Highway and Transit Investments: Flexible Funding Supports State and Local Transportation Priorities and Multimodal Planning
Published: 2007-07-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Intermodal Surface Transportation Efficiency Act of 1991 introduced two highway programs--the Surface Transportation Program (STP) and the Congestion Mitigation and Air Quality Program (CMAQ)--that may be used on both highway and transit projects and that are referred to as "flexible funding" for the purposes of this report. GAO was asked to examine (1) the degree to which STP and CMAQ funding has been used on transit and how this use varies across states and urbanized areas, and (2) how states and urbanized areas decide which projects to fund with STP and CMAQ funding and what the outcomes of these decisions have been. To address these issues, GAO analyzed data on flexible funding used on transit projects from the Federal Transit Administration (FTA) and the Federal Highway Administration (FHWA) and spoke with officials in selected states and urbanized areas about their project-selection processes for flexible funding and the outcomes of these funding decisions. States and urbanized areas were selected based on their prior use of flexible funding. GAO is not making recommendations in this report. The Department of Transportation generally agreed with the report's findings and provided technical clarifications, which were incorporated in the report as appropriate.
section_title: What GAO Found
paragraphs: Since the 1991 creation of the two flexible funding programs this report examines--STP and CMAQ--$12 billion from these programs has been spent on transit projects, either directly through FHWA or through transfer to FTA. This spending on transit represents 13 percent of the apportionments for these programs since 1992 and 3 percent of the total federal-aid highway program. However, the amount of FTA funding used in some states has been augmented significantly by these funds; in four states, funds transferred from these programs to FTA made up 20 percent or more of total FTA expenditures. Nearly 80 percent of transferred funds have been used in urbanized areas with populations over one million, and the most common uses of these funds include purchases of transit vehicles such as buses and rail cars, and projects related to rail lines or bus lanes. The 9 states and 12 urbanized areas in our case study review had formal processes for selecting projects for flexible funding. Of these, 7 urbanized areas and 4 states selected projects for all or some of these funds through competitive processes in which projects for different transportation modes were evaluated and selected using established criteria and input from transportation stakeholders. States and urbanized areas that did not use competitions selected projects based on transportation priorities and plans. Regarding the outcomes of decisions on how to utilize flexible funding, state and local officials told us that the broad, multimodal eligibility of this funding program enhances their ability to fund their transportation priorities, particularly in light of the challenge of finding sufficient revenues to pay for transportation improvements.

section_title: Letter
paragraphs: Across the country, passenger and freight traffic continues to place  growing demands on the nation’s aging highway and transit infrastructure,  heightening the need to maintain the existing system and find solutions to  prevent increased congestion. At a time when revenues at all levels of  government to address these conditions are constrained, it is critical that  state and local governments make efficient use of available transportation  dollars. We have previously reported that broader and, particularly,  multimodal eligibility for federal funding can provide states and urbanized  areas with the latitude to address their most pressing transportation  needs. The Intermodal Surface Transportation Efficiency Act of 1991  (ISTEA) and subsequent reauthorization acts gave states and urbanized  areas greater flexibility in selecting transportation projects to be funded  with federal-aid highway formula funds, which are apportioned to the  states annually on the basis of statutory formulas. The act also gave  urbanized areas direct responsibility for selecting projects for certain  funds. Several Federal Highway Administration (FHWA) programs  introduced by ISTEA have transit eligibility, in particular, the Surface  Transportation Program (STP) and the Congestion Mitigation and Air  Quality (CMAQ) Program. These two programs are referred to here as  “flexible funding” programs because of their eligibility for use on both  highway and transit projects. When these FHWA funds are used for transit  projects, states have the authority to request transfer of the funds from  FHWA to the Federal Transit Administration (FTA), to be administered as  FTA grants. This flexibility—including the transfer authority—also  extends to certain FTA funds, which under certain circumstances may be  transferred to FHWA for use on highway projects. Today, as federal  funding is often tied to a single mode of transportation, these programs are  distinctive in the flexibility they grant to states and urbanized areas in  implementing a wide variety of transportation projects.
The conference report accompanying the Safe, Accountable, Flexible,  Efficient Transportation Act: A Legacy for Users (SAFETEA-LU) required  GAO to examine how states and urbanized areas have used the authority  to transfer funds between FHWA and FTA. Although the transfer  provisions apply both to highway funds transferred to FTA for use on  transit projects and transit funds transferred to FHWA for use on highway  projects, only a small amount of transit funds have been transferred for  use on highway projects, according to data from FHWA. Additionally,  while a number of federal-aid highway programs other than STP and  CMAQ may be used on transit projects—either directly through FHWA or  through transfer to FTA—the amount of funding from other programs that  is spent on transit is small. Accordingly, we did not consider these  programs in our analysis. To respond to our reporting requirement, we  focused our study on STP and CMAQ funding used on transit projects and  addressed the following questions:    To what degree has STP and CMAQ funding been used on transit, and how  does this use vary across states and urbanized areas?
How have states and urbanized areas made decisions about what projects  to fund with STP and CMAQ funding, and what have been the outcomes of  these decisions?
In response to the conference report’s direction, this report also addresses  the procedures used to transfer funding and budget authority from FHWA  to FTA. This information is provided in appendix I.
