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entitled 'Highway and Transit Investments: Flexible Funding Supports 
State and Local Transportation Priorities and Multimodal Planning' 
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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

July 2007: 

Highway And Transit Investments: 

Flexible Funding Supports State and Local Transportation Priorities and 
Multimodal Planning: 

GAO-07-772: 

GAO Highlights: 

Highlights of GAO-07-772, a report to congressional committees 

Why GAO Did This Study: 

The Intermodal Surface Transportation Efficiency Act of 1991 introduced 
two highway programs—the Surface Transportation Program (STP) and the 
Congestion Mitigation and Air Quality Program (CMAQ)—that may be used 
on both highway and transit projects and that are referred to as 
“flexible funding” for the purposes of this report. GAO was asked to 
examine (1) the degree to which STP and CMAQ funding has been used on 
transit and how this use varies across states and urbanized areas, and 
(2) how states and urbanized areas decide which projects to fund with 
STP and CMAQ funding and what the outcomes of these decisions have 
been. 

To address these issues, GAO analyzed data on flexible funding used on 
transit projects from the Federal Transit Administration (FTA) and the 
Federal Highway Administration (FHWA) and spoke with officials in 
selected states and urbanized areas about their project-selection 
processes for flexible funding and the outcomes of these funding 
decisions. States and urbanized areas were selected based on their 
prior use of flexible funding. 

GAO is not making recommendations in this report. The Department of 
Transportation generally agreed with the report’s findings and provided 
technical clarifications, which were incorporated in the report as 
appropriate. 

What GAO Found: 

Since the 1991 creation of the two flexible funding programs this 
report examines—STP and CMAQ—$12 billion from these programs has been 
spent on transit projects, either directly through FHWA or through 
transfer to FTA. This spending on transit represents 13 percent of the 
apportionments for these programs since 1992 and 3 percent of the total 
federal-aid highway program. However, the amount of FTA funding used in 
some states has been augmented significantly by these funds; in four 
states, funds transferred from these programs to FTA made up 20 percent 
or more of total FTA expenditures. Nearly 80 percent of transferred 
funds have been used in urbanized areas with populations over one 
million, and the most common uses of these funds include purchases of 
transit vehicles such as buses and rail cars, and projects related to 
rail lines or bus lanes. 

Figure: Flexible Funding: Proportion of the Total Federal-Aid Highway 
Program and Percentages Spent on Transit and Nontransit Projects, 
Fiscal Years 1992-2006: 

[See PDF for Image] 

Source: GAO analysis of FTA and FHWA data. 

[End of figure] 

The 9 states and 12 urbanized areas in our case study review had formal 
processes for selecting projects for flexible funding. Of these, 7 
urbanized areas and 4 states selected projects for all or some of these 
funds through competitive processes in which projects for different 
transportation modes were evaluated and selected using established 
criteria and input from transportation stakeholders. States and 
urbanized areas that did not use competitions selected projects based 
on transportation priorities and plans. Regarding the outcomes of 
decisions on how to utilize flexible funding, state and local officials 
told us that the broad, multimodal eligibility of this funding program 
enhances their ability to fund their transportation priorities, 
particularly in light of the challenge of finding sufficient revenues 
to pay for transportation improvements. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-772]. 

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

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

The Proportion of Flexible Funding Used on Transit Is Small Nationwide, 
but It Has Made a Sizable Impact on Transit Programs in Some States and 
Urbanized Areas: 

States and Urbanized Areas Used a Formal Process to Select Projects 
Suited to Their Priorities and Needs, Resulting in Diverse Uses of 
Flexible Funding: 

Agency Comments: 

Appendix I: Funding Transfers Involve Multiple Stakeholders and Checks 
to Ensure Accuracy: 

Appendix II: Objectives, Scope, and Methodology: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Eligible Uses and Apportionment Guidelines for STP and CMAQ 
Funds: 

Table 2: States and Urbanized Areas Selected for Case Studies: 

Figures: 

Figure 1: Annual Flexible Funding Apportionments and Amounts 
Transferred to FTA for Use on Transit Projects, 1992-2006 (in inflation-
adjusted dollars): 

Figure 2: Flexible Funding: Proportion of the Overall Federal-Aid 
Highway Program, Percentages Spent on Transit and Nontransit Projects, 
and Percentages of Transit Projects Administered by FHWA and FTA, 1992- 
2006: 

Figure 3: Annual Flexible Funding Transfers and Average Annual 
Transfers by Act, 1992-2006 (in 2007 dollars): 

Figure 4: Proportion of Apportioned Flexible Funding Transferred to FTA 
for Transit Projects, by State, 1992-2006: 

Figure 5: Flexible Funding Transferred to FTA for Transit Projects, by 
State, 1992-2006 (in 2007 dollars): 

Figure 6: Proportion of Total FTA Funding from Flexible Funding, 1992- 
2006: 

Figure 7: Flexible Funding Transferred to FTA, by Population of Area in 
Which Funding Was Used, Fiscal Years 1992-2006: 

Figure 8: Flexible Funding Administered by FTA, by Project Type and 
Population of Area in Which Funding Was Used, 1992-2006: 

Figure 9: Steps Required to Transfer Funds from State's FHWA Account to 
Transit Agency's FTA Account: 

Abbreviations: 

Caltrans: California Department of Transportation: 
CMAQ: Congestion Mitigation and Air Quality Program: 
DOT: Department of Transportation: 
FHWA: Federal Highway Administration: 
FMIS: Fiscal Management Information System: 
FTA: Federal Transit Administration: 
ISTEA: Intermodal Surface Transportation Efficiency Act of 1991: 
MPO: metropolitan planning organization: 
PSRC: Puget Sound Regional Council: 
SAFETEA-LU: Safe, Accountable, Flexible, Efficient Transportation Act: 
A Legacy for Users: 
STIP: state transportation improvement program: 
STP: Surface Transportation Program: 
TEA-21: Transportation Equity Act for the Twenty-First Century: 
TEAM: Transportation Electronic Award Management system: 
TIP: transportation improvement program: 

United States Government Accountability Office: 
Washington, DC 20548: 

July 26, 2007: 

Congressional Committees: 

Across the country, passenger and freight traffic continues to place 
growing demands on the nation's aging highway and transit 
infrastructure, heightening the need to maintain the existing system 
and find solutions to prevent increased congestion. At a time when 
revenues at all levels of government to address these conditions are 
constrained, it is critical that state and local governments make 
efficient use of available transportation dollars. We have previously 
reported that broader and, particularly, multimodal eligibility for 
federal funding can provide states and urbanized areas with the 
latitude to address their most pressing transportation needs. The 
Intermodal Surface Transportation Efficiency Act of 1991 
(ISTEA)[Footnote 1] and subsequent reauthorization acts gave states and 
urbanized areas greater flexibility in selecting transportation 
projects to be funded with federal-aid highway formula funds, which are 
apportioned to the states annually on the basis of statutory formulas. 
The act also gave urbanized areas direct responsibility for selecting 
projects for certain funds. Several Federal Highway Administration 
(FHWA) programs introduced by ISTEA have transit eligibility, in 
particular, the Surface Transportation Program (STP) and the Congestion 
Mitigation and Air Quality (CMAQ) Program. These two programs are 
referred to here as "flexible funding" programs because of their 
eligibility for use on both highway and transit projects. When these 
FHWA funds are used for transit projects, states have the authority to 
request transfer of the funds from FHWA to the Federal Transit 
Administration (FTA), to be administered as FTA grants. This 
flexibility--including the transfer authority--also extends to certain 
FTA funds, which under certain circumstances may be transferred to FHWA 
for use on highway projects. Today, as federal funding is often tied to 
a single mode of transportation, these programs are distinctive in the 
flexibility they grant to states and urbanized areas in implementing a 
wide variety of transportation projects. 

