Transportation Programs: Opportunities for Oversight and Improved Use of Taxpayer Funds
Published: 2003-07-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: It is important to ensure that longterm spending on transportation programs meets the goals of increasing mobility and improving transportation safety. In this testimony, GAO discusses what recently completed work on four transportation programs suggests about challenges and strategies for improving the oversight and use of taxpayer funds. These four programs are (1) the federal-aid highway program, administered by the Federal Highway Administration (FHWA); (2) highway safety programs, administered by the National Highway Traffic Safety Administration (NHTSA); (3) the New Starts program, administered by the Federal Transit Administration (FTA); and (4) the Essential Air Service (EAS) program, administered out of the Office of the Secretary of Transportation. Differences in the structure of these programs have contributed to the challenges they illustrate. The federal-aid highway program uses formulas to apportion funds to the states, the highway safety programs use formulas and grants, the New Starts program uses competitive grants, and the EAS program provides subsidies. For each program, GAO describes in general how the program illustrates a particular challenge in managing or overseeing long-term spending and in particular what challenges and strategies for addressing the challenges GAO and others have identified.
section_title: What GAO Found
paragraphs: The federal-aid highway program illustrates the challenge of ensuring that federal funds (nearly $30 billion annually) are spent efficiently when projects are managed by the states. GAO has raised concerns about cost growth on and FHWA's oversight of major highway and bridge projects. Recent proposals to strengthen FHWA's oversight are responsive to issues and options GAO has raised. Options identified in previous GAO work provide the Congress with opportunities to build on recent proposals by, among other things, clarifying uncertainties about FHWA's role and authority. NHTSA's highway safety programs illustrate the challenge of evaluating how well federally funded state programs are meeting their goals. Over 5 years, the Congress provided about $2 billion to the states for programs to reduce traffic fatalities, which numbered over 42,000 in 2002. GAO found that NHTSA was making limited use of oversight tools that could help states better implement their programs and recommended strategies for improving the tools' use that NHTSA has begun to implement. The administration recently proposed performance-based grants in this area. FTA's New Starts program illustrates the challenge of developing effective processes for evaluating grant proposals. Under the New Starts program, which provided about $10 billion in mass transit funding in the past 6 years, local transit agencies compete for project funds through grant proposals. FTA has developed a systematic process for evaluating these proposals. GAO believes that FTA has made substantial progress by implementing this process, but our work has raised some concerns, including the extent to which the process is able to adequately prioritize the projects. The Essential Air Service (EAS) program illustrates the challenge of considering modifications to statutorily defined programs in response to changing conditions. Under the EAS program, many small communities are guaranteed to continue receiving air service through subsidies to carriers. However, the program has faced increasing costs and decreasing average passenger levels. The Congress, the administration, and GAO have all proposed strategies to improve the program's efficiency by better targeting available resources and offering alternatives for sustainable services.

section_title: Letter
paragraphs: It is an honor to be here today to participate in your hearing on strategies  to reduce or prevent waste, fraud, and abuse in transportation programs.  As requested, I will be discussing what our recently completed work on  four transportation programs suggests about challenges and strategies for  improving the oversight and use of taxpayer funds to ensure that long-term  spending on transportation programs meets the goals of increasing  mobility and improving transportation safety.
As you know, many transportation programs rely on dedicated long-term  funding to achieve specified program objectives. Such funding, which  generally comes from a trust fund financed by user fees, is designed to  match the long life, ongoing maintenance needs, and replacement and  rehabilitation expenditures of large transportation projects. However,  long-term funding creates certain challenges related to the effective  oversight and management of the programs, particularly because in some  cases, funds flow automatically to states, which use the funds to  implement their own projects. Without effective oversight, investments of  scarce federal funds in these transportation programs may not achieve  maximum mobility and safety benefits.
Transportation legislation has sought to balance the federal interest in  effective management and oversight with state and local interest in  flexibility to tailor decisions to local priorities. Transportation legislation  has also sought to promote multimodal systemwide decision-making while  continuing distinct modal trust funds. Recently, the Comptroller General  testified before the House Budget Committee on opportunities for  improving the oversight and use of taxpayer funds for such spending  programs. He described three tiers of review, one of which—improving  economy, efficiency, and effectiveness in mandated federal spending  programs—is especially pertinent to the programs we will be discussing.
As agreed with your office, my remarks today will focus on four federal  transportation programs: (1) the federal-aid highway program, (2) highway  safety programs, (3) the New Starts transit program, and (4) the Essential  Air Service program. The size and structure of these programs vary  considerably. For each program, I will discuss in general how the program  illustrates a particular challenge in managing or overseeing long-term  spending programs and in particular what challenges and strategies for  addressing these challenges we and others have found in evaluating these  programs.
Before I discuss each individual program, I’d like to point out how  structural differences in these programs have contributed to different  oversight challenges for each. For example, the federal-aid highway  program uses formulas to apportion federal funds to the states in several  distinct categories for the purpose of constructing and improving highway  facilities. Ensuring efficient expenditures of federal funds for what can be  large, long-term construction projects is an important challenge that has  grown as the Federal Highway Administration (FHWA) has increasingly  devolved its oversight responsibilities to the states in recent years. The  highway safety programs, administered by the National Highway Traffic  Safety Administration (NHTSA), also use formulas and other criteria to  apportion funds for state programs designed primarily to improve safety  through changes in drivers’ behavior. Determining the effectiveness of the  states’ efforts is a key challenge for these programs, together with  assessing the efficiency of their expenditures. In contrast, the New Starts  transit program relies on financial and project justification criteria to  evaluate and select grant proposals for transit projects through a  competition for federal funds administered by the Federal Transit  Administration (FTA). While oversight of funded projects is important for  this program, a key challenge that our work has addressed is how grant  proposals should be evaluated to identify the best projects for funding.  Finally, the Essential Air Service (EAS) program is statutorily based in the  Airline Deregulation Act of 1978. Administered out of the Office of the  Secretary of Transportation, it subsidizes air carriers’ operations to  guarantee that certain isolated small communities served by air carriers  before deregulation continue to receive some scheduled air service. As the  aviation industry has changed over the years, questions have arisen about  the program’s sustainability and efficiency.
