U.S. Infrastructure: Funding Trends and Federal Agencies'	 
Investment Estimates (23-JUL-01, GAO-01-986T).			 
								 
This testimony discusses the federal government's role in	 
ensuring a sound public infrastructure and the estimates of	 
future investment requirements developed by seven federal	 
agencies: the Appalachian Regional Commission, Environmental	 
Protection Agency, Federal Aviation Administration, Federal	 
Highway Administration, General Services Administration, and U.S.
Army Corps of Engineers. GAO found that the federal government	 
exerts an important influence on infrastructure investment and	 
development from acquiring and maintaining federally-owned assets
to influencing the way infrastructure projects are designed and  
built through legislation and regulations. The seven agencies GAO
reviewed each estimate billions of dollars for future investment 
in infrastructure. The estimates focused on investment in the	 
areas of water resources, hydropower, water supply, wastewater	 
treatment, airports, highways, mass transit, and public 	 
buildings. Some perspective is called for in reviewing the	 
investment estimates developed by the seven agencies. Although	 
these estimates encompass major areas of public infrastructure,  
they cannot be easily compared or simply ''added up'' to produce 
a national estimate of infrastructure investment needs. GAO did  
not independently verify the seven agencies' investment 	 
estimates, but it did rely on past reviews of these data by GAO  
and others that examined the soundness and completeness of the	 
methodology and data used to develop the estimates. This	 
testimony summarized a July 2001 report (GAO-01-835) and a	 
February 2000 report (RCED/AIMD-00-35). 			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-986T					        
    ACCNO:   A01432						        
  TITLE:     U.S. Infrastructure: Funding Trends and Federal Agencies'
             Investment Estimates                                             
     DATE:   07/23/2001 
  SUBJECT:   Budget outlays					 
	     Federal property management			 
	     Future budget projections				 
	     Land management					 
	     Maintenance (upkeep)				 
	     Public works					 
	     Repairs						 
	     Appalachian Highway System 			 
	     Drinking Water State Revolving Fund		 
	     FTA Transit Economic Requirements Model		 

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GAO-01-986T
     
U. S. INFRASTRUCTURE

Funding Trends and Federal Agencies? Investment Estimates

Statement of Peter F. Guerrero Director, Physical Infrastructure Issues

United States General Accounting Office

GAO Testimony Before the Subcommittee on Transportation and Infrastructure,
Committee on Environment and Public Works, U. S. Senate

For Release on Delivery Expected at 3: 00 p. m. EST Monday July 23, 2001

GAO- 01- 986T

1 Mr. Chairman and Members of the Subcommittee:

A sound public infrastructure plays a vital role in encouraging a more
productive and competitive national economy and meeting public demands for
safety, health, and improved quality of life. In addition, public office
buildings, courthouses, and other facilities support noneconomic goals and
allow federal agencies to carry out their missions. When problems occur with
the performance of infrastructure, they can be very visible, and their
effects can be widespread. For example, traffic congestion in the nation?s
50 most populous urban areas is estimated to cost over $39 billion a year in
time and wasted fuel.

I am here today to discuss the federal government?s role in ensuring a sound
public infrastructure and the estimates of future investment requirements
developed by seven federal agencies: the Appalachian Regional Commission
(ARC), Environmental Protection Agency (EPA), Federal Aviation
Administration (FAA), Federal Highway Administration (FHWA), Federal Transit
Administration (FTA), General Services Administration (GSA), and U. S. Army
Corps of Engineers. 1 My testimony will focus on the major areas of public
infrastructure covered by these seven agencies 2 and the federal
government?s role and funding trends regarding civilian infrastructure.

In summary, we found:

The federal government exerts an important influence on infrastructure
investment and development. The federal government?s influence can be seen
in several ways, including acquiring and maintaining various federally-
owned assets, providing funding for infrastructure that is owned and
operated by others, and influencing the way infrastructure projects are
designed and built through legislation and regulations.

