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Report to the Ranking Minority Member, Committee on Commerce, Science, 
and Transportation, U.S. Senate:

United States General Accounting Office:

GAO:

June 2004:

Surface Transportation:

Many Factors Affect Investment Decisions:

GAO-04-744:

GAO Highlights:

Highlights of GAO-04-744, a report to the Ranking Minority Member, 
Committee on Commerce, Science, and Transportation, U.S. Senate 

Why GAO Did This Study:

Passenger and freight traffic are expected to grow substantially in the 
future, generating additional congestion and requiring continued 
investment in the nationís surface transportation system. Over the past 
12 years, the federal government has provided hundreds of billions of 
dollars for investment in surface transportation projects through the 
Intermodal Surface Transportation Efficiency Act of 1991 and its 
successor legislation, the Transportation Equity Act for the 21st 
Century. Reauthorization of this legislation is expected to provide 
hundreds of billions of dollars more in federal funding for surface 
transportation projects. For this investment to have the greatest 
positive effect, agencies at all levels of government need to select 
investments that yield the greatest benefits for a given level of cost.

This report provides information about the processes that state and 
regional transportation decision-makers use to analyze and select 
transportation infrastructure investments. GAO identified (1) key 
federal requirements for planning and deciding on such investments, 
(2) how benefit-cost analysis facilitates sound decision-making, and 
(3) other factors that decision-makers consider in evaluating and 
deciding on investments. We provided copies of this report to the 
Department of Transportation for its review. The Department generally 
agreed with the reportís contents and provided technical comments, 
which we incorporated as appropriate.

What GAO Found:

Federal requirements specify the overall approach that states and 
regional organizations should use in planning transportation 
infrastructure projects, but generally do not specify what analytical 
tools planners should use to evaluate projects.  These key requirements 
include developing strategic goals and objectives; considering a wide 
range of environmental and economic factors; preparing long- and 
short-range plans; and ensuring an inclusive process that involves many 
stakeholders.  

The Office of Management and Budget, the Department of Transportation 
(DOT), and GAO have identified benefit-cost analysis as a tool to help 
decision-makers identify projects with the greatest net benefits.  The 
systematic process of benefit-cost analysis helps decision-makers 
organize information about, and determine trade-offs between, 
alternatives.  Researchers also acknowledged challenges in applying 
benefit-cost analysis, including quantifying some benefits and costs, 
defining the scope of the project, and ensuring the precision of 
estimates used in the analysis.  Ongoing research by DOT and others is 
aimed at improving and expanding state and regional decision-makersí 
application of benefit-cost analysis.

Many of the transportation planners we interviewed said that factors 
other than the analyses developed during the planning process often 
influenced final investment decisions.  For example, state and regional 
decision-makers must consider the structure of federal funding sources.  Since federal funding often is tied to a single transportation mode, it may be difficult to finance projects that do not have dedicated funding, such as railroad improvement projects.  In addition, decision-makers must ensure that wide-ranging public participation is reflected in their deliberations and that their choices take into account numerous views.  In some cases, voter support through referenda is required before a project may proceed or financing can be secured.  The physical constraints of an area may also affect investment choices.  Difficulties in expanding capacity and limits on existing infrastructure may direct investments to preserving and maintaining existing facilities or improving operations.  Finally, multistate transportation corridors present special challenges in coordinating investment decisions.

Key Factors Affecting Transportation Planning Decisions: 

[See PDF for image]

[End of figure]

www.gao.gov/cgi-bin/getrpt?GAO-04-744.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kate Siggerud, 
(202) 512-2834, siggerudk@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Federal Requirements Specify an Approach for Planning and Deciding on 
Transportation Projects:

Benefit-Cost Analysis Is a Method for Evaluating Alternatives and 
Improving Transportation Infrastructure Decision-Making:

Many Other Factors Shape Transportation Investment Choices:

Concluding Observations:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Summary of Three Types of Economic Analyses for Comparing 
Investment Alternatives:

Appendix III: Overview of Benefit-Cost Analysis:

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Tables:

Table 1: Potential Stakeholders Involved during the Metropolitan and 
Statewide Planning Process:

Table 2: Key Factors To Be Considered in Planning and Deciding on 
Transportation Investments, as Identified in Federal Requirements:

Table 3: Key Elements for Benefit-Cost Analysis:

Figures:

Figure 1: Federally Required Elements of Metropolitan and Statewide 
Transportation Plans:

Figure 2: Comparison of Three Types of Economic Analyses:

Abbreviations:

AASHTO: American Association of State Highway and Transportation 
Officials: 

APTA: American Public Transportation Association: 

CALTRANS: California Department of Transportation: 

CMAQ: Congestion Mitigation and Air Quality Improvement Program: 

CREATE; Chicago Regional Environmental and Transportation Efficiency: 

DOT: Department of Transportation: 

EIS: Environmental Impact Statement: 

EPA: Environmental Protection Agency: 

FAF: Freight Analysis FrameworK: 

FHWAFederal Highway Administration: 

FTAFederal Transit Administration: 

ISTEA: Intermodal Surface Transportation Efficiency Act of 1991: 

ITS: Intelligent Transportation Systems: 

MPO: Metropolitan Planning Organization: 

NCHRP: National Cooperative Highway Research Program: 

OMB: Office of Management and Budget: 

NEPA: National Environmental Policy Act: 

SCAG: Southern California Association of Governments: 

STIP: State Transportation Improvement Program: 

STP: Surface Transportation Program: 

TCRP: Transit Cooperative Research Program: 

TEA-21: Transportation Equity Act for the 21st Century: 

TIP: Transportation Improvement Program: 

TRB: Transportation Research Board:

United States General Accounting Office:

Washington, DC 20548:

June 30, 2004:

The Honorable Ernest Hollings: 
Ranking Minority Member: 
Committee on Commerce, Science and Transportation: 
United States Senate:

Dear Mr. Hollings:

The scope of the U.S. surface transportation system--which primarily 
includes roads, mass transit systems, and railroads--is vast and 
increasingly congested.[Footnote 1] Passenger and freight traffic are 
expected to grow substantially in the future, requiring continued 
investment in the surface transportation system. For example, from 2000 
to 2010, passenger travel on roads is expected to grow by about 25 
percent, and passenger travel on transit systems is expected to 
increase by about 17 percent, according to U.S. Department of 
Transportation (DOT) forecasts. DOT also estimates that freight traffic 
will increase by 43 percent from 1998 to 2010.

Over the past 12 years, the federal government has provided hundreds of 
billions of dollars for investment in surface transportation projects 
through the Intermodal Surface Transportation Efficiency Act of 1991 
(ISTEA) and its successor legislation, the Transportation Equity Act 
for the 21st Century (TEA-21), which expired in 2003 but has been 
subsequently extended.[Footnote 2] Reauthorization of this 
legislation--an issue currently before Congress--is expected to provide 
hundreds of billions of dollars more in federal funding for surface 
transportation projects over the next 6 years. For this investment to 
have the greatest positive effect on emerging transportation problems, 
agencies at all levels of government will need to select projects that 
provide the greatest benefits for a given level of cost. Making cost-
effective investment choices will become even more critical if, as some 
experts believe, the nation faces a sustained period of deficits and 
fiscal imbalance, resulting from growing mandatory commitments for 
Social Security and Medicare and increased homeland security and 
defense commitments. These challenges require the nation to think 
critically about existing government programs and commitments and 
implement decision-making processes that will provide the most cost-
beneficial outcomes.

The federal government has established a framework of planning 
requirements and processes designed to improve the quality of decisions 
about investing in transportation infrastructure investments. ISTEA and 
TEA-21 specified much of this planning and decision-making framework. 
Various analytical approaches have been refined over time to better 
calculate the benefits and costs of transportation investments and 
provide decision-makers with the tools to make better-informed choices. 
This report responds to your request for information about the 
processes that transportation decision-makers at all levels of 
government use to analyze and select surface transportation 
infrastructure investments. As agreed with your office we identified 
(1) key federal requirements for planning and deciding on surface 
transportation infrastructure investments, (2) how benefit-cost 
analysis facilitates sound transportation investment decisions, and (3) 
other factors that transportation decision-makers consider in 
evaluating and deciding on investments.

To identify the key processes for transportation infrastructure 
planning and decision-making, we reviewed existing federal laws, 
regulations, and guidance on the transportation planning process and 
interviewed federal, state, regional, and local transportation agency 
officials to gain their perspective on the different federal 
requirements. To identify how benefit-cost analysis facilitates sound 
transportation investment decisions, we analyzed the existing economics 
literature and transportation planning studies containing evaluations 
of benefit-cost analysis, and we interviewed academics and 
representatives of a broad range of transportation organizations to 
gain their perspective on issues, including the generalizability of 
benefit-cost analysis and the feasibility of comparisons among various 
transportation modes. To identify other factors that decision-makers 
consider in evaluating and deciding on investments, we (1) analyzed 
pertinent research on transportation planning and decision-making, as 
identified by our own review of the research and by transportation 
researchers we interviewed; (2) reviewed planning documents and 
analyses used by state, regional, and local transportation decision-
makers; and (3) interviewed federal, regional, state, and local 
transportation officials; representatives of private sector and civic 
organizations; and other transportation experts involved in the 
planning and decision-making processes. Many of these interviews and 
document reviews were part of site visits that we conducted in three 
metropolitan areas that are major centers of passenger and freight 
traffic--Chicago, IL; Los Angeles, CA; and San Francisco, CA--to 
understand how investment decisions were actually made in those 
locations. To ensure the reliability of information presented in this 
report, we relied to a large extent on studies from the economics and 
transportation literature that were reviewed by peers prior to 
publication; and we corroborated much of the testimonial information 
provided during our three site visits by obtaining documentation of 
investment decision-making processes and results. We conducted our work 
from September 2003 through June 2004 in accordance with generally 
accepted government auditing standards. (See app. I for more 
information about our scope and methodology.)

Results in Brief:

Federal laws and requirements specify an overall approach for 
transportation planning and decision-making that states and regional 
agencies must follow in order to receive federal funds. This approach 
includes involving numerous stakeholders, identifying state and 
regional goals, developing long-and short-range state and metropolitan 
planning documents, and ensuring that a wide range of transportation 
planning factors are considered. The many stakeholders include not only 
state, regional, and local agencies, but also private industry and the 
public. The planning process begins with the definition of overall 
state and regional goals and objectives. As part of this process, 
states and Metropolitan Planning Organizations (MPO)[Footnote 3] must 
collect and analyze data to help evaluate project priorities. These 
priorities are specified in state and metropolitan long-range plans and 
short-range programs. Long-range plans identify transportation needs 
for the next 20 years or more, and short-range programs identify 
specific projects to be initiated in the near future, usually about 3 
years. Both state and metropolitan short-range programs must specify 
funding sources and be financially constrained.[Footnote 4] In 
selecting projects for the plan, states and MPOs must consider a wide 
range of planning factors specified by the federal government, such as 
conformity with environmental and civil rights laws, preservation of 
existing systems, and increasing accessibility and mobility, among 
others. While federal requirements specify a wide range of these 
specific factors, they generally do not specify what analytical tools-
-such as benefit-cost analysis--planners should use to evaluate these 
factors. Instead, states and MPOs are largely responsible for selecting 
the methods used to analyze these factors.

The Office of Management and Budget (OMB), DOT, and GAO have identified 
benefit-cost analysis as a useful tool for integrating the social, 
environmental, economic, and other effects of investment alternatives 
and for helping decision-makers identify projects with the greatest net 
benefits. In addition, the systematic process of benefit-cost analysis 
helps decision-makers organize and evaluate information about, and 
determine trade-offs between, alternatives. Research and best practices 
indicate key steps of the analysis to ensure that the analyst defines 
the project objectives, identifies all reasonable alternatives, and 
systematically evaluates and compares the projected effects of each 
alternative. Challenges of benefit-cost analysis include difficulties 
in identifying the distribution of benefits and costs of alternative 
projects across affected locations and population groups, quantifying 
and assigning a dollar value to some effects, defining the scope of the 
alternative projects, and ensuring the precision of estimates used in 
the analysis. Notwithstanding these challenges, benefit-cost analysis 
remains an important and useful tool in helping select transportation 
infrastructure projects. DOT agencies and the National Research 
Council's Transportation Research Board have initiatives under way to 
improve benefit-cost analysis done by planners and to expand its use.

Transportation planners with whom we talked, particularly at the 
regional level, said that other factors, many of which are recognized 
in existing transportation legislation, can play a major role in final 
investment decisions. For example, transportation decision-makers 
consider the availability of federal funding sources, which are largely 
structured to direct funds to highways and transit systems, rather than 
railroads or intermodal projects. Also, transportation decision-makers 
are aware that they must achieve a consensus on improvements while 
incorporating public participation into the process. In some cases, 
achieving support from the voters through referenda is required before 
projects may proceed or financing can be secured. This need for voter 
support is an especially important factor in California, where sales 
taxes have become a primary source of funding new transportation 
infrastructure. Furthermore, physical limitations also affect choices 
of transportation investments. Difficulties in expanding capacity and 
limits on existing infrastructure may direct available investments 
toward preserving and maintaining facilities or improving operations 
rather than building new infrastructure. Nationwide, spending on system 
preservation--as a share of highway capital spending--from all sources 
increased from 45 percent to 52 percent from 1993 to 2000. In Chicago, 
transportation planners cited system preservation as a primary 
consideration in making decisions about projects and in the Los Angeles 
and San Francisco regions, fully 80 percent of transportation funds are 
spent on system preservation, maintenance, and operations. Finally, 
long, multistate transportation corridors may present special planning 
and coordination challenges. Achieving cooperation and coordination 
among multiple agencies, communities, and transportation modes--each 
with its own priorities--makes the planning and implementation of 
multistate and multiregion projects difficult. In some cases, ad hoc 
state coalitions have emerged to try to meet this need, especially in 
coordinating intelligent transportation system technologies.[Footnote 
5] However, planning for intrastate transportation corridors fits more 
easily into the framework of state planning.

