Appendices 13 provide updated statutory language relating to the CMAQ program. Appendix 4 illustrates the comparative costeffectiveness of potential CMAQ projects. Appendix 5 provides supplemental information on diesel retrofit projects.

[[Page 76039]]

Information on the current annual apportionment to each State and an electronic version of this guidance are available at http://www.fhwa.dot.gov/environment/cmaqpgs/index.htm .

II. Program Purpose

The purpose of the CMAQ program is to fund transportation projects or programs that will contribute to attainment or maintenance of the national ambient air quality standards (NAAQS) for ozone, carbon monoxide (CO), and particulate matter (PM).

The CMAQ program supports two important goals of the Department of Transportation: Improving air quality and relieving congestion. While these goals are not new elements of the program, they are strengthened in a new provision added to the CMAQ statute by SAFETEALU, establishing priority consideration for costeffective emission reduction and congestion mitigation activities when using CMAQ funding.

Reducing pollution and other adverse environmental effects of transportation projects and transportation system inefficiency have been longstanding objectives of the Department of Transportation. The strategic plans for the Department of Transportation and for the Federal Highway Administration both include performance measures specifically focused on reducing air pollution from transportation facilities. The CMAQ program provides funding for a broad array of tools to accomplish these goals. By choosing to fund a CMAQ project, a State or local government can improve air quality and make progress towards achieving attainment status and ensuring compliance with the transportation conformity provisions of the Clean Air Act.

Reducing congestion is also a key objective of the Department of Transportation, and one that has gained increasing attention in the past several years. The cost of congestion, which negatively affects the U.S. economy, quality of life, and air quality, has risen dramatically in the last 25 years despite record levels of transportation investment. Some economists estimate that the overall cost of congestion to the U.S. economy approaches $200 billion a year. As a result, the Secretary of Transportation recently issued a National Strategy to Reduce Congestion on America's Transportation Network that aims to meaningfully reduce the economic and social costs of congestion on our nation's highways and in other transportation facilities. This strategy can be found at: http://isddc.dot.gov/OLPFiles/OST/012988.pdf.

Since congestion relief projects also reduce idling, the negative emissions impacts of ``stop and go'' driving, and the number of vehicles on the road, they have a corollary benefit of improving air quality. Based on their emissions reductions, these types of projects, including investments in improved system pricing and operations, are eligible for CMAQ funding. The Department believes State and local governments can simultaneously reduce the costly impacts of congestion while also improving air quality.
III. Authorization Levels Under the SAFETEALU

A. Authorization Levels

Table 1 shows the SAFETEALU CMAQ authorization levels by fiscal year. The CMAQ funds will be apportioned to States each year based upon the apportionment factors discussed in Section V.
Table 1.SAFETEALU CMAQ Authorization Levels
Amount Fiscal year authorization authorized (dollars) FY 2005.............................................. 1,667,255,304 FY 2006.............................................. 1,694,101,866 FY 2007.............................................. 1,721,380,718 FY 2008.............................................. 1,749,098,821 FY 2009.............................................. 1,777,263,247 B. Equity Bonus

Similar to the minimum guarantee under the TEA21, the Equity Bonus in SAFETEALU provides additional funding beyond the authorized levels so that each State receives a minimum percentage of its gas tax receipts back in the form of Federalaid funds.\2\
\2\ 23 U.S.C. 105 (SAFETEALU section 1104).

C. Transferability of CMAQ Funds

Since transportation and environmental program priorities fluctuate, States may choose to transfer a limited portion of their CMAQ apportionment to the following Federalaid highway programs: Surface Transportation Program (STP), National Highway System (NHS), Highway Bridge Program (HBP), Interstate Maintenance (IM), Recreational Trails Program (RTP), and the Highway Safety Improvement Program (HSIP). States may transfer CMAQ funds according to the following provision: An amount not to exceed 50 percent of the quantity of the State's annual apportionment less the amount the State would have received if the CMAQ program had been authorized at $1,350,000,000.\3\ For example, if the annual national apportionment is $1.75 billion and a State receives $10 million more than it would have received if the national apportionment had been $1.35 billion, the State can transfer up to $5 million to other programs. Any transfer of such funds must still be obligated in nonattainment and maintenance areas. The amount of transferable funds will differ each year and by State, depending on overall authorization levels. Each year, the FHWA will inform States how much, if any, CMAQ funding is transferable and will track this movement of CMAQ funds.\4\
\3\ 23 U.S.C. Sec. 126.

\4\ 23 U.S.C. Sec. 110(c).

States also may transfer CMAQ funds to other Federal agencies. The SAFETEALU provides additional flexibility to complete such transfers when the receiving Federal agency has entered into an agreement with the State to undertake an eligible Federalaid project.\5\ These opportunities apply to projects that have met all CMAQ eligibility requirements prior to the transfer.
\5\ 23 U.S.C. Sec. 132(a) (SAFETEALU section 1119).
D. CMAQ and Innovative Finance: State Infrastructure Bank (SIB) and Section 129 Loans

Projects with dedicated repayment streams, i.e., a consistent source of revenue, may be financed with loans through DOT's innovative finance program as an alternative or supplement to CMAQ funding.

State Infrastructure Banks are Statedirected programs that allow Federalaid funds to be lent to sponsors of eligible Federalaid projects (any project under Title 23 or 49 is eligible). SIBs may be capitalized with several Federalaid highway apportionments including the National Highway System Program, the Surface Transportation Program, the Highway Bridge Program, and the Equity Bonus program. (Note: CMAQ may not be used to capitalize a SIB, but SIB funds may be used to finance CMAQ projects). State funds also may be used to capitalize the SIB. The State then receives repayments over time that can be directed toward other transportation projects. For example, New York State was successful in utilizing its SIB to implement two truck stop electrification projects along the New York State Thruway.

