Mass Transit: FTA's New Starts Commitments for Fiscal Year 2003
Published: 2002-04-30T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Since the early 1970's, the federal government has provided a large share of the nation's capital investment in urban mass transportation. Much of this funding has come through the Federal Transit Administration's (FTA) New Starts Program, which helps pay for rail, bus, and trolley projects. The Transportation Equity Act for the 21st Century authorized about $6 billion in "guaranteed" funding for the New Starts program through fiscal year 2003. FTA's evaluation process assigns candidate projects individual ratings for project justification and local financial commitments. The process also assigns an overall rating intended to reflect the project's merit. FTA recommended four projects for funding commitments for fiscal year 2003 in its New Starts report and budget proposal. FTA evaluated 50 proposed projects for fiscal year 2003 and developed ratings for 31 of them. Twenty-seven of these projects were rated as "highly recommended" or "recommended." Although FTA has faced transit budget crunches for years, the agency will end the act's authorization period with $310 million in unused commitment authority. Proposals to limit the amount of New Starts funds would allow more projects to receive such funding, but could harm specific projects being developed and the local transportation planning process. For example, limiting New Starts funds to 60 percent of a project's cost for the 49 projects now in final design or preliminary engineering would "free up" $500 million for additional projects. However, only 20 percent of these projects plan to use New Starts funds for more than 60 percent of projected costs and would be affected by such a cap.

section_title: Letter
paragraphs: Since the early 1970s, the federal government has provided a large share of  the nation’s capital investment in urban mass transportation.  Much of this  investment has come through the Federal Transit Administration’s (FTA)  New Starts program, which helps pay for certain rail, bus, and trolley  projects through full funding grant agreements.  The maximum amount of  federal funds available to a project cannot exceed 80 percent of the  estimated net cost.  In the last 9 years, this program has provided state and  local agencies with over $7 billion to help design and construct transit  projects throughout the country.
The Transportation Equity Act for the 21st Century (TEA-21), enacted in  1998, authorized about $6 billion in “guaranteed” funding for the New Starts  program through fiscal year 2003.  Although the level of New Starts funding  is higher than it has ever been, the demand for these resources is also  extremely high.  TEA-21 identified over 190 projects nationwide as eligible  to compete for New Starts funding.  FTA was directed to prioritize projects  for funding by evaluating, rating, and recommending potential projects on  the basis of specific financial and project justification criteria.   Furthermore, TEA-21 required FTA to issue regulations for the evaluation  and rating process.  The final rule became effective in 2001.
In addition, TEA-21 requires us to report each year on FTA’s processes and  procedures for evaluating, rating, and recommending New Starts projects  for federal funding and on the implementation of these processes and  procedures.  In light of what we saw as an impending “budget crunch,” we  recommended in March 2000 that the Department of Transportation (DOT)  further prioritize among the projects it rates as “highly recommended” and  “recommended” for funding purposes.  DOT has not fully implemented this  recommendation.  This report discusses (1) FTA’s evaluation and rating  process, including its implementation of the final rule; (2) FTA’s fiscal year  2003 New Starts report and budget proposal, including new projects that  FTA is proposing for grant agreements; (3) FTA’s remaining New Starts  commitment authority, and (4) the impact of imposing a cap of 50 or 60  percent of project costs on New Starts funding for transit projects.
subsections: section_title: Background
paragraphs: TEA-21 authorized a total of $36 billion in “guaranteed” funding through  2003 for a variety of transit programs, including financial assistance to  states and localities to develop, operate, and maintain transit systems.  One  of these programs, the New Starts program, provides funds to transit  providers for constructing or extending certain types of mass transit  systems.   A full funding grant agreement (FFGA) establishes the terms  and conditions for federal participation, including the maximum amount of  federal funds available for the project, which by statute cannot exceed 80  percent of its estimated net cost.  The grant agreement also defines a  project’s scope, including the length of the system and the number of  stations; its schedule, including the date when the system is expected to  open for service; and its cost.  To obtain a grant agreement, a project must  first progress through a local or regional review of alternatives, develop  preliminary engineering plans, and obtain FTA’s approval for final design.
TEA-21 requires that FTA evaluate projects against “project justification”  and “local financial commitment” criteria contained in the act.  FTA  assesses the project justification or technical merits of a project proposal  by reviewing the project’s mobility improvements, environmental benefits,  cost-effectiveness, and operating efficiencies.  In assessing the stability of a  project’s local financial commitment, FTA assesses the project’s finance  plan for evidence of stable and dependable financing sources to construct,  maintain, and operate the proposed system or extension.  In evaluating this  commitment, FTA is required to determine whether (1) the proposed  project’s finance plan incorporates reasonable contingency amounts to  cover unanticipated cost increases; (2) each proposed local source of  capital and operating funds is stable, reliable, and available within the  timetable for the proposed project; and (3) local resources are available to  operate the overall proposed mass transportation system without requiring  a reduction in existing transportation services.
