Mass Transit: FTA Needs to Better Define and Assess Impact of Certain Policies on New Starts Program
Published: 2004-06-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Transportation Equity Act for the 21st Century (TEA-21) and subsequent legislation authorized about $8.3 billion in guaranteed funding for the Federal Transit Administration's (FTA) New Starts program, which funds fixed guideway transit projects, such as rail and trolley projects, through FFGAs. GAO assessed the New Starts process for the fiscal year 2005 cycle. GAO identified (1) the number of projects that were evaluated, rated, and proposed for new FFGAs and how recent changes to the process were reflected in ratings; (2) the proposed funding commitments in the administration's budget request and legislative reauthorization proposals; and (3) the extent to which amounts appropriated since 1998 fulfilled FFGAs.
section_title: What GAO Found
paragraphs: For the fiscal year 2005 cycle, FTA evaluated 38 projects, rated 29 projects, and proposed 7 projects for funding. FTA recommended 5 of the 7 projects for full funding grant agreements (FFGAs). FTA considered the remaining 2 projects to be meritorious and recommended a total of $50 million for these projects in fiscal year 2005. However, FTA does not clearly explain how it decides which projects will be recommended for funding outside of FFGAs or what project sponsors must do to qualify for such a recommendation. Last year, in response to language contained in appropriations committee reports, FTA instituted a policy favoring projects that seek a federal New Starts share of no more than 60 percent of the total project cost--even though the law allows projects to seek up to 80 percent--in its recommendation for FFGAs. According to FTA officials, this policy allows more projects to receive funding and ensures that local governments play a major role in funding such projects. FTA describes the 60 percent policy as a general preference; however, FTA's fiscal year 2005 New Starts report suggests that this policy is absolute in that projects proposing more than a 60 percent federal New Starts share will not be recommended for an FFGA. Therefore, FTA agreed to describe the policy as a general preference in future reporting instructions, thus allowing for the possibility of exceptions. Although most of the projects evaluated during the current cycle proposed a federal New Starts share of less than 60 percent of total project costs, some project sponsors GAO interviewed raised concerns about the difficulties of securing the local funding share. However, the overall impact of this policy on projects is unknown. The administration's fiscal year 2005 budget proposal requests $1.5 billion for the New Starts program, a $225 million increase over the amount appropriated for the fiscal year 2004 cycle. Congress is currently considering legislative reauthorization proposals, which contain a number of provisions and initiatives for the New Starts program including streamlining the New Starts evaluation process for projects requesting less than $75 million in New Starts funds, expanding the definition of eligible projects, changing the ratings categories, and maintaining the maximum federal New Starts share at 80 percent of total project cost. Project sponsors GAO interviewed had varying views on these provisions, but most said that clear definitions would be needed for any proposed changes to the New Starts process. All 26 projects with existing FFGAs have not received funds as scheduled--the amount of funding appropriated was less than the amount authorized and scheduled by the FFGA. According to FTA, all completed projects have received the total amount authorized in the FFGAs, but not necessarily according to the original FFGA schedule. As of March 2004, the 26 projects have received a total of $294 million, or 5 percent, less than the amount scheduled by the projects' FFGAs. The amount and timing of differences varied for each project. Project sponsors GAO interviewed have developed methods to mitigate the impact of receiving less than the scheduled annual amount for their project, but these methods can generate additional costs.

section_title: Letter
paragraphs: Since the early 1970s, the federal government has provided a large share of  the nation’s capital investment in mass transportation. Much of this  investment has come through the Federal Transit Administration’s (FTA)  New Starts program. The New Starts program awards full funding grant  agreements (FFGAs) for fixed-guideway rail, certain bus projects, trolley,  and ferry projects. An FFGA establishes the terms and conditions for  federal participation in a project, including the maximum amount of federal  funds available for the project, which by statute cannot exceed 80 percent  of its net cost. Since 1998, FTA has funded or recommended 26 projects for  FFGAs—the total estimated cost of these projects exceeds $17.5 billion.
Under the Transportation Equity Act for the 21st Century (TEA-21) and  subsequent amendments, Congress authorized approximately $8.3 billion  in New Starts contract authority through 2003. Although this level of  funding was higher than it had ever been, the demand for these resources is  also increasing. For example, in 1998, TEA-21 identified over 190 projects  nationwide as eligible to compete for New Starts funding. Several  additional projects not authorized in TEA-21 have since received  congressional appropriations. Because of this demand, TEA-21 directed  FTA to prioritize projects for funding by evaluating, rating, and  recommending potential projects on the basis of specific financial and  project justification criteria and to issue regulations outlining its evaluation  and rating process. FTA issued the regulations for evaluating and rating  New Starts projects in fiscal year 2001. For the fiscal year 2004 cycle, FTA  made two changes to the evaluation and ratings process. First, FTA  implemented the Transportation System User Benefits (TSUB) measure as  a variable in the calculation of cost-effectiveness and mobility  improvements. The new measure is intended to calculate the change in the  amount of travel time and costs that people incur for taking a trip. Second,  in response to language contained in appropriations committee reports,  FTA instituted a preference policy favoring projects that seek a federal New  Starts share of no more than 60 percent of the total project cost. Both of the  changes are reflected in the project justification and financial ratings of a  project, respectively, which, in turn, are combined to form a project’s  overall rating.
