The safe, efficient, and convenient movement of people and goods depends on a vibrant transportation system that meets those needs. Our nation has built a vast transportation system of roads, airways, railways, pipelines, transit, and waterways that facilitate commerce and improve our quality of life. The flow of people and goods is enormous: the nation moved about 5 trillion ton miles of freight and 5 trillion passenger miles of people in 2004. Spending for commercial, personal, and government transportation represents about 11 percent of the gross domestic product. Yet there is a price for this system: Increasing congestion on the ground and in the air delays the arrival of people and freight at their destinations and imposes economic losses. According to Department of Transportation estimates, congestion costs Americans roughly $200 billion each year. The system is expensive to maintain and improve. Total federal, state and local transportation expenditures are close to $200 billion annually. There is a human cost: over 44,000 people are killed in transportation- related accidents and over 2.5 million are injured each year. The transportation system is under considerable strain from these factors, and this strain is expected to increase as the demand to move people and goods grows resulting from population growth, technological change, and the increased globalization of the economy. For example, according to the Transportation Research Board, an expected population growth of 100 million people could double the demand for passenger travel by 2040. Moreover, this population growth will be concentrated in certain regions and states, further intensifying the demand for transportation in these areas. The Department of Transportation implements national transportation policy and administers most federal transportation programs. Its responsibilities are considerable and reflect the extraordinary scale, use, and impact of the nation’s transportation system. The department has multiple missions—primarily focusing on mobility and safety—that are carried out by several operating administrations. (See table 1.) For fiscal year 2008, the President’s budget requested $67 billion to carry out these and other activities. This budget request would support about 55,000 full-time-equivalent employees. The department carries out some activities directly, such as employing more than 15,000 air traffic controllers to coordinate air traffic to make certain that planes stay a safe distance apart. However, the vast majority of its activities are not under its direct control. For example, in recent years the Federal Highway Administration (FHWA) has provided state governments nearly $34 billion each year to build and improve roads and bridges and meet other transportation needs. However, for the most part state and local governments decide which transportation projects have high priority within their political jurisdictions. Similarly, while the National Highway Traffic Safety Administration (NHTSA) encourages the use of safety belts by the motoring public as a means of saving lives and reducing injuries, states determine whether and how to punish noncompliance. In other cases—notably most freight railways and pipelines—the infrastructure is owned and operated by private companies and the Department of Transportation regulates the safety of their transportation operations. In our view, Congress and the Department of Transportation face four major transportation challenges—financing the nation’s transportation system, improving mobility, improving safety, and managing the transformation of the air traffic control system. Another three issues are of continuing concern: building human capital strategies, fostering improved departmental financial management, and improving transportation security and emergency preparedness and response. The efficiency of the nation’s transportation infrastructure is threatened by increasing demand for transportation services, and revenue from traditional funding mechanisms may be unable to keep pace at current tax rates. In addition, the nation’s long-term fiscal challenges will constrain decision makers’ ability to use other revenue sources for transportation needs. As a result of these concerns, we designated financing the nation’s transportation infrastructure as a high-risk issue this year. Revenues to support the Highway Trust Fund—the major source of federal highway and transit funding—at the current fuel tax rate are eroding. While receipts for the Highway Trust Fund, which are derived from motor fuel and truck-related taxes, are growing, the federal motor fuel tax rate of 18.3 cents per gallon has not been increased since 1993 and inflation has eroded purchasing power. In addition, increased fuel efficiency and the advent of alternative-fuel vehicles will further erode trust fund receipts. While increases in vehicle travel will increase fuel tax revenues, funding already authorized in recently enacted highway and transit program legislation is expected to outstrip the growth in trust fund receipts. According to recent estimates from the Congressional Budget Office and the President’s budget, the trust fund balance will steadily decline and reach a negative balance of more than $14 billion by the end of fiscal year 2012. (See fig. 2.) To help remedy this situation, a commission—chaired by the Secretary of Transportation—will report later this year on recommendations to place the trust fund on a sustainable path. In addition, the Department of Transportation’s strategic plan suggests exploring tolling projects