NCDOT has utilized the federal Advance Construction technique for over 30 years. All states take advantage of this process in order to leverage federal revenue in the most efficient and effective way.
Advance Construction can be complicated to understand. For a primer, people may view these documents and an FAQ found at the bottom of this page:
If a construction project is estimated to be $40 million over three years, NCDOT may opt to use Advance Construction with the Federal Highway Administration (FHWA). As cost is expended on the project, the department can convert the cost and bill FHWA throughout the life cycle of the project. In the first year, the project cost may be $8 million. NCDOT will monitor the project and convert it to a billable federal source at the appropriate time as cost increases on the project. NCDOT maximizes its billing authority to the amount allowed by FHWA every year.
In 2021, NCDOT established best practices guidelines for Advance Construction utilization. This analysis examines NCDOT’s utilization of Advance Construction for non-GARVEE projects using those guidelines.
Advance Construction Guidelines for Non-GARVEE projects:
- Amount of unreimbursed state funds (by funding source) should not exceed one year of anticipated federal apportionments; and
- Advance Construction balance (by funding source) should not exceed four years of anticipated federal apportionments.
These guidelines will provide a framework that allows for the continued use of Advance Construction while limiting the amount of state funds used on federal projects.
When the new policy is applied to federally funded projects, NCDOT anticipates the use of Advance Construction in both fiscal years 2022 and 2023 will remain within the appropriate parameters for all categories.
Comparison of Advance Construction Amounts to Allowables for FY22 & FY 23
|Funding source||Projected AC amount at end of FY 2022||Allowable AC amount for FY 2022*||Within prescribed limit?||Projected AC amount at end of FY 2023||Allowable AC amount for FY 2023*||Within prescribed limit?|
|National Highway Performance Program (NHPP)*||$1,493 million |||
|Surface Transportation Block Grant (STBG)**|||
|$1,167 million||Yes||$513 million||$1,167 million||Yes|
|Highway Safety Improvement Program (HSIP)|||
|$230 million ||Yes|
* Allowable AC amount is 4 times the annual apportionment
Analysis of unreimbursed AC balances as of Sept. 30, 2021
NCDOT conducted an analysis of projects that are utilizing AC to determine how much has yet to be reimbursed to NCDOT. Based on that analysis, NCDOT is operating within the policy guidelines.
|National Highway Performance Program (NHPP)*||$191 million||$441.4 million||Yes|
|Surface Transportation Block Grant (STBG)**||$65 million||$291.7 million||Yes|
|Highway Safety Improvement Program (HSIP)||$48 million||$57.6 million||Yes|
Benefits of Utilizing Advance Construction:
- Accelerates project delivery – projects can begin when they are ready and do not have to wait for the accrual of federal dollars.
- Reduces cost – Construction cost inflation rises faster than the return of investing idle cash.
- Provides flexibility to substitute projects. If one project is not ready for construction when it was planned to be, NCDOT instead can begin a similar project.
- Stabilizes construction contract award schedule. The private sector can maintain its businesses knowing that contracts will be awarded during the year. If NCDOT must wait for federal dollars to accrue before starting, NCDOT would award fewer contracts and at fewer times during the year.
- Allows for the use of federally approved bond issue projects. States can finance federally approved highway or bridge projects with bond issues that may be repaid with their federal highway funds. Such state debt issuances are referred to as Grant Anticipation Revenue Vehicle (GARVEE) bonds. Advance Construction allows the federal funds to be obligated each year to pay for annual debt service.
Frequently Asked Questions
With this process, NCDOT pays for a project upfront, then gets reimbursement (typically 80 percent) from the Federal Highway Administration.
Because NCDOT relies on revenue from taxes and fees to flow in every month, the agency must operate on a cash-flow basis. This way of budgeting supports using Advance Construction.
If states, including North Carolina, did not use Advance Construction, they would have to wait several years until all of the federal money for a project was “in the bank.” By then, the project would be delayed and could cost substantially more.
The sooner that projects are identified and approved, the sooner they can be built and less they will cost. Once a project has been identified in the STIP, the cost to build them often increases over the years between when the initial estimate was created and when the project is completed.
Because all 50 states use Advance Construction, the potential of the federal government not reimbursing the states is extremely unlikely because of the impact this would have to state governments across the nation.
One way is to define parameters. North Carolina has recently done this by establishing the following benchmarks that will be monitored frequently during the year.
Every state has a limitation on the amount of federal funds it can obligate each federal fiscal year. If a state cannot use its apportioned obligation authority, those amounts typically are allocated to other states each August as part of a redistribution. Advance Construction can be quickly converted to federal funds, allowing a state to take full advantage of the “August redistribution” of federal obligation authority.