Highway Infrastructure: Federal-State Partnership Produces Benefits and Poses Oversight Risks
Published: 2012-04-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Department of Transportation (DOT) provides about $40 billion to the states annually to build and maintain highways and bridges through the federal-aid highway program. While this program has grown and changed over time, the federal-state relationship has been consistently one of partnership since 1916. DOTs FHWA has offices in all 50 states that have developed close working relationships with states. Legislation approved by the Senate in March 2012 would establish a more performance-based highway program, introducing performance measures for highways and bridges and requiring FHWA to monitor states progress in meeting those measures. As requested, GAO examined (1) how the federal-aid highway program and FHWAs oversight have changed over time; (2) the extent to which FHWAs partnership approach produces benefits; (3) the extent to which FHWAs partnership approach poses risks; and (4) how FHWAs partnership with state DOTs could affect a transition toward a performance-based highway program. To do this work, GAO conducted site visits and a survey, reviewed relevant documentation, and interviewed FHWA and state officials.
section_title: What GAO Found
paragraphs: Over the years, the federal-aid highway program has expanded to encompass broader goals, more responsibilities, and a variety of approaches. As the program grew more complex, the Federal Highway Administrations (FHWA) oversight role also expanded, while its resources have not kept pace. As GAO has reported, this growth occurred without a well-defined overall vision of evident national interests and the federal role in achieving them. GAO has recommended Congress consider restructuring federal surface transportation programs, and for this and other reasons, funding surface transportation remains on GAOs high-risk list.
FHWA benefits from using recognized partnership practices to advance the federal-aid highway program and conduct program oversightsuch as clear delineation of roles and responsibilities between FHWA and its state partners and formal and informal conflict resolutionthat are recognized as leading practices. FHWAs partnership approach allows it to proactively identify issues before they become problems, achieve cost savings, and gain states commitment to improve their processes.
FHWAs partnership approach also poses risks. We observed cases where FHWA was lax in its oversight or reluctant to take corrective action to bring states back into compliance with federal requirements, potentially resulting in improper or ineffective use of federal funds. For example, while FHWA has made it a national priority to recoup funds from inactive highway projectsprojects that have not expended funds for over 1 yearFHWA officials in three states we visited were reluctant to do so because of concerns about harming their partnership with the state. In other cases, FHWA has shown a lack of independence in decisions, putting its partners interests above federal interests. For example, FHWA allowed two states to retain unused emergency relief allocations to fund new emergencies, despite FHWAs policy that these funds are made available to other states with potentially higher-priority emergencies. In some instances, FHWA became actively and closely involved in implementing solutions to state problemsthis can create a conflict when FHWA later must approve or review the effectiveness of those solutions.
If proposals for a performance-based highway program are adopted, FHWA would have to work with states to develop measures and take corrective action if states do not meet them. FHWAs partnership could help states develop measures, but it would need to mitigate the risks posed by its partnership to ensure corrective action was effective when needed. The fundamental reexamination of surface transportation programs, including the highway program, that GAO previously recommended presents an opportunity to narrow FHWAs responsibilities so that it is better equipped to transition to a performance-based system. GAO identified areas where national interests may be less evident but where FHWA expends considerable time and resourcesareas where devolving responsibilities to the states may be appropriate.
section_title: What GAO Recommends
paragraphs: Congress should consider restructuring federal surface transportation programs. Based on GAOs review, there may be areas where national interests are less evident and where opportunities exist to narrow FHWAs responsibilities. Also, DOT should address the risks posed by its partnership approach. DOT generally agreed with the recommendation.

section_title: Letter
paragraphs: Federal funding for highways is provided to the states mostly through a  series of formula grant programs collectively known as the federal-aid  highway program. Over the years, in response to changing transportation,  environmental, and societal goals, the highway program has expanded to  encompass broader goals, more responsibilities, and a variety of grant  structures. As the highway program grew more complex, the federal  government’s responsibility to oversee the program expanded as well.  The role of the Department of Transportation’s (DOT) Federal Highway  Administration (FHWA) has grown from overseeing the construction of  highway projects to a wide range of activities including overseeing states’  transportation planning processes; assessing environmental impacts; and  monitoring states’ compliance with property acquisition, contracting, civil  rights, and other requirements. As we have reported, FHWA has faced  challenges in ensuring that federal funds are efficiently and effectively  used because the highway program is one in which there is limited  federal control—it is a state-administered, federally assisted program.  Funds are largely apportioned by formula, and the states enjoy broad  flexibility in deciding which projects are supported. Furthermore, for nearly  half of federal-aid highway funds, FHWA’s responsibility to oversee the  design and construction of projects has been assumed by the states.
To adapt to its evolving role, FHWA has relied on its historical partnership  with the states in which FHWA and the states work collaboratively to  construct highway infrastructure. Specifically, FHWA division offices, which  are located in every state, the District of Columbia, and Puerto Rico, have  developed close working relationships with state departments of  transportation (state DOTs). (For a complete list of division offices, see  appendix I.) We have reported that this partnership approach offers benefits,  such as more efficient project delivery, but can also create challenges. When  an overseer becomes an active partner in a project, the independent  perspective important to effective project oversight can be lost.
Legislation approved by the Senate in March 2012 performance measures for highways and require FHWA to monitor states’  progress in meeting these measures. As a consequence, FHWA’s  oversight approach could undergo significant change, as FHWA would  need to work with the states to develop measurable goals to improve the  condition and performance of the nation’s highway system and take  action when performance measures are not met. Given its history, FHWA  is likely to use its partnership with the states to implement such a system.  Also, administering a performance-based system would be an addition to  FHWA’s other duties.
You asked us to examine how FHWA’s partnership with state DOTs  affects its oversight of the highway program and, in particular, how it  might affect the transition to a more performance-based highway  program. This report addresses (1) the basis for FHWA’s partnership and  oversight role in relation to the states, and how the federal-aid highway  program and FHWA’s oversight have changed over time; (2) the extent to  which FHWA’s partnership approach produces benefits; (3) the extent to  which FHWA’s partnership approach poses risks; and (4) how FHWA’s  partnership with state DOTs could affect a transition toward a  performance-based highway program.
S. 1813 §§ 1106, 1112, 112th Cong. (as adopted by the Senate March 14, 2012). transportation program and proportion of federal funding, the rural and  urban composition of the state, and geographic distribution. During our  site visits, we interviewed FHWA division office leadership as well as  state officials, when possible, to understand how they characterize their  relationship. To obtain a broader perspective than site visits provide, we  designed and conducted a survey of the division administrators from each  of the 52 FHWA division offices; our response rate was 100 percent. We  also conducted 4 discussion groups that included representatives from 38  of 52 state DOTs. Through a literature review, we identified best practices  and risks associated with partnering, and used these criteria to assess  FHWA’s current oversight approach by reviewing information from our  audit work. We also analyzed available results from states’ 2010 Single  Audit findings to independently identify areas of concern in oversight  activities. See appendix II for more details on our scope and  methodology.
We conducted this performance audit from April 2011 to April 2012 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.
subsections: section_title: Background
paragraphs: Federal assistance for highway and bridge infrastructure—about $40  billion each year—is distributed through multiple formula and  discretionary grant programs collectively known as the federal-aid  highway program. The federal-aid highway program is financed through  the Highway Trust Fund, a dedicated source of federal revenue based on  the “user-pay principle”—that is, users of transportation systems pay for  the systems’ construction through the federal tax on motor fuels, tires,  and trucks.
FHWA uses a decentralized organizational structure to administer the  federal-aid highway program, meaning that decision-making authority is  largely delegated to FHWA’s 52 division offices. FHWA division offices  have 10 to 61 staff each, depending on the size of the state’s highway  program. While there are variations in division office organizational  structures, each typically has teams that cover areas such as planning,  environment, engineering, technical services, finance, and civil rights. As  of February 2012, FHWA had 2,960 staff—1,962 in the field and 998 at  headquarters.
FHWA’s responsibilities for the federal-aid highway program fall into two  broad categories: (1) advancing the program and (2) ensuring compliance  with federal law and regulations. To advance the program, FHWA  engages in a range of activities to encourage the effective and efficient  use of federal-aid highway funding and assist states in progressing  projects through construction to improve the highway system. To  accomplish these tasks, FHWA works with states to identify issues,  develop and advocate solutions, approve and obligate project funding for  eligible activities, and provide technical assistance and training to state  DOTs. To ensure that states comply with federal laws and regulations,  FHWA, through its division offices, conducts oversight of federally funded  projects and reviews state DOT capacity and systems used to administer  approved projects. Actual project-level oversight is divided or shared  between FHWA and the state. FHWA oversees major interstate highway  projects. FHWA division offices and states jointly decide how to divide  oversight responsibility for other National Highway System projects.  States assume oversight responsibility for projects that are not on the  National Highway System. These can include locally administered  projects, which are projects in which a state DOT has given approval to a  local public agency (e.g. a city or county) to administer a project or phase  of a project such design, property acquisition, or construction.
For those projects where both FHWA and the state make decisions about  oversight responsibilities, the respective responsibilities are generally  mapped out in a “stewardship agreement.” This agreement defines which  projects will receive “full” oversight, in which FHWA oversees most  aspects of the construction process, or projects in which states assume  oversight responsibility (we refer to these as “delegated” projects). Figure  1 describes aspects of oversight that are led by FHWA or the state  depending on the status of the project.
