Department of Homeland Security 

Office of Inspector General 

Potentially High Costs and Insufficient 


Grant Funds Pose a Challenge 


to REAL ID Implementation
 

OIG-09-36 March 2009 
 

 

Office of Inspector General 

U.S. Department of Homeland Security

Washington, DC 20528 

March 5, 2009 

Preface 

The Department of Homeland Security Office of Inspector General was established by 

the Homeland Security Act of 2002 (Public Law 107-296) by amendment to the Inspector 

General Act of 1978. This is one of a series of audit, inspection, and special reports 

prepared as part of our oversight responsibilities to promote economy, efficiency, and 

effectiveness within the department. 

This report addresses the strengths and weaknesses of the REAL ID program. It is based 

on interviews with employees and officials of relevant agencies and institutions, direct 

observations, and a review of applicable documents. 

The recommendations herein have been developed to the best knowledge available to our 

office, and have been discussed in draft with those responsible for implementation. We 

trust this report will result in more effective, efficient, and economical operations. We 

express our appreciation to all who contributed to the preparation of this report. 

Richard L. Skinner 


Inspector General 

 

Table of Contents/Abbreviations 

Executive Summary.............................................................................................................1
 

Background..........................................................................................................................2 

Results of Audit .................................................................................................................11 

 States Reported REAL ID Implementation Remains Cost Prohibitive ........................11 

 States Reported That Grants Are Insufficient to Mitigate REAL ID Implementation 

Costs.............................................................................................................................16 

States May Not Meet Material Compliance Deadline ..................................................20 

Recommendations.........................................................................................................21
 

Management Comments and OIG Analysis ......................................................................22 

Appendices 

Appendix A: Scope and Methodology..........................................................................24 

Appendix B: Management Comments to the Draft Report ..........................................26 

Appendix C: Major Contributors to this Report ...........................................................32 

Appendix D: Report Distribution..................................................................................33 

Abbreviations 

AAMVA American Association of Motor Vehicle Administrators 

DHS Department of Homeland Security 

DMV Department of Motor Vehicles 

FEMA Federal Emergency Management Agency 

FY Fiscal Year 

GPD Grants Program Directorate 

NPRM Notice of Proposed Rule Making 

SAVE Systematic Alien Verification for Entitlements 
 

Table of Contents/Abbreviations 

Figures 

Figure 1 DHS REAL ID Program Components.....................................................4 

Figure 2 REAL ID Extended Compliance Milestones and Deadlines ...................8 

Figure 3 Material Compliance Checklist for States ...............................................9 

Figure 4 Final Rule’s Effect on Major Cost Concerns........................................ 10 

Figure 5 State Responses to REAL ID Costs...................................................... 11 

Figure 6 Verification Systems Requirements...................................................... 15 

Figure 7 REAL ID Grants Awarded Compared to Grants Requested ................ 17 

Figure 8 State Responses to REAL ID Material Compliance ............................. 20 

Figure 9 State REAL ID Legislative Actions...................................................... 21 
 

OIG 

Department of Homeland Security 

Office of Inspector General 

Executive Summary 

In 2005, Congress passed the REAL ID Act to strengthen the 

security of state-issued driver’s licenses and identification cards in 

response to the use of fraudulent identification documents by the 

September 11, 2001, terrorists. The Act set minimum standards 

for identification documents accepted by federal agencies for 

official purposes such as entering federal buildings, visiting 

nuclear facilities, and boarding airplanes. The Department of 

Homeland Security (DHS) was tasked with implementing the Act 

and assisting states with becoming REAL ID compliant. We 

reviewed DHS’ REAL ID program to assess the financial impact 

on 19 states’ ability to comply with the law and determine whether 

grants sufficiently mitigated costs. 

Potentially high costs pose a significant challenge to states in their 

efforts to implement REAL ID. Specifically, state officials 

considered REAL ID implementation costs prohibitive because of 

requirements such as the reenrollment of all current driver’s 

license and identification card holders and the new verification 

processes. Further, state officials in 17 of the 19 states we 

contacted indicated they needed more timely guidance from DHS 

to estimate the full cost of implementing REAL ID. State officials 

also said that REAL ID grants did not sufficiently mitigate the 

costs, and they viewed communication of grant information by 

DHS as ineffective. 

We recommend that the Assistant Secretary for Policy: 

•	 Ensure stakeholders consisting of federal, state, and 

private representatives help develop and disseminate 

necessary guidance related to the REAL ID card 

marker, facility security, verification systems, and best 

practices that would assist stakeholders in 

implementing REAL ID. 

•	 Establish a communications plan to ensure that 

stakeholders receive the necessary REAL ID program 

and grant guidance. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Background 

Following the terrorist attacks on September 11, 2001, Congress 

and the President established the 9/11 Commission to determine 

how the events transpired and how the United States could prevent 

future occurrences.1 The Commission reported that the terrorists 

used false identification documents.2 The hijackers had 30 stateissued forms of identification; and at least seven of these 

documents were obtained fraudulently. These identification 

documents were used to rent cars and apartments, open bank 

accounts, and board planes. 

In its report, the Commission recommended that the federal 

government set standards for the issuance of birth certificates and 

sources of identification such as driver’s licenses. The 

Commission noted that identification document fraud is no longer 

a problem of mere theft. Further, at many entry points to 

vulnerable facilities, including gates for boarding aircraft, sources 

of identification are the last opportunity to ensure that people are 

who they say they are and to screen for terrorists. 

On May 11, 2005, the President signed the REAL ID Act of 2005.

