Current surface transportation programs do not effectively address the transportation challenges the nation faces. Collectively, post-interstate-era programs addressing highway, transit, and safety are an agglomeration that has been established over half a century without a well-defined vision of the national interest and federal role. Many surface transportation programs are not linked to performance of the transportation system or grantees, as most highway, transit, and safety funds are distributed through formulas that only indirectly relate to needs and may have no relationship to performance. In addition, the programs often do not use the best tools or best approaches, such as using more rigorous economic analysis to select projects. Finally, the fiscal sustainability of the numerous highway, transit, and safety programs funded by the Highway Trust Fund is in doubt, as a result of increased spending from the fund without commensurate increases in revenues. Since the Federal-Aid Highway Act of 1956 funded the modern federal highway program, the federal role in surface transportation has expanded to include broader goals, more programs, and a variety of program structures. Although most surface transportation funds remain dedicated to highway infrastructure, federal surface transportation programs have grown in number and complexity, incorporating additional transportation, environmental, and societal goals. While some of these goals have led to new grant programs in areas such as transit, highway safety, and motor carrier safety, others have led to additional procedural requirements for receiving federal aid, such as environmental review and transportation planning requirements. This expansion has also created a variety of grant structures and federal approaches for establishing priorities and distributing federal funds. Most highway infrastructure funds continue to be distributed to states in accordance with individual grant program formulas and eligibility requirements. However, broad program goals, eligibility requirements, and authority to transfer funds between highway programs give state and local governments broad discretion to allocate highway infrastructure funds according to their priorities. Although some transit formula grant programs also give grantees considerable discretion to allocate funds, a portion of transit assistance requires grantees to compete for funding based on specific criteria and goals. Similarly, basic safety formula grant programs are augmented by smaller programs that directly target federal funds to specific goals and actions using financial incentives and penalty provisions. We have found that many federal surface transportation programs are not effective at addressing key transportation challenges, such as increasing congestion and growing freight demand, because federal goals and roles are unclear, and many programs lack links to needs or performance. The goals of federal surface transportation programs are numerous and sometimes conflicting, which contributes to a corresponding lack of clarity in the federal role. For example, despite statutes and regulations that call for an intermodal approach (one that creates connections across modes), only one federal program is specifically directed at intermodal infrastructure. Most highway, transit, and safety grant funds are distributed through formulas that have only an indirect relationship to needs and many have no relationship to performance or outcomes. The largest safety grants are more likely than highway grants to be focused on goals rather than specific transportation systems such as the interstate system, and several highway safety and motor carrier safety grants allocate incentive funds on the basis of performance or state efforts to carry out specific safety- related activities. However, since the majority of surface transportation funds are distributed without regard to performance, it is difficult to assess the impact of recent record levels of federal highway expenditures. For example, while the condition of highways showed some improvement between 1997 and 2004, traffic congestion increased in the same period. Mechanisms to link programs to goals also appear insufficient because, particularly within the Federal-aid Highway program, federal rules for transferring funds between different highway infrastructure programs are flexible, weakening the distinctions between individual programs (see fig. 1). Surface transportation programs often do not employ the best tools and approaches to ensure effective investment decisions. Rigorous economic analysis does not generally drive the investment decisions of state and local governments—in a 2004 survey of state departments of transportation, 34 of 43 state departments of transportation cited political support and public opinion as very important factors, whereas 8 said the same of the ratio of benefits to costs. The federal government also does not possess adequate data to assess outcomes or implement performance measures. For example, the Department of Transportation (DOT) does not have a central source of data on congestion, even though it has identified congestion as a top priority. While some funds can be transferred between highway and transit programs, modally stovepiped funding nevertheless impedes efficient planning and project selection. Additionally, tools to make better use of existing infrastructure, such as intelligent transportation systems and congestion pricing, have not been deployed to their full potential. The solvency of the federal surface transportation program is at risk because expenditures now exceed revenues for the Highway Trust Fund, and projections indicate that the balance of the Highway Trust Fund will soon be exhausted. According to the Congressional Budget Office (CBO), the Highway Account will face a shortfall in 2009, the Transit Account in 2012. The rate of