Surface Transportation: Preliminary Observations on Efforts to	 
Restructure Current Program (06-FEB-08, GAO-08-478T).		 
                                                                 
The nation has reached a critical juncture with its current	 
surface transportation policies and programs. Demand has outpaced
the capacity of the system, resulting in increased congestion. In
addition, without significant changes in funding mechanisms,	 
revenue sources, or planned spending, the Highway Trust Fund--the
major source of federal highway and transit funding--is projected
to incur significant deficits in the years ahead. Furthermore,	 
the nation is on a fiscally unsustainable path. Recognizing many 
of these challenges and the importance of the transportation	 
system to the nation, Congress established The National Surface  
Transportation Policy and Revenue Study Commission (Commission)  
to examine current and future needs of the system and recommend  
needed changes to the surface transportation program, among other
things. The Commission issued its report in January 2008. This	 
testimony discusses 1) principles to assess proposals for	 
restructuring the surface transportation program and 2) GAO's	 
preliminary observations on the Commission's recommendations.	 
This statement is based on GAO's ongoing work for the Ranking	 
Member of this Committee, the Chairman of the House		 
Transportation and Infrastructure Committee, Senator DeMint, as  
well as a body of work GAO has completed over the past several	 
years for Congress.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-478T					        
    ACCNO:   A80552						        
  TITLE:     Surface Transportation: Preliminary Observations on      
Efforts to Restructure Current Program				 
     DATE:   02/06/2008 
  SUBJECT:   Accountability					 
	     Federal funds					 
	     Funds management					 
	     Policy evaluation					 
	     Program evaluation 				 
	     Road surfaces					 
	     Transportation costs				 
	     Transportation legislation 			 
	     Transportation planning				 
	     Transportation policies				 
	     Trust funds					 
	     Program goals or objectives			 
	     Program implementation				 
	     GAO High Risk Series				 
	     Highway Trust Fund 				 

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GAO-08-478T

   

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United States Government Accountability Office: 
GAO: 

Testimony: 

Before the Committee on Environment and Public Works, U.S. Senate: 

For Release on Delivery: 
Expected at 10:00 a.m. EST: 
Wednesday, February 6, 2008: 

Surface Transportation: 

Preliminary Observations on Efforts to Restructure Current Program: 

Statement of JayEtta Z. Hecker:
Director, Physical Infrastructure Issues: 

GAO-08-478T: 

GAO Highlights: 

Highlights of GAO-08-478T, a testimony before the Committee on 
Environment and Public Works, U.S. Senate. 

Why GAO Did This Study: 

The nation has reached a critical juncture with its current surface 
transportation policies and programs. Demand has outpaced the capacity 
of the system, resulting in increased congestion. In addition, without 
significant changes in funding mechanisms, revenue sources, or planned 
spending, the Highway Trust Fundï¿½the major source of federal highway 
and transit fundingï¿½ is projected to incur significant deficits in the 
years ahead. Furthermore, the nation is on a fiscally unsustainable 
path. Recognizing many of these challenges and the importance of the 
transportation system to the nation, Congress established The National 
Surface Transportation Policy and Revenue Study Commission (Commission) 
to examine current and future needs of the system and recommend needed 
changes to the surface transportation program, among other things. The 
Commission issued its report in January 2008. 

This testimony discusses 1) principles to assess proposals for 
restructuring the surface transportation program and 2) GAOï¿½s 
preliminary observations on the Commissionï¿½s recommendations. This 
statement is based on GAOï¿½s ongoing work for the Ranking Member of this 
Committee, the Chairman of the House Transportation and Infrastructure 
Committee, Senator DeMint, as well as a body of work GAO has completed 
over the past several years for Congress. 

What GAO Found: 

GAO has called for a fundamental reexamination of the nationï¿½s surface 
transportation program because, among other things, the current goals 
are unclear, the funding outlook for the program is uncertain, and the 
efficiency of the system is declining. A sound basis for reexamination 
can productively begin with identification of and debate on underlying 
principles. Through prior analyses of existing programs, GAO identified 
a number of principles that could help drive an assessment of proposals 
for restructuring the federal surface transportation program. These 
principles include (1) defining the federal role based on identified 
areas of national interest, (2) incorporating performance and 
accountability for results into funding decisions, and (3) ensuring 
fiscal sustainability and employing the best tools and approaches to 
improve results and return on investment. GAO developed these 
principles based on prior analyses of existing surface transportation 
programs as well as a body of work that GAO developed for Congress, 
including its High-Risk, Performance and Accountability, and 21st 
Century Challenges reports. The principles do not prescribe a specific 
approach to restructuring, but they do highlight key attributes that 
will help ensure that a restructured surface transportation program 
addresses current challenges. 

Principles For Evaluating Restructuring Proposals: 

* Define the federal role based on areas of national interest. 

* Incorporate performance and accountability for results into funding 
decisions. 

* Ensure fiscal sustainability and employ the best tools and approaches 
to improve results and return on investment. 

Source: GAO. 

