	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. 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. 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. 1). 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. 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. 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. However, some of the demand for additional investment in transportation  infrastructure could be reduced. Another funding source for infrastructure is user fees. However, each financing strategy is, in the final  analysis, a form of debt that ultimately must be repaid with interest. A number of available mechanisms can be used to help finance  infrastructure projects. Examples of these financing mechanisms follow. Several bills have been introduced in this Congress that would  increase investment in the nation’s infrastructure through bonding. Revolving funds. 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. 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. Highway public-private partnerships also entail potential costs and risks. 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 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. 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. GAO-08-287. GAO-08-93SP.
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 fundingfor the interstate system was established in 1956, the federal role in surface transportation has expanded to include broader goals, more programs, and a variety of program structures. Consequently, the goals of current programs are numerous and sometimes conflicting, and the federal role in these programs is unclear. For example, federal programs do not effectively address key transportation challenges, such as increasing congestion and freight demand. Many surface transportation programs are also not linked to performance of the transportation system or of the grantees, and programs often do not employ the best tools and approaches. Finally, the fiscal sustainability of the numerous highway, transit, and safety programs funded by the Highway Trust Fund is in doubt, because spending from the fund has increased without commensurate increases in revenues. A number of principles can help guide the assessment of proposals to restructure and fund federal surface transportation programs. These principles include (1) ensuring goals are well defined and focused on the national interest, (2) ensuring the federal role in achieving each goal is clearly defined, (3) ensuring accountability for results by entities receiving federal funds, (4) employing the best tools and approaches to improve results and emphasize return on targeted federal investment, and (5) ensuring fiscal sustainability. A range of options could be used to fund the growing demand for additional investment in the surface transportation system. There are two revenue sources for these additional investments: taxes and fees. Financing mechanisms, such as bonding and revolving funds, could also be used to fund transportation infrastructure projects when tax and user fee approaches are not sufficient to meet demands. However, these financing mechanisms are all forms of debt that ultimately must be repaid with interest by the general population through tax increases or reductions in government services. Each of these options has different merits and challenges, and the selection of any of them will likely involve trade-offs among different policy goals. Highway public-private partnerships show promise as a viable alternative, where appropriate, to help meet growing and costly transportation demands. The highway public-private partnerships created to date have resulted in advantages from the perspective of state and local governments, such as the construction of new infrastructure without using public funding. However, highway public-private partnerships also entail potential costs and risks including the reality that funds from public-private partnerships are largely a new source of borrowed funds--a form of privately issued debt that must be repaid to private investors. Ultimately the extent to which public-private partnerships can be used to help meet the nation's transportation funding challenges will depend on the ability of states to weigh potential benefits against potential costs and trade-offs to determine whether public-private partnerships are appropriate in specific circumstances--and if so--how best to implement them and protect the public interest.