The state-aid highway program is a state program whereby the Tennessee commissioner of transportation, after consultation with local officials, designates those highways and roads which are considered of sufficient importance to be included in the system of state-aid highways.  T.C.A. § 54-4-402.  Under this program, the county highway officials are required to submit annually a program specifying the type of work to be performed locally on the state-aid highway system.  The types of qualifying work may include the planning, engineering, right-of-way acquisition, construction, improvement, and rehabilitation of roads and bridges.  T.C.A. § 54-4-403.  State funds are appropriated to the state-aid highway program and allocated to the 95 counties as follows:

50% divided equally

25% divided according to county population

25% divided according to county area

Typically, under this program, the county has to match the state funds in an amount of 25%, although the county contributions may be in-kind.  T.C.A. § 54-4-404.  For projects initiated during fiscal years 2015-16 and 2016-17; however, counties were authorized to use unexpended state-aid funds for a portion of the local match.  The amendment to T.C.A. § 54-4-404, enacted as the "County Road Relief Act of 2015", required counties to provide at least 2% of the project cost from county funds or in-kind work, or a combination of both.  In 2017, this provision was extended until July 1, 2019.

Upon the request of county highway officials, the department of transportation may agree to act as the agent of the county to carry out any phase of work authorized on the state-aid highway system, or all preconstruction activities may be performed by the county highway department if done according to state standards, or the county may award a construction contract to a private company in accordance with state regulations on bidding, or the county may negotiate with the department to perform the work.  T.C.A. § 54-4-405.  The state department of transportation (DOT) may lease its equipment to the county according to terms agreed upon by the commissioner and the county highway department.  T.C.A. § 54-4-402.

All roads designated as part of the state-aid highway system must be maintained by the county highway department.  If the county fails to maintain these highways according to DOT standards, then the commissioner may withhold state-aid funds until the roads are restored to proper condition.  T.C.A. § 54-4-406.