United States General Accounting Office

GAO Report to Chairman, Committee on

Appropriations, Subcommittee on

Transportation and Related Agencies,

House of Representatives

February 1998 SURFACE

INFRASTRUCTURE

Costs, Financing and

Schedules for

Large-Dollar

Transportation

Projects

GAO/RCED-98-64

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

February 12, 1998

The Honorable Frank R. Wolf

Chairman, Subcommittee on Transportation

 and Related Agencies

Committee on Appropriations

House of Representatives

Dear Mr. Chairman:

Increasing congestion, declining mobility, and deteriorating infrastructure

are affecting the performance of surface transportation systems in many of

the nation’s urban areas. Confronted with these problems, many federal,

state, and local agencies are improving and upgrading their highways and

mass transit systems and are assisting the private sector in improving

transportation facilities. In fiscal year 1998, the federal government will

distribute nearly $26 billion to states and localities for the construction

and repair of the nation’s surface transportation systems. To meet the

nation’s transportation needs, states and localities are planning or building

several large-dollar projects to replace aging infrastructure or build new

capacity. These large-dollar projects represent a substantial investment of

federal, state, and local transportation funds. In addition, the private

sector has begun to participate in the funding of important transportation

projects.

As part of your Committee’s ongoing review of large-dollar transportation

projects, you asked us to review eight projects that will play critical roles

in the infrastructure networks of six urban areas in the United States. This

report discusses the costs, financing, and schedules for completing these

eight transportation projects: the Bay Area Rapid Transit System’s

extension to the San Francisco Airport, Los Angeles’ Red Line subway,

Pittsburgh’s airport busway, St. Louis MetroLink’s extension, Salt Lake

City’s South Light Rail Transit Line, Boston’s Central Artery/Tunnel, Salt

Lake City’s I-15 reconstruction, and the Alameda Corridor (Los Angeles).

In total, the eight projects are expected to cost about $23 billion; the

estimated costs of individual projects range from about $11 billion for

Boston’s Central Artery/Tunnel to $313 million for Salt Lake City’s light rail

line.

Background Large-dollar infrastructure projects present several major challenges to

federal, state, and local transportation officials. First, they are very costly

and require large commitments of public resources that may take several

years to garner from federal, state, and local sources. Because of the high

Page 1 GAO/RCED-98-64 Surface Infrastructure
costs of these projects, their financial packages are complex and may

include debt financing to cover construction costs. Second, the projects

can be technically challenging to construct and require their sponsors to

resolve a wide range of social, environmental, land-use, and economic

challenges before and during construction. To keep the projects on

schedule and within budget, federal and state officials must carefully

oversee their development, planning, and construction. At the federal

level, the Department of Transportation’s Federal Transit Administration

and Federal Highway Administration are responsible for approving and

overseeing these large-dollar infrastructure projects.

The Federal Transit Administration provided funding for five of the eight

projects we reviewed in this report. The agency provided the funds

primarily through its “New Starts” program—a program that provides

grants to local transit providers for constructing or extending certain types

of mass transit systems. After assessing the technical merits of a project

and its finance plan, the agency enters into a full funding grant agreement

with the project’s sponsor. The agreement establishes the terms and

conditions for federal participation, including the maximum amount of

federal funds for the project. State or local sources provide the remaining

funding. While the grant agreement commits the federal government to

providing the federal contributions, these contributions are subject to the

annual appropriations process. To oversee each project, the agency uses a

consultant that assesses the extent to which the grantee meets its

contractual obligations. The grantee is responsible for all of the project’s

cost overruns.

The Federal Highway Administration provided funds for two of the

projects we reviewed—Boston’s Central Artery/Tunnel and Salt Lake

City’s I-15 reconstruction. A highway project typically is funded through a

state’s federal-aid highway apportionment. The federal government

generally covers 80 percent of the total cost of a federal-aid project. While

the state is typically responsible for planning, selecting, designing, and

constructing the project, the Federal Highway Administration ensures that

applicable federal laws and regulations are met and approves the

expenditure of federal funds. The agency is also responsible for overseeing

the eighth project we reviewed—the Alameda Corridor. Funding for this

intermodal project will come from several public and private sources.

Instead of providing a grant for the Alameda Corridor, as it does to

highway and mass transit systems, the Department of Transportation

provided a $400 million loan to help finance this project.

Page 2 GAO/RCED-98-64 Surface Infrastructure
Results in Brief In summary, we found the following:

• In 1997, the Bay Area Rapid Transit system began construction on an

8-mile extension of its existing system to provide transit riders with direct

service to the San Francisco International Airport. The transit system

estimates that the project will cost $1.167 billion—an estimate that the

Federal Transit Administration approved when it signed a full funding

grant agreement in June 1997. The transit system will finance the project

through contributions from federal, state, and local agencies. Federal

funds will provide $750 million, or 64 percent of the project’s total cost.

Despite the large federal commitment, the transit system’s finance plan

projects that expenses will exceed revenues during construction and

produce annual cash shortfalls that will peak at $184 million in 2001.

Accordingly, the transit system has established a short-term borrowing

program to address these financing gaps. However, the financing gap may

be larger than projected in the transit system’s most recent finance plan

because the plan assumes higher federal contributions than those

specified in the grant agreement. As a result, cash shortfalls could reach

almost $290 million, and the transit system may need an additional

$29 million to finance these shortfalls. The transit system has established a

capital reserve account to meet the additional financing requirements.

Whether the current funding of the reserve account is sufficient will

depend on the actual rate of expenditure for construction and the

revenues flowing into the account. The transit system expects the project

to be completed in September 2001. (App. I provides detailed information

on this project.)

• Because of severe financial difficulties, in January 1998, the Los Angeles

County Metropolitan Transportation Authority (the Authority) suspended

construction for at least 6 months on two of the four remaining extensions

of the Los Angeles Red Line subway. Several factors have led to the

Authority’s financial problems. First, an October 1996 consent decree

forced the Authority to shift its funding priority from completing the Red

Line project to expanding its bus program. The Authority estimates that it

will need an additional $1 billion over the next 15 years to comply with the

consent decree. In addition, revenues from local sales taxes and funds

from federal, state, and local sources have been lower than expected. As a

result, the Authority does not have sufficient funds to complete the Red

Line and must delay other projects as well. The federal government has

agreed to pay $2.8 billion for the project, which is now expected to cost

over $6.1 billion. As of November 1997, the Authority had spent about $2

billion in federal funds, including $78 million on the suspended extensions.

Page 3 GAO/RCED-98-64 Surface Infrastructure
However, the project’s suspension raises questions about the federal

government’s future support of the project. The Federal Transit

Administration has directed the Authority to develop a realistic recovery

plan. The Authority has not set dates for resuming work on the suspended

extensions or for completing the recovery plan. (App. II provides detailed

information on this project.)

• The Port Authority of Allegheny County, Pennsylvania, is currently

building the three components of phase I of the Pittsburgh Airport Busway

Project: a 7-mile exclusive busway from the borough of Carnegie to

downtown Pittsburgh; a 1.1-mile high-occupancy-vehicle lane through the

currently unused Wabash Tunnel; and six park-and-ride lots. The original

design included a new bridge and about 2 miles of busway in an area

known as the CONRAIL shelf. However, in June 1997, the Port Authority

eliminated some segments of the project, including the new bridge,

because of cost increases and delays. The Port Authority noted that it

could still provide nearly all of the project’s initial benefits at the original

estimated cost—about $327 million—and ensure the project’s completion

by 2001. Financing for the project appears sufficient because federal

funds, covering 80 percent of the project’s costs, are available to the

project and state funds, covering the remaining 20 percent, are ensured

through state transportation bonds. According to the project’s managers,

other issues, such as a pending lawsuit are not expected to have a

significant impact on the project’s costs and schedule. Because the

project’s scope was reduced, the Federal Transit Administration planned

to deobligate $19.4 million that had already been provided to the Port

Authority. However, the Conference Report on the 1998 Department of

Transportation Appropriations Act directed the Federal Transit

Administration not to deobligate these funds. (App. III provides detailed

information on this project.)

• The St. Louis MetroLink light rail system began operations in July 1993.

When completed in 2001, the 17-mile St. Clair County, Illinois, extension

will be the first addition to the MetroLink system and will cost an

estimated $339 million. This cost estimate was found reasonable by

consultants under contract to the Federal Transit Administration and the

Illinois Department of Transportation. The proposed alignment will pass

near known archeological remains and through an old railroad

right-of-way potentially containing hazardous wastes. Although project

officials stated that costs could increase, they believe they have taken

sufficient measures to limit any cost growth resulting from these factors.

Federal funds will cover $244 million of the project’s costs, and local funds

Page 4 GAO/RCED-98-64 Surface Infrastructure
will cover $95 million. But because sufficient revenues will not be

available as the project’s costs come due, the project will experience cash

shortfalls for 4 years, peaking at $92 million in fiscal year 2000. While the

project will issue grant anticipation notes—notes that are expected to be

repaid with future federal funds—to cover the shortfall, the financing

costs of this issuance will increase the project’s total cost by about

$25 million. The project’s original finance plan did not anticipate the need

for grant anticipation notes because that plan assumed that higher levels

of federal funding would be available in the early years of the project.

(App. IV provides detailed information on this project.)

• The Salt Lake City Light Rail Transit project is a 15-mile system that

largely parallels Interstate 15, the major north-south highway through the

Salt Lake City area, which is also undergoing major improvement.

Construction began in 1997, and project officials expect the system will

begin operations by March 2000—10 months ahead of schedule and well

before the Winter Olympics open in Salt Lake City in 2002. Furthermore,

they expect the project to be completed within its $312 million budget. The

federal commitment to the project is about $241 million. Many of the

project’s major contracts have been awarded at amounts lower than

expected, allowing project officials to implement a number of

enhancements to the system. For example, when additional funds became

available, local officials decided to install double tracks along segments

where single tracks had been planned. Project officials attribute the low

award prices to the competitive local construction environment created, in

part, by the highway project. (App. V provides detailed information on the

light rail project.)

• The Central Artery/Tunnel project in Boston is one of the most expensive

and complex federally assisted highway projects ever undertaken.

Scheduled to be completed in 2004, the project will build or reconstruct

about 7.5 miles of urban highways (about 160 lane miles), about half of

which will be underground. Massachusetts reported that, as of September

30, 1997, the total estimated net cost of the project was $10.8 billion.

However, as we reported in July 1997,1

 the total funding needs for the

project are $11.6 billion, or about $800 million more than the estimated net

cost, because the estimated net cost includes an $800 million credit

representing the future receipt of insurance proceeds that, if realized, will

not be available until 2017, too late to help pay for the project. State

managers have worked to control the costs of the project and are

1

Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs

and Financing (GAO/RCED-97-170, July 17, 1997).

Page 5 GAO/RCED-98-64 Surface Infrastructure
continuing to take steps to reduce them. However, unless additional

savings can be found, increased construction costs seem likely to push the

project’s total net cost higher than the current $10.8 billion estimate.

Massachusetts’ October 1997 finance plan will meet the funding needs of

the Central Artery/Tunnel project if its costs remain as forecast and if

funding is received as projected. However, the project’s funding needs

could be larger than projected in the plan because (1) additional costs of

some magnitude seem likely and (2) federal funding could be up to

$1 billion less than projected. In addition, while the financial markets will

ultimately decide the feasibility of one funding strategy—using grant

anticipation notes to borrow over $1 billion and repaying that amount with

future federal highway funding—the strategy presents several challenges.

For example, it relies on borrowing against federal funds that may not be

authorized by the Congress until after the next federal highway

authorization expires, sometime around 2003. (App. VI provides detailed

information on this project.)

• The Interstate 15 (I-15) project in Salt Lake City, Utah, is the largest

“design-build” highway project ever undertaken in the United States. The

Utah Department of Transportation will reconstruct 17 miles of Interstate

highway in and around Salt Lake City, Utah, replacing all existing

pavement, widening the road from 6 to 12 lanes, reconstructing several

major Interstate highway interchanges, and replacing 137 bridges and

other structures. Construction began in April 1997, and the project is

scheduled to be completed in July 2001. A substantial portion of the

project’s $1.6 billion expected cost is covered under one fixed-price

contract awarded to a single contractor to both design and construct the

project. The project’s costs could still grow, however, because the state

has agreed with the contractor to assume certain financial risks, such as

the possibility that hazardous materials may be discovered in addition to

those identified through investigations conducted before the contract was

awarded. While the design-build process is relatively new to highway

construction and there is little historical information for predicting the

magnitude of possible changes in the project’s costs, officials in states

where design-build contracts have been completed stated that post-award

change orders have added from around 2.5 percent to around 8.5 percent

to these contracts’ costs. Changes of this magnitude, if they were to occur,

would add roughly $35 million to $110 million to the I-15 project’s costs.

The I-15 project is the largest component of Utah’s Centennial Highway

Fund—a 10-year, $2.6 billion fund for the construction and reconstruction

of highways throughout Utah. The state has requested $970 million in

federal funding for the I-15 project beyond its expected highway

Page 6 GAO/RCED-98-64 Surface Infrastructure
apportionments as part of a $4.3 billion request for federal funding for

transportation projects for the 2002 Winter Olympic Games. Utah expects

to receive about half of the requested amount and, as of October 1997, had

received about $14 million in federal funds for environmental studies and

property acquisition. According to state officials, if additional federal

funds are not made available, Utah will complete the project either by

raising additional state funds or by reducing or canceling some of the

other 39 projects slated to be financed from the Centennial Highway Fund.

(App. VII provides detailed information on this project.)

• The Alameda Corridor is a freight rail project designed to improve the

movement of goods over 20 miles between the ports of Los Angeles and

Long Beach and railyards near downtown Los Angeles. Expected to cost

about $2 billion, the project has not yet been fully designed, and limited

construction has begun. Its costs may change after contractors submit

their bids in 1998 or when project officials finish evaluating the impact of a

December 1997 Internal Revenue Service ruling limiting the components

of the project that can be financed through tax-exempt revenue bonds.

Funding for the project will come primarily from the private sector and

will be supplemented by a $400 million federal loan and by grants from the

ports and the Los Angeles County Metropolitan Transportation Authority.

As of December 1997, project officials had secured about half of the

needed funding but face challenges in securing the remainder, including

challenges in demonstrating to financial markets that the project is a good

credit risk and in obtaining all of the funds committed by the financially

strapped Authority. According to the project’s ambitious schedule, major

construction is to begin in 1999 and to be completed within 3 years,

achieving time savings of a year through the use of design-build

contracting procedures. However, delays in constructing a 10-mile section

of the project in a 30-foot trench could postpone the start of revenue

operations, scheduled for 2001. (App. VIII provides detailed information

on this project.)

Agency Comments We provided the Department of Transportation with draft copies of this

report for review and comment. We also provided each of the eight

projects with a draft copy of the report pages containing information on

the project. We met with Department officials—including the Federal

Highway Administration’s Deputy Administrator—and with high-level

officials at each project to obtain their comments. The Department and

project officials provided technical and editorial comments to clarify cost,

financing, and scheduling issues for each project. Where appropriate, we

Page 7 GAO/RCED-98-64 Surface Infrastructure
incorporated these comments throughout the report. The Alameda

Corridor project provided more detailed comments on the project’s costs

and financing. A discussion of these comments and our response appear in

appendix VIII.

Scope and

Methodology

To identify issues surrounding the costs, financing, and schedules of the

projects, we reviewed project-specific documents, including

environmental impact statements, finance plans, project oversight reports,

and construction status reports. We also interviewed federal, state, local,

and private-sector officials responsible for planning, designing,

constructing, and overseeing the projects. We performed our review from

July 1997 through January 1998 in accordance with generally accepted

government auditing standards.

The cost estimates for the projects discussed in this report represent the

sum of the nominal dollars that will be spent irrespective of the years in

which they are spent. Anticipated cost escalation during the construction

period is taken into account, but these estimates do not represent present

values.

We will send copies of this report to the cognizant congressional

committees; the Secretary of Transportation; the Administrator, Federal

Highway Administration; the Administrator, Federal Transit

Administration; the Administrator, Federal Railroad Administration; and

other interested parties. We will make copies available to others upon

request.

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

Major contributors to this report are listed in appendix IX.

Sincerely yours,

John H. Anderson, Jr.

