U.S.

INFRASTRUCTURE

Funding Trends and

Federal Agencies’

Investment Estimates

Statement of Peter F. Guerrero

Director, Physical Infrastructure Issues

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Transportation and

Infrastructure, Committee on Environment and

Public Works, U.S. Senate

For Release

on Delivery

Expected at

3:00 p.m. EST

Monday

July 23, 2001

GAO-01-986T
1

Mr. Chairman and Members of the Subcommittee:

A sound public infrastructure plays a vital role in encouraging a more productive and

competitive national economy and meeting public demands for safety, health, and

improved quality of life. In addition, public office buildings, courthouses, and other

facilities support noneconomic goals and allow federal agencies to carry out their

missions. When problems occur with the performance of infrastructure, they can be very

visible, and their effects can be widespread. For example, traffic congestion in the

nation’s 50 most populous urban areas is estimated to cost over $39 billion a year in time

and wasted fuel.

I am here today to discuss the federal government’s role in ensuring a sound public

infrastructure and the estimates of future investment requirements developed by seven

federal agencies: the Appalachian Regional Commission (ARC), Environmental

Protection Agency (EPA), Federal Aviation Administration (FAA), Federal Highway

Administration (FHWA), Federal Transit Administration (FTA), General Services

Administration (GSA), and U.S. Army Corps of Engineers.1

 My testimony will focus on

the major areas of public infrastructure covered by these seven agencies2

 and the federal

government’s role and funding trends regarding civilian infrastructure.

 In summary, we found:

• The federal government exerts an important influence on infrastructure investment

and development. The federal government’s influence can be seen in several ways,

including acquiring and maintaining various federally-owned assets, providing

funding for infrastructure that is owned and operated by others, and influencing the

way infrastructure projects are designed and built through legislation and regulations.

 1

This testimony is based on our recent work in the area of infrastructure investment trends and investment

estimates. See U.S. Infrastructure: Agencies’ Approaches to Developing Investment Estimates Vary (GAO01-835, July 20, 2001) and U.S. Infrastructure: Funding Trends and Opportunities to Improve Investment

Decisions (GAO/RCED/AIMD-00-35, Feb. 7, 2000). 2

 The seven agencies develop infrastructure estimates for highways (ARC and FHWA), water supply and

wastewater treatment (EPA), airports (FAA), mass transit (FTA), public buildings (GSA), and water

resources and hydropower (Army Corps).
2

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

1980s on the nation’s civilian infrastructure. This spending showed a slightly upward

trend through the 1990s. Similarly, spending by state and local governments

continued an upward trend that began in the 1980s and exceeded federal spending in

certain areas.

• The seven agencies we reviewed each estimated billions of dollars for future

investment in infrastructure. The estimates focused on investment in the areas of

water resources, hydropower, water supply, wastewater treatment, airports,

highways, mass transit, and public buildings. The estimates ranged from GSA’s

calculation of $4.58 billion (in current dollars)3 to repair public buildings over the

next 5 years to FHWA’s estimate of $83.4 billion (in constant 1997 dollars)4

 per year

over 20 years to improve highways. Certain estimates, such as those prepared by the

Army Corps (for water resources and hydropower) and GSA, are for federal

spending; other estimates involve all levels of government and the private sector.

• Some perspective is called for in reviewing the investment estimates developed by

the seven agencies. While these estimates encompass major areas of public

infrastructure, they cannot be easily compared or simply “added up” to produce a

national estimate of infrastructure investment needs because, for example, they were

developed using different methods and were for different time periods. In addition,

the seven agencies all had procedures for developing investment estimates that

reflect some practices used by leading private sector and government organizations,

although some agencies followed more practices than other agencies. Nonetheless,

following the leading practices does not ensure a quality investment estimate and

each estimate had limitations associated with the quality of the data used in

developing it. Furthermore, some of these investment estimates span several

decades and investment needs can change significantly over time due to changes in

the efficiency of delivering infrastructure services or pricing strategies that alter the

demand for services. Finally, these estimates mostly focus on the condition of

infrastructure rather than the desired outcomes (e.g., less traffic congestion) that can

 3

“Current dollar” is the dollar value of a good or service expressed in terms of prices current at the time

the good or service is sold.
3

be expected from additional infrastructure investments. We caution against relying

on estimates of need that are based primarily on the condition of existing

infrastructure if desired outcomes are not clearly articulated and the costs and

benefits of alternative approaches (such as using strategies to manage demand rather

than building new infrastructure) for achieving those outcomes are not fully

considered.

