United States Government Accountability Office

GAO Testimony 

Before the Committee on Finance, 

U.S. Senate

SURFACE 

TRANSPORTATION 

Principles Can Guide 

Efforts to Restructure and 

Fund Federal Programs 

Statement of Jayetta Z. Hecker, Director 

Physical Infrastructure Issues 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, July 10, 2008

 

GAO-08-744T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 10, 2008

SURFACE TRANSPORTATION 

Principles Can Guide Efforts to Restructure and Fund 

Federal Programs

Highlights of GAO-08-744T, a testimony 

before the Committee on Finance, U.S. 

States Senate 

The nation has reached a critical

juncture with its current surface 

transportation policies and 

programs. Demand has outpaced 

the capacity of the system, 

resulting in increased congestion. 

In addition, without significant 

changes in funding levels or

planned spending, the Highway 

Trust Fund—the major source of

federal highway and transit 

funding— is projected to incur 

significant deficits in the years 

ahead. Exacerbating concerns 

about the solvency of the Highway 

Trust Fund is the federal 

government’s bleak fiscal condition

and outlook. As a result, other

federal revenue sources may not be 

available to help solve the nation’s 

current transportation challenges. 

This statement is based on a body

of work that GAO has completed 

over the past several years for 

Congress. This testimony discusses 

(1) GAO’s recent findings on the 

structure and performance of the 

current surface transportation 

program (GAO-08-400), (2) a

framework to assess proposals for

restructuring of the surface 

transportation program, (3) 

potential options to fund

investments in the surface 

transportation system, and (4) our

recent findings on the benefits, 

costs, and trade-offs of using 

public-private partnerships to help

fund transportation investments 

(GAO-08-44).

What GAO Recommends

GAO has previously suggested that 

Congress consider refocusing 

surface transportation programs to 

address the issues discussed in this

testimony. 

Since federal funding for the interstate system was established in 1956, the 

federal role in surface transportation has expanded to include broader goals, 

more programs, and a variety of program structures. Consequently, the goals 

of current programs are numerous and sometimes conflicting, and the federal 

role in these programs is unclear. For example, federal programs do not 

effectively address key transportation challenges, such as increasing 

congestion and freight demand. Many surface transportation programs are 

also not linked to performance of the transportation system or of the grantees, 

and programs often do not employ the best tools and approaches. Finally, the 

fiscal sustainability of the numerous highway, transit, and safety programs 

funded by the Highway Trust Fund is in doubt, because spending from the 

fund has increased without commensurate increases in revenues. 

A number of principles can help guide the assessment of proposals to 

restructure and fund federal surface transportation programs. These 

principles include (1) ensuring goals are well defined and focused on the 

national interest, (2) ensuring the federal role in achieving each goal is clearly

defined, (3) ensuring accountability for results by entities receiving federal 

funds, (4) employing the best tools and approaches to improve results and 

emphasize return on targeted federal investment, and (5) ensuring fiscal

sustainability. 

A range of options could be used to fund the growing demand for additional 

investment in the surface transportation system. There are two revenue

sources for these additional investments: taxes and fees. Financing 

mechanisms, such as bonding and revolving funds, could also be used to fund 

transportation infrastructure projects when tax and user fee approaches are

not sufficient to meet demands. However, these financing mechanisms are all 

forms of debt that ultimately must be repaid with interest by the general 

population through tax increases or reductions in government services. Each 

of these options has different merits and challenges, and the selection of any 

of them will likely involve trade-offs among different policy goals.

Highway public-private partnerships show promise as a viable alternative,

where appropriate, to help meet growing and costly transportation demands. 

The highway public-private partnerships created to date have resulted in 

advantages from the perspective of state and local governments, such as the 

construction of new infrastructure without using public funding. However, 

highway public-private partnerships also entail potential costs and risks 

including the reality that funds from public-private partnerships are largely a 

new source of borrowed funds—a form of privately issued debt that must be 

repaid to private investors. Ultimately the extent to which public-private 

partnerships can be used to help meet the nation’s transportation funding 

challenges will depend on the ability of states to weigh potential benefits 

against potential costs and trade-offs to determine whether public-private 

partnerships are appropriate in specific circumstances—and if so—how best 

to implement them and protect the public interest. To view the full product, including the scope 

and methodology, click on GAO-08-744T. 

For more information, contact JayEtta Z. 

Hecker at (202) 512-2834 or 

heckerj@gao.gov. 
July 10, 2008

Mr. Chairman and Members of the Committee: 

We appreciate the opportunity to testify on surface transportation 

financing issues. As you know, the nation has reached a critical juncture 

with current surface transportation programs. The current federal 

approach to addressing the nation’s surface transportation problems is not 

working well. Despite large increases in expenditures in real terms for 

transportation, the investment has not commensurately improved the 

performance of the nation’s surface transportation system, as congestion

continues to grow and looming problems from the anticipated growth in 

travel demand are not being adequately addressed. The economic and 

environmental implications are significant, ranging from wasted fuel and 

lost time as cars idle in traffic to increased costs for businesses as the 

transportation system grows more unreliable. 

Since federal funding for the interstate system was established in 1956, the 

federal role in surface transportation has expanded to include broader 

goals, more programs, and a variety of program structures. However, many 

of these programs do not effectively address key transportation 

challenges, such as increasing congestion and freight demand, because the 

federal goals and roles of the programs are unclear, the programs are 

generally not need or performance-based, and the programs often do not

employ the best tools or approaches. In addition, the continued relevance 

of some of these programs in the 21st century is unclear. For example, the 

Highway Trust Fund was created in 1956 to distribute funds for the 

construction of the interstate highway system. That system is now 

complete. However, the federal highway program’s funding and delivery 

mechanisms have not substantially changed. Furthermore, there is a 

growing differential between expected Highway Trust Fund revenue and 

planned levels of spending on surface transportation programs. As a 

result, without significant changes in funding levels or planned spending, 

the Highway Trust Fund is projected to incur significant deficits in the 

Page 1 GAO-08-744T 
years ahead. As a result, in 2007, we added financing the nation’s 

transportation system to GAO’s High Risk List.1

Addressing these challenges is complicated by the breadth of the nation’s 

surface transportation network—encompassing highway, transit, and rail

systems and ports that are owned, funded, and operated by both the public

and the private sectors. Moreover, surface transportation policy decisions 

are inextricably linked with aviation, economic, environmental, and energy 

policy concerns. In addition, exacerbating this challenge is that the federal 

government’s financial condition and fiscal outlook are worse than many 

may understand.2

 Specifically, the federal budget is on an unsustainable 

path—heightening concern about the solvency of the Highway Trust Fund 

because other federal revenue sources may not be available to help solve 

the nation’s current transportation challenges. Addressing these 

challenges requires strategic and intermodal approaches, effective tools 

and programs, and coordinated solutions involving all levels of 

government and the private sector. Yet in many cases, the government is 

still trying to do business in ways that are based on conditions, priorities, 

and approaches that were established decades ago and are not well suited 

to addressing 21st century challenges. Consequently, we have called for a 

fundamental reexamination of the nation’s transportation policies and 

programs.3

Prudent use of taxpayer dollars is always important. The economic and 

social importance of the nation’s transportation system and the current 

fiscal environment, make it even more important that federal, state, and 

 1

GAO’s audits and evaluations identify federal programs and operations that, in some cases,

are high risk because of their greater vulnerabilities to fraud, waste, abuse, and 

mismanagement. In recent years, we also have identified high-risk areas to focus on the 

need for broad-based transformations to address major economy, efficiency, or 

effectiveness challenges. Since 1990, we have periodically reported on government

operations that we have designated as high risk. In 2007, we added financing the nation’s

transportation system to the High Risk List. See, GAO, High-Risk Series: An Update. 