1 This testimony is based on our recent work in the area of infrastructure
investment trends and investment estimates. See U. S. Infrastructure:
Agencies? Approaches to Developing Investment Estimates Vary (GAO01- 835,
July 20, 2001) and U. S. Infrastructure: Funding Trends and Opportunities to
Improve Investment Decisions (GAO/ RCED/ AIMD- 00- 35, Feb. 7, 2000). 2 The
seven agencies develop infrastructure estimates for highways (ARC and FHWA),
water supply and

wastewater treatment (EPA), airports (FAA), mass transit (FTA), public
buildings (GSA), and water resources and hydropower (Army Corps).

2 The federal government has spent an average of about $59 billion annually
since the

1980s on the nation?s civilian infrastructure. This spending showed a
slightly upward trend through the 1990s. Similarly, spending by state and
local governments continued an upward trend that began in the 1980s and
exceeded federal spending in certain areas.

The seven agencies we reviewed each estimated billions of dollars for future
investment in infrastructure. The estimates focused on investment in the
areas of water resources, hydropower, water supply, wastewater treatment,
airports, highways, mass transit, and public buildings. The estimates ranged
from GSA?s calculation of $4.58 billion (in current dollars) 3 to repair
public buildings over the next 5 years to FHWA?s estimate of $83.4 billion
(in constant 1997 dollars) 4 per year over 20 years to improve highways.
Certain estimates, such as those prepared by the Army Corps (for water
resources and hydropower) and GSA, are for federal spending; other estimates
involve all levels of government and the private sector.

Some perspective is called for in reviewing the investment estimates
developed by the seven agencies. While these estimates encompass major areas
of public infrastructure, they cannot be easily compared or simply ?added
up? to produce a national estimate of infrastructure investment needs
because, for example, they were developed using different methods and were
for different time periods. In addition, the seven agencies all had
procedures for developing investment estimates that reflect some practices
used by leading private sector and government organizations, although some
agencies followed more practices than other agencies. Nonetheless, following
the leading practices does not ensure a quality investment estimate and each
estimate had limitations associated with the quality of the data used in
developing it. Furthermore, some of these investment estimates span several
decades and investment needs can change significantly over time due to
changes in the efficiency of delivering infrastructure services or pricing
strategies that alter the demand for services. Finally, these estimates
mostly focus on the condition of infrastructure rather than the desired
outcomes (e. g., less traffic congestion) that can 3 ?Current dollar? is the
dollar value of a good or service expressed in terms of prices current at
the time the good or service is sold.

3 be expected from additional infrastructure investments. We caution against
relying

on estimates of need that are based primarily on the condition of existing
infrastructure if desired outcomes are not clearly articulated and the costs
and benefits of alternative approaches (such as using strategies to manage
demand rather than building new infrastructure) for achieving those outcomes
are not fully considered.

We did not independently verify the seven agencies? investment estimates,
but we did rely on past reviews of these data by us and others that examined
the soundness and completeness of the methodology and/ or data used to
develop the estimates. We reviewed agencies? documentation of their
procedures to develop the estimates, but we did not verify whether these
procedures were followed. In addition, we compared agencies? procedures with
some of the capital decisionmaking practices used by leading government and
private sector organizations that we identified and reported on in 1998. 5
Those leading practices are identified in appendix I.

The Federal Role in Civilian Infrastructure Investment and Development and
Trends of Government Spending

While most spending on civilian infrastructure takes place at the state,
local, or privatesector level, the federal government exerts an important
influence on infrastructure investment and development in several ways.
First, the federal government is directly responsible for acquiring and
maintaining various federally- owned assets. These include, for example,
federal office buildings, dams and flood control structures, and the
nation?s air traffic control system. The Congress directly appropriates the
funding for such infrastructure. Second, the federal government provides
funding- such as grants, loans, or loan guarantees- for infrastructure that
is owned and operated by others such as mass transit systems and municipal
water supply systems. In these cases, federal funds cover a portion of the
capital development and improvements required. For example, the Department
of Transportation provides states, localities, and others with grants that

4 ?Constant dollar? is a dollar value adjusted for changes in the average
price level (i. e., adjusted for inflation) for a base year. 5 Executive
Guide: Leading Practices in Capital Decision- Making (GAO/ AIMD- 99- 32,
Dec. 1998).