My statement is based on a body of GAO reviews of these and other  transportation programs, many completed at the request of your  Committee or legislatively mandated. A complete list of related reports  appears in appendix I.
The federal-aid highway program illustrates the challenge of ensuring that  federal funds are spent efficiently through formula-based programs that  finance projects that are then largely managed and overseen by the states.  The program makes nearly $30 billion available to the states for their  transportation programs annually, including funding for major highway  and bridge projects. Over the years, we have documented cost growth and  management deficiencies on these major highway and bridge projects, as  have the Department of Transportation’s Inspector General and state audit  and evaluation agencies. Additionally, in 1997, we found that FHWA had  done little to ensure that containing costs was an integral part of states’  project management—in part because FHWA did not believe that  encouraging or requiring practices to control costs and better manage  projects was part of its oversight mandate. Since then, FHWA has  developed strategies to strengthen its oversight, including requirements  for annual finance plans and greater use of risk-based factors to focus its  oversight efforts. The administration’s reauthorization proposal also  includes strategies for strengthening FHWA’s oversight, and we believe  these are positive steps that are responsive to many of the issues we’ve  raised in the past. Should the Congress determine that enhancing federal  oversight of major highway and bridge projects is needed and appropriate,  in previous work we have identified options that provide the Congress  opportunities to build on the administration’s proposal during the  reauthorization process by, among other things, clarifying uncertainties  about FHWA’s role and authority.
The highway safety programs administered by NHTSA illustrate the  challenge of evaluating how well federally funded and assisted state  programs are meeting their goals, as well as how efficiently the federal  funds are being spent. During fiscal years 1998 through 2002, the Congress  provided about $2 billion to the states for programs designed to reduce the  number of traffic fatalities, which totaled over 42,000 in 2002. NHTSA has  tools for overseeing these programs, including improvement plans to help  states meet their safety goals and management reviews to assess the  programs’ performance and use of federal funds. However, evaluating how  well the state programs are meeting their highway safety goals is difficult  because NHTSA’s guidance does not establish a consistent means of  measuring progress. Moreover, NHTSA’s regional offices have made  limited and inconsistent use of improvement plans and management  reviews, in part because NHTSA’s guidance does not specify criteria for  conducting them. When NHTSA’s regional offices have conducted  management reviews of the state programs, they have sometimes found  inefficient spending and weak controls over federal funds. In April 2003,  we recommended strategies for improving NHTSA’s use of these tools,  including developing better guidance on when they should be used.  NHTSA has begun to implement these recommendations. The  administration’s recent proposal to reauthorize the Transportation Equity  Act for the 21st Century (TEA-21) calls for changes in the program that  would provide even further flexibility to states in using these funds. It  would also create grant programs based on state performance in two  areas—reductions in fatalities and safety belt laws and usage.
FTA’s New Starts transit program illustrates two management oversight  challenges: the challenge of developing effective federal processes for  evaluating grant proposals as well as the already described challenge of  overseeing projects’ implementation. Under the New Starts program,  which provided about $10 billion in mass transit funding for fiscal years  1998-2003 and was authorized by TEA-21, local transit agencies apply and  compete for project funds on the basis of specific financial and project  justification criteria. FTA reviews the grant applications and then notifies  the Congress that it intends to commit New Starts funding to certain  projects through full funding grant agreements.  Because many transit  projects compete for New Starts funding, and FTA awards relatively few  full funding grant agreements each year, it is crucial that the most  promising projects are selected. FTA is also responsible for overseeing  funded projects. FTA has implemented strategies to address the twin  challenges of evaluating projects and overseeing their implementation.  First, it developed a systematic process for evaluating potential New Starts  projects competing for federal funding that provides a framework for  evaluating and selecting projects. We believe that FTA has made  substantial progress by implementing this process, but our work in recent  years has raised some concerns, including the extent to which the process  is able to adequately prioritize the projects. Second, FTA has improved the  quality of its transit grants management oversight program by upgrading  its guidance and training of staff and grantees and by strengthening  oversight procedures. However, oversight remains an area of concern, as  major transit projects continue to experience cost, schedule, and  performance problems. The administration’s fiscal year 2004 budget  proposal contains several initiatives that have both advantages and  disadvantages, with implications for the cost-effectiveness and  performance of proposed projects.
