Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
25 Sources and Uses: This chapter provides background information on both federal and state revenue sources and expenditures in order to help TAM professionals understand where funds for transportation come from and how they are typically used within an agency. Steps for identifying and documenting the sources and uses of agency funding are included in this chapter to ensure practitioners have a solid framework for developing the financial plan for asset management. 3.1 Fundamentals of Sources and Uses Introduction Identifying sources and uses of funding is critical to developing a financial plan, whether for TAM or for any process involving inflows and outflows of money. Companies traded publicly in the U.S. are required by law to file an annual income statement. Similarly, state DOTs are now required by federal legislation to develop a financial plan as part of an asset management plan. TAM professionals preparing these financial plans therefore need to understand where the funding for asset management is derived (the âsourcesâ), how much they have to spend, and what activities are eligible under each fund (the âusesâ). The importance of identifying revenue sources and uses is underscored by the GASB, which explains that, âfinan- cial reporting should provide information about sources and uses of financial resources. Financial reporting should account for all outflows by function and purpose, all inflows by source and type, and the extent to which inflows met outflows.â(Arizona Department of Administration 2015). Whether presenting an annual budget, a 20-year long-range plan, or a TAMP, a transporta- tion agency should clearly articulate inflows and outflows of funding in order to provide its audience a clear picture of its finances. The Arizona DOT does this by providing a simple graphic account of inflows and outflows in its annual report (see Figure 3-1), accompanied with a brief narrative that highlights primary funding sources and uses. This chapter guides TAM practi- tioners in gathering the information necessary and creating a similar graphic account for their respective agencies. FHWA notes that âsources and uses provide a summary of where the capital used to fund an agencyâs projects, operations and activities will come from (the sources), and what this capital will purchase (the uses)â (Varma and Proctor 2015a). Understanding the sources and uses of funding for any government agency may appear straightforward. However, the answer to the question, âWhere does the money come from and where does it go?â is seldom simple. C H A P T E R 3 Transportation Funding Sources and Uses
26 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management Private, for-profit companies in the U.S. generate income statements that generally group revenues in the upper portion of the statement and expenditures in the lower portion. Govern- ment agencies may do likewise, but someâespecially those that by law must balance their bud- gets by ensuring expenditures do not exceed revenuesâoften develop reports that display only a portion of the overall picture. Depending on the audience for any particular income statement or budget reporting, an agency may portray only the sources of funding, i.e., the revenues. For example, an agency may rationalize that the audience of the budget report or financial plan is more concerned with toll receipts, grant funding, or pass-through funding in which the state DOT acts as a custodian of federal funds that are administered to a local agency recipient. In this case, the agency may assume that the expenditure aspect of the budget will be derived through pre-determined formulas for spending. Conversely, an agency may choose to depict only the uses of those funds, the expenditures. The audience for this reporting may be the primary recipients or beneficiaries of the funding who are more concerned with how much they will receive than where the money was derived. Compounding potential inconsistencies in reporting format are other factors such as the variation of detail or structure in the sources and uses. This detail or structure may vary Figure 3-1. Arizona DOT depiction of sources and uses in 2014 annual report (Arizona Department of Transportation Financial Management Services 2014).
