United States Government Accountability Office

GAO Testimony before the Committee on the 

Budget and the Committee on 

Transportation and Infrastructure, 

U.S. House of Representatives 

PHYSICAL 

INFRASTRUCTURE 

Challenges and Investment 

Options for the Nation's 

Infrastructure 

Statement of Patricia A. Dalton, Managing Director 

Physical Infrastructure Issues 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, May 8, 2008

 

GAO-08-763T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 8, 2008

PHYSICAL INFRASTRUCTURE 

Challenges and Investment Options for the Nation's

Infrastructure 

Highlights of GAO-08-763T, a testimony 

before the Committee on the Budget and 

the Committee on Transportation and 

Infrastructure, U.S. House of 

Representatives 

Physical infrastructure is critical to 

the nation’s economy and affects the 

daily life of virtually all Americans—

from facilitating the movement of

goods and people within and beyond

U.S. borders to providing clean

drinking water. However, this 

infrastructure—including aviation, 

highway, transit, rail, water, and dam 

infrastructure—is under strain. 

Estimates to repair, replace, or

upgrade aging infrastructure as well 

as expand capacity to meet increased 

demand top hundreds of billions of 

dollars. Calls for increased 

investment in infrastructure come at

a time when traditional funding for 

infrastructure projects is increasingly

strained, and the federal

government’s fiscal outlook is worse 

than many may understand. 

This testimony discusses (1)

challenges associated with the 

nation’s surface transportation, 

aviation, water, and dam 

infrastructure, and the principles

GAO has identified to help guide 

efforts to address these challenges

and (2) existing and proposed

options to fund investments in the 

nation’s infrastructure. This

statement is primarily based on a

body of work GAO has completed for 

the Congress over the last several

years. To supplement this existing

work, GAO also interviewed

Department of Transportation

officials to obtain up-to-date

information on the status of the

Highway Trust Fund and various 

funding and financing options and 

reviewed published literature to 

obtain information on dam 

infrastructure issues. 

The nation faces a host of serious infrastructure challenges. Demand has 

outpaced the capacity of our nation’s surface transportation and aviation 

systems, resulting in decreased performance and reliability. In addition, water 

utilities are facing pressure to upgrade the nation’s aging and deteriorating 

water infrastructure to improve security, serve growing demands, and meet 

new regulatory requirements. Given these types of challenges and the federal 

government’s fiscal outlook, it is clear that the federal government cannot 

continue with business as usual. Rather, a fundamental reexamination of 

government programs, policies, and activities is needed. Through prior 

analyses of existing programs, GAO identified a number of principles that 

could guide a reexamination of federal infrastructure programs. These 

principles include 

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

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

• incorporating performance and accountability into funding decisions, 

• employing the best tools and approaches to emphasize return on 

investment, and 

• ensuring fiscal sustainability. 

Various options are available to fund infrastructure investments. These 

options include altering existing or introducing new funding approaches and 

employing various financing mechanisms, such as bonds and loans. For 

example, a variety of taxes and user fees, such as tolling, can be used to help 

fund infrastructure projects. In addition, some have suggested including an 

infrastructure component in a future economic stimulus bill, which could 

provide a one-time infusion of funds for infrastructure projects. Each of these 

options has different merits and challenges, and choosing among them will 

likely involve trade-offs among different policy goals. Furthermore, the 

suitability of the various options depends on the level of federal involvement 

or control that policymakers desire. However, as GAO has reported, when 

infrastructure investment decisions are made based on sound evaluations, 

these options can lead to an appropriate blend of public and private funds to 

match public and private costs and benefits. To help policymakers make 

explicit decisions about how much overall federal spending should be devoted 

to investment, GAO has previously proposed establishing an investment 

component within the unified budget. 

Source: Corbis. Source: U.S. Army Corps of Engineers.

To view the full product, including the scope 

and methodology, click on GAO-08-763T. 

For more information, contact Patricia Dalton at 

(202) 512-2834 or daltonp@gao.gov. 
Messrs. Chairmen and Members of the Committees: 

We appreciate the opportunity to testify on infrastructure financing issues. 

As you know, the nation’s physical infrastructure is critical to the nation’s

economy and affects the daily life of most Americans—from facilitating 

the movement of goods and people within and beyond U.S. borders to 

providing clean drinking water. However, as illustrated by the 2007 bridge 

collapse in Minnesota and numerous water main breaks across the 

country, the nation’s physical infrastructure is under strain. Estimates of 

the costs to repair, replace, or upgrade aging infrastructure so that it can 

safely, efficiently, and reliably meet current demands, as well as expand 

capacity to meet increasing demands, top hundreds of billions of dollars. 

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

physical infrastructure—including aviation, highway, transit, rail, water, 

and dam infrastructure—which is owned, funded, and operated by all 

levels of the government and the private sector. Moreover, infrastructure 

policy decisions are inextricably linked with economic, environmental, 

and energy policy concerns. Calls for increased investment in 

infrastructure coincide with increasing strains on traditional funding for 

infrastructure projects. For example, without significant changes in 

funding or planned spending, the Highway Trust Fund is projected to incur 

significant deficits in the years ahead.

1

Furthermore, the federal 

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

may understand.2

 Specifically, the federal budget is on an unsustainable 

path—raising questions about whether people should assume federal 

funds will be available to help solve the nation’s current infrastructure 

challenges. We have also previously reported that state and local 

governments will likely face persistent fiscal challenges starting within the 

next few years.3

Consequently, a range of investment options for the 

 1

The Highway Trust Fund is the mechanism used to account for federal highway user taxes 

(e.g., federal excise taxes on fuel) that are dedicated for highway- and transit-related 

purposes. The Highway Trust Fund has two accounts: the Highway Account and the Mass

Transit Account. 

2

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

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

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

D.C.: January 2007). 

3

GAO, State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge

within the Next Decade, GAO-07-1080SP (Washington, D.C.: July 18, 2007). 

Page 1 GAO-08-763T Physical Infrastructure 
nation’s physical infrastructure is currently being explored and proposed 

by some policymakers and industry stakeholders.

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

social importance of the nation’s infrastructure and the current fiscal 

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

governments make prudent decisions on how to invest limited available 

resources. In making these decisions, governments will face an array of 

challenges that include repairing and maintaining aging infrastructure, 

making more efficient use of existing infrastructure, accounting for 

population growth, and incorporating new technologies in funding for 

infrastructure. In this environment, the infrastructure improvements that 

all levels of government want may not reflect what they need or what the 

nation can afford. Accordingly, decisions about the appropriate level of 

distribution and spending on infrastructure are both difficult and 

enormously important. 

My remarks today focus on (1) challenges associated with the nation’s 

surface transportation, aviation, water, and dam infrastructure, and the 

principles we have identified to help guide efforts to address these 

challenges and (2) existing and proposed options to fund investments in 

the nation’s infrastructure. My comments are based primarily on a body of

work that we have completed over the past several years for the 

Congress.4

 To supplement our existing work, we also interviewed 

Department of Transportation (DOT) officials and reviewed published 

literature to obtain up-to-date information on the status of the Highway 

Trust Fund, various funding and financing options, and dam infrastructure 

issues. We conducted this work between March and May 2008 in 

accordance with generally accepted government auditing standards. Those 

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

appropriate evidence to provide a reasonable basis for our findings and 

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

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

 4

See Related GAO Products at the end of this testimony statement. We conducted these 

performance audits in accordance with generally accepted government auditing standards. 

