DEPARTMENT OF TRANSPORTATION
CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of the financial statements.

DEPARTMENT OF TRANSPORTATION
CONSOLIDATED STATEMENT OF NET COST

The accompanying notes are an integral part of the financial statements.

DEPARTMENT OF TRANSPORTATION
CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION

The accompanying notes are an integral part of the financial statements.

DEPARTMENT OF TRANSPORTATION
COMBINED STATEMENT OF BUDGETARY RESOURCES

The accompanying notes are an integral part of the financial statements.

Note 1. Significant Accounting Policies

A. Basis of Presentation

The Departmental consolidated financial statement has been prepared to report the financial position and results from operations of the Department of Transportation (DOT), as required by the Chief Financial Officers Act of 1990 (CFO Act), Title IV of the Government Management Reform Act of 1994 (GMRA). The statement has been prepared from the books and records of DOT in accordance with Office of Management and Budget (OMB) requirements for form and content for entity financial statements and DOT's accounting policies and procedures. OMB Circular No. A-136, “Financial Reporting Requirements,” has been used to prepare the Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and Statement of Budgetary Resources. Effective FY 2007, the Statement of Financing was changed from a basic statement to a footnote disclosure and is reflected in Note 24 - Reconciliation of Net Cost of Operations to Budget. They are different from the financial reports prepared pursuant to OMB directives that are used to monitor and control the use of budgetary resources.

The Balance Sheet presents agency assets and liabilities, and the difference between the two, which is the agency net position. Agency assets include both entity assets (those which are available for use by the agency) and non-entity assets (those which are managed by the agency but not available for use in its operations). Agency liabilities include both those covered by budgetary resources (funded) and those not covered by budgetary resources (unfunded).

The Statement of Net Cost presents the gross costs of programs less earned revenue to arrive at the net cost of operations for both programs and for the agency as a whole.

The Statement of Changes in Net Position reports beginning balances, budgetary and other financing sources, and net cost of operations, to arrive at ending balances.

The Statement of Budgetary Resources provides information about how budgetary resources were made available as well as their status at the end of the period. Recognition and measurement of budgetary information reported on this statement is based on budget terminology, definitions, and guidance in OMB Circular No. A-11, “Preparation, Submission, and Execution of the Budget,” dated July 2007.

Since DOT custodial activity is incidental to Departmental operations and not material, a Statement of Custodial Activity was not prepared. However, sources and dispositions of collections have been disclosed in Note 23 to the financial statements.

The Department is required to be in substantial compliance with all applicable accounting principles and standards established, issued, and implemented by the Federal Accounting Standards Advisory Board (FASAB), which is recognized by the American Institute of Certified Public Accountants (AICPA) as the entity to establish Generally Accepted Accounting Principles (GAAP) for the Federal Government. The Federal Financial Management Improvement Act (FFMIA) of 1996 requires the Department to comply substantially with (1) Federal financial management systems requirements, (2) applicable Federal accounting standards, and (3) the U.S. Government Standard General Ledger at the transaction level.

B. Reporting Entity

DOT serves as the focal point in the Federal Government for the Coordinated National Transportation Policy. It is responsible for ensuring the safety of all forms of transportation; protecting the interests of consumers; international transportation agreements; conducting planning and research for the future; and helping cities and States meet their local transportation needs through financial and technical assistance.

The Department is comprised of the Office of the Secretary and the DOT Operating Administrations, each having its own management and organizational structure and collectively providing the necessary services and oversight to ensure the best transportation system possible. The Departmental consolidated financial statement represents the financial data, including various trust funds, revolving funds, appropriations and special funds of the following organizations:

• Office of The Secretary (OST - includes OST Working Capital Fund)
• Federal Aviation Administration (FAA)
• Federal Highway Administration (FHWA)
• Federal Motor Carrier Safety Administration (FMCSA)
• Federal Railroad Administration (FRA)
• National Highway Traffic Safety Administration (NHTSA)
• Maritime Administration (MARAD)
• Federal Transit Administration (FTA)
• Surface Transportation Board (STB)
• Office of Inspector General (OIG)
• Pipeline and Hazardous Materials Safety Administration (PHMSA)
• Research and Innovative Technology Administration (RITA - includes Volpe National Transportation System Center)

The Saint Lawrence Seaway Development Corporation (SLSDC) is also an entity of DOT. However, since it is subject to separate reporting under the Government Corporation Control Act and the dollar value of its activities is not material to Departmental totals, SLSDC's financial data have not been consolidated in the DOT financial statements. However, condensed information about SLSDC's financial position is included in Note 26.

C. Budgets and Budgetary Accounting

DOT follows standard Federal budgetary accounting policies and practices in accordance with OMB Circular No. A-11, “Preparation, Submission, and Execution of the Budget,” dated July 2007. Budgetary accounting facilitates compliance with legal constraints and controls over the use of Federal funds. Each year, Congress provides each Operating Administration within DOT appropriations to incur obligations in support of agency programs. For FY 2007, the Department was accountable for trust fund appropriations, general fund appropriations, revolving funds and borrowing authority. DOT recognizes budgetary resources as assets when cash (funds held by Treasury) is made available through warrants and trust fund transfers.

D. Basis of Accounting

Transactions are generally recorded on an accrual accounting basis and a budgetary basis. Under the accrual method, revenues are recognized when earned, and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance with legal constraints and controls over the use of Federal funds.

DOT accounted for revenues and other financing sources for earmarked funds separately from other funds. This new method was adopted in accordance with the provisions of the Federal Accounting Standards Advisory Board's Statement of Federal Financial Accounting Standards (SFFAS) No. 27, Identifying and Reporting Earmarked Funds, which became effective October 1, 2005. This new standard amended SFFAS No. 7, Revenue and Other Financing Sources, by: (1) elaborating the special accountability needs associated with dedicated collections; (2) separating dedicated collections into two categories - earmarked funds and fiduciary activity; and (3) defining and providing accounting and reporting guidance for earmarked funds.

E. Revenues and Other Financing Sources

DOT receives the majority of the funding needed to support all of its programs through appropriations. The Highway Trust Fund, Airport and Airway Trust Fund, and the Treasury General Fund fund some of these appropriations. DOT receives annual, multi-year and no-year appropriations that may be used, within statutory limits, for operating and capital expenditures. Additional amounts are obtained from offsetting collections and user fees (e.g., landing and registry fees) and through reimbursable agreements for services performed for domestic and foreign governmental entities. Additional revenue is earned from gifts from donors, sales of goods and services to other agencies and the public, the collection of fees and fines, interest/dividends on invested funds, loans and cash disbursements to banks. Interest income received is recognized as revenue on the accrual basis. Appropriations are recognized as revenues as the related program or administrative expenses are incurred.

