Federal-Aid Highways:

Federal Requirements for Highways May Influence Funding Decisions and Create Challenges, but Benefits and Costs Are Not Tracked

GAO-09-36: Published: Dec 12, 2008. Publicly Released: Dec 12, 2008.

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As highway congestion continues to be a problem in many areas, states are looking to construct or expand highway projects. When a state department of transportation (DOT) receives federal funding for highway projects from the Federal Highway Administration (FHWA), the projects must comply with the National Environmental Policy Act (NEPA), the Davis-Bacon prevailing wage requirement, the Disadvantaged Business Enterprise (DBE) program, and the Buy America program. While complying with these requirements, states must use limited transportation dollars efficiently. As requested, GAO addressed (1) the types of benefits and costs associated with these requirements for federal-aid highway projects; (2) the influence of these federal requirements on states' decisions to use nonfederal or federal funds for highway projects; and (3) the challenges associated with the federal requirements and strategies used or proposed to address the challenges. To complete this work, GAO reviewed 30 studies, surveyed DOTs in all states and the District of Columbia, and interviewed transportation officials and other stakeholders.

Several of the studies GAO reviewed describe the benefits of environmental requirements for highway projects, such as better protection for wetlands, but none attempted to quantify these benefits. Some studies quantified certain types of environmental costs, such as costs for administering NEPA. In general, however, quantitative information on environmental benefits and costs is limited because states do not generally track such information. Several studies attempted to quantify the benefits and costs of the Davis-Bacon prevailing wage requirement; however, these studies did not focus on transportation projects specifically. Furthermore, while the studies reviewed did not identify the benefits of the DBE program, transportation officials identified some benefits of the program, such as providing greater opportunities for DBE firms. One study we reviewed identified the benefits of the Buy America program, including protecting against unfair competition from foreign firms. The studies reviewed also identified, and in some cases quantified, the costs of the DBE and Buy America programs, including administrative costs and the use of higher priced iron and steel in projects. Of the 51 state DOTs GAO surveyed, 39 reported that, in the past 10 years, federal requirements had influenced their decision to use nonfederal funds for highway projects that were eligible for federal aid. Thirty-three of these state DOTs reported that NEPA factored into their decision to use nonfederal funds, while the other three requirements GAO reviewed were a factor only in a few states. State officials said that they use nonfederal funds for certain projects to avoid project delays or costs associated with the federal requirements or because of other factors, such as requirements imposed by a state legislature. A state's funding decision may depend on whether the state has requirements similar to these federal requirements. The decision may also take into consideration the availability of nonfederal and federal funds. For example, officials from one state said that they have limited nonfederal funds available, and as a result, like other states GAO interviewed, rely on the federal funds to finance their highway projects. According to transportation officials and contractors, administrative tasks associated with the federal requirements pose challenges. For example, analyzing impacts and demonstrating compliance with NEPA requires extensive paperwork and documentation. State officials also said that coordinating with multiple government agencies on environmental reviews is challenging, in part because these agencies may have competing interests. Furthermore, according to state DOTs, some provisions of the federal requirements may be outdated. For example, the $2,500 regulatory cost threshold for compliance with the Buy America program for purchasing domestic steel and $750,000 regulatory personal net worth ceiling of the DBE program have not been updated since 1983 and 1999, respectively. All of these challenges may cause delays and increase project costs. Some government agencies have implemented strategies to address these challenges and these strategies have had varied success in decreasing project costs and delays.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In December 2008, GAO found that some provisions within federal requirements for highway project construction or expansion were outdated. Specifically, the $750,000 regulatory personal net worth ceiling of U.S. Department of Transportation's (DOT) Disadvantage Business Enterprise (DBE) program had not been updated since 1999. U.S. DOT established this ceiling in 1999 to ensure that wealthy individuals are not allowed to participate in the program. U.S. DOT established the $750,000 limit based on what they believed to be a well-established and effective part of the Small Business Administration's (SBA) assistance programs for small disadvantaged businesses and because the $750,000 figure provided for a reasonable middle ground in view of the wide range of suggestions calling for higher or lower ceilings. U.S. DOT officials said that they had not revised this ceiling since 1999 because SBA had not adjusted the thresholds for its SBA programs. Furthermore, according to a U.S. DOT official, since courts look closely at whether the DBE program is "over-inclusive" (i.e., serving people that it is not intended for), the ceiling had become important to the constitutional defense of the program as several federal court decisions have cited the existence of the ceiling as one of the factors leading them to uphold the program's constitutionality. According to state DOT officials, however, the $750,000 ceiling did not meet economic standards and had not kept up with current inflation rates. Additionally, officials from one state government agency said that the outdated DBE provision made it challenging to recruit minority- and women-owned firms to work on federal highway projects. To address this challenge, GAO recommended that the Secretary of DOT re-evaluate regulatory DBE personal net worth ceiling. In January 2011, U.S. DOT issued a final rule stating that it evaluated the ceiling and that it increased the ceiling to $1.32 million to reflect inflation that had occurred. As a result of increasing the ceiling, state DOTs are better positioned to hire minority- and women-owned firms on federally-funded highway projects.

    Recommendation: To address the challenges associated with the federal requirements we reviewed, to better ensure that federal funds are used as efficiently as possible, and to assist states in minimizing project delays and costs associated with federal requirements, the Secretary of Transportation should re-evaluate the $2,500 regulatory threshold for the Buy America program and the $750,000 regulatory personal net worth ceiling of the DBE program, and modify them, if necessary, through appropriate rulemaking.

    Agency Affected: Department of Transportation


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