Page 2 GAO-08-763T Physical Infrastructure 
The nation faces a host of serious infrastructure challenges. For example, 

demand has outpaced the capacity of our nation’s surface transportation 

and aviation systems, resulting in decreased performance and reliability. 

Furthermore, as we recently reported, federal surface transportation 

programs are not effectively addressing key challenges, such as 

congestion, because the federal goals and roles are unclear, many 

programs lack links to performance or needs, and the programs often do 

not employ the best tools and approaches. In addition, water utilities are 

facing pressure to upgrade the nation’s aging and deteriorating water 

infrastructure to improve security, serve growing demands, and meet new 

regulatory requirements. Given these types of challenges and the federal

government’s fiscal outlook, it is clear that the federal government cannot

continue with business as usual. Rather, a fundamental reexamination of 

government programs, policies, and activities is needed. Through our prior 

analyses of existing programs, we identified a number of principles that 

could help guide a reexamination of the federal surface transportation 

program. While these principles are designed specifically to reexamine the 

surface transportation program, most, if not all of them, could be 

applicable to other federal infrastructure programs. These principles are

Summary 

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

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

• incorporating performance and accountability into funding decisions, 

• employing the best tools and approaches to emphasize return on 

investment, and 

• ensuring fiscal sustainability. 

A wide variety of options are available to fund infrastructure investments. 

These options include altering existing or introducing new funding 

approaches and employing various financing mechanisms, such as bonds 

and loans. For example, a variety of taxes and user fees, such as tolling, 

can be used to help fund infrastructure projects. In addition, some have 

suggested including an infrastructure component in a future economic 

stimulus bill, which could provide a one-time infusion of funds for 

infrastructure projects. Each of these options has different merits and 

challenges, and choosing among them will likely involve policy trade-offs. 

Furthermore, the suitability of any of these options depends on the level of 

federal involvement or control that policymakers desire in a given policy 

area. However, as we have reported, when infrastructure investment 

Page 3 GAO-08-763T Physical Infrastructure 
decisions are based on sound evaluations, these options can lead to an 

appropriate blend of public and private funds to match public and private 

costs and benefits. To help policymakers make explicit decisions about 

how much overall federal spending should be devoted to investment, we 

have previously proposed establishing an investment component within 

the unified budget. 

The economic well-being of the United States is dependent on the 

reliability, safety, and security of its physical infrastructure. The nation’s

infrastructure is vast and affects the daily lives of virtually all Americans. 

In total, there are about 4 million miles of roads, 117,000 miles of rail, 

600,000 bridges, 79,000 dams, 26,000 miles of commercially navigable 

waterways, 11,000 miles of transit lines, 500 train stations, 300 ports, 

19,000 airports,5

 55,000 community drinking water systems, and 30,000 

wastewater treatment and collection facilities. Collectively, this 

infrastructure connects communities, facilitates trade, provides clean 

drinking water, and protects public health, among other things. 

The nation’s infrastructure is primarily owned and operated by state and

local governments and the private sector. For example, state and local

governments own about 98 percent of the nation’s bridges and the private 

sector owns almost all freight railroad infrastructure. The federal 

government owns a limited amount of infrastructure—for instance, the 

federal government owns and operates the nation’s air traffic control 

infrastructure. In addition, through its oversight role, the federal 

government plays an important role in ensuring the safety, security, and 

reliability of the nation’s infrastructure. Table 1 provides information on 

infrastructure ownership. 

Background 

 5

About 3,400 of these airports are in the national airport system. 

Page 4 GAO-08-763T Physical Infrastructure 
Table 1: Physical Infrastructure Ownership 

Surface transportation • Ninety-seven percent of the nation’s roads and 

highways are owned by state and local governments, 

with local governments owning approximately 77 

percent of the miles of roadway. 

• About 98 percent of the nation’s bridges are owned by 

state and local governments. 

• Most transit systems are owned and operated by public 

agencies that are created by state and local 

governments. 

• Most freight railroad infrastructure is owned by private 

freight railroads. The federal government owns about 

650 miles of Amtrak’s 22,000-mile rail network. 

• The maritime transportation infrastructure, including 

ports, is generally owned and operated by state and 

local agencies and private companies. Many ports are 

publicly owned and privately operated. 

Aviation • Most commercial service airports are owned by local or 

state governments, either directly or through an 

authority, a quasi-governmental body established to 

operate the airport.

• Air traffic control facilities are owned by the federal 

government. 

Water • About half of the nation’s drinking water systems and an 

estimated 20 percent of the wastewater systems are 

privately owned. Private owners range from 

homeowners’ associations, mobile home parks, and 

other entities whose primary business is unrelated to 

water supply or wastewater treatment, to larger, 

investor-owned companies. Publicly owned drinking 

water systems and wastewater utilities are owned by 

municipalities, townships, counties, water or sewer 

districts, and water or sewer authorities. 

Dams (including levees) • The majority of dams in the United States are privately 

owned. The federal government owns and operates 

about 5 percent of the nation’s dams. 

• Levees are typically constructed by the federal 

government, and local governments are responsible for 

their operation and maintenance. 

Source: GAO summary of information from the Airport Cooperative Research Program, Department of Transportation, Environmental

Protection Agency, Federal Emergency Management Agency, National Academy of Public Administration, and the National Railroad 

Passenger Corporation.

Funding for the nation’s infrastructure comes from a variety of federal, 

state, local, and private sources. For example, the private and local public

owners of water infrastructure as well as multiple federal agencies fund 

drinking water and wastewater capital improvements. As owners of the 

infrastructure, state and local governments and the private sector 

generally account for a larger share of funding for infrastructure than the 

Page 5 GAO-08-763T Physical Infrastructure 
federal government. However, the federal government has played and 

continues to play an important role in funding infrastructure. For example: 

• From 1954 through 2001, the federal government invested over $370 billion 

(in 2001 dollars) in the Interstate Highway System. 

• Federal Airport Improvement Program grants provided an average of $3.6 

billion annually (in 2006 dollars) for airport capital improvements between 

2001 and 2005. 

• From fiscal year 1991 through fiscal year 2000, nine federal agencies 

provided about $44 billion (in 2000 dollars) for drinking water and 

wastewater capital improvements. 

• Through the New Starts program, the federal government provided over 

$10 billion in capital funds for new fixed-guideway transit (e.g., commuter 

rail and subway) projects between fiscal year 1998 and fiscal year 2007. 

To increase the nation’s long-term productivity and growth, the federal

government invests in various activities and sectors, including

infrastructure.6 While providing long-term benefits to the nation as a 

whole, much of this spending does not result in federal ownership of the 

infrastructure assets. For the most part, the federal government supports 

infrastructure investments through federal subsidies to other levels of 

government or the private sector. To address concerns about the state of 

the nation’s infrastructure, Members of Congress have introduced several 

bills that are intended to increase investment in the nation’s infrastructure 

by, for example, issuing bonds and providing tax credits for infrastructure 

investments. (See table 2.) 

 6

In addition to federal spending designed to increase economic activity, some federal 

spending on infrastructure is motivated by noneconomic policy goals, such as improved

safety. 

Page 6 GAO-08-763T Physical Infrastructure 
Table 2: Examples of Proposed Legislation Related to Infrastructure Investment

Proposed title Description

National Infrastructure 

Bank Act (S. 1926 / 

H.R. 3401) 

Would establish an independent National Infrastructure Bank 

to: (1) designate qualified transit, public housing, water, 

highway, bridge, or road infrastructure projects for loans, loan 

guarantees, and other financial assistance; and (2) issue 

general purpose and project-based infrastructure bonds 

exempt from state and local taxation. 