F. Funds with the U.S. Treasury and Cash

DOT does not generally maintain cash in commercial bank accounts. Cash receipts and disbursements are processed by the U.S. Treasury. The funds with the U.S. Treasury are appropriated, revolving, and trust funds that are available to pay current liabilities and finance authorized purchases. DOT has substantially reduced the number of petty cash (imprest) funds outside the U.S. Treasury to reduce the amount of cash paid outside of Treasury. This reduces the amount of interest that must be paid to borrow funds. Lockboxes have been established with financial institutions to collect payments, and these funds are transferred directly to Treasury on a daily (business day) basis. DOT does not maintain any balances of foreign currencies.

G. Receivables

Accounts receivable consist of amounts owed to the Department by other Federal agencies and the public. Federal accounts receivable are generally the result of the provision of goods and services to other Federal agencies and, with the exception of occasional billing disputes, are considered to be fully collectible. Public accounts receivable are generally the result of the provision of goods and services or the levy of fines and penalties from the Department's regulatory activities. Amounts due from the public are presented net of an allowance for loss on uncollectible accounts, which is based on historical collection experience and/or an analysis of the individual receivables.

Loans are accounted for as receivables after funds have been disbursed. For loans obligated prior to October 1, 1991, loan principal, interest, and penalties receivable are reduced by an allowance for estimated uncollectible amounts. The allowance is estimated based on past experience, present market conditions, and an analysis of outstanding balances. Loans obligated after September 30, 1991, are reduced by an allowance equal to the present value of the subsidy costs (due to the interest rate differential between the loans and Treasury borrowing, the estimated delinquencies and defaults net of recoveries, the offset from fees, and other estimated cash flows) associated with these loans.

H. Inventory and Operating Materials and Supplies

Inventory primarily consists of supplies that are for sale or used in the production of goods for sale. Operating materials and supplies primarily consist of unissued supplies that will be consumed in future operations. Valuation methods for supplies on hand at yearend include historical cost, last acquisition price, standard price/specific identification, standard repair cost, weighted average, and moving weighted average. Expenditures or expenses are recorded when the materials and supplies are consumed or sold. Adjustments for the proper valuation of reparable, excess, obsolete, and unserviceable items are made to appropriate allowance accounts.

I. Investments in U.S. Government Securities

Investments that consist of U.S. Government Securities are reported at cost or amortized cost net of premiums or discounts. Premiums or discounts are amortized into interest income over the term of the investment using the interest or straight-line method. The Department's intent is to hold investments to maturity, unless they are needed to cover losses on loan guarantees, finance programs, or otherwise sustain the operation of the organization. Investments, redemptions, and reinvestments are controlled and processed by the Department of the Treasury. Securities with the Public include marketable Treasury securities that were purchased using deposit fund monies and are required to be classified as securities with the public and are not considered intragovernmental investments.

J. Property and Equipment

DOT agencies have varying methods of determining the value of property and equipment and how it is depreciated. DOT currently has a capitalization threshold of $200,000 for structures and facilities and for internal use software, and $25,000 for other property, plant and equipment. Capitalization at lesser amounts is permitted. Construction in progress is valued at direct (actual) costs plus applied overhead and other indirect costs as accumulated by the regional project material system. The system accumulates costs by project number assigned to the equipment or facility being constructed. The straight line method is generally used to depreciate capitalized assets.

FASAB standards require DOT stewardship assets to be omitted from the Balance Sheet. Information on DOT stewardship assets, as well as stewardship investments, is presented in the Required Supplementary Information section and the Required Supplementary Stewardship Reporting section of this statement. See Note 10 for specific required disclosures related to Stewardship Heritage Assets.

K. Prepaid and Deferred Charges

Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of prepayment and recognized as expenses when the related goods and services are received.

L. Liabilities

Liabilities represent amounts expected to be paid as the result of a transaction or event that has already occurred. Liabilities covered by budgetary resources are liabilities incurred which are covered by realized budgetary resources as of the balance sheet date. Available budgetary resources include new budget authority, spending authority from offsetting collections, recoveries of unexpired budget authority through downward adjustments of prior year obligations, unobligated balances of budgetary resources at the beginning of the year or net transfers of prior year balances during the year, and permanent indefinite appropriations or borrowing authority. Unfunded liabilities are not considered to be covered by such budgetary resources. An example of an unfunded liability is actuarial liabilities for future Federal Employees' Compensation Act payments. The Government, acting in its sovereign capacity, can abrogate liabilities arising from other than contracts.

M. Contingencies

The criteria for recognizing contingencies for claims are (1) a past event or exchange transaction has occurred as of the date of the statements; (2) a future outflow or other sacrifice of resources is probable; and (3) the future outflow or sacrifice of resources is measurable (reasonably estimated). DOT recognizes material contingent liabilities in the form of claims, legal action, administrative proceedings and environmental suits that have been brought to the attention of legal counsel, some of which will be paid by the Treasury Judgment Fund. It is the opinion of management and legal counsel that the ultimate resolution of these proceedings, actions and claims, will not materially affect the financial position or results of operations.

N. Annual, Sick, and Other Leave

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. Accruals for other leave (e.g., credit hours and compensatory leave) are also recorded in the financial statements. Under the OST Working Capital Fund, the liability for accrued annual leave is a funded item. To the extent current or prior year appropriations are not available to fund annual leave earned but not taken, funding will be obtained from future financing sources. Sick leave and other types of non-vested leave are expended as taken.

Air Traffic Controllers covered under the Federal Employees Retirement System (FERS) are eligible, upon retirement, for a sick leave buy back option. Under this option, an employee who attains the required number of years of service for retirement shall receive a lump sum payment for forty percent of the value of his or her accumulated sick leave as of the effective date of retirement.

O. Retirement Plan

For DOT employees who participate in the Civil Service Retirement System (CSRS), DOT contributes a matching contribution equal to 7 percent of pay. On January 1, 1987, FERS went into effect pursuant to Public Law (P.L.) 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to January 1, 1984, could elect to either join FERS and Social Security or remain in CSRS. A primary feature of FERS is that it offers a savings plan to which DOT automatically contributes 1 percent of pay and matches any employee contribution up to an additional 4 percent of pay. For most employees hired since December 31, 1983, DOT also contributes the employer's matching share for Social Security.

Employing agencies are required to recognize pensions and other post retirement benefits during the employees' active years of service. Reporting the assets and liabilities associated with such benefits is the responsibility of the administering agency, the Office of Personnel Management. Therefore, DOT does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities, if any, applicable to employees.

P. Comparative Data

Comparative data for the prior year have been presented for the principal financial statements and their related notes.

Q. Use of Estimates

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, expenses, and in the note disclosures. Actual results could differ from these estimates. Significant estimates underlying the accompanying financial statements include (a) the allocation of trust fund receipts by the Office of Treasury's Assessment (OTA), (b) yearend accruals of accounts and grants payable, (c) accrued workers' compensation, and (d) allowance for doubtful accounts receivable.

R. Reclassifications

Certain reclassifications were made to the FY 2006 financial statement presentation to conform to that used in FY 2007. The FY 2006 Reconciliation of Net Cost of Operations to Budget (formerly the Statement of Financing) was reclassified to conform to the FY 2007 presentation.