We did not independently verify the seven agencies’ investment estimates, but we did

rely on past reviews of these data by us and others that examined the soundness and

completeness of the methodology and/or data used to develop the estimates. We

reviewed agencies’ documentation of their procedures to develop the estimates, but we

did not verify whether these procedures were followed. In addition, we compared

agencies’ procedures with some of the capital decisionmaking practices used by leading

government and private sector organizations that we identified and reported on in 1998.5

Those leading practices are identified in appendix I.

The Federal Role in Civilian Infrastructure Investment and Development and

Trends of Government Spending

While most spending on civilian infrastructure takes place at the state, local, or privatesector level, the federal government exerts an important influence on infrastructure

investment and development in several ways. First, the federal government is directly

responsible for acquiring and maintaining various federally-owned assets. These include,

for example, federal office buildings, dams and flood control structures, and the nation’s

air traffic control system. The Congress directly appropriates the funding for such

infrastructure. Second, the federal government provides funding—such as grants, loans,

or loan guarantees—for infrastructure that is owned and operated by others such as

mass transit systems and municipal water supply systems. In these cases, federal funds

cover a portion of the capital development and improvements required. For example,

the Department of Transportation provides states, localities, and others with grants that

 4

“Constant dollar” is a dollar value adjusted for changes in the average price level (i.e., adjusted for

inflation) for a base year.

5

Executive Guide: Leading Practices in Capital Decision-Making (GAO/AIMD-99-32, Dec. 1998).
4

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

bridges, including major maintenance of interstate highways; the states generally provide

a 20-percent match for these funds and determine how to spend the money within broad

federal guidelines. Third, the federal government influences infrastructure investment

through tax incentives. For example, the interest on municipal bonds, which are

primarily used for infrastructure purposes, is exempt from federal taxes. Finally, federal

legislation and regulation influence both the need for and the way infrastructure projects

are designed and built. For example, meeting safe drinking water standards may often

require the construction or modification of local water systems.

The federal government has spent an average of $150 billion (in constant 2000 dollars)

annually since the early 1980s for civilian and defense infrastructure. Of this amount,

about $59 billion was spent annually for spending on civilian infrastructure.6 As figure 1

shows, federal spending for civilian infrastructure showed a slightly upward trend

through the 1990s.

 6

 We used information from OMB’s budget database to analyze actual federal infrastructure outlays

(spending) for fiscal years 1981 through 1998, using a broad definition for infrastructure spending that

included the physical structure and facilities that are intended to enhance the private sector’s long-term

productivity, as well as spending for physical capital designed to achieve federal agencies’ goals or

improve the government’s efficiency. OMB’s budget database does not contain state and local spending for

infrastructure. See U.S. Infrastructure: Funding Trends and Opportunities to Improve Investment

Decisions (GAO/RCED/AIMD-00-35, Feb. 7, 2000).
5

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

Source: GAO’s analysis of OMB’s data.

Similarly, as figure 2 shows, spending by state and local governments continued an

upward trend after netting out inflation that began in the 1980s and exceeded federal

spending in certain infrastructure areas. A 1999 Congressional Budget Office (CBO)

study reported that state and local spending for transportation and water resources,

supply, and treatment rose from over $88 billion (in 2000 dollars) in fiscal year 1981 to

$152 billion in fiscal year 1994.7

 7

 See Trends in Public Infrastructure Spending, Congressional Budget Office (May 1999). CBO defined

infrastructure to include spending for highway, mass transit, rail, aviation, water transportation, water

resources, water supply, and wastewater treatment. State and local spending excludes federal grants and

loans.

