[Federal Register: January 31, 2006 (Volume 71, Number 20)]
[Rules and Regulations]
[Page 4992-4996]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31ja06-5]
[[Page 4992]]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
23 CFR Part 630
[FHWA Docket No. FHWA-2005-20764]
RIN 2125-AF05
Project Authorization and Agreements
AGENCY: Federal Highway Administration (FHWA), DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The FHWA is revising its regulations relating to project
authorization and agreements and the effect on obligations of Federal-
aid highway funds under these requirements. The changes in this
rulemaking will assist the States and the FHWA in monitoring Federal-
aid highway projects and provide greater assurance that the Federal
funds obligated reflect the current estimated cost of the project. In
the event that Federal funds are de-obligated as a result of these
changes, those funds may then be obligated for new or other active
projects needing additional funding to the extent permitted by law.
EFFECTIVE DATE: March 2, 2006.
FOR FURTHER INFORMATION CONTACT: Mr. Dale Gray, Federal-aid Financial
Management Division, (202) 366-0978, or Mr. Steven Rochlis, Office of
the Chief Counsel, (202) 366-1395, Federal Highway Administration, 400
Seventh Street SW., Washington, DC 20590. Office hours are from 7:45
a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal
holidays.
SUPPLEMENTARY INFORMATION:
Electronic Access
An electronic copy of this document may be downloaded by using the
Internet to reach the Office of the Federal Register's home page at:
http://www.archives.gov and the Government Printing Office's Web page at: http://www.access.gpo.gov/nara.
Background
The FHWA currently funds more than 120,000 highway projects that
are administered by State and local governments. The amount of Federal
funds legally obligated (committed) to a project is generally based on
an estimate of the cost to complete the project. As a project
progresses, those costs may increase or decrease. The U.S. Department
of Transportation's Office of Inspector General has repeatedly found
that some States have failed to timely release Federal funds when
project estimates decrease or when projects are completed and no
additional expenditures are expected.\1\ The failure to take timely
action reduces the amount of Federal funds available to finance new
projects. The FHWA has worked with the States for many years to
identify projects where funds can be released and has recommended that
States adopt certain best practices to further the efficient use of
Federal funds. Nevertheless, in Fiscal Year 2005, the FHWA identified
over $750 million of Federal funds on inactive projects that could be
released, and in most cases reapplied to new projects. Because
substantial unneeded obligations continue to be identified, despite the
implementation of best practice procedures in many States, the FHWA
believes regulations are necessary to clearly define the
responsibilities and procedures for identifying and releasing these
funds. In addition, as a Federal agency, the FHWA is responsible for
maintaining valid obligations and must annually certify that the
amounts shown as obligated in its financial statements are accurate.
---------------------------------------------------------------------------
\1\ See DOT IG Report Number FI-2006-011, entitled, ``Inactive
Obligations, Federal Highway Administration,'' dated November 14,
2005, available at http://www.oig.dot.gov/item.jsp?id=1722.
---------------------------------------------------------------------------
The FHWA is revising its regulation relating to project agreements,
23 CFR 630, to establish a systematic process that will assist the
States and FHWA in monitoring projects, provide greater assurance that
the amount of Federal funds obligated on a project reflects the current
cost estimate, and ensure that funds no longer needed are de-obligated
in a timely manner. The new requirements included in the final rule are
consistent with Federal appropriation law principles requiring Federal
obligations to be based on a documented cost estimate and revised if
the estimate changes.\2\
The regulation will require the States to monitor projects and (1)
de-obligate Federal funds when the amount obligated exceeds the current
cost estimate by $250,000 or more, and (2) re-evaluate cost estimates
on inactive projects and release unneeded funds. The FHWA will revise
the Federal obligation amount if the State fails to take action as
required by the regulation.
---------------------------------------------------------------------------
\2\ See the ``Principles of Federal Appropriations Law, 3rd
Edition'' available at http://www.gao.gov/special.pubs/redbook1.html
.