To answer these questions, we analyzed data from FTA and FHWA  databases on the use of STP and CMAQ funding, which, for the purposes  of this report, we refer to as flexible funding. We focused particularly on  the use of flexible funding transferred from FHWA to FTA. We determined  the data to be sufficiently reliable for the purposes of this report due to the  presence of internal controls on the data systems, such as those to ensure  accuracy of data and prevent data loss. We reviewed prior reports on state  and local experiences using flexible funding and federal guidance and  regulations related to state and metropolitan transportation planning and  flexible funding. We also interviewed associations representing  transportation stakeholders, including metropolitan planning  organizations, transit providers, state transportation officials,  transportation construction firms, and highway users. We selected 9 states  and 12 urbanized areas within these states to be subjects of case studies;  these areas were selected based on the extent to which they had  previously used flexible funding on transit projects. We selected 5 states  that had used significant amounts of flexible funding on transit projects in  the past, and within these states we selected urbanized areas that  accounted for a high proportion of the states’ flexible funding used on  transit. We selected 4 other states that previously used either little or no  flexible funding on transit, and within these states—because no urbanized  areas had used a significant amount of flexible funding on transit—we  selected the largest urbanized areas. Because we used a judgmental  sampling technique to select these states and urbanized areas, the results  are not generalizable to all states and urbanized areas. As part of our case- study review, we interviewed federal, state, and metropolitan  transportation officials and reviewed relevant documentation on state and  metropolitan transportation planning processes, projects financed with  flexible funding, and processes for selecting flexible-funded projects. We  interviewed FHWA and FTA staff in Washington, D.C., and in regional and  division field offices and reviewed guidance from these agencies on the  procedures for transferring flexible funding. We performed our work from  May 2006 through May 2007 in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: State departments of transportation and local governments are responsible  for building and improving highways and other road infrastructure in the  United States. The federal-aid highway program, which is administered by  FHWA, provides funding for this purpose from the highway account of the  federal Highway Trust Fund. FHWA distributes highway funds to the  states through annual apportionments established by statutory formulas  and by allocation of discretionary grants; in 2006, about $31 billion in  federal-aid highway funding was available to states. Funds come through  several different programs, each with specific uses and eligibility  requirements, but states generally have broad discretion to choose the  projects that will be funded with these moneys. After determining that  projects meet federal requirements and that funds are available, FHWA  enters into obligations for the projects selected by states. After states  make expenditures on the projects, they apply to FHWA for  reimbursement of the federal share of eligible costs. States supplement  federal funds for highway programs—and provide required matching  funds—with nonfederal revenues such as taxes and user fees.
Constructing, maintaining, and operating public transportation systems  are generally the responsibilities of local agencies, such as transit  authorities or transit operators. Federal funds for public transportation  are generally administered by FTA and are funded through a combination  of general fund revenues and the mass transit account of the Highway  Trust Fund. Recipients such as transit operators and states are  apportioned annual formula program funds that may be used for capital  expenses and, in the case of areas with populations under 200,000, for  operating expenses. Transit operators and other recipients may also  receive discretionary grants for capital expenditures such as vehicle  purchases and system construction or expansion. In 2006, FTA provided  about $8 billion in funding to transit agencies and states through its  formula and discretionary grant programs. Federal transit funds generally  remain with FTA until the transit operator is ready to use them. Additional  funding for transit comes from state or local taxes and operating revenue  such as passenger fares and parking fees.
In the early 1990s, Congress decided that a flexible, intermodal approach  to transportation programs was needed to address growing transportation  needs in the face of budgetary constraints and the diversity of  transportation priorities in different parts of the country. Enacted in  December 1991, ISTEA sought to provide flexible, comprehensive  solutions to transportation problems and focused more on intermodal  approaches than previous acts had. Two of the programs created by this  legislation were STP and CMAQ—also referred to here as flexible funding  because they may be used on a range of projects including transit and  highways. A portion of flexible funding is allocated to localities rather than  states, allowing local authorities to select projects within their  jurisdictions. The responsibility for project selection at this level usually  falls to regional bodies such as metropolitan planning organizations  (MPO), which are composed of representatives of local governments,  transit operators, and other transportation stakeholders who collaborate  on transportation planning. Federal law suballocates a portion of STP  funds to urbanized areas 200,000 or greater in population; some states  have chosen to further allocate flexible funding to these areas. Table 1  provides details on eligible uses for STP and CMAQ funds—which in 2006  constituted about one-quarter of the total federal-aid highway program— as well as guidelines on how these funds are apportioned.
When states or urbanized areas use flexible funding on transit projects,  they may leave the funds in the state’s FHWA account, in which case the  state receives reimbursement from FHWA as costs are incurred.  Alternatively, the state—usually in conjunction with the MPO or the local  agency implementing the project—may request that these funds be  transferred to FTA to be administered through one of several eligible FTA  programs. Once funds are transferred to FTA, a transit operator or other  recipient becomes the grantee for these funds. FTA funds apportioned  directly to transit operators or states may be used for operating costs in  areas under 200,000 in population; however, FHWA funds transferred into  FTA formula programs may not be used for operating costs, except for  CMAQ funds used for new or expanded services.