4 partially fund the construction and improvement of urban and rural
highways and

bridges, including major maintenance of interstate highways; the states
generally provide a 20- percent match for these funds and determine how to
spend the money within broad federal guidelines. Third, the federal
government influences infrastructure investment through tax incentives. For
example, the interest on municipal bonds, which are primarily used for
infrastructure purposes, is exempt from federal taxes. Finally, federal
legislation and regulation influence both the need for and the way
infrastructure projects are designed and built. For example, meeting safe
drinking water standards may often require the construction or modification
of local water systems.

The federal government has spent an average of $150 billion (in constant
2000 dollars) annually since the early 1980s for civilian and defense
infrastructure. Of this amount, about $59 billion was spent annually for
spending on civilian infrastructure. 6 As figure 1 shows, federal spending
for civilian infrastructure showed a slightly upward trend through the
1990s.

6 We used information from OMB?s budget database to analyze actual federal
infrastructure outlays (spending) for fiscal years 1981 through 1998, using
a broad definition for infrastructure spending that included the physical
structure and facilities that are intended to enhance the private sector?s
long- term productivity, as well as spending for physical capital designed
to achieve federal agencies? goals or improve the government?s efficiency.
OMB?s budget database does not contain state and local spending for
infrastructure. See U. S. Infrastructure: Funding Trends and Opportunities
to Improve Investment Decisions (GAO/ RCED/ AIMD- 00- 35, Feb. 7, 2000).

5

Figure 1: Federal Spending on Infrastructure in 2000 Dollars, Fiscal Years
1981 Through 1998

Source: GAO?s analysis of OMB?s data.

Similarly, as figure 2 shows, spending by state and local governments
continued an upward trend after netting out inflation that began in the
1980s and exceeded federal spending in certain infrastructure areas. A 1999
Congressional Budget Office (CBO) study reported that state and local
spending for transportation and water resources, supply, and treatment rose
from over $88 billion (in 2000 dollars) in fiscal year 1981 to $152 billion
in fiscal year 1994. 7

7 See Trends in Public Infrastructure Spending, Congressional Budget Office
(May 1999). CBO defined infrastructure to include spending for highway, mass
transit, rail, aviation, water transportation, water resources, water
supply, and wastewater treatment. State and local spending excludes federal
grants and loans.

0 20

40 60

80 100

120 140

160 180

200 1981 1985 1990 1995 1998 Fiscal year

Dollars in billions

Total Spending Defense Nondefense

6

Figure 2: State and Local Spending for Selected Infrastructure Areas in 2000
Dollars, Fiscal Years 1981 through 1994

Note: The selected infrastructure areas are highways, mass transit, rail,
aviation, water transportation, water resources, water supply, and
wastewater treatment. State and local spending excludes federal grants and
loans.

Source: CBO.

Federal Estimates of Future Infrastructure Investment

The seven agencies we reviewed each estimated that billions of dollars were
needed for investment in infrastructure. The estimates focused on
investments in the areas of water resources, hydropower, water supply,
wastewater treatment, airports, highways, mass transit, and public buildings
and spanned from several years to several decades. The investment amounts
vary from GSA?s estimate of $4.58 billion over the 5 years to repair public
buildings to FHWA?s estimate of $83.4 billion each year over 20 years to
preserve and improve the nation?s highways. The investment estimates are
summarized in table 1.

