a

GAO

United States General Accounting Office

Staff Study

October 2001 PHYSICAL 

INFRASTRUCTURE

Crosscutting Issues 

Planning Conference 

Report

GAO-02-139

Page i GAO-02-139 Crosscutting Issues Planning Conference

Contents

Preface 1

Challenges Facing the Nation’s Physical Infrastructure 2

Approaches for Addressing Infrastructure Challenges 3

Appendixes

Appendix I: Introduction to Panel 1 by Paul Posner, Managing Director, 

Federal Budget and Intergovernmental Relations 8

Appendix II: Presentation by Joseph Coates, President, Joseph F. Coates 

Consulting Futurist Inc. 9

Appendix III: Presentation by Anthony Downs, Senior Fellow, The 

Brookings Institution 14

Appendix IV: Presentation by Bruce McDowell, Fellow, National Academy 

of Public Administration 21

Appendix V: Presentation by Jan Whittington, Independent Planning 

Consultant 26

Appendix VI: Introduction to Panel 2 by Steve Cohen, Assistant Director, 

Physical Infrastructure 37

Appendix VII: Presentation by Robert Dunphy, Senior Resident Fellow, 

Transportation, Urban Land Institute 39

Appendix VIII: Presentation by Lawrence Frank, Assistant Professor, 

Georgia Institute of Technology 45

Appendix IX: Presentation by David Rusk, Urban Policy Consultant, 

Former Mayor of Albuquerque, New Mexico 59

Appendix X: Presentation by Paul Souza, Senior Policy Analyst, National 

Governors Association 65

Appendix XI: Introduction to Panel 3 by Bernie Unger, Director, Physical 

Infrastructure 71

Appendix XII: Presentation by David Bibb, Deputy Associate Administrator 

for Real Property, Office of Governmentwide Policy, GSA 72

Appendix XIII: Presentation by Beth Shearer, Director, Federal Energy 

Management Program, Department of Energy 81

Appendix XIV: Presentation by James Sullivan, Director of Capital 

Budgeting, Department of Veterans Affairs 86

Appendix XV: Presentation by Steven Weiner, President, Signet Partners 94
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Appendix XVI: Introduction to Panel 4 by JayEtta Hecker, Director, Physical 

Infrastructure 103

Appendix XVII: Presentation by Edward L. Hudgins, Director, Regulatory 

Studies, Cato Institute 104

Appendix XVIII: Presentation by Robert Pepper, Chief, Office of Plans and 

Policy, Federal Communications Commission 111

Appendix XIX: Presentation by Dorothy Robyn, Guest Scholar, the 

Brookings Institution 117

Appendix XX: Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers 125

Tables Table 1: Higher Education Demand Management: Capital Cost 

Savings From Year-round Operation 33

Table 2: Capital Investment Proposal Thresholds 89

Table 3: Comparison of Weights, 2000-2003 91

Table 4: Alliances, JVs, and Acquisitions Used to Expand 

Offerings 128

Figures Figure 1: Persistent Population Growth: California’s Population 

1930-1996 (in thousands) 27

Figure 2: Demand Rises for Operations: Real State Operations 

Expenditures 1930-1996 (per capita in 1996 dollars) 28

Figure 3: Local Needs Plateau: Real State-Provided Local 

Assistance 1930-1996 (per capita in 1996 dollars) 29

Figure 4: Capital Outlay Trails Off: Real State Capital Outlays 

1930-1996 (per capita in 1996 dollars) 30

Figure 5: GO Bonds Don’t Pick Up Slack: Real GO Bond Debt 

1930-1996 (per capita in 1996 dollars) 31

Figure 6: Why Roads Are Crowded 47

Figure 7: Vehicle-Miles Traveled per Capita, 1990, Major U.S. 

Urbanized Areas 48

Figure 8: Population Change in the Atlanta Metropolitan Region, 

1990-1999, by Census Tract 49

Figure 9: High Growth Areas in Atlanta, 1995-2025 50

Figure 10: Average Distance Traveled to Recreate 53

Figure 11: Comparing Two Families 54

Figure 12: Neo-traditional Development vs. Suburban 

Development 55

Figure 13: Household Vehicle Miles of Travel, by Mean Block 

Area 57
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Figure 14: Household NOx Emissions, by Mean Block Area 58

Figure 15: Total Governmentwide Space Inventory 73

Figure 16: Total Governmentwide Office Space Inventory 74

Figure 17: Federal Agencies’ Real Estate Holdings, in Thousands of 

Square Feet 75

Figure 18: Distribution of Governmentwide Space, by Type of 

Use 76

Figure 19: Fiscal Year 2002 Capital Budget (in millions) 87

Figure 20: Fiscal Year 2003 Criteria Weights 90

Figure 21: Partnership Structure 95

Figure 22: Federal Center South, Seattle, Washington 97

Figure 23: Federal Office Building 8 (2nd and C), Washington, 

D.C. 99

Figure 24: IRS Service Center, Andover, Massachusetts 100

Figure 25: Federal Office Building, Charleston, South Carolina 101

Figure 26: Key Postal Players in Position to Be Global Super

Powers 127

Figure 27: The Changing Industry Paradigm 130
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Abbreviations

ATC air traffic control

CALTRANS California Department of Transportation

CHAS comprehensive housing affordability strategy

CIMIS California Irrigation Management Information System

CLEC competitive local exchange carrier

CSU California State University

DOD Department of Defense

DOE Department of Energy

DOT Department of Transportation

DSL digital subscriber line

EPA Environmental Protection Agency

FAA Federal Aviation Administration

FCC Federal Communications Commission

FDA Food and Drug Administration

FTA Federal Transit Administration

FTE full-time equivalent

GO bonds General Obligation bonds

GPRA Government Performance and Results Act

GSA General Services Administration

HUD Department of Housing and Urban Development

ILEC incumbent local exchange carrier

IRS Internal Revenue Service

ISTEA Intermodal Surface Transportation Efficiency Act

IT Information Technology

JV joint venture

MVPD multichannel video program distributor

NAFTA North American Free Trade Agreement

NASA National Aeronautics and Space Administration

NEC National Economic Council

OMB Office of Management and Budget

SMARTRAQ Strategies for Metro Atlanta's Regional Transportation and Air

Quality

ULI Urban Land Institute

UPU Universal Postal Union

USPS United States Postal Service

VA Department of Veterans Affairs
Page 1 GAO-02-139 Crosscutting Issues Planning Conference

Preface

The nation’s physical infrastructure consists of a broad array of systems 

and facilities that house and transport people and goods and provide 

services. Among other things, this infrastructure includes transportation 

networks, including roads, airports, rail, and mass transit; housing; federal 

buildings and facilities; and postal and telecommunications services. 

These systems and facilities do not exist in isolation: decisions about 

where to build or expand roads affect decisions about housing and vice 

versa, and, in turn, these decisions affect the need for and location of 

public facilities and communications and energy services. Historically, the 

federal government has supported the construction of much of this 

infrastructure and helped to ensure the safety of services it provides. It 

builds, owns, operates, and maintains federal infrastructure such as federal 

buildings, dams, and waterways; financially assists state and local 

governments to build, own, operate, and maintain facilities such as roads, 

transit systems, and airports; and regulates public works. State and local 

governments and the private sector also play significant roles in planning, 

developing, and maintaining this infrastructure.

As we move into the 21st century, the following trends are likely to 

influence the nation’s needs for interconnected infrastructure systems and 

services.

• The population will increase. From 2001 to 2020, the total population of 

the United States is expected to increase by close to 50 million people, 

or about 17 percent.

• The population will age. From 2001 to 2020, the number of Americans 

aged 55 and over is expected to increase by about 60 percent.

• The surburbanization of population and employment will continue.

These trends hold wide-ranging and varied implications for the nation’s 

physical infrastructure. The steps that the nation takes to accommodate 

these trends as it plans for and institutes infrastructure-related policy and 

investments in the coming years will have a direct affect on America’s 

economy and quality of life. 

Interrelationships among the nation’s infrastructure systems often have not 

been fully considered during the planning and building of infrastructure. 

To better understand these connections, we sponsored a conference on 

June 14, 2001, to consider a number of infrastructure-related issues from a 

crosscutting perspective. The conference brought together scholars, 

practitioners, and policy experts with a wide range of expertise in physical 

infrastructure issues. We grouped the discussion into four panels, which 
Preface

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we organized around the broad themes of infrastructure needs, sustainable 

development, federal facilities, and the promotion of efficiency and access 

to infrastructure services. Sixteen panelists offered provocative thoughts 

on the nation’s infrastructure challenges and opportunities. Their thoughts 

are summarized below. The introductions by panel moderators and the full 

remarks of the panelists are contained in appendixes I through XX. The 

views presented here are those of the panelists and do not necessarily 

represent our views. We plan to consider this information in formulating 

plans for our future work. 

This conference predated the events of September 11, 2001, which have 

fundamentally altered the nation’s consideration of physical infrastructure 

issues. Therefore, this conference did not address the relationship of 

infrastructure policy to national security or the issue of protecting the 

nation’s infrastructure from violence.

Challenges Facing the 

Nation’s Physical 

Infrastructure 

Conference participants identified many challenges facing the nation’s 

physical infrastructure. Although these concerns varied depending on the 

participant’s background, perspective, and area of expertise, the following 

common themes emerged:

• The demand for infrastructure services is increasing. In 2000, GAO 

reported that, for all communities, the need to build and repair 

infrastructure tops the list of growth-related challenges.1

 One 

conference speaker asserted that, as the population increases, 

especially if the economy continues to expand, there will likely be more 

demand for infrastructure services. For example, this speaker predicted 

that a rise in population and vehicle ownership would lead to increased 

traffic congestion. To address this congestion, new and expanded 

transportation networks and technologies may be needed. According to 

this speaker, rising incomes will increase demand for air travel. This 

demand will likely cause increased airport congestion and may strain an 

already troubled air traffic control system. At the same time, this 

speaker predicted that increasing numbers of low-income households 

will live in cities and older suburbs. This trend could lead to increasing 

demand for affordable housing and employment access options.

1 Community Development: Local Growth Issues—Federal Opportunities and Challenges

(GAO/RCED-00-178, Sept. 6, 2000).
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• There are insufficient resources to support an aging infrastructure 

network. According to conference speakers, investment in maintenance 

of our aging national infrastructure has not kept pace with demands. 

Infrastructure systems underpin our national economy and require 

regular maintenance and replacement as they wear or complete their 

useful lives. One speaker explained that, on the state level, inflation, 

taxpayer revolt, and the emergence of competing needs have left 

California’s infrastructure investment lagging far behind demand. 

Another speaker highlighted the fact that the General Services 

Administration, which controls approximately 300 million square feet of 

federal office space (41 percent of the federal inventory), has a 

multibillion dollar backlog in capital maintenance expenditures for its 

building inventory. This speaker also maintained that the lack of quality 

federal workspace affects the recruitment and retention of workers, 

which can exacerbate the workforce planning challenge faced by 

federal agencies.

• The impact of past federal policy concerning the nation’s infrastructure 

should be reevaluated. A conference panelist suggested that such an 

evaluation should consider the design, condition, and needs of our 

public and private infrastructure network. In addition, speakers raised 

questions about the implications of federal policy in several areas, 

including (1) whether government funding is meeting the maintenance 

needs of federal properties, (2) whether federal regulations are creating 

barriers to innovation and economic expansion, and (3) how federal 

infrastructure policy and investments might be used to support state 

and local quality growth initiatives designed to avoid the negative 

consequences of urban sprawl development. One speaker stressed the 

need for effective intergovernmental cooperation between federal, 

state, and local policymakers to address the dual challenge of managing 

growth while maintaining the quality of life in communities nationwide.

Approaches for 

Addressing 

Infrastructure 

Challenges

Conference participants generally agreed that meeting the challenges 

facing the nation’s infrastructure will require concerted efforts on the part 

of the public and private sectors. Again, the approaches that panelists 

recommended varied with each panelist’s perspective and area of 

expertise. At the same time, many of the suggested approaches had broad 

similarities and interrelationships.
Preface

Page 4 GAO-02-139 Crosscutting Issues Planning Conference

Conference participants provided numerous examples of approaches for 

addressing the nation’s infrastructure challenges, including the following 

themes:

• Plan and use existing infrastructure more efficiently. One panelist noted 

that providing incentives for development in areas already served by 

infrastructure systems could increase the efficiency of infrastructure 

use. Another panelist indicated that taking advantage of available 

information on demand for services could help planners more 

effectively meet growing demand. Concerning incentives, one speaker 

suggested that providing tax credits for housing development in areas 

with adequate transportation services could help meet the need for 

affordable housing while taking advantage of existing transportation 

networks. Another approach mentioned to address demand and 

environmental concerns was brownfield development2

 in cities and, 

occasionally, in rural areas. Both housing tax credits and brownfield 

development were highlighted by panelists as ways to efficiently use 

existing infrastructure. In addition, the use of information technology 

could facilitate efficient infrastructure investment and avoid oversupply. 

For example, a conference speaker indicated that policymakers can 

project future demand through the analysis of infrastructure use rates 

and thereby efficiently plan the level of new investments. Another 

speaker demonstrated decisionmaking software that policymakers can 

use for investment priority-setting and aligning investments with 

strategic goals. Furthermore, pricing strategies known as demand 

management can promote the efficient use of existing infrastructure, as 

discussed below.

• Incorporate performance management in infrastructure 

decisionmaking. According to Fragile Foundations, a report written by 

a conference panelist, performance measures are necessary for gauging 

infrastructure needs more precisely, maintaining and expanding service 

capacity more effectively and efficiently, and supporting a growing and 

prospering economy.3

 This speaker emphasized that federal 

infrastructure investment and regulations can be monitored and 

2

 Brownfield development seeks to use abandoned and contaminated industrial sites for 

redevelopment following the cleanup of toxic waste. 

3

 National Council on Public Works Improvement, Fragile Foundations: A Report on 

America’s Public Works, Final Report to the President and Congress (Washington, D.C.: 

U.S. Government Printing Office, Feb. 1988).
Preface

Page 5 GAO-02-139 Crosscutting Issues Planning Conference

assessed using the performance measurement requirements under the 

Government Performance and Results Act (GPRA) of 1993. According 

to this speaker, infrastructure performance is fairly measurable, and 

GPRA provides the federal government with the framework for 

measuring results. Examples of measurable outcomes of federal 

programs include congestion time and accident rates for highway 

investments and average delays and elderly/handicapped access for 

mass transit investments.

• Integrate regional planning and intergovernmental cooperation in 

infrastructure development. Conference speakers indicated that if the 

federal, state, and local roles in state and local infrastructure 

development were altered by requiring more regional planning, federal 

assistance might be put to better use. According to one panelist, 

regional planning such as that embodied in the Intermodal Surface 

Transportation Efficiency Act of 1991 and the Transportation Equity Act 

for the 21st Century (TEA 21) of 1998 provides substantial benefits 

through intergovernmental cooperation. For example, TEA 21 requires 

metropolitan area planning and intergovernmental cooperation on 

transportation investments. Such planning considers projects and 

strategies to enhance economic vitality, increase safety and security for 

transportation system users, protect the environment, and promote 

energy conservation and quality of life improvements. One speaker 

suggested that regional planning and intergovernmental cooperation 

could improve the delivery of housing assistance. Receipt of federal 

housing assistance under federal formula grant programs requires 

jurisdictions to prepare consolidated plans, including comprehensive 

housing affordability strategies—that is, plans for meeting low-income 

family housing needs. The speaker suggested that these plans could be 

made regional in scope and merged with metropolitan transportation 

planning to better meet housing needs by taking advantage of 

regionwide housing opportunities.

• Encourage alternative approaches to infrastructure development and 

maintenance. Because there has been insufficient funding to address 

the backlog of federal property maintenance and renovation needs, one 

speaker suggested regulations to promote private-sector-like 

approaches for property maintenance and renovation. For example, 

this speaker suggested that federal agencies could be permitted to keep 

and reinvest the proceeds from sales of federal property. Agencies 

could also be allowed to enter into lease-with-option-to-buy 

arrangements if the Office of Management and Budget would waive or 
Preface

Page 6 GAO-02-139 Crosscutting Issues Planning Conference

revise budget-scoring rules that prohibit such arrangements. A 

different approach mentioned in terms of federal property was allowing 

federal agencies to tap some of their billions of dollars in equity by 

entering into public-private partnerships, in which developers would 

finance the renovation of federal property in return for a percentage of 

the cash flow from the partnership. Another speaker offered a planningoriented proposal to help state governments address deferred 

maintenance issues. For example, this speaker said that life-cycle 

costing could be promoted by requiring preparation of maintenance 

plans in conjunction with capital outlay plans.

• Encourage market-based decisionmaking in provision of infrastructure 

services. Several conference presenters agreed that the historic federal 

role in regulating some infrastructure services has been too intrusive 

and that encouraging competition through deregulation provides 

incentives that foster economic efficiency and innovation. One speaker 

illustrated the concept by describing the introduction of competition 

into the telecommunications industry, which lowered prices and 

significantly increased both investment and the number of wireless 

subscribers. Another speaker pointed out that deregulation can lower 

costs for consumers, as evidenced by lower prices in many airline 

markets since deregulation. A third speaker suggested that time of day 

(i.e., congestion) pricing or auctioning of runway takeoff and landing 

slots would help to reduce air traffic congestion and flight delays by 

providing incentives for more efficient use of airport capacity.4

 

Similarly, a fourth speaker suggested using time of day pricing for 

access to bridges and tunnels.

The full text of speakers’ remarks, each of which represents the speaker’s 

positions alone, is contained in report appendixes. If you would like 

additional information on this study, please call me on (202) 512-2834. The 

June 2001 conference was planned and this report was prepared under the 

direction of Peter Guerrero, Director, Physical Infrastructure. Other major 

4

 These points are detailed in “Ending Runway Gridlock” by Dorothy Robyn in Blueprint: 

Ideas for a New Century, September/October 2001.
Preface

Page 7 GAO-02-139 Crosscutting Issues Planning Conference

contributors to this report were William Sparling, Teresa Spisak, and 

Alwynne Wilbur.

John H. Anderson, Jr. 

Managing Director, Physical Infrastructure
Page 8 GAO-02-139 Crosscutting Issues Planning Conference

Appendix I

Introduction to Panel 1 by Paul Posner, Apendxies

Managing Director, Federal Budget and 

Intergovernmental Relations ApendxiI

Panel 1: What is the state of the nation’s physical infrastructure; what 

factors will influence future infrastructure needs; and how can these needs 

best be met?

We might dub this panel our foresight panel. A lot of us think of the 

General Accounting Office as being in the business of oversight—that is, 

overseeing how agencies are implementing laws that the Congress has 

already passed. But another important role for us is foresight, helping the 

Congress and the public understand how emerging forces in a rapidly 

changing society are going to affect the federal role in a lot of different 

areas, what choices are presented to us, and how we can inform those 

choices with good systematic analysis. In some sense, we have had the 

luxury in the past 3 years of having risen out of a preoccupation with 

deficits to enjoy surpluses, at least for a period. Surpluses can prompt us to 

think about how we can position the government to address emerging 

issues over the long term, and infrastructure is certainly among the largest 

of these issues. We also know that surpluses will soon be overtaken by a 

demographic tidal wave we’re all a part of, which makes it important that 

our choices today are effective and fiscally sustainable.

Today’s panel will guide us through some of these choices and help us to 

better understand the big picture. What are the implications of energy, 

demographic, economic, technological, land use, and intergovernmental 

trends for infrastructure in general and for the federal role in particular? 

How do these trends interact with our values, views of government, and 

financing issues to shape our choices?

The remarks of panel 1’s four speakers are contained in appendixes II 

through V.
Page 9 GAO-02-139 Crosscutting Issues Planning Conference

Appendix II

Presentation by Joseph Coates, President, 

Joseph F. Coates Consulting Futurist Inc. ApendxiI

Joseph Coates is president of Coates and Jarret, a futurist research firm. 

Since 1979, the firm has consulted with 45 Fortune 500 companies, 

numerous smaller companies, trade and professional organizations, and all 

levels of governments. He is the former head of exploratory research at the 

Office of Technology Assessment and program manager of the National 

Science Foundation’s Research Applied to National Needs program. Mr. 

Coates has authored over 300 articles, papers, and chapters and is coauthor of 2025: Scenarios of U.S. Global Society Reshaped by Science and 

Technology. He holds degrees from Brooklyn Polytechnic Institute, 

Pennsylvania State University, and the University of Pennsylvania and an 

honorary doctorate from Claremont Graduate School.

Looking to the Future 

Requires Challenging 

Assumptions 

Thank you. It’s a great pleasure to be here. I’ve always admired the work 

of GAO. Some people think it has a heavy hand, but weight is necessary if 

you are to see whether the law and expectations are being met. I’m going to 

talk about some of the things shaping the future of the infrastructure. But 

before doing that, let me answer a question that should be on your minds. 

Why bother? Bright, intelligent, well-informed people could very well feel 

that they’re smart enough to be ready to engage the future as it unfolds. 

The problem with that reasoning is that it doesn’t work. There is an infinite 

history of failure of that strategy. 

The point of looking into the future is not to tell you what will happen or 

what may, might, or could happen. That’s at best an instrumentality. The 

primary purpose in looking to the future is to help you to understand what 

your assumptions are about the future. Remember, the higher you go in the 

organizational pyramid, the more socially and culturally isolated you are, 

and the less likely it is that anyone will seriously challenge you. You’re 

going to persevere in the mind-set that brought you successfully to the top. 

In other words, you are going to be continually looking backward and 

attempting to reproduce your historic experience. 

The purpose of looking into the future is to help jar you into becoming 

acutely aware of your assumptions. I’m seeking disagreement, not 
Appendix II

Presentation by Joseph Coates, President, 

Joseph F. Coates Consulting Futurist Inc.

Page 10 GAO-02-139 Crosscutting Issues Planning Conference

agreement. I’m hoping to evoke from you, “That couldn’t be. No way. 

What a nutty idea,” because if you think twice about that, you’ll realize that 

you can’t attack a concept about the future without revealing some of your 

own assumptions. It’s those assumptions that are worth thinking about. 

Demographic Trends Will 

Affect the Nation’s Future 

Infrastructure Needs

Let me pick a few themes here. You will recognize that current and historic 

practices have led to rigidity; to narrow interests influencing infrastructure; 

to indifference to future outcomes; and to a generally chaotic, limited, and 

partial planning for the future of infrastructure. That’s GAO’s problem to 

overcome if it is going to be more successful than it’s been in the past in 

influencing the future. Let me suggest some of the things affecting the 

future of transportation and information. The first thing to consider is that 

population growth is clearly in our future. We’re the only rapidly growing 

advanced nation. That’s fundamentally good news for the economy. It 

means more clients, more prosperity. It also means more voters. At the 

same time, it means new distributions of population and new interest 

groups. All these changes have to be integrated into transportation and 

information technology infrastructure planning because infrastructure has 

a minimum lifetime of 50 or 60 years. If you’re only looking out with a 

decade’s perspective, you’re going to miss the boat. That’s the only form of 

transportation I’ll mention. 

The second thing to consider is that information technology is now highly 

active in business-to-consumer and business-to-business trading, 

bargaining, buying, and selling. The consequence of that has to be a large 

increase in the movement of goods in relatively small packages around the 

country—in other words, an explosion in logistics. Those logistics are 

largely going to move through the transportation networks. 

The third thing to consider is the growth of tourism and travel. This will 

rise if we make a reasonable assumption of 1-1/2- or 2-percent annual 

growth in the Gross Domestic Product. You may be more optimistic about 

that. I don’t want to be extreme. If this growth occurs, over decades, more 

people will have more discretionary money. More discretionary money all 

around the world means the same thing. It means more mechanized, 

motorized transportation—particularly outside of the United States, as we 

already have a lot of it. Second, it means more meat in the diet. Third, it 

means more travel. Global and domestic prosperity imply these three 

increases. 
Appendix II

Presentation by Joseph Coates, President, 

Joseph F. Coates Consulting Futurist Inc.

Page 11 GAO-02-139 Crosscutting Issues Planning Conference

We have a consistent history of federal and local government neglect of 

infrastructure. Why do American highways fall apart in 5 years, yet the 

ones in Germany last forever? It’s a simple matter of the failure to do two 

things that are right down GAO’s alley. One is to enforce the conditions for 

the construction of highways, and the second, which is not part of the 

federal package but can be mandated, is to be sure that local ordinances 

are enforced. You could, before they patched it up a few years ago, go 

down the Washington-Baltimore Parkway and feel exactly where the 

trucks’ turnoffs were, because at those points the road ceased to be a 

shambles and you had fairly smooth travel. That situation shows absolute 

administrative and technological incompetence. That’s the story of 

transportation infrastructure across the United States. 

Deregulation is another source of problems. I can’t think of a single 

example of deregulation leading to an overall net public gain. Try to fly 

somewhere and the airlines will say, “Technical problem. Had to cancel the 

flight.” They are only canceling because they have an under-filled aircraft. 

What are they doing? They lie to you. They cheat. They mislead you. And 

what is GAO doing about it? Nothing. There is no significant independent 

government analysis of the abuse of consumers by the airlines. 

I’m thinking of writing an article entitled “Hallelujah! Let’s Welcome Back 

Regulation.” Look at what deregulation has done to whatever your favorite 

sector is. Look at our local telephone company, Verizon. It’s probably the 

most disgraceful telecommunications organization in the United States. 

Where is government looking at the lousy service that is routine in 

telecommunications? Telephone companies used to have information 

services. They used to have telephone books. In the last 2 weeks, I’ve 

called for information at Verizon three times. Twice, they didn’t have the 

number, and they’d never heard of what I was looking for. Decay, rot, and 

bad service are coming out of deregulation, and we the people and our 

representatives in the Congress need to know why. The Congress can’t 

correct the problem unless it knows it exists and why. The primary reason 

those things happen is that there’s a failure to treat law and regulation as 

social technologies. We know how to deal with physical technology in 

terms of anticipating future consequences, but the Congress has been 

extremely reluctant to acknowledge that legislation is social technology, 

and its side effects and consequences can be simulated, worked out, and 

anticipated. A couple of exercises along this line by GAO could be a great 

eye-opener for the Congress. 
Appendix II

Presentation by Joseph Coates, President, 

Joseph F. Coates Consulting Futurist Inc.

Page 12 GAO-02-139 Crosscutting Issues Planning Conference

Priorities are set by interest groups in the United States, and, consequently, 

present practices are not linked to what could be. Present practices are 

limited by what those special interest groups want or will tolerate. It 

doesn’t make any difference whether they are liberal or conservative. It 

doesn’t make any difference whether they are concerned with the 

environment or higher sales of energy. The narrow interest groups 

dominate what goes on on Capitol Hill. GAO has the opportunity to be an 

alternative, leveling, even-handed voice, the voice that gives pros and cons 

on the concepts in the legislative mill. 

Changing Land-use Patterns 

Affect Transportation Needs

Land-use patterns are promoting the polycentric city. Twenty-five years 

ago, you could map Calcutta onto Chicago or Chicago onto Calcutta. That’s 

how universal the internal logic of city structure was. Not today. Today, 

what you have is exemplified by what’s going on here in Washington, with 

four or five centers of business, even such things as Tyson’s Corner, which I 

believe was a car dealership that grew into a business center. You have 

Rosslyn. You have Columbia. You have Alexandria and Arlington. You 

have places growing up that have all of the functions of the central business 

district, except the cultural and governmental functions. 

Effectively, that means that all of the traditional infrastructure, which was 

built in and out of the central business district, now has to be restructured 

into a more spaghetti-like pattern. Another factor to consider, which 

doesn’t seem to enter into planning as much as it should, are the trade-offs 

between airplanes and car or rail. Some recent research shows that people 

prefer to drive up to about 325 miles. What does that mean for strategies 

for light rail, new forms of transportation, short-hop aircraft, and so on? 

One needs to understand why people have their preferences and how to 

deal with them. In general, one needs to expand the context for thinking 

about infrastructure. 

I learned just the other day that there’s a plan under way to build a new 

airport for Philadelphia. The land is available. It just happens to be 40 

miles away from anyplace anyone wants to be. Is there not some 

alternative to that kind of madness? Look what’s happened in Denver. The 

Denver airport is an absolutely beautiful-horrible place to go. Nobody and 

nothing is out there, and, yet, somebody figured it would be a good thing to 

move an airport that was 15 minutes from downtown Denver to someplace 

that happens to be a fair fraction of a day’s work in travel. When is 

systemic thinking going to occur in the design and building of the 

infrastructure? Promoting systems thinking should be GAO’s mission. 
Appendix II

Presentation by Joseph Coates, President, 

Joseph F. Coates Consulting Futurist Inc.

Page 13 GAO-02-139 Crosscutting Issues Planning Conference

GAO Should Examine Broad 

Infrastructure Issues 

GAO needs to look back at maybe five previous examples of infrastructure 

that had overruns and examine in detail why those overruns existed—not 

in terms of what the Congress voted on, but in terms of what the Congress 

knew before it voted or what it could have known before it voted. Then 

GAO needs to transfer that lesson back into future consequence analysis 

and feedback. I’m not suggesting this is an easy thing to do, but unless we 

do it, every bit of the infrastructure in the United States will have shocking 

overruns during the next decade or two. We’re talking about overruns that 

will have 12 or 13 digits, that may run to a trillion dollars. This situation 

provides a fantastic opportunity for GAO to do good.