Although state and local authorities have considerable discretion when  choosing which transportation projects to fund with federal-aid program  funds, federal laws and regulations require that projects proposed for  highway and transit funding be based on comprehensive metropolitan and  statewide transportation planning processes. State, regional, and local  government agencies and transit operators must operate within these  requirements to receive federal funds. The various planning tasks that  states and MPOs must carry out include the following:  involving stakeholders such as elected officials, public transit operators,  environmental and historic preservation agencies, freight shippers, and  others in the planning and project-selection processes.   identifying overall goals and objectives to support transportation  investment choices that consider factors such as projected population  growth and economic changes, current and future transportation needs,  maintenance and operation of existing transportation facilities, and  preservation of the human and natural environments.   evaluating different transportation alternatives through the collection and  analysis of data.   documenting future transportation needs through long-range  transportation plans and short-range programs. Short-range programs,  known as transportation improvement programs (TIP), at the local level,  and state transportation improvement programs (STIP) at the state level,  must include the scope of projects, estimated costs, and the source of  funding. In order to receive federal funding, projects must be included in a  STIP that demonstrates sufficient funds are available to implement the  program.   ensuring that the process for transportation planning and decision-making  reflects a variety of planning factors such as environmental compliance,  safety, security, system management and operations, and land use, among  others.
To help ensure that metropolitan transportation planning processes are  being carried out in full compliance with federal laws and regulations,  FHWA and FTA jointly review the planning process every 4 years in areas  with populations of 200,000 or greater.
section_title: The Proportion of Flexible Funding Used on Transit Is Small Nationwide, but It Has Made a Sizable Impact on Transit Programs in Some States and Urbanized Areas
paragraphs: While states have varied in the extent to which they have used STP and  CMAQ funds for transit, some states have augmented their transit budgets  significantly or made major transit investments using flexible funding. As  part of our review, we looked both at the overall impact on federal  highway and transit spending nationwide and at the types of transit  projects on which flexible funding is most commonly used.
subsections: section_title: The Proportion of Flexible Funding Used on Transit Projects Has Been Relatively Low
paragraphs: Overall, from the enactment of ISTEA in late 1991 through 2006, the  relative amount of flexible funding used for transit projects, either directly  through FHWA or through transfer to FTA, has been low, averaging less  than 3 percent of the total federal-aid highway program and 13 percent of  available flexible funding. From 1992 through 2006, a total of $12 billion of  flexible funding has been used for transit projects. The vast majority— more than 96 percent—of this funding was transferred from FHWA to  FTA; the remaining amount was used for transit projects administered  directly by FHWA. Flexible funding not used on transit was used on other  eligible projects such as construction and operational improvement of  roadways. Figure 2 shows the amount of flexible funding used on transit  projects—including funds that were transferred to FTA and those that  were administered directly by FHWA—in relation to the overall federal-aid  highway program and to available flexible funding from 1992 to 2006.
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The amount of flexible funding transferred to FTA increased markedly  with passage of the Transportation Equity Act for the Twenty-First  Century (TEA-21) in 1998, primarily because the act increased overall  highway funding levels, according to DOT officials. The average annual  amount of transferred funding increased from $630 million under ISTEA to  $1.1 billion under TEA-21, when measured in inflation-adjusted 2007  dollars, and increased further to $1.2 billion during the first two years of  SAFETEA-LU. Likewise, the proportion of available flexible funding  transferred to FTA increased from about 11 percent during ISTEA to 14  percent and 15 percent under TEA-21 and SAFETEA-LU, respectively.  Figure 3 shows both the annual transfer amount in nominal actual dollars  and inflation-adjusted 2007 dollars to allow for comparison across time.
The figure also shows the average transfer amount for each transportation  authorization act in inflation-adjusted dollars.
section_title: The Proportion and Amounts of Flexible Funding Transferred for Use on Transit Vary by State
paragraphs: Individual states have transferred flexible funding to FTA for transit  projects at varying rates. For example, while California transferred nearly  40 percent of its apportioned flexible funding for transit projects  administered by FTA between 1992 and 2006, and 3 other states and the  District of Columbia transferred at least 25 percent, 19 states transferred  less than 2 percent of this flexible funding during the same period. Figure  4 illustrates the state-by-state proportion of flexible funding transferred to  FTA for transit projects.
Among the nine states included in our case-study review, we found that  factors such as demographics, infrastructure, geography, and the  availability of other funding sources had an effect on how much flexible  funding the states used on transit. In states such as Wyoming and parts of  Iowa and Kentucky, for example, population is dispersed over a wide area,  and services such as shopping and health care facilities are often far from  one another and from residential areas. Officials in these states said that  such conditions do not lend themselves to efficient use of transit. Thus,  Iowa state transportation officials noted, the population in Iowa is largely  reliant on the automobile for transportation, and counties, which have  discretion about how to use certain state transportation funds, lean  heavily toward building roads. Another reason for states using a small  proportion of flexible funding on transit can be that the state uses other  revenues to support transit. For example, state transportation officials in  Delaware, which has not transferred flexible funding for use on transit,  told us that they believe state revenue sources—including the state’s  gasoline tax—are sufficient to meet the needs of the state’s transit  operators. Conversely, states that use a higher proportion of their flexible  funding on transit tend to have large, congested urban areas that are  served extensively by transit. Of the 8 urbanized areas included in our  case-study review that are in states that use relatively more flexible  funding on transit, 5 of them have transit operators that are among the  largest 25 in the nation. One notable exception to this trend is the largely  rural state of Vermont, which, because of the state’s commitment to  providing bus services in communities throughout the state, spends a high  proportion of its flexible funding on transit.
