United States Government Accountability Office

GAO Report to Congressional Committees

HIGHWAY AND 

TRANSIT 

INVESTMENTS 

Flexible Funding 

Supports State and 

Local Transportation 

Priorities and 

Multimodal Planning 

July 2007 

 

GAO-07-772 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 2007

HIGHWAY AND TRANSIT INVESTMENTS

Flexible Funding Supports State and 

Local Transportation Priorities and 

Multimodal Planning 

Highlights of GAO-07-772, a report to 

congressional committees 

The Intermodal Surface 

Transportation Efficiency Act of

1991 introduced two highway 

programs—the Surface 

Transportation Program (STP) and 

the Congestion Mitigation and Air 

Quality Program (CMAQ)—that 

may be used on both highway and

transit projects and that are 

referred to as “flexible funding” for

the purposes of this report. GAO 

was asked to examine (1) the 

degree to which STP and CMAQ 

funding has been used on transit 

and how this use varies across 

states and urbanized areas, and (2)

how states and urbanized areas 

decide which projects to fund with 

STP and CMAQ funding and what

the outcomes of these decisions 

have been. 

To address these issues, GAO 

analyzed data on flexible funding 

used on transit projects from the 

Federal Transit Administration 

(FTA) and the Federal Highway 

Administration (FHWA) and spoke 

with officials in selected states and 

urbanized areas about their projectselection processes for flexible

funding and the outcomes of these 

funding decisions. States and 

urbanized areas were selected 

based on their prior use of flexible

funding. 

GAO is not making

recommendations in this report. 

The Department of Transportation

generally agreed with the report’s

findings and provided technical 

clarifications, which were

incorporated in the report as 

appropriate. 

Since the 1991 creation of the two flexible funding programs this report 

examines—STP and CMAQ—$12 billion from these programs has been spent 

on transit projects, either directly through FHWA or through transfer to FTA. 

This spending on transit represents 13 percent of the apportionments for 

these programs since 1992 and 3 percent of the total federal-aid highway 

program. However, the amount of FTA funding used in some states has been 

augmented significantly by these funds; in four states, funds transferred 

from these programs to FTA made up 20 percent or more of total FTA 

expenditures. Nearly 80 percent of transferred funds have been used in 

urbanized areas with populations over one million, and the most common 

uses of these funds include purchases of transit vehicles such as buses and 

rail cars, and projects related to rail lines or bus lanes. 

Flexible Funding: Proportion of the Total Federal-Aid Highway Program and Percentages 

Spent on Transit and Nontransit Projects, Fiscal Years 1992-2006

74%

Total federal aid highway program

$358 billion Total flexible funding

$92 billion

Flexible funding spent on

nontransit projects

 $80 billion

Source: GAO analysis of FTA and FHWA data.

13%

87%

Other FHWA programs

$266 billion

3%

22%

Flexible funding spent on

transit projects

$12 billion

The 9 states and 12 urbanized areas in our case study review had formal 

processes for selecting projects for flexible funding. Of these, 7 urbanized 

areas and 4 states selected projects for all or some of these funds through 

competitive processes in which projects for different transportation modes 

were evaluated and selected using established criteria and input from 

transportation stakeholders. States and urbanized areas that did not use 

competitions selected projects based on transportation priorities and plans. 

Regarding the outcomes of decisions on how to utilize flexible funding, state 

and local officials told us that the broad, multimodal eligibility of this 

funding program enhances their ability to fund their transportation 

priorities, particularly in light of the challenge of finding sufficient revenues 

to pay for transportation improvements. 

www.gao.gov/cgi-bin/getrpt?GAO-07-772.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine A. 

Siggerud at (202) 512-2834 or 

siggerudk@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 7

The Proportion of Flexible Funding Used on Transit Is Small 

Nationwide, but It Has Made a Sizable Impact on Transit 

Programs in Some States and Urbanized Areas 11 

States and Urbanized Areas Used a Formal Process to Select 

Projects Suited to Their Priorities and Needs, Resulting in 

Diverse Uses of Flexible Funding 21 

Agency Comments 28 

Appendix I Funding Transfers Involve Multiple Stakeholders 

and Checks to Ensure Accuracy 31 

Appendix II Objectives, Scope, and Methodology 35 

Appendix III GAO Contact and Staff Acknowledgments 39

Tables 

Table 1: Eligible Uses and Apportionment Guidelines for STP and 

CMAQ Funds 9 

Table 2: States and Urbanized Areas Selected for Case Studies 37 

Figures 

Figure 1: Annual Flexible Funding Apportionments and Amounts 

Transferred to FTA for Use on Transit Projects, 1992-2006

(in inflation-adjusted dollars) 5 

Figure 2: Flexible Funding: Proportion of the Overall Federal-Aid 

Highway Program, Percentages Spent on Transit and 

Nontransit Projects, and Percentages of Transit Projects 

Administered by FHWA and FTA, 1992-2006 12 

Figure 3: Annual Flexible Funding Transfers and Average Annual 

Transfers by Act, 1992-2006 (in 2007 dollars) 13 

Page i GAO-07-772 Highway and Transit Investments
Figure 4: Proportion of Apportioned Flexible Funding Transferred 

to FTA for Transit Projects, by State, 1992-2006 14 

Figure 5: Flexible Funding Transferred to FTA for Transit Projects, 

by State, 1992-2006 (in 2007 dollars) 16 

Figure 6: Proportion of Total FTA Funding from Flexible Funding, 

1992-2006 18

Figure 7: Flexible Funding Transferred to FTA, by Population of 

Area in Which Funding Was Used, Fiscal Years 1992-2006 19 

Figure 8: Flexible Funding Administered by FTA, by Project Type 

and Population of Area in Which Funding Was Used, 1992-

2006 20

Figure 9: Steps Required to Transfer Funds from State’s FHWA 

Account to Transit Agency’s FTA Account 33 

Abbreviations 

Caltrans California Department of Transportation 

CMAQ Congestion Mitigation and Air Quality Program 

DOT Department of Transportation 

FHWA Federal Highway Administration 

FMIS Fiscal Management Information System 

FTA Federal Transit Administration 

ISTEA Intermodal Surface Transportation Efficiency Act of 1991 

MPO metropolitan planning organization

PSRC Puget Sound Regional Council 

SAFETEA-LU Safe, Accountable, Flexible, Efficient Transportation Act: 

 A Legacy for Users 

STIP state transportation improvement program 

STP Surface Transportation Program 

TEA-21 Transportation Equity Act for the Twenty-First Century 

TEAM Transportation Electronic Award Management system 

TIP transportation improvement program 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page ii GAO-07-772 Highway and Transit Investments
United States Government Accountability Office

Washington, DC 20548 

July 26, 2007

Congressional Committees 

Across the country, passenger and freight traffic continues to place 

growing demands on the nation’s aging highway and transit infrastructure, 

heightening the need to maintain the existing system and find solutions to 

prevent increased congestion. At a time when revenues at all levels of 

government to address these conditions are constrained, it is critical that 

state and local governments make efficient use of available transportation 

dollars. We have previously reported that broader and, particularly, 

multimodal eligibility for federal funding can provide states and urbanized 

areas with the latitude to address their most pressing transportation 

needs. The Intermodal Surface Transportation Efficiency Act of 1991 

(ISTEA)1

 and subsequent reauthorization acts gave states and urbanized 

areas greater flexibility in selecting transportation projects to be funded 

with federal-aid highway formula funds, which are apportioned to the 

states annually on the basis of statutory formulas. The act also gave 

urbanized areas direct responsibility for selecting projects for certain 

funds. Several Federal Highway Administration (FHWA) programs 

introduced by ISTEA have transit eligibility, in particular, the Surface 

Transportation Program (STP) and the Congestion Mitigation and Air 

Quality (CMAQ) Program. These two programs are referred to here as 

“flexible funding” programs because of their eligibility for use on both 

highway and transit projects. When these FHWA funds are used for transit 

projects, states have the authority to request transfer of the funds from 

FHWA to the Federal Transit Administration (FTA), to be administered as 

FTA grants. This flexibility—including the transfer authority—also 

extends to certain FTA funds, which under certain circumstances may be 

transferred to FHWA for use on highway projects. Today, as federal 

funding is often tied to a single mode of transportation, these programs are 

distinctive in the flexibility they grant to states and urbanized areas in 

implementing a wide variety of transportation projects. 

 1

Pub. L. No. 102-240 (Dec. 18, 1991). 

Page 1 GAO-07-772 Highway and Transit Investments
The conference report accompanying the Safe, Accountable, Flexible, 

Efficient Transportation Act: A Legacy for Users (SAFETEA-LU)

2

 required 

GAO to examine how states and urbanized areas have used the authority 

to transfer funds between FHWA and FTA. Although the transfer 

provisions apply both to highway funds transferred to FTA for use on 

transit projects and transit funds transferred to FHWA for use on highway 

projects, only a small amount of transit funds have been transferred for 

use on highway projects, according to data from FHWA.3

 Additionally, 

while a number of federal-aid highway programs other than STP and 

CMAQ may be used on transit projects4

—either directly through FHWA or 

through transfer to FTA—the amount of funding from other programs that 

is spent on transit is small. Accordingly, we did not consider these 

programs in our analysis. To respond to our reporting requirement, we 

focused our study on STP and CMAQ funding used on transit projects and 

addressed the following questions: 

• To what degree has STP and CMAQ funding been used on transit, and how 

does this use vary across states and urbanized areas? 