GAO-07-310 (Washington, D.C.: January 2007).

2

GAO, Long-Term Fiscal Outlook: Action Is Needed to Avoid the Possibility of a Serious 

Economic Disruption in the Future, GAO-08-411T (Washington, D.C.: Jan. 29, 2008) and 

Fiscal Stewardship: A Critical Challenge Facing Our Nation, GAO-07-362SP (Washington, 

D.C.: January 2007). 

3

See GAO, Performance and Accountability: Transportation Challenges Facing Congress

and the Department of Transportation, GAO-07-545T (Washington, D.C.: Mar. 6, 2007) and 

21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005). 

Page 2 GAO-08-744T 
local governments make prudent decisions on how to invest limited 

available resources. In making these decisions, governments will face an 

array of challenges that include repairing and maintaining aging 

infrastructure, making more efficient use of existing infrastructure, 

accounting for population growth, and incorporating new technologies in 

funding for infrastructure. In this environment, the infrastructure 

improvements that all levels of government want may not reflect what 

they need or what the nation can afford. Accordingly, decisions about the 

appropriate level of spending and distribution on infrastructure are both 

difficult and enormously important. 

My remarks today focus on (1) our recent findings on the structure and 

performance of current surface transportation programs, (2) a framework 

to assess proposals for restructuring surface transportation programs, (3) 

potential options to fund investments in the surface transportation system, 

and (4) our recent findings on the benefits, costs, and trade-offs of using 

public-private partnerships to help fund transportation investments. My 

comments are based on a body of work that we have completed over the 

past several years for Congress.4

 We conducted our work in June 2008 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Current surface transportation programs do not effectively address the 

transportation challenges the nation faces. Collectively, post-interstate-era

programs addressing highway, transit, and safety are an agglomeration 

that has been established over half a century without a well-defined vision 

of the national interest and federal role. For example, federal programs do 

not effectively address key transportation challenges, such as increasing 

highway congestion and freight demand. Many surface transportation 

programs are not linked to the performance of the transportation system 

or of the grantees, and the programs often do not use the best tools or best 

approaches. Moreover, the fiscal sustainability of the numerous highway, 

Summary 

 4

See “Related GAO Products” at the end of this testimony statement. These previous 

performance audits were conducted in accordance with generally accepted government 

auditing standards. 

Page 3 GAO-08-744T 
transit, and safety programs funded by the Highway Trust Fund is in 

doubt. 

Through our prior analysis of surface transportation programs, we have 

identified a framework of principles that can help inform Congress in 

assessing various proposals for restructuring and funding federal surface 

transportation programs. These principles are 

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

which involves examining the relevance and relative priority of existing

programs in light of 21st century challenges and identifying emerging areas 

of national importance; 

• establishing and clearly defining the federal role in achieving each goal in 

relation to the roles of state and local governments, regional entities, and 

the private sector; 

• incorporating performance and accountability into funding decisions to 

ensure resources are targeted to programs that best achieve intended 

outcomes and national priorities; 

• employing the best tools, such as benefit-cost analysis, and approaches to

emphasize return on investment at a time of constrained federal resources; 

and 

• ensuring fiscal sustainability through targeted investments of federal, 

state, local, and private resources. 

A range of options could be used to fund the demand for additional 

investment in the surface transportation system. Although some of the 

demand for additional investment in transportation could be reduced by, 

for example, using the existing infrastructure more efficiently, there is a 

growing consensus that some level of additional investment in 

transportation could be warranted. There are two revenue sources for 

these additional investments: taxes and fees. A variety of taxes have been 

and could be used to fund the nation’s infrastructure, including excise, 

sales, property, and income taxes. Additionally, user fees such as fees 

based on vehicle miles traveled, freight container fees, customs duties, or 

congestion pricing of roads could be used. Financing mechanisms could 

also be used to fund transportation infrastructure projects when tax and 

user fee approaches are not sufficient to meet demands. However, these

financing approaches, including bonding strategies, loans, loan guarantees, 

and revolving funds, are all forms of debt that ultimately must be repaid 

Page 4 GAO-08-744T 
with interest by the general population through tax increases or 

reductions in government services. 

Highway public-private partnerships also show promise as a viable 

alternative, where appropriate, to help meet growing and costly 

transportation demands. The highway public-private partnerships created

to date have resulted in advantages from the perspective of state and local

governments, such as the construction of new infrastructure without using 

public funding, and obtaining funds by extracting value from existing 

facilities for reinvestment in transportation and other public programs. 

However, highway public-private partnerships also entail potential costs 

and risks. Most importantly, there is no “free” money in public-private 

partnerships. While highway public-private partnerships can be used to 

obtain financing for highways, these funds are largely a new source of 

borrowed funds—a form of privately issued debt that must be repaid to 

private investors seeking a return on their investment by road users over 

what potentially could be a period of several generations. Ultimately the 

extent to which public-private partnerships can be used to help meet the 

nation’s transportation funding challenges will depend on the ability of 

states to weigh potential benefits against potential costs and trade-offs to 

determine whether public-private partnerships are appropriate in specific 

circumstances—and if so—how best to implement them and protect the 

public interest. As we recently reported, consideration of public-private 

partnerships in the United States could benefit from more consistent, 

rigorous, systematic, up-front analysis and fresh thinking about the 

appropriate federal approach.5

 Reexamining the federal role in

transportation provides an opportunity to identify the emerging national

public interests in highway public-private partnerships and to determine 

how highway public-private partnerships fit in with national programs. 

 5

GAO, Highway Public-Private Partnerships: More Rigorous Up-front Analysis Could 

Better Secure Potential Benefits and Protect the Public Interest, GAO-08-44 (Washington,

D.C.: Feb. 8, 2008). 

Page 5 GAO-08-744T 
Current surface transportation programs do not effectively address the 

transportation challenges the nation faces. Collectively, post-interstate-era

programs addressing highway, transit, and safety are an agglomeration 

that has been established over half a century without a well-defined vision 

of the national interest and federal role. Many surface transportation 

programs are not linked to performance of the transportation system or 

grantees, as most highway, transit, and safety funds are distributed 

through formulas that only indirectly relate to needs and may have no 

relationship to performance. In addition, the programs often do not use 

the best tools or best approaches, such as using more rigorous economic 

analysis to select projects. Finally, the fiscal sustainability of the numerous 

highway, transit, and safety programs funded by the Highway Trust Fund 

is in doubt, as a result of increased spending from the fund without 

commensurate increases in revenues. 

Since the Federal-Aid Highway Act of 1956 funded the modern federal 

highway program, the federal role in surface transportation has expanded

to include broader goals, more programs, and a variety of program 

structures. Although most surface transportation funds remain dedicated 

to highway infrastructure, federal surface transportation programs have 

grown in number and complexity, incorporating additional transportation, 

environmental, and societal goals. While some of these goals have led to 

new grant programs in areas such as transit, highway safety, and motor 

carrier safety, others have led to additional procedural requirements for 

receiving federal aid, such as environmental review and transportation 

planning requirements. 

This expansion has also created a variety of grant structures and federal

approaches for establishing priorities and distributing federal funds. Most 

highway infrastructure funds continue to be distributed to states in 

accordance with individual grant program formulas and eligibility 

requirements. However, broad program goals, eligibility requirements, and 

authority to transfer funds between highway programs give state and local 

governments broad discretion to allocate highway infrastructure funds 

according to their priorities. Although some transit formula grant 

programs also give grantees considerable discretion to allocate funds, a 

portion of transit assistance requires grantees to compete for funding 

based on specific criteria and goals. Similarly, basic safety formula grant 

programs are augmented by smaller programs that directly target federal 

funds to specific goals and actions using financial incentives and penalty 

provisions. 

