Nonurbanized Area Formula Program Guidance and Grant Application Instructions

• General
• Dear Colleague Letter
• Chapter I: General Overview
• Chapter II: Apportionments
• Chapter III: Eligibilty
• Chapter IV: Program Management and Administrative Requirements
• Chapter V: Application Instructions
• Chapter VI: Program Management and Administrative Requirements
• Chapter VII: Intercity Bus
• Chapter VIII: Rural Transit Assistance Program
• CHapter IX: Civil Rights Requirements
• Chapter X: Other Provisions
• Chapter XI: State Management Plan
• Exhibit A: Sample Section 5311 Program of Projects
• Exhibit B: Section 5311 Budget Information
• Exhibit C: Activity Line Item Codes
• Exhibit D: Annual Certifications and Assurances
• Exhibit E: Sample Intercity Bus Certification
• Exhibit F: Special Section 5333(b) Warranty for Application to the Small Urban and Rural Program
• Exhibit G: Capital Cost of Contracting

Number C 9040.1E
10-01-98

1. PURPOSE. This circular is a reissuance of guidance on the administration of the transit assistance program for nonurbanized areas under 49 U.S.C. § 5311, and guidance for the preparation of grant applications. This revision incorporates provisions of the Transportation Equity Act for the 21^st Century (TEA-21), reflects the Federal Transit Administration's (FTA) move to electronic grantmaking and managment, and includes the most up-to-date available guidance for the program.

2. CANCELLATION. This circular cancels FTA Circular 9040.1D, "Nonurbanized Area Formula Program Guidance and Grant Application Instructions," dated 05-08-97.

3. REFERENCES.

a. Federal transit laws, 49 U.S.C. §§ 5301 et seq. (also, 49 U.S.C. Chapter 53).

b. Federal highway and surface transportation laws, Title 23, United States Code (Highways).

c. Transportation Equity Act for the 21^st Century, Pub. L. No. 105-178 (1998).

d. Intermodal Surface Transportation Efficiency Act of l991, Pub. L. No. 102-240 (1991).

e. Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq.

f. Section 504 of the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 794.

g. Title VI of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000d.

h. Clean Air Act, as amended, 42 U.S.C. §§ 7401 et seq. and scattered sections of 29 U.S.C.

i. Section 404 of the Clean Water Act, as amended, 33 U.S.C. § 1344.

j. Policy on Lands, Wildlife, and Waterfowl Refuges, and Historic Sites, 49 U.S.C. § 303 (former "Section 4(f)" of the DOT Act).

k. Section 106 of the National Historic Preservation Act, 16 U.S.C. § 470f.

l. Lobbying Restrictions, 31 U.S.C. § 1352.

m. State Infrastructure Provisions of National Highway System Designation Act of 1995, as amended, 23 U.S.C. § 101 note.

n. Congressional Declaration of Policy Respecting Insular Areas, 48 U.S.C. § 1469a.

o. Executive Order No. 11246, "Equal Employment Opportunity," as amended by Executive Order No. 11375, "Amending Executive Order 11246 Relating to Equal Employment Opportunity," 42 U.S.C. § 2000(e).

p. U.S. Department of Transportation (U.S. DOT) regulations, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," 49 C.F.R. Part 18.

q. U.S. DOT regulations, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-profit Organizations," 49 C.F.R. Part 19.

r. U.S. DOT regulations, "Participation of Minority Business Enterprise in Department of Transportation Programs," 49 C.F.R. Part 23.

s. U.S. DOT regulations, "Nondiscrimination on the Basis of Handicap in Programs and Activities Receiving or Benefiting from Federal Financial Assistance," 49 C.F.R. Part 27.

t. U.S. DOT regulations, "Drug-Free Workplace Requirements (Grants)," 49 C.F.R. Part 29, Subpart F.

u. U.S. DOT regulations, "Transportation Services for Individuals with Disabilities (ADA)," 49 C.F.R. Part 37.

v. U.S. DOT regulations, "Americans With Disabilities (ADA) Accessibility Specifications for Transportation Vehicles," 49 C.F.R. Part 38.

w. Federal Transit Administration (FTA) regulations, "Charter Service," 49 C.F.R. Part 604.

x. FTA regulations, "School Bus Operations," 49 C.F.R. Part 605.

y. FTA regulations, "Capital Leases," 49 C.F.R. Part 639.

z. FTA regulations, "Prevention of Prohibited Drug Use in Transit Operations," 49 C.F.R. Part 653.

aa. FTA regulations, "Prevention of Alcohol Misuse in Transit Operations," 49 C.F.R. Part 654.

ab. FTA regulations, "Buy America Requirements," 49 C.F.R. Part 661.

ac. FTA regulations, "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 C.F.R. Part 663.

ad. FTA regulations, "Bus Testing," 49 C.F.R. Part 665.

ae. Joint Federal Highway Administration (FHWA)/FTA regulations, "Planning Assistance and Standards," 23 C.F.R. Part 450 and 49 C.F.R. Part 613.

af. Joint FHWA/FTA regulations, "Environmental Impact and Related Procedures," 23 C.F.R. Part 771 and 49 C.F.R. Part 622.

ag. U.S. Department of Labor guidelines, "Section 5333(b), Federal Transit Law," 29 C.F.R. Part 215.

ah. U.S. Department of Treasury regulations, "Rules and Procedures for Funds Transfers," 31 C.F.R. Part 205.

ai. U.S. Office of Management and Budget (OMB) Circular A-87, Revised, "Cost Principles for State and Local Governments."

aj. OMB Circular A-122, Revised, "Cost Principles for Non-Profit Organizations."

ak. OMB Circular A-133, Revised, "Audits of Institutions of Higher Education and Other Non-Profit Institutions."

al. Government Services Administration, "Catalog of Federal Domestic Assistance."

am. FTA Circular 4220.1D, "Third Party Contracting Requirements," dated 4-15-96.

an. FTA Circular 5010.1C, "Grant Management Guidelines," dated 10-1-98.

ao. FTA Circular 9030.1C, "Urbanized Formula Program Guidance and Application Instructions," dated 10-1-98.

ap. FTA Circular 9070.1E "The Elderly and Persons with Disabilities Program Guidance and Application Instructions," dated 10-1-98.

aq. FTA Circular 9300.1A, "Capital Program: Grant Application Instructions," dated 10-1-98.

ar. FTA Circular 9500.1, "Intergovernmental Review of FTA Planning, Capital, and Operating Programs and Activities," dated 3-30-84.

as. U.S. General Services Administration, "Lists of Parties Excluded from Federal Procurement and Nonprocurement Programs."

at. Dear Colleague letter signed by U.S. Secretaries of Transportation, Health and Human Services, and Labor, transmitting joint guidance, "Use of Temporary Assistance for Needy Families and Welfare to Work Funds for Transportation," dated May 4, 1998.

4. WAIVER. FTA reserves the right to waive any requirements of this circular to the extent permitted by law.

This document may be made available in accessible formats upon request.

Revised Circular (9040.1E) Re: Nonurbanized Area Formula Program Guidance and Grant Application Instructions

Number C-98-20a
10-01-98

Dear Colleague:

I am pleased to issue Federal Transit Administration (FTA) Circular 9040.1E, a revision of the program guidance and application instructions for the nonurbanized area formula program, Section 5311.

The main purpose of this revision is to reflect provisions of the Transportation Equity Act for the 21st Century (TEA-21). The most important impact of TEA-21 on this program is the significantly higher level of authorized funding for rural transit.The program not only benefits from the overall higher level of funding for transit under TEA-21, but also receives a greater share of total Federal transit formula funding than it did under the Intermodal Surface Transportation Efficiency Act (ISTEA). In this revised program circular, FTA urges states to use the increased funding to expand the coverage of transit in areas that currently have minimal or no service, as well as to improve the quality of rural transit.

Because funding for the Rural Transit Assistance Program (RTAP) also increased, FTA has revised the administrative formula used to allocate RTAP funds to the states. Beginning in Fiscal Year 1999, we have raised the minimum allocation from $50,000 to $65,000 to assist the smaller states in meeting the need for technical assistance to new rural transit operators.

The revised circular also reflects other minor changes. The guidance gives the states more flexibility in how they provide assistance to private intercity bus operators. The application and grant management procedures reflect FTA's progress toward making and managing grants entirely through our electronic system.

FTA looks forward to continuing to work in partnership with the states and with the many public and private providers of the transit services so important to the people who d~pend upon them and to the well-being of our rural and small urban communities.

Sincerely,
Gordon J. Linton

Chapter I: General Overview

1. PROGRAM SUMMARY. The nonurbanized formula assistance program for public transportation is authorized by 49 U.S.C. § 5311. The Federal Transit Administration (FTA), on behalf of the Secretary of Transportation, apportions the funds appropriated annually to the Governor of each state for public transportation projects in nonurbanized areas. The statutory formula is based solely on the nonurbanized population of the states. Each state prepares an annual program of projects, which must provide for fair and equitable distribution of funds within the states, including Indian reservations, and must provide for maximum feasible coordination with transportation services assisted by other Federal sources.

Program funds may be used for capital, operating, and administrative assistance to state agencies, local public bodies and nonprofit organizations (including Indian tribes and groups), and operators of public transportation services. There is no limitation on operating assistance. The state must use fifteen percent of its annual apportionment to support intercity bus service, unless the Governor certifies that the intercity bus needs of the state are adequately met. The amount which the state may use for state administration and for planning, and technical assistance activities is limited to fifteen percent of the annual apportionment. A separate annual allocation to the state under Section 5311(h), the Rural Transit Assistance Program (RTAP), may be used only for training, technical assistance, research, and related support activities. The maximum Federal share for capital and project administration is 80 percent (except for projects to meet the requirement of the Americans with Disabilities Act (ADA) , the Clean Air Act, or bicycle access projects, which may be funded at 90 percent). The maximum FTA share for operating assistance is 50 percent of the net operating costs. No local share is required for state administration or RTAP.

The code assigned to the nonurbanized formula program in the Catalogue of Federal Domestic Assistance is 20.509.

