Physical Infrastructure: Challenges and Investment Options for	 
the Nation's Infrastructure (08-MAY-08, GAO-08-763T).		 
                                                                 
Physical infrastructure is critical to the nation's economy and  
affects the daily life of virtually all Americans--from 	 
facilitating the movement of goods and people within and beyond  
U.S. borders to providing clean drinking water. However, this	 
infrastructure--including aviation, highway, transit, rail,	 
water, and dam infrastructure--is under strain. Estimates to	 
repair, replace, or upgrade aging infrastructure as well as	 
expand capacity to meet increased demand top hundreds of billions
of dollars. Calls for increased investment in infrastructure come
at a time when traditional funding for infrastructure projects is
increasingly strained, and the federal government's fiscal	 
outlook is worse than many may understand. This testimony	 
discusses (1) challenges associated with the nation's surface	 
transportation, aviation, water, and dam infrastructure, and the 
principles GAO has identified to help guide efforts to address	 
these challenges and (2) existing and proposed options to fund	 
investments in the nation's infrastructure. This statement is	 
primarily based on a body of work GAO has completed for the	 
Congress over the last several years. To supplement this existing
work, GAO also interviewed Department of Transportation officials
to obtain up-to-date information on the status of the Highway	 
Trust Fund and various funding and financing options and reviewed
published literature to obtain information on dam infrastructure 
issues. 							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-763T					        
    ACCNO:   A82058						        
  TITLE:     Physical Infrastructure: Challenges and Investment       
Options for the Nation's Infrastructure 			 
     DATE:   05/08/2008 
  SUBJECT:   Accountability					 
	     Aviation						 
	     Critical infrastructure				 
	     Federal aid for highways				 
	     Federal aid for transportation			 
	     Federal aid to states				 
	     Federal funds					 
	     Federal/state relations				 
	     Fiscal policies					 
	     Fund audits					 
	     Funds management					 
	     Investment planning				 
	     Policy evaluation					 
	     Program evaluation 				 
	     Reporting requirements				 
	     Transportation costs				 
	     Transportation industry				 
	     Transportation planning				 
	     Transportation policies				 
	     Transportation research				 
	     Program goals or objectives			 
	     Highway Trust Fund 				 

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GAO-08-763T

   

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Testimony before the Committee on the Budget and the Committee on 
Transportation and Infrastructure, U.S. House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Thursday, May 8, 2008: 

Physical infrastructure: 

Challenges and Investment Options for the Nation's Infrastructure: 

Statement of Patricia A. Dalton, Managing Director: 

Physical Infrastructure Issues: 

GAO-08-763T: 

GAO Highlights: 

Highlights of GAO-08-763T, a testimony before the Committee on the 
Budget and the Committee on Transportation and Infrastructure, U.S. 
House of Representatives. 

Why GAO Did This Study: 

Physical infrastructure is critical to the nationï¿½s economy and affects 
the daily life of virtually all Americansï¿½from facilitating the 
movement of goods and people within and beyond U.S. borders to 
providing clean drinking water. However, this infrastructureï¿½including 
aviation, highway, transit, rail, water, and dam infrastructureï¿½is 
under strain. Estimates to repair, replace, or upgrade aging 
infrastructure as well as expand capacity to meet increased demand top 
hundreds of billions of dollars. Calls for increased investment in 
infrastructure come at a time when traditional funding for 
infrastructure projects is increasingly strained, and the federal 
governmentï¿½s fiscal outlook is worse than many may understand. 

This testimony discusses (1) challenges associated with the nationï¿½s 
surface transportation, aviation, water, and dam infrastructure, and 
the principles GAO has identified to help guide efforts to address 
these challenges and (2) existing and proposed options to fund 
investments in the nationï¿½s infrastructure. This statement is primarily 
based on a body of work GAO has completed for the Congress over the 
last several years. To supplement this existing work, GAO also 
interviewed Department of Transportation officials to obtain up-to-date 
information on the status of the Highway Trust Fund and various funding 
and financing options and reviewed published literature to obtain 
information on dam infrastructure issues. 

What GAO Found: 

The nation faces a host of serious infrastructure challenges. Demand 
has outpaced the capacity of our nationï¿½s surface transportation and 
aviation systems, resulting in decreased performance and reliability. 
In addition, water utilities are facing pressure to upgrade the 
nationï¿½s aging and deteriorating water infrastructure to improve 
security, serve growing demands, and meet new regulatory requirements. 
Given these types of challenges and the federal governmentï¿½s fiscal 
outlook, it is clear that the federal government cannot continue with 
business as usual. Rather, a fundamental reexamination of government 
programs, policies, and activities is needed. Through prior analyses of 
existing programs, GAO identified a number of principles that could 
guide a reexamination of federal infrastructure programs. These 
principles include: 

* creating well-defined goals based on identified areas of national 
interest, 

* establishing and clearly defining the federal role in achieving each 
goal, 

* incorporating performance and accountability into funding decisions, 

* employing the best tools and approaches to emphasize return on 
investment, and: 

* ensuring fiscal sustainability. 

Various options are available to fund infrastructure investments. These 
options include altering existing or introducing new funding approaches 
and employing various financing mechanisms, such as bonds and loans. 
For example, a variety of taxes and user fees, such as tolling, can be 
used to help fund infrastructure projects. In addition, some have 
suggested including an infrastructure component in a future economic 
stimulus bill, which could provide a one-time infusion of funds for 
infrastructure projects. Each of these options has different merits and 
challenges, and choosing among them will likely involve trade-offs 
among different policy goals. Furthermore, the suitability of the 
various options depends on the level of federal involvement or control 
that policymakers desire. However, as GAO has reported, when 
infrastructure investment decisions are made based on sound 
evaluations, these options can lead to an appropriate blend of public 
and private funds to match public and private costs and benefits. To 
help policymakers make explicit decisions about how much overall 
federal spending should be devoted to investment, GAO has previously 
proposed establishing an investment component within the unified 
budget. 

Figure: 

This figure is a combination of photos: an airplane, a truck, traffic, 
and a river overview. 

[See PDF for image] 

Source: Corbis & U.S. Army Corps of Engineers. 

[End of figure] 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-763T]. For more 
information, contact Patricia Dalton at (202) 512-2834 or 
[email protected] 

[End of section] 

Messrs. Chairmen and Members of the Committees: 

We appreciate the opportunity to testify on infrastructure financing 
issues. As you know, the nation's physical infrastructure is critical 
to the nation's economy and affects the daily life of most Americans-- 
from facilitating the movement of goods and people within and beyond 
U.S. borders to providing clean drinking water. However, as illustrated 
by the 2007 bridge collapse in Minnesota and numerous water main breaks 
across the country, the nation's physical infrastructure is under 
strain. Estimates of the costs to repair, replace, or upgrade aging 
infrastructure so that it can safely, efficiently, and reliably meet 
current demands, as well as expand capacity to meet increasing demands, 
top hundreds of billions of dollars. 

Addressing these challenges is complicated by the breadth of the 
nation's physical infrastructure--including aviation, highway, transit, 
rail, water, and dam infrastructure--which is owned, funded, and 
operated by all levels of the government and the private sector. 
Moreover, infrastructure policy decisions are inextricably linked with 
economic, environmental, and energy policy concerns. Calls for 
increased investment in infrastructure coincide with increasing strains 
on traditional funding for infrastructure projects. For example, 
without significant changes in funding or planned spending, the Highway 
Trust Fund is projected to incur significant deficits in the years 
ahead.[Footnote 1]Furthermore, the federal government's financial 
condition and fiscal outlook are worse than many may 
understand.[Footnote 2] Specifically, the federal budget is on an 
unsustainable path--raising questions about whether people should 
assume federal funds will be available to help solve the nation's 
current infrastructure challenges. We have also previously reported 
that state and local governments will likely face persistent fiscal 
challenges starting within the next few years.[Footnote 3] 
Consequently, a range of investment options for the nation's physical 
infrastructure is currently being explored and proposed by some 
policymakers and industry stakeholders. 

