Federal Management: Challenges Facing the Department of Transportation

Published by the Government Accountability Office on 1999-02-25.

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

                        United States General Accounting Office

GAO                     Testimony
                        Before the Subcommittee on Transportation, Committee
                        on Appropriations, U.S. Senate

For Release
on Delivery
Expected at
                        FEDERAL MANAGEMENT
10 a.m. EST
February 25, 1999
                        Challenges Facing the
                        Department of
                        Statement of John H. Anderson, Jr.,
                        Director, Transportation Issues,
                        Resources, Community, and Economic
                        Development Division

    Mr. Chairman and Members of the Subcommittee:

    We are here today to discuss the critical management challenges facing
    the Department of Transportation (DOT). My testimony is based on a report
    we issued in January as part of GAO’s performance and accountability
    series on major management challenges and program risks facing the
    federal government.1 With a budget request of over $50.5 billion for fiscal
    year 2000, the Department faces critical challenges in achieving its goals of
    ensuring the safe and efficient movement of people and goods and in
    making cost-effective investments in the nation’s transportation

    While DOT has had many successes in improving the nation’s
    transportation systems, it has also experienced problems that have
    impeded its ability to achieve its goals. We, DOT’s Inspector General, and
    the Department have documented these problems and recommended
    solutions. Although some corrective actions have been taken, major
    performance and management challenges remain for DOT’s agencies that
    cover aviation and surface transportation, the U.S. Coast Guard, and the
    Department itself. In summary:

•   The Federal Aviation Administration (FAA) faces considerable challenges
    in managing its multibillion-dollar air traffic control modernization
    program, making its computer systems ready for the year 2000, and
    addressing shortcomings in its safety and security programs. Additional
    challenges include funding uncertainties facing FAA and the nation’s
    airports and the lack of airline competition in some communities. While
    DOT has started to address some of these issues, more needs to be done.
    For example, FAA has initiated activities to address many of our concerns
    about its air traffic control modernization program but none are
    completed. Moreover, because of its size, complexity, cost, and past
    problems, since 1995, we have designated the air traffic control
    modernization program as a high-risk information technology initiative.
•   DOT and the Congress face challenges in continuing to improve the
    oversight of highway and transit projects and in determining the future of
    passenger rail. Large-dollar highway and transit projects have experienced
    cost increases and delays and have had difficulties acquiring needed
    financing. While some improvements can be made by DOT’s agencies,
    others may require congressional action. For example, the Federal Transit
    Administration (FTA) has implemented a new tracking system to help

      Major Management Challenges and Program Risks: Department of Transportation (GAO/OCG-99-13,
    Jan. 1999).

    Page 1                                                              GAO/T-RCED/AIMD-99-94
                          ensure the correction of deficiencies found during its oversight review of
                          grants, but we have not reviewed it to determine if it addresses our
                          concerns about the agency’s need for complete, timely information. Other
                          improvements—such as addressing Amtrak’s tenuous financial condition
                          and changing the federal oversight role for large-dollar highway
                          projects—will require congressional action.
                      •   The Coast Guard had not thoroughly addressed planning issues for its
                          20-year, $9.8 billion project to replace or modernize many of its deepwater
                          ships and aircraft. We found that the Coast Guard had not adequately
                          addressed this project’s justification and affordability, and we
                          recommended that DOT and the Coast Guard take several steps to improve
                          their planning processes. The Coast Guard has begun implementing our
                          recommendations, but it has not resolved issues concerning the project’s
                      •   DOT’s lack of accountability for its financial activities impairs its ability to
                          manage programs and exposes the Department to potential fraud, waste,
                          abuse, and mismanagement. Over the years, the Inspector General has
                          been unable to express an audit opinion on the reliability of the financial
                          statements of the Department and some of its agencies. DOT faces
                          considerable challenges in achieving an unqualified audit opinion on its
                          fiscal year 1999 financial statements due to the numerous problems that
                          need to be addressed, and the serious financial management weaknesses
                          at FAA have contributed to these problems. Consequently, this year we
                          designated financial management at FAA as a high-risk area.

                          Over the past 17 years, FAA’s multibillion-dollar air traffic control
Aviation Challenges       modernization program has experienced cost overruns, schedule delays,
                          and performance shortfalls of large proportions. The Congress
                          appropriated over $25 billion for the program through fiscal year 1998, and
                          FAA estimates that the program will need an additional $17 billion for fiscal
                          years 1999 through 2004. Because of its size, complexity, cost, and
                          problem-plagued past, we have designated this program as a high-risk
                          information technology initiative since 1995. Among other things, FAA
                          needs to adopt disciplined acquisition processes and change its
                          organizational culture so that employees become strongly committed to
                          mission focus, accountability, coordination, and adaptability. Although FAA
                          has initiated activities to address many of our concerns, such as improving
                          its software acquisition capabilities, none are completed. Additionally, we
                          recently reported that FAA is not effectively managing information security
                          for future air traffic control modernization systems and we made several
                          recommendations. For example, we recommended that FAA ensure that

                          Page 2                                                    GAO/T-RCED/AIMD-99-94
specifications for all new air traffic control systems include security
requirements based on detailed assessments.

