DOT's Budget: Management and Performance Issues Facing the Department in
Fiscal Year 1999 (Testimony, 02/12/98, GAO/T-RCED/AIMD-98-76).

Pursuant to a congressional request, GAO discussed key resource
management issues and performance challenges facing the Department of
Transportation (DOT) in 1999 and beyond.

GAO noted that: (1) there is a need for increased management attention
to highway, transit, and rail programs-which account for 67 percent of
DOT's fiscal year (FY) 1999 budget request-in several areas; (2) the
improved oversight of large dollar highway and transit projects costing
hundreds of millions to billions of dollars could help to ensure that
they are well managed and can be successfully financed and that costs
are controlled; (3) important management challenges face the Federal
Aviation Administration (FAA), which accounts for about 23 percent of
DOT's budget request; (4) a consensus does not exist regarding FAA's
future funding needs or an appropriate finance mechanism; (5) additional
challenges face the agency in improving the safety and efficiency of its
aviation system; (6) with a relatively flat budget in recent years, the
Coast Guard may need to continue cost-cutting efforts and achieve
savings beyond its accomplishments from recent streamlining actions; (7)
GAO has urged the Coast Guard to develop a more comprehensive strategy
to achieve additional cost savings, which may necessitate a fundamental
reassessment of the agency's missions, goals, services, and customer
needs; (8) Amtrak is in a very precarious financial position and remains
heavily dependent on federal assistance; (9) DOT's budget proposes $621
million for Amtrak's capital expenses but no funding for operating
expenses in FY 1999; (10) Amtrak's FY 1997 net loss was $762 million and
would have been higher without the one-time sale of certain assets; (11)
the corporation's goal is to eliminate the need for federal operating
support by 2002; (12) Amtrak is likely to continue to require federal
financial support-both operating and capital-well into the future; (13)
DOT faces additional department-wide issues that affect its ability to
effectively manage programs and address performance concerns; (14) GAO
has repeatedly pointed out serious problems with DOT's information
resources and database management; (15) these problems will be
aggravated by challenges facing DOT in addressing the year 2000 problem;
(16) DOT needs to address the issue of unreliable financial management
information because of problems with its financial reports, accounting
systems, and internal controls; (17) if properly implemented, the
Government Performance and Results Act could be a useful tool for
addressing many of the issues GAO has identified; and (18) the Results
Act should provide DOT with an incentive to develop quality data for
managing programs and for congressional oversight.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED/AIMD-98-76
     TITLE:  DOT's Budget: Management and Performance Issues Facing the 
             Department in Fiscal Year 1999
      DATE:  02/12/98
   SUBJECT:  Ground transportation operations
             Air transportation operations
             Financial management
             Interagency relations
             Information resources management
             Mass transit operations
             Future budget projections
             Transportation safety
             Federal aid for transportation
             Strategic planning
IDENTIFIER:  Central Artery/Tunnel Project (Boston, MA)
             Los Angeles Red Line Project (CA)
             DOT Intelligent Transportation System Program
             San Francisco Bay Area Rapid Transit System (CA)
             FHwA Safety Status Measurement System
             FAA Year 2000 Program
             FAA Wide Area Augmentation System
             FAA Standard Terminal Automation Replacement System
             FAA Airport Improvement Program
             FAA Flight Operations Quality Assurance Program
             FAA Advanced Qualification Program
             FAA Air Traffic Control Modernization Program
             ISTEA
             
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Cover
================================================================ COVER


Before the Subcommittee on Transportation, Committee on
Appropriations, House of Representatives

For Release
on Delivery
Expected at
2 p.m.  EST
Thursday
February 12, 1998

DOT'S BUDGET - MANAGEMENT AND
PERFORMANCE ISSUES FACING THE
DEPARTMENT IN FISCAL YEAR 1999

Statement of John H.  Anderson, Jr.,
Director, Transportation Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED/AIMD-98-76

GAO/RCED/AIMD-98-76T


(348064)


Abbreviations
=============================================================== ABBREV

  DOT -
  ITS -
  FTA -
  FHWA -
  MTA -
  BART -
  OSHA -
  FAA -
  WAAS -
  STARS -
  GPS -
  FOQA -
  NRC -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss the challenges facing the
Department of Transportation (DOT) as it attempts to ensure the safe
and efficient movement of people and goods and a cost-effective
investment in the nation's transportation infrastructure.  The
administration has proposed a fiscal year 1999 budget of $43.3
billion to fund transportation programs.  This is the first year that
federal agencies are required to directly link their budgets to
performance outcomes in order to better manage their resources.  My
testimony today, which is based on our recently completed and ongoing
work, will discuss key resource management issues and performance
challenges facing the Department in 1999 and beyond.  In summary, we
have found the following: 

  -- There is a need for increased management attention to highway,
     transit, and rail programs--which account for 67 percent of
     DOT's fiscal year 1999 budget request--in several areas.  The
     improved oversight of large dollar highway and transit projects
     costing hundreds of millions to billions of dollars could help
     to ensure that they are well managed and can be successfully
     financed and that costs are controlled.  Additional areas
     needing increased attention include resolving issues, such as
     the lack of technical knowledge at the state and local level,
     before accelerating federal funding for Intelligent
     Transportation Systems--a major initiative in DOT's research
     budget for highway programs--and reorganizing DOT's extensive
     field office structure to achieve a more cost-effective delivery
     of services.  Additional challenges face the Department as it
     tries to achieve improvements in rail and highway safety.  For
     example, 10 rail accidents and collisions in the summer of 1997
     have raised questions about the effectiveness of the
     Department's new rail safety program.  Also, to address a recent
     increase in the number of fatal accidents involving commercial
     vehicles, the Department has begun using performance-based data
     to better target problem carriers for safety reviews.  However,
     the lack of complete and timely data from the states hampers
     this effort. 

  -- Important management challenges face the Federal Aviation
     Administration, which accounts for about 23 percent of DOT's
     budget request.  For example, the agency has been too slow in
     making its computer systems ready for the year 2000, and at its
     current pace, it will not make it in time.  As a result,
     hundreds of computer systems that are critical to the agency's
     operations--such as monitoring and controlling air
     traffic--could fail to perform as needed.  In addition, despite
     a number of assessments over the past year, a consensus does not
     exist regarding the Federal Aviation Administration's future
     funding needs or an appropriate finance mechanism.  However, any
     estimate of those needs will likely increase as the agency
     confronts the challenge of making its computer systems ready for
     the year 2000, addresses cost growth associated with projects to
     modernize its aging air traffic control system, and implements
     security initiatives in response to the changing threat of
     terrorist activities.  Additional challenges face the agency in
     improving the safety and efficiency of our aviation system.  For
     example, the agency needs to improve its oversight of aircraft
     repair stations, enhance its guidance and oversight of pilot
     training in crew resource management, and resolve data
     protection issues to enhance the usefulness of recorded flight
     data to improve safety. 

  -- With a relatively flat budget in recent years, the Coast Guard
     may need to continue cost-cutting efforts and achieve savings
     beyond its accomplishments from recent streamlining actions. 
     Streamlining efforts are particularly important as the agency
     embarks on a costly capital improvement program to replace or
     modernize its aging fleet of cutters and aircraft.  We have
     urged the Coast Guard to develop a more comprehensive strategy
     to achieve additional cost savings, which may necessitate a
     fundamental reassessment of the agency's missions, goals,
     services, and customer needs.  Such a reassessment could point
     to other cost-cutting measures--such as closing facilities and,
     perhaps, scaling back activities--that will involve difficult
     choices and are likely to face intense opposition. 

  -- Amtrak is in a very precarious financial position and remains
     heavily dependent on federal assistance.  DOT's budget proposes
     $621 million for Amtrak's capital expenses but no funding for
     operating expenses in fiscal year 1999.  Amtrak's fiscal year
     1997 net loss was $762 million and would have been higher
     without the one-time sale of certain assets.  The corporation's
     goal is to eliminate the need for federal operating support by
     2002.  Amtrak's capital requirements, however, go well beyond
     the $2.2 billion that will be made available in fiscal years
     1998 and 1999.  Furthermore, if Amtrak uses a significant
     portion of these capital funds to cover expenses historically
     funded with operating subsidies, as proposed in the budget, the
     corporation's long-term financial problems will only be
     exacerbated.  In any case, Amtrak is likely to continue to
     require federal financial support--both operating and
     capital--well into the future. 

  -- DOT faces additional Department-wide issues that affect its
     ability to effectively manage programs and address performance
     concerns.  We have repeatedly pointed out serious problems with
     the Department's information resources and database management. 
     These problems, which affect financial and other program
     information, will be aggravated by challenges facing the
     Department in addressing the Year 2000 problem.  In addition,
     DOT needs to address the issue of unreliable financial
     management information because of problems with its financial
     reports, accounting systems, and internal controls.  For
     example, improved cost information is needed for making
     decisions about financing the Federal Aviation Administration. 
     Finally, if properly implemented, the Government Performance and
     Results Act could be a useful tool for addressing many of the
     issues we have identified.  DOT made a promising start in
     September 1997 by issuing a strategic plan that outlines its
     mission and strategic goals.  The Results Act should provide DOT
     with an incentive to develop quality data for managing its
     programs and for congressional oversight. 


   SURFACE TRANSPORTATION
---------------------------------------------------------- Chapter 0:1

DOT's surface transportation programs, which support building and
maintaining the nation's highways and transit systems, researching
advanced technologies and new safety techniques, and overseeing
safety for roads and rail, account for about $27.8 billion in DOT's
fiscal year 1998 budget.  The administration's budget for fiscal year
1999 proposes about the same level of funding. 


      KEY RESOURCE MANAGEMENT
      ISSUES
-------------------------------------------------------- Chapter 0:1.1

Our work has identified the need for increased management attention
in several surface transportation areas.  Improving DOT's oversight
of transit and highway projects could help to ensure that they are
well managed and can be successfully financed and that costs are
controlled.  Large-dollar projects each costing hundreds of millions
of dollars or more create special oversight concerns.  Such issues as
the lack of technical knowledge at the state and local levels need to
be addressed before accelerating federal funding for Intelligent
Transportation Systems (ITS).  Examining DOT's extensive field office
structure is needed to ensure that the Department is efficiently
organized to deliver services cost-effectively. 