Public policy in the Congress is focusing on the short run, the local, and the 

pork barrel. Pork barrel has to become a clear, positive, overt element in 

GAO’s evaluation and planning. Denial doesn’t do good for anyone. You 

folks have to learn how to cope in a positive way with pork barrel. It 

doesn’t have to be everybody’s pork, every time. It only has to be fairly 

distributed and for the common good. 

Let me make one last point. The most critical thing that information 

technology is doing is making it practical, and now mandatory, to deal with 

the total system that one is concerned with. One can no longer say, oh, yes, 

we know all about the system and then ignore most of the factors 

influencing it. Information technology makes it practical and necessary to 

consider all of the components of whatever infrastructure system you’re 

concerned with. I hope that GAO will lead the way by both precept and 

practice in doing that as it explores for itself and others the infrastructure’s 

purpose.

Thank you. 
Page 14 GAO-02-139 Crosscutting Issues Planning Conference

Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution ApendxiI

Anthony Downs is a senior fellow at The Brookings Institution, where he 

has been since 1977. Before that, he spent 18 years as a member and 

chairman of Real Estate Research Corporation, a nationwide consulting 

firm advising public and private clients on real estate investment, housing 

policies, and urban affairs. Dr. Downs has been an advisor to several 

secretaries of the Department of Housing and Urban Development and has 

authored 20 books and over 460 articles. His recent books discuss such 

issues as traffic congestion, rent control, and metropolitan governance. He 

holds a Ph.D. in economics from Stanford University.

Demographic Trends Will 

Affect Transportation 

Demands

My task today is to present information on forthcoming population changes 

in the United States that will influence how transportation functions in the 

first part of the 21st century and then to show the implications of those 

population changes for transportation. Let me begin with the likely 

population changes within the next 25 years. The most important change is 

that the nation’s total population will rise by at least 48 million people 

between now and the year 2020 and by as much as 64 million by 2025. 

These estimates are based upon the Census Bureau’s projections before the 

Bureau did the 2000 count, in which it found 6 million more people than it 

thought were in existence, so if anything, these projections are all low. 

Americans have been adding more than one additional private motor 

vehicle per human being added to the population since 1980. This means 

that the number of private vehicles on American roads will rise immensely 

in the future, by at least 48 million by 2020. The second trend is that the 

elderly population will grow faster than any other group. Again on the 

basis of data projected before the 2000 census results, the population of 

those who are 55 and over will rise by 73 percent between 2000 and 2025. 

People over 55 make up 21 percent of the total population today but will be 

25 percent by 2010 and 30 percent by 2025. In fact, by 2025, there will be 

9.5 million more people 75 years and older. This means that older drivers 

with limited capabilities may become as big a problem on roads as drunken 
Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution

Page 15 GAO-02-139 Crosscutting Issues Planning Conference

drivers are today. Moreover, older drivers will have the political clout to 

change the rules to allow them to stay on the roads longer, since no one 

wants to stop driving. 

In contrast, the population of young people under the age of 18 will grow by 

only 2 million, or 3 percent, between now and 2010, but it will rise by 10 

million from 2010 to 2025. That means a lower fraction of all households 

will have children than at present, which will mean less public support for 

education but perhaps more public support for public transit. 

Future ethnic changes in our population will be dramatic. The nonHispanic white population of the nation, the traditional majority, is now 70 

percent of our total population but will decline steadily to 60 percent by the 

year 2025. This majority group will grow only by 6 percent between now 

and 25 years from now, compared with a 23-percent growth for the entire 

population, a 30-percent growth for African-Americans, and an 88-percent 

growth for Hispanics. Hispanics, or Latinos, will rise from 13 percent of the 

total population today to 20 percent in 2025. 

Looking at the increase in the population from now to 2025, only 19 percent 

will consist of non-Hispanic whites, 50 percent will consist of Hispanics, 15 

percent of African-Americans, and 16 percent of other groups. This means 

that 81 percent of our future population growth will be among groups we 

now consider minorities. Because minorities have lower incomes and 

lower vehicle ownership than whites, this could mean a slower increase in 

vehicle ownership on the one hand and more patrons for public transit on 

the other, especially in big cities. But it certainly means that minorities are 

going to become much more important in every aspect of our life. 

Because minorities have higher birth rates than whites, they will become 

even more dominant among younger ages. Today, non-Hispanic whites are 

62-1⁄2 percent of all children under 18, but that number will decline 

absolutely by 2.8 million by 2025. In contrast, the number of Hispanic 

children under 18 will rise by 9.4 million. As a result, the share of 

minorities among all children under 18 will rise from 37.5 percent today to 

49.4 percent in 2025. That means that half of all children in our schools will 

be minorities, mainly Hispanics and African-Americans, especially in big 

cities, where they dominate the public schools. 

Another trend is that the real income level of the majority will rise enough 

to generate rapidly increasing demand for faster travel. People tend to 

spend about the same percentage of their income for transportation. When 
Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution

Page 16 GAO-02-139 Crosscutting Issues Planning Conference

incomes rise, people move to faster modes. They start by walking, and 

then they go to bicycles, and then to buses, and then to motorcycles and 

motorbikes, and then to cars, and then to airplanes, because airplanes are 

the only way they can get the speed up. The demand for air travel will 

escalate dramatically. If the number of passengers carried by American 

airlines were to escalate in the future at the same compound annual growth 

rate that it did in the 1990s, then the number would increase by 51 percent 

by 2010 and by 114 percent by 2020. The demands for air travel will 

escalate dramatically, as will demands for car travel and car use in the 

developing countries, where people will be moving from buses and bicycles 

to automobiles. 

Another population trend is that in the United States, most future 

population growth will occur in the South and the West. The metropolitan 

areas in those regions have been built mostly during the automobile era. 

They have much lower central city densities but higher suburban densities 

than older cities in the Midwest and East. On the other hand, 

environmental resistance to growth is strongest in the west. One of the 

reasons the South and West have lower densities is that it takes a long time 

to build up high-enough densities to support transit. In fact, anything of 

value takes a long time to build up. 

Population Growth Will 

Expand Suburban Areas, 

but the Poor Will Continue 

to Live in Older Core Areas

Most population growth will continue to occur through peripheral 

expansion of suburban areas, that is sprawl, rather than through rising 

density in central areas, even if the population in some central cities rises 

as happened in the 1990s. Although future infrastructure costs could be 

reduced somewhat by having more compact growth replace sprawl, the 

cost savings will not be considered worth the losses of benefits by those 

who now gain from sprawl. 

I just participated in a large-scale study called The Cost of Sprawl 2000, 

managed by Bob Rochelle of Rutgers. He and I were the principal authors 

of it. We produced a 600-page volume estimating the costs of 

accommodating all future population growth in the country between now 

and 2025 under two scenarios. One scenario is continued sprawl, and the 

other is a more compact form of development. The study estimates that 

the cost of sprawl would be at least $250 billion more over that period than 

the cost of more compact development. But $250 billion is only $10 billion 

a year over a 25-year period, and that is not a very large amount of money 

compared with the total cost going into development or the size of our 

gross national product. Furthermore, a lot of people believe that sprawl 
Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution

Page 17 GAO-02-139 Crosscutting Issues Planning Conference

produces benefits for them. For example, typically, housing prices are 

lower if you go farther out. So I think most of the future development will 

continue to be in the form of sprawl. There will be a lot of peripheral 

growth of somewhat higher density than in the past, and many more poor 

people will live in the suburbs. 

Population growth will occur in relatively new communities, which means 

in newly built dwellings. Because in America we require all newly built 

dwellings to meet very high-quality standards, which are expensive, a lot of 

people will not have enough income to live in these newly built dwellings 

and, therefore, will not be able to live in new-growth areas. At least a sixth 

of the population added will be in that category. This means that there will 

be more overcrowding in older core areas and older suburbs through the 

more intensive use of existing older dwellings. America will continue to 

house many of its poorer citizens in slums, as it has done right from the 

beginning of the nation and particularly during periods of high immigration, 

such as the period we are in now. 

Travel Will Continue to Be 

Dominated by Automotive 

Vehicles

What are the implications of these trends for future transportation 

activities? The first and most important is that ground travel will continue 

to be dominated by private automotive vehicles. Public transit use will 

grow absolutely because of more low-income households living in cities 

and more minorities without cars. But auto transportation will grow even 

faster. Public transit today is such a small share of total movement that 

even rapid percentage increases in it will not displace much private vehicle 

movement or alter the dominance of cars and trucks. Advocates of public 

transit recently have pointed out that public transit use went up something 

like 4 percent in the last year, and they say this is a great triumph, that it 

was a bigger percentage increase in public transit use than in automobile 

use. In percentage terms, that’s true, but the absolute amount of increase 

in automobile use is about 20 times larger than the increase in public transit 

use. 

Outside of New York City, only 2.2 percent of all American commuters 

commute by public transit. Public transit mileage is less than 2 percent of 

all ground passenger travel mileage. For most Americans, cars are faster, 

more private, more comfortable, and more flexible than public transit. The 

average commuting time in America for somebody driving in a car is 22 

minutes. For somebody taking a bus it’s 36 minutes. For somebody on 

fixed rail it’s 45 minutes. So you can’t get American drivers out of their cars 

and into public transit by making public transit more attractive. You can 
Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution

Page 18 GAO-02-139 Crosscutting Issues Planning Conference

only do it by making driving less attractive, and that means raising the cost 

of it through such things as high gasoline taxes, which we refuse to adopt, 

or other methods. 

Public transit will need to become more flexible to better serve low-density 

areas. That should mean more deregulation to end the dominance of 

transit by high cost, monopolistic public authorities controlled by unions 

and administrators. Smaller scale vehicles and firms that can serve lower 

density areas should be encouraged. I do not share the opinion of Mr. 

Coates that deregulation is a total failure. I think it has drastically reduced 

the cost of air travel for people who want to travel, but it doesn’t make 

travel more convenient. 

Roadway Traffic Congestion 

Will Continue to Get Worse

Another result of future trends is that roadway traffic congestion will 

inevitably get worse because of the rising use of vehicles by additional 

people. I happen to know a lot about the subject because I wrote a book 

entitled Stuck in Traffic, which is published by the Brookings Institution. I 

believe that rising traffic congestion is an inescapable part of living in 

modern metropolitan areas everywhere in the world. Traffic congestion is 

essentially a balancing mechanism that enables people to pursue certain 

key goals besides minimizing commuting or driving time. Thus, it is a mark 

of rising prosperity. There is no solution to increasing traffic congestion. 

We can only cause it to rise more slowly. We can’t stop it from rising. 

Congestion will encourage more decentralization of workplaces to get jobs 

nearer to where people live. It will also encourage more telecommuting. 

But tension with poorer workers will rise, since they will be unable to live 

in the new suburbs near the new jobs because they can’t afford to live in 

brand new housing. In some cities, trucks will be prohibited from entering 

certain areas during peak hours, as now occurs in Bangkok. Some areas 

may construct separate roadways for trucks only, as is being considered in 

some American cities. Congestion in the largest metropolitan areas, those 

with strong downtowns, will encourage more people to live near the 

downtowns to be nearer to their central-area jobs. But this will be a 

relatively small offset to the total increase in population in most dynamic 

metropolitan areas. 

Hot lanes, or so-called high occupancy toll lanes, to which sole drivers can 

buy access during peak hours, may become much more common because 

they create at least one lane in which people can move fast during periods 

of congestion if they’re willing to pay for it. Hot lanes do not solve the 
Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution

Page 19 GAO-02-139 Crosscutting Issues Planning Conference

congestion problem because all of the other lanes remain just as congested 

as before. They just let some people move fast while most remain stuck in 

traffic. 

Air Traffic Congestion Will 

Also Get Worse

Another form of congestion will concern air travel. Congestion at airports 

will become a serious bottleneck limiting the growth of air travel. 

Yesterday, it took me 6 hours to go from Chicago to Washington because of 

delays caused by weather. We taxied out on the runway, and after we got 

out there, the pilot announced that he had known for an hour that there 

was an air stop in Washington, but the airline had made him taxi out and 

put us there in the heat because they needed the gate for somebody else. 

There is already severe congestion in bad weather at major American 

airports. Major airports will be unable to handle demands for air travel at 

peak periods, or even at all. Bitter conflicts with environmentalists and 

local residents concerning the addition of new runways or the building of 

new airports will become widespread. In San Francisco, for example, 

although there are 264 square miles of water in the San Francisco Bay and 

the bay is 19 miles wide at the San Francisco Airport, the environmentalists 

do not want to allow a 1-mile addition onto the airport for a new runway 

because they say it will ruin the bay and cause more noise pollution in the 

area. 

How you feel about this kind of situation where the airlines are frozen 

because of local resistance depends on who you are. If you’re somebody 

who lives underneath the runway and doesn’t want to hear the noise, you 

like it. If you’re somebody who wants to travel more, as I do, you don’t like 

it. 

I think the most sensible solution, more runways at existing major airports, 

should dominate over the construction of new airports. I think that at 

O’Hare, at Logan, at all of the other major airports in the country that have 

a tremendous amount of transfer traffic, it makes sense to build more 

runways. It does not make sense to build another airport 40 miles away. 

Limitations on air travel will create some pressure for more fast trains, but 

these trains will be tremendously costly. There’s an article in the latest 

issue of the Economist that talks about how the new fast trains in France 

are so wonderful but cost taxpayers an enormous amount of money. So I 

don’t think fast trains will take over much travel at all. Problems connected 

with transportation will create more pressure for some type of regional 

governance and planning arrangements over land use as well as over 
Appendix III

Presentation by Anthony Downs, Senior 

Fellow, The Brookings Institution

Page 20 GAO-02-139 Crosscutting Issues Planning Conference

transportation itself. This is already evident. But actual adoption of 

regional governance will only occur in areas that believe they are in some 

type of growth crisis, as has already occurred in Atlanta, Florida, and New 

Jersey. 

U.S. Citizens Will Continue 

to Make Choices That 

Reflect Their Priorities

My last point is that if there’s a saving grace for our future transportation 

system, it will be the adaptability of U.S. travelers, households, and firms. 

They will modify their behavior in locations to optimize those goals they 

cherish most by sacrificing others such as the saving of time, which they 

are now sacrificing to attain goals like a wide range of choices of where to 

live and work, the ability to make more than one stop on a trip, etc. 

Consequently, we will still be able to achieve quite high and efficient 

mobility in spite of all the problems caused by more people and vehicles. 

Thank you.
Page 21 GAO-02-139 Crosscutting Issues Planning Conference

Appendix IV

Presentation by Bruce McDowell, Fellow, 

National Academy of Public Administration ApendxIVi

Bruce McDowell is a fellow of the National Academy of Public 

Administration, president of Intergovernmental Management Associates, 

and a certified professional planner. For 12 years, he was a local and metro 

area planner in Washington, D.C. His federal experience includes 24 years 

with the Advisory Commission on Intergovernmental Relations and 2 years 

as director of governmental studies for the National Council on Public 

Works Improvement (a congressional commission). He has worked 

extensively with metropolitan planning organizations, which have been 

mandated by the Congress to coordinate regional transportation planning. 

Dr. McDowell holds a masters degree in Urban Planning from Georgia 

Institute of Technology and a doctorate in Public Administration from 

American University.

Five Recommendations for 

GAO Regarding 

Infrastructure 

I’d like to get right to the point with the five things GAO should do. First, 

GAO should put out a regular report card on infrastructure. I spent 2 very 

intensive years working on the National Council on Public Works 

Improvement staff. In 1988, this panel on the status of the nation’s physical 

infrastructure came out with a report card. We gave the nation a C+ grade 

for highways, a C- for mass transit, a B- for aviation, a B for water 

resources, and a B- for water supply. Wastewater got a C grade, solid waste 

a C-, and hazardous waste a D. I haven’t reassessed these grades myself 

since 1988, but the American Society of Civil Engineers has updated it 

twice, most recently, I think, this spring. The grades are going down. The 

bottom line is that somebody has got to be out there keeping track of this in 

a credible fashion. Who better than GAO? 

GAO is the last government think tank in this town that remains standing. 

Everybody else has been abolished. Thinking has gone out of style, so I 

hope you do some of it, and I applaud the big picture part of your agenda. I 

hope the 10-percent big picture thinking you can do on top of the 90-

percent little stuff can make a difference. 

We put out a pretty good report in 1988. The Congress asked for it. We 

gave it to the Reagan administration as they were leaving town, and I’m 

sure it was shelved immediately. On the theory that it had been shelved, I 

pulled a copy off the shelf, and I now present it to you as the agenda for this 

team. It’s a big picture version of your topic. We looked at nine categories 

of public works, and I think you could do a lot worse than following this 

approach and bringing it up to date. The council self-destructed as soon as 

it turned in its report. The report was on time and it was under budget, and 

we were very proud of that and proud to go out of business. Following that 
Appendix IV

Presentation by Bruce McDowell, Fellow, 

National Academy of Public Administration

Page 22 GAO-02-139 Crosscutting Issues Planning Conference

report, however, the Corps of Engineers got an appropriation from the 

Congress for a 3-year follow-up on the report. I went back to my former 

agency, the Advisory Commission on Intergovernmental Relations, and the 

Corps contracted with us to do some of the follow-up studies. 

The major victory we got out of the follow-up studies was Executive Order 

12893 in 1994, called Principles for Federal Infrastructure Investments. 

That has been picked up by the Office of Management and Budget (OMB) 

and made into a new Part III of the Budget Circular A-11. The original 

annual budget guidance is just Part I now. Part II is the Government 

Performance and Results Act (GPRA). The new Part III on investment 

analysis includes a very timid approach toward capital budgeting for the 

federal government, something that GAO has supported for a long time. So 

my number two charge to GAO is to keep track of that executive order. I 

think there’s some real leverage there for the infrastructure community. It 

would be too bad to let it go off into a black hole. 

The third thing that GAO should do is to apply GPRA to infrastructure 

programs. GPRA is the best thing around. It was embraced by the National 

Performance Review very shortly after it was enacted. Agencies didn’t get 

the idea that it applied to them until 1997, which was the deadline to 

present their first strategic plans to the Congress. You should have seen 

the scramble in August, when the drafts were due to OMB, which was the 

first time most agencies ever thought of this act and the fact that it might 

apply to them. They all assumed it would go away. The Congress got 

interested. They did a report card on the agencies. They put it on the 

Federal Page. There were only two or three agencies that got better than a 

D. Most of them failed. But the fact that a couple of them didn’t fail 

showed that it could be done, and every year as the new ones are submitted 

to the Congress there’s kind of a rack up. They don’t do the report card 

anymore, because they got such heat. But if they hadn’t gotten that heat, 

the federal agencies still wouldn’t be looking at it. 

I think people now have the idea you’ve got to do GPRA, and I hope you’ll 

apply it for all it’s worth in the infrastructure area. The interesting thing 

about GPRA is that it gives government a bottom line. Everybody says that 

government doesn’t have a bottom line, and therefore, you can’t manage it. 

In fact, the bottom line for government is performance for the people. The 

infrastructure team is lucky because you look at things that are pretty 

measurable compared with an awful lot of other federal programs. If you 

can’t apply GPRA, it won’t work. So go out there, tell the agencies they do 

have bottom lines. They can manage those bottom lines. Their bottom line 
Appendix IV

Presentation by Bruce McDowell, Fellow, 

National Academy of Public Administration

Page 23 GAO-02-139 Crosscutting Issues Planning Conference

is not profit; it is benefits for the American people. Those benefits can be 

measured, and agencies are making considerable progress in doing that. 

Our 1988 report made an awful lot of the idea of performance. We 

measured performance. We ranked performance to the extent that 

statistics were available, and that’s what needs to be continued. If there’s 

no bottom-line tracking of performance, you’re not going to get there on 

the goals. There’s an old saying in management: what gets measured gets 

done. Performance measurement is the key to moving ahead. 

My fourth charge to GAO is to reevaluate the federal role in infrastructure. 

I had developed five illustrations of areas where you could do that. But to 

save time, let me just give you one, and then just name the other four so 

you can fill in the illustrations from your own reading of the daily 

newspaper. The first one is the Interstate Highway Program. Around 1990, 

the Department of Transportation declared it to be completed, and said 

that from then on the job was maintenance. Well, what was the basic 

principle behind the interstate highway system design in the 1950s? It was 

very simple: connect every metropolitan area in the country. But then, the 

1980 census created 80 new metropolitan areas, and the 1990 census 

created about 30 more. And it’s expected that the 2000 census will create 

another 30. Is the system designed to serve those 140 new metropolitan 

areas? Somebody ought to see if the design principle behind the interstate 

highway system is still alive or not. I think it might be eye-opening. Joe 

Coates made the point that among the first-tier countries, we’re the only 

one still growing rapidly. The country is not complete, so how can the 

interstate highway system be complete? 

My second illustration was going to be the North American Free Trade 

agreement (NAFTA), and I won’t try to spell that out too much. But it fits in 

very closely to the design of the interstate system. NAFTA creates a lot 

more north-south traffic. If you look at the design of the interstate highway 

system, it’s mostly east-west to connect the coasts. We connected things in 

our own country. We weren’t concerned about connecting Mexico to 

Canada. There wasn’t a unified market at that time. Well, we’re now busily 

trying to retrofit without saying that we are doing anything because, of 

course, the system is complete. The border crossings don’t work. They are 

overloaded, and we’ve got to redesign them. 

You can go to the other topics I was going to illustrate—rail mergers, air 

traffic congestion, and the nation’s electric power grid—and imagine for 

yourself out of the daily newspaper the need to reevaluate the federal role 

in all of them. It’s not enough to say we did our job and that we can now 
Appendix IV

Presentation by Bruce McDowell, Fellow, 

National Academy of Public Administration

Page 24 GAO-02-139 Crosscutting Issues Planning Conference

walk away from infrastructure. The fallacy of highly developed countries is 

that they forget the basic rule in the underdeveloped countries, which is 

infrastructure, infrastructure, infrastructure. You go absolutely nowhere 

without infrastructure. We get fat and happy in this highly developed 

nation. We say we’ve got the infrastructure we need, and we begin to 

ignore it. I agree very much that deferred maintenance is one of the top 

issues around. 

We got started on the issue of deferred maintenance at the National Council 

on Public Works Improvement because a book came out from the National 

Governors’ Association that was entitled America in Ruins. The Congress 

said, “Is that true? I guess we’ll have a commission.” Well, the commission 

titled its report Fragile Foundations. We weren’t quite willing to say 

America was in ruins. It didn’t resonate. Everything was still working in 

1988. I don’t know if it is today. We got some gloomy comments about that 

this morning, and I think I would echo some of them. We are not paying 

enough attention to the existing system or what kind of upgrades it needs. 

We’ve lulled ourselves into complacency, I think, because we have a pretty 

good system. But we will wake up one day after America has fallen in ruins 

if you all don’t measure performance all along the way and give some 

warning signs. 

That leaves me with my last point, which is to push the crosscutting goals 

and measures that are called for in GPRA. Nobody else in this town will do 

that. GAO is perfectly placed. OMB has walked away from it. The 

individual agencies have walked away from it. Anybody who has actually 

tried to do it has walked away from it in frustration. Let me make one 

practical suggestion. Take a look at local government. Every state in the 

nation has enacted a law called the Interlocal Cooperation Act. They’re not 

all the same, but every state has one. It says to local governments that 

anything you can do by yourself, you can do jointly. Some of the states 

even allow you to do it jointly with local governments that are in another 

state. And some of them are even so liberal as to say if they can do it and 

you can’t, you can do it with them.

The point of this is to compare the Interlocal Cooperation Act with the 

Joint Funding Simplification Act of 1974. If you look at the history of that 

act, it said you can do everything jointly and we’re going to simplify that for 

you. But then when you looked at all the simplifications, it was more 

complicated than anything you had ever imagined within your own agency, 

which is going a long way. It didn’t work. It was enacted for a 5-year period, 

and it was used for the first 1 or 2 years. But it was found to be too hard to 
Appendix IV

Presentation by Bruce McDowell, Fellow, 

National Academy of Public Administration

Page 25 GAO-02-139 Crosscutting Issues Planning Conference

do. It was extended for another 5-year period, and then mercifully allowed 

to lapse. It was a great idea, but its implementation was terribly flawed. 

The interlocal cooperation that the states have enacted essentially says you 

can put the money into a pot and then you can administer it and account 

for it as a single pot. 

We’ve got a perfect precedent in the federal government, the Single Audit 

Act. We certainly don’t have to go back and audit something five times just 

because five agencies put the money in. However, for your own accounting 

systems, you have to deconstruct the whole project at the end of the year, 

divide it back up, and stick it into your old original appropriations pots. 

That’s a horrendous hurdle. That’s basically why the Joint Funding 

Simplification Act failed. If you’re putting it into the joint pot for a 

legitimate purpose, you should not be required to have to break it back out 

again. If it’s a legitimate joint purpose, it ought to be audited and financially 

reported on its own base. I think we need an interagency cooperation act 

that says just do it. Put out some memorandums of understanding and 

some models and get a single audit at the end, and everybody should be 

happy. 

The Bottom Line Is 

Performance for the 

American People

It’s going to take a different kind of federal manager, I think, to work on 

some of these partnerships. The federal role is very different than it used 

to be. There are not that many things that the feds do by themselves 

anymore. Federal managers actually have to become managers of 

community-based programs, which entails a lot of consultation and a 

whole new way of operating. Instead of micromanaging by going out and 

getting compliance with what the Congress passed in its acts, you need to 

go out and be part of the community, part of the partnership, willing to 

collaborate, and willing to live by the results of the collaboration. I have a 

handout for you called “Principles of Consultation.” I also have a handout 

for you called “Principles for Federal Managers of Community-Based 

Programs.” The idea is not to just follow the book and make sure that 

everyone complies. Instead, the idea is to get in there together and make 

the program work. Get some bottom-line performance for the American 

people. It’s a whole different approach. 

Thanks very much.
Page 26 GAO-02-139 Crosscutting Issues Planning Conference

Appendix V

Presentation by Jan Whittington, Independent 

Planning Consultant ApendxVi

Jan Whittington is a planning consultant from San Francisco, California. 

Her most recent publication, Building California’s Future: Current 

Conditions in Infrastructure Planning, Budgeting and Financing, was 

co-authored with Michael Neuman. Her next publication, to be published 

later this year, is entitled Making Room for the Future: Rebuilding 

California’s Infrastructure, and is co-authored with David Dowall, an 

internationally recognized professor at the University of California at 

Berkeley. As a senior planner for Bechtel Corporation for 10 years, she 

studied and developed large-scale infrastructure developments—from new 

towns to high-speed rail and intermodal port systems—across Asia and the 

Americas. Ms. Whittington holds a masters degree from California State 

Polytechnic University and is currently pursuing a doctorate in City and 

Regional Planning from the University of California at Berkeley.

California and the Federal 

Government Face Similar 

Challenges in Managing 

Infrastructure 

The topic of this panel holds considerable bearing on how states manage 

their infrastructure, and let me just say that the apple doesn’t fall far from 

the tree. On behalf of the Public Policy Institute of California, a private, 

nonprofit organization dedicated to public policy research, Professor David 

Dowall and I have spent the past 2 years studying California’s management 

of infrastructure. If you’re interested in our work, our past studies are 

available at www.ppic.org. 

California’s Investment in 

Infrastructure Has Lagged 

Behind Demand

Today, I bring you some highlights from our upcoming publication, Making 

Room for the Future. In the post-World War II period, California invested a 

great deal to accommodate population growth, and these public sector 

investments in education, transportation, and water could be called the 

crown jewels of the state. From the 1970s to the mid-1990s, inflation, 

taxpayer revolt, and the emergence of competing needs left state 

investment lagging far behind demand. By 1999, the California Department 

of Finance estimated the state’s 10-year infrastructure needs at more than 

$80 billion. And while higher levels of debt are anticipated—financing 

covers the majority of these needs—a sizable gap remains.

I’ll see if I can show you how the gap was created. Population growth and 

infrastructure demand go hand in hand. California seems to have 
Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 27 GAO-02-139 Crosscutting Issues Planning Conference

consistently experienced record growth, much of this through immigration 

(see fig. 1).

Figure 1: Persistent Population Growth: California’s Population 1930-1996 (in thousands) 

California’s Operations and 

Local Assistance Spending 

Have Risen, While Capital 

Outlay Spending Has Fallen

Already at 38 million, the state’s population will climb to 50 million 

sometime around 2020. How has California been accommodating this 

growth? This graph (see fig. 2) shows California state operations’ 

spending.

































		








Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 28 GAO-02-139 Crosscutting Issues Planning Conference

Figure 2: Demand Rises for Operations: Real State Operations Expenditures 1930-1996 (per capita in 1996 dollars)

Demand for increased spending for a growing state bureaucracy makes

sense, but what we show here is operations spending per capita. Clearly, 

state staffing and the cost of staffing have outpaced population growth. In 

1960, the state consisted of about 22 departments, and today it has 64 

departments and 8 agencies. California’s expenditures for operations have 

doubled. Evidently, California has also been spending for local assistance 

like it’s going out of style. This figure (see fig. 3) shows local assistance per 

capita.



