• How have states and urbanized areas made decisions about what projects 

to fund with STP and CMAQ funding, and what have been the outcomes of 

these decisions? 

In response to the conference report’s direction, this report also addresses 

the procedures used to transfer funding and budget authority from FHWA

to FTA. This information is provided in appendix I. 

To answer these questions, we analyzed data from FTA and FHWA 

databases on the use of STP and CMAQ funding, which, for the purposes 

of this report, we refer to as flexible funding. We focused particularly on 

 2

House Report 109-203, “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A 

Legacy for Users Report of the Committee of Conference on H.R. 3” (July 28, 2005). 

3

FHWA data show that since ISTEA was enacted, about $55 million of FTA funding has 

been transferred to FHWA for use on highway projects. 

4

See, for example, 23 U.S.C. 103(b)(6), 23 U.S.C. 147, and 23 U.S.C. 204. 

Page 2 GAO-07-772 Highway and Transit Investments
the use of flexible funding transferred from FHWA to FTA.5

 We determined 

the data to be sufficiently reliable for the purposes of this report due to the 

presence of internal controls on the data systems, such as those to ensure 

accuracy of data and prevent data loss. We reviewed prior reports on state 

and local experiences using flexible funding and federal guidance and

regulations related to state and metropolitan transportation planning and 

flexible funding. We also interviewed associations representing 

transportation stakeholders, including metropolitan planning

organizations, transit providers, state transportation officials, 

transportation construction firms, and highway users. We selected 9 states

and 12 urbanized areas within these states to be subjects of case studies; 

these areas were selected based on the extent to which they had 

previously used flexible funding on transit projects. We selected 5 states 

that had used significant amounts of flexible funding on transit projects in 

the past, and within these states we selected urbanized areas that 

accounted for a high proportion of the states’ flexible funding used on 

transit. We selected 4 other states that previously used either little or no 

flexible funding on transit, and within these states—because no urbanized 

areas had used a significant amount of flexible funding on transit—we 

selected the largest urbanized areas. Because we used a judgmental 

sampling technique to select these states and urbanized areas, the results 

are not generalizable to all states and urbanized areas. As part of our casestudy review, we interviewed federal, state, and metropolitan 

transportation officials and reviewed relevant documentation on state and 

metropolitan transportation planning processes, projects financed with 

flexible funding, and processes for selecting flexible-funded projects. We 

interviewed FHWA and FTA staff in Washington, D.C., and in regional and 

division field offices and reviewed guidance from these agencies on the 

procedures for transferring flexible funding. We performed our work from

May 2006 through May 2007 in accordance with generally accepted 

government auditing standards. 

 5

Prior to enactment of the Transportation Equity Act for the Twenty-First Century (TEA21), FHWA did not have the authority to transfer budget authority or funds for STP and

CMAQ funds to FTA. When requested, FHWA allocated the funds to FTA for use on eligible 

transit projects, but the funds remained on FHWA’s books. TEA-21 authorized the transfer

of funds to FTA, and FHWA and FTA began using this authority in 2000. For the purposes

of this report, we use the term “transfer” to refer to FHWA funds administered by FTA, 

both before and after FHWA had the authority to transfer budget authority and funding to

FTA. 

Page 3 GAO-07-772 Highway and Transit Investments
The amount of flexible funding used on transit projects accounts for a 

relatively small proportion of the overall federal-aid highway program, but 

some states and urbanized areas have used these funds to significantly 

augment the other federal funding they use for transit. Since the creation

of the STP and CMAQ programs with the enactment of ISTEA in December 

1991, $12 billion of these funds have been spent on transit projects 

administered either by FTA or FHWA; this is about 13 percent of the 

apportioned flexible funding and about 3 percent of the total amount of 

federal-aid highway funds apportioned to states during this time period. 

Remaining flexible funding was spent on other eligible purposes, such as 

roadway improvements. Nearly all of the flexible funding used on transit 

projects was transferred from FHWA to FTA at the discretion of state 

officials. Figure 1 shows flexible funding apportionments from 1992 

through 20066

 and the amount of these funds transferred to FTA for transit 

projects. Individual states have varied in the extent to which they have 

transferred flexible funding to FTA for use on transit projects, with three 

states collectively accounting for more than half of the transferred funds 

and three states having transferred none. The states that transferred large 

amounts of their apportioned flexible funding were likely to contain large 

urban areas. The amount of flexible funding transferred to FTA for use on 

transit projects has been significant for several states, accounting for 20 

percent or more of the overall FTA spending in four states. Nearly 80 

percent of transferred funds have been used in urbanized areas with 

populations over 1 million, while the rest has been used in smaller 

urbanized or rural areas. FTA data show that more than half of all flexible

funding transferred to FTA from 1992 through 2006 has been used to 

purchases vehicles—both rail cars and motor vehicles such as buses—or 

for projects related to rail lines or bus lanes. Other transit projects 

commonly funded include parking garages, passenger facilities such as 

bus stops and rail stations, and operating costs for new services. 

Results in Brief 

 6

Data from FTA and FHWA regarding amounts apportioned or spent for transit projects 

reflect fiscal year values throughout this report. 

Page 4 GAO-07-772 Highway and Transit Investments
Figure 1: Annual Flexible Funding Apportionments and Amounts Transferred to FTA for Use on Transit Projects, 1992-2006

(in inflation-adjusted dollars) 

2007 dollars (in billions)

Year

Flexible funding remaining with FHWA

Flexible funding transferred to FTA

Source: GAO analysis of FTA data.

0

1

2

3

4

5

6

7

8

9

10

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

The states and urbanized areas reviewed in our case studies used a formal 

process to select projects to receive flexible funding. Of the urbanized 

areas that have decision-making authority for flexible funding, 7 out of 10 

used a competitive process for project selection that considers both 

highway and transit projects. Although competitions differed somewhat 

from place to place, we found that most included elements such as 

• a call for projects during which project sponsors submit formal 

applications, 

• a set of established criteria used to evaluate projects, and 

• participation of transportation stakeholders—typically representing 

various transportation modes as well as jurisdictions—from throughout 

the region in evaluating and selecting projects. 

Some of the urbanized areas that used competitions had also established 

project categories to allocate funds among different modes of 

transportation, such as roadway construction, bikeway and pedestrian 

Page 5 GAO-07-772 Highway and Transit Investments
facilities, or transit capital improvements. Some urbanized areas selected 

projects and programs based on local policy goals and priorities, including

both those related to highways and to transit. Regarding state processes 

for selecting projects, four of the states included in our case-study review 

also used a competitive process for at least some of their flexible funding. 

Other states selected projects for these funds through the state’s 

transportation planning process, which takes into consideration 

transportation priorities, conditions, and needs throughout the state. 

Flexible funding transferred to FTA has been used to meet a variety of

needs. Some urbanized areas used the flexible funding that they 

transferred to FTA to provide new or expanded transit services, while 

others used it to perform rehabilitation and preventive maintenance on 

existing services. Regarding the impact of flexible funding on overall state 

and local transportation programs, almost all the officials we spoke with 

said that flexibility is beneficial, particularly because it enables 

multimodal planning and makes more funding available for transit. In 

terms of the effect that using flexible funding on transit has on highway 

investments, most state and local officials who commented on this said 

that the proportion of highway funding used on transit is too small to have 

an impact on their highway programs, and the larger problem is that of too 

little funding in general for transportation. 

In addition to determining the extent to which states and urbanized areas

have used flexible funding on transit and how transportation stakeholders

have made decisions about the use of these funds, we also examined the 

procedures used to transfer flexible funding from FHWA to FTA. Funding 

transfers—which involve the movement between the two agencies of 

budget authority and the funds needed to reimburse grantees—occur at 

the request of state transportation departments and are carried out jointly 

by FTA and FHWA. The transfer procedures include checks to ensure that

projects are eligible for funding and that the correct amounts of budget 

authority and funds are transferred. The U.S. Department of 

Transportation (DOT) recently implemented an accounting change 

whereby the funds necessary to reimburse grantees is transferred from the 

highway account to the mass transit account of the Highway Trust Fund as 

grantees incur costs, rather than all at once when the transfer is approved. 

According to DOT officials, this change is intended to slow the decline of

the highway account’s balance. 

We provided a draft of this report to DOT for review and comment. DOT 

generally agreed with the report’s findings and provided technical 

clarifications, which we incorporated in the report as appropriate. We also 

provided the state and local officials with whom we spoke an opportunity 

Page 6 GAO-07-772 Highway and Transit Investments
to review selected portions of the draft report. These officials provided 

technical clarifications, which we incorporated in the report as 

appropriate.

