One of the most significant funding sources available to county road departments is the Surface Transportation Block Grant (STBG) program which provides federal funding to states for transportation system needs across all jurisdictions. Oregon allocates a portion of the discretionary portion of its STBG funding to small Metropolitan Planning Organizations (MPOs), cities, and counties.
STBG funds, however, come with significant federal requirements which few local agencies are qualified to, or capable of, meeting. Instead, local government road departments must rely on the Oregon Department of Transportation (ODOT) to plan, review, and deliver local federal-aid projects. This outsourcing of local project delivery to ODOT adds administrative costs and delays which devalues the purchasing power of STBG and the benefit to the statewide integrated road system.
To address this inefficiency ODOT, the Association of Oregon Counties (AOC), and League of Oregon Cities (LOC) established the Fund Exchange Program in the 1980s through an intergovernmental agreement. The Fund Exchange Program allows local governments to exchange their allocation of federal STBG funds for state funds to reduce red-tape and maximize the efficiency and purchasing power of taxpayer funds.
Counties rely on the Fund Exchange Program to maintain basic operation and maintenance activities and preservation projects such as road paving and chip seal projects, Americans with Disabilities Act (ADA) required improvements, transportation planning, and the purchase of equipment to maintain eligible roads. In Fiscal Year (FY) 2022-2023 county road departments are forecasted to be eligible for approximately $21 million in STBG State Fund Exchange funds.
Due to a generous and favorable exchange rate the Fund Exchange Program is also a revenue generator for ODOT. At 90 cents on the dollar, ODOT is estimated to receive $3.6 million more than they would give in FY 2023. The program is highly regarded as an example of intergovernmental partnership but persists wholly upon ODOT’s discretion. With only 30 days notice, ODOT can unilaterally revoke this critical lifeline for local governments.
In 2020, in an effort by ODOT to offset systemic State Highway Fund (SHF) deficits, the exchange rate (which originally covered ODOT administrative costs) was increased from six to 10 percent through an agreement between ODOT, AOC, and LOC. Despite this agreement, in the spring of 2022, ODOT approached AOC and LOC with proposals to significantly reduce the Fund Exchange Program due to spending limitations in their operations and maintenance programs.
AOC and leadership from the Oregon Association of County Engineer and Surveyors (OACES) have engaged in good faith negotiations in an effort to identify a solution that will preserve this cost-saving Fund Exchange Program and the significant benefits it affords both ODOT and local governments. Unfortunately, proposals presented by ODOT reduce Fund Exchange Program capacity by 50 percent for the near-term and outright eliminate the program shortly thereafter.
The fallout from reduction or elimination of the Fund Exchange Program will be felt by the users of Oregon’s transportation system statewide — all local agencies will experience a major loss in purchasing power due to the costs of federal compliance. Without the Fund Exchange Program, STBG funds will be extremely difficult for local governments to spend on critical projects, most counties and cities will need to save up STBG allocations over multiple years to accumulate sufficient funds to scope and deliver a federal project. Equipment and materials will no longer be eligible for purchase and the majority of local governments will need to hire cost-prohibitive consultants from ODOT to satisfy federal certification requirements.
County roads are a critical component of Oregon’s integrated road system, making up over 60 percent of the state’s non-federal road network, over 32,000 total miles, and over 3,400 bridges. Transportation funding options for local governments are restricted by Oregon law, which forces counties to be dependent upon state and federal funding to meet the needs of our shared road system. In an effort to preserve the critical efficiencies created by the Fund Exchange Program, AOC and OACES are pursuing a legislative concept in the 2023 Legislative Session. The concept will seek to codify the program and to amend House Bill 2017 (2017) statutes to remove any restrictions that render certain State Highway Funds ineligible for use in the Fund Exchange Program.
Contributed by: Mallorie Roberts | Legislative Director