Section 129 loans (23 U.S.C. 129(a)(7)) allow states to use Federalaid highway apportionments to make loans for projects with dedicated revenue streams (this is only applicable to highway, [[Page 76040]]
bridge, tunnel, ferry boat, and ferry terminal projects). A Section 129 loan may be used to construct a truck stop electrification facility if the facility is located on the Interstate rightofway.\6\

\6\ 23 U.S.C. 111(d) (SAFETEALU section 1412).

The SAFETEALU establishes a new SIB program under which all States are authorized to enter into cooperative agreements with the U.S. DOT to establish infrastructure revolvingfunds eligible to be capitalized with Federal transportation funds.\7\ The key difference between a Section 129 loan and a SIB is that a Section 129 loan usually provides financing to an individual project and funding a SIB capitalizes a financial entity that can assist multiple projects. The two loan programs have similar maximum allowable terms established by Federal law:
\7\ 23 U.S.C. 190 (SAFETEALU section 1602).

These innovative loan programs can increase the efficiency of States' transportation investments and significantly leverage Federal resources by attracting nonFederal public and private investment, and provide greater flexibility to the States by allowing other types of project assistance in addition to grant assistance. This type of financing is important for new technologies or startup businesses that may have difficulty finding financing in the private capital markets. In addition to SIBs and section 129 loans, the FHWA also administers the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which provides Federal credit assistance to largescale projects greater than $50 million.

The following example illustrates how a Section 129 loan could work to construct an idlereduction facility on an Interstate rightofway. A private party intends to build a stationary idlereduction facility, and seeks grant funding for it from the State DOT. The idle reduction facility will eventually earn a profit by charging user fees, but since the capital costs are high, the private party needs assistance with financing the initial construction. Instead of providing an outright grant, the State could offer a loan of Federalaid funds with flexible repayment terms. If the facility required $1 million for initial construction, the State could make a loan at five percent over fifteen years. The State could accelerate the payments if the facility were more successful than expected, and delay repayment if the facility failed to meet revenue targets. The State could also build in credits for additional emissions reductions, providing incentives for additional loans or grants to idle reduction projects. More information on the DOT's innovative finance program is available at http://www.fhwa.dot.gov/innovativefinance/ .

IV. Priority for Use of CMAQ Funds

The SAFETEALU directs States and MPOs to give priority to two categories of funding. First, to diesel retrofits, particularly where necessary to facilitate contract compliance, and other costeffective emission reduction activities, taking into consideration air quality and health effects. Second, priority is to be given to costeffective congestion mitigation activities that provide air quality benefits.\8\ Appendix 4 illustrates the comparative costeffectiveness of several potential CMAQ projects. Other projects also may be costeffective. The priority provisions in the statute apply to the portion of CMAQ funds derived from the application of Sections 104(b)(2)(B) and 104(b)(2)(C), i.e., the CMAQ apportionment formula. They do not apply to areas where CMAQ funding has been derived from the minimum apportionment provisions.

\8\ 23 U.S.C. 149(f)(3) (SAFETEALU section 1808(d)).

Though the SAFETEALU establishes these CMAQ investment priorities, it also retains State and local agencies' authority in project selection. The law maintains the existing roles and authorities of public agencies, and substantial shifts in local procedures are not required by the SAFETEALU.\9\ However, project selection should reflect the positive costeffectiveness relationships highlighted in Appendix 4. State and local transportation programs that implement a broad array of these costeffective measures may record a more rapid rate of progress toward their clean air goals, since many of these endeavors generate immediate benefits. Local procedures that elevate the importance of these efforts in project selectionand rate them accordinglymay accelerate the drive to air quality attainment. \9\ 23 U.S.C. 149(f)(3)(B) (SAFETEALU section 1808(d)).

In addition to the SAFETEALU priority on costeffectiveness, Section 176(c) of the Clean Air Act \10\ (CAA) requires that the FHWA and FTA ensure timely implementation of transportation control measures (TCMs) in applicable State Implementation Plans (SIPs). These and other CMAQeligible projects identified in approved SIPs must receive funding priority.

\10\ 42 U.S.C. 7506 Section 176(c)(2)(B).

The FHWA recommends that States and MPOs develop their transportation/air quality programs using complementary measures that provide alternatives to singleoccupant vehicle (SOV) travel while improving traffic flow through operational strategies and balancing supply and demand through pricing, parking management, regulatory, or other means.
V. Annual Apportionments of CMAQ Funds to States

A. CMAQ Apportionments

Federal CMAQ funds are apportioned annually to each State according to the severity of its ozone and CO problem (see Appendix 2). The population of each county (based upon Census Bureau data) that is in a nonattainment or maintenance area for ozone and/or CO is weighted by multiplying by the appropriate factor listed in Table 2. PM nonattainment and maintenance areas and former 1hour areas, except those few 1hour maintenance areas participating in Early Action Compacts, are not included in the apportionments.