0

20

40

60

80

100

120

140

160

180

200

1981 1985 1990 1995 1998

Fiscal year

Dollars in billions

Total Spending

Defense

Nondefense
6

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

1981 through 1994

Note: The selected infrastructure areas are highways, mass transit, rail, aviation, water transportation,

water resources, water supply, and wastewater treatment. State and local spending excludes federal

grants and loans.

Source: CBO.

Federal Estimates of Future Infrastructure Investment

The seven agencies we reviewed each estimated that billions of dollars were needed for

investment in infrastructure. The estimates focused on investments in the areas of water

resources, hydropower, water supply, wastewater treatment, airports, highways, mass

transit, and public buildings and spanned from several years to several decades. The

investment amounts vary from GSA’s estimate of $4.58 billion over the 5 years to repair

public buildings to FHWA’s estimate of $83.4 billion each year over 20 years to preserve

and improve the nation’s highways. The investment estimates are summarized in table 1.

0

20

40

60

80

100

120

140

160

1981 1985 1990 1994

Fiscal year

Dollars in billions

Total Spending

Noncapital

Capital
7

Table 1: Selected Agencies’ Infrastructure Investment Estimates

Agency Activities and assets

included in estimate

Activities and

assets excluded

from estimate

Time period

covered

Total estimate (in

billions)

ARC Construction of highways

within portions of 13

states

Maintenance, retrofit,

or improvements to

completed highways

1997-completion $8.5 (current 1995

dollars)

Army Corps Construction and major

rehabilitation of water

resources projects and

major rehabilitation of

hydropower projects

nationwide

Nonconstruction

costs, projects not

under construction,

and critical

operations and

maintenance work

2001-completion $38.0a

EPA Construction and

upgrade of drinking

water supply systems

nationwide

Costs due solely to

population growth

and costs not eligible

for federal funding

1999-2018 $150.9 (current

1999 dollars)

EPA Construction and

upgrade of wastewater

treatment collection

facilities nationwide

Costs due solely to

population growth

and costs not eligible

for federal funding

1996-2016 $139.5 (current

1996 dollars)

FAA Construction,

replacement, and

rehabilitation of airport

facilities nationwide

Costs not eligible for

federal funding

1998-2002 $35.1 (constant

1998 dollars)

FHWA Improvements to the

nation's highways based

on several scenariosb

Costs to construct

new roads

1998-2017 $50.8-$83.4 per

year for 20 yearsb

(constant 1997

dollars)

FTA Replacement and

refurbishing of mass

transit vehicles and

facilities nationwide

based on four scenariosc

and construction of new

systems

-- 1998-2017 $10.8-$16.0 per

year for 20 yearsc

(constant 1997

dollars)

GSA Repair and alteration of

public buildings

Buildings owned by

federal agencies

other than GSA

Up to 5 years $4.58a

GSA Construction of border

stations, federal office

buildings, and

courthouses

-- Up to 7 years $0.75 to $0.8 per

year for 5 to 7

yearsa

a Current year dollars from different dates.

b FHWA modeled several scenarios—including cost beneficial investment needed to maintain the current

physical condition—that provided a range of estimates.
8

c FTA's analysis included scenarios that produced estimates ranging from investments needed to maintain

current condition and performance of mass transit to investments needed to improve its current condition

and performance.

Note: Estimates for the Army Corps and GSA are federal investments. Estimates for the remaining

agencies are a combination of federal, state, and other investment sources.

Source: GAO's analysis of agencies' data.

Each of the seven agencies used data from various localities, states, or agency regional

offices and aggregated those data to produce a national estimate for infrastructure

investment. Each agency’s estimate is described below.