Build America Bonds 

Act (S. 2021) 

Would provide $50 billion in new transportation infrastructure 

funding through bonding to empower states and local 

governments to complete significant infrastructure projects

across all modes of transportation, including roads, bridges, 

rail and transit systems, ports, and inland waterways, and for 

other purposes. 

American Infrastructure 

Investment and 

Improvement Act 

(S. 2345) 

Would provide $3.4 billion to the Highway Trust Fund and 

establish a rail infrastructure tax credit, among other things. 

Our Nation’s Trade, 

Infrastructure, Mobility, 

and Efficiency Act (H.R. 

5102) 

Would direct the Secretary of Transportation to establish and 

collect a fee based on the fair market value of articles imported 

into the United States and articles exported from the United

States in commerce and to use amounts collected from the fee 

to make grants to carry out certain transportation projects in 

the transportation trade corridors for which the fee is collected, 

and for other purposes. 

Dam Rehabilitation and 

Repair Act of 2007 

(H.R. 3224) 

Would provide $200 million over five years to repair state and 

locally owned dams. The grants would be part of the National 

Dam Safety Program, a federal-state partnership aimed at 

reducing the risk to life and property from dam failure. The 

federal government’s share of repair costs would be limited to 

65 percent. Dams that do not meet state safety standards or 

that pose a risk to the public would be eligible for funding 

under the program. 

Freight Rail

Infrastructure Capacity 

Expansion Act (H.R. 

2116 / S. 1125) 

Would provide incentives to encourage investment in the 

expansion of freight rail infrastructure capacity and to enhance 

modal tax equity. Specifically, the bill amends the Internal 

Revenue Code to allow: (1) a tax credit for 25 percent of the 

cost of new qualified freight rail infrastructure property and 

qualified locomotive property; and (2) a taxpayer election to 

expense the cost of qualified freight rail infrastructure property

(i.e., deduct all costs in the current taxable year). 

Source: GAO analysis of legislation introduced in the 110th Congress.

Congress previously established two commissions to study the condition

and future needs of the surface transportation system, including financing 

options. It created the National Surface Transportation Policy and 

Revenue Study Commission (Policy Commission) to examine the 

condition and future needs of the nation’s surface transportation system 

Page 7 GAO-08-763T Physical Infrastructure 
and short- and long-term alternatives to replace or supplement the fuel tax 

as the principal revenue source supporting the Highway Trust Fund.In 

January 2008, the Policy Commission released its final report. Congress 

also created the National Surface Transportation Infrastructure Financing

Commission and charged it with analyzing future highway and transit 

needs and the finances of the Highway Trust Fund and with 

recommending alternative approaches to financing transportation 

infrastructure.This commission issued its interim report in February 2008, 

and its final report is expected in November 2008.

We have previously reported that the nation’s surface transportation, 

aviation, water, and dam systems face numerous challenges related to 

their infrastructure. Increasing congestion has strained the capacity of our 

nation’s surface transportation and aviation systems, decreasing their 

overall performance in meeting the nation’s mobility needs. Furthermore, 

significant investments are needed in our nation’s drinking and 

wastewater systems to address deteriorating infrastructure and deferred 

maintenance. In light of these and other challenges, we have called for a 

fundamental reexamination of government programs and developed a set 

of principles that could help guide such a reexamination. 

Despite increases in transportation spending at all levels of government 

and improvements to the physical condition of highways and transit 

facilities over the past 10 years, congestion has worsened and safety gains 

have leveled off. For example, according to DOT, highway spending by all

levels of government has increased 100 percent in real dollar terms since 

1980, but the hours of delay during peak travel periods have increased 

almost 200 percent during the same period. In addition, demand has 

outpaced the capacity of the system, and projected population growth, 

technological changes, and increased globalization are expected to further 

strain the system. We have previously reported that federal surface 

transportation programs are not effectively addressing these key 

challenges because federal goals and roles are unclear, many programs 

lack links to needs or performance, and the programs may not employ the 

best tools and approaches.7

In addition, federal transportation funding is 

The Nation Faces 

Significant Challenges 

Associated with Its 

Infrastructure 

Growing Congestion 

Challenges the Nation’s 

Surface Transportation 

System, While Federal 

Programs Face Funding 

Uncertainties 

 7

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

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

Mar. 6, 2008). 

Page 8 GAO-08-763T Physical Infrastructure 
generally not linked to specific performance-related goals or outcomes, 

resulting in limited assurance that federal funding is being channeled to

the nation’s most critical mobility needs. Federal funding is also often tied 

to a single transportation mode, which may limit the use of federal funds 

to finance the greatest improvements in mobility. 

To address these surface transportation challenges, various stakeholders 

have called for increasing significantly the level of investment by all levels

of government in surface transportation. For example, in its January 2008

report, the Policy Commission recommended that all levels of government 

and the private sector collectively invest at least $225 billion each year to 

maintain and improve the surface transportation system, which would be

about $140 billion more than is currently invested. However, without 

significant changes in funding, planned spending, or both, the balance of 

the Highway Account of the Highway Trust Fund—the major source of 

federal highway funds—is projected to be exhausted at some point during 

fiscal year 2009. To address this gap between revenues and spending, in its 

fiscal year 2009 budget request, the administration proposed granting the 

Secretary of the Treasury, in consultation with the Secretary of

Transportation, the flexibility to transfer funds between the Highway and 

Transit Accounts of the Highway Trust Fund. However, this solution, if 

enacted, would provide only a short-term reprieve—both the 

administration and the Congressional Budget Office project that the 

balances of the Highway and Transit Accounts would be exhausted by the 

end of fiscal year 2010. 

The Federal Aviation Administration (FAA) faces significant challenges in 

keeping the nation’s current airspace system running as efficiently as 

possible as the demand for air travel increases and the air traffic control 

system ages. System congestion, and the resulting flight delays and 

cancellations, are serious problems that have worsened in recent years. 

For example, according to DOT, 2007 was the second-worst year for 

delays since 1995. To accommodate current and expected demand for air 

travel, FAA and aviation stakeholders are developing the Next Generation

Air Transportation System (NextGen) to modernize the nation’s air traffic 

control infrastructure and increase capacity. This effort is complex and 

costly. Although there is considerable uncertainty about how much 

NextGen will cost, FAA estimates that NextGen infrastructure will cost the 

federal government between $15 billion and $22 billion through 2025. 

Other key challenges for FAA include managing a timely acquisition and 

implementation of NextGen and dealing effectively with the environmental 

concerns of communities that are adjacent to airports or under the flight 

Increasing Demand Strains 

the Aviation System and 

Traditional Funding 

Approaches 

Page 9 GAO-08-763T Physical Infrastructure 
paths of arriving and departing aircraft. For example, as we have 

previously testified, if not adequately addressed, these concerns, 

particularly about the noise that affects local communities and the 

emissions that contribute to global warming, may constrain efforts to build 

or expand the runways and airports needed to handle the added capacity

envisioned for NextGen.8

 In addition, airports face similar funding 

challenges in attempting to expand their capacity. For example, planned

airport development costs total at least $14 billion annually (in 2006 

dollars) through 2011—exceeding historical funding levels by about $1 

billion per year. 