State departments of transportation and local governments are responsible 

for building and improving highways and other road infrastructure in the 

United States. The federal-aid highway program, which is administered by 

FHWA, provides funding for this purpose from the highway account of the 

federal Highway Trust Fund. FHWA distributes highway funds to the 

states through annual apportionments established by statutory formulas 

and by allocation of discretionary grants; in 2006, about $31 billion in 

federal-aid highway funding was available to states. Funds come through 

several different programs, each with specific uses and eligibility 

requirements, but states generally have broad discretion to choose the 

projects that will be funded with these moneys. After determining that 

projects meet federal requirements and that funds are available, FHWA 

enters into obligations for the projects selected by states.7

 After states 

make expenditures on the projects, they apply to FHWA for 

reimbursement of the federal share of eligible costs. States supplement 

federal funds for highway programs—and provide required matching 

funds—with nonfederal revenues such as taxes and user fees.

Constructing, maintaining, and operating public transportation systems 

are generally the responsibilities of local agencies, such as transit 

authorities or transit operators.8

 Federal funds for public transportation 

are generally administered by FTA and are funded through a combination 

of general fund revenues and the mass transit account of the Highway 

Trust Fund. Recipients such as transit operators and states9

 are

apportioned annual formula program funds that may be used for capital 

expenses and, in the case of areas with populations under 200,000, for 

operating expenses. Transit operators and other recipients may also 

Background 

 7

An obligation is a commitment that creates a legal liability of the government for the 

payment of goods and services ordered or received. Payment may be made immediately or 

in the future. An agency incurs an obligation, for example, when it awards a grant.

8

Public transportation is regular and continuing general or special transportation service 

provided to the public. It includes service by buses, subways, rail, trolleys and ferryboats. It

also includes paratransit services for seniors and persons with disabilities as well as 

vanpool and taxi services operated under contract to a public transportation agency. 

9

States are recipients of FTA grants for areas under 200,000 in population. 

Page 7 GAO-07-772 Highway and Transit Investments
receive discretionary grants for capital expenditures such as vehicle

purchases and system construction or expansion. In 2006, FTA provided

about $8 billion in funding to transit agencies and states through its 

formula and discretionary grant programs. Federal transit funds generally 

remain with FTA until the transit operator is ready to use them. Additional 

funding for transit comes from state or local taxes and operating revenue

such as passenger fares and parking fees. 

In the early 1990s, Congress decided that a flexible, intermodal approach

to transportation programs was needed to address growing transportation 

needs in the face of budgetary constraints and the diversity of

transportation priorities in different parts of the country. Enacted in 

December 1991, ISTEA sought to provide flexible, comprehensive 

solutions to transportation problems and focused more on intermodal 

approaches than previous acts had. Two of the programs created by this 

legislation were STP and CMAQ—also referred to here as flexible funding 

because they may be used on a range of projects including transit and 

highways. A portion of flexible funding is allocated to localities rather than 

states, allowing local authorities to select projects within their 

jurisdictions. The responsibility for project selection at this level usually 

falls to regional bodies such as metropolitan planning organizations 

(MPO), which are composed of representatives of local governments, 

transit operators, and other transportation stakeholders who collaborate 

on transportation planning. Federal law suballocates a portion of STP 

funds to urbanized areas 200,000 or greater in population; some states 

have chosen to further allocate flexible funding to these areas. Table 1 

provides details on eligible uses for STP and CMAQ funds—which in 2006 

constituted about one-quarter of the total federal-aid highway program—

as well as guidelines on how these funds are apportioned. 

Page 8 GAO-07-772 Highway and Transit Investments
Table 1: Eligible Uses and Apportionment Guidelines for STP and CMAQ Funds 

Program (2006 funding levels) Eligible uses Apportionment guidelines 

Surface Transportation Program 

($6 billion) 

• Construction, rehabilitation, and operational 

improvements for highways and bridges, 

including to accommodate other modes 

• Capital costs for transit projects, including 

vehicles and facilities 

• Highway and transit safety infrastructure 

improvements and programs 

• Rehabilitation and operation of historic 

transportation facilities 

• Pedestrian and bicycle facilities

• Scenic or historic highway programs 

• Historic preservation and archeological 

research 

• Landscaping and other scenic beautification 

STP funds are apportioned to states 

based on a state’s number of lane miles 

and vehicle miles traveled on federal-aid

highways, and other factors. More than 

half is distributed throughout the state 

based on population. 

Congestion Mitigation and Air Quality 

($1.6 billion) 

• Pedestrian and bicycle facilities

• Transit (new system/service expansion or 

operations) 

• Alternative fuel projects, including programs to 

convert fleets to run on alternative fuels 

• Travel demand management and public 

education and outreach activities 

CMAQ funds are apportioned to states 

based on the size of population residing 

within counties that do not meet, or have 

in the past not met, federal air quality 

standards. CMAQ funds must be used in

these areas. 

Source: GAO analysis of FHWA data. 

When states or urbanized areas use flexible funding on transit projects, 

they may leave the funds in the state’s FHWA account, in which case the 

state receives reimbursement from FHWA as costs are incurred. 

Alternatively, the state—usually in conjunction with the MPO or the local 

agency implementing the project—may request that these funds be 

transferred to FTA to be administered through one of several eligible FTA 

programs. Once funds are transferred to FTA, a transit operator or other 

recipient becomes the grantee for these funds. FTA funds apportioned 

directly to transit operators or states may be used for operating costs in 

areas under 200,000 in population; however, FHWA funds transferred into 

FTA formula programs may not be used for operating costs, except for 

CMAQ funds used for new or expanded services. 

Although state and local authorities have considerable discretion when 

choosing which transportation projects to fund with federal-aid program 

funds, federal laws and regulations require that projects proposed for 

Page 9 GAO-07-772 Highway and Transit Investments
highway and transit funding be based on comprehensive metropolitan and

statewide transportation planning processes.10 State, regional, and local

government agencies and transit operators must operate within these 

requirements to receive federal funds. The various planning tasks that 

states and MPOs must carry out include the following: 

• involving stakeholders such as elected officials, public transit operators, 

environmental and historic preservation agencies, freight shippers, and 

others in the planning and project-selection processes. 

• identifying overall goals and objectives to support transportation 

investment choices that consider factors such as projected population 

growth and economic changes, current and future transportation needs, 

maintenance and operation of existing transportation facilities, and 

preservation of the human and natural environments. 

• evaluating different transportation alternatives through the collection and 

analysis of data. 

• documenting future transportation needs through long-range 

transportation plans and short-range programs. Short-range programs, 

known as transportation improvement programs (TIP), at the local level, 

and state transportation improvement programs (STIP) at the state level, 

must include the scope of projects, estimated costs, and the source of 

funding. In order to receive federal funding, projects must be included in a 

STIP that demonstrates sufficient funds are available to implement the 

program. 

• ensuring that the process for transportation planning and decision-making 

reflects a variety of planning factors such as environmental compliance, 

safety, security, system management and operations, and land use, among 

others. 

To help ensure that metropolitan transportation planning processes are 

being carried out in full compliance with federal laws and regulations, 

FHWA and FTA jointly review the planning process every 4 years in areas

with populations of 200,000 or greater. 

 1023 U.S.C. 134-135, 49 U.S.C. 5303-5304, 23 CFR Parts 450 and 500, and 49 CFR Part 613. 

Page 10 GAO-07-772 Highway and Transit Investments
While states have varied in the extent to which they have used STP and 

CMAQ funds for transit, some states have augmented their transit budgets 

significantly or made major transit investments using flexible funding. As 

part of our review, we looked both at the overall impact on federal 

highway and transit spending nationwide and at the types of transit 

projects on which flexible funding is most commonly used. 

Overall, from the enactment of ISTEA in late 1991 through 2006, the 

relative amount of flexible funding used for transit projects, either directly

through FHWA or through transfer to FTA, has been low, averaging less 

than 3 percent of the total federal-aid highway program and 13 percent of

available flexible funding. From 1992 through 2006, a total of $12 billion of 

flexible funding has been used for transit projects. The vast majority—

more than 96 percent—of this funding was transferred from FHWA to 

FTA; the remaining amount was used for transit projects administered 

directly by FHWA. Flexible funding not used on transit was used on other 

eligible projects such as construction and operational improvement of 

roadways. Figure 2 shows the amount of flexible funding used on transit 

projects—including funds that were transferred to FTA and those that 

were administered directly by FHWA—in relation to the overall federal-aid 

highway program and to available flexible funding from 1992 to 2006. 

The Proportion of 

Flexible Funding 

Used on Transit Is 

Small Nationwide, but 

It Has Made a Sizable 

Impact on Transit 

Programs in Some 

States and Urbanized 

Areas 

The Proportion of Flexible 

Funding Used on Transit 

Projects Has Been 

Relatively Low 

Page 11 GAO-07-772 Highway and Transit Investments
Figure 2: Flexible Funding: Proportion of the Overall Federal-Aid Highway Program, Percentages Spent on Transit and 

Nontransit Projects, and Percentages of Transit Projects Administered by FHWA and FTA, 1992-2006 

74%

Total federal aid highway program

$358 billion

Total flexible funding

$92 billion

Flexible funding spent

on transit projects

$12 billion

Flexible funding spent on

nontransit projects

 $80 billion

Flexible funding (STP and CMAQ)

Other FHWA programs, including those for the construction, 

reconstruction and improvement of highways and bridges

Source: GAO analysis of FTA and FHWA data.