Current Surface 

Transportation 

Programs Do Not 

Effectively Address 

Identified 

Transportation 

Challenges 

Federal Goals and 

Approaches Have 

Expanded as State and 

Local Discretion Has 

Increased 

Page 6 GAO-08-744T 
We have found that many federal surface transportation programs are not 

effective at addressing key transportation challenges, such as increasing 

congestion and growing freight demand, because federal goals and roles 

are unclear, and many programs lack links to needs or performance. The 

goals of federal surface transportation programs are numerous and 

sometimes conflicting, which contributes to a corresponding lack of 

clarity in the federal role. For example, despite statutes and regulations 

that call for an intermodal approach (one that creates connections across 

modes), only one federal program is specifically directed at intermodal 

infrastructure. 

Most highway, transit, and safety grant funds are distributed through 

formulas that have only an indirect relationship to needs and many have 

no relationship to performance or outcomes. The largest safety grants are 

more likely than highway grants to be focused on goals rather than 

specific transportation systems such as the interstate system, and several 

highway safety and motor carrier safety grants allocate incentive funds on 

the basis of performance or state efforts to carry out specific safetyrelated activities. However, since the majority of surface transportation 

funds are distributed without regard to performance, it is difficult to 

assess the impact of recent record levels of federal highway expenditures. 

For example, while the condition of highways showed some improvement 

between 1997 and 2004, traffic congestion increased in the same period. 

Mechanisms to link programs to goals also appear insufficient because,

particularly within the Federal-aid Highway program, federal rules for 

transferring funds between different highway infrastructure programs are 

flexible, weakening the distinctions between individual programs 

(see fig. 1). 

The Goals and Role of the 

Federal Government Are 

Not Clear, and Many 

Programs Are Not Linked 

to Performance 

Page 7 GAO-08-744T 
Figure 1: Broad Flexible Fund Transfer Provisions within Highway Programs

National Highway

System (NHS)

Surface

Transportation

Program (STP)

Interstate

Maintenance

Program (IM)

Highway Bridge

Replacement and

Rehabilitation

Program (HBRRP)

Highway Safety

Improvement

Program (HSIP)

Congestion

Mitigation &

Air Quality

Improvement

Program (CMAQ)

With certain restrictions, up to 50% of apportioned funds may be transferreda

CMAQ funds may be transferred if a minimum threshold is metb

100% of NHS funds may be transferred to the STP program if the Secretary

of Transportation approves the transfer and a sufficient public comment

period is providedc

Source: GAO.

Surface Transportation 

Programs Often Do Not 

Use Best Tools and 

Approaches 

Surface transportation programs often do not employ the best tools and 

approaches to ensure effective investment decisions. Rigorous economic 

analysis does not generally drive the investment decisions of state and 

local governments—in a 2004 survey of state departments of 

transportation, 34 of 43 state departments of transportation cited political 

Page 8 GAO-08-744T 
support and public opinion as very important factors, whereas 8 said the 

same of the ratio of benefits to costs.6

 The federal government also does 

not possess adequate data to assess outcomes or implement performance 

measures. For example, the Department of Transportation (DOT) does not 

have a central source of data on congestion, even though it has identified

congestion as a top priority. While some funds can be transferred between

highway and transit programs, modally stovepiped funding nevertheless 

impedes efficient planning and project selection. Additionally, tools to 

make better use of existing infrastructure, such as intelligent 

transportation systems and congestion pricing, have not been deployed to

their full potential. 

The Fiscal Sustainability of 

Surface Transportation 

Programs Is Threatened 

The solvency of the federal surface transportation program is at risk 

because expenditures now exceed revenues for the Highway Trust Fund, 

and projections indicate that the balance of the Highway Trust Fund will 

soon be exhausted. According to the Congressional Budget Office (CBO), 

the Highway Account will face a shortfall in 2009, the Transit Account in 

2012.

7

 The rate of expenditures has affected its fiscal sustainability. As a 

result of the Transportation Equity Act for the 21st Century (TEA-21), 

Highway Trust Fund spending rose 40 percent from 1999 to 2003 and 

averaged $36.3 billion in contract authority per year. The upward trend in 

expenditures continued under the Safe, Accountable, Flexible, Efficient 

Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which 

provided an average of $57.2 billion in contract authority per year. While 

expenditures from the trust fund have grown, revenues into the fund have 

not kept pace. The current fuel tax of 18.4 cents per gallon has been in 

place since 1993, and the buying power of the fixed cents-per-gallon 

amount has since been eroded by inflation. The reallocation to the 

Highway Trust Fund of 4.3 cents of federal fuel tax previously dedicated to 

deficit reduction provided an influx of funds beginning in 1997. However, 

this influx has been insufficient to sustain current spending levels. 

Furthermore, while federal funding for transportation has increased, the 

total funding for transportation may not increase to the same extent 

because federal funds may be substituted for state and local funds. Thus, 

 6

GAO, Highway and Transit Investments: Options for Improving Information on 

Projects’ Benefits and Costs and Increasing Accountability for Results, GAO-05-172 

(Washington, D.C.: Jan. 24, 2005). 

7

CBO, Status of the Highway Trust Fund: 2007 (Washington, D.C.: Mar. 27, 2007). 

Page 9 GAO-08-744T 
added federal funds may not lead to a commensurate increase in the total

investment in highways because state and local governments can shift 

nonfederal funds away from highways to other purposes. Increases in 

federal funding do appear to reduce state spending for the same purpose, 

reducing the return on the federal investment. Research estimates that 

about 50 percent of each additional federal grant dollar for the highway 

program displaces funds that states would otherwise have spent on 

highways. 

As we have previously reported, this situation argues for a fundamental 

reexamination of the federal approach to surface transportation problems 

and a restructuring of federal programs to create more focused, 

performance-based, and sustainable programs.8

 In cases for which there is

a significant national interest, maintaining strong federal financial support 

and a more direct federal involvement in the program may be needed. In 

other cases, functions may best be carried out by other levels of 

government or not at all. There may also be cases for which federal 

financial support is desirable but a more results-oriented approach is 

appropriate. In addition, depending on the transportation issue and the 

desired goals, different options and approaches may be appropriate for 

different problems. Restructuring the current approach to transportation 

problems will take time, but a vision and strategy are needed to begin the 

process of transforming to a set of policies and programs to effectively 

address the nation’s transportation needs and priorities. 

Through our prior analyses of existing programs, we identified a 

framework of principles that could help drive an assessment of proposals 

for restructuring and funding federal surface transportation programs. 

These principles include (1) creating well-defined goals based on 

identified areas of national interest, (2) establishing and clearly defining 

the federal role in achieving each goal, (3) incorporating performance and 

accountability into funding decisions, (4) employing the best tools and 

approaches to improve results and emphasize return on investment, and 

(5) ensuring fiscal sustainability. We have also developed a series of 

illustrative questions that can be used to determine the extent to which 

restructuring and funding proposals are aligned with each principle. We

Framework to Assess 

Proposals for 

Restructuring and 

Funding Surface 

Transportation 

Programs 

 8

GAO, Surface Transportation: Restructured Federal Approach Needed for More Focused, 

Performance-Based, and Sustainable Programs, GAO-08-400 (Washington, D.C.: Mar. 6,

2008). 

Page 10 GAO-08-744T 
developed these principles and illustrative questions based on prior 

analyses of existing surface transportation programs as well as a body of

work that we have developed for Congress, including GAO’s High-Risk, 

Performance and Accountability, and 21st Century Challenges reports. The 

principles do not prescribe a specific approach to restructuring or funding,

but they do provide key attributes that will help ensure that restructured 

surface transportation programs address current challenges. 