We have previously testified that FAA’s current funding mechanisms—the

Airport and Airway Trust Fund (Trust Fund) and the U.S. Treasury’s 

general fund—can potentially provide sufficient resources to support FAA 

activities, including NextGen.9

However, there are a number of 

uncertainties—including the future cost of NextGen investment, the 

volume of air traffic, the future costs of operating the National Airspace 

System, and the levels of future appropriations for the Airport 

Improvement Program—that may influence the funding necessary to 

support FAA’s activities. In addition, uncertainties surrounding the status 

of FAA’s reauthorization could have adverse effects on FAA’s ability to 

carry out its mission unless other revenue sources and spending authority 

are provided. Without legislative action, both the excise taxes that fund 

the Trust Fund and FAA’s authority to spend from the Trust Fund will 

expire on June 30, 2008. Failing to meet these infrastructure challenges in

aviation may have significant economic consequences, since aviation is an

integral part of the economy. 

Water utilities nationwide are under increasing pressure to make 

significant investments to upgrade aging and deteriorating infrastructures, 

improve security, serve a growing population, and meet new regulatory 

requirements.10Water infrastructure needs across the country are 

Aging and Deteriorating 

Water Infrastructure 

Presents Challenges 

 8

GAO, Federal Aviation Administration: Challenges Facing the Agency in Fiscal Year

2009 and Beyond, GAO-08-460T (Washington, D.C.: Feb. 7, 2008). 

9

GAO-08-460T. 

10In October 2007, EPA made several changes to the monitoring and public notice 

provisions in the Lead and Copper Rule under the Safe Drinking Water Act, the principal 

federal regulation protecting public water system consumers from exposure to lead and 

copper in drinking water. 

Page 10 GAO-08-763T Physical Infrastructure 
estimated to range from $485 billion to nearly $1.2 trillion over the next 20 

years. According to the Environmental Protection Agency’s (EPA) June 

2005 Drinking Water Infrastructure Needs Survey, the largest category of 

need is the installation and maintenance of transmission and distribution 

systems—accounting for $183.6 billion, or about 66 percent of the needs 

projected through 2022. For wastewater systems, EPA’s 2004 Clean 

Watersheds Needs Survey projected infrastructure-related needs for 

publicly owned wastewater systems of $202.5 billion through 2024.11Many 

drinking water and wastewater utilities have had difficulty raising funds to 

repair, replace, or upgrade aging capital assets; comply with regulatory 

requirements; and expand capacity to meet increased demand. For 

example, based on a nationwide survey of several thousand drinking water 

and wastewater utilities, we reported in 2002 that about one-third of the 

utilities (1) deferred maintenance because of insufficient funds, (2) had 20 

percent or more of their pipelines nearing the end of their useful life, and 

(3) lacked basic plans for managing their capital assets.12Other GAO work 

suggests that the nation’s water utilities could more effectively manage 

their infrastructure at a time when significant investments are needed.13 

Several factors have contributed to the nation’s deteriorating water 

infrastructure over the years. The adequacy of available funds, in 

particular, has been a key determinant of how well utility infrastructure 

has been maintained. However, according to our nationwide survey, a 

significant percentage of the utilities serving populations of 10,000 or 

more—29 percent of the drinking water utilities and 41 percent of the 

wastewater utilities—were not generating enough revenue from user 

charges and other local sources to cover their full costs of service. In

addition, when asked about the frequency of rate increases during the 

period from 1992 to 2001, more than half the utilities reported raising their 

rates infrequently: once, twice, or not at all over the 10-year period. Citing

communities’ funding difficulties, many have looked to the federal 

government for financial assistance. However, if budgetary trends over the 

past few years serve as any indication, federal funding will not close the 

 11U.S. Environmental Protection Agency, Clean Watersheds Needs Survey 2004 Report to

Congress, (Washington, D.C.: January 2008). 

12GAO, Water Infrastructure: Information on Financing, Capital Planning, and 

Privatization, GAO-02-764 (Washington, D.C.: Aug. 16, 2002). 

13GAO, Water Infrastructure: Comprehensive Asset Management Has Potential to Help

Utilities Better Identify Needs and Plan Future Investments, GAO-04-461 (Washington,

D.C.: Mar. 19, 2004). 

Page 11 GAO-08-763T Physical Infrastructure 
gap. For example, the trends and overall funding levels associated with the 

Clean Water and Drinking Water State Revolving Funds, the key federal 

programs supporting water infrastructure financing, suggest that they will

have only a marginal impact in closing the long-term water infrastructure 

funding gap. We have previously reported that comprehensive asset 

management, a technique whereby water systems systematically identify

their needs, set priorities, and better target their investments, can help

utilities make better us of available funds. Additional funds, however, will 

ultimately be needed to narrow the funding gap.

Our nation’s dam infrastructure is an important component of the nation’s

water control infrastructure, supplying such benefits as water for drinking, 

irrigation, and industrial uses; flood control; hydroelectric power; 

recreation; and navigation.

14 However, as evidenced by the events of 

Hurricanes Katrina and Rita, the failure of dam infrastructure, which 

includes levees, also represents a risk to public safety, local and regional 

economies, and the environment. In particular, the aging of dam 

infrastructure in the United States continues to be a critical issue for dam 

safety because the age of dams is a leading indicator of potential dam 

failure.15According to the American Society of Civil Engineers, the number 

of unsafe dams has risen by more than 33 percent since 1998, to more than 

3,500 in 2005.

16 In addition, the number of dams identified as unsafe is 

increasing faster than the number of dams that are being repaired. 

To address the challenges facing our nation’s dams, the Federal 

Emergency Management Agency and the National Dam Safety Review 

Board identified both short- and long-term goals and priorities for the 

National Dam Safety Program17 over the next 5 to 10 years. They include 

identifying and remedying deficient dams, increasing dam inspections, 

increasing the number of and updating of Emergency Action Plans, 

Aging Dam Infrastructure 

Raises Safety and Funding 

Challenges 

 14The term “dam” includes conventional dams, navigation locks, levees, canals (excluding

channels), or other similar types of water retention structures.

15A number of factors, including age, construction deficiencies, inadequate maintenance, 

and seismic or weather events contribute to the likelihood of dam failure. 

16American Society of Civil Engineers, 2005 Report Card for America’s Infrastructure, 

March 2005. 

17The National Dam Safety Program, which is administered by FEMA, is a partnership of 

the states, federal agencies, and other stakeholders to encourage individual and community

responsibility for dam safety. 

Page 12 GAO-08-763T Physical Infrastructure 
achieving the participation of all states in the National Dam Safety 

Program, increasing research products disseminated to the dam safety 

community, and achieving cost efficiencies. However, according to the 

Congressional Research Service, most federal agencies do not have 

funding available to immediately undertake all nonurgent repairs, and at 

some agencies, dam rehabilitation projects must compete for funding with 

other construction projects.18 The Association of State Dam Safety 

Officials reported similar funding constraints on dam investment at the 

state level. 

