[Senate Hearing 111-393]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-393
 
DEPARTMENT OF TRANSPORTATION'S IMPLEMENTATION OF THE AMERICAN RECOVERY 
                      AND REINVESTMENT ACT (ARRA)

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                     APRIL 30, 2009--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html


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                               __________
                      COMMITTEE ON APPROPRIATIONS

                   DANIEL K. INOUYE, Hawaii, Chairman
ROBERT C. BYRD, West Virginia        THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            CHRISTOPHER S. BOND, Missouri
TOM HARKIN, Iowa                     MITCH McCONNELL, Kentucky
BARBARA A. MIKULSKI, Maryland        RICHARD C. SHELBY, Alabama
HERB KOHL, Wisconsin                 JUDD GREGG, New Hampshire
PATTY MURRAY, Washington             ROBERT F. BENNETT, Utah
BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
DIANNE FEINSTEIN, California         SAM BROWNBACK, Kansas
RICHARD J. DURBIN, Illinois          LAMAR ALEXANDER, Tennessee
TIM JOHNSON, South Dakota            SUSAN COLLINS, Maine
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
JACK REED, Rhode Island              LISA MURKOWSKI, Alaska
FRANK R. LAUTENBERG, New Jersey
BEN NELSON, Nebraska
MARK PRYOR, Arkansas
JON TESTER, Montana
ARLEN SPECTER, Pennsylvania

                    Charles J. Houy, Staff Director
                  Bruce Evans, Minority Staff Director
                                 ------                                

 Subcommittee on Transportation and Housing and Urban Development, and 
                            Related Agencies

                   PATTY MURRAY, Washington, Chairman
ROBERT C. BYRD, West Virginia        CHRISTOPHER S. BOND, Missouri
BARBARA A. MIKULSKI, Maryland        RICHARD C. SHELBY, Alabama
HERB KOHL, Wisconsin                 ROBERT F. BENNETT, Utah
RICHARD J. DURBIN, Illinois          KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        SAM BROWNBACK, Kansas
PATRICK J. LEAHY, Vermont            LAMAR ALEXANDER, Tennessee
TOM HARKIN, Iowa                     SUSAN COLLINS, Maine
DIANNE FEINSTEIN, California         GEORGE V. VOINOVICH, Ohio
TIM JOHNSON, South Dakota            THAD COCHRAN, Mississippi (ex 
FRANK R. LAUTENBERG, New Jersey          officio)
ARLEN SPECTER, Pennsylvania
DANIEL K. INOUYE, Hawaii, (ex 
    officio)

                           Professional Staff

                              Peter Rogoff
                          Meaghan L. McCarthy
                             Rachel Milberg
                            Jonathan Harwitz
                         Jon Kamarck (Minority)
                      Matthew McCardle (Minority)
                        Ellen Beares (Minority)

                         Administrative Support
                              Teri Curtin

                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening Statement of Senator Patty Murray........................     1
Opening Statement of Senator Christopher S. Bond.................     3
Statement of Hon. Ray LaHood, Secretary of Transportation, 
  Department of Transportation...................................     4
    Prepared Statement...........................................     5
Competitive Grants...............................................     8
High-speed Rail..................................................     9
Highway Rescission...............................................    10
Jobs.............................................................    11
Amtrak Strategic Plan............................................    12
Statement of Senator Dianne Feinstein............................    12
High-speed Rail..................................................    13
Bridges..........................................................    15
Prepared Statement of Senator Frank R. Lautenberg................    16
Discretionary Grant Program......................................    16
New Starts.......................................................    17
High-speed Rail..................................................    18
Deadline for Obligating Highway and Transit Funds................    18
Statement of Hon. Calvin L. Scovel III, Inspector General, Office 
  of the Inspector General, Department of Transportation.........    19
    Prepared Statement...........................................    21
DOT Must Continue to Address the Significant Oversight Challenges 
  Posed by ARRA..................................................    22
The Office of Inspector General Will Continue to Examine Areas 
  That Present the Greatest Risks and Promptly Notify DOT and 
  Congress of Actions Needed to Minimize Fraud, Waste, and Abuse 
  and Achieve ARRA Goals.........................................    27
Memorandum--U.S. Department of Transportation, Office of the 
  Secretary of Transportation, Office of Inspector General.......    30
Results--Oversight Challenges Facing DOT.........................    31
Ensuring That DOT's Grantees Properly Spend ARRA Funds...........    31
Implementing New Accountability Requirements and Programs 
  Mandated by ARRA...............................................    36
Combating Fraud, Waste, and Abuse................................    38
Conclusions and Recommendations..................................    40
Agency Comments and Office of Inspector General Response.........    41
Actions Required.................................................    41
Additional Committee Questions...................................    47
Questions Submitted to Hon. Ray LaHood...........................    47
Questions Submitted by Senator Patty Murray......................    47
Implementation of the Recovery Act...............................    47
Oversight of the Formula Grants for Highways and Transit.........    47
Projects Being Built With Recovery Act Funds.....................    48
Grants for Energy Efficiency.....................................    48
Questions Submitted by Senator Dianne Feinstein..................    49
Question Submitted by Senator Susan Collins......................    49
Questions Submitted by Senator George V. Voinovich...............    50
Questions Submitted to Hon. Calvin L. Scovel III.................    51
Questions Submitted by Senator Patty Murray......................    51
Offices That Aren't Working on the Recovery Act..................    51
Balancing Responsiveness With Objectivity........................    51
Providing Quick Feedback to DOT..................................    51


DEPARTMENT OF TRANSPORTATION'S IMPLEMENTATION OF THE AMERICAN RECOVERY 
                      AND REINVESTMENT ACT (ARRA)

                              ----------                              


                        THURSDAY, APRIL 30, 2009

                           U.S. Senate,    
 Subcommittee on Transportation and Housing
       and Urban Development, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:14 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Feinstein, Lautenberg, Bond, and 
Alexander.


               OPENING STATEMENT OF SENATOR PATTY MURRAY


    Senator Murray. This subcommittee will come to order.
    We are on a tight timeframe this morning as there is a full 
Appropriations Committee going this morning as well on the 
supplemental. So we have a number of members who want to get to 
both. So we are going to get started.
    Senator Bond is going to be here shortly. He is running a 
little bit late. So I am going to go ahead and begin, and we 
will have him join us as soon as he arrives.
    I want to welcome Secretary LaHood and Inspector General 
Calvin Scovel from the Department of Transportation to this 
hearing this morning. We look forward to your testimony and to 
learning more about the challenges and successes facing the 
Department as you work to implement your slice of the American 
Recovery and Reinvestment Act.
    And this subcommittee is committed to working with you in 
your efforts. I look forward to a continued partnership with 
the Department of Transportation as we work to monitor the 
spending of taxpayer dollars.
    In total, the U.S. Department of Transportation received 
over $48 billion from the Recovery Act to invest in every part 
of our transportation system--our roads and bridges, airports 
and railroads, public transportation, ports and maritime 
communities. This funding should go to projects that reduce 
congestion, improve safety, enhance freight mobility, and make 
our Nation stronger long term--projects that put people to work 
today and keep businesses moving.
    In my home State of Washington, unemployment has now risen 
to 9.2 percent, well above the national average. Businesses are 
forced to cut back. Families have lost their homes to 
foreclosure. Our State government is facing a $9 billion 
deficit, which has left a lot of our worthy transportation 
projects in doubt.
    But the release of Federal recovery dollars means that 180 
transportation projects in Washington State will be able to 
move forward, creating and sustaining thousands of jobs. I 
recently, in fact, toured a project on Interstate 405 in 
Bellevue that received recovery funds, which is going to create 
about 560 new family-wage jobs.
    Washington, like other States, will also receive millions 
to support much-needed capital investment in our transit 
systems, which are struggling as well. But the true promise of 
the Recovery Act will be realized only if DOT, and every other 
agency that has been charged with its implementation, does its 
job effectively, responsibly, and efficiently.
    Now those are not words typically associated with large 
bureaucracies. But so far, the Department has met its deadlines 
for distributing highway and transit funds, for collecting 
certifications from each Governor on its transportation plans, 
and publishing a strategy for high-speed rail.
    DOT has also created a Department-wide team to oversee and 
coordinate its workload and created a risk management plan to 
identify areas of concern and develop a course of action for 
each one. But how will the Department oversee the funds on a 
daily basis so that we avoid wasteful spending, we do create 
jobs, and improve our Nation's infrastructure? The challenges 
are significant.
    The Recovery Act calls for frequent and detailed reports, 
and the Department has only just started to prepare for those 
requirements. DOT still needs to make key decisions about how 
to allocate over $10 billion provided in the Recovery Act for 
discretionary programs. That leaves a lot of unanswered 
questions.
    What criteria will the Department use to evaluate 
applications for the $1.5 billion competitive program? What 
guidance will the Department issue for applicants interested in 
intercity and high-speed rail grants? What is the best use of 
funding provided under the New Starts program?
    Although the Department has distributed over $34 billion in 
highway and transit formula grants, overseeing the use of this 
funding presents its own challenges to the Department. How will 
the Department ensure the funds are used correctly by State and 
local jurisdictions at the same time that the Department must 
oversee the regular highway and transit programs?
    The inspector general recently identified unresolved 
challenges for the Department that could interfere with the 
best use of recovery funds. As an example, the Department still 
needs to move quickly to suspend people that have engaged in 
fraud so that they do not receive any additional Federal 
contracts. It will be particularly important for the Department 
to resolve this issue in order to avoid the kind of wasteful 
spending that undermines the public's confidence.
    So, as I said, the challenges are significant, and as the 
Department continues to implement the Recovery Act, this 
subcommittee will continue to monitor its progress. I hope the 
information gathered today is the start of an ongoing dialogue 
with the Department. There is too much at stake to not get this 
right.
    With that, we are joined by Senator Bond. Sorry we started 
without you, but I am delighted you are here, and you can go 
ahead and do your opening statement.


            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND


    Senator Bond. Thank you, Madam Chair.
    And welcome, Mr. Secretary. I apologize. I had to make a 
speech downtown this morning, and I had a roomful of people I 
had to shake and howdy with on the way in. And I am delighted 
you started because we have got a tough morning schedule ahead, 
but it is important that we have this oversight hearing.
    I hope that in the months and years ahead, we will continue 
to monitor how these funds are being administered through our 
States and localities and that the Recovery Act will have its 
intended effect on our Nation's economy.
    I did not support passage of the Recovery Act, but I have 
always supported investment in transportation because I do 
believe that these are the types of investments that should be 
included in any economic stimulus. Infrastructure spending 
works to preserve and create jobs, promote the kind of economic 
recovery that is necessary during these difficult times, and 
lays the groundwork that is absolutely essential for continued 
progress and development of our economy.
    I would have preferred more spending be included in the 
Recovery Act for crumbling highway and bridge infrastructure, 
as well as water infrastructure and transit. I was one of only 
two Republican Senators who supported our distinguished chair 
on the Senate floor when she sponsored an amendment to increase 
the level of investment for actual infrastructure spending.
    I am disappointed that the overall total for transportation 
was only $48.1 billion, and of that total, only $27.5 billion 
was included for our States to address their ever-growing 
highway and bridge needs. Additional funding for infrastructure 
is what stimulus should be about.
    We can already see that our aviation funding, highway 
funding, and transit funding were the first of the funds to hit 
the ground in sustaining and supporting jobs. And I applaud 
you, Mr. Secretary, and the DOT employees for their ability to 
meet all the deadlines thus far contained in your section of 
the Recovery Act.
    Funds are being announced, and we will see actual 
obligations and outlays of funds to the States in the coming 
weeks. And I understand, as expected, that the bids are coming 
in significantly lower. We are getting good, particularly good 
value for our spending now.
    While progress has been good, however, and over 2,000 
projects have been awarded, there are a number of new accounts 
and activities that we need to monitor in the future. Of 
particular interest to me and a number of Senators are two new 
grant programs to be administered within the Department--$8 
billion for high-speed rail and $1.5 billion for a new 
discretionary grant program for surface infrastructure 
projects.
    We are awaiting the interim guidance and Federal Register 
notices on the specifics of these new programs. I understand 
that the GAO and the DOT IG will be auditing and reviewing 
these new areas. It is my hope that we will have a follow-up 
hearing in the future where we can expect the results of these 
reviews.
    And with that, Mr. Secretary, I look forward to hearing 
your comments.
    And I thank you, Madam Chair.
    Senator Murray. Thank you very much, Senator Bond.
    Mr. Secretary, welcome to our subcommittee. Your statement 
will be printed in full in the record, but we would appreciate 
some opening remarks from you.

STATEMENT OF HON. RAY LaHOOD, SECRETARY OF 
            TRANSPORTATION, DEPARTMENT OF 
            TRANSPORTATION
    Secretary LaHood. Well, Madam Chair, first of all, this is 
my first opportunity to personally thank you for your 
leadership in supporting the President's economic recovery 
plan. Without your leadership and the leadership of others here 
in the Senate, we wouldn't be sitting here today talking about 
our opportunity to put people to work. So I thank you very much 
for all your leadership.
    And to you, Senator Bond, thank you for your leadership 
over the years in transportation. You have been a strong 
advocate for almost everything we do at the Department, and we 
are grateful for your support, sir.
    And I am enormously proud of the men and women at the 
Department who have worked extraordinarily hard to implement 
this groundbreaking legislation in record time while fully 
embracing the letter and spirit of the Recovery Act commitment 
to accountability and transparency.
    Our people have been working 24-7, and of the roughly $48 
billion provided to the Department by the Recovery Act, we have 
announced nearly $45 billion for roughly 2,800 surface and 
aviation improvement projects. And as of this week, more than 
$9 billion of these funds have been obligated in nearly every 
State and territory. All 50 Governors have accepted our portion 
of the Recovery Act funding because they know that they can put 
their people to work in their States in well-paid jobs.
    The FAA has been very effective in soliciting and reviewing 
project proposals and awarding discretionary funds so that 
ready-to-go airport improvement projects could begin.
    Within 2 weeks of passage, the Federal Highway 
Administration apportioned its funds and has been working 
aggressively to move projects through the approval process.
    The Federal Transit Administration now has 136 transit 
agency grant proposals totaling nearly $1.5 billion that are 
ready to be obligated.
    And the Maritime Administration will soon award $100 
million in grants to hundreds of small shipyards.
    The Recovery Act also makes historic investments intended 
to jump-start a new high-speed passenger rail service for the 
Nation. Later this summer, we will begin awarding a portion of 
the $8 billion in recovery funds to deserving rail corridor 
projects all over the country.
    I intend to invite all of the high-speed rail corridor 
folks from around the country, folks that have been dreaming 
about high-speed rail, to Washington so I can listen to their 
proposals, talk to them, and begin working with them. We want 
to establish the kind of relationships with them that we have 
had with others. And so, we will listen to what they have been 
doing and then figure out how we can apportion the $8 billion 
to jump-start opportunities all over America.
    I have traveled around the country to New Hampshire, 
Vermont, Arizona, Texas, and a number of other States, and we 
have been out meeting with Governors and other officials to 
make sure that the projects that we are funding are on track 
and the money is being well spent.
    We put together the TIGER team, which works every day, with 
all the modes coming together, talking to one another about how 
the money is being spent and making sure that it is spent 
correctly.
    There are several checks on what we are doing. 
Recovery.gov, the Web site established by the White House which 
we give information to, lists the projects, the States that 
funds are going to, and will eventually list what projects are 
being funded, and how many jobs are being created.
    There are two Inspector Generals looking at what we are 
doing. The first is the Government-wide IG that was appointed 
by the President, Mr. Devaney and his staff. And then, of 
course, there is our own IG, from whom you will be hearing 
today.
    So transparency and making sure that every dollar is spent 
correctly are the watchwords. No earmarks, no boondoggles, and 
no sweetheart deals. These hard-earned dollars will be spent 
the way that you all intended for it to be spent.


                           PREPARED STATEMENT


    So we are working hard at this. We think we have got it 
right. And we think very soon thousands of people will be 
working around America in well-paid jobs, rebuilding America's 
infrastructure.
    I look forward to your questions, Madam Chair.
    [The statement follows:]

                 Prepared Statement of Hon. Ray LaHood

    Chairman Murray, Ranking Member Bond, and members of the 
subcommittee, thank you for the opportunity to appear before you today 
to discuss the U.S. Department of Transportation's (DOT) progress in 
implementing the American Recovery and Reinvestment Act of 2009 
(Recovery Act). The Recovery Act is an extraordinary response to a 
crisis unlike any since the Great Depression. The act is an 
unprecedented effort to jumpstart our economy, create or save millions 
of jobs, and put a down payment on addressing long-neglected challenges 
so our country can thrive in the 21st century. In the 10 short weeks 
since this hallmark legislation was enacted, the Department has been 
working hard to ensure that the Recovery Act is being implemented 
quickly, wisely, and with unprecedented transparency and accountability 
to finance transportation projects throughout America. Today, I want to 
share with you our accomplishments and our plans for the future.
    Even before the Recovery Act was enacted, DOT had prepared an 
implementation strategy to ensure that the agency would be prepared to 
implement our elements of the legislation as quickly and effectively as 
possible. We brought together an intermodal team of experts from our 
policy, legal, financial, and information technology disciplines to 
work along side programmatic experts in our operating administrations 
to anticipate the requirements in the new legislation. This new team--
termed the Transportation Investments Generating Economic Recovery, or 
TIGER, Team--was tasked with coordinating and overseeing the 
Department's responsibilities and reporting regularly to me on their 
progress.
    The work of the TIGER Team has been instrumental in keeping our 
implementation on track and I am pleased to report that the efforts of 
our TIGER Team and many others throughout our Department are achieving 
success. Of the $48.1 billion of overall resources provided to DOT in 
the Recovery Act, we have already announced the availability of $44.8 
billion. And $8.1 billion of these funds have already been obligated on 
specific projects in 48 States and Territories, and the figures are 
increasing every day.
    To keep the funds flowing and to ensure that accountability and 
transparency are maintained, our DOT TIGER Team is tasked with a broad 
range of responsibilities. We have established separate stewardship 
working groups to coordinate issues such as data reporting, financial 
management, procurement and grants, job creation, information 
technology, and accountability. The reporting requirements in the 
legislation are extraordinary and have required the Department to 
establish guidance on data and financial reporting to ensure that 
information provided to the public is accurate and easy to understand. 
Just recently, we posted maps of the United States on DOT's Recovery 
Act Web site showing the number of projects by State and the amount of 
funds that have been obligated. We are working to refine these helpful 
depictions of the progress being made in fulfilling the President's 
objectives for the Recovery Act.
    While implementation of the Recovery Act presents significant 
management challenges, DOT has already taken steps through the TIGER 
Team to provide effective oversight to ensure that the funds provided 
by Congress are used efficiently, effectively, and provide maximum 
benefit to the public.
    For example, DOT has developed a systematic and comprehensive 
approach to risk assessment and management. The risk management tool 
developed by DOT was so well regarded by the Office of Management and 
Budget that it subsequently adopted the tool for Government-wide use. 
The tool uses a four-step approach, which is built upon the sound 
foundation of internal controls assessments:
  --Formal assessment of potential programmatic risks;
  --Risk profile that categorizes the level of risk;
  --Risk management and mitigation plan; and
  --Validation and testing.
    As a further check on the extent and validity of our validation 
work, DOT will be reaching out to partner with another Federal agency 
to share risk management best practices and to leverage resources for 
cross validation and testing. At this point, the Department has 
completed the first two phases of this approach for all Recovery Act 
programs. We will be continuously updating our risk management efforts 
due to the nature and sensitivity of risk management for Recovery Act 
programs.
    We are also creating new business processes that make better use of 
the work done by both the Office of Inspector General (OIG) and the 
Government Accountability Office (GAO). Early on, we established an 
Accountability Executive Board that includes top officials from 
throughout the Department. This group approached OIG and GAO seeking to 
better ensure that audit findings are thoroughly considered in our 
Recovery Act programs. First, we broadened the avenues of communication 
to make certain we had a clear understanding of their concerns as 
rapidly as possible. We created new mechanisms, including an 
Accountability Stewardship Group to bring management and the auditors 
together frequently for a frank, two-way exchange of information. 
Together with the Inspector General, I have convened a fraud awareness 
session broadcast throughout DOT to ensure everyone gets the message 
that we have zero tolerance for waste or fraud. Simply put, I have 
asked our people to say something if they see something. The 
Accountability Executive Board continues working with the auditors to 
identify new and innovative ways that will better enable DOT to 
anticipate challenges and incorporate the changes necessary to provide 
the public with meaningful and effective programmatic results.
    President Obama, Vice President Biden and you, the Members of 
Congress, have entrusted me with billions of dollars to help create 
jobs and improve our Nation's infrastructure. I have just visited 
several States where Recovery Act investments are making a real 
difference in people's lives. In New Hampshire, for example, I met 35 
construction workers hired to make highway repairs. Many of these 
individuals had been laid off and were called back to work. They are 
back on the payroll, supporting their families, and contributing to 
their local economies. Similar stories are playing out in States all 
over the country. This effort not only puts people to work, but it gets 
people to work in a way that moves us towards our long-term goals of 
energy security, a cleaner environment, and more livable communities.
    The Federal Highway Administration (FHWA) has been moving at rapid 
speed and on March 3, just 2 weeks after the legislation was passed, 
FHWA announced the apportionment of funds to Maryland Route 650--the 
first Recovery Act highway project in Maryland. Within 6 weeks DOT had 
announced more than 2,000 transportation projects in nearly every State 
in the Nation. Of the 2,000 projects, 1,860 were FHWA projects and 300 
were Federal Aviation Administration (FAA) projects.
    Projects are not only being approved ahead of schedule, but they 
are also coming in under budget. State departments of transportation 
around the country have reported intense competition by contractors for 
Recovery Act projects. Some bids have been roughly 15 to 20 percent 
lower, and some as much as 30 percent lower, than engineers 
anticipated. For example, in Colorado, the State's bids for the first 
five Recovery Act transportation projects announced on April 2, were 12 
percent lower than anticipated. In Maine, the low bid for one bridge 
project was 20 percent lower than estimated. In Oregon, during February 
and March 2009, bids have averaged 30 percent lower than expected. Just 
last week I sent a letter to our Nation's Governors and State 
Secretaries of Transportation, reminding them that any money they save 
as a result of Recovery Act projects bids coming in lower than 
anticipated must be used for additional transportation projects.
    FAA has been working hard to get Grants-in-Aid for Airports funding 
distributed to eligible projects. To date, FAA has announced more than 
$1 billion--or 94 percent--of its airport improvement funding for 301 
projects. Of the $200 million provided for Facilities and Equipment 
projects, FAA has been working on contract awards for air traffic 
control facility improvements, power system upgrades, new airport 
runway lighting, and navigation systems and other infrastructure 
projects.
    In the area of transit, the Federal Transit Administration (FTA) 
has a total of 109 grants totaling $1.47 billion in the pipeline to be 
obligated. FTA has engaged in significant outreach with stakeholders to 
inform them of the requirements in the legislation. On March 5, FTA 
announced $6.7 billion in formula funding under two transit capital 
assistance programs and the Fixed Guideway Infrastructure Investment 
program. FTA is in the midst of receiving grant applications under the 
Transit Investments for Greenhouse Gas and Energy Reduction (TIGGER) 
Program. When implemented, the TIGGER grants will reduce greenhouse gas 
emissions and energy use for decades into the future. FTA has also 
requested applications for the Tribal Transit Program.
    The Federal Railroad Administration (FRA) was given $8 billion in 
Recovery Act funds to support the development of a High-Speed Passenger 
Rail initiative. On April 16, 57 days after the Recovery Act was 
enacted, President Obama announced the release of the new High-Speed 
Rail plan at a well-attended event at the White House. The strategic 
plan outlines the administration's vision for high speed rail in 
America. This administration believes that high-speed rail can 
transform travel in America, reduce dependence on cars and airplanes, 
and spur economic development. We would like States and local 
communities to put together plans for a network of 100-mile to 600-mile 
corridors, which will compete for the Federal dollars. The merit-driven 
process will result in Federal grants as soon as late summer 2009.
    President Obama's vision for high-speed rail mirrors that of 
President Eisenhower, the father of the interstate highway system, 
which revolutionized the way Americans traveled. Now, high-speed rail 
has the potential to reduce U.S. dependence on oil, lower harmful 
carbon emissions, foster new economic development, and give travelers 
more choices when it comes to moving around the country.
    The Recovery Act also includes $1.3 billion for capital grants to 
the National Railroad Passenger Corporation (Amtrak), of which $450 
million is to be used for capital security grants, including life 
safety projects. Priority for the use of non-security funds is to be 
given to projects for the repair, rehabilitation, or upgrade of 
railroad assets or infrastructure, and for capital projects that expand 
passenger rail capacity, including the rehabilitation of rolling stock. 
Funding was also to be awarded within 30 days after enactment. Amtrak 
and FRA personnel have worked diligently and expeditiously to identify 
rail passenger capital projects that meet the Recovery Act 
requirements, both in terms of their contribution to improving 
intercity rail passenger service and in terms of prompt initiation of 
new or expanded projects that will create or retain jobs and support 
economic development. Consistent with the act's requirements, FRA and 
Amtrak executed the American Recovery and Reinvestment Act of 2009 
Grant Agreement on March 19, and Amtrak is moving aggressively to 
implement Recovery Act funded projects.
    The Maritime Administration is also implementing a new shipyard 
assistance grants program under the Recovery Act. The $100 million 
provided in Assistance to Small Shipyards will be used to award grants 
in this area. As of April 20, more than 400 individual grant 
applications had been received.
    Finally, the Recovery Act includes a $1.5 billion discretionary 
grant program for surface transportation to be administered under my 
direction. These TIGER grants will be awarded based upon the criteria 
specified in the legislation after an extensive review process. The 
criteria for the TIGER Grants are currently in the review process 
within the Department. There is lots of excitement about this new grant 
program, and I welcome the opportunity to update you and other members 
of the subcommittee at a later date on our progress.
    I again want to thank Chairman Murray and the subcommittee for 
inviting me here today. I can tell you that we are making real progress 
in achieving the goals of the Recovery Act. I have had the privilege of 
standing along side the President and the Vice President at events 
marking the arrival of Recovery Act funds in cities throughout America. 
I have seen first hand the excitement on the faces of newly hired 
workers who now have a job. These people have families to care for and 
communities that are counting on them. In turn, they are helping to 
rebuild and refurbish our transportation infrastructure so we can 
together keep America moving. I will be happy to answer your questions.

