Grants can be made for planning, constructing, improving, or repairing a public-use airport or portion thereof and for safety or security equipment. Eligible terminal building development is limited to nonrevenue-producing public-use areas that are directly related to the movement of passengers and baggage in air carrier and commuter service terminal facilities within the boundaries of the airport. Eligible construction is limited to items of work and for the quantities listed in the grant description and/or special conditions.

In general, Federal funds cannot be expended for:

- Passenger automobile parking facilities, buildings to be used as hangars, and portions of terminals that are revenue-producing or not directly related to the safe movement of passengers and baggage at the airports, and

- Costs incurred before execution of the grant, unless such costs are for land, necessary costs in formulating a project, or costs covered by a letter of intent.

The following are examples of items for which FAA funds cannot be expended:

- Fuel farms.

- Emergency planning.

- Decorative landscaping, sculpture, or art works.

- Communication systems, except those used for safety/security.

- Training facilities, except those included in an otherwise eligible project as an integral part of that project and that are of a relatively minor or incidental cost, i.e., less than 10 percent of the project cost. An example of an exception would be a training room included as part of a new Aircraft Rescue and Firefighting (ARFF) facility.

- Roads of whatever length, exclusively for the purpose of connecting public parking facilities to an access road.

- Roads serving solely industrial or non-aviation-related areas or facilities.

- General aviation terminals.

- Airport surface detection systems (ASDE).

- Maintenance/service facilities except for those allowed to service required ARFF equipment.

- Office/administrative equipment, including data processing equipment, computers, recorders, etc.

- Projects for the determination of latitude, longitude, and elevation except as an incidental part of master planning.

Program guidance is provided in FAA Order 5100.38A, Airport Improvement Program Handbook, and FAA Advisory Circulars in the 150/5100 series.

Under this program, FAA is authorized by 49 USC 47107(c), as amended, to allow recipients to reinvest the proceeds from the sale of real property acquired with Federal awards for noise compatibility or airport development purposes.

2. Level of Effort - Not Applicable

3. Earmarking - Not Applicable

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

Compliance Requirement - The basic requirement for use of airport revenues is that all revenues generated by a public airport must be expended for the capital or operating costs of the airport, the local airport system, or other local facilities which are owned or operated by the owner or operator of the airport and are directly and substantially related to the actual air transportation of passengers or property. The limitation on the use of revenue generated by the airport shall not apply if the governing statutes controlling the owner's or operator's financing, that was in effect before September 3, 1982, provided for the use of any revenue from the airport to support not only the airport but also the airport owner's or operator's general debt obligations or other facilities (49 USC 47107(b)).

Policies and Procedures Concerning the Generation and Use of Airport Revenue, issued February 16, 1999 (64 FR 7695), contains definitions of airport revenue and unlawful revenue diversion, provides examples of airport revenue and describes permitted and prohibited uses of airport revenue. The policy can be obtained from FAA's Airports Federal Register Notices Page on the Internet (http://www.faa.gov/arp/fedreg.htm).

Penalties imposed for revenue diversion may be up to three times the amount of the revenues that are used in violation of the requirement (49 USC 4603(a)(5)).

Audit Objective - Determine whether the airport revenues were used for required or permitted purposes.

a. Review the policy for using airport revenue.

b. Perform tests of airport revenue generating activities (e.g., passenger facilities charges, leases, and telephone contracts) to ascertain that all airport generated revenue is accounted for.

c. Test expenditures of airport revenue to verify that airport revenue is used for permitted purposes.

d. Perform tests of transactions to ascertain that payments from airport revenues to the sponsors, related parties, or other governmental entities are airport-related, properly documented, and are commensurate to the services or products received by the airport.

e. Perform tests to assure that indirect costs charged to the airport from the sponsor's cost allocation plan were allocated in accordance with the FAA policy on cost allocation.

1. Although State-owned lands may be used for highway purposes, Federal funds may not reimburse for more than the fair market value of the land required for highway purposes plus damages. This is computed as the lesser of either the sum of: the fair market value of the land required for highway purposes plus damages, or the sum of: (1) the fair market value of the State-owned land; (2) any additional cash payments made; and, (3) the cost of construction features to mitigate damages (23 CFR section 710.304).

2. Federal funds can be used only to reimburse costs that are: (1) incurred subsequent to the date of authorization to proceed; (2) in accordance with the conditions contained in the project agreement and the plans, specifications, and estimates (PS&E); (3) allocable to a specific project; and, (4) claimed for reimbursement subsequent to the date of the project agreement (23 CFR sections 1.9, 630.106, 630.205, and 630.303).

3. Federal funds can be used to reimburse for administrative settlement costs incurred in defending contract claim proceedings before arbitration boards or State courts only if approved by FHWA for Federal-aid projects. If special counsel is used, it must be recommended by the State Attorney or State DOT legal counsel and approved in advance by FHWA (23 CFR section 140.505).