TEA-21 also 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. This report discusses (1) the number of projects that were  evaluated, rated, and proposed for new FFGAs for fiscal year 2005 and on  how the recent changes to the process were reflected in ratings; (2) the  proposed funding commitments for New Starts in the administration’s  fiscal year 2005 budget request and legislative reauthorization proposals;  and (3) the extent to which amounts appropriated since 1998 fulfilled  FFGAs. To address these objectives, we reviewed the administration’s  fiscal year 2005 budget request and legislative reauthorization proposals as  well as FTA’s annual New Starts reports and records on funding authorized  and appropriated to projects with existing FFGAs. We also interviewed FTA  officials, representatives of the American Public Transportation  Association and sponsors of 15 projects in preliminary engineering or final  design, and 5 projects with existing FFGAs. In addition, we attended FTA’s  meeting with project sponsors, the New Starts Roundtable, in April 2004.  We conducted our work from February 2004 through June 2004 in  accordance with generally accepted government auditing standards. (See  app. I for more information about our scope and methodology.)
subsections: section_title: Background
paragraphs: TEA-21 authorized a total of $36 billion in “guaranteed” funding for a  variety of transit programs, including financial assistance to states and  localities to develop, operate, and maintain transit systems. Under one of  these programs, New Starts, FTA identifies and funds worthy fixed- guideway transit projects, including heavy, light, and commuter rail; ferry;  and certain bus projects (such as bus rapid transit). We have recognized the  New Starts program as a model that the federal government could use for  approving other transportation projects.
FTA generally funds New Starts projects through full funding grant  agreements (FFGAs). An FFGA establishes the terms and conditions for  federal participation in a project, including the maximum amount of federal  funds available for the project, as well as the project’s scope, schedule, and  cost. By statute, the federal funding share for a New Starts project cannot  exceed 80 percent of its net cost. To obtain an FFGA, projects must go  through an extensive process from a regional multimodal transportation  planning process to preliminary engineering to final design and  construction. (See fig. 1.) As required by TEA-21, New Starts projects must  emerge from a regional, multimodal transportation planning process. The  first two phases of the New Starts process—systems planning and  alternatives analysis—address this requirement. The systems planning  phase identifies the transportation needs of a region, while the alternatives  analysis phase provides information on the benefits, costs, and impacts of  different corridor-level options, such as rail lines or bus routes. The  alternatives analysis phase results in the selection of a locally preferred  alternative—which is intended to be the New Starts project that FTA  evaluates for funding. After a locally preferred alternative is selected,  project sponsors submit a request to FTA for entry into the preliminary  engineering phase. Following completion of preliminary engineering, the  project may be approved by FTA to advance into final design, after which  the project may be approved by FTA for an FFGA and proceed to  construction. FTA oversees the management of projects from the  preliminary engineering phase through construction and evaluates the  projects for advancement into each phase of the process, as well as  annually for the New Starts report to Congress.
To determine whether a project should receive federal funds, FTA’s New  Starts evaluation process assigns ratings on the basis of a variety of  financial and project justification criteria and determines an overall rating.  These criteria are identified in TEA-21 and reflect a broad range of benefits  and effects of the proposed projects, such as capital and operating finance  plans, mobility improvements, and cost-effectiveness. As figure 2 shows,  FTA has developed a series of measures for the project justification  criteria. FTA assigns proposed projects a rating of “high,” “medium-high,”  “medium,” “low-medium,” or “low” for each criterion. The individual  criterion ratings are combined into the summary financial and project  justification ratings. However, FTA does not weigh each individual criterion  equally when calculating the summary financial and project justification  ratings. For the summary project justification rating, FTA uses primarily  two criteria—cost-effectiveness and land use. Each of these criteria  account for 50 percent of the summary project justification. Although FTA  considers the full range of criteria, according to an FTA official, the other  criteria do not produce meaningful distinctions among projects and,  therefore, are not given an official weight in the ratings process. FTA plans  to consider revisions to the measures for the other criteria after the  authorizing legislation is passed.
