Report to Congress on Incentives in Federal Transit Formula Grant
Programs

Report of the Secretary of Transportation to the United States Congress
Pursuant to 49 U.S.C. 5336(c)

August 2008

Prepared by:

Federal Transit Administration

Available from:

Federal Transit Administration

Office of Budget and Policy

1200 New Jersey Avenue, SE Room E52-314

Washington, DC 20590

TABLE OF CONTENTS

[Alphabetical List of Acronyms ii](#alphabetical-list-of-acronyms)

[Executive Summary 2](#executive-summary)

[1. The Availability of Appropriate Measures to be Used as a Basis for
the Distribution of Incentive Payments.
2](#the-availability-of-appropriate-measures-to-be-used-as-a-basis-for-the-distribution-of-incentive-payments.)

[2. The Optimal Number and Size of Any Incentive Programs
2](#the-optimal-number-and-size-of-any-incentive-programs)

[3. What Types of Systems Should Compete for Various Incentives
2](#what-types-of-systems-should-compete-for-various-incentives)

[4. How Incentives Should be Distributed
2](#how-incentives-should-be-distributed)

[5. The Likely Effects of the Incentive Funding System
2](#the-likely-effects-of-the-incentive-funding-system)

[Department of Transportation's Recommendation
2](#department-of-transportations-recommendation)

[1.0 Objectives of the Incentive Study
2](#objectives-of-the-incentive-study)

[2.0 Review of Performance Incentives in Other State and Federal
Programs
2](#review-of-performance-incentives-in-other-state-and-federal-programs)

[2.1 Examples of Incentive Use in Capital Programming Outside the U.S.
Transit Industry to Foster Maintenance and/or Asset Preservation
2](#examples-of-incentive-use-in-capital-programming-outside-the-u.s.-transit-industry-to-foster-maintenance-andor-asset-preservation)

[2.2 Examples of State and MPO Funder's Use of Incentives
2](#examples-of-state-and-mpo-funders-use-of-incentives)

[2.3 Lessons Learned in Using Incentives to Allocate Transit Funding
2](#lessons-learned-in-using-incentives-to-allocate-transit-funding)

[2.4 Summary of Findings from Literature Review
2](#summary-of-findings-from-literature-review)

[3.0 Incentive Systems for the Urbanized Areas (Section 5307) Program
2](#incentive-systems-for-the-urbanized-areas-section-5307-program)

[3.1 Alternative Incentive Systems Considered for Large Urbanized Areas
(Section 5307) Program
2](#alternative-incentive-systems-considered-for-large-urbanized-areas-section-5307-program)

[3.2 Synthesis from Expert Panel Meeting
2](#synthesis-from-expert-panel-meeting)

[3.3 Candidate Incentive Systems for Further Evaluation
2](#candidate-incentive-systems-for-further-evaluation)

[3.4 Previous Industry Experience with Asset Management
2](#previous-industry-experience-with-asset-management)

[3.5 Analysis of a Process-Based Incentive System
2](#analysis-of-a-process-based-incentive-system)

[3.6 Requirements of the CAMP 2](#requirements-of-the-camp)

[3.7 CAMP Qualification Thresholds 2](#camp-qualification-thresholds)

[3.8 Data Sources and Issues 2](#data-sources-and-issues)

[3.9 Certification Process 2](#certification-process)

[3.10 Consistency with the Regional Planning Process
2](#consistency-with-the-regional-planning-process)

[3.11 Incentive Program Funding Requirements
2](#incentive-program-funding-requirements)

[3.12 Funding Distribution 2](#funding-distribution)

[3.13 Analysis of the Hybrid Incentive System
2](#analysis-of-the-hybrid-incentive-system)

[4.0 Incentive Systems for Non-Urbanized Area Recipients
2](#incentive-systems-for-non-urbanized-area-recipients)

[4.1 Section 5311 Goals and Potential Incentives
2](#section-5311-goals-and-potential-incentives)

[4.2 Federal Incentives for System Performance or Incentives to
Encourage States to Adopt Incentive Systems for 5311-Funded Programs?
2](#federal-incentives-for-system-performance-or-incentives-to-encourage-states-to-adopt-incentive-systems-for-5311-funded-programs)

[4.3 Evaluation of Incentives for the 5311 Program
2](#evaluation-of-incentives-for-the-5311-program)

[4.4 Optimal Mix of Incentives for the 5311 Program
2](#optimal-mix-of-incentives-for-the-5311-program)

[4.5 Structuring FTA Incentives 2](#structuring-fta-incentives)

[4.6 Structuring State Incentives 2](#structuring-state-incentives)

[5.0 Procurement Incentive Systems for Section 5307 and 5311 Formula
Grants
2](#procurement-incentive-systems-for-section-5307-and-5311-formula-grants)

[5.1 Background of Standard Specifications and Joint Procurements
2](#background-of-standard-specifications-and-joint-procurements)

[5.2. Incentive Systems 2](#incentive-systems)

[5.3. Appendix: APTA Standards (finished or in development)
2](#appendix-apta-standards-finished-or-in-development)

[6.0 Study Findings 2](#study-findings)

[6.1 Findings From Section 5307 Incentive Systems
2](#findings-from-section-5307-incentive-systems)

[6.2 Findings From Section 5311 Incentive Systems
2](#findings-from-section-5311-incentive-systems)

[6.3 Findings from Standardized and Joint Vehicle Procurement Incentive
Systems
2](#findings-from-standardized-and-joint-vehicle-procurement-incentive-systems)

[6.4 Conclusion 2](#conclusion)

#  {#section .unnumbered}

# Alphabetical List of Acronyms

  -----------------------------------------------------------------------
  Acronym             Name
  ------------------- ---------------------------------------------------
  AASHTO              American Association of State Highway and
                      Transportation Officials

  ACM                 Asset Condition Module

  ADB                 Advanced Design Bus

  AM                  Asset Management

  AMP                 Asset Management Plan

  API                 Asset Priority Index

  APTA                American Public Transportation Association

  BIA                 Bureau of Indian Affairs

  CAAM                Capital Assistance and Asset Maintenance
                      (Pennsylvania)

  CAMP                Capital Asset Management Plan

  CPPP                Cooperative Procurement Pilot Program

  CTA                 Chicago Transit Authority

  DART                Dallas Area Rapid Transit

  DOT                 Department of Transportation (e.g., U.S., State, or
                      Local)

  EDTAP               Elderly and Disabled Transportation Assistance
                      Program (North Carolina)

  FCI                 Facility Condition Index

  FTA                 Federal Transit Administration

  GASB                Governmental Accounting Standards Board

  GSA                 U.S. General Services Administration

  GSFIC               Georgia State Finance and Investment Commission

  HARTline            Hillsborough Area (FL) Regional Transit Authority

  IEEE                Institute of Electrical and Electronics Engineers

  ISTEA               Intermodal Surface Transportation Efficiency Act

  LOS                 Level of Service (e.g., highway traffic volume)

  MARTA               Metropolitan Atlanta Rapid Transit Authority

  MBTA                Massachusetts Bay Transportation Authority (Boston,
                      MA)

  MDBF                Mean Distance Between Failure

  MPO                 Metropolitan Planning Organizations

  MRR                 Major Repairs and Rehabilitation

  MTA                 Maryland Transit Administration

  MTC                 San Francisco Metropolitan Transportation
                      Commission

  NPS                 National Park Service

  NTD                 National Transit Database

  O&M                 Operations and Maintenance

  PAAC                Port Authority of Allegheny County (Pittsburgh, PA)

  PCC                 Presidents' Conference Committee Car

  PHA                 Public Housing Authority

  PM                  Preventive Maintenance

  PONTIS              Bridge Management System licensed by AASHTO

  PRESS               Passenger Rail Equipment Safety Standards

  PTMS                Public Transportation Management System

  RGP                 Rural General Public Program (North Carolina)

  SANDAG              San Diego Association of Governments (regional
                      planning body)

  SBPG                Standard Bus Procurement Guidelines (APTA \"White
                      Book\")

  SEPTA               Southeastern Pennsylvania Transportation Authority
                      (Philadelphia, PA)

  SGR                 State of Good Repair

  SMAP                State Maintenance Assistance Program (North
                      Carolina)

  TCRP                Transit Cooperative Research Program

  TDP                 Transit Development Plan

  TEAM                Transportation Electronic Award and Management
                      (FTA's grants management system)

  TERM                Transit Economic Requirement Model

  TIP                 Transportation Improvement Plan

  USG                 University System of Georgia

  UZA                 Urbanized Area

  VDOT                Virginia Department of Transportation

  WMATA               Washington Metropolitan Area Transit Authority

  YOE                 Year of Expenditure
  -----------------------------------------------------------------------

# Executive Summary

A study on the feasibility of an incentive funding system for transit
formula programs was mandated by the Congress in Title 49 Section
5336(c), United States Code. The legislation directed the Secretary of
Transportation to assess the feasibility and appropriateness of
developing and implementing an incentive funding system (under sections
5307 and 5311) for operators of public transportation, and submit the
resulting study to Congress. Specifically, the Congress required the
study to address the following components:

1.  An analysis of the availability of appropriate measures to be used
    as a basis for the distribution of incentive payments.

2.  The optimal number and size of any incentive programs.

3.  What types of systems should compete for various incentives.

4.  How incentives should be distributed.

5.  The likely effects of the incentive funding system.

Incentive systems under two Federal Transit Administration (FTA)
programs---the Urbanized Areas (Section 5307[^1]) and Rural and Small
Urban Areas (Section 5311[^2]) formula grant programs---may take the
form of two separate incentive systems, with one for large urbanized
areas and a second for small and non-urbanized areas. To be effective,
the incentive funding should be separate from and in addition to other
funds allocated to the grantees ("new funds"). For the urbanized areas,
where Federal interest in capital assets is most pronounced, an increase
in formula funding would be based on the recipients developing and
maintaining their own Capital Asset Management Plans (CAMPs). A joint
procurement incentive system for rolling stock procurements, to foster
the economies of standardized transit equipment, is presented as an
option as well. For non-urbanized programs administered by the States,
this report discusses incentives to States to implement their own
performance programs for subrecipients and potential direct Federal
performance incentives.

## 1. The Availability of Appropriate Measures to be Used as a Basis for the Distribution of Incentive Payments. 

The legislation for this study contained no findings concerning the
condition of transit capital assets. However, recurring Departmental
reports on transit performance, conditions, and needs have recorded
backlogs in deferred capital investment. For the purpose of this study,
therefore, the Department focused on improving the transit industry's
"state of good repair," particularly assets procured and constructed
with Federal transit assistance. The Department observes that the
condition of transit assets, like many other forms of public
infrastructure, tends to suffer from "deferral" in perennially tight
local budget processes. As it assists in the purchase of transit assets,
and as a transit partner for current and future capital investments, it
is only prudent for the Federal government to consider measures, perhaps
an incentive program, to support program recipients in influencing local
budgets on behalf of transit infrastructure.

This study examined measures to encourage the preservation and timely
replacement of transit assets in urbanized areas. The results show that
the specific data needed to develop quantitative incentive systems is
not readily available. However, existing data sources do offer a number
of measures that could be refined and standardized to form the basis of
an asset management incentive system. These sources include the National
Transit Database (NTD)---a database that FTA uses to collect transit
statistics reported annually by grantees; the Transit Economic
Requirement Model (TERM), a tool used by FTA to evaluate the nation's
capital investment needs for transit; and the existing asset management
systems of transit operating agencies. The following issues are
addressed:

1.  Refine the reporting of asset replacement expenditures under the NTD
    system

2.  Standardize reporting the replacement value of transit assets

3.  Standardize reporting deferred investment in those assets

The TERM model currently reports the latter two measures for a national
sample, but no such report is available for individual transit agencies.

In developing the idea of a process incentive for CAMPs, three
principles are observed in this report: First, the generation of uniform
asset management data for the allocation of incentive funds may not be
feasible or credible. Secondly, to influence local budgets, any capital
investment program must have the transparent participation, authorship,
and endorsement of local professionals and decision-makers. Third, FTA
program oversight achieves the most effective compliance when it takes
the form of technical assistance, coaching, and peer advice rather than
Federal directives. For these reasons, a *process* requirement is the
most appropriate incentive.

This report examines the feasibility of a Federal requirement to develop
and maintain independent Capital Asset Management Plans. Much as FTA's
standardized reporting of accounts and performance, i.e., the National
Transit Database (NTD), helps to foster professionalism in the
management of transit operations, CAMPs could foster higher standards of
asset management. FTA would establish minimum requirements for the level
of detail and completeness of local CAMPs. FTA would also set up a CAMP
review and certification process, possibly within the framework of
existing FTA planning requirements. From local CAMPS, FTA could possibly
develop indicators of CAMP performance. The withholding of Section 5307
CAMP incentive tier funds from large urbanized areas would occur under
two conditions: (1) failure to create and maintain a qualifying CAMP or
(2) "egregious" neglect of capital infrastructure reported in the CAMP
performance indicators.

Small urbanized, small urban, and rural transit systems receive
significant amounts of Federal *operating* assistance. For this reason,
a broader range of measures was considered for the small urbanized and
non-urbanized area systems. These measures range from ridership and
service coverage to local funding efforts. Also, because States
administer the rural and small urban program (Section 5311), the report
focuses on process incentives to promote State performance management of
the State sub-grantees. An incentive for such processes has a particular
advantage: such a system is not heavily reliant on quantitative
measures. Although even fewer data are available for agencies in
non-urbanized areas than for those in urbanized areas, limited data
availability is not necessarily an impediment to a process-based
incentive system.

Procurements of standardized vehicles could reduce unit costs up to 20
percent. Although the Department has sought equipment standardization
for many years, it has been an elusive goal. Nor has the most recent
pilot program proved successful. Formula program incentives for
standardized vehicles might remove the current disincentives.

## 2. The Optimal Number and Size of Any Incentive Programs

For the Large Urban Cities program (Section 5307), Congress might create
an incentive tier that would correspond in scale, initially, with the
costs to recipients of developing their CAMPs. Since few CAMPs exist, it
is difficult to estimate its costs across diverse transit systems. To
suggest the [order of magnitude]{.underline} of costs, however, we
extrapolated from one CAMP (Atlanta, Georgia) based the ratio of CAMP to
the magnitude of capital assets. On this basis, the costs are estimated
to be on the order of \$250 million beginning in 2010, and \$45 million
per year to maintain the plans (beginning in 2011). Together with
escalation of the maintenance incentive, the combined program is
estimated to be on the order of \$475 million for the 6 years from 2010
through 2015.

The size of the incentive system for the Rural and Small Urban Areas
program (Section 5311) is estimated by multiplying the ratio of 5307
maintenance funding to the total Large Urban Cities (Section 5307)
apportionment, and applying that ratio to the total Rural and Small
Urban Areas (Section 5311) apportionment. The resulting estimate is
\$4.6 million in 2010, and (with escalation) results in \$29.5 million
for the years 2010 through 2015.

## 3. What Types of Systems Should Compete for Various Incentives

For the purpose of this research, it is assumed that asset management is
important to all operating agencies in the Large Urbanized Areas
(Section 5307) formula program. The incentive systems would encourage
the participation of all eligible transit systems. Within this group of
systems, the key distinction to be drawn would be between those systems
with significant rail infrastructure (track, structures, power supply,
communication, and train control systems), and those systems that are
primarily motor bus or demand-responsive systems.

The State performance incentive system for Rural and Small Urban Areas
(Section 5311) program would benefit transit service in all States. Each
State would decide whether the system benefits should apply to all
sub-recipients.

The joint procurement incentive system for urbanized areas would apply
to bus and rail car procurements. After submission of competitive grant
applications, discretionary awards would be made to selected lead
agencies for the major respective modes and vehicle configurations. The
terms of the award would require standardization of the vehicle
specifications. The incentive system would provide for reimbursement of
50 percent of each lead agency's procurement administration costs. The
incentive to participating agencies would be in the form of cost savings
resulting from the lower vehicle prices achieved under joint
procurement.

## 4. How Incentives Should be Distributed

For the purposes of this report, it is assumed that the asset management
incentive for Large Urban Cities (Section 5307) would be distributed as
an increase in the Section 5307 formula funding allocated to the
qualifying grantees. Significant administrative issues would arise in
allocating asset management incentive funds for the development and
implementation of CAMPs. The incentive should be for specific operating
*agencies*, even though the Large Urban Cities (Section 5307) formula
funding is normally granted to designated recipients for each urbanized
*area* (UZA). To be effective, the incentive should be received only if
the operating agency develops and maintains a CAMP. However, many
urbanized areas are served by multiple operating agencies, so
determining compliance for an entire area would be problematic. If the
asset management system is implemented, perhaps the Secretary of
Transportation could be authorized to sub-allocate the incentive funds
to the respective operating agencies. This allocation could be based on
the Secretary's determination of the appropriate shares of urbanized
area funds.

Distribution of the Rural and Small Urban Areas (Section 5311) incentive
funds would be calculated as a proportionate increase in the Section
5311 formula funding for the qualifying States.

The joint procurement incentive funds would be distributed directly to
lead procuring agencies. The grant would reimburse 50 percent of the
administrative costs of the procurement incurred by the lead agency in
the joint procurement.

## 5. The Likely Effects of the Incentive Funding System

The CAMP incentive system could reasonably be expected to result in the
certification of asset management programs in the great majority of
urbanized area transit systems within six years after its
implementation. Those programs are also likely to be maintained so that
participating transit systems can continue to qualify for the CAMP
maintenance incentive allocations. Although the cost-benefit ratio of
asset management systems is unknown and unexplored in this report,
experience with systematic asset management suggests that the transit
industry could thereby achieve meaningful savings, reducing the combined
costs of maintaining and replacing transit assets. Much depends,
however, on how effectively CAMPs increase the priority of transit
capital assets in perennial local budgets. It is unrealistic to expect
CAMPs to completely overcome natural obstacles to optimal capital
budgeting in State and local governments. Moreover, this report did not
explore means other than Federal formula incentives to encourage
effective transit CAMPs. The rarity of systematic transit CAMPs might
suggest the need for powerful Federal intervention to overcome barriers,
but incentives in the Formula program is just one approach and possibly
not the most effective. In fact, Federal *incentives* for CAMPs in other
Federal programs, including the protection of our Military's capital
assets, are every bit as rare as transit CAMPs.

The Rural and Small Urban Areas (Section 5311) incentive system would
probably have widespread effects, but they would be more difficult to
measure. Some increases in coverage would result from the coverage
component of the incentive system, and certainly some market research
and resulting service improvement programs could be attributed to the
program. Equally important, this system would engage the non-urbanized
systems and the State agencies more intensely in managing the quality
and extent of the services offered. An important caveat, however, stems
from recent report that State agencies that administrator transit
programs tend to be overburdened. Further, owing to severe financial and
other constraints, some State agencies are unable to take on more
transit administrative burdens.

The joint procurement incentive system would demonstrate the advantages
of joint procurement, and it is likely to result in some ongoing portion
of the transit industry's bus replacements being procured in this
manner. However, earlier steps to promote standardization have shown
that many agencies, including some of the larger agencies, will probably
continue to procure buses independently (the incentive program
notwithstanding).

## Department of Transportation's Recommendation

The Department of Transportation recommends that federal capital funds
distributed by formula to large urban areas under the Section 5307
Program would be more effectively invested if transit agencies formally
managed their capital assets. Accordingly, the Department recommends the
following actions:

(1) Capital Asset Management Plan

    -   Congress enacts incentives for capital asset management. In the
        initial years of such a program, formula incentive grants should
        be awarded to program recipients for the development of their
        own capital asset management plans. The incentive grants would
        be matched by other Federal or local funds available to program
        recipients. The capital asset management incentives program
        described in this report is consistent with the Department's
        recommendation. Pending Congressional action on this idea, the
        Department will continue its study of this option, including the
        calculation of potential benefits, costs to implement, transit
        agency experiences, and feasibility.

(2) Standardized Vehicle Procurement

    -   To foster standardized vehicle procurements, the Department
        proposes formula incentives to overcome barriers to pooled
        procurements that have surfaced in the current pilot program.
        Specifically, we propose to offer incentives that will ensure
        that all partners in pooled procurements are protected from the
        risks that plague the process; and,

(3) Process Incentive for Rural and Small Urban Areas

    -   Finally, to foster the most cost effective use of Federal
        resources in the rural and small urban formula program, the
        Department proposes a "process incentive" that would encourage
        States to develop and maintain their own performance monitoring
        programs. This is the most prudent means to enlist States and
        their program constituents to formalize their records and
        practices. The result over time would be increasing
        professionalism among rural and small urban providers that
        receive Section 5311 assistance. This will also improve their
        ability to partner with other agencies that provide
        transportation in rural and small urban areas.

# 1.0 Objectives of the Incentive Study 

In an effort to protect and advance the Federal interest in transit
capital assets, FTA commissioned this study to assess the feasibility of
implementing an incentive funding system in the existing urbanized area
formula funding program.[^3] The legislation for this study contained no
findings concerning the condition of transit assets. However, recurring
Departmental reports on transit performance, conditions, and needs have
recorded backlogs in deferred capital investment. For the purpose of
this study, therefore, the Department focused on a concern for improving
the transit industry's "state of good repair," particularly assets
procured and constructed with Federal transit assistance. The Department
observes that the condition of transit assets, like many other forms of
public infrastructure, tend to suffer from "deferral" in perennially
tight local budget processes. As part owner of transit assets, and as a
transit partner, the Federal government may consider measures, perhaps
through an incentive program, to influence local budgets on behalf of
transit infrastructure.

This report documents the project team's efforts in reviewing and
evaluating alternative incentive systems that promote transit
infrastructure preservation philosophy and practices as they pertain to
Section 5307 incentive systems. Specifically, the report describes the
background that lent impetus to the study and its objectives; summarizes
the literature reviewed; and presents examples of performance incentive
systems that are tied to the allocation of capital funding. The report
also discusses the list of candidate incentive systems identified by the
project team, and presents analyses of a process-based certified asset
management plan (CAMP) system and a hybrid system (which includes a
formula-based incentive). The report also discusses a vehicle
procurement incentive system. A summary of findings and recommendations
appears at the end of the report.

The purpose of this report is also to evaluate a select list of
incentive programs that could be incorporated into the 5311 Program.[^4]
This work assessed the goals of the 5311 Program and created a broad
list of potential incentives that might be incorporated in 5311 funding.
Based on further research and discussions with FTA staff, a subset of
the incentives has been identified for further analysis. Such an
analysis would need to assess data availability, program feasibility,
the administrative burden, and the likelihood that the incentives would
have a meaningful impact on achieving goals.

# 2.0 Review of Performance Incentives in Other State and Federal Programs

This section reviews examples of the use of performance incentives in
the allocation of capital funding. In particular, examples of incentives
tied to asset condition, maintenance, or monitoring are emphasized. A
summary of non-asset-related incentive metrics used by States and
metropolitan planning organizations (MPOs) is also included for the
purposes of assessing the 5311 incentive system.

The review identified a growing literature on the use of performance
measures, and many of these measures included asset condition and
maintenance activity. However, examples in which incentives were
developed to connect funding allocations to the quality of stewardship
practices---particularly as measured by performance indicators---were
sparse. As a consequence, this review broadened its scope to include
programs with closely related practices, or with important elements that
would support the development of asset performance incentives,
notwithstanding whether the program was currently in use, or even
whether the program was formally a performance incentive. This approach
was adopted on the assumption that the ultimate use for the review is to
uncover ideas on how to approach the development of a capital funding
incentive.

The balance of this section is divided into four subsections (A through
D). The first provides examples of incentives that are used for capital
programming and asset condition tracking, but outside of the U.S.
transit industry. The next section describes the use of performance
measures among non-Federal transit grant providers. This is followed by
a discussion of the literature that evaluates the use of incentives in
the provision of transit funding, and approaches to integrating
incentives into the transit funding allocation. The last section
highlights some findings drawn from among common themes found in the
program examples.

## 2.1 Examples of Incentive Use in Capital Programming Outside the U.S. Transit Industry to Foster Maintenance and/or Asset Preservation[^5]

This section presents information on nine programs that have either
already implemented a performance incentive tied to asset condition into
their funding allocations, or that have developed one or more of the
underlying components. The Virginia Department of Transportation (VDOT)
and State Transit (Sydney Australia) are not grant-making organizations,
but they are tying their asset management system to their own budget
decisions. The Department of Housing and Urban Development does make
grants for capital improvements and does use an incentive system.
However, the basis for the performance incentive is not clearly
articulated in the legislation (except to indicate that "high
performers" receive the bonus payment). Washington State took a
different approach; rather than provide incentives for past performance,
the Washington DOT requires an asset management plan to be filed as a
condition of receiving funds. The Department of Interior and the Saint
Lawrence Seaway Development Corporation are developing condition indexes
as a more robust measure of asset condition that moves beyond "age of
asset." The Department of Interior's National Park Service has had
success in reducing its maintenance backlog, and continues to develop
and adapt the program. The University of Georgia moved to incorporate
age adjusted for rehabilitation as a means to focus allocations away
from square footage and more toward maintaining existing stock. The
PONTIS and State of Good Repair (SGR) databases are useful tools that
could be utilized in the implementation of an asset-focused performance
incentive fund allocation process. A brief description of each program
is provided below, followed by a short summary of how the program
relates to FTA's interest in providing performance incentives to grant
recipients that are good stewards of their capital assets.

### Virginia Department of Transportation Highway Maintenance[^6]

Virginia's transportation system is the third largest to be managed by a
department of transportation (DOT). The system is diverse, comprising
123,960 lane miles, over 12,000 bridges, four underwater crossings, two
mountain tunnels, four ferries, and a portfolio of parking lots and rest
areas. Responding to increasing pressures to understand the condition,
remaining useful life, funding needed for replacement/repair, and
performance targets for their assets, the department developed an asset
management system. The system models 80--90 percent of the department's
\$1.1 billion budget, addressing bridge maintenance, pavement
management, and random condition assessment (RCA) (which includes
drainage, signage, pavement markings, and unpaved shoulders).

The system tracks and measures maintenance performance. Budgets are tied
to performance targets established for the asset. The department uses
the system to set performance targets, monitor performance, and enhance
the safety and life expectancy of the assets it manages.

**Comment:** Although the VDOT is not primarily making grants, it is
using the system to allocate its own funds to projects. The detailed
asset information is directly linked to the budget process. Maintenance
performance is tracked directly, and outcomes are monitored.

### Washington State Department of Transportation

The Washington State legislature wanted to ensure that public transit
infrastructure is kept in good repair. Rather than develop a funding
incentive system whereby some recipients receive more funding than
others based on a performance metric, the legislature instead simply
made the development of an asset management plan a condition of receipt
of funds. The inventory details the condition of each asset (on a 0--100
point scale), its age, its remaining useful life, and the replacement
cost for all transportation assets.

**Comment:** The Washington State approach reduces the funding agency's
initial monitoring costs; recipients have either filed an acceptable
asset management plan or they have not. There is, however, little
ongoing monitoring of whether the plan is followed. The law simply
states that each recipient must file a follow-up letter every two years,
certifying that it still meets the requirement. Translating this
approach to FTA's initiative would require establishing an ongoing
verification process to demonstrate that fund recipients not only
created appropriate plans, but followed them.

### State Transit, Sydney, Australia[^7]

State Transit is a large urban system serving the Sydney urban area; the
system's buses and ferries carry an estimated 600,000 passengers daily.
Founded in 1997, State Transit has used performance indicators since its
inception. Performance measures are developed for each system objective
in order to monitor progress and identify problem areas. For example,
State Transit has an objective of providing reliable service. There are
four performance measures related to this objective: (1) on-time
performance in normal traffic conditions; (2) no early departures; (3)
no mechanical failures that are preventable through regular maintenance;
and (4) specified number of road calls per 100,000 kilometers.

Proposals related to capital expenditure are evaluated using one or more
objectives. For example, the bus maintenance performance target is to
have no preventable mechanical failures. The system monitors the number
of buses affected by each type of problem.

**Comment:** Although State Transit is not making incentive grants to
outside agencies, it is evaluating its own internal funding decisions,
including those on maintenance, based on an asset condition database
that is regularly updated. Of additional interest are the performance
metrics used to monitor asset maintenance (mechanical failures
preventable through regular maintenance, and road calls made per 100,000
kilometers).

### Department of Housing and Urban Development[^8]

The Capital Fund uses a distribution formula to fund capital and
management activities, including development, financing, and
modernization of public housing projects. The formula is based on
objective, measurable data concerning the Public Housing Authority (PHA)
the communities served, and development characteristics related to the
age, number of units, average number of bedrooms, cost index for
rehabilitation, and geographic location. The Capital Fund formula also
has a performance reward factor for PHAs that are designated as "high
performers" within the Public Housing Assessment System. The performance
awards add about 3 percent to the recipients' base formula amount in the
first five years the awards are given, and 5 percent above their base
formula in subsequent years. The performance awards are distributed on
the condition that no PHA would lose more than 5 percent of its base
formula amount as a result of redistribution of funding from non--high
performers to high performers.

**Comment:** Although this program is outside the transportation
community, it is an example of an explicit performance incentive
providing support for maintenance activities. Incidentally, the basis on
which a PHA is designated a "high performer" is not defined in the
authorizing legislation, but is outlined in HUD regulations.[^9]

### U.S. Department of the Interior

The U.S. Department of the Interior---steward of the nation's natural
assets---had discretionary budget authority of \$10.6 billion in 2006;
its major programs include the Bureau of Indian Affairs, the Bureau of
Land Management, the Bureau of Reclamation, the Fish and Wildlife
Service, the National Park Service, and the U.S. Geological Survey. The
department is developing performance-based asset management programs for
several of its major functions. Though not yet tied to incentives, the
asset management approach is in development and is beginning to be tied
to budget considerations. Both the Bureau of Indian Affairs (BIA) and
the National Park Service (NPS) use a facility condition index (FCI) as
a tool for assessing the condition of a building and prioritizing
spending accordingly. The BIA uses the index to prioritize investment in
school facilities. In this application, there is no incentive; the index
is a quantitative measure of need.

The National Park Service's Capital Assets and Service Acquisition
Program is more ambitious in its application of the FCI. The NPS has
completed initial asset condition reviews of 99 percent of its assets.
NPS can now use an FCI to measure its performance in maintaining regular
assets. It can also measure an asset's importance to the park mission by
using an asset priority index (API). By combining these two measures,
NPS staff can target funding to improve the condition of high-priority
assets.

Work to date has focused on documenting conditions. Since this work is
well under way, NPS has begun to shift its focus to using the data to
allocate resources and adjust program priorities. This is an emerging
initiative. NPS leadership has allocated certain maintenance funds to
parks on the basis of their progress toward completion of condition
assessments. Park superintendents' performance evaluations are based on
program performance, though not specific FCI targets. In the 2003 fall
assessment of this program, it was reported that NPS has gone from a
laggard to a leader in facility management, just since the mid
1990s.[^10] The backlog of deferred maintenance at national parks has
been reduced.

**Comment:** In the NPS case, incentives were offered to encourage
collection of the data needed to implement an asset-based performance
incentive approach. It is also one of the few examples identified in
which the size of the maintenance backlog (and how it changed over time)
is explicitly monitored.

### Saint Lawrence Seaway Development Corporation---Operations and Maintenance

The Department of Transportation's Saint Lawrence Seaway Development
Corporation (in tandem with its Canadian counterpart) is responsible for
operating and maintaining the series of locks and the waterway
connecting the Great Lakes with the Atlantic Ocean. The agency uses
performance measures extensively to monitor its program. Key metrics
include the number of transits, and system availability. The Seaway's
annual system availability goal is 99 percent. The Seaway is developing
a performance rating system/index related to the U.S. Seaway
infrastructure to assist in determining structural conditions. The
Seaway has been in operation roughly 50 years. As a consequence, lock
repairs and replacement expenses are a rising share of the budget. The
infrastructure index is a critical tool in managing resources going
forward.[^11]

All staff are held accountable for meeting the agency's performance
measures. The annual bonus pool for wage-grade employees is directly
contingent on the results of key agency-wide performance metrics.

**Comment:** The Seaway example establishes precedent for the use of
performance incentives that are related to system availability, and
represents an additional example of an organization that is moving
beyond "age of asset" to a more robust measure of asset *condition*. The
link between performance and compensation, however, does not transfer to
the grant-making context.

### University System of Georgia

University System of Georgia (USG) institutions receive funding annually
from the Georgia State Finance and Investment Commission (GSFIC) for
capital facility repair and rehabilitation. The major repairs and
rehabilitation (MRR) formula is the method used to allocate the
system\'s overall MRR allocation to individual campuses. This formula
underwent two revisions in the 1990s. Originally, allocations were made
on the basis of square footage. This was a proxy for need, but was
perceived to provide a perverse incentive to expand, but not maintain.
The first revision kept the square footage factor, but added in age
(adjusted for renovations) and replacement cost. This formula was
revised once again in 2000. The revised allocation formula maintained
the same factors for a base amount of funds (approximately \$50
million). However, new funds (approximately \$1.6 million) would be
distributed based on age. This methodology would provide an increase in
MRR funds to all campuses, and would give a slightly higher increase to
those campuses with older buildings. The age factor would provide for a
25 percent increase when a building reaches 25 years of age, an
additional 15 percent when the building reaches its 50th birthday, and a
final additional 10 percent when a building is 100 or more years old.
MRR funds are used only to maintain or enhance existing facilities;
property acquisitions and new construction projects are not eligible
uses of MRR funds.[^12]

**Comment:** Although asset age was added as a funding consideration to
partially reduce the incentive to expand square footage, the criterion
is still essentially an indicator of "need" and not a performance
incentive. The example is included here because (1) the "age adjusted
for renovations" indicates that there is a well developed asset tracking
database in place, and (2) funds are restricted to maintenance or
enhancement, and cannot be used for expansion.

### Data Management Requirements for an Asset-Based Incentive System: PONTIS Bridge Engineering and Management Software and the Massachusetts Bay Transportation Authority (MBTA) State of Good Repair Database

Two final examples are provided at the end of this section, although
neither is technically an "incentive" program. Rather, each describes in
detail the type of information needed to implement an asset-based
incentive system that relies on a comprehensive assessment of asset
condition. The first step in the Forest Service, Washington State, and
Saint Lawrence Seaway examples above was a detailed database of
performance metrics. Both PONTIS and the MBTA represent such data
systems.

PONTIS[^13] stores bridge inventory and inspection data; formulates
network-wide preservation and improvement policies for use in evaluating
the needs of each bridge in a network; and makes recommendations for
what projects to include in an agency's capital plan in order to derive
the maximum benefit from limited funds. PONTIS integrates the objectives
of public safety and risk reduction, user convenience, and preservation
of investment to produce budgetary, maintenance, and program policies.
Although not an incentive program, PONTIS permits a structured
comparison of needs in order to prioritize maintenance investments. It
contains both the requisite inventory and condition data, and permits an
evaluation of a candidate project's impact on program goals such as
safety, risk reduction, and preservation---information needed to
implement an asset-based incentive bridge maintenance program.

The State of Good Repair (SGR) Database is a tool used by the
Massachusetts Bay Transportation Authority (MBTA) to identify and
prioritize the renewal and replacement actions that are needed to bring
capital assets to a State of good repair and keep them there. In the SGR
analysis process, a need is generated when an individual asset is at or
beyond its useful life. The program uses a prioritization process to
generate necessary actions (either maintenance/overhaul activities or
replacement of an individual asset). These actions are identified and
prioritized by the SGR algorithm, using different analysis scenarios.

**Comment:** This review found no examples of PONTIS being used to
allocate funding to grant recipients, but such an application can be
easily imagined. MBTA developed the SGR Database to prioritize
maintenance and track its own progress in maintaining assets; this tool
could readily be applied to grant management.

## 2.2 Examples of State and MPO Funder's Use of Incentives

The Transit Cooperative Research Program (TCRP), which is funded by FTA,
has sponsored two national studies of the States' use of performance
measures for allocating funding. The first study was conducted in 1994.
It was updated in 2004. One of the main findings of the update was that
even though performance measures are used throughout the transit
industry, they are less frequently applied in funding decisions.
Moreover, the 2004 TCRP update suggests that interest in using them in
this manner has diminished in the intervening years.

There is likely to be a resurgence of interest in coming years, however,
as more providers compete for limited Federal support and as States and
local governments take on a larger funding role. In responding to a
national survey, six State DOTs (Iowa, Maryland, Michigan, Ohio,
Oklahoma, and Virginia) and three MPOs (Metropolitan Council,
Minneapolis/St. Paul, Minnesota; Metropolitan Transportation Commission,
San Francisco Bay Area, California; and San Diego Metropolitan Transit
Development Board, San Diego, California) reported having investigated
the use of performance measures in the past five years.

Exhibit 1 (p. 18) illustrates how factors describing needs and
incentives are used in the funding process. Key findings include:

1.  Incentives are used for both capital and operating support.

2.  Incentives are generally combined with some measure of need (such as
    share of the population that is elderly or a measure of the overall
    population size).

3.  Measures of cost efficiency (such as cost per passenger, or farebox
    recovery) and measures of effectiveness (such as passengers per mile
    or hour) are most often used.

4.  Some States have incorporated less traditional measures in an effort
    to foster a broader set of transit goals.

Interest in incentives is likely to continue because DOTs and MPOs now
have some experience in incentive use, and non-Federal partners are
playing a larger role in the funding process.

In the Exhibit 1, Michigan, Ohio, Virginia, and the San Francisco
Metropolitan Transportation Commission (MTC) use a measure of capital
assets to allocate capital funding. We looked more closely into these
agencies to see how capital factors were used in funding decisions.

**Michigan.** Michigan's Bureau of Public Transportation provides grants
for bus acquisition as part of its intercity bus program. The program
funds replacement buses first; if grant funds remain after all eligible
bus replacement applications are approved, expansion buses are funded.
Applicants must show that the buses that they want to replace have met
or exceeded their useful life in years or service miles. The application
and discussion of evaluation criteria are silent on whether/how to
adjust the measurement of useful life for overhauls and periodic
maintenance, although the grant application does require a copy of the
vehicle maintenance plan and an inventory of vehicles.

**Ohio.** Ohio's Discretionary Capital Program (now discontinued)
required applicants to provide information on the age and mileage of
vehicles to be replaced, as well as the average age of the fleet. These
were two of several factors considered in the grant review process.
Since the program has been discontinued, information is less readily
available on how these factors were utilized in the scoring process.

**Virginia.** Virginia's Department of Rail and Public Transportation
uses the age and condition of assets when making capital grant
decisions. Additional information on how these measures are used could
not be verified directly with the department in the time available for
this study. However, the Transit Cooperative Research Digest[^14]
reports that transit capital assistance is allocated based on grant
applications where "each project is funded at the same percentage of
State participation, which may change each year." An equal percentage
cancels the opportunity for an incentive use---age and condition are
most likely indicators of *need*, but not performance indicators.

**Metropolitan Transportation Commission (MTC).**[^15] Located in the
San Francisco Bay Area, the Metropolitan Transportation Commission (MTC)
allocates Urbanized Area 5307 and 5309 fixed guideway funds via its
transit capital priorities process and criteria. Prior to scoring, all
submitted projects are screened for conformity with regional planning,
financial, project-specific, ADA, and air quality requirements. Asset
replacement or rehabilitation projects must demonstrate that the asset
meets a certain age requirement set for each class of assets. For
example, steel hull ferries must be at least 30 years old to qualify;
trolleys must be 18 years old to qualify. Once projects pass this
screening process, they are scored. Scores are applied by project
category. The scoring favors replacement; the lowest scores are assigned
to expansion projects. For example, revenue vehicle and fixed guideway
replacement/rehabilitation earn a project score of 16. Expansion
projects earn a score of 8, the lowest point on the scale.

The MTC would give an equivalent score to all operators submitting
qualified vehicle replacement projects, regardless of their performance
in maintaining their fleets. The scoring system, however, does provide a
strong incentive for grant applicants to submit replacement or
maintenance-type projects rather than expansion projects. This supports
the objective of encouraging maintenance, but it is a weaker incentive
than an approach that explicitly tracks and rewards or penalizes
maintenance performance over time (such as the program at the Saint
Lawrence Seaway Development Corporation, or the internal controls used
at VDOT and State Transit).

**Exhibit 1: Examples of Factors Used in Funding Decisions in States and
MPOs**

+----------------------+---+----------------------+---+----------------------+---+
| **State/MPO**        |   | **Measures or        |   | **Program Where      |   |
|                      |   | Factors Used**       |   | Applied/ Other       |   |
|                      |   |                      |   | Comments**           |   |
+======================+===+======================+===+======================+===+
| California (capital  |   | **Capital            |   | State Transportation |   |
| and operating        |   | allocations uses:**  |   | Assistance Program   |   |
| support)             |   |                      |   | (operating)          |   |
|                      |   | -   20% farebox      |   |                      |   |
|                      |   |     recovery in      |   |                      |   |
|                      |   |     urban areas of   |   |                      |   |
|                      |   |     more than        |   |                      |   |
|                      |   |     500,000          |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   10% farebox      |   |                      |   |
|                      |   |     recovery in      |   |                      |   |
|                      |   |     nonurban areas   |   |                      |   |
|                      |   |     of less than     |   |                      |   |
|                      |   |     500,000          |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Service          |   |                      |   |
|                      |   |     performance data |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Operating support  |   |                      |   |
|                      |   | uses:**              |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Farebox recovery |   |                      |   |
|                      |   |     ratio as above   |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Florida (capital and |   | -   One-way          |   | Public Transit Block |   |
| operating support)   |   |     passenger trips  |   | Grant Program        |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Vehicle revenue  |   |                      |   |
|                      |   |     miles            |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Population       |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Illinois (operating  |   | -   Farebox recovery |   |                      |   |
| support)             |   |     (Chicago area)   |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Operating budget |   |                      |   |
|                      |   |     balance          |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Indiana (operating   |   | -   Service area     |   | Public Mass Transit  |   |
| support)             |   |     population       |   | Fund                 |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Passenger trips  |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Operating        |   |                      |   |
|                      |   |     expense          |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Vehicle miles    |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Locally derived  |   |                      |   |
|                      |   |     income           |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Iowa (operating      |   | **State Transit      |   | State Transit        |   |
| support)             |   | Assistance uses:**   |   | Assistance: Section  |   |
|                      |   |                      |   | 5311 and 5310        |   |
|                      |   | -   Trips per        |   | --partial            |   |
|                      |   |     operating        |   |                      |   |
|                      |   |     expense          |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Revenue miles    |   |                      |   |
|                      |   |     per operating    |   |                      |   |
|                      |   |     expense          |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Locally          |   |                      |   |
|                      |   |     determined       |   |                      |   |
|                      |   |     income           |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Section 5311 and   |   |                      |   |
|                      |   | 5310 (Formula grants |   |                      |   |
|                      |   | to States for the    |   |                      |   |
|                      |   | special needs of     |   |                      |   |
|                      |   | elderly individuals  |   |                      |   |
|                      |   | and individuals with |   |                      |   |
|                      |   | disabilities)        |   |                      |   |
|                      |   | uses:**              |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Trips            |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Revenue miles    |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Net public       |   |                      |   |
|                      |   |     deficit          |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Maryland (capital    |   | -   Ridership        |   | MDOT provides        |   |
| support)             |   |                      |   | capital and          |   |
|                      |   | -   Service levels   |   | operating grants to  |   |
|                      |   |                      |   | 22 locally operated  |   |
|                      |   | -   Emission         |   | transit systems      |   |
|                      |   |     reduction        |   | (LOTS) throughout    |   |
|                      |   |                      |   | the State.           |   |
|                      |   |                      |   | Initiatives are      |   |
|                      |   |                      |   | under way to         |   |
|                      |   |                      |   | establish standards  |   |
|                      |   |                      |   | for LOTS service     |   |
|                      |   |                      |   | efficiency and cost  |   |
|                      |   |                      |   | effectiveness. The   |   |
|                      |   |                      |   | Montgomery and       |   |
|                      |   |                      |   | Prince George's      |   |
|                      |   |                      |   | County transit       |   |
|                      |   |                      |   | systems provide      |   |
|                      |   |                      |   | annual performance   |   |
|                      |   |                      |   | reports to the State |   |
|                      |   |                      |   | legislature.         |   |
+----------------------+---+----------------------+---+----------------------+---+
| Michigan (capital    |   | -   Vehicle age      |   |                      |   |
| support)             |   |                      |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Missouri (operating  |   | **Capital funding    |   | Elderly and          |   |
| and capital support) |   | uses:**              |   | Handicapped          |   |
|                      |   |                      |   | Transportation       |   |
|                      |   | -   Replacement      |   | Assistance           |   |
|                      |   |     needs            |   | Program---operating  |   |
|                      |   |                      |   | support              |   |
|                      |   | -   Services         |   |                      |   |
|                      |   |     provided         |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Vehicle mileage  |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Hours of service |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Trips weighted   |   |                      |   |
|                      |   |     by trip purpose  |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Operating funding  |   |                      |   |
|                      |   | uses:**              |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   One-way          |   |                      |   |
|                      |   |     passenger trips  |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Types of trips   |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| New Hampshire        |   | -   Vehicle miles    |   |                      |   |
| (operating support)  |   |                      |   |                      |   |
|                      |   | -   Passenger trips  |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| New York (operating  |   | -   One-way          |   | State Transit        |   |
| support)             |   |     passenger trips  |   | Operating            |   |
|                      |   |                      |   | Assistance\--partial |   |
|                      |   | -   Revenue per      |   |                      |   |
|                      |   |     vehicle mile     |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| North Carolina       |   | **SMAP (State        |   | **SMAP** provides    |   |
| (operating support)  |   | Maintenance          |   | assistance to        |   |
|                      |   | Assistance Program)  |   | regional urban and   |   |
|                      |   | funding utilizes**   |   | small urban areas    |   |
|                      |   |                      |   | for fixed-route and  |   |
|                      |   | -   Passengers per   |   | dial-a-ride service  |   |
|                      |   |     vehicle hour     |   | costs not covered by |   |
|                      |   |                      |   | Federal funding.     |   |
|                      |   | -   Net cost per     |   |                      |   |
|                      |   |     passenger        |   | **RGP** is the Rural |   |
|                      |   |                      |   | General Public       |   |
|                      |   | -   System's share   |   | Program.             |   |
|                      |   |     of total local   |   |                      |   |
|                      |   |     revenues         |   | **EDTAP** is the     |   |
|                      |   |                      |   | Elderly and Disabled |   |
|                      |   | -   10% allocated in |   | Transportation       |   |
|                      |   |     equal shares     |   | Assistance Program.  |   |
|                      |   |                      |   | This formula is set  |   |
|                      |   | **RGP funding        |   | out in State         |   |
|                      |   | utilizes**           |   | legislation and was  |   |
|                      |   |                      |   | not set out by       |   |
|                      |   | -   50% population   |   | NCDOT.               |   |
|                      |   |                      |   |                      |   |
|                      |   | -   50% equity       |   | **Work First** is    |   |
|                      |   |                      |   | North Carolina's     |   |
|                      |   | **EDTAP funding      |   | Employment           |   |
|                      |   | utilizes**           |   | Transportation       |   |
|                      |   |                      |   | Assistance Program.  |   |
|                      |   | -   50% equity by    |   |                      |   |
|                      |   |     county           |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   22.5% elderly    |   |                      |   |
|                      |   |     population       |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   22.5% disabled   |   |                      |   |
|                      |   |     population       |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   5% population    |   |                      |   |
|                      |   |     density          |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Work First funding |   |                      |   |
|                      |   | utilizes**           |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   45% population   |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   45% number of    |   |                      |   |
|                      |   |     Work First case  |   |                      |   |
|                      |   |     loads            |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   10% equity       |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Ohio (capital and    |   | **Discretionary      |   | Ohio Public          |   |
| operating support)   |   | Capital**            |   | Transportation Grant |   |
|                      |   |                      |   | Program;             |   |
|                      |   | -   Amount of local  |   | discretionary grant  |   |
|                      |   |     support secured  |   | program assigns      |   |
|                      |   |                      |   | points for each      |   |
|                      |   | -   Economic         |   | factor. (Ohio has    |   |
|                      |   |     distress of area |   | discontinued its     |   |
|                      |   |     directly         |   | discretionary        |   |
|                      |   |     impacted         |   | capital grant        |   |
|                      |   |                      |   | program---it is      |   |
|                      |   | -   Auto ownership   |   | included here to     |   |
|                      |   |     rate of area     |   | illustrate the       |   |
|                      |   |     directly         |   | program's approach.) |   |
|                      |   |     affected         |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Private sector   |   |                      |   |
|                      |   |     participation?   |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Intermodal       |   |                      |   |
|                      |   |     benefits?        |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Spare ratio      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Age/mileage of   |   |                      |   |
|                      |   |     vehicles to be   |   |                      |   |
|                      |   |     replaced         |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Average age of   |   |                      |   |
|                      |   |     fleet            |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Ridership growth |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Development      |   |                      |   |
|                      |   |     supports system  |   |                      |   |
|                      |   |     expansion?       |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Formula Funds for  |   |                      |   |
|                      |   | Operating, Planning, |   |                      |   |
|                      |   | or Capital**         |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   System measures  |   |                      |   |
|                      |   |     account for half |   |                      |   |
|                      |   |     the score:       |   |                      |   |
|                      |   |     Ridership,       |   |                      |   |
|                      |   |     revenue miles,   |   |                      |   |
|                      |   |     farebox revenue. |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Performance      |   |                      |   |
|                      |   |     measures account |   |                      |   |
|                      |   |     for the other    |   |                      |   |
|                      |   |     half of the      |   |                      |   |
|                      |   |     score:           |   |                      |   |
|                      |   |     Cost/hour,       |   |                      |   |
|                      |   |     passengers/mile, |   |                      |   |
|                      |   |     and farebox      |   |                      |   |
|                      |   |     recovery.        |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Pennsylvania         |   | **Urban PTAF Fund    |   | There is only one    |   |
| (capital and         |   | (capital assistance  |   | Class 1 system       |   |
| operating            |   | and asset            |   | (SEPTA) and only one |   |
| assistance)          |   | maintenance)** Class |   | Class 2 system       |   |
|                      |   | 3 funds are          |   | (PAAC) in the State, |   |
|                      |   | allocated using a    |   | so allocation among  |   |
|                      |   | weighted combination |   | systems in the class |   |
|                      |   | of                   |   | is effectively not   |   |
|                      |   |                      |   | an issue.            |   |
|                      |   | -   Total vehicle    |   |                      |   |
|                      |   |     miles            |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Total vehicle    |   |                      |   |
|                      |   |     hours            |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Total passengers |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Share based on   |   |                      |   |
|                      |   |     1990/91 funds    |   |                      |   |
|                      |   |     received as a    |   |                      |   |
|                      |   |     "hold harmless"  |   |                      |   |
|                      |   |     provision to     |   |                      |   |
|                      |   |     provide funding  |   |                      |   |
|                      |   |     stability        |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Flex funds**       |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Division of      |   |                      |   |
|                      |   |     funds between    |   |                      |   |
|                      |   |     Class 3 and      |   |                      |   |
|                      |   |     Class 4 systems  |   |                      |   |
|                      |   |     varies over      |   |                      |   |
|                      |   |     time, according  |   |                      |   |
|                      |   |     to need. Funds   |   |                      |   |
|                      |   |     allocated        |   |                      |   |
|                      |   |     according to     |   |                      |   |
|                      |   |     vehicle miles.   |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **State operating    |   |                      |   |
|                      |   | assistance**         |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Each Class 3     |   |                      |   |
|                      |   |     system receives  |   |                      |   |
|                      |   |     100% of its      |   |                      |   |
|                      |   |     FY1990--91       |   |                      |   |
|                      |   |     adjusted base    |   |                      |   |
|                      |   |     operating        |   |                      |   |
|                      |   |     assistance       |   |                      |   |
|                      |   |     grant.           |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Excess is        |   |                      |   |
|                      |   |     allocated based  |   |                      |   |
|                      |   |     on the agency's  |   |                      |   |
|                      |   |     percentage of    |   |                      |   |
|                      |   |     total Class 3    |   |                      |   |
|                      |   |     adjusted base    |   |                      |   |
|                      |   |     grant, vehicle   |   |                      |   |
|                      |   |     miles, and       |   |                      |   |
|                      |   |     operating        |   |                      |   |
|                      |   |     revenue.         |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| South Dakota         |   | **Capital funding    |   |                      |   |
| (capital and         |   | uses:**              |   |                      |   |
| operating support)   |   |                      |   |                      |   |
|                      |   | -   Degree of        |   |                      |   |
|                      |   |     coordination     |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | **Operating funding  |   |                      |   |
|                      |   | uses:**              |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Vehicle miles    |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Passenger trips  |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Locally derived  |   |                      |   |
|                      |   |     income           |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Virginia (capital    |   | -   Non-Federal      |   |                      |   |
| support)             |   |     share of cost    |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Age and          |   |                      |   |
|                      |   |     condition of     |   |                      |   |
|                      |   |     asset            |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Wyoming (capital     |   | -   Percentage of    |   |                      |   |
| support)             |   |     elderly in       |   |                      |   |
|                      |   |     community        |   |                      |   |
|                      |   |     population       |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   | -   Unique features, |   |                      |   |
|                      |   |     such as whether  |   |                      |   |
|                      |   |     it is a resort   |   |                      |   |
|                      |   |     community        |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| **Factors Used by    |   |                      |   |                      |   |
| MPOs in Their        |   |                      |   |                      |   |
| Capital Fund         |   |                      |   |                      |   |
| Allocations through  |   |                      |   |                      |   |
| the TIF Process**    |   |                      |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| MTC (California)     | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | A |                      |   |                      |   |
|                      | g |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | f |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | C |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | y |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | ? |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | S |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | f |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | y |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | u |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | ? |                      |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| SANDAG (California)  | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | S |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | f |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | y |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | R |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | u |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | O |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | g |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      | b |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | f |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | T |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | g |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | C |                      |   |                      |   |
|                      | u |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | b |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | f |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | t |                      |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Metropolitan Orlando | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | B |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | S |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | d |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | C |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      | b |                      |   |                      |   |
|                      | u |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | C |                      |   |                      |   |
|                      | u |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | N |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      | b |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | S |                      |   |                      |   |
|                      | y |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | d |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | v |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | t |                      |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+
| Metropolitan Council | - |                      |   |                      |   |
| (MN)                 |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | N |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | g |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | c |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | n |                      |   |                      |   |
|                      | g |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | R |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | d |                      |   |                      |   |
|                      | e |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | h |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | - |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | T |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | i |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | s |                      |   |                      |   |
|                      | / |                      |   |                      |   |
|                      | p |                      |   |                      |   |
|                      | l |                      |   |                      |   |
|                      | a |                      |   |                      |   |
|                      | t |                      |   |                      |   |
|                      | f |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | r |                      |   |                      |   |
|                      | m |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      |   |                      |   |                      |   |
|                      | h |                      |   |                      |   |
|                      | o |                      |   |                      |   |
|                      | u |                      |   |                      |   |
|                      | r |                      |   |                      |   |
+----------------------+---+----------------------+---+----------------------+---+

Sources: Institute for Transportation Research and Education, North
Carolina State University, 2004; TCRP, 2004; selected individual State
reports.

## 2.3 Lessons Learned in Using Incentives to Allocate Transit Funding 

Two recent publications provide a comprehensive overview of the
advantages and drawbacks to using performance measures in transit fund
allocation.[^16] The following discussion summarizes the key points in
these publications relating to how the incentive system could be
structured, possible conflicts with equity goals, and considerations for
the implementation and ultimate effectiveness of incentives.

**Structure.** Transit funding incentives can be structured in three
alternative ways. There are strengths and weaknesses to each.

1.  **Applying Uniform Standards:** A system must meet or exceed a
    minimum threshold in order to be eligible to receive funding. This
    approach is easy to apply and treats all applicants equally.
    However, it provides no incentive to ever exceed the minimum
    threshold. FTA could use this approach to encourage the collection
    of asset condition data or to encourage the application of asset
    management systems. This approach could also serve to phase-in
    industry practices that would later support a more aggressive
    approach.

2.  **Making Individual Comparisons:** A system's current performance is
    compared to its own past performance or relative to a predetermined
    goal. This approach rewards relative improvement, but does not
    permit comparisons to other systems. An agency that was improving at
    a much slower pace than other similar systems would still be
    rewarded. This approach is difficult to use in fully allocating a
    congressionally determined appropriation because the scores of the
    urbanized areas would not be known in advance. One approach would be
    to use the improvement in a competition (e.g., rank the reduction in
    capital renewal backlog at all agencies). The incentive budget would
    be allocated among the 10 urbanized areas with the largest
    percentage reduction in backlog.

3.  **Making Group Comparisons:** A system is compared to peers selected
    from within the State or nationwide. This permits comparisons
    between systems and relative to a peer average, but such an approach
    can mask important differences in local goals or operating
    conditions. Sorting out whether a score reflects performance or
    strategic peer selection can be daunting.

### Rewarding Performance versus Achieving Equity 

Performance-based funding allocations have the potential to conflict
with perceived equity. This point is made throughout the transportation
literature on performance-based transit funding allocations.[^17] When
funds are distributed equally across agencies, each agency receives the
same amount of funding even if it does a poor job. Distributions of
transit funding can be based on the following factors:

1.  **Recipient size-based** distributions allocate funds across
    jurisdictions based on population or square miles or some other
    aspect of the jurisdiction correlated to need. Population/population
    density is a sophisticated application of this approach.

2.  **Operation-based** funds are distributed according to the amount of
    service provided. Allocation based on revenue vehicle miles is an
    example of this approach.

3.  **Passenger-based** funds are distributed according to the amount of
    service consumed, and are considered the closest of the three to a
    performance orientation.

4.  **Asset-renewal backlog-based distributions** would reward
    recipients according to the amount of maintenance backlog
    eliminated. In the examples provided above, the National Park
    Service and Public Housing examples may come closest to the
    performance incentive that FTA is considering. Using the "high
    performer" label of the public housing example, a high performer
    could be an operator that reduces backlog by at least some threshold
    percentage.

Though not a basis for allocation, but rather a check on the result,
funding allocations should be socially equitable in that the benefits
should not be enjoyed disproportionately by, or adverse impacts imposed
on, a particular social or economic stratum. If equity is the
policymaker's primary consideration, performance-based funding
allocations may not be an appropriate policy tool. One way to mitigate
this conflict is to apportion part of the available funding according to
one of the equitable distributions described above in order to ensure a
minimum amount (or baseline) of funding support, and to allocate the
balance of the funding pool through an incentive-based allocation
formula.

**Exhibit 2: Lessons Learned in Incentive Use**

  ------------------------------------------------------------------------
  **Incentive System      **Incentive System     **Mitigating Factors**
  Objective**             Pitfall**              
  ----------------------- ---------------------- -------------------------
  Ensures that public     Factors outside the    Funding applications can
  resources are applied   agency's control can   permit applicants to
  in the most productive  lead to a              identify special
  way. Ensures best       deterioration in       circumstances.
  return on investment.   performance. For       
                          example, a fleet       
                          defect could rapidly   
                          accelerate the         
                          rehabilitation         
                          required.              

  Encourages agencies to  Success requires       Performance measures are
  improve performance and accurate and           widely used in the
  accomplish goals.       high-quality data that transit industry for
                          is collected and       other functions.
                          reported on a          
                          consistent basis, and  
                          that is verifiable.    
                          Anything less can lead 
                          to poor resource       
                          allocations.           

  Documents               Relative to the status Drastic disparities could
  accomplishment and      quo, there would be    be avoided by only
  performance, supporting winners and losers. If allocating new money with
  communication between   resources are shifted  the new system, or by
  the agency, the board,  to the better          incorporating various
  and the public.         performers, some       types of "hold harmless"
                          systems would lose,    formulas.
                          leading to political   
                          pressure on behalf of  
                          the poor performers to 
                          change the system.     

  Potential to improve    Reducing the funds     Agencies can be given a
  management and decision allocated to already   probationary period prior
  making.                 poor performers may    to any funding reduction
                          simply lead to a       for poor performance.
                          further deterioration. 

  Objective basis for     Federal goals may      
  funding---reduces       differ from community  
  potential political     goals. For example,    
  impact.                 the community may have 
                          the goal to expand the 
                          hours of operation     
                          into the weekend. This 
                          has the potential to   
                          reduce the useful life 
                          of the fleet since     
                          annual utilization     
                          would increase.        

  Improves accountability The magnitude of the   Explanation of the
  and builds credibility  actual incentive       importance of asset
  among the public,       effect is unclear      management, targeted to
  leading to greater      because funding tied   the public and
  support for transit.    to incentives may be   policymakers, could
                          only a small part of   facilitate acceptance of
                          the overall funds      an asset preservation
                          received by the        incentive system.
                          agency. Funding        Year-to-year changes
                          decisions may use data could be small, but
                          that is a year or more sustained
                          old---diluting the     rewards/penalties would
                          link between           build over time. Improves
                          performance and        the timeliness of data
                          consequence.           reporting.
  ------------------------------------------------------------------------

### Implementation and Effectiveness Concerns 

In addition to the advantages and drawbacks outlined above, grant
recipient respondents to the national studies noted above raise
important points about how the incentives are implemented and about
their true efficacy in motivating a change in behavior or outcome. These
concerns reflect the complexity of designing a meaningful and targeted
incentive structure that achieves particular efficiency or effectiveness
outcomes without reducing transit's contribution to the social safety
net. This in turn suggests the following:

-   Transit systems should be rewarded for good performance but not
    penalized for poor performance; rather, they should be helped.
    Otherwise it is the transit-dependent public that would ultimately
    be penalized.

-   The allocation method should be flexible in order to not stifle
    creativity. Transit providers would otherwise not be willing to take
    risks that might diminish their performance and reduce their
    funding.

-   Incentives should be used in conjunction with a minimum amount of
    baseline funding. The baseline amount would be allocated according
    to some measure of need. The incentive would reward performance.

-   The introduction of performance-based funding allocations should be
    phased in over several years in order to make sure the data
    collection methods and application of the measures are accurate and
    well understood by all parties.

### Integrating Incentives into Transit Funding Allocation 

Section 2.0 of this report has outlined some of advantages and drawbacks
to using incentives in the funding process. It has also provided some
examples of how they are used in current practice. The following
discussion outlines some of the key considerations that grant providers
would need to address if they wanted to build a new incentive component
into an existing transit funding process.

1.  **Identification of Goals and Objectives:** The desired change in
    asset maintenance should be clearly defined.

2.  **Realistic Targets:** The amount of improvement sought through
    implementation of the incentive must be realistically attainable
    through changes within the agency's control. For example, any
    transit agency *should be able* to create and maintain a credible
    capital asset inventory and rating system. Most transit agencies
    only *influence* the governmental budgets that provide the funds
    needed to keep transit assets in good repair.

3.  **Link Measure to Goal:** The metric used to assess performance or
    improvement along some criterion must be clearly connected to the
    goal. The State Transit approach, for example, links road calls and
    incidence of preventable mechanical failures to the broader goal of
    reliable service.

4.  **Transparency (Clarity):** Policymakers, transit providers, and the
    public must be able to understand the metric used to measure
    performance and to award the incentive (or assess the penalty).

5.  **Political Acceptability**: The allocation must be politically
    acceptable and perceived as fair.

6.  **Reporting Burden:** The measure on which the incentive is awarded
    (or penalty assessed) should be based on readily available
    information, or information that could be readily attained without
    imposing a large ongoing burden on resources. This may be the
    largest impediment to designing a performance incentive approach to
    asset management.

7.  **Timeliness of Data:** The data used to award the incentive must be
    sufficiently timely so that receipt of the reward/penalty is tied to
    the agency's current behavior or performance. The effectiveness of
    the incentive is diluted if there is a significant time lag between
    a change in an agency's provision of service and the receipt of
    funding.

## 2.4 Summary of Findings from Literature Review

There are a few general findings that emerge from reviewing the
available literature on programs that use performance incentives to
allocate capital funding, or that have items of interest for the design
of an incentive system to foster maintenance or asset preservation.

1.  There is not a large body of literature on the use of performance
    incentives to allocate capital funding. Sources that use capital
    condition or maintenance activity as an evaluation criterion are
    scarce, even when the search extends well beyond transit industry
    literature.

2.  There is, however, precedent for the use of performance incentives
    that reward good stewardship of assets.

3.  Most performance incentives used to allocate capital grants relied
    on operating characteristics.

4.  Those organizations that did include a capital condition metric as
    an element in the allocation formula were most likely to use "age of
    asset." Though unstated, this is likely due to the ready
    availability of such data.

5.  Taken together, the absence of a large body of literature on capital
    incentives targeting asset preservation (despite a large literature
    on the use of performance measures in transit), a reliance on
    operating characteristics to allocate capital funding, and the use
    of "asset age" all suggest one thing: *the data system needed to
    allocate funding on the basis of asset condition measurements is
    undeveloped*.

6.  The lack of data required to implement an asset-based performance
    incentive is not a permanent obstacle, however. The development of
    asset management systems and related tools such as PONTIS and the
    State of Good Repair Database are closing the data gap. Independent
    efforts such as those at the National Park Service and at the Saint
    Lawrence Seaway Development Corporation are also having success.

7.  With the exception of the National Park Service, the Virginia DOT,
    and the State of Good Repair Database examples, a measurement of
    maintenance backlog was not explicitly developed.

#   {#section-1 .unnumbered}

# 3.0 Incentive Systems for the Urbanized Areas (Section 5307) Program 

## 3.1 Alternative Incentive Systems Considered for large URBANized areas (SECTION 5307) PROGRAM

The incentive systems considered by the study team can broadly be
classified into the following three categories.

-   Formula-based incentive system -- Incentive funds distributed based
    on one performance measure

-   Process-based incentive system -- Incentive funds distributed
    contingent on a certified asset management plan and qualification
    thresholds to monitor egregious behavior

-   Hybrid incentive system -- Incentive funds distributed based on a
    process-based system, eventually transitioning to a formula-based
    system

### A. Formula-based incentive system

In this system, the incentive funds would be distributed to the grant
recipients proportionate to any one of the following measures:

1.  **Expenditures on Asset Renewal/Preservation:** This incentive
    system compares a recipient's total spending on asset preservation
    over a time period, and distributes grant funding proportionately.
    The time period and threshold over which this measure is used are
    determined based on a policy decision that incorporates industry
    best practices.

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+====================================+=================================+
| **Motivates Desired Behavior:**    | **Unintended Consequence:**     |
| This incentive system seeks to     | This might give transit         |
| increase the spending on repair,   | agencies an incentive to spend  |
| maintenance, and rehabilitation of | more on their current assets.   |
| current assets. Gradual and        | For example, systems might      |
| sustained investments would        | replace assets in working       |
| eventually lead to improvement in  | condition before the end of     |
| the condition of the assets.       | their useful life because there |
|                                    | is a financial incentive to     |
| **Data Availability:** The amount  | spend more on asset             |
| spent on asset preservation is a   | preservation. This would apply  |
| measure that can easily be tracked | particularly where State        |
| by the transit agencies from their | matching programs resulted in   |
| capital budget, and is generally   | an agency paying a small share  |
| addressed in the NTD. With minimal | of the investment.              |
| technical assistance, transit      |                                 |
| agencies could improve their       | **Scalability:** The size of    |
| reporting standards in conjunction | the recipient is not accounted  |
| with FTA strengthening its         | for in this incentive system,   |
| validation mechanisms.             | which might require additional  |
|                                    | scaling mechanisms to apply as  |
|                                    | threshold. Since the spending   |
|                                    | reflects the recipient's size,  |
|                                    | it would not have to be scaled  |
|                                    | to apportion the grant funding. |
|                                    |                                 |
|                                    | **Other:** There can be         |
|                                    | disagreement on the definition  |
|                                    | of the horizon period over      |
|                                    | which the average               |
|                                    | infrastructure preservation     |
|                                    | spending should be calculated.  |
+------------------------------------+---------------------------------+

2.  **Expenditures on Existing Assets in Relation to Total
    Expenditures:** Grant funding under this incentive system is
    distributed proportional to the percentage ratio of total
    expenditures on existing assets (includes operating, maintenance,
    and renewal expenditures) over total capital and operating
    expenditures of these assets**.**

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+------------------------------------+---------------------------------+
| **Motivates Desired Behavior:**    | **Unintended Consequence:**     |
| This incentive system is           | This incentive system penalizes |
| attractive because it captures the | transit agencies that expand    |
| effect of capital spending on      | their service. Since any        |
| operations. O&M expenses are       | expansion results in an         |
| directly correlated with capital   | increase in expenses, this      |
| spending on existing assets. For   | incentive system rewards        |
| example, an increase in spending   | systems with zero or slight     |
| on routine maintenance and         | expansion, even when            |
| replacement results in decreased   | replacement spending is also    |
| spending on O&M expenses, and vice | lagging. Therefore, the balance |
| versa.                             | between funding apportionment   |
|                                    | for system preservation and for |
| **Data Availability:** Capital     | expansion must be carefully     |
| expenses on asset preservation,    | evaluated.                      |
| O&M expenses, and total capital    |                                 |
| and O&M expenses are financial     | **Unfavorable Reception:** The  |
| indicators that many transit       | decision to forego system       |
| agencies are use to tracking in    | expansion in favor of asset     |
| their budgets, and reporting to    | preservation would be a highly  |
| FTA. With minimal effort, the      | contentious policy decision     |
| reporting standards could be       | that would embroil the transit  |
| improved to obtain more credible   | industry, FTA, and other        |
| data.                              | Federal agencies in an extended |
|                                    | debate. When arrayed against    |
| **Easy to Understand and           | other major FTA policy goals,   |
| Implement:** It is easy to         | this incentive system would not |
| understand an incentive system,    | get a favorable reception from  |
| which is based on indicators that  | the major stakeholders.         |
| are reported and tracked regularly |                                 |
| by the transit agencies. It is     |                                 |
| also easy to implement an          |                                 |
| incentive system that is easily    |                                 |
| understood.                        |                                 |
|                                    |                                 |
| **Scalability:** This measure is   |                                 |
| indexed to reflect recipient size, |                                 |
| and can therefore be used in the   |                                 |
| CAMP system as a threshold. To use |                                 |
| this to apportion funds, it would  |                                 |
| have to be scaled to the size of   |                                 |
| the recipient.                     |                                 |
+------------------------------------+---------------------------------+

3.  **Backlog in Relation to Total Asset Replacement Value:** This
    incentive system measures deferred investment for asset preservation
    against the total replacement value of assets. Distribution of
    funding under this incentive is done proportionately to the ratio of
    backlog to total asset replacement value.

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+------------------------------------+---------------------------------+
| **Motivates Desired Behavior:**    | **Data Availability:** Lack of  |
| Minimizing deferred investments in | reliable data for measuring     |
| infrastructure preservation or     | backlog and for estimating what |
| backlog is one of the objectives   | a transit system needs to bring |
| of the proposed incentive system.  | assets to a state of good       |
| This incentive system employs that | repair is an problem in the     |
| measure directly in the allocation | transit industry, according to  |
| mechanism.                         | the expert panel meeting. Using |
|                                    | backlog as one of the measures  |
| **Scalability:** The total asset   | to apportion grant funds would  |
| replacement value is a proxy       | require transit agencies to     |
| measure for the size of the        | increase their data collection  |
| recipient, and this ratio is       | efforts. Replacement value is   |
| suitable as a threshold. The       | not a new concept to many       |
| presence of that measure in the    | agencies, but it is not         |
| denominator scales the ratio to    | currently reported; definitions |
| account for small and large        | and reporting processes would   |
| recipients, and would have to be   | need to be developed.           |
| rescaled to apportion incentive    |                                 |
| funding reflecting recipient size. | **Other:** This measure alone   |
|                                    | cannot be a determinant factor  |
|                                    | for apportioning grant funds.   |
|                                    | Taken in conjunction with other |
|                                    | measures, it would constitute a |
|                                    | suitable incentive system.      |
+------------------------------------+---------------------------------+

4.  [**Annual Percentage Reduction in Infrastructure Preservation
    Backlog:** Funding under this incentive system is distributed
    proportional to the percentage change in deferred investments for
    asset preservation, rewarding those agencies that achieve a higher
    reduction percentage.]{.underline}

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+------------------------------------+---------------------------------+
| **Motivates Desired Behavior:** An | **Data Availability:**          |
| incentive based on change in       | According to the expert panel   |
| backlog (since the previous year)  | meeting, a transit industry     |
| is also an effective measure to    | problem is the lack of reliable |
| use, because it directly relates   | data for measuring backlog and  |
| to some of the objectives that     | for estimating what is needed   |
| this study intends to address.     | to bring transit system assets  |
|                                    | to a state of good repair.      |
| **Scalability:** The size of the   | Using backlog as one of the     |
| recipient is already accounted for | measures to apportion grant     |
| in this incentive system.          | funds would require transit     |
|                                    | agencies to increase their data |
|                                    | collection efforts.             |
+------------------------------------+---------------------------------+

5.  **Asset Failure Rate:** Funding under this incentive system is
    distributed proportional to the average intervals between asset
    failures, where examples of failure are as follows:

-   *Mean Distance Between Failure (MDBF) for Rolling Stock --* Tracks
    effective asset preservation measures in terms of increase in mean
    distance between failures.

-   *Reduction in Speed due to Track Conditions --* Monitors
    effectiveness of track preservation in terms of miles of track slow
    orders or travel time.

> In both cases, only failures based on asset management would be
> included; unrelated causes (such as other projects that interrupt
> operations, or independent outside actions or omissions) would be
> explicitly excluded. This distinction has already been developed in
> the NTD definition of rolling stock failures.

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+------------------------------------+---------------------------------+
| **Motivates Desired Behavior:**    | **Definition Consistency:** The |
| These asset performance-based      | definition of failure varies    |
| measures are truer metrics of      | from one agency to another.     |
| asset value and performance than   | Unless a consistent definition  |
| the preceding measures, and would  | of failure, or a common         |
| more accurately reward management  | denominator, is applied         |
| choices that result in             | industry-wide, this measure     |
| cost-effective service.            | would not be effective.         |
|                                    |                                 |
| **Scalability:** The size of the   | **Data Availability:** Although |
| recipient is already accounted for | the industry has developed      |
| in these measures.                 | measures for revenue vehicle    |
|                                    | failure rates, there is nearly  |
|                                    | no such data for                |
|                                    | infrastructure. Further, among  |
|                                    | asset management systems, the   |
|                                    | only system identified that had |
|                                    | successfully used asset         |
|                                    | performance for funding         |
|                                    | decisions was in the U.S.       |
|                                    | military, where *mission        |
|                                    | readiness* was measured in this |
|                                    | manner.                         |
+------------------------------------+---------------------------------+

### B. Process-based incentive system -- Certified Asset Management Plan (CAMP) with Qualification Thresholds

This incentive system is a structured qualitative process that qualifies
the recipients of incentive funds on the basis of successfully
developing a baseline asset management plan. As part of their CAMP,
recipients would be required to demonstrate an accurate inventory of all
transportation system assets and their current conditions, and provide a
preservation program that is based on lifecycle cost methods. Recipient
CAMPs would be periodically certified by State departments of
transportation (DOTs) or metropolitan planning organizations (MPOs), and
self-certified by the transit agencies every year*,* with comparisons
made against established thresholds to help identify egregious choices
or noncompliance. The study team considered five quantitative
thresholds:

1.  **Backlog as a percentage of asset replacement value:** Compares
    amount of deferred investment in existing assets to the total
    replacement valuation of the recipient's assets.

2.  **Renewal as a percentage of backlog:** Compares expenditures on
    asset renewal (preservation) to total deferred investments, and
    establishes a percentage threshold.

3.  **Renewal as percentage of asset replacement value:** Compares
    expenditures on asset renewal (preservation) to the total asset
    replacement value, and establishes a percentage threshold.

4.  **Reduction in failures (Mean Distance Between Failures, MDBF) for
    rolling stock:** Tracks effective asset preservation measures in
    terms of increase in mean distance between failures.

5.  **Reduction in speed due to track conditions:** Monitors
    effectiveness of track preservation in terms of miles of track slow
    orders or travel time.

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+------------------------------------+---------------------------------+
| **Motivates Desired Behavior:**    | **Reporting Burden:** The       |
| This incentive system requires the | reporting requirements for CAMP |
| recipients to have a certified     | could add a significant burden  |
| plan to qualify for incentive      | to the transit agencies, at     |
| funds. This plan would provide     | least initially. This is        |
| information to accurately measure  | especially a concern for large  |
| the size of the backlog and        | transit systems operating       |
| prioritize transit agency needs.   | multiple modes, and small       |
| Upon qualification, transit        | transit agencies that do not    |
| agencies are further motivated to  | possess the technical expertise |
| sustain sufficient levels of       | required to develop such a      |
| investment on existing assets and  | plan. However, this impediment  |
| maintain the backlog below or      | may be overcome if FTA is       |
| above the established thresholds   | willing to provide the          |
| to receive incentive funds. These  | necessary technical and         |
| thresholds should be ascertained   | financial assistance.           |
| after careful deliberation and     |                                 |
| sufficient analysis.               | **Unfavorable Reception:**      |
|                                    | Transit agencies may react      |
| **Unintended Consequences:** This  | negatively to the underlying    |
| incentive system eliminates the    | reporting burden associated     |
| perverse behavior of overspending  | with developing a CAMP, which   |
| to earn funds proportional to      | is discussed as a disadvantage  |
| spending amounts. Instead,         | above.                          |
| incentive funds are received upon  |                                 |
| attaining the established          |                                 |
| thresholds. In effect, there is no |                                 |
| incentive to be an                 |                                 |
| "over-achiever." This incentive    |                                 |
| system eliminates the need for a   |                                 |
| contentious debate on prioritizing |                                 |
| between system expansion and asset |                                 |
| preservation, which is a problem   |                                 |
| in the other incentive systems     |                                 |
| considered.                        |                                 |
|                                    |                                 |
| **Scalability:** By design, this   |                                 |
| incentive system eliminates the    |                                 |
| need for any scaling mechanism to  |                                 |
| be applied either as thresholds or |                                 |
| to apportion grants.               |                                 |
|                                    |                                 |
| **Data Availability:** Reliable    |                                 |
| estimates of capital spending on   |                                 |
| asset preservation can be          |                                 |
| collected from the transit         |                                 |
| agencies with a significant        |                                 |
| incremental effort in their        |                                 |
| reporting process and FTA's        |                                 |
| validation process. Backlog and    |                                 |
| replacement value can be estimated |                                 |
| more accurately from the condition |                                 |
| assessment plan required as part   |                                 |
| of the CAMP.                       |                                 |
|                                    |                                 |
| **Easy to Understand and           |                                 |
| Implement:** This incentive system |                                 |
| could be designed to be            |                                 |
| straightforward administratively,  |                                 |
| and easily understood by both FTA  |                                 |
| and the grantee.                   |                                 |
|                                    |                                 |
| **Favorable Reception:** This plan |                                 |
| could get a favorable reception    |                                 |
| from FTA if it addresses the needs |                                 |
| estimates that FTA prepares        |                                 |
| biennially for Congress.           |                                 |
+------------------------------------+---------------------------------+

### C. Hybrid incentive system

The hybrid method employs a qualitative certified asset management plan
(CAMP) component and a quantitative incentive formula component in the
allocation process. This system would incorporate the CAMP for initial
compliance, with up to 100 percent of new funding apportionment based on
current 5307 formula grants during the first year of the mandate. After
the first year, the amount to be distributed using the current Section
5307 formula would be gradually reduced, and the amount to be
distributed using the incentive formula would be increased in phases
over a six-year period. Thereafter, 100 percent of the apportionment
would be distributed by the formula. The incentive formula would be a
weighted combination of the three incentive factors, namely backlog as a
percentage asset replacement value; renewal as a percentage of asset
replacement value; and renewal as a percentage of backlog. Exhibit 3
provides an illustration of this incentive system.

![](media/image2.wmf){width="4.9992125984251965in"
height="2.8751968503937007in"}**Exhibit 3: Illustration of Phase-in
Mechanism**

+------------------------------------+---------------------------------+
| **Pros**                           | **Cons**                        |
+====================================+=================================+
| **Motivates Desired Behavior:** A  | **Easy to Understand and        |
| hybrid incentive system combines   | Implement:** This incentive     |
| the advantages of a formula system | system would be a new process,  |
| and a process-based system. This   | and hence might be difficult to |
| incentive system establishes a     | administer.                     |
| level playing field for all        |                                 |
| recipients, and further motivates  | **Unintended Consequences:** To |
| them to improve the performance.   | the contrary, this could result |
|                                    | in more pressure from elected   |
| **Unintended Consequences:**       | officials and board members of  |
| Placing emphasis on performance    | the agencies classified as "low |
| might motivate transit agencies to | performers," resulting in       |
| compete against each other. This   | perverse incentives.            |
| could promote improved performance |                                 |
| across many agencies.              | **Reporting Burden:** The       |
|                                    | reporting requirements for CAMP |
| **Data Availability:** Reliable    | would impose a significant      |
| estimates of capital spending on   | burden on the transit agencies. |
| asset preservation can be          | This is especially a concern    |
| collected from the transit         | for large transit systems       |
| agencies with minimal incremental  | operating multiple modes, and   |
| effort required in the transit     | for small transit agencies that |
| agencies' reporting process and    | do not possess the technical    |
| FTA's validation process. Backlog  | expertise required to develop   |
| and replacement value can be       | such a plan. However, this      |
| estimated more accurately from the | impediment may be overcome by   |
| condition assessment plan required | an FTA commitment to provide    |
| as part of the CAMP.               | any technical and financial     |
|                                    | assistance required.            |
| **Scalability:** The size of the   |                                 |
| agency is accounted for in the     | **Favorable Reception:** This   |
| three qualification thresholds.    | plan may not be received well   |
|                                    | within FTA and the transit      |
|                                    | industry.                       |
+------------------------------------+---------------------------------+

## 3.2 Synthesis from Expert Panel Meeting

The study team convened a team of expert panelists, including FTA staff,
to obtain their feedback on the incentive systems in general, and on the
list of incentive systems identified above in particular. Apart from the
study team, the expert panel consisted of the following members from
FTA, as well as private consultants possessing vast experience in the
transit industry

-   Participants from FTA

    -   Katherine Mattice, Office of Budget and Policy, FTA

    -   Fred Williams, Office of the Administrator, FTA

    -   Nancy Ody, Office of Policy Development, FTA

    -   Scott Faulk, Office of Program Management, FTA

-   Participants from the consultant team:

    -   Jerry Premo, DMJM Harris

    -   Ray Ellis, AECOM Enterprises

    -   Nancy Butler, DMJM Harris

    -   Richard White, DMJM Harris

    -   William Woodford, AECOM Consult

    -   Randall Crane, UCLA

The following key themes emerged from the panel meeting:

-   There is a lack of credible and reliable data on backlog and capital
    spending on asset preservation, renewal, and rehabilitation
    available from the three major national data sources, namely, the
    National Transit Database (NTD), the Transit Economic Requirement
    Model (TERM), and FTA's grant management system (Transportation
    Electronic Award and Management, or TEAM).

-   The limited data collected for monitoring transit system performance
    is oriented toward capital assets.

-   There is a need for a data-intensive analytical approach and
    prioritization process to make sound decisions on resource
    allocation.

-   There is a need to develop an incentive system based on data that is
    easily measurable and auditable.

The NTD has assembled capital expenditures by asset class on existing
assets only since 2004. Even with the limited historical data, there is
evidence of inaccurate reporting of investment in existing assets versus
expenditures on new capacity. In addition, NTD data becomes usable only
after a one- or two-year lag after the agency fiscal year end. The
effectiveness of any incentive system would be diluted if there is a
significant lag between the provision of service and receipt of funding.
TERM results may be relied upon for aggregate national estimates, but
they exhibit significant variations between model results and
agency-specific needs. Finally, TEAM does not collect data on capital
expenses using non-Federal funds; hence it fails to provide a
comprehensive picture of an agency's capital budget.

Within the transit industry, processes are employed with varying levels
of sophistication for tracking the condition of capital assets,
estimating the backlog, and reducing the backlog. The wide spectrum
includes processes that have sound asset management principles and
others that have a simple fleet management plan. Transit agencies that
adopt good asset management systems are being good stewards of their
assets. Examples where such processes are in place include the transit
agencies in Atlanta, New York, and Boston. Such processes have enabled
these transit agencies to maintain their assets in a state of good
repair and reduce backlog (with varying levels of success). However, the
majority of the industry is still making decisions based on relatively
limited information. A consensus from the panel meeting was the need for
an analysis-based approach to establish the baseline condition of these
assets, compute the needs, and optimally allocate scare resources.
Parallel to such an effort would be the development of performance
measures that monitor the progress made by transit agencies on these
activities.

Based on this feedback from the expert panel meeting, the study team
decided to further evaluate the process-based incentive system and the
hybrid incentive system, both of which require the development of a
certified asset management plan.

## 3.3 Candidate Incentive Systems for Further Evaluation

This section documents the analyses conducted on incentive systems for
the formula funding program, and demonstrates how such systems might be
applied if adopted by FTA. We present an analysis of two incentive
systems:

-   A certified asset management plan (CAMP) system

-   A hybrid system that includes a formula-based incentive

The principal analysis is of a process-based incentive system that
rewards development and maintenance of a certified asset management plan
(CAMP). An outline of an illustrative plan is presented, together with
the inventory, condition assessment, and life-cycle cost plan that
constitute the minimum requirements. The requirements for implementation
and maintenance of the plan include consistency of the transportation
improvement program with the CAMP, and the implementation of asset
management actions called for in the CAMP. Quantitative indicators of
asset management would be used to track the performance of the
recipients and to identify egregious neglect or gross violations of the
plan. These indicators, and illustrative thresholds that would trigger
review, are analyzed as well. A discussion is also provided on the
reliability of current data, and certain additional reporting
requirements. Two options for periodic certification of the asset
management plan have been identified. Finally, the analysis estimates
the incentive levels required to achieve widespread development of
CAMPs, and the separate ongoing incentive required to maintain the
CAMPs. The funding section of the analysis illustrates the
administration of the incentive funding. The analysis of the CAMP
incentive system is followed by the analysis of the formula-based hybrid
system.

## 3.4 Previous Industry Experience with Asset Management 

The transportation industry's experience with asset management
principles has been limited in the United States when compared to other
countries (particularly New Zealand, Australia, England, and Canada).
This experience is particularly thin within the transit industry (when
compared to the highway industry). Emphasis on asset management started
over a decade ago with the passage of the Intermodal Surface
Transportation Efficiency Act (ISTEA) of 1991. ISTEA mandated the
development of six management systems for use by the State DOTs to
ensure effective management and efficient operation and maintenance of
transportation infrastructure. These systems were as follows:

-   Pavement management system

-   Bridge management system

-   Public transit facilities management system

-   Intermodal management system

-   Congestion management system

-   Safety management system

The first three management systems focused primarily on the application
of asset management principles to these particular infrastructure
assets. They were intended to track asset conditions concerning the
operational, maintenance, safety, repair, and replacement needs of these
facilities, and provide input to the transportation planning and program
development processes to ensure their continued viability. The other
three systems were oriented toward ensuring efficient performance of the
transportation network and making management systems development and
integration an important part of the overall transportation planning
process.

However, only the first two mandated systems (pavement management and
bridge management) were close to being fully developed, with the
remaining systems lacking clear definition. This deficiency, coupled
with industry resistance, led Congress to repeal the mandates for these
systems and instead just encourage their development and use. However,
the pavement management and bridge management systems did begin to enjoy
greater acceptance as the highway system began to show the results of
years of use and the deleterious effects of deferred maintenance.

As this history demonstrates, care must be taken in developing any asset
management incentive system. In particular, the objectives and the
minimum requirements must be clearly defined, in terms that will result
in effective asset management. Further, attention should also be given
to the certification and review processes.

## 3.5 Analysis of a Process-Based Incentive System

In the pages that follow, a process-based incentive system is discussed
in detail. In developing the CAMP idea, three principles are observed:
First, the generation of uniform asset management data for the
allocation of incentive funds may not be feasible or credible. Secondly,
to influence local budgets, any capital investment program must have the
transparent participation, authorship, and endorsement of local
professionals and decision-makers. Third, FTA program oversight achieves
the most effective compliance when it takes the form of technical
assistance, coaching, and peer advice rather than Federal directives.

Therefore, this report examines the feasibility of a Federal requirement
to develop and maintain independent Capital Asset Management Plans. Much
as FTA's standardized reporting of accounts and performance, i.e., the
National Transit Database (NTD), helps to foster professionalism in the
management of transit operations, CAMPs could foster higher standards of
asset management. FTA would establish minimum requirements for the level
of detail and completeness of local CAMPs. FTA would also set up a CAMP
review and certification process, possibly within the framework of
existing FTA planning requirements. From local CAMPS, FTA could possibly
develop indicators of CAMP performance.

The purpose of the discussion is to give voice to the most practical
potential incentive systems that might serve the purposes of the Section
5307 formula program. This detailed discussion is intended to respond
fully to Congress's mandate for this study. It is not intended to imply
the Department's endorsement for such a program. Rather---as the reader
will see in our discussion---the complexity and cost of implementation
may weigh *against* adoption of such a program. In addition, Federal
formula incentives have policy and Federal budgetary implications that
are far better addressed in detailed re-authorization discussions (in
Congress and the Executive Branch) than in a technical report such as
this. Nor should the Department's reservations on this question, in this
report or otherwise, be interpreted as principled opposition to the
pursuit by other means of aggressive capital asset management programs
for transit.

The CAMP approach is process-focused rather than results focused. The
most effective asset management programs are produced by the controlling
organization's intimate understanding of customer requirements, the
existing and projected network, and ongoing asset conditions and
performance. The concept behind proposing the CAMP system was to help
transit agencies optimize performance and utilization of their assets by
building, preserving, replacing, and operating these assets more
cost-effectively. This approach was in turn expected to deliver best
value for the public tax dollar spent, enhancing the agencies'
credibility and accountability with the public and key decision-makers.
Credibility itself is an important "capital" asset. We need only consult
periodic referenda on capital bond issues to see the penalties public
authorities pay when, through perceived mismanagement of capital assets,
they lose the confidence of the electorate. Various candidate systems
were evaluated and analyzed from this perspective. To the study team,
the CAMP system is likely to be the most feasible system to employ if
FTA were to adopt any incentive system.

The CAMP process-based system encourages sound planning that extends
from the strategic level (using a long-term horizon of 10--25 years) to
the tactical level. This methodology translates the practices developed
at the strategic level into procedures to develop sub-plans for
allocating resources (e.g., human, physical, financial) to achieve those
strategic goals. The operational planning level then translates the
tactical plans into implementation plans (with a short-term focus of
1--3 years).

## 3.6 Requirements of the CAMP

The capital asset management plan must inventory all transportation
system assets and provide a preservation and replacement schedule based
on lifecycle cost methodologies. Specifically, the CAMP should define
the level of service required of the assets, even if these are existing
levels of service. It should also define the time frame (life cycle) for
which the asset must deliver the required service. The plan should
describe the system assets (physical and financial) and include
financial information (at least 10 years' worth) that translates the
physical aspects of planned maintenance, renewal, and new work into
financial terms. This data should be projected for at least the next 10
years, and in a manner that is transparent and in accordance with good
accounting principles (e.g., GASB 34). It is also important that the
CAMP recognize decline-in-service potential, to show how decline in
value would be measured.

The CAMP should be prepared by qualified persons, such as specialized
engineers. They should clearly state the assumptions they used, and the
confidence level assigned to the reliability of the underlying data
(e.g., condition, performance, remaining useful life, forecasted
maintenance, and renewal expenditure) that supports the plan. In
addition, the CAMP should outline improvement programs that address
known weak areas, specify the time frame over which improvements would
take place, and identify the resources (human and financial) needed.
Finally, the CAMP should be reviewed and updated on a regular basis.

Key benefits of the CAMP incentive system include the following:

-   An inducement explicitly to link the service level expectations with
    the assets needed to sustain that service;

-   Clear quantitative statements of the present and future demands on
    the assets;

-   An inducement to maintain a current estimate of the long-term
    financial commitments necessary to maintain both the assets and the
    services they provide;

-   An incentive to maintain current an evaluation of the business risks
    associated with the failure of the transit assets;

-   An incentive to develop a set of strategies to address both the
    shorter-term operations and maintenance, and the longer-term
    strategic planning of the assets;

-   An instrument to model future costs and asset performance;

-   A recurring process for introducing discipline and logical processes
    into all of the asset management planning activities;

-   A tool to assist the transit agency's ability to meet goals and
    objectives in a way that best serves customers; and

-   A document that is clear and direct so that it enhances full public
    debate over the transit agency's budget priorities and needs.

### A. Structure and elements of the CAMP Incentive System

There is no single right way to structure asset management plans, since
these structures would vary depending on individual agency needs and
preferences. However, irrespective of the plan structure, it is
necessary to ensure that the plan is fully integrated into the agency's
business planning framework and that the outputs cover all elements of
the asset management (AM) planning process. More important, to
facilitate industry-wide acceptance, the CAMP must capture these key
principles while being simple enough to implement.

To that end, capital management experts have identified principles for
infrastructure preservation. They have developed guidance for asset
management plans that incorporate asset management best practices. Two
key resources, relied upon in defining the CAMP system, are the
*International Infrastructure Management Manual (2006 Edition)* and the
*Guide to Preparing Your Transit Asset Management Plan* *(*developed by
Washington State DOT -- 2005*)*. A recommended structure for the CAMP is
outlined below; it is based on asset management best practices and the
industry resources cited above. It should be noted that there is no
"ideal" framework for the CAMP. Transit agencies have complete
flexibility to tailor their CAMP to reflect local conditions, as long as
the key principles outlined below are covered in a logical order.

**SECTION 1: EXECUTIVE SUMMARY --** Emphasizes the key issues contained
in the body of the asset management (AM) plan, and provides a succinct
overview of the entire AM plan.

1.  **The Purpose of the Plan**

-   To demonstrate responsible management

-   To communicate and justify funding requirements

-   To comply with regulatory requirements

    1.  **Asset Description**

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-   Summary of assets covered by the plan

    1.  **Levels of Service**

-   Summary of levels of service

-   Summary of performance measures

-   Methodology for developing levels of service and performance
    measures

    1.  **Future Demand**

-   Factors influencing future demand

-   Impact of changing demand on assets

    1.  **Lifecycle Management Plan**

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-   Summary of lifecycle management strategies (operations, maintenance,
    disposal, etc.)

    1.  **Financial Summary**

-   Long-term income and expenditure (cash flow) projections for each
    significant asset group (e.g., bus, light rail transit, heavy rail
    transit, wayside systems and facilities)

-   Sources of funding

    1.  **Asset Management Practices**

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-   Summary of AM data

-   Summary of information systems currently in place or to be acquired

-   Summary of decision-making processes

-   Description of implementation tactics

    1.  **Monitoring and Improvement Programs**

-   Summary of how performance of the AM plan would be monitored

-   Summary of actions required to improve accuracy and confidence in
    the AM plan

-   Timetable for review of the AM plan

**SECTION 2: INTRODUCTION --** Provides an overview of all the network
assets within the AM plan. It provides a sound justification for owning
and operating the assets covered and the reasons for preparing the AM
plan.

1.  **Background**

-   Purpose of the plan

-   Relationship with other planning documents (e.g., Transportation
    Improvement Plans (TIPs), Transit Development Plan (TDPs))

-   Transportation system assets included in the plan

-   Key stakeholders in the plan (e.g., DOT, MPO)

-   Organizational structure

    1.  **Goals and Objectives of Asset Ownership**

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-   Reasons and justification for asset ownership

-   Links to agency's vision, mission, goals, and objectives

    1.  **Plan Framework**

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-   Key elements of the plan

**SECTION 3: LEVEL OF SERVICE --** Clearly defines the levels of service
that are proposed, and confirms the basis of the levels of service that
are currently provided.

1.  **Customer Research and Expectations**

-   Background and customer research undertaken

-   Details of how research translates into levels of service (e.g.,
    bus/rail service plans)

    1.  **Strategic Goals**

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-   Agency's strategic goals and impacts on AM plan

    1.  **Legislative and Regulatory Requirements**

-   Legislative and regulatory requirements that affect transit
    operation or require certain levels of service

    1.  **Current Level of Service**

-   Define current levels of service being provided by the transit
    assets

-   Identify related performance measures (e.g., MDBF; percent
    availability of escalators, elevators, traction power)

    1.  **Desired Level of Service**

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-   Provide details on the level of service desired (if different from
    what is being provided)

-   Provide details of differences between current and desired levels of
    service and how these gaps would be progressively closed

**SECTION 4: FUTURE DEMAND --** Provides details of growth forecasts
that affect the management and utilization of the transit assets.
Transit improvement and expansion programs outlined in section 5 would
be prepared based on information outlined in this section.

1.  **Demand Forecast**

-   Factors influencing demand

-   Details of projected growth or decline of demands on services

-   Anticipated changes in customer expectations

-   Impact of changes in demand on transportation system asset
    utilization

    1.  **Changes in Technology**

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-   Use of new technology and effects on provision of future services

-   Obsolescence

    1.  **Demand Management Plan**

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-   Describe non-asset solutions available as alternatives to
    asset-based solutions (e.g., demand management, insurance, managed
    failures)

-   Summaries of improvement and expansion programs, and costs

**SECTION 5: LIFECYCLE MANAGEMENT PLAN --** This section outlines
exactly what is planned in order to manage and operate the assets at the
agreed levels of service (as defined in the plan) while optimizing
lifecycle costs. Consideration should be given to dividing the transit
network into separate geographical service areas (e.g., orange line, bus
route). A one-page summary of each subsection in section 5 should be
considered, for added clarity.

1.  **Background Data**

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i)  *Physical Parameters*

-   An inventory of the transit agency's assets, describing asset mix,
    size, location, and current issues

-   Summary of total asset parameters in table or graph formats (e.g.,
    age distribution, size); inventory can be prepared using the same
    form required for the transit system's TDP

-   An overall plan of the asset system or network

-   Information on how to obtain part-by-part asset information (e.g., a
    public transportation management system, or PTMS)

ii) *Asset Capacity/Performance*

-   Design capacity, actual measured capacity, and current utilization
    of assets; include a summary of details and statistics (e.g.,
    percentage and distribution of assets operating under capacity, if
    known) related to level of service

-   Refer to location of detailed information (e.g., computer models,
    calculations and analyses)

-   Asset capacity decay curves and failure modes

iii) *Asset Condition*

-   Summary of current asset condition based on best information
    currently available

-   Brief details on how condition is monitored

-   Age and condition decay curves

iv) *Asset Valuations*

-   Define replacement schedule and maximum useful life for asset types
    based on local conditions (FTA established a minimum for vehicles)

-   Depreciated asset replacement valuation summary

-   Description of valuation method

-   Basis for determining useful lives used for valuation
    (agency-defined based on local conditions)

-   Key assumptions made in preparing valuation

-   Details of historical valuations

v)  *Historical Data*

-   Summary of type of historical data available and location

-   Relevant financial information (historical expenditure)

    1.  **Routine Maintenance Program --** Routine maintenance is the
        regular ongoing day-to-day work that is necessary to keep
        transit assets operating, including instances where portions of
        the asset fail and need immediate repair to make the asset
        operational again.

i)  *Graduated Maintenance Program*

-   A graduated preventative maintenance (PM) program that is detailed,
    step-by-step (A-B-C or 1-2-3), based on manufacturer's
    recommendations, and adapted to local conditions

-   A description of the transit agency's practices and policies that
    form the basis of their graduated PM program

-   General description of local conditions that affect PM service
    intervals of the transit agency (e.g., travel speed, ridership,
    topography, weather, local policies)

-   Preventative maintenance schedules (can be modified over time as
    experience and technology warrant, or as changes occur)

-   Sample inspection sheet for each level of the PM intervals, keyed to
    the asset type that is representative of the transit agency's asset
    base

ii) *Maintenance Reporting System Standards and Specifications*

-   Asset-specific form of recordkeeping to identify, track, and report
    maintenance, repair, and preservation activities and costs

-   Defined methods and service standards to meet required levels of
    service

-   Risks associated with alternative standards

iii) *Maintenance Management Protocol*

-   Description of the process to authorize, direct, and control
    maintenance work activities and costs

-   Description of the method used to ensure that maintenance activities
    contracted to others (i.e., not performed directly by the transit
    agency's employees) are performed and completed in accordance with
    agency standards; may require reviewing the documentation of work
    performed by subcontractors, periodic physical inspections, etc.

-   Description of the system used for warranty recovery

iv) *Summary of Future Costs*

-   Forecast of planned and unplanned maintenance work and costs

-   Identification of any maintenance deferred and associated risk

-   Outline of how maintenance would be funded

    1.  **Renewal/Replacement Plan --** Renewal plan expenditures
        represent major work that does not increase the asset's design
        capacity, but that does restore, rehabilitate, replace, or renew
        an existing asset to its original capacity.

i)  *Renewal Plan*

-   Show how replacements/renewals are identified and to what standards
    they are replaced (e.g., modes of failure, options for treatment,
    risk)

-   End-of-life projections

-   Renewal decision-making process

ii) *Renewal Standards*

-   Define methods and service standards to meet required levels of
    service

-   Identify risks associated with alternative standards

iii) *Summary of Future Costs*

-   Forecast program of replacement and costs

-   Prepare cash flow forecast of costs

-   Note any renewals that are deferred

-   Prepare risk analysis (i.e., risks and long-term effects of
    deferral)

-   Identify how replacement would be funded

**SECTION 6: FINANCIAL SUMMARY --** This section identifies the
financial requirements generated by all the material presented in
previous sections. This section also includes a cost model that reflects
the agency's policies and standards, resulting in the lowest maintenance
costs over the life of the asset.

1.  **Financial Statements and Projections**

-   Cash flow forecasts by year (at least 10 years)

-   Breakdown of expenditure by service groups (10 years)

-   Breakdown of expenditure into routine maintenance, renewal, and
    expansion

-   Trends from the previous 2--3 years

2.  **Funding Strategy**

-   Provide details of how expenditure would be funded

-   Determine whether any planning is needed to smooth out variations in
    cash flow

3.  **Valuation Forecasts**

-   Forecast of future value of transit asset and valuation methodology

-   Forecasts of decline in value

4.  **Key Assumptions Made in Financial Forecasts**

-   Clearly state assumptions used to develop the information presented

-   Describe how the accuracy and reliability of future financial
    forecasts would be improved

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-   Include a sensitivity analysis, qualifying variations in the
    forecasts resulting from possible scenarios relating to key
    assumptions

**SECTION 7: ASSET MANAGEMENT PRACTICES --** Provides an outline of the
information available on the agency's transit assets, the information
systems used (e.g., software, files) and the process used to make
decisions on how transit assets will be managed. This section also
demonstrates a logical, thorough, and convincing decision-making process
that ensures a sound basis is used for the management strategy and
financial estimates.

1.  **Accounting/Financial Systems**

-   Identify accounting system details, and any changes required as a
    consequence of the CAMP

-   Define differences between maintenance, renewal, and expansion
    expenditures

-   Provide details of accounting standards/guidelines that must be
    complied with (e.g., GASB 34)

2.  **Asset Management Systems**

-   What types of data are available on the transit assets to help
    agency AM decision making?

-   What is the qualifying/reliability/adequacy of data?

-   Is any software used to store and analyze asset data?

-   Where is the information stored?

-   How often is the information collected/updated?

3.  **Information Flow Requirements and Processes**

-   What are the key information flows to and from the CAMP?

-   What processes are used to make decisions on AM,
    replacement/renewal, and expansion?

-   Is there a formal project ranking/prioritizing system?

-   How is the best decision made?

-   Does it take into account risk cost, lifecycle costs, performance
    prediction, and optimized decision making?

4.  **Standards and Guidelines**

-   What are the key standards and guidelines that influence AM
    activities?

**SECTION 8: PLAN IMPROVEMENT AND MONITORING --** This section describes
the plan for monitoring the performance of the CAMP, and identifying any
improvements to the AM systems that would improve the level of
confidence in the CAMP. One possible consideration is to include a
three-year program (aligned with FTA's triennial reviews) for
implementing the improvements identified in this section.

1.  **Performance Measures**

-   Outline performance measures for the CAMP system

-   Describe how effectiveness of the CAMP would be measured

2.  **Improvement Program**

-   Details of actions proposed and timetables for improving accuracy
    and confidence in the CAMP, indicating responsibility for each
    action

-   Details of resources required to implement the improvement program

3.  **Monitoring and Review Procedures**

-   Procedures and timetable for performance reporting (3-year review of
    the CAMP)

-   Timetable for external audit and review (of process, data integrity,
    level of service)

### B. Definition of Lifecycle Cost Methodology

Lifecycle cost methodologies in the CAMP need to focus on management
options and strategies that take into consideration all economic and
physical consequences, from initial planning through complete asset
replacement (disposal). Application of asset management principles would
ensure reliable delivery of services and reduce long-term costs of
ownership, thus reducing service costs. Exhibit 5 illustrates the
lifecycle processes within the context of asset management.

![](media/image3.wmf){width="4.720833333333333in"
height="4.007638888888889in"}

**Exhibit 5: The Process of Lifecycle Asset Management**

More specifically, the lifecycle processes to be considered by transit
agencies as they undertake asset management are as follows:

-   ***Asset planning --*** Involves confirming the service that is
    required from the customer and ensuring that the proposed asset is
    the most effective solution to meet customer's need.

-   ***Asset acquisition --*** Involves providing (or improving) an
    asset where the value can reasonably be expected to provide benefits
    beyond the year that cost is incurred. A value management approach
    may be adopted to optimize this decision.

-   ***Financial management --*** Requires the recognition of all costs
    associated with ownership of the asset, including acquisition, O&M,
    rehabilitation, renewals, and replacement (disposal), within a
    cost-effective decision-making context.

-   ***Asset operations and maintenance --*** Involves functions that
    relate to the day-to-day running of the assets, along with the
    associated costs.

-   ***Asset condition and performance monitoring --*** Involves
    monitoring assets whose condition and performance directly affect
    the level of service provided, throughout their lifecycle, in order
    to identify under-performers and predict failure.

-   ***Asset Rehabilitation/Renewal --***Involves significant upgrading
    or restoration of an asset, or an asset component, to its required
    functional condition and performance. Key to this process is
    identification of the optimum long-term solution in a methodical and
    formal decision-making process.

-   ***Asset Replacement/Disposal --*** Involves reviewing the
    configurations, type, and location of assets, as well as service
    delivery processes for assets that are deemed no longer required, or
    uneconomical to maintain or rehabilitate.

-   ***Asset Management Audit and Review --*** Involves carrying out
    regular internal and external audits to ensure a continuous asset
    management improvement cycle, and to achieve/maintain appropriate
    industry practice.

### C. Inventory and Condition Assessment Level of Detail

One of the key elements of the CAMP is a complete inventory of all
transit assets and an accurate condition assessment of each asset. This
is the most labor- and cost-intensive step that drives the transit
system's asset management effort. The point was made earlier that while
there is no prescribed structure or format to be followed, the
information contained in the inventory needs to address asset
descriptive parameters (e.g., vehicle year/make/model, facility name),
current asset condition rating, asset remaining useful life, and
replacement cost. If the CAMP incentive system is implemented, the
implementation process should weigh the range of conditions to which the
system would apply, and further specify the minimum level of detail
required in the inventory and the minimum requirements for condition
assessment.

## 3.7 CAMP Qualification Thresholds

Aside from civil rights and accessibility protections, and procedural
measures to foster regional coordination among decision-makers to
protect the financial integrity of FTA's grant agreements, FTA is very
reluctant to substitute its transit service goals for the goals of local
governments. As suggested earlier, however, the Department interprets
Congress's intent to consider an incentive program to foster sound
capital asset management. The Federal government is a partner in the
acquisition in these assets and a transit ally in local budgets. Also,
local governments have been known to approach the Federal government for
financial relief from the ravages of prolonged local neglect of
transportation infrastructure.

Finally, a larger question looms for every Congress that re-authorizes
Federal programs like transit assistance. Congress is likely to be more
generous to programs for which they can hold recipients accountable.
Accountability thus can be a powerful influence for incremental program
funding. But, as emphasized throughout this report, incentives and
accountability must earn their pay. The Department is extremely
reluctant to impose unenforceable or unproductive requirements whose
burdens outweigh their benefits to the taxpayer.

The qualification thresholds discussed below may well be interpreted as
performance measures. That is only natural. Let us be clear, however.
The performance measures would apply to an incremental "tier" of Federal
formula funding to which every urbanized area is entitled (or not) to
subscribe. The cost of subscription is to (1) to develop a CAMP, (2) to
maintain the CAMP, and (3) to avoid extreme failure in living up to the
CAMP. Agencies elected to forego this "incentive tier" are free to do
so, just as current recipients are free to not update or report certain
data FTA uses to allocate existing "incentive" tiers based, for
instance, on fixed guideway route miles.

The purpose of the CAMP incentive system, once in place, would be
defeated if grant recipients did not live up to their CAMPs.
Accordingly, it is necessary to establish a threshold that would qualify
a recipient to receive its CAMP incentive funding. The thresholds should
be general enough, and sensible enough, to win the assent both of
transit professionals and the local decision-makers who control any
transit agency's annual capital budget. Also, in view of long enduring
capital investment backlogs in the most aged transit systems, the
qualification thresholds must be lenient. Their purpose is not to
penalize agencies, or to withhold Federal support from the agencies most
in need.

> ***In what follows, it is understood that any system that elects not
> to develop a CAMP, is ineligible for formula grants to develop and
> maintain the CAMP and also ineligible for formula grants for complying
> therewith. For reasons discussed elsewhere, in a few urbanized areas
> where FTA formula grants are fungible among more than one transit
> operating agency, this condition is a problem.***

One purpose of a CAMP is to unveil to local decision-makers---and the
public---the most egregious neglect of valuable transit assets. The most
egregious neglect is the most avoidable, almost by definition. In cases
where capital neglect is extreme, such neglect implies waste of the
Federal funding. In the face of such waste, withholding a portion of
Federal funding would have no affect on the capital assets per se, only
the people wasting the resource. The ***threat*** of withholding Federal
funds in such circumstance, however, stands a chance of spurring
corrective action.

Qualification of CAMPs also must follow a sensible cycle. Management
actions on transit's major capital assets tend to be uneven from year to
year. Delivery of replacement vehicles for even a small portion of a
transit bus or rail car fleet occurs over months and years, for example.
Repair of a rail system's signaling or electronic controls, involving
major subsystems, can take years to complete. Thus, yearly comparisons
can be misleading. To "smooth out" year-to-year fluctuation in the
management of FTA capital grants, FTA conducts oversight of its grant
recipients in three-year cycles. A similar cycle, and using the existing
Triennial Review process, makes sense for findings of qualification for
CAMP incentive grants.

Once again, FTA's intent is to encourage and assist transit systems in
adopting asset management tenets. FTA would like to promote a rational
asset management approach without creating additional burdens on those
transit systems. In keeping with that intent, care was taken in defining
the qualification thresholds against which transit systems would be
assessed. These thresholds were defined to reflect the goals and
objectives of the proposed CAMP incentive system. Specifically, the main
criteria for defining suitable thresholds were simplicity and, to the
extent possible, the utility of existing sources of data (so as to
achieve the most effective results from the industry). Furthermore, the
thresholds had to be lenient enough to allow participation of most
transit systems, and structured to identify only the most extreme cases
of non-compliance or neglect.

Based on deliberations with FTA and industry experts, the following
three ratios were identified as the potential qualification thresholds:

-   ***Renewal Expense to Deferred Investment Cost --*** This threshold
    measures how well the transit system is reducing its backlog of
    under-performing assets.

-   ***Renewal Expense to Replacement Cost --*** This threshold captures
    the transit system's propensity to honor asset management
    principles; it measures what percentage of the total value of system
    assets is allocated to the preservation of those assets.

-   ***Replacement Cost to Deferred Investment Cost --*** This measure
    provides a snapshot of the overall condition of a transit system's
    assets. This threshold may also provide insight into the
    organizational philosophies, recurring budgetary challenges, and
    operating policies in place.

To use these values in reviewing CAMP compliance and implementation, it
is critical to recognize that the data must be available according to
some standard definitions. FTA must either require submission of such
data in, say, triennial CAMP documents (and train agencies in how to
meet those reporting requirements), or FTA must add these data elements
to a required reporting system such as the National Transit Database
(although NTD data is reported annually, certain data may naturally
recur over more than one year, e.g., delivery dates on long lived
capital assets)

### A. Threshold Variables Defined

-   ***Renewal Expense*** is the cost incurred by a transit system for
    undertaking capital repairs or improvements to bring an
    under-performing asset back to its original condition and
    performance capacity.

-   ***Deferred Investment Cost*** (also referred to as investment
    backlog) is the total *unspent* cost associated with repairs that
    are deemed necessary to bring under-performing assets into a state
    of good repair.

-   ***Replacement Cost*** is the total cost of completely replacing its
    assets if they failed (i.e., the asset value)

### B. Description of Data Used in Analysis

The following discussion used the data reported to the National Transit
Database (NTD) and estimates from the Transit Economic Requirements
Model (TERM) to show the current trends in CAMP variables and
descriptive statistics for the proposed threshold ratios computed using
the CAMP variables.

In 2004, transit systems started reporting the rehabilitation,
replacement, reconstruction, and improvement expenses on existing
service to the NTD. These actual values reported to NTD were used to
measure the renewal expenditure for all transit systems. The estimates
of replacement cost and deferred investment cost or backlog for each
agency were based on projections obtained from the TERM model for 2004.
A discussion of the methodology adopted by TERM to estimate replacement
cost and deferred investment cost is beyond the scope of this report;
the reader is advised to refer to the TERM guide.

In order to perform a meaningful analysis, the data was stratified into
seven discrete categories. This stratification was based on the total
number of transit vehicles operated by the agency in directly operated
service (combining all modes together). The source for the data was the
2004 NTD.

Extreme caution must be used in interpreting this quantitative analysis
because the TERM data was not intended to accurately reflect individual
transit system experience, and because these data collection systems
(NTD renewal expense and TERM) are of limited maturity. (For further
detail, refer to Section 3.8 -- Data Sources and Issues). However, these
analyses convincingly illustrate the potential for measuring individual
system performance. Substantial work and investment would be required to
achieve the reliability prerequisite to such measurements.

### C. Summary of Threshold Variables

Exhibit 6 provides a summary of renewal expense, replacement cost, and
backlog for 2004 for the seven vehicle size categories.

**Exhibit 6: Summary of CAMP Variables by Fleet Size**

![](media/image4.wmf){width="6.490972222222222in"
height="2.652083333333333in"}

It can be observed from exhibit 6 that some transit agencies reported
operating zero vehicles in 2004. This is only possible if a transit
agency did not provide any service during that year, or failed to report
this data, or reported data under the "purchased transportation"
category in NTD. TERM estimates a backlog of around 6 percent and
replacement cost of 9 percent for these agencies.

Even though the majority of the transit systems are smaller agencies
operating fewer than 100 vehicles, the combined backlog for that group
is only around 5.5 percent of the total backlog. The replacement cost is
around 7 percent of the total replacement cost, accounting for around
8 percent of total renewal expenses in 2004. Even though there are only
about 42 transit agencies operating between 300 and 1,000 vehicles,
these agencies account for 16 percent of total backlog, 23 percent of
total replacement cost, and 26 percent of total renewal expenditures.
The larger systems that operate more than 1,000 vehicles are more
complicated due to the multimodal nature of their operations, and hence
account for the majority of backlog, total replacement cost, and total
renewal expenditures.

### D. Descriptive Statistics on Qualification Thresholds

As indicated earlier, the three threshold variables (renewal expenses,
deferred investment cost, and replacement cost) were used to estimate
qualification threshold ratios. In this section, for each ratio,
descriptive statistics such as weighted mean, minimum, maximum, average,
median, and standard deviation are provided.

#### Renewal Expense to Deferred Investment Cost (or Backlog)

A total of 348 transit agencies had renewal expense and deferred
investment cost greater than zero. The corresponding qualification
threshold ratio is summarized by vehicle size category in exhibit 7. The
transit agencies with fewer than 10 vehicles had the highest weighted
mean, maximum value, and standard deviation. It was observed that, in
this category, there was one agency that reported a high renewal expense
in 2004. This could be due to a reporting error (for example, a capital
expansion expense being coded as renewal expense). The standard
deviation seems to be lower for large transit agencies, and it increases
as the agency size decreases. This suggests that there is more
dispersion from the mean, especially for agencies operating 50--299
vehicles.

![](media/image5.png){width="6.5472222222222225in"
height="2.3430555555555554in"}**Exhibit 7: Descriptive Statistics for
Renewal Expense to Deferred Investment Cost Ratio**[^18]

In keeping with the leniency criteria for qualifying transit systems
under this threshold, the lower bound renewal expense to deferred
investment cost ratio was established at 0.02, below which transit
agencies would be disqualified. Exhibit 8 presents the cumulative
distribution curve, highlighting the lower bound "cutoff" point.

**Exhibit 8: Cumulative Distribution Curve for Renewal Expense to
Deferred Investment Cost Ratio**

![](media/image6.wmf){width="5.641666666666667in" height="3.48125in"}

#### Renewal Expense to Replacement Cost

The ratio of renewal expense to replacement cost was based on data from
353 transit agencies. Exhibit 9 summarizes the descriptive statistics by
vehicle size category. The smallest transit systems have the highest
weighted mean, maximum value, and standard deviation. This could be due
to data reporting errors (arising due to inaccurate classification of
capital expense as renewal expenditure). Similar to the previous ratio,
the standard deviation increases as the agency size decreases (except
for the agencies operating 10--49 vehicles).

![](media/image7.png){width="6.583333333333333in"
height="2.23125in"}**Exhibit 9: Descriptive Statistics for Renewal
Expense to Replacement Cost Ratio**[^19]

The lower bound "cutoff" point for this qualification threshold was
determined to be 0.001, as shown in exhibit 10.

**Exhibit 10: Cumulative Distribution Curve for Renewal Expense to
Replacement Cost Ratio**

![](media/image8.wmf){width="5.736111111111111in"
height="3.533333333333333in"}

#### Replacement Cost to Deferred Investment Cost

The replacement cost and deferred investment cost are based on TERM
estimates; hence data is available for a wider range of 614 transit
agencies. The descriptive statistics are shown in exhibit 11. According
to TERM, about 150 transit agencies did not report operating any
vehicles in the 2004 National Transit Database (NTD). TERM estimates the
replacement costs and deferred investment costs for these agencies, and
the weighted mean for this category, to be the second highest. This
category also has the highest standard deviation and maximum. The one
agency that had the highest maximum value of 1085.778 had a high
replacement cost and relatively small deferred investment cost. It was
found that this is a commuter rail agency that reported its 18 vehicles
operated under the "purchased transportation" category. Similar to the
previous two ratios, the standard deviation is low for large systems,
and increases with decreasing transit agency size.

![](media/image9.png){width="6.6875in" height="2.5in"}**Exhibit 11:
Descriptive Statistics for Replacement Cost to Deferred Investment Cost
Ratio**[^20]

The following are some key observations from these descriptive
statistics:

-   In most cases, the standard deviation within the respective vehicle
    size category is high. Therefore, a standardized rule (like defining
    "egregious behavior" as one standard deviation away from the mean)
    cannot be meaningfully applied.

-   The ratio of renewal expenses to replacement cost is the most
    reliable measure available that is based on the existing data
    sources. Renewal expenses are actual values reported by transit
    agencies, and replacement costs are estimated based on inventory
    data compiled in TERM. Also, replacement cost for a transit agency
    has less year-to-year volatility than backlog and renewal expense.

-   Since renewal expenses are constrained by availability of funds
    within the transit agency, there can be big fluctuations in
    year-to-year renewal spending. Hence a rolling average of renewal
    expenses, for example over a six-year period, should be developed
    and applied in the qualification thresholds.

Exhibit 12 shows the cumulative distribution curve for this
qualification threshold. The lower bound "cutoff" point, below which
transit agencies are disqualified, was identified at 2.0.

![](media/image10.wmf){width="5.677083333333333in"
height="3.5208333333333335in"}**Exhibit 12: Cumulative Distribution
Curve for Renewal Expense to Replacement Cost Ratio**

Exhibit 13 shows the weighted mean by vehicle size category for each of
the three qualification thresholds.

![](media/image11.wmf){width="4.404166666666667in"
height="8.25in"}**Exhibit 13: Weighted Mean by Fleet Size Category for
Each Qualification Threshold**

## 3.8 Data Sources and Issues

In the pages that follow, data inconsistencies among transit agencies
are discussed at length. To funding agencies like FTA that might
"benefit" from standardized transit capital data, the lack of uniform
data may seem to be a deficiency. *This interpretation would be a
mistake.* Data inconsistencies are common across businesses, even
businesses competing in the same markets. As often as not, inconsistent
data arise from the diverse business models, technologies, production
techniques, and management practices characteristic of efficient
economies.

A second issue considered here is the absence of a Federal reporting
requirement for local agency transit asset holdings. Without this
requirement, FTA does not currently possess a single data source that
provides both current and comprehensive information on the quantities,
types, ages, and condition of the nation's transit asset holdings.
Rather, FTA is forced to rely on data collated from a variety of
incomplete sources when estimating either the replacement value or
investment backlog of individual transit operators, regions, or the
nation as a whole. The availability of high-quality data on local
transit asset holdings would greatly improve the quality of such
estimates, and would also support other FTA analyses and objectives
(e.g., long-term capital needs estimation, natural disaster damage
assessments, safety and security evaluations).

As before, a number of daunting data questions discussed in this section
add to the department's reservations about a CAMP incentive except as a
process requirement.

### A. Current data reliability and Availability

External monitoring of the effectiveness of programs using the CAMP
qualification measures identified above---either by FTA or entities
designated to certify agency asset management programs---would require
reliable reporting or estimation of the variables underlying each
measure. Specifically, FTA would require reliable measures for each of
the following variables:

-   Current renewal expenditures

-   Deferred investment costs (backlog)

-   Asset replacement cost

The currently available measures for each of these variables suffer from
one or more data reliability issues. These issues must be addressed
before these measures could be used in the evaluation of agency asset
management program effectiveness. Each of these variables is considered
in turn.

Of the three variables, operators receiving 5307 funds are currently
only required to report current capital renewal expenditures.
Specifically, these amounts are reported annually at the asset category
level through NTD (categories here include expenditures on guideway,
stations, administrative facilities, maintenance facilities, rolling
stock, revenue and non-revenue vehicles, and systems). Current renewal
expenditures for projects receiving Federal funding assistance are also
recorded in FTA's TEAM database (projects with no Federal funding are
not reported there).

*Data from both of these sources are unreliable.* Specifically, the
reporting of current renewal expenditures to NTD is a new requirement
(beginning with the 2002 NTD reporting year). Data inconsistencies have
arisen as agencies have adapted to the new requirement. At the same
time, the reporting rules provide flexibility in whether projects are
reported as either renewal investments or expansion investments. This
contributes to variability in the amount reported as "capital renewal."
Finally, the initial three years of reporting have revealed broad
variations in the level of expenditures reported from one year to the
next---even within individual agencies. It has yet to be determined
whether these variations represent true fluctuations in agency capital
expenditures, or just reporting inconsistencies. As a result, we cannot
vouch for the validity and reliability of these data.

Similarly, comparisons of the capital renewal expenditures reported in
TEAM and those reported to NTD reveal discrepancies. While it might be
expected, *a priori*, that the TEAM expenditures are consistently *less*
than those reported to NTD (i.e., as the former only includes Federally
funded projects), the expenditures reported in TEAM were found to be
both higher ***and*** lower than those reported to NTD (depending on the
agency or type of expenditure). TEAM data also suffer from the same
issue of flexibility as to whether some projects (e.g., replacement of
an existing facility with a larger, expanded facility) are categorized
as renewal or expansion.

In contrast to the NTD and TEAM data on capital renewal, agencies
receiving Section 5307 funds are not required to report either their
current deferred investment needs or their asset replacement costs.
FTA's only current means of estimating these values is to use analytic
results produced by TERM[^21]. While TERM applies a consistent
methodology to the estimation of deferred needs and asset replacement
costs, these estimates ultimately rely on asset inventory information
submitted to FTA through a combination of formal data requests
(individually to each of the larger transit agencies) and generated
estimates of asset holdings (for all other agencies and non-responsive
large agencies). Information obtained from these sources, which are not
standardized across agencies, must then be modified on an
agency-by-agency basis for use within TERM. Given the inconsistencies in
the asset inventory data provided for use in TERM (or the current need
to estimate transit asset holdings for medium and small agencies), the
quality of TERM's needs estimates are not fully consistent across
operators. Stated differently, while TERM's estimates have proven
valuable at the national level, the absence of a consistent and
comprehensive asset inventory reporting requirement prevents accurate
estimation of individual agency needs.[^22]

Because the concept of replacement value has been more widely used
(e.g., for capital planning and grant applications), and the accounting
as well as asset management professions have developed replacement
valuation methods, it can be anticipated that a standardized national
definition of asset replacement value can be implemented over a period
of three to six years. However, the estimation, aggregation, and
management of backlog estimates may require more research, development,
training, and standardization time. If incentive funding is to depend in
some part on each transit system's replacement value and backlog
statistics, the plan for developing and using these statistics should be
carefully laid out.

### B. Proposed reporting requirements

The absence of an asset inventory reporting requirement (e.g., through
NTD) has been a topic of discussion for many years.[^23] Without such a
reporting requirement, neither FTA nor its designated certification
agencies would be able to derive consistent estimates of either deferred
capital needs or asset replacement value at the individual agency or
agency-mode level. Development of such a reporting requirement could be
useful for monitoring of agency asset management plan execution and
effectiveness. (Insofar as CAMP compliance, as discussed above, is based
on *internal* inventories, a national reporting system may not be
necessary. A summary of CAMP inventories, depending upon the rate of
compliance, could be tantamount to a national inventory.)

In 2002 NTD staff conducted a test of an "asset condition module" (ACM)
whereby a sample of 5307 operators provided relatively comprehensive
reporting of their asset holdings. This format provided effective
guidance and a reasonable level of detail for local agencies to report
their asset holdings to FTA. The level of reporting detail specified in
the ACM study is significantly less than what the agencies should
maintain themselves for their own asset management purposes. Yet it is
sufficiently detailed to allow FTA to conduct useful analysis of
individual operator needs and current capital condition.

### c. Local Agency Capital Asset Data

Local operator reporting of capital asset data would necessarily rely on
the internal systems and processes operators currently use to maintain
such information. However, few U.S. transit operators at present
maintain comprehensive electronic capital asset inventories designed to
support the specific needs of asset management processes. Rather, most
operators generally maintain capital asset--related data in one or more
unrelated databases. Examples include:

-   Fixed asset ledgers (accounting system)

-   Grants management systems

-   Maintenance management systems

-   Department/division level documentation

-   Vehicle rosters/NTD vehicle records

In general these sources are either incomplete (i.e., do not cover all
asset holdings) and/or are designed for purposes other than asset
management (e.g., fixed asset ledgers support financial accounting
reporting) that are ill-suited for asset management purposes. The fact
that many local transit operators, including some large rail operators,
do not maintain good quality asset inventory data raises questions
about:

-   Transit operators' ability to report reliable asset inventory
    holding data to FTA;

-   Transit operators' ability to complete their own, internal analyses
    of investment needs; and

-   Local agencies' ability to effectively maintain assets purchased
    using Federal funds

More broadly speaking, the concern here is not just that many agencies
may not be able to provide quality data on their asset holdings, but
whether these agencies have data of sufficient quality and
comprehensiveness to support their own internal asset management
programs. Development of such quality asset inventory databases is a key
prerequisite to the development and implementation of asset management
processes at the local level, and there may be a role here for FTA to
provide guidance and technical assistance to support this development.

## 3.9 Certification Process

*Certification is critical to any full-blown CAMP incentive program.*
For the incentive system to improve the condition of the national
transit fleet and infrastructure, the agencies must achieve a minimum
level of quality in their asset management plans, and must follow
through with implementation. Agencies may be tempted to reduce the CAMP
effort toward preexisting asset management data, even if it is only a
financial inventory of assets, list of vehicles, and maintenance record.
Indeed, such shortcuts might appeal to advocates of an incentive
program, to reduce the burden on program recipients. Such an approach,
however, would undermine an incentive program.

Accordingly, a CAMP requirement can ensure and sustain results only
through a certification process. Implementation would be ensured through
the consistency of the planning process (discussed below), and the
application of thresholds to find instances of neglect or failure to
implement. We think a three-tiered approach to certification would be
necessary.

### A. Self-Certification versus independent certification

The first and most basic level of certification for the ongoing
administration of the incentive system would be the self-certification
of the transit agency. Based on the agency's certifications, submitted
with its formula grant application, FTA would routinely include the
incentive amounts in the formula grant. This would apply to both the
initial development of the CAMP and its ongoing maintenance.

The agency would lose its privilege to self-certify if deceit or gross
error were shown in a self-certification. After loss of the
self-certification privilege, for the period determined by FTA on a
case-by-case basis, an independent, FTA-sponsored certification of
compliance with the CAMP criteria would be required before the incentive
amount would be included in a formula grant. This could require a grant
amendment if the independent certification was delayed.

### B. Annual Independent Certification

There could also be an annual independent certification of CAMP
compliance. This independent certification would have substantial value
because it could bring an independent judgment to the more subjective
assessments and decisions involved in maintaining the CAMP. If asset
condition is routinely overstated or if requirements to bring assets
into a state of good repair are underestimated, the independent review
would be necessary to detect these failings. There are two possibilities
for the independent certification:

-   A State agency (potentially the same agency that is responsible for
    state rail safety oversight in States with rail systems, or for the
    small urbanized area programs in States without rail systems) would
    be required to independently certify that each operating agency's
    CAMP complied with the Federal criteria before incentive funds would
    be granted; many States have the necessary expertise, and a vested
    interest in transit fleet and infrastructure condition and
    management, and would be well suited to this role. However, the
    State is not as routinely involved in the 5307 grant administration
    process for large urbanized areas, and requiring State certification
    prior to entering into the formula grant may be disruptive. Also, a
    recent study of State transit programs found most of them
    understaffed and unable to increase their staffs.

-   The metropolitan planning organization (MPO) is more routinely
    involved in the formula grant process as part of the current
    planning process requirements for formula funding, but has not
    traditionally played as large a role as the State in many urbanized
    areas in protecting fleet and transit infrastructure condition.

To receive its allocation of formula funding, each transit agency should
assume the responsibility for obtaining the independent certification of
CAMP compliance.

### C. Triennial Review

The final level of routine review would be FTA's triennial reviews. In
addition to a basic checklist of CAMP requirements that may be included
at the discretion of FTA in some triennial reviews, every triennial
review should include a verification of the effective date of the
current CAMP, if any; the self-certification completion; and the
independent certification completion. If the triennial review raises
questions, FTA regional office and headquarters asset management
specialists would cooperate in investigating and recommending a
resolution. This may result in the reversal of a CAMP incentive
allocation (presumably to be deducted from the current or future formula
grants), loss of the privilege of self-certification, or required
improvements in the CAMP (such as accelerated asset investment).

## 3.10 Consistency with the Regional Planning Process

The development of a transportation improvement program (TIP), as
required by FTA, presents an opportunity for internal coordination
between the various transit agency subdivisions in order to incorporate
asset management into the agency's overall transportation improvement
program. Regional coordination is also fostered with agencies at the
regional level like State DOTs, local MPOs, and other transit agencies.
Thus, the development of a CAMP system as discussed here could be
incorporated as a line item project in the TIP project priority list. A
clear budget for the CAMP system would need to be presented in
accordance with the requirements of the TIP. Specifically, the cost
associated with the assets that are identified for renewal in CAMP would
need to be included in the annual elements and future years of the TIP.

## 3.11 Incentive Program Funding Requirements 

### A. Initial Development

It is anticipated that new funding would be appropriated for instituting
the proposed CAMP incentive system. Careful consideration needs to be
given to determining the size of the appropriation so that it is just
the right amount to achieve the objective of this incentive system. A
small appropriation would not go very far in encouraging transit
agencies to undertake the level of effort needed to develop the CAMP.
Rather, it would likely be viewed as another unnecessary and burdensome
procedure. The incentive funding would need to be large enough to induce
and encourage the recipients to embrace asset management principles and
incorporate a lifecycle philosophy into the overall operation. This
amount might be substantially less than the full cost of implementation.
Alternatively, initial funding might be calculated to induce a subset of
agencies to pioneer a first generation of CAMPs.

The initial CAMP development would require a higher incentive than would
the maintenance of the CAMP once it has been developed. However, some
incentive would also be required to maintain the CAMP; otherwise,
agencies would be forced to choose between CAMP maintenance and service
or fare control. A one-time incentive for CAMP development would be
advisable, together with an ongoing allocation for maintenance of the
CAMP.

To quantify the adequate level of funding for fully developing and
maintaining the CAMP, the study team relied on industry experience and
on information obtained from transit agencies that have gone through the
process of developing an AM plan. In particular, the study team
interviewed expert members from the following six agencies:

-   Washington State Department of Transportation

-   Metropolitan Atlanta Rapid Transit Authority (MARTA)

-   Maryland Transit Administration (MTA)

-   Washington Metropolitan Area Transportation Administration (WMATA)

-   Chicago Transit Authority (CTA)

-   Dallas Area Rapid Transit (DART)

While these agencies represented a good mix, only MARTA provided
documented information based on their asset management program currently
under development. Washington State DOT provided a conceptual estimate
of level of effort and cost it would require for developing a CAMP.
Using MARTA's CAMP estimate and total replacement cost for MARTA, the
study team calculated a ratio of the MARTA-estimated CAMP cost to MARTA
total asset replacement cost. This ratio was applied to the replacement
cost estimates from TERM to derive a CAMP development cost estimate for
each transit agency. The total cost of developing the CAMP for all the
transit agencies was then derived by adding up the individual agency's
CAMP cost. Based on these calculations, the *order-of-magnitude*
estimate for the funding level required for CAMP development by all
agencies is \$251 million (in 2010 dollars).

This estimate may be biased by its heavy reliance on the single example
of MARTA. A more accurate estimate of the incentive (CAMP) funding can
be arrived at using the average cost incurred by a representative number
of agencies (rail and non-rail). On the other hand, MARTA has one of the
more complete and advanced asset management plans (when compared to its
transit industry peers).  Moreover, the reliability of the data provided
by MARTA was found to be substantially superior to that obtained from
other sources.

Exhibit 14 shows the estimated total cost of CAMP development, based on
applying the MARTA cost per replacement-value-dollar to the replacement
values of the assets of all U.S. transit systems.

![](media/image12.png){width="6.583333333333333in"
height="2.8472222222222223in"}**Exhibit 14: Cost Estimate for CAMP
Development**

### B. Ongoing Maintenance and Certification

The initial development of the CAMP by agencies would require a
significant level of effort, particularly for those medium-large
agencies that have no prior experience in developing an AM program. In
general, the development of the CAMP would take 1--3 years, depending on
the size and level of experience. Once transit agencies have gone
through the initial development of their CAMP, the learning curve would
typically smooth out, and with it the level of effort required would
decrease. Thus, the study team estimates that this level of effort would
be around one-sixth of the CAMP development fund annually.

## 3.12 Funding Distribution

The incentive program would be allocated to the transit industry based
on the 5307 Program formulas (rail and bus, but excluding the existing
incentive tier). This would incorporate the equity principles in the
current 5307 Program into the incentive program.[^24] The recipient of
incentive funds can either be the recipient as defined by the Section
5307 Program, or the transit agencies, if they are not otherwise direct
recipients of Section 5307 funds. The following is a brief discussion of
each approach and its relative merits and demerits.

### A. Designated Recipient Based on Current Section 5307 Program

Based on the current Section 5307 Program, the designated recipient of
the incentive funds would be the urbanized area designated recipient for
areas with populations above 200,000, and the State governors for
urbanized areas with UZA populations between 50,000 and 200,000.

In such a case, a UZA would qualify to receive incentive funds if, at a
minimum, operating entities accounting for 75 percent of the total asset
base within that UZA have Capital Asset Management Plans and are in
compliance with the plan requirements. The asset base is defined as
either the sum total of replacement values, or number of revenue vehicle
miles operated within the UZA. For example, if a UZA has more than one
transit system operating within its jurisdiction, then at least 75
percent of the UZA's asset base should be certified. If an operating
entity provides service in more than one UZA, revenue vehicle miles by
mode could be used to allocate its asset base by mode between the UZAs
to determine whether the 75 percent threshold is met. There are pros and
cons associated with this approach.

The incentive funds would be distributed to the designated recipients
for large urban areas with a UZA population over 200,000, or State
governors for the small urban areas with UZA population under 200,000
(based on a proportion of Section 5307 funds received by the UZA). In
the case of the small urban area UZAs, the State's allocation of 5307
funds to UZAs would be used in allocating the incentive funds to the
State for compliant UZAs.

#### Pros

From the administrator's point of view, the grant administration process
is very simple and follows the established sub-State allocation
procedures based on the Section 5307 Program.

New legislation would match the allocation process to the existing 5307
Program.

#### Cons

FTA is seeking to alter the behavior of transit agencies; but by
providing incentive funds to the urbanized area's designated recipient
or the State governor, the administrator is not motivating the transit
agencies directly.

For UZAs with more than one transit agency, the sub-allocation of 5307
funds among the transit agencies is at the discretion of the urbanized
area's designated recipient, or the State governor. So even though a
transit agency demonstrates the desired behavior, it may not be
compensated because the incentive funds may be diverted to agencies with
dire needs. In many instances, the process used to sub-allocate 5307
funds among transit agencies is not transparent.

By making all transit agencies within a qualifying UZA eligible for
incentive funds, FTA might be diverting incentive funds to agencies that
do not have an asset management plan. For smaller operating entities in
UZAs where one operator held 75 percent of the asset base, there would
be no material incentive to develop and maintain CAMPs. Similarly, there
would be no incentive if a larger operator held more than 25 percent of
the asset base and had not reached certification (i.e., the 75 percent
threshold could not be met).

### B. Distribution of Incentive Funds Directly to Transit Agencies

In this approach, the transit agencies would be the direct recipients of
the incentive funds upon having a certified asset management plan (see
self and independent certification options on Pages 62 - 63).[^25] This
approach is highly desirable because the transit systems are directly
rewarded for being good stewards of transit capital assets. The agencies
are further motivated to comply with the plan and maintain or improve
their performance so that they continue to receive incentive funds in
the future. However, this method would require a newly legislated
process to enable FTA to administer funds directly to qualifying
agencies. The allocation process would require that each operating
agency's share of a UZA incentive allocation be computed based on the
agency's share of the revenue vehicle miles for the respective bus and
rail 5307 tiers.

#### Illustration of Incentive Fund Distribution over Two Authorization Cycles

According to the CAMP plan, transit agencies would be required to have a
CAMP within six years of the program start date. The period associated
with these six years is henceforth referred to as the CAMP development
phase. It is assumed that the incentive program would be effective from
the first year of the next authorization cycle beginning in Federal
fiscal year 2010. It is assumed that transit agencies would start
receiving the incentive funds during the same year that the plan was
certified. For demonstration purposes, during the first six-year
authorization cycle, it was assumed that a certain percentage of transit
agencies would get certified each year during the CAMP development
phase. Exhibit 15 shows the percentage and cumulative percentage of
certified transit agencies every year. It was also assumed that some
agencies may not ever certify their plans. Hence, at the end of the
development phase, the percentage of transit agencies getting certified
is capped at 95 percent to account for noncompliant transit agencies.

**Exhibit 15: Assumptions Regarding Distribution of CAMP\
Development and Maintenance Funds**

![](media/image13.wmf){width="5.947916666666667in"
height="2.921527777777778in"}

#### Distribution of CAMP Development Fund 

Each year during the CAMP development phase, the CAMP development funds
would be distributed to all transit agencies currently receiving 5307
assistance based on the first year's proportion of 5307 funds. The
unobligated development funds would be carried over to the next year,
until the seventh year. During the seventh year, when the CAMP
development phase is complete, these funds would be carried over to a
technical assistance pool establish to provide technical assistance for
transit agencies that do not comply with the plan requirements. This
technical assistance pool would be distributed on a discretionary basis
by FTA.

#### Distribution of CAMP Maintenance (Ongoing Certification) Fund to Transit Agencies

The incentive for ongoing certification, henceforth referred to as the
CAMP maintenance fund, is assumed to be approximately one-sixth of the
total development fund each year, inflating at a 3 percent annual rate,
and the agencies would start receiving it one year after their asset
management plan was certified. The maintenance funds would be
distributed to the transit agencies based on the proportion of the
compliant transit agencies' Section 5307 funds for that Federal fiscal
year. Because adherence to the plan is both critical and difficult to
achieve, maintenance of the CAMP would be essential to the effectiveness
of the incentive system. The history of transit asset management is
characterized more by poor implementation and lack of budget discipline
than by lack of plans and good intentions.

The total maintenance fund distributed each year is based on the scheme
shown in exhibit 15. For example, in the above exhibit, 15 percent of
the transit agencies had a certified plan in Year 1, and hence 15
percent of the maintenance funds were distributed to these agencies in
Year 2. Similarly, 30 percent of transit agencies had a certified plan
in Year 2, and hence 30 percent of the maintenance funds were
distributed in Year 3. Any year-to-year unobligated maintenance funds
would be carried over to a technical assistance pool. This technical
assistance program would decline in size as the proportion of the
industry in compliance with the requirements increases. It is assumed
that from Year 8, the maintenance funds would be completely distributed
(no carryover) to the certified transit agencies.

Exhibit 16 shows the cost of the incentive program broken out by CAMP
development cost and CAMP maintenance cost for two authorization cycles
beginning in 2010. During the first authorization cycle, the total cost
of the incentive program, which includes development and maintenance,
would be around \$481 million in year of expenditure (YOE) currency. In
the second authorization cycle, the total cost of the incentive program,
which includes maintenance funds only, would be around \$324 million.

![](media/image14.png){width="6.666666666666667in"
height="3.173611111111111in"}**Exhibit 16: Cost of Incentive Program for
Two Authorization Cycles\
in a Process-Based System**

Exhibit 17 illustrates the distribution of the development and
maintenance fund over two six-year authorization cycles. In the exhibit,
columns 5 and 10 represent the actual development and maintenance funds
distributed to transit agencies each year. Column 12 represents the
unobligated technical assistance pool before any spending. Column 13
represents the total expenses to FTA after distributing development and
maintenance funds, but before any technical assistance spending.

![](media/image15.png){width="9.196527777777778in"
height="4.747222222222222in"}**Exhibit 17: Illustrative Drawdown of CAMP
Development and Maintenance Funds in a\
Process-Based System**

## 3.13 Analysis of the Hybrid INCENTIVE SYSTEM

The hybrid incentive system is a combination of the process-based system
(discussed above) and a formula-based system. The formula, in this case,
is based on a mathematical weighting of the three qualification
thresholds, namely, the ratio of renewal expense to deferred investment
cost (or backlog ratio); the ratio of renewal expense to replacement
cost; and the ratio of replacement cost to deferred investment cost.

The main intention of a hybrid incentive system is to combine the
advantages of the process-based system and the quantitative formula
system. Hence the hybrid incentive system has two components:

1.  **Process-based tier:** During the first authorization cycle (CAMP
    development phase), transit agencies would receive funding under the
    process-based system. However, the amount of funds distributed each
    year under this tier is gradually reduced at a rate of one-sixth
    each year. At the end of the sixth year, no more funds would be
    available under this tier.

2.  **Formula tier:** The formula tier would be created primarily to
    distribute CAMP maintenance funds. From the second year, the
    maintenance funds would be distributed to the recipients that have a
    CAMP, and the amount distributed under this tier gradually increases
    at the rate of one-sixth each year. After the sixth year, 100
    percent of the incentive funds under this program are distributed
    based on the formula.

Exhibit 18 illustrates this concept.

**Exhibit 18: Hybrid Incentive System Concept**

![](media/image16.wmf){width="3.9034722222222222in"
height="2.408333333333333in"}

The size of the process-based tier each year is obtained by multiplying
the corresponding percentage from the above table with the spending
levels computed for the process-based system (refer to column 13 in
exhibit 17). The size of the formula tier each year is obtained by
multiplying the corresponding percentage from the above table with the
cost of maintenance funds.

Exhibit 19 shows the distribution of funds for two authorization cycles,
beginning from Federal fiscal year 2010. Columns 3 and 4 show the
transition from the process-based system to the formula-based system,
with more emphasis on the formula-based system during the later years of
the authorization cycle. Columns 7 and 8 show the funds allocated based
on each tier, and column 10 shows the total FTA spending each year.

Exhibit 19: Illustrative Drawdown of Funds in Hybrid Incentive System

![](media/image17.png){width="8.889583333333333in"
height="4.901388888888889in"}

In the hybrid incentive system, the overall cost of the incentive
program for an authorization cycle is computed by summing the total FTA
spending during that period. As shown in exhibit 20, the total cost of
the incentive program for the first authorization cycle would be
\$296,361,668. In comparing this amount with the cost of the
process-based system for the same period, it is observed that the hybrid
incentive system costs less than the process-based system. In the hybrid
system, the recipients have an added incentive to certify the plan
sooner rather than later to recover the actual cost of CAMP development.
Since the formula-based system is strongly tied to performance and the
allocation is less weighted toward the formula during the initial years,
recipients certifying their plan sooner have a better chance of
recovering the actual cost of development than do the ones that certify
later.

The cost of maintaining the plan during the second authorization cycle
is estimated at \$323,609,724. That is the same as the cost estimated
for the process-based system.

![](media/image18.png){width="6.0in"
height="2.577777777777778in"}**Exhibit 20: Cost of Incentive Program for
Two Authorization Cycles\
in the Hybrid Incentive System**

### A. Establishing Weights to Qualification Thresholds in the Formula

The weights assigned to each qualification threshold should be designed
in a way that motivates the transit agencies to invest more in repair,
rehabilitation, reconstruction, and improvement of their existing
assets. This in turn has the positive effect of reducing their backlog.

In practice, some transit systems would be close to "attaining" an
optimal state of good repair, while others would be "improving" toward
attaining the optimal state of good repair. A formula system with more
emphasis on the ratio of renewal to asset replacement costs would reward
transit systems that are "improving" to attain the optimal state of good
repair. In contrast, a formula system that places more emphasis on the
ratio of asset replacement costs to backlog would reward transit systems
that are close to "attaining" an optimal state of good repair. A formula
system that places more emphasis on renewal-to-backlog ratio would
reward both behaviors discussed here.

Prior to actual implementation, the combination of weights in the
incentive formula should be carefully studied, and funds allocated to
recipients using alternative formulae thoroughly analyzed.

### B. Distribution of Incentive Funds

In the hybrid formula system, the transit agencies would be assumed to
be the direct recipients of the incentive funds. The distribution would
be based on the following:

-   Process-based tier: Applicable only for the first six years, this
    amount would be distributed based on the proportion of Section 5307
    funds.

-   Formula tier: The incentive formula would be used to derive a
    weighted incentive fund index based on the values of qualification
    thresholds for each agency. The incentive funds would then be
    calculated based on a proportion of the weighted incentive fund
    index, multiplied by Section 5307 funds received by the transit
    agency.

#   {#section-2 .unnumbered}

# 4.0 Incentive Systems for Non-Urbanized Area Recipients

## 4.1 Section 5311 Goals and Potential Incentives

Federal assistance for rural and small urban transit services (Section
5311) is used primarily to fund transit operations per se. Consequently,
oversight of this program includes an interest in use of program funds
in transit operations as well as capital acquisition and maintenance. An
incentive program to support the Federal goals for this program is a
prudent policy option worth exploring.

A number of explicit and implicit goals of the Section 5311 Program are
listed in exhibit 21. Progress toward a number of these goals may be
enhanced by the use of well-designed funding incentive programs.
However, transit services and benefits are not homogeneous; disparate
transit goals undermine one another. The pursuit of the lowest cost per
passenger mile, for instance, is compromised by the equally important
goal of reasonable coverage of service areas with widely different
population density and factors that drive transit demand. This
particular trade-off is especially acute in small urban and rural
programs funded under Section 5311. Thus, State experiences with funding
incentives for performance have always entailed compromises and
trade-offs among State and local transit goals.

The research team systematically identified transit's numerous goals.
The complete set is shown in Exhibit 21. **The goals displayed in bold**
have been selected as candidates for promotion through funding
incentives and are evaluated in this report.

**Exhibit 21: SECTION 5311 Goals**

  -----------------------------------------------------------------------
  **GOAL**                    **DESCRIPTION**
  --------------------------- -------------------------------------------
  **Efficiency**              Providing quality service at the lowest
                              cost

  **Ridership Growth**        Increasing the number of passengers over
                              time

  **Coordination**            Minimizing duplicative services

  **Coverage**                Increasing the geographic area in which
                              service is provided

  **Local Commitment**        Increase in State and local contribution to
                              services

  **Utilization**             High rate of use of capital assets

  **Asset Maintenance**       Ensuring that capital assets provide
                              service through their design life

  Accessibility               Provide services to people with
                              disabilities

  Private Provider            Encourage private delivery of services
  Participation               

  Timely Reporting of         Ensure compliance with all regulations
  Requirements                

  Affordability               Keep price of services low for customers

  Intercity Bus Services      Ensure mobility throughout the State

  Equity                      Ensure equitable distribution of funds
                              within States

  Service Quality             Ensure acceptable reliability, schedule,
                              and waiting times
  -----------------------------------------------------------------------

In addition to cataloging Section 5311 Program goals, the research team
has assembled process and performance incentives for both capital (asset
preservation and utilization) and operations. Exhibit 22 shows the set
of incentives, listed by purpose (capital or operation) and type
(process or performance). Exhibit 22 also shows, in bold, the incentives
that are evaluated in this report. These are appropriate to promote one
or more of the chosen goals, which are listed along with the incentive.

**EXHIBIT 22: Goals and Potential Incentives**

  -------------------------------------------------------------------------
  GOal                    **Incentive funds linked  Type
                          to:**                     
  ----------------------- ------------------------- -----------------------
  Efficiency              Periodic route analysis   Operating/process

  Efficiency              Reducing Federal subsidy  Operating/performance
                          per trip                  

  Efficiency              Lowering the cost per     Operating/performance
                          vehicle hour              

  Efficiency              Lowering cost per mile    Operating/performance

  Efficiency/Ridership    Retain operating surplus  Operating/process
                          for future expanded       
                          service                   

  Efficiency/Ridership    Retain capital surplus    Capital/process
                          for future capital        
                          improvement               

  Ridership Growth        Annual ridership surveys  Operating/process

  Ridership Growth        Increase in number of     Operating/Performance
                          passengers                

  Ridership Growth        Vehicle miles of service  Operating/Performance

  Ridership Growth        Vehicle hours of service  Operating/Performance

  Service Quality         High ratings based on     Operating/process
                          customer surveys          

  Service Quality         Short scheduling and      Operating/performance
                          waiting times             

  Service Quality         Develop service standards Operating/process

  Coordination            Annual coordination plan  Operating/process

  Coverage                Develop and adhere to     Operational/process
                          specific growth plan      

  Coverage                Increase in the number of Operation/performance
                          counties served           

  Coverage                Share of counties served  Operation/performance

  Local Commitment/Local  State or local share of   Operation/process
  Share Of Costs          operating costs           

  Asset Maintenance       Life cycle asset          Capital/process
                          maintenance plan          

  Asset Maintenance       Vehicle availability      Capital/performance

  Asset Maintenance       Mean distance between     Capital/performance
                          failure                   

  Asset Utilization       Annual vehicle hours of   Capital/performance
                          operation                 

  Asset Utilization       Number of vehicles per    Capital/performance
                          passenger mile            

  Intercity Bus           Public/private review     Operating/process
                          process for subsidy       

  Equity                  Equitable distribution    Operating/process
                          report                    
  -------------------------------------------------------------------------

## 4.2 Federal Incentives for System Performance or Incentives to Encourage States to Adopt Incentive Systems for 5311-Funded Programs?

When considering incentive programs to promote Section 5311 goals, there
is the question of the most advantageous role that FTA can play in
creating incentives, such as the policy and management choices by small
urban and rural transit operators. Satisfaction of prescribed processes
or achievement of specified performance criteria could yield additional
funding for the successful system. These programs would directly link
local system actions with FTA goals.

**However, FTA does not administer the Section 5311 Program. The States
do.** Introducing specific Federal incentives that reward individual
systems would impose an additional layer of direction for local
operating authorities. Moreover, some FTA goals, such as increasing
geographic coverage, require authority beyond the geographic scope of
individual transit systems. Exhibit 22, therefore, also includes
alternative approaches to following two objectives:

-   An inducement for the States to pursue State or sub-State
    region-wide goals and

-   An inducement for the States to maintain, consistent with FTA goals,
    incentive funding systems for operators.

Incentives for States to develop their own incentive programs would have
at least five advantages:

1.  States already have monitoring responsibility for local systems.

2.  Most State goals and FTA goals coincide.

3.  Some States already have begun to put incentive systems in place.

4.  FTA would not have to bear a significant increase in monitoring
    costs, as it would only have to monitor the 50 State programs and
    not individual systems. However, increasing the management burden
    for many State transit offices would be difficult or prohibitive,
    even if additional funding were made available. (cf. National
    Cooperative Highway Research Program, "State DOT Staff Resources for
    Administering Federal Public Transportation Programs," *Research
    Results Digest* *314* (April, 2007).

5.  FTA would not be imposing a new regulatory burden on local
    operators.

Although FTA would not have the burden of monitoring local systems, FTA
may define standards for State incentive systems so that funding
incentives directed to the States are well defined and oriented toward
achieving FTA goals. In the discussion of specific incentives that
follows, we examine both FTA incentives for local systems and incentives
for States to develop incentive programs, which may, in fact, be similar
to the direct Federal incentives.

## 4.3 Evaluation of Incentives for the 5311 Program

Regardless of whether incentives are directed to rural transit systems
or States administering the Section 5311 Program, funding incentives
must be clearly defined, focused on specific goals, measurable, based on
available data, and of sufficient magnitude to affect the choices of
States and rural transit providers.

Thus, we evaluate each potential incentive on the following six
criteria:

1.  **Transparency** how unambiguously an incentive indicates what you
    need to know

2.  **Measurability:** how simple it is to detect compliance with an
    incentive

3.  **Data Availability:** the difficulty of generating data required
    for the incentive

4.  **Burden on State and Local Systems:** increased administrative
    work, because of the incentive, required on the part of the State
    (which would administer the program) and the locality (which would
    implement the program)

5.  **Link to Goals:** how the incentive advances a specific FTA goal,
    and any conflicts among goals it would generate.

6.  **Potential Effectiveness:** the likelihood the incentive actually
    motivates decisions, and whether achieving the incentive leads to
    desired results

Each goal is ranked excellent, good, fair, or poor against each of the
above criteria.

In addition to assessing individual incentives against the above
criteria, there are common concerns across all incentives, particularly
potential conflicts and interactions with other goals.

Properly designed State incentive programs can lead to changes in the
choices transit providers make. For example, one State introduced four
criteria that would trigger performance bonuses: increase operating
revenue per vehicle hour; increase in ridership per vehicle hour;
increase ratio of operating revenue to operating expenses; and increase
in operating expenses per vehicle hour below the rate of inflation. Two
of the four bonuses encouraged fare increases at the rate of inflation,
but two others encouraged holding operating expenses below the inflation
rate. The average transit system earned two of the four bonuses, which
increased the State share by an average of 4 percent. The result was
that providers made changes in response to the incentives.

### A. Efficiency Incentives for the Section 5311 Program

Exhibit 22 identifies one process-based incentive and two
performance-based incentives. Efficiency-based incentives are intended
to reward operators that (1) deliver services for which there is demand,
and (2) deliver a given service at a lower cost. As mentioned earlier,
basic e*fficiency* incentives in small urban and rural services often
conflict with *coverage* and *service quality* goals.

#### Periodic Route Analysis

Providing new funding for the successful completion of periodic route
analyses is a *process-based* incentive that encourages operators
formally to calculate the relative cost and use of fixed routes, and
therefore enable operators to evaluate tradeoffs across goals in
resource allocation. This simple process-based incentive is attractive
based on a number of criteria, but probably limited in effectiveness.

**Transparency**

> *Excellent*: Requiring a periodic route analysis is straightforward
> and clear in its application.

**Measurability**

> *Good:* While it is easy to measure whether a transit agency has
> complied with conducting a route analysis, ensuring its quality
> requires greater monitoring.

**Data Availability**

> *Excellent:* One of the reasons for adopting an incentive to perform
> periodic route analyses is to motivate operators to collect the
> rudimentary data for good operational and investment decisions. ***In
> addition, recent FTA guidance for Section 5311 requires collection of
> the basic data for route analysis.***

**Burden on Systems**

> *Good:* Performing route analyses clearly puts additional burdens on
> local systems; however, the presumption is that the FTA incentive for
> performing the route analysis would be greater than its cost.
> Moreover, the *benefits* of the route analysis for potential
> efficiency gains would offset the modest effort.

**Link to Goals**

> *Good:* Route analyses would allow the rank ordering of inefficient
> routes to support fine tuning at the margin as opportunities and needs
> change. Since this is simply a process incentive system, managers can
> still obtain the incentive funding---even if they do not act on the
> implications of the route analysis.

**Potential**

> *Fair:* Because operators are not compelled to take action based on
> the findings, the potential to have a significant impact is limited.

#### Funding Based on Lowering Federal Subsidy per Trip

This incentive would reward systems that manage to lower the Federal
subsidy per trip. This results in a greater number of people served for
any given amount of Federal subsidy. Operators could reduce their
Federal subsidy through a variety of operational changes. First, they
could become more efficient with respect to the delivery of any given
service. Second, they could shift resources to areas that carry more
people per vehicle mile, or carry people shorter distances. Third, local
governments could increase their contribution, which would reduce the
Federal component on a per trip basis. Each of these policy changes
might conflict with other goals, particularly in service quality.

The cost of providing a given trip may be lowered by reducing the
service quality in the form of longer waits, increased scheduling
requirements, or more Spartan vehicles. This obviously conflicts with
service quality goals.

To the extent that operators lower Federal subsidy per trip by reducing
long-distance trips in favor of shorter ones, this objective is likely
to conflict with *coverage* goals. This incentive may also shift
resources among service types, for example fixed-route versus on-demand.
Thus, it may be desirable to specify the incentive with respect to type
of trip or transportation goal.

**Transparency**

> *Excellent:* The incentive program only requires tracking the number
> of passengers and Federal dollars.

**Measurability**

> *Good:* While it is easy to measure the average subsidy per trip, if
> the incentive is specified by trip type, the allocation of overhead
> costs to alternative services may be controversial.

**Data Availability**

> *Good:* Again, if the incentive is on the average trip, the data is
> clearly available. However, if the incentive is based on subsidy by
> trip type, then additional data is required to allocate overhead
> costs.

**Burden on Systems**

> *Good:* Systems may incur small additional burdens to allocate costs
> across trip types.

**Link to Goals**

> *Excellent:* The incentive is directly linked to the goal, and is only
> available if there is progress toward the goal. However, moving toward
> the goal may be in conflict with other goals.

**Potential**

> *Good:* Operators that innovate can increase their funding and expand
> their services. On the other hand, the incentive may make it more
> difficult to achieve other goals.

#### Funding Based on Lowering Costs per Vehicle Revenue Hour

This incentive would reward systems that manage to lower the hourly
costs of revenue vehicle operation. This incentive could positively
affect efficiency by lowering labor costs, minimizing non-revenue hours,
and increasing maintenance efficiency. Depending on how the incentive is
specified, this incentive could result in shifts in vehicle and trip
type. For example, if the incentive were specified without reference to
vehicle type, it could result in shifts away from operations of larger,
more expensive vehicles that can carry more people to smaller vehicles
and on-demand services. This incentive does not provide an incentive to
orient service to areas of highest demand.

**Transparency**

> *Excellent:* The incentive program requires only tracking the number
> of operating vehicle revenue hours and total operating costs.

**Measurability**

> *Good:* While it is easy to measure the revenue hours of service, if
> the incentive is specified by vehicle or service type, the allocation
> of overhead costs to alternative services may be controversial.

**Data Availability**

> *Good:* Again, if the incentive is on the average trip, the data is
> clearly available. However, if the incentive is based on revenue hours
> by vehicle or service type, additional data is required to allocate
> overhead costs.

**Burden on Systems**

> *Good:* Systems may incur small additional burdens to allocated costs
> across trip and vehicle types.

**Link to Goals**

> *Good:* The incentive is directly linked to lowering unit costs. It
> does not, however, provide incentives to best match service to demand.

**Potential**

> *Good:* Operators that control costs would have the opportunity to
> grow with increased funding.

### B. Ridership Incentives for the Section 5311 Program

Among urban transit systems, incentives to increase ridership seem to be
obvious choices. Success in this dimension would mean that Federal
capital would be serving more travel, and the negative externalities of
urban congestion may be reduced. For rural systems, the picture is not
as clear. In many circumstances, the mobility provided by rural transit
services is mobility of last resort. It is a lifeline for people without
cars, the elderly, or people who otherwise don't have access to a car.
Unlike urban transit service, rural transit is not intended to reduce
congestion or provide general mobility. The number of people that choose
to use rural transit may reflect many factors that are not related to
the transit service, and may also significantly change for reasons
unrelated to transit service. Still, incentives designed to induce more
people to use transit are worthy of consideration. Moreover, FTA has a
goal of increasing ridership by 3 percent annually on systems receiving
Section 5311 funding.

#### Funding Contingent on the Completion of Annual Ridership Surveys

Annual ridership surveys enable transit operators to assess how
customers value the services. Surveys that included people choosing not
to ride would also provide information from people who find the services
unhelpful. Funding based on the successful completion of marketing
surveys would help transit operators make their services more responsive
to customers.

**Transparency**

> *Excellent:* A requirement for an annual marketing survey is
> straightforward and clear in its application.

**Measurability**

> *Good:* It is easy to measure whether a transit agency has complied
> with conducting a marketing survey. But, unless the survey is
> standardized, quality control requires significant monitoring.

**Data Availability**

> *Excellent:* Marketing surveys can be self-sufficient. Also, several
> States have subscribed to expanded samples for their own use from the
> National Household Travel Survey (NHTS) sponsored by U.S. DOT.

**Burden on Systems**

> *Good:* Performing a marketing survey clearly puts additional burdens
> on local systems; however, the presumption is that the FTA incentive
> for performing the survey analysis would be greater than its cost.
> Moreover, the benefits of the survey in terms of potential ridership
> gains may offset the modest effort.

**Link to Goals**

> *Fair:* Marketing surveys allow the identification of pluses and
> minuses in services. Since this is simply a process incentive, system
> managers can still obtain the incentive funding even if they do not
> act on the implications of the surveys.

**Potential**

> *Fair:* Because operators are not compelled to take action based on
> the findings, the potential to have a significant impact is limited.
> On the other hand, existence of market data in the pubic domain can
> increase wider participation in policy issues like coverage and
> funding levels.

#### Funding Based on Percent Increase in Ridership 

Funding based on ridership growth could ensure that rural transit
agencies are focusing on meeting customer needs and delivering efficient
services. Providers that deliver increasing value to riders would see
ridership growth, and those that focus on lowering costs would have the
ability to provide more services for any given level of subsidy (and
therefore realize greater ridership as well). Thus, incentives for
increases in ridership are a natural opportunity. In the rural context,
however, the focus on ridership raises concerns as well. In particular,
that goal may conflict with the goal of increasing the extent of
coverage, and might result in the concentration of resources in a few
areas. Also, rural transit agencies may be affected by community factors
that both reduce ridership and increase costs. For example, a rural
county that has an aging, diminishing population may require fewer
trips, but those trips may also be more expensive to serve. Incentives
based solely on ridership would hurt these communities.

**Transparency**

> *Excellent:* The incentive program requires only tracking the number
> of passengers and Federal dollars.

**Measurability**

> *Excellent*: It is easy to measure the number of trips, even by trip
> type.

**Data Availability**

> *Excellent*: Providers are currently required to collect and report
> ridership data.

**Burden on Systems**

> *Excellent:* Very little burden placed on operators.

**Link to Goals**

> *Excellent*: The incentive is directly linked to the goal, and is only
> available if there is progress toward the goal. However, moving toward
> the goal may be in conflict with other goals.

**Potential**

> *Good*: Rewarding ridership growth is likely to cause operators to
> reallocate their resources to better meet the needs of a larger number
> of passengers. This incentive, however, may be more difficult to
> achieve than other goals, such as geographic coverage and equity.

### C. Service Quality Incentives for the 5311 Program

Incentives to improve service quality are intended to provide greater
satisfaction to customers. In so doing, they are similar to ridership
incentives. However, service quality incentives are not market driven,
and can be spurred simply through incentives or imposed through
regulation. Service quality incentives may be at odds with other
incentives, such as those intended to increase efficiency or to increase
service coverage.

#### Funding Contingent on the Creation of Service Standards

Transit operators frequently develop standards for their operations.
Examples include minimum frequency and hours of service. One approach to
improving service quality is to reward transit operators that institute
service standards.

**Transparency**

> *Excellent*: Requiring development of a system of service standards
> and annual monitoring process of those standards is straightforward
> and clear in its application.

**Measurability**

> *Good*: Not all service standards are equal. Monitoring the quality of
> service standards would require FTA to set a standard and to enforce
> it.

**Data Availability**

> *Excellent*: Service standards can be self-sufficient.

**Burden on Systems**

> *Good*: Developing service standards requires limited effort on the
> part of operators, and should be more than offset by the funding
> incentive.

**Link to Goals**

> *Fair*: There is no guarantee that standards developed by the operator
> would cause any change in operations.

**Potential**

> *Fair*: Because operators are not compelled to adopt stringent
> standards, the potential of this incentive is limited. Over time the
> State or FTA could raise the standard and tighten compliance.

### D. Coordination Incentives for the Section 5311 Program

SAFETEA-LU requires many recipients of Federal transportation funds to
coordinate across agencies and across social service programs. These
requirements are especially important for FTA programs administered by
the States. Such coordination could reap significant economies and
improved mobility for passengers. Coordination is recommended, but not
required for the Section 5311 Program as well.

#### Funding Contingent on Creation of a Coordination Plan by Agencies Receiving Section 5311 Funds

Similar to most of the other process-oriented incentives, eligibility
for incentive funds could be made dependent on developing a plan for
cross-agency coordination. Like other process incentives, this is easy
to implement but has only limited potential. The incentive is easy to
implement in the sense that FTA can easily observe whether a
coordination plan has been developed, and States or agencies can develop
plans. It is of limited potential, however, for two reasons. First,
other transportation programs have already mandated coordination plans,
so there may be little gained by providing incentives for another plan.
Second, while coordination plans can be developed, agreement on
significant coordination may be very difficult.

**Transparency**

> *Excellent*: Requiring a coordination plan is straightforward and
> clear in its application.

**Measurability**

> *Good:* While it is easy to measure whether a transit agency has
> completed a coordination plan, the plan's quality is more complex.

**Data Availability**

> *Fair*: Assembling cross-agency service data is difficult, but could
> improve over time. However, at its inception, an incentives program
> for coordination might require five items: (1) an "order of magnitude"
> estimate of need, (2) an inventory (or cross-tabulation) of which
> agency plans to address which need (perhaps with agency level cost
> estimates), (3) a summary of needs to be met in this way, (4) the roll
> up of estimated costs, and (5) the balance of unmet needs. Initial
> allowance for rough estimates could begin the process with the
> expectation (and incentives) for improved data in future years.

**Burden on Systems**

> *Good*: A coordination plan could be a time-consuming burden for local
> systems. The potential for endless disagreement, stonewalling, and
> even litigation, among providers, service recipients, and funding
> agencies is daunting. However, the presumption is that the incentive
> for performing the survey analysis is greater than its cost.

**Link to Goals**

> *Fair*: An agreed upon coordination plan does not ensure actual
> coordination across agencies. However, a coordination plan can fuel
> the transparency needed to generate inter-agency pressures for
> compliance with the plan.

**Potential**

> *Fair*: Because operators are not compelled to take action based on
> the coordination plan, the potential to have a significant impact is
> uncertain, especially in the short run.

### E. Coverage Incentives for the Section 5311 Program

Increasing the geographic coverage of rural transit is a key goal of
FTA, and of many States. FTA has an explicit goal of increasing the
percentage of counties served by Section 5311 funds from 63 percent to
75 percent. States have similar goals. For example, in Pennsylvania the
Transportation Funding and Reform Commission has suggested increasing
the number of counties with rural transit services from 43 to 65---all
rural counties in Pennsylvania. Increasing geographic coverage may be at
odds with other goals, including efficiency goals and service quality
goals, as resources are spread increasingly thin. Still, increasing
geographic coverage appears to be a straightforward goal to encourage
both process and performance incentives.

#### Funding Contingent on Completion and Adherence to an Expansion Plan

States could be required to detail plans for increasing geographic
coverage in order to receive Section 5311 funds.

**Transparency**

> *Excellent*: Requiring an expansion plan is straightforward and clear
> in its application.

**Measurability**

> *Excellent:* It is easy to measure whether a transit agency has
> increased coverage based on the expansion plan.

**Data Availability**

> *Excellent*: Coverage plans do not require detailed data.

**Burden on Systems**

> *Good*: Expansion would be a State responsibility, raising once again
> the problem of overburdened transit staffs in many State DOT's.

**Link to Goals**

> *Fair*: Funding would be tied to the existence of a plan and adherence
> to the plan, but there is no guarantee of an aggressive plan for
> expansion.

**Potential**

> *Fair*: States are not compelled to expand rapidly, and therefore the
> incentive is likely to have limited impact.

#### Funding Tied to Increases in the Fraction of Rural Counties Served

Incentive funds flowing to States could be made proportional to the
share of all counties receiving funds. This has the attractive feature
of giving more funds to States that expand coverage, while States with
high levels of coverage receive high levels of incentive funds.

**Transparency**

> *Excellent*: The incentive program requires only tracking the number
> of counties served.

**Measurability**

> *Good*: While a county may be served, there is no assurance that it is
> *well* served. Thus, States may expand by providing skeletal service
> simply to receive incentive funds.

**Data Availability**

> *Excellent*: Data on counties served is readily available.

**Burden on Systems**

> *Excellent:* The burden is exclusively on the State.

**Link to Goals**

> *Good*: The incentive is directly linked to serving larger geographic
> areas. It does not, however, ensure adequate service in the broader
> area.

**Potential**

> *Good:* This is one incentive that would unambiguously encourage the
> geographic expansion of the program. It may do so at the expense of
> other goals.

### F. Local Commitment Incentives for the Section 5311 Program

One way to increase the impact of Federal transit funds is to reward
local contribution. If Federal dollars are matched by State or local
dollars, they have a larger impact on the level of transit services. At
one level this is very attractive because it expands the ability of FTA
to pursue its goals. From an equity point of view, this approach may be
problematic; very low-income communities that may require the most rural
transit services may have reduced access to Federal funds.

####  {#section-3 .Heading-4}

#### Funds Based on Local Contribution

Requiring local contributions has become the rule in competitive
programs like the New Starts program. An incentive program that rewards
local contributions, but does so taking into account county income
levels, could be an efficient, equitable way to leverage 5311 funds.

**Transparency**

> *Good*: Local contribution is a straightforward requirement. This
> becomes less transparent in that the required local contribution is a
> function of ability-to-pay factors as well.

**Measurability**

> *Good*: Local contribution is straightforward to observe (unless "in
> kind" contributions are allowed).

**Data Availability**

> *Fair*: Virtually no data is required unless the required contribution
> is a function of ability-to-pay factors. In this case the data
> requirement could be significant, and beyond that typically available
> to local operators.

**Burden on Systems**

> *Fair*: Significant financial burden on local systems to come up with
> matching funds. Additionally, there are burdens to prove "need" if the
> requirement depends on ability to pay.

**Link to Goals**

> *Good*: The incentive is directly linked to increasing the local
> contribution.

**Potential**

> *Good*: The net result is likely to be an increase in local
> contributions.

### G. Asset Maintenance Incentives for the Section 5311 Program

In addition to operating funds, Section 5311 provides significant funds
for capital assets in the form of vehicles and facilities. Ensuring that
these assets are properly maintained is a key goal of FTA. Process-based
and performance-based incentives could spur proper maintenance of
assets. However, measuring asset condition and performance are demanding
issues; for this goal we only consider a single process-based incentive.

#### Funding Contingent on Development and Conformance with a Lifecycle Asset Maintenance Plan

By making funding contingent on a lifecycle asset maintenance plan and
conformance with that plan, FTA could ensure that operators consider the
proper time horizon for their decision making. In particular, local
operators would have to consider the future implication of their current
operating and maintenance choices.

**Transparency**

> *Excellent*: Requiring a lifecycle asset maintenance plan and
> adherence to that plan is straightforward and clear in its
> application.

**Measurability**

> *Fair* While it is easy to measure whether a transit agency has
> completed an asset maintenance plan, ensuring compliance is
> problematic. In particular, measuring an asset's current condition is
> difficult.

**Data Availability**

> *Fair*: There is little reliable data available on asset performance
> or conditions.

**Burden on Systems**

> *Good*: The costs borne by the system would be more than offset by the
> incentive.

**Link to Goals**

> *Fair* Funding would be tied to the existence of a plan, but it is
> very difficult to monitor compliance with any planned expansion.

**Potential**

> *Fair* Simply developing a plan is useful; however, the issues that
> arise in ensuring compliance limit its potential effectiveness.

### H. Asset Utilization Incentives for the 5311 Program

In addition to having an interest in preserving capital assets, FTA also
has an interest in the efficient use of those assets. There are
straightforward measures of the use of capital assets, and thus it
should be possible to create incentives for their efficient use.

####  {#section-4 .Heading-4}

#### Funding Dependent on Annual Hours of Revenue Service per Vehicle

"Annual hours of revenue service per vehicle" is a natural indicator of
the intensity of use, and also of the availability of the asset (hence
an indicator of the quality of maintenance, but not from a lifecycle
perspective.) High annual usage is an indication that FTA capital
expenditures are delivering service to transit patrons.

**Transparency**

> *Excellent:* The incentive program requires only tracking the number
> of operating vehicle revenue hours and number of vehicles.

**Measurability**

> *Excellent*: It is easy to measure the revenue hours of service, even
> if disaggregated by vehicle type.

**Data Availability**

> *Fair*: Local transit providers are not currently required to collect
> revenue hours of service.

**Burden on Systems**

> *Good:* Systems may incur small additional burdens to measure revenue
> vehicle hours of service.

**Link to Goals**

> *Excellent*: The incentive is directly linked to more efficient use of
> capital assets.

**Potential**

> *Excellent*: Operators that efficiently use and maintain capital would
> be rewarded with additional funds and the opportunity to grow.

## 4.4 Optimal Mix of Incentives for the 5311 Program

As is evident from the discussion in section 4.3 (Evaluation of
Incentives), the number of incentives that can be used effectively is
limited. Moreover, the interaction of incentives may be as important as
the incentives themselves. Any design of an effective incentive program
for Section 5311 funds must focus on a limited number of specific goals
and take into account the interactions among incentives.

Based on our understanding of FTA and State goals and our assessment of
individual incentives, we discuss two alternative approaches to funding
incentives for the 5311 Program, one based on process-based incentives
and another, more aggressive approach, focused on performance-based
incentives. Of course, a combination of process-based and
performance-based incentives could be pursued as well.

### A. Process-Based Alternative

Virtually all of the process-based incentives discussed in section 4.3
(Evaluation of Incentives) are easy to implement because FTA can observe
whether the processes have been implemented, and States and providers
can straightforwardly fulfill the requirements for the incentives.
Moreover, these incentives generally do not pose conflicts with one
another, in part because they do not require specific actions beyond
analysis and planning. For this same reason, the linkage of the process
incentives to their goal, and potential for progress to the goal, is
limited. Still, providing incentive funding to undertake process changes
may be an easy-to-implement, non-controversial approach to incentive
funding.

Given the stated goals of increased ridership, increased geographic
coverage, and improved efficiency and maintenance of capital assets, FTA
could adopt a program that made funding contingent on the following four
conditions:

1.  Operators performing annual route assessments

2.  Operators performing annual marketing surveys

3.  Operators creating and adhering to an asset maintenance plan

4.  States developing a service area expansion plan

These actions would help ensure that operators have a sufficient
knowledge base to properly manage their systems. There are four
drawbacks of this approach:

1.  No action to improve performance is required to realize the
    incentive funds.

2.  Federal funds are diverted from the actual operation of transit
    services.

3.  The incentive program may simply be perceived as a new Federal
    mandate.

4.  Many State transit programs are understaffed, and those States are
    unable to increase their staffs---even in the event of increased
    Federal financial support.

### B. Performance-Based Alternative

Performance-based incentive programs are significantly more likely to
result in changes in operations and investment decisions because funding
is tightly linked to actual outcomes. Such incentives are, however, more
difficult to implement, and may induce actions that are not consistent
with other goals. For example, if an incentive based on reducing the
subsidy per trip is used to increase efficiency, it might result in
operators limiting the areas served, which conflicts with another key
goal. Another example is the use of an incentive that provides
additional funds for increases in ridership. While this incentive is
tied directly to its goal, it also may induce operators to cut back on
long-term maintenance to provide more service in order to gain
additional ridership and funds.

The fact that performance incentives are likely to change operator
choices in a number of ways means that incentives have to be balanced,
so that the potential negative impacts of an individual incentive are
counterbalanced by another incentive. Consistent with a workable balance
among incentives, the overall incentive program must remain simple,
measurable, and easily understood.

Based on FTA goals and our assessment of performance-based incentives,
we will discuss a set of four incentives that, taken together, would
encourage improved performance without having negative side effects on
important FTA goals. These incentives address basic efficiency, market
needs, asset preservation and utilization, and program expansion.[^26]
They provide funds for the following:

1.  Lowering the cost per vehicle revenue hour of operation

2.  Increasing the number of passengers per year

3.  Increasing the average revenue miles per vehicle

4.  Greater share of counties served

All four performance incentives are conceptually simple, measurable, and
readily supported by available data. They impose modest burdens on
operators and States, and they are tightly linked with goals. When taken
together, these incentives provide a balanced approach that tends to
offset potential undesirable outcomes of any individual incentive. It is
important to note, however, that the first three incentive programs
would require greater specificity to ensure that undesirable shifts
across vehicle and trip type do not occur. In particular, lowering the
cost of vehicle revenue hours of operation should be specified by
vehicle class; passengers should be specified by type (fixed route or
on-demand); and revenue miles per vehicle should be specified by vehicle
type as well.

## 4.5 Structuring FTA Incentives

Structuring incentives for process incentives is straightforward. The
applicant either qualifies or does not qualify for the incentive
payment.

The considerations are different in the case of quantitative
performance-based incentives. The magnitude of the incentives becomes of
crucial importance. Incentives that are too small would result in little
change. Incentives that are too large would disproportionately reduce
the authorized incentive funding pool and provide the recipient with a
windfall

In addition to the importance of the overall share of incentive-based
funding, the relative magnitudes of incentives are of crucial importance
as well. Unbalanced incentive magnitudes would result in undesirable
shifts in operational choices to exploit the largest incentives. Prior
to the implementation of any performance-based incentive system, it is
necessary to have credible estimates of the marginal impacts of
alternative subsidies on operator choices. For example, if there is a
very large incentive for ridership growth, to what degree are operators
likely to avoid spending on "lifeline" services and focus services on
areas where they have the greatest market opportunities? And how
comfortable is FTA with that shift?

## 4.6 Structuring State Incentives

An alternative approach to FTA developing incentives and monitoring
performance of individual systems is to encourage States to develop and
monitor incentive programs that are consistent with FTA goals. States
already administer the Section 5311 Program for local operators and some
States have their own incentive programs.

The simplest approach for FTA to take with respect to State incentives
would be to decide the pool of funds that are subject to incentives and
distribute these funds based on (1) the development and implementation
of an incentive plan, and (2) the aggregate performance along the
dimensions of the program. The set of performance-based incentives
listed in an earlier section would be an appropriate set of incentives
upon which to reward aggregate performance. FTA might wish to add an
equity-based criterion for funding to ensure that States equitably
allocate incentive funds.

# 5.0 Procurement Incentive Systems for Section 5307 and 5311 Formula Grants

A Federal incentive program to encourage the standardization of transit
vehicle specifications offers compelling promise. History has shown that
vehicle standardization improves vehicle quality, reduces unit prices
and life-cycle costs, reduces maintenance costs and spare parts, and
increases safe vehicle operations. If such a program could be designed,
it would generate clear benefits for the Federal taxpayer, for transit
agencies and for transit customers. Such a program might even increase
the competitiveness of transit vehicle parts manufacturers and vehicle
assembly companies. Vehicle standardization has many pluses. That's why
it has succeeded in the past. It has also faltered. It might be time to
try again, especially in the face of increased demand for transit
services.

This section evaluates shared procurement incentives and vehicle
standardization benefits. The vehicle standardization incentive system
is intended to (a) encourage larger, interagency procurement sizes in
Federally funded transit vehicle acquisitions, and (b) promote the use
of standard vehicle specifications. The principal benefits are expected
to be lower costs of manufacturing (including lower manufacturer costs
for testing and contracting); more effective fully developed designs;
and less ambiguity from minor changes in vehicle specifications from
grantee to grantee. This should benefit both FTA and FTA grantees by
engendering lower purchase prices, lower procurement management costs to
secure the needed vehicles, and over a long period, reduced diversity of
vehicle models and spares. Since this discussion concerns vehicle
procurements, it may be implemented equally across FTA's formula grant
programs. In principle, a Section 5311 rural bus operator might
conceivably enter a joint procurement with a Section 5307 urban bus
agency.

## 5.1 Background of Standard Specifications and Joint Procurements

U.S. urban transit buses and rail cars are manufactured and acquired
almost exclusively through the issuance of a technical specification
that is promulgated by a grantee or operating agency. After any
modifications of the specification are made to conform with he accepted
proposal (with agency consent, and through a process governed by the
agency), the agency selects a bid or proposal for award. A 2004 study by
the American Public Transportation Association (APTA) found several
barriers to the industry's implementation of standards, including this
key obstacle:

> Transit Culture -- Agencies Believe They Are Unique . . . The agencies
> are justifiably proud of their corporate cultures and heritage, and
> their pride may have many positive effects. However, if the industry
> is to realize the full benefits of standards, the systems must weigh
> their traditions against the benefits of standards and make the
> collective effort that is necessary to settle on safety standards and
> adhere to economical design standards.[^27]

The historical precedent for transit industry vehicle standards and
their benefit is offered convincingly by the Presidents' Conference
Committee (PCC) Car. The PCC standard for light rail vehicles was
adopted by a consensus of the committee, which consisted of industry
representatives.

The relatively high price (\$556,119 in 2004 dollars) was justified by a
30 percent increase in speed; a smooth and rapid vehicle start due to
the use of a newly designed, multi-notch propulsion mechanism; and a
reduction in noise due to the extensive use of rubber throughout the
car.[^28] The high degree of standardization of both the PCC car body
and electrical and mechanical components permitted the use of
assembly-line techniques. The first of two manufacturers,
Pullman-Standard, delivered the first two PCC cars to Chicago in June of
1934.

The average price for the original PCC cars was higher than that of the
streetcars it replaced, but it was worth the price. Passenger revenue
increases ranged from 11.5 percent to 24 percent, and transit labor cost
reductions ranged from 10.8 percent to 33 percent. **In almost every
case, the new PCC cars increased ridership, spawned operating economies,
and increased revenues.**

### A. Original White Book

In the 1970's FTA developed *The* *Baseline Advanced Design Transit
Coach Specification*, or "White Book." Published in April 1977, the
White Book was intended for use by FTA grantees to facilitate normal
transit bus purchases and to establish production of advanced design
buses (ADBs) through the use of a standard, complete bus procurement
package. The White Book was periodically updated by addendum for several
years after original publication. In the late 1970s, FTA made the White
Book a requirement for all Federally supported advanced-design transit
bus procurements. The requirement was lifted in the 1980s, leaving only
certain safety specifications in place as FTA requirements.

### B. APTA White book

In 1997, APTA issued the *Standard Bus Procurement Guidelines* (*SBPG*,
sometimes called the "APTA White Book"), and has subsequently issued
technical specifications to revise or supplement the *SBPG*. The current
set of guidelines can be viewed or downloaded at the following Web page:

> <http://www.apta.com/research/info/online/>
>
> [Commercial Terms and
> Conditions](http://spider.apta.com/lgwf/procure/comterms.doc) (October
> 10, 1997)\
> [High-floor Diesel Buses --
> Introduction](http://spider.apta.com/lgwf/procure/hfdiesel.doc) (March
> 25, 1999)\
> [High-floor Diesel Buses --
> Text](http://spider.apta.com/lgwf/procure/hfdieseltxt.doc) (March 25,
> 1999)\
> [Low-floor Compressed Natural Gas Buses --
> Introduction](http://spider.apta.com/lgwf/procure/lfcng.doc) (May 8,
> 2000)\
> [Low-floor Compressed Natural Gas Buses --
> Text](http://spider.apta.com/lgwf/procure/lfcngtxt.doc) (May 8, 2000)\
> [30-foot Low-floor Diesel Buses --
> Introduction](http://spider.apta.com/lgwf/procure/30ftlfint.doc) (June
> 28, 2002)\
> [30-foot Low-floor Diesel Buses --
> Text](http://spider.apta.com/lgwf/procure/30ftlf.doc) (June 28, 2002)\
> [40-foot Low-floor Diesel Buses --
> Introduction](http://spider.apta.com/lgwf/procure/lfdiesel.doc) (July
> 3, 2001)\
> [40-foot Low-floor Diesel Buses --
> Text](http://spider.apta.com/lgwf/procure/lfdieseltxt.doc) (July 3,
> 2001)

Use of some portion of these guidelines is widespread throughout the
industry, and small agencies in particular have taken advantage of this
document. However, manufacturers are particularly disappointed that few
agencies have in fact used the *SBPG*. Rather, agencies have used those
portions that they found to be to their advantage, and have used their
own specifications, terms, or conditions when they preferred their own.

### C. APTA and Institute of Electrical and Electronics Engineers Vehicle Standards

APTA has more recently undertaken the development of additional
operational, safety, and equipment standards, building upon standards
they developed in cooperation with the Institute of Electrical and
Electronics Engineers (IEEE). These include the following:

-   IEEE rail standards

-   Commuter rail

-   Rail transit

-   Bus

A more detailed listing of these standards appears in the appended
table.

### D. Background of Joint Procurements

A related aspect of transit vehicle design, production, and acquisition
is the joint procurement of vehicles by more than one agency. This can
occur in several forms:

-   A simple joint or consortium procurement, where one agency takes the
    contracting lead in procuring a specific number of vehicles for
    themselves and several agencies within a consortium

-   Piggybacking, wherein an agency acquires options for additional
    identical vehicles that may be assigned to other agencies[^29]

-   A procurement pool in which an entity takes the lead and acquires
    the right to order buses with operating agencies subsequently
    placing orders within the terms of the pool

-   Procurement schedules, wherein an entity, such as a State department
    of transportation or the U.S. General Services Administration (GSA),
    obtains binding price offers from one or more suppliers for a
    limited number of bus configurations, which operating agencies may
    then exercise through independent contracts

To contrast joint procurement with specification standards, a joint
procurement could be carried by (for example) three agencies. In theory,
the joint procurement could incorporate three complete technical
specifications, identical to the three specifications that the agencies
used in their most recent stand-alone procurements. No design
standardization would have been accomplished through the joint
procurement, but the agencies would achieve the competitive and pricing
advantage of the buying power of the aggregate purchase size. However,
it is also likely that the agencies would compromise to some degree on
common specifications, and some degree of design standardization would
be realized.

Joint procurements involve significant administrative efforts because
the agencies must reconcile their requirements and practices to each
other's. Conflict-of-law issues, differing operating requirements, and
differing professional opinions must be resolved.

### E. Demonstration Project

FTA has implemented the Cooperative Procurement Pilot Program (CPPP) to
demonstrate joint procurement of buses. Five awards have been made to
pilot projects. Under the CPPP, participating agencies may use Section
5307, 5309 or 5311 funds at a 90 percent Federal share. However, no
additional funds or new funds are provided to transit agencies under the
program. Three of the awards did not result in successful joint
procurement of rolling stock, demonstrating some of the difficulties of
joint procurement in the industry. The demonstration indicated that the
incentive must be significant and that (1) more advantageous matching
ratios on preexisting formula funds are not adequate, and (2) continuous
production of vehicles without significant configuration changes is
important to achieving the potential savings.

## 5.2. Incentive Systems

The following paragraphs suggest an incentive system for the joint
procurement lead agency; this system reflects the lessons learned from
the cooperative procurement demonstration. Two alternatives to the
leader system are suggested: one providing new money for both lead and
participating agencies and one offering a matching ratio for greater
efforts at standardization.

### A. Joint Procurement Leader Incentive

In this incentive system, FTA would award incentive grants to applicants
who would lead joint procurements for significant segments of the
transit vehicle purchase requirements for the next few years. The
incentive award segments would be determined based on the grant
applications and FTA's review. Each award would encompass a single
vehicle type (e.g., less than 30-foot-long urban transit bus, a 60 foot
articulated urban transit bus, a single articulated Light Rail Vehicle
(LRV), a passenger rail car or a locomotive for passenger operations).

The concept consists of six elements:

1.  FTA would develop a competitive award process to support the project
    management costs of a vehicle procurement managed by a grantee that
    has allowed additional grantee options to be included in the Request
    for Proposal.

2.  The FTA would competitively select vehicle procurement proposals
    that would qualify for the incentive payment based on the judged
    quality of the proposal and its contribution to FTA grantee
    procurement efforts.

3.  The funding would be new grant funds over and above any formula or
    earmark. The full project management cost of small procurements or a
    portion of the project management would be reimbursed on large
    procurements. The incentive accrues to the lead grantee, as a
    reimbursement of the qualifying procurement-related costs.

4.  The competitive submittal to FTA would include an evaluation of
    potential demand for a vehicle procurement of FTA-funded rolling
    stock, including buses and rail vehicles. The competitive submittal
    evaluation would consider the committed purchases of the lead
    grantee and take into account the proposed options other grantees
    have asked to have included in the procurement documents.

5.  The lead grantee would have control of the vehicle specification and
    the lead grantee's delivery schedule. The specification of the
    options must be for the same vehicle specification with changes to
    the fabrics, colors paint and decals available to each of the
    rolling stock option procurements.

    -   Deletion of a bolt-on item is permitted as specified in the RFP
        option.

    -   Changes due to state law must be specified in the RFP option
        description.

6.  To provide for the variety of rail and bus vehicle types, the
    vehicle procurement management grants would be awarded over a period
    of years. The award of a procurement incentive grant would remove
    that vehicle type from incentive award consideration for a period of
    years to allow other vehicle types to be considered.

The lead grantee is provided a grant for a portion of their program
management cost and the option holding grantees should benefit from a
lower purchase price and little or no program management cost.

The manufacturing and delivery of all of the vehicles must allow
continuous production by the manufacture within each delivery period,
usually one each year. All of the participating grantees must be willing
to work around the delivery schedule of the lead grantee to allow
continuous production. As with current contracts, the contract term may
be up to five years and may include a delivery period and quantity in
each of those years. The terms of the award would prohibit changes by
participating agencies in the vehicle specifications beyond a limited
range (such as system livery, deletions, and State law) that were
specified in the RFP and procurement contract.

This incentive payment would be based on reimbursement of up to 50
percent of the lead agency's procurement administration expense,
including any contract administration and inspection expenditures by the
lead agency. The awards would range from less than \$1 million for
smaller market segments to \$3 million to reimburse a portion of the
cost for a major rail car joint procurement contract. The total annual
program funding level and the proposed reimbursement of the top rated
proposals would determine the number of awards and proportion of the
total transit vehicle market that could be accommodated in joint
procurements in each year.

### B. Two Alternatives to the Procurement Leader Incentive System

There is some experience (e.g., the HARTline joint procurement for
Florida systems, or the Texas CPPP effort) to suggest that
multiple-agency participation is as difficult to achieve as is
leadership in the joint procurements. The participating agencies must
reconcile their requirements and procedures with the lead agency's, and
must often compromise their specification preferences.

An incentive could be provided to agencies that participate in compliant
joint procurements. The compliant procurement would involve a definition
of "joint procurement" based on selecting a single offer from a supplier
that was accepted for vehicle delivery to, and operation by, more than
one agency.

To provide an adequate incentive for joint procurements based on the
CPPP experience, new funding should be provided to participants in
compliant joint procurements. New funding as a percentage of the vehicle
contract cost (effectively increasing the matching ratio with new money)
would be provided. To reflect the economies of scale in large
procurements, a sliding scale would be used based on the total vehicles
purchased by each respective agency under the joint procurement:

-   0--10 vehicles: New Federal funding for the procurement in the
    amount of 15 percent of the vehicle costs

-   10--25 vehicles: 10 percent

-   25--50 vehicles: 7 percent

-   50--100 vehicles: 5 percent

-   100--200 vehicles: 3 percent

-   200--400 vehicles: 2 percent

-   400--800 vehicles: 1.3 percent

-   More than 800 vehicles: 1 percent

This funding would be drawn down with the vehicle purchase funds from a
new authorization of funding.

A second alternative incentive system is similar but compliant
procurements would be those that adhered to Federally-designated
standard terms and specifications. FTA would define the degree of
adherence required (e.g., permitting deviations in some cases, with the
deviation explained in the procurement documents). In this case, an
adequate incentive would be an increase in the Federal matching ratio to
90 percent, without any new funding provided. This is the least radical
of the three vehicle procurement incentive systems discussed, and would
accomplish an incremental advance in standardized vehicle procurements.
Joint procurements would be encouraged only to the extent that joint
procurement would reduce the cost of establishing compliant procurement
processes.

## 5.3. Appendix: APTA Standards (finished or in development)

Passenger Rail Equipment Safety Standards (PRESS)

Construction and Structural

-   APTA RP-C&S-001-98 -- Recommended Practice for Passenger Equipment
    Roof Emergency Access

-   APTA RP-C&S-003-98 -- Recommended Practice for Developing a
    Clearance Diagram for Passenger Equipment

-   APTA SS C&S-004-98 -- Standard for Austenitic Stainless Steel for
    Railroad Passenger Equipment

-   APTA SS-C&S-006-98 -- Standard for Attachment Strength of Interior
    Fittings for Passenger Railroad Equipment

-   APTA SS-C&S-007-98 Rev 1 -- Standard for Fuel Tank Integrity for
    Non-Passenger-Carrying Passenger Locomotives

-   APTA SS-C&S-011-98 -- Standard for Cab Crew Seating Design and
    Performance

-   APTA SS-C&S-012-02 -- Standard for Door Systems for New and Rebuilt
    Passenger Cars

-   APTA SS C&S-015-99 -- Standard for Aluminum and Aluminum Alloys for
    Passenger Equipment Car Body Construction

-   APTA SS-C&S-016-99 Rev 1 -- Standard for Row-to-Row Seating in
    Commuter Rail Cars

-   APTA SS-C&S-020-03 -- Standard for Passenger Rail Vehicle Structural
    Repair

-   APTA SS-C&S-034-99 Rev 1 -- Standard for the Design and Construction
    of Passenger Railroad Rolling Stock

Electrical

-   APTA SS-E-001-98 -- Standard for Insulation Integrity

-   APTA RP-E-002-98 -- Recommended Practice for Wiring of Passenger
    Equipment

-   APTA RP-E-003-98 -- Recommended Practice for Load Testing of Diesel
    Engines

-   APTA RP-E-004-98 -- Recommended Practice for Gap and Creepage
    Distance

-   APTA SS-E-005-98 -- Standard for Grounding and Bonding

-   APTA RP-E-006-99 -- Recommended Practice for Diesel Electric
    Passenger Locomotive Dynamic Brake Control

-   APTA RP-E-007-98 Rev 1 -- Recommended Practice for Storage Batteries
    and Battery Compartments

-   APTA RP-E-009-98 -- Recommended Practice for Wire Used on Passenger
    Equipment

-   APTA SS-E-010-98 -- Standard for the Development of an
    Electromagnetic Compatibility Plan

-   APTA RP-E-011-98 -- Recommended Practice for Head End Power Load
    Testing

-   APTA RP-E-012-99 -- Recommended Practice for Normal Lighting System
    Design for Passenger Cars

-   APTA SS-E-013-99 -- Standard for Emergency Lighting System Design
    for Passenger Cars

-   APTA RP-E-014-99 -- Recommended Practice for Diesel Electric
    Passenger Locomotive Blended Brake Control

-   APTA RP-E-015-99 -- Recommended Practice for Head End Power Source
    Characteristics

-   APTA RP-E-016-99 -- Recommended Practice for 480 VAC Head End Power
    System

-   APTA RP-E-017-99 -- Recommended Practice for 27-Point Control and
    Communication Trainlines for Locomotives and Locomotive Hauled
    Equipment

-   APTA RP-E-018-99 -- Recommended Practice for 480 VAC Head End Power
    Jumper and Receptacle Hardware

-   APTA RP-E-019-99 -- Recommended Practice for 27-Point Jumper and
    Receptacle Hardware for Locomotives and Locomotive Hauled Equipment.
    IEEE Rail Transit Vehicle Interface Standards Committee Standards

Inspection and Maintenance

-   APTA RP-I&M-001-98 Rev 1 -- Recommended Practice for Battery System
    Periodic Inspection and Maintenance

-   APTA RP-I&M-002-98 -- Recommended Practice for Rail Car Technical
    Documentation

-   APTA RP-I&M-003-98 Rev 1 -- Recommended Practice for Door System
    Periodic Inspection and Maintenance

-   APTA SS-I&M-004-98 -- Standard for Handbrake Periodic Inspection and
    Maintenance

-   APTA SS-I&M-005-98 Rev 2 -- Standard for Passenger Compartment
    Periodic Inspection and Maintenance

-   APTA SS-I&M-006-98 -- Standard for Draft Gear Periodic Inspection
    and Maintenance

-   APTA SS-I&M-007-98 Rev 2 -- Standard for Car Body Exterior Periodic
    Inspection and Maintenance

-   APTA SS-I&M-008-98 Rev 1 -- Standard for Electrical Periodic
    Inspection and Maintenance

-   APTA SS-I&M-009-98 -- Standard for Tread Brake Shoes and Disc Brake
    Pad Periodic Inspection and Maintenance

-   APTA SS-I&M-010-98 -- Standard for Disc Brake Periodic Inspection
    and Maintenance

-   APTA SS-I&M-011-98 -- Standard for Tread Brake Unit and Brake
    Cylinder Periodic Inspection and Maintenance

-   APTA SS-I&M-012-98 -- Standard for Truck and Suspension Periodic
    Inspection and Maintenance of Passenger Coaches

-   APTA SS-I&M-013-99 Rev 1 -- Standard for Passenger Car Periodic
    Inspection and Maintenance

-   APTA SS-I&M-014-99 -- Standard for Modification Methodology for the
    Periodic Inspection and Maintenance of Passenger Coaches

-   APTA SS-I&M-015-00 -- Standard for Inspection and Testing of Roller
    Bearings on Passenger Equipment After a Derailment

-   APTA SS-I&M-016-020 -- Standard for Pantograph Current Collection
    Equipment Periodic Inspection and Maintenance

-   APTA SS-I&M-017-02 -- Standard for Third Rail Current Collection
    Equipment Periodic Inspection and Maintenance

Mechanical

-   APTA RP-M-001-97 -- Recommended Practice for Air Connections,
    Location and Configuration of, for Passenger Cars Equipped with AAR
    Long Shank Tight Lock or Similar Long Shank Type Couplers

-   APTA RP-M-001-98 -- Recommended Practice for Passenger Car Axle
    Design

-   APTA RP-M-002-98 -- Recommended Practice for the Inspection and
    Maintenance of Type H-Tightlock Couplers

-   APTA RP-M-003-98 -- Recommended Practice for the Purchase and
    Acceptance of Type H-Tightlock Couplers

-   APTA RP-M-004-98 -- Recommended Practice for Secondhand and
    Reconditioned Type H-Tightlock Couplers

-   APTA SS-M-005-98 Rev 1 -- Standard for Code of Tests for Passenger
    Car Equipment Using Single Car Testing Device

-   APTA SS-M-006-98 Rev 1 -- Standard for Parking Brakes on New
    Passenger Cars and Locomotives

-   APTA SS-M-007-98 -- Standard for Conductor's Valve---New Passenger
    Car/MU Locomotives

-   APTA RP-M-009-98 -- Recommended Practice for New Truck Design

-   APTA RP-M-010-98 -- Recommended Practice for Derailment
    Investigation Reports

-   APTA SS-M-011-99 -- Standard for Compressed Air Quality for
    Passenger Locomotive and Car Equipment

-   APTA SS-M-012-99 Rev 1 -- Standard for the Manufacture of Wrought
    Steel Wheels for Passenger Cars and Locomotives

Passenger System

-   APTA SS-PS-001-98 -- Standard for Passenger Railroad Emergency
    Communications

-   APTA SS-PS-002-98 Rev 2 -- Standard for Emergency Signage for
    Egress/Access of Passenger Railroad Equipment

-   APTA SS-PS-003-98 -- Standard for Emergency Evacuation Units for
    Rail Passenger Cars

-   APTA SS-PS-004-99 Rev 1 -- Standard for Low-Location Exit Path
    Marking

-   APTA RP-PS-005-00 -- Recommended Practice for Fire Safety Analysis
    of Existing Passenger Rail Equipment

Bus Transit Standards

-   APTA-BTS-RP-003-03 -- Transit Bus HVAC System Instrumentation and
    Performance Testing

-   APTA-BT-RP-004-03 -- Transit Bus Cooling System Performance
    Capability Testing

#   {#section-5 .unnumbered}

# 6.0 Study Findings 

## 6.1 Findings From Section 5307 Incentive Systems

This study examined a range of measures that might be used to encourage
the preservation of transit assets and to extend the useful lives of
transit assets in urbanized areas. The word "encourage" is used
advisedly. It recognizes decisive pressures on governmental budget
processes that, perennially, lead to the neglect of capital
infrastructure. A ribbon cutting for a preserved asset, whatever its
value, is rare. A Federal transit incentive program for infrastructure
preservation, to be effective, must exert counter-pressures against
neglect. Since the financial stakes are so large in some transit
systems, a *modest* expectation at the margin may be enough to justify a
Federal incentive program. It is modest, but realistic, to expect
Federal incentives to disclose consequences that would in turn rally
support for marginal gains for transit infrastructure in the local
budget process.

The results reported here show that the specific data needed to develop
quantitative incentive systems is not readily available, at least not
currently. However the National Transit Database (NTD), the Transit
Economic Requirement Model (TERM), and the existing asset management
systems of transit operating agencies offer a number of measures that
could be further refined and standardized to form the basis of an asset
management incentive system. Among the most important data are the
following:

1.  Further refinement of the reporting of asset replacement
    expenditures under the National Transit Database system (NTD)

2.  The creation of standard reporting systems for the replacement value
    of transit assets

3.  The creation of standard reporting systems for the backlog of
    deferred investment in those assets

> The latter two measures are estimated on a national basis in TERM, but
> are not generally available for the respective operating agencies.

Based in part on the difficulty of obtaining uniform asset management
data for allocation of incentive funds, FTA investigated the feasibility
of a requirement to develop Capital Asset Management Plans (CAMPs).
Objective minimum requirements for the level of detail and completeness
of the planning methods would be established and implemented through a
certification and review process. Asset management measurement data
systems would be developed and used primarily as indicators of general
levels of performance.

The Section 5307 (urbanized area) asset management incentive system may
take the form of an incentive to develop CAMPs, estimated to cost on the
order of \$250 million beginning in 2010 and on the order of \$45
million per year as an incentive to maintain the plans (beginning in
2011). Together with escalation of the maintenance incentive, the
combined program is estimated on the order of \$480 million for the six
years from 2010 through 2015.

Any asset management incentive for urbanized areas could be distributed
as an increase in the Section 5307 formula funding allocated to the
qualifying grantees. Significant administrative issues would arise in
allocating asset management incentive funds for the development and
implementation of CAMPs. The incentive should be for specific operating
agencies, although the Section 5307 formula funding is granted to
designated recipients for each urbanized area (UZA). To be effective,
the incentive should be received if and only if the operating agency
develops and maintains a CAMP. Many urbanized areas are served by
multiple operating agencies, and determinations of compliance for the
entire area would be problematic. If the asset management system is
implemented, consideration could be given as well to implementing a
specific provision that authorizes the Secretary of Transportation to
sub-allocate the incentive funds (based on the Secretary's determination
of the appropriate share of urbanized area funds for the respective
operating agencies).

The CAMP incentive system could result in the certification of asset
management programs in the great majority of urbanized area transit
systems within six years after its implementation, and the general
maintenance of those programs to continue qualifying for the CAMP
maintenance incentive allocations. Experience with systematic asset
management suggests that the transit industry would achieve savings in
the combined cost of maintaining and replacing transit assets. This
research did not estimate, however, whether these savings would exceed
the costs of the national CAMP incentive program described here. An
important consideration in these potential savings, even with a CAMP in
hand, is the historical tendency of governmental budget processes to
neglect capital infrastructure.

## 6.2 Findings From Section 5311 Incentive Systems

Process-based incentive plans are easy to implement and relatively
non-controversial. However, these incentive plans are less likely to
promote significant improvement. Performance-based incentives that
impose relatively small burdens on States and operators are feasible.
However, these incentive programs must be more carefully structured
because they almost certainly affect operator choices.

The issues of incentive magnitudes are particularly important in the
context of performance incentives. The incentive pool must be large
enough to affect behavior, but must also not threaten the viability of
operators when there are changes that are outside of operator control.
In addition, the implementation of incentives needs to be phased so that
operators can adjust to the new funding approach.

One of the most important questions for 5311 incentive funding is
whether it should be oriented directly at operating systems, or oriented
toward the States. There are very strong reasons to consider
implementation through State incentives, because States administer and
monitor the program. In addition, it would require a significant effort
on the part of FTA to monitor the incentive program directly.

An even broader range of measures was considered for the non-urbanized
area systems. This consideration was not limited to asset management
incentive systems, but included measures ranging from ridership and
service coverage to local funding efforts. Because this funding program
is administered primarily at the State level, the primary incentive
system emerging from these considerations is an incentive system to
promote State performance management of the State sub-grantees.
Performance in service coverage and rider market research is included in
the measures reviewed. An advantage of an incentive for the creation and
implementation of such processes is that the system is not heavily
reliant on quantitative measures. Although even fewer data are available
for agencies in non-urbanized areas than for those in urbanized areas,
availability of data is not necessarily an impediment to a process-based
incentive system.

Incentive systems---particularly simple, market-oriented,
performance-based programs that focus on a limited number of
goals---have the potential to improve the performance of operators
receiving 5311 funds. These systems are likely to be most feasible if
implemented through the States. However, it is crucial to recognize that
many States are short on staff to administer FTA's existing
State-administered programs. In many of these cases, moreover, more
Federal funding would not relieve their staff shortages.

## 6.3 Findings from Standardized and Joint Vehicle Procurement Incentive Systems

Specification standardization and joint vehicle procurements have been
promoted by FTA, but with limited success. Barriers and difficulties
that contributed to the limited implementation of these procurement
systems included the following:

-   Transit Culture: "Agencies Believe They Are Unique . . . The
    agencies are justifiably proud of their corporate cultures and
    heritage, and their pride may have many positive effects. However,
    if the industry is to realize the full benefits of standards, the
    systems must weigh their traditions against the benefits of
    standards and make the collective effort that is necessary to settle
    on safety standards and adhere to economical design standards."

-   Joint procurements involve significant administrative efforts
    because the agencies must reconcile their requirements and practices
    to each other's.

-   Conflicting legal issues, differing operating requirements, and
    differing professional opinions must be resolved.

Alternative approaches were considered that included an incentive for
joint procurement of vehicles to encourage standardization and
efficiency in procurement. The joint procurement incentive funds would
be distributed directly to lead procuring agencies. The grant would
reimburse 50 percent of the administrative costs of the procurement
incurred by the lead agency in the joint procurement. Competitive grants
would be awarded to provide a lead agency for each major vehicle mode
and configuration.

## 6.4 Conclusion

The Department conducted this study to explore incentives by which
Federal transit formula grants could improve the performance of transit
agencies. We determined that the fundamental Federal interest lies in
the most productive use of Federal grant dollars. The benefits of
Federal grants to society and the economy are shaped by the transit
agencies that deploy transit services. Ultimately, however, local
governments decide where, when, and how frequently to deploy transit
services. They also decide who pays the operating costs of these
services, costs that far outweigh their capital costs. In consequence of
these powerful local forces in the shape of transit services, Federal
incentives would have limited competence and potential in service
outcomes like patronage and operating efficiency per se.

The study findings and our recommendations, therefore, are tailored to
the points of greatest Federal "leverage" through FTA's formula
programs. Most Federal grant dollars in the Section 5307 urban program
are used for transit capital purposes. For this program, therefore, the
study focuses on two areas of longstanding concern to the industry and
to the Federal government: (1) capital asset management and (2)
standardized vehicle procurements. As discussed more fully below, we
recommend that Congress enact incentives to encourage formal capital
asset management programs and standardized vehicle procurements. These
two areas offer promise to advance the Federal interest in the most
economical use of Federal capital grants in the Section 5307 Program.
These recommendations also are consistent with the Department's
perennial concern with the industry's state of good repair.

In the Section 5311 small urban and rural program, Federal dollars are
used for transit capital assets, operations and program administration.
State agencies administer this Federal program and are responsible for
its results. States use a significant portion of Section 5311 Program
funds to administer the program on behalf of the Federal government.
Logically, and in deference to State authority, we recommend therefore a
"process incentive" in Section 5311 to encourage States to adopt,
implement, and maintain their own performance management programs. Many
already have such programs

Thus, we urge Congress to authorize formula incentives that would reward
the initiative of transit agencies and the States to adopt sound capital
asset management, standardization of vehicle fleets, and performance
management systems.

### A. Section 5307: Two Formula Incentive Programs

**Capital Asset Management Plans**. This study is not the final word on
the pros and cons of formula incentives for transit capital asset
management. This is a very large and complicated topic. Our review of
the literature and practice suggest, moreover, a remarkable lack of
experience with formal asset management incentives in transit agencies
or in any government programs. However, for its shortcomings, our study
identified key issues that Congress should consider in devising such a
program. As we recommend the Congress examine these key issues, we are
commissioning research to further that examination.

We are convinced that any "new" Federal funds set aside (as the initial
incentive, as described in these pages) to create capital asset
management plans must be matched from other resources at the recipient's
disposal, including other Federal grant funds. This is necessary to
promote the recipient's "ownership" of the capital asset management plan
they devise, to accelerate this program, and to stretch the limited
incentive dollars to more recipients.

It was beyond the scope of this report to calculate quantitatively the
benefits of a capital asset management program. The Department is
currently designing studies to arrive at such a calculation. Please
remember that the creation of an industry-wide inventory and condition
model, such as the Transit Economic Requirements Model (TERM), is an
entirely different challenge than asset management plans for individual
transit agencies.

The "ballpark" cost estimate for creating capital asset management plans
in every U.S. transit agency is an extrapolation from a single
noteworthy example and is therefore highly uncertain.

Throughout the discussion of capital asset management in this report, we
have drawn attention to persistent data problems within and across
transit agencies, and from one class of capital assets to another.
Depending on how an incentives system is devised, these data problems
can be expensive to overcome. On the other hand, data "consistency"
problems could be somewhat reduced or obviated by an incentives program
that focused on processes rather than content---as would occur with
locally designed and locally certified asset management plans.

Individual Federal transit grants turn on formal local planning
activities, coordination, and planning decisions. As discussed in this
report, capital asset management plans would become an integral part of
those planning processes, e.g., resolving trade-offs between
recapitalization of existing capacity and capacity expansion. This
integration may require amendments to the Federal transit planning
requirements.

The Department is anxious to work with Congress to address these issues,
but wholeheartedly views the Federal government as an indispensable
champion of the transit infrastructure's state of good repair.
Aggressive Federal incentives for capital asset management are a key to
this Federal role.

**Standardized Vehicle Procurements.** Transit agencies, and the Federal
government, stand to gain considerable purchasing power by standardizing
transit rolling stock. This is not a new concept. Congress, the
Department, and the transit industry have pursued standardization for
many years. With some success, we have tried organizing large "bus
buys," bus procurement consortia, and pooled procurement pilot programs.
With this report we propose a standard vehicle incentive program that
would remove difficulties we have encountered in the current pilot
program. We urge Congress to adopt this approach to enable transit
agencies to increase their buying power without losing control of their
procurement processes or violating sound procurement principles. The key
to successful pooled purchases is an ironclad guarantee that the lead
agency in pooled procurements will not incur losses from these
procurements.

### B. Section 5311: A Process Incentive for the Rural and Small Urban Program

Congress appropriately designates the States to administer the Rural and
Small Urban transit assistance program under Section 5311. A portion of
these resources is set aside to pay the States' expenses in doing so.
Some States have already established performance monitoring systems for
recipients of Section 5311 funds. Moreover, State goals are consistent
with Federal goals for this program. States are asking program
recipients to report on costs, efficiency, ridership, and cost
effectiveness. Above all, however, States are looking for simple
accountability. In this endeavor, the States encounter the same issues
that FTA has encountered over the years in implementing the National
Transit Database. Many otherwise capable transit professionals are
unfamiliar with quantitative performance measurement and formal record
keeping. Performance reporting systems predictably improve the
"professionalism" of any transit operation, however small or short on
resources. Moreover, in this case, standardized reporting systems
imposed by State authority become an important management and budgetary
tool of program recipients. It helps them hold their employees
accountable and it helps them in their local budget battles.

Performance management will not be accomplished overnight. States with
performance reporting already in place have found that it can take years
and considerable technical assistance to bring their program recipients
into compliance. In addition, as mentioned in this report, many State
transit programs suffer from staff shortages that increased Federal
funding cannot solve. Also, speaking for program recipients, some States
resist the idea of a standard national reporting system for their
recipients. Finally, the States argue, convincingly, that urban and
small urban transit providers are too diverse in their capabilities and
institutional characteristics to yield to a uniform National data
standard. We agree with them that State efforts in this realm are far
more practical and palatable.

In light of this experience with Section 5311 grants, the most prudent
approach to achieve improved performance and accountability among
recipients of the Section 5311 Program is a formula incentive program
that encourages States to adopt and maintain their own performance
reporting. We recommend legislation that would give States the authority
and resources they need to develop their own systems.

[^1]: This program (49 U.S.C. 5307) makes Federal resources available to
    urbanized areas and to governors for transit capital and operating
    assistance in urbanized areas, and for transportation-related
    planning. The U.S. Department of Commerce, Bureau of the Census
    designates "urbanized areas." They are defined as "one or more
    places (\'central place\') and the adjacent densely settled
    surrounding territory (\'urban fringe\') that together have a
    minimum of 50,000 persons."

[^2]: This program (49 U.S.C. 5311) provides formula funding to States
    for the purpose of supporting public transportation in areas of less
    than 50,000 population. It is apportioned in proportion to each
    State's non-urbanized population. Funding may be used for capital,
    operating, State administration, and project administration
    expenses.

[^3]: **The formula program** addressed is the program under Title 49 of
    the United States Code, Section 5307 (for urbanized areas),
    hereinafter "the 5307 Program."

[^4]: **The** second **formula program** addressed is the program under
    Title 49 of the United States Code, Section 5311 (for non-urbanized
    areas), hereinafter "the 5311 Program."

[^5]: The Department of Defense maintains a large portfolio of physical
    assets; keeping these in a State of good repair is essential to
    mission success. AECOM Consult has searched several publicly
    available sources, but was unable to document the department's
    approaches to asset management or determine whether performance
    incentives are used in the process.

[^6]: "The Budget that Virginia Built: How Virginia Transformed
    Budgeting for Highway Maintenance," Virginia Department of
    Transportation Asset Management Division, presentation by Phebe
    Greenwood. Virginia's asset management efforts are also described in
    "Data Integration: The Virginia Experience," FHWA Transportation
    Asset Management Case Studies.

[^7]: As described in TCRP Report 88: A Guidebook for Developing a
    Transit Performance Measurement System, November 2002. Sydney Case
    Study, pp. 40--41, 84.

[^8]: "Allocation of Funds under the Capital Fund; Capital Fund Formula;
    Final Rule," Part V, Department of Housing and Urban Development,
    Federal Register Volume 65 Number 52: March 16, 2000, pp.
    14421--14429, codified at 24 C.F.R. Part 905.

[^9]: 42 U.S.C. 1437g; see also, 24 C.F.R. Ch. IX, Section 905.10

[^10]: OMB, ExpectMore.gov, Accessed March 10, 2007, Detailed
    Information On The National Park Service Facility Maintenance
    Assessment.

[^11]: OMB, ExpectMore.gov, Accessed March 10, 2007, Detailed
    Information On the Saint Lawrence Seaway Development
    Corporation---Operations and Maintenance.

[^12]: Georgia Board of Regents, Policy Direction for Capital Priorities
    and Master Plans, May 1995, and Office of the Chancellor,
    Directives, 2005.

[^13]: PONTIS is proprietary software licensed by the American
    Association of State Highway and Transportation Officials (AASHTO).

[^14]: July 2003, Number 60, p. 2--88.

[^15]: MTC Resolution No. 3580, July 23, 2003, San Francisco Bay Area
    Transit Capital Priorities Process and Criteria.

[^16]: Cook, Thomas J. and Judwon Lawrie. 2004. "Use of Performance
    Standards and Measures for Public Transportation Systems," Final
    Report FHWA/NC/2004-10. The second publication is Transit
    Cooperative Research Program (TCRP), Synthesis 56: Performance-Based
    Measures in Transit Fund Allocation, Transportation Research Board,
    Washington, D.C. 2004.

[^17]: Taylor, Brian. 1994. "Linking Operating Subsidies to Transit
    Performance: A Report to the North Carolina Department of
    Transportation," Department of City and Regional Planning,
    University of North Carolina at Chapel Hill. This is the earliest
    known citation to make this point.

[^18]: The total renewal expense and deferred investment cost reported
    in exhibit 7 were computed for agencies with non-zero values. These
    totals are not nationwide estimates. Refer to exhibit 6 for
    nationwide values of renewal expense and deferred investment cost.

[^19]: The total renewal expense and replacement cost in exhibit 9 were
    computed for transit agencies with non-zero values. These totals are
    not nationwide estimates. Refer to exhibit 6 for nationwide values
    of renewal expense and replacement cost.

[^20]: The total replacement cost and deferred investment cost in
    exhibit 11 were computed for transit agencies with non-zero values.
    These totals are not nationwide estimates. Refer to exhibit 6 for
    nationwide values of replacement cost and deferred investment cost.

[^21]: The Transit Economic Requirements Model (TERM) is designed to
    estimate annual capital investment needs for transit at the national
    level for the next 20-year period. This includes investment in rehab
    and replacement of existing assets, investment in expansion assets
    to serve ridership growth, and investments designed to address
    deficiencies in the overall performance of the nation's
    transportation system. TERM output supports production of DOT's
    biennial conditions and performance report to Congress, as well as
    the analytical needs of the National Surface Transportation Policy
    and Revenue Study Commission.

[^22]: Note: Section 5307 agencies do currently provide comprehensive
    reporting of their revenue vehicle holdings through NTD, as well as
    limited information on their non-vehicle holdings (e.g., number of
    facilities and stations, number of track miles). However, this
    information lacks detail on asset replacement cost or age (excluding
    vehicles), and hence does not provide sufficient detail on asset
    holdings to support TERM's capital needs and replacement cost
    analyses.

[^23]:
    #  As already noted, TERM must rely on special data requests to individual operators to obtain the asset inventory data required to operate the model. Similarly, in late 2005, shortly after the passage of hurricanes Katrina and Rita, DOT asked FTA to prepare an estimate of the value of the transit assets exposed to these two storms. But given the absence of an asset-reporting requirement, FTA could not easily respond to this request. {#as-already-noted-term-must-rely-on-special-data-requests-to-individual-operators-to-obtain-the-asset-inventory-data-required-to-operate-the-model.-similarly-in-late-2005-shortly-after-the-passage-of-hurricanes-katrina-and-rita-dot-asked-fta-to-prepare-an-estimate-of-the-value-of-the-transit-assets-exposed-to-these-two-storms.-but-given-the-absence-of-an-asset-reporting-requirement-fta-could-not-easily-respond-to-this-request. .Task-Order-Heading-1}

[^24]: The distribution of the funds is thus provided for on a basis
    different from the original estimation of the amount of funding for
    the program. Economies of scale in the CAMP development process, the
    bus and rail tiers in the existing 5307 Program, and the history of
    evolution of the 5307 Program render this an appropriate
    distribution of funding.

[^25]: Alternatively, the funds can be allocated based on each agency's
    compliance and each agency's proportion of the UZA's revenue vehicle
    miles, but included in the formula grant to the designated
    recipient. While the region would still have discretion, it is
    anticipated that the agency would claim its allocated share of
    incentive funds or something of equivalent value in the regional
    suballocation process.

[^26]: We have not included local participation in this list of goals
    for two reasons. First, it is important to keep the incentive system
    as simple as possible, and second, we were concerned that areas with
    the greatest need for rural transit may also be the least able to
    pay. We also excluded service quality and coordination from the
    goals because operators that maximize ridership and utilization will
    likely choose the most appropriate service quality and engage in
    coordination.

[^27]: **"The Business Case for Transit Standards," Scott Baker and Vi
    Truong, AECOM Consult, Inc.**, **and Thomas Peacock, the American
    Public Transportation Association; TCRP Project J-6/Task 57, Transit
    Cooperative Research Program, Transportation Research Board**,
    October, 2004**.**

[^28]: **The national consumer price index from the** U**.**S**.**
    D**epartment of** L**abor,** B**ureau of** L**abor** S**tatistics,
    was used to convert the price into 2004 dollars.**

[^29]: FTA's Office of Procurement Policy has responded to some joint
    procurement practices that were determined to be anti-competitive or
    otherwise objectionable with the following footnotes to Circular
    4220.1E: "\[9\] - FTA has introduced a limited definition of
    'piggybacking' and, to differentiate vastly different practices, has
    separated this practice of assigning contractual rights among
    grantees from joint procurements or other intergovernmental
    agreements.  Paragraph 7.e. further explains these different
    practices.  Our intent was to eliminate some of the confusion that
    has grown around this term.

    \[10\] - We have similarly attempted to limit the definition of
    'tag-on' and align it with the concept of a 'cardinal change' or
    'out-of-scope change.'  FTA believes that earlier attempts to
    categorize virtually any change in quantity, for example, as a
    forbidden 'tag-on' failed to account for the realities of the
    marketplace and unnecessarily limited grantees from exercising
    reasonable freedom to make those minor adjustments "fairly and
    reasonably within the contemplation of the parties when the contract
    was entered into."  Freund v. United States, 260 U.S. 60 (1922). 

    In applying the concept of 'cardinal change' to third party
    contracts, FTA recognizes that this is a difficult concept, not
    easily reduced to a percentage, dollar value, number of changes, or
    other objective measure that would apply to all cases.  We also
    recognize that the various Boards of Contract Appeals, Federal
    courts, and Comptroller General have wrestled with these issues over
    many years and built an extensive array of case law differentiating
    in-scope from out-of-scope or cardinal changes.  We do not imply
    that the Boards of Contract Appeals cases are controlling, only that
    we will look to their collective wisdom in judging where changes in
    grantee contracts fall along the broad spectrum between clearly
    in-scope and clearly out-of-scope changes.  It is our intent to
    monitor our grantees and oversight contractors to ensure this
    concept is well understood and uniformly applied, and to issue
    additional guidance as necessary to assist our grantees in
    exercising this authority.

    Before attempting any change in quantity of major items (e.g.,
    buses, rail cars), grantees should review their contract clauses to
    ensure they allow for such changes.  For instance, in Federal
    practice, the 'changes' clause from the Federal Acquisition
    Regulation has been interpreted not to allow changes in quantity of
    major items.  Federal contracting officers use additional clauses
    specific to this desired flexibility when they anticipate that there
    may be a need to add quantities of these major items."