Given the nation’s infrastructure challenges and the federal government’s 

fiscal outlook, we have called for a fundamental reexamination of 

government programs. Addressing these challenges requires strategic 

approaches, effective tools and programs, and coordinated solutions 

involving all levels of government and the private sector.19 Yet in many 

cases, the government is still trying to do business in ways that are based 

on conditions, priorities, and approaches that were established decades 

ago and are not well suited to addressing 21st century challenges. A 

reexamination offers an opportunity to address emerging concerns by 

eliminating outdated or ineffective programs, more sharply defining the 

federal role in relation to state and local roles, and modernizing those 

programs and policies that remain relevant. Through our prior analyses of 

existing programs, we identified a number of principles that could help 

drive an assessment for restructuring and financing the federal surface 

transportation program. While these principles are designed specifically to

reexamine the surface transportation programs, most, if not all of these 

principles could be informative as policymakers consider how to address 

challenges facing other federal infrastructure programs. These principles 

include 

GAO Principles Could 

Guide Efforts to 

Reexamine Federal 

Programs in Light of 

Challenges 

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

which involves examining the relevance and relative priority of existing

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

of national importance; 

 18Congressional Research Service, CRS Report for Congress, Aging Infrastructure: Dam 

Safety, updated March 25, 2008. 

19GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

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

Page 13 GAO-08-763T Physical Infrastructure 
• establishing and clearly defining the federal role in achieving each goal in 

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

the private sector; 

• incorporating performance and accountability into funding decisions to 

ensure resources are targeted to programs that best achieve intended 

outcomes and national priorities; 

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

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

and 

• ensuring fiscal sustainability through targeted investments of federal, 

state, local, and private resources. 

Various options exist or have been proposed to fund investments in the 

nation’s infrastructure. These options include altering existing or 

introducing new funding approaches and employing various financing 

mechanisms. In addition, some have suggested including an infrastructure 

component in a future economic stimulus bill, which could provide a onetime infusion of funds for infrastructure. Each of these options has 

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

involve trade-offs among different policy goals. Furthermore, the 

suitability of any of these options depends on the level of federal 

involvement or control that policymakers desire for a given area of policy.

However, as we have reported, when infrastructure investment decisions 

are made based on sound evaluations, these options can lead to an 

appropriate blend of public and private funds to match public and private 

costs and benefits.20 To help policymakers make explicit decisions about 

how much overall federal spending should be devoted to infrastructure 

investment, we have previously proposed establishing an investment 

component within the unified budget. 

Various Options Are 

Available or Have 

Been Proposed to 

Fund Investments in 

the Nation’s 

Infrastructure 

 20GAO, Freight Transportation: Strategies Needed to Address Planning and Financing 

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

Page 14 GAO-08-763T Physical Infrastructure 
Various existing funding approaches could be altered or new funding 

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

infrastructure. These various approaches can be grouped into two 

categories: taxes and user fees. 

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

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

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

funding for the federal surface transportation program. Fuel taxes are 

attractive because they have provided a relatively stable stream of 

revenues and their collection and enforcement costs are relatively low. 

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

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

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

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

eroded with inflation. As Congressional Budget Office (CBO) has 

previously reported, the existing fuel taxes could be altered in a variety of 

ways to address this erosion, including increasing the per-gallon tax rate 

and indexing the rates to inflation.21 Some transportation stakeholders 

have suggested exploring the potential of using a carbon tax, or other 

carbon pricing strategies, to help fund infrastructure.22 In a system of 

carbon taxes, fossil fuel emissions would be taxed, with the tax 

proportional to the amount of carbon dioxide released in the fuel’s 

combustion. Because a carbon tax could have a broad effect on consumer 

decisions, we have previously reported that it could be used to 

complement Corporate Average Fuel Economy standards, which require 

manufacturers meet fuel economy standards for passenger cars and light 

trucks to reduce oil consumption.23 A carbon tax would create incentives 

that could affect a broader range of consumer choices as well as provide 

revenue for infrastructure. 

Funding Approaches Can 

Be Altered or Developed to 

Help Fund Infrastructure 

Investments 

 21CBO, Status of the Highway Trust Fund: 2007, March 27, 2007. 

22Another carbon pricing strategy is a cap-and-trade program, which combines a regulatory 

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

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

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

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

investments. 

23GAO, Vehicle Fuel Economy: Reforming Fuel Economy Standards Could Help Reduce

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

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

Page 15 GAO-08-763T Physical Infrastructure 
Another funding source for infrastructure is user fees. The concept 

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

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

of user fees that could be altered or introduced include airport passenger 

facility charges; fees for use of air traffic control services; fees based on 

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

aviation infrastructure. 

• Aviation user fees. Many commercial airports currently impose a user 

fee on passengers—referred to as a passenger facility charge—to fund 

airport capital projects.24 Over $2 billion in passenger facility charge 

revenues are collected by airports each year, representing an important 

source of funding for airport capital projects. In contrast, FAA’s activities,

including the transition to NextGen, are largely funded by excise taxes 

through the Airport and Airway Trust Fund. To better connect FAA’s 

revenues with the cost of air traffic control services that FAA provides, the 

administration has proposed, in its FAA reauthorization bill, to replace this

excise tax funding system with a cost-based user fee system. This new 

system would aim to recover the costs of providing air traffic control 

services through user fees for commercial operators and aviation fuel 

taxes for general aviation. According to the administration, cost-based 

user charges would link revenues more closely to costs and could create

incentives for more efficient use of the system by aircraft operators. We 

have previously testified that a better alignment of FAA’s revenues and 

costs can address concerns about long-term revenue adequacy, equity, and 

efficiency as intended, but the ability of the proposed funding structure to 

link revenues and costs depends critically on the soundness of FAA’s cost 

allocation system in allocating costs to users. We found that the support 

for some of FAA’s cost allocation methodology’s underlying assumptions 

and methods is insufficient, leaving FAA unable to conclusively 

demonstrate the reasonableness of the resulting cost assignments.25

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

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

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

pilot program designed to test the technological and administrative 

feasibility of a VMT fee. The pilot program evaluated whether a VMT fee 

 24The majority of commercial airports charge a passenger facility charge of between $1 and 

$4.50 per enplaned passenger.

25GAO-08-460T. 

Page 16 GAO-08-763T Physical Infrastructure 
could be implemented to replace motor fuel taxes as the principal source 

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

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

at fuel pumps that can read information from the GPS.26 As we have 

previously reported, using a GPS could also be used to track mileage in 

high-congestion zones, and the fee could be adjusted upward for miles 

driven in these areas or during more congested times of day such as rush 

hour—a strategy that might reduce congestion and save fuel.

27 In addition, 

the system could be designed to apply different fees to vehicles, depending

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

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

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

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

buy vehicles with higher fuel economy ratings because the fee depends 

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

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

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

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

challenges including concerns about privacy and technical difficulties in

retrofitting vehicles with the necessary technology. 

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

the Policy Commission recently recommended a new federal freight fee to

support the development of a national program aimed at strategically

expanding capacity for freight transportation.28 While the volume of 

domestic and international freight moving through the country has 

increased dramatically and is expected to continue growing, the capacity 

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

the same rate as demand.29 To support the development of a national 

program for freight transportation, the Policy Commission recently 

recommended the introduction of a federal freight fee. The Policy 

Commission notes that a freight fee, such as a per-container charge, could 

help fund projects that remedy chokepoints and increase throughput. The 

Policy Commission also recommended that a portion of the customs 

 26Oregon’s Mileage Fee Concept and Road User Fee Pilot Program: Final Report. 

27GAO-07-921. 

28Transportation for Tomorrow: Report of the National Surface Transportation Policy

and Revenue Study Commission, January 2008.