Prudent use of taxpayer dollars is always important. The economic and 
social importance of the nation's infrastructure and the current fiscal 
environment make it even more important that federal, state, and local 
governments make prudent decisions on how to invest limited available 
resources. In making these decisions, governments will face an array of 
challenges that include repairing and maintaining aging infrastructure, 
making more efficient use of existing infrastructure, accounting for 
population growth, and incorporating new technologies in funding for 
infrastructure. In this environment, the infrastructure improvements 
that all levels of government want may not reflect what they need or 
what the nation can afford. Accordingly, decisions about the 
appropriate level of distribution and spending on infrastructure are 
both difficult and enormously important. 

My remarks today focus on (1) challenges associated with the nation's 
surface transportation, aviation, water, and dam infrastructure, and 
the principles we have identified to help guide efforts to address 
these challenges and (2) existing and proposed options to fund 
investments in the nation's infrastructure. My comments are based 
primarily on a body of work that we have completed over the past 
several years for the Congress.[Footnote 4] To supplement our existing 
work, we also interviewed Department of Transportation (DOT) officials 
and reviewed published literature to obtain up-to-date information on 
the status of the Highway Trust Fund, various funding and financing 
options, and dam infrastructure issues. We conducted this work between 
March and May 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. 

Summary: 

The nation faces a host of serious infrastructure challenges. For 
example, demand has outpaced the capacity of our nation's surface 
transportation and aviation systems, resulting in decreased performance 
and reliability. Furthermore, as we recently reported, federal surface 
transportation programs are not effectively addressing key challenges, 
such as congestion, because the federal goals and roles are unclear, 
many programs lack links to performance or needs, and the programs 
often do not employ the best tools and approaches. In addition, water 
utilities are facing pressure to upgrade the nation's aging and 
deteriorating water infrastructure to improve security, serve growing 
demands, and meet new regulatory requirements. Given these types of 
challenges and the federal government's fiscal outlook, it is clear 
that the federal government cannot continue with business as usual. 
Rather, a fundamental reexamination of government programs, policies, 
and activities is needed. Through our prior analyses of existing 
programs, we identified a number of principles that could help guide a 
reexamination of the federal surface transportation program. While 
these principles are designed specifically to reexamine the surface 
transportation program, most, if not all of them, could be applicable 
to other federal infrastructure programs. These principles are: 

* creating well-defined goals based on identified areas of national 
interest, 

* establishing and clearly defining the federal role in achieving each 
goal, 

* incorporating performance and accountability into funding decisions, 

* employing the best tools and approaches to emphasize return on 
investment, and: 

* ensuring fiscal sustainability. 

A wide variety of options are available to fund infrastructure 
investments. These options include altering existing or introducing new 
funding approaches and employing various financing mechanisms, such as 
bonds and loans. For example, a variety of taxes and user fees, such as 
tolling, can be used to help fund infrastructure projects. In addition, 
some have suggested including an infrastructure component in a future 
economic stimulus bill, which could provide a one-time infusion of 
funds for infrastructure projects. Each of these options has different 
merits and challenges, and choosing among them will likely involve 
policy trade-offs. Furthermore, the suitability of any of these options 
depends on the level of federal involvement or control that 
policymakers desire in a given policy area. However, as we have 
reported, when infrastructure investment decisions are based on sound 
evaluations, these options can lead to an appropriate blend of public 
and private funds to match public and private costs and benefits. To 
help policymakers make explicit decisions about how much overall 
federal spending should be devoted to investment, we have previously 
proposed establishing an investment component within the unified 
budget. 

Background: 

The economic well-being of the United States is dependent on the 
reliability, safety, and security of its physical infrastructure. The 
nation's infrastructure is vast and affects the daily lives of 
virtually all Americans. In total, there are about 4 million miles of 
roads, 117,000 miles of rail, 600,000 bridges, 79,000 dams, 26,000 
miles of commercially navigable waterways, 11,000 miles of transit 
lines, 500 train stations, 300 ports, 19,000 airports,[Footnote 5] 
55,000 community drinking water systems, and 30,000 wastewater 
treatment and collection facilities. Collectively, this infrastructure 
connects communities, facilitates trade, provides clean drinking water, 
and protects public health, among other things. 

The nation's infrastructure is primarily owned and operated by state 
and local governments and the private sector. For example, state and 
local governments own about 98 percent of the nation's bridges and the 
private sector owns almost all freight railroad infrastructure. The 
federal government owns a limited amount of infrastructure--for 
instance, the federal government owns and operates the nation's air 
traffic control infrastructure. In addition, through its oversight 
role, the federal government plays an important role in ensuring the 
safety, security, and reliability of the nation's infrastructure. Table 
1 provides information on infrastructure ownership. 

Table 1: Physical Infrastructure Ownership: 

Surface transportation; 
* Ninety-seven percent of the nation's roads and highways are owned by 
state and local governments, with local governments owning 
approximately 77 percent of the miles of roadway. 
* About 98 percent of the nation's bridges are owned by state and local 
governments.  

* Most transit systems are owned and operated by public agencies that 
are created by state and local governments. 

* Most freight railroad infrastructure is owned by private freight 
railroads. The federal government owns about 650 miles of Amtrak's 
22,000-mile rail network. 

* The maritime transportation infrastructure, including ports, is 
generally owned and operated by state and local agencies and private 
companies. Many ports are publicly owned and privately operated. 

Aviation; 

* Most commercial service airports are owned by local or state 
governments, either directly or through an authority, a quasi- 
governmental body established to operate the airport. 

* Air traffic control facilities are owned by the federal government. 

Water; 

* About half of the nation's drinking water systems and an estimated 20 
percent of the wastewater systems are privately owned. Private owners 
range from homeowners' associations, mobile home parks, and other 
entities whose primary business is unrelated to water supply or 
wastewater treatment, to larger, investor-owned companies. Publicly 
owned drinking water systems and wastewater utilities are owned by 
municipalities, townships, counties, water or sewer districts, and 
water or sewer authorities. 

Dams (including levees); 

* The majority of dams in the United States are privately owned. The 
federal government owns and operates about 5 percent of the nation's 
dams.  

* Levees are typically constructed by the federal government, and local 
governments are responsible for their operation and maintenance. 

Source: GAO summary of information from the Airport Cooperative 
Research Program, Department of Transportation, Environmental 
Protection Agency, Federal Emergency Management Agency, National 
Academy of Public Administration, and the National Railroad Passenger 
Corporation. 

[End of table] 

Funding for the nation's infrastructure comes from a variety of 
federal, state, local, and private sources. For example, the private 
and local public owners of water infrastructure as well as multiple 
federal agencies fund drinking water and wastewater capital 
improvements. As owners of the infrastructure, state and local 
governments and the private sector generally account for a larger share 
of funding for infrastructure than the federal government. However, the 
federal government has played and continues to play an important role 
in funding infrastructure. For example: 

* From 1954 through 2001, the federal government invested over $370 
billion (in 2001 dollars) in the Interstate Highway System. 