The dollar amount of flexible funding transferred by states for use on FTA- administered transit projects varied, with 3 states—California, New York,  and Pennsylvania—collectively accounting for more than half of the  amount transferred from 1992 through 2006. In contrast, 3 states— Delaware, North Dakota, and South Dakota—had never transferred  flexible funding for use on transit projects, and 10 other states transferred  less than $1 million per year, on average. Figure 5 provides information on  the amounts of flexible funding states have transferred from FHWA to FTA  for use on transit projects since the enactment of ISTEA.
Just as the amount of flexible funding transferred for transit projects  varied by state, the effect those funds had on the amount of federal  funding used on transit varied as well. For example, from 1992 to 2006,  Vermont transferred a relatively small amount of flexible funding to FTA  for use on transit projects, but those funds accounted for over 40 percent  of the FTA funding used in Vermont. Similarly, in 3 other states,  transferred flexible funding made up at least 20 percent of the total FTA  funds used in each state, while, in contrast, this figure was less than 5  percent in 17 states. These latter states tended to have fewer large urban  areas and lower population densities. Figure 6 shows the proportion of  FTA funding in each state that came from transferred STP and CMAQ  funds.
section_title: The Use of Transferred Flexible Funding on Transit Is Concentrated in Large Urbanized Areas
paragraphs: From 1992 through 2006, nearly 80 percent—or $9.1 billion—of the flexible  funding transferred to FTA was used by urbanized areas with populations  of over 1 million (see fig. 7). For the flexible funding that remained with  FHWA for use on transit projects, 45 percent was used in urbanized areas  with a population of over 1 million, with the remaining portion used in  smaller areas or on state-administered projects.
Of the flexible funding transferred to FTA from 1992 through 2006, more  than half was used on purchases of vehicles—both rail cars and motor  vehicles such as buses—and on projects related to rail lines or bus lanes.  The heaviest users of transferred flexible funding on transit—urbanized  areas with populations of over 1 million—spent 55 percent on these types  of projects. For example, in the Seattle area, flexible funding was used to  purchase diesel-electric hybrid buses and for the development of the  Sound Transit light rail line. Similarly, in the Northern Virginia region of  the Washington, D.C., area, a regional transit operator used flexible  funding for annual purchases of new buses to expand its fleet. Nationally,  urbanized areas over 1 million in population used 14 percent of transferred  flexible funding on passenger facilities such as pedestrian walkways, bus  stops, and rail stations. Smaller urbanized and rural areas also used a  significant amount—about 40 percent—of their transferred flexible  funding on motor vehicle purchases and an additional 6 percent on bus  and rail lines. For example, the transit agency in Des Moines, Iowa, has  relied on flexible funding to pay for bus replacements, transferring  approximately $2.5 million of its STP funds to FTA for this purpose over  the last 10 years. Figure 8 provides detailed information about how large  urbanized areas and smaller urbanized or rural areas used the flexible  funding that they transferred to FTA. Regarding the “other” category,  shown in figure 8, a substantial portion of this category is preventive  maintenance and contracted services (i.e., transportation service provided  to a public transit agency by a public or private transportation provider  under contract).
section_title: States and Urbanized Areas Used a Formal Process to Select Projects Suited to Their Priorities and Needs, Resulting in Diverse Uses of Flexible Funding
paragraphs: A competitive process was often used to select projects, particularly at the  local level, and projects not selected this way were chosen based on state  or local transportation plans and priorities. An advantage of flexible  funding cited by officials in our case-study review was that because of its  broad eligibility, it enables multimodal transportation planning and  thereby allows states and localities to select projects best suited to their  diverse needs.
subsections: section_title: Projects for Flexible Funding Are Often Selected through a Competitive Process, Particularly at the Local Level
paragraphs: Of the 10 urbanized areas included in our case-study review that have  decision-making authority for flexible funding, 7 selected projects for at  least some of these funds using competitive processes in which all  eligible project types were considered, including highway, transit, bikeway  and pedestrian, and others. While the competitions varied somewhat from  place to place, we found that common elements of most of these  competitions included the following:    a call for projects, during which potential project sponsors—such as  transit operators, city or county governments, or nonprofit groups— submit formal project applications to the competition coordinator,  typically the region’s MPO.    project applications that consist of basic information on the project,  including title, sponsor, summary description, location or service area,  cost, and funding sources.   an initial screening of project applications in which basic eligibility  determinations are made, such as eligibility to receive federal funds,  project readiness, availability of local matching funds, and compatibility  with or inclusion in the region’s long-range transportation plans.   a technical evaluation of the projects found to be basically eligible,  typically carried out by a technical committee of the MPO using criteria  established by the MPO. Some of the most common criteria are   air quality impact, measured by the estimated emissions reductions of  traffic flow improvement or congestion reduction;   potential to enhance continuity of the transportation system or regional  connectivity.   a recommendation of projects based on the technical committee’s  evaluation submitted to the MPO’s board of directors.
