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. Periodically, Congress enacts multiyear legislation that authorizes the nation's surface transportation programs, including highways, transit, highway safety, research, and motor carrier programs. In 1998 Congress enacted TEA-21, which authorized $172.4 billion for the federal-aid highway program from fiscal years 1998 through 2003. The program expired on September 30, 2003, and it has been extended by six short-term extensions, the most recent extending the program until May 31, 2005. During the 108th Congress, both the House and Senate approved separate legislation to reauthorize the federal-aid highway program; however, the reauthorization legislation was not been enacted before the adjournment of the 108th Congress. The bill approved by the House authorized $226.3 billion for the federal-aid highway program for fiscal years 2004 through 2009, an increase of about 31 percent over TEA-21, while the bill approved by the Senate authorized $256.4 billion, an increase of about 49 percent. Because both bills contained funding increases, it is likely that the number of federal-aid highway projects will rise in the next several years. FHWA administers the federal-aid highway program and distributes most highway funds to the states through annual apportionments established by statutory formulas contained in law. Once FHWA apportions these funds, they are available to be obligated for construction, reconstruction, and improvement of highways and bridges on eligible federal-aid highway routes and for other purposes authorized in law. About 1 million of the nation's 4 million miles of roads are eligible for federal aid; including the 161,000 mile National Highway System, of which the 47,000 mile Interstate Highway System is a part. While FHWA administers the program, the responsibility for choosing projects generally rests with state departments of transportation and local planning organizations. The states have considerable discretion in selecting specific highway projects and in determining how to allocate available federal funds among the various projects they have selected. For example, section 145 of title 23 of the United States Code describes the federal-aid highway program as a federally-assisted state program and provides that the federal authorization of funds, as well as the availability of federal funds for expenditure, shall not infringe on the states’ sovereign right to determine the projects to be federally financed. A highway or bridge construction or repair project usually has four stages: (1) planning, (2) environmental review, (3) design and property acquisition, and (4) construction. FHWA reviews and approves long-term and short- term state transportation plans and programs, environmental documents, and the acquisition of property for all highway projects. However, its role in overseeing the design and construction of projects varies. On selected projects, FHWA exercises what is often considered “full” oversight, meaning that FHWA (1) prescribes design and construction standards, (2) approves design plans and estimates, (3) approves the selection of the contract award, (4) periodically inspects the progress of construction, and (5) renders final acceptance on projects when they are completed. However, relatively few projects are subject to this full FHWA oversight. The last two authorizations, the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and TEA-21, devolved an increasing amount of responsibility to the states. Under current law FHWA exercises full oversight of certain high-cost interstate system projects, while states oversee design and construction on other federal-aid projects. The stages of a highway or bridge project and the corresponding state role and FHWA approval actions are shown in figure 1. The types of projects for which FHWA exercises full oversight as compared with state oversight are shown in table 1. According to FHWA, the agency retains the responsibility to oversee all federally-aided highway and bridge projects, including projects for which FHWA does not exercise oversight over the design and construction phases. FHWA conducts oversight of state transportation programs through a variety of means, including process reviews—reviews of state management processes to ensure that states have adequate controls to effectively manage federally-assisted projects. States and FHWA execute stewardship and oversight agreements to define their respective oversight responsibilities. TEA-21 contains an additional oversight requirement for so-called “major projects”—generally those estimated to cost at least $1 billion. Since TEA- 21 was enacted in 1998, states must submit finance plans to DOT annually for such projects, based on detailed estimates of the costs to complete the project and on reasonable assumptions about future increases in such costs. FHWA developed guidance that requires states to include in these finance plans a total cost estimate for the project, adjusted for inflation and annually updated; estimates about future cost increases; a schedule for completing the project; a description of construction financing sources and revenues; a cash flow analysis; and a discussion of other factors, such as how the project will affect the rest of the state’s highway program. FHWA approves these plans as a condition of federal aid. As of November 