Note: CMAQ apportionments and CMAQ eligibility are two different things. Some areas in which CMAQ funds may be spent are not included in the apportionments (see Section VI.).
[[Page 76041]]
Table 2.SAFETEALU CMAQ Apportionment Factors \11\ Classification at the time of Pollutant annual apportionment Weighting factor Ozone (O3) or (CO)...................... Maintenance (these areas had to 1.0. be previously eligible as nonattainment areasSee Section VI.).
Ozone................................... Subpart 1 (``Basic'')........... 1.0. Ozone................................... Marginal........................ 1.0. Ozone................................... Moderate........................ 1.1. Ozone................................... Serious......................... 1.2. Ozone................................... Severe.......................... 1.3. Ozone................................... Extreme......................... 1.4. CO...................................... Nonattainment................... 1.0. Ozone and CO............................ Ozone nonattainment or 1.2 x O3 factor. maintenance and CO nonattainment or maintenance. All Statesminimum apportionment....... \1/2\ of 1 percent total annual N/A. apportionment of CMAQ funds.

CMAQ apportionments are calculated based on the nonattainment and maintenance areas that exist at the time of apportionment. Generally, apportionments are calculated prior to the beginning of each fiscal year.
\11\ 23 U.S.C. 104(b)(2) (SAFETEALU section 1103(d)).

B. Area Designations: Attainment vs. Nonattainment

Each State is guaranteed a minimum apportionment of onehalf percent of the year's total program funding, regardless of whether the State has any nonattainment or maintenance areas. These flexible funds or minimum apportionment funds can be used anywhere in the state for projects eligible for either CMAQ or the Surface Transportation Program (STP).\12\

\12\ 23 U.S.C. 149(c).

The FHWA Budget Division identifies annual apportionments of CMAQ funds as either mandatory or flexible. All funding is considered mandatory for states with weighted populations yielding onehalf percent or more of the authorized funds (based on the table above). Annual CMAQ funding apportioned through the application of Sections 104(b)(2)(B) and 104(b)(2)(C) must be used for projects in nonattainment/maintenance areas.

States with weighted populations yielding at least some apportioned value but less than onehalf percent of the authorized funds receive both mandatory and flexible funds to reach the minimum apportionment. For example, if a State's weighted population yields two tenths of one percent of the authorized funds, it would receive two tenths of one percent of the national funds as mandatory funds, and three tenths of one percent as flexible funds. Thus, 40 percent of the State's funds would be mandatory and 60 percent would be flexible.

For States with no areas applicable to the apportionment table, their minimum apportionment, onehalf percent, is all flexible funding. The FHWA reports the breakdown of mandatory and flexible funds by State in its fiscal year apportionment tables.

C. Apportionments and State Allocation

Notwithstanding the statutory formula for determining the apportionment amount, the State may use its CMAQ funds in any ozone, CO, or PM nonattainment or maintenance area. A State is under no statutory obligation to allocate CMAQ funds in the same way they are apportioned. States are encouraged to consult affected MPOs to determine regional and local CMAQ priorities and work with them to allocate funds accordingly.

D. Federal Share and State/Local Match Requirements

The Federal share for most eligible projects is generally 80 percent (90 percent for projects on the Interstate System). Activities identified in 23 U.S.C. 120(c) (See Appendix 3), including traffic control signalization, commuter carpooling and vanpooling, and signalization projects to provide priority for transit vehicles, may be funded at up to 100 percent Federal share if they meet the conditions of that section.

Although not required for publicprivate partnerships (PPP) under the CMAQ program, State and local officials have the discretion to request a higher local match from the private sector partner. For example, project sponsors may find that a CMAQ PPP requiring a 50 percent local match contribution is more appropriate than the standard 20 percent required under Federal law. In addition, higher local matches for these efforts can leverage CMAQ funding and extend the program to a greater pool of projects.
VI. Geographic Areas That Are Eligible To Use CMAQ Funds

A. Eligible Areas

CMAQ funds may be invested in all 8hour ozone, CO, and PM nonattainment and maintenance areas. Funds also may be spent in the few remaining1hour ozone maintenance areas (these counties also have Early Action Compacts in place), since the 1hour standard remains in effect for these areas.

Funds also may be used for projects in proximity to nonattainment and maintenance areas if the benefits will be realized primarily within the nonattainment or maintenance area. The delineation of an area considered ``in proximity'' should be discussed with the FHWA and FTA field offices and elevated to headquarters if necessary.

B. Maintenance Areas

CMAQ funds may be invested in maintenance areas that have approved maintenance plans under CAA section 175A. In States with ozone or CO maintenance areas but no nonattainment areas, mandatory CMAQ funds must be used in the maintenance areas.

C. Maintenance Plan Requirement, SAFETEALU

CMAQ funds may be invested in former 1hour ozone areas that were not designated under the 8hour standard but where the 1hour standard has been revoked. Since these areas are required to file maintenance plans, they are considered eligible for CMAQ funding under provisions of the SAFETEALU.\13\
\13\ 23 U.S.C. 149(b) (SAFETEALU section 1808(a)).

D. Flexible Funds in PM Areas

While States may use flexible CMAQ funding anywhere and for any CMAQ or STPeligible project (see V.B. on
[[Page 76042]]
minimum apportionment), the FHWA encourages States and MPOs to evaluate the costeffectiveness and benefits to public health of targeting flexible CMAQ funding to projects that reduce PM. Examples of such projects include implementing a diesel retrofit or idle reduction program, constructing freight/intermodal transfer facilities, traffic signalization, or ITS projects that reduce congestion; paving dirt roads, and purchasing street sweeping equipment. See Appendix 4 for further costeffectiveness comparisons.
VII. Project Eligibility Provisions

A. Project Eligibility: General Conditions

To be eligible for CMAQ funds, a project must be included in the MPO's current transportation plan and TIP (or the current STIP in areas without an MPO). In nonattainment and maintenance areas, the project also must meet the conformity provisions contained in Section 176(c) of the Clean Air Act and the transportation conformity rule.\14\ In addition, all CMAQfunded projects need to complete National Environmental Policy Act (NEPA) requirements and meet basic eligibility requirements for funding under titles 23 and 49 of the United States Code.