To evaluate state DOTs’ systems and capacity to administer approved  projects, FHWA division offices assess internal controls and processes  across programmatic areas such as construction, finance, property  acquisition, and locally administered projects. A common tool for this type  of oversight is a “process review,” which involves an analysis of key  program components and processes employed by the state DOT.  Typically, this includes a file review of a sample of projects, interviews  with relevant state DOT staff, and field reviews when applicable. In  addition, FHWA, in conjunction with the Federal Transit Administration,  performs a federal certification review of Metropolitan Planning  Organizations (MPO), which are responsible for transportation planning in  urban areas with populations larger than 50,000 every 4 years,that periodically FHWA determines if the organization complies with  applicable federal requirements. FHWA division offices have a range of  corrective actions they can use if a state does not comply with federal  requirements. Among other things, it may withhold funding from all or part  of a project, deobligate inactive funds, withhold approval until an issue is  resolved, or require corrective action plans.
section_title: FHWA’s Partnership Role Was Established almost a Century Ago, but over Time Its Responsibilities Have Expanded
paragraphs: Over the years, the federal-aid highway program has grown to  encompass broader goals, more responsibilities, and a variety of  approaches; however, the concept of a federal-state partnership has  been an integral feature of the highway program since it was established  by the Federal Aid Road Act of 1916.legislation established federal-state responsibilities, wherein states select  the placement of roads, construct, and maintain them, and the federal  government sets standards and provides a portion of the funding. The  Federal-Aid Highway Act of 1973 further refined the federal-state  relationship by stating that “the authorization of the appropriation of  Federal funds…shall in no way infringe on the sovereign rights of the  States to determine which projects shall be federally financed” and  defined the federal-aid highway program as a “federally assisted State   This and other early highway  program.” This language helped shape FHWA’s interpretation of the  federal-state relationship, leading to an understanding of its role that  anchors FHWA’s approach to oversight in partnership and is cited today  in FHWA’s policy documents. Almost all the division administrators we  surveyed described their work with states as a partnership and in ways  that emphasized the importance of partnership in carrying out FHWA’s  mission to advance the transportation program. In addition, as we  previously reported, both FHWA and state officials believe that over the  years the partnership has helped to build trust and respect between state  transportation agencies and FHWA, ensuring that as partners they can  accomplish tasks such as planning and building projects more efficiently  and effectively.
The goals and scope of the federal-aid highway program expanded  during much of the 20th century, as did the roles and responsibilities of  FHWA. Initially, the highway program was administered by the  Department of Agriculture through the Bureau of Public Roads, a  predecessor to FHWA. The bureau focused oversight at the project level to ensure that materials and construction methods met federal  standards. The bureau also brought engineering expertise to the states,  many of which either lacked skilled engineers or were not ensuring that  federal dollars were being used to produce quality construction. The  Defense Highway Act of 1941 extended the 1916 act to fund a strategic  network of highways, including secondary and feeder routes. Eligibility  was extended again in 1944 to include an array of other secondary roads,  including rural farm-to-market roads, rural mail and bus routes, county  roads, and others that became eligible for post-war federal aid. In 1950,  Congress made additional roads—including county, township, and urban  roads—eligible for aid. By then, however, the focus of the highway  program was turning increasingly to constructing the Interstate Highway  System. Designated as mandated in 1944, construction of the system  began in earnest with passage of the Federal-Aid Highway Act of 1956  and establishment of the Highway Trust Fund, a dedicated funding source  deriving revenue primarily from taxes on motor fuels, tires, and trucks to  finance the construction of the Interstate system.
Construction of the Interstate remained the focus of the federal-aid  highway program in the years that followed, and Congress continued to  expand the types of projects eligible for federal funds. In the 1970s,  Congress expanded the federal role in bridge infrastructure by making  highway bridges located on public roads and longer than 20 feet eligible  for federal funds. Congress also expanded the eligibility of federal aid  beyond initial construction. Under the 1916 Act and Interstate  authorizations, the federal government was to fund the construction of  highways while maintenance was the states’ responsibility. However, as  the Interstate began to age, Congress allowed states to use federal funds  for road maintenance on Interstate highways and all eligible bridges by  redefining certain activities—such as resurfacing, rehabilitation, and  reconstruction—as capital investments rather than maintenance.
By  1991, as a result of changes over the years, use of highway funds was  authorized to fund a wide range of transportation enhancement activities,  including activities connected with highway beautification, historic  preservation, and the establishment of bicycle and pedestrian trails.
In addition to expanding the types of projects eligible for federal highway  funds, over time Congress adopted legislation to achieve social goals  such as advancing civil rights and environmental protection, and  enhancing urban planning and economic development, which affected the  federal-aid highway program and FHWA’s role and responsibilities. For  example, the National Environmental Policy Act of 1969 recipients to comply with federal environmental requirements by  conducting environmental reviews for federally funded transportation  projects. The Federal-Aid Highway Act of 1962 established urban  transportation planning as a matter of national interest and required all  construction projects to be part of a continuing, comprehensive, and  cooperative planning process. Other federal requirements have included  requiring compliance with prevailing wage standards applicable to federal  contracts under the Davis-Bacon Act, a Disadvantaged Business  Enterprise program to enhance participation of women- and minority- owned businesses, and Buy America provisions for acquiring steel and  other materials. As the goals of the highway program expanded, FHWA  added expertise in its division offices beyond civil engineers and hired  economists, right-of-way specialists, planners, historians, ecologists,  safety experts, civil rights experts, and others.
Pub. L. No. 91-190, 83 Stat. 852 (1970) (codified as amended at 42 U.S.C. ch. 55). in 1998 to 2,960 in February 2012. Recognizing its changing roles,  responsibilities, and decline in staff levels, FHWA continued to adapt its  oversight approach. In 2006, it began adopting a risk management  approach to its oversight, recognizing in part that, while its role had  expanded, its resources had not.
FHWA has adapted to changes in demands for its oversight, but its role  and responsibilities are complicated by the fact that the current federal  approach to surface transportation in general—and to highways in  particular—is not working well. The expansion of the program did not  result from a specific rationale or plan, but rather an agglomeration of  policies and programs since the 1950s without a well-defined overall  vision of the national interest and federal role in our surface transportation  system. Federal goals and programs are now numerous and sometimes  conflicting, and federal roles are unclear. Furthermore, although DOT and  FHWA establish national goals and priorities, federal highway funding is  apportioned to states without regard to the accomplishment of specific  outcomes or the performance of grantees. This makes it difficult to assess  the extent to which funding is achieving transportation goals. For these  and other reasons, funding surface transportation remains on GAO’s  high-risk list.
section_title: FHWA Benefits from Using Recognized Partnership Practices
subsections: section_title: Partnering Activities and Practices
paragraphs: In the face of its evolving roles and responsibilities, FHWA has relied on  its historical partnership with the states in which FHWA and the states  work collaboratively to construct highway infrastructure. FHWA uses  partnering activities and practices with the states that are, based on our  review and synthesis of partnering literature, recognized as best  practices. These activities and practices enable parties to achieve  individual and mutually beneficial goals and results, such as expedited  project time frames and cost savings. We observed the following  examples of successful partnerships:
Open and regular communication includes clear and candid  discussions among partners as well as an understanding of the inner  workings and decision-making processes of participating  organizations. FHWA division and state DOT officials reported having  regular formal and informal meetings (at leadership and working  levels) as well as frequent contact by e-mail and telephone.
Clear delineation of roles and responsibilities involves understanding  individual partner roles as well as articulating responsibilities for joint  actions and tasks. FHWA stewardship agreements describe the roles  of FHWA divisions and state DOTs. Some stewardship agreements  that we examined include detailed matrices addressing factors such  as work activities and their frequency, legal authority, and specific  division office and state DOT responsibilities.
Proactive issue identification and resolution, in a mutually agreeable  way, is closely linked to open and regular communication between  partnering members. FHWA officials in several division offices told us  that they work closely with their state DOT counterparts to identify  problems early and develop solutions. For example, one division  administrator explained that, at times, the division office is forced to  tell the state DOT that, because of its approach, a certain portion, or  an entire construction project, is not eligible for federal funding.  However, the administrator stated that the next question the division  staff asks is, “How can we do this?” to work with the state DOT to  bring the project into compliance with federal requirements, and  therefore allowing the state DOT to use federal funds.
Conflict resolution processes include formal (documented protocols or  escalation procedures) and informal (verbal agreements between  parties) procedures for how to handle disagreements. FHWA division  and state officials discussed their commitment to collaborative  problem solving and using informal issue escalation procedures, for  example, by elevating problematic issues to the leadership level for  resolution. One FHWA division incorporated conflict resolution  protocols into its formal partnering agreement with the state DOT. The  agreement advocated using face-to-face communication for conflict  resolution and outlined procedures for escalating issues.
section_title: Partnership Benefits in Advancing the Federal-Aid Highway Program
paragraphs: In our survey and interviews, FHWA division administrators reported that  FHWA uses its partnering relationship with state DOTs to advance the  federal-aid highway program by ensuring that projects move to  construction in a timely fashion, facilitating knowledge transfer, and  promoting federal transportation priorities. Specifically, 51 of 52 survey  respondents stated that their partnering relationship with their state was  very or somewhat important to their ability to achieve the mission of the  federal-aid highway program. Most division administrators (44 of 52) also  indicated that the partnering relationship produces multiple benefits.  Some of these benefits—such as expedited project time frames and cost  savings—were noted as positive outcomes of partnership in the literature  we reviewed. For example, FHWA officials in a northern state with a short  summer construction season told us they work closely with state DOT  officials to make timely decisions and move projects along to ensure that  construction can be completed during the warmer months. FHWA officials  in this state generally conducted non-construction-related process  reviews in the winter season so that they and state DOT officials could  focus on construction inspections and construction-related process  reviews during the warmer months. Similarly, in another state, FHWA and  state officials told us that by working together to resolve issues  expediently, they were able to complete the environmental review and  approval process for a large-scale project to reduce congestion on an  important regional highway in about half of the time normally required.