0 20

40 60

80 100

120 140

160 1981 1985 1990 1994 Fiscal year

Dollars in billions

Total Spending Noncapital Capital

7

Table 1: Selected Agencies? Infrastructure Investment Estimates Agency
Activities and assets

included in estimate Activities and

assets excluded from estimate

Time period covered Total estimate (in

billions)

ARC Construction of highways within portions of 13 states

Maintenance, retrofit, or improvements to completed highways

1997- completion $8.5 (current 1995 dollars)

Army Corps Construction and major rehabilitation of water resources projects
and major rehabilitation of hydropower projects nationwide

Nonconstruction costs, projects not under construction, and critical
operations and maintenance work

2001- completion $38.0 a EPA Construction and

upgrade of drinking water supply systems nationwide

Costs due solely to population growth and costs not eligible for federal
funding

1999- 2018 $150. 9 (current 1999 dollars)

EPA Construction and upgrade of wastewater treatment collection facilities
nationwide

Costs due solely to population growth and costs not eligible for federal
funding

1996- 2016 $139. 5 (current 1996 dollars)

FAA Construction, replacement, and rehabilitation of airport facilities
nationwide

Costs not eligible for federal funding

1998- 2002 $35.1 (constant 1998 dollars)

FHWA Improvements to the nation's highways based on several scenarios b

Costs to construct new roads

1998- 2017 $50.8-$ 83.4 per year for 20 years b (constant 1997 dollars) FTA
Replacement and

refurbishing of mass transit vehicles and facilities nationwide based on
four scenarios c and construction of new systems

-- 1998- 2017 $10.8-$ 16.0 per year for 20 years c (constant 1997 dollars)

GSA Repair and alteration of public buildings

Buildings owned by federal agencies other than GSA

Up to 5 years $4.58 a GSA Construction of border

stations, federal office buildings, and courthouses

-- Up to 7 years $0.75 to $0.8 per year for 5 to 7 years a

a Current year dollars from different dates. b FHWA modeled several
scenarios- including cost beneficial investment needed to maintain the
current

physical condition- that provided a range of estimates.

8

c FTA's analysis included scenarios that produced estimates ranging from
investments needed to maintain current condition and performance of mass
transit to investments needed to improve its current condition and
performance.

Note: Estimates for the Army Corps and GSA are federal investments.
Estimates for the remaining agencies are a combination of federal, state,
and other investment sources.

Source: GAO's analysis of agencies' data.

Each of the seven agencies used data from various localities, states, or
agency regional offices and aggregated those data to produce a national
estimate for infrastructure investment. Each agency?s estimate is described
below.

Appalachian Regional Commission In 1997, ARC estimated that it would cost
$8.5 billion from state and federal sources to complete the Appalachian
Development Highway System, a 3,025- mile system of highways in 13 states. 8
The estimate includes costs for project design, environmental mitigation,
rights of way access, and construction. These costs were not adjusted for
inflation. They do not include maintenance, retrofits, or safety
improvements to completed segments of the highway system. According to ARC
officials, the estimate is probably understated due to the limited amount of
detailed information available in 1997 and because the estimate was prepared
before obtaining public input or identifying and addressing environmental or
historic preservation concerns about specific highway corridors. To produce
the estimate, each of the 13 states estimated the cost to complete the
system within their state using instructions provided by ARC and FHWA. ARC
and FHWA reviewed the states? estimates to ensure uniformity and accuracy
and assessed the reasonableness of the cost estimates by comparing them to
the costs of similar highway projects within the state. 9 ARC uses this
estimate as the basis for allocating federal funds appropriated for the
Appalachian Development Highway System. ARC distributes the funds to the 13
states on the basis of their percentage share of the cost to complete the
highway system. ARC plans to issue an updated estimate in 2002.