29GAO, Freight Transportation: National Policy and Strategies Can Help Improve Freight 

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

Page 17 GAO-08-763T Physical Infrastructure 
duties, which are assessed on imported goods, be used to fund capacity 

improvements for freight transportation. The majority of customs duties 

currently collected, however, are deposited in the U.S. Treasury’s general

fund for the general support of federal activities.30Therefore, designating a 

portion of customs duties for surface transportation financing would not 

create a new source of revenue, but rather transfer funds from the general 

fund. 

• Tolling. We have previously reported that roadway tolling has the 

potential to provide new revenues, promote more effective and rational 

investment strategies, and better target spending for new and expanded

capacity for surface transportation infrastructure.31 For example, the 

construction of toll projects is typically financed by bonds; therefore, 

projects must pass the test of market viability and meet goals demanded 

by investors, although even with this test, there is no guarantee that 

projects will always be viable. Tolling potentially can also leverage 

existing revenue sources by increasing private-sector participation and 

investment through such arrangements as public-private partnerships. 

However, securing public and political support for tolling can prove 

difficult when the public and political leaders perceive tolling (1) as a form 

of double taxation, (2) unreasonable because tolls do not usually cover the 

full costs of projects, or (3) unfair to certain groups. Other challenges 

include obtaining sufficient statutory authority to toll, adequately 

addressing the traffic diversion that might result when motorists seek to 

avoid toll facilities, limitations on the types of roads that can be tolled, and 

coordinating with other states or jurisdictions on a tolling project. 

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

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

during peak hours to encourage users to shift to off-peak periods, use less 

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

help guide capital investment decisions for new transportation 

infrastructure. In particular, as congestion increases, tolls also increase, 

and such increases (sometimes referred to as “congestion surcharges”) 

signal increased demand for physical capacity, indicating where capital 

investments to increase capacity would be most valuable. Furthermore, 

these congestion surcharges can potentially enhance mobility by reducing 

 30GAO, Marine Transportation: Federal Financing and a Framework for Infrastructure

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

31GAO, Highway Finance: States’ Expanding Use of Tolling Illustrates Diverse Challenges 

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

Page 18 GAO-08-763T Physical Infrastructure 
congestion and the demand for roads when the surcharges vary according 

to congestion to maintain a predetermined level of service. The most 

common form of congestion pricing in the United States is highoccupancy-toll lanes, which are priced lanes that offer drivers of vehicles 

that do not meet the occupancy requirements the option of paying a toll to

use lanes that are otherwise restricted for high-occupancy vehicles. In its 

FAA reauthorization proposal, the administration proposed extending 

congestion pricing to the aviation sector as a means of managing air traffic 

congestion. Specifically, the administration proposed that FAA establish a 

fee based on time of day or day of the week for aircraft using the nation’s 

most congested airports to discourage peak-period traffic. Under such a 

fee, cargo carriers could pay lower fees by operating at night than they

would pay by operating at peak periods of the day, creating an incentive 

for some cargo carriers to switch daytime operations to nighttime. Like 

tolling, congestion pricing proposals often arouse political and public 

opposition, raise equity concerns, and face statutory restrictions. 

Financing strategies can provide flexibility for all levels of government 

when funding additional infrastructure projects, particularly when 

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

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

currently offers several programs to provide state and local governments 

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

infrastructure. Financing mechanisms can create potential savings by 

accelerating projects to offset rapidly increasing construction costs and 

offer incentives for investment from state and local governments and from 

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

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

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

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

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

the federal government chooses to finance infrastructure projects, policy 

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

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

in general fund taxes or reductions in other government services. 

A number of available mechanisms can be used to help finance 

infrastructure projects. Examples of these financing mechanisms follow: 

Various Financing 

Mechanisms Can Also Help 

Fund Infrastructure 

Projects 

Page 19 GAO-08-763T Physical Infrastructure 
Bonding. A number of bonding strategies—including tax-exempt bonds,32

Grant Anticipation Revenue Vehicles (GARVEE) bonds, and Grant 

Anticipation Notes (GAN)—offer flexibility to bridge funding gaps when 

traditional revenue sources are scarce. For example, state-issued GARVEE 

bonds or GANs provide capital in advance of expected federal funds, 

allowing states to accelerate highway and transit project construction and 

thus potentially reduce construction costs. Through April 2008, 20 states 

and two territories issued approximately $8.2 billion of GARVEE-type debt 

financing and 20 other states are actively considering bonding or seeking 

legislative authority to issue GARVEEs. Further, SAFETEA-LU authorized 

the Secretary of Transportation to allocate $15 billion in private activity 

bonds for qualified highway and surface freight transfer facilities. To date, 

$5.3 billion has been allocated for six projects. In aviation, most 

commercial airports issue a variety of bonds for airport capital 

improvements, most notably general revenue bonds that are backed by

general revenues from the airport—including aircraft landing fees, 

concessions, and parking fees—and passenger facility charges. Several 

bills introduced in this Congress would increase investment in the nation’s 

infrastructure through bonding. For example, the Build America Bonds 

Act would provide $50 billion in new infrastructure funding through 

bonding. Although bonds can provide up-front capital for infrastructure 

projects, they can be more expensive for the federal government than 

traditional federal grants. This higher expense results, in part, because the 

government must compensate the investors for risks they assumed 

through an adequate return on their investment. 

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

government currently has two programs designed to offer credit 

assistance to states for surface transportation projects. The 

Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) 

authorized FHWA to provide credit assistance, in the form of direct loans,

loan guarantees, and standby lines of credit for projects of national 

significance. A similar program, Railroad Rehabilitation and Improvement 

Financing (RRIF) offers loans to acquire, improve, develop, or rehabilitate 

intermodal or rail equipment or facilities. To date, 15 TIFIA projects have 

 32Tax-exempt bonds are government bonds that are used for purposes such as

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

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

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

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

private entities to help finance qualified facilities. 

Page 20 GAO-08-763T Physical Infrastructure 
been approved for a total of about $4.8 billion in credit assistance and the 

RRIF program has approved 21 loan agreements worth more than $747 

million. These programs are designed to leverage federal funds by 

attracting substantial nonfederal investments in infrastructure projects. 

However, the federal government assumes a level of risk when it makes or 

guarantees loans for projects financed with private investment.

33

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

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

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

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

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

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

funds support water infrastructure financing, the Clean Water State 

Revolving Fund (CWSRF) for wastewater facilities, and the Drinking 

Water State Revolving Fund (DWSRF) for drinking water facilities. Under 

each of these programs, the federal government provides seed money to 

states, which they supplement with their own funds. These funds are then

loaned to local governments and other entities for water infrastructure 

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

State Infrastructure Banks (SIB)—capitalized with federal and state 

matching funds—are state-run revolving funds, make loans and provide 

credit enhancements and other forms of nongrant assistance to

infrastructure projects. Through June 2007, 33 SIBs have made

approximately 596 loan agreements worth about $6.2 billion to leverage 

other available funds for transportation projects across the nation.34

Furthermore, other funds—such as a dedicated national infrastructure 

bank—have been proposed to increase investment in infrastructure with a 

national or regional significance. A challenge for revolving funds in general 

is maintaining their capitalized value. Defaults on loans and inflation can

reduce the capitalized value of the fund—necessitating an infusion of 

capital to continue the fund’s operations. 

 33According to DOT, federal requirements necessitate that a credit risk premium be

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

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

loans have defaulted. 34Eight states—Arizona, Florida, Minnesota, Missouri, Ohio, South Carolina, Texas, and

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

2006. 

