Surface Transportation
Principles Can Guide Efforts to Restructure and Fund Federal Programs Gao ID: GAO-08-744T July 10, 2008The nation has reached a critical juncture with its current surface transportation policies and programs. Demand has outpaced the capacity of the system, resulting in increased congestion. In addition, without significant changes in funding levels or planned spending, the Highway Trust Fund--the major source of federal highway and transit funding-- is projected to incur significant deficits in the years ahead. Exacerbating concerns about the solvency of the Highway Trust Fund is the federal government's bleak fiscal condition and outlook. As a result, other federal revenue sources may not be available to help solve the nation's current transportation challenges. This statement is based on a body of work that GAO has completed over the past several years for Congress. This testimony discusses (1) GAO's recent findings on the structure and performance of the current surface transportation program (GAO-08-400), (2) a framework to assess proposals for restructuring of the surface transportation program, (3) potential options to fund investments in the surface transportation system, and (4) our recent findings on the benefits, costs, and trade-offs of using public-private partnerships to help fund transportation investments (GAO-08-44).
Since federal fundingfor the interstate system was established in 1956, the federal role in surface transportation has expanded to include broader goals, more programs, and a variety of program structures. Consequently, the goals of current programs are numerous and sometimes conflicting, and the federal role in these programs is unclear. For example, federal programs do not effectively address key transportation challenges, such as increasing congestion and freight demand. Many surface transportation programs are also not linked to performance of the transportation system or of the grantees, and programs often do not employ the best tools and approaches. Finally, the fiscal sustainability of the numerous highway, transit, and safety programs funded by the Highway Trust Fund is in doubt, because spending from the fund has increased without commensurate increases in revenues. A number of principles can help guide the assessment of proposals to restructure and fund federal surface transportation programs. These principles include (1) ensuring goals are well defined and focused on the national interest, (2) ensuring the federal role in achieving each goal is clearly defined, (3) ensuring accountability for results by entities receiving federal funds, (4) employing the best tools and approaches to improve results and emphasize return on targeted federal investment, and (5) ensuring fiscal sustainability. A range of options could be used to fund the growing demand for additional investment in the surface transportation system. There are two revenue sources for these additional investments: taxes and fees. Financing mechanisms, such as bonding and revolving funds, could also be used to fund transportation infrastructure projects when tax and user fee approaches are not sufficient to meet demands. However, these financing mechanisms are all forms of debt that ultimately must be repaid with interest by the general population through tax increases or reductions in government services. Each of these options has different merits and challenges, and the selection of any of them will likely involve trade-offs among different policy goals. Highway public-private partnerships show promise as a viable alternative, where appropriate, to help meet growing and costly transportation demands. The highway public-private partnerships created to date have resulted in advantages from the perspective of state and local governments, such as the construction of new infrastructure without using public funding. However, highway public-private partnerships also entail potential costs and risks including the reality that funds from public-private partnerships are largely a new source of borrowed funds--a form of privately issued debt that must be repaid to private investors. Ultimately the extent to which public-private partnerships can be used to help meet the nation's transportation funding challenges will depend on the ability of states to weigh potential benefits against potential costs and trade-offs to determine whether public-private partnerships are appropriate in specific circumstances--and if so--how best to implement them and protect the public interest.
GAO-08-744T, Surface Transportation: Principles Can Guide Efforts to Restructure and Fund Federal Programs
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Testimony:
Before the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Thursday, July 10, 2008:
Surface Transportation:
Principles Can Guide Efforts to Restructure and Fund Federal Programs:
Statement of Jayetta Z. Hecker:
Director, Physical Infrastructure Issues:
GAO-08-744T:
GAO Highlights:
Highlights of GAO-08-744T, a testimony before the Committee on Finance,
U.S. States Senate.
Why GAO Did This Study:
The nation has reached a critical juncture with its current surface
transportation policies and programs. Demand has outpaced the capacity
of the system, resulting in increased congestion. In addition, without
significant changes in funding levels or planned spending, the Highway
Trust Fund”the major source of federal highway and transit funding” is
projected to incur significant deficits in the years ahead.
Exacerbating concerns about the solvency of the Highway Trust Fund is
the federal government‘s bleak fiscal condition and outlook. As a
result, other federal revenue sources may not be available to help
solve the nation‘s current transportation challenges.
This statement is based on a body of work that GAO has completed over
the past several years for Congress. This testimony discusses (1) GAO‘s
recent findings on the structure and performance of the current surface
transportation program (GAO-08-400), (2) a framework to assess
proposals for restructuring of the surface transportation program, (3)
potential options to fund investments in the surface transportation
system, and (4) our recent findings on the benefits, costs, and trade-
offs of using public-private partnerships to help fund transportation
investments (GAO-08-44).
What GAO Found:
Since federal funding for the interstate system was established in
1956, the federal role in surface transportation has expanded to
include broader goals, more programs, and a variety of program
structures. Consequently, the goals of current programs are numerous
and sometimes conflicting, and the federal role in these programs is
unclear. For example, federal programs do not effectively address key
transportation challenges, such as increasing congestion and freight
demand. Many surface transportation programs are also not linked to
performance of the transportation system or of the grantees, and
programs often do not employ the best tools and approaches. Finally,
the fiscal sustainability of the numerous highway, transit, and safety
programs funded by the Highway Trust Fund is in doubt, because spending
from the fund has increased without commensurate increases in revenues.
A number of principles can help guide the assessment of proposals to
restructure and fund federal surface transportation programs. These
principles include (1) ensuring goals are well defined and focused on
the national interest, (2) ensuring the federal role in achieving each
goal is clearly defined, (3) ensuring accountability for results by
entities receiving federal funds, (4) employing the best tools and
approaches to improve results and emphasize return on targeted federal
investment, and (5) ensuring fiscal sustainability.
A range of options could be used to fund the growing demand for
additional investment in the surface transportation system. There are
two revenue sources for these additional investments: taxes and fees.
Financing mechanisms, such as bonding and revolving funds, could also
be used to fund transportation infrastructure projects when tax and
user fee approaches are not sufficient to meet demands. However, these
financing mechanisms are all forms of debt that ultimately must be
repaid with interest by the general population through tax increases or
reductions in government services. Each of these options has different
merits and challenges, and the selection of any of them will likely
involve trade-offs among different policy goals.