An overriding funding issue for fiscal year 1999 and beyond is the
lack of authorizing legislation for highway and transit programs. 
The Intermodal Surface Transportation Efficiency Act of 1991, which
authorized over $155 billion in federal funds for highway and transit
programs for fiscal years 1992 through 1997, expired on September 30,
1997.  Without reauthorization, it will be difficult for states to
effectively manage their highway programs, and some states may have
to postpone important highway projects.  The Congress passed a
6-month extension of funding for highway construction, highway
safety, and transit programs in November 1997.  If surface
transportation programs are not reauthorized by the time the
short-term extension expires, states will again face substantial
difficulties in planning and managing highway and transit projects as
well as improving highway safety. 


         OVERSIGHT OF TRANSIT
         PROJECTS IMPROVING, BUT
         BETTER FOLLOW-UP ON
         NONCOMPLIANCE NEEDED
------------------------------------------------------ Chapter 0:1.1.1

In fiscal year 1998, the Federal Transit Administration (FTA) was
funded at $4.8 billion to help the states and local transit agencies
develop, operate, maintain, and improve mass transit systems.  In
1992, we designated FTA's management and oversight of its grants as a
high-risk area that was especially vulnerable to fraud, waste, abuse,
and mismanagement.  In 1995, as a result of various initiatives that
FTA was undertaking to improve its grants management oversight, we
removed the agency from our high-risk list with the understanding
that we would continue to monitor the progress of its oversight
initiatives. 

In ongoing work, we found that FTA has strengthened its oversight of
federal transit grants.\1 FTA is continuing to enhance the quality
and consistency of its oversight by improving guidance and training
for staff and grantees, standardizing oversight procedures, and
effectively using contractor staff.  In particular, the agency's risk
assessment process helps target limited oversight resources and
provides a strong foundation for improved oversight. 

However, FTA needs to continue to do more to ensure the timely
correction of deficiencies found during its oversight reviews.  We
found that frequently, some grantees still did not meet FTA's time
frames for corrective action and that FTA allowed compliance
deadlines to be revised, which enabled grantees to delay corrective
action.  Also, while most FTA regional offices have adequate
documentation of follow-up activities, FTA's New York regional
office, which oversees the most transit grant dollars, had almost no
documentation of its oversight reviews.  This situation gave us
little confidence that appropriate follow-up on noncompliance issues
was being performed in that region.  Finally, FTA's existing
oversight information system lacks complete, timely data; hence, the
information cannot be used effectively by FTA's headquarters
officials to manage and monitor grantees' compliance with FTA's
requirements.  The system is intended to track the resolution of
oversight findings and has the potential to be a useful tool in
monitoring compliance, identifying problems, and assessing the
overall effectiveness of the oversight program in meeting performance
standards.  Currently, however, the information in the system is not
updated as required by regional staff nor is it used by headquarters
officials to help manage or monitor the oversight activities of
regional staff--leaving FTA susceptible to and unable to quickly
respond to situations in its regional offices that might compromise
good oversight.  According to FTA, the system is currently being
updated and expanded to address these concerns.  We will report on
these issues to this Subcommittee later this spring. 


--------------------
\1 FTA is responsible for overseeing grantees' compliance with
federal requirements--such as keeping accurate and current records on
the use of federal funds and adequately controlling cash flow and
inventory--and ensuring the proper use of federal transit funds. 


         IMPROVEMENTS POSSIBLE IN
         OVERSIGHT OF HIGHWAY
         PROJECTS
------------------------------------------------------ Chapter 0:1.1.2

In fiscal year 1998, the Federal Highway Administration (FHWA) was
funded at $21.9 billion to assist the states in repairing their aging
infrastructure and enhancing the performance of their highways and
bridges.  In many cases, meeting these needs will take the form of
large-dollar projects costing hundreds of millions to billions of
dollars.  These projects traditionally take longer to build and have
a greater potential to experience substantial cost increases and
delays; they can overwhelm other projects and erode the already
limited funds available to meet transportation investment needs. 
Program managers must ensure that costs are controlled and that
projects are well managed and successfully financed.  Several bills
introduced in the Congress during 1997 included a requirement that
states submit finance plans for highway projects expected to cost $1
billion or more; certain mass transit projects are already required
to submit finance plans to FTA.  In February 1997, we reported
additional options that could improve the management of large-dollar
highway projects, depending on the oversight role that the Congress
chooses for the federal government.\2

One option--once DOT or the Congress establishes an appropriate
dollar threshold and definition for large-dollar highway
projects--would be for states to prepare total cost estimates for
such projects.  We have found that one reason why costs increase on
large-dollar projects over time is that the initial cost estimates
are preliminary and not designed to be reliable predictors of a
project's total cost.  Furthermore, the type of costs included in
initial estimates can vary widely between states and projects. 
Having early, accurate estimates of total costs for large-dollar
projects could assist policymakers in understanding the extent of the
proposed federal, state, and local investment in these projects and
assist program managers in accurately estimating the total financing
requirements. 

Another option would be to have states track progress against their
initial baseline cost estimates.  While cost growth has occurred on
many large-dollar projects, the amount of and reasons for these
increases cannot be determined because data are not readily available
from FHWA or state highway departments.  The federal government has
been moving in the direction of managing programs by establishing
goals and measuring performance through such initiatives as the
Government Performance and Results Act of 1993.  In fact, for the
agencies' own large-dollar capital purchases, the Office of
Management and Budget (OMB) requires federal agencies to prepare
baseline cost and schedule estimates and to track and report on their
performance.  Expanding this practice to the federally assisted
highway program could enhance public accountability.  It could also
improve the management of large-dollar projects by providing managers
with real-time information for the early identification of problems
and for making decisions about project changes that could affect
costs.  In addition, tracking progress would create a database that
would allow for the identification of problems commonly experienced
by projects and provide a better basis for estimating costs in the
future. 

As a large-dollar project moves through its design and construction
phases, another option would be to establish performance goals and
strategies for controlling costs.  Because cost management is not an
explicit statutory or regulatory goal of FHWA's oversight, FHWA has
few requirements to ensure that cost containment is an integral part
of the states' project management.  By evaluating the effectiveness
of project management practices and requiring or encouraging the use
of successful practices in other states, FHWA could improve
accountability and make cost containment an integral part of how
states manage projects over time.  If needed, the Congress could
provide statutory direction by making the cost management of
large-dollar projects an explicit goal of FHWA's oversight. 

Finally, the most far-reaching option would be to establish a process
for the federal approval of large-dollar projects.  FHWA does not
approve projects at their outset; its approval consists of a series
of incremental approvals that occur over the years required to plan,
design, and build projects.  FHWA approves the cost of a large-dollar
project in segments when those project segments are ready for
construction.  However, by that time, a public investment decision
may have already been made because substantial funds will already
have been spent on designing the project and acquiring property. 
Requiring federal approval of large-dollar projects at the
outset--including the approval of cost estimates and finance
plans--could provide greater certainty in state planning and could
help ensure successful financing by providing additional assurances
to those financial markets where less traditional forms of financing
are involved. 

Ultimately, adopting any of these options will require the Congress
to decide what the appropriate federal role is--balancing the
public's need for safe and quality highways with the states' desire
for flexibility and more autonomy and the federal government's
interest in ensuring that billions of dollars are spent efficiently
and effectively. 


--------------------
\2 Transportation Infrastructure:  Managing the Cost of Large-Dollar
Highway Projects (GAO/RCED-97-47, Feb.  28, 1997). 


         LARGE-DOLLAR PROJECTS
         CONTINUE TO FACE
         INCREASED COSTS, DELAYS,
         AND FINANCING PROBLEMS
------------------------------------------------------ Chapter 0:1.1.3

Continued scrutiny and improved oversight are needed to safeguard the
substantial federal, state, and local investment in several
large-dollar highway and transit projects.  At the request of this
Subcommittee, we have continued to examine eight large-dollar highway
and transit projects that represent a total estimated cost of about
$23 billion.  We found that cost increases, schedule delays, and/or
financing problems continue to be associated with most of these
projects.\3 We will discuss four of the most expensive projects. 

The Central Artery/Tunnel project in Boston may face added costs and
funding needs.  Massachusetts plans to complete the 7.5-mile Central
Artery/Tunnel highway project by December 2004 at an estimated total
net cost of $10.8 billion.  As we reported in July 1997, the total
funding needs for the project are $11.6 billion--about $800 million
more than the state's $10.8 billion total net cost estimate.\4 The
funding needs are higher because the project's total net cost
estimate includes about $800 million from future insurance proceeds,
which, if realized, will not be available until 2017--too late to
help pay for the project.  About $4.9 billion in federal funds has
been obligated for the project, and the finance plan for the project
assumes that an additional $2.9 billion in federal funds will be
available through fiscal year 2005.  The remainder of the funding
would come from state sources.  Massachusetts has continued to take
steps in the past year to control the costs of the project and to
secure additional state funding to address expected funding
shortfalls.  However, unless further savings can be found, increases
in construction costs seem likely to push the project's total net
cost higher than the $10.8 billion estimate.  Funding needs could
also be greater because federal funding could be nearly $1 billion
less than projected on the basis of proposed reauthorization
legislation for highway programs.  In addition, while the financial
markets will ultimately decide the feasibility of one funding
strategy--using grant anticipation notes to borrow $1 billion to $1.5
billion and repaying the amount with future federal highway
funding--the strategy presents several challenges.  For example, it
relies on borrowing against federal funds that may not be authorized
by the Congress until after the next federal highway authorization
expires sometime around 2003. 

The Los Angeles Red Line project--a 23.4-mile subway
system--continues to face cost increases, schedule delays, and
financing uncertainties.  As of November 1997, the Los Angeles County
Metropolitan Transportation Authority (MTA) estimated the total cost
of the project to be $6.14 billion, which would be financed by $3.1
billion in federal funds and the remainder from state and local
sources.  In January 1998, MTA decided to suspend the construction of
two of four remaining extensions of the Red Line for at least 6
months while it addresses severe financial difficulties.\5 A number
of factors have contributed to MTA's financial difficulties,
including an October 1996 consent decree that forced MTA to shift its
funding priority from completing the Red Line to expanding bus
service.  This revised focus--together with increased costs and
shortfalls in federal, state, and local funding for the Red Line--has
left MTA with insufficient funds to complete the subway as planned. 
MTA has already spent about $2 billion in federal funds for the Red
Line's design and construction.  Whether and to what extent the
federal government will continue to support the project will not be
known until the project's managers complete a "restructuring" plan
that will spell out the federal government's future commitment.  MTA
has not set dates either for resuming work on the suspended rail
projects or for completing the restructuring plan. 

