January 9, 2019

Yesterday, the Federal Highway Administration issued a notice giving the 50 state DOTs and the District of Columbia an extra $30 billion in obligation authority to start new federal-aid highway projects, but warned them that if a new short-term continuing appropriations resolution is enacted, they will have to take most of that money back for the time being.

Background. On October 9, 2018, FHWA issued Notice 4520.256, which distributed the pro-rated share of highway program obligation limitation under the continuing resolution lasting from October 1 through December 7. This was issued under the terms of OMB Bulletin 18-05, which directed agencies to give out 18.63 percent of the net FY 2018 funding level for each account under the CR (Oct. 1 to Dec. 7 = 68 days, and 68 divided by 365 rounds off to 18.63 percent).

Accordingly, FHWA took the FY 2018 appropriated obligation limitation of $44.234 billion and distributed $8.241 billion of that (18.63 percent), and of that amount, $6,586,766,648 went to state DOTs and D.C. for obligation of formula contract authority. (The rest went to FHWA overhead, allocated programs, and safety penalties.)

For the highway program, an average daily “burn rate” is misleading. In most states, construction is seasonal, and contract lettings start early in the calendar year to get ready for the start of the construction season in the spring. States don’t sign a lot of new construction contracts in December. Accordingly, FHWA did not give out new ob limit for the CR extension from December 7 through 21, probably hoping that the situation would resolve itself before they had to.

Once appropriations lapsed on December 21, there was no longer an obligation limitation in place under the annual appropriation process. This meant that the program reverted to the annual obligation limitation in section 1102 of the FAST Act of 2015, which is “$45,268,596,000 for fiscal year 2019.” For whatever reason, FHWA did not act quickly to perform the ministerial task of distributing that amount – perhaps they were waiting for the political situation to resolve. But after a round of news articles started appearing this week where state DOTs were complaining that they were running out of new obligation authority, Notice 4520.257 was issued on January 8 distributing the full $45.269 billion.

New Notice. Notice 4520.257 gives states and D.C. a full-year obligation limitation of $36,628,816,613 for the obligation of formula contract authority. Once the $6.569 billion given out under the Oct. 1 – Dec. 7 notice is subtracted, that is $30.042 billion in new money for new contracts.

But if/when the annual appropriations process resumes, FHWA will be forced to rescind Notice 4520.257 and issue a new notice distributing obligation limitations under the terms of that appropriations bill. And if the first appropriations law governing DOT to be enacted is another short-term CR, then the total obligation limitation available to states will be much, much smaller. Congressional leaders talked earlier about a CR through February 8. If this were to happen, then the total highway obligation limitation would be 131 days divided by 365, which is 35.89 percent, times $44.234 billion equals $15.875 billion, and the state formula total would be about 80 percent of that, or about $12.7 billion.

$12.7 billion is a lot less than $36.6 billion.

Accordingly, the formal notice given by FHWA to states yesterday was accompanied by the following warning to the DOTs not to overextend themselves until a year-long appropriations law is enacted:

Once an appropriations act or CR is enacted, the Federal Highway Administration will be subject to the terms and conditions of that legislation.  Another Notice will be issued adjusting the obligation limitation distribution and obligation limitation levels so they are consistent with the appropriations act or CR.

If another partial-year CR is enacted, it will likely significantly reduce the amount of obligation limitation available to each State.  States should plan accordingly, and should consider using advance construction authority, or obligation limitation at a level that reflects a likely downward adjustment to the amount of obligation limitation available based upon enactment of a CR, until a full year appropriations act is enacted into law.

If a State has used more obligation limitation than that calculated under a subsequently enacted partial-year CR, then the State would be required to immediately de-obligate so that it is not exceeding the obligation limitation allowed by that law.  To avoid this situation, it is strongly recommended that States do not exceed the daily pro-rata that would be calculated if we were still under a CR.

The state-by-state totals under both obligation limitation notices are below.