How N.C. DOT spent $742 million more than its budget

Poor cash management resulted in massive overspending, which left the agency in dire financial straits in 2019. These challenges are again critical as the legislature plans to use $300 million in CARES Act funds to offset the collapse in gas tax revenues.

State Auditor Beth Wood’s report on overspending at the NC Department of Transportation largely agrees with McKinsey and Co. on the causes. NCDOT overspent its budget for disaster relief by $246 million, both the Auditor and McKinsey conclude. Preliminary engineering ran $194 million over budget. McKinsey declared another $262 million was the result of NCDOT’s “Culture of Cash.” The Auditor attributes that cultural problem to specific deficiencies in the Chief Engineer’s oversight of agency spending and bumps the number up to $302 million, for total excess spending of $742 million.

NCDOT has no prospective or concurrent controls for the $6 billion in state and federal appropriations it spends each year. The legislature does not provide much guidance for transportation spending, and the department does not monitor spending. NCDOT plans to implement the Auditor’s three recommendations to monitor and adjust spending.

• NCDOT should base spending expectations on plans for the current year
• The Chief Engineer’s Office should “formally monitor” spending on a regular basis
• The Chief Engineer’s Office should actively restrict spending by delaying contract approvals, implementing mid-year cuts, and other interventions

Finally, the Auditor highlights the risk of relying on “advance construction,” which is when NCDOT initiates projects and requests federal reimbursement for the work. NCDOT’s advance construction balance has grown from $3.2 billion for all of FY2015 to $4.7 billion through March 31, but the state could end up being responsible for these projects because the federal government is not required to pay.