In its report, the Commission makes a number of recommendations for 
restructuring the federal surface transportation program. The 
recommendations include significantly increasing the level of 
investment by all levels of government in surface transportation, 
consolidating and reorganizing the current programs, speeding project 
delivery, and making the current program more performance- and outcome-
based and mode-neutral, among other things. GAO is currently analyzing 
the Commissionï¿½s recommendations using the principles that GAO 
developed for evaluating proposals for restructuring the surface 
transportation program. Although this analysis is not complete, GAOï¿½s 
preliminary results indicate that some of the Commissionï¿½s 
recommendations appear to be aligned with the principles, while others 
may not be aligned. For example, although the Commission identifies 
areas of national interest and recommends reorganizing the individual 
surface transportation programs around these areas, it generally 
recommends that the federal government pay for 80 percent of project 
costs without considering whether this level of funding reflects the 
national interest or should vary by program or project. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-478T]. For more information, contact 
JayEtta Z. Hecker at (202) 512-2834 or [email protected]. 

[End of section] 

Madam Chairman and Members of the Committee: 

We appreciate the opportunity to present our preliminary observations 
about the recent report of The National Surface Transportation Policy 
and Revenue Study Commission (Commission).[Footnote 1] The Commission 
was given a broad mandate that includes examining the current condition 
and future needs of the surface transportation system, identifying 
alternative revenue sources, and providing specific recommendations 
regarding changes to the surface transportation program's design and 
operations, federal policies, and legislation. The Commission's January 
2008 report is the culmination of over 18 months of work to fulfill the 
mandate set by Congress, and we applaud the Commission's efforts. 

The Commission's report comes at a time when our nation has reached a 
critical junction with the current surface transportation 
program.[Footnote 2] For example, the Highway Trust Fund was created in 
1956 to finance the construction of the interstate highway system. That 
system is now complete. However, the federal highway program's 
financing and delivery mechanisms have not substantially changed, and 
the program's continued relevance in the 21st century is unclear. The 
federal role in surface transportation has also grown over the years, 
and the Highway Trust Fund now funds a variety of highway, transit, and 
even some rail programs. In addition, without significant changes in 
funding mechanisms, revenue sources, or planned spending, the Highway 
Trust Fund is projected to incur significant deficits in the years 
ahead. As a result, in 2007, we added financing the nation's 
transportation system to GAO's High Risk List.[Footnote 3] Furthermore, 
the growing demand has outpaced the capacity of the transportation 
system over the past several decades. The result is apparent: 
increasing number of hours spent inching along clogged roads and 
highways, especially at rush hours and other times of peak demand. The 
economic implications are significant, ranging from wasted fuel and 
time as cars idle in traffic to increased costs for businesses as the 
system grows more unreliable. In addition to burdening the economy, 
congestion can harm the environment and health of the nation's 
citizens. 

Addressing these challenges is complicated by the breadth of the 
nation's surface transportation network--encompassing highway, transit, 
and rail systems and ports that are owned, funded, and operated by both 
the public and the private sectors. Moreover, surface transportation 
policy decisions are inextricably linked with aviation, economic, 
environmental, and energy policy concerns. In addition, the federal 
government's financial condition and fiscal outlook are worse than many 
may understand.[Footnote 4] Specifically, the federal budget is on an 
imprudent and unsustainable path--heightening concern about the 
solvency of the Highway Trust Fund because other federal revenue 
sources may not be available to help solve the nation's current 
transportation challenges. Addressing these challenges requires 
strategic and intermodal approaches, effective tools and programs, and 
coordinated solutions involving all levels of the government and the 
private sector. Yet in many cases, the government is still trying to do 
business in ways that are based on conditions, priorities, and 
approaches that were established decades ago and are not well suited to 
addressing 21st century challenges. Consequently, we have called for a 
fundamental reexamination of the nation's transportation policies and 
programs.[Footnote 5] 

My remarks today focus on (1) principles to assess proposals for 
restructuring the surface transportation program and (2) our 
preliminary observations on the Commission's recommendations. My 
comments are based on our ongoing work for the Ranking Member of this 
Committee, the Chairman of the House Transportation and Infrastructure 
Committee, Senator DeMint, as well as a body of work that we have 
completed over the past several years for Congress.[Footnote 6] We 
conducted our work on the Commission's recommendations in January and 
February 2008 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. 

In Summary: 

We have called for a fundamental reexamination of the nation's surface 
transportation program because, among other things, the current goals 
are unclear, the funding outlook for the program is uncertain, and the 
efficiency of the system is declining. A sound basis for reexamination 
can productively begin with identification of and debate on underlying 
principles. Through our prior analyses of existing programs, we 
identified a number of principles that could help drive an assessment 
of proposals for restructuring the federal surface transportation 
program.[Footnote 7] These principles include (1) defining the federal 
role based on identified areas of national interest, (2) incorporating 
performance and accountability for results into funding decisions, and 
(3) ensuring fiscal sustainability and employing the best tools and 
approaches to improve results and return on investment. We have also 
developed a series of illustrative questions that can be used to 
determine the extent to which restructuring proposals are aligned with 
each principle. We developed these principles and illustrative 
questions based on prior analyses of existing surface transportation 
programs as well as a body of work that we have developed for Congress, 
including GAO's High-Risk, Performance and Accountability, and 21st 
Century Challenges reports. The principles do not prescribe a specific 
approach to restructuring, but they do provide key attributes that will 
help ensure that a restructured surface transportation program 
addresses current challenges. 