* Federal Airport Improvement Program grants provided an average of 
$3.6 billion annually (in 2006 dollars) for airport capital 
improvements between 2001 and 2005. 

* From fiscal year 1991 through fiscal year 2000, nine federal agencies 
provided about $44 billion (in 2000 dollars) for drinking water and 
wastewater capital improvements. 

* Through the New Starts program, the federal government provided over 
$10 billion in capital funds for new fixed-guideway transit (e.g., 
commuter rail and subway) projects between fiscal year 1998 and fiscal 
year 2007. 

To increase the nation's long-term productivity and growth, the federal 
government invests in various activities and sectors, including 
infrastructure.[Footnote 6]While providing long-term benefits to the 
nation as a whole, much of this spending does not result in federal 
ownership of the infrastructure assets. For the most part, the federal 
government supports infrastructure investments through federal 
subsidies to other levels of government or the private sector. To 
address concerns about the state of the nation's infrastructure, 
Members of Congress have introduced several bills that are intended to 
increase investment in the nation's infrastructure by, for example, 
issuing bonds and providing tax credits for infrastructure investments. 
(See table 2.) 

Table 2: Examples of Proposed Legislation Related to Infrastructure 
Investment: 

Proposed title: National Infrastructure Bank Act (S. 1926 / H.R. 3401); 
Description: Would establish an independent National Infrastructure 
Bank to: (1) designate qualified transit, public housing, water, 
highway, bridge, or road infrastructure projects for loans, loan 
guarantees, and other financial assistance; and (2) issue general 
purpose and project-based infrastructure bonds exempt from state and 
local taxation. 

Proposed title: Build America Bonds Act (S. 2021); 
Description: Would provide $50 billion in new transportation 
infrastructure funding through bonding to empower states and local 
governments to complete significant infrastructure projects across all 
modes of transportation, including roads, bridges, rail and transit 
systems, ports, and inland waterways, and for other purposes. 

Proposed title: American Infrastructure Investment and Improvement Act 
(S. 2345); 
Description: Would provide $3.4 billion to the Highway Trust Fund and 
establish a rail infrastructure tax credit, among other things. 

Proposed title: Our Nation's Trade, Infrastructure, Mobility, and 
Efficiency Act (H.R. 5102); 
Description: Would direct the Secretary of Transportation to establish 
and collect a fee based on the fair market value of articles imported 
into the United States and articles exported from the United States in 
commerce and to use amounts collected from the fee to make grants to 
carry out certain transportation projects in the transportation trade 
corridors for which the fee is collected, and for other purposes. 

Proposed title: Dam Rehabilitation and Repair Act of 2007 (H.R. 3224); 
Description: Would provide $200 million over five years to repair state 
and locally owned dams. The grants would be part of the National Dam 
Safety Program, a federal-state partnership aimed at reducing the risk 
to life and property from dam failure. The federal government's share 
of repair costs would be limited to 65 percent. Dams that do not meet 
state safety standards or that pose a risk to the public would be 
eligible for funding under the program. 

Proposed title: Freight Rail Infrastructure Capacity Expansion Act 
(H.R. 2116 / S. 1125); 
Description: Would provide incentives to encourage investment in the 
expansion of freight rail infrastructure capacity and to enhance modal 
tax equity. Specifically, the bill amends the Internal Revenue Code to 
allow: (1) a tax credit for 25 percent of the cost of new qualified 
freight rail infrastructure property and qualified locomotive property; 
and (2) a taxpayer election to expense the cost of qualified freight 
rail infrastructure property (i.e., deduct all costs in the current 
taxable year). 

Source: GAO analysis of legislation introduced in the 110TH Congress. 

[End of table] 

Congress previously established two commissions to study the condition 
and future needs of the surface transportation system, including 
financing options. It created the National Surface Transportation 
Policy and Revenue Study Commission (Policy Commission) 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 supporting the Highway 
Trust Fund.In January 2008, the Policy Commission released its final 
report. Congress also created the National Surface Transportation 
Infrastructure Financing Commission and charged it with analyzing 
future highway and transit needs and the finances of the Highway Trust 
Fund and with recommending alternative approaches to financing 
transportation infrastructure. This commission issued its interim 
report in February 2008, and its final report is expected in November 
2008. 

The Nation Faces Significant Challenges Associated with Its 
Infrastructure: 

We have previously reported that the nation's surface transportation, 
aviation, water, and dam systems face numerous challenges related to 
their infrastructure. Increasing congestion has strained the capacity 
of our nation's surface transportation and aviation systems, decreasing 
their overall performance in meeting the nation's mobility needs. 
Furthermore, significant investments are needed in our nation's 
drinking and wastewater systems to address deteriorating infrastructure 
and deferred maintenance. In light of these and other challenges, we 
have called for a fundamental reexamination of government programs and 
developed a set of principles that could help guide such a 
reexamination. 

Growing Congestion Challenges the Nation's Surface Transportation 
System, While Federal Programs Face Funding Uncertainties: 

Despite increases in transportation spending at all levels of 
government and improvements to the physical condition of highways and 
transit facilities over the past 10 years, congestion has worsened and 
safety gains have leveled off. For example, according to DOT, highway 
spending by all levels of government has increased 100 percent in real 
dollar terms since 1980, but the hours of delay during peak travel 
periods have increased almost 200 percent during the same period. In 
addition, demand has outpaced the capacity of the system, and projected 
population growth, technological changes, and increased globalization 
are expected to further strain the system. We have previously reported 
that federal surface transportation programs are not effectively 
addressing these key challenges because federal goals and roles are 
unclear, many programs lack links to needs or performance, and the 
programs may not employ the best tools and approaches.[Footnote 7]In 
addition, federal transportation funding is generally not linked to 
specific performance-related goals or outcomes, resulting in limited 
assurance that federal funding is being channeled to the nation's most 
critical mobility needs. Federal funding is also often tied to a single 
transportation mode, which may limit the use of federal funds to 
finance the greatest improvements in mobility. 

To address these surface transportation challenges, various 
stakeholders have called for increasing significantly the level of 
investment by all levels of government in surface transportation. For 
example, in its January 2008 report, the Policy Commission recommended 
that all levels of government and the private sector collectively 
invest at least $225 billion each year to maintain and improve the 
surface transportation system, which would be about $140 billion more 
than is currently invested. However, without significant changes in 
funding, planned spending, or both, the balance of the Highway Account 
of the Highway Trust Fund--the major source of federal highway funds-- 
is projected to be exhausted at some point during fiscal year 2009. To 
address this gap between revenues and spending, in its fiscal year 2009 
budget request, the administration proposed granting the Secretary of 
the Treasury, in consultation with the Secretary of Transportation, the 
flexibility to transfer funds between the Highway and Transit Accounts 
of the Highway Trust Fund. However, this solution, if enacted, would 
provide only a short-term reprieve--both the administration and the 
Congressional Budget Office project that the balances of the Highway 
and Transit Accounts would be exhausted by the end of fiscal year 2010. 

