REPORT ON THE 

CENTRAL ARTERY/TUNNEL PROJECT 

MAY 2007 FINANCE PLAN UPDATE 

Federal Highway Administration 

Report Number: MH-2008-048 

Date Issued: March 31, 2008 
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General 

Subject: ACTION: Report on the Audit of Central 

Artery/Tunnel Project May 2007 Finance Plan 

Update 

Federal Highway Administration 

Report Number MH-2008-048 

Date: March 31, 2008 

From: 

Rebecca Anne Batts 

Assistant Inspector General 

 for Highway and Transit Audits 

Reply to 

Attn. of: JA-40 

To: Acting Federal Highway Administrator 

This report presents the results of our audit of the May 2007 Finance Plan Update 

(Plan) for the Central Artery/Tunnel Project (Project).1

 The purpose of this Plan is 

to provide senior program and oversight officials with information to track the 

Project’s estimated cost and the financing and cash flows needed to meet Project 

obligations. In addition, the intent of the Plan is to describe risks and mitigation 

actions as well as to disclose factors that could impact Project completion. 

In October 2000, Congress limited the total Federal contribution for this Project at 

$8.549 billion.2 It also directed the U.S. Secretary of Transportation to withhold 

obligations of Federal funds and approval of the Project’s finance plan until the 

Office of Inspector General (OIG) determined that the annual finance plan updates 

were consistent with Federal Highway Administration (FHWA) Financial Plans 

Guidance (FHWA Guidance).3 

In 1984, the Massachusetts Highway Department initiated the Project and 

construction began in 1991. When initially approved in 1985, the Project was 

estimated to cost $2.6 billion. Designed to relieve congestion through Boston, the 

Project replaced an elevated expressway with an expanded expressway, consisting 

of 7.3 miles of tunnels, surface highways, and bridges. In 1997, the 

Commonwealth of Massachusetts (Commonwealth) enacted legislation that 

 

1

 Officially titled, “Cost/Schedule Update of the Central Artery/Tunnel Project,” and submitted by the Massachusetts 

Turnpike Authority. 2

 Department of Transportation and Related Agencies Appropriations Act of 2001, Pub. L. No. 106-346. 3

 FHWA Financial Plan Guidance issued in May 2000, most recently revised in January 2007. 
2

transferred management of the Project to the Massachusetts Turnpike Authority 

(MTA). According to MTA, the Project is 99 percent complete with all major 

ramps, roadways, and streets open for public use. 

The latest Plan was submitted to FHWA for its review and approval in May 2007. 

The Plan forecast a total Project cost of $14.798 billion. That amount represented 

a $173 million increase over the forecast Project cost of $14.625 billion that was 

reported in the 2004 Plan.4 Of the $14.798 billion, $128 million in Federal funds 

remained unobligated, as of January 2008.5

 The FHWA Division Office and the 

FHWA Major Projects Team concurrently reviewed the 2007 Plan. Our review 

was designed to evaluate the reasonableness of the cost projections, the viability of 

the identified funding sources, and the likelihood that the funding commitments 

would provide sufficient resources to complete the Project as planned. 

Our objective in reviewing the 2007 Plan was to determine whether it complied 

with the FHWA Guidance, which requires that the Plan: (1) provide a Project cost 

estimate based on all known and reasonably expected costs, (2) identify 

appropriate and available funding sources and cash flows sufficient to meet the 

total estimated cost, and (3) disclose other issues affecting the Project. Exhibit A 

describes our scope and methodology. 

RESULTS IN BRIEF 

The MTA’s Plan generally complied with the FHWA Guidance, except that it 

should be adjusted to correct understated insurance cost and an overstated Federal 

funding cap, which resulted in a shortfall in funding. Consequently, MTA will 

need to identify an additional $37.7 million in non-Federal funding necessary to 

complete the Project. In addition, the Plan’s omission of some of the necessary 

disclosures and assessments must be corrected to achieve full compliance with the 

FHWA Guidance. 

Specifically, the Plan: 

3⁄4 understated the insurance cost by $8.8 million. The MTA based the Plan 

on the assumption that savings would result from the transfer of the 

insurance liability in December 2007, an event that did not occur. This 

increased the total Project cost to $14.807 billion. 

