United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Transportation and Related Agencies,

Committee on Appropriations, House of

Representatives

July 1997 TRANSPORTATION

INFRASTRUCTURE

Progress on and

Challenges to Central

Artery/Tunnel Project’s

Costs and Financing

GAO/RCED-97-170

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-275370 

July 17, 1997

The Honorable Frank R. Wolf

Chairman, Subcommittee on Transportation

 and Related Agencies

Committee on Appropriations

House of Representatives

Dear Mr. Chairman:

The Central Artery/Tunnel project in Boston, Massachusetts—one of the

largest, most complex, and most expensive highway construction projects

ever undertaken—is well under way, with contracts worth nearly $8 billion

either completed or awarded. Construction began in 1991, and the project

is expected to be substantially completed in December 2004. As of

February 1997, federal funds accounted for $4.7 billion (about 82 percent)

of the $5.7 billion obligated for the project, with the remainder coming

from state funds. The level of future federal funding for the project

depends upon the amount provided under the next federal highway

program authorization; the current authorization expires on September 30,

1997.

In response to your concerns about the need to monitor the costs of this

project and the uncertainties associated with its financing, we evaluated

(1) the estimated cost of the project and (2) Massachusetts’ plans for

financing it.

Results in Brief As of March 1997, Massachusetts had estimated that the total cost of the

Central Artery/Tunnel project was $10.8 billion—$400 million more than

the $10.4 billion estimate contained in its September 1996 finance plan.

This increase occurred primarily because of growth in the project’s

estimated construction costs. Costs actually increased by more than

$400 million, but the state assumed in its $10.8 billion cost estimate that

the increases would be partly offset by savings, primarily from the

project’s owner-controlled insurance program. However, the state also

assumed that most of these insurance savings—$778 million—would not

be realized until 2017, long after construction is completed. As a result, the

project’s total funding needs through 2004, when the project is scheduled

to be completed, are $11.6 billion—$778 million more than the project’s

$10.8 billion cost estimate. Furthermore, uncertainties exist about whether

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the savings projected by the state in the insurance program will be

achieved.

The state’s $10.8 billion cost estimate also depends on achieving the

aggressive cost containment goals established for the project. While the

state has made some progress in its cost containment program, officials

acknowledge that it has ambitious goals that will be difficult to meet. If

current trends in the project’s construction costs continue, further cost

increases of some magnitude seem likely. As a result, the project’s cost

could increase between $100 million and $500 million.

Massachusetts has implemented a plan to finance its share of the project’s

cost, including a strategy to finance funding shortfalls. The state’s

December 1996 feasibility study identified a funding gap of $1.8 billion to

$2.3 billion between fiscal years 1998 and 2002, depending on the federal

funds provided. However, unless additional savings are implemented, this

shortfall could be about $450 million higher than expected because the

feasibility study does not include cost increases that occurred through

March 1997.1

 Furthermore, funding shortfalls could be an additional

$100 million to $500 million more if the state does not meet its cost

containment goals for construction.

To finance the shortfalls, the state plans to borrow $1.7 billion through a

combination of revenue bonds issued by the Massachusetts Turnpike

Authority and grant anticipation notes—short-term notes issued by the

state to borrow against future federal funds—as authorized by legislation

passed in 1997. However, this plan may be insufficient to meet the

project’s financing needs because it substantially covers the funding

shortfalls only under the best case funding scenario modeled in the

feasibility study. In addition, while the financial markets will decide

whether the use of grant anticipation notes is feasible, uncertainties exist

about the use of these notes because the amount proposed by

Massachusetts is unprecedented and relies on borrowing against federal

funds that may not be authorized until after the next federal highway

authorization expires, sometime around 2003. If Massachusetts’ plan to

address shortfalls is not sufficient, the state may have to borrow additional

funds. This additional borrowing could make it difficult to stay within the

state’s limits on the issuance of new debt. The state imposed these limits

on itself to constrain the growth of state debt in order to improve its credit

ratings.

1

As noted above, the amount of cost increases was greater than the $400 million increase in the state’s

estimate for the project’s total cost because increases have been partially offset with savings, and most

of the savings attributable to the project’s insurance program will not be realized until 2017.

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Background The Central Artery/Tunnel project, an Interstate Highway System project

in Boston, Massachusetts, will build or reconstruct about 7.5 miles of

urban highways—about half of them underground. As shown in figure 1,

the project will (1) extend Interstate 90 east, mostly in tunnels, through

South Boston, under Boston Harbor (through the Ted Williams Tunnel),

and to East Boston and Logan International Airport; (2) replace the

Central Artery—an elevated portion of Interstate 93 through downtown

Boston—with an underground roadway; and (3) replace the I-93 bridge

over the Charles River.

The project is currently managed by the Massachusetts Highway

Department (MHD).2

 Day-to-day design and construction activities are

managed by a management consultant—a joint venture of Bechtel/Parsons

Brinckerhoff—under contract with MHD. Federal funds are authorized

under the Intermodal Surface Transportation Efficiency Act of 1991, which

expires on September 30, 1997. The Federal Highway Administration

(FHWA) approves and oversees the expenditure of the project’s federal

funds. For example, FHWA reviews the project’s design plans and

construction specifications and determines whether they meet applicable

safety and quality standards and are eligible for federal funding.

Massachusetts periodically prepares finance plans detailing the remaining

estimated cost of the project and the sources of funds the state plans to

use to finance this cost. Since March 1996, the state has also prepared

monthly project management reports. These reports, which present the

estimated cost of the project on the basis of current costs and savings, are

used to identify trends, manage the project on a total-cost basis, and

monitor the progress of cost containment goals. In 1995 the Secretary of

Transportation announced that FHWA would require states to prepare

finance plans for federally assisted highway projects with an estimated

total cost of $1 billion or more, and FHWA has requested that Massachusetts

prepare a plan annually or more frequently if events warrant. FHWA has no

requirements for states to prepare total cost estimates for projects nor

standards for how such estimates should be prepared.

2

The Massachusetts Turnpike Authority will assume ownership and management of the Central

Artery/Tunnel project under a state law approved in Mar. 1997. The Authority and MHD are currently

drafting an agreement delineating the roles, responsibilities, and terms of an eventual transfer.

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Figure 1: Map of the Central Artery/Tunnel Project

Source: Massachusetts Highway Department.