Although these evaluation requirements existed prior to the enactment of  the act, TEA-21 requires FTA to (1) develop a rating for each criterion as  well as an overall rating of highly recommended, recommended, or not  recommended and use these evaluations and ratings in approving projects’  advancement to the preliminary engineering and final design phases and  approving grant agreements; and (2) issue regulations on the evaluation  and rating process.  TEA-21 also directs FTA to use these evaluations and  ratings to decide which projects to recommend to the Congress for funding  in a report due each February.   These funding recommendations are also  reflected in the department’s annual budget proposal.  In addition, TEA-21  requires FTA to issue a supplemental report to the Congress each August  that updates information on projects that have advanced to the preliminary  engineering or final design phases since the annual report.
section_title: FTA’s Evaluation and Rating Process for New Starts Proposals Finalized
paragraphs: In April 2000, we reported that FTA had made substantial progress in  developing and implementing an evaluation process that included the  individual criterion ratings and overall project ratings required by TEA-21.   Before TEA-21 was enacted, FTA had already taken steps to revise its  evaluation process of the New Starts program because most of the  evaluation requirements contained in the act were introduced by the  Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA).  FTA  uses the results to approve projects for the preliminary engineering and  final design phases, to execute grant agreements, and to make annual  funding recommendations to the Congress.  FTA’s final rule, issued in  December 2000, formalized the evaluation and rating process.  This year’s  process used most of the procedures set forth in the final rule.
subsections: section_title: New Starts Evaluation and Rating Process Assesses Project’s Justification and Local Financial Commitment
paragraphs: FTA’s current New Starts evaluation process assigns candidate projects  individual ratings for each TEA-21 criterion to assess each project’s  justification and local financial commitment.  The process also assigns an  overall rating that is intended to reflect the project’s overall merit.  FTA  considers these overall ratings to decide which projects will proceed to the  preliminary engineering and final design phases, be recommended for  funding, and receive full funding grant agreements (see fig. 1 for an  illustration of the process).
A project’s overall rating is a combination of the project’s justification and  local financial commitment ratings.  With respect to project  justification,  FTA provides individual ratings for the four criteria identified by TEA-21— mobility improvements, environmental benefits, operating efficiencies, and  cost-effectiveness—as well as the degree to which existing development  patterns and local land-use policies are likely to foster transit-supportive  land use.  According to FTA, the agency also considers a variety of other  factors when evaluating the project’s justification, including the degree to  which policies and programs are in place as assumed in the forecasts, the  project’s management capability, and additional factors relevant to local  and national priorities.  To evaluate a project’s local financial commitment,  FTA rates the project on its capital and operating finance plans and the  local share of its costs.  Due to the competitive nature of the New Starts  program, FTA is continuing to encourage project sponsors to lower the  requested New Starts funding.
After analyzing the documentation submitted by the project’s sponsors,  FTA assigns a descriptive rating (high, medium-high, medium, medium-low,  or low) for each of the project justification and local financial commitment  criteria.  As figure 1 shows, once the individual criterion ratings are  completed, FTA assigns summary project justification and local financial  commitment ratings by combining the individual criterion ratings.  In  developing the summary project justification rating, FTA gives the most  weight to the criteria for transit-supportive land use, cost-effectiveness,  and mobility improvements.  The summary local financial commitment  ratings, the measures for the proposed local share of capital costs and the  strength of the capital and operating financial plans are given equal  consideration.  FTA combines the summary project justification and local  financial commitment ratings to create an overall rating for the project of  highly recommended, recommended, or not recommended.  To receive a  highly recommended rating, a project must have summary ratings of at  least medium-high for the project justification and local financial  commitment.  To receive a rating of recommended, the project must have  summary ratings of at least medium.  A project is rated as not  recommended when either summary rating is lower than medium. FTA has  also added one-letter indicators to the not recommended rating that  explain where an improvement is needed—“j” for project justification, “o”  for the operating finance plan, and “c” for the capital finance plan.
In preparing its New Starts funding proposal each year, FTA first accounts  for projects with existing grant agreements.  Consideration is then given to  projects with an overall rating of recommended or higher.  However, some  projects rated as highly recommended or recommended may not meet  FTA’s readiness test for funding. A project passes the readiness test when  there is a minimum of risk associated with the project being constructed on  time and within budget. FTA uses a number of milestones to make this  determination. For example, FTA determines whether the necessary real  estate has been acquired, utility arrangements have been made, and local  funding sources are in place.  According to an FTA official, this ensures that  there are no “red flags” signaling that the project has outstanding issues it  must address.  In addition, FTA considers the following issues in evaluating  grantees:  the degree to which the transit agency has a satisfactory plan to manage  an existing bus fleet to ensure no degradation of service for users of a  current system;  compliance with the Americans with Disabilities Act of 1990, including  obtaining financial commitments necessary to maintain accessible  service, make necessary improvements, and comply with key  requirements for stations; and  compliance with air quality standards in the region.