13%

87%

Other FHWA programs

$266 billion

4%

FHWA-administered

transit spending

$0.5 billion

FTA-administered

transit spending

$11.5 billion

22% 96%

Flexible funding spent on

transit projects

$12 billion

3%

Note: Values were not adjusted for inflation and may not total to 100 percent due to rounding. 

The amount of flexible funding transferred to FTA increased markedly 

with passage of the Transportation Equity Act for the Twenty-First 

Century (TEA-21)11 in 1998, primarily because the act increased overall 

highway funding levels, according to DOT officials. The average annual 

amount of transferred funding increased from $630 million under ISTEA to 

$1.1 billion under TEA-21, when measured in inflation-adjusted 2007 

dollars, and increased further to $1.2 billion during the first two years of 

SAFETEA-LU. Likewise, the proportion of available flexible funding 

transferred to FTA increased from about 11 percent during ISTEA to 14 

percent and 15 percent under TEA-21 and SAFETEA-LU, respectively. 

Figure 3 shows both the annual transfer amount in nominal actual dollars

and inflation-adjusted 2007 dollars to allow for comparison across time. 

 11Pub. L. No. 105-178 (June 9, 1998). 

Page 12 GAO-07-772 Highway and Transit Investments
The figure also shows the average transfer amount for each transportation 

authorization act in inflation-adjusted dollars. 

Figure 3: Annual Flexible Funding Transfers and Average Annual Transfers by Act, 1992-2006 (in 2007 dollars)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Dollars (in millions)

Source: GAO analysis of FTA data.

Year

Annual transfer (2007 dollars)

Annual transfer

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 Dollars (in millions)

Authorization act

SAFETEA-LU

TEA-21

ISTEA

1992–1997

1998–2004

2005–2006

Note: Data include flexible funding transfers by states and the District of Columbia. 

The Proportion and 

Amounts of Flexible

Funding Transferred for 

Use on Transit Vary by 

State 

Individual states have transferred flexible funding to FTA for transit 

projects at varying rates. For example, while California transferred nearly 

40 percent of its apportioned flexible funding for transit projects 

administered by FTA between 1992 and 2006, and 3 other states and the 

District of Columbia transferred at least 25 percent, 19 states transferred 

less than 2 percent of this flexible funding during the same period. Figure 

4 illustrates the state-by-state proportion of flexible funding transferred to 

FTA for transit projects. 

Page 13 GAO-07-772 Highway and Transit Investments
Figure 4: Proportion of Apportioned Flexible Funding Transferred to FTA for Transit Projects, by State, 1992-2006 

Less than 2%

2% to less than 10%

10% to less than 25%

25% or more 

Sources: GAO analysis of FTA and FHWA data; Map Resources (map).

PA

OR

NV

ID

MT

WY

UT

AZ

NM

CO

ND

SD

NE

TX

KS

OK

MN

IA

MO

AR

LA

IL

MS

IN

KY

TN

AL

FL

GA

SC

NC

VA

OH

NH

MI

CA

WA

WI NY

ME

VT

WV

CT

MA

HI

AK

RI

NJ

DE

MD

DC

★

Among the nine states included in our case-study review, we found that 

factors such as demographics, infrastructure, geography, and the 

availability of other funding sources had an effect on how much flexible

funding the states used on transit. In states such as Wyoming and parts of 

Page 14 GAO-07-772 Highway and Transit Investments
Iowa and Kentucky, for example, population is dispersed over a wide area,

and services such as shopping and health care facilities are often far from 

one another and from residential areas. Officials in these states said that 

such conditions do not lend themselves to efficient use of transit. Thus, 

Iowa state transportation officials noted, the population in Iowa is largely

reliant on the automobile for transportation, and counties, which have 

discretion about how to use certain state transportation funds, lean 

heavily toward building roads. Another reason for states using a small 

proportion of flexible funding on transit can be that the state uses other 

revenues to support transit. For example, state transportation officials in

Delaware, which has not transferred flexible funding for use on transit, 

told us that they believe state revenue sources—including the state’s 

gasoline tax—are sufficient to meet the needs of the state’s transit 

operators. Conversely, states that use a higher proportion of their flexible 

funding on transit tend to have large, congested urban areas that are 

served extensively by transit. Of the 8 urbanized areas included in our 

case-study review that are in states that use relatively more flexible 

funding on transit, 5 of them have transit operators that are among the 

largest 25 in the nation.12 One notable exception to this trend is the largely 

rural state of Vermont, which, because of the state’s commitment to 

providing bus services in communities throughout the state, spends a high

proportion of its flexible funding on transit. 

The dollar amount of flexible funding transferred by states for use on FTAadministered transit projects varied, with 3 states—California, New York, 

and Pennsylvania—collectively accounting for more than half of the 

amount transferred from 1992 through 2006.13 In contrast, 3 states—

Delaware, North Dakota, and South Dakota—had never transferred 

flexible funding for use on transit projects, and 10 other states transferred 

less than $1 million per year, on average. Figure 5 provides information on 

the amounts of flexible funding states have transferred from FHWA to FTA 

for use on transit projects since the enactment of ISTEA. 

 12San Francisco’s Bay Area Rapid Transit and Municipal Railway, Los Angeles’s

Metropolitan Transportation Authority, Seattle’s King County Metro and Sound Transit, 

Philadelphia’s Southeastern Pennsylvania Transportation Authority, and Pittsburgh’s Port 

Authority all rank among the largest 25 transit agencies in the nation. Rankings are based 

on agencies’ 2003 capital and operating budgets. 

13Values are in inflation-adjusted 2007 dollars to allow for comparison across time. 

Page 15 GAO-07-772 Highway and Transit Investments
Figure 5: Flexible Funding Transferred to FTA for Transit Projects, by State, 1992-

2006 (in 2007 dollars) 

2007 dollars (in millions)

State

Source: GAO analysis of FTA data.

0 500 1000 1500 2000 4500 5000

Wyoming

Wisconsin

West Virginia

Washington

Virginia

Vermont

Utah

Texas

Tennessee

South Dakota

South Carolina

Rhode Island

Pennsylvania

Oregon

Oklahoma

Ohio

North Dakota

North Carolina

New York

New Mexico

New Jersey

New Hampshire

Nevada

Nebraska

Montana

Missouri

Mississippi

Minnesota

Michigan

Massachusetts

Maryland

Maine

Louisiana

Kentucky

Kansas

Iowa

Indiana

Illinois

Idaho

Hawaii

Georgia

Florida

Dist. of Columbia

Delaware 

Connecticut

Colorado

California

Arkansas

Arizona

Alaska

Alabama 35.0

49.8

238.5

11.5

121.4

145.2

0.0

211.5

397.3

376.2

6.6

15.7

482.7

74.1

20.6

4.4

17.6

27.9

52.6

153.5

333.3

214.4

244.3

0.3

187.3

8.4

0.7

54.8

27.5

629.4

39.7

1,494.9

79.2

0.0

395.2

9.8

356.3

1,115.6

47.4

4.3

0.0

36.3

449.8

49.7

88.0

422.4

326.1

0.4

76.7

0.6

4,851.0

Page 16 GAO-07-772 Highway and Transit Investments
Just as the amount of flexible funding transferred for transit projects 

varied by state, the effect those funds had on the amount of federal 

funding used on transit varied as well. For example, from 1992 to 2006, 

Vermont transferred a relatively small amount of flexible funding to FTA 

for use on transit projects, but those funds accounted for over 40 percent 

of the FTA funding used in Vermont. Similarly, in 3 other states, 

transferred flexible funding made up at least 20 percent of the total FTA 

funds used in each state, while, in contrast, this figure was less than 5 

percent in 17 states. These latter states tended to have fewer large urban 

areas and lower population densities. Figure 6 shows the proportion of 

FTA funding in each state that came from transferred STP and CMAQ 

funds. 

Page 17 GAO-07-772 Highway and Transit Investments
Figure 6: Proportion of Total FTA Funding from Flexible Funding, 1992-2006 

Sources: GAO analysis of FTA data; Map Resources (map).

PA

OR

NV

ID

MT

WY

UT

AZ

NM

CO

ND

SD

NE

TX

KS

OK

MN

IA

MO

AR

LA

IL

MS

IN

KY

TN

AL

FL

GA

SC

NC

VA

OH

NH

RI

MI

CA

WA

WI NY

ME

VT

WV

CT

NJ

DE

MD

MA

AK

Less than 5%

5% to less than 10%

10% to less than 20%

20% or more

DC

HI

★

Page 18 GAO-07-772 Highway and Transit Investments
From 1992 through 2006, nearly 80 percent—or $9.1 billion—of the flexible

funding transferred to FTA was used by urbanized areas with populations

of over 1 million (see fig. 7). For the flexible funding that remained with 

FHWA for use on transit projects, 45 percent was used in urbanized areas 

with a population of over 1 million, with the remaining portion used in 

smaller areas or on state-administered projects. 

The Use of Transferred 

Flexible Funding on 

Transit Is Concentrated in 

Large Urbanized Areas 

Figure 7: Flexible Funding Transferred to FTA, by Population of Area in Which

Funding Was Used, 1992-2006

4%

9%

8%

79%

Source: GAO analysis of FTA data.