Transportation Funding Sources and Uses 27 depending on the audience, the time horizon, or the regulatory environment. A governor, for example, may want to see two sources in the financial plan: federal funds and state funds. The budget officer for the governor, however, may desire significantly more detail in reporting. A long-range planner communicating the available local funding may wish to consolidate source and use categories that are not eligible to local agencies while still providing ample detail for those that are eligible. Regardless, the TAM professional needs to be well-versed in the agencyâs funding picture in order to converse with the budget officer, the long-range planner, partner local agencies, man- agers of the agencyâs assets, and others. This chapter begins by providing an overview of federal and state sources of funding and the typical uses of that funding within state DOTs. The chapter concludes with guidance for the TAM professional for identifying and documenting the sources and uses of funding in their agency. Sources According to FHWA, âsources represent what funding will be available to an agency and include the actual source (federal funds, tax revenues, etc.) and the amountâ (Varma and Proctor 2015a). In other words, where is the money for transportation (or asset management more specifically) coming from? Generally speaking, funding for transportation in the U.S. originates from a variety of sources. User charges such as motor fuel taxes, motor vehicle taxes and fees, and tolls make up about 42% of the total revenue for highway transportation. General fund appropriations from Congress also make up a large percentage (27%) of the total revenue at the federal, state, and local levels. In many states, property taxes generate revenue for trans- portation exclusively at the local level. Table 3-1 shows the 2014 government revenue sources for highways. This section discusses federal funds, state funds, tolls, bonds, and other funds. Federal Funds The Highway Transportation Fund (HTF) is the single largest source of transportation fund- ing in the U.S. and comprises the Highway Account and the Mass Transit Account. The HTF distributes funding to the FHWA Federal-Aid Highway Program, which in turn provides fund- ing to the states for transportation, mostly through reimbursement agreements. The HTF was established in 1956 by Congress at the same time the Interstate Highway System was under development. The fund collects and distributes money dedicated to federal highway and transit projects. The sources of revenue for the HTF include the federal gas tax; diesel fuel Source Federal State Local Total User Charges Motor-Fuel and Motor-Vehicle Taxes $32.8 $56.2 $3.1 $92.1 Tolls $12.3 $2.1 $14.3 User Charges Subtotal $32.8 $68.4 $5.2 $106.4 Other Charges Property Taxes and Assessments $12.7 $12.7 General Fund Appropriations $20.6 $9.6 $37.5 $67.7 Other Taxes and Fees $0.4 $10.3 $6.6 $17.4 Investment Income and Other Receipts $1.0 $10.1 $7.1 $18.3 Bond Issue Proceeds $22.9 $7.3 $30.1 Other Charges Subtotal $22.1 $53.0 $71.2 $146.2 Grand Total Note: Totals may not be exact due to rounding. $54.9 $121.4 $76.3 $252.6 Table 3-1. Government highway revenue sources for 2014 (millions) (Office of Highway Policy Information 2016b).
28 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management tax; taxes on tires, trucks, and trailers; and interest credited to the account. A breakdown of these revenue sources for fiscal year 2013 is shown in Figure 3-2 (Joint Committee on Taxation 2015). Since inception, one distinguishing aspect of the HTF is that it is designed as a âpay-as-you-goâ account. This helps ensure that taxpayers can link the use of the publicâs asset to their investment in the asset and that the fund has sufficient revenue to cover the reimbursements required in a given fiscal year. There has been much discussion in recent years concerning whether and how much to increase user fees or taxes given that expenditures now outpace revenues; Congress has had to overcome HTF deficits with transfers from the General Fund. The Congressional Joint Committee on Taxation outlines the issues with the HTF in its 2015 report, âLong-Term Financing of the Highway Trust Fundâ (Joint Committee on Taxation 2015). It is through the Federal-Aid Highway Program that funding flows from the HTF to the individual states, and from there to local jurisdictions for certain funds. This works through a reimbursement system. Rather than giving states the funding up front, states are notified that they have federal funds available for their use, projects are approved and work is started; then the federal government makes payments to the states for costs as they are incurred on projects (FHWA Office of Policy and Government Affairs 2017). This reimbursement is generally com- bined with a matching program where the total project costs are covered through the matching of federal funds with state or local resources. Under current federal authorization, the Fixing Americaâs Surface Transportation Act or âFAST Act,â there are various individual programs within the Federal-Aid Highway Program providing funding to states for the purposes outlined in the legislation. These include NHPP, the Surface Transportation Block Grant (STBG) Program, the Highway Safety Improvement Program (HSIP), the Congestion Mitigation and Air Quality Improvement Program (CMAQ), and the Metropolitan Planning Fund. For details on these programs, see FHWAâs âGuide to Federal-Aid Programs and Projectsâ (FHWA Office of Program Administration 2017). State Funds A state DOTâs non-federal revenue can be generated from a variety of funding sources including, but not limited to, motor fuel excise tax, aviation fuel sales tax, dedicated sales taxes, vehicle registration fees, interest income derived from investments, tolls from roads Gasoline ($24.1) Diesel ($8.9) Tires and Tread Rubber ($0.4) Use Tax (Certain Vehicles) ($1.0) Truck and Trailers ($3.3) Other Fuels ($0.2) $24.1 $0.2$3.3 $1.0 $0.4 $8.9 Figure 3-2. Highway Trust Fund, fiscal year 2013 by source ($ billion).