Highway public-private partnerships show promise as a viable
alternative, where appropriate, to help meet growing and costly
transportation demands. The highway public-private partnerships created
to date have resulted in advantages from the perspective of state and
local governments, such as the construction of new infrastructure
without using public funding. However, highway public-private
partnerships also entail potential costs and risks including the
reality that funds from public-private partnerships are largely a new
source of borrowed funds”a form of privately issued debt that must be
repaid to private investors. Ultimately the extent to which public-
private partnerships can be used to help meet the nation‘s
transportation funding challenges will depend on the ability of states
to weigh potential benefits against potential costs and trade-offs to
determine whether public-private partnerships are appropriate in
specific circumstances”and if so”how best to implement them and protect
the public interest.
What GAO Recommends:
GAO has previously suggested that Congress consider refocusing surface
transportation programs to address the issues discussed in this
testimony.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-744T]. For more
information, contact JayEtta Z. Hecker at (202) 512-2834 or
heckerj@gao.gov.
[End of section]
July 10, 2008:
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to testify on surface transportation
financing issues. As you know, the nation has reached a critical
juncture with current surface transportation programs. The current
federal approach to addressing the nation's surface transportation
problems is not working well. Despite large increases in expenditures
in real terms for transportation, the investment has not commensurately
improved the performance of the nation's surface transportation system,
as congestion continues to grow and looming problems from the
anticipated growth in travel demand are not being adequately addressed.
The economic and environmental implications are significant, ranging
from wasted fuel and lost time as cars idle in traffic to increased
costs for businesses as the transportation system grows more
unreliable.
Since federal funding for the interstate system was established in
1956, the federal role in surface transportation has expanded to
include broader goals, more programs, and a variety of program
structures. However, many of these programs do not effectively address
key transportation challenges, such as increasing congestion and
freight demand, because the federal goals and roles of the programs are
unclear, the programs are generally not need or performance-based, and
the programs often do not employ the best tools or approaches. In
addition, the continued relevance of some of these programs in the 21st
century is unclear. For example, the Highway Trust Fund was created in
1956 to distribute funds for the construction of the interstate highway
system. That system is now complete. However, the federal highway
program's funding and delivery mechanisms have not substantially
changed. Furthermore, there is a growing differential between expected
Highway Trust Fund revenue and planned levels of spending on surface
transportation programs. As a result, without significant changes in
funding levels or planned spending, the Highway Trust Fund is projected
to incur significant deficits in the years ahead. As a result, in 2007,
we added financing the nation's transportation system to GAO's High
Risk List.[Footnote 1]
Addressing these challenges is complicated by the breadth of the
nation's surface transportation network--encompassing highway, transit,
and rail systems and ports that are owned, funded, and operated by both
the public and the private sectors. Moreover, surface transportation
policy decisions are inextricably linked with aviation, economic,
environmental, and energy policy concerns. In addition, exacerbating
this challenge is that the federal government's financial condition and
fiscal outlook are worse than many may understand.[Footnote 2]
Specifically, the federal budget is on an unsustainable path--
heightening concern about the solvency of the Highway Trust Fund
because other federal revenue sources may not be available to help
solve the nation's current transportation challenges. Addressing these
challenges requires strategic and intermodal approaches, effective
tools and programs, and coordinated solutions involving all levels of
government and the private sector. Yet in many cases, the government is
still trying to do business in ways that are based on conditions,
priorities, and approaches that were established decades ago and are
not well suited to addressing 21st century challenges. Consequently, we
have called for a fundamental reexamination of the nation's
transportation policies and programs.[Footnote 3]
Prudent use of taxpayer dollars is always important. The economic and
social importance of the nation's transportation system and the current
fiscal environment, make it even more important that federal, state,
and local governments make prudent decisions on how to invest limited
available resources. In making these decisions, governments will face
an array of challenges that include repairing and maintaining aging
infrastructure, making more efficient use of existing infrastructure,
accounting for population growth, and incorporating new technologies in
funding for infrastructure. In this environment, the infrastructure
improvements that all levels of government want may not reflect what
they need or what the nation can afford. Accordingly, decisions about
the appropriate level of spending and distribution on infrastructure
are both difficult and enormously important.
My remarks today focus on (1) our recent findings on the structure and
performance of current surface transportation programs, (2) a framework
to assess proposals for restructuring surface transportation programs,
(3) potential options to fund investments in the surface transportation
system, and (4) our recent findings on the benefits, costs, and trade-
offs of using public-private partnerships to help fund transportation
investments. My comments are based on a body of work that we have
completed over the past several years for Congress.[Footnote 4] We
conducted our work in June 2008 in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
Summary:
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. For
example, federal programs do not effectively address key transportation
challenges, such as increasing highway congestion and freight demand.
Many surface transportation programs are not linked to the performance
of the transportation system or of the grantees, and the programs often
do not use the best tools or best approaches. Moreover, the fiscal
sustainability of the numerous highway, transit, and safety programs
funded by the Highway Trust Fund is in doubt.
Through our prior analysis of surface transportation programs, we have
identified a framework of principles that can help inform Congress in
assessing various proposals for restructuring and funding federal
surface transportation programs. These principles are:
* creating well-defined goals based on identified areas of national
interest, which involves examining the relevance and relative priority
of existing programs in light of 21st century challenges and
identifying emerging areas of national importance;
* establishing and clearly defining the federal role in achieving each
goal in relation to the roles of state and local governments, regional
entities, and the private sector;
* incorporating performance and accountability into funding decisions
to ensure resources are targeted to programs that best achieve intended
outcomes and national priorities;
* employing the best tools, such as benefit-cost analysis, and
approaches to emphasize return on investment at a time of constrained
federal resources; and:
* ensuring fiscal sustainability through targeted investments of
federal, state, local, and private resources.
A range of options could be used to fund the demand for additional
investment in the surface transportation system. Although some of the
demand for additional investment in transportation could be reduced by,
for example, using the existing infrastructure more efficiently, there
is a growing consensus that some level of additional investment in
transportation could be warranted. There are two revenue sources for
these additional investments: taxes and fees. A variety of taxes have
been and could be used to fund the nation's infrastructure, including
excise, sales, property, and income taxes. Additionally, user fees such
as fees based on vehicle miles traveled, freight container fees,
customs duties, or congestion pricing of roads could be used. Financing
mechanisms could also be used to fund transportation infrastructure
projects when tax and user fee approaches are not sufficient to meet
demands. However, these financing approaches, including bonding
strategies, loans, loan guarantees, and revolving funds, are all forms
of debt that ultimately must be repaid with interest by the general
population through tax increases or reductions in government services.