The conference report accompanying the Safe, Accountable, Flexible, 
Efficient Transportation Act: A Legacy for Users (SAFETEA-LU)[Footnote 
2] required GAO to examine how states and urbanized areas have used the 
authority to transfer funds between FHWA and FTA. Although the transfer 
provisions apply both to highway funds transferred to FTA for use on 
transit projects and transit funds transferred to FHWA for use on 
highway projects, only a small amount of transit funds have been 
transferred for use on highway projects, according to data from 
FHWA.[Footnote 3] Additionally, while a number of federal-aid highway 
programs other than STP and CMAQ may be used on transit 
projects[Footnote 4]--either directly through FHWA or through transfer 
to FTA--the amount of funding from other programs that is spent on 
transit is small. Accordingly, we did not consider these programs in 
our analysis. To respond to our reporting requirement, we focused our 
study on STP and CMAQ funding used on transit projects and addressed 
the following questions: 

* To what degree has STP and CMAQ funding been used on transit, and how 
does this use vary across states and urbanized areas? 

* How have states and urbanized areas made decisions about what 
projects to fund with STP and CMAQ funding, and what have been the 
outcomes of these decisions? 

In response to the conference report's direction, this report also 
addresses the procedures used to transfer funding and budget authority 
from FHWA to FTA. This information is provided in appendix I. 

To answer these questions, we analyzed data from FTA and FHWA databases 
on the use of STP and CMAQ funding, which, for the purposes of this 
report, we refer to as flexible funding. We focused particularly on the 
use of flexible funding transferred from FHWA to FTA.[Footnote 5] We 
determined the data to be sufficiently reliable for the purposes of 
this report due to the presence of internal controls on the data 
systems, such as those to ensure accuracy of data and prevent data 
loss. We reviewed prior reports on state and local experiences using 
flexible funding and federal guidance and regulations related to state 
and metropolitan transportation planning and flexible funding. We also 
interviewed associations representing transportation stakeholders, 
including metropolitan planning organizations, transit providers, state 
transportation officials, transportation construction firms, and 
highway users. We selected 9 states and 12 urbanized areas within these 
states to be subjects of case studies; these areas were selected based 
on the extent to which they had previously used flexible funding on 
transit projects. We selected 5 states that had used significant 
amounts of flexible funding on transit projects in the past, and within 
these states we selected urbanized areas that accounted for a high 
proportion of the states' flexible funding used on transit. We selected 
4 other states that previously used either little or no flexible 
funding on transit, and within these states--because no urbanized areas 
had used a significant amount of flexible funding on transit--we 
selected the largest urbanized areas. Because we used a judgmental 
sampling technique to select these states and urbanized areas, the 
results are not generalizable to all states and urbanized areas. As 
part of our case-study review, we interviewed federal, state, and 
metropolitan transportation officials and reviewed relevant 
documentation on state and metropolitan transportation planning 
processes, projects financed with flexible funding, and processes for 
selecting flexible-funded projects. We interviewed FHWA and FTA staff 
in Washington, D.C., and in regional and division field offices and 
reviewed guidance from these agencies on the procedures for 
transferring flexible funding. We performed our work from May 2006 
through May 2007 in accordance with generally accepted government 
auditing standards. 

Results in Brief: 

The amount of flexible funding used on transit projects accounts for a 
relatively small proportion of the overall federal-aid highway program, 
but some states and urbanized areas have used these funds to 
significantly augment the other federal funding they use for transit. 
Since the creation of the STP and CMAQ programs with the enactment of 
ISTEA in December 1991, $12 billion of these funds have been spent on 
transit projects administered either by FTA or FHWA; this is about 13 
percent of the apportioned flexible funding and about 3 percent of the 
total amount of federal-aid highway funds apportioned to states during 
this time period. Remaining flexible funding was spent on other 
eligible purposes, such as roadway improvements. Nearly all of the 
flexible funding used on transit projects was transferred from FHWA to 
FTA at the discretion of state officials. Figure 1 shows flexible 
funding apportionments from 1992 through 2006[Footnote 6] and the 
amount of these funds transferred to FTA for transit projects. 
Individual states have varied in the extent to which they have 
transferred flexible funding to FTA for use on transit projects, with 
three states collectively accounting for more than half of the 
transferred funds and three states having transferred none. The states 
that transferred large amounts of their apportioned flexible funding 
were likely to contain large urban areas. The amount of flexible 
funding transferred to FTA for use on transit projects has been 
significant for several states, accounting for 20 percent or more of 
the overall FTA spending in four states. Nearly 80 percent of 
transferred funds have been used in urbanized areas with populations 
over 1 million, while the rest has been used in smaller urbanized or 
rural areas. FTA data show that more than half of all flexible funding 
transferred to FTA from 1992 through 2006 has been used to purchases 
vehicles--both rail cars and motor vehicles such as buses--or for 
projects related to rail lines or bus lanes. Other transit projects 
commonly funded include parking garages, passenger facilities such as 
bus stops and rail stations, and operating costs for new services. 

Figure 1: Annual Flexible Funding Apportionments and Amounts 
Transferred to FTA for Use on Transit Projects, 1992-2006 (in inflation-
adjusted dollars): 

[See PDF for image] 

Source: GAO analysis of FTA data. 

[End of figure] 

The states and urbanized areas reviewed in our case studies used a 
formal process to select projects to receive flexible funding. Of the 
urbanized areas that have decision-making authority for flexible 
funding, 7 out of 10 used a competitive process for project selection 
that considers both highway and transit projects. Although competitions 
differed somewhat from place to place, we found that most included 
elements such as: 

* a call for projects during which project sponsors submit formal 
applications, 

* a set of established criteria used to evaluate projects, and: 

* participation of transportation stakeholders--typically representing 
various transportation modes as well as jurisdictions--from throughout 
the region in evaluating and selecting projects. 

Some of the urbanized areas that used competitions had also established 
project categories to allocate funds among different modes of 
transportation, such as roadway construction, bikeway and pedestrian 
facilities, or transit capital improvements. Some urbanized areas 
selected projects and programs based on local policy goals and 
priorities, including both those related to highways and to transit. 
Regarding state processes for selecting projects, four of the states 
included in our case-study review also used a competitive process for 
at least some of their flexible funding. Other states selected projects 
for these funds through the state's transportation planning process, 
which takes into consideration transportation priorities, conditions, 
and needs throughout the state. Flexible funding transferred to FTA has 
been used to meet a variety of needs. Some urbanized areas used the 
flexible funding that they transferred to FTA to provide new or 
expanded transit services, while others used it to perform 
rehabilitation and preventive maintenance on existing services. 
Regarding the impact of flexible funding on overall state and local 
transportation programs, almost all the officials we spoke with said 
that flexibility is beneficial, particularly because it enables 
multimodal planning and makes more funding available for transit. In 
terms of the effect that using flexible funding on transit has on 
highway investments, most state and local officials who commented on 
this said that the proportion of highway funding used on transit is too 
small to have an impact on their highway programs, and the larger 
problem is that of too little funding in general for transportation. 

In addition to determining the extent to which states and urbanized 
areas have used flexible funding on transit and how transportation 
stakeholders have made decisions about the use of these funds, we also 
examined the procedures used to transfer flexible funding from FHWA to 
FTA. Funding transfers--which involve the movement between the two 
agencies of budget authority and the funds needed to reimburse 
grantees--occur at the request of state transportation departments and 
are carried out jointly by FTA and FHWA. The transfer procedures 
include checks to ensure that projects are eligible for funding and 
that the correct amounts of budget authority and funds are transferred. 
The U.S. Department of Transportation (DOT) recently implemented an 
accounting change whereby the funds necessary to reimburse grantees is 
transferred from the highway account to the mass transit account of the 
Highway Trust Fund as grantees incur costs, rather than all at once 
when the transfer is approved. According to DOT officials, this change 
is intended to slow the decline of the highway account's balance. 

We provided a draft of this report to DOT for review and comment. DOT 
generally agreed with the report's findings and provided technical 
clarifications, which we incorporated in the report as appropriate. We 
also provided the state and local officials with whom we spoke an 
opportunity to review selected portions of the draft report. These 
officials provided technical clarifications, which we incorporated in 
the report as appropriate. 