Transportation Funding Sources and Uses 29 and bridges, tolls from ferries, oversized/overweight truck permits, overweight truck fines, outdoor advertising/junk yard sign permits, right-of-way usage permits, other permit fees, bonds, unclaimed property funds, state general funds, state budget surplus funds, special fees such as development-impact fees, one-time appropria- tions or income sources unique to the state and interagency transfers from other state agencies such as the Highway Safety Commissions, Louisianaâs Governorâs Office of Homeland Security & Emergency Preparedness (GOHSEP), and the Federal Emergency Management Agency (FEMA). State motor fuel taxes are almost always the largest funding source available to states. As demonstrated in Figure 3-3, the proportion of federal funds in a stateâs entire transportation budget can vary widely, from just under 30% to almost 100%. Most states also have dedicated trust funds with varying defined pur- poses, such as economic development or infrastructure asset improve- ment. In some cases, these dedicated trust funds are the primary source of funding for states as state general funds are often limited. Recently implemented dedicated trust funds have cost index sustainability fea- tures built into them to circumvent the loss of funding value due to inflation. These dedicated trust funds are generally provided via state motor fuel taxes and, in some cases, have defined projects that must be constructed as a result of the state legislation that created them. Figure 3-3. Proportion of funds from federal revenue sources in each state (Bauer and Black 2015). TIP! TAM professionals typically do not have to discover new transporta- tion funding sources but nevertheless should be aware of any current or forthcoming revenue raising initiatives when building their ten-year financial plan. Several studies such as Special Report 285: The Fuel Tax and AlterÂ natives for Transportation Funding (TRB 2006) can help TAM professionals better understand funding options. A DOTâs budget office, policy and government relations unit, planning group, or the governorâs budget office will often provide the best knowledge of current or near-term funding options.
30 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management In addition, a few states, such as Colorado and Louisiana, have implemented advanced finan- cial management systems that enable these states to implement new cash management proce- dures that allow for construction of multiyear projects based on year of expenditure, rather than needing the full amount of a project before the construction could begin. CDOTâs experi- ence with improving financial management is described in their Risk-Based Asset Management Plan (Cambridge Systematics Inc. and Redd 2013). Toll Revenue The federal government was not the first agency to assess fees for transportation use. Toll roads in the U.S. were commissioned between 1792 and 1800 and by 1810 there were over 398 private road networks in 11 states. Two centuries later, by 2013, 35 states or territories held facilities collecting more than $13 billion in toll revenues (The Inter- national Bridge, Tunnel and Turnpike Association 2015). The New Jersey Turnpike Authority represents more than 10% of this total with $1.4 billion collected in 2013. Toll bridges and tunnels (as measured in miles) on the NHS have remained constant at just over 300 miles for the past decade while toll roads have grown by nearly 20% to more than 5,500 miles (FHWA 2016a). The Oklahoma Turnpike Authority pro- vides the single largest tolling network with more than 600 miles as of 2013 (The International Bridge, Tunnel and Turnpike Association 2015). Bonds In Table 3-1 bonds are shown as a source of revenue, but it is important to note that because of the pay-back obligations that come with bonds, they represent a different source than revenue from taxes, fees, or appropriations. In the private sector, bonds are not considered revenue. Issu- ance of a bond does not increase a companyâs revenue on the income statement. However, in the public sector it is not uncommon to demonstrate an increase in the source of current-year funding through the inclusion of bond proceeds. When this is done, debt service obligations should also be shown in the plan for completeness. A 2006 RAND report acknowledges that âborrowing is a good way to finance large public capital investments with high up-front costs that provide benefits to users for years.