Feds free up $2.5B of highway funds frozen by old accounting glitch

State departments of transportation are breathing a sigh of relief after the Federal Highway Administration resolved the bulk of a nearly 20-year-old accounting glitch that threatened $3.5 billion of infrastructure funds.

The resolution of $2.5 billion of the $3.5 billion discrepancy between two accounting systems used by the federal government frees up the money for state DOTs to begin to obligate the funds, which had been frozen since October.

“Our worst fear was a recession of $3.5 billion of contract authority for the states,” said Susan Howard, director of policy and government relations at the American Association of State Highway and Transportation Officials. “It will help move things along in terms of obligating dollars. We’re really happy the outcome was what it was and is not impacting state DOTs any further.”

REGINALDSteve Burrow

The Federal Highway Administration is still trying to account for the remaining $1 billion, but so far has no hard deadline on needing to resolve the issue before it is potentially clawed back.

The problem’s origin occurred sometime around fiscal 2005 when the accounting systems used by the Federal Highway Administration with state DOTs and the U.S. Department of Transportation were merged somewhat unsuccessfully. The FHWA in 2018 realized the two systems had different recorded totals of unobligated contract authority held by states before the Infrastructure Investment and Jobs Act was enacted in November 2021.

The discovery led to a freeze on the pre-IIJA contract authority in October 2022 until the problem could be resolved.

The FHWA told Congress about the problem and proposed a plan that involved reviewing individual transactions in 2004 and 2005 to settle the disputed balance without affecting the amount of federal highway funds that states can obligate and spend.

After solving for the $2.5 billion, the FHWA sent a memo on July 11 to states saying they are allowed to obligate up to 70% of their balances of pre-IIJA contract authority between now and Sept. 26, according to according to Eno Transportation Weekly, which has been tracking the problem.

The funds will be added to a “jaw-dropping” $7.4 billion of extra funds distributed to the states in August as part of the agency’s annual redistribution, according to Eno.

The increasingly large August redistributions of Highway Trust Fund obligation limitation to states — which occurs late in the fiscal year, giving states a narrow window to obligate the money — is a separate problem that AASHTO is also keeping an eye on, Howard said.

“That problem has compounded over time, so we would love to find a solution so it’s not quite as large and the state DOTs can have it earlier in the year,” she said.