On the basis of the summary project justification and financial ratings, FTA  develops the overall project rating. (Table 1 describes the criteria FTA uses  to assign overall project ratings.) The exceptions to the evaluation process  are statutorily “exempt” projects, which are those that request less than $25  million in New Starts funding. These projects are not required to submit  project justification information and do not receive ratings.
Last year, we reported that FTA implemented two changes to the New  Starts process for the fiscal year 2004 cycle. (These changes are shaded in  fig. 2.) First, FTA changed the calculation of the cost-effectiveness and  mobility improvements criteria by adopting the Transportation System  User Benefits (TSUB) measure. This measure replaced the “cost per new  rider” measure that had been used in past ratings cycles. According to FTA,  the new measure reflects an important goal of any major transportation  investment—reducing the amount of travel time that people incur for  taking a trip (i.e., the cost of mobility). In contrast to the “cost per new  rider” measure, the new measure considers travel time savings to both new  and existing transit system riders. Second, in response to appropriations  committee reports, FTA instituted a preference policy favoring projects  that seek a federal New Starts share of no more than 60 percent of the total  project cost. Under this preference policy, FTA gives projects seeking a  federal share of New Starts funding greater than 60 percent a “low”  financial rating, which further results in a “not recommended” overall  project rating.
As required by statute, FTA uses the evaluation and ratings process, along  with its consideration of the stage of development of New Starts projects,  to decide which projects to recommend to Congress for funding.  Although many projects receive an overall rating of “recommended” or  “highly recommended,” only a few are proposed for FFGAs in a given fiscal  year. FTA proposes “recommended” or “highly recommended” projects for  FFGAs when it believes that the projects will be able to meet certain  conditions during the fiscal year that the proposals are made. These  conditions include the following:  The local contribution to funding for the project must be made available  for distribution.
The project must be in the final design phase and have progressed to the  point where uncertainties about costs, benefits, and impacts (e.g.,  environmental or financial) are minimized.
The project must meet FTA’s tests for readiness and technical capacity,  which confirm that there are no cost, project scope, or local financial  commitment issues remaining.
section_title: Recent Changes to the Evaluation and Rating Process Present Challenges and Raise Concerns
paragraphs: Of the 38 projects evaluated for the fiscal year 2005 cycle, 29 were rated  and 9 were statutorily exempt from the rating process because they  requested less than $25 million in New Starts funding. While the project  ratings for the fiscal year 2005 cycle reflect a general improvement over the  previous year, ratings are not as high as those achieved for the fiscal year  2003 cycle. FTA proposed 7 projects for funding for the fiscal year 2005  cycle, including 5 projects for FFGAs. The remaining 2 projects were  considered to be “meritorious and worthy of funding” and FTA proposed a  total of $50 million for these projects—substantially more than amounts  proposed for similar projects in prior years. FTA did not, however, clearly  explain to project sponsors how it decides which projects will be  recommended for funding outside of FFGAs or what they must do to  qualify for such a recommendation. FTA implemented two changes to its  evaluation and ratings process for the fiscal year 2004 cycle:  implementation of a new cost-effectiveness measure and adoption of the 60  percent federal New Starts share preference policy that contributed to  lower ratings. Although many of those projects were able to overcome  challenges with the new measure for the current cycle, ratings reflected  that some projects were still unable to generate reliable local travel  forecasts. Also, while the majority of the projects evaluated during the  current cycle requested a federal New Starts share of less than 60 percent,  some project sponsors raised concerns about FTA’s preference policy,  including the challenges associated with securing the local funding share.
subsections: section_title: Project Ratings for the Current Cycle Reflect Improvement but Have Not Returned to Fiscal Year 2003 Levels
paragraphs: Project ratings are generally higher for the fiscal year 2005 cycle than for  the fiscal year 2004 cycle but are still lower than ratings for fiscal year 2003.  Of the 38 projects FTA evaluated for the fiscal year 2005 cycle, 29 were  rated, and 9 were statutorily exempt from the ratings process because  project sponsors requested less than $25 million in New Starts funding.  Figure 3 shows that the percentage of projects that received ratings of  “recommended” or “highly recommended” rose from 44 percent for the  fiscal year 2004 cycle to 59 percent for the fiscal year 2005 cycle. FTA  attributes the increase in “recommended” projects over last year’s total to  improved submissions, notably improved financial plans, and a better  understanding of and increased comfort with the estimation of project  benefits among project sponsors. In addition, FTA rated 7 projects as “not  recommended” and designated 5 projects as “not rated.” According to FTA,  most of the projects that received a rating of “not recommended” submitted  poor financial plans—that is, plans that FTA considered overly optimistic in  their assumptions about costs and revenue growth, or demonstrated no  commitment of funds. For the projects that received a rating of “not rated,”  either FTA had significant concerns with the travel forecasts submitted by  the project sponsor or the project sponsor did not provide all of the  information necessary for a complete submission. (See app. II for a full  listing of ratings for projects evaluated for the fiscal year 2005 cycle.)