Director, Transportation Issues

Page 8 GAO/RCED-98-64 Surface Infrastructure
Page 9 GAO/RCED-98-64 Surface Infrastructure
Contents

Letter 1

Appendix I 

BART Extension to

the San Francisco

International Airport

14

Background 14

BART and FTA Have Agreed on a Total Cost of $1.167 Billion,

Including Allowances for Contingencies and Inflation

16

While Overall Financing Is Complete, Debt Financing May

Exceed Current Estimate

18

Major Construction Is Scheduled to Begin in 1998 21

Several Other Issues Have Been Resolved 22

Appendix II 

Los Angeles Red Line

Project

23

Background 23

Cost Increases and Funding Shortfalls Have Created Serious

Financial Problems

24

New Management Is Seeking Stability Through Revised

Transportation Plans

29

Appendix III 

Phase I Pittsburgh

Airport

Busway/Wabash HOV

Facility

31

Background 31

A Recovery Plan Was Initiated to Control the Project’s Costs and

Schedule

33

Uncertainties Remain, but the Revised Project Faces Fewer Risks

Than the Original Project

38

Appendix IV 

St. Clair Extension of

the St. Louis

MetroLink System

40

Background 40

Capital Cost Estimates Are Considered Reasonable but Are

Subject to Some Uncertainties

43

Changes in the Federal Funding Schedule Will Increase Local

Financing Costs

46

The Project Is on Schedule 48

Funding for the Extension’s Second Segment Is Uncertain 50

Appendix V 

Salt Lake City South

Light Rail Transit

51

Background 51

Contracts’ Costs Were Lower Than Expected, Allowing for

Enhancements

53

Pace of Construction Will Require Some Short-Term Borrowing 54

Page 10 GAO/RCED-98-64 Surface Infrastructure
Contents

Operations Are Expected to Begin Ahead of Schedule 55

Appendix VI 

The Central

Artery/Tunnel Project

57

Background 57

Status of Cost and Schedule 59

Construction Cost Increases Could Raise Total Costs and

Funding Needs

60

Funding Needs May Be Greater Than Projected in the State’s

Finance Plan

63

Appendix VII 

Interstate 15

Reconstruction

Project, Salt Lake

City, Utah

67

Background 67

Status of Cost and Schedule 68

Most of the Project’s Costs Are Under Contract, but Some Risks

Remain

69

State Is Seeking Federal Financing but Will Use State Funds If

Necessary

70

Appendix VIII 

The Alameda Corridor

73

Background 73

Project’s Estimated Short- and Long-Term Costs Are Uncertain 76

The Project’s Financing Is Incomplete 78

The Project’s Schedule Is Ambitious 83

Agency Comments 85

Appendix IX 

Major Contributors to

This Report

87

Tables Table I.1: Costs of BART Airport Extension, by Major Items 17

Table I.2: Project’s Financing Under the June 1997 Full Funding

Grant Agreement

20

Table I.3: Schedule for Major Construction Activities 21

Table II.1: Project’s Financing Plan, by Segment, as of

November 1997

25

Table III.1: Sources of Federal Funds for the Busway Project 37

Table IV.1: Capital Costs for the St. Clair Extension 43

Table IV.2: Revised Financial Plan, September 1997 48

Table IV.3: Project’s Milestones and Completion Dates 49

Page 11 GAO/RCED-98-64 Surface Infrastructure
Contents

Table V.1: Breakdown of Project’s Planned Costs, as of

December 31, 1997

53

Table VI.1: Central Artery/Tunnel Project’s Obligations, Funding

Needs, and Cost, as of September 30, 1997

59

Table VI.2: Percentage Increase in Costs on Awarded

Construction Contracts for the Central Artery/Tunnel Project, as

of September 30, 1997

61

Table VI.3: Rate of Cost Growth on Contracts Awarded After

November 1994, by Percentage of Contract Completed

62

Table VI.4: Federal Funding for the Central Artery/Tunnel Project

Under Other Federal Funding Scenarios

64

Table VII.1: Estimated Cost of the I-15 Project as of October 1997 68

Table VII:2: Federal Highway Funding for Utah Under Various

Reauthorization Proposals

72

Table VIII.1: Key Tasks to Be Completed Before Construction

Can Begin

84

Figures Figure I.1: The BART Extension to the San Francisco

International Airport

15

Figure III.1: Current Scope of the Pittsburgh Airport Busway 35

Figure IV.1: MetroLink Line and St. Clair Extension 42

Figure IV.2: Estimate of Cumulative Federal Funds Under the

Original and Revised Financial Plans

47

Figure V.1: Map of the Salt Lake City South Light Rail Transit

System

52

Figure VI.1: Map of the Central Artery/Tunnel Project 58

Figure VIII.1: Map of the Alameda Corridor 75

Figure VIII.2: Illustration of the Alameda Corridor Trench 77

Figure VIII.3: Funding Sources, by Amount and Percentage 79

Page 12 GAO/RCED-98-64 Surface Infrastructure
Contents

Abbreviations

ACTA Alameda Corridor Transportation Authority

BART Bay Area Rapid Transit system

BESTEA Building Efficiency Through Surface Transportation and

Equity Act of 1997

DOT U.S. Department of Transportation

FTA Federal Transit Administration

FHWA Federal Highway Administration

FCR Flexible Congestion Relief

GAO General Accounting Office

HOV high-occupancy-vehicle

ISTEA Intermodal Surface Transportation Efficiency Act

IRS Internal Revenue Service

MTA Los Angeles County Metropolitan Transportation

Authority

NEXTEA National Economic Crossroads Transportation Efficiency

Act

SAMTRANS San Mateo County Transit District

TCI Transit Capital Improvement

TRAX Transit Express Salt Lake Area Light Rail System

UDOT Utah Department of Transportation

UTA Utah Transit Authority

Page 13 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

The San Francisco Bay Area Rapid Transit system (BART) intends to

construct an 8-mile extension of its existing transit line to provide direct

service to the San Francisco International Airport. BART estimates that the

project will cost $1.167 billion—an estimate the Federal Transit

Administration (FTA) approved when it signed a full funding grant

agreement with BART in June 1997. Under the grant agreement, BART will

finance the project through contributions from federal, state, and local

agencies. FTA will contribute $750 million, or 64 percent of the project’s

total cost. However, BART’s finance plan projects that expenses will exceed

revenues during construction and produce annual cash shortfalls that will

peak at $184 million in 2001. Accordingly, BART has established a

short-term borrowing program to address these financing gaps. However,

the financing gap may be larger than BART has projected in its most recent

finance plan because the plan assumes that the federal contributions will

be provided sooner than those specified in the grant agreement. As a

result, cash shortfalls could reach almost $290 million, and BART may need

an additional $29 million to finance these shortfalls. BART has established a

capital reserve account to meet the added financing requirements.

Whether the current funding of the reserve account is sufficient will

depend on the actual rate of construction expenditures and the revenues

flowing into the account from BART sources.

Background The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)

authorized $568.5 million for two BART projects—the Colma Station

extension1

 and the BART extension to the San Francisco International

Airport—and one light rail project in Santa Clara County. ISTEA further

directed the Secretary of Transportation to issue a full funding grant

agreement to complete the projects, using, if necessary, the full amount of

the unobligated balance in the Mass Transit Account of the Highway Trust

Fund. Since ISTEA’s enactment, the Metropolitan Transportation

Commission (the local metropolitan planning organization) and BART have

studied numerous alternatives for linking the BART system to the airport. In

1995, BART selected a final design for the project, which calls for about 8

miles of straight mainline track running south from the end of the existing

line at the city of Colma to the city of Millbrae, with an incorporated

“Y-stub” aerial line diverging from the mainline track and running

southeast into the airport and then southwest out of the airport to Millbrae

(see fig. I.1). The aerial line would include a transit station adjacent to an

international air terminal and would be linked to the airport’s light rail

system to circulate passengers through the airport. Besides the stations at

1

This extension, which runs from Daly City to Colma, is complete.

Page 14 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

the airport and Millbrae, the project includes stations at South San

Francisco and San Bruno.

Figure I.1: The BART Extension to the San Francisco International Airport

Colma

Station

Daly City

Daly City

Yard San Pedro

Town of 

Colma

City of South San Francisco

South San

Francisco

Station

82

1

82

380

280

82

City of San Bruno

Millbrae Ave.

Millbrae

Avenue

BART/Caltrain

Station

City of

Burlingame

101

101 Shaw Tanforan

San Mateo

Ave.

Huntington Ave.

San Francisco 

International 

Airport

City of South San Francisco

N

280

Legend

Completed station

Planned station under the airport extension project

Hwy. 101

To San Jose

To San 

San Bruno Francisco

Station

Airport 

Station

Source: GAO’s adaption of data from BART.

The overall purpose of the BART airport extension is to help relieve existing

and anticipated highway congestion and improve air quality in the region.

The traffic on local highways—including Interstate 280, Interstate 380, and

Highway 101—regularly exceeds existing capacity. Between 1990 and

2010, the Metropolitan Transportation Commission forecasts a 52-percent

increase in traffic to and from the airport. San Francisco International

Airport is proceeding with a $2.3 billion expansion and projects an annual

increase of 21 million passengers between 1990 and 2006. In addition, the

BART extension is one of the key transportation-related antipollution

measures for the San Francisco Bay area. In 1996, the governor of

California designated the BART airport extension as one of the state’s top

three transportation priorities.

Page 15 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

The BART airport extension is one of four projects selected by FTA to

demonstrate innovative contracting procedures. The project will employ

design-build contracting. Under the design-build process, a public agency

awards a single contract to a private firm for the design, construction, and

start-up of a facility.2

 After certifying that the work is complete, the

contractor turns the facility over to the agency. This contrasts with the

conventional procurement process, under which a public agency is

responsible for managing a project from its design through its completion

and awards separate contracts for its design and construction. BART

intends to award four design-build contracts on the project and anticipates

that it will achieve cost and time savings using this process. The

design-build bids will be solicited on extensive engineering packages

whose designs are typically 30 percent to 50 percent (in some areas, as

much as 100 percent) complete and are accompanied by BART’s design

criteria, specification standards, and drawings. According to the grant

agreement, contractors will bid on the design-build packages, and

contracts will be awarded to the low bidder. BART anticipates that the use

of design-build contracting will allow the extension to open for revenue

operations on September 30, 2001, earlier than if BART had used

conventional contracting practices.

BART and FTA Have

Agreed on a Total

Cost of $1.167 Billion,

Including Allowances

for Contingencies and

Inflation

In approving the June 1997 full funding grant agreement, FTA accepted

BART’s cost estimate of $1.167 billion for the project. This amount includes

$113 million in project-related construction that the San Francisco

International Airport will undertake. FTA also approved the project’s

proposed contingency allowance and accepted BART’s method of cost

escalation.

FTA accepted this baseline cost estimate, noting that it was derived from

cost estimates for the individual contracts that will make up the project

and reflected appropriate project schedules. FTA will use these baseline

costs to monitor BART’s compliance with the grant agreement; BART must

submit periodic cost reports to FTA. The project’s costs are broken out in

table I.1. As indicated, the largest of these is for the four design-build

construction contracts, which constitute almost half (46 percent) of the

project’s costs.

2

For the BART airport extension’s four design-build contracts, BART will be responsible for the

start-up.

Page 16 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

Table I.1: Costs of BART Airport

Extension, by Major Items Dollars in millions

Cost item Estimated cost Percentage of total cost

Environmental $8 0.7

Construction management 108 9.3

BART project management 39 3.3

Insurance 25 2.1

Prerevenue testing 3 0.3

Right-of-way 113 9.7

Vehicles 100 8.6

Site preparation and utility

relocation 15 1.3

4 design-build contracts 539 46.2

Project contingency 80 6.9

Financing costs 24 2.1

Airport-related activities 113 9.7

Total $1,167 100.2

Note: Percentages do not total 100 because of rounding.

Source: BART project finance plan, April 1997.

The project’s budget allows about $131 million, or about 11 percent of the

total cost estimate, for contingencies. A general contingency allowance of

$80 million may be used to cover increases in costs. In addition, each of

the five construction contracts contains a 12-percent allowance for

contingencies, totaling $51 million, to cover increases in construction

costs. FTA determined that this level of contingency funding was sufficient

for grant approval.

To account for inflation, BART’s finance plan escalates the cost of each

major cost item. The plan escalates construction costs by 11.6 percent,

assuming that construction will be half completed in the third quarter of

1999. The plan uses the same rate and method to escalate the costs of four

of the seven major nonconstruction activities—construction management,

BART management, vehicles, and prerevenue testing. The costs of the other

nonconstruction activities, which will be completed earlier in the project,

are escalated at lower rates—environmental at 2.4 percent, right-of-way at

5.1 percent, and insurance at 5.1 percent.

Page 17 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

While Overall

Financing Is

Complete, Debt

Financing May

Exceed Current

Estimate

FTA signed a full funding grant agreement on June 30, 1997, committing

$750 million in federal funds to the project, an amount covering 64 percent

of the project’s total $1.167 billion cost. The remaining $417 million will

come from state and local sources. BART’s finance plan projects cash

shortfalls beginning in 1999, when expenses will exceed available

revenues. However, these shortfalls will be greater than projected because

the finance plan does not reflect the slower pace of federal contributions

defined in the full funding grant agreement. To offset the shortfalls, BART

may incur an additional $29 million in financing costs.

Capital Financing Will

Come From Federal, State,

and Local Sources

The $750 million federal commitment includes $113.8 million in federal

funds provided for the project through fiscal year 1998 and $636.2 million

in New Starts Program funds that remain to be provided. The grant

agreement calls for federal funding to rise from $56.4 million in fiscal year

1998 to $100 million in fiscal years 2003 and 2004. Under the grant

agreement, the last federal installment of $91 million will be provided in

2005. The grant agreement specifies that this constitutes the total federal

commitment and that BART must provide for any additional financing

needs.

The remaining $417 million commitment, covering 36 percent of the

project’s total cost, comes from state and local sources. FTA determined

that these sources were sufficiently secure to approve the full funding

grant agreement. The largest local contributor is the San Francisco

International Airport, which will provide $200 million to the project:

$87 million directly to BART for design work, systems procurement, and the

installation of track on airport property and $113 million for interrelated

activities that the airport will complete. The interrelated activities include,

for example, constructing two aerial BART guideway structures into the

airport, the BART airport station and ancillary facilities, and enhancements

to the airport’s International Terminal, such as escalators for BART’s riders.

FTA excluded the $113 million for airport-funded activities from the full

funding grant agreement because these facilities are designed and built

directly by the airport. The airport will issue general revenue bonds to

support its $200 million contribution.

Other funding comes from a variety of sources. The $108 million state

commitment comes from State Transit Capital Improvement (TCI) funds

($58 million), Proposition 1163

 ($10 million), and State Flexible Congestion

3

In 1990, California voters approved Proposition 116, which allowed the state to sell about $2 billion in

general obligation bonds to fund transit projects across the state.

Page 18 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

Relief (FCR) funds ($40 million). San Mateo County Transit District’s

(SAMTRANS) $99 million commitment will come from existing cash reserves.

BART will construct the airport extension largely in San Mateo

County—south of San Francisco. Because San Mateo County is not in

BART’s service district, SAMTRANS entered into an agreement with BART

under which it will contribute $330 million to various BART projects

(including $99 million for the airport extension) in exchange for BART’s

extending service into the county. Finally, the Metropolitan Transportation

Commission will use tolls from the Bay Bridge to finance its $10 million

contribution. BART will not directly contribute to the project’s capital

funding. However, BART may issue commercial paper to pay financing

costs if the existing debt financing arrangements do not cover the project’s

short-term borrowing needs.

Project Will Have Higher

Debt Financing Costs

BART’s use of design-build contracting is intended to save time by

expediting the project’s design and construction. However, because these

activities will be expedited, the project will incur expenses faster than it

will receive funding, requiring BART to borrow funds to fill the gap between

revenues and expenses. BART intends to use short-term commercial paper

as the borrowing mechanism to fill the gap. BART’s April 1997 project

finance plan—the most current plan available—assumes a maximum

annual cash shortfall of $183.7 million. The short-term borrowing program

that BART will use to finance the shortfalls will produce $24 million in

financing costs.

However, BART’s April 1997 finance plan, which FTA used to approve the

full funding grant agreement, assumes that federal funds will be paid out

over 6 years, rather than 8 years, as specified in the June 1997 grant

agreement. Thus, for example, BART’s finance plan assumes federal funding

of $110 million to $160 million for fiscal years 2000 to 2003 while the full

funding grant agreement provides federal funding of only $80 to

$100 million for the same period. Even if the federal government provides

the full funding as scheduled in the agreement, which is not certain,4 BART

will need to finance additional cash shortfalls not included in the finance

plan. As our analysis in table I.2 shows, these additional financing

demands will begin in 1999, and by 2001, BART will have cash shortfalls of

$288 million. In addition, because all state and San Mateo County Transit

District funds will have been provided to the project before 2001, BART will

not be able to close this funding gap by accelerating contributions from

4

For example, the Congress provided $29.9 million in fiscal year 1998, $26.5 million less than called for

in the full funding grant agreement.

Page 19 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

these sources. Given the schedule of funding in the full funding grant

agreement, if BART’s current assumptions hold about interest rates,

inflation, and the rate at which the project will incur expenses, the

project’s total financing cost will be about $53.5 million, more than double

the $24 million that BART budgeted in its finance plan. In commenting on a

draft of this report, BART’s general manager stated that they acknowledge

and are planning for higher financing costs, and believe that through

aggressive management BART will be able to keep financing costs lower

than the $53.5 million we have cited. According to the BART official

responsible for developing the finance plan, BART will revise the finance

plan on the basis of the schedule of expenditures derived from the first

two design-build contracts, which cover most of the project’s construction

costs. Once BART has better information on the contracts’ final costs and

the timing of expenses, it will be able to more accurately determine its

financing needs. BART anticipates completing this revised plan in

March 1998.

Table I.2: Project’s Financing Under the June 1997 Full Funding Grant Agreement (Dollars in Thousands)

Fiscal year

Revenue

Through

1997 1998 1999 2000 2001 2002 2003 2004 2005 Total

Federal $83,923 $56,395 $74,000 $84,000 $80,000 $80,605 $100,000 $100,000 $91,077 $750,000

State TCI 26,921 31,079 0 0 0 0 0 0 0 58,000

State FCR 5,000 0 10,000 25,000 0 0 0 0 0 40,000

State bonds 0 10,000 0 0 0 0 0 0 0 10,000

Bay Bridge 1,375 3,000 3,000 2,625 0 0 0 0 0 10,000

Airport 4,317 8,395 18,521 29,909 20,614 5,244 0 0 0 87,000

San Mateo 19,700 10,000 69,300 0 0 0 0 0 0 99,000

Total $141,236 $118,869 $174,821 $141,534 $100,614 $85,849 $100,000 $100,000 $91,077 $1,054,000

Expenses 84,084 159,947 199,013 306,115 215,999 64,842 0 0 0 1,030,000

Cumulative

revenues 141,236 260,105 434,926 576,460 677,074 762,923 862,923 962,923 1,054,000

Cumulative

expenses 84,084 244,031 443,044 749,159 965,158 1,030,000 1,030,000 1,030,000 1,030,000

Cumulative

balance 57,152 16,074 (8,118) (172,699) (288,084) (267,077) (167,077) (67,077) 24,000

Financing costs

0 0 448 9,527 15,892 14,733 9,217 3,700 0 53,517

Sources: FTA-BART full funding grant agreement, BART project finance plan (Apr. 1997), and

GAO’s analysis.

Page 20 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

As part of its finance plan, BART has established a capital reserve account

to pay for costs in excess of the project’s $1.167 billion budget. This

account can also be used to finance costs in excess of those projected for

short-term borrowing. Funding for the account, scheduled to come from

several BART revenue streams, will allow BART to issue at least $65 million

in bonds, as needed, to offset cash shortfalls.5

 The adequacy of the

account ultimately will depend on the size of any cash shortfalls and the

costs of debt financing to cover them. Moreover, as previously noted, the

reserve account may need an additional $29 million to cover higher

financing costs, given current assumptions about federal funding, interest

rates, inflation, and expenses.

Major Construction Is

Scheduled to Begin in

1998

Construction has begun on the BART airport extension, which is expected

to open on September 30, 2001. Table I.3 outlines the schedule for the

project’s major construction activities, as outlined in the full funding grant

agreement.

Table I.3: Schedule for Major

Construction Activities

Activity Date of notice to proceed

Approximate completion

date

Project administration May 1993 September 2001

Third-party contracts May 1993 September 2001

Acquire right-of-way June 1997 June 2001

Site preparation/utilities June 1997 June 2000

Construction contract—line

trackwork/systems

September 1997 June 2001

Purchase rail cars February 1998 October 2000

Construction contract—

San Bruno Station

January 1998 September 2001

Construction contract—

Millbrae Station

January 1998 September 2001

Construction contract—South

San Francisco Station

February 1998 June 2000

Source: FTA-BART full funding grant agreement.

