a

GAO

United States General Accounting Office

Report to Congressional Requesters

October 2003 CORPS OF 

ENGINEERS

Improved Analysis of 

Costs and Benefits 

Needed for 

Sacramento Flood 

Protection Project

GAO-04-30
Estimated costs for the Common Features Project rose from $57 million in 

1996 to between $270 million and $370 million in 2002—primarily because of 

design changes. For the American River, costs more than tripled from $44 

million to $158 million in 2002, primarily due to changes such as deepening 

the walls built in the levees (cut-off walls) to prevent seepage and closing 

gaps in the walls at bridge crossings. Cost estimates for the Natomas Basin—

still in planning—increased from $13 million in 1996 to between $112 million 

and $212 million in 2002. The Corps has yet to analyze alternative flood 

protection approaches for the Natomas Basin that might be more costeffective. Furthermore, it has not analyzed its exposure to potentially 

significant cost increases for the Natomas Basin work. 

The Corps did not fully analyze, or report to Congress in a timely manner, 

the potential for significant cost increases for the American River levee 

improvements authorized in 1996. Specifically, a severe storm in the 

Sacramento area in January 1997 indicated some cut-off walls would need to 

be much deeper and therefore would be more costly. Corps guidance 

generally directs the Corps to seek new spending authority from Congress if 

it determines, before issuing the first contract, that it cannot complete the 

project without exceeding its spending limit. However, the Corps began 

construction in 1998 without analyzing or reporting potential cost increases. 

By 2003, it had committed most of the funding authorized for the entire 

Common Features Project to the 1996 American River work, leaving the 

additional 1999 work and the Natomas Basin improvements without funding. 

In 1996, the Corps incorrectly estimated the economic benefits for the 

American River levee improvements by overcounting the residential 

properties to be protected. In 2002, it incorrectly estimated benefits for the 

1999 improvements by, among other things, miscalculating the size of the 

area that the improvements would protect. The Corps’ quality control 

process was ineffective in identifying and correcting these mistakes. 

In 1996 and 1999, Congress 

authorized the U.S. Army Corps of 

Engineers (the Corps) to 

strengthen sections of the 

American River and Natomas Basin 

levees that provide flood protection 

for Sacramento, California. In 2002, 

the Corps reported that the cost of 

this work, known as the Common 

Features Project, had increased 

significantly. GAO was asked to 

determine why costs increased, the 

extent to which the Corps analyzed 

and reported the potential cost 

increases to Congress in a timely 

manner, and whether the Corps 

correctly estimated economic 

benefits. 

To better inform Congress about 

the costs and benefits of flood 

protection for Sacramento, GAO 

recommends, among other things, 

that the Secretary of the Army 

• improve the accuracy of the 

cost-benefit analysis for the 

not yet constructed American 

River levee improvements; 

• improve the reporting of costs 

and benefits and analyze 

alternative flood protection 

measures for the Natomas 

Basin improvements; and 

• arrange for a credible, 

independent review of the 

completeness and accuracy of 

the revised analyses. 

The Army concurred with GAO’s 

recommendations but took issue 

with the presentation of some 

information. 

www.gao.gov/cgi-bin/getrpt?GAO-04-30.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Anu Mittal at 

(202) 512-3841 or mittala@gao.gov. 

Highlights of GAO-04-30, a report to 

congressional requesters 

October 2003

CORPS OF ENGINEERS 

Improved Analysis of Costs and Benefits 

Needed for Sacramento Flood Protection 

Project 
Page i GAO-04-30 Sacramento Flood Protection

Contents

Letter 1

Results in Brief 4

Background 6

Design Modifications Have Greatly Raised Costs for the Common 

Features Project 9

The Corps Did Not Adequately Analyze Likely Cost Increases for the 

Common Features Project or Communicate Them to Congress in 

a Timely Manner 15

Corps’ Benefit Estimates for the American River Levee 

Improvements Are Incorrect 19

Conclusions 25

Recommendations for Executive Action 26

Agency Comments and Our Evaluation 26

Appendixes

Appendix I: Scope and Methodology 29

Appendix II: Conversion of Costs to Constant Dollars 31

Appendix III: Comments from the Department of the Army 32

GAO Comments 38

Appendix IV: GAO Contact and Staff Acknowledgments 42

GAO Contact 42

Staff Acknowledgments 42

Tables Table 1: The Corps’ Original 1996 Cost Estimate and Estimated 

Cost Increases for the American River Levee 

Improvements Authorized in 1996 10

Table 2: The Corps’ Original 1996 Cost Estimate and Potential Cost 

Increases for the Natomas Basin Component 12

Table 3: Common Features Project’s Cost Estimates in Original 

1996 Dollars and in Adjusted 2002 Dollars 31

Figures Figure 1: Location of the Common Features Project 3

Figure 2: Seepage under and through Levees and a Cut-off Wall to 

Prevent Seepage 8

Figure 3: Location of the Fremont Weir and the Yolo Bypass 14
Contents

Page ii GAO-04-30 Sacramento Flood Protection

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Page 1 GAO-04-30 Sacramento Flood Protection

United States General Accounting Office

Washington, D.C. 20548

A

October 27, 2003 Letr

The Honorable Don Young

Chairman, Committee on Transportation 

and Infrastructure

House of Representatives

The Honorable John T. Doolittle

House of Representatives

The Honorable Richard Pombo

House of Representatives

The city of Sacramento, California, located where the American and 

Sacramento Rivers meet, has faced significant risks of major flooding since 

its founding in the 1840s. A major flood in the Sacramento area could cause 

loss of lives; toxic and hazardous waste contamination; disruptions to the 

city’s downtown business and government areas, including the state 

capitol; and billions of dollars in property damage. To help protect against 

these risks, in 1991 and again in 1996, the U.S. Army Corps of Engineers 

(the Corps) identified several alternatives for long-term flood protection. 

On both occasions, the Corps recommended building a new dam on the 

American River near Auburn, California. Concerns were raised about the 

proposed dam’s high cost and environmental impacts, and Congress did not 

authorize its construction.

In light of the decision not to proceed with the new dam, the Corps 

recommended improving the existing levees on the American and 

Sacramento Rivers to increase the level of flood protection for the greater 

Sacramento area. Levees provide flood protection by raising the height of 

river banks, which helps prevent rivers from overflowing during storms. 

The Corps primarily proposed constructing “cut-off” walls in the center of 

the existing levees. These walls, composed primarily of soil, cement, and 

clay, become impermeable when they harden and prevent water from 

passing through the levees. These levee improvements were common to all 

of the alternatives that the Corps had considered for Sacramento flood 

protection in 1996 and became known as the Common Features Project.
Page 2 GAO-04-30 Sacramento Flood Protection

The Water Resources Development Act (WRDA) of 1996 authorized $57 

million for the project.1

 

The Common Features Project consists of two related but separate 

components—the American River levee improvements and the Natomas 

Basin levee improvements. The levees on the American River protect 

downtown Sacramento, while the levees on the Sacramento River protect 

the Natomas Basin, a largely agricultural area just north of downtown 

Sacramento where new development is occurring at a rapid rate. Figure 1 

shows the greater Sacramento area and the location of the Common 

Features Project. 

1

In this report, costs and benefits are presented in the dollar values for the years in which 

they were estimated, not in constant dollars, except for the work authorized in 1999, which 

is presented in 2002 dollars. We did not adjust cost and benefit figures to constant dollars to 

account for inflation in order to maintain consistency with the figures in published Corps 

reports on the Common Features Project. However, when discussing changes in project 

cost, we do report cost increases due to inflation. In addition, appendix II shows 1996 

project costs converted to 2002 dollars. 
Page 3 GAO-04-30 Sacramento Flood Protection

Figure 1: Location of the Common Features Project 

The WRDA of 1999 authorized additional work for the Common Features 

Project, directing the Corps to raise or strengthen some American River 

levee sections and raise some levees in the Natomas Basin; it also 

increased project authorization to $92 million. Several years after this 

authorization, however, the Corps stated that project costs would go 

significantly higher. 
Page 4 GAO-04-30 Sacramento Flood Protection

In the context of these issues, in response to your request, this report 

addresses (1) why the costs have increased for the Common Features 

Project, (2) the extent to which the Corps analyzed the likelihood of 

significant cost increases for the project and reported this information to 

Congress in a timely manner, and (3) whether the Corps correctly 

estimated the economic benefits of the American River levee 

improvements. Our scope and methodology in addressing these questions 

can be found in appendix I. 