2. PROGRAM GOALS. The goals of the nonurbanized formula program are: to enhance the access of people in nonurbanized areas to health care, shopping, education, employment, public services and recreation; to assist in the maintenance, development, improvement, and use of public transportation systems in rural and small urban areas; to encourage and facilitate the most efficient use of all Federal funds used to provide passenger transportation in nonurbanized areas through the coordination of programs and services; to assist in the development and support of intercity bus transportation; and to provide for the participation of private transportation providers in nonurbanized transportation to the maximum extent feasible. The program supports the national policy stated in ISTEA: "to develop a National Intermodal Transportation System that is economically efficient and environmentally sound, [and which includes] significant improvements in public transportation necessary to achieve national goals for improved . . . mobility for elderly persons, persons with disabilities, and economically disadvantaged persons in urban and rural areas of the country."

One of FTA's goals is to ensure that all Americans, including those who live in rural and small urban areas, have access to transit to meet basic mobility needs. The significantly higher funding levels for the nonurbanized formula program authorized in the Transportation Equity Act for the 21st Century (TEA-21) should enable the states to extend transit service to areas currently unserved and improve service levels in areas which currently have minimal service.

3. STATE ROLE IN PROGRAM ADMINISTRATION. To the extent permitted by law, FTA gives the states maximum discretion in designing and managing the Section 5311 program to meet nonurbanized public transportation needs. Where possible, FTA defers to states and state instrumentalities in developing program standards, criteria, procedures and policies in order to provide the states flexibility to standardize their management of FTA assistance and related state programs. Department of Transportation (U.S. DOT) regulations, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," 49 C.F.R. Part 18 (sometimes referred to as the "common rule"), permit states to rely on their own laws and procedures instead of Federal procedures in the areas of financial management systems, equipment, and procurement and may pass these procedures down to subrecipients which are public entities. While subrecipients which are private nonprofit organizations must comply with U.S. DOT regulations, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations," 49 C.F.R. Part 19, FTA delegates authority to the state wherever allowed.

The Governor designates a state agency which will have the principal authority and responsibility for administering the Section 5311 program. Specifically, the role of the state agency includes: documenting the state's procedures in a state management plan; notifying eligible local entities of the availability of the program; soliciting applications; developing project selection criteria; reviewing and selecting projects for approval; forwarding an annual program of projects and grant application to FTA; certifying eligibility of applicants and project activities; ensuring compliance with Federal requirements by all subrecipients; monitoring local project activity; and overseeing project audit and closeout. In addition, the state agency may carry out a project directly. The state must exercise adequate oversight to ensure that only eligible activities receive Federal assistance and that subrecipients meet Federal requirements.

In administering the program, the state is also responsible for the following: providing for appropriate technical assistance for nonurbanized areas; ensuring that there is a fair and equitable distribution of program funds within the state; ensuring a process whereby private transit operators are provided an opportunity to participate to the maximum extent feasible; expending funds for the support of intercity bus transportation to the extent required by law; and providing for maximum feasible coordination of public transportation services assisted by FTA with transportation services assisted by other Federal sources.

The state must include its Section 5311 apportionment, along with all other Federal highway and transit funds, in a Statewide Transportation Improvement Program (STIP) approved by FTA and the Federal Highway Administration (FHWA). FTA subsequently obligates Section 5311 funds and any flexible funds transferred to Section 5311 based on the program of projects included in the state's Section 5311 grant application. Before the state may expend Federal funds on behalf of a subrecipient, the state must enter into an agreement with the subrecipient, and the subrecipient must have met all statutory and program requirements. The state certifies to FTA annually that the state and subrecipients have met, or will meet, all Federal requirements.

4. FTA ROLE IN PROGRAM ADMINISTRATION. The FTA headquarters office is responsible for: providing overall policy and program guidance for the Section 5311 program; apportioning funds annually to the states; developing and implementing financial management procedures; initiating and managing program support activities; and conducting national program review and evaluation.

The FTA regional offices have the day-to-day responsibility for administration of the program. Regional office activities include: reviewing and approving state grant applications; obligating funds; managing grants; overseeing the state's implementation of the annual program, including revisions to the program of projects; receiving state certifications; reviewing and approving State Management Plans; providing technical assistance and advice to the states as needed; and performing state management reviews every three years, or as circumstances warrant.

FTA uses contractor support to conduct state management reviews. The reviews examine the state's management procedures, based on the approved State Management Plan. In each area reviewed, a finding is made of compliance, non-compliance, or compliance with follow-up. FTA places emphasis on providing the information needed to help the state come into compliance with Federal requirements in all areas. FTA periodically conducts state management review seminars to assist the states with understanding the requirements. If a particular problem area is observed, a more detailed oversight review may be scheduled in the areas of civil rights, procurement, financial management, drug and alcohol rule compliance, or ADA compliance.

5. RELATIONSHIP TO OTHER FTA PROGRAMS.

a. Elderly and Persons with Disabilities Program (Section 5310). Section 5310 directs FTA to make funds available to the Governor of each state to assist private nonprofit organizations in the purchase of vehicles and related equipment to provide transportation services which meet the special needs of elderly persons and persons with disabilities. Public bodies meeting either of the following two conditions are eligible subrecipients of Section 5310 funds:

(1) Public bodies approved by the state to coordinate services for elderly persons and persons with disabilities, or

(2) Public bodies which have certified to the Governor that no nonprofit corporations or associations are readily available in an area to provide service for elderly persons and persons with disabilities.

Many Section 5310 subrecipient organizations serve clients in rural and small urban areas. While the overall objectives of Section 5311 and Section 5310 differ (the former is to provide transportation to the general public in nonurbanized areas and the latter is to serve elderly persons and persons with disabilities in both rural and urbanized areas), there are parallels which make it desirable for states to consider both resources and plan for their use in a complementary way. With a few exceptions, the two programs are administered by the same state agency. Many Section 5311 subrecipients are private nonprofit organizations, and in some cases a single agency receives funding under both Section 5311 and Section 5310. In other cases, subrecipients of Section 5311 funds participate in coordinated service arrangements which also include Section 5310 funded organizations. FTA encourages participation in such coordinated efforts as long as the coordinated services will continue to meet the purposes of both programs.

Section 5310 funds can be transferred to the Governor for use in nonurbanized areas (Section 5311) or small urbanized areas (Section 5307) if they will not be obligated for projects supporting the Elderly and Persons with Disabilities Program. Where possible, FTA has established consistent guidelines for Section 5310 and Section 5311 to facilitate coordination and to simplify program administration for the state and for subrecipients. Guidance fopr Section 5310 is found in FTA C 9070.1E.

b. Urbanized Area Formula Assistance Program (Section 5307). Section 5307 provides funding for urbanized areas for planning, capital and operating assistance for public transit services. Funds for urbanized areas under 200,000 population are made available to the Governor or the Governor's designee(s). For urbanized areas of 200,000 or more, funds are available to a local designated recipient(s). A number of urbanized area recipients of Section 5307 funds also receive Section 5311 funds to carry out projects in outlying nonurbanized areas. The Governor has the authority to transfer Section 5307 funds apportioned to the state for urbanized areas under 200,000 to supplement the state's Section 5311 apportionment. The Governor may also transfer Section 5311 funds to supplement the state's apportionment of Section 5307 funds for small urbanized areas. The transfer provisions were established to give Governors greater flexibility in allocating formula transit funds in both urbanized and nonurbanized areas, to ensure that funds available to the state are fully utilized. In the past, some states used the transfer provision to balance capital and operating needs given the limitation on operating assistance in the urbanized formula program, but the removal of the operating cap for small urbanized areas in TEA-21 eliminated the need for such transfers. Guidance for Section 5307 is found in FTA C 9030.1C.

c. Capital Program - Bus (Section 5309). Section 5309 provides capital assistance for fixed guideway modernization (40 percent), construction and extension of new fixed guideway systems (40 percent), and bus and bus related equipment and facilities (20 percent) in both urbanized and nonurbanized areas. States and local public bodies are eligible applicants for Section 5309 funds. . States may apply on behalf of private nonprofit and public subrecipients. Many states look to the capital program to supplement vehicles acquired under Section 5310 and Section 5311 or to construct facilities. While distribution of capital program funds is often determined in accordance with congressional direction, FTA encourages states to be the applicant on behalf of nonurbanized areas. Guidance for Section 5309 is found in FTA C 9300.1C. The Department of Labor (DOL) must certify to FTA that adequate labor protections required by Section 5333(b) are in place prior to approval of Section 5309 grants. In the case of statewide grants, however, DOL does not require the state to guarantee the labor protection arrangements, but rather looks at each subrecipient separately. In most cases, DOL will certify these grants based on terms and conditions similar to those of the special warranty for the nonurbanized formula program.

d. Job Access and Reverse Commute Program. This new FTA program was authorized in TEA-21. Of the funds authorized, 20 percent is reserved for use in other than urbanized areas. The Federal DOT share is 50 percent, and contract income and funds from other Federal agencies may be used for the local match. Application procedures will be available from FTA regional offices, or the FTA home page, beginning in FY 1999.

e. Clean Fuels Formula Grant Program. TEA-21 included a new formula program to promote the use of clean fuels. Public body transit operators in clean air non-attainment or maintenance areas, both urbanized and nonurbanized, may apply. FTA must apportion funds by February 1, 1999, to eligible recipients who apply by the January 1, 1999 deadline. Apportioned funds are available to applicants for one year plus one additional year. Eligible projects include the following: the purchase or lease of clean fuel buses, the construction or lease of clean fuel electrical recharging facilities, improvement of existing facilities to accommodate clean fuel buses, the re-power of pre-1993 engines with clean fuel technology and the retrofit or rebuild of pre-1993 engines if before a mid-life rebuild. There is a limitation on the percentage of the funds used for clean diesel projects. FTA will issue guidance in a Federal Register announcement prior to the application deadline.

f. Flexible Funds. TEA-21 maintained the flexible funding provisions of ISTEA, which established the Surface Transportation Program (STP) as a source of flexible funding for both highway and transit projects. At the state's discretion, funds allocated under the STP for highways and transit in rural areas may be used for any capital transit project eligible for assistance under 49 U.S.C. Chapter 53, including vehicles and facilities, whether publicly or privately owned, that are used to provide intercity passenger service by bus. Certain other program funds, for example, Congestion Management and Air Quality (CMAQ), may also be used for either highway or transit projects. These flexible funding sources may be used to supplement the nonurbanized formula program. When the state decides to use flexible funds for rural public transit, the funds are transferred and managed within the Section 5311 program of projects.

g. State Planning and Research Program (Section 5313(b)). Section 5313(b) funds are apportioned annually to the states for use in planning and research. Some of the Section 5313(b) funds are suballocated to metropolitan planning organizations (MPO) in urbanized areas at the state's discretion. Other eligible uses, at the state's discretion, include statewide planning and other technical assistance activities, planning support for nonurbanized areas, research, development and demonstration projects, fellowships for training in the public transportation field, university research, and human resource development. Section 5303 funds are also apportioned annually to the state for allocation to MPO's for planning in urbanized areas.

