The U.S. Government Accountability Office – the official auditors of the federal government – issued a much-awaited ruling yesterday evening that the way that the U.S. Department of Transportation has suspended the NEVI electric vehicle charging station grant program is a violation of the Impoundment Control Act. But the ruling also appears to hold that the way DOT has administered all of its formula grant programs, for many decades, has been illegal, which throws a lot of old funding certainties up in the air.

Earlier this month, 17 states, led by California, filed a federal court complaint and asked the court for a preliminary injunction so they could get their shares of the $1 billion per year NEVI (National Electric Vehicle Infrastructure) program. An oral argument on that request for an injunction is set for June 4. GAO has determined that “FHWA’s February 6, 2025 memorandum has resulted in DOT withholding appropriations for the NEVI Formula Program from expenditure, and this withholding is a deferral under the Impoundment Control Act (ICA). While some deferrals are permissible if reported under the ICA, another provision renders that a moot point here.

Under the ICA, a section referred to as the fourth disclaimer prohibits withholding from obligation or expenditure funds appropriated for programs where there is a mandate to spend therefor. We conclude that the NEVI Formula Program is covered by the fourth disclaimer. Therefore, DOT is not authorized to withhold these funds from expenditure and DOT must continue to carry out the statutory requirements of the program. While DOT cannot withhold these funds under the ICA, DOT could propose funds for rescission or otherwise propose legislation to make changes to the NEVI Formula Program for consideration by Congress.

GAO’s opinion thus gives those 17 states an advantage in their ongoing lawsuit. (GAO’s views are not dispositive, but federal courts do give them significant weight since they are the official U.S. auditors and accountants and since sections 1015 and 1016 of the Impoundment Control Act give GAO express authority (a) report to Congress when the executive branch is violating the ICA and (b) to file lawsuits on its own to stop such violations.)

But GAO’s new opinion goes beyond the $1 billion per year NEVI program and threatens to upend how an additional $76 billion per year in highway and mass transit formula funding is administered.

For decades, USDOT has been operating these grants-in-aid formula programs under the principle that the money did not reach the state of “obligation” (the federal government having reached the point of being legally obligated to pay cash to someone else) until after the federal government had co-signed some specific grant agreement for some project selected by the recipient.

For example, say that a state gets a $500 million apportionment of funds for Program X on October 1, 2024. They get $100 million in eligible projects signed and executed in the first year, then $250 million more in the second year, then $100 million more in the third year, and then the final $50 million the following year. Therefore the obligation rate went 20% Y1, 50% Y2, 20% Y3, 10% Y4. Typical for a large capital program.

But GAO says that not only is the Trump Administration violating the law by holding back the NEVI program this year, but the Biden Administration was also violating the law the way they administered the program dating back to 2022:

The recording statute, 31 U.S.C. § 1501, requires that an agency record an obligation when there is sufficient documentary evidence of the government’s liability. Because obligations for the NEVI Formula Program arise by operation of law, the point of obligation for the program is when IIJA makes funds available for obligation for the program. We conclude that DOT violated the recording statute, in each of FYs 2022 through 2025, when it treated signed project agreements as the point of obligation for the NEVI Formula Program, rather than at the time IIJA made appropriations available for the program.

READ THAT LAST SENTENCE CAREFULLY. GAO is saying that the point the funds are recorded as obligated should be “the time IIJA made appropriations available for the program” i.e. October 1 of each year.

Now read this paragraph from FHWA’s guidance document on project funds management, last updated in 2018:

Under 23 U.S.C. 106(c), the State may assume many responsibilities of the Secretary, however project authorization and obligation of funds requires that the FHWA enter into an obligation on behalf of the Federal government under the recording statute. Therefore, FHWA remains responsible for ensuring (1) a project agreement is properly established which documents the scope of work being authorized, (2) the funds identified are eligible for those activities, (3) the project has an appropriate schedule (period of performance), and (4) the applicable maximum Federal share is not exceeded in the agreement.  The project agreement is a contractual agreement between the State and the Federal government.  In submitting the agreement for approval, the State is certifying that the applicable Federal prerequisites that have been assumed by the State have been met, all other requirements will be completed, and the information contained in the agreement is accurate.  The FHWA addresses stewardship of the State assumption of responsibilities through a risk based stewardship and oversight process.

