We concluded that Congress did not intend for states to convert  federal money to state money by buying and selling property and/or use the  federal share of recaptured funds to reduce or avoid their obligation to  provide matching funds. All States Report Selling, Leasing, or Disposing of Real Property

All 51 of the state DOTs we surveyed, including the District of Columbia,  reported selling, leasing, or disposing of real property purchased with  federal-aid funds (see app. We found  that from June 1998 through May 2002, 37 states reported they sold, leased,  or disposed of at least 5,636 properties that generated about $148 million  (2001 dollars) in revenue for the states. For states that retain the federal share of the net proceeds, five state  officials that we contacted said they view the current regulations that  allow them to retain the federal share of the proceeds generated from the  sale or lease of real property as positive because it gives the states greater  flexibility to sell or lease real property to support the states’ transportation  programs. Proceeds from Property Sales and Leases Are Not a Major Source of Revenue

The proceeds generated from the state DOTs’ sales or leases of real  property do not currently appear to be a major source of revenue for the  states’ transportation programs. States’ Use of Proceeds Vary and Sometimes May Not Comply with the Statutory Requirements on the Use of the Proceeds

States reported using the proceeds generated from the sale or lease of real  property in different ways; and their survey responses indicated that some  uses of the proceeds may not comply with specific statutory requirements  of only using the proceeds on projects eligible for funding under federal-aid  highway and related programs. Officials from 47 state DOTs reported using the  proceeds to fund other state transportation projects eligible for federal aid,  and at least four states use the proceeds as their match for projects  receiving federal contributions. Therefore, in at least two cases, it is possible that states have  used the proceeds on projects that are not eligible for federal aid. New Mexico DOT officials  reported that the proceeds are not restricted to funding eligible federal-aid  projects; therefore, the funds could be used for other transportation  projects not eligible for federal aid. However, they also noted that TEA-21 does not  require states to track and report the federal share. The DOT’s General Counsel is  considering GAO’s legal opinion on how the federal share of the proceeds  should be used, so the officials did not comment on those sections of the  draft report. Objectives, Scope, and Methodology

The Committee on Commerce, Science, and Transportation requested that  we determine (1) the extent to which states are selling, leasing, or  disposing of real property purchased with federal-aid funds and (2) how the  proceeds generated from the sale or lease of real property are being used in  accordance with the intent of TEA-21.
Why GAO Did This Study

In 1998, the Transportation Equity Act for the 21st Century (TEA-21), authorized the states to retain the federal share of proceeds from the sale or lease of real property that had been purchased with federal-aid funds. It also required the states to use the federal share on other highway projects eligible for funding under the federal-aid highway program. GAO determined (1) the extent to which states are selling, leasing, or disposing of real property purchased with federal-aid funds and (2) how the proceeds generated from the sale or lease of real property are being used, including whether they are being used in accordance with TEA-21. GAO issued a related legal opinion in September 2002.

What GAO Found

All of the 51 state Departments of Transportation GAO surveyed, including the District of Columbia, reported selling, leasing, or disposing of real property, such as unused land purchased with federal-aid funds. From June 1998 through May 2002, 37 states sold, leased, or disposed of at least 5,636 properties that generated about $148 million in proceeds for the states. States varied on whether they tracked and reported this information to DOT; therefore, GAO did not report this information for the other 14 states. State DOT officials view the policy that allowed them to retain the federal share of the proceeds as being positive because it provided states greater flexibility for financing their transportation programs. However, proceeds generated from the sale or lease of property are not currently a major source of revenue for states' transportation programs. GAO determined that the proceeds generated from the sale, lease, or disposal of real property were less than 1 percent of states' transportation revenue from other sources, including federal aid, in 1999 and 2000. States reported using the proceeds generated from the sale or lease of property in different ways; and at least 2 states may have used the proceeds in ways that do not comply with the specific statutory requirements to use the proceeds on projects eligible for federal-aid highway funding. Forty-seven states reported using the proceeds to fund other state transportation projects, and at least 4 states use the proceeds as their match for projects receiving federal funds. GAO issued a legal opinion in September 2002, concluding that Congress did not intend for states to use such proceeds as their match. DOT has interpreted TEA-21 as allowing for the use of the federal share as a state's match. GAO also found that 2 states did not have restrictions on how the federal share of the proceeds should be used; therefore, the proceeds may have been used on projects not eligible for federal-aid. DOT issued some guidance but is considering issuing more guidance to states to ensure proceeds are used for eligible projects under the federal-aid highway program.