Highway public-private partnerships also show promise as a viable
alternative, where appropriate, to help meet growing and costly
transportation demands. The highway public-private partnerships created
to date have resulted in advantages from the perspective of state and
local governments, such as the construction of new infrastructure
without using public funding, and obtaining funds by extracting value
from existing facilities for reinvestment in transportation and other
public programs. However, highway public-private partnerships also
entail potential costs and risks. Most importantly, there is no "free"
money in public-private partnerships. While highway public-private
partnerships can be used to obtain financing for highways, these funds
are largely a new source of borrowed funds--a form of privately issued
debt that must be repaid to private investors seeking a return on their
investment by road users over what potentially could be a period of
several generations. Ultimately the extent to which public-private
partnerships can be used to help meet the nation's transportation
funding challenges will depend on the ability of states to weigh
potential benefits against potential costs and trade-offs to determine
whether public-private partnerships are appropriate in specific
circumstances--and if so--how best to implement them and protect the
public interest. As we recently reported, consideration of public-
private partnerships in the United States could benefit from more
consistent, rigorous, systematic, up-front analysis and fresh thinking
about the appropriate federal approach.[Footnote 5] Reexamining the
federal role in transportation provides an opportunity to identify the
emerging national public interests in highway public-private
partnerships and to determine how highway public-private partnerships
fit in with national programs.
Current Surface Transportation Programs Do Not Effectively Address
Identified Transportation Challenges:
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.
Federal Goals and Approaches Have Expanded as State and Local
Discretion Has Increased:
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.
The Goals and Role of the Federal Government Are Not Clear, and Many
Programs Are Not Linked to Performance:
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).
Figure 1: Broad Flexible Fund Transfer Provisions within Highway
Programs:
[See PDF for image]
This figure depicts the relationship of fund transfer provisions among
six highway programs, as follows:
With certain restrictions, up to 50% of apportioned funds may be
transferred to and from one another:
Surface Transportation Program (STP);
Interstate Maintenance Program (IM);
Highway Bridge Replacement and Rehabilitation Program (HBRRP);
Highway Safety Improvement Program (HSIP).
With certain restrictions, up to 50% of apportioned funds may be
transferred from:
Surface Transportation Program (STP);
Interstate Maintenance Program (IM);
Highway Bridge Replacement and Rehabilitation Program (HBRRP);
Highway Safety Improvement Program (HSIP);
To:
National Highway System (NHS);
Congestion Mitigation & Air Quality Improvement Program (CMAQ).
CMAQ funds may be transferred if a minimum threshold is met to any of
the following:
National Highway System (NHS);
Surface Transportation Program (STP);
Interstate Maintenance Program (IM);
Highway Bridge Replacement and Rehabilitation Program (HBRRP);
Highway Safety Improvement Program (HSIP).
100% of NHS funds may be transferred to the STP program if the
Secretary of Transportation approves the transfer and a sufficient
public comment period is provided.
Source: GAO.
[End of figure]
Surface Transportation Programs Often Do Not Use Best Tools and
Approaches:
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.[Footnote 6] 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 Fiscal Sustainability of Surface Transportation Programs Is
Threatened:
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.[Footnote 7] 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.[Footnote 8] 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.
Framework to Assess Proposals for Restructuring and Funding Surface
Transportation Programs:
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.
Create Well-defined Goals Based on Identified Areas of National
Interest:
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?
Establish and Clearly Define the Federal Role in Achieving Each Goal:
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. Conversely, where the national
interest is less evident, state and local governments and others could
assume more responsibility. For example, efforts to reduce
transportation's impact on greenhouse gas emissions may warrant a
greater federal role than other initiatives, such as reducing urban
congestion, since the impacts of greenhouse gas emissions are widely
dispersed, whereas the impacts of urban congestion may be more
localized.
The following illustrative questions can be used to determine the
extent to which proposals to restructure and fund the surface
transportation programs establish and clearly define the federal role
in achieving each goal.
* To what extent is the federal role directly linked to defined areas
of national interest and goals?
* To what extent is the federal role defined in relation to the roles
of state and local governments, regional entities, and the private
sector?
* To what extent does the proposal consider how the transportation
system is linked to other sectors and national policies, such as
environmental, security, and energy policies?
Incorporate Performance and Accountability into Funding Decisions:
Our previous work has shown that an increased focus on performance and
accountability for results could help the federal government target
resources to programs that best achieve intended outcomes and national
transportation priorities. Tracking specific outcomes that are clearly
linked to program goals could provide a strong foundation for holding
grant recipients responsible for achieving federal objectives and
measuring overall program performance. In particular, substituting
specific performance measures for the current federal procedural
requirements could help make the program more outcome-oriented. For
example, if reducing congestion were an established federal goal,
outcome measures for congestion, such as reduced travel time, could be
incorporated into the programs to hold state and local governments
responsible for meeting specific performance targets. Furthermore,
directly linking the allocation of resources to the program outcomes
would increase the focus on performance and accountability for results.
Incorporating incentives or penalty provisions into grants can further
hold grantees and recipients accountable for achieving results.
The following illustrative questions can be used to determine the
extent to which proposals to restructure and fund surface
transportation programs incorporate performance and accountability into
funding decisions.
* Are national performance goals identified and discussed in relation
to state, regional, and local performance goals?
* To what extent are performance measures outcome-based?
* To what extent is funding linked to performance?
* To what extent does the proposal include provisions for holding
stakeholders accountable for achieving results?
Employ the Best Tools and Approaches to Improve Results and Emphasize
Return on Investment:
We have previously reported that the effectiveness of any overall
federal program design can be increased by promoting and facilitating
the use of the best tools and approaches to improve results and
emphasize return on investment. Importantly, given the projected growth
in federal deficits, constrained state and local budgets, and looming
Social Security and Medicare spending commitments, the resources
available for discretionary programs will be more limited--making it
imperative to maximize the national public benefits of any federal
investment through a rigorous examination of the use of such funds.