Financing issues remain unresolved for the Alameda Corridor project. 
The project is a 20-mile dedicated freight rail line--half of which
will run 30 feet below street level in an open trench--that will
connect the ports of Los Angeles and Long Beach and rail yards near
downtown Los Angeles.  Expected to cost about $2 billion, this
project has not yet been fully designed, and only limited
construction has begun.  The project's preliminary cost estimate may
change after contractors submit their construction bids on the
complex open trench or as a result of a December 1997 Internal
Revenue Service ruling limiting the components of the project that
can be financed through tax-exempt revenue bonds.  Funding for the
project will come primarily from the private sector and will be
supplemented by a $400 million federal loan and grants from the two
ports and the Los Angeles MTA.  As of December 1997, project
officials had secured about half of the project's total funding but
face challenges in securing the remainder.  Specifically, they must
demonstrate to financial markets that the project is a good credit
risk and obtain all of the funds committed by a financially strapped
MTA.  According to the project's ambitious schedule, major
construction is to begin in 1999 and be completed within 3 years. 
However, delays in constructing the trench could postpone the start
of revenue operations, scheduled for 2001. 

Debt financing needs on San Francisco's transit extension may be
higher than anticipated.  The Bay Area Rapid Transit District (BART)
has begun constructing an 8-mile extension of its existing line to
provide direct transit service to the San Francisco International
Airport and expects to begin service on September 30, 2001.  BART
estimates that the project will cost $1.167 billion--an amount that
FTA approved when it signed a full funding grant agreement with BART
in June 1997.  Under the grant agreement, FTA will contribute $750
million, or 64 percent of the project's total cost, and the remaining
funds will come from state and local agencies.  Despite the large
federal commitment, BART's finance plan projects that expenses will
exceed revenue during construction and produce annual cash shortfalls
that will peak at $184 million in 2001.  BART will address these
shortfalls through short-term borrowing.  The financing gap, however,
may be larger than the plan's projections, which assume a faster
payout of federal contributions than that outlined in the grant
agreement.  As a result, cash shortfalls could reach almost $290
million by 2001, and BART may need an additional $29 million to
finance these shortfalls.  BART has established a capital reserve
account to meet the added financing requirements.  Whether the
current funding of the reserve account is sufficient will depend on
the actual rate of construction expenditures and the actual revenues
flowing into the account. 


--------------------
\3 See Surface Infrastructure:  Costs, Financing and Schedules for
Large-Dollar Transportation Projects (GAO/RCED-98-64, Feb.  12, 1998)
for details on the eight projects--the Alameda Corridor (Los Angeles
area), San Francisco's transit extension to the airport, Boston's
Central Artery/Tunnel, Los Angeles' Red Line subway, Pittsburgh's
airport busway, St.  Louis' Metrolink extension, and Salt Lake City's
I-15 interstate reconstruction and light-rail line. 

\4 Transportation Infrastructure:  Progress on and Challenges to
Central Artery/Tunnel Project's Costs and Financing (GAO/RCED-97-170,
July 17, 1997). 

\5 Construction will continue on the Red Line's North Hollywood
extension, which was about 50-percent complete as of November 1997,
and on the Vermont extension, which is scheduled to open in December
1998.  The Eastside and Mid-City extensions are on hold. 


         ACCELERATED FUNDING FOR
         INTELLIGENT
         TRANSPORTATION SYSTEMS TO
         THE STATES MAY BE
         PREMATURE
------------------------------------------------------ Chapter 0:1.1.4

DOT's fiscal year 1999 budget calls for $250 million for Intelligent
Transportation Systems (ITS)--a visionary program whose goal is the
use of computer and telecommunications technology to enhance traffic
safety and improve mobility.  This amount represents half of FHWA's
proposed research and technology budget for fiscal year 1999.  From
fiscal years 1991 through 1997, the ITS program received about $1.3
billion to support the widespread deployment of ITS technology
through research, development, testing, and other activities.  DOT's
fiscal year 1999 budget request includes $100 million for a new
program to accelerate the deployment of ITS.  We have found that the
widespread deployment of ITS faces several significant obstacles. 
These include a lack of technical knowledge and expertise among the
state and local officials who will deploy the systems, a lack of
quantitative data proving the systems' cost-effectiveness in solving
transportation problems, and a lack of funds to support these
activities, in light of other transportation priorities.\6

The fiscal year 1999 budget request for ITS includes $29.5 million
for the intelligent vehicle initiative, which replaces the Automated
Highway System program.  Under a $200 million cooperative agreement
with a consortium of public and private organizations, DOT had sought
to define and develop a fully automated highway system in which
vehicles and the road interact to assume full control of routine
driving tasks.  In August 1997, DOT and the consortium carried out a
successful demonstration of this system.  Despite this demonstration
and objections from some members of the consortium, DOT is changing
the program to focus on short-term initiatives that help drivers
avoid accidents rather than long-term initiatives to fully automate
driving tasks.\7 These short-term initiatives would include
developing technologies that alert drivers of dangerous situations
such as when a driver is about to steer off a roadway.  According to
DOT officials, these technologies may be available in about 6-8
years--much sooner than the estimated 20-30 years needed to develop
an automated highway system.  This change in direction, which takes a
more conservative approach to automating driving tasks, creates
uncertainty regarding the consortium's status.  In addition, it
leaves a void in DOT's long-term ITS research activities. 


--------------------
\6 See Urban Transportation:  Challenges to Widespread Deployment of
Intelligent Transportation Systems (GAO/RCED-97-74, Feb.  27, 1997)
and Surface Transportation:  Prospects for Innovation Through
Research, Intelligent Transportation Systems, State Infrastructure
Banks, and Design-Build Contracting (GAO/T-RCED-97-83, Mar.  6,
1997). 

\7 See Surface Transportation:  The Department of Transportation
Proposes Significant Changes to Its Automated Highway System Program
(GAO/RCED-97-177R, June 9, 1997). 


         LACK OF PROGRESS IN
         EFFORTS TO REORGANIZE
         FIELD OFFICE STRUCTURE
------------------------------------------------------ Chapter 0:1.1.5

For the past several years, we have testified before this
Subcommittee that DOT could potentially save millions of dollars by
taking advantage of opportunities to consolidate and/or colocate its
161 surface transportation field offices.\8 DOT has begun examining
its organizational structure and has prepared two interim reports--a
November 1996 report that proposed colocating 160 DOT field offices
at 50 sites and a September 1997 report that examined restructuring
FHWA's nine regional offices.\9 It is unclear, however, when any
reorganizations will take place and how much, if any, cost savings
would result from these efforts. 

DOT's November 1996 interim report was issued after a Department-wide
review of the existing space inventory of over 530 field offices. 
The report identified 160 of these field offices as potential
candidates to be colocated at 50 sites over a 5-year period.  The
report estimated that this and other efforts would reduce, by 19,356
square feet, the amount of field office space needed by the
Department over a 2-year period.  The report did not estimate any
budgetary savings resulting from these colocation opportunities, and
officials said that the moves could increase costs in the short term
as staff are relocated.  DOT's review was limited to those field
offices that provide customer service or technical assistance,
thereby excluding about 70 percent of DOT's more than 1,700 field
offices.  Moreover, according to DOT officials, implementing
colocation opportunities could be hampered by the lack of funds
needed for expenses related to the moves, the amount of lead time
required to colocate a number of large offices, and incompatible
information and telecommunications systems at some offices that may
be colocated.  Finally, any savings from these moves may be offset by
the addition of facilities directed toward improving the delivery of
services and customer satisfaction.  For example, in fiscal years
1996 and 1997, the Department established three new metropolitan
offices to better serve urban customers in Philadelphia, Chicago, and
Los Angeles and will establish a fourth office in New York in fiscal
year 1998. 

The September 1997 interim report followed an FHWA task force review
of the agency's field office structure.  The interim report
recommended that the agency retain all 52 division offices and
restructure its nine regional offices by replacing them with four
resource centers.  The new centers would be located in cities where
regional offices were formerly located.  The report further
recommended transferring some functions currently performed by
regional offices to headquarters or specific division offices and
relocating most regional staff to the new resource centers,
divisions, or headquarters.  The report did not identify any
long-term savings resulting from this reorganization and projected
that costs may actually increase over the short term as staff are
relocated.  DOT expects to provide more details of these plans by
June 1998, including an explanation of how the new resource centers
will differ in their roles and responsibilities from the current
regional offices.  We plan to provide this Subcommittee with
additional information on the status of DOT's reorganization efforts
later this year. 


--------------------
\8 For transcripts of our testimonies, see Surface Transportation: 
Reorganization, Program Restructuring, and Budget Issues
(GAO/T-RCED-95-103, Feb.  13, 1995) and DOT's Budget:  Safety,
Management, and Other Issues Facing the Department in Fiscal Year
1998 and Beyond (GAO/T-RCED/AIMD-97-86, Mar.  6, 1997). 

\9 Department of Transportation Co-location Task Force Interim Report
(Nov.  19, 1996) and Federal Highway Administration (FHWA)
Organization Structure Evaluation Task Force, Phase I:  A Streamlined
Field Organization, draft report (Sept.  22, 1997). 


      KEY PERFORMANCE CHALLENGES
-------------------------------------------------------- Chapter 0:1.2

The need for improvements in safety and congestion mitigation on the
nation's highways and railways are two key challenges facing DOT. 
Each year, over 40,000 deaths occur in the United States as a result
of traffic accidents, 11,000 railroad employees are injured, and
thousands of people are evacuated from their homes as a result of the
hazardous materials that are released during train accidents. 
Traffic growth, leading to congestion, is an escalating problem on
the nation's roads, particularly in many urban areas.  Recent severe
rail congestion and delay, particularly in the West, have been the
worst in 35 years, according to industry observers. 