5

BART expects to receive (1) $2.5 million annually from surcharges at the Daly City station, from

which BART could finance $32.5 million in bonds; (2) $3 million to $4 million annually from premium

fares at the airport station, from which BART could generate about $32.5 million in bonds; and

(3) about $650,000 annually from concessions and advertising at extension stations, as well as possible

joint development and parking revenues. BART did not specify the amount in bonds that it could

finance through this last revenue stream.

Page 21 GAO/RCED-98-64 Surface Infrastructure
Appendix I 

BART Extension to the San Francisco

International Airport

According to the BART’s deputy general manager, as of December 15, 1997,

BART had awarded the contract for site preparation and utility relocation,

had advertised the design-build contract for line, trackwork and systems,

was acquiring the right-of-way for the project, and was working to resolve

right-of-way issues with cemeteries in the city of Colma. BART expects to

award the line, trackwork and systems design-build contract and the

Millbrae Station design-build contract by February 1998. Based on the

schedule, BART’s finance plan shows that the extension will begin revenue

operations in September 2001.

Several Other Issues

Have Been Resolved

Since we last reported on this project in March 1997, several impediments

to the BART project’s progress have been resolved:

• Airlines’ concerns over using airport funds to help pay for the project have

been resolved. As part of an agreement with the airport, BART will pay

$2.5 million per year to lease the airport station for 50 years. In addition,

BART will give airline employees a 25-percent discount for trips beginning

or ending at the airport station. By 2010, this fare reduction will cost BART

$1 million in lost revenues annually. BART anticipates that both these

expenses could be offset by (1) reducing the surplus anticipated from the

airport extension’s operations or (2) increasing the fare at the six other

stations in San Mateo County by 15 to 20 cents.

• Opposition to the project by a local gambling interest has been resolved.

BART, the owner of a gambling facility, and the city of San Francisco have

reached an agreement on a new parking lease and ways to mitigate

construction-related parking problems at the gambling facility. As of

December 17, 1997, the new lease agreement required final approval by the

San Francisco Board of Supervisors.

• Local opposition to the BART parking facility at Millbrae led to a

referendum intended to limit the number of parking spaces at the end of

the BART line. However, the referendum failed in the November 1997

election.

• In September 1997, a strike by BART unions resulted in a labor agreement

increasing wages for BART employees. Over time, this agreement will

increase BART’s systemwide operating costs. However, according to BART’s

deputy general manager, the cumulative wage increase is within the level

BART originally offered the unions, and BART can absorb the increase

without jeopardizing its operating budget.

Page 22 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

In January 1998, the Los Angeles Metropolitan Transportation Authority

(MTA) decided to suspend construction, for at least 6 months, on two of the

four remaining extensions of the Los Angeles Red Line subway while it

addresses severe financial difficulties. This decision responded to MTA’s

financial problems, which are limiting MTA’s ability to complete the Red

Line and other projects as planned. A number of factors have contributed

to its fiscal crisis, including an October 1996 consent decree that forced

MTA to shift its funding priority from completing the Red Line to expanding

its bus service—a program that MTA estimates will cost about $1 billion

through 2013. This revised focus—together with increased costs and

shortfalls in federal, state, and local funding for the Red Line—has left MTA

with insufficient funds to complete the subway, whose estimated costs

now total $6.14 billion. MTA has already spent about $2 billion in federal

funds for the Red Line’s design and construction. In January 1997, the

Federal Transit Administration (FTA) directed MTA to develop a recovery

plan that addresses cost and schedule concerns. Whether and to what

extent the federal government will continue to support the subway will not

be known until the project’s managers have completed this plan, which

will spell out the federal government’s future commitment. MTA has not set

dates either for resuming work on the suspended rail projects or for

completing the recovery plan.

Background MTA is responsible for planning, designing, constructing, and managing an

integrated transportation network, including an integrated light and heavy

rail system for Los Angeles County called the Metro System. The two light

rail portions of the system, the Blue and Green Lines, were constructed

without federal funds. A Blue Line light rail extension (called the Pasadena

Blue Line) was being constructed using state and local funds until the

project was suspended in January 1998. Construction of the heavy rail

portion of the system, known as the Red Line, is being funded by federal,

state, and local sources.

Between 1986 and 1997, MTA signed four full funding grant agreements1

with FTA to help pay for the final design and construction phases of the

Red Line.2

 These agreements commit the federal government to fund

1

The agreements were signed in 1986, 1990, 1994 and 1997.

2

The Red Line has been redesigned several times. In 1983, it was 18.6 miles long with 18 stations. In

1988, it was redesigned to 17.3 miles long with 16 stations to avoid areas where methane gas was

found. In 1993 and 1994, the system was expanded to include two additional extensions, increasing the

total length of the system to 23.4 miles and 22 stations.

Page 23 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

$2.8 billion, or about 51 percent, of the Red Line’s projected final design

and construction costs of $5.5 billion.

The 23.4-mile Red Line project consists of three segments. Segment

one—4.4 miles—is in service. Segment two—6.7 miles—is divided into two

extensions. The Wilshire extension is in service, and about 92 percent of

the Vermont extension has been constructed. Segment three—12.3

miles—is divided into three extensions. As of November 1997, the

construction of the North Hollywood extension was 54 percent complete;

the final design of the East Side extension was 86 percent complete: and

the design of the Mid-City extension was on hold while MTA assessed other

alignment options.

The day-to-day design activities of the Red Line are managed by an

engineering management consultant, while the construction activities are

managed by several construction management consultants, all under

contract to MTA. FTA approves and oversees expenditures of federal funds

for the project and has hired its own project management contractor to

help ensure that MTA maintains a reasonable process for successfully

designing and constructing the project and to monitor MTA’s development

and implementation of the project.

Cost Increases and

Funding Shortfalls

Have Created Serious

Financial Problems

As of November 1997, MTA estimated that the total cost of the Red Line

project would be $6.14 billion, or about 12 percent above the $5.5 billion

estimated in the full funding grant agreements. We reported in May 19963

that construction problems, new construction requirements, and

enhancements to the project had increased its estimated cost to

$5.9 billion. According to MTA officials, estimated cost increases since

May 1996 are primarily due to design and construction delays on segment

three.

As of November 1997, MTA had obligated about $4.2 billion to the Red Line

project: $2.3 billion in federal funds; $403 million in state funds; and $1.5

billion in local funds. Before suspending work on the Eastside and

Mid-City extensions, MTA planned to fund $3.1 billion of the Red Line

project’s $6.14 billion cost with federal funds and the remainder with state

and local funds. Most of the federal funds—$2.8 billion—are from FTA’s

New Starts Program. An additional $280 million is coming from other

federal programs, including the Surface Transportation Program (STP)

3

Los Angeles Red Line: Financing Decisions Could Affect This and Other Los Angeles County Rail

Capital Projects (GAO/RCED-96-147, May 14, 1996)

Page 24 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

and the Congestion Mitigation and Air Quality Program (CMAQ), that

provide states with funds that can be used for transit projects.

As of November 1997, California had committed about $745 million to the

project. Of this amount, about $705 million was expected to be provided

from state gasoline tax revenues, which are allocated to both highway and

transit projects. The remainder of the state’s funding is to come from

revenues generated from general obligation bonds for rail capital projects.

Local funding for the project—about $2.3 billion—was expected to come

from three sources: Los Angeles County, the city of Los Angeles, and

assessments levied on properties adjacent to the planned stations.

Table II.1 shows the funding sources for the Red Line as projected at the

time of the suspension.

Table II.1: Project’s Financing Plan, by

Segment, as of November 1997 Dollars in millions

Funding source Segment one Segment two Segment three Total

Federal (FTA) $696 $722 1,641 $3,059

New Starts 696a 667 1,416 2,779

STP/CMAQ 0 55 225 280

Nonfederal

match 754 919 1,403 3,076

State 214 133 398 745

Local 540 786 1,005 2,331

Total $1,450 $1,641 $3,044 $6,135

aMTA used $91 million in urbanized formula funds for completing segment one.

Source: GAO’s presentation of data from MTA.

The Red Line Project’s

Costs Could Continue to

Increase

MTA’s decision on January 14, 1998, to suspend work for at least 6 months

on the Eastside and Mid-City extensions could increase the project’s

overall costs. For instance, MTA estimates that demobilizing the extensions

could cost about $28 million.4

 A tunnel advisory panel told MTA that

“completed” design work should have a “shelf life” of 12 to 48 months,

depending on the availability of the original design team. Beyond that

period, a major redesign of the extensions by a new team would be

4

Demobilization costs do not cover expenses such as employee severance pay or the costs of

preserving and maintaining the sealed design packages. These costs will be considered in MTA’s fiscal

year 1999 budget.

Page 25 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

necessary and could have a significant impact on the project’s costs.

Furthermore, these extensions have already experienced cost increases

and schedule delays. At the time of the suspension, the Eastside extension

was scheduled to be completed in 2004, 2 years later than scheduled, and

to cost $1.049 billion, or $69 million more than specified in the grant

agreements. The Mid-City extension was scheduled to be completed in

2008, 9 years later than scheduled, and to cost $683 million, or $192 million

more than agreed. For budgeting purposes, MTA estimated a cost increase

of $192 million for the Mid-City extension, which is the cost of one of the

alternative alignments being considered. According to MTA officials, the

recent decision to further delay these extensions will most likely produce

additional cost overruns if and when work is resumed.

Other factors could increase the project’s total cost beyond the current

$6.14 billion estimate if construction is resumed. For example, because

high concentrations of hydrogen sulfide gas were discovered in the tunnel

planned for the Mid-City extension, MTA was considering three alternative

configurations that would increase the extension’s cost by $167 million to

$279 million.

Pending lawsuits could also increase costs. As we reported in May 1996, a

lawsuit by a construction contractor fired by MTA for poor performance

could increase the project’s costs because it includes a financial claim

against MTA.

5

 The contractor is suing for about $120 million for breach of

contract and other claims; MTA has a filed a countersuit for fraud and

breach of contract. In addition, the family of a man who was killed while

working on the subway’s construction in February 1997 has filed a lawsuit

against MTA for violating safety regulations. MTA officials told us that, in this

case, they are insured for a maximum exposure of $2 million. Whether

these actions affect the project’s costs will depend on the outcome of the

lawsuits and the ability of MTA’s existing insurance to cover any awards

against MTA.

Federal, State, and Local

Funding Commitments

Have Not Been Fully

Realized

We reported in May 1996 that the project had $380 million in federal, state,

and local funding commitments that may not be realized. As of

November 1997, the Red Line’s total funding shortfall had increased to

$617 million. At the federal level, the Congress had provided $302 million

less than FTA had committed in the grant agreements. Under these grant

5

All but one lawsuit by owners of retail establishments affected by ground settlement along Hollywood

Boulevard were settled by MTA’s insurance carrier for a total of $10 million (or 1 percent of the $1

billion claim). In addition, MTA settled the suit by other parties to the bus consent decree, who were

seeking to recover their legal expenses. MTA paid their legal fees from last year’s budgeted funds.

Page 26 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

agreements, the federal government had committed, subject to the annual

appropriations process, $2.8 billion for the expected life of the project.

The agreements break this total down into yearly amounts. In fiscal years

1995 through 1998, the full amounts identified in the grant agreements

were not provided by the Congress, resulting in the funding shortfall.

While the grant agreements allow the federal government to provide

additional funds later to cover any annual shortfalls, federal budget

constraints could make it difficult to make up existing or additional

shortfalls in the future. What impact the suspension will have on past

federal commitments to the Red Line remains to be seen.

State and local funding shortfalls have also affected the Red Line project.

For example, because the California state legislature recently diverted

$50 million in funds slated for MTA’s bus operations to Los Angeles County

health programs, MTA transferred $50 million that had been committed to

the Red Line project to the bus program. The state is also withholding

$20 million in funds, slated for segment three, until a recovery plan for the

project is approved.

Some of MTA’s local revenue commitments may not be realized. Although

Los Angeles has an agreement with MTA to contribute $200 million toward

the completion of segment three, it has provided only $56 million. The

city’s contributions are, to a large extent, contingent on MTA’s achieving

certain milestones, such as accelerating the completion of the Mid-City

extension by a year and developing a rail line to the San Fernando Valley

area. In addition, the agreement with MTA removes the obligation for the

city to pay its share of cost overruns on segment two, which includes

$62 million toward the repair of a 70-by-70-foot-wide sinkhole that

occurred in 1995 on Hollywood Boulevard. Furthermore, MTA does not

expect to receive $39 million in estimated revenues from assessments

levied on retail properties adjacent to the planned stations for segments

two and three because retail property owners oppose the assessment.

MTA Faces Serious

Financial Problems

Several other factors are affecting MTA’s overall financial condition, further

limiting MTA’s ability to finance the Red Line project and other

transportation projects as planned. First, projected local sales tax

revenues that are used to fund a number of MTA’s projects, including the

Red Line, are significantly lower than expected.6

 For both its annual

budget and its long-range plan, MTA used a 7-percent annual growth rate to

6

Los Angeles County dedicates revenues from its 1-cent sales tax to MTA for existing transit systems

and new transit projects in the Los Angeles area. Some funds from the county’s dedicated sales tax are

returned to the surrounding cities.

Page 27 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

project its sales tax revenues. However, actual sales tax revenues have

grown at a rate of 3.5 to 5.5 percent over the past few years.7

 A 1997 report

by the mayor of Los Angeles states that a more reasonable forecast of

growth in MTA’s sales tax base would be 4 to 5 percent. According to MTA

officials, this significant reduction will result in revenues of about

$4.6 billion less than expected through 2013.

Second, in October 1996, the bus riders’ union (and others) entered into a

consent decree that requires MTA, among other things, to expand its bus

service.8 MTA has made implementing the consent decree its first priority

and estimates that doing so will cost it about $1 billion through 2013. Over

the next 12 years, MTA also plans to upgrade its aging bus fleet by

purchasing more buses and decreasing their average age to 6 years.

Third, as of June 1997, MTA had a cumulative operating deficit of about

$98 million. According to MTA officials, since about the end of fiscal year

1992, operating expenses have been exceeding operating revenues. For

instance, transit fare revenues have been lower than projected. The 1997

mayor’s report estimates that this year’s operating deficit could be as high

as $58 million. MTA forecasts a $51 million operating deficit but states that

it will be mitigated through several revenue enhancements (one-time

credits) and efficiencies, such as staff reductions.

Financial problems have forced MTA to make some difficult management

decisions, as well as assign priorities to its transportation projects.

According to MTA, the North Hollywood extension of segment three will be

completed on time but work on the Red Line’s Eastside and Mid-City

extensions and Pasadena Blue Line are being delayed for at least 6

months. In addition, a portion of the planned expansion of carpool and bus

lanes is being delayed for about 2 years. MTA officials told us that getting

MTA’s fiscal house in order and implementing the consent decree are MTA’s

top priorities at this time.

7

Since the sales tax is critical to the bus and the rail construction programs, using a lower forecast

could require MTA to scale back its long-range transportation plan.

8

The agreement, among other things, requires MTA to (1) freeze the bus fare at $1.35 and offer an $11

weekly bus pass for 2 years and (2) add 102 more buses and 50 more limited-service vehicles to the

street over the next 2 years.

Page 28 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

New Management Is

Seeking Stability

Through Revised

Transportation Plans

Staffing at the executive level at MTA has been extremely unstable. Two

chief executive officers (CEO) and two executive officers of construction

have left in the last 2 years. MTA has not had a permanent CEO since

January 1997. In August 1997, the Los Angeles mayor hired a recognized

expert in turning around financially troubled companies, who agreed to

remain as acting CEO for up to a year. In the meantime, the search for a

permanent CEO has been suspended.

The new acting CEO has made some difficult financial and management

decisions in an effort to put MTA on a better financial footing. For instance,

in October 1997, he laid off 82 employees and eliminated about 100 vacant

positions as a first step in addressing MTA’s operating budget deficit. In

addition, to reduce operating costs, he recommended, and the MTA board

approved, that the contract for transit safety activities be awarded to the

Los Angeles Police Department and that MTA’s security force be disbanded.

It was his recommendation, which the MTA board accepted in

January 1998, to finish constructing the Red Line’s North Hollywood

extension but to suspend work on the Eastside and Mid-City extensions

and on the Pasadena Blue Line until MTA is better prepared to follow

through on its financial commitments. As a next step, MTA managers are

now working with FTA to better match MTA’s financial abilities and

construction goals.

Over the years, FTA has taken a number of steps to address the impact of

MTA’s funding shortfalls and management problems on the Red Line

project. For instance, after excessive surface settlement occurred on

Hollywood Boulevard in the summer of 1994, FTA took action to stop

tunneling in that area and suspended federal funding from October 5 to

November 10, 1994. In January 1997, FTA again expressed concerns about

MTA’s ability to manage the Red Line project’s construction in light of the

escalating costs, delays, and management issues and required MTA to

develop a recovery plan for completing segments two and three. As stated

earlier, FTA also hired a financial management consultant to review and

report on MTA’s financial capacity. On the basis of the consultant’s and

other contractors’ reports, FTA rejected MTA’s two successive draft

recovery plans. FTA said that the plans had “serious deficiencies and

questionable assumptions, both technical and financial” and did not

demonstrate MTA’s ability to continue constructing the Red Line and to

comply with the legal and financial obligations set forth in the grant

agreements and consent decree. Finally, in August 1997, FTA told MTA that

no federal funds could be used for the Eastside extension and no new

contracts could be awarded until the plan is approved.

Page 29 GAO/RCED-98-64 Surface Infrastructure
Appendix II 

Los Angeles Red Line Project

As of November 1997, MTA was working on a more realistic recovery plan.

MTA and FTA agreed that the plan will be more a “restructuring of the

project” than a “recovery” plan.9 MTA’s recent decision to suspend work on

the Eastside and Mid-City extensions and the Pasadena Blue Line will

likely delay the approval of both the restructuring plan and MTA’s

long-range transportation plans. MTA has not set dates either for resuming

work on the suspended rail projects or for completing the restructuring

and long-range transportation plans.

The Conference Report on the 1998 Department of Transportation

Appropriations Act directed GAO and the Department’s Inspector General

to conduct reviews of the recovery plan after it is approved by FTA and

report to the House and Senate Appropriations Committees.

9

In November 1997, MTA officials told us that MTA’s restructuring plan will evaluate their

commitments to MTA’s transportation projects, including the bus program, the Pasadena Blue Line,

and the Alameda Corridor.