Appalachian Regional Commission

In 1997, ARC estimated that it would cost $8.5 billion from state and federal sources to

complete the Appalachian Development Highway System, a 3,025-mile system of

highways in 13 states.8 The estimate includes costs for project design, environmental

mitigation, rights of way access, and construction. These costs were not adjusted for

inflation. They do not include maintenance, retrofits, or safety improvements to

completed segments of the highway system. According to ARC officials, the estimate is

probably understated due to the limited amount of detailed information available in 1997

and because the estimate was prepared before obtaining public input or identifying and

addressing environmental or historic preservation concerns about specific highway

corridors. To produce the estimate, each of the 13 states estimated the cost to complete

the system within their state using instructions provided by ARC and FHWA. ARC and

FHWA reviewed the states’ estimates to ensure uniformity and accuracy and assessed

the reasonableness of the cost estimates by comparing them to the costs of similar

highway projects within the state.9

 ARC uses this estimate as the basis for allocating

federal funds appropriated for the Appalachian Development Highway System. ARC

distributes the funds to the 13 states on the basis of their percentage share of the cost to

complete the highway system. ARC plans to issue an updated estimate in 2002.

 8

 Appalachia includes all of West Virginia and parts of 12 states: Alabama, Georgia, Kentucky, Maryland,

Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, and Virginia. The
9

U.S. Army Corps of Engineers

As of March 30, 2001, the Army Corps estimated that $38 billion in federal funds was

required to complete water resources and hydropower infrastructure projects already

under construction.10 That amount includes about $37 billion for construction of new

water resource projects, $582 million for work at hydropower plants, and $217 million

for major rehabilitation of water resource projects. These amounts were not adjusted

for inflation. The overall estimate does not include critical operations and maintenance

work for water resources and related land projects; for fiscal year 2002, the Army Corps

estimated it would require $915 million for such work. The $38 billion estimate excludes

projects that are not under construction, such as those in the design stage, and costs not

related to construction, such as feasibility studies and evaluations. Army Corps officials

believe that the overall estimate might be understated because it does not consider

increases in the cost of completing a project over time due to changing economic

conditions. The estimate is the aggregate of individual infrastructure projects. Local

governments, groups, and/or private citizens who requested assistance from the Army

Corps initially identified the water resources projects included in the estimate.

Engineers and other professionals using existing industry data estimated project costs.

The agency also uses cost-benefit analysis to determine which water resources projects

are economically justified and would assist the agency in reaching its goals, such as

improving navigation and flood mitigation.11 The evaluation and cost estimate is sent to

the agency’s headquarters, and selected projects are submitted for funding as part of the

Department of Defense’s annual budget. Funded projects undergo several lengthy

reviews by the Army Corps, including a feasibility study to investigate and recommend

solutions to water resources problems.12 The estimate for hydropower investment

projects is based on the Army Corps’ inspections, tests, and evaluations of that

 

Appalachian Highway System is funded by the federal Highway Trust Fund and a state match of no less

than 20 percent.

9

 This activity reflects a leading practice.

10 The Congress provides funding to the Army Corps on a project-by-project basis and each project has a

nonfederal cosponsor that shares in the cost. In addition, fees from vessel operators are used to fund half

the cost of new construction and major rehabilitation of the commercial fuel-taxed inland waterway

system.

11 This activity reflects a leading practice.

12 This activity reflects a leading practice.
10

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

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

construction.13

Environmental Protection Agency

In February 2001, EPA reported an estimated $150.9 billion in federal, state, and local

funds was needed to construct and upgrade drinking water facilities between 1999 and

2018.14 The estimate excludes costs ineligible for funding under the Drinking Water State

Revolving Fund (DWSRF), such as costs arising solely from population growth. The

costs were not adjusted for inflation. EPA reported that the estimate may be understated

because some needs covered only 2 to 5 years, not the 20-year period. To develop the

estimate, EPA surveyed all of the large water systems in the United States and a sample

of the medium water systems. In addition, EPA conducted site visits to 599 small

systems and extrapolated data from these surveys and site visits to compute the total

investment estimate. The states and EPA reviewed the surveys and supporting cost

documentation for medium and large systems.15 The agency uses the results of this

estimate to allocate monies to the states for the revolving fund based on each state’s

share of the total investment amount.

