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SB 1862

transportation; 2026-2027.

57th Legislature - Second Regular Session Introduced by Dave Farnsworth

Establishes a dedicated Rural Transportation Fund with an annual $2.5 million AHURF transfer to match/fund rural projects and expand federal grant participation.

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Bill Summary · SB 1862

Overview

SB 1862 (Session 57th-2nd Regular, Arizona) aims to reform and reorganize the state’s rural transportation funding mechanism by expanding the State Match Advantage for the Rural Transportation Fund, adjusting funding sources, suballocations, and administrative processes. The bill also repeals and reenacts related statutes to streamline distribution and oversight of highway-related revenues.

Purpose and intent

  • Create and expand a dedicated funding mechanism (State Match Advantage for Rural Transportation Fund) to support rural transportation projects with federal grant matching, design/engineering work, and related activities.
  • Establish a mandated annual funding transfer from the Arizona Highway User Revenue Fund (AHURF) to the Rural Transportation Fund to ensure a steady supply of dollars for eligible projects.
  • Clarify administration, application, prioritization, and audit-like controls to align with federal grant requirements and the state’s regional planning processes.

Key provisions and changes

  1. Section 28-339 (State match advantage for rural transportation fund)

    • Establishes the Rural Transportation Fund and designates the Department as administrator.
    • Permits the fund to receive:
      • Legislative appropriations
      • Private/public gifts, grants, donations
      • Monies allocated pursuant to new Section 28-6534
    • Allows investment and management by the State Treasurer per existing statute; authorizes subaccounts.
    • Prohibits expenditure without adherence to the section.
    • Authorized uses (E):
      • Reimburse up to 50% of costs to develop/submit a federal grant application.
      • Reimburse or provide a match for a federal grant.
      • Fund or reimburse design/engineering services meeting federal standards for projects eligible for federal grants; requires applicants to pursue federal grants within two years of award or risk repayment.
    • Suballocations (F):
      • 20% to counties ≥100k population
      • 20% to counties <100k
      • 20% to municipalities ≥10k
      • 20% to municipalities <10k
      • 20% to the department for uses described in E
    • Eligibility exclusions (G):
      • Projects in counties >1 million population are not eligible for the county-specific suballocation (and other urbanized-area restrictions apply to certain recipients).
    • Application and review (H–I–J):
      • Eligible entities must obtain MPO or council of governments approval before applying.
      • The department evaluates eligibility and completeness, forwards to a departmental committee for recommendation, then to the board for action within 45 days.
      • Board may prioritize based on local match, partnerships, and other grant-appropriate factors.
    • Board and administration (K–L):
      • Board may approve/deny/modify or request more information; administers reimbursement agreements.
      • Board can approve up to 5% of the prior year’s investment earnings for administration (subsection L).
    • Reallocation and rescission (N–P):
      • Unawarded funds can be redistributed periodically (Jan 1 and July 1) to ensure category shares.
      • Unawarded applications can be returned to applicants; awards rescinded if funds come from other sources equal to or greater than the award, with repayment required within one year.
    • Definitions (R–S):
      • Federal grant definition; urbanized area definition based on the latest decennial census.

  2. Repeal of Section 28-6534 ( Arizona Revised Statutes)

    • The prior statute governing an identical or similar fund distribution is repealed and replaced by the new framework in Section 28-339 and the new 28-6534 (see below).

  3. New Section 28-6534 (Arizona Highway User Revenue Fund distribution; state match for rural transportation fund)

    • Requires the Department to allocate and transfer $2,500,000 of AHURF revenues to the State Match Advantage for Rural Transportation Fund not later than June 15 of each fiscal year.
    • Creates a dedicated annual transfer to fund the rural transportation matching and related activities.

  4. Delayed repeal of Section 28-7282

    • Repeal contemplated for after June 30, 2035, indicating phased decommissioning or sunsetting of older related provisions.

Who and what is affected

  • Affected entities: state and local governments, counties and municipalities, regional planning organizations (MPOs/COGs), and other eligible applicants seeking federal surface transportation grants.
  • The funding mechanism directly influences how rural transportation projects are funded, prioritized, and administered.
  • The Arizona Department of Transportation (the department) acts as administrator, with oversight by the board and involvement of MPOs/COGs in project eligibility.

Procedural and timeline aspects

  • Annual AHURF transfer: Not later than June 15 each fiscal year, $2,500,000 must be allocated from AHURF to the Rural Transportation Fund.
  • Application timeline: Upon eligibility and completeness, applications move from the department to a departmental committee for a recommendation, then to the board, with action required within 45 days of notification.
  • Redistribution schedule: Beginning January 1 and July 1 each year, unawarded funds may be redistributed to maintain category shares; amounts posted on the department’s website within 30 days after redistribution approval.
  • Design/engineering funding deadline: Projects receiving design/engineering funding must pursue a federal grant within two years or repay expended funds within 30 days of invoice.
  • Sunset/phase-out: Repeal of older related statutes is set with a longer-term consideration (Chapter 28-7282 repealed after June 30, 2035).

Potential impact

  • Increased, predictable funding flow to rural transportation projects via an annual AHURF transfer.
  • Expanded ability to partially fund federal grant applications and provide matching funds, potentially increasing rural project competitiveness for federal support.
  • Structured, transparent process for suballocation across counties and municipalities by population size, with safeguards and performance incentives.
  • Administrative capacity for the department to manage a multi-category funding program, including potential administrative costs (up to 5% of earnings).
  • Emphasis on collaboration with MPOs/COGs and adherence to federal grant standards, potentially improving project planning and delivery in rural areas.

Compiled from official sources — confirm details with the bill’s official record.

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