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In December 1996, the state released a study (referred to as the feasibility

study) addressing options for financing the state’s share of the Central

Artery/Tunnel project. In March 1997, a state law conveyed ownership of

certain roadways and tunnels in downtown Boston, including those

comprising much of the Central Artery/Tunnel project, to the

Massachusetts Turnpike Authority and authorized the Authority to issue

revenue bonds to help finance the project’s construction and other costs.

To provide further financing for the project, Massachusetts’ May 1997

transportation bond bill authorized the state to issue short-term notes to

be repaid with future federal funding.

During the last 12 months, the project has progressed toward completion

at a faster rate than at any time in its history. In June 1997, MHD estimated

that about 90 percent of the project was designed and more than

26 percent was constructed. The Ted Williams Tunnel opened to

commercial traffic in 1995 and to passenger vehicles on a limited basis

during 1996. The tunnel’s permanent connections to the Massachusetts

Turnpike are under construction and will open to all traffic in 2001 (see

fig. 2).

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Figure 2: The Ted Williams Tunnel

Source: MHD.

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As shown in figure 3, work on the tunnels that will replace the

above-ground Central Artery is under way, with 6 of the 10 principal

construction contracts awarded as of April 1997. The northbound and

southbound Central Artery tunnels are scheduled to open to traffic in 2002

and 2003, respectively. After 2002, the pace of construction should slow

considerably, as demolition of the elevated Central Artery, surface

restoration, and street improvements take place. The project is scheduled

to be substantially completed in December 2004.

As of March 1, 1997, $5.7 billion had been obligated for the Central

Artery/Tunnel project. Contracts for a larger amount—$7.7 billion—had

been completed or awarded as of March 31, 1997. To accomplish this level

of contract activity, Massachusetts has made extensive use of advance

construction, which allows it to begin many projects concurrently by

obligating federal funds over several years. For example, although $2.1

billion in contracts will be awarded in fiscal year 1997, only $180 million

will be obligated, consistent with FHWA’s regulations. The remainder will be

obligated over a 5-year period. Appendix I provides additional information

on federal and state obligations for the Central Artery/Tunnel project and

Massachusetts’ use of advance construction.

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Figure 3: Construction of the

Underground Central Artery

Source: MHD.

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State Estimates the

Total Cost at $10.8

Billion, but Funding

Needs Are Higher

As of March 1997, Massachusetts estimated that the total cost of the

Central Artery/Tunnel project was $10.8 billion—$400 million more than

the $10.4 billion estimate contained in the state’s most recent finance plan

of September 1996. Increases occurred primarily in the project’s estimated

construction costs and were partly offset by savings. However, a

substantial portion of the estimated savings are expected to come from the

project’s insurance program but will not be realized until long after

construction is completed. Because these savings will not be available as

the project incurs costs, the project will require total funding of

$11.6 billion through 2004, when it is scheduled to be completed.

Furthermore, uncertainties exist as to whether the insurance savings

projected by the state will be achieved.

Rising Costs Partially

Offset by Savings

Overall, Massachusetts estimates that the cost of the Central

Artery/Tunnel project has increased from about $10.4 billion to

$10.8 billion over the last 12 months. Although the estimated cost actually

increased by more than this amount, the state has found savings to

partially offset this growth.

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Figure 4: Central Artery/Tunnel Cost

Estimates, March 1996 to March 1997

March

April

May

June

July

August

September

October

November

December

January

February

March

10,200

10,400

10,600

10,800

11,000

Dollars in millions

Notes: These figures have been adjusted to exclude credits for “air rights”—proceeds the state

expects to receive from developing property acquired for the project’s construction that will

become excess at the end of the project. At FHWA’s request, MHD’s September 1996 finance

plan changed how air rights were treated in earlier plans from a credit to the cost of the project to

a source of revenue. However, the state’s monthly project management reports through

March 1997 continued to treat air rights as a credit to the project’s cost. Project officials stated

that future finance plans would continue the practice of treating air rights as a revenue source

rather than a cost credit, and in May 1997, the Central Artery/Tunnel project manager told us that

the state planned to revise its monthly cost-reporting system to treat air rights in the same fashion.

According to the September 1996 finance plan, the project’s $10.4 billion total cost estimate

reflected project costs as of June 1996 and included recognition of future insurance savings

totaling about $226 million. Those savings were taken in November 1996.

Source: GAO’s analysis of MHD’s data.

The largest increase in the project’s estimated cost was for

construction—the largest cost component of the Central Artery/Tunnel

project. Between March 1996 and March 1997, estimated construction

costs increased by about $500 million, a 7.4-percent increase. While a

number of factors contributed to the increased construction costs, about

$278 million occurred because bids on construction contracts were higher

than projected. Most of these increases occurred on two large-dollar

contracts—totaling nearly $800 million—awarded in January and

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March 1997. On one contract for segments of the tunnels to replace the

above-ground Central Artery, state and FHWA officials stated that several

factors contributed to the increase, including the complexity of integrating

the new tunnel with the existing Boston Harbor tunnels while sustaining

traffic, and noise mitigation measures that were costlier than expected. On

another contract for tunneling for the I-90 underground connection to the

Ted Williams Tunnel at Fort Point Channel, state and FHWA officials said

that complex tunneling techniques never before used to this extent in the

United States contributed to higher-than-expected bids. State and FHWA

officials expressed confidence that the circumstances experienced on

these two contracts were unique and that remaining contracts would not

experience the same types of cost increases.

Two other categories of cost increases resulted in about $230 million in

additional construction costs. First, estimates of construction costs

prepared during the design phase were more than the amount budgeted.

Second, actual and estimated costs of changes to awarded construction

contracts exceeded the amount budgeted for such changes.

The project has also achieved savings to offset cost increases; the largest

savings have come in the project’s owner-controlled insurance program.

While contractors in a construction project traditionally purchase their

own insurance and add the cost of their premiums to the contract, the

Central Artery/Tunnel project purchased “wrap-up” insurance that

provides workers’ compensation insurance, general liability insurance, and

other coverage for all contractors and subcontractors working on the

project. Wrap-up insurance programs generally result in lower total

insurance costs for a number of reasons, including the elimination of

redundant insurance services and profit margins associated with the

purchase of insurance by each contractor and subcontractor.

Since December 1994, the estimated cost of the insurance program has

been reduced by over $700 million. These estimated savings result from,

among other things, a better-than-expected safety record and

lower-than-expected accident claims on the project. Most of the estimated

insurance savings are attributable to anticipated refunds which, along with

other insurance related funds, will earn interest until all claims are paid, at

which time these remaining funds will be returned to MHD. Project officials

estimate that MHD will receive these proceeds, including refunds and

related interest, in 2017—13 years after construction is completed.