In 1996, EPA estimated that $139.5 billion in federal and state funds was needed between

1996 and 2016 for capital investment in water pollution control facilities. The total

included $44.0 billion for wastewater treatment, $10.3 billion for upgrading existing

wastewater collection systems, $21.6 billion for new sewer construction, and $44.7

billion for controlling combined sewer overflows. These costs were not adjusted for

inflation. The estimate did not include annual costs for operations and maintenance and

 13 The Army Corps also had procedures reflecting the following leading practices: establishing a baseline

inventory of assets; considering alternative ways to address unmet investment needs, including non-capital

approaches; ranking and selecting projects for funding based on established criteria; and developing a

long-term capital plan that defines capital asset decisions.

14 EPA provides funding for the construction and improvement of drinking water and wastewater treatment

facilities through grants to capitalize state revolving funds. States provide a matching amount into their

revolving funds equal to 20 percent of the total grant. The revolving funds provide several types of

financial support, including loans at or below market interest rates, guarantees for the issuance of new

local bonds, and purchase of existing bonds.

15 This activity reflects a leading practice.
11

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

house connections to sewers and costs to acquire land that is not a part of the treatment

process. EPA reported that the estimate may be understated because some needs

accounted for only 5 years, not the 20-year period. EPA developed the estimate from a

nationwide database of wastewater treatment facilities that is periodically updated by

surveying the states.16 The states provided revised estimates of capital investment needs

from their documented plans, which were supplemented by costs modeled by EPA when

the state lacked this information. EPA reviewed all documentation submitted by the

states to ensure compliance with its established criteria.17 In addition, EPA modeled the

costs for each state for combined sewer overflows and activities to control stormwater

runoff and nonpoint sources of pollution. According to EPA, the estimate is also used to

assist the states and federal government in program planning and evaluation and to

inform the Congress of the magnitude of the needs.18

Federal Aviation Administration

In 1999, FAA reported that $35.1 billion in federal and nonfederal funds was required for

airport infrastructure investment projects from 1998 to 2002.19 The estimate primarily

includes projects to bring existing airports up to current design standards, develop

passenger terminal buildings, and add capacity to congested airports. The estimate only

includes projects that are eligible for funding under FAA’s Airport Improvement

Program.20 The estimate was developed by aggregating the projects contained in FAA’s

National Plan of Integrated Airport Systems database. The projects originate primarily

from airport master plans. FAA officials review projects to determine if they are eligible

for funding and justified, and then the approved projects are included in the database.21

 16 This activity partially reflects a leading practice.

17 This activity reflects a leading practice.

18 EPA also has procedures that partially reflect the following practice: considering alternative ways to

address unmet investment needs, including non-capital approaches.

19 FAA provides airports with grants for capital development. FAA allocates most grants on the basis of (1)

a legislated formula that is tied to the number of passengers that an airport enplanes and (2) categories

earmarked for specific types of airports and projects.

20 Generally, the Airport Improvement Program allows for all types of airport development except for

automobile parking structures, hangars, air cargo buildings, or the revenue producing areas of large

terminals.

21 This activity reflects a leading practice.
12

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

to prioritize the projects or determine if the benefits of specific projects would exceed

their cost. This estimate is prepared and submitted to the Congress biennially, as

required by statute.22

Federal Highway Administration

In May 2000, FHWA issued investment estimates for highways for the years 1998 through

2017.23 These estimates ranged from $50.8 billion per year for cost-beneficial

improvements that would maintain the current physical condition of highways to $83.4

billion per year for all improvements that would improve pavement condition and reduce

highway users’ travel costs. The estimates included both federal and nonfederal portions

of funding; they do not include the costs to construct new roads. To determine the

estimates, FHWA used data from a statistically drawn national sample of 125,000

highway segments as well as information from the states on forecasts such as travel

growth. FHWA officials reviewed the data submitted by the states and asked the states

to correct serious flaws and improve some data submissions.24 FHWA used a computer

model to simulate the effects of infrastructure improvements on a sample of highway

sections and used a benefit-cost analysis to identify economically justified highway

improvements.25 While FHWA’s model analyzes these sample highway sections

individually, the model is designed to provide estimates of investment requirements valid

at the national level and does not provide improvement recommendations for individual

highway segments. In June 2000, we found that the model was reasonable despite some

limitations concerning the computations.26 FHWA’s estimate is used by legislative and