                           COMPETITIVE GRANTS

    Senator Murray. Thank you very much, Mr. Secretary. I 
appreciate your being here.
    Let me start with the $1.5 billion in competitive grants 
for transportation projects that will have a significant impact 
on the Nation and the metropolitan area, or region. This is a 
new program for the Department, and it is unique because it 
involves almost every mode of transportation.
    The competitive program was included in the Recovery Act to 
make sure that billions of dollars that we are investing will 
result in some meaningful legacy projects so that we can see 
some real improvements to transportation infrastructure. And I 
believe strongly that we can't invest more than $48 billion in 
supplemental funds in transportation without making sure that 
we get some real, measurable improvements for communities.
    So I wanted to ask you today what kind of criteria you are 
considering that will make sure that this program creates a 
legacy of significant transportation improvements.
    Secretary LaHood. We have submitted our criteria to the 
White House and to OMB. We are waiting for guidance from them. 
We believe that as early as next week the criteria will be made 
public.
    But I will tell you this, you all, in your bill that the 
President signed, put in $28 billion for roads and bridges, $8 
billion for transit, $1 billion for airports, and $8 billion 
for high-speed rail. So we think the discretionary money ought 
to look at some other modes that didn't get the kind of 
attention that these did.
    And so, we are thinking in terms of ports and multi-modal 
opportunities that really weren't considered as much as maybe 
some of you would have wished. And I know that that is one of 
the reasons that these dollars were put in there. That is what 
we are looking at, but the actual criteria will be made public 
next week.
    Senator Murray. Okay, and do States and local governments 
understand when they apply for these grants, that we are 
looking for long-term priorities?
    Secretary LaHood. Absolutely, sustainable transportation 
opportunities.
    Senator Murray. Okay. What kind of outreach are you doing 
to make sure people understand what these projects are, or are 
you just waiting for people to apply to you?
    Secretary LaHood. For the $1.5 billion?
    Senator Murray. Right.
    Secretary LaHood. Well, we need to get the criteria out. It 
has not been made public. We are waiting for a little guidance 
from the White House and OMB. And once we get that, we will put 
it out publicly, and then we will begin working with folks 
around the country that want to make application.
    It will become very clear that we want some innovative 
approaches. We want some approaches that were not covered under 
the other portions of the Economic Recovery Act.
    Senator Murray. And since you are looking toward making 
sure port and freight rail and other improvements are part of 
this, are you going to do some outreach to some of those 
communities, States, and local governments to make sure they 
understand that is what you are looking for?
    Secretary LaHood. Absolutely. I think we may use the model 
that we used for the highway money, where we invited all the 
State DOT secretaries to Washington, even before the bill was 
signed, and talked to them about how we wanted to get the money 
to them. We are doing that again with high-speed rail 
corridors, inviting all the folks to Washington. And we may 
very well invite a number of folks to the District of Columbia 
to talk about the $1.5 billion so there is a good understanding 
of how this money should be used.

                            HIGH-SPEED RAIL

    Senator Murray. Okay. Well, let me ask you about that high-
speed rail. You released your vision for that just a couple of 
weeks ago and provided an overview for the high-speed rail 
program, which didn't offer a lot of details yet about how 
exactly the recovery funds are going to be used.
    I think you said those were coming in June, the details for 
that program. But I wondered if you could give us a little bit 
of insight today on what you expect. Are you looking for brand-
new corridors or improving the speeds on current corridors, or 
what are you looking for?
    Secretary LaHood. Well, there are a number of high-speed 
corridors around the country. We know about the Northeast 
corridor, and we know that in California, they have been 
working on high-speed rail for over 20 years, passed a 
referendum, and set aside money. And they are in a much 
different position than maybe a corridor in the Midwest, where 
they have talked about it, or a corridor in the South, where 
maybe they need some study money.
    I think what we would do is look at the $8 billion as an 
opportunity to begin several corridor opportunities. In 
California, obviously they are way ahead of a number of other 
places in the country.
    In the Northeast, it is the same kind of a program. If you 
straighten out some tracks along the Northeast corridor, you 
can get some of the Amtrak trains to go a little bit faster. In 
the Midwest, they have been dreaming about high-speed rail from 
Wisconsin and Minnesota, through Illinois, all the way down to 
St. Louis.
    Senator Murray. Well, you could have a lot of applications. 
How are you going to prioritize, what will be your criteria to 
prioritize which of those projects?
    Secretary LaHood. We will focus on where we really believe 
we can help jump-start people's opportunities. In California, 
they have done all their studies. They are working on their 
environmental requirements. They have money set aside. That is 
different than perhaps another part of the country where they 
may need some money to begin to do a study.
    It is not unlike when the interstate system was started. I 
am sure that when President Eisenhower signed the bill, all the 
lines weren't on the map. They only knew where they were going 
to begin.
    And I believe that two decades from now, you are going to 
see a network of high-speed rail, and we are going to help 
provide some opportunities. The $8 billion that you provided is 
supplemented with another $5 billion in the President's next 5 
budget years. So we have $13 billion. But $13 billion is not 
nearly enough to do everything we want to do.
    Senator Murray. Right.
    Secretary LaHood. But it is a very good start. It is $13 
billion more than we have ever had before.
    Senator Murray. Well, there is no State match requirement 
in this.
    Secretary LaHood. That is correct.
    Senator Murray. But will you give priority to projects that 
do have a match?
    Secretary LaHood. I think we are going to give priority to 
those that have been working on high-speed rail, and have been 
dreaming about it, and have made a commitment by having 
referendums passed and putting their plans in place.
    But we also know that there are other corridors that could 
use a little bit of money to get a study going, and we don't 
want to short-circuit those opportunities either.
    Senator Murray. Okay. I appreciate it. Thank you.
    Senator Bond.

                           HIGHWAY RESCISSION

    Senator Bond. Thank you very much, Madam Chair.
    And thank you, Mr. Secretary, for mentioning ports and 
multi-modal. For those of us in the Midwest, we know how 
important those ports are in taking large bulk commodities off 
of our highways. The rails are absolutely clogged. We have got 
to have those ports. I appreciate that.
    I thank you for mentioning my constituents in St. Louis and 
high-speed. When you are talking about all those wonderful 
Midwest high-speed corridors, it would be helpful if one of 
them crossed the Mississippi River. And I have got a pretty 
good place to do that. So we will look forward to working with 
you on that.
    I understand, on earmarks, people get mad at congressional 
earmarks. But those of us here know that we do earmarks because 
we listen to our State DOTs. We listen to our local leaders. 
And somebody has got to earmark them. Right now, it is going to 
be the Department of Transportation people who earmark them, 
and that is fine.
    But I just urge you to continue, as you said you would, 
listening to State DOTs and the local leadership because they 
are the ones who really know where the priorities are. That is 
what we do. We get criticized for it, but I read Article I, 
section 8 and 9 saying that is our responsibility. But I 
appreciate your willingness to listen.
    I have got a big problem, something that was left out of 
the American Recovery Act. I was advised by leaders on the 
floor that they were going to deal with it. Somebody put the 
kibosh on it so it didn't happen. But we all know there is a 
looming $8.7 billion rescission of the highway funds on 
September 30, if something is not done to fix it.
    We are getting all this money for a recovery, to stimulate 
job creations. But if this rescission goes through, it is going 
to cancel numerous projects that are either ready to go or 
already underway. I would like to know what your views are on 
that unfortunate rescission provision and what you think can, 
should, and will be done to fix it?
    Secretary LaHood. Well, we are monitoring where we are with 
the highway trust funds, and we realize that you all were good 
enough to transfer the $8 billion out of the General Fund and 
into the Highway Trust Fund last year. And as a Member of the 
House, last year I supported that.
    Senator Bond. I did, too. That was transit funds and 
highway funds that had previously been transferred to the 
General Fund.
    Secretary LaHood. Right.
    Senator Bond. But we got a little problem.
    Secretary LaHood. So we are paying close attention to this, 
and I think we will give you some pretty good guidance about 
midsummer where we are at and if we are going to run out of 
money again.

                                  JOBS

    Senator Bond. Well, something has got to be done on that 
rescission or that messes up the plans that are already 
underway. That one is a looming tragedy that I had hoped we 
could deal with in the Recovery Act, but we need to deal with 
it.
    Now during the debate on the bill, it was stated that 3.5 
million jobs would be created. The unemployment rate has gone 
from 8.1 percent to 8.5 percent. Do you have a good fix yet on 
how many jobs have been created by the Department with the 
funds that have been allocated, and what quantitative methods 
or tools will you use to determine how many jobs have been 
created?
    Secretary LaHood. During the month of May, we will put out 
a report, Senator, that will define what the term ``jobs'' 
means here. We are trying to work with OMB, and we are trying 
to work with our State DOT friends on this. We want to make 
sure that everybody understands what a job means.
    When somebody is working on a job in a certain part of 
Missouri, that job is completed, and then they go to another 
job, do you count that a second time? Or does that person 
continue in their employment?
    And so, there are a few of these delicacies here that we 
are trying to work out. But very soon here, we will have a good 
definition that people will understand and that everybody will 
agree to. And once we do that, we can, I think, assess what an 
enormous number of jobs have been created.
    And we also know that as soon as the weather breaks here, 
which it is now doing in the Midwest, a lot of these projects 
will begin in places where the weather is----

                         AMTRAK STRATEGIC PLAN

    Senator Bond. I understand. We have had a little weather.
    One quick question. Does Amtrak have a strategic plan for 
annual appropriations of the Recovery Act? We are worried that 
Amtrak needs to get its act together. What are you doing to 
make sure that it meets specific goals and targets?
    Secretary LaHood. Well, we are going to work with Congress 
on the bill that you all passed. We think it is a good bill, 
and we think it really helps us work with Amtrak and keeps them 
meeting the standards and obligations that were set out in the 
legislation.
    I just met with the Amtrak Board at their meeting here a 
week or so ago, and we talked about some of these issues. But 
we think the Amtrak bill is a pretty good guidepost for all of 
us to make sure Amtrak continues to be a very viable passenger 
rail service in America.
    Senator Bond. Thank you, Mr. Secretary.
    Thank you, Madam Chair.
    Senator Murray. Thank you.
    Senator Feinstein.

                 STATEMENT OF SENATOR DIANNE FEINSTEIN

    Senator Feinstein. Thank you very much, Madam Chairman.
    Thank you very much, Mr. Secretary. I very much appreciate 
you coming and spending a little bit of time with me.
    I wanted to concentrate on two subjects. One is the air 
traffic controller, and the other is the high-speed rail.
    Following this hearing last year--you were not here--I 
asked the GAO for a study of the southern California TRACON on 
the belief, and that belief remains, that we have major 
problems with insufficiently trained air traffic controllers 
doing the work of a controller.
    The inspector general just came out with his report, and he 
predicts that later this year, 40 percent of the people working 
at the southern California TRACON will not have full 
certification. I find that unacceptable.
    The problems are that there really is, I think, 
insufficiency in the training program. I think there is a cost 
of living problem with respect to that area of our State. We 
have found it with Federal firefighters, too. Other services 
are more attractive to them because they pay better.
    In any event, the GAO made four recommendations. One is to 
validate the staffing ranges for southern California and 
northern California TRACON to ensure that their staffing levels 
are sufficient to handle the volume. I would ask you to carry 
that out.
    The second is expand the use of relocation, retention, and 
other incentives to entice more experienced controllers to 
accept positions or defer retirements at LAX and southern 
California TRACON.
    Third, to provide LAX, southern California TRACON, and 
northern California TRACON with enough contract instructors, 
classroom space, including offsite locations, and simulators 
for the expected surge in new controllers. This is particularly 
critical, GAO says, at southern California TRACON.
    And to evenly distribute the placement of new trainees 
through the year to avoid training bottlenecks and conduct an 
independent analysis of overtime scheduling practices at all 
three facilities.
    I would like to ask you today to commit to carrying out 
those recommendations of the GAO.
    Secretary LaHood. I am committed to doing that, Senator.
    Senator Feinstein. Good.
    Secretary LaHood. And I thank you for your leadership. When 
you and I met, this was the No. 1 issue on your list.
    Senator Feinstein. That is right.
    Secretary LaHood. And I take your point on this. We will 
have an FAA Administrator in place as soon as the Senate can 
confirm him. And I think he is an outstanding person, a former 
airline pilot, the former president of the airline pilot union. 
And I think he will bring extraordinary experience particular 
to the issues that have been recommended in this report, and we 
are committed to working with you to make sure these 
recommendations are followed.
    It has everything to do with safety, and I know that is 
what you care about, and that is what we care about.
    Senator Feinstein. Yes, I am very worried about a potential 
serious accident.
    I misspoke, Mr. Secretary. It is the IG report----
    Secretary LaHood. Right. No, I understood.
    Senator Feinstein [continuing]. Not the GAO report. But 
thank you very much for that. You said that privately. You said 
it publicly.
    Secretary LaHood. Yes.

                            HIGH-SPEED RAIL

    Senator Feinstein. That means a great deal to me.
    The second thing is the high-speed rail. You pointed out 
that California has passed a $9 billion bond for high-speed 
rail with another $900,000 going into rail generally in the 
State. We are prepared to move on the San Francisco to San Jose 
line and also on Anaheim to LA.
    The vision is to have a rail spine right down the center of 
California that can move people and goods very, very rapidly, 
2\1/2\ hours between Los Angeles and San Francisco, which then 
should rival what is a very heavily congested air commuter 
pattern. So we obviously will be coming in for additional 
funds.
    My question to you, do you find the California proposal 
deficient in any way, or do you believe that the State has its 
act together?
    Secretary LaHood. California is far and away ahead of 
anyplace else in the country. They are close to having just 
about everything that is necessary, and I have no doubt that 
they will be at the top of the list just because people have 
been working on it, as you know, for 20-plus years. And their 
dream finally comes true with the $8 billion that the President 
was able to include in this bill that you all passed.
    And so, California is ahead of the curve.
    Senator Feinstein. Well, when Californians pass a financing 
bond----
    Secretary LaHood. That is right.
    Senator Feinstein [continuing]. You can be sure it is 
something that people want. So I very much appreciate that.
    Secretary LaHood. That is exactly right. It is an 
extraordinary commitment.
    Senator Feinstein. Right, it is. So that completes my 
questions, Madam Chairman.
    And thank you, Mr. Secretary.
    Secretary LaHood. Thank you.
    Senator Murray. Thank you very much.
    Senator Alexander.
    Senator Alexander. Thank you, Madam Chair.
    Mr. Secretary, welcome.
    Secretary LaHood. Good morning.
    Senator Alexander. Good to see you. I have got just a 
couple of questions I would like to ask you.
    I want to ask you about the possible relationship between 
electricity transmission lines and railway rights of way. The 
President and you are talking about new high-speed rail. The 
President is talking a lot, as many others are, about the need 
for an improved method of transmitting electricity across long 
distances.
    That raises the difficult prospect of where to put the 
transmission lines because the areas where the electricity 
needs to go is usually highly populated. So you end up with, at 
the very least, a lot of delay or, if you succeed, a lot of 
unsightly transmission lines in places where people don't want 
them.
    I don't know very much about this. I was talking with the 
head of the Federal Energy Regulatory Commission about it the 
other day. But is there any possibility of putting the 
transmission lines along the railway routes, or even burying 
them along the railway routes, or even making them useful for 
electricity for trains and, in that way, provide a source of 
revenue for the trains and, at the same time, avoid the 
expensive delays and difficulties of siting transmission lines? 
Or is that already being done?
    Secretary LaHood. I am not an expert on this, Senator, but 
I know this. In talking about really expanding our broadband 
capability and putting fiber down where we are building roads 
or building railway beds, it is possible to do that. I don't 
know about the electrification.
    I do know that Secretary Chu at Energy has been talking 
about this and trying to figure out how to make it happen. And 
so, rather than saying something where I don't really know of 
what I speak, I would rather talk to him and see what his take 
is on this.
    I have not heard that you can do this, but I know you can 
lay fiber down along roadways.
    Senator Alexander. Yes, I haven't either. And the FERC 
Chairman didn't either, and I am not sure you can do it. But it 
would be typical of Government to start out and build a lot of 
high-speed rail----
    Secretary LaHood. Right.

                                BRIDGES

    Senator Alexander [continuing]. Rights of way one place and 
transmission lines another place, and it might be a good idea 
just to explore whether there is any relationship between the 
two. It might actually save money, time, do two or three things 
at once.
    The second is something I have always been intrigued with, 
and you may not know about this either, and maybe Senator Bond 
knows more about it. But a few years ago, I believe Missouri 
had a different way of dealing with bridges. They made a deal 
with the Department of Transportation and said give us the 
money and we will build in 5 years what we would otherwise have 
built in 30 years.
    And they did it by the use of private contractors, and they 
avoided a lot of delay and expense of going through the usual 
Federal regulatory procedures. It sounded like that was a 
successful effort, and it has been a year or two since I have 
caught up with it.
    But if it is, if I remember the bottom line well enough, 
Senator Bond or Mr. Secretary, I believe Missouri felt it could 
repair all the bridges it needed to repair within 5 years 
rather than 30 years, and it could do it with the money that 
was about to be allocated by the Federal Government over a 
period of time.
    Did that work? And if it did work, can it be tried other 
places?
    Senator Bond. I would say to my friend from Tennessee, it 
was a great idea. You think it could work, to design-build 
contracts. Unfortunately, FHWA didn't approve it. So it is an 
idea that still----
    Senator Alexander. They didn't?
    Senator Bond. No. We are still--it is an idea out there 
that could save us--could do a whole lot more with a whole lot 
less.
    Senator Alexander. Well, I would like--I am raising it just 
to call it to your attention, Mr. Secretary. I know from my own 
experience as Governor, we, on a couple of occasions, 
experimented with buying a building from a private contractor. 
We said, okay, here are the specifications and here is the 
price. And we got it in half the time at half the cost.
    And this was the same idea applied to bridges, a 
negotiation between the State and the Federal Government. If 
that is promising and if it permits States to take a certain 
amount of tax dollars, which are scarce--you were just talking 
about the trust fund and all the challenges we have there. If 
that is possible to do, why not pick two or three States, 
explore it, and see how it works?
    And if you need some changes in the law to do it, I would 
be glad to help you with it. Again, I am not expecting you to 
know the answer to that. I just was very intrigued by it. And 
my old Governor instincts got the best of me, and I just wanted 
to ask whether it----
    Secretary LaHood. Well, Senator, we have talked about 
thinking outside of the box on how we use the Highway Trust 
Fund, which is inadequate, and to do all the things we want to 
do. We are talking about public-private partnerships, and we 
are talking about these kinds of opportunities.
    These are the kinds of things that we need to do if we are 
going to do all of the things that we want to do in America 
with new bridges and new roads. And public-private partnerships 
certainly have to be a part of it.
    Senator Alexander. Thank you, Madam Chairman.
    Senator Murray. Thank you.
    Senator Lautenberg.

