February 3, 2025

Department of Transportation Issues Sweeping Changes to Policies and Programs

Holland & Knight Alert
Christopher J. Senn | Joel E. Roberson | Emma Ekman

Highlights

  • The newly confirmed U.S. Department of Transportation (DOT) Secretary Sean Duffy issued a new order and memorandum on Jan. 29, 2025, outlining significant policy shifts aimed at implementing several of the Trump Administration's executive orders.
  • These actions signal a broad rollback of regulatory initiatives from the prior administration and a renewed focus on economic analysis and cost-benefit considerations in transportation policy that take the new administration's perspective.
  • This Holland & Knight alert highlights key takeaways and potential implications for stakeholders.

The newly confirmed U.S. Department of Transportation (DOT) Secretary Sean Duffy issued a new order and memorandum on Jan. 29, 2025, outlining significant policy shifts aimed at implementing several of the Trump Administration's executive orders (EOs). These actions signal a broad rollback of regulatory initiatives from the prior administration and a renewed focus on economic analysis and cost-benefit considerations in transportation policy that take the new administration's perspective. Below is a highlight of key takeaways and potential implications for stakeholders.

Key Takeaways from the Memorandum

The memorandum, "Implementation of Executive Orders Addressing Energy, Climate Change, Diversity, and Gender," which was sent to secretarial officers and heads of operating administrations, sets forth the steps DOT will take to implement at least four of the Trump Administration's major executive orders:

  • Initial Rescissions of Harmful Executive Orders and Actions (EO 14148): This directive initiates a sweeping rollback of policies enacted under the Biden Administration that the current administration deems to have been overly burdensome or counterproductive. It aims to eliminate federal policies perceived as excessive regulatory overreach.
  • Ending Radical and Wasteful Government DEI Programs and Preferencing (EO 14151): This order focuses on dismantling diversity, equity and inclusion (DEI) initiatives, stating that government programs should not provide preferential treatment based on race, gender or identity-based criteria.
  • Unleashing American Energy (EO 14154): Prioritizing energy independence, this order is expected to reverse policies that restricted domestic energy production, potentially easing regulatory requirements for energy infrastructure projects.
  • Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (EO 14168): This directive seeks to reaffirm gender distinctions based on biological sex in federal policy, which will have broad implications for programs and initiatives related to gender identity.

Additionally, DOT has been tasked with rescinding, canceling and revoking all orders, rules, funding agreements and policies enacted during the Biden Administration that reference topics such as climate change, greenhouse gas (GHG) emissions, racial equity, gender identity, DEI goals, environmental justice or the Justice40 Initiative.

DOT and its operating administrations must identify and submit a list of all targeted policies to the secretary of transportation by Feb. 8, 2025. The Trump Administration plans to begin its rescission process by Feb. 18, 2025, or within 10 days of a respective operating administration's submission, signaling a swift policy transition.

Key Takeaways from the DOT Order on Economic Analysis

The DOT Order, "Ensuring Reliance Upon Sound Economic Analysis in Department of Transportation Policies, Programs, and Activities," emphasizes that under the Trump Administration, DOT will be committed to rigorous economic analysis in policymaking, particularly in grantmaking, lending and regulatory actions. This is described by the new administration as a shift to a traditional cost-benefit approach where decisions are primarily justified based on economic efficiency rather than broader social or environmental considerations.

The Economic Threshold for Rulemaking: A Major Shift

A critical change in this Order is the heightened requirement for cost-benefit analysis, even for regulations and activities that do not meet the traditional economic threshold set by the Office of Information and Regulatory Affairs (OIRA). Established under EO 12866 and increased by the Biden Administration's EO 14094, federal agencies have been required to conduct a cost-benefit analysis for rules that have an annual effect of $200 million or more on the economy. While EO 12866 also mandates a less detailed analysis for rules below this threshold, DOT is now extending the rigorous cost-benefit standard to all grantmaking, lending, policymaking and rulemaking decisions, regardless of their economic magnitude.

This means that even if the economic impact of a cost-benefit analysis falls below $200 million, the Trump Administration may treat the regulation or activity as if the economic impact were above $200 million. This expansion is significant because projects previously able to proceed without extensive economic justification will now be subject to stringent review. Federal funding will be increasingly difficult to obtain for initiatives that do not produce clear, measurable financial returns, particularly those focusing on environmental, equity or social justice considerations.

By eliminating discretionary regulatory actions that lack clear economic justification, this move is likely to restrict funding for projects that emphasize environmental, social equity or climate change considerations without measurable financial returns.

Principles Governing DOT Policies and Programs

There are several key principles that will guide DOT's approach to carrying out policies and programs.

  • Mandatory Cost-Benefit Analysis: Moving forward, all DOT policymaking, grantmaking and rulemaking activities must be supported by a positive cost-benefit analysis. This means that projects will need to demonstrate clear economic advantages before receiving federal support, eliminating considerations that prioritize environmental or social justice factors over financial viability.
  • Review and Unilateral Amendment of Existing Agreements: A particularly consequential aspect of the Order is the directive for DOT to review and unilaterally amend the terms and conditions of existing grant agreements, loan agreements and contracts where legally permissible. This means that recipients of past DOT funding may see changes to the terms under which their projects were originally approved. Agreements initially made under previous regulatory frameworks may now be subject to new economic evaluation criteria, which could impact ongoing projects that relied on prior commitments.
  • Return of Opportunity Zones: Projects located in local opportunity zones are preferred candidates for DOT funding. Qualified Opportunity Zones were designated under the previous Trump Administration and added to the tax code by the Tax Cuts and Jobs Act on Dec. 22, 2017. These zones were designed to spur economic development and job creation in distressed communities.
  • End of Social Cost of Carbon Calculations: The DOT will no longer use or consider the social cost of carbon estimates in its analyses, arguing that such calculations have been overly speculative and burdensome on businesses. The U.S. Environmental Protection Agency (EPA) has been directed to issue new guidance on carbon cost methodologies, likely leading to significant changes in environmental impact assessments.
  • Focus on Family and Community Impact: Instead of focusing on broader environmental and social equity concerns, DOT policies will now prioritize impacts on families and local communities. This means that infrastructure projects will be evaluated based on factors such as noise reduction, water and soil quality, and economic stability rather than climate or equity goals. Communities with marriage and birth rates higher than the national average will receive higher preference for awards.
  • Restrictions on Federal Funding for Local Political Objectives: DOT grants, loans and contracts must now serve a clear federal interest and cannot be used to advance projects that serve purely local political goals. This could lead to the defunding of initiatives that prioritize local political or social priorities over national economic and infrastructure objectives.
  • Co-Funding and Buy America Requirements: Moving forward, projects must demonstrate strong local financial commitment and adhere to Buy America provisions. DOT will also prioritize project awards that include utilizing user-pay modules. Federal funding will no longer be available for projects that rely on indefinite government support for future maintenance or expansion.
  • Compliance with Federal Immigration Enforcement: Communities are required to cooperate with federal immigration enforcement in order to qualify for DOT funding. A similar effort was put forth by the Trump Administration in 2017 but was ultimately rejected by the courts.

Implementation and Compliance Considerations

  • DOT's operating administrations must issue guidance to implement the Order through a notice-and-comment process, providing stakeholders with an opportunity to engage with the policy changes.
  • Notices of Funding Opportunity (NOFOs), grant agreements and loan contracts must be updated to align with the Order's requirements, ensuring that all new funding mechanisms comply with the administration's priorities.
  • Existing grant agreements and contracts will be reviewed and amended where legally permissible, potentially altering the terms of previously approved projects. Some stakeholders may challenge the legality of DOT to reopen signed grant agreements.
  • DOT will submit a compliance report within six months outlining progress on these initiatives, providing transparency on the implementation process.

Potential Implications for Stakeholders

These sweeping changes will have significant implications for state and local governments, transportation agencies, transportation industry stakeholders and recipients of DOT funding:

  • State and Local Governments: Entities that utilize DOT funding must now align their projects with new federal priorities, shifting away from climate- and equity-based initiatives toward economic and family-focused criteria. DOT will prioritize projects that are funded by a user-based module such as local transportation taxes. This may require revising existing plans and proposals.
  • Transportation Industry: Entities seeking DOT funding must ensure that their projects emphasize financial efficiency, cost-benefit outcomes and compliance with Buy America provisions. Funding may be less accessible for projects emphasizing sustainability or social equity goals.
  • Environmental and Social Policy Advocates: The rescission of climate change and DEI-focused policies represents a significant shift in federal transportation policy. Organizations that relied on these initiatives may face funding cuts or regulatory challenges as these programs are rolled back. A slight change in the narrative or messaging of an organization's priorities or interests may be advantageous to securing federal funding and support.

Conclusion

The DOT Order and accompanying Memorandum mark a notable shift in federal transportation policy, placing a particular focus on economic analysis and cost-benefit considerations. These changes will reshape how funding decisions are made and how transportation projects align with federal priorities. Stakeholders should monitor forthcoming guidance to understand how these adjustments may impact existing and future initiatives. For further information on how these developments may affect your organization, please contact Holland & Knight's Transportation and Infrastructure Policy Team.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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