State highway and transportation officials are wrestling with a $3.5 billion accounting speed bump that has thwarted the progress of Infrastructure Investment and Jobs Act funds winding their way to the nation’s highways.
The problem, which has been germinating for nearly twenty years, has come to a head according to officials attending the annual American Association of State Highway and Transportation Officials Transportation Briefing happening this week in Washington D.C.
The problem’s origin occurred sometime between fiscal years 2003 and 2005 when the accounting systems used by the Federal Highway Administration and the U.S. Department of Transportation were merged somewhat unsuccessfully. Brian Bezio, CFO, FHWA has made Congress aware of the problem and proposed a plan that might settle the disputed balance without affecting the amount of federal highway money that states can obligate and spend. Time is of the essence.
“We want to get that plan implemented this fiscal year, we don’t want to spread it over multiple fiscal years,” he said.
The discrepancy has already resulted in a freeze on pre-IIJA contracting authority that went into effect in October 2022. FHWA’s plan includes a review of individual transactions that happened between 2004-2005. To forestall any lapses in funding, FHWA wants states to de-obligate IIJA money until the situation gets straightened out, which is a temporary fix. “If you think you have a lapse in funding, then please reach out to the division office,” said Bezio. “We did that with intent, so we should avoid any risk of lapse.”
The FHWA uses the Fiscal Management Information System to track and manage highway apportionments, programs, and projects. The Department of Transportation uses the Delphi accounting system to record financial information, which is then transmitted to the Treasury Department and the Office of Management and Budget.
The two systems are not compatible in several key areas including their accessibility to annual audits, tracking funding by states, tracking funding by projects, tracking contract authority, and the liquidation of appropriations.
The discrepancy in obligation and spending figures was discovered in 2018 by FHWA. They compared the two balances and found that according to FMIS the total amount of un-obligated highway contract authority apportionments held by state and local governments was $3.7 billion higher than the total shown in Delphi. An accounting firm combed through the files and found $200 million in errors which brought the number down to $3.5 billion.
Delphi is considered the official accounting system of record meaning the missing $3.5 billion could be written down, essentially taking it off the state’s books. The states have been dealing with the issue by juggling their contracting timelines and theorizing about the mystery. Some believe the problem stems from highway funds flooding in from American Recovery and Reinvestment Act in 2009. Some of those dollars were spent through fiscal year 2012, and sometimes sequenced ahead of other federal highway funds.
The FHWA has identified the issue as being a legacy problem as opposed to an ongoing issue and acknowledge the implications of not solving it in a timely manner.
“We understand we’re putting all of you in a difficult situation having to manage the funding a little differently than you had planned on doing it four months ago,” said Bezio. “However, we cannot over-obligate the funds that are in our core accounting system. So, we’re kind of boxed in.”
The latest wrinkle of tapping IIJA funds to rebuild the nation’s highways comes on the heels of questions about raised by a memo unveiled early last year that sent signs of attached strings to tapping the flow. That memo has since been superseded.
DOT has also shown interest in boosting the number of P3 arrangements to expedite highway construction with help from the Build America Center.
The accounting bug represents another challenge for the transportation community.
“AASHTO and its members are committed to working with USDOT officials to ensure that any potential solution to this accounting error does not have an adverse impact on the critical work being done by state DOTs across the country,” said Jim Tymon, executive director, AASHTO in a statement.