We provided copies of this report to the Department of Transportation 
for its review and comment. The department generally agreed with the 
report's contents and also provided technical comments, which we 
incorporated as appropriate.

Background:

The nation's federal surface transportation investment policy has 
become increasingly complex, changing from a narrow focus on completing 
the nation's interstate highway system to a broader emphasis on 
maintaining and more efficiently operating our highways, supporting 
mass transit, protecting the environment, and encouraging innovative 
technologies. With the interstate system largely completed in the 
1980s--and continuing with the passage of ISTEA in 1991 and TEA-21 in 
1998--the federal government has shifted its focus toward preserving 
and enhancing the capacity of the transportation system by supporting a 
large network of highway, mass transit, and other surface 
transportation programs and projects.

The funding for transportation plans and projects comes from a variety 
of sources including federal, state, and local governments; special 
taxing authorities and assessment districts; and user fees and tolls. 
While metropolitan areas receive transportation funds from state and 
local sources, the federal government also is a significant funding 
source, using revenues from federal highway tax receipts and 
supplemented by general fund revenues. ISTEA and TEA-21 continued the 
use of the federal Highway Trust Fund--which is divided into a Highway 
Account and Mass Transit Account--as the mechanism to account for 
federal highway user tax receipts that fund various surface 
transportation programs. The Federal Highway Administration (FHWA) 
distributes highway program funds to state transportation departments 
that, in turn, allocate the funds to urban and rural areas on the basis 
of local priorities and needs.[Footnote 6] The Federal Transit 
Administration (FTA) sends most urban transit funds directly to local 
transit operators while state transportation departments administer 
rural transit funds. In some cases, Congress may designate specific 
transportation projects for funding. For example, TEA-21 allocated $9.4 
billion over 6 years to 1,850 congressionally designated projects. 
Finally, ISTEA and TEA-21 also allowed the use of certain federal 
highway program funds for either highway or transit projects, referred 
to as flexible funding.[Footnote 7]

Key issues--such as traffic congestion, air pollution, land use and 
sprawl, the economic viability of neighborhoods and commercial areas, 
and facilitating national economic growth--are significantly affected 
by decisions about how federal transportation funds are spent. These 
decisions grow out of an overall transportation planning and decision-
making process involving states, MPOs, local governments, and other 
stakeholders.

Federal Requirements Specify an Approach for Planning and Deciding on 
Transportation Projects:

Federal laws and requirements specify an overall approach for 
transportation planning agencies to use in planning and deciding on 
projects. State, regional, and local government agencies must operate 
within these requirements to receive federal funds. The laws and 
requirements--which include ISTEA, TEA-21, and their associated 
regulations--establish certain requirements governing the way states 
and local governments plan and decide upon transportation projects. In 
particular, the requirements describe various planning tasks that 
states and MPOs must perform, including (1) involving a wide range of 
stakeholders in the process; (2) identifying overall goals and 
objectives and data to support transportation investment choices; (3) 
developing long-and short-range transportation programs and plans; (4) 
specifying financing for the transportation programs and projects; and 
(5) ensuring that the transportation planning and decision-making 
process reflects a variety of planning factors, such as environmental 
concerns. States and MPOs must consider a wide range of planning 
factors laid out in federal statutes and regulations. However, federal 
planning requirements generally do not provide specific guidance on how 
transportation planners should evaluate these factors.

Transportation Planning Involves Multiple Stakeholders:

ISTEA and TEA-21 provided stakeholders with greater control over 
transportation decisions in their own regions than was done in the past 
and recognized that multiple agencies were responsible for planning, 
operating, and maintaining the entire transportation system. For this 
reason, the laws established a planning process that emphasizes 
cooperation and coordination among transportation stakeholders in the 
investment decision-making process. To achieve this goal, both ISTEA 
and TEA-21 sought to strengthen planning practices and coordination 
between states and metropolitan areas and between the private and 
public sectors and to improve connections between different forms of 
transportation. To foster involvement by all interested parties, states 
and MPOs are expected to provide opportunities for notice and public 
involvement throughout the planning and project selection process. For 
stakeholders and other interested parties (see table 1), federal 
regulations require a formal public involvement process that includes 
reasonable access to technical and policy information used in 
developing transportation plans as well as adequate periods for public 
comment.

Table 1: Potential Stakeholders Involved during the Metropolitan and 
Statewide Planning Process:

Potential stakeholders: 

* Elected officials;
* Public transit operators;
* Affected public agencies;
* Representatives of transportation agency employees;
* Freight shippers;
* Providers of freight transportation services;
* Private providers of transportation; 
* Representatives of users of public transit; 
* Citizens, and 
* Other interested parties.

Source: GAO analysis of federal metropolitan and statewide 
transportation planning statutes and regulations.

[End of table]

State departments of transportation--working with transportation 
organizations, local governments, and the public--develop state 
transportation goals and plans. Local governments, such as cities and 
counties, and regional entities, such as MPOs, carry out additional 
transportation planning and project implementation functions, 
especially for highway projects. Transit agencies, in addition to 
operating transit services such as bus, subway, light rail, commuter 
railroad, and other forms of mass transit, also plan and implement 
capital projects. Other organizations, such as nonprofit, 
environmental, and community organizations, are involved in 
transportation decision-making through the public participation 
process. Finally, private sector firms also may participate as advisors 
in the planning and decision-making process, especially when public 
decisions directly affect their interests.

MPOs, which are regional transportation policy bodies composed of 
representatives from various governmental and other organizations, are 
key players in the coordination of transportation plans and projects. 
MPOs are designed to provide a setting for impartial transportation 
decision-making by facilitating evaluation of alternatives, 
development of long-and short-range planning documents, and public 
involvement. In particular, MPOs provide the forum for the various 
providers of transportation facilities[Footnote 8] to come together to 
develop a more comprehensive approach to meeting regional 
transportation needs. Finally, DOT oversees state and metropolitan 
transportation planning and provides advice and training on 
transportation issues.

Transportation Planning Requires Identifying an Overall Vision and 
Analyzing Alternatives before Deciding on Projects:

In initiating the transportation planning process, states and MPOs are 
expected to have a long-term vision that articulates broad goals for 
the future of the transportation systems in the state or region. DOT 
guidance states that in developing the long-term vision, states and 
regions are to consider several factors, including projected population 
growth and economic changes, current and future transportation needs, 
maintenance and operation of existing transportation facilities, 
preservation of the human and natural environment, and projected land 
uses. States and MPOs may also conduct investment and planning studies 
to identify major transportation corridors in the state or region.

In deciding which proposed transportation projects meet the needs and 
reflect the long-range vision of the state or region, states and MPOs 
are required to establish a process for collecting and analyzing data 
to evaluate different transportation alternatives and using the 
resulting information to establish priorities for improving the area's 
transportation assets. As part of this process, transportation planners 
may develop performance measures and transportation models to evaluate 
existing or proposed projects. Performance measures are important 
indicators of how well the transportation system is operating. Some 
examples of user-oriented performance measures are average trip travel 
time, length of delay, and reliability of trip making. Transportation 
models are simulations of the "real world" that can be used to show the 
impact of changes in a metropolitan area on the transportation system 
(such as addition of a new road or transit line or increases in 
population or employment). Specific types of transportation models are 
not required by federal planning regulations.

Federal Laws Require That Transportation Needs and Proposed Projects Be 
Documented in Long-Range Plans and Short-Range Programs:

After articulating a vision of overall transportation goals and 
considering alternative ways of reaching those goals, federal laws and 
regulations require that states and metropolitan areas document their 
decisions about future transportation needs and their selection of 
federally funded surface transportation projects through long-range 
transportation plans and short-range programs.[Footnote 9] A 
metropolitan long-range transportation plan identifies transportation 
needs for at least the next 20 years, but does not necessarily identify 
specific projects. It is expected to include a description of 
congestion management strategies as well as capital investments and 
other measures necessary to (1) ensure the preservation of the existing 
transportation system and (2) make the most efficient use of existing 
transportation facilities to relieve congestion and enhance the 
mobility of people and goods. A state long-range plan is expected to be 
developed in cooperation with MPOs in the state and to be intermodal 
and statewide in scope. (see fig. 1).

Figure 1: Federally Required Elements of Metropolitan and Statewide 
Transportation Plans:

[See PDF for image]

[End of figure]

In contrast to the long-range plan, a short-range program covers a more 
limited time frame--usually about 3 years--and describes specific 
transportation projects or phases of an included project, including the 
scope and estimated costs of those projects. In a metropolitan short-
range Transportation Improvement Program (TIP), MPOs are required to 
identify the criteria and process for prioritizing proposed 
transportation projects, including the extent to which comparisons 
among modes were considered. In addition, all surface transportation 
projects that are to receive federal funding must be included in the 
metropolitan and state programs to receive federal funds. At the state 
level, each state DOT is expected to work cooperatively with its MPOs 
to develop a single State Transportation Improvement Program (STIP), 
which is an intermodal program of projects encompassing all the areas 
of the state. The STIP incorporates TIPs developed by the MPOs within 
the state, and a project in a metropolitan region must be included in 
the TIP before it may be included in the state program. Once adopted by 
the state, the STIP is concurrently submitted to FHWA and FTA for 
approval at least once every 2 years. In addition to approving the 
STIP, FHWA and FTA are also responsible for certifying that the state 
planning processes are conducted in accordance with all applicable 
federal requirements.

Under federal requirements, states and MPOs must specify funding 
amounts and sources for transportation programs and projects. States 
and MPOs must consider funding needs for both new projects and the 
maintenance and operation of the existing transportation system. 
Financial planning is part of both the short-and long-range planning 
processes and includes identification of resources that are reasonably 
expected to be available. Projects in the TIP and STIP are specifically 
linked to funding sources and additional strategies for securing funds 
are included in the plan.

While federal requirements specify that all MPOs have an analytical 
process in place to help prioritize and select projects, how projects 
originate and are selected for inclusion in transportation plans and 
programs may vary in different regions. In some instances, state DOTs 
are heavily involved in the metropolitan planning process. For example, 
the Illinois DOT heavily influences the planning process in 
metropolitan Chicago. In contrast, by state law, California has chosen 
to give more planning and decision-making power to counties by directly 
allocating a greater share of transportation funds to the 
counties.[Footnote 10] Another defining characteristic of 
transportation project development in the sites we visited in 
California is direct citizen involvement in selecting transportation 
projects through local ballot initiatives.

Many Factors To Be Considered Throughout the Planning and Decision-
Making Process:

Federal legislation has identified many factors that states and 
metropolitan areas are to consider in planning and deciding on surface 
transportation investments. As shown in table 2, these factors include 
environmental compliance, safety, system maintenance and operations, 
and land use, among others.[Footnote 11]

Table 2: Key Factors To Be Considered in Planning and Deciding on 
Transportation Investments, as Identified in Federal Requirements:

Key factors: 

* Ensure compliance with provisions of the National Environmental 
Policy Act, Clean Air Act, and Civil Rights Act; 
* Support the economic vitality of the metropolitan area, especially 
by enabling global competitiveness, productivity, and efficiency[A]; 
* Increase the safety and security of the transportation system for 
motorized and nonmotorized users[A]; 
* Increase the accessibility and mobility options available to people 
and for freight[A]; 
* Protect and enhance the environment, promote energy conservation, 
and improve quality of life[A]; 
* Enhance the integration and connectivity of the transportation 
system, across and between modes, for people and freight[A]; 
* Promote efficient system management and operation[A]; 
* Emphasize the preservation of the existing transportation system[A]; 
* Promote congestion relief and prevention through management 
strategies/ systems; 
* Consider the likely effect of transportation policies on land use 
and development; 
* Consider using innovative mechanisms for financing projects; 
* Expand, enhance, and increase use of transit services; 
* Examine the overall social, economic, energy, and environmental 
effects of transportation decisions; 
* Consider access to ports, airports, and intermodal transportation 
facilities; 
* Preserve rights-of-way access for future transportation projects; 
* Consider connectivity of roads in areas outside MPO planning 
boundaries and in other states; and; 
* Consider recreational travel and tourism needs. 

Source: GAO analysis of federal regulations governing metropolitan and 
statewide transportation planning.

[A] Planning factors designated in TEA-21.

[End of table]

For example, transportation planners and decision-makers must develop 
alternatives and select projects that conform to the requirements of a 
variety of laws, such as the National Environmental Policy Act (NEPA) 
of 1969 and Title VI of the Civil Rights Act.[Footnote 12] Under NEPA, 
federal agencies must assess the impact of major federal actions 
significantly affecting environmental quality. Agencies document these 
analyses in environmental impact statements. This analysis serves two 
principal purposes: (1) to ensure that agencies have available detailed 
information concerning potentially significant environmental impacts 
to inform their decision-making, and (2) to ensure that the public has 
this information so that it may play a role in both the decision-making 
process and the implementation of the decision.