The Commission's report makes a number of recommendations designed to 
restructure the federal surface transportation program. The 
recommendations include significantly increasing the level of 
investment by all levels of government in surface transportation, 
consolidating and reorganizing the current programs, speeding project 
delivery, and making the current programs more performance-and outcome- 
based and mode-neutral, among other things. We are currently analyzing 
the Commission's recommendations using the principles that we have 
developed for evaluating proposals to restructure the surface 
transportation program. Although our analysis is not complete, our 
preliminary analysis indicates that some of the Commission's 
recommendations appear to align with the principles, while others may 
not. For example: 

* Although the Commission identifies areas of national interest and 
recommends reorganizing the individual surface transportation programs 
around these areas, it generally recommends that the federal government 
pay for 80 percent of project costs without considering whether the 
national interest varies by program or project. 

* The Commission emphasizes the need to make the program more 
performance-and outcome-based, but does not directly link overall 
project funding to performance. 

* Although the Commission encourages the use of alternative financing 
tools, including tolling, congestion pricing, and public-private 
partnerships, it also places a number of restrictions on these 
mechanisms. It is unclear how these restrictions would affect the 
proposed expansion and potential benefits of such tools. 

Background: 

Transportation programs, like other federal programs, need to be viewed 
in the context of the nation's fiscal position. Long-term fiscal 
simulations by GAO, the Congressional Budget Office, and others all 
show that despite a 3-year decline in the federal government's unified 
budget deficit, we still face large and growing structural deficits 
driven by rising health care costs and demographic trends. As the baby 
boom generation retires, entitlement programs will grow and require 
increasing shares of federal spending. Absent significant changes to 
tax and spending programs and policies, we face a future of 
unsustainable deficits and debt that threaten to cripple our economy 
and quality of life.[Footnote 8] This looming fiscal crisis requires a 
fundamental reexamination of all government programs and commitments. 
Although the long-term outlook is driven by rising health care costs, 
all areas of government should be re-examined. This involves reviewing 
government programs and commitments and testing their continued 
relevance and relative priority for the 21st century. Such a 
reexamination offers an opportunity to address emerging needs by 
eliminating outdated or ineffective programs, more sharply defining the 
federal role in relation to state and local roles, and modernizing 
those programs and policies that remain relevant. We are currently 
working with Congress to develop a variety of tools to help carry out a 
reexamination of federal programs.[Footnote 9] 

The nation's surface transportation programs are particularly ready for 
reexamination. This would include asking whether existing program 
constructs and financing mechanisms are relevant to the challenges of 
the 21st century, and making tough choices in setting priorities and 
linking resources to results. We have previously reported on the 
following factors that highlight the need for transformation of the 
nation's transportation policy. 

* Future demand for transportation will strain the network. Projected 
population growth, technological changes, and increased globalization 
are expected to increase the strain on the nation's transportation 
system. Congestion across modes is significant and projected to worsen. 

* National transportation goals and priorities are difficult to 
discern. Federal transportation statutes and regulations establish 
multiple, and sometimes conflicting, goals and outcomes for federal 
programs. In addition, federal transportation funding is generally not 
linked to system performance or to the accomplishment of goals or 
outcomes. Furthermore, the transportation program, like many other 
federal programs, is subject to congressional directives, which could 
impede the selection of merit-based projects. 

* The federal government's role is often indirect. The Department of 
Transportation (DOT) implements national transportation policy and 
administers most federal transportation programs. While DOT carries out 
some activities directly, it does not have control over the vast 
majority of the activities it funds. Additionally, DOT's framework of 
separate modal administrations makes it difficult for intermodal 
projects to be integrated into the transportation network. 

* Future transportation funding is uncertain. Revenues to support the 
Highway Trust Fund--the major source of federal highway and transit 
funding--are eroding. Receipts for the Highway Trust Fund, which are 
derived from motor fuel and truck-related taxes (e.g., truck sales) are 
continuing to grow. However, the federal motor fuel tax of 18.4 cents 
per gallon has not been increased since 1993, and thus the purchasing 
power of fuel tax revenues has eroded with inflation. Furthermore, that 
erosion will continue with the introduction of more fuel-efficient 
vehicles and alternative-fueled vehicles in the coming years, raising 
the question of whether fuel taxes are a sustainable source of 
financing transportation. In addition, funding authorized in the 
recently enacted highway and transit program legislation is expected to 
outstrip the growth in trust fund receipts. Finally, the nation's long- 
term fiscal challenges constrain decision makers' ability to use other 
revenue sources for transportation needs. 

Recognizing many of these challenges and the importance of the 
transportation system to the nation, Congress established The National 
Surface Transportation Policy and Revenue Study Commission (Commission) 
in the Safe, Accountable, Flexible, Efficient Transportation Equity 
Act--A Legacy for Users (SAFETEA-LU).[Footnote 10] The mission of the 
Commission was, among other things, to examine the condition and future 
needs of the nation's surface transportation system and short and long- 
term alternatives to replace or supplement the fuel tax as the 
principal revenue source to support the Highway Trust Fund. In January 
2008, the Commission released a report with numerous recommendations to 
place the trust fund on a sustainable path and to reform the current 
structure of the nation's surface transportation programs. Congress 
also created the National Surface Transportation Infrastructure 
Financing Commission in SAFETEA-LU and charged it with analyzing future 
highway and transit needs and the finances of the Highway Trust Fund 
and recommending alternative approaches to financing transportation 
infrastructure.[Footnote 11] This Commission issued its interim report 
this past week, and its final report is expected by spring of 2009. In 
addition, various transportation industry associations and research 
groups have issued, or plan to issue in the coming months, proposals 
for restructuring and financing the surface transportation program. 