Our previous work has shown that identifying areas of national interest is 

an important first step in any proposal to restructure and fund surface 

transportation programs. In identifying areas of national interest, 

proposals should consider existing 21st century challenges and how future 

trends could affect emerging areas of national importance—as well as how 

the national interest and federal role may vary by area. For example, 

experts have suggested that federal transportation policy should recognize 

emerging national and global imperatives, such as reducing the nation’s 

dependence on oil and minimizing the impact of the transportation system 

on global climate change. Once the various national interests in surface 

transportation have been identified, proposals should also clarify specific 

goals for federal involvement in surface transportation programs. Goals 

should be specific and outcome-based to ensure that resources are 

targeted to projects that further the national interest. 

The following illustrative questions can be used to determine the extent to 

which proposals to restructure and fund surface transportation programs 

create well-defined goals based on identified areas of national interest. 

• To what extent are areas of national interest clearly defined?

• To what extent are areas of national interest reflective of future trends? 

• To what extent are goals defined in relation to identified areas of national

interest? 

After the various national interests and specific goals for federal 

involvement in surface transportation have been identified, the federal 

role in working toward each goal should be established. The federal role 

should be defined in relation to the roles of state and local governments, 

regional entities, and the private sector. Where the national interest is 

greatest, the federal government may play a more direct role in setting 

priorities and allocating resources as well as fund a higher share of 

Create Well-defined Goals 

Based on Identified Areas 

of National Interest 

Establish and Clearly 

Define the Federal Role in 

Achieving Each Goal 

Page 11 GAO-08-744T 
program costs. Conversely, where the national interest is less evident,

state and local governments and others could assume more responsibility. 

For example, efforts to reduce transportation’s impact on greenhouse gas 

emissions may warrant a greater federal role than other initiatives, such as

reducing urban congestion, since the impacts of greenhouse gas emissions 

are widely dispersed, whereas the impacts of urban congestion may be 

more localized. 

The following illustrative questions can be used to determine the extent to 

which proposals to restructure and fund the surface transportation 

programs establish and clearly define the federal role in achieving each 

goal. 

• To what extent is the federal role directly linked to defined areas of 

national interest and goals? 

• To what extent is the federal role defined in relation to the roles of state 

and local governments, regional entities, and the private sector? 

• To what extent does the proposal consider how the transportation system 

is linked to other sectors and national policies, such as environmental, 

security, and energy policies? 

Our previous work has shown that an increased focus on performance and 

accountability for results could help the federal government target 

resources to programs that best achieve intended outcomes and national 

transportation priorities. Tracking specific outcomes that are clearly 

linked to program goals could provide a strong foundation for holding 

grant recipients responsible for achieving federal objectives and 

measuring overall program performance. In particular, substituting 

specific performance measures for the current federal procedural 

requirements could help make the program more outcome-oriented. For 

example, if reducing congestion were an established federal goal, outcome 

measures for congestion, such as reduced travel time, could be

incorporated into the programs to hold state and local governments 

responsible for meeting specific performance targets. Furthermore, 

directly linking the allocation of resources to the program outcomes 

would increase the focus on performance and accountability for results. 

Incorporating incentives or penalty provisions into grants can further hold 

grantees and recipients accountable for achieving results. 

Incorporate Performance 

and Accountability into 

Funding Decisions 

Page 12 GAO-08-744T 
The following illustrative questions can be used to determine the extent to 

which proposals to restructure and fund surface transportation programs 

incorporate performance and accountability into funding decisions. 

• Are national performance goals identified and discussed in relation to 

state, regional, and local performance goals? 

• To what extent are performance measures outcome-based? 

• To what extent is funding linked to performance? 

• To what extent does the proposal include provisions for holding 

stakeholders accountable for achieving results? 

We have previously reported that the effectiveness of any overall federal 

program design can be increased by promoting and facilitating the use of 

the best tools and approaches to improve results and emphasize return on 

investment. Importantly, given the projected growth in federal deficits, 

constrained state and local budgets, and looming Social Security and 

Medicare spending commitments, the resources available for discretionary 

programs will be more limited—making it imperative to maximize the 

national public benefits of any federal investment through a rigorous 

examination of the use of such funds.9

 A number of specific tools and 

approaches can be used to improve results and return on investment 

including using economic analysis, such as benefit-cost analysis, in project 

selection; requiring grantees to conduct post-project evaluations; creating 

incentives to better utilize existing infrastructure; providing states and 

localities with greater flexibility to use certain tools, such as tolling and 

congestion pricing; and requiring maintenance-of-effort provisions in 

grants. Using these tools and approaches could help surface 

transportation programs more directly address national transportation 

priorities. 

The following illustrative questions can be used to determine the extent to 

which proposals to restructure and fund surface transportation programs 

employ the best tools and approaches to improve results and emphasize 

return on investment. 

Employ the Best Tools and 

Approaches to Improve 

Results and Emphasize 

Return on Investment 

 9

GAO, Freight Transportation: National Policy and Strategies Can Help Improve Freight 

Mobility. GAO-08-287 (Washington, D.C.: Jan. 7, 2008). 

Page 13 GAO-08-744T 
• To what extent do the proposals consider how costs and revenues will be 

shared among federal, state, local, and private stakeholders? 

• To what extent do the proposals address the need better to align fees and 

taxes with use and benefits? 

• To what extent are trade-offs between efficiency and equity considered? 

• Do the tools and approaches align with the level of federal involvement in

a given policy area? 

• To what extent do the proposals provide flexibility and incentives for state 

and local governments to choose the most appropriate tool in the toolbox? 

Our previous work has shown that transportation funding, and the 

Highway Trust Fund in particular, faces an imbalance of revenues and

expenditures and other threats to its long term sustainability. 

Furthermore, the sustainability of transportation funding should also be 

seen in the context of the broader, governmentwide problem of fiscal 

imbalance. The federal role in transportation funding must be reexamined 

to ensure that it is sustainable in this new fiscal reality. A sustainable 

surface transportation program will require targeted investment, with 

adequate return on investment, from not only the federal government but 

also state and local governments and the private sector. 

The following illustrative questions can be used to determine the extent to 

which proposals to restructure and fund surface transportation programs 

ensure fiscal sustainability. 

Ensure Fiscal 

Sustainability 

• To what extent do the proposals reexamine current and future spending 

on surface transportation programs? 

• Are the recommendations affordable and financially stable over the longterm? To what extent are the recommendations placed in the context of 

federal deficits, constrained budgets, and other spending commitments, 

and to what extent do they meet a rigorous examination of the use of 

federal funds? 

• To what extent are recommendations considered in the context of trends 

that could affect the transportation system in the future, such as 

population growth, increased fuel efficiency, and increased freight traffic?

Page 14 GAO-08-744T 
Current concerns about the sustainability and performance of existing 

programs suggest that this is an opportune time for Congress to more 

clearly define the federal role in transportation and improve progress 

toward specific, nationally defined outcomes. Given the scope of the 

needed transformation, it may be necessary to shift policies and programs 

incrementally or on a pilot basis to gain practical lessons for a coherent, 

sustainable, and effective national program and funding structure to best 

serve the nation for the 21st century. 