 3 

The REAL ID Act (hereafter referred to as “the Act”) was intended 

to improve security for driver’s licenses and state identification 

cards, thereby making it more difficult for individuals to obtain 

false identification documents. The Act states that, beginning 3 

years after the date of its enactment, on May 11, 2008, a federal 

agency may not accept, for any official purpose, a driver’s license 

or identification card issued by a state unless the state meets the 

Act’s requirements. Official purposes include activities such as 

accessing federal facilities, entering nuclear power plants, and 

boarding federally regulated commercial aircraft. 

The Act established specific minimum requirements that states 

must include on driver’s licenses and identification cards for them 

to be accepted for official purposes.4

 Specifically, the driver’s 

licenses and identification cards must include the individual’s full 

legal name, date of birth, driver’s license or identification card 

number, gender, address of principal residence, and signature, as 

well as a digital photograph. The driver’s licenses and 

identification cards also must have physical security features 

1

The National Commission on Terrorist Attacks Upon the United States, Public Law 107-306, November
 

27, 2002.

2 Final Report of the National Commission on Terrorist Attacks Upon the United States, July 22, 2004. 3 Public Law 109-13, Division B, REAL ID Act of 2005, Section 202, May 11, 2005. 4

 The requirements of the Act only apply to those states that choose to comply. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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designed to prevent tampering, counterfeiting, and duplication, as 

well as a machine-readable technology with defined minimum 

elements. 

The Act requires states to adopt minimum standards when issuing 

driver’s licenses and identification cards that are acceptable for 

official purposes such as entering federal buildings, visiting 

nuclear facilities, and boarding airplanes. For example, states must 

require that license and card applicants present certain 

documentation, including documents showing name, date of birth, 

proof of Social Security number, address of principal residence, 

and that the applicant is lawfully present in the United States. 

States must establish procedures to verify that the documents are 

authentic and not forged or fraudulent. For example, states must 

verify the lawful status of an applicant through the Systematic 

Alien Verification for Entitlements (SAVE) system, and confirm 

the validity of social security numbers with the Social Security 

Administration. In addition to verifying the authenticity of source 

documents, states must also confirm that individuals are not 

holders of a separate REAL ID license in another state. 

The Act further requires states to ensure the physical security of 

facilities where driver’s licenses and identification cards are 

produced, as well as the security of the material used to produce 

them. 

Individuals who meet the requirements of the Act will receive a 

REAL ID-compliant driver’s license or identification card. 

Individuals who do not satisfy the requirements can still receive a 

state-issued identification card; however, it will not be acceptable 

to federal agencies for official purposes. The noncompliant 

identification card must be clearly marked to alert federal agencies 

that it cannot be used for official purposes. 

The requirements for implementation of the Act pose substantial 

economic implications for each of the 56 jurisdictions5

 of the 

United States, which together have more than 240 million 

applicants for and holders of a state driver’s license or 

identification card. In recognition of the economic implications, 

between 2005 and 2008, Congress made approximately $90 

million available in grant funding for REAL ID implementation. 

5

 Jurisdictions are defined as all 50 states, territories of the United States, and the District of Columbia, and 

will hereafter be referred to as “states” within this report. 

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DHS’ Role in Implementing the REAL ID Act of 2005 

The Act authorizes DHS, in consultation with the states and the 

Department of Transportation, to issue regulations and set 

standards to implement the requirements of the Act. Additionally, 

DHS is responsible for determining whether a state is meeting the 

requirements of the Act based on state certifications to the 

Secretary. DHS is also authorized to issue grants to states to assist 

them in conforming to the Act’s standards. 

After the passage of the Act in 2005, DHS conducted a series of 

REAL ID working group meetings with DHS components and 

other government agencies.

6 In late 2006, DHS established the 

REAL ID Program Office within the Office of Policy’s Screening 

Coordination Office to manage the implementation of the Act. 

The Federal Emergency Management Agency’s Grants Program 

Directorate (FEMA GPD) works with the REAL ID Program 

Office to administer grants to states to assist with REAL ID 

implementation costs. Figure 1 provides a depiction of DHS 

REAL ID components. 

Figure 1: DHS REAL ID Program Components 

The mission of the REAL ID Program Office is the timely, costeffective, and successful implementation of the Act. It established 

the following objectives to meet that mission: 

6

 The REAL ID working group meetings were attended by various DHS component officials and 

representatives from other government agencies such as the Department of Transportation, Department of 

State, Department of Justice, Social Security Administration, and the Department of Health and Human 

Services. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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•	 Facilitate the process to implement the requirements of the Act; 

•	 Evaluate implementation solutions to reduce costs and help 

states expedite compliance with the Act; 

•	 Issue guidelines for state submission of certifications of 

compliance; 

•	 Assist states in completing certifications, monitor state 

progress toward compliance, and conduct audits of state 

compliance; and 

•	 Support initiatives related to REAL ID implementation, such as 

technology and business process upgrades, through grants. 

FEMA GPD is responsible for administering the REAL ID grant 

process, including soliciting awards, and developing guidance for 

state submissions of grant applications. 

REAL ID National Impact Analysis 

To determine the fiscal and operational impact of the Act, in 2006, 

the American Association of Motor Vehicle Administrators 

(AAMVA), in conjunction with the National Governors 

Association and the National Conference of State Legislators, 

conducted a nationwide survey of state motor vehicle agencies 

(DMV). The results of this survey indicated that implementation 

of the Act would cost states more than $11 billion over five years.7 

The report identified reenrollment, new verification processes, and 

card design requirements as the three most costly requirements. 

Reenrollment 

AAMVA cost estimates indicated that states would spend $8.48 

billion over five years to reenroll all 245 million driver’s license 

and identification card holders in the United States. States 

anticipated that they would need to hire additional employees; 

increase service hours; expand facilities; purchase additional 

equipment; implement public education campaigns; and handle 

increased calls, complaints, and return visits. 