Increasing Demand Strains the Aviation System and Traditional Funding 
Approaches: 

The Federal Aviation Administration (FAA) faces significant challenges 
in keeping the nation's current airspace system running as efficiently 
as possible as the demand for air travel increases and the air traffic 
control system ages. System congestion, and the resulting flight delays 
and cancellations, are serious problems that have worsened in recent 
years. For example, according to DOT, 2007 was the second-worst year 
for delays since 1995. To accommodate current and expected demand for 
air travel, FAA and aviation stakeholders are developing the Next 
Generation Air Transportation System (NextGen) to modernize the 
nation's air traffic control infrastructure and increase capacity. This 
effort is complex and costly. Although there is considerable 
uncertainty about how much NextGen will cost, FAA estimates that 
NextGen infrastructure will cost the federal government between $15 
billion and $22 billion through 2025. Other key challenges for FAA 
include managing a timely acquisition and implementation of NextGen and 
dealing effectively with the environmental concerns of communities that 
are adjacent to airports or under the flight paths of arriving and 
departing aircraft. For example, as we have previously testified, if 
not adequately addressed, these concerns, particularly about the noise 
that affects local communities and the emissions that contribute to 
global warming, may constrain efforts to build or expand the runways 
and airports needed to handle the added capacity envisioned for 
NextGen.[Footnote 8] In addition, airports face similar funding 
challenges in attempting to expand their capacity. For example, planned 
airport development costs total at least $14 billion annually (in 2006 
dollars) through 2011--exceeding historical funding levels by about $1 
billion per year. 

We have previously testified that FAA's current funding mechanisms--the 
Airport and Airway Trust Fund (Trust Fund) and the U.S. Treasury's 
general fund--can potentially provide sufficient resources to support 
FAA activities, including NextGen.[Footnote 9]However, there are a 
number of uncertainties--including the future cost of NextGen 
investment, the volume of air traffic, the future costs of operating 
the National Airspace System, and the levels of future appropriations 
for the Airport Improvement Program--that may influence the funding 
necessary to support FAA's activities. In addition, uncertainties 
surrounding the status of FAA's reauthorization could have adverse 
effects on FAA's ability to carry out its mission unless other revenue 
sources and spending authority are provided. Without legislative 
action, both the excise taxes that fund the Trust Fund and FAA's 
authority to spend from the Trust Fund will expire on June 30, 2008. 
Failing to meet these infrastructure challenges in aviation may have 
significant economic consequences, since aviation is an integral part 
of the economy. 

Aging and Deteriorating Water Infrastructure Presents Challenges: 

Water utilities nationwide are under increasing pressure to make 
significant investments to upgrade aging and deteriorating 
infrastructures, improve security, serve a growing population, and meet 
new regulatory requirements.[Footnote 10]Water infrastructure needs 
across the country are estimated to range from $485 billion to nearly 
$1.2 trillion over the next 20 years. According to the Environmental 
Protection Agency's (EPA) June 2005 Drinking Water Infrastructure Needs 
Survey, the largest category of need is the installation and 
maintenance of transmission and distribution systems--accounting for 
$183.6 billion, or about 66 percent of the needs projected through 
2022. For wastewater systems, EPA's 2004 Clean Watersheds Needs Survey 
projected infrastructure-related needs for publicly owned wastewater 
systems of $202.5 billion through 2024.[Footnote 11] Many drinking 
water and wastewater utilities have had difficulty raising funds to 
repair, replace, or upgrade aging capital assets; comply with 
regulatory requirements; and expand capacity to meet increased demand. 
For example, based on a nationwide survey of several thousand drinking 
water and wastewater utilities, we reported in 2002 that about one- 
third of the utilities (1) deferred maintenance because of insufficient 
funds, (2) had 20 percent or more of their pipelines nearing the end of 
their useful life, and (3) lacked basic plans for managing their 
capital assets.[Footnote 12] Other GAO work suggests that the nation's 
water utilities could more effectively manage their infrastructure at a 
time when significant investments are needed.[Footnote 13] 

Several factors have contributed to the nation's deteriorating water 
infrastructure over the years. The adequacy of available funds, in 
particular, has been a key determinant of how well utility 
infrastructure has been maintained. However, according to our 
nationwide survey, a significant percentage of the utilities serving 
populations of 10,000 or more--29 percent of the drinking water 
utilities and 41 percent of the wastewater utilities--were not 
generating enough revenue from user charges and other local sources to 
cover their full costs of service. In addition, when asked about the 
frequency of rate increases during the period from 1992 to 2001, more 
than half the utilities reported raising their rates infrequently: 
once, twice, or not at all over the 10-year period. Citing communities' 
funding difficulties, many have looked to the federal government for 
financial assistance. However, if budgetary trends over the past few 
years serve as any indication, federal funding will not close the gap. 
For example, the trends and overall funding levels associated with the 
Clean Water and Drinking Water State Revolving Funds, the key federal 
programs supporting water infrastructure financing, suggest that they 
will have only a marginal impact in closing the long-term water 
infrastructure funding gap. We have previously reported that 
comprehensive asset management, a technique whereby water systems 
systematically identify their needs, set priorities, and better target 
their investments, can help utilities make better us of available 
funds. Additional funds, however, will ultimately be needed to narrow 
the funding gap. 

Aging Dam Infrastructure Raises Safety and Funding Challenges: 

Our nation's dam infrastructure is an important component of the 
nation's water control infrastructure, supplying such benefits as water 
for drinking, irrigation, and industrial uses; flood control; 
hydroelectric power; recreation; and navigation.[Footnote 14] However, 
as evidenced by the events of Hurricanes Katrina and Rita, the failure 
of dam infrastructure, which includes levees, also represents a risk to 
public safety, local and regional economies, and the environment. In 
particular, the aging of dam infrastructure in the United States 
continues to be a critical issue for dam safety because the age of dams 
is a leading indicator of potential dam failure.[Footnote 15]According 
to the American Society of Civil Engineers, the number of unsafe dams 
has risen by more than 33 percent since 1998, to more than 3,500 in 
2005.[Footnote 16] In addition, the number of dams identified as unsafe 
is increasing faster than the number of dams that are being repaired. 

To address the challenges facing our nation's dams, the Federal 
Emergency Management Agency and the National Dam Safety Review Board 
identified both short-and long-term goals and priorities for the 
National Dam Safety Program[Footnote 17] over the next 5 to 10 years. 
They include identifying and remedying deficient dams, increasing dam 
inspections, increasing the number of and updating of Emergency Action 
Plans, achieving the participation of all states in the National Dam 
Safety Program, increasing research products disseminated to the dam 
safety community, and achieving cost efficiencies. However, according 
to the Congressional Research Service, most federal agencies do not 
have funding available to immediately undertake all nonurgent repairs, 
and at some agencies, dam rehabilitation projects must compete for 
funding with other construction projects.[Footnote 18] The Association 
of State Dam Safety Officials reported similar funding constraints on 
dam investment at the state level. 

GAO Principles Could Guide Efforts to Reexamine Federal Programs in 
Light of Challenges: 

Given the nation's infrastructure challenges and the federal 
government's fiscal outlook, we have called for a fundamental 
reexamination of government programs. Addressing these challenges 
requires strategic approaches, effective tools and programs, and 
coordinated solutions involving all levels of government and the 
private sector.[Footnote 19] 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. A reexamination offers an 
opportunity to address emerging concerns 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. Through our prior analyses of existing 
programs, we identified a number of principles that could help drive an 
assessment for restructuring and financing the federal surface 
transportation program. While these principles are designed 
specifically to reexamine the surface transportation programs, most, if 
not all of these principles could be informative as policymakers 
consider how to address challenges facing other federal infrastructure 
programs. These principles include: 

* creating well-defined goals based on identified areas of national 
interest, which involves examining the relevance and relative priority 
of existing programs in light of 21st century challenges and 
identifying emerging areas of national importance; 

* establishing and clearly defining the federal role in achieving each 
goal in relation to the roles of state and local governments, regional 
entities, and the private sector; 

* incorporating performance and accountability into funding decisions 
to ensure resources are targeted to programs that best achieve intended 
outcomes and national priorities; 

* employing the best tools, such as benefit-cost analysis, and 
approaches to emphasize return on investment at a time of constrained 
federal resources; and: 

* ensuring fiscal sustainability through targeted investments of 
federal, state, local, and private resources. 