Results in Brief The estimated costs for all components of the Common Features Project 

have risen from $57 million in 1996 to between $270 million and $370 

million in 2002, primarily because of design modifications. With respect to 

the American River component, estimated costs for the levee 

improvements authorized in 1996 have more than tripled, from $44 million 

in 1996 to $143 million in 2002. This increase occurred primarily because 

the Corps modified the original design of the cut-off walls to close gaps at 

bridge crossings and other areas and to greatly increase the depth of the 

walls to prevent water from seeping under the levees. In addition to the 

cost increases related to the 1996 authorized work, new flood protection 

measures authorized in 1999 added about $15 million in costs to the 

American River component of the project. For the Natomas Basin 

component—which is still in the early planning stage—the Corps’ cost 

estimates increased from $13 million in 1996 to between $112 million and 

$212 million in 2002. These projected cost increases are largely due to 

design changes in the planned improvements to the Sacramento River 

levees and additional work that the Corps has proposed for this part of the 

project. 

The Corps did not fully analyze likely cost increases for the Common 

Features Project or report them to Congress in a timely manner. Corps 

guidance generally directs the Corps to seek new spending authority from 

Congress if it determines, before issuing the first construction contract, 

that it cannot complete the project without exceeding its spending limit. A 

severe storm in January 1997 demonstrated vulnerabilities in the American 

River levees and alerted the Corps of the need to do additional work to 

close the gaps in the cut-off walls at bridges and other areas and extend the 

depth of some cut-off walls from about 20 feet to about 60 feet. Although 

these design changes were likely to increase project costs significantly, the 

Corps did not use cost risk analysis, or any other analysis, to determine the 

potential extent of the increases. The Corps then began constructing the 

redesigned American River levee improvements without communicating to 
Page 5 GAO-04-30 Sacramento Flood Protection

Congress the project’s potential exposure to substantial cost overruns. In 

2002, when the Corps finally updated project costs, it had already 

completed or contracted at a much higher cost for most of the American 

River levee improvements that were authorized in 1996. Because of the 

reporting delay, Congress did not have the opportunity to determine 

whether, at these higher costs, building these levee improvements was an 

efficient and effective use of public funds. By 2003, the Corps had 

committed most of the funding authorized for the entire Common Features 

Project to the 1996 American River work, thereby leaving the 1999 work 

and the Natomas Basin improvements without funding. 

The Corps made several mistakes in estimating the economic benefits for 

the American River levee improvements. First, in 1996, the Corps 

incorrectly calculated the economic benefits by overcounting the 

residential properties that the levees would protect. The actual number of 

protected residential properties was about 20 percent less than the number 

that the Corps estimated. Although the Corps updated its benefit estimate 

in 2002, it again made mistakes in estimating benefits because it incorrectly 

determined that the levee improvements authorized in 1999 would protect 

a larger area from flooding than they will and used an inappropriate 

methodology to determine the amount of flood damages the levee 

improvements would prevent. However, it is also important to recognize 

that the levee improvements may reduce the loss of human lives in the 

event of a flood, which is a benefit that is not included in the Corps’ 

analysis. Second, although the Corps’ policy calls for reporting a range of 

benefits from the levee improvements and the likelihood of realizing them, 

in 2002 the Corps reported only a single estimate of benefits. The Corps did 

not provide a range of benefits to Congress because it did not use the most 

current version available of its computer software, which could have 

performed the analysis. Finally, although the Corps has a three-tiered 

quality control process to ensure that it prepares economic analyses 

accurately and appropriately, this process did not identify the mistakes we 

found, which raises questions about the effectiveness of the Corps’ quality 

control process. 

In light of the concerns we identified with the Common Features Project 

and to better inform Congress about its costs and benefits, we are making 

several recommendations to the Secretary of the Army regarding the need 

for the Corps to (1) improve the accuracy of its cost-benefit analysis of the 

American River levee improvements that it has not yet constructed and (2) 

improve its reporting of the costs and benefits of the planned work as well 

as analyze alternative flood protection measures for the Natomas Basin. In 
Page 6 GAO-04-30 Sacramento Flood Protection

commenting on a draft of this report, the Department of the Army 

concurred with our recommendations, but took issue with our presentation 

of some information. Specifically, the Army believes that this report does 

not recognize the significant role Congress played in 1999 when it added 

additional work to the project and authorized funds for construction before 

the Corps had developed reliable cost estimates. In addition, the Army 

states that the consistent provision of funds to the Corps by Congress, at or 

exceeding the Corps’ budget request, created the situation of which our 

report is critical. We have considered the Army’s comments; however, we 

believe that our report is factually accurate and that our findings are 

presented in their proper context. 

Background Sacramento, California, was established at the confluence of the American 

and Sacramento Rivers shortly after gold was discovered upstream at 

Sutter’s Mill in 1848. Frequent flooding has been a problem in Sacramento 

since its founding. To help reduce flooding, over time a complex system of 

levees, dams, and other related facilities were built. Levees line both sides 

of the American River from where it meets the Sacramento River upstream 

for a distance of about 17 miles, and the Natomas Basin is completely 

surrounded by levees. In addition, the Folsom Dam, completed in 1956 and 

located upstream from Sacramento on the American River, uses a portion 

of its storage capacity for flood protection. 

The Sacramento area flood protection system was designed on the basis of 

records of rainfall during the first half of the 20th century. However, since 

1950, the American River watershed has experienced five floods that were 

larger than any recorded in the pre-1950 period, although downtown 

Sacramento was not flooded during any of these events. Nonetheless, the 

Sacramento area has less protection than the designers of the original flood 

protection system realized. In fact, much of urbanized Sacramento is 

located in areas where a flood has a 1 percent chance of occurring every 

year—known as the 100-year floodplain. Because of this limited level of 

protection, the Corps estimates that a very large flood—one with a 0.25 

percent chance of occurring every year—would flood the 400-year 

floodplain, resulting in residential, commercial, industrial, and public 

property damage of about $15.5 billion as well as loss of lives. According to 

the Corps, about 305,000 people live in more than 100,000 residential 

properties located within the American River floodplain. A major flood also 

would cause toxic and hazardous waste contamination; disrupt the city’s 

downtown business and government areas, including the state
Page 7 GAO-04-30 Sacramento Flood Protection

capitol; and interfere with the transportation system, including two 

interstate highways. 

A major flood in 1986, the largest one ever recorded on the American and 

Sacramento Rivers, severely strained the levee system protecting 

Sacramento. Although the levees held and downtown Sacramento was not 

flooded, the event spurred efforts by federal, state, and local entities to 

identify measures to increase Sacramento’s level of flood protection. In 

1987, the Corps began work on a comprehensive study of flood protection 

alternatives for Sacramento. In its 1991 report,2

 the Corps’ Sacramento 

district office considered six flood protection options and recommended 

building a new dam on the American River at Auburn, California, but 

Congress did not approve the dam’s construction.3

 Subsequently, in 

response to the Department of Defense Appropriations Act of 1993, the 

Corps reevaluated three alternatives for increasing flood protection. In its 

1996 report,4

 the Corps examined (1) building a new dam near Auburn, 

California; (2) modifying the existing Folsom Dam; and (3) increasing the 

amount of water released from Folsom Dam during a flood, coupled with 

other flood protection measures. The Corps again recommended building a 

dam at Auburn, but, again, Congress did not approve its construction. 

Recognizing the magnitude of the opposition to the proposed Auburn Dam, 

in June 1996, the Corps recommended the Common Features Project, 

which included improving sections of the American and Sacramento 

Rivers’ levees, primarily by constructing cut-off walls, to provide smallscale improvements to flood protection for the Sacramento area while the 

options for more extensive improvements continued to be considered. The 

WRDA of 1996 authorized $57 million for the Common Features Project, 

which included 24 miles of levee improvements on the American River and 

12 miles on the Sacramento River along the western border of the Natomas 

2

See U.S. Army Corps of Engineers and the State of California Reclamation Board, 

Feasibility Report, American River Watershed Investigation, California (Sacramento, 

Calif.: December 1991). 

3

Constructing a dam near Auburn is not a new idea. In 1965, the U.S. Bureau of Reclamation 

was authorized to construct a dam near Auburn for increasing water supply, providing 

hydropower, controlling floods, and other purposes. Construction at the site was halted in 

1975 because of concerns over the proposed dam’s ability to withstand earthquakes, and 

was never resumed.

4

See U.S. Army Corps of Engineers, State of California Reclamation Board, and the 

Sacramento Area Flood Control Agency, Supplemental Information Report, American 

River Watershed Project, California (Sacramento, Calif.: March 1996).
Page 8 GAO-04-30 Sacramento Flood Protection

Basin. Subsequently, the Corps concluded that it could provide the same 

level of flood protection on the American River by modifying only about 21 

miles of levees. Figure 2 shows how a cut-off wall, which is composed 

primarily of a soil, cement, and clay mixture that forms an impermeable 

barrier when it hardens, can prevent water from seeping under or through a 

levee. 