In addition to Section 5313(b) funds allocated to the states, a state may use up to 15 percent of its Section 5311 apportionment for planning and technical assistance. While RTAP funds are also available to the states for technical assistance, training, research, and support services, it is not intended that RTAP be viewed as a planning resource. However, the state may use RTAP for special projects which support its planning program for rural and small urban areas. Similarly, the state may use its Section 5313(b) funds to support or supplement the technical assistance program it provides through RTAP. States are encouraged to develop a coordinated program of planning, research, training, and technical assistance, taking Sections 5313(b), 5311, and RTAP resources into consideration.

h. State Infrastructure Banks. TEA-21 provides for a revised state infrastructure bank (SIB) pilot program for four states: California, Florida, Missouri, and Rhode Island. These four states may use Section 5311 funds to capitalize SIB's. Other states which established SIB's under the provisions of Section 350 of the National Highway System Designation Act of 1995, as amended, may continue using funds already deposited but, at this time, are not permitted to add Section 5311 funds apportioned after FY 1997. Contact the FTA regional office for more information.

6. COORDINATION WITH OTHER FEDERAL PROGRAMS.

a. The Coordinating Council on Mobility and Access. The U.S. Department of Transportation (DOT) and the U.S. Department of Health and Human Services (DHHS) have been working together since 1986 to improve the coordination of programs funded by the two departments. Previously known as the DOT/DHHS Federal Coordinating Council on Human Service Transportation, the council has adopted a new name which reflects a broader charter. The council meets quarterly to address transportation coordination issues. Concerns about Federal program barriers to coordination may be brought to the attention of the Council through the FTA regional administrator. The FTA regional offices also work with states to address regional concerns and initiatives. FTA encourages state DOT's to work with their counterparts at state human service agencies, to participate with other states in regional initiatives, and to assist local recipients and subrecipients of Sections 5307, 5310, or 5311 funds to participate in coordinated systems at the local level, along with recipients of funds from the programs of DHHS and other Federal and state programs. Section 5311, RTAP, and Federal transportation planning funds provided to the state may be used in various ways to support eligible activities related to the development and administration of coordinated activities at the state and local level.

b. Coordination Mandate. TEA-21 includes a new requirement for local governmental agencies and nonprofit organizations that receive assistance from Federal sources other than the FTA for nonemergency transportation services. To the extent feasible these agencies are now required to participate and coordinate with recipients of assistance from FTA in the design and delivery of transportation services. They must be included in the planning for those services.

c. Welfare to Work. States are encouraged to take a leadership role in coordinating transportation resources for welfare reform initiatives. In addition to FTA and state transit funding, funding is available under Department of Labor Jobs programs and Department of Health and Human Services Temporary Assistance to Needy Families (TANF), as described in joint guidance published by DOT, DOL, and DHHS on May 27, 1998.

d. Public Lands and Indian Reservations. Under TEA-21, transit facilities within public lands, national parks, and Indian reservations are now an eligible use of funds available for public lands, highways, park roads and parkways, and Indian reservation roads (Chapter 2 of Title 23). These funds will be administered directly by the appropriate Federal land management agency (for example, the Bureau of Indian Affairs for the Indian Reservation Roads Program), but they must be included within the state transportation improvement program [49 U.S.C. 5304(c)(6)]. In developing the program of projects for Section 5311, the state should be aware of any transit capital projects tribes may have developed with Indian reservation roads funds.

e. Other Interagency Coordination. FTA encourages state DOT participation in other interagency efforts such as the state Rural Development Councils.

Chapter II: Apportionments

1. NOTIFICATION. The Section 5311 program apportionments and RTAP allocations to the states are published in the Federal Register annually, within ten days after the DOT Appropriation Act is signed.

2. AUTHORIZATION. The amount authorized for Section 5311 under 49 U.S.C. §5338(a)(2)(C)(iii)(II) is 6.37 percent of the amounts appropriated for FTA formula grants. Funds for RTAP are authorized under 49 U.S.C. § 5338(d)(2) as part of the National Planning and Research Program.

3. FORMULA. Section 5311 funds are apportioned to the states by a statutory formula based on the ratio of the nonurbanized population of each state to the nonurbanized population of all of the states, according to the latest available U.S. census data.

4. FUNDS AVAILABILITY. Section 5311 funds remain available to the states for three fiscal years, beginning with the year of apportionment plus two additional years. For example, funds apportioned in FY 1999 will lapse to a state at the end of FY 2001 unless obligated under Section 5311 or transferred to the Section 5307 program and obligated for urbanized areas under 200,000 population. Unobligated funds which have lapsed to a particular state are included in a subsequent FTA apportionment to all the states.

Funds which are deobligated from an approved program of projects remain available to the state for reobligation during the time period in which the funds were originally available to the state. Funds deobligated after the period of availability lapse to the state, and FTA reapportions the funds among all the states.

If a state has carryover funds available, it should obligate the oldest funds first. If a grant contains funds from more than one fiscal year, FTA will generally disburse the oldest funds first. However, if a grant included funds restricted to non-operating projects (for example, restricted funds transferred from Section 5307), restricted funds would be disbursed for a capital drawdown, even if older non-restricted funds remained available in the grant.

Procedures for revising an approved program of projects are described in Chapter IV. Many revisions can be made without changing the scope of the program of projects. Those revisions that do change the scope can only be made so long as there are sufficient undisbursed funds remaining that are within their period of availability.

5.TRANSFER OF APPORTIONMENTS UNDER DIFFERENT PROGRAMS. Funds may be transferred to and from certain other programs to balance state transit and highway needs. The transfer of funds from other programs to Section 5311 does not increase the amount of funds required to be expended for intercity bus. That amount remains at fifteen percent of the state's original Section 5311 apportionment.

a.Transfer of Section 5307 Funds. The Governor may transfer any amount of the state's apportionment for urbanized areas under 200,000 population to any urbanized area in the state, or to supplement the state's Section 5311 program. The Governor may make such transfers only after consultation with responsible local elected officials and publicly owned operators of mass transportation services in each area to which the funding was originally apportioned. The Governor may transfer funds without consultation within the last 90 days in which the funds are available for obligation.

If Section 5307 funds are transferred to supplement a state's Section 5311 apportionment, the funds are treated as additional Section 5311 funding and all the requirements of Section 5311 apply. Three conditions, however, follow the Section 5307 funds when they are transferred to Section 5311.

(1) For Section 5307 funds apportioned to the states before FY 1999, the transferred funds are subject to the capital and operating limitations applicable to the original Section 5307 apportionment. The Governor must designate whether the funds being transferred are unrestricted, that is, available for both capital and operating assistance purposes, or whether they are restricted to non-operating purposes. If unrestricted funds apportioned prior to FY 1999 are transferred, the state's Section 5307 operating cap for that year is reduced accordingly. The transfer of Section 5307 funds to Section 5311 does not increase the amount of Section 5311 funds which may be used for state administration with no local share. This is limited to 15 percent of the state's original Section 5311 apportionment. However, funds transferred from Section 5307 may be used for planning activities without respect to the cap, with a Federal share not to exceed 80 percent.

(2) The period of availability of the transferred funds remains that of the Section 5307 apportionment, one year longer than the same year's Section 5311 apportionment.

b.Transfer of Section 5311 Funds. The Governor may also transfer Section 5311 funds to supplement Section 5307 funds apportioned to the state for urbanized areas under 200,000 population. Transferred Section 5311 funds may not be used for urbanized areas with populations of 200,000 and over. While there is no statutory requirement for local consultation, FTA expects that any transfers would be made in consultation with the state agency which administers Section 5311. Transferred funds are subject to any limitations applicable to the original apportionment of the funds, not of the receiving program. Section 5311 funds transferred to Section 5307 are not subject to operating limitations and the use of transferred funds for operating assistance does not reduce the operating assistance cap of Section 5307 funds apportioned prior to FY 1999. Transfer of part of a state's Section 5311 apportionment to Section 5307 does not reduce the amount of the Section 5311 apportionment subject to the intercity bus requirement, nor does it reduce the amount of Section 5311 funds which may be used for state administration of the Section 5311 program. The period of availability of the transferred funds is that of the Section 5311 apportionment (three years).

c.Transfer of Section 5310 Funds. The Governor may transfer any portion of the state's apportionment under Section 5310 for elderly persons and persons with disabilities to Section 5311 for nonurbanized areas or to Section 5307 for urbanized areas under 200,000 if the funds will remain unobligated at the beginning of the 90 day period before the end of the Federal fiscal year. The period of availability of the transferred funds is that of the receiving program, three years in the case of Section 5311 and four years in the case of Section 5307. Section 5310 funds transferred to Section 5311 may only be used for non-operating costs (capital and project administration, as defined under Section 5311), and do not change the amount available for state administration under either Section 5311 or Section 5310. Since there is no statutory provision which would funds to be transferred the other way, Section 5311 funds cannot be transferred to Section 5310.

d.Transfer of Flexible Funds. Surface Transportation Program (STP) funds, Congestion Mitigation and Air Quality (CMAQ) funds, and certain other "flexible" funds, may be transferred from FHWA to FTA for use by the state for transit projects. Projects in rural areas and urban areas of less than 50,000 population (excluding projects on the National Highway System (NHS) and projects funded with Bridge and Interstate Maintenance funds) are selected by the state in cooperation with affected local officials. STP, CMAQ, or other flexible funds transferred to Section 5311 are treated under the program requirements applicable to Section 5311, but are restricted to non-operating costs, with limited exceptions. Capital and project administration are eligible with an 80 percent Federal share. Up to, but no more than, fifteen percent of the transferred funds may be used for state administration, including planning. No local share is required for state administration. The period of availability of flexible funds transferred to Section 5311 is three years.

