CONSOLIDATED FINANCIAL STATEMENTS FOR
FISCAL YEARS 2003 AND 2002

DEPARTMENT OF TRANSPORTATION

Report Number: FI-2004-031
Date Issued: January 30, 2004

U.S. Department of Transportation
Consolidated Balance Sheet

As of September 30, 2003
(Dollars in Thousands)

U.S. Department of Transportation
Consolidated Statement of Net Cost

As of September 30, 2003
(Dollars in Thousands)

U.S. Department of Transportation
Consolidated Statement of Net Cost

As of September 30, 2003
(Dollars in Thousands)

    U.S. Department of Transportation
Consolidated Statement of Changes in Net Position

As of September 30, 2003
(Dollars in Thousands)

U.S. Department of Transportation
Combined Statement of Budgetary Resources

As of September 30, 2003
(Dollars in Thousands)

U.S. Department of Transportation
Combined Statement of Budgetary Resources

As of September 30, 2003
(Dollars in Thousands)

U.S. Department of Transportation
Consolidated Statement of Financing

As of September 30, 2003
(Dollars in Thousands)

U.S. Department of Transportation
Consolidated Statement of Financing

As of September 30, 2003
(Dollars in Thousands)

Note 1.  Significant Accounting Policies:

A.  Basis of Presentation

The Departmental consolidated financial statement has been prepared to report the financial position and results from operations of the Department of Transportation (DOT), as required by the Chief Financial Officers Act of 1990 (CFO Act), as amended by the Federal Financial Management Act of 1994 (FFMA), Title IV of the Government Management Reform Act of 1994 (GMRA).  The statement has been prepared from the books and records of DOT in accordance with Office of Management and Budget (OMB) requirements for form and content for entity financial statements and DOT’s accounting policies and procedures.  OMB Bulletin No. 01-09, “Form and Content of Agency Financial Statements,” has been used to prepare the Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, Statement of Budgetary Resources, and Statement of Financing.  They are different from the financial reports prepared pursuant to OMB directives that are used to monitor and control the use of budgetary resources.

The Balance Sheet presents agency assets and liabilities, and the difference between the two, which is the agency net position.  Agency assets include both entity assets (those which are available for use by the agency) and non-entity assets (those which are managed by the agency but not available for use in its operations).  Agency liabilities include both those covered by budgetary resources (funded) and those not covered by budgetary resources (unfunded).

The Statement of Net Cost presents the gross costs of programs less earned revenue to arrive at the net cost of operations for both programs and for the agency as a whole.

The Statement of Changes in Net Position reports beginning balances, budgetary and other financing sources, and net cost of operations, to arrive at ending balances.

The Statement of Budgetary Resources provides information about how budgetary resources were made available as well as their status at the end of the period.  Recognition and measurement of budgetary information reported on this statement is based on budget terminology, definitions, and guidance in OMB Circular No. A-11, “Preparation, Submission, and Execution of the Budget,” dated July 2003. 

The Statement of Financing is intended to be a bridge between an entity’s budgetary and financial (i.e., proprietary) accounting.  The Statement of Financing illustrates the relationship between net obligations derived from an entity’s budgetary accounts and net cost of operations derived from an entity’s proprietary accounts by identifying and explaining key differences between the two numbers.  Since DOT custodial activity is incidental to Departmental operations and not material, a Statement of Custodial Activity was not prepared.  However, sources and dispositions of collections have been disclosed in Note 22 to the financial statements.

The Department is required to be in substantial compliance with all applicable accounting principles and standards established, issued, and implemented by the Federal Accounting Standards Advisory Board (FASAB), which is recognized by the American Institute of Certified Public Accountants (AICPA) as the entity to establish Generally Accepted Accounting Principles (GAAP) for the Federal Government.  The Federal Financial Management Improvement Act (FFMIA) of 1996 requires the Department to comply substantially with (1) Federal financial management systems requirements, (2) applicable Federal accounting standards, and (3) the U.S. Government Standard General Ledger at the transaction level.  

B.  Reporting Entity

DOT serves as the focal point in the Federal Government for the Coordinated National Transportation Policy.  It is responsible for ensuring the safety of all forms of transportation; protecting the interests of consumers; international transportation agreements; conducting planning and research for the future; and helping cities and States meet their local transportation needs through financial and technical assistance. 

The Department is comprised of the Office of the Secretary and the DOT Operating Administrations, each having its own management and organizational structure and collectively providing the necessary services and oversight to ensure the best transportation system possible.  The Departmental consolidated financial statement represents the financial data, including various trust funds, revolving funds, appropriations and special funds of the following organizations:

Office of The Secretary (OST) (includes OST Working Capital Fund)
Federal Aviation Administration (FAA)
Federal Highway Administration (FHWA)
Federal Motor Carrier Safety Administration (FMCSA)
Federal Railroad Administration (FRA)
National Highway Traffic Safety Administration (NHTSA)
Maritime Administration (MARAD)
Federal Transit Administration (FTA)
Bureau of Transportation Statistics (BTS)
Surface Transportation Board (STB)
Office of Inspector General (OIG)
Research and Special Programs Administration (RSPA) (includes Volpe National Transportation System Center (VNTSC)    

Effective March 1, 2003, the U.S. Coast Guard (USCG) and the Transportation Security Administration (TSA) were transferred from DOT to the newly created Department of Homeland Security (DHS) as mandated under P.L. 107-296, the Homeland Security Act of 2002.  The Departmental consolidated financial statements contain their activities through the date of the transfer. 

The Saint Lawrence Seaway Development Corporation (SLSDC) is also an entity of DOT.  However, since it is subject to separate reporting under the Government Corporation Control Act and the dollar value of its activities is not material to Departmental totals, SLSDC’s financial data have not been consolidated in the DOT financial statements.  However, condensed information about SLSDC’s financial position is included in Note 23.