[Footnote 9] A number of specific tools and approaches can be used to
improve results and return on investment including using economic
analysis, such as benefit-cost analysis, in project selection;
requiring grantees to conduct post-project evaluations; creating
incentives to better utilize existing infrastructure; providing states
and localities with greater flexibility to use certain tools, such as
tolling and congestion pricing; and requiring maintenance-of-effort
provisions in grants. Using these tools and approaches could help
surface transportation programs more directly address national
transportation priorities.
The following illustrative questions can be used to determine the
extent to which proposals to restructure and fund surface
transportation programs employ the best tools and approaches to improve
results and emphasize return on investment.
* To what extent do the proposals consider how costs and revenues will
be shared among federal, state, local, and private stakeholders?
* To what extent do the proposals address the need better to align fees
and taxes with use and benefits?
* To what extent are trade-offs between efficiency and equity
considered?
* Do the tools and approaches align with the level of federal
involvement in a given policy area?
* To what extent do the proposals provide flexibility and incentives
for state and local governments to choose the most appropriate tool in
the toolbox?
Ensure Fiscal Sustainability:
Our previous work has shown that transportation funding, and the
Highway Trust Fund in particular, faces an imbalance of revenues and
expenditures and other threats to its long term sustainability.
Furthermore, the sustainability of transportation funding should also
be seen in the context of the broader, governmentwide problem of fiscal
imbalance. The federal role in transportation funding must be
reexamined to ensure that it is sustainable in this new fiscal reality.
A sustainable surface transportation program will require targeted
investment, with adequate return on investment, from not only the
federal government but also state and local governments and the private
sector.
The following illustrative questions can be used to determine the
extent to which proposals to restructure and fund surface
transportation programs ensure fiscal sustainability.
* To what extent do the proposals reexamine current and future spending
on surface transportation programs?
* Are the recommendations affordable and financially stable over the
long-term? To what extent are the recommendations placed in the context
of federal deficits, constrained budgets, and other spending
commitments, and to what extent do they meet a rigorous examination of
the use of federal funds?
* To what extent are recommendations considered in the context of
trends that could affect the transportation system in the future, such
as population growth, increased fuel efficiency, and increased freight
traffic?
Current concerns about the sustainability and performance of existing
programs suggest that this is an opportune time for Congress to more
clearly define the federal role in transportation and improve progress
toward specific, nationally defined outcomes. Given the scope of the
needed transformation, it may be necessary to shift policies and
programs incrementally or on a pilot basis to gain practical lessons
for a coherent, sustainable, and effective national program and funding
structure to best serve the nation for the 21st century.
Various Options Are Available or Have Been Proposed to Fund Investments
in the Nation's Infrastructure:
Absent changes in planned spending, a variety of funding and financing
options will likely be needed to address projected transportation
funding shortfalls. Although some of the demand for additional
investment in transportation could be reduced, there is a growing
consensus that some level of additional investment in transportation is
warranted. A range of options--from altering existing or introducing
new funding approaches to employing various financing mechanisms--could
be used to help meet the demand for additional investments. Each of
these options has different merits and challenges, and the selection of
any of them will likely involve trade-offs among different policy
goals. Furthermore, the suitability of any of these options depends on
the level of federal involvement or control that policymakers desire
for a given area of policy. However, as we have reported, when
infrastructure investment decisions are made based on sound
evaluations, these options can lead to an appropriate blend of public
and private funds to match public and private costs and benefits.
[Footnote 10]
Existing Strategies Can Help Reduce the Demand for Additional
Investment:
Estimates from multiple sources indicate that additional investment in
the transportation system could be warranted. For example, in its
January 2008 report, the National Surface Transportation Policy and
Revenue Study Commission (Policy Commission) recommended an annual
investment of about $225 billion from all levels of government in the
surface transportation system--an increase of about $140 billion from
current spending levels.[Footnote 11] Similarly, the Congressional
Budget Office recently estimated that an annual investment of about
$165 billion in surface transportation could be economically
justifiable.[Footnote 12] In addition, in its February 2008 interim
report, the National Surface Transportation Infrastructure Financing
Commission (Financing Commission) noted that one of its base
assumptions is that there is a gap between current funding levels and
investment needs.[Footnote 13]
However, some of the demand for additional investment in transportation
infrastructure could be reduced. We have previously reported that the
ways in which revenue is generated and distributed can influence the
decisions made by users as well as decision-making and programs at the
state and local levels.[Footnote 14] In particular, our previous work
has shown that current funding and decision-making processes provide a
built-in preference for projects that build or maintain transportation
infrastructure rather than try to use existing infrastructure more
efficiently--which would reduce the overall demand for additional
investments. CBO also recently reported that some of the demand for
additional spending on infrastructure could be met by providing
incentives to use existing infrastructure more efficiently. In its
February 2008 interim report, the Financing Commission noted the need
to use new approaches and technologies to maximize the use of current
capacity.
We have also previously reported that increased federal highway grants
influence states and localities to substitute federal funds for funds
they otherwise would have spent on highways for other purposes.
Consequently, additional federal investments in transportation do not
necessarily translate into commensurate levels of spending by the
states and localities on transportation. Addressing this "leakage" with
such tools as maintenance-of-effort requirements could maximize the
effectiveness of federal investments.
The principles we have identified for restructuring the surface
transportation programs can also be used as a framework for considering
levels of investment and the funding and financing options described
below. For example, in defining the federal role in funding
transportation, we have previously reported that where the national
interest is greatest, having the federal government fund a higher share
of program costs could be appropriate. Conversely, where the national
interest is less evident, state and local governments, and others could
assume more responsibility. In addition, incorporating incentives or
penalty provisions into different funding and financing approaches can
help ensure performance and accountability.
Funding Approaches Can Be Altered or Developed to Help Fund
Infrastructure Investments:
Various existing funding approaches could be altered or new funding
approaches could be developed, to help fund investments in the nation's
infrastructure. These various approaches can be grouped into two
categories: taxes and user fees.
A variety of taxes have been and could be used to fund the nation's
infrastructure, including excise, sales, property, and income taxes.
For example, federal excise taxes on motor fuels are the primary source
of funding for the federal surface transportation program. Fuel taxes
are attractive because they have provided a relatively stable stream of
revenues and the collection and enforcement costs are relatively low.
