States jockey for priority over locals for federal transportation funds in next surface bill

Al Drago/Bloomberg

State transportation officials are urging Congress to ensure that states retain control of federal formula dollars in the next surface transportation bill, arguing that small local governments "often face challenges meeting complex requirements necessary to deliver federally funded projects."

The comments were made in an April 6 letter to lawmakers from transportation industry advocates, including the American Association of State Highway and Transportation Officials, American Road and Transportation Builders Association and the U.S. Chamber of Commerce. The letter urges lawmakers to preserve the current equation in which state DOTs direct 85% of federal highway formula funds and local governments direct the remaining 15%.

Congress is gearing up to tackle the next surface transportation bill before the current one, the Infrastructure Investment and Jobs Act, expires on Sept. 30. Though the bulk of the IIJA's funding was allocated as formula funds, which are allocated to states at the beginning of each fiscal year, the law also featured advance appropriations and dozens of new competitive grant programs that opened up major funding to local governments for the first time. Republicans have repeatedly criticized the grant funding.

The timeline for the draft bill remains unclear. House Transportation and Infrastructure Chair Rep. Sam Graves, R-Mo., originally said a version would be released before the end of 2025. After last year's government shutdown, he pushed it to early 2026. In March, he said he wanted to hold a markup in early April; last week Politico reported that the markup is now expected around late April at the earliest.

Graves has repeatedly said that he wants the bill to mark a return to "traditional" projects like roads and bridges and feature some kind of user fees to support the failing Highway Trust Fund, where the majority of highway funds come from. The HTF's account balance is set to approach zero in fiscal year 2028, the Congressional Research Service said in an April 6 report.

President Trump's recent fiscal 2027 budget does not include any details on surface transportation reauthorization. It also proposes canceling several key grant programs administered by the Department of Transportation, including
the Rebuilding American Infrastructure with Sustainability and Equity or RAISE program; the National Infrastructure Project Assistance or "Mega" program; and the Rural and Tribal Assistance pilot programs, AASHTO said in an April 10 blog.

With midterm election season in full swing later this year, some are predicting short-term extensions instead of a full bill by the new fiscal year.

AASHTO and other industry groups, in their letter, said states are the "backbone of the federal-aid highway program" and that state DOTs must adopt statewide transportation plans.

"Local governments are indispensable partners, and we acknowledge that they are seeking to increase their portion of federal formula funding in the next bill. However, the need for more federal funding is equally true for state DOTs — especially in light of a recent increase in construction costs," the letter said.

Smaller cities and rural areas often have a difficult time meeting requirements for federally funded projects, the group said, adding that 81% of unspent dollars in the Surface Transportation Block Grant Program last fiscal year came from the locally controlled portion. "Fragmenting the state-based formula model risks more federal resources sitting idle rather than accelerating the delivery of important transportation projects."

Local government lobbyists like the National Association of Counties note local governments own a significant chunk of transportation assets. Counties own 44% of the nation's roads and 38% of the bridges, according to NACo.