Forty-four of 52 division administrators indicated in response to our  survey that partnering was very helpful in facilitating the transfer of  technical knowledge. In our site visits, FHWA officials explained that  partnering helps FHWA to use technical knowledge transfer to advance  the federal-aid highway program by assisting states in addressing  technical or programmatic concerns, closing skill gaps, enhancing  compliance, and informing decision making. FHWA division officials in  one state told us that they had financed a trip by state DOT officials to  learn about an alternative interchange design. As a result, the state DOT  was able to make interchange improvements without removing and  replacing an existing bridge, reducing costs from estimated $10 to $15  million to $3 million. Similarly, when FHWA officials observed crumbling  materials used for retaining walls and supporting structures, they brought  in the technical expertise of the FHWA Resource Center, which resulted  in the state DOT revising its materials specifications to ensure higher- quality materials are used.
Forty-nine of 52 division administrators also indicated in response to our  survey that partnering helps the agency to advance federal transportation  priorities. One respondent stated that “partnering helps us advance more  federal priorities and achieve greater public benefit than simply being  parochial authoritarians that refuse to discuss anything that doesn’t  directly involve a federal dollar or regulation.” For example, officials in one  FHWA division office developed a business case for an approach to  address congestion in a key section of highway as an alternative to the  state’s planned solution. FHWA promoted its alternative to the state DOT  and other stakeholders, and ultimately the state accepted FHWA’s  approach because the data showed it would be more effective and less  costly. In another example, FHWA division officials believed they  influenced the state DOT to improve safety by using higher-quality  barriers and rumble strips on highways to alert drivers straying off the  road. Likewise, to improve safety, officials in another FHWA division office  promoted cable barriers on highway medians as a risk-based, lower-cost  alternative to concrete barriers.
Similarly, during our site visits, some FHWA officials said that their  partnering relationship creates an opportunity to promote projects of  national or regional significance within a state. For example, FHWA  officials in one division office persuaded the state to address congestion  around a toll plaza on a major interstate route. The state did not consider  the project a high priority, because it did not affect most state residents as  much as out-of-state drivers traveling through the state. However, FHWA  division officials were able to persuade the state to construct the project  when funding from the American Recovery and Reinvestment Act of 2009  (Recovery Act) became available. One of the FHWA officials  commented, “Without partnerships, you lose opportunities to do things  that would be good for the taxpayer.”
section_title: Partnership Benefits in Oversight and Effects on Corrective Action Decisions
paragraphs: FHWA relies on its partnering approach with state DOTs to facilitate  oversight of the federal-aid highway program by engaging states in open  dialogue about risks and obtaining their buy-in on program improvements.  In our survey, 50 of 52 FHWA division administrators said that their  division office’s partnering relationship was very or somewhat helpful in  producing more effective oversight. Officials we spoke with during our site  visits offered several illustrations of how partnership improves oversight.  One FHWA division administrator told us that the state DOT proactively  brings problems to FHWA’s attention rather than waiting for FHWA to  discover them. We observed that this open dialogue about risks allows  FHWA to address issues in a timely fashion and adopt a more responsive  and problem-solving attitude. According to one FHWA division official,  FHWA worked collaboratively with the state DOT to determine which  process reviews to conduct during the year and then conducted the  majority of those reviews jointly. According to the FHWA official, this  practice strengthened oversight by helping to gain the state DOT’s buy-in  and commitment to improving its processes, facilitating honest  communication about risk areas, and creating an opportunity for FHWA to  provide on-the-spot training when problems were identified. In another  example, an FHWA division office holds annual meetings with state DOT  officials where the two parties determine which projects should receive  full oversight and which should be assumed by the state. We observed  that this approach can strengthen oversight by allowing FHWA to  incorporate the state’s perception of risk and weaknesses into their  oversight plan by engaging in open dialogue with state officials about  risks. Additionally, for each summer construction season, the two parties  identify one of the state’s regions as a focus for full oversight. This allows  each region and their project managers to receive training while their  projects, primarily related to pavement preservation, are being reviewed  by FHWA.
FHWA’s partnership with state DOTs also affects its use of corrective  action. FHWA emphasizes working with state DOTs to bring them back  into compliance through less stringent corrective action instead of more  punitive action. Responses to our survey of division administrators  showed that the most frequently used corrective action in the last 3 fiscal  years was withholding approval of a particular request until an issue was  resolved. According to one division administrator, withholding approval  provides the greatest ability to address and resolve a particular issue and  encourages the state to take corrective action in a timely manner.  Additionally, 43 of 52 division administrators reported that in the last 3  fiscal years they have used the threat of a corrective action, which helps  to achieve compliance without actual punitive actions. Reportedly, the  threat of a corrective action is effective because it communicates the  consequences of not complying with federal requirements and helps to  bring about problem resolution. In addition, to address deficiencies, 51 of  52 division administrators reported that they had required state DOTs to  develop a corrective action plan to outline how the state would change a  process or program to comply with federal requirements.
When FHWA moves toward a more punitive corrective action, it is most  likely to withhold funding from a part of a project. Withholding partial  funding often amounts to not paying for a line item in a project’s budget.  For example, one division administrator explained that when the state  purchases proprietary equipment, such as certain types of light posts or  signs, when a less expensive nonproprietary option is available, FHWA  withholds funds for the purchase. The federal-aid highway program is a  reimbursement program. As a consequence, if FHWA withholds funds,  state DOTs must replace federal funding with state funding. All 52 division  offices indicated they withheld partial federal funding from a project in the  last 3 fiscal years, and withholding partial funding was the second most  frequently used tool for corrective action.
FHWA division offices reported that they rarely use their most punitive  corrective actions, such as withholding funding for an entire project or  organization. Although 30 division administrators we surveyed reported  that they had withheld federal funding from an entire project during the  past 3 fiscal years, none listed this action as one of their three most  frequently used corrective actions. According to FHWA officials, such  action is damaging to the state’s federal-aid highway program and  provokes tension with state DOTs. FHWA officials stated that they see  this measure as a last resort and try to use their partnership with the  states to elicit compliance. Furthermore, division offices periodically  review MPOs, which can receive federal-aid highway funding and  implement construction projects. If the office declines to certify an MPO,  federal funds for that organization are withheld until the deficiencies  identified are corrected.
section_title: Navigating the “Gray Areas”
paragraphs: FHWA division officials use partnering practices, such as open and  regular communication, with state DOT officials as they exercise  administrative discretion in situations where the rules and how to apply  them are not clear—situations we refer to as “gray areas.” In  administering the federal-aid highway program, FHWA often has  discretion to take a less stringent action even when the law permits a  harsher one, if circumstances warrant. Such an approach is embodied in  a stewardship agreement from one division office, which states that the  division office “will make use of available regulatory flexibility when in the  public interest.” FHWA officials spend time and effort addressing gray  areas, as they seek to make a decision that is not only consistent with  federal regulations but also appropriate to the particular facts and  circumstances of the situation. For example, the federal regulations  governing federal-aid contracts call for state DOTs to use reasonable  judgment in evaluating contractors’ good faith effort to hire women- and  minority-owned businesses but do not specify the type of documentation  contractors must submit to demonstrate their effort. Because there are  no specifications on the type of documentation demonstrating a good faith  effort, FHWA and state DOT officials must work through this gray area to  determine how best to demonstrate their efforts.
In our interviews and observations, we noted that FHWA officials rely on  partnering practices with states when federal regulations and FHWA  policies leave room for interpretation and discretion, creating gray areas  for FHWA officials to resolve. For example, routine roadway maintenance  is not eligible for federal reimbursement, but preventive maintenance can be.is room for interpretation and discretion between the two types of  maintenance. This division administrator told us that in recent years the  state DOT has sought reimbursement from FHWA for roadway  maintenance activities that are typically ineligible for reimbursement—a  situation he attributed to the economic environment affecting state  budgets. This required time and effort by both FHWA and the state DOT  to work through their different interpretations of the regulation. Ultimately,  FHWA and the state agreed to develop asset management systems to  identify and prioritize preventive maintenance needs in a systematic way.  The division administrator explained that this approach would show and  document how the maintenance strategies would extend the roadway life  and prevent deterioration and higher maintenance costs later, which  would make these costs eligible for federal funding.
