We present a methodology for the joint optimization of rehabilitation and reconstruction activities for heterogeneous pavement systems under multiple budget constraints. The proposed bottom-up approach adopts an augmented condition state to account for the history-dependent properties of pavement deterioration, and solves for steady-state policies for an infinite horizon. Genetic algorithms (GAs) are implemented in the system-level optimization based on segment-specific optimization results. The complexity of the proposed algorithm is polynomial in the size of the system and the policy-related parameters. We provide graphical presentations of the optimal solutions for various budget situations. As a case study, a subset of California's highway system is analyzed. The case study results demonstrate the economic benefit of a combined rehabilitation and reconstruction budget compared to separate budgets. (C) 2015 Elsevier Ltd. All rights reserved.