                STATEMENT OF SENATOR FRANK R. LAUTENBERG

    Senator Lautenberg. Thanks, Madam Chairman.
    And I apologize for the tardy arrival, and I ask unanimous 
consent that my full statement be included in the record.
    Senator Murray. It will be.
    [The statement follows:]
           Prepared Statement of Senator Frank R. Lautenberg
    Madame Chairman, thank you for holding today's hearing. 
Transportation funding is one of the most effective and efficient ways 
to create good-paying jobs and boost our economy. For every $1 we 
invest in infrastructure, we get a $1.59 in return. That's why, in the 
Recovery Act, we included $48 billion for projects such as rebuilding 
bridges, repaving roads, and laying new rail tracks.
    Today, I look forward to hearing from Secretary LaHood about how 
these funds are being spent to create jobs, stimulate our economy, and 
move us toward the goals of reducing congestion and greenhouse gas 
emissions.
    In New Jersey, we have a project that embodies all of these goals 
of the Recovery Act. The new rail tunnel under the Hudson River is 
shovel-ready. It will create 6,000 construction jobs each year, 44,000 
permanent jobs from the economic development it generates, and get 
22,000 cars off the road daily as more New Jersey commuters take the 
train.
    Transit projects like the Tunnel boost our economy in the short-
term and help transform our economy in the long-term. Like transit, 
passenger rail creates jobs, reduces congestion and cuts carbon 
emissions and our dependence on foreign oil. And more Americans than 
ever are taking Amtrak, even as our investment in passenger rail in 
recent years has not kept up with demand.
    That's why I wrote my Amtrak law last year: to help Amtrak be ready 
for the next generation of travel. And the Recovery Act makes an 
important down payment on the future of travel with $8 billion for 
high-speed rail. The reality is, travelers will choose convenient rail 
options if they are available--Amtrak's record ridership proves that. 
In this tough economy, transportation investments are smart 
investments.
    The Recovery Act is a critical first step when it comes to 
investing in our transportation infrastructure--but we must do more. As 
we reauthorize our surface transportation programs this year, I look 
forward to working with the administration and my colleagues to craft a 
transportation policy that meets the needs of our country for 
generations to come.

    Senator Lautenberg. The focus here--and I welcome Secretary 
LaHood. We are getting to know each other fairly well.
    Secretary LaHood. Yes, sir.
    Senator Lautenberg. Yes, and I think we are on a good 
track.
    Secretary LaHood. I agree with that.

                      DISCRETIONARY GRANT PROGRAM

    Senator Lautenberg. Yes. Okay. Well, as long as you agree 
with my track, we are going to do well.
    The thing that I like here is that we are really focusing 
on the transportation picture in total. Whether, as Senator 
Feinstein discussed, getting the relationships in FAA squared 
away, making sure that we have our highway improvement funding, 
that is critical.
    But finally, finally, Mr. Secretary, I think it is fair to 
say that the position that the rail elements are coming into 
play. And when I look and see that the kinds of spending that 
we are looking at, the Recovery Act, for instance, includes a 
new $1.5 billion grant program to fund nationally and 
regionally significant transportation improvements for highway, 
transit, rail, and port initiatives.
    What is the yardstick by which the administration will make 
judgments to determine which of the projects are truly national 
or are of regional benefit?
    Secretary LaHood. Well, as I indicated, we have the 
criteria. We are waiting for guidance from OMB and the White 
House, and we think we will have that very, very soon, maybe as 
soon as next week. And we will publish the criteria so that 
everybody around the country knows what they are, and then we 
will begin to look at opportunities that really can provide the 
kind of jobs that I know all of you want to create, but also 
support projects that have national significance.
    Senator Lautenberg. We have a target that touches several 
objectives, and one of the things that we are being asked for 
by the President is to make sure that we get to the quickest 
way for value investment but to create jobs. And one of those 
places that I see, and you know we have talked a lot about it, 
is in the high-speed rail area, $8 billion in the Recovery Act 
and the $1 billion in the President's 2010 budget. This is a 
critical step forward, but there is still more that we need to 
do to build a strong, high-speed passenger rail network in the 
country.
    And is it fair to say that the administration does support 
a dedicated source of funding for high-speed rail?
    Secretary LaHood. Well, I think there is no question about 
that, Senator, given the fact that the President has included 
$1 billion each year for the next 5 years in addition to the $8 
billion that you all passed in the economic recovery. I believe 
that is true.

                               NEW STARTS

    Senator Lautenberg. All right. I just want to confirm these 
things.
    The New Starts process, the Federal program to fund major 
transit projects, can take over a decade before the project 
even begins construction. Now what can DOT do to speed up the 
New Starts process without compromising environmental standards 
or wasting any money in haste?
    Secretary LaHood. We have proven at the Department that 
when Congress gives us a deadline, which was 120 days in the 
bill that you all passed, we can get $48 billion out the door. 
And the way we did it was by creating what we call the TIGER 
team, where we put all the modes together in a room every day, 
talking to one another, trying to figure out if there are 
problems or issues.
    And in doing that, we eliminated a lot of bureaucracy and a 
lot of redtape, and that is the kind of process we need to put 
in place for these New Starts. It takes way too long. We don't 
want to short-circuit anything. We want to make sure everything 
is done by the book. But it should not take a decade to get a 
New Start. It just shouldn't.
    And we are going to work very hard to improve the system so 
that we can really cut down the time that it takes for these 
New Starts to be awarded.
    Senator Lautenberg. Well, running the risk that repetition 
doesn't carry the load that we would like to see it carry, I 
want to talk for a moment about the tunnel, the ARC tunnel, and 
the fact that New Jersey and the Port Authority have put $5.7 
billion up for this tunnel and are looking to the Federal 
Government to give just that extra push.
    And I know that you have been committed to seeing this get 
going, and I am hoping that next week, when we see the 
President--is it next week that we are going to the President?
    Secretary LaHood. I believe so, yes.
    Senator Lautenberg. That we will get confirmation that 
everybody is in the loop on this and that we will be able to 
get shovel-ready, people standing at attention, holding their 
shovels. That includes Jon Corzine and Frank Lautenberg, ready 
to start digging.
    Senator Murray. I can't wait to see that.
    Senator Lautenberg. And we hope that the budget will--huh?
    Senator Murray. You will have a hardhat on?
    Senator Lautenberg. I could start off with one.
    So thanks very much, Secretary LaHood. I think that you are 
passing the elementary grades very rapidly and getting into the 
full swing, and we are proud to see it happen.
    Secretary LaHood. Thank you, sir.

                            HIGH-SPEED RAIL

    Senator Murray. Thank you, Senator Lautenberg.
    I just have a couple of quick questions, and then we want 
to turn to the IG. The IG did identify the funding for 
intercity and high-speed rail as a challenge for the Department 
because the Federal Railroad Administration doesn't have the 
experience in running a grant program of that size. We set 
aside $80 million for that program. What can we know to ensure 
that the FRA does have the expertise to oversee----
    Secretary LaHood. Well, I think one thing you should know 
is we hired one of the best rail people in the country in the 
rail administration. She is doing a great job. She knows all of 
the folks all over the country that have been working on high-
speed rail. She has been in place, and she is working very 
hard.
    We will have a rail Administrator, that the Senate just 
approved last night, in place as soon as he is sworn in. So we 
are staffing up with people that we think are the experts and 
can really help us. If we need additional staff, we obviously 
will come back and talk to you about that, Madam Chair.

           DEADLINE FOR OBLIGATING HIGHWAY AND TRANSIT FUNDS

    Senator Murray. Okay. I appreciate that, and we will be 
following that closely.
    And also I wanted to ask you about the tight deadlines for 
the use of highway and transit programs in the recovery 
package. Half of the States' highway grants have to be 
obligated within 120 days or they are going to be 
redistributed. The same with transit grants, I think they are 
180 days.
    Do you see any significant problems coming at us that we 
need to correct?
    Secretary LaHood. I don't at this point and mainly because 
of the good relationships we have with transit districts and 
with highway administrators. They get it. They want the money. 
A lot of these projects have been sitting on shelves, and they 
are going to do everything in their power to make sure that it 
is done.
    Senator Murray. We will be following that closely, too.
    And finally, I just wanted to mention that Senator Bond and 
I both were very concerned about ensuring that a fair share of 
the transit funding was distributed to rural communities. I am 
hearing reports now that the requirement that those funds be 
used for capital expenses and not operating expenses is posing 
some problems for our rural transit systems.
    Do you have any reason to believe that transit funding will 
be left unused because of that requirement?
    Secretary LaHood. Well, we are just starting. That money 
hasn't gone out the door. But we will keep you posted on how 
that is going. We know the highway money is going to be on 
time, and people are going to start to go back to work. We are 
just starting to get the transit money out the door.
    Senator Murray. If you can keep an eye on that because we 
are hearing that many of the transit agencies, because of 
budget cuts elsewhere, are laying off workers and cutting 
services because of a shortage of operating funds. And if 
that--no sense buying buses that sit there because they can't 
be run. So if you can keep an eye on that?
    Secretary LaHood. Sure. I would just recommend this, Madam 
Chair. I think Congress needs to consider allowing transit 
districts to use part of their money for operations. We are 
very open-minded about that at the Department. I hope Congress 
will be, too.
    This is a real issue. It does no good to buy all these new 
buses if you don't have people to drive them. So I hope 
Congress will be open-minded about that.
    Senator Murray. Okay. I appreciate it.
    Mr. Secretary, you survived your first hearing here.
    Secretary LaHood. Thank you.
    Senator Murray. Well, actually, your second. We appreciate 
your being here today and look forward to working with you as 
we monitor this. And thank you for the great job you and your 
folks are doing.
    Secretary LaHood. Thank you very much.
    Senator Murray. So thank you.
    We will now turn to the IG. As I said earlier, we have a 
full committee hearing now. So most of our members are having 
to attend that.
    But, Mr. Scovel, your input is extremely important to this 
subcommittee. I know some members have questions that they will 
be submitting that we can hope we can get an answer on. This is 
not the only hearing we are going to have following this, and I 
appreciate the opportunity to have you in front of us today.
    So if you want to go ahead with your testimony?

STATEMENT OF HON. CALVIN L. SCOVEL III, INSPECTOR 
            GENERAL, OFFICE OF THE INSPECTOR GENERAL, 
            DEPARTMENT OF TRANSPORTATION
    Mr. Scovel. Thank you very much.
    Chairman Murray, Ranking Member Bond, and members of the 
subcommittee, I welcome the opportunity to testify today on the 
challenges facing DOT's implementation of the Recovery Act and 
our related audit and investigative initiatives.
    We are working with DOT officials in support of their 
related efforts, and we have assembled a team of auditors, 
investigators, and attorneys to review DOT's implementation of 
the recovery program. To that end, we appreciate the additional 
funding you provided to us, and we intend to make the most of 
it. This funding will help us maintain staff, travel budgets, 
information technology, and other resources that we need.
    My statement today focuses on the challenges facing DOT and 
our strategy to advance the effective and efficient use of 
these funds. First, DOT must continue to address the 
significant oversight challenges posed by the Recovery Act.
    Last month, we issued a comprehensive report that 
identified actions DOT should take now to address known 
challenges and support Recovery Act requirements. These 
challenges fall into three areas--first, overseeing grantees 
receiving funding; second, implementing new programs and 
reporting requirements in an effective manner; and third, 
combating fraud, waste, and abuse.
    The specific actions we noted in our report include 
acquiring sufficient staff with relevant expertise; ensuring 
that grantees use appropriate contract types; addressing 
internal control weaknesses, such as identifying any unused 
funds for use on other eligible projects; developing plans and 
criteria for more than $9 billion in new programs; and finally, 
taking timely action to suspend or debar contractors who 
defraud the Government.
    Next, I want to focus on what our office is doing to 
promote accountability in the recovery program. Our audits and 
investigations will continue to examine areas that present the 
greatest risks, and we are committed to promptly notifying DOT 
and Congress of actions needed to prevent fraud, waste, and 
abuse and achieve program goals.
    In anticipation of the act's passage, we initiated a risk-
based, three-part strategy. We completed phase one last month 
by issuing our comprehensive report on DOT's oversight 
challenges.
    Phase two of our strategy is now underway. We are 
conducting a series of structured reviews, or scans, of the DOT 
agencies that received recovery funding. Specifically, we are 
examining vulnerabilities in program management and planning 
that could impede DOT's ability to effectively oversee projects 
and meet new statutory and OMB requirements.
    We will be reporting the results of phase two through a 
series of advisories to the Department and Congress as events 
warrant, and I would like to emphasize that these may not take 
the form of full-blown audit reports. But our intent is to 
fast-track our initial observations, confirm the results, and 
bring them to the attention of the Congress and the Secretary 
at the earliest opportunity.
    Our investigators are also being proactive in supporting 
DOT and its grantees. They are reaching out to officials in all 
modes of transportation to conduct fraud awareness and 
prevention briefings and training at all levels of Government 
so those involved in carrying out the recovery program know how 
to recognize, prevent, and report suspected fraud.
    To date, we have made personal contact with FHWA officials 
in all 50 States and the District of Columbia, FTA officials in 
24 States; FAA officials in 20 States and the District of 
Columbia; and State and local officials in 45 States and the 
District of Columbia.

                           PREPARED STATEMENT

    I assure you that we are strongly committed to meeting our 
increased audit and investigative workload. And in conclusion, 
it is critical that we do everything possible to maximize this 
opportunity to make needed investments in our Nation's 
infrastructure while protecting taxpayer dollars.
    That concludes my statement, Madam Chairman. I would be 
happy to answer your questions.
    [The statement follows:]

            Prepared Statement of Hon. Calvin L. Scovel III

    Chairman Murray and Ranking Member Bond, thank you for the 
opportunity to testify today on the challenges facing the Department of 
Transportation's (DOT) implementation of the American Recovery and 
Reinvestment Act (ARRA) of 2009 \1\ and our office's related audit and 
investigative initiatives. We appreciate the $20 million in additional 
funding that the subcommittee provided to our office to conduct audits 
and investigations of DOT projects and activities funded by ARRA. This 
additional funding will go a long way in ensuring that we have the 
staff, travel budget, information technology, and other resources that 
we need to help achieve new, ARRA-related goals, meet our increased 
workload and protect the Federal investment over the long term. Since 
the passage of ARRA, we have been working with DOT officials to support 
and oversee their efforts and have assembled a cross-modal team of 
auditors, analysts, investigators, and attorneys to review DOT's 
management of recovery program funds.
---------------------------------------------------------------------------
    \1\ Public Law 111-5, (2009).
---------------------------------------------------------------------------
    ARRA designates an unprecedented $48 billion for DOT programs, 
adding new challenges on top of the longstanding ones we have 
highlighted in past reports to the Secretary of Transportation and 
Congress. These include overseeing numerous grantees and projects 
across the country as the recovery funding is infused into the economy. 
In addition to significantly increasing funding for certain DOT 
programs, ARRA directs DOT to create several new programs and 
establishes tight timeframes for distributing and expending funds and 
reporting results, such as the number of jobs created. The Office of 
Management and Budget (OMB) also mandated additional requirements, 
including weekly financial reports, which will test DOT's capacity as 
it strives to effectively implement these changes.
    Both the President and Congress have emphasized the need for 
accountability, efficiency, and transparency in the allocation and 
expenditure of ARRA funds and have recognized the role of Inspectors 
General and the Government Accountability Office (GAO) in accomplishing 
these objectives. For example, ARRA created the Recovery Accountability 
and Transparency Board, consisting of our office and nine other 
Inspectors General, and added substantial funding to help address the 
increased workload. We want to acknowledge this subcommittee's strong 
interest in vigilant oversight of the recovery program, with this 
hearing as just one of the many indicators of that support.
    We realize the enormity of the challenges facing DOT and note the 
commitment of the Secretary of Transportation and his staff to the 
success of DOT's recovery initiatives. DOT's leadership has been 
proactive on several fronts. For example, the Department has 
established the DOT-wide Transportation Investment Generating Economic 
Recovery (TIGER) team to coordinate DOT's role in the recovery program, 
ensure accountability, and develop a risk management and financial 
reporting plan. In addition, DOT officials are working with grantees so 
they can quickly submit proposals that will meet Federal requirements. 
DOT is also evaluating how to redeploy current agency employees or use 
``rehired annuitants'' to meet the increased workload and conducting 
outreach to field staff and grantees through frequently-asked-questions 
and guidance posted on DOT's recovery Internet sites. Sustained 
leadership will be a prerequisite for continuing to meet the numerous 
issues facing DOT.
    Our statement today focuses on the specific challenges DOT faces as 
it implements ARRA and our strategy to promote effective and efficient 
use of funds. Specifically:
  --DOT Must Continue to Address the Significant Oversight Challenges 
        Posed by ARRA.--Last month, we reported on the major challenges 
        facing DOT in ensuring that ARRA funds are spent properly and 
        identified actions DOT should take now to support ARRA 
        requirements (see attachment for the full report).\2\ This 
        report was based on a comprehensive review of our prior reports 
        and other relevant work. Based on our analysis, we concluded 
        that DOT must exhibit sustained and effective actions to 
        oversee grantees receiving ARRA funding; implement significant 
        new reporting requirements and programs mandated by ARRA; and 
        prevent fraud, waste, and abuse. Actions needed to address 
        these challenges include acquiring sufficient staff with 
        relevant expertise to oversee grantees; developing 
        comprehensive plans and sound criteria for the more than $9 
        billion in new programs created by ARRA; and enhancing 
        understanding among DOT staff, grantees, and their contractors 
        on how to recognize, prevent, and report potential fraud to the 
        appropriate authorities.
---------------------------------------------------------------------------
    \2\ OIG Report Number MH-2009-046, ``American Recovery and 
Reinvestment Act of 2009: Oversight Challenges Facing the Department of 
Transportation,'' March 31, 2009. OIG reports and testimonies are 
available on our Web site: www.oig.dot.gov.
---------------------------------------------------------------------------
      In addition to serving as ``one-stop shopping'' for actions DOT 
        must take now to achieve ARRA-related goals, our report set out 
        a roadmap for our future audit and investigative initiatives. 
        In response to our recommendation to develop a plan to address 
        the issues in our report, DOT committed to providing us with a 
        document by April 30, 2009, that will outline its specific 
        actions taken or planned.
  --Our Audit and Investigative Initiatives Must Continue to Examine 
        Areas That Present the Greatest Risks and Promptly Notify DOT 
        and Congress of Actions Needed To Minimize Fraud, Waste, and 
        Abuse and Achieve ARRA Goals.--We have begun working 
        aggressively to position our office to handle the increased 
        workload. In anticipation of ARRA's passage, we initiated a 
        three-phase approach to conducting related work. We completed 
        Phase 1 last month with the issuance of our report on key 
        oversight challenges facing DOT. We also identified several 
        audits that, although started prior to ARRA's passage, have a 
        direct connection to the programs funded under ARRA and related 
        requirements. We plan to fast-track the most time-sensitive 
        results of our work on these audits to ensure we provide DOT, 
        Congress, and taxpayers with timely and relevant information.
      Phase 2 of our strategy is underway and involves a systematic 
        scan, or structured survey, of the DOT agencies that received 
        funding in ARRA, based on 10 focus areas identified in our 
        report. These scans will examine vulnerabilities in program 
        management and planning that could impede DOT's ability to 
        provide effective oversight of ARRA-funded projects and meet 
        new statutory and OMB requirements. We plan to begin reporting 
        the results of Phase 2 this summer through a series of ARRA 
        advisories to the Department. Phase 3 is a long-term initiative 
        in which we will drill down on high-risk areas that emerge as a 
        result of our agency scans.
    I will now discuss these issues in further detail.

DOT MUST CONTINUE TO ADDRESS THE SIGNIFICANT OVERSIGHT CHALLENGES POSED 
                                BY ARRA

    In anticipation of ARRA's passage, we initiated a comprehensive 
review of our prior audit and investigative work--as well as the 
relevant work of other accountability organizations--to identify the 
major challenges facing DOT as it implements such a large infusion of 
new funding and program requirements. We reported the results of our 
review last month: American Recovery and Reinvestment Act of 2009: 
Oversight Challenges Facing the Department of Transportation. Our 
report linked the challenges identified to 10 specific focus areas 
where DOT must exhibit sustained and effective actions and oversight; 
these areas are shown in table 1 on the next page. (The full report is 
presented as an attachment to this statement.)
    Based on our analysis of past findings, we see three major ARRA 
oversight challenges facing DOT:
  --Ensuring that DOT's grantees properly spend ARRA funds;
  --Implementing new accountability requirements and programs mandated 
        by ARRA in an effective manner; and
  --Combating fraud, waste, and abuse.
    To ensure sufficient consideration of the potential risks discussed 
in this report, we also recommended that the Secretary of 
Transportation, through the DOT TIGER team, develop an oversight 
implementation plan that outlines the key actions DOT has underway or 
will take to address these issues. DOT agreed to provide us with a 
document by April 30, 2009, outlining actions taken or planned in these 
areas.

     TABLE 1.--MAJOR ARRA CHALLENGES AND RELATED FOCUS AREAS FOR DOT
------------------------------------------------------------------------

------------------------------------------------------------------------
Ensuring that DOT's grantees properly       Acquire sufficient personnel
 spend ARRA funds.                           with relevant expertise to
                                             oversee grantees.
                                            Adhere to existing Federal
                                             requirements for programs
                                             funded under ARRA.
                                            Evaluate the credibility and
                                             completeness of cost and
                                             schedule estimates.
                                            Oversee grantees'
                                             contracting management
                                             activities and ensure
                                             selection of appropriate
                                             contract types.
                                            Address internal control
                                             weaknesses and identify
                                             unused funds for use on
                                             other eligible projects.
Implementing new accountability             Implement new ARRA tracking
 requirements and programs mandated by       and reporting requirements
 ARRA in an effective manner.                that are designed to
                                             promote accountability and
                                             transparency.
                                            Develop comprehensive plans
                                             and sound criteria for the
                                             new discretionary grant and
                                             passenger rail programs
                                             within statutory deadlines.
                                            Develop appropriate
                                             oversight strategies for
                                             the new discretionary grant
                                             and passenger rail
                                             programs.
Combating fraud, waste, and abuse.........  Enhance understanding among
                                             DOT staff, grantees, and
                                             their contractors on how to
                                             recognize, prevent, and
                                             report potential fraud to
                                             the appropriate
                                             authorities.
                                            Take timely and effective
                                             action to suspend or debar
                                             individuals or firms that
                                             have defrauded the
                                             Department so they do not
                                             receive future Federal
                                             contracts.
------------------------------------------------------------------------

    Today, I will highlight a few of the key areas where action is 
needed.
Ensuring That DOT's Grantees Properly Spend ARRA Funds
    The large amounts of funding that DOT is responsible for under ARRA 
and the accelerated timeframes to use those funds will place great 
demands on DOT's workforce, oversight processes, and financial 
management systems. Some of the more significant challenges relate to 
ensuring that DOT's Operating Administrations oversee grantees' 
contract management activities; addressing internal weaknesses that 
could lead to ineffective use of ARRA dollars; and having sufficient 
staff with relevant expertise to monitor grantees' planning and 
execution of ARRA-funded projects. We are encouraged by Secretary 
LaHood's statement that DOT is committed to do things ``by the book,'' 
follow established policies and procedures, and employ sound business 
practices.