Page 30 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

The Port Authority of Allegheny County, Pennsylvania, is currently

building phase I of the Pittsburgh Airport Busway/Wabash HOV Facility,

according to a June 1997 recovery plan, which substantially revised the

initial scope of the busway project. This project originally consisted of a

7-mile exclusive busway from the borough of Carnegie to downtown

Pittsburgh; a 1.1-mile high-occupancy vehicle (HOV) lane through the

currently unused Wabash Tunnel; and six park-and-ride lots. Developed in

response to a series of cost increases and schedule delays, the recovery

plan created a revised design that is to (1) provide nearly all of the benefits

of the initial design at the original estimated cost—about

$327 million—and (2) allow the project to be completed by 2001, a year

earlier than planned. Financing for the revised project appears sufficient

because federal funds covering 80 percent of the project’s costs—about

$257 million—have already been made available to the project and state

funding covering the remaining 20 percent is assured through state

transportation bonds. Although the Federal Transit Administration (FTA)

planned to deobligate $19.4 million in federal funds after the scope of the

project was reduced, the Conference Report on the 1998 Department of

Transportation Appropriations Act directed FTA not to do so.

Background The Port Authority of Allegheny County operates a fleet of about 900

buses, making it the 12th largest public transit operator in the United

States. It also operates a 25.2-mile light rail system that includes a 1/2-mile,

three-stop subway system in downtown Pittsburgh; two

inclines—cable-driven railways that transport passengers on gondola-type

cars up and down the cliff overlooking Pittsburgh; and two exclusive

busways—the South Busway and the Martin Luther King, Jr., East Busway.

The Busway Project Was

Selected as the Best

Choice to Address a

Critical Transportation

Need

A 1988-89 multimodal study performed by the Southwestern Pennsylvania

Regional Planning Commission recommended that a transit facility be

built between downtown Pittsburgh and the new airport, in an area known

as the Parkway West corridor, to reduce extensive congestion on the

existing parkway. The study recommended that the transit facility be built

in phases and that phase I, from downtown Pittsburgh to the borough of

Carnegie, be constructed first. After considering numerous alternatives,

the Port Authority determined that a busway was the best transportation

solution. (The busway is to be a two-lane road dedicated solely to bus

traffic leading into and out of the city of Pittsburgh, with access ramps

along the route leading to and from surrounding communities. Stations

along the busway will accommodate park-and-ride lots, where possible,

Page 31 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

and passengers from nearby neighborhoods.) The April 1994

environmental impact statement noted that phase I could be constructed

separately, prior to the other phases, and still achieve the transportation

benefits needed in the corridor. Phases II and III, which would extend the

busway from Carnegie to the airport, have not been programmed.

As originally designed, the phase I busway project was to consist of a

7-mile exclusive busway from the borough of Carnegie to Station Square in

the city of Pittsburgh. The busway was to parallel freight train tracks along

the southern shores of the Ohio and Monongahela rivers for about 2 miles

in an area known as the CONRAIL Shelf. The project also included a

1.1-mile HOV lane through the currently unused Wabash Tunnel and onto a

new bridge that was to be constructed over the Monongahela River into

downtown Pittsburgh. The busway was to give commuters an alternative

to driving and to reduce increasing congestion in the Parkway West

corridor. The HOV facility through the Wabash Tunnel was to provide

carpool commuters with an alternative route to downtown Pittsburgh.

In June 1994, FTA determined that the project’s planning process had

satisfied federal requirements related to the project’s environmental

impact and that the project could proceed into the final design and

construction stages. In October 1994, with less than 20 percent of the

project designed, FTA executed a full funding grant agreement with the

Port Authority that set the project’s budget at $326.8 million. Under the

grant agreement, revenue operations were to begin in June 1998, and the

project was to be completed in December 1999.

Events Increased the Costs

of the Project and Delayed

Its Schedule

Two years after the full funding grant agreement with FTA was signed, the

project’s estimated costs had escalated by $188 million to about

$515 million, and the project’s completion date was extended to 2002.

Problems with the placement of the new Monongahela bridge, CONRAIL’s

construction of a second line of tracks on the “shelf” bordering the river,

and higher-than-expected construction bids were primarily responsible for

these changes.

Under the original plan, the new Monongahela bridge was to be

constructed in the midst of the Station Square complex, requiring the

permanent relocation of the Gateway Clipper Fleet—a riverboat tourist

operation—downstream but still within the Station Square complex. To

facilitate this move, Gateway Clipper bought additional riverfront property

rights in the Station Square area. Subsequently, however, the Station

Page 32 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

Square complex was sold, and the new owners sought to have the

purchase of the additional property rights nullified. As a result, the Port

Authority was unable to finalize a relocation agreement with Gateway

Clipper, thereby delaying the construction of the new bridge. In addition,

the Port Authority was unable to agree with the new owners of Station

Square on the terms under which the new bridge would be built over the

complex. Consequently, all property acquisition and relocation activities

came to a standstill, and progress on the busway project was delayed.

During negotiations over property rights in the Station Square area, the

design of the new bridge proceeded, and bids for construction were

requested. However, project officials stated that the actual bids were

“millions of dollars” more than estimated in the full funding grant

agreement. In addition, bids for other portions of the busway project and

for the construction of the Wabash and Berry Street tunnels far exceeded

the original estimates.

At the same time, the Port Authority was negotiating for the right to use

CONRAIL’s right-of-way for approximately 2.2 miles along the shelf where

the busway would parallel an existing freight line track. However, after the

full funding grant agreement was signed, CONRAIL constructed a second

track on the shelf, leaving little room for the busway. Had the Port

Authority chosen to proceed with its original plan, it would have had to

pay to relocate both of CONRAIL’s tracks to make room for the busway on

the shelf. Also, after the full funding grant agreement was signed,

CONRAIL refused to allow track outages and single-track operations

during the construction of the busway on the shelf. The Port Authority

concluded that this refusal would increase the project’s costs because it

would not allow construction work to be scheduled systematically and

predictably.

A Recovery Plan Was

Initiated to Control

the Project’s Costs

and Schedule

In December 1996, when the project’s estimated costs had reached about

$515 million, the Administrator of FTA directed the Port Authority to

develop a recovery plan to address cost and schedule problems. The

Administrator also asked the Port Authority to detail the steps it planned

to take to implement the project and to mitigate the risks associated with

the revised plan. Over the next several months, the Port Authority revised

the project’s construction strategy so that the project could be completed

at the original cost, earlier than planned in the current schedule, and still

achieve most of the original transit benefits. The recovery plan was

completed in June 1997.

Page 33 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

The recovery plan that the Port Authority issued to FTA contained three

major changes in scope. First, it removed the busway from the CONRAIL

Shelf and provided a new connection to Carson Street, which runs parallel

to, but below, the shelf. This change not only obviated the need to move

the recently constructed track and the original CONRAIL track to make

room for the busway but also reduced the long-term costs of maintaining

the shelf, which the Port Authority would have incurred. Because Carson

Street is, and will remain, a facility for mixed traffic use, the state and city

will be responsible for its maintenance.

The recovery plan also deferred construction of the new bridge across the

Monongahela River. The cost to construct this bridge had reached

$125 million. Furthermore, the problems in obtaining the needed

rights-of-way along the Station Square waterfront had postponed the

bridge’s construction for so long that the project could not have been

completed until at least 2002. In addition, a majority of the current

Allegheny County commissioners and various community and business

interests opposed the planned location of the new bridge. Consequently,

the Port Authority decided to defer the construction of a new bridge and

to have the busway and HOV facility use the existing bridges.

Finally, the recovery plan called for connecting the Wabash Tunnel to

Carson Street and provided for HOV traffic to use an existing bridge with

the buses and other mixed use traffic. Under the original plan, the tunnel

would have carried HOV traffic directly onto the new bridge across the

Monongahela River into downtown Pittsburgh. Port Authority officials

believe that planned improvements to existing bridges will still allow the

original design’s transit benefits to be achieved. See figure III.1 for the

project’s current scope.

Page 34 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

Figure III.1: Current Scope of the Pittsburgh Airport Busway

Sheraden

Berry Street

Tunnel

Ingram

Crafton

Idlewood

Bell Avenue

Carnegie

Duquesne

Incline

CONRAIL Shelf

Carson St.

Pittsburgh

Station

Square

Wabash

Tunnel

Liberty

Tunnel

LRT

Monongahela

River

Martin Luther

King, Jr.

East Busway

Fort Pitt Tunnel

Fort Pitt

Bridge

Allegheny

River

Ohio River

Mt.

Oliver

South

Busway

Trolley Tunnel

Mt.

Washington

City of Pittsburgh

Busway project

Park-and-ride lot

Station

Legend

Source: Port Authority of Allegheny County.

Page 35 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

Transit Benefits Remain;

Project’s Costs Return to

Original Estimate

According to the Port Authority’s recovery plan, the average travel time

from the borough of Carnegie to downtown Pittsburgh during the morning

rush hour is 39 minutes. The project’s original plan would have reduced

the average travel time by over 27 minutes to about 11.5 minutes. The

recovery plan indicates that once the busway project has been completed,

travel time during this period should be about 12.6 minutes. Likewise, Port

Authority officials note that evening travel times will be reduced under the

revised project, but not as much as expected under the original plan.

Project officials believe, however, that the marginally longer expected

travel time under the current plan is justified by the approximately

$188 million reduction in the project’s costs.

According to Port Authority officials, the cost to carry out the recovery

plan is estimated at $326.8 million, the same amount originally estimated

in the full funding grant agreement signed with FTA in 1994. In addition,

environmental studies, which FTA required for the revised project, will cost

about $98,000, according to Port Authority officials. However, these

studies will be funded separately, and they are not to increase the total

cost of the project.

The project’s scheduled completion date is December 2001. As of

October 31, 1997, the project was 72 percent designed and 31 percent

constructed.

Funding for the Project

Appears Secure

The federal government is providing 80 percent of the funds for the

Pittsburgh busway project, or $256.8 million, while the state government is

providing 20 percent, or $70 million. Table III.1 identifies the sections of

the Intermodal Surface Transportation and Efficiency Act (ISTEA) of 1991

that authorized, and the programs that provided, federal funds to the

project.

Page 36 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

Table III.1: Sources of Federal Funds

for the Busway Project Dollars in millions

ISTEA section/federal program Amount

Section 5309; New Starts $136.0

Section 5309; Bus Projects 18.9

Section 1108; Priority Intermodal Projects 9.6

Section 1069; Miscellaneous Highway

Projects 15.8

Section 1008; Congestion Mitigation and Air

Quality Improvementa 76.5

Total $256.8

aFlexible highway funds under ISTEA.

The full funding grant agreement, signed in October 1994, included a

federal commitment of $121 million in New Starts Program funding.

However, the agreement also stipulated that if the funds authorized by

section 1069 of ISTEA for the project were not appropriated, the Port

Authority could seek additional funds to cover the shortfall through an

amendment to the full funding grant agreement. To date, an additional

$15 million in New Starts funding has been provided to the project as a

result.

After the Port Authority revised the scope of the project and deleted two

costly elements—the construction of the busway along the CONRAIL Shelf

and the construction of the new bridge over the Monongahela River—FTA

proposed to reduce the federal share of the project’s funding. Specifically

FTA said that it planned to deobligate $19.4 million of the New Starts funds

that had not yet been disbursed. This amount was commensurate with the

reduced contribution of funds to the project from the New Starts Program.1

However, the conference report on the 1998 Department of Transportation

Appropriations Act directed FTA not to deobligate the funds.

The entire $70 million in state funding comes from the Port Authority’s

share of Pennsylvania’s transportation bonds. To date, approximately

$25.8 million of these funds has been made available to the project. The

Port Authority incurs no debt service obligation because these funds are

from bonds issued at the state level. According to Port Authority officials,

the remaining state funds for the project are guaranteed but will not be

made available until federal resources are expended. This action is in

1

While the total federal share of the Pittsburgh busway project is about 80 percent, the New Starts

funding ($121 million under the full funding grant agreement) represents about 37 percent.

Page 37 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

accordance with the full funding grant agreement’s concurrence with the

Port Authority’s request for deferred local share.

Uncertainties Remain,

but the Revised

Project Faces Fewer

Risks Than the

Original Project

Although some uncertainties remain, the revised busway project faces

fewer design risks than the original project. Furthermore, other

uncertainties—including the outcomes of actual construction bids and a

pending lawsuit—are unlikely to delay the project’s completion within

budget and on time, according to Port Authority officials. FTA is monitoring

the project’s costs and progress.

The revised busway project faces fewer design risks than the original

project because it is smaller in scope and much farther along in the design

process—72 percent designed, compared with 17 percent when the

original full funding grant agreement was signed in 1994. According to Port

Authority officials, the original project’s cost overruns and schedule

delays—particularly those associated with CONRAIL’s laying of a second

track and with obtaining rights-of-way for the proposed new

bridge—could have been avoided, or at least mitigated, if the agreement

had been entered into later in the design process. Although the ongoing

environmental assessment could disclose unanticipated problems, Port

Authority officials believe that, given its reduced scope, the revised project

is less likely than the original project to encounter environmental

problems. In addition, as of October 31, 1997, engineering construction

estimates were about $20 million less than budgeted. And even if the

actual bids for the remaining contracts do exceed the estimates, the

officials said, contingency funds could, to some degree, cover the

difference.

Port Authority officials do not expect an ongoing lawsuit—filed over the

condemnation of a property along a portion of the busway from

Carnegie—to directly affect the project. Port Authority officials said that

an adverse ruling was possible but should have no impact on the project’s

costs because contingency funds are available.

FTA has controls in place to ensure that federal funds are used properly

and efficiently to complete the recovery plan. The agency is completing a

triennial review of the Port Authority that found no major deficiencies or

weaknesses. In addition, FTA’s Philadelphia Regional Office receives

quarterly progress and status reports from the Port Authority, which allow

FTA to compare the project’s budgeted and actual costs and planned and

actual progress. FTA has also assigned a project management oversight

Page 38 GAO/RCED-98-64 Surface Infrastructure
Appendix III 

Phase I Pittsburgh Airport Busway/Wabash

HOV Facility

contractor to monitor the Port Authority’s implementation of a project

management plan and quality assurance/quality control program. This

contractor further assists FTA in overseeing the design and construction of

the project and provides FTA with monthly reports on the project’s status.

Additionally, the contractor helped FTA assess the Port Authority’s

recovery plan.

Page 39 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

Scheduled to be completed in 2001, the St. Clair extension will be the first

addition to the St. Louis MetroLink light rail system since the system

began operating in July 1993. This 17.4-mile segment will cost an estimated

$339 million to complete. Consultants under contract to the Federal

Transit Administration (FTA) and the Illinois Department of Transportation

considered this estimate reasonable. The proposed alignment will pass

near known archeological remains and through an old railroad

right-of-way potentially containing hazardous wastes. Although project

officials stated that costs could increase, they believe that they have taken

sufficient measures to limit any cost growth resulting from these factors.

Federal New Starts Program funds will cover $244 million of the project’s

costs, and local funds will cover the remaining $95 million. Because the

federal funds will not be available as early as planned and will therefore

not be on hand when the project’s costs come due, the project’s

management will issue grant anticipation notes to cover the temporary

shortfall. The cost of financing the notes will add $25 million to the total

cost of the project. Although the extension is expected to be completed on

schedule, funding has not yet been secured for an additional 8.6-mile

segment that would extend the St. Clair line to Illinois’ new Mid-America

Airport.

Background The St. Louis MetroLink light rail system currently consists of 17 miles of

primarily double track running electrically powered cars from Lambert-St.

Louis International, the region’s chief airport, through downtown St. Louis

and across the Mississippi River to East St. Louis, Illinois. The system is

owned and operated by the Bi-State Development Agency, the primary

transit agency in the St. Louis metropolitan area. Currently, MetroLink

serves 19 stations, including those near the University of Missouri-St.

Louis, a museum and zoo complex, Busch stadium, and the central

business district.

As originally planned, the St. Clair extension would have added 26 miles to

MetroLink. But because of federal funding limitations, the project was

divided into two segments, and only the first segment was funded.

According to its sponsors, the project is needed to reduce congestion on

St. Clair County’s main transportation corridors, particularly on two

Mississippi River bridges during the morning and evening rush hours.

The St. Clair extension will start at the eastern terminus of the MetroLink

system—the 5th and Missouri Station in East St. Louis—and will run for

17.4 miles in an easterly to southeasterly direction to Belleville Area

Page 40 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

College, serving eight new stations. Besides the track and stations, the

project will include 15-20 new vehicles, 3,500 new parking spaces, and 41

new bus bays at stations. Construction is scheduled to begin in the spring

of 1998, and operations are to start on or before September 30, 2001.

The second segment was planned to continue for another 8.6 miles beyond

Belleville Area College to the new Mid-America Airport. It would have

served three additional stations. Local officials are now seeking funds to

complete the second segment of the extension. Figure IV.1 depicts the

existing MetroLink line and the two segments of the proposed St. Clair

extension.

Page 41 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

Figure IV.1: MetroLink Line and St. Clair Extension

Legend

Existing Metrolink

St. Clair extension (segment 1)

St. Clair extension (segment 2)

Metrolink stations

Missouri

Illinois

Mississippi River

St. Louis East

St. Louis

170

64

270

44

270

55

Central

West End

Delmar

Forest Park

Grand

Union

Station

Kiel

Busch 

Stadium

Convention

Center

8th & Pine

5th &

Missouri

East 

Riverfront

Rock 

Road

Wellston

UM-St. Louis South

UM-St. Louis North

North 

Hanley

East

Terminal

Airport

Main

Terminal

Emerson 

Park

Hall Park

Washington

 Park

Fairview

Heights

Memorial

Hospital

Swansea

Belleville

Belleville Area College

Shiloh

O'Fallon-SAFB

Mid-America 

Airport

159 15

255

44

55

270 170

255

255

64

170

270

270

Laclede's 

Landing

Missouri River

Source: GAO’s adaptation of a map from the Bi-State Development Agency.

Page 42 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

Capital Cost

Estimates Are

Considered

Reasonable but Are

Subject to Some

Uncertainties

The estimated capital cost of building the St. Clair extension (17.4 miles) is

$339.2 million. This estimate is based on current engineering costs, actual

costs of constructing the initial MetroLink line, adjusted for inflation, and

provides for contingencies. However, the extension is subject to some

risks that could increase its costs.

Table IV.1 breaks down the cost estimate as of September 1997 for the St.

Clair extension, showing construction costs (79 percent) and other project

management costs (21 percent), as well as allowances for contingencies,

which are 14 percent of the estimated construction and project

management costs.

Table IV.1: Capital Costs for the St.