However, fuel taxes do not currently convey to drivers the full costs
of their use of the road--such as the costs of wear and tear,
congestion, and pollution. Moreover, federal motor fuel taxes have not
been increased since 1993--and thus the purchasing power of fuel tax
revenues has eroded with inflation. As CBO has previously reported, the
existing fuel taxes could be altered in a variety of ways to address
this erosion, including increasing the per-gallon tax rate and indexing
the rates to inflation.[Footnote 15] Some transportation stakeholders
have suggested exploring the potential of using a carbon tax, or other
carbon pricing strategies, to help fund infrastructure investments.
[Footnote 16] In a system of carbon taxes, fossil fuel emissions would
be taxed, with the tax proportional to the amount of carbon dioxide
released in its combustion. Because a carbon tax could have a broad
effect on consumer decisions, we have previously reported that it could
be used to complement Corporate Average Fuel Economy standards, which
require manufacturers meet fuel economy standards for passenger cars
and light trucks to reduce oil consumption.[Footnote 17] A carbon tax
would create incentives that could affect a broader range of consumer
choices as well as provide revenue for infrastructure.
Another funding source for infrastructure is user fees. The concept
underlying user fees--that is, users pay directly for the
infrastructure they use--is a long-standing aspect of many
infrastructure programs. Examples of user fees that could be altered or
introduced include fees based on vehicle miles traveled (VMT) on
roadways; freight fees, such as a per-container charge; congestion
pricing of roads; and tolling.
* VMT fees. To more directly reflect the amount a vehicle uses the
road, users could be charged a fee based on the number of vehicle miles
traveled. In 2006, the Oregon Department of Transportation conducted a
pilot program designed to test the technological and administrative
feasibility of a VMT fee. The pilot program demonstrated that a VMT fee
could be implemented to replace the fuel tax as the principal source of
transportation revenue by utilizing a Global Positioning System (GPS)
to track miles driven and collecting the VMT fee ($0.012 per mile
traveled) at fuel pumps that can read information from the
GPS.[Footnote 18] As we have previously reported, using a GPS could
also track mileage in high congestion zones, and the fee could be
adjusted upward for miles driven in these areas or during more
congested times of day such as rush hour--a strategy that might reduce
congestion and save fuel.[Footnote 19] In addition, the system could be
designed to apply different fees to vehicles, depending on their fuel
economy. On the federal level, a VMT fee could be based on odometer
readings, which would likely be a simpler and less costly way to
implement such a program. A VMT fee--unless it is adjusted based on the
fuel economy of the vehicle--does not provide incentives for customers
to buy vehicles with higher fuel economy ratings because the fee
depends only on mileage. Also, because the fee would likely be
collected from individual drivers, a VMT fee could be expensive for the
government to implement, potentially making it a less cost-effective
approach than a motor fuel or carbon tax. The Oregon study also
identified other challenges including concerns about privacy and
technical difficulties in retrofitting vehicles with the necessary
technology.
* Freight fees. Given the importance of freight movement to the
economy, the Policy Commission recently recommended a new federal
freight fee to support the development of a national program aimed at
strategically expanding capacity for freight transportation.[Footnote
20] While the volume of domestic and international freight moving
through the country has increased dramatically and is expected to
continue growing, the capacity of the nation's freight transportation
infrastructure has not increased at the same rate as demand.[Footnote
21] To support the development of a national program for freight
transportation, the Policy Commission recommended the introduction of a
federal freight fee. The Policy Commission notes that a freight fee,
such as a per-container charge, could help fund projects that remedy
chokepoints and increase throughput. The Policy Commission also
recommended that a portion of the customs duties, which are assessed on
imported goods, be used to fund capacity improvements for freight
transportation. The majority of customs duties currently collected,
however, are deposited in the U.S. Treasury's general fund for the
general support of federal activities.[Footnote 22] Therefore,
designating a portion of customs duties for surface transportation
funding would not create a new source of revenue, but rather transfer
funds from the general fund.
* Congestion pricing. As we have previously reported, congestion
pricing, or road pricing, attempts to influence driver behavior by
charging fees during peak hours to encourage users to shift to off-peak
periods, use less congested routes, or use alternative modes.
Congestion pricing can also help guide capital investment decisions for
new transportation infrastructure. In particular, as congestion
increases, toll rates also increase, and such increases (sometimes
referred to as "congestion surcharges") signal increased demand for
physical capacity, indicating where capital investments to increase
capacity would be most valuable. Furthermore, these congestion
surcharges can potentially enhance mobility by reducing congestion and
the demand for roads when the surcharges vary according to congestion
to maintain a predetermined level of service. The most common form of
congestion pricing in the United States is high-occupancy toll lanes,
which are priced lanes that offer drivers of vehicles that do not meet
the occupancy requirements the option of paying a toll to use lanes
that are otherwise restricted for high-occupancy vehicles.
Various Financing Mechanisms Can Also Help Fund Infrastructure
Projects:
Financing mechanisms can provide flexibility for all levels of
government when funding additional infrastructure projects,
particularly when traditional pay-as-you-go funding approaches, such as
taxes or fees, are not set at high enough levels to meet demands. The
federal government currently offers several programs to provide state
and local governments with incentives such as bonds, loans, and credit
assistance to help finance infrastructure. Financing mechanisms can
create potential savings by accelerating projects to offset rapidly
increasing construction costs and offer incentives for investment from
state and local governments and from the private sector. However, each
financing strategy is, in the final analysis, a form of debt that
ultimately must be repaid with interest. Furthermore, since the federal
government's cost of capital is lower than that of the private sector,
financing mechanisms, such as bonding, may be more expensive than
timely, full, and up-front appropriations. Finally, if the federal
government chooses to finance infrastructure projects, policy makers
must decide how borrowed dollars will be repaid, either by users or by
the general population either now or in the future through increases in
taxes or reductions in other government services.
A number of available mechanisms can be used to help finance
infrastructure projects. Examples of these financing mechanisms follow.