For its New Starts report for fiscal year 2003, FTA evaluated a total of 50  projects and provided overall ratings for 31 of these projects.  Of the 31  projects that were rated, 25 were rated as recommended, 2 projects were  rated as highly recommended, and 4 projects received not recommended  ratings.  According to FTA, few projects received highly recommended ratings because FTA has set the bar high for such ratings.  Projects must  have a good strong rating for justification (i.e., at least a medium) and a  strong local financial commitment rating (i.e., at least a medium-high) to  receive such ratings.  FTA believes that few projects received a not  recommended rating because project officials have a better understanding  of the evaluation and rating process and criteria being used to assess a  project’s justification and local financial commitment.
In assigning overall project ratings, FTA emphasized the continuous nature  of project evaluation.  Throughout the New Starts report, FTA underscored  the fact that as candidate projects proceed through the final design stage,  information concerning costs, benefits, and impacts will be refined.    Consequently, FTA updates its ratings and recommendations at least  annually to reflect this new information, changing conditions, and refined  financing plans.  Thus, a project that is rated as recommended in the fiscal  year 2003 report could receive a higher or lower rating in the fiscal year  2004 report to reflect changes in the project.  For example, in the fiscal year  2002 report, the Charlotte (South Corridor Light Rail Transit) project  received a recommended rating.  However, this year the project received a  highly recommended rating.  FTA attributed the project’s improved rating  to strong transit-supportive land-use policies in place to support the  proposed light rail project and an improved finance plan.
section_title: Final Rule Refines New Starts Evaluation Process
paragraphs: Although the criteria and measures in the New Starts evaluation and rating  process have not changed, FTA’s final rule, issued in December 2000, made  a number of refinements to the process.  The final rule was used as FTA  considered its New Starts proposals for fiscal year 2003.  The most  significant changes to FTA’s evaluation process focus on four key issues:   the measure of cost-effectiveness,   the use of a no-build and Transportation System Management (TSM)  alternative for evaluation purposes,   the overall project rating, and   the measure for mobility improvements.
Historically, FTA used a cost per new rider measure to indicate the cost- effectiveness of a proposed project.  The consensus of commenters on the  proposed rule was that the focus on new riders ignores benefits provided to  other riders, which may bias the measure against cities with “mature”  transit systems, where the focus of a proposed project may be to improve  service, not attract new riders.  In response to comments on the proposed  rule, FTA replaced the cost per new rider measure with a new measure of  transportation system user benefits.  According to FTA, this measure is  based on the basic goals of any major transportation investment—to  reduce the amount of travel time and out-of-pocket costs that people incur  for taking a trip (i.e., the cost of mobility).  This approach deemphasizes the  number of new riders by measuring not only the benefits to people who  change transportation modes (e.g., highways to transit) but also benefits to  existing riders and highway users.
FTA no longer evaluates a proposed project (such as light rail) against both  a separate no-build and TSM alternatives. For fiscal year 2003, FTA  evaluated proposed New Starts projects against a single “baseline  alternative” agreed upon by project sponsors and FTA.  The baseline  alternative involves transit improvements that are lower in cost than the  proposed New Start project, which result in improved transit mobility  compared to the no-build alternative.  The purpose of the baseline  comparison is to isolate the costs and benefits of the proposed major  transit investment.
FTA has also added one-letter indicators to the not recommended rating to  explain where improvement is needed—j for project justification, o for the  operating funding plan, and c for the capital finance plan.  For example, in  the fiscal year 2003 New Starts report, the Cincinnati (Interstate 71  Corridor Light Rail) project was found to need improvement in the capital  finance plan and was rated as not recommended (c).
Finally, FTA refined the measure for mobility improvements.  In the past,  this measure was based on (1) projected savings in travel time and (2) the  number of low-income households within a half-mile of the proposed  stations.  In response to concerns about the scope of this measure, FTA  added a new factor for destinations of jobs within a half-mile of boarding  points on the new systems.  This new factor complements the existing  factor of low-income households within a half-mile of boarding points.
section_title: FTA Proposes Four Projects for New Starts Funding in Fiscal Year 2003
paragraphs: FTA’s New Starts report and budget for fiscal year 2003 requests that $1.21  billion be made available for the construction of four new transit systems  and expansions of existing systems through the New Starts program (see  app. I for FTA’s 2003 budget proposal and project ratings).  After amounts  for FTA oversight activities and for other purposes specified by TEA-21  are subtracted, a total of $1.19 billion would remain available for projects in  fiscal year 2003.  Of this amount, a total of $1.03 billion would be allocated  among 25 projects with existing grant agreements.  An additional $134.1  million would be allocated to the four projects proposed for grant  agreements.  The remaining $31 million would be allocated to five  “meritorious” projects to continue project development.  (See fig. 2.)