In analyzing the effects of a proposed action and alternatives, 
agencies must assess a variety of effects--including ecological, 
economic, and social. Agencies may include or refer to benefit-cost 
analyses in environmental impact statements. However, for purposes of 
complying with NEPA, the weighing of the merits and the drawbacks of 
the various alternatives need not be displayed in a monetary benefit-
cost analysis and should not be when there are important qualitative 
considerations.[Footnote 13] When it is uncertain whether the proposed 
action would have significant environmental effects, agencies use 
environmental assessments to determine whether the proposed action 
would have such effects and therefore whether an environmental impact 
statement is necessary. Environmental assessments are relatively brief 
documents that need not include detailed effects analyses. Most 
transportation projects do not require the preparation of the more 
detailed environmental impact statement. In addition to requirements 
for environmental assessments or environmental impact statements, in 
metropolitan regions that have significant air quality problems, 
transportation plans and programs must conform to the State Air Quality 
Plans, which outline strategies for reaching compliance with air 
quality standards established by the U.S. Environmental Protection 
Agency (EPA).[Footnote 14] To meet these standards, states and MPOs in 
these designated regions must identify transportation projects that 
will help reduce motor vehicle emissions.

Title VI of the Civil Rights Act of 1964 prohibits discrimination on 
the basis of race, color, or national origin in programs and activities 
that receive federal financial assistance. To comply with Title VI, DOT 
issued regulations requiring recipients of federal transportation funds 
to provide assurances of compliance, periodic compliance reports, and 
access to relevant information about compliance. The regulations 
require that each MPO state that its planning process is in compliance 
with Title VI, as well as other statutory requirements. Both Title VI 
and NEPA require involvement and input from the public, interest 
groups, resource agencies, and local governments throughout the 
transportation planning and project development process.

Transportation Planners Generally Have Discretion in Selecting 
Analytical Tools:

Other than the NEPA requirements for environmental analyses, federal 
requirements give states and MPOs considerable flexibility in selecting 
specific analytical tools and elements used to evaluate projects and 
make investment decisions. For most surface transportation projects, 
current planning regulations require only that states (in coordination 
with MPOs) establish a process to conduct data analyses and evaluate 
alternatives for transit and highway projects. In defining the factors 
to be included in such an analysis, the requirements specify in general 
terms that states should consider identified social, economic, energy, 
and environmental effects of transportation decisions. Federal planning 
requirements also state that the metropolitan planning process should 
consider the cost-effectiveness and financing of alternative 
investments to meet transportation demand, support efficient 
transportation system performance, and consider the related impacts on 
social and economic development, housing, and employment goals. 
However, the requirements do not provide guidance to the states and 
MPOs on the types of analyses that are required or how they are to be 
prepared.

An exception to this approach applies to major transit system projects 
eligible for capital investment grants and loans under FTA's New Starts 
program. Under this program, FTA identifies and funds fixed guideway 
transit projects, including heavy, light, and commuter rail, ferry, and 
certain bus projects (such as bus rapid transit). In contrast to other 
FHWA and FTA programs where funds are distributed through statutory 
formulas, funding commitments for the New Starts program are made for 
specific projects, and projects are evaluated at various stages in the 
development process. For New Starts projects, federal requirements are 
more specific in terms of the types of data to be collected, the 
criteria for conducting an analysis, and the factors involved in 
evaluating a proposed project. For example, to be considered for 
possible New Starts funding, local project sponsors must prepare an 
alternatives analysis on the benefits, costs, and impacts of 
alternative strategies to address a transportation problem in a given 
corridor.[Footnote 15]

While FHWA and FTA guidance does provide some technical assistance on 
the use of various analytical tools and models, neither FHWA nor FTA 
advocates the use of any particular set of analytical tools, except for 
the New Starts program. In addition, according to a 1999 National 
Cooperative Highway Research Program report, decision-makers are often 
uncertain about the appropriate use of analytic tools, including their 
usefulness, reliability, and data requirements.[Footnote 16] 
Furthermore, FHWA officials note that there currently is no minimum set 
of elements that are required to be included in an analytical model. In 
fact, FHWA officials point out the difficulty of establishing a 
consensus on modeling standards, especially since the use of tools or 
models varies from one region to the next. As a result, states and MPOs 
have largely been responsible for identifying and performing their own 
analyses during the planning process.

Benefit-Cost Analysis Is a Method for Evaluating Alternatives and 
Improving Transportation Infrastructure Decision-Making:

Although the federal framework does not require the use of any 
particular tool, federal guidance advocates using benefit-cost analysis 
to evaluate investments. Benefit-cost analysis facilitates sound 
transportation investment decisions by integrating the effects of a 
potential alternative into a common monetary measure for comparison 
with other alternatives. In assessing the relative benefits and costs 
of each alternative, the analyst attempts to integrate social, 
economic, energy, and environmental impacts, in accordance with federal 
guidance, directly into the benefit-cost analysis. Research and best 
practices indicate that key steps of the analysis include defining the 
project objectives, identifying all reasonable alternatives, and 
systematically evaluating and comparing the projected effects of each 
alternative. Upon completion of the analysis, the decision-maker can 
derive useful information about the trade-offs among alternatives and 
identify the alternative that results in the greatest estimated net 
social benefit to society. Researchers acknowledge several practical 
challenges of benefit-cost analysis, such as difficulties in 
quantifying some benefits and costs and defining the scope of the 
project. However, major transportation groups, such as DOT and the 
National Research Council's Transportation Research Board (TRB), 
continue to work on guidance and provide resources to improve and 
simplify benefit-cost analysis and other analytic tools for 
practitioners.

Federal Guidance Supports the Use of Benefit-Cost Analysis:

While federal planning regulations for transportation generally do not 
require the use of specific analytical models, several federal sources 
have identified benefit-cost analysis as a useful tool to help 
decision-makers determine trade-offs between alternatives and identify 
projects with the greatest estimated net social benefits. For example, 
Executive Order 12893 states that expected benefits and costs should be 
quantified and monetized to the maximum extent practicable when 
evaluating federal infrastructure investments in the areas of 
transportation, water resources, energy and environmental 
protection.[Footnote 17] Moreover, guidance from OMB on the planning of 
federal capital assets suggests that the selection of alternatives 
should be based on a systematic analysis of expected benefits and 
costs.[Footnote 18] DOT encourages and provides guidance on the use of 
benefit-cost analyses in decision-making for transportation 
planning.[Footnote 19] In addition, in the past, we have encouraged the 
use of benefit-cost analysis in other areas such as freight 
transportation.[Footnote 20]

Benefit-Cost Analysis Integrates Multiple Effects Using a Systematic 
Approach to Evaluate Alternatives:

Unlike most other types of analysis, benefit-cost analysis allows 
analysts to integrate multiple effects into a common monetary measure 
for assessment of a wide variety of alternatives. As discussed earlier 
in this report, federal guidelines encourage decision-makers to 
consider the potential social, environmental, and safety effects of 
transportation projects. Many tools and methods exist to analyze these 
effects separately, including models that forecast travel demand, 
emissions measurement tools, and other types of analyses. (See app. II 
for a comparison of benefit-cost analysis to other economic analyses.) 
However, benefit-cost analysis integrates and monetizes the 
quantifiable benefits and costs of each alternative, including the 
results of some of these other models. Therefore, benefit-cost analysis 
provides a more thorough assessment of the alternatives than an 
analysis of any single impact area.

Benefit-cost analysis is a systematic approach to evaluating 
alternative investments that attempts to quantify and monetize benefits 
and costs accruing to society from an investment. This analysis 
examines the immediate effects of the investment on the people using 
the investment and the effects that accrue to nonusers as a result of 
the investment. Examples of effects on users of transportation 
investments are reduced travel time and improved safety for drivers and 
transit passengers. An example of an effect on a nonuser is a change in 
pollution levels. From research and guidance on transportation 
investment analysis and our own previous work, we identified 10 steps 
that an analyst should perform for sound benefit-cost analysis, as 
shown in table 3.[Footnote 21] (See app. III for a detailed discussion 
of each of the key elements of the analysis.):

Table 3: Key Elements for Benefit-Cost Analysis:

Key elements: 

* Define project objectives;
* Establish the base case for comparison; 
* Identify alternative projects; 
* Define a time frame for analysis; 
* Identify impacts of alternatives; 
* Quantify and monetize impacts as benefits and costs to the extent 
possible; 
* Discount benefits and costs to present values; 
* Compare benefits and costs of each project, using a common monetary 
measure; 
* Assess the sensitivity of the analysis to changes in assumptions and 
forecasted inputs; and
* Identify the alternative that results in the estimated greatest net 
social benefit.

Source: GAO Analysis of economic literature and federal guidance 
documents.

[End of table]

Benefit-Cost Analysis Can Yield Valuable Information for Decision-
Makers:

In addition to assigning a single monetary value to each potential 
project, benefit-cost analysis provides decision-makers with valuable 
information for comparing investment alternatives. Specifically, 
benefit-cost analysis informs decision-makers about the relative merit 
of alternatives by systematically assessing and placing monetary value 
on the favorable and unfavorable effects of various investment options. 
That is, researchers state that benefit-cost analysis can help 
decision-makers better understand the implications of each alternative 
and make trade-offs between investment options more transparent. This 
process encourages objective analysis and can expose possible biases in 
decision-making.

The systematic process of benefit-cost analysis also helps decision-
makers because it organizes information about the alternatives and 
converts dissimilar values, such as hours of travel time and number of 
accidents, to a comparable dollar measure. Researchers highlight 
benefit-cost analysis as a useful organizational tool because it 
aggregates key information relevant to the investment decision in a 
meaningful way. In addition, benefit-cost analysis offers a comparison 
of the benefits and costs that might accrue over time--including 
projected future operating costs and benefits to society that might not 
materialize immediately--and converts them to values in a single time 
period for more accurate comparison. In commenting on a draft of this 
report, FHWA noted that the discipline of going through the steps of 
benefit-cost analysis also could disclose important, timely information 
for public officials, planners, designers, and the public, even if the 
data and methods used in the analysis are imperfect. Such timely 
information can facilitate decision-making.

During our site visit to Chicago, railroad officials noted the value of 
benefit-cost analysis in a practical application. The Chicago Regional 
Environmental and Transportation Efficiency project (CREATE) is a $1.5 
billion plan that includes more than 70 infrastructure improvement 
projects to increase the efficiency and reliability of freight and 
passenger rail service, reduce highway congestion, and provide safety 
and environmental benefits in the Chicago area.[Footnote 22] Benefit-
cost analysis was key in the decision to proceed with this public-
private partnership, according to several railroad executives. Project 
sponsors used an extensive model of the Chicago regional railroad 
network to help determine the effects of various upgrades to the 
network. The model showed the extent to which CREATE would resolve 
freight rail congestion problems--rather than merely pushing them to 
another location in the regional railroad network. Using the results of 
this model, benefit-cost analysis was critical in identifying the 
highest return on investment for individual project segments across the 
Chicago rail system and helping to illustrate public and private 
benefits. Benefit-cost analysis also helped provide a calculation of 
the level of benefits that private railroads would receive from the 
project, thus providing an estimate of the level of financial 
contribution that the railroads should make.

While the results of benefit-cost analysis aid decision-makers in 
selecting between alternatives, guidance on benefit-cost analysis 
advises decision-makers to augment the results of the analysis by 
considering other factors when weighing investment alternatives. Such 
other factors, like public participation and equitable distribution of 
benefits, are those that cannot be quantified or incorporated directly 
into the analysis due to practical challenges of benefit-cost analysis 
or limitations of the underlying information.

Benefit-Cost Analysis Has Practical Challenges:

Although guidance from many federal agencies encourages the use of 
benefit-cost analysis as a useful tool for assessing the potential 
effects of transportation projects, such analysis has several practical 
challenges. One challenge is that while benefit-cost analysis evaluates 
the net benefits of projects, it does not usually consider the 
distribution of benefits across locations or populations or other 
equity concerns that may exist with transportation investment 
projects.[Footnote 23] Moreover, the outcome of benefit-cost analysis 
is a net value and therefore inherently eliminates any distinction 
between groups of citizens to whom benefits accrue. By summing the 
individual gains and losses to determine the effect on society as a 
whole, benefit-cost analysis assumes that each individual's gains or 
losses should be valued equally with any other individual's gains or 
losses.[Footnote 24] For example, FHWA guidance notes that benefit-cost 
results might disproportionately rank projects in urban areas over 
those in rural areas because of the higher level of benefits urban 
projects may generate.

