United States General Accounting Office

GAO Testimony

Before the Subcommittee on Transportation, Committee

on Appropriations, House of Representatives

For Release

on Delivery

Expected at

10 a.m. EST

Thursday

March 6, 1997

DOT’S BUDGET

Safety, Management, and

Other Issues Facing the

Department in Fiscal Year

1998 and Beyond

Statement of John H. Anderson, Jr.,

Director, Transportation Issues,

Resources, Community, and Economic

Development Division

GAO/T-RCED/AIMD-97-86

Mr. Chairman and Members of the Subcommittee:

When we testified before you last year, we pointed out that the

Department of Transportation (DOT) faced tremendous challenges in

ensuring the safe and efficient movement of people and goods and a

cost-effective investment in the nation’s transportation infrastructure,

including its highways and transit systems, airports, airways, ports, and

waterways. If anything, the obstacles to meeting the challenges have

increased primarily because efforts to improve the safety and security of

our aviation system will stretch limited resources even further. At the

same time, the demand for scarce federal funds for other transportation

programs and the continuing pressures to reduce the federal budget have

not abated. The $38 billion proposed in DOT’s fiscal year 1998 budget

represents about a 1-percent reduction from this year’s enacted

appropriation. Funding constraints intensify the need for the Department

to improve its management and oversight processes to ensure that the

American people are getting the most out of their transportation

investment dollars.

My testimony today, based on our recently completed and ongoing work,

will discuss the major safety and security, management, and other issues

facing the Department. In summary, we found the following:

Safety and Security Issues • Crashes of ValuJet Flight 592 and TWA Flight 800 have heightened

concerns about the safety and security of our aviation system. Over the

years, we have reported on problems with the Federal Aviation

Administration’s (FAA) oversight, including the need to (1) target limited

inspection resources, (2) improve the reliability of safety data, (3) improve

inspector training, and (4) address the security vulnerabilities of our air

transportation system. Our recent reports and testimonies on new airlines

and aviation security have reiterated the need for improvements in these

areas.

Recently completed aviation studies by a presidential commission and FAA

have also concluded that major problems need to be addressed to improve

the safety and security of the aviation system. The Congress has also

specified that FAA’s primary role is safety and has appropriated more funds

to hire and train inspectors and procure explosive detection systems for

the nation’s airports. However, key issues that have yet to be addressed

are how much more all the improvements will cost and how they will be

funded. In addition, FAA needs a comprehensive strategy to guide the

implementation of recommendations made in the various aviation studies.

Page 1 GAO/T-RCED/AIMD-97-86
This strategy could serve as a mechanism to track progress and establish

the basis for determining funding trade-offs and priorities, but its

successful implementation will require strong, stable leadership at FAA and

the Department.

• Major opportunities exist to improve the safety of our surface

transportation system by reducing the more than 40,000 fatalities each

year on our nation’s highways. The National Highway Traffic Safety

Administration (NHTSA) estimates that if all vehicle occupants used seat

belts, 10,000 lives and $20 billion could be saved each year, and injuries to

200,000 people could be avoided. Recent concerns about the potential

hazards of air bags in certain situations intensify the importance of using

seat belts. Furthermore, from January through November 1996, federal and

state officials carried out more than 20,000 inspections of trucks entering

from Mexico resulting in about 45 percent of the vehicles being placed out

of service for serious safety violations. Our ongoing work shows that,

while the number of truck inspectors at major southern border crossings

has increased and two large permanent inspection facilities have been

opened, the results of increased inspections do not show a clear trend that

Mexican trucks are becoming safer. In addition, we are reviewing other

opportunities to improve large truck and rail safety.

Management Issues • Another primary role of DOT is to ensure that federal transportation funds

for aviation, highway, and transit programs are spent effectively and

efficiently so that the nation gets the most value for its transportation

dollars. To that end, our work over the years has identified numerous

ways in which FAA can improve the management of its multibillion-dollar

air traffic control (ATC) modernization program. Most major modernization

projects have been plagued by cost overruns, schedule delays, and

shortfalls in performance. FAA needs to adopt a complete systems

architecture for its modernization program, improve its cost estimating

and cost accounting processes, apply more discipline in its software

acquisitions for the program, and broaden its efforts to reform its

organizational culture to include stakeholders from across the agency.

• In addition, the Federal Highway Administration (FHWA) and the Federal

Transit Administration (FTA) can work with states and transit operators to

enhance their ability to more effectively manage the costs of and acquire

financing for large-dollar surface transportation projects.1

 For example,

while FHWA’s oversight of large-dollar projects is not intended to focus on

1

The surface transportation projects we discuss in this testimony all cost over $1 billion, but defining

large-dollar projects for an individual state or transit operator is relative to their size and resources.

Page 2 GAO/T-RCED/AIMD-97-86
cost containment, we believe that the agency can do more to share states’

best practices in this area to promote more effective and efficient use of

limited federal and state highway dollars and control cost growth that can

adversely impact the funding for other projects. Furthermore, financing

large transportation projects has become increasingly complicated as the

transportation community has become more active in seeking financing

through bonds, local contributions, and innovative federal financing, such

as loans. We found that costs on the projects we reviewed continue to

grow, and FHWA and FTA need to help ensure that the projects are able to

secure firm commitments for all of the funding needed to finance them. If

not, the federal, state, and/or local stakeholders could be asked to pay

more for the projects or their timely completion could be jeopardized.

• The Intelligent Transportation System (ITS) is a collection of computer and

telecommunications systems intended to improve surface transportation

safety and efficiency. After 7 years and $1.3 billion in federal funding, DOT’s

vision for widespread deployment has not been realized. This is due to a

number of obstacles, including a lack of technical expertise and

knowledge about ITS among state and local officials, a lack of data

demonstrating the benefits of ITS technologies, and limited funding

available for ITS in light of other investment priorities. In its fiscal year

1998 budget, DOT is proposing to focus federal funds on deploying ITSs.

However, before DOT can aggressively pursue widespread deployment it

must help state and local officials overcome these obstacles.

• In prior testimony before this Subcommittee, we stated that DOT could

potentially save millions of dollars by taking advantage of opportunities to

consolidate and/or “colocate” its surface transportation field structure.

Over 2 years have passed, and DOT has done little to take advantage of

these opportunities.

Other Major Issues • Other major issues that DOT and the Congress must address include the

long-term financing of FAA, the continuing financial problems of Amtrak,

and the Coast Guard’s ability to measure its effectiveness in drug

interdiction. FAA could face potential funding shortfalls totaling several

billion dollars over the next 5 years. However, this shortfall could be

mitigated to some extent if FAA improves its productivity. The Congress

has recognized the funding problems confronting FAA, which are

exacerbated by the need to finance safety and security improvements and

air traffic control modernization. The congressionally created National

Civil Aviation Review Commission is tasked with reporting to the

Page 3 GAO/T-RCED/AIMD-97-86
Secretary of Transportation later this year on how best to finance FAA.

• Our recent work on Amtrak shows that the corporation is still in a very

precarious financial position and remains heavily dependent on federal

support to meet its operating and capital needs. Amtrak’s fiscal year 1997

operating losses could be as high as $786 million. While the corporation’s

goal is to eliminate the need for federal operating support by 2002, it is

likely that Amtrak will continue to require federal financial support—both

operating and capital—beyond that time.

• In its fiscal year 1998 budget request, the Administration is asking for

$389 million related to the Coast Guard’s drug interdiction efforts, a

$53 million increase over 1997 levels. Identifying ways to measure the

effectiveness of the Coast Guard’s operations in this area is inherently

difficult. To measure its effectiveness, the Coast Guard must separate the

impact of its actions from those taken by other drug enforcement

agencies. In order to accomplish this, the Coast Guard must develop a way

to compare the amount of drugs seized or deterred against a measure of

supply, which becomes problematic. The Coast Guard has started to take

actions to address these difficulties and implement the requirements of the

Government Performance and Results Act, but it is too soon to determine

their effectiveness.

We will now discuss these issues in greater detail.

Safety and Security

Issues

Improving the safety and security of our aviation and surface

transportation systems is of paramount importance, but budget

constraints will make this a tremendous challenge.

Aviation Safety and

Security

Over the years, we have issued numerous reports and testimonies that

identified shortcomings in FAA’s aviation safety and security programs.2

These shortcomings include insufficient training of FAA safety inspectors,

inaccurate and incomplete aviation safety databases, and vulnerabilities in

our aviation security systems. We have reported that targeting inspection

2

See, for example, Aviation Safety: New Airlines Illustrate Long-Standing Problems in FAA’s Inspection

Program (GAO/RCED-97-2, Oct. 17, 1996); Aviation Safety: Data Problems Threaten FAA Strides on

Safety Analysis System (GAO/AIMD-95-27, Feb. 8, 1995); Aviation Security: Additional Actions Needed

to Meet Domestic and International Challenges (GAO/RCED-94-38, Jan. 27, 1994); and Aviation

Security: Technology’s Role in Addressing Vulnerabilities (GAO/T-RCED/NSIAD-96-262, Sept. 19,

1996).

Page 4 GAO/T-RCED/AIMD-97-86
resources is important because of the magnitude of FAA’s inspection

responsibilities. For example, as early as 1987, we identified the need for

FAA to develop criteria for targeting safety inspections to those areas that

have characteristics possibly indicating safety problems—especially new

entrant and commuter airlines and aging aircraft. FAA also needs to

improve its Safety Performance Analysis System, a system being

developed to integrate and analyze information within other databases, so

that it contains reliable information that can be used by inspectors and

managers to target the areas of greatest risk to safety.

In the area of aviation security, we have highlighted a number of

vulnerabilities that exist within the nation’s air transportation system for

checked and carry-on baggage, mail, and cargo. We have also raised

concerns about unauthorized individuals’ gaining access to critical parts of

an airport and the potential use of sophisticated weapons, such as

surface-to-air missiles, against commercial aircraft. We have stressed the

need for a mix of technology and procedures to improve security. FAA has

agreed with the majority of our recommendations and is taking action on

many of them.

As a result of the May 1996 crash of ValuJet Flight 592, in which 110 people

were killed, the FAA Administrator, on June 18, 1996, commissioned a

90-day study of the agency’s safety programs. On September 16, 1996, FAA

issued its report, which contained six broad and 31 specific

recommendations.3

 The report calls for improvements in a number of

areas, including the certification of new airlines and FAA’s inspection

activities. FAA developed a plan for implementing these recommendations,

including identifying the responsible person and key milestones for these

efforts. According to FAA, over one-third of the key milestones have been

met. The remaining recommendations are to be implemented between

now and 1999.

Moreover, on July 25, 1996, in the wake of the crash of TWA Flight 800, in

which another 230 people perished, the President formed the White House

Commission on Aviation Safety and Security (the Gore Commission) to

study and develop a strategy for improving aviation safety and security,

including the ATC modernization. Its February 12, 1997, final report to the

President contained over 50 recommendations on a wide variety of

aviation issues, including improving aviation safety, modernizing the ATC

system, ensuring security for travelers, and compassionately responding to

3

FAA 90 Day Safety Review (Sept. 16, 1996).

Page 5 GAO/T-RCED/AIMD-97-86
families who have been affected by aviation disasters.4

 In addition, the

Congress has eliminated FAA’s role of promoting the aviation industry and

clarified that FAA’s highest priority is safety. Furthermore, the

administration requested and the Congress appropriated supplemental

1997 funds to improve aviation security by installing explosives detection

equipment and assigning bomb-sniffing dog teams to a number of major

airports. In its fiscal year 1998 budget proposal, the administration is

requesting additional funds to further improve safety and security,

including hiring more inspectors and providing them with additional

training.