S. Parent/Child Allocations

FHWA adjusted the beginning balances of cumulative results of operations by $60.5 million due to a change in accounting principle. According to OMB Circular No. A-136, effective FY 2007 the parent must report all budgetary and proprietary activity of the child account in its financial statements, whether material to the parent or not. As a result, U.S. Army Corps of Engineers and U.S. Forest Service beginning balances are reflected in “Changes to Accounting Principles” on the Statement of Changes to Net Position. For FY 2006, two recipient agencies, U.S. Army Corps of Engineers and U.S. Forest Service, were excluded from all financial statements (except the Statement of Budgetary Resources) and related footnotes; as an exception allowed them to include the allocation activity on their financial statements if it was deemed material to the child agency.

T. Prior Period Adjustments and Restatements

DOT has restated certain balances within Property, Plant and Equipment (PP&E, net) as of September 30, 2006, to correct the effects of untimely recognition of expenses related to Construction in Progress (CIP) activity that did not meet FAA's capitalization requirements and the untimely capitalization of completed assets. The restatement reduces the balance of PP&E, net by $954 million and also reclassifies $1,696 million within PP&E from CIP to other PP&E categories. The effect of this correction is also reflected as a $974 million reduction to the beginning balance of cumulative results of operations on the FY 2006 Statement of Changes in Net Position and a $317.8 million decrease to Air Transportation total net costs as shown on the FY 2006 Statement of Net Cost. The restatement is also reflected in Note 24, Reconciliation of Net Cost of Operations to Budget (formally the Statement of Financing). The effect of the restatement in Note 24 agrees to the decrease in total net costs in the amount of $317.8 million.

DOT has restated the FY2006 DOT Consolidated Financial Statements as of September 30, 2006, to correct the effects of the grant accrual in the Mass Transit Account within FTA's programs. A review of the application of the methodology used to calculate the grant accrual revealed that, due to funding changes enacted in the Surface Transportation Act SAFTEA-LU, the grant accrual for FTA was overstated by $571 million. As a result, the balances of other funds were increased by $571 million. The restatement is reflected on the Consolidated Balance Sheet, the Consolidated Statement of Net Cost and the Consolidated Statement of Changes in Net Position and is summarized in a table reflected in Note 25.

DOT has restated balances on the Statement of Changes in Net Position as of September 30, 2006, to correct the effects of the misclassifications of earmarked funds in the Mass Transit Account within FTA's programs. A review of the presentation of earmarked and other funds in the Statement of Changes in Net Position in accordance with FASAB 27, revealed that the amounts presented were not properly classified in accordance with the standard and the amounts reported included corrections of reporting errors from FY2005 and prior that were presented as FY2006 activity. As a result, beginning cumulative results of operations was decreased by $343.3 million and beginning unexpended appropriations was increased by $343.3 million; the ending balances of earmarked and other funds were reduced by $9.4 million and increased by $9.4 million, respectively. The restatement is reflected on the Consolidated Balance Sheet, the Consolidated Statement of Net Cost and the Consolidated Statement of Changes in Net Position and is summarized in a table reflected in Note 25.

NOTE 2. NON-ENTITY ASSETS

Dollars in Thousands

DOT has restated and reduced PP&E, net as of September 30, 2006 by $954 million to reflect the correction of untimely processing of transactions related to FAA capital projects. The effects of this correction include a reduction to Construction in Progress, net in the amount of $2,593.7 million, comprised of $897.4 million non-capital transactions charged to expense and $1,696.3 million of completed assets reclassified from Construction in Progress to other general property, plant and equipment categories. Accumulated depreciation was increased by $56.6 million for the effects of this correction.

NOTE 3. FUND BALANCE WITH TREASURY

Dollars in Thousands

Fund Balances with Treasury are the aggregate amounts of the entity's accounts with Treasury for which the entity is authorized to make expenditures and pay liabilities. Other Fund Types include uncleared Suspense Accounts, which temporarily hold collections pending clearance to the applicable account, and Deposit Funds, which are established to record amounts held temporarily until ownership is determined.

NOTE 4. INVESTMENTS

Dollars in Thousands

Investments in Federal securities include non-marketable par value Treasury securities, market-based Treasury securities, marketable Treasury securities, and securities issued by other Federal entities. Non-Federal securities include those issued by state and local governments, Government-sponsored enterprises, and other private corporations. Securities with the Public include marketable Treasury securities that were purchased using deposit fund monies and are required to be classified as securites with the public and are not considered intragovernmental investments.

Marketable Federal securities can be bought and sold on the open market. Non-marketable par value Treasury securities are issued by the Bureau of Public Debt to Federal accounts and are purchased and redeemed at par exclusively through Treasury's Federal Investment Branch. Non-marketable market-based Treasury securities are also issued by the Bureau of Public Debt to Federal accounts. They are not traded on any securities exchange but mirror the prices of particular Treasury securities trading in the Government securities market. Amortization is done using the interest or straight-line method.

The Federal Government does not set aside assets to pay future benefits or other expenditures associated with earmarked funds. The cash receipts collected from the public for an earmarked fund are deposited in the U.S. Treasury, which uses the cash for Government purposes. Treasury securities are issued to the DOT as evidence of its receipts. Treasury securities are an asset to the DOT and a liability to the U.S. Treasury. Because the DOT and the U.S. Treasury are both parts of the Government, these assets and liabilities offset each other from the standpoint of the Government as a whole. For this reason, they do not represent an asset or liability in the U.S. Government-wide financial statements.

Treasury securities provide the DOT with authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures. When the DOT requires redemption of these securities to make expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government finances all other expenditures.

NOTE 5. ACCOUNTS RECEIVABLE

Dollars in Thousands

Allowance for Uncollectible Amounts is based on historical data or actual amounts that are determined to be uncollectible based upon review of individual receivables. Accrued interest includes interest, penalties, and other administrative charges pertaining to accounts receivable.

NOTE 6. OTHER ASSETS

Dollars in Thousands

Intragovernmental Other Assets are comprised of advance payments to other Federal Government entities for agency expenses not yet incurred and for goods or services not yet received and undistributed assets and payments for which DOT is awaiting documentation. Public Other Assets are comprised of advances to the States and advances to employees and contractors.

NOTE 7. DIRECT LOANS AND LOAN GUARANTEES, NON-FEDERAL BORROWERS

Dollars in Thousands

DOT administers the following direct loan and/or loan guarantee programs:

1. Railroad Rehabilitation Improvement Program
2. Amtrak Loans
3. Transportation Infrastructure Finance Innovation (TIFIA) Loan Program
4. Federal Ship Financing Fund (Title XI)
5. OST Minority Business Resource Center Guaranteed Loan Program
6. Federal Ship Liquidating Fund (Title XI)

An analysis of loans receivable, allowance for subsidy costs, liability for loan guarantees, foreclosed property, modifications, reestimates, and administrative costs associated with the direct loans and loan guarantees is provided in the following sections.