Another practical challenge of benefit-cost analysis is monetizing some 
impacts of transportation improvements, such as reductions in 
emissions, travel time saved, and increased safety and reductions in 
fatalities. Although agency guidance exists, researchers do not always 
agree on the appropriate methods and assumptions for valuing these 
effects. For example, a report by the National Cooperative Highway 
Research Program (NCHRP) cites several outstanding issues in placing 
economic value on the time people spend traveling, such as (1) the 
fraction of the wage rate that should be used for work-related travel 
and personal travel, (2) whether to apply the same time value for very 
short periods of time saved as for longer periods, and (3) how to 
account for variation of travel time.[Footnote 25] Furthermore, debate 
surrounds the appropriate value of saving one statistical life through 
an improvement in safety; some advocates assert that human life is 
priceless and cannot be measured in monetary terms, while some 
researchers state that monetizing the impact of a reduction in 
fatalities leads to more complete analysis.[Footnote 26] In commenting 
on a draft of this report, FHWA said that although there is some debate 
about the monetary value of some impacts of transportation 
improvements, there is also much about the valuation of impacts that 
economists can agree on. For example, FHWA noted that monetary values 
available in agency guidance can be assigned to the performance 
measures--such as travel time saved--that are already calculated by 
regional models in order to aid the evaluation of proposed 
transportation projects.

Another challenge of implementing benefit-cost analysis is properly 
scoping the alternatives to analyze. Benefit-cost analysis is typically 
practiced as a way to compare one project against one or more 
individual projects rather than evaluating a system of projects. FHWA 
guidance cautions against evaluating a project that is actually a 
combination of two or more independent projects because an inefficient 
project might be hidden in the aggregate result. If multiple projects 
are aggregated and the net benefits of the group of projects are 
calculated, the result might indicate that the group of projects 
results in greater total benefits than the total costs incurred. 
However, one or more of the individual projects might not result in 
benefits greater than its costs if it were analyzed separately. Other 
research shows that analyzing each project independently and selecting 
projects without regard to the interrelation of the project outcomes 
can lead to selection of a combination of projects that do not maximize 
net benefits to society.[Footnote 27] In other words, one project, such 
as traffic signal coordination, might complement another project, such 
as a dedicated bus lane. In such a case, independent assessment of each 
project would not reveal the full benefits of implementing both 
projects. According to FHWA, in cases where projects are significantly 
interrelated, but not dependent on each other to produce net benefits 
to society, the effects of one project on another (e.g., changes in 
traffic) should be included in the analysis.

Finally, because benefit-cost analysis integrates the effects of many 
different impact areas, it carries with it the challenges of 
forecasting and measuring the effects in those areas. For example, 
travel demand models forecast future use of the transportation system; 
therefore, their outputs become inputs to benefit-cost analysis. 
According to a TRB report, though travel demand models have been 
commonly used for 4 decades, few universally accepted guidelines or 
standards of practice exist for these models or their 
application.[Footnote 28] Practitioners' views on appropriate methods 
vary because each organization conducting analysis tailors the 
forecasting approach to its region's characteristics, available data, 
and the preferences and knowledge of the staff doing the analysis. The 
resulting uncertainty over the best approach to forecasting is an 
important challenge because such uncertainty can lead to imprecise or 
inaccurate inputs, which can severely affect the outcome of the 
analysis. For example, research on an emissions model highlights 
uncertainties in the data used to estimate reductions in vehicle 
emissions from congestion mitigation and concludes that these 
uncertainties lead to large uncertainties in the model 
outputs.[Footnote 29]

Research Studies Are Available to Improve Benefit-Cost Analysis and 
Other Analytic Tools:

Several major transportation organizations--TRB, FHWA, FTA, the 
Association of Metropolitan Planning Organizations, the American 
Association of State Highway and Transportation Officials (AASHTO), and 
the American Public Transportation Association (APTA)--conduct 
research to help MPOs address some of the practical challenges of 
implementing benefit-cost analysis, as well as other analytic tools. 
For example, FHWA has developed a "Toolbox for Regional Policy 
Analysis" that offers guidance on a variety of techniques, including 
benefit-cost analysis, that MPOs can use to evaluate investment 
alternatives. MPOs also may adopt best practices developed by other 
MPOs or use consultants to assist with analysis and modeling. 
Initiatives such as the Transportation Planning Capacity Building 
Program--sponsored by FHWA and FTA--offer peer exchanges, roundtables, 
and workshops to facilitate such information sharing. In addition, many 
studies that are relevant to analysis and decision-making come from two 
major applied, user-oriented research programs--the NCHRP, which 
focuses on highway research and the Transit Cooperative Research 
Program (TCRP).[Footnote 30] In both programs, practitioners and other 
potential users of research results are involved in identifying their 
research needs, participating in selecting projects, and helping guide 
projects. When research is complete, TRB publishes and widely 
disseminates the research findings.

Several experts have indicated that while transportation researchers 
have devoted considerable attention to developing detailed guidance on 
analysis and modeling, they anticipate an increasing emphasis on this 
issue. They emphasized that TRB is likely to lead a major analysis to 
review and improve the state of the practice in modeling transportation 
impacts, benefit-cost analysis, and other tools.

Many Other Factors Shape Transportation Investment Choices:

While transportation decision-makers consider analyses, such as 
benefit-cost analyses, in investing resources to meet transportation 
needs, analyses often do not have a decisive impact on the final 
investment choices made by states and MPOs. According to transportation 
research, planning officials, and our prior work, other factors play a 
greater role in shaping decisions. For example, the federal funding 
structure for surface transportation and federal program incentives 
tend to focus decision-makers' attention on highway and transit 
projects and stakeholders rather than on railroads or other freight 
concerns. Moreover, there are relatively few instances in which 
decisions involve trade-offs among the various transportation modes to 
meet passenger and freight mobility needs, according to local planning 
officials. Decision-makers also are required to seek public input and 
involve a wide range of public and private stakeholders in reaching a 
consensus on investments. Ensuring that investment choices will 
maintain the existing infrastructure or improve its operation, rather 
than expand the transportation system's capacity, also appears to be an 
important priority for decision-makers. Finally, decision-makers are 
recognizing the importance of longer, multistate transportation 
corridors and the special challenges that they pose for investment 
decisions.

Analysis Assists, but Does Not Drive, Many Transportation Decisions:

MPOs, especially in major metropolitan areas, produce a substantial 
amount of analysis and modeling, according to transportation experts we 
interviewed. The results of such analyses can be a factor in 
transportation investment decision-making. For example, as noted 
previously in this report, transportation decision-makers in Chicago 
stated that the results of benefit-cost analysis had factored into 
their decision to implement the CREATE project. However, such analyses 
do not appear to play a decisive role in many investment decisions, 
although they may help rule out bad investments and point out serious 
problems.[Footnote 31] For example, planners in Los Angeles noted that 
the projects selected for the TIP were not necessarily the ones with 
the highest benefit-cost ratios, although their analysis showed that 
every project in the plan did generate more benefits than costs. In 
addition to the limitations of benefit-cost analysis we discussed 
previously in this report, decision-makers may not be relying upon 
analyses, in part, due to various concerns about the usefulness and 
reliability of the analyses, according to the transportation research 
literature and our interviews with experts and officials in Chicago, 
Los Angeles, and San Francisco.

State DOTs and MPOs have expressed uncertainty about the usefulness of 
analytical tools in guiding their transportation planning and decision-
making. For example, states and MPOs view existing analytical tools as 
having limited usefulness in comparing investment alternatives among 
transportation modes and between passenger and freight investments. 
TRB's applied research programs are trying to address this need through 
development of specific tools to help in making multimodal trade-offs. 
In addition, understanding how and when to use analysis is challenging 
for decision-makers.[Footnote 32] During our site visits, we found few 
instances in which investment decisions involved direct cross-modal 
trade-offs, such as railroad versus highway. According to a NCHRP 
survey published in 2001,[Footnote 33] 88 percent of state DOT 
respondents and 85 percent of MPO respondents reported that more useful 
guidelines--such as a guidebook for agency use in applying methods and 
analytic techniques--was either badly needed or would help to enhance 
the agency's ability to evaluate the social and economic effects of 
transportation system changes. Accordingly, the study concluded that 
decision-makers need to be able to better select when, how, and why to 
use particular analytic tools in investment decisions.

There are also concerns about data used in the analyses. Insufficient 
state and local data--particularly freight-related data--limits the 
quality and amount of analysis and modeling, according to NCHRP 
research and our December 2003 report.[Footnote 34] The lack of 
metropolitan level data, which is needed to analyze investment 
alternatives, has been a continuing concern in transportation research. 
For example, data needed to identify heavily traveled highways and 
freight bottlenecks, and to develop and evaluate alternative solutions 
for addressing such congestion (e.g., comparing the benefits of 
improving highway operations to the benefits of adding new road 
capacity), is not always available. Furthermore, data needed to apply a 
specific analytic tool may not be available or funds may not be 
sufficient to acquire or collect needed data. Compounding the problem, 
existing modeling software cannot always successfully accommodate the 
data limitations to yield results that are credible and usable. In the 
NCHRP survey of state DOTs and MPOs published in 2001, 82 percent of 
state DOT respondents and 97 percent of MPO respondents reported that 
better data to analyze social and economic effects either were needed 
badly or would help enhance the agency's ability to evaluate the social 
and economic effects of transportation system changes.

Freight data pose special challenges because shifting product mix, 
trade patterns, and consumer demands make freight a fast-changing area. 
The U.S. Bureau of Transportation Statistics reported in 2003 that 
there is a consensus that existing freight data often are too outdated 
to capture current freight status, many data elements are missing, and 
data often cannot be compared across modes.[Footnote 35] TRB and we 
have made recommendations to improve freight data. TRB recommended that 
resources be focused on developing a national freight data program that 
targets the needs of transportation analysts and planners.[Footnote 36] 
We recommended in our December 2003[Footnote 37] report that DOT 
facilitate the collection of freight-relevant data, which would allow 
state and local planners to develop and use better evaluation methods 
such as demand forecasts, modal diversion forecasts, and estimates of 
the impacts of investments on congestion and pollution, thus providing 
a better basis for making transportation investment choices. FHWA has 
developed a Freight Analysis Framework (FAF) designed to estimate the 
flows of commodities and related freight transportation among states, 
substate regions, and major international gateways. The FAF also 
forecasts changes in the flows due to changes in economic conditions, 
transportation facilities, or other factors. FHWA is currently working 
to improve the FAF by improving the accuracy of freight flows, updating 
sources used in the model, and possibly incorporating new data sources 
and forecasting methods.

Other considerations affect decision-makers use of analyses, such as 
how competently the analyses are interpreted and how well analyses are 
communicated, according to a transportation researcher. TRB and we have 
expressed a concern about impending shortages of skilled transportation 
professionals with expertise to choose and use analytic tools and 
communicate their results. Timing also can have an impact on the use of 
analysis. A local official observed that analyses that come later in 
the decision-making process may be viewed as the most relevant because 
they reflect the most current information available as projects are 
being considered.

Concerns also have been raised about the ability of MPOs to produce and 
disseminate quality analyses that aid investment decision-making, given 
their broad scope of responsibilities and current funding levels. A 
recent study of metropolitan decision-making in 
transportation[Footnote 38] concluded that although MPOs have been 
given new planning responsibilities in areas such as environmental 
justice, job access, freight planning, and systems operations, highway 
program funding for metropolitan planning has not increased. DOT 
officials also told us that local budget constraints complicate the 
ability of MPOs to deliver quality data analysis because analysis is 
usually the first thing to be cut. During our Chicago site visit, a 
transportation consultant expressed concern that the MPO for that area 
is very thinly funded for the work that it is being asked to perform.

Federal Financing Structure and Other Factors Limit Intermodal 
Investment Decision-Making:

In evaluating and deciding on investments, the structure of federal 
funding and the lack of freight stakeholder involvement are important 
factors that focus decision-making principally on highways and transit 
and on stakeholders associated with these modes. In addition, during 
our site visits, we found few instances where investment decisions 
considered direct trade-offs between modes or between passenger and 
freight issues.

ISTEA, TEA-21, and federal planning guidance all emphasize the goal of 
establishing a system wide, intermodal approach to addressing 
transportation needs. However, the reality of the federal funding 
structure--which directs most surface transportation spending to 
highways and transit, rather than railroad infrastructure--plays an 
important role in shaping MPO investment choices. In fiscal year 2001, 
for example, federal transportation grants to state and local 
governments totaled about $27.8 billion for highway programs, $7.0 
billion for transit programs, and $37 million for railroad programs. 
The federal financial support for highways and transit systems comes 
mainly from federal highway user fees (i.e., fuel taxes deposited into 
the Highway Trust Fund), with the revenue generated from these fees 
generally targeted for highway or transit projects. While most federal 
funding sources and programs are linked to highway or transit uses, 
some funding flexibility between highway and transit is allowed under 
programs such as the National Highway System, Surface Transportation 
Program (STP), and Congestion Mitigation and Air Quality Improvement 
(CMAQ) programs. Federal programs provide limited support for 
investment in railroad infrastructure, with railroad investments 
largely financed by the private sector.

