United States General Accounting Office

GAO Testimony

Before the Committee on Commerce, Science, and

Transportation, U.S. Senate

For Release

on Delivery

Expected at

9:30 a.m. EDT

Wednesday

May 21, 1997

FEDERAL MANAGEMENT

Addressing Management

Issues at the Department of

Transportation

Statement of John H. Anderson, Jr.

Director, Transportation Issues,

Resources, Community, and Economic

Development Division

GAO/T-RCED/AIMD-97-172

Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss critical management issues at

the Department of Transportation (DOT) and actions the Congress, the

Department, and affected parties can take to solve them. With more than

$39 billion provided through its fiscal year 1997 appropriations act, DOT is

responsible for ensuring the safe and efficient movement of people and

goods and cost-effective investment in the nation’s transportation

infrastructure, including its highways and transit systems, airports,

airways, ports, and waterways. Our testimony today is based on reports

we have recently issued as well as ongoing work for the Congress. In

summary, we have found the following:

• Ensuring the safety and security of travelers on the nation’s airways,

highways, and waterways is of paramount importance. Although the

Department has made improvements, there are still opportunities to

reduce deaths and enhance the safety and security of the traveling public.

For example, in 1996, 380 people died in major airline accidents, the

highest number in 11 years. To enhance air safety, we have consistently

identified the need for the Federal Aviation Administration (FAA) to

improve how it targets inspections to the areas of highest risk. A recent

FAA study, completed after the crash of ValuJet Flight 592, similarly

recommended that FAA target its inspections. The Department can also

improve safety on the nation’s highways, where over 40,000 people are

killed annually. A key to reducing highway deaths is a strong partnership

among federal, state, and local governments. We have pointed out that

lives can be saved by the greater use of safety belts, and we have

suggested, for example, that the Congress encourage states to enact

primary enforcement laws allowing police officers to stop and ticket

vehicles when occupants are not using safety belts, even though no other

traffic violation has occurred.

• Many components of the nation’s transportation infrastructure need

modernization, renovation, or new investment. Major transportation

projects—for air traffic control (ATC) modernization, highways, and public

transit—have been plagued with cost overruns and schedule delays. DOT

can do more to improve the management of its aviation and surface

transportation programs to ensure that limited federal funds are

effectively and efficiently used. For example, on numerous occasions, we

have reported problems in FAA’s multibillion-dollar ATC modernization

program. FAA needs to adopt disciplined investment management and

system acquisition processes, as outlined in recent legislation and

promised under the agency’s new Acquisition Management System. FAA

Page 1 GAO/T-RCED/AIMD-97-172
also needs to change its organizational culture so that employees become

strongly committed to mission focus, accountability, coordination, and

adaptability. Similarly, improved cost management and comprehensive

finance plans are needed for large highway projects.

• Serious problems in long-term financing for FAA and Amtrak need to be

addressed. We reported that FAA faces significant future funding shortfalls.

To assist in finding solutions to FAA’s long-term financing needs, the

Congress formed the National Civil Aviation Review Commission, which is

scheduled to make its recommendations by August 1997. Deciding among

various financing alternatives for FAA will involve tradeoffs among factors

such as the efficient use of the airport and airway system, fairness to

system users, and the effect on competition. To effectively design any new

financing system, FAA needs better cost data to appropriately allocate costs

among users. However, the agency does not plan to implement its new

cost-accounting system until October 1997. With respect to Amtrak, we

recently reported that Amtrak’s financial condition is still very precarious

and that, as currently constituted and funded, Amtrak will continue to

require substantial federal financial support well into the next century.

The Congress could reassess Amtrak’s mission and direct that Amtrak or a

temporary commission make recommendations and propose options for

providing service within available funding.

• DOT’s ability to effectively address many of these management and

financial issues depends on having a supportive organizational structure

and improved management and financial data. DOT has begun to examine

what efficiencies it can realize from colocating some of its nearly 400 field

offices. However, DOT needs to consider whether reorganizing its surface

transportation modes under one administration and consolidating its field

office structure would enable it to achieve more cost-effective delivery of

services. Moreover, to support its targeting of resources such as inspectors

and its management of ATC modernization projects, and to improve its

overall financial accountability, DOT needs better financial and operating

data and a cost-accounting system. DOT’s efforts to develop more

results-oriented, performance-based management information, as required

by the Government Performance and Results Act, should provide an

incentive to develop quality data. Furthermore, in accordance with the

Chief Financial Officers Act of 1990, DOT’s Office of the Inspector General

(OIG) identified numerous problems with the Department’s financial

information. DOT faces several challenges to address its financial

management problems, including fully implementing new federal

accounting standards to effectively meet federal financial management

goals.

Page 2 GAO/T-RCED/AIMD-97-172
The organizational, information, and financial problems that DOT faces are

serious. Their solutions require a commitment from the highest levels of

the Department so that change can be manifested throughout the

Department. This commitment requires stable leadership to actively

promote change and a strong partnership between the Department and the

Congress.

Improvements

Needed in

Transportation Safety

and Security

Programs

Over the years, we have identified areas in which DOT can do more to

improve the efficiency and effectiveness of its transportation safety and

security programs. In recent reports and testimonies, we have reiterated

the need to better target limited inspection resources and improve the

reliability of safety data in programs covering aviation and marine safety.