In addition, according to federal requirements, all projects included in a  region’s TIP, regardless of how they are selected, are subject to a public  notification and comment period.
Some of the urbanized areas included in our case study review also  established project categories based on the needs and priorities of the  region to allocate funds among certain uses such as road maintenance or  capacity enhancement, bikeway and pedestrian facilities, or transit capital  improvements. These categories tended to have specific eligibility and  application requirements and evaluation criteria, as can be seen in the  following examples:   In the Virginia Beach, Virginia, area, six categories were used in the MPO’s  competition for STP funds. The projects competing in the intermodal  transportation category were evaluated on whether the project would  establish opportunities for linkages between transportation modes and  improve rail or vehicular access to freight facilities, among other criteria.  In contrast, projects competing in the highway capacity category were  evaluated on criteria such as potential impact on congestion levels, system  continuity, and safety improvements.
In Des Moines, Iowa, STP projects were awarded in four categories.  Projects competing in the major construction category were evaluated  based on their potential to increase future traffic volumes and their  functional classification (e.g., principal arterial roads ranked higher than  small, feeder roads), among other things. Projects competing in the  alternative transportation category were evaluated based on congestion  reduction, air quality benefit, and the fuel efficiency of the mode of  transportation.
On the state level, of the nine states included in our case-study review,  four—Iowa, Kentucky, Vermont, and Virginia—awarded a portion of their  flexible funding through a competitive process. Statewide competitions— typically sponsored by state departments of transportation—were similar  to local competitions, although some of them required projects to be  vetted at the local level before being submitted to the statewide  competition.
section_title: Flexible Funding Projects Sometimes Selected Based on Policy Goals, Priorities, or Long-Range Plans
paragraphs: Although most of the urbanized areas included in our case-study review  that have decision-making authority for flexible funding used competitions  for at least some of these funds, they also selected some projects and  programs based on local policy goals and priorities. Some examples of  locally established priorities that we found in the urbanized areas included  in our case-study review include the following:  In the San Francisco area, transportation stakeholders projected a  significant shortfall for transit capital expenditures over a 25-year period.  The region’s MPO board of directors decided to make this a priority use  for STP funds, allocating the funds to each transit operator based on its  portion of the projected shortfall.
In Pittsburgh, due to the age of the region’s roadways and transit systems,  there was a heavy emphasis on the preventive maintenance of this  infrastructure, with about 80 percent of all available funding—including  flexible funding—being used for this purpose. Specific projects were  selected based on continuous analysis of transportation infrastructure  needs, the region’s long-range plan, and input from the public and the  state’s transportation department.
For most of the states in our case-study review, flexible funding that was  neither suballocated to urbanized areas nor awarded competitively was,  along with most other federal and state funding sources, used on projects  identified through state transportation planning processes; these  processes typically considered transportation priorities, conditions, and  needs throughout the state. Because state departments of transportation  are primarily responsible for building and maintaining roads, project  selection at the state level tends to focus on roads, including construction  of roadways and related projects to manage road usage such as intelligent  transportation systems. For example, Kentucky’s transportation  department uses STP funds and other available funding sources for  priority road projects that the state identifies based on a number of  factors, such as transportation problems across the state, need (based on a  statewide needs analysis), and project eligibility. Looking at these  considerations, the transportation department develops a list of projects  and evaluates them alongside available funding sources, including both  FHWA and state sources, to determine which projects will be funded with  which sources. Similarly, Caltrans, the California state transportation  department, applies statewide STP funding, along with other federal and  state funding sources, to projects in its State Highway Operation and  Protection Program, which is developed to address state priorities such as  traffic safety and highway and bridge preservation.
In contrast, some states in our case-study review set aside a portion of  their flexible funding to be used for specific projects or programs.  Following are three examples:    Wyoming and Virginia both use statewide STP funds on specific categories  of roads. Wyoming allocates these funds among county roads, roads in the  state’s urban areas, and industrial and commercial roads such as those  leading to mines. Virginia divides statewide STP funds among primary,  urban, and secondary roads. The decisions about which projects to fund  for these categories of roads are made by Virginia’s Commonwealth  Transportation Board, the city or town, and the county board of  supervisors, respectively.
Pennsylvania’s transportation financial guidance designates $25 million of  the state’s flexible funding to be set aside each year for use by the state’s  transit agencies. (In 2006, the state’s total flexible funding apportionment  was about $290 million.) The majority of the $25 million goes to the state’s  two largest transit operators, Philadelphia’s Southeast Pennsylvania  Transportation Authority and Pittsburgh’s Port Authority of Allegheny  County.