\14\ 40 CFR parts 51 and 93.

The following should guide CMAQ eligibility decisions: 1. Capital Investment

CMAQ funds may be used to establish new or expanded transportation projects or programs that reduce emissions, including capital investments in transportation infrastructure, congestion relief efforts, diesel engine retrofits, or other capital projects. 2. Operating Assistance

There are several general conditions that must be met for operating assistance to be eligible under the CMAQ program.

a. Operating assistance is limited to new transit services, intermodal facilities, and travel demand management strategies (including traffic operation centers); and the incremental cost of expanding existing transit services.

b. In using CMAQ funds for operating assistance, the intent is to help start up viable new transportation services that can demonstrate air quality benefits and eventually cover their costs as much as possible. Other funding sources should supplement and ultimately replace CMAQ funds for operating assistance, as these projects no longer represent additional, net air quality benefits but have become part of the baseline transportation network.

c. Operating assistance includes all costs of providing new transportation services, including, but not limited to, labor, fuel, administrative costs, and maintenance.

d. When CMAQ funds are used for operating assistance, nonFederal share requirements still apply.

e. With the focus on startup costs only, operating assistance under the CMAQ program is limited to three years. The provisions in 23 U.S.C. Sec. 116 place responsibilities for maintenance on States.\15\ Since facility maintenance is akin to operations, three years of CMAQ assistance provides adequate incentive and flexibility while not creating a pattern of excessive or even perpetual support. Exceptions are listed below under VII.D.7 Travel Demand Management, VII.D.8 Public Education, and VII.D.10 Carpooling and Vanpooling.
3. Emission Reduction

\15\ 23 U.S.C. 116.

Air quality improvement is defined by several distinct terms in 23 U.S.C. Sec. 149. These terms include contribution to attainment, reduction in pollution, air quality benefits, and others. For purposes of this guidance, the FHWA uses emission reduction to represent this group of terms. CMAQinvested projects or programs must reduce CO, ozone precursor (NOX and VOCs), PM, or PM precursor (e.g., NOX) emissions from transportation. These reductions must contribute to the area's overall clean air strategy and can be demonstrated by the assessment that is required under this guidance. States and MPOs also may consider the ancillary benefits of eligible projects, including greenhouse gas reductions, congestion relief, safety, or other elements, when programming CMAQ funds, though such benefits do not alone establish eligibility.

4. Planning and Project Development

Activities in support of eligible projects also may be appropriate for CMAQ investments. Studies that are part of the project development pipeline (e.g., preliminary engineering) under the National Environmental Policy Act (NEPA) are eligible for CMAQ support, as are FTA's Alternatives Analyses. General studies that fall outside specific project development do not qualify for CMAQ funding. Examples of such efforts include major investment studies, commuter preference studies, modal market polls or surveys, transit master plans, and others. These activities are eligible for Federal planning funds.

B. Projects Ineligible for CMAQ Funding

The following projects are ineligible for CMAQ funding:

1. Lightduty vehicle scrappage programs.\16\

\16\ 23 U.S.C. 149(b).

2. Projects that add new capacity for SOVs are ineligible for CMAQ funding unless construction is limited to highoccupancy vehicle (HOV) lanes.

3. Routine maintenance and rehabilitation projects (e.g., replacementinkind of track or other equipment, reconstruction of bridges, stations, and other facilities, and repaving or repairing roads) are ineligible for CMAQ funding as they only maintain existing levels of highway and transit service, and therefore do not reduce emissions. Other funding sources, such as STP and FTA's Section 5307 program, are available for such activities.

4. Administrative costs of the CMAQ program may not be defrayed with program funds, e.g., support for a State's ``CMAQ Project Management Office'' is not eligible.

5. Projects that do not meet the specific eligibility requirements of titles 23 and 49 U.S.C. are ineligible for CMAQ funds.

6. Standalone projects to purchase fuel. One exception is listed below in Section VII.D.3.

C. PublicPrivate Partnerships (PPPs)

In a PPP, a private or nonprofit entity's resources replace or supplement State or local funds and possibly a portion of the Federal aid in a selected project. The PPP elements of the program have been refined over the last two transportation reauthorizations, and these partnerships have become a critical part of CMAQ.\17\

\17\ 23 U.S.C. 149(e).

Partnerships must have a legal, written agreement in place between the public agency and the private or nonprofit entity before a CMAQ funded project may be implemented. These agreements should be developed under relevant State contract law and should specify the intended use for CMAQ funding; the roles and responsibilities of the participating entities; and how the disposition of land, facilities, and equipment will be carried out should the original terms of the agreement be altered (e.g., due to insolvency, change in ownership, or other changes in the structure of the PPP).

Public funds should not be invested where a strong public benefit cannot be
[[Page 76043]]
demonstrated. Consequently, CMAQ funds must be devoted only to PPPs that benefit the general public by clearly reducing emissions, not for financing marginal projects. Consistent with the planning and project selection provisions of the Federalaid highway program, the FHWA considers it essential that all interested parties have full, open, and timely access to the project selection process.

There are several other statutory restrictions and special provisions on the use of CMAQ funds in PPPs. Eligible costs under this section may not include costs to fund an obligation imposed on private sector or nonprofit entities under the CAA or any other Federal law. However, if the private or nonprofit entity is clearly exceeding its obligations under Federal law, CMAQ funds may be used for that incremental portion of the project.