The Federal Credit Reform Act of 1990 divides direct loans and loan guarantees into two groups: (1) Pre-1992 means the direct loan obligations or loan guarantee commitments made prior to FY 1992 and the resulting direct loans obligations or loan guarantees, and (2) Post-1991 means the direct loan obligations or loan guarantee commitments made after FY 1991 and the resulting direct loans or loan guarantees.

The Act provides that, for direct loan obligations or loan guarantee commitments made after FY 1991, the present value of the subsidy costs (which arises from interest rate differentials, interest subsidies, delinquencies and defaults, fee offsets, and other cash flows) associated with direct loans and loan guarantees be recognized as a cost in the year the direct or guaranteed loan is disbursed.

Direct loans are reported net of an allowance for subsidy at present value, and loan guarantee liabilities are reported at present value. Foreclosed property is valued at the net realizable value. Loans receivable, net, or their value of assets related to direct loans, is not the same as the proceeds that they would expect to receive from selling their loans. DOT calculated the allowance for pre-1992 using the allowance for loss method.

Administrative costs could not be determined and disclosed because DOT has not fully implemented cost accounting Departmentwide.

NOTE 8. INVENTORY AND RELATED PROPERTY

Dollars in Thousands

All DOT inventory is in FAA and the OST Working Capital Fund. Valuation methods used include moving weighted average, standard price/specific identification, and last acquisition price.

DOT operating materials and supplies are in FAA and MARAD. Valuation methods used include historical cost, last acquisition price, standard price/specific identification, standard repair cost, weighted average, and moving weighted average. The only restriction on use is that FAA is not permitted to donate.

NOTE 9. GENERAL PROPERTY, PLANT AND EQUIPMENT

Dollars in Thousands

Depreciation is computed using the straight line method. Net book value of multi-use heritage assets is now included in general property, plant and equipment, while “physical quantity” information is included in the Heritage Assets section of the Required Supplementary Information.

DOT has restated and reduced PP&E, net as of September 30, 2006 by $954.0 million to reflect the correction of untimely processing of transactions related to FAA capital projects. The effects of this correction include a reduction to Construction in Progress, net in the amount of $2,593.7 million, comprised of $897.7 million non-capital transactions charged to expense and $1,696.3 million of completed assets reclassified from Construction in Progress to other general property, plant and equipment categories. Accumulated depreciation was increased by $56.6 million for the effects of this correction.

NOTE 10. STEWARDSHIP PROPERTY, PLANT AND EQUIPMENT

Stewardship Mission

Implied within the Maritime Administration's mission is the promotion of the nation's rich maritime heritage. One aspect of this entails the collection, maintenance and distribution of maritime artifacts removed from MARAD ships prior to their disposal. These artifacts are sought for public display in museums, aboard memorial ships, and in facilities used by government organizations and issued on a long-term loan basis for this purpose.

Washington's Union Station support's DOT's mobility mission, facilitating the movement of intercity and commuter rail passengers through the Washington DC metropolitan area.

Stewardship Policy

The Maritime Administration has established a list of artifact-type items that are typically found aboard agency-owned ships. As ships are assigned to a non-retention status in preparation for disposal, artifact items are collected, inventoried, photographed and relocated to secure shore-side storage facilities. This resulting inventory of artifacts is made available for long-term loan to qualified organizations for public display purposes. Qualified organizations have access to the artifact inventory via web-based system. The artifact loan process is also managed on-line via this system. The program also supports required National Historical Preservation Act processing prior to vessel disposal. Funding for the maintenance of heritage items is typically the responsibility of the organization requesting the loan. As all items are durable and restorable, disposal is not a consideration.

The Federal Railroad Administration has an oversight role in the management of Washington Union Station. FRA received title through legislation, and sublets the property to Union Station Venture Limited which manages the property. Net book value of multi-use heritage assets is included in general property, plant and equipment, while “physical quantity” information is included in the Heritage Assets section of Required Supplementary Information. The condition of the stewardship assets is included in the Deferred Maintenance section of the Required Supplementary Information.

NOTE 11. LIABILITIES NOT COVERED BY BUDGETARY RESOURCES

Dollars in Thousands

As discussed in Notes 1.T, 14, 19, and 20, the FY 2006 grant accrual liabilities were restated. Due to funding changes enacted in the Surface Transportation Act SAFTEA-LU, the grant accrual for FTA was overstated by $571 million in the DOT consolidated financial statements. FTA's grants primarily affect local governments and transit authorities.

NOTE 12. DEBT

Dollars in Thousands

Net Change During Fiscal Year includes new borrowing, repayments and net change in accrued payables. Debt to the Treasury and to the Federal Financing Bank is for FRA direct loans to railroads, for FHWA direct loans under the Transportation Infrastructure Finance and Innovation Act (TIFIA), and for MARAD Title XI guaranteed loans.

NOTE 13. ENVIRONMENTAL AND DISPOSAL LIABILITIES

Dollars in Thousands

Environmental cleanup generally occurs under the Resource Conservation and Recovery Act of 1976 (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund), or the Toxic Substances Control Act (TSCA). Environmental remediation includes the fuel storage tank program, fuels, solvents, industrial, and chemicals, and other environmental cleanup associated with normal operations or as a result of an accident. Cost estimates for environmental and disposal liabilities are not adjusted for inflation and are subject to revision as a result of changes in technology and environmental laws and regulations.

NOTE 14. GRANT ACCRUAL

Dollars in Thousands

Grant liabilities are accrued in two categories. The first category is grant related requests for payments that had been billed to an agency entity as of September 30, but had not yet been paid. The second category is for the grant related costs incurred, but not yet reported (IBNR). IBNR represents an estimate of amounts due to grantees for their expenditures made through September 30, for which payment requests have not been received from grantees as of September 30.

Grant accruals by Operating Administrations at September 30, 2007 and September 30, 2006 are summarized as follows:

DOT has restated and reduced the grant accrual as of September 30, 2006 by $571.3 million to reflect the correction of grant accrual methodology for the Federal Transit Administration. FTA's grants primarily affect local governments and transit authorities.

NOTE 15. OTHER LIABILITIES

Dollars in Thousands

Accrued pay and benefits pertain to unpaid pay and benefits, and may be either current or non-current. Agency expenses for payments made under the Federal Employees Compensation Act (FECA) are forwarded to the Department of Labor (DOL). Funding for FECA is normally appropriated to agencies in the fiscal year two years subsequent to the actual FECA billing from DOL.

NOTE 16. CAPITAL LEASES

Dollars in Thousands

ENTITY AS LESSEE

Capital Leases

Future Payments Due

Operating Leases

Future Payments Due

NOTE 17. CONTINGENCIES, COMMITMENTS, AND OTHER DISCLOSURES

Contingencies

Legal Claims

As of September 30, 2007 and 2006, DOT's contingent liabilities for asserted and pending legal claims reasonably possible of loss were estimated at $33.1 million and $27.9 million, respectively. DOT does not have material amounts of known unasserted claims.