â This is because âbonds spread the cost for a new facility over time in rough proportion to the actual benefits from that facilityâ (Wachs 2006). Further, while there is a cost to borrowing money through bonds, in a calculation of the economic benefit of an investment, this cost is at least partially offset by the benefit realized through obtaining user benefits sooner based on the time value of money. Regardless of the potential benefits of using bonds to fund transportation projects, it is important to recognize the difference between revenues derived from issuing debt and revenues derived from other sources. Transportation agencies across the country approach the use of bonds differently. While some states frequently use bonds to cover the cost of transportation projects, others have laws prohibiting the use of bonds at state DOTs. Bonds are often paid for with new state revenue streams, typically approved by a public vote, while others are paid for by existing sources of income such as federal HTF reimbursement within the stateâs existing federally authorized allotment. On rare occasions, state governments may assist the state DOT by directing bond proceeds to transportation and agreeing to pay the debt service from the stateâs general fund. TIP! The TAM professional must consider whether and how to include tolls in the financial plan. The decision depends on factors including ownership of the highways and bridges (e.g., by the DOT vs. an independent tolling authority) and location of the assets on the NHS. If toll sources are included, uses should be included. TIP! When considering the inclusion of bonds as a source of revenue in a financial plan, TAM practitioners must make certain not to double count sources by reflecting both bond proceeds and the new revenue streams that pay for them. They must also consider whether to show the annual payments of debt service as a use of funds if those payments will be taken from the pool of TAM-eligible funding.
Transportation Funding Sources and Uses 31 Other Funds Besides motor fuel taxes, registration fees, tolls, and bond proceeds as discussed above, agen- cies may have at their disposal one or more of the following: â¢ Sales taxes that may include general sales tax, automobile and accessories sales tax, or lodging and car rental surcharges, â¢ Special fees such as development-impact fees, â¢ One-time appropriations or income sources unique to the state, â¢ Toll credits that accumulate when federal-aid roads are funded without federal match and are commonly used to help cover local matching requirements on other Federal-Aid Highways, and â¢ Oversize-overweight, access, and other permit fees. Uses FHWA states that âuses represent the amounts an agency projects it will spend (purpose and amount)â (Varma and Proctor 2015a). Once sources are clearly understood, the TAM profes- sional can begin to articulate how those funds are used to support the preservation of transporta- tion infrastructure assets. Asset Management Uses What constitutes an asset management expenditure? FHWA notes in Varma and Proctor (2015a) that asset management may draw from a full list of state DOT uses or budget categories such as: â¢ Pavement Program â¢ New Construction â¢ Bridge Program â¢ Safety â¢ Maintenance â¢ Local Projects â¢ ITS â¢ Debt Service â¢ Other Assets â¢ Delivery/Admin Note that the above list of categories includes some for which an agency may use federal funds (e.g., for their pavement and bridge programs) and others for which federal funds cannot be used, or can be used only under certain circumstances (e.g., maintenance). It is easy to categorize the Pavement Program, Bridge Program, and Other Assets as asset management activities, but what about Maintenance, ITS, New Construction, Debt Service, or Delivery/Admin? Elements of these categories may be included in the TAM financial plan depending on the source of funds that pay for them and on the agencyâs definition of asset management. Consider the following example. A state DOT engineer designs a small resurfacing project and a second engineer advertises the project, hires a contractor to deliver the project, oversees the contractor through delivery, and then submits eligible expenses for reimbursement by FHWA through the agencyâs finance office. In documenting this activity in a financial plan, the TAM professional must understand how the costs of the project are accounted for in order to fully comprehend the impact on the financial plan. Referencing the list of budget categories above, the TAM professional may have to consider questions such as: â¢ Did the full contractor cost of the project get accounted for in the Pavement Program? â¢ Did the project include any other assets such as guardrails, curb, culverts, signs, or signals?