According to project officials, standard industry practice is to assume that

claims are paid over a 13-year period after the project is completed.

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Project’s Total Funding

Needs Are $11.6 Billion

The state’s $10.8 billion estimate of the project’s total cost includes a

credit to the cost of the project of $778 million, which represents the

receipt of insurance proceeds. However, these funds will not be available

until 2017 and thus cannot be used to help pay for the cost of the project.

As a result, the project’s total funding needs during the period of

construction will be $778 million greater than the $10.8 billion total cost

estimate, or about $11.6 billion. (See table 1.) FHWA stated that while the

insurance proceeds would not be available for use in meeting the Central

Artery/Tunnel project’s costs, they could be used for other federally

eligible transportation projects in Massachusetts.

Table 1: Central Artery/Tunnel

Project’s Total Cost and Funding

Needs

Dollars in millions

Obligations and cost

Data as of

September 1996

finance plan

Data as of

March 1997 Change

Obligations through fiscal year 1996 $5,169

(estimated)

$5,081

(actual) ($88)

Estimated obligations fiscal year 1997

through 2004 5,979 6,523 544

Total estimated obligations through

2004 $11,148 $11,604 $456

Insurance proceeds in 2017 722 778 56

Total (net) project cost $10,426 $10,826 $400

Source: MHD.

Insurance Savings May Not

Be Realized

Although Massachusetts’ cost estimate assumes that insurance proceeds

will be received in 2017, the insurance program may not continue in its

present form until that time. According to industry representatives and

officials on other transportation projects with wrap-up insurance policies,

most workers’ compensation claims are filed within 2 years after

construction ends. Industry and project officials also said that within 18

months to 5 years after construction ends, the liability for satisfying any

further claims is frequently transferred to a reinsurer or another party who

manages the claims until they are paid. The state estimates that workers’

compensation and general liability claims payments after 2006 will total

about $28 million; however, it also assumes that the insurance trust

accounts will carry over $300 million until 2017 and accumulate interest

during that period. In particular, the state credits to the cost of the project

about $226 million, representing interest accumulated between 2006 and

2017. However if the liability were sold to a reinsurer, these proceeds

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would be largely unavailable to the project, and the total estimated cost of

the project would rise from the state’s $10.8 billion estimate to about

$11.1 billion.

In commenting on a draft of this report, MHD stated that it has decided at

this time not to use a reinsurer and to retain the funds until 2017. However,

it noted that this decision would need to made in consultation with FHWA in

about 2004, nearer to the end of the project.

In addition, the state’s assumptions have other uncertainties. Estimated

savings from the project’s insurance program stem in part from estimates

of lower-than-expected accidents and claims. In 1992, the cost estimates of

the workers’ compensation component of the wrap-up insurance program

were established on the basis of a 75-percent “loss ratio;” that is, the value

of claims paid was expected to total 75 percent of premiums. However,

over the last 4 years, the actual loss ratio has been about 30 percent. As a

result, the project has reduced its assumptions about the insurance loss

ratio from 75 percent to 55 percent. Although experience has been

somewhat limited to date on wrap-up insurance for large construction

projects, project officials stated that large programs tend to end with loss

ratios of 45 percent to 55 percent.

While only future experience will demonstrate whether the state’s

accident and claims assumptions are correct, it should be noted that the

Central Artery/Tunnel project is only 26-percent complete, and the project

is beginning 6 years of underground tunneling in the congested downtown

area. This construction will be complex; it will, for example, require

maintaining highway traffic on the existing Central Artery’s elevated

structure directly above tunnel construction and maintaining rail and

subway operations below and near tunnel construction. In the coming

years, the number of contractor personnel and the level of construction

activity in the downtown area will greatly increase. If loss claims were to

increase, and if the loss ratio were 65 percent, rather than the 55 percent

assumed in the cost estimate, the project’s cost would increase by about

$56 million.

Project officials stated that the project has completed 18 months of the

6-year construction schedule and that accidents and claims have

decreased during that time. Officials expressed confidence that the state’s

assumptions will hold and believed that if that is the case, it may be

possible to reduce the estimated cost of the insurance program even more.

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Construction Costs

Could Increase

Further If Cost

Containment Goals

Are Not Realized

While MHD is aggressively pursuing its cost containment goals, the project

is not meeting these goals. Unless additional offsetting savings are found,

it will be difficult to avoid increases in the cost of the project. We estimate

that these increases could add between about $100 million and

$500 million to the cost of the project if current trends continue.

In 1995, MHD established an overall goal of holding the cost of changes to

the project’s construction contracts to 10.7 percent or less of the

contracts’ estimated bid prices. This overall goal was based on two

assumptions: (1) holding cost growth on contracts awarded after

November 1994 to an average of 7 percent of the awarded bid price and

(2) holding cost growth on contracts awarded through November 1994 to

about 25 percent of the awarded bid price—the average amount that was

being experienced on those contracts at that time. Cost increases above

MHD’s goals have occurred on contracts awarded both before and after

November 1994. As of December 1, 1996, cost growth on awarded

contracts totaled 17.4 percent of contract bid prices, rather than the

project’s 10.7-percent goal, as shown in table 2.

Table 2: Percentage Increase in Costs

on Awarded Central Artery/Tunnel

Project Construction Contracts, as of

December 1, 1996

Dollars in millions

Contracts

Number of

contracts

Cumulative

awarded

contract

price

Percent

cost growth

goal

Percent

actual cost

growth

Contracts awarded through

November 1994 36 $1,108 25.0 28.4

Contracts awarded after

November 1994 28 1,571 7.0 9.7

All awarded contracts 64 $2,678 10.7 17.4

Source: GAO’s analysis of MHD’s data.

As table 2 shows, the contracts awarded after November 1994 have

experienced much lower growth in costs (9.7 percent) than the contracts

awarded through November 1994 (28.4 percent). MHD and FHWA officials

believe that the cost performance of contracts issued after November 1994

is a more meaningful indicator of the effect of MHD’s cost containment

efforts than the performance of contracts issued before that date because

MHD did not have a cost containment program in effect until 1995. As of

December 1, 1996, 49 construction contracts had not been awarded. If

those contracts experience the same 9.7-percent cost growth as the

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contracts awarded after November 1994 (instead of the 7-percent goal),

the cost of the project would increase by about $100 million.