---------------------------------------------------------------------------
Notice of Proposed Rulemaking (NPRM)
The FHWA published a notice of proposed rulemaking (NPRM) on July
11, 2005, at 70 FR 39692. In the NPRM, the FHWA proposed to (1) require
the de-obligation of Federal funds that remain committed to inactive
projects as well as require the de-obligation of excess funds not
needed for a project; (2) reduce the occurrences where Federal funds
are committed to inactive projects or where an obligation is in excess
of the amount needed to complete the project; (3) establish a project
completion date that would be added in all new project agreements and
in those cases where modifications are made to existing project
agreements; and (4) require States to assure that third party contracts
and agreements are processed and billed promptly when the work is
completed.
We received comments from 56 entities. The comments that were
received included; 37 State transportation departments (States), 10
local governments, four metropolitan planning organizations, two
companies, one individual representing five States, and two national
associations, the American Association of State Highway and
Transportation Officials (AASHTO) and the Association of American
Railroads (AAR).
Discussion of Comments by Section
General
Thirty commenters included a statement supporting the efficient use
of Federal funds and closing out projects. For example, AASHTO, which
represents the State transportation departments, expressed full support
for the goal of increasing the efficient use of Federal funds and the
timeliness of project close-outs, but expressed substantial concern
that the proposed provisions would be burdensome for the State and
local governments to implement. Comments from the TG Associates
expressed support for FHWA's commitment and efforts to foster fiscal
stewardship and improve financial management. Michigan DOT agreed that
adequate financial controls need to be in place to make certain that
all available Federal funds are used in a timely fashion for
transportation improvements, but was concerned about the ``one-size-
fits-all approach'' proposed in the NPRM. The County of Los Angeles,
California, agreed with the overall objective of the proposed changes
and stated that an increase in the collaborative efforts among the
FHWA, the States, and third-party agencies is needed to improve the
management of Federal funds.
Twenty-seven commenters expressed opposition to some or all of the
proposed changes. Among the reasons
[[Page 4993]]
given for those in opposition were that the unilateral action on the
part of FHWA to de-obligate funds is contrary to the cooperative
working relationship of the States and the FHWA, concern that a State
may lose funds, concern that the process would be burdensome for the
States, and States that currently manage funds effectively would be
penalized under a one-size-fits-all approach. AASHTO recommended that
the FHWA work cooperatively with the States to develop a rule that
works for all parties.
The FHWA has been working with the States for a number of years,
but these efforts have not resulted in a reduced level of unneeded
obligations on a national level. In our view, a consistent policy is
necessary for the States to clearly understand the level of effort
necessary to properly manage Federal funds. While some commenters were
concerned that the requirements would be burdensome, we believe that
the effective management of funds is a prudent government agency
business practice. The FHWA recognizes that some States may need to
apply additional resources to manage funds to meet the requirements of
this rule, but the result is that funds will be made available to
finance new or active projects that will benefit the State in meeting
its transportation needs. The regulation does not require the release
of any funds that are needed for a valid and current obligation.
There were some questions about the application of these new
requirements, i.e., would the requirements apply to all projects, and
how are projects defined? For example, the Arizona DOT recommended that
congressionally mandated projects be exempt from the proposed changes,
and the South Carolina DOT recommended that a State be allowed to
choose whether to define a project as the entire project or as a phase
of the project. The Tri-County Regional Planning Commission,
California, recommended that projects for statewide planning and
environmental studies be excluded from the proposed requirements.
The requirements established in the final rule apply to any project
for which the State and the FHWA enter into a project agreement under
Title 23 CFR 630, subpart A, which generally includes congressionally
mandated projects and planning projects. There is no basis to exempt
any project from the requirement to maintain a valid obligation. The
scope of the project is defined in the project agreement that is
initiated by the State and may include only a single phase of work,
such as design or construction, or may include multiple phases under a
single agreement.