Various Options Are Available or Have Been Proposed to Fund Investments 
in the Nation's Infrastructure: 

Various options exist or have been proposed to fund investments in the 
nation's infrastructure. These options include altering existing or 
introducing new funding approaches and employing various financing 
mechanisms. In addition, some have suggested including an 
infrastructure component in a future economic stimulus bill, which 
could provide a one-time infusion of funds for infrastructure. Each of 
these options has different merits and challenges, and the selection of 
any of them will likely involve trade-offs among different policy 
goals. Furthermore, the suitability of any of these options depends on 
the level of federal involvement or control that policymakers desire 
for a given area of policy. However, as we have reported, when 
infrastructure investment decisions are made based on sound 
evaluations, these options can lead to an appropriate blend of public 
and private funds to match public and private costs and 
benefits.[Footnote 20] To help policymakers make explicit decisions 
about how much overall federal spending should be devoted to 
infrastructure investment, we have previously proposed establishing an 
investment component within the unified budget. 

Funding Approaches Can Be Altered or Developed to Help Fund 
Infrastructure Investments: 

Various existing funding approaches could be altered or new funding 
approaches could be developed to help fund investments in the nation's 
infrastructure. These various approaches can be grouped into two 
categories: taxes and user fees. 

A variety of taxes have been and could be used to fund the nation's 
infrastructure, including excise, sales, property, and income taxes. 
For example, federal excise taxes on motor fuels are the primary source 
of funding for the federal surface transportation program. Fuel taxes 
are attractive because they have provided a relatively stable stream of 
revenues and their collection and enforcement costs are relatively low. 
However, fuel taxes do not currently convey to drivers the full costs 
of their use of the road--such as the costs of wear and tear, 
congestion, and pollution. Moreover, federal motor fuel taxes have not 
been increased since 1993--and thus the purchasing power of fuel taxes 
revenues has eroded with inflation. As Congressional Budget Office 
(CBO) has previously reported, the existing fuel taxes could be altered 
in a variety of ways to address this erosion, including increasing the 
per-gallon tax rate and indexing the rates to inflation.[Footnote 21] 
Some transportation stakeholders have suggested exploring the potential 
of using a carbon tax, or other carbon pricing strategies, to help fund 
infrastructure.[Footnote 22] In a system of carbon taxes, fossil fuel 
emissions would be taxed, with the tax proportional to the amount of 
carbon dioxide released in the fuel's combustion. Because a carbon tax 
could have a broad effect on consumer decisions, we have previously 
reported that it could be used to complement Corporate Average Fuel 
Economy standards, which require manufacturers meet fuel economy 
standards for passenger cars and light trucks to reduce oil 
consumption.[Footnote 23] A carbon tax would create incentives that 
could affect a broader range of consumer choices as well as provide 
revenue for infrastructure. 

Another funding source for infrastructure is user fees. The concept 
underlying user fees--that is, users pay directly for the 
infrastructure they use--is a long-standing aspect of many 
infrastructure programs. Examples of user fees that could be altered or 
introduced include airport passenger facility charges; fees for use of 
air traffic control services; fees based on vehicle miles traveled 
(VMT) on roadways; freight fees, such as a per-container charge; 
highway tolls; and congestion pricing of roads and aviation 
infrastructure. 

* Aviation user fees. Many commercial airports currently impose a user 
fee on passengers--referred to as a passenger facility charge--to fund 
airport capital projects.[Footnote 24] Over $2 billion in passenger 
facility charge revenues are collected by airports each year, 
representing an important source of funding for airport capital 
projects. In contrast, FAA's activities, including the transition to 
NextGen, are largely funded by excise taxes through the Airport and 
Airway Trust Fund. To better connect FAA's revenues with the cost of 
air traffic control services that FAA provides, the administration has 
proposed, in its FAA reauthorization bill, to replace this excise tax 
funding system with a cost-based user fee system. This new system would 
aim to recover the costs of providing air traffic control services 
through user fees for commercial operators and aviation fuel taxes for 
general aviation. According to the administration, cost-based user 
charges would link revenues more closely to costs and could create 
incentives for more efficient use of the system by aircraft operators. 
We have previously testified that a better alignment of FAA's revenues 
and costs can address concerns about long-term revenue adequacy, 
equity, and efficiency as intended, but the ability of the proposed 
funding structure to link revenues and costs depends critically on the 
soundness of FAA's cost allocation system in allocating costs to users. 
We found that the support for some of FAA's cost allocation 
methodology's underlying assumptions and methods is insufficient, 
leaving FAA unable to conclusively demonstrate the reasonableness of 
the resulting cost assignments.[Footnote 25] 

* VMT fees. To more directly reflect the amount a vehicle uses 
particular roads, users could be charged a fee based on the number of 
vehicle miles traveled. In 2006, the Oregon Department of 
Transportation conducted a pilot program designed to test the 
technological and administrative feasibility of a VMT fee. The pilot 
program evaluated whether a VMT fee could be implemented to replace 
motor fuel taxes as the principal source of transportation revenue by 
utilizing a Global Positioning System (GPS) to track miles driven and 
collecting the VMT fee ($0.012 per mile traveled) at fuel pumps that 
can read information from the GPS.[Footnote 26] As we have previously 
reported, using a GPS could also be used to track mileage in high- 
congestion zones, and the fee could be adjusted upward for miles driven 
in these areas or during more congested times of day such as rush hour-
-a strategy that might reduce congestion and save fuel.[Footnote 27]In 
addition, the system could be designed to apply different fees to 
vehicles, depending on their fuel economy. On the federal level, a VMT 
fee could be based on odometer readings, which would likely be a 
simpler and less costly way to implement such a program. A VMT fee-- 
unless it is adjusted based on the fuel economy of the vehicle--does 
not provide incentives for customers to buy vehicles with higher fuel 
economy ratings because the fee depends only on mileage. Also, because 
the fee would likely be collected from individual drivers, a VMT fee 
could be expensive for the government to implement, potentially making 
it a less cost-effective approach than a motor fuel or carbon tax. The 
Oregon study also identified other challenges including concerns about 
privacy and technical difficulties in retrofitting vehicles with the 
necessary technology. 

* Freight fees. Given the importance of freight movement to the 
economy, the Policy Commission recently recommended a new federal 
freight fee to support the development of a national program aimed at 
strategically expanding capacity for freight transportation.[Footnote 
28] While the volume of domestic and international freight moving 
through the country has increased dramatically and is expected to 
continue growing, the capacity of the nation's freight transportation 
infrastructure has not increased at the same rate as demand.[Footnote 
29] To support the development of a national program for freight 
transportation, the Policy Commission recently recommended the 
introduction of a federal freight fee. The Policy Commission notes that 
a freight fee, such as a per-container charge, could help fund projects 
that remedy chokepoints and increase throughput. The Policy Commission 
also recommended that a portion of the customs duties, which are 
assessed on imported goods, be used to fund capacity improvements for 
freight transportation. The majority of customs duties currently 
collected, however, are deposited in the U.S. Treasury's general fund 
for the general support of federal activities.[Footnote 30]Therefore, 
designating a portion of customs duties for surface transportation 
financing would not create a new source of revenue, but rather transfer 
funds from the general fund. 

