oversight

Federal Management: Addressing Management Issues at the Department of Transportation

Published by the Government Accountability Office on 1997-05-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         United States General Accounting Office

GAO                      Testimony
                         Before the Committee on Commerce, Science, and
                         Transportation, U.S. Senate




For Release
on Delivery
Expected at
                         FEDERAL MANAGEMENT
9:30 a.m. EDT
Wednesday
May 21, 1997
                         Addressing Management
                         Issues at the Department of
                         Transportation
                         Statement of John H. Anderson, Jr.
                         Director, Transportation Issues,
                         Resources, Community, and Economic
                         Development Division




GAO/T-RCED/AIMD-97-172
    Mr. Chairman and Members of the Committee:

    We are pleased to be here today to discuss critical management issues at
    the Department of Transportation (DOT) and actions the Congress, the
    Department, and affected parties can take to solve them. With more than
    $39 billion provided through its fiscal year 1997 appropriations act, DOT is
    responsible for ensuring the safe and efficient movement of people and
    goods and cost-effective investment in the nation’s transportation
    infrastructure, including its highways and transit systems, airports,
    airways, ports, and waterways. Our testimony today is based on reports
    we have recently issued as well as ongoing work for the Congress. In
    summary, we have found the following:

•   Ensuring the safety and security of travelers on the nation’s airways,
    highways, and waterways is of paramount importance. Although the
    Department has made improvements, there are still opportunities to
    reduce deaths and enhance the safety and security of the traveling public.
    For example, in 1996, 380 people died in major airline accidents, the
    highest number in 11 years. To enhance air safety, we have consistently
    identified the need for the Federal Aviation Administration (FAA) to
    improve how it targets inspections to the areas of highest risk. A recent
    FAA study, completed after the crash of ValuJet Flight 592, similarly
    recommended that FAA target its inspections. The Department can also
    improve safety on the nation’s highways, where over 40,000 people are
    killed annually. A key to reducing highway deaths is a strong partnership
    among federal, state, and local governments. We have pointed out that
    lives can be saved by the greater use of safety belts, and we have
    suggested, for example, that the Congress encourage states to enact
    primary enforcement laws allowing police officers to stop and ticket
    vehicles when occupants are not using safety belts, even though no other
    traffic violation has occurred.
•   Many components of the nation’s transportation infrastructure need
    modernization, renovation, or new investment. Major transportation
    projects—for air traffic control (ATC) modernization, highways, and public
    transit—have been plagued with cost overruns and schedule delays. DOT
    can do more to improve the management of its aviation and surface
    transportation programs to ensure that limited federal funds are
    effectively and efficiently used. For example, on numerous occasions, we
    have reported problems in FAA’s multibillion-dollar ATC modernization
    program. FAA needs to adopt disciplined investment management and
    system acquisition processes, as outlined in recent legislation and
    promised under the agency’s new Acquisition Management System. FAA



    Page 1                                                 GAO/T-RCED/AIMD-97-172
    also needs to change its organizational culture so that employees become
    strongly committed to mission focus, accountability, coordination, and
    adaptability. Similarly, improved cost management and comprehensive
    finance plans are needed for large highway projects.
•   Serious problems in long-term financing for FAA and Amtrak need to be
    addressed. We reported that FAA faces significant future funding shortfalls.
    To assist in finding solutions to FAA’s long-term financing needs, the
    Congress formed the National Civil Aviation Review Commission, which is
    scheduled to make its recommendations by August 1997. Deciding among
    various financing alternatives for FAA will involve tradeoffs among factors
    such as the efficient use of the airport and airway system, fairness to
    system users, and the effect on competition. To effectively design any new
    financing system, FAA needs better cost data to appropriately allocate costs
    among users. However, the agency does not plan to implement its new
    cost-accounting system until October 1997. With respect to Amtrak, we
    recently reported that Amtrak’s financial condition is still very precarious
    and that, as currently constituted and funded, Amtrak will continue to
    require substantial federal financial support well into the next century.
    The Congress could reassess Amtrak’s mission and direct that Amtrak or a
    temporary commission make recommendations and propose options for
    providing service within available funding.
•   DOT’s ability to effectively address many of these management and
    financial issues depends on having a supportive organizational structure
    and improved management and financial data. DOT has begun to examine
    what efficiencies it can realize from colocating some of its nearly 400 field
    offices. However, DOT needs to consider whether reorganizing its surface
    transportation modes under one administration and consolidating its field
    office structure would enable it to achieve more cost-effective delivery of
    services. Moreover, to support its targeting of resources such as inspectors
    and its management of ATC modernization projects, and to improve its
    overall financial accountability, DOT needs better financial and operating
    data and a cost-accounting system. DOT’s efforts to develop more
    results-oriented, performance-based management information, as required
    by the Government Performance and Results Act, should provide an
    incentive to develop quality data. Furthermore, in accordance with the
    Chief Financial Officers Act of 1990, DOT’s Office of the Inspector General
    (OIG) identified numerous problems with the Department’s financial
    information. DOT faces several challenges to address its financial
    management problems, including fully implementing new federal
    accounting standards to effectively meet federal financial management
    goals.




    Page 2                                                GAO/T-RCED/AIMD-97-172
                        The organizational, information, and financial problems that DOT faces are
                        serious. Their solutions require a commitment from the highest levels of
                        the Department so that change can be manifested throughout the
                        Department. This commitment requires stable leadership to actively
                        promote change and a strong partnership between the Department and the
                        Congress.



                        Over the years, we have identified areas in which DOT can do more to
Improvements            improve the efficiency and effectiveness of its transportation safety and
Needed in               security programs. In recent reports and testimonies, we have reiterated
Transportation Safety   the need to better target limited inspection resources and improve the
                        reliability of safety data in programs covering aviation and marine safety.
and Security            We have also reported on the vulnerabilities in the overall aviation security
Programs                system.