            Overseeing Grantees' Contracting Management Activities and 
                    Ensuring Selection of Appropriate Contract Types

    Oversight of grantees' contracting management practices warrants 
particular attention as the ARRA program is quickly rolled out. Actions 
needed are (1) specifying contract requirements early; (2) maximizing 
competition; (3) using appropriate contract types; and (4) preventing 
unallowable costs, improper payments, and excessive overhead charges 
during contract execution. The magnitude and the accelerated pace for 
spending ARRA dollars could exacerbate contract award problems we 
previously identified, which include inappropriate contract types, 
inadequate competition, and failure to ensure contract prices are fair 
and reasonable.
    Our basis for these concerns resides in several examples. 
Specifically, audits of DOT and State contracts used to respond to the 
Hurricane Katrina emergency found instances in which DOT money was 
spent inefficiently. This occurred because grantees used risky 
contracting methods in spending Federal funds, such as sole-sourced 
contracts, which resulted in significantly higher costs.\3\ For 
example, we found that a State department of transportation awarded two 
sole-source contracts without assurance of fair and reasonable prices, 
which resulted in the State paying about $1.7 million more than 
necessary for bridge repairs. Our review of controls over DOT's 
contract for Hurricane Katrina emergency disaster relief 
transportation, also found that a Federal Aviation Administration (FAA) 
contracting officer routinely authorized invoices for payment without 
any documentation from the contractor showing that the services had 
actually been provided.\4\ In one instance, this lack of controls 
resulted in a $33 million overpayment to the contractor for emergency 
bus transportation and chartered aircraft services; the overpayment was 
later recovered.
---------------------------------------------------------------------------
    \3\ OIG Report Number MH-2006-065, ``Audit of the Mississippi 
Department of Transportation's Award of Selected Hurricane Katrina 
Emergency Repair Contracts,'' September 6, 2006.
    \4\ OIG Report Number AV-2006-032, ``Internal Controls Over the 
Emergency Disaster Relief Transportation Services Contract,'' January 
20, 2006.
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            Addressing Internal Control Weaknesses and Identifying 
                    Unused Funds for Other Eligible Projects

    DOT needs to assess risks and identify and mitigate any internal 
control \5\ weaknesses to ensure that ARRA funding is spent effectively 
in accordance with Federal regulations and OMB's new requirements. 
Specifically, OMB is requiring that agencies ensure the prompt award 
and outlay of ARRA dollars and minimize improper payments. Going 
forward, DOT must ensure that its risk mitigation plans prevent new and 
recurrent internal control weaknesses, identify unused funds promptly, 
ensure timely action to free up unused funds for use on other projects, 
and detect and prevent improper payments. Our prior and ongoing audit 
work shows that DOT has experienced problems in these areas.
---------------------------------------------------------------------------
    \5\ Internal controls provide reasonable assurance of the 
effectiveness and efficiency of an agency's use of financial resources, 
the reliability of financial reporting, and compliance with applicable 
laws and regulations.
---------------------------------------------------------------------------
    In particular, we have found that DOT must improve its controls for 
identifying unused funds in its financial management systems and take 
appropriate action to release them on completed, cancelled, and 
reduced-scope projects. For example, in fiscal year 2008, auditors 
found idle funds at the Federal Highway Administration (FHWA) estimated 
at about $300 million. Similarly, we found that in 2007 FAA allowed 
numerous Airport Improvement Program grants to remain inactive and 
obligations to remain on closed grants, both for excessive periods of 
time.\6\ Without sufficient controls going forward, any unused ARRA 
funds could remain idle for long periods of time. This in turn could 
prevent other worthy projects from receiving Federal funds and 
potentially undermine ARRA's ability to stimulate the U.S. economy by 
quickly spurring construction activity across the country.
---------------------------------------------------------------------------
    \6\ OIG Report Number AV-2007-073, ``FAA's Oversight of Inactive 
Airport Improvement Program Grant Obligations,'' September 13, 2007.
---------------------------------------------------------------------------
    Avoiding improper payments also presents a continuing challenge to 
DOT. For example, our prior work at FHWA identified oversight 
weaknesses that led to such payments, which DOT must avoid in the ARRA 
program. Specifically, we examined FHWA's oversight of design and 
engineering (D&E) firms' indirect costs claimed on Federal-aid grants 
and found that Federal funds were used to reimburse unallowable costs 
totaling nearly $16 million.\7\ This occurred in part due to 
ineffective oversight by FHWA and State transportation departments of 
the certified public accounting firms hired by the D&E firms. As OMB 
stipulated in its implementation guidance,\8\ it is critical to 
mitigate the risks of improper payments in the recovery program to 
ensure that DOT maximizes the return on the Federal investment.
---------------------------------------------------------------------------
    \7\ OIG Report Number ZA-2009-033, ``Oversight of Design and 
Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants,'' 
February 5, 2009.
    \8\ OMB, ``Updated Implementing Guidance for the American Recovery 
and Reinvestment Act of 2009,'' April 3, 2009.
---------------------------------------------------------------------------
            Acquiring Sufficient Personnel With Relevant Expertise To 
                    Oversee Grantees

    DOT must ensure that it has sufficient personnel with relevant 
expertise to meet the increased workload, new requirements, and 
accelerated timeframes associated with recovery spending. A sufficient 
and trained workforce is critical to hold grantees accountable for 
contract actions and realistic cost and schedule estimates and to 
ensure that State or local recipients can effectively manage their 
projects and the risks associated with the recovery program.
    DOT officials expressed concerns about their ability to provide 
sufficient oversight with limited time and staff, particularly in 
regional and division offices, and noted actions under consideration. 
For instance, some Operating Administrations may detail staff from each 
of their headquarters to their regional and division offices and rehire 
retired Federal employees on a temporary basis. These efforts were 
supported when the Office of Personnel Management granted DOT direct-
hire authority and delegated to it dual compensation waiver authority. 
These hiring flexibilities should help enable DOT to meet critical 
hiring needs. The key will be to utilize these flexibilities 
effectively to augment other staffing actions. We plan to evaluate the 
adequacy of DOT's workforce as part of our future audits on DOT's 
oversight of ARRA projects.

Implementing New Reporting Requirements and Programs Mandated by ARRA 
        in an Effective Manner

    In addition to increasing the funding levels of existing programs, 
ARRA presents new goals for DOT. First, ARRA mandates several new 
reporting requirements that are designed to promote accountability and 
transparency, which OMB enhanced in its recent implementation guidance. 
Second, ARRA creates two new, large programs that provide $1.5 billion 
in supplementary discretionary grants to improve the Nation's 
transportation infrastructure and $8 billion in grants for high-speed 
rail corridors and intercity passenger rail service.\9\ These programs 
are being designed from the ground up and, therefore, pose particular 
vulnerabilities for DOT.
---------------------------------------------------------------------------
    \9\ ARRA stipulates that the discretionary grant program can be 
used for a variety of projects, including highway, bridge, public 
transportation, passenger and freight rail, or port infrastructure 
projects.
---------------------------------------------------------------------------
            Implementing New ARRA Tracking and Reporting Requirements 
                    Designed To Promote Accountability and Transparency

    To meet ARRA accountability and transparency requirements, DOT must 
ensure that its financial management systems can track ARRA spending 
and produce reliable information to report results in a meaningful way. 
Specifically, DOT must ensure that its financial management systems can 
clearly and reliably track recovery funds separately from other program 
funds, as required by OMB. This will be important as OMB's guidance 
requires agencies to submit regular reports, and the information to 
generate these reports will come largely from DOT's financial 
management systems.
    For example, OMB's final implementation guidance requires DOT to 
provide weekly Financial and Activity Reports that provide, by Treasury 
Account, total obligations and total outlays as recorded in agency 
financial systems on a cumulative basis. These reports will also 
provide a bulleted list of the major actions taken or planned. In 
addition, DOT will need to develop processes for meeting OMB 
requirements to report on the number of jobs created or preserved. Some 
ARRA information will be available publicly on the administration's Web 
site, www.recovery.gov,\10\ and therefore must meet DOT and OMB data 
quality requirements. These requirements underscore the need for DOT to 
adjust its financial management systems so that they provide reliable 
and complete management reports that DOT staff can use to effectively 
guide and oversee grantees.
---------------------------------------------------------------------------
    \10\ The administration created this Web site to provide 
information to the public on the planning and implementation of ARRA.
---------------------------------------------------------------------------
    In the past, DOT has experienced challenges in this area. For 
example, in September 2007 we testified that FHWA was unable to 
determine how much of the billions of dollars in Highway Bridge Program 
funding were actually spent on structurally deficient bridges, because 
its financial management system did not differentiate between spending 
on structurally deficient bridges and other bridge-related 
expenditures.\11\ In this case, the absence of sufficient management-
level information inhibited FHWA's ability to assess the impact of 
Federal dollars on bridge conditions. We are working on a follow-up 
audit to assess FHWA's bridge funding and oversight activities in 
greater detail.
---------------------------------------------------------------------------
    \11\ OIG Testimony Number CC-2007-095, ``Federal Highway 
Administration's Oversight of Structurally Deficient Bridges,'' 
September 5, 2007.
---------------------------------------------------------------------------
            Developing Comprehensive Plans and Sound Criteria for the 
                    New Discretionary Grant and Passenger Rail Programs 
                    Within Statutory Deadlines

    Creating and executing the new programs called for by ARRA presents 
a huge challenge for DOT. Meeting statutory deadlines will be difficult 
due to the number of tasks that must be completed in short timeframes, 
including quickly producing planning documentation and guidance. ARRA 
directs the Office of the Secretary of Transportation (OST) to publish 
criteria for its grant program within 90 days of ARRA enactment, accept 
applications for grants within 180 days after the criteria are 
published, and announce all projects selected within 1 year of ARRA 
enactment. Further, ARRA requires the Federal Railroad Administration 
(FRA) to produce a strategic plan for the passenger rail program within 
60 days of ARRA enactment and interim implementation guidance to 
applicants within 120 days.
    We have reviewed the strategic plan FRA released on April 16. We 
are cognizant that FRA had a limited timeframe in which to prepare the 
plan and believe the plan provides a meaningful, broad vision for the 
program and recognizes many of the risks inherent in implementing this 
program. However, the plan lacks detailed strategies for achieving its 
goals and performance measures to evaluate progress towards those 
goals. The interim performance guidance will provide an additional 
near-term opportunity for FRA to address these issues.
    To meet deadlines for the discretionary grant program, the 
Secretary established a working group within OST to develop criteria 
and determine the best administrative structure. OST also has an 
advisory task force comprised of staff from the Operating 
Administrations. According to DOT officials, a central issue for the 
task force is determining the most appropriate place to administer the 
grants--within OST or the Operating Administration that would normally 
be responsible for a particular type of project. For example, if OST 
delegates administrative responsibility for a bridge replacement 
project to FHWA, it would need to monitor how this delegation of 
authority is effectively achieving the established goals and 
requirements of ARRA.
    FRA also faces daunting challenges because it has not previously 
implemented a program like the large-scale, high-speed passenger rail 
program called for in ARRA. FRA has begun establishing specific plans 
for this program. These include determining how to allocate the funds 
among the eligible purposes \12\ and developing program guidance within 
the statutory timeframes. Because FRA is a small agency that had few 
grant programs before ARRA was passed, it is critical for FRA staff to 
leverage the in-house expertise throughout DOT and determine what 
additional resources it may need. To design and implement this program, 
FRA must, for example, establish sufficient controls to ensure that 
Federal investments do not simply supplant investments the freight 
railroads already planned to undertake on their rail lines.
---------------------------------------------------------------------------
    \12\ According to FRA, the $8 billion can be used for three 
programs: (1) high-speed corridor program, (2) intercity passenger rail 
service grants, and (3) congestion grants.
---------------------------------------------------------------------------
Combating Fraud, Waste, and Abuse
    DOT needs to tailor its counter-fraud efforts to adapt to the 
increase in capital funding associated with the recovery program and 
the expected surge in construction activity throughout the country. 
OMB's guidance for ARRA implementation directs Federal agencies to be 
aggressive in preventing fraud, waste, and abuse. This requires 
sustained action in two key areas, discussed below.

            Enhancing Understanding Among DOT Staff, Grantees, and 
                    Their Contractors on How To Recognize, Prevent, and 
                    Report Potential Fraud

    DOT must target its outreach efforts at deterring fraud schemes 
that we have seen with past DOT projects and must be avoided with 
projects receiving funding under ARRA. These include false claims for 
materials and labor, bribes related to contracts for materials or 
labor, and product substitution.\13\ An important way to deter fraud is 
for DOT staff and grantees to be aware of certain ``red flag'' 
indicators typically associated with fraud schemes. For example, a 
contractor regularly taking or labeling quality control samples away 
from inspector oversight or insisting on transporting these samples 
from the construction site to a lab might indicate quality control 
testing fraud.
---------------------------------------------------------------------------
    \13\ Our March 2009 report, which is attached to this statement, 
contains a list of common fraud schemes and fraud indicators.
---------------------------------------------------------------------------
    One significant case we were involved with illustrates this type of 
fraud. In this case, an Indiana contractor agreed to pay more than $8.2 
million to settle Federal and State claims alleging that a contractor 
fraudulently swapped samples of asphalt to inflate the amount paid on 
road projects by FHWA, the Commonwealth of Kentucky, and the State of 
Indiana. This joint investigation, conducted with FHWA and the U.S. 
Attorney's Office for the Western District of Kentucky, revealed that 
the contractor's employees fraudulently swapped ``good'' cores for 
``bad'' cores (i.e., cores with failing density).
    The best way to make individuals aware of fraud schemes and their 
indicators is to conduct systematic fraud prevention education. DOT and 
the Operating Administrations receiving ARRA funds will need to enhance 
their outreach efforts to ensure recipients of Federal grants and 
contracts--and their contractors--have meaningful ethics programs and 
sound internal controls to recognize, prevent, and report fraud.

            Taking Timely and Effective Action To Suspend or Debar 
                    Individuals and Firms That Have Defrauded the 
                    Department

    DOT will need to ensure timely and effective action is taken on 
suspension and debarment cases against those individuals or firms that 
have defrauded the Department. Federal regulations prohibit firms and 
individuals without satisfactory records of integrity and business 
ethics from receiving Federal contracts. Our work has shown that the 
Operating Administrations do not consistently take suspension and 
debarment actions in a timely manner, even though the DOT Order 
requires that such decisions be made within 45 days.\14\ Taking action 
to address these deficiencies is critical as DOT implements ARRA. We 
plan to issue the results of our ongoing audit in the near future as 
part of our effort to fast-track the release of information that is 
pertinent to the effective implementation of ARRA.
---------------------------------------------------------------------------
    \14\ DOT Order 4200.5D, ``Governmentwide Debarment, Suspension, and 
Ineligibility,'' June 7, 2005.
---------------------------------------------------------------------------
  THE OFFICE OF INSPECTOR GENERAL WILL CONTINUE TO EXAMINE AREAS THAT 
  PRESENT THE GREATEST RISKS AND PROMPTLY NOTIFY DOT AND CONGRESS OF 
  ACTIONS NEEDED TO MINIMIZE FRAUD, WASTE, AND ABUSE AND ACHIEVE ARRA 
                                 GOALS

    Our office supports DOT in its oversight initiatives, and we have 
developed a risk-based strategy in response to the new challenges 
presented by ARRA that will target the highest risk areas and emphasize 
timely reporting of results. To that end, we will evaluate DOT's 
management of the ARRA programs and its oversight of grantees and 
contractors receiving recovery funding. Our work is being coordinated 
with the Government Accountability Office to avoid duplication of 
effort and maximize accountability coverage. In addition, we have a 
number of ongoing audits--undertaken before passage of ARRA--that 
directly relate to the DOT programs that received additional funding in 
ARRA. We have also begun several actions to enhance our capacity to 
assist DOT in ensuring accountability; these include hiring new staff 
to handle our increased audit and investigations workload.

The Office of Inspector General is Using a Three-Phase Approach To 
        Emphasize High-Risk Areas and Promptly Report Results
    In anticipation of ARRA's passage, we initiated Phase 1 of our 
planned audit and investigative strategy. This phase involved a 
comprehensive review of prior reports and testimonies to identify major 
challenges facing DOT as it implements ARRA. We analyzed this work and 
reported our results last month. As part of this effort, we identified 
a number of ongoing audits and investigative activities that directly 
relate to the challenges facing DOT under ARRA. For the most part, ARRA 
provided an infusion of new money to existing DOT programs, such as 
FHWA's Surface Transportation Program, the Federal Transit 
Administration's (FTA) Urbanized Area Formula Grant and New Starts 
programs, and FAA's Airport Improvement Program. We were already 
conducting work on issues related to many of these programs before the 
passage of ARRA. Any actions that DOT takes to improve these programs 
based on our findings and recommendations may increase the likelihood 
that ARRA dollars will be spent efficiently and effectively.
    For example, our ongoing, follow-up audit of structurally deficient 
bridges indicates that while FHWA could account for the overall amount 
of Highway Bridge Program funding (in billions of dollars) apportioned 
to States for deficient bridges, its project-based accounting system 
lacks sufficiently detailed data. Therefore, the system could not 
evaluate whether the money was used to effectively improve the 
conditions of deficient bridges, as required by statute and FHWA 
policy. As a result, FHWA could not determine whether Highway Bridge 
Program funding improved the conditions of deficient bridges 
nationwide.
    We will place priority on issuing ARRA-related reports as quickly 
as we can within compliance of generally accepted Government auditing 
standards to provide timely information to DOT and Congress. To bolster 
this effort, we will also issue interim ARRA advisories to highlight 
key results of these audits that may warrant immediate attention by DOT 
agencies.

            Phase 2: Conducting Agency Scans To Identify 
                    Vulnerabilities in ARRA Implementation

    Currently, we are in Phase 2 of our strategy, which involves 
conducting structured surveys, or scans, of each DOT agency's 
implementation of ARRA. Our objective in these agency scans is to 
evaluate vulnerabilities that could impede DOT's ability to (1) provide 
effective oversight to ARRA-funded projects and (2) meet new 
requirements mandated by ARRA and OMB, including financial and job 
creation reporting.
    We will conduct a scan at each DOT office or Operating 
Administration that received funding in ARRA: FHWA, FRA, FTA, OST, FAA, 
and the Maritime Administration (MARAD). Table 2 below shows the 
agencies that received ARRA funds and the amount allotted to each 
agency. In addition, once DOT provides us with its plan for addressing 
the key challenges it faces under ARRA--in response to our March 2009 
recommendation--we will assess the actions taken or planned as part of 
our agency scans.
    Each scan will be conducted using a standardized methodology, 
including questions that probe what actions DOT has taken or planned to 
address the 10 focus areas we reported. As with our ongoing, ARRA-
related audits, we plan to expedite our reporting to ensure that DOT, 
Congress, and taxpayers have real-time information related to these 
scans. That is, if we identify any issues during the scans that warrant 
immediate attention, we will issue a series of ARRA advisories to 
highlight those issues. Earlier this week, we issued an announcement 
letter to formally initiate our Phase 2 work.

             TABLE 2.--DISTRIBUTION OF ARRA FUNDS WITHIN DOT
                          [Dollars in millions]
------------------------------------------------------------------------
                                                            Percent of
              DOT Component                 ARRA Funds       Total \1\
------------------------------------------------------------------------
FHWA....................................         $27,500           57.15
FRA.....................................           9,300           19.33
FTA.....................................           8,400           17.46
OST.....................................           1,500            3.12
FAA.....................................           1,300            2.70
MARAD...................................             100            0.21
OIG.....................................              20            0.04
                                         -------------------------------
      Total.............................          48,120         100.00
------------------------------------------------------------------------
\1\ Percentages do not add up exactly due to rounding.

Source: ARRA.

            Phase 3: Examining High-Risk Areas
    Phase 3 of our strategy involves using the results of our agency 
scans to identify areas that warrant additional work and reporting 
based on potential risks. We will use this information to develop a 
long-term plan outlining our ARRA audit and investigative initiatives. 
In addition to our near-term phased approach, we remain committed to 
protecting the Federal investment over the long term.

            Other Investigative Initiatives

    Our investigators have been proactive in their fraud deterrence 
efforts, recognizing that risks of fraud will increase as the recovery 
funds are poured into the economy in the coming months. To help 
mitigate these risks, we are:
  --Conducting fraud awareness and prevention activities to alert DOT 
        staff and grantees, including contractors, at all levels of 
        government so they know how to recognize, prevent, and report 
        suspected fraud. They must also know that fraudulent 
        misrepresentation for personal or corporate gain is 
        unacceptable under any circumstance. As part of this effort, 
        our special agents facilitated fraud, waste, and abuse 
        workshops for oversight officials within DOT's Operating 
        Administrations and State and local agencies receiving ARRA 
        funds, and we will continue these efforts. In addition, the 
        Secretary of Transportation and I hosted a web cast last month 
        for DOT staff that focused on how to prevent fraud, waste, and 
        abuse involving common fraud schemes.\15\
---------------------------------------------------------------------------
    \15\ This web cast can be viewed at: www.oig.dot.gov/recovery/.
---------------------------------------------------------------------------
  --Distributing materials such as hotline posters and ``red flag'' 
        fraud indicator cards to Federal, State, and local agencies to 
        support their oversight efforts.
    Our strategy also involves investigating allegations of fraud on 
DOT-funded projects. We will be vigilant in presenting cases to the 
Department of Justice (DOJ) for prosecution and participating in 
resulting prosecutions. We will also focus on ensuring that DOT's 
Operating Administrations and States take appropriate suspension and 
debarment actions. For example, we have already met with various DOJ 
personnel, including senior members of the National Procurement Fraud 
Task Force and the Antitrust Division in Washington, DC. We also met 
with Federal Bureau of Investigation fraud and public corruption agents 
to discuss how we can best leverage scarce investigative resources. 
Further, we are reaching out to our investigative counterparts at the 
State and local levels.