	









	







	

		











Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 29 GAO-02-139 Crosscutting Issues Planning Conference

Figure 3: Local Needs Plateau: Real State-Provided Local Assistance 1930-1996 (per capita in 1996 dollars)

You’ll notice how local assistance spikes in 1978. It’s about a 30-percent 

boost from Proposition 13. This proposition had the effect of strangling 

cities’ and counties’ ability to pay for infrastructure services, especially

K-through-12 education. Since Proposition 13, you can see we’ve reached a 

plateau in local assistance. There’s plenty of pork in here too. Now, the 

next figure shows that capital outlay spending per capita has trailed off 

(see fig. 4).
























	









	







	

		











Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 30 GAO-02-139 Crosscutting Issues Planning Conference

Figure 4: Capital Outlay Trails Off: Real State Capital Outlays 1930-1996 (per capita in 1996 dollars)

This is our smoking gun. Capital outlay spending has trailed off the map. 

You can clearly see the post-World War II development boom. You can see 

that spending kept pace with the population growth of the ‘50s and ‘60s. 

But for the better part of the last 20 years, we’ve been spending less than 

$20 per capita on state infrastructure.

Financing Has Not Picked 

Up the Slack in Capital 

Outlay Spending 

Some of you might be saying that the basic system has been built, and now 

California is putting it to full use. However, even if these systems of 

infrastructure were designed with excess capacity in the ‘50s and ‘60s, we 

should all be clued in to the fact that they are reaching the end of their 20 to 

40-year designed lives. Some of you are definitely thinking that California 

must be using long-term financing instead of pay-as-you-go financing. But 

the General Obligation (GO) bonds haven’t picked up the slack (see fig. 5). 

California has experienced some increase in bond spending, but it has not 

kept pace with population growth.














































	

	

	











Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 31 GAO-02-139 Crosscutting Issues Planning Conference

Figure 5: GO Bonds Don’t Pick Up Slack: Real GO Bond Debt 1930-1996 (per capita in 1996 dollars)

Today’s debt is climbing toward about $700 per capita, but this still doesn’t 

compare with the levels of the 1960s. In addition, nearly half of today’s 

debt is being spent on K-through-12 education. I hear more echoes of 

Proposition 13 here. In addition, California’s bond ratings are being 

strained by the energy crisis.

Something had to give. We have growing population, growing demand for 

services, and limited resources. Bonded indebtedness has limits, too. 

Among other things, the political will required to bring bonds to a vote 

seems to be dissuading the state from a continuous balanced approach to 

bond spending for capital outlay. Capital outlay has been squeezed out. If 

the state isn’t spending commensurate with population growth, then the 

gap is growing.

California Needs a Renewed 

Commitment to 

Infrastructure Investment

We need a renewed commitment to infrastructure investment. The state 

needs to increase funding, but money alone won’t do it. Even with all of the 

funds the state can muster, I don’t think California can build its way out of 

the gap. Limited funds need to be invested strategically within and 

between sectors, and state dollars need to become more effective.

I’m going to talk about managing demand, aligning tasks with costs and 

benefits, enhanced project delivery, and maintaining investments. As with 

all policy options for infrastructure management, the devil is in the details. 
































	

	









Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 32 GAO-02-139 Crosscutting Issues Planning Conference

So where possible, I’m bringing you detailed examples. This might seem a 

little far from Washington, D.C., and some of these details are at the county 

or city level, but I’ll hope you’ll bear with me.

Demand Management Can 

Help California Better Meet 

Its Needs

The best way to understand demand management is in contrast to a supply 

orientation. Supply focuses on what to build and how to build it, taking 

into account factors such as engineering costs and construction-cost 

estimates. In its most egregious form, a supplier orientation says, “if you 

build it, they will come.” This perspective assumes inexhaustible 

resources. Demand management focuses on the consumer, on the market 

for the goods. It gives voice to clients or users. It’s more planning and 

information intensive and assumes that resources are scarce. It looks 

toward service reliability, access, and accountability through regulation.

I have some examples here. Regarding urban water demand management, 

Marin County has an integrated resource management plan that was put in 

place in 1992 with a 10-year goal to reduce water consumption by 22 to 32 

percent over 1987 levels. The plan includes conservation policies for 

residential users such as low-flow toilets, faucets, and landscaping. 

Commercial users are required to meet a water budget, and if they can’t, 

they must buy rights to water from other commercial users. At the same 

time, the users face an increasing block tariff. Water use is down 16 

percent, from 170 to 143 gallons per day. Regarding agricultural water 

demand management, water costs for crops as a percentage of total costs 

vary. It’s about 5 percent for grapes, 12 percent for cotton, and 36 percent 

for pasture. The use of drip irrigation is increasing from about 2.2 percent 

in 1979 to about 13 percent in 1994. Underwater Ranch in Ventura grows 

peppers. It switched to drip irrigation and cut its water use by 25 percent. 

As it turns out, over-irrigation had fostered the growth of a fungus that 

actually decreased yield, so when the ranch switched to drip irrigation, its 

yield increased by 50 percent. And who knows what other crops this could 

occur with.

The Department of Water Resources in California operates the California 

Irrigation Management Information System (CIMIS). CIMIS consists of 100 

computerized weather stations across the state. CIMIS costs $850,000 a 

year to manage, and it generates benefits of $30 million in avoided water 

costs. Incentives for conservation are critical for reducing water use. As 

soon as you shift to increasing block tariffs, this will result in changing 

cropping patterns that reduce water.
Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 33 GAO-02-139 Crosscutting Issues Planning Conference

Now, I’d like to turn to higher education. Table 1 shows our estimate of the 

increase in full-time equivalent (FTE) capacity that would be generated at 

the University of California and California State University (CSU) if we 

were to switch to year-round education. The University of California would 

gain 31,000 FTEs; CSU would gain 36,000. As shown in the bottom righthand corner of the table, the avoided costs would total $3.3 billion.

Table 1: Higher Education Demand Management: Capital Cost Savings From Yearround Operation

The esteemed Anthony Downs introduced the concept of triple 

convergence in his 1992 book, Stopped in Traffic. Triple convergence 

means that any new supply in the form of roads will quickly be 

overwhelmed with traffic for three reasons: travelers shift routes, travelers 

shift times, and travelers shift modes. Supply creates its own demand. 

People choose the path of least resistance. Downs mentioned a number of 

demand management tools: intelligent transportation systems, monitoring 

traffic, removing accidents, and using high-occupancy vehicle lanes or 

high-occupancy toll lanes. I-5 in Washington State was able to implement a 

range of demand management measures and reduce its vehicle miles 

traveled by 6 percent. This eliminated 80-million vehicle miles traveled per 

year.

Telecommuting is another way to reduce trips, but it’s hard to monitor. 

Priced parking can encourage shifts to high-occupancy vehicles or transit. 

Congestion pricing can be effective. The New York-New Jersey Port 

Authority, I believe, has just implemented congestion pricing on tunnels 

and bridges entering New York. Transit-oriented development also is 

slowly under way. In San Diego, California, the Association of 

Governments has, for a regional organization, considerably consolidated 

power and is implementing higher densities near transit modes, but this is 

an exception.

System

Increased

capacity (full-time

equivalent)

Assignable

square feet

(full-time

equivalent)

Cost

(assignable

square feet)

Total savings

(in billions)

UC 30,846 140 525 2.27

CSU 35,883 75 384 1.03

Total 66,729 105 471 3.30
Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 34 GAO-02-139 Crosscutting Issues Planning Conference

Tariffs Should Be Aligned 

With Costs and Benefits

Now I’d like to talk a little about aligning tariffs with costs and benefits. 

Given California’s apparent lack of will to spend tax dollars on capital 

infrastructure, it seems appropriate to revisit the role of prices. 

Conventional wisdom suggests that government should foster the 

consumption of merit goods by supplying them without fees. But what are 

we to do with a state that cannot cover the full cost of supply when 

resources become scarce? Infrastructure pricing could be used to 

redistribute income, but in most cases it shouldn’t. Instead, we should be 

using income transfers. If this is impossible, we should structure tariffs to 

ensure access but charge marginal costs to middle and upper income 

consumers. In this day and age, government needs to generate revenues to 

cover the costs of services and to provide signals to producers and 

consumers that encourage efficient production and discourage overconsumption. Tariffs should match costs.

I have some principles for pricing infrastructure services: make effective 

use of increasing block tariffs to encourage water conservation, and 

introduce road pricing to reflect congestion and social costs. Cost 

recovery has its limits, and tariffs are usually regressive. Again, prices can 

be offset with income transfers and special programs such as lifeline 

services. Pricing of higher education should promote access, but tariffs 

should be structured to place more emphasis on means testing. These 

revenue streams would cover bonds and operational costs, and it’s equally 

important to cover life-cycle maintenance costs, a task that requires 

considerable upfront planning.

Project Delivery Could Be 

Enhanced

I have a number of potent examples of enhancing project delivery in 

California. The first is in planning and project execution. Santa Clara 

County had about 50 miles of highway construction or expansion to do in 

the early 1980s. The county went to the California Department of 

Transportation (CALTRANS) and said, “Can you help us out? We’re going 

to put in a half-cent sales tax measure over the next ten years. We need to 

complete the project within the next ten years to be able to benefit from 

this revenue stream.” CALTRANS said it would take about 14 to 23 years to 

complete the project. These projects were actually completed in 7 years, 

but that’s because Santa Clara County used Bechtel Civil Company to 

manage the project, and they coordinated the project with private 

contractors and CALTRANS. The county saved $116 million through value 

engineering and time savings. 
Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 35 GAO-02-139 Crosscutting Issues Planning Conference

Concerning better information and asset use, in the planning state, the 

more we know about how well our assets are being used, the more we can 

reduce the estimates of infrastructure needs and the scope of new 

development. For example, classrooms are typically underused at the 

University of California. The average use level is only 67 percent of 

capacity. If all University of California campuses increased their use to 

meet our standard of full use, we would generate an additional 800,000 

station hours of capacity. This would avoid capital costs of $280 million.

Partnerships Are Another 

Good Option

Cooperation and sharing can also work. Last month, the City of San Jose 

and San Jose State University broke ground on the biggest library 

construction project west of the Mississippi. The university wouldn’t have 

had the funds to develop a new library on its own. The city built the library 

but used university land to do it. I think the Santa Clara County experience 

is also a good example of a public-private partnership.

Introducing competition creates strong incentives for cost-effectiveness, 

but it is difficult to make competition last. First mover advantages, such as 

information asymmetries, can lead to hold up and monopoly positions. For 

example, San Diego has a Metropolitan Transportation Board that reviews 

contracts to provide bus service in the regions’ transportation corridors. 

They award contracts for 3- to 5-year periods. The committee that reviews 

and awards the contracts includes the unions, the public and private bus 

operators, and citizen representatives. About 37 percent of revenue 

passenger miles are contracted out to private operators and the remaining 

63 percent go to public bus operators. The region’s bus fair box ratio is 

about 50 percent, which is well above the national norm. Their continual 

monitoring of contracts and regular schedule of placing routes up for bids 

allows for more sustained competition.

Life-cycle Costing Is Needed 

to Address Deferred 

Maintenance

Deferred maintenance is the sleeping giant. Maintenance requires 

planning, and maintenance and capital outlay decisions belong together. 

Each 5-year capital outlay plan should have a twin in maintenance. We had 

a hard time finding any evidence of life-cycle costing, which is really the 

basis for conducting maintenance. Asset reporting was dismal. Nobody 

likes to bother with record keeping. 
Appendix V

Presentation by Jan Whittington, 

Independent Planning Consultant

Page 36 GAO-02-139 Crosscutting Issues Planning Conference

In closing, I’ll say that California’s situation is probably familiar to other 

states as well. Spending has plummeted. The transition to long-term 

financing has been less than smooth, and growth continues. The states’ 

institutions are filled with routines that are easy to design and hard to 

change. Moving to demand management or pricing, to more efficient 

service delivery, or to continuous maintenance involves painstaking efforts 

mired in details that are actually critical for success.

I hope these projects offer some insight.
Page 37 GAO-02-139 Crosscutting Issues Planning Conference

Appendix VI

Introduction to Panel 2 by Steve Cohen, 

Assistant Director, Physical Infrastructure ApendxViI

Panel 2: How can all levels of government and the private sector help plan 

for the infrastructure needs of sustainable communities?

I’d like to welcome you to our second panel of the day. This panel will 

continue the discussion about how we as a nation will meet our 

infrastructure needs, but it will do so in the context of the immense 

challenges of growth and development that we face in the years ahead. 

Over the next 50 years, the population of the United States is projected to 

increase by 50 percent. That’s over 100 million more people for whom 

we’re going to have to provide housing, jobs, schools, water, and roads and 

other transportation systems. In places like California, Texas, Florida, and 

the Southwest, there will be growth in the 50-percent range over the next 

25 or 30 years. California, during this period, will add to its population the 

equivalent of the current population of the state of New York. 

To understand the challenges we face, we need only to look at how we 

faced the challenges of accommodating growth in the recent past. The last 

time our nation’s population increased 50 percent, the amount of driving 

we did as measured by vehicles miles traveled increased by about 300 

percent. Fueled by economic prosperity, our growth was characterized by 

rapid expansion of our metropolitan areas. With that prosperity came not 

only traffic congestion, but the consumption of land, open space, and 

natural resources to support development; declining air quality; and the 

decline of our cities and older communities. It seems that almost overnight 

the people of Atlanta woke up to find that their metropolitan area was 100-

miles wide. The people of Denver woke up to find that the mountains and 

open spaces they cherished were dotted with townhouses and 

subdevelopments. And the people of metropolitan Washington, D.C., found 

themselves spending the equivalent of 2 workweeks a year sitting in traffic. 

Looking at the record of the past and the challenges of the future, many 

communities and observers have concluded that the way we have been 

growing is simply not sustainable. The question facing many communities 

is how do we accommodate the growth that we know is coming in a way 

that is sustainable over the long haul. For example, how do we grow and 

improve our road systems while at the same time providing our people with 

alternatives to the automobile, such as transit, walking, and bicycling? 

How do we target growth and development to places that already have 

needed infrastructure, make better use of what we have, and avoid the 

need for billions of dollars in new spending? How do we provide the 

economic development our people demand while at the same time 
Appendix VI

Introduction to Panel 2 by Steve Cohen, 

Assistant Director, Physical Infrastructure

Page 38 GAO-02-139 Crosscutting Issues Planning Conference

preserving open spaces and minimizing the damage to our natural 

environment? And how do we do all this and still provide jobs and 

affordable housing to millions of Americans? This is the challenge of 

building sustainable communities, a challenge that is integral to the 

discussion of infrastructure. 

This panel will address how all levels of government and the private sector 

can meet the challenge of building sustainable communities. In particular, 

it will examine how to integrate the multiple players at the local, regional, 

and state government levels as well as in the business and other privatesector communities. It will also address how to integrate the range of 

crosscutting concerns in environmental policy, transportation policy, and 

housing policy. 

The remarks of panel 2’s four speakers are contained in appendixes VII 

through X.
Page 39 GAO-02-139 Crosscutting Issues Planning Conference

Appendix VII

Presentation by Robert Dunphy, Senior 

Resident Fellow, Transportation, Urban Land 

Institute ApendxiVI

Robert Dunphy is senior resident fellow (transportation) in the policy and 

practice department of the Urban Land Institute (ULI). He chairs the 

transportation and land development committee of the Transportation 

Research Board and is a member of the Institution on Transportation 

Engineers, for which he is writing a chapter of the new Transportation 

Planning Handbook. The research for his latest book, Moving Beyond 

Gridlock: Traffic and Development, included case studies of three large 

regions recognized for implementing smart growth policies. He also wrote 

Transportation and Growth: Myths & Facts, which addresses some of the 

most controversial aspects of growth in the context of traffic congestion 

and transportation options. Mr. Dunphy frequently speaks on growth and 

transportation issues at national and regional meetings. He holds an M.S. 

in Civil Engineering from Texas A&M and is a member of Lamda Alpha 

International, an honorary land economics society.

Infrastructure Policy Affects 

Land Use 

I’m going to simplify the charge of this conference by talking about 

transportation as a primary aspect of infrastructure. Transportation is a 

true crosscutting issue relating to a whole variety of different kinds of 

travel for people and goods, and it’s delivered by a whole variety of 

different units of government as well as the private sector. It also links to 

the issue of land use. It becomes part of the broader dialogue on growth, 

no growth, smart growth, or sustainable development. 

There are conflicting views. The National Survey on Growth and 

Development commissioned by Smart Growth America asked people what 

they thought about different strategies. The survey found that 78 percent 

of respondents supported giving priority to improving services in existing 

communities rather than encouraging new housing and commercial 

development in the countryside, sort of obvious good management. Fiftyfour percent said traffic in the area was getting worse, but when asked 

what to do about it, the primary response was to improve public 

transportation. About half gave that primary response, twice as many as 

said to improve the roads. Similar results were found in an Atlanta poll. 

People seem to favor improving transit over improving roads despite the 

fact that few of them actually use public transportation. A survey 

conducted by the Alliance for Clean Air asked people what the most 

responsible means of commuting was for them. People’s response was, 
Appendix VII

Presentation by Robert Dunphy, Senior 

Resident Fellow, Transportation, Urban Land 

Institute

Page 40 GAO-02-139 Crosscutting Issues Planning Conference

“Well, it’s driving my own car.” Clearly, in this survey, when given an 

opportunity to vote for the environment and good government, the 

respondents recognized that it was all about them. These studies confirm 

the linkage between growth and traffic in people’s minds. There is wide 

support for doing something to improve the traffic. There may or may not 

be support for greater management of growth. 

We know that when it comes to development, the two things people hate 

most are sprawl and density. And the disconnect between Americans’ 

apparent support for improving alternatives to driving and the reluctance 

to use them is illustrated by a presumably humorous article in The Onion

last year, which reported that a study by the American Public 

Transportation Administration revealed that 98 percent of Americans 

support the use of mass transit by others. 

Developing a Regional 

Vision Is Critical to 

Effective Transportation 

Planning

Should federal policies support sprawl or smart growth? Again, that 

sounds like an easy question. My take is it probably depends. Decisions on 

growth are jealously guarded local government responsibilities that 

collectively have a great impact on transportation investments of state and 

local governments. The survey cited earlier found that while most voters 

feel there needs to be more management of growth, particularly because of 

the transportation impacts, there is little support for federal or state 

intervention. So again, we have one of these contradictory findings. 

Developing a regional vision of where the next million people will be or, in 

the case of Los Angeles, where the next 6 million people will be, requires 

collaboration among local governments and the private sector throughout a 

region as well as supporting state and federal policies. Such visions vary 

according to local priorities regarding the economy, quality of life issues, 

and the environment. 

As critical as this vision is in determining the need for regional investments 

in infrastructure, economic development, and housing, its importance is 

not universally understood. In many cases, we have been driven by 

transportation planners’ decisions and visions. There is a federally 

established process for developing consistent transportation and growth 

strategies, but it is rarely invoked. One of the few examples was Atlanta, 

where a finding that the city’s plans were not in conformance with clean air 

requirements created a crisis that led to a business-driven fix, at least for 

now. And while the term “smart growth” is hot in some places, it is by no 

means mainstream. You can talk about smart growth in Atlanta, but you 
Appendix VII

Presentation by Robert Dunphy, Senior 

Resident Fellow, Transportation, Urban Land 

Institute

Page 41 GAO-02-139 Crosscutting Issues Planning Conference

can’t talk about it in Charlotte. You can talk smart growth in Austin, but not 

in Dallas. 

It seems to me that there are three levels of community consciousness that 

can spark successful regional strategies for dealing with travel and growth. 

The first level is, “We have a traffic problem and we need traffic solutions.” 

This is characteristic of growing business communities, such as Houston 

and Atlanta, because of the critical nature of transportation and mobility to 

businesses in these communities. In fact, both Houston and Atlanta faced a 

crisis in transportation, and in both cases the business community led the 

regional solution. 

The next level up is, “We have a traffic problem and we need traffic and 

land-use solutions.” This—smart growth—seems especially oriented 

toward destination communities, such as Phoenix or San Diego, that have 

an important stake in preserving the quality of life of the place that drew 

people there as well as in mobility. In these places, there appears to be 

support for light smart growth, which approaches growth management 

gingerly, but at least is a start. I think San Diego is a rare example of a 

metropolitan planning organization that was given authority to coordinate 

regional facility plans mandated by a voter initiative. This type of 

delegation of local authority is rarely done at the regional level. I believe 

there’s a large potential for such light smart growth with better planning 

and community involvement. 

The last level is the attitude, “We have a traffic problem, and we need traffic 

and land-use solutions as well as a change in lifestyles.” Livable 

communities, such as Toronto, Portland, and Seattle, seem to be candidates 

for this kind of deep smart growth, possibly including pricing and 

management of parking. 

This review of approaches to linking transportation and land development 

illustrates the wide range of experience in different metropolitan areas as 

well as the degree of comfort or discomfort people have with making 

significant changes in current trends. Developing a regional vision is a first 

step in transportation planning, but it’s often been dismissed as a necessary 

preliminary step to the real work of calculating transportation plans. 

Rather than have the forecast generated by a university or a consultant, as 

sometimes happens, this visioning exercise should be recognized as the 

origin and most critical determinant of transportation plans. As Paul said, 

the question is where are we going to grow, and there are a number of 
Appendix VII

Presentation by Robert Dunphy, Senior 

Resident Fellow, Transportation, Urban Land 

Institute

Page 42 GAO-02-139 Crosscutting Issues Planning Conference

examples, most recently in Salt Lake and in the Twin Cities, of broad 

community deliberations of this question.

One interesting example of the federal government dealing with land-use 

issues is the Transportation and Community and System Preservation Pilot 

Program. It’s a mouthful. It started under the transportation 

appropriations of fiscal year 1999, and the most recent round awarded 80 

grants for a total of $47 million. I understand that the way they came up 

with this horrendous title is they started to call it transportation and land 

use, but that was entirely too controversial on the Hill. So they went back 

and did a search and replace in the legislation and came out with something 

completely unpronounceable. This model, by the way, has been followed 

by other similar programs. In Atlanta, the regional agency has a livable 

centers program. There’s one in the Bay Area in San Francisco, and 

another in Minneapolis. 

Housing and Transportation 

Strategies Affect Each Other 

and Land Use

The cost of affordable housing is an issue that I think we often don’t 

appreciate for its linkage to transportation. A significant component of the 

traffic growth in recent years is the growing distance between homes and 

jobs, which reflects consumers’ need to spend more time on the road in 

return for affordable housing. A ULI study in Portland, Oregon, found that 

for the same size home, new home buyers could save about $2 a day in 

mortgage costs for every mile they moved further out, adding additional 

congestion to the roads and emissions to the environment. Even a 

generous estimate of the cost of driving is maybe 50 cents a mile. So out 

and back, that’s an extra dollar against a $2-a-day reduction in mortgage 

costs. And most people at that stage don’t even consider fully allocated 

costs. They’re probably thinking about the cost of gas. 

There is an experimental Location Efficient Mortgage Program being 

implemented by Fannie Mae to help redress this balance. Most housing is 

provided by the private sector, so it’s important to understand the 

strategies to incentivize housing in locations that are efficient in terms of 

transportation demand and supply. It may be necessary to offer carrots to 

private developers and localities for developing affordable or mixed 

income housing in smart growth areas that include adequate 

transportation. This approach is being used in Maryland now, in New 

Jersey, and in a number of other places. Federal carrots for mixed income 

affordable housing could include allowing investors to take losses as they 

did in the olden days, increasing tax credit amounts to offset higher land 
Appendix VII

Presentation by Robert Dunphy, Senior 

Resident Fellow, Transportation, Urban Land 

Institute

Page 43 GAO-02-139 Crosscutting Issues Planning Conference

costs, home ownership tax credits, and higher tax credits for residential 

mixed income in these areas. 

The Millennial Housing Commission is currently examining the range of 

housing recommendations under a congressional charge. The 

transportation program that most directly addresses smart growth goals 

and urban revitalization is the federal transit program. But one of the 

challenges is that transit works best in places that are generally not 

growing and worst in places experiencing most of the growth, typically 

auto-dependent communities in the Sunbelt. Encouraging development 

within the existing transit service area is clearly important to its success, 

but many of the investments in new transit lines are being undermined by 

the lack of local consistency in decisions to reinforce the transit 

investment. The Federal Transit Administration (FTA) has implemented 

criteria to encourage new start transit communities to make land use 

changes to support transit. And, of course, the growing smart growth 

movement would reinforce that. 

FTA has also changed its rules to encourage joint development, by allowing 

transit agencies to keep their revenues from sales or leases of real estate, 

which removes one of the major disincentives for a public agency to get 

involved in such a high-profile venture. One of the organizations involved 

in this rule change was Trimet in Portland, which estimated that with the 

capital cost of new rail lines, generating new riders by developing an 

adjacent site would be 10 to 23 times more cost-effective, even if the land 

were given to a developer. With the cost of new transit investments 

running as high as $50,000 per regular daily rider, there’s a strong financial 

return from supporting development nearby as well as the potential for 

supporting smart growth goals and increasing the livability of the 

community. 

This strategy of investing in places where travel demand is low and 

available sources are high works well on the highway side as well, such as 

in some of the places that Larry Frank talked about in Atlanta. Because 

these sites often have other challenges, including neighborhood opposition, 

the existence of a regional vision and strong reinforcing policies is 

essential. Finally, the provision in the financing of parking facilities is 

especially essential in in-fill locations. Since parking is needed to bring 

development into the types of locations that offer many choices, it might be 

considered as a potential public expense. Robert Silverman, a developer in 

Atlanta, spoke at a ULI in-fill development forum and pointed out that since 

federal and state funds were used for highways and transit, they should be 
Appendix VII

Presentation by Robert Dunphy, Senior 

Resident Fellow, Transportation, Urban Land 

Institute

Page 44 GAO-02-139 Crosscutting Issues Planning Conference

available for parking, also. The federally mandated transportation process 

requires that all federal transportation investments be consistent with 

regional plans. A broader view would align other public policies as well, 

including state investments and other areas of development, such as 

housing, education, and recreation. I think Governor Glendening is doing 

this in Maryland and is encouraging others through that. The principles of 

ISTEA, the Intermodal Surface Transportation Efficiency Act, were such 

good models that Congressman Blumenauer has suggested that there 

should be a water ISTEA built on similar principles of broad regional 

approaches. 

A broader view of transportation decisions recognizes that they are part of 

a broad focus on community and livability. This heightened concern of 

citizens about the built environment was mentioned at the beginning of the 

last presidential campaign but was never really pursued. But it continues 

to be an important issue. Even if there is not voter support in having the 

federal government involved in local growth issues, there needs to be a 

national dialogue, and the federal government needs to be involved. With 

its involvement in so many aspects of urban life, federal actions can have a 

marked effect, as we’ve seen with the Interstate Highway Act, the Federal 

Housing Administration, and the Veterans Administration loans that have 

changed the landscape of America since the second World War. As the 

Millennial Housing Commission begins its activities, a parallel effort among 

the U.S. Department of Transportation, the Environmental Protection 

Agency, and the Department of Housing and Urban Development, as a 

minimum, with an array of state and local official, civic and business 

leaders, would be a timely program. 

Thank you.
Page 45 GAO-02-139 Crosscutting Issues Planning Conference

Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology ApendxiVI

Lawrence Frank is a faculty member of the City Planning Program at the 

Georgia Institute of Technology and a registered landscape architect. He 

holds a M.S. in Civil Engineering Transportation Planning and a Ph.D. in 

Urban Design and Planning from the University of Washington. 

Specializing in the interaction between land use, transportation, air quality, 

and health, he has published several papers on the effects of local land use 

and regional transportation decisions on regional development patterns, air 

quality, and traffic congestion. Dr. Frank received a multiyear award from 

numerous state and federal sources to conduct a study (known as 

SMARTRAQ) to assess the role of land use and transportation in improving 

air quality and public health in the Atlanta Metropolitan Region. This study 

will be pioneering in that it will assess how development decisions and 

transportation investments affect travel choice and the level of physical 

activity as a predictor of overall public health. 

The Built Environment 

Affects Our Behavior and 

Our Health

Good morning. I was glad to see you chose Crosscutting Issues as the 

name of this conference because I think we’ve done a really good job in our 

educational system and in our culture of separating roles and 

responsibilities among disciplines to the point that it is as if we had 

blinders on. And I think that is responsible for a lot of the problems that 

we’re now facing. Obviously, it is efficient for a transportation engineer to 

know exactly what makes a highway move the most number of people in a 

car, but that knowledge in isolation has led to a lot of costs, in terms of 

pedestrian movement, fatalities, the ability to walk, etc.

All of these issues are intertwined. The gist of my talk will be looking at city 

planning and health—that is, how the built environment affects our 

behavior and our health. Transportation, infrastructure, all of these things 

are intertwined. City planning grew out of health concerns, but it grew way 

out of health concerns and diverged to the point that I will argue that our 

current use of the Zoning Enabling Act to separate uses through zoning has 

made things so separate that, in fact, it’s counter to the original impetus 

upon which this act was originally predicated. I haven’t written that book 

yet. 