In addition to the federal transportation grants to state and local 
governments discussed above, the federal government also provides some 
support to Amtrak for intercity passenger rail service. For example, in 
fiscal year 2003, the federal government appropriated about $1 billion 
to Amtrak to cover operating and capital expenses. However, the role of 
the federal government in providing financial support to Amtrak is 
currently under review amid concerns about the corporation's financial 
viability and discussions about the future direction of federal policy 
toward intercity rail service.[Footnote 39] Regarding freight rail 
projects, the private sector owns, operates, and provides almost all of 
the financing for freight railroads, with the public sector providing 
the supporting infrastructure--such as highways, ports, and intermodal 
facilities. Innovations in ISTEA and TEA-21 allowed states more 
flexibility to use federal funds for freight projects, established 
public-private partnerships, and allowed the expenditure of federal aid 
on nonhighway freight projects in certain circumstances.[Footnote 40]

A number of concerns have been raised about the availability of funding 
for railroad infrastructure, particularly for intermodal investments 
that could improve freight mobility. For example, AASHTO has reported 
that, although the railroad industry's return on investment has 
improved, it still is below the cost of capital, a factor that might 
adversely affect future railroad infrastructure investment 
levels.[Footnote 41] In addition, we reported in December 2003 that 
access to funding sources for freight railroads--such as the National 
Corridor Planning and Development Program and the Coordinated Border 
Infrastructure Program--has been limited because, according to FHWA, 
these programs are oversubscribed and much of the funding for these 
programs has been allocated to congressionally designated 
projects.[Footnote 42] In addition, National Corridor Planning and 
Development Program funds may not be used for improvements on 
railroads' heavy-use "mainline" tracks. Furthermore, given the 
intermodal nature of freight projects, the overall lack of flexibility 
for using federal transportation funding across modes limits the 
availability of funding for improving railroad and freight 
infrastructure. For example, the eligibility criteria under the 
Transportation Infrastructure Finance and Innovation Act do not allow 
assistance to privately owned facilities, such as privately owned rail 
infrastructure. Local planning officials we interviewed expressed 
concerns that limited public funding for freight railroad investments 
might limit regional options for addressing infrastructure 
requirements. For example, one local planning official told us that the 
lack of flexible funding limited that city's ability to address 
freight-related problems. A regional planning official noted that while 
CMAQ money has some flexibility, the federal funding structure narrows 
the ability to make optimal intermodal choices.

Our December 2003 report[Footnote 43] on freight transportation pointed 
to another concern about freight decision-making--that state and local 
transportation planning and financing is not well suited to addressing 
freight improvement projects. At the local level, planning is oriented 
to projects that clearly produce public benefits, such as passenger-
oriented projects. While freight projects also may produce public 
benefits by reducing freight congestion, they often can have difficulty 
securing public funds because they may generate substantial private 
sector benefits. For example, in California, local planning officials 
told us that State Transportation Improvement Program (STIP) funds 
could not be used for freight railroad improvements unless there were 
distinct benefits for passenger movement. Unlike passenger projects, it 
may be more difficult to identify clear-cut public benefits associated 
with freight railroad projects and balance them with private benefits. 
In California, local planning officials said they consider railroad 
improvements to be at a disadvantage in public referenda on 
transportation improvements because public support for freight and 
railroads is lacking. Chicago officials acknowledged that the lack of 
federal funds for freight projects limits the region's investment 
options and local governments' interest in spending their own funds on 
freight projects, such as the CREATE project. Finally, railroad 
industry investment criteria are not always aligned with the goals of 
the states and MPOs. While freight railroad industry investments may 
meet the internal industry tests of providing revenues, profits, and 
financial feasibility, they may not deal adequately with national 
transportation concerns, such as improving mobility, reducing 
nationally significant chokepoints, and enhancing system capacity.

Several other considerations limit freight stakeholder involvement in 
local investment decisions--potentially affecting the MPOs' ability to 
take a system wide, intermodal approach to addressing transportation 
needs. Although MPOs are required to consider freight needs, reflecting 
the concerns of freight stakeholders--such as freight railroads--in 
decision-making has proven challenging. For example, the Chicago region 
has been particularly active in involving freight railroads in the 
MPO's Intermodal Advisory Task Force. But a railroad official, who 
described the railroad companies' interaction with the MPO, 
nevertheless saw the need to modify the long-standing, local decision-
making process so that freight railroads have a clearer role in 
investment decisions. Railroad officials in Chicago also cited the 
unfamiliarity of planners and decision-makers with freight operations 
as an obstacle to freight investments. They noted that many local 
officials and transportation agencies do not have a clear understanding 
of how freight operates, including the complexities of a consumer goods 
distribution system that typically starts in Asia or other areas of the 
world. However, several Chicago officials believed that the CREATE 
project may help change this situation by providing a plan to improve 
freight rail efficiency and freight rail's interface with passenger 
transportation, and by giving freight more visibility with local 
officials.

The freight industry may face other challenges in participating in 
transportation decision-making. For example, freight railroad 
companies operate in many states--each with numerous MPOs in their 
borders. A railroad executive noted that if all MPOs were serious about 
freight issues, companies could not handle the demands on their 
resources to participate. The freight industry also has long-standing 
concerns about working with the public sector. A railroad official we 
interviewed said that federal rail regulation left a lingering legacy 
of industry distrust of the government. In addition, freight railroads 
have long made their own investment decisions and supplied their own 
capital--with no public sector influence. As private entities that own 
most of the nation's railroad infrastructure, freight railroads 
typically have not worked with the public sector because of concern 
about requirements and regulations that are tied to federal funds, 
unless a proposed infrastructure project will yield financial returns 
for the company. In addition, the lengthy planning and construction 
time associated with public infrastructure projects does not match the 
shorter planning and investment horizons of private companies.

In addition to the focus on highways and transit over railroad 
investment choices, during our site visits we also found that cross-
modal comparisons play a limited role in transportation investment 
decisions. We found limited instances in which investment decisions 
involved direct trade-offs in choices between modes or users--such as 
railroad versus highway or passenger versus freight. Officials in 
Chicago indicated that railroad and highway investments, and passenger 
and freight projects, rarely are in direct competition--perhaps because 
railroads and highways often serve different needs or markets. An 
official in Los Angeles commented that planners there avoid making 
modal comparisons because they view them as comparing "apples to 
oranges." In Chicago, an official described only a few situations that 
posed modal choices and trade-offs for decision-makers, for example, 
deciding between a transit alternative versus adding lanes to an 
existing tollway.

Several researchers told us that whether planners and decision-makers 
make cross-modal and passenger-freight comparisons may be a moot point 
because local conditions, such as the physical environment often 
dictate modal choices. For example, metropolitan areas that are 
adjacent to a seaport may have few choices about whether to use 
highways or railroads to move products to and from the port. Space 
constraints and existing infrastructure, as well as the characteristics 
of freight (i.e., ports that handle bulk commodities such as coal or 
grain usually use railroads, while ports that handle computers usually 
use trucks), foreclose choices. Overall, moving freight usually offers 
fewer transportation choices than moving passengers, an expert noted. 
In addition, the demographic or other characteristics of specific 
transportation markets--such as a growing area with many transit 
commuters--also may determine modal choice.

Public Input and Other Political Considerations Shape Investment 
Decisions:

Metropolitan decision-making is designed to be a collaborative process 
that involves the public and its diverse concerns in identifying 
actions to improve transportation system performance. MPOs are required 
to seek public comment and have clear federal guidance on involving the 
public--it is integral to their mission and one of their core 
functions. Moreover, the definition of the public is wide ranging--
virtually all private and public individuals and organized groups that 
are potentially affected by transportation decisions in a given 
area.[Footnote 44] Federal regulations also state that MPOs must 
cooperate with the state and local transportation providers such as 
transit agencies, airport authorities, maritime operators, rail-
freight operators, Amtrak, port operators, and others. MPOs are 
directed to provide the public with meaningful opportunities to provide 
input on transportation decisions and are expected to consider public 
input on the full range of financial, social, economic, and 
environmental consequences of their investment alternatives.

Public participation can introduce considerations such as quality of 
life and other issues that are difficult to quantify in making 
transportation choices. It also puts decision-makers in the position of 
balancing different public agendas about funding and values, according 
to a transportation researcher. Funding conflicts may arise between 
modes or from concerns about spreading benefits across the metropolitan 
area. Value conflicts may result from public concern about a potential 
project's impacts on a neighborhood or the environment.

As we observed in our site visits, public participation can play an 
influential role in transportation investment decisions. In California, 
public views often are expressed in county-level ballot box initiatives 
on the sales taxes and municipal bonds that finance transportation 
projects. Whether voters approve these initiatives is a significant 
factor in the investment decision-making process because of the growing 
prominence of local sales taxes in funding transportation projects. 
Local sales taxes have surpassed user fees as the primary source of 
funding for new transportation project construction in California 
because fuel tax revenues have not kept pace with travel volume and 
systems costs. The need for voter support may result in a greater 
number of transportation investment proposals that clearly identify 
public benefits for local constituents. In Chicago, an official noted 
that when an expressway extension with a High Occupancy Vehicle lane 
was proposed, attendees at public meetings opposed the project and 
endorsed additional mass transit service instead.

Besides public input, other political considerations also shape 
investment decisions. The metropolitan planning process emphasizes the 
importance of achieving stakeholder agreement on the set of projects 
that constitute the MPO's plan. One researcher said that achieving 
consensus often is difficult--especially with regard to completing 
large-scale projects--even when decision-makers are like-minded 
professionals. Arriving at a consensus puts a premium on how well local 
elected and appointed officials negotiate and build coalitions to 
obtain support for projects. Several researchers noted that this need 
for consensus may elevate the importance of certain political 
considerations--such as ensuring a rough equity in use of local and 
state funds for the distribution of transportation projects throughout 
a metropolitan area--in selecting projects for funding.

In addition, state and metropolitan transportation politics may make 
some organizations, such as state DOTs, large units of local government 
such as cities and counties, or large transit agencies more influential 
in planning and project selection than others. This uneven influence 
may mean that a project's priority can be determined by which agency 
sponsors the project. Our site visits also suggest that the relative 
influence of decision-makers varies across locations. For example, 
officials in Chicago described the Illinois DOT as having strong 
influence on metropolitan planning. Furthermore, a recent study 
indicated that federal and state agency decisions can be very important 
in determining the scope and composition of key decisions in the 
Chicago area. By contrast, officials in Los Angeles and San Francisco 
described local planning agencies, especially county-level Congestion 
Management Agencies, as most influential.

Finally, state decisions to distribute funds across the state may shape 
investment decisions. For example, California state law requires that 
75 percent of State Transportation Improvement Program funds be 
directly allocated to counties, who work through the county Congestion 
Management Agencies. However, according to CALTRANS officials, the 
total funding allocated to the counties is first divided between the 
counties of northern and southern California, with the 13 southern 
counties receiving 60 percent of the funds and the balance of 
California counties receiving 40 percent of the funds. Thus, while 
modal choices are primarily made at the regional or county level, the 
choices are constrained by state funding splits, according to CALTRANS 
officials.

Investments to Preserve Existing Infrastructure Are a Priority:

Due to infrastructure and space concerns, and time lags associated with 
new construction projects, state and regional transportation decision-
makers are increasingly giving priority to highway investments that 
preserve, enhance, and maintain the existing infrastructure over 
investments in new construction. According to FHWA data, of the $64.6 
billion spent nationally in 2000 on highway capital improvements, 52 
percent ($33.6 billion) of all funds were spent on system preservation, 
40 percent ($25.9 billion) on new roads and expansion of existing 
roads, and 8 percent ($5.1 billion) on the installation of system 
enhancements, such as safety enhancements.[Footnote 45] The amount 
spent on system preservation rose from 45 percent of capital 
improvements nationally in 1993 to 52 percent in 2000.[Footnote 46] In 
addition to the money spent on system preservation, all levels of 
government spent $24.2 billion on routine maintenance in 2000.

In our site visits, we found that system preservation and operations 
and maintenance activities were high priorities for local 
transportation officials. For example, in Chicago, planners told us 
that in the space-constrained Chicago area, the primary strategy has 
been to periodically rebuild existing infrastructure rather than build 
new infrastructure. In California, both the Southern California 
Association of Governments (SCAG) and the Metropolitan Transportation 
Commission in Northern California spend approximately 80 percent of 
their regional budgets on maintenance and operations. SCAG officials 
pointed out that regions such as Los Angeles and San Francisco tend to 
focus less on capital improvements due to capacity and infrastructure 
limitations. Some situations offer few alternatives for expansion from 
the onset. Infrastructure that is old and inadequate, such as 
underpasses or tunnels with insufficient clearance, often has limited 
expansion potential.[Footnote 47] Further complicating new 
construction is the limited supply of available land. Densely populated 
urban areas, where space is at a premium, offer few alternatives for 
expansion due to geographic constraints on the surrounding 
development.[Footnote 48] In addition, land-use planning and zoning 
issues can be highly contested in a space constrained real estate 
market. Capacity constraints and costs of new construction are forcing 
decision-makers to look at alternate solutions and place a premium on 
maintaining and improving the existing transportation system.[Footnote 
49]

System preservation and maintenance and operations improvements are 
also preferred because they offer quicker remedies than new capital 
projects, which can take almost 20 years to plan and build. A key 
reason for the length of time to complete projects is the set of 
federal and state requirements, which include clean air, water quality, 
historical preservation, New Starts reporting, and public input 
requirements that were discussed earlier.[Footnote 50] However, the 
length of time for project development is also influenced by the 
diffusion of authority over transportation decisions and the resulting 
complexity of the decision-making process. Changes in local priorities, 
lack of local matching funds, and locally driven changes in project 
scope are often associated with project longevity. Requirements for 
benefit-cost and other economic analyses could extend the length of 
time for project development. One local planning official noted that 
the long lag time for new projects acts as a disincentive for planners 
and officials when considering capacity expansion projects. 
Transportation decision-makers operate in an environment where they 
must consider preexisting factors and needs when making transportation 
investment decisions.