The infrastructure and research programs that we discussed previously
in this testimony are geared toward addressing such problems with the
transportation system.  For example, when completed, the Alameda
Corridor freight rail line is expected to increase rail speeds along
the corridor, reduce truck traffic on adjacent highways, decrease
shipping time, and accommodate growing cargo volumes.  Similarly, a
fully automated highway system is expected to expand capacity on the
nation's highways as well as improve safety.  However, the problems
we have noted with these programs and projects could delay or hamper
their effectiveness in improving safety and mobility.  In recent
reports, we have identified several additional challenges facing DOT
as it tries to achieve improvements in rail and highway safety. 


         EFFECTIVENESS OF NEW RAIL
         SAFETY PROGRAM UNPROVEN
------------------------------------------------------ Chapter 0:1.2.1

The Federal Railroad Administration (FRA) instituted changes in its
safety program in 1993 to address safety problems in the rail
industry.  Generally, the changes in FRA's safety program
deemphasized site-specific inspections and emphasized cooperative
partnerships with railroad management, labor unions, other federal
agencies, and the states to obtain improvements in railroad safety. 
While preliminary data for 1997 show an improvement in key safety
statistics, it is too early to determine if FRA's new safety strategy
will produce a sustained decline in rail accidents and fatalities. 
While, overall, accidents and fatalities have decreased, trends over
the past 20 years show that periods of noteworthy declines in
railroad accidents, injuries, and fatalities were followed by periods
of equally noteworthy increases.  In addition, accidents involving
Union Pacific and CSX trains during 1997 have raised questions about
the effectiveness of FRA's new program.  Despite FRA's intensive
safety reviews of the railroads during 1995 and 1996, the railroads
had 10 accidents and collisions in the summer of 1997 that resulted
in eight deaths.  In response, FRA sent teams of 75 to 80 inspectors
to each railroad to document safety problems and ensure that the
railroads had addressed problems found in earlier reviews. 

Furthermore, we found that FRA's new strategy does not
comprehensively address workplace safety for railroad employees or
the structural integrity of railroad bridges.\10

Railroad employees accounted for most of the more than 12,500
rail-related injuries and illnesses that occurred in 1996.  FRA
relies on the Occupational Safety and Health Administration (OSHA) to
address many workplace safety issues.  However, OSHA inspectors visit
railroad property only in response to complaints about working
conditions or when investigating workplace accidents.  In the absence
of bridge safety regulations, FRA relies on the railroads to
voluntarily correct bridge safety problems.  While FRA inspectors may
exercise emergency authority to close a bridge when conditions
present an imminent hazard of death or personal injury, they cannot
issue violations to railroads when they find less severe bridge
safety problems.  We have recommended that FRA consider developing
regulations to address workplace safety once sufficient data are
collected and ensure that findings of potential structural problems
on bridges are properly addressed by the bridges' owners.  In
response, FRA agreed to issue new employee workplace rules when
railroad operations are involved if the railroads' voluntary
corrective measures are not effective.  FRA, however, does not intend
to issue new rules for nonoperational safety and health problems that
have historically fallen under OSHA's jurisdiction.  In addition, FRA
concurred with our recommendation regarding structural bridge safety
problems, but said it will continue to pursue nonregulatory guidance
and monitoring to ensure the safety and integrity of bridges. 


--------------------
\10 Rail Transportation:  Federal Railroad Administration's New
Approach to Railroad Safety (GAO/RCED-97-142, July 23, 1997). 


         IMPROVED PERFORMANCE DATA
         NEEDED FOR COMMERCIAL
         MOTOR CARRIERS
------------------------------------------------------ Chapter 0:1.2.2

About 5,000 people die annually in the United States in traffic
accidents involving large trucks and other commercial motor vehicles. 
The rate of fatal accidents involving large trucks declined steadily
from 1983 through 1992 as FHWA's Office of Motor Carriers and the
states expanded their commercial vehicle safety programs.  However,
the fatal accident rate has been fairly level since 1992, while the
actual number of fatal accidents has risen.  We recently reported
that the Office of Motor Carriers has begun using performance-based
data through its Safety Status Measurement System to better target
problem carriers for safety reviews.\11 Complete and timely data from
the states on commercial vehicle accidents and the results of
roadside inspections and other vehicle safety programs are key to
implementing the new targeting system.  While many states have
improved the completeness and timeliness of their data submissions in
recent years, the Office of Motor Carriers found that (1) the states,
overall, reported only about 74 percent of the recordable accidents
in 1995 and (2) during fiscal year 1997, five states submitted
accident data more than 6 months, on average, after the accidents
occurred.  Because the Office of Motor Carriers and the states need
these data to effectively target their resources on problem carriers,
we recommended that DOT identify the barriers that prevent the states
from providing complete and timely data and work with the states to
develop a strategy for addressing each barrier.  As of this time, the
Department has not responded to our recommendation. 

Another area that, if not properly overseen, could have significant
implications for highway safety is the potential increased commercial
truck traffic from Mexico throughout the United States as a result of
the North American Free Trade Agreement.  Last spring, we reported on
the safety inspection of commercial trucks entering the United States
from Mexico.\12 During 1996, Arizona, California, and Texas
substantially increased their capability to inspect trucks for safety
violations at major border crossings.  In particular, the number of
state and federal inspectors assigned to border crossing locations
doubled, enabling federal and state personnel to conduct more than
25,000 inspections during 1996.  While state and federal inspectors
told us that Mexican trucks have become safer, citing data such as
fewer safety violations per truck, these views are anecdotal.  To
measure the progress by these commercial truck carriers in meeting
U.S.  safety regulations, we recommended that DOT encourage the
border states to develop and implement measurable results-oriented
goals for the inspection of these vehicles.  Starting in fiscal year
1998, DOT is requiring all states, including the border states, to
implement the Department's motor carrier safety program on a
performance-based results-oriented basis.  However, the Department
said that border states would only have to implement measurable
results-oriented goals for their inspection of commercial trucks from
Mexico if they consider that Mexican trucks are a problem.  Later
this year, we plan to examine whether the border states have
developed results-oriented performance goals and what assistance, if
any, DOT has given to help them do so. 


--------------------
\11 Commercial Motor Carriers:  DOT Is Shifting to Performance-Based
Standards to Assess Whether Carriers Operate Safely (GAO/RCED-98-8,
Nov.  3, 1997). 

\12 Commercial Trucking:  Safety Concerns About Mexican Trucks Remain
Even as Inspection Activity Increases (GAO/RCED-97-68, Apr.  9,
1997). 


   AVIATION
---------------------------------------------------------- Chapter 0:2

The Federal Aviation Administration (FAA), which is responsible for
providing air traffic control services nationwide, ensuring aviation
safety and security, and assisting in airport development, accounted
for about $9.1 billion in DOT's fiscal year 1998 budget.  The
proposed budget for fiscal year 1999 increases that amount to almost
$9.8 billion. 

Over the last year, we have reported that the Congress and DOT face a
critical issue in determining how to adequately fund FAA to meet its
mission over the long term.\13 In its fiscal year 1998 budget
request, FAA estimated that its needs would exceed projected funding
levels by about $13 billion over the following 5 years.  Despite a
number of assessments over the past year, a consensus does not exist
regarding FAA's future funding needs or how to meet them.\14 However,
any estimate of those needs will likely increase as FAA confronts
problems associated with making its computer systems ready for the
year 2000, cost growth for mission-critical modernization efforts,
and improving its aviation safety and security programs.  The latest
proposal for funding FAA comes from the National Civil Aviation
Review Commission, which recommends that the Congress fund FAA
through a combination of cost-based user charges, fuel taxes, and
general fund revenues.\15 In the past, we and others have noted that
many issues surround the allocation of air traffic costs and that FAA
lacked sufficiently detailed or reliable cost data.  These concerns
are still relevant.  The Commission's report acknowledges that
effective, reliable, and comprehensive cost-accounting data are
needed to accurately determine the agency's costs.  FAA has begun
implementing a cost-accounting system, but program officials estimate
that cost data for air traffic services will not be available until
October 1998.  However, it is important for FAA to move vigorously to
address its cost-accounting problems so that the Congress will have
adequate and accurate financial and program information for making
decisions. 


--------------------
\13 Transportation Financing:  Challenges in Meeting Long-Term
Funding Needs for FAA, Amtrak, and the Nation's Highways
(GAO/T-RCED-97-151, May 7, 1997) and Federal Management:  Addressing
Management Issues at the Department of Transportation
(GAO/T-RCED/AIMD-97-172, May 21, 1997). 

\14 See Federal Aviation Administration:  Independent Financial
Assessment, Coopers & Lybrand (Feb.  28, 1997), Avoiding Aviation
Gridlock & Reducing the Accident Rate, National Civil Aviation Review
Commission (Dec.  1997), Airport Development Needs:  Estimating
Future Costs (GAO/RCED-97-99, Apr.  7, 1997), and Air Traffic
Control:  Issues in Allocating Costs for Air Traffic Services to DOD
and Other Users (GAO/RCED-97-106, Apr.  25, 1997). 

\15 Avoiding Aviation Gridlock & Reducing the Accident Rate, National
Civil Aviation Review Commission (Dec.  1997). 


      KEY RESOURCE MANAGEMENT
      ISSUES
-------------------------------------------------------- Chapter 0:2.1

Our work has identified the need for increased attention to the
management of aviation programs in the following areas:  (1)
addressing FAA's slow rate of progress in making its computer systems
ready for the year 2000, (2) dealing with schedule delays and cost
growth facing some infrastructure acquisitions, (3) more accurately
determining future air traffic controllers' staffing needs and cost
savings from FAA's revised training program for new controllers, (4)
obtaining adequate and predictable funding for the airport
improvement program, and (5) resolving deployment issues for some
aviation security initiatives. 


         LIMITED PROGRESS BEING
         MADE ON YEAR 2000 PROBLEM
------------------------------------------------------ Chapter 0:2.1.1

On January 1, 2000, computer systems worldwide could malfunction or
produce inaccurate information simply because the date has changed. 
Unless corrected, such failures could have a costly, widespread
impact.  The problem is rooted in how dates are recorded and
computed.  For the past several decades, systems have typically used
two digits to represent the year--such as "97" for 1997--to save
electronic storage space and reduce operating costs.  In such a
format, however, 2000 is indistinguishable from 1900.  This ambiguity
could cause systems to malfunction in unforeseen ways or to fail
completely. 