Atlanta Was Forced to 

Rethink Planning and 

Development Issues

To start off, I had to give talks on a project called SMARTRAQ or Smart 

Growth. I’d moved from Seattle to Georgia. I’d felt really safe talking about 

the project in Seattle, but when I moved to Georgia, I found that growth 

management was considered a very scary thing. Then, in 1997, Atlanta 

faced a freeze on federal transportation funds—I think it was the first 
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 46 GAO-02-139 Crosscutting Issues Planning Conference

example in the nation, and I was happy to be there to see it—where the 

federal laws came in and gave a lesson to a region on how it needs to 

rethink the way it’s growing, developing, and planning for its future 

infrastructure. 

Our regional transportation plan in Atlanta has changed a lot. The 

approach to planning for future infrastructure has changed. I’m happy to 

report that. On the other hand, I don’t think that the implementation of that 

plan has changed very much. The realities are still there, and I guess that 

says how far we really have to go. But to a group of elected officials in 

Atlanta, this quote seems to be very effective: “Change is inevitable. In a 

progressive country change is constant.” (Benjamin Disraeli, Edinburgh, 

Oct. 29, 1861) If we’re going to be progressive, we need to recognize that 

change is fundamental. Underneath all that is the way the expectations of 

the general public seem to be manifested. Behind the financial and elected 

officials’ barriers are really the public’s expectations. We have words like 

“NIMBYism, LULU, and NOPE—Not On Planet Earth.” 

Rising Car-use Affects Air 

Quality and Health

People are most upset by time use, and that’s manifested through their 

frustration over congestion. But air quality, we know, is also affected by 

traffic, as is physical activity and health. The linkage between physical 

activity and health is new. Our thought process is that if we can’t walk to 

places, we won’t be as physically active. And maybe that’s related to why 

we are getting a little bit heavier every year, according to statistics that are 

now documented by the Centers for Disease Control, which funds some of 

this work. 

Now, this graphic (see fig. 6) is a 26-year window created by Ann R. Carey 

and Sam Ward for U.S.A. Today. 
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 47 GAO-02-139 Crosscutting Issues Planning Conference

Figure 6: Why Roads Are Crowded

Population growth from 1970 to 1996 grew 30 percent, while doubling that 

were drivers, tripling that were vehicles, and quadrupling that were miles 

driven. Vehicle ownership is flattening out in our country, but what about 

in the rest of the world that’s not? 

Bob Dunphy put this next graphic together (see fig. 7) in his book, Moving 

Beyond Gridlock. It shows where Atlanta was in 1990 in terms of vehicle 

miles of travel per capita. We thought we were so far out in the lead that 

nobody would ever catch up, but in 1995, Houston passed us.
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 48 GAO-02-139 Crosscutting Issues Planning Conference

Figure 7: Vehicle-Miles Traveled per Capita, 1990, Major U.S. Urbanized Areas

Source: Robert T. Dunphy, Moving Beyond Gridlock, Urban Land Institute, 1997.

Thirty-five miles of travel per capita per day translates into a graphic not to 

scale. But if you think about how far we actually travel in 1 day in a region, 

we travel the distance to the sun. If you multiply 35 miles by 3 or 4 million 

people now in Atlanta, we actually are now on our way back home for a 

return trip every day. That is astronomical, literally and figuratively. 

Do we really need to drive that much? One of the themes in the last panel 

was monitoring and tracking performance. In this arena, there are tangible 

Miles per day
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 49 GAO-02-139 Crosscutting Issues Planning Conference

ways we can do that. This graphic (see fig. 8) shows the last 10 years in 

Atlanta. 

Figure 8: Population Change in the Atlanta Metropolitan Region, 1990-1999, by Census Tract

Source: Atlanta Regional Commission.

Where did the growth go? You can see that the population changed. The 

dark areas are where most of the growth went and the lighter areas are 

where the population did not grow, or even shrank. The next graphic (see 

fig. 9) explains why Atlanta might be driving so much. It’s pretty clear that 

we’re exploding out. As Paul said, we’re 80 miles east-west, and 120 to 130 

Population Change

Loss

0 to 500

501 to 2,500

>2,500
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 50 GAO-02-139 Crosscutting Issues Planning Conference

miles north-south. An incredibly rapid rate of expansion occurred over the 

last 10 years, as the graphic shows.

Figure 9: High Growth Areas in Atlanta, 1995-2025
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 51 GAO-02-139 Crosscutting Issues Planning Conference

Transportation Approaches 

Affect Development

Many factors are contributing to Atlanta’s growth. But I believe regional 

and federal approaches to transportation and infrastructure investment are 

number one. The provision of freeway access to outlying areas in Atlanta 

has been amazing, and for the last 20 years, they’ve been trying to put in an 

outer perimeter beltway. That doesn’t seem to be a way to go if you want to 

contain and reduce outward growth. It’s safe to say that maybe that’s not a 

good idea. Provision of freeway access is obviously going to contribute to 

growth, and then there’s the issue of the induced demand that would come 

from that. 

Georgia 400 was built in the late 1980s or early 1990s. The population of 

Alpharetta, which is a city to the north, exploded right where the darker 

colors are in figure 9. I hypothesize that Alpharetta probably wouldn’t have 

grown as fast at the region’s edge without the provision of Interstate 

Georgia 400. Lack of accounting for environmental and social costs is 

really also at the core of that decision. When we make our transportation 

infrastructure decisions, we’re not doing a good job of including in the costbenefit scenario things such as health, secondary impacts of land 

development, consumption of raw lands, and so on.

Auto-dominant modeling regimes. That is a very technical term, but the 

fact is that when we collect travel data, which is what the SMARTRAQ 

Project is about, we don’t do a good job of collecting data on travel patterns 

other than vehicular-based travel. Most MPOs in the nation tell people 

when they fill out their surveys not to worry about the short trips. In fact, 

they throw out the short trips, which are what we want to know about to 

understand where transit might work. So we’re working on using GPS 

devices and Palm Pilots so that in a travel survey, we can track with 

technology exactly what the actual behavior of people is instead of relying 

on self-reporting. To date, all of the data we have on travel are selfreported, and we don’t really know what people do. I just did my own 

travel survey. I happened to have been recruited, and I have to say it’s 

difficult to remember every single thing you do throughout a day. So this 

may help. 

This auto-dominant modeling regime is very important because we don’t 

have data to understand the relationships, nor have we been collecting data 

across a wide range of urban forums. Another thing we’re trying to address 

is that when we do household travel surveys, typically, we capture 

households located in the lower density environments. That’s mostly what 

we have now. And we don’t know enough about higher density 
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 52 GAO-02-139 Crosscutting Issues Planning Conference

environments or how people who live in these environments relate to the 

environment or travel. 

Lack of geographic barriers in Atlanta. Obviously that’s a foregone 

conclusion. Limited economic value of land for agricultural use is another 

one. I want to convert it if I can make money on it another way. Ethnic and 

cultural diversity is also very much a catalyst for outward growth. 

Competition for tax base occurs in Atlanta, which has several small 

governmental units. Atlanta has everything going for it to make it want to 

sprawl. The state constitution mandates home rule for urban land use.

Having learned our lesson with the Clean Air Act, how are we projecting 

growth to go in the future? Well, in this graphic (see fig. 9), you can see that 

the outlying areas, again, are the ones with the color hits. Most of the 

growth continues to go to the outlying areas, requiring more infrastructure 

investment to serve that growth, because the levels of service are projected 

to be so low on those freeways that we’ve just recently built or are planning 

to build that we better get out there and add some more lanes. 

Correlation Between 

Housing Age and Distance 

to Recreate May Help 

Explain Why People 

Recreate Less

Moving into the physical activity and health discussion, we did a simple 

little cross-tabulation. We compared travel data in Seattle in 1996 with the 

year in which the houses of the people in the survey were built. Then we 

looked at how far people drove to recreate (see fig. 10). 
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 53 GAO-02-139 Crosscutting Issues Planning Conference

Figure 10: Average Distance Traveled to Recreate

Source: 1996 Puget Sound Transportation Panel

It’s amazing. Survey respondents averaged around 3.7 miles to recreate if 

their house—their neighborhood—was built before 1947. Before World 

War II is what we typically talk about in the literature. And you can see, as 

you live in a newer and newer community, you drive almost three times as 

much just to recreate. In terms of cost, that suggests that you may be less 

likely to recreate. Recreation is not as easy to get to. 

When we try to communicate this, we say let’s compare a couple of 

families: one in town in Atlanta—I borrowed this picture from Toronto, 

because Atlanta didn’t have a picture that looked like that—and one in an 

outlying area (see fig. 11). 

Year of Home Census Tract Development

Prior to 1947 1947 to 1962 1963 to 1977 After 1977

Mean DISTANCE (miles)

9

8

7

6

5

4

3
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 54 GAO-02-139 Crosscutting Issues Planning Conference

Figure 11: Comparing Two Families

We talk about things we can compare, like density. These are measurable 

things that can be performance-based. We can also track with geographic 

information systems as we’re doing now these phenomenon of urban 

forum, land use, transportation, travel choice, vehicle emissions per 

household, and physical activity levels, too. And we can correlate all of 

that if we think crosscutting in our research design will help us to make 

8 units per acre

Parking is limited

 services nearby

family of four

annual income $50,000

one vehicle

four vehicle trips/day

46 miles of travel

1 unit per acre

parking on site

no services within walking distance

family of six

annual income $90,000

three vehicles

 eleven vehicle trips /day

101 miles of travel

DENSITY

PARKING

MIXED USE

HOUSEHOLD SIZE

INCOME

VEHICLES

TRIPS

MILES OF TRAVEL

Profile of Family A

(Urban)

Profile of Family B

(Ex-urban)
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 55 GAO-02-139 Crosscutting Issues Planning Conference

policy recommendations based on what people really do and how healthy 

people are who live in different environments. In terms of the two families, 

we could make the assertion that the one in the outlying area takes more 

trips in this environment and that they actually travel more. And these are 

data based on Atlanta from 1991. Well, that’s true, but they also have more 

people, they have more money, and they have more vehicles. So we need to 

be thinking about the controls and how we compare the two.

Neighborhood Design 

Affects Transportation 

Choices

Frank Speilberg drew this next graphic a long time ago (see fig. 12). I’ve 

used it constantly. The suburban sprawl versus the traditional 

neighborhood.

Figure 12: Neo-traditional Development vs. Suburban Development

Source: Frank Spielberg.

	


	

		
	
	


	
		
	



		
			

				
	



	



	
	



	





			
			

			

		






traditional neighborhood

suburban sprawl
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 56 GAO-02-139 Crosscutting Issues Planning Conference

The traditional neighborhood is interconnected. If we measure 

neighborhoods based on the connectivity of the street network alone, 

meaning the numbers of intersections per the same unit of area, you’re 

going to say there are obviously more intersections and more blocks in the 

traditional neighborhood. You have choices of ways to get through the 

neighborhood. Here in the suburban development, if kids want to go to 

school to play basketball, how are they going to get there? Well, they’ve got 

to go all of the way back out. We’ve indoctrinated an irrational approach to 

land development to make people have to travel far distances for what are 

actually very short distances as the crow flies. I think that’s an opportunity 

for us to resurrect, based on microeconomic modeling, what could be a 

cost that’s less for walking than for driving. Keep them driving around, but 

let’s really focus on the pedestrian linkages so that the walker has a short 

distance where the driver still retains the longer distance for travel. 

I’ll conclude by showing you what the data actually say with vehicle miles 

of travel in these two communities. Vehicle miles of travel increase 

threefold as connectivity goes down in Atlanta (see fig. 13).
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 57 GAO-02-139 Crosscutting Issues Planning Conference

Figure 13: Household Vehicle Miles of Travel, by Mean Block Area

Source: Atlanta Data – The Turner Foundation.

When we modeled the air quality effects, we found the very same thing for 

NOx, which is our precursor to ozone formation (see fig. 14). 

<35

120

35-50 50-100 100-500 500-1,000 >1,000

100

80

60

20

40

Mean Block Area in Square Meters

Mean Vehicle Miles of Travel
Appendix VIII

Presentation by Lawrence Frank, Assistant 

Professor, Georgia Institute of Technology

Page 58 GAO-02-139 Crosscutting Issues Planning Conference

Figure 14: Household NOx Emissions, by Mean Block Area

Source: Atlanta data – The Turner Foundation.

Descriptively, we know these things matter. We’re going to work hard to 

try to link public health into this. 

I thank you very much for your time. 

80

60

20

40

<35

120

35-50 50-100 100-500 500-1,000 >1,000

100

Mean Block Area in Square Meters

Mean NOx Emissions
Page 59 GAO-02-139 Crosscutting Issues Planning Conference

Appendix IX

Presentation by David Rusk, Urban Policy 

Consultant, Former Mayor of Albuquerque, 

New Mexico ApendxiIX

David Rusk is an independent consultant on urban and suburban policy as 

well as an author and public speaker. A former federal official, New 

Mexico legislator (1975-77), and mayor of Albuquerque (1977-81), he has 

spoken and consulted in over 90 U.S. communities. He has authored Cities 

Without Suburbs and Inside Game/Outside Game and spoken on “Fair 

Growth: Connecting Sprawl, Smart Growth, and Social Equity.” Since 1993, 

Mr. Rusk has lectured abroad on urban problems in Berlin, Stuttgart, and 

Frankfurt, Germany, as well as in Toronto and Victoria, Canada; served as 

an advisor to the government of South Africa on metropolitan governance; 

and was a visiting professor at the University of Amsterdam and Delft 

Technical University. Mr. Rusk attended the University of California at 

Berkeley and graduated Phi Beta Kappa as the outstanding undergraduate 

student in economics in 1962.

The Primary Factors 

Shaping Development Have 

Been Sprawl and Race

Don Hutchison, executive director of the Greater Baltimore Committee and 

a former county executive in Baltimore County, once stated, “If regionalism 

isn’t dealing with land use, fiscal disparities, housing, and education, then 

regionalism isn’t dealing with the issues that really count.” I think I could 

reduce that list of four to one very basic question, which relates to the 

framework of this conference on crosscutting issues and physical 

infrastructure. And that is, “What gets built where for whose benefit?” 

I have spoken and consulted in over a hundred metropolitan areas in this 

country as well as abroad. I’ve analyzed trends in all 300-plus metropolitan 

areas, largely through census data. I have found that although each 

metropolitan area has distinctive characteristics, there are common 

factors. The primary factors that have shaped the development patterns of 

metropolitan areas have been sprawl and race. The two are 

interconnected. They are linked most clearly through the phenomenon of 

the concentration of poverty. High-poverty neighborhoods generate “push” 

factors, such as high-crime rates; poorly performing local schools; 

declining property values; and, very often, high-tax rates and poor local 

services. These negative conditions push middle class families out of such 

neighborhoods and into newer communities. 
Appendix IX

Presentation by David Rusk, Urban Policy 

Consultant, Former Mayor of Albuquerque, 

New Mexico

Page 60 GAO-02-139 Crosscutting Issues Planning Conference

There are also “pull” factors at work in the newer communities, which are 

the reverse of those on my previous list: safer neighborhoods, better 

schools (at least they are perceived to be better), rising property values, 

and often lower tax rates and better quality services. These positive 

features aren’t due to the superior virtue of suburban officials. They reflect 

the fact that these communities are low-poverty communities. They are 

low-poverty communities because they were designed that way by a 

combination of federal, state, and local policies and the impact of these 

policies on local housing markets. 

This, as I’ve hinted, is not a race-neutral question. In 1990, there were 

almost as many people in metropolitan America who were poor and white 

(about 11 million) as there were those who were poor and black and poor 

and Hispanic combined (7 million and 5 million). Yet, poor whites almost 

never lived in poverty-impacted neighborhoods. Only 25 percent of poor 

whites lived in neighborhoods with 20-percent or higher poverty rates. In 

contrast, half of all poor Hispanics and three-quarters of all poor blacks 

lived in poverty-impacted neighborhoods. Across urban America, you 

almost never find examples of what you might call white slums. Most highpoverty neighborhoods are black ghettos and Hispanic barrios. 

Economic Segregation 

Affects Educational 

Outcomes 

Economically isolated communities, thus, are racially and ethnically 

isolated communities. On the one hand, Census 2000 confirms that racial 

and ethnic segregation is declining across most metropolitan areas (except 

where there has been a large influx of Hispanic immigrants), and it is 

generally declining twice as fast in the South and the West as in the 

Northeast and the Midwest. On the other hand, we also know that while 

racial segregation has been going down, at least through 1990, economic 

segregation was rising in 70 percent of American metropolitan areas. In 

studies that I’ve done of trends in school enrollment in a dozen 

metropolitan areas, it appears that, even after the highly prosperous 1990s, 

central city school districts almost always had a higher proportion of 

children who qualified for free and reduced price lunches in 2000 than they 

did back in 1990. In fact, using school enrollment as something of a proxy 

for overall population economic trends, I would hazard a guess that next 

spring we will find from Census 2000 that the level of economic segregation 

has continued to rise over the past decade. 

High-poverty ghettos and barrios are not so much the result of factors 

inside such communities as they are a reflection of the “rules of the game” 

that have been operating over the decades outside of those communities. 
Appendix IX

Presentation by David Rusk, Urban Policy 

Consultant, Former Mayor of Albuquerque, 

New Mexico

Page 61 GAO-02-139 Crosscutting Issues Planning Conference

What gets built where for whom, in effect, also means who lives where? 

What kinds of different racial and ethnic and income groups live in 

different kinds of communities? And that cuts across all four of my issues: 

land use, fiscal disparity, housing, and education. “Public policy dictates 

where development occurs,” says the National Association of Home 

Builders. Fiscal disparities are based on property values, and, typically, 50 

percent of the communities’ assessed valuation is in residential property. 

Property values are related to the nature of the housing stock and its 

occupants. 

As for education, one of the most significant and constant findings of 

educational research for the last 35 years (ever since James Coleman’s 

monumental Equality of Educational Opportunity study back in 1966) is 

the relationship between family income, parental educational achievement, 

and the educational outcomes for children. First and foremost is the 

significance of those factors in the child’s family itself, and second is the 

income and educational attainment of the parents of a child’s classmates. 

These have been found as the dominant factors affecting educational 

outcomes over and over again. 

I typically do such studies myself when I am speaking in a local community. 

A single fact—the percentage of children that qualify for free and reduced 

price lunch in each local school—typically explains from 65 to 80 percent 

of the variation in standardized test scores from school to school. I am 

currently collaborating with the Urban Institute on a survey of trends in 

racial and economic segregation in all of the nation’s elementary schools 

from 1990 through 2000. We’ll have those results in about 6 weeks. As 

GAO looks at the question of academic performance—and the Congress 

has the President’s proposals regarding testing and accountability before it 

right now—one needn’t wait for several years for the results of new, 

nationwide testing programs. We can anticipate what the results will be 

right now. In 6 weeks, I can give GAO a list of what are going to be, let’s 

say, the lowest 10-percent academically performing schools in the future, 

simply based upon who the kids are.

I was just up in Buffalo, New York, where I did such a study of all 140 public 

elementary schools in Erie County. The percentage of children on free and 

reduced price lunch explained 87 percent of the variation in test scores in 

their fourth grade English language skills tests, with a standard error of 6 

points. So, in effect, just tell me the percentage of kids on free and reduced 

price lunch in one of that region’s elementary schools, and I will tell you, 

plus or minus six points, what the reading test scores were in that school 
Appendix IX

Presentation by David Rusk, Urban Policy 

Consultant, Former Mayor of Albuquerque, 

New Mexico

Page 62 GAO-02-139 Crosscutting Issues Planning Conference

with 95-percent accuracy. On the other hand, the correlation between test 

scores and the amount of money being spent per child or pupil-teacher 

ratios in the school is zero. The correlation is usually zero wherever you 

do it. 

The social science research is very clear on the overwhelming linkage 

between family background and academic performance. There has also 

probably been no finding of social science that has been so persistently, 

and I might say even deliberately, ignored by many educators and by 

virtually all politicians. In effect, where you live determines what your 

educational opportunity will be. We may, as a nation, subscribe to a goal of 

egalitarianism, but we apportion educational opportunity by where you 

live. What’s important is not how much money is being spent, but rather 

who your classmates are. 

That’s the bad news. The good news is that there’s also a large body of 

research that shows that poor children, if they are attending middle class 

schools (and preferably living in middle class neighborhoods to boot) 

substantially improve their academic performance. My own research 

shows that for every percent that the free lunch rate of a school goes down, 

an individual poor child’s test scores go up two-tenths to three-tenths of a 

point. That means that for a given poor child, the difference between living 

in a poor neighborhood and going to a school where 80 percent of the kids 

are on free lunch and living in a middle class neighborhood and going to a 

school where 20 percent of the kids are on free lunch is a 15-percent 

improvement in that child’s test scores. And you won’t find anything in all 

of the business-supported and state-legislature-initiated educational reform 

movements that has that kind of impact. Housing policy is school policy. 

Housing policy is also basically fiscal policy. And housing policy certainly 

affects the consumption of land. 

Federal Policies Could 

Support Diversity Through 

Regional Planning 

What gets built where for whom? The question sounds like a land use 

issue, which constitutionally lies outside of federal responsibility. But you 

all know that federal policies have a huge impact in setting the rules of the 

game. 

Our two previous speakers focused much of their remarks on 

transportation issues, for example. From 1956 onward, our national 

government, adjusting all figures to current dollars, has spent eight times as 

much money to build highways as it has to support urban mass transit. 

Fundamentally, the decisions to build or expand highways or put in new 
Appendix IX

Presentation by David Rusk, Urban Policy 

Consultant, Former Mayor of Albuquerque, 

New Mexico

Page 63 GAO-02-139 Crosscutting Issues Planning Conference

bridges are not transportation decisions. They are land development 

decisions. Unfortunately, such land development decisions are driven by 

transportation planners, not by some overarching vision of how a 

community would like to develop.

Similarly, in looking at the impact of housing policy, first the Home Owners’ 

Loan Corporation back in the Hoover days and then the New Deal’s Federal 

Housing Administration “red-lined” black neighborhoods, denying federal 

mortgage guarantees. This policy greatly increased housing segregation 

and substantially created loan-starved, high-poverty ghettos. Our tax 

policy provides 11 times as much in tax incentives and subsidies for home 

ownership as it does for landlords and their renters. 

Most of my work targets reforming the rules of the game at the state and 

local levels. These include regional land use and transportation planning, 

or regional growth management, and regional mixed-income housing, 

where every new development must have a modest proportion of housing 

for low- and moderate-income families. There are communities that do this. 

Nobody does this better than a county a few miles from here, Montgomery 

County, Maryland. And least important, but still useful, is regional tax base 

sharing. 

But let’s talk about federal reforms for a minute. I’ve got some suggestions 

for you. First, it seems to me that the federal government needs to get 

serious about the notion that our metropolitan areas are the real social and 

economic centers of our national activity. We need to take all of these 

functional federal “silos” and somehow bring them together into a common 

regional framework or regional plan. The Intermodal Surface 

Transportation Efficiency Act and the Transportation Equity Act for the 21st

Century were major steps in that direction. But as I say, the traffic 

engineers are still driving the land use philosophy. The Department of 

Housing and Urban Development (HUD) has its comprehensive housing 

affordability strategies (CHAS). The CHAS are not metropolitan in scope. 

They are strictly jurisdictional. Let’s take all of HUD’s categorical programs 

and at least try to look at them in a comprehensive, regional context, 

integrated with transportation planning. 

Secondly, I think beyond this idea that regions are the vital policy unit, we 

really ought to see a commitment by the federal government to the concept 

that not only racial diversity but also economic diversity is desirable. 

There are a number of policies that would help promote that. For example, 

the Community Reinvestment Act and the congressional instructions to the 
Appendix IX

Presentation by David Rusk, Urban Policy 

Consultant, Former Mayor of Albuquerque, 

New Mexico

Page 64 GAO-02-139 Crosscutting Issues Planning Conference

government-sponsored enterprises (Fannie Mae and Freddie Mac) have 

certainly opened up a great deal of private-sector credit, mortgage 

financing, etc., for central cities. But sometimes that has had the effect of 

building more low-income housing where there’s already too much. There 

ought to be mechanisms that reward mixed-income housing when it is built 

in newer communities, and, above all, when it is tied to some sort of a 

metropolitan eligibility list for low-income and very modest-income 

families. 

The real issue of livable communities is twofold. Generally, livable 

communities, or sustainable communities, are talked about in terms of the 

concept of our stewardship toward nature, but we also have the greater 

challenge of our stewardship to our fellow man. The ultimate question 

about livable communities is: are we going to live together? 

Thank you.
Page 65 GAO-02-139 Crosscutting Issues Planning Conference

Appendix X

Presentation by Paul Souza, Senior Policy 

Analyst, National Governors Association ApendxiX

Paul Souza is a senior policy analyst in the Natural Resources Policy 

Studies Division of the Center for Best Practices, which is a part of the 

National Governors Association. Before that, he was the national 

coordinator of the U.S. Fish and Wildlife Service’s Coastal Barriers 

Program, where he worked in programs that restore habitat on private and 

public lands through cooperative approaches. Earlier in his career, he 

worked for the Florida Center for Public Management, the National 

Audubon Society, and American Rivers, where he considered issues such 

as the impacts of growth on the environment, Everglades restoration, and 

hydropower dam relicensing. He earned his M.S. in Urban and Regional 

Planning at Florida State University. 

Intergovernmental 

Coordination Is Important 

in Planning for Growth

Thank you for having me here today. Infrastructure is critically related to 

growth. It’s very much the chicken-and-egg scenario. Infrastructure 

follows new development on the urban fringe, and development follows 

infrastructure. Any real discussion about growth and quality of life issues 

must address the critical role of infrastructure. 

This year we’ve been doing quite a bit of work on the issue of growth and 

quality of life. Governor Glendening from Maryland is chair of the National 

Governors Association, and we’ve been working closely with states to try 

to come up with policies that different states can use, based on their 

particular characteristics, to address growth issues. I can tell you that one 

of the things we’ve found is that one size does not fit all. There are 

dramatically different political dynamics, population sizes, and other 

pressures in states across the country, and an attempt to pick up a program 

that’s successful in one state and put it somewhere else doesn’t necessarily 

work. You have to have an open and public process when you bring people 

to the table. There is no shortcut for this process. We must fashion 

solutions that work and build public support for them. 

In the last 3 years, we’ve seen this issue of sprawl move to the forefront of 

debate among states, and we’ve noticed that a lot of the debate has focused 

on the negative impact of sprawl. People have looked at traffic congestion 

and raised their arms in disgust. They want alternatives. They want more 

lanes. They want this traffic problem to be ameliorated. We have also seen 

open-space conservation move to the forefront of the debate. People see 

the farmland of their youth, the open spaces that were around for so long, 

being transformed into single-use types of development. 
Appendix X

Presentation by Paul Souza, Senior Policy 

Analyst, National Governors Association

Page 66 GAO-02-139 Crosscutting Issues Planning Conference

What we’re looking toward in the future is moving past this effects debate, 

which has polarized the discussion of growth. Growth is coming; every 

state in the country wants it. The real question is how will it be facilitated 

on the landscape. And rather than getting in camps for no-growth and 

camps for pro-growth, what we want to do is find the balance. We want to 

find the ways to work within and between governments. 

Intragovernmental coordination is one of the biggest challenges ahead for 

quality growth initiatives. Health, education, agriculture, transportation—

all of these agencies play a role in growth on some level, and coordinating 

internally is absolutely fundamental. Intergovernmental coordination is 

also essential. The federal role in growth is real. The federal relationship 

to the state and local governments is real. Throw regional layers on top of 

that, and you’ve got additional bodies that you must deal with. There is 

also the private sector.

What Is a Sustainable 

Community?

How do we guide development patterns? How do we work with the private 

sector to help fashion growth that is consistent with our objective to grow 

yet retains the characteristics of places that brought us to those places in 

the first place? When I heard that the name of this panel was Planning for 

the Infrastructure Needs of Sustainable Communities, the first thing that 

struck me was that it would be wise to define a sustainable community. 

The National Governors Association has chosen to use the term “new 

community design.” There are a lot of terms out there for what many 

people would call sustainable development. New urbanism is one of the 

terms that’s thrown out there a lot. Traditional neighborhood design is 

another. We have found that some projects that fall into this nomenclature 

are not necessarily ones that we would recommend to be replicated. 

The fundamental characteristic of new community design is mixed use. 

That means that jobs, office space, retail space, parks, and schools are all 

intermixed within walkable neighborhoods. What we’ve seen over the last 

50 years is the tendency to isolate land uses, to have housing subdivisions, 

commercial centers, and parks all at distances from one another that 

mandate automobile use. The idea with sustainable communities, with 

new community designs, is to intermix these uses. 