Urbanized areas 50,000 to 200,000

($0.5 billion)

Urbanized areas above 200,000 to 

1 million ($0.9 billion)

Areas less than 50,000

($1 billion)

Urbanized areas above 1 million

($9.1 billion)

Of the flexible funding transferred to FTA from 1992 through 2006, more 

than half was used on purchases of vehicles—both rail cars and motor 

vehicles such as buses—and on projects related to rail lines or bus lanes. 

The heaviest users of transferred flexible funding on transit—urbanized 

areas with populations of over 1 million—spent 55 percent on these types 

of projects. For example, in the Seattle area, flexible funding was used to 

purchase diesel-electric hybrid buses and for the development of the 

Sound Transit light rail line. Similarly, in the Northern Virginia region of 

the Washington, D.C., area, a regional transit operator used flexible 

funding for annual purchases of new buses to expand its fleet. Nationally, 

urbanized areas over 1 million in population used 14 percent of transferred 

flexible funding on passenger facilities such as pedestrian walkways, bus 

stops, and rail stations. Smaller urbanized and rural areas also used a 

Page 19 GAO-07-772 Highway and Transit Investments
significant amount—about 40 percent—of their transferred flexible 

funding on motor vehicle purchases and an additional 6 percent on bus 

and rail lines. For example, the transit agency in Des Moines, Iowa, has 

relied on flexible funding to pay for bus replacements, transferring 

approximately $2.5 million of its STP funds to FTA for this purpose over 

the last 10 years. Figure 8 provides detailed information about how large 

urbanized areas and smaller urbanized or rural areas used the flexible 

funding that they transferred to FTA. Regarding the “other” category, 

shown in figure 8, a substantial portion of this category is preventive

maintenance and contracted services (i.e., transportation service provided 

to a public transit agency by a public or private transportation provider 

under contract). 

Figure 8: Flexible Funding Administered by FTA, by Project Type and Population of Area in Which Funding Was Used, 1992-

2006 

Source: GAO analysis of FTA data.

8%

9%

31%

14%

14%

24% 6%

8%

9%

14%

40%

Vehicle purchasesa

New serviceb

Vehicle

facilities/equipmentc

Passenger/parking

facilitiesd

Busway/rail linef

Areas with populations greater than 1 million

($9.1 billion)

Areas with populations of 1 million or less

($2.4 billion)

Othere 23%

Notes: Population category is based on the categorization of the urbanized area at the time of 

obligation. 

a

Vehicle purchases: Includes purchases of buses, vans, ferry boats, and rail cars. 

b

New service: Includes projects that pay for operating costs of new transit services, such as new bus 

routes or expanded service on existing routes. 

c

Vehicle facilities/equipment: Includes projects related to vehicle or transit office facilities, such as

maintenance and storage facilities, bus garages, and service centers. Also includes the acquisition 

and rehabilitation of equipment for fare collection, communication, security, and signalization. 

Page 20 GAO-07-772 Highway and Transit Investments
d

Passenger/parking facilities: Includes transit projects to acquire, design, lease, construct, and 

rehabilitate parking facilities, such as park and rides, and passenger facilities, such as bus stops and 

shelters. 

e

Other: Includes acquiring real property, passenger amenities, marketing, leasing vehicles (including 

rail), rehabilitating vehicles (including rail), bikeways, bicycle storage facility, contracted service, 

vehicle overhaul, signalization priority projects, installing bicycle racks and other bicycle equipment, 

environmental assessments, preliminary engineering, major investment studies, administration, 

preventive maintenance, and other projects. 

f

Busway/rail line: Includes projects to build bus lanes or roadways designed for exclusive bus use. 

Also includes projects to design, construct and rehabilitate rail lines and rail yards, and the purchase 

of rail line right-of-way, among other things. 

A competitive process was often used to select projects, particularly at the 

local level, and projects not selected this way were chosen based on state 

or local transportation plans and priorities. An advantage of flexible 

funding cited by officials in our case-study review was that because of its

broad eligibility, it enables multimodal transportation planning and 

thereby allows states and localities to select projects best suited to their 

diverse needs. 

States and Urbanized 

Areas Used a Formal 

Process to Select 

Projects Suited to 

Their Priorities and 

Needs, Resulting in 

Diverse Uses of 

Flexible Funding 

Projects for Flexible

Funding Are Often 

Selected through a 

Competitive Process, 

Particularly at the Local 

Level 

Of the 10 urbanized areas included in our case-study review that have

decision-making authority for flexible funding, 7 selected projects for at 

least some of these funds using competitive processes14 in which all 

eligible project types were considered, including highway, transit, bikeway 

and pedestrian, and others. While the competitions varied somewhat from 

place to place, we found that common elements of most of these 

competitions included the following: 

• a call for projects, during which potential project sponsors—such as 

transit operators, city or county governments, or nonprofit groups—

submit formal project applications to the competition coordinator, 

typically the region’s MPO. 

 14One of these 10 urbanized areas, Philadelphia, periodically sets aside CMAQ funds for a

competitive selection process. The most recent competition was completed in 2003. The

two other urbanized areas included in our case-study review—Burlington, Vermont, and 

Wilmington, Delaware—do not have decision-making authority for flexible funds. 

Page 21 GAO-07-772 Highway and Transit Investments
• project applications that consist of basic information on the project, 

including title, sponsor, summary description, location or service area, 

cost, and funding sources. 

Case Study Example: Puget Sound 

Regional Council’s (PSRC) Project 

Selection Process

The PSRC coordinates a regional competition to identify projects to receive STP and 

CMAQ funds. Counties submit project 

applications to PSRC in one of three 

categories: designated urban centers, 

designated manufacturing and industrial 

centers, and the corridors that connect these 

centers. PSRC staff evaluate the projects on 

their technical merits, score them using 

evaluation criteria established by PSRC, and 

rank them according to these scores. All 

projects are evaluated on the availability and 

source of local funding and the project’s

potential to reduce emissions. Projects are 

also evaluated on a number of categoryspecific criteria.

After the projects have been evaluated and 

scored, the PSRC’s Regional Project 

Evaluation Committee discusses and 

prioritizes the projects. The committee–made 

up of city and county public works directors

and state and local transportation and 

environmental stakeholders—recommends a

project funding plan to the PSRC’s Transportation Policy Board (whose members are 

elected officials) for review and approval to 

be included in the region’s TIP. 

In the 2006 regional competition, 34 projects

were submitted, including 11 transit projects. 

Sixteen projects were selected to receive a

total of $52 million in CMAQ and STP 

funding, including 5 transit projects awarded 

$19.6 million.

• an initial screening of project applications in which basic eligibility 

determinations are made, such as eligibility to receive federal funds, 

project readiness, availability of local matching funds, and compatibility 

with or inclusion in the region’s long-range transportation plans. 

• a technical evaluation of the projects found to be basically eligible, 

typically carried out by a technical committee of the MPO using criteria 

established by the MPO. Some of the most common criteria are 

• air quality impact, measured by the estimated emissions reductions of 

the project;15

• traffic flow improvement or congestion reduction; 

• cost effectiveness; and 

• potential to enhance continuity of the transportation system or regional 

connectivity.

• a recommendation of projects based on the technical committee’s 

evaluation submitted to the MPO’s board of directors. 

In addition, according to federal requirements, all projects included in a

region’s TIP, regardless of how they are selected, are subject to a public 

notification and comment period.16

Some of the urbanized areas included in our case study review also 

established project categories based on the needs and priorities of the 

region to allocate funds among certain uses such as road maintenance or 

capacity enhancement, bikeway and pedestrian facilities, or transit capital 

 15According to federal CMAQ guidance, projects in air quality nonattainment and 

maintenance areas that receive CMAQ funding must reduce emissions of at least one of

several air quality pollutants, such as particulate matter or carbon monoxide. Project

proposals should include quantitative estimates of the emissions impact for all the 

pollutants for which the area is in nonattainment or maintenance status. See Publication of 

Interim Guidance on the Congestion Mitigation and Air Quality Improvement (CMAQ)

Program, 71 Fed. Reg. 76038 (Dec. 19, 2006). 

16See 23 CFR 450.316. 

Page 22 GAO-07-772 Highway and Transit Investments
improvements. These categories tended to have specific eligibility and 

application requirements and evaluation criteria, as can be seen in the 

following examples: 

• In the Virginia Beach, Virginia, area, six categories were used in the MPO’s 

competition for STP funds.17 The projects competing in the intermodal 

transportation category were evaluated on whether the project would 

establish opportunities for linkages between transportation modes and 

improve rail or vehicular access to freight facilities, among other criteria. 

In contrast, projects competing in the highway capacity category were 

evaluated on criteria such as potential impact on congestion levels, system 

continuity, and safety improvements. 

• In Des Moines, Iowa, STP projects were awarded in four categories.18

Projects competing in the major construction category were evaluated 

based on their potential to increase future traffic volumes and their 

functional classification (e.g., principal arterial roads ranked higher than 

small, feeder roads), among other things. Projects competing in the 

alternative transportation category were evaluated based on congestion 

reduction, air quality benefit, and the fuel efficiency of the mode of 

transportation. 

On the state level, of the nine states included in our case-study review, 

four—Iowa, Kentucky, Vermont, and Virginia—awarded a portion of their 

flexible funding through a competitive process.19 Statewide competitions—

typically sponsored by state departments of transportation—were similar 

to local competitions, although some of them required projects to be 

vetted at the local level before being submitted to the statewide 

competition. 