 

4

 We suspended our review of the 2004 Finance Plan Update because of the uncertainty associated with the costs 

arising from the I-90 tunnel ceiling panel incident. 5

 The remaining $128 million in unobligated Federal funds reflects the adjusted Federal obligations of $7.031 billion 

less $6.903 billion in obligated funds. 
3

3⁄4 overstated the remaining Federal funding available to the Project by 

$28.9 million, because it did not reflect investment income earned on 

Federal funds. 

Further, the Plan did not: 

3⁄4 identify the funding sources that would be used to resolve outstanding 

contractor claims, backcharges, and liquidated damages in the event that 

they are settled at the historical rate, instead of the more optimistic 

estimates used to prepare the Plan. 

3⁄4 disclose the Commonwealth’s commitment to fund future transportation 

projects. 

In addition, the Plan should be updated to describe whether the Commonwealth 

will contribute $210 million in additional funding, as specified in its letter 

agreement,6 even if the MTA is unable to reimburse this amount. The letter 

agreement between the Commonwealth and the MTA called for the MTA to 

reimburse the Commonwealth from cost recoveries; however, a recent lawsuit 

settlement7 requires that most of the cost recoveries be placed in a separate trust 

fund and used for future repairs and maintenance. Thus, these cost recoveries may 

not be available to the MTA for reimbursement to the Commonwealth. 

If the Commonwealth agrees to contribute the funds without reimbursement, the 

Commonwealth Treasurer will need to provide an assessment of the availability of 

funds in the Transportation Infrastructure Fund (TIF),8 as has been done for prior 

plans. In contrast, if the Commonwealth will not contribute the funds unless the 

MTA can provide reimbursement, the MTA will need to identify an alternative 

funding source. 

To achieve full compliance with FHWA Guidance, the MTA must amend the Plan 

to correct these issues and resubmit required certifications reflecting the changes. 

 

6

 In May 2007, the Commonwealth of Massachusetts Executive Office of Transportation (EOT) and the Executive 

Office for Administration and Finance (A&F) signed a letter agreement with the MTA. The Commonwealth of 

Massachusetts agreed to contribute an additional $210 million with the understanding that it could recoup the 

contribution when the MTA recovers funds from contractor errors, insurance proceeds, or other credits due the 

Project. 7

 On January 23, 2008, the U.S. Attorney’s Office in Boston and the Attorney General’s Office for the Commonwealth 

settled the lawsuit with Bechtel/Parsons Brinkerhoff. In the settlement Bechtel/Parson Brinkerhoff agreed to pay 

over $407 million to resolve its criminal and civil liabilities associated with the collapse of part of the I-90 connector 

tunnel ceiling and defects in the slurry walls of the Tip O’Neil tunnel. In addition, 24 section design consultants who 

also worked on various parts of the Project agreed to pay an additional $51 million to resolve certain cost recovery 

issues associated with the design of the Project. The Central Artery/Tunnel Repair and Maintenance Trust Fund will 

receive $414.9 million, the Federal government will receive $23.5 million, with others receiving $19.8 million. 8

 The official title of the TIF is the Central Artery and Statewide Road and Bridge Infrastructure Fund. 
4

In summary, we recommend that FHWA advise the MTA to amend the Finance 

Plan to increase insurance cost, reduce the Federal funding cap, disclose the details 

of the non-Federal funding sources, disclose the Commonwealth’s prior 

commitment to fund future transit projects, describe the Commonwealth’s 

commitment to advance State funding, and provide the Treasurer’s assessment of 

current TIF balances and future projections for completing the Project. The full 

list of recommendations are on pages 8 and 9. 

We discussed the preliminary results of our audit and the audit recommendations 

with FHWA, Commonwealth, and MTA officials on October 4, October 18, and 

November 28, 2007. These officials expressed general agreement. Additionally, 

the Commonwealth and the MTA agreed to amend the Plan in accordance with 

our recommendations. As of the date of this report, we have not received the 

necessary amendments from the Commonwealth and the MTA. 

In its March 28, 2008, written response to our report, FHWA concurred with our 

seven recommendations and provided an action plan to address each of the 

recommendations. FHWA’s comments and our responses are fully discussed on 

pages 9 through 10. 