Background: 

State departments of transportation and local governments are 
responsible for building and improving highways and other road 
infrastructure in the United States. The federal-aid highway program, 
which is administered by FHWA, provides funding for this purpose from 
the highway account of the federal Highway Trust Fund. FHWA distributes 
highway funds to the states through annual apportionments established 
by statutory formulas and by allocation of discretionary grants; in 
2006, about $31 billion in federal-aid highway funding was available to 
states. Funds come through several different programs, each with 
specific uses and eligibility requirements, but states generally have 
broad discretion to choose the projects that will be funded with these 
moneys. After determining that projects meet federal requirements and 
that funds are available, FHWA enters into obligations for the projects 
selected by states.[Footnote 7] After states make expenditures on the 
projects, they apply to FHWA for reimbursement of the federal share of 
eligible costs. States supplement federal funds for highway programs-- 
and provide required matching funds--with nonfederal revenues such as 
taxes and user fees. 

Constructing, maintaining, and operating public transportation systems 
are generally the responsibilities of local agencies, such as transit 
authorities or transit operators.[Footnote 8] Federal funds for public 
transportation are generally administered by FTA and are funded through 
a combination of general fund revenues and the mass transit account of 
the Highway Trust Fund. Recipients such as transit operators and 
states[Footnote 9] are apportioned annual formula program funds that 
may be used for capital expenses and, in the case of areas with 
populations under 200,000, for operating expenses. Transit operators 
and other recipients may also receive discretionary grants for capital 
expenditures such as vehicle purchases and system construction or 
expansion. In 2006, FTA provided about $8 billion in funding to transit 
agencies and states through its formula and discretionary grant 
programs. Federal transit funds generally remain with FTA until the 
transit operator is ready to use them. Additional funding for transit 
comes from state or local taxes and operating revenue such as passenger 
fares and parking fees. 

In the early 1990s, Congress decided that a flexible, intermodal 
approach to transportation programs was needed to address growing 
transportation needs in the face of budgetary constraints and the 
diversity of transportation priorities in different parts of the 
country. Enacted in December 1991, ISTEA sought to provide flexible, 
comprehensive solutions to transportation problems and focused more on 
intermodal approaches than previous acts had. Two of the programs 
created by this legislation were STP and CMAQ--also referred to here as 
flexible funding because they may be used on a range of projects 
including transit and highways. A portion of flexible funding is 
allocated to localities rather than states, allowing local authorities 
to select projects within their jurisdictions. The responsibility for 
project selection at this level usually falls to regional bodies such 
as metropolitan planning organizations (MPO), which are composed of 
representatives of local governments, transit operators, and other 
transportation stakeholders who collaborate on transportation planning. 
Federal law suballocates a portion of STP funds to urbanized areas 
200,000 or greater in population; some states have chosen to further 
allocate flexible funding to these areas. Table 1 provides details on 
eligible uses for STP and CMAQ funds--which in 2006 constituted about 
one-quarter of the total federal-aid highway program-
-as well as guidelines on how these funds are apportioned. 

Table 1: Eligible Uses and Apportionment Guidelines for STP and CMAQ 
Funds: 

Program (2006 funding levels): Surface Transportation Program ($6 
billion); 
Eligible uses: 
* Construction, rehabilitation, and operational improvements for 
highways and bridges, including to accommodate other modes; 
* Capital costs for transit projects, including vehicles and 
facilities; 
* Highway and transit safety infrastructure improvements and programs; 
* Rehabilitation and operation of historic transportation facilities; 
* Pedestrian and bicycle facilities; 
* Scenic or historic highway programs; 
* Historic preservation and archeological research; 
* Landscaping and other scenic beautification; 
Apportionment guidelines: STP funds are apportioned to states based on 
a state's number of lane miles and vehicle miles traveled on federal-
aid highways, and other factors. More than half is distributed 
throughout the state based on population. 

Program (2006 funding levels): Congestion Mitigation and Air Quality 
($1.6 billion); 
Eligible uses: 
* Pedestrian and bicycle facilities; 
* Transit (new system/service expansion or operations); 
* Alternative fuel projects, including programs to convert fleets to 
run on alternative fuels; 
* Travel demand management and public education and outreach 
activities; 
Apportionment guidelines: CMAQ funds are apportioned to states based on 
the size of population residing within counties that do not meet, or 
have in the past not met, federal air quality standards. CMAQ funds 
must be used in these areas. 

Source: GAO analysis of FHWA data. 

[End of table] 

When states or urbanized areas use flexible funding on transit 
projects, they may leave the funds in the state's FHWA account, in 
which case the state receives reimbursement from FHWA as costs are 
incurred. Alternatively, the state--usually in conjunction with the MPO 
or the local agency implementing the project--may request that these 
funds be transferred to FTA to be administered through one of several 
eligible FTA programs. Once funds are transferred to FTA, a transit 
operator or other recipient becomes the grantee for these funds. FTA 
funds apportioned directly to transit operators or states may be used 
for operating costs in areas under 200,000 in population; however, FHWA 
funds transferred into FTA formula programs may not be used for 
operating costs, except for CMAQ funds used for new or expanded 
services. 

Although state and local authorities have considerable discretion when 
choosing which transportation projects to fund with federal-aid program 
funds, federal laws and regulations require that projects proposed for 
highway and transit funding be based on comprehensive metropolitan and 
statewide transportation planning processes.[Footnote 10] State, 
regional, and local government agencies and transit operators must 
operate within these requirements to receive federal funds. The various 
planning tasks that states and MPOs must carry out include the 
following: 

* involving stakeholders such as elected officials, public transit 
operators, environmental and historic preservation agencies, freight 
shippers, and others in the planning and project-selection processes. 

* identifying overall goals and objectives to support transportation 
investment choices that consider factors such as projected population 
growth and economic changes, current and future transportation needs, 
maintenance and operation of existing transportation facilities, and 
preservation of the human and natural environments. 

* evaluating different transportation alternatives through the 
collection and analysis of data. 

* documenting future transportation needs through long-range 
transportation plans and short-range programs. Short-range programs, 
known as transportation improvement programs (TIP), at the local level, 
and state transportation improvement programs (STIP) at the state 
level, must include the scope of projects, estimated costs, and the 
source of funding. In order to receive federal funding, projects must 
be included in a STIP that demonstrates sufficient funds are available 
to implement the program. 

* ensuring that the process for transportation planning and decision- 
making reflects a variety of planning factors such as environmental 
compliance, safety, security, system management and operations, and 
land use, among others. 

To help ensure that metropolitan transportation planning processes are 
being carried out in full compliance with federal laws and regulations, 
FHWA and FTA jointly review the planning process every 4 years in areas 
with populations of 200,000 or greater. 

The Proportion of Flexible Funding Used on Transit Is Small Nationwide, 
but It Has Made a Sizable Impact on Transit Programs in Some States and 
Urbanized Areas: 

While states have varied in the extent to which they have used STP and 
CMAQ funds for transit, some states have augmented their transit 
budgets significantly or made major transit investments using flexible 
funding. As part of our review, we looked both at the overall impact on 
federal highway and transit spending nationwide and at the types of 
transit projects on which flexible funding is most commonly used. 

The Proportion of Flexible Funding Used on Transit Projects Has Been 
Relatively Low: 

Overall, from the enactment of ISTEA in late 1991 through 2006, the 
relative amount of flexible funding used for transit projects, either 
directly through FHWA or through transfer to FTA, has been low, 
averaging less than 3 percent of the total federal-aid highway program 
and 13 percent of available flexible funding. From 1992 through 2006, a 
total of $12 billion of flexible funding has been used for transit 
projects. The vast majority--more than 96 percent--of this funding was 
transferred from FHWA to FTA; the remaining amount was used for transit 
projects administered directly by FHWA. Flexible funding not used on 
transit was used on other eligible projects such as construction and 
operational improvement of roadways. Figure 2 shows the amount of 
flexible funding used on transit projects--including funds that were 
transferred to FTA and those that were administered directly by FHWA-- 
in relation to the overall federal-aid highway program and to available 
flexible funding from 1992 to 2006. 

Figure 2: Flexible Funding: Proportion of the Overall Federal-Aid 
Highway Program, Percentages Spent on Transit and Nontransit Projects, 
and Percentages of Transit Projects Administered by FHWA and FTA, 1992- 
2006: 

[See PDF for image] 

Source: GAO analysis of FTA and FHWA data. 