 22 FAA also has procedures that reflect the following leading practices: considering alternative ways to

address unmet investment needs, including non-capital approaches and ranking and selecting projects for

funding based on established criteria. In addition, FAA has procedures that partially reflect one leading

practice: developing a long-term capital plan that defines capital asset decisions.

23 FHWA provides grants that partially fund the construction and improvement of urban and rural highways

and bridges, including major maintenance of interstate highways. States generally provide a 20-percent

match and determine how to spend the money within broad federal guidelines.

24 This activity reflects a leading practice.

25 This activity reflects a leading practice.

26 For example, the model cannot completely reflect changes occurring among all highways in the

transportation network at the same time, since the model analyzes each highway segment independently.

See Highway Infrastructure: FHWA’s Model for Estimating Highway Needs Is Generally Reasonable,

Despite Limitations (GAO/RCED-00-133, June 5, 2000).
13

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

investment in highways.27

Federal Transit Administration

In May 2000, FTA estimated investment requirements of $10.8 billion to $16.0 billion per

year for mass transit systems (include buses, railcars, and ferries) from 1998 to 2017,

depending on whether the condition and performance of mass transit systems would be

maintained or improved.28 The estimates include the cost to replace and refurbish

existing vehicles and facilities and the cost to construct new mass transit systems. The

estimates cover both federal and nonfederal shares of costs. FTA used data from local

urban transit agencies to determine the age and condition of mass transit infrastructure

and then estimated the cost of either maintaining or improving that infrastructure. FTA

developed the estimates using its Transit Economic Requirements Model. The model

compares costs and benefits to determine if replacing an asset was economically

justified.29 The model then aggregated the costs of all the projects that were justified by

benefit-cost analysis to determine the total investment estimate for the nation’s mass

transit systems. The accuracy of the estimates is limited by missing data and imprecise

predictions due to the difficulty in predicting travel growth. FTA uses the estimates to

provide general support for its budget and information on changes in mass transit

systems.30

 27 In addition, FHWA has procedures that partially reflect the following leading practice: conducting a

comprehensive assessment of the resources needed to meet an agency’s mission and results-oriented goals

and objectives.

28 FTA provides funding for mass transit primarily through formula and capital investment grants that

generally require a state/local match of at least 20 percent.

29 This activity reflects a leading practice.

30 In addition, FTA has procedures that reflect the following leading practices: establishing a baseline

inventory of assets and establishing procedures to review data developed by others. FTA also has

procedures that partially reflect the following leading practices: conducting a comprehensive assessment

of the resources needed to meet an agency’s mission and results-oriented goals and objects and budgeting

for projects in useful segments.
14

General Services Administration

In May 2001, GSA’s data indicated that $4.58 billion in federal funds was required over

the next 5 years to meet the repair and alteration needs of public buildings.31 This

estimate does not include investment amounts for federal buildings owned by other

federal agencies, including the Departments of Defense and Energy and the Postal

Service. In addition, GSA estimated that $250 million to $300 million was required

annually over the next 5 years to construct new border stations and federal office

buildings and $500 million annually was required over 5 to 7 years to construct new

courthouses. Regional offices identify investment projects, and cost data are derived

from various sources, including contractors, safety inspectors, and building engineers.