Absent changes in planned spending, a variety of funding and financing 

options will likely be needed to address projected transportation funding 

shortfalls. Although some of the demand for additional investment in 

transportation could be reduced, there is a growing consensus that some 

level of additional investment in transportation is warranted. A range of 

options—from altering existing or introducing new funding approaches to

employing various financing mechanisms—could be used to help meet the 

demand for additional investments. Each of these options has different 

merits and challenges, and the selection of any of them will likely involve 

trade-offs among different policy goals. Furthermore, the suitability of any 

of these options depends on the level of federal involvement or control 

that policymakers desire for a given area of policy. However, as we have 

reported, when infrastructure investment decisions are made based on 

sound evaluations, these options can lead to an appropriate blend of 

public and private funds to match public and private costs and benefits.10

Estimates from multiple sources indicate that additional investment in the 

transportation system could be warranted. For example, in its January 

2008 report, the National Surface Transportation Policy and Revenue

Study Commission (Policy Commission) recommended an annual 

investment of about $225 billion from all levels of government in the 

surface transportation system—an increase of about $140 billion from 

Various Options Are 

Available or Have 

Been Proposed to 

Fund Investments in 

the Nation’s 

Infrastructure 

Existing Strategies Can 

Help Reduce the Demand 

for Additional Investment 

 10GAO, Freight Transportation: Strategies Needed to Address Planning and Financing 

Limitations, GAO-04-165 (Washington D.C.: Dec. 19, 2003).

Page 15 GAO-08-744T 
current spending levels.11 Similarly, the Congressional Budget Office 

recently estimated that an annual investment of about $165 billion in 

surface transportation could be economically justifiable.12 In addition, in 

its February 2008 interim report, the National Surface Transportation 

Infrastructure Financing Commission (Financing Commission) noted that

one of its base assumptions is that there is a gap between current funding 

levels and investment needs.13

However, some of the demand for additional investment in transportation 

infrastructure could be reduced. We have previously reported that the 

ways in which revenue is generated and distributed can influence the 

decisions made by users as well as decision-making and programs at the 

state and local levels.14 In particular, our previous work has shown that 

current funding and decision-making processes provide a built-in 

preference for projects that build or maintain transportation infrastructure 

rather than try to use existing infrastructure more efficiently—which 

would reduce the overall demand for additional investments. CBO also 

recently reported that some of the demand for additional spending on 

infrastructure could be met by providing incentives to use existing 

infrastructure more efficiently. In its February 2008 interim report, the 

Financing Commission noted the need to use new approaches and 

technologies to maximize the use of current capacity. 

We have also previously reported that increased federal highway grants 

influence states and localities to substitute federal funds for funds they 

otherwise would have spent on highways for other purposes. 

 11Congress established the Policy Commission in SAFETEA-LU. The mission of the Policy 

Commission was, among other things, to examine the condition and future needs of the

nation’s surface transportation system and short and long-term alternatives to replace or

supplement the fuel tax as the principal revenue source to support the Highway Trust 

Fund. In January 2008, the Policy Commission released its final report with numerous 

recommendations to reform the current structure of the nation’s surface transportation 

programs. 

12CBO, Current and Future Investment in Infrastructure, (Washington, D.C.: May 8, 2008). 

CBO defines economic justifiable investments as investments whose private and social 

benefits would be at least equal to their economic costs. 

13Congress created the Financing Commission in SAFETEA-LU and charged it with 

analyzing future highway and transit needs and the finances of the Highway Trust Fund and 

recommending alternative approaches to financing transportation infrastructure. 

14GAO, Surface Transportation: Strategies Are Available for Making Existing Road

Infrastructure Perform Better, GAO-07-920 (Washington, D.C.: July 26, 2007). 

Page 16 GAO-08-744T 
Consequently, additional federal investments in transportation do not 

necessarily translate into commensurate levels of spending by the states 

and localities on transportation. Addressing this “leakage” with such tools 

as maintenance-of-effort requirements could maximize the effectiveness of 

federal investments. 

The principles we have identified for restructuring the surface 

transportation programs can also be used as a framework for considering 

levels of investment and the funding and financing options described 

below. For example, in defining the federal role in funding transportation, 

we have previously reported that where the national interest is greatest, 

having the federal government fund a higher share of program costs could 

be appropriate. Conversely, where the national interest is less evident, 

state and local governments, and others could assume more responsibility. 

In addition, incorporating incentives or penalty provisions into different 

funding and financing approaches can help ensure performance and 

accountability. 

Various existing funding approaches could be altered or new funding 

approaches could be developed, to help fund investments in the nation’s 

infrastructure. These various approaches can be grouped into two 

categories: taxes and user fees. 

A variety of taxes have been and could be used to fund the nation’s 

infrastructure, including excise, sales, property, and income taxes. For 

example, federal excise taxes on motor fuels are the primary source of 

funding for the federal surface transportation program. Fuel taxes are 

attractive because they have provided a relatively stable stream of 

revenues and the collection and enforcement costs are relatively low. 

However, fuel taxes do not currently convey to drivers the full costs of 

their use of the road—such as the costs of wear and tear, congestion, and 

pollution. Moreover, federal motor fuel taxes have not been increased 

since 1993—and thus the purchasing power of fuel tax revenues has 

eroded with inflation. As CBO has previously reported, the existing fuel 

taxes could be altered in a variety of ways to address this erosion, 

including increasing the per-gallon tax rate and indexing the rates to 

inflation.15 Some transportation stakeholders have suggested exploring the 

potential of using a carbon tax, or other carbon pricing strategies, to help

Funding Approaches Can 

Be Altered or Developed to 

Help Fund Infrastructure 

Investments 

 15CBO, Status of the Highway Trust Fund: 2007 (Washington, D.C.: Mar. 27, 2007). 

Page 17 GAO-08-744T 
fund infrastructure investments.16 In a system of carbon taxes, fossil fuel 

emissions would be taxed, with the tax proportional to the amount of 

carbon dioxide released in its combustion. Because a carbon tax could 

have a broad effect on consumer decisions, we have previously reported 

that it could be used to complement Corporate Average Fuel Economy 

standards, which require manufacturers meet fuel economy standards for 

passenger cars and light trucks to reduce oil consumption.17 A carbon tax 

would create incentives that could affect a broader range of consumer 

choices as well as provide revenue for infrastructure. 

Another funding source for infrastructure is user fees. The concept 

underlying user fees—that is, users pay directly for the infrastructure they 

use—is a long-standing aspect of many infrastructure programs. Examples 

of user fees that could be altered or introduced include fees based on 

vehicle miles traveled (VMT) on roadways; freight fees, such as a percontainer charge; congestion pricing of roads; and tolling. 

• VMT fees. To more directly reflect the amount a vehicle uses the road, 

users could be charged a fee based on the number of vehicle miles 

traveled. In 2006, the Oregon Department of Transportation conducted a 

pilot program designed to test the technological and administrative 

feasibility of a VMT fee. The pilot program demonstrated that a VMT fee 

could be implemented to replace the fuel tax as the principal source of 

transportation revenue by utilizing a Global Positioning System (GPS) to

track miles driven and collecting the VMT fee ($0.012 per mile traveled) at

fuel pumps that can read information from the GPS.18 As we have 

previously reported, using a GPS could also track mileage in high 

congestion zones, and the fee could be adjusted upward for miles driven in 

these areas or during more congested times of day such as rush hour—a 

strategy that might reduce congestion and save fuel.19 In addition, the 

 16Another carbon pricing strategy is a cap-and-trade program, which combines a regulatory 

limit or cap on the amount of carbon that can be emitted into the atmosphere with market

elements such as the opportunity to buy additional allowances to emit additional carbon. 

Auctioning the allowances of a cap-and-trade program would generate revenue for the

government, which could be used for a variety of purposes, including infrastructure

investments. 

17GAO, Vehicle Fuel Economy: Reforming Fuel Economy Standards Could Help Reduce

Oil Consumption by Cars and Light Trucks, and Other Options Could Complement These

Standards, GAO-07-921 (Washington, D.C.: Aug. 2, 2007). 