We have also reported on the vulnerabilities in the overall aviation security

system.

Aviation Safety and

Security

The crashes of ValuJet Flight 592 and TWA Flight 800 have heightened

concerns about the safety and security of our aviation system. We have

reported that FAA can improve its oversight of aviation safety and security

by (1) targeting limited inspection resources, (2) enhancing the reliability

of safety data, (3) improving inspector training, and (4) addressing the

security vulnerabilities of our air transportation system.1

 Targeting

inspection resources is important because of the magnitude of FAA’s

inspection responsibilities—about 2,800 FAA inspectors are responsible for

inspecting about 7,500 scheduled commercial aircraft and thousands of

charter aircraft, repair stations, and aviation schools. As early as 1987, we

reported that FAA could develop criteria for targeting safety inspection

resources at high-risk areas and recommended that DOT make productivity

improvements in its safety programs. Over the years, we have suggested

that FAA focus its resources on such areas of concern as new entrant and

commuter airlines and aging aircraft. The Congress has recognized the

need for more inspectors and has appropriated additional funds to hire

and train them.

To appropriately target inspections, FAA also needs accurate, complete

safety data. We have found that FAA needs to improve its Safety

1

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 3 GAO/T-RCED/AIMD-97-172
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. I will return to data issues later in this

testimony.

Protecting the security of the traveling public is one of FAA’s most

challenging and difficult tasks. Although all modes of transportation are

vulnerable to terrorist attacks, our work has focused on improving

aviation security. Over the past several years, we have made

recommendations about vulnerabilities in the aviation system—checked

and carry-on baggage, mail, and cargo—and steps that could be

undertaken to improve security. The White House Commission on

Aviation Safety and Security (the Gore Commission), formed after the

crash of TWA Flight 800, made more than 30 security recommendations in

February 1997.

We believe that the Gore Commission’s recommendations are a good start

toward an evolutionary process of reaching agreement on goals and

objectives for improving our aviation security system. These

recommendations’ effective implementation requires the various federal

agencies, local authorities, and the aviation industry—most importantly

airlines and airports—to work together to ensure that this opportunity for

improvement is not lost. The Gore Commission recommended that the

Secretary of Transportation report annually on the status of the

Commission’s recommendations and that DOT’s and FAA’s leaders be

accountable for implementing them. In order to effectively implement the

recommendations, FAA and other affected parties should establish

consistent goals and performance measures, which can be used to report

results to the Congress. FAA also needs to assess the effectiveness of

initiatives that are being implemented to ensure that they are achieving

increased security. For example, the Congress directed that FAA purchase

and deploy security equipment for the nation’s busiest airports and gain

operational experience with this equipment. The performance of the

equipment in the field can provide FAA with information to guide future

deployment decisions and determine funding tradeoffs and priorities.

Although the Gore Commission made a good start, it left a key issue—the

financing of additional security improvements—to be resolved by the

National Civil Aviation Review Commission, which is expected to issue its

report later this year. To improve aviation security, the Congress, the

administration, and the aviation industry need to agree on who will pay for

Page 4 GAO/T-RCED/AIMD-97-172
the improvements. I will discuss FAA financing issues later in this

testimony.

Keys to successfully implementing both safety and security

recommendations are stable leadership at DOT and FAA and adequate

funding. If the question of how to fund FAA is not resolved, resources may

not be available to implement improvements. I will return to the funding

issue later in this testimony.

Highway Safety A critical aspect of improving highway safety is the achievement of strong,

effective partnerships among federal, state, and local governments. State

and local governments have the primary role in highway safety. The

federal role is basically fulfilled through the programs and initiatives of the

Federal Highway Administration (FHWA) and the National Highway Traffic

Safety Administration (NHTSA). Through these agencies’ efforts, the states

identify their problems, devise solutions, and seek federal technical

assistance and funding.

Over the past 30 years, highway safety has improved as a result of federal,

state, and local programs that have led to better designed vehicles and

highways, tougher penalties for drunk driving, and greater use of seat belts

and shoulder harnesses. Nonetheless, traffic accidents annually result in

over 40,000 deaths and over $150 billion in costs to society. Each year,

about 20,000 of the people who die in traffic accidents and another 600,000

who are injured are not using seatbelts. 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.2

 We suggested that the

Congress consider encouraging the states to enact primary enforcement

laws that allow police officers to stop and ticket a vehicle’s occupants

solely for not using their safety belts. We believe that such laws should

cover all the occupants of all the vehicles in which belts are installed. We

also recommended that the Secretary of Transportation provide special

emphasis and targeted programs to increase the use of safety belts by

occupants of light trucks. I understand, Mr. Chairman, that you and several

members of the Committee recently joined with the administration in

urging governors and state legislative leaders to enact primary

enforcement laws. This is an important effort that can save thousands of

lives each year.

2

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

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

Page 5 GAO/T-RCED/AIMD-97-172
In addition, we believe that improvements in highway safety can best be

achieved by a national transportation safety strategy that incorporates

federal-state-local partnerships and is driven by performance-based,

results-oriented goals. For example, we recently issued a report on the

inspection of Mexican commercial trucks entering the United States.3

 We

noted that from January through December 1996, federal and state

officials conducted more than 25,000 inspections of trucks from Mexico.