Section 630.106
In the NPRM, we proposed to include section 630.106(a)(3) that
would have required the States to promptly (1) revise the amount
obligated on a project when the cost estimate decreases by $100,000 or
10 percent and (2) to adjust the amount obligated on inactive projects
that are expected to be inactive for 24 months.
Most of the commenters stated that modifying changes of ``$100,000
or 10 percent'' would require additional administrative effort by the
State and local agencies and would result in an inefficient use of
limited resources. Since project costs range from a few thousand
dollars to tens of millions of dollars, many of the commenters
recommended that different parameters be established. Recommended
parameters ranged from $200,000 to $500,000 and from 2 percent to 10
percent of project costs. For example, the Indiana Department of
Transportation (DOT) stated that a more workable solution would be to
change the threshold to $250,000. The Connecticut DOT and Maryland DOT
recommended parameters of $250,000 or 5 percent, whichever is greater,
and the Florida DOT recommended that projects with estimated costs of
$5,000,000 or less be exempt from the requirement.
We agree that the parameters should be changed to enable the States
to focus resources on significant sums of Federal funds obligated on
large-scale projects. Based upon the comments such as those mentioned
above, the FHWA is revising this provision to require a State to
maintain a process for revising cost estimates as required by Federal
appropriations law principles referenced in the Background section. As
a minimum, a State will be required to revise the Federal obligation
amount on a project within 90 days when the Federal share decreases by
$250,000 or more.
Most of the commenters recommended that the term ``promptly'' be
removed from the regulation or be specifically defined. The
Pennsylvania DOT stated that the term ``promptly'' could be interpreted
to require daily accounting and adjustment of Federal-aid obligations.
While the commenters did not suggest a definition for the term, we
agree that the term should be defined and have defined ``promptly'' as
being ``within 90 days after the State or local agency determines that
the costs have decreased.'' We believe that 90 days after the
determination that an adjustment to the obligation amount is needed is
sufficient time to process a modified agreement to adjust the
obligations.
The Michigan DOT stated that financial monitoring should occur at
the end of each phase of a job/project. We agree that this should not
be a daily activity and are including language to clarify that re-
estimates would only be expected at the end of a project phase or when
some other significant event occurred that would impact project costs,
such as a value engineering study or a change in design. For clarity we
have separated this provision that relates to all projects from the
provision that relates to ``inactive projects.''
Some commenters expressed concern about the use of the term,
``inactive projects.'' The term was defined in the NPRM as projects for
which no costs have been billed to FHWA in the past 12 months. We
recognize that a number of factors can result in no billings for 12
months, but the objective of the requirement is to identify projects
that need to be evaluated and a lack of billing is the best indicator
available to the FHWA that a project may be stalled or completed. If
the State determines that work on the project is still underway or that
the obligation amount is valid, then no further action is needed. Most
commenters recommended that the inactivity threshold be extended to 24
months. For example, AASHTO stated that 24 months of inactivity on a
project is a more reasonable timeframe than 12 months because there are
multiple reasons why projects may not be finalized within a one-year
period.
We agree that 24 months may be an appropriate time period for most
projects and have revised the rule to state that projects with
unexpended obligations of $50,000 to $500,000 are not required to be
evaluated until they are determined to be inactive for a 24-month
period. However, we believe that 12 months is a more appropriate time
to review the projects that have larger amounts of unexpended
obligations so that if unneeded funds are identified, these more
significant amounts do not remain idle for an additional year. Our
current practice is to review projects that are inactive for 12 months
with unexpended obligations over $500,000. As noted in the background
section, our review in Fiscal Year 2005 identified over $750 million
that could be applied to active projects. We believe that these
projects should be reviewed after 12 months of inactivity. Allowing the
States to review projects with $50,000 to $500,000 of unexpended
obligations after two years of inactivity will reduce
[[Page 4994]]
the burden on the States in complying with this provision. To further
reduce the State's burden, the final rule allows projects with
unexpended obligations less than $50,000 to be reviewed after 36 months
of inactivity.