Principles to Assess Proposals for Restructuring the Surface 
Transportation Program: 

Through our prior analyses of existing programs, we identified a number 
of principles that could help drive an assessment of proposals for 
restructuring the federal surface transportation programs. These 
principles include (1) defining the federal role based on identified 
areas of national interest, (2) incorporating performance and 
accountability for results into funding decisions, and (3) ensuring 
fiscal sustainability and employing the best tools and approaches to 
improve results and return on investment. 

Define Federal Role Based on Identified Areas of National Interest: 

Our previous work has shown that identifying areas of national interest 
is an important first step in any proposal to restructure the surface 
transportation program. In identifying areas of national interest, 
proposals should consider existing 21st century challenges and how 
future trends could have an impact on emerging areas of national 
importance--as well as how the national interest and federal role may 
vary by area. For example, experts have suggested that federal 
transportation policy should recognize emerging national and global 
imperatives, such as reducing the nation's dependence on foreign fuel 
sources and minimizing the impact of the transportation system on 
global climate change. Once the various national interests in surface 
transportation have been identified, proposals should also clarify 
specific goals for federal involvement in the surface transportation 
program as well as define the federal role in working toward each goal. 
Goals should be specific and outcome-based to ensure that resources are 
targeted to projects that further the national interest. The federal 
role should be defined in relation to the roles of state and local 
governments, regional entities, and the private sector. Where the 
national interest is greatest, the federal government may play a more 
direct role in setting priorities and allocating resources as well as 
fund a higher share of program costs. Conversely, where the national 
interest is less evident, state and local governments, and others could 
assume more responsibility. For example, efforts to reduce 
transportation's impact on greenhouse gas emissions may warrant a 
greater federal role than other initiatives, such as reducing urban 
congestion, since the impacts of greenhouse gas emissions are widely 
dispersed, whereas the impacts of urban congestion may be more 
localized. 

The following illustrative questions can be used to determine the 
extent to which proposals to restructure the surface transportation 
program define the federal role in relation to identified areas of 
national interest and goals. 

* To what extent are areas of national interest clearly defined? 

* To what extent are areas of national interest reflective of future 
trends? 

* To what extent are goals defined in relation to identified areas of 
national interest? 

* To what extent is the federal role directly linked to defined areas 
of national interest and goals? 

* To what extent is the federal role defined in relation to the roles 
of state and local governments, regional entities, and the private 
sector? 

* To what extent does the proposal consider how the transportation 
system is linked to other sectors and national policies, such as 
environmental, security, and energy policies? 

Incorporate Performance and Accountability into Funding Decisions: 

Our previous work has shown that an increased focus on performance and 
accountability for results could help the federal government target 
resources to programs that best achieve intended outcomes and national 
transportation priorities. Tracking specific outcomes that are clearly 
linked to program goals could provide a strong foundation for holding 
grant recipients responsible for achieving federal objectives and 
measuring overall program performance. In particular, substituting 
specific performance measures for the current federal procedural 
requirements could help make the program more outcome-oriented. For 
example, if reducing congestion were an established federal goal, 
outcome measures for congestion, such as reduced travel time could be 
incorporated into the programs to hold state and local governments 
responsible for meeting specific performance targets. Furthermore, 
directly linking the allocation of resources to the program outcomes 
would increase the focus on performance and accountability for results. 
Incorporating incentives or penalty provisions into grants can further 
hold grantees and recipients accountable for achieving results. 

The following illustrative questions can be used to determine the 
extent to which proposals to restructure the surface transportation 
program incorporate performance and accountability mechanisms. 

* Are national performance goals identified and discussed in relation 
to state, regional, and local performance goals? 

* To what extent are performance measures outcome-based? 

* To what extent is funding linked to performance? 

* To what extent does the proposal include provisions for holding 
stakeholders accountable for achieving results? 

* To what extent does the proposal create data collection streams and 
other tools as well as a capacity for monitoring and evaluating 
performance? 