The Office of Inspector General is Taking Action To Best Position 
        Itself To Meet the Increased Workload Under ARRA
    ARRA also presented our office with resource challenges. Even 
before ARRA's passage, we were already a small Inspector General office 
in relation to DOT's large budget. Accordingly, we intend to make the 
most of the $20 million in additional funding that ARRA provided to our 
office. This additional funding will go a long way in ensuring that we 
have the staff, travel budget, information technology, and other 
resources that we need to help achieve new, ARRA-related goals.
    I can assure you that we are maximizing the new funding and program 
flexibilities we received in recent months. For instance, we are 
working aggressively to hire new auditors and investigators. Our fiscal 
year 2009 appropriation supports a base of approximately 414 full-time 
equivalents (FTE), and we employed 397 FTEs as of April 7, 2009. By 
this summer, we plan to have a new group of ARRA-focused auditors and 
investigators on board to supplement our existing staff. We plan to 
hire approximately 17 FTEs to reach our base and 37 new FTEs to perform 
recovery work.
    We have issued numerous vacancy announcements at all levels and 
have begun selecting qualified applicants. Further, the Office of 
Personnel Management gave us authority to utilize ``rehired 
annuitants'' to supplement our staff. The ability to expeditiously hire 
high-caliber staff is critical so we can deploy them to track the 
influx of ARRA funds and deal with the increased workload of hotline 
complaints that are likely to occur as ARRA projects begin 
construction.
    We are also conducting systematic outreach with congressional and 
other stakeholders, including staff of our authorization and 
appropriations committees in the House and Senate and major 
transportation associations. For example, earlier this month we met 
with various congressional staff directors and industry representatives 
to listen to their concerns about ARRA's implementation.
    Moreover, in response to the new challenges presented by ARRA, our 
office is updating its comprehensive strategic plan so that our ARRA 
audits and investigations are tied to an overarching strategy. This 
strategy will recognize the connection of ARRA to other key 
transportation issues and reflect the cross-cutting nature of DOT's 
strategic goals, such as reducing congestion and improving safety. To 
expedite this planning effort and target resources more effectively 
going forward, we convened a daylong session earlier this month with 
our Senior Executive Service staff and audit Program Directors.
    Finally, we are developing new reporting formats that will allow us 
to expeditiously issue the results of our work when we determine that 
action can be taken in a timely manner. We are also focused on 
presenting our ARRA work in a user-friendly, understandable manner to 
maximize the impact of our findings and recommendations.

                               CONCLUSION

    DOT will need sustained efforts to ensure that accountability, 
efficiency, and effectiveness are maintained in its portion of the 
recovery program. To that end, we acknowledge the TIGER team-led 
efforts that DOT has underway to successfully implement the ARRA 
program. We are focused on assisting DOT officials in their efforts by 
identifying vulnerabilities and making recommendations for program 
improvements. Further, we recognize the importance of collaboration 
across the accountability community, which is necessary to best protect 
taxpayer interests and promote achievement of ARRA's goals.
    It is important that we ensure accountability to help restore 
Americans' trust in Government and to maximize the return on the $48 
billion in transportation investments provided by the recovery program. 
ARRA presents a unique opportunity for DOT to make needed or neglected 
investments in the repair, rehabilitation, and modernization of the 
Nation's aging transportation infrastructure; to fund projects to 
reduce congestion; and to improve the overall safety of the 
transportation system. It is critical that we do everything possible to 
maximize this opportunity. We are committed to doing just that.
    That concludes my statement, Madam Chairman. Once again, I would 
like to thank the subcommittee for its tremendous support of our 
oversight efforts related to ARRA. I will be happy to answer any 
questions you or other members of the subcommittee may have.

MEMORANDUM--U.S. DEPARTMENT OF TRANSPORTATION, OFFICE OF THE SECRETARY 
             OF TRANSPORTATION, OFFICE OF INSPECTOR GENERAL

Subject: ACTION: American Recovery and Reinvestment Act of 2009: 
        Oversight Challenges Facing the Department of Transportation 
        Report Number MH-2009-046
From: Calvin L. Scovel III, Inspector General
To: All Secretarial Officers, Heads of All Operating Administrations

    On February 17, 2009, the President signed into law the American 
Recovery and Reinvestment Act (ARRA), which designated over $48 billion 
to the Department of Transportation (DOT).\1\ This audit report 
represents the second product in the Office of Inspector General's 
(OIG) review of DOT's implementation of ARRA.\2\ The objective of this 
audit was to highlight key DOT oversight challenges--based on prior OIG 
reports and other agencies' relevant audit work--and identify actions 
DOT should take now in support of ARRA requirements.
---------------------------------------------------------------------------
    \1\ Public Law 111-5, February 17, 2009.
    \2\ OIG Testimony CC-2009-045, ``Top Management Challenges Facing 
the Department of Transportation,'' March 10, 2009. OIG reports and 
testimonies are available on our Web site: www.oig.dot.gov.
---------------------------------------------------------------------------
    According to the Secretary of Transportation, ARRA represents ``the 
largest investment in America's roads, bridges, transit lines, and rail 
systems since the creation of the interstate highway system.'' Key 
provisions of ARRA are preserving and creating jobs, promoting economic 
recovery, and investing in transportation infrastructure that will 
provide long-term economic benefits. In addition to providing funding 
for a number of existing DOT programs, ARRA directs DOT to create 
several new programs and establishes tight timeframes for distributing 
and expending funds and for reporting results (for example, the number 
of jobs created).
    The vast majority of ARRA funding goes to the Federal Highway 
Administration (FHWA), the Federal Railroad Administration (FRA), and 
the Federal Transit Administration (FTA) for the construction and/or 
maintenance of highway, road, bridge, transit, and rail projects. The 
remaining ARRA funds are distributed among the Office of the Secretary 
of Transportation (OST), the Federal Aviation Administration (FAA), the 
Maritime Administration (MARAD), and OIG. Table 1 shows the 
distribution of ARRA funding within DOT.

             TABLE 1.--DISTRIBUTION OF ARRA FUNDS WITHIN DOT
                          [Dollars in millions]
------------------------------------------------------------------------
                                                            Percent of
              DOT Component               Stimulus Funds     Total \1\
------------------------------------------------------------------------
FHWA....................................         $27,500           57.15
FRA.....................................           9,300           19.33
FTA.....................................           8,400           17.46
OST.....................................           1,500            3.12
FAA.....................................           1,300            2.70
MARAD...................................             100            0.21
OIG.....................................              20            0.04
                                         -------------------------------
      Total.............................          48,120          100.00
------------------------------------------------------------------------
\1\ Percents do not add up due to rounding.

Source: ARRA.

    Both the President and Congress have emphasized the need for 
accountability, efficiency, and transparency in the allocation and 
expenditure of ARRA funds. Accordingly, the Office of Management and 
Budget (OMB) has called on Federal agencies to: (1) award and 
distribute funds in a prompt, fair, and reasonable manner; (2) ensure 
the recipients and uses of the funds are transparent to the public, and 
the resulting benefits are reported clearly, accurately, and promptly; 
(3) ensure funds are used for authorized purposes and to mitigate 
instances of fraud, waste, and abuse; (4) avoid unnecessary project 
delays and cost overruns; and (5) achieve specific program outcomes and 
improve results on economic indicators.\3\
---------------------------------------------------------------------------
    \3\ OMB ``Initial Implementing Guidance for the American Recovery 
and Reinvestment Act of 2009,'' February 18, 2009.
---------------------------------------------------------------------------
    To achieve these goals, DOT's leadership has been proactive on 
several fronts, including the establishment of the DOT-wide 
Transportation Investment Generating Economic Recovery (TIGER) team to 
coordinate the Department's role and ensure accountability. DOT's 
Operating Administrations are also working with senior Department 
officials in developing methods for tracking and reporting 
expenditures, job creation, and results; working with potential 
grantees to quickly identify and process proposals; and considering 
strategies for strengthening their existing oversight processes. OIG 
supports DOT in its oversight initiatives and has developed an audit 
strategy in response to the new challenges presented by ARRA.
    Exhibit A presents our scope and methodology. We discussed our work 
and recommendations with DOT representatives, including the TIGER team, 
and appreciate their courtesies and cooperation during this audit. 
Exhibit B is a list of the relevant reports and testimonies issued by 
OIG. Exhibit C provides additional information on the specific DOT 
programs that received funding in ARRA and the statutory deadlines for 
spending the money.

                RESULTS--OVERSIGHT CHALLENGES FACING DOT

    Based on our analysis of ongoing and prior audit work and 
observations of DOT's efforts to implement ARRA, we see three major 
oversight challenges facing DOT:
  --Ensuring that DOT's grantees properly spend ARRA funds;
  --Implementing new accountability requirements and programs mandated 
        by ARRA; and
  --Combating fraud, waste, and abuse.
    The challenges and 10 focus areas associated with them are shown in 
table 2.

     TABLE 2.--MAJOR ARRA CHALLENGES AND RELATED FOCUS AREAS FOR DOT
------------------------------------------------------------------------
                Challenges                           Focus Areas
------------------------------------------------------------------------
Ensuring that DOT's grantees properly       Acquire sufficient personnel
 spend ARRA funds.                           with relevant expertise to
                                             oversee grantees.
                                            Adhere to existing Federal
                                             requirements for programs
                                             funded under ARRA.
                                            Evaluate the credibility and
                                             completeness of cost and
                                             schedule estimates.
                                            Oversee grantees'
                                             contracting management
                                             activities and ensure
                                             selection of appropriate
                                             contract types.
                                            Address internal control
                                             weaknesses and identify
                                             unused funds for use
                                             elsewhere.
Implementing new accountability             Implement new ARRA tracking
 requirements and programs mandated by       and reporting requirements
 ARRA.                                       that are designed to
                                             promote accountability and
                                             transparency.
                                            Develop comprehensive plans
                                             and sound criteria for the
                                             new discretionary grant and
                                             passenger rail programs
                                             within statutory deadlines.
                                            Develop appropriate
                                             oversight strategies for
                                             the new discretionary grant
                                             and passenger rail
                                             programs.
Combating fraud, waste, and abuse.........  Enhance understanding among
                                             DOT staff, grantees, and
                                             their contractors on how to
                                             recognize, prevent, and
                                             report potential fraud to
                                             the appropriate
                                             authorities.
                                            Take timely and effective
                                             action to suspend and/or
                                             debar individuals or firms
                                             that have defrauded the
                                             Department so they do not
                                             receive Federal contracts
                                             in the future.
------------------------------------------------------------------------

         ENSURING THAT DOT'S GRANTEES PROPERLY SPEND ARRA FUNDS

    The large amounts of funding that DOT is responsible for under ARRA 
and the accelerated timeframes to use those funds will place great 
demands on DOT's workforce, oversight processes, business practices, 
and financial management systems. Accordingly, to meet these demands 
and provide effective oversight, DOT will need to:
  --Acquire sufficient personnel with relevant expertise to oversee 
        grantees;
  --Adhere to existing Federal requirements for programs funded under 
        ARRA;
  --Evaluate the credibility and completeness of cost and schedule 
        estimates;
  --Oversee grantees' contracting management activities and ensure 
        selection of appropriate contract types; and
  --Address internal control weaknesses and identify unused funds for 
        use on other eligible projects.

Acquire Sufficient Staff With Relevant Expertise
    DOT must ensure that it has sufficient personnel with relevant 
expertise to meet the increased workload, new requirements, and 
accelerated timeframes associated with recovery spending. A sufficient 
and trained workforce is key to holding grantees accountable for 
contract actions and realistic cost and schedule estimates, and 
ensuring that State or local recipients can effectively manage their 
projects and the risks associated with the recovery program.
    DOT officials expressed concerns about their ability to provide 
sufficient oversight with limited time and staff, particularly in 
regional and division offices, and noted actions under consideration. 
Some Operating Administrations are considering detailing staff from 
each of their Headquarters to their regional and division offices and 
rehiring retired Federal employees (often referred to as ``rehired 
annuitants'') on a temporary basis. DOT officials informed us that, 
earlier this month, the Office of Personnel Management granted DOT 
direct-hire authority and delegated to it dual compensation waiver 
authority. These hiring flexibilities should help enable DOT meet 
critical hiring needs. The key will be to utilize these flexibilities 
effectively to augment other staffing actions.
    These temporary efforts are laudable; but the difficult tasks will 
be to implement them promptly, evaluate their workability, and make any 
course corrections, as needed. Additional options may also merit 
consideration in addressing the increased workload. One is to use 
private consultants to supplement--but not substitute for--DOT staff, 
such as FTA's use of project management oversight contractors 
(PMOCs).\4\ As we previously reported, the PMOC approach can provide 
early warnings of cost, schedule, and quality problems, but does not 
preclude them. Follow-through by DOT staff is critical to the success 
of this approach. For example, on FTA's Lower Manhattan Recovery 
Projects (totaling $4.55 billion), the PMOCs identified key risks early 
on that were not sufficiently addressed, such as the insufficient 
management and technical capabilities exhibited by some grantees.\5\ 
These issues contributed to significant cost increases and schedule 
delays and an inability to stay within an overall Federal funding cap. 
In the past year, FTA has enhanced its oversight of these projects and 
is working with grantees to address issues the PMOCs identified.
---------------------------------------------------------------------------
    \4\ A project management oversight contractor is retained by FTA to 
evaluate a grantee's technical capacity to build, operate, and maintain 
a project and to monitor the grantee's implementation of a project. 
This is done is accordance with FTA guidance.
    \5\ OIG Report Number MH-2008-086, ``Baseline Report on the Lower 
Manhattan Recovery Projects,'' September 26, 2008.
---------------------------------------------------------------------------
    However, a key requirement for evaluating staffing shortfalls for 
ARRA work and other DOT demands is good information on DOT's workforce, 
including up-to-date plans. Our work has shown that more needs to be 
done in certain key areas. For example, DOT continues to face 
challenges in developing a comprehensive strategic plan for its entire 
acquisition workforce that oversees the direct award and administration 
of DOT contracts. DOT officials said they are having difficulty 
determining the total number of key acquisition workforce positions, 
such as contracting officer technical representatives and program 
managers. This is a result of the lack of critical information on these 
positions, including workforce size, knowledge and skills requirements, 
and attrition and retirement rates. Without such data, DOT is unable to 
identify employment trends and assess the current condition of the 
acquisition workforce, which are needed to determine the ideal 
composition, skill mix, and talent for its future.
    In February 2009, DOT officials compiled a succession plan for the 
acquisition workforce. It includes a competency assessment for the 
entire acquisition workforce, some retirement information, hiring 
plans, and training strategies for contracting positions. As the 
Operating Administrations design strategies to address weaknesses 
identified in the plan, they will need to consider the impact of ARRA 
on the acquisition workforce. We plan to evaluate the adequacy of DOT's 
workforce as part of our future audit work evaluating the effectiveness 
of the Department's oversight of ARRA projects.
Adhere to Existing Federal Requirements for Programs Funded Under ARRA
    DOT must avoid waiving or expediting existing requirements for the 
programs funded in ARRA and make sure that any required programmatic, 
financial, or engineering reviews are conducted in a rigorous and 
systematic manner. We have learned that when DOT's processes and 
procedures are short cut or bypassed, the potential for inefficient 
spending increases. Accordingly, DOT needs to carefully follow 
requirements in these areas by: (1) ensuring that planning requirements 
are met, including proper accounting for projects in a Statewide 
Transportation Improvement Program (STIP) and (2) following policies 
and procedures for the grant programs that received ARRA funding. These 
requirements exist to increase the likelihood that funds will be 
effectively planned and spent. As Secretary LaHood stated, DOT has 
committed to do things ``by the book'' by following established 
policies and procedures.

            Follow Project Planning Requirements
    The Federal Government has a number of key planning requirements, 
including reviews related to environmental, financial, and project 
management issues, which must be met before projects can receive 
Federal funding. DOT will need to ensure that any ARRA projects meet 
them, even though the Department will be under great pressure to get 
shovels in the ground. Particular attention must be focused on reviews 
of required STIPs for highway and transit projects, as well as Airport 
Improvement Program (AIP) grant applications for aviation projects.
    Review of STIPs for Highway and Transit Projects.--STIPs lay out 
how States intend to use taxpayers' money to meet their transportation 
needs, and they are to identify which projects will be funded and the 
cost and funding sources for those projects. DOT requires that STIPs be 
fiscally realistic and present truthful and credible information. 
Having a realistic STIP is critical for transportation and budget 
planning purposes.
    DOT must make sure that FHWA and FTA ARRA-funded projects are 
included in a STIP; and that they review each State's STIP for fiscal 
constraint and compliance with statutory requirements, particularly in 
light of the deteriorating budget situation that State and local 
governments are experiencing. Further, States must also ensure that the 
STIPs they submit to DOT have all the required assurances and 
certifications at the State level. Going forward, we will be assessing 
States' compliance with the STIP process as part of our planned audit 
work.
    AIP Grant Planning.--FAA must ensure that all ARRA-funded aviation 
construction projects go through its AIP planning and programming 
processes. By doing so, FAA and its airport sponsors will be assured 
that only shovel-ready, high-priority construction projects are 
approved for ARRA funding. FAA's processes include developing airport 
layout plans, assessing environmental impacts, completing preliminary 
designs, and determining project costs based on bids. Because these 
processes normally take several years to complete, FAA plans to fund 
only those projects that have already been through its grant review 
process and are ready to move to the construction phase. FAA must 
follow through on these plans and not circumvent any established AIP 
procedures as it evaluates AIP grant applications.

            Follow Grant Policies and Procedures
    Once projects are approved, DOT's Operating Administrations must 
ensure adherence to existing oversight requirements related to the 
grant programs receiving ARRA funds, including FHWA's Surface 
Transportation Program, FTA's Urbanized Area Formula Program, and FAA's 
AIP. Failure to follow existing Federal requirements could result in 
inefficient expenditure of scarce tax payer dollars.
    FAA's experience in awarding airport grants in the aftermath of 
Hurricanes Katrina and Rita is an example of what can happen when speed 
trumps sound business practices. FAA expedited the award of 10 airport 
grants totaling $40.5 million under AIP, without completing steps in 
its grant award process. After bypassing controls to prevent duplicate 
payments and basing grant awards on bids rather than estimates, FAA 
issued grants for work that was later determined to be unneeded. 
Ultimately, FAA withdrew 7 of the 10 grants until oversight was 
improved and bids for hurricane-related projects were obtained.\6\ 
Having learned important lessons through these hurricane relief 
efforts, FAA officials told us they intend to follow all AIP grant 
policies and procedures during implementation of ARRA. Additionally, 
FAA issued new ARRA grant guidance this month. In our discussions with 
FHWA and FTA, they also assured us they will not undermine any 
established policies and procedures in the rush to approve ARRA-funded 
projects.
---------------------------------------------------------------------------
    \6\ OIG Report Number AV-2007-014, ``Oversight of Airport 
Improvement Program Hurricane Grants,'' December 13, 2006.
---------------------------------------------------------------------------
Evaluate the Credibility and Completeness of Cost and Schedule 
        Estimates
    DOT must target its oversight efforts at ensuring that cost and 
schedule estimates are examined and deemed credible and complete, 
particularly the risks posed by larger and more complicated projects. 
Cost estimates that are too high could lead to excess and idle funds, 
while estimates that are too low could force grantees to find other 
sources of funding to cover overruns. Having realistic estimates and 
staying on-time and on-budget are even more critical now, considering 
the tight fiscal environment in which State and local governments are 
operating.
    Our prior audit work points to the need for an early and more 
rigorous evaluation of cost and schedule estimates for ARRA projects. 
We have seen projects where earlier and more rigorous evaluation of 
estimates would have been beneficial. For example, in 2008, after 
assessing cost estimates for the Dulles Corridor Metrorail Project,\7\ 
two independent consultants for FTA determined that the project sponsor 
underestimated the impact of schedule delays. These delays, in turn, 
increased the overall cost estimate for this project to almost $3 
billion--doubling an earlier estimate. Earlier scrutiny of the impact 
of schedule delays on cost estimates might have helped FTA avoid this 
situation and provide decisionmakers with more realistic information up 
front.
---------------------------------------------------------------------------
    \7\ OIG Report Number MH-2007-060, ``Baseline Report on Major 
Project Monitoring of the Dulles Corridor Metrorail Project,'' July 27, 
2007.
---------------------------------------------------------------------------
Oversee Grantees' Contracting Management Activities
    To manage its portion of the economic recovery program, DOT and its 
grantees must ensure that effective contracting and financial practices 
are in place to make sound decisions under the tight timeframes and 
quick roll out of the program. Actions needed are: (1) specifying 
contract requirements early, maximizing competition, and using 
appropriate contract types and (2) preventing unallowable costs, 
improper payments, and excessive overhead charges during contract 
execution.
    The magnitude and the accelerated pace for spending ARRA dollars 
could exacerbate contract award problems we previously identified, such 
as use of inappropriate contract types, inadequate competition, and 
failure to ensure contract prices are fair and reasonable. Audits of 
DOT and State contracts used to respond to the Hurricane Katrina 
emergency found instances in which DOT money was spent inefficiently 
because grantees used risky contracting methods in spending Federal 
funds, such as sole-sourced contracts, which resulted in significantly 
higher costs.\8\ For example, we found a State department of 
transportation awarded two sole-sourced contracts without assurance of 
fair and reasonable prices, which resulted in the State paying about 
$1.7 million more than necessary for bridge repairs.
---------------------------------------------------------------------------
    \8\ OIG Report Number MH-2006-065, ``Audit of the Mississippi 
Department of Transportation's Award of Selected Hurricane Katrina 
Emergency Repair Contracts,'' September 6, 2006.
---------------------------------------------------------------------------
    DOT is taking steps to avoid a repeat of the problems it 
experienced in response to Hurricane Katrina. For example, it is 
stepping up its oversight of ARRA funding through outreach to grantees 
and posting frequently asked questions on the Web sites of DOT's 
Operating Administrations; and it has implemented a ``help desk'' e-
mail site. Further, DOT's Office of the Senior Procurement Executive 
(OSPE) revised its Financial Assistance Guidance Manual in March 2009 
to reflect the increased demands posed by ARRA. The manual sets a 
standardized process for grant processing and management. It will be 
important to widely disseminate this information down to the local 
grantee level, particularly to those grantees that have little or no 
experience in managing Federal dollars.