Recognizing that projects may be entering inactive status on a
daily basis, the FHWA is clarifying that States are not required to
review inactive projects more often than quarterly. Previously, the
FHWA reviewed inactive projects on an annual basis but has determined
that an annual review allows unneeded funds to remain on a project too
long before a review is performed. Quarterly reviews also result in a
more orderly and routine review and analysis of inactive projects.
Some commenters were concerned about the provision that would have
required adjustments to projects that are ``unlikely to proceed within
the next 12 months,'' stating that such a determination would be
difficult to predict in most cases. For example, Montana DOT stated
that additional clarification is needed to define what is meant by
``unlikely to proceed.'' The purpose of this provision was to ensure
that funds are not obligated for a project prematurely which would tie-
up funds that should be used for projects that are ready to be
advanced. We agree with the comments that it would be difficult to
determine that a project is ``unlikely to proceed'' and are not
including the provision in the final rule. We are replacing this
provision with a general provision that an obligation of Federal funds
must be documented and based on the State's best estimate of costs.
This provision reflects the requirements of the Federal appropriations
law principles as discussed in the background section.
In the NPRM, we proposed to revise obligations when the State fails
to take the required actions under these requirements. Some commenters
suggested that the FHWA should have the discretion to take action, but
that it should not be a mandatory requirement so that the FHWA can
adequately react to the various circumstances. Since this rule requires
the States to take specific actions to manage funds, we believe that if
the FHWA has determined that a de-obligation of funds is appropriate
and the State has failed to act in a timely manner, that the FHWA
should revise the obligations or take other appropriate action.
Most commenters recommended that the FHWA should be required to
consult with the State before adjusting obligations. The Arizona DOT
strongly objected to the language in the NPRM because it allows the
FHWA to de-obligate Federal funds on a project with absolutely no
consultation with the State. The Arizona DOT recommended that the State
be notified 60 days before funds are de-obligated. We agree that the
FHWA should advise and consult with the State before the FHWA
unilaterally de-obligates funds. We have added a statement in the rule
that the FHWA will advise the State of its proposed actions and provide
an opportunity for the State to respond. We did not specify an amount
of time to be provided to the State to respond as recommended by
Arizona DOT because circumstances will differ from State to State. We
view this action on the part of the FHWA as a remedy of last resort,
and expect unilateral actions by FHWA to be rare.
Concerns were expressed that de-obligations at the end of the
fiscal year may result is a loss of obligation authority. For example,
the California DOT stated that FHWA should make sure that the States do
not lose any obligation authority if the timing of de-obligations is
close to the end of the Federal fiscal year. We also recognize that
Congress intends that all obligation authority be used before the end
of a fiscal year, and to further such intent Congress provides for an
August redistribution of that authority to ensure that it is fully
used. The final rule has been revised to include a provision that no
adjustments in obligations will occur from August 1 to September 30 to
ensure the efficient execution of the August redistribution process
unless the State requests the adjustment.
Sections 630.108 and 630.110
In the NPRM, the FHWA proposed revisions to sections 630.108 and
630.110 that would have required States to establish a project
completion date in the Federal-aid project agreement. If the project is
delayed, the completion date could be revised except that the date
could not be changed because of a delay in billing or processing third
party claims. When the completion date occurs, the State would be
required to close the project within 90 days.
Almost all commenters expressed opposition to these provisions.
AASHTO summed up many of the comments by stating that the definition of
``project completion date'' needs to be clarified; it is impractical to
establish project completion dates in the early phases of project
development; it is impossible for the States to ensure third party
compliance, particularly those States that have statutory time
allowances for submitting claims; and that the 90-day closing
requirement would result in State and local agencies having to absorb
the remaining costs without reimbursement. The AAR stated that the
project completion date provides insufficient time for the processing
of bills and that closure and release of unexpended funds within 90
days of the completion date is inconsistent with commercial practices.