Since planning for both transit and highways is eligible under FHWA's formula programs, flexible funds to be used for a rural transit planning project should not be transferred to Section 5311, where they become subject to the cap on state administration which limits the use of the funds for planning.

e. Notification of Transfer. The state initiates the transfer of FTA funds by notifying the FTA regional administrator of the intent to transfer funds. For transfers of Section 5307 funds to the state's apportionment for Section 5311, this notice should include the following: amount of funds to be transferred; fiscal year in which they were apportioned; whether or not the funds are restricted to capital projects (if apportioned prior to FY 1999); and, unless it is within the last 90 days of the period of availability of the funds, a statement by the Governor or designated representative that responsible local officials and operators have been consulted prior to the transfer. For transfers of Section 5311 funds to the state's apportionment for Section 5307, the notice must indicate the amount and fiscal year of funds transferred. Transfers of Section 5310 funds must indicate the amount of funds and the program to which they are to be transferred.

For transfers of flexible funds, the state must notify both FHWA and FTA and request FHWA to transfer the funds. Since FTA approves grants on a quarterly cycle, the state must notify the FTA regional administrator no later than the beginning of the funding cycle when the state expects FTA to obligate the transferred funds.

6. CONSOLIDATION OF GRANTS TO INSULAR AREAS. FTA grants to insular areas may be consolidated under the provisions of 48 U.S.C. § 1469a. This provision permits Federal agencies to streamline and consolidate certain grant-in-aid programs available to the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. These insular areas receive Section 5311 and Section 5310 apportionments and RTAP allocations annually. Specifically, 48 U.S.C. § 1469a permits:

a.Federal agencies to consolidate any or all grants to each of the insular areas and to waive requirements for matching funds, applications, and reports with respect to the consolidated grants, and

b.Each insular area to use the consolidated grant funds for any purpose or program authorized for any of the consolidated grants.

FTA implements this consolidation of Section 5310, Section 5311, and RTAP funding into a single grant by transferring funds from one Section to another, similar to the transfer of funds between Section 5311 and Section 5307 for small urbanized areas described above. The insular areas may transfer all or a portion of the funds apportioned for Section 5310, Section 5311, or RTAP, for use under any of these Sections. This should improve the efficiency of grant making and grant management for these areas which have small staff resources and receive small amounts of funds under each of these programs. Those insular areas interested in submitting applications for consolidated grants should notify the appropriate FTA regional office for application procedures and consolidation requirements. Among other things, the area should identify the intended use of consolidated funds and should show that the transportation of the elderly persons and persons with disabilities will not be adversely affected.

In addition, 48 U.S.C. § 1469a(d) allows a Federal agency to waive any local matching share requirements for grants to insular areas. FTA has no authority under 48 U.S.C. § 1469a to waive any cross-cutting requirements, such as Buy America or drug and alcohol testing.

Chapter III: Eligibilty

1. DESIGNATED STATE AGENCY. The chief executive officer of each state designates an agency with the requisite legal, financial, and staffing capabilities to receive and administer Federal funds under this program. The designated state agency is the grantee for all Section 5311 funds within the state, whether it applies on its own behalf or on behalf of subrecipients. Existing designations remain in effect until changed by official notice of redesignation to the FTA regional administrator. The term chief executive officer of a state includes the designee of the chief executive officer.

2. ELIGIBLE RECIPIENTS. Eligible recipients or subrecipients include state agencies, local public bodies and agencies thereof, private-nonprofit organizations, and operators of public transportation services. The definition of local governmental authority includes Indian tribes. Eligible nonprofit organizations may also serve tribal transportation needs. Private for-profit operators of transit services participate in the program as third party contractors for grantees or eligible subrecipients, rather than as subrecipients. (An exception to this principle for private intercity bus operators assisted under Section 5311(f) is described in Chapter VII,) State agencies may further limit subrecipient eligibility requirements in order to comply with state laws or to further program goals.

3. ELIGIBLE SERVICE AND SERVICE AREAS. Section 5311 funds can be used for public transportation projects and intercity bus transportation projects in areas other than urbanized areas. Public transportation is defined to mean mass transportation by a conveyance that provides regular and continuing general or special transportation to the public, but does not include school bus, charter, or sightseeing transportation. Limitations on the provision of charter and school service are described in Chapter X. Guidance on funding for intercity bus transportation is found in Chapter VII of this circular.

The purpose of Section 5311 assistance is the provision of public transportation services. Incidental use of a Section 5311 vehicle for non-passenger transportation on an occasional or regular basis, for example, package delivery, must not result in a reduction of service quality or availability of public transportation service. This policy on incidental use does not preclude the use of Section 5311 assistance to support the transportation of passengers by a private provider not primarily engaged in passenger transportation, for example a contract mail carrier which incidentally provides intercity passenger transportation.

Section 5311 funded services may be designed to maximize use by members of the general public who are transportation-disadvantaged persons, including elderly persons and persons with disabilities. Coordinated human service transportation which primarily serves elderly persons and persons with disabilities, but which is not restricted from carrying other members of the public, is considered available to the general public if it is marketed as public transit service.

Transit service providers receiving assistance under Section 5310 or Section 5311 may coordinate and assist in providing meal delivery service for homebound persons on a regular basis if the meal delivery services do not conflict with the provision of transit services or result in a reduction of service to transit passengers. It is expected that the operating costs attributable to meal delivery will be borne by the nutrition program which provides the meals. Section 5311 capital assistance may not be used to purchase special vehicles used solely for meal delivery or to purchase specialized equipment such as racks or heating or refrigeration units related to meal delivery.

The terms "nonurbanized areas" and "rural and small urban areas" are used synonymously to mean any area outside of an urbanized area, as designated by the Bureau of the Census. An urbanized area consists of a core area and the surrounding densely populated area with a total population of 50,000 or more, with boundaries fixed by the Bureau of the Census or extended by state and local officials. Areas not currently within the urbanized area are eligible for Section 5311 funding even if they are included within the metropolitan area planning boundary, which includes the surrounding area expected to be urbanized within twenty years and/or the air quality non-attainment boundary.

Since the goal of Section 5311 is to enhance access of people living in nonurbanized areas to activities, Section 5311 projects may include transportation to and from urbanized areas.

The service area may include destinations across a state line. Operators of interstate service are required to register with the FHWA Office of Motor Carriers.

4.JOINT URBANIZED AND NONURBANIZED PROJECTS. In some localities, a subrecipient receives both Section 5307 and Section 5311 funding to provide public transportation for an urbanized area and surrounding nonurbanized areas. Section 5311 funds should be used only to assist the nonurbanized portion of those localities. Because of the wide range of circumstances under which an operator could be providing services in both urbanized and nonurbanized areas, FTA expects the subrecipient to develop a reasonable basis for allocating operating costs between the two funding sources which is related to the service provided. This procedure should also be applied to "joint" capital projects. Likewise in the interest of flexibility and coordination, vehicles purchased under either program may be used in any part of a combined urbanized and nonurbanized service area, but capital replacement policies should ensure that program funds are used appropriately. Where there is a question, FTA would look to the state to make a determination as to the reasonableness of the cost allocation methodology. Section 5307 program information is contained in FTA Circular 9030.1C.

5. ELIGIBLE ASSISTANCE CATEGORIES.

a.State Administration, Planning, and Technical Assistance. The state may use an amount not to exceed 15 percent of its apportioned Section 5311 funds, not including the RTAP allocation, to administer the program and to provide technical assistance to subrecipients. Allowable administrative costs include salaries, overhead expenses, supplies, and office equipment used to administer the program. Technical assistance may include project planning, program development, development of vehicle and equipment specifications, management development, coordination of public transportation programs (public and private for-profit and non-profit), and such research as the state may deem appropriate to promote effective means of delivering public transportation service in nonurbanized areas. No local share is required for these expenses. The state may pass any portion of these funds on to subrecipients for the same purposes and, at its discretion, may impose a local share requirement.

The eligibility of planning costs is limited to funds within the 15 percent state administration cap, with several limited exceptions. As described in Chapter VII, planning and marketing for intercity bus services funded with a 20 percent local share is not limited by the 15 percent cap on state administrative expenses. Planning is also an unlimited eligible use of funds transferred from Section 5307, with a 20 percent local share required. Flex funds transferred into Section 5311, however, are subject to a 15 percent limitation on planning and other state administration activities, with no local share required.

While many administrative and technical assistance activities useful to the state may also be funded as RTAP projects, those technical assistance activities more directly related to the administration of the Section 5311 program, such as conducting procurements and monitoring subrecipients are more appropriately funded as state administration expenses, with RTAP being used to deliver training and technical assistance needed by rural providers.

FTA treats the limitation on state administration as applicable to Section 5311 funds apportioned to the state over time, not necessarily to the apportionment for a particular fiscal year. FTA encourages the states to include all the available state administration funds they intend to use routinely in each annual grant application. However, a state may accumulate the "entitlement" to state administration over several years to augment the funds available for a special administrative need in a subsequent year, such as a major planning study for which current year administrative funds would be insufficient. The period over which the cap is accumulated may not exceed three years. If a state includes planning or state administration expenses in excess of the 15 percent limitation in its grant application, it should document the unused state administration cap from prior years available to augment the cap in the current apportionment.

b. Capital expenses. Capital expenses include the acquisition, construction and improvement of public transit facilities and equipment needed for a safe, efficient and coordinated public transportation system. The Federal share of eligible facilities and equipment shall not exceed 80 percent of the net project cost, except that the Federal share may be 90 percent for bicycle facilities projects and vehicle related equipment required to comply with the Americans with Disabilities Act of 1990, as amended (ADA), or the Clean Air Act, as amended.

In general, capital eligibility is the same as for other FTA capital programs. Where FTA allows certain costs to be capitalized or treated as operating expenses, the state may determine which of those costs it will allow subrecipients to capitalize.