There are legal actions pending against the HTF Agencies in Federal courts in which claims have been asserted that may be based on action taken by the Agencies. Management intends to vigorously contest such claims. Management believes, based on information provided by legal counsel, that losses, if any, for these cases would not have a material impact on the financial statements and no loss accrual has been made for these cases outstanding as of September 30, 2007 and 2006 due to this fact.

Grant Programs

FHWA pre-authorizes states to establish construction budgets without having received appropriations from Congress for such projects. FHWA does not guarantee the ultimate funding to the states for these “Advance Construction” projects and, accordingly, does not obligate any funds for these projects. When funding becomes available to FHWA, the states can then apply for reimbursement of costs that they have incurred on such project, at which time FHWA can accept or reject such request. For the fiscal year ended September 30, 2007 and 2006, FHWA has pre-authorized $46.2 billion and $44.8 billion, respectively under these arrangements; however no liability is reflected in the Highway Trust Fund financial statements at September 30, 2007 and 2006.

FTA executes Full Funding Grant Agreements (FFGAs) under its Capital Investment program (New Starts) authorizing transit authorities to establish project budgets and incur costs with their own funds in advance of annual appropriations by Congress. As of September 30, 2007 and September 30, 2006 approximately $3.9 billion and $2.7 billion respectively in Section 5309 New Starts funds has been committed under FFGAs, but not yet appropriated by Congress. However, no liability is reflected in the DOT financial statements at September 30, 2007 and September 30, 2006 for these agreements.

Contract Options and Negotiations

As of September 30, 2007 and 2006, FAA had contract options of $3.51 billion and $3.35 billion, respectively. These contract options give FAA the unilateral right to purchase additional equipment or services or to extend the contract terms. Exercising this right would require the obligation of funds in future years.

Aviation Insurance Program

FAA is authorized to issue hull and liability insurance under the Aviation Insurance Program for air carrier operations for which commercial insurance is not available on reasonable terms and when continuation of U.S. flag commercial air service is necessary in the interest of air commerce, national security, and the U.S. foreign policy. FAA may issue (1) non-premium insurance, and (2) premium insurance for which a risk-based premium is charged to the air carrier, to the extent practical.

FAA maintains standby non-premium war-risk insurance policies for 40 air carriers having approximately 1,643 aircraft available for Department of Defense and for 9 carriers available for State Department charter operations.

On September 22, 2001, the Air Transportation Safety and System Stabilization Act (Public Law 107-42) expanded premium insurance program authority to permit insurance of domestic operations. Under this program, FAA initially provided third party liability war-risk insurance to U.S. carriers whose coverage was cancelled following the terrorist attacks of September 11, 2001.Public Law 108-11 required FAA to extend policies in effect on July 19, 2002 and to add hull loss and passenger and third party war risk liability insurance for those policies.

Subsequent acts ending with the Revised Continuing Appropriations Resolution, 2007, P.L. 110-5, ultimately extended the mandatory provision of insurance through September 30, 2007, expanded the authority of the DOT to include war and terrorism insurance for aircraft and aircraft engine manufacturers, extended the potential $100 million third party liability limitation for air carriers through September 30, 2007, and expanded it to include aircraft and aircraft engine manufacturers. On September 1, 2007, the Secretary of Transportation extended coverage through December 31, 2007. During this year there were 77 FAA premium war-risk policies. Insured air carriers per occurrence limits for combined hull and liability coverage range from $100 million to $4 billion.

Current war risk coverage is intended as a temporary measure to provide insurance to qualifying carriers while allowing time for commercial insurance market to stabilize. Premiums under this program are established by FAA and are based on the value of policy coverage limits and aircraft activity. However, airlines' total charge for coverage is subject to a cap mandated by Congress. During FY 2007 and FY 2006, FAA recognized insurance premium revenue of $171 million and $168.4 million, respectively. Premiums are recognized as revenue on a straight-line basis over the period of coverage. Premium revenue is reported on the FAA's Consolidated Statement of Net Cost, under “Regional and Center Operations and Other Programs.”

FAA airline war risk insurance policies normally establish a maximum liability for claims associated with a single war risk event. The maximum liability for both hull loss and liability, per occurrence, is $4 billion. No claims for losses were pending as of September 30, 2007, or 2006. In the past, FAA has insured a small number of air carrier operations and established a maximum liability for losing one aircraft. Since the inception of the Aviation Insurance Program in 1951, the FAA has intermittently insured air carrier operations on both a premium and non-premium basis. During its history, the Aviation Insurance Program has only paid four claims, all involving only minor dollar amounts. Because of the unpredictable nature of war risk and the absence of historical claims experience on which to base an estimate, no reserve for insurance losses has been recorded.

Commitments

Grant Programs

FAA's Airport Improvement Program provides grants for the planning and development of public-use airports that are included in the National Plan of Integrated Airport Systems. Eligible projects generally include improvements related to enhancing airport safety, capacity, security and environmental concerns. FAA's share of eligible costs for large and medium primary hub airports is 75% with the exception of noise program implementation, which is 80%. For remaining airports (small primary, relievers, and general aviation airports), FAA's share of eligible costs is 95%.

FAA has authority under 49 U.S.C. 47110(e) to issue letters of intent to enter into Airport Improvement Program grant agreements. FAA records an obligation when a grant is awarded. Through September 30, 2007, FAA issued letters of intent covering FY 1988 through FY 2020 totaling $5.6 billion. As of September 30, 2007, FAA had obligated $4.3 billion of this total amount leaving $1.3 billion unobligated. Through September 30, 2006, FAA issued letters of intent covering FY 1988 through FY 2020 totaling $5.3 billion. As of September 30, 2006, FAA had obligated $3.8 billion of this total amount, leaving $1.5 billion unobligated.

Other Disclosures

Environmental Liabilities

MARAD faces liability primarily by virtue of the actions of its predecessor, the War Shipping Administration, for its share of liability for remediation under the Comprehensive Environmental Response Compensation Liabilities Act (CERCLA) at various sites. MARAD is currently unable to quantify its liability in this area.

NOTE 18. EARMARKED FUNDS

Highway Trust Funds

The Highway Trust Fund is comprised of the Highway Corpus Trust Fund and certain accounts of the Federal Highway Administration, Federal Motor Carrier Safety Administration, Federal Transit Administration, Federal Railroad Administration and the National Highway Traffic Safety Administration. The HTF was created in 1956 with the Highway Revenue Act of 1956 with the main objective of funding the construction of the Dwight D. Eisenhower System of Interstate and Defense Highways. The use of the fund has also been expanded to embrace highway safety. Overall, there are 73 earmarked funds in the HTF.

Federal Aviation Administration Trust Funds

Aviation Insurance Revolving Fund (AIRF) - was authorized under public law Title 49 of the U.S. Code to provide insurance coverage for aircraft operations that are deemed essential to the foreign policy interests of the United States when commercial insurance is unavailable on reasonable terms. The AIRF is a separate fund within FAA's accounting structure and included as part of FAA's consolidated financial statements.