In response to these comments, we will not revise sections 630.108
and 630.110 at this time. The FHWA plans to modify its Fiscal
Management Information System (FMIS) during Fiscal Year 2006 to include
a project completion date simply as an information item. The FMIS
tracks the amount of and type of Federal funds obligated on individual
Federal-aid highway projects and collects a variety of data on the
projects, such as, type of work, location, project description, etc. We
will work with the States to better define the project completion date
and the best way to use the date to improve project funds management.
Rulemaking Analyses and Notices
Executive Order 12866 (Regulatory Planning and Review) and DOT
Regulatory Policies and Procedures
The FHWA has determined that this final rule is not a significant
regulatory action within the meaning of Executive Order 12866 or
significant within the meaning of Department of Transportation
regulatory policies and procedures. We anticipate that the economic
impact of this rulemaking will be minimal. In fact, funds released as a
result of a de-obligation under this rule will be credited to the same
program category and will be immediately available for obligation and
expenditure on eligible projects in accordance with 23 U.S.C. 118(d).
This final rule will not adversely affect, in a material way, any
sector of the economy. In addition, these changes will not interfere
with any action taken or planned by another agency and will not
materially alter the budgetary impact of any entitlements, grants, user
fees, or loan programs.
Regulatory Flexibility Act
In compliance with the Regulatory Flexibility Act (Pub. L. 96-354,
5 U.S.C. 601-612) the FHWA has evaluated the effects of this final rule
on small entities and has determined that the action will not have a
significant economic impact on a substantial number of small entities.
This final rule addresses obligations of Federal funds to States for
Federal-aid highway projects. As such, it affects only States and
States are not included in the definition of small entity set forth in
5 U.S.C. 601. Therefore, the Regulatory Flexibility Act
[[Page 4995]]
does not apply and the FHWA certifies that this action will not have a
significant economic impact on a substantial number of small entities.
Unfunded Mandates Reform Act of 1995
This final rule does not impose unfunded mandates as defined by the
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 1995,
109 Stat. 48). This rule will not result in the expenditure by State,
local, and tribal governments, in the aggregate, or by the private
sector, of $100 million or more in any one year. Additionally, the
definition of ``Federal Mandate'' in the Unfunded Mandates Act excludes
financial assistance of the type in which State, local, or tribal
governments have authority to adjust their participation in the program
in accordance with changes made in the program by the Federal
government. The Federal-aid highway program permits this type of
flexibility.
Executive Order 13132 (Federalism)
This final rule has been analyzed in accordance with the principles
and criteria contained in Executive Order 13132, and the FHWA has
determined that this action does not have sufficient federalism
implications to warrant the preparation of a federalism assessment. The
FHWA has also determined that this action does not preempt any State
law or State regulation or affect the States' ability to discharge
traditional State governmental functions.
Executive Order 12372 (Intergovernmental Review)
Catalog of Federal Domestic Assistance Program Number 20.205,
Highway Planning and Construction. The regulations implementing
Executive Order 12372 regarding intergovernmental consultation on
Federal programs and activities apply to this program.
Paperwork Reduction Act
This action does not contain a collection of information
requirement under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-
3520.
National Environmental Policy Act
The FHWA has analyzed this final rule for the purpose of the
National Environmental Policy Act of 1969 (42 U.S.C. 4321-4347) and has
determined that this action will not have any effect on the quality of
the environment.
Executive Order 12630 (Taking of Private Property)
This action will not affect the taking of private property or
otherwise have taking implications under Executive Order 12630,
Government Actions and Interface with Constitutionally Protected
Property Rights.
Executive Order 12988 (Civil Justice Reform)
This action meets applicable standards in sections 3(a) and 3(b)(2)
of Executive Order 12988, Civil Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce burden.
