The Recommended FY 2005-2010 edition of the Six-Year Highway Plan is predicated upon a number of assumptions about the revenue stream that is expected for future federal and state highway construction programs administered by the Kentucky Transportation Cabinet (KYTC). An illustration of the funding process is shown as "Figure 1" on the following page, with the area of emphasis for this particular document being those funding elements that contribute directly to the Six-Year Highway Plan. The following discussion is given as an overview of the scope and magnitude of these assumptions. To simplify this discussion, federal revenue estimates and assumptions are provided in Section 1, followed by state revenue estimates and assumptions in Section 2, with the "combined effect" of both presented in Section 3. A "key" to the funding category acronyms can be found at the beginning of the individual project listing found later in this document.

As shown in Figure 2, both federal and state Six-Year Highway Plan revenue sources have been considered, and projections made, based on the most reliable financial information available. The relative proportions of federal and state highway funds made available to the Kentucky Transportation Cabinet for major highway projects are displayed in Figures 3 and 4. These charts show that state funds comprise just over one-fifth of the total dollars expected to be made available for major highway improvements in Kentucky between 2005 and 2010.

Consistent with past trends and current forecasts, the 2004 edition of the Six-Year Highway Plan is being developed with the expectation that future federal and state revenues will grow. Federal fund revenues are difficult to predict due to annual adjustments to multi-year federal transportation legislation enacted by Congress. For the purposes of this plan, federal fund revenue estimates were based on the return to Kentucky under the latest Congressional proposals for reauthorization of the current federal-aid highway act. The estimates of federal revenue contained in this document are based on the U.S. Senate Environment and Public Works Committee’s reauthorization proposal, which is more fiscally conservative than the House Transportation and Infrastructure Committee’s reauthorization bill. The ultimate resolution of this issue is not expected until spring 2004, meaning that the federal program dollars could change significantly in the months ahead.

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While state road fund receipts show only modest growth into the future, it is very important to note that the ability of the Cabinet to undertake major new state-funded projects is severely curtailed by past decisions to spend-down road fund cash and manage road fund expenses "on the margin." The Cabinet supports the concept of the cash spend-down, but now must sacrifice new projects this biennium in order to restore integrity to the Six-Year Highway Plan. We intend to continue the spend-down, emphasizing fiscal efficiencies, to pursue projects that make our roads safer, smoother, and less congested. The public has made their desires very clear in this regard.

The Recommended Plan’s FY 2005-2010 federal revenue forecasts are based on the Transportation Equity Act for the 21st Century (TEA-21) and the U.S. Senate’s most recent TEA-21 reauthorization proposal. TEA-21 was enacted by the United States Congress in 1998 and provided identified levels of funding through 2003. Baseline funding levels from TEA-21 formulas were compared against similar funding proposed by the U.S. Senate bill, and proportional estimations and projections were made by KYTC for FY 2005 through FY 2010. These broad categorical estimates were then broken down into individual program funding estimates as calculated in the discussion that follows.

It should be heavily underscored that KYTC has never prepared a Six-Year Highway Plan document with as little information about future federal revenues as we have at this moment. There are no federal tables of information to reference and no guarantees that the estimates we are presenting are completely viable. Accordingly, KYTC reserves the right to consider revising our biennial federal funding assumptions to fit Congressional actions as they occur.

Figure 5 shows the final federal fund target amounts used to fiscally balance the Recommended 2005-2010 Six-Year Highway Plan. To arrive at these funding targets, KYTC compared the funding levels for Interstate Maintenance (IM), National Highways (NHS), Bridge Replacement (BR), Surface Transportation Program (STP), Congestion Mitigation and Air Quality (CMAQ), and Appalachian Development (APD) between TEA-21 and the proposed U.S. Senate Environment and Public Works (EPW) Committee bill as approved by the full Senate. Three critical assumptions accompany this comparison: (1) the Senate version of TEA-21 reauthorization is the more conservative of the two Congressional bills expected to be conferenced in the Spring of 2004; (2) FY 2002 was selected by KYTC as the "comparison year" from TEA-21 because FY 2002 produced a more routine appropriations process than FY 2003’s wranglings with TEA-21’s "Revenue Aligned Budget Authority (RABA)" language; and (3) due to the current status of TEA-21 reauthorization, two funding categories identified by EPW as "Highway Safety Improvement Program (SAF)" and "Infrastructure Performance and Maintenance Program (IPM)" are uncertain to materialize and, if they do materialize, it is uncertain how any funds for these categories would be programmatically administered. Given these three assumptions, the estimation of broad categorical funding to Kentucky was determined on a purely proportional basis. It is very likely that the final appropriation for any given year will change, though the hope is that these changes will not substantially alter the ability of the Cabinet to deliver planned projects.

Next, the broad STP category estimate was broken into 14 sub-categories in a manner consistent with expected actual Federal Highway Trust Fund (HTF) apportionments. Along with basic STP "set-asides" for the safety (SAF) and transportation enhancement (TE) categories, estimates were also calculated for urban area dedicated funding (SLO, SLX, SNK, and SHN), statewide STP sub-allocations, and minimum guarantee (MG) funds that Kentucky will receive due to its "donor state" (Kentucky pays more into the HTF than it receives back from it each year) status. Once the estimated annual apportionments are calculated, an annual obligation limit of 90% is applied to arrive at the final estimate of STP funds likely to be generated for Kentucky through the EPW proposal.