The Essential Air Service (EAS) program illustrates the challenge of  considering modifications to statutorily defined programs in response to  changing conditions. Under the EAS program, small communities that  received scheduled commercial air service prior to the deregulation of the  airline industry in 1978 and that meet certain additional criteria are  guaranteed to continue receiving air service. Although the program was  originally intended to end in 1988, the Congress later permanently  authorized it. As the airline industry has evolved over the past 25 years,  however, the EAS program has faced increasing challenges to remain  viable. Costs have tripled since 1995 because carriers’ costs have  increased and revenues have declined as passenger ridership has fallen;  passengers often prefer to drive to other larger airports nearby for better  air service. In addition, the number of communities eligible for EAS  subsidies has increased and may continue to grow in the near term. Within  the past year, the Congress, the administration, and we have all proposed  various strategies to improve the EAS program’s overall efficiency and  effectiveness by better targeting available resources and offering  alternatives for sustainable services, such as allowing communities to  spend subsidy funds on individually-tailored transportation options that  better meet their needs.
subsections: section_title: Options Exist to Address the Federal- Aid Highway Program’s Oversight Challenges
paragraphs: The federal-aid highway program provides nearly $30 billion annually to  the states, most of which are formula grant funds that FHWA distributes  through annual apportionments according to statutory formulas; once  apportioned, these funds are generally available to each state for eligible  projects. The responsibility for choosing which projects to fund generally  rests with state departments of transportation and local planning  organizations. The states have considerable discretion in selecting specific  highway projects and in determining how to allocate available federal  funds among the various projects they have selected. For example, section  145 of title 23 of the United States Code describes the federal-aid highway  program as a federally assisted state program and provides that the  authorization of the appropriation of federal funds or their availability for  expenditure, “shall in no way infringe on the sovereign rights of the States  to determine which projects shall be federally financed.”
A major highway or bridge construction or repair project usually has four  stages: (1) planning, (2) environmental review, (3) design and property  acquisition, and (4) construction. While FHWA approves state  transportation plans, environmental impact assessments, and the  acquisition of property for highway projects, its role in approving the  design and construction of projects varies. The state’s activities and  FHWA’s corresponding approval actions are shown in figure 1.
subsections: section_title: Challenges
paragraphs: Given the size and significance of the federal-aid highway program’s  funding and projects, a key challenge for this program is overseeing states’  expenditure of public funds to ensure that state projects are well managed  and successfully financed. Our work—as well as work by the DOT  Inspector General and by state audit and evaluation agencies—has  documented cost growth on numerous major highway and bridge projects.  Let me provide one example. In January 2001, Virginia’s Joint Legislative  Audit and Review Commission found that final project costs on Virginia  Department of Transportation projects were well above their cost  estimates and estimated that the state’s 6-year, $9 billion transportation  development plan understated the costs of projects by up to $3.5 billion.  The commission attributed these problems to several factors, including,  among other things, not adjusting estimates for inflation and expanding  the scope of projects.
Our work has identified weaknesses in FHWA’s oversight of projects,  especially in controlling costs. In 1997, we reported that cost containment  was not an explicit statutory or regulatory goal of FHWA’s oversight.  While FHWA influenced the cost-effectiveness of projects when it  reviewed and approved plans for their design and construction, we found  it had done little to ensure that cost containment was an integral part of  the states’ project management. According to FHWA officials, controlling  costs was not a goal of their oversight, and FHWA had no mandate in law  to encourage or require practices to contain the costs of major highway  projects. More recently, an FHWA task force concluded that changes in  the agency’s oversight role since 1991—when the states assumed greater  responsibility for overseeing federal-aid projects—had resulted in  conflicting interpretations of the agency’s role in overseeing projects, and  that some of the field offices were taking a “hands off” approach to certain  projects. In June 2001, FHWA issued a policy memorandum, in part to  clarify that FHWA is ultimately accountable for all projects financed with  federal funds. As recently as last month, a memorandum posted on  FHWA’s Web site discussed the laws establishing FHWA and the federal- aid highway program, along with congressional and public expectations  that FHWA “ensure the validity of project cost estimates and schedules.”  The memorandum concluded, “These expectations may not be in full  agreement with the role that has been established by these laws.”
In addition, we have found that FHWA’s oversight process has not  promoted reliable cost estimates. While there are many reasons for cost  increases, we have found, on projects we have reviewed, that initial cost  estimates were not reliable predictors of the total costs and financing  needs of projects. Rather, these estimates were generally developed for  the environmental review—whose purpose is to compare project  alternatives, not to develop reliable cost estimates. In addition, FHWA had  no standard requirements for preparing cost estimates, and each state  used its own methods and included different types of costs in its  estimates. We have also found that costs exceeded initial estimates on  projects we have reviewed because (1) initial estimates were modified to  reflect more detailed plans and specifications as projects were designed  and (2) the projects’ costs were affected by, among other things, inflation  and changes in scope to accommodate economic development over time.  We also found that highway projects take a long time to complete, and that  the amount of time spent on them is of concern to the Congress, the  federal government, and the states. Completing a major, new, federally  funded highway project that has significant environmental impacts  typically takes from 9 to 19 years and can entail as many as 200 major  steps requiring actions, approvals, or input from a number of federal, state,  and other stakeholders.
Finally, we have noted that in many instances, states construct a major  project as a series of smaller projects, and FHWA approves the estimated  cost of each smaller project when it is ready for construction, rather than  agreeing to the total cost of the major project at the outset. In some  instances, by the time FHWA considers whether to approve the cost of a  major project, a public investment decision may, in effect, already have  been made because substantial funds have been spent on designing the  project and acquiring property, and many of the increases in the project’s  estimated costs have already occurred.
section_title: Strategies
paragraphs: Since 1998, FHWA has taken a number of steps to improve the  management and oversight of major projects in order to better promote  cost containment. For example, FHWA implemented TEA-21’s requirement  that states develop an annual finance plan for any highway or bridge  project estimated to cost $1 billion or more and established a major  projects team that currently tracks and reports each month on 15 such  projects. FHWA has also moved to incorporate greater risk-based  management into its oversight in order to identify areas of weakness  within state transportation programs, set priorities for improvement, and  work with the states to meet those priorities.
