[Federal Register Volume 61, Number 131 (Monday, July 8, 1996)]
[Rules and Regulations]
[Pages 35629-35633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17232]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Part 630

[FHWA Docket No. 94-30]
RIN 2125-AD43


Federal-Aid Project Authorization

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Final rule.

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SUMMARY: The FHWA is amending its regulation on Federal-aid program 
approval and project authorization. In light of changes made by the 
Intermodal Surface Transportation Efficiency Act of 1991, in the area 
of statewide planning and transportation improvement programs, and the 
joint FHWA/Federal Transit Administration (FTA) regulations 
implementing those changes, this regulation removes the obsolete 
project programming provisions from this part. This regulation provides 
more flexible funding arrangements and a more flexible Federal-aid 
authorization process. Changes contained in related laws are included.

EFFECTIVE DATE: This final rule is effective August 7, 1996.

FOR FURTHER INFORMATION CONTACT: Mr. Jack Wasley, Office of 
Engineering, 202-366-4658, or Wilbert Baccus, Office of the Chief 
Counsel, 202-366-0780, FHWA, 400 Seventh Street, SW., Washington, D.C. 
20590. Office Hours are from 7:45 a.m. to 4:15 p.m., e.t., Monday 
through Friday except Federal holidays.

SUPPLEMENTARY INFORMATION: The amendments in this final rule are based 
primarily on the notice of proposed rulemaking (NPRM) published in the 
February 17, 1995, Federal Register at 60 FR 9306 (FHWA Docket No. 94-
30). All comments received in response to this NPRM have been 
considered in adopting these amendments.
    The initiation of work for transportation projects funded under the 
Federal-aid highway program is a two-step process. First, the State, in 
cooperation and consultation with local officials, as appropriate, 
through the metropolitan and statewide planning process, determines 
activities which will be advanced with Federal funds made available 
under title 23, United States Code, and the Federal Transit Act (49 
U.S.C. 5301-5338) and develops a Statewide program of projects for 
these activities. Prior to passage of the Intermodal Surface 
Transportation Efficiency Act of 1991 (Pub. L. 102-240, 105 Stat. 1914) 
(ISTEA), the requirements for developing the program of projects were 
found in 23 U.S.C. 105 and the implementing regulations in 23 CFR part 
630, subpart A. With passage of the ISTEA, title 23, U.S.C., was 
modified and the new requirements concerning development of a program 
of projects, now referred to as the Statewide transportation 
improvement program, are contained in 23 U.S.C. 135. The implementing 
regulation for this section is in 23 CFR part 450 and was initiated 
through previous rulemaking actions.
    Accordingly, those requirements pertaining to a program of projects 
in 23 CFR part 630, subpart A, no longer need to be retained. This 
final rule therefore eliminates these programming references.
    The second step in initiation of work is the project authorization 
process. The State highway agency (SHA) requests FHWA authorization to 
proceed with a proposed Federal-aid highway project. The FHWA 
authorization commits the Federal government to participate in the 
funding of a project, except in those instances where the State 
requests FHWA authorization without the commitment of Federal funds. In 
addition, FHWA authorization also establishes a point in time after 
which costs incurred on a project are eligible for Federal 
participation. The requirements covering project authorization are 
contained in this final rule. The following is a section-by-section 
analysis of the amendments

[[Page 35630]]

made by this final rule to the present regulations.

Section-by-Section Analysis

Section 630.102  Purpose

    The statement of purpose is revised to eliminate the reference to 
programming of projects since this activity is eliminated from this 
subpart.

Section 630.104  Applicability

    The existing Sec. 630.104, Definitions, is replaced by a new 
section identifying the types of projects that are covered by this 
subpart. FHWA planning and research funds, as defined in 23 CFR 
420.103, are authorized using the procedures in the regulations dealing 
specifically with these types of funded projects. Projects utilizing 
special funding may have unique authorization requirements, and these 
types of projects will be authorized as set out in implementing 
instructions or regulations.

Section 630.106  Authorization to Proceed

    The current Sec. 630.106, Policy, is removed. A new Sec. 630.106, 
Authorization to proceed, is redesignated from current Sec. 630.114, 
covering the authorization process, and it retains many of the basic 
principles set forth in existing Sec. 630.114. Modifications were made 
to provide greater flexibility in some funding areas, and other 
additions were made for clarification. The following discussion breaks 
down new Sec. 630.106 by individual paragraph.

    Paragraph (a) retains the requirement that FHWA authorization to 
proceed with a Federal-aid project will only be given in response to a 
request from the SHA, and then only if the applicable requirements in 
law have been satisfied for the project.

