Federal Management: Challenges Facing the Department of Transportation
(Testimony, 02/25/99, GAO/T-RCED/AIMD-99-94).

Pursuant to a congressional request, GAO discussed the critical
management challenges facing the Department of Transportation (DOT),
focusing on DOT's ability to: (1) achieve its goals of ensuring safe and
efficient movement of people and goods; and (2) make cost-effective
investments in the nation's transportation infrastructure.

GAO noted that: (1) the Federal Aviation Administration (FAA) faces
considerable challenges in managing its multibillion-dollar air traffic
control modernization program, making its computer systems ready for the
year 2000, and addressing shortcomings in its safety and security
programs; (2) additional challenges include funding uncertainties facing
FAA and the nation's airports and the lack of airline competition in
some communities; (3) while DOT has started to address some of these
issues, more needs to be done; (4) for example, FAA has initiated
activities to address many of GAO's concerns about its air traffic
control modernization program but none are completed; (5) moreover,
because of its size, complexity, cost, and past problems, since 1995,
GAO has designated the air traffic control modernization program as a
high-risk information technology initiative; (6) DOT and Congress face
challenges in continuing to improve the oversight of highway and transit
projects and in determining the future of passenger rail; (7)
large-dollar highway and transit projects have experienced cost
increases and delays and have had difficulties acquiring needed
financing; (8) while some improvements can be made by DOT's agencies,
others may require congressional action; (9) other improvements--such as
addressing Amtrak's tenuous financial condition and changing the federal
oversight role for large-dollar highway projects--will require
congressional action; (10) the Coast Guard had not thoroughly addressed
planning issues for its 20-year, $9.8 billion project to replace or
modernize many of its deepwater ships and aircraft; (11) GAO found that
the Cost Guard had not adequately addressed this project's justification
and affordability, and GAO recommended that DOT and the Coast Guard take
several steps to improve their planning process; (12) the Coast Guard
has begun implementing GAO's recommendations, but it has not resolved
issues concerning the projects affordability; (13) over the years, DOT's
Inspector General has been unable to express an audit opinion on the
reliability of the financial statements of the Department and some of
its agencies; (14) DOT faces considerable challenges in achieving an
unqualified audit opinion on its fiscal year 1999 financial statements
due to the numerous problems that need to be addressed, and the serious
financial management weaknesses at FAA have contributed to these
problems; and (15) consequently, this year GAO designated financial
management at FAA as a high-risk area.

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

 REPORTNUM:  T-RCED/AIMD-99-94
     TITLE:  Federal Management: Challenges Facing the Department of 
             Transportation
      DATE:  02/25/99
   SUBJECT:  Transportation safety
             Information resources management
             Risk management
             Financial management
             Accountability
             Air traffic control systems
             Cost analysis
             Systems conversions
             Air transportation operations
             Ground transportation operations
IDENTIFIER:  Coast Guard Deepwater Capability Replacement Project
             Y2K
             
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Cover
================================================================ COVER


Before the Subcommittee on Transportation, Committee on
Appropriations, U.S.  Senate

For Release
on Delivery
Expected at
10 a.m.  EST
Thursday
February 25, 1999

FEDERAL MANAGEMENT - CHALLENGES
FACING THE DEPARTMENT OF
TRANSPORTATION

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

GAO/T-RCED/AIMD-99-94

GAO/RCED/AIMD-99-94T


(348151)


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

  DOT -
  FAA -
  FTA -

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

Mr.  Chairman and Members of the Subcommittee: 

We are here today to discuss the critical management challenges
facing the Department of Transportation (DOT).  My testimony is based
on a report we issued in January as part of GAO's performance and
accountability series on major management challenges and program
risks facing the federal government.\1 With a budget request of over
$50.5 billion for fiscal year 2000, the Department faces critical
challenges in achieving its goals of ensuring the safe and efficient
movement of people and goods and in making cost-effective investments
in the nation's transportation infrastructure. 