Virginia state law mandates that a percentage of its flexible funding— amounting to about $22 million each year, according to state officials—be  used for public transportation. (In 2006, Virginia’s total flexible funding  apportionment was about $196 million.) A portion of the $22 million must  be used for track lease payments for a Northern Virginia commuter rail  system; the remaining funds are spent on transit projects selected by the  state, usually in rural and small urban areas.
section_title: Flexibility Enables State and Local Officials to Fund Their Highest Priorities, Which Is Advantageous Due to Demand for Transportation Funding
paragraphs: As a result of the broad eligibility of STP and CMAQ funds, states and  urbanized areas can use a multimodal approach to transportation  planning, selecting projects that they believe best address their  transportation priorities—whether a road project, a transit project, or  projects such as intelligent transportation systems or traffic demand  management strategies. Accordingly, the transportation priorities that  states and urbanized areas choose to address vary based on their differing  needs and circumstances. Among the urbanized areas and states included  in our case-study review that use a high proportion of flexible funding on  transit, we found the following distinctive uses of these funds, illustrating  how outcomes vary with state and local priorities:    Constructing the Sound Transit System in Seattle. Sound Transit,  established in 1995 to build a mass transit system serving the three  counties in the Seattle region, is still in a capital-intensive phase, as it  continues to complete the infrastructure for the fixed-route portion of the  system, including construction of a light-rail line connecting Seattle with  the Seattle-Tacoma airport and extending its commuter-rail service south  of Tacoma. It has used more than $112 million in flexible funding for rail  car purchases and rail line construction, among other things. In 2007, it  was awarded $9 million in flexible funding to purchase the right-of-way for  two light-rail stations.
Providing new services in Virginia Beach. The Virginia Beach area, an  urbanized area of about 1.3 million people in southeastern Virginia, has  significant traffic congestion due to the northern and southern halves of  the area being divided by the confluence of the Elizabeth and James  Rivers, which is crossed by seven bridges and tunnels. The regional transit  operator, Hampton Roads Transit, uses flexible funding to provide new  services to help relieve traffic congestion. According to Hampton Roads  Transit officials, obtaining local funding for regional projects can be  difficult because cities within in the region are sometimes reluctant to pay  for services in another city. In this way, officials said, flexible funding can  better benefit the community by making new services possible.
Rehabilitating Pennsylvania’s rail systems. At the end of 2004, transit  systems in Pennsylvania were facing operating budget shortfalls because  transit growth had outstripped the existing revenue sources. The state’s  legislature adjourned before taking action to provide either long- or short- term transit funding. In light of this, a number of transit agencies began  considering measures to reduce their costs by decreasing service and  laying off staff and to increase income by raising fares. In an effort to  avoid service cuts and fare increases, Pennsylvania’s governor proposed  transferring more than $400 million of federal highway funds to FTA to be  used on transit. For the transit agencies in Philadelphia, Pittsburgh, and  other parts of the state to receive the funding, the MPOs in these areas had  to vote to allocate the funds to transit. In Philadelphia and Pittsburgh,  these additional funds were used on eligible capital expenses such as  preventative maintenance, allowing other state funds to be used to cover  operating deficits.
Subsidizing rural transit services in Vermont. Vermont is a largely rural  state with a small population, and, according to the transit officials we  spoke with, has a small tax base on which to draw for funding services  such as transit. The state, however, is committed to preserving its current  quality of life—which includes low levels of pollution and congestion— and allowing its elderly population to “age in place,” meaning that senior  citizens can remain in their homes and still have access to transportation  for medical appointments, shopping, and other necessities. To further  these goals, the state’s transportation department uses a significant  amount of flexible funding on eligible capital expenses such as preventive  maintenance to help support bus services in communities throughout the  state.
In the course of our case-study review, we asked state and local officials  their views on the outcomes of flexible funding. Officials with the MPOs  and state transportation departments we met with said that due to its  broad, multimodal eligibility, flexible funding considerably benefits their  ability to plan and fund their transportation programs, particularly  because of the challenge of finding sufficient revenues to pay for  transportation improvements. One specific advantage cited by a number of  these officials was that flexible funding can serve as an additional funding  source for transit. State officials in Vermont and Virginia noted that  flexible funding makes it possible to provide bus service in small towns  and rural areas through the funding of expenses such as bus purchases,  bus facilities construction, and preventive maintenance. State and local  officials in several states also pointed out that flexible funding is  particularly beneficial for regional projects. For example, in Seattle,  flexible funding is especially well-suited to meeting the region’s goal of  connecting transportation hubs. Although there was wide agreement  among these state and local officials that flexible funding is beneficial,  officials from two states—California and Pennsylvania—also said that in  the context of pressing needs on both the highway and transit sides, using  flexible funding on transit may impact highway programs. In the words of  one MPO official in Pennsylvania, using flexible funding on transit is “a  zero-sum equation,” because, even though it provides much-needed  resources for transit projects, it means that resources for the highway  program are reduced an equal amount. Similarly, an official with the MPO  in the Los Angeles area noted that many area freeways are in poor  condition—a function of inadequate funding for transportation in general,  and, to a small degree, the use of flexible funding on transit. Other state  and local officials, however, said they did not believe using this funding for  transit had negatively impacted roads, and that the larger problem is  insufficient revenues for both highways and transit. Officials with  Vermont’s state transportation department, for example, said that although  there are insufficient funds for road maintenance in the state, they  attributed this condition to a lack of state funding rather than the use of  flexible funding on transit.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOT for review. DOT generally  agreed with the report’s findings. We received comments and technical  clarifications from FTA’s Office of Budget and Policy, Office of Program  Management, and Office and Planning and Environment, and from FHWA’s  Office of Planning, Environment, and Realty, which we incorporated in the  report as appropriate. We also provided officials from the states and  localities included in our case studies with an opportunity to review  segments of the report pertaining to their jurisdictions. These officials  provided technical clarifications, which we incorporated in the report as  appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Transportation, and the state and local  officials with whom we spoke. We will also make copies available to  others on request. In addition, the report will be available at no charge on  the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-2843 or siggerudk@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix III.