Note: Values were not adjusted for inflation and may not total to 100 
percent due to rounding. 

[End of figure] 

The amount of flexible funding transferred to FTA increased markedly 
with passage of the Transportation Equity Act for the Twenty-First 
Century (TEA-21)[Footnote 11] in 1998, primarily because the act 
increased overall highway funding levels, according to DOT officials. 
The average annual amount of transferred funding increased from $630 
million under ISTEA to $1.1 billion under TEA-21, when measured in 
inflation-adjusted 2007 dollars, and increased further to $1.2 billion 
during the first two years of SAFETEA-LU. Likewise, the proportion of 
available flexible funding transferred to FTA increased from about 11 
percent during ISTEA to 14 percent and 15 percent under TEA-21 and 
SAFETEA-LU, respectively. Figure 3 shows both the annual transfer 
amount in nominal actual dollars and inflation-adjusted 2007 dollars to 
allow for comparison across time. The figure also shows the average 
transfer amount for each transportation authorization act in inflation- 
adjusted dollars. 

Figure 3: Annual Flexible Funding Transfers and Average Annual 
Transfers by Act, 1992-2006 (in 2007 dollars): 

[See PDF for image] 

Source: GAO analysis of FTA data. 

Note: Data include flexible funding transfers by states and the 
District of Columbia. 

[End of figure] 

The Proportion and Amounts of Flexible Funding Transferred for Use on 
Transit Vary by State: 

Individual states have transferred flexible funding to FTA for transit 
projects at varying rates. For example, while California transferred 
nearly 40 percent of its apportioned flexible funding for transit 
projects administered by FTA between 1992 and 2006, and 3 other states 
and the District of Columbia transferred at least 25 percent, 19 states 
transferred less than 2 percent of this flexible funding during the 
same period. Figure 4 illustrates the state-by-state proportion of 
flexible funding transferred to FTA for transit projects. 

Figure 4: Proportion of Apportioned Flexible Funding Transferred to FTA 
for Transit Projects, by State, 1992-2006: 

[See PDF for image] 

Source: GAO analysis of FTA and FHWA data; Map Resources (map). 

[End of figure] 

Among the nine states included in our case-study review, we found that 
factors such as demographics, infrastructure, geography, and the 
availability of other funding sources had an effect on how much 
flexible funding the states used on transit. In states such as Wyoming 
and parts of Iowa and Kentucky, for example, population is dispersed 
over a wide area, and services such as shopping and health care 
facilities are often far from one another and from residential areas. 
Officials in these states said that such conditions do not lend 
themselves to efficient use of transit. Thus, Iowa state transportation 
officials noted, the population in Iowa is largely reliant on the 
automobile for transportation, and counties, which have discretion 
about how to use certain state transportation funds, lean heavily 
toward building roads. Another reason for states using a small 
proportion of flexible funding on transit can be that the state uses 
other revenues to support transit. For example, state transportation 
officials in Delaware, which has not transferred flexible funding for 
use on transit, told us that they believe state revenue sources-- 
including the state's gasoline tax--are sufficient to meet the needs of 
the state's transit operators. Conversely, states that use a higher 
proportion of their flexible funding on transit tend to have large, 
congested urban areas that are served extensively by transit. Of the 8 
urbanized areas included in our case-study review that are in states 
that use relatively more flexible funding on transit, 5 of them have 
transit operators that are among the largest 25 in the nation.[Footnote 
12] One notable exception to this trend is the largely rural state of 
Vermont, which, because of the state's commitment to providing bus 
services in communities throughout the state, spends a high proportion 
of its flexible funding on transit. 

The dollar amount of flexible funding transferred by states for use on 
FTA-administered transit projects varied, with 3 states-- California, 
New York, and Pennsylvania--collectively accounting for more than half 
of the amount transferred from 1992 through 2006.[Footnote 13] In 
contrast, 3 states--Delaware, North Dakota, and South Dakota--had never 
transferred flexible funding for use on transit projects, and 10 other 
states transferred less than $1 million per year, on average. Figure 5 
provides information on the amounts of flexible funding states have 
transferred from FHWA to FTA for use on transit projects since the 
enactment of ISTEA. 

Figure 5: Flexible Funding Transferred to FTA for Transit Projects, by 
State, 1992-2006 (in 2007 dollars): 

[See PDF for image] 

Source: GAO analysis of FTA data. 

[End of figure] 

Just as the amount of flexible funding transferred for transit projects 
varied by state, the effect those funds had on the amount of federal 
funding used on transit varied as well. For example, from 1992 to 2006, 
Vermont transferred a relatively small amount of flexible funding to 
FTA for use on transit projects, but those funds accounted for over 40 
percent of the FTA funding used in Vermont. Similarly, in 3 other 
states, transferred flexible funding made up at least 20 percent of the 
total FTA funds used in each state, while, in contrast, this figure was 
less than 5 percent in 17 states. These latter states tended to have 
fewer large urban areas and lower population densities. Figure 6 shows 
the proportion of FTA funding in each state that came from transferred 
STP and CMAQ funds. 

Figure 6: Proportion of Total FTA Funding from Flexible Funding, 1992- 
2006: 

[See PDF for image] 

Source: GAO analysis of FTA data; Map Resources (map). 

[End of figure] 

The Use of Transferred Flexible Funding on Transit Is Concentrated in 
Large Urbanized Areas: 

From 1992 through 2006, nearly 80 percent--or $9.1 billion--of the 
flexible funding transferred to FTA was used by urbanized areas with 
populations of over 1 million (see fig. 7). For the flexible funding 
that remained with FHWA for use on transit projects, 45 percent was 
used in urbanized areas with a population of over 1 million, with the 
remaining portion used in smaller areas or on state-administered 
projects. 

Figure 7: Flexible Funding Transferred to FTA, by Population of Area in 
Which Funding Was Used, 1992-2006: 

[See PDF for image] 

Source: GAO analysis of FTA data. 

[End of figure] 

Of the flexible funding transferred to FTA from 1992 through 2006, more 
than half was used on purchases of vehicles--both rail cars and motor 
vehicles such as buses--and on projects related to rail lines or bus 
lanes. The heaviest users of transferred flexible funding on transit--
urbanized areas with populations of over 1 million--spent 55 percent on 
these types of projects. For example, in the Seattle area, flexible 
funding was used to purchase diesel-electric hybrid buses and for the 
development of the Sound Transit light rail line. Similarly, in the 
Northern Virginia region of the Washington, D.C., area, a regional 
transit operator used flexible funding for annual purchases of new 
buses to expand its fleet. Nationally, urbanized areas over 1 million 
in population used 14 percent of transferred flexible funding on 
passenger facilities such as pedestrian walkways, bus stops, and rail 
stations. Smaller urbanized and rural areas also used a significant 
amount--about 40 percent--of their transferred flexible funding on 
motor vehicle purchases and an additional 6 percent on bus and rail 
lines. For example, the transit agency in Des Moines, Iowa, has relied 
on flexible funding to pay for bus replacements, transferring 
approximately $2.5 million of its STP funds to FTA for this purpose 
over the last 10 years. Figure 8 provides detailed information about 
how large urbanized areas and smaller urbanized or rural areas used the 
flexible funding that they transferred to FTA. Regarding the "other" 
category, shown in figure 8, a substantial portion of this category is 
preventive maintenance and contracted services (i.e., transportation 
service provided to a public transit agency by a public or private 
transportation provider under contract). 

Figure 8: Flexible Funding Administered by FTA, by Project Type and 
Population of Area in Which Funding Was Used, 1992-2006: 

[See PDF for image] 

Source: GAO analysis of FTA data. 

Notes: Population category is based on the categorization of the 
urbanized area at the time of obligation. 

[A] Vehicle purchases: Includes purchases of buses, vans, ferry boats, 
and rail cars.

[B] New service: Includes projects that pay for operating costs of new 
transit services, such as new bus routes or expanded service on 
existing routes. 