Examples of eligible capital expenditures include, but are not limited to:

(1) buses;

(2) vans or other paratransit vehicles;

(3) radios and communications equipment;

(4) passenger shelters, bus stop signs, and similar passenger amenities;

(5) wheelchair lifts and restraints;

(6) vehicle rehabilitation, remanufacture, or overhaul;

(7) preventive maintenance, defined as all maintenance costs;

(8) extended warranties which do not exceed the industry standard;

(9) the mass transit portion of ferry boats and terminals;

(10) operational support such as computer hardware or software;

(11) installation costs; vehicle procurement, testing, inspection and acceptance costs;

(12) construction or rehabilitation of transit facilities including design, engineering and land acquisition;

(13) facilities to provide access for bicycles to transit facilities or equipment for transporting bicycles on transit vehicles;

(14) lease of equipment or facilities when lease is more cost effective than purchase (when lease of equipment or facilities is treated as a capital expense, the state must establish criteria for determining cost effectiveness, which may include non-economic factors such as management efficiency, availability of equipment, and staffing capabilities. While 49 C.F.R. Part 639, the Final Rule on Capital Leases, published in the Federal Register on October 15, 1991, does not apply to Section 5311, it contains guidelines which may be useful to the state in making the cost-effectiveness comparison);

(15) the capital portion of costs for service provided under contract. Such costs are commonly referred to as the "capital cost of contracting" and include depreciation, interest on facilities and equipment, as well as those allowable capital costs that would otherwise be incurred directly, including maintenance. Under this provision, only privately owned assets are eligible. No capital assets (vehicle, equipment, or facility) that have any remaining Federal interest in them, nor items purchased with state, or local government assistance, may be capitalized under the contract. Costs incurred in the provision of services ineligible for FTA assistance such as charter or school bus service, may not be capitalized under the contract. Capital costs of contracting may be computed as a fixed percentage of the contract without further justification, as detailed in Exhibit G;

(16) joint development projects (FTA Circular 9300.1A, "Capital Program: Grant Application Instructions," Appendix B, provides guidelines for joint development projects);

(17) the introduction of new technology, through innovative and improved products, into mass transportation;

(18)transit related intelligent transportation systems; and

(19)the provision of ADA paratransit service (may not exceed ten percent of the state's annual apportionment of Section 5311 and may be used only by recipients that are in compliance with ADA requirements for both fixed route and demand responsive service).

c. Operating Expenses Operating expenses are considered those costs directly related to system operations. At a minimum, the following items must be considered operating expenses: fuel, oil, drivers' salaries and fringe benefits, dispatcher salaries and fringe benefits, and licenses.

Maintenance may be treated as either operating or capital for funding purposes, at the state's discretion. Likewise, for the Section 5311 program only, FTA gives the state the option of classifying certain other expenses as either operating or non-operating (project administration). Even if these expenses are eligible to be funded at the capital match, they may be classified as operating expenses in the transit provider's internal accounting system, under generally accepted accounting principles. For funding purposes, the same cost may not be counted twice. Net operating expenses are those expenses that remain after operating revenues are subtracted from eligible operating expenses. At a minimum, operating revenues must include farebox revenues. States may further define what constitute operating revenues. Farebox revenues include fares paid by riders who are later reimbursed by a human service agency, or other user-side subsidy arrangements, but do not include payments made directly to the transit provider by human service agencies. Application of contract revenue is further defined in paragraph 6b below.

The Federal share for net operating expenses may not exceed 50 percent. Operating assistance projects of up to two years' duration may be included in the annual program of projects. Operating costs incurred as of the beginning of the local fiscal year but prior to grant award may be approved for reimbursement.

d. Project Administrative Expenses. Under the Section 5311 program, the state has the option to treat project administrative expenses incurred by a local provider as a separate cost category from either capital or operating expenses. This allows administrative expenses to be considered "non-operating" expenses, which may be funded up to the 80 percent Federal share. This practice is consistent with congressional intent that smaller communities be given greater flexibility in matching requirements than larger cities.

Eligible project administrative costs may include, but are not limited to, general administrative expenses such as salaries of the project director, secretary, and bookkeeper; marketing expenses; insurance premiums or payments to a self-insurance reserve; office supplies; facilities and equipment rental; standard overhead rates; and the costs of administering drug and alcohol testing. Administrative costs for promoting and coordinating ridesharing may be eligible if the activity is part of a coordinated public transportation program. Interest on short-term loans for operating assistance is an eligible administrative expense if approved by the state.

e. Pilot Program. During fiscal years 1998 through 2003, any assistance provided to the state of Oklahoma under Section 5307 and 5311 may be used for capital improvements to, and operating assistance for, intercity passenger rail service. This provision of TEA-21 does not apply to any other state. FTA is required to evaluate the pilot program and report to Congress by October 1, 2002.

6. LOCAL MATCH REQUIREMENTS AND ELIGIBILITY

a. Capital and Project Administration. The Federal share of eligible capital and project administrative expenses may not exceed 80 percent of the net cost of the project.

There are three exceptions to the 80 percent match for capital projects. The Federal share may be 90 percent for those capital projects used to provide access for bicycles to transit facilities, or to install racks or other equipment for transporting bicycles on transit vehicles. The Federal share may also be 90 percent for vehicle-related equipment required by the Americans with Disabilities Act of 1990 (ADA) or vehicle-related equipment (including clean fuel or alternative fuel vehicle-related equipment) for purposes of complying with or maintaining compliance with the Clean Air Act, as amended (CAAA). It is only the incremental cost of the equipment required by the ADA or CAAA that may be funded at 90 percent, not the entire cost of the vehicle, even if the vehicle is purchased for use in service required by the ADA or CAAA. Alternatively, for administrative simplicity FTA allows grantees to compute the Federal share at 83 percent for accessible vehicles.

b. Operating. With respect to operating expenses, 49 U.S.C. § 5311(g)(2) provides that the Federal share shall not exceed 50 percent of the net operating deficit included in the project. Of the remainder of the deficit, 50 percent must be financed from sources other than Federal funds or revenues of the system (i.e., half of the local match must come from local funds). This restriction does not apply to the other half of the local share.

Examples of non-Federal sources of local match which may be used for any or all of the local share include: state or local appropriations; dedicated tax revenues; private donations; and net income generated from advertising and concessions. Non-cash shares such as donations, volunteered services or in-kind contributions are eligible to be counted toward the local match only if the value of each is formally documented and supported, and represents a cost which would otherwise be eligible under the project. Guidance on this subject is provided in the Federal administrative rules for grants and cooperative agreements at 49 C.F.R. Parts 18 and 19. The value of in-kind contributions is included in net project cost to the extent it is used as local match.

Pursuant to 49 U.S.C. § 5311 (g)(1), funds received by subrecipients pursuant to service agreements with a state or local social service agency or a private social service organization may be treated as local rather than Federal funds, even though the original source of such funds may have been another Federal program. In addition, certain Federal programs specifically permit the use of Federal funds appropriated for those programs to be treated as local funds for the purposes of matching share for other Federal programs.

Income from contracts to provide human service transportation may be used either to reduce the net project cost or to provide local match for Section 5311 operating assistance. In either case, the cost of providing the contract service is included in the total project cost.

The manner in which a subrecipient applies income from human service agencies to a project affects the calculation of net operating expenses and, therefore, the amount of Section 5311 operating assistance the project is eligible to receive. A state's method of sub-allocating its apportionment among its subrecipients is a discretionary action, subject only to the statutory requirements described in this circular. While a state may not prohibit a subrecipient from using income from human service agency contracts as a source of local match according to 49 U.S.C. § 5311(e)(2), the state may elect to regard the degree to which a subrecipient demonstrates local financial commitment to the project from other sources of local funds as a rating factor in its discretionary allocation decisions.

Chapter IV: Program Management and Administrative Requirements

1. FAIR AND EQUITABLE DISTRIBUTION. The program of projects that the state submits to FTA for approval must provide for fair and equitable distribution of the apportionment in the state, including Indian reservations. While constrained funding levels in the past have sometimes prevented the states from funding new rural transit systems, TEA-21 has dramatically increased the Federal funding available for rural transit. FTA encourages the states to use the increased availability of funds to support expansion of transit service to areas not currently served and to improve the level of service or coverage in areas which currently have minimal service.

2.PLANNING REQUIREMENT. With limited exceptions, all Federal funds to be used for highway or transit projects must be included in a Statewide Transportation Improvement Program (STIP), 23 U.S.C. Section 135. Section 5311 funds must be included in the STIP. Unlike the annual program of projects the state submits with its grant application, the STIP generally covers three program years. For the purposes of the STIP, the state may group its planned expenditures of Section 5311 and RTAP funds into broad statewide projects such as vehicle acquisition for rural and small urban transportation services, operating assistance, intercity bus projects, facility construction, state administration, and training and technical assistance, or show the 5311 apportionment as one aggregate project.

Metropolitan planning organizations (MPO's) are responsible for transportation planning and programs in metropolitan areas. Where Section 5311 projects are being proposed within the MPO's current planning/study area boundaries, which may include areas that are currently nonurbanized but are expected to become urbanized within twenty years, then these projects must be included in the MPO's Transportation Improvement Program (TIP). While the state is ultimately responsible for distribution of nonurbanized formula funds within the state, Section 5311 projects within the metropolitan area planning boundaries of a Transportation Management Area (certain urbanized areas over 200,000) should be selected by the MPO in cooperation with the state.

TEA-21 includes a new requirement that, to the extent feasible, governmental agencies and nonprofit organizations that receive assistance from other Federal agencies for nonemergency transportation services shall participate and coordinate with FTA recipients in the design and delivery of transportation services and be included in the planning for those services.

For further guidance on planning, programming and project selection see the joint FHWA/FTA planning regulations at 23 C.F.R. Part 450 and 49 C.F.R. Part 613.

3. PROGRAM OF PROJECTS. The program of projects identifies the subrecipients and projects for which the state is applying for financial assistance. The Section 5311 annual program of projects submitted to FTA for approval must indicate the total number of subrecipients, identify each subrecipient, give a brief description of each project which includes the counties in which transit service is provided, and indicate the total project cost and the Federal share for each project. The state should identify subrecipients which are Indian tribal governments, and mention any tribal transportation needs which will be served in the project descriptions. FTA needs this information for grant releases given to the state's Congressional delegation, and to compile reports.