For air safety, the Commission set a goal of cutting the airline accident

rate by 80 percent over the next 10 years. To help achieve this goal, the

President announced that the National Aeronautics and Space

Administration (NASA) will dedicate up to a half billion dollars in its

research and development budget over the next 5 years to focus on

aviation safety. One of the Commission’s key recommendations is that

cost considerations alone should not be the only, nor the primary, factor in

making policy and rulemaking decisions concerning aviation safety and

security. It is important to recognize, however, that this change could

result in significant cost increases for relatively modest increases in the

safety margin.

Overall, we believe that the Commission’s recommendations are a good

start toward an evolutionary process of reaching agreement on the goals

and objectives for improving our aviation safety and security systems.

However, the Commission’s final report does not fully address what the

cost will be or who should pay for implementing the recommendations.

For example, in the security area, the Commission recommended that the

federal government devote $100 million annually to meet security capital

requirements—leaving the issue of how to fund the remaining security

costs to the National Civil Aviation Review Commission. These remaining

costs are estimated to be in the billions of dollars.

To help ensure implementation of its recommendations, the Commission

recommended that the Secretary of Transportation report annually on

their status and that the President hold DOT and FAA leaders accountable

for implementing them. The same rigors should be applied to ensure the

implementation of other recommendations, such as those contained in

FAA’s 90-day safety review. Reporting annually on the progress of

4

Final Report to President Clinton, White House Commission on Aviation Safety and Security (Feb. 12,

1997).

Page 6 GAO/T-RCED/AIMD-97-86
implementing all safety and security recommendations will allow for

comprehensive congressional oversight as well as a mechanism for

determining funding trade-offs and prioritization. Keys to the successful

implementation of these recommendations are stable leadership at the

Department and FAA and adequate funding. We have expressed concern

over the years about the instability and uncertainty caused by the frequent

turnover of FAA Administrators. In addition, if FAA’s funding issue is not

resolved, resources may not be available to implement improvements

recommended by the various studies.

On the basis of recommendations made in an initial report by the Gore

Commission (dated Sept. 1996), the Congress appropriated $144.2 million

for FAA to purchase and install advanced explosives detection equipment

at U.S. airports and an additional $21 million for explosives detection

research. At your request, we are examining the status of FAA’s actions. To

date, we have found that FAA has started purchasing the equipment that the

Secretary has directed be acquired and deployed by December 1997. To

expedite the process, FAA has been awarding most contracts for equipment

and related services on a noncompetitive basis and plans to ask for a

waiver from preparing a number of planning documents required under

the agency’s procurement system. In conjunction with airlines and

airports, FAA has also drafted a plan specifying which airlines and airports

are to receive the equipment.

Surface Transportation

Safety

The use of seat belts, the safety of large trucks in general and, more

specifically, Mexican trucks coming into the United States; and railroad

safety are all important surface transportation safety issues. We have

completed or have under way a number of studies concerning these

issues.

Reducing Fatalities and Injuries

Caused by Highway Traffic

Accidents

Traffic accidents annually result in over 40,000 deaths and over

$130 billion in costs to society. Each year, about 20,000 of the people who

die and another 600,000 people who are injured were not using safety

belts. As we reported in January 1996, increasing the use of safety belts is

the most effective way to lower the nation’s death toll from highway

accidents.5 NHTSA estimates that 10,000 deaths, 200,000 injuries, and

$20 billion in societal costs could be avoided annually if all occupants of

motor vehicles wore safety belts. To date, every state except New

Hampshire has enacted laws requiring the use of safety belts; however, the

5

Motor Vehicle Safety: Comprehensive State Programs Offer Best Opportunity for Increasing Use of

Safety Belts (GAO/RCED-96-24, Jan. 3, 1996).

Page 7 GAO/T-RCED/AIMD-97-86
coverage of these laws may not include all vehicle occupants and may be

limited to certain types of vehicles.

According to NHTSA, in 1996 the use of safety belts among states ranged

from a low of 43 percent to a high of 87 percent. The most successful

states in increasing safety belt use generally have comprehensive

programs that include primary enforcement laws, visible and aggressive

enforcement, and active public information and education programs. In

particular, 11 states have primary enforcement laws which permit officials

to enforce safety belt requirements independent of other traffic safety

laws. In contrast, under secondary enforcement laws enforcement of

safety belt requirements can only occur when other traffic safety laws are

also being enforced. Of the 10 states we reviewed for our 1996 report, the 3

states with primary enforcement laws averaged rates of belt use about

20 percent higher than the states with secondary enforcement laws.

Much attention in recent months has been focused on the potential danger

surrounding the deployment of a car’s air bags onto small adult drivers

and children riding in the front seat. While air bags have saved more than

1,700 lives, NHTSA has attributed 61 deaths in low-speed crashes to air bags.

In response to this hazard, NHTSA initiated a public information campaign

aimed at having infants and children ride in the rear. NHTSA has also

undertaken a series of regulatory initiatives to address the adverse side

effects of airbags. Among other things, NHTSA has issued a final rule

regarding improved labeling on new vehicles and child restraints, and a

proposed rule designed to ensure that vehicle manufacturers can reduce

the power at which airbags inflate. In addition, NHTSA is conducting

research into developing “smart” air bags that would use sensors to

automatically adjust the deployment speed to the size of the occupant. In

recent congressional hearings on how NHTSA can best reduce the danger of

air bags for children and small adults, safety experts emphasized that the

most effective way to reduce deaths and serious injuries from traffic

accidents is to increase the use of safety belts by drivers and passengers.

Need to Improve Large Truck

Safety

Large trucks are vital for our nation’s commerce, yet thousands of people

die each year in accidents involving trucks. Although the rate of fatal

accidents involving large trucks has decreased substantially from 4.3 fatal

accidents per 100 million miles in 1982 to 2.5 fatal accidents per

100 million miles in 1995, this change primarily reflects the increase in the

miles that trucks are driving. In reality, the number of accidents and

fatalities only slightly declined from 4,650 fatal accidents involving trucks

with 5,230 deaths in 1982 to 4,450 such accidents with 4,900 deaths in 1995.

Page 8 GAO/T-RCED/AIMD-97-86
State and industry officials have told us that much of the improvement in

truck safety can be attributed to FHWA’s Motor Carrier Safety Assistance

Program (MCSAP), which provides matching grants for states to conduct

(1) roadside inspections of trucks and their drivers, (2) compliance

reviews of trucking firms’ operations, and (3) other truck safety

enforcement programs. MCSAP also helps states collect and report truck

accident and enforcement data to FHWA’s SafetyNet database, which is

essential for using performance-based standards to assess a trucking

firm’s safety.6

 In MCSAP’s early years, FHWA used funding to shift

responsibility for roadside inspections of trucks to the states. As a result,

the number of roadside inspections increased from 33,000 in 1982 to

almost 2 million in 1996.

We are currently examining FHWA’s truck safety program to identify

cost-effective ways to further reduce fatal accidents involving trucks. Our

preliminary findings show that FHWA has the primary responsibility for

conducting compliance reviews, although states performed about

40 percent of the compliance reviews in 1996. While several states have

developed active compliance review programs, other states are only

beginning to perform compliance reviews, and 13 states do not perform

any. Opportunities may exist to use MCSAP funding to encourage states to

assume a larger role in performing compliance reviews, as was the case

for roadside inspections.

To improve its targeting of trucking firms for roadside inspections and

compliance reviews, FHWA is beginning to implement performance-based

standards. Truck accident and inspection data that states provide to the

SafetyNet database are essential for assessing a carrier’s performance.

States have improved both the quality and timeliness of their reporting.

For example, they increased the percentage of truck accidents reported to

SafetyNet from 14 percent in fiscal year 1992 to about 60 percent in fiscal

year 1995. Opportunities may exist to share information among states that

would enable some states to overcome institutional or procedural barriers

and further improve their reporting.

Safety of Mexican Trucks Currently, trucks from Mexico enter the U.S. through 4 border states (i.e.,

Texas, New Mexico, Arizona, and California) and are limited to operating

in designated areas in the U.S. called commercial zones (generally, areas

between 3 and 20 miles from U.S. border towns’ northern limits).

However, the North American Free Trade Agreement (NAFTA) calls for

6

SafetyNet is an electronic database that incorporates truck accident, roadside inspection, and other

enforcement data that is used by FHWA and the states to better identify trucking firms with safety

problems for compliance reviews and other enforcement actions.

Page 9 GAO/T-RCED/AIMD-97-86
allowing U.S. and Mexican trucks to eventually operate throughout both

countries. In February 1996, we reported that many trucks from Mexico,

operating in the U.S. commercial zones, were not meeting U.S. safety

standards and that the four U.S. border states’ readiness for enforcement

varied significantly.7

 With nearly 12,000 trucks from Mexico crossing daily

into the border states, we need to be assured that these trucks are safe.

NAFTA’s timetable for international access called for U.S. and Mexican

trucks to be able to operate in each country’s border states as of

December 18, 1995. But, on that date, the U.S. Secretary of Transportation

delayed this from happening, because of safety and security concerns

regarding Mexican trucks. The delay is still in effect. The next milestone in

NAFTA is the provision allowing full access in both countries starting on

January 1, 2000.

We are conducting a follow-on review of the status of inspection and

enforcement activities of Mexican trucks in 3 of the border states.8

 While

we have not completed our work, we would like to share our preliminary

findings with you. State and federal truck inspectors at the border told us

that trucks have become safer, based on data such as fewer safety

violations being given per truck. However these views are anecdotal. After

more than 1 year of intensified truck inspections, it remains unclear as to

whether trucks from Mexico are becoming safer. From January through

November 1996, federal and state officials carried out more than 20,000

inspections of trucks entering from Mexico, resulting in about 45 percent

of the vehicles being placed out of service for serious safety violations.

The data show no consistent trend, downward or otherwise. Moreover,

45 percent compares unfavorably to the 28 percent out-of-service rate for

U.S. trucks inspected across the United States. On the other hand, state

and federal truck inspectors we interviewed believe that Mexican

operators are upgrading their trucks to make them safer. Also, according

to industry experts, most Mexican trucks at the border are involved in

short-haul operations only and they believe that newer and presumably

safer trucks will be used for long-haul operations further into the United

States.

The three border states have more than doubled the number of truck

inspectors at the major border crossings and now have 83 inspectors,

compared to 39 a year ago. Also, DOT has approved the placement of 13

7

Commercial Trucking: Safety and Infrastructure Issues Under the North American Free Trade

Agreement (GAO/RCED-96-61, Feb. 29, 1996).

8

Because Mexican trucks entering the border state of New Mexico comprised about one percent of all

northbound truck crossings, we did not include New Mexico in our review.

Page 10 GAO/T-RCED/AIMD-97-86
federal safety inspectors on the border for a two-year period. California,

with about 24 percent of the overall Mexican truck traffic, has opened two

large permanent inspection facilities, where it tries to inspect every truck

entering from Mexico at least once every 3 months. However, neither

Texas nor Arizona, which admit about three-quarters of the overall

Mexican truck traffic, has built any permanent inspection facilities at

border locations. State officials told us that a lack of space at urban border

crossings and their view of NAFTA as a national issue that should be paid

for with federal funds are among the reasons they have not built any

inspection facilities.

DOT has a number of initiatives under way aimed at ensuring the safety of

Mexican trucks crossing the border. They include providing some

additional funds to border states for more truck inspections, running

educational campaigns on U.S. safety standards, and training truck

inspectors in Mexico. Enforcing safety standards for unsafe Mexican

trucks is hampered, however, because DOT’s strategy does not include

helping border states develop results-oriented truck inspection strategies.

DOT has also not actively worked with other federal and state agencies,

such as the U.S. Customs Service, to build truck inspection facilities on the

border.

Rail Safety In the area of rail safety, we are currently examining whether new

initiatives within the Federal Railroad Administration (FRA) will improve

safety on the nation’s rail lines. From 1976 through 1995, the rail industry’s

accident rate per million train miles declined by 70 percent. Similarly, the

industry’s injury rate per million train miles declined by about 74 percent

during the same period. Although these improvements are commendable,

a continued focus on safety is needed, since improvements in the accident

rate have slowed substantially since 1987, and over 1,000 people are still

killed annually at grade crossings or while trespassing on railroad

property. We are reviewing these trends in detail and assessing FRA’s

initiatives to improving safety on the nation’s rail lines. Under these

initiatives, FRA works with other federal agencies, railroad management,

labor, and the states to implement methods that will reduce grade-crossing

accidents, expedite the promulgation of important safety regulations, and

secure railroads’ compliance with existing safety rules.