While DOT has had many successes in improving the nation's
transportation systems, it has also experienced problems that have
impeded its ability to achieve its goals.  We, DOT's Inspector
General, and the Department have documented these problems and
recommended solutions.  Although some corrective actions have been
taken, major performance and management challenges remain for DOT's
agencies that cover aviation and surface transportation, the U.S. 
Coast Guard, and the Department itself.  In summary: 

  -- The Federal Aviation Administration (FAA) faces considerable
     challenges in managing its multibillion-dollar air traffic
     control modernization program, making its computer systems ready
     for the year 2000, and addressing shortcomings in its safety and
     security programs.  Additional challenges include funding
     uncertainties facing FAA and the nation's airports and the lack
     of airline competition in some communities.  While DOT has
     started to address some of these issues, more needs to be done. 
     For example, FAA has initiated activities to address many of our
     concerns about its air traffic control modernization program but
     none are completed.  Moreover, because of its size, complexity,
     cost, and past problems, since 1995, we have designated the air
     traffic control modernization program as a high-risk information
     technology initiative. 

  -- DOT and the Congress face challenges in continuing to improve
     the oversight of highway and transit projects and in determining
     the future of passenger rail.  Large-dollar highway and transit
     projects have experienced cost increases and delays and have had
     difficulties acquiring needed financing.  While some
     improvements can be made by DOT's agencies, others may require
     congressional action.  For example, the Federal Transit
     Administration (FTA) has implemented a new tracking system to
     help ensure the correction of deficiencies found during its
     oversight review of grants, but we have not reviewed it to
     determine if it addresses our concerns about the agency's need
     for complete, timely information.  Other improvements--such as
     addressing Amtrak's tenuous financial condition and changing the
     federal oversight role for large-dollar highway projects--will
     require congressional action. 

  -- The Coast Guard had not thoroughly addressed planning issues for
     its 20-year, $9.8 billion project to replace or modernize many
     of its deepwater ships and aircraft.  We found that the Coast
     Guard had not adequately addressed this project's justification
     and affordability, and we recommended that DOT and the Coast
     Guard take several steps to improve their planning processes. 
     The Coast Guard has begun implementing our recommendations, but
     it has not resolved issues concerning the project's
     affordability. 

  -- DOT's lack of accountability for its financial activities
     impairs its ability to manage programs and exposes the
     Department to potential fraud, waste, abuse, and mismanagement. 
     Over the years, the Inspector General has been unable to express
     an audit opinion on the reliability of the financial statements
     of the Department and some of its agencies.  DOT faces
     considerable challenges in achieving an unqualified audit
     opinion on its fiscal year 1999 financial statements due to the
     numerous problems that need to be addressed, and the serious
     financial management weaknesses at FAA have contributed to these
     problems.  Consequently, this year we designated financial
     management at FAA as a high-risk area. 


--------------------
\1 Major Management Challenges and Program Risks:  Department of
Transportation (GAO/OCG-99-13, Jan.  1999). 


   AVIATION CHALLENGES
---------------------------------------------------------- Chapter 0:1

Over the past 17 years, FAA's multibillion-dollar air traffic control
modernization program has experienced cost overruns, schedule delays,
and performance shortfalls of large proportions.  The Congress
appropriated over $25 billion for the program through fiscal year
1998, and FAA estimates that the program will need an additional $17
billion for fiscal years 1999 through 2004.  Because of its size,
complexity, cost, and problem-plagued past, we have designated this
program as a high-risk information technology initiative since 1995. 
Among other things, FAA needs to adopt disciplined acquisition
processes and change its organizational culture so that employees
become strongly committed to mission focus, accountability,
coordination, and adaptability.  Although FAA has initiated
activities to address many of our concerns, such as improving its
software acquisition capabilities, none are completed.  Additionally,
we recently reported that FAA is not effectively managing information
security for future air traffic control modernization systems and we
made several recommendations.  For example, we recommended that FAA
ensure that specifications for all new air traffic control systems
include security requirements based on detailed assessments. 

