Use of Proceeds from the Sale of Real Property Purchased with Federal Highway Funds, B-290744, September 13, 2002

B-290744 Sep 13, 2002 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights Science and Transportation United States Senate Dear Senator McCain: This is in response to your letter dated April 3. You also ask questions about how the states have applied Sec. 156. The remaining issues you raise will be addressed in a separate GAO report. States disposing of excess property acquired with Federal Highway Trust (title 23) funds are authorized to reapply the federal share of the proceeds to other eligible title 23 projects. It has informed the states that projects funded through proceeds from such transactions are not subject to restrictions that would otherwise apply if such funds were treated as federal funds. You ask us to examine the issues raised in the DOT-IG's report and determine whether FHWA's interpretation is correct. View Decision Use of Proceeds from the Sale of Real Property Purchased with Federal Highway Funds, B-290744, September 13, 2002 The Honorable John McCain Ranking Minority Member Committee on Commerce, Science and Transportation United States Senate Dear Senator McCain: This is in response to your letter dated April 3, 2002, requesting our views regarding the Federal Highway Administration's (FHWA) interpretation of 23 U.S.C. Sec. 156 (2000). As explained below, Sec. 156 authorizes states to use the proceeds from sales of real property purchased with federal funds for other eligible projects. Your letter asks whether the proceeds from real property sales retain their character as federal funds under Sec. 156; you also ask questions about how the states have applied Sec. 156. This opinion addresses the proper interpretation of Sec. 156. The remaining issues you raise will be addressed in a separate GAO report. Under Sec. 156, and in particular, Sec. 156(c), states disposing of excess property acquired with Federal Highway Trust (title 23) funds are authorized to reapply the federal share of the proceeds to other eligible title 23 projects. The FHWA construes Sec. 156 as allowing states to treat the proceeds of excess property sales as state funds. FHWA believes that the federal government retains no residual interest in those proceeds. It has informed the states that projects funded through proceeds from such transactions are not subject to restrictions that would otherwise apply if such funds were treated as federal funds. As your letter points out, the Department of Transportation's (DOT's) Office of Inspector General (DOT-IG) questioned FHWA's interpretation of Sec. 156 in its report, October 2001 Finance Plan for the Central Artery/Tunnel Project, IN-2002-086, March 11, 2002. You ask us to examine the issues raised in the DOT-IG's report and determine whether FHWA's interpretation is correct. In this regard, you would also like us to consider whether states (1) can convert federal money to state money by buying and selling property, (2) can use such means to reduce or avoid their obligation to provide matching funds, and (3) can thus avoid normal safeguards on the use of federal funds. As explained below, we disagree with FHWA's interpretation of Sec. 156. Section 156 permits states to apply the federal share of proceeds of excess property dispositions to other title 23 projects in lieu of returning those funds to the Highway Trust Fund. The federal interest in such funds is not extinguished. Consequently, states may not convert federal money to state money by buying and selling property or use the federal share of recaptured funds to reduce or avoid their obligation to provide matching funds. Background Prior to 1998, if a state sold real property purchased with federal highway funds, it had to return the federal share of the net proceeds of the sale to FHWA. In 1998, Congress adopted the Transportation Equity Act for the 21st Century (TEA-21), Pub. L. No. 105-178, title I, Sec. 1303(a), 112 Stat. 227 (1998), which authorized states to reapply the federal share to other projects. As amended by TEA-21, 23 U.S.C. Sec. 156 reads as follows: "(a) Minimum charge.--... a State shall charge, at a minimum, fair market value for the sale, use, lease, or lease renewal (other than for utility use and occupancy or for a transportation project eligible for assistance under this title) of real property acquired with Federal assistance made available from the Highway Trust Fund.... (b) Exceptions.--The Secretary may grant an exception to the requirement of subsection (a) for a social, environmental, or economic purpose. "(c) Use of Federal share of income.--The Federal share of net income from the revenues obtained by a State under subsection (a) shall be used by the State for projects eligible under this title." The predecessor to Sec. 156 of title 23, U.S.C., applied only to the sale, use, lease or lease renewals of "right-of-way airspace," as opposed to the broader coverage of "real property" under TEA-21. It provided: "...