Another key point for new community design is to target communities as 

urban in-fill locations, to insert mixed-use communities into existing 

suburbs that are often single-use, and to target them in open spaces where 

there is a clear decision made to foster growth in the future. We know 

growth is coming. In-fill sites won’t go the whole way. Growth is going to 
Appendix X

Presentation by Paul Souza, Senior Policy 

Analyst, National Governors Association

Page 67 GAO-02-139 Crosscutting Issues Planning Conference

continue, but where shall we put it? This is the fundamental question. New 

community designs attempt to efficiently use infrastructure by targeting 

these designs to places where infrastructure already exists. These places 

are also typically more compact than single-use areas, such as housing 

subdivisions. A lot of the literature suggests that these compact 

developments are less costly per dwelling unit in terms of providing 

infrastructure; and cost is a critical issue for local and state governments 

and the federal government. These developments also attempt to make 

efficient use of water and energy. Given what we’ve seen in California 

recently, it’s clear that energy conservation is fundamentally important. 

I’d like to talk about one of these new community designs occurring in 

Chattanooga, Tennessee. It is a suburban revitalization project on what is 

called a gray field, or an old single-use commercial mall built in the ’60s 

that, for all practical purposes, has lost its financial livelihood. It was no 

longer contributing to the financial status of the area. Recognizing this, the 

mayor of Chattanooga and a bunch of stakeholders had an idea—let’s try to 

insert a mixed-use community into a suburb to bring a walkable 

neighborhood into a place that, for the most part, has been dependent on 

automobiles, just simply because of its design. There was an open public 

process; 300 people came to one of the meetings to build support for the 

idea and develop an idea that would work for a group. A plan was put 

together. It was adopted by the city in 1998, and construction is under way. 

The early signs suggest that this is going to be a success. Commercial 

leasing has skyrocketed very early on. So this is the type of idea new 

community designs aim for, to use the infrastructure in place to help 

reinsert mixed-use communities with transportation options, including 

walkability, into places that historically have not had them. 

All Levels of Government 

and the Private Sector Can 

Work Together to Support 

Alternative Community 

Designs 

Currently, there are tremendous barriers to the entry of the principles of 

new community design into the marketplace. For the most part, local 

zoning regulations and building codes prescribe sprawl, single-use 

developments, housing subdivisions, and commercial strip malls. When a 

developer wants to come in and build a new community design, he or she 

must obtain a pocketful of variances to get it done, which incurs time and 

costs and, therefore, discourages the use of these designs. We are finding 

that some communities across the country, probably well over a hundred, 

have adopted parallel codes for these new community designs. We’re not 

talking about getting rid of the old codes altogether, because there is a 

significant market out there for single-use developments. A lot of people 

want a housing subdivision. They want their large lot. That’s just a reality. 
Appendix X

Presentation by Paul Souza, Senior Policy 

Analyst, National Governors Association

Page 68 GAO-02-139 Crosscutting Issues Planning Conference

But by providing the alternative, by leveling the regulatory playing field, we 

let the market sort out the success of these designs. 

The market research that we’ve found in talking with practitioners in this 

field suggests that about 30 percent of people, when given the choice, 

would choose new community designs. However, housing starts of this 

type are less than 1 percent per year. And, again, this disconnect is because 

of these institutional barriers. There are also some barriers in the financing 

realm and also impact fees, which many would argue encourage 

development on the urban fringe by not charging the full cost of providing 

infrastructure to those places. 

How can all levels of government and the private sector work together to 

plan for infrastructure needs? This is the $10,000 question and why all of 

you are interested in this. There are a number of things that both 

government and the private sector can do. One is to level the regulatory 

playing field for these new community designs. I’d like to talk about a few 

of these things and highlight the federal component, the state component, 

the local government component, and the private-sector component. Some 

of these approaches might be led by one of these particular components. 

But it’s important to recognize that, because of the comprehensive 

interdisciplinary approach that we’re dealing with here in considering land 

use, different agencies, levels of government, and private-sector folks must 

work together toward a common vision, and that’s developing in-fill areas, 

that’s reusing suburban areas and guiding growth to places where we want 

it to be in the future. 

One such way of doing this that I believe holds a lot of promise is using the 

power of the purse. Maryland has developed priority funding areas. The 

state has worked with local governments to designate places where growth 

will go in the future. Infrastructure dollars are then funneled to those 

places. These areas include existing urban areas, older towns, suburbs, 

and green spaces where people have made a choice to direct future growth. 

All proposals go through Maryland’s process, and they are reviewed to see 

if they are consistent with this priority funding area scheme. If they are, 

they can move forward. If they’re not, they don’t. 

Federal funding could follow a similar course of action, working closely 

with states to ensure that federal investments reflect the goals of individual 

states. Again, a fundamental component of this idea is to make sure that we 

use the infrastructure in place, that we essentially build upon our previous 

investments for infrastructure. There are a number of states—and the 
Appendix X

Presentation by Paul Souza, Senior Policy 

Analyst, National Governors Association

Page 69 GAO-02-139 Crosscutting Issues Planning Conference

federal government is taking some steps in this regard, also—that are 

trying to locate agency buildings downtown, in places where growth is 

found already. This does a fundamental good by not contributing to the 

further spreading out and automobile dependency of other approaches. 

Putting government agencies close to where the constituency is can be part 

of the solution. 

Brown fields are another concept that we’re seeing a lot of work in—these 

are older sites that were formerly used for some industrial purpose. A lot 

of brown fields across the country are in prime locations downtown, and 

even in rural areas in some cases. But because of regulatory barriers, it’s 

been very difficult to redevelop these areas. States and the federal 

government have taken some good steps in trying to move past these 

barriers, but clearly a lot more needs to be done. Reinvest in these brown 

fields. I believe legislation is being considered this year in the Congress to 

address this issue and create mixed-use centers here to make them part of 

communities and part of the solution to where we direct growth. 

By virtue of their planning, new community designs are walkable, which 

provides a transportation choice that, in a lot of cases, is not available 

today. You can walk to the corner store instead of having to drive, which 

studies have shown decreases vehicle miles traveled. You can walk to your 

job. Furthermore, these places are typically more dense than existing 

residential subdivisions. “Density” is a bad word, I can tell you. When you 

say “density,” people’s eyes roll back and a lot of people turn off at the getgo. It’s a real hurdle that I think we’ll have to get past. But what we’ve seen 

in visualization exercises where people actually see these places and then 

compare them with what a lot of people would call sprawl is that people 

actually choose the former. Again, market research suggests that 30 

percent of the public today would choose them if they were available. So in 

that regard, I think, through open processes, by showing people what these 

are, by showing the quality designs, we can get past that initial density fear 

that people have. 

Somebody before mentioned transit-oriented development, and that is one 

way to facilitate this. Higher densities make the likelihood of transit 

viability more real. When high-quality transit is around, a lot of people 

choose it. Clearly it’s a minor means of transportation for how people 

move to and from work and other needs today. But where you find highquality systems, in Portland, in San Diego, in other cities, people use them. 

They must be comparable in cost and in time, and new community designs, 
Appendix X

Presentation by Paul Souza, Senior Policy 

Analyst, National Governors Association

Page 70 GAO-02-139 Crosscutting Issues Planning Conference

with higher densities and development focused closer to transit centers, 

can help facilitate the viability of transit. 

Now, in closing, I guess I would just like to say that growth on the 

landscape is one of these issues that we have to work on together. The 

federal government has a dramatic role with funding. A number of 

agencies affect growth. State and local governments and the private sector 

all have tremendous roles. There is no shortcut for building solutions that 

work in individual places. The challenge in government will be to 

coordinate different government programs to make sure that everybody is 

singing off the same sheet of music in attempting to try to focus 

development where people want it to go. Anytime you’re dealing with land 

use, you’re going to have a lot of folks that resist this, but we need to move 

the debate past where it has been—that is, people fighting one another 

between the no-growth camp and the other extreme. The issue has been 

totally polarized, and the truth of the matter is we’re growing—the question 

is really where and how, and to answer these questions requires a lot of 

work and a lot of hand-holding and a lot of processes to develop solutions 

that work in individual places. 

Thanks.
Page 71 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XI

Introduction to Panel 3 by Bernie Unger, 

Director, Physical Infrastructure ApendxiXI

Panel 3: How are federal facilities’ infrastructure needs changing and how 

can federal agencies better manage the assets they own?

Welcome to our third panel. When we think about infrastructure, we 

naturally think about highways and bridges, rail, airports, water treatment 

facilities, and schools. I don’t believe we always think about federal 

facilities. Yet federal facilities have a fairly large impact. There are close to 

500,000 federal facilities belonging to a large number of different agencies 

across the federal government. Some are overseas. Not only does the 

federal government own property, but it leases property as well. The 

location and quality of federal facilities has ramifications not only for 

federal operations but also for the communities where the facilities are 

located. There are impacts on transportation and other infrastructure 

networks. Furthermore, the challenges facing federal facilities are similar 

to the challenges facing other types of infrastructure in the nation. For 

example, deferred maintenance is a huge issue not only for infrastructure 

like roads and bridges but for federal facilities as well, which have billions 

of dollars in needed repairs and alterations that remain undone. The 

operational costs facing agencies that have large inventories of federal 

buildings is another big issue, particularly regarding energy costs.

In addressing the challenges facing federal facilities, there are a lot of 

innovative ideas floating around, but there are also a lot of obstacles to 

overcome. We’re very fortunate this afternoon to have a high-powered 

group of panelists with a lot of insight into the infrastructure issues related 

to federal facilities. 

The remarks of panel 3’s four speakers are contained in appendixes XII 

through XV.
Page 72 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XII

Presentation by David Bibb, Deputy Associate 

Administrator for Real Property, Office of 

Governmentwide Policy, GSA ApendxiXI

David Bibb heads the real estate section of the General Services 

Administration’s Office of Governmentwide Policy. Mr. Bibb and his staff 

help ensure that governmentwide real property policies allow and 

encourage agencies to develop and use the best, most cost-effective 

management practices. They are transforming the traditional policy 

development model to emphasize collaborative policy development across 

government. Mr. Bibb’s office has done a wide range of work on best 

practices, including work on environmentally conscious (green) buildings 

and innovative workplace strategies such as telecommuting.

The Purpose of the Office of 

Governmentwide Policy Is 

to Bring a Crosscutting 

Perspective to the Federal 

Building Inventory

It’s good to be here today. I don’t know if it’s old age or what, but 

increasingly, I find that when GAO comes knocking, I’m glad to see you. 

The more we work together and look at issues, the more I think we’re in 

many ways on the same page in understanding what the issues are, and 

even on some of the solutions. 

I am not from the Public Buildings Service, which is the part of the General 

Services Administration (GSA) that runs the GSA building inventory. I used 

to be there, but I’m now in an office called Governmentwide Policy, which 

was created about 5 years ago for a couple of purposes. One was to 

separate operations from policy within GSA. The second reason is that we 

are in a lot of ways a creature of the National Performance Review and the 

idea that somebody ought to be bringing a crosscutting perspective to this 

huge federal inventory that’s much more than just GSA. We try to do that. 

For example, I chair a Federal Real Property Council, which includes 

senior executives from every agency that owns and operates a real 

property inventory. We get together in a consensus-building way to look at 

issues and try to solve them. In a lot of ways, we are a think tank. I have 

about 40 people. We do a lot of good stuff. If you haven’t seen it, check out 

our Web site, www.GSA.gov/realpropertypolicy. 
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 73 GAO-02-139 Crosscutting Issues Planning Conference

Just to give you some idea of the magnitude of this big federal inventory, 

GSA’s inventory alone, the Public Building Service, includes over 300 

million square feet of property. When I talk about that with the private 

sector, jaws drop. They can’t imagine an inventory that big. But GSA’s 

inventory is only one-tenth of the federal inventory, which is over 3 billion 

square feet, about the size of the planet Pluto as far as I can tell. It’s a lot of 

space (see fig. 15).

Figure 15: Total Governmentwide Space Inventory 

Just in terms of office space, GSA houses 1 million people. But when you 

add up the office space in all the other agencies’ facilities, whether it be an 

Environmental Protection Agency facility or a Department of Defense 

(DOD) base, or whatever, there’s over 700 million square feet, and GSA has 

only about 41 percent of it (see fig. 16). So when we’re talking office-space 

issues, there are a lot of issues way beyond the GSA inventory. 

GSA

Owned

5%

GSA

Leased

5%

Other Owned

85%

Other

Leased

5%

The Governmentwide space inventory is approximately 3 billion

square feet, of which GSA directly controls 10 percent, or

approximately 312 million square feet of space.
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 74 GAO-02-139 Crosscutting Issues Planning Conference

Figure 16: Total Governmentwide Office Space Inventory

This next graphic (see fig. 17) gives a crosscut by agency. Again, you see 

that GSA has 10 percent of the governmentwide real estate holdings. 

Everybody else together has the other 90 percent. There are obviously a lot 

of big DOD users, but our colleagues from the Veterans’ Administration 

(VA)—this number may be dated, but it’s coming up on 150 million square 

feet. That’s a lot of space in and of itself. The State Department has 

embassies all over the world, millions of square feet, I suppose, when you 

add them up. And those are just pieces of the inventory.

The Governmentwide total for office space is 728 million

square feet, of which GSA directly controls 41 percent, or

approximately 300.6 million square feet of space.

GSA

Owned

23%

GSA

Leased

Other Owned 18%

55%

Other

Leased

4%
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 75 GAO-02-139 Crosscutting Issues Planning Conference

Figure 17: Federal Agencies’ Real Estate Holdings, in Thousands of Square Feet

Think of the diversity of the federal government. Office space makes up 

just 23 percent of the total government space; housing, 22 percent; storage, 

13 percent; schools, 5 percent; hospitals, 4 percent; and so on (see fig. 18). 

There are all kinds of federal real property. 

Other

Agencies

(2864.5)

90%

GSA

(312.4)

10%

Other--383.7

USDA--51.1

USPS--247.6

VA--140.6

Army--778.5

Navy--620.7

Air Force--603.2

DOT--39.1
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 76 GAO-02-139 Crosscutting Issues Planning Conference

Figure 18: Distribution of Governmentwide Space, by Type of Use

Inadequately Maintained 

Federal Building Inventory 

Affects Productivity and 

Recruitment Efforts

So what’s the state of that inventory? In our Federal Real Property Council, 

a lot of themes come across. One of them is that there are a lot of 

functionally obsolete buildings. GSA itself has so many buildings that are 

50 years old and older you can hardly count them. They make up a large 

proportion of the inventory. Many of the older buildings are not configured 

to support the technology that we’re all working with now. There’s also 

some physical deterioration. Most agencies are keeping the roofs from 

leaking, but not all. There are examples of leaking roofs, including some in 

the GSA inventory. Environmental sustainability can’t be achieved in the 

facilities we have. Bernie Ungar mentioned that when GAO looked at our 

own GSA internal inventory, it found a $4 billion backlog in capital 

maintenance expenditures. It could be $5 billion, it could be $6 billion, it 

School

5%

Hospital

4%

Housing

22%

Office

23%

Service

Storage

13%

R&D

5%

Industrial

4%

Other

Inst

3%

All

Other

6%

23%

15%

13%

5%

4%

5%

4%

3%

6%

22%
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 77 GAO-02-139 Crosscutting Issues Planning Conference

could be $3.5 billion. It’s big. It’s four or five times our annual 

appropriation, or the money the Congress gives us out of the rents we 

collect to deal with the problem, and it’s growing. 

This is not a problem unique to GSA. It’s a problem across the federal 

government. We had a public-private partnership forum a couple of weeks 

ago. DOD talked about their military base housing privatization effort and 

said that if they had relied on direct appropriation to do that, it would have 

taken 40 years to revamp their housing. It’s a problem for everybody. In 

1998, the National Research Council affirmed what we and GAO have been 

saying, that agencies should be putting a certain percentage of the value of 

their properties back into renovation every year, something like 2 to 4 

percent of the replacement value of those properties. The bottom line is 

that nobody is coming close to doing that right now. 

Can we take care of this problem on the demand side? Why don’t we just 

get rid of a lot of the space, and then we won’t have as much to fix up, and 

our dollars will go further. That’s one possibility. Is telework going to 

mean that everybody moves out of the federal buildings and decreases 

demand so we can give up a lot of our buildings? So far, experience says 

no. People aren’t giving up a lot of space, with the exception of those 

agencies that have a lot of their people on the road all of the time. So far, 

things like teleworking are resulting in quality of life improvements for the 

employees, but not a lot of sharing of desks and reduction of space. Maybe 

we will have some of that as time goes by and more people telework. 

However, the inventory is so huge and the problems are so large that even if 

we have a substantial reduction on the demand side, so much work needs 

to be done with what would be left that it would still exceed anybody’s 

projection of available dollars. 

What happens if we stay with the status quo, which in my opinion is 

inadequate funding for everybody year after year. Obviously, when you 

defer action, it costs more in the long run. Costs include disruptions in the 

workplace and compromised productivity. There’s enough information to 

know that work space impacts productivity and the well-being of people in 

the space. When you’re spending 90 percent of your agency costs on 

people costs, and you’re putting them in a facility that doesn’t help people 

get the job done, if you multiply that by a 1- or 2-percent productivity 

change, you’ll see that the facilities are important. They are often neglected 

in the agency’s strategic plans, by the Congress, etc. My thesis, and I think 

the research bears it out, is that facilities have a huge impact on the ability 

of the occupants to get the job done. 
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 78 GAO-02-139 Crosscutting Issues Planning Conference

Another issue is apathy among employees. I won’t say federal employees 

are apathetic; they’re not. But a poor environment can certainly hurt 

morale. Attraction and retention are also affected. Your own Comptroller 

General brought up that issue. How can you attract the top college 

graduate if you say, “Come work for us. We don’t pay quite as well, but the 

prestige of being a federal employee is incalculable.” As you know, they 

don’t believe that. And then we say, “On top of that, you get to work in a 

dump.” That’s not a good combination. We think good facilities play in to 

attraction and retention. 

Reform Efforts Are Under 

Way to Permit Alternative 

Financing Approaches

As for energy reduction, I know Beth is going to talk about that, but it’s 

tough to meet the goals with the facilities we have. There are some tools to 

deal with that, but the state of our facilities makes it tough. Moving on to 

budget constraints, under most budget rules, up-front funding is required 

for whatever you do. I understand when you talk about funding for capital 

projects and you talk about various approaches that you get into much 

bigger issues than just real estate. I’ve had to defend that notion a hundred 

times on the Hill. They say, “Why did you make that lease with no purchase 

option?” I have to say, “Because we can’t under the current scoring rules.” 

It’s hard to grasp, but there is a bigger issue of balancing the budget and offbudget borrowing, and we understand that. But as a result, agencies have 

very little ability to leverage the equity in their assets, and one solution that 

could help us would be to allow us to tap some of that equity. There are 

billions of dollars in that equity that many agencies have no way of getting 

to right now. 

We are a member of an international organization called the Workplace 

Network, which includes representatives from most of the Western 

European governments, as well as Australia and Japan, who do the same 

types of things that we in the “government do. We laid out a case study for 

a typical GSA project. We said, “How would you deal with this?” They 

looked at it, and they came up with scheme after scheme, most involving 

some kind of creative financing that they have the authority to use. And on 

every one of them, we had to say, “We can’t do that. Our laws don’t allow 

it.” We had no solution when the day was over.

Recently, there have been some developing efforts in various arenas to 

grapple with these issues. Last year, as many of you may know, growing 

out of the Federal Real Property Council, we introduced major property 

reform legislation, and it went to the Hill last spring and was introduced by 

Senators Thompson and Leiberman. We found a good combination to 
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 79 GAO-02-139 Crosscutting Issues Planning Conference

introduce the bill. We had hearings on the House side. The legislation 

would do a number of things to introduce incentives. I think we can have 

much better property management if we have some reason to manage 

property well, and a piece of that is incentives. So we put in the legislation 

incentives such as being able to keep the money if you sell a piece of 

property, which most agencies can’t do now; expanding out-lease authority; 

and better subleasing and sale and exchange possibilities. I call these 

provisions the “wheel and deal” part of the bill. 

The bill also included some other provisions. For example, it would charge 

GSA by law with putting together a worldwide inventory of property, which 

is done by goodwill now, and the goodwill doesn’t go so far in some areas. 

It would also establish governmentwide asset management principles, 

requiring each agency to have a real property officer to put some focus on 

this huge investment we have and installing a requirement for each agency 

to do real property planning. That bill went up late and probably had little 

chance of getting passed last session. But the story is not over yet. We 

have some very encouraging signs from the Hill. I can’t speak for the 

administration because I don’t know where the administration will be on 

this issue, but personally, I’m encouraged because a number of staffers 

have indicated that their bosses are willing to reintroduce the bill. Also last 

year, Congressman Pete Sessions of Texas introduced a public-private 

partnership bill fairly late in the session, which didn’t get passed. We know 

firsthand that he is interested in reintroducing that bill. So we may have 

something in play. The staff seem very interested. 

In the meantime, a number of agencies have gotten their own authorities. 

VA has enhanced-use leasing. DOD has the opportunity to use the private 

sector to revamp their housing, and then pay for it over time by giving the 

individual service men and women a monthly housing allowance that they 

may use to pay rent to the private sector for the renovated housing. So 

agencies have been successful in getting some authorities on an individual 

basis for the pure reason that they have this inventory of work to do and no 

real way to get the cash to do it. I had hoped that with our huge national 

budget surpluses, we could do something on the “cash-on-the-barrel” side, 

which is option one. However, realistically, since we had a tax cut bill, 

none of us think there’s going to be a huge increase in cash flowing into the 

capital infrastructure area. It’s just too easy to defer, and you all know it 

happens over and over again. 
Appendix XII

Presentation by David Bibb, Deputy 

Associate Administrator for Real Property, 

Office of Governmentwide Policy, GSA

Page 80 GAO-02-139 Crosscutting Issues Planning Conference

So what are other options GAO could look at? First, I would certainly like 

to see more money in the system. Second, reform the property act in some 

of the ways I have talked about. Another area in need of analysis is 

changing the budget scorekeeping rules, which I haven’t talked about in 

this session. But many of you know that from a purely real estate 

standpoint, there are situations where we could have made a lease and 

could have negotiated an option to own the building for a dollar at the end 

of the term. But, because that would have scored as a capital lease or lease 

purchase, and we would have had to put all of the money for the total of the 

rental payments over the term of the lease in that year’s budget up-front, we 

couldn’t make the deal. I fully recognize that this is a big picture issue, 

having to do with balanced budgets and the budget enforcement act and so 

on. There would be a tough road to go to tackle scorekeeping, but I think 

we’ve got to take a look at it again, and I hope GAO will do that. 

These are options for you to consider. They offer many challenges for us 

and for you. Maybe together we can solve some of them. 

Thanks.
Page 81 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XIII

Presentation by Beth Shearer, Director, 

Federal Energy Management Program, 

Department of Energy ApendxXiI

As the director of the Federal Energy Management Program, Beth Shearer 

works with federal agencies across the country, helping them reduce 

energy and water consumption, manage their utility costs, and increase the 

use of renewable power and technologies. Formerly, at the General 

Services Administration, Ms. Shearer was the director of the Energy Center 

of Expertise as well as the director of the Information Management 

Institute at the Administration’s Training Center, where she developed the 

first comprehensive federal curriculum for the acquisition and use of 

microcomputers and software.

The Federal Energy 

Management Program Helps 

Agencies Improve Energy 

Efficiency

David Bibb gave you the big picture. I’m going to go into a smaller 

picture—energy use in federal facilities. The Federal Energy Management 

Program is a part of the Office of Energy Efficiency and Renewable Energy 

at the Department of Energy (DOE). We help federal agencies that operate 

and maintain buildings reduce their costs and environmental impact 

through energy efficiency, renewable technologies, and managing utility 

costs. At lunch today, I was asked if this area of utility management was a 

fairly new kind of responsibility for federal agencies and for the Federal 

Energy Management Program. The answer is yes, especially in light of 

what’s happening in California. There’s been a lot of activity with agencies’ 

management of utilities in terms of how they can cut their loads. Energy 

management in federal facilities is also increasing in importance because, 

as we manage our load, we can also manage our costs. 

I wanted to give you an idea of the context of energy use in the federal 

government. We spend almost $8 billion a year on energy in the federal 

government: in our facilities; for our trucks, airplanes, and cars; and for 

process kinds of operations. For example, we consider the Bureau of 

Engraving and Printing’s money printing a process-type energy. The 

largest energy user in the federal government is the Department of Defense 

(DOD), which uses 70 to 75 percent of the energy used by the federal 

government. The next largest users are the U.S. Postal Service (USPS), the 
Appendix XIII

Presentation by Beth Shearer, Director, 

Federal Energy Management Program, 

Department of Energy

Page 82 GAO-02-139 Crosscutting Issues Planning Conference

Veterans Administration (VA), DOE, and the General Services 

Administration (GSA). Those are our five largest users. 

The Federal Energy Management Program was actually incorporated in 

1973 in the Department of the Interior, and over the years it has continued 

to be the focus of both legislative and executive attention to federal energy 

management. Most recently, with Executive Order 13123, which was 

passed in the Clinton administration and is still operative in the current 

Bush administration, we’ve increased the scope of federal energy 

management. 

What are we asking federal agencies to do? We’re asking them to reduce 

their energy consumption. In the executive order that I mentioned earlier, 

we’re asking federal agencies to reduce their energy use by 30 to 35 percent 

by 2010. We’re asking agencies to increase the use of renewable energy. 

We’re saying that by 2005, agencies should be buying 2.5 percent of their 

electricity from renewable sources. While 2.5 percent doesn’t seem like a 

lot, in fact, it is very much of a stretch goal for agencies. Currently, federal 

agencies get less than one-half of 1 percent of their electricity from 

renewable resources. We’re also asking agencies to implement best 

practices for water conservation and to reduce greenhouse gases by 30 

percent by 2010. So, in essence, the executive order tripled the kind of 

work that we’re doing in federal agencies. While before we were just 

concerned with reducing energy consumption, we’re now also looking at 

water renewables and greenhouse gas emissions. 

How are we doing? In terms of energy consumption, federal agencies are 

doing pretty well. At the end of 2000, we were using 22.7 percent less 

energy per gross square foot than we did in 1985, which is our base year. 

That represents a savings of over $2 billion in what we would have spent 

for energy use if we hadn’t cut consumption. Some of these energy savings 

are from emission-related changes and DOD base closures. But about half 

of them are from energy conservation projects that agencies have 

implemented over the last 15 years. 

Sustainable Design 

Principles Enable Agencies 

to Improve Energy 

Efficiency

In terms of infrastructure, how do agencies do this? When agencies build 

new buildings, they can reduce their energy use and their impact on the 

environment by building them in an energy-efficient, sustainable manner. 

We spend most of our time in federal agencies reducing energy through 

building retrofits, such as replacing aged equipment and improving 

infrastructure. We have reduced our energy by buying energy-efficient 
Appendix XIII

Presentation by Beth Shearer, Director, 

Federal Energy Management Program, 

Department of Energy

Page 83 GAO-02-139 Crosscutting Issues Planning Conference

equipment, through good maintenance and operations procedures, and 

utility and load management. My program, the Federal Energy 

Management Program, assists federal agencies in their energy management 

programs through activities, such as alternative financing, technical 

assistance, outreach, coordination, and policy development. 

Brad had asked me to talk about sustainable development in our federal 

buildings. In the executive order, there was a requirement for us to develop 

sustainable design principles. We had an interagency working group whose 

primary participants were from DOD, GSA, DOE, and the Environmental 

Protection Agency. The working group developed sustainable design 

principles, which we incorporated in a document called the Whole 

Building Design Guide. If you haven’t taken a look at it, I really 

recommend it. It has a wealth of information on sustainable design 

principles. We will also be reconstituting this working group to get these 

sustainable principles as part of our standard operating procedures in 

federal agencies. I’ve been talking with a number of federal agencies, and I 

understand that GAO’s Comptroller General has a human capital group that 

is interested in how sustainability and space affects people’s productivity. 

That’s something that we will be looking at this year. 

What are the sustainable design principles that this interagency group put 

together? The first one is to think about these issues when you are siting a 

building. Can you rehabilitate or reuse a building? Is the site close to 

public transportation? If you’ve got a south-facing exposure, how are you 

using that in the design of the building? A big part, and the part that I am 

most concerned about, is how do you minimize energy consumption in 

your building? What kinds of passive solar design can you use? What kinds 

of conservation principles can you put into effect? How can you get away 

from using fossil fuels? How can you use renewable technologies? 

The next principle, to protect and conserve water, includes things, such as 

if you’ve got runoff from your building, can you use it for your landscaping? 

Is there some way you can use the gray water that may come out of your 

sinks? Use environmentally preferable products. There is a whole 

executive order on environmentally preferable products that many of you 

may be familiar with. But, in addition, this includes energy star products 

and product recommendations for energy efficiency. It also includes things 

like using recycled glass for tile in your bathrooms, recycled carpeting, 

paints that don’t have a lot of off-gassing, and all of those kinds of things.
Appendix XIII

Presentation by Beth Shearer, Director, 

Federal Energy Management Program, 

Department of Energy

Page 84 GAO-02-139 Crosscutting Issues Planning Conference

Next, to enhance indoor environmental quality, think about things, such as 

whether you have daylighting in your building. What kind of ventilation do 

you have? Then, optimize operational and maintenance practices. David 

mentioned that we can save lots of money through good operations and 

maintenance. Operations and maintenance also affect your indoor air 

quality and productivity. 