C.  Budgets and Budgetary Accounting

DOT follows standard Federal budgetary accounting policies and practices in accordance with OMB Circular No. A-11, “Preparation, Submission, and Execution of the Budget,” dated July 2003.  Budgetary accounting facilitates compliance with legal constraints and controls over the use of Federal funds.  Each year, Congress provides each Operating Administration within DOT appropriations to incur obligations in support of agency programs.  For FY 2003, the Department was accountable for trust fund appropriations, general fund appropriations, revolving funds and borrowing authority.  DOT recognizes budgetary resources as assets when cash (funds held by Treasury) is made available through warrants and trust fund transfers.

D.  Basis of Accounting

Transactions are generally recorded on an accrual accounting basis and a budgetary basis.  Under the accrual method, revenues are recognized when earned, and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash.  Budgetary accounting facilitates compliance with legal constraints and controls over the use of Federal funds.  

E.  Revenues and Other Financing Sources

DOT receives the majority of the funding needed to support all of its programs through appropriations.  The Highway Trust Fund, Airport and Airway Trust Fund, and the Treasury General Fund fund some of these appropriations.  DOT receives annual, multi-year and no-year appropriations that may be used, within statutory limits, for operating and capital expenditures.  Additional amounts are obtained from offsetting collections and user fees (e.g., landing and registry fees) and through reimbursable agreements for services performed for domestic and foreign governmental entities.  Additional revenue is earned from gifts from donors, sales of goods and services to other agencies and the public, the collection of fees and fines, interest/dividends on invested funds, loans and cash disbursements to banks.  Interest income received is recognized as revenue on the accrual basis.  Appropriations are recognized as revenues as the related program or administrative expenses are incurred.

F.  Funds with the U.S. Treasury and Cash

DOT does not generally maintain cash in commercial bank accounts.  Cash receipts and disbursements are processed by the U.S. Treasury.  The funds with the U.S. Treasury are appropriated, revolving, and trust funds that are available to pay current liabilities and finance authorized purchases.  DOT has substantially reduced the number of petty cash (imprest) funds outside the U.S. Treasury to reduce the amount of cash paid outside of Treasury.  This reduces the amount of interest that must be paid to borrow funds.  Lockboxes have been established with financial institutions to collect payments, and these funds are transferred directly to Treasury on a daily (business day) basis.  DOT does not maintain any balances of foreign currencies. 

G.  Receivables

Accounts receivable consist of amounts owed to the Department by other Federal agencies and the public.  Federal accounts receivable are generally the result of the provision of goods and services to other Federal agencies and, with the exception of occasional billing disputes, are considered to be fully collectible.  Public accounts receivable are generally the result of the provision of goods and services or the levy of fines and penalties from the Department’s regulatory activities.  Amounts due from the public are presented net of an allowance for loss on uncollectible accounts, which is based on historical collection experience and/or an analysis of the individual receivables.      

Loans are accounted for as receivables after funds have been disbursed.  For loans obligated prior to October 1, 1991, loan principal, interest, and penalties receivable are reduced by an allowance for estimated uncollectible amounts.  The allowance is estimated based on past experience, present market conditions, and an analysis of outstanding balances.  Loans obligated after September 30, 1991, are reduced by an allowance equal to the present value of the subsidy costs (due to the interest rate differential between the loans and Treasury borrowing, the estimated delinquencies and defaults net of recoveries, the offset from fees, and other estimated cash flows) associated with these loans.

H.  Inventory and Operating Materials and Supplies

Inventory primarily consists of supplies that are for sale or used in the production of goods for sale.  Operating materials and supplies primarily consist of unissued supplies that will be consumed in future operations.  Valuation methods for supplies on hand at yearend include historical cost, last acquisition price, standard price/specific identification, standard repair cost, weighted average, and moving weighted average.  Expenditures or expenses are recorded when the materials and supplies are consumed or sold.  Adjustments for the proper valuation of reparable, excess, obsolete, and unserviceable items are made to appropriate allowance accounts.

I.  Investments in U.S. Government Securities

Investments that consist of U.S. Government Securities are reported at cost or amortized cost net of premiums or discounts.  Premiums or discounts are amortized into interest income over the term of the investment using the interest or straight-line method.  The Department’s intent is to hold investments to maturity, unless they are needed to cover losses on loan guarantees, finance programs, or otherwise sustain the operation of the organization.  Investments, redemptions, and reinvestments are controlled and processed by the Department of the Treasury.

J.  Property and Equipment

DOT agencies have varying methods of determining the value of property and equipment and how it is depreciated.  DOT currently has a capitalization threshold of $200,000 for structures and facilities and for internal use software, and $25,000 for other property, plant and equipment.  Capitalization at lesser amounts is permitted.  Construction in progress is valued at direct (actual) costs plus applied overhead and other indirect costs as accumulated by the regional project material system.  The system accumulates costs by project number assigned to the equipment or facility being constructed.  The straight line method is used to depreciate capitalized assets.

FASAB standards require DOT stewardship assets to be omitted from the Balance Sheet.  Information on DOT stewardship assets, as well as stewardship investments, is presented in the Required Supplementary Stewardship Reporting section of this statement.

Effective for FY 2003, FASAB eliminated the category of National Defense Property, Plant and Equipment.  This has resulted in MARAD’s National Defense Reserve Fleet Vessels now being reported as General Property, Plant and Equipment on the Balance Sheet.

K.  Prepaid and Deferred Charges

Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of prepayment and recognized as expenses when the related goods and services are received.