8 Appalachia includes all of West Virginia and parts of 12 states: Alabama,
Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio,
Pennsylvania, South Carolina, Tennessee, and Virginia. The

9 U. S. Army Corps of Engineers

As of March 30, 2001, the Army Corps estimated that $38 billion in federal
funds was required to complete water resources and hydropower infrastructure
projects already under construction. 10 That amount includes about $37
billion for construction of new water resource projects, $582 million for
work at hydropower plants, and $217 million for major rehabilitation of
water resource projects. These amounts were not adjusted for inflation. The
overall estimate does not include critical operations and maintenance work
for water resources and related land projects; for fiscal year 2002, the
Army Corps estimated it would require $915 million for such work. The $38
billion estimate excludes projects that are not under construction, such as
those in the design stage, and costs not related to construction, such as
feasibility studies and evaluations. Army Corps officials believe that the
overall estimate might be understated because it does not consider increases
in the cost of completing a project over time due to changing economic
conditions. The estimate is the aggregate of individual infrastructure
projects. Local governments, groups, and/ or private citizens who requested
assistance from the Army Corps initially identified the water resources
projects included in the estimate. Engineers and other professionals using
existing industry data estimated project costs. The agency also uses cost-
benefit analysis to determine which water resources projects are
economically justified and would assist the agency in reaching its goals,
such as improving navigation and flood mitigation. 11 The evaluation and
cost estimate is sent to the agency?s headquarters, and selected projects
are submitted for funding as part of the Department of Defense?s annual
budget. Funded projects undergo several lengthy reviews by the Army Corps,
including a feasibility study to investigate and recommend solutions to
water resources problems. 12 The estimate for hydropower investment projects
is based on the Army Corps? inspections, tests, and evaluations of that

Appalachian Highway System is funded by the federal Highway Trust Fund and a
state match of no less than 20 percent. 9 This activity reflects a leading
practice.

10 The Congress provides funding to the Army Corps on a project- by- project
basis and each project has a nonfederal cosponsor that shares in the cost.
In addition, fees from vessel operators are used to fund half the cost of
new construction and major rehabilitation of the commercial fuel- taxed
inland waterway system. 11 This activity reflects a leading practice.

12 This activity reflects a leading practice.

10 equipment. The Army Corps uses the investment estimates to determine the
financial

resources needed to manage and repair assets under its jurisdiction and for
new construction. 13

Environmental Protection Agency In February 2001, EPA reported an estimated
$150.9 billion in federal, state, and local funds was needed to construct
and upgrade drinking water facilities between 1999 and 2018. 14 The estimate
excludes costs ineligible for funding under the Drinking Water State
Revolving Fund (DWSRF), such as costs arising solely from population growth.
The costs were not adjusted for inflation. EPA reported that the estimate
may be understated because some needs covered only 2 to 5 years, not the 20-
year period. To develop the estimate, EPA surveyed all of the large water
systems in the United States and a sample of the medium water systems. In
addition, EPA conducted site visits to 599 small systems and extrapolated
data from these surveys and site visits to compute the total investment
estimate. The states and EPA reviewed the surveys and supporting cost
documentation for medium and large systems. 15 The agency uses the results
of this estimate to allocate monies to the states for the revolving fund
based on each state?s share of the total investment amount.

In 1996, EPA estimated that $139.5 billion in federal and state funds was
needed between 1996 and 2016 for capital investment in water pollution
control facilities. The total included $44.0 billion for wastewater
treatment, $10.3 billion for upgrading existing wastewater collection
systems, $21.6 billion for new sewer construction, and $44.7 billion for
controlling combined sewer overflows. These costs were not adjusted for
inflation. The estimate did not include annual costs for operations and
maintenance and

13 The Army Corps also had procedures reflecting the following leading
practices: establishing a baseline inventory of assets; considering
alternative ways to address unmet investment needs, including non- capital
approaches; ranking and selecting projects for funding based on established
criteria; and developing a long- term capital plan that defines capital
asset decisions. 14 EPA provides funding for the construction and
improvement of drinking water and wastewater treatment

facilities through grants to capitalize state revolving funds. States
provide a matching amount into their revolving funds equal to 20 percent of
the total grant. The revolving funds provide several types of financial
support, including loans at or below market interest rates, guarantees for
the issuance of new local bonds, and purchase of existing bonds. 15 This
activity reflects a leading practice.