The projects to support intercity bus transportation required by Section 5311(f) should be grouped together and subtotaled. Specific RTAP projects should also be described, within the broad areas of eligibility. Information for developing an RTAP program of projects is contained in Chapter VIII of this circular. The program of projects also includes any funds the state will use for planning, technical assistance, and administration, within the fifteen percent limitation, and any other projects the state will conduct directly.

In general, states should not include projects that will extend for more than two years in duration. Exceptions to this should be discussed with the regional office.

The total Federal funding level for the projects in the program cannot exceed the total amount of Section 5311 funds available, including funds from the current fiscal year apportionment, unobligated carryover funds from previous years, and funds transferred from Section 5307 or flexible funds for highway or transit.

4. CATEGORIES OF APPROVAL. FTA's approval of a program of projects does not reflect unconditional approval of all projects within the program. Nor does FTA's approval of a program of projects reflect unconditional approval of all prospective subrecipients identified in the program. FTA recognizes that not all projects in a state program of projects may be at the same stage of development, and therefore, not all applications to the state may be complete at the time the state forwards its annual program of projects to FTA. FTA also recognizes that all subrecipients identified in the program of projects may not yet be in compliance with all applicable Federal requirements. To expedite grant award, FTA allows states to separate projects and funds included in its program of projects into three different categories, depending on how completely Federal requirements have been met.

a. Category A. This category includes those projects certified by the state as having met all the Federal statutory and administrative requirements for approval applicable to both the project activities and subrecipient that will carry out those activities. Upon grant award, FTA's approval of Category A projects is unconditional. Upon execution of the grant, the state may start drawing down funds to implement projects in Category A. Most, if not all, of the projects included in the state's program of projects are expected to be in this category.

b. Category B. Projects in Category B are those the state anticipates approving during the current year, but which have not yet met all Federal statutory and/or administrative requirements, such as certification by the state to the Department of Labor that the special labor protection warranty has been signed, or, in the case of a major capital project other than vehicle purchase, completion of the environmental review process, or are proposed to be implemented by a subrecipient that has not yet met all applicable Federal requirements. When the necessary Federal requirements have been satisfied for a project, FTA's approval of that project becomes unconditional, and the project may be advanced to Category A. Cash drawdowns for that project may commence after the state advances it to Category A. In addition, any Category B project that does not qualify as a categorical exclusion under 23 C.F.R. § 771.117(c) requires environmental clearance from FTA before being advanced to Category A. (See Chapter X for information regarding categorical exclusions.) If a state can list all of its projects in Category A, it would not list any projects in Category B.

c. Category C. Category C consists of funds to finance as yet unidentified Section 5311 projects not included in the state's program of projects submitted with its grant application. The category was established to enable states to obligate the entire annual apportionment at one time, even if the state has not designated all the projects for which its entire Section 5311 apportionment should be used at the time of application to FTA. For example, if the state cannot immediately identify specific projects that would use the entire fifteen percent of the apportionment required to be expended for intercity bus transportation, the remaining intercity bus funds may be listed in Category C designated for intercity bus projects.

This optional Category C represents a "program reserve" and is designed to accommodate unanticipated program needs. It should not be confused with funds for reasonable contingencies for the projects designated in the state program of projects, which the state may include in Category A or B project level budgets, or as a capital or operating contingency set-aside to be allocated among the designated projects as needed. No more than 10 percent of the total amount obligated in the grant may be included in Category C program reserve. FTA strongly encourages the state not to include more funds in Category C than it reasonably expects to allocate to new projects capable of meeting the applicable Federal requirements or to budget adjustments in existing projects within twelve months. If, in the near future, the state does not expect to select projects for which all its Category C funds will be used, the state should defer obligating those remaining funds until the following year. In any case, Category C funds must be allocated to specific projects within the period of availability of the funds. FTA will deobligate any Category C funds not so allocated within the period of availability. (If a grant contains funds apportioned in more than one fiscal year, FTA assumes that the funds remaining in Category C are the newest funds.) Funds deobligated after the period of availability lapse to the state and are redistributed to all the states in a subsequent year's apportionment. When a state selects projects to be advanced out of Category C, it must notify FTA of the changes to the program of projects. Any new project that does not qualify as a categorical exclusion under 23 C.F.R. § 771.117(b) requires environmental clearance from FTA before funds can be advanced to Category A.

5. PRE-AWARD AUTHORITY. FTA allows grantees to incur costs prior to grant award in the formula programs. In order for the pre-award costs to be eligible for subsequent reimbursement, the project must have met all FTA statutory, procedural and contractual requirements, in other words the project must qualify as a "Category A" project in the program of projects. Reimbursement is subject to the availability of funds and grant award. Specific information is included in FTA's annual apportionment notice.

6. GRANT AWARD AND PROJECT APPROVAL. FTA awards grants on a quarterly cycle. States submitting a complete and acceptable application by the beginning of each quarter will be awarded a grant by the end of the quarter. FTA awards grants and obligates funds for the total amount the state requests for all three categories and the RTAP program of projects. FTA grant award constitutes FTA approval of the state's annual program of projects. But FTA approval of the Section 5311 program of projects does not constitute unqualified approval of each project in the program. Grant award does constitute FTA approval of those projects in Category A. Thus the state may draw down Federal funds immediately upon execution of the grant agreement. Grant award also constitutes FTA's approval of those projects in Category B on the condition that all applicable Federal requirements will be met. The state must ensure that those requirements are met and advance the projects to Category A before funds can be drawn down to support those projects. In addition, the grant award obligates Federal funds for Category C projects and constitutes approval of Category C projects, not identified at the time of award, that have met or will meet all applicable Federal requirements. The state, however, must allocate Federal funds awarded for Category C within the period of availability of those funds to new or existing projects that have met or will meet all of the necessary statutory and administrative requirements.

7. REVISIONS TO PROGRAM OF PROJECTS. The state may revise an approved program of projects without constituting a change in scope which would require the deobligation and reobligation of funds. The scope of the grant is the approved program of projects in its entirety. The addition of Federal funds to the approved program of projects is a change in the scope of the approved program of projects and requires an amendment of the grant agreement. Below are examples of project and funding revisions that do not change the scope of the approved program of projects. Unless FTA notifies the state otherwise, the following levels of notification and FTA approval apply to revisions:

a. Revisions Not Requiring Prior Notification or FTA Approval. The state may make the following revisions without any prior notification to or approval by FTA:

(1) Delete a project from the program of projects if the project cost is less than the $250,000 or 10 percent of the total of the program of projects, whichever is greater;

(2) Advance projects from Category B to Category A, provided the prospective subrecipient is in compliance with all applicable Federal requirements, and the state has no information suggesting otherwise;

(3) Allocate Category C funds to existing projects, if the funds are within their period of availability;

(4) Reallocate funds within an approved program of projects among approved projects within a local area or from one local area to another. This includes adjustments of local project funding levels to accommodate changes in vehicle or equipment requirements, including number and type of vehicles and changes in operating costs;

(5) Add equipment or property transferred from a subrecipient to another subrecipient listed in the program of projects, regardless of whether the items were originally funded from a different grant.

(6) Transfer funds designated for intercity bus projects within the program of projects for use in other intercity bus projects, or to other projects if more than the required percentage has been allocated for intercity bus projects and the transfer of funds to another project would not reduce the intercity funding below the required percentage; and

(7) Transfer funds designated for RTAP projects within the program of projects for use in other RTAP projects.

b. Revisions Requiring Notification to FTA, But Not FTA Approval. The state may make the following revisions after notifying FTA:

(1) Allocate Category C funds to new operating assistance projects or capital projects under $250,000, within the period of availability of funds, provided the prospective subrecipient is in compliance with all applicable Federal requirements, and the state has no information suggesting otherwise;

(2) Create new operating assistance projects or capital projects under $250,000 with funds subtracted from other projects within the approved program, or assign transferred equipment or property to a recipient not previously listed in the program of projects, provided the prospective subrecipient is in compliance with all applicable Federal requirements, and the state has no information suggesting otherwise; and

(3) Delete or reduce a project by more than $250,000 or 10 percent of the total program of projects, whichever is greater.

c. Revisions Requiring FTA Approval. The state may make the following revisions to an approved program of projects only after obtaining approval from FTA:

(1) Allocate more than over $250,000, or 10 percent of the total of the program of projects, whichever is greater, for any new capital project or for any project that is not a categorical exclusion under NEPA;

(2) Change intercity bus projects if the change would result in less than fifteen percent of the annual apportionment being designated for intercity projects. This change can only be made if the Governor certifies that the intercity bus transportation needs of the state are adequately met, as described in Chapter VII; or

(3) Advance to Category A any prospective subrecipient with serious questions of compliance with Federal requirements remaining unresolved.

d. Update of Program of Projects. The most recently updated program of projects submitted by the state to FTA in its annual program status report or in the course of making revisions will be considered the approved program of projects, incorporated by reference in the grant agreement. Only the addition of Federal funds or a change in the scope of the approved program of projects requires amendment of the grant agreement.

e. FTA's Right to Defer Section 5311 Assistance. If serious questions are raised about the compliance of any subrecipient or project with civil rights requirements, FTA reserves the right to require the state to defer provision of Section 5311 funds to that subrecipient or project until FTA finds the subrecipient or project in compliance or expressly approves the expenditure of Section 5311 funds involving that subrecipient or project.

Chapter V: Application Instructions

1. GENERAL. The application procedures are intended to give grantees maximum flexibility in the use of funds for eligible project purposes. The program of projects and budget format provides for a single, annual application. This chapter presents the procedures the state and subrecipients should follow to apply for Section 5311 funds. Section 2, state application, sets forth guidelines for the contents of a state agency's application to FTA. Section 3, subrecipient application, sets forth minimal guidelines for the subrecipient's application to the state agency. Subrecipients should refer to the state management plan and/or state application instructions for additional application requirements established by the state.

FTA has developed an electronic award and management system. Beginning in FY 1999, electronic submission and approval of grant applications will be the norm. Grantees may obtain guidance and training for use of the electronic system by contacting the FTA regional office. The application instructions in this circular give program guidance for the content of the grant application. Instructions for use of the electronic system are available separately.