FTA proposed 7 projects for funding for the fiscal year 2005 cycle. FTA  proposed 5 of the 7 projects for FFGAs, including Cleveland, Euclid  Corridor Transportation Project; Las Vegas, Resort Corridor Fixed  Guideway; New York, Long Island Rail Road East Side Access; Phoenix,  Central Phoenix/East Valley Light Rail Transit (LRT) Corridor; and  Pittsburgh, North Shore LRT Connector. These projects are expected to be  ready for FFGAs by the end of fiscal year 2005. The total costs of these 5  projects are estimated to be $7.6 billion. The total federal New Starts share  is expected to be $3.7 billion.
In addition, FTA considered 2 other projects in final design to be  meritorious and recommended a total of $50 million for these projects in  fiscal year 2005. FTA proposed $30 million for the Charlotte South Corridor  LRT Project and $20 million for the Raleigh Regional Rail Project— substantially more than amounts proposed for similar projects in prior  years. According to the fiscal year 2005 New Starts report, these  meritorious projects are “located in areas that are highly congested or  rapidly growing, and that have demonstrated a high level of local financial  commitment and strong support from local citizens, businesses, and  elected officials.” However, the report does not clearly explain to project  sponsors how FTA decides which projects will be recommended for  funding outside of FFGAs or what they must do to qualify for such a  recommendation. FTA officials explained that the 2 projects considered to  be meritorious this cycle are closer to being ready for an FFGA than the  other projects evaluated; however, FTA did not believe the 2 projects would  be ready for an FFGA in fiscal year 2005. FTA officials also told us that  decisions to recommend funding for projects outside of FFGAs are made  on an annual basis and are dependent on the readiness of the projects and  the availability of funds after funding for existing or new FFGAs is  allocated. This explanation, however, is not included in its New Starts  report or other published guidance.
FTA has funded similar projects in the past. For example, for the fiscal year  2003 cycle, FTA considered 5 projects in preliminary engineering to be  meritorious. At that time, FTA had proposed $4 million for 4 of the 5  projects and $15 million for the remaining project. FTA reported in its  annual New Starts report that the 5 projects “may be ready to progress  through final design and construction by the end of fiscal year 2003.”  However, by the fiscal year 2005 cycle, only 1 of the projects had an FFGA.  The remaining 4 projects were either being proposed for an FFGA for the  fiscal year 2005 cycle (3) or still in preliminary engineering (1). Therefore,  in the past, FTA’s recommendation for funding for projects considered to be  meritorious does not guarantee that a project will advance to final design  and construction as quickly as anticipated.
section_title: Cost-effectiveness Ratings Indicate Continued Problems with the Implementation of the TSUB Measure
paragraphs: Project sponsors continue to experience challenges calculating cost- effectiveness. Last year, we reported that many project sponsors  experienced difficulties that prevented them from producing accurate local  travel forecasts to calculate the TSUB measure, resulting in 11 projects  designated as “not rated” for cost-effectiveness. Since that time, the  sponsors for 8 of those 11 projects were able to submit sufficient  information to receive a rating for cost-effectiveness, suggesting that they  were able to overcome the travel forecasting problem that they had  experienced during the first year of the measure’s implementation.  However, 6 additional project sponsors were unable to generate reliable  local travel forecasts and thus could not calculate a valid TSUB value for  the fiscal year 2005 cycle, resulting in a total of 9 of the 29 projects  designated as “not rated” for cost-effectiveness. According to FTA, the  major problem in implementing the measure this cycle stemmed from  problems with the underlying local travel forecasting models, not FTA’s  software or the TSUB measure. For example, FTA noted that 22 of the 29  projects rated this year required some involvement by FTA to improve the  accuracy of their travel forecasts. Last year, we recommended that FTA  issue additional guidance describing its expectations regarding the local  travel forecasting models and the specific types of data FTA requires to  calculate the measure. FTA concurred with this recommendation and  provided additional guidance in its updated reporting instructions, issued  in June 2003, and has continued to provide technical assistance to project  sponsors.
Despite the difficulties encountered in implementing TSUB, FTA and most  of the project sponsors we interviewed believe that this new measure is an  improvement over the “cost per new rider” measure because it takes into  account a broader set of benefits to transit riders. These benefits include  reductions in walk times, wait times, ride times, and numbers of transfers,  all of which produce perceived savings in travel time or “travel time  benefits” for new riders as well as existing transit riders. By contrast, the  “cost per new rider” measure recognized benefits only for new transit  riders and did not measure benefits to existing transit riders.