[C] Vehicle facilities/equipment: Includes projects related to vehicle 
or transit office facilities, such as maintenance and storage 
facilities, bus garages, and service centers. Also includes the 
acquisition and rehabilitation of equipment for fare collection, 
communication, security, and signalization. 

[D] Passenger/parking facilities: Includes transit projects to acquire, 
design, lease, construct, and rehabilitate parking facilities, such as 
park and rides, and passenger facilities, such as bus stops and 
shelters. 

[E] Other: Includes acquiring real property, passenger amenities, 
marketing, leasing vehicles (including rail), rehabilitating vehicles 
(including rail), bikeways, bicycle storage facility, contracted 
service, vehicle overhaul, signalization priority projects, installing 
bicycle racks and other bicycle equipment, environmental assessments, 
preliminary engineering, major investment studies, administration, 
preventive maintenance, and other projects. 

[F] Busway/rail line: Includes projects to build bus lanes or roadways 
designed for exclusive bus use. Also includes projects to design, 
construct and rehabilitate rail lines and rail yards, and the purchase 
of rail line right-of-way, among other things. 

[End of figure] 

States and Urbanized Areas Used a Formal Process to Select Projects 
Suited to Their Priorities and Needs, Resulting in Diverse Uses of 
Flexible Funding: 

A competitive process was often used to select projects, particularly 
at the local level, and projects not selected this way were chosen 
based on state or local transportation plans and priorities. An 
advantage of flexible funding cited by officials in our case-study 
review was that because of its broad eligibility, it enables multimodal 
transportation planning and thereby allows states and localities to 
select projects best suited to their diverse needs. 

Projects for Flexible Funding Are Often Selected through a Competitive 
Process, Particularly at the Local Level: 

Of the 10 urbanized areas included in our case-study review that have 
decision-making authority for flexible funding, 7 selected projects for 
at least some of these funds using competitive processes[Footnote 14] 
in which all eligible project types were considered, including highway, 
transit, bikeway and pedestrian, and others. While the competitions 
varied somewhat from place to place, we found that common elements of 
most of these competitions included the following: 

* a call for projects, during which potential project sponsors--such as 
transit operators, city or county governments, or nonprofit groups-- 
submit formal project applications to the competition coordinator, 
typically the region's MPO. 

* project applications that consist of basic information on the 
project, including title, sponsor, summary description, location or 
service area, cost, and funding sources. 

* an initial screening of project applications in which basic 
eligibility determinations are made, such as eligibility to receive 
federal funds, project readiness, availability of local matching funds, 
and compatibility with or inclusion in the region's long-range 
transportation plans. 

* a technical evaluation of the projects found to be basically 
eligible, typically carried out by a technical committee of the MPO 
using criteria established by the MPO. Some of the most common criteria 
are: 

- air quality impact, measured by the estimated emissions reductions of 
the project;[Footnote 15] 

- traffic flow improvement or congestion reduction; 

- cost effectiveness; and: 

- potential to enhance continuity of the transportation system or 
regional connectivity. 

* a recommendation of projects based on the technical committee's 
evaluation submitted to the MPO's board of directors. 

In addition, according to federal requirements, all projects included 
in a region's TIP, regardless of how they are selected, are subject to 
a public notification and comment period.[Footnote 16] 

Some of the urbanized areas included in our case study review also 
established project categories based on the needs and priorities of the 
region to allocate funds among certain uses such as road maintenance or 
capacity enhancement, bikeway and pedestrian facilities, or transit 
capital improvements. These categories tended to have specific 
eligibility and application requirements and evaluation criteria, as 
can be seen in the following examples: 

* In the Virginia Beach, Virginia, area, six categories were used in 
the MPO's competition for STP funds.[Footnote 17] The projects 
competing in the intermodal transportation category were evaluated on 
whether the project would establish opportunities for linkages between 
transportation modes and improve rail or vehicular access to freight 
facilities, among other criteria. In contrast, projects competing in 
the highway capacity category were evaluated on criteria such as 
potential impact on congestion levels, system continuity, and safety 
improvements. 

* In Des Moines, Iowa, STP projects were awarded in four 
categories.[Footnote 18] Projects competing in the major construction 
category were evaluated based on their potential to increase future 
traffic volumes and their functional classification (e.g., principal 
arterial roads ranked higher than small, feeder roads), among other 
things. Projects competing in the alternative transportation category 
were evaluated based on congestion reduction, air quality benefit, and 
the fuel efficiency of the mode of transportation. 

On the state level, of the nine states included in our case-study 
review, four--Iowa, Kentucky, Vermont, and Virginia--awarded a portion 
of their flexible funding through a competitive process.[Footnote 19] 
Statewide competitions--typically sponsored by state departments of 
transportation--were similar to local competitions, although some of 
them required projects to be vetted at the local level before being 
submitted to the statewide competition. 

Flexible Funding Projects Sometimes Selected Based on Policy Goals, 
Priorities, or Long-Range Plans: 

Although most of the urbanized areas included in our case-study review 
that have decision-making authority for flexible funding used 
competitions for at least some of these funds, they also selected some 
projects and programs based on local policy goals and priorities. Some 
examples of locally established priorities that we found in the 
urbanized areas included in our case-study review include the 
following: 

* In the San Francisco area, transportation stakeholders projected a 
significant shortfall for transit capital expenditures over a 25-year 
period. The region's MPO board of directors decided to make this a 
priority use for STP funds, allocating the funds to each transit 
operator based on its portion of the projected shortfall. 

* In Pittsburgh, due to the age of the region's roadways and transit 
systems, there was a heavy emphasis on the preventive maintenance of 
this infrastructure, with about 80 percent of all available funding-- 
including flexible funding--being used for this purpose. Specific 
projects were selected based on continuous analysis of transportation 
infrastructure needs, the region's long-range plan, and input from the 
public and the state's transportation department. 

For most of the states in our case-study review, flexible funding that 
was neither suballocated to urbanized areas nor awarded competitively 
was, along with most other federal and state funding sources, used on 
projects identified through state transportation planning processes; 
these processes typically considered transportation priorities, 
conditions, and needs throughout the state. Because state departments 
of transportation are primarily responsible for building and 
maintaining roads, project selection at the state level tends to focus 
on roads, including construction of roadways and related projects to 
manage road usage such as intelligent transportation systems. For 
example, Kentucky's transportation department uses STP funds and other 
available funding sources for priority road projects that the state 
identifies based on a number of factors, such as transportation 
problems across the state, need (based on a statewide needs analysis), 
and project eligibility. Looking at these considerations, the 
transportation department develops a list of projects and evaluates 
them alongside available funding sources, including both FHWA and state 
sources, to determine which projects will be funded with which sources. 
Similarly, Caltrans, the California state transportation department, 
applies statewide STP funding, along with other federal and state 
funding sources, to projects in its State Highway Operation and 
Protection Program, which is developed to address state priorities such 
as traffic safety and highway and bridge preservation. 

In contrast, some states in our case-study review set aside a portion 
of their flexible funding to be used for specific projects or programs. 
Following are three examples: 

* Wyoming and Virginia both use statewide STP funds on specific 
categories of roads. Wyoming allocates these funds among county roads, 
roads in the state's urban areas, and industrial and commercial roads 
such as those leading to mines. Virginia divides statewide STP funds 
among primary, urban, and secondary roads.[Footnote 20] The decisions 
about which projects to fund for these categories of roads are made by 
Virginia's Commonwealth Transportation Board, the city or town, and the 
county board of supervisors, respectively. 

* Pennsylvania's transportation financial guidance designates $25 
million of the state's flexible funding to be set aside each year for 
use by the state's transit agencies. (In 2006, the state's total 
flexible funding apportionment was about $290 million.) The majority of 
the $25 million goes to the state's two largest transit operators, 
Philadelphia's Southeast Pennsylvania Transportation Authority and 
Pittsburgh's Port Authority of Allegheny County. 

* Virginia state law mandates that a percentage of its flexible 
funding--amounting to about $22 million each year, according to state 
officials--be used for public transportation. (In 2006, Virginia's 
total flexible funding apportionment was about $196 million.) A portion 
of the $22 million must be used for track lease payments for a Northern 
Virginia commuter rail system; the remaining funds are spent on transit 
projects selected by the state, usually in rural and small urban areas. 