Clair Extension Dollars in thousands

Cost element

Base cost plus

adjustment for

inflation

Contingency

allowance Total cost

Construction and

equipmenta $234,803 $30,334 $265,138

Project management and

real estateb 62,339 11,633 74,032

Total cost $297,203 $41,967 $339,170

aCovers elements such as trackwork, utility relocation, alignment construction, and station

construction and systems installation.

bCovers supporting expenses such as right-of-way purchase, construction insurance, and project

administration.

Source: Bi-State Development Agency.

Estimates for most of the project’s construction and equipment costs (e.g.,

for trackwork, transit vehicles, and stations) are based on current

engineering cost estimates and were validated using the actual

construction costs for the original MetroLink. Estimates for the project’s

management costs (e.g., for designing the project and soliciting and

procuring construction contracts) are calculated as a percentage of each

construction element. According to the final environmental impact

statement, the real estate costs and related legal and administrative costs

were estimated by an independent appraiser. The cost estimates were

increased by 3 percent to cover increases from inflation occurring during

the life of the project. Finally, the contingency allowances were added to

the estimated costs to provide for unanticipated work that may prove

necessary during the design and construction of the project. The

contingency allowances vary with the uncertainties associated with each

Page 43 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

cost element, from a low allowance (10 percent) for the cost of the transit

vehicles (comparable to those recently purchased for the MetroLink line)

to a high allowance (100 percent) for acquiring the real estate for the

project.

Costs Compare Favorably

With Those of Recent

Projects

Experts reviewing the project’s cost estimates have judged them

reasonable. According to a consultant hired by the Illinois Department of

Transportation, the cost estimates were prepared using state-of-the-art

engineering techniques and compare favorably with the costs of other light

rail transit systems recently built throughout the United States. The

consultant found, for example, that the average cost of building the

line—39 percent of the project’s total cost—compared favorably with the

average cost of building the lines—40.5 percent—for five recently built

projects.1

 Furthermore, according to both the consultant and the project’s

engineers, the total cost estimate may be conservative because the

extension is not as complicated to construct as the original MetroLink line,

which required laying track through old tunnels and on a historic bridge

spanning the Mississippi River. Finally, a management consultant for FTA,

who is monitoring the project, stated that the cost estimates and

associated contingency allowances are reasonable.

As of October 1997, the project’s total estimated capital cost had not

exceeded the amount included in the project’s full funding grant

agreement, approved in October 1996. Bi-State officials told us that as the

project proceeds through the design phase, any increases on one aspect of

its design will be offset by decreases in another aspect. For example, the

cost of adding a bridge to the line between Washington Park and Memorial

Hospital was offset by a reduction in the cost of other components—utility

lines were not relocated, grade crossings were eliminated, and allowances

for contingencies were reduced. To help Bi-State meet its cost goals, cities

have also provided funds to pay for desired modifications to their stations.

Uncertainties Could

Increase Costs

Although cost estimates have been refined throughout the project’s

design—now 90 percent complete—previously undetected hazardous

materials or undiscovered archeological resources may be found, or

inflation may be higher than projected, during the final design and

construction. Project officials stated that although uncertainties could

increase the project’s costs, they had taken steps such as changing the

1

The projects were in Los Angeles, Pittsburgh, Portland, Sacramento, and San Jose.

Page 44 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

project’s alignment to avoid known archeological sites and completing

detailed archeological surveys to identify any potential problems.

Ten miles of the 17.4-mile extension will be constructed on an abandoned

railroad right-of-way. Officials acknowledge that this land has the potential

to contain hazardous waste because such waste was dumped along the

right-of-way. The final environmental impact statement found various

types of hazardous waste along the project’s alignment, including a leaking

underground storage tank, asbestos and lead-based paint in buildings to be

demolished, and household debris. Subsequent site investigations and

sampling found not only asbestos and lead but also arsenic. Although

sampling for hazardous waste has been completed, demolition and

construction have not begun. Local project officials stated that they plan

to sign a contract for about $1.2 million for completing demolition and

mitigating identified hazardous wastes. This is in line with the $1.3 million

estimate made early in the project’s design. If hazardous waste is found in

greater quantities than projected, the costs of mitigation or removal could

exceed the contracted amount.

In addition, the extension will pass near the site of an ancient Native

American settlement that was once the most sophisticated human

settlement north of Mexico. Over 100 large earthen mounds were built in

the area for daily activities, religious ceremonies, and burial. Some of

these mounds, known as the East St. Louis Bottoms Mound Group, are of

primary archeological concern to Illinois preservation officials. Although

the current alignment avoids known archaeological sites, the final analysis

or actual construction could identify some archeological resources that

need to be preserved, potentially increasing the project’s costs.

The project’s use of a 3-percent cost escalation factor for inflation is based

on the current costs published in the Engineering Cost Record and on

engineers’ experience. The accuracy of this estimate will be tested in the

spring and summer of 1998, when construction contracts are let, and will

depend on how much major construction work is taking place at the time.

According to Bi-State and St. Clair County officials, determining a cost

escalation factor can be risky. However officials believe that given the

current economic conditions, the 3-percent adjustment will be adequate to

cover increases in the project’s estimated costs.

Page 45 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

Changes in the

Federal Funding

Schedule Will

Increase Local

Financing Costs

The St. Clair extension will be paid for with a combination of federal and

local funds. However, because sufficient revenues will not be available as

the project’s costs come due, the project’s management will issue grant

anticipation notes to cover the deficit. According to the most recent cash

flow analysis, this issuance will result in about $25 million in short-term

financing costs.

FTA Will Provide the Bulk

of the Project’s Financing

In October 1996, FTA and the Bi-State Development Agency signed a full

funding grant agreement stipulating that the $339 million cost of the St.

Clair extension project will be paid for with a combination of federal and

local funds. According to the agreement, the federal government will

provide $244 million, or 72 percent of the project’s capital costs. These

funds, subject to the annual appropriations process, are to be provided

over 7 years, beginning in fiscal year 1996 and ending in 2002. The full

funding grant agreement further states that the remaining $95 million—or

28 percent of the project’s capital costs—will come from local sources.

The St. Clair County Transit District, a local mass transit taxing body that

currently contracts with the Bi-State Development Agency to provide bus

service in the county, will provide the local share. Most of the district’s

revenue for the extension comes from two county sales taxes: a 1/2-cent

tax dedicated to the capital and operating costs of the St. Clair extension

and a 1/4-cent tax dedicated to transit services in the county. In fiscal year

1996, these two sources provided revenues of about $14 million. The

Illinois Department of Transportation originally planned to contribute to

the project. However, the state will not contribute because the state

legislature did not approve the bonding authority necessary to support

state mass transit capital assistance.

Issuing Notes to Bridge

Funding Gap Will Raise

Short-Term Financing

Costs

Recent changes in assumptions about the federal funding schedule

necessitated changes in the extension’s financial plan. Whereas the

original financial plan assumed that the entire federal share ($244 million)

would be provided before the end of fiscal year 2000, the revised

September financial plan assumes that only $140 million will be provided

through the end of that year and the balance by the end of fiscal year 2003.

According to a Bi-State Development Agency official, this change was

made because amounts provided through the annual appropriations

process are expected to be provided later than scheduled in the full

funding grant agreement. Figure IV.2 compares the federal funding

assumptions underlying the original and the revised financial plans.

Page 46 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

Figure IV.2: Estimate of Cumulative

Federal Funds Under the Original and

Revised Financial Plans

Dollars in millions

0

50

100

150

200

250

1997 1998 1999 2000 2001 2002 2003

Fiscal year

8/96 finance plan

11/97 finance plan

Source: GAO’s analysis of data from Bi-State Development Agency and St. Clair County Transit

District.

Primarily because of the new assumptions about the availability of federal

funds, the revised financial plan shows that sufficient funds will not be

available to cover the project’s costs as they come due. The project will

have cash shortfalls between 1999 and 2002, peaking at $92 million in 2000.

As a result, the project’s management will issue grant anticipation notes2

valued at $117.6 million. According to the revised financial plan,

summarized in table IV.2, the costs of financing these notes will be about

$25 million and will be paid by the district. These financing costs will raise

the project’s total costs to $364 million—a 7-percent increase over the

original financial plan’s projections. The notes will serve as a bridge loan,

2

The Bi-State Development Agency will also issue long-term debt, but this was anticipated in the

original financing plan.

Page 47 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

which will be paid off when sufficient revenues become available.3 A

Bi-State official said that the agency plans to issue the notes in May 1998.

Table IV.2: Revised Financial Plan, September 1997

Fiscal year

Dollars in thousands

Revenues 1997 1998 1999 2000 2001 2002 2003 Total

Federal share $39,708 $30,000 $35,000 $35,000 $35,000 $35,000 $34,223 $243,931

Local share

1/2-cent county tax 18,901 10,156 11,095 10,198 5,273 1,086 0 56,709

1/4-cent county tax 3,216 4,371 4,608 4,508 4,695 5,123 4,219 30,740

Other local funds 0 0 2,153 2,349 2,349 979 0 7,830

Long-term bonds 0 23,825 1,318 22 0 0 0

Total revenues 61,825 68,352 54,174 52,077 47,317 42,188 38,442 364,375

Costs (11,201) (56,503) (169,144) (91,622) (9,998) (703) 0 (339,171)

Annual balance 50,624 11,849 (114,970) (39,545) 37,319 41,485 38,442

Cumulative balance 50,624 62,473 (52,497) (92,042) (54,723) (13,328) 25,204

Grant anticipation notes 0 117,575 0 0 0 0 0 117,575

Grant anticipation note

principal repayment 0 0 0 0 (37,155) (39,145) (41,275) (117,575)

Grant anticipation note financing

costs 0 (2,380) (3,367) (6,391) (6,391) (4,404) (2,270) (25,203)

Revised balance $50,624 $177,668 $59,331 $13,395 $7,168 $5,104 0

Note: Totals may not add because of rounding. The grant anticipation notes’ financing costs are

reduced by $6.123 million to reflect the interest earned on the balance of these funds in 1998 and

1999.

Source: GAO’s analysis of data from Bi-State Development Agency and St. Clair County Transit

District.

The Project Is on

Schedule

The project’s design is about 90 percent complete. Construction is

scheduled to begin in the spring of 1998, and local officials expect revenue

service to begin in May 2001. Two steps remain before construction can

start—finishing the project’s design and obtaining a wetlands permit.

Other activities, such as archeological preservation and the remaining

3

Bi-State officials told us that they had used similar instruments in the past—revenue anticipation

notes—to fund transit operations in anticipation of state or federal operating assistance. The several

revenue anticipation note issues ranged between $10.5 million and $19.5 million. According to a

representative of the underwriter, Paine Webber, having the county sales tax as a revenue base

enhances the notes’ marketability.

Page 48 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

right-of-way acquisition can occur during construction. Table IV.3 shows

the project’s milestones and their actual or estimated completion dates.

Table IV.3: Project’s Milestones and

Completion Dates Milestone Completion date

Final environmental impact statement Aug. 1996a

Record of decision Sept. 1996a

60 percent design Oct. 1997a

90 percent design Jan. 1998

Wetlands permit Feb. 1998

100 percent design Mar. 1998

Archeological review and mitigation

completed May 1998

Right-of-way obtained Oct. 1998

All contracts awarded Oct. 1999

Construction completed Dec. 2000

Testing/start-up Apr. 2001

Service started May 2001

aCompleted actions.

Source: Bi-State Development Agency.

The full funding grant agreement between FTA and Bi-State provides for

revenue service to begin on or before September 30, 2001. The project’s

local managers plan to begin revenue service in May 2001. This 4-month

leeway should help the project meet the full funding grant agreement’s

September date if construction faces any delays.

Although the project is still on schedule to begin operating in May 2001,

the design of the Illinois maintenance facility has been delayed because,

according to FTA’s contractor, the project’s management decided to select

an alternative site for the facility. The originally selected site relied on

property owned by a freight railroad. According to the project’s

management, the railroad was unwilling to sell the property at a

reasonable price; therefore, extra time was needed to find a suitable

alternative site. FTA’s contractor said that the facility should still be

completed in time to meet the May 2001 operation date.

Page 49 GAO/RCED-98-64 Surface Infrastructure
Appendix IV 

St. Clair Extension of the St. Louis

MetroLink System

Funding for the

Extension’s Second

Segment Is Uncertain

Local officials are seeking federal or state funding for the second segment

of the St. Clair extension. According to Bi-State officials, this $88 million

project will not be feasible unless the state government can pay a

significant portion of its costs. Currently, neither federal nor state financial

assistance is certain.

For the second segment of the St. Clair extension to receive federal

funding, the Bi-State Development Agency would have to apply for an

amendment to the full funding grant agreement, which currently applies

only to the first segment. An Illinois state official said that such an

application might encounter resistance from supporters of another

high-priority light rail project, the Cross-County corridor extension,

planned for development in the city of St. Louis and St. Louis County,

Missouri.4

 Supporters of this project expect to receive New Starts Program

funding early in the next decade and believe that additional federal funds

for the second segment of the St. Clair extension could delay their federal

funding.

According to an Illinois Department of Transportation official, the state

may issue a grant covering between 50 and 100 percent of the cost of the

second St. Clair segment. In part, such a large share would compensate for

the state’s not having contributed to the first segment. However, such state

assistance is not assured because the legislature has yet to approve a bond

issue to support mass transit capital assistance grants.

4

Altogether, nine transportation corridors could be served by MetroLink extensions, according to a

1991 systems analysis developed by St. Louis-area transportation planners.

Page 50 GAO/RCED-98-64 Surface Infrastructure
Appendix V 

Salt Lake City South Light Rail Transit

Project officials expect the Salt Lake City South Light Rail Transit system

to be completed within budget, ahead of the original schedule. Many of the

major contracts for the $312.5 million project have been awarded at

amounts lower than expected, allowing for the implementation of several

enhancements to the system. According to project officials, the 15-mile

system will begin operations by March 2000—10 months ahead of schedule

and well before the opening of the 2002 Winter Olympic Games in Salt

Lake City.

Background A local transportation planning process for Salt Lake County, begun in

1982, determined that the north-south Interstate 15 (I-15)/State Street

Corridor in Salt Lake County warranted major capital investment in both

its transit and its highway systems. The resulting transit capital project is

the $312.5 million, 15-mile Transit Express Salt Lake Area Light Rail

System, known as “TRAX” (see fig. V.1.). TRAX’s principal objective is to

provide capacity improvements in the corridor, especially during peak

commuting periods.

TRAX will largely parallel I-15, the major north-south highway that is also

being improved as a result of the same local planning process (see app.

VII), from the northern end of downtown Salt Lake City through the

downtown and the southern suburbs. TRAX service will be coordinated

with bus service and be connected to an east-west light rail line currently

under consideration.

Initially, the 15-mile TRAX system will serve 17 passenger stations—5

downtown and 12 in the southern suburbs. Within the downtown area,

TRAX will operate on city streets within the established speed limit

(currently 25 miles per hour); south of downtown, TRAX will operate on an

existing railroad right-of-way at a maximum speed of 55 miles per hour.

Except for two bridges in the southern suburbs, the entire system is

double-tracked. These bridges may be upgraded to become double-tracked

in the future if funds become available.

Page 51 GAO/RCED-98-64 Surface Infrastructure
Appendix V 

Salt Lake City South Light Rail Transit

Figure V.1: Map of the Salt Lake City

South Light Rail Transit System

Jordon

Mill Creek

River

3500 S.

4100 S.

I-215

4700 S.

4800 S.

4500 S.

3900 S.

3300 S.

2700 S.

SR 201 2100 S.

1700 S.

1300 S.

5300 S.

5900 S.

SR 177

700 W.

State St.

700 E.

9400 S.

9000 S.

7800 S.

East

Jordan

Canal

Jordan &

Salt

Lake

Canal

7200 S. U.P.R.R.

U.P.R.R.

U.P.R.R.

Main St. State St.

300 E.500 E.

I-80300 W.

900 S.

700 S.

500 S.

300 S.

100 S.

S. Temple St.

N. Temple St.

South Temple/

Delta Center I-80

TRAX Alignment

TRAX Station

Legend

Center Street

7200 South

6400 South

5300 South

(Vine Street)

4500 South

9000 South

10000 South

3900 South

3300 South

2700 South

2100 South

1300 South

Main/500 South

Main/300 South

Main/100 South

South Temple/West Temple

I-15

Source: Utah Transit Authority.

Page 52 GAO/RCED-98-64 Surface Infrastructure
Appendix V 

Salt Lake City South Light Rail Transit

Contracts’ Costs Were

Lower Than

Expected, Allowing

for Enhancements

As of December 31, 1997, the project’s total estimated cost had not

changed from the $312.5 million1

 projected in the August 1995 full funding

grant agreement. As of that date, the total planned obligations for the

project’s tasks were $273 million; the balance of the project’s costs are for

financing ($25 million) and reserves ($14.6 million). Table V.1 shows the

planned breakdown of obligations for tasks and other cost elements.

Table V.1: Breakdown of Project’s

Planned Costs, as of December 31,

1997

Dollars in millions

Cost element Planned cost

Tasks

Project management and administration $14.8

Final design and engineering 12.5

Construction management 5.2

Railroad right-of-way 18.5

Real estate 15.5

Construction 131.7

Procurement 71.1

Start-up and testing 3.5

Subtotal for tasks $272.9

Reserve 5.6

Local match reserve 9.0

Financing 25.0

Total cost $312.5

Source: Utah Transit Authority TRAX Executive Summary Report, December 1997

According to Utah Transit Authority (UTA) officials, bids and award

amounts for many of the TRAX contracts were lower than budgeted. UTA

officials attribute those differences to the competitive construction

environment created, in part, by the I-15 highway project. UTA was able to

use the difference between the budgeted and the actual bid prices to

enhance some aspects of the system. For example, UTA was able to

upgrade single-tracked segments of the system to double-tracked

segments and to enhance the communications system throughout the

project.2 UTA routinely reports to the Federal Transit Administration (FTA)

1

This amount does not include about $8.8 million spent by the Utah Transit Authority for preliminary

engineering costs or $22 million in project-related investments made by Salt Lake City.

2

UTA officials were not able to provide the costs of these enhancements because they are not readily

distinguishable. Some of the enhancement work was added to existing contracts, and some was

incorporated into new bid packages. Additionally, some of the enhancements eliminated the need for

other investments, such as mechanisms to move trains between single and double tracks.

Page 53 GAO/RCED-98-64 Surface Infrastructure
Appendix V 

Salt Lake City South Light Rail Transit

on its contracts’ status and costs, and FTA reviewed and approved each

TRAX enhancement funded with contract savings.