FAA  also faces considerable challenges in making its computer systems
ready for the year 2000. In August 1998, we testified that FAA was unlikely
to complete all critical tests of its computer systems in time and that
unresolved risks—including those associated with data exchanges,
international coordination, reliance on the telecommunications
infrastructure, and business continuity and contingency
planning—threatened aviation operations. The implications of FAA’s not
meeting the Year 2000 deadline are enormous and could affect hundreds of
thousands of people through customer inconvenience, increased airline
costs, grounded or delayed flights, or degraded levels of safety. FAA is
making progress in addressing the Year 2000 computing problem. Earlier
this month, DOT reported that FAA validated 74 percent of its mission
critical systems undergoing repair, up from 20 percent in November 1998.
However, much remains to be done to complete validating and
implementing the repairs and the replacements of FAA’s mission critical
systems. As of January 31, 1999, FAA had implemented only about
15 percent of its mission critical systems undergoing repair. In addition,
airports and airlines depend on computer technology and, thus, will face
Year 2000 risks. We reviewed the status of airports’ preparations for the
year 2000 and found that nearly one-third of the more than 330 airports
that responded to our survey did not report that they would meet the
June 1999 date recommended by FAA to complete preparations for the year
2000 and that they did not have contingency plans for Year 2000-induced
failures. Because of the interdependence among airline flights and airport
facilities, equipment malfunctions related to the date change at one airport
could decrease efficiency and cause delays at other airports and
eventually impede the flow of air traffic throughout the nation, especially
if those delays occur at airports that serve as hubs.

DOT and the Congress face a challenge in reaching agreement on the
amount and the source of long-term financing for FAA and the nation’s
airports. The National Civil Aviation Review Commission recommended
that the Congress fund FAA through a combination of cost-based user
charges, fuel taxes, and general fund revenues. The administration’s
proposal to authorize FAA for fiscal years 1999 through 2004 would fund
the agency through user charges—in the form of excise taxes or new
cost-based charges—and would shift funding away from the general fund.
But any cost-based system depends on accurate and reliable data, which
FAA presently lacks. FAA will need to continue its efforts to fully implement

Page 3                                                  GAO/T-RCED/AIMD-99-94
its cost accounting system so that it can use reliable and accurate data to
improve its management and performance and establish user fees as
mandated by the Congress. In addition, continued funding for airports will
be critical to ensuring adequate capacity for the nation’s airport system.
From 1997 through 2001, planned development at airports might require as
much as $10 billion per year nationwide compared to about $7 billion in
funding at historical levels. Several proposals to increase airports’ funding
have emerged in recent years, including increasing the amount of funding
from FAA, but some of them are controversial. In addition, FAA’s prior
efforts to address airport funding needs—such as pilot programs to use
grants in more innovative ways—might provide additional flexibility,
especially if changes are made to expand the number of projects and
reduce some restrictions.

We have identified numerous shortcomings in FAA’s safety and security
programs. These include the need for the agency to improve its oversight
of the aviation industry, record complete information on inspections and
enforcement actions, provide consistent information and adequate training
for users of weather information, and resolve data protection issues to
enhance the proactive use of recorded flight data to prevent accidents.
While FAA is taking some steps to address these shortcomings, including
totally revamping its inspection program, resolving the problems will take
considerable time and effort. In addition, while progress has been made in
strengthening airport security, it will take years for FAA and the aviation
industry to fully implement current initiatives.

A final aviation challenge is the lack of airline competition in some
communities. Although DOT and others generally consider airline
deregulation to be a success, contributing to better service and lower fares
for most travelers, not all communities have benefited. In a number of
small and medium-sized communities, a lack of airline competition
contributes to higher fares and/or poorer service. Operating
barriers—such as long-term, exclusive-use gate leases and “slot” controls
that limit the number of takeoffs and landings at certain congested
airports—contribute to higher fares and service problems by deterring
new entrant airlines while fortifying established airlines’ dominance at key
airports. Recently proposed alliances between the nation’s six largest
airlines have raised additional concerns about competition. DOT has
attempted to address problems with competition by such efforts as
granting a limited number of additional slots at two airports. Additional
actions—some of which are controversial—may be needed by the
Congress, DOT, and the private sector. In this regard, various bills have

Page 4                                                 GAO/T-RCED/AIMD-99-94
                        been introduced to address competition issues and the administration has
                        proposed legislation that would eliminate slot restrictions at three of the
                        four slot-controlled airports.

                        Many large-dollar highway and transit projects, each costing hundreds of
Highway, Transit, and   millions to billions of dollars, have incurred cost increases, experienced
Passenger Rail          delays, and had difficulties acquiring needed financing. In fiscal year 1998,
Challenges              DOT’s Federal Highway Administration provided over $21 billion to assist
                        the states in building and repairing highways and bridges. We have
                        identified several options to help improve the management of these
                        projects, particularly those involving large amounts of dollars, depending
                        on the oversight role that the Congress chooses for the federal
                        government. For example, one option would be to establish performance
                        goals and strategies for controlling costs as large-dollar projects move
                        through the design and construction phases.