However, it may not be possible to limit the growth in contract costs to the

9.7 percent experienced on the 28 contracts awarded after November 1994

because those contracts have not been in effect for very long. As of

December 1, 1996, only 5 of the 28 contracts, valued at less than

$10 million, had been completed, while 11 contracts (accounting for about

70 percent of the $1.6 billion cost of the 28 contracts) were less than

25-percent complete. Nevertheless, almost one-half of the 28 contracts had

already exceeded the 7-percent cost containment goal. For example, one

contract that MHD awarded in 1995 to construct the underground Central

Artery is 22-percent complete and will not be finished until 2000. However,

MHD estimates that this contract had already exceeded its bid price by

13 percent as of December 1, 1996.

While we cannot predict the total cost increase on all construction

contracts, we believe that it will be difficult to meet the goals set in 1995

and to avoid increases in the cost of the project. For example, assuming

that awarded construction contracts experience no further cost growth

after December 1, 1996, costs for the remaining 49 unawarded contracts

could increase by only 5.7 percent if the cost containment goal of 10.7

percent is to be met. If, however, the unawarded contracts experience the

same 17.4-percent growth experienced by the awarded contracts, as

shown in table 2, the total cost of the project would rise by about

$500 million.

State officials agreed that the project has ambitious cost containment

goals that will be difficult to meet. However, they stated that the existing

goals are essential to provide designers and contractors with an incentive

to control contract changes and restrict cost growth. They believe that any

relaxation of the goals would deprive state managers of the leverage

needed to control costs and that ultimately such a relaxation would

become a self-fulfilling prophecy, resulting in even further cost increases.

MHD Is Taking Steps to

Reduce Costs, but Options

for More Savings May Be

Limited

Since our May 1996 report,3 MHD has analyzed the reasons for cost

increases and developed strategies to reduce the cost of construction

contracts. For example, MHD now requires firms bidding on Central

Artery/Tunnel construction contracts to include a bid of the cost and time

3

Transportation Infrastructure: Central Artery/Tunnel Project Faces Continued Financial Uncertainties

(GAO/RCED-96-131, May 10, 1996).

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associated with removing unanticipated underground obstructions. MHD

officials stated that this estimate allows them to obtain a competitive price

at the outset of a contract for unknown factors rather than face negotiated

change orders and delays after a contract is awarded. The project’s

construction managers stated that, although it is still too early to assess

measurable results, some of these initiatives could reduce the cost and

number of contract changes, primarily by avoiding delays in these

contracts.

MHD has also made progress in reducing estimated construction costs

during the design process. During the design of a highway, bridge, or

tunnel, preliminary design concepts are refined into detailed plans and

specifications, and preliminary construction cost estimates can increase.

MHD stated in 1995 that preliminary cost estimates, on average, increased

18 percent. To control cost increases, MHD initiated a “design-to-cost”

program in 1995. Under this program, contractors design their segments of

the project within an agreed baseline budget for construction costs. The

design contractor must periodically submit progress estimates as well as a

final design. If the estimate in any of the submittals exceeds the agreed

baseline budget (assuming that MHD has not requested changes to the

agreed baseline budget), the contractor is required to redesign the

project—at the contractor’s own expense—so that the estimated

construction cost falls within the baseline budget.

The design-to-cost initiative is intended to result in no growth in the

estimated cost of construction during the design phase. An MHD analysis

shows that, as of April 1997, estimated construction costs under this

program have increased in total by about 4 percent, compared with the

historical 18-percent rate.4

 As of April 1997, MHD required design

contractors to find cost reductions on four contracts to reduce estimated

cost increases by $60 million. The Deputy Project Manager for Design

stated that contractors’ plans have resulted in reductions of about

$44 million of this $60 million and that he is confident that the remainder

will be recouped as well.

While MHD has made some progress in containing costs, options for further

savings may be limited. For example, as of March 1997, only four principal

construction contracts—two for the Route 1A interchange at Logan

International Airport and two for the underground Central Artery—were

4

Experience with the design-to-cost program has been limited to date because, as of Nov. 1996, only 10

contracts had progressed through the final design point in the design-to-cost program. Eight of these

10 contracts had their original baseline budgets established late in the design process. Generally, cost

growth would be more likely to occur earlier in the design process.

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early in the design stage, where greater opportunities exist for significant

scope reductions or changes. MHD is redesigning the scope of one of the

Route 1A interchange contracts to reduce its costs by about $56 million.

With limited opportunity to reduce the project’s scope, the state is looking

for other ways to cut costs. For example, MHD has proposed that the

amount currently budgeted for inflation in unawarded contracts be

reduced from 3.35 percent to 2.35 percent, on the basis of recent inflation

rates in the Boston area. This lower inflation rate would reduce estimated

project costs by about $140 million. FHWA officials are reviewing this

proposal. MHD is also reducing the estimated cost of the project by moving

certain costs out of the project’s budget. For example, in 1996, MHD

reassigned about $20 million in costs from the Central Artery/Tunnel

project to the statewide road and bridge program. These costs were

associated with project contracts for temporary structures at the Charles

River and the replacement of an existing bridge connecting to the project’s

Interstate 90/93 interchange. Project officials stated that these costs were

more appropriately reflected as statewide transportation expenditures

because they would have been incurred whether or not the Central

Artery/Tunnel project was built. Officials said that they are considering

assigning some other project costs to the statewide program.

State’s Plan for

Financing Project May

Be Insufficient

While the level of future federal funding is uncertain until the federal

highway program is reauthorized, Massachusetts’ plan for financing the

state’s share of the Central Artery/Tunnel project identified funding

shortfalls. To address these shortfalls, the state has implemented a plan to

borrow $1.7 billion through Massachusetts Turnpike Authority revenue

bonds backed by toll increases and short-term grant anticipation notes to

be repaid with future federal funds. However, this plan may not be

sufficient because (1) shortfalls may be greater than modeled in the state’s

plan and (2) while the financial markets will decide whether the use of

grant anticipation notes is feasible, uncertainties exist about the use of

these notes because the amount proposed by Massachusetts is

unprecedented and relies on borrowing against federal funds that may not

be authorized until the next federal highway authorization expires,

sometime around 2003.

Funding Shortfalls Exist

Under All Scenarios

The state’s December 1996 feasibility study identified a project funding

shortfall of $1.8 billion to $2.3 billion from fiscal years 1998 through 2002.

The study referred to this as the “interim” shortfall because the project’s

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needs outstrip sources of funds during the accelerated construction years.

According to the study, from fiscal years 2003 to 2005, construction needs

subside and a funding surplus of $1.6 billion reduces the project’s “total”

funding shortfall to about $200 million to $700 million.

The shortfall ranges are due to uncertainty about future federal funding.