According to an FHWA division administrator in one state, there  We also observed FHWA using partnering practices to negotiate the gray  areas that may arise when the rules are clear, but practical considerations  complicate implementing the rule. When implementing a rule, public  officials may need to consider cost-benefit implications, time frames, local  economic conditions, or other local circumstances that are not necessarily  dealt with explicitly in rules or regulations. For example, FHWA officials in  one division office explained that FHWA’s regulations require roadside  guardrails on National Highway System routes to be a minimum height of  27 ¾ inches from the top of the guardrail to the top of the pavement. The  height of a guardrail governs its effectiveness. However, as states overlay  pavement with new asphalt to address road deterioration, the height of  the guardrail relative to the road surface decreases and the guardrail  becomes less effective. This creates practical trade-offs with regard to the  costs of guardrail replacement and safety, raising questions regarding  whether to use funds to improve the pavement condition of, for example,  20 miles of road without replacing guardrails or to pave fewer miles of  road but replace the guardrails to ensure they are at the full height  prescribed in the regulation. Both approaches offer safety benefits.  Determining the best course of action requires navigating a gray area and  requires FHWA to understand the state’s priorities, weigh the safety  outcomes, and use its partnership with the state to agree on an approach  that meets transportation needs and federal responsibilities.
section_title: States’ Perspectives on Partnering and Oversight
paragraphs: While FHWA officials largely viewed their partnering relationship with  state DOTs in positive terms, state officials offered a more tempered  response. Specifically, our interviews and discussion groups with officials  from 38 state DOTs revealed that while states acknowledged having good  working relationships with their FHWA division counterparts, they also  expressed some frustrations. On the positive side, state DOT officials  appreciated regular and ongoing communication with FHWA officials and  characterized FHWA staff as accessible, responsive, and solution- oriented. State DOT officials told us that stewardship agreements were  helpful in clarifying roles and expectations and that they consider risk- based oversight to be a strength of the FHWA-state relationship. Officials  also appreciated FHWA’s help in navigating federal requirements and  sharing technical expertise and industry best practices. Furthermore,  state officials appreciated that FHWA officials recognized the unique  needs, context, and features of their state. State DOT officials  participating in our discussion groups asserted that they do not want a  “one size fits all” FHWA.
However, state DOT officials’ positive feedback about FHWA was  tempered with other perspectives on partnering and FHWA decision  making. We noted three themes among the comments of state DOT  officials when voicing perspectives different from FHWA.  1.  State officials viewed partnership less favorably than FHWA. Many  state DOT officials characterized FHWA’s role as providing oversight  and enforcing regulations rather than acting as a partner. Some  officials indicated FHWA began emphasizing enforcement over  partnership around the time of the completion of the Interstate  Highway System, as FHWA responded to legislative changes,  adopting what many state officials viewed as an audit-focused  approach to oversight. According to some state DOT officials, the  sense of camaraderie between state DOT and FHWA officials that  existed during the building of the Interstate is no longer there, and  currently there is “less partnership and more regulation.” Reflecting  the states’ more tempered perspective, one state DOT official  characterized the relationship with FHWA as “a partnership within an  arranged marriage.”  2.  State officials viewed FHWA as imposing personal preferences. Many  state DOT officials told us that FHWA officials routinely imposed  personal preferences—for example, questioning particular design  solutions—and would threaten to withhold federal funds or approval  even though, in the states’ view, the approach the state had  developed complied with federal standards and regulations. State  DOT officials pointed out that these preferences are not covered in  the regulations but rather involve professional judgment regarding  such factors as cost, appearance, and durability that are not  prescribed in regulation and are often unique to a particular  construction project. For example, according to officials at one state  DOT, FHWA had a preference for sequencing construction activities  in a particular way rather than leaving the decision up to the state  DOT, and on this particular project FHWA made its preference a  requirement. Some states also said that FHWA gives too much focus  to smaller issues and is overly involved in routine matters.  3.  State officials were frustrated by inconsistencies in FHWA’s decision  making across states. Many state DOT officials expressed frustration  about the inconsistencies they perceived in FHWA’s decisions across  states. Specifically, several noted that FHWA division offices in other  states had been more permissive of certain solutions or requirements  compared to the FHWA division office in their state and stated that  FHWA does not always use the maximum flexibility it has at its  disposal in interpreting federal rules. For example, a state DOT official  told us that the division office in his state did not approve a certain  material for markings on the state’s highways, but he learned that the  same material had been approved in 17 other states.
The inconsistencies experienced by state DOTs may not be  unreasonable and could stem from the decentralized nature of the  federal-aid highway program and the fundamental challenge FHWA and  the states face in navigating gray areas on complex projects with unique  political, financial, engineering, and other challenges. These complexities  likely contribute to FHWA and state DOTs’ differing perspectives. For  example, we previously reported a case in which a state DOT planned to  construct new soundwalls on an existing highway. FHWA noted that the  state was planning to widen the road a few years later and that the walls  would likely have to be destroyed and rebuilt. FHWA recommended that  the state construct the walls at the location envisioned for the widening  project, but state DOT officials resisted because of the additional costs to  acquire property. FHWA then informed the state that it would only fund  construction of the walls once—either at the location along the existing  highway as the state had planned or at the location needed once the road  was widened. This example illustrates a case in which state officials  may have viewed FHWA as imposing its personal preferences and may  have been aware of similar situations in other states in which FHWA  officials made different decisions inconsistent with this approach. FHWA,  on the other hand, may have viewed its decision as exercising  professional judgment to promote the most long-term cost-effective  solution, consistent with its role as a steward of federal funds.
section_title: FHWA’s Partnership with States Poses Risks in FHWA’s Oversight
paragraphs: While successful partnering relationships offer benefits, they also present  potential risks, according to the literature we reviewed. First, one partner  may grow lax in holding the other to standards. Second, one partner can  lose independence in its decisions. We observed cases where FHWA  was lax in its oversight by trusting but not verifying state activities and  cases where FHWA demonstrated reluctance to take corrective action to  bring states back into compliance, which can result in ineffective,  wasteful, and potentially improper use of federal funds. We also observed  instances in which FHWA sometimes showed a lack of independence in  decisions, putting the states’ interests above federal ones, and other  instances in which FHWA took extraordinary measures to advance the  program to the point of becoming actively and closely involved in  implementing solutions to state problems. This can create an inherent  conflict when FHWA later must review and approve those actions or  review their effectiveness. Despite the risks partnership poses, FHWA  has good oversight practices in several areas of the federal-aid highway  program.
subsections: section_title: Partnership Created Challenges for FHWA in the Past
paragraphs: We have expressed concerns about the risks posed by FHWA’s  partnership approach in the past. The Central Artery/Tunnel project in  Boston, Massachusetts, provides examples of both lax oversight and a  lack of independence that resulted in ineffective and inefficient use of  federal funds and damaged FHWA’s credibility.one of the largest, most complex, and expensive ever undertaken—  This highway project— experienced widely reported cost increases, growing from around $2.3  billion in the mid-1980s to almost $15 billion in 2004. From 1995 through  1997, we reported concerns about cost growth and funding gaps on the  project and weaknesses in FHWA’s efforts to address them and to hold  the state accountable. In March 2000, an FHWA task force charged with  reviewing FHWA’s oversight of the project concluded that “FHWA’s long  history of strong Federal/State partnerships failed” and that FHWA “had  failed to maintain an independent enough relationship with the state to  adequately fulfill its oversight role.” The task force attributed lax oversight  to FHWA placing too much trust in the state, reporting that FHWA’s  partnership approach failed to achieve independent and critical oversight  of the project.
As this example illustrates, although FHWA has experienced partnership  risks to its programs in the recent past, FHWA division administrators  generally do not recognize the risks of partnering as significant. In our  survey, more than half (29) stated they did not believe that partnering  creates any risks to their oversight of the federal-aid highway program. Of  the remainder, 5 said it may create “some risk,” 17 said there was a  “slight risk,” and only one stated partnering was a “significant risk” to  oversight.
section_title: FHWA Sometimes Was Lax in Its Oversight or Reluctant to Take Corrective Action
paragraphs: In some instances, FHWA was lax in its oversight in that it did not verify  compliance with the requirements of the federal-aid highway program,  instead trusting states to ensure its actions were in compliance, which  could have resulted in ineffective, wasteful, and potentially improper use  of federal funds. For example:
Our November 2011 report on the Emergency Relief program (which  provides funds to states to repair roads damaged by natural disasters  and catastrophic failures) found that many of the project files reviewed  did not contain documentation to support FHWA decisions that  projects met program eligibility requirements. Specifically, of the 83  projects reviewed, 81 projects (representing $193 million in federal  funds) had missing or incomplete documentation. As a result, we were  unable to determine the basis of FHWA’s eligibility decisions for many  of the projects reviewed. We also found that FHWA divisions relied  heavily upon the information provided by states to make FHWA  eligibility decisions without verifying that information. For example,  one FHWA division office reported that it reviewed preliminary cost  estimates for about one-third of the projects included in our review  before determining that projects were eligible.not determine the basis of FHWA’s eligibility decisions for those  project cost estimates it did not review and as such, FHWA ran the  risk of providing funds to ineligible projects.
As a result, we could  In the Disadvantaged Business Enterprise (DBE) program, which  aims to increase the participation of small businesses owned and  controlled by socially and economically disadvantaged individuals,  state DOTs are among those entities responsible for certifying firms to   In an interview with one FHWA division office, the FHWA participate. official said that he knows that the state DOT official is very  experienced with the DBE certification process and, because of that,  relies on the state to make certification decisions consistent with  federal regulations. As a result, the official stated that FHWA is  generally not involved in verifying the eligibility of DBE firms certified  by the state. Although FHWA is not required to review every  certification, in this instance FHWA’s partnering relationship with the  state influenced the level of oversight conducted in this area and  exposed FHWA to the risk that ineligible firms might be certified as  DBEs.