L.  Liabilities

Liabilities represent amounts expected to be paid as the result of a transaction or event that has already occurred.  Liabilities covered by budgetary resources are liabilities incurred which are covered by realized budgetary resources as of the balance sheet data.  Available budgetary resources include new budget authority, spending authority from offsetting collections, recoveries of unexpired budget authority through downward adjustments of prior year obligations, unobligated balances of budgetary resources at the beginning of the year or net transfers of prior year balances during the year, and permanent indefinite appropriations or borrowing authority.  Unfunded liabilities are not considered to be covered by such budgetary resources.  An example of an unfunded liability is actuarial liabilities for future Federal Employees’ Compensation Act payments.  The Government, acting in its sovereign capacity, can abrogate liabilities arising from other than contracts.

The grant accrued liability consists of requests for payments from grantees outstanding at September 30, 2003, plus an accrual for grantee expenses incurred but not yet reported to the Department as of September 30, 2003.

M.  Contingencies

The criteria for recognizing contingencies for claims are (1) a past event or exchange transaction has occurred as of the date of the statements; (2) a future outflow or other sacrifice of resources is probable; and (3) the future outflow or sacrifice of resources is measurable (reasonably estimated).  DOT recognizes material contingent liabilities in the form of claims, legal action, administrative proceedings and environmental suits that have been brought to the attention of legal counsel, some of which will be paid by the Treasury Judgment Fund.  It is the opinion of management and legal counsel that the ultimate resolution of these proceedings, actions and claims, will not materially affect the financial position or results of operations. 

N.  Annual, Sick, and Other Leave

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken.  Accruals for other leave (e.g., credit hours and compensatory leave) are also recorded in the financial statement.  Under the OST Working Capital Fund, the liability for accrued annual leave is a funded item.  To the extent current or prior year appropriations are not available to fund annual leave earned but not taken, funding will be obtained from future financing sources.  Sick leave and other types of non-vested leave are expended as taken.

Air Traffic Controllers covered under the Federal Employees Retirement System (FERS) are eligible, upon retirement, for a sick leave buy back option.  Under this option, an employee who attains the required number of years of service for retirement shall receive a lump sum payment for forty percent of the value of his or her accumulated sick leave as of the effective date of retirement. 

O.  Retirement Plan

For DOT employees who participate in the Civil Service Retirement System (CSRS), DOT contributes a matching contribution equal to 7 percent of pay.  On January 1, 1987, FERS went into effect pursuant to Public Law (P.L.) 99-335.  Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security.  Employees hired prior to January 1, 1984, could elect to either join FERS and Social Security or remain in CSRS.  A primary feature of FERS is that it offers a savings plan to which DOT automatically contributes 1 percent of pay and matches any employee contribution up to an additional 4 percent of pay.  For most employees hired since December 31, 1983, DOT also contributes the employer’s matching share for Social Security.

Employing agencies are required to recognize pensions and other post retirement benefits during the employees’ active years of service.  Reporting the assets and liabilities associated with such benefits is the responsibility of the administering agency, the Office of Personnel Management.  Therefore, DOT does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities, if any, applicable to employees. 

P.  Comparative Data

Comparative data for the prior year have been presented for the principal financial statements and their related notes. 

Q.  Use of Estimates

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, expenses, and in the note disclosures.  Actual results could differ from these estimates.  Significant estimates underlying the accompanying financial statements include (a) the allocation of trust fund receipts by the Office of Treasury’s Assessment (OTA), (b) yearend accruals of accounts and grants payable, (c) accrued workers’ compensation, and (d) allowance for doubtful accounts receivable.  Actual results may differ from these estimates.

Note 3.  Fund Balance with Treasury:

Fund Balances with Treasury are the aggregate amounts of the entity's accounts with Treasury for which the entity is authorized to make expenditures and pay liabilities.  Other Fund Types include uncleared Suspense Accounts, which temporarily hold collections pending clearance to the applicable account, and Deposit Funds, which are established to record amounts held temporarily until ownership is determined.

Note 4.  Investments:

As of September 30, 2003:
(Dollars in Thousands)

Notes to the Financial Statements Investments in Federal securities include non-marketable par value Treasury securities,market-based Treasury securities, marketable Treasury securities, and securities issued by other Federal entities.  Non-Federal securities include those issued by state and local governments, Government-sponsored enterprises, and other private corporations.  Marketable Federal securities can be bought and sold on the open market.  Non-marketable par value Treasury securities are issued by the Bureau of Public to Federal accounts and are purchased and redeemed at par exclusively through Treasury's Federal Investment Branch.  Non-marketable market-based Treasury securities are also issued by the Bureau of Public Debt to Federal accounts. They are not traded on any securities exchange but mirror the prices of particular Treasury securitiestrading in the Government securities market.  Amortization is done using the interest or straight-line method.  Private corporation stock consisted of common stock in Coast Guard's Gift Fund. 

Note 7. Cash, Foreign Currency and Other Monetary Assets.

Note 8. Direct Loans and Loan Guarantees, Non-Federal Borrowers.

Note 9. Inventory and Related Property.

All DOT inventory is in FAA and the OST Working Capital Fund.  Valuation methods used include weighted moving average cost and the periodic inventory method. 

DOT operating materials and supplies are in FAA and MARAD.  Valuation methods used include historical cost, last acquisition price, standard price/specific identification, standard repair cost, weighted average, and weighted moving average cost.  The only restriction on use is that FAA is not permitted to donate.

The decrease in Inventory and Related Property is attributed to the Coast Guard transfer to the Department of Homeland Security on March 1, 2003.

(Dollars in Thousands)

Depreciation is computed using the straight line method.  Net book value of multi-use heritage assets is now included in general property, plant and equipment, while "physical quantity" information is included in the Heritage Assets section of Required Supplemental Stewardship Information.

