Provisions May Set Stimulus Payout

States and localities that adhere to prevailing wage standards and that have projects that can be built with American materials could be better positioned to receive stimulus funding for infrastructure projects, although it may take several months for stimulus funds to trickle down to local levels, sources said this week.

A total of 30% of the $27.5 billion in highway funding that is to be provided under the stimulus package will go to metropolitan regions and rural areas, and the rest will go to states, said Fred Abousleman, executive director of the National Association of Regional Councils.

All of the funding is based on set formulas, except for the state allocations, he said. At that point, the selection process becomes "complicated," he said.

Some states will cherry-pick projects they intend to fund, some will move selectively through transportation investment programs, and some will seek competitive bids for the grant money. Some states may choose to keep all of the stimulus funds and spend them on state projects, while others may sub-allocate the funds to localities, the sources said.

However, the timing for transportation outlays is more certain. Under the law, states will receive grants within 21 days and will then have 120 days to obligate 50% of the funds, so they are likely to prioritize genuine shovel-ready projects during that time, sources said. Regional councils will have a year to obligate their funds, Abousleman said.

Clean and drinking water state revolving funds would receive a total of $6 billion, far more than Congress has appropriated for them in recent years. Half of the funding for the SRFs will be required to go toward principal forgiveness of state-issued loans to localities or grants from the SRFs, or new loans with negative interest, which essentially also would be grants from the SRFs.

The Environmental Protection Agency is expected to issue guidelines for the use of stimulus funds within a week, said Rick Farrell, executive director of the Council of Infrastructure Financing Authorities. Under that timeline, states should be able to provide grants within a month, he said.

"The states will have to work their way through [the lists of proposals] based on the criteria" for projects, he said, adding that there are "a lot of things that might cause some projects to fall down the list because there would be delays."

The new stimulus law contains two key provisions that could contribute to delays. One provision would require workers to be paid prevailing wages on projects. The other would stipulate that all iron, steel, and manufactured goods used for projects be produced in the U.S.

Prevailing wage standards are in place for most states, but not all. "States that perhaps are not very unionized, they're going to have a bigger challenge in meeting the [prevailing wage] requirements," Farrell said. "But they've known this was coming. Our counsel has been to them that probably [the wage rule] would be in there."

The so-called Buy American provision is "probably going to pose some issues, but it's in the law, so we're going to have to find a way to comply with it," he said.

However, grantees might be able to skirt the rules in some cases. States and localities would be allowed to waive the Buy American provision if purchasing domestic materials would increase the project's cost by more than 25%, or if the materials were unavailable or of low quality.

"I think there were concerns for larger projects - especially acquisition of concrete and steel - and I think the big question was, could we actually move those projects forward anyway?" Abousleman said. Many projects eligible for immediate stimulus funding are not major-scale projects.

Some states are still deciding where to use their funds, while one state has been moving quickly.

The Missouri Department of Transportation said this week that it launched construction on a stimulus-funded transportation project "within moments" of the president enacting the package into law. The project was a bridge replacement costing $8.5 million.

However, nearby, the Kansas Department of Transportation is still considering how to apportion its funds. Kansas DOT officials are expected to announce today which projects will be funded with $350 million of highway construction stimulus funds and $27 million of transit stimulus funds the state is to receive. Kansas plans to share about 20% of its own stimulus money with local governments, DOT Secretary Deb Miller said last week.

Meanwhile, Oregon Gov. Ted Kulongoski last week ordered the creation of a new public-private advisory council to "maximize potential grants from the federal economic recovery package." The group will be charged with finding "signature projects" such as "the largest solar highway in the world" that would put Oregon at an advantage to win $1.5 billion of competitive discretionary grants for surface transportation projects that are included in the stimulus package, Kulongoski said.

The public power sector is expecting it will take funds several months to trickle down to local issuers.

"We think it will be several months before money gets into local government hands," said Nicholas Braden, a spokesman for the American Public Power Association. "Some of the money, for instance, depends on states' enacting decoupling laws" that keep a utility's revenues separated from its customers' energy use, basically making it so that energy-efficient appliances don't cut into utilities' revenues. Also, the agency that oversees energy, the Federal Energy Regulatory Commission, is not yet fully staffed, "so that could also create delays for some of the energy-related stimulus funds," Braden said.

The lawmakers who penned the stimulus legislation stressed that it would have no earmarks and that recipients would be held to rigorous transparency standards.

For the most part, reporting requirements that municipalities and states are subject to under the law are similar to rules they already have in place, according to federal guidelines and sources. Results will be reported up the ladder from the grantee to states to the federal level, with more frequency than usual. Recipients will start reporting on their use of funds by July 15, according to the White House timeline.

A new layer of accountability is the requirement that governors or local chief executives certify that infrastructure investments have undergone all legal vetting processes such as environmental reviews or public meetings. The project costs, the amount of federal funding used, and the project descriptions are expected to be available on the White House Web site www.recovery.gov for public review.

For reprint and licensing requests for this article, click here.
Transportation industry
MORE FROM BOND BUYER