FAA also faces considerable challenges in making its computer systems
ready for the year 2000.  In August 1998, we testified that FAA was
unlikely to complete all critical tests of its computer systems in
time and that unresolved risks--including those associated with data
exchanges, international coordination, reliance on the
telecommunications infrastructure, and business continuity and
contingency planning--threatened aviation operations.  The
implications of FAA's not meeting the Year 2000 deadline are enormous
and could affect hundreds of thousands of people through customer
inconvenience, increased airline costs, grounded or delayed flights,
or degraded levels of safety.  FAA is making progress in addressing
the Year 2000 computing problem.  Earlier this month, DOT reported
that FAA validated 74 percent of its mission critical systems
undergoing repair, up from 20 percent in November 1998.  However,
much remains to be done to complete validating and implementing the
repairs and the replacements of FAA's mission critical systems.  As
of January 31, 1999, FAA had implemented only about 15 percent of its
mission critical systems undergoing repair.  In addition, airports
and airlines depend on computer technology and, thus, will face Year
2000 risks.  We reviewed the status of airports' preparations for the
year 2000 and found that nearly one-third of the more than 330
airports that responded to our survey did not report that they would
meet the June 1999 date recommended by FAA to complete preparations
for the year 2000 and that they did not have contingency plans for
Year 2000-induced failures.  Because of the interdependence among
airline flights and airport facilities, equipment malfunctions
related to the date change at one airport could decrease efficiency
and cause delays at other airports and eventually impede the flow of
air traffic throughout the nation, especially if those delays occur
at airports that serve as hubs. 

DOT and the Congress face a challenge in reaching agreement on the
amount and the source of long-term financing for FAA and the nation's
airports.  The National Civil Aviation Review Commission recommended
that the Congress fund FAA through a combination of cost-based user
charges, fuel taxes, and general fund revenues.  The administration's
proposal to authorize FAA for fiscal years 1999 through 2004 would
fund the agency through user charges--in the form of excise taxes or
new cost-based charges--and would shift funding away from the general
fund.  But any cost-based system depends on accurate and reliable
data, which FAA presently lacks.  FAA will need to continue its
efforts to fully implement its cost accounting system so that it can
use reliable and accurate data to improve its management and
performance and establish user fees as mandated by the Congress.  In
addition, continued funding for airports will be critical to ensuring
adequate capacity for the nation's airport system.  From 1997 through
2001, planned development at airports might require as much as $10
billion per year nationwide compared to about $7 billion in funding
at historical levels.  Several proposals to increase airports'
funding have emerged in recent years, including increasing the amount
of funding from FAA, but some of them are controversial.  In
addition, FAA's prior efforts to address airport funding needs--such
as pilot programs to use grants in more innovative ways--might
provide additional flexibility, especially if changes are made to
expand the number of projects and reduce some restrictions. 

We have identified numerous shortcomings in FAA's safety and security
programs.  These include the need for the agency to improve its
oversight of the aviation industry, record complete information on
inspections and enforcement actions, provide consistent information
and adequate training for users of weather information, and resolve
data protection issues to enhance the proactive use of recorded
flight data to prevent accidents.  While FAA is taking some steps to
address these shortcomings, including totally revamping its
inspection program, resolving the problems will take considerable
time and effort.  In addition, while progress has been made in
strengthening airport security, it will take years for FAA and the
aviation industry to fully implement current initiatives. 

A final aviation challenge is the lack of airline competition in some
communities.  Although DOT and others generally consider airline
deregulation to be a success, contributing to better service and
lower fares for most travelers, not all communities have benefited. 
In a number of small and medium-sized communities, a lack of airline
competition contributes to higher fares and/or poorer service. 
Operating barriers--such as long-term, exclusive-use gate leases and
"slot" controls that limit the number of takeoffs and landings at
certain congested airports--contribute to higher fares and service
problems by deterring new entrant airlines while fortifying
established airlines' dominance at key airports.  Recently proposed
alliances between the nation's six largest airlines have raised
additional concerns about competition.  DOT has attempted to address
problems with competition by such efforts as granting a limited
number of additional slots at two airports.  Additional actions--some
of which are controversial--may be needed by the Congress, DOT, and
the private sector.  In this regard, various bills have been
introduced to address competition issues and the administration has
proposed legislation that would eliminate slot restrictions at three
of the four slot-controlled airports. 


   HIGHWAY, TRANSIT, AND PASSENGER
   RAIL CHALLENGES
---------------------------------------------------------- Chapter 0:2

Many large-dollar highway and transit projects, each costing hundreds
of millions to billions of dollars, have incurred cost increases,
experienced delays, and had difficulties acquiring needed financing. 
In fiscal year 1998, DOT's Federal Highway Administration provided
over $21 billion to assist the states in building and repairing
highways and bridges.  We have identified several options to help
improve the management of these projects, particularly those
involving large amounts of dollars, depending on the oversight role
that the Congress chooses for the federal government.  For example,
one option would be to establish performance goals and strategies for
controlling costs as large-dollar projects move through the design
and construction phases. 