I think that the real issue of these principles is that as you are designing 

buildings, if you want to design them in a sustainable way, you really have 

to think about the whole building. You have to think about how the parts 

interact and design a thoughtful building. What we’re starting to talk about 

now in the energy arena is zero energy buildings, where you might actually 

be able to produce all of your energy needs and sell some to the grid. 

Designers are talking about things like having wastewater treatment as part 

of the building, where you might have an aquifer in the building itself 

treating the waste water. So it’s a fairly exciting area and one with some 

very far-reaching kinds of thoughts. 

Regarding sustainable principles, we are doing a lot of research and 

development on and encouraging agencies to use renewable energy 

technologies, such as photovoltaic power, wind power, hydropower, and 

geothermal power. There’s a whole host of renewable energy technologies 

that are starting to become cost-effective. Wind power today is sometimes 

cheaper than fossil fuel power. It depends on where you site it. We’re 

encouraging agencies to use renewable energy technologies. We are also 

looking at distributed energy power technologies. These are technologies 

that you can use in your building or in your house to produce electricity onsite. 

Renewable and Distributed 

Power Offer Solutions for 

Federal Buildings’ Needs

Let me show you some examples of how renewable and distributed power 

technologies are being used. Four Times Square, New York City, is a 

commercial spec building. The top floors are all photovoltaic panels that 

use the sun to produce electricity. They’ve got fuel cells in there. The 

whole building has been designed as a very sustainable building, in terms of 

the way it uses waste and the way it produces power. It’s an exciting 

building, and if you can do it in Times Square, in New York City, you ought 

to be able to do it anywhere. 

Another example is the Tucson-Civano community. All kinds of sustainable 

design principles were used in these buildings. The developer guarantees 

to homeowners who buy these buildings that they will spend no more than 
Appendix XIII

Presentation by Beth Shearer, Director, 

Federal Energy Management Program, 

Department of Energy

Page 85 GAO-02-139 Crosscutting Issues Planning Conference

94 cents a day for their electricity, even in the height of the summer when 

they are using air conditioning. There are some very interesting things you 

can do using renewables and distributed technologies.

We have a special program for sustainability with the National Park 

Service—the Green Energy Parks. For example, we are using 

photovoltaics to produce solar hot water heating for particular rest areas. 

In Pearl Harbor, Hawaii, DOD-Navy has put solar hot water heaters on 

housing throughout naval bases in Moanalua. These are pretty exciting 

buildings. They are actually low-income housing for some navy personnel. 

They are producing all of their hot water, and, in some cases, they’ve got 

solar pipes in the bathrooms, so they have daylighting and so forth. They 

are very low energy-using buildings, and they have improved the quality of 

life considerably for navy personnel. 

Finally, I’d like to talk about some lessons that I have learned over the last 

couple of years. I’m a passionate advocate for energy efficiency and 

sustainable design, but I can’t sell energy efficiency. I can’t sell sustainable 

design. I can sell cost-effectiveness, and I can sell solutions. So I just 

wanted to give you some examples of solutions that we have found using 

renewable technology—and here I’m using solar technology for the 

example. As we’re trying to improve our infrastructure, we’ve got to look 

for the hooks that will sell. 

What are some things that sell? The National Oceanic and Atmospheric 

Administration uses solar panels to power their buoys. We can use solar 

panels for communications. We’ve used a number of these solar panels for 

communications throughout the government. You can sell solar as a 

solution for energy needs in highways. Many of you may have seen these 

solar panels that tell you how fast you are going and if you are speeding. 

You’ve probably seen lots of solar panels for lights on the highways. Solar 

for disaster relief actually has gotten to be a very big niche market. We find 

that, in disaster areas, we can take in some solar panels with portable 

generators and produce power. After Hurricane Andrew, for example, we 

had some solar lights in neighborhoods. The only things standing in some 

neighborhoods were these solar lights, and people would gather 

underneath them. So disaster relief is an area for which renewables can be 

a solution. 

Thank you.
Page 86 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs ApendxXiIV

James Sullivan is the director of capital budgeting at the Department of 

Veterans Affairs. Under his leadership, the capital investment planning 

process has evolved from a vertical stovepipe process with minimal 

crosscutting proposals to one that is horizontally integrated between the 

administrations and staff offices and encourages projects that cut across 

departmental lines. Recently, the Department received a best practices 

award from the Office of Management and Budget for its decision-support 

software program that evaluates and ranks projects on the basis of agency 

goals and financial measures.

VA Has a Large, Varied 

Buildings Inventory 

Good afternoon. I’d like to thank you for the opportunity to make this 

presentation today. I want to give you an idea of the Department of Veteran 

Affairs (VA) infrastructure as well as some of the issues that VA faces 

regarding infrastructure. In addition, we have a process that we’ve 

developed to prioritize different types of assets against each other and link 

them to our strategic goals and other priorities of the Department of 

Veterans Affairs. I would like to describe this process and then give you a 

demo of the prioritization decision model that we use to select assets. 

When we talk about assets, we include the bricks and mortar we’ve talked 

about here, but also information technology (IT) equipment, leasehold 

interests, and sharing agreements. 

In terms of inventory, we have hospitals, clinics, cemeteries, office 

buildings, fire departments, golf courses, and IT and medical equipment. 

We also have what we call our categories of investment. These categories 

include energy saving performance contracts, which are agreements to 

share energy cost dollar savings with private firms that provide energy 

conservation retrofits; enhanced sharing, which is special authority to buy 

and sell services in real property for our medical system that can be used in 

the appropriate forum; and enhanced-use leases, which are similar to an 

equity partnership except that we set up a trust for the benefit of the 

government that we use as the vehicle for the development. In many areas, 

where the market is right for it, as Steve Weiner discussed, you can make 

these deals work. But we found that there are places where the market 

doesn’t make it work, but where we have a demonstrated need to have a 

building such as a clinic. Two years ago, a couple of committees on the Hill 

established that in these cases, we can use appropriated dollars in 

conjunction with the private-sector field to make it work. Other categories 

include IT, infrastructure, and leases. We have direct delegated leasing 

authority from medical plus the traditional General Services 

Administration (GSA) leasing and space assignments. 
Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 87 GAO-02-139 Crosscutting Issues Planning Conference

Our portfolio of assets is about $3 billion (see fig. 19). It includes 

infrastructure projects at about $650 million; equipment, which comes to 

about $800 million; leases, which total a little over $200 million; and IT, 

which totals about $1.3 billion. 

Figure 19: Fiscal Year 2002 Capital Budget (in millions)

VA Has Developed a 

Planning Tool to Assist in 

Prioritizing Proposals for 

Capital Investments

In our capital planning process, we focus on three phases. The first, a 

functional development phase, includes the users, who are the people 

closest to the products, and the service delivery items that they need. The 

users develop and rank their proposals for what they would like. Then we 

have crosscutting councils or boards that perform a technical review 

process to make sure that, for example, our IT proposals adhere to our IT 

business architecture and our IT technical architecture. Then we have 

what we call a strategic review phase, where senior management uses the 

decisionmaking tool I’ll describe later to rate and score investments and 

rank them against each other and our strategic goals. 

IT

$1,262

Equipment

 $791

Projects

$642

Leases

$238
Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 88 GAO-02-139 Crosscutting Issues Planning Conference

We then have our confirmation or tracking phase. As many of you know, 

these investments have a long lead time. We want to make sure that if 22 

months ago we submitted a proposal for building a clinic in Oshkosh, 3 

years later, just before we’re going to award the contract, we still need it—

or, probably more appropriately, we still need the size and type that we 

originally thought we would. The last phase is our tracking phase, in which 

we track performance, costs, and schedule. This is probably the one we’re 

working on the hardest. With our portfolio, it is very difficult to track costs 

for all of these proposals. 

The Capital Investment Board is key to our capital planning process. The 

membership of our board is made up of fairly high leadership in the 

department, including the deputy secretary chairs; deputy undersecretaries 

for each of our administrations; plus legal, congressional, and technical 

assistant secretaries. One of the prime goals of the VA Capital Investment 

Board is to ensure that we have a one-VA perspective. Just as GSA is trying 

to show a one-government perspective, we try to make sure that proposals 

for our medical system, which is fairly extensive, and our benefits 

department, which does GI Bill benefits, burial benefits, education benefits, 

and so forth, are looked at in terms of their overall effect. 

If we are putting in a new 1-800 telephone system, we want to make sure 

that we have one system for everyone or at least one that can be linked or 

modulized with others. In 1999, when we started this process, each 

administration came forward with its own 1-800 system. As part of this 

board, they came together, and now they have a modulized system where 

they can add modules as each administration is ready to do so. 

Generally, the board’s decisions are used to support our strategic planning 

and budgeting and goals as well as the basis for submission in our annual 

budget to the Office of Management and Budget (OMB). This next graphic 

shows the monetary thresholds for what our board looks at (see table 2).
Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 89 GAO-02-139 Crosscutting Issues Planning Conference

Table 2: Capital Investment Proposal Thresholds

a

Includes the construction and medical care (NRM) appropriations.

b

Where VA receives consideration with a present value exceeding $4M.

c

Enhanced sharing agreements for space will use the definition under note b. For all other categories, 

existing VHA thresholds apply.

The thresholds vary by administration: VHA is health, VBA is benefits, NCA 

is cemeteries, and then there’s general staff office support. On the left side 

of table 2, you’ll see the type of things that we review, including 

infrastructure, which includes our construction programs; medical 

equipment, since we have a lot of high-tech, high-cost items; and IT, for 

which we use both an acquisition cost and life-cycle trigger.

This next graphic (see fig. 20) shows the criteria weights we’re using for 

2003. 

Investment categories VHA VBA NCA Staff offices

Infrastructurea $4M $4M $4M $1M

Medical equipment $1M N/A N/A N/A

Non-Medical equipment $500,000/piece $500,00/piece $500,000/piece $500,000/piece

Information technology: 

Total acquisition cost

Life cycle cost

$10M

$30M

$2M

$6M

$1M

$3M

$1M

$3M

Leases/GSA space assignments $600,000 $600,000 $600,000 $600,000

Enhanced-use leasesb $4M $4M $4M $4M

Enhanced sharing agreements See note c N/A N/A N/A

Energy savings performance contracts (per task 

order)

$4M/facility

$10M/multiple 

facilities

$4M/

facility

$10M/

multiple facilities

$4M/

facility

$10M/

multiple facilities

$4M/

facility

$10M/

multiple facilities
Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 90 GAO-02-139 Crosscutting Issues Planning Conference

Figure 20: Fiscal Year 2003 Criteria Weights

We actually sit our board down together with the top political leadership in 

the department and use this tool to weight each one of those criterion 

against the others. The board has to decide what is most important to 

them. As you can see here, customer service is rated the highest, and risk is 

weighted the lowest. When we started this original process, we added risk, 

I believe, at GAO’s request. We added return on investment at OMB’s 

request. 

This next graphic (see table 3) gives you the idea of how we can change 

over time. Each year, we not only decide whether to use the same criteria, 

but we also set the weights. For example, customer service was weighted 

quite high the first year we did this, but since then it’s fluctuated and settled 

down to about a quarter of our weight in alternatives. We’ve added seismic. 

0.239

0.209

0.153

0.134

0.103

0.078

0.05

0.034


			

 

 	
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	&	
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Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 91 GAO-02-139 Crosscutting Issues Planning Conference

We’ve also added special emphasis, which is a congressionally mandated 

criterion we’re supposed to use in all of our investments now. 

Table 3: Comparison of Weights, 2000-2003

A Capital Investment Panel, which works for the board, is made up of seven 

members of each major departmental element. Prior to weighing proposals 

with this analytic tool, the panel performs a validity assessment of each 

proposal it receives, making sure that the proposal is complete and 

reasonable, and that there’s a rationale for including it in the weighting 

process. If proposals do not pass this validity assessment, they are never 

scored or even put on a prioritized list. 

Many issues affect our decisions. Population shifts are a big issue for us. 

We are looking at realigning our hospitals to where they should be and 

doing more community-leased outpatient clinics and more leasing in 

general. There are also technology changes. We have wired all of our 

facilities, especially in the health system, for telemedicine. Teleradiology is 

a big issue. We are also looking at a paperless benefits process. 

In terms of the status of our infrastructure, the average age of our medical 

facilities is 50 years. There are a lot of seismic issues, especially on the 

West Coast. There have been a lot of changes in terms of functionality as a 

medical system in general in the country, and VA has moved from an 

inpatient basis to an outpatient basis, which has brought up a lot of 

functional issues in terms of space. Again, new technology has changed 

things. Five years ago, MRIs and CAT scanners were on the fringe of 

normal practice of medicine, and today they are commonplace. And there 

Criteria 2000 2001 2002 2003

One VA customer service .555 .173 .243 .239

Return on taxpayer investment .194 .088 .063 .05

High performing workforce .140 .065 .089 .078

Risk analysis .061 .087 .05 .034

Alternative analysis .050 .074 In ROI In ROI

Seismic/life safety .301 .274 .209

Special emphasis .212 .149 .153

Strategic alignment .133 .103

Other priorities .134
Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 92 GAO-02-139 Crosscutting Issues Planning Conference

are energy issues. We have a lot of energy issues at VA because the 

infrastructure is so aged, and we use energy performance contracting. We 

also have found that our enhanced-use legislation allows for energy, and we 

have entered into energy projects with other government agencies and 

private corporations or public subsidiaries of utilities to develop joint 

energy projects. 

Our capital asset process is heavy into alternatives, forcing us to look at 

renovation, enhanced-use leasing, enhanced sharing, and contracting 

before we ask for appropriated funds. The use of Energy Savings 

Performance Contracts is another alternative to appropriated funds. 

We just recently created an Office of Asset Enterprise Management to 

further strengthen this process and to ensure that there’s coordination in 

our planning and muscle behind our decisions to make investments. This 

office was created to develop a capital asset policy, provide guidance and 

oversight, and maximize the leverage of our assets. In many cases, we need 

to combine a lot of our underused assets and see if we can reach some 

accommodation with the private sector. In our case, we look at individual 

sites where we have office buildings, clinics, and general office space as 

well as warehouse space. One of the things we are looking at is whether 

there is any way to bundle those investments, in essence, by putting the 

cream of the crop that the private sector wants, that building that has the 

great return, with what they might view as a dog but we would see as a real 

need of VA or the government. 

Our Web site is http://www.va.gov/budget/capital. This presentation will be 

on it as well as a lot of our other information, including a standardized 

application for all investments, risk templates that have been developed 

with the consulting community over the last 3 years, an earned value 

template for our investments, and an alternatives analysis template. We 

use a tool called “expert choice,” which is an analytical hierarchy process 

that forces structured decisionmaking. It forces people to put their 

subjective assessment of an investment into a structured environment. 

There’s never going to be a totally objective proposal or a totally objective 

criterion, but at least we now have structured subjectivity. 
Appendix XIV

Presentation by James Sullivan, Director of 

Capital Budgeting, Department of Veterans 

Affairs

Page 93 GAO-02-139 Crosscutting Issues Planning Conference

Mr. Sullivan concluded his presentation by giving a demonstration of the 

VA’s structured decisionmaking process tool.
Page 94 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners ApendxiXV

Steven Weiner leads a consulting firm with engagements in the evaluation, 

asset management, acquisitions and disposition of diverse real estate 

assets for federal and private clientele. In 1997, Mr. Weiner brought to the 

General Services Administration a concept for the formation of federal 

public-private real estate partnerships. The concept used a private-sector 

business model to renovate underused federal properties. His 

governmentwide approach specifically addressed the concerns reflected in 

the budgetary scoring rules of the Office of Management and Budget. He 

also acted as an advisor in the formation and implementation of a portfolio 

management program for the agency’s Public Buildings Service.

Public-Private Partnerships 

Hold Promise for Improving 

Some Federal Real Estate

Listening to the other panelists at this conference, I noticed a theme, and 

that is the issue of how we can use public infrastructure more efficiently. 

In a sense, my topic, a public-private partnership concept that was initiated 

by the General Services Administration (GSA) and resulted in a bill that led 

to GAO doing an investigation of the feasibility of the concept, fits with this 

theme. Our firm, in conjunction with Ernst and Young, conducted a study 

of these partnerships this spring, which we’re very proud to have been part 

of. 

Last year’s legislation, H.R. 3285, authorized the exploration of publicprivate partnerships for the improvement of federal real estate. The idea is 

to use the private sector’s approach as far as the structure and the roles of 

the parties are concerned while incorporating budgetary scoring rules into 

the design of the partnership. As the result, a partnership under the 

proposed legislation might include prerequisites such as that the property 

be available for lease, whole or in part, by a federal executive agency. Well, 

that’s a given. But the agreements to form those partnerships also have 

prerequisites. For example, they must not result in a guaranteed 

occupancy of the facility by the federal government. The projects go 

forward more or less on a spec basis, which means that every property is 

not going to be a candidate. Also, the government will not be liable for any 

actions, debts, or liabilities of any person under a partnership agreement. 

There are no government guarantees. The government is going to put the 

land and the property into the partnership, but that’s it. It’s going to convey 

it to the partnership under a long-term lease, somewhat similar to the 

enhanced-use lease that the Veterans Administration is using. The 

leasehold interests of the federal government remain senior to any debt 

taken on by the partnership. The federal government is first in the food 

chain. 
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 95 GAO-02-139 Crosscutting Issues Planning Conference

To make these requirements work, you need a certain kind of property. You 

can’t take a dog property and expect the private sector to invest in the 

renovation of that property on a spec basis. In fact, to make these 

partnerships work, you have to have three things happening at once. First, 

you have to have the need for new or renovated government facilities, and 

you have to have the absence of conventionally appropriated funding. 

Second, you have to have a site that’s located in a real estate market for 

which there is strong private-sector demand. The site must be situated so 

well that if we build it, they will come. Third, you also need the proper 

sector investment potential. Investors and real estate developers go 

through market cycles like everything else in the economy. Timing is 

everything. Two years ago, you couldn’t build a spec building. Three years 

ago you could. A year ago you could. You have to time how you bring these 

projects on-line. This graphic (see fig. 21) shows how the proposed 

legislation would work. 

Figure 21: Partnership Structure

Contributions Business Entity Property Cash Flows Distribution of

Cash Flows

Underutilized

Federal Property

(Master Ground

Lease)

Private Sector

Investment

($)

Partnership

Operating Income

Operating Expenses

Net Operating Income

less

Master Ground Lease

 (to Government)

Debt Service

Replacement Reserve

Cash Flow

less

 Preferred Return

 (to private partner)

Net Cash Flow

Private

Sector Share

Government

Share
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 96 GAO-02-139 Crosscutting Issues Planning Conference

It would be along the lines of the private-sector model, where one party, in 

this case the federal government, contributes the property to the 

partnership under the terms of a long-term master lease. The private sector 

then brings money and expertise. The private sector would run the 

partnership. The partnership itself in the past would have been a limited 

partnership. Today, it would be a limited liability company or a limited 

liability partnership. Effectively, it’s a conventional structure for a project. 

As far as the flow of funds, as a pure partnership, once the property collects 

its operating income and pays its operating expenses, then first in line from 

the net operating income is that master ground lease payment to the 

government. This is often based on current out-leases, if any, for the 

property. Again, this is in conformance with scoring edicts. Next, any debt 

service that is contributed to the property but not guaranteed by the 

government is taken out, setting money aside for a replacement reserve 

resulting in cash flow. Then comes a preferred return to the private 

partner, which is basically the cost of capital for the money contributed by 

the private partner resulting in a net cash flow. 

The resulting net cash flow is shared by the partner and the government. 

That’s a negotiating point. Each time you set up a deal, you negotiate what 

that split will be, but the private-sector partner is going to have at least 51 

percent if they’re going to control the project. You perhaps would also 

negotiate what the preferred return would be. But this makes it a pure 

partnership as opposed to necessarily a lease. Ninety-nine percent of the 

partnerships that go forward in the private sector for real estate 

development are fashioned using that sort of model.

Several Federal Properties 

Studied Showed Promise for 

Public-Private Partnerships 

Our approach for the study we did for GAO was to review all outstanding 

leases for GSA properties and choose 10 across the country to look at. For 

each of these 10 properties, we started by looking for agencies leasing 

space in private-sector buildings in the market area that have an expiration 

schedule coming up over the next 5 years. We wanted to get an idea of the 

theoretical demand for office space by candidates that had expiring leases 

and might relocate into the subject property that we were looking at for the 

renovation. We also looked at private-sector demand for the site. Our idea 

was to give federal agencies through GSA a first shot at leasing space in the 

renovated building, but then backfill what they don’t take with compatible 

private-sector uses. 
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 97 GAO-02-139 Crosscutting Issues Planning Conference

We also interviewed developers, brokers, appraisers, and public officials. 

We wanted to get a sense of the realities in each local community. We 

compiled local construction and demolition costs. We tried to understand 

the local politics as best we could. We built pro forma models. And then 

we ultimately ranked the properties: number one, how they could serve 

federal needs; number two, how they could benefit from nonfederal 

demand. We found that in some communities, the backfill potential was 

represented by local government. Third, we looked at how we could 

demonstrate the economic viability of the project. In 3 weeks, we went 

from Jacksonville to Boston to Seattle to Portland to Minneapolis. We 

covered a lot of territory. 

This graphic shows federal center south, in South Seattle along the 

Dawamish Waterway (see fig. 22). 

Figure 22: Federal Center South, Seattle, Washington

This property has 41 acres and functionally obsolete buildings. The 

structures include an office structure with a little over 200,000 square feet, 

another small office, a huge warehouse, a motor pool for the Federal 

Situation

• 41 Acre Site in an Industrial Area

• 4 Functionally Obsolete Buildings (607,543

 RSF 200k office)

• Corps of Engineers (Current Tenant)

 Requires Seismic-safe Facility

• Valuable Waterfront and Moorage Location

• Strong Federal Need for New FOB

• Strong Private Sector Market Demand

Redevelopment Strategy

• New FOB on 15 acres (+/-)

•300,000 sf in year 1

•200,000 sf in year 3

• Sublease Balance of Site (25 acres +/-) to Compatible

 Private Sector User, e.g. Seattle Port Authority

Results

$74M Private Investment

17.7% IRR

$29M Government Basis

9.6% IRR
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 98 GAO-02-139 Crosscutting Issues Planning Conference

Bureau of Investigation, and docks. This is prime real estate. It’s a straight 

shot over a viaduct to downtown Seattle’s central business district. The 

Corps of Engineers, which is the principle tenant, has expressed its 

concern that, since they are the national headquarters for seismic 

protection, it’s embarrassing to be in a building that was built in 1935 with 

inadequate seismic protection. The Corps’ enthusiasm is a driving force, 

along with the 1.4 million square feet of leased space in the greater Seattle 

area. In fact, Cushing and Wakefield did a study about 1-1/2 years ago that 

found that there’s about 500,000 square feet of office space that needs a 

home. That became the focus of how we could use this site in a 

partnership. The partnership could also take economic advantage of the 

waterfront access and the balance of the site.

The redevelopment strategy became to build in phases a new federal office 

complex totaling about 500,000 square feet on about 15 acres and sublease 

the balance of the site. Actually, in this case we used a sub-sublease 

strategy to an entity like the Seattle Port Authority, because they are very 

interested in acquiring the balance of the site. But the partnership itself 

could have chosen to develop the balance of the site and then lease it to 

either public or private users. The site also includes 5 acres across the 

street. This would require a 50-year lease term. The net result was that the 

private sector would be investing something on the order of $74 million, 

either through cash or through debt, with an 18-percent internal rate of 

return for the private investor over 10 years. These are attractive numbers, 

and they are based on an assumed value of $29 million for the site, which is 

about 85 percent of the most recent appraisal. The government would earn 

through its share in net cash flow a 9.6-percent internal rate of return. This 

makes for a nice project. In fact, region ten is moving forward with the 

next step, which is to do a formal feasibility study and justification. 

Another building we looked at is the old Food and Drug Administration 

(FDA) building here in Washington, D.C. (see fig. 23). 
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 99 GAO-02-139 Crosscutting Issues Planning Conference

Figure 23: Federal Office Building 8 (2nd and C), Washington, D.C.

FDA is scheduled to vacate this building in 2002. There are labs. Currently, 

there are a lot of uses that underuse the potential of the site. If 

reconfigured through a redevelopment strategy, this building could 

produce in excess of 300,000 square feet of modern office space. In doing 

so, the private sector would invest about $52 million and would earn 

something like a 17.5-percent internal rate of return. The government’s 

basis would be $14 million, and again, it would earn 9.6 percent. These 

numbers are not cast in stone. This was done in a very quick study, but it 

represents the order of magnitude of the potential of this public 

partnership tool in the absence of appropriated funds. 

Another property we looked at is in Andover, Massachusetts, about 18 

miles north of Boston (see fig. 24).

Situation

• Specifically Constructed in 1961for FDA

• Potential office Space of 311,000 RSF

• FDA Scheduled to Vacate in 2002

• Location Proximite to the Capitol,

Smithsonian, and the Mall

Redevelopment Strategy

• Completely Renovate Building

• Recapture Existing Laboratory Space as Office 

• Add 150 Parking Spaces to the Existing 50

Results

$52M Private Investment

17.5% IRR

$14M Government Basis

9.6% IRR
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 100 GAO-02-139 Crosscutting Issues Planning Conference

Figure 24: IRS Service Center, Andover, Massachusetts

This is a 39-acre site located right off of I-93. There’s a 375,000-foot Internal 

Revenue Service (IRS) processing center there. It’s a single-story building. 

There’s a large parking lot, and the building is in need of capital 

improvements and repairs. In addition, IRS alone has over 350,000 square 

feet of leased space in surrounding areas that it would like to consolidate 

into one complex. So there is the opportunity to redevelop the site to build 

a 700,000-square-foot facility for IRS that would be a secure facility with a 

parking structure. The balance of the ground could be developed as 

additional federal office buildings or compatible office buildings for the 

private sector. The private sector as well as the officials for the City of 

Andover were very supportive of trying to do something with this building, 

which is deteriorating. Here again, a large investment of $233 million could 

produce just under a 15-percent internal rate of return. The government’s 

basis is $41 million, with the potential of a 9.4-percent return. How this 

project is configured and the time in which it goes forward will obviously 

affect the economics. But this is the poster child for an underused site of 

very strong demand. In fact, my partner and I were talking to a developer 

who has a beautiful office park about 3 miles away. And he said to us that 

our site was much more desirable than his. He was eager to get hold of this 

property. 

Situation

• 37 Acre Site at Interstate 93 & Route 133

 Interchange

• 375,000 SF Single Story, Security Building

 Needing Capital Repairs

• IRS Goal to Consolidate Area Leases (336,000

 RSF)

• Redevelopment Supported by City Planners and

 Local market

Redevelopment Strategy

• Office Park Layout 

• New 4-story IRS Facility (700,000 RSF) with 

 Parking Structure (15 acres +/-)

• Demolition of Old Structure

• 3 Additional FOBs and/or Compatible 

 Use Subleases

Results

$233M Private Investment

14.4% IRR

$41M Government Basis

9.4% IRR
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 101 GAO-02-139 Crosscutting Issues Planning Conference

This next property (see fig. 25) is in Charleston, South Carolina.

Figure 25: Federal Office Building, Charleston, South Carolina

It is a 100,000-square-foot building that is completely shut down. It was 

damaged by a hurricane and as a result has environmental contamination. 

It’s costing taxpayers in excess of $300,000 a year to sit there dormant. 

Meanwhile, it is in a prime location. Local officials and local real estate 

developers and owners are very anxious to see something happen with this 

site. It includes a little over 2 acres, and it really has great potential. The 

redevelopment strategy would be to demolish the building and redevelop a 

150,000-square-foot federal office building. In our modeling, we assumed 

that there would be a bank on the first floor to use the site, maybe with a 

drive-up facility. It’s been suggested that perhaps because of the demand, 

you could have luxury townhouses or an apartment building on the site as 

well. While the returns are about 14 percent over a $30 million investment, 

the risk associated with putting a project up here would be so minimal that 

I think this would be very attractive to a private investor. The government’s 

basis is only $6 million, and it would earn about a 10-percent return. 

That’s a snapshot of four of the properties we looked at. Public-private 

partnerships are an exciting tool, but just a tool. There are other things that 

Situation

• 99,695 RSF Office Building on 2.18 Acre Site

• Contaminated (asbestos), Unoccupied

 Requiring Demolition

• $300,000 Holding Costs

• Highly Desirable Location

• Moderate Federal and Strong Private Sector

 Demand

Redevelopment Strategy

• Demolish Existing Structure

• Construct 150,000 RSF FOB 

 with Structured Parking

• 1st Floor Bank with Drive Thru;

 Upper Floors for Federal Agencies 

 and Private Backfill

Results

$30.5M Private Investment

13.7% IRR

$5.5M Government Basis

9.9% IRR
Appendix XV

Presentation by Steven Weiner, President, 

Signet Partners

Page 102 GAO-02-139 Crosscutting Issues Planning Conference

agencies governmentwide need to augment the shortage of appropriated 

funds. 