* Tolling. We have previously reported that roadway tolling has the 
potential to provide new revenues, promote more effective and rational 
investment strategies, and better target spending for new and expanded 
capacity for surface transportation infrastructure.[Footnote 31] For 
example, the construction of toll projects is typically financed by 
bonds; therefore, projects must pass the test of market viability and 
meet goals demanded by investors, although even with this test, there 
is no guarantee that projects will always be viable. Tolling 
potentially can also leverage existing revenue sources by increasing 
private-sector participation and investment through such arrangements 
as public-private partnerships. However, securing public and political 
support for tolling can prove difficult when the public and political 
leaders perceive tolling (1) as a form of double taxation, (2) 
unreasonable because tolls do not usually cover the full costs of 
projects, or (3) unfair to certain groups. Other challenges include 
obtaining sufficient statutory authority to toll, adequately addressing 
the traffic diversion that might result when motorists seek to avoid 
toll facilities, limitations on the types of roads that can be tolled, 
and coordinating with other states or jurisdictions on a tolling 
project. 

* Congestion pricing. As we have previously reported, congestion 
pricing, or road pricing, attempts to influence driver behavior by 
charging fees during peak hours to encourage users to shift to off-peak 
periods, use less congested routes, or use alternative modes. 
Congestion pricing can also help guide capital investment decisions for 
new transportation infrastructure. In particular, as congestion 
increases, tolls also increase, and such increases (sometimes referred 
to as "congestion surcharges") signal increased demand for physical 
capacity, indicating where capital investments to increase capacity 
would be most valuable. Furthermore, these congestion surcharges can 
potentially enhance mobility by reducing congestion and the demand for 
roads when the surcharges vary according to congestion to maintain a 
predetermined level of service. The most common form of congestion 
pricing in the United States is high-occupancy-toll lanes, which are 
priced lanes that offer drivers of vehicles that do not meet the 
occupancy requirements the option of paying a toll to use lanes that 
are otherwise restricted for high-occupancy vehicles. In its FAA 
reauthorization proposal, the administration proposed extending 
congestion pricing to the aviation sector as a means of managing air 
traffic congestion. Specifically, the administration proposed that FAA 
establish a fee based on time of day or day of the week for aircraft 
using the nation's most congested airports to discourage peak-period 
traffic. Under such a fee, cargo carriers could pay lower fees by 
operating at night than they would pay by operating at peak periods of 
the day, creating an incentive for some cargo carriers to switch 
daytime operations to nighttime. Like tolling, congestion pricing 
proposals often arouse political and public opposition, raise equity 
concerns, and face statutory restrictions. 

Various Financing Mechanisms Can Also Help Fund Infrastructure 
Projects: 

Financing strategies can provide flexibility for all levels of 
government when funding additional infrastructure projects, 
particularly when traditional pay-as-you-go funding approaches, such as 
taxes or fees, are not set at high enough levels to meet demands. The 
federal government currently offers several programs to provide state 
and local governments with incentives such as bonds, loans, and credit 
assistance to help finance infrastructure. Financing mechanisms can 
create potential savings by accelerating projects to offset rapidly 
increasing construction costs and offer incentives for investment from 
state and local governments and from the private sector. However, each 
financing strategy is, in the final analysis, a form of debt that 
ultimately must be repaid with interest. Furthermore, since the federal 
government's cost of capital is lower than that of the private sector, 
financing mechanisms, such as bonding, may be more expensive than 
timely, full, and up-front appropriations. Finally, if the federal 
government chooses to finance infrastructure projects, policy makers 
must decide how borrowed dollars will be repaid, either by users or by 
the general population either now or in the future through increases in 
general fund taxes or reductions in other government services. 

A number of available mechanisms can be used to help finance 
infrastructure projects. Examples of these financing mechanisms follow: 

Bonding. A number of bonding strategies--including tax-exempt 
bonds,[Footnote 32] Grant Anticipation Revenue Vehicles (GARVEE) bonds, 
and Grant Anticipation Notes (GAN)--offer flexibility to bridge funding 
gaps when traditional revenue sources are scarce. For example, state- 
issued GARVEE bonds or GANs provide capital in advance of expected 
federal funds, allowing states to accelerate highway and transit 
project construction and thus potentially reduce construction costs. 
Through April 2008, 20 states and two territories issued approximately 
$8.2 billion of GARVEE-type debt financing and 20 other states are 
actively considering bonding or seeking legislative authority to issue 
GARVEEs. Further, SAFETEA-LU authorized the Secretary of Transportation 
to allocate $15 billion in private activity bonds for qualified highway 
and surface freight transfer facilities. To date, $5.3 billion has been 
allocated for six projects. In aviation, most commercial airports issue 
a variety of bonds for airport capital improvements, most notably 
general revenue bonds that are backed by general revenues from the 
airport--including aircraft landing fees, concessions, and parking 
fees--and passenger facility charges. Several bills introduced in this 
Congress would increase investment in the nation's infrastructure 
through bonding. For example, the Build America Bonds Act would provide 
$50 billion in new infrastructure funding through bonding. Although 
bonds can provide up-front capital for infrastructure projects, they 
can be more expensive for the federal government than traditional 
federal grants. This higher expense results, in part, because the 
government must compensate the investors for risks they assumed through 
an adequate return on their investment. 

* Loans, loan guarantees, and credit assistance. The federal government 
currently has two programs designed to offer credit assistance to 
states for surface transportation projects. The Transportation 
Infrastructure Finance and Innovation Act of 1998 (TIFIA) authorized 
FHWA to provide credit assistance, in the form of direct loans, loan 
guarantees, and standby lines of credit for projects of national 
significance. A similar program, Railroad Rehabilitation and 
Improvement Financing (RRIF) offers loans to acquire, improve, develop, 
or rehabilitate intermodal or rail equipment or facilities. To date, 15 
TIFIA projects have been approved for a total of about $4.8 billion in 
credit assistance and the RRIF program has approved 21 loan agreements 
worth more than $747 million. These programs are designed to leverage 
federal funds by attracting substantial nonfederal investments in 
infrastructure projects. However, the federal government assumes a 
level of risk when it makes or guarantees loans for projects financed 
with private investment.[Footnote 33] 

* Revolving funds. Revolving funds can be used to dedicate capital to 
be loaned for qualified infrastructure projects. In general, loaned 
dollars are repaid, recycled back into the revolving fund, and 
subsequently reinvested in the infrastructure through additional loans. 
Such funds exist at both the federal and the state levels and are used 
to finance various infrastructure projects ranging from highways to 
water mains. For example, two federal funds support water 
infrastructure financing, the Clean Water State Revolving Fund (CWSRF) 
for wastewater facilities, and the Drinking Water State Revolving Fund 
(DWSRF) for drinking water facilities. Under each of these programs, 
the federal government provides seed money to states, which they 
supplement with their own funds. These funds are then loaned to local 
governments and other entities for water infrastructure construction 
and upgrades and various water quality projects. In addition, State 
Infrastructure Banks (SIB)--capitalized with federal and state matching 
funds--are state-run revolving funds, make loans and provide credit 
enhancements and other forms of nongrant assistance to infrastructure 
projects. Through June 2007, 33 SIBs have made approximately 596 loan 
agreements worth about $6.2 billion to leverage other available funds 
for transportation projects across the nation.[Footnote 34] 
Furthermore, other funds--such as a dedicated national infrastructure 
bank--have been proposed to increase investment in infrastructure with 
a national or regional significance. A challenge for revolving funds in 
general is maintaining their capitalized value. Defaults on loans and 
inflation can reduce the capitalized value of the fund--necessitating 
an infusion of capital to continue the fund's operations. 