Address Internal Control Weaknesses and Identify Unused Funds for Use 
        on Other Eligible Projects
    DOT needs to identify and mitigate any internal control \9\ 
weaknesses to be assured that ARRA funding is spent in an efficient and 
effective manner, and in accordance with Federal laws and regulations. 
OMB is requiring agencies to immediately assess risk and develop 
mitigation strategies to prevent internal control weaknesses in areas 
such as ensuring the prompt award and expenditure of ARRA dollars and 
minimizing improper payments. Our prior audit work shows that DOT has 
experienced problems in some of these areas. To comply with OMB's 
requirements and provide effective oversight of ARRA funding, DOT must: 
ensure that its risk mitigation plans address internal control 
weaknesses and actions to prevent them from recurring; identify unused 
funds promptly and take timely action to free them up for use on other 
projects; and detect and prevent improper payments.
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    \9\ Internal controls provide reasonable assurance of the 
effectiveness and efficiency of an agency's use of financial resources, 
the reliability of financial reporting, and compliance with applicable 
laws and regulations.
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            Develop Risk Mitigation Plans That Address Internal Control 
                    Weaknesses

    DOT and its Operating Administrations need to work with their 
grantees to correct internal control weaknesses that auditors have 
identified during DOT's financial statement audits and Single Audit Act 
reviews.\10\ It is critical that DOT use the OMB-required risk 
assessment process as a way to identify strategies to prevent similar 
issues with ARRA funds. Taking action to prevent internal control 
lapses is particularly important for FHWA, which received more than 
half of DOT's total funding allocation under ARRA. DOT's Single Audit 
Act reviews related to FHWA grantees identified internal control 
weaknesses and instances of noncompliance with grant requirements at 
State DOTs across the country. For example, in the past year and a 
half, auditors issued qualified opinions on eight State DOTs' 
administration of Federal-aid grants because of problems identified 
during the Single Audit Act reviews.
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    \10\ The Single Audit Act requires State or local grantees to 
maintain a system of internal control over all Federal programs in 
order to demonstrate compliance with pertinent laws and regulations. 
Single Audit Act reviews are conducted to determine whether grantees 
are complying with these requirements.
---------------------------------------------------------------------------
    DOT has been identifying internal control risks and developing a 
consistent risk management tool to ensure the successful implementation 
of ARRA. For example, FHWA Headquarters recently issued a memorandum 
directing its 52 Division Offices to implement a risk management 
program to identify primary risks in successfully implementing ARRA. 
First, FHWA directed its Division Offices to assess risks, prioritize 
them, and report the assessments to Headquarters. Second, the 
memorandum directed Division Offices to develop a risk management plan 
that involves ``visual monitoring'' of items, such as State financial 
transactions and consultant procurement and administration, enhanced 
financial oversight of States, and communications and outreach to 
assist States in mitigating risks. These are good first steps, but FHWA 
needs to make sure these efforts are conducted consistently and 
effectively across its 52 Division Offices, which are located in every 
State, the District of Columbia, and Puerto Rico.
    Providing consistent oversight across field locations has presented 
a challenge in the past, particularly at FHWA. Our prior audit work 
indicates that FHWA had not always ensured consistency in oversight 
activities among its Division Offices. For example, our 2009 report on 
FHWA's oversight of the National Bridge Inspection Program showed that 
bridge engineers in the 10 States we reviewed did not perform 
Headquarters-recommended risk assessments of bridge conditions in a 
consistent or systematic manner.\11\ This inhibited FHWA's ability to 
assess bridge-related risks nationwide, prioritize them, and target 
those higher priority risks for remediation in coordination with 
States.
---------------------------------------------------------------------------
    \11\ OIG Report Number MH-2009-013, ``National Bridge Inspection 
Program: Assessment of FHWA's Implementation of Data-Driven, Risk-Based 
Oversight,'' January 12, 2009.
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            Identify Unused Funds Promptly
    To maximize the impact of ARRA funds on the economy, DOT must 
improve its controls for identifying unused funds in its financial 
management systems and taking appropriate action to release them on 
completed, canceled, and reduced-scope projects. Without sufficient 
controls, it is possible for unused funds to remain idle for long 
periods of time. This could prevent other worthy projects from 
receiving Federal funds and potentially undermine ARRA's ability to 
stimulate the U.S. economy by spurring construction activity across the 
country.
    In particular, DOT needs to ensure that it is addressing control 
weaknesses we have identified in the past regarding unused funds. For 
example, FHWA implemented the Financial Integrity Review and Evaluation 
(FIRE) in fiscal year 2005 to improve oversight of Federal highway 
funds, including its ability to identify idle funds that could be freed 
up for use elsewhere. FIRE has improved FHWA's stewardship of Federal 
funds, but problems related to idle funds persist. This is evidenced by 
the fact that, in fiscal year 2008, auditors again found idle funds at 
FHWA estimated at about $300 million. Similarly, we found that in 2007 
FAA allowed numerous AIP grants to remain inactive and obligations to 
remain on closed grants, both for excessive periods of time.\12\ These 
examples indicate that further management attention is needed to make 
sure that DOT's controls are effective at identifying unused funds that 
could be freed up for use on other eligible projects.
---------------------------------------------------------------------------
    \12\ OIG Report Number AV-2007-073, ``FAA's Oversight of Inactive 
Airport Improvement Program Grant Obligations,'' September 13, 2007.
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            Detect and Prevent Improper Payments
    In its guidance on implementing ARRA, OMB emphasized the need for 
Federal agencies, including DOT, to prevent improper payments. Improper 
payments are those made to an ineligible recipient or for an ineligible 
service, duplicate payments, and payments for services not received. 
Avoiding improper payments presents a challenge to DOT.
    For example, during our review of controls over DOT's contract for 
Hurricane Katrina emergency disaster relief transportation, we found 
that an FAA contracting officer routinely authorized invoices for 
payment without any documentation from the contractor showing that the 
services had actually been provided.\13\ In one instance, this lack of 
controls resulted in a $33 million overpayment to the contractor for 
emergency bus transportation services and chartered aircraft services, 
which was later recovered.
---------------------------------------------------------------------------
    \13\ OIG Report Number AV-2006-032, ``Report on Internal Controls 
Over the Emergency Disaster Relief Services Contract,'' January 20, 
2006.
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    At FHWA, we have identified oversight weaknesses that led to 
improper payments, which must be avoided in the ARRA program. For 
example, in a recent audit of deficiencies in FHWA's oversight of 
design and engineering (D&E) firms' indirect costs claimed on Federal-
aid grants, we reported that Federal funds were used to reimburse 
unallowable costs totaling nearly $16 million.\14\ This occurred in 
part due to ineffective oversight by FHWA, State departments of 
transportation, and the certified public accounting firms hired by the 
D&E firms.
---------------------------------------------------------------------------
    \14\ OIG Report Number ZA-2009-033, ``Oversight of Design and 
Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants,'' 
February 5, 2009.
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 IMPLEMENTING NEW ACCOUNTABILITY REQUIREMENTS AND PROGRAMS MANDATED BY 
                                  ARRA

    In addition to increasing the funding levels of existing programs, 
ARRA placed additional challenges on DOT by (1) mandating several new 
reporting requirements that are designed to enhance accountability and 
transparency and (2) creating two new large programs that provide for 
$1.5 billion in supplementary discretionary grants to improve the 
Nation's transportation infrastructure and $8 billion in grants for 
high-speed rail corridors and intercity passenger rail service.\15\ To 
meet these new demands, DOT will need to:
---------------------------------------------------------------------------
    \15\ ARRA stipulates that the discretionary grant program can be 
used for a variety of projects, including highway, bridge, public 
transportation, passenger and freight rail, or port infrastructure 
projects.
---------------------------------------------------------------------------
  --Implement new ARRA tracking and reporting requirements that are 
        designed to promote accountability and transparency;
  --Develop comprehensive plans and sound criteria for the new 
        discretionary grant and passenger rail programs created by 
        ARRA; and
  --Develop appropriate oversight strategies for the new programs 
        created by ARRA by drawing lessons learned from DOT's Operating 
        Administrations.

Implement New Tracking and Reporting Requirements Designed To Promote 
        Accountability and Transparency
    To meet ARRA requirements, DOT must ensure that its financial 
management systems are able to track ARRA spending and produce reliable 
information to report on results in a meaningful way. These new 
requirements are spelled out in OMB's February 2009 implementation 
guidance. To carry out these requirements, DOT must ensure that its 
financial management systems are able to clearly and reliably track 
recovery funds separately from other program funds. Beginning in 
February 2009, OMB directed DOT and other agencies to distinguish ARRA 
funds from non-ARRA funds in all agency financial systems, business 
systems, and reporting systems. Further, OMB's guidance requires 
agencies to submit regular reports and the information to generate 
these reports will come largely from DOT's financial management 
systems. We met with officials in DOT's Operating Administrations to 
discuss these issues and they informed us they have been working to 
modify their financial management systems to meet the new ARRA-related 
requirements. The key will be following through with these plans and 
making any needed adjustments to DOT's financial management systems as 
ARRA is implemented.
    DOT will need to stay focused on ensuring that its financial 
management systems are programmed to enable officials to meet ARRA 
requirements related to the tracking of funds. It will also need to 
report on the impact of the ARRA investment promptly (such as the 
number of jobs created) and provide meaningful information in these 
required reports. For example, beginning on May 8, 2009, current OMB 
guidance would require DOT to provide monthly financial reports citing 
obligations, expenditures, and other financial data by Treasury 
Account, vendor, and award number, and information on allocations of 
mandatory and entitlement programs by State or other appropriate 
geographical unit.
    DOT also needs to aggressively enforce the new reporting 
requirements and ensure that grantees are reporting accurate and 
complete information. Further, DOT would face an even greater challenge 
if OMB decides to expand current contractor reporting requirements, 
which is under consideration.
    Obtaining accurate information from DOT grantees has been an issue 
in the safety arena. For example, we previously reported on 
inaccuracies in FRA's national grade crossing inventory database \16\ 
and significant weaknesses in the data reported by States and motor 
carriers to the Motor Carrier Safety Status Measurement System.\17\ 
Some ARRA information will be available publicly on www.recovery.gov 
\18\ and, therefore, must meet DOT and OMB data quality requirements. 
This underscores the need to make sure DOT's financial systems are 
reporting reliable and complete information. Actions taken in the past 
to promote complete State reporting of data in the safety arena have 
included public disclosure of States with reporting problems by means 
of a data quality map, and individual State reviews to assess data 
quality issues.\19\
---------------------------------------------------------------------------
    \16\ OIG Report Number MH-2004-065, ``Audit of the Highway Rail-
Grade Crossing Safety Program,'' June 16, 2004.
    \17\ OIG Report Number MH-2004-034, ``Improvements Needed in the 
Motor Carrier Safety Status Measurement System,'' February 13, 2004.
    \18\ The administration created a Web site, www.recovery.gov, to 
provide information to the public on the planning and implementation of 
ARRA.
    \19\ OIG Correspondence Control No. 2006-041, Correspondence to 
Representative Petri Regarding SafeStat Data Quality, May 7, 2007.
---------------------------------------------------------------------------
    Our prior audit work highlights the need for DOT to focus attention 
on meeting the new tracking and reporting requirements. In the past, 
DOT has not always been able to use its financial management systems to 
ensure accountability for Federal dollars or report on results. For 
example, in the wake of the 2007 collapse of the I-35W bridge in 
Minnesota, we testified that FHWA must improve accountability by 
enhancing its ability to track States' use of Highway Bridge Program 
funding.\20\ FHWA was unable to determine how much of this funding was 
actually spent on structurally deficient bridges, because its financial 
management system did not differentiate between spending on 
structurally deficient bridges and other bridge-related expenditures. 
This inhibited FHWA's ability to assess the impact of Federal dollars 
on bridge conditions.
---------------------------------------------------------------------------
    \20\ OIG Testimony CC-2007-095, ``Federal Highway Administration's 
Oversight of Structurally Deficient Bridges,'' September 5, 2007.
---------------------------------------------------------------------------
Develop Comprehensive Plans and Sound Criteria for OST's Discretionary 
        Grant Program and FRA's Passenger Rail Program
    To design these new programs, DOT will need to accomplish a variety 
of tasks in a short time. First, it must develop a comprehensive plan 
for each program, including goals and objectives, to ensure that the 
capital improvements are integrated into a national system. Second, it 
must develop criteria and a transparent process for selecting projects 
within the timeframes Congress specified. Third, it must issue clear 
guidance for program implementation.
    DOT is planning for these programs, but meeting statutory deadlines 
will be difficult due to the number of tasks that must be completed in 
short timeframes. Although DOT does not face the same deadlines for 
spending the money that ARRA mandated for existing programs, it is 
still required to quickly produce planning documentation and guidance. 
ARRA directs OST to publish criteria for its grant program within 90 
days of ARRA enactment, accept applications for grants within 180 days 
after the criteria are published, and announce all projects selected 
within 1 year of ARRA enactment. Further, ARRA requires FRA to produce 
a strategic plan for the passenger rail program within 60 days of ARRA 
enactment and interim implementation guidance to applicants within 120 
days.

            OST's New Discretionary Grant Program
    To meet these deadlines, the Secretary established a working group 
within OST to develop criteria for the discretionary grant program and 
determine the best administrative structure. OST also has a task force 
providing advice, consisting of staff from the Operating 
Administrations. According to DOT officials, a central issue for the 
group is determining the most appropriate place to administer the 
grants--within OST or the Operating Administration that would normally 
be responsible for a particular type of project. For example, OST could 
delegate administrative responsibility for a bridge replacement project 
to FHWA. If the Secretary decides to delegate authority over projects 
to the Operating Administrations, the Department would need to decide 
how this delegation of authority would work within the established 
goals and requirements of ARRA.

            FRA's New Passenger Rail Program
    DOT has not previously implemented the large-scale high-speed 
passenger rail program called for in the ARRA. It lacks recent 
experience overseeing the design and construction of a new high-speed 
rail system--in particular a new, stand-alone high-speed rail system. 
FRA has allocated staff to plan the high-speed rail and intercity rail 
service program, determine how to allocate the funds among the three 
eligible purposes,\21\ and develop program guidance within the 
statutory timeframes. Because FRA is a small agency that had few grant 
programs before ARRA was passed, it is critical for FRA staff to 
leverage the in-house expertise throughout DOT and determine what 
additional resources it may need. According to FRA officials, they have 
consulted with other Operating Administrations for advice and are 
considering a variety of options to overcome staffing shortfalls and 
insufficient expertise, such as borrowing staff from FTA or FHWA and 
hiring consultants.
---------------------------------------------------------------------------
    \21\ According to FRA, the $8 billion can be used for three 
programs: (1) high-speed corridor program, (2) intercity passenger rail 
service grants, and (3) congestion grants.
---------------------------------------------------------------------------
    To design and implement this program, FRA will need to develop 
strategies to address several tough issues prior to implementation. 
Those key issues include:
  --Ensuring that grantees obtain enforceable and meaningful capital 
        investment agreements with private freight railroads so that 
        users of intercity passenger rail receive benefits from these 
        investments.
  --Establishing sufficient controls to be assured that Federal 
        investments do not simply supplant investments the freight 
        railroads already planned to undertake on their rail lines.
  --Integrating the capital improvements and associated service 
        enhancements into a national intercity rail system that is tied 
        to an overall strategic plan.
  --Acquiring the financial and economic modeling expertise needed to 
        evaluate a project's financing plans and revenue and ridership 
        projections. This is important because most grantees will 
        likely finance their projects through a mix of self-generated 
        revenues (such as through the farebox), and Federal, State, and 
        private investments. Equally important is conducting 
        appropriate analysis of the viability of a high-speed rail 
        project's long-term operating plan to ensure adequate resources 
        are identified up-front that would allow these systems to 
        continue operating over the long run.

Develop Appropriate Oversight Strategies for New Programs by Drawing 
        Lessons From DOT's Operating Administrations
    Not all of the challenges facing FRA and OST are unique. Like the 
other DOT Operating Administrations receiving ARRA funds, they will 
need to eventually focus on deploying sufficient staff to implement 
these new programs and provide oversight to construction projects to 
ensure they are properly managed by grantees. However, the oversight 
challenges facing FRA and OST are exacerbated by the fact that they 
have limited experience managing large grant programs.
    Because both FRA and OST have some time before projects will be 
under construction, they need to use this period to evaluate the 
experiences of other Operating Administrations for lessons learned on 
what has worked well in the past. Then, they will need to decide what 
type and level of oversight to provide to projects. For example, FRA 
and OST could use a data-driven, risk-based approach to target their 
oversight efforts at projects that pose the highest risk due to certain 
factors, such as those projects with the largest dollar amounts 
committed or grantees with less experience in managing Federal grants. 
Along these lines, FHWA is implementing a data-driven, risk-based 
approach to overseeing the National Bridge Inspection Program, based on 
our recommendations.
    Similarly, FRA and OST could learn from FTA's experience in 
standing up its Lower Manhattan Recovery Projects program. FTA created 
a separate Recovery Office to oversee the $4.55 billion Federal 
investment.\22\ This office included reassigned FTA staff and 
consultants to help provide oversight and advice on engineering, 
financial, environmental, security, and other issues. An approach like 
this could enable FRA and OST to quickly implement their new programs.
---------------------------------------------------------------------------
    \22\ OIG Testimony C-2006-056, ``Lower Manhattan Reconstruction 
Lessons Learned from Large Transportation Projects,'' July 13, 2006.
---------------------------------------------------------------------------
                   COMBATING FRAUD, WASTE, AND ABUSE

    DOT needs to tailor its counter-fraud efforts to adapt to the 
increase in capital funding associated with the recovery program and 
the expected surge in construction activity throughout the country. 
OMB's ARRA implementation guidance directs Federal agencies to be 
aggressive in preventing fraud, waste, and abuse. Accordingly, DOT will 
need to:
  --Enhance understanding among DOT staff, grantees, and their 
        contractors on how to detect, prevent, and report potential 
        fraud; and
  --Take timely and effective action to suspend and/or debar 
        individuals or firms that have defrauded DOT so they do not 
        receive future Federal contracts.

Enhance Understanding Among DOT Staff, Grantees, and Their Contractors 
        on How To Detect, Prevent, and Report Potential Fraud
    DOT must target its outreach efforts at deterring fraud schemes 
that have occurred on past DOT projects and could occur on projects 
that receive funding under the recovery program. They include false 
claims for materials and labor, bribes related to contracts for 
materials or labor, product substitution, and disadvantaged business 
enterprises fraud. Table 3 on the next page presents a list of common 
fraud schemes that must be prevented under ARRA. DOT will need to make 
sure that State and local grantees, and their contractors, understand 
how to detect, deter, and report these types of transportation-related 
fraud to the appropriate authorities.
    An important way to deter fraud is for DOT staff and grantees to be 
aware of certain ``red flag'' indicators typically associated with 
fraud schemes. For example, any mismarking or mislabeling on products 
and materials might indicate product substitution fraud. The best way 
to make individuals aware of these indicators is to conduct systematic 
fraud prevention education in the field. A description of fraud 
indicators is presented in exhibit D.

       TABLE 3.--COMMON FRAUD SCHEMES FOUND ON DOT-FUNDED PROJECTS
------------------------------------------------------------------------
                  Fraud Scheme                          Description
------------------------------------------------------------------------
Bid Rigging and Collusion.......................  Contractors
                                                   misrepresent that
                                                   they are competing
                                                   against each other
                                                   when they actually
                                                   agree to cooperate on
                                                   the winning bid to
                                                   increase job profit.
Materials Overcharging..........................  A contractor
                                                   misrepresents how
                                                   much construction
                                                   material was used on
                                                   a job and is paid for
                                                   excess material to
                                                   increase job profit.
Time Overcharging...............................  A consultant
                                                   misrepresents the
                                                   distribution of
                                                   employee labor to
                                                   charge for more work
                                                   hours, or a higher
                                                   overhead rate to
                                                   increase profit.
Product Substitution............................  A contractor
                                                   misrepresents the
                                                   product used in order
                                                   to reduce costs for
                                                   construction
                                                   materials.
Disadvantaged Business Enterprises Fraud........  A contractor
                                                   misrepresents who
                                                   performed the work in
                                                   order to appear to be
                                                   in compliance with
                                                   contract goals for
                                                   involvement of
                                                   minority/women-owned
                                                   businesses.
Quality-Control Testing Fraud...................  A contractor
                                                   misrepresents the
                                                   results of quality
                                                   control tests to earn
                                                   contract incentives
                                                   falsely or to avoid
                                                   production shutdown
                                                   in order to increase
                                                   profits or limit
                                                   costs.
Bribery.........................................  A contractor
                                                   compensates a
                                                   government official
                                                   in order to obtain
                                                   contracts or permit
                                                   overcharges.
Kickbacks.......................................  A contractor or
                                                   subcontractor
                                                   misrepresents the
                                                   cost of performing
                                                   work by secretly
                                                   paying a fee for
                                                   being awarded the
                                                   contract and,
                                                   therefore, inflating
                                                   the cost to the
                                                   government.
Conflicts of Interest...........................  A contracting or
                                                   oversight official
                                                   has an undisclosed
                                                   financial interest in
                                                   a contractor or
                                                   consultant, resulting
                                                   in improper contract
                                                   award or inflated
                                                   costs.
------------------------------------------------------------------------
Source: DOT OIG.

    DOT has taken action to strengthen its fraud awareness and outreach 
efforts to more aggressively combat fraud, but continued vigilance and 
follow-through at all levels of the Department are needed to be assured 
that ARRA dollars are spent appropriately. DOT is taking action on 
fraud prevention in two key areas. First, DOT and the Operating 
Administrations receiving ARRA funds will need to increase outreach 
efforts to recipients of Federal grants and contracts to ensure they 
have meaningful ethics programs and sound internal controls to 
recognize, prevent, and report fraud. OIG has been working 
constructively with DOT officials to assist them in their counter-fraud 
outreach efforts. For example, earlier this month, the Secretary of 
Transportation and the Inspector General hosted a web cast to DOT staff 
that focused on how to prevent fraud, waste, and abuse involving common 
fraud schemes. Our special agents have also been and will continue 
providing fraud awareness briefings to DOT staff and grantees at the 
State and local levels throughout the Nation.
    Second, DOT must continue to follow through to fully implement its 
ethics program. Last year, we reported that DOT needed to develop and 
maintain a robust ethics program to promote integrity across 
transportation programs. In response, in June 2008, the Department 
instituted an enhanced annual ethics training program for all 
acquisition and grants management personnel Department-wide. The 
implementation of ARRA underscores the need to follow through and fully 
implement this important annual training requirement.