New Verification Processes 

Verifying the validity of an applicant’s identification documents 

with the appropriate issuing agency, storing verification 

information, capturing images of all applicants, and other related 

processes would cost states an estimated $1.42 billion over five 

7 The Real ID Act: National Impact Analysis, September 2006, Presented by the National Governors 

Association, the National Conference of State Legislatures, and the American Association of Motor 

Vehicle Administrators. This survey will hereafter be referred to as developed by AAMVA. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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years. Compliance with the Act requires states to independently 

verify each identification document with its issuing agency through 

the use of five national electronic systems to facilitate verification. 

These systems will provide for data verification and state-to-state 

data exchanges to validate Social Security numbers, establish 

lawful status of REAL ID card applicants, and ensure that an 

applicant does not hold another REAL ID card or driver’s license 

in another state. States would need to adapt their systems for the 

new requirements and establish connections with verification 

systems once they are made available. These estimates did not 

include transaction fees that may be required for states to access 

the verification systems. 

Card Design Requirements 

Assuming that a uniform security configuration would be 

prescribed, states estimated that they would spend $1.1 billion over 

a five-year period to incorporate security features into driver’s 

licenses and identification cards to prevent tampering, 

counterfeiting, or duplication. 

DHS Notice of Proposed Rulemaking 

On March 3, 2007, DHS published its proposed requirements to 

meet the minimum standards of the Act in a Notice of Proposed 

Rulemaking (Proposed Rule). The Proposed Rule included 

requirements for applicant documentation, documentation 

verification, the information to be included on driver’s licenses and 

identification cards, security features on the cards, facility security 

plans, DMV employee background checks, the state certification 

process, and database connectivity. 

Under the Proposed Rule, as of May 11, 2008, federal agencies 

could not accept driver’s licenses or identification cards for official 

purposes from individuals in states that were not REAL ID 

compliant. States that intended to comply with REAL ID would 

have a five-year period, or until May 11, 2013, to replace all 

existing driver’s licenses and identification cards if those 

documents were to be used for official purposes. 

The Proposed Rule allowed states to request a one-year extension 

of the compliance date from DHS. Extension requests were to be 

submitted no later than March 31, 2008, and the extension would 

terminate December 31, 2009. DHS received more than 21,000 

comments from stakeholders, including state and local DMV 

representatives along with private industry organizations. 

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Stakeholders expressed concern that the costs of the REAL ID 

program would be “huge,” “exorbitant,” “significant,” or 

“excessive.” 

The Final Rule: DHS’ Efforts to Reduce State Costs 

The Final Rule, published by DHS on January 29, 2008, included 

several major changes to address the concerns raised in the 

comments to the Proposed Rule, as well as in the AAMVA 

National Impact Analysis. Specifically, DHS extended 

reenrollment periods, provided an additional extension of the 

compliance deadline to address concerns relating to the new 

verification processes, and relaxed card design requirements. 

Extended Reenrollment Periods 

To reduce the operational burden on states, the Final Rule 

instituted a two-phased reenrollment schedule based on age. States 

will have until December 1, 2014, to reenroll individuals born after 

December 1, 1964. States will have an additional three years, until 

December 1, 2017, to reenroll individuals born on or before 

December 1, 1964. In addition, states will be allowed to reissue a 

driver’s license or identification card without requiring an in 

person visit, if there has not been a significant change in the 

applicant’s information since the prior issuance. 

Extended Compliance Deadlines 

In response to state comments that the lack of a centralized 

verification system would make it impossible to comply with 

statutory requirements by December 31, 2009, the date the first 

extension terminates, the Final Rule allows states to obtain a 

second extension to May 11, 2011. Figure 2 shows the extended 

deadlines imposed by the Final Rule. 

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Figure 2: REAL ID Extended Compliance Milestones and Deadlines 

Only states that demonstrate they have achieved “material 

compliance” with the Act will be granted the additional extension.8 

DHS developed a checklist containing 18 milestones that are 

mandatory requirements under the Act, and must be met to achieve 

material compliance. These milestones are listed in Figure 3. 

8 Material compliance is an interim status that certifies a state is taking measurable steps toward becoming 

REAL ID compliant. This status differs from full compliance in that states cannot issue REAL ID 

compliant licenses until they have been certified by DHS as having achieved full compliance. 

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Material Compliance Checklist

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Material Compliance Checklist 

1. Subject each applicant to a mandatory facial image 

capture and retain such image even if a driver 

license (DL) or identification card (ID) is not issued. 

2. Have each applicant sign a declaration under penalty 

of perjury that the information presented is true and 

correct, and the State must retain this declaration. 

3. Require an individual to present at least one of the 

source documents listed in subsections (i) through 

(x) when establishing identity. 

4. Require documentation of: Date of birth; Social 

Security Number; Address of principal residence; 

Evidence of lawful status. 

5. Have a documented exceptions process that meets 

the requirements established in § 37.11(h)(1)-(3)(If 

States choose to have such a process). 

6. Make reasonable efforts to ensure that the applicant 

does not have more than one DL or ID already 

issued by that State under a different identity. 

7. Verify lawful status through SAVE or another method 

approved by DHS. 

8. Verify Social Security account numbers with the 

Social Security Administration or another method 

approved by DHS. 

9. Issue DL and IDs that contain Level 1, 2 and 3 

integrated security features. 

10. Surface of cards include the following printed 

information in Latin alpha-numeric characters: Full 

legal name; Date of birth; Gender; Unique DL/ID 

number; Full facial digital photograph; Address of 

principal residence [with exceptions]; Signature 

[with exceptions]; Date of transaction. 