18Oregon’s Mileage Fee Concept and Road User Fee Pilot Program: Final Report. 

19GAO-07-921. 

Page 18 GAO-08-744T 
system could be designed to apply different fees to vehicles, depending on

their fuel economy. On the federal level, a VMT fee could be based on 

odometer readings, which would likely be a simpler and less costly way to 

implement such a program. A VMT fee—unless it is adjusted based on the 

fuel economy of the vehicle—does not provide incentives for customers to 

buy vehicles with higher fuel economy ratings because the fee depends 

only on mileage. Also, because the fee would likely be collected from 

individual drivers, a VMT fee could be expensive for the government to 

implement, potentially making it a less cost-effective approach than a 

motor fuel or carbon tax. The Oregon study also identified other 

challenges including concerns about privacy and technical difficulties in

retrofitting vehicles with the necessary technology. 

• Freight fees. Given the importance of freight movement to the economy,

the Policy Commission recently recommended a new federal freight fee to

support the development of a national program aimed at strategically

expanding capacity for freight transportation.20 While the volume of 

domestic and international freight moving through the country has 

increased dramatically and is expected to continue growing, the capacity 

of the nation’s freight transportation infrastructure has not increased at 

the same rate as demand.21 To support the development of a national 

program for freight transportation, the Policy Commission recommended 

the introduction of a federal freight fee. The Policy Commission notes that 

a freight fee, such as a per-container charge, could help fund projects that

remedy chokepoints and increase throughput. The Policy Commission also 

recommended that a portion of the customs duties, which are assessed on 

imported goods, be used to fund capacity improvements for freight 

transportation. The majority of customs duties currently collected, 

however, are deposited in the U.S. Treasury’s general fund for the general 

support of federal activities.22 Therefore, designating a portion of customs 

duties for surface transportation funding would not create a new source of 

revenue, but rather transfer funds from the general fund. 

• Congestion pricing. As we have previously reported, congestion pricing, 

or road pricing, attempts to influence driver behavior by charging fees 

 20Transportation for Tomorrow: Report of the National Surface Transportation Policy

and Revenue Study Commission, January 2008.

21GAO, Freight Transportation: National Policy and Strategies Can Help Improve Freight 

Mobility, GAO-08-287 (Washington, D.C.: Jan. 7, 2008). 

22GAO, Marine Transportation: Federal Financing and a Framework for Infrastructure

Investments, GAO-02-1033 (Washington, D.C.: Sept. 9, 2002).

Page 19 GAO-08-744T 
during peak hours to encourage users to shift to off-peak periods, use less 

congested routes, or use alternative modes. Congestion pricing can also 

help guide capital investment decisions for new transportation 

infrastructure. In particular, as congestion increases, toll rates also 

increase, and such increases (sometimes referred to as “congestion 

surcharges”) signal increased demand for physical capacity, indicating 

where capital investments to increase capacity would be most valuable. 

Furthermore, these congestion surcharges can potentially enhance 

mobility by reducing congestion and the demand for roads when the 

surcharges vary according to congestion to maintain a predetermined level 

of service. The most common form of congestion pricing in the United 

States is high-occupancy toll lanes, which are priced lanes that offer 

drivers of vehicles that do not meet the occupancy requirements the 

option of paying a toll to use lanes that are otherwise restricted for highoccupancy vehicles. 

Financing mechanisms can provide flexibility for all levels of government 

when funding additional infrastructure projects, particularly when 

traditional pay-as-you-go funding approaches, such as taxes or fees, are 

not set at high enough levels to meet demands. The federal government 

currently offers several programs to provide state and local governments 

with incentives such as bonds, loans, and credit assistance to help finance 

infrastructure. Financing mechanisms can create potential savings by 

accelerating projects to offset rapidly increasing construction costs and 

offer incentives for investment from state and local governments and from 

the private sector. However, each financing strategy is, in the final 

analysis, a form of debt that ultimately must be repaid with interest. 

Furthermore, since the federal government’s cost of capital is lower than 

that of the private sector, financing mechanisms, such as bonding, may be 

more expensive than timely, full, and up-front appropriations. Finally, if

the federal government chooses to finance infrastructure projects, policy 

makers must decide how borrowed dollars will be repaid, either by users 

or by the general population either now or in the future through increases

in taxes or reductions in other government services. 

A number of available mechanisms can be used to help finance 

infrastructure projects. Examples of these financing mechanisms follow. 

Various Financing 

Mechanisms Can Also Help 

Fund Infrastructure 

Projects 

Page 20 GAO-08-744T 
• Bonding. A number of bonding strategies—including tax-exempt bonds,23

private activity bonds, Grant Anticipation Revenue Vehicles (GARVEE) 

bonds, and Grant Anticipation Notes (GAN)—offer flexibility to bridge 

funding gaps when traditional revenue sources are scarce. For example, 

state-issued GARVEE or GAN bonds provide capital in advance of 

expected federal funds, allowing states to accelerate highway and transit

project construction and thus potentially reduce construction costs. 

Through April 2008, 20 states and two territories issued approximately $8.2

billion of GARVEE-type debt financing and 20 other states are actively 

considering bonding or seeking legislative authority to issue GARVEEs. 

Furthermore, SAFETEA-LU authorized the Secretary of Transportation to 

allocate $15 billion in tax-exempt bonds for qualified highway and surface 

freight transfer facilities. To date, $5.3 billion has been allocated for six 

projects. Several bills have been introduced in this Congress that would 

increase investment in the nation’s infrastructure through bonding. For 

example, the Build America Bonds Act would provide $50 billion in new

infrastructure funding through bonding. Although bonds can provide upfront capital for infrastructure projects, they can be more expensive for 

the federal government than traditional federal grants. This higher 

expense results, in part, because the government must compensate the 

investors for the risks they assume through an adequate return on their 

investment. 

• Loans, loan guarantees, and credit assistance. The federal 

government currently has two programs designed to offer credit 

assistance for surface transportation projects. The Transportation 

Infrastructure Finance and Innovation Act of 1998 (TIFIA) authorized the 

Federal Highway Administration to provide credit assistance, in the form 

of direct loans, loan guarantees, and standby lines of credit for projects of 

national significance. A similar program, Railroad Rehabilitation and 

Improvement Financing (RRIF), offers loans to acquire, improve, develop,

or rehabilitate intermodal or rail equipment and develop new intermodal 

railroad facilities. To date, 15 TIFIA projects have been approved totaling 

over $4.8 billion in credit assistance and the RRIF program has approved 

21 loan agreements worth more than $747 million. These programs are 

designed to leverage federal funds by attracting substantial nonfederal 

 23Tax-exempt bonds are government bonds that are used for purposes such as

infrastructure, schools, libraries, general municipal expenditures, or refunding of old debt. 

Tax-exempt means that the interest paid to bondholders is generally not included in their 

gross income for federal income tax purposes. Examples of tax-exempt bonds include

municipal bonds and private activity bonds that allow tax-exempt debt to be used by 

private entities to help finance qualified facilities. 