Officials from the FHWA division offices we spoke to said they tended  not to do unannounced inspections. Instead, FHWA alerts the relevant  construction sites and offices of an inspection ahead of time. Officials  from one FHWA division office explained that they rely primarily on  announced visits because they do not want to create a “gotcha”  environment, which might hurt their relationship with the state.  Division officials from another office explained that announcing  inspections gives state DOT staff time to do things like assemble the  appropriate records or personnel for FHWA’s inspection or allows  FHWA to observe specific activities, such as materials testing, on the  day that particular activity is occurring. While there are some  advantages to announced inspections, the Institute of Internal  Auditors includes unannounced visits as a common practice used by  firms to mitigate risks associated with partnering. By not conducting  unannounced inspections, FHWA is essentially trusting the state and  its contractors to put compliance with federal requirements over  meeting competing demands like cost and schedule. In doing so, it  may be missing the opportunity to more accurately verify compliance  with federal requirements, observe normal operations, and create an  environment conducive to compliance.
The partnering relationship between FHWA and state DOTs at times may  have also resulted in FHWA being reluctant to require corrective action to  bring a state back into compliance with program requirements.  Specifically, FHWA staff acknowledged that, in their daily decision  making, they have to think about how to preserve their relationship with  their state counterpart and that they view taking corrective action as  potentially damaging to that relationship. For example:
We and the DOT Office of Inspector General have reported multiple  times on the problem of funds committed to inactive federal-aid  highway projects. FHWA has made it a priority to decrease nationally  the number of outstanding inactive projects to ensure that federal funds  are being used in a timely and effective way. For example, FHWA had  reduced the percent of funds obligated to inactive projects to about 3.4  percent of all obligations by March of 2012—this percentage had stood  at around 8 percent as recently as September 2010. In 2008, it  established a Financial Integrity Review and Evaluation program  requiring division offices to conduct a quarterly review of inactive  projects and determine the validity of the amount obligated for each  project. FHWA division offices have the authority to de-obligate funds  from inactive projects. However, FHWA division officials with oversight  responsibility for three states we visited expressed reluctance to use  this authority because of concerns that it would negatively affect their  working relationship with the state. Instead, these division offices  negotiated with state officials to get them to explicitly agree to allow  FHWA to de-obligate funds. FHWA officials acknowledged that this is a  long, time-intensive process. For example, over the course of 6 months,  one FHWA division office sent reminder letters with specific deadlines  for the state to provide a rationale for allowing inactive funds to remain  obligated. Yet at the end of this process there were still outstanding  inactive projects that had not been resolved. In another state, FHWA  finance personnel described having ongoing conversations with their  state counterparts, asking them the status of inactive projects and  negotiating to de-obligate those funds. The FHWA division office  described the process as “walking the tightrope” with the states when  making decisions to de-obligate. The amount of time officials we spoke  with devoted to addressing inactive funds raises questions about  whether, on the whole, division offices could have moved more quickly  to make these funds available to other needed projects had officials not  had to consider the impact of withdrawing funds on their partnership  with the state.
One state identified serious compliance issues with one of its major  cities dating as far back as 2003, including federal construction  specifications not being followed, insufficient field equipment, and lack  of appropriate construction supervision. In 2009, FHWA withheld  funding from the city for about 2 weeks while the state DOT drafted a  corrective action plan. FHWA approved the plan and resumed  funding. However, nearly 2 years later, as of August 2011, there were  still points in the plan that had not been addressed. As a result,  federal funds continued to flow to projects that may not have fully met  federal requirements.
FHWA can delegate to the state the responsibility of approving  consultant contracts to ensure compliance with federal regulations.  One state DOT lacked FHWA-approved written procedures for how it  selects consultants, which are necessary to comply with federal  regulations. The FHWA division office had given the state an  extended opportunity—about 5 years—to address the compliance  issue, allowing it to use interim procedures as long as the state DOT  was developing final procedures and planning to have them approved  by FHWA. After 5 years, due to the failure of the state to develop final  procedures, the FHWA division office suspended all state DOT  contract approvals and temporarily re-assumed the responsibility of  approving consultant contracts to ensure compliance with federal  procurement regulations. Once the state DOT developed written  procedures and they were approved, FHWA restored consultant  contract approval authority to the state DOT.
As discussed earlier, FHWA division administrators reported that they  rarely use their most punitive corrective action tools such as cutting off  funding for a program or organization. While FHWA, in cooperation with  the Federal Transit Administration, is responsible for certifying that MPOs  meet federal requirements, as we reported in September 2009, FTA and  FHWA officials were unaware of any instance in which an MPO was not  certified due to noncompliance in the previous 10 years. In our survey of  division administrators, for fiscal years 2009 through 2012, one FHWA  division administrator reported that he withheld certification of an MPO  due to issues in its congestion mitigation plan. However, FHWA still  allowed project approvals to move forward. The FHWA division office put  together a corrective action plan with the MPO, identifying action steps,  deadlines, and people responsible. According to the FHWA division  administrator, as long as the state is making progress toward resolving  the issue, FHWA will not prevent the MPO from obtaining project  approvals and moving construction forward. He noted that MPOs have a  4-year window to become recertified, and if an MPO reached the end of  its window but still had not taken sufficient action for FHWA to certify it,  FHWA would likely provide an extension and grant the MPO “conditional”  certification, rather than decertify it.
Similarly, none of the 52 FHWA division administrators stated they had  not approved their state’s bridge program any time in the past 3 fiscal  years. In 2010, the DOT Office of Inspector General found some cases  where FHWA bridge engineers reported that a state’s bridge program  substantially complied with federal regulations despite deficiencies that  could have posed serious risks to public safety. For example, one  FHWA bridge engineer judged a state to be substantially compliant  despite reporting that the state failed to close 96 bridges, as required. A  bridge engineer in another state reported that 47 bridges were not closed  as required, but concluded that the state was substantially compliant. In  two other cases, FHWA bridge engineers reported states as substantially  compliant even though 200 bridges in one case and over 500 bridges in  the other case were not posted with maximum weight limit signs, as  required.
section_title: FHWA Sometimes Showed a Lack of Independence in Decisions
paragraphs: GAO-10-604 and GAO, Recovery Act: Opportunities to Improve Management and  GAO, Emergency Relief: Status of the Replacement of the Cypress Viaduct,  GAO/RCED-96-136 (Washington, D.C.: May 6, 1996). questioned funding these improvements and additional costs through  the Emergency Relief program, rather than through the annual  formula funding states receive from the federal-aid highway program.  This decision provided California with over $1 billion in additional  funding that it then did not have to utilize from regular federal-aid  funds or state sources. In 2007 and 2011, we reported additional  cases of FHWA using the Emergency Relief program to fund projects  that had grown in scope and cost as a result of environmental and  community concerns. In 2007, we recommended that FHWA revise its  regulations to tighten eligibility criteria and place limits on the use of  Emergency Relief program funds to fully finance projects with scope  and costs that have grown as a result of environmental and  community concerns. FHWA has not acted on this recommendation.
In addition, FHWA has on occasion taken extraordinary measures,  expending considerable resources to advance the program, to the point of  becoming actively and closely involved in developing and implementing  solutions to state problems. When an overseer becomes part of the  solution, the arms-length, independent perspective may be lost, as  agencies that are responsible for implementing program improvements  face an inherent conflict when they later approve those actions or review  their effectiveness. For example:
FHWA spent a substantial amount of time and effort with state DOT  personnel and others trying to determine if funds used on a private  bridge were eligible for use to help the state meet its matching  requirement for federal funding. According to division office officials,  the state was struggling to meet the 20 percent funding match  required of states in order to receive the 80 percent federal-aid  highway funding, due to the economic recession and poor fiscal  situation of the state. Division office officials further explained that had  it not met the match, the state could have lost about $200 million in  federal funds in fiscal year 2012. States may receive “toll credits”— funds that can be credited by FHWA toward the state’s federal  match—if it can demonstrate that toll revenues were spent on facility  improvements and meet other requirements. In an effort to meet its  match, officials explained that the state identified a private toll bridge  that it repaired and improved using toll revenue, but had never  claimed the revenues as federal toll credits. The FHWA division office  committed staff, including their financial manager, to work with the  state DOT, the private bridge company, and an outside auditing firm  to determine the eligibility of the toll credits. Together they identified  more than $50 million in eligible toll expenditures, finding individual  line item expenditures in areas such as preventative maintenance and  capital improvements related to tolling equipment and real estate  acquisition. The eligible toll credits helped the state meet its fiscal  year 2012 federal match requirement. While FHWA officials  characterized the Division’s activities as appropriate technical  assistance that was needed because the state did not have the skills  to identify these credits, it placed the agency in a position of approving  actions it was actively and closely involved in developing.