11. Commit to marking fully compliant DL and IDs with 

a DHS-approved security marking. 

12. Issue temporary or limited-term licenses to all 

individuals with temporary lawful status and tie 

license validity to the end of lawful status. 

13. Have a documented security plan for DMV 

operations in accordance with the requirements 

set forth in § 37.41. 

14. Have protections in place to ensure the security of 

personally identifiable information. 

15. Require all employees handling source 

documents or issuing DL or IDs to attend and 

complete the AAMVA approved (or equivalent) 

fraudulent document recognition training and 

security awareness training. 

16. Conduct name-based and fingerprint-based 

criminal history and employment eligibility checks 

on employees in covered positions or an 

alternative procedure approved by DHS. 

17. Commit to be in full compliance with Subparts A 

through D on or before May 11, 2011. 

18. Clearly state on the face of non-compliant DLs or 

IDs that the card is not acceptable for official 

purposes, except for licenses renewed or reissued 

under § 37.27. 

Figure 3: Material Compliance Checklist for States 

States must certify to DHS that they have met these milestones to 

obtain the extension. The extension expires on May 11, 2011, at 

which time states must begin issuing fully compliant REAL ID 

driver’s licenses and identification cards. 

Relaxed Card Design Requirements 

In response to comments that the physical security features for 

licenses and identification cards were an undue burden on states, 

DHS removed the proposed card standards. Under the Final Rule, 

states must conduct a review of their respective card designs and 

submit a report to DHS as part of its certification package that 

indicates the ability of the designs to resist compromise and 

document fraud attempts. 

Driver’s licenses and identification cards that are not compliant 

with REAL ID must clearly state that they will not be accepted by 

any federal agency for identification or any other official purpose. 

The Final Rule leaves the types of marking and unique coloring to 

the states’ discretion, subject to DHS’ approval. The Final Rule 

requires that REAL ID-compliant driver’s licenses and 

identification cards bear a DHS-approved security marking. 

According to DHS, these and other changes to the proposed 

requirements significantly reduced the states’ costs to implement 

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the Act. Figure 4 provides the main cost concerns identified in the 

AAMVA National Impact Analysis and the Final Rule’s effect on 

those cost concerns. 

Figure 4: Final Rule’s Effect on Major Cost Concerns 

In January 2008, DHS conducted a Regulatory Evaluation of 

REAL ID to weigh the costs and benefits of the Act. The results of 

the evaluation indicated that the changes in the standards had 

reduced the costs to states by 73%. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Results of Audit 

States Reported REAL ID Implementation Remains Cost Prohibitive 

Although the Final Rule reduced expected state costs for 

complying with the Act, states continue to consider the costs 

prohibitive. In addition, DHS did not provide timely guidance or 

information on implementing several potentially costly 

requirements because it did not apply an effective communication 

strategy for developing and disseminating guidance to 

stakeholders. As a result, states could not accurately estimate the 

full costs of implementing REAL ID. 

States Surveyed Were Concerned About Cost 

Officials in several states told us that changes in the requirements 

from the Proposed Rule to the Final Rule had, in fact, reduced their 

expected costs for complying with the Act. For example, one state 

estimated it would cost $185 million to implement the 

requirements under the Proposed Rule; estimated costs under the 

Final Rule are between $65 million to $80 million. Another state’s 

estimated costs dropped from $97 million to $47 million. 

Despite the reduction in estimated costs, states continue to consider 

the overall cost of implementing REAL ID requirements 

prohibitive. Specifically, 13 of the 19 states we surveyed indicated 

that implementing REAL ID would be cost prohibitive. Five states 

were uncertain or unable to accurately estimate their costs. Only 

one of 19 states surveyed indicated that the cost of REAL ID 

would not be prohibitive because it had already taken measures to 

improve driver’s license security that positioned it to meet the 

requirements of the Act. These results are illustrated in Figure 5. 

Figure 5: State Responses to REAL ID Costs 

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Officials from many of the states surveyed told us that reenrolling 

all driver’s license and identification card holders, and 

implementing the required verification processes, would be 

particularly costly. 

Reenrollment 

Several states reported that the costs associated with reenrolling 

current driver’s license and identification card holders remain a 

concern. Specifically, the reenrollment of residents will increase 

the number of DMV customers and the time it takes to provide 

service to them. For example, one state anticipates that as many as 

100,000 residents will visit its DMVs per day, which will require 

about 3,000 DMV employees. A DMV in another state already 

serves 1,200 customers each day. The state believes that REAL ID 

will require a substantial increase in the amount of time to serve 

each customer, which will lead to increased waiting times. 

Another state expressed concern that current card holders and new 

applicants would bring the wrong documents with them, causing 

applicants to make return visits. 

Many DMVs in the states we surveyed are ill-equipped to handle 

the expected surge. To accommodate increased customers, and the 

new business processes, DMV officials said they would need to 

hire and train more employees. State officials also said they might 

need to upgrade or expand existing DMV facilities. These 

reenrollment challenges are expected to be particularly 

burdensome for over-the-counter issuance states, which have a 

large number of small facilities that issue driver’s licenses and 

identification cards. 

Officials in one state said the cost of reenrollment was especially 

challenging because it had already established processes consistent 

with REAL ID requirements. Although this state’s DMV is nearly 

90% compliant with REAL ID requirements, DHS has stated that 

no state could be materially compliant prior to the enactment of the 

Act. Therefore, even though current license and card holders 

presented original source documents at the time of application and 

those documents were verified, the documents must be recertified 

under the Act. This redundancy accounts for most of this state’s 

$150 million cost estimate for REAL ID compliance. 