Eligible nonmonetary activities that satisfy the nonFederal match requirements under the partnership provisions include the following:

Sharing of total project costs, both capital and operating, is a critical element of a successful publicprivate venture, particularly if the private entity is expected to realize profits as part of the joint venture. State and local officials are urged to consider a full range of costsharing options when developing a PPP, including a larger State/local match than the usual 20 percent required under Federal law. For detailed information on cost principles beyond the scope of this guidance, please consult OMB Circular A87, which focuses on determining allowable costs for State, local, and tribal governments; and 49 CFR Part 18, which provides direction on administering Federal grants to State and local governments.

D. Eligible Projects and Programs

Eligibility information is provided below. Not all possible requests for CMAQ funding are coveredthis section provides examples of activities eligible for CMAQ funds.

1. Transportation Control Measures (TCMs)

Most of the TCMs included in Section 108 of the CAA, listed below, are eligible for CMAQ funding. One CAA TCM, programs to encourage removal of pre1980 lightduty vehicles, is specifically excluded from CMAQ eligibility.\18\
\18\ 23 U.S.C. 149(1)(A).

i. Programs for improved public transit;

ii. Restriction of certain roads or lanes to, or construction of such roads or lanes for use by, passenger buses or HOV;

iii. Employerbased transportation management plans, including incentives;

iv. Tripreduction ordinances;

v. Traffic flow improvement programs that reduce emissions; ii.fringe and transportation corridor parking facilities serving multipleoccupancy vehicle programs or transit service;

vii. Programs to limit or restrict vehicle use in downtown areas or other areas of emission concentration particularly during periods of peak use;

viii. Programs for the provision of all forms of highoccupancy, sharedride services;
ix. Programs to limit portions of road surfaces or certain sections of the metropolitan area to the use of nonmotorized vehicles or pedestrian use, both as to time and place;

x. Programs for secure bicycle storage facilities and other facilities, including bicycle lanes, for the convenience and protection of bicyclists, in both public and private areas;

xi. Programs to control extended idling of vehicles;

xii. Reducing emissions from extreme coldstart conditions;

xiii. Employersponsored programs to permit flexible work schedules;

xiv. Programs and ordinances to facilitate nonautomobile travel, provision and utilization of mass transit, and to generally reduce the need for SOV travel, as part of transportation planning and development efforts of a locality, including programs and ordinances applicable to new shopping centers, special events, and other centers of vehicle activity; and

xv. Programs for new construction and major reconstructions of paths, tracks, or areas solely for the use by pedestrian or other non motorized means of transportation when economically feasible and in the public interest.

2. Extreme LowTemperature Cold Start Programs

Projects intended to reduce emissions from extreme coldstart conditions are eligible for CMAQ funding. Such projects include retrofitting vehicles and fleets with water and oil heaters and installing electrical outlets and equipment in publiclyowned garages or fleet storage facilities (See Section VII.C. for a possible expansion to privatelyowned equipment and facilities).
3. Alternative Fuels and Vehicles

Fuel

With the exception of Missouri, Iowa, Minnesota, Wisconsin, Illinois, Indiana, and Ohio, fuel costs are not an eligible expense as a standalone project. Only these seven states may use CMAQ funds to purchase alternative fuels as defined in section 301 of the 1992 Energy Policy Act (natural gas, ethanol, etc.) or biodiesel, assuming such projects meet other applicable eligibility requirements noted in Section VII.B. above.

Establishing publiclyowned fueling facilities and other infrastructure needed to fuel alternativefuel vehicles is an eligible expense, unless privatelyowned fueling stations are in place and reasonably accessible. Additionally, CMAQ funds may support converting a private fueling facility to support alternative fuels through a publicprivate partnership agreement (See Section VII.C.).

Nontransit Vehicles

CMAQ funds may be used to purchase publiclyowned alternative fuel vehicles, including passenger vehicles, refuse trucks, street cleaners, and others. Costs associated with converting fleets to run on alternative fuels are also eligible. When private vehicles are purchased, only the cost difference between the alternative fuel vehicles and comparable conventional fuel vehicles is eligible. Such vehicles should be fueled by one of the alternative fuels identified in section 301 of the 1992 Energy Policy Act or biodiesel.

Hybrid Vehicles

Although not defined by the Energy Policy Act of 1992 as alternative fuel vehicles, certain hybrid vehicles that have lower emissions rates than their nonhybrid counterparts may be eligible for CMAQ investment. Hybrid passenger vehicles must meet EPA's low emissions and energy efficiency requirements for certification under the HOV exception provisions of the SAFETEALU to be eligible for CMAQ funding.\19\
\19\ 23 U.S.C. 166(e) (SAFETEALU section 1121(a)). The required rulemaking is under development by EPA and is expected to list Tier 2/Bin 5the average of the Tier 2 tailpipe emission standardsas the minimum level for lowemission certification under the HOV exception.

Projects involving heavier vehicles, including refuse haulers and delivery trucks, also may be appropriate for program support. Eligibility should be based on a comparison of the emissions [[Page 76044]]
projections of these larger candidate vehicles and other comparable models.