Although the majority of project sponsors we interviewed believe the new  measure is an improvement over the old one, many raised concerns about  the implementation of TSUB, including the approach for calculating TSUB  and the weight FTA applies to the cost-effectiveness criterion. For example,  they were concerned that the measure did not capture all benefits that  accrue to the transportation corridor, notably for highway users; the  amount of time provided to incorporate changes to their local travel  forecasting software was insufficient; and the weight FTA applies to the  cost-effectiveness criterion is disproportional to other criteria. Specifically,  many project sponsors were unclear about the basis for a 45-minute cap on  travel time savings included in the calculation of TSUB. According to an  FTA official, this cap allows FTA to limit travel time savings to less than 45  minutes, which they feel is appropriate, when examining the benefits of  each project. FTA’s experience has been that time savings in excess of 45  minutes is usually due to problems with the local travel forecasting model.  However, FTA has allowed for exceptions to the cap in the past if well  justified by local project sponsors.
FTA assigns a significant weight to the cost-effectiveness criterion in  comparison with other criteria used to calculate the project justification  rating. According to the New Starts report, cost-effectiveness accounts for  50 percent of the project justification rating. Land use accounts for the  other 50 percent. Thus, although cost-effectiveness accounts for 50 percent  of the project justification rating, a “low” cost-effectiveness rating can be  offset by a “high” land use rating. This appears to be the case for the  majority of projects proposed for funding for the fiscal year 2005 cycle. As  table 2 shows, five of the seven projects proposed for funding received a  “low-medium” cost-effectiveness rating. However, the projects’ land use  ratings raised their summary project justification ratings to “medium,”  which allowed them to receive an overall “recommended” rating.
section_title: Most Project Sponsors Proposed a Federal New Starts Share of Less Than 60 Percent, but Some Raised Concerns about FTA’s Push for Lower Federal New Starts Share
paragraphs: FTA instituted a policy favoring projects that seek a federal New Starts  share of no more than 60 percent of the total project cost in fiscal year  2004. According to FTA, this preference policy responded to language  contained in a conference report, prepared in November 2001, by the  House Appropriations Committee. The report states “the conferees direct  FTA not to sign any new FFGAs after September 30, 2002, that have a  maximum federal share of higher than 60 percent.” Similar language has  been included in all subsequent appropriations committee reports. Further,  FTA officials told us that this policy would allow more projects to receive  funding by spreading limited resources among them and ensure that local  governments whose regions stand to receive substantial benefits for the  project play a major role in funding such projects. However, when FTA  implemented the 60 percent policy, it did not amend its regulations to  support the change in policy or its current procedures. As a result, we  noted last year that FTA did not provide an opportunity for public comment  on the impact of the preference policy. We further advised that explicitly  stating criteria and procedures in regulations would ensure that project  sponsors were fully aware of the preference policy. Accordingly, last year  we recommended that FTA amend its regulations governing the New Starts  share for projects to reflect its current policy. FTA disagreed with our  recommendation, noting it was not required to issue regulations because  the policy was not legally binding. Moreover, according to FTA officials, the  preference policy is explained in both the fiscal year 2004 and 2005 New  Starts reports and in its June 2003 reporting instructions.
Although FTA’s preference policy, as expressed in the recent New Starts  report, favors projects that request a federal New Starts share of no more  than 60 percent, FTA is encouraging project sponsors to request an even  lower federal New Starts share. Specifically, some project sponsors have  stated that FTA encourages project sponsors to propose a federal New  Starts share of no more than 50 percent—which is consistent with the  administration’s reauthorization proposal. This push for a lower New Starts  share is reflected in FTA’s rating process. As table 3 indicates, the lower the  amount of New Starts funding requested, the higher the New Starts share  rating. According to the New Starts report, the non-New Starts share rating  accounts for 20 percent of a project’s financial rating.
The project sponsors we contacted expressed concerns about the  preference policy. Although the majority of the projects evaluated during  the current cycle requested a federal New Starts share of less than 60  percent, many of the project sponsors we interviewed indicated that they  had proposed a share that was in line with FTA’s policy in order to remain  competitive. More than half of those interviewed told us they faced  difficulties in advancing New Starts projects under such a policy. For  example, some project sponsors told us that transit projects have a difficult  time competing with highway projects in the local planning process  because highway projects typically require a 20 percent local match,  whereas New Starts projects require a match of at least 40 percent. Other  project sponsors described the limited resources available at the local level  to advance New Starts projects. A number of project sponsors also  expressed concerns about FTA’s efforts to lower the federal New Starts  share to 50 percent. For example, one project sponsor indicated that their  project would have to drop out of the process, others indicated that the  projects would have to be redesigned, and one project sponsor indicated  that requesting a lower federal New Starts share would weaken the  project’s financial plan.