The administration’s May 2001 reauthorization measure contains  additional proposed actions. It would introduce more structured FHWA  oversight requirements, including mandatory annual reviews of state  transportation agencies’ financial management and “project delivery”  systems, as well as periodic reviews of states’ practices for estimating  costs, awarding contracts, and reducing project costs. To improve the  quality and reliability of cost estimates, it would introduce minimum  federal standards for states to use in estimating project costs. The measure  would also strengthen reporting requirements and take new actions to  reduce fraud.
Many elements of the administration’s proposal are responsive to  problems and options we have described in past reports and testimony.  Should the Congress determine that enhancing federal oversight of major  highway and bridge projects is needed and appropriate, options we have  identified in prior work remain available to build on the administration’s  proposal during the reauthorization process. However, adopting any of  these options would require balancing the states’ right to select projects  and desire for flexibility and more autonomy with the federal  government’s interest in ensuring that billions of federal dollars are spent  efficiently and effectively. Furthermore, the additional costs of each of  these options would need to be weighed against its potential benefits.  Options include the following:    Have FHWA develop and maintain a management information system on  the cost performance of selected major highway and bridge projects,  including changes in estimated costs over time and the reasons for such  changes. Such information could help define the scope of the problem  with major projects and provide insights needed to fashion appropriate  solutions.
Clarify uncertainties concerning FHWA’s role and authority. As I  mentioned earlier, the federal-aid highway program is by law a federally  assisted state program, and FHWA continues to question its authority to  encourage or require practices to contain the costs of major highway and  bridge projects. Should uncertainties about FHWA’s role and authority  continue, another option would be to resolve the uncertainties through  reauthorization language.
Have the states track the progress of projects against their initial baseline  cost estimates. The Office of Management and Budget requires federal  agencies, for acquisitions of major capital assets, to prepare baseline cost  and schedule estimates and to track and report the acquisitions’ cost  performance. These requirements apply to programs managed by and  acquisitions made by federal agencies, but they do not apply to the federal- aid highway program, a federally assisted state program. Expanding the  federal government’s practice to the federally assisted highway program  could improve the management of major projects by providing managers  with information for identifying and addressing problems early.
Establish performance goals and strategies for containing costs as projects  move through their design and construction phases. Such performance  goals could provide financial or other incentives to the states for meeting  agreed-upon goals. Performance provisions such as these have been  established in other federally assisted grant programs and have also been  proposed for use in the federal-aid highway program. Requiring or  encouraging the use of goals and strategies could also improve  accountability and make cost containment an integral part of how states  manage projects over time.
Consider methods for improving the time it takes to plan and construct  major federal-aid highway projects—a process that we reported can take  up to 19 years to complete. Major stakeholders suggested several  approaches to improving the timeliness of these projects, including (1)  improving project management, (2) delegating environmental review and  permitting authority, and (3) improving agency staffing and skills. We have  recommended that FHWA consider the benefits of the most promising  approaches and act to foster the adoption of the most cost-effective and  feasible approaches.
Reexamine the approval process for major highway and bridge projects.
This option, which would require federal approval of a major project at the  outset, including its cost estimate and finance plan, would be the most far- reaching and the most difficult option to implement. Potential models for  such a process include the full funding grant agreement used by FTA for  the New Starts program, and, as I testified last year, a DOT task force’s  December 2000 recommendation calling for the establishment of a  separate funding category for initial design work and a new decision point  for advancing highway projects.
section_title: NHTSA Makes Inconsistent and Limited Use of Oversight Tools
paragraphs: Over the last 25 years, more than 1.2 million people have died as a result of  traffic crashes in the United States—more than 42,000 in 2002. Since 1982,  about 40 percent of traffic deaths were from alcohol-related crashes. In  addition, traffic crashes are the leading cause of death for people aged 4  though 33. As figure 2 shows, the total number of traffic fatalities has not  significantly decreased in recent years.
To improve safety on the nation’s highways, NHTSA administers a number  of programs, including the core federally funded highway safety program,  Section 402 State and Community Grants, and several other highway  safety programs that were authorized in 1998 by TEA-21. The Section 402  program, established in 1966, makes grants available for each state, based  on a population and road mileage formula, to carry out traffic safety  programs designed to influence drivers’ behavior, commonly called  behavioral safety programs. The TEA-21 programs include seven incentive  programs, which are designed to reduce traffic deaths and injuries by  promoting seatbelt use and reducing alcohol-impaired driving, and two  transfer programs, which penalize states that have not complied with  federal requirements for enacting repeat-offender and open container laws  to limit alcohol-impaired driving. Under these transfer programs,  noncompliant states are required to shift certain funds from federal-aid  highway programs to projects that concern or improve highway safety. In  addition, subsequent to TEA-21, the Congress required that, starting later  this year, states that do not meet federal requirements for establishing 0.08  blood alcohol content as the state level for drunk driving will have a  percentage of their federal aid highway funds withheld. During fiscal years  1998 through 2002, over $2 billion was provided to the states for highway  safety programs.