11 projects that were not eligible for funding under Title VI of the Clean
Water Act, such as

house connections to sewers and costs to acquire land that is not a part of
the treatment process. EPA reported that the estimate may be understated
because some needs accounted for only 5 years, not the 20- year period. EPA
developed the estimate from a nationwide database of wastewater treatment
facilities that is periodically updated by surveying the states. 16 The
states provided revised estimates of capital investment needs from their
documented plans, which were supplemented by costs modeled by EPA when the
state lacked this information. EPA reviewed all documentation submitted by
the states to ensure compliance with its established criteria. 17 In
addition, EPA modeled the costs for each state for combined sewer overflows
and activities to control stormwater runoff and nonpoint sources of
pollution. According to EPA, the estimate is also used to assist the states
and federal government in program planning and evaluation and to inform the
Congress of the magnitude of the needs. 18

Federal Aviation Administration In 1999, FAA reported that $35.1 billion in
federal and nonfederal funds was required for airport infrastructure
investment projects from 1998 to 2002. 19 The estimate primarily includes
projects to bring existing airports up to current design standards, develop
passenger terminal buildings, and add capacity to congested airports. The
estimate only includes projects that are eligible for funding under FAA?s
Airport Improvement Program. 20 The estimate was developed by aggregating
the projects contained in FAA?s National Plan of Integrated Airport Systems
database. The projects originate primarily from airport master plans. FAA
officials review projects to determine if they are eligible for funding and
justified, and then the approved projects are included in the database. 21

16 This activity partially reflects a leading practice. 17 This activity
reflects a leading practice. 18 EPA also has procedures that partially
reflect the following practice: considering alternative ways to

address unmet investment needs, including non- capital approaches. 19 FAA
provides airports with grants for capital development. FAA allocates most
grants on the basis of (1)

a legislated formula that is tied to the number of passengers that an
airport enplanes and (2) categories earmarked for specific types of airports
and projects. 20 Generally, the Airport Improvement Program allows for all
types of airport development except for

automobile parking structures, hangars, air cargo buildings, or the revenue
producing areas of large terminals. 21 This activity reflects a leading
practice.

12 Because this estimate is not a spending plan, FAA has reported that it
makes no attempt

to prioritize the projects or determine if the benefits of specific projects
would exceed their cost. This estimate is prepared and submitted to the
Congress biennially, as required by statute. 22

Federal Highway Administration In May 2000, FHWA issued investment estimates
for highways for the years 1998 through 2017. 23 These estimates ranged from
$50.8 billion per year for cost- beneficial improvements that would maintain
the current physical condition of highways to $83.4 billion per year for all
improvements that would improve pavement condition and reduce highway users?
travel costs. The estimates included both federal and nonfederal portions of
funding; they do not include the costs to construct new roads. To determine
the estimates, FHWA used data from a statistically drawn national sample of
125,000 highway segments as well as information from the states on forecasts
such as travel growth. FHWA officials reviewed the data submitted by the
states and asked the states to correct serious flaws and improve some data
submissions. 24 FHWA used a computer model to simulate the effects of
infrastructure improvements on a sample of highway sections and used a
benefit- cost analysis to identify economically justified highway
improvements. 25 While FHWA?s model analyzes these sample highway sections
individually, the model is designed to provide estimates of investment
requirements valid at the national level and does not provide improvement
recommendations for individual highway segments. In June 2000, we found that
the model was reasonable despite some limitations concerning the
computations. 26 FHWA?s estimate is used by legislative and

22 FAA also has procedures that reflect the following leading practices:
considering alternative ways to address unmet investment needs, including
non- capital approaches and ranking and selecting projects for funding based
on established criteria. In addition, FAA has procedures that partially
reflect one leading practice: developing a long- term capital plan that
defines capital asset decisions. 23 FHWA provides grants that partially fund
the construction and improvement of urban and rural highways

and bridges, including major maintenance of interstate highways. States
generally provide a 20- percent match and determine how to spend the money
within broad federal guidelines. 24 This activity reflects a leading
practice.