For fiscal year 2003, FTA evaluated 50 projects and prepared ratings for 31  of them.  Of the 31 projects that received ratings, FTA rated 27 projects as  highly recommended or recommended, and proposed executing new grant  agreements for 2 projects that are expected to meet the readiness criteria  by the end of fiscal year 2003.  In addition, FTA is proposing two other  projects for grant agreements for fiscal year 2003.  These two projects— New Orleans (Canal Street Spine) and San Diego (Oceanside-Escondido  Rail Corridor) were not rated this year.  Although they were proposed for  funding commitments last year, the grant agreements were not executed,  and FTA characterizes the projects as pending federal commitments.   According to FTA, the ratings for these two projects from last year are still  valid.  (Table 1 shows the ratings for the four projects recommended for  New Starts funding in fiscal year 2003.)
As table 1 shows, one of the four proposed projects received a highly  recommended rating on the basis of its strong cost-effectiveness rating,  good mobility improvement rating, and a demonstrated local financial  commitment to build and operate the project.  The proposed San Diego  (Oceanside-Escondido Rail Corridor) project received a medium-high  rating in mobility improvement because it is expected to serve 15,100  average weekday boardings in 2015, and 8,600 new daily riders. According  to FTA, it will also help to eliminate the heavy congestion of northern San  Diego County along the Route 78 corridor, saving 700,000 hours of travel  time a year compared to the TSM alternative.  In addition, according to  FTA, the high ratings for the proposed project’s capital and operating  financing plans reflect the solid financial condition of the transit agency  and the other funding partners, as well as the sufficient projected revenue  growth and contingencies.
The other three projects proposed for grant agreements received overall  ratings of recommended.  All were rated medium or medium-high on the  project justification and local financial commitment criteria.  For instance,  the New Orleans (Canal Street Spine) project’s recommended rating was  based on its strong cost-effectiveness rating and demonstrated local  financial commitment.  According to FTA’s New Starts report, the transit  agency has committed 100 percent of its local capital and operating funds  through funding sources such as a loan that would be paid back by a new  sales tax on hotels and motels.  In contrast, the sponsor of another project  that was not recommended for funding in 2003 has been unable to  designate specific capital funds or identify specific revenue sources for  operating the proposed project.  The New Orleans (Canal Street Spine)  project’s strong financial rating also reflects FTA’s favorable assessment of  the transit agency’s action to reduce recent deficits through fare increases,  tax increases, and use of leases for new buses.
Twenty-five other New Starts projects received highly recommended or  recommended ratings but were not proposed for grant agreements.  Two of  these projects, San Diego (Mid-Coast Corridor) and Charlotte (South  Corridor LRT), received  highly recommended ratings based on their strong  cost-effectiveness, transit-supportive land-use, and local financial  commitment ratings but were not proposed for funding. Charlotte did not  meet FTA’s “readiness” test. FTA officials told us that the San Diego (Mid- Coast) project met FTA’s evaluation and rating criteria as well as its  readiness test but was not selected because completing the San Diego  (Mission Valley East LRT) extension (an ongoing project) is the transit  authority’s top priority, and FTA officials believe that the authority may not  have the financial capacity to fund both projects at this time.  The other 23  projects were rated overall as recommended.  Many of these projects were  not proposed for grant agreements in fiscal year 2003 because they are in  the early stages of development and are not ready for final design or  construction.
Finally, FTA rated four proposed projects as not recommended primarily  because of low local financial commitment summary ratings due to the lack  of committed local funding to build and operate the systems or the lack of  clearly defined cost estimates and contingencies.  For instance, one of the  four projects received low ratings for the stability and reliability of its  capital and operating finance plans, reflecting FTA’s concern about the  large share of uncommitted and/or unidentified local funding, and the  absence of an operating plan. Other reasons for receiving a not  recommended rating include a lack of demonstrated progress since last  year’s rating, the relatively high level of New Starts funding proposed, and  the reliance on the passage of a sales tax referendum for a portion of the  local share.