Aviation Safety and     The crashes of ValuJet Flight 592 and TWA Flight 800 have heightened
Security                concerns about the safety and security of our aviation system. We have
                        reported that FAA can improve its oversight of aviation safety and security
                        by (1) targeting limited inspection resources, (2) enhancing the reliability
                        of safety data, (3) improving inspector training, and (4) addressing the
                        security vulnerabilities of our air transportation system.1 Targeting
                        inspection resources is important because of the magnitude of FAA’s
                        inspection responsibilities—about 2,800 FAA inspectors are responsible for
                        inspecting about 7,500 scheduled commercial aircraft and thousands of
                        charter aircraft, repair stations, and aviation schools. As early as 1987, we
                        reported that FAA could develop criteria for targeting safety inspection
                        resources at high-risk areas and recommended that DOT make productivity
                        improvements in its safety programs. Over the years, we have suggested
                        that FAA focus its resources on such areas of concern as new entrant and
                        commuter airlines and aging aircraft. The Congress has recognized the
                        need for more inspectors and has appropriated additional funds to hire
                        and train them.

                        To appropriately target inspections, FAA also needs accurate, complete
                        safety data. We have found that FAA needs to improve its Safety


                        1
                         See, for example, Aviation Safety: New Airlines Illustrate Long-Standing Problems in FAA’s Inspection
                        Program (GAO/RCED-97-2, Oct. 17, 1996); Aviation Safety: Data Problems Threaten FAA Strides on
                        Safety Analysis System (GAO/AIMD-95-27, Feb. 8. 1995); Aviation Security: Additional Actions Needed
                        to Meet Domestic and International Challenges (GAO/RCED-94-38, Jan. 27, 1994); and Aviation
                        Security: Technology’s Role in Addressing Vulnerabilities (GAO/T-RCED/NSIAD-96-262, Sept. 19,
                        1996).



                        Page 3                                                                  GAO/T-RCED/AIMD-97-172
Performance Analysis System—a system being developed to integrate and
analyze information within other databases—so that it contains reliable
information that can be used by inspectors and managers to target the
areas of greatest risk to safety. I will return to data issues later in this
testimony.

Protecting the security of the traveling public is one of FAA’s most
challenging and difficult tasks. Although all modes of transportation are
vulnerable to terrorist attacks, our work has focused on improving
aviation security. Over the past several years, we have made
recommendations about vulnerabilities in the aviation system—checked
and carry-on baggage, mail, and cargo—and steps that could be
undertaken to improve security. The White House Commission on
Aviation Safety and Security (the Gore Commission), formed after the
crash of TWA Flight 800, made more than 30 security recommendations in
February 1997.

We believe that the Gore Commission’s recommendations are a good start
toward an evolutionary process of reaching agreement on goals and
objectives for improving our aviation security system. These
recommendations’ effective implementation requires the various federal
agencies, local authorities, and the aviation industry—most importantly
airlines and airports—to work together to ensure that this opportunity for
improvement is not lost. The Gore Commission recommended that the
Secretary of Transportation report annually on the status of the
Commission’s recommendations and that DOT’s and FAA’s leaders be
accountable for implementing them. In order to effectively implement the
recommendations, FAA and other affected parties should establish
consistent goals and performance measures, which can be used to report
results to the Congress. FAA also needs to assess the effectiveness of
initiatives that are being implemented to ensure that they are achieving
increased security. For example, the Congress directed that FAA purchase
and deploy security equipment for the nation’s busiest airports and gain
operational experience with this equipment. The performance of the
equipment in the field can provide FAA with information to guide future
deployment decisions and determine funding tradeoffs and priorities.

Although the Gore Commission made a good start, it left a key issue—the
financing of additional security improvements—to be resolved by the
National Civil Aviation Review Commission, which is expected to issue its
report later this year. To improve aviation security, the Congress, the
administration, and the aviation industry need to agree on who will pay for



Page 4                                                GAO/T-RCED/AIMD-97-172
                 the improvements. I will discuss FAA financing issues later in this
                 testimony.

                 Keys to successfully implementing both safety and security
                 recommendations are stable leadership at DOT and FAA and adequate
                 funding. If the question of how to fund FAA is not resolved, resources may
                 not be available to implement improvements. I will return to the funding
                 issue later in this testimony.


Highway Safety   A critical aspect of improving highway safety is the achievement of strong,
                 effective partnerships among federal, state, and local governments. State
                 and local governments have the primary role in highway safety. The
                 federal role is basically fulfilled through the programs and initiatives of the
                 Federal Highway Administration (FHWA) and the National Highway Traffic
                 Safety Administration (NHTSA). Through these agencies’ efforts, the states
                 identify their problems, devise solutions, and seek federal technical
                 assistance and funding.

                 Over the past 30 years, highway safety has improved as a result of federal,
                 state, and local programs that have led to better designed vehicles and
                 highways, tougher penalties for drunk driving, and greater use of seat belts
                 and shoulder harnesses. Nonetheless, traffic accidents annually result in
                 over 40,000 deaths and over $150 billion in costs to society. Each year,
                 about 20,000 of the people who die in traffic accidents and another 600,000
                 who are injured are not using seatbelts. As we reported in January 1996,
                 increasing the use of safety belts is the most effective way to lower the
                 nation’s death toll from highway accidents.2 We suggested that the
                 Congress consider encouraging the states to enact primary enforcement
                 laws that allow police officers to stop and ticket a vehicle’s occupants
                 solely for not using their safety belts. We believe that such laws should
                 cover all the occupants of all the vehicles in which belts are installed. We
                 also recommended that the Secretary of Transportation provide special
                 emphasis and targeted programs to increase the use of safety belts by
                 occupants of light trucks. I understand, Mr. Chairman, that you and several
                 members of the Committee recently joined with the administration in
                 urging governors and state legislative leaders to enact primary
                 enforcement laws. This is an important effort that can save thousands of
                 lives each year.



                 2
                  Motor Vehicle Safety: Comprehensive State Programs Offer Best Opportunity for Increasing Use of
                 Safety Belts (GAO/RCED-96-24, Jan. 3, 1996).