NHTSA, which oversees the states’ highway safety programs, adopted a  performance-based approach to oversight in 1998. Under this approach,  the states and the federal government are to work together to make the  nation’s highways safer. Each state sets its own safety performance goals  and develops an annual safety plan that describes projects designed to  achieve the goals. NHTSA’s 10 regional offices review the states’ annual  plans and provide technical assistance, advice, and comments. NHTSA  has two tools available to strengthen its monitoring and oversight of the  state programs—improvement plans that states not making progress  towards their highway safety goals are to develop, which identify  programs and activities that a state and NHTSA regional office will  undertake to help the state meet its goals; and management reviews,  which generally involve sending a team to a state to review its highway  safety operations, examine its projects, and determine that it is using  funds in accordance with requirements.
subsections: section_title: Challenges
paragraphs: Among the key challenges in this area are (1) evaluating how well the  federally funded state highway safety programs are meeting their goals  and (2) determining how well the states are spending and controlling their  federal highway safety funds. In April 2003, we issued a report on NHTSA’s  oversight of state highway safety programs in which we identified  weaknesses in NHTSA’s use of improvement plans and management  reviews. Evaluating how well state highway safety programs are meeting  their goals is difficult because, under NHTSA’s performance-based  oversight approach, NHTSA’s guidance does not establish a consistent  means of measuring progress. Although the guidance states that NHTSA  can require the development and implementation of an improvement plan  when a state fails to make progress toward its highway safety performance  goals, the guidance does not establish specific criteria for evaluating  progress. Rather, the guidance simply states that an improvement plan  should be developed when a state is making little or no progress toward its  highway safety goals. As a result, NHTSA’s regional offices have made  limited and inconsistent use of improvement plans, and some states do not  have improvement plans, even though their alcohol-related fatality rates  have increased or their seat-belt usage rates have declined. Without a  consistent means of measuring progress, NHTSA and state officials lack  common expectations about how to define progress, how long states  should have to demonstrate progress, how to set and measure highway  safety goals, and when improvement plans should be used to help states  meet their highway safety goals.
To determine how well the states are spending and controlling their  federal highway safety funds, NHTSA’s regional offices can conduct  management reviews of state highway safety programs. Management  reviews completed in 2001 and 2002 identified weaknesses in states’  highway safety programs that needed correction; however, we found that  the regional offices were inconsistent in conducting the reviews because  NHTSA’s guidance does not specify when the reviews should be  conducted. The identified weaknesses included problems with monitoring  subgrantees, poor coordination of programs, financial control problems,  and large unexpended fund balances. Such weaknesses, if not addressed,  could lead to inefficient or unauthorized uses of federal funds. According  to NHTSA officials, management reviews also foster productive  relationships with the states that allow the agency’s regional offices to  work with the states to correct vulnerabilities. These regions’ ongoing  involvement with the states also creates opportunities for sharing and  encouraging the implementation of best practices, which may then lead to  more effective safety programs and projects.
section_title: Strategies
paragraphs: To encourage more consistent use of improvement plans and management  reviews, we made recommendations to improve the guidance to NHTSA’s  regional offices on when it is appropriate to use these oversight tools. In  commenting on a draft of the report, NHTSA officials agreed with our  recommendations and said they had begun taking action to develop  criteria and guidance for using the tools.
The administration’s recent proposal to reauthorize TEA-21 would make  some changes to the safety programs that could also have some impact on  program efficiencies. For example, the proposal would somewhat simplify  the current grant structure for NHTSA’s highway safety programs. The  Section 402 program would have four components: core program formula  grants, safety belt performance grants, general performance grants, and  impaired driving discretionary grants. The safety belt performance grants  would provide funds to states that had passed primary safety belt laws or  achieved 90 percent safety belt usage. In addition, the general performance  grant would provide funds based on overall reductions in (1) motor  vehicle fatalities, (2) alcohol-related fatalities, and (3) motorcycle, bicycle,  and pedestrian fatalities. Finally, the Section 402 program would have an  impaired driving discretionary grant component, which would target funds  to up to 10 states that had the highest impaired driving fatality numbers or  fatality rates. In addition to changing the Section 402 program, the  proposal would expand grants for highway safety information systems and  create new emergency medical service grants. The proposal leaves intact  existing penalties related to open container, repeat offender, and 0.08  blood-alcohol content laws, and establishes a new transfer penalty for  states that fail to pass a primary safety belt law and have safety belt use  rates lower than 90 percent by 2005.
The proposal would also give the states greater flexibility in using their  highway safety funds. A state could move up to half its highway safety  construction funds from the Highway Safety Improvement Program into  the core Section 402 program. A state would also be able to use 100  percent of its safety belt performance grants for construction purposes if it  had a primary safety belt law, or 50 percent if the grant was based on high  safety belt use. States could also use up to 50 percent of their general  performance grants for safety construction purposes.
section_title: The New Starts Transit Program Has Faced Challenges in Selection and Oversight of Projects and Has Taken Steps to Address these Challenges
paragraphs: The New Starts transit program identifies and funds fixed guideway  projects, including rail, bus rapid transit, trolley, and ferry projects. The  New Starts program provides much of the federal government’s  investment in urban mass transportation. TEA-21 and subsequent  amendments authorized approximately $10 billion for New Starts projects  for fiscal years 1998 through 2003. The administration’s proposal for the  surface transportation reauthorization, known as the Safe, Accountable,  Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA),  requests that about $9.5 billion be made available for the New Starts  program for fiscal years 2004 through 2009.
Unlike the federal highway program and certain transit programs, under  which funds are automatically distributed to states on the basis of  formulas, the New Starts program requires local transit agencies to  compete for New Starts project funds on the basis of specific financial and  project justification criteria. To obtain New Starts funds, a project must  progress through a regional review of alternatives, develop preliminary  engineering plans, and meet FTA’s approval for final design. FTA assesses  the technical merits of a project proposal and its finance plan and then  notifies the Congress that it intends to commit New Starts funding to  certain projects through full funding grant agreements. The agreement  establishes the terms and conditions for federal participation in the  project, including the maximum amount of federal funds—no more than  80 percent of the estimated net cost of the project. While the grant  agreement commits the federal government to providing the federal  contributions to the project over a number of years, these contributions  are subject to the annual appropriations process. State or local sources  provide the remaining funding. The grantee is responsible for all costs  exceeding the federal share, unless the agreement is amended.