Verification Processes 

States also remain concerned about the costs associated with the 

new verification processes. For example, the requirement to take a 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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digital photo at the beginning of the license application process 

will require additional equipment and facility upgrades to counter 

space. Also, one state official said that its current system captures 

only 25 characters for applicant names. As a result, this state 

needs to upgrade its system to capture around 125 characters for an 

applicant’s full legal name.9 

In addition, states are concerned about the fees for using the 

systems required to verify applicants’ information. For example, 

the cost for using one existing system, SAVE, was increased 

recently. One state had been paying 5 cents for each transaction to 

verify the lawful status of applicants through the SAVE system. 

DHS sent a letter in July 2008 notifying this state that the fee had 

been increased to 50 cents per transaction. The state received the 

notification after the end of its legislative session, making it too 

late to request funds to cover the cost increase. 

REAL ID Guidance to States Not Timely 

The Final Rule states that DHS will work to develop best practices 

to guide future verification system design, development and 

operation, as well as privacy and security best practices, including 

security plans for DMV facilities. One of the primary objectives of 

the REAL ID Program Office is to work closely with states to 

facilitate compliance with REAL ID requirements by issuing 

guidelines or best practices. 

Officials from several states reported that the REAL ID Program 

Office has communicated effectively with states in general, and 

that communication has improved over time. For example, DHS 

attended at least four AAMVA regional conferences during which 

it provided information on the REAL ID program. However, states 

reported that they have not received sufficient or timely guidance 

for critical compliance requirements, which may result in 

significant costs to their states. Although many of the 

requirements that impact the cost to states were defined or 

addressed in the Final Rule, DHS did not provide timely and 

specific guidance on how REAL ID-compliant driver’s licenses 

and identification cards must be marked, best practices for the 

physical security of facilities, or information on the systems that 

will be used for verifying applicant documentation. 

9

 The 125 character storage capacity is an AAMVA standard endorsed by DHS, not a DHS requirement. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Card Marker 

To achieve material compliance by December 31, 2009, states are 

required to mark REAL ID-compliant licenses with the official 

marker approved by DHS. The details of the marker will affect the 

amount that states pay the card vendors who produce the licenses. 

Small changes can have a large impact for states with large driver 

populations. For example, one state said that an increase of 25 

cents per card for the marker would cost $7 million. 

Consequently, states needed to know what the marker would be to 

request sufficient funds in their DMV budgets. Officials from 

some states said that they could not wait much longer, or would 

have to move ahead with card design before DHS reached a final 

decision to meet the material compliance deadline. If this 

occurred, making the necessary changes later would lead to 

additional costs. 

In February 2008, DHS announced at an AAMVA briefing that a 

final determination on the marker would be released to states by 

mid March 2008. However, as of September 2008, officials from 

the states we interviewed had not received this guidance. 

Facility Security 

DHS did not provide states with timely guidance on physical 

security standards. The Final Rule requires that states provide a 

physical security plan to DHS for approval. States were concerned 

that if their proposals were not in line with DHS expectations, it 

would be too late to make the necessary changes before the 

material compliance deadline. States requested guidance from 

DHS to ensure their physical security plans would meet DHS 

expectations. At an AAMVA briefing in February 2008, DHS 

indicated that guidance would be forthcoming in three to six 

months. However, representatives from the states we surveyed 

said that they have yet to receive this guidance. 

Verification Systems 

DMV officials from several of the states we surveyed reported that 

they have not received sufficient information on the verification 

systems to understand the associated costs. To achieve full 

compliance with REAL ID standards by 2011, states must connect 

with electronic verification systems to verify identification 

documents. Several of the systems needed do not yet exist. Figure 

6 shows the verification systems that currently exist that states 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

Page 14 
 

must start using to achieve material compliance, as well as the 

systems required for full compliance that do not yet exist. 

Figure 6: Verification Systems Requirements 

DHS has initiated a verification systems design project to define 

requirements for a “hub-based” network and messaging systems to 

support the requirements of REAL ID. States are concerned that 

the costs of upgrading their systems to connect and verify 

information with these systems will be high. States are also 

concerned that there may be high transaction costs to use the new 

verification systems. One state expects that these fees will add $4 

to $5 to the cost of each license. This would cost this state, which 

has about 4.6 million drivers, as much as $23 million in addition to 

what it plans to spend on REAL ID implementation. 

In February 2008, DHS had indicated to REAL ID stakeholders 

that verification transaction cost information would be 

forthcoming. Although development costs vary by state, DHS has 

been working with AAMVA and the Verification System Working 

Group to provide detailed information on ongoing costs for system 

access.10 However, as of September 2008, officials from many of 

the states we contacted had not yet received this guidance. 

10 The Verification System Working Group, consisting of 14 states, was established in early 2006 to 

develop recommendations for the REAL ID verification system. 

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REAL ID Stakeholder Participation 

Although DHS developed an implementation plan for the REAL 

ID program, the plan did not include a strategy for developing and 

disseminating timely guidance and best practices to stakeholders. 

REAL ID program officials suggested an approach to providing 

timely guidance to stakeholders during an AAMVA conference. 

Specifically, the program officials discussed the possibility of 

creating a steering group made up of experienced DMV 

representatives. This group would field ideas from stakeholders to 

help develop necessary guidance to assist states in implementing 

REAL ID. 

Without the necessary guidance from DHS, states cannot develop 

cost estimates to accurately assess REAL ID implementation costs 

or take the steps to budget for the necessary funding. Owing to the 

lack of guidance on these requirements alone, officials in 17 of the 

19 states we contacted stated that they cannot estimate the full 

costs of REAL ID compliance. 