Correcting this problem will not be easy or inexpensive and must be
done while such systems continue to operate.  Many of the
government's computer systems were developed 20 to 25 years ago, use
a wide array of computer languages, and lack full documentation.  In
less than 2 years, hundreds of computer systems that are critical to
FAA's operations--such as monitoring and controlling air
traffic--could fail to perform as needed unless proper date-related
calculations can be assured. 

FAA's progress in making its systems ready for the year 2000 has been
too slow.  We have reported that, at its current pace, FAA will not
make it in time.\16 The agency has been severely behind schedule in
completing basic awareness and assessment activities--critical first
and second phases in an effective Year 2000 program.  For example,
FAA only last week established a Year 2000 program manager position
that reports to the Administrator, and FAA has yet to make final its
overall Year 2000 strategy or its assessment of the impact of systems
not being Year 2000 date compliant.  Until these activities are
completed, FAA cannot know the extent to which it can trust its
systems to operate after 1999.  The potential serious consequences
could include degraded safety, grounded or delayed flights, increased
airline costs, and customer inconvenience. 

Delays in completing awareness and assessment activities also leave
FAA little time for critical renovation, validation, and
implementation activities--the final three phases in an effective
Year 2000 program.  With less than 2 years left, FAA is quickly
running out of time, making contingency planning for the continuity
of operations even more critical. 

On January 23, 1998, FAA's Year 2000 project office estimated that
the entire program will cost $162 million, although it reported that
refined cost estimates will be issued in February.  This cost
estimate could increase dramatically if FAA decides to purchase new
hardware to replace parts of its Host Computer System.  This action
is being considered because of concerns that FAA will not be able to
ensure that the current hardware is Year 2000 compliant.  FAA's
preliminary cost estimates for the new hardware range from $125
million to $160 million. 

Regardless of the eventual cost estimate, uncertainty surrounds the
funding of these activities.  For example, while FAA officials
estimate that they will spend about $89 million in fiscal year 1998
for Year 2000 activities, only $18 million of the $162 million is
currently in the fiscal year 1998 budget.  FAA officials stated that
FAA will absorb about $33.2 million and has requested a reprogramming
of an additional $37.7 million in fiscal year 1998 funding. 
Additionally, OMB has stated that because of the Department's
disappointing progress on the Year 2000 problem, it will not fund any
request from DOT for information technology investments in the fiscal
year 1999 budget unless they are directly related to fixing the Year
2000 problem.  FAA's fiscal year 1999 budget request includes $36
million for the program. 


--------------------
\16 FAA Computer Systems:  Limited Progress on Year 2000 Issue
Increases Risk Dramatically (GAO/AIMD-98-45, Jan.  30, 1998). 


         MAJOR ACQUISITIONS
         CONTINUE TO FACE DELAYS
         AND COST INCREASES
------------------------------------------------------ Chapter 0:2.1.2

Since 1981, FAA has had a mission-critical capital investment program
under way to modernize its aging air traffic control (ATC) system. 
This effort, which involves acquiring a vast network of radars and
automated data-processing, navigation, and communications equipment,
is expected to cost $34 billion through 2003.  Over the years, we
have reported that ATC modernization projects have experienced
substantial cost overruns, lengthy delays, and significant
performance shortfalls.  During 1997, we continued to review the
progress of these projects.  Some projects--such as the $2 billion
Display System Replacement project to replace aging equipment at en
route centers--are on schedule and within budget.  We found, however,
that two key components of the modernization effort--the Wide Area
Augmentation System (WAAS) and the Standard Terminal Automation
Replacement System (STARS)--have encountered schedule delays and cost
increases.  We plan to report in more detail on the status of these
and other ATC modernization projects later this year. 

FAA's fiscal year 1999 budget request calls for $137.5 million for
the WAAS project.  The project, which FAA now expects to be fully
operational in 2002, was originally intended to replace the current
ground-based civil air navigation system with a satellite-based
system using signals generated from the Department of Defense's
Global Positioning System (GPS).  FAA is acquiring WAAS--a network of
equipment on the ground and in space--to enhance GPS so that the
system can meet civil aviation requirements. 

In developing WAAS, FAA has encountered schedule delays and cost
increases.  In signing the original development contract with Wilcox
Electric in August 1995, FAA planned for the initial system to be
operational by December 1997.  But because of concerns about the
contractor's performance, FAA terminated the original contract and
signed a development contract with Raytheon (formerly Hughes
Aircraft) in October 1996 that calls for the initial system to be
operational by April 1999.  The 16-month schedule slippage was caused
by problems with the original contractor's performance, design
changes, and increased software development. 

Although FAA knew that its facilities and equipment cost estimate for
WAAS could exceed $900 million, the agency's original estimate was
$508 million in 1994.  FAA increased this estimate to $957 million in
April 1997 and to just over $1 billion as of January 1998--roughly
double the original figure.  Also, FAA's cost estimates for WAAS
operations and maintenance have increased by about a third--from
about $1.5 billion in September 1997 to about $2 billion in January
1998.  The increased costs for facilities and equipment are caused
largely by higher than expected development costs and the inclusion
of previously omitted costs for updating the technology.  The revised
cost estimate for operations and maintenance is largely attributable
to higher than expected costs to lease satellites. 

Over the past year, FAA has focused on a technical issue that could
ultimately limit WAAS' capability to operate as originally
intended--as a sole navigation system without having another
navigation system on board--and could increase FAA's costs for
providing navigation services.  GPS/WAAS signals are vulnerable to
radio frequency interference, which could reduce the signal's
availability for air navigation; as a result, flights in affected
areas could be delayed.  If this vulnerability cannot be resolved,
FAA may have to cancel its planned phaseout of all ground-based
navigation aids.  If FAA retains a backup network of ground-based
aids, the cost savings expected by implementing WAAS would be
substantially reduced. 

FAA's and our analyses have shown that the benefits of acquiring WAAS
substantially outweigh the costs.\17 However, because of the
interference vulnerability and other issues, we are reanalyzing the
project's benefit-cost ratio under various scenarios.  For example,
we are assessing the potential effects of retaining a backup network
of ground-based navigation aids.  We intend to provide this
Subcommittee with our results next month. 

Another recent concern is the feasibility of FAA's plan to lease
geostationary communications satellite services--a key component of
the WAAS system--rather than make a large upfront investment to
purchase the satellites.  FAA's plan raises a number of programmatic
and budget issues, including the need for additional budget authority
for the agency to enter into a long-term lease.  DOT is scheduled to
report to this Subcommittee by February 15, 1998, on how it intends
to provide this satellite communications capability.  We intend to
comment on this concern in our report to be issued next month to this
Subcommittee. 

FAA's proposed fiscal year 1999 budget calls for $183.5 million for
the STARS project, which entails replacing, from December 1998
through February 2005, old computers, controller workstations, and
related equipment at about 170 FAA terminal air traffic control
facilities.  FAA estimates that the project will cost $2.2 billion. 
Last year, we reported that STARS' implementation--particularly at
the three facilities targeted for operating the system before fiscal
year 2000--will likely be delayed if FAA and its contractor
experience difficulties in developing the software.\18 These
difficulties have materialized. 

To meet its goal of installing the system at the first
site--Boston--in December 1998, FAA planned to complete its software
development by September 1997.  As of January 1998, the software
development was not complete.  FAA's schedule has been delayed, in
part, because the contractor's actual software production rates were
much lower than projected. 

In January 1998, FAA reported that more delays are possible because
there could be a further increase in software requirements to resolve
air traffic controllers' dissatisfaction with the system's
computer-human interface.  FAA also reported an unexpected cost
growth of $35 million for fiscal year 1998.  The agency attributed
the growth to such factors as a change in the scope of the software's
development, the application of additional resources to maintain the
program's schedule, and the impact of new computer-human interface
requirements.  Program officials told us that they may request a
reprogramming of fiscal year 1998 funds to address this cost growth. 


--------------------
\17 National Airspace System:  Observations on the Wide Area
Augmentation System (GAO/T-RCED-98-12, Oct.  1, 1997). 

\18 Air Traffic Control:  Status of FAA's Standard Terminal
Automation Replacement System Project (GAO/RCED-97-51, Mar.  5,
1997). 


         IMPROVEMENTS NEEDED IN
         FAA'S CONTROLLER STAFFING
         PROCESS
------------------------------------------------------ Chapter 0:2.1.3

Because of significant hiring in the early 1980s to replace air
traffic controllers who had been fired during the 1981 strike, many
of FAA's more than 17,000 controllers may become eligible to retire
within the next decade, raising concerns about whether there will be
enough fully trained controllers to manage the nation's air space. 
At the request of this Subcommittee, we reported on the process that
FAA uses to forecast controllers' retirements and staffing needs and
to formulate its annual staffing and budget requests.\19

We found that many controllers may not qualify for retirement as
early as FAA estimates.  We believe that FAA's method of forecasting
controllers' future staffing needs can be improved and recommended
that the agency use actual information on the controllers' age, years
of service, and retirement eligibility date rather than assumptions
about when controllers will be eligible to retire.  While FAA's
estimate of the number of retirements in fiscal year 1995 was fairly
accurate, we believe that basing long-term estimates on the method we
suggested will be more accurate than FAA's method of projecting
retirements.  As of September 1997, DOT had revised its personnel
management information system to include the suggested data so that
it could determine the number of controllers eligible to retire each
year.  FAA expects to complete validating these changes to the system
by April 1998. 

We further reported that there may not be a sufficient number of
controller candidates to fill staffing needs in fiscal year 1999 and
beyond.  The majority of available candidates are former controllers
who were fired during the 1981 strike.  FAA officials believe that
many of these candidates could be eligible to retire within a few
years of reemployment.  FAA, however, has not conducted any analysis
to support this issue.  We recommended that the agency collect the
information to do so.  The September 1997 revisions to DOT's
personnel management system will provide this information. 

FAA has revised its training program for new controllers with the
intent of reducing on-the-job training time and costs.  Beginning
this fiscal year, all new controllers are required to successfully
complete part of their training at the FAA Training Academy in
Oklahoma City.  Under the old program, some controller
candidates--who had no prior experience--received initial training at
post-secondary schools, as part of a collegiate training program,
before being hired and placed at an air traffic control facility.  We
believe that the revised program could increase the federal costs of
initial controller training because FAA will pay a portion of
training expenses that had previously been paid by participants in
the collegiate program.  Therefore, we recommended that FAA compare
the actual training costs under the revised and old programs to
determine whether the anticipated savings will be realized.  FAA has
implemented a computerized system to monitor training costs under the
revised program.  However, FAA does not plan to monitor the costs to
train new controllers hired in 1997 under the old system.  As a
result, the agency will still not be able to compare the training
costs or determine the savings under the revised program. 