During that time, three of the four border states substantially increased

their capability to inspect trucks at the major border locations. As of

January 1997, approximately 100 state and federal inspectors were

assigned to border crossing locations, a significant increase over the

previous year. However, as we also pointed out, despite this commitment

of resources, without specific results-oriented objectives, it is still not

possible to measure the increase in safety improvement, if any, for

Mexican commercial trucks entering the United States.

Marine Safety Over the years, we have noted numerous problems with the Coast Guard’s

safety inspection programs. For example, we found that improvements

were needed to (1) help detect unsafe tankers, (2) improve the safety at

waterfront facilities, (3) ensure that intermodal containers carrying

hazardous material are safe, and (4) improve the safety of cruise ships.4

We also identified problems with the Coast Guard’s efforts to reduce

alcohol-related accidents in the maritime industry.5

 We believe that one

root cause of these problems may be the frequent rotations of safety

inspectors. We have reported that several organizations have concluded

that lengthening or eliminating military rotation for certain types of

activities, such as safety inspections, could help counter the undesirable

effects of frequent rotation on the continuity of operations and the ability

to build expertise and knowledge.6

 Another possible solution that has been

proposed by others is to convert such positions to civilian positions, which

could also result in building the expertise and knowledge needed.

3

Commercial Trucking: Safety Concerns About Mexican Trucks Remain Even as Inspection Activity

Increases (GAO/RCED-97-68, Apr. 9, 1997).

4

Coast Guard: Program to Inspect Intermodal Containers Carrying Hazardous Materials Can Be

Improved (GAO/RCED-94-139, Apr. 27, 1994); Coast Guard: Additional Actions Needed to Improve

Cruise Ship Safety (GAO/RCED-93-103, Mar. 31, 1993); Coast Guard: Inspection Program

Improvements Are Under Way to Help Detect Unsafe Tankers (GAO/RCED-92-23, Oct. 8, 1991); and

Coast Guard: Oil Spills Continue Despite Waterfront Facility Inspection Program (GAO/RCED-91-161,

June 17, 1991).

5

Coast Guard: Magnitude of Alcohol Problems and Related Maritime Accidents Unknown

(GAO/RCED-90-150, May 24, 1990).

6

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

Page 6 GAO/T-RCED/AIMD-97-172
Improvements

Needed in the

Management of

Aviation, Highway,

and Transit Programs

Our work has shown that DOT can do more to improve its management of

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

effectively and efficiently used and best practices applied. FAA’s

multibillion-dollar program to modernize the ATC system has been plagued

with cost overruns, schedule delays, and shortfalls in performance. In

addition, major surface transportation projects, each costing hundreds of

millions to billions of dollars, are continuing to incur cost increases,

experience delays, and have difficulties acquiring needed funding

commitments.

Air Traffic Control

Modernization

Since 1981, FAA has had under way a mission-critical capital investment

program to modernize its aging ATC system. This effort, which involves

acquiring a vast network of radars and automated data-processing,

navigation, and communications equipment, is expected to cost $34 billion

through the year 2003. Over the years, ATC modernization projects have

experienced substantial cost overruns, lengthy delays, and significant

performance shortfalls. 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 1997.7

Over the years, we have found that the problems with the modernization

program have been caused largely by technical difficulties and managerial

weaknesses. If FAA is to effectively address these problems, it needs to

follow management practices observed by leading public and private

organizations and embedded in the Paperwork Reduction Act, the

Government Performance and Results Act, the Information Technology

Management Reform Act (also called the Clinger-Cohen Act), and the

Chief Financial Officers Act. These acts emphasize (1) involving senior

executives in decisions about information management; (2) appointing

qualified senior-level chief information officers (CIO); (3) developing and

implementing systems architectures, or blueprints; (4) institutionalizing

discipline in such areas as investment management and system

development and acquisition; (5) maintaining integrated accounting and

financial management systems that permit the development and reporting

of cost information and the systematic measurement of performance; and

(6) using performance measures to assess technology’s contributions in

achieving mission results.

7

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 7 GAO/T-RCED/AIMD-97-172
Using these acts to guide our work, we have pinpointed certain solutions

to FAA’s long-standing problems with acquisitions. For example, we found

that ATC systems have long proceeded without a complete systems

architecture to guide and constrain their development and evolution,

leading to unnecessarily higher spending to buy, integrate, and maintain

hardware and software.8

 We recommended that FAA develop and enforce a

complete systems architecture and implement a management structure for

doing so that is similar to the CIO provisions of the Clinger-Cohen Act.

Furthermore, FAA’s poor cost-estimating processes and cost-accounting

practices leave it at risk of making ill-informed investment decisions on

critical multimillion- or multibillion-dollar ATC systems.9

 We recommended

that FAA institutionalize defined processes for estimating the costs of

projects and develop and implement a managerial cost-accounting

capability.

In addition, FAA’s processes for acquiring software, the most costly and

complex component of ATC systems, are ad hoc, sometimes chaotic, and

not repeatable across projects. As a result, FAA is at great risk of not

delivering promised software capabilities on time and within budget.

Furthermore, FAA lacks an effective approach for improving software

acquisition processes.10 We recommended that FAA improve its software

acquisition capabilities by institutionalizing mature acquisition processes

and reiterated our prior recommendation that a CIO organizational

structure be established for FAA.