Figure 2: Seepage under and through Levees and a Cut-off Wall to Prevent Seepage 

In January 1997, numerous rivers in northern California flooded causing 

extensive damages, although not in the Natomas Basin or downtown 

Sacramento. This flood, which was nearly as large as the 1986 flood, 

highlighted the continuing vulnerabilities of the existing flood protection 

system. In response, the WRDA of 1999 (1) modified the Common Features 

Project by adding about 3.8 miles of additional levee modifications along 

the American River and 10 miles on the Natomas Cross Canal, located on 

the northern border of the Natomas Basin, and (2) increased the project’s 

authorization from $57 million to $92 million. 

When Congress approves a flood protection project, it authorizes a specific 

amount of money for the project, which provides the basis for the 

maximum project cost. According to section 902 of the Water Resources 

Development Act of 1986, as amended, the maximum project cost is the 

sum of (1) the original authorized amount, with the costs of unconstructed 

project features adjusted for inflation; (2) the costs of modifications that do 
Page 9 GAO-04-30 Sacramento Flood Protection

not materially alter the scope of the project, up to 20 percent of the original 

authorized amount (without adjustment for inflation); and (3) the cost of 

additional studies, modifications, and actions authorized by the 1986 Act or 

any later law. As a result of these provisions, the $92 million that Congress 

authorized for the Common Features Project in 1999 translates to an 

allowable maximum project cost of about $120 million in 2003. 

When Congress authorized the Common Features Project in 1996, federal 

law required that nonfederal partners pay 25 percent of the cost of flood 

protection projects.5

 For the Common Features Project, these partners are 

the State of California Reclamation Board and the Sacramento Area Flood 

Control Agency. In this report, when we refer to project costs, including the 

maximum allowable project cost, we are referring to the combined federal 

and nonfederal expenditures. 

Design Modifications 

Have Greatly Raised 

Costs for the Common 

Features Project 

 Estimated costs for the Common Features Project grew from $57 million in 

1996, when the project was first authorized, to between $270 million and 

$370 million in 2002, primarily because the Corps changed the design of the 

levee improvements.6

 For the American River levee improvements 

authorized in 1996, estimated costs more than tripled, due largely to 

changes in the design of the cut-off walls. New work authorized in 1999 

added another $15 million to the cost increase. The Corps has completed 

much of the American River work authorized in 1996, but it has not begun 

construction on the work authorized in 1999. Regarding the Natomas Basin 

component, estimated costs increased from $13 million to between $112 

million and $212 million. Costs rose primarily because the Corps changed 

the design of the levee improvements and proposed adding other 

improvements to this component. The Natomas Basin work is in the early 

planning stages, and the Corps has not begun construction. As of July 2003, 

the Corps had spent or made plans to spend nearly all of the money 

authorized for the Common Features Project. It therefore will not be able 

to finish constructing the American River work authorized in 1996, begin 

constructing the American River work authorized in 1999, or complete 

5

Current law requires the nonfederal partner to pay a minimum of 35 percent of the costs of 

flood protection projects. This increased cost share requirement only applies to projects 

authorized after the WRDA of 1996 and therefore does not apply to the Common Features 

Project. 

6

About 3 percent ($9 million) of this increase is the result of price inflation between 1996 

and 2002. 
Page 10 GAO-04-30 Sacramento Flood Protection

planning for the Natomas Basin work unless Congress increases the 

project’s authorized funding. 

Estimated Costs for the 

American River Levee 

Improvements Authorized 

in 1996 Have More Than 

Tripled Because of Design 

Changes

The Corps’ cost estimate for the American River levee improvements 

authorized in 1996 has more than tripled, from $44 million in 1996 to about 

$143 million in July 2002, as shown in table 1. 

Table 1: The Corps’ Original 1996 Cost Estimate and Estimated Cost Increases for 

the American River Levee Improvements Authorized in 1996

Source: GAO analysis of U.S. Army Corps of Engineers data.

a

In 2002 dollars.

b

Does not sum to the total due to rounding.

As table 1 shows, costs rose primarily because of the increased costs of the 

cut-off walls. The Corps’ original design called for building cut-off walls to 

a depth of between 20 and 30 feet to prevent water from seeping through 

the levees and for allowing gaps in the cut-off walls at bridge and utility 

crossings. However, after the 1997 flood, the Corps realized it also needed 

to address the problem of water seeping under levees. It therefore 

increased the depth of the cut-off walls to between 60 and 80 feet and 

closed the gaps in the cut-off walls at bridge and utility crossings. For some 

sections of the levees, the Corps could not close the gaps using its standard 

approach for cut-off walls because of problems accessing the sites. As a 

result, the Corps employed a new and more expensive approach—known 

as jet grouting—to build cut-off walls by drilling and injecting concrete 

material into areas that were difficult to access. Closing the gaps in the cutoff walls by jet grouting raised estimated costs by $52 million and 

Dollars in millions

Project element

Original 1996

cost estimate

Estimated 

cost 

increasea

Total estimated 

costs as of 

July 2002

Cut-off walls $30 $76 $105b

Response to construction 

accidents N/A 11 11

Planning, design, and other 

costs 14 6 20

Inflation related to the original 

1996 cost estimate N/A 7 7

Total $44 $100 $143b
Page 11 GAO-04-30 Sacramento Flood Protection

increasing their depth raised costs by $24 million, according to the Corps’ 

July 2002 cost estimate. However, in September 2002, the Corps 

determined that fewer gaps needed to be closed using jet grouting, which 

should reduce costs to some extent. As of June 2003, however, the Corps 

had not incorporated these potential cost reductions into an official project 

cost update. 

As table 1 also shows, the Corps’ response to accidents that occurred 

during construction of the 1996 authorized work added $11 million to 

project costs. On three occasions, liquid material from the cut-off walls 

accidentally leaked into either the American River or the backyards of 

homes that are built against the levees. As a result, the Corps incurred costs 

cleaning up these spills and responding to new work requirements 

mandated by the Environmental Protection Agency to help prevent future 

leaks. 

Lastly, in addition to the cost increases related to the 1996 authorized work, 

new flood protection measures authorized in 1999 added about $15 million 

in costs to the American River component of the project.7

 These measures 

include raising levee banks at two locations, installing gates and pumps at 

an existing drain, and installing cut-off walls in two additional levee 

segments. 

Of the American River work authorized in 1996, the Corps has completed 

about 90 percent and must still close gaps in the cut-off walls at some 

remaining bridge and utility crossings to complete this work. For the levee 

improvements authorized in 1999, the Corps has done some planning but 

has not begun any construction. However, as of July 2003, the Corps had 

spent or had plans to spend $116 million of the $120 million authorized for 

the entire Common Features Project. The Corps could not give an exact 

accounting of how much of the $116 million it had spent on the 1996 

American River work. However, on the basis of the information that the 

Corps provided, we estimate the Corps has spent, or made plans to spend, 

at least $103 million for planning and constructing the 1996 American River 

work. Because the Corps has spent or made plans to spend most of the 

project’s authorized funds, it will not be able to complete the 1996 and 1999 

work on the American River unless Congress increases the project’s 

authorized funding. 

7

These costs are in 2002 dollars.
Page 12 GAO-04-30 Sacramento Flood Protection

Natomas Basin Costs Are 

Expected to Increase 

Significantly, and Lack of 

Funds Has Halted Planning 

and Cost Estimating Efforts

The Corps’ preliminary cost estimates for the Natomas Basin component of 

the project increased from $13 million in 1996 to between $112 million and 

$212 million in 2002, as shown in table 2. 

Table 2: The Corps’ Original 1996 Cost Estimate and Potential Cost Increases for the 

Natomas Basin Component

Source: GAO analysis of U.S. Army Corps of Engineers data.

a

In 2002 dollars.

b

Does not sum to the total due to rounding.

As table 2 shows, the Corps estimates that the costs for the original levee 

improvements will increase by between $47 million and $88 million due to 

design changes to add cut-off walls or provide other methods of flood 

protection to control seepage under levees. The Corps proposed new work 

in 2002 that will increase costs by between $37 million and $84 million. This 

work is located in an area of the levee where the Corps previously had 

constructed a cut-off wall to stop water from seeping through the levee. 

However, the Corps later determined that the cut-off wall was not deep 

enough to prevent water from seeping under the levee, and the proposed 

new work will address this problem. Finally, the Corps estimates that the 

additional work authorized in 1999 to modify levees along the Natomas 

Cross Canal, which empties into the Sacramento River at the north end of 

the Natomas Basin, will add between $14 million and $26 million to the cost 

of this component of the project.