As of December 31, 1997, UTA had obligated $190.8 million, or about 70

percent of the project’s total $273 million task budget. This obligation

amount is $68.8 million, or about 27 percent, less than planned for the

project at this point in its construction schedule. According to UTA

officials, the majority of the $68.8 million obligation underrun occurred

because contracts were awarded for amounts lower than anticipated; in

addition, about $15 million in obligations planned for November were not

made.

As of December 31, 1997, UTA had expended $89.2 million—33 percent of

the $273 million task budget. These expenditures are $11.5 million (12

percent) less than the amount projected for this date in the expenditure

plan. Between December 1997 and November 1998, UTA is projected to

expend about $150 million, almost twice the amount already expended.

Pace of Construction

Will Require Some

Short-Term Borrowing

The Intermodal Surface Transportation Efficiency Act (ISTEA) required FTA

to enter into a full funding grant agreement with UTA, which includes

$131 million in federal transit New Starts Program funds for the initial

segment of the TRAX project. In August 1995, FTA and UTA signed an

agreement committing the federal government to fund no more than 80

percent of the project’s actual net costs or no more than $241.4 million,

whichever is lower.3

 The full funding grant agreement states that, in

addition to the $131 million authorized by ISTEA and the $12.5 million that

FTA provided to TRAX before entering into the full funding grant agreement,

FTA intends to obtain $97.5 million for TRAX for fiscal years 1998 through

2000 under the legislation reauthorizing ISTEA. Through fiscal year 1997,

TRAX had been provided a total of $70.8 million of the $241.4 million,

$12.5 million of which predated the full funding grant agreement. The 1998

Department of Transportation Appropriations Act provided $63 million for

TRAX; $10 million of ISTEA’s authorization for TRAX has yet to be provided.

As of December 31, 1997, UTA had received a total of $58.3 million in

federal funds—including about $46 million from the amount committed in

the full funding grant agreement and $12.5 million received under a

previous FTA grant for acquiring a railroad right-of-way. UTA anticipates

3

According to UTA officials, FTA attributes the $9 million difference between $241 million and 80

percent of $312.5 million ($250 million) to a calculation error. FTA may address this error by changing

the maximum federal funding commitment to $250 million.

Page 54 GAO/RCED-98-64 Surface Infrastructure
Appendix V 

Salt Lake City South Light Rail Transit

that over the next few months it will draw down most of the available

remaining federal funds as the expenditure rate increases.

Local funds for the construction of TRAX are projected to total $71 million.4

These funds are to come from bond proceeds, as well as from cash that

UTA has on hand. In October 1997, UTA issued $27.7 million in sales tax and

transportation revenue bonds, which generated $24.8 million for the

project’s construction. As of October 15, 1997, UTA had expended

$20 million on construction from its cash on hand, had set aside an

additional $17 million in cash, and planned to expend $9.3 million in the

future from its cash reserves.

Additionally, during the second quarter of fiscal year 1998, UTA plans to

issue $50 million to $75 million in grant anticipation notes or bonds

backed by the expectation that it will receive federal funds in fiscal years

1999 and 2000 as specified in the full funding grant agreement. These

bonds are to address the cash-flow shortage that is expected to occur as

UTA continues to construct TRAX and pay its contractors before federal

funds are available for reimbursement. Federal funds will be used to repay

the bonds, assuming TRAX is funded as planned.

Operations Are

Expected to Begin

Ahead of Schedule

The full finding grant agreement commits UTA to begin TRAX service to the

general public no later than December 31, 2000, the same date currently

shown on UTA’s official master schedule. However, UTA projects that TRAX

service will begin in March 2000—10 months ahead of schedule. Although

some delays have been noted with individual contracts, UTA does not

expect any of these to delay the system’s completion.

Construction of the light rail system began in June 1997 and, as of

November 1997, was under way in the downtown and suburban portions

of the system. A downtown segment and station were completed in early

November. Test tracks are being installed and are scheduled to be ready

for operation by April 21, 1998; the first TRAX vehicle is currently scheduled

to arrive on March 1, 1998.

At this stage in construction, environmental problems could still arise and

slow the completion of the project, as well as increase its costs. For

example, excavation for the stations along the southern portion of the

system will take place near the existing freight railroad track, where

4

Or $62.5 million if FTA corrects its calculation error and provides a total of $250 million for the

project.

Page 55 GAO/RCED-98-64 Surface Infrastructure
Appendix V 

Salt Lake City South Light Rail Transit

hazardous materials—a potential legacy of freight operations—may be

found. The project is not scheduled to be completed to the point that these

risks are eliminated until September 30, 1999.

Page 56 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

The Central Artery/Tunnel project is one of the most expensive, and in

many ways, the most complex federally assisted highway project ever

undertaken. As we have reported in a series of reports and testimonies,

state managers have worked to control the costs of the project and are

taking steps to reduce them. However, the state is not meeting its

aggressive cost containment goals and, unless further savings can be

found, construction cost increases seem likely to push the project’s total

net cost higher than the current $10.8 billion estimate.

Massachusetts’ October 1997 project finance plan will meet the funding

needs of the Central Artery/Tunnel project if costs remain as forecast and

if funding is received as projected. However, the project’s funding needs

could be larger than projected in the state’s finance plan because

(1) additional costs of some magnitude seem likely and (2) federal funding

could be nearly $1 billion less than projected, according to the multiyear

highway bills pending in the Congress. In addition, for this project, the use

of grant anticipation notes to borrow against future federal funding

presents challenges.

Background The Central Artery/Tunnel project will substantially complete the federal

Interstate Highway System. It will link air, sea, rail, bus, and subway

facilities and will, according to the project’s managers, support sustained

economic growth and environmental benefits. The project is managed by

the Massachusetts Turnpike Authority. Its day-to-day design and

construction activities are managed by a management consultant—a joint

venture of Bechtel/Parsons Brinckerhoff—under contract with the state.

The Central Artery/Tunnel project will build or reconstruct about 7.5 miles

of urban highways (about 160 lane miles)—about half of them

underground. As figure VI.1 shows, it will (1) extend route I-90 east, mostly

in tunnels, through South Boston, under Boston Harbor (through the Ted

Williams Tunnel), and to East Boston and Logan International Airport;

(2) replace the Central Artery—an elevated portion of I-93 through

downtown Boston—with an underground roadway; and (3) replace the

I-93 bridge over the Charles River. The project entails numerous and

complex construction challenges in tunneling under densely populated

downtown Boston. For example, the project will burrow close to buildings

and subway tunnels, often with only a few feet to spare. Construction

plans include underpinning the existing elevated Central Artery so that

this structure continues to carry traffic—as well as supporting the railroad

Page 57 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

tracks leading into the city’s main train station—while underground

highways are built directly below.

Figure VI.1: Map of the Central

Artery/Tunnel Project

Charles

River

Sumner Tunnel

Callahan Tunnel

Boston Inner Harbor

Fort Point Channel

Third Harbor Tunnel

MASS. AVE.

INTERCHANGE

I-93I-90 INTERCHANGE

CENTRAL

ARTER Y

CHARLES RIVER

CROSSING

CHARLESTOWN

EAST BOSTON

LOGAN

AIRPORT

NORTH END

DOWNTOWN

CHINATOWN

SOUTH END

SOUTH BOSTON

NEW CHARDON

NORTH

STATE

MILK

FRANKLIN

HIGH

BROAD

NORTHERN

CONGRESS

SUMMER

BEACH

KNEELAND

E. BERKELEY

SUDBURY

LEGEND

Viaduct

Transition

At grade

Tunnel

Original alignment

Source: Central Artery/Tunnel project office.

Page 58 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

Status of Cost and

Schedule

Massachusetts reported that as of September 30, 1997, the total estimated

net cost of the Central Artery/Tunnel project was $10.8 billion. A total of

$6 billion, including $4.9 billion in federal funds and $1.1 billion in state

funds, has already been obligated for the project. As we reported in

July 1997, the total funding needs for the project are $11.6 billion, about

$800 million more than the project’s cost estimate.1

 This is because the

$10.8 billion cost estimate includes a credit to the cost of the project of

about $800 million, which represents the future receipt of insurance

proceeds. However, these proceeds, if realized, will not be available until

2017, well after the project’s completion; therefore, they cannot be used to

help pay for the project.2

 The project’s obligations and remaining funding

needs are shown in table VI.1.

Table VI.1: Central Artery/Tunnel

Project’s Obligations, Funding Needs,

and Cost, as of September 30, 1997

Dollars in billions

Obligations, funding needs, and cost Amount

Obligations through September 30, 1997 $6.0

Remaining obligations through fiscal year

2005 $5.6

Total funding needs $11.6

Insurance proceeds in 2017 ($0.8)

Total net cost $10.8

Source: GAO’s analysis of state data.

Construction began in 1991, and the project achieved its first major

milestone when the Ted Williams Tunnel opened to commercial traffic in

1995 and to passenger vehicles on a limited basis in 1996. As of September

30, 1997, the project’s final design was 94 percent complete and was

scheduled to be substantially complete by mid-1998. As of the same date,

construction was 32 percent complete and most of the remaining 30

construction contracts were planned to be awarded by 2001. The project is

scheduled to open to traffic in stages—the permanent connections of I-90

to the Ted Williams Tunnel in December 2001, the northbound Central

Artery in July 2002, and the southbound Central Artery in May 2003. The

1

Transportation Infrastructure: Progress on and Challenges to Central Artery/Tunnel Project’s Costs

and Financing (GAO/RCED-97-170, July 17, 1997).

2

The insurance proceeds are estimated savings that result from, among other things, a

better-than-expected safety record and lower-than-expected accident claims on the project. Most of

the estimated insurance savings are attributable to anticipated refunds that, along with other

insurance-related funds, will earn interest until all claims are paid, at which time these remaining funds

will be returned to the state. Project officials estimate that this will occur in 2017—13 years after

construction is completed. According to project officials, the industry’s standard practice is to assume

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

Page 59 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

entire project is scheduled to be substantially complete in December 2004.

As of September 30, 1997, Massachusetts reported that the project was

meeting all of its milestones except that the opening of the southbound

Central Artery was 3 months behind schedule.3

 Project officials attributed

this projected delay to the additional construction time needed when the

project’s plans to incorporate an existing tunnel into the underground

Central Artery were revised in response to concerns raised by the Federal

Highway Administration (FHWA). Officials stated that this delay, if it

occurs, will not delay the overall project’s substantial completion in 2004.

Construction Cost

Increases Could Raise

Total Costs and

Funding Needs

The Central Artery/Tunnel project’s total net cost and funding needs have

remained relatively constant in the 6 months since we reported on them in

July 1997.4

 Cost increases, such as a $15 million increase in property

acquisition costs, were substantially offset by corresponding savings, such

as a $22 million reduction in the estimated cost of police details at

construction sites. The largest of the increases reported during this period

was around $50 million in the estimates of construction contracts being

designed. The largest cost savings reported during this period to maintain

the project’s total cost was a $130 million reduction in the estimated cost

of future construction contracts.

The estimated savings on future contracts was achieved by reducing the

assumed rate of annual inflation from 3.35 percent to 2.35 percent, a

reduction justified by recent inflation trends in the Boston area, according

to state and FHWA officials. However, recent contract awards suggest that

these savings may not be realized. The state awarded three construction

contracts after reducing its cost estimate on future construction contracts

when we completed our review; each exceeded the state’s estimates,

adding about $74 million to the cost of the project. Therefore, while a

variety of factors can influence the price of contracts and contractors do

not traditionally reveal their assumptions about future inflation, some

portion of the savings attributable to the revised inflation assumption may

have been lost already. FHWA and state officials believe the lower inflation

assumptions will prove to be correct, and they attributed the higher costs

to factors such as the complexity of the work and changing market

conditions, which resulted in less competition for the contracts than

anticipated.

3

The southbound portion is currently projected to open in August 2003 instead of its scheduled

opening date of May 2003. Previously, the scheduled opening date was October 2002; it was changed

on June 30, 1997. Project officials told us that the southbound segment has been behind schedule since

early 1995.

4

Our July 1997 report used March 1997 cost data; this report uses September 1997 data.

Page 60 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

Massachusetts has established aggressive goals to contain and control the

project’s construction costs; however, as we last reported in July 1997, the

state is not meeting those goals. In 1995, the state established an overall

goal of holding the costs of changes to the project’s construction contracts

to 10.7 percent or less of the contracts’ estimated bid prices. This overall

goal was based on two assumptions: (1) holding cost growth on contracts

awarded after November 1994 to an average of 7 percent of the awarded

bid price and (2) holding cost growth on contracts awarded through

November 1994 to about 25 percent of the awarded bid price—the average

rate of growth in contract costs at that time.5

 Cost increases above these

goals have occurred on contracts awarded both before and after

November 1994, as shown in table VI.2.

Table VI.2: Percentage Increase in

Costs on Awarded Construction

Contracts for the Central Artery/Tunnel

Project, as of September 30, 1997

Dollars in millions

Awarded

contracts

Number of

contracts

Cumulative

awarded

contract price

Goal for cost

growth (in

percent)

Cost growth

(in percent)

Contracts

awarded through

November 1994 36 $1,108 25.0 28.4

Contracts

awarded after

November 1994 42 $3,863 7.0 9.6

All awarded

contracts 78 $4,970 10.7 13.8

Source: GAO’s analysis of state data.

The 13.8-percent growth in the costs of the project’s awarded contracts

represents an improvement over the 17.4-percent growth we reported in

July 1997. However it may not be indicative of a downward trend because

it includes a large number of contracts that have not been in effect for very

long. Of the 42 contracts awarded since November 1994 and shown in

table VI.2, 18, representing $2.8 billion of the $3.9 billion in contracts, are

less than 25 percent complete. Cost growth for contracts that are further

along tends to be greater than the cost growth that is reflected in the

average for all contracts. For example, the cost growth for contracts that

are more than 50 percent complete is 14.1 percent, compared with the

5

State and FHWA officials believe that the cost performance of contracts issued after November 1994

is a more meaningful indicator of the effect of cost containment efforts than the cost performance of

contracts issued before that date because the state did not have a formal cost containment program in

effect until 1995.

Page 61 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

9.6 percent for all contracts awarded after November 1994, as shown in

table VI.3.

Table VI.3: Rate of Cost Growth on

Contracts Awarded After

November 1994, by Percentage of

Contract Completed

Dollars in millions

Percentage of

contract

completed Number of contracts

Cumulative awarded

contract price

(percent of total

awarded)

Rate of cost growth

(in percent)

Less than 25%

18

$2,783

(72%) 7.4

25 to 50%

4

602

(16%) 16.5

More than 50%

20

478

(12%) 14.1

Total

42

$3,863

(100%) 9.6

Source: GAO’s analysis of state data.

While we cannot predict the total increase in the costs of all the project’s

construction contracts, we believe that meeting the goals set in 1995 and

avoiding increases in the cost of the project will be difficult. To prevent

further increases in the project’s construction costs, Massachusetts must

not only meet but beat its cost containment goals. For example, assuming

that awarded construction contracts experienced no further cost growth,

the 30 unawarded contracts could only grow by less than 1 percent to

meet the cost containment goal of 10.7 percent. If on the other hand, the

costs of these unawarded contracts and of the contracts awarded after

November 1994 experienced the same 14.1 to 16.5 percent cost growth as

the awarded contracts that are 25 percent or more complete, the cost of

the project would increase by about $270 million to $400 million.

In July 1997, we reported that the state’s goals form the basis for the

state’s cost estimate and finance plan. We recommended that the state

decouple its cost containment goals from the project’s cost estimate and

revise that estimate to more closely reflect the state’s actual experience

with its cost containment program. State officials, however, believe that

the existing goals are essential to provide designers and contractors with

an incentive to control contract changes and restrict cost growth. Even so,

state officials agreed that the project has ambitious cost containment goals

for construction that will be difficult to meet.

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Appendix VI 

The Central Artery/Tunnel Project

Massachusetts is continuing to take steps to lower costs. For example, it is

examining the remaining unawarded construction contracts, whose costs

total $1.5 billion, and, according to the project director, hopes to reduce

their scope by 10 percent and achieve $150 million in savings. In addition,

the state plans to open negotiations with the utility companies, railroads,

and others who work on the project under contract to reduce the costs of

their work by between $16 million and $32 million. The state is also

reducing the project’s administrative costs. According to project officials,

Bechtel/Parsons Brinckerhoff will reduce its staff by 5 percent by

March 1998 to save around $10 million, and the state is seeking further

reductions in the costs of its contract with Bechtel/Parsons Brinckerhoff

to save an additional $40 million.

State’s Estimate Does Not

Include the Cost of

Borrowing

The Central Artery/Tunnel project’s cost estimate does not include the

costs of borrowing. The state issues bonds to finance its share of most of

its transportation projects and, according to state officials, traditionally

does not include the costs of this borrowing as part of its cost estimates

for projects. Cost-estimating practices vary widely among the states, and

FHWA has no standards or requirements for the states to follow in preparing

cost estimates for projects. However, the Massachusetts Department of

Administration and Finance recently calculated that the borrowing costs

for grant anticipation notes and for other short-term borrowing associated

with the project would be $776 million. In addition, the Massachusetts

Turnpike Authority incurred interest costs when it issued $1.76 billion in

bonds in September 1997 to, among other things, contribute $700 million

to the project.

Funding Needs May

Be Greater Than

Projected in the

State’s Finance Plan

Massachusetts’ October 1997 finance plan will meet the funding needs of

the Central Artery/Tunnel project if costs remain as forecast and if funding

is received as projected. However, as discussed earlier, further cost

increases of some magnitude seem likely. In addition, the project’s funding

needs could be larger than projected in the state’s finance plan because

the estimated level of federal funding is greater in the plan than in the

multiyear highway bills pending in the Congress. Furthermore, the use of

grant anticipation notes, particularly on the scale contemplated by the

plan, presents challenges.

Under the state’s current cost estimate, completing the project will require

$5.6 billion in additional obligations through fiscal year 2005. Nearly all of

these obligations—$5.3 billion—will be required in the next 5 years,

Page 63 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

through federal fiscal year 2002. Massachusetts’ finance plan assumes that

$2 billion in federal funds will be available to the project during the peak

construction period through fiscal year 2002, and $2.9 billion through

fiscal year 2005. While the amount of federal funding Massachusetts can

expect will not be known until the Congress reauthorizes the Intermodal

Surface Transportation Efficiency Act (ISTEA), Massachusetts’ finance plan

assumes that federal funding will be the same as projected in the

administration’s proposed National Economic Crossroads Transportation

Efficiency Act (NEXTEA). However NEXTEA would provide more federal

funding to Massachusetts than either of the two pending bills—the

Building Efficiency Through Surface Transportation and Equity Act of

1997 (BESTEA) in the House and the ISTEA II authorization bill in the Senate.