                 Page 5                                                                GAO/T-RCED/AIMD-97-172
                In addition, we believe that improvements in highway safety can best be
                achieved by a national transportation safety strategy that incorporates
                federal-state-local partnerships and is driven by performance-based,
                results-oriented goals. For example, we recently issued a report on the
                inspection of Mexican commercial trucks entering the United States.3 We
                noted that from January through December 1996, federal and state
                officials conducted more than 25,000 inspections of trucks from Mexico.
                During that time, three of the four border states substantially increased
                their capability to inspect trucks at the major border locations. As of
                January 1997, approximately 100 state and federal inspectors were
                assigned to border crossing locations, a significant increase over the
                previous year. However, as we also pointed out, despite this commitment
                of resources, without specific results-oriented objectives, it is still not
                possible to measure the increase in safety improvement, if any, for
                Mexican commercial trucks entering the United States.


Marine Safety   Over the years, we have noted numerous problems with the Coast Guard’s
                safety inspection programs. For example, we found that improvements
                were needed to (1) help detect unsafe tankers, (2) improve the safety at
                waterfront facilities, (3) ensure that intermodal containers carrying
                hazardous material are safe, and (4) improve the safety of cruise ships.4
                We also identified problems with the Coast Guard’s efforts to reduce
                alcohol-related accidents in the maritime industry.5 We believe that one
                root cause of these problems may be the frequent rotations of safety
                inspectors. We have reported that several organizations have concluded
                that lengthening or eliminating military rotation for certain types of
                activities, such as safety inspections, could help counter the undesirable
                effects of frequent rotation on the continuity of operations and the ability
                to build expertise and knowledge.6 Another possible solution that has been
                proposed by others is to convert such positions to civilian positions, which
                could also result in building the expertise and knowledge needed.

                3
                 Commercial Trucking: Safety Concerns About Mexican Trucks Remain Even as Inspection Activity
                Increases (GAO/RCED-97-68, Apr. 9, 1997).
                4
                 Coast Guard: Program to Inspect Intermodal Containers Carrying Hazardous Materials Can Be
                Improved (GAO/RCED-94-139, Apr. 27, 1994); Coast Guard: Additional Actions Needed to Improve
                Cruise Ship Safety (GAO/RCED-93-103, Mar. 31, 1993); Coast Guard: Inspection Program
                Improvements Are Under Way to Help Detect Unsafe Tankers (GAO/RCED-92-23, Oct. 8, 1991); and
                Coast Guard: Oil Spills Continue Despite Waterfront Facility Inspection Program (GAO/RCED-91-161,
                June 17, 1991).
                5
                 Coast Guard: Magnitude of Alcohol Problems and Related Maritime Accidents Unknown
                (GAO/RCED-90-150, May 24, 1990).
                6
                 Coast Guard: Challenges for Addressing Budget Constraints (GAO/RCED-97-110, May 14, 1997).



                Page 6                                                               GAO/T-RCED/AIMD-97-172
                       Our work has shown that DOT can do more to improve its management of
Improvements           aviation, highway, and transit programs to ensure that limited funds are
Needed in the          effectively and efficiently used and best practices applied. FAA’s
Management of          multibillion-dollar program to modernize the ATC system has been plagued
                       with cost overruns, schedule delays, and shortfalls in performance. In
Aviation, Highway,     addition, major surface transportation projects, each costing hundreds of
and Transit Programs   millions to billions of dollars, are continuing to incur cost increases,
                       experience delays, and have difficulties acquiring needed funding
                       commitments.


Air Traffic Control    Since 1981, FAA has had under way a mission-critical capital investment
Modernization          program to modernize its aging ATC system. This effort, which involves
                       acquiring a vast network of radars and automated data-processing,
                       navigation, and communications equipment, is expected to cost $34 billion
                       through the year 2003. Over the years, ATC modernization projects have
                       experienced substantial cost overruns, lengthy delays, and significant
                       performance shortfalls. Because of the size, complexity, cost, and
                       problem-plagued past of the ATC modernization, we designated it as a
                       high-risk information technology initiative in 1995 and again in 1997.7

                       Over the years, we have found that the problems with the modernization
                       program have been caused largely by technical difficulties and managerial
                       weaknesses. If FAA is to effectively address these problems, it needs to
                       follow management practices observed by leading public and private
                       organizations and embedded in the Paperwork Reduction Act, the
                       Government Performance and Results Act, the Information Technology
                       Management Reform Act (also called the Clinger-Cohen Act), and the
                       Chief Financial Officers Act. These acts emphasize (1) involving senior
                       executives in decisions about information management; (2) appointing
                       qualified senior-level chief information officers (CIO); (3) developing and
                       implementing systems architectures, or blueprints; (4) institutionalizing
                       discipline in such areas as investment management and system
                       development and acquisition; (5) maintaining integrated accounting and
                       financial management systems that permit the development and reporting
                       of cost information and the systematic measurement of performance; and
                       (6) using performance measures to assess technology’s contributions in
                       achieving mission results.




                       7
                       High-Risk Series: An Overview (GAO/HR-95-1, Feb. 1995) and High-Risk Series: Information
                       Management and Technology (GAO/HR-97-9, Feb. 1997).



                       Page 7                                                               GAO/T-RCED/AIMD-97-172
Using these acts to guide our work, we have pinpointed certain solutions
to FAA’s long-standing problems with acquisitions. For example, we found
that ATC systems have long proceeded without a complete systems
architecture to guide and constrain their development and evolution,
leading to unnecessarily higher spending to buy, integrate, and maintain
hardware and software.8 We recommended that FAA develop and enforce a
complete systems architecture and implement a management structure for
doing so that is similar to the CIO provisions of the Clinger-Cohen Act.

Furthermore, FAA’s poor cost-estimating processes and cost-accounting
practices leave it at risk of making ill-informed investment decisions on
critical multimillion- or multibillion-dollar ATC systems.9 We recommended
that FAA institutionalize defined processes for estimating the costs of
projects and develop and implement a managerial cost-accounting
capability.