Finally, the lack of continuity in FAA’s top management and the agency’s

organizational culture have been underlying causes of the agency’s

acquisition problems.11 During the modernization program’s first 10 years,

FAA had seven different Administrators and acting Administrators.

Furthermore, between 1982 and 1993, the average tenure for the

Administrator was less than 2 years. Although it is difficult to measure the

effect of the turnover, the instability has resulted in the agency’s

bureaucracy focusing on short-term improvements, avoiding

8

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

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

9

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

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

10Air Traffic Control: Immature Software Acquisition Processes Increase FAA System Acquisition Risks

(GAO/AIMD-97-47, Mar. 21, 1997).

11Aviation Acquisition: A Comprehensive Strategy Is Needed for Cultural Change at FAA

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

Page 8 GAO/T-RCED/AIMD-97-172
accountability, and resisting fundamental changes. Changes to the

organizational culture will address shortcomings in mission focus,

accountability, coordination, and adaptability. We have recommended that

FAA develop a comprehensive strategy for cultural change that includes

specific responsibilities and performance measures for all stakeholders

throughout FAA and the incentives needed to promote the desired

behaviors. Recent congressional action making the position of the FAA

Administrator a 5-year appointment should help overcome the problem of

instability in agency leadership.

Highway and Transit

Programs

Major highway and transit projects, each costing hundreds of millions to

billions of dollars, are continuing to incur cost increases, experience

delays, and have difficulties in acquiring needed funding commitments. We

have found, particularly for large-dollar projects, that costs have increased

and financing has become more difficult at the same time that federal,

state, and local governments must deal with the need for balanced budgets

and many competing priorities.12 Large-dollar projects can overwhelm

other projects in a state if the former require significantly more time and

money than originally estimated. Given funding constraints and competing

priorities, it is critical that these projects are well managed and their costs

are contained, and that research is focused on ways to make our

transportation system more effective and efficient.

Each year, the federal government distributes nearly $20 billion to the

states for the construction and repair of the nation’s highways. Costs have

grown on many large-dollar highway projects.13 Cost containment,

however, is not an explicit statutory or regulatory goal of FHWA’s oversight

of highway projects. As such, FHWA has done little to ensure that cost

containment is an integral part of states’ project management. We believe

that FHWA can do more to address the problem of cost growth by working

with states to improve the cost management of large-dollar highway

construction projects. Initiatives that some states are undertaking and that

others could pursue more vigorously include improving the quality of

initial cost estimates, establishing cost performance goals and strategies,

and using external review boards to approve cost increases. Although

FHWA disseminates information to state departments of transportation on a

12The surface transportation projects we discuss in this testimony all cost over $1 billion, but the

definition of a large-dollar project for an individual state or transit operator is relative to that state’s or

operator’s size and resources.

13Transportation Infrastructure: Managing the Costs of Large-Dollar Highway Projects

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

Page 9 GAO/T-RCED/AIMD-97-172
wide variety of technical and research topics, we found that the agency

does not evaluate and disseminate information to all the states on the best

cost management practices. We recommended that FHWA do so. If FHWA

were more proactive in this regard, it could provide states with strategies

that could contain project costs and promote more cost-effective project

management.

An underlying issue concerning cost containment is determining the

appropriate federal role in the federal-state partnership. Over the years,

federal involvement in state highway projects that receive federal aid has

evolved from “full” project oversight—approving design and construction

specifications, periodically inspecting construction sites, and formally

accepting the final product for all interstate construction projects—to

requiring this level of detailed oversight only on new construction or

reconstruction projects on the interstate highway system that are

estimated to cost over $1 million. As the Congress and the administration

work toward reauthorizing federal-aid highway programs in 1997, they will

ultimately decide on the federal role in large-dollar highway projects. Cost

management of these projects is just one part of the federal government’s

role. If appropriate, expanding that part could take the form of

encouraging the states to enhance their cost-management practices by

using some of the best practices some states already use. From a broader

perspective, the Congress could consider strategies to make the

federal-aid highway program more performance-driven. For example, once

an initial cost estimate is developed, establishing cost-performance goals

based on this estimate and a strategy to accomplish them would make cost

awareness and cost containment an integral part of how states manage a

project over time. Cost-performance goals and an appropriate strategy do

not mean that an initial cost estimate cannot be increased; however, any

change and reason for it should be agreed to. Such an approach has the

potential to improve accountability for cost increases and create a culture

in which cost control is part of day-to-day activities.

Funding shortfalls and the need for better financial planning affect

federally funded highway and transit projects. For example, 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, the project manager. To address such

financial problems, the Federal Transit Administration (FTA) can do more

to better ensure that large-dollar transit projects have secured firm

commitments for the funding needed to finance them. For example, we

Page 10 GAO/T-RCED/AIMD-97-172
have testified that FTA needs to utilize the results of its financial

consultant’s review of the fiscal capacity of the Los Angeles County

Metropolitan Transit Authority to finance the Los Angeles Red Line Transit

Project, the Alameda Corridor Project, and other surface transportation

projects to determine what funding shortfalls exist.

Finally, improvements are needed in DOT’s program to deploy the

Intelligent Transportation System (ITS) to ensure its success. The ITS

program has received about $1.2 billion since 1992.14 This amount

represents about 35 percent of the $3.5 billion the federal government

provided for surface transportation research programs from 1992 to 1997.