Ensure Fiscal Sustainability and Employ the Best Tools and Approaches 
to Improve Results and Return on Investment: 

We have previously reported that the effectiveness of any overall 
federal program design can be increased by incorporating strategies to 
ensure fiscal sustainability as well as by promoting and facilitating 
the use of the best tools and approaches to improve results and return 
on investment. Importantly, given the projected growth in federal 
deficits, constrained state and local budgets, and looming Social 
Security and Medicare spending commitments, the resources available for 
discretionary programs will be more limited--making it imperative to 
maximize the national public benefits of any federal investment through 
a rigorous examination of the use of such funds.[Footnote 12] The 
federal role in transportation funding must be reexamined to ensure 
that it is sustainable in this new fiscal reality. A sustainable 
surface transportation program will require targeted investment, with 
adequate return on investment, from not only the federal government, 
but also state and local governments, and the private sector. The user- 
pay concept--that is, users paying directly for the infrastructure they 
use--is a long-standing aspect of transportation policy and should, to 
the extent feasible and appropriate, remain an essential tenet as the 
nation moves toward the development of a fiscally sustainable 
transportation program. For example, a panel of experts recently 
convened by GAO agreed that regardless of funding mechanisms pursued, 
investments need to seek to align fees and taxes with use and 
benefits.[Footnote 13] 

A number of specific tools and approaches can be used to improve 
results and return on investment including using economic analysis, 
such as benefit-cost analysis in project selection; requiring grantees 
to conduct post-project evaluations; creating incentives to better 
utilize existing infrastructure; providing states and localities 
greater flexibility to use certain tools, such as tolling and 
congestion pricing; and requiring maintenance of effort provisions in 
grants. The suitability of the tool and approach used varies depending 
on the level of federal involvement or control that policymakers desire 
for a given area of policy. Using these tools and approaches could help 
surface transportation programs more directly address national 
transportation priorities and become more fiscally sustainable. 

The following illustrative questions can be used to determine the 
extent to which proposals to restructure the surface transportation 
program ensure fiscal sustainability and employ the best tools and 
approaches to improve results and return on investment. 

* To what extent do the proposals reexamine current and future spending 
on surface transportation programs? 

* Are the recommendations affordable and financially stable over the 
long-term? To what extent are the recommendations placed in the context 
of federal deficits, constrained budgets, and other spending 
commitments and to what extent do they meet a rigorous examination of 
the use of federal funds? 

* To what extent do the proposals discuss how costs and revenues will 
be shared among federal, state, local, and private stakeholders? 

* To what extent are recommendations considered in the context of 
trends that could affect the transportation system in the future, such 
as population growth, increased fuel efficiency, and increased freight 
traffic? 

* To what extent do the proposals build in capacity to address changing 
national interests? 

* To what extent do the proposals address the need better to align fees 
and taxes with use and benefits? 

* To what extent are efficiency and equity tradeoffs considered? 

* To what extent do the proposals provide flexibility and incentives 
for states and local governments to choose the most appropriate tool in 
the toolbox? 

Preliminary Observations on the Commission's Recommendations: 

The Commission makes a number of recommendations designed to 
restructure the federal surface transportation program so that it meets 
the needs of the nation in the 21st century. The recommendations 
include significantly increasing the level of investment by all levels 
of government in surface transportation, consolidating and reorganizing 
the current programs, speeding project delivery, and making the current 
programs more performance-and outcome-based and mode-neutral, among 
other things. We are currently analyzing the Commission's 
recommendations using the principles that we have developed for 
evaluating proposals to restructure the surface transportation program. 
Although our analysis is not complete, our preliminary results indicate 
that some of the Commission's recommendations address issues included 
in the principles. For example, to make the surface transportation 
program more performance-based, the Commission recommends the 
development of outcome-based performance standards for various 
programs. Other recommendations, however, appear to be aligned less 
clearly with the principles. 

Preliminary Observations on the Commission's Recommendations As They 
Relate to the National Interest and Federal Role: 

In its report, the Commission identifies eight areas of national 
interest and recommends organizational restructuring of DOT to 
eliminate modal stovepipes. In particular, the report notes that the 
national interest in transportation is best served when (1) facilities 
are well maintained, (2) mobility within and between metropolitan areas 
is reliable, (3) transportation systems are appropriately priced, (4) 
modes are rebalanced and travel options are plentiful, (5) freight 
movement is explicitly valued, (6) safety is assured, (7) 
transportation decisions and resource impacts are integrated, and (8) 
rational regulatory policy prevails. We and others have also identified 
some of these and other issues as possible areas of national interest 
for the surface transportation program. For example, at a recent forum 
on transportation policy convened by the Comptroller General, experts 
identified enhancing the mobility of people and goods, maintaining 
global competitiveness, improving transportation safety, minimizing 
adverse environmental impacts of the transportation system, and 
facilitating transportation security as the most important 
transportation policy goals. [Footnote 14] The Commission report also 
recommends restructuring DOT to consolidate the current programs and to 
eliminate modal stovepipes. We have also identified the importance of 
breaking down modal stovepipes. Specifically, we have reported that the 
modal structure of DOT and state and local transportation agencies can 
inhibit the consideration of a range of transportation options and 
impede coordination among the modes.[Footnote 15] Furthermore, in the 
forum on transportation policy, experts told us that the current 
federal structure, with its modal administrations and stovepiped 
programs and funding, frequently inhibits consideration of a range of 
transportation options at both the regional and national 
levels.[Footnote 16] 

Some of the Commission's recommendations related to the national 
interest and the federal role also raise questions for consideration. 
Although consolidating and reorganizing the existing surface 
transportation programs, as the Commission recommends, could help 
eliminate modal stovepipes, it is not clear to what extent eliminating 
any of the existing programs was considered. Given the federal 
government's fiscal outlook, we have reported that we cannot accept all 
of the federal government's existing programs, policies, and activities 
as "givens." Rather, we have stated that we need to rethink existing 
programs, policies, and activities by reviewing their results relative 
to the national interests and by testing their continued relevance and 
relative priority.[Footnote 17] It is not clear from the Commission's 
report that such a "zero-based" review of the current and proposed 
surface transportation programs took place. 

