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.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Transportation 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.
Closed – Implemented
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2008, GAO found that some provisions within federal requirements for highway project construction or expansion were outdated.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.

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