    Paragraph (b) retains the longstanding requirement that Federal-aid 
funds will only participate in costs incurred after the date the FHWA 
has authorized the State to proceed with the project. However, 
exceptions to this requirement are allowed under a process set forth in 
23 CFR 1.9(b). For informational purposes, wording has been included in 
paragraph (b) to identify and cross reference the exception process.

    Paragraphs (c), (d), and (e) retain the requirement that, at the 
time a Federal-aid project is authorized, the total amount of 
appropriate Federal funds for the project must be available. Four 
general categories of exceptions to this rule are retained from the 
existing regulation. A fifth category of exceptions in the existing 
regulation, related to bond issue projects under 23 U.S.C. 122, has 
been eliminated. Section 311 of the National Highway System Designation 
Act of 1995 (Pub. L. 104-59, 109 Stat. 568)(NHS Act), enacted November 
28, 1995, significantly revised 23 U.S.C. 122. Previously, section 122 
allowed certain types of projects to be approved as bond issue 
projects. Similar to advance construction, these projects were advanced 
as Federal-aid projects without any commitment of Federal funds until 
the bonds matured and the State converted the projects to regular 
Federal-aid. As amended, section 122 makes bond related costs eligible 
for Federal reimbursement on any Federal-aid project; however, the 
process of converting bond issue projects similar to advance 
construction projects is no longer set forth in the section. As a 
result, paragraph (c) of Sec. 630.106 has dropped bond issue projects 
from the listing of exceptions.
    Paragraph (f) is added for purposes of clarification. The FHWA 
authorization represents a contractual action by the FHWA, and the 
Federal share of eligible costs must be agreed upon when the 
authorization occurs. The Federal share may be in the form of a 
specified percentage of eligible costs or a lump sum amount. Use of the 
lump sum share is intended to accommodate those instances where there 
is a desire to commit a fixed amount of Federal funds to a project. The 
lump sum amount may not exceed the legal pro rata share for the Federal 
funds involved; this may require downward adjustment of the lump sum 
amount when costs of eligible work on a project are less than the 
initial estimates at the time of FHWA authorization.
    The Federal share agreed to at the time of FHWA authorization is to 
continue through the life of the project. Manipulation of funding 
levels of individual projects to accommodate program funding changes or 
needs is not allowed. However, adjustments to the Federal share are 
permitted for projects where bid prices are significantly different 
from the estimates at the time of FHWA authorization and should be made 
prior to, or shortly after, contract award.
    In addition, Federal participation is based on eligible costs 
incurred by the State. The Federal share of such costs cannot exceed 
the maximum share permitted by legislation.
    Paragraph (g) incorporates into the regulation the provision in 23 
U.S.C. 120(i) that allows a State to contribute more than the normal 
State match on a Federal-aid project. This provision has been 
interpreted to mean that a State may overmatch and not be tied to a 
mandatory Federal share. However, project financing proposals that 
result in the Federal share representing only a minor percentage of 
eligible work should be avoided unless they are based on sound project 
management decisions.

Discussion of Comments

    Interested persons were invited to participate in the development 
of this final rule by submitting written comments on the NPRM to FHWA 
Docket No. 94-30 on or before April 18, 1995. There were 10 commenters 
to this docket, all representing State transportation agencies.
    Three State transportation agencies specifically endorsed the 
proposed rewrite of the regulation. The other State agencies raised 
several issues for consideration, which have been grouped into the 
following categories: (1) Third party (private) cash donations; (2) 
token financing; (3) the relationship of this rulemaking to FHWA's 
innovative financing test and evaluation project; and (4) establishing 
a project's Federal share.

Third Party Cash Donations

    This issue received the most comments. The NPRM proposed to include 
a new provision in the regulation that would clearly set forth the cost 
sharing principles for Federal-aid highway projects, including the 
requirement at the time the NPRM was issued that a third party cash 
contribution to a specific project could not be applied to the required 
State matching share but instead had to be applied to reduce the 
overall project cost. The commenters felt the requirement on third 
party donations was overly restrictive, diminished the incentive for 
States to seek third party contributions, and could adversely affect 
the advancement of certain projects. Although these points are well 
taken, the requirement on third party cash contributions, as stated in 
the NPRM, reflected a legal interpretation consistent with title 23 as 
it existed at that time.
    A significant change has occurred in Federal highway law related to 
third party donations since the NPRM was issued. The NHS Act amended 23 
U.S.C. 322 to allow the value of third party funds, materials, or 
services donated to a specific Federal-aid project to be applied to the 
State's matching share. Thus, Congress has provided legislative relief 
on this matter.
    The FHWA has issued implementing guidance on 23 U.S.C. 322 and the 
application of third party donations of

[[Page 35631]]

funds, materials, or services towards the State's matching share. That 
guidance is available for review in FHWA Docket No. 94-30 in the FHWA 
Docket Room at the address listed above. Accordingly, the matter of 
third party contributions will not be addressed in this regulation.