The Commission also recommends an 80/20 cost sharing arrangement for 
transportation projects under most programs--that is, the federal 
government would fund 80 percent of the project costs and the grantee 
(e.g., state government) would fund 20 percent. In addition, the 
Commission recommends that the federal government should pay 40 percent 
of national infrastructure capital costs. These proposed cost share 
arrangements suggest that the recommended level and share of federal 
funding reflects the benefits the nation receives from investment in 
the project--that is, the national interest. However, the report offers 
no evidence that this is the case. Rather, the proposed cost share 
arrangements appear to reflect the historical funding levels of many 
surface transportation programs without considering whether this level 
of funding reflects the national interest or should vary by program or 
project. For example, the Commission recommends that the federal 
government pay for 80 percent of the proposed intercity passenger rail 
system. However, we have found that the nation's intercity passenger 
rail system appears to provide limited public benefits for the level of 
federal expenditures required to operate it,[Footnote 18] raising 
questions as to whether an 80 percent federal share is justified. 

Preliminary Observations on the Commission's Recommendations As They 
Relate to Performance and Accountability: 

The Commission proposes to make the surface transportation program 
performance-and outcome-based, and its recommendations include several 
performance and accountability mechanisms. In particular, the 
Commission recommends the development of national outcome-based 
performance standards for the different federal programs. The 
Commission recommends that states and major metropolitan areas also be 
required to include performance measures in their own transportation 
plans, along with time frames for meeting national performance 
standards. To receive federal funding, projects must be listed in state 
and local plans, be shown to be cost-beneficial, and be linked to 
specific performance targets. In addition, the Commission recognizes 
the importance of data in measuring the effectiveness of transportation 
programs and overall project performance and recommends that an 
important goal of the proposed research, development, and technology 
program be to improve the nation's ability to measure project 
performance data. 

Although the Commission emphasizes the need for a performance-and 
outcome-based program, it is unclear to what extent some of the 
Commission's recommendations are aligned with such principles. For 
example, the Commission recommends that overall federal funding be 
apportioned to states based on state and local transportation plans, 
rather than directly linking the distribution of funds to state and 
local governments' performance in meeting identified national 
transportation goals.[Footnote 19] In addition, although the Commission 
recognizes the importance of data in evaluating the effectiveness of 
projects, the Commission does not recommend the use of post-project, or 
outcome, evaluations. Our previous work has shown that post-project 
evaluations provide an opportunity to learn from the successes and 
shortcomings of past projects to better inform future planning and 
decision making and increase accountability for results.[Footnote 20] 

Preliminary Observations on the Commission's Recommendations As They 
Relate to Fiscal Sustainability and the Use of the Best Tools and 
Approaches: 

The Commission recommends a range of financing mechanisms and tools as 
necessary components of a fiscally sustainable transportation program. 
These mechanisms include an increase in the federal fuel tax, 
investment tax credits, and the introduction of new fees, such as a new 
fee on freight and a new transit ticket tax. Experts at our forum on 
transportation policy also advocated the use of various financing 
mechanisms, including many of the mechanisms recommended by the 
Commission, arguing that there is no "silver bullet" for the current 
and future funding crisis facing the nation's transportation 
system.[Footnote 21] The Commission also recognizes that states will 
need to use other tools to generate revenues for their share of the 
recommended increase in investment and to manage congestion. Therefore, 
the Commission supports fewer federal restrictions on tolling and 
congestion pricing on the interstate highways system and recommends 
that Congress encourage the use of public-private partnerships where 
appropriate. In addition, the Commission recognizes the growing 
consensus that, with more fuel-efficient and more alternative-fuel 
vehicles, an alternative to the fuel tax will be required in the next 
15 to 20 years. To facilitate a transition to new revenue sources, the 
Commission recommends that Congress require a study of specific 
mechanisms, such as mileage-based user fees. 

It is unclear, however, whether some of the Commission's 
recommendations are fiscally sustainable--both over the short and the 
long-term--and encourage the use of the best tools and approaches. For 
example, the Commission recommends a substantial investment-- 
specifically, $225 billion per year--in the surface transportation 
program by all stakeholders. However, the level of investment called 
for by the Commission reflects the most expensive "needs" scenario 
examined by the Commission,[Footnote 22] raising questions about 
whether this level of investment is warranted and whether federal, 
state, and local governments can generate their share of the investment 
in light of competing priorities and fiscal constraints. In addition, 
while much of the increased investment in the surface transportation 
program would come from increased fuel taxes and other user fees, some 
funding would come from general revenues. Such recommendations need to 
be considered in the context of the overall fiscal condition of the 
federal government. Finally, while the Commission recommends enhanced 
opportunities for states to implement alternative tools such as 
tolling, congestion pricing, and public-private partnerships, it also 
recommends that Congress place a number of restrictions on the use of 
these mechanisms, such as requirements that states cap toll rates (at 
the level of the CPI minus a productivity adjustment), prohibit the use 
of revenues for non-transportation purposes, avoid toll rates that 
discriminate against certain users, and fully consider the effect 
tolling might have on diverting traffic to other facilities. The 
potential federal restrictions must be carefully crafted to avoid 
undermining the potential benefits. 

