ISTEA expressed the need for a new direction in surface transportation research, finding that despite an annual federal expenditure of more than $10 billion on surface transportation and its infrastructure, the federal government lacked a clear vision of the role of federally funded surface transportation research and an integrated framework for the fragmented surface transportation research programs dispersed throughout the government. The act recognized the federal government as a critical sponsor and coordinator of new technologies that would provide safer, more convenient, and more affordable future transportation systems. Our September 1996 report on surface transportation research confirmed what ISTEA stressed—DOT must play a critical role in surface transportation research. DOT’s role as the leader in surface transportation research stems from the Department’s national perspective, which transcends the interests and limitations of nonfederal stakeholders. For example, the states generally focus on applied research to solve specific problems; industry funds research to develop new or expanded markets; and universities train future transportation specialists and conduct research that reflects the interests of their funders. While the Department has established councils and committees to coordinate its research, the lack of a departmental focal point and an inadequate strategic plan may limit its leadership role. First, surface transportation research within the Department is focused on improving individual modes of transportation rather than on creating an integrated framework for surface transportation research. This modal structure makes it difficult for DOT to develop a surface transportation system mission; accommodate the need for types of research—such as intermodal and systems assessment research—that do not have a modal focus; and identify and coordinate research that cuts across modes. Second, DOT does not have a Department-level focal point to oversee its research, such as an Assistant Secretary for Research and Development. Instead an Associate Administrator of the Research and Special Projects Administration (RSPA) coordinates the Department’s surface research programs. Although RSPA was established to foster cross-cutting research, it does not have the funding resources or the internal clout to function effectively as a strategic planner for surface transportation research. RSPA acts in an advisory capacity and has no control over the modal agencies’ budgets or policies. Finally, the Department does not have an integrated framework for surface transportation research. The three research plans that the Department has submitted to the Congress since 1993 are useful inventories of the five modal agencies’ research activities. However, the plans cannot be used, as ISTEA directed, to make surface transportation research more strategic, integrated, and focused. Until all these issues are addressed, the Department may not be able to respond to ISTEA’s call for an integrated framework for surface transportation research and assume a leadership role in surface research. ISTEA also reflected congressional concerns about the adequacy of the funding for advanced transportation systems, suggesting that too little funding would increase the nation’s dependence on foreign technologies and equipment. The act therefore increased the funding for many existing and new research programs, especially for the ITS program. Since 1992, the ITS program has received through contract authority and the annual appropriations process about $1.3 billion. This amount represents about 36 percent of the $3.5 billion the federal government provided for surface research programs from 1992 to 1997. Our February 1997 report examined the progress made in deploying ITS technologies and ways in which the federal government could facilitate further deployment. On the first issue, a 1995 DOT-funded study found that 7 of 10 larger urban areas were using some ITS technologies to help solve their transportation problems. An example of an area that has widely deployed ITS technologies is Minneapolis. The Minneapolis ITS program, part of the state’s “Guidestar” program, first began operational tests in 1991. Since that time, about $64 million in public and private funds have been invested in Guidestar projects. With these funds, Minneapolis upgraded its traffic management center so that it could better monitor traffic flow and roadway conditions and installed ramp meters to control the flow of traffic entering the expressways. These improvements have helped increase average highway speeds during rush hour by 35 percent. Although urban areas are deploying individual ITS components, we found that states and localities are not integrating the various ITS components so that they work together and thereby maximize the overall efficiency of the entire transportation system. For example, transportation officials in the Washington, D.C., area said that local jurisdictions have installed electronic toll collection, traveler information, and highway surveillance systems without integrating the components into a multimodal system. This lack of systems integration is due in part to the fact that ITS is a relatively new program that is still evolving and has yet to fully implement some fundamental program components such as the national architecture and technical standards. The national architecture, which identifies the components and functions of an ITS system, was completed in July 1996. In addition, a five year effort to develop technical standards—which specify how system components will communicate—is planned for completion in 2001. We also found that the lack of widespread