Thank you.
Page 103 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XVI

Introduction to Panel 4 by JayEtta Hecker, 

Director, Physical Infrastructure ApendxXiVI

Panel 4: What challenges does the federal government face in promoting 

increased efficiency and ensuring that consumers have access to 

infrastructure services, including transportation, telecommunications, and 

postal services?

Welcome to our fourth and final panel. The question for this panel 

concerns the challenges the federal government faces in promoting 

increased efficiency as well as ensuring that consumers have access to core 

infrastructure services. In the last 20 to 25 years, the nation has been 

undergoing a transformation in thinking about the federal role in major 

infrastructure service sectors, particularly regarding the necessity of strict 

price and entry regulation by the federal government versus the potential 

benefits of competition. Legislation deregulating the transportation sector 

was passed about 20 years ago, while legislation deregulating the 

telecommunications sector was passed more recently, and legislation 

deregulating the postal sector has not yet passed. For the sectors that have 

been deregulated, there is a significant debate about the impact of 

deregulation on consumers and communities, particularly with regard to 

equity and access to different services. Similarly for sectors where either 

no or incomplete deregulation has occurred, the debate goes on. 

The question of the remaining role of the federal government in 

maintaining, promoting, and enforcing competition has two parts. First, 

what kind of direct federal actions are appropriate or have the potential to 

be effective in promoting competition, and more importantly in many 

cases, what indirect policies of the federal government may be creating 

perverse incentives that destroy competition or prevent it from working? 

Second, is competition resulting in an equitable distribution of services that 

aligns with congressional and/or popular expectations? Expectations 

might include the provision of universal service, or they might include the 

siting of an airport with low-cost operators an hour from my house or the 

availability of train service from my town, even if I’m the only one who uses 

it and I use it infrequently. To address these questions, we’re privileged to 

have panelists who have been on the front lines of the debate on the impact 

of deregulation and competition on the provision of infrastructure services. 

The remarks of panel 4’s four speakers are contained in appendixes XVII 

through XX.
Page 104 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute ApendxiXVI

Edward L. Hudgins is director of regulatory studies at the Cato Institiute. 

He is an expert on the regulation of agriculture, pharmaceuticals, labor, 

space, and transportation, and on state and international regulatory 

comparisons. He is the former editor of Cato’s Regulation Magazine. He 

served as a senior economist for the Joint Economic Committee of the 

Congress and was both deputy director for economic policy studies and 

director of the Center for International Economic Growth at the Heritage 

Foundation. Dr. Hudgins has testified on many occasions before the 

Congress, is widely published, and has appeared on numerous television 

shows. He has a doctorate from Catholic University and has taught at 

universities in this country and in Germany.

Government’s Role in 

Infrastructure Should Be 

Limited and Local 

Thank you for having me here today at GAO for this very important event. 

I’m from the Cato Institute, as you know, and I think GAO is one of the only 

government agencies that I have not called for abolishing. One of my great 

heroes is in the audience here, Bernie Ungar. I sit on the edge of my seat 

waiting for his reports on the postal service to come out, and I really do 

think that you guys are doing good work here. 

Infrastructure is an important topic, especially today in the fast-changing, 

post-industrial economy with an information revolution, and given the fact 

that the traditional infrastructure—roads, airports, and utilities—are 

pushed to the limit. We face new challenges concerning how we evaluate 

infrastructure and the decisionmaking process on what infrastructure 

should go where. We also want to know how infrastructures best mesh 

together in a very fluid, changing, and dynamic economy. As I said, GAO is 

cognizant of these things and has done some good work in this area. 

I’m told that I have 12 minutes in which to talk about all of these things, so 

I’m going to be the generalist. I’m going to do three things in my talk. First, 

I’m going to offer what I hope will be some uncontroversial guidelines to 

keep in mind when we consider infrastructure issues. Second, I’m going to 

comment on several infrastructure areas and sectors in light of these 

guidelines, hoping to give some insights. And third, I’m going to make a 

few suggestions concerning useful areas of research and investigation, so 

that when I get my GAO studies they will be even more interesting than 

they are now, if such a thing is possible. 

Let me start by mentioning a few guidelines that I think are important 

concerning infrastructure. The first thing is that when we look at 

infrastructure issues, we have to ask whether infrastructure is really a 
Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute

Page 105 GAO-02-139 Crosscutting Issues Planning Conference

government matter or a private matter. Now it should seem obvious, 

except for the fact that everyone who calls me from Capital Hill or from 

elsewhere is usually saying, no, the private sector can’t do that. But I think 

it’s important when we think about infrastructure to start with a blank slate 

and ask the basic question about whether government should be doing 

something at all. Remember, early in this country’s history, roads and 

turnpikes were privately built and maintained. At the turn of the century in 

cities, you basically had competing private utility companies. The 

monopolies were usually established by governments to favor one 

competitor over another. So even utilities initially were private without a 

monopoly. I think it’s important not to make the assumption that because 

something has been government infrastructure, it should be so in the 

future. 

Second, if infrastructure is a government matter, it is very important to ask 

at what level of government should the activity or the infrastructure be 

done. As a general rule, I think that the answer is as locally as possible, 

moving up to regional, state, and then federal only as the last resort. Partly, 

as you’ll see in some of the illustrations, this is because in a federalist 

system it really is good to let a thousand flowers bloom, so to speak. Let 

transportation systems in Atlanta compete with transportation systems in 

Portland, etc., and let us learn from that, because that’s going to be the best 

way we’re going to be able to figure these things out. The third guideline is 

that if infrastructure is indeed a government matter, we should find an 

efficient process for judging projects and keeping the process as open and 

flexible as possible.

One of my big concerns is the politicization of the decisions. In one sense, 

infrastructure decisions almost by their nature are politicized because the 

government is usually involved in some way, shape, or form. Even if the 

government is not delivering the service, the government is often involved 

in a regulatory manner, and, thus, you get politicized decisions. For 

example, some years ago there was a move to have congestion pricing on 

the San Francisco-Oakland Bridge, which generally is a good idea, right? 

You pay more at rush hour and that will maybe get people into public 

transportation. What happened is that it became a big cash cow for interest 

groups. The pricing was done in a way that didn’t relieve congestion. 

Prices just generally went up, and the result was it really didn’t do a lot of 

good. The big dig in Boston, of course, is basically payoffs. The big dig is 

something GAO has done some great work on. It’s important to look at the 

process by which government decisionmaking is made. 
Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute

Page 106 GAO-02-139 Crosscutting Issues Planning Conference

The Federal Role Has 

Caused Problems in Several 

Infrastructure Areas

Now, I want to make some general comments about a couple of 

infrastructure areas. First, I want to talk about roads and traffic jams and 

the fact that the most serious problem in virtually every metropolitan area 

is traffic. As you know, Washington actually went down on the list recently, 

only because, while we got worse, everybody else got worse still. It’s cold 

comfort, I would suspect. Traffic is certainly a major problem. Congestion 

has grown. The interstates, which were, of course, meant to be, as the 

name says, roads to carry interstate traffic, really have become local roads 

and more often local parking lots. You have the irony that 66 out here in 

Virginia, which is supposed to be an interstate, is actually closed to traffic 

unless you are in an High Occupancy Vehicle situation. So people using the 

interstates for what they’re supposed to be used for—interstate travel—

can’t actually travel on the interstate if they are alone. You all know the 

problems of traffic infrastructure. I maintain that a lot of the problem is 

indeed because of the federal role. The federal government uses funds to 

promote pet projects and to line the pockets of political friends in local 

areas. And, of course, it attaches a lot of strings. 

One example is that federal highway funds usually promote rail use and the 

construction of local light rail facilities. That might be a good idea, but rail 

tends to cost from 10 to 100 times more than an equivalent length of road, 

and rail tends not to attract that many people out of their automobiles and 

into the trains. It attracts a lot of people out of buses into trains, because 

you’d rather be in a nice train. So quite often, what you find, and I can 

name different cities and different situations, is that cities will take their 

matching funds and spend a lot of money building a subway or a light rail 

system that they have the upkeep on after the federal money leaves but that 

doesn’t relieve the traffic. It diverts funds that they might have used for 

roads or bus lanes or something else that would be more efficient and more 

locally useful, and then they are stuck with a transportation system that 

doesn’t suit their needs.

By the way, here are some interesting numbers. These are 1990 figures. I 

don’t have the updates. But they will give you a flavor. Out of 282 

metropolitan areas in this country, in 239 of them, 90 percent or more of 

trips within the area are made by automobiles. In about 40 of them, 

between 80 and 89.9 percent of the trips are made by automobiles. And 

only in three are less than 80 percent of trips made by automobiles. New 

York City has the lowest level, and that’s still 65 percent. The other two are 

small college towns where the people are not using rail; they are probably 

walking or bicycling. I’m using these numbers to show that rail is not 
Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute

Page 107 GAO-02-139 Crosscutting Issues Planning Conference

terribly efficient in many cases in attracting people out of cars and into rail, 

but this is the way the government often promotes. 

This doesn’t mean that local infrastructure decisions are necessarily better. 

For example, San Diego some time ago decided it was not going to take 

federal funds for its light rail system because it was just too expensive, and 

San Diego thought it could do it cheaper locally, which I thought was good. 

But then the city discovered that it still needed to put in extra roads, and so 

it had to come back and quickly retrofit. It thought the trains were going to 

take a lot more people. In the state of Maryland, the little train system up in 

Baltimore, which doesn’t carry very many people, was built, I believe, 

mostly with state money as opposed to federal money. What that means is 

that Maryland has basically run down its highway fund and therefore 

complains that they don’t have enough money to build roads out there. But 

that’s something that people in the state of Maryland should get on the 

governor about.

The nice thing about keeping this localized is that you get competition. For 

example, most of you, I am sure, are familiar with the Portland experiment, 

which is an experiment in growth control, the use of rail, etc. Some people 

use the Portland experiment as an example of what we should do for the 

rest of the country. Other people, for example, the folks at the Cascade 

Institute out in Oregon, have done a number of studies pointing out that the 

Portland experiment really isn’t all it’s cracked up to be. But by keeping the 

infrastructure decisions local, you can have this kind of competition. You 

can look at Portland. You can argue about whether Portland is working 

well or not. 

Another example is Amtrak, an infrastructure system where on time is 

certainly not an option. This is government infrastructure that competes 

very poorly with planes and automobiles. Even with a growing 

transportation sector, Amtrak only takes about 6 percent of that sector, and 

it’s only in the northeast corridor that they barely break even. In the rest of 

the country, they lose a lot of money, and the federal government spends 

about a billion dollars a year bailing out Amtrak. If Amtrak were private, 

you would not only have Amtrak closing nonprofitable lines, you would 

have more labor flexibility, I suspect, in Amtrak contracts. You would also 

give Amtrak an incentive to find market niches that actually are profitable. 

As a government operating system with government subsidies, Amtrak 

really doesn’t have that incentive or, in some ways, the power to do it.
Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute

Page 108 GAO-02-139 Crosscutting Issues Planning Conference

I also wanted to say a few things about air travel, and I’m only going to 

touch on this briefly because we’re going to hear more discussion about it. 

This is an area where deregulation since 1978 has been a real success. The 

real inflation-adjusted price of flying per passenger mile has gone down by 

about a third. I’ve seen numbers a little bit higher, but it’s something along 

those lines. In 1978, Americans took 275 million trips by air. This year it’s 

going to be 650 million trips; because the prices are lower, lots of people 

can afford to fly. The problem is that we haven’t put an equivalent amount 

of runway space in airports that are local-government owned and operated 

and regulated from Washington. The air traffic control system is a mess, 

too, and we’ll hear more on that later. 

In fact, you are getting some regional competition with airports. For 

example, because we haven’t got the runway space, Baltimore-Washington 

International Airport, one of the three local airports in the Washington area, 

now competes to take people, for example, not to Boston Logan Airport but 

to Providence or Manchester. So instead of going from National Airport to 

Logan, the competition is with regional airports, to go from BaltimoreWashington to Manchester, and you rent a car or you get into a super 

shuttle or something like that. You also have rail going out to BaltimoreWashington. So you are getting this regional competition to get around 

some of the inefficiencies caused by the fact that the government hasn’t put 

in new runway space. 

The postal service, I’ll say very briefly, is a dying dinosaur. I have a nice 

book on the subject for those of you who are interested. Postal 

privatization is not just a matter of getting a big 900,000 person, $65-billion 

government monopoly out of business. We have a very dynamic, changing 

communications and delivery infrastructure in this country. We don’t know 

what it’s going to look like in the future. What we do know is that if the U.S. 

Postal Service operates as a government monopoly, tax exempt, that can 

borrow from the treasury; that is not subject to the same regulations as the 

private sector; that is not subject to most of the regulations that apply to 

government agencies; and that has regulatory authority it can and does use 

against its competitors, these circumstances are going to create an 

inefficient system. So it’s not just a matter of whether the stamp cost is 34 

cents or 35 cents. It’s much more profound. And I think that’s something 

that you have to look at. 

Let me touch on another important piece of infrastructure, space and the 

National Aeronautics and Space Administration (NASA). I’m going to go 

very quickly here. Space, I think, is the lost revolution. The shuttle was 
Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute

Page 109 GAO-02-139 Crosscutting Issues Planning Conference

supposed to bring down the cost of putting stuff up in space. Instead, what 

happened was that the real inflation-adjusted cost of putting something 

into space, as much as we can tell from NASA’s creative accounting, has 

gone up since Apollo, which is unfortunate. Most people assume that space 

can only be handled by the federal government, but I want to give you a 

quick example here. In the early 1980s, NASA was thinking about creating 

a pod to do construction in space, kind of like in the movie 2001, A Space 

Odyssey. They put the cost of development at $1 billion. At the same time, 

the private sector was developing a thing called Deep Rover to work on the 

ocean floor. It was essentially the same system. The ocean floor is just as 

hostile as space because of the pressure and so forth. You’re just as dead if 

there’s a tiny mistake in Deep Rover at the bottom of the ocean floor. Deep 

Rover was produced with two prototypes for $1 million. By the way, the 

guys who designed it were also the guys who were going to be in it on the 

bottom of the ocean. So $1 million versus $1 billion.

One of the reasons why space is so expensive is because the government is 

involved. There are a lot of things that commercialization and privatization 

would do. The reason I brought in a model of the shuttle is this: this is 

infrastructure that you’re looking at, folks. This big thing on the back is the 

external fuel tank. It contains liquid oxygen and hydrogen, which is 

nontoxic. The shuttle flies 98 percent of the distance into orbit and then it 

drops this big 17-story tank. The tank burns up into the atmosphere and 

dunks in the ocean. 

These tanks cost 40 million bucks. If this were privately owned, if we were 

the stockholders of a private company, would we be dumping 40 million 

bucks into the ocean? No. We would be putting these tanks into orbit. In 

fact, they would normally go into orbit if the shuttle didn’t push them down. 

We’d have these tanks retrofitted with rockets to put them into a more 

stable orbit. Some private entrepreneur would have made one of these into 

an orbiting hotel or honeymoon suite by now, I assure you. The point is 

that NASA has done everything to frustrate the space revolution. In fact, in 

the paper today in space news, the headline was that the partners in the 

space station are concerned that there’s going to be too much commercial 

competition for space, because the Russians will sell anything. They’re not 

only selling rides into space—James Cameron, by the way, is going to be 

the next one—they are renting out part of their station so a private 

company can put a module on for telecommunications and other things 

produced by Spacehab. There are actually a lot of commercial uses for 

space, but not at the price that the government has caused to be driven up. 
Appendix XVII

Presentation by Edward L. Hudgins, Director, 

Regulatory Studies, Cato Institute

Page 110 GAO-02-139 Crosscutting Issues Planning Conference

The fact is that the government is getting in the way and frustrating this 

revolution. 

My final three points are lessons from all of these examples. Number one, 

look at what doesn’t exist. In other words, we see the computer revolution 

that occurred beginning in the early 1980s with Steve Jobs, with Bill Gates, 

with all of those pioneers. Think about what would have happened if the 

government had started to go in and regulate personal computers back 

then. That revolution would not have occurred. I maintain that in a 

number of areas, like space—I’m doing a book right now called Space, the 

Free Market Frontier, that has this contention—when you do research, 

look at what doesn’t happen. Look at the things that probably kept a 

revolution from occurring in space that would have been good not only for 

telecom, which is actually the one area that’s been most commercialized, 

but for manufacturing, tourism, and lots of other things. Number two, 

study how markets get around infrastructure gridlock, as I mentioned with 

regional transportation around airports. There, we have an infrastructure 

problem because we don’t have enough runway space, but now you’re 

getting regional airport competition with shuttle buses and with rail making 

up for the fact that we have these problems. Number three—this is tough, I 

know, for the GAO, but I’ll put it out there anyway—acknowledge the 

public choice dynamics that go on in any kind of infrastructure decision. 

We know it’s politicized. I think it’s important to point out to the greatest 

extent possible the adverse dynamics that occur because of these public 

choice issues involved and point out that in a lot of cases that’s the origin of 

the infrastructure problem. Getting the government out so that some of 

these decisions are not politicized could lead to a much healthier use of 

infrastructure and much better infrastructure decisions. 

Thank you for your attention.
Page 111 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XVIII

Presentation by Robert Pepper, Chief, Office 

of Plans and Policy, Federal Communications 

Commission ApendxiXVI

Robert Pepper is chief of the Federal Communications Commission’s 

Office of Plans and Policy, which is responsible for policy questions that 

cut across traditional industry and institutional boundaries, especially 

those arising from the development of new technologies. Dr. Pepper’s 

responsibilities have included leading teams implementing provisions of 

the Telecommunications Act of 1996 and numerous other communicationsrelated activities, such as assessing the development of the Internet and 

electronic commerce, developing the framework for digital television, and 

advancing more market-based spectrum policies. He was formerly the 

director of the Annenberg Washington Program in Communications Policy 

Studies and the director of domestic policies and acting associate 

administrator for the National Communications and Information 

Administration. He is a graduate of the University of Wisconsin, where he 

also received his doctorate.

In the Last 20 Years, 

Communications Markets 

Have Been Opened to 

Competition

I would like to talk about the empirical effects, that is, what has actually 

happened as we’ve opened up the markets in telecommunications to 

competition. If you think back 25 years ago, all you needed to know about 

the entire communications sector in the United States was four letters: A, 

B, C, and N. ABC, CBS, NBC, and AT&T. Those four firms essentially were 

the entire sector. We had a monopoly in telecommunications. We had a 

three-firm oligopoly in broadcasting. We had just begun to open up the 

cable television markets to provide consumers more choices, but our 

efforts were very limited because of fears that somehow this would result 

in ruinous competition to the broadcast television industry. Actually, the 

commission had just adopted what is probably the single most important 

competitive policy decision the commission has ever made, Open Skies. 

The Open Skies policy basically said we can have competition in 

communication satellites. It changed everything, including space policy. 

People forget that until that decision, under the Satellite Act in the early 

1960s, we had a monopoly called Comsat. IBM owned a third of it and 

AT&T owned a third of it, and then there were some public shareholders 

that I think owned the remaining third. That is all gone. The model for 

communications in the United States has been private ownership with until 

very recently monopoly or oligopoly. It’s a little different than the 

infrastructures you’ve been talking about earlier. 
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Presentation by Robert Pepper, Chief, Office 

of Plans and Policy, Federal Communications 

Commission

Page 112 GAO-02-139 Crosscutting Issues Planning Conference

One thing that’s happened over the last 20 years has been the opening of the 

communications and especially telecommunications markets to very 

significant competition. I’d like to take a few minutes to talk about some of 

the things that we’ve seen. When we look at infrastructure investment, 

adjusted for inflation, in the cable television industry—the wireless 

industry, the incumbent local exchange carriers (ILEC), and the 

competitive local exchange carriers (CLEC)—we see an explosion in 

investment through the end of 2000. We’ve since had the NASDAQ 

correction, as they put it. Frankly, we don’t think we’re going to see this 

explosion in investment continue. 

Competition Has Spurred 

the Wireless Industry 

With the wireless industry, there are multiple competition stories. There 

are three important dates: 1992, with the Cable Act; 1993, with the Omnibus 

Budget Act, which gave us the authority to have spectrum auctions and 

opened up the markets by deregulating some commercial mobile radio 

service; and then 1996, with the Telecom Act. Prior to that, the Congress 

passed the Cable Act of 1984, which deregulated the cable television 

industry. It was less than a perfect market in terms of the introduction of 

competition, and we saw prices rise and some problems with service 

quality. Part of that law required the Federal Communications Commission 

(FCC) to report back to the Congress within 6 years on the state of 

competition in the cable TV industry, which we did in 1990. In our report, 

we said that there were still problems. The market was not as competitive 

as people had hoped, but we recommended against rate regulation. We 

said that any legislation should be focused on increasing competition, not 

on imposing regulation. In 1992, the Congress adopted part of what we 

recommended but not the other part. And so in 1992, as a result of the 

Cable Act, rate regulation actually reduced certain aspects of innovation in 

the industry. 

At the same time, the Cable Act did provide a limited-term access to 

programming by vertically integrated cable operator programmers. This 

occurred as a result of findings based upon our investigation that 

programming was being withheld from potential new entrants, including 

the direct broadcast satellite industry. Direct broadcast satellites that had 

been authorized as early as 1983 and 1984 but could not get programming in 

order to launch, as a result of the 1992 Act actually launched in 1994 and 

began providing service in 1995 and 1996. That’s been an enormously 

successful story. In what we call the multichannel video program 

distributor market (MVPD), cable has gone from essentially 100 percent 

down to about 80 percent of that market. There are now about 14 million 
Appendix XVIII

Presentation by Robert Pepper, Chief, Office 

of Plans and Policy, Federal Communications 

Commission

Page 113 GAO-02-139 Crosscutting Issues Planning Conference

satellite households. And while there is less price competition, which 

people tend to focus on, there is enormous competition in packaging 

innovation, customer service, new services, and new content. It’s really 

worked.

In the cable industry, you see essentially flat annual investment. Actually, 

in anticipation of satellites coming in to compete, the cable industry rebuilt 

its networks. Instead of 35 to a maximum of 50 channels, with satellite 

coming in with 100 to 200 channels, the fundamental architecture of the 

cable TV industry was rebuilt. It went from pure coax to fiber optic coax 

hybrids, increasing capacity and serendipitously creating the platform for 

two-way services, including Internet access, high speed data, and even 

telephony over the cable plane. At the same time that the 1996 Act 

eliminated local and state barriers to entry into telecommunications, there 

was the growth of the Internet with the privatization of the Internet in 1995. 

Cable investment increased significantly in each of the subsequent years as 

the industry began to provide these new services. 

Cable modem service and the high-speed broad band services provided by 

cable are now at about 5 million households. About 1 million households 

now get telephone service over the cable plan. So there’s this very 

interesting dynamic made possible and driven by the entry of a competitor 

back in the early 1990s as a result of programming being made available to 

the competitor. Our moderator talked about government decisions that 

promote competition versus government decisions that might thwart or 

pervert competition. I would argue that the 1992 Act had two aspects. One 

of them was rate regulation, which suppressed investment innovation. But 

another was program access, which created significant incentives for 

innovation investment and ultimately competition. 

A significant change also occurred in the wireless industry, where we had a 

very cozy duopoly with two cellular operators. In 1993, FCC made a 

decision, which at the time was thought to be fairly radical, to open up the 

mobile wireless market to competition. Of course, the incumbent cellular 

industry said you don’t need to do that. We can do everything that’s 

needed. You don’t need to go to digital. You don’t need competition. As a 

result of the decision that the commission made, which was within our 

existing authority, we added as many as five more mobile wireless 

providers.

Then the Congress amended the Communications Act to give FCC the 

authority to use auctions to have market competition for licenses. It also 
Appendix XVIII

Presentation by Robert Pepper, Chief, Office 

of Plans and Policy, Federal Communications 

Commission

Page 114 GAO-02-139 Crosscutting Issues Planning Conference

gave FCC the authority to preempt state regulation of wireless services. 

There were eight states that regulated cellular service, including entry price 

and the whole nine yards. We found that where there was regulation to 

protect consumers, the prices were higher than where there was no 

regulation. Funny how that happens. In fact, California had the worst case 

of this, with the highest prices and the most intrusive regulation by the 

Public Service Commission. The 1993 Act, however, changed that. By the 

way, the cellular industry said something that we hear all the time, 

especially from our European colleagues, and that is that if you have 

auctions and people are forced to pay for their licenses and for the 

spectrum, the industry won’t be able to afford to build out to provide 

service, and consumers will be screwed because prices will be higher. 

Economic theory tells you that’s bunk. But most of the people who write 

laws are lawyers, not economists, and they don’t understand economics. 

They don’t understand sum costs. They don’t understand opportunity 

costs. 

This was actually a very nice test of that theory. What happened was that 

investment increased dramatically once we introduced competition, 

notwithstanding the fact that people who had gotten licenses in the past for 

free ended up having to pay what at the time sounded like an outlandish 

amount of money, $7.7 billion divided between two licenses. The average 

time to market was reduced by 50 to 60 percent. Retail prices have 

declined. Penetration has gone from about 15 million mobile wireless 

subscribers to 110 million subscribers, who now have available 4 or more 

wireless competitors. This has been an enormous success story. 

We’ve also seen investment in the CLECs increase as a result of the 1996 

Act’s market opening. More importantly, regarding innovation investment 

with incumbents, again adjusted for inflation, the ILECs’ investment was 

flat or declining for 8 to 10 years. The 1996 Act came along, opening up the 

market to competition. And what happened? Over a 4-year period, the 

incumbents’ investment increased 25 to 30 percent in order to meet the 

competitive challenge. In 1995, there was $30 billion a year in domestic 

transmission infrastructure. In 2000, there was $80 billion. We expect that 

to decline because of the current market correction. But even in decline, 

we’re going to be way ahead on an annual basis of where we were before 

the act. There were enormous benefits from competition. It’s dynamic, 

and it feeds on itself. 

What about innovation in services? There’s a big debate, and this goes to 

the equity question that was raised earlier regarding digital divide and 
Appendix XVIII

Presentation by Robert Pepper, Chief, Office 

of Plans and Policy, Federal Communications 

Commission

Page 115 GAO-02-139 Crosscutting Issues Planning Conference

universal service, etc. The question relates to broad band services. Are 

they being rolled out? Is broad band a failure? Again, there’s a competition 

story here. Technology existed for several years for broad band service by 

cable with cable modem service, or digital subscriber line (DSL) service 

from local exchange companies. The year 1998 was the year of the cable 

modem, where cable modem service began to really take off, moving from 

about 50,000 units to 500,000. And then the following year, as a result of 

competition, the phone companies responded with DSL, going from about 

35,000 units to 500,000. In terms of the competition story, the ILECs had 

DSL technology going back to the early 1990s. They didn’t deploy it until 

the late 1990s, in part because DSL service would cannibalize what they 

call their T1 service. T1 service runs at about $1,200 a month. 

How many people here have DSL? One. How many people subscribe to 

cable modem service? Three. So it’s three to one. That’s about right. But 

this group actually has a lower penetration of broad band service than the 

average across America. I don’t know what that says. But DSL service sells 

for about $40 to $50 a month. The business version is $80 to $100 a month. 

There’s a real concern about cannibalizing an $800,000, $1,200-a-month 

service. The incumbent local exchange carriers did not have the incentives 

to roll that out. By 1999, two things happened. Cable began to deploy their 

broad band service as a result of the cable modem service, going after the 

residential market. Also, the CLECs began deploying in the small and 

medium-size business markets. As a result, the incumbents were being 

jammed on the residential side by cable and on the small business side by 

the CLECs, and they jumped in with both feet and now dominate the DSL 

market. So they finally made that decision—there’s a flipping point, where 

it became worse to protect the past than to worry about cannibalization. 

It’s sort of the innovator’s dilemma. Now with DSL, the phone companies, 

the CLECs and the ILECs, have really begun to close the gap with the cable 

industry in terms of deploying broad band service. 

The Question of Equitable 

Access to Services Remains 

Open

Regarding the digital divide or equity question, is this diffusion good or 

bad? Is deployment increasing fast enough? Do we have to push it more? 

Do we need special government programs to push it more? This is 

currently being debated. One way to think about this is to compare it with 

the deployment of other technologies. It took VCRs 16 years to get 85-

percent penetration. It took color television 22 years to get 85-percent 

penetration. Essentially we are in year 3 or 4 in the broad band 

deployment, and broad band is now available in zip codes representing 76 

percent of the population in the United States. By the way, that number of 
Appendix XVIII

Presentation by Robert Pepper, Chief, Office 

of Plans and Policy, Federal Communications 

Commission

Page 116 GAO-02-139 Crosscutting Issues Planning Conference

76 percent is up from about 55 percent 6 months ago. There are some rural 

areas where broad band is still not available. But things are moving in the 

right direction. The question is will it get all the way there or does it stop, 

and at some point you think about what actions the government can take to 

ensure that there’s going to be ubiquitous deployment. But I don’t think we 

are at that point yet. We’re still trying to understand where that will be.
Page 117 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XIX

Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution ApendxiXIX

Dorothy Robyn is currently a guest scholar at the Brookings Institution. 