Dollars in millions

Project element

Original 1996

cost estimate

Potential cost 

increasea

Total potential costs 

estimated in 2002

Original levee 

improvements authorized in 

1996 $13 $47 to $88 $60 to $101

New work the Corps 

proposed in 2002 N/A 37 to 84 37 to 84

Work authorized in the 

WRDA of 1999 N/A 14 to 26 14 to 26

Inflation related to the 1996 

cost estimate N/A 2 2

Total $13 $99 to $199b $112 to $212b
Page 13 GAO-04-30 Sacramento Flood Protection

The Natomas Basin work—authorized in 1996 and 1999 and the additional 

work the Corps identified—is in the planning stages and no construction 

has yet begun. The Corps has been updating information on the extent of 

the levee problems and the costs of the improvements identified in the 

original plan and intends to submit a more precise cost estimate to 

Congress when it completes its planning. However, the Corps halted its 

Natomas Basin planning work in June 2003 because it had spent or made 

plans to spend nearly all of the money authorized for the entire Common 

Features Project. 

Given that the Natomas Basin levee improvements will cost significantly 

more than originally estimated and no construction has yet begun, 

identifying and evaluating alternative flood protection measures could 

result in cost savings. For example, one possible alternative method for 

flood protection identified by the Sacramento Area Flood Control Agency,8

as well as the Corps, involves lowering the water level in the Sacramento 

River during floods by diverting water through the Fremont Weir and into 

the Yolo Bypass, which is located at a point just before where the 

Sacramento River flows past the Natomas Basin.9

 The Fremont Weir is a 

low dam that controls the movement of large volumes of floodwater from 

the Sacramento River by diverting it into the Yolo Bypass. The Yolo Bypass 

is a continuous, 40-mile open space corridor that is protected from urban 

development pressure by flood easements. (See fig. 3.) 

8

The California state legislature established the Sacramento Area Flood Control Agency to 

coordinate flood protection efforts for the Sacramento area on a regional basis.

9

See U.S. Army Corps of Engineers and the State of California Reclamation Board, 

Sacramento and San Joaquin River Basins, California, Comprehensive Study, Interim 

Report (Sacramento, Ca.: Dec. 20, 2002). 
Page 14 GAO-04-30 Sacramento Flood Protection

Figure 3: Location of the Fremont Weir and the Yolo Bypass

Lowering the water level in the Sacramento River as it passes the Natomas 

Basin could, among other things, improve the reliability of the Natomas 

Basin levees and may provide more cost-effective flood protection than the 

current Natomas Basin levee improvement plan. However, as of June 2003, 

the Corps had not yet analyzed the costs and benefits of modifying the weir 

and the bypass or any other alternative method for Natomas Basin flood 

protection. 
Page 15 GAO-04-30 Sacramento Flood Protection

The Corps Did Not 

Adequately Analyze 

Likely Cost Increases 

for the Common 

Features Project or 

Communicate Them to 

Congress in a Timely 

Manner

After the 1997 storm demonstrated vulnerabilities in the American River 

levees, the Corps significantly changed the design of the levee 

improvements but did not analyze the likelihood of cost increases for the 

Common Features Project. The Corps then began constructing the 

American River levee improvements without informing Congress that the 

changes could greatly increase the overall costs of the project. By the time 

that the Corps reported the significant cost increases in 2002, it had already 

spent or made plans to spend more than double its original estimate for the 

American River levee improvements authorized in 1996. Furthermore, as 

previously discussed, the Corps estimates that it will spend more than 

three times its original estimate by the time it completes this work. The 

Corps has been able to pay for these levee improvements by spending 

funds originally planned for the Natomas Basin and the additional 

American River improvements authorized in 1999. 

The Corps Did Not 

Adequately Analyze Likely 

Cost Increases for the 

American River Levee 

Improvements

The Corps did not analyze the risk of cost increases after changing the 

design of the American River levee improvements in 1997 and, therefore, 

did not provide Congress with information on the project’s exposure to 

significant cost increases. A storm in January 1997 demonstrated that the 

American River levees were vulnerable to floodwaters seeping under them, 

which could cause them to fail. On the basis of this information, the Corps 

significantly changed the design of the levee improvements but did not 

conduct a cost risk analysis, or any other type of analysis, to determine the 

extent to which these changes would increase the costs for the Common 

Features Project. 
Page 16 GAO-04-30 Sacramento Flood Protection

According to the Corps’ policy, project management teams should consider 

conducting a cost risk analysis when developing cost estimates for projects 

with considerable uncertainties.10 A cost risk analysis identifies the areas of 

a project that are subject to significant uncertainty about costs and 

provides decision makers with a range of potential costs for a project and 

the probability that these costs will be exceeded. For example, a cost risk 

analysis might determine that there is a 50 percent chance that costs for a 

particular project will exceed $5 million but only a 20 percent chance that 

costs will exceed $8 million. According to a report from the Corps’ Institute 

for Water Resources, this type of estimate is more accurate than a single 

point cost estimate and provides decision makers with better and more 

complete information.11 

However, the Corps did not analyze the risk of cost increases after 

changing the design of the American River levee improvements even 

though it had identified several factors that could lead to significant cost 

increases. For example, by July 1997 the Corps recognized that it had to 

close the gaps in the cut-off walls at bridges and other areas and extend the 

depth of some walls from about 20 to about 60 feet, although the Corps had 

not developed a final design for these improvements. By identifying a 

project element with significant cost uncertainty—the design and depth of 

the cut-off walls—the Corps essentially performed the first step of cost risk 

analysis. However, the Corps did not follow through by quantifying this 

uncertainty and determining a range of potential costs for the cut-off walls 

or the likelihood that the potential costs within that range would be 

exceeded—the second and third steps of the cost risk analysis. Given that 

the Corps’ original cost estimate for the American River work was nearly 

equal to its estimates of the benefits, if the Corps had conducted a cost risk 

analysis, it would have shown whether there was a significant likelihood 

that project costs would be greater than the economic benefits. 

Furthermore, despite experiencing significant cost increases for the 1996 

work, the Corps did not conduct a cost risk analysis to determine its 

exposure to potentially significant cost increases for the 1999 work. In 

addition, the Corps is not planning to conduct a cost risk analysis for the 

Natomas Basin improvements. According to Sacramento district officials, 

10See U.S. Army Corps of Engineers, Engineer Regulation 1110-2-1302.

11Charles Yoe, Risk Analysis Framework for Cost Estimation, a report prepared for the 

U.S. Army Corps of Engineers, Institute for Water Resources, December 2000.
Page 17 GAO-04-30 Sacramento Flood Protection

the Corps did not conduct a cost risk analysis because it did not believe 

such an analysis was necessary to account for uncertainties in the project.

The Corps Did Not Provide 

Congress with Timely 

Information about 

Significant Potential Cost 

Increases for the American 

River Levee Improvements 

The Corps’ planning guidance generally directs the Corps to seek new 

spending authority from Congress if it determines that a project’s estimated 

costs exceed the maximum project cost before it has awarded a project’s 

initial contract.12 However, after making significant changes to the project’s 

design in 1997, the Corps did not reevaluate its cost estimate to determine 

if it could still implement the project without exceeding the maximum 

project cost. For example, the Corps did not estimate the potential for cost 

increases due to tripling the depth of some cut-off walls, which eventually 

added $24 million in estimated costs to the project. In addition, the Corps 

did not estimate the potential for cost increases due to closing the gaps in 

the cut-off walls at bridges and other areas. This expense was not 

considered in the Corps’ original 1996 cost estimate and potentially 

involved the use of jet grouting—a technology the Corps had not previously 

used to construct cut-off walls. Closing the gaps in the cut-off walls 

eventually added $52 million in estimated costs to the project. 

In spite of significantly changing the project’s design, the Corps awarded 

the project’s first contract without updating its cost estimate to determine 

whether it would need additional spending authority to complete the 

project. In June 1998, the Corps issued the first Common Features Project 

solicitation for bids to construct about 1.6 miles of the redesigned cut-off 

wall on the north bank of the American River. These levee improvements 

represented only about 8 percent of the total miles of planned American 

River levee improvements, but the bid that the Corps selected amounted to 

24 percent of the estimated cost for all of the American River levee work. 

We believe that this difference should have (1) alerted the Corps to the 

possibility that costs were likely to be much higher than it had originally 

estimated and (2) warranted an update of the Corps’ cost estimate before it 

awarded the initial contract. 

According to a headquarters official, the Corps issued the first contract 

without updating its total project cost estimate because it would have been 

impractical to delay the project while the agency revisited cost estimates. 