As table VI.4 shows, passage of BESTEA would create additional funding

needs of at least $144 million. Passage of the Senate legislation would

create additional funding needs of nearly $1 billion.

Table VI.4: Federal Funding for the

Central Artery/Tunnel Project Under

Other Federal Funding Scenarios

Dollars in millions

Proposal

Federal funding to the

project, fiscal years

1998-2005

Additional funding needed

to equal NEXTEA’s

funding

NEXTEA $2,931

House BESTEA (Introduced) $2,619 $312

House BESTEA

(Amended by Committee) $2,783 $144

Senate ISTEA II $1,980 $949

Note: The figures above are from FHWA’s analysis of the apportionment levels to the states under

NEXTEA and the average annual apportionment levels to the states under the other

reauthorization proposals. It also reflects Massachusetts’ planning assumption that 71 percent of

the federal funds Massachusetts receives will be used for the Central Artery/Tunnel project

through fiscal year 2002, and 50 percent thereafter. The House Transportation and Infrastructure

Committee adopted an amendment to BESTEA, H.R. 2400, but a bill has not been reported to the

floor.

Because federal funding, even under NEXTEA, is projected to be insufficient

to meet the project’s financing needs, Massachusetts plans to use other

state sources including the following:

• About $900 million in state bond funds will be used to match federal funds

and pay for parts of the project that are not eligible for federal funding or

for which federal funding was not sought.

Page 64 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

• The Massachusetts Turnpike Authority will provide $700 million, required

by 1997 state legislation and financed by the sale of $1.76 billion in

revenue bonds in September 1997.

• The Massachusetts Port Authority will provide $200 million, also specified

in state legislation, and implemented through a July 1997 memorandum of

understanding with the state.6

 Under this agreement, the Authority will,

after completing a schedule of payments, assume ownership of portions of

the project being constructed at Logan International Airport. The

legislation and the agreement also require the Authority and the state to

jointly study the feasibility of having the Authority contribute an additional

$100 million to the project.

• Grant anticipation notes will be issued to provide $1.5 billion. The state

legislature authorized the issuance of $1 billion in anticipation of federal

funding, and the state plans to issue the first notes in the spring of 1998.

State officials plan to seek additional authority from the legislature to

issue more of these notes.

According to Massachusetts’ estimates, after 2002, the project will require

only $334 million in new obligations, and available funding will exceed

needs. Massachusetts plans to begin repaying the grant anticipation notes

in 2003 and to use one-half of the federal highway apportionments it

receives between fiscal year 2003 and fiscal year 2009 to meet the project’s

remaining expenses and to repay the notes.

As we reported in 1997, there is limited precedent for the use of grant

anticipation notes, particularly in amounts of this magnitude. While the

financial markets will ultimately determine the feasibility of selling grant

anticipation notes in the amount envisioned, challenges remain to be

overcome. For example, although Massachusetts plans to use federal

funds through 2009 to repay the notes, the Congress is unlikely to enact

reauthorizing legislation for more than 6 years, which would provide the

state with federal funding authorizations through 2003. The state would

then be borrowing against federal funds that had not yet been authorized.

6

Under the memorandum of understanding that the state signed with the Massachusetts Port

Authority, $105 million of the $200 million payment will be made in 2003—after the peak construction

period when the funds are needed. To ensure that funding is available when needed, the state plans to

issue bond anticipation notes and borrow against this expected payment. The state also expects to

issue bond anticipation notes for the payment of a $400 million contribution from the Massachusetts

Turnpike Authority, also expected in 2003, and authorized by state legislation enacted in 1995.

Page 65 GAO/RCED-98-64 Surface Infrastructure
Appendix VI 

The Central Artery/Tunnel Project

The state’s finance plan does not specify how additional needs will be met

if costs increase or funding is less than predicted. In July 1997, we

recommended that FHWA require Massachusetts to include a contingency

plan in its next finance plan to cover these possibilities. FHWA stated that it

believes such a plan is premature until the level of future federal funding

for Massachusetts is known. According to FHWA, the state will be required

to prepare another finance plan after the federal highway program is

reauthorized. Massachusetts’ October 1997 finance plan responds to our

recommendation by indicating that the state is exploring options for

securing additional state funding, if needed, and that it will address those

needs at the appropriate time.

Page 66 GAO/RCED-98-64 Surface Infrastructure
Appendix VII 

Interstate 15 Reconstruction Project, Salt

Lake City, Utah

At an estimated cost of $1.59 billion, the Interstate 15 (I-15) reconstruction

project in Salt Lake City, Utah, is the largest “design-build” highway

project ever undertaken in the United States. A substantial portion of the

project’s costs are covered under one fixed-price contract that was

awarded in March 1997 to a single contractor to both design and construct

the project. As a result, many of the risks of cost growth associated with a

traditional highway project, such as increases that occur during the

detailed design process, have been minimized. Nevertheless, costs could

still grow because the state and the contractor have each agreed to assume

certain financial risks. The design-build process is relatively new to the

highway construction industry—there are few completed projects, and

little historical information is available to predict possible changes to the

cost of the project. Officials in states where design-build contracts have

been completed stated that post-award change orders increased the costs

of these contracts by around 2.5 percent to around 8.5 percent. Changes of

this magnitude, if they occurred, would add roughly $35 million to

$110 million to the cost of the I-15 project.

While the Utah Department of Transportation (UDOT) is seeking federal

funds, it is prepared to complete the project using state funds if necessary.

As of October 1997, around $14 million in federal funds had been obligated

for the project, mostly for environmental studies and property acquisition.

The I-15 project is the largest component of Utah’s Centennial Highway

Fund—a 10-year, $2.6 billion fund for the construction and reconstruction

of highways throughout Utah, financed through the state’s general

revenues, earmarked increases in the state’s gasoline tax and vehicle

registration fees, and other sources. The state has requested $970 million

in federal funding for the project beyond its expected highway

apportionments and has planned on receiving about half that amount.

State officials said that if additional federal funds are not made available,

Utah will complete the project either by raising additional state funds or

by reducing or canceling some of the other 39 projects slated to be

financed from the Centennial Highway Fund.

Background The I-15 reconstruction project, first proposed in 1992, will reconstruct

around 17 miles of Interstate highway in and around Salt Lake City, Utah.

The project will replace all existing pavement, widen the road from 6 to 12

lanes, reconstruct several major Interstate highway interchanges, replace

137 bridges and other structures, and equip the corridor with an advanced

traffic management system. According to UDOT, traffic congestion,

outdated safety and design features, pavement and bridge deterioration,

Page 67 GAO/RCED-98-64 Surface Infrastructure
Appendix VII 

Interstate 15 Reconstruction Project, Salt

Lake City, Utah

and other factors combined to require the complete reconstruction of the

highway. State and Federal Highway Administration (FHWA) officials told

us that the project is critical to both the transportation infrastructure of

the Salt Lake City area and the city’s and state’s ability to host the Winter

Olympic Games in 2002.

The I-15 project is the largest design-build highway project ever attempted

in the United States. Whereas a traditional highway project is fully

designed by the state or its contractors and the design plans are then

provided to prospective contractors who prepare proposals for building

the project, a design-build project is both designed and built by the same

contractor. Although the state identifies a desired end result and minimum

design criteria, prospective contractors prepare proposals for both the

design and construction phases of the project. While the design-build

approach is becoming more common in other industries, it has not yet

been used extensively on highway or transit projects in the United States.

Status of Cost and

Schedule

As of October 1997, Utah estimated the cost of the I-15 project at

$1.59 billion. This estimate consists of the $1.3 billion bid price of the

design-build contract, plus costs incurred outside the contract, such as the

cost of acquiring needed property. The estimated cost of the I-15 project is

shown in table VII.1.

Table VII.1: Estimated Cost of the I-15

Project as of October 1997 Dollars in millions

Cost item Estimate

Design-build contract and options $1,325

Award fees 50

Property acquisition 45

Program management and insurance 52

Other costsa 118

Total $1,590

aThese cover the acquisition of a traffic management system ($40 million), parallel street projects

on the I-15 alignment ($39 million), and other costs that are not part of the design-build contract.

Source: GAO’s analysis of UDOT’s data.

Around $14 million in federal funds had been obligated for the project as

of October 1997, mostly for environmental studies and property

acquisition that preceded the award of the design-build contract. The

design-build contract was approved by FHWA and awarded under

Page 68 GAO/RCED-98-64 Surface Infrastructure
Appendix VII 

Interstate 15 Reconstruction Project, Salt

Lake City, Utah

federal-aid advance construction provisions. These provisions allow the

state to seek federal reimbursement for expenses associated with the

design-build contract at a later date.

The project is scheduled to be completed in July 2001 and, as of October

1997, was meeting its schedule. FHWA approved the use of a design-build

contract for the I-15 project in June 1996, and UDOT awarded a contract to

Wasatch Constructors to design and construct the project in March 1997.

The contractor began work in April 1997, beginning the design effort as

well as the construction of some elements that were already fully

designed.

Most of the Project’s

Costs Are Under

Contract, but Some

Risks Remain

Most of the project’s estimated costs—nearly $1.4 billion of the

$1.59 billion—are covered under the design-build contract, giving a

significant measure of stability to these costs. Furthermore, having a single

contractor responsible for both designing and constructing the project

could help to avoid potentially costly conflicts that can occur between

separate design and construction contractors. Similarly, according to state

officials, having a single contractor responsible for construction along the

entire corridor eliminates conflicts that can occur between separate

construction contractors working on adjacent areas.

The cost of the project could still grow, however, because under UDOT’s

agreement with the contractor, the state has assumed certain financial

risks. For example, while the contractor is financially responsible for any

design defects, differences between the final and the proposed design, and

problems in constructing the project as designed, the state is responsible

for, among other things, the accuracy of the initial geotechnical (soil) and

hazardous materials investigations, which were conducted before the

contract’s award. Should actual conditions found during the design

process differ from the conditions described in the state’s report, UDOT

would bear the additional costs of any necessary design or construction

changes. According to the project manager, as of October 1997, the

contractor had submitted two claims for additional fees as the result of

differing on-site conditions, including one for which the contractor was

seeking an additional $2 million.

Because the design-build process is relatively new to the highway

construction industry, there are few completed projects, and therefore

there is little historical information for predicting the magnitude of

possible changes to the cost of the project. However, should such changes

Page 69 GAO/RCED-98-64 Surface Infrastructure
Appendix VII 

Interstate 15 Reconstruction Project, Salt

Lake City, Utah

occur, UDOT has provided little room in its budget for contingencies.

According to UDOT officials, the state’s strategy is to achieve savings

through value engineering and other means in order to build a contingency

fund as the project progresses. In states where design-build contracts have

been used, experience has been mixed. According to California officials,

the final cost of the San Joaquin Hills Corridor, a $778 million toll road,

was 2.2 percent above the contract award price. In Florida, the Blackwater

Bridge, virtually destroyed in a hurricane, was rebuilt at a cost of about

$33 million, experiencing post award change orders that totaled 8.5

percent. Changes similar to these would add roughly $35 million to

$110 million to the costs of the I-15 project.

State Is Seeking

Federal Financing but

Will Use State Funds

If Necessary

The I-15 reconstruction project is being funded by Utah’s Centennial

Highway Fund. Established in March 1997, the fund is expected to support

a 10-year, $2.6 billion plan for constructing and reconstructing highways

throughout Utah.1

 As of October 1997, 40 projects were slated to be

financed from the fund, of which the I-15 reconstruction project was by far

the largest. These Centennial Highway Fund projects are in addition to

those that are funded through the state’s regular federal-aid highway

program and listed as part of Utah’s State Transportation Improvement

Program.

The state will raise over $2 billion for Centennial Highway Fund projects.

To accomplish this, over a 10-year period, UDOT is planning on sources that

include

• a contribution of about $1 billion from the state’s General Fund, starting

with an $85 million contribution in state fiscal year 1999, to be increased

by $5 million each year, and concluding with a $125 million contribution in

2007 and

• a contribution of around $800 million from the state’s transportation fund,

to be funded by a 5-cent increase in the state’s gasoline tax, an increase in

vehicle registration fees, and a transfer of other revenues authorized in

1997 and earmarked by state law for the fund.

In addition, the state plans to issue about $600 million in general obligation

bonds. Utah issued $340 million of these bonds in June and August 1997.

1

In addition to the $2.6 billion, the fund carries a balance of $110 million provided by the state to UDOT

in July 1996 to cover initial expenses, including the costs of awarding the design-build contract.

Page 70 GAO/RCED-98-64 Surface Infrastructure
Appendix VII 

Interstate 15 Reconstruction Project, Salt

Lake City, Utah

Besides state sources, UDOT assumes that the Centennial Highway Fund

will receive federal funds. In February 1997, Utah requested $4.3 billion in

federal funding for the state’s transportation needs in support of the 2002

Winter Olympic Games, including $970 million for the I-15 project.

However, the state has been more conservative in its planning for the

Centennial Highway Fund and is assuming that it will receive $450 million

from the federal government for the project. The state further assumes

that its allocation of federal funds for the project will be in addition to its

apportionments under successor legislation to the Intermodal Surface

Transportation Efficiency Act (ISTEA) and that it will obligate these funds

over a 6-year period between 1998 and 2003. According to UDOT’s executive

director, if Utah does not receive a special allocation for the 2002 Winter

Olympic Games but receives more funding under ISTEA’s successor

legislation that it did under ISTEA, it will consider committing the additional

funding to the Centennial Highway Fund.

As of January 1998, no additional federal contribution for the project had

been secured. Utah officials stated that if no special or additional federal

funding is received, UDOT will continue to fund the I-15 project either by

raising additional state funds or by reducing or canceling some of the

other 39 projects slated to be financed from the Centennial Highway Fund.

While future federal funding remains uncertain until the Congress

reauthorizes ISTEA, Utah may be able to realize most or all of its plans

under both the administration’s proposed reauthorization and the

multiyear authorizations pending in the Congress. To obtain $450 million

in federal funds by the end of 2003, Utah would have to receive an annual

increase in its federal apportionment of $75 million or more. Under the

administration’s proposed National Economic Crossroads Transportation

Efficiency Act (NEXTEA), the House’s Building Efficiency Through Surface

Transportation and Equity Act of 1997 (BESTEA), and the Senate’s ISTEA II,

Utah would receive increased funding ranging from $46 million to

$80 million a year, as indicated in table VII.2. In addition, a number of

provisions in these bills could benefit Utah. For example, BESTEA contains

a provision allowing the Secretary to direct discretionary and other federal

highway funds to a state hosting the Olympic Games.

Page 71 GAO/RCED-98-64 Surface Infrastructure
Appendix VII 

Interstate 15 Reconstruction Project, Salt

Lake City, Utah

Table VII:2: Federal Highway Funding

for Utah Under Various

Reauthorization Proposals Legislation/proposal

Average annual funding

level

Increase over ISTEA’s

funding levels

ISTEA $128.3

NEXTEA $174.9 $46.6

House BESTEA $208.6 $80.3

Senate ISTEA II $190.4 $62.1

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

As of October 1997, the Centennial Highway Fund faced a projected deficit

of around $245 million in state fiscal year 1999, which begins in July 1998.

This deficit was projected even if Utah secured $450 million in federal

funds between now and 2003; however, the deficit was projected to be

$62 million greater in state fiscal year 1999 if these federal funds were not

received. State officials told us in October 1997 that this deficit would

require them to seek additional funding from the state legislature in early

1998.

Page 72 GAO/RCED-98-64 Surface Infrastructure
Appendix VIII 

The Alameda Corridor

The Alameda Corridor project differs from other large-dollar

transportation projects discussed in this report in three important ways: It

is primarily a freight rail project; it relies heavily on private funds for its

financing; and it received a loan rather than a grant from the federal

government. The project is designed to improve the movement of goods

between the ports of Los Angeles and Long Beach and railyards near

downtown Los Angeles. Expected to cost about $2 billion, this 20-mile

dedicated rail link—which includes a 10-mile section of the project in a 30

foot deep trench—has not yet been fully designed, and limited

construction has begun. The project’s cost estimates could change after

contractors submit their construction bids on the trench section and after

project officials finish evaluating a December 1997 Internal Revenue

Service (IRS) ruling limiting the components of the project that can be

financed through tax-exempt revenue bonds. Funding for the project will

come primarily from the private sector, a $400 million federal loan, and

grants from the two ports and the Los Angeles County Metropolitan

Transportation Authority (MTA). As of December 1997, project officials had

secured about half of the project’s total funding but were facing challenges

in securing the remainder. Specifically, they must demonstrate to financial

markets that the project is a good credit risk and obtain all of the funds

committed by a financially strapped MTA. According to the project’s

ambitious schedule, major construction is to begin in 1999 and to be

completed within 3 years, achieving time savings of 1 year through the use

of design-build contracting procedures. However, delays in constructing

the trench could postpone the start of revenue operations, scheduled for

2001.

Background The Alameda Corridor is designed to improve the movement of freight

between the ports of Los Angeles and Long Beach and railroad

switchyards near downtown Los Angeles. It will consolidate freight traffic

along 90 miles of street-level track on four separate rail lines into a single

double-tracked 20-mile corridor, half of which will run 30 feet below street

level in a trench. Currently, bottlenecks on the four separate lines limit

trains to average speeds of 10 to 20 miles per hour, stall highway traffic,

and create air pollution. When trains begin operating in the Corridor in

2001, they are expected to move faster—averaging about 40 miles per

hour—and to carry more freight. The planned operations are expected to

decrease shipping time and more readily accommodate growing volumes

of cargo, about 50 percent of which comes from out of state. In addition,

by reducing or eliminating train traffic at almost 200 rail-street

intersections between downtown Los Angeles and the ports, the Corridor

Page 73 GAO/RCED-98-64 Surface Infrastructure
Appendix VIII 

The Alameda Corridor

is expected to reduce traffic delays by 90 percent, reduce rail crossing

accidents, and lower emissions from idling trains, cars, and trucks. Figure

VIII.1 shows the location of the corridor.