Token Financing

    Several commenters expressed concern about the NPRM provision on 
``token financing'' and the accompanying preamble discussion which 
suggested that, as a general rule of thumb, Federal funding for a 
specific project should represent at least 50 percent of eligible 
project costs. It was pointed out that the phrase ``token financing'' 
is vague and not clearly defined in the regulation. Further, the NPRM 
preamble discussion that suggested a project have at least a target 
Federal funding level of ``50 percent'' was interpreted as being too 
inflexible. Several commenters recommended a lower percentage threshold 
or a minimum dollar figure.
    Section 630.106(g) of the final rule adds a new provision to 
implement 23 U.S.C. 120(i) which allows the State to contribute more 
than the normal State match on a project. The phrase ``token 
financing'' has not been used in the regulation. Instead, the concept 
of ``token financing'' has been expressed in the phrase, ``project 
financing proposals that result in the Federal share representing only 
a minor percentage of eligible work should be avoided.'' The phrase 
``minor percentage'' has not been defined, by a specific value or a 
general target value, in either the regulation or this preamble and 
considerable flexibility is intended. As expressed in Sec. 630.106(g), 
this provision is to be applied based on sound project management 
decisions. For example, it would make little sense to place small 
amounts of Federal funds in a large number of projects. This could 
overburden the FHWA and would unnecessarily Federalize a large number 
of projects. It is expected that a State and FHWA division office will 
reach agreement on a reasonable implementation of this requirement 
based on project circumstances.

Relationship of This Rulemaking to FHWA's Innovative Financing Test 
and Evaluation Project

    In 1994, the FHWA established a nationwide innovative financing 
test and evaluation project, known as TE-045, to evaluate new financing 
concepts to increase investment or reduce public agency costs on 
Federal-aid highway projects. Under TE-045, numerous concepts are 
currently being evaluated. Two of these concepts, ``phased funding'' 
and ``tapered share,'' were mentioned by commenters on the NPRM as 
issues that could be addressed in this regulation.
    When the FHWA authorizes a State to proceed with a Federal-aid 
highway project, the FHWA is required to obligate Federal funds for the 
full Federal share of the cost of the work being authorized. Phased 
funding is an exception to this requirement. Under phased funding, the 
FHWA obligates an amount of Federal funds for each year a project is 
under construction, the annual amount obligated being equal to the 
estimated project construction expenditures expected in the year. Thus, 
phased funding is a financing technique that can accelerate project 
advancement because a State can proceed with project construction 
before the full Federal share of the cost of the work is available to 
the State.
    Previously, under Sec. 630.114(h)(5), the FHWA Administrator had 
the authority, in special cases, to allow a project to proceed without 
the full Federal share of costs being available to a State. This 
authority had been used to approve phased funding on a small number of 
very costly Interstate projects. Early on, TE-045 accepted proposals to 
experiment further with the phased funding concept; however, no 
additional proposals are planned for testing. This is because of the 
FHWA's 1995 revision of its policy on advance construction projects 
that now allows an advance construction project to be converted to a 
regular Federal-aid project in increments over time. Partial conversion 
of advance construction projects can accomplish much of the same 
flexibility that phased funding provides a State. As a result, the FHWA 
has decided there is no need at this time to modify the phased funding 
authority the Administrator has under this regulation. The provision 
that allows the Administrator to approve special case exceptions for 
phased funding is retained as Sec. 630.106(c)(4).
    Tapered share is an alternate means of making project reimbursement 
to a State. Under the tapered share concept, the Federal share of costs 
incurred can vary as reimbursement is provided to a State, as long as 
the overall Federal funding provided to the State does not exceed the 
amount of Federal funds obligated when the project was authorized. For 
example, on a project that is being cost shared at 80 percent Federal, 
20 percent State, the State's billings to the FHWA are normally 
reimbursed with Federal funds at 80 percent of the billed amount. 
However, the tapered share concept could be applied to allow a State to 
receive 100 percent Federal funds on early billings with the Federal 
share tapering off on later billings.
    The tapered share concept is a reimbursement or payment issue, not 
an authorization issue. Because this regulation covers authorization 
requirements, the tapered share concept will not be addressed in this 
regulation. The FHWA continues to evaluate the tapered share concept 
under TE-045 and it is expected that any proposals to allow this 
concept, including recommendations on needed statutory changes, will 
emerge from TE-045.