To meet the nation’s transportation needs, many states and localities are  planning or building large New Starts projects to replace aging  infrastructure or build new capacity. They are often costly and require  large commitments of public resources, which may take several years to  obtain from federal, state, and local sources. The projects can also be  technically challenging to construct and require their sponsors to resolve a  wide range of social, environmental, land-use, and economic issues before  and during construction.
subsections: section_title: Challenges
paragraphs: It is critical that federal and other transportation officials meet two  particular challenges that stem from the costly and lengthy federal funding  commitment associated with New Starts projects. First, they must have a  sound basis for evaluating and selecting projects. Because many transit  projects compete for limited federal transit dollars—there are currently 52  projects in the New Starts “pipeline”—and FTA awards relatively few full  funding grant agreements each year, it is crucial that local governments  choose the most promising projects as candidates for New Starts funds  and that FTA uses a process that effectively selects those projects that  most clearly meet the program’s goals.
Second, FTA, like FHWA, has the challenge of overseeing the planning,  development, and construction of selected projects to ensure they remain  on schedule and within budget, and deliver their expected performance. In  the early 1990s, we designated the transit grants management oversight  program as high risk because it was vulnerable to fraud, waste, abuse, and  mismanagement. While we have removed it from the high-risk  designation because of improvements FTA has made to this program, we  have found that major transit projects continue to experience costs and  schedule problems. For example, in August, 1999, we reported that 6 of  the 14 transit projects with full funding grant agreements had experienced  cost increases, and 3 of those projects had experienced cost increases that  were more than 25 percent over the estimates approved by FTA in grant  agreements. The key reasons for the increases included (1) higher than  anticipated contract costs, (2) schedule delays, and (3) project scope  changes and system enhancements. A recent testimony by the Department  of Transportation’s Inspector General indicates that major transit projects  continue to experience significant problems including cost increases,  financing problems, schedule delays, and technical or construction  difficulties.
section_title: Strategies
paragraphs: FTA has developed strategies to address the twin challenges of selecting  the right projects and monitoring their implementation costs, schedule,  and performance. First, in response to direction in TEA-21, FTA developed  a systematic process for evaluating and rating potential New Starts  projects competing for federal funding. Under this process, FTA assigns  individual ratings for a variety of financial and project justification criteria  and then assigns an overall rating of highly recommended, recommended,  not recommended, or not rated. These criteria reflect a broad range of  benefits and effects of the proposed projects, including capital and  operating finance plans, mobility improvements, environmental benefits,  operating efficiencies, cost-effectiveness, land use, and other factors.  According to FTA’s New Starts regulations, a project must have an overall  rating of at least “recommended” to receive a grant agreement. FTA also  considers a number of other “readiness” factors before proposing funding  for a project. For example, FTA proposes funding only for projects that  are expected to enter the final design phase and be ready for grant  agreements within the next fiscal year. Figure 3 illustrates the New Starts  evaluation and ratings process.
While FTA has made substantial progress in establishing a systematic  process for evaluating and rating potential projects, our work has raised  some concerns about the process. For example, to assist FTA in  prioritizing projects to ensure that the relatively few full funding grant  agreements go to the most important projects, we recommended in March  2000 that FTA further prioritize the projects that it rates as highly  recommended or recommended and ready for New Starts funds. FTA has  not implemented this recommendation. We believe that this  recommendation is still valid because the funding requested for the many  projects that are expected to compete for grant agreements over the next  several years is likely to exceed the available federal dollars. A further  concern about the ratings process stems from FTA’s decision during the  fiscal year 2004 cycle to propose a project for a full funding grant  agreement that had been assigned an overall project rating of “not rated,”  even though FTA’s regulations require that projects have at least a  “recommended” rating to receive a grant agreement. Finally, we found  that FTA needs to provide clearer information and additional guidance  about certain changes it made to the evaluation and ratings process for the  fiscal year 2004 cycle.
In work that addressed the challenge of overseeing ongoing projects once  they are selected to receive a full funding grant agreement, we reported in  March and September 2000 that FTA had improved the quality of the  transit grants management oversight program through strategies that  included upgrading its guidance and training of staff and grantees,  developing standardized oversight procedures, and employing contractor  staff to strengthen its oversight of grantees. FTA also expanded its  oversight efforts to include a formal and rigorous assessment of a  grantee’s financial capacity to build and operate a new project and of the  financial impact of that project on the existing transit system. These  assessments, performed by independent accounting firms, are completed  before FTA commits funds for construction and are updated as needed  until projects are completed. For projects that already have grant  agreements, FTA focuses on the grantee’s ability to finish the project on  time and within the budget established by the grant agreement.