Page 21 GAO-08-763T Physical Infrastructure 
Another option proposed for temporarily increasing investment in the 

nation’s infrastructure is including an investment component in a future 

economic stimulus bill. According to supporters, including funding for 

“ready to build” infrastructure projects in a stimulus bill would serve to 

both boost the economy and improve the nation’s infrastructure through a 

one-time infusion of funds. For example, the American Association of 

State Highway and Transportation Officials estimates 42,000 jobs are 

created for every $1 billion dollars invested in transportation projects.

We have previously identified important design criteria for any economic 

stimulus package.35 Specifically: 

Designing an Economic 

Stimulus Package to 

Increase Infrastructure 

Investment Would Be 

Difficult 

• Economic stimulus package should be timely. An economic stimulus 

should not be enacted prematurely, delayed too long, or consist of 

programs that would take too long to be implemented to lessen any 

economic downturn. For example, if fiscal stimulus is undertaken when it

is not needed, it could result in higher inflation or if fiscal stimulus is 

enacted too slowly, it could take effect after the economy has already 

started to recover. 

• Economic stimulus package should be temporary. An economic 

stimulus should be designed to raise output in the short run, but should 

not increase the budget deficit in the long-run. If a stimulus program is not 

temporary and continues after the economy recovers, it could lead to 

higher inflation. 

• Economic stimulus package should be targeted. An economic 

stimulus should be targeted to areas that are most vulnerable in a 

weakening economy and should generate the largest possible increase in 

short-run gross domestic product. 

Designing and implementing an economic stimulus package with an 

infrastructure investment component that is timely, temporary, and 

targeted would be difficult. First, while an effective stimulus package 

should be timely, practically speaking, infrastructure projects require 

lengthy planning and design periods. According to CBO, even those 

projects that are “on the shelf” generally cannot be undertaken quickly 

enough to provide a timely stimulus to the economy.36Second, spending on 

 35GAO-08-411T. 

36CBO, Options for Responding to Short-Term Economic Weakness, January 2008. 

Page 22 GAO-08-763T Physical Infrastructure 
infrastructure is generally not temporary because of the extended time 

frames needed to complete projects. For example, initial outlays for major 

infrastructure projects supported by the federal government, such as 

highway construction, often total less than 25 percent of the total funding 

provided for the project. Furthermore, the initial rate of spending can be 

significantly lower than 25 percent for large projects.37 Third, because of 

differences among states, it is challenging to target stimulus funding to 

areas with the greatest economic and infrastructure needs. For example, 

two possible indicators for targeting infrastructure aid to states, gross 

state product and lane miles per capita, are not correlated. Furthermore, 

as we have previously reported, states tend to substitute federal funds for 

funds they would have otherwise spent—making it difficult to target a 

stimulus package so that it results in a dollar-for-dollar increase in 

infrastructure investment.

38

We have previously reported that the budget process can favor 

consumption over investment because the initial cost of an infrastructure 

project looks high in comparison to consumption spending.39 Thus, 

adopting a capital budget is suggested as a way to eliminate a perceived 

bias against investments requiring large up-front spending when they 

compete with other programs in a unified budget. However, proposals to 

adopt a capital budget at the federal level often start with certain concepts 

and models extended from state and local governments and the private 

sector, which are not appropriate because of fundamental differences in 

the role of the federal government. Specifically, when state and local 

governments and the private sector make investments, they typically own 

the resulting assets, while this is frequently not the case for the federal 

government. For example, although the federal government invests in 

surface transportation, aviation, water, and dam infrastructure, a 

significant portion of this infrastructure is owned by state and local 

governments. This makes it difficult to fully apply traditional capital 

Investment Component 

within Unified Budget 

Could Guide Federal 

Investment in 

Infrastructure 

 37CBO, Options for Responding to Short-Term Economic Weakness, January 2008. 

38GAO, Federal-Aid Highways: Trends, Effect on State Spending, and Options for Future

Program Design, GAO-04-802 (Washington, D.C.: Aug. 31, 2004). 

39See GAO, Budget Trends: Federal Investment Outlays, Fiscal Years 1981-2003, 

GAO/AIMD-98-184 (Washington, D.C.: June 15, 1998); Budget Structure: Providing an 

Investment Focus in the Federal Budget, GAO/T-AIMD-95-178 (Washington, D.C.: June 29, 

1995); and Budget Issues: Incorporating an Investment Component in the Federal Budget, 

GAO/AIMD-94-40 (Washington, D.C.: Nov. 9, 1993). 

Page 23 GAO-08-763T Physical Infrastructure 
budgeting approaches, such as depreciation, which might be considered 

when assets are fully owned. Moreover, there are fundamental differences 

between the roles of the state and local governments and the federal 

government. In an inclusive, unified budget, it is important to disclose up 

front the full commitments of the government. Federal fiscal policy, as 

broadly conceived, plays a key role in managing the short-term economy 

as well as promoting the savings needed for long-term growth. 

Rather than recommend adopting a capital budget, we have previously 

proposed establishing an investment component within the unified budget 

to address federal spending intended to promote the nation’s long-term 

economic growth.40By recognizing the different effects of various types of 

federal spending, an investment focus within the budget would provide a 

valuable supplement to the unified budget’s concentration on

macroeconomic issues. Moreover, it would direct attention to the 

consequences of choices within the budget under existing budget 

limitations—a level which is now not determined explicitly by 

policymakers but is simply the result of numerous individual decisions. If 

an investment component within the unified budget was adopted, 

Congress could decide on an overall level of investment in a budget 

resolution or other macro framework, which would be tracked and 

enforced through the authorizing and appropriations process to ensure 

that individual appropriations actions supported the overall level. This 

approach has the advantage of focusing budget decision makers on the 

overall level of investment supported in the budget without losing sight of

the unified budget’s effect on the economy. It also has the advantage of 

building on the current congressional budget process. Finally, it does not 

raise the problems posed by capital budgeting proposals that use 

depreciation and deficit financing.41

 40GAO, Budget Trends: Federal Investment Outlays, Fiscal Years 1981-2002, GAO/AIMD97-88 (Washington, D.C.: May 1997), GAO/AIMD-95-178, and GAO/AIMD-94-40. Numerous

definitions of investment are possible and can include more than physical capital. We have

reported that an appropriate definition would include federal spending, either direct or

through grants, directly intended to enhance the nation’s long-term productivity. This

definition includes spending on some intangible activities such as research and 

development; human capital designed to increase worker productivity, particularly 

education and training; and spending for physical capital to improve infrastructure, such as

highways and bridges. 

41Paul Posner, Trina Lewis, and Hannah Laufe, Budgeting for Federal Capital (Washington,

D.C.: Public Budgeting and Finance, Fall 1998). 

Page 24 GAO-08-763T Physical Infrastructure 
Although the investment component would be subject to budget controls,

the existence of a separate component could create an incentive to 

categorize many proposals as investment. If an investment component 

within the budget is to be implemented in a meaningful fashion, it will be 

important to identify what to include. Any changes in the budgetary 

treatment of investment need to consider broader federal responsibilities. 

While well-chosen investments may contribute to long-term growth, 

financing such programs through deficits would undermine their own goal 

by reducing savings available to fund private investment.42Accordingly, 

reforms in the federal government’s budget for investment should be 

considered within the overall constraints of fiscal policy based on unified 

budget principles. 