While the feasibility study modeled two potential federal funding

scenarios, shortfalls could be greater or smaller under other possible

federal funding scenarios. For example, under several of the

reauthorization proposals introduced in the Congress during 1997, the

project’s funding shortfalls in fiscal years 1998 through 2002 would range

from $1.6 billion to $2.5 billion. Details of the various funding scenarios

are discussed in appendix II.

In addition to federal funding, the feasibility study identified the state

sources of funding that were expected as of December 1, 1996. These

sources included (1) about $1 billion in state funds to match federal funds

and to pay for the portions of the project funded exclusively by the state;

(2) a $200 million contribution from the Massachusetts Port Authority; and

(3) $400 million in state bonds, which was authorized in 1995, and which

will be assumed by the Massachusetts Turnpike Authority. The feasibility

study’s assumptions are shown in table 3.

Page 18 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

Table 3: Feasibility Study Analysis of

Central Artery/Tunnel Project Funding,

as of December 1, 1996 (Fiscal Years

1997 Through 2005) 

Dollars in millions

Obligations and sources

of financing

Fiscal years

1997-02

“interim

shortfall”

Fiscal years

2003-05

“surplus”

Fiscal years

1997-2005

“total shortfall”

Obligations $5,696 $283 $5,979

Sources of financing

Federal

- High-funding scenario

- Low-funding scenario

2,435

1,916

675

675

3,110

2,591

State bonds 800 240 1,040

Mass. Port Authority 200 0 200

Mass. Turnpike Authority 100 0 100

State bonds to be assumed by

Mass. Turnpike Authority 400 0 400

Total sources of financing 

- High-funding scenario

- Low-funding scenario

3,935

3,416

915

915

4,850

4,331

Proceeds

Air rights proceeds 0 255 255

Insurance proceeds 0 722 722

Total proceeds 0 $977 $977

Surplus/(shortfall) 

- High-funding scenario

- Low-funding scenario

($1,761)

($2,280)

$1,609

$1,609

($152)

($671)

Note: This table excludes a $50 million contribution from the Massachusetts Bay Transportation

Authority, which was included in the feasibility study’s high-funding scenario but is not being

pursued by the project at this time.

Source: GAO’s analysis of the feasibility study.

Funding Shortfalls Could

Be Greater Than

Anticipated

The funding shortfalls could be higher than expected because the shortfall

estimate in the feasibility study reflects the obligation estimate used in the

September 1996 finance plan. Since that time, construction and other cost

increases have raised the project’s funding requirements by about

$450 million through March 1997. While some of those increases were

offset by insurance savings in the total cost estimate, most insurance

savings will not be realized until 2017, long after the project is completed.

Thus, the cost increases that occur during construction will still need to be

funded. Furthermore, shortfalls may be $100 million to $500 million

greater if the state’s cost containment goals for construction are not met.

Page 19 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

State officials acknowledged that these goals are ambitious and that it will

be difficult to meet them.

The state could reduce the shortfall through additional savings. However,

the $1.6 billion surplus between fiscal years 2003 and 2005, which the

feasibility study used to calculate the total shortfall through 2005, will be

smaller than reported. According to the September 1996 finance plan, the

surplus funds accrued between fiscal years 2003 and 2005 will be moved to

the peak construction period through short-term financing. However, as

shown in table 2, nearly $1 billion of this surplus is revenues from the

development of air rights—proceeds the state expects to receive from

developing property acquired for the project’s construction that will

become excess at the end of the project—and savings from the project’s

insurance program. As mentioned earlier, the state assumes that the

insurance savings will not be realized until 2017. In addition, air rights

revenues will be largely unavailable to the project until after 2005. This is

because about half the property expected to be available will not be ready

for development until late 2004.

In commenting on a draft of this report, the state confirmed that insurance

and air rights proceeds would not be used to help finance the project’s

debt and stated that future finance plans would clarify that proceeds are

expected to be received after 2005. FHWA stated that while these proceeds

will not be available to meet the Central Artery/Tunnel project’s funding

needs, they could be used for other transportation-related purposes in

Massachusetts.

Plan for Addressing

Shortfalls Is in Place, but It

May Not Be Sufficient

State legislation enacted in 1997 authorized $1.7 billion in state borrowing

to address the funding shortfalls identified in the December 1996

feasibility study. Specifically, under legislation enacted in March and May

of 1997, the following will occur:

• The Massachusetts Turnpike Authority will contribute $700 million by

December 31, 1998, through revenue bonds backed by toll increases. On

July 1, 1997, the Authority Board voted to increase one-way tolls on the

Sumner, Callahan, and Ted Williams Tunnels—effective July 10,

1997—including increased tolls on passenger vehicles from $1 to $2. An

Page 20 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

additional $1 increase is planned in 2002 on these facilities as well as

increases on the Massachusetts Turnpike’s Boston Extension.5

• The state will issue up to $1 billion in short-term grant anticipation notes,

to be repaid with future federal highway funds.

The authorized funding will substantially meet the funding shortfall

identified by the feasibility study under the “high” federal funding

scenario. However, additional state funding will be needed if federal

funding is lower than the high funding scenario. Furthermore, the state’s

funding will not cover the $450 million in additional funding needs through

March 1997 discussed previously or the additional funding that may be

needed if MHD does not meet its goals to contain construction costs.

The financial markets will ultimately decide whether the use of grant

anticipation notes is feasible. There is limited precedent for the use of

such notes, especially in amounts of this magnitude. While grant

anticipation notes have been used in other states, they have been issued

for a substantially lower amount.6

In addition, using grant anticipation notes to borrow $1 billion will require

Massachusetts to borrow against federal funds that may not be authorized

until after the next federal highway authorization expires, sometime

around 2003. The feasibility study assumed that all federal funds for the

project from fiscal years 1998 through 2002 would be needed to pay for the

project and that funding would not exceed costs until 2003. The study

further assumed that, during the surplus fiscal years from 2003 through

2005, the project would have $283 million in funding requirements and

receive about $675 million in federal funds. (See table 3.) Therefore, in

order to borrow $1 billion or more in grant anticipation notes,

Massachusetts would have to repay the notes using federal funds beyond

the likely 5- to 6-year duration of the next highway authorization bill and

beyond the scheduled end of the project.

5

According to the Turnpike Authority’s chief financial officer, the enacted and planned toll increases

will be sufficient for the Authority to make the required $700 million contribution and assume the

$400 million in state bonds authorized in 1995 (see table 2). The state has also proposed an additional

$300 million contribution from the Turnpike Authority at the end of the project, if necessary.