The administration’s fiscal year 2004 budget proposal contains three New  Starts initiatives—reducing the maximum federal statutory share to 50  percent, allowing non-fixed-guideway projects to be funded through New  Starts, and replacing the “exempt” classification with a streamlined ratings  process for projects requesting less than $75 million in New Starts funding.  These proposed initiatives have advantages and disadvantages, with  implications for the cost-effectiveness and performance of proposed  projects. First, the reduced federal funding would require local  communities to increase their funding share, creating more incentive for  them to propose the most cost-effective projects; however, localities might  have difficulties generating the increased funding share, and this initiative  could result in funding inequities for transit projects when compared with  highway projects. Second, allowing non-fixed guideway projects to be  funded under New Starts would give local communities more flexibility in  choosing among transit modes and might promote the use of bus rapid  transit, whose costs compare favorably with those of light rail systems;  however, this initiative would change the original fixed guideway  emphasis of New Starts, which some project sponsors we interviewed  believe might disadvantage traditional New Starts projects. Finally,  replacing the “exempt” classification with a streamlined rating process for  all projects requesting less than $75 million might promote greater  performance-oriented evaluation since all projects would receive a rating.  However, this initiative might reduce the number of smaller communities  that would participate in the New Starts program.
section_title: DOT’s Essential Air Service Program Faces Possible Program Modifications Due to Changing Conditions
paragraphs: The Congress established the Essential Air Service (EAS) program as part  of the Airline Deregulation Act of 1978. The act guaranteed that  communities served by air carriers before deregulation would continue to  receive a certain level of scheduled air service. Special provisions  guaranteed service to Alaskan communities. In general, the act guaranteed  continued service by authorizing DOT to require carriers to continue  providing service at these communities. If an air carrier could not continue  that service without incurring a loss, DOT could then use EAS funds to  award that carrier a subsidy. Subsidies are to cover the difference between  a carrier’s projected revenues and expenses and to provide a minimum  amount of profit. Under the Airline Deregulation Act, the EAS program  was intended to sunset, or end, after 10 years. In 1987, the Congress  extended the program for another 10 years, and in 1998, it eliminated the  sunset provision, thereby permanently authorizing EAS.
To be eligible for subsidized service, a community must meet three general  requirements. It must have received scheduled commercial passenger  service as of October 1978, may be no closer than 70 highway miles to a  medium- or large-hub airport, and must require a subsidy of less than $200  per person (unless the community is more than 210 highway miles from  the nearest medium- or large-hub airport, in which case no average per- passenger dollar limit applies).
Funding for the EAS program comes from a combination of permanent  and annual appropriations. Part of its funding comes from the Federal  Aviation Reauthorization Act of 1996 (P.L. 104-264), which authorized the  collection of user fees for services provided by the Federal Aviation  Administration (FAA) to aircraft that neither take off nor land in the  United States, commonly known as overflight fees. The act also  permanently appropriated the first $50 million of such fees for EAS and  safety projects at rural airports. In fiscal year 2003, total EAS program  appropriations were $113 million.
subsections: section_title: Challenges
paragraphs: As the airline industry has evolved since the industry was deregulated in  1978, the EAS program has faced increasing challenges to remain viable.  Since fiscal year 1995, the program’s costs have tripled, rising from $37  million to $113 million, and they are likely to continue escalating. Several  factors are likely to affect future subsidy requirements. First, carriers’  operating costs have increased over time, in part because of the costs  associated with meeting federal safety regulations for small aircraft  beginning in 1996. Second, carriers’ revenues have been limited because  many individuals traveling to or from EAS-subsidized communities choose  not to fly from the local airport, but rather to use other larger nearby  airports, which generally offer more service at lower airfares. On average,  in 2000, each EAS flight operated with just over 3 passengers.
Finally, the number of communities eligible for EAS subsidies has  increased over time, rising from a total of 106 in 1995 to 114 in July 2002  (79 in the continental United States and 35 in Alaska, Hawaii, and Puerto  Rico) and again to 133 in April 2003 (96 in the continental United States  and 37 in Alaska, Hawaii, and Puerto Rico). The number of subsidy-eligible  communities may continue to grow in the near term. Figure 4 shows the  increase in the number of communities eligible for EAS-subsidized service  between 1995 and April 2003.
section_title: Strategies
paragraphs: Over the past year, the Congress, the administration, and we have each  identified a number of potential strategies generally aimed at enhancing  the EAS program’s long-term sustainability. These strategies broadly  address challenges related to the carriers’ cost of providing service and the  passenger traffic and revenue that carriers can hope to accrue.
In August 2002, in response to a congressional mandate, we identified and  evaluated four major categories of options to enhance the long-term  viability of the EAS program. In no particular order, the options we  identified were as follows:    Better match capacity with community use by increasing the use of  smaller (i.e., less costly) aircraft and restricting little-used flight  frequencies.
Target subsidized service to more remote communities (i.e., those where  passengers are less likely to drive to another airport) by changing  eligibility criteria.
Consolidate service to multiple communities into regional airports.
Change the form of the federal assistance from carrier subsidies to local  grants that would allow local communities to match their transportation  needs with individually tailored transportation options.
Each of these options could have positive and negative effects, such as  lowering the program’s costs but possibly adversely affecting the  economies of the communities that would lose some or all of their direct  scheduled airline service.
This year’s House-passed version of the FAA reauthorization bill, H.R.  2115, also includes various options to restructure air service to small  communities now served by the EAS program. The bill proposes an  alternative program (the “community and regional choice program”),  which would allow communities to opt out of the EAS program and  receive a grant that they could use to establish and pay for their own  service, whether scheduled air service, air taxi service, surface  transportation, or another alternative.
The complementary Senate FAA reauthorization bill (also H.R. 2115) also  includes specific provisions designed to restructure the EAS program. This  bill would set aside some funds for air service marketing to try to attract  passengers and create a grant program under which up to 10 individual  communities or a consortium of communities could opt out of the existing  EAS program and try alternative approaches to improving air service. In  addition, the bill would preclude DOT from terminating, before the end of  2004, a community’s eligibility for an EAS subsidy because of decreased  passenger ridership and revenue.