In one state, an FHWA division office detailed a staff person to work  full-time on-site at the state DOT to help bring the state into  compliance with the requirements of the Highway Beautification Act of  1965. Division office officials had identified ongoing compliance  issues with the state’s outdoor advertising program, including multiple  examples of signs that were not in compliance with the state’s  agreement with DOT. As a result, FHWA could have withheld 10  percent of the state’s federal-aid funds. However, the division did not  withhold these funds. The division adopted an approach that entailed  considerable time and effort on the part of FHWA by detailing a staff  person to (1) research sign regulations on federally controlled routes  to determine compliance with the federal-state agreement and the  Highway Beautification Act, (2) review the state’s outdoor advertising  inventory to determine the status of signs, and (3) provide  interpretations, clarifications, and authoritative determinations  concerning FHWA policy, among other activities.
section_title: Despite Partnership Risks, FHWA Has Good Oversight Practices in Several Areas
paragraphs: Despite the risks partnership poses, in several areas of the federal-aid  highway program, FHWA has good oversight practices. The Institute of  Internal Auditors has identified segregation of duties in the type of  partnership FHWA has with state DOTs as one of the most common  practices used in managing partnership-related risks. During the  administration of the Recovery Act, FHWA developed the National  Review Teams (NRT) composed of FHWA staff—separated from the rest  of the FHWA—to act as a neutral third party to conduct oversight. The  NRTs were able to maintain their neutrality and objectivity in part because  they did not have to concern themselves with preserving a partnering  relationship while conducting oversight and making recommendations for  action. In addition, the findings and recommendations of the NRTs were  reported both to the FHWA division office, which was responsible for  developing action items in response, and the responsible FHWA Director  of Field Services, who was responsible for ensuring the action items were  completed within the established time frames. This practice of providing  an independent review had several benefits. According to FHWA officials,  it provided a consistent, comparative perspective on the oversight regularly  conducted by division offices, and it gathered information at the  national level on both best practices and recurring trouble spots  across FHWA division offices; additional “boots on the ground” for project-level oversight and  increased awareness of federal oversight activity among states,  MPOs, and other transportation organizations receiving Recovery Act  funds; and an independent outside voice to examine the Recovery Act projects  and point out problems, keeping the partnering relationship between  the division offices and the state DOTs intact.
The response to the NRT reviews from both division office and state  officials with whom we spoke was positive. For example, division office  officials said that the NRT reviews often echoed their own observations of  weaknesses in the state DOT’s program, but they said the state DOT  seemed more inclined to act because the NRT was a fresh voice  presenting the observations. Division office officials also told us that  having the NRT point out deficiencies was helpful to them in maintaining  their partnering relationship with the state. State DOT officials we spoke  with in our discussion groups generally agreed that the NRT reviews,  while they created an additional burden, provided an independent third- party perspective during the implementation of the Recovery Act.
In administering the federal-aid highway program, FHWA makes use of  two practices that facilitate good oversight:
A risk management approach to oversight. Conducting risk  assessments, which are part of FHWA’s approach, to identify both  internal and external risks to an agency is another best practice for  agencies. In particular, by targeting areas of risk at both the state  and national level, FHWA can focus on specific program areas of  concern and better utilize limited resources. Division offices conduct  annual assessments of their states to identify the greatest risks and  vulnerabilities, and FHWA headquarters uses this information to  identify common risk areas across the nation. FHWA officials in  several division offices we spoke with stated that they use the risk  assessment to inform their oversight activities throughout the year and  take specific steps, when applicable, to address the risks. In 2009, we  reported that FHWA had improved its use of risk assessments by  proactively identifying risks and their potential impact, as well as  developing specific response strategies to inform its planned oversight  activities. Our report concluded that FHWA’s guidance and training  reflected best practices in risk management in three of four key  areas.
Random sampling to review documentation of various financial  transactions—a practice that is in keeping with its risk-based  approach. This approach ensures that FHWA can assess compliance  with financial requirements in a systematic way when it is impossible  for FHWA to survey all occurring financial transactions. Furthermore,  selecting transactions randomly protects the sample from selection  bias, to which FHWA division offices could potentially be vulnerable  because of their partnering relationship with the state. For example, in  its Financial Integrity Review and Evaluation system, FHWA  headquarters selects a random sample of transactions for each  division office to check for compliance with the Improper Payments  Information Act of 2002. billing transactions each quarter to determine if there is sufficient  documentation to support the billing item and amount.
Pub. L. No. 107-300, 116 Stat. 2350 (2002).
section_title: Partnering Could Help FHWA Implement a Performance-Based System, but Long- standing Challenges Would Remain
paragraphs: Legislation has been approved in the Senate that would move the federal- aid highway program toward a more performance-based approach.  FHWA’s partnership—its close working relationship with the states— could be useful in making the transition to such a system; however,  FHWA would need to effectively address the risks posed by such a close  partnership—lax oversight and lack of independence. In addition, it would  have to address other existing weaknesses that we have identified in  previous reports, including improving the transportation planning process  and data collection and evaluation. Finally, long-standing challenges  stemming from the growth in the number of responsibilities and  complexity within the federal-aid highway program, as well as the lack of  well-defined federal goals and roles, would remain. Reexamining and  refocusing surface transportation programs, which we have previously  recommended, presents an opportunity to narrow the scope of FHWA’s  responsibilities so that it is better equipped to transition to a performance- based system. This review identified areas where FHWA expends  considerable time and resources but exercises little effective control— areas where devolving responsibilities to the states may be appropriate.
subsections: section_title: Legislation Approved by the Senate for a Performance-Based Highway Program
paragraphs: A performance-based system is critical to the reexamination and  restructuring of surface transportation programs that we and others have  recommended. Currently, most highway grant funds are distributed  through formulas that have only an indirect relationship to infrastructure  needs and many have no relationship to outcomes or the performance of  the grantees. Because funds are distributed without regard to  performance, it is difficult to know whether federal spending is improving  the performance of the nation’s highway infrastructure.
Under Moving Ahead for Progress in the 21st Century (MAP-21)—FHWA  would develop performance targets for minimum condition levels in two  areas: (1) pavement on the Interstate and non-Interstate highways on the  National Highway System and (2) bridges on the National Highway  System. If a state did not to meet the minimum condition levels for 2 consecutive years, it would be required to commit a specific percentage  of its federal-aid highway funding to the deficient area. For other areas,  MAP-21 directs states to develop performance targets related to national  priorities identified in the legislation, document these targets in their  statewide transportation improvement programs, and link investment  priorities to these targets. FHWA would have to (1) work with the states to  develop performance goals that represent real improvements relative to  the state’s current conditions and will improve the performance of the  nation’s transportation system, and (2) monitor and measure states’  progress and take corrective action should states not meet performance  targets. Legislation approved by the House Transportation and  Infrastructure Committee and the President’s fiscal year 2013 budget  proposal also refer to states developing performance measures and goals  to improve safety, congestion, and other areas.
section_title: FHWA’s Partnership Approach Could Facilitate a Transition to a Performance-Based Program
paragraphs: FHWA’s partnership with states could offer several benefits in moving  toward a performance-based program. In particular, through the  partnership’s collaborative approach, FHWA could provide technical  assistance to help states develop performance goals and targets and  establish data collection methodologies to evaluate and track their  progress. States participating in our discussion groups found the technical  assistance, knowledge transfer, and policy advice that FHWA provides a  highly valuable benefit of the partnership relationship. Likewise, FHWA  division office personnel recognized the benefit partnership offers in  facilitating technical assistance.
Developing effective performance goals and targets and the data  collection methods to track targets poses challenges that technical  expertise can address. As we have reported, the more specific,  measurable, achievable, and outcome-based the goals are, the better the  foundation for allocating resources and optimizing results.must be linked to project selection and funding decisions, and without  specific and measurable outcomes for federal involvement, policymakers  will have difficulty determining whether certain parts of the federal-aid  highway program are achieving the desired results. In addition,   Also, goals  developing data collection methods that consistently and reliably capture  the metrics needed requires technology, planning, and training staff to  ensure high-quality data.
FHWA has recently developed performance metrics and revamped its  data collection approach for the National Bridge Inventory System.  Specifically, it adopted a new risk-based, data-driven approach that  incorporates the review of 23 individual performance metrics, and, where  appropriate, makes use of random sampling of the state’s bridges to  evaluate the metrics. This recent experience, coupled with its technical  expertise in other areas and division office officials’ relationship with, and  knowledge of, their state, would help to facilitate knowledge transfer and  have the potential to create an effective performance-based program.
section_title: FHWA Would Need to Mitigate Risks of Partnership
paragraphs: Moving to a more performance-based approach means monitoring and  measuring states’ progress, holding states accountable for meeting  performance targets, and taking corrective action objectively and  consistently across states when needed. However, this can only be  achieved if the risks posed by partnership discussed earlier—lax  oversight, reluctance to take corrective action, and lack of independence  in decision making—are overcome.