32 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management â¢ Did the staff costsâdesign, project management/delivery, and administrativeâget reflected in the true cost of the resurfacing of the pavement? â¢ Had the project been completed by DOT maintenance crews rather than contractors, would those costs have been similarly captured as a cost of the pavement resurfacing? â¢ Did the fact that this project was federally reimbursable help determine how it got reflected in a financial plan that must include the NHS? The next sections offer additional distinctions that can affect how the asset manager reports uses of funds. Capital Versus NonÂCapital Expenses Expenditures of transportation funds often fall into two categories: capital and non-capital. (Non-capital is often referred to as the main- tenance and operating costs.) In principle, capital projects are those that add value (e.g., new construction, road widening, major rehabili- tation and reconstruction projects) and are often referred to as invest- ments in infrastructure assets. Non-capital, or operating expenditure, typically does not add value. Examples of non-capital expenditures are illustrated in Table 3-2 (Office of Highway Policy Information 2016b). These examples may include maintenance and traffic services, adminis- tration and research, highway law enforcement and safety, and interest payment on debt. However, in practice, the distinction between capital and non-capital expenses is often made based on dollar amount. For example, a DOT may arbitrarily distinguish projects with costs greater than $50,000 as capital projects and less than $50,000 as operating costs. Depending on the agencyâs definition of capital vs. non-capital, as well as its definition of asset management, TAM activities could be classified in either category of expenses. Since it is important for the TAM professional to understand the agencyâs history of spending on a particular asset, it may be necessary for the TAM professional to work with the agencyâs accountants to capture both the capital projects and the operating and maintenance expenditures. This helps provide a clear picture of the agencyâs past and current spending on TAM activities. Expenditures by Type Federal State Local Total Capital Outlay $0.7 $80.5 $24.3 $105.5 Non-Capital Expenditures Maintenance and Traffic Services $0.2 $23.5 $27.9 $51.6 Administration and Research $2.3 $8.4 $5.4 $16.1 Highway Law Enforcement and Safety $9.5 $10.1 $19.6 Interest on Debt $8.2 $4.0 $12.2 Subtotal Non-Capital Expenditures $2.5 $49.5 $47.5 $99.5 Bond Retirement $11.6 $21.8 $33.4 Grand Total $3.2 $141.6 $93.6 $238.4 Table 3-2. Government highway expenditure uses for 2014 ($ billions) (Highway Statistics Table HF-10) (Office of Highway Policy Information 2016b). TIP! For the TAM professional, there are two key points to consider when dealing with capital vs. non-capital expenses: (1) The capital outlay that adds value to the asset could be impacting the calculation of asset valuation (for more detail on asset valuation, see Chapter 6) and (2) the decision whether or not to include maintenance and operating activities in asset management financial plans is important and will impact the reporting of both sources and uses. TIP! These and other questions do not need to be asked for every resurfacing project, but there should be agreement among the DOTâs TAM professional, pavement manager, project manager, and budget officer on how to answer such questions before the TAM professional can confidently report on TAM expenditures and needs.