Concluding Observations: 

In conclusion, the magnitude of the nation's transportation challenges 
calls for an urgent response, including a plan for the future. The 
Commission's report offers one way forward. Over the coming months, 
other options to restructure and finance the surface transportation 
program will likely be put forward by a range of transportation 
stakeholders. Ultimately, Congress and other federal policymakers will 
have to determine which option--or which combination of options--best 
meets the needs of the nation. There is no silver bullet solution to 
the nation's transportation challenges and many of the options, such as 
reorganizing a large federal agency or allowing greater private sector 
investment in the nation's infrastructure, could be politically 
difficult to implement both nationally and locally. The principles that 
we identified provide a framework for evaluation. Although the 
principles do not prescribe a specific approach to restructuring, they 
do provide key attributes that will help ensure that a restructured 
surface transportation program addresses current challenges. We will 
continue to assist the Congress as it works to evaluate the various 
options and develop a national transportation policy for the 21st 
century that will improve the design of transportation programs, the 
delivery of services, and accountability for results. 

Madam Chairman, this concludes my prepared statement. I would be 
pleased to respond to any questions that you or other Members of the 
Committee might have. 

GAO Contact and Staff Acknowledgement: 

For further information on this statement, please contact JayEtta Z. 
Hecker at (202) 512-2834 or [email protected]. Individuals making key 
contributions to this testimony were Elizabeth Argeris, Nikki Clowers, 
Barbara Lancaster, Matthew LaTour, Nancy Lueke, and Katherine Siggerud. 

[End of section] 

Related GAO Products: 

Long-Term Fiscal Outlook: Action Is Needed to Avoid the Possibility of 
a Serious Economic Disruption in the Future. GAO-08-411T. Washington, 
D.C.: January 29, 2008. 

Freight Transportation: National Policy and Strategies Can Help Improve 
Freight Mobility. GAO-08-287. Washington, D.C.: January 7, 2008: 

A Call For Stewardship: Enhancing the Federal Government's Ability to 
Address Key Fiscal and Other 21st Century Challenges. GAO-08-93SP. 
Washington, D.C.: December 2007. 

Highlights of a Forum: Transforming Transportation Policy for the 21st 
Century. GAO-07-1210SP. Washington, D.C.: September 2007. 

Public Transportation: Future Demand Is Likely for New Starts and Small 
Starts Programs, but Improvements Needed to the Small Starts 
Application Process. GAO-07-917. Washington, D.C.: July 27, 2007. 

Surface Transportation: Strategies Are Available for Making Existing 
Road Infrastructure Perform Better. GAO-07-920. Washington, D.C.: July 
26, 2007. 

Highway and Transit Investments: Flexible Funding Supports State and 
Local Transportation Priorities and Multimodal Planning. GAO-07-772. 
Washington, D.C.: July 26, 2007. 

Railroad Bridges and Tunnels: Federal Role in Providing Safety 
Oversight and Freight Infrastructure Investment Could Be Better 
Targeted. GAO-07-770. Washington, D.C.: August 6, 2007. 

Intermodal Transportation: DOT Could Take Further Actions to Address 
Intermodal Barriers. GAO-07-718. Washington, D.C.: June 20, 2007. 

Performance and Accountability: Transportation Challenges Facing 
Congress and the Department of Transportation. GAO-07-545T. Washington, 
D.C.: March 6, 2007. 

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 
2007. 

Fiscal Stewardship: A Critical Challenge Facing Our Nation. GAO-07- 
362SP. Washington, D.C.: January 2007. 

Intercity Passenger Rail: National Policy and Strategies Needed to 
Maximize Public Benefits from Federal Expenditures. GAO-07-15. 
Washington, D.C.: November 13, 2006. 

Freight Railroads: Industry Health Has Improved, but Concerns about 
Competition and Capacity Should be Addressed. GAO-07-94. Washington, 
D.C.: October 6, 2006. 

Highway Finance: States' Expanding Use of Tolling Illustrates Diverse 
Challenges and Strategies. GAO-06-554. Washington, D.C.: June 28, 2006. 

Highway Trust Fund: Overview of Highway Trust Fund Estimates. GAO-06- 
572T. Washington, D.C.: April 4, 2006. 

Highway Congestion: Intelligent Transportation Systems' Promise for 
Managing Congestion Falls Short, and DOT Could Better Facilitate Their 
Strategic Use. GAO-05-943. Washington, D.C.: September 14, 2005. 

Freight Transportation: Short Sea Shipping Option Shows Importance of 
Systematic Approach to Public Investment Decisions. GAO-05-768. 
Washington, D.C.: July 29, 2005. 

Highlights of an Expert Panel: The Benefits and Costs of Highway and 
Transit Investments. GAO-05-423SP. Washington, D.C.: May 6, 2005. 

21st Century Challenges: Reexamining the Base of the Federal 
Government. GAO-05-325SP. Washington, D.C.: February 2005. 

Highway and Transit Investments: Options for Improving Information on 
Projects' Benefits and Costs and Increasing Accountability for Results. 
GAO-05-172. Washington, D.C.: January 24, 2005. 