Designing an Economic Stimulus Package to Increase Infrastructure 
Investment Would Be Difficult: 

Another option proposed for temporarily increasing investment in the 
nation's infrastructure is including an investment component in a 
future economic stimulus bill. According to supporters, including 
funding for "ready to build" infrastructure projects in a stimulus bill 
would serve to both boost the economy and improve the nation's 
infrastructure through a one-time infusion of funds. For example, the 
American Association of State Highway and Transportation Officials 
estimates 42,000 jobs are created for every $1 billion dollars invested 
in transportation projects. 

We have previously identified important design criteria for any 
economic stimulus package.[Footnote 35] Specifically: 

* Economic stimulus package should be timely. An economic stimulus 
should not be enacted prematurely, delayed too long, or consist of 
programs that would take too long to be implemented to lessen any 
economic downturn. For example, if fiscal stimulus is undertaken when 
it is not needed, it could result in higher inflation or if fiscal 
stimulus is enacted too slowly, it could take effect after the economy 
has already started to recover. 

* Economic stimulus package should be temporary. An economic stimulus 
should be designed to raise output in the short run, but should not 
increase the budget deficit in the long-run. If a stimulus program is 
not temporary and continues after the economy recovers, it could lead 
to higher inflation. 

* Economic stimulus package should be targeted. An economic stimulus 
should be targeted to areas that are most vulnerable in a weakening 
economy and should generate the largest possible increase in short-run 
gross domestic product. 

Designing and implementing an economic stimulus package with an 
infrastructure investment component that is timely, temporary, and 
targeted would be difficult. First, while an effective stimulus package 
should be timely, practically speaking, infrastructure projects require 
lengthy planning and design periods. According to CBO, even those 
projects that are "on the shelf" generally cannot be undertaken quickly 
enough to provide a timely stimulus to the economy.[Footnote 36]Second, 
spending on infrastructure is generally not temporary because of the 
extended time frames needed to complete projects. For example, initial 
outlays for major infrastructure projects supported by the federal 
government, such as highway construction, often total less than 25 
percent of the total funding provided for the project. Furthermore, the 
initial rate of spending can be significantly lower than 25 percent for 
large projects.[Footnote 37] Third, because of differences among 
states, it is challenging to target stimulus funding to areas with the 
greatest economic and infrastructure needs. For example, two possible 
indicators for targeting infrastructure aid to states, gross state 
product and lane miles per capita, are not correlated. Furthermore, as 
we have previously reported, states tend to substitute federal funds 
for funds they would have otherwise spent--making it difficult to 
target a stimulus package so that it results in a dollar-for-dollar 
increase in infrastructure investment.[Footnote 38] 

Investment Component within Unified Budget Could Guide Federal 
Investment in Infrastructure: 

We have previously reported that the budget process can favor 
consumption over investment because the initial cost of an 
infrastructure project looks high in comparison to consumption 
spending.[Footnote 39]Thus, adopting a capital budget is suggested as a 
way to eliminate a perceived bias against investments requiring large 
up-front spending when they compete with other programs in a unified 
budget. However, proposals to adopt a capital budget at the federal 
level often start with certain concepts and models extended from state 
and local governments and the private sector, which are not appropriate 
because of fundamental differences in the role of the federal 
government. Specifically, when state and local governments and the 
private sector make investments, they typically own the resulting 
assets, while this is frequently not the case for the federal 
government. For example, although the federal government invests in 
surface transportation, aviation, water, and dam infrastructure, a 
significant portion of this infrastructure is owned by state and local 
governments. This makes it difficult to fully apply traditional capital 
budgeting approaches, such as depreciation, which might be considered 
when assets are fully owned. Moreover, there are fundamental 
differences between the roles of the state and local governments and 
the federal government. In an inclusive, unified budget, it is 
important to disclose up front the full commitments of the government. 
Federal fiscal policy, as broadly conceived, plays a key role in 
managing the short-term economy as well as promoting the savings needed 
for long-term growth. 

Rather than recommend adopting a capital budget, we have previously 
proposed establishing an investment component within the unified budget 
to address federal spending intended to promote the nation's long-term 
economic growth.[Footnote 40]By recognizing the different effects of 
various types of federal spending, an investment focus within the 
budget would provide a valuable supplement to the unified budget's 
concentration on macroeconomic issues. Moreover, it would direct 
attention to the consequences of choices within the budget under 
existing budget limitations--a level which is now not determined 
explicitly by policymakers but is simply the result of numerous 
individual decisions. If an investment component within the unified 
budget was adopted, Congress could decide on an overall level of 
investment in a budget resolution or other macro framework, which would 
be tracked and enforced through the authorizing and appropriations 
process to ensure that individual appropriations actions supported the 
overall level. This approach has the advantage of focusing budget 
decision makers on the overall level of investment supported in the 
budget without losing sight of the unified budget's effect on the 
economy. It also has the advantage of building on the current 
congressional budget process. Finally, it does not raise the problems 
posed by capital budgeting proposals that use depreciation and deficit 
financing.[Footnote 41] 

Although the investment component would be subject to budget controls, 
the existence of a separate component could create an incentive to 
categorize many proposals as investment. If an investment component 
within the budget is to be implemented in a meaningful fashion, it will 
be important to identify what to include. Any changes in the budgetary 
treatment of investment need to consider broader federal 
responsibilities. While well-chosen investments may contribute to long- 
term growth, financing such programs through deficits would undermine 
their own goal by reducing savings available to fund private 
investment.[Footnote 42]Accordingly, reforms in the federal 
government's budget for investment should be considered within the 
overall constraints of fiscal policy based on unified budget 
principles. 

Concluding Observations: 

The nation's physical infrastructure is under strain, raising a host of 
safety, security, and economic concerns. Given these concerns, various 
investment options have been, and likely will continue to be, 
identified to help repair, upgrade, and expand our nation's 
infrastructure. Ultimately, Congress and other federal policymakers 
will have to determine which option--or, more likely, which combination 
of funding and financing options--best meets the needs of the nation. 
There is no silver bullet. Moreover, although financing mechanisms 
allow state and local governments to advance projects when traditional 
pay-as-you-go funding approaches, such as taxes and fees, are 
insufficient, ultimately these borrowed dollars must be repaid by the 
users or the general population. Consequently, prudent decisions are 
needed to determine the appropriate level of infrastructure investment 
and to maximize each dollar invested. We will continue to assist the 
Congress as it works to evaluate various investment options and develop 
infrastructure policies for the 21st century. 

Messrs. Chairmen, 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 Acknowledgments: 

For further information on this statement, please contact Patricia 
Dalton at (202) 512-2834 or [email protected]. Individuals making key 
contributions to this testimony were Kyle Browning, Nikki Clowers, 
Steve Elstein, JayEtta Hecker, Carol Henn, Bert Japikse, Barbara 
Lancaster, Matthew LaTour, Nancy Lueke, and Katherine Siggerud. 

[End of section] 

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Federal Aviation Administration: Observations on Selected Changes to 
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Water Infrastructure: Information on Financing, Capital Planning, and 
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Budget Trends: Federal Investment Outlays, Fiscal Years 1981-2003. GAO/ 
AIMD-98-184. Washington, D.C.: June 15, 1998. 

Budget Trends: Federal Investment Outlays, Fiscal Years 1981-2002, GAO/ 
AIMD-97-88. Washington, D.C.: May 21, 1997. 