According to the fiscal year 2005 New Starts report, projects that request  more than a 60 percent federal New Starts share are not recommended to  Congress for FFGAs. Specifically, the fiscal year 2005 New Starts report  states that “projects seeking a federal New Starts share over 60 percent of  total costs are given a ‘low’ rating for local financial commitment,  regardless of the ratings received for the capital plan and operating plan.  This ‘low’ rating further results in a ‘not recommended’ overall project  rating.” Projects receiving an overall “not recommended” rating are not  proposed for an FFGA. An FTA official told us that for the fiscal year 2005  cycle, no project received an overall “not recommended” rating solely due  to this policy preference.
The enabling legislation for this program states that federal grants are to be  for 80 percent of the net project cost, unless the grant recipient requests a  lower grant percentage. TEA-21 required FTA to consider the strength of  the local financial commitment, including the extent to which the project  will have a federal New Starts share of less than 80 percent. In our view,  FTA’s policy to favor projects with a lower federal share is permissible as  long as projects are not required to request less than an 80 percent federal  New Starts share in order to be considered for recommendation for an  FFGA. FTA’s description of the preference policy in its fiscal year 2005 New  Starts report suggests that this policy is absolute in that projects proposing  more than a 60 percent federal New Starts share will not be recommended  for an FFGA. However, FTA has assured us that this is a general preference  and it may make exceptions to this policy. FTA has agreed to clarify in its  upcoming reporting instructions that this is a general preference policy,  thus allowing for the possibility of exceptions.
section_title: FTA Continues to Develop Guidance for Two New Requirements That It Instituted for the Fiscal Year 2005 Cycle
paragraphs: FTA instituted two new requirements for New Starts projects for the fiscal  year 2005 cycle that were independent of the rating process. First, FTA  required project sponsors to submit a supplemental document—a “make  the case” document—that articulates the benefits of the proposed New  Starts project. Project sponsors are expected to “make the case” by  describing why the project is needed and why it is the best alternative  available to meet these needs. According to an FTA official, the “make the  case” document is intended to help FTA interpret the data produced by the  local travel forecasting models. For example, the supplemental document  could be used to explain unusual results produced by the local travel  forecasts. In addition, an FTA official stated that the document would aid  FTA in preparing the profile summaries of projects for the annual New  Starts reports. FTA officials note, however, that many of the “make the  case” submissions for the current cycle did not meet their expectations.  For example, some of the submissions provided only a justification of the  need for a corridor improvement; others consisted solely of a summary of  financial and political commitment. An FTA official acknowledged that FTA  could have done a better job in defining the purpose of the document and  stated that FTA plans to provide more guidance in the near future.
The second new requirement instituted for the fiscal year 2005 cycle is a  risk assessment. The risk assessments are intended to identify the issues  that could affect schedule or cost, as well as the probability that they will  do so. It is also used as a project management tool by the project sponsor  and an FTA oversight tool. FTA’s project management oversight contractors  have been conducting the assessments, focusing on the projects that are  closest to receiving an FFGA. As of May 2004, FTA has completed risk  assessments for four projects. Eventually, FTA intends to conduct risk  assessments on projects in earlier phases of development. FTA officials  plan to issue more guidance on this new requirement. In addition, FTA  continues to share and exchange information with project sponsors  through FTA-sponsored roundtables and New Starts workshops.
section_title: Administration’s Proposal Requests Increased New Starts Funds and Legislative Reauthorization Proposals Would Expand and Streamline the Program
paragraphs: The administration’s fiscal year 2005 budget proposal requests $1.5 billion  for the New Starts program, a $225 million increase over the amount  appropriated for fiscal year 2004. Proposed legislation to reauthorize  federal surface transportation programs in the House and Senate would  expand the New Starts program to include a wider variety of transit  projects as well as streamline the New Starts evaluation process for  projects requesting less than $75 million in New Starts funding, among  other things. Project sponsors had mixed reactions to these proposals and  called for clear definitions.
subsections: section_title: Administration’s Proposed Fiscal Year 2005 Budget Requests a 15 Percent Increase in New Starts Funding
paragraphs: In its budget proposal for fiscal year 2005, the administration requests $1.5  billion for the construction of new transit systems and the expansion of  existing systems through the New Starts program—an increase of $225  million, or 15 percent, over the amount appropriated for fiscal year 2004.  Figure 4 illustrates the specific allocations FTA has proposed for fiscal year  2005, including the following:   $931 million (61 percent) would be allocated among 26 projects under  construction with existing FFGAs,   $295 million (19 percent) would be allocated among the 5 projects  proposed for new FFGAs,  $151 million (10 percent) would be allocated among other projects in  final design and preliminary engineering that do not have existing  FFGAs, and   $50 million (3 percent) would be allocated for 2 projects considered to  be meritorious by FTA.