Aviation User Fees (AUF) - was authorized by the Federal Aviation Reauthorization Act of 1996 and Title 49 U.S. Code 45301, as amended by public law 104-264, to establish a fee schedule and collection process for air traffic control and related services provided to aircraft, other than military and civilian aircraft of the U.S. government or a foreign government, that neither take off nor land in the United States. The AUF is a separate fund within FAA's accounting structure and included as part of FAA's consolidated financial statements.

Airport and Airway Trust Fund (AATF) - was authorized by the Airport and Airway Revenue Act of 1970 to provide funding for the Federal commitment to the nations aviation system and typically includes annual funding for four distinct areas; Operations, Grant in Aid for Airports, Facilities and Equipment and Research, Engineering and Development. The activity within each area is reported by fund group within FAA's accounting structure and included as part of FAA's consolidated financial statements. The AATF is managed by the Bureau of Public Debt (BPD) for FAA and receipts are unavailable until appropriated by the U. S. Congress. AATF funds are invested in government securities by BPD which are liquidated and transferred to authorized funds as needed. The unavailable or unappropriated funds in AATF, referred to as Corpus, are also included as part of FAA's consolidated financial statements.

Earmarked funds from the Facilities and Equipment fund are used to purchase or construct property, plant and equipment (PP&E). When earmarked funds are used to purchase or construct PP&E, they are no longer available for future expenditure, have been used for their intended purpose, and therefore are classified as other funds on the balance sheet and the statement of changes in net position. The intended result of this presentation is to differentiate between earmarked funds available for future expenditure and earmarked funds previously expended on PP&E projects and therefore unavailable for future expenditure. In addition, this note presents only the earmarked funds that retain available financing sources. As such, the balances in the PP&E fund, though funded from the Facilities and Equipment earmarked fund are reported as other funds and therefore are excluded.

Federal Highway Administration Non Trust Funds

Several small miscellaneous programs comprise this portion of earmarked funds in the Federal Highway Administration.

Federal Transit Administration (Mass Transit)

In FY-2005 and prior, FTA programs were funded 80% through the Mass Transit account and 20% through Treasury General Receipt (Fund) account. During these prior years, FTA's formula programs were paid out of general fund accounts combined with financing sources transferred in without reimbursement from expenditure transfers from an FTA conduit Trust Fund account (69X8350). The Mass Transit account for these years is considered earmarked but not reported as part of the HTF.

SAFETEA-LU legislation (P.L. 109-59) changed the way FTA programs are funded. Beginning in FY-2006, FTA formula and bus appropriation (69X8350) is funded 100% by the Mass Transit account and is reported as part of the HTF.

Maritime Administration

War Risk Insurance Fund - MARAD is authorize to insure against loss or damage from marine war risks until commercial insurance can be obtained on reasonable terms and conditions. This insurance includes war risk hull and disbursement interim insurance, war risk protection and indemnity interim insurance, second seaman's war risk interim insurance and war risk cargo insurance standby program.

Special Study, Services & Project Fund - All payments for work or services performed or to be performed under the Act shall be deposited in this separate accounts which may be used to pay directly the costs of such work or services.

Gifts and Bequests Fund - The Secretary is authorized to accept, hold, administer gifts and bequests of property, both real and personal for the purpose of aiding or facilitating the work of Department of Transportation.

Office of the Secretary

X-5423 - Emergency Air Service post 911 travel

X-8304 - Emergency Air Service post 911 travel

X-8548 -Investment at Treasury from a gift that earns interest twice a year

Pipeline and Hazardous Material Safety Administration

The funds are used to oversee, the safety, security, and environmental protection of pipeline through analysis of data, damage prevention, education and training, enforcement of regulations and standards, research and development, grants for State pipeline safety programs, and emergency planning and response to accidents. PHMSA reports this as a Special Fund. Collections are deposited to an Unappropriated Receipt Account and funds are drawn down as needed during the year up to the limitation established by Congress. The authority is established by P.L. 109-115.

Trust Fund provides funding for pipeline to provide regulations, proposed and final rulemakings, pipeline statistics, report accidents/incidents and corrective action orders. PHMSA reports this fund as a Special Fund. The authority is established by P.L. 109-115.

Emergency Preparedness Grants funds are used to establish a national registration program for shippers and carriers of hazardous materials. These fees finance emergency preparedness planning and training grants, development of a training curriculum for emergency responders, and technical assistance to States, political subdivisions, and Indian tribes. This fund is reported as a Special Fund. The authority is established by P.L. 109-115.

SOURCES OF EARMARKED FUNDS

Highway Trust Funds

The funding needed to support the HTF programs and activities are financed from excise taxes collected on specific motor fuels, truck taxes, and fines and penalties. Annual appropriations are the authority to collect these tax revenues to support programs as authorized by law. A small portion of the financing revenues are provided by offsetting collections for work performed under a reimbursable agreement. Taxes are recognized as revenues at the time they are deposited in the Highway Trust Fund Corpus account.

Aviation Insurance Revolving Fund:

FAA collects insurance premiums from participating carriers that finance a continuing cycle of operations. These revenues are inflows of resources to the government.

Aviation User Fees

FAA collects over flight user fees for providing air traffic control services. These revenues are inflows of resources to the government.

Airport and Airway Trust Fund

Funding currently comes from several aviation related excise tax collections from passenger tickets, passenger flight segments, international arrivals/departures, cargo waybills and aviation fuels. These revenues are inflows of resources to the government.

Federal Highway Administration Non Trust Funds

Source of funding is from receipts that come in from various public sources. The level of funding is not known. These receipts are the sole source of funding for Miscellaneous trust funds.

Federal Transit Administration (Mass Transit)

As FTA had a significant amount (greater than 50%) of earmarked funds in its general appropriation fund accounts, the majority of these are reported as earmarked.

Maritime Administration

War Risk Insurance Fund - Insurance premium

Special Study, Services & Project Funs - Fee for performing work or service

Gift and Bequests Fund - Donation

Office of the Secretary

X-5423 - Funding comes from FAA as a transfer of funds, 100% intergovernmental flow

X-8304 - Funding comes from the Bureau of Public Debt as a transfer of funds, 100% intragovernmental flow

X-8548 - Investment at Treasury from a gift that earns interest twice a year, 100% resources to the Government

Pipeline and Hazardous Material Safety Administration

Pipeline- Financing is a result of user fees

Trust Fund - Funds are appropriated and received from the BPD Trust fund

EP Grants - Financing is obtained from registration fees.

There were no changes in legislation as of September 30, 2007 that significantly changed the purpose of the earmarked funds or redirected a material portion of the accumulated balance.