The program has not been successful in achieving widespread deployment

of an integrated ITS for several reasons. For example, the program’s

national architecture and technical standards, which define the elements

for an integrated ITS, are prerequisites for large-scale deployment.

However, the national architecture was not completed until July 1996, and

a 5-year effort to develop standards is planned for completion in 2001.

Under the reauthorization of surface transportation programs, DOT has

proposed a $600 million incentives program to facilitate the deployment of

integrated ITS systems. However, DOT needs to address a number of

obstacles, such as limited technical expertise among state and local

officials, before it can aggressively pursue a large-scale deployment

program.

Viable Long-Term

Financing Systems

Needed for FAA and

Amtrak

Critical transportation financing issues face the Congress and the

administration: meeting the long-term funding needs of FAA and Amtrak.

Each area presents formidable challenges that will stretch limited

resources and will require long-term commitments to successfully address.

FAA Financing FAA estimates that its needs will exceed projected funding levels by about

$13 billion over the next 5 years. This shortfall is driven by the safety and

security improvements that FAA needs to undertake and an effort to speed

up the ATC modernization program. Deciding how to meet FAA’s funding

needs involves not only determining what FAA’s financial requirements are

but choosing the best financing mechanism to meet those needs.

Recognizing the seriousness of these issues, the Congress directed that a

number of studies be undertaken, including (1) an independent

14The ITS program is intended to improve surface transportation’s efficiency and safety through

enhanced computer and telecommunication technologies. An example of ITS technology is ramp

meters to control the flow of traffic entering expressways.

Page 11 GAO/T-RCED/AIMD-97-172
assessment of FAA’s financial needs and costs, which was performed by

Coopers & Lybrand, and (2) an assessment by GAO of how ATC costs are

allocated between FAA and the Department of Defense (DOD). The Congress

also established the National Civil Aviation Review Commission to, among

other things, consider these studies and recommend to the Secretary of

Transportation, by August 1997, how best to finance FAA.

15

FAA receives most of its funding from excise taxes, including a 10-percent

tax on domestic airline tickets, but those taxes, which were recently

reinstated, lapse at the end of fiscal year 1997. The administration has

proposed replacing the current system with user fees, and the national

commission will be examining this option among others, including taxing

indicators of system use such as departures or fuel consumed.

We believe that determining how best to finance FAA is a complex problem

that requires careful study and good cost data. Our work has shown that

the agency does not have an adequate cost-accounting system and, as a

result, has limited capability to accumulate accurate, reliable cost data.16

FAA plans to implement a cost-accounting system in October 1997. Having

a cost-accounting system is important for budget control and performance

measurement and will become particularly important if FAA shifts to

user-fee financing. FAA must be able to determine the costs of its services

and which users cause FAA to incur those costs. In addition, FAA needs to

establish an equitable method for allocating common costs, which account

for about 55 percent of its costs. In allocating common costs, assumptions

and judgments must be made, and the goals of enhancing economic

efficiency and maintaining equitable treatment of multiple user groups

should be considered. Different user groups are likely to have diverging

opinions about what constitutes an equitable cost allocation.17

We have emphasized that the financing mechanism that is finally selected

should be relatively easy to administer and help ensure that, in the long

term, FAA has a secure funding source, the nation’s airports and airways

are used as efficiently as possible, commercial users of the system pay

their fair share, and a strong, competitive airline industry continues to

15The Secretary of Transportation is required to consult with the Secretary of the Treasury and report

to the Congress by October 1997 on the Secretary’s recommendations for funding FAA through 2002.

16Air Traffic Control: Improved Cost Information Needed to Make Billion-Dollar Modernization

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

17National Airspace System: Issues in Allocating Costs for Air Traffic Services to DOD and Other Users

(GAO/RCED-97-106, Apr. 25, 1997).

Page 12 GAO/T-RCED/AIMD-97-172
exist. Ultimately, the Congress will decide how to achieve these and other

goals.

Amtrak Financing Since 1995, we have reported that Amtrak remains in a very precarious

financial position and continues to depend heavily on federal support to

meet its operating and capital needs.18 Amtrak’s passenger rail service has

never been profitable, and through fiscal year 1997, the federal

government has provided Amtrak with over $19 billion for operating and

capital expenses. Amtrak projects that its fiscal year 1997 operating loss

could be $783 million. In response to its deteriorating financial condition,

in 1995 and 1996, Amtrak developed strategic business plans designed to

increase revenues and reduce the growth in costs. However, passenger

revenues have generally declined in recent years when adjusted for

inflation, and at the end of fiscal year 1996 the gap between operating

deficits and federal operating subsidies began to grow.

Amtrak’s goal is to eliminate the need for federal operating support by

2002. To achieve this goal, Amtrak is relying on significantly increased

federal capital assistance—about $750 million to $800 million per

year—from a dedicated funding source. However, the President’s fiscal

year 1998 budget for Amtrak’s capital subsidies is over $300 million less

than the amount envisioned in Amtrak’s plans. In addition, we have raised

concerns about whether Amtrak will continue to find it difficult to make

the route and service adjustments necessary to reduce costs and to

collectively bargain cost-saving productivity improvements with its

employees. As a result, Amtrak faces significant challenges to achieving

operating self-sufficiency. In addition, Amtrak has substantial capital

investment needs to, among other things, bring its equipment and

infrastructure into a state of good repair and introduce high-speed rail

service between New York and Boston.

