(1) There shall be established in this state a system of roads known as "the state highway system". The state highway system shall consist of the federal-aid primary roads, the federal-aid secondary roads, and the interstate system, including extensions thereof within urban areas, plus an amount not to exceed five percent of the mileage of such systems which may be declared to be state highways by the transportation commission while not being any part of any federal system.

(2) "Interstate system" as used in this section means any highway included as a part of the national system of interstate and defense highways as authorized and designated in accordance with section 7 of the "Federal-Aid Highway Act of 1944" (58 Stat. 838) and any other subsequent acts of congress.

(3) Nothing in this section shall be construed as limiting the mileage of the state highway system to the total mileage constituting the system as of December 31, 1953, but federal-aid primary roads and federal-aid secondary roads may be added or deleted by the department of transportation according to need as determined by said department. Deletions from the federal-aid secondary system shall be mutually decided by the federal government, the state, and the affected county.

(4) (a) In addition to the powers now possessed by the transportation commission, it has the authority to selector designate any public highway, road, or street as a part of the federal-aid urban system or as an extension of the federal-aid primary or secondary system, in order to qualify such public highways, roads, or streets for the expenditure by the state of federal-aid funds to be apportioned to the state pursuant to the provisions of 23 U.S.C. sec. 135, as amended, and section 106 of the "Federal-Aid Highway Act of 1970", and regulations promulgated thereunder. Any provision of this title to the contrary notwithstanding, any public highway, road, or street selected or designated under this subsection (4) shall continue to be a part of the county highway or city street systems and shall not be deemed to be a part of the state highway system unless the commission specifically provides to the contrary.

(b) Any receipt of moneys from the federal government, or any department thereof, pursuant to the provisions of 23 U.S.C. sec. 135, as amended, and section 106 of the "Federal-Aid Highway Act of 1970" shall be paid into and credited to the state highway supplementary fund.

(c) The construction of all improvements authorized pursuant to the provisions of 23 U.S.C. sec. 135, as amended, and section 106 of the "Federal-Aid Highway Act of 1970", and moneys received therefor, are under the supervision and control of the chief engineer.