	Background

FHWA provides funding to the states for roadway construction and  improvement projects through various programs collectively known as the  federal-aid highway program. The responsibility for choosing projects  to fund generally rests with state departments of transportation and local  planning organizations. Under both options, TEA-21 requires FHWA and each  state to enter into an agreement documenting the types of projects for  which the state will assume oversight responsibilities. Issues Identified with the Costs and Oversight of Major Highway and Bridge Projects

Our work has raised issues concerning the cost and oversight of major  highway and bridge projects, including the following:    Cost growth has occurred on many major highway and bridge projects. Although cost growth has occurred on many major highway and bridge  projects, overall information on the amount of and reasons for cost  increases on major projects is generally not available because neither  FHWA nor state highway departments track this information over the life  of projects. While many factors can cause costs to increase, we have found, on  projects we have reviewed, that costs increased, in part, because initial  cost estimates were not reliable predictors of the total costs or financing  needs of projects. Rather, these estimates were generally developed for  the environmental review—whose purpose was to compare project  alternatives, not to develop reliable cost estimates. In many instances,  states construct a major project as a series of smaller projects, and FHWA  approves the estimated cost of each smaller project when it is ready for  construction, rather than agreeing to the total cost of the major project at  the outset. In some instances, by the time FHWA approves the cost of a  major project, a public investment decision may, in effect, already have  been made because substantial funds have already been spent on  designing the project and acquiring property, and many of the increases in  the project’s estimated costs have already occurred. FHWA implemented TEA- 21’s requirement that states develop an annual finance plan for any  highway or bridge project estimated to cost $1 billion or more. Options to Enhance Federal Oversight of Major Projects

In my testimony of May 2002, I presented options for enhancing FHWA’s  role in overseeing the costs of major highway and bridge projects, should  Congress, in reauthorizing TEA-21, determine that such action is needed  and appropriate. Each of these options would be difficult and possibly  costly; each represents a commitment of additional resources that must be  weighed against the option’s potential benefits. Adopting any of these  options would require Congress to determine the appropriate federal  role—balancing the states’ sovereign right to select its projects and desire  for flexibility and more autonomy with the federal government’s interest in  ensuring that billions of federal dollars are spent efficiently and  effectively. Establish a process for the federal approval of major projects.
Why GAO Did This Study

Improving the oversight and controlling the costs of major highway and bridge projects is important for the federal government, which often pays 80 percent of these projects' costs. Widespread consensus exists on the need to fund such projects, given the doubling of freight traffic and worsening congestion projected over the next 20 years, yet growing competition for limited federal and state funding dictates that major projects be managed efficiently and cost effectively. The Federal Highway Administration (FHWA) provides funding to the states for highway and bridge projects through the federal-aid highway program. This funding is apportioned to the states, and state departments of transportation choose eligible projects for funding. FHWA provides oversight to varying degrees, and, under the Transportation Equity Act for the 21st Century (TEA-21), FHWA and each state enter into an agreement documenting the types of projects the state will oversee. This statement for the record summarizes cost and oversight issues raised in reports and testimonies GAO has issued since 1995 on major highway and bridge projects and describes options that GAO has identified to enhance federal oversight of these projects, should Congress determine that such action is needed and appropriate.

What GAO Found

GAO and others have reported that cost growth has occurred on major highway and bridge projects; however, overall information on the amount of and reasons for cost increases is generally not available because neither FHWA nor state highway departments track this information for entire projects. GAO has found that costs grow, in part, because initial cost estimates, which are generally developed to compare project alternatives during a required environmental review phase, are not reliable predictors of projects' total costs. In addition, FHWA approves the estimated costs of major projects in phases, rather than agreeing to the total costs at the outset. By the time FHWA approves the total cost of a major project, a public investment decision might, in effect, already have been made because substantial funds could already have been spent on designing the project and acquiring property. FHWA's implementation of a TEA-21 requirement that states develop annual finance plans for major projects estimated to cost $1 billion or more has improved the oversight of some major projects, and FHWA is incorporating more risk assessment in its day-to-day oversight activities. Should Congress determine that enhancing federal oversight of major highway and bridge projects is needed and appropriate, GAO has identified options, including improving information on the cost performance of selected major projects, improving the quality of initial cost estimates, and enhancing and clarifying FHWA's role in reviewing and approving major projects. Adopting any of these options would require balancing the states' sovereign right to select projects and desire for flexibility and more autonomy with the federal government's interest in ensuring that billions of federal dollars are spent efficiently and effectively. In addition, the additional costs of each of these options would need to be weighed against its potential benefits.