--------------------
\19 Aviation Safety:  Opportunities Exist for FAA to Refine the
Controller Staffing Process (GAO/RCED-97-84, Apr.  9, 1997). 


         ADEQUATE AND PREDICTABLE
         FUNDING NEEDED FOR
         AIRPORT IMPROVEMENT
         PROGRAM
------------------------------------------------------ Chapter 0:2.1.4

FAA's budget request for fiscal year 1999 includes $1.7 billion for
the airport improvement program (AIP), which provides grants for
capital improvements to 3,304 airports that comprise the national
airport system.  Last year, the Congress, following the leadership of
this Subcommittee, increased its funding for AIP by $240 million,
from $1.46 billion in fiscal year 1997 to $1.7 billion in fiscal year
1998.  This increase was the first in the program since fiscal year
1992, when the AIP appropriation totalled $1.9 billion.  In addition,
last December, the National Civil Aviation Review Commission reported
to the Congress that funding for the AIP should be at least $2
billion each year. 

We reported last April that capital needs for airports may total as
much as $10 billion per year over the next 5 years.\20 Of this total,
we estimated that about $1.4 billion per year is planned to meet
FAA's highest priorities for development--meeting existing federal
safety and security mandates, implementing noise mitigation projects,
and maintaining the existing airfield infrastructure.  In addition,
we estimated that another $4.6 billion per year is planned for other
AIP-eligible development, such as adding system capacity and bringing
airports up to FAA's design standards.  The remaining $4 billion per
year is for development not eligible for AIP funds. 

Since our April report, we have examined the capacity of airports to
finance their projected development.  In total, we found that
national system airports generated about $7 billion for their capital
development in 1996--$3 billion less than their projected total
development needs per year.  Smaller airports are substantially more
reliant on AIP funding and face the most severe shortfalls.  For
example, the smallest 3,163 national system airports (out of 3,304
total) obtained about $1 billion in capital funding in fiscal year
1996--more than half of that from the AIP--and the rest from state
grants, airport bonds, and passenger facility charges.  However,
these airports projected $2.2 billion in future development--more
than twice their 1996 funding.  Meanwhile, the nation's 141 largest
airports, which accounted for 95 percent of the passenger
enplanements in 1996 and all 25 of the nation's severely congested
airports,\21 obtained far more funding--about $6 billion in fiscal
year 1996--however, this amount was also short of the more than $7.8
billion per year that these airports have in planned development. 


--------------------
\20 Airport Development Needs:  Estimating Future Costs
(GAO/RCED-97-99, Apr.  7, 1997). 

\21 FAA considers an airport to be severely congested if it incurs
delays of more than 20,000 hours in a year. 


         DEPLOYMENT ISSUES NEED TO
         BE ADDRESSED FOR SOME
         AVIATION SECURITY
         INITIATIVES
------------------------------------------------------ Chapter 0:2.1.5

Over the last several years, the changing threat of terrorist
activities has heightened the need to improve domestic aviation
security.  To address this threat, FAA is implementing
recommendations made in February 1997 by the White House Commission
on Aviation Safety and Security (the Gore Commission) and mandates
contained in the Federal Aviation Reauthorization Act of 1996. 
Expeditious implementation of the security initiatives by FAA and the
aviation industry is crucial to improving the integrity of domestic
aviation. 

In September 1996, the Congress appropriated $144.2 million for FAA
to purchase and install explosives detection devices at U.S. 
airports.  The Secretary of Transportation directed FAA to have most
of these devices in place by September 1997; FAA did not meet this
goal.  As of January 1998, only 11 of 54 FAA-certified systems to
screen checked bags and 125 of the projected 489 devices--called
trace detection devices--to screen passengers' carry-on bags had been
installed.  By the end of fiscal year 1998, FAA plans to have
installed all 54 of the FAA-certified screening systems, 400 trace
devices, and another 22 noncertified screening devices.  For the
equipment used to screen checked bags, FAA is almost a year behind
schedule because the contractor hired to install the equipment did
not have the experience needed for installation.  Additionally, FAA
said that some airports wanted to delay scheduling the installation
of explosives detection systems because their baggage-handling
systems are undergoing major reconfiguration/construction.  The
deployment of trace devices for carry-on baggage also has been
delayed partly because FAA and airlines need to evaluate how well
different types of equipment are working before making additional
purchases.  DOT is requesting $100 million for fiscal year 1999 to
continue purchasing explosives detection equipment. 

The screening equipment for carry-on and checked bags--such as the
X-ray equipment currently in place as well as the newer FAA-certified
systems--relies on personnel to interpret images on computer screens
to determine whether the baggage may contain a dangerous object or
explosive.  Therefore, the personnel must be well trained.  FAA has
begun several pilot programs to improve these personnel's performance
and training.  First, for the current X-ray equipment used for
carry-on bags, FAA has introduced a self-paced computer-based
training program for check point personnel called the Screener
Proficiency Evaluation and Reporting System, or SPEARS.  FAA has
implemented this training program at 17 of the nation's largest
airports and plans to expand it to other airports.  At the airports
we visited, the training has generally been well received, although
some issues need to be resolved, such as the location of the training
equipment within an airport facility for its most effective use, the
number of units required at larger airports, and the adequacy of
guidelines on how to use the new computer-based program.  Second, for
the newer FAA-certified screening system for checked bags, the
equipment's manufacturer has provided the initial training. 
Additional computer-based training for this system has been developed
by the same firm that developed training for the carry-on X-ray
equipment; the training program will be deployed after FAA finishes
evaluating it. 


      KEY PERFORMANCE CHALLENGES
-------------------------------------------------------- Chapter 0:2.2

FAA faces challenges in improving the safety, security, and
efficiency of our aviation system.  In 1996, 380 people died in major
airline accidents--the highest number in 11 years.  FAA estimates
that air carriers' delays cost passengers and airlines a total of
about $9.5 billion in 1994.  Many diverse factors--such as properly
functioning equipment; human factors involving pilots, crew, and air
traffic controllers; and the weather--affect the overall performance
of the aviation system.  Over the past year, we have identified the
need for FAA to better address some of these factors by improving its
oversight of aircraft repair stations, enhancing its guidance and
oversight of pilot training in crew resource management, and
resolving data protection issues to enhance the usefulness of
recorded flight data to improve safety.  In addition, we are
examining FAA's management of its weather research program and will
be reporting soon on the effectiveness of FAA's enforcement of its
safety and security inspection programs. 


         IMPROVEMENTS NEEDED IN
         OVERSIGHT OF REPAIR
         STATIONS
------------------------------------------------------ Chapter 0:2.2.1

Maintaining, repairing, and renovating the fleet of more than 6,700
U.S.  aircraft costs about $6.5 billion a year.  Nearly half of the
work is done by about 2,800 independent repair stations located
worldwide and the remainder by the air carriers themselves.  About
600 of FAA's 3,000 inspectors are responsible for inspecting repair
stations to ensure that work conducted by these facilities is
competently done.  In recent years, FAA's oversight of repair
stations has become a matter of concern partly because the work
performed by repair stations has been identified as a factor in
several aircraft accidents. 

We found that FAA is meeting its goal of inspecting every repair
station at least once a year, relying primarily on reviews by
individual inspectors.\22 However, when FAA uses teams rather than
individual inspectors to review facilities, the review is more
effective, uncovering more systemic and long-standing problems.  We
could not find sufficient documentation to determine how well FAA
followed up to ensure that the deficiencies found during the
inspections were corrected.  Thus, we were unable to assess how
completely or quickly the repair stations were bringing themselves
into compliance.  FAA does not tell its inspectors what documentation
to keep, and the resulting information gaps lessen the agency's
ability to determine how well its inspection activities are working
or to identify and react to trends.  These gaps are particularly
important because FAA is spending more than $30 million to develop a
reporting system that, among other things, is designed to use the
documentation to target inspections to those areas that pose the
greatest safety risk. 

Following the May 1996 crash of a ValuJet DC-9 in the Florida
Everglades, FAA announced new initiatives to upgrade the oversight of
repair stations by clarifying air carriers' oversight of repair
stations.  In addition, FAA has activities under way to improve its
oversight of repair stations.  One effort would revise the
regulations governing repair station operations, and another would
revise the regulations governing the qualifications of repair station
personnel.  Begun in 1989, the revision of repair station regulations
has been repeatedly delayed because other rule-making and policy
projects received higher priority.  The third effort is to add more
inspectors, which should mean that more resources can be devoted to
inspecting repair stations.  As part of its fiscal year 1999 budget
proposal, FAA has requested funding for 45 additional inspectors and
certification personnel. 

To improve its oversight of repair stations, we recommended that FAA
expand the use of locally based teams to inspect the facilities,
particularly those that are large, complex, have higher rates of
noncompliance, or meet predetermined risk indicators.  In addition,
we recommended that FAA specify what documentation should be kept on
inspection results, monitor efforts to improve the quality of data
for its new management information system, and expedite efforts to
upgrade regulations concerning the oversight of repair stations.  FAA
agreed with these recommendations but has not yet indicated how or
when they would be implemented. 


--------------------
\22 Aviation Safety:  FAA Oversight of Repair Stations Needs
Improvement (GAO/RCED-98-21, Oct.  24, 1997). 


         IMPROVED GUIDANCE AND
         OVERSIGHT NEEDED FOR
         PILOT TRAINING IN CREW
         RESOURCE MANAGEMENT
------------------------------------------------------ Chapter 0:2.2.2

About 30 percent of the 169 aviation accidents and about 18 percent
of the 3,901 incidents that occurred from 1983 through 1995 were
caused at least in part by pilots' performance, according to our
analysis of the National Transportation Safety Board's and FAA's
data.\23

Furthermore, in about one-third of the accidents involving pilots'
performance, we determined that the pilots did not correctly use the
principles of crew resource management--an approach that focuses on
better coordination among the airplane crew to handle certain routine
and emergency situations.  For example, according to the National
Transportation Safety Board, just before the 1994 crash in Charlotte,
North Carolina, which killed 37 people, the aircraft had encountered
a sudden change in wind direction, and the captain gave an incorrect
order to the first officer, who did not question the order, as crew
resource management principles would require. 