According to the chief financial officer, if this contribution is needed, the Turnpike Authority may have

to raise tolls again.

6

For example, Pennsylvania issued $450 million in short-term notes over a 5-year period, from 1986 to

1991. The notes—from 3 to 6 years in duration—were issued as general obligation notes and backed by

the full faith and credit of the state. Pennsylvania used its Interstate Construction Program funds to

pay the notes and state legislation gave these principal payments first priority in the state’s use of

those funds.

Page 21 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

According to officials at three bond rating agencies, uncertainties

associated with the availability and timing of future federal funds means

that the financial markets will almost certainly demand some form of state

backup in the event that federal funds are not available to repay the notes.

This demand may entail some difficulties for the state. Massachusetts

already has one of the highest debt burdens in the nation and has put both

statutory and administrative measures in place, such as limits on the

issuance of new debt, to constrain the growth of state debt in order to

improve its credit ratings. These limits restrict the state’s flexibility in

issuing additional debt, and Massachusetts has emphasized the need to

stay within those limits as part of any solution to financing the Central

Artery/Tunnel project. For example, the Massachusetts Deputy Secretary

for Administration and Finance told us that the state is attempting to

structure an issuance of grant anticipation notes that would not require it

to guarantee the notes with the full faith and credit of the state. State

legislation also exempts the notes from the state’s statutory debt ceiling.

According to state officials, there is no contingency plan for financing the

project should the combination of revenue bonds and grant anticipation

notes prove insufficient. However, the feasibility study described several

potential sources of state funds, including additional state

borrowing—subject to the debt ceiling—or further toll increases. The

study also described other sources, such as gasoline taxes, taxes

generated from increased property values, and the diversion of state funds

from other projects, but explained that these options do not appear

feasible or practical.

Conclusions The Central Artery/Tunnel project faces numerous and complex

challenges in constructing tunnels through a densely populated downtown

urban area, within a few feet of buildings and subway tunnels, while

keeping automobile and rail traffic flowing. In addition to these technical

obstacles, Massachusetts faces the challenges of controlling costs and

paying for the project.

Massachusetts is to be commended for establishing aggressive

management goals and for making progress in controlling the cost of the

Central Artery/Tunnel project. By managing the project on a total-cost

basis, monitoring progress against that goal, developing action plans to

control costs and schedules, and holding contractors accountable for cost

increases, the state has shown that it is serious about cost containment.

Page 22 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

Despite the state’s efforts, the project’s estimated costs have been rising,

and opportunities to produce more savings may be limited. To maintain

total project costs at about $11 billion, the state would not only have to

meet but exceed its aggressive cost containment goals. State officials

acknowledged that these are ambitious goals that will be difficult to meet.

If current trends continue, further cost increases of some magnitude seem

likely. We support the project’s adhering to its cost containment goals as a

means of holding down costs. But these goals form the basis for the state’s

cost estimate and its finance plan. Decoupling the existing goals from the

project’s cost estimate and revising that estimate to more closely reflect

the project’s actual experience with its cost containment program would

provide a more realistic basis for securing needed financing.

While future federal funding remains an uncertainty, Massachusetts has

made progress in the last 12 months by restructuring its public institutions

to bring the resources of the state to bear on financing the project.

However, a number of challenges remain to be overcome before a plan

that is sufficient to meet the financing needs of the Central Artery/Tunnel

project is in place. While Massachusetts could borrow additional funds to

meet funding shortfalls, it will be constrained by its statutory and

administrative debt limits. These constraints on the state, the magnitude of

the shortfalls, and the likelihood of additional costs of some magnitude are

likely to require Massachusetts to reassess its financing plans, particularly

once federal funding for the next 5 to 6 years is established through

reauthorization of the federal highway program.

Recommendations To provide a more realistic estimate of the cost and financing of the

Central Artery/Tunnel project, we recommend that the Secretary of

Transportation direct the Administrator, Federal Highway Administration,

when FHWA requests the Commonwealth of Massachusetts to prepare a

new Central Artery/Tunnel project finance plan, to include in that plan

(1) a revised estimate of the project’s costs and funding needs that more

closely reflects the state’s actual experience with its cost containment

program and (2) a contingency plan for financing the project if costs

increase further or if the sources of financing are not sufficient.

Agency Comments

and Our Evaluation

We provided copies of a draft of this report to the Department of

Transportation and the Massachusetts Executive Office of Transportation

and Construction. We met with FHWA officials, including the Associate

Administrator for Program Development, and with state officials, including

Page 23 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

the Chief Financial Officer of the Massachusetts Turnpike Authority and

officials from MHD’s Central Artery/Tunnel Project Office.

While FHWA and the state generally agreed with the information contained

in this report, they disagreed with the estimate in our draft report that the

project would cost $11.1 billion and our recommendation to revise the

estimate of the project’s cost to more closely reflect the state’s actual

experience with its cost containment program. Specifically, FHWA and the

state contended that (1) while FHWA has no standards for states to follow

in preparing estimates for total project costs, they believed that all costs

incurred and proceeds generated by the project should be considered in

calculating “total cost” regardless of when they occur, even years after the

project is complete and (2) most of the state’s estimates of insurance

savings affect only the total cost estimate and do not reduce the project’s

total funding needs. We revised the report to present the state’s total cost

estimate of $10.8 billion and to delineate the differences between the total

cost estimate and the project’s total funding needs of $11.6 billion. We

continue to believe, however, that uncertainties remain over whether the

insurance savings projected by the state for 2017 will be realized.

FHWA and the state also disagreed with our recommendation to revise the

project’s cost estimate to more closely reflect the state’s actual experience

with its cost containment program. While recognizing the difficulty of

meeting the goals, they stated that decoupling the goals from the estimate

as we recommend would send the wrong message to the project’s

contractors and deprive state managers of the leverage needed to control

costs. While we commend Massachusetts for adhering to its aggressive

cost containment goals, we also believe that the state’s cost estimate—an

estimate that forms the basis for financing the project when significant

shortfalls are projected—should recognize reasonably expected costs

based on current available information about the state’s experience with

its cost containment program. We have therefore retained our

recommendation.

Both FHWA and Massachusetts offered technical comments to clarify and

amplify the information presented in the draft report. We have

incorporated those comments throughout the report as appropriate. In

addition, MHD provided a letter presenting additional views on the progress

of its cost and schedule containment initiatives (see app. IV).