2004, 11 of the 21 current major projects had finance plans. Approved finance plans will be required for the other projects prior to FHWA authorizing federal funds for construction. FHWA forecasts that another 19 major projects, estimated to cost from $34 billion to $60 billion, will be starting over the next several years and will also require finance plans. Over the past several years, we and others have identified problems with FHWA’s oversight of major projects and other large highway and bridge projects. For example, in 1997, we reported that the overall amount of and reasons for cost increases on highway and bridge projects could not be determined because data were not readily available from FHWA or the states. We found, however, on many of the projects for which we could obtain information, that costs had increased, sometimes significantly, and that several factors accounted for the increases. In addition, initial cost estimates were not reliable predictors of a project’s total cost or financing needs because they were developed at the environmental review stage, and their purpose was to compare project alternatives, not to develop reliable cost estimates. We further reported that cost containment was not an explicit statutory or regulatory goal of FHWA’s oversight; therefore, the agency had done little to ensure that cost containment was an integral part of the states’ project management. In our May 2002 testimony before the Highways, Transit, and Pipelines Subcommittee of your Committee, we reported that FHWA had begun to improve its oversight by implementing Congress’ finance plan requirements for major projects and introducing risk-based decision making into its oversight of states’ processes on other projects. However, we also reported that FHWA had not yet developed performance goals or measurable outcomes linking its oversight activities to its business goals, and that goals and strategies for containing costs could improve accountability and make cost containment an integral part of how states manage projects over time. Furthermore, we stated that opportunities existed for improving the quality of cost estimating and developing reliable and accurate information on the extent and nature of projects’ cost performance to help direct federal oversight efforts. Our work identified several options for enhancing the oversight of major projects. Reports by DOT’s Office of Inspector General, as well as reviews by state audit and evaluation agencies, have also shown that the escalating costs and management of major projects continue to be a problem. For example, the Inspector General has issued several reports on FHWA’s oversight and stewardship of major projects, such as the Central Artery/Tunnel project in Massachusetts and the Woodrow Wilson Bridge in Virginia and Maryland. More recently, the Inspector General reported signs of improvement in FHWA’s stewardship over major projects but identified improvements needed in eight areas, including developing more reliable cost estimates, managing project schedules better, strengthening efforts to prevent and detect fraud, and refocusing FHWA’s efforts on project management and financial oversight. Partly in response to concerns that we and others have raised, in addition to the provisions Congress enacted in TEA-21, DOT also took further action. In 2000 the Secretary of Transportation established a task force to review oversight mechanisms and processes for major transportation projects across DOT. Among other things, the task force recommended that DOT improve the skills and qualifications of staff overseeing major projects and conduct more rigorous financial reviews of such projects. Although DOT did not formally implement the task force’s recommendations, FHWA responded to the task force report by establishing a major projects team in Washington, D.C., to assist FHWA’s division offices in reviewing financial plans and overseeing major projects and by assigning project oversight managers to each of the major projects. In addition, in 2003, DOT proposed new legislation as part of its TEA-21 reauthorization proposal requiring that (1) states submit a project management plan as well as an annual financial plan for any project with an estimated total cost of $1 billion or more or any other project at the discretion of the Secretary; (2) states develop financial plans for any project receiving over $100 million in federal funds; (3) FHWA perform annual reviews of state transportation programs’ financial management and periodic reviews of state project delivery systems for planning and managing projects; and (4) DOT develop minimum standards for estimating project costs and perform periodic reviews of state practices for estimating costs and awarding contracts. This proposal was largely adopted in bills that were separately approved by the House and the Senate in 2004 but that were not enacted before the adjournment of the 108th Congress. To meet the requirements of the Government Performance and Results Act of 1993 (GPRA), DOT establishes goals and outcome measures for the programs under its jurisdiction, including the federal-aid highway program, through its strategic and performance plans. GPRA requires agencies to complete strategic plans in which they define their missions, establish outcome-oriented goals, and identify the strategies that will be needed to achieve those goals.