State departments of transportation and local governments are responsible for building and improving highways and other road infrastructure in the United States. The federal-aid highway program, which is administered by FHWA, provides funding for this purpose from the highway account of the federal Highway Trust Fund. FHWA distributes highway funds to the states through annual apportionments established by statutory formulas and by allocation of discretionary grants; in 2006, about $31 billion in federal-aid highway funding was available to states. Funds come through several different programs, each with specific uses and eligibility requirements, but states generally have broad discretion to choose the projects that will be funded with these moneys. After determining that projects meet federal requirements and that funds are available, FHWA enters into obligations for the projects selected by states. After states make expenditures on the projects, they apply to FHWA for reimbursement of the federal share of eligible costs. States supplement federal funds for highway programs—and provide required matching funds—with nonfederal revenues such as taxes and user fees. Constructing, maintaining, and operating public transportation systems are generally the responsibilities of local agencies, such as transit authorities or transit operators. Federal funds for public transportation are generally administered by FTA and are funded through a combination of general fund revenues and the mass transit account of the Highway Trust Fund. Recipients such as transit operators and states are apportioned annual formula program funds that may be used for capital expenses and, in the case of areas with populations under 200,000, for operating expenses. Transit operators and other recipients may also receive discretionary grants for capital expenditures such as vehicle purchases and system construction or expansion. In 2006, FTA provided about $8 billion in funding to transit agencies and states through its formula and discretionary grant programs. Federal transit funds generally remain with FTA until the transit operator is ready to use them. Additional funding for transit comes from state or local taxes and operating revenue such as passenger fares and parking fees. In the early 1990s, Congress decided that a flexible, intermodal approach to transportation programs was needed to address growing transportation needs in the face of budgetary constraints and the diversity of transportation priorities in different parts of the country. Enacted in December 1991, ISTEA sought to provide flexible, comprehensive solutions to transportation problems and focused more on intermodal approaches than previous acts had. Two of the programs created by this legislation were STP and CMAQ—also referred to here as flexible funding because they may be used on a range of projects including transit and highways. A portion of flexible funding is allocated to localities rather than states, allowing local authorities to select projects within their jurisdictions. The responsibility for project selection at this level usually falls to regional bodies such as metropolitan planning organizations (MPO), which are composed of representatives of local governments, transit operators, and other transportation stakeholders who collaborate on transportation planning. Federal law suballocates a portion of STP funds to urbanized areas 200,000 or greater in population; some states have chosen to further allocate flexible funding to these areas. Table 1 provides details on eligible uses for STP and CMAQ funds—which in 2006 constituted about one-quarter of the total federal-aid highway program— as well as guidelines on how these funds are apportioned. When states or urbanized areas use flexible funding on transit projects, they may leave the funds in the state’s FHWA account, in which case the state receives reimbursement from FHWA as costs are incurred. Alternatively, the state—usually in conjunction with the MPO or the local agency implementing the project—may request that these funds be transferred to FTA to be administered through one of several eligible FTA programs. Once funds are transferred to FTA, a transit operator or other recipient becomes the grantee for these funds. FTA funds apportioned directly to transit operators or states may be used for operating costs in areas under 200,000 in population; however, FHWA funds transferred into FTA formula programs may not be used for operating costs, except for CMAQ funds used for new or expanded services. Although state and local authorities have considerable discretion when choosing which transportation projects to fund with federal-aid program funds, federal laws and regulations require that projects proposed for highway and transit funding be based on comprehensive metropolitan and statewide transportation planning processes. State, regional, and local government agencies and transit operators must operate within these requirements to receive federal funds. The various planning tasks that states and MPOs must carry out include the following: involving stakeholders such as elected officials, public transit operators, environmental and historic preservation agencies, freight shippers, and others in the planning and project-selection processes. identifying overall goals and objectives to support transportation investment choices that consider factors such as projected population growth and economic changes, current and future transportation needs, maintenance and operation of existing transportation