Page 24 GAO/RCED-97-170 Central Artery/Tunnel Project
B-275370 

The scope and methodology used in preparing this report are presented in

appendix III. We performed our work from November 1996 through

June 1997 in accordance with generally accepted government auditing

standards, but we did not independently verify the data obtained from

MHD’s database.

As arranged with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days after the

date of this letter. At that time, we will send copies to the cognizant

congressional committees; the Secretary of Transportation; the

Administrator, Federal Highway Administration; and other interested

parties. We will also make copies available to others on request.

Please call me at (202) 512-2834 if you or your staff have any questions.

Major contributors to this report are listed in appendix V.

Sincerely yours,

John H. Anderson, Jr.

Director, Transportation Issues

Page 25 GAO/RCED-97-170 Central Artery/Tunnel Project
Contents

Letter 1

Appendix I 

Obligations and the

Use of Advance

Construction on the

Central Artery/Tunnel

Project

28

Appendix II 

Future Federal

Funding Scenarios for

the Central

Artery/Tunnel Project

30

Appendix III 

Scope and

Methodology

32

Appendix IV 

Letter From the

Massachusetts

Highway Department

34

Appendix V 

Major Contributors to

This Report

36

Tables Table 1: Central Artery/Tunnel Project’s Total Cost and Funding

Needs

12

Table 2: Percentage Increase in Costs on Awarded Central

Artery/Tunnel Project Construction Contracts, as of December 1,

1996

14

Page 26 GAO/RCED-97-170 Central Artery/Tunnel Project
Contents

Table 3: Feasibility Study Analysis of Central Artery/Tunnel

Project Funding, as of December 1, 1996

19

Table I.1: Federal and State Obligations for the Central

Artery/Tunnel Project

28

Table I.2: Central Artery/Tunnel Project Advance Construction

Plan

29

Table II.1: Comparison of Various Federal Funding Scenarios for

Massachusetts and the Effect on Funding for the Central

Artery/Tunnel Project

31

Figures Figure 1: Map of the Central Artery/Tunnel Project 4

Figure 2: The Ted Williams Tunnel 6

Figure 3: Construction of the Underground Central Artery 8

Figure 4: Central Artery/Tunnel Cost Estimates, March 1996 to

March 1997

10

Abbreviations

GAO General Accounting Office

FHWA Federal Highway Administration

ISTEA Intermodal Surface Transportation Efficiency Act

MHD Massachusetts Highway Department

Page 27 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix I 

Obligations and the Use of Advance

Construction on the Central Artery/Tunnel

Project

As of March 1, 1997, $5.7 billion had been obligated for the Central

Artery/Tunnel project. About $4.7 billion, or 82.5 percent, of those funds

came from federal sources, while $1 billion, or 17.5 percent, came from

state sources, as shown in table I.1.

Table I.1: Federal and State

Obligations for the Central

Artery/Tunnel Project

Dollars in millions

Source of funds Obligations

Federal funds

Interstate Construction Program $3,940

National Highway System Program 254

Bridge Program 181

Surface Transportation Program 283

Other programs 60

Total federal funds $4,718

Total state funds $1,003

Total obligations $5,720

Note: Numbers may not add due to rounding.

Source: Central Artery/Tunnel Project Office, MHD.

Advance Construction As of April 1, 1997, about $8 billion in contracts for the Central

Artery/Tunnel project had either been awarded or had been completed. To

accomplish this rate of contract activity, Massachusetts made extensive

use of advance construction, particularly during fiscal year 1997. Advance

construction allows a state to begin many more projects concurrently than

under a traditionally financed highway project. With advance construction,

under FHWA’s July 1995 regulations, a state may begin a project and

obligate federal funds in phases over the several years required to build

the project.

Massachusetts plans to award 28 contracts totaling $4.2 billion in this

manner. As of April 1, 1997, about $3 billion of this $4.2 billion had been

awarded. As table I.2 shows, the bulk of this contracting activity occurred

in fiscal year 1997. In fact, during a 6-month period between October 1996

and March 1997, nearly $1.7 billion in contracts were awarded.

Page 28 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix I 

Obligations and the Use of Advance

Construction on the Central Artery/Tunnel

Project

Table I.2: Central Artery/Tunnel Project Advance Construction Plan (as of September 1996 Finance Plan)

Advance construction contracts

awarded

Obligations by fiscal year

Dollars in millions

Fiscal year Number

Total

value 1995-96 1997 1998 1999 2000 2001 2002 2003 2004

1995 3 $451 $152 $299

1996 5 740 69 104 $221 $209 $101 $28 $5 $3

1997 10 2,136 180 496 676 587 187 10

1998 6 511 24 96 159 110 59 44 $19

1999 1 93 3 8 21 30 26 5

2000 2 185 3 20 71 81 10

2001 1 115 42 60 13

Total 28 $4,231 $221 $583 $741 $984 $858 $408 $234 $166 $34

Note: Numbers may not add due to rounding.

Source: GAO’s analysis of MHD’s data.

According to MHD, this advance construction strategy will save $1 billion in

the total cost of the project and 5 years in construction time. In May 1996,

we reported that while Massachusetts was relying on future funding to pay

the bills, substantial funding shortfalls existed in those years and

Massachusetts did not have a plan for financing the project.7

 Since that

time the Federal Highway Administration has required the state to provide

either full funding or to provide state legislative contract authorizations

for the full value of all awarded contracts. Massachusetts has since

authorized state legislative contract authorizations for the full value of all

awarded contracts, although it plans to rely on federal funds,

Massachusetts Turnpike Authority bonds, and other sources as the

ultimate source of financing.

7

Transportation Infrastructure: Central Artery/Tunnel Project Faces Continued Financial Uncertainties

(GAO/RCED-96-131, May 10, 1996)

Page 29 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix II 

Future Federal Funding Scenarios for the

Central Artery/Tunnel Project

Future federal funding for Massachusetts will not be resolved until the

Congress reauthorizes the Intermodal Surface Transportation Efficiency

Act (ISTEA) of 1991. However, we modeled six funding scenarios on the

basis of several current reauthorization proposals and assumptions in the

state’s December 1996 feasibility study to estimate the apportionments

that Massachusetts could receive under the reauthorized federal aid

highway program.8

 Estimated annual apportionments under all scenarios

are lower than Massachusetts’ average annual apportionments of

$831 million under ISTEA. These scenarios are the following:

• The ISTEA Integrity Restoration Act (H.R. 674) , or STEP 21, assumes that

each state will receive at least 95 percent of the revenues it contributes to

the Highway Trust Fund. Since Massachusetts has traditionally received

more in federal highway aid than it pays in federal highway taxes, this

proposal reduces federal funding to an average of $393 million per year.