NOTE 19. NET COST BY PROGRAM

Dollars in Thousands

FAA has restated its FY 2006 financial statements to correct the effect of untimely processing of transactions associated with capital projects. As a result, net cost as reported on the FY 2006 Consolidated Statement of Net Cost was decreased by $317.8 million, within the Air Transportation Program.

FTA has restated and reduced their grant accrual as of September 30, 2006 by $571.3 million to reflect the correction of grant accrual methodology, thereby reducing the FY 2006 Consolidated Statement of Net Cost.

NOTE 20. INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUES

Dollars in Thousands

As discussed in notes 1.T, 9, 18, 19 and 24, FAA has restated its FY 2006 financial statements to correct the effect of untimely processing of transactions associated with capital projects. As a result, net cost as reported on the FY 2006 Consolidated Statement of Net Cost was decreased by $317.8 million, within the Air Transportation Program.

FTA has restated and reduced their grant accrual as of September 30, 2006 by $571.3 million to reflect the correction of grant accrual methodology thereby reducing the FY 2006 Consolidated Statement of Net Cost.

NOTE 21. STATEMENT OF CHANGES IN NET POSITION

Dollars in Thousands

Non-Exchange Revenue

The financial statements of the DOT for the Highway Trust Fund and the Airport and Airway Trust Fund reflect actual tax collections for the nine months ended June 30, 2007, plus an estimate of tax collections expected for the quarter ended September 30, 2007. Actual tax collection data for the quarter ended September 30, 2007 will not be available from the IRS until December 2007.

NOTE 22. STATEMENT OF BUDGETARY RESOURCES

Dollars in Thousands

The amounts reported for undelivered orders only includes balances obligated for goods and services not delivered and does not include prepayments.

Existence, Purpose, and Availability of Permanent Indefinite Appropriations

FAA has permanent indefinite appropriations for the Facilities and Equipment, Grants in Aid and Research, Development and Engineering appropriations to fully fund special projects that were on-going and spanned several years.

Additional Disclosures

Unobligated balances of budgetary resources for unexpired accounts are available in subsequent years until expiration, upon receipt of an apportionment from OMB. Unobligated balances of expired accounts are not available.

With the exception of the following, there are no material differences between the amounts reported in the Combined Statement of Budgetary Resources (SBR) for FY 2006 and the actual amounts reported in the President's Budget of the United States for FY 2008. Budget authority on the SBR contains $3.4 billion of expired funds that is not presented in the President's budget. Also obligations incurred on the SBR includes $78 million of expired funds and $93.3 million of reimbursable and revolving funds that are not presented in the President's budget. The SBR obligated beginning balance of the year is $117 million less than the related amount reported in the President's budget while obligations incurred during the year are more by $117 million. This is the result of prior year obligations being recorded as current year business in the President's budget. The unobligated balance brought forward at the beginning of the year on the SBR is $134 million greater than the President's budget due to recording errors on the transfers between some of the HTF childrens' accounts. The budget authority for FY 2006 in the SBR is less than that in the President's budget by $16 million which is attributed to the recalculation of the FY 2004 minimum grantee program.

The FY 2009 President's Budget with actual numbers for FY 2007 will be published in February 2008.

NOTE 23. INCIDENTAL CUSTODIAL COLLECTIONS

Dollars in Thousands

NOTE 24. RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET

Dollars in Thousands

The reconciliation of Net Cost of Operations to Budget is intended to be a bridge between the entity's budgetary and financial (proprietary) accounting. This reconciliation first identifies total resources used by an entity during the period (budgetary and other) and then makes adjustments to the resources based upon how they were used to finance net obligations or cost. The budgetary information used to calculate net obligations (the first four lines) must be presented on a combined basis to enable a direct tie to the Statement of Budgetary Resources. The Reconciliation of Net Cost of Operations to Budget explains the difference between the budgetary net obligations and the proprietary net cost of operations by setting forth the items that reconcile the two amounts. The budgetary net obligations and the proprietary net cost of operations are different in that (1) the net cost of operations may be financed by non-budgetary resources; (2) the budgetary and non-budgetary resources used by an agency may finance activities which are not components of the net cost of operations; and (3) the net cost of operations may contain components which do not use or generate resources in the period.

NOTE 25. RESTATEMENTS

Dollars in Thousands

DOT has restated and reduced PP&E, net on the Balance Sheet as of September 30, 2006 by $954 million to reflect the correction of untimely processing of transactions related to FAA capital projects. The correction results from $2,594 million in downward reclassifications of Construction in Progress, net. Non-capital transactions of $898 million were reclassified from Construction in Progress to expense and completed assets of $1,696 million were reclassified from Construction in Progress to other general property, plant and equipment categories. Associated with the increase in completed assets, accumulated depreciation increased by $56 million.

The Federal Transit Administration has restated certain balances within the statement of changes in Net Positon, as also discussed in notes 1.T, 2, 11, 14, 18, 19, 20 and 21. A review of the presentation of earmarked and other funds in the Statement of Changes in Net Position in accordance with FASAB 27, revealed that prior year amounts presented were not properly classified in accordance with the standard and the amounts reported included corrections of reporting errors from FY2005 and prior that were presented as FY2006 activity. In addition, due to funding changes enacted in the Surface Transportation Act SAFTEA-LU, the grant accrual for FTA was overstated by $571 million in the DOT consolidated financial statements. As a result, the balances of earmarked and other funds were reduced by $9.4 million and increased by $373 million, respectively. The restatement is reflected on the Consolidated Balance Sheet, the Consolidated Statement of Net Cost and the Consolidated Statement of Changes in Net Position and summarized in the chart below.

NOTE 26. SAINT LAWRENCE SEAWAY DEVELOPMENT CORPORATION

Dollars in Thousands

REQUIRED SUPPLEMENTARY INFORMATION

DEFERRED MAINTENANCE

*Asset Condition Rating Scale:
1 - Excellent
2 - Good
3 - Fair
4 - Poor
5 - Very Poor

Deferred Maintenance is maintenance that was not performed when it should have been or was scheduled to be performed and delayed until a future period. Maintenance is keeping fixed assets in acceptable condition, and includes preventative maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve assets in a condition to provide acceptable service and to achieve expected useful lives.

HERITAGE ASSETS SUMMARY
REQUIRED SUPPLEMENTAL INFORMATION, SEPTEMBER 30, 2007
NUMBER OF PHYSICAL UNITS

Heritage Assets

Artifacts are those of the Maritime Administration. Maritime Administration artifacts are generally on loan to single purpose memorialization and remembrance groups, such as AMVets and preservation societies.

Museum and Other Collections are owned by the Maritime Administration. They are merchant marine artifacts, composed of ships' operating equipment, obtained from obsolete ships. They are inoperative and in need of preservation and restoration. Museum items are on loan to organizations whose purpose is historic preservation, education, and remembrance, open to the public during regularly scheduled hours. Other collections are on loan to public and private entities, the display of which is incidental to maritime affairs, such as county and state buildings, port authorities, pilots associations, public and college libraries, and other organizations.