FAA recognized the importance of crew resource management by
requiring all airlines to include training in these principles in one
of two ways.  A few airlines meet the requirement by participating in
FAA's Advanced Qualification Program, which specifies a process for
curriculum development that the airlines must follow in order to
integrate training in crew resource management with technical flying
skills.  Most airlines, however, meet this requirement under FAA's
regulations for traditional training programs, which spell out the
number of hours of training required in particular areas but provide
ambiguous guidance on how to develop the curriculum for crew resource
management and lack standards to evaluate airlines' training in this
area.  As a result, FAA cannot be assured that such airlines are
developing a curriculum for effectively teaching pilots how to best
use all the skills and experience available to them in the cockpit. 
We recommended that FAA develop a process for its traditional
training programs that airlines must follow for creating a crew
resource management curriculum with measurable criteria.  We have not
yet received FAA's response to this recommendation. 


--------------------
\23 We analyzed 169 accidents that involved the major airlines and
were investigated and reported on by the National Transportation
Safety Board from 1983 through 1995.  See Human Factors:  FAA's
Guidance and Oversight of Pilot Crew Resource Management Training Can
Be Improved (GAO/RCED-98-7, Nov.  24, 1997). 


         DATA PROTECTION CONCERNS
         LIMIT AIRLINES' USE OF
         RECORDED FLIGHT DATA TO
         ENHANCE SAFETY
------------------------------------------------------ Chapter 0:2.2.3

The analysis of aircraft data recorded during flight has played a
crucial role in determining the causes of crashes.  Recently,
however, some airlines also have begun using continuously recorded
flight data to detect technical flaws, unsafe practices, or
undesirable operating procedures early enough to avert accidents or
incidents.  Currently, about 33 foreign airlines and 4 U.S.  airlines
participate in these voluntary Flight Operational Quality Assurance
(FOQA) programs and have used the information gained from these
flight data to correct problems and enhance aviation safety.  Despite
the benefits of these programs, we have reported that other airline
officials and pilots are reluctant to participate in the programs
because of concerns that the data would be (1) used for enforcement
or disciplinary purposes, (2) disclosed to the media and the public
under the Freedom of Information Act, and (3) disclosed through the
civil litigation discovery process.\24 FAA has taken a number of
actions to resolve these concerns, such as beginning work on a
rule-making procedure to establish what protection from enforcement
actions, if any, will apply to information submitted to FAA under a
FOQA program.  It is unclear, however, whether the aviation community
will be satisfied with FAA's response to its concerns. 


--------------------
\24 Aviation Safety:  Efforts to Implement Flight Operational Quality
Assurance Programs (GAO/RCED-98-10, Dec.  2, 1997). 


         THE NATIONAL RESEARCH
         COUNCIL AND OTHERS CITE
         NEED TO IMPROVE FAA'S
         MANAGEMENT OF WEATHER
         INFORMATION FOR AVIATION
------------------------------------------------------ Chapter 0:2.2.4

According to FAA, weather is a contributing factor in more than
one-third of all aviation accidents and accounts for almost
two-thirds of flight delays.  Since 1982, FAA has spent approximately
$1.3 billion on facilities and equipment designed to automate the
collection, analysis, communication, and display of weather
information to better meet users' needs, prepare for improvements to
the national airspace system, and move toward a more collaborative
system of air traffic management. 

In 1995, the National Research Council (NRC)--comprising members of
the National Academy of Sciences, the National Academy of
Engineering, and the Institute of Medicine--issued a report critical
of FAA's overall management of its weather program.  The report found
that there was a lack of coordination between FAA and other
agencies--primarily the National Weather Service--involved in
providing and using aviation weather information.  NRC's primary
recommendation called for FAA to provide the leadership, establish
the priorities, and ensure the funding needed to improve weather
services for aviation users and to strengthen related research.  NRC
attributed part of FAA's inadequacies to a lack of capable aviation
weather leadership within the agency; the responsibility for weather
was dispersed among different organizations headed by key associate
administrators with different priorities, interests, and cultures. 
Similarly, a 1995 report by the Aviation Weather Subcommittee of
FAA's Research, Engineering, and Development Advisory Committee
recommended that FAA better organize its aviation weather activities
and show a greater funding commitment to its ongoing weather research
program.  In addition, we found that some weather systems used by FAA
(such as the Automated Surface Observing System) did not meet users'
needs.\25

In response to these recommendations, FAA began reorganizing its
weather programs, creating an Aviation Weather Directorate and
establishing an integrated product team for weather programs.  Still,
indications are that FAA has not fully addressed weather issues.  For
example, a 1997 report by an FAA advisory committee identified
weather projects as an ongoing concern.\26 We are currently examining
these issues as part of a review of FAA's aviation weather programs
and will report on them later this year. 


--------------------
\25 Weather Forecasting:  Unmet Needs and Unknown Costs Warrant
Reassessment of Observing System Plans (GAO/AIMD-95-81, Apr.  21,
1995). 

\26 Subcommittee Report of the National Airspace System Air Traffic
Management Research and Development Panel to Research, Engineering,
and Development Advisory Committee (Mar.  25, 1997). 


   COAST GUARD
---------------------------------------------------------- Chapter 0:3

For fiscal year 1999, the Coast Guard is asking for over $4 billion
to perform its maritime services and responsibilities, such as law
enforcement, marine environmental protection, and search and rescue. 
This amount represents a slight increase from last year's budget of
$3.9 billion.  The request includes $443 million for the agency's
capital budget account, a modest increase over last year. 


      KEY RESOURCE MANAGEMENT
      ISSUES
-------------------------------------------------------- Chapter 0:3.1

Our work has identified the need for increased attention to the
management of Coast Guard programs in the following two areas: 
developing a comprehensive strategy to identify further cost-cutting
measures and pursuing capital investments that are affordable and
needed. 


         FISCAL CONSTRAINTS WILL
         REQUIRE CONTINUED
         COST-CUTTING EFFORTS
------------------------------------------------------ Chapter 0:3.1.1

Last year, we reported on the fiscal challenges the Coast Guard will
likely face as it, along with other federal agencies, copes with
no-growth budgets to help balance the overall federal budget.\27 We
concluded that the current fiscal environment may require the agency
to continue cost-cutting efforts and achieve substantial savings
beyond the accomplishments of its recently completed streamlining
initiatives.  We identified and asked agency managers to consider a
number of budget-reduction proposals taken from a wide range of past
studies on the Coast Guard.  Implementing some budget-reduction
proposals will likely involve "cultural" changes that may require new
ways of operating and thinking about issues.  The possible greater
use of civilian personnel and changing rotation policies to save
transfer costs fall into this category.  Other cost-cutting
measures--such as closing search and rescue stations, air stations,
and training centers--will involve difficult choices that will likely
face political and public opposition. 

We stopped short of endorsing any specific cost-cutting options
without further in-depth study.  Rather, we urged the agency to
develop a more comprehensive strategy to address impending budget
targets, including a reexamination of unimplemented options from past
studies and a fundamental reassessment of its missions, strategic
goals, services, and customer needs, especially before it embarks on
costly capital improvements.  Also, in light of the potential
opposition that inevitably accompanies consolidation and decisions to
close facilities, we asked the Congress to consider establishing an
independent panel, much like the Defense Base Closure and Realignment
Commission, to review the facility closures that the Coast Guard may
consider.  While, in recent times, the Coast Guard has prided itself
by doing more with less, it may now be more prudent not to overextend
itself and instead take steps to "do less with less."


--------------------
\27 Coast Guard:  Challenges for Addressing Budget Constraints
(GAO/RCED-97-110, May 14, 1997). 


         COAST GUARD NEEDS TO
         ENSURE THE AFFORDABILITY
         OF ITS DEEPWATER
         ACQUISITION PROJECT
------------------------------------------------------ Chapter 0:3.1.2

In fiscal year 1997, the Coast Guard initiated the Deepwater
Acquisition Project to replace or modernize its aging fleet of 92
cutters and 190 aircraft engaged in deepwater missions.\28 The
agency's current plan for this project--estimated to cost between $7
billion and $15 billion--calls for building new assets or modernizing
existing ones beginning in fiscal year 2001.  Starting in fiscal year
2001, the annual cost of the Deepwater Project alone would consume
the Coast Guard's entire capital budget at its current level of about
$440 million.  This condition, coupled with the fiscal constraints
that confront the Coast Guard, will challenge its managers to develop
an acquisition strategy that is closely linked to the reality of
funding levels. 

In the near term, the agency plans to award three contracts to
develop concepts for potential systems to meet its deepwater mission
requirements.  The Coast Guard's fiscal year 1999 budget calls for
$28 million to help pay for these contracts.  At the request of the
Subcommittee on Transportation, Senate Committee on Appropriations,
we are reviewing the key aspects of this project, including the
condition and capabilities of the Coast Guard's current assets and
the level of resources the agency says it needs to accomplish its
deepwater missions.  We plan to report on the results of our study
later this year. 


--------------------
\28 Deepwater missions are conducted beyond the normal operating
range of shore-based small boats and include such activities as drug
and migrant interdiction and the enforcement of fisheries laws and
regulations. 


      KEY PERFORMANCE CHALLENGE
-------------------------------------------------------- Chapter 0:3.2

The Coast Guard's drug control efforts represent a key performance
challenge.  For fiscal year 1998, the Coast Guard requested $354
million for drug interdiction operations--an increase of $34 million
from the previous year.  For fiscal year 1999, the agency is
requesting $369 million for these activities.  According to the
agency, these funds will be used to help reduce the amount of drugs
entering the country via noncommercial maritime means by 25 percent
by 2002.  However, as of January 1998, the Coast Guard had not
published its long-term strategy and funding needs for achieving this
goal.  Moreover, the Coast Guard's 25-percent reduction goal is much
higher than the draft goal set by the Office of National Drug Control
Policy, which called for an overall 10-percent reduction in the flow
of drugs through certain transit zones by 2002. 

As the Congress deliberates the Coast Guard's budget, more
information would be useful on the agency's long-term strategy to
achieve its drug interdiction goals, the quality and reliability of
the data used to measure results, and the total costs and benefits of
achieving the goals.  Absent this information, the Congress and
others must consider a series of annual incremental budget increases
to achieve specific performance goals without knowing the total
investment required and without weighing in on whether the goals are
realistic, are affordable, or represent the best alternative to
achieving a specific outcome. 