4. Congestion Reduction & Traffic Flow Improvements

Traffic flow improvements may include the following:

a. Traditional Improvements

Traditional traffic flow improvements, such as the construction of roundabouts, HOV lanes, leftturn or other managed lanes, are eligible for CMAQ funding provided they demonstrate net emissions benefits.

b. Intelligent Transportation Systems

Intelligent Transportation Systems (ITS) projects, such as traffic signal synchronization projects, traffic management projects, and traveler information systems, can be effective in relieving traffic congestion, enhancing transit bus performance, and improving air quality. The following have the greatest potential for improving air quality:

A lengthier discussion of the benefits associated with various operational improvements can be found at: http://ops.fhwa.dot.gov/program_areas/programareas.htm

c. Value/Congestion Pricing

As part of its National Strategy referenced above, the Department broadly promotes highway congestion pricing and is also seeking an areawide demonstration of the effectiveness of congestion pricing (along with other elements). Congestion pricing is a marketbased mechanism that allows tolls to rise and fall depending on available capacity and demand. It has gained increasing attention and popularity in recent years following several highly successful facility demonstrations in the U.S. and several network wide demonstrations abroad. Tolls can be charged electronically, thereby eliminating the need for tollbooths. In addition to the benefits associated with reducing congestion, revenue is generated that can be used to pay for a wide range of transportation improvements, including Title 23eligible transit services in the newly tolled corridor.

Parking pricing can include timeofday parking charges that reflect congested conditions. These strategies should be designed to influence tripmaking behavior and may include charges for using a parking facility at peak periods, or a range of employerbased parking cashout policies that provide financial incentives to avoid parking or driving alone. Parking pricing integrated with other pricing strategies is encouraged.

Pricing encompasses a variety of marketbased approaches such as:

As with any eligible CMAQ project, value pricing must generate an emissions reduction. Marketing and outreach efforts to expand and encourage the use of eligible pricing measures may be funded indefinitely. Eligible expenses for reimbursement include, but are not limited to: Tolling infrastructure, such as transponders and other electronic toll or fare payment systems; small roadway modifications to enable tolling, marketing, public outreach, and support services, such as transit in a newly tolled corridor. Innovative pricing approaches yet to be deployed in the U.S. also may be supported through the Value Pricing Pilot Program. A more complete discussion of projects currently underway in the U.S. can be found at: http://ops.fhwa.dot.gov/tolling_pricing/value_pricing/index.htm .

Operating expenses for traffic flow improvements are eligible for CMAQ funding for a period not to exceed three years if they can be shown to produce air quality benefits, if the expenses are incurred from new or additional services, and if previous funding mechanisms, such as fares or fees for services, are not displaced.

Projects or programs that involve the purchase of integrated, interoperable emergency communications equipment are eligible for CMAQ funding.\20\
\20\ 23 U.S.C. 149(b)(6) (SAFETEALU section 1808(b)(4)). 5. Transit Improvements

Many transit projects are eligible for CMAQ funds. The general guideline for determining eligibility is whether the project increases capacity and would likely result in an increase in transit ridership and a potential reduction in congestion. As with other types of CMAQ projects, there should be a quantified estimate of the project's emissions benefits accompanying the proposal.

The FTA administers most transit projects. Once the FTA determines a project eligible, CMAQ funds will be transferred from the FHWA to the FTA, and the project will be administered according to the requirements of the FTA's Urbanized Area Formula Grant Program.\21\ Certain types of transit projects for which the FTA lacks statutory authority, such as diesel retrofit equipment for public school bus fleets, are administered by the FHWA.
\21\ 49 U.S.C. 5307.

a. Facilities

New transit facilities (e.g., lines, stations, terminals, transfer facilities) are eligible if they are associated with new or enhanced mass transit service. Routine maintenance or rehabilitation of existing facilities is not eligible, as it does not reduce emissions. However, rehabilitation of a facility may be eligible if the vast majority of the project involves physical improvements that will increase capacity. In such cases there should be supporting documentation showing an increase in transit ridership that is more than minimal. If the vast majority of the project involves capacity enhancements, other elements involving refurbishment and replacementinkind also are eligible. b. Vehicles and Equipment

New transit vehicles (bus, rail, or van) to expand the fleet or replace existing vehicles are eligible. Transit agencies are encouraged to purchase vehicles that are most costeffective in reducing emissions. Diesel engine retrofits, such as replacement engines and exhaust aftertreatment devices, are eligible if certified or verified by the EPA or California Air Resources Board (CARB). Routine preventive maintenance for vehicles is not eligible as it only returns the vehicles to baseline conditions. Besides diesel engine retrofits, other transit equipment may be eligible if it represents a major systemwide upgrade that will significantly improve speed or reliability of transit service, such as advanced signal and communications systems. [[Page 76045]]

c. Fuel

Fuel, whether conventional or alternative fuel, is an eligible expense only as part of a project providing operating assistance for new or expanded transit service under the CMAQ program. This includes fuels and fuel additives considered diesel retrofit technologies by the EPA or CARB. See Section VII.D.3 for statutory exceptions for certain states regarding the purchase of alternative fuel with CMAQ funds. d. Operating Assistance

Operating assistance to introduce new transit service or expand existing service is eligible. It may be a new type of service, service to a new geographic area, or an expansion of existing service providing additional hours of service or reduced headways. For a service expansion, only the operating costs of the new increment of service are eligible. Eligible operating costs include labor, fuel, maintenance, and related expenses. Operating assistance may be CMAQfunded for a maximum of three years. The intent is to support the demonstration of new services that may prove successful enough to sustain with other funding sources, and to free up CMAQ funds to generate new air quality benefits.