25 This activity reflects a leading practice. 26 For example, the model
cannot completely reflect changes occurring among all highways in the

transportation network at the same time, since the model analyzes each
highway segment independently. See Highway Infrastructure: FHWA?s Model for
Estimating Highway Needs Is Generally Reasonable, Despite Limitations (GAO/
RCED- 00- 133, June 5, 2000).

13 executive branch offices to obtain general information on the nation?s
overall need for

investment in highways. 27 Federal Transit Administration In May 2000, FTA
estimated investment requirements of $10.8 billion to $16.0 billion per year
for mass transit systems (include buses, railcars, and ferries) from 1998 to
2017, depending on whether the condition and performance of mass transit
systems would be maintained or improved. 28 The estimates include the cost
to replace and refurbish existing vehicles and facilities and the cost to
construct new mass transit systems. The estimates cover both federal and
nonfederal shares of costs. FTA used data from local urban transit agencies
to determine the age and condition of mass transit infrastructure and then
estimated the cost of either maintaining or improving that infrastructure.
FTA developed the estimates using its Transit Economic Requirements Model.
The model compares costs and benefits to determine if replacing an asset was
economically justified. 29 The model then aggregated the costs of all the
projects that were justified by benefit- cost analysis to determine the
total investment estimate for the nation?s mass transit systems. The
accuracy of the estimates is limited by missing data and imprecise
predictions due to the difficulty in predicting travel growth. FTA uses the
estimates to provide general support for its budget and information on
changes in mass transit systems. 30

27 In addition, FHWA has procedures that partially reflect the following
leading practice: conducting a comprehensive assessment of the resources
needed to meet an agency?s mission and results- oriented goals and
objectives. 28 FTA provides funding for mass transit primarily through
formula and capital investment grants that

generally require a state/ local match of at least 20 percent. 29 This
activity reflects a leading practice.

30 In addition, FTA has procedures that reflect the following leading
practices: establishing a baseline inventory of assets and establishing
procedures to review data developed by others. FTA also has procedures that
partially reflect the following leading practices: conducting a
comprehensive assessment of the resources needed to meet an agency?s mission
and results- oriented goals and objects and budgeting for projects in useful
segments.

14 General Services Administration

In May 2001, GSA?s data indicated that $4.58 billion in federal funds was
required over the next 5 years to meet the repair and alteration needs of
public buildings. 31 This estimate does not include investment amounts for
federal buildings owned by other federal agencies, including the Departments
of Defense and Energy and the Postal Service. In addition, GSA estimated
that $250 million to $300 million was required annually over the next 5
years to construct new border stations and federal office buildings and $500
million annually was required over 5 to 7 years to construct new
courthouses. Regional offices identify investment projects, and cost data
are derived from various sources, including contractors, safety inspectors,
and building engineers. Projects that have estimated costs of $1.99 million
or more are evaluated by headquarters officials and ranked for funding using
weighted criteria that include economic return, project risk, and project
urgency. 32 In 2000, we reported problems with the quality of data contained
in GSA?s database of repair and alteration projects- including incorrect
data, missing projects, and cost estimates that were not current. 33 GSA is
taking action intended to address the problems we identified and improve the
database, but we have not assessed the agency?s progress in this regard. In
addition, the sources of cost information vary, so the estimates for
individual projects may be inconsistent. GSA?s cost data are used as input
in determining funding priorities. 34

Overall Comments About the Estimates

Some perspective is called for in reviewing the investment estimates by the
seven agencies. First, the investment estimates encompass major areas of
public infrastructure, but they cannot be easily compared or simply ?added
up? to produce a national estimate of all infrastructure investment needs
because they were developed

31 The primary means of financing the operating and capital costs associated
with federal space that is owned or managed by GSA is the Federal Building
Fund, a revolving fund supported by rental assessments to federal agencies
and annual appropriations. 32 This activity reflects a leading practice.