Establishing a Project's Federal Share

    In the NPRM, Sec. 630.106(f) was proposed to clarify that the 
Federal share could be established either as a percentage of eligible 
project costs or as a lump sum amount, provided the lump sum amount did 
not exceed the maximum legal percentage allowed for the Federal-aid 
funding being used on the project.
    One commenter suggested another alternative, i.e., that the 
authorization would specify a percentage with a maximum amount of 
Federal funds also specified. If a State establishes Federal share as a 
percentage, any decision to further impose an upper limit on additional 
Federal funds it will provide to a project, should overruns occur, is a 
State decision. This decision has no impact on the amount of Federal 
funds being obligated on the project when the FHWA initially authorizes 
the work because the amount of Federal funds obligated would still be 
determined based on the specified Federal share percentage. 
Consequently, this proposed alternative has not been incorporated into 
the regulation. If a State desires to set an upper limit for Federal 
funding on a project where Federal share has been established by 
percentage and desires to alert all parties involved with the project 
of the limit, one means of accomplishing this is with an appropriate 
note on the Federal-aid project agreement.
    Several comments were received concerning the adjustment of Federal 
share during the life of a project. The authorization of a project, 
with the accompanying obligation of Federal funds, is a contractual 
action by the FHWA, which has been viewed as fixing or establishing the 
Federal share of the project. The FHWA's longstanding position has been 
that Federal share could not be adjusted after the initial project 
authorization. Recognizing that some flexibility is desirable, 
particularly in situations involving construction work where bid prices 
are significantly

[[Page 35632]]

different from the engineer's estimate on which the initial 
authorization of construction is based, the NPRM proposed to allow the 
Federal share to be adjusted after authorization to reflect bids 
received.
    One commenter suggested eliminating the provision that Federal 
share is established at authorization and replacing it with a 
requirement that Federal share be established when the Federal-aid 
project agreement is executed, after which it could not be adjusted. 
This suggestion is not being implemented. The timing of when a Federal-
aid project agreement is executed for a project can vary considerably, 
with it sometimes being combined directly with the authorization and 
sometimes following the authorization by several weeks. Keeping in mind 
that the FHWA's authorization is a legally binding action on the 
agency's part, it is at this point that the Federal share being 
committed to the project needs to be clearly defined.
    Other commenters suggested that a State be allowed to continue to 
make adjustments to Federal share throughout the life of a project. 
Allowing these adjustments raises several concerns. How many times 
could changes be made? Would changes be allowed after construction is 
physically completed? Could changes be retroactive and applied to costs 
already incurred? What are the Federal fiscal implications of 
unrestricted changes? At this time, the decision has been made not to 
expand flexibility for adjusting Federal share beyond that proposed in 
the NPRM, namely, that Federal share could be adjusted based on the 
bids received. The final rule has added clarifying language to indicate 
that any such adjustment should occur before or shortly after award of 
the contract.
    Another comment concerned Federal shares for various project 
activities. The commenter appears to be interpreting the word 
``project'' to include all work phases of a project, such as design, 
right-of-way, and construction. The commenter was concerned that if a 
specific Federal share was established for design work, a State would 
be locked into using that same Federal share on all subsequent 
activities, such as the construction work. This is not the intent of 
the regulation. The term ``project'' is intended to mean that 
particular activity or phase of work for which Federal funds are being 
authorized. Federal share is established for each individual 
authorization. Design work could be authorized at one Federal share and 
construction work later authorized at a different Federal share.

Executive Order 12866 (Regulatory Planning and Review) and DOT 
Regulatory Policies and Procedures

    The FHWA has determined that this action 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. The amendments would simply make 
minor changes to update the Federal-aid project authorization 
regulations to conform to recent laws, regulations, and guidance, and 
to clarify existing policies. It is anticipated that the economic 
impact of this rulemaking will be minimal because the amendments would 
only clarify or simplify procedures presently being used by SHAs. 
Therefore, a full regulatory evaluation is not required.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the FHWA has evaluated the effects of this rule on small 
entities. Based on the evaluation, the FHWA certifies that this action 
would not have a significant economic impact on a substantial number of 
small entities. The proposed amendments would only clarify or simplify 
procedures used by SHA's in accordance with existing laws, regulations, 
or guidance.

Executive Order 12612 (Federalism Assessment)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 12612, and it has been determined 
that this action does not have sufficient federalism implications to 
warrant the preparation of a federalism assessment. This action merely 
conforms the Federal-aid project authorization regulations to recent 
laws, regulations, and guidance; clarifies these regulations; and gives 
the SHAs more flexibility in implementing them.