2. STATE APPLICATION.

a. Office of Management and Budget (OMB) Budget Information Forms and Instructions. FTA's electronic application includes the content of OMB Standard Form 424.

b. Program of Projects. Exhibit A provides a sample format for the information required in an annual Section 5311 program of projects. The applicant should include RTAP and intercity bus funds as separate sections within the program of projects. The state may substitute alternative formats developed for state use so long as all the information elements are included in a form FTA can use. The applicant can import text files or cut and paste text into the electronic application as part of the project description. FTA anticipates future enhancements to the electronic system to improve retention of formatting of imported text or allow importation of spreadsheets.

See Chapter IV for specific instructions for development of the program of projects, including the categories in which projects may be approved.

c. Project Budget. The electronic application includes a line item budget for the entire grant. This budget combines the details of all the projects listed in the program of projects (regardless of category of project readiness), through the use of standard activity line item codes, which facilitate FTA program reporting and analysis. The capital codes in particular provide a detailed picture of vehicles and equipment purchased with Federal funds. Exhibit C contains a table of codes currently in use. The FTA regional office will inform grantees of any changes in the codes.

In the project budget, activity line items are grouped under the label "scope." The use of the term "scope" in the electronically prepared and approved project budget does not alter the conditions for revisions to programs of projects described in Chapter IV, paragraph 6. FTA uses the same format for all of its grant programs, and some of the terms used have slightly different meanings in other programs. When there is a discrepancy, the interpretation in this circular prevails. Exhibit B includes a worksheet for preparing a Section 5311 project budget and an example of the project budget format.

d. Milestone Schedule. As part of its application the state submits milestones that indicate the completion date for significant project events. At a minimum FTA requires milestone dates for certain vehicle procurements, for the final expenditure of operating assistance, and for the commitment of all Category C funds to identified projects. The grantee must also indicate the estimated date when the entire grant will be completed and ready for close-out. State Certifications and Assurances. In order to receive a grant under Section 5311, the designated state agency must annually assure FTA that certain requirements have been met or will be met by the state and subrecipients. The state should maintain adequate files documenting the basis for all assurances which it makes. Each fiscal year, FTA publishes the required certifications and assurances in the Federal Register at the time the annual apportionment notice is issued, and updates the certifications and assurances in the electronic award and management system. The notice indicates which items apply to all grantees or to certain kinds of awards, and which are required for grants under specific sections. The state submits the appropriate certifications and assurances electronically each fiscal year for all grants expected to be made during that fiscal year. See the current year notice for a list of required certifications and assurances. Exhibit D includes excerpts from the FY 1998 notice as a sample of what may be required. Grantees should use the most recent version FTA has issued. State Intergovernmental Review. One of the published certifications and assurances satisfies the certification requirement of FTA Circular 9500.1, "Intergovernmental Review of FTA Planning, Capital and Operating Programs and Activities." States are not required to submit the actual state clearinghouse documentation. In some states development of the STIP satisfies this requirement. The application should indicate how the state meets the requirement.

e. Certification to Department of Labor (DOL). The state must certify to the DOL that each subrecipient has agreed to the special warranty of employee protective arrangements for the nonurbanized formula program. In the case of projects listed in Category A, the state must make this certification prior to grant approval. Note that this certification is sent to DOL, not to FTA. See Chapter X for further discussion of the labor protection requirements. Exhibit F shows the text of the special warranty.

3. SUBRECIPIENT APPLICATION TO THE STATE. Before a state agency can provide FTA with the required assurances in the preceding subparagraphs, the state agency should receive sufficient documentation from all subrecipients to support the assurances. In addition to any other documentation the state agency may require, the state should receive from each subrecipient, either as a one-time submission or with each application, as appropriate, the following:

a. Project Description. The application should include sufficient information for the state to evaluate the eligibility of the proposed project, and the subrecipient's legal, financial, technical, and managerial capability to implement the project, and maintain any project property.

b. Certifications and Assurances. The subrecipient must sign the certifications and assurances required of each grantee (except those applicable only to direct grantees), and all those applicable to the particular project (for example, the lobbying certification if the application exceeds $100,000). While most of the certifications and assurances required of subrecipients need only be submitted once to the state and updated as necessary, the state may want to use FTA's annual notice as a model and obtain certifications and assurances from subrecipients annually using the most recent FTA notice to ensure that all required certifications and assurances are obtained and are worded accurately.

c. Coordination. The application should describe how FTA assisted services are or will be coordinated with social service agencies and private transportation providers in the service area. TEA-21 requires that to the extent feasible, governmental agencies and nonprofit organizations that receive assistance from other Federal agencies for nonemergency transportation services shall participate and coordinate with FTA recipients in the design and delivery of transportation services and be included in the planning for those services.

d. Public Involvement. Section 5323(b) requires all subrecipients of capital assistance to afford the opportunity for a public hearing, to hold that hearing unless no one requests one, to consider the economic, social, and environmental effects of the project, and to find the project consistent with official plans for the area. The application should document that this requirement has been met (including a copy of the published notice, hearing record, if one was held, and summary of efforts to involve the private sector to the maximum extent feasible, etc.). For subrecipients within the planning boundary of an urbanized area, this requirement may be satisfied through the local TIP public participation process. There is no public hearing requirement for operating assistance grants.

e. Civil Rights. If any lawsuits or complaints have been received or acted on, or compliance reviews conducted, since the applicant's most recent Title VI submission, these and other relevant civil rights activities should be described in the application. For construction projects that are not categorical exclusions, the documentation for the environmental review process should include information about social and economic impacts.

f. Labor. The application must document that the subrecipient has agreed in writing to accept the terms and conditions of the special warranty of employee protective arrangements for the Section 5311 program, or made alternative arrangements agreed to by DOL, and that the existing agreement is still valid and labor conditions have not changed. See Chapter X for details about labor protection requirements.

Chapter VI: Program Management and Administrative Requirements

1. GENERAL. The basic grant management requirements for state and local governments are contained in the Department of Transportation (U.S. DOT) regulations, "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," 49 C.F.R. Part 18, which is referred to as the "common rule." The comparable U.S. DOT rule for private nonprofit organizations is "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations," 49 C.F.R. Part 19. The provisions of these rules apply except where inconsistent with Federal statutes or authorizing legislation.

The common rule identifies three areas in which the administrative requirements for state grantees and their subrecipients which are public bodies may differ from Federal requirements for local government grantees: equipment management, procurement, and financial management systems. The basic intent in these areas is to shift the emphasis from national uniformity to uniformity of procedures and requirements within a state, in order to provide greater flexibility to the states in standardizing the management of related state and Federal programs. The three areas are discussed in detail later in this chapter. Part 19 does not allow states to pass down state procedures in these three areas to subrecipients which are nonprofit organizations as Part 18 permits for subrecipients which are public bodies. However, so long as the state procedures are not inconsistent with Part 19, the state may apply the same procedures for all its subrecipients. The state may use procedures which are more restrictive than Part 19, but in the case of nonprofit organizations, state procedures may not be more permissive than Part 19.

Unless an issue is specifically addressed in this circular or in other FTA guidance specific to the Section 5311 program, FTA Circular 5010.1C, "Grant Management Guidelines," including any changes thereto, which provides guidance for other FTA programs, should be used as guidance for project management issues not unique to Section 5311.

The state must enter into a written agreement with each subrecipient stating the terms and conditions of assistance by which the project will be undertaken and completed.

2. EQUIPMENT MANAGEMENT.

a. General. Under the common rule, states use, manage, and dispose of equipment acquired under a Section 5311 grant in accordance with state laws and procedures. Common rule procedures and requirements for public body recipients that are not states and their subrecipients are more explicit. States are free to adopt the procedures established for other public body subrecipients or use them as a guide in developing state procedures for equipment use, management, and disposition, but are not required to do so. States may use the same procedures for private nonprofit subrecipients as for public body subrecipients, so long as those procedures are consistent with 49 C.F.R. Part 19.

b. Transfer of Property. Section 5311(i) permits a state to transfer facilities and equipment acquired with assistance under Section 5311 to any subrecipient eligible to receive assistance under 49 U.S.C. Chapter 53 with the consent of the subrecipient currently in possession of such facilities or equipment, if the facility or equipment will continue to be used in accordance with the requirements of Section 5311. This provision complements the state's flexibility under the common rule to manage equipment and extends the state's flexibility in the management of facilities, including real property. The entity receiving equipment or facilities under this provision to provide Section 5311 service must comply with all the state and Federal requirements for Section 5311 recipients, including acceptance in writing of the special Section 5333(b) warranty for Section 5311. The names of the entities involved in the transfer of equipment or real property, along with a description of the equipment or real property transferred should be included in a new or revised program of projects. The transfer may be shown in the program of projects for any active grant. It does not have to be in the grant under which the equipment or property was originally funded.

In addition, Section 5334(g) allows facilities and equipment and other assets (including land) which are no longer needed for the purposes for which they were acquired to be transferred to any public body to be used for any public purpose with no further obligation to the Federal government, if authorized by the Secretary.

c. Vehicle Useful Life and Replacement Standards. In keeping with the intent of the common rule that states be given greater flexibility in managing and disposing of equipment, FTA elects not to apply to Section 5311 and 5310 its policies regarding useful life standards for vehicles, vehicle replacement, or the requirement to use the straight line depreciation method for determining fair market value and FTA reimbursement. Instead, FTA holds states responsible for establishing and implementing their own rolling stock requirements for all categories of vehicles acquired under the 5311 or 5310 programs. For these programs only, FTA permits state grantees to do the following:

(1) establish their own minimum useful life standards for vehicles;

(2) use their own procedures for determining fair market value; and

(3) develop their own policies and procedures for maintenance and replacement of vehicles. Maintenance requirements and insurance coverage must be adequate to protect the Federal interest in the vehicle within the useful life determined by the state.

d. Disposition. States and their subrecipients should follow state laws and procedures for disposing of equipment. States are not required to return to FTA proceeds from the disposition of equipment, regardless of the fair market value at the time the equipment is sold, but should follow their own procedures regarding the use of proceeds, so long as the proceeds remain in use for mass transit purposes. This applies to all equipment currently in use which was purchased with Section 5311 funds. This blanket disposition instruction satisfies the provision of 49 C.F.R. Part 19 requiring private non-profit organizations to seek disposition instructions from the Federal awarding agency.