FINDINGS 

As addressed in the detailed findings below, the MTA’s Plan generally complied 

with the FHWA Guidance, except that it did not fully: provide a cost estimate 

based on all known and reasonably expected costs, identify appropriate and 

available funding sources and cash flows sufficient to meet the total estimated 

cost, and disclose other issues affecting the project. 

Insurance Expenses Were Understated by $8.8 Million 

The MTA developed its May 2007 Plan under the assumption that savings would 

result from the transfer of the insurance liability in December 2007, an event that 

did not occur. If MTA had been able to negotiate the transfer with the current 

insurance underwriter as planned, doing so would have resulted in an $8.8 million 

savings to the Project.9 

Based on the guidelines presented by the American Institute of Certified Public 

Accountants (AICPA),10 financial forecasts should be prepared in good faith and 

assumptions should be reasonable and suitably supported. MTA has assumed the 

 

9

 The Plan refers to a “Loss Portfolio Transfer,” which allows the Project to eliminate its future liability generated 

under the self-insured portion of its workers' compensation program by paying an insurance underwriter 

$46.2 million to assume the $55 million future liability, for a savings of $8.8 million. 10 American Institute of Certified Public Accountants’ publication titled, “Guide for Prospective Financial 

Information,” included as Attachment A in the FHWA Guidance. 
5

transfer of the insurance liability with varying amounts of costs savings since the 

2003 Finance Plan Update. As of February 2008, the transfer had not occurred. 

Because of the historical delays encountered in transferring the insurance liability, 

the continuous changes in the estimated value, and the fact that the December 

2007 transfer did not occur as planned, the MTA should not assume that the cost 

savings will be achieved. Accordingly, the Plan’s insurance cost should be 

increased by $8.8 million, which results in a total Project cost of $14.807 billion. 

Available Federal Funding Was Overstated by $28.9 Million 

The Plan overstated the remaining Federal funding available to the Project, 

because the MTA did not adjust the amount of remaining Federal funds to reflect 

$28.9 million of investment income earned on Federal monies. The investment 

income earned on Federal funds represents an additional contribution of Federal 

funds. Consequently, the balance of Federal funding available, as shown in the 

Plan, should have been reduced by $28.9 million to ensure that the Project did not 

receive Federal funds in excess of the statutory cap.11

In 2007, the Commonwealth determined that $58 million in residual market 

credit,12 including the $28.9 million Federal share of interest income, was due the 

Project. The Plan described the receipt of these funds, but the $28.9 million 

Federal share was not reflected in the Project cash flow tables, as required. The 

FHWA Guidance requires that the Plan provide a description of the financial 

resources to be used in meeting Project cost. Accordingly, the Plan must reflect 

this amount. 

In 2002, we reported that the Project received additional unplanned funds through 

the Owner Controlled Insurance Program trust’s investment of the Project’s excess 

Federal funds.13 At that time, we determined that $76 million of the investment 

income represented an additional Federal contribution to the Project. Therefore, 

the MTA was required to reduce the Federal cap by that amount. Similarly, the 

2007 Plan must be amended to reflect the $28.9 million in excess funds as an 

additional Federal contribution to be applied to the Federal cap. 

 

11 The original Federal funding cap of $8.549 billion was set in 2000. This $8.549 billion cap in the FHWA financial 

management information system was reduced by $76 million in 2001 to reflect excess Owner Controlled Insurance 

Program (OCIP) investment income. The latest revised Federal funding cap should be $8.444 billion, after removing 

the $28.9 million Federal share of investment income associated with the residual market credit. 12 Residual market credit is the net amount due the OCIP trust from distributions made to the insurer by the 

Massachusetts Worker's Compensation Assigned Risk Pool, based on the Pool's operating income from the inception 

of the program. 13 OIG Report Number IN-2002-086, “October 2001 Finance Plan for the Central Artery/Tunnel Project,” March 11, 

2002. OIG reports and testimonies can be found on our website: www.oig.dot.gov. 
6

Costs Exceed Funding by $37.7 Million 

The Plan must be adjusted to reflect both an $8.8 million insurance expense 

understatement and the $28.9 million overstatement of the available Federal 

funding, which together resulted in a $37.7 million shortfall; that is, costs exceed 

available funding by $37.7 million. 