Furthermore, according to the Corps, the first contract was expected to be 

12See U.S. Army Corps of Engineers, Engineer Regulation 1105-2-100.
Page 18 GAO-04-30 Sacramento Flood Protection

more costly than future contracts because, among other reasons, it 

involved work on only a small stretch of the levee, which limited possible 

cost efficiencies. However, because the Corps did not analyze the potential 

for cost increases for the remainder of the American River levee 

improvements, it did not determine the likelihood that it would need 

additional spending authority to complete the project before it awarded the 

first contract. 

The Corps has paid for the significantly increased costs of the American 

River levee improvements by using funds planned for the Natomas Basin 

and for the additional American River work authorized in 1999. Although 

the Common Features Project has two separate components, and Congress 

approved parts of the project in 2 different years, the project is subject to a 

single maximum project cost. The Corps has the flexibility to spend 

Common Features Project funds as it sees fit and is not required to allocate 

funds in proportion to its original cost estimates for each component. 

Following project authorization in 1996, the Corps began to construct the 

American River levee improvements before the Natomas Basin 

improvements. Although the Corps exhausted the funds it had originally 

estimated that it would need to construct the American River levee 

improvements, it was able to continue implementing the American River 

work by spending funds it had originally planned to use for the Natomas 

Basin work. With the authorization of additional work in 1999, effectively 

raising the project’s maximum cost to about $120 million, the Corps also 

was able to use funds planned for this work to pay for the increased costs 

of the American River work authorized in 1996. 

After it awarded the first Common Features Project contract, the Corps 

was not required to inform Congress of project cost increases until it could 

not contract for additional work without exceeding the maximum project 

cost. According to the Corps, in March 2001 it briefed a number of 

Members of Congress on its intention to prepare a report that would 

evaluate the potential for the cost of the Common Features Project to 

exceed the project’s maximum cost. However, it was not until February 

2002, more than 4 years after it significantly modified the design of the 

American River levee improvements, that the Corps reported to Congress 

for the first time that due to significant cost increases, it could not 

complete the project without exceeding the maximum project cost. By this 

time, the Corps had spent or awarded contracts for more than twice the 

amount it originally planned to spend on the American River levee 

improvements authorized in 1996 and had completed about 90 percent of 
Page 19 GAO-04-30 Sacramento Flood Protection

the work. Furthermore, the Corps estimates that it will spend more than 

three times its original estimate by the time it completes this work. 

Because the Corps did not update its cost estimate or report the significant 

cost increases to Congress until most of the 1996 American River work was 

complete, Congress did not have the opportunity to determine whether the 

significantly more expensive levee improvements were still the most 

appropriate means of providing flood protection for Sacramento. 

Corps’ Benefit 

Estimates for the 

American River Levee 

Improvements Are 

Incorrect

The Corps made mistakes in estimating the benefits for the American River 

levee improvements because it incorrectly counted and valued the 

properties that the levee improvements would protect and used an 

inappropriate methodology to determine the amount of flood damages they 

would prevent. Seven years after Congress authorized the project, the 

Corps has not yet prepared an accurate assessment of the benefits of the 

American River levee improvements. In addition, contrary to its guidance, 

the benefit estimate the Corps prepared in 2002 did not describe the range 

of possible benefits and the likelihood that the values in this range would 

be realized. This additional information, describing the uncertainty of the 

benefit estimate, would have provided decision makers with information 

on the likelihood that the project’s benefits would be greater than its costs. 

Furthermore, the Corps’ three-tiered quality control process did not 

identify the mistakes that we found during the course of our review.

The Corps Made Mistakes in 

Counting and Valuing 

Properties and Determining 

Flood Damages When 

Estimating Project Benefits 

In its original 1996 analysis of the benefits and costs of the American River 

levee improvements, the Corps incorrectly counted the residential 

properties that the proposed levee improvements would protect. As a 

result, the Corps incorrectly calculated the benefits that these 

improvements would provide. According to the Corps, the methodology it 

used to count the number of residential properties in 1996 was “accepted 

practice and consistent with Corps guidance and technology applicable at 

the time.” In 2002, the Corps used a different methodology that 

incorporated new technologies and provided a more precise estimate of the 

number of properties protected. Using this new approach, the Corps 

determined that the actual number of residential properties protected by 

the levee improvements is about 20 percent less than its original estimate. 

The Corps did not calculate the amount that benefits would decrease due 

to this change. However, given the small difference between the original 

estimated annual benefits ($5.6 million) and the annual costs ($5.5 million) 

of the American River levee improvements, if the Corps had incorporated a 
Page 20 GAO-04-30 Sacramento Flood Protection

more accurate estimate of the property inventory in its 1996 analysis, the 

benefits of these improvements may have been less than the costs. 

For flood protection projects, such as the Common Features Project, the 

Corps calculates benefits as the dollar value of the physical damages to 

residential, commercial, industrial, and public properties and 

infrastructure that the levee improvements prevent. To calculate the 

reduction in flood damage to properties, the Corps counts the number of 

properties located in the potential flood area—known as the floodplain—

and then assesses the monetary value of the structures and their contents. 

The Corps uses this information to determine the property damage that 

would result from floods of various depths and to estimate the impact that 

the levee improvements would have in preventing this damage. 

It is important to remember that, in addition to the economic benefits from 

preventing property damage, levee improvements may reduce the risk of 

loss of human lives, which is a benefit that is not included in the Corps’ 

calculations.13 According to the Corps, about 305,000 people live within the 

American River floodplain and the number of lives lost because of levee 

failure would depend on a variety of factors, such as the size of the flood, 

warning time, time of day, and availability of evacuation routes. Because of 

the many factors involved and the lack of historical data, the Corps was not 

able to estimate the number of lives that would be lost as a result of levee 

failure and flooding in the Sacramento area. 

Although the Corps updated its benefit estimate in 2002 to incorporate the 

benefits from the new levee improvements authorized in 1999, a 

Sacramento district official acknowledged that the Corps again made 

mistakes in estimating the number of properties the levee improvements 

would protect. For the American River levee improvements authorized in 

1999, the Corps identified an area that was larger than the area the levee 

improvements would actually protect. As a result, the Corps overestimated 

the number of properties protected and the benefits provided by the work 

authorized in 1999. According to a Sacramento district official, the Corps 

currently does not have the information it needs to determine the correct 

13The Corps’ guidance (Engineer Regulation 1105-2-100) directs the Corps to address the 

issue of prevention of loss of life when evaluating alternative plans—which the Corps did. 

However, the Corps is not required to formally estimate the number of lives saved or lost as 

a potential effect of a project. In situations where historical data exist, the Corps has the 

option to estimate the number of persons potentially affected by a project, and include this 

number as an additional factor for the consideration of decision makers.
Page 21 GAO-04-30 Sacramento Flood Protection

area the levee improvements would protect and therefore is unable, at this 

time, to provide a reliable estimate of the benefits from the 1999 work.

In addition, the Corps made mistakes in its 2002 analysis in estimating the 

value of the residential properties the American River levee improvements 

would protect. The Corps’ policy calls for calculating a property’s value as 

the cost of replacing the structure less any depreciation, which accounts 

for a reduction in a structure’s value due to deterioration prior to flooding.14 

Because the Corps had more than 100,000 residential properties to assess 

and a limited amount of time and resources, it determined depreciated 

replacement values for a small sample of 365 properties and then used the 

results to estimate the depreciated replacement values for all properties. 

However, the Corps did not correctly select the sample of properties. 

According to members of both the Appraisal Institute and The Appraisal 

Foundation, to accurately appraise a large number of properties by 

sampling requires a separate sample for each residential property type, 

such as single-family homes, condominiums, and apartment buildings.15 

Instead of conducting a separate sample for each type of property, the 

Corps sampled all property types together and calculated an average 

depreciated replacement value for all property types. As a result, it is 

unclear whether the Corps accurately calculated depreciation, which in 

turn raises questions about its estimates of the value of the residential 

properties the American River levee improvements would protect. 

Moreover, the Corps did not use a consistent, objective appraisal 

methodology to calculate depreciation for the properties in the sample. 

Instead, the Corps subjectively determined depreciation. For example, if 

the Corps determined a structure was in “very good” condition it was 

assigned a zero percent, 5 percent, or 10 percent level of depreciation. 

However, the Corps could not provide us with its criteria for assigning the 

level of depreciation. Furthermore, the Corps’ economists who made these 

subjective decisions did not consult with the professional appraisers in the 

Corps’ Sacramento district office to identify alternative appraisal 

methodologies that may have been more appropriate. According to the 

14See U.S. Army Corps of Engineers, Engineer Regulation 1105-2-100.