In addition, FAA’s processes for acquiring software, the most costly and
complex component of ATC systems, are ad hoc, sometimes chaotic, and
not repeatable across projects. As a result, FAA is at great risk of not
delivering promised software capabilities on time and within budget.
Furthermore, FAA lacks an effective approach for improving software
acquisition processes.10 We recommended that FAA improve its software
acquisition capabilities by institutionalizing mature acquisition processes
and reiterated our prior recommendation that a CIO organizational
structure be established for FAA.

Finally, the lack of continuity in FAA’s top management and the agency’s
organizational culture have been underlying causes of the agency’s
acquisition problems.11 During the modernization program’s first 10 years,
FAA had seven different Administrators and acting Administrators.
Furthermore, between 1982 and 1993, the average tenure for the
Administrator was less than 2 years. Although it is difficult to measure the
effect of the turnover, the instability has resulted in the agency’s
bureaucracy focusing on short-term improvements, avoiding

8
 Air Traffic Control: Complete and Enforced Architecture Needed for FAA Systems Modernization
(GAO/AIMD-97-30, Feb. 3, 1997).
9
 Air Traffic Control: Improved Cost Information Needed to Make Billion-Dollar Modernization
Investment Decisions (GAO/AIMD-97-20, Jan. 22, 1997).
10
 Air Traffic Control: Immature Software Acquisition Processes Increase FAA System Acquisition Risks
(GAO/AIMD-97-47, Mar. 21, 1997).
11
 Aviation Acquisition: A Comprehensive Strategy Is Needed for Cultural Change at FAA
(GAO/RCED-96-159, Aug. 22, 1996).



Page 8                                                                GAO/T-RCED/AIMD-97-172
                      accountability, and resisting fundamental changes. Changes to the
                      organizational culture will address shortcomings in mission focus,
                      accountability, coordination, and adaptability. We have recommended that
                      FAA develop a comprehensive strategy for cultural change that includes
                      specific responsibilities and performance measures for all stakeholders
                      throughout FAA and the incentives needed to promote the desired
                      behaviors. Recent congressional action making the position of the FAA
                      Administrator a 5-year appointment should help overcome the problem of
                      instability in agency leadership.


Highway and Transit   Major highway and transit projects, each costing hundreds of millions to
Programs              billions of dollars, are continuing to incur cost increases, experience
                      delays, and have difficulties in acquiring needed funding commitments. We
                      have found, particularly for large-dollar projects, that costs have increased
                      and financing has become more difficult at the same time that federal,
                      state, and local governments must deal with the need for balanced budgets
                      and many competing priorities.12 Large-dollar projects can overwhelm
                      other projects in a state if the former require significantly more time and
                      money than originally estimated. Given funding constraints and competing
                      priorities, it is critical that these projects are well managed and their costs
                      are contained, and that research is focused on ways to make our
                      transportation system more effective and efficient.

                      Each year, the federal government distributes nearly $20 billion to the
                      states for the construction and repair of the nation’s highways. Costs have
                      grown on many large-dollar highway projects.13 Cost containment,
                      however, is not an explicit statutory or regulatory goal of FHWA’s oversight
                      of highway projects. As such, FHWA has done little to ensure that cost
                      containment is an integral part of states’ project management. We believe
                      that FHWA can do more to address the problem of cost growth by working
                      with states to improve the cost management of large-dollar highway
                      construction projects. Initiatives that some states are undertaking and that
                      others could pursue more vigorously include improving the quality of
                      initial cost estimates, establishing cost performance goals and strategies,
                      and using external review boards to approve cost increases. Although
                      FHWA disseminates information to state departments of transportation on a



                      12
                       The surface transportation projects we discuss in this testimony all cost over $1 billion, but the
                      definition of a large-dollar project for an individual state or transit operator is relative to that state’s or
                      operator’s size and resources.
                      13
                       Transportation Infrastructure: Managing the Costs of Large-Dollar Highway Projects
                      (GAO/RCED-97-47, Feb. 28, 1997).



                      Page 9                                                                         GAO/T-RCED/AIMD-97-172
wide variety of technical and research topics, we found that the agency
does not evaluate and disseminate information to all the states on the best
cost management practices. We recommended that FHWA do so. If FHWA
were more proactive in this regard, it could provide states with strategies
that could contain project costs and promote more cost-effective project
management.

An underlying issue concerning cost containment is determining the
appropriate federal role in the federal-state partnership. Over the years,
federal involvement in state highway projects that receive federal aid has
evolved from “full” project oversight—approving design and construction
specifications, periodically inspecting construction sites, and formally
accepting the final product for all interstate construction projects—to
requiring this level of detailed oversight only on new construction or
reconstruction projects on the interstate highway system that are
estimated to cost over $1 million. As the Congress and the administration
work toward reauthorizing federal-aid highway programs in 1997, they will
ultimately decide on the federal role in large-dollar highway projects. Cost
management of these projects is just one part of the federal government’s
role. If appropriate, expanding that part could take the form of
encouraging the states to enhance their cost-management practices by
using some of the best practices some states already use. From a broader
perspective, the Congress could consider strategies to make the
federal-aid highway program more performance-driven. For example, once
an initial cost estimate is developed, establishing cost-performance goals
based on this estimate and a strategy to accomplish them would make cost
awareness and cost containment an integral part of how states manage a
project over time. Cost-performance goals and an appropriate strategy do
not mean that an initial cost estimate cannot be increased; however, any
change and reason for it should be agreed to. Such an approach has the
potential to improve accountability for cost increases and create a culture
in which cost control is part of day-to-day activities.

Funding shortfalls and the need for better financial planning affect
federally funded highway and transit projects. For example, the Los
Angeles Red Line Project, a 23.4-mile heavy-rail subway system, is facing
cost increases as well as financing uncertainties associated with funding
shortfalls and the long-term financial capacity of the Los Angeles County
Metropolitan Transit Authority, the project manager. To address such
financial problems, the Federal Transit Administration (FTA) can do more
to better ensure that large-dollar transit projects have secured firm
commitments for the funding needed to finance them. For example, we



Page 10                                              GAO/T-RCED/AIMD-97-172
                     have testified that FTA needs to utilize the results of its financial
                     consultant’s review of the fiscal capacity of the Los Angeles County
                     Metropolitan Transit Authority to finance the Los Angeles Red Line Transit
                     Project, the Alameda Corridor Project, and other surface transportation
                     projects to determine what funding shortfalls exist.