The Commonwealth refinanced some of the long-term debt associated with the 

Project, which resulted in an $11 million savings. Although officials informed us 

of a proposal to use the $11 million to reduce the shortfall, it is not identified in 

the Plan. If the Commonwealth goes forward with the use of the savings to reduce 

the shortfall, the MTA should clearly identify this use in the Plan. In any event, 

the MTA must adjust the Plan to show how it will fund the entire shortfall. 

Funding Source To Cover Higher-Than-Budgeted Claim Settlements 

Was Not Disclosed 

The Plan’s estimate of funds needed to resolve outstanding contractor claims, 

backcharges, and liquidated damages was optimistic when compared to the 

Project’s historical settlement rate. Specifically, the Plan funded $95 million and 

disclosed that the MTA might be liable for an additional $160 million. 

The Plan identified funding for $95 million in outstanding contractor claims, 

backcharges, and liquidated damages, and an additional $160 million that was 

unfunded, for a total of $255 million. According to Project officials, the 

$95 million funded estimate (37 percent) will be sustained in future negotiations or 

legal settlements; and the remaining $160 million (63 percent) in unfunded 

exposure will not require future funding. While this may be possible, we found 

that the Project’s reported historical rate for construction claim settlements was 

approximately 50 percent. If the Project settles at the historical rate, claim 

settlements will be $127.5 million—$32.5 million higher than the $95 million 

budgeted. 

According to the FHWA Guidance on revenue shortfall mitigation, a plan is 

needed to identify known or potential funding shortfalls. Additionally, it requires 

that a plan discuss the mitigation steps that have been taken or will be taken to 

address such funding shortfalls, including measures that increase project funding. 

Finally, the FHWA Guidance states that budget forecasts should be compared with 

actual attained results to provide a historical measure of success. 

To comply with the FHWA Guidance, the Plan must disclose the anticipated 

source of funds to cover additional costs should claim settlements exceed the 

amount budgeted. This can be achieved by disclosing the details of the nonFederal funding sources that will be made available to cover higher-than-budgeted 
7

settlement amounts—an additional $32.5 million if contractor claims are settled at 

the historical rate. 

Commitment to Fund Future Transportation Projects Was Not 

Disclosed 

Before MTA assumed management authority for the Project, the Commonwealth 

committed to certain environmental mitigations as a condition of Project approval. 

However, the Plan did not disclose the Commonwealth’s commitment to fund 

$750 million in future transit projects. 

The FHWA Guidance states that project finance plans should include all costs and 

the value of all resources necessary to deliver a project, including the cost of 

environmental mitigation. Further, FHWA’s Major Project Program Cost 

Estimating Guidance, published in 2004 and revised in 2007, notes that, even if 

the environmental enhancement work is not directly related to a project, it must be 

disclosed in the project’s finance plan. 

In March 2007, the Massachusetts Transportation Finance Commission, which 

was established to develop a long-range transportation finance plan for the 

Commonwealth, reported four remaining transit projects related to the Project’s 

prior environmental commitments. The four transit projects were the Fairmount 

Commuter Rail Improvements, design work for the Red Line–Blue Line 

Connector, the 1,000 Parking Space Initiative, and the Green Line Extension to 

Medford. Although these projects will be funded from Commonwealth resources 

rather than from MTA resources, they should be disclosed in the Plan to comply 

with FHWA cost estimating guidance and to ensure that stakeholders are informed 

of the full value of resources necessary to deliver the Project. 

Recent Lawsuit Settlement May Impact the Commonwealth’s Funding 

Commitment 

The Plan includes $210 million in funding to be provided by the Commonwealth, 

subject to certain conditions. In a May 2007 letter agreement, the Commonwealth 

and the MTA agreed that the MTA would reimburse the Commonwealth from cost 

recoveries and other revenue that the MTA expected to receive. However, based 

on a recent lawsuit settlement, the MTA may not be able to meet the condition of 

the letter agreement regarding the use of cost recoveries to reimburse the 

Commonwealth. 