Transportation Funding Sources and Uses 33 Fixed Versus Variable Costs Another important financial accounting concept concerns the treatment of fixed and variable costs. âWhat does it cost just to turn the lights on at the DOT?â This question and others below related to fixed versus variable costs are questions the TAM professional must ask when develop- ing the financial plan for asset management: â¢ Are annual program costs as reported by the TAM professional represented consistently for each asset? â¢ Does each program have a minimum funding threshold to pay for annual expenses such as inspections or technology? â¢ When using unit costs (e.g., for a square foot of deck area of a bridge) does a portion of that represent a fixed cost for administration that should not increase as the program replaces additional bridges? As with the capital versus non-capital classification, the fixed versus variable cost distinc- tion is a subtle component of financial planning that the TAM professional must understand. To illustrate the intricacies of cost, consider the following example. If a bridge program spends $10 million on annual inspections undertaken by consultants, $5 million in staff salaries for design and management, $1 million on technology, and $50 million on projects that replace, rehabilitate, or repair bridges, does the asset manager report a $50 million bridge asset man- agement program or a $66 million asset management program? Letâs assume for the moment the DOT reports only $50 million in this example. Letâs also assume the DOTâs pavement program rolls its staff salaries for design and management into total annual project costs of $250 million. If the asset manager reports the DOTâs annual asset management program as $300 millionâ$50 million for bridge and $250 million for pavementâis the asset manager now portraying bridge and pavement costs differently? These incon- sistencies need to be reconciled in the sources and uses section of a financial plan. Besides generally differentiating between fixed and variable costs the details of what is included in the variable costs must also be considered. This becomes important when the TAM profes- sional is engaged in forecasting or modeling exercises in support of the financial plan. Determining needs for a bridge program may be calculated by multiplying annual square footage of deck area (as a surrogate for bridge needs) by the average cost per square foot of deck area treated. That number may vary greatly depending on whether it includes only labor and materials or also includes right-of-way acquisition, environmental clearance, design, traffic monitoring, etc. Selecting Sources and Uses for Inclusion in a Financial Plan When developing a financial plan and listing the sources and uses, it is important to consider the audience. Depending on the audience, the sources listed may be as broad as âfederal fundsâ or it may be as detailed as âSTBG Program Sub-Allocation 23 U.S.C. 133(d).â There is no one right wayâthe level of detail depends on the audience. The list of uses in a TAM financial plan can be simple and briefâPavements, Bridges, Other Assetsâor it can be more detailed. In Figure 3-4, FHWA offers a sample of state DOT uses that includes more than a dozen items that could be considered Asset Management uses. TIP! To accurately represent sources and uses in a financial plan the TAM professional should understand what costs are included in the program costs and what are reported elsewhere. This will help determine what a DOT must spend to get the first asset management project out the door and what the impact is on asset performance for each incremental dollar.
34 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management Equipped with an understanding of how the agency tracks and reports sources and uses, the TAM professional can decide which sources and uses belong in the financial plan and how to best group or categorize them. The TAM professional must decide whether to include all NHS assets or only pavement and bridges. He or she must also consider whether to select sources and uses in order to demonstrate a balanced budget or a gap between available sources and projected expenditures. Then the grouping of sources and uses can be done in alignment with other finan- cial plans and reports, such as the agencyâs annual financial statement or LRTP. The next section steps through these decisions in order to accurately document the revenue sources and uses in a financial plan for asset management. 3.2 Steps to Identify and Document Sources and Uses With an understanding of where the money for asset management comes from and where it goes, it is time to put the knowledge into practice. The following six steps assist in accu- rately identifying and documenting the sources and uses of funding for asset management Figure 3-4. Illustrative example of historical uses of funds for sample state DOT ($ millions) (Varma and Proctor 2015a).