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 for purposes of the Paperwork Reduction Act of 1995, 44 
U.S.C. 3501-3520.

National Environmental Policy Act

    The Agency has analyzed this action for the purpose of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et.seq.) and has 
determined that this action would not have any effect on the quality of 
the environment.

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

    Government contracts, Grant programs--transportation, Highways and 
roads, Project authorization.

    Issued on: June 26, 1996.
Rodney E. Slater,
Federal Highway Administrator.

    In consideration of the foregoing, the FHWA is amending title 23, 
Code of Federal Regulations, by revising part 630, subpart A to read as 
follows:

PART 630--PRECONSTRUCTION PROCEDURES

Subpart A--Federal-Aid Project Authorization

Sec.
630.102  Purpose.
630.104  Applicability.
630.106  Authorization to proceed.

    Authority: 23 U.S.C. 106, 118, 120, and 315; 49 CFR 1.48(b).

Subpart A--Federal-Aid Project Authorization


Sec. 630.102  Purpose.

    The purpose of this subpart is to prescribe policies for 
authorizing Federal-aid projects.


Sec. 630.104  Applicability.

    (a) This regulation is applicable to all Federal-aid projects 
unless specifically exempted.
    (b) Projects financed with FHWA planning and research funds, as 
defined in 23 CFR 420.103 are not covered by this subpart. These 
projects are to be handled in accordance with 23 CFR parts 420 and 450.
    (c) Other projects which involve special procedures shall be 
authorized as set out in the implementing instructions for those 
projects.


Sec. 630.106  Authorization to proceed.

    (a) The FHWA issuance of an authorization to proceed with a 
Federal-

[[Page 35633]]

aid project shall be in response to a written request from the State 
highway agency (SHA). Authorization can be given only after applicable 
prerequisite requirements of Federal laws and implementing regulations 
and directives have been satisfied.
    (b) Federal funds shall not participate in costs incurred prior to 
the date of authorization to proceed except as provided by 23 CFR 
1.9(b).
    (c) Authorization of a Federal-aid project shall be deemed a 
contractual obligation of the Federal government under 23 U.S.C. 106 
and shall require that appropriate funds be available at the time of 
authorization for the total agreed Federal share, either pro rata or 
lump sum, of the cost of eligible work to be incurred by the State, 
except as follows:
    (1) Advance construction projects authorized under 23 U.S.C. 115.
    (2) Projects for preliminary studies for the portion of the 
preliminary engineering and right-of-way (ROW) phase(s) through the 
selection of a location.
    (3) Projects for ROW acquisition in hardship and protective buying 
situations through the selection of a particular location. This 
includes ROW acquisitions within a potential highway corridor under 
consideration where necessary to preserve the corridor for future 
highway purposes. Authorization of work under this paragraph shall be 
in accordance with the provisions of 23 CFR part 712.
    (4) In special cases where the Federal Highway Administrator 
determines it to be in the best interest of the Federal-aid highway 
program.
    (d) The authorization to proceed with a project under 23 CFR 
630.106(c)(1) through (c)(4) shall contain the following statement: 
``Authorization to proceed shall not constitute any commitment of 
Federal funds, nor shall it be construed as creating in any manner any 
obligation on the part of the Federal government to provide Federal 
funds for that portion of the undertaking not fully funded herein.''
    (e) When a project has received an authorization under 23 CFR 
630.106(c)(2) and (c)(3), subsequent authorizations beyond the location 
stage shall not be given until appropriate available funds have been 
obligated to cover eligible costs of the work covered by the previous 
authorization.
    (f)(1) The Federal-aid share of eligible project costs shall be 
established at the time of project authorization in one of the 
following manners:
    (i) Pro rata, with the authorization stating the Federal share as a 
specified percentage, or
    (ii) Lump sum, with the authorization stating that Federal funds 
are limited to a specified dollar amount not to exceed the legal pro 
rata.
    (2) The pro-rata or lump sum share may be adjusted before or 
shortly after contract award to reflect any substantive change in the 
bids received as compared to the SHA's estimated cost of the project at 
the time of FHWA authorization, provided that Federal funds are 
available.
    (3) Federal participation is limited to the agreed Federal share of 
eligible costs incurred by the State, not to exceed the maximum 
permitted by enabling legislation.
    (g) The State may contribute more than the normal non-Federal share 
of title 23, U.S.C., projects. In general, financing proposals that 
result in only minimal amounts of Federal funds in projects should be 
avoided unless they are based on sound project management decisions.

[FR Doc. 96-17232 Filed 7-5-96; 8:45 am]
BILLING CODE 4910-22-P