In addressing the risks posed by its partnership, FHWA can draw on  some of its existing organizational structures. For example, during the  implementation of the Recovery Act, FHWA used its NRTs to augment  the oversight provided by division offices by conducting additional  programmatic reviews and project inspections. Officials stated that the  NRTs were able to maintain their neutrality and objectivity while  conducting oversight and making recommendations, and that NRT  personnel provided a consistent, comparative perspective to the oversight  regularly conducted by division offices. Officials also explained that the  NRTs’ observations often reinforced those of division staff while also  allowing the partnering relationship between the division offices and state  DOTs to remain strong.
section_title: FHWA Would Need to Address Existing Oversight Weaknesses in Planning and Data Collection
paragraphs: Although FHWA would have to work with the states to develop  performance goals and monitor and measure states’ progress, we have  reported weaknesses in federal oversight of both the statewide and  metropolitan area planning processes that prevent effective measurement  and tracking of performance outcomes. For example, we found that  FHWA’s oversight of statewide planning focuses on process, rather than  specific transportation outcomes. As such, FHWA cannot assess  whether states’ investment decisions are improving the condition and  performance of the nation’s transportation system. Similarly, pursuant to  federal law, federal oversight of metropolitan planning is process-oriented  rather than outcome-oriented, making it difficult to determine whether this  oversight was improving transportation planning. Specifically, FHWA’s  oversight is geared toward determining whether MPOs are in compliance  with federal laws and regulations, and this procedural focus, coupled with  the fact that FHWA rarely withholds certification of MPOs, makes it  difficult to use the certification process as a performance indicator for  MPOs. In addition, we found that while FHWA identifies corrective actions  to bring MPOs into compliance, it does not routinely assess the progress  MPOs are making toward completing those corrective actions.
We recommended to Congress that FHWA more closely review states’  transportation improvement programs to assess whether states’  investments are achieving intended outcomes, rather than limiting its  evaluation to whether the state complied with federal processes for  developing the plan. We also recommended that Congress make the  metropolitan planning processes more performance-based in order for  FHWA to better assess the MPOs’ progress in achieving results and  better understand whether federal funds are being used to achieve  national goals. approved a multi-year surface transportation reauthorization measure,  which could potentially address these recommendations.
GAO-09-868. the Government Performance and Results Act of 1993 requires  agencies to measure performance toward the achievement of program  goals and objectives, we have stated previously that the federal  government is not equipped to implement a performance-based approach  to transportation funding because it lacks comprehensive data. For  example, during the administration of the Recovery Act we recommended  that DOT assess the long-term benefits of Recovery Act investments in  transportation infrastructure. In its response, DOT said it expected to be  able to report on Recovery Act outputs, such as the miles of road paved,  but not on outcomes, such as reductions in travel times. We have found  other areas in which the lack of comprehensive, national- level data would  hinder any move toward a performance-based system. For example, in  administering the on-the-job training program, FHWA does not collect  consistent national-level data on the number and demographics of  program participants, the trades involved, and status of trainees. As a  result, FHWA is not able to assess program results and hold states  accountable. In another example, our review of statewide transportation  planning found that while FHWA division offices were collecting data on  progress made by states to advance projects on their statewide  transportation improvement programs to their construction phase, the  data were unreliable to the point of being unusable because they were  collected inconsistently across states and could not be used to compare  states’ progress. We have made numerous recommendations to DOT  related to the need for national-level data—a number of which DOT has  yet to implement.
section_title: Long-standing Challenges and the Need to Reexamine and Reform the Federal-Aid Highway Program Remain
paragraphs: FHWA’s success in transitioning to a performance-based program is  dependent not only on addressing risks posed by its partnering  relationship, but also by factors it cannot control. A performance-based  program represents new responsibilities at a time when the growth in the  number and complexity of its responsibilities and the lack of well-defined  federal goals and roles leave FHWA, to a large extent, with a broad  mandate in an increasingly constrained budget environment. As we have  reported previously, a performance-based system is one part of the  broader need to reexamine and restructure the program. A clearer  definition of the federal role and, in turn, FHWA’s responsibilities is under  Congress’s purview, and therefore beyond FHWA’s or its partners’ ability  to address.
In 2008, we recommended that Congress consider a fundamental  reexamination and reform of surface transportation programs that would  potentially result in a more clearly defined federal role in relation to other  levels of government and thus a more targeted federal role focused  around evident national interests. For issues in which there is a strong  national interest, ongoing federal financial support and direct federal  involvement could help meet federal goals. Where national interests are  less evident, other stakeholders could assume more responsibility, and  some programs and activities may better be devolved to other levels of  government. In some cases, it may be appropriate to “turn back” activities  and programs to state and local governments if they are best suited to  perform them.
23 U.S.C. § 106(c)(2). these projects, FHWA is still expected to evaluate state DOT capacity  through a number of processes and reviews. Division office officials told  us that these activities require a considerable amount of time and effort  on the part of their staff.
Locally administered projects are projects in which a state DOT has given  approval to a local public agency (e.g., a city or county) the responsibility  to administer a project or phase of a project such as design, property  acquisition, or construction. These projects can either receive full  oversight from FHWA or that responsibility can be assumed by the state.  During our review, FHWA did not have national-level information on the  number of projects or amount of federal funds spent on locally  administered projects. However, it began requiring division offices to  collect this information for newly authorized projects on March 12, 2012,  so such data will be available in the future. Nevertheless, locally  administered projects are ranked by FHWA’s risk assessments as among  the highest-risk areas in FHWA’s oversight portfolio at both the state and  national levels. For example, at least 33 division offices included risks  related to locally administered projects as their most pressing risk areas  in 2010. These risks included a lack of understanding of federal-aid  construction contract requirements and use of innovative or nontraditional  construction techniques by inexperienced local agencies. Likewise,  FHWA headquarters identified locally administered projects as high risk.  According to FHWA division and state officials, local agencies struggle to  meet federal regulations that accompany federal-aid funding because of  high staff turnover at the local level and the infrequency with which local  agencies receive federal funding.
These challenges were reiterated throughout the discussion groups we  conducted, as well as at the site visits to FHWA division offices that we  conducted across the country. FHWA officials from two states described a  wide range of risks posed by locally administered projects, including use  of outdated design standards, lack of quality control and assurance, lack  of standard documentation and recordkeeping, and insufficient knowledge  of the right-of-way acquisition requirements. One FHWA division office  provided examples of locally administered projects in their state that did  not conduct construction inspections or materials testing or bought  supplies from foreign countries, actions that are out of compliance with  federal regulations. According to officials in three of the FWHA division  offices we visited, locally administered projects require considerable time,  attention, and resources. For example, according to officials in three  division offices, FHWA staff expend a good deal of time and effort  providing technical assistance and capacity-building to enhance the ability  of local agencies to successfully administer federal-aid projects.
Further, our analysis of the 2010 state Single Audits showed that  insufficient monitoring of subrecipients, such as on locally administered  projects, was one of the most common findings and that 18 of 47  reporting states had findings related to monitoring of subrecipients. Our  analysis also showed that state DOTs did not properly communicate  federal requirements in their awards to or contracts with subrecipients  and that their monitoring of subrecipients during the award was  inadequate. Specifically, state DOTs’ monitoring of subrecipients for  compliance with federal and state requirements lacked procedures for or  had poor compliance with existing procedures for regular site visits, risk  assessments, and performance reporting.
As we have reported, devolving parts of the federal-aid highway program  would have many implications and would require careful decisions to be  made at the federal, state, and local levels. Since the federal-aid highway  program has a dedicated source of funding (in that it is funded from fuel  taxes and other fees deposited into the Highway Trust Fund), devolving  parts of the highway program could entail reducing revenues into the  Highway Trust Fund. The decision to reduce revenues at this time would  be difficult because the Congressional Budget Office estimates, as of  March 2012, that to maintain current spending levels plus inflation  between 2013 and 2022, the Highway Trust Fund will require over $125  billion more than it is expected to take in over that period. At the federal level, it would need to be determined what functions would remain and  how federal agencies would be structured and staffed to deliver those  programs. At the state and local levels, it would need to be determined  whether to replace federal revenues with state taxes and what types of  programs to finance. Deciding whether to replace federal revenues with  state taxes would be difficult because states also face fiscal challenges  and replacing revenues would have different effects on different states.
section_title: Conclusions
paragraphs: FHWA’s partnership approach with the states allows it to proactively  identify issues before they become problems, achieve cost savings, and  gain states’ commitment to improve their processes. In some areas,  FHWA division offices have good oversight practices that complement its  partnership, including using a risk-based approach to its oversight and  using an independent, third- party review (the NRTs) to augment its  oversight activities during the implementation of the Recovery Act.
However, FHWA’s partnership also poses risks that it has not to date  directly addressed, that can potentially result in improper or ineffective  use of federal funds and the loss of independence necessary for effective  oversight. Should Congress direct FHWA to move to a performance- based system, holding states accountable for achieving performance  measures—and taking action when they do not—would be essential.  Because of the nature of their partnership with the states, FHWA’s  division offices may not be in the best position to mitigate partnership  risks. Given that partnership produces benefits, the solution does not lie  with eliminating FHWA’s partnership approach. Rather, a strategy built  around leveraging the strengths of the partnership approach while  managing its risks could provide a better way for FHWA to verify the  states’ use of federal funds.
While such a strategy could take many forms, greater separation of the  responsibilities to advance, oversee, and make corrective action  decisions in the program would be consistent with good internal control  practices and may help FHWA transition to a performance-oriented  program. Specifically, a nationally focused, independent oversight entity  modeled on the NRTs could be an effective vehicle to mitigate risks  associated with partnering between FHWA division offices and state  DOTs by conducting periodic evaluations of selected activities and  making recommendations for improvement. This could be particularly  helpful in instances in which the division offices have been reluctant to  take corrective action because of concerns about damaging the  partnering relationship. In addition, if Congress directed FHWA to move to  a performance-based system, an entity modeled on the NRTs could  assess states’ progress toward performance measures and hold states  accountable for meeting them. Responsibilities such as technical  assistance and knowledge transfer—areas where FHWA’s partnering  relationship can help states develop performance goals and targets— could remain with the division offices.