Take Timely and Effective Action To Suspend and/or Debar Individuals or 
        Firms That Have Defrauded DOT so They do not Receive Future 
        Federal Contracts
    DOT will need to ensure timely and effective action is taken on 
suspension and debarment cases against those individuals or firms that 
have defrauded the Department. Federal regulations prohibit firms and 
individuals without satisfactory records of integrity and business 
ethics from receiving Federal contracts or assistance agreements. DOT 
revised its policy in June 2005, in part, to improve timely 
decisionmaking of suspension and debarment actions. However, our 
ongoing work shows that the Department needs to improve the policy--and 
its implementation--to provide for more timely processing and reporting 
of suspension and debarment actions.
    Our work has shown that the Operating Administrations do not 
consistently take suspension and debarment actions in a timely manner, 
even though the DOT order requires such decisions be made within 45 
days. Taking action to address these deficiencies is critical as DOT 
embarks on the implementation of ARRA. For example, over half of the 45 
actions we reviewed (56 percent) were not processed within the required 
45 days. For 19 of these actions, the Operating Administrations took 
from 10 days to more than 2\1/2\ years longer than the 45-day standard 
to render final decisions. The remaining six debarment actions we 
reviewed are still awaiting a decision from the debarring officials, 
which currently takes between 165 and 945 days.
    Further, in February 2009, the Government Accountability Office 
(GAO) testified that it had confirmed allegations that businesses and 
individuals suspended or debarred for egregious offenses were 
continuing to receive Federal contracts.\23\ Our work did not find any 
DOT contracts or assistance agreements awarded to suspended or debarred 
firms or individuals. However, deficiencies in DOT's suspension and 
debarment policy and implementation leave DOT, as well as other Federal 
agencies, vulnerable to doing business with fraudulent or unethical 
firms or individuals. This risk will increase significantly under the 
recovery program.
---------------------------------------------------------------------------
    \23\ GAO Testimony GAO-09-419T, ``Excluded Parties List System: 
Suspended and Debarred Businesses and Individuals Improperly Receive 
Federal Funds,'' February 26, 2009.
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                    CONCLUSIONS AND RECOMMENDATIONS

    The significant increase in funding for transportation projects 
associated with ARRA adds new challenges on top of the longstanding 
ones we have highlighted in past reports to the Secretary of 
Transportation and Congress. At the same time, ARRA presents an 
opportunity for DOT to make needed or neglected investments in the 
repair, rehabilitation, and modernization of our aging transportation 
infrastructure; to fund projects to reduce congestion; and to improve 
the safety of our Nation's transportation system.
    We recognize the TIGER team-led efforts that the Department has 
underway to successfully implement the ARRA program. To assist in these 
efforts, our report condensed the challenges into 10 areas where DOT 
must exhibit sustained and effective actions and oversight. To that 
end, our future audit work will use a risk-based strategy, carried out 
in coordination with the Government Accountability Office, to evaluate 
DOT's management of the ARRA programs and its oversight over grantees 
and contractors receiving recovery funding.
    To ensure sufficient consideration of the potential risks discussed 
in this report, we recommend that the Secretary of Transportation, 
through the DOT TIGER team, develop an oversight implementation plan 
that outlines the key actions DOT already has underway or will take to:
  --Acquire sufficient personnel with relevant expertise to oversee 
        grantees;
  --Adhere to existing Federal requirements for programs funded under 
        ARRA;
  --Evaluate the credibility and completeness of cost and schedule 
        estimates;
  --Oversee grantees' contracting management activities and ensure 
        selection of appropriate contract types;
  --Address internal control weaknesses and identify unused funds for 
        use on other eligible projects;
  --Implement new ARRA tracking and reporting requirements that are 
        designed to promote accountability and transparency;
  --Develop comprehensive plans and sound criteria for the new 
        discretionary grant and passenger rail programs created by 
        ARRA;
  --Develop appropriate oversight strategies for the new programs 
        created by ARRA by drawing lessons from DOT's Operating 
        Administrations;
  --Enhance understanding among DOT staff, grantees, and their 
        contractors on how to recognize, prevent, and report potential 
        fraud; and
  --Take timely and effective action to suspend and/or debar 
        individuals or firms that have defrauded the Department so they 
        do not receive Federal contracts in the future.
    In addition, the plan should prioritize the greatest risks for DOT 
and address open OIG recommendations from prior audit reports that have 
relevance to the implementation of ARRA.

        AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE

    We provided a draft of this report to DOT for review and comment on 
March 18, 2009. DOT provided us its formal comments on March 26, 2009, 
which we incorporated into this report, as appropriate. DOT's complete 
comments are included as the appendix to this report. DOT also provided 
informal technical clarifications, which we incorporated into this 
report, as appropriate. In its formal comments, DOT agreed that 
vigilant oversight of ARRA funding is critical to the successful 
implementation of ARRA and described some of the efforts it has 
underway, including the work of the DOT TIGER team. We have included 
highlights of DOT's key efforts in our report and recognize the ongoing 
commitment and actions of the Department's leadership to ensuring the 
efficient and effective use of ARRA funds. DOT also concurred with our 
recommendation and agreed to provide us with a document outlining 
actions taken and planned to address our 10 focus areas.

                            ACTIONS REQUIRED

    We consider DOT's planned actions to be reasonable. However, in 
accordance with Department of Transportation Order 8000.1C, we request 
that DOT provide us with the plan called for in our recommendation 
within 30 days of the date of this report.
    If you have any questions, please call me at (202) 366-1959, or Ann 
Calvaresi-Barr, Principal Assistant Inspector General for Auditing and 
Evaluation at (202) 366-1427.

                   EXHIBIT A.--SCOPE AND METHODOLOGY

    The objective of this audit was to highlight key ARRA oversight 
challenges--based on prior OIG reports and other agencies' relevant 
audit work--and identify actions DOT should take now in support of ARRA 
requirements. To address our audit objective, we conducted a 
comprehensive review of our prior work on relevant surface 
transportation and aviation oversight issues, including: work on major 
highway and transit projects, Hurricanes Katrina and Rita recovery 
projects, and AIP grant oversight projects. We also reviewed the 
relevant work of other organizations that have reported on 
transportation-related oversight issues, including GAO.
    Specifically, we:
  --Reviewed the existing body of OIG, GAO, and others' work (for 
        example, Single Audits) to identify past challenges that are 
        likely to apply to projects funded under ARRA.
  --Held discussions with OST, FHWA, FRA, FTA, FAA, and MARAD 
        officials; DOT's TIGER Team; and representatives of surface 
        transportation groups and an aviation constituency group to 
        identify what they believe are the oversight challenges to the 
        economic stimulus projects and obtain information on DOT's 
        preliminary efforts to prepare for the implementation of ARRA.
  --Identified and analyzed internal DOT Operating Administration 
        reports to identify challenges previously known within DOT.
  --Coordinated with OIG's investigative offices to identify other work 
        that was relevant to oversight challenges facing DOT.
    We conducted this performance audit from January through March 2009 
in accordance with Generally Accepted Government Auditing Standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives.

            EXHIBIT B.--RELEVANT OIG REPORTS AND TESTIMONIES

    OIG Testimony Number CC-2009-045, ``Top Management Challenges 
Facing the Department of Transportation,'' March 10, 2009.
    OIG Report Number ZA-2009-033, ``Oversight of Design and 
Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants,'' 
February 5, 2009.
    OIG Report Number MH-2009-013, ``National Bridge Inspection 
Program: Assessment of FHWA's Implementation of Data-Driven, Risk-Based 
Oversight,'' January 12, 2009.
    OIG Report Number AV-2009-012, ``FAA's Management and Maintenance 
of Air Traffic Control Facilities,'' December 15, 2008.
    OIG Report Number PT-2009-005, ``Fiscal Year 2009 Top Management 
Challenges,'' November 17, 2008.
    OIG Report Number MH-2008-086, ``Baseline Report on the Lower 
Manhattan Recovery Projects,'' September 26, 2008.
    OIG Report Number AV-2008-002, ``Prioritization of Airport 
Improvement Program Funding,'' October 26, 2007.
    OIG Report Number CR-2007-079, ``Growth in Highway Construction and 
Maintenance Costs,'' September 26, 2007.
    OIG Report Number AV-2007-073, ``FAA's Oversight of Inactive 
Airport Improvement Program Grant Obligations,'' September 13, 2007.
    OIG Report Number AV-2007-066, ``Review of Congressional Earmarks 
Within Department of Transportation Programs,'' September 7, 2007.
    OIG Testimony Number CC-2007-095, ``Federal Highway 
Administration's Oversight of Structurally Deficient Bridges,'' 
September 5, 2007.
    OIG Report Number MH-2007-060, ``Baseline Report on Major Project 
Monitoring of the Dulles Corridor Metrorail Project,'' July 27, 2007.
    OIG Report Number AV-2007-014, ``Oversight of Airport Improvement 
Program Hurricane Grants,'' December 13, 2006.
    OIG Report Number MH-2006-065, ``Audit of the Mississippi 
Department of Transportation's Award of Selected Hurricane Katrina 
Emergency Repair Contracts,'' September 6, 2006.
    OIG Testimony Number CC-2006-056, Before the Committee on Homeland 
Security Subcommittee on Management, Integration, and Oversight, U.S. 
House of Representatives, ``Lower Manhattan Reconstruction: Lessons 
Learned from Large Transportation Projects,'' July 13, 2006.
    OIG Report Number AV-2006-051, ``Internal Controls over Payments 
for Emergency Disaster Relief Transportation Services,'' June 30, 2006.
    OIG Report Number AV-2006-032, ``Internal Controls over the 
Emergency Disaster Relief Transportation Services Contract,'' January 
20, 2006.
    OIG Report Number FI-2006-011, ``Inactive Obligations,'' November 
14, 2005.
    OIG Report Number AV-2005-062, ``Safety Oversight of an Air Carrier 
Industry in Transition,'' June 3, 2005.
    OIG Report Number MH-2005-046, ``FHWA Needs to Capture Basic 
Aggregate Cost and Schedule Data to Improve Its Oversight of Federal-
Aid Funds,'' February 15, 2005.
    OIG Report Number FI-2005-044, ``FAA Inactive Obligations,'' 
January 31, 2005.
    OIG Report Number MH-2005-012, ``Managing Risk in the Federal-Aid 
Highway Program,'' November 19, 2004.
    OIG Report Number MH-2004-098, ``Audit of the Tren Urbano Rail 
Transit Project,'' September 29, 2004.
    OIG Report Number AV-2004-094, ``FAA's Administration and Oversight 
of Regionally Issued Contracts,'' September 28, 2004.
    OIG Report Number IN-2003-003, ``Audit of the Springfield 
Interchange Project,'' November 22, 2002.
    OIG Report Number FI-2002-092, ``Oversight of Cost-Reimbursable 
Contracts,'' May 8, 2002.

       EXHIBIT C.--ARRA ALLOCATION AND EXPENDITURE DEADLINES AND 
                      REDISTRIBUTION REQUIREMENTS

----------------------------------------------------------------------------------------------------------------
                                                                         Available
               Funding Type                           Amount              Through             Deadlines
----------------------------------------------------------------------------------------------------------------
FAA Infrastructure.......................  $200 million...............    9/30/2010  N/A.
FAA Airport Improvement Program..........  $1.1 billion...............    9/30/2010  50 percent of total to be
                                                                                      awarded within 120 days of
                                                                                      enactment.
                                                                                     100 percent of total within
                                                                                      1 year of enactment.
FHWA Infrastructure......................  $27.5 billion..............    9/30/2010  50 percent of total to be
                                                                                      obligated within 120 days
                                                                                      from the apportionment or
                                                                                      forfeit the unobligated
                                                                                      portion of that 50 percent
                                                                                      to redistribution process.
                                                                                     100 percent of remainder
                                                                                      within 1 year from the
                                                                                      apportionment or forfeit
                                                                                      100 percent of unobligated
                                                                                      funds to redistribution
                                                                                      process.
FRA Rail.................................  $8 billion.................    9/30/2012  N/A.
FRA Amtrak...............................  $1.3 billion...............    9/30/2010  N/A.
FTA Transit Capital Assistance...........  $6.9 billion...............    9/30/2010  50 percent of total to be
                                                                                      obligated within 180 days
                                                                                      from the apportionment or
                                                                                      forfeit the unobligated
                                                                                      portion of that 50 percent
                                                                                      to redistribution process.
                                                                                     100 percent of remainder
                                                                                      within 1 year from the
                                                                                      apportionment or forfeit
                                                                                      100 percent of unobligated
                                                                                      funds to redistribution
                                                                                      process.
FTA Transit Capital Investment Grants....  $750 million...............    9/30/2010  Priority for projects
                                                                                      currently in construction
                                                                                      or projects that can
                                                                                      obligate funds within 150
                                                                                      days of enactment of Act.
FTA Fixed Guideway Infrastructure          $750 million...............    9/30/2010  50 percent of total to be
 Investment.                                                                          obligated within 180 days
                                                                                      from the apportionment or
                                                                                      forfeit the unobligated
                                                                                      portion of that 50 percent
                                                                                      to redistribution process.
                                                                                     100 percent of remainder
                                                                                      within 1 year from the
                                                                                      apportionment or forfeit
                                                                                      100 percent of unobligated
                                                                                      funds to redistribution
                                                                                      process.
MARAD....................................  $100 million...............    9/30/2010  100 percent of total to be
                                                                                      obligated within 180 days
                                                                                      of the date of
                                                                                      distribution.
OST Discretionary........................  $1.5 billion...............    9/30/2011  N/A.
OIG......................................  $20 million................    9/30/2013  N/A.
----------------------------------------------------------------------------------------------------------------

EXHIBIT D.--``RED FLAG'' INDICATORS FOR COMMON FRAUD SCHEMES AND HOW TO 
                         REPORT SUSPECTED FRAUD

    The following are brief descriptions of selected fraud schemes 
commonly seen on transportation projects, along with sample ``Red 
Flag'' indicators for each scheme. It is important to note that the 
presence of one or more indicators does not prove fraud, nor are the 
indicators shown all inclusive for each of the schemes described.
Bid Rigging and Collusion
    In bid rigging and collusion schemes, contractors misrepresent the 
competition against each other when, in fact, they agree to cooperate 
on the winning bid to increase job profit. Watch for:
  --Unusual bid patterns: too close, too high, rounded numbers, or 
        identical winning margins or percentages.
  --Different contractors making identical errors in contract bids.
  --Bid prices dropping when a new bidder enters the competition.
  --Rotation of winning bidders by job, type of work, or geographic 
        area.
  --Losing bidders hired as subcontractors.
  --Apparent connections between bidders: common addresses, personnel, 
        or phone numbers.
  --Losing bidders submitting identical line item bid amounts on 
        nonstandard items.

Materials Overcharging
    In materials overcharging schemes, a contractor misrepresents how 
much construction material was used on the job and is then paid for 
excess material to increase job profit. Watch for:
  --Discrepancies between contractor-provided quantity documentation 
        and observed data, including yield calculations.
  --Refusal or inability to provide supporting documentation.
  --Contractor consistently loading job materials into equipment away 
        from inspector oversight.
  --Truck weight tickets or plant production records with altered or 
        missing information.
  --Photocopies of quantity documentation where originals are expected.
  --Irregularities in color or content of weight slips or other 
        contractor documents used to calculate pay quantities.

Time Overcharging
    In a time overcharging scheme, a consultant misrepresents the 
distribution of employee labor on jobs in order to charge for more work 
hours or a higher overhead rate, to increase profit. Watch for:
  --Unauthorized alterations to time cards and other source records.
  --Billed hours and dollars consistently at or near budgeted amounts.
  --Time cards filled out by supervisors, not by employees.
  --Photocopies of timecards where originals are expected.
  --Inconsistencies between a consultant's labor distribution records 
        and employee timecards.

Product Substitution
    In product substitution schemes, a contractor misrepresents the 
product used in order to reduce costs for construction materials. Watch 
for:
  --Any mismarking or mislabeling of products and materials.
  --Contractor restricting or avoiding inspection of goods or service 
        upon delivery.
  --Contractor refusing to provide supporting documentation regarding 
        production or manufacturing.
  --Photocopies of necessary certification, delivery, and production 
        records where originals are expected.
  --Irregularities in signatures, dates, or quantities on delivery 
        documents.
  --High rate of rejections, returns, or failures.
  --Test records reflect no failures or a high failure rate but 
        contract is on time and profitable.
  --Unsigned certifications.

Disadvantaged Business Enterprises (DBE) Fraud
    In disadvantaged business enterprises schemes, a contractor 
misrepresents who performed contract work in order to appear to be in 
compliance with contract goals for involvement of minority or women-
owned businesses. Watch for:
  --Minority owner lacking background, expertise, or equipment to 
        perform subcontract work.
  --Employees shuttling back and forth between prime contractor and 
        minority-owned business payrolls.
  --Business names on equipment and vehicles covered with paint or 
        magnetic signs.
  --Orders and payment for necessary supplies made by individuals not 
        employed by minority-owned business.
  --Prime contractor facilitated purchase of minority-owned business.
  --Minority-owned business owner never present at job site.
  --Prime contractor always uses the same minority-owned business.

Quality-Control Testing Fraud
    In quality-control testing schemes, a contractor misrepresents the 
results of quality control (QC) tests to falsely earn contract 
incentives or to avoid production shutdown in order to increase profits 
or limit costs. Watch for:
  --Contractor employees regularly taking or labeling QC samples away 
        from inspector oversight.
  --Contractor insisting on transporting QC samples from the 
        construction site to the lab.
  --Contractor not maintaining QC samples for later quality assurance 
        (QA) testing.
  --Contractor challenging results, or attempting to intimidate QA 
        inspectors who obtain conflicting results.
  --Photocopies of QC test results where originals are expected.
  --Alterations or missing signatures on QC test results.

Bribery
    In bribery schemes, a contractor compensates a Government official 
to obtain a contract or permit contract overcharges. Watch for:
  --Other Government inspectors at the job site noticing a pattern of 
        preferential contractor treatment.
  --Government official having a lifestyle exceeding his/her salary.
  --Contract change orders lacking sufficient justification.
  --Oversight officials socializing with or having business 
        relationships with contractors or their families.

Kickbacks
    In kickback schemes, a contractor or subcontractor misrepresents 
the cost of performing work by secretly paying a fee for being awarded 
the contract and therefore inflating job costs to the Government. Watch 
for:
  --Unexplained or unreasonable limitations on the number of potential 
        subcontractors contracted for bid or offer.
  --Continuing awards to subcontractors with poor performance records.
  --Non-award of subcontract to lowest bidder.
  --``No-value-added'' technical specifications that dictate contract 
        awards to particular companies.

Conflicts of Interest
    In conflict of interest schemes, a contracting or oversight 
official has an undisclosed financial interest in a contractor or 
consultant, resulting in improper contract award or inflated costs. 

Watch for:
  --Unexplained or unusual favoritism shown to a particular contractor 
        or consultant.
  --Government official disclosing confidential bid information to a 
        contractor or assisting the contractor in preparing the bid.
  --Employee having discussions about employment with a current or 
        prospective contractor or consultant.
  --Close socialization with and acceptance of inappropriate gifts, 
        travel, or entertainment from a contractor.
  --Vendor or consultant address is incomplete or matching employee's 
        address.
  --Government official leasing or renting equipment to a contractor 
        for performing contract work.

Reporting Concerns About Fraud, Waste, or Abuse
    OIG maintains a Hotline to report allegations of fraud, waste, and 
abuse in DOT programs or operations. Allegations may be reported by DOT 
employees, contractors, or the public. The OIG Hotline is available 24 
hours a day, 7 days a week. Individuals who contact the Hotline, via 
telephone or letter, are not required to identify themselves. However, 
persons who report allegations are encouraged to identify themselves in 
the event additional questions arise as the OIG evaluates or pursues 
their allegations.
    Report suspicions and allegations of fraud, waste, and abuse to OIG 
by using one of the following methods:
  --Online complaint form: www.oig.dot.gov/hotlineform.jsp
  --Telephone: (800) 424-9071
  --Fax: (540) 373-2090
  --E-mail: [email protected]
  --Mail: DOT Inspector General, P.O. Box 708, Fredericksburg, VA 
        22404-0708

                     APPENDIX--MANAGEMENT COMMENTS

MEMORANDUM TO: Calvin L. Scovel, III, Inspector General; Joel Szabat, 
        Deputy Assistant Secretary for Transportation Policy
FROM: Lana Hurdle, Acting Assistant Secretary for Budget and Programs; 
        Linda J. Washington Assistant Secretary for Administration
SUBJECT: Departmental Comments on Office of Inspector General (OIG) 
        Draft Report, ``American Recovery and Reinvestment Act of 2009: 
        Oversight Challenges Facing the Department of Transportation''

    The Department of Transportation is committed to performing an 
outstanding job implementing the President's initiative to enhance 
economic growth through the American Recovery and Reinvestment Act 
(ARRA). This commitment to excellence started well in advance of the 
act being signed into law. In January, the Department assembled a 
leadership team to provide oversight and serve as a conduit for 
coordinated and consistent intermodal implementation of the act. Under 
the auspices of this overall Transportation Investment Generating 
Economic Recovery (TIGER) Team, the leadership created a dynamic forum 
for exchanging information and provided guidance for consistent action 
throughout the Department. The benefits of the Department's fast 
response in anticipation of ARRA are already becoming apparent. For 
example, these efforts positioned DOT to rapidly obtain direct hire and 
rehired annuitant authority from OPM. Further, a DOT risk management 
tool was developed early to strengthen internal DOT controls and the 
tool was subsequently adopted verbatim by OMB for Government-wide 
application. In addition, the TIGER Team is using leading edge, web-
based interactive technology to enable expedited information sharing 
and data tracking. For example, it developed a web-based interactive 
master planning document that tracks progress and assigns 
responsibility for each of the Department's major actions. We also 
created a web-based capability for tracking action and responsibility 
on recommendations made by the OIG and the Government Accountability 
Office (GAO) pertaining to ARRA implementation.
    In addition to the overall perspective provided by the TIGER Team, 
it also created the capabilities to provide detailed guidance and 
leadership in key areas affecting ARRA implementation. Individual 
stewardship groups were established to gather expertise from across the 
Department to address common issues and identify coordinated and 
appropriate actions. These groups provide leadership in the areas of 
financial stewardship, data collection, procurement, and grant 
management, job measurement, information technology and communication. 
Finally, an Accountability Stewardship group has been established with 
the participation of TIGER leadership, the OIG and GAO. The purpose of 
this group is to achieve the type of transparency envisioned by ARRA, 
and provide an efficient forum for sharing information between 
management and the audit entities.
    We appreciate the information provided in the OIG's draft report 
and will provide detailed information to the OIG on actions taken and 
planned in each of the 10 emphasis areas identified in the report. We 
intend to provide this information within 30 days of the final report's 
issuance. Finally, please note that we shared with your staff, a 
separate listing of technical and specific comments from throughout DOT 
to correct errors in your report and for your consideration in 
finalizing the report. Please contact Martin Gertel at (202) 366-5145 
with any questions or if you require further information.

