Funding the Nation's Surface Transportation System
The nations surface transportation systemincluding highways, transit, and rail systems that move both people and freightis critical to the economy and affects the daily lives of most Americans. However, the system is under growing strain, and the cost to repair and upgrade the system to meet current and future demands is estimated in the hundreds of billions of dollars. Yet, calls for increased investments come at a time when traditional funding sources are eroding. Funding is further complicated by the federal governments financial condition and fiscal outlook. Moreover, spending for surface transportation programs has not commensurately improved system performance because many programs do not effectively address key challenges, federal goals and roles are unclear, programs lack links to performance, and some programs do not use the best tools and approaches to ensure effective investment decisions. GAO added this area to its High Risk List in 2007.
Motor fuel and other truck-related taxes that support the Highway Trust Fundthe major source of federal surface transportation fundingare eroding. Federal motor fuel tax rates have not increased since 1993, and because of inflation, the 18.4 cent per gallon tax on gasoline enacted in 1993 is worth about 11.5 cents today. This trend will likely continue in the years ahead as vehicles become more fuel efficient and use alternative fuels that are not subject to federal fuel taxes. In August 2012, the Congressional Budget Office estimated that $110 billion in additional revenues would be required to maintain current spending levels plus inflation through 2022. To avoid a shortfall in the Highway Trust Fund, Congress transferred more than $34 billion in general revenues to the Highway Trust Fund from fiscal years 2008 to 2010, and in 2012, appropriated an additional $18.8 billion in general revenues for fiscal years 2013 and 2014. This approach has effectively broken the link between highway taxes paid and benefits received by users.
There has been progress in clarifying federal goals and roles and linking federal programs to performance, as GAO has recommended. In July 2012, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act (MAP-21) that included provisions to move toward a more performance-based highway and transit program and to establish a framework to address key challenges in the area of freight movement. For example, for highways, the act identified seven national performance goals for pavement and bridge conditions, injuries and fatalities, traffic congestion, and other areas; requires the Secretary of Transportation, in consultation with states and others, to establish performance measures for these goals; and requires states and other grantees to establish performance targets for those measures and to report their progress in achieving these targets. In addition, MAP-21 links funding to performance by requiring states to take corrective action should progress toward their targets be insufficient, and to spend a specified portion of their annual federal funding to improve bridge conditions and Interstate-system pavement should conditions fall below minimum standards set by the Secretary. For freight movement, including freight rail, the act establishes national goals and directs the Secretary to establish a national freight network, a strategic plan, and tools to support a performance-based approach to evaluate, select, and fund new freight projects.
Passenger rail, which has historically been funded through general revenues and not through the Highway Trust Fund, also presents challenges. The federal government has recently begun to pursue investment in high speed passenger rail through the Federal Railroad Administrations High Speed Intercity Passenger Rail grant program, and to date has obligated about $9.9 billion for 150 high speed intercity passenger rail projectswith more than one-third of the amount obligated designated for a single project in California. While this funding will allow many projects to begin construction, it is not sufficient to complete them. For example, Californias high speed rail system is planning to seek as much as $38 billion in additional federal funds to complete its Phase I San Francisco to Los Angeles construction effort. In December 2012, GAO testified before Congress on its preliminary assessment of the California high speed rail project. GAO found some weaknesses in the projects cost estimates and a number of challenges, including identifying funding beyond the first 130-mile construction segment.
In addition to challenges in funding high speed rail projects, the federal government finances nearly all of Amtraks capital costs. Further, Amtraks revenues typically do not meet its operating expenses and the federal government subsidizes a portion of these costs. For example, in fiscal year 2011 Amtrak reported that ticket revenue covered about 79 percent of its operating expenses. In fiscal year 2011 the federal government provided about $1.5 billion to Amtrakabout $922 million for capital and debt service and an additional $562 million for operating grants. Amtraks reliance on federal financial support is likely to continue given its estimated capital needs of about $52 billion for Northeast Corridor improvements through 2030 and an additional $23 billion for locomotive and passenger car replacement by 2040. While Amtrak has taken measures to improve its financial management, such as implementing a Strategic Asset Management System in 2011, these actions are too recent to determine how they will affect Amtraks financial performance, the need for continued federal subsidies, and the targeting of subsidies to achieve public benefits.
Congress and the administration need to agree on a long-term plan for funding surface transportation. Continuing to fund the Highway Trust Fund through general revenues may not be sustainable given competing demands and the federal governments fiscal challenges. A sustainable solution is based on balancing revenues to and spending from the Highway Trust Fund. New revenues from users can come only from taxes and fees, and ultimately major changes in transportation spending, revenues, or both will be needed to bring the two into balance. For passenger rail, legislation authorizing federal investments in Amtrak and high speed rail will be up for reauthorization in 2013. With California alone seeking as much as $38 billion for high speed rail, and additional Amtrak investment needs looming, Congress will need to decide how and to what extent to continue to invest in these systems in light of competing demands and the federal governments fiscal challenges.
Successfully implementing a more goal-oriented, performance-based approach to highways may require a clearer definition of the federal role and the responsibilities of the Federal Highway Administration (FHWA). A performance-based program represents substantial new responsibilities for FHWA, and GAO has reported that FHWAs responsibilities have expanded over the years and left the agency, to a large extent, with a broad mandate in an increasingly constrained budget environment. GAO has also reported that opportunities exist to narrow the scope of FHWAs responsibilitiesareas where national interests may be less evident or where FHWA expends considerable time and resources yet exercises little effective control. Some programs or activities may better be devolved to state and local governments, if they are better suited to perform them.