4. Costs incurred by the State DOT or MPO for highway planning and research work are subject to a work program approved by FHWA (23 CFR section 420.111).

5. Payments for damages from right-of-way acquisitions for personal property, loss of business or goodwill, circuity of travel, diversion of traffic, and other items of damage not generally compensable in eminent domain are not eligible for Federal participation (23 CFR section 710.304(h)).

6. Federal funds may be used to reimburse for tuition and direct educational costs of continuing highway-related education of State DOT and LPA employees, but not for travel, subsistence, or salaries of students (23 CFR section 260.407).

The Federal share of proceeds from the sale of real property shall be used by the State for projects eligible under 23 USC. (23 USC 156).

2. Level of Effort - Not Applicable

3. Earmarking - Not Applicable

State and local governments may only use the Federal share of net income from the sale, use, or lease of property previously acquired with Federal funds if the income is used for projects eligible under 23 USC (23 USC 156).

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable

Compliance Requirement - Other State or local government agencies may be used for acquiring rights-of-way and are reimbursed based on a written agreement (23 CFR section 710.203).

Audit Objective - Determine whether other State or local government agencies acquire rights-of-way in accordance with their agreement with the State.

a. Examine records and ascertain if other agencies were used for acquiring rights-of-way on Federal-aid projects.

b. Review a sample of right-of-way acquisition agreements with other agencies.

c. Perform tests of selected payments to other agencies to verify that they comply with the written agreement.

Compliance Requirement - When funds are reimbursed for the acquisition of rights-of-way in coordination or cooperation with other Federal programs, the acquisition and cost-sharing responsibilities of State DOTs and the other agencies shall be set forth in an agreement (23 CFR section 710.304).

Audit Objective - Determine whether rights-of-way acquired in coordination or cooperation with other Federal programs are accomplished in accordance with an agreement.

a. Ascertain through a review of the agreement if rights-of-way were acquired in coordination or cooperation with other Federal programs.

b. Test the transaction records and verify that they comply with the agreement.

Compliance Requirement - Federal funds may be used to reimburse the reasonable costs for the functional replacement of publicly-owned real property, provided that FHWA concurs that it is in the public interest. The cost of increases in capacity and other betterments are not eligible except if: (1) necessary to replace a utility; (2) required by existing codes, laws, and zoning regulations; or (3) related to reasonable prevailing standards for the type of facility being replaced (23 CFR sections 712.604 and 712.605).

Audit Objective - Determine whether the functional replacement of real property was accomplished within FHWA requirements.

a. Ascertain if there were any functional replacements of publicly-owned real property.

b. Verify that FHWA concurred in paying the reasonable costs of the functional replacements.

c. Review a sample of transactions involving replacement costs and verify that the costs charged to the Federal-aid project were consistent with the FHWA-approved agreement between all parties which sets forth how the costs of the facility are to be shared.

Compliance Requirement - FHWA must approve extensions affecting project costs or the amount of liquidated damages, except those for projects administered by the State DOT under 23 USC 106(c) which allow the State DOT to assume the responsibilities for design, plans, specifications, estimates, contract awards and inspection of progress (23 USC 106(c); 23 CFR section 635.121).

Audit Objective - Determine whether proper FHWA approvals were obtained for contract extensions affecting project costs and the amount of liquidated damages assessed.

a. Review the systems for monitoring and controlling contract time and review project files to determine if there were project extensions.

b. Verify that FHWA approval was obtained for time extensions affecting project cost and, where applicable, the amount of liquidated damages assessed.

Compliance Requirement - A State DOT or LPA must have a sampling and testing program for projects to ensure that materials and workmanship generally conform to approved plans and specifications (23 CFR section 637.205).

Audit Objective - Determine whether the State is following a quality assurance program that meets FHWA's requirements.

a. Obtain an understanding of the recipient's sampling and testing program.

b. Review documentation of test results on a sample basis to verify that the proper number of tests are being taken in accordance with the program.

Compliance Requirement - When a State recovers funds from highway contractors for project overcharges due to bid-rigging, fraud, or anti-trust violations or otherwise recovers compensatory damages, the Federal-aid project involved shall be credited with the Federal share of such recoveries (Tennessee v. Dole 749 F.2d 331 (6th Cir. 1984); 57 Comp. Gen. 577 (1978); 47 Comp. Gen. 309 (1967)).

Audit Objective - Determine whether the proper credit was made to the Federal share of a project when recoveries of funds are made.

a. Determine the extent to which the State has recovered overcharges and other compensatory damages on Federal-aid projects through appropriate interviews and a review of legal, claim, and cash receipt records.

b. Review a sample of cash receipts and verify that appropriate credit is reflected in billings to the Federal Government.