It is not appropriate to use CMAQ funds for operating assistance for New Start projects because these projects require dedicated, stable sources of funding for their operation. Relying on CMAQ funds for the initial operating costs of these projects is contrary to the need to establish permanent State and local funding sources to cover operating and maintenance costs.

e. Transit Fare Subsidies

CMAQ funds may be used to subsidize regular transit fares in an effort to prevent the NAAQS from being exceeded, but only under the following conditions: The reduced or free fare must be part of a comprehensive areawide program to prevent the NAAQS from being exceeded. ``Ozone Action'' programs vary in scope around the country, but they generally include actions that individuals and employers can take and they are aimed at all major sources of air pollution, not just transportation. The subsidized fare must be available to the general public and may not be limited to specific groups. It may only be offered during periods of elevated pollution when the threat of exceeding the NAAQS is greatest; it is not intended for the entire highozone season. Finally, the fare subsidy proposal must demonstrate that the responsible local agencies will combine the reduced or free fare with a robust marketing program to inform SOV drivers of other transportation options. The subsidy is not subject to the threeyear limit for operating assistance.

6. Bicycle and Pedestrian Facilities and Programs

Bicycle and pedestrian facilities and programs are included as a TCM in section 108(f)(1)(A) of the CAA. The following are eligible projects:

7. Travel Demand Management

Travel demand management (TDM) encompasses a diverse set of activities that focus on physical assets and services that provide realtime information on network performance and support better decisionmaking for travelers choosing modes, times, routes, and locations. Such projects can help ease congestion and reduce SOV use contributing to mobility, while enhancing air quality and saving energy resources. Similar to ITS and Value Pricing, today's TDM programs seek to optimize the performance of local and regional transportation networks. The following activities are eligible if they are explicitly aimed at reducing SOV travel and associated emissions:

CMAQ funds may support capital expenses and up to three years of operating assistance to administer and manage new or expanded TDM programs.

Marketing and outreach efforts to expand use of TDM measures may be funded indefinitely, but only if they are broken out as distinct line items (See Section VII.D.8. below).

Eligible telecommuting activities include planning, preparing technical and feasibility studies, and training. Construction of telecommuting centers and computer and office equipment purchases are not eligible for CMAQ funds.

8. Public Education and Outreach Activities

The goal of CMAQfunded public education and outreach activities is to educate the public, community leaders, and potential project sponsors about connections among trip making and transportation mode choices, traffic congestion, and air quality. Public education and outreach can help communities reduce emissions and congestion by inducing drivers to change their transportation choices. More important, an informed public is likely to support larger regional measures necessary to reduce congestion and meet CAA requirements.

A wide range of public education and outreach activities is eligible for CMAQ funding, including activities that promote new or existing transportation services, developing messages and advertising materials (including market research, focus groups, and creative), placing messages and materials, evaluating message and material dissemination and public awareness, technical assistance, programs that promote the Tax Code provision related to commute benefits,\23\ transit ``store'' operations, and any other activities that help forward less polluting transportation options.
\23\ Section 132(f) of the Internal Revenue Code allows employers to pay their employees, in 2006, up to $105 per month for transit and vanpool expenses and up to $205 per month for qualified parking. 26 U.S.C. 132(f). Each of these benefits is subject to annual increases based on changes to the Consumer Price Index. 26 U.S.C. 1(f)(3). Alternately, employers may allow employees to use their pretax income to purchase these commuter benefits. Employers may also provide a combination of these employerpaid and employee paid taxfree benefits. For more information, please visit http://www.commuterchoice.com/ .

Using CMAQ funds, communities have disseminated many transportation and air quality public education messages, including maintain your vehicle; curb SOV travel by trip chaining, telecommuting and using alternate modes; fuel properly; observe speed limits; don't idle your vehicle for long durations; eliminate ``jackrabbit'' starts and stops, and others.

The It All Adds Up to Cleaner Air public education messages and materials (regarding vehicle maintenance, proper fueling, trip [[Page 76046]]
chaining, and alternate modes) have been successful in raising awareness, garnering funds and inkind support, and building coalitions of diverse groups across the country. These commercialquality materials, which were developed in response to requests by state and local transportation and air agencies, are free and communities are encouraged to use and build on them. More information is available at http://www.italladdsup.gov/.

The Best Workplaces for CommutersSM program provides national recognition to employers offering commuter benefits that meet the EPA's National Standard of Excellence. Development of materials and public education messages promoting Best Workplaces for Commuters^SM and employer provided commuter benefits may be eligible for funding. More information is available at http://www.bwc.gov/.

Longterm public education and outreach can be effective in raising awareness that can lead to changes in travel behavior and ongoing emissions reductions; therefore, these activities may be funded indefinitely.

9. Transportation Management Associations

Transportation Management Associations (TMAs) are groups of citizens, firms, or employers that organize to address the transportation issues in their immediate locale by promoting rideshare programs, transit, shuttles, or other measures. TMAs can play a useful role in brokering transportation services to private employers.

CMAQ funds may be used to establish TMAs provided that they reduce emissions. Eligible expenses include TMA startup costs and up to three years of operating assistance. Eligibility of specific TMA activities is addressed throughout this guidance.

10. Carpooling and Vanpooling

Eligible activities can be divided into two types of costs: Marketing (which applies to both carpools and vanpools) and vehicle (which applies to vanpools only).

a. Carpool/vanpool marketing covers existing, expanded, and new activities designed to increase the use of carpools and vanpools, and includes purchase and use of computerized matching software and outreach to employers. Guaranteed ride home programs are also considered marketing tools. Marketing costs may be funded indefinitely.

b. Vanpool vehicle capital costs include purchasing or leasing vans for use in vanpools. Eligible operating costs, limited to three years, include emptyseat subsidies, maintenance, insurance, administration, and other related expenses.