   AMTRAK
---------------------------------------------------------- Chapter 0:4

For fiscal year 1999, DOT's budget proposes no funding for Amtrak's
operating expenses and $621 million for Amtrak's capital expenses,
including at least $200 million for the Northeast Corridor program. 
DOT's budget request points out that federal funding from the
Taxpayer Relief Act of 1997 that may be used to acquire capital
improvements in fiscal year 1999 could also be used to cover certain
maintenance expenses. 


      DETERIORATING FINANCIAL
      CONDITION PRESENTS
      MANAGEMENT CHALLENGE
-------------------------------------------------------- Chapter 0:4.1

Although Amtrak's passenger rail service has never been profitable,
its financial condition has substantially deteriorated in recent
years, and its federal subsidies have not covered the gap between
operating expenses and revenues.  Since 1993, Amtrak has borrowed
heavily to make up the operating and capital shortfalls.  As a
result, its debt and capital lease obligations have doubled, and its
interest expenses more than tripled from $21 million in fiscal year
1993 to $76 million in fiscal year 1997.  Because Amtrak pays
interest from federal operating assistance and principal from federal
capital grants, the percentage of federal operating subsidies
accounted for by interest payments has increased from 6 percent in
fiscal year 1993 to 34 percent in fiscal year 1997.  Interest
payments are likely to increase as Amtrak assumes more debt to
acquire equipment.  For example, Amtrak expects to incur an
additional $820 million in debt beginning in 1999 primarily to
acquire 18 high-speed train sets (cars and locomotives) and related
maintenance facilities for the Northeast Corridor. 

In December 1994, Amtrak established a goal to eliminate its need for
federal operating subsidies by the beginning of 2002, except for
federal contributions to railroad retirement payments.  Amtrak also
would continue to need federal funding for capital improvements. 
Amtrak began using strategic business plans in 1995 to reduce a
widening gap between net losses and federal subsidies.\29 The
strategic business plans have helped improve Amtrak's financial
condition by, for example, eliminating some routes and more
efficiently using its locomotive and car fleets while increasing
ridership and mail and express services.\30 During fiscal year 1997,
Amtrak exceeded its goals for ridership, passenger revenues, and
overall revenues; however, it did not meet its goals for controlling
expenses.  Amtrak met its target of limiting net losses to $762
million because it earned $63 million more in revenues than was
budgeted through the one-time sales of real estate and
telecommunications right-of-way access in the Northeast Corridor. 
Amtrak's overall loss for fiscal year 1997 was $70 million, or $26
million more than budgeted.\31 Amtrak is still in a very precarious
financial position and will have a difficult path toward eliminating
the need for federal operating subsidies by 2002. 

Eliminating the need for Amtrak's federal operating subsidies is
heavily dependent on capital investment.  The Taxpayer Relief Act of
1997 made available to Amtrak in fiscal years 1998 and 1999 a total
of $2.2 billion that may be used to acquire capital improvements.\32
Amtrak's capital investment needs are great, both to replace and
modernize its current physical assets and to complete new projects,
such as high-speed rail service in the Northeast Corridor.  Such
investment will not only help Amtrak to retain revenues by improving
its quality of service but will potentially increase revenues by
attracting new riders.  However, the corporation's needs go beyond
the funds made available by the Taxpayer Relief Act.  For example,
Amtrak has estimated that $1.4 billion will be needed to complete the
Northeast Corridor high-speed rail project between New York and
Boston.  In addition, FRA and Amtrak estimated that up to $6.7
billion, including $2 billion over the next 3 to 5 years, may be
needed over the next 20 years to recapitalize the Northeast Corridor
to preserve its ability to operate in the near-term at existing
service levels and respond to high-priority opportunities for growth. 
Moreover, the average age of Amtrak's active fleet of 1,600 cars in
October 1997 was about 20 years.  While Amtrak has nearly completed a
multiyear program to retire its oldest cars that required substantial
maintenance and repairs, many other cars are approaching the end of
their useful lives and will require more maintenance and repairs to
keep them operating. 

Finally, Amtrak will continue to find it difficult to take those
actions necessary to further reduce its operating costs.  For
example, Amtrak estimates that as a result of its recent agreement
with the Brotherhood of Maintenance of Way Employees, it will incur
from $3 million to $5 million in higher labor costs than its draft
strategic business plan has budgeted for fiscal year 1998.  If the
terms of this agreement were extended to Amtrak's other unions,
Amtrak estimates that labor costs would be about $30 million more
than was budgeted for fiscal year 1998.\33

Amtrak has stated that it will work to eliminate the need for federal
operating support by 2002 by increasing revenues, controlling costs,
and providing customers with high-quality service.  The Amtrak Reform
and Accountability Act of 1997, which provides for the Congress to
consider either restructuring or liquidating Amtrak if it requires
federal operating subsidies after December 2002, reflects this goal. 
Although Amtrak's strategic plans have helped reduce operating losses
to some degree, the corporation continues to face significant
challenges in accomplishing this goal.  It is likely that Amtrak, as
presently constituted, will continue to require federal financial
support--both operating and capital--beyond that time frame, raising
the possibility of both bankruptcy and liquidation.  To assist the
Congress in its deliberations on Amtrak's future, we will report next
month on the financial and operational issues associated with a
possible Amtrak liquidation.  Additionally, in May 1998, we will
report to this Subcommittee on the financial performance of Amtrak's
current routes, the financial implications for Amtrak of multiyear
capital requirements and declining federal operating subsidies, and
the financial effect of reforms contained in the Amtrak Reform and
Accountability Act of 1997. 


--------------------
\29 Amtrak defines net loss as its total expenses minus total
revenues. 

\30 The Surface Transportation Board has been asked to rule on
whether a freight railroad must make its tracks and facilities
available to Amtrak for express service. 

\31 Overall loss is net loss plus certain federal subsidies minus
noncash items (primarily depreciation). 

\32 Amtrak is required to pay 1 percent of the $2.3 billion made
available under the act to each state that does not have Amtrak
service.  This leaves about $2.2 billion available to Amtrak for
acquiring equipment, rolling stock, and other capital improvements;
upgrading maintenance facilities; maintaining existing equipment in
intercity passenger rail service; and paying interest and principal
on obligations incurred for such acquisitions, upgrades, and
maintenance. 

\33 This estimate assumes that all such agreements would be
negotiated and implemented by July 1, 1998.  It does not take into
account any productivity savings that might be agreed upon. 


   DEPARTMENT-WIDE ISSUES
---------------------------------------------------------- Chapter 0:5

DOT faces additional Department-wide issues that affect its ability
to effectively manage programs and address performance concerns. 
First, DOT needs to contend with the challenge of making its computer
systems ready for the year 2000.  As we mentioned earlier in this
testimony, this is particularly important for FAA.  Moreover, OMB has
stated that because of the Department's disappointing progress on the
Year 2000 problem, it will not approve any DOT request for
information technology investments in the fiscal year 1999 budget
unless they are directly related to fixing the Year 2000 problem. 
Furthermore, throughout this testimony, we have pointed out serious
problems with the Department's information resources and database
management.  These problems will be exacerbated by the Year 2000
problem. 

Second, DOT needs to address the issue of unreliable financial
management information because of problems with its financial
reports, accounting systems, and internal controls.  We testified
last year that DOT lacks the reliable financial management
information needed to ensure that (1) federal funds are properly
managed, (2) its performance is measured, and (3) reliable financial
reports are prepared.  We identified this lack of reliable
information as a critical management issue that has pervasive
effects, limiting the ability of DOT's program managers and elected
officials to make informed decisions.\34

For example, improved cost information is needed for making decisions
about financing FAA.  In addition, over the years, the ATC
modernization project has experienced significant cost overruns due,
in part, to inadequate cost-estimating processes and cost-accounting
practices. 

DOT faces several important challenges to addressing its financial
management problems, including (1) correcting the known weaknesses so
that it can produce reliable, auditable financial statements; (2)
fully implementing new federal accounting standards to meet federal
financial reporting requirements; (3) implementing and maintaining
financial management systems that comply substantially with federal
requirements for financial management systems, applicable federal
accounting standards, and the U.S.  Government Standard General
Ledger at the transaction level; and (4) submitting fully audited
financial statements that cover all accounts and associated
activities. 

DOT has begun addressing some of these issues.  For example, FAA
hired a contractor in 1996 to study its policies and procedures for
processing and recording equipment purchases.  The contractor made
over 100 recommendations, and FAA is developing a corrective action
plan to implement them.  In addition, FAA has begun to implement a
cost-accounting system, and the first information is expected to be
available from that system in October 1998. 

Finally, the Government Performance and Results Act of 1993 is
intended to address the basic management and performance challenges
that have been typical throughout the federal government.  If
properly implemented, the act could be a useful tool for addressing
many of the issues we have identified at DOT.  The act requires
agencies to develop mission statements, set strategic goals, and
measure performance toward those goals so that the Congress can hold
the agencies accountable for results rather than activities or
processes.  The Department's September 1997 strategic plan, covering
fiscal years 1998-2002, is a promising first step in that
direction.\35 The plan outlines the Department's long-term goals for
improving transportation safety, mobility, and economic growth and
trade; protecting and enhancing the natural environment affected by
transportation; and advancing national security.  However, our work
has shown that DOT's ability to produce reliable data to measure its
progress in achieving its goals is uncertain.  We and others have
reported widespread problems with DOT's information resources.  These
problems adversely affect the Department's ability to monitor and
evaluate the performance of U.S.  transportation systems as well as
identify and set priorities for the investment needs for the
infrastructure.  The Results Act should provide DOT with an incentive
to develop quality data for managing its programs and for
congressional oversight. 


--------------------
\34 For a transcript of our testimony, see Federal Management: 
Addressing Management Issues at the Department of Transportation
(GAO/T-RCED/AIMD-97-172, May 21, 1997). 

\35 Results Act:  Observations on the Department of Transportation's
Draft Strategic Plan (GAO/RCED-97-208R, July 30, 1997). 


-------------------------------------------------------- Chapter 0:5.1

Mr.  Chairman, this completes our testimony.  We will be glad to
respond to any questions that you or other Members of the
Subcommittee may have. 


*** End of document. ***