* Bonding. A number of bonding strategies--including tax-exempt bonds,
[Footnote 23] private activity bonds, Grant Anticipation Revenue
Vehicles (GARVEE) bonds, and Grant Anticipation Notes (GAN)--offer
flexibility to bridge funding gaps when traditional revenue sources are
scarce. For example, state-issued GARVEE or GAN bonds provide capital
in advance of expected federal funds, allowing states to accelerate
highway and transit project construction and thus potentially reduce
construction costs. Through April 2008, 20 states and two territories
issued approximately $8.2 billion of GARVEE-type debt financing and 20
other states are actively considering bonding or seeking legislative
authority to issue GARVEEs. Furthermore, SAFETEA-LU authorized the
Secretary of Transportation to allocate $15 billion in tax-exempt bonds
for qualified highway and surface freight transfer facilities. To date,
$5.3 billion has been allocated for six projects. Several bills have
been introduced in this Congress that would increase investment in the
nation's infrastructure through bonding. For example, the Build America
Bonds Act would provide $50 billion in new infrastructure funding
through bonding. Although bonds can provide up-front capital for
infrastructure projects, they can be more expensive for the federal
government than traditional federal grants. This higher expense
results, in part, because the government must compensate the investors
for the risks they assume through an adequate return on their
investment.
* Loans, loan guarantees, and credit assistance. The federal government
currently has two programs designed to offer credit assistance for
surface transportation projects. The Transportation Infrastructure
Finance and Innovation Act of 1998 (TIFIA) authorized the Federal
Highway Administration to provide credit assistance, in the form of
direct loans, loan guarantees, and standby lines of credit for projects
of national significance. A similar program, Railroad Rehabilitation
and Improvement Financing (RRIF), offers loans to acquire, improve,
develop, or rehabilitate intermodal or rail equipment and develop new
intermodal railroad facilities. To date, 15 TIFIA projects have been
approved totaling over $4.8 billion in credit assistance and the RRIF
program has approved 21 loan agreements worth more than $747 million.
These programs are designed to leverage federal funds by attracting
substantial nonfederal investments in infrastructure projects. However,
the federal government assumes a level of risk when it makes or
guarantees loans for projects financed with private investment.
[Footnote 24]
* Revolving funds. Revolving funds can be used to dedicate capital to
be loaned for qualified infrastructure projects. In general, loaned
dollars are repaid, recycled back into the revolving fund, and
subsequently reinvested in the infrastructure through additional loans.
Such funds exist at both the federal and the state levels and are used
to finance various infrastructure projects ranging from highways to
water mains. For example, two federal funds support water
infrastructure financing, the Clean Water State Revolving Fund for
wastewater facilities, and the Drinking Water State Revolving Fund for
drinking water facilities. Under each of these programs, the federal
government provides seed money to states, which they supplement with
their own funds. These funds are then loaned to local governments and
other entities for water infrastructure construction and upgrades and
various water quality projects. In addition, State Infrastructure Banks
(SIBs)--capitalized with federal and state matching funds--are state-
run revolving funds that make loans and provide credit enhancements and
other forms of nongrant assistance to infrastructure projects. Through
June 2007, 33 SIBs have made approximately 596 loan agreements worth
about $6.2 billion to leverage other available funds for transportation
projects across the nation.[Footnote 25] Furthermore, other funds--such
as a dedicated national infrastructure bank--have been proposed to
increase investment in infrastructure with a national or regional
significance. A challenge for revolving funds in general is maintaining
their capitalized value. Defaults on loans and inflation can reduce the
capitalized value of the fund--necessitating an infusion of capital
needed to continue the fund's operations.
Highway Public-Private Partnerships Hold Promise, But Also Raise A
Number of Issues to Consider:
Another important and emerging vehicle for funding investments in
transportation is public-private partnerships. In February 2008 we
reported on highway public-private partnerships. These arrangements
show promise as a viable alternative, where appropriate, to help meet
growing and costly transportation demands and have the potential to
provide numerous benefits to the public sector.[Footnote 26] The
highway public-private partnerships created to date have resulted in
advantages from the perspective of state and local governments, such as
the construction of new infrastructure without using public funding,
and obtaining funds by extracting value from existing facilities for
reinvestment in transportation and other public programs. For example,
the state of Indiana received $3.8 billion from leasing the Indiana
Toll Road and used those proceeds to fund a 10-year statewide
transportation plan. Highway public-private partnerships potentially
provide other benefits, including the transfer or sharing of project
risks to the private sector. Such risks include those associated with
construction costs and schedules and having sufficient levels of
traffic and revenues to be financially viable. In addition, the public
sector can potentially benefit from increased efficiencies in
operations and life-cycle management, such as increased use of
innovative technologies. Finally, through the use of tolling, highway
public-private partnerships offer the potential to price highways to
better reflect the true costs of operating and maintaining them and to
increase mobility by adjusting tolls to manage demand, as well as the
potential for more cost effective investment decisions by private
investors.
Highway public-private partnerships also entail potential costs and
risks. Most importantly, there is no "free" money in public-private
partnerships. While highway public-private partnerships can be used to
obtain financing for highways, these funds are largely a new source of
borrowed funds--a form of privately issued debt that must be repaid to
private investors seeking a return on their investment by road users
over what potentially could be a period of several generations. Though
concession agreements can limit the extent to which a concessionaire
can raise tolls, it is likely that tolls will increase on a privately
operated highway to a greater extent than they would on a publicly
operated toll road. To the extent that a private concessionaire gains
market power by control of a road where there are not other viable
travel alternatives, the potential also exists that the public could
pay tolls that are higher than tolls based on the cost of the
facilities, including a reasonable rate of return. Additionally,
because large up-front concession payments have, in part, been used to
fund immediate needs, it remains to be seen whether these agreements
will provide long-term benefits to future generations who will
potentially be paying progressively higher toll rates throughout the
length of a concession agreement. Highway public-private partnerships
are also potentially more costly than traditional public procurement--
for example, there are costs associated with the need to hire financial
and legal advisors.
In short, while highway public-private partnerships have promise, they
are not a panacea for meeting all transportation system demands.
Ultimately the extent to which public-private partnerships can be used
as a tool to help meet the nation's transportation financing challenges
will depend on the ability of states to effectively manage and
implement them. For example, states must have appropriate enabling
legislation in place and the institutional ability to manage complex
contractual mechanisms--either in the form of in-house expertise or
through contractors. Most importantly, the extent to which public-
private partnerships can be used as a tool to help meet the nation's
transportation funding challenges will depend on how well states are
able to weigh public interest considerations. The benefits of public-
private partnerships are potential benefits--that is, they are not
assured and can only be achieved by weighing them against potential
costs and trade-offs through careful, comprehensive analysis to
determine whether public-private partnerships are appropriate in
specific circumstances and, if so, how best to implement them, and how
best to protect the public interest.