section_title: Appendix I: Funding Transfers Involve Multiple Stakeholders and Checks to Ensure Accuracy
paragraphs: To examine the procedures used to transfer flexible funding from the  Federal Highway Administration (FHWA) to the Federal Transit  Administration (FTA) we spoke with officials from FHWA and FTA, both  in their Washington, D.C., headquarters and in field offices. We also  reviewed guidance on the transfer process issued jointly by FHWA and  FTA and examples of documentation used to process requests for  transfers.
subsections: section_title: Federal, State, and Local Governments Involved in Transfer Process
paragraphs: When states or local planning bodies fund transit projects with funds from  the Surface Transportation Program (STP) or the Congestion Mitigation  and Air Quality Program (CMAQ), they have the option to transfer these  funds to FTA for project administration or leave them with FHWA. The  transit agency officials we spoke with said that when they are awarded  STP or CMAQ funds for a project they are implementing, they generally  prefer to transfer these funds to FTA for administration because of their  familiarity with FTA’s personnel, grantmaking procedures, and  requirements and because of FTA’s expertise in administering transit  projects. Requests to transfer FHWA funding to FTA are submitted by  state departments of transportation because the funding comes from state  federal-aid highway apportionments. In deciding whether to approve  transfer requests, FHWA checks to see if projects are eligible for flexible  funding, if states have funding available for the transfer, and if the projects  for which funding is being requested are included in the statewide  transportation improvement program (a requirement for all projects  receiving federal-aid highway or transit funds).
When the transfer is carried out, budget authority—which permits an  agency to incur financial obligations such as the awarding of grants—is  transferred from FHWA to FTA, and the funds necessary to reimburse  grantees for costs incurred is transferred from the highway account to the  mass transit account of the Highway Trust Fund. DOT recently  implemented an accounting change whereby the funds necessary to  reimburse grantees are transferred to the mass transit account as grantees  incur costs, rather than all at once when the transfer is approved.  According to DOT officials, this change is intended to slow the decline of  the highway account’s balance. After the budget authority has been  transferred to FTA, FTA makes an apportionment in the grantee’s account  using the grants management system. To obtain the transferred funds,  grantees must have a grant application approved by FTA. The procedures  for transferring funds were detailed in joint guidance issued by FHWA and  FTA in 1999; the agencies are in the process of preparing updated joint  guidance. Figure 1 provides more detail on the steps in the transfer  process.
section_title: FHWA and FTA Check Project Eligibility and Have Processes in Place to Help Ensure Accurate Transfers
paragraphs: Eligibility checks of projects receiving flexible funding occur before,  during, and after the transfer process. Prior to states’ submitting transfer  requests, FTA and FHWA participate in the statewide and metropolitan  transportation planning processes and provide technical assistance on  issues such as funding eligibility. After states submit requests to transfer  funds, checks on project eligibility occur at FHWA division offices when  state transfer requests are received, and at the FHWA Financial  Management Office to ensure funds are available and requests meet  transferability requirements. FTA’s subsequent review of grant  applications includes checking project eligibility in greater detail.
According to FHWA and FTA officials, the following checks occur to help  ensure that the correct amount of funding and budget authority is  transferred from FHWA to FTA:    Recording of steps in the transfer process. FHWA records information on  the amount of funds being requested, the type of funds (such as CMAQ or  STP) and the state requesting the transfer, as well as dates of key steps in  the transfer process. FTA also tracks key information on transfer requests,  including the date of the letter requesting the transfer, the grantee  receiving the funds, the description and FTA project number of the transit  project receiving funds, the type of FHWA funding to be transferred, and  the amount to be transferred.
Reconciliation process. Before transfers are finalized, FHWA and FTA  follow procedures to ensure the correct amounts are transferred. The  FHWA Office of Budget reconciles transfer requests with a report  generated by FMIS that documents the amounts and the program codes to  be transferred, then provides this and other supporting information to the  FTA Office of Budget. The FTA Office of Budget also reconciles transfer  requests with information generated by FMIS. Before the FHWA Office of  Budget requests that the FHWA Office of Finance move the funding  through the Department of the Treasury, the amount to be transferred is  agreed upon by FHWA and FTA.
Records retention. Hard copy files for each transfer request received are  maintained by FTA for 5 years and then archived; files are maintained by  FHWA for 20 years.