FTA has improved its oversight of federal transit grants, but
shortcomings exist in its follow-up on noncompliance.  Our prior work
indicated that, frequently, some grantees did not meet FTA's time
frames for corrective actions and that FTA had allowed compliance
deadlines to be revised, which enabled grantees to delay corrective
actions.  Also, FTA did not have complete, timely information to help
ensure the correction of deficiencies found during its oversight
reviews of grants.  The agency has implemented a new tracking system,
but we have not reviewed it to determine if it addresses our
concerns. 

The National Railroad Passenger Corporation's (Amtrak) financial
condition remains tenuous.  Despite efforts to control expenses and
increase revenues, Amtrak's financial condition has deteriorated in
recent years.  Since it began operations in 1971, Amtrak has received
nearly $22 billion in federal subsidies for operating and capital
expenses, and it is likely to remain heavily dependent on federal
assistance well into the future.  Amtrak loses about $2 for every
dollar it earns in revenues from its train service, and only one of
Amtrak's 40 routes covers its costs.  The business decisions that
Amtrak makes regarding the structure of its route system will play a
crucial role in determining its long-term viability.  Because there
is no clear public policy that defines the role of passenger rail in
the national transportation system and because Amtrak is likely to
remain dependent on federal assistance, the Congress needs to decide
on the nation's expectations for intercity rail and the scope of
Amtrak's mission in providing that service. 


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

The Coast Guard did not thoroughly address planning issues for its
20-year, $9.8 billion Deepwater Capability Replacement Project to
replace or modernize many of its ships and aircraft.  This effort,
which is potentially the largest acquisition project in the agency's
history, is still in its early stages.  We found that the Coast Guard
did not adequately address the project's justification and
affordability.  In fact, the remaining useful life of its
aircraftï¿½and perhaps shipsï¿½may be much longer than the agency
originally estimated.  We recommended that DOT and the Coast Guard
take several steps to improve their planning processes, such as
expediting the development and the issuance of updated information on
the remaining service life of the agency's aircraft and ships and
revising acquisition guidelines so that future projects are based on
more accurate and complete data.  The Coast Guard has begun
implementing our recommendations, but has not resolved issues
concerning the project's affordability. 


   DEPARTMENTWIDE CHALLENGE
---------------------------------------------------------- Chapter 0:4

DOT's lack of accountability for its financial activities impairs its
ability to efficiently and effectively manage programs and exposes
the Department to potential fraud, waste, abuse, and mismanagement. 
Since 1993, when the Office of Inspector General began auditing the
financial statements of certain agencies within the Department, it
has been unable to determine whether the reported financial results
are correct and has thus been unable to express an audit opinion on
the reliability of these statements.  The Inspector General also has
been unable to express an opinion on the reliability of the
departmentwide statements since these statements were first audited
in fiscal year 1996.  A key issue affecting the ability to express an
opinion on these financial statements has been DOT's inability to
reliably determine the quantities, the locations, and the values of
property, plant, and equipment and inventory, reported at $28.5
billion as of September 30, 1997.  Serious financial management
weaknesses at FAA have contributed to this situation.  Consequently,
we have designated financial management at FAA as a high-risk area. 
In addition, as we previously mentioned, DOT lacks a cost-accounting
system or an alternative means to reliably accumulate and report the
full cost of specific projects and activities.  Due to the
deficiencies in its financial accountability, it is unlikely that DOT
can accurately determine costs and meaningfully link them to
performance measures.  On September 30, 1998, DOT submitted a plan to
the Office of Management and Budget for resolving the financial
management deficiencies that had been identified in its financial
statement audits.  However, the Department faces significant
challenges in achieving its goal of receiving an unqualified audit
opinion on its fiscal year 1999 financial statements due to the
numerous problems that need to be addressed. 

In summary, many challenges we identified are long-standing and will
require sustained attention by DOT and the Congress.  While DOT has
initiatives underway to address the shortcomings in some of its
programs, these activities are only in the early stages of
implementation.  It will take time to fully address the issues we and
others have identified and to assess whether the Department has fully
resolved them.  Furthermore, congressional actions will also be
required to address certain challenges facing the Department. 
Finally, congressional oversight, such as provided by this hearing,
will help ensure the effective resolution of these challenges. 


-------------------------------------------------------- Chapter 0:4.1

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


*** End of document. ***