 17The six categories are highway capacity, accessibility and operational improvements; 

intermodal transportation projects; transit projects; planning studies; transportation 

demand management projects; and intelligent transportation systems. 

18The four categories are major construction projects, minor construction projects, 

preservation projects, and alternative transportation projects. 

19Until recently, Washington also used a competitive process for a portion of its flexible 

funds. 

Page 23 GAO-07-772 Highway and Transit Investments
Although most of the urbanized areas included in our case-study review 

that have decision-making authority for flexible funding used competitions 

for at least some of these funds, they also selected some projects and 

programs based on local policy goals and priorities. Some examples of 

locally established priorities that we found in the urbanized areas included

in our case-study review include the following: 

Flexible Funding Projects 

Sometimes Selected Based 

on Policy Goals, Priorities, 

or Long-Range Plans 

• In the San Francisco area, transportation stakeholders projected a 

significant shortfall for transit capital expenditures over a 25-year period. 

The region’s MPO board of directors decided to make this a priority use 

for STP funds, allocating the funds to each transit operator based on its 

portion of the projected shortfall. 

• In Pittsburgh, due to the age of the region’s roadways and transit systems, 

there was a heavy emphasis on the preventive maintenance of this 

infrastructure, with about 80 percent of all available funding—including 

flexible funding—being used for this purpose. Specific projects were 

selected based on continuous analysis of transportation infrastructure 

needs, the region’s long-range plan, and input from the public and the 

state’s transportation department. 

For most of the states in our case-study review, flexible funding that was 

neither suballocated to urbanized areas nor awarded competitively was, 

along with most other federal and state funding sources, used on projects 

identified through state transportation planning processes; these 

processes typically considered transportation priorities, conditions, and 

needs throughout the state. Because state departments of transportation 

are primarily responsible for building and maintaining roads, project 

selection at the state level tends to focus on roads, including construction 

of roadways and related projects to manage road usage such as intelligent 

transportation systems. For example, Kentucky’s transportation 

department uses STP funds and other available funding sources for 

priority road projects that the state identifies based on a number of 

factors, such as transportation problems across the state, need (based on a 

statewide needs analysis), and project eligibility. Looking at these 

considerations, the transportation department develops a list of projects 

and evaluates them alongside available funding sources, including both 

FHWA and state sources, to determine which projects will be funded with 

which sources. Similarly, Caltrans, the California state transportation 

department, applies statewide STP funding, along with other federal and

state funding sources, to projects in its State Highway Operation and 

Protection Program, which is developed to address state priorities such as 

traffic safety and highway and bridge preservation. 

Page 24 GAO-07-772 Highway and Transit Investments
In contrast, some states in our case-study review set aside a portion of 

their flexible funding to be used for specific projects or programs. 

Following are three examples: 

• Wyoming and Virginia both use statewide STP funds on specific categories 

of roads. Wyoming allocates these funds among county roads, roads in the 

state’s urban areas, and industrial and commercial roads such as those 

leading to mines. Virginia divides statewide STP funds among primary, 

urban, and secondary roads.20 The decisions about which projects to fund 

for these categories of roads are made by Virginia’s Commonwealth 

Transportation Board, the city or town, and the county board of 

supervisors, respectively.

• Pennsylvania’s transportation financial guidance designates $25 million of

the state’s flexible funding to be set aside each year for use by the state’s 

transit agencies. (In 2006, the state’s total flexible funding apportionment 

was about $290 million.) The majority of the $25 million goes to the state’s

two largest transit operators, Philadelphia’s Southeast Pennsylvania 

Transportation Authority and Pittsburgh’s Port Authority of Allegheny 

County. 

• Virginia state law mandates that a percentage of its flexible funding—

amounting to about $22 million each year, according to state officials—be 

used for public transportation. (In 2006, Virginia’s total flexible funding 

apportionment was about $196 million.) A portion of the $22 million must 

be used for track lease payments for a Northern Virginia commuter rail 

system; the remaining funds are spent on transit projects selected by the 

state, usually in rural and small urban areas. 

As a result of the broad eligibility of STP and CMAQ funds, states and 

urbanized areas can use a multimodal approach to transportation 

planning, selecting projects that they believe best address their 

transportation priorities—whether a road project, a transit project, or 

projects such as intelligent transportation systems or traffic demand 

management strategies. Accordingly, the transportation priorities that 

states and urbanized areas choose to address vary based on their differing 

needs and circumstances. Among the urbanized areas and states included 

in our case-study review that use a high proportion of flexible funding on 

Flexibility Enables State 

and Local Officials to Fund 

Their Highest Priorities, 

Which Is Advantageous 

Due to Demand for 

Transportation Funding 

 20Primary roads are those that connect cities and towns with each other and with 

interstates. Secondary roads serve inter-regional and localized traffic. 

Page 25 GAO-07-772 Highway and Transit Investments
transit, we found the following distinctive uses of these funds, illustrating 

how outcomes vary with state and local priorities: 

• Constructing the Sound Transit System in Seattle. Sound Transit, 

established in 1995 to build a mass transit system serving the three 

counties in the Seattle region, is still in a capital-intensive phase, as it 

continues to complete the infrastructure for the fixed-route portion of the 

system, including construction of a light-rail line connecting Seattle with 

the Seattle-Tacoma airport and extending its commuter-rail service south 

of Tacoma. It has used more than $112 million in flexible funding for rail 

car purchases and rail line construction, among other things. In 2007, it 

was awarded $9 million in flexible funding to purchase the right-of-way for 

two light-rail stations. 

• Providing new services in Virginia Beach. The Virginia Beach area, an 

urbanized area of about 1.3 million people in southeastern Virginia, has 

significant traffic congestion due to the northern and southern halves of 

the area being divided by the confluence of the Elizabeth and James 

Rivers, which is crossed by seven bridges and tunnels. The regional transit 

operator, Hampton Roads Transit, uses flexible funding to provide new 

services to help relieve traffic congestion. According to Hampton Roads 

Transit officials, obtaining local funding for regional projects can be 

difficult because cities within in the region are sometimes reluctant to pay 

for services in another city. In this way, officials said, flexible funding can

better benefit the community by making new services possible. 

• Rehabilitating Pennsylvania’s rail systems. At the end of 2004, transit 

systems in Pennsylvania were facing operating budget shortfalls because 

transit growth had outstripped the existing revenue sources. The state’s 

legislature adjourned before taking action to provide either long- or shortterm transit funding. In light of this, a number of transit agencies began 

considering measures to reduce their costs by decreasing service and 

laying off staff and to increase income by raising fares. In an effort to 

avoid service cuts and fare increases, Pennsylvania’s governor proposed 

transferring more than $400 million of federal highway funds to FTA to be 

used on transit. For the transit agencies in Philadelphia, Pittsburgh, and 

other parts of the state to receive the funding, the MPOs in these areas had 

to vote to allocate the funds to transit. In Philadelphia and Pittsburgh, 

these additional funds were used on eligible capital expenses such as 

preventative maintenance, allowing other state funds to be used to cover 

operating deficits. 

• Subsidizing rural transit services in Vermont. Vermont is a largely rural

state with a small population, and, according to the transit officials we 

Page 26 GAO-07-772 Highway and Transit Investments
spoke with, has a small tax base on which to draw for funding services 

such as transit. The state, however, is committed to preserving its current 

quality of life—which includes low levels of pollution and congestion—

and allowing its elderly population to “age in place,” meaning that senior

citizens can remain in their homes and still have access to transportation 

for medical appointments, shopping, and other necessities. To further 

these goals, the state’s transportation department uses a significant 

amount of flexible funding on eligible capital expenses such as preventive 

maintenance to help support bus services in communities throughout the 

state. 

In the course of our case-study review, we asked state and local officials 

their views on the outcomes of flexible funding. Officials with the MPOs 

and state transportation departments we met with said that due to its 

broad, multimodal eligibility, flexible funding considerably benefits their 

ability to plan and fund their transportation programs, particularly 

because of the challenge of finding sufficient revenues to pay for 

transportation improvements. One specific advantage cited by a number of 

these officials was that flexible funding can serve as an additional funding 

source for transit. State officials in Vermont and Virginia noted that 

flexible funding makes it possible to provide bus service in small towns 

and rural areas through the funding of expenses such as bus purchases, 

bus facilities construction, and preventive maintenance. State and local 

officials in several states also pointed out that flexible funding is 

particularly beneficial for regional projects. For example, in Seattle, 

flexible funding is especially well-suited to meeting the region’s goal of 

connecting transportation hubs. Although there was wide agreement 

among these state and local officials that flexible funding is beneficial, 

officials from two states—California and Pennsylvania—also said that in 

the context of pressing needs on both the highway and transit sides, using 

flexible funding on transit may impact highway programs. In the words of 

one MPO official in Pennsylvania, using flexible funding on transit is “a 

zero-sum equation,” because, even though it provides much-needed 

resources for transit projects, it means that resources for the highway 

program are reduced an equal amount. Similarly, an official with the MPO 

in the Los Angeles area noted that many area freeways are in poor 

condition—a function of inadequate funding for transportation in general,

and, to a small degree, the use of flexible funding on transit. Other state 

and local officials, however, said they did not believe using this funding for 

transit had negatively impacted roads, and that the larger problem is 

insufficient revenues for both highways and transit. Officials with 

Vermont’s state transportation department, for example, said that although 

there are insufficient funds for road maintenance in the state, they 

Page 27 GAO-07-772 Highway and Transit Investments
attributed this condition to a lack of state funding rather than the use of 

flexible funding on transit. 