                     Finally, improvements are needed in DOT’s program to deploy the
                     Intelligent Transportation System (ITS) to ensure its success. The ITS
                     program has received about $1.2 billion since 1992.14 This amount
                     represents about 35 percent of the $3.5 billion the federal government
                     provided for surface transportation research programs from 1992 to 1997.
                     The program has not been successful in achieving widespread deployment
                     of an integrated ITS for several reasons. For example, the program’s
                     national architecture and technical standards, which define the elements
                     for an integrated ITS, are prerequisites for large-scale deployment.
                     However, the national architecture was not completed until July 1996, and
                     a 5-year effort to develop standards is planned for completion in 2001.
                     Under the reauthorization of surface transportation programs, DOT has
                     proposed a $600 million incentives program to facilitate the deployment of
                     integrated ITS systems. However, DOT needs to address a number of
                     obstacles, such as limited technical expertise among state and local
                     officials, before it can aggressively pursue a large-scale deployment
                     program.


                     Critical transportation financing issues face the Congress and the
Viable Long-Term     administration: meeting the long-term funding needs of FAA and Amtrak.
Financing Systems    Each area presents formidable challenges that will stretch limited
Needed for FAA and   resources and will require long-term commitments to successfully address.

Amtrak
FAA Financing        FAA estimates that its needs will exceed projected funding levels by about
                     $13 billion over the next 5 years. This shortfall is driven by the safety and
                     security improvements that FAA needs to undertake and an effort to speed
                     up the ATC modernization program. Deciding how to meet FAA’s funding
                     needs involves not only determining what FAA’s financial requirements are
                     but choosing the best financing mechanism to meet those needs.
                     Recognizing the seriousness of these issues, the Congress directed that a
                     number of studies be undertaken, including (1) an independent

                     14
                      The ITS program is intended to improve surface transportation’s efficiency and safety through
                     enhanced computer and telecommunication technologies. An example of ITS technology is ramp
                     meters to control the flow of traffic entering expressways.



                     Page 11                                                               GAO/T-RCED/AIMD-97-172
assessment of FAA’s financial needs and costs, which was performed by
Coopers & Lybrand, and (2) an assessment by GAO of how ATC costs are
allocated between FAA and the Department of Defense (DOD). The Congress
also established the National Civil Aviation Review Commission to, among
other things, consider these studies and recommend to the Secretary of
Transportation, by August 1997, how best to finance FAA.15

FAA receives most of its funding from excise taxes, including a 10-percent
tax on domestic airline tickets, but those taxes, which were recently
reinstated, lapse at the end of fiscal year 1997. The administration has
proposed replacing the current system with user fees, and the national
commission will be examining this option among others, including taxing
indicators of system use such as departures or fuel consumed.

We believe that determining how best to finance FAA is a complex problem
that requires careful study and good cost data. Our work has shown that
the agency does not have an adequate cost-accounting system and, as a
result, has limited capability to accumulate accurate, reliable cost data.16
FAA plans to implement a cost-accounting system in October 1997. Having
a cost-accounting system is important for budget control and performance
measurement and will become particularly important if FAA shifts to
user-fee financing. FAA must be able to determine the costs of its services
and which users cause FAA to incur those costs. In addition, FAA needs to
establish an equitable method for allocating common costs, which account
for about 55 percent of its costs. In allocating common costs, assumptions
and judgments must be made, and the goals of enhancing economic
efficiency and maintaining equitable treatment of multiple user groups
should be considered. Different user groups are likely to have diverging
opinions about what constitutes an equitable cost allocation.17

We have emphasized that the financing mechanism that is finally selected
should be relatively easy to administer and help ensure that, in the long
term, FAA has a secure funding source, the nation’s airports and airways
are used as efficiently as possible, commercial users of the system pay
their fair share, and a strong, competitive airline industry continues to



15
  The Secretary of Transportation is required to consult with the Secretary of the Treasury and report
to the Congress by October 1997 on the Secretary’s recommendations for funding FAA through 2002.
16
  Air Traffic Control: Improved Cost Information Needed to Make Billion-Dollar Modernization
Investment Decisions (GAO/AIMD-97-20, Jan. 22, 1997).
17
 National Airspace System: Issues in Allocating Costs for Air Traffic Services to DOD and Other Users
(GAO/RCED-97-106, Apr. 25, 1997).



Page 12                                                                  GAO/T-RCED/AIMD-97-172
                   exist. Ultimately, the Congress will decide how to achieve these and other
                   goals.


Amtrak Financing   Since 1995, we have reported that Amtrak remains in a very precarious
                   financial position and continues to depend heavily on federal support to
                   meet its operating and capital needs.18 Amtrak’s passenger rail service has
                   never been profitable, and through fiscal year 1997, the federal
                   government has provided Amtrak with over $19 billion for operating and
                   capital expenses. Amtrak projects that its fiscal year 1997 operating loss
                   could be $783 million. In response to its deteriorating financial condition,
                   in 1995 and 1996, Amtrak developed strategic business plans designed to
                   increase revenues and reduce the growth in costs. However, passenger
                   revenues have generally declined in recent years when adjusted for
                   inflation, and at the end of fiscal year 1996 the gap between operating
                   deficits and federal operating subsidies began to grow.

                   Amtrak’s goal is to eliminate the need for federal operating support by
                   2002. To achieve this goal, Amtrak is relying on significantly increased
                   federal capital assistance—about $750 million to $800 million per
                   year—from a dedicated funding source. However, the President’s fiscal
                   year 1998 budget for Amtrak’s capital subsidies is over $300 million less
                   than the amount envisioned in Amtrak’s plans. In addition, we have raised
                   concerns about whether Amtrak will continue to find it difficult to make
                   the route and service adjustments necessary to reduce costs and to
                   collectively bargain cost-saving productivity improvements with its
                   employees. As a result, Amtrak faces significant challenges to achieving
                   operating self-sufficiency. In addition, Amtrak has substantial capital
                   investment needs to, among other things, bring its equipment and
                   infrastructure into a state of good repair and introduce high-speed rail
                   service between New York and Boston.