Management Issues Our work has shown that DOT needs to improve its management of

aviation, highway, and transit programs to ensure that limited funds are

effectively and efficiently used. We have identified some underlying causes

Page 11 GAO/T-RCED/AIMD-97-86
for the numerous cost, schedule, and performance problems experienced

by FAA’s ATC modernization program. In addition, major surface

transportation projects, costing hundreds of millions to billions of dollars

each, are continuing to incur cost increases, experience delays, and have

difficulties acquiring needed funding commitments. Consequently, the

federal, state, and local stakeholders could be asked to pay for more of

these costs or the projects’ completion could be jeopardized.

Air Traffic Control

Modernization Problems

FAA is in the midst of a multibillion dollar, mission-critical capital

investment program to modernize its aging ATC system. Begun in 1981, this

effort involves the acquisition of a vast network of radars and automated

data processing, navigation, and communications equipment. FAA

estimates that the cost of modernizing the system will total $34 billion

through 2003, of which $21 billion represents software-intensive computer

systems. The Congress has already appropriated about $23 billion of the

$34 billion investment.

Over the years, we have reported that ATC modernization projects have

experienced substantial cost overruns, lengthy delays, and significant

shortfalls in performance that have affected FAA’s ability to deliver systems

as promised. We have identified numerous causes for these problems,

including technical difficulties, management problems, and the lack of

continuity in FAA’s top management. Because of the size, complexity, cost,

and problem-plagued past of the ATC modernization, we designated it as a

high-risk information technology initiative in 1995 and again in 1997.9

The framework for effectively addressing the modernization’s problems is

grounded in management practices followed by leading public sector and

private sector organizations and embodied in the Clinger-Cohen Act of

1996 (P.L. 104-106). Among its provisions, the act emphasizes the

involvement of senior executives in decisions about information

management, the development and implementation of systems

architectures, and the institution of discipline in such areas as investment

management and system development and acquisition. FAA views its new

Acquisition Management System, established last year, as a rational

approach to acquisitions.

In addition, because ATC modernization is critical to aviation safety and

offers cost savings to users of the national airspace and FAA, the Gore

9

High-Risk Series: An Overview (GAO/HR-95-1, Feb. 1995); and High-Risk Series: Information

Management and Technology (GAO/HR-97-9, Feb. 1997).

Page 12 GAO/T-RCED/AIMD-97-86
Commission recommended that FAA accelerate its program by 7 years or

more so that the new ATC architecture is operational by 2005. However, we

have some concerns about how realistic that goal may be.

ATC Modernization Lacks a

Complete Systems Architecture

FAA’s ATC modernization program consists of hundreds of interrelated,

interdependent systems that need to be defined as part of a complete

systems architecture. Simply stated, a systems architecture is a blueprint

to guide and constrain the development and evolution (i.e., maintenance)

of a collection of related systems. It consists of two principal

components—a “logical” architecture and a “technical” architecture. The

logical architecture includes a high-level description of the organization’s

mission, functional requirements, information requirements, systems,

information flows, and interfaces. It is the means for ensuring that systems

support business needs. The technical architecture details the specific

information technology and communications standards and approaches

that will be used to build systems’ hardware, software, communications,

data management, and security elements. It ensures that systems

interoperate effectively and efficiently.

FAA has been effective thus far in developing the logical component of a

systems architecture, commonly called the National Airspace System

architecture. However, FAA is missing the technical component, and we do

not see a coordinated effort under way to produce one for the entire

modernization program. Of course, just having a complete systems

architecture is not enough. To be effective, the architecture must also be

enforced consistently, meaning that systems must comply with the

architecture and that any architectural deviations must be justified. At FAA,

such architectural enforcement is not occurring.

FAA’s failure to define and enforce a complete ATC systems architecture has

permitted incompatibilities among existing systems and will continue to

do so for future systems. While this does not mean that ATC systems

cannot work together safely, it does mean that working together costs

more (for development and maintenance) than it should and that overall

efficiency is less than optimal. To fill these voids, our February 1997 report

recommends that FAA establish an effective management structure for

developing and enforcing a complete systems architecture.10

ATC Modernization Lacks

Reliable Cost Information

Effectively managing an investment portfolio requires reliable cost

information on each investment. Without reliable cost information, the

10Air Traffic Control: Complete and Enforced Architecture Needed for FAA Systems Modernization

(GAO/AIMD-97-30, Feb. 3, 1997).

Page 13 GAO/T-RCED/AIMD-97-86
likelihood of poor investment decisions is increased appreciably not only

when a project is initiated but also throughout its life cycle. Such a

situation is unacceptable when making small investments, but it is

especially egregious when making multimillion- or billion-dollar

investments in mission-critical ATC systems.

We have no confidence that FAA’s ATC projects’ actual or estimated costs

are accurate. Our concerns with estimated costs are grounded in FAA’s

weak processes for deriving these estimates. In fact, of the six processes

(e.g., data collection and feedback on actual performance) that experts say

should be institutionalized by organizations that build or acquire

software-intensive systems, FAA only partially satisfies one and is

completely lacking in the other five. The result is cost estimates that are

not analytically derived and supported. Compounding these weaknesses is

FAA’s practice of presenting estimates as precise, point estimates, rather

than presenting a cost range that explicitly describes the inherent

uncertainty and risk involved. Our concerns also extend to the

accumulation and reporting of ATC projects’ actual costs, and to FAA’s lack

of a cost accounting capability. In lieu of one, FAA relies on an assortment

of accounting and financial management systems, but these systems do

not capture all relevant costs, such as those associated with FAA’s internal

project management. Our January 1997 report recommends that FAA take

actions to correct these problems.11 As required by the Federal Aviation

Reauthorization Act of 1996, FAA is planning to implement a cost

accounting system.

ATC Modernization’s Software

Acquisition Capability Is

Immature

Software is the most expensive and complex component of today’s

computer systems. It is also the component that is the source of most

system development problems. The quality of software is determined

largely by the quality of the processes involved in developing or acquiring,

and maintaining it. Carnegie Mellon University’s Software Engineering

Institute (SEI), recognized for its expertise in software processes, has

developed models and methods that define and determine the maturity of

an organization’s software processes. Together, they provide a logical

framework for determining a baseline of an organization’s strengths and

weaknesses and providing a structured plan for incremental improvement.

We are currently evaluating FAA’s software acquisition processes and the

steps under way or planned to improve them. Our preliminary results

show some strengths but more weaknesses. In fact, FAA does not fully

11Air Traffic Control: Improved Cost Information Needed to Make Billion-Dollar Modernization

Investment Decisions (GAO/AIMD-97-20, Jan. 22, 1997).

Page 14 GAO/T-RCED/AIMD-97-86
satisfy any of the key areas necessary to achieve a repeatable level of

maturity in its processes, rendering them ad hoc, and sometimes chaotic.

On SEI’s process maturity scale of 1 through 5, FAA is at the lowest level

and is at great risk of not delivering software on time and within budget

that performs as intended. Additionally, FAA lacks an effective

management approach for improving its software acquisition processes. In

particular, it has not assigned the responsibility for improvement to an

organizational entity that has budgetary or organizational authority over

the product teams that are acquiring software, and it does not yet have an

effective plan to properly focus and coordinate improvement initiatives

and measure progress. As a result, years of activity in this area have

yielded little in the way of improvements to processes. We plan to make

recommendations in these areas.

FAA’s Organizational Culture

Hinders Acquisition

In August 1996, we reported to this Subcommittee that an underlying

cause of FAA’s ATC acquisition problems is its organizational culture—the

beliefs, values, and attitudes shared by an organization’s members, which

affect their behavior and the behavior of the organization as a whole.12 We

found that FAA’s acquisitions were impaired when employees acted in ways

that did not reflect a strong commitment to mission focus, accountability,

coordination, and adaptability. For example, we reported that installations

of new terminal Doppler weather and airport surveillance radars were

delayed when the project offices did not coordinate with field offices to

ensure that sites suitable for installing these systems had been acquired.

We recommended that FAA develop a comprehensive strategy for cultural

change that (1) addresses specific responsibilities and performance

measures for all stakeholders throughout FAA and (2) provides the

incentives needed to promote the desired behaviors and achieve

agencywide cultural change.

In line with our recommendation, FAA established the Office of Business

Management within the Office of the Associate Administrator for Research

and Acquisitions to broadly define the proper framework for cultural

reform. This office plans to develop a strategic vision and business goals

for FAA’s acquisition efforts, create a planning process, manage goal

attainment, and develop performance measures to gauge progress in

implementing change. Also, FAA’s Research and Acquisitions unit is

monitoring its progress in effecting cultural change through staff surveys.

The challenge facing FAA in changing its culture is finding ways to broaden

its efforts to include stakeholders from across the agency.

12Aviation Acquisition: A Comprehensive Strategy Is Needed for Cultural Change at FAA

(GAO/RCED-96-159, Aug. 22, 1996).

Page 15 GAO/T-RCED/AIMD-97-86
Observations on Gore

Commission’s Proposals for

Accelerating ATC

Modernization

The Gore Commission found that “it is critical to our global leadership in

civil aviation to finance an accelerated modernization” of the ATC system.

New technology such as satellite-based navigation offers significant cost

savings for users of the ATC system and for FAA. The Gore Commission

recommended that all elements of the agency’s planned ATC architecture

should be fully operational by 2005 rather than 2012 and beyond, which is

FAA’s current timetable.

While it would provide tremendous benefits to move up the completion of

the modernization effort by 7 years, we have some concerns about FAA’s

ability to achieve that goal. First, the challenges encountered in acquiring

new ATC technology have to be recognized. Although the Gore Commission

states that new ATC technology to meet FAA’s requirements is available “off

the shelf,” FAA has found that significant development efforts have been

needed for virtually all major acquisitions over the past decade. As

recently as this past year, for example, new major contracts for two key

components of the modernization effort—the Standard Terminal

Automation Replacement System (STARS) and the Wide Area Augmentation

System (WAAS)13—called for considerable development efforts that are not

scheduled for completion until after the year 2000. As noted in many of

our reports, FAA has frequently found it difficult to meet the technical and

managerial challenges associated with developing and fielding modern ATC

equipment. (Further information on the status of these and other ATC

acquisitions that are central to FAA’s modernization effort is provided in

appendixes I, II and III.)

Second, modernizing the system at an accelerated rate could prove to be

inconsistent with the principles of its new acquisition management system,

established on April 1, 1996, in response to legislation freeing the agency

from most federal procurement laws and regulations.14 The system calls

for the agency to go through a disciplined process of defining its mission

needs, analyzing alternative technological and operational approaches to

meeting those needs, and selecting only the most cost-effective solutions.

Until FAA goes through that analytical and decisionmaking process, it is

premature to predict what new technology should be acquired. In

developing the ATC architecture, FAA made certain assumptions about its

future needs for technology upgrades and additional capabilities.

However, when looking 5 or more years into the future, it is difficult for

13The wide area system will use commercial communications satellites to augment GPS’ signals in the

airspace between and around airports to aid civil aircraft in navigating air routes and landing.

14P.L. 104-50, section 348.

Page 16 GAO/T-RCED/AIMD-97-86
FAA to predict mission needs and the likely advances in technology with

any degree of certainty.

As discussed later in this testimony, there are also significant funding

implications associated with accelerating the modernization program.