The nation’s physical infrastructure is under strain, raising a host of safety,

security, and economic concerns. Given these concerns, various 

investment options have been, and likely will continue to be, identified to 

help repair, upgrade, and expand our nation’s infrastructure. Ultimately, 

Congress and other federal policymakers will have to determine which 

option—or, more likely, which combination of funding and financing 

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

Moreover, although financing mechanisms allow state and local 

governments to advance projects when traditional pay-as-you-go funding 

approaches, such as taxes and fees, are insufficient, ultimately these 

borrowed dollars must be repaid by the users or the general population. 

Consequently, prudent decisions are needed to determine the appropriate

level of infrastructure investment and to maximize each dollar invested. 

We will continue to assist the Congress as it works to evaluate various 

investment options and develop infrastructure policies for the 21st 

century. 

Messrs. Chairmen, this concludes my prepared statement. I would be 

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

Committee might have.

Concluding 

Observations 

 42Because the deficit absorbs private savings otherwise available for domestic investment, 

it exerts the single most important federal influence on investment. The surest way to 

increase national savings and investment would be to reduce the unprecedented level of

federal dissaving by reducing the deficit. 

Page 25 GAO-08-763T Physical Infrastructure 
For further information on this statement, please contact Patricia Dalton 

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

contributions to this testimony were Kyle Browning, Nikki Clowers, Steve 

Elstein, JayEtta Hecker, Carol Henn, Bert Japikse, Barbara Lancaster, 

Matthew LaTour, Nancy Lueke, and Katherine Siggerud. 

GAO Contact and 

Staff 

Acknowledgments 

Page 26 GAO-08-763T Physical Infrastructure 
Page 27 GAO-08-763T Physical Infrastructure 

Related GAO Products 

Drinking Water: The District of Columbia and Communities 

Nationwide Face Serious Challenges in Their Efforts to Safeguard Water

Supplies. GAO-08-687T. Washington, D.C.: April 15, 2008. 

Surface Transportation: Restructured Federal Approach Needed for More

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

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

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

Could Better Secure Potential Benefits and Protect the Public Interest.

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

Federal Aviation Administration: Challenges Facing the Agency in 

Fiscal Year 2009 and Beyond. GAO-08-460T. Washington, D.C.: February 

7, 2008. 

Surface Transportation: Preliminary Observations on Efforts to 

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

6, 2008.

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

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

D.C.: January 29, 2008. 

Freight Transportation: National Policy and Strategies Can Help 

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

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

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

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

Transforming Transportation Policy for the 21st Century: Highlights of a 

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

Railroad Bridges and Tunnels: Federal Role in Providing Safety 

Oversight and Freight Infrastructure Investment Could Be Better 

Targeted. GAO-07-770. Washington, D.C.: August 6, 2007. 

Vehicle Fuel Economy: Reforming Fuel Economy Standards Could Help 

Reduce Oil Consumption by Cars and Light Trucks, and Other Options 

Could Complement These Standards. GAO-07-921. Washington, D.C.: 

August 2, 2007. 
Public Transportation: Future Demand Is Likely for New Starts and 

Small Starts Programs, but Improvements Needed to the Small Starts 

Application Process. GAO-07-917. Washington, D.C.: July 27, 2007. 

Surface Transportation: Strategies Are Available for Making Existing 

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

26, 2007. 

Highway and Transit Investments: Flexible Funding Supports State and 

Local Transportation Priorities and Multimodal Planning. GAO-07-772. 

Washington, D.C.: July 26, 2007. 

Intermodal Transportation: DOT Could Take Further Actions to Address

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

Federal Aviation Administration: Observations on Selected Changes to 

FAA’s Funding and Budget Structure in the Administration’s 

Reauthorization Proposal. GAO-07-625T. Washington, D.C.: 

March 21, 2007. 

Performance and Accountability: Transportation Challenges Facing 

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

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

U.S. Infrastructure: Funding Trends and Opportunities to Improve 

Investment Decisions. GAO/RCED/AIMD-00-35. Washington, D.C.: 

February 7, 2007. 

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

2007. 

Fiscal Stewardship: A Critical Challenge Facing Our Nation, GAO-07-

362SP. Washington, D.C.: January 2007. 

Intercity Passenger Rail: National Policy and Strategies Needed to 

Maximize Public Benefits from Federal Expenditures. GAO-07-15. 

Washington, D.C.: November 13, 2006. 

Freight Railroads: Industry Health Has Improved, but Concerns about 

Competition and Capacity Should Be Addressed. GAO-07-94. Washington, 

D.C.: October 6, 2006. 

Page 28 GAO-08-763T Physical Infrastructure 
Aviation Finance: Observations on Potential FAA Funding Options. 

GAO-06-973. Washington, D.C.: September 29, 2006. 

National Airspace System Modernization: Observations on Potential 

Funding Options for FAA and the Next Generation Airspace System. 

GAO-06-1114T. Washington, D.C.: September 27, 2006. 

Highway Finance: States’ Expanding Use of Tolling Illustrates Diverse 

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

Highway Trust Fund: Overview of Highway Trust Fund Estimates.

GAO-06-572T. Washington, D.C.: April 4, 2006. 

Highway Congestion: Intelligent Transportation Systems’ Promise for 

Managing Congestion Falls Short, and DOT Could Better Facilitate Their 

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

Freight Transportation: Short Sea Shipping Option Shows Importance of 

Systematic Approach to Public Investment Decisions. GAO-05-768. 

Washington, D.C.: July 29, 2005. 

Highlights of an Expert Panel: The Benefits and Costs of Highway and 

Transit Investments. GAO-05-423SP. Washington, D.C.: May 2005. 

21st Century Challenges: Reexamining the Base of the Federal 

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

Highway and Transit Investments: Options for Improving Information 

on Projects’ Benefits and Costs and Increasing Accountability for 

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

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

Future Program Design. GAO-04-802. Washington, D.C.: August 31, 2004. 

Surface Transportation: Many Factors Affect Investment Decisions.

GAO-04-744. Washington, D.C.: June 30, 2004. 

Highways and Transit: Private Sector Sponsorship of and Investment in 

Major Projects Has Been Limited. GAO-04-419. Washington, D.C.: March 

25, 2004. 

Page 29 GAO-08-763T Physical Infrastructure 
Water Infrastructure: Comprehensive Asset Management Has Potential

to Help Utilities Better Identify Needs and Plan Future Investments. 

GAO-04-461. Washington, D.C.: March 19, 2004. 

Freight Transportation: Strategies Needed to Address Planning and 

Financing Limitations. GAO-04-165. Washington, D.C.: December 19, 

2003.

Marine Transportation: Federal Financing and a Framework for 

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

2002. 

Water Infrastructure: Information on Financing, Capital Planning, and 

Privatization. GAO-02-764. Washington, D.C.: August 16, 2002. 

Budget Trends: Federal Investment Outlays, Fiscal Years 1981-2003.

GAO/AIMD-98-184. Washington, D.C.: June 15, 1998. 

Budget Trends: Federal Investment Outlays, Fiscal Years 1981-2002, 

GAO/AIMD-97-88. Washington, D.C.: May 21, 1997. 

Budget Structure: Providing an Investment Focus in the Federal Budget. 

GAO/T-AIMD-95-178. Washington, D.C.: June 29, 1995. 

Budget Issues: Incorporating an Investment Component in the Federal 

Budget. GAO/AIMD-94-40. Washington, D.C.: November 9, 1993. 

(542143) Page 30 GAO-08-763T Physical Infrastructure 
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