States Reported That Grants Are Insufficient to Mitigate REAL ID 

Implementation Costs 

States reported that grants for REAL ID were insufficient to 

mitigate costs associated with compliance. Also, states reported 

confusion about the grant application and award process. This 

occurred because DHS had not developed an effective strategy to 

communicate timely grant program guidance and decisions. 

REAL ID Funding 

Nearly all of the states surveyed reported that grants for REAL ID 

were inadequate to mitigate implementation costs. Specifically, 18 

of 19 states, or 95%, reported that available grant funding was 

insufficient. Several states referred to the amount received as a 

“drop in the bucket.” Figure 7 highlights the disparity between the 

amounts requested and the amounts awarded to the states we 

contacted. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Grant Award Versus Grant Requested 

$0 

$10 

$20 

$30 

$40 

$50 

$60 

$70 

$80 

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 

States 

Amount in Millions 

Grant Award Grant Requested 

Figure 7: REAL ID Grants Awarded Compared to Grants Requested 

The average amount of grant funding requested for the 19 states 

was $8.5 million, while the average amount actually awarded was 

$1.7 million, less than 25% of what states said they needed to fund 

REAL ID. For example, one state requested $12.2 million and 

received approximately $550,000. 

States have requested that Congress make additional grant money 

available. Further, several state representatives have testified 

before Congress asking for increases in funding levels. As late as 

March 2008, stakeholders requested that the Administration and 

Congress provide at least an additional $1 billion in fiscal year 

(FY) 2008 in addition to the grants already awarded to states to 

assist with start-up costs. However, no additional FY 2008 funds 

were allocated in response to this request. 

Communication of Grant Information to Stakeholders 

FEMA GPD is responsible for developing guidance for state 

submissions of grant applications along with developing and 

communicating the application review process. However, 

representatives from 17 of the 19 states we contacted indicated that 

they did not receive clear guidance on the REAL ID grant process. 

Specifically, states reported that DHS did not clearly communicate 

the process and requirements for submitting grant applications, the 

process and criteria for grant awards, and the terms and 

stipulations for acceptance of the awards. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Grant Application Process 

FEMA GPD issued guidance on the REAL ID grant program to 

states in December 2007.11 The guidance indicated that available 

grant funds would be awarded for electronic verification systems 

infrastructure development and proposals that would have 

multistate benefits such as the REAL ID Pilot Project and the 

REAL ID Vital Events Verification State Project. 

However, DHS decided in March 2008 to adjust the basis for 

award allocation to include the number of drivers per state, which 

resulted in a broader distribution of grant funds. DHS also 

extended the grant application deadline one month, to April 2008, 

to allow states more time to complete their grant applications. 

Officials from several states told us that when the award emphasis 

shifted, they were advised to submit an application to ensure 

inclusion. States that had not intended to apply for grants based on 

initial guidance had to scramble to submit an application by the 

deadline. Additionally, states that had spent time completing an 

application according to the initial guidance were frustrated by the 

shift in award criteria. 

Unclear about the requirements, states reported that their grant 

submissions were incomplete and misdirected. Specifically, 

officials from one state said that their grant submission only 

accounted for a portion of their total estimated implementation 

costs. These state officials explained that they received guidance 

from DHS suggesting that they scale back funding requests to 

improve their chances of receiving a grant award. 

Grant Award Process 

The grant guidance stated that proposals would be reviewed and 

assessed by a FEMA peer review panel based on the strength of the 

submission and would be awarded on a competitive basis. The 

panel evaluated applications and assigned a numeric score based 

on criteria such as innovation, security and privacy enhancements, 

and the state’s likelihood for REAL ID implementation success 

and compliance. After scoring, rating, and ranking each 

application, the panel submitted its recommendations for grant 

funding to the FEMA GPD. 

However, the grants awarded in FY 2008 did not correspond to the 

panel rankings. For example, one relatively large state included in 

11 FY 2008 REAL ID Demonstration Grant Program: Program Guidance and Application Kit, December 

2007. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

Page 18 
this review received a low ranking from the FEMA panel; 

however, the state received a large grant. Another state applied 

late and was not ranked by the FEMA panel; nevertheless, this 

state received grant funds. 

DHS decided in March 2008 to distribute grant funds more broadly 

than it originally planned. In June 2008, DHS awarded each of the 

48 states that applied a portion of the nearly $80 million available. 

The awards were based on a number of factors including the 

number of drivers in a state. Additionally, $17 million was 

allocated for a state to lead the verification hub project, and $4.8 

million was allocated between each of four states participating in 

the verification hub pilots. 

Terms of Grant Awards 

States reported that they were unclear if accepting grant funding 

obligated the state to comply with REAL ID. One state, that did 

not intend to implement REAL ID, reported it did not apply for 

grant funding as it otherwise would have because it received 

unclear guidance suggesting that application and acceptance of 

grant funding would require the state to comply with REAL ID. 

States reported that they received contradictory information from 

the REAL ID Program Office and FEMA GPD in this regard. 

Although DHS provided initial guidance on the grant program, it 

did not communicate timely to states the changes in the grant 

award criteria because it had not developed a communication 

strategy. Consequently, states did not fully understand the process 

and expressed their concern and dissatisfaction with DHS’ 

communication concerning the grant process. 

Legislative Challenges Hinder State Efforts to Fund REAL ID 

Without sufficient grant funds, states must find ways to pay for 

REAL ID. Many states reported that funding significant new costs 

for REAL ID in a time when state budgets are shrinking poses an 

additional challenge for implementing REAL ID. Officials at one 

state DMV said that it was difficult to ask the state legislature for a 

large budget to fund REAL ID under these circumstances. 