Page 21 GAO-08-744T 
investments in infrastructure projects. However, the federal government 

assumes a level of risk when it makes or guarantees loans for projects 

financed with private investment.24

• Revolving funds. Revolving funds can be used to dedicate capital to be

loaned for qualified infrastructure projects. In general, loaned dollars are 

repaid, recycled back into the revolving fund, and subsequently reinvested 

in the infrastructure through additional loans. Such funds exist at both the 

federal and the state levels and are used to finance various infrastructure 

projects ranging from highways to water mains. For example, two federal

funds support water infrastructure financing, the Clean Water State 

Revolving Fund for wastewater facilities, and the Drinking Water State 

Revolving Fund for drinking water facilities. Under each of these 

programs, the federal government provides seed money to states, which 

they supplement with their own funds. These funds are then loaned to 

local governments and other entities for water infrastructure construction 

and upgrades and various water quality projects. In addition, State 

Infrastructure Banks (SIBs)—capitalized with federal and state matching

funds—are state-run revolving funds that make loans and provide credit

enhancements and other forms of nongrant assistance to infrastructure 

projects. Through June 2007, 33 SIBs have made approximately 596 loan 

agreements worth about $6.2 billion to leverage other available funds for 

transportation projects across the nation.25 Furthermore, other funds—

such as a dedicated national infrastructure bank—have been proposed to 

increase investment in infrastructure with a national or regional 

significance. A challenge for revolving funds in general is maintaining their 

capitalized value. Defaults on loans and inflation can reduce the 

capitalized value of the fund—necessitating an infusion of capital needed 

to continue the fund’s operations. 

 24According to DOT, federal requirements necessitate that a credit risk premium be

provided to insure the federal government against the risk of loans defaulting. As a result,

these loans are closely examined for risk of loss and, to date, none of the TIFIA or RRIF

loans have defaulted. 

25Eight states—Arizona, Florida, Minnesota, Missouri, Ohio, South Carolina, Texas, and

Wyoming—account for 95 percent of the total loan agreements reached through fiscal year 

2006. 

Page 22 GAO-08-744T 
Another important and emerging vehicle for funding investments in 

transportation is public-private partnerships. In February 2008 we 

reported on highway public-private partnerships. These arrangements 

show promise as a viable alternative, where appropriate, to help meet 

growing and costly transportation demands and have the potential to 

provide numerous benefits to the public sector.26 The highway publicprivate partnerships created to date have resulted in advantages from the 

perspective of state and local governments, such as the construction of 

new infrastructure without using public funding, and obtaining funds by 

extracting value from existing facilities for reinvestment in transportation 

and other public programs. For example, the state of Indiana received $3.8

billion from leasing the Indiana Toll Road and used those proceeds to fund

a 10-year statewide transportation plan. Highway public-private 

partnerships potentially provide other benefits, including the transfer or 

sharing of project risks to the private sector. Such risks include those 

associated with construction costs and schedules and having sufficient 

levels of traffic and revenues to be financially viable. In addition, the 

public sector can potentially benefit from increased efficiencies in 

operations and life-cycle management, such as increased use of innovative 

technologies. Finally, through the use of tolling, highway public-private 

partnerships offer the potential to price highways to better reflect the true 

costs of operating and maintaining them and to increase mobility by 

adjusting tolls to manage demand, as well as the potential for more cost 

effective investment decisions by private investors. 

Highway public-private partnerships also entail potential costs and risks. 

Most importantly, there is no “free” money in public-private partnerships. 

While highway public-private partnerships can be used to obtain financing 

for highways, these funds are largely a new source of borrowed funds—a 

form of privately issued debt that must be repaid to private investors 

seeking a return on their investment by road users over what potentially 

could be a period of several generations. Though concession agreements 

can limit the extent to which a concessionaire can raise tolls, it is likely 

Highway PublicPrivate Partnerships 

Hold Promise, But 

Also Raise A Number 

of Issues to Consider 

 26See GAO-08-44. We focused our review on highway public-private partnerships in which

the public sector enters into a lease or concession agreement with the private sector to

provide transportation services for an extended period of time, and where the private 

sector receives some or all toll revenues over the life of the agreement. We recognize that 

the term public-private partnerships can be applied to other types of highway projects and 

other types of transportation projects (such as mass transit and freight rail projects), as 

well as projects outside the transportation sector (such as hospitals and prisons). We did 

not include any of these in the scope of our review and my testimony today cannot

necessarily be extrapolated to these or other types of public-private partnerships. 

Page 23 GAO-08-744T 
that tolls will increase on a privately operated highway to a greater extent 

than they would on a publicly operated toll road. To the extent that a 

private concessionaire gains market power by control of a road where 

there are not other viable travel alternatives, the potential also exists that 

the public could pay tolls that are higher than tolls based on the cost of the 

facilities, including a reasonable rate of return. Additionally, because large 

up-front concession payments have, in part, been used to fund immediate 

needs, it remains to be seen whether these agreements will provide longterm benefits to future generations who will potentially be paying 

progressively higher toll rates throughout the length of a concession 

agreement. Highway public-private partnerships are also potentially more 

costly than traditional public procurement—for example, there are costs

associated with the need to hire financial and legal advisors. 

In short, while highway public-private partnerships have promise, they are 

not a panacea for meeting all transportation system demands. Ultimately 

the extent to which public-private partnerships can be used as a tool to 

help meet the nation’s transportation financing challenges will depend on 

the ability of states to effectively manage and implement them. For 

example, states must have appropriate enabling legislation in place and 

the institutional ability to manage complex contractual mechanisms—

either in the form of in-house expertise or through contractors. Most 

importantly, the extent to which public-private partnerships can be used 

as a tool to help meet the nation’s transportation funding challenges will 

depend on how well states are able to weigh public interest 

considerations. The benefits of public-private partnerships are potential 

benefits—that is, they are not assured and can only be achieved by 

weighing them against potential costs and trade-offs through careful, 

comprehensive analysis to determine whether public-private partnerships 

are appropriate in specific circumstances and, if so, how best to 

implement them, and how best to protect the public interest.

In considering the numerous issues surrounding the protection of the 

public interest, we reached the following conclusions in our February 2008 

report on highway public-private partnerships: 

• First, consideration of highway public-private partnerships could benefit 

from more consistent, rigorous, systematic, and up-front analysis. While 

highway public-private partnerships are fairly new in the United States, 

and although they are meant to serve the public interest, it is difficult to be 

confident that these interests are being protected when formal 

identification and consideration of public and national interests has been 

lacking, and where limited up-front analysis of public interest issues using 

Page 24 GAO-08-744T 
established criteria has been conducted. Partnerships to date have 

identified and protected the public interest largely through terms 

contained in concession contracts, including maintenance and expansion 

requirements, protections for the workforce, and oversight and monitoring 

mechanisms to ensure that private partners fulfilled their obligations. 

While these protections are important, governments in other countries, 

including Australia and the United Kingdom, have developed systematic 

approaches to identifying and evaluating public interest before agreements 

are entered into, including the use of public interest criteria, as well as 

assessment tools, and require their use when considering private 

investments in public infrastructure. For example, a state government in 

Australia uses a public interest test to determine how the public interest 

would be affected in eight specific areas, including whether the views and 

rights of affected communities have been heard and protected and 

whether the process is sufficiently transparent. While similar tools have 

been used to some extent in the United States, their use has been more 

limited. Using up-front public interest analysis tools can also assist public 

agencies in determining the expected benefits and costs of a project and 

an appropriate means to deliver the project. Not using such tools may lead

to certain aspects of protecting public interest being overlooked. 

• Second, fresh thinking is needed on the appropriate federal approach. 

DOT has done much to promote the benefits, but comparatively little to

either assist states and localities in weighing potential costs and trade-offs, 

nor to assess how potentially important national interests might be 

protected in highway public-private partnerships. This is in many respects

a function of the design of the federal program as few mechanisms exist to 

identify potential national interests in cases where federal funds have not 

or will not be used. For example, although the Indiana Toll Road is part of 

the Interstate Highway System and most traffic on the road is interstate in 

nature, federal officials had little involvement in reviewing the terms of 

this concession agreement because minimal federal funds were used to 

construct it, and those funds were repaid to the federal government. The 

historic test of the presence of federal funding may have been relevant at a 

time when the federal government played a larger role in financing 

highways but may no longer be relevant when there are new players and 

multiple sources of financing, including potentially significant private 

money. Reexamining the federal role in transportation provides an 

opportunity to identify the emerging national public interests in highway 

public-private partnerships and determine how highway public-private 

partnerships fit in with national programs. 