    Senator Murray. Thank you very much for that.
    What is your biggest concern regarding the Department's 
implementation of the Recovery Act?
    Mr. Scovel. Our scan that we have underway, phase two of 
our risk-based strategy will identify across every mode the 
extent to which 10 individual focus areas, previously 
identified, are being addressed in each mode. Frankly, that 
doesn't concern me too, too much.
    Our audit plan will subject every mode to what amounts to a 
full-body scan. We are putting them under an MRI to see the 
extent to which these focus areas' potential problems are 
present in all the modes. We will know within about 90 days, 
and we will be reporting to you and the Secretary.
    What does keep me awake at night--and frankly, it is 
unknowable--is the extent to which fraud and waste will 
infiltrate the program. The commonly used figure of 7 percent 
lost to fraud would mean the equivalent of 1.5 Wilson Bridges 
right down the Potomac, and that is far too important a sum and 
far too much potential infrastructure to be lost. Our 
investigators will be doing everything they can to stem that.
    Senator Murray. Have you given any specific recommendations 
to the Department about how to deal with that?
    Mr. Scovel. Yes, we have. And our specific recommendations 
so far include our very proactive approach to briefing 
throughout the Department, to State and local officials, and to 
contractors at all levels.
    I would like to give great credit to Secretary LaHood. He 
has been very supportive in this effort, and he and I cohosted 
a web cast that was broadcast throughout the Department back in 
March. He has committed himself and the entire Department to 
doing it by the book. And I am, frankly, very encouraged by 
that because it speaks to his commitment to both program 
integrity and to the fraud prevention effort.
    Senator Murray. Okay. We would like you to keep this 
subcommittee fully aware of any potential problems that you see 
out there.
    Mr. Scovel. We certainly will.
    Senator Murray. Okay. And I understand that a number of 
inspectors general from across the Federal Government are 
meeting and communicating regularly about their experiences as 
well with the Recovery Act. Are you participating in that 
network?
    Mr. Scovel. Madam Chairman, yes, I am. I am a statutory 
member of the Recovery Accountability and Transparency Board, 
headed by Earl Devaney, a former IG.
    In addition, I was asked to co-chair a special working 
group composed of all 28 IGs whose agencies are receiving 
recovery funding. The idea is to communicate best practices, 
coordinate efforts, and reach out to State and local officials 
so that we can coordinate with them on how to best protect 
taxpayer dollars.
    Senator Murray. Any lessons learned from your participation 
in that?
    Mr. Scovel. We are just starting. On the RAT Board, we are 
focusing on the transparency element, the recovery.gov piece. 
The accountability program emphasis will be satisfied by this 
special working group that I am co-chairing along with a member 
of Mr. Devaney's staff, Jack Higgins, a distinguished former IG 
in his own right.
    Senator Murray. Okay, very good.
    Well, as I said, there is a full supplemental 
Appropriations Committee hearing that most of our members, 
including myself, need to be at. So we will have to cut it 
short at this point.

                     ADDITIONAL COMMITTEE QUESTIONS

    I do have some questions I would like to submit for answers 
in writing. I know other subcommittee members do as well. But I 
really appreciate your staying on top of this and staying with 
us.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

                 Questions Submitted to Hon. Ray LaHood
              Questions Submitted by Senator Patty Murray

                   IMPLEMENTATION OF THE RECOVERY ACT

    Question. At the end of March, the Inspector General issued a 
report on the challenges that your Department faces in implementing the 
Recovery Act.
    As I mentioned in my opening statement, one of the challenges that 
the Inspector General identified in his report is that the Department 
must be able to take timely action in suspending or debarring people 
who have defrauded the Department from receiving any more Federal 
contracts. I believe that the Department must address this issue if it 
wants to avoid the kind of waste, fraud, and abuse that undermines the 
public's confidence.
    What response have you given the Inspector General on how the 
Department will combat the waste, fraud and abuse of Recovery funds?
    Answer. In response to your inquiry, I have attached the Deputy 
Secretary of Transportation's May 19, 2009, response to the Inspector 
General concerning our actions to improve the suspension and debarment 
program across the Department and thereby combat potential waste, 
fraud, and abuse of Recovery Act funds.

        OVERSIGHT OF THE FORMULA GRANTS FOR HIGHWAYS AND TRANSIT

    Question. The Department has distributed over $34 billion in 
formula grants provided through the Recovery Act for highway and public 
transportation investments. As I discussed in my opening statement, 
these formula grants present a unique challenge to DOT. The Department 
will have to oversee the use of these funds in addition to the regular 
highway and transit formula grants. It must track the two different 
kinds of formula grants separately, and fulfill special reporting 
requirements on the use of Recovery funds.
    How will the Department target its resources so that it can oversee 
the use of Recovery funds at the same time that it must run the regular 
formula grants programs?
    Answer. Both FHWA and FTA have staffing plans to ensure sufficient 
workforce resources are available to oversee both regular formula 
grants and ARRA formula grants. Existing oversight procedures have been 
replicated to address ARRA activities but with more robust features to 
accommodate the added scrutiny expected for Recovery Act programs, such 
as stewardship agreements with States, risk management assessments and 
mitigation plans, and cooperation with the Department's Inspector 
General to review suspension/debarment referrals. Applying unique 
Treasury Account Fund Symbols and specific ARRA codes for all reporting 
will help ensure that the funds and resultant program implementation 
elements are tracked appropriately using existing systems that have 
been appropriately modified to accommodate ARRA reporting requirements 
in addition to regular reporting requirements. Further, recipients have 
been issued clear ARRA-specific reporting forms and corresponding 
guidance, such as instructions not to mix program funds in a single 
grant. Staff are aware of the challenges and, although systems, 
guidance and other preventative measures have been put in place to 
avoid discrepancies, these staff will also actively work to monitor and 
validate reporting under both regular and ARRA reporting deadlines.

              PROJECTS BEING BUILT WITH RECOVERY ACT FUNDS

    Question. Under the regular highway program, States may spend some 
of their traditional highway funds on transit projects. For the funds 
provided in the Recovery Act, we expanded this feature of the highway 
program to include port and railroad investments. Ports and railroads 
are an essential part of the Nation's transportation system, and this 
provision provides States with another option for investing in 
transportation without imposing any new requirements on them.
    To date, however, the vast majority of highway Recovery funds have 
been obligated for traditional highway projects, and a good portion of 
these projects are for resurfacing.
    As States have more time to develop their highway grant 
applications, do you believe that they will invest in some more complex 
projects or do you believe they will continue to invest heavily in road 
resurfacing?
    Answer. Since the States are also in the process of obligating 
their regular Federal-aid highway funds, looking at the Recovery Act 
projects alone does not provide a complete picture. The emphasis on 
quickly obligating the first half of the Recovery Act funds to get the 
fastest economic impact necessitated States' using their Recovery Act 
funds for projects that were ready for immediate obligation. These 
would have been projects, including complex projects, already at the 
end of the project development pipeline and those that could be 
advanced through the pipeline quickly. Of course, many of those that 
can be advanced quickly are resurfacing projects. We are also seeing 
investment in technology, such as intelligent transportation systems, 
that often takes second place behind necessary road preservation 
projects. States continue to add projects to their lists for Recovery 
Act funding and only time will tell which projects they will advance 
with the Recovery Act funds.

                      GRANTS FOR ENERGY EFFICIENCY

    Question. Public transportation is an important way to reduce the 
impact of daily transportation on the environment. Even so, transit 
agencies themselves can make improvements in reducing their own impact 
on the environment.
    Working with Senator Dodd, we included $100 million for a 
competitive program for transit agencies to make capital investments 
that will reduce their energy use and greenhouse gas emissions.
    Mr. Secretary, what level of interest are you getting in this 
program?
    Answer. We have experienced a significant level of interest in the 
TIGGER program. We are about halfway through cataloguing and databasing 
all of submissions received by the May 22, 2009 deadline, and if 
current trends continue, we will have reviewed approximately 240 
proposals containing over 400 individual projects, whose combined total 
approximates $1.6 billion in funding requests. Given that only $100 
million was appropriated under ARRA, we do not expect to be able to 
fund every meritorious project.
    Question. Do you believe Congress should do even more in 
reauthorization in terms of pushing Federal assistance for highways and 
transit to promote clean fuels?
    Answer. Based on the number of applications we expect, I think I 
can say there is already a strong interest among America's transit 
agencies for additional funding for worthwhile projects that reduce 
energy usage and greenhouse gas emissions. I think it's premature to 
assess the effectiveness or impact of the TIGGER program at this stage, 
but this is something I'm willing to address with you and your 
colleagues as we work on developing the next surface transportation 
authorization bill.
                                 ______
                                 
            Questions Submitted by Senator Dianne Feinstein

    Question. Secretary LaHood, at the hearing, I asked you what you 
saw as the shortcomings of the California plan for high speed rail. You 
assured me that California was far ahead of other High Speed Rail 
Corridors in the United States and that you had no doubt that 
California would be at the top of the list of projects funded. However, 
you stated that there were some ``little things'' that would improve 
California's proposal.
    Please identify specifically the items that concern you about the 
California High Speed Rail Authority's plan to develop high speed rail.
    Answer. California's high-speed rail plan is very ambitious and 
will take a decade to complete. Phase 1 of the California system is 
estimated to cost approximately $35 billion and stretches from San 
Francisco to Los Angeles and Anaheim. Our High-Speed Intercity 
Passenger Rail program as funded with $8 billion from the Recovery Act 
represents a down payment on the long-term vision to bring high speed 
rail to this country. Even this significant investment is enough only 
to make a contribution toward a section of the phase 1 for the 
California high-speed rail system and we expect to receive other 
applications as well. It will be important for California to identify 
achievable goals in its application that meet the requirements for the 
use of recovery funds.
    Question. It is my understanding that high speed rail systems 
operating in other parts of the world would all fail to comply with 
current FRA regulations, making it impossible for American high speed 
rail to adopt some systems that have proven safe in other parts of the 
world.
    What progress is being made to update and adapt Federal regulations 
so that high speed rail systems proven from around the world may be 
used in the United States?
    Answer. FRA's safety regulations for railroad passenger equipment 
have grown out of an operating environment in which passenger trains 
generally operate commingled with heavier freight trains and over 
highway-rail grade crossings used by heavier highway vehicles than in 
Europe or Asia. As a result, passenger equipment built for operation in 
those continents would likely not be designed in the same way and would 
not meet FRA's safety standards. Nevertheless, there are procedures 
currently in place to request FRA approval to allow the safe use of 
such equipment in the United States, and FRA is engaged in discussions 
and reviews of several draft proposals for California alone: the 
California High-Speed Train Project, Caltrain's next generation 
equipment, and DesertXpress.
    Looking forward, FRA has been considering ways to amend our 
regulations to facilitate the introduction of high speed rail systems 
with proven safety records elsewhere in the world. A comprehensive 
review is ongoing of international crashworthiness standards as well as 
the differences in the operating environments for which those standards 
are based. In certain countries, the risk associated with high speed 
transport is addressed using complimentary measures for risk reduction, 
including collision avoidance and post-accident mitigation, together 
with crashworthiness requirements. Gaps in crashworthiness performance 
are mitigated by efforts to reduce the exposure to harm, such as by 
implementing advanced train control systems, separating freight from 
passenger operations, and maintaining sealed corridors without any 
highway-rail grade crossings.
    FRA will continue its close examination of international approaches 
to high speed rail safety for their application to the United States, 
and will continue to work with the industry, States, and other 
stakeholders to develop appropriate strategies for the safe 
introduction in the United States of high speed rail systems operating 
elsewhere in the world.
                                 ______
                                 
              Question Submitted by Senator Susan Collins

    Question. The American Recovery and Reinvestment Act was an 
important step forward in efforts to rehabilitate and improve our 
Nation's transportation infrastructure system, but there is more that 
can be done.
    Maine has struggled for years with the Federal truck weight limit. 
Under current law, trucks weighing 100,000 pounds are allowed to travel 
on Interstate 95 from the border of Maine with New Hampshire, to 
Augusta, Maine. At that point, trucks weighing more than 80,000 pounds 
are forced off Interstate 95, which proceeds north to Houlton, a 
distance of more than 200 miles. As a result, heavy trucks are forced 
onto smaller, secondary roads that pass through our cities, towns, and 
villages, creating safety concerns.
    Raising the Federal truck weight limit for Maine to 100,000 pounds 
would keep heavy trucks on the interstates, which are designed to carry 
more weight than the rural roads. This change is widely supported by 
public officials throughout Maine, including the Governor, Maine 
Department of Transportation, the Maine Secretary of State, and the 
Maine State Police.
    Trucks weighing up to 100,000 pounds are permitted on interstate 
highways in New Hampshire, Massachusetts, and New York as well as the 
Canadian provinces of New Brunswick and Quebec. The weight limit 
disparity on various segments of Maine's Interstate Highway System is a 
significant impediment to commerce, increases wear-and-tear on our 
secondary roads, and puts our people needlessly at risk. Will the 
Department of Transportation work with the State of Maine in its 
efforts to secure an exemption from the 80,000 pound Federal truck 
weight limit, similar to the limit in New Hampshire and other States?
    Answer. The Federal Government has a sizable investment in the 
Interstate System, and Congress balanced many parameters, including 
commerce, safety, and system preservation, to establish the current 
Federal truck size and weight limits.
    As you know, Congress has granted a variety of statutory exceptions 
to the 80,000 lbs. weight limit. These exceptions are generally 
restricted by commodity or vehicle configuration. In addition, States 
that had higher axle and gross weights when Congress established the 
weight limits and bridge formula were given ``grandfather rights'' and 
were allowed to retain the existing weight limits. Off the Interstate 
System, States may allow heavier weights than are allowed under Federal 
law on the Interstate System. Maine exercised this authority, and 
raised its weight limits off the Interstate System to 100,000 lbs., 
which resulted in the weight limit disparity you described in your 
question.
    Truck size and weight limits are critically important to 
maintaining our roadways. Heavy axle loads have a significant effect on 
the Interstate system, as well as on secondary roads. Research 
indicates that as axle weights increase, the level of infrastructure 
damage rises significantly. A consistent national standard for vehicle 
dimensions on the Interstate System is of primary importance to 
facilitating interstate commerce.
    As you know, Congress must enact into law any exceptions to the 
current truck size and weight limits. Although the Department does not 
have the authority to permit such exceptions, I would be pleased to 
hear more about your concerns.
                                 ______
                                 
           Questions Submitted by Senator George V. Voinovich

    Question. In your letters to the State departments of 
transportation (DOT), you spoke about wanting States to keep their 
stimulus funding if projects came in below estimate or if the State 
DOT's management of a project saved money. Essentially, a State DOT 
would non-perform work on a project, which in turn would release 
stimulus funds. If this occurs after September 30, 2010, would the 
State DOT still be able to keep the funds, or would they be required to 
return the funds to U.S. DOT?
    Answer. No, States are not able to obligate or reobligate funds 
after September 30, 2010. The Recovery Act specified a period of 
availability (September 30, 2010) for Highway Infrastructure Investment 
funds. Deobligated funds are available for reobligation to another 
Recovery Act eligible activity within the State during the period of 
availability, which in this instance ends on September 30, 2010, but 
are also subject to 120-day and 1-year redistribution if deobligated 
and not timely reobligated within those periods. Once the period of 
availability for obligation has expired, funds will not be permitted to 
be reobligated.
    The letters to the State DOTs were sent to encourage them to 
rapidly adjust project obligations to contract amounts in order to 
maximize the impact of the Recovery Act on transportation 
infrastructure and discourage/prevent inactive obligations. The letters 
are in keeping with FHWA regulations (23 CFR  630.106(a)(4)-(6)), 
which requires States to make a downward adjustment in the amount 
obligated to the project, if the project comes in below estimate and 
has decreased by $250,000. Additionally, FHWA is actively working with 
State DOTs to ensure that States meet the 120-day and 1-year obligation 
requirements.
    Question. The Dayton International Airport has submitted two 
projects to the FAA seeking stimulus funding. The first project would 
provide for the replacement of the Airport's existing Security Systems. 
The second project would provide for the replacement of lighting 
infrastructure along T/W R at the Dayton International Airport. The 
airport worked with the FAA on both of these projects, and was led to 
believe that they had a high probability of success. At this point, 
however, the Dayton Airport has yet to receive any stimulus dollars. 
Can you please comment on the status of these requests?
    Answer. Statutory language in the American Recovery and 
Reinvestment Act of 2009 (ARRA) requires FAA to identify and award ARRA 
funds quickly. Accordingly, FAA has identified and announced proposed 
grants for nearly all ARRA airport grant funding. In the case of the 
Dayton International Airport, ARRA funding was announced on May 29, 
2009 for the completion of Taxiway R lighting improvements. The Federal 
Aviation Administration (FAA) has been working with the airport sponsor 
on the required application materials and plans to extend a grant offer 
by June 17, 2009.
    As to the security system project, the airport has been working 
with the FAA regarding the potential funding of this project. Because 
ARRA funds are otherwise allocated, the security system project will be 
considered for funding under the normal Airport Improvement Program 
relative to other competing projects as additional funds may become 
available in fiscal year 2009. The airport sponsor has also added the 
project to its fiscal year 2010 Airport Capital Improvement Program for 
consideration in case funds are not available in fiscal year 2009 to 
complete the project.
                                 ______
                                 
            Questions Submitted to Hon. Calvin L. Scovel III
              Questions Submitted by Senator Patty Murray

            OFFICES THAT AREN'T WORKING ON THE RECOVERY ACT

    Question. I understand that to meet its immediate workload, the 
Department has borrowed people from offices that do not have any 
responsibility over the implementation of the Recovery Act. While this 
strategy certainly makes sense as an emergency measure, I am concerned 
about what this strategy might mean if it is continued over a longer 
period of time.
    Do you worry about the work that isn't getting done in the other 
offices that donated staff to work on the Recovery Act? Is other 
important regulatory or safety work suffering because the staff has 
been moved to work on the Recovery Act?
    Answer. We are currently examining vulnerabilities in program 
management and planning that could impede DOT's ability to provide 
effective oversight of American Recovery and Reinvestment Act (ARRA) 
funded projects and meet new statutory and OMB requirements. As part of 
this review, we are also obtaining information on the impact of 
staffing demands on other Departmental programs. We will report on the 
results of our review in late summer 2009.

               BALANCING RESPONSIVENESS WITH OBJECTIVITY

    Question. Mr. Scovel, you have developed a strategy for identifying 
the risks that the Department faces in implementing the Recovery Act, 
evaluating the Department's efforts, and providing recommendations 
based on these observations.
    Your strategy also involves an unprecedented level of coordination 
between your office and the Department. Your staff will be meeting with 
the Department every 2 weeks to monitor its progress. But this constant 
and regular interaction may also increase the pressure to direct or 
participate in the Department's efforts, rather than monitoring them.
    What actions are you taking to protect the objectivity of your 
office?
    Answer. The coordination between OIG and the Department as a result 
of ARRA has not changed how we safeguard our independence. 
Specifically, we do not participate in the Department's management 
decisionmaking process nor do we perform management functions, such as 
making specific recommendations for solutions to the issues addressed. 
However, we can and do provide suggestions to management, based on our 
prior work and good business practices. We also expect that the 
Department will be sharing timely information with us as it implements 
the ARRA requirements.
    DOT OIG continues to take all measures to ensure its work remains 
independent, objective and non-partisan. Our policy includes avoiding 
to the greatest extent possible performing non-audit services, such as 
participating on commissions, panels, and committees, etc. Since 
providing non-audit services could limit our independence to perform 
future audits of DOT programs and operations, all staff also must 
routinely certify as to their personal independence.

                    PROVIDING QUICK FEEDBACK TO DOT

    Question. Mr. Scovel, you usually have the luxury of being able to 
spend more time evaluating how the Department is managing a program 
before publishing recommendations. And usually your recommendations are 
still relevant even a year or more after they are issued.
    But the Recovery Act is different. This will not be an ongoing 
program, and if the Department is to make use of your recommendations 
they will have to be provided in real time--even before much of the 
money goes out.
    Your office will begin issuing a new kind of advisory that will be 
used to provide the Department with feedback more quickly.
    Mr. Scovel, how quickly will you be able to issue these advisories?
    Are you going to be establishing a goal for the amount of time 
between the initial identification of a problem and the issuance of an 
advisory?
    What are some of the other ways in which you can communicate your 
concerns to the Department earlier in the process?
    Answer. We have established criteria for determining if an issue 
warrants an ARRA Advisory. For example, does the issue address the 
effective and efficient use of ARRA funds, involve a long-standing or 
systematic vulnerability, or has agency-wide, Department-wide or 
Government-wide implications, etc? Although we have not established 
specific timeframes for issuing an Advisory, we have procedures in 
place to ensure that OIG staff timely communicates potential risks to 
Department officials. We use multiple means of communication--
briefings, meetings, and, weekly reports to the Secretary--the ARRA 
Advisory, a written product, serves as the last line of communication 
not the first.
    As of June 23, we have issued two ARRA Advisories--Department's 
Suspension and Debarment Program and Sampling of Improper Payments in 
Major DOT Grants Programs--to promptly alert the Department of 
potential management and funding risks that emerge during an audit 
consistent with ARRA and Office of Management and Budget guidance. As a 
result of our ongoing ARRA review, some other issues that may lend 
themselves to an ARRA Advisory have been identified and are currently 
being reviewed for relevancy.

    Senator Murray. We want to make sure that the considerable 
amount of money that we put out there is spent wisely, and that 
we earn the trust of America by doing it right. So I appreciate 
the work you and your office are doing, and we will continue to 
support that.
    Mr. Scovel. Chairman Murray, thank you very much for your 
support and your confidence.

                         CONCLUSION OF HEARING

    Senator Murray. Thank you very much.
    And this subcommittee is recessed, subject to the call of 
the Chair.
    [Whereupon, at 10:08 a.m., Thursday, April 30, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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