• The Surface Transportation Authorization and Regulatory Streamlining

Act (S. 532), or STARS 2000, assumes that Massachusetts’ average annual

apportionments will be reduced to $432 million.

• The “low” funding scenario in the feasibility study reduces Massachusetts’

apportionments immediately to $450 million per year.

• The “high” funding scenario in the feasibility study assumes that

Massachusetts’ apportionments will be reduced incrementally from

$600 million per year from fiscal years 1998 to 2001 to $450 million per

year thereafter.

• The administration’s proposal for the National Economic Crossroads

Transportation Efficiency Act of 1997 (S. 468), or NEXTEA, retains the ISTEA

framework and assumes that Massachusetts will receive an average of

$580 million per year, ranging from $650 million in 1998 to about

$560 million in 2000 and beyond.

• The ISTEA Reauthorization Act of 1997 (S. 586), or ISTEA Works, also retains

the basic structure of ISTEA and assumes that average annual

apportionments for Massachusetts would equal $656 million.9

Table II.1 shows the effect of each scenario on the financing for the

Central Artery/Tunnel project. In modeling the scenarios for fiscal years

1997 to 2005, we used the assumptions contained in the feasibility study,

including obligation and state funding amounts, air rights proceeds, and

savings from the insurance program as shown in table 2. All scenarios

8

We selected reauthorization proposals for which FHWA estimates of average annual state

apportionments were available.

9

FHWA also provided state-by-state estimates for H.R. 1609. Under this bill, Massachusetts’ average

annual apportionments would be the same as those under S. 586, or $656 million per year.

Page 30 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix II 

Future Federal Funding Scenarios for the

Central Artery/Tunnel Project

assume that the state is authorized to obligate the entire amount of its

apportionment each year. In practice, states’ obligational authority has

historically been less than the amount of the apportionment.

Table II.1: Comparison of Various

Federal Funding Scenarios for

Massachusetts and the Effect on

Funding for the Central Artery/Tunnel

Project

Scenario

Average annual

Massachusetts

apportionment

Interim

surplus

(shortfall)

Total

surplus

(shortfall)

STEP 21 $393 ($2,460) ($936)

STARS 2000 $432 ($2,338) ($756)

Feasibility study “low” $450 ($2,280) ($671)

Feasibility study “high” fiscal year 1998-01 $600

after fiscal year 2001 $450 ($1,761) ($152)

NEXTEA $580 ($1,860) ($60)

ISTEA Reauthorization Act $656 ($1,637) $281

Source: GAO’s analysis of FHWA and state data.

Page 31 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix III 

Scope and Methodology

To determine the estimated costs of the Central Artery/Tunnel project, we

analyzed the monthly management reports issued by MHD from March 1996

to March 1997 and selected cost data on construction contracts as of

December 1, 1996. We met with MHD and management consultant officials

to discuss the monthly reports and to determine the basis for MHD’s cost

containment goals for the design and construction phases and MHD’s

methodology for measuring progress against those goals. We also

discussed our methodology for measuring MHD’s progress against its cost

containment goals with project officials, who generally agreed with our

methodology. We discussed cost containment strategies and progress with

officials at MHD’s Central Artery/Tunnel project office and obtained and

analyzed related documentation.

In assessing MHD’s success in achieving its cost containment goals, we

included scope changes in our calculation of growth in construction costs

because these costs represent actual increases or decreases to total

construction costs that if removed would not be accounted for in our

analysis of growth in construction costs. We excluded the total value of

scope transfers from our calculation of changes to awarded construction

contract values. However, we captured this value as a separate line item

under unawarded contracts in order to account for this source of cost

increases within the total costs of the construction contracts.10

To determine savings from the wrap-up insurance program, we reviewed

insurance cost estimates from the inception of the program through

March 1997 and discussed the program and its estimated savings with

FHWA, MHD, and project officials, as well as the project’s insurance broker

Sheppard, Riley, Coughlin. We also discussed various aspects of wrap-up

insurance programs with industry officials at Liberty Mutual, Sedgwick

James, Inc., the Workers’ Compensation Rating and Inspection Bureau of

Massachusetts, and officials at other transportation projects with similar

insurance programs, including the Los Angeles County Metropolitan

Transportation Authority, the Metropolitan Atlanta Rapid Transit

Authority, the Washington Metropolitan Area Transit Authority, and the

New Jersey Turnpike Authority.

To determine the Commonwealth of Massachusetts’ plans for financing

the project, we analyzed the September 1996 finance plan and the

December 1996 feasibility study. We reviewed supporting

documentation—including additional funding scenarios for which

10According to project officials, the majority of scope transfers into awarded construction contracts

initially came from unawarded construction contracts.

Page 32 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix III 

Scope and Methodology

state-by-state estimates were available—and discussed financing issues

with officials at FHWA’s headquarters in Washington, D.C., and at FHWA’s

Massachusetts Division Office in Boston, Massachusetts; the state’s

Executive Office of Administration and Finance; MHD’s Central

Artery/Tunnel project office; the Massachusetts Port Authority; and the

Massachusetts Turnpike Authority; and with rating agency officials at

Moody’s Investors Service, Standard & Poor’s, and Fitch Investors Service,

Inc., in New York. We also reviewed Massachusetts’ statewide

transportation plan and discussed it with officials at FHWA and at the state’s

Executive Office of Transportation and Construction in Boston. In

addition, we obtained and reviewed state legislation and discussed it with

officials at the state legislature, the Massachusetts Turnpike Authority, and

the Massachusetts Port Authority.

We performed our work from November 1996 through June 1997 in

accordance with generally accepted government auditing standards.

However, we did not independently verify the reliability of MHD’s data in its

Oracle database, which we used to analyze MHD’s progress in achieving its

cost containment goals.

Page 33 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix IV 

Letter From the Massachusetts Highway

Department

Page 34 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix IV 

Letter From the Massachusetts Highway

Department

Page 35 GAO/RCED-97-170 Central Artery/Tunnel Project
Appendix V 

Major Contributors to This Report

Resources,

Community, and

Economic

Development Division

Washington, D.C.

Stephen M. Brown

Steve Cohen

Gary L. Jones

Phyllis F. Scheinberg

Sara Vermillion

Boston,

Massachusetts

Linda Choy

Teresa Dee

Lena Natola

(342926) Page 36 GAO/RCED-97-170 Central Artery/Tunnel Project
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