Solutions to Amtrak’s financial problems are not easy and will require

congressional attention. Additional capital funding will be needed to help

Amtrak increase revenues by improving the quality of its service and to

facilitate revenue growth. In fact, successful implementation of Amtrak’s

18Transportation Financing: Challenges in Meeting Long-Term Funding Needs for FAA, Amtrak, and

the Nation’s Highways (GAO/T-RCED-97-151, May 7, 1997); Intercity Passenger Rail: The Financial

Viability of Amtrak Continues to Be Threatened (GAO/T-RCED-97-94, Mar. 13, 1997); Amtrak’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 and Business Plan, but Obstacles Remain

(GAO/T-RCED-95-227, June 16, 1995); and Intercity Passenger Rail: Financial and Operating Conditions

Threaten Amtrak’s Long-Term Viability (GAO/RCED-95-71, Feb. 6, 1995).

Page 13 GAO/T-RCED/AIMD-97-172
entire strategic business plan will be important. We believe that

Amtrak—as currently constituted and funded—will continue to need

federal operating and capital funds well into the future. If the Congress

decides to reassess the scope of Amtrak’s mission, it could direct Amtrak

or a temporary commission to make recommendations and offer options

that define and realign Amtrak’s basic route network so that efficient and

quality service could be provided within the funding available. Earlier this

year, a blue-ribbon panel was formed by the House Committee on

Transportation and Infrastructure to provide advice on how to best

develop an emergency plan to address the perilous financial condition of

Amtrak and intercity rail service. The panel is expected to offer

recommendations about Amtrak’s future no later than June 1997.

An Appropriate

Organizational

Structure and

Adequate

Management and

Financial Information

Are Needed

Keys to successfully implementing many of the solutions we have

discussed are having (1) an appropriate organizational structure and

(2) adequate financial and other management information. As we

previously discussed, other crucial elements that must be in place include

adequate funding, an organizational culture and stable leadership that

promotes the changes needed. These are probably the most difficult

solutions to implement and will require dedicated leadership in the

Department and a strong partnership with the Congress.

Organizational Structure DOT can do more to develop an appropriate organizational structure to

achieve the most cost-effective delivery of services and ensure the proper

use of federal funds. We have reported that opportunities exist to achieve

these objectives by (1) examining the appropriateness of reorganizing the

surface transportation administrations and their field office structure,

(2) making changes to FAA’s management structure and organizational

culture, and (3) identifying additional opportunities to streamline the

Coast Guard’s operations.

Surface Transportation DOT’s current organizational structure for surface transportation—separate

agencies to manage the different transportation modes—limits interaction

and coordination among the modal administrations. Two years ago, DOT

proposed reorganizing and combining its five surface transportation

operating administrations—FHWA, FTA, NHTSA, the Federal Railroad

Administration, and parts of the Maritime Administration. This

reorganization would have provided an opportunity for more cost-effective

delivery of services by consolidating administrative and executive support

Page 14 GAO/T-RCED/AIMD-97-172
functions and consolidating an extensive field office structure. DOT has

since dropped plans for this overall reorganization, and it is not currently

examining options for consolidating its field office structure for surface

transportation.

Changes to DOT’s field structure need to be driven by the role field offices

will have in carrying out the Department’s mission and the skills that will

be needed. New technologies—such as ITS—and transportation-related

issues—such as energy conservation, land use concerns, and statutory

requirements for monitoring transportation’s impact on air

quality—increasingly require staff who are skilled in fields that are both

highly technical and rapidly changing.

Even if departmental reorganization does not occur, opportunities may

still exist to streamline the field structure through colocation. Colocation

occurs when two or more offices share a common office space, thereby

potentially reaping the benefits of shared administrative services, such as

reception, printing, mailing, and copying. The existing field structure does

not generally take advantage of colocation. For example, the Denver

metropolitan area has seven DOT field offices for surface transportation.

Some of these offices are located in different buildings in downtown

Denver, while others are located outside Denver.

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 metropolitan areas. The task force initially identified 160

field offices that could be colocated into 60 locations. The results of its

initial evaluation of these offices are due this summer and will be reviewed

by the Secretary’s Management Council. In addition, we plan to examine

the organizational structure of DOT’s field offices.

Aviation FAA can do more to develop an appropriate managerial structure and

organizational culture to achieve the most cost-effective delivery of

services. This includes establishing a business-like approach for

developing and enforcing an ATC systems architecture and for

implementing and enforcing software acquisition improvements. We have

recommended that FAA establish a chief information officers management

structure similar to the department-level chief information officers

prescribed in the Clinger-Cohen Act. In addition, as we mentioned earlier,

FAA’s organizational culture has been an underlying cause of the agency’s

acquisition problems. We have recommended that FAA develop a

comprehensive strategy for cultural change. Such cultural change is

Page 15 GAO/T-RCED/AIMD-97-172
necessary before FAA can successfully overcome more specific problems

we have noted in its major acquisitions programs.

FAA also has opportunities to reduce costs by contracting out air traffic

control towers and consolidating facilities. However, these actions often

result in considerable opposition by local communities as well as FAA

employees. FAA is already contracting out level I towers—which handle

low-volume traffic—and the next logical step is to examine the feasibility

of contracting out higher-volume level II towers.