                   Solutions to Amtrak’s financial problems are not easy and will require
                   congressional attention. Additional capital funding will be needed to help
                   Amtrak increase revenues by improving the quality of its service and to
                   facilitate revenue growth. In fact, successful implementation of Amtrak’s

                   18
                     Transportation Financing: Challenges in Meeting Long-Term Funding Needs for FAA, Amtrak, and
                   the Nation’s Highways (GAO/T-RCED-97-151, May 7, 1997); Intercity Passenger Rail: The Financial
                   Viability of Amtrak Continues to Be Threatened (GAO/T-RCED-97-94, Mar. 13, 1997); Amtrak’s
                   Strategic Business Plan: Progress to Date (GAO/RCED-96-187, July 24, 1996); Northeast Rail Corridor:
                   Information on Users, Funding Sources, and Expenditures (GAO/RCED-96-144, June 27, 1996); Amtrak:
                   Early Progress Made in Implementing Strategic and Business Plan, but Obstacles Remain
                   (GAO/T-RCED-95-227, June 16, 1995); and Intercity Passenger Rail: Financial and Operating Conditions
                   Threaten Amtrak’s Long-Term Viability (GAO/RCED-95-71, Feb. 6, 1995).



                   Page 13                                                               GAO/T-RCED/AIMD-97-172
                           entire strategic business plan will be important. We believe that
                           Amtrak—as currently constituted and funded—will continue to need
                           federal operating and capital funds well into the future. If the Congress
                           decides to reassess the scope of Amtrak’s mission, it could direct Amtrak
                           or a temporary commission to make recommendations and offer options
                           that define and realign Amtrak’s basic route network so that efficient and
                           quality service could be provided within the funding available. Earlier this
                           year, a blue-ribbon panel was formed by the House Committee on
                           Transportation and Infrastructure to provide advice on how to best
                           develop an emergency plan to address the perilous financial condition of
                           Amtrak and intercity rail service. The panel is expected to offer
                           recommendations about Amtrak’s future no later than June 1997.


                           Keys to successfully implementing many of the solutions we have
An Appropriate             discussed are having (1) an appropriate organizational structure and
Organizational             (2) adequate financial and other management information. As we
Structure and              previously discussed, other crucial elements that must be in place include
                           adequate funding, an organizational culture and stable leadership that
Adequate                   promotes the changes needed. These are probably the most difficult
Management and             solutions to implement and will require dedicated leadership in the
                           Department and a strong partnership with the Congress.
Financial Information
Are Needed
Organizational Structure   DOT can do more to develop an appropriate organizational structure to
                           achieve the most cost-effective delivery of services and ensure the proper
                           use of federal funds. We have reported that opportunities exist to achieve
                           these objectives by (1) examining the appropriateness of reorganizing the
                           surface transportation administrations and their field office structure,
                           (2) making changes to FAA’s management structure and organizational
                           culture, and (3) identifying additional opportunities to streamline the
                           Coast Guard’s operations.

Surface Transportation     DOT’s current organizational structure for surface transportation—separate
                           agencies to manage the different transportation modes—limits interaction
                           and coordination among the modal administrations. Two years ago, DOT
                           proposed reorganizing and combining its five surface transportation
                           operating administrations—FHWA, FTA, NHTSA, the Federal Railroad
                           Administration, and parts of the Maritime Administration. This
                           reorganization would have provided an opportunity for more cost-effective
                           delivery of services by consolidating administrative and executive support




                           Page 14                                               GAO/T-RCED/AIMD-97-172
           functions and consolidating an extensive field office structure. DOT has
           since dropped plans for this overall reorganization, and it is not currently
           examining options for consolidating its field office structure for surface
           transportation.

           Changes to DOT’s field structure need to be driven by the role field offices
           will have in carrying out the Department’s mission and the skills that will
           be needed. New technologies—such as ITS—and transportation-related
           issues—such as energy conservation, land use concerns, and statutory
           requirements for monitoring transportation’s impact on air
           quality—increasingly require staff who are skilled in fields that are both
           highly technical and rapidly changing.

           Even if departmental reorganization does not occur, opportunities may
           still exist to streamline the field structure through colocation. Colocation
           occurs when two or more offices share a common office space, thereby
           potentially reaping the benefits of shared administrative services, such as
           reception, printing, mailing, and copying. The existing field structure does
           not generally take advantage of colocation. For example, the Denver
           metropolitan area has seven DOT field offices for surface transportation.
           Some of these offices are located in different buildings in downtown
           Denver, while others are located outside Denver.

           DOT  has established a Colocation Task Force to identify opportunities for
           its modal agencies, including FAA and the Coast Guard, to colocate field
           offices within metropolitan areas. The task force initially identified 160
           field offices that could be colocated into 60 locations. The results of its
           initial evaluation of these offices are due this summer and will be reviewed
           by the Secretary’s Management Council. In addition, we plan to examine
           the organizational structure of DOT’s field offices.

Aviation   FAA can do more to develop an appropriate managerial structure and
           organizational culture to achieve the most cost-effective delivery of
           services. This includes establishing a business-like approach for
           developing and enforcing an ATC systems architecture and for
           implementing and enforcing software acquisition improvements. We have
           recommended that FAA establish a chief information officers management
           structure similar to the department-level chief information officers
           prescribed in the Clinger-Cohen Act. In addition, as we mentioned earlier,
           FAA’s organizational culture has been an underlying cause of the agency’s
           acquisition problems. We have recommended that FAA develop a
           comprehensive strategy for cultural change. Such cultural change is



           Page 15                                                GAO/T-RCED/AIMD-97-172
              necessary before FAA can successfully overcome more specific problems
              we have noted in its major acquisitions programs.