section_title: FTA Ends TEA-21 Authorization Period with Unused Commitment Authority
paragraphs: Implementing FTA’s New Starts report and budget proposal for fiscal year  2003 would leave FTA with about $310 million in unused commitment  authority.  Although FTA has been faced with an impending transit budget  crunch for several years, the agency would end the TEA-21 authorization  period with unused commitment authority for several reasons.  First, the  Congress in fiscal year 2001 substantially increased FTA’s authority to make  contingent commitments, subject to future authorizations and  appropriations.  Second, to preserve commitment authority for future  projects, FTA did not request any funding for preliminary engineering  activities in the fiscal year 2002 and 2003 budget proposals—a routine  practice in prior years.  Third, in determining which projects are ready for a  grant agreement, FTA has applied stricter tests for readiness and technical  capacity.  As a result, fewer projects than expected were recommended for  New Starts funding for 2002 and 2003.  For instance, only 2 of the 14  projects that FTA estimated last year would be ready for grant agreements  in fiscal year 2003 are being proposed for funding commitments.  Finally,  about half of the unused commitment authority results from FTA’s response  to the recommendation in our August 2001 report to release $157 million in  commitment authority reserved for a Los Angeles subway project for which  the federal funding commitment had been withdrawn.
subsections: section_title: Record Amounts Provided for New Starts Program
paragraphs: FTA was authorized to make a record level of funding commitments— about $10 billion—for the New Starts program from 1998 through 2003.   TEA-21 provided the majority of FTA’s commitment authority, authorizing  $6.09 billion in “guaranteed” funding for the New Starts program.  In  addition, TEA-21 and the Department of Transportation’s Appropriation  Act for fiscal year 2001 authorized FTA to make an additional $3.4 billion in  contingent commitments, subject to future authorizations and  appropriations.  Contingent commitment authority is designed to allow  FTA to execute grant agreements that extend beyond the 6-year period of  TEA-21.  TEA-21 authorized contingent commitments in an amount  equivalent to the last two years of “guaranteed” funding authorized by the  act.  The fiscal year 2001 appropriations act increased FTA’s contingent  commitment authority to an amount equivalent to the last 3 fiscal years of  funding.  According to FTA officials, after accounting for required projects  for Dulles, Chicago, and Minneapolis, this “extra year” of contingent  commitment authority provided FTA with about $500 million beyond that  provided by TEA-21 that could be used to fund additional projects.
According to FTA, it has already committed approximately $8.9 billion for  New Starts projects and program activities.  Specifically, about $7.2 billion  is committed to the 25 projects with existing grant agreements.  After  accounting for other requirements (such as the cost of project management  oversight), which are expected to total about $1.7 billion, about $1.1 billion  remains for new grant agreements in fiscal year 2003.  (Table 2 summarizes  FTA’s commitment authority and funding commitments, as of March 2002.)
Implementing FTA’s New Starts report and budget proposal for fiscal year  2003 would leave FTA with about $310 million in unused commitment  authority.  The budget proposes $55 million for two new projects and $79.1  million for the two projects with pending grant agreements for fiscal year  2003.  However, the $134.1 million requested for these projects for 2003 will  only be a “down payment” on what would amount to a total federal  commitment of $785 million for these four projects over the next several  years, if no changes were made to the current project proposals.  This  amount also includes $27 million for four meritorious projects without  grant agreements, as well as a fifth project that was mandated by the  Congress in fiscal year 2001 with funding of $4 million.  Therefore, FTA  ends the TEA-21 authorization period with $310 million in unused  commitment authority.
To preserve commitment authority, FTA did not request any funding for  preliminary engineering activities in the fiscal year 2002 and 2003 budgets.   According to FTA, it has provided an average of $150 million a year from  fiscal year 1998 through fiscal year 2001 for projects’ preliminary  engineering activities. However, FTA did not recommend any funds for  preliminary engineering activities in fiscal years 2002 and 2003.  According  to a senior FTA official, this approach allowed the agency to conserve  funds for existing and new grant agreements and ensured that funds were  only provided to projects that were ready to move forward.  The official  further noted that projects may use other federal funding for preliminary  engineering activities and no project should be negatively impacted if New  Starts funding was not provided for these activities in 2002 and 2003.   Officials from several transit projects in the preliminary engineering phase  that we contacted in 2001 indicated that they would use other federal funds  and/or state and local funds to pay for their preliminary engineering work.
section_title: Fewer Projects Than Anticipated Receive Grant Agreements
paragraphs: More state and local transit agencies than ever are competing for New  Starts funds. However, FTA’s stricter tests for readiness and technical  capacity resulted in fewer projects that were ready for a grant agreement  and thus recommended for funding for 2002 and 2003.  As mentioned  earlier, FTA uses a number of milestones to determine whether a project is  sufficiently developed to be considered for a grant agreement.  For  example, FTA determines whether the necessary real estate has been  acquired, utility arrangements have been made, and local funding sources  are in place.  According to an FTA official, this ensures that there are no red  flags signaling that the project has outstanding issues it must address.  For  instance, only 2 of the 14 projects that FTA estimated last year would be in  or ready to enter the final design phase at the end of fiscal year 2002— signaling that they were ready to execute a grant agreement—are being  proposed for funding commitments in fiscal year 2003.   Several of these  projects have not yet been approved to enter the final design phase.  Like  the approval to enter preliminary engineering, FTA reviews the project’s  costs, benefits, and impacts under the project evaluation criteria to  determine when a project is ready to enter the final design phase.