Coast Guard Over the past several years, the Coast Guard has carried out an ambitious

streamlining program that is expected to result in an estimated net savings

of $77 million a year. However, the Office of Management and Budget’s

budget targets call for the Coast Guard to find additional reductions of 4

times this amount by fiscal year 2002. Coast Guard managers have

acknowledged the enormity of this task. We have identified organizational

issues facing the Coast Guard during this period that include reconsidering

several options for streamlining—such as lengthening periods between

military assignment rotations to substantially reduce personnel transfer

costs—that were not implemented in earlier efforts. Such changes are

controversial within the Coast Guard because they involve a change in

organizational culture. Therefore, outside studies or independent

validation of the Coast Guard’s studies may be needed. Examining other

streamlining alternatives, such as changing the services provided, may also

be needed. In addition, in 1994, we validated the Coast Guard’s process to

determine which search and rescue stations are no longer needed.

However, the Coast Guard has not been able to close most of these

stations because of congressional objections. A panel much like the

Department of Defense’s Base Closure and Realignment Commission,

established by the Congress, may also be helpful to address the closing of

Coast Guard facilities. We have recently issued a report requested by the

Subcommittee on Coast Guard and Maritime Transportation, House

Committee on Transportation and Infrastructure that addresses the

challenges the Coast Guard faces in addressing budget constraints,

including some organizational issues.19

Our latest report on the Coast Guard found that, even after it has nearly

completed its streamlining efforts, it still has about 40 percent of its staff

working in support functions, headquarters, area offices, or district

offices. The Clinger-Cohen Act calls for agencies to develop measures of

efficiency and to reengineer their processes as ways of determining the

19Coast Guard: Challenges for Addressing Budget Constraints (GAO/RCED-97-110, May 14, 1997).

Page 16 GAO/T-RCED/AIMD-97-172
proper mix of support and on-line staff. Until such actions are carried out

and data become available, the Congress and Coast Guard managers are at

a disadvantage in their efforts to assess the agency’s operations and to

make data-based decisions for improving the cost efficiency of those

operations.

Information Resources To monitor the performance of U.S. transportation systems, determine

how best to allocate resources, and provide information for congressional

oversight, DOT needs timely, accurate, and complete data. Serious

problems, however, exist with DOT’s information resources and database

management. These problems, which affect financial and other program

information, adversely affect the Department’s ability to identify, develop,

and evaluate the performance of the U.S. transportation system, set

priorities for infrastructure investment needs, and evaluate the impacts of

transportation systems across modes. These problems are exacerbated by

challenges facing the Department in addressing the “Year 2000” computer

problem. Efforts by DOT to develop more results-oriented,

performance-based management information as required by the

Government Performance and Results Act should provide a good start to

improving data departmentwide. However, to improve its oversight of

programs and risk management, DOT also needs to ensure that its data are

reliable.

Financial Information An overriding concern is recurring problems that have been identified in

DOT’s financial information and reporting. DOT lacks the reliable financial

management information necessary to ensure that federal funds are

properly managed, performance is measured, and reliable financial reports

are prepared. The lack of such information has pervasive effects and limits

the ability of program managers and elected officials to make informed

decisions. For example, as mentioned earlier, decisions about financing

FAA depend in part on understanding what it costs to provide services to

various users. However, we recently reported that such basic information

is not available.20

For fiscal year 1996, DOT prepared its first departmentwide financial

statement as required by the Chief Financial Officers Act. DOT’s Office of

the Inspector General (OIG) undertook an audit of the departmentwide

balance sheet but was unable to provide an opinion about its reliability

because of inadequate records and other deficiencies. The OIG was unable

20Air Traffic Control: Improved Cost Information Needed to Make Billion-Dollar Modernization

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

Page 17 GAO/T-RCED/AIMD-97-172
to validate the value of property, equipment, operating materials, and

supplies reported to be worth $25.8 billion because of inadequacies in

supporting documentation and unreconciled discrepancies between

summary accounts and their supporting details. For example, detailed

records for certain FAA property had an unreconciled difference of over

$500 million with the corresponding general ledger total.

A strong internal control system is essential for providing DOT with a

framework for accomplishing management objectives and accurately

reporting financial information. Effective internal controls serve as checks

and balances against undesired activities and reduce the risk of waste,

fraud, and abuse. In evaluating DOT’s internal controls, the OIG identified 11

significant internal control weaknesses and 13 additional conditions

deemed important for reporting. Overall, the OIG made 72

recommendations to strengthen internal controls and improve the

accuracy of DOT’s financial reporting.

DOT faces several important challenges to addressing its financial

management problems including (1) correcting the known weaknesses so

that it can produce reliable, auditable financial statements; (2) fully

implementing new federal accounting standards to meet federal financial

management goals; (3) implementing and maintaining financial

management systems that comply substantially with federal requirements

for financial management systems, applicable federal accounting

standards, and the U.S. Government Standard General Ledger at the

transaction level; and (4) submitting fully audited financial statements that

cover all accounts and associated activities.

DOT has begun addressing some deficiencies. For example, FAA hired a

contractor in 1996 to study its policies and procedures for processing and

recording equipment purchases. The contractor made over 100

recommendations, and FAA is developing a corrective action plan to

implement the recommendations. In addition, FAA established a Cost

Accounting Systems Division in 1996. A contractor has been hired to help

implement a cost-accounting system, which is scheduled to be completed

in October 1997.