Flexibility Enables State and Local Officials to Fund Their Highest 
Priorities, Which Is Advantageous Due to Demand for Transportation 
Funding: 

As a result of the broad eligibility of STP and CMAQ funds, states and 
urbanized areas can use a multimodal approach to transportation 
planning, selecting projects that they believe best address their 
transportation priorities--whether a road project, a transit project, 
or projects such as intelligent transportation systems or traffic 
demand management strategies. Accordingly, the transportation 
priorities that states and urbanized areas choose to address vary based 
on their differing needs and circumstances. Among the urbanized areas 
and states included in our case-study review that use a high proportion 
of flexible funding on transit, we found the following distinctive uses 
of these funds, illustrating how outcomes vary with state and local 
priorities: 

* Constructing the Sound Transit System in Seattle. Sound Transit, 
established in 1995 to build a mass transit system serving the three 
counties in the Seattle region, is still in a capital-intensive phase, 
as it continues to complete the infrastructure for the fixed-route 
portion of the system, including construction of a light-rail line 
connecting Seattle with the Seattle-Tacoma airport and extending its 
commuter-rail service south of Tacoma. It has used more than $112 
million in flexible funding for rail car purchases and rail line 
construction, among other things. In 2007, it was awarded $9 million in 
flexible funding to purchase the right-of-way for two light-rail 
stations. 

* Providing new services in Virginia Beach. The Virginia Beach area, an 
urbanized area of about 1.3 million people in southeastern Virginia, 
has significant traffic congestion due to the northern and southern 
halves of the area being divided by the confluence of the Elizabeth and 
James Rivers, which is crossed by seven bridges and tunnels. The 
regional transit operator, Hampton Roads Transit, uses flexible funding 
to provide new services to help relieve traffic congestion. According 
to Hampton Roads Transit officials, obtaining local funding for 
regional projects can be difficult because cities within in the region 
are sometimes reluctant to pay for services in another city. In this 
way, officials said, flexible funding can better benefit the community 
by making new services possible. 

* Rehabilitating Pennsylvania's rail systems. At the end of 2004, 
transit systems in Pennsylvania were facing operating budget shortfalls 
because transit growth had outstripped the existing revenue sources. 
The state's legislature adjourned before taking action to provide 
either long-or short-term transit funding. In light of this, a number 
of transit agencies began considering measures to reduce their costs by 
decreasing service and laying off staff and to increase income by 
raising fares. In an effort to avoid service cuts and fare increases, 
Pennsylvania's governor proposed transferring more than $400 million of 
federal highway funds to FTA to be used on transit. For the transit 
agencies in Philadelphia, Pittsburgh, and other parts of the state to 
receive the funding, the MPOs in these areas had to vote to allocate 
the funds to transit. In Philadelphia and Pittsburgh, these additional 
funds were used on eligible capital expenses such as preventative 
maintenance, allowing other state funds to be used to cover operating 
deficits. 

* Subsidizing rural transit services in Vermont. Vermont is a largely 
rural state with a small population, and, according to the transit 
officials we spoke with, has a small tax base on which to draw for 
funding services such as transit. The state, however, is committed to 
preserving its current quality of life--which includes low levels of 
pollution and congestion--and allowing its elderly population to "age 
in place," meaning that senior citizens can remain in their homes and 
still have access to transportation for medical appointments, shopping, 
and other necessities. To further these goals, the state's 
transportation department uses a significant amount of flexible funding 
on eligible capital expenses such as preventive maintenance to help 
support bus services in communities throughout the state. 

In the course of our case-study review, we asked state and local 
officials their views on the outcomes of flexible funding. Officials 
with the MPOs and state transportation departments we met with said 
that due to its broad, multimodal eligibility, flexible funding 
considerably benefits their ability to plan and fund their 
transportation programs, particularly because of the challenge of 
finding sufficient revenues to pay for transportation improvements. One 
specific advantage cited by a number of these officials was that 
flexible funding can serve as an additional funding source for transit. 
State officials in Vermont and Virginia noted that flexible funding 
makes it possible to provide bus service in small towns and rural areas 
through the funding of expenses such as bus purchases, bus facilities 
construction, and preventive maintenance. State and local officials in 
several states also pointed out that flexible funding is particularly 
beneficial for regional projects. For example, in Seattle, flexible 
funding is especially well-suited to meeting the region's goal of 
connecting transportation hubs. Although there was wide agreement among 
these state and local officials that flexible funding is beneficial, 
officials from two states--California and Pennsylvania--also said that 
in the context of pressing needs on both the highway and transit sides, 
using flexible funding on transit may impact highway programs. In the 
words of one MPO official in Pennsylvania, using flexible funding on 
transit is "a zero-sum equation," because, even though it provides much-
needed resources for transit projects, it means that resources for the 
highway program are reduced an equal amount. Similarly, an official 
with the MPO in the Los Angeles area noted that many area freeways are 
in poor condition--a function of inadequate funding for transportation 
in general, and, to a small degree, the use of flexible funding on 
transit. Other state and local officials, however, said they did not 
believe using this funding for transit had negatively impacted roads, 
and that the larger problem is insufficient revenues for both highways 
and transit. Officials with Vermont's state transportation department, 
for example, said that although there are insufficient funds for road 
maintenance in the state, they attributed this condition to a lack of 
state funding rather than the use of flexible funding on transit. 

Agency Comments: 

We provided a draft of this report to DOT for review. DOT generally 
agreed with the report's findings. We received comments and technical 
clarifications from FTA's Office of Budget and Policy, Office of 
Program Management, and Office and Planning and Environment, and from 
FHWA's Office of Planning, Environment, and Realty, which we 
incorporated in the report as appropriate. We also provided officials 
from the states and localities included in our case studies with an 
opportunity to review segments of the report pertaining to their 
jurisdictions. These officials provided technical clarifications, which 
we incorporated in the report as appropriate. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Transportation, and the state and local 
officials with whom we spoke. We will also make copies available to 
others on request. In addition, the report will be available at no 
charge on the GAO Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-2843 or siggerudk@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix III. 

Signed by: 

Katherine A. Siggerud Director, Physical Infrastructure Issues: 

List of Committees: 

The Honorable Christopher J. Dodd: 
Chairman: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Barbara Boxer: 
Chairman: 
The Honorable James M. Inhofe: 
Ranking Member: 
Committee on Environment and Public Works: 
United States Senate: 

The Honorable Charles Schumer: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Subcommittee on Housing, Transportation, and Community Development: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Johnny Isakson: 
Ranking Member: 
Subcommittee on Transportation and Infrastructure: 
Committee on Environment and Public Works: 
United States Senate: 

The Honorable James L. Oberstar: 
Chairman: 
The Honorable John L. Mica: 
Ranking Republican Member: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

The Honorable Peter DeFazio: 
Chairman: 
The Honorable John J. Duncan Jr. 
Ranking Republican Member: 
Subcommittee on Highways and Transit: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

[End of section] 

Appendix I: Funding Transfers Involve Multiple Stakeholders and Checks 
to Ensure Accuracy: 

To examine the procedures used to transfer flexible funding from the 
Federal Highway Administration (FHWA) to the Federal Transit 
Administration (FTA) we spoke with officials from FHWA and FTA, both in 
their Washington, D.C., headquarters and in field offices. We also 
reviewed guidance on the transfer process issued jointly by FHWA and 
FTA and examples of documentation used to process requests for 
transfers. 

Federal, State, and Local Governments Involved in Transfer Process: 

When states or local planning bodies fund transit projects with funds 
from the Surface Transportation Program (STP) or the Congestion 
Mitigation and Air Quality Program (CMAQ), they have the option to 
transfer these funds to FTA for project administration or leave them 
with FHWA. The transit agency officials we spoke with said that when 
they are awarded STP or CMAQ funds for a project they are implementing, 
they generally prefer to transfer these funds to FTA for administration 
because of their familiarity with FTA's personnel, grantmaking 
procedures, and requirements and because of FTA's expertise in 
administering transit projects. Requests to transfer FHWA funding to 
FTA are submitted by state departments of transportation because the 
funding comes from state federal-aid highway apportionments. In 
deciding whether to approve transfer requests, FHWA checks to see if 
projects are eligible for flexible funding, if states have funding 
available for the transfer, and if the projects for which funding is 
being requested are included in the statewide transportation 
improvement program (a requirement for all projects receiving federal- 
aid highway or transit funds). 