15The Appraisal Institute is an international membership association of professional real 

estate appraisers whose mission is, in part, to uphold professional credentials and standards 

of professional practice and ethics consistent with the public good. The Appraisal 

Foundation is a nonprofit education organization that, among other things, develops and 

promulgates professional appraisal standards and appraiser qualifications.
Page 22 GAO-04-30 Sacramento Flood Protection

Corps, the methods it used to determine depreciation are “standard 

practice at the Corps and are consistent with prior and existing guidance.” 

Nonetheless, we believe that the shortcomings identified above raise 

questions about the accuracy of the Corps’ property value estimates and, in 

turn, the project benefit estimates that are, in part, based on them. The 

Corps said it recognizes the need to strengthen its methodologies and is 

currently developing a new tool to estimate property values. 

Finally, the Corps’ 2002 analysis did not use the methodology described in 

Corps guidance to determine the number of properties that are located in 

the 100-year floodplain and the damages they would sustain in a 100-year 

flood.16 The 100-year floodplain is the land area that may be affected during 

a flood that has a 1 percent chance of occurring every year. Instead of 

following Corps guidance by directly counting the properties located in the 

100-year floodplain and calculating the damages they would sustain in a 

100-year flood, the Corps estimated the damages using a methodology that 

relied on the results from its incorrect 1996 count of properties. The Corps’ 

use of this alternative methodology further calls into question the accuracy 

of its benefit estimate for the American River levee improvements 

authorized in both 1996 and 1999, which is based in part on this flood 

damage assessment. The Corps told us that it could have directly counted 

the properties in the 100-year floodplain but the necessary information was 

not available in a “user friendly” format, and that the additional effort 

needed to collect more accurate information was not expected to change 

the results. As a result, the Corps did not believe this was an effective use 

of resources. However, the Corps did not provide us with any evidence to 

support the validity of calculating the 100-year flood damages as it did or to 

validate its contention that the results would not change if it had used the 

methodology prescribed in its guidance. 

16See U.S. Army Corps of Engineers, Engineer Manual 1110-2-1619.
Page 23 GAO-04-30 Sacramento Flood Protection

The Corps Has Not Provided 

Congress with Information 

on the Range of Possible 

Benefits from the Levee 

Improvement Work or the 

Likelihood They Will Be 

Realized

The Corps has not followed its policy to provide Congress with an estimate 

of the range of possible benefits from the American River and Natomas 

Basin levee improvements and the likelihood that these benefits will 

actually be realized. In 1996, the Corps established a policy calling for 

benefit estimates and benefit-cost comparisons for flood protection 

projects to be reported with their associated probabilities.17 For example, 

rather than reporting that the benefits for a particular project are exactly 

$1.5 million, the Corps could report that it is 80 percent confident that 

project benefits will be at least $1 million but it is only 30 percent confident 

that benefits will reach $2 million. The Corps recognizes that this 

information can assist Congress in understanding the uncertainty involved 

in achieving various levels of benefits and in determining whether those 

risks justify funding the project. According to the Corps, it did not estimate 

a range of benefits for the Common Features Project in 1996 because the 

computer software used to assess the project’s benefits and costs was 

developed prior to the 1996 guidance and did not have the capability to 

calculate a range of values. 

However, in its 2002 reanalysis of project benefits, when a new version of 

the software capable of calculating benefit ranges and probabilities was 

available and costs for the American River work had significantly 

increased, the Corps chose not to calculate a range of benefits and instead 

continued to report a single estimate. Because the Corps’ 2002 estimates of 

benefits and costs for the American River work were so close in value (1.1 

to 1), an analysis of the potential range of benefits would have revealed 

whether there was a significant probability that project benefits could be 

lower than the single estimate the Corps reported and perhaps lower than 

project costs.18 According to a Sacramento district official, the Corps did 

not use the new version of its software that could have calculated the range 

of benefits to maintain consistency with information on flood protection it 

had previously released to the public. For example, the Corps has reported 

to the public that the American River levees have about a 1 percent chance 

of being breached by floodwaters in any given year. This estimate of flood 

protection could be different if calculated using the newer version of the 

software. The Corps was concerned that using the newer software would 

require it to report a different, and perhaps slightly lower, level of flood 

17See U.S. Army Corps of Engineers, Engineer Regulation 1105-2-101.

18The Corps’ 2002 estimate includes the benefits of both the expanded 1996 work and the 

additional 1999 levee improvement work. 
Page 24 GAO-04-30 Sacramento Flood Protection

protection, which would confuse the public. However, by taking this 

approach, the Corps did not provide Congress with important information 

about the uncertainty surrounding the amount of benefits the project 

would provide.

The Corps’ Quality Control 

Process Did Not Identify 

Flaws in Its Benefit 

Analyses

Three organizational levels within the Corps—district, division, and 

headquarters—reviewed and approved the 1996 and 2002 benefit analyses 

for the American River component of the Common Features Project, but 

these reviews did not identify the mistakes that we found. This issue raises 

questions about the adequacy and effectiveness of the Corps’ review 

process. We raised similar concerns about the Corps’ review process in our 

report on the Delaware River Deepening Project, which found significant 

miscalculations and invalid assumptions in the project’s economic analysis 

that the Corps did not find during its reviews.19 

For the Common Features Project, the Corps’ Sacramento district office 

conducted the 1996 study that analyzed the technical and economic aspects 

of the proposed project and the 2002 report updating that information. The 

Corps’ Los Angeles district office reviewed the 2002 economic analysis for 

technical accuracy. Next, the Corps’ South Pacific division reviewed the 

analysis; although, following the Corps’ policy, it did not review the 

district’s work for technical accuracy or verify the underlying analysis. 

Rather, the division checked that the district’s reports had undergone a 

technical review, and that the district had issued a quality control 

certification report with the necessary district office-level approvals. The 

division then forwarded the project to headquarters. Corps headquarters 

also did not conduct a technical review of the analysis. Rather, 

headquarters checked that the district’s report adhered to Corps policies 

for conducting a benefit-cost analysis and addressed any concerns 

headquarters had raised. 

These review processes, however, were ineffective in detecting and 

correcting the mistakes in the benefit analyses we identified. For example, 

for the 2002 study, we found no indication that the mistakes made in 

calculating the number and the value of residential properties or the 

mistake made in calculating flood damages were detected during the 

Corps’ review process. For the 2002 analysis of the American River levee 

19See U.S. General Accounting Office, Delaware River Deepening Project: Comprehensive 

Reanalysis Needed, GAO-02-604 (Washington, D.C.: June 7, 2002).
Page 25 GAO-04-30 Sacramento Flood Protection

improvements, a Corps economist from another district independently 

reviewed the benefits analysis. However, the review was not 

comprehensive enough to sufficiently identify methodological problems. 

The review primarily focused on process-oriented issues, such as assessing 

whether the Sacramento district conducted certain analyses, rather than 

examining the technical aspects of how the analyses should have been and 

were conducted. 

Conclusions It is critical that decision making and priority setting be informed by 

accurate information and credible analysis. Reliable information from the 

Corps about the costs and benefits for the American River component of 

the Common Features Project has not been present to this point. The 

analysis on which Congress has relied contained significant mistakes. And 

of most relevance today, the analyses for the remaining work do not 

provide a reliable economic basis upon which to make decisions 

concerning the American River levee improvements authorized in the 

WRDA of 1999. To provide a reliable economic basis for determining 

whether these improvements are a sound investment, the Corps’ analysis 

needs to adequately account for the risk that project costs could increase 

substantially, correctly count and value the properties the project would 

protect, and include information on the range of potential project costs and 

benefits. 

Moreover, because the Corps has not made some critical decisions 

regarding the Natomas Basin work, it is not yet known whether the Corps 

will be able to identify cost-effective flood protection options for this area. 

Specifically, the Corps has not determined whether it will (1) conduct a 

cost risk analysis of its current plan to identify its exposure to potentially 

significant cost increases or (2) evaluate the costs and benefits of 

alternatives to the current levee improvement plan to identify the most 

cost-effective flood protection option. In addition, identifying cost-effective 

flood protection involves reporting the range of potential project benefits 

and the probability of achieving them, which the Corps has not done for the 

Natomas Basin work. If the Corps begins implementing the authorized 

Natomas Basin work before it completes a comprehensive, accurate costbenefit analysis, significant unanticipated cost increases could materialize, 

as they did with the American River work. Finally, for Congress to have 

confidence that the Corps’ economic analyses have been prepared 

accurately, the Corps’ quality control process would need to be sufficiently 

independent and detailed to identify the types of mistakes that our review 

revealed. 
Page 26 GAO-04-30 Sacramento Flood Protection

Recommendations for 

Executive Action

For the American River levee improvements authorized in 1999 and for the 

planned Natomas Basin work, we recommend that the Secretary of the 

Army direct the Corps of Engineers to 

• determine whether it is appropriate to conduct risk analyses of project 

costs and document the basis for that decision in its project files;

• report information to Congress on the range of potential project benefits 

and the probability of achieving those benefits, as called for in the 

Corps’ guidance, in future benefit-cost analyses; and

• arrange for a credible, independent review of the completeness and 

accuracy of the revised benefit-cost analyses. 