Restriction on Use of Cost Recoveries. A January 23, 2008, settlement of a 

lawsuit filed by the U.S. Department of Justice and the Massachusetts Attorney 

General’s Office against Bechtel/Parsons Brinkerhoff and other firms requires that 
8

most of the cost recoveries be held in a new Central Artery/Tunnel Project Repair 

and Maintenance Trust Fund. Additionally, the cost recoveries are to be used only 

for future non-routine repairs and maintenance of the Project. Thus, these 

recoveries may not be available to reimburse the Commonwealth in accordance 

with the letter agreement. 

The FHWA Guidance requires that the Plan provide a description of how a project 

will be implemented over time by identifying project costs and the financial 

resources to be used in meeting those costs. The Plan should describe whether the 

Commonwealth will advance $210 million in additional funding, as specified in its 

letter agreement, even if the MTA is unable to reimburse this amount. Conversely, 

the MTA will need to identify an alternative funding source in the event that the 

Commonwealth does not agree to advance the funds. 

Treasurer’s Assessment Was Not Provided. As noted above, the Plan includes 

$210 million in funding to be provided by the Commonwealth, of which 

$140 million is from the TIF. However, unlike previous updates, the May 2007 

Plan did not provide the Commonwealth Treasurer’s assessment of the TIF 

balance and funding projections. At the time the Plan was issued, the Treasurer 

was in the process of validating the TIF funding projections, and the assessment 

was not available for inclusion in the Plan. If the Commonwealth follows through 

with its commitment to advance funds from the TIF, a significant funding source 

for the Project, the MTA should include the Treasurer’s assessment in the Plan. 

We discussed the preliminary results of our audit and the audit recommendations 

with FHWA, Commonwealth, and MTA officials on October 4, October 18, and 

November 28, 2007. These officials expressed general agreement. Additionally, 

the Commonwealth and the MTA agreed to amend the Plan in accordance with 

our recommendations. As of the date of this report, we have not received the 

necessary amendments from the Commonwealth and the MTA. 

RECOMMENDATIONS 

The cost, funding amounts, and disclosures included in the May 2007 Plan must 

be adjusted, which also will require updated certifications. These certifications 

will confirm that the adjusted amounts and other information presented in the Plan 

are accurately and reasonably stated. We recommend that FHWA advise the 

Massachusetts Turnpike Authority to amend the Finance Plan to: 
9

1. Increase insurance cost by $8.8 million for a total Project cost of 

$14.807 billion. 

2. Reduce the Federal funding cap by $28.9 million to reflect investment 

income earned on Federal funds. 

3. Identify an additional $37.7 million in non-Federal funding to meet the 

shortfall resulting from increasing insurance cost and reducing the Federal 

cap. 

4. Disclose the details of the non-Federal funding sources, totaling at least 

$32.5 million, which will be made available to cover higher-than-budgeted 

settlement amounts. 

5. Disclose the Commonwealth’s prior commitment to fund $750 million in 

future transit projects. 

6. Describe the Commonwealth’s commitment to advance the $210 million in 

State funding, even if the funds are not reimbursed by MTA, or identify 

alternative funding sources. 

7. Provide the Treasurer’s assessment of the current TIF balances and future 

projections needed to complete the Project, if the TIF remains a significant 

funding source. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its March 28, 2008, written comments to our draft report, FHWA concurred 

with our seven recommendations and provided an action plan to address each of 

the recommendations. FHWA’s written comments to our recommendations are 

included as an appendix to this report. 

FHWA agreed to take the following actions: 

• Recommendation 1, FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before 

FHWA can approve the 2007 CAT Finance Plan Update. This action will be 

completed by April 15, 2008. 

• Recommendation 2, FHWA stated that the Federal funding cap of $8.549 

billion was set in 2000. This $8.549 billion funding ceiling, in the FHWA 

fiscal management information system, has been reduced to $8.444 billion 
10

based on the two adjustments of $76 million and $28.9 million. FHWA will 

again notify the appropriate Commonwealth of Massachusetts and MTA 

personnel that this action must be reflected in their 2007 CAT Finance Plan 

Update before it can be approved by FHWA. This action will be completed by 

April 15, 2008. 

• Recommendation 3, FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before 

FHWA can approve the 2007 CAT Finance Plan Update. This action will be 

completed by April 15, 2008. 

• Recommendation 4, FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before 

FHWA can approve the 2007 CAT Finance Plan Update. This action will be 

completed by April 15, 2008. 