Planning for Longer Transportation Corridors Presents Additional 
Challenges and Opportunities:

Finally, corridors that extend across multiple state and local 
boundaries pose challenges for intermodal transportation decision-
making due to coordination and cross-jurisdictional issues. A majority 
of investment decisions are made at the state and local levels, with 
local planners tending to focus on local and regional planning needs, 
as opposed to larger corridor needs. Getting the cooperation of and 
coordinating with multiple agencies, communities, and transportation 
modes--each with its own priorities--makes the planning and 
implementation of multistate and multiregion projects 
difficult.[Footnote 51] Further complicating this type of planning is 
the variety of approaches used by the local and regional agencies in 
analyzing projects. The type of transportation modeling used in one 
location may not be available or used in another.

Particularly problematic are interstate corridors that do not provide 
clear-cut benefits for all states that the proposed corridor crosses, 
but require that the costs be borne by all states involved. Although 
state DOTs work to address freight mobility challenges on a statewide 
basis, many corridors cross state boundaries; and unless states are 
part of a multistate coalition, states may not address projects that 
involve multijurisdictional corridors.[Footnote 52] For example, an 
Illinois transportation official explained that developing high-speed 
rail service to the east of Illinois is contingent on whether other 
states will share the costs. To date, only one other state has been 
willing to contribute. Similarly, freight infrastructure needs may 
involve projects along a freight corridor that cuts across the 
jurisdictions of several transportation-planning agencies and, in some 
cases, states.

For the most part, planning for longer multistate corridors is 
conducted by ad hoc state coalitions. In the past, the impetus for 
creating such multistate coalitions has come from state departments of 
transportation, and the federal government's role in making these 
interstate decisions is limited. Generally these ad hoc groups do not 
receive federal funding. However two groups, the Interstate 95 Corridor 
Coalition and the Chicago-Gary-Milwaukee Coalition, did receive funding 
in TEA-21. The Interstate 95 Corridor Coalition, which runs from Maine 
to Florida, was initially created to examine ITS systems along the 
corridor but has now widened its focus to include intermodal issues. 
The coalition developed a railroad operations study for the region, 
which identified deteriorating transportation system performance in the 
mid-Atlantic region, noted that all modes of transportation needed to 
be improved to deal with the situation, and suggested that railroads 
could play a larger role in meeting the region's transportation 
needs.[Footnote 53] Studies such as this one illustrate the 
opportunities for these multistate coalitions to analyze problems in a 
larger corridor.

Other such state groupings exist. For example, state DOTs along 
Interstate 10 have organized an I-10 partnership to conduct research on 
managing freight movement along the corridor running from California to 
Florida. The I-10 partnership group developed a transportation planning 
study based on vehicle volume, traffic flow, and alternative scenario 
testing for freight movement. Rather than focusing on one particular 
mode, the study included highways, railroads, and barges in its 
analysis of freight traffic, and explicitly attempted to be mode 
neutral. While the partnership study projected the effects of different 
possible infrastructure improvements along the corridor, individual 
states are ultimately responsible for deciding whether to implement the 
study's findings.

In contrast to these multistate groupings, planning for intrastate 
projects fits more easily into the framework of state planning. For 
example, in the case of passenger rail corridor development in 
California, intrastate passenger rail is funded primarily by the state 
DOT and the localities and operated by state and local joint powers 
authorities. In some cases, Amtrak serves as the operator for these 
state-supported routes. Some of these routes are Amtrak's most heavily 
traveled outside the Northeast Corridor, including the Capitol Route in 
Northern California, the San Joaquin Route in Central California, and 
the Pacific Surfliner Route in Southern California. Planning for 
proposed routes, such as high-speed and passenger railroad, is 
facilitated when the route remains within a single state because such 
projects fit readily into the existing state planning framework. 
However, many of the corridors that would benefit from such projects 
involve more than one state.

Concluding Observations:

ISTEA and TEA-21 both articulated a goal of moving from a traditional 
focus on single transportation modes to a more efficient, integrated 
system that draws upon each mode to enhance passenger and freight 
mobility. These key pieces of legislation also provided MPOs and states 
discretion in selecting projects to address local needs and conditions. 
In exchange, MPOs and states are expected to follow federal planning 
and program requirements to reflect the national public interest in 
their decisions. The approach for investment planning and decision-
making that emerged from ISTEA and TEA-21 provides guidance on a 
systematic process for making transportation investment choices and a 
host of factors to consider, while generally allowing MPOs and states 
considerable discretion in choosing the analytical methods and tools 
that will be used to evaluate and select projects.

Our work has shown that while much analysis is done by states and MPOs, 
the results of those analyses do not appear to play a decisive role in 
many investment decisions, except to rule out the most problematic 
projects. Instead, other factors play a major role in shaping 
investment choices, including the federal government's funding 
structure that provides incentives for investing in highway or transit 
projects rather than railroad infrastructure or intermodal projects, 
public or political support for certain projects, and the practical 
realities of simply preserving the existing infrastructure. In 
addition, the data and other limitations associated with using 
analytical tools, such as benefit-cost analysis, may discourage their 
use by decision-makers. DOT, TRB, and other major transportation 
organizations are doing research to improve analytical tools and 
methods and to help states and MPOs use them to better evaluate 
investment alternatives. In a prior report, we also encouraged the use 
of benefit-cost analysis in freight transportation decision-making and 
recommended that DOT facilitate the collection of freight data that 
would allow state and local planners to develop better methods for 
evaluating investments. It is possible that overcoming the challenges 
of using analytical tools would make them more attractive to decision-
makers, thus leading to improved investment decision-making.

Agency Comments and Our Evaluation:

We provided copies of this report to the Department of Transportation 
for its review and comment. The department generally agreed with the 
report's content and said that the report provided a useful overview of 
the literature and practice involving transportation investment 
decisions. The department also provided technical comments, which we 
incorporated into this report as appropriate.

As arranged with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after the date of this letter. At that time, we will send copies of 
this report to congressional committees with responsibilities for 
surface transportation programs; DOT officials, including the Secretary 
of Transportation and the administrators of FHWA, Federal Railroad 
Administration, and FTA; and the President of Amtrak. We will make 
copies available to others on request. This report will also be 
available on our home page at no charge at http://www.gao.gov.

If you have any questions about this report, please contact me at 
siggerudk@gao.gov or by telephone at (202) 512-2834. GAO contacts and 
acknowledgments are listed in appendix IV.

Sincerely Yours,

Signed by:

Katherine Siggerud: 
Director: 
Physical Infrastructure Issues:

[End of section]

Appendix I: Scope and Methodology:

Our scope of work included reviewing the processes that decision-makers 
at all levels of government use to analyze and select surface 
transportation infrastructure investments. Our overall approach was to 
review and synthesize federal requirements, Department of 
Transportation (DOT) guidance, and the economics literature and 
transportation planning studies; interview federal transportation 
officials, national association representatives, and transportation 
experts to obtain their perspectives; and conduct site visits in three 
major metropolitan regions to understand how investment decisions are 
actually made in those regions.

To identify the key federal requirements for planning and 
transportation infrastructure decision-making, we reviewed federal 
laws and regulations relating to the metropolitan and state planning 
and funding process, as well as federal guidance provided by the 
Federal Highway Administration (FHWA) and Federal Transit 
Administration (FTA) to states and Metropolitan Planning Organizations 
(MPO) on the transportation planning process. We interviewed 
transportation officials in the following U.S. DOT offices: Federal 
Railroad Administration, FHWA, FTA, and the Office of Intermodalism. We 
also interviewed national stakeholders including Amtrak, the 
Association of American Railroads, the Association of Metropolitan 
Planning Organizations, the American Public Transportation 
Association, and the American Association of State Highway and 
Transportation Officials. To get regional perspectives on the federal 
requirements and guidance for transportation planning, we interviewed 
state and regional transportation officials in California and Illinois.

To identify how benefit-cost analysis facilitates sound transportation 
investment decisions, we reviewed the economics literature, academic 
research, and transportation planning studies containing evaluations of 
various economic analytical tools, with an emphasis on benefit-cost 
analysis. A GAO economist read and reviewed these studies, which we 
identified by searching economics literature databases and consulting 
with researchers in the field, and found their methodology and economic 
reasoning to be sound and sufficiently reliable for our purposes. We 
interviewed researchers and consultants from the National Research 
Council's Transportation Research Board (TRB), DOT, university research 
centers, national transportation organizations, and selected state DOTs 
to get their perspective on these analytical tools, the general 
applicability of benefit-cost analysis, and the feasibility of cross-
modal comparisons. In addition, we reviewed our previous studies that 
had key findings relating to the use of analytical tools in investment 
decision-making and consulted with our Chief Economist regarding the 
value of benefit-cost analysis and its challenges.

To identify other factors transportation decision-makers consider in 
evaluating and deciding on investments, we interviewed federal 
transportation officials and the other national stakeholders identified 
above. We interviewed transportation researchers from the TRB and, 
based on their input and that of federal transportation officials, 
interviewed additional researchers from university research centers--
and other think tanks--as well as representatives from civic and 
private sector organizations who are knowledgeable about transportation 
investment issues. We also conducted site visits in three major 
metropolitan regions: Chicago, IL; Los Angeles, CA; and San Francisco, 
CA. These sites are major centers of passenger and freight traffic and 
contain a wide variety of planning agencies, transportation issues, and 
modes. During our site visits, we conducted semistructured interviews 
with officials from state, regional and local transportation planning 
agencies, including state departments of transportation, MPOs, city or 
county transportation planning agencies, and organizations involved in 
railroad investment issues. From these interviews, we obtained 
information on each region's planning and decision-making processes, 
the factors that drove decision-making in that region, the extent to 
which analytical tools were used, and other issues affecting the 
planning and decision-making processes. In addition, we also analyzed 
planning documents and analytical tools used by these regional 
decision-makers. The information collected and analyzed from our site 
visits was intended to illustrate how investment decisions were made in 
those areas.

To ensure the reliability of information presented in this report, we 
relied to a large extent on studies from the economics and 
transportation literature that were reviewed by peers prior to 
publication. A GAO economist reviewed these studies and found them 
methodologically sound. We also corroborated much of the testimonial 
information provided during our three site visits by obtaining 
documentation of investment decision-making processes and results, 
although we did not test the reliability of specific data contained in 
reports prepared by officials from those three sites. Additionally, we 
obtained statistics presented in the introduction of this report about 
passenger and freight travel growth from DOT; because this information 
is included as background only, we did not assess its reliability. We 
conducted our work from September 2003 through June 2004 in accordance 
with generally accepted government accounting standards.

[End of section]

Appendix II: Summary of Three Types of Economic Analyses for Comparing 
Investment Alternatives:

While benefit-cost analysis aims to monetize and compare all direct 
benefits and costs to identify the alternative that results in the 
greatest net social benefit, other types of analysis consider different 
types of impacts to yield different criteria for comparison. Two common 
types of analysis are economic impact analysis and cost-effectiveness 
analysis. Figure 2 illustrates the differences between benefit-cost 
analysis, economic impact analysis and life-cycle cost analysis, a 
special case of cost effectiveness analysis.

Figure 2: Figure 2. Comparison of Three Types of Economic Analyses:

[See PDF for image]

[End of figure]

Economic impact analysis assesses how some direct benefits and costs of 
investment alternatives convert to indirect effects on the local, 
regional, or national economy or on a particular sector of the 
economy.[Footnote 54] Examples of indirect impacts are changes in wages 
and employment, purchases of goods and services, land use, and changes 
in property values. These impacts result from increased or decreased 
levels of economic activity caused by the investment and can accrue 
within or outside of the immediate area of the investment. Economic 
impact analysis often includes a number of factors other than those 
that meet the stricter criteria for inclusion in a benefit-cost 
analysis. As a result, advocates or opponents of a project can use this 
type of analysis to illustrate implications of an investment other than 
the estimated net social benefit.

However, economic impact analysis is not an appropriate technique for 
identifying which alternative provides society with the greatest net 
benefit because often the values of benefits to society are counted 
twice in different forms in this analysis. Guidance from both TRB and 
FHWA states that the net direct user benefits included in benefit-cost 
analysis have the same monetary value as the net indirect benefits and 
caution that the two are not additive when analyzing an investment for 
economic efficiency. In other words, indirect impacts are not included 
in benefit-cost analysis because economists generally agree that they 
are market transformations of direct benefits. Thus, while economic 
impact analysis can provide interesting information for policy makers 
regarding the effects of potential investments on the local, regional, 
or national economy as well as on specific industries, researchers 
state that economic impact analysis can be considered complementary to, 
but different from benefit-cost analysis.

Cost-effectiveness analysis is similar to, but less comprehensive than, 
benefit-cost analysis. This type of analysis attempts to systematically 
quantify the costs of alternatives. However, cost-effectiveness 
analysis does not attempt to quantify the benefits of alternatives. 
Rather, it assumes that each alternative results in achieving the same 
stream of benefits. Thus, cost-effectiveness analysis identifies the 
lowest cost option for achieving a given level of benefits rather than 
identification of the alternative that achieves the greatest benefit 
per dollar of cost to society.