For the American River project component, we also recommend that the 

Secretary of the Army direct the Corps of Engineers to reanalyze the 

benefits of the improvements authorized in the WRDA of 1999, correcting 

for the mistakes made in counting and valuing properties and the 

inappropriate methodology used to calculate flood damages. 

Additionally, for the Natomas Basin project component, we recommend 

that the Secretary of the Army direct the Corps of Engineers to 

• analyze the costs and benefits of alternatives to the current levee 

improvement plan and identify the flood protection plan that provides 

the greatest net benefits and

• submit a report to Congress that includes a cost estimate for all of the 

planned Natomas Basin work, and wait until Congress authorizes 

funding that is based on the report before beginning construction of any 

Natomas Basin levee improvements.

Agency Comments and 

Our Evaluation

We provided a draft of this report to the Secretary of the Army for review 

and comment. In commenting on the draft report, the Army concurred with 

all of our recommendations. Perhaps most significantly, the Army 

acknowledged that on the basis of the Corps’ experience in constructing 

the American River levee improvements, there is a potential for substantial 

cost increases for the Natomas Basin levee improvements, and therefore 

the Corps needs to investigate a wider array of alternatives for providing 

flood protection for the Natomas Basin. In addition, although the Army 
Page 27 GAO-04-30 Sacramento Flood Protection

concurred with our recommendation to reanalyze the benefits of the 

improvements added to the American River component of the project in 

1999, it contended that the Corps has already completed the reanalysis. We 

disagree. In 2002, the Corps prepared an analysis of the economic benefits 

for the work added to the project in 1999. However, our review found 

several mistakes in this analysis, including mistakes in counting and 

valuing properties and using an inappropriate methodology to calculate 

flood damages. We continue to believe that before the Corps begins 

construction of the work added to the American River project component 

in 1999, it should reanalyze this work to ensure it is cost beneficial. 

The Army stated that the report does not recognize the significant role 

Congress played in 1999 by adding additional work to the project and 

providing funds for construction before the Corps had developed reliable 

cost estimates, which created the situation of which our report is critical. 

By focusing its comment on the relatively small amount of work added in 

1999, the Army avoided the main issues regarding the American River levee 

improvements discussed in our report. Specifically, that (1) the costs for 

the American River component of the project approved in 1996 are more 

than triple the original estimate; (2) the Corps had information, before 

construction began, that should have alerted it that costs would likely 

increase greatly; and (3) the Corps should have communicated this 

information to Congress at that time, but it did not. Furthermore, the 

additional funding provided by Congress for the work authorized in 1999 

has not been used for that purpose, but rather has been used to fund the 

cost overruns for the work authorized in 1996. The full text of the Army’s 

comments, and our responses to them, are presented in appendix III. 

As agreed with your offices, unless you publicly announce the contents of 

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

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

appropriate congressional committees, other interested Members of 

Congress, and the Secretary of the Army. We also will make copies 

available to others upon request. In addition, the report will be available at 

no charge on the GAO Web site at http://www.gao.gov.
Page 28 GAO-04-30 Sacramento Flood Protection

If you, or your staff, have any questions about this report, please contact 

me at (202) 512-3841. Key contributors to this report are listed in appendix 

IV.

Anu Mittal

Director, Natural Resources

and Environment
Page 29 GAO-04-30 Sacramento Flood Protection

Appendix I

Scope and Methodology AAppenednxidexiIs

To determine the reasons for the cost increases for the Common Features 

Project, we obtained the key cost estimation documents prepared by the 

U.S. Army Corps of Engineers’ (the Corps) Sacramento district office. 

Specifically, we obtained the Corps’ 1996 Supplemental Information 

Report, American River Watershed Project; the 1997 Addendum to the

Supplemental Information Report; the 2002 Second Addendum to the

Supplemental Information Report; and other related documents. We 

reviewed the Supplemental Information Report, which examined a 

number of different flood protection alternatives, because it provided the 

foundation, including cost estimates, for the project elements that the 

Corps later grouped together as the Common Features Project. The 

Addendum to this report documented the Corps’ first cost estimate that 

specifically and exclusively addressed the Common Features Project and 

included separate costs for both the American River component and the 

Natomas Basin component of the project. We reviewed the Second 

Addendum, the Corps’ most current official cost estimate, to establish the 

amount of and the reasons for the increased costs. We also analyzed 

construction contracts to determine the cost of responding to accidents 

constructing the levee improvements authorized in 1996. We calculated the 

extent of inflation for both components of the project, using the Corps’ 

Civil Works Construction Cost Index System and a cost index from the 

Office of Management and Budget. Finally, we discussed the reasons for 

the cost increases with economists, cost estimators, project managers, 

engineers, and other staff from the engineering, constructions operations, 

and planning divisions of the Corps’ Sacramento district office.

To determine whether the Corps analyzed the likelihood of significant cost 

increases for the project and reported them to Congress in a timely manner, 

we reviewed the Corps’ (1) policy regarding the use of cost risk analysis in 

estimating costs for civil works projects (Engineer Regulation 1110-2-1302) 

and (2) requirements for updating project cost estimates and informing 

Congress of cost increases (Engineer Regulation 1105-2-100). We also 

reviewed a document from the Corps’ Institute for Water Resources on 

incorporating risk and uncertainty into cost estimation. We examined the 

American River levee improvement construction contracts to determine 

when the Corps became aware of cost increases for this component of the 

project. In addition, we reviewed the Corps’ annual budget documents 

related to the Common Features Project, which contained information on 

the project’s status and any changes or cost increases. We examined the 

Corps’ cost estimates from 1996, 1997, and 2002 for compliance with 

relevant Corps cost estimating guidance and to determine if the Corps 

provided Congress with accurate information about significant expected 
Appendix I

Scope and Methodology

Page 30 GAO-04-30 Sacramento Flood Protection

cost increases. Finally, we discussed the Corps’ cost estimating procedures 

and awareness of likely cost increases with cost estimators, project 

managers, and other staff from Corps headquarters and the Sacramento 

district office.

To determine whether the Corps correctly estimated the economic benefits 

of the American River levee improvements, we reviewed the extent to 

which the Corps followed accepted economics practices and whether the 

major assumptions used in the analysis were reasonable and well 

supported. We obtained the Corps’ 1996, 1997, and 2002 economic analyses 

for the Common Features Project and discussed the sources of these data 

and conduct of the analyses with the Corps economists responsible for 

preparing them. We also discussed the basis for the hydrologic and 

engineering assumptions used in the economic analysis with the Corps 

specialists who provided this information. In addition, we obtained the 

Corps’ guidance (Engineer Regulations 1105-2-100 and 1105-2-101 and 

Engineer Manual 1110-2-1619) on the accepted economic and engineering 

methodologies for incorporating risk and uncertainty into benefit 

estimation. To verify and supplement the information we received from 

officials in the Corps’ Sacramento district office, we spoke with, among 

others, Corps officials at the Hydrologic Engineering Center and the 

Institute for Water Resources and experts in real estate appraisal from the 

Appraisal Foundation and the The Appraisal Institute. Where we identified 

problems that affected the accuracy of the benefit analysis, we discussed 

them with the responsible Corps staff and considered any new data or 

revisions that they provided. Finally, we identified the roles and 

responsibilities of the Sacramento district office, South Pacific division, 

and headquarters in the Corps’ internal quality control process for the 

Common Features Project. We also obtained copies of the quality control 

reviews and the reviewers’ comments on the economic analysis and 

discussed the comments and their resolution with Corps officials.

We conducted our review from September 2002 through September 2003 in 

accordance with generally accepted government auditing standards. 
Page 31 GAO-04-30 Sacramento Flood Protection

Appendix II

Conversion of Costs to Constant Dollars ApendxiI

In this report, unless otherwise noted, we present costs in the dollar values 

for the years in which they were estimated, not in constant dollars. For 

example, the Corps estimated the original cost of the project as $57 million 

in 1996, and that is how we present it in this report. We did not adjust the 

costs to constant dollars to account for inflation to maintain consistency 

with the figures in published Corps reports on the Common Features 

Project. However, table 3 shows the Corps’ 1996 cost estimates for key 

components of the Common Features Project and also shows the same 

estimates adjusted to 2002 constant dollars to account for inflation.