• Recommendation 5, FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before 

FHWA can approve the 2007 CAT Finance Plan Update. This action will be 

completed by April 15, 2008. 

• Recommendation 6, FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before 

FHWA can approve the 2007 CAT Finance Plan Update. This action will be 

completed by April 15, 2008. 

• Recommendation 7, FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before 

FHWA can approve the 2007 CAT Finance Plan Update. This action will be 

completed by April 15, 2008. 

We consider FHWA’s planned actions to our seven recommendations to be 

responsive; and therefore, consider the recommendations to be resolved. We will, 

however, continue to monitor the status of FHWA’s implementation of our 

recommendations, and the recommendations will remain open until FHWA 

completes its proposed actions. 

We appreciate the courtesies and cooperation of the FHWA, Commonwealth, and 

MTA representatives during this audit. If you have any questions concerning this 

report, please call me at (202) 366-5630 or Joseph Marchowsky, Program 

Director, at (202) 366-1515. 

#
11

EXHIBIT A. SCOPE AND METHODOLOGY 

To determine whether the Plan complied with the FHWA Guidance, we compared 

the Plan with the applicable FHWA requirements. We also reviewed the Plan’s 

cost, funding, cash flow, and disclosure statements for Project cost risks. We 

relied upon OIG Finance Plan audit work conducted in prior years to identify prior 

issues that impacted the 2007 Plan submission. 

To evaluate the Plan’s cost estimate, we assessed the Commonwealth and MTA’s 

certifications of the cost estimate, analyzed incurred costs and “to-go” cost 

estimates, reviewed the independent cost assessments prepared by the Executive 

Office of Transportation audit staff, and examined construction claim documents 

prepared by the Project and its consultants. We also reviewed prior cost 

estimating process reviews conducted by Rubino & McGeehin and Deloitte & 

Touche. As needed, we requested additional disclosures and obtained 

supplemental documents and explanations for significant Project cost differences. 

To evaluate the Plan’s funding projections, we reviewed the Commonwealth and 

MTA’s certifications of Project-related cash flow projections for non-Federal 

funding sources, including Commonwealth bonds and other revenue sources. We 

also reviewed Commonwealth bonding and TIF financial documents to determine 

whether the Plan accurately presented the Project’s cash flow. We interviewed 

Commonwealth and MTA officials and reviewed relevant documentation to assess 

the Plan’s financing requirements, cash flow, and other relevant factors. We also 

reviewed FHWA funding records related to the Project. 

Our audit was conducted from April 2007 through February 2008 at the FHWA 

Massachusetts Division Office in Cambridge, Massachusetts; the Massachusetts 

Turnpike Authority, the Central Artery/Tunnel Project Offices, the 

Commonwealth’s Executive Office of Transportation, the Executive Office of 

Administration and Finance, and the Department of State Treasurer in Boston, 

Massachusetts; and Deloitte & Touche in Philadelphia, Pennsylvania. We 

conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Exhibit A. Scope and Methodology 
12

EXHIBIT B. MAJOR CONTRIBUTORS TO THIS REPORT 

THE FOLLOWING INDIVIDUALS CONTRIBUTED TO THIS REPORT. 

Name Title 

Joseph Marchowsky Program Director 

Peter Babachicos Project Manager 

William Lovett Senior Auditor 

Laurence Burke Senior Analyst 

P. David McBride Analyst 

Harriet E. Lambert Writer/Editor 

Jean Diaz Writer/Editor 

Exhibit B. Major Contributors to This Report 
13

APPENDIX. MANAGEMENT COMMENTS 

 

Memorandum

Date: March 28, 2008 Subject:INFORMATION: Federal Highway Administration 

 Response to the Office of Inspector General (OIG) Draft 

 Report, “Audit of the Central Artery/Tunnel Project 

 May 2007 Finance Plan Update” 

Reply to

Attn. of: HIPA-1 

From: James D. Ray 

Acting Administrator 

 

To: Calvin L. Scovel III 

Inspector General (JA-40) 

 

Thank you for the opportunity to review and comment on the OIG Draft Report, 

“Audit of the Central Artery/Tunnel (CAT) Project May 2007 Finance Plan Update.” 

