs contracts and supervises construction. Operation and maintenance of the roads or facilities remain under state or local administrative control.
The Federal Highway Act of 1956 established the HTF, and subsequent reauthorizations established formulas for apportioning surface transportation funding to the states. For most programs, states must match a portion the federal money; 80 percent of the federal aid project is paid for with federal money, and 20 percent is paid by non-federal sources.
In 2005, Congress passed the highway funding reauthorization bill, known as the Safe, Accountable, Flexible, Efficient Transportation Equity Act-A Legacy for Users (SAFETEA-LU). The bill authorized $286.5 billion in federal funding for federal aid highway, transit and safety programs through 2009 and granted $295 billion in contract authority. The bill increased the average annual federal funding to states for highway projects by approximately 30.3 percent above the amount in the previous transportation bill and the average annual transit funding to states by approximately 45 percent over the previous legislation.4 SAFETEA-LU authorized $241 billion for highways and $52.6 billion for transit programs.
An aspect of SAFETEA-LU that attracted media attention was the amount earmarked by federal lawmakers for specific transportation projects in their home jurisdictions. The bill contained a record 6,372 earmarked projects that totaled $24.3 billion-5,671 earmarked highway projects that totaled $22.1 billion, and 701 transit projects that cost $2.1 billion. The bill included $14.8 billion for "High Priority Projects" and $7.3 billion for "Transportation Improvements," "Projects of National and Regional Significance," "National Corridor Infrastructure Improvements" and other specific earmarks. The earmarks actually totaled less than 10 percent of the funding contained in the entire bill.5
SAFETEA-LU also created several new pilot tolling programs and amended other existing federal highway tolling mechanisms that will have implications for states' ability to fund highway projects and manage existing infrastructure. Changed policies include a new pilot project that allows some tolls on interstate federal aid highways to fund highway construction; continuation of another tolling pilot program to fund reconstruction and rehabilitation; continuation of a value pricing pilot program that allows jurisdictions to charge tolls based on congestion levels; and a new Express Lanes Demonstration Program that will allow a total of 15 demonstration projects through 2009 to permit tolling to manage high levels of congestion, reduce emissions in a nonattainment or maintenance area, or finance added Interstate lanes for the purpose of reducing congestion.
Federal law also provides states with several options for financing or borrowing money to pay for surface transportation projects. These tools, known as innovative financing mechanisms, allow states to borrow or leverage federal money to accelerate completion of surface transportation projects. Federal innovative finance mechanisms (described in more detail in chapter 5 of this report) include the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, Grant Anticipation Revenue Vehicles (GARVEES), State Infrastructure Banks (SIBS), Section 129 Financing, and other programs.
To receive federal funds for transportation projects, states must abide by federal regulations. Under joint planning regulations developed by the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA), states must develop a long-range transportation plan (LRTP) that must cover a period of at least 20 years. The plan must be intermodal and consider connections between rail, commercial motor vehicle, waterway and aviation facilities. It also must be statewide in scope to best facilitate the efficient movement of people and goods.6 The plan must consider bicycle and pedestrian needs, coordinate with metropolitan transportation plans, and consider various planning studies. In carrying out the plan, a state must cooperate with metropolitan planning organizations (MPOs) and tribal governments and provide for public involvement. The plan must be fiscally constrained.
States also must develop a statewide transportation improvement plan (STIP) that covers a period of not less than three years.7 The STIP must list priority projects to be carried out and be consistent with local transportation improvement plans (TIPs) and the statewide LRTP. The STIP must conform to other federal regulations, be financially constrained and contain all capital and noncapital transportation projects proposed for funding. For each project listed in the STIP, the state must describe the project and provide detailed information about cost and funding, including the estimated total cost, the amount of federal funds proposed to be obligated toward the project, and nonfederal sources of funding for the project. At least every two years, each state must submit its entire STIP and amendments to FHWA and FTA for joint approval, which is required for the state to receive federal funds.
In many states, the legislature has minimal involvement with federal-aid transportation funds. On such transportation projects, the federal government operates on a reimbursement basis, paying states only for the federal share of costs actually incurred. States generally start a federally assisted project with their own funds and must draw on a federal line of credit and obligate it to a project. States receive cash from the federal government by submitting vouchers for reimbursement over the course of the project. In most states, mechanisms are in place that allow funds to be transferred directly to a state transportation account without legislative appropriation.