FASAB has eliminated the stewardship asset classification of National Defense Property, Plant and Equipment.  The Maritime Administration's implementation of this proposal has resulted in the addition of approximately $800 million net book value of National Defense Reserve Fleet Vessels to DOT's General Property, Plant and Equipment.

The decrease in Property, Plant and Equipment is attributed to the Coast Guard transfer to the Department of Homeland Security on March 1, 2003.

* Key:

Range of Service Life

Note 11. Liabilities Not Covered by Budgetary Resources.

(Dollars in Thousands)

The decrease in Liabilities is attributed to the Coast Guard transfer to the Department of Homeland Security on March 1, 2003.

Note 12. Debt.

Net Change During Fiscal Year includes new borrowing, repayments and net change in accrued payables.  Debt to the Treasury and to the Federal Financing Bank is for FRA direct loans to railroads, for FHWA direct loans under the Transportation Infrastructure Finance and Innovation Act (TIFIA), for MARAD Title XI guaranteed loans, and for the FAA Aircraft Purchase Loan Guarantee Program.

Note 13. Other Liabilities.

(Dollars in Thousands)

Accrued pay and benefits pertain to unpaid pay and benefits, and may be either current or non-current. Agency expenses for payments made under the Federal Employees Compensation Act (FECA) are forwarded to the Department of Labor (DOL).  Funding for FECA is normally appropriated to agencies in the fiscal year two years subsequent to the actual FECA billing from DOL. 

(Dollars in Thousands)

The Coast Guard Military Retirement System (covering both retirement pay and health care benefits) is funded through annual appropriations and, as such, is essentially a pay-as-you-go system. Consequently, the only assets in the system are unintentional overpayments in the past which are due to be repaid by participants.  The unfunded figures reported above reflect the actuarial accrued liability for both retired pay and health care benefits.  Calculation of these numbers is a multi-step process.  First, an "actuarial present value of accumulated plan benefits" is derived from the future payments that are attributable under the retirement plan's provisions to a member's credited service as of the valuation date (e.g., benefits to retired members or their beneficiaries).  The accumulated plan benefits are converted to a present value of future benefits by applying assumptions to reflect the time value of money and the probability of payment between the valuation date and expected date of payments.  The significant actuarial assumptions used in this conversion include:  life expectancy, cost of living increases, and investment return.  The present value of future benefits is then converted to an unfunded accrued liability by subtracting the present value of future employer/employee normal contributions as well as any assets in the system.  Effective March 1, 2003, the Coast Guard was transferred from DOT to the newly created Department of Homeland Security (DHS).  Therefore, Coast Guard Retired Pay and Military Health Care are now reported as DHS liabilities.

Federal Employees' Compensation Act liabilities include the expected liability for death, disability, medical, and miscellaneous costs for approved compensation cases, plus a component for incurred but not reported claims.  The liability is determined using a method that utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payments related to that period.  Consistent with past practice, these projected annual benefit payments have been discounted to present value using the Office of Management and Budget's economic assumptions for 10-year Treasury notes and bonds. 

Note 15. Environmental and Disposal Liabilities.

Environmental cleanup generally occurs under the Resource Conservation and Recovery Act of 1976 (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund), or the Toxic Substances Control Act (TSCA).  Environmental remediation includes the fuel storage tank program, fuels, solvents, industrial, and chemicals, and other environmental cleanup associated with normal operations or as a result of an accident.  Cost estimates for environmental and disposal liabilities are not adjusted for inflation and are subject to revision as a result of changes in technology and environmental laws and regulations.

In FY 2003, the Maritime Administration's National Defense Reserve Fleet retention and non-retention ships are included in DOT's environmental and disposal liabilities.  In prior years, only non-retention ships had been reported as environmental liabilities, because the retention ships were in a sellable condition and the net environmental liability after the sale was expected to be immaterial.  However, the likelihood of selling the retention ships has diminished in FY 2003, and it is now probable that an environmental liability will be incurred.

ENTITY AS LESSEE:

Capital Leases:

(Dollars in Thousands)

Description of Lease Arrangements:  Capital leases cover land and buildings at FAA's Mike Monroney Aeronautical Center (MMAC) in Oklahoma City, Oklahoma, and at the William J. Hughes Technical  Center (WJHTC) located in Pomona, New Jersey.  FAA's capital lease payments are funded annually.  FAA also has capital leases on machinery and equipment.

Future Payments Due:

Operating Leases:

Description of Lease Arrangements:  Operating leases include a RSPA lease for the Transportation Safety Institute North Campus and FAA leases for property, aircraft, equipment, and telecommunications.

Future Payments Due:

ENTITY AS LESSOR:

Capital Leases:      N/A

Operating Leases:

Description of Lease Arrangements   FAA leases Ronald Reagan Washington National Airport and Washington Dulles International Airport to the Metropolitan Washington Airports Authority, the airports' sponsor.  The lease took effect in March 1987 for $3 million per year for a 50-year term.   Subsequent annual rental payments are adjusted by applying the Implicit Price Deflator for the Gross National Product published by the Department of Commerce.  Additionally, the parties may renegotiate the level of lease payments attributable to inflation costs every ten years.   Upon lease expiration, the airports and facilities, originally valued at $244 million, together with any improvements thereto, will revert to the Federal Government.  In addition, FAA leases equipment to foreign governments and leases parcels of Government-owned land, generally for agriculture. 

Future Projected Receipts:

Legal Claims.  As of September 30, 2003 and 2002, FAA's contingent liabilities for asserted and pending legal claims reasonably possible of loss were estimated at $325.5 million and $499.8 million, respectively.  FAA does not have material amounts of known unasserted claims.  MARAD has a  legal liability of $606,200 as a result of civil rights claims against the Department.