Transportation Funding Sources and Uses 35 in a financial plan. These steps offer guidance on sources and uses content (what to include in your financial plan) and structure (how to convey and format your sources and uses statements). Thoughtful consideration of each of these steps will save time and effort on recalibrating revenues and expenditures in future years if the financial plan needs to be communicated to different audiences and helps not only develop a plan, but track against it as well. Step 1: Determine the Scope of the TAM Program If you have not already done so, in this step you need to determine what assets to include in the TAM program. Itâs not enough to simply indicate that the agency is developing a TAMP for âbridges and pavements.â Consideration should also be given to whether or not the program addresses only the NHS, the entire state-owned system, or the entire network of roads within the state regardless of ownership. If the program does include only bridges and pavements, is there a benefit to listing other assets that may help to indicate the relative importance of your bridges and pavements assets or to show what other asset categories may compete for limited TAM funding? Also at this stage, you need to decide how to account for assets on the NHS that are not owned by your state DOT, but rather by a local agency or tolling authority. Consider if these should be included as a footnote or as a category in your list of sources and uses. Note that the financial plan need not be limited to show only sources and uses related to the assets included in the TAM program (though these sources and uses must, at minimum, be included). Often it is useful to provide a comprehensive picture of an agencyâs financial posi- tion that includes additional information. An agency may wish to prepare a financial plan that addresses all of its assets, while preparing a TAMP that includes only the information required to support compliance with federal requirements. Step 2: Establish Sources Now identify the sources of funding relevant to asset management. It may be helpful to start compiling the list in a spreadsheet for ease of organization and the ability to do simple calcula- tions. The sources a DOT may want to include are: â¢ Federal sources, â¢ Federal-Aid Highway Program, â NHPP, â HSIP, and â Other federal-aid sources, â¢ Older Programs Such as the American Recovery and Reinvestment Act, â¢ State sources, â¢ Motor fuel tax, â¢ Licenses, permits, and fees, â¢ State general fund allocation, and â¢ Toll revenues and bond proceeds. This is not an exhaustive list of sources. There may be agency-specific sources that should be included as well. Of course, not all the money from these sources can be used for asset management activities, but at this stage, you are gathering high-level information on all possible sources. Figures 3-5, 3-6, and 3-7 show examples of the funding sources tables included in Californiaâs TAMP. Figure 3-5 lists the federal sources; Figure 3-6 lists the state sources; and Figure 3-7 lists a summary of state and federal sources. The addition of
36 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management Figure 3-5. California TAMPâsummary of funding from federal sources (Caltrans 2018). Figure 3-6. California TAMPâsummary of funding from state sources (Caltrans 2018): SHA = state highway account, RMRA = road maintenance and rehabilitation account.
Transportation Funding Sources and Uses 37 price-based fuel excise taxes and the road maintenance and rehabilitation account (RMRA) are sources specific to Caltrans. Step 3: Establish Uses Identify the TAM-related expenditure categories. At a minimum, you should include the pavement and bridge program as these are required in the TAMP. However, if you are aiming to be more comprehensive, you may have other asset managementârelated uses such as Maintenance, ITS, and Safety. It may be helpful to include sub-categories within each TAM-related expenditure category identified. Think about the audience of the financial plan when determining how much detail is necessary. Including sub-categories may be logical for some audiences who want detailed information about the budget for asset management. However, for other audiences, a high-level overview may be sufficient. When constructing a list of sources and uses in a spreadsheet, you have the flexibility to use sub-categories, but you can always hide or eliminate the sub-categories if they do not fit the goal of your financial plan. Figure 3-8 shows the funding uses table from the California TAMP. Step 4: Structure Your Sources and Uses List At this point, there should be a complete list of the funding sources and uses relevant to asset management. Before filling in dollar values, categorize the list of sources and uses. You may have done this already, but take a moment here to check the organization of your lists. Sources may be grouped into federal, state, tolls, bonds, and local categories. On the uses side, think about grouping by project type or location. Table 3-3 provides several suggestions for grouping sources and uses to make the financial plan accessible and comprehensible. How sources and uses are grouped can be a way to emphasize priorities in asset management. For example, CDOT sought to make clear that its budget was nearly entirely dedicated to asset management or âmaintaining what we have.â Little funding was available for âexpand- ing the system.â The agency then broke the budget down by work performed by CDOT, work that was outsourced, and capital expenditures (see Figure 3-9). This breakdown provides straightforward insight into labor and material costs for a given budget category and clearly demonstrates CDOTâs emphasis on asset management. While this example highlights an entire budget, the concept of using categories to show emphasis and priorities can be applied on a smaller scale to the development of a financial plan for TAM as well. Figure 3-7. California TAMPâsummary of funding (Caltrans 2018).