Surface Transportation

Programs

Let me turn for a moment to DOT’s management of major surface

transportation programs. Our work has focused on the need for

management attention in three areas: (1) cost control and committed

financing to cover all potential costs for large-dollar surface transportation

projects; (2) federal leadership that provides incentives to assist states and

localities to overcome barriers to deploying the Intelligent Transportation

System (ITS); and (3) an organizational structure that balances improving

programs’ delivery of services with ensuring the least cost to the taxpayer.

Cost Control of Large-Dollar

Highway Projects Could

Improve

The nation’s highways and bridges are vital to our economy and national

defense. It is essential that highway and bridge projects be well managed

because of limited resources available to build and maintain them.

Because large-dollar projects generally take longer to build and usually

have more significant environmental and community impacts than the

majority of federal-aid highway projects, they have a greater potential to

experience substantial cost increases and lengthy construction delays.

These cost increases can potentially overwhelm other highway projects

and erode the already limited funds available to meet highway needs

overall. Effective project management to contain costs can help ensure

that cost growth resulting from delays and other factors is minimized and

that transportation investment dollars are spent wisely and efficiently.

As discussed in our recently issued report on managing the costs of

large-dollar highway projects, cost containment is not an explicit statutory

or regulatory goal of FHWA’s oversight.15 As such, FHWA has done little to

ensure cost containment is an integral part of the states’ project

management. FHWA influences the cost-effectiveness of projects by its

review and approval of design and construction plans and through daily

interaction with state departments of transportation. FHWA’s project

approval process consists of a series of incremental actions that occur

over the period of years required to plan, design, and build a project. FHWA

approves the estimated cost of a large-dollar project in segments, when

those project segments are ready for construction, rather than agreeing to

15Transportation Infrastructure: Managing the Costs of Large-Dollar Highway Projects

(GAO/RCED-97-47, Feb. 28, 1997).

Page 17 GAO/T-RCED/AIMD-97-86
the total cost of the project from the outset. So, by the time FHWA approves

the cost of a large-dollar project, a public investment decision may have

effectively been made because substantial funds will have already been

spent on designing the project and acquiring property, and much of any

increase in the project’s estimated costs will have already occurred.

While many factors can cause costs to increase, we found several that

worked together to increase costs beyond the initial estimates for projects

in the six states we describe in our February 1997 report: (1) initial

estimates are preliminary and not designed to be reliable predictors of a

project’s cost, (2) initial estimates are modified to reflect more detailed

plans and specifications as a project is designed, and (3) a project’s costs

are affected by, among other things, inflation and changes in scope to

accommodate economic development that occurs over time as a project is

designed and built. Finding that some states were using good cost

management practices, we recommended that FHWA be proactive in

evaluating and disseminating states’ best practices so that all states could

benefit from their use.

Cost and Financing Concerns

Remain for the Central

Artery/Tunnel Project

The Central Artery/Tunnel project, in Boston, Massachusetts, estimated to

cost $10.4 billion, is one of the largest and most expensive highway

construction projects ever undertaken. It has advanced further in the last

year than at any other time in its history. With the Ted Williams Tunnel

open to traffic and construction of the underground Central Artery well

under way, the project is about 85 percent designed and 25 percent

constructed. About $8 billion of the $10.4 billion in contracts are either

complete or awarded. The project’s most recent finance plan was issued in

September 1996. This plan was followed in December 1996 with a report

by consultants on the feasibility of various options for financing the state’s

share of completing and operating the project.

Massachusetts reports that the project’s costs have stabilized, the risk of

further cost increases is minimal, and financing options are available to

meet funding shortfalls. The state has made progress in the past year by

putting strategies in place designed to meet the aggressive cost

containment goals for the design and construction phases of the project

and by moving forward with legislation to implement the

recommendations of the state’s Secretary of Transportation based on the

financing strategies in the consultants’ feasibility study. However, on the

basis of our ongoing work, we remain concerned that (1) the project’s

costs have increased and assumptions about cost savings to offset those

increases and keep the overall cost estimate at $10.4 billion may be

Page 18 GAO/T-RCED/AIMD-97-86
optimistic, and (2) while Massachusetts has begun taking action on the

recommended financing strategies, it may not be enough to meet funding

shortfalls.

The project’s $10.4 billion cost estimate depends on a number of

assumptions, including meeting the cost containment goals established for

the project as well as the reasonableness of potential savings used to

offset cost increases. The project established an aggressive overall goal in

1995 that construction contract changes would not exceed 10.7 percent of

the estimated value of the contracts. However, our analysis shows that the

project has not met that goal for awarded contracts, as the forecast

changes for these contracts averaged 16 to 19 percent as of November 30,

1996. With 64 construction contracts awarded and 49 construction

contracts still unawarded, it may be difficult to keep changes down

sufficiently to meet the 10.7 percent goal. The September 1996 finance

plan describes other cost increases since the February 1996 finance plan,

including $80 million related to projectwide support and $25 million for

additional right-of-way costs. However, the finance plan also shows cost

savings to offset identified cost increases, such as a $15 million reduction

in one of the project’s tunnel designs, to maintain the project cost at

$10.4 billion.

The largest overall savings—$600 million—comes from the project’s

Owner-Controlled Insurance Program consisting of six separate insurance

policies, including workers’ compensation and general liability. Since

December 1994, the estimated cost of the insurance program has

decreased from $748 million to $148 million. These savings assume a

scenario below what is usually used by the industry, justified, according to

project officials, on the project’s low claims and accident rates for the last

three years. However, the project is beginning 6 years of underground

tunneling in the congested downtown area that will entail numerous and

intricate construction challenges. For example, the project will burrow

close to buildings and subway tunnels often with only a few feet to spare.

While the project cites an excellent safety record to date, with these

inherent construction risks, the insurance savings may not be realized.

Our analysis of the state’s feasibility study identifies two shortfalls

between the project’s obligation requirements and the funding sources

identified to date: (1) an interim funding gap of $1.7 billion to $2.3 billion

during the fiscal year 1998 through 2002 period and (2) a total funding gap

of $100 million to $700 million between fiscal years 1998 and 2005. These

two gaps differ because, according to the study, the project’s costs will

Page 19 GAO/T-RCED/AIMD-97-86
outweigh identified sources of funding each year between fiscal years 1998

and 2002; conversely, financing will exceed costs in each of the last 3 years

of the project from fiscal year 2003 through 2005, resulting in a $1.6 billion

surplus during that period. The study proposes a strategy of state

borrowing to cover both funding shortfalls, including (1) a contribution

from the Massachusetts Turnpike Authority, based on revenue bonds

backed by toll increases, which the state has recommended total $1

billion—$700 million in the short term and $300 million upon completion

of the Central Artery portion of the project, and (2) issuance of short-term

“grant anticipation notes”, to be repaid with future federal highway

apportionments. We have concerns that these financing strategies may not

be sufficient to meet the shortfalls. For example:

• There may be an additional demand on the Massachusetts Turnpike

Authority. The project has already counted on funding from a $400 million

state contribution authorized in 1995, which the state’s 5-year capital plan

identifies as a contribution from the Authority. The Authority has not yet

made this contribution and it would be in addition to the recommended

$1 billion contribution.

• While the financial markets will ultimately decide whether using grant

anticipation notes to leverage future federal funds is feasible, a number of

challenges need to be overcome. There is limited precedent for borrowing

funds in this manner, particularly in the amount—$1 billion or

more—suggested by the state. Furthermore, since the feasibility study

assumes only $675 million in federal funds dedicated to the project during

the surplus fiscal years from 2003 through 2005, the state may have to use

federal funds to pay off the grant anticipation notes beyond the project’s

scheduled completion in fiscal year 2005, and beyond the likely duration of

the next highway authorization bill.

• The $1.6 billion “surplus” between fiscal years 2003 and 2005 may be

smaller than reported. Nearly $1 billion of this surplus is savings from the

insurance program and “air rights” revenues—proceeds the state expects

to receive from the development of property acquired for the project. The

project has reflected $722 million in insurance proceeds as a credit to the

cost of the project in fiscal year 2005. However, even if its assumptions

about the cost of the insurance program are realized, the project does not

expect to receive these proceeds until the insurance program ends in 2018,

and the amount of the proceeds is based on accruing interest through that

time. The state will realize proceeds from development of air rights and, by

federal law, can use those proceeds for transportation-related purposes.

Page 20 GAO/T-RCED/AIMD-97-86
However, around half the property expected to be available will not be

ready for development until late 2004. As such, Massachusetts may not

realize much of the financial benefits from the sale of air rights until after

2005.

Funding shortfalls will grow if the costs of the project increase or if

federal funds under the next authorization are less than expected. If

shortfalls grow, or if surpluses are not available as expected, the state will

likely have to incur additional debt over a longer period of time to meet

the project’s financing needs. This may require Massachusetts to devote a

substantial portion of its federal and state transportation funds to the

Central Artery/Tunnel project for several years after the facility is

completed and carrying traffic.

BART: Critical Decisions Still

on Hold

The Bay Area Rapid Transit District (BART) intends to spend over $1.1

billion, including $750 million in federal funds, to extend mass transit

service to the San Francisco International Airport. Since last year, we and

the Congress have voiced several concerns about the financing of the

project. As we reported in August 1996, BART has taken a number of steps

that have improved the project’s financing, including (1) escalating certain

costs to better account for inflation; (2) improving its borrowing program

by identifying secondary sources of collateral and gaining a needed change

in state law; and (3) identifying additional funds should they become

necessary to finance the project, including joint development revenues,

advertising, concessions, and parking fees.16 In November 1996, the

Federal Transit Administration (FTA) informed both the House and Senate

Appropriations Subcommittees that it was satisfied with the project’s

financing and that a full-funding grant agreement could be awarded. The

grant agreement will establish a ceiling for the federal government’s

commitment, subject to the annual appropriations process.

While BART has improved the project’s financing overall, its November 1996

finance plan still includes optimistic assumptions about the annual level of

federal funding to be received under FTA’s New Starts Program. The

November plan specifies federal funding of $110 million in fiscal year 2000,

$160 million in fiscal year 2001, $150 million in fiscal year 2002, and

$108 million in fiscal year 2003. These compare to annual funding levels of

between $110 million to $120 million that BART had included in previous

finance plans and that FTA had criticized as optimistic. BART’s request for

funding of $160 million in fiscal year 2001 would, for example, represent

20 percent of the $760 million in FTA’s current annual budget for the New

16BART Airport Extension Update (GAO/RCED-96-246R, Aug. 30, 1996).

Page 21 GAO/T-RCED/AIMD-97-86
Starts Program. A slower rate of annual federal funding than assumed

would have the effect of increasing BART’s financing costs, which BART

currently estimates to be $40 million.

In addition, your subcommittee expressed other concerns about the

project’s financing in your January 7, 1997, letter to FTA and FAA. Among

your key concerns were whether (1) BART’s use of a surcharge at the

airport station constituted an improper diversion of airport funds and

(2) BART is required to pay the airport rent for using a station built with

airport revenues. On February 11, 1997, the agencies responded to you.

The response states that DOT will ensure that any implemented surcharge

will comply with applicable laws but does not definitively conclude

whether the proposed airport station surcharge constitutes revenue

diversion. Because this surcharge is part of the project’s overall finance

plan, it is important that DOT make a decision on whether it is a revenue

diversion. Concerning the second issue, FAA has not yet determined the

appropriateness of the airport’s plan for BART’s free use of airport property.

FAA has issued for comment a proposed policy statement addressing,

among other things, whether airports may charge transit agencies less

than commercial rates for the use of airport property for public transit

facilities. In the proposed policy statement, FAA takes the view that

airports may charge publicly owned transit systems below market rates for

the use of airport property for facilities necessary for the transportation of

passengers, visitors, and employees to and from the airport, given the

significant benefits that can be achieved through such public transit. FAA

also specifically requested comments on whether some compensation

from the use of airport property should be required. The comment period

for this policy statement closed on February 18, 1997.