facilities, and preservation of the human and natural environments. evaluating different transportation alternatives through the collection and analysis of data. documenting future transportation needs through long-range transportation plans and short-range programs. Short-range programs, known as transportation improvement programs (TIP), at the local level, and state transportation improvement programs (STIP) at the state level, must include the scope of projects, estimated costs, and the source of funding. In order to receive federal funding, projects must be included in a STIP that demonstrates sufficient funds are available to implement the program. ensuring that the process for transportation planning and decision-making reflects a variety of planning factors such as environmental compliance, safety, security, system management and operations, and land use, among others. To help ensure that metropolitan transportation planning processes are being carried out in full compliance with federal laws and regulations, FHWA and FTA jointly review the planning process every 4 years in areas with populations of 200,000 or greater. While states have varied in the extent to which they have used STP and CMAQ funds for transit, some states have augmented their transit budgets significantly or made major transit investments using flexible funding. As part of our review, we looked both at the overall impact on federal highway and transit spending nationwide and at the types of transit projects on which flexible funding is most commonly used. Overall, from the enactment of ISTEA in late 1991 through 2006, the relative amount of flexible funding used for transit projects, either directly through FHWA or through transfer to FTA, has been low, averaging less than 3 percent of the total federal-aid highway program and 13 percent of available flexible funding. From 1992 through 2006, a total of $12 billion of flexible funding has been used for transit projects. The vast majority— more than 96 percent—of this funding was transferred from FHWA to FTA; the remaining amount was used for transit projects administered directly by FHWA. Flexible funding not used on transit was used on other eligible projects such as construction and operational improvement of roadways. Figure 2 shows the amount of flexible funding used on transit projects—including funds that were transferred to FTA and those that were administered directly by FHWA—in relation to the overall federal-aid highway program and to available flexible funding from 1992 to 2006. Other FHWA progr, inclding thoe for the contrction, recontrction nd improvement of highw nd ridgeFlexile fnding (STP nd CMAQ) The amount of flexible funding transferred to FTA increased markedly with passage of the Transportation Equity Act for the Twenty-First Century (TEA-21) in 1998, primarily because the act increased overall highway funding levels, according to DOT officials. The average annual amount of transferred funding increased from $630 million under ISTEA to $1.1 billion under TEA-21, when measured in inflation-adjusted 2007 dollars, and increased further to $1.2 billion during the first two years of SAFETEA-LU. Likewise, the proportion of available flexible funding transferred to FTA increased from about 11 percent during ISTEA to 14 percent and 15 percent under TEA-21 and SAFETEA-LU, respectively. Figure 3 shows both the annual transfer amount in nominal actual dollars and inflation-adjusted 2007 dollars to allow for comparison across time. The figure also shows the average transfer amount for each transportation authorization act in inflation-adjusted dollars. Individual states have transferred flexible funding to FTA for transit projects at varying rates. For example, while California transferred nearly 40 percent of its apportioned flexible funding for transit projects administered by FTA between 1992 and 2006, and 3 other states and the District of Columbia transferred at least 25 percent, 19 states transferred less than 2 percent of this flexible funding during the same period. Figure 4 illustrates the state-by-state proportion of flexible funding transferred to FTA for transit projects. Among the nine states included in our case-study review, we found that factors such as demographics, infrastructure, geography, and the availability of other funding sources had an effect on how much flexible funding the states used on transit. In states such as Wyoming and parts of Iowa and Kentucky, for example, population is dispersed over a wide area, and services such as shopping and health care facilities are often far from one another and from residential areas. Officials in these states said that such conditions do not lend themselves to efficient use of transit. Thus, Iowa state transportation officials noted, the population in Iowa is largely reliant on the automobile for transportation, and counties, which have discretion about how to use certain state transportation funds, lean heavily toward building roads. Another reason for states using a small proportion of flexible funding on transit can be that the state uses other revenues to support transit. For example, state transportation officials in Delaware, which has not transferred flexible funding for use on transit, told us that they believe state revenue sources—including the state’s gasoline tax—are sufficient to meet the needs of the state’s transit operators. Conversely, states that use a higher proportion of their flexible funding on transit tend to have large, congested urban areas that are served extensively by transit.