We provided a draft of this report to DOT for review. DOT generally 

agreed with the report’s findings. We received comments and technical 

clarifications from FTA’s Office of Budget and Policy, Office of Program 

Management, and Office and Planning and Environment, and from FHWA’s 

Office of Planning, Environment, and Realty, which we incorporated in the 

report as appropriate. We also provided officials from the states and 

localities included in our case studies with an opportunity to review 

segments of the report pertaining to their jurisdictions. These officials 

provided technical clarifications, which we incorporated in the report as 

appropriate.

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Transportation, and the state and local 

officials with whom we spoke. We will also make copies available to 

others on request. In addition, the report will be available at no charge on

the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-2843 or siggerudk@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made key contributions to this report are 

listed in appendix III. 

Katherine A. Siggerud 

Director, Physical Infrastructure Issues 

Agency Comments 

Page 28 GAO-07-772 Highway and Transit Investments
List of Committees 

The Honorable Christopher J. Dodd 

Chairman 

The Honorable Richard C. Shelby 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Barbara Boxer 

Chairman 

The Honorable James M. Inhofe 

Ranking Member 

Committee on Environment and Public Works 

United States Senate 

The Honorable Charles Schumer 

Chairman 

The Honorable Mike Crapo 

Ranking Member 

Subcommittee on Housing, Transportation, and Community Development 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Johnny Isakson 

Ranking Member 

Subcommittee on Transportation and Infrastructure 

Committee on Environment and Public Works 

United States Senate 

The Honorable James L. Oberstar 

Chairman 

The Honorable John L. Mica 

Ranking Republican Member 

Committee on Transportation and Infrastructure 

House of Representatives 

Page 29 GAO-07-772 Highway and Transit Investments
The Honorable Peter DeFazio 

Chairman 

The Honorable John J. Duncan Jr. 

Ranking Republican Member 

Subcommittee on Highways and Transit 

Committee on Transportation and Infrastructure 

House of Representatives 

Page 30 GAO-07-772 Highway and Transit Investments
A

Multiple Stake

Ac

ppendix I: Funding Transfers Involve

holders and Checks to Ensure 

curacy

Page 31 GAO-07-772

Appendix I: Funding Transfers Involve 

Multiple Stakeholders and Checks to Ensure 

Accuracy 

To examine the procedures used to transfer flexible funding from the 

Federal Highway Administration (FHWA) to the Federal Transit 

Administration (FTA) we spoke with officials from FHWA and FTA, both 

in their Washington, D.C., headquarters and in field offices. We also 

reviewed guidance on the transfer process issued jointly by FHWA and 

FTA and examples of documentation used to process requests for 

transfers. 

When states or local planning bodies fund transit projects with funds from 

the Surface Transportation Program (STP) or the Congestion Mitigation 

and Air Quality Program (CMAQ), they have the option to transfer these 

funds to FTA for project administration or leave them with FHWA. The 

transit agency officials we spoke with said that when they are awarded 

STP or CMAQ funds for a project they are implementing, they generally 

prefer to transfer these funds to FTA for administration because of their 

familiarity with FTA’s personnel, grantmaking procedures, and 

requirements and because of FTA’s expertise in administering transit 

projects. Requests to transfer FHWA funding to FTA are submitted by 

state departments of transportation because the funding comes from state 

federal-aid highway apportionments. In deciding whether to approve 

transfer requests, FHWA checks to see if projects are eligible for flexible

funding, if states have funding available for the transfer, and if the projects 

for which funding is being requested are included in the statewide 

transportation improvement program (a requirement for all projects 

receiving federal-aid highway or transit funds). 

When the transfer is carried out, budget authority—which permits an 

agency to incur financial obligations such as the awarding of grants—is 

transferred from FHWA to FTA, and the funds necessary to reimburse 

grantees for costs incurred is transferred from the highway account to the 

mass transit account of the Highway Trust Fund. DOT recently 

implemented an accounting change whereby the funds necessary to 

reimburse grantees are transferred to the mass transit account as grantees 

incur costs, rather than all at once when the transfer is approved. 

According to DOT officials, this change is intended to slow the decline of

the highway account’s balance. After the budget authority has been 

transferred to FTA, FTA makes an apportionment in the grantee’s account

using the grants management system. To obtain the transferred funds, 

Federal, State, and Local 

Governments Involved in 

Transfer Process 

 Highway and Transit Investments
Appendix I: Funding Transfers Involve

Multiple Stakeholders and Checks to Ensure 

Accuracy

grantees must have a grant application approved by FTA.1 The procedures 

for transferring funds were detailed in joint guidance issued by FHWA and

FTA in 1999; the agencies are in the process of preparing updated joint 

guidance. Figure 1 provides more detail on the steps in the transfer 

process. 

 1

To help ensure that FHWA funds transferred to FTA can be clearly identified, FTA no 

longer allows grantees to add transferred funds into existing grants with FTA formula 

funds, as was the practice in some states. FTA grantees are now required to submit a new

grant application specifically for funds that have been transferred to FTA. FTA officials 

said this change will allow better tracking of flexible funding used on transit. This change is 

reflected in updated FTA guidance on grant applications. 

Page 32 GAO-07-772 Highway and Transit Investments
Appendix I: Funding Transfers Involve

Multiple Stakeholders and Checks to Ensure 

Accuracy

Figure 9: Steps Required to Transfer Funds from State’s FHWA Account to Transit Agency’s FTA Account 

Local State Federal region/

division

Federal

headquarters

MPO and transit operator

(FTA grantee)

• Through transportation 

planning process, 

determines that flexible 

funds will be used on a

specific transit project

• Updates TIP to include this

project

• Informs state DOT it would 

like funds to be transferred 

to FTA; provides project 

information

State DOT (FHWA grantee)

• Submits request letter to 

the FHWA Division office

• Letter specifies the project 

description, location, cost, 

and funding source (CMAQ 

or STP)

FHWA state division office

• Checks the following: 

 -Is the project eligible for 

the funding type?

 -Is it included in state’s

transportation improvement program?

 -Are funds available in the 

state’s apportionment?

• Works with FTA region to 

check project eligibility

• If approved, FHWA 

division forwards state’s

request to FHWA HQ and 

FTA HQ along with a letter 

of concurrence; copies

state DOT on this

correspondence

FHWA HQ budget office

• Confirms with FTA the 

amount to be transferred, 

the funding source (STP or 

CMAQ), and the FTA 

program to which the funds

will be apportioned

• Forwards request to FHWA 

FMIS Team

• Forwards request to FHWA 

Finance Division

• Reduces FHWA budget 

authority in U.S. DOT’s

accounting system

FHWA HQ finance office

• Verifies accuracy of request

• Submits request to 

Treasury Department to 

transfer funds and budget 

authority

FTA HQ budget office

• After Treasury Department 

confirms transaction, 

budget office apportions

funds in grants management system, TEAM

• Accounting office increases

FTA’s budget authority in 

DOT’s accounting system

• Notifies region that funds

are available

FTA regional office

• Notifies grantee (such as a

transit agency) that funds

are available

Transit operator

(FTA grantee)

• Submits grant application 

to FTA to access

transferred funds

FHWA HQ financial management office and FMIS team

• Verifies availability of funds

in state’s account

• Reduces amount of 

apportionment and 

obligation limitation in 

state’s account 

Source: GAO analysis of information provided by FTA and FHWA.

Highway Trust Fund -

Mass transit account

Treasury Department

Highway Trust Fund -

Highway account

a

b

c

a

Other stakeholders, including the state department of transportation, the FTA Region, and the FHWA

Division take part in the transportation planning process. 

b

The Fiscal Management Information System (FMIS) is FHWA’s major financial information system 

for tracking federal-aid highway projects on a project-by-project basis. 

Page 33 GAO-07-772 Highway and Transit Investments
Appendix I: Funding Transfers Involve

Multiple Stakeholders and Checks to Ensure 

Accuracy

c

The Transportation Electronic Award Management system (TEAM) is FTA’s grants management 

system. 

FHWA and FTA Check 

Project Eligibility and 

Have Processes in Place to 

Help Ensure Accurate 

Transfers 

Eligibility checks of projects receiving flexible funding occur before, 

during, and after the transfer process. Prior to states’ submitting transfer 

requests, FTA and FHWA participate in the statewide and metropolitan 

transportation planning processes and provide technical assistance on 

issues such as funding eligibility. After states submit requests to transfer 

funds, checks on project eligibility occur at FHWA division offices when 

state transfer requests are received, and at the FHWA Financial 

Management Office to ensure funds are available and requests meet 

transferability requirements. FTA’s subsequent review of grant 

applications includes checking project eligibility in greater detail. 