Buildings and Structures include Union Station in Washington, D.C. Union Station is an elegant and unique turn-of-the-century rail station in which one finds a wide variety of elaborate, artistic workmanship characteristic of the period. Union Station is listed on the National Register of Historic Places. The station consists of the renovated original building and a parking garage which was added by the U.S. Park Service. The Federal Railroad Administration received title to Union Station through appropriated funds and assumption of a mortgage. Mortgage payments are made by Union Station Venture Limited which manages the property. Union Station Redevelopment Corporation, a non-profit group instrumental in the renovation of the station, sublets the operation of the station to Union Station Venture Limited.

Financial information for multi-use heritage assets is presented in the principal statements and notes. The condition of the stewardship heritage assets is presented in the Deferred Maintenance section of the Required Supplementary Information.

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

NON FEDERAL PHYSICAL PROPERTY
ANNUAL STEWARDSHIP INFORMATION, SEPTEMBER 30, 2007
TRANSPORTATION INVESTMENTS

Dollars in Thousands

The Federal Highway Administration reimburses States for construction costs on projects related to the Federal Highway System of roads. The main programs in which the States participate are the National Highway System, Interstate Systems, Surface Transportation Program, and Congestion Mitigation/Air Quality Improvement. The States' contribution is ten percent for the Interstate System and twenty percent for most other programs.

The Federal Transit Administration provides grants to State and local transit authorities and agencies.

Formula grants provide capital assistance to urban and nonurban areas and may be used for a wide variety of mass transit purposes, including planning, construction of facilities, and purchases of buses and railcars. Funding also includes providing transportation to meet the special needs of elderly individuals and individuals with disabilities.

Capital investment grants, which replaced discretionary grants in 1999, provide capital assistance to finance acquisition, construction, reconstruction, and improvement of facilities and equipment. Capital investment grants fund the categories of new starts, fixed guideway modernization, and bus and bus-related facilities.

Washington Metro provides funding to support the construction of the Washington Metrorail System. Interstate Transfer Grants provided Federal financing from FY 1976 through FY 1995 to allow States and localities to fund transit capital projects substituted for previously withdrawn segments of the Interstate Highway System.

The Federal Aviation Administration (FAA) makes project grants for airport planning and development under the Airport Improvement Program (AIP) to maintain a safe and efficient nationwide system of public-use airports that meet both present and future needs of civil aeronautics. FAA works to improve the infrastructure of the nation's airports, in cooperation with airport authorities, local and State governments, and metropolitan planning authorities.

HUMAN CAPITAL INVESTMENT EXPENSES
ANNUAL STEWARDSHIP INFORMATION, SEPTEMBER 30, 2007

Dollars in Thousands

The National Highway Institute develops and conducts various training courses for all aspects of Federal Highway Administration. Students are typically from the State and local police, State highway departments, public safety and motor vehicle employees, and U.S. citizens and foreign nationals engaged in highway work of interest to the U.S. Types of courses given and developed are modern developments, technique, management, planning, environmental factors, engineering, safety, construction, and maintenance.

The California Highway Patrol educates the trucking industry for the Federal Motor Carrier Safety Administration about Federal an State commercial motor vehicle/carrier inspection procedures, and increase CMV driver awareness. The Idaho Video Program develops video training material utilized by FMCSA National Training Center for the purpose of training State and Local law enforcement personnel. The Massachusetts Training Academy provides training to State law enforcement personnel located in the northeast region of Massachusetts. The Minnesota Crash Investigation program provides training and develops processes and protocols for commercial motor vehicle crash investigations.

The National Transit Institute of the Federal Transit Administration develops and offers training courses to improve transit planning and operations. Technology courses cover such topics as alternative fuels, turnkey project delivery systems, communications-based train controls, and integration of advanced technologies.

The National Highway Traffic Safety Administration's programs authorized under the Highway Trust Fund provide resources to State and Local governments, private partners, and the public, to effect changes in driving behavior on the nation's highways to increase safety belt usage and reduce impaired driving. NHTSA provides technical assistance to all states on the full range of components of the impaired driving system as well as conducting demonstrations, training and public information/education on safety belt usage.

The Pipeline and Hazardous Materials Safety Administration administers Hazardous Material Training (Hazmat). The purpose of Hazmat Training is to train State and local emergency personnel on the handling of hazardous materials in the event of a hazardous material spill or storage problem.

(2) FY 2001 and FY 2002 outlay amounts are based on the enacted budget authority for FY 1999, FY 2000, and FY 2001 and on the approved outlay rates for the National Transit Institute (5%, 50%, 40%, and 5%).

(3) Does not include funding for the Student Incentive Payment (SIP) Program which produces graduates who are obligated to serve in a reserve component of the United States armed forces. Does not include funding for maintenance and repair (M&R).

RESEARCH AND DEVELOPMENT INVESTMENTS
ANNUAL STEWARDSHIP INFORMATION, SEPTEMBER 30, 2007

Dollars in Thousands

The Federal Highway Administration's research and development programs are earmarks in the appropriations bills for the fiscal year. Typically these programs are related to safety, pavements, structures, and environment. Intelligent Transportation Systems were created to promote automated highways and vehicles to enhance the national highway system. The output is in accordance with the specifications within the appropriations act.

The Federal Transit Administration supports research and development in the following program areas:

Research and development in Transit Planning and Research supports two major areas: the National Research Program and the Transit Cooperative Research Program. The National Research Program funds the research and development of innovative transit technologies such as safety-enhancing commuter rail control systems, hybrid electric buses, and fuel cell and battery-powered propulsion systems. The Transit Cooperative Research Program focuses on issues significant to the transit industry with emphasis on local problem-solving research.

Transit University Transportation Centers, combined with funds from the Highway Trust Fund, provide continued support for research, education, and technology transfer.

Capital investment grants, which replaced discretionary grants in FY 1999, provide capital assistance to finance acquisition, construction, reconstruction, and improvement of facilities and equipment. Capital investment grants fund the categories of new starts, fixed guideway modernization, and bus and bus-related activities.

The Office of the Secretary's Office of Emergency Transportation is involved in research and development in mapping software for the Crisis Management Center, transportation policy, and outreach efforts.

The Pipeline and Hazardous Materials Safety Administration funds research and development activities for the following organizations and activities:

The Office of Pipeline Safety is involved in research and development in information systems, risk assessment, mapping, and non-destructive evaluation.

The Office of Hazardous Materials is involved in research, development, and analysis in regulation compliance, safety, and information systems.

The Research and Innovative Technology Administration's Office of Research and Technology is involved in research and development for the University of Technology and Education.

The Federal Aviation Administration (FAA) conducts research and provides the essential air traffic control infrastructure to meet increasing demands for higher levels of system safety, security, capacity, and efficiency. Research priorities include aircraft structures and materials; fire and cabin safety; crash injury-protection; explosive detection systems; improved ground and in-flight de-icing operations; better tools to predict and warn of weather hazards, turbulence and wake vortices; aviation medicine, and human factors.