Life-cycle cost analysis, essentially a subset of benefit-cost 
analysis, is a specific example of cost-effectiveness analysis. Life-
cycle cost analysis involves several of the same steps included in 
benefit-cost analysis, but excludes any assessment of benefits because 
each of the alternatives compared is expected to result in the same 
level of benefits. The key elements of life-cycle cost analysis are 
identifying alternatives, defining a time frame for analysis, 
identifying and quantifying the costs of each alternative, discounting 
costs to present values, assessing the sensitivity of the analysis to 
changes in assumptions, and identifying the alternative that results in 
the lowest cost over the life-cycle of the project. When identifying 
and quantifying the costs of each alternative for transportation 
projects, best practices indicate that analysts should consider 
construction, rehabilitation, and maintenance costs as well as costs to 
users associated with work zones during construction and 
maintenance.[Footnote 55] Like benefit-cost analysis, these user costs 
include travel time costs, costs associated with crashes, and vehicle 
operating costs.

[End of section]

Appendix III: Overview of Benefit-Cost Analysis:

From our review of research and best practices on transportation 
investment analysis, we identified 10 elements integral to sound 
benefit-cost analysis. Analysts include these steps to ensure a 
thorough evaluation of the social benefits and costs of investment 
alternatives and to systematically assess the trade-offs between 
investment alternatives. Using benefit-cost analysis, as described 
below, analysts determine the project that will result in the greatest 
benefit to society for a given level of cost.

Analysts first should identify the project objectives to ensure a clear 
understanding of the desired outcome and to aid in determining 
appropriate alternative projects to be considered. Reports from TRB and 
FHWA identify several possible surface transportation project 
objectives including addressing an existing congestion problem, 
investing to accommodate expected future demand, generating economic 
development, improving safety in an area, or increasing mobility for 
disadvantaged citizens. Identifying the intended outcome at the outset 
leads to analysis focused on alternative projects that can achieve the 
stated objectives. For example, if the primary objective were to ease 
congestion, adding a highway lane or new transit option might be 
reasonable alternatives to consider; however, if the objective were to 
improve safety in an area, perhaps other alternatives would be more 
appropriate. Federal Aviation Administration (FAA) guidance on benefit-
cost analysis cautions that the analyst should be careful not to 
identify the objective in a way that prejudges the alternatives for 
achieving the objective. For example, an objective stated as 
construction to address an existing congestion problem ignores the 
possibility of nonbuild alternatives that might improve the use of the 
existing system.

Establishing a realistic base case provides a reference point against 
which the incremental benefits and costs of alternatives will be 
measured. According to FAA guidance, the base case is the best course 
of action that would be pursued in the absence of a major initiative to 
meet the investment objectives identified.[Footnote 56] In other words, 
the base case should represent existing infrastructure, including 
improvements that are already planned, as well as on-going maintenance. 
FHWA guidance states that the base case should be realistically defined 
including, for example, allowances for changes in traffic patterns with 
congestion. Failure to allow for such changes in the base case can lead 
to overly pessimistic assessments of the base case in comparison to 
alternatives.

Given the project objectives and the base case, analysts should 
identify the investment alternatives capable of achieving the stated 
objectives to define the scope of the analysis. In generating the list 
of possible alternatives, analysts should consider options across 
different transportation modes. For example, alternatives for a 
congested metropolitan route could include adding a lane to the 
existing highway, providing new or better bus service, or building a 
light rail line. Moreover, passenger alternatives for a congested 
intercity corridor could include high-speed rail, new or expanded air 
travel, or a new or expanded highway. In addition to evaluating 
multiple modes, low-cost noncapital intensive alternatives should be 
considered. These alternatives include Intelligent Transportation 
Systems (ITS) and demand management approaches. ITS solutions are 
designed to enhance the safety, efficiency, and effectiveness of the 
transportation network and are relatively low-cost options for 
maximizing the capacity of the existing infrastructure.[Footnote 57] 
ITS solutions include coordinating traffic signals to improve traffic 
flow, improving emergency management responses to crashes, and using 
electronic driver alert boards to notify drivers of congested routes. 
Similarly, demand management alternatives can relieve congestion 
without major infrastructure investments. Demand management 
alternatives are ways of reducing the number of vehicles traveling on a 
congested route during the most congested times or peak periods. Demand 
management alternatives encourage drivers to drive during less 
congested times, or on less congested routes, or to ride together in 
carpools or vanpools. Charging single occupancy vehicles a toll during 
congested times on congested routes, providing free or discounted 
convenient parking for persons riding in carpools or vanpools, and 
subsidizing transit usage are possible demand management 
alternatives.[Footnote 58] Finally, both passenger and freight options 
for addressing congestion should be considered. Our past work on 
freight transportation shows that truck use significantly affects 
highway congestion. For example, officials at the Ports of Los Angeles 
and Long Beach estimate that truck traffic accounts for about 30 to 60 
percent of the total traffic on two particularly congested major 
highways, which serve as connectors to the two ports.[Footnote 59] 
Moreover, independent studies report that shifting greater amounts of 
freight from highways to rail could relieve highway 
congestion.[Footnote 60]

Following the identification of alternative projects, analysts should 
list the relevant impacts of each alternative to ensure that all 
aspects of a project are considered in the analysis. As previously 
stated, benefit-cost analysis considers all direct user impacts and 
externalities, but it does not consider indirect impacts because these 
are transfers of direct impacts and their inclusion would constitute 
double counting. Transportation economics research and government 
agency guidance we reviewed identified the following list of direct 
user impacts that should be considered for transportation investment 
decisions: construction, operations and maintenance costs; travel time 
savings and construction travel time cost; vehicle operating costs; 
safety improvements; and environmental impacts, such as noise pollution 
and air pollution. Tolls, fares, or any other user fees should not be 
included as impacts of the projects, because these are payments made by 
consumers to receive the benefits already counted in the list above.

After identifying the user impacts for each alternative, the analyst 
must define a single time frame or life cycle for all alternatives over 
which the benefits and costs will be compared. This element of the 
analysis is necessary for equal comparison of projects with differing 
expected future streams of benefits and costs from current investment. 
Typically, a region constructing major infrastructure investments 
incurs a majority of the costs of the project within the first years of 
the life cycle and reaps the majority of the benefits later in the life 
cycle of the project; therefore, the analyst should choose a time frame 
that allows for the measurement of benefits and costs expected to 
materialize throughout the useful life of the investment.

The impacts of each alternative should be quantified and monetized as 
benefits and costs to the greatest extent possible to enable the 
analyst to compare the value of each project to the alternatives. In 
addition to compiling the obviously quantitative impacts, like 
construction and operations costs, the analyst must quantify other 
identified impacts of alternatives, like emissions reduction. The 
analyst must then convert those values to dollars so the impacts are 
expressed in common units. Forecasting tools and benefit-cost analysis 
models facilitate the process of quantifying and monetizing benefits 
and costs. Forecasting tools predict future behavior of system users, 
like travel demand and ridership, for the investment alternatives. 
Values from the forecasts are used as inputs into a larger model that 
quantifies and monetizes direct user impacts and quantifiable 
externalities. Therefore, the accuracy of the forecasts directly 
affects the accuracy of the analysis. Several widely accessible models 
of highly varying complexities measure and quantify predicted benefits 
and costs.[Footnote 61] These models rely on some assumptions, but also 
require users to enter location and project specific data to generate 
estimates, which are used to assess the overall net benefit of 
alternatives. Therefore, the outcome of the analysis depends, in part, 
on the quality of the model used for calculations of benefits and 
costs.

After monetizing the direct user benefits and costs, the analyst 
converts all values to present dollar values to allow an accurate 
comparison of projects with different levels of future benefits and 
costs. The dollar values of the benefits and costs of each alternative 
cannot simply be summed over the life of the project to calculate the 
total. Benefits and costs incurred in the future have lower values than 
those incurred in the present because, in the case of benefits, the 
benefits cannot be enjoyed now and, in the case of costs, the resources 
do not need to be expended now. In other words, benefits and costs are 
worth more if they are experienced sooner because of the time value of 
money. Therefore, analysts must convert future values into their 
present equivalents to compare benefits and costs expected in the 
future with benefits and costs incurred in the present. This conversion 
requires the use of a discount rate, which represents the interest rate 
that could be earned on alternative uses of the resources. Researchers 
explain that the discount rate can have a strong influence on the 
outcome of the analysis and note that higher discount rates tend to 
favor short-term projects and lower rates favor long-term projects. 
Thus, analysts should use care in choosing a discount rate that will 
not bias the outcome of the analysis and will accurately account for 
the benefits and costs expected in the future. Office of Management and 
Budget (OMB) provides guidance on choosing appropriate discount rates 
for different types of investments.[Footnote 62]

After all benefits and costs have been discounted to present values, 
the analyst should evaluate the benefits and costs of each project 
using a common measure to allow for comparison across different 
alternatives. Net present value and benefit-cost ratio are two useful 
measures for project comparison. Net present value is the discounted 
sum of all benefits less the discounted sum of all costs associated 
with an alternative and is generally the preferred measure. If the net 
present value is positive, then the project is economically efficient 
in that the gainers from the project could potentially compensate those 
who incur costs and still benefit from the project. That is, the 
benefits throughout the life cycle of the project exceed the costs 
incurred in the same time frame. A benefit-cost ratio is the discounted 
sum of benefits divided by the discounted sum of costs. If the benefit-
cost ratio is greater than one, benefits outweigh costs and the project 
is economically efficient. In essence, the benefit-cost ratio indicates 
whether $1 invested in one project earns a higher rate of return than 
$1 invested in a different project. Researchers and government agency 
guidance caution analysts to assign costs and benefits consistently 
when calculating benefit-cost ratios because inconsistency can result 
in incorrect comparisons between alternatives. For example, if 
maintenance costs are included in the cost component, the denominator 
of the fraction, for one project, but are netted out of the benefits, 
the numerator of the fraction, for a different project, the two 
benefit-cost ratios will not be comparable.

Due to the inherent uncertainty in calculating the inputs to benefit-
cost analysis, a critical element of investment analysis is assessing 
the sensitivity of the analysis to changes in the assumptions and 
forecasts. In addition, uncertainty can also affect the economically 
suggested choice of the project resulting in the greatest net benefit 
to society. Several methods, which vary in their complexity, exist for 
conducting sensitivity analysis including simple sensitivity analysis 
and Monte Carlo simulation. Simple sensitivity analysis involves 
recalculating the net present values or benefit-cost ratios after 
adjusting uncertain inputs to reflect alternative values, as well as 
the expected value typically used in the original analysis. Using this 
approach, the analyst can determine whether or not the alternative 
would still be economically efficient if the actual values were 
different from their predicted values. For example, transportation 
researchers widely accept that ridership forecasts for transit projects 
can be very uncertain. An analyst using simple sensitivity analysis can 
determine if the net present value of a transit alternative would still 
be positive even, if ridership in the future were lower than predicted.

Monte Carlo simulation or probabilistic-based risk assessment is a more 
comprehensive and preferred approach to sensitivity analysis. With 
Monte Carlo simulation, the analyst assesses the probability 
distribution of each uncertain input and recalculates the benefit-cost 
analysis multiple times while drawing values that fall within the 
probability distribution for each of the uncertain inputs. The results 
are examined in the context of their probability distribution covering 
all potential outcomes of the analysis as well as reporting the average 
or other values. This approach allows the analyst to judge alternatives 
not only on their average net present value, given multiple possible 
input value combinations, but also on the likelihood that the project 
will achieve outcomes such as a positive net present value.

Real options analysis incorporates uncertainty directly into benefit-
cost valuation. It acknowledges and internalizes both the cost of 
making irreversible investments under uncertain conditions and the 
value of option-creating actions.[Footnote 63] This type of analysis 
incorporates timing of the decision as a factor rather than assuming 
investments are now or never decisions that cannot be delayed. In 
addition, real options analysis recognizes that a cost is associated 
with making decisions when the information that decision-makers use as 
a basis for the decision is uncertain and may change in the future. The 
analysis attempts to quantify the inherent opportunity cost of making 
an investment decision. In other words, real options analysis accounts 
for the lost opportunity to make a different decision at a later time 
when more or better information is available. For an investment to be 
advisable under real options analysis, the net present value of the 
investment must exceed the value of keeping the investment option alive 
until more certain information is available.

While the real options approach is becoming more common in private 
sector investment decision-making, research suggests that this approach 
is not widely used in the public sector. Researchers have highlighted 
several ways that public sector transportation investment decision-
makers could use real options analysis. First, decision-makers can use 
incremental planning and staged implementation of phases of projects to 
maintain the option to defer a decision and wait for new information or 
to terminate a partially-completed project if new information reveals 
that the investment is no longer beneficial to society. Decision-makers 
can also actively create flexible options by taking steps like 
acquiring a right-of-way but not building until more is known about the 
potential project, including demand conditions, potential costs, and 
expected benefits of alternatives. Finally, planners can use options to 
take incremental actions that increase learning. One study uses the 
case of San Diego's conversion of a high-occupancy vehicle (HOV) lane 
to a high-occupancy toll (HOT) lane as an example of taking incremental 
action that increases learning. By using existing infrastructure and 
adding a pricing component, decision-makers tested users' reactions to 
optional congestion pricing before implementing a congestion-pricing 
model that would affect all drivers.