and private sector involvement to address funding constraints—ideas that some state and local governments are currently exploring. Federal aviation programs are also facing growing infrastructure demands with constrained resources, and a disruption in the flow of funds may jeopardize FAA’s ability to carry out its improvement programs. Demand for air travel has increased in recent years, with over 740 million passengers flying in fiscal year 2006. Failing to meet infrastructure challenges in aviation may have significant consequences, since aviation is an integral part of the economy. To meet anticipated increases in commercial aviation travel, FAA and aviation stakeholders are developing new systems to modernize and increase capacity, but it is uncertain whether the current funding system can generate sufficient revenues to meet these budgetary needs. FAA and some stakeholders have concerns that the costs of providing and modernizing air traffic control services might increase without a corresponding increase in revenues collected from users. Under one preliminary estimate of modernization costs, FAA’s budget requirements would, on average, exceed fiscal year 2006 appropriation levels by approximately $1 billion a year (in today’s dollars) through 2025. To better connect FAA’s revenues with the cost of air traffic control services that it provides, the President’s budget for fiscal year 2008 has proposed replacing, in fiscal year 2009, FAA’s current excise tax financing system, built largely around purchases of tickets and aviation fuel, with a cost-based user fee system. This new system would aim to recover the costs of providing air traffic control services through user fees for commercial operators and aviation fuel taxes for general aviation. However, some stakeholders believe that the current structure has been effective in funding FAA and can be successful in the future, although some modifications may be necessary. In addition, the President’s budget has proposed cutting and reallocating federal funds for developing projects at the nation’s 3,400 airports. FAA estimates the total cost for planned airport projects eligible for funding at approximately $42 billion (in nominal dollars) for fiscal years 2007 through 2011. FAA is also proposing that Congress allow airports to collect more revenue from other sources to help offset any reductions. Adding to uncertainty, the current excise taxes that largely fund FAA revenue are scheduled to expire at the end of September 2007, unless there is congressional action to renew them or provide an alternative source of funding to avoid a lapse of revenue in fiscal year 2008. Freight traffic is projected to grow substantially, putting strain on ports, highways, railroads, and airports, but current public planning and financing impede strategies to address capacity investment, and industry’s ability to fund its capacity increases to meet growth is largely uncertain. Freight mobility—the ability to move goods—is a driver of economic growth, and increasing congestion and unreliability of transportation systems can have severe economic consequences. In the future, Congress is likely to receive funding requests for additional freight projects and face decisions about the federal role in the nation’s freight infrastructure. While the federal government has made huge investments in our nation’s transportation infrastructure in the last 50 years, the expansion of this infrastructure has not kept pace with needs and the system is currently under great strain. Congestion across modes—estimated to cost $200 billion per year—is significant and is projected to worsen. For example, travel on roads is expected to increase by about 25 percent from 2000 to 2010, freight traffic is expected to increase by 92 percent from 2002 to 2035, and demand for air travel is expected to climb by about 35 percent from 2006 to 2015. To help address congestion concerns, the federal government spends billions of dollars each year to build, maintain, operate, and improve the nation’s aging transportation system. As congestion increases, federal policymakers face the challenge of ensuring that funds are used efficiently in order to prevent congestion from overwhelming the system. However, currently there is little assurance that the projects selected and funded best meet national goals for meeting the nation’s mobility needs. The department and Congress have recently taken a number of new actions to address this major threat to our nation’s economic growth and quality of life. In May 2006, the department announced a national strategy that will provide $175 million to local governments to demonstrate and test innovative ideas for curbing congestion. Certain large-scale pilot projects would be chosen based on their sponsors’ willingness to implement a comprehensive congestion reduction strategy, including congestion pricing, commuter transit services, and commitments from businesses to expand flexible work schedules. The strategy also includes initiatives to encourage private sector investment in transportation infrastructure, promote the use of operational and technological improvements, address major freight bottlenecks, and accelerate major aviation capacity projects, among other things. The department is also implementing a number of new initiatives to mitigate congestion that were called for in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), including programs to allow states to monitor, in real-time, traffic conditions on major highways and new funding for projects that have national or regional benefits.