Table 3: Common Features Project’s Cost Estimates in Original 1996 Dollars and in 

Adjusted 2002 Dollars

Source: GAO analysis of U.S. Army Corps of Engineers data.

Dollars in millions

Common Features Project

Amount authorized

in 1996

(1996 dollars)

Amount authorized

in 1996 

plus inflation 

(2002 dollars)

American River component

Levee improvements $30 $33

Planning, design, and other costs 14 18

Subtotal $44 $51

Natomas Basin component 13 15

Total $57 $66
Page 32 GAO-04-30 Sacramento Flood Protection

Appendix III

Comments from the Department of the Army ApendxiI

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.

Now GAO-04-30.
Appendix III

Comments from the Department of the Army

Page 33 GAO-04-30 Sacramento Flood Protection

See comment 1.

See comment 2.

See comment 3.

See comment 4.

Now GAO-04-30.
Appendix III

Comments from the Department of the Army

Page 34 GAO-04-30 Sacramento Flood Protection

See comment 5.

See comment 6.
Appendix III

Comments from the Department of the Army

Page 35 GAO-04-30 Sacramento Flood Protection

See comment 7.
Appendix III

Comments from the Department of the Army

Page 36 GAO-04-30 Sacramento Flood Protection

See comment 8.

See comment 9.
Appendix III

Comments from the Department of the Army

Page 37 GAO-04-30 Sacramento Flood Protection

See comment 10.

See comment 11.

See comment 12.
Appendix III

Comments from the Department of the Army

Page 38 GAO-04-30 Sacramento Flood Protection

GAO Comments The following are GAO’s comments on the Department of the Army’s letter 

dated September 22, 2003.

1. Although the Army asserted that we made some factual errors, its 

subsequent comments failed to identify any specific factual errors. 

2. The Army believes that the report does not recognize the significant 

role Congress played in 1999 when it added additional work to the 

project and authorized funds for construction before the Corps had 

developed reliable cost estimates. While the Congress did add work to 

the Common Features Project in the Water Resources Development Act 

(WRDA) of 1999 without a Corps report, the cost of this work is 

relatively small in comparison to the work authorized in 1996. We 

believe the Army’s comment is not relevant to the main focus of our 

report, which is the significant cost increases for the work the Corps 

recommended and the Congress authorized in 1996. For example, the 

costs for the work the Corps recommended on the American River 

more than tripled from $44 million in 1996 to $143 million in 2002. In 

contrast, the estimated cost for the work on the American River levees 

the Congress added in 1999 is about $15 million. We believe our report 

accurately reflects the limited impact the addition of work in 1999 had 

on the American River component of the project’s overall cost. 

Furthermore, the additional funding provided by Congress for the work 

authorized in 1999 has not been used for that purpose, but rather has 

been used to fund the cost overruns for the work authorized in 1996. 

3. The Army stated that the consistent provision of funds to the Corps by 

Congress, at or exceeding the Corps’ budget request, created the 

situation of which our report is critical. We do not agree. Two of the 

main issues in our report are that the costs of the American River 

component of the project nearly tripled due to design changes, and that 

the Corps began construction of the American River levee 

improvements without analyzing the likelihood of these cost increases 

or reporting the potential cost increases to Congress. The fact that 

Congress provided funding for the project does not absolve the Corps 

of its responsibility to communicate project cost increases in a timely 

manner. 

4. The Army implied that Congress was informed of potential cost 

increases for the Common Features Project during the yearly 

appropriations process. This is not the case on the basis of our review 
Appendix III

Comments from the Department of the Army

Page 39 GAO-04-30 Sacramento Flood Protection

of all of the Corps’ submissions for the annual appropriations process 

from 1997 through 2001. As our report states, it was not until February 

2002, more than 4 years after it had significantly modified the design of 

the American River levee improvements, that the Corps informed 

Congress for the first time of the significant cost increases for the 

American River component of the project.

5. The Army stated that the levee improvements were not originally 

designed to withstand the destructive effect of seepage and that this 

design was not an error. Rather, an unknown condition (i.e., the 

potential for destructive seepage under the levees) resulted in design 

changes and increased costs. Our report does not criticize the Corps for 

not anticipating the need for a levee improvement design that would 

stop seepage under the levees. We acknowledge that the flood of 

January 1997 caused the Corps to change the design of its levee 

improvements. However, as our report notes, the Corps did not develop 

new cost estimates after making these design changes and did not 

communicate the resulting significant cost increases to Congress in a 

timely manner. 

6. We do not consider the separable elements of the Common Features 

Project as separate projects. This report makes clear that there is one 

Common Features Project comprised of an American River component 

and a Natomas Basin component. 

7. We agree with the Army that, in 1996, the Corps was not aware of any 

significant areas of cost uncertainty for the proposed American River 

levee improvements. However, as the Army recognizes, the flood of 

January 1997 showed that the Corps’ design for the levee improvements 

should be significantly modified. After making these design changes, 

though, the Corps did not estimate the potential for cost increases due 

to tripling the depth of some cut-off walls or closing the gaps in cut-off 

walls at bridges and other areas. These design changes eventually 

added $76 million to the cost of the project. 

8. The Army stated that the Corps believes that its review process results 

in decision documents that form the basis for sound recommendations. 

However, in two recent cases, we found that the process did not serve 

its intended purpose. As this report documents, the Corps’ review 

process was ineffective in detecting and correcting the mistakes in the 

benefit analyses we identified. We raised similar concerns about the 
Appendix III

Comments from the Department of the Army

Page 40 GAO-04-30 Sacramento Flood Protection

review process in our June 2002 report on the Delaware River 

Deepening Project. 

9. We did not recommend that the Corps reanalyze the costs and benefits 

of the work authorized in 1996. We agree that a reanalysis of this work, 

which is nearly complete, would be of little value. However, we 

continue to believe that a reanalysis of the economic benefits from the 

work authorized in 1999 is necessary because the Corps’ initial analysis 

contained significant mistakes and construction of the work has not yet 

begun. Before beginning construction of this work, the Corps should 

verify that the work is in fact cost beneficial. In addition, the Corps 

should arrange for a credible, independent review of the completeness 

and accuracy of its reanalysis. 

10. The Army contends that the Corps has already completed the 

reanalysis we recommended of the work added to the American River 

component of the project in 1999. We disagree. The Corps analyzed the 

economic benefits for the 1999 work added to the project for the first 

and only time in 2002. Our review found several problems with the 

Corps’ 2002 analysis of the benefits from this work. For example, we 

found that the Corps had made mistakes in how it counted and valued 

properties and had used an inappropriate methodology to calculate 

flood damages. As a result, the Corps has not yet prepared an accurate 

assessment of the benefits resulting from the 1999 work. The Corps has 

not begun any construction for the work authorized in 1999, and it is 

not currently known if the benefits provided by this work are greater 

than the costs. Consequently, we recommend a reanalysis of these 

benefits in order to correct the mistakes that we identified. 

11. The Army stated that the Corps does not conduct individual real estate 

appraisals to determine the value of each property that could be 

damaged in a flood. Our report does not suggest that the Corps should 

conduct such appraisals. Rather, we identified weaknesses in the 

sample the Corps used to estimate property values and its methodology 

for calculating depreciation for the properties in the sample. For 

example, to accurately appraise a large number of properties by 

sampling requires a separate sample for each residential property type, 

such as single-family homes and apartment buildings. However, the 

Corps sampled all property types together. In addition, the Corps did 

not use a consistent objective appraisal methodology to calculate 

depreciation for the properties in the sample. These weaknesses raise 
Appendix III

Comments from the Department of the Army

Page 41 GAO-04-30 Sacramento Flood Protection

questions about the accuracy of the Corps’ property value estimates 

and the project benefit estimates that are, in part, based on them. 

12. The Army claims that there are approximately 163,000 residential 

structures in the 400-year floodplain. This is not correct on the basis of 

the Corps’ most current analysis. The estimate of 163,000 residential 

structures comes from the Corps’ 1996 economic analysis. However, in 

2002, the Corps updated its analysis and found that it had 

overestimated the number of residential structures in 1996. The Corps’ 

2002 analysis estimated that there were 115,347 residential structures in 

the 400-year floodplain. 
Page 42 GAO-04-30 Sacramento Flood Protection

Appendix IV

GAO Contact and Staff Acknowledgments ApendxiIV

GAO Contact Anu Mittal, (202) 512-3841

Staff 

Acknowledgments

In addition to the individual above, Jeff Arkin, Chuck Barchok, Judy 

Hoovler, Richard Johnson, Mark Metcalfe, Ryan Petitte, and Stephen 

Secrist made key contributions to this report. 

(360273)
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