Proposed FFGAs ($295 million)
Existing FFGAs ($931 million)
FTA has limited commitment authority remaining—about $200 million— through June 2004. According to FTA officials, the commitment authority  for fiscal year 2005 and beyond will be addressed in the next surface  transportation authorization legislation. FTA officials told us that neither  the amount of commitment authority remaining nor the delay in  reauthorizing TEA-21 affected the number of projects proposed for an  FFGA for the fiscal year 2005 cycle. However, FTA officials noted that FTA  will not be able to execute all 5 proposed FFGAs until additional  commitment authority is provided through congressional authorization.
section_title: Sponsors Have Mixed Reactions to Legislative Reauthorization Proposals and Call for Clear Definitions
paragraphs: Congress is currently considering legislation that would reauthorize all  surface transportation programs, including the New Starts program. Both  the Senate and House bills contain a number of provisions and initiatives  for the New Starts program. Some of the key provisions of these bills  would (1) streamline the evaluation process for projects under $75 million,  (2) expand the definition of eligible projects, (3) change the ratings  categories, and (4) maintain the maximum federal New Starts share at 80  percent. The project sponsors we interviewed had mixed reactions to  these provisions. In addition, most of the sponsors called for clear  definitions to any changes to the New Starts process.
Streamline the New Starts evaluation process for projects under $75  million. The Senate proposal would allow the Secretary of  Transportation discretion to develop a streamlined evaluation process  for projects requesting less than $75 million in New Starts funds. This  provision would eliminate the “exempt” classification for projects  requesting less than $25 million in New Starts funding and would allow  FTA to analyze and rate all projects through a streamlined process. The  House proposal would establish a “Small Starts” program for projects  requesting between $25 million and $75 million in New Starts funding,  and these projects would be evaluated through a streamlined ratings  process. In addition, the House proposal would maintain the exempt  classification allowing projects requesting less than $25 million in New  Starts funding to be exempt from the evaluation and ratings process.  Most project sponsors we interviewed were supportive of implementing  a streamlined evaluation process for less expensive projects. Some  stated that a less robust evaluation process for less expensive projects  makes sense, and others said it would allow cities to consider a range of  potential projects without having to develop an expensive project.
However, some said that clear definitions and criteria would be  necessary in implementing the streamlined evaluation process.
Expand the definition of eligible projects. Currently, TEA-21 limits New  Starts funding to fixed-guideway projects. Both the House and Senate  reauthorization proposals would allow certain nonfixed-guideway  transit projects (e.g., bus rapid transit operating in nonexclusive lanes)  to be eligible for New Starts funding, opening the program up to projects  that currently are ineligible. Specifically, the Senate proposal would  allow nonfixed-guideway projects requesting less than $75 million to be  eligible for New Starts funding. The House proposal would expand New  Starts funding eligibility to include nonfixed-guideway projects with a  majority of fixed-guideway components seeking between $25 million  and $75 million, as part of its “Small Starts” initiative. The majority of  project sponsors we interviewed supported this initiative, some noting  that broadening the program to include nonfixed-guideway projects  would open more transit possibilities for localities. However, some  project sponsors did express concerns about the already high demand  on New Starts funding and noted that nonfixed-guideway projects could  receive funds through other federal programs or capital funds. As a  result, a number of project sponsors that support expanding the  program said increased and/or separate funding and a clear definition of  eligible projects are needed. Others were reluctant to support the  expansion of New Starts to include nonfixed-guideways projects, citing  a lack of funds and the importance of maintaining the fixed-guideway  focus of New Starts.
Change the rating categories. Under TEA-21, FTA assigns summary  ratings of “highly recommended,” “recommended,” and “not  recommended” to projects requesting New Starts funding. The Senate  reauthorization proposal would revise the current rating system and  implement five levels of ratings: “high,” “medium-high,” “medium,”  “medium-low,” and “low.” The House proposal would maintain the  current ratings system. Project sponsors were unsure of the impact of  the proposed changes, and a few requested clearly defined criteria for  each new rating category. Some sponsors told us they were not  concerned with the ratings scale as long as it was clearly defined. Other  project sponsors said they did not care what the new rating categories  were called—they just want to know what rating is needed to secure an  FFGA. In addition, two sponsors said the new system could be more  easily conveyed to local officials.