33 Federal Buildings: Billions Are Needed for Repairs and Alterations (GAO/
GGD- 00- 98, Mar. 30, 2000.) 34 In addition, GSA has procedures that reflect
the following leading practices: establishing a baseline

inventory of existing assets and establishing procedures to review data
developed by others. GSA also has procedures that partially reflect the
following practices: considering alternative ways to address unmet
investment needs, including non- capital approaches, and budgeting for
projects in useful segments.

15 using different methods and were for different time periods. A
fundamental reason that

the estimates were prepared differently and lack comparability is that they
are developed and used for different purposes. Some agencies use the
information to determine the financial resources needed to manage and/ or
repair their own assets, while other agencies develop estimates at the
request of the Congress to provide general information to decisionmakers or
to help direct federal funding to states, localities, and other parties.

Second, the seven agencies all had procedures for developing investment
estimates that reflect some practices used by leading private sector and
government organizations. Those practices include establishing a baseline
inventory of assets, using cost- benefit analysis to identify economically
justified investments, and ranking and selecting projects for funding based
on established criteria. (See app. I for additional information on eight
leading practices that pertain to developing and using investment
estimates.) Some agencies followed more leading practices than other
agencies. For example, the Army Corps had procedures that reflected six of
the eight practices, which included establishing an inventory of assets;
considering alternative ways to address unmet investment needs, including
noncapital approaches; using cost- benefit analysis; and developing a long-
term capital plan that defines capital asset decisions. Nonetheless,
following the leading practices does not ensure a quality investment
estimate and each estimate had limitations associated with the quality of
the data used in developing it. Correcting such limitations will improve the
quality and reliability of the agencies? investment estimates.

Third, some investment estimates span several decades and investment needs
can change significantly over time with changes in the efficiency of
delivering infrastructure services or pricing strategies that alter the
demand for services. For example, the consolidation of smaller water systems
or the introduction of user charges can reduce the need to expand or replace
infrastructure. Fourth, many of these estimates are totals for the entire
infrastructure network- involving all levels of government and the private
sector. The federal government?s role in financing these amounts should be
recognized and, in some cases, this role might be small compared to other
levels of government or

16 the private sector. Finally, these estimates mostly focus on the
condition of

infrastructure rather than the desired outcomes (e. g., less traffic
congestion) that can be expected from additional infrastructure investments.
We caution against relying on estimates of need that are based primarily on
the condition of existing infrastructure if desired outcomes are not clearly
articulated and the costs and benefits of alternative approaches (such as
using strategies to manage demand rather than building new infrastructure)
for achieving those outcomes are not fully considered.

Mr. Chairman, this concludes my statement. I will be happy to answer any
questions from you or any Member of the Subcommittee.

Contacts and Acknowledgement

For additional information or questions about this testimony, please contact
Peter F. Guerrero, at (202) 512- 2834. Individuals making key contributions
to this testimony include Sharon Dyer, Phillis Riley, John Shumann, and
Teresa Spisak.

Appendix I Appendix I

17

Leading Practices in Capital Decision- Making Concerning Investment
Estimates

In 1998, we identified the practices of leading government and private-
sector organizations in capital decision- making. 35 The following eight
practices relate to developing and using investment estimates.

conduct a comprehensive assessment of the resources needed to meet an
agency?s mission and results- oriented goals and objectives;

establish a baseline inventory of existing assets, evaluate their condition,
determine if they are performing as planned, and identify excess capacity;

consider alternative ways to address needs, including noncapital
alternatives;

use cost- benefit analysis as a primary method to compare alternatives and
select economically justified investments;

rank and select infrastructure projects for funding based on established
criteria;

budget infrastructure projects in useful segments;

develop a long- term capital plan that defines capital asset decisions; and

establish procedures to review data developed by others and use independent
reviews of data and methods to further enhance the quality of estimates. 36

(545005) 35 Executive Guide: Leading Practices in Capital Decision- Making
(GAO/ AIMD- 99- 32, Dec. 1998). 36 This practice was identified as a result
of information collected during our review of the seven agencies?

investment estimates.
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