              FAA also has opportunities to reduce costs by contracting out air traffic
              control towers and consolidating facilities. However, these actions often
              result in considerable opposition by local communities as well as FAA
              employees. FAA is already contracting out level I towers—which handle
              low-volume traffic—and the next logical step is to examine the feasibility
              of contracting out higher-volume level II towers.

Coast Guard   Over the past several years, the Coast Guard has carried out an ambitious
              streamlining program that is expected to result in an estimated net savings
              of $77 million a year. However, the Office of Management and Budget’s
              budget targets call for the Coast Guard to find additional reductions of 4
              times this amount by fiscal year 2002. Coast Guard managers have
              acknowledged the enormity of this task. We have identified organizational
              issues facing the Coast Guard during this period that include reconsidering
              several options for streamlining—such as lengthening periods between
              military assignment rotations to substantially reduce personnel transfer
              costs—that were not implemented in earlier efforts. Such changes are
              controversial within the Coast Guard because they involve a change in
              organizational culture. Therefore, outside studies or independent
              validation of the Coast Guard’s studies may be needed. Examining other
              streamlining alternatives, such as changing the services provided, may also
              be needed. In addition, in 1994, we validated the Coast Guard’s process to
              determine which search and rescue stations are no longer needed.
              However, the Coast Guard has not been able to close most of these
              stations because of congressional objections. A panel much like the
              Department of Defense’s Base Closure and Realignment Commission,
              established by the Congress, may also be helpful to address the closing of
              Coast Guard facilities. We have recently issued a report requested by the
              Subcommittee on Coast Guard and Maritime Transportation, House
              Committee on Transportation and Infrastructure that addresses the
              challenges the Coast Guard faces in addressing budget constraints,
              including some organizational issues.19

              Our latest report on the Coast Guard found that, even after it has nearly
              completed its streamlining efforts, it still has about 40 percent of its staff
              working in support functions, headquarters, area offices, or district
              offices. The Clinger-Cohen Act calls for agencies to develop measures of
              efficiency and to reengineer their processes as ways of determining the

              19
                Coast Guard: Challenges for Addressing Budget Constraints (GAO/RCED-97-110, May 14, 1997).



              Page 16                                                              GAO/T-RCED/AIMD-97-172
                        proper mix of support and on-line staff. Until such actions are carried out
                        and data become available, the Congress and Coast Guard managers are at
                        a disadvantage in their efforts to assess the agency’s operations and to
                        make data-based decisions for improving the cost efficiency of those
                        operations.


Information Resources   To monitor the performance of U.S. transportation systems, determine
                        how best to allocate resources, and provide information for congressional
                        oversight, DOT needs timely, accurate, and complete data. Serious
                        problems, however, exist with DOT’s information resources and database
                        management. These problems, which affect financial and other program
                        information, adversely affect the Department’s ability to identify, develop,
                        and evaluate the performance of the U.S. transportation system, set
                        priorities for infrastructure investment needs, and evaluate the impacts of
                        transportation systems across modes. These problems are exacerbated by
                        challenges facing the Department in addressing the “Year 2000” computer
                        problem. Efforts by DOT to develop more results-oriented,
                        performance-based management information as required by the
                        Government Performance and Results Act should provide a good start to
                        improving data departmentwide. However, to improve its oversight of
                        programs and risk management, DOT also needs to ensure that its data are
                        reliable.

Financial Information   An overriding concern is recurring problems that have been identified in
                        DOT’s financial information and reporting. DOT lacks the reliable financial
                        management information necessary to ensure that federal funds are
                        properly managed, performance is measured, and reliable financial reports
                        are prepared. The lack of such information has pervasive effects and limits
                        the ability of program managers and elected officials to make informed
                        decisions. For example, as mentioned earlier, decisions about financing
                        FAA depend in part on understanding what it costs to provide services to
                        various users. However, we recently reported that such basic information
                        is not available.20

                        For fiscal year 1996, DOT prepared its first departmentwide financial
                        statement as required by the Chief Financial Officers Act. DOT’s Office of
                        the Inspector General (OIG) undertook an audit of the departmentwide
                        balance sheet but was unable to provide an opinion about its reliability
                        because of inadequate records and other deficiencies. The OIG was unable

                        20
                          Air Traffic Control: Improved Cost Information Needed to Make Billion-Dollar Modernization
                        Investment Decisions (GAO/AIMD-97-20, Jan. 22, 1997).



                        Page 17                                                               GAO/T-RCED/AIMD-97-172
                      to validate the value of property, equipment, operating materials, and
                      supplies reported to be worth $25.8 billion because of inadequacies in
                      supporting documentation and unreconciled discrepancies between
                      summary accounts and their supporting details. For example, detailed
                      records for certain FAA property had an unreconciled difference of over
                      $500 million with the corresponding general ledger total.

                      A strong internal control system is essential for providing DOT with a
                      framework for accomplishing management objectives and accurately
                      reporting financial information. Effective internal controls serve as checks
                      and balances against undesired activities and reduce the risk of waste,
                      fraud, and abuse. In evaluating DOT’s internal controls, the OIG identified 11
                      significant internal control weaknesses and 13 additional conditions
                      deemed important for reporting. Overall, the OIG made 72
                      recommendations to strengthen internal controls and improve the
                      accuracy of DOT’s financial reporting.

                      DOT  faces several important challenges to addressing its financial
                      management problems including (1) correcting the known weaknesses so
                      that it can produce reliable, auditable financial statements; (2) fully
                      implementing new federal accounting standards to meet federal financial
                      management goals; (3) implementing and maintaining financial
                      management systems that comply substantially with federal requirements
                      for financial management systems, applicable federal accounting
                      standards, and the U.S. Government Standard General Ledger at the
                      transaction level; and (4) submitting fully audited financial statements that
                      cover all accounts and associated activities.