Any successful transition to a performance-based system in the highway  program requires accurate, reliable national-level data. The partnership  that division offices have with state DOTs could help to ensure that states  develop data collection methods that would help determine whether the  highway system overall was improving. Furthermore, FHWA has the  expertise to develop and implement a rigorous national-level data  collection effort as it recently did with the National Bridge Inventory  System. We are not making a new recommendation to DOT on this  matter because many of our recommendations on collecting national-level  data remain open.
In 2008, we recommended that Congress consider reexamining and  refocusing surface transportation programs, establishing well-defined  goals with direct links to identified federal interests and roles, and  consider devolving to the states and other levels of government  responsibility for programs where national interests are less evident. The  information we gathered during the course of this review and the pending  transition to a more performance based federal-aid highway program  reinforces the need to act. First, FHWA’s responsibilities have expanded  over the years while its resources have not, and the addition of a  performance-based system to its already broad mandate would further  expand FHWA’s responsibilities. Reexamining and refocusing surface  transportation programs presents an opportunity to narrow the scope of  FHWA’s responsibilities so that it is better equipped to transition to a  performance-based system. Second, this review has identified specific  areas where devolving or turning back to the states the responsibilities for  managing and funding some parts of the highway program may be  appropriate. Turnback would have many implications and would require  careful decisions. Yet nearly half of federal-aid highway funds are spent  on roads off the National Highway System—projects for which oversight  has been assumed by the states—raising questions about whether  evident federal interests are at stake. In addition, the considerable federal  resources FHWA expends overseeing locally administered projects— including capacity-building activities for city and county governments— raises questions about whether such time and effort is better spent in  support of more nationally focused programs and objectives.
section_title: Matter for Congressional Consideration
paragraphs: As we have previously recommended, Congress should consider  reexamining and refocusing surface transportation programs, including  establishing well-defined goals with direct links to identified federal  interests and roles. Based on this review, there may be areas where  national interests are less evident and where Congress may wish to  consider narrowing FHWA’s responsibilities.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Transportation direct the FHWA  Administrator to develop a strategy based on the NRT model to mitigate  the risks associated with its partnering approach with state DOTs, while  maintaining the strengths that the partnership approach brings to the  program. This strategy should address existing risks and, if Congress  directs FHWA to move to a performance-based system, partnering risks  that could affect the successful implementation of such a system.
section_title: Agency Comments
paragraphs: We obtained oral comments from DOT officials, including the Director of  FHWA’s Office of Program Administration. These officials stated that DOT  generally agreed with the findings and recommendations in the report.  Specifically, they recognized that the agency’s partnership approach with  the states poses oversight risks. They stated that they are implementing  efforts based on the NRT model to provide independent reviews and  accountability services to improve the efficiency and effectiveness of  FHWA programs. We will monitor these efforts to assess if the  department is responsive to our recommendation that DOT mitigate the  risks of its partnership with the states.technical comments which we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to  congressional subcommittees with responsibilities for surface  transportation issues and the Secretary of Transportation. In addition, this  report will be available at no charge on GAO’s website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or herrp@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff that made significant contributions to this report  are listed in appendix III.
section_title: Appendix I: FHWA Organization
paragraphs: The Federal Highway Administration (FHWA) has 52 division offices— one in each state, the District of Columbia, and Puerto Rico—to carry out  the day-to-day activities of the federal-aid highway program. These  offices are generally located in the same city as the state departments of  transportation (state DOTs), which is usually the state capital. In addition,  jointly with the Federal Transit Administration, the FHWA operates four  metropolitan offices in Philadelphia, Pennsylvania; New York, New York;  Chicago, Illinois; and Los Angeles, California, which are extensions of  their respective division offices. FHWA division offices are organized  geographically under three directors of field service who provide  administrative supervision and leadership on strategic initiatives to their  constituent division offices. FHWA headquarters provides leadership and  policy direction for the agency, and FHWA’s Resource Center, with five  locations, provides technical expertise, guidance, and training to the  states in areas such as air quality, civil rights, construction, environment,  safety and bridges.
section_title: Appendix II: Scope and Methodology
paragraphs: To address our objectives, we reviewed and analyzed relevant laws,  regulations, and FHWA documentation. Specifically, we reviewed  previous and current authorizations of the federal-aid highway program,  as well as proposed reauthorization language. We also reviewed relevant  sections of U.S. Code that pertain to FHWA and its relationship with the  states. Additionally, we reviewed and summarized past GAO work  regarding FHWA’s programmatic oversight responsibilities and its  relationship with the states.
To obtain information on current FHWA structure and oversight activities,  we conducted site visits to nine FHWA division offices, including  Colorado; Delaware/Maryland, which has a joint office; Maine; Michigan;  North Carolina; Oklahoma; Virginia; and Washington, D.C. We selected  these states to include a range of selection criteria, including the extent to  which oversight responsibilities have been assumed by the state, the size  of the state’s transportation program and proportion of federal funding  relative to state funds, the type of transportation system in the state (e.g.,  primarily rural highways and interstate or primarily infrastructure in  densely populated urban areas); and geographic distribution. We  interviewed FHWA and state DOT officials in multiple settings to learn  how they characterize their relationship and what role partnership plays in  oversight.
We also reviewed selected academic literature on formal partnering  practices and tools. To perform this analysis, GAO conducted a variety of  literature and Internet searches, reviewed previous GAO reports, and  analyzed literature recommended by engagement stakeholders. We read,  analyzed, and synthesized these documents to construct a common  definition of partnering, namely that “partnering is an approach that,  through collaborative processes and activities, enables parties to achieve  individual and mutually beneficial goals and results.” We also identified  nine features of partnership from our review of the literature. Of those, we  selected four features based on the applicability of these features to  FHWA’s partnering relationship with state DOTs based on our  observations of FHWA, interviews with FHWA and state DOTs, and from  our review of documentation of formal partnering arrangements between  states and FHWA division offices. In doing so, we developed the following  definition of features of partnership: “Partnering processes and behaviors  span a continuum of collaborative activities including information sharing,  participative and consultative processes, collaborative problem solving,  and formal team-building such as charter signing and relationship  assessment.” Further, we reviewed literature to identify partnership risks,  and after identifying a list of six risks, we identified two risks which were  most evident in our audit work and that were most relevant to FHWA’s  partnering relationship with state DOTs: lax oversight and a lack of  independence emerged as two primary themes of partnering risk.
To obtain an independent view of issues in FHWA’s oversight, we  examined the results of the 2010 Single Audits—statewide audits of  financial statements and compliance with federal program requirements for  certain programs among recipients of federal funds. Forty-seven states  reported their results in the Federal Audit Clearinghouse as of October 28,  2011. To determine relevant findings to our work, we identified audit  records for FHWA funding categories, which provided us with funding  amounts that were subject to audit findings as well as the types of audit  findings. We analyzed these findings to determine the types of findings  occurring most frequently. For subrecipient monitoring, one of the most  frequent audit finding types, we examined full-text Single Audit reports,  comparing them against each other to identify common themes.
In addition to these efforts, we conducted a survey of all FHWA division  administrators, who lead the FHWA division offices located in each state,  as well as Washington, D.C., and Puerto Rico. With all 50 states and  Washington, D.C., and Puerto Rico, our universe was 52 division offices. We developed a web-based survey instrument of seven closed-ended  questions and one open-ended question, regarding (1) FHWA’s partnering  relationship with state DOTs, and (2) FHWA’s use of available corrective  actions. We pre-tested the instrument with two division administrators in  November 2011. The survey was released in December 2011. We  received 52 completed surveys, for a 100 percent response rate.
To obtain input from states on their relationship with FHWA division  offices and their oversight of the federal-aid highway program, we  conducted four discussion groups of state DOT representatives. We  worked in conjunction with the American Association of State Highway  and Transportation Officials to speak with personnel from a variety of  geographic locations and various programs, including personnel from the  areas of construction, locally administered projects, engineering, bridges,  and leadership.
To determine the extent to which FHWA’s incorporation of partnering  practices into its oversight approach supports effective oversight, we used  academic literature and GAO reports to identify criteria and effective  practices for productive partnering and robust oversight. Using these  criteria and effective practices, we assessed FHWA’s current oversight  practices by reviewing information from interviews with FHWA  headquarters and division offices and state DOTs; site visit observations;  and relevant findings from recent and ongoing GAO engagements  examining various FHWA program areas.
To determine the extent to which FHWA’s partnering approach serves as  a foundation for moving toward a performance-based transportation  program, we identified principles for a performance-based transportation  system in previous GAO reports that can be applied to FHWA, including  (1) national transportation goals, (2) performance measures,   (3) appropriate performance targets, and (4) employing the best tools to  emphasize return on investment. We also reviewed the proposed  reauthorization bill, Moving Ahead for Progress in the 21st Century   (MAP-21),performance-based system.   to incorporate Congress’ expectations for moving toward a  We conducted this performance audit from April 2011 to April 2012 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.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, other key contributors to this  report were Steve Cohen (Assistant Director), Joah Iannotta (Analyst-in- Charge), Irina Carnevale, Kathryn Crosby, Peter Del Toro, Holly Dye, Bert  Japikse, Thomas James, Stuart Kaufmann, SaraAnn Moessbauer, Amy  Rosewarne, and Jeffrey Sanders.