The state Department of Transportation defended its overspending and planned reforms to a skeptical Senate Transportation Committee on Wednesday, May 27.
Lawmakers asked department officials how, in fiscal year 2018-19, the DOT spent $742 million more than its budget, based on a May audit report. Senators reviewed the department’s budgeting process, its oversight mechanisms, and its responsibility for the budget hole that threw the transportation industry into chaos.
The coronavirus has only made DOT’s cash problems worse. The department says it lost another $300 million to the coronavirus and could furlough as many as 9,400 employees in phases, starting Saturday, May 30.
The department failed to budget with actual cost estimates for projects, and it failed to monitor or enforce its spending plan at DOT’s 14 highway divisions, says the audit. Department leaders agreed with the underlying findings in the audit, but said it was difficult to take a “one-year snapshot” of a cash flow operation that uses multi-year contracts.
The department has created a financial oversight and improvement director, who will help strengthen oversight and transparency. DOT plans to improve its data use, budget adherence, oversight, and transparency, said Eric Boyette, N.C. Department of Transportation secretary.
Department officials continued to blame overspending on natural disasters and the Map Act, a repealed state law that let the department freeze the use of private land without immediately compensating property owners on designated highway corridors.
“In the fall of 2018, we started a string of historic natural disasters. Those get all the attention, but it’s not over when hurricane season ends,” said Michael Fox, N.C. Board of Transportation chairman. “And a thing called the Map Act came home to roost at that time.”
But lawmakers repeatedly asked DOT how it budgeted for disasters. The department set aside $50 million for disaster relief each year since 2015 — and didn’t adjust the number despite overspending each year.
“I’m in total shock — $7.5 million is a problem, $75 million is a scandal, and $750 million is a federal government number,” said Sen. Warren Daniel, R-Burke. “Everyone is laying this at the feet of storms and hurricanes, which are obviously significant. … Why didn’t DOT make realistic annual predictions about disaster-related spending?”
The department said it knew about cash problems in the fall of 2018 and spring of 2019, and that it took steps to slow projects and reduce spending. State Auditor Beth Wood said she couldn’t find any evidence the department slowed spending.
The department said it could prove it slowed spending, but affirmed that the auditor had requested to see proof of that reduction. Lawmakers questioned whether the department actually made efforts to stay within budget.
The department said it can budget only for non-declared storms, and that it can’t spend the money it allocates for disasters on anything else.
“If we had more money that we could apply towards our response, more funding to directly apply towards that storms or rockslides, that was not part of our maintenance reserves… we’d really be better off,” said Boyette. “Having more money to budget for the storms would definitely help.”
The department also is struggling to recruit auditors to oversee its operations. Only three of DOT’s 14 auditors are internal. None are performance auditors capable of catching overspending, said Boyette.
The department’s cash problems were partly caused by unreliable forecasting. The department based its budget on past spending averages instead of current projects, Wood said. She praised the department’s response, but requested more changes.
I know that we’ve talked a lot about disasters and surprises,” Wood said. “Your forecasting has to be much more accurate and reliable for us not to run into this problem again. … What I did not hear today was a fix to the unreliable and possibly antiquated forecasting that’s being done by DOT.”
Industry representatives warned that the department was digging itself into a deeper budget hole, said Ellis Powell, executive director of Carolina Asphalt Pavement Association.
“The DOT has had cash flow problems all last year. Those cash problems were turned into problems for the industry. With COVID, the expenses are outpacing the revenue by great amounts,” Powell said. “Without any significant action … DOT will have to shut down projects that are going on right now.”