North
Carolina Takes a New Approach to Financing Road Maintenance
Faced
with a problem confronting many States-where to find money to maintain
highways-North Carolina turned to a process known as cash flow financing,
or cash management, to obtain the needed funds. As part of the process,
North Carolina's General Assembly passed a special provision in September
2001 authorizing the State Department of Transportation (DOT) to use
$470 million in State Highway Trust Fund cash balances to restore
primary routes that range from fair or poor condition to good condition.
Although
North Carolina is only 11th in the Nation in population, it has the
second largest State-maintained road system at 126,000 km (78,000
mi). More than 23,000 km (14,000 mi) of the system are primary highways
carrying 60 percent of vehicle miles traveled in the State. Forty-one
percent of the State's road system is currently rated at "fair"
or "poor." Because it was crucial to improve safety and
mobility for North Carolina's drivers, the State budget bill (SB1005)
directed a portion of the Highway Trust Fund's cash balance to be
spent on pavement preservation efforts, which include the strengthening,
shoulder widening, and resurfacing of the State's primary (non-Interstate)
highway system. In all, $150 to $170 million has been allocated each
year for 3 years to North Carolina's 14 highway divisions for needed
road work.
Essentially,
cash flow financing allows State DOTs to tap into funds to which they
previously did not have access; in North Carolina's case, it took
a legislative act to free up money for pavement preservation. At the
end of the 1999-2000 fiscal year, the Highway Trust Fund had reserves
of $858 million and the Highway Fund had a cash balance of $270 million.
The State's Joint Legislative Oversight Committee, seeking to divert
some of that money into projects that could immediately help fulfill
the State's highway maintenance needs, contracted with Dye Management
Group, Inc., of Bellevue, Washington, to study the matter. Dye recommended
that North Carolina use the cash balance for road repair projects
if the General Assembly passed legislation making the funds available.
According to Dye's David Rose, "This idea is not unique in that
several other States have done it in recent years. However, the approach
isn't foolproof-States must implement sound financial management and
planning or else run the risk of depleting highway funds."
The North
Carolina legislation directs the DOT to use "cash flow financing
to the maximum extent possible to fund highway construction projects"
and addresses the inherent risks by mandating a number of controls,
including the establishment of a financial planning committee, monthly
financial reports, fund cash level targets, revenue forecasting procedures,
reorganization of preconstruction functions to expedite project delivery
and maximize use of cash flow financing of projects, and the designation
of a person to be responsible for project delivery. The law also empowers
the State Treasurer to combine the balances of the Highway Trust Fund
and the Highway Fund and to make short-term loans between the Funds
to facilitate cash flow financing.
In addition
to the $470 million to be used for primary route pavement preservation,
the legislation specifies two other smaller provisions: $15 million
per year for 3 years is to be used for the planning and design of
projects so that money can be saved over the long run in maintenance
costs. And another $15 million per year for 3 years is designated
for installing electronic signal and traffic management systems that
will improve the operational efficiency of the State's road system
by reducing delays and facilitating traffic flow. The new provisions
also stipulate that the DOT must ensure that improvements made using
cash balance funds will not interfere with the delivery of Highway
Trust Fund projects on the 2002-2008 Transportation Improvement Program
schedule.
In an
announcement of the special provision, North Carolina Transportation
Secretary Lyndo Tippett called the law a "landmark" move
that is "undoubtedly the most significant transportation legislation
since the Highway Trust fund in 1989." In illustrating the importance
of the provision, Tippett added, "Under [the previous] funding
system, it might be 10 to 20 years before some of these roads would
ever be resurfaced. In fact, some of these projects would not have
been completed for many generations."
Quick
to allocate the new funds, the DOT reports that $115 million was let
to contractors by the end of December 2001. These funds are allowing
needed repairs to be made immediately to the State's primary roads,
thus increasing safety and mobility for customers. Dye Management
Group, Inc., is currently assisting the DOT in implementing new cash
management procedures, developing forecasting tools, and making the
transition to a cash-flow based program.
For more
information, contact Len Sanderson, State Highway Administrator for
North Carolina DOT, 919-733-7384 (email: lsanderson@dot.state.nc.us).
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..................................................
Articles
in this issue:
In
brief...
Highway
infrastructure: protecting the nation's investment
North
Carolina takes a new approach to financing road maintenance
Champions
of highway quality honored
International
conference showcases recycled material uses
Highway
technology calendar