Another state anticipated having to reallocate money from other 

critical needs. For example, one state raised the possibility of 

taking $100 million out of its highway fund as a last resort to cover 

the REAL ID implementation costs. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Some states are considering passing part of the cost to drivers 

through license fees. For example, one state said it anticipates 

increasing its driver’s license fee to $50. Another state said that it 

would have to increase the cost of a driver’s license from $30 to 

$100 to cover REAL ID costs. In some states driver’s license fees 

are established by the legislature, making it difficult for those 

states to cover increased costs this way. 

States May Not Meet Material Compliance Deadline 

Because of the potential high cost to implement REAL ID and 

insufficient grants to cover those costs, many states are unsure if 

they will meet the material compliance requirements by December 

31, 2009. If they do not, they will not be eligible to obtain the 

extension provided in the Final Rule for full compliance. 

We asked state officials specifically whether their states would 

achieve material compliance benchmarks by the deadline. As 

illustrated in Figure 8, of the 19 states interviewed, only six states 

expected to meet the deadline, 10 states were not sure, and three 

states did not expect to be materially compliant by December 31, 

2009. 

Figure 8: State Responses to REAL ID Material Compliance 

Although cost is not the only factor influencing states’ decisions on 

REAL ID, it is a major concern. Several states were hesitant to 

speculate on whether they would achieve material compliance until 

state executives and legislators reached a policy decision on REAL 

ID compliance. As indicated in Figure 9, some states introduced 

legislation opposing REAL ID based, in part, on concerns about 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

Page 20 
the costs of what they view is an unfunded mandate. Some states 

have already enacted laws prohibiting REAL ID implementation. 

Figure 9: State REAL ID Legislative Actions 

Of our sample of 19 states, 11 introduced legislation and four 

enacted laws opposing compliance with REAL ID. 

Recommendations: 

We recommend that the Assistant Secretary for Policy: 

Recommendation #1: Ensure stakeholders consisting of federal, 

state, and private representatives help develop and disseminate 

necessary guidance related to the REAL ID card marker, facility 

security, verification systems, and best practices that would assist 

stakeholders in implementing REAL ID. 

Recommendation #2: Establish a communications plan to ensure 

that stakeholders receive the necessary REAL ID program and 

grant guidance. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Management Comments and OIG Analysis 

We obtained written comments on a draft of this report from the 

Acting Assistant Secretary for Policy. We have included a copy of 

the comments in their entirety in Appendix B. 

The Acting Assistant Secretary for Policy concurred with our 

recommendations and provided comments and context on specific 

areas within the report. Additionally, the Acting Assistant 

Secretary provided details on steps being taken to address specific 

findings and recommendations in the report. We have reviewed 

management’s comments and provided an evaluation of the issues 

outlined in the comments below. 

In response to recommendation one, the Acting Assistant Secretary 

agreed that the REAL ID Program Office should ensure 

stakeholder participation to help develop and disseminate 

necessary guidance related to the REAL ID card marker, facility 

security, verification systems, and best practices that would assist 

stakeholders in implementing REAL ID. Accordingly, the REAL 

ID Program Office has undertaken initiatives and outreach 

activities in each of these areas. Specifically, DHS has convened a 

stakeholder group to provide input into the design and creation of 

the compliant card marking, and issued the final REAL ID 

Compliance Marking in January 2009, several months after 

completion of our audit field work. In addition, DHS has taken 

steps to include stakeholders in reviewing drafts and providing 

feedback on guidelines on physical and date security. Finally, the 

Acting Assistant Secretary identified the states as responsible for 

ensuring appropriate stakeholder participation for verification hub 

guidance. We believe that such efforts are good steps toward 

addressing our recommendation and look forward to learning more 

about continued progress and improvements in the future. 

Responding to recommendation two, the Acting Assistant 

Secretary stated that a joint effort with FEMA/GPD is underway to 

develop a communications plan. In addition, the Acting Assistant 

Secretary identified several steps under way to ensure outreach for 

FY09 grants. These steps include developing a memorandum of 

understanding to delineate FEMA GPD and Office of 

Policy/Screening Coordination Office roles and responsibilities; 

establishing REAL ID Program Office personnel to be responsible 

for monthly contact with an assigned representative from each 

state; and taking advantage of FEMA’s existing regional divisions 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

Page 22 
 

throughout the nation to schedule meetings to discuss grants, 

provide program updates, and answer specific questions. These 

are positive steps toward addressing our recommendation. 

In discussing the criteria for grant awards, the Acting Assistant 

Secretary indicated that our report inaccurately states that DHS 

decided to “distribute grant funds more broadly.” We adjusted our 

report to clarify this discussion. As we state in our report, and as 

the Acting Assistant Secretary’s own response indicates, DHS did 

“adjust the basis for award allocation to include the peer review 

score and the size of state’s DL/ID system.” This decision to 

include the size of a state’s DL/ID system in the basis for award 

allocation resulted in a broader distribution of grant funds than was 

initially evident to states. 

The Acting Assistant Secretary provided a number of additional 

editorial comments regarding specific sections of the report. We 

worked with the REAL ID program to address each of these 

suggestions and comments and made updates to the draft report 

where appropriate. 

The Acting Assistant Secretary also submitted several substantive 

suggested changes. First, the Acting Assistant Secretary suggested 

that the word “certified” was incorrectly used to describe the 

states’ requirement to obtain an extension of the December 31, 

2009 compliance deadline. However, the Final Rule specifically 

states that, “DHS has indentified eighteen milestones, captured in 

the ‘Material Compliance Checklist,’ that States must certify they 

have met in order to obtain an extension of the compliance 

deadline beyond December 31, 2009.” Therefore, we did not 

change the report in this case. 