According to FHWA and FTA officials, the following checks occur to help 

ensure that the correct amount of funding and budget authority is 

transferred from FHWA to FTA: 

• Recording of steps in the transfer process. FHWA records information on 

the amount of funds being requested, the type of funds (such as CMAQ or 

STP) and the state requesting the transfer, as well as dates of key steps in 

the transfer process. FTA also tracks key information on transfer requests, 

including the date of the letter requesting the transfer, the grantee 

receiving the funds, the description and FTA project number of the transit 

project receiving funds, the type of FHWA funding to be transferred, and 

the amount to be transferred. 

• Reconciliation process. Before transfers are finalized, FHWA and FTA 

follow procedures to ensure the correct amounts are transferred. The 

FHWA Office of Budget reconciles transfer requests with a report 

generated by FMIS that documents the amounts and the program codes to 

be transferred, then provides this and other supporting information to the 

FTA Office of Budget. The FTA Office of Budget also reconciles transfer 

requests with information generated by FMIS. Before the FHWA Office of 

Budget requests that the FHWA Office of Finance move the funding 

through the Department of the Treasury, the amount to be transferred is 

agreed upon by FHWA and FTA. 

• Records retention. Hard copy files for each transfer request received are 

maintained by FTA for 5 years and then archived; files are maintained by 

FHWA for 20 years. 

Page 34 GAO-07-772 Highway and Transit Investments
Appendix II: Objectives, Scope, and Appendix II: Objectives, Scope, and Methodology 

Methodology 

To determine the degree to which flexible funding has been used on 

transit and how this use varies across states and urbanized areas, we 

analyzed data from FTA and FHWA. We assessed the reliability of the data 

and found it was sufficiently reliable for the purposes of this report. These 

data included information about the funds transferred to FTA for project 

administration, funds remaining at FHWA for use on transit projects, the 

overall federal-aid highway program apportionments, and apportionments 

for the CMAQ and STP programs. We obtained information from FTA’s 

grants management system, called the Transportation Electronic Award 

Management (TEAM) system, regarding the amount of STP and CMAQ 

funds transferred to FTA for project administration. These data were 

provided on an annual basis, from fiscal years 1992 through 2006,1

 allowing 

us to calculate the amounts transferred by year and the annual averages 

for each transportation authorization bill. Additional information was 

provided about the population of jurisdictions using these funds; the 

purpose for which funds were spent, such as vehicle purchases, busways, 

rail lines, or new service; and the proportion of FTA funding in each state 

that came from flexed funds. To identify transit spending remaining under 

FHWA administration, we requested that FHWA provide data from the 

Fiscal Management Information System (FMIS)—its project-tracking 

information system—for projects that state officials had coded as being 

transit related. We used additional documentation provided by FHWA 

officials to determine the source of federal funding (i.e., the appropriation 

bill) and information about spending by individual urbanized areas for the 

FHWA-administered transit projects. Using these data, we calculated the 

total amount of flexible funding spent on transit-related projects 

administered by FHWA during ISTEA, TEA-21, and SAFETEA-LU. We did 

not independently verify that all projects that states coded as having a 

transit component in FMIS in fact had a transit component. We also 

analyzed FHWA’s spending for transit projects by the population of the 

area implementing the project. In order to determine the total amount of 

flexible funding used on transit projects since 1992, we analyzed funding 

for transit projects administered by FHWA and funding transferred to FTA 

for project administration. We also compared the unadjusted total 

amounts with the overall federal-aid highway apportionments for fiscal 

years 1992 through 2006 to calculate the proportion of highway funding 

spent for transit projects during this period. To calculate the proportion of 

flexible funding spent on transit projects under FTA administration, we 

 1

ISTEA was enacted in December 1991. As a result, our analysis began with fiscal year 

1992. 

Page 35 GAO-07-772 Highway and Transit Investments
Appendix II: Objectives, Scope, and

Methodology 

compared annual apportionment amounts for the programs to the amount 

transferred. Comparisons were done both on the national level and by

state. We also used information from our case-study interviews (see 

below) to provide context for differences in the use of flexible funding 

among states and to identify examples of types of projects commonly 

using these funds. 

To determine how states and urbanized areas have made decisions about 

what projects to fund with flexible funding and what the outcomes of 

these decisions have been, we selected 9 states and 12 urbanized areas for 

case-study reviews. To select states, we used three measures to determine 

how states’ prior use of flexible funding on transit compared: (1) the 

absolute dollar amount of flexible funding transferred from FHWA to FTA 

for transit projects, (2) the proportion of available flexible funding 

transferred, and (3) the proportion of FTA funding in the state that came 

from transferred funds.2

 We selected five states that ranked in the top 10

for at least two of these measures for site visits—California, Pennsylvania, 

Vermont, Virginia, and Washington. We also selected two states—Iowa and 

Kentucky—that were ranked among the lowest on these measures among 

states that had transferred funds at least five times since the enactment of

TEA-21, and two other states—Delaware and Wyoming—that had either 

never transferred funds or done so fewer than five times in the same 

period. For these states, we conducted telephone interviews. In each of 

these states, we chose at least one urbanized area to include in the case

study. In the states that used a relatively high amount of transferred 

flexible funding on transit, we selected urbanized areas that had used the 

largest proportion of the state’s flexible funding on transit; in states that 

transferred relatively little or no flexible funding for use on transit 

projects—because there were no urbanized areas that had used a 

significant amount of transferred flexible funding on transit—we selected 

the largest urbanized area in the state. In the cases of California, 

Pennsylvania, and Virginia, we included two urbanized areas in each state 

because each of these areas had used significant amounts of flexible 

funding for transit. These cases were selected using a nonprobability 

sample, and, consequently, the results cannot be used to make inferences 

about the entire population. Table 1 shows the states and urbanized areas 

included in our review. 

 2

We used data from fiscal years 1998 through 2005 to rank states by the absolute amount of 

flexible funding transferred and by the proportion of available funds—STP and CMAQ—

transferred. Data from fiscal years 1992 through 2005 were used to determine the

proportion of FTA transit funding that came from transferred flexible funds. 

Page 36 GAO-07-772 Highway and Transit Investments
Appendix II: Objectives, Scope, and

Methodology 

Table 2: States and Urbanized Areas Selected for Case Studies 

State Urbanized area

States using relatively more flexible California Los Angeles 

funding on transit San Francisco

Pennsylvania Philadelphia

Pittsburgh

Vermont Burlington

Virginia Virginia Beach

Northern Virginia

Washington Seattle

States using relatively less flexible Delaware Wilmington

funding on transit Iowa Des Moines 

Wyoming Cheyenne

Kentucky Louisville

Source: GAO.

In each state included in our case-study review, we spoke with officials at 

the FHWA division in the state and at the FTA regional office with 

jurisdiction over the state, and with relevant officials in the state 

department of transportation. In the urbanized areas included in our casestudy review, we spoke with officials from metropolitan planning 

organizations and transit agencies. We asked these officials about the 

state’s or locality’s decision-making process in developing transportation 

plans and programs and in choosing projects to receive flexible funding, 

the mechanics of transferring funds, specific projects funded using these 

funds, and the impact of flexible funding on transportation as a whole 

(both transit and nontransit). We collected and reviewed: (1) 

documentation from the case-study states and urbanized areas, including 

information on state and metropolitan planning processes, the criteria and 

procedures used in project selection competitions, and projects funded 

using flexible funding; (2) federal regulations and guidance related to 

transportation planning and the CMAQ and STP programs; and (3) prior 

reports on the use of flexible funding by states and urbanized areas. We 

also interviewed representatives of the following associations to obtain 

their views on flexible funding: the American Association of State Highway 

and Transportation Officials, the American Highway Users Alliance, the 

American Public Transportation Association, the American Road and 

Transportation Builders Association, the Association of Metropolitan 

Planning Organizations, and the Surface Transportation Policy 

Partnership. 

Page 37 GAO-07-772 Highway and Transit Investments
Appendix II: Objectives, Scope, and

Methodology 

To obtain information on the procedures used to transfer budget authority 

and funds from FHWA to FTA, we interviewed officials involved in 

overseeing or carrying out the steps in the transfer process, including 

those with FTA’s Office of Budget, Office of Program Management, and 

Office of Planning and Environment; FHWA’s Office of Budget and Office 

of Financial Management; the Office of the Secretary of Transportation’s 

Office of Budget; the FTA regions with jurisdiction over the states 

included in our case-study review; and the FHWA divisions in these states. 

We also reviewed joint FTA-FHWA guidance on the procedures used to 

transfer funds. 

Page 38 GAO-07-772 Highway and Transit Investments
Appendix III: GAO

A

 Contact and Staff 

cknowledgments 

Page 39 GAO-07-772

Appendix III: GAO Contact and Staff 

Acknowledgments 

Katherine A. Siggerud, (202) 512-2834 or siggerudk@gao.gov

In addition to the contact named above, Ashley Alley, Amber Edwards, 

Edda Emmanuelli-Perez, Colin Fallon, Heather Halliwell, Carol Henn, 

Molly Laster, Faye Morrison, Joshua Ormond, Robert Owens, George 

Quinn, and Terry Richardson made key contributions to this report. 

GAO Contact 

Staff 

Acknowledgments 

(542093) Highway and Transit Investments
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