CMAQ funds should not be used to buy or lease vans that would directly compete with or impede private sector initiatives. States and MPOs should consult with the private sector prior to using CMAQ funds to purchase vans, and if private firms have definite plans to provide adequate vanpool service, CMAQ funds should not be used to supplant that service.

Carpooling and vanpooling activities may be funded with up to 100% federal funding, with certain limitations.\24\
\24\ 23 U.S.C. 120(c)

11. Freight/Intermodal

Projects and programs targeting freight capital costsrolling stock or ground infrastructureare eligible provided that air quality benefits can be demonstrated. Freight projects that reduce emissions fall generally into two categories: Primary efforts that target emissions directly or secondary projects that reduce net emissions.

Successful primary projects could include new diesel engine technology or retrofits of vehicles or engines. Eligibility is not confined to highway projects, but also applies to nonroad mobile freight projects, such as rail.\25\ See Section VII.D.12. below on diesel retrofit technologyexamples of primary freight projectsand for information on EPA's guidance and model rule for emissions reduction credit in the SIP and conformity processes.

\25\ 23 U.S.C. 149(b)(3)

Secondary projects reduce emissions through shifts in or additions to infrastructure. Support for an intermodal container transfer facility may be eligible if the project demonstrates reduced diesel engine emissions when balancing the drop in truck VMT against the increase in locomotive or other nonhighway activity. Intermodal facilities, such as inland transshipment ports or ondock rail, may generate substantial emissions reductions through the decrease in miles traveled for pre1986 heavyduty diesel trucks. This secondary, indirect effect on truck traffic and the ensuing drop in diesel emissions help demonstrate eligibility.

The transportation function of these freight/intermodal projects should be emphasized. Marginal projects that support freight operations in a very tangential manner are not eligible for CMAQ funding. Warehouse handling equipment, for example, is not an eligible investment of program funds. However, equipment that provides a transportation function or directly supports this function is eligible, such as railyard switch locomotives or shunters.
12. Diesel Engine Retrofits & Other Advanced Truck Technologies

The SAFETEALU places a new emphasis on diesel engine retrofits and the various types of projects that fall under this broad category.\26\ These efforts are defined as vehicle replacement, repowering (replacing an engine with a cleaner engine), rebuilding an engine, or other technologies determined by the EPA as appropriate for reducing emissions from diesel engines.\27\ This latter point, highlighting developing technologies, establishes a degree of flexibility and a need for periodic adjustment in the definition by the EPA. The legislation defines retrofit projects as applicable to both onroad motor vehicles and nonroad construction equipment; the latter must be used in Title 23 projects based in nonattainment or maintenance areas for either PM or ozone.
\26\ 23 U.S.C. 149(b)(f) (SAFETEALU section 1808(d)).

\27\ 23 U.S.C. 149(f)(2) (SAFETEALU section 1808(d)).

There are a number of project types in the diesel retrofit area for which CMAQ funds are eligible. Assuming all other CMAQ criteria are met, eligible projects include diesel engine replacement; full engine rebuilding and reconditioning; and purchase and installation of after treatment hardware, including particulate matter traps and oxidation catalysts, and other technologies; and support for heavyduty vehicle retirement programs. Project agreements involving replacements of either engine or full vehicle should include a provision for disposal of the engine block and a process to verify the retirement of this equipment.\28\
\28\ Reimbursement of costs for fullvehicle replacement may be limited to those elements that lead to emission reductions.

CMAQ funds may be used to purchase and install emission control equipment on school buses. (Such projects, generally, should be administered by FHWA; see VII.D.5, Transit Improvements, above.)

Refueling is not eligible as a standalone project, and is eligible only if it is required to support the installation of emissions control equipment, repowering, rebuilding, or other retrofits of nonroad engines. For example, ultralow sulfur diesel (ULSD) may be purchased as part of a project to install diesel particulate filters on nonroad [[Page 76047]]
construction equipment because these devices need ULSD to function properly. Costs associated with ULSD are eligible for CMAQ funding only until the standards are effective and the fuel becomes commonly available through the regional supply and logistics chain, effectively rendering ULSD the only diesel fuel distributed. Eligible costs are limited to the difference between standard nonroad diesel fuel and ULSD.

In addition to equipment and technology, outreach activities that provide information exchange and technical assistance to diesel owners and operators on retrofit options are eligible investments. Please see Appendix 5 for more detail on diesel retrofits and the various strategies available in this developing air quality field.

The FHWA acknowledges that diesel retrofit projects may include nonroad mobile source endeavors, which traditionally have been outside the Federalaid process. However, the SAFETEALU clarifies CMAQ eligibility for nonroad diesel retrofit projects. Areas that fund these projects are not required to take credit for the projects in the transportation conformity process. For areas that want to take credit, the EPA developed guidance for estimating diesel retrofit emission reductions and for applying the credit in the SIP and transportation conformity processes. The guidance can be found at http://www.epa.gov/otaq/stateresources/transconf/policy.htm#retrofit .

In addition to retrofit projects, upgrading longhaul heavyduty diesel trucks with advanced technologies, such as idle reduction devices, cab and trailer aerodynamic fixtures, and singlewide or other efficient tires, has been demonstrated by the EPA's Smart Way Transport Partnership

FOR FURTHER INFORMATION CONTACT

Mike Koontz, Office of Natural and Human Environment, (202) 3662076, michael.koontz@dot.gov; or Diane Liff (202) 3666203 or Harold Aikens (202) 3661373, Office of the Chief Counsel, Federal Highway Administration, 400 Seventh Street, SW., Washington, DC 20590. Office hours are from 7:45 a.m. to 4:15 p.m., Monday through Friday, except Federal holidays.