Federal-Aid Highways: Trends, Effect on State Spending, and Options for 
Future Program Design. GAO-04-802. Washington, D.C.: August 31, 2004. 

Surface Transportation: Many Factors Affect Investment Decisions. GAO- 
04-744. Washington, D.C.: June 30, 2004. 

Highways and Transit: Private Sector Sponsorship of and Investment in 
Major Projects Has Been Limited. GAO-04-419. Washington, D.C.: March 
25, 2004. 

[End of section] 

Footnotes: 

[1] Congress created The National Surface Transportation Policy and 
Revenue Study Commission in 2005 under section 1909(b) of the Safe, 
Accountable, Flexible, Efficient Transportation Equity Act--A Legacy 
for Users (SAFETEA-LU) , Pub. L. No. 109-59, ï¿½1909(b), 119 Stat. 1471 
(Aug. 10, 2005). 

[2] In this statement, we use the term "surface transportation program" 
to refer collectively to the various surface transportation programs, 
such as the federal highway, safety, rail, maritime, and transit 
programs. 

[3] GAO's audits and evaluations identify federal programs and 
operations that, in some cases, are high risk due to their greater 
vulnerabilities to fraud, waste, abuse, and mismanagement. In recent 
years, we also have identified high-risk areas to focus on the need for 
broad-based transformations to address major economy, efficiency, or 
effectiveness challenges. Since 1990, we have periodically reported on 
government operations that we have designated as high risk. In 2007, we 
added financing the nation's transportation system to the High Risk 
List. See, GAO, High-Risk Series: An Update. GAO-07-310. Washington, 
D.C.: January 2007. 

[4] GAO, Long-Term Fiscal Outlook: Action Is Needed to Avoid the 
Possibility of a Serious Economic Disruption in the Future, GAO-08-411T 
(Washington, D.C.: Jan. 29, 2008) and Fiscal Stewardship: A Critical 
Challenge Facing Our Nation, GAO-07-362SP (Washington, D.C.: January 
2007). 

[5] See GAO, Performance and Accountability: Transportation Challenges 
Facing Congress and the Department of Transportation, GAO-07-545T 
(Washington, D.C.: Mar. 6, 2007) and 21st Century Challenges: 
Reexamining the Base of the Federal Government, GAO-05-325SP 
(Washington, D.C.: February 2005). 

[6] The previous performance audits were conducted in accordance with 
generally accepted government auditing standards. See "Related GAO 
Products" at the end of this testimony statement. 

[7] These principles were developed as part of our ongoing review of 
the evolution of the surface transportation program, which is expected 
to be issued in March 2008. 

[8] Additional information about GAO's simulations and the Nation's 
long-term fiscal challenge can be found at [hyperlink, 
http://www.gao.gov/special.pubs/longterm/]. 

[9] GAO, A Call for Stewardship: Enhancing the Federal Government's 
Ability to Address Key Fiscal and Other 21st Century Challenges, GAO-08-
93SP (Washington, D.C.: December 2007). 

[10] Pub. L. No. 109-59, ï¿½1909(b), 119 Stat. 1471. 

[11] Pub. L. No. 109-59, ï¿½ 11142(a), 119 Stat. 1961. 

[12] GAO, Freight Transportation: National Policy and Strategies Can 
Help Improve Freight Mobility. GAO-08-287 (Washington, D.C.: Jan. 7, 
2008). 

[13] GAO, Highlights of a Forum: Transforming Transportation Policy for 
the 21st Century. GAO-07-1210SP (Washington, D.C.: September 2007). 

[14] GAO-07-1210SP. 

[15] GAO, Intermodal Transportation: DOT Could Take Further Actions to 
Address Intermodal Barriers. GAO-07-718. Washington, D.C.: June 20, 
2007) and GAO-07-1210SP. 

[16] GAO-07-1210SP. 

[17] GAO-05-325SP. 

[18] GAO, Intercity Passenger Rail: National Policy and Strategies 
Needed to Maximize Public Benefits from Federal Expenditures. GAO-07-15 
(Washington, D.C.: Nov. 13, 2006). 

[19] The Commission does recommend giving the National Surface 
Transportation Commission, a proposed independent body recommended by 
the Commission to oversee development of a national strategic plan for 
transportation investment and to recommend appropriate revenue 
adjustments to the Congress, authority to increase the federal share 
for particular activities as an incentive and to reduce the federal 
share of funding when performance objectives are not met. 

[20] See GAO, Highway and Transit Investments: Options for Improving 
Information on Projects' Benefits and Costs and Increasing 
Accountability for Results, GAO-05-172 (Washington D.C.: Jan. 24, 
2005). 

[21] GAO-07-1210SP. 

[22] The Commission examined various scenarios that incorporate 
packages of transportation policy options. These scenarios have been 
used to identify ranges of potential investment that would be expected 
to achieve different performance impacts at various points in time in 
the future. While the investment needs presented in the Commission 
report were developed using some of the same analytical tools utilized 
in previous reports by DOT, such as the Highway Economic Requirements 
System, these tools were customized to meet the requirements of the 
Commission and supplemented using additional analytical approaches 
developed specifically for this study. 

[End of section] 

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