Executive Order 13045 (Protection of Children)
We have analyzed this final rule under Executive Order 13045,
Protection of Children from Environmental Health Risks and Safety
Risks. The FHWA certifies that this action will not cause an
environmental risk to health or safety that might disproportionately
affect children.
Executive Order 13175 (Tribal Consultation)
The FHWA has analyzed this final rule under Executive Order 13175,
dated November 6, 2000, and believes that this action will not have
substantial direct effects on one or more Indian tribes; will not
impose substantial direct compliance costs on Indian tribal
governments; and will not preempt tribal laws. This final action
addresses obligations of Federal funds to States for Federal-aid
highway projects and will not impose any direct compliance requirements
on Indian tribal governments. Therefore, a tribal summary impact
statement is not required.
Executive Order 13211 (Energy Effects)
We have analyzed this action under Executive Order 13211, Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use Dated May 18, 2001. We have determined that it is
not a significant energy action under that order because it is not a
significant regulatory action under Executive Order 12866 and it is not
likely to have a significant adverse effect on the supply,
distribution, or use of energy. Therefore, a Statement of Energy
Effects is not required.
Regulation Identification Number
A regulation identification number (RIN) is assigned to each
regulatory action listed in the Unified Agenda of Federal Regulations.
The Regulatory Information Service Center publishes the Unified Agenda
in April and October of each year. The RIN contained in the heading of
this document can be used to cross-reference this action with the
Unified Agenda.
List of Subjects in 23 CFR Part 630
Reimbursement, Grant programs--transportation, Highways and roads.
Issued on: January 25, 2006.
J. Richard Capka,
Acting Federal Highway Administrator.
0
In consideration of the foregoing, the FHWA is amending title 23, part
630, Code of Federal Regulations as follows:
PART 630--PRECONSTRUCTION PROCEDURES
Subpart A--Project Authorization and Agreements
0
1. The authority citation for part 630 continues to read as follows:
Authority: 23 U.S.C. 106, 109, 115, 315, 320, and 402(a); 31
U.S.C. 1.32; and 49 CFR 1.48(b).
0
2. Amend Sec. 630.106 by revising the heading to read as set forth
below, and adding paragraphs (a)(3), (4), (5), and (6) to read as
follows:
Sec. 630.106 Authorization to proceed and Project Monitoring.
(a) * * *
(3) The State's request that Federal funds be obligated shall be
supported by a documented cost estimate that is based on the State's
best estimate of costs.
(4) The State shall maintain a process to adjust project cost
estimates. For example, the process would require a review of the
project cost estimate when the bid is approved, a project phase is
completed, a design change is approved, etc. Specifically, the State
shall revise the Federal funds obligated within 90 days after it has
determined that the estimated Federal share of project costs has
decreased by $250,000 or more.
(5) The State shall review, on a quarterly basis, inactive projects
(for the purposes of this subpart an ``inactive project'' means a
project for which no expenditures have been charged against Federal
funds for the past 12 months) with unexpended Federal obligations and
shall revise the Federal funds obligated for a project within 90 days
to reflect the current cost estimate, based on the following criteria:
(i) Projects inactive for the past 12 months with unexpended
balances more than $500,000,
(ii) Projects inactive for the past 24 months with unexpended
balances of $50,000 to $500,000, and
(iii) Projects inactive for the past 36 months with unexpended
balances less than $50,000.
[[Page 4996]]
(6) If the State fails to comply with the requirements of
paragraphs (a)(3), (4), or (5) of this section, then the FHWA shall
revise the obligations or take such other action as authorized by 23
CFR 1.36. The FHWA shall advise the State of its proposed actions and
provide the State with the opportunity to respond before actions are
taken. The FHWA shall not adjust obligations without a State's consent
during the August redistribution process, August 1 to September 30.
* * * * *
[FR Doc. 06-863 Filed 1-30-06; 8:45 am]
BILLING CODE 4910-22-P