Then, the broad categorical funding estimates for APD, CMAQ, IM, and NH are adjusted for the expected 90% annual obligation ceiling as well. The bridge replacement category is broken into three components, BRO (bridge replacements on the state national highway system), BRZ (bridge replacements off the state system, i.e. city streets or county roads), and BRX (bridge replacements on either system of roads). By federal law, the states are required to use at least 65% of their bridge replacement funds on system, 15% off system, and the remaining 20% may be spent either way. After applying all of these factors, the amount for each of the Six-Year Highway Plan federal-aid categories is derived.

Once all of these assumptions are brought together, Figure 5 displays the resulting final estimated apportionments and state and local matching amounts. This chart details the expected federal, state, and local contributions to Kentucky’s annual highway program for each year through 2010. The total funds (federal plus state and/or local match) are the target amounts that are used to fiscally balance the federal element of the Six-Year Highway Plan.

A forecast of $460 million in state funds is expected to be available for "SP" projects over the life of the 2005 to 2010 Six-Year Highway Plan. The culmination of an iterative process yielded an identified approximate level of "SP" obligation authority for each year of the six-year period. These annual obligation targets were then fed into a cost generation model from which the semi-annual (December and June) expected cash outlays resulting from those obligations was forecast. The estimated semi-annual cashflow for these projects was then rolled into a simplified Road Fund cash model to predict resulting cash levels well into the future.

The results of the "SP" forecasting model are predicated on a number of assumptions about project cost payouts, revenues accruing to the Road Fund, non-Six-Year Plan costs, state matching fund payouts, unexpected cost increases, and project change orders. It would be too exhaustive to attempt to describe each of these issues in detail and, for the purposes of this document, it is important to underline that the "SP" obligation targets derived through this model are only targets. The actual decisions about when to obligate "SP" dollars and how much "SP" work can be afforded at any point in time will be made by the Secretary and based on evaluations he receives from KYTC’s "Authorization Review Team (ART)."

The ART will consist of the State Highway Engineer and his deputies, the KYTC Budget Director, and the KYTC Fiscal Manager. These individuals will meet on a monthly basis to carefully evaluate actual expenditures for the prior month and planned expenditures for upcoming months relative to the future fiscal capacity calculated from ongoing project and program cost projections. Every "SP" project authorization/obligation will undergo a vigorous two-part assessment in which the following questions will be asked: (1) Is the project ready to move forward from the project development standpoint, and (2) can we afford to move the project forward considering the cashflow implications of doing so? This represents a whole new business climate for "SP" project obligations at KYTC.

In summary, all of our best projections of revenues and program costs indicate that we will be able to pursue additional "SP" obligations in the following amounts for each year:

2005 $100 million

2006 $100 million

2007 $ 80 million

2008 $ 40 million

2009. $ 40 million
2010. $100 million

Total for 6 Years $460 million

Federal and state highway project funding for FY 2005-2010 totals $5.0 billion. It is important to note that Kentucky has utilized federal pre-financing provisions heavily and continues to roll a consistent level of these carry-forward obligations from year-to-year. At the end of FY 2003, Kentucky had prefinanced some $287 million in federally funded projects, supporting the associated project billings from State Road Fund cash until the federal share of these costs could be billed to the federal government the following year. By using this funding mechanism, Kentucky has maximized its ability to return federal dollars to the state more quickly, while at the same time accelerating many federal highway projects. Federal pre-financing requires that the Road Fund keep approximately $50 million on hand to cover the advance state fund outlays in support of the federal program acceleration. The Cabinet must continually monitor the "net cash balance" which results from month-to-month consideration of this federal program flexibility.

It is also important to note that KYTC will explore all opportunities to use innovative financing options permitted under federal transportation law.  In particular, we will seek legislation to authorize the use of GARVEEs (Grant Anticipated Revenue Vehicles) to accelerate federal funding of interstate widening projects. GARVEEs use the principle of guaranteed future federal-aid highway revenues as a mechanism to support the sale of revenue bonds for specific projects. The projects that KYTC would pursue if GARVEE bonds were an option are prioritized and outlined in Appendix A of the Recommended 2005-2010 Six-Year Highway Plan document.

Appendix B of the Recommended 2005-2010 Six-Year Highway Plan contains a list of "Mega-Projects" that KYTC is involved with at this time.  These "Mega-Projects" are (1) the Louisville Bridges, (2) the I-75/71 Brent Spence Bridge in northern Kentucky, (3) proposed I-66 through Kentucky, and (4) proposed I-69 through western Kentucky. A discussion of the funding and project development parameters for each "Mega-Project" is provided in Appendix B.

As the Recommended 2005-2010 Six-Year Highway Plan was developed, it was recognized that the state-funded "SP" projects in the Six-Year Highway Plan do not match expected state fund revenues for 2005-2010. The "SP" projects in this edition of the Plan carry all previously enacted projects forward as the "SP priorities of record" to manage future revenues against.