Until recently, she served in the Clinton administration as special assistant 

to the President for economic policy and senior staff member of the White 

House National Economic Council (NEC). Dr. Robyn coordinated 

administration policies to promote airline competition, improve aviation 

infrastructure, and reduce congestion. She worked to develop and enact 

policies to promote competition in other network industries, including 

intrastate trucking, railroads, postal delivery, and international 

telecommunications. Before joining the NEC staff in 1993, Dr. Robyn was 

with the Joint Economic Committee of Congress and the congressional 

Office of Technology Assessment, where she specialized in science and 

technology policy. From 1983-87, she was an assistant professor at 

Harvard’s John F. Kennedy School of Government. She is the author of 

Braking the Special Interests: Trucking Deregulation and the Politics of 

Policy Reform. Dr. Robyn has a M.S. and a Ph.D. in public policy from the 

University of California at Berkeley.

Economists Believe FlightDelay Problems Stem From 

Faulty Government 

Infrastructure Policy 

Thank you. As JayEtta said, I’m a refugee from the Clinton White House. 

When I was there with the National Economic Council, I had a very broad 

portfolio. I worked with GAO on issues ranging from military-base 

closures to aviation concentration to defense procurement, and most 

recently aviation congestion. I came to feel very passionately about the 

issue of airline flight delays and why there is a problem, so I’ve continued 

to work on this issue at Brookings. The answer to the problem from an 

economic standpoint is clear, but there are institutional and political 

impediments to implementing it. That’s what I want to talk to you about 

today. 

Despite the extensive news coverage of this issue, there is a general 

misunderstanding of the problem. For example, you heard this morning 

from Joe Coates a view that airline deregulation is the problem. Jim 

Fallows, who should have known better, said the same thing in an op-ed the 

other day. There is another view that says that antiquated air traffic control 

technology is the problem. There is some truth to this view: we used to 

hold up the vacuum tubes that the Federal Aviation Administration (FAA) 

was still using that could only be procured in Romania because we didn’t 

make them in this country anymore. Dave Barry captured this view in a 

recent column. The whole column is wonderful, but I’ll read you just a 

portion of it. Barry writes,
Appendix XIX

Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 118 GAO-02-139 Crosscutting Issues Planning Conference

“A recent audit of the FAA showed that, among other problems, air traffic controllers are 

relying on outdated maps that show giant serpents in the ocean and refer to North America 

as ‘New Spain.’ The FAA’s so-called ‘nationwide radar system’ is, in fact, a man named 

Murray standing on the roof of a Wal-mart in central Kansas with a walkie-talkie and a pair 

of binoculars. [And finally] The FAA’s Emergency Backup Aviation Communication System 

has become increasingly unreliable because, in the words of the audit report, ‘most of the 

pigeons are dead.” 

The third and most common view of the delay problem, and it’s certainly 

the view of the average member of the Congress, is that it’s the airlines’ 

fault. Planes don’t take off when they are supposed to. They sit on the 

runway. It’s the airlines’ fault. Specifically, most members of the Congress 

think that airline “overscheduling” is the problem. By contrast, as I’ll 

explain, economists and economic think tanks—Brookings, Cato, AEI, 

there’s no difference—are almost unanimous in laying the blame for delays 

on government, specifically faulty government infrastructure policy. 

I want to explain why I think the economists’ view of this problem is the 

right one. GAO’s role here is critical, because as I said, there is a different 

view in the Congress—I think it’s the wrong view—and GAO can be a very 

important counterweight to that view. Let me talk first about the air traffic 

control—or airways—piece of the problem, and secondly about the 

airport—or runway—piece of the problem. 

First, let me make clear that nothing I say is a reflection on the 50,000 

people who work at FAA, who are enormously dedicated and talented. The 

major argument I’m going to make is that the problem is due to flawed 

structural incentives. It is not due to bad people. It is a deeply structural 

problem. You’ve got 50,000 good people at FAA, but you’ve got screwy 

incentives. 

Air Traffic Control Problems 

Include Governance and 

Financing Issues

Regarding the air traffic control system (ATC), I’m going to talk first about 

the governance of the system, or the management structure, and then about 

the financing of the system. In 25 words or less, the governance problem is 

that there is a fundamental mismatch between the structure and culture of 

FAA and the nature of air traffic control. Air traffic control is really a big 

telecommunications network designed to keep planes separate from one 

another. FAA, as a traditional government regulatory agency, is simply not 

well suited to the task of running what is, in effect, a high-tech service 

business.
Appendix XIX

Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 119 GAO-02-139 Crosscutting Issues Planning Conference

To elaborate, FAA has a command and control structure. (Some people 

refer to it as paramilitary in structure.) Like other government agencies, it 

is constrained by federal budget rules, and it is micromanaged not only by 

the Congress but also by the executive branch. Some aspects of this 

environment—certainly the cautious, insulated culture—have served FAA 

well as a regulator. Because in addition to operating the air traffic control 

system, FAA regulates it. It regulates the safety of the aircraft, the airlines, 

and ATC itself. And FAA is an effective regulator. But the same structural 

and environmental qualities that make it a good regulator make it a poor 

service provider for the high-tech service activity known as air traffic 

control. 

Let me say a little more about the nature of air traffic control. First of all, 

air traffic control activities are purely operational. To be sure, they have to 

be regulated for safety, but there is no reason that the operational piece 

cannot be distinct and separable from the safety regulatory piece. Second, 

precisely because air traffic control service provision is purely operational, 

the mission is very clear. The mission of the service provider is very clear, 

and its performance is measurable. There are very few government 

activities where the mission is that clear and the performance is very 

clearly measurable. Third, the direct customers of the ATC—the 

commercial airlines and general aviation—are identifiable. And most of 

the benefits and the costs of the ATC accrue to those who are already 

paying the costs. These three characteristics are more typically associated 

with activities performed by the private sector. 

David Osborne, whose 1992 book popularized the term “reinventing 

government,” talks about FAA in his latest book called The Reinventor’s 

Field Book. He summarizes everything I just said in two sentences. He 

says, “There is significant consensus about the basic problem. Air traffic 

control is a massive, complex, technology-intensive service business 

operating within a conventional U.S. government bureaucracy. It is a bit 

like putting a Ferrari engine into a dump truck body and still expecting it to 

win races.” Keep that image in mind. 

Now let me talk about the financing piece of air traffic control, because this 

is equally problematic. Air traffic control services are currently financed 

largely through an 8-percent excise tax on passenger tickets. Every time 

you fly, 8-percent of the price of your ticket goes into something called the 

Airways Trust Fund, and that goes to support FAA. There are two problems 

with this approach. The first is that the actual users of the ATC—the 

airlines—don’t pay it. They are merely the collection agency. So they pay 
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Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 120 GAO-02-139 Crosscutting Issues Planning Conference

only in a very indirect way. As a result, their incentive is to view the 

airways as a free good.

Second, there is very little correlation between what users pay for those 

services and the actual cost of the services. The actual cost to the ATC of 

handling an aircraft is roughly constant, whether it’s a Boeing 747 filled 

with passengers or a regional jet or private aircraft. It doesn’t make a lot of 

difference. Therefore, the ticket tax, which is an ad valorum tax, shifts the 

burden of cost toward the high-fare airlines and away from low-fare 

airlines, all else being equal. So a Southwest 737 pays a lot less than a Delta 

737. In addition, if you take into account all of the different sources of FAA 

funding, the major commercial airlines subsidize not just the low-fare 

carriers but also the cargo carriers and general aviation, particularly 

business jets. That’s the conclusion of a detailed study that was done in 

1996, but the basic numbers haven’t changed very much. 

In sum, the current system for financing air traffic control leads to a major 

disconnect between the customers, or the users, and FAA, the service 

provider. As a result, the airlines and business jets don’t have an incentive 

to use the system efficiently. And equally important, FAA is not getting the 

basic information that a pricing system provides to a service provider. It 

doesn’t know how its customers value its service. It doesn’t know where it 

needs to reduce costs. It doesn’t know where it needs to invest and by how 

much. It’s missing all of that fundamental information. In fact, FAA views 

the Congress as its real customer, because the Congress is the one that 

pays the bills. The airlines and other system users are not seen as the 

customer because they have no direct financial transaction with FAA. 

There are three basic options for reforming the governance of the air traffic 

system. The first option is incremental change—that is, to leave the air 

traffic control system within FAA. That’s the status quo. I think it’s 

problematic. The second is “corporatization,”—that is, to move air traffic 

control into an independent government corporation. The Clinton 

administration recommended that option in the mid-1990s, but it was dead 

on arrival in the Congress. Let me note that about 20 countries have spun 

off air traffic control into an independent government corporation. The 

third option is what I’ll call “privatization,” although that term is sensitive. 

This option would put air traffic control into a not-for-profit entity that’s 

outside the government altogether. Canada has done this very successfully. 

The entity is called NavCanada. The United Kingdom just did this. Air 

traffic control is still a monopoly, but it need not be a government-run 

monopoly. 
Appendix XIX

Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 121 GAO-02-139 Crosscutting Issues Planning Conference

In terms of ATC financing, the essential reform needed is to move to direct, 

cost-based user fees. Moving to user fees is easier or harder depending on 

which of the government structures you adopt. 

Problems With Airports 

Include Capacity and 

Allocation Issues 

On the airport side, there are two problems. The first, a supply side 

problem, is lack of capacity. We’re not building enough runways. The 

second, on the demand side, is that we’re not allocating what capacity we 

have efficiently. Jan talked this morning about demand management. That 

is the key story here. Airlines pay landing fees that are based solely on the 

weight of an aircraft, and the fees are set very low, just to cover historical 

costs. That’s a perverse charge, because at least at a congested airport, a 

small aircraft, which is paying far less with a weight-based fee, actually 

contributes as much if not more to delay, because it is slower on the 

runway and slower to take off and so forth. Moreover, small aircraft take 

up places in the queue that could go to bigger aircraft. 

Stated differently, the most fundamental problem with a weight-based fee is 

that it doesn’t take into account the congestion that an additional aircraft in 

the queue imposes on the airport and other users. Delay is an externality. 

We need to internalize the cost of that into the price of the service. Weightbased fees do not do that, so predictably, a lot of small aircraft use 

congested airports at peak hours. The average plane size at LaGuardia last 

year was a mere 70 seats. Likewise, commercial aircraft don’t have an 

incentive to fly off peak or to schedule fewer flights using bigger aircraft, 

rather than multiple flights with smaller aircraft. The delay you see is very 

predictable. Airline overscheduling is a perfectly rational behavior on the 

part of the airlines. In fact, they’d be derelict if they didn’t do it.

What are the options? On the supply side, the option is building more 

runways. That is the campaign slogan of the airlines this year—“All we 

need is 50 miles of new runway.” Unfortunately, there is a reason we 

haven’t built many runways in the last 10 years. It’s called NIMBY or—I 

learned a new term this morning—NOPE, Not On Planet Earth. I will say 

parenthetically that a nice exception to the NIMBY rule comes from some 

of the recent Air Force base closures like the one in Austin. We’ve got some 

nice new commercial airports as the result of the conversion of former 

military airfields. Unfortunately, they tend not to be in locations that are 

experiencing the most congestion. El Toro (in Orange County) and 

Homestead (near Miami) are in such locations. Both would make very nice 

airports, but there is strong community opposition. In sum, I don’t think 
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Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 122 GAO-02-139 Crosscutting Issues Planning Conference

you can put a lot of faith in getting a huge expansion of airport capacity 

where it’s needed. 

On the demand side, there are two basic approaches to allocating a scarce 

resource—that is, “demand management.” You can manage demand using 

either administrative mechanisms or market mechanisms. Not 

surprisingly, I come down on the side of market mechanisms. We know 

some of the problems with administrative mechanisms. FAA imposed 

“slots”—quotas on the number of take-offs and landings—at four highdensity airports as a temporary measure in the late 1960s, and those quotas 

are still in place, although last year the Congress took action to eliminate 

them (at three of the four airports) in the future. 

The good news about a slot system is that it does by definition reduce delay 

costs because it caps the number of flights at a congested airport. That’s 

good. However, there is an unintended consequence. The airlines are able 

to raise fares. When airlines have a reserved spot at a high-priority airport 

like La Guardia or O’Hare, they are able to jack up the fares to capture the 

benefits of having access to that scarce resource. How do we know that? 

We know that because those slots at La Guardia and O’Hare have market 

value. They sell for millions of dollars. Those slots are equal to the “rents” 

that an airline can charge passengers over the life of a slot. A slot at 

Heathrow, I read recently, is worth $14 million. So administrative 

mechanisms have some benefits but also some real downsides. The 

fundamental flaw is that an administrative mechanism does not get 

capacity to those people who value it the most. It allocates capacity in an 

arbitrary or administrative way. 

A market mechanism, by contrast—and in the case of airports, this would 

be either congestion pricing or auctioning of landing and takeoff slots—has 

some major advantages. For one thing, it makes sure that the capacity goes 

to the people who value it the most. Now, even if, over the long run, the 

commercial airlines pass on the cost of congestion pricing, passengers will 

still be better off. Because even though they’re paying slightly more to 

travel at peak times, the reduction in delay cost would more than offset 

that. My colleague at Brookings, Cliff Winston, estimates that congestion 

pricing alone, even without any additional investment in runways, would 

produce about $7 billion in annual net benefits, largely from reduced 

passenger delays. 

The Congress has come up with yet another approach to demand 

management, and that is to give the airlines antitrust immunity to sit in a 
Appendix XIX

Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 123 GAO-02-139 Crosscutting Issues Planning Conference

room together and coordinate their schedules in order to reduce delays. 

This approach has all the downsides and inefficiencies of administrative 

demand allocation, plus it potentially allows for collusion. It is such a bad 

idea that I wrote an article about it. It’s called “Why Congress’ Plan to 

Reduce Flight Delays Is Not Airworthy,” and it’s on the AEI-Brookings Joint 

Center on Regulatory Studies Web site. 

The Key Is Changing 

Incentives Through Market 

Mechanisms 

Let me leave you with a couple of concluding points. First, the system is 

broken, but this is very predictable because the incentives are all wrong. 

We keep coming back to incentives. Air traffic control is a high-tech 

service business being run by a traditional government agency. In addition, 

airlines don’t pay directly for the airways, so they treat them as a free good, 

and FAA lacks the basic information that it needs about where to invest and 

how much. Similarly, runways are not priced economically, leading to 

inefficient use and a chronic imbalance between supply and demand. 

There are no bad actors. Everybody—FAA, the airlines, the airports—is 

responding to the incentives they face. If you want to change behavior, 

you’ve got to change the incentives. 

Second, there are two ways to allocate scarce capacity: using market 

mechanisms or using administrative mechanisms. There are three 

fundamental advantages to market mechanisms. First, they allocate 

capacity to the people who value it the most. Second, they guide 

investment because prices provide a market signal as to where and how 

much customers value new capacity. And third, they produce revenue that 

can be applied to building new capacity at airports and that will ameliorate 

the underlying problem. 

Third, the instincts of the Congress and most players in the executive 

branch are to solve the delay problem using administrative fixes, such as 

the lottery that was held for La Guardia slots last December or by giving 

airlines antitrust immunity to coordinate scheduling. GAO can be a very 

important counterweight to this strong tendency for the Congress to opt for 

administrative fixes rather than market fixes. 

Let me end with a statement by John Meyer, who is the granddaddy of 

transportation economists. He chaired a blue ribbon panel assembled by 

the National Academy of Sciences 2 years ago to look at the problem of 

aviation competition—not infrastructure, but competition. That was their 

mandate. Nevertheless, they concluded that the single most important 
Appendix XIX

Presentation by Dorothy Robyn, Guest 

Scholar, the Brookings Institution

Page 124 GAO-02-139 Crosscutting Issues Planning Conference

thing government could do to promote competition is to fix the 

infrastructure problem, and this is what Meyer said.

“The laggard performance of the public sector in allowing more efficient development and 

use of critical aviation infrastructure is a serious deficiency that will become more 

troublesome as air travel expands. Crowded airports, flight delays, and passenger 

discontent over fares and services should not be seen as shortcomings of deregulation but 

rather as clarion calls to complete the deregulation process by instilling market incentives 

wherever sensible and feasible.” 

Thanks very much.
Page 125 GAO-02-139 Crosscutting Issues Planning Conference

Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers ApendxiX

Nancy Staisey is a partner in PricewaterhouseCoopers’ Management 

Consulting Service in Arlington, Virginia. She is the firm’s lead partner for 

the federal civilian markets and the global leader for postal consulting. 

Dr. Staisey has over 15 years of management consulting experience in the 

public and private sectors, including strategic change assignments and 

reviews, research on best practices, benchmarking, and market research. 

Her contributions to the international postal industry include quality of 

service measurement systems that are now industry standards and the 

development of technology integration for the next generation of postal 

performance measures. 

The Privatization of Postal 

Services Is Increasing 

Competition and Calling 

Into Question the Proper 

Regulatory Role

I have that cherished last spot on the agenda. I’m going give you a brief 

overview, and I’ll emphasize the word “brief,” of some of the things that are 

going on in the postal industry. I’m going to focus on trends that are 

occurring globally because I believe these are going to have a profound 

impact on what happens here at home. 

I’m a hockey fan, and when I think about what’s going on in the postal 

industry right now, I often think that the federal regulatory role is 

somewhat akin to a referee in a hockey game who is very carefully calling 

fouls and enforcing the rules in one area of the ice while brawls are 

breaking out behind his back and out of sight, brawls that will have a real 

impact on the outcome of the game but are never noticed and never 

responded to. I’m going to describe a few of those brawls and some of the 

things that are behind them as a way of looking at their impact on 

regulatory issues. 

I’d first like to read you a quote from Ad Scheepbouwer, who is the CEO of 

TPG. For those of you who aren’t familiar with it, TPG is a TNT postal 

group. It was formerly the Dutch post office. It was one of the first posts 

to be privatized and traded, in New York, London, and Amsterdam. 

Scheepbouwer said, “In the future, there will be just four super posts, and 

the sleeping giant of the USPS will not be one of them. USPS is boxed in 
Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers

Page 126 GAO-02-139 Crosscutting Issues Planning Conference

between the Postal Rate Commission and Congress and the way it is 

organized. In principal, of course, it could stand up and start to do things if 

it can get its framework changed.” 

This is one external view of the situation in the United States and the 

situation facing the United States Postal Service (USPS). When we look 

around the world, we see the force of deregulation continuing, but 

increasingly we see more of a movement toward reregulation as opposed to 

deregulation. Privatization is occurring, but after an initial flurry, it has 

proceeded more slowed than many expected. Nevertheless, posts are 

competing very aggressively. Their owners, primarily government owners, 

are putting pressure on them to produce financial profitability, and this is 

forcing them into greater competition, both in their domestic market and 

even more so in their international markets. While a lot of posts have made 

strides in commercialization, privatization, and competitive position, 

they’ve done so in the absence of the regulatory changes that were initially 

thought to be a requirement of those strides. As a result, the role of 

government is changing. Increasingly, the focus is going to be on issues of 

interconnection and network access, especially downstream access to 

delivery networks.

We’re also beginning to see a greater willingness of posts to accept fines 

and almost a greater impetus in terms of the regulatory structures. 

Recently, Deutche Post Worldnet was hit with a fine within the European 

Union. The dollar value of that fine against the gains that they made is 

miniscule. It was not a true deterrent. We’re beginning to see more and 

more of the competitors acting in ways that show a lack of concern for the 

regulatory frameworks and the fines that could be imposed. Increasingly, 

the issue of competition and commercialization is more an issue of political 

will as opposed to the existing regulatory or legal framework. We’re also 

seeing a mix of government ownership and private ownership. It’s hard to 

define what Deutche Post or Deutche Post Worldnet is right now. A portion 

of it has been privatized, but it still has a monopoly in a very large domestic 

market in Europe. It acts at times as a private entity, while at other times it 

achieves the benefits of a public entity that can leverage a very large and 

profitable monopoly. 

As a country, the United States has a relative lack of experience with 

privatization. Many aspects of infrastructure in the United States have 

been privately owned from the beginning. In Europe, in South America, 

around the world, governments and their citizens have gone through the 

steps of privatizing many of these types of infrastructure and are now 
Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers

Page 127 GAO-02-139 Crosscutting Issues Planning Conference

moving onto posts. The United States, on the other hand, started out with 

most aspects of infrastructure already privatized, and so our government 

and the people of the United States don’t have very much experience with 

thinking of taking something that previously was government-owned and 

spinning it off into the private sector. 

This graphic (see fig. 26) gives a look at what’s going on around the world. 

I included a combination of government-owned and privately owned 

entities here. You’ll see Deutche Post Worldnet, which is basically the 

German post, a portion of which has been privatized, DHL, TPG, and U.K. 

Post Office, whose name I should have changed to Consignia. You’ll notice 

the change from government-sounding names to names that can be used to 

compete privately on an international basis.

Figure 26: Key Postal Players in Position to Be Global Super Powers 

This graphic shows the average revenue growth rate between 1998 and 

2000. You’ll see some surprisingly high percentage growth rates here. If we 

look at these in terms of movement on the global Fortune 500, Deutche 

Post Worldnet has moved up a hundred spots in this time frame. FedEx 

similarly has moved up just under a hundred. USPS moved up one spot. 



 


  
 


0

2

4

6

8

10

12

14

16

18

20

Deutsche

Post World

Net

DHL TPG UK Post

 Office

Canada

 Post

Sweden

 Post

UPS FedEx U.S. 

Postal

 Service

USPS moves from 27

to 26 on the Global

Fortune 500

DPWN jumps from

247 to 157 on the

Global Fortune 500

FedEx jumps from

392 to 271 on the

Global Fortune 500

Percentage
Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers

Page 128 GAO-02-139 Crosscutting Issues Planning Conference

Now keep in mind, this movement occurred during a time in the economy 

when there was rapid expansion of a large number of industries. So this is 

relative to other industries that have also been expanding. I’ll also point 

out that government-owned posts tend to be very much at the bottom of the 

growth rate. 

Growth in the Industry Has 

Been Driven by Alliances 

and Acquisitions

What’s driving this? To a large extent, this growth has been driven by 

alliances and acquisitions, and these alliances and acquisitions have been 

used to expand the role of the post. In this next graphic (see table 4), I 

highlighted a few that are more nontraditional. Here, you can see posts 

moving out of the traditional mail market, expanding in the express market, 

and then moving on to freight and logistics, financial services, and ebusiness. Why are they doing this? The notorious bank robber, Willie 

Sutton, was asked why he robbed banks, and his response was, “Because 

that’s where the money is.” Posts are expanding into these other areas 

because that’s where the money is, and that’s where the growth 

opportunities are. 

Table 4: Alliances, JVs, and Acquisitions Used to Expand Offerings

Entity Express Freight and logistics Financial services E-business

Deutsche Post World Net DHL, Guipuzaoana

(Spain),Qualipac 

(Switzerland), MIT (Italy), 

Ducros (Spain), Interlink 

Express (UK), 

Securicor (UK)

Danzas (Switzerland), 

ASG (Scandanavia), 

Koninklijke Nedloyd

(Netherlands), Global 

Mail (US), Air Express

International (US)

Deutsche Postbank 

(Germany), Zouk Holding

Ltd. (UK)

GFT (Germany),

E-Stamp (US), 

Yahoo!

TPG (TNT Post Group) Jet Services (France), 

Goldair (Greece), 

Tranjato (Portugal), 

Broos-Fouya

(France), China Post, 

Swiss Post, Kintetsu 

World Express (Japan)

Technologistica (Italy),

Ikea

Mail 2000 (US)

UK Post Office Der Kurier (Germany),

German Parcel 

(Germany), Citipost 

(US)

Money Gram Payment

Systems (UK)

Microsoft (US)

New Zealand Post Ansett Express (New 

Zealand), Phoenix 

Parcels (New Zealand),

XP Group

(New Zealand)

Kiwi Mail (New Zealand),

Nike (New Zealand)

TSB Bank (New 

Zealand), Ergo Financial 

Systems (New Zealand)

Electronic Commerce 

Network (New Zealand),

CheckFree (New 

Zealand)
Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers

Page 129 GAO-02-139 Crosscutting Issues Planning Conference

For the most part, even when they are government-owned, there has been 

an increasing expectation that posts should not simply break even but 

should actually produce a profit and a return to government. The 

expansion is moving into logistics and packages, with much less of an 

interest in mail, with mail being used primarily to finance that expansion. 

Trends Include 

Diversification, 

Experimentation, and a New 

Business Structure

In terms of trends, we see the letter mail market reaching maturity, 

expansion into other areas, and a lot of experimentation in terms of ebusiness products. Typically we’re not seeing a return on investment in ebusiness products in the postal industry except when they’ve been linked 

to package delivery or value-added services for traditional customers of 

posts. Increasingly, we’re seeing a movement to looking at value-added, 

end-to-end, logistics solutions, not simple delivery of mail. 

This diversification into logistics is leading to a greater convergence of the 

transportation networks with the postal networks. This is going to have a 

lot of implications in terms of the regulatory structures, because 

increasingly there are going to be overlaps between the regulatory 

structure that’s in place for transportation and the regulatory structures 

that are in place for the mailing industries. We can already see the UPU, 

which is the U.N. sanctioned international organization for posts, trying to 

focus on some of the same issues that the courier industry is approaching 

the World Trade Organization over. Technical standards that cut across 

these areas and unite them will become increasingly important. 

Now I’d like to turn to one of the changes that I think is going on. It’s a very 

fundamental change in the industry and in the industry paradigm. I’m first 

going to build a model of what went on in the old economic postal industry 

(see fig. 27). The prevailing business model of posts over the past 20 years 

is represented on the left. This model involves a very large physical capital 

base in terms of equipment, vehicle fleets, etc; a very large human capital 

base that was used to operate that infrastructure; and a fairly low emphasis 

on brand capital. Winning in this model was primarily based on being able 

to efficiently leverage the capital infrastructure that was in place. Over the 

years, posts spent a lot of time developing new hub and spoke systems and 

new ways to be more efficient in serving their customers and delivering to 

the full population. Portions of the posts, after they got that under control, 

began to focus on more defined slices within them. Let’s get our purchase 

of transportation in place. Let’s gain greater efficiencies in terms of our 

human capital.
Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers

Page 130 GAO-02-139 Crosscutting Issues Planning Conference

Figure 27: The Changing Industry Paradigm

We’re now seeing a new economic model that literally turns this model on 

its head. Some of those divisions are now becoming outsourced alliance 

networks. Instead of owning all of the processing plants or all of the 

vehicle fleets, we’ll achieve efficiencies by outsourcing those functions to 

separate entities that specialize in them. In the United States, certainly, the 

contract that USPS had with Emery would be an example of this, and the 

very recent contractor relationship with FedEx would be another example. 

What this means is a deemphasis on the physical capital structure and a 

greater emphasis on managing your brand capital and your relationships 

with customers. Winning in this model involves being clever in the way you 

form alliances and outsource. It also involves being able to leverage the 

brand and the set of solutions that you bring to the market in a way that 

provides better service. 

This has some implications for moving forward. USPS was set up for a 

different business structure and a different business model. While 

partnerships and alliances are becoming critical to success, we have a 

framework that focuses more on what investments are made than on how
Appendix XX

Presentation by Nancy Staisey, Partner, 

PricewaterhouseCoopers

Page 131 GAO-02-139 Crosscutting Issues Planning Conference

and when you can form and break alliances. This contracting to expand 

involves shedding those noncore activities to an outsourced network. It 

also moves the posts up and down the fulfillment chain much more broadly 

and enables them to very quickly add new products and services. 

These Changes Call Into 

Question the Effectiveness 

of Government Regulation

In terms of the challenges and implications of this, internationally there is a 

terminal dues system that was put in place primarily by the UPU. As 

alliances are formed, especially global alliances amongst posts, more and 

more transactions will take place outside of that terminal dues system or 

network. Government representation becomes more complex since 

governments partially own entities that will be forming alliances with some 

fully owned government entities, and they will be forming alliances with 

some privately owned entities. The whole definition of a postal operator is 

becoming a bit hazier. An increasing concern is that this emergence of a 

few dominant future posts could potentially drive standard-setting 

activities that previously were regulated activities simply by the mass of 

business and volume that dominant posts bring to a given standard. 

In summary, we see an industry that’s undergoing incredible change. It’s 

moving far more quickly than government in terms of its response to 

change. Competition is being played out on a global basis. JayEtta Hecker 

began with some questions about the role of government in pushing 

competition, since competition is entering the country in the absence of 

any particular push or attention being paid by government. If you think 

back a few years ago to the Million Man March, on that same day, there was 

a march in New York City. It was a parade of Dutch nationals who were 

parading in honor of TPG opening their first office in the United States. 

They now have multiple offices in the United States, as does Deutche Post 

Worldnet, as do many of the other global competitors. In many cases, 

government-owned entities are opening for competition here. The world is 

becoming more complex. The industry is becoming more complex. And 

we’re seeing a greater convergence with transportation, which I think is 

going to lead to a whole series of new challenges. 

I’ll end on the challenges and stay within your time frame.

(545004) Letr
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