If the proper point of obligation is the day that the lump sum of formula money is apportioned to the state and made available for obligation, as GAO says, then USDOT isn’t required, or even allowed, to do any of those things in the above paragraph like ensure agreements are established, make sure funding schedules are set, and make sure the federal share isn’t exceeded. The states can obligate and start spending on their own and then hope that the federal government pays them back.

But since these are reimbursable grant programs, the federal government can refuse to pay after the work is done.

Putting it another way: right now, state DOTs and local transit agencies ask for permission on a project-by-project basis. It is almost always given, with very little change, but that permission makes sure that USDOT feels morally obligated (as well as legally obligated) to pay the money once it’s over.

GAO wants to move to a situation where instead of asking permission before the fact, states and cities have to ask for forgiveness after the fact if USDOT thinks that any of the money they spent may violate statute. And no, in situations like this it is not always better to ask forgiveness than permission.

This doesn’t just apply to NEVI. At a minimum, it applies to the other general fund advance formula programs in Division J of the IIJA – the $5.5 billion per year bridge formula program, the $250 million per year in Appalachian highway money, the extra $950 million per year in state of good repair transit formula funding, and any other formula funding provided by the general appropriations bill. Because the time those “appropriations become available” is October 1 of each year for IIJA Division J and the date of enactment of each annual appropriations bill.

It probably also applies to all mass transit formula funding from the Highway Trust Fund (circa $13.6 billion per year) because every dollar of that contract authority has a full dollar of no-expiration obligation limitation at the time it is apportioned to states.

It might, possibly, also apply to the $56 billion per year federal-aid highway program (and definitely applies to the $639 million per year in NHPP funding exempt from limitation). If pushed, GAO might say that the obligation limitation statutes on this program, in section 120 of the annual appropriations bill and in section 1102 of the IIJA, supersede and delay their interpretation of the requirement of the recording statute.

(None of this applies to competitive grant programs, where USDOT gets to pick and choose grant recipients. There is a well-established need there for the selection process and grant negotiation to be complete before the state of obligation is reached. This article only applies to formula-based programs.)

Patrick McKenna, the President and CEO of the Eno Center and the former Director of Missouri DOT, said “The GAO ruling is interesting and with regard to advance appropriations, will states and FHWA see the program more as a grant, rather than reimbursement program? If so, will there be a requirement for specific project agreements?  That may be an interesting topic for policy makers to consider during reauthorization.”

We asked another expert who has spent decades in the minutia of USDOT cooperative grant agreements with local governments, who agreed that the GAO decision “goes so far as to question whether, for formula programs, there is any standing for project agreements in terms of obligation…longstanding practice has established the point of obligation based on a Federal action.  Approval of PS&E’s [plan, specification and estimate] is the short-hand phrase heard everywhere…

“I wonder how the state AGs have treated this in their [NEVI lawsuit] filings or would amend them in light of this determination by GAO?  Further, if FHWA is cutting down their field staff to the bones, who will take the obligation action?  Will it continue to be essentially ‘automatic’ because the [FHWA District Offices] work so closely with the DOTs that they have cleared any hurdles before they are presented with the request to obligate?  On what basis will they make that decision with a future severely overextended staff?  Will it be rubber stamped or sent to HQ?

“All highly relevant questions that, in practice, could be manipulated if the Feds so desired.  Unless, as GAO implies, the very act of apportionment means that the obligation step can be taken without administration review.”

A USDOT spokesperson stated: “GAO’s report shows a complete misunderstanding of the law. Their conclusion conflicts with Congress’ intent, and completely misunderstands the Federal-aid highway program and how Congress structured the NEVI program. In cherry-picking language in the program statute, GAO’s assessment is also at odds with its own reports on how Federal-aid Highway programs similar to NEVI receive and use appropriated funds.

“We’re reviewing the updating the NEVI program guidance because the implementation of NEVI has failed miserably, and DOT will continue to work in good faith to update the program so it can be utilized more efficiently and effectively.”