section_title: Appendix II: Objectives, Scope, and Methodology
paragraphs: To determine the degree to which flexible funding has been used on  transit and how this use varies across states and urbanized areas, we  analyzed data from FTA and FHWA. We assessed the reliability of the data  and found it was sufficiently reliable for the purposes of this report. These  data included information about the funds transferred to FTA for project  administration, funds remaining at FHWA for use on transit projects, the  overall federal-aid highway program apportionments, and apportionments  for the CMAQ and STP programs. We obtained information from FTA’s  grants management system, called the Transportation Electronic Award  Management (TEAM) system, regarding the amount of STP and CMAQ  funds transferred to FTA for project administration. These data were  provided on an annual basis, from fiscal years 1992 through 2006, allowing  us to calculate the amounts transferred by year and the annual averages  for each transportation authorization bill. Additional information was  provided about the population of jurisdictions using these funds; the  purpose for which funds were spent, such as vehicle purchases, busways,  rail lines, or new service; and the proportion of FTA funding in each state  that came from flexed funds. To identify transit spending remaining under  FHWA administration, we requested that FHWA provide data from the  Fiscal Management Information System (FMIS)—its project-tracking  information system—for projects that state officials had coded as being  transit related. We used additional documentation provided by FHWA  officials to determine the source of federal funding (i.e., the appropriation  bill) and information about spending by individual urbanized areas for the  FHWA-administered transit projects. Using these data, we calculated the  total amount of flexible funding spent on transit-related projects  administered by FHWA during ISTEA, TEA-21, and SAFETEA-LU. We did  not independently verify that all projects that states coded as having a  transit component in FMIS in fact had a transit component. We also  analyzed FHWA’s spending for transit projects by the population of the  area implementing the project. In order to determine the total amount of  flexible funding used on transit projects since 1992, we analyzed funding  for transit projects administered by FHWA and funding transferred to FTA  for project administration. We also compared the unadjusted total  amounts with the overall federal-aid highway apportionments for fiscal  years 1992 through 2006 to calculate the proportion of highway funding  spent for transit projects during this period. To calculate the proportion of  flexible funding spent on transit projects under FTA administration, we  compared annual apportionment amounts for the programs to the amount  transferred. Comparisons were done both on the national level and by  state. We also used information from our case-study interviews (see  below) to provide context for differences in the use of flexible funding  among states and to identify examples of types of projects commonly  using these funds.
To determine how states and urbanized areas have made decisions about  what projects to fund with flexible funding and what the outcomes of  these decisions have been, we selected 9 states and 12 urbanized areas for  case-study reviews. To select states, we used three measures to determine  how states’ prior use of flexible funding on transit compared: (1) the  absolute dollar amount of flexible funding transferred from FHWA to FTA  for transit projects, (2) the proportion of available flexible funding  transferred, and (3) the proportion of FTA funding in the state that came  from transferred funds. We selected five states that ranked in the top 10  for at least two of these measures for site visits—California, Pennsylvania,  Vermont, Virginia, and Washington. We also selected two states—Iowa and  Kentucky—that were ranked among the lowest on these measures among  states that had transferred funds at least five times since the enactment of  TEA-21, and two other states—Delaware and Wyoming—that had either  never transferred funds or done so fewer than five times in the same  period. For these states, we conducted telephone interviews. In each of  these states, we chose at least one urbanized area to include in the case  study. In the states that used a relatively high amount of transferred  flexible funding on transit, we selected urbanized areas that had used the  largest proportion of the state’s flexible funding on transit; in states that  transferred relatively little or no flexible funding for use on transit  projects—because there were no urbanized areas that had used a  significant amount of transferred flexible funding on transit—we selected  the largest urbanized area in the state. In the cases of California,  Pennsylvania, and Virginia, we included two urbanized areas in each state  because each of these areas had used significant amounts of flexible  funding for transit. These cases were selected using a nonprobability  sample, and, consequently, the results cannot be used to make inferences  about the entire population. Table 1 shows the states and urbanized areas  included in our review.
In each state included in our case-study review, we spoke with officials at  the FHWA division in the state and at the FTA regional office with  jurisdiction over the state, and with relevant officials in the state  department of transportation. In the urbanized areas included in our case- study review, we spoke with officials from metropolitan planning  organizations and transit agencies. We asked these officials about the  state’s or locality’s decision-making process in developing transportation  plans and programs and in choosing projects to receive flexible funding,  the mechanics of transferring funds, specific projects funded using these  funds, and the impact of flexible funding on transportation as a whole  (both transit and nontransit). We collected and reviewed: (1)  documentation from the case-study states and urbanized areas, including  information on state and metropolitan planning processes, the criteria and  procedures used in project selection competitions, and projects funded  using flexible funding; (2) federal regulations and guidance related to  transportation planning and the CMAQ and STP programs; and (3) prior  reports on the use of flexible funding by states and urbanized areas. We  also interviewed representatives of the following associations to obtain  their views on flexible funding: the American Association of State Highway  and Transportation Officials, the American Highway Users Alliance, the  American Public Transportation Association, the American Road and  Transportation Builders Association, the Association of Metropolitan  Planning Organizations, and the Surface Transportation Policy  Partnership.
To obtain information on the procedures used to transfer budget authority  and funds from FHWA to FTA, we interviewed officials involved in  overseeing or carrying out the steps in the transfer process, including  those with FTA’s Office of Budget, Office of Program Management, and  Office of Planning and Environment; FHWA’s Office of Budget and Office  of Financial Management; the Office of the Secretary of Transportation’s  Office of Budget; the FTA regions with jurisdiction over the states  included in our case-study review; and the FHWA divisions in these states.  We also reviewed joint FTA-FHWA guidance on the procedures used to  transfer funds.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Ashley Alley, Amber Edwards,  Edda Emmanuelli-Perez, Colin Fallon, Heather Halliwell, Carol Henn,  Molly Laster, Faye Morrison, Joshua Ormond, Robert Owens, George  Quinn, and Terry Richardson made key contributions to this report.