DOT’s response concluded that the project is at a critical juncture and that

BART’s construction needs to proceed in parallel with the airport’s ongoing

construction of its light rail system because the two systems will share the

same structure. The airport’s light rail system is designed to move

passengers throughout the airport. According to the airport’s Director of

Finance, the airport plans to award the initial construction contracts for

the BART station in March 1997 and all such contracts by the end of

June 1997. He said that without a full-funding grant agreement, there is no

guarantee that BART will come into the airport. If it does not, he stated, the

airport will have to decide whether to incorporate BART into the light rail

system or build a less expensive structure for light rail only. He noted that

building a structure solely for light rail could have the effect of designing

Page 22 GAO/T-RCED/AIMD-97-86
BART out of the airport altogether. The airport has not yet made a decision

on how to proceed if there is no full-funding grant agreement.

Los Angeles Red Line’s Costs

and Schedule Still Increasing

The Los Angeles Red Line Project, a 23.4-mile heavy rail subway system, is

facing cost increases as well as financing uncertainties associated with

funding shortfalls and the long-term financial capacity of the Los Angeles

County Metropolitan Transit Authority (MTA), the project manager. The

project currently consists of three segments, two of which are complete or

near completion. The third segment involves the design and construction

of three extensions to North Hollywood, East Side, and Mid City.

According to January 1997 estimates by MTA, the Red Line project will cost

$6.1 billion, or about 12 percent ($651 million) above the $5.5 billion

estimated in grant agreements. The $6.1 billion includes $192 million to

reconfigure a portion of the tunnel planned for the Mid City extension

needed to avoid concentrations of hydrogen sulfide gas in the tunnel.

Because the $192 million estimate represents one of three options being

considered to address the problem, costs could increase on the basis of

MTA’s final decision, due in August 1997.17 The project’s costs could

increase further based on the outcome of pending lawsuits against MTA

filed by retailers affected by ground settlement along Hollywood

Boulevard and from the construction contractor that was fired by MTA for

inadequate construction techniques.

MTA currently plans to fund $3.4 billion of the $6.1 billion with federal

funds. The federal funds anticipated, which are subject to annual

appropriations, include $2.8 billion from three full-funding grant

agreements, $500 million from other federal programs, and $100 million

that MTA plans to request above the current federal commitment for

segment three as part of the reauthorization of ISTEA.

However, the additional $100 million federal contribution will not be

sufficient to address the project’s funding shortfall. The project currently

has an estimated shortfall of $335 million resulting from federal, state, and

local commitments that may not be realized:

• In fiscal years 1995, 1996, and 1997, the Congress did not provide for the

annual commitments identified in the grant agreements, resulting in a

funding shortfall of $184 million. MTA officials told us that if they continue

to receive half or less of the yearly commitment in the grant agreements,

17The three alignment options being considered range in cost from $167 million to $279 million.

Page 23 GAO/T-RCED/AIMD-97-86
the federal shortfall could reach $580 million or more by 2002.

• As we reported in May 1996, the California state legislature diverted

$50 million in funds slated for MTA’s bus operations.18 Because the

legislature specified that the shortfall could not affect the bus program,

MTA transferred $50 million to bus operations that had been committed to

the Red Line project.

• Some of MTA’s local revenue commitments may also not be realized. While

the City of Los Angeles plans to honor its commitment to fund $200 million

toward the completion of segment three, MTA will no longer require the

City to fund $65 million of the cost increase on segment two resulting from

the collapse of Hollywood Boulevard into the subway tunnel.

Furthermore, MTA does not expect to receive $36 million of the $75 million

in estimated revenues from assessments levied on retail properties

adjacent to planned stations because some retail property owners oppose

the assessment.

Additional problems could further impact MTA’s ability to finance the Red

Line and other transportation projects. First, projected local sales tax

revenues have declined, resulting in $400 million less in revenues than

expected through 2010. Second, in October 1996, the bus riders union (and

others) and MTA entered into an agreement that requires MTA to—among

other things—expand its bus service.19 MTA has estimated that

implementing the agreement will cost $480 million through 2010. Finally, if

MTA realizes its projected federal shortfall of $580 million, MTA’s overall

funding shortfall could reach $1.5 billion for all of its projects, which may

affect its funding commitments to both the Red Line and the Alameda

Corridor Project, which I will discuss in the next section. MTA is

reevaluating its existing funding commitments and plans to report to its

Board of Directors in June 1997 on a revised financial plan, which would

include recommendations on how to meet its commitments.

On January 6, 1997, FTA took a number of steps to address MTA’s funding

shortfall, including requiring MTA to develop a recovery plan and hiring a

financial management consultant to review and report on MTA’s financial

18Los Angeles Red Line: Financing Decisions Could Affect This and Other Los Angeles County Rail

Capital Projects (GAO/RCED-96-147, May 14, 1996).

19The agreement also requires MTA to freeze the general base fare at $1.35 and offer an $11 weekly bus

pass, both for 2 years, and add 102 more buses and 50 more limited-service vehicles to the street over

the next 2 years.

Page 24 GAO/T-RCED/AIMD-97-86
capacity.20 MTA’s recovery plan, which impacts only segment three,

assumes annual federal funding of $100 million and proposes a transfer of

$300 million in flexible federal funds from the high-occupancy-vehicle

program to the rail program. Additionally, the plan proposes a 2-year delay

and $69.3 million increase for the East Side extension and a 10-year delay

and $192 million increase for Mid City.

The increased budgets and delayed schedules outlined in MTA’s recovery

plan would require that FTA and MTA renegotiate the full-funding grant

agreement for segment three. MTA’s recovery plan assumes that the

$261 million budget increase for segment three will be paid from local

funds, as we mentioned earlier. MTA officials have subsequently told us that

they plan to seek $100 million in additional federal funding for segment

three in the reauthorization of ISTEA.

21 According to MTA officials, the

delays to Mid City are due to technical problems that could justify

additional federal funding. However, FTA officials told us that they will use

their analysis of MTA’s recovery plan, along with the financial management

consultant’s report, to assist them in assessing MTA’s financial capacity to

fund the Red Line Project.

Financing Issues Unresolved

for the Alameda Corridor

Project

Financing uncertainties could also be an issue for the Alameda Corridor

intermodal project, a 20-mile freight rail corridor that the cities of Los

Angeles and Long Beach plan to construct from their respective ports to

central rail yards near downtown Los Angeles. When completed in 2001,

the project will consolidate all rail traffic into a new rail corridor, increase

trains’ average speed from 10 to about 40 mph, and reduce much of the

existing congestion in the corridor caused by nearly 200 grade crossings.

These upgrades are also intended to accommodate the continued growth

in commercial trade flowing into the ports from Pacific Rim nations.

As of February 1997, about 5 percent of the project had been constructed,

and the total estimated cost is expected to be about $2 billion. The project

will be paid for using federal, state, and local funds, as well as revenue

bonds issued by the Alameda Corridor Transportation Authority. Over

$850 million in funding for the project has been secured: $407 million from

the ports to purchase the right-of-way for the new rail line, $400 million

from the federal government in the form of a direct loan, and an additional

$47 million in federal grants. As for the remaining funds, about

$711 million is to come from revenue bonds that will be issued in 1998 by

the Alameda Corridor Transportation Authority; about $347 million from

20The financial management consultant must submit his report to FTA no later than March 31, 1997.

21MTA also plans to request $100 million for further extensions to the current project.

Page 25 GAO/T-RCED/AIMD-97-86
the Los Angeles County MTA; and about $60.5 million, from the state.

Although the state funds appear to be secure, it is unclear if the project

will receive the full-funding commitment from MTA or be able to raise the

$711 million in revenue bonds.

Project officials state that MTA’s ability to meet its funding commitment is

uncertain. Although MTA has identified a bond, secured by a local sales tax,

as the potential source for funding its commitment to the project, these

tax revenues are projected to decline. In addition, a bond rating agency

stated that the Alameda Corridor Transportation Authority’s bond would

likely be investment grade, but the agency cited several factors that could

affect the project’s ability to secure the $711 million needed. First, the

project has asked the Internal Revenue Service to allow it to issue

tax-exempt revenue bonds—a ruling that would make the bonds more

attractive in bond markets and reduce the project’s overall level of debt.

Project officials estimated that without this tax-exempt status, they would

have to issue more than $800 million in bonds to meet the same level of

debt financing. Second, a bond rating agency stated that its assessment of

the risk associated with the project’s ability to repay the bonds will affect

the project’s credit rating and the interest rate of the bonds, influencing

their attractiveness to investors. Current risk factors include the capacity

of the prime contractors to complete a complex construction project

within the estimated costs; the potential diversion of funds from the ports

to the cities of Los Angeles and Long Beach; and the potential for further

litigation by two smaller cities that will be affected by the project’s

construction.

The potential diversion of funds is important because between 1992 and

1994, the state allowed Los Angeles and Long Beach to divert $90 million

from their ports to the cities’ general funds, causing a bond rating

company to lower the bond rating of the Port of Long Beach. The ports are

required to repay 40 percent of the principal and interest associated with

the revenue bonds as well as the federal loan. (The railroads are

responsible for the remaining 60 percent.)

According to a project official, the project will use the $400 million federal

loan to pay for engineering, design, and initial construction costs. Federal

officials stated that the federal loan will improve the project’s credit rating

both by decreasing the revenue bonds needed and serving as a general

sign of federal commitment to the project. The federal loan is subordinate

to the revenue bonds, which means the revenue bonds will be paid off first

Page 26 GAO/T-RCED/AIMD-97-86
if funding is limited, thus increasing the attractiveness of the revenue

bonds to investors but posing a greater risk to the federal government.

FHWA officials have cited the Alameda Corridor’s federal loan as a

precedent for future financing efforts. Officials noted that FHWA used the

project as a model in the agency’s effort this year to create the new

$100 million Transportation Infrastructure Credit Program. The program is

intended to leverage federal funds and provide credit to assist nationally

significant projects, particularly large multimodal, revenue-generating

projects. However, since the Alameda Corridor project is in its early

stages, there are a number of unanswered questions concerning the risk to

the federal government if other funding sources are not realized and the

success of this type of federal loan at leveraging other funding.

Federal Commitment to Transit

Capital Funding Is Mortgaging

Future “New Starts” Funds

As of February 1997, FTA had signed full-funding grant agreements with 13

projects, and two additional projects, including BART’s airport extension,

had agreements pending. The outstanding commitments on these 15

projects totaled about $3.75 billion. These projects are generally in the

final design or the construction phase when they request federal funding

commitments through a full-funding grant agreement under FTA’s New

Starts Program.

Although the authorization period for FTA’s New Starts Program ends in

October 1997, FTA is allowed to make contingent commitments to projects

with full-funding grant agreements beyond the authorization period. The

ceiling for these commitments is determined by combining the remaining

unobligated authorization under ISTEA—$1.7 billion as of October 1,

1996—with one-half of the estimated remaining unobligated balance in the

mass transit account of the Highway Trust Fund at the end of the

authorization period—$2.8 billion as of October 1, 1996.22 This provided

FTA with sufficient authority to cover commitments made or planned for

the 15 projects with or projected to have full-funding grant agreements.

By using this commitment authority, the FTA has essentially mortgaged

future federal New Starts funds because it will take until 2003 to fulfill

existing and pending full-funding grant agreements if the Congress

continues to fund these projects at about the same level provided over the

last few years—about $800 million. Assuming no increase, it is unlikely

that new projects would be able to compete for federal New Starts funds

until that time; at the beginning of the fiscal year, there were 11 projects

22In addition, ISTEA specified that commitments to BART’s airport extension program be made from

the entire unobligated balance of the mass transit account.

Page 27 GAO/T-RCED/AIMD-97-86
that were nearing the stage in the investment cycle at which projects

request such federal funding.23 This also raises a number of questions

regarding existing commitments. For example, will other full-funding grant

agreements, like the one for the Los Angeles Red Line project, be subject

to renegotiation for increased costs or delays? It appears that increased

funding, if requested, for ongoing projects may not be possible given

existing commitments. Furthermore, extending the deadline for existing

projects commits federal funds for those projects further into the future,

narrowing the possibility that new projects will be funded. Given that

funds may not be available under the New Starts Program, it may be a

signal to state and local governments that they need to look for less costly

alternatives to meet their transportation needs or build them without

federal capital assistance.

