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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: 

Federal User Fees: A Design Guide, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-386SP]. Washington, D.C.: 
May 29, 2008. 

Physical Infrastructure: Challenges and Investment Options for the 
Nation's Infrastructure, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-763T]. Washington, D.C.: 
May 8, 2008. 

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.: 
March 6, 2008. 

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.: February 8, 2008. 

Surface Transportation: Preliminary Observations on Efforts to 
Restructure Current Program, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-478T]. Washington, D.C.: 
February 6, 2008. 

Congressional Directives: Selected Agencies' Processes for Responding 
to Funding Instructions, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-209]. Washington, D.C.: January 31, 
2008. 

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.: 
January 29, 2008. 

Federal-Aid Highways: Increased Reliance on Contractors Can Pose 
Oversight Challenges for Federal and State Officials, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-198]. Washington, D.C.: 
January 8, 2008. 

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.: January 7, 2008. 

A Call For Stewardship: Enhancing the Federal Government's Ability to 
Address Key Fiscal and Other 21st Century Challenges. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-93SP]. Washington, D.C.: 
December 17, 2007. 

Transforming Transportation Policy for the 21st Century: Highlights of 
a Forum. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1210SP]. 
Washington, D.C.: September 19, 2007. 

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. 

Intermodal Transportation: DOT Could Take Further Actions to Address 
Intermodal Barriers. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-718]. Washington, D.C.: June 
20, 2007. 

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.: 
March 6, 2007. 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-310]. Washington, D.C.: January 
2007. 

Highway Finance: States' Expanding Use of Tolling Illustrates Diverse 
Challenges and Strategies. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-554]. Washington, D.C.: June 28, 
2006. 

Highway Congestion: Intelligent Transportation Systems' Promise for 
Managing Congestion Falls Short, and DOT Could Better Facilitate Their 
Strategic Use. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-943]. 
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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