Grant Programs.  FHWA pre-authorizes states to establish construction budgets without having received appropriations from Congress for such projects.  FHWA does not guarantee the ultimate funding to the states for these "Advance Construction" projects and, accordingly, does not obligate any funds for these projects.  When funding becomes available to FHWA, the states can then apply for reimbursement of costs that they have incurred on such project, at which time FHWA can accept or reject such request.  At September 30, 2003, $34.5 billion has been pre-authorized under these arrangements; however, no liability is reflected in the DOT financial statements at September 30, 2003, for these arrangements.

FTA executes Full Funding Grant Agreements (FFGAs) under its Capital Investment program (New Starts) authorizing transit authorities to establish project budgets and incur costs with their own funds in advance of annual appropriations by Congress.  As of September 30, 2003, approximately $2.469 billion in Section 5309 New Starts funds has been committed under FFGAs, but not yet appropriated by Congress.  However, no liability is reflected in the DOT financial statements at September 30, 2003, for these agreements.

FAA has legal authority to issue Letters of Intent (LOIs) to enter into Airport Improvement Program (AIP) grant agreements.  Through September 30, 2003, FAA issued LOIs covering FY 1988 through FY 2014 totaling $4.5 billion.  As of September 30, 2003, FAA had obligated $3.0 billion of this total amount, leaving $1.5 billion unobligated.  As of September 30, 2002, LOIs covering FY 1988 through FY 2014 totaled $4.3 billion.  Of this amount, FAA had obligated $2.7 billion, leaving $1.6 billion unobligated as of September 30, 2002.

FY 2003 AIP grant authority totaled $3.3 billion, including $2.1 billion in entitlements to specific locations.  Of entitlements to specific locations, sponsors have claimed $1.8 billion, and $336 million remains available from unused or newly enacted contract authority to those sponsors through FY 2005, or in the case of non-hub primary airport locations, through FY 2006.  In FY 2002, AIP grant authority was $3.5 billion, including $1.7 billion in entitlements to specific locations.  Of entitlements to specific locations, the sponsors had claimed $1.4 billion, and $355 million remained available from unused or newly enacted contract authority to those sponsors through FY 2004, or in the case of non-hub primary airport locations, through FY 2005.

Contract Options and Negotiations.  As of September 30, 2003 and 2002, FAA had contract options of $32.8 billion and $19.9 billion, respectively.  These contract options give FAA the unilateral right to purchase additional equipment or services or to extend the contract terms.  Exercising this right would require the obligation of funds in future years.

As of September 30, 2003 and 2002, FAA had a total of $21.6 million and $42.1 million, respectively, in commitments (funds reserved for possible future obligations) under unexpired appropriations.  The commitments were for purchases of goods and services for which contract negotiations have not been completed (i.e., agency obligations had not been incurred) at the end of each respective fiscal year.

Aviation Insurance Program.  FAA is authorized to issue hull and liability insurance under the Aviation Insurance Program for air carrier operations for which commercial insurance is not available on reasonable terms and when continuation of U.S. flag commercial air service is necessary in the interest of air commerce, national security, and the U.S. foreign policy.  FAA may issue (1) non-premium insurance, and (2) premium insurance for which a risk-based premium is charged to the air carrier.

FAA maintains standby non-premium war-risk insurance policies for 38 carriers having approximately 975 aircraft available for Defense or State Department charter operations. 

On September 22, 2001, the premium insurance program was expanded by the Air Transportation Safety and System Stabilization Act (Public Law 107-42) to include all scheduled domestic air carriers. Under this program, FAA has provided temporary war-risk insurance, for typically 60-day periods,  to U.S. carriers whose coverage was cancelled following the terrorist attacks on September 11, 2001.  Insured air carrier per occurrence limits, for combined hull and liability coverage, range from $100 million to $4 billion.  Total insurance in force for hull coverage as of September 30, 2003, was $172.7 billion.  Public Law 108-11 mandated FAA to extend policies in effect on June 19, 2002, until August 31, 2004.  The period of coverage in effect as of September 30, 2003, was from August 13 to October 11, 2003.  There are 76 FAA war risk policies.

The issuance of temporary war-risk coverage to all scheduled domestic carriers provides necessary insurance to qualifying carriers while allowing time for the commercial insurance market to stabilize. Premiums under this program are established by FAA and are assessed per departure.  During FY 2003 and FY 2002, FAA recognized insurance premium revenue of $     million and $74.6 million, respectively.  Premiums are recognized as revenue on a straight-line basis over the period of  coverage. 

In the past, FAA has insured a small number of air carrier operations and establishes a maximum liability for losing one aircraft.  Typically, the maximum liability for both hull loss and liability, per aircraft, is $1.75 billion.  No claims for losses were pending as of September 30, 2003, or 2002. Since the inception of the Aviation Insurance Program (including the predecessor Aviation War Risk Insurance Program dating back to 1951), only four claims, all involving minor dollar amounts, have been paid.  Because of the unpredictable nature of war risk and the absence of historical claims experience on which to base an estimate, no reserve for insurance losses has been recorded.

Overflight User Fees.  FAA issued an interim final rule (IFR), effective on August 1, 2000, followed by a Final Rule, effective on August 20, 2001, that required certain aircraft operators to pay fees for air traffic control and related services provided by FAA to aircraft that operate in U.S.-controlled airspace but neither take off nor land in the U.S.  The authority to charge these fees is contained in the Federal Aviation Reauthorization Act of 1996, as amended.  Several airlines and an air carrier association challenged this IFR in the U.S. Court of Appeals.  FAA issued the Final Rule while the IFR litigation was still pending.  The same group of plaintiffs then brought suit against the Final Rule, and the Court combined the two cases. 

