Mr. Frank DeRose, Jr.
State of Michigan
Department of Transportation
425 West Ottawa
Lansing, Michigan 48909

RE: "Pass through" funding; incidental overlap under 49 CFR Parts 653 and 654.

Dear Mr. DeRose:

Thank you for your letter asking about the application of the Federal Transit Administration's (FTA) drug and alcohol testing regulations. 59 FR 7531 (1994) (to be codified at 49 CFR Parts 653 and 654). Those rules require that a recipient of funds under FTA's discretionary capital grant program, formula grant programs for urbanized and nonurbanized areas, or interstate transfer program implement a program requiring safety-sensitive employees to be tested for five controlled substances and for the misuse of alcohol. Large transit operators must implement the drug and alcohol rules beginning on January 1, 1995, while small transit operators must begin implementation on January 1, 1996.

Issue

You state that certain transit agencies receiving FTA funding also receive State funds to contract for the provision of specialized services. You maintain that the providers of the specialized transportation service do not "stand in the shoes" of the FTA recipient, and should not be subject to the rules.

Ruling

FTA's drug and alcohol rules apply not only to direct recipients of certain kinds of FTA funding, but also to "any entity that provides mass transportation service ... for such recipient or other entity." 49 CFR 653.7 and 654.7. The recipient is responsible for ensuring that any entity providing transportation service on its behalf is in compliance with the rules. The question you ask is whether the contractors are providing transit service on behalf of the FTA recipient when the contract is funded only with State funds.

A recipient of FTA capital assistance may segregate FTA funding from other funding sources and thus limit the application of Federal requirements to the capital project funded by FTA. A recipient of operating assistance under FTA's formula grant programs, however, cannot similarly segregate those funds; they generally affect the recipient's entire program, and are used for such costs as salaries, office equipment and supplies, and insurance premiums. In these cases, all of a recipient's operations would be subject to Federal requirements, including those relating to drug and alcohol testing. There is one limited situation involving Federal operating assistance where Federal requirements might not apply; this is a case where the FTA funded program only incidentally overlaps the non-FTA funded program. An example of "incidental overlap" is the shared use of a dispatcher.

According to a member of your staff, the State of Michigan requires certain transit agencies to "pass through" State funding to a contractor specified by the State. The transit agency, an FTA recipient, administers the contract but has no control over the routes or operations of the service, and is not paid by the State for its minimal activities. While the transit agency does receive Federal operating assistance, in our view its minimal involvement in this State program represents nothing more than an "incidental overlap" of activities, which means that the contracts chosen by the State would not be subject to FTA's drug and alcohol testing programs.

Please contact Daniel Duff or Nancy Zaczek in this Office, if you have any further questions about this matter. They may be reached at (202) 366-4011.

I hope this responds to your inquiry .

Very truly yours,
(Signed)
Berle M. Schiller
Chief Counsel

Enclosures