Issues Concerning ITS’

Deployment

Established by ISTEA in 1991, DOT’s ITS program has received federal

funding totaling $1.3 billion to advance the use of computer and

telecommunications technology that will enhance the safety and efficiency

of surface transportation. We reported to this Subcommittee last week on

the progress states and localities had made in deploying ITS and identified

options the federal government could consider to facilitate deployment.24

Although the program envisioned widespread deployment of an integrated

multimodal ITS, this vision has not been realized for several reasons. First,

the ITS national architecture was not completed until July 1996, and a

5-year effort to develop technical standards is planned for completion in

2001. The ITS architecture and technical standards, which define ITS

components and how they will work together, are prerequisites to

large-scale integrated deployment of ITSs. In addition, the lack of

knowledge of systems integration among state and local officials,

insufficient data documenting the cost-effectiveness of ITS in solving

transportation problems, and competing priorities for limited

transportation dollars will further constrain widespread deployment of ITS.

DOT’s fiscal year 1998 budget includes $250 million for ITS and proposes to

focus the federal funds on deploying it. However, our review has shown

that federal leadership in providing nonfinancial and financial incentives

to overcome barriers may be needed to facilitate further deployment. The

nonfinancial incentives that the federal government can offer include

23FTA has requested $634 million for fiscal year 1998. If appropriated at this level, it could exacerbate

the situation.

24Urban Transportation: Challenges to Widespread Deployment of Intelligent Transportation Systems

(GAO/RCED-97-74, Feb. 27, 1997).

Page 28 GAO/T-RCED/AIMD-97-86
providing technical assistance and training to state and local officials,

disseminating information on the costs and benefits of ITS efforts, and

completing the development of technical standards in a timely manner.

Our interviews with transportation officials in 10 of the nation’s largest

urban areas revealed a wide variety of opinions on the appropriate federal

role for funding ITS’ deployment. Officials in six urban areas stated that

federal funding of $1 billion each year would be needed to achieve

widespread deployment of ITS technologies. They added that in light of

other pressing transportation priorities, additional investments in ITS might

not occur without substantial federal financial assistance. In contrast,

officials from four other urban areas opposed a large-scale federal-aid

program because they do not want additional federal funding categories.

Some of these officials also said that such a program could drive

unnecessary investments in ITS, as decisionmakers chased ITS capital

money, even though another solution might have been more cost-effective.

In the absence of a large federal program, officials from 5 of the 10 urban

areas supported a smaller-scale federal seed program. They said that such

a program could be used to fund experimental ITS applications, promote

better working relationships among key agencies, or support information

systems for travellers. The current limitations to deploying ITS in urban

areas, as well as budgetary constraints, are considerations for this

Subcommittee as you consider DOT’s fiscal year 1998 request for the ITS

program.

Few Budgetary Savings

Have Occurred Through

Surface Field Office

Consolidation/Colocation

In testimony before this Subcommittee in February 1995, we stated that

opportunities existed for budgetary savings from the proposed

consolidation of DOT’s five surface operating administrations into one by,

among other things, consolidating the extensive field office structure—161

offices at that time.25 We also suggested that if the departmental

reorganization did not occur, there still might be opportunities to

streamline the field structure through colocation. We noted that

colocation can reduce such administrative costs as reception, printing,

mailing, and copying. We cited Denver, Colorado, as an example of an

opportunity for colocation because DOT’s modal agencies have seven field

offices in the metropolitan area.

Since that time, the overall departmental reorganization is no longer on

the table, and DOT is not currently examining options for consolidating its

25Surface Transportation: Reorganization, Program Restructuring, and Budget Issues

(GAO/T-RCED-95-103, Feb. 13, 1995).

Page 29 GAO/T-RCED/AIMD-97-86
surface field office structure. However, DOT has established a Colocation

Task Force to identify opportunities for its modal agencies, including FAA

and the Coast Guard, to colocate field offices within a metropolitan area to

improve the delivery of services by providing “one-stop shopping” for

customers and reduce overhead costs. The task force has initially

identified 160 field offices that could be colocated into 60 locations. The

results of its initial evaluation of these offices is due this summer and will

be reviewed by the Secretary’s Management Council.

The task force is using lease expiration dates for existing office space or

the date of completion of new office space as a trigger for its assessment

of specific locations. Decisions will be made on the actual extent of

colocation based on these specific assessments. One colocation occurred

recently when the NHTSA office in Hanover, Maryland, moved in with

FHWA’s regional office in Baltimore. Another colocation under

consideration is in Kansas City, Missouri, because the new FAA regional

center is scheduled to open there in 1998. DOT is currently assessing the

costs and benefits of housing all DOT field staff in that area in the new

regional center. Issues of concern include lease costs in downtown office

buildings that are higher than those currently paid in suburban locations

and the possibility that customers of FHWA, FRA, FTA, and NHTSA may not all

be located nearby.

DOT officials told us that their efforts are currently focused on service

delivery and customer satisfaction and that this focus may result in

increasing the costs of the field structure. For example, recently

established metropolitan field offices established to better serve urban

customers in New York, Philadelphia, Chicago, and Los Angeles will cost

more money rather than save it because FHWA, in particular, does not have

field offices in these cities, and the new offices will be in addition to

existing FHWA field offices. However, while their focus has been on

improved service delivery, DOT officials have taken actions to reduce costs.

For example, they explained that they have closed seven small FRA

inspection offices and 5 Inspector General locations because staff, while

still located in each of these areas, are using either telecommuting centers

or their residences as a base of operations. Furthermore, FHWA has

consolidated financial, personnel, and data processing support among its

nine regions rather than have that support in each region.

Other Major Issues In addition to the safety and security and management issues facing DOT,

there are three other areas we would like to discuss—financing FAA,

Page 30 GAO/T-RCED/AIMD-97-86
Amtrak’s financial condition, and the effectiveness of the Coast Guard’s

drug interdiction efforts.

Financing FAA One of the most critical issues confronting DOT and the Congress is how to

adequately fund FAA to meet its mission over the long term. The Congress

has recognized the seriousness of FAA’s long-term financing problems and

directed that, among other things, an independent assessment of FAA’s

financial requirements be completed and that the National Civil Aviation

Review Commission be created to recommend to the Secretary of

Transportation by August 1997 how best to finance the agency in light of,

among other things, the independent assessment.26 Additionally, the

Congress required that we assess (1) how ATC costs are allocated between

FAA and DOD and (2) airport capital needs, and that we report to the

Congress by April 1997. We are also required to report to the Commission

so it can use the results of our work in its assessment.

It will take some time for the Commission to complete its work and the

Congress and the administration to assess it. Until then, we will not know

the full extent of FAA’s financing problems and how they could be

addressed. However, FAA has included some estimates of the magnitude of

the problem in its fiscal year 1998 budget submission. FAA projects about a

$9 billion shortfall between its existing requirements and projected

funding levels through 2002, as illustrated in the following table.

26Under the Federal Aviation Reauthorization Act of 1996, after receiving the national commission’s

report, the Secretary of Transportation is required to consult with the Secretary of Treasury and report

to the Congress by October 1997 on the Secretary’s recommendations for funding the aviation system

through the year 2002.

Page 31 GAO/T-RCED/AIMD-97-86
Table 1: FAA’s Projected Budget

Shortfall, 1998-2002 Dollars in billions

Fiscal year

FAA’s estimated

requirementsa

FAA’s projected

budgetb

FAA’s budget

shortfall

1998 $ 8.46 $ 8.46 $ 0

1999 10.82 8.68 2.14

2000 11.22 8.91 2.31

2001 11.32 9.15 2.17

2002 11.50 9.39 2.11

Total $ 53.32 $ 44.59 $ 8.73

Source: FAA and the President’s 1998 budget.

aRequirements for fiscal year 1998 are requested budget authority in the President’s 1998

budget. Requirements for fiscal years 1999-2002 are FAA’s estimates.

bBudget estimates for fiscal years 1998-2002 come from the President’s 1998 budget.

A significant amount of the $9 billion shortfall would occur in FAA’s

operations account. The shortfall in this account is primarily attributable

to increases in safety staffing, including new controllers, flight standards

inspectors, certification personnel, and field maintenance technicians.

Higher employee salaries and health care expenses also contribute to FAA’s

estimated gap in funding. The remainder is primarily due to increased

facility and equipment requirements needed to transition to free flight (a

system of air traffic control where pilots choose their own routes, rather

than having it specified by FAA) and improve airport security. The growth

in FAA’s requirements for facilities and equipment translates to a

38-percent increase in 1999 over the 1998 requested level.

FAA officials estimate that this $9 billion potential shortfall could increase

by an additional $4 billion as the agency tries to address the Gore

Commission recommendations to accelerate modernization of the

National Airspace System. This increase will be reflected in the facilities

and equipment account. FAA expects to have a complete estimate of these

costs later this year.

While we do not disagree that FAA faces significant financial problems, we

cannot quantify how severe the problems will be. We do know that FAA’s

analysis presumes that the agency will not realize any productivity

gains—through technological advances, new operational concepts, or

other initiatives—that will enable it to reduce its controller or

Page 32 GAO/T-RCED/AIMD-97-86
noncontroller workforces or prevent operating costs from growing at the

projected rate of 7 percent annually.

Amtrak’s Financial

Condition

Over the last several years, we have issued a number of reports and

testified several times on Amtrak’s financial condition, and we continue to

monitor Amtrak’s efforts to address its financial problems.27 Amtrak’s

passenger rail service has never been profitable and, through fiscal year

1997, the federal government has provided Amtrak over $19 billion for

operating and capital expenses. In response to continually growing losses

and a widening gap between operating deficits and federal subsidies,

Amtrak developed strategic business plans in 1995.28 These plans, which

have been revised several times, were designed to increase revenues and

control cost growth and, at the same time, eliminate Amtrak’s need for

federal operating subsidies by 2002.

Our preliminary assessment of Amtrak’s financial condition is that, despite

some gains, the corporation is still in a very precarious position. It remains

heavily dependent on federal support to meet its operating and capital

needs. Although actions taken by Amtrak through its business plans have

helped reduce its net losses, the corporation has struggled to reach

operating loss targets. As a result, greater than expected losses have made

it difficult for Amtrak to continue its path toward eliminating federal

operating support. While Amtrak narrowed the gap between its operating

deficit and the federal operating subsidy in fiscal year 1995, this gap grew

again in fiscal year 1996. In fiscal year 1996, the net loss was $764 million,

and the gap between the operating deficit and federal operating support

was $82 million.

In part to make up the operating and capital shortfalls, Amtrak has

borrowed heavily since 1993. From fiscal years 1993 to 1996, Amtrak’s

debt and capital lease obligations nearly doubled—from about

$527 million to about $987 million (in 1996 dollars). These debt levels do

not include an additional $1 billion expected to be incurred beginning in

1999 to finance 18 high-speed train sets and related maintenance facilities

for the Northeast Corridor and the acquisition of new locomotives.

27Amtrak’s Strategic Business Plan: Progress to Date (GAO/RCED-96-187, July 24, 1996); Northeast Rail

Corridor: Information on Users, Funding Sources, and Expenditures (GAO/RCED-96-144, June 27,

1996); Amtrak: Early Progress Made in Implementing Strategic Business Plan, but Obstacles Remain

(GAO/T-RCED-95-227, June 16, 1995); Intercity Passenger Rail: Financial and Operating Conditions

Threaten Amtrak’s Long-Term Viability (GAO/RCED-95-71, Feb. 6, 1995).

28Net loss is defined as total revenues minus total expenses. Operating deficit is the same as net loss,

except non-cash items (such as depreciation) are excluded from total expenses.