When the transfer is carried out, budget authority--which permits an 
agency to incur financial obligations such as the awarding of grants-- 
is transferred from FHWA to FTA, and the funds necessary to reimburse 
grantees for costs incurred is transferred from the highway account to 
the mass transit account of the Highway Trust Fund. DOT recently 
implemented an accounting change whereby the funds necessary to 
reimburse grantees are transferred to the mass transit account as 
grantees incur costs, rather than all at once when the transfer is 
approved. According to DOT officials, this change is intended to slow 
the decline of the highway account's balance. After the budget 
authority has been transferred to FTA, FTA makes an apportionment in 
the grantee's account using the grants management system. To obtain the 
transferred funds, grantees must have a grant application approved by 
FTA.[Footnote 21] The procedures for transferring funds were detailed 
in joint guidance issued by FHWA and FTA in 1999; the agencies are in 
the process of preparing updated joint guidance. Figure 1 provides more 
detail on the steps in the transfer process. 

Figure 9: Steps Required to Transfer Funds from State's FHWA Account to 
Transit Agency's FTA Account: 

[See PDF for image] 

Source: GAO analysis of information provided by FTA and FHWA. 

[A] Other stakeholders, including the state department of 
transportation, the FTA Region, and the FHWA Division take part in the 
transportation planning process. 

[B] The Fiscal Management Information System (FMIS) is FHWA's major 
financial information system for tracking federal-aid highway projects 
on a project-by-project basis. 

[C] The Transportation Electronic Award Management system (TEAM) is 
FTA's grants management system. 

[End of figure] 

FHWA and FTA Check Project Eligibility and Have Processes in Place to 
Help Ensure Accurate Transfers: 

Eligibility checks of projects receiving flexible funding occur before, 
during, and after the transfer process. Prior to states' submitting 
transfer requests, FTA and FHWA participate in the statewide and 
metropolitan transportation planning processes and provide technical 
assistance on issues such as funding eligibility. After states submit 
requests to transfer funds, checks on project eligibility occur at FHWA 
division offices when state transfer requests are received, and at the 
FHWA Financial Management Office to ensure funds are available and 
requests meet transferability requirements. FTA's subsequent review of 
grant applications includes checking project eligibility in greater 
detail. 

According to FHWA and FTA officials, the following checks occur to help 
ensure that the correct amount of funding and budget authority is 
transferred from FHWA to FTA: 

* Recording of steps in the transfer process. FHWA records information 
on the amount of funds being requested, the type of funds (such as CMAQ 
or STP) and the state requesting the transfer, as well as dates of key 
steps in the transfer process. FTA also tracks key information on 
transfer requests, including the date of the letter requesting the 
transfer, the grantee receiving the funds, the description and FTA 
project number of the transit project receiving funds, the type of FHWA 
funding to be transferred, and the amount to be transferred. 

* Reconciliation process. Before transfers are finalized, FHWA and FTA 
follow procedures to ensure the correct amounts are transferred. The 
FHWA Office of Budget reconciles transfer requests with a report 
generated by FMIS that documents the amounts and the program codes to 
be transferred, then provides this and other supporting information to 
the FTA Office of Budget. The FTA Office of Budget also reconciles 
transfer requests with information generated by FMIS. Before the FHWA 
Office of Budget requests that the FHWA Office of Finance move the 
funding through the Department of the Treasury, the amount to be 
transferred is agreed upon by FHWA and FTA. 

* Records retention. Hard copy files for each transfer request received 
are maintained by FTA for 5 years and then archived; files are 
maintained by FHWA for 20 years. 

[End of section] 

Appendix II: Objectives, Scope, and Methodology: 

To determine the degree to which flexible funding has been used on 
transit and how this use varies across states and urbanized areas, we 
analyzed data from FTA and FHWA. We assessed the reliability of the 
data and found it was sufficiently reliable for the purposes of this 
report. These data included information about the funds transferred to 
FTA for project administration, funds remaining at FHWA for use on 
transit projects, the overall federal-aid highway program 
apportionments, and apportionments for the CMAQ and STP programs. We 
obtained information from FTA's grants management system, called the 
Transportation Electronic Award Management (TEAM) system, regarding the 
amount of STP and CMAQ funds transferred to FTA for project 
administration. These data were provided on an annual basis, from 
fiscal years 1992 through 2006,[Footnote 22] allowing us to calculate 
the amounts transferred by year and the annual averages for each 
transportation authorization bill. Additional information was provided 
about the population of jurisdictions using these funds; the purpose 
for which funds were spent, such as vehicle purchases, busways, rail 
lines, or new service; and the proportion of FTA funding in each state 
that came from flexed funds. To identify transit spending remaining 
under FHWA administration, we requested that FHWA provide data from the 
Fiscal Management Information System (FMIS)--its project-tracking 
information system--for projects that state officials had coded as 
being transit related. We used additional documentation provided by 
FHWA officials to determine the source of federal funding (i.e., the 
appropriation bill) and information about spending by individual 
urbanized areas for the FHWA-administered transit projects. Using these 
data, we calculated the total amount of flexible funding spent on 
transit-related projects administered by FHWA during ISTEA, TEA-21, and 
SAFETEA-LU. We did not independently verify that all projects that 
states coded as having a transit component in FMIS in fact had a 
transit component. We also analyzed FHWA's spending for transit 
projects by the population of the area implementing the project. In 
order to determine the total amount of flexible funding used on transit 
projects since 1992, we analyzed funding for transit projects 
administered by FHWA and funding transferred to FTA for project 
administration. We also compared the unadjusted total amounts with the 
overall federal-aid highway apportionments for fiscal years 1992 
through 2006 to calculate the proportion of highway funding spent for 
transit projects during this period. To calculate the proportion of 
flexible funding spent on transit projects under FTA administration, we 
compared annual apportionment amounts for the programs to the amount 
transferred. Comparisons were done both on the national level and by 
state. We also used information from our case-study interviews (see 
below) to provide context for differences in the use of flexible 
funding among states and to identify examples of types of projects 
commonly using these funds. 

To determine how states and urbanized areas have made decisions about 
what projects to fund with flexible funding and what the outcomes of 
these decisions have been, we selected 9 states and 12 urbanized areas 
for case-study reviews. To select states, we used three measures to 
determine how states' prior use of flexible funding on transit 
compared: (1) the absolute dollar amount of flexible funding 
transferred from FHWA to FTA for transit projects, (2) the proportion 
of available flexible funding transferred, and (3) the proportion of 
FTA funding in the state that came from transferred funds.[Footnote 23] 
We selected five states that ranked in the top 10 for at least two of 
these measures for site visits--California, Pennsylvania, Vermont, 
Virginia, and Washington. We also selected two states--Iowa and 
Kentucky--that were ranked among the lowest on these measures among 
states that had transferred funds at least five times since the 
enactment of TEA-21, and two other states--Delaware and Wyoming--that 
had either never transferred funds or done so fewer than five times in 
the same period. For these states, we conducted telephone interviews. 
In each of these states, we chose at least one urbanized area to 
include in the case study. In the states that used a relatively high 
amount of transferred flexible funding on transit, we selected 
urbanized areas that had used the largest proportion of the state's 
flexible funding on transit; in states that transferred relatively 
little or no flexible funding for use on transit projects--because 
there were no urbanized areas that had used a significant amount of 
transferred flexible funding on transit--we selected the largest 
urbanized area in the state. In the cases of California, Pennsylvania, 
and Virginia, we included two urbanized areas in each state because 
each of these areas had used significant amounts of flexible funding 
for transit. These cases were selected using a nonprobability sample, 
and, consequently, the results cannot be used to make inferences about 
the entire population. Table 1 shows the states and urbanized areas 
included in our review. 