FAA had recognized $79.7 million in revenue, including $19.8 million and $27.6 million in FY 2003 and FY 2002, respectively, before it ceased billing in light of an adverse decision in the U.S. Court of Appeals on April 8, 2003.  The period for appealing that decision to the Supreme Court expired on October 31, 2003.  Congress has since enacted, in the FAA Reauthorization Act signed by the President on December 12, 2003, a provision on overflight fees that affects past and future fee collections.  FAA's ability to retain these fees in light of the new legislation is under review. 

Environmental.  FAA is a party to two major environmental remediation projects in which the extent of liability is unknown.  A study is in process to determine the magnitude and scope of the remediation required at the two sites.  Of the total environmental liability reported as of September 30, 2003, and 2002, the amount related to these two sites is $61.6 million and $67.7 million, respectively.  This liability includes FAA's share of the known remediation cost and the cost to complete the study.

Note 18. Net Cost by Program.

(Dollars in Thousands)

(Dollars in Thousands)

Note 20. Statement of Changes in Net Position.

Prior Period Adjustments:

Prior Period Adjustments for FY 2003 are due primarily to a change in FASAB accounting standards.  Effective for FY 2003, FASAB eliminated the category of National Defense Property, Plant and Equipment.  This required MARAD's National Defense Reserve Fleet Vessels to be reported as General Property, Plant and Equipment.

Non-Exchange Revenue:

Highway Trust Fund
(Dollars in Thousands)

The IRS collects various taxes on behalf of the Highway Trust Fund.  These taxes can only be withdrawn as authorized by DOT appropriations.  Treasury estimates the taxes to be collected each quarter and adjusts the estimates by actual collections.

Federal Aviation Administration:

The IRS collects various excise taxes on behalf of FAA's Airport and Airway Trust Fund.  These taxes can be withdrawn only as authorized by FAA appropriations.  Twice a month, Treasury estimates the amount collected, and adjusts the estimates by actual collections quarterly.  Accordingly, the total taxes recognized for the years ended September 30, 2003 and 2002, included OTA's estimate of $2.9 billion and $2.5 billion for the quarters ending September 30, 2003 and 2002, respectively.

Transfers In/Out:

DOT Transfers In/Out Without Reimbursement for FY 2003 were due primarily to the March 1, 2003, transfer of Coast Guard and the Transportation Security Administration to the Department of Homeland Security.

(Dollars in Thousands)

Significant restatements were made to the amounts previously reported on the Statement of Budgetary Resources (SBR) at September 30, 2002.  One group of adjustments related to the accounting for the Highway Corpus Fund investment, which resulted in a net increase to "Total Budgetary Resources" and "Total Status of Budgetary Resources" of $16,150,752 at September 30, 2002.  The other adjustment related to amounts previously categorized as "Temporarily Not Available Pursuant to Public Law."  The change in this categorization resulted in an increase in "Total Budgetary Resources" and "Total Status of Resources" by $24,379,631 at September 30, 2002.  These amounts are not available for obligation as a result of obligation limitations contained in the DOT Appropriations Acts.

Existence, Purpose, and Availability of Permanent Indefinite Appropriations:

FAA has permanent indefinite appropriations for the Facilities and Equipment, Grants-in-Aid, and Research, Development and Engineering appropriations in order to fully fund special projects that were on-going and spanned several years.

Additional Disclosures:

Unobligated balances of budgetary resources for unexpired accounts are available in subsequent years until expiration, upon receipt of an apportionment from OMB.  Unobligated balances of expired accounts are not available.

There are no material differences between the information required by SFFAS Number 7 and the amounts described as "actual" in the "Budget of the United States Government" for FY 2005, which is not final at this time.

Note 22. Incidental Custodial Collections.

Revenue Activity:
(Dollars in Thousands)

(Dollars in Thousands)

Effective March 1, 2003, the U.S. Coast Guard was transferred from the Department of Transportation (DOT) to the Department of Homeland Security.  Therefore, the Coast Guard’s heritage assets are no longer included in DOT’s heritage assets.

Artifacts are those of the U.S. Coast Guard and Maritime Administration.  Maritime Administration artifacts are generally on loan to single purpose memorialization and remembrance groups, such as AMVets and preservation societies.  Coast Guard artifacts can be divided into four general areas:  ship’s equipment, lighthouse and other aids-to-navigation items, military uniforms, and display models.  The addition of artifacts is the result of gifts to the Coast Guard.

Ship’s equipment is generally acquired when the ship is decommissioned and includes small items such as sextants, ship’s clocks, wall plaques, steering wheels, bells, binnacles, engine order telegraphs, and ship’s name boards.  Conditions vary, but much is worn out from decades of use.

Aids-to-navigation items include fog and buoy bells, lanterns, lamp changing apparatus, and lighthouse lenses.  Buoy equipment tends to be worn out and is usually acquired only when new technology makes it obsolete.  Classical lighthouse lenses vary greatly in condition.  The condition is normally dependent on how long the item has been out of service and not maintained.  Most of the good lenses go to local museums or Coast Guard bases as display items.

Military uniforms are generally donated by retired Coast Guard members, and include clothing as well as insignia and accoutrements.  Most clothing is in fair to good condition, particularly full dress items which saw little daily wear.

Display Models are mostly of Coast Guard vessels and aircraft.  These are often builders’ models.  In addition to being accurate and valuable, they are generally in very good condition.  Builders’ models are acquired by the Coast Guard as part of the contracts with the ship or aircraft builders.  The withdrawal of display models was due to wear and tear. 

