Senate transportation panel told state budget shortfall could force agency to forgo $100M+ in federal grants

State transportation officials told the Senate Transportation Committee on Feb. 13 that a reliance on one-time funds and uncertain state match could make the Agency of Transportation (AOT) forgo tens of millions of dollars in federal competitive grants and force cuts to paving and bridge work.

Candace Umkus, chief financial officer for the Agency of Transportation, said the agency is counting on a one-time infusion — a $12.5 million general-fund transfer this year plus a JTOC appropriation the agency referenced as roughly $20.25 million — to close a near-term deficit. Umkus said the agency’s analysis shows a roughly $30.6 million deficit in the first year if those items are treated as recurring, and that “for 2027 … the full amount of the difference … is actually all state match needed for competitive grants.”

The nut of the committee’s concern: without state match, federal competitive awards that require a state contribution would not be used. Committee members and AOT staff repeatedly cited a roughly $102 million figure for discretionary federal grants that could be at risk if AOT can’t provide matches; Jeremy Reed, the agency’s chief engineer, described that $102 million as “a federal number” representing grant awards or applications that require state match.

Why it matters: many of the agency’s large projects — bridges, highway construction and locally administered grants — rely on federal discretionary or formula funds that require a state cash match. Losing the ability to provide matches could mean the state declines or cannot obligate awarded funds, shifts priorities, or uses advanced construction (AC) to borrow against future federal apportionments.

AOT officials described which grants are reasonably certain, which are awarded but not yet obligated, and which remain discretionary. Reed said the agency has been notified that it received several awards, including a large Winooski River bridge discretionary award he described as a $23 million-level grant, and the Rural Surface Transportation program (“LEEDS” in the discussion). Michelle Boomhower, also with the agency, cautioned that several discretionary programs are “in flux” under the current federal administration: “FTA bus and bus facilities program grants…Airport Improvement Program grants…are discretionary grants” whose obligations may be paused and therefore uncertain.

Advanced construction and fiscal tools. Committee members asked whether the department could rely on advanced construction (AC) — a Federal Highway Administration tool that “basically means borrowing against a future apportionment,” Reed said — to bridge gaps. AOT staff warned that AC is a flexible but limited tool: it does not create new revenue and it shifts obligations into future years, and Federal Highways has urged restraint on heavy AC reliance. Umkus and Reed said AC can preserve the ability to proceed on critical projects in the short term but does not address the core problem of lacking state match for federally funded projects.

Program-level impacts presented to the committee showed proposed reductions in fiscal 2026 if one-time funds are not treated as recurring. The highway division’s high-level slide package flagged a roughly $27 million reduction to the paving program and about an $18 million reduction to interstate-bridge funding, with certain roadway line items tied to flood-response work showing increases. Reed summarized impacts to output: “At our peak two years ago we were at roughly 200 miles of paving; we’re doing roughly a hundred miles less in paving this year than we did at our peak,” and he warned the cuts will reduce the amount of work the agency can schedule.

Performance targets and condition measures. Agency officials said AOT uses a travel-weighted pavement condition index with a target of about 70; currently the state is “hovering right around that,” Reed said. The agency also tracks the share of roads in “very poor” condition and said the metric currently sits around 13–15%, within the agency’s stated 25% upper limit for that category. Staff told the committee that a lower paving program in FY26 would result in some decline in network condition and that they will present more detailed performance projections in follow-up briefings.

Funding sources and prior actions. Committee members and staff discussed how the FY25 action to transfer money into a transportation cash fund and a separate DMV-fee increase affected the FY26 picture. Staff said the $25 million transfer has already occurred and that the legislative language ties that money to state match for IIJA (Infrastructure Investment and Jobs Act) projects. Umkus said the agency is watching July reversions (about $4.5 million anticipated) and FY25 closeout results as variables that could reduce or exacerbate next year’s shortfall.

What comes next. Committee chair Rich Westman asked agency officials to produce simpler, one-page materials that lay out the choices clearly for legislators. Umkus and Reed said they will continue to refine the outlook and return with a deeper, metric-linked presentation. "This highlights extremely well the difficulties that everybody in this room is going to be faced with moving forward," Westman said, asking to meet with AOT staff to simplify materials for other legislators.

Ending: The AOT did not present any request for new recurring revenue on the floor during this hearing; instead staff outlined a range of management options — postponing projects, selective use of AC, and tighter prioritization using asset-management tools — and told the committee they will return with more detailed condition projections and clearer briefing documents for lawmakers.