FHWA has been coordinating its review of the Finance Plan Update with your office 

and has been working closely with the appropriate Commonwealth of Massachusetts 

and Massachusetts Turnpike Authority (MTA) officials to explain all of the concerns 

of FHWA and the DOT OIG. 

We concur in the OIG’s recommendation that FHWA advise the MTA to amend the 

2007 CAT Finance Plan Update to account for the seven recommendations in your 

draft report. The following information addresses the recommendations and our 

planned actions for these recommendations. 

Recommendation #1: Advise the Massachusetts Turnpike Authority (MTA) to 

amend the Finance Plan Update to increase insurance costs by $8.8 million for a total 

Project cost of $14.807 billion. 

Response: Concur. FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before FHWA can 

approve the 2007 CAT Finance Plan Update. This action will be completed by April 

15, 2008. 

Appendix. Management Comments 
14

Recommendation #2: Advise the MTA to amend the Finance Plan Update to reduce 

the Federal funding cap by $28.9 million to reflect investment income earned on 

Federal funds. 

Response: Concur. The Federal funding cap of $8.549 billion was set in 2000. This 

$8.549 billion funding ceiling, in the FHWA fiscal management information system, 

has been reduced 

to $8.444 billion based on the two adjustments of $76 million and $28.9 million. 

FHWA will 

again notify the appropriate Commonwealth of Massachusetts and MTA personnel 

that this action must be reflected in their 2007 CAT Finance Plan Update before it can 

be approved by FHWA. This action will be completed by April 15, 2008. 

Recommendation #3: Advise the MTA to amend the Finance Plan Update to 

identify an additional $37.7 million in non-Federal funding to meet the shortfall 

resulting from increasing insurance costs and reducing the Federal cap. 

Response: Concur. FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before FHWA can 

approve the 2007 CAT Finance Plan Update. This action will be completed by April 

15, 2008.

Recommendation #4: Advise the MTA to amend the Finance Plan Update to 

disclose the details of the non-Federal funding sources, totaling at least $32.5 million, 

which will be made available to cover higher-than-budgeted settlement amounts. 

Response: Concur. FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before FHWA can 

approve the 2007 CAT Finance Plan Update. This action will be completed by April 

15, 2008.

Recommendation #5: Advise the MTA to amend the Finance Plan Update to 

disclose the Commonwealth of Massachusetts’s prior commitment to fund $750 

million in future transit projects. 

Response: Concur. FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before FHWA can 

approve the 2007 CAT Finance Plan Update. This action will be completed by April 

15, 2008.

Recommendation #6: Advise the MTA to amend the Finance Plan Update to 

describe the Commonwealth’s commitment to advance the $210 million in State 

Appendix. Management Comments 
15

funding, even if the funds are not reimbursed by MTA, or identify alternative funding 

sources. 

Response: Concur. FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before FHWA can 

approve the 2007 CAT Finance Plan Update. This action will be completed by April 

15, 2008.

Recommendation #7: Advise the MTA to amend the Finance Plan Update to 

provide the Treasurer’s assessment of the current Transportation Infrastructure Fund 

(TIF) balances and future projections needed to complete the Project, if the TIF 

remains a significant funding source. 

Response: Concur. FHWA will notify the appropriate Commonwealth of 

Massachusetts and MTA personnel that this item must be changed before FHWA can 

approve the 2007 CAT Finance Plan Update. This action will be completed by April 

15, 2008. 

In addition to the seven recommendations, your office requested that FHWA 

comment on the reasonableness of the $28.9 million in Federal funds being put to 

better use. We have reviewed the basis for the $28.9 million repayment and believe 

the dollar amount is appropriate and reasonable. The Commonwealth of 

Massachusetts is in agreement with FHWA and has already repaid a portion of the 

funds. Total repayment of the funds was completed on March 26, 2008. As the 

monies are returned to FHWA, the funds become available for obligation on Federalaid projects in Massachusetts. 

We will continue to work closely with the appropriate personnel in the 

Commonwealth of Massachusetts, MTA, and your office until we are all able to 

approve the 2007 CAT Finance Plan Update. If you have any questions or comments 

concerning this response, please contact Carl Gottschall at (202) 366-1561.

 

Appendix. Management Comments