Page 33 GAO/T-RCED/AIMD-97-86
It is important to note that Amtrak’s increased debt levels could limit the

use of federal operating support to cover future operating deficits. In fact,

over the last 4 years, interest expenses have tripled—from $20.6 million in

fiscal year 1993 to $60.2 million in fiscal year 1996. Since Amtrak pays

interest from federal operating assistance and principal from federal

capital grants, this increase has also absorbed more of the federal

operating subsidy each year. Between fiscal years 1993 and 1996, the

percentage of federal operating subsidies accounted for by interest

payments has increased from 6 percent to 21 percent. As Amtrak assumes

more debt to acquire equipment, the interest payments are likely to

continue to consume an increasing portion of federal operating subsidies.

Implementation of its strategic business plans, including reducing some

routes and services, cutting management positions, and raising fares,

appears to have helped improve Amtrak’s financial condition. However,

planned net loss targets have frequently been missed. To illustrate,

Amtrak’s plans for fiscal years 1995 and 1996 included actions to reduce

the net losses by $195 million—from about $834 million in fiscal year 1994

to $639 million in fiscal year 1996. However, actual net losses for this

period were about $127 million more than Amtrak had planned. Amtrak’s

fiscal year 1997 net losses are expected to be even higher than those for

fiscal year 1996. Largely as a result of increased costs from postponed

route and service actions, Amtrak’s planned year-end net loss has been

revised upward to $762 million from the originally projected $726 million.

Furthermore, Amtrak projects that its net loss could be as high as

$786 million if unanticipated expenses and revenue shortfalls should

occur.

Amtrak’s goal of eliminating federal operating subsidies by 2002 is heavily

dependent on capital investment. Such investment—the modernizing of

property, plant, and equipment—will not only help Amtrak to retain

revenues by improving the quality of service but will potentially increase

revenues by attracting new riders. Amtrak’s capital investment needs are

great, both to replace and modernize the current physical assets and to

complete new projects such as high-speed rail service in the Northeast

Corridor. For example, in May 1996, FRA and Amtrak estimated that about

$2 billion would be needed over the next 3 to 5 years to recapitalize the

south end of the corridor and preserve its ability to operate in the

near-term at existing service levels. FRA and Amtrak estimate that up to

$6.7 billion may be needed over the next 20 years to recapitalize the entire

corridor and make improvements targeted to respond to high-priority

Page 34 GAO/T-RCED/AIMD-97-86
opportunities for growth. Finally, Amtrak estimates an additional

$1.4 billion will be needed to complete the high-speed rail project.

Our ongoing work indicates that Amtrak has made some progress in

addressing capital needs, but the going has been slow, and in some cases,

Amtrak may be facing significant future costs. For example, in

October 1996 about 53 percent of Amtrak’s active fleet of 1,600 cars

averaged 20 years old or more and were at or approaching the end of their

useful life. It is safe to assume that as this equipment continues to age, it

will be subject to more frequent failure and require more expensive

repairs.

Finally, Amtrak will continue to find it difficult to take those actions

necessary to further reduce its costs. For example, Amtrak has been

unsuccessful in negotiating productivity improvements with labor. Such

improvements were expected to save about $26 million in fiscal year 1995

and another $79 million in fiscal year 1996. According to an Amtrak

official, over the last 2 years Amtrak has not aggressively pursued

negotiations with labor unions over productivity improvements. And

Amtrak’s ability to make route and service adjustments remains an

outstanding issue.

Amtrak’s financial future has been staked on its ability to eliminate federal

operating support by 2002 by increasing revenues, controlling costs, and

providing customers with high-quality service. Although its strategic plans

have helped reduce operating losses, Amtrak continues to face significant

challenges in accomplishing this goal, and it is likely that Amtrak will

continue to require federal financial support—both operating and

capital—beyond that time frame.

Coast Guard’s Antidrug

Efforts

In its fiscal year 1998 budget request, the administration is asking for

$389 million for operations related to the Coast Guard’s drug interdiction

efforts, a $53 million increase over 1997 levels. Mr. Chairman, late last

year, you and Representative Porter asked us to assess the Coast Guard’s

progress in developing an approach to drug interdiction that conforms

with the principles of the Government Performance and Results Act

(GPRA).29 We plan to report to you later this month, but we would like to

share our preliminary findings.

29P.L. 103-62.

Page 35 GAO/T-RCED/AIMD-97-86
GPRA calls for federal agencies to pay more attention to the results of their

programs, a departure from focusing on such measures as staffing and

activity levels. GPRA requires agencies to (1) develop results-oriented

performance goals, (2) identify ways to achieve them, and (3) disclose key

factors that could keep them from meeting their goals. The Coast Guard

has made a start at meeting these requirements for its drug interdiction

efforts, but Coast Guard officials acknowledge they must overcome

obstacles in all three areas if they are to be in compliance by 1999, when

the act’s requirements become fully effective.30

Thus far, the Coast Guard has defined its performance goal as “reducing

the amount of illegal drugs entering the country through maritime routes

by 25 percent over five years.” The preliminary goal represents a start

toward conformance with GPRA in that it covers the required time (5 years)

and is results-oriented. It remains to be seen, however, whether this goal

can be effectively measured. Simply reporting the amount of drugs seized

or deterred is not enough. Gauging effectiveness means comparing such

information against a measure of supply—how much smugglers tried to

ship or how much still got through. The Coast Guard’s approach calls for

making such comparisons, but the illegal nature of drug trafficking makes

obtaining reliable estimates of supply difficult. An interagency effort

sponsored by the Office of National Drug Control Policy has made some

progress in developing estimates on the amount of cocaine entering the

United States. According to Coast Guard officials, a similar effort is under

way for estimating heroin traffic.

A related obstacle is the difficulty of separating the impact of the many

agencies involved in drug control. For example, a decrease in the amount

of drugs entering the United States through maritime routes could also be

the result of greater efforts to control drugs in the source country, better

intelligence from other U.S. agencies, or lower domestic demand due to

agencies’ efforts to reduce it.

Coast Guard officials indicated that reducing the amount of illegal drugs

entering the United States via maritime routes largely depends on

resources. They expect that additional resources will allow a higher

“contact rate” with ships and planes in targeted areas, which in turn will

30GPRA requires agencies to develop a strategic plan by the end of fiscal year 1997 and a performance

plan by the end of fiscal year 1999. The strategic plan identifies long-term goals and describes how the

agency intends to meet them; the performance plan provides the linkage between the strategic goals

and what managers and employees do day-to-day, including specific performance goals and

performance measures.

Page 36 GAO/T-RCED/AIMD-97-86
provide greater deterrence.31 In the complex world of drug control efforts,

however, a key obstacle for the Coast Guard is establishing a clear case

that spending these additional resources can effectively contribute to the

Office of National Drug Control Policy’s mission of reducing drug use and

its consequences. In this regard, a recent study conducted by the Office

sounded a cautionary note. The study concluded that the effect of greater

expenditures in the “transit zone” where the Coast Guard’s efforts are

currently concentrated does not seem significant enough to affect U.S.

drug use.32 It suggested considering whether the investment of a similar

level of resources elsewhere in the drug strategy might produce more

benefits. However, the study is hardly the last word on the issue. It has a

number of methodological limitations, and Coast Guard officials point out

that a small investment in the transit zone (about 1.6 percent of the total

federal budget at the time of the study) would produce an 11-percent

reduction (90 metric tons) in drug traffic.

Coast Guard officials acknowledge that factors other than funding affect

their success in stopping maritime drug smuggling. One factor is the large

geographic area that must be covered. Unlike in the Caribbean, where

specific paths for smuggling have been identified, in the eastern Pacific

Ocean, the large area makes deterrence and interdiction more difficult.

Another factor is smugglers’ increasing technological sophistication. For

example, by using global positioning system technology to set airdrop

coordinates prior to departure, smugglers can reduce radio

communications, making it harder for the Coast Guard to detect them. To

comply with GPRA, the Coast Guard may need to identify such factors.

This concludes our prepared statement. We will be happy to respond to

any questions that you or other Members of the Subcommittee may have.

31The Coast Guard defines “contact rate” as the frequency of contact with maritime traffic in targeted

areas. According to Coast Guard officials, the agency currently has a contact rate of 12 percent, which

they believe deters or interdicts 29 percent of the smugglers using maritime routes. They believe that a

contact rate of 40 percent will deter or stop smugglers in 90 percent of the cases in high-risk areas. The

amount of resources needed to raise the contact rate to 40 percent is unknown.

32The National Drug Control Strategy, 1996: Program, Resources, and Evaluation, Office of National

Drug Control Policy (Washington, D. C.: Apr. 1996), pp. 48-51. The transit zone where the Coast

Guard’s efforts are concentrated includes the Caribbean Sea, the Gulf of Mexico, Central America,

Mexico, and the Eastern Pacific.

Page 37 GAO/T-RCED/AIMD-97-86
Appendix I 

Ongoing Air Traffic Control Modernization

Projects: Status and Issues

For several major modernization projects, the Federal Aviation

Administration (FAA) has made progress in fielding equipment. For

example, about 6 months ago we reported on FAA’s effectiveness in

acquiring an interim replacement for its Display Complex Channel (DCC),

an aging system that was the subject of much media attention because of

outages at a Chicago air traffic control (ATC) facility.1

 At that time, we

concluded that FAA was on course to deliver this system, known as DCC

Rehost, or DCCR, on time and within its budget. Since then, FAA has

installed and is operating DCCR at the first site (Chicago) ahead of

schedule, and it has reported that DCCR is $3 million under its budget.

We see several reasons why this acquisition has enjoyed so much success

when others have been so problematic. First, this acquisition was

relatively small, involving comparatively little in the way of new software

development, and equipment delivery was relatively quick. Second, it was

well defined. That is, most of its requirements were embedded in the

existing DCC and thus were well understood and primarily involved

transferring these functions to new hardware. Third, the project

management team instilled discipline into its acquisition strategy. For

example, it defined and followed structured risk management and quality

assurance programs, both of which are invaluable in systems development

and acquisition. As such, it was a sharp departure from past ATC projects,

like the Advanced Automation System (AAS), which were very large,

scheduled for delivery years in the future, characterized by poorly

understood and poorly controlled requirements, and managed without

discipline.

In addition, since we testified last March, FAA has commissioned 11

Terminal Doppler Weather Radars, bringing the total commissioned to 22

of the 45 systems planned. Of the 23 remaining systems, 18 are expected to

be commissioned by the end of July 1997, and 5 are designated for storage

until the agency resolves problems acquiring needed parcels of land. After

8 years of delays, in early 1996 FAA commissioned the first of 40 planned

long-range radars—called Air Route Surveillance Radar-4s. Since last year,

FAA has commissioned 12 additional radars. According to the current

plans, all but seven of the remaining radars will be commissioned by

February 1998, though the dates have yet to be determined because FAA

needs to resolve environmental concerns at one site and scheduling issues

at six others. Since last year, FAA has commissioned 13 additional Voice

1

Air Traffic Control: Good Progress on Interim Replacement for Outage-Plagued System, but Risks Can

Be Further Reduced (GAO/AIMD-97-2, Oct. 17, 1996).

Page 38 GAO/T-RCED/AIMD-97-86
Appendix I 

Ongoing Air Traffic Control Modernization

Projects: Status and Issues

Switching and Control Systems, completing the commissioning of all 21

systems.

FAA continues to work on the Display System Replacement (DSR) project,

which will provide controllers in en route ATC facilities2

 with new work

stations. According to FAA, the cost remains at about $1 billion, and the

schedule still calls for making the system operational at the first site by

October 1998. DSR work stations are in full production, and all equipment

needed for operations at the first site—Seattle—was delivered 8 months

early. FAA’s testing of the system software is scheduled to be completed in

mid-March 1997. Currently, FAA foresees no major problems with software.