Table 2: States and Urbanized Areas Selected for Case Studies: 

States using relatively more flexible funding on transit; 
State: California; 
Urbanized area: Los Angeles and San Francisco. 

States using relatively more flexible funding on transit; 
State: Pennsylvania; 
Urbanized area: Philadelphia and Pittsburgh. 

States using relatively more flexible funding on transit; 
State: Vermont; 
Urbanized area: Burlington. 

States using relatively more flexible funding on transit; 
State: Virginia; 
Urbanized area: Virginia Beach and Northern Virginia. 

States using relatively less flexible funding on transit; 
State: Washington; 
Urbanized area: Seattle. 

States using relatively less flexible funding on transit; 
State: Delaware; 
Urbanized area: Wilmington. 

States using relatively less flexible funding on transit; 
State: Iowa; 
Urbanized area: Des Moines. 

States using relatively less flexible funding on transit; 
State: Wyoming; 
Urbanized area: Cheyenne. 

States using relatively less flexible funding on transit; 
State: Kentucky; 
Urbanized area: Louisville. 

Source: GAO. 

[End of table] 

In each state included in our case-study review, we spoke with 
officials at the FHWA division in the state and at the FTA regional 
office with jurisdiction over the state, and with relevant officials in 
the state department of transportation. In the urbanized areas included 
in our case-study review, we spoke with officials from metropolitan 
planning organizations and transit agencies. We asked these officials 
about the state's or locality's decision-making process in developing 
transportation plans and programs and in choosing projects to receive 
flexible funding, the mechanics of transferring funds, specific 
projects funded using these funds, and the impact of flexible funding 
on transportation as a whole (both transit and nontransit). We 
collected and reviewed: (1) documentation from the case-study states 
and urbanized areas, including information on state and metropolitan 
planning processes, the criteria and procedures used in project 
selection competitions, and projects funded using flexible funding; (2) 
federal regulations and guidance related to transportation planning and 
the CMAQ and STP programs; and (3) prior reports on the use of flexible 
funding by states and urbanized areas. We also interviewed 
representatives of the following associations to obtain their views on 
flexible funding: the American Association of State Highway and 
Transportation Officials, the American Highway Users Alliance, the 
American Public Transportation Association, the American Road and 
Transportation Builders Association, the Association of Metropolitan 
Planning Organizations, and the Surface Transportation Policy 
Partnership. 

To obtain information on the procedures used to transfer budget 
authority and funds from FHWA to FTA, we interviewed officials involved 
in overseeing or carrying out the steps in the transfer process, 
including those with FTA's Office of Budget, Office of Program 
Management, and Office of Planning and Environment; FHWA's Office of 
Budget and Office of Financial Management; the Office of the Secretary 
of Transportation's Office of Budget; the FTA regions with jurisdiction 
over the states included in our case-study review; and the FHWA 
divisions in these states. We also reviewed joint FTA-FHWA guidance on 
the procedures used to transfer funds. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Katherine A. Siggerud, (202) 512-2834 or siggerudk@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Ashley Alley, Amber Edwards, 
Edda Emmanuelli-Perez, Colin Fallon, Heather Halliwell, Carol Henn, 
Molly Laster, Faye Morrison, Joshua Ormond, Robert Owens, George Quinn, 
and Terry Richardson made key contributions to this report. 

FOOTNOTES 

[1] Pub. L. No. 102-240 (Dec. 18, 1991). 

[2] House Report 109-203, "Safe, Accountable, Flexible, Efficient 
Transportation Equity Act: A Legacy for Users Report of the Committee 
of Conference on H.R. 3" (July 28, 2005). 

[3] FHWA data show that since ISTEA was enacted, about $55 million of 
FTA funding has been transferred to FHWA for use on highway projects. 

[4] See, for example, 23 U.S.C. 103(b)(6), 23 U.S.C. 147, and 23 U.S.C. 
204. 

[5] Prior to enactment of the Transportation Equity Act for the Twenty- 
First Century (TEA-21), FHWA did not have the authority to transfer 
budget authority or funds for STP and CMAQ funds to FTA. When 
requested, FHWA allocated the funds to FTA for use on eligible transit 
projects, but the funds remained on FHWA's books. TEA-21 authorized the 
transfer of funds to FTA, and FHWA and FTA began using this authority 
in 2000. For the purposes of this report, we use the term "transfer" to 
refer to FHWA funds administered by FTA, both before and after FHWA had 
the authority to transfer budget authority and funding to FTA. 

[6] Data from FTA and FHWA regarding amounts apportioned or spent for 
transit projects reflect fiscal year values throughout this report. 

[7] An obligation is a commitment that creates a legal liability of the 
government for the payment of goods and services ordered or received. 
Payment may be made immediately or in the future. An agency incurs an 
obligation, for example, when it awards a grant. 

[8] Public transportation is regular and continuing general or special 
transportation service provided to the public. It includes service by 
buses, subways, rail, trolleys and ferryboats. It also includes 
paratransit services for seniors and persons with disabilities as well 
as vanpool and taxi services operated under contract to a public 
transportation agency. 

[9] States are recipients of FTA grants for areas under 200,000 in 
population. 

[10] 23 U.S.C. 134-135, 49 U.S.C. 5303-5304, 23 CFR Parts 450 and 500, 
and 49 CFR Part 613. 

[11] Pub. L. No. 105-178 (June 9, 1998). 

[12] San Francisco's Bay Area Rapid Transit and Municipal Railway, Los 
Angeles's Metropolitan Transportation Authority, Seattle's King County 
Metro and Sound Transit, Philadelphia's Southeastern Pennsylvania 
Transportation Authority, and Pittsburgh's Port Authority all rank 
among the largest 25 transit agencies in the nation. Rankings are based 
on agencies' 2003 capital and operating budgets. 

[13] Values are in inflation-adjusted 2007 dollars to allow for 
comparison across time. 

[14] One of these 10 urbanized areas, Philadelphia, periodically sets 
aside CMAQ funds for a competitive selection process. The most recent 
competition was completed in 2003. The two other urbanized areas 
included in our case-study review--Burlington, Vermont, and Wilmington, 
Delaware--do not have decision-making authority for flexible funds. 

[15] According to federal CMAQ guidance, projects in air quality 
nonattainment and maintenance areas that receive CMAQ funding must 
reduce emissions of at least one of several air quality pollutants, 
such as particulate matter or carbon monoxide. Project proposals should 
include quantitative estimates of the emissions impact for all the 
pollutants for which the area is in nonattainment or maintenance 
status. See Publication of Interim Guidance on the Congestion 
Mitigation and Air Quality Improvement (CMAQ) Program, 71 Fed. Reg. 
76038 (Dec. 19, 2006). 

[16] See 23 CFR 450.316. 

[17] The six categories are highway capacity, accessibility and 
operational improvements; intermodal transportation projects; transit 
projects; planning studies; transportation demand management projects; 
and intelligent transportation systems. 

[18] The four categories are major construction projects, minor 
construction projects, preservation projects, and alternative 
transportation projects. 

[19] Until recently, Washington also used a competitive process for a 
portion of its flexible funds. 

[20] Primary roads are those that connect cities and towns with each 
other and with interstates. Secondary roads serve inter-regional and 
localized traffic. 

[21] To help ensure that FHWA funds transferred to FTA can be clearly 
identified, FTA no longer allows grantees to add transferred funds into 
existing grants with FTA formula funds, as was the practice in some 
states. FTA grantees are now required to submit a new grant application 
specifically for funds that have been transferred to FTA. FTA officials 
said this change will allow better tracking of flexible funding used on 
transit. This change is reflected in updated FTA guidance on grant 
applications. 

[22] ISTEA was enacted in December 1991. As a result, our analysis 
began with fiscal year 1992. 

[23] We used data from fiscal years 1998 through 2005 to rank states by 
the absolute amount of flexible funding transferred and by the 
proportion of available funds--STP and CMAQ--transferred. Data from 
fiscal years 1992 through 2005 were used to determine the proportion of 
FTA transit funding that came from transferred flexible funds. 

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