38 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management Figure 3-8. California TAMPâsummary of Caltrans planned commitments (Caltrans 2018). Also of note in the CDOT budget is their use of color. They shaded the program areas that were directed by the stateâs Transportation Commission (TC) so that the audience could quickly pinpoint areas of interest. The use of color and shading is another technique you can use in developing your financial plan to organize, show emphasis, and cater the content directly to a particular audience. Step 5: Validate the List Now it is time to put the list to the test. Work with the budget office to populate the sources and uses with actual revenues and expenditures for a single year. Budget officers typically work
Transportation Funding Sources and Uses 39 Figure 3-9. Colorado DOT source and use identification within budgetary process (CDOT Transportation Commission 2012) (TC = Transportation Commission, FR = federal requirements, BEB = Bridge Enterprise Board, Comb = combination, SH = state highway funding. Sources Uses Federal vs. State Program (e.g., surface treatment, bridge) Discretionary or Flexible vs. Dedicated or Directed Geography (e.g., DOT district) Fuel Taxes vs. Other Taxes vs. Tolls and User Fees Fixed (e.g., bridge inspection program) vs. Variable (e.g., lane miles of asphalt) Contracted Work vs. DOT In- House Work Table 3-3. Suggested ways to group sources and uses.
40 A Guide to Developing Financial Plans and Performance Measures for Transportation Asset Management in three year segmentsâthe year that just ended, the current year, and the year ahead. Select one of these years, although likely the current year may be the most logical, and see if together each row can be populated with actual or budgeted revenues and expenditures. Ask yourself, the budget officer, and others the following questions when going through this process: â¢ Do the sources and uses balance? Should they? What is the difference? Do you need to explain this difference? â¢ Is the detail sufficient? Are the categories clear? Can your audience understand each row? â¢ How many footnotes did you need to describe exceptions or special cases (e.g., one-time funds not addressed in the list)? If there are more than several such exceptions, this may sug- gest a need to revise the list. â¢ Were there any aberrations for the sample year? Sun-setting legislation? One-time appropria- tions? How should these be handled in subsequent years? â¢ If you included more than only TAM sources and uses, did you appropriately emphasize the relevant rows? This step may involve some iteration. Revise your list of sources and uses as needed in order to accurately fill in the revenues and expenditures. Step 6: Document Constraints Now that you have your list of TAM sources and uses and have dollar values for a single year, take time to document the constraints on the funding sources. Many of the funds for asset manage- ment use come with eligibility requirements and you should be familiar with these requirements as you go through the process of developing your financial plan. For example, the Federal-Aid Highway Program is an important source of funding for all state DOTs, but there are certain criteria that agencies must meet in order to use funds. FHWA highlights a few key criteria that generally apply to most of the programs (FHWA Office of Policy and Government Affairs 2017): â¢ Funds must be used on eligible highways, often termed âFederal-aid highwaysâ; â¢ Funds are available for capital improvements and planned upkeep of highway assets, but cannot be used for routine maintenance (e.g., pothole patching, mowing, snow removal, graffiti removal); and â¢ Projects must be included in the STIP. In addition to the above criteria for FHWA funds, individual programs have their own eligibility requirements that states must be cognizant of as well. For instance, some programs are not eligible for traditional asset management expenditures such as rehabilitation of highways and bridges. Step 7: Document Assumptions About Fixed Costs Finally, it is important to take note of the assumptions you made about fixed costs when con- structing your list of sources and uses. Did you include the fixed costs in your list? Are there other fixed costs that werenât included? What are they? There is no right or wrong way to handle the fixed costs in a TAM financial plan, but it is important to understand what the fixed costs are and the assumptions made when including them in your list of uses. This understanding of fixed costs will be helpful in the next phases of developing your financial plan, as that may dictate such details as minimum funding thresholds for programs with non-flexible fixed costs.