In considering the numerous issues surrounding the protection of the
public interest, we reached the following conclusions in our February
2008 report on highway public-private partnerships:
* First, consideration of highway public-private partnerships could
benefit from more consistent, rigorous, systematic, and up-front
analysis. While highway public-private partnerships are fairly new in
the United States, and although they are meant to serve the public
interest, it is difficult to be confident that these interests are
being protected when formal identification and consideration of public
and national interests has been lacking, and where limited up-front
analysis of public interest issues using established criteria has been
conducted. Partnerships to date have identified and protected the
public interest largely through terms contained in concession
contracts, including maintenance and expansion requirements,
protections for the workforce, and oversight and monitoring mechanisms
to ensure that private partners fulfilled their obligations. While
these protections are important, governments in other countries,
including Australia and the United Kingdom, have developed systematic
approaches to identifying and evaluating public interest before
agreements are entered into, including the use of public interest
criteria, as well as assessment tools, and require their use when
considering private investments in public infrastructure. For example,
a state government in Australia uses a public interest test to
determine how the public interest would be affected in eight specific
areas, including whether the views and rights of affected communities
have been heard and protected and whether the process is sufficiently
transparent. While similar tools have been used to some extent in the
United States, their use has been more limited. Using up-front public
interest analysis tools can also assist public agencies in determining
the expected benefits and costs of a project and an appropriate means
to deliver the project. Not using such tools may lead to certain
aspects of protecting public interest being overlooked.
* Second, fresh thinking is needed on the appropriate federal approach.
DOT has done much to promote the benefits, but comparatively little to
either assist states and localities in weighing potential costs and
trade-offs, nor to assess how potentially important national interests
might be protected in highway public-private partnerships. This is in
many respects a function of the design of the federal program as few
mechanisms exist to identify potential national interests in cases
where federal funds have not or will not be used. For example, although
the Indiana Toll Road is part of the Interstate Highway System and most
traffic on the road is interstate in nature, federal officials had
little involvement in reviewing the terms of this concession agreement
because minimal federal funds were used to construct it, and those
funds were repaid to the federal government. The historic test of the
presence of federal funding may have been relevant at a time when the
federal government played a larger role in financing highways but may
no longer be relevant when there are new players and multiple sources
of financing, including potentially significant private money.
Reexamining the federal role in transportation provides an opportunity
to identify the emerging national public interests in highway public-
private partnerships and determine how highway public-private
partnerships fit in with national programs.
On the basis of these conclusions, we recommended that Congress direct
the Secretary of Transportation to develop and submit objective
criteria for identifying national public interests in highway public-
private partnerships, including any additional legal authority,
guidance, or assessment tools that would be appropriately required.
[Footnote 27] We are pleased to note that in a recent testimony before
the House, the Secretary indicated a willingness to begin developing
such criteria. This is no easy task, however. The recent Policy
Commission report illustrates the challenges of identifying national
public interests as the Policy Commission's recommendations for future
restrictions--including limiting allowable toll increases and requiring
concessionaires to share revenues with the public sector--stood in
sharp contrast to the dissenting views of three commissioners. We
believe any potential federal restrictions on highway public-private
partnerships must be carefully crafted to avoid undermining the
potential benefits that can be achieved. Reexamining the federal role
in transportation provides an opportunity for DOT we believe, to play a
targeted role in ensuring that national interests are considered, as
appropriate.
Concluding Observations:
The nation's surface transportation programs are no longer producing
the desired results. The reliability of the nation's surface
transportation system is declining as congestion continues to grow.
Although infusing surface transportation programs with additional
funding, especially in light of the projected shortfalls in the Highway
Trust Fund, could be viewed as a quick and direct solution, past
experience shows that increased funding for the program does not
necessarily translate into improved performance. Furthermore, the
nation's current fiscal outlook may make such solutions fiscally
imprudent. In addition, before additional federal funds are committed
to the nation's surface transportation programs, we believe a
fundamental reexamination of the program is warranted. Such a
reexamination would require reviewing the results of surface
transportation programs and testing their continued relevance and
relative priority. Appropriate funding sources and financing mechanisms
can then be tailored for programs that continue to be relevant in
today's environment and address a national interest, such as freight
movement.
Over the coming months, various options to restructure and fund surface
transportation programs will likely be put forward by a range of
transportation stakeholders. Ultimately, Congress and other federal
policymakers will have to determine which option--or which combination
of options--best meets the nation's needs. There is no silver bullet
that can solve the nation's transportation challenges, and many of the
options, such as allowing greater private-sector investment in the
nation's infrastructure, could be politically difficult to implement
both nationally and locally. The principles that we identified provide
a framework for evaluating these various options. Although the
principles do not prescribe a specific approach to restructuring and
funding the programs, they do provide key attributes that will help
ensure that a restructured surface transportation program addresses
current challenges. We will continue to assist the Congress as it works
to evaluate the various options and develop a national transportation
policy for the 21st century that improves the design of transportation
programs, the delivery of services, and accountability for results.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to respond to any questions that you or other Members of the Committee
might have.
GAO Contact and Staff Acknowledgement:
For further information on this statement, please contact JayEtta Z.
Hecker at (202) 512-2834 or heckerj@gao.gov. Individuals making key
contributions to this testimony were Robert Ciszewski, Nikki Clowers,
Steve Cohen, Barbara Lancaster, Matthew LaTour, and Nancy Lueke.
[End of section]
Related GAO Products:
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Physical Infrastructure: Challenges and Investment Options for the
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Surface Transportation: Restructured Federal Approach Needed for More
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Highway Public-Private Partnerships: More Rigorous Up-front Analysis
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Washington, D.C.: September 14, 2005.
21st Century Challenges: Reexamining the Base of the Federal
Government. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP].
Washington, D.C.: February 1, 2005.
Highway and Transit Investments: Options for Improving Information on
Projects' Benefits and Costs and Increasing Accountability for Results.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-172]. Washington, D.C.:
January 24, 2005.
Federal-Aid Highways: Trends, Effect on State Spending, and Options for
Future Program Design. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-802].
Washington, D.C.: August 31, 2004.
Marine Transportation: Federal Financing and a Framework for
Infrastructure Investments. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-1033]. Washington, D.C.: September 9,
2002.