Compliance Requirement - Construction projects administered under standard procedures cannot be advertised nor force account work commenced until FHWA: (1) approves the plans, specifications, and estimates; and, (2) authorizes the State DOT to advertise for bids or approves the force account work. Construction cannot begin until after FHWA concurs in the contract award (23 CFR sections 630.205, 635.112, 635.204, and 635.309). This requirement does not apply to construction projects administered by the State DOT under 23 USC 106(c) which allow the State DOT to assume the responsibilities for design, plans, specifications, estimates, contract awards and inspection of progress (23 USC 106(c); 23 CFR section 640.113).

Audit Objective - Determine whether project activities are started with required Federal approvals.

The activities allowed are specified in the grant agreement.

Any disposition of equipment before the end of its useful life is subject to prior FTA concurrence in the method of disposition. Unless otherwise determined in writing by FTA, the fair market value for rolling stock removed from service before the end of its useful life is the FTA share of the unamortized value of the remaining service life, based on straight line depreciation of the original purchase price, based upon the date the equipment was removed from revenue service rather than the date of disposal. FTA standards for the useful life of vehicles are contained in FTA Circular 9030.1C, Urbanized Area Formula Program: Grant Application Instructions, Chapter V, Paragraph 9, Buses; and FTA Circular 9300.1A, Capital Program: Grant Application Instructions, Chapter III, Paragraph 8, Requirements Related to Bus Purchases. These circulars are available on the FTA National Transit Library page on the Internet (http://www.fta.dot.gov/ntl/index.html). Recipients, with FTA approval, are allowed to sell, transfer or lease property, equipment, or supplies acquired with federal transit funds that is no longer needed for transit purposes. The proceeds must be used to reduce the gross project costs of another federally funded capital transit project (49 USC 5334(g)(4) and 49 CFR section 18.32).

2. Performance Reporting - Not Applicable

3. Special Reporting

Compliance Requirement - Recipients must execute a one-time agreement with FTA which provides that neither the recipient nor any of its subrecipients will provide charter service that uses equipment or facilities acquired with FTA funds, unless there are no willing and able private charter service operators or one or more of the exceptions listed in 49 CFR part 604 are met and the charter service is incidental to the provision of mass transportation. Charter service is defined as transportation, using buses or vans (funded in whole or in part by FTA), of a group of persons pursuant to a common purpose, under a single contract at a fixed charge for the vehicle or service, which has acquired the exclusive use of the vehicle or service to travel together under an itinerary either specified in advance or modified after leaving the place of origin. This definition includes the incidental use of FTA-funded equipment for the exclusive transportation of school students, personnel and equipment, and the housing of charter vehicles in FTA-funded facilities. Incidental charter service is defined as service which does not: (a) interfere with or detract from the provision of the mass transportation service for which the facilities or equipment were funded under the Act; or (b) does not shorten the mass transportation life of the equipment or facilities (49 CFR part 604).

Audit Objective - Determine whether the use in charter service of equipment and facilities acquired with FTA funds conformed to 49 CFR part 604.

a. Ascertain if the recipient provides charter service with FTA-funded equipment by obtaining written representation from recipient, and reviewing revenue accounts for indications of charter bus revenue statements.

b. Review the recipient's policies and procedures for charter, rental, or lease of its transit equipment.

c. Test transactions which meet the definition of charter service and ascertain if:

Compliance Requirement - The recipient, as a condition of eligibility, must enter into an agreement with the FTA Administrator stating that the recipient will not engage in school bus operations exclusively for the transportation of students and school personnel in competition with private school bus operators unless it demonstrates to the FTA Administrator any one of the exceptions listed in 49 CFR section 605.11 and the Administrator concurs. However, all recipients can operate "Tripper Service" defined as mass transportation service, open to the public, and designed or modified to accommodate the needs of school students and personnel, using various fare collections or subsidy systems. Buses used in "Tripper Service" are required to be clearly marked as open to the public and should not carry designations such as "school bus" or "school special" (49 CFR part 605).

Audit Objective - Determine whether school bus service provided with FTA funded equipment was approved by FTA or that FTA-assisted equipment and facilities used to accommodate students conformed to the definition of "Tripper Service."

Funds must be expended as specified in the grantee's highway safety plan. Certain specific costs which will not be approved or that require prior approval have been identified in Highway Safety Grant Funding Policy for NHTSA/FHWA Field-Administered Grants and are listed below (23 CFR section 1200.20).

1. The following costs are allowable or allowable with specific conditions:

2. The following costs are unallowable:

2. Level of Effort - Not Applicable

2. Performance Reporting - Not Applicable

3. Special Reporting - Not Applicable