FTA identified five meritorious projects that it is recommending for $31  million in funding in fiscal year 2003 to continue their development.   These projects have met the planning requirements of the New Starts  program and have strong local financial commitments.  However, they all  have outstanding issues, such as environmental and financing concerns,  which prevented them from passing FTA’s readiness test.  For instance, one  project must resolve technology issues that relate to bus rapid transit  buses—60-foot hybrid-electric buses with left and right side doors for  access.  Another project is addressing historic preservation issues related  to several stations that would be reconstructed as part of the project.   Finally, the scale of one project requires further work before a federal  commitment can be made.  The project is too large (estimated total project  cost of $4.4 billion) for the normal minimum operable segment concept on  which a grant agreement is based to work and is expected to require  funding over several authorization periods.  According to a senior FTA  official, the project’s sponsors and FTA need to determine how to resolve  this issue and proceed forward.
In addition, the timing and magnitude of individual New Starts projects  dictates how much commitment authority is available for future projects.  For example, the total New Starts share for the five meritorious projects is  about $2.8 billion.  If one or two of these projects had matured faster and  been ready for a grant agreement, FTA would have essentially exhausted its  commitment authority.  A senior FTA official acknowledged that it would  have been “a very different ball game” if more projects had been ready for a  grant agreement this year or if one large project, such as New York (Long  Island Railroad East Side Access)—with a New Starts share of $2.2  billion—had matured faster.
Finally, FTA recently increased its available commitment authority by $157  million by releasing amounts associated with a project for which the  federal funding commitment had been withdrawn.  As of August 2001, FTA  had reserved $647 million in commitment authority for a New Starts project  in Los Angeles.  At that time, we reported that two segments of that project  had been suspended for over 3 years and that FTA had informed the project  sponsors that it no longer had funding commitments for these segments.   We also stated that releasing the commitment authority attributable to  projects for which the federal funding commitment had been withdrawn  would significantly increase FTA’s flexibility to execute grant agreements  for additional projects.  Therefore, we recommended that FTA adopt the  practice of releasing such commitment authority and, specifically, that it  release the $647 million reserved for the two segments of the Los Angeles  project.  In its New Starts report and budget proposal for fiscal year 2003,  FTA has proposed a funding commitment for one of the previously  suspended segments (Eastside); however, because the other suspended  segment (Mid-City) is not a candidate for a funding commitment at this  time, FTA has released the associated commitment authority, increasing its  available commitment authority by $157 million.
section_title: Proposals to Cap New Starts Funding May Bring Mixed Results
paragraphs: Since the potential demand for New Starts funding is extremely high, the  administration and others have proposed limiting the amount of New Starts  funds to less than the authorized 80 percent share.  A cap on New Starts  funds would allow more projects to receive funding but could have an  effect on specific projects that are currently being developed.  For  example, based on current project cost estimates, a 60-percent cap on New  Starts funds for the 49 projects currently in final design or preliminary  engineering would result in about $500 million that could be used to fund  additional projects.  Two projects that currently have a New Starts share  at 80 percent, account for the majority of funds that could be redirected.   According to officials from several transit agencies, the impact of a  proposed cap on individual projects would vary.  Some projects would be  able to make up for the reduced New Starts funding while others would not  be able to tap into any other funding sources and would have to modify  their projects’ scope or schedule or even terminate them.  Finally, several  officials from MPOs pointed out that limiting the New Starts funding share  to 50 or 60 percent could have an affect on the transportation  decisionmaking process.  Specifically, officials from several MPOs stated  that a cap on New Starts funds could influence their selection of highway  over transit projects since the decisions are often affected by the  availability of funds from various federal programs and which projects will  receive the highest federal share.
subsections: section_title: Several Proposals Would Limit New Starts Funding
paragraphs: In order to manage the increasing demand for New Starts funding, there  have been several proposals to limit the amount of New Starts funds that  could be applied to a project.  For instance, the president’s fiscal year 2002  budget recommended that New Starts funding be limited to 50 percent of  project costs starting in fiscal year 2004. (Currently, New Starts funding— and all federal funding—is capped at 80 percent.)
In addition, the conference report that accompanied the fiscal year 2002  Department of Transportation appropriations act directs FTA not to sign  any new full funding grant agreement after September 30, 2002, that has a  maximum federal share higher than 60 percent.  According to FTA, these  proposals are consistent with its recent practice of seeking a local share of  more than 20 percent in order to manage the increasing demand for New  Starts funding.