[End of section]
Footnotes:
[1] GAO's audits and evaluations identify federal programs and
operations that, in some cases, are high risk because of their greater
vulnerabilities to fraud, waste, abuse, and mismanagement. In recent
years, we also have identified high-risk areas to focus on the need for
broad-based transformations to address major economy, efficiency, or
effectiveness challenges. Since 1990, we have periodically reported on
government operations that we have designated as high risk. In 2007, we
added financing the nation's transportation system to the High Risk
List. See, GAO, High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-310 (Washington, D.C.:
January 2007).
[2] GAO, Long-Term Fiscal Outlook: Action Is Needed to Avoid the
Possibility of a Serious Economic Disruption in the Future, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-411T] (Washington, D.C.:
Jan. 29, 2008) and Fiscal Stewardship: A Critical Challenge Facing
Our Nation, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-362SP]
(Washington, D.C.: January 2007).
[3] See GAO, Performance and Accountability: Transportation Challenges
Facing Congress and the Department of Transportation, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-545T] (Washington, D.C.:
Mar. 6, 2007) and 21st Century Challenges: Reexamining the Base of
the Federal Government, GAO-05-325SP (Washington, D.C.: February 2005).
[4] See "Related GAO Products" at the end of this testimony statement.
These previous performance audits were conducted in accordance with
generally accepted government auditing standards.
[5] GAO, Highway Public-Private Partnerships: More Rigorous Up-front
Analysis Could Better Secure Potential Benefits and Protect the Public
Interest, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-44]
(Washington, D.C.: Feb. 8, 2008).
[6] GAO, Highway and Transit Investments: Options for Improving
Information on Projects' Benefits and Costs and Increasing
Accountability for Results, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-05-172] (Washington, D.C.: Jan. 24,
2005).
[7] CBO, Status of the Highway Trust Fund: 2007 (Washington, D.C.: Mar.
27, 2007).
[8] GAO, Surface Transportation: Restructured Federal Approach Needed
for More Focused, Performance-Based, and Sustainable Programs, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-400] (Washington, D.C.: Mar. 6,
2008).
[9] GAO, Freight Transportation: National Policy and Strategies Can
Help Improve Freight Mobility. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-287] (Washington, D.C.: Jan. 7,
2008).
[10] GAO, Freight Transportation: Strategies Needed to Address Planning
and Financing Limitations, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-165] (Washington D.C.: Dec. 19, 2003).
[11] Congress established the Policy Commission in SAFETEA-LU. The
mission of the Policy Commission was, among other things, to examine
the condition and future needs of the nation's surface transportation
system and short and long-term alternatives to replace or supplement
the fuel tax as the principal revenue source to support the Highway
Trust Fund. In January 2008, the Policy Commission released its final
report with numerous recommendations to reform the current structure of
the nation's surface transportation programs.
[12] CBO, Current and Future Investment in Infrastructure, (Washington,
D.C.: May 8, 2008). CBO defines economic justifiable investments as
investments whose private and social benefits would be at least equal
to their economic costs.
[13] Congress created the Financing Commission in SAFETEA-LU and
charged it with analyzing future highway and transit needs and the
finances of the Highway Trust Fund and recommending alternative
approaches to financing transportation infrastructure.
[14] GAO, Surface Transportation: Strategies Are Available for Making
Existing Road Infrastructure Perform Better, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-920] (Washington, D.C.:
July 26, 2007).
[15] CBO, Status of the Highway Trust Fund: 2007 (Washington, D.C.:
Mar. 27, 2007).
[16] Another carbon pricing strategy is a cap-and-trade program, which
combines a regulatory limit or cap on the amount of carbon that can be
emitted into the atmosphere with market elements such as the
opportunity to buy additional allowances to emit additional carbon.
Auctioning the allowances of a cap-and-trade program would generate
revenue for the government, which could be used for a variety of
purposes, including infrastructure investments.
[17] GAO, Vehicle Fuel Economy: Reforming Fuel Economy Standards Could
Help Reduce Oil Consumption by Cars and Light Trucks, and Other Options
Could Complement These Standards, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-921] (Washington, D.C.: Aug. 2,
2007).
[18] Oregon's Mileage Fee Concept and Road User Fee Pilot Program:
Final Report.
[19] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-921].
[20] Transportation for Tomorrow: Report of the National Surface
Transportation Policy and Revenue Study Commission, January 2008.
[21] GAO, Freight Transportation: National Policy and Strategies Can
Help Improve Freight Mobility, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-287] (Washington, D.C.: Jan. 7,
2008).
[22] GAO, Marine Transportation: Federal Financing and a Framework for
Infrastructure Investments, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-02-1033] (Washington, D.C.: Sept. 9,
2002).
[23] Tax-exempt bonds are government bonds that are used for purposes
such as infrastructure, schools, libraries, general municipal
expenditures, or refunding of old debt. Tax-exempt means that the
interest paid to bondholders is generally not included in their gross
income for federal income tax purposes. Examples of tax-exempt bonds
include municipal bonds and private activity bonds that allow tax-
exempt debt to be used by private entities to help finance qualified
facilities.
[24] According to DOT, federal requirements necessitate that a credit
risk premium be provided to insure the federal government against the
risk of loans defaulting. As a result, these loans are closely examined
for risk of loss and, to date, none of the TIFIA or RRIF loans have
defaulted.
[25] Eight states--Arizona, Florida, Minnesota, Missouri, Ohio, South
Carolina, Texas, and Wyoming--account for 95 percent of the total loan
agreements reached through fiscal year 2006.
[26] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-44]. We
focused our review on highway public-private partnerships in which the
public sector enters into a lease or concession agreement with the
private sector to provide transportation services for an extended
period of time, and where the private sector receives some or all
toll revenues over the life of the agreement. We recognize that the
term public-private partnerships can be applied to other types of
highway projects and other types of transportation projects (such
as mass transit and freight rail projects), as well as projects
outside the transportation sector (such as hospitals and prisons).
We did not include any of these in the scope of our review and my
testimony today cannot necessarily be extrapolated to these or
other types of public-private partnerships.
[27] To ensure that future highway public-private partnerships meet
federal requirements concerning the use of excess revenues for
federally eligible transportation purposes, we also recommended that
the Secretary of Transportation direct the Federal Highway
Administrator to clarify federal-aid highway regulations on the
methodology for determining excess toll revenue, including the
reasonable rate of return to private investors in highway public-
private partnerships that involve federal investment.
[End of section]
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