Museum and Other Collectionsare owned by the Maritime Administration.  They are merchant marine artifacts, composed of ships’ operating equipment, obtained from obsolete ships.  They are inoperative and in need of preservation and restoration.  Museum items are on loan to organizations whose purpose is historic preservation, education, and remembrance, open to the public during regularly scheduled hours.  Other collections are on loan to public and private entities, the display of which is incidental to maritime affairs, such as county and state buildings, port authorities, pilots associations, public and college libraries, and other organizations.

Non-Collection Typeheritage assets are sunken vessels and aircraft owned by the Coast Guard under the property clause of the U.S. Constitution, Articles 95 and 96 of the International Law of the Sea Convention, and the sovereign immunity provisions of Admiralty law.  Despite the passage of time or the physical condition of these assets, they remain Government-owned until the Congress of the United States formally declares them abandoned.  The USCG desires to retain custody of these assets to safeguard the remains of crew members who were lost at sea, to prevent the unauthorized handling of explosives or ordnance which may be aboard, and to preserve culturally valuable relics of the USCG’s long and rich tradition of service to our nation in harm’s way.

Buildings and Structures include Union Station in Washington, D.C.  Union Station is an elegant and unique turn-of-the-century rail station in which one finds a wide variety of elaborate, artistic workmanship characteristic of the period.  Union Station is listed on the National Register of Historic Places.  The station consists of the renovated original building and a parking garage which was added by the U.S. Park Service.  The Federal Railroad Administration received title to Union Station through appropriated funds and assumption of a mortgage.  Mortgage payments are made by Union Station Venture Limited which manages the property.  Union Station Redevelopment Corporation, a non‑profit group instrumental in the renovation of the station, sublets the operation of the station to Union Station Venture Limited.

As a matter of public law and policy, Coast Guard does not acquire or retain heritage buildings and structures without an operational use.  Most real property, even if designated as historical, is acquired for operational use and is transferred to other government agencies or public entities when no longer required for operations.  In the majority of cases, therefore, any historical property owned by Coast Guard is multi-use heritage.  All multi-use heritage assets are reflected on the balance sheet.

Of the Coast Guard buildings and structures designated as heritage, including memorials, recreational areas and other historical areas, over two-thirds are multi-use heritage.  The remaining are historical lighthouses, which are no longer in use and awaiting disposal; their related assets; and a gravesite.       

During the past year, Coast Guard performed a comprehensive review of buildings and structures to validate historical classification.  In addition to reviewing assets currently classified as heritage and multi-use heritage, civil engineering facilities were also tasked with evaluating other assets, which due to year of construction and/or co-location with a historical lighthouse, could also be reclassified as heritage.  This validation resulted in an increase of heritage assets but had no effect on the balance sheet.

Financial information for multi-use heritage assets is presented in the principal statements and notes.

The Federal Highway Administration reimburses States for construction costs on projects related to the Federal Highway System of roads.  The main programs in which the States participate are the National Highway System, Interstate Systems, Surface Transportation Program, and Congestion Mitigation/Air Quality Improvement.  The States’ contribution is ten percent for the Interstate System and twenty percent for most other programs.

The Federal Transit Administration provides grants to State and local transit authorities and agencies. 

Formula grants provide capital assistance to urban and nonurban areas and may be used for a wide variety of mass transit purposes, including planning, construction of facilities, and purchases of buses and railcars.  Funding also includes providing transportation to meet the special needs of elderly individuals and individuals with disabilities.

Capital investment grants, which replaced discretionary grants in 1999, provide capital assistance to finance acquisition, construction, reconstruction, and improvement of facilities and equipment.  Capital investment grants fund the categories of new starts, fixed guideway modernization, and bus and bus-related facilities.

Washington Metro provides funding to support the construction of the Washington Metrorail System.

Interstate Transfer Grants provided Federal financing from FY 1976 through FY 1995 to allow States and localities to fund transit capital projects substituted for previously withdrawn segments of the Interstate Highway System.

The Federal Aviation Administration (FAA)makes project grants for airport planning and development under the Airport Improvement Program (AIP) to maintain a safe and efficient nationwide system of public-use airports that meet both present and future needs of civil aeronautics.  FAA works to improve the infrastructure of the nation’s airports, in cooperation with airport authorities, local and State governments, and metropolitan planning authorities. 

HUMAN CAPITAL INVESTMENT EXPENSES
ANNUAL STEWARDSHIP INFORMATION, SEPTEMBER 30, 2003
(Dollars in Thousands)

The National Highway Institute develops and conducts various training courses for all aspects of Federal Highway Administration.  Students are typically from the State and local police, State highway departments, public safety and motor vehicle employees, and U.S. citizens and foreign nationals engaged in highway work of interest to the U.S.  Types of courses given and developed are modern developments, technique, management, planning, environmental factors, engineering, safety, construction, and maintenance. 

The National Transit Institute of the Federal Transit Administration develops and offers training courses to improve transit planning and operations.  Technology courses cover such topics as alternative fuels, turnkey project delivery systems, communications-based train controls, and integration of advanced technologies.

The Research and Special Programs Administration administers Hazardous Material Training (Hazmat).  The purpose of Hazmat Training is to train State and local emergency personnel on the handling of hazardous materials in the event of a hazardous material spill or storage problem.

RESEARCH AND DEVELOPMENT INVESTMENTS
ANNUAL STEWARDSHIP INFORMATION, SEPTEMBER 30, 2003
(Dollars in Thousands)

Effective March 1, 2003, the U.S. Coast Guard was transferred from the Department of Transportation (DOT) to the Department of Homeland Security.  Therefore, the Coast Guard’s research and development investments are no longer included in those of DOT.

The Federal Highway Administration’s research and development programs are earmarks in the appropriations bills for the fiscal year.  Typically these programs are related to safety, pavements, structures, and environment.  Intelligent Transportation Systems were created to promote automated highways and vehicles to enhance the national highway system.  The output is in accordance with the specifications within the appropriations act.