Secondly, the Acting Assistant Secretary said that, “DHS never 

promised ‘guidance’ on the costs of verification systems to states.” 

This statement does not accurately reflect our report’s message. 

We recognize that DHS has been working with organizations such 

as AAMVA and the Verification System Working Group, which 

have responsibility for such guidance. DHS did, however, indicate 

at a forum on the Final Rule in February 2008 that guidance on 

ongoing costs for system access would be forthcoming. Therefore 

we did not change the report in this case. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix A 

Scope and Methodology 

We began our audit work by conducting background research to 

gain an understanding of the REAL ID Act of 2005 and DHS’ 

responsibilities for implementing REAL ID. We reviewed reports 

prepared by the 9/11 Commission, Government Accountability 

Office, other federal agencies, public interest groups, and 

Congress. We also reviewed the REAL ID Act, records of 

congressional testimony, and meeting minutes. We attended 

REAL ID informational meetings with private sector and public 

sector interest groups such as AAMVA, National Conference of 

State Legislatures, and National Governors Association. 

To obtain information on the current status of REAL ID 

implementation and state cost challenges, we obtained internal 

DHS correspondence that established policies and procedures 

relative to REAL ID from the REAL ID Program Office. We 

looked at the Notice of Proposed Rulemaking, DHS’ Regulatory 

Evaluation, and the Final Rule. We also researched the 

department’s internal Web site to obtain relevant information about 

REAL ID regarding DHS’ roles and responsibilities for 

implementing REAL ID, progress made toward implementation, 

associated costs, and grants. Owing to the high visibility of the 

REAL ID program, we reviewed DHS press releases and 

researched media articles that pertained to REAL ID. We also 

researched legislation that established individual states’ positions 

on compliance with REAL ID implementation. 

To obtain information on grant usage, we reviewed the FY 2008 

REAL ID Demonstration Grant Program document, researched the 

department’s internal Web site to obtain relevant information about 

REAL ID grants, and reviewed DHS press releases and media 

articles that pertained to grants. 

We conducted our audit fieldwork from June to September 2008 at 

REAL ID Program Office headquarters and FEMA GPD in 

Washington, DC. We met with DHS REAL ID Program Office 

officials responsible for REAL ID program management, planning, 

and implementation to obtain information on the progress made 

toward the implementation of REAL ID among all 56 states. We 

also met with officials from FEMA GPD responsible for the REAL 

ID grants management and administration process. 

We selected a sample of 19 states that were a combination of 

border states; states within the interior of the contiguous United 

States; states with large and small populations; states that support 

and oppose REAL ID; states that issued identification to the 

terrorists involved in the September 11, 2001, attacks; states that 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

Page 24
 
Appendix A 

Scope and Methodology 

represent each of the U.S. geographic regions: North, South, East, 

and West; grant recipient states; states that applied for REAL ID 

grant programs; and states recommended by REAL ID Program 

Office and FEMA GPD officials. 

We visited the state DMV, Governor’s office, and REAL ID 

program and grants representatives in the following states: 

• Richmond, Virginia; 

• Hanover, Maryland; 

• District of Columbia; 

• Jefferson City, Missouri; 

• Olympia, Washington; 

• Sacramento, California; 

• Santa Fe, New Mexico; 

• Austin, Texas; 

• Tallahassee, Florida; 

• Honolulu, Hawaii; 

• Wethersfield, Connecticut; 

• Albany, New York; and 

• Raleigh, North Carolina. 

We also teleconferenced with the state DMV, Governor’s office, 

and REAL ID program and grants representatives at the following 

locations: 

• Springfield, Illinois; 

• Harrisburg, Pennsylvania; 

• Saint Croix, U.S. Virgin Islands; 

• Atlanta, Georgia; 

• Augusta, Maine; and 

• Helena, Montana. 

We conducted this performance audit 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. 

The principal OIG points of contact for this audit are Frank Deffer, 

Assistant Inspector General for Information Technology Audits, 

and Richard Harsche, Director, Information Management. Major 

OIG contributors to the audit are identified in Appendix C. 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix B 

Management Comments to the Draft Report 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix B 

Management Comments to the Draft Report 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix B 

Management Comments to the Draft Report 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix B 

Management Comments to the Draft Report 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix B 

Management Comments to the Draft Report 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix B 

Management Comments to the Draft Report 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix C 

Major Contributors to this Report 

Information Management Division 

Richard Harsche, Director 

Beverly Bush, Audit Manager 

Steven Staats, Auditor-in-Charge 

Kia Smith, Auditor 

Swati Nijhawan, Auditor 

Craig Adelman, Auditor 

Nazia Khan, Referencer 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretary 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Deputy Assistant Secretary, Office of Policy Development 

Director, Screening Coordination Office, Office of Policy 

Development 

Deputy Assistant Secretary, Federal Emergency Management 

Agency 

Director, FEMA Grants Program Directorate 

DHS OIG Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

Potentially High Costs and Insufficient Grant Funds Pose a Challenge to REAL ID Implementation 

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ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General (OIG) at (202) 254-4199, 

fax your request to (202) 254-4305, or visit the OIG web site at www.dhs.gov/oig. 

OIG HOTLINE 

To report alleged fraud, waste, abuse or mismanagement, or any other kind of criminal or noncriminal 

misconduct relative to department programs or operations: 

• Call our Hotline at 1-800-323-8603; 

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• Email us at DHSOIGHOTLINE@dhs.gov; or 

• Write to us at: 

DHS Office of Inspector General/MAIL STOP 2600, 

Attention: Office of Investigations - Hotline, 

245 Murray Drive, SW, Building 410, 

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