The DOT is in hot water over poor money management, which, in 2019, sent its bank accounts plummeting close to a legally required cash floor. The department planned to spend $5.94 billion last year, but exceeded that amount by more than 12%, says a May report from State Auditor Beth Wood. Transportation officials overspent because they didn’t base their budget on actual cost estimates for projects. The department also failed to monitor or enforce its spending plan at DOT’s 14 highway divisions.
Operations and maintenance make up the largest part of that $742 million overspend, costing the department an extra $578 million. Construction projects cost DOT $124 million more than planned. Two miscellaneous categories make up the remaining $108 million.
Now, the state is poised to give DOT $300 million from the federal Coronavirus Aid, Relief, and Economic Security Act — if guidance changes to allow it. With fewer people on the road due to the COVID-19 pandemic, gas taxes — a big chunk of DOT’s budget — aren’t rolling in. The department is going to take another financial hit.
It all could’ve been prevented — if only with more monitoring, data, and accountability, Wood told Carolina Journal.
Department leaders approved projects without heeding budget limits, the auditor’s report says.
“For example, the Chief Engineer’s Office did not reject a division’s contracts waiting to be executed if the division’s remaining unspent budget allocation was insufficient,” it says.
The department isn’t adequately monitored, Wood said. The DOT manages billions of dollars “without external controls,” and it doesn’t have to get legislative approval for its spending plan.
The department knew it had money troubles in November 2018, Wood said.
“Management over there says they saw it. But nobody slowed any spending down,” Wood said.
Bad habits are pervasive in how the department budgets, the report says. For example, DOT has set aside $50 million for disaster spending each year since 2015. But the department overspends in that category every year. In 2018, the DOT dropped $171 million for disaster-related projects. In 2019, it spent $296 million.
Department leaders aren’t certain each year how much hurricanes will cost the state. Once the money is set aside for relief, it can’t be used for anything else.
If that’s the case, the department should cut from other areas of the budget to make up the difference when it ramps up disaster spending, Wood’s report says.
“Yet when disasters occurred, the Department did not adjust its operations and maintenance forecasted amount and continued to overspend,” it says.
“I don’t know how you miss it that much,” Wood said. “They didn’t slow it down, they kept spending as if they were in a hurricane … so don’t blame it on the hurricane. You weren’t putting enough aside to begin with.”
The NCDOT can fix overspending, Wood’s report says. The department should budget according to actual project plans for the current year. Leadership should “formally monitor” how much it’s spending, and it should stop overspending by delaying contract approvals and cutting costs throughout the year, among other things.
“The State Auditor’s recommendations aimed to improve cash management, not to change the weather or simply appropriate more money,” said Joe Coletti, senior fellow for fiscal and tax policy at the John Locke Foundation.
Responding for NCDOT, Secretary Eric Boyette agreed with the findings and said the agency has implemented all of them other than adjusting the disaster budget — which will require more money from the General Assembly to replenish cash from general maintenance funds that paid for disaster relief.
DOT is audited four times each year, Wood told CJ.
“Somebody outside of DOT ought to be overseeing and tracking the spending plan,” Wood said. “But none of the objectives of the four audits they get in a year were ever meant to catch this. The fact is an audit is an after-the-fact activity. An audit is never meant to be a substitute for day-to-day management responsibilities. If I find it, it’s too late.”
If it tracked its own spending, DOT would have an extra $700 million to deal with economic fallout under the pandemic, which is expected to sap almost $3 billion from the department.
The overspending has drawn the attention of credit rating agencies, which could dock the state’s score, State Treasurer Dale Folwell said during his monthly “Ask Me Anything” teleconference Tuesday, May 5.
“That’s the last thing North Carolina needs,” Folwell said. “It is time for the governor to take on the challenge and responsibility of figuring out what is right, and keeping it right at the DOT on behalf of the road contractors.”
Editor’s note: This story was edited after publication to include comments from DOT’s response to the audit.