The Federal Transit Administration supports research and development in the following program areas: 

Research and development in Transit Planning and Research supports two major areas: the National Research Program and the Transit Cooperative Research Program.  The National Research Program funds the research and development of innovative transit technologies such as safety-enhancing commuter rail control systems, hybrid electric buses, and fuel cell and battery-powered propulsion systems.  The Transit Cooperative Research Program focuses on issues significant to the transit industry with emphasis on local problem-solving research. 

Transit University Transportation Centers, combined with funds from the Highway Trust Fund, provide continued support for research, education, and technology transfer.

Capital investment grants, which replaced discretionary grants in FY 1999, provide capital assistance to finance acquisition, construction, reconstruction, and improvement of facilities and equipment.  Capital investment grants fund the categories of new starts, fixed guideway modernization, and bus and bus-related activities.  

The Research and Special Programs Administration funds research and development activities for the following organizations and activities:

The Office of Pipeline Safety is involved in research and development in information systems, risk assessment, mapping, and non-destructive evaluation.

The Office of Hazardous Materials is involved in research, development, and analysis in regulation compliance, safety, and information systems.

The Office of Emergency Transportation is involved in research and development in mapping software for the Crisis Management Center, transportation policy, and outreach efforts. 

The Office of Research and Technology is involved in research and development for the University of Technology and Education.

The Federal Aviation Administration (FAA) conducts research and provides the essential air traffic control infrastructure to meet increasing demands for higher levels of system safety, security, capacity, and efficiency.  Research priorities include aircraft structures and materials; fire and cabin safety; crash injury-protection; explosive detection systems; improved in-flight icing and ground de-icing operations; better tools to predict and warn of weather hazards, turbulence and wake vortices; aviation medicine, and human factors.

The U.S. Coast Guard funds research, development, testing, and evaluation in the following program areas:

Marine Safety research supports the Coast Guard and Departmental goal of safety by eliminating deaths, injuries, and property damage associated with maritime transportation, fishing, and recreational boating.  Two major initiatives show great potential to help reduce the number of accidents on U.S. waterways:  the development of risk management analytical tools for marine inspection and regulatory missions, and the development of fatigue countermeasures that minimize human error and reduce crew fatigue.  The first pinpoints root-cause safety problems from the galaxy of components that can malfunction on complex marine engineering systems.  The second addresses the 80% of maritime mishaps in which human error was the direct cause or was a major contributing factor.  Other Marine Safety research and development initiatives are focused on more traditional research areas such as:  improving the Computer-Assisted Search Planning (CASP) system used in tactical search and rescue (SAR) operations by more accurately applying all information available on wind, currents, survivor characteristics (i.e., life raft or personal flotation device); reducing the threat of shipboard fires by testing and evaluating ship fire safety systems; improving the coordination of Coast Guard operations through the use of new communications systems; and encouraging state-of-the-art marine engineering design through membership in the Ship Structure Committee (SSC), an interagency consortium that coordinates research to enhance marine safety.

Comprehensive Law Enforcement research supports the Coast Guard’s performance goal of maritime security and DOT’s strategic goal of national security.  These research projects evaluate detection capability improvements, including identifying new technology to counter threats to Coast Guard detection and search devices, resulting in increased probability of detecting illegal smuggling and immigration. 

Marine Environmental Protection research supports the Coast Guard’s performance goal of protection of natural resources and DOT’s strategic goal of human and natural environment.  Marine Environmental Protection R&D projects focus on pollution prevention and response improvements, including developing predictive models and automated tools to improve spill response, and evaluating in-situ burning as a spill response tool.  The Coast Guard R&D program supports pollution response strategies by improving the Coast Guard’s ability to mobilize and respond to major oil and hazardous substance discharges, mitigating the effects on the environment from these pollutants, and improving cleanup capabilities.  The Federal Oil Pollution Research and Technology Plan maps the coordination of activities among responsible Federal agencies and industry to upgrade spill response technology by developing, testing, and evaluating state-of-the-art training and command and control systems, equipment, and procedures.

Waterways management research supports the Coast Guard and Departmental mobility goal and the Departmental goal of economic growth and trade.  Both of these goals rely on establishing an accessible, seamless, efficient, and flexible maritime transportation system.  Coast Guard R&D is working to develop computerized tools to more effectively and efficiently manage their Aids to Navigation system.

[1]      Federal Highway Administration (FHWA), National Highway Traffic Safety Administration (NHTSA), Federal Transit Administration (FTA), Federal Railroad Administration (FRA), Federal Motor Carrier Safety Administration (FMCSA), and the Bureau of Transportation Statistics (BTS).

[2]Federal Highway Administration (FHWA), National Highway Traffic Safety Administration (NHTSA), Federal Transit Administration (FTA), Federal Railroad Administration (FRA), Federal Motor Carrier Safety Administration (FMCSA), and the Bureau of Transportation Statistics (BTS).

[3] Clifton Gunderson also performed audit procedures related to Appropriated accounts and balances in the FY 2003 DOT consolidated financial statement related to Highway Trust Fund agencies, which we relied on.

[4] Outlays are not net of Federal Emergency Management Administration (FEMA) collection of $2.75 billion. 

[5] FY 2001 and FY 2002 outlay amounts are based on the enacted budget authority for FY 1999, FY 2000, and FY 2001 and on the approved outlay rates for the National Transit Institute (5%, 50%, 40%, and 5%).

[6] Does not include funding for the Student Incentive Payment (SIP) Program which produces graduates who are obligated to serve in a reserve component of the United States armed forces.

[7] FY 2002 updated with Transit Cooperative Research Program estimate based on actual outlays. 

[8] Updated based on actual research and development related outlays.