FTA officials told us that limiting the New Starts funding to 50 or 60 percent  would ensure that local governments play a major role in funding New  Starts projects.  Under such a cap, local governments will need to decide to  apply either other federal funds or local funds to proposed New Starts  projects based on their priorities.  An FTA official also pointed out that a 50  or 60 percent cap would allow more projects to receive New Starts funding;  however, the official acknowledged that limiting New Starts funding may  prevent some projects from being developed or moving forward because of  limited local funding.
section_title: Additional Projects Could Be Funded with A Cap
paragraphs: Lowering the share to 50 or 60 percent may provide an opportunity to  spread available New Starts funds more widely.  In the last 10 years, the  New Starts share for projects with a grant agreement has averaged around  50 percent and has been trending lower.  For the 18 grant agreements  signed between October 1999 and November 2001, the overall New Starts  share was 46 percent, somewhat below the 56 percent average share of  grant agreements signed in 1992-1997.  For individual projects, the New  Starts share has varied considerably from the mean—from a low of 19  percent to a high of 80 percent.  If the 18 grant agreements signed in the  1999-2002 timeframe had been capped at 60 percent, $4.05 billion of New  Starts funding would have been committed to these projects instead of  $4.30 billion (a difference of about $250 million).  With a 50-percent cap, the  New Starts commitment would have totaled $3.65 billion (a difference of  about $650 million).
A cap on New Starts funds for the 49 projects currently in final design or  preliminary engineering would have a much greater effect.  These 49  projects are currently proposing $20.59 billion in New Starts funding.  A 60-  percent cap would result in about $500 million that could be used to fund  additional projects; a 50-percent cap would result in slightly over $1 billion  that could be allocated to other projects.   Two projects (Philadelphia  Schuylkill Valley MetroRail and San Juan Tren Urbano Minillas Extension),  that currently have a New Starts share at 80 percent, account for the  majority of funds that could be redirected—85 percent of the $500 million  and 61 percent of the $1 billion.  According to FTA officials, the proposed  projects’ local share and percentage of New Starts funds could change as  the projects proceed through the final design stage.
Many of the project sponsors that initially proposed a New Starts share of  over 50 percent have responded to FTA’s suggestion to lower their planned  New Starts funding in order to be competitive with other projects.  For  example, several projects have adjusted their financial plans for fiscal year  2003 to reflect a decrease in the New Starts share of their total cost.  Seven  projects that initially proposed New Starts shares from 63 percent to 80  percent in fiscal year 2002 lowered them this year to between 32 percent  and 60 percent.  Several project officials told us that they lowered their  New Starts proposals to become more competitive in response to FTA’s  suggestions.
section_title: A Cap on New Starts Funds Could Affect Specific Projects and the Planning Process
paragraphs: The proposed caps could affect a number of projects currently being  developed.  For example, 10 of the 49 projects that are currently in the final  design or preliminary engineering stages plan to use New Starts funds to  pay for over 60 percent of their total costs; an additional 9 projects plan to  use over 50 percent (app. II provides a list of the 19 projects).   The  projected use of New Starts funds for these 19 projects ranges from 51  percent for Little Rock (River Rail Project) to 80 percent for Galveston  (Trolley Extension), Nashville (East Corridor Commuter Rail Project),  Alaska (Knik River to Wasilla Track Improvements), Philadelphia  (Schuylkill Valley MetroRail) and San Juan (Tren Urbano Minillas  Extension).  According to officials from several of these transit agencies,  the impact of a proposed cap would vary.  For example, officials from  several projects stated that their projects’ scope or schedule would have to  be modified or even terminated because they may not be able to tap into  any other funding sources to account for lower than planned New Starts  funding.  An official from one project added that a change in the project’s  scope would also have a negative impact on service, ridership, and overall  cost-effectiveness.  In contrast, officials from several projects indicated  that their projects would continue as planned because they would seek  other federal or local funds to make up for reduced New Starts funding.   For example, an official from one project stated that, if necessary, it would  issue bonds to offset any shortfall in New Starts funding.
Any decision to make up the difference with additional federal or local  funds could affect other local transportation projects.  For example,  officials from several projects stated that providing additional funds to  their New Starts projects would most likely result in other projects in the  area receiving less funds, being delayed, or terminated.  An official from  one project stated that redirecting funds from highway or other transit  projects would indefinitely delay these projects until additional funding is  available.  However, according to several project officials, obtaining  additional funding could be difficult since many states and localities are  currently facing significant budget deficits or funding shortfalls.  Several  project officials noted that a cap could mean that localities would have to  reevaluate the priority of transportation projects, including New Starts  projects, in the area and make difficult decisions such as delaying or even  terminating projects until the local share is raised.  Finally, officials from  several projects noted that the cap would have a greater impact on areas  trying to develop a first time, fixed-guideway or bus rapid transit system  where the benefits of the system have not yet been proven.