deployment of integrated ITS systems results from insufficient knowledge of ITS systems among state and local transportation agencies; limited data on the costs and benefits of ITS; and inadequate funding in light of other transportation investment priorities. The funding issue is particularly important since DOT has changed the program’s short-term focus to include a greater emphasis on deploying ITS technologies rather than simply conducting research and operational tests. The federal government’s future commitment to a deployment program would have to balance the need to continue progress made under the program with federal budgetary constraints. Urban transportation officials in the nation’s 10 largest cities we interviewed had mixed views on an appropriate federal role for funding ITS deployment. Officials in 6 of 10 urban areas supported a large federal commitment of $1 billion each year. Typically, these officials contended that future ITS deployments would be limited without specific funding for this approach. For example, a New York transportation planner said that without large-scale funding, ITS investment would have to compete for scarce dollars with higher-priority road and bridge rehabilitation projects. Under such a scenario, plans for deploying ITS would be delayed. These officials also favored new federal funding rather than a set-aside of existing federal-aid highway dollars. In contrast, officials from four other urban areas opposed a large-scale federal aid program because they do not want additional federal funding categories. Some of these officials also said that such a program could drive unnecessary ITS investments, as decisionmakers chased ITS capital money, even though another solution might have been more cost-effective. One official noted that a large federal program would be very premature since the benefits of many ITS applications have yet to be proven despite the claims of ITS proponents. In the absence of a large federal program, officials from 5 of the 10 urban areas supported a smaller-scale federal seed program. They said that such a program could be used to fund experimental ITS applications, promote better working relationships among key agencies, or support information systems for travellers. Deliberations on the future funding for the ITS program should include an assessment of the current obstacles facing the program. First, the system architecture is relatively new, and state and local officials have limited knowledge of its importance. Second, it will take time for state and local transportation officials to understand the architecture and supplement their traditional approach to solving transportation problems through civil engineering strategies with the information management and telecommunications focus envisioned by an integrated ITS approach. In addition, widespread integrated deployment cannot occur without the technical standards that DOT proposes to complete over the next 5 years. Until recently, states have generally not been able to tailor federal highway funding to a form other than a grant. The National Highway System Designation Act of 1995 established a number of innovative financing mechanisms, including the authorization of a SIB Pilot Program for up to 10 states or multistate applicants—8 states were selected in April 1996 and 2 were selected in June 1996. Under this program, states can use up to 10 percent of most of their fiscal years 1996 and 1997 federal highway funds to establish their SIBs. This program was expanded by DOT’s fiscal year 1997 appropriations act that removed the 10-state limit and provided $150 million in new funds. A SIB serves essentially as an umbrella under which a variety of innovative finance techniques can be implemented. Much like a bank, a SIB would need equity capital to get started, and equity capital could be provided at least in part through federal highway funds. Once capitalized, the SIB could offer a range of loans and credit options, such as loan guarantees and lines of credit. For example, through a revolving fund, states could lend money to public or private sponsors of transportation projects. Project-based revenues, such as tolls, or general revenues, such as dedicated taxes, could be used to repay loans with interest, and the repayments would replenish the fund so that new loans could be supported. Thus projects with potential revenue streams will be needed to make a SIB viable. Expected assistance for some of the projects in the initial 10 states selected for the pilot program include loans ranging from $60,000 to $30 million, credit enhancement to support bonds and a line of credit. In some cases, large projects that are already underway may be helped through SIB financial assistance. Examples of projects states are considering for financial assistance include: A $713 million project in Orange County, California, that includes construction of a 24-mile tollway. SIB assistance in the form of a $25 million line of credit may be used for this project to replace an existing contingency fund. If accessed, the plan is that the line of credit would be repaid through excess toll revenues. A $240 million project in Orlando, Florida, will involve construction of a 6 mile-segment to complete a 56-mile beltway. A SIB project loan in the amount of $20 million is being considered, and loan repayment would come from a mix of project and systemwide toll receipts and state transportation funds. In Myrtle Beach, South Carolina, a SIB loan is being considered to help with the construction of a $15 million new bridge to Fantasy Harbor. The source for repayment of the loan would be proceeds from an admission tax at the Fantasy Harbor entertainment complex.