The administration’s proposal would generally restrict appropriations to  the $50 million from overflight fees and would require communities to help  pay the costs of funding their service. The proposal would also allow  communities to fund transportation options other than scheduled air  service, such as on-demand “air taxis” or ground transportation.
Mr. Chairman, this concludes my prepared statement. I would be pleased  to answer any questions you or other members of the Committee may  have.
section_title: Contact and Acknowledgments
paragraphs: For future contacts regarding this testimony, please contact JayEtta  Hecker at (202) 512-2834. Individuals making key contributions to this  testimony included Robert Ciszewski, Steven Cohen, Elizabeth Eisenstadt,  Rita Grieco, Steven Martin, Katherine Siggerud, Glen Trochelman, and  Alwynne Wilbur.
section_title: Appendix 1: Related GAO Products
subsections: section_title: Federal-Aid Highways
paragraphs: Federal-Aid Highways: Cost and Oversight of Major Highway and  Bridge Projects—Issues and Options. GAO-03-764T. Washington, D.C.:  May 8, 2003.
Transportation Infrastructure Cost and Oversight Issues on Major  Highway and Bridge Projects. GAO-02-673. Washington, D.C.: May 1,  2002.
Surface Infrastructure: Costs, Financing, and Schedules for Large-Dollar  Transportation Projects. GAO/RCED-98-64. Washington, D.C.: February  12, 1998.
DOT’s Budget: Management and Performance Issues Facing the  Department in Fiscal Year 1999. GAO/T-RCED/AIMD-98-76. Washington,  D.C.: February 12, 1998.
Transportation Infrastructure: Managing the Costs of Large-Dollar  Highway Projects. GAO/RCED-97-27. Washington, D.C.: February 27, 1997.
Transportation Infrastructure: Progress on and Challenges to Central  Artery/Tunnel Project’s Costs and Financing. GAO/RCED-97-170.  Washington, D.C.: July 17, 1997.
Transportation Infrastructure: Central Artery/Tunnel Project Faces  Financial Uncertainties. GAO/RCED-96-1313. Washington, D.C.: May 10,  1996.
Central Artery/Tunnel Project. GAO/RCED-95-213R. Washington, D.C.:  June 2, 1995.
section_title: Highway Safety
paragraphs: Highway Safety: Research Continues on a Variety of Factors That  Contribute to Motor Vehicle Crashes. GAO-03-436. Washington, D.C.:  March 31, 2003.
Highway Safety: Better Guidance Could Improve Oversight of State  Highway Safety Programs. GAO-03-474. Washington, D.C.: April 21, 2003.
Highway Safety: Factors Contributing to Traffic Crashes and NHTSA’s  Efforts to Address Them. GAO-03-730T. Washington, D.C.: May 22, 2003.
section_title: Mass Transit
paragraphs: Federal Transit Administration: Bus Rapid Transit Offers  Communities a Flexible Mass Transit Option. GAO-03-729T. Washington,  D.C.: June 24, 2003.
Mass Transit: FTA Needs to Provide Clear Information and Additional  Guidance on the New Starts Ratings Process. GAO-03-701. Washington,  D.C.: June 23, 2003.
Mass Transit: FTA’s New Starts Commitments for Fiscal Year 2003.  GAO-02-603. Washington, D.C.: April 30, 2002.
Mass Transit: FTA Could Relieve New Starts Program Funding  Constraints. GAO-01-987. Washington, D.C.: August 15, 2001.
Mass Transit: Project Management Oversight Benefits and Future  Funding Requirements. GAO/RCED-99-240. Washington, D.C.: August 19,  1999.
Mass Transit: Implementation of FTA’s New Starts Evaluation Process  and FY 2001 Funding Proposals. GAO/RCED-00-149. Washington, D.C.:  April 28, 2000.
Mass Transit: Challenges in Evaluating, Overseeing, and Funding Major  Transit Projects. GAO/T-RCED-00-104. Washington, DC: Mar. 8, 2000.
Mass Transit: Status of New Starts Transit Projects With Full Funding  Grant Agreements, GAO/RCED-99-240. Washington, D.C.: Aug. 19, 1999.
Mass Transit: FTA’s Progress in Developing and Implementing a New  Starts Evaluation Process. GAO/RCED-99-113. Washington, D.C.: April 26,  1999.
section_title: Essential Air Service
paragraphs: Commercial Aviation: Issues Regarding Federal Assistance for  Enhancing Air Service to Small Communities. GAO-03-540T.  Washington, D.C.: March 11, 2003.
Commercial Aviation: Factors Affecting Efforts to Improve Air Service  at Small Community Airports. GAO-03-330. Washington, D.C.: January 17,  2003.
Commercial Aviation: Financial Condition and Industry Responses  Affect Competition. GAO-03-171T. Washington, D.C.: October 2, 2002.
Options to Enhance the Long-term Viability of the Essential Air Service  Program. GAO-02-997R. Washington, D.C.: Aug. 30, 2002.
Commercial Aviation: Air Service Trends at Small Communities Since  October 2000. GAO-02-432. Washington, D.C.: August 30, 2002.
Essential Air Service: Changes in Passenger Traffic, Subsidy Levels, and  Air Carrier Costs. T-RCED-00-185. Washington, D.C.: May 25, 2000.
Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and  Passenger Traffic. RCED-00-34. Washington, D.C.: April 14, 2000.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.