Projects that have estimated costs of $1.99 million or more are evaluated by

headquarters officials and ranked for funding using weighted criteria that include

economic return, project risk, and project urgency.32 In 2000, we reported problems with

the quality of data contained in GSA’s database of repair and alteration projects—

including incorrect data, missing projects, and cost estimates that were not current.33

GSA is taking action intended to address the problems we identified and improve the

database, but we have not assessed the agency’s progress in this regard. In addition, the

sources of cost information vary, so the estimates for individual projects may be

inconsistent. GSA’s cost data are used as input in determining funding priorities.34

Overall Comments About the Estimates

Some perspective is called for in reviewing the investment estimates by the seven

agencies. First, the investment estimates encompass major areas of public

infrastructure, but they cannot be easily compared or simply “added up” to produce a

national estimate of all infrastructure investment needs because they were developed

 31 The primary means of financing the operating and capital costs associated with federal space that is

owned or managed by GSA is the Federal Building Fund, a revolving fund supported by rental assessments

to federal agencies and annual appropriations.

32 This activity reflects a leading practice.

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

inventory of existing assets and establishing procedures to review data developed by others. GSA also has

procedures that partially reflect the following practices: considering alternative ways to address unmet

investment needs, including non-capital approaches, and budgeting for projects in useful segments.
15

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

the estimates were prepared differently and lack comparability is that they are developed

and used for different purposes. Some agencies use the information to determine the

financial resources needed to manage and/or repair their own assets, while other

agencies develop estimates at the request of the Congress to provide general information

to decisionmakers or to help direct federal funding to states, localities, and other parties.

Second, the seven agencies all had procedures for developing investment estimates that

reflect some practices used by leading private sector and government organizations.

Those practices include establishing a baseline inventory of assets, using cost-benefit

analysis to identify economically justified investments, and ranking and selecting

projects for funding based on established criteria. (See app. I for additional information

on eight leading practices that pertain to developing and using investment estimates.)

Some agencies followed more leading practices than other agencies. For example, the

Army Corps had procedures that reflected six of the eight practices, which included

establishing an inventory of assets; considering alternative ways to address unmet

investment needs, including noncapital approaches; using cost-benefit analysis; and

developing a long-term capital plan that defines capital asset decisions. Nonetheless,

following the leading practices does not ensure a quality investment estimate and each

estimate had limitations associated with the quality of the data used in developing it.

Correcting such limitations will improve the quality and reliability of the agencies’

investment estimates.

Third, some investment estimates span several decades and investment needs can

change significantly over time with changes in the efficiency of delivering infrastructure

services or pricing strategies that alter the demand for services. For example, the

consolidation of smaller water systems or the introduction of user charges can reduce

the need to expand or replace infrastructure. Fourth, many of these estimates are totals

for the entire infrastructure network—involving all levels of government and the private

sector. The federal government’s role in financing these amounts should be recognized

and, in some cases, this role might be small compared to other levels of government or
16

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

infrastructure rather than the desired outcomes (e.g., less traffic congestion) that can be

expected from additional infrastructure investments. We caution against relying on

estimates of need that are based primarily on the condition of existing infrastructure if

desired outcomes are not clearly articulated and the costs and benefits of alternative

approaches (such as using strategies to manage demand rather than building new

infrastructure) for achieving those outcomes are not fully considered.

Mr. Chairman, this concludes my statement. I will be happy to answer any questions

from you or any Member of the Subcommittee.

Contacts and Acknowledgement

For additional information or questions about this testimony, please contact Peter F.

Guerrero, at (202) 512-2834. Individuals making key contributions to this testimony

include Sharon Dyer, Phillis Riley, John Shumann, and Teresa Spisak.
Appendix I Appendix I

17

Leading Practices in Capital Decision-Making

Concerning Investment Estimates

In 1998, we identified the practices of leading government and private-sector

organizations in capital decision-making.35 The following eight practices relate to

developing and using investment estimates.

• conduct a comprehensive assessment of the resources needed to meet an agency’s

mission and results-oriented goals and objectives;

• establish a baseline inventory of existing assets, evaluate their condition, determine if

they are performing as planned, and identify excess capacity;

• consider alternative ways to address needs, including noncapital alternatives;

• use cost-benefit analysis as a primary method to compare alternatives and select

economically justified investments;

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

• budget infrastructure projects in useful segments;

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

• establish procedures to review data developed by others and use independent

reviews of data and methods to further enhance the quality of estimates.36

(545005)

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

investment estimates.