                        FTA has improved its oversight of federal transit grants, but shortcomings
                        exist in its follow-up on noncompliance. Our prior work indicated that,
                        frequently, some grantees did not meet FTA’s time frames for corrective
                        actions and that FTA had allowed compliance deadlines to be revised,
                        which enabled grantees to delay corrective actions. Also, FTA did not have
                        complete, timely information to help ensure the correction of deficiencies
                        found during its oversight reviews of grants. The agency has implemented
                        a new tracking system, but we have not reviewed it to determine if it
                        addresses our concerns.

                        The National Railroad Passenger Corporation’s (Amtrak) financial
                        condition remains tenuous. Despite efforts to control expenses and
                        increase revenues, Amtrak’s financial condition has deteriorated in recent
                        years. Since it began operations in 1971, Amtrak has received nearly
                        $22 billion in federal subsidies for operating and capital expenses, and it is
                        likely to remain heavily dependent on federal assistance well into the
                        future. Amtrak loses about $2 for every dollar it earns in revenues from its
                        train service, and only one of Amtrak’s 40 routes covers its costs. The
                        business decisions that Amtrak makes regarding the structure of its route
                        system will play a crucial role in determining its long-term viability.
                        Because there is no clear public policy that defines the role of passenger
                        rail in the national transportation system and because Amtrak is likely to
                        remain dependent on federal assistance, the Congress needs to decide on
                        the nation’s expectations for intercity rail and the scope of Amtrak’s
                        mission in providing that service.

                        Page 5                                                  GAO/T-RCED/AIMD-99-94
                 The Coast Guard did not thoroughly address planning issues for its
Coast Guard      20-year, $9.8 billion Deepwater Capability Replacement Project to replace
Challenges       or modernize many of its ships and aircraft. This effort, which is
                 potentially the largest acquisition project in the agency’s history, is still in
                 its early stages. We found that the Coast Guard did not adequately address
                 the project’s justification and affordability. In fact, the remaining useful
                 life of its aircraft—and perhaps ships—may be much longer than the
                 agency originally estimated. We recommended that DOT and the Coast
                 Guard take several steps to improve their planning processes, such as
                 expediting the development and the issuance of updated information on
                 the remaining service life of the agency’s aircraft and ships and revising
                 acquisition guidelines so that future projects are based on more accurate
                 and complete data. The Coast Guard has begun implementing our
                 recommendations, but has not resolved issues concerning the project’s

                 DOT’s lack of accountability for its financial activities impairs its ability to
Departmentwide   efficiently and effectively manage programs and exposes the Department
Challenge        to potential fraud, waste, abuse, and mismanagement. Since 1993, when
                 the Office of Inspector General began auditing the financial statements of
                 certain agencies within the Department, it has been unable to determine
                 whether the reported financial results are correct and has thus been
                 unable to express an audit opinion on the reliability of these statements.
                 The Inspector General also has been unable to express an opinion on the
                 reliability of the departmentwide statements since these statements were
                 first audited in fiscal year 1996. A key issue affecting the ability to express
                 an opinion on these financial statements has been DOT’s inability to reliably
                 determine the quantities, the locations, and the values of property, plant,
                 and equipment and inventory, reported at $28.5 billion as of September 30,
                 1997. Serious financial management weaknesses at FAA have contributed
                 to this situation. Consequently, we have designated financial management
                 at FAA as a high-risk area. In addition, as we previously mentioned, DOT
                 lacks a cost-accounting system or an alternative means to reliably
                 accumulate and report the full cost of specific projects and activities. Due
                 to the deficiencies in its financial accountability, it is unlikely that DOT can
                 accurately determine costs and meaningfully link them to performance
                 measures. On September 30, 1998, DOT submitted a plan to the Office of
                 Management and Budget for resolving the financial management
                 deficiencies that had been identified in its financial statement audits.
                 However, the Department faces significant challenges in achieving its goal

                 Page 6                                                    GAO/T-RCED/AIMD-99-94
           of receiving an unqualified audit opinion on its fiscal year 1999 financial
           statements due to the numerous problems that need to be addressed.

           In summary, many challenges we identified are long-standing and will
           require sustained attention by DOT and the Congress. While DOT has
           initiatives underway to address the shortcomings in some of its programs,
           these activities are only in the early stages of implementation. It will take
           time to fully address the issues we and others have identified and to assess
           whether the Department has fully resolved them. Furthermore,
           congressional actions will also be required to address certain challenges
           facing the Department. Finally, congressional oversight, such as provided
           by this hearing, will help ensure the effective resolution of these

           Mr. Chairman, this completes my testimony. I will be glad to respond to
           any questions that you or other Members of the Subcommittee may have.

(348151)   Page 7                                                  GAO/T-RCED/AIMD-99-94
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:


or visit GAO’s World Wide Web Home Page at:


United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested