(a) A regional or local entity that is a lead applicant agency under Article 5 (commencing with Section 14556.40), may apply to the commission for a letter of no prejudice for the project. If approved by the commission, the letter of no prejudice allows the regional or local entity to expend its own funds for any component of the transportation project.

(b) The amount expended under subdivision (a) shall be reimbursed by the state if all of the following conditions are met:

(1) The project is included in an adopted regional transportation plan.

(2) The department makes an allocation for the project pursuant to Section 14556.20.

(3) The expenditures made by the regional or local entity are eligible for reimbursement in accordance with state and federal laws and procedures. In the event expenditures made by the regional or local entity are determined to be ineligible, the state has no obligation to reimburse those expenditures.

(4) The regional or local entity complies with all legal requirements for the project, including the requirements of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code).

(c) Upon execution of an agreement with the department to transfer reimbursement funds for a project described in subdivision (a), the commission may delay reimbursement pursuant to this section only if cash-management issues prevent immediate repayment.

(d) The commission, in consultation with regional and local entities, and the department, may develop guidelines to implement this section.

(e) Commencing with the 2006-07 fiscal year, the commission shall review and revise its guidelines to assure that lead applicant agencies which have received letters of no prejudice as of June 30, 2005, are reimbursed on an equitable basis that serves the interest of the entire state transportation program, taking into account various factors, including, but not limited to, all of the following:

(1) The impact on allocations for other projects funded under Article 5.

(2) The cash flow requirements necessary for projects in Article 5.

(3) The extent to which the agencies have had to defer other high priority STIP or TCRP projects because of advancing their own funds.

(4) The extent to which reimbursements would be spent on the construction phase of other STIP or TCRP projects.

(5) Any adverse impact on the agency’s other high priority projects of postponing reimbursement until project completion as opposed to allowing payment to be made based upon the amount of funds expended on eligible costs for a project, payment to be made upon the documentation of those eligible costs.

(6) The level of commitment made by the agency in expending its own funds for any component of a transportation project under Article 5.

(f) In revising its guidelines pursuant to subdivision (e), the commission shall not increase the maximum percentage of funding allocated for reimbursement under this section beyond the maximum percentage in effect in its guidelines as of June 30, 2005.

(Amended by Stats. 2005, Ch. 375, Sec. 1. Effective September 29, 2005.)