Program Information We have also identified the need for better management data in many of

DOT’s programs. For example, for years we have reported on shortcomings

in FAA’s aviation safety inspection program, including the inadequacy of

aviation safety databases. In 1991, FAA began developing the Safety

Performance Analysis System (SPAS), which draws on information from a

Page 18 GAO/T-RCED/AIMD-97-172
number of safety-related databases to better establish priorities for FAA’s

inspections. However, SPAS is not expected to be fully operational until

1999. Furthermore, some databases that may provide source data for SPAS

contain incomplete, inconsistent, and inaccurate data. FAA has recently

developed and is implementing a strategy to improve data quality to

ensure that these source databases provide reliable information. The

success of this strategy is critical to SPAS’ becoming an effective tool for

targeting resources to high-risk activities.

In addition, we have frequently found that the Coast Guard has not had an

adequate base of information about its programs and activities. For

example, in 1990, we reported that the federal government had lost

millions of dollars because the Coast Guard did not calculate accurate spill

costs from the Exxon Valdez oil spill. In 1991, we reported that the Coast

Guard, while responsible for responding to spills from pipelines, did not

know the locations of the pipelines. To address these problems, we

recommended that the Coast Guard enhance its strategic planning process

to improve its information resources management. The Coast Guard

recognizes its information problems and is in the process of implementing

many new information systems.

Year 2000 Issues DOT faces challenges in addressing data issues such as those we mentioned

and, at the same time, ensuring that it addresses the upcoming “Year 2000”

computer problem. DOT’s Year-2000 program is probably the largest

computer system conversion effort ever undertaken by the Department

and its modal administrations. First-class program management and the

disciplined and coordinated application of scarce resources are required

to achieve the departmentwide system conversion that must be completed

by a fixed date. The massive year-2000 program is a management

challenge.

To help federal agencies achieve Year-2000 compliance, we developed a

guide that provides them with a framework and checklist of the Year-2000

issue.21 The guide is divided into five phases—awareness, assessment,

renovation, validation, and implementation—supported by program and

project management activities. We have used the guide’s checklist to

describe DOT’s activities and progress in the first two phases—awareness

and assessment. Although DOT considers the awareness campaign about

90-percent complete, we believe that DOT has not completed some of the

key tasks in that phase. For example, DOT has not (1) performed a

high-level analysis of the potential impact of the Year-2000 problem on its

21Year 2000 Computing Crisis: An Assessment Guide, Exposure Draft (GAO/AIMD-10.1.14, Feb. 1997).

Page 19 GAO/T-RCED/AIMD-97-172
core business areas, (2) developed or documented a Year-2000 strategy, or

(3) appointed an executive management council to guide the Department’s

Year-2000 conversion program.

During the assessment phase, DOT must work with its administrations to

identify (1) systems that are mission-critical or support important

functions and must be converted or replaced by the deadline and

(2) systems that support marginal functions and may, therefore, be

converted or replaced later. Although DOT has a partial inventory of its

systems, the information on its inventory may not be very useful for

establishing system conversion priorities. For example, FAA’s Air Traffic

Control Systems and Travel Voucher Tracking System are both defined as

mission-critical. Moreover, the inventory does not identify internal or

external interfaces or show which systems are to be renovated, replaced,

or eliminated.

We believe that as DOT deals with the Year-2000 issue, it is essential that

top-level management be fully aware of the problem and its potential

impact on DOT and those who use its services. It is the responsibility of the

chief information officers to provide leadership in defining and explaining

the importance of achieving Year-2000 compliance, selecting the overall

approach for structuring DOT’s program, mobilizing needed resources, and

assessing the adequacy of the existing information resources management

infrastructure to adequately support year-2000 activities.

Government Performance and

Results Act

The Government Performance and Results Act is intended to address basic

management problems and deficiencies that have been typical throughout

the federal government. If properly implemented, the act could be a useful

tool for solving many of the problems we have identified at DOT. The act

requires agencies to clarify their missions, set strategic goals, and measure

performance toward those goals with reliable, auditable information that

the Congress can use to hold them accountable for results rather than

activities or processes. DOT could use this framework, for example, to

reach agreement on the goals and objectives of our aviation security

system, to develop performance goals and data for safety inspections, or

to clarify mission needs for its ATC modernization program.

DOT, like other federal agencies, faces challenges in developing good

management, financial, and program information, which are key to

successfully implementing both the act and many of our

recommendations. Without such information, accountability for achieving

results-oriented goals can never be ensured. It is up to the Congress and

Page 20 GAO/T-RCED/AIMD-97-172
committees such as yours to make the act come alive by working with

agencies and holding them accountable for its implementation.

Conclusions Many of the problems we have discussed are not new issues to either the

Department or the Congress. Adequately addressing many of these

problems, however, will take concerted action by the Congress, senior

management at the Department, and program managers and staff. The

Congress has a key role to play in helping set transportation priorities and

providing appropriate funding. The Department can do more to make clear

its commitment to those priorities and the organizational culture needed

to implement them. Program managers and staff need to constantly strive

to achieve the most cost-effective delivery of services. Congressional

oversight, such as that provided by this hearing, is also key.

Mr. Chairman, that concludes our prepared statement. We would be happy

to respond to any question that you or other Members might have.

(340647) Page 21 GAO/T-RCED/AIMD-97-172
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