On the basis of these conclusions, we recommended that Congress direct 

the Secretary of Transportation to develop and submit objective criteria 

Page 25 GAO-08-744T 
for identifying national public interests in highway public-private 

partnerships, including any additional legal authority, guidance, or 

assessment tools that would be appropriately required.27 We are pleased to 

note that in a recent testimony before the House, the Secretary indicated a

willingness to begin developing such criteria. This is no easy task, 

however. The recent Policy Commission report illustrates the challenges 

of identifying national public interests as the Policy Commission’s 

recommendations for future restrictions—including limiting allowable toll

increases and requiring concessionaires to share revenues with the public

sector—stood in sharp contrast to the dissenting views of three 

commissioners. We believe any potential federal restrictions on highway 

public-private partnerships must be carefully crafted to avoid undermining 

the potential benefits that can be achieved. Reexamining the federal role 

in transportation provides an opportunity for DOT we believe, to play a 

targeted role in ensuring that national interests are considered, as 

appropriate.

The nation’s surface transportation programs are no longer producing the 

desired results. The reliability of the nation’s surface transportation 

system is declining as congestion continues to grow. Although infusing 

surface transportation programs with additional funding, especially in light 

of the projected shortfalls in the Highway Trust Fund, could be viewed as 

a quick and direct solution, past experience shows that increased funding 

for the program does not necessarily translate into improved performance. 

Furthermore, the nation’s current fiscal outlook may make such solutions 

fiscally imprudent. In addition, before additional federal funds are 

committed to the nation’s surface transportation programs, we believe a 

fundamental reexamination of the program is warranted. Such a 

reexamination would require reviewing the results of surface 

transportation programs and testing their continued relevance and relative 

priority. Appropriate funding sources and financing mechanisms can then 

be tailored for programs that continue to be relevant in today’s 

environment and address a national interest, such as freight movement. 

Concluding 

Observations 

 27To ensure that future highway public-private partnerships meet federal requirements 

concerning the use of excess revenues for federally eligible transportation purposes, we 

also recommended that the Secretary of Transportation direct the Federal Highway 

Administrator to clarify federal-aid highway regulations on the methodology for

determining excess toll revenue, including the reasonable rate of return to private investors 

in highway public-private partnerships that involve federal investment. 

Page 26 GAO-08-744T 
Over the coming months, various options to restructure and fund surface 

transportation programs will likely be put forward by a range of 

transportation stakeholders. Ultimately, Congress and other federal 

policymakers will have to determine which option—or which combination 

of options—best meets the nation’s needs. There is no silver bullet that 

can solve the nation’s transportation challenges, and many of the options,

such as allowing greater private-sector investment in the nation’s 

infrastructure, could be politically difficult to implement both nationally 

and locally. The principles that we identified provide a framework for 

evaluating these various options. Although the principles do not prescribe 

a specific approach to restructuring and funding the programs, they do 

provide key attributes that will help ensure that a restructured surface 

transportation program addresses current challenges. We will continue to

assist the Congress as it works to evaluate the various options and develop 

a national transportation policy for the 21st century that improves the 

design of transportation programs, the delivery of services, and 

accountability for results. 

Mr. Chairman, this concludes my prepared statement. I would be pleased

to respond to any questions that you or other Members of the Committee 

might have.

For further information on this statement, please contact JayEtta Z. 

Hecker at (202) 512-2834 or heckerj@gao.gov. Individuals making key 

contributions to this testimony were Robert Ciszewski, Nikki Clowers, 

Steve Cohen, Barbara Lancaster, Matthew LaTour, and Nancy Lueke. 

GAO Contact and 

Staff 

Acknowledgement 

Page 27 GAO-08-744T 
Page 28 GAO-08-744T 

Related GAO Products 

Federal User Fees: A Design Guide, GAO-08-386SP. Washington, D.C.: May 

29, 2008. 

Physical Infrastructure: Challenges and Investment Options for the 

Nation’s Infrastructure, GAO-08-763T. Washington, D.C.: May 8, 2008. 

Surface Transportation: Restructured Federal Approach Needed for More

Focused, Performance-Based, and Sustainable Programs, GAO-08-400. 

Washington, D.C.: March 6, 2008. 

Highway Public-Private Partnerships: More Rigorous Up-front Analysis 

Could Better Secure Potential Benefits and Protect the Public Interest, 

GAO-08-44. Washington, D.C.: February 8, 2008. 

Surface Transportation: Preliminary Observations on Efforts to 

Restructure Current Program, GAO-08-478T. Washington, D.C.: February 

6, 2008. 

Congressional Directives: Selected Agencies’ Processes for Responding to 

Funding Instructions, GAO-08-209. Washington, D.C.: January 31, 2008. 

Long-Term Fiscal Outlook: Action Is Needed to Avoid the Possibility of a 

Serious Economic Disruption in the Future, GAO-08-411T. Washington,

D.C.: January 29, 2008. 

Federal-Aid Highways: Increased Reliance on Contractors Can Pose 

Oversight Challenges for Federal and State Officials, GAO-08-198. 

Washington, D.C.: January 8, 2008. 

Freight Transportation: National Policy and Strategies Can Help 

Improve Freight Mobility. GAO-08-287. Washington, D.C.: January 7, 2008.

A Call For Stewardship: Enhancing the Federal Government’s Ability to 

Address Key Fiscal and Other 21st Century Challenges. GAO-08-93SP. 

Washington, D.C.: December 17, 2007. 

Transforming Transportation Policy for the 21st Century: Highlights of 

a Forum. GAO-07-1210SP. Washington, D.C.: September 19, 2007. 

Surface Transportation: Strategies Are Available for Making Existing 

Road Infrastructure Perform Better. GAO-07-920. Washington, D.C.: July 

26, 2007. 
Intermodal Transportation: DOT Could Take Further Actions to Address

Intermodal Barriers. GAO-07-718. Washington, D.C.: June 20, 2007. 

Performance and Accountability: Transportation Challenges Facing 

Congress and the Department of Transportation. GAO-07-545T. 

Washington, D.C.: March 6, 2007. 

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 

2007. 

Highway Finance: States’ Expanding Use of Tolling Illustrates Diverse 

Challenges and Strategies. GAO-06-554. Washington, D.C.: June 28, 2006. 

Highway Congestion: Intelligent Transportation Systems’ Promise for 

Managing Congestion Falls Short, and DOT Could Better Facilitate Their 

Strategic Use. GAO-05-943. Washington, D.C.: September 14, 2005. 

21st Century Challenges: Reexamining the Base of the Federal 

Government. GAO-05-325SP. Washington, D.C.: February 1, 2005. 

Highway and Transit Investments: Options for Improving Information 

on Projects’ Benefits and Costs and Increasing Accountability for 

Results. GAO-05-172. Washington, D.C.: January 24, 2005. 

Federal-Aid Highways: Trends, Effect on State Spending, and Options 

for Future Program Design. GAO-04-802. Washington, D.C.: August 31, 

2004. 

Marine Transportation: Federal Financing and a Framework for 

Infrastructure Investments. GAO-02-1033. Washington, D.C.: September 9, 

2002. 

Page 29 GAO-08-744T (544152) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. This published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “E-mail Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, DC 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Ralph Dawn, Managing Director, dawnr@gao.gov, (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, DC 20548 

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER