Dear Colleague:

I am pleased to provide you the Federal Transit Administration's (FTA)
*Annual Report on New Starts* for Fiscal Year (FY) 2006. This report
makes recommendations for the allocation of over \$1.5 billion for new
fixed guideway systems and extensions to existing fixed guideway
systems, also known as "New Starts," for FY 2006. It is a collateral
document to the President's FY 2006 budget submission to Congress.

With the strong foundation provided by Congress and the technical
assistance and oversight by FTA, New Starts grantees engage in one of
the most rigorous financial planning, project development, and
engineering processes in government. The FY 2006 budget recommends
funding for 16 existing and four anticipated Full Funding Grant
Agreements (FFGAs), which are multi-year contractual agreements between
FTA and project sponsors to implement major transit capital investments.
The FY 2006 budget also includes funding to be allocated among a
candidate group of New Starts projects that (1) have received a
"Recommended" or "Highly Recommended" rating and (2) are currently in
final design or are expected to be in final design by early 2005.

The *Annual Report on New Starts* provides a snapshot of each project in
development. In addition to providing information to Congress, it
provides guidance to project sponsors and community leaders regarding
project improvements. Since projects can be expected to continue to
change as they progress through the development process, the ratings for
projects that are not yet recommended for FFGAs should not be construed
as a statement about the ultimate merits of these projects, but an
assessment of each project's current strengths and weaknesses at this
point in the project development process.

As part of its ongoing effort to make the New Starts evaluation and
rating process as transparent as possible, FTA has revamped the format
and content of the project profiles in Appendix A to more clearly
indicate the reasons for each rating. In addition, we have included more
specific information about the New Starts evaluation criteria and FTA's
rating system in the body of the report. We encourage project sponsors
to carefully consider how early decisions about project scope,
alignment, New Starts share request, and cost, as well as local
commitments for funding and supportive land use policies, will
ultimately affect the project's ratings. We hope that the additional
information provided in this report will contribute to a clearer
understanding of expectations for New Starts projects.

The President's Budget recommendations are designed to provide
incentives to develop projects that excel in meeting expectations, as
reflected in a "Highly Recommended" rating, and recognize communities
that propose to make an unusually large local financial investment in
such projects. Providing these projects with a relatively compressed
Federal funding schedule will permit project sponsors to optimize their
construction schedules and financing arrangements. In addition, FTA
intends to work closely with sponsors of projects in this category to
expedite project delivery.

***Highlights of the FY 2006 New*** ***Starts Evaluation and Management
Process***

During the past three years, FTA has made significant improvements to
the New Starts project evaluation and management process. FTA has
increased its focus on improving the cost- effectiveness of the proposed
New Starts projects, both by requiring transit agencies to remove costs
that do not contribute to the project's benefits, and by helping project
sponsors improve their travel forecasting procedures to more accurately
portray user benefits.

Beginning in FY 2003, FTA required that an independent risk assessment
be conducted and risk management plan be developed for every project
prior to executing an FFGA. The risk management program has since been
expanded to additional projects in the final design or preliminary
engineering phases of project development. FTA has now completed or
scheduled independent risk assessments for 19 projects.

This risk management process has helped project sponsors manage risks
related to such issues as real estate acquisition, construction material
prices, contract management, and substructure uncertainties. By
prioritizing risks and identifying the underlying causes of risk events,
project sponsors are able to identify ways to change the likelihood of
risk events and/or reduce the potential impact on the project's cost and
schedule. The process also encourages activities, such as value
engineering, that are important to developing the best possible project
at the least possible cost, and provides both FTA and the project
sponsor a tool for monitoring risks throughout the life of the project.
Finally, the risk management process increases the level of confidence
in project budgets and schedules, improving the ability of both the
Administration and Congress to link budget proposals to performance, and
to ensure that sufficient monies are available to fund the long-term
Federal commitments made under FFGAs.

In addition, FTA has required all grantees to incorporate the cost of
financing into the total project cost estimate in order to provide a
complete picture of the cost of the project during the period covered by
the FFGA. However, because cost effectiveness is calculated based on
annualized costs in constant dollars, financing costs are not included
for the purpose of this calculation. The profiles for all preliminary
engineering, final design and anticipated FFGA projects now specifically
identify financing costs, that is the cost to borrow money to keep the
project advancing on time and on budget. If no dollar amount is
identified, the project sponsor anticipates using a pay-as-you-go
approach.

***Summary of Project Ratings***

Each year for the Annual New Starts report, FTA evaluates and rates all
projects that are in preliminary engineering or final design, except
those that are requesting less than \$25 million in New Starts funds and
are exempted by law. Of the 27 projects that were subject to FTA
evaluation and rating, two received an overall rating of "Highly
Recommended," 12 were rated "Recommended," and 8 were rated "Not
Recommended."

In addition, five projects are listed as "Not Rated" in the FY 2006
Annual Report, either because they did not submit the required
information or because of continuing concerns about the reliability of
the transportation benefits forecast for these projects.  FTA has
contacted and continues to work with the sponsors of these projects to
help them develop valid travel demand assumptions, better cost
information, and improved ridership projections for their proposed major
transit capital investments. Revised ratings for these projects will be
made available to Congress and project sponsors as these projects
advance through the project development process.

#####  

Although they have not been rated in this cycle, the report also
includes information on 16 projects with existing FFGAs, as well as
seven projects in preliminary engineering or final design, which require
less than \$25 million in New Starts funding and by law are exempt from
the project evaluation and rating process.

##### 

##### Funding Recommendations

> Of the \$1.53 billion in New Starts funding recommended in the
> President's Budget for FY 2006, specific funding recommendations
> totaling \$635 million are provided for 16 projects with existing
> FFGAs. The budget also includes specific funding recommendations,
> which total \$590 million, for four projects that are anticipated to
> be recommended for FFGAs before the end of FY 2006.
>
> In addition, the President's Budget reflects a new approach to
> allocating limited resources for additional projects in FY 2006. The
> budget includes a total of \$159 million in an "Other Projects"
> category, but does not include specific funding recommendations for
> each project. The six projects listed in this category have all
> received ratings of "Recommended" or "Highly Recommended"; none has
> received a "Low" rating for cost-effectiveness; and all are either in
> final design or are expected to be approved for final design in early
> calendar year 2005. If every project in the category advanced on
> schedule, they could be expected to effectively utilize as much as
> \$260 million. However, the project development process involves
> complex, dynamic projects, which are highly sensitive to timing
> issues; experience has demonstrated that some projects are likely to
> encounter unexpected financial or other obstacles that slow their
> progress.
>
> This new approach will allow FTA to better utilize the tools that have
> been developed to support "real time" decision-making about project
> readiness in support of Administration recommendations to Congress. We
> believe this approach better reflects the level of certainty about
> project readiness, and better aligns the project development process
> and funding cycle.

The projects for which the President has recommended funding are located
in 14 States and the Commonwealth of Puerto Rico, and in cities of all
sizes. Spanning every means of public transportation service, from ferry
boats to commuter rail to light rail to bus rapid transit, these
projects can be expected to significantly enhance our Nation's public
transportation network in the years to come.

Sincerely,

Jennifer L. Dorn

Enclosure