Finally, after the analysis has been completed and the results have 
been checked for sensitivity to uncertain inputs, analysts should use 
the results of the analysis to compare alternatives and identify the 
project that results in the greatest estimated net social benefit. As 
stated above, any project that has a positive net present value or 
benefit-cost ratio greater than one is expected to provide net benefits 
to society. However, transportation decision-makers have budget 
constraints and typically cannot implement all projects resulting in 
net benefits. Rather, they must rank alternatives and identify the best 
project that can be implemented given the budget constraint. In 
general, projects with higher net present values or benefit-cost ratios 
should be chosen over projects with lower net present values or 
benefit-cost ratios. If projects are not mutually exclusive, then a 
combination of projects, the total cost of which does not exceed the 
budget constraint, might lead to the greatest net social benefit. In 
this case, the decision-maker should examine all feasible combinations 
of projects, sum the net present values for each combination, and 
identify the combination that yields the highest total net present 
value. In addition, according to Executive Order 12893, OMB guidance, 
and our past research, in the likely event that not all benefits and 
costs could be quantified and monetized when developing the benefit-
cost analysis, the decision-maker should consider the nonquantifiable 
factors in addition to the numeric results of the analysis when 
evaluating alternatives.

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Katherine Siggerud, (202) 512-2834 Rita Grieco, (202) 512-9047:

Acknowledgments:

In addition to those named above, Christine Bonham, Jay Cherlow, Robert 
Ciszewski, Lindy Coe-Juell, Sarah Eckenrod, Colin Fallon, Scott Farrow, 
Peter Guerrero, Libby Halperin, Hiroshi Ishikawa, Sara Ann Moessbauer, 
Stacey Thompson, and Dorothy Yee made key contributions to this report.

FOOTNOTES

[1] In this report, we specifically included highways, mass transit 
systems, intercity passenger railroads, commuter railroads, and freight 
railroads in our definition of surface transportation modes. 

[2] State and local governments provide an even greater share of the 
funding for surface transportation investments than the federal 
government. For example, in fiscal year 1999, state and local 
governments contributed 75 percent of the total public sector spending 
for public roads and 85 percent of total public spending for transit 
systems.

[3] MPOs are regional transportation policy bodies made up of 
representatives from various governmental and other organizations. The 
Federal Highway Act of 1970 required the development of such agencies 
in areas with populations of 50,000 or greater to carry out cooperative 
planning at the metropolitan level. These organizations were created to 
ensure that federal funds would be spent through a transportation 
planning process that was based on continuing, comprehensive, and 
cooperative planning. 

[4] To be financially constrained, state and MPO short-range programs 
must include a financial plan that demonstrates which projects can be 
implemented using existing revenue sources and which projects are to be 
implemented using projected revenue sources.

[5] Intelligent Transportation Systems are technology-based systems 
intended to improve the safety, efficiency, and effectiveness of 
transportation facilities. 

[6] A portion of the Surface Transportation Program funds is allocated 
directly to Transportation Management Areas, which are urbanized areas 
over 200,000 in population.

[7] Flexible funding is primarily available in FHWA's National Highway 
System, Surface Transportation Program, Congestion Mitigation and Air 
Quality Improvement Program, and for FTA's Urban Formula Funds.

[8] Transportation facilities refers to all of the fixed physical 
assets of a transportation system, such as roads, train stations, bus 
terminals, bridges, and bike paths.

[9] 23 U.S.C. 134 (metropolitan planning); 23 U.S.C. 135 (statewide 
planning); 23 C.F.R. 450 (planning assistance and standards).

[10] California state law requires that 75 percent of state 
transportation funds be allocated directly to counties under the 
Regional Transportation Program, with the remaining 25 percent 
allocated to the state transportation planning agency for its 
interregional transportation program. Counties within the MPO region do 
the actual project planning. 

[11] See Federal Highway Administration and Federal Transit 
Administration, The Metropolitan Planning Process: Key Issues, 
(Washington, D.C.: November 2001).

[12] The Civil Rights Act of 1964: 42 U.S.C. 2000(d). 

[13] See 40 C.F.R. 1502.23 dealing with Environmental Impact Statements 
and Cost-Benefit Analysis.

[14] The Clean Air Act of 1990 and Title 23 of the U. S. Code both 
require that transportation and air quality planning be integrated in 
areas designated by EPA as air quality nonattainment or maintenance 
areas. Nonattainment areas are geographic areas that do not meet the 
federal air quality standards, and maintenance areas are areas that 
formerly violated but currently meet the federal air quality standards. 

[15] FTA proposes New Starts projects to the Congress for funding on an 
annual basis, based on an evaluation of their technical merits, 
including mobility improvements and cost effectiveness, and the 
stability of the local financial commitment.

[16] Transportation Research Board, Guidance on Using Existing Economic 
Analysis Tools for Evaluating Transportation Investments, prepared for 
the National Cooperative Highway Research Program, NCHRP 2-19 (2) 
(Washington, D.C.: October 1999).

[17] Executive Order 12893, Principles for Federal Infrastructure 
Investments (Washington, D.C.: Jan. 26, 1994).

[18] See Office of Management and Budget, Capital Programming Guide, 
Supplement to Office of Management and Budget Circular A-11, Part 3: 
Planning, Budgeting and Acquisition of Capital Assets (Washington, 
D.C.: July 1997).

[19] For example, see FHWA Toolbox for Regional Policy Analysis, FHWA 
Economic Analysis Primer.

[20] See U.S. General Accounting Office, Freight Transportation: 
Strategies Needed to Address Planning and Financing Limitations, 
GAO-04-165 (Washington, D.C.: Dec. 19, 2003).

[21] See U.S. General Accounting Office, Consumer Product Safety 
Commission: Better Data Needed to Help Identify and Analyze Potential 
Hazards, GAO-HEHS-97-147 (Washington, D.C.: Sept. 29, 1997).

[22] Chicago's rail system is the nation's largest freight hub, and the 
region also handles 73 million railroad passenger trips annually. Major 
bottlenecks have developed as a result of the region's need to move 
1,200 trains each day.

[23] Analysts could address these distributional problems within benefit-
cost analysis by mathematically weighting the benefits and costs to a 
disadvantaged group differently than the benefits and costs to other 
segments of the population. However, in practice, it is very difficult 
to determine appropriate weights and equitably assign them to different 
population groups.

[24] GAO-HEHS-97-147. 

[25] Transportation Research Board, Assessing the Social and Economic 
Effects of Transportation Projects, NCHRP B25-19 (Washington, D.C.: 
February 2001). 

[26] For additional discussion on this topic, see OMB, Economic 
Analysis of Federal Regulations Under Executive Order 12866 
(Washington, D.C.: Jan. 11, 1996).

[27] Hof, John G. and Douglas B. Rideout, "Limitations of the With and 
Without Principle in Benefit-Cost Analysis," Public Finance Quarterly 
(17, 2) April 1989, pp. 216-226; and Cohn, Elchanan, "Benefit-Cost 
Analysis: A Pedagogical Note," Public Finance Review (31, 5) September 
2002, pp. 534-549.

[28] Transportation Research Board, First Report of the Transportation 
Research Board's Committee for Review of Travel Demand Modeling by the 
Metropolitan Washington Council of Governments, (Washington, D.C.: 
Sept. 8, 2003).

[29] Committee to Review EPA's Mobile Source Emissions Factor (MOBILE) 
Model, Modeling Mobile-Source Emissions, (Washington, D.C.: 2000).

[30] TRB administers both programs. State transportation departments 
that are AASHTO members have sponsored NCHRP in cooperation with FHWA 
since 1962 and make about $30 million available annually to sponsor its 
projects. FTA provides about $8 million annually and has worked with 
APTA's nonprofit education and research organization since 1992 to 
sponsor TCRP research. 

[31] For example, financial analysis and air quality conformity 
analysis might reveal concerns that would play an important role in 
some investment decisions. 

[32] Transportation Research Board, Guidance on Using Existing Economic 
Analysis Tools for Evaluating Transportation Investments, NCHRP 2-19 
(2), (Washington, D.C.: October 1999).

[33] Transportation Research Board, Assessing the Social and Economic 
Effects of Transportation Projects, NCHRP B25-19, (Washington, D.C.: 
February 2001).

[34] GAO-04-165.

[35] U.S. Department of Transportation/Bureau of Transportation 
Statistics, Transportation Statistics Annual Report 2003 (Washington, 
D.C.: October 2003).

[36] Transportation Research Board, Letter Report on the Freight 
Analysis Framework (Washington, D.C.: Feb. 9, 2004). 

[37] GAO-04-165.

[38] Bruce Katz, Robert Puentes, and Scott Bernstein, The Brookings 
Institution Series on Transportation Reform, Improving Metropolitan 
Decision Making in Transportation: Greater Funding and Devolution for 
Greater Accountability, (Washington, D.C.: October 2003).

[39] The Amtrak Reform and Accountability Act of 1997 prohibited Amtrak 
from using federal funds for operating expenses, except an amount equal 
to excess Railroad Retirement Tax Act payments, after 2002. However, 
Congress specifically appropriated funds for Amtrak to cover operating 
expenses in fiscal year 2003 (see the Consolidated Appropriations 
Resolution, 2003, P.L. 108-7).

[40] Federal programs that can support railroad-related infrastructure 
that meet eligibility requirements include the Transportation 
Infrastructure Finance and Innovation Act, Railroad Rehabilitation and 
Improvement Financing, and the Rail-Highway Grade Crossing Program.

[41] American Association of State Highway and Transportation 
Officials, Transportation: Invest in America: Freight-Rail Bottom Line 
Report (Washington, D.C.: 2002).

[42] GAO-04-165.

[43] GAO-04-165.

[44] FHWA, FTA, AASHTO, APTA, The Association of Metropolitan Planning 
Organizations, The Metropolitan Transportation Planning Process: Key 
Issues (Washington, D.C.: November 2001).

[45] Capital expenditures on highways include those for (1) system 
preservation, which includes capital improvements on existing roads and 
bridges, intended to preserve the existing infrastructure, but does not 
include routine maintenance; (2) system enhancements, which are traffic 
operations improvements, such as the installation of intelligent 
transportation systems (ITS) and environmental enhancements; and (3) 
system expansion, which includes construction of new roads and bridges, 
as well as additional lanes on roads. Noncapital expenditures are for 
maintenance and operations of highways, including functions necessary 
for day-to-day operations, such as keeping roads free of obstacles, 
performing pavement and shoulder maintenance, operating ITS, and 
performing incident management (the quick removal of incapacitated 
vehicles from the highway) to improve safety and traffic flow. 

[46] FHWA and FTA, Status of the Nation's Highways, Bridges, and 
Transit: Conditions and Performance Report, 2002 Report to Congress 
(Washington, D.C.: 2002).

[47] GAO-04-165.

[48] GAO-04-165.

[49] American Society of Civil Engineers, Statement of American Society 
of Civil Engineers Before the Banking, Housing and Urban Affairs 
Committee, U.S. Senate (Washington, D.C.: Oct. 8, 2002).

[50] U.S. General Accounting Office, Highway Infrastructure: 
Preliminary Information on the Timely Completion of Highway 
Construction Projects, GAO-02-1067T (Washington, D.C.: Sept. 19, 2002).

[51] C.F.R. 450.310 requires "planning agreements" between the state 
and MPOs, between MPOs in the same metropolitan area, and between MPOs 
and designated air quality agencies. 

[52] GAO-04-165.

[53] Cambridge Systematics Inc., Parsons Brinkerhoff Quade and Douglas, 
Inc., and the I-95 Corridor Coalition, Mid-Atlantic Rail Operations 
Study (Mid-Atlantic: April 2002).

[54] The use of the terms "direct" and "indirect" to classify types of 
benefits and costs is common in transportation economics literature but 
might not apply generally to economic analysis in other fields.

[55] See appendix III for a description of best practices for the other 
steps, as the procedures for these are consistent with their parallel 
steps in benefit-cost analysis.

[56] The base case is sometimes referred to as the "do nothing" or "no-
build" scenario; however, a more accurate name is the "do minimal" 
alternative.

[57] U.S. General Accounting Office, Surface and Maritime 
Transportation: Developing Strategies for Enhancing Mobility, 
GAO-02-775 (Washington, D.C.: Aug. 30, 2002). 

[58] GAO-02-775. 

[59] GAO-04-165. 

[60] American Association of State Highway and Transportation 
Officials, Transportation Invest in America: Freight-Rail Bottom Line 
Report (Washington, D.C.) and Brown, Thomas R. and Anthony B. Hatch, 
Rail Intermodal: On the Fast Track http://www.tomorrowsrailroads.org/
industry/railstudies.cfm. 

[61] For a listing and evaluation of some models, see National 
Cooperative Highway Research Program, Guidance on Using Existing 
Economic Analysis Tools for Evaluating Transportation Investments 
(Washington, D.C.: October 1999). 

[62] OMB, Circular A-94 Guidelines and Discount Rates for Benefit-Cost 
Analysis of Federal Programs (Washington, D.C.: 2002).

[63] Option-creating actions are steps that decision-makers can take to 
improve the information available for making a decision, including 
resolving uncertainty, enabling flexibility, and uncovering new and 
relevant information. For example, if existing levels of demand do not 
support a light rail line for a planned new highway corridor but 
planners expect that such demand might materialize in the future, an 
option-creating action would be to build the highway compatible with 
the possibility of constructing a light rail line in the median. Brand, 
Daniel, Shomik Raj Mehndiratta and Thomas E. Parody, "Options Approach 
to Risk Analysis in Transportation Planning," Transportation Research 
Record 1706, Paper No. 00-1075.

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