                      DOT has begun addressing some deficiencies. For example, FAA hired a
                      contractor in 1996 to study its policies and procedures for processing and
                      recording equipment purchases. The contractor made over 100
                      recommendations, and FAA is developing a corrective action plan to
                      implement the recommendations. In addition, FAA established a Cost
                      Accounting Systems Division in 1996. A contractor has been hired to help
                      implement a cost-accounting system, which is scheduled to be completed
                      in October 1997.

Program Information   We have also identified the need for better management data in many of
                      DOT’s programs. For example, for years we have reported on shortcomings
                      in FAA’s aviation safety inspection program, including the inadequacy of
                      aviation safety databases. In 1991, FAA began developing the Safety
                      Performance Analysis System (SPAS), which draws on information from a



                      Page 18                                                GAO/T-RCED/AIMD-97-172
                   number of safety-related databases to better establish priorities for FAA’s
                   inspections. However, SPAS is not expected to be fully operational until
                   1999. Furthermore, some databases that may provide source data for SPAS
                   contain incomplete, inconsistent, and inaccurate data. FAA has recently
                   developed and is implementing a strategy to improve data quality to
                   ensure that these source databases provide reliable information. The
                   success of this strategy is critical to SPAS’ becoming an effective tool for
                   targeting resources to high-risk activities.

                   In addition, we have frequently found that the Coast Guard has not had an
                   adequate base of information about its programs and activities. For
                   example, in 1990, we reported that the federal government had lost
                   millions of dollars because the Coast Guard did not calculate accurate spill
                   costs from the Exxon Valdez oil spill. In 1991, we reported that the Coast
                   Guard, while responsible for responding to spills from pipelines, did not
                   know the locations of the pipelines. To address these problems, we
                   recommended that the Coast Guard enhance its strategic planning process
                   to improve its information resources management. The Coast Guard
                   recognizes its information problems and is in the process of implementing
                   many new information systems.

Year 2000 Issues   DOT faces challenges in addressing data issues such as those we mentioned
                   and, at the same time, ensuring that it addresses the upcoming “Year 2000”
                   computer problem. DOT’s Year-2000 program is probably the largest
                   computer system conversion effort ever undertaken by the Department
                   and its modal administrations. First-class program management and the
                   disciplined and coordinated application of scarce resources are required
                   to achieve the departmentwide system conversion that must be completed
                   by a fixed date. The massive year-2000 program is a management
                   challenge.

                   To help federal agencies achieve Year-2000 compliance, we developed a
                   guide that provides them with a framework and checklist of the Year-2000
                   issue.21 The guide is divided into five phases—awareness, assessment,
                   renovation, validation, and implementation—supported by program and
                   project management activities. We have used the guide’s checklist to
                   describe DOT’s activities and progress in the first two phases—awareness
                   and assessment. Although DOT considers the awareness campaign about
                   90-percent complete, we believe that DOT has not completed some of the
                   key tasks in that phase. For example, DOT has not (1) performed a
                   high-level analysis of the potential impact of the Year-2000 problem on its

                   21
                     Year 2000 Computing Crisis: An Assessment Guide, Exposure Draft (GAO/AIMD-10.1.14, Feb. 1997).



                   Page 19                                                              GAO/T-RCED/AIMD-97-172
                             core business areas, (2) developed or documented a Year-2000 strategy, or
                             (3) appointed an executive management council to guide the Department’s
                             Year-2000 conversion program.

                             During the assessment phase, DOT must work with its administrations to
                             identify (1) systems that are mission-critical or support important
                             functions and must be converted or replaced by the deadline and
                             (2) systems that support marginal functions and may, therefore, be
                             converted or replaced later. Although DOT has a partial inventory of its
                             systems, the information on its inventory may not be very useful for
                             establishing system conversion priorities. For example, FAA’s Air Traffic
                             Control Systems and Travel Voucher Tracking System are both defined as
                             mission-critical. Moreover, the inventory does not identify internal or
                             external interfaces or show which systems are to be renovated, replaced,
                             or eliminated.

                             We believe that as DOT deals with the Year-2000 issue, it is essential that
                             top-level management be fully aware of the problem and its potential
                             impact on DOT and those who use its services. It is the responsibility of the
                             chief information officers to provide leadership in defining and explaining
                             the importance of achieving Year-2000 compliance, selecting the overall
                             approach for structuring DOT’s program, mobilizing needed resources, and
                             assessing the adequacy of the existing information resources management
                             infrastructure to adequately support year-2000 activities.

Government Performance and   The Government Performance and Results Act is intended to address basic
Results Act                  management problems and deficiencies that have been typical throughout
                             the federal government. If properly implemented, the act could be a useful
                             tool for solving many of the problems we have identified at DOT. The act
                             requires agencies to clarify their missions, set strategic goals, and measure
                             performance toward those goals with reliable, auditable information that
                             the Congress can use to hold them accountable for results rather than
                             activities or processes. DOT could use this framework, for example, to
                             reach agreement on the goals and objectives of our aviation security
                             system, to develop performance goals and data for safety inspections, or
                             to clarify mission needs for its ATC modernization program.

                             DOT, like other federal agencies, faces challenges in developing good
                             management, financial, and program information, which are key to
                             successfully implementing both the act and many of our
                             recommendations. Without such information, accountability for achieving
                             results-oriented goals can never be ensured. It is up to the Congress and



                             Page 20                                                GAO/T-RCED/AIMD-97-172
              committees such as yours to make the act come alive by working with
              agencies and holding them accountable for its implementation.


              Many of the problems we have discussed are not new issues to either the
Conclusions   Department or the Congress. Adequately addressing many of these
              problems, however, will take concerted action by the Congress, senior
              management at the Department, and program managers and staff. The
              Congress has a key role to play in helping set transportation priorities and
              providing appropriate funding. The Department can do more to make clear
              its commitment to those priorities and the organizational culture needed
              to implement them. Program managers and staff need to constantly strive
              to achieve the most cost-effective delivery of services. Congressional
              oversight, such as that provided by this hearing, is also key.


              Mr. Chairman, that concludes our prepared statement. We would be happy
              to respond to any question that you or other Members might have.




(340647)      Page 21                                              GAO/T-RCED/AIMD-97-172
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