Finally, a cap could also affect the transportation decisionmaking process.   For example, several of the MPOs we contacted told us that they are  concerned that having a New Starts match for transit capital projects that is  lower than the match for highway capital projects could affect balanced  transportation decisionmaking and create a bias towards highway projects.   In addition, according to some MPOs, a cap on the New Starts share could  also influence the planning and selection of transportation projects in their  city or state’s long-range plan.  For example, one official indicated that his  area’s long-range plan would probably move towards  more highway  investments.  Another official pointed out that a cap could severely hamper  the region’s ability to construct the new transit projects in its long-range  plan, thus endangering its air quality conformity status.  In contrast, some  MPOs indicated that their regions prefer a multi-modal system and the  types of projects selected for such plans may not be impacted by a cap on  New Starts funds.
section_title: Concluding Observations
paragraphs: Although FTA has been faced with an impending transit budget crunch for  several years, the agency will end the TEA-21 authorization period with  unused commitment authority impart because fewer projects than  expected were ready for grant agreements.  FTA proposes projects for  funding after they have met its readiness test.  However, in the last several  years only nine projects were determined to be ready and were proposed  for New Starts funding commitments.  Given the tremendous pipeline, if  more projects (or a few large ones) had matured faster FTA would have  been forced to make difficult funding decisions.  If this were to occur in the  future, FTA may have a difficult time making these decisions because it has  not adopted our recommendation made in 2000 to develop a process for  further prioritizing among the projects it rates as recommended or higher.   Such a process would ensure that the “best” projects receive New Starts  funding and allow for a better understanding of why certain projects with  similar ratings may receive funding while others do not.  Finally, if many  projects are ready at the same time for a grant agreement, FTA may also  have to adopt an ongoing practice of releasing the funding set aside for  projects when the federal funding commitments have been withdrawn.
A cap on New Starts funds could allow more projects to receive funding if a  significant number of projects are ready for a grant agreement at the same  time.  Since FTA is ending the TEA-21 authorization period with unused  commitment authority, a cap imposed over the last several years would not  have resulted in funding additional projects.  In addition, a cap could have a  negative impact on specific projects that are currently being developed as  well as the transportation decisionmaking process.
section_title: Agency Comments
paragraphs: We provided the Department of Transportation with a draft of this report  for review and comment.  FTA provided some technical comments on the  draft, which we have incorporated where appropriate.
section_title: Scope and Methodology
paragraphs: To address the issues discussed in this report, we reviewed the legislation  governing New Starts transit projects, FTA’s annual New Starts reports for  fiscal years 2002 and 2003, the new regulations for New Starts transit  projects, and documents related to New Starts funding.  We also  interviewed appropriate FTA headquarters officials, 22 officials from  transit agencies with New Starts projects currently in the final design or  preliminary engineering phases, and officials from selected MPOs (see app.  III for a complete list of projects and MPOs contacted).  We performed our  work in accordance with generally accepted government auditing  standards from February through April 2002.
We are sending copies of this report to the secretary of Transportation, the  administrator of the Federal Transit Administration, the director of the  Office of Management and Budget, and other interested parties.  We will  make copies available to others upon request.
If you have questions regarding this report, please contact me or Susan  Fleming on (202) 512-4431 or at flemings@gao.gov.  Key contributors to this  report were Heather Balent, Helen Desaulniers, Susan Fleming, and Rod  Moore.
section_title: FTA’s Fiscal Year 2003 New Starts Ratings and Funding Recommendations
subsections: section_title: Salt Lake City – Medical Center Extension LRT
paragraphs: Proposed other project funding commitments Cleveland – Euclid Corridor Transportation Project Las Vegas – Resort Corridor Fixed Guideway  New York – Long Island Railroad East Side Access Alaska Railroad – South Anchorage Double Track Alaska Railroad – Knik River to Wasilla Track Improvements Los Angeles – San Diego – LOSSAN Rail Corridor Improvement Pawtucket, RI – Commuter Rail Improvement Program  San Francisco – Third Street Light Rail (Phase I)
section_title: Projects Proposing a New Starts Share of Over 50 Percent
paragraphs: Alaska Railroad (Knik River to Wasilla Track Improvements)
Los Angeles-San Diego (LOSSAN Rail Corridor Improvements)
Pawtucket, RI (Commuter Rail Improvement Program)
Salt Lake City (Medical Center Extension LRT)
Cleveland (Euclid Corridor Transportation Project)
Fort Collins, CO (Mason Street Transportation Corridor)
San Juan (Tren Urbano Minillas Extension)
Washington, D.C. (Dulles Corridor Bus Rapid Transit)
section_title: Transit Agencies and Metropolitan Planning Organizations Contacted by GAO
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