House Transportation Subcommittee on Allocation of Funds for Highway Construction

September 19, 2002
Stratford Hall Plantation

Auditor's Briefing

The subcommittee heard a briefing from the Office of the Auditor of Public Accounts summarizing the salient findings of the auditor's "Special Review of Cash Management and Capital Budgeting Practices, Virginia Department of Transportation," transmitted to the Governor and the Joint Audit and Review Commission (JLARC) on July 8, 2002. The key point of these remarks was that the lack of cash-flow management by the Virginia Department of Transportation (VDOT) had been a major cause of recent massive reductions in VDOT's six-year construction plan.

The auditor drew particular attention to VDOT's failure to match its construction program to funding commitments. Trifurcation of transportation revenue forecasting among VDOT, the Department of Motor Vehicles, and the Department of Taxation has compounded this problem, as has VDOT's overestimation of federal revenues by budgeting for "full apportionment authority" rather than "obligation authority," resulting in a 13 percent overestimation of federal revenues. The use of FRANs (federal revenue anticipation notes) to provide current resources to fund construction has exacerbated the situation by making VDOT's cash flow difficulties even more problematical for the future.

The auditor suggested that a "disconnect" between VDOT project payouts and cash in-flow was a serious defect that might be remedied, at least in part, through VDOT's development of a fully "financially constrained" six-year construction plan (i.e., one in which projects are closely tied to reasonably foreseeable revenues). It was suggested, too, that VDOT (and the General Assembly) might consider establishing a "rainy day fund" for transportation projects, to cover unforeseen declines in revenues or unanticipated costs.

VDOT Response

Two VDOT officials assured the members that the department was aware of the deficiencies identified in the report of the Auditor of Public Accounts and was aggressively pursuing many of the suggested remedies. Some of the auditor's suggestions will require action (or at least authorization) by the General Assembly. The department will make a progress report to the legislature, detailing its implementation plan and identifying those issues that would require General Assembly action. The Transportation Research Council is studying models and processes employed in other states to prioritize transportation construction projects. The success of any such approach, however, is dependent upon good-quality, timely data.

Summaries of the formulas presently used to allocate transportation construction funds were distributed (see the Legislative Record, June 2002, pages 15–17). In response to inquiries from several members, it was pointed out that the secondary highway system construction program receives funding both from the so-called "dirt road fund" and from the general allocation formula. As to the impact of debt service (particularly that associated with the issuance of FRANs), under the Virginia Transportation Act of 2000 (Chapters 1019 and 1044 of the Acts of Assembly of 2000), debt service is proportioned, for highway projects only, among the several highway construction districts in proportion to the cost of FRANs-financed projects in each district. The burden of debt services thus falls primarily on the interstate and primary system (and projects funded through the Priority Transportation Fund). In the construction plan adopted in December of 2001, some construction projects were included for which no money whatsoever had been allocated.

The Commonwealth Transportation Board has changed the rates at which cities, towns, and Arlington and Henrico Counties receive maintenance (and, in the case of Arlington and Henrico Counties, payments for secondary system construction) under authority contained in the General Appropriation Act, and the Attorney General's Office had raised no objection to this procedure.

Discussion

House Appropriations Committee staff led a general discussion of transportation-related recommendations from the Auditor of Public Accounts, the Commission on Transportation Programs ("Klinge Commission"), and the most recent JLARC studies of Virginia's highway program ("Equity and Efficiency of Highway Construction and Transit Funding" and Adequacy and Management of VDOT's Highway Maintenance Program"). The following general subjects were discussed, but no specific course of action or subcommittee recommendation was agreed upon:

Changing the number and boundaries of VDOT highway construction districts;
Changing the number and method of appointment of members of the CTB to reflect changes in the number of highway construction districts (with the General Assembly selecting the at-large members);
Combining funding of secondary system construction allocations with allocations from the "dirt road fund" in a single allocation usable as localities see fit;
Establishing a separate bridge fund to finance replacement and/or rehabilitation of bridge structures;
Establishing a weighting system to identify and rank-order priorities of highway construction projects statewide;
Establishing criteria for and limitations on the use of FRANs to finance transportation construction projects;
Allocating funds directly to localities for use on highway maintenance projects at their discretion; and
Replacing the present primary (and interstate) highway system, secondary highway system, and urban highway system with a statewide highway system, regional highway system, and local highway system.

Auditor of Public Accounts

In reply to a question from Chairman Rollison, Walter J. Kucharski, the Auditor of Public Accounts, summarized three actions the General Assembly could take to improve the Commonwealth's transportation program: (i) set a long-term limit on the amount of debt that can be issued, secured by the Transportation Trust Fund, (ii) hold the CTB and VDOT accountable for carrying out the six-year transportation improvement plan, and (iii) hold members of the CTB personally liable for spending state revenues in the same way the members of "supervisory boards" are presently held liable (without specifically designating the CTB as a "supervisory board").

With respect to a statewide emphasis for the six-year improvement plan, the Auditor showed how larger and larger projects (such as the Wilson Bridge, the "Mixing Bowl" Interchange, or the Third Crossing of Hampton Roads) tend to make the allocation system "lock up." Funding these megaprojects "off the top" would prevent this condition. He conceded that this approach would apply only to highway projects, but stressed the need for a starting point.

Chairman:

The Hon. John A. Rollison III

For information, contact:

Alan B. Wambold
Division of Legislative Services

THE RECORD