Page 74 GAO/RCED-98-64 Surface Infrastructure
Appendix VIII 

The Alameda Corridor

Figure VIII.1: Map of the Alameda

Corridor

To

San Diego/

Tijuana

To Northeast,

Gulf and Southeast

To Midwest

and Eastern

Seaboard

To Midwest Northeast,

Gulf and Mexico

To San Joaquin Valley

To San Francisco

Bay Area

Long Beach T.I. Fwy

San Pedro Bay

Port of

Los Angeles

Port of

Long Beach

Downtown

Los Angeles

Alameda Corridor

Long

Beach Fwy

Union

Pacific

railyard

Burlington

Northern

Santa Fe

railyard

Union Pacific Railroad

San Diego Fwy

Pasadena Fwy

San Gabriel River Fwy

Harbor Fwy

Los Angeles

San Diego Fwy

Burlington Northern 

Santa Fe Railroad

Legend:

Page 75 GAO/RCED-98-64 Surface Infrastructure
Appendix VIII 

The Alameda Corridor

Source: Alameda Corridor Transportation Authority.

The right-of-way for the Corridor is publicly owned by the two ports as

quasi-independent departments of the cities of Los Angeles and Long

Beach. The project is administered by the Alameda Corridor

Transportation Authority (ACTA), whose 10-member staff handles cost,

financing, scheduling, and management issues and works with government

and industry groups that have a stake in the Corridor. The 85-person

Alameda Corridor Engineering Team—an engineering company

consortium—handles the Corridor’s design and provides program

management and construction oversight.

Project’s Estimated

Short- and Long-Term

Costs Are Uncertain

ACTA estimates that the Alameda Corridor project will cost about $2 billion

to complete. This is an estimate based on a 20-percent design level; less

than 5 percent of the project has been constructed. The estimate could

change when contractors’ bids for the trench are submitted in July 1998.

Although ACTA has taken actions to control cost increases during

construction, it is too early to assess the impact of these actions. A recent

IRS ruling on revenue bonds may increase the project’s long-term financing

costs.

Trench Construction Could

Increase Short-Term Costs

According to ACTA officials, the trench is expected to be the most

expensive segment of the Corridor, costing about $700 million, or about

one-third of project’s total estimated cost. The trench responds to requests

made during the environmental review process by the six cities along the

corridor; the cities favored this design as a means of reducing the trains’

visibility and noise, minimizing right-of-way acquisition, and increasing

safety. When constructed, the trench will be 10 miles long, about 30 feet

deep, and 50 feet wide. As figure VIII.2 shows, it will be spanned by

bridges for pedestrians and vehicles at street crossings. A portion of

Alameda Street will overhang the trench for 3 miles where the right-of-way

is too narrow to accommodate the Corridor’s full width. In this section,

the street will run above the rail line in a partially covered trench.

Page 76 GAO/RCED-98-64 Surface Infrastructure
Appendix VIII 

The Alameda Corridor

Figure VIII.2: Illustration of the

Alameda Corridor Trench

Source: Alameda Corridor Transportation Authority.

The trench will require vertical walls whose construction is expected to

cost about $350 million. Although ACTA officials consider the trench less

costly than a tunnel, they are encouraging potential contractors to propose

innovative methods in order to reduce the costs of constructing the walls

while keeping Alameda Street open to traffic during construction. The

Corridor’s remaining 10 miles will be at street level.

Other issues associated with constructing the trench may increase the

project’s costs. For example, the trench will be built in an industrialized

area where, according to a railroad official, many utility lines are buried.

Relocating these lines could be costly, as could any delays in relocating

them. Clearing hazardous wastes from the trench area could also increase

the project’s costs. According to the Corridor’s 1996 environmental impact

statement, 46 high-priority hazardous materials sites were located within

400 feet of the Corridor.1

 Removing underground water from the trench, if

necessary, and managing traffic along Alameda Street and its cross streets

could further increase the project’s total cost.

1

According to ACTA, the railroads are obligated to share in the costs of hazardous waste cleanup.

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Appendix VIII 

The Alameda Corridor

ACTA’s Actions May Help

Limit Construction Cost

Increases

To cover potential construction cost increases, ACTA has established

contingency reserves that, as of December 1997, totaled about

$221 million, according to ACTA officials. These funds are intended to cover

construction risks, a general reserve, and financing and legal

contingencies. While the complete terms of the project’s construction

contracts will not be available until the fall of 1998, it is unclear whether

these reserves are adequate to cover potential future increases in the

project’s costs.

To further control the project’s costs, ACTA hired a controller and has

begun to install an accounting system that will be fully operational by

February 1998. U.S. Department of Transportation (DOT) and California

state officials have been working with ACTA to ensure that the accounting

system will track costs and trigger actions if costs exceed a predetermined

level for a segment of the project. Tracking costs and expenditures can

help provide early warning of cost escalation. The controller will review

the budget with ACTA’s board each quarter to analyze cost trends,

determine reasons for cost growth, and assess the project’s overall

financial condition.

IRS Ruling on Revenue

Bonds May Affect

Long-Term Financing Costs

A December 1997 IRS ruling on the tax-exempt status of the Corridor’s

revenue bonds set out the types of construction activities that were for

public purposes, such as highway overpasses, and therefore could be

financed through tax-exempt revenue bonds. The remaining activities

were for private, commercial purposes and were ineligible for tax-exempt

financing. When issuing tax-exempt revenue bonds, the project will save

on long-term financing costs, since it can pay bond investors a lower

interest rate. In contrast, the taxable bonds will require higher interest

rates to attract investors and will result in larger payments over the life of

the project. As a result, the long-term costs of issuing the $866 million in

revenue bonds as planned could increase as the project’s use of taxable

bonds increases. Project officials are evaluating the IRS ruling to determine

the mix of tax-exempt and taxable bonds to be issued. The officials

indicate that they expect final agreements with the Corridor’s users to

strengthen the project’s revenue stream enough to offset the costs

associated with an increased use of taxable bonds.

The Project’s

Financing Is

Incomplete

Funding for the approximately $2 billion project will come from a variety

of sources. As figure VIII.3 shows, the current financial plan calls for the

private sector to supply the largest part of the funds by purchasing

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Appendix VIII 

The Alameda Corridor

revenue bonds. The federal government, the two ports, and MTA are also

contributing substantially to the project.

Figure VIII.3: Funding Sources, by

Amount and Percentage

18% • Ports - Right-of-way ($386 million)

• 4%

Interest and income ($79 million)

41% • Revenue bonds ($866 million)a

19%•

DOT loan ($400 million)

1%

Other federal/state/local ($22

million)

•17%

MTA ($347 million)

aBonds in the amount of $866 million are to be issued. They are to cover financing costs and

$785 million in construction costs.

Source: GAO’s presentation of data from ACTA.

As of December 1997, ACTA had secured commitments for about $1 billion,

or about 48 percent of the required funding. This amount consists of

• $400 million from a federal loan;

• $386 million from the ports to purchase the rights-of-way for the project;

• $128 million from MTA, including $13 million already spent and $115 million

in a commitment to pass state transportation improvement funds through

to the project; and

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The Alameda Corridor

• $101 million from expected interest revenue and other state and local

sources.

According to ACTA officials, the project will use the federal loan for the

project’s engineering, design, and construction. If revenues from the

completed project are sufficient, the project will repay the federal loan by

2031—$1.6 billion in principal and interest. The interest rates on the

federal loan will be 6.5 percent during construction—until about

2001—and 6.8 percent for 30 years from the scheduled completion

date—or until about 2031. These interest rates are based on the 10-year

and 30-year Treasury rates, respectively.

Two major pieces of the project’s funding are less secure, and they make

up the remaining 52 percent of the total funding. According to the project’s

financial plan, this funding will consist of

• $866 million or more from revenue bonds that ACTA plans to issue in late

1998 and

• $218 million from MTA. MTA currently plans to raise $68 million of this

amount by issuing revenue bonds backed by countywide sales taxes.

According to MTA and ACTA officials, current plans are for MTA to request

the remaining $150 million from state funds.

The Project Must Meet

Several Financing

Challenges

ACTA faces several challenges in obtaining the remaining 52 percent of the

project’s funding. These challenges include issuing revenue bonds on

favorable terms, obtaining the funds committed by MTA when MTA is facing

a severe financial crisis (see app. II), and working within the constraints

imposed by the terms of the $400 million federal loan.

Challenges in Issuing Revenue

Bonds

Before ACTA can issue the revenue bonds on favorable terms, it will need to

demonstrate that the project, when completed, will generate enough

revenue to pay for the bonds, according to a rating agency official. The

rating agencies will evaluate the adequacy of the project’s revenue on the

basis of the fees to be paid by the railroads and the ports and the

estimated cargo traffic. The rating agencies will also consider the impact

of IRS’ ruling on ACTA, the adequacy of the project’s budgeting for

contingencies, and ACTA’s ability to manage the project. Project officials

are confident that they can satisfy the rating agencies and obtain a

favorable rating.

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The Alameda Corridor

To help demonstrate that revenues will be predictable and sufficient when

the Corridor opens to traffic, the railroads and ports signed a

memorandum of understanding in December 1994. They agreed that the

loans and bonds for the project would be repaid with fees and

funds—60 percent from railroad user fees and 40 percent from port

sources. A railroad official stated that the user fees established for the

railroads in the memorandum of understanding are realistic and

sustainable. The Corridor’s revenue structure will be renegotiated and

finalized in an operating agreement that is expected to be signed in

April 1998.

Projections of cargo traffic and revenue indicate that the project will

generate enough revenue to support the bond issuance. The

projections—done by firms such as Wharton Econometrics, Paine Webber,

and Goldman Sachs—have generally been conservative and have forecast

continuing growth, according to officials we interviewed from the project,

the railroads, and academia. On the basis of these projections, project

officials estimate that the completed project will produce enough revenue

to support a bond issuance of as much as $1.2 billion. Thus, ACTA officials

believe that the projected revenue will be more than adequate to support

the proposed $866 million bond issuance.

The bond-rating agencies need additional information before they can

assess the impact of IRS’ ruling on ACTA and the adequacy of ACTA’s

contingency funds. Because the balance between taxable and tax-exempt

bonds will influence the project’s long-term financing costs, the rating

agencies will need to review the mix of bonds in the complete bond

issuance package. ACTA is currently determining this mix. The adequacy of

the project’s contingency funds is also important to the rating agencies

because, as a Moody’s Investors Service official noted, these funds cushion

the financial impact of delays or unanticipated cost increases. After

July 1998, when the project is scheduled to receive bids on its costliest

part—the middle trench section—the rating agencies will be in a better

position to assess the adequacy of the $221 million budgeted for

contingencies. Project officials believe that this amount will be adequate.

Finally, the rating agencies will evaluate ACTA’s ability to choose, manage,

and oversee contractors. They will also assess ACTA’s and the general

contractor’s ability to manage a job of this scale. A transportation expert

whom we contacted believed that the ports’ experience in building large

infrastructure projects will help instill confidence in the project’s success.

ACTA officials told us that they are confident that the revenue bonds to be

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Appendix VIII 

The Alameda Corridor

sold in the fall of 1998 will receive a good rating because international

trade through the ports provides a stable source of revenue to repay the

bonds.

Challenges in Obtaining Funds

From MTA

On October 31, 1997, MTA signed an agreement with ACTA reconfirming its

commitment to provide the balance of the funds it has promised to the

project—$218 million out of a total of $347 million. To meet its

commitment, an MTA official stated in February 1998, MTA will borrow

$68 million using countywide sales tax revenue bonds and request state

funds for the remaining $150 million. This contrasts with MTA’s

October 1997 agreement with ACTA, which noted MTA’s plan to fund the

entire $218 million using sales tax revenue bonds. The MTA official noted

that the sources of funding remain open and may change again over the

next few months.

The October 1997 agreement provides that MTA funds will be made

available to ACTA starting in 1999. MTA officials are expecting delays in the

project, which could allow them to contribute MTA funds later, when

actually needed to pay for construction. However, if the project meets its

schedule, MTA could have difficulty in providing its funding when needed.

The financial difficulties that could affect MTA’s ability to borrow funds and

to pay for the project on time are discussed in appendix II. Because delays

in MTA’s funding could create cash flow problems for ACTA, particularly in

light of the project’s condensed design-build construction schedule, the

bond rating agencies will likely consider MTA’s ability to borrow as a factor

when rating the project’s revenue bonds.

Federal Loan Provides Benefits

With Repayment Risks

Some of the loan’s provisions will make it easier for the project to repay its

obligations should problems arise, but other provisions increase the risk

that the government could lose the entire cost of the loan should revenues

fall short. According to a rating agency official, the $400 million federal

loan provides the project with important financial support that the bond

markets will look upon favorably. The loan gives ACTA flexibility in the

timing of repayment should the project’s schedule slip. For example, if

fees paid by the Corridor’s users are less than anticipated and revenues fall

short, the project may defer federal loan repayments with interest

accumulating. This provision could prevent ACTA from defaulting on the

loan.

However, under the loan agreement, ACTA cannot issue more than $1

billion in revenue bonds that are to be paid ahead of the federal loan.

Recent financial models indicate that ACTA will issue $866 million in

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Appendix VIII 

The Alameda Corridor

revenue bonds. In case of a revenue shortfall or default, the repayment of

up to $1 billion in revenue bonds will have priority over the repayment of

the federal loan. This provision may help the project obtain more

favorable bond ratings from the rating agencies and more favorable

interest rates on its borrowing, but it makes repaying the federal loan

more risky in the event of revenue shortfalls. In addition, the provision

could constrain ACTA’s financing options if the project’s costs prove higher

than expected. For example, if construction bids are higher than

anticipated, the project’s short- and long-term costs would increase and

ACTA might need to issue more bonds than planned to keep the project on

schedule.

The Project’s

Schedule Is Ambitious

According to ACTA and federal and local transportation officials, the

project has an ambitious schedule, and many tasks must be completed

before construction of the trench can start in February 1999. Staying on

schedule will be challenging, both before and after construction begins.

Table VIII.1 summarizes the tasks that must be completed in 1998. If

contractors’ bids prove higher than anticipated and ACTA needs either to

raise more money or negotiate with bidders to achieve needed savings, it

will have very little time to do so. Any delays in completing the tasks

summarized in the table could affect the amount or the terms of the bond

issuance, the revenue to be derived from user fees to repay the federal

loan and the bonds, and the project’s total cost.

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The Alameda Corridor

Table VIII.1: Key Tasks to Be

Completed Before Construction Can

Begin

Target date Action

January 1998 ACTA solicits construction bids from six

prequalified contractors

April 1998 ACTA signs an operating agreement with

the railroads

May 1998 ACTA completes memorandums of

agreement with the six cities along the

Corridor

July 1998 Contractors submit construction proposals

on the trench section

July to September 1998 ACTA evaluates contractors’ proposals

August to October 1998 Rating agencies rate ACTA’s bonds

September 1998 ACTA chooses a contractor to build the

trench

November 1998 ACTA issues revenue bonds

February 1999 Construction of the trench begins

Source: GAO’s presentation of data from ACTA.

The project’s schedule faces additional challenges after construction

begins. First, the time savings from design-build contracting, expected to

be 1 year, could be less dramatic than anticipated. As discussed in

appendix VII, this innovative approach is intended to save time over

conventional contracting by awarding one contract to a design-build firm

rather than separate contracts to a design firm and a construction firm.

Hence, this approach allows the single contractor to design and build

concurrently rather than sequentially. The planned time savings could

strengthen investors’ confidence in the project’s financial viability,

improve the prospects for a favorable interest rate on the project’s

revenue bonds, generate user fee revenues sooner, and avoid potentially

inflationary increases in construction costs. However, actual experience

with design-build contracting for large transportation projects is limited,

particularly for a project as large and complex as the Alameda Corridor.

Moreover, problems in relocating utility lines, clearing hazardous waste, or

removing underground water could delay construction, as could delays in

completing the project’s financing. Finally, delays could occur if

communities along the Corridor do not issue construction permits on

schedule or demand additional economic development funds to mitigate

the effects of construction. To preclude such delays, ACTA is negotiating a

separate memorandum of understanding with each of the six Corridor

cities to expedite their approval of permits and address their preferences

in scheduling. These memorandums would also obtain cities’ agreement

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Appendix VIII 

The Alameda Corridor

not to sue the project and to release the project from future liability claims

in exchange for financial settlements and assistance in minimizing

disruptions from construction.

Agency Comments We provided a draft of this report to the General Manager of the Alameda

County Transportation Authority and to the U.S. Department of

Transportation. ACTA officials noted two key concerns. First, they said the

report should note that ACTA officials believe—on the basis of financial

models and preliminary ratings of “no lower than investment grade” from

Standard and Poor’s and Moody’s—that the project’s funding package is

solid; ACTA officials are confident that the project can issue $866 million in

revenue bonds and that the revenue bonds will receive a good rating.

Second, ACTA officials stated that the report should reflect that MTA is

prepared to fulfill its obligation and commitment to ACTA and that funding

from this source should be regarded as firm. They indicated that MTA’s

funding commitment to ACTA is legally binding and enforceable and said

that MTA has in good faith made budgetary adjustments to ensure that

these funds will be provided to ACTA when needed.

Regarding ACTA’s first concern, we did not include information on Moody’s

letter to ACTA or Standard and Poor’s private credit opinion because these

were not public credit ratings; instead, they provided early indications that

there was no information at the time that would prevent ACTA from

eventually getting an investment grade rating. Both Moody’s and Standard

and Poor’s officials told us that their final ratings will not be made until

shortly before the bonds are issued next fall and that they will be

contingent on a number of actions that will have been accomplished at

that time, including the completion of the operating agreement. Regarding

ACTA’s second concern, we do note in this report that MTA has signed an

agreement regarding funding for ACTA. However, we believe that a portion

of MTA’s funding commitment to the Corridor should be characterized as

less secure than other components of the project’s funding, particularly

when compared with secure funding sources such as the federal loan and

the ports’ already completed purchase of the railroad right-of-way. As

detailed in the Los Angeles Red Line section of this report, MTA faces

severe financial difficulties due to a number of factors, continues to

struggle with these difficulties, and has not yet completed a restructuring

plan acceptable to the Federal Transit Administration.

DOT officials, in commenting on the report, stated that the federal loan

should be more strongly characterized as favorable to the project’s

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Appendix VIII 

The Alameda Corridor

financing. We made changes to the report to reflect this concern. Both

ACTA and DOT officials provided additional editorial and clarifying changes

that we incorporated into the text of the report.

Page 86 GAO/RCED-98-64 Surface Infrastructure
Appendix IX 

Major Contributors to This Report

Paul Bollea

Joseph Christoff

Robert Ciszewski

Steven Cohen

Catherine Colwell

David Ehrlich

Elizabeth Eisenstadt

Susan Fleming

Lynne Goldfarb

Libby Halperin

Michael Hartnett

David Lichtenfeld

Lena Natola

Phyllis Scheinberg

Ronald Stouffer

Laurie Zeitlin

(348047) Page 87 GAO/RCED-98-64 Surface Infrastructure
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