For the major acquisitions we track, however, most will not be completely

fielded until the year 2000 and beyond (see app. II). In addition, costs for 8

projects increased, resulting in a total of $194 million in additional costs.

Details on certain key acquisitions are provided in appendix III.

Standard Terminal

Automation

Replacement System

In September 1996, FAA contracted with Raytheon Corporation to develop,

produce, and implement the Standard Terminal Automation Replacement

System (STARS). This project is designed to replace 15- to 25-year-old

computers, controller work stations, and related equipment at about 170

FAA terminal ATC facilities between December 1998 and February 2005. FAA

currently estimates that STARS will cost about $2.2 billion, including

$940 million for facilities and equipment and about $1.3 billion to operate

and maintain the system over its life.

FAA’s cost estimate for STARS has the potential to grow by as much as

$500 million, according to a September 1996 analysis that projected future

operations and maintenance costs. On the basis of more current

information, project officials told us that there may be some minor cost

growth but they could not provide us with an updated estimate or detailed

support for their views. FAA will also incur costs to make STARS operational.

FAA expects to spend at least $18 million to get about 50 facilities ready to

accept STARS equipment. This estimate is expected to grow as FAA develops

cost estimates for site preparation of the 120 remaining facilities.

Regarding the STARS schedule, we found that it is attainable only if FAA

successfully mitigates certain risks. For example, FAA has yet to secure all

stakeholders’ commitment to the schedule. The schedule anticipates that

2

The primary role of the en route centers is to direct traffic in air routes outside of terminals’ airspace

and throughout the national airspace.

Page 39 GAO/T-RCED/AIMD-97-86
Appendix I 

Ongoing Air Traffic Control Modernization

Projects: Status and Issues

the contractor will install and deploy most STARS equipment with support

and oversight provided by FAA’s Airway Facilities Service. However, the

Airway Facilities Service at the regional level has not agreed to the

installation plan because it is still uncertain of its role. Furthermore, the

workforce’s union has not been briefed on the plan and is concerned

about its effect on their members’ job security. Also, FAA must resolve

scheduling conflicts between STARS and other modernization efforts. For

example, the original schedule for deploying STARS at the first 45 sites

presented 12 potential conflicts where equipment was due to be delivered

during facility renovation or replacement.

Additionally, if FAA and its contractor experience difficulties in software

development, STARS’ implementation—particularly at the three facilities

targeted for operating it before fiscal year 2000—will likely be delayed. FAA

and Raytheon expect to use commercial off-the-shelf computer hardware

and some previously developed software for STARS. However, a software

development effort is still required. FAA does not expect to complete

testing of the initial STARS’ software until September, 1998, and the full

software until July, 1999. As recently as December 1996, FAA and Raytheon

were discussing how the system would provide specific functions and

what functions would be needed. These discussions resulted in agreement

on 28 outstanding issues. Overall, FAA estimates that some 140,000 lines of

new code will need to be written. For example, some 2,000 lines of new

code are needed to fulfill safety requirements such as warning controllers

when aircraft are not maintaining proper separation or minimum safe

altitudes.

FAA is aware that these risks must be mitigated and has begun several

initiatives. While such actions are encouraging, it is too early to tell how

effective they will be.

The Global

Positioning System

FAA faces important planning, technical, and funding issues in augmenting

the Global Positioning System (GPS)3

 for civil aviation purposes. Within the

past year, FAA has established a team and developed a road map for

managing the development and implementation of the agency’s Wide Area

Augmentation System (WAAS). The agency also addressed problems with

contractor performance by terminating the original contract for

procurement of the WAAS and immediately signing another.

3

GPS satellites transmit radio signals that allow properly equipped air, land, and sea users to calculate

the time and their position and speed anywhere above the earth’s surface and in any condition.

Page 40 GAO/T-RCED/AIMD-97-86
Appendix I 

Ongoing Air Traffic Control Modernization

Projects: Status and Issues

For the Local Area Augmentation System (LAAS), which will enable GPS to

be used for the most demanding precision approaches, FAA has signed two

contracts for system development activities.4

 It has not, however,

completed schedule and cost estimates for the LAAS, as we recommended

in 1995, because the agency has not decided whether it will fully fund the

development, procurement, and maintenance of this system.5

 The agency

may turn these responsibilities over to individual airports. FAA expects to

complete an investment analysis by mid-1997 to determine how LAAS

should be financed.

FAA’s plans for LAAS need to be definitive as soon as possible for two major

reasons. First, as emphasized by the Air Transport Association at a

congressional hearing on November 30, 1995, the timing of the agency’s

efforts will impact the production of GPS avionics and the retrofitting of

aircraft. Second, these plans will also clarify when FAA could expect to

begin decommissioning its instrument landing systems (ILS), for which FAA

spends substantial resources for operation and maintenance. We reported

last year that some 120 ILSs are over 20 years old and experience twice the

number of outages as expected under current design standards.6

 If FAA

shifts to airports the responsibility for acquiring LAAS, FAA will be in the

position of maintaining the existing ILSs until the airports decide to install

LAAS.

Recent events have confirmed our long-standing concerns about technical

issues that put FAA’s schedule for augmenting GPS at risk. In 1994, in

response to recommendations from government and industry groups, FAA

accelerated its schedule from 2000 to 1997 for civil aircraft to be able to

use the augmented GPS domestically as a “primary means” of

navigation—in other words, not relying on other navigation aids. In 1995,

we reported that FAA would probably not meet the 1997 milestone. Delays

were realized this past year when FAA announced that the WAAS would not

provide this primary means capability until late 1998 at the earliest. The

delays occurred because (1) FAA underestimated the technical challenges

involved in achieving the performance requirements for the system’s

availability, accuracy, and integrity and (2) the initial contract for WAAS

was terminated when FAA became convinced that the contractor could not

achieve cost, schedule, and performance goals.

4

The local system will use ground-based communications equipment to augment the signals in the

airspace around airports so that aircraft can land in the worst weather conditions.

5

National Airspace System: Comprehensive FAA Plan for Global Positioning System Is Needed

(GAO/RCED-95-26, May 10, 1995).

6

Global Positioning System Augmentations (GAO/RCED-96-74R, Feb. 6, 1996).

Page 41 GAO/T-RCED/AIMD-97-86
Appendix I 

Ongoing Air Traffic Control Modernization

Projects: Status and Issues

Funding has also become a significant issue for both WAAS and LAAS. In

1995, we reported that FAA had not yet developed information on the

funding required to implement the WAAS. In early 1996, FAA approved a cost

baseline for WAAS: $556 million in facility and equipment costs and

$9 million in operations and maintenance costs. However, by mid-1996 FAA

officials began expressing concern about the agency’s ability to keep costs

within those baselines. Recent interviews with agency officials and

internal documents point to the potential for substantial increases in cost

estimates. FAA is now reevaluating its cost baselines and expects to issue a

revised baseline this spring. Regarding LAAS, funding concerns have been

the primary reason why FAA has considered turning over the responsibility

for acquisitions and maintenance to individual airports. As noted above,

FAA expects to make a decision on LAAS’ financing later this year.

Page 42 GAO/T-RCED/AIMD-97-86
Appendix II 

Status of FAA’S Major Modernization

Projects

Year

Planned

Commissioned

Last-site implementation Number of operational systems

Major projects

Original

estimate

1997

estimate

Years

delayed

Since

2/96

Current

total

Aeronautical Data Link

(ADL)

1998 TBD N/A 20 DLAPs/

57 TDLSa

3 57

Air Route Surveillance

Radar-4 (ARSR-4)

1991 b b 40 radars 13 13

Airport Surface Detection

Equipment-3 (ASDE-3)

1990 1999 9 38 radars 6 26

Airport Surveillance Radar-9

(ASR-9)

1992 1998 6 120 radars 9 111

Automated Surface

Observing System (ASOS)c

1997 2001 4 574 units 87 133

Enroute

Automation—Display

System Replacement (DSR)

2000d 2000 N/A 21 systems 0 0

Integrated Terminal

Weather System (ITWS)

2000 2003 3 34 systems 0 0

Mode Select 1993 1999 6 144 systemse 34 71

Oceanic Automation

Program (OAP)

f 2000 N/A 3 systems 0 0

Operational Supportability

and Implementation System

(OASIS)

f 2001 N/A 61 systems 0 0

Terminal Air Traffic Control

Automation (TATCA)

f g N/Ag N/A N/A N/A

Terminal

Automation—STARS

2003 2005h 2 171 systems 0 0

Terminal Doppler Weather

Radar (TDWR)

1998 f N/A 45 radars 11 22

Terminal Radar Digitize,

Replace and Establish

(TRDRE)

N/A 2004 N/A 112 radarsi 0 0

Tower Automation Program 2000 j N/A TBD N/A N/A

Voice Switching and Control

System (VSCS)

1992 1997 5 21 unitsk 13 21

Weather and Radar

Processor (WARP)

N/Al 2000 N/A 21 units 0 0

Wide Area Augmentation

System (WAAS)

2001 2001m N/A 1 system 0 0

(Table notes on next page)

Page 43 GAO/T-RCED/AIMD-97-86
Appendix II 

Status of FAA’S Major Modernization

Projects

Legend

N/A = Not applicable.

TBD = To be determined.

aTDLS is the Tower Data Link Services. TDLS I (Predeparture Clearance/Flight Data Input Output)

has been commissioned at all 57 sites. TDLS II (Digital-Automatic Terminal Information Service)

has been installed at 42 sites and commissioned at 23 additional sites. DLAP is the data link

applications processor, which will interface between the National Airspace Data Interchange

Network II and Host Interface Device/NAS Local Area Network.

b The delay of the last-site implementation date is currently 6 years. The last-site implementation

date has not been determined because of environmental issues at Ajo, Ariz.

cASOS is one of three systems under the Automated Weather Observing System (AWOS) project,

which also includes the Data Acquisition System (ADAS). AWOS achieved first-site

implementation in 1989, and FAA has since commissioned 198 of the 200 AWOSs ordered.

dThe date reflects the current estimate for the DSR project, initiated as part of the June 1994

restructuring of the Advanced Automation System into three distinct areas—en route, terminal,

and tower automation.

eIncluded in the total are the 11 additional Mode-S units that have been purchased under the

Interim Support Plan.

f

The last-site implementation date is indefinite.

gThis project has been integrated into Air Traffic Management (ATM) which contains

multisegmented projects. TATCA’s functionality is contained within the Traffic Flow Management

Functionality Development/Deployment project and the ATC Functionality

Development/Deployment project.

hThe date reflects the revised baselined schedule for STARS.

i

The ASR-11 procurement, as part of the TRDRE program, provides 46 operational systems and 2

preproduction units to replace ASR-7s and equipment used at sites taken over from the

Department of Defense. Future procurement requirements to either replace or upgrade the

ASR-8s and provide for new establishments may increase the quantity from 48 to 112 systems but

are still being evaluated and are pending approval.

j

The project is currently under review.

k

The schedule reflects the first phase of the project, when systems are scheduled to be installed

in existing en route controller work stations. The last-site implementation date for the second

phase of the project, when the system will interface with the DSR, is estimated in 2000.

l

The project has been restructured into three stages since we reported on it in 1994.

mThe date reflects the final stage or end-state of WAAS (E-WAAS), when it is scheduled to serve

as a sole system for air navigation and landing guidance. Initial WAAS (I-WAAS) is scheduled to

allow civil aircraft to use GPS domestically as a primary means of navigation in late 1998.

Page 44 GAO/T-RCED/AIMD-97-86
Appendix III 

Summary of Costs and Schedules for FAA’S

Major Modernization Projects

Page 45 GAO/T-RCED/AIMD-97-86
Appendix III 

Summary of Costs and Schedules for FAA’S

Major Modernization Projects

Page 46 GAO/T-RCED/AIMD-97-86
Appendix III 

Summary of Costs and Schedules for FAA’S

Major Modernization Projects

(340644) Page 47 GAO/T-RCED/AIMD-97-86
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