expenditures has affected its fiscal sustainability. As a result of the Transportation Equity Act for the 21st Century (TEA-21), Highway Trust Fund spending rose 40 percent from 1999 to 2003 and averaged $36.3 billion in contract authority per year. The upward trend in expenditures continued under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which provided an average of $57.2 billion in contract authority per year. While expenditures from the trust fund have grown, revenues into the fund have not kept pace. The current fuel tax of 18.4 cents per gallon has been in place since 1993, and the buying power of the fixed cents-per-gallon amount has since been eroded by inflation. The reallocation to the Highway Trust Fund of 4.3 cents of federal fuel tax previously dedicated to deficit reduction provided an influx of funds beginning in 1997. However, this influx has been insufficient to sustain current spending levels. Furthermore, while federal funding for transportation has increased, the total funding for transportation may not increase to the same extent because federal funds may be substituted for state and local funds. Thus, added federal funds may not lead to a commensurate increase in the total investment in highways because state and local governments can shift nonfederal funds away from highways to other purposes. Increases in federal funding do appear to reduce state spending for the same purpose, reducing the return on the federal investment. Research estimates that about 50 percent of each additional federal grant dollar for the highway program displaces funds that states would otherwise have spent on highways. As we have previously reported, this situation argues for a fundamental reexamination of the federal approach to surface transportation problems and a restructuring of federal programs to create more focused, performance-based, and sustainable programs. In cases for which there is a significant national interest, maintaining strong federal financial support and a more direct federal involvement in the program may be needed. In other cases, functions may best be carried out by other levels of government or not at all. There may also be cases for which federal financial support is desirable but a more results-oriented approach is appropriate. In addition, depending on the transportation issue and the desired goals, different options and approaches may be appropriate for different problems. Restructuring the current approach to transportation problems will take time, but a vision and strategy are needed to begin the process of transforming to a set of policies and programs to effectively address the nation’s transportation needs and priorities. Through our prior analyses of existing programs, we identified a framework of principles that could help drive an assessment of proposals for restructuring and funding federal surface transportation programs. These principles include (1) creating well-defined goals based on identified areas of national interest, (2) establishing and clearly defining the federal role in achieving each goal, (3) incorporating performance and accountability into funding decisions, (4) employing the best tools and approaches to improve results and emphasize return on investment, and (5) ensuring fiscal sustainability. We have also developed a series of illustrative questions that can be used to determine the extent to which restructuring and funding proposals are aligned with each principle. We developed these principles and illustrative questions based on prior analyses of existing surface transportation programs as well as a body of work that we have developed for Congress, including GAO’s High-Risk, Performance and Accountability, and 21st Century Challenges reports. The principles do not prescribe a specific approach to restructuring or funding, but they do provide key attributes that will help ensure that restructured surface transportation programs address current challenges. Our previous work has shown that identifying areas of national interest is an important first step in any proposal to restructure and fund surface transportation programs. In identifying areas of national interest, proposals should consider existing 21st century challenges and how future trends could affect emerging areas of national importance—as well as how the national interest and federal role may vary by area. For example, experts have suggested that federal transportation policy should recognize emerging national and global imperatives, such as reducing the nation’s dependence on oil and minimizing the impact of the transportation system on global climate change. Once the various national interests in surface transportation have been identified, proposals should also clarify specific goals for federal involvement in surface transportation programs. Goals should be specific and outcome-based to ensure that resources are targeted to projects that further the national interest. The following illustrative questions can be used to determine the extent to which proposals to restructure and fund surface transportation programs create well-defined goals based on identified areas of national interest. To what extent are areas of national interest clearly defined? To what extent are areas of national interest reflective of future trends? To what extent are goals defined in relation to identified areas of national interest? After the various national interests and specific goals for federal involvement in surface transportation have been identified, the federal role in working toward each goal should be established. The federal role should be defined in relation to the roles of state and local governments, regional entities, and the private sector. Where the national interest is greatest, the federal government may play a more direct role in setting priorities and allocating resources as well as fund a higher share of program costs.