3. PROCUREMENT. When procuring property, supplies, equipment or services under an FTA grant, the state will follow the same policies and procedures it uses for procurements from its non-Federal funds, to the extent permitted by Federal statutes and regulations. While the Federal threshold for small purchases is currently $100,000, the state may set a lower threshold for itself and its subrecipients. All public body subrecipients follow state procurement procedures. However, because of differences between 49 C.F.R. Part 18 and 49 C.F.R. Part 19, FTA third party contracting requirements are fewer for states and subrecipients that are local or tribal governments than for subrecipients that are private nonprofit organizations. For the sake of consistency, the state may choose to use the more detailed FTA requirements included in FTA Circular 4220.1D for all subrecipients as part of its state procurement procedures.

In some cases, a state may choose to grant Section 5311 assistance to a subrecipient through an intermediary subrecipient. For example, for public policy reasons, the state might pass funds to a nonprofit organization through a local public body. The arrangement between the first tier and second tier subrecipient is not a third party contract if the ultimate subrecipient would otherwise be eligible under Section 5311 to receive funds directly from the state and the ultimate subrecipient intends to use those funds to pursue its own nonurbanized area transit project.

Procurement procedures used by states and their subrecipients, however, must comply with the following specific Federal procurement requirements:

a. States. State procurement practices must at a minimum comply with five specific Federal requirements contained in FTA Circular 4220.1D. These include a five year limitation on contract period of performance, a requirement for full and open competition, a prohibition against geographic preferences, the use of Brooks Act procedures for procurement of architectural and engineering services if the state has not adopted a statute governing procurement of such services, and inclusion in contracts of all Federal clauses required by Federal statutes and executive orders and their implementing regulations. These clauses are identified in specific Federal regulations cited in FTA's Master Agreement incorporated by reference into the grant agreement. Additional technical assistance for third party contracting is available in FTA's "Best Practices Procurement Manual."

b. Subrecipients that are Public Entities. Subrecipients that are public entities such as local or Indian tribal governments must comply with the same Federal requirements governing state procurements. States are responsible for ensuring that subrecipients are aware of and comply with Federal requirements.

c. Subrecipients that are Private Nonprofit Organizations. Subrecipients that are private nonprofit organizations must comply with FTA procurement requirements contained in FTA Circular 4220.1D. States are responsible for ensuring that private nonprofit subrecipients are aware of and comply with these additional requirements.

Other requirements related to procurement, including bus testing, Buy America, pre-award and post-delivery reviews, and debarment and suspension, are discussed in Chapter X. The need to include disadvantaged businesses in contracting opportunities is discussed in Chapter IX.

4. SATISFACTORY CONTINUING CONTROL. When capital equipment or facilities are acquired, built, or improved for use by any entity in nonurbanized area public transportation or intercity transportation, provisions must be made to assure satisfactory continuing control of that capital equipment and facilities. While the state agency serving as the FTA grantee may delegate these responsibilities to another entity, the state is ultimately responsible for compliance with this requirement.

5. FINANCIAL MANAGEMENT.

a. State Financial Management Systems. The common rule requires a state to expend and account for grant funds in accordance with state laws and procedures for expending and accounting for its own funds. Fiscal control and accounting procedures of the state, as well as its subrecipients and cost-type contractors must be sufficient to:

(1) Permit preparation of reports described in this circular and reports necessary to comply with other program and statutory requirements; and

(2) Permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restrictions and prohibitions applicable to the program.

b. FTA Payment Procedure. FTA makes all payments by electronic funds transfer, regardless of the money amount involved. Most payments are made under the Electronic Clearing House Operation (ECHO) system, by means of a control number assigned to the state. The state agrees to comply with the ECHO requirements contained in the Treasury Regulations, 31 C.F.R. Part 205, "Rules and Procedures for Funds Transfers," and as established by the "Guidelines for Disbursements" set forth in FTA's ECHO system operations manual. In general:

(1) The state may initiate cash drawdowns only when actually needed for immediate disbursement required for project purposes. The state must disburse the funds drawn down according to their Treasury-State Agreement or Subpart B of 31 C.F.R. Part 205. The state's access to the ECHO system may be revoked or suspended, or other remedies may be invoked, if the state fails to expend the Federal funds or to return the funds to FTA within a reasonable period, or is unwilling or unable to establish procedures that will minimize the time elapsing between cash advances and the disbursement.

(2) Costs incurred and available balances are reported annually on an accrual basis, on the Financial Status Report in FTA's electronic award and management system.

(3) The state agrees to provide for control and accountability for all project funds consistent with Federal requirements and procedures for use of the ECHO system.

(4) The state may not draw down funds for a project in an amount that would exceed the sum obligated by FTA or the current available balance for that project.

(5) The state shall limit drawdowns to eligible project costs and ensure that subrecipients also follow applicable financial requirements.

c. State Financial Records. FTA does not maintain detailed financial records on individual projects within a program of projects. Financial records, supporting documentation, and all other records pertinent to a grant must be retained by the designated state agency (and its subrecipients) and must be made readily available to authorized representatives of the U.S. Department of Transportation and the Comptroller General of the United States for a period of three years. The retention period starts on the date the state electronically submits the final Financial Status Report (SF-269A). If any litigation, claim or audit is started before the expiration of the three-year period, the records must be retained beyond three years, until all litigation, claims, or audit findings involving the records have been resolved.

The state's financial records should adequately document the computation of the Federal share and the provision of the required local share for each kind of project. The eligibility of any ADA, clean air, or bicycle projects for which the increased Federal share is claimed should be adequately documented.

6. ALLOWABLE COSTS. OMB Circular A-87 provides the Federal guidelines for allowable costs for recipients which are public bodies. OMB Circular A-122 provides comparable guidance for nonprofit organizations. Expenses such as indirect costs or payments to a self-insurance fund must be documented appropriately. The restrictions on advertising and public relations in A-87, Attachment B, Section 2 permit advertising and public relations for "specific purposes necessary to meet the requirements of the Federal award." Similar provisions are also contained in A-122, Attachment B, Section 1. Transit marketing and promotion are allowable project costs under these provisions, since transit ridership is the ultimate purpose of the Federal grant.

7. AUDIT. State agencies are responsible for: ensuring that audits are performed pursuant to the requirements of OMB Circular A-128, "Audits of State and Local Governments" or OMB Circular A-133, "Audits of Institutions of Higher Education and Other Non-Profit Institutions" resolving audit findings; and bringing problems to FTA's attention. FTA has not required an annual financial audit of a subrecipient when assistance is provided solely in the form of capital equipment procured directly by the state even if the amount of FTA funds the state passes to a particular subrecipient does not trigger the requirement for an A-133 audit, the state may wish to review A-133 audit reports prepared for subrecipients that are required to be audited because the total federal funds from all sources exceed the threshold (currently $300,000). At a minimum states should require subrecipients to bring to the attention of the state any audit findings relevant to their use of FTA funds.

OMB has issued an audit compliance supplement for FTA grants. It should be noted, however, that while the guidance contained in the supplement may be helpful to auditors, it is specific to the Section 5307 and 5309 programs, and not all of the provisions are applicable to the Section 5311 program. The state may wish to make FTA C 9040.1E and relevant state program guidance available to auditors of its subrecipients.

8. REAL PROPERTY. Real property acquisition standards are included in FTA Circular 5010.1C, "Grant Management Guidelines." Subrecipients may use the state's staff appraisers to prepare required independent appraisals.

9. CONSTRUCTION MANAGEMENT AND OVERSIGHT. The responsibility for construction management and oversight lies with the state. FTA does not approve design plans for construction projects.

10. REPORTING REQUIREMENTS.

a. Annual Program of Projects Status Reports. By October 31 each year, the state should submit to FTA a program status report for each active grant, covering the 12-month period ending September 30. Status reports are intended to meet minimal program information needs at the regional and national levels. Reports should include an updated program of projects for each approved grant which contains active projects. The updated program of projects should reflect revised project descriptions, changes in projects from one category to another, and adjustments within budget categories. The updated program of projects can be imported as text into the project summary section of the electronic status report. (FTA anticipates enhancements to the electronic award and management system which will improve retention of formatting of imported text and allow spreadsheets to be imported.) If revisions to the program of projects result in changes to the line item budget for the grant, these changes should be submitted as budget revisions. For activity line items for which milestones were required at the time of grant application (for example, for vehicle procurements, construction projects, and program reserve), the grantee should enter revised milestone dates as part of the annual report. If the estimated completion date for the grant has changed, the revised date should be entered. Significant civil rights compliance issues occurring during the year (such as Title VI, EEO, or DBE complaints against the state or subrecipients) should be addressed in the annual status report. In addition, the state may report notable accomplishments or problems involving Section 5311 subrecipients.

b. Financial Status Report. The state must submit electronically an annual Financial Status Report for each active grant, for the period ended September 30. For the purpose of this report, funds are considered encumbered when agreements are signed with subrecipients. Reports should be prepared using the accrual method of accounting.

c. DBE Reports. Annually, states must submit a statewide DBE program including goals for the utilization of DBEs by the state, if it is over a specified funding threshold, and by subrecipients which exceed the threshold. Semi-annually for the entities required to submit a DBE program with goals, and annually for others, the state must submit contracting activity reports for itself and its subrecipients. Detailed requirements are described in Chapter IX.

11. CLOSEOUT. States should initiate project closeout with subrecipients within 90 days after all funds are expended and all work activities for the project are completed. The states should similarly initiate program of project closeout with FTA within 90 days after all work activities for the program of projects are completed. A final Financial Status Report (SF 269A), final budget and final program of projects are required at the time of closeout all are submitted electronically.

FTA expects grants awarded for a specific program of projects to be completed within a reasonable, specified time frame. Although this circular provides the state a great deal of flexibility in developing and subsequently revising programs of projects, it is not FTA's intent that grants be continually revised or amended in ways which will excessively prolong the life of the grant, and consequently result in a large number of active Section 5311 grants. If small amounts of funds remain in an inactive grant, the state should request that the funds be deobligated and the project closed out. If the deobligated funds are still within their period of availability, FTA can reobligate the funds in a new grant to the state along with other currently available funds. Otherwise the deobligated funds lapse to the state and are reapportioned by FTA among all the states in a subsequent year.

12. PR