Budget Structure: Providing an Investment Focus in the Federal Budget. 
GAO/T-AIMD-95-178. Washington, D.C.: June 29, 1995. 

Budget Issues: Incorporating an Investment Component in the Federal 
Budget. GAO/AIMD-94-40. Washington, D.C.: November 9, 1993. 

[End of section] 

Footnotes: 

[1] The Highway Trust Fund is the mechanism used to account for federal 
highway user taxes (e.g., federal excise taxes on fuel) that are 
dedicated for highway-and transit-related purposes. The Highway Trust 
Fund has two accounts: the Highway Account and the Mass Transit 
Account. 

[2] 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). 

[3] GAO, State and Local Governments: Persistent Fiscal Challenges Will 
Likely Emerge within the Next Decade, GAO-07-1080SP (Washington, D.C.: 
July 18, 2007). 

[4] See Related GAO Products at the end of this testimony statement. We 
conducted these performance audits in accordance with generally 
accepted government auditing standards. 

[5] About 3,400 of these airports are in the national airport system. 

[6] In addition to federal spending designed to increase economic 
activity, some federal spending on infrastructure is motivated by 
noneconomic policy goals, such as improved safety. 

[7] GAO, Surface Transportation: Restructured Federal Approach Needed 
for More Focused, Performance-Based, and Sustainable Programs, GAO-08- 
400 (Washington, D.C.: Mar. 6, 2008). 

[8] GAO, Federal Aviation Administration: Challenges Facing the Agency 
in Fiscal Year 2009 and Beyond, GAO-08-460T (Washington, D.C.: Feb. 7, 
2008). 

[9] GAO-08-460T. 

[10] In October 2007, EPA made several changes to the monitoring and 
public notice provisions in the Lead and Copper Rule under the Safe 
Drinking Water Act, the principal federal regulation protecting public 
water system consumers from exposure to lead and copper in drinking 
water. 

[11] U.S. Environmental Protection Agency, Clean Watersheds Needs 
Survey 2004 Report to Congress, (Washington, D.C.: January 2008). 

[12] GAO, Water Infrastructure: Information on Financing, Capital 
Planning, and Privatization, GAO-02-764 (Washington, D.C.: Aug. 16, 
2002). 

[13] GAO, Water Infrastructure: Comprehensive Asset Management Has 
Potential to Help Utilities Better Identify Needs and Plan Future 
Investments, GAO-04-461 (Washington, D.C.: Mar. 19, 2004). 

[14] The term "dam" includes conventional dams, navigation locks, 
levees, canals (excluding channels), or other similar types of water 
retention structures. 

[15] A number of factors, including age, construction deficiencies, 
inadequate maintenance, and seismic or weather events contribute to the 
likelihood of dam failure. 

[16] American Society of Civil Engineers, 2005 Report Card for 
America's Infrastructure, March 2005. 

[17] The National Dam Safety Program, which is administered by FEMA, is 
a partnership of the states, federal agencies, and other stakeholders 
to encourage individual and community responsibility for dam safety. 

[18] Congressional Research Service, CRS Report for Congress, Aging 
Infrastructure: Dam Safety, updated March 25, 2008. 

[19] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, GAO-05-325SP (Washington, D.C.: Feb. 2005). 

[20] GAO, Freight Transportation: Strategies Needed to Address Planning 
and Financing Limitations, GAO-04-165 (Washington D.C.: Dec. 19, 2003). 

[21] CBO, Status of the Highway Trust Fund: 2007, March 27, 2007. 

[22] Another carbon pricing strategy is a cap-and-trade program, which 
combines a regulatory limit or cap on the amount of carbon that can be 
emitted into the atmosphere with market elements such as the 
opportunity to buy additional allowances to emit additional carbon. 
Auctioning the allowances of a cap-and-trade program would generate 
revenue for the government, which could be used for a variety of 
purposes, including infrastructure investments. 

[23] GAO, Vehicle Fuel Economy: Reforming Fuel Economy Standards Could 
Help Reduce Oil Consumption by Cars and Light Trucks, and Other Options 
Could Complement These Standards, GAO-07-921 (Washington, D.C.: Aug. 2, 
2007). 

[24] The majority of commercial airports charge a passenger facility 
charge of between $1 and $4.50 per enplaned passenger. 

[25] GAO-08-460T. 

[26] Oregon's Mileage Fee Concept and Road User Fee Pilot Program: 
Final Report. 

[27] GAO-07-921. 

[28] Transportation for Tomorrow: Report of the National Surface 
Transportation Policy and Revenue Study Commission, January 2008. 

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

[30] GAO, Marine Transportation: Federal Financing and a Framework for 
Infrastructure Investments, GAO-02-1033 (Washington, D.C.: Sept. 9, 
2002). 

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

[32] Tax-exempt bonds are government bonds that are used for purposes 
such as infrastructure, schools, libraries, general municipal 
expenditures or refunding of old debt. Tax-exempt means that the 
interest paid to bondholders is generally not included in their gross 
income for federal income tax purposes. Examples of tax-exempt bonds 
include municipal bonds, and private activity bonds that allow tax- 
exempt debt to be used by private entities to help finance qualified 
facilities. 

[33] According to DOT, federal requirements necessitate that a credit 
risk premium be provided to insure the federal government against the 
risk of loans defaulting. As a result, these loans are closely examined 
for risk of loss and, to date, none of the TIFIA or RRIF loans have 
defaulted. 

[34] Eight states--Arizona, Florida, Minnesota, Missouri, Ohio, South 
Carolina, Texas, and Wyoming--account for 95 percent of the total loan 
agreements reached through fiscal year 2006. 

[35] GAO-08-411T. 

[36] CBO, Options for Responding to Short-Term Economic Weakness, 
January 2008. 

[37] CBO, Options for Responding to Short-Term Economic Weakness, 
January 2008. 

[38] GAO, Federal-Aid Highways: Trends, Effect on State Spending, and 
Options for Future Program Design, GAO-04-802 (Washington, D.C.: Aug. 
31, 2004). 

[39] See GAO, Budget Trends: Federal Investment Outlays, Fiscal Years 
1981-2003, GAO/AIMD-98-184 (Washington, D.C.: June 15, 1998); Budget 
Structure: Providing an Investment Focus in the Federal Budget, GAO/T- 
AIMD-95-178 (Washington, D.C.: June 29, 1995); and Budget Issues: 
Incorporating an Investment Component in the Federal Budget, GAO/AIMD- 
94-40 (Washington, D.C.: Nov. 9, 1993). 

[40] GAO, Budget Trends: Federal Investment Outlays, Fiscal Years 1981- 
2002, GAO/AIMD-97-88 (Washington, D.C.: May 1997), GAO/AIMD-95-178, and 
GAO/AIMD-94-40. Numerous definitions of investment are possible and can 
include more than physical capital. We have reported that an 
appropriate definition would include federal spending, either direct or 
through grants, directly intended to enhance the nation's long-term 
productivity. This definition includes spending on some intangible 
activities such as research and development; human capital designed to 
increase worker productivity, particularly education and training; and 
spending for physical capital to improve infrastructure, such as 
highways and bridges. 

[41] Paul Posner, Trina Lewis, and Hannah Laufe, Budgeting for Federal 
Capital (Washington, D.C.: Public Budgeting and Finance, Fall 1998). 

[42] Because the deficit absorbs private savings otherwise available 
for domestic investment, it exerts the single most important federal 
influence on investment. The surest way to increase national savings 
and investment would be to reduce the unprecedented level of federal 
dissaving by reducing the deficit. 

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