Maintain a maximum New Starts share at 80 percent. Currently, TEA- 21 allows a maximum New Starts share of 80 percent for individual  projects. Both the House and the Senate versions of the TEA-21  reauthorization proposals would maintain the maximum New Starts  share at 80 percent, in contrast to the administration’s reauthorization  proposal, which would lower the maximum New Starts share to 50  percent. Furthermore, the House bill specifically prohibits FTA from  requiring a nonfederal share that is more than 20 percent of the project’s  cost. Currently, FTA is encouraging project sponsors to request no more  than 50 percent in New Starts funding for their projects. As noted  earlier, some project sponsors we interviewed were concerned about  the potential impact of reducing the New Starts share to 50 percent,  including the effect of this change on the balance between highway and  transit project funding.
section_title: Project Sponsors Have Taken Steps to Address Variances in Funding
paragraphs: All 26 projects with existing FFGAs have not received funds as scheduled— that is, the amount of funding appropriated was less than the amount  scheduled in the FFGA. FFGAs are multiyear contractual agreements  between FTA and project sponsors for a specified amount of funding,  which are subject to the annual appropriations process. The full amount of  funding is committed to the projects over a set period, and the FFGA  contains a schedule of annual federal payments to fulfill FTA’s  commitment. According to FTA, all completed New Starts projects received  the total FFGA amount but not necessarily according to the original FFGA  schedule. FTA will continue to request funds to be appropriated to meet the  amounts authorized in existing FFGAs. As of March 2004, the 26 projects  have received a total of $294 million, or 5 percent, less than the amount  authorized by the projects’ FFGAs.
The amount and timing of the differences in funding varied for each  project, but all 26 projects with FFGAs received less than the scheduled  amount at some point. As of March 2004, 7 had received over 10 percent  less than the scheduled amount, 2 had received between 5 and 10 percent  less than scheduled, and 17 projects had received up to 5 percent less than  scheduled. The timing of the differences in funding also varied. Some  projects experienced substantial differences between appropriated and  scheduled amounts at the beginning or near the end of their FFGA, but it  was more common for projects to experience funding differences  throughout. (See app. III for the total amount of differences for each  project with an existing FFGA.)
Several factors contributed to projects receiving less New Starts funding  than scheduled. The amount of funding authorized by an FFGA is subject to  the annual appropriations process and, therefore, differences may arise  because of congressional decision making. In addition, projects receive  less than the amounts authorized by the FFGAs because FTA retains 1  percent of the funding provided each year to cover the cost of its project  management oversight. According to FTA officials, each year FTA  requests funding to cover the project management oversight costs, but  these funds are typically not appropriated. FTA may also request that less  New Starts funding be appropriated to a project than scheduled by the  FFGA if it is concerned about a specific project’s progress; however, FTA  officials said they rarely recommend less funding than is scheduled.
Faced with these variances in funding, project officials we interviewed  have developed methods to mitigate the impact of receiving less than the  scheduled annual amount for their project. Some project officials entered  into partnerships with the state and/or local government. For example, one  transit agency arranged for the state to contribute more funds early on in  the project and, as a result, the funding schedule did not adversely affect  the project. Other projects implemented interim funding mechanisms to  cover any FFGA variances, including issuing bonds or loans to generate  necessary funds. None of the 5 project officials we contacted had to change  the scope or schedule of their project solely due to funding variances.  However, officials from these projects said that interim financing  ultimately increased the cost of the project. For example, the Portland  Interstate MAX project incurred approximately $3 million in borrowing  costs, which equaled 4 percent of the total local commitment to the project.
section_title: Conclusions
paragraphs: To receive an FFGA, projects must go through a lengthy evaluation process  by FTA—from planning to preliminary engineering to final design. The  steps for advancing through the evaluation process and securing an FFGA  are well documented in FTA’s New Starts reports and other published  guidance. Documentation of these steps is important to ensure a common  understanding among projects sponsors and to increase the transparency  of the process. Like other programs, the transparency of the New Starts  process is critical in ensuring that project sponsors view the process as fair  and objective. Although the process for securing an FFGA is well-defined,  FTA’s identification of meritorious projects—and the subsequent proposed  funding of these projects—is not. While FTA officials were able to provide  us additional insight regarding funding recommendations for these  projects, FTA’s New Starts reports and other published guidance are not  clear in its meaning. In particular, the rationale for the funding  recommendation for these two projects in FTA’s New Starts Report for  Fiscal Year 2005 is very broad and lacks necessary detail. FTA does not  explain how it decides which projects will be recommended for funding  outside of FFGAs and what project sponsors must do to qualify for such a  recommendation. In addition, FTA did not justify the level of funding  proposed for these projects for fiscal year 2005—which is a substantial  increase compared to amounts proposed for similar projects in the past.  Consequently, it is difficult to understand why these two meritorious  projects are more worthy of funding than other projects in the pipeline.
The implementation of FTA’s policy favoring projects requesting a federal  New Starts share of less than 60 percent also continues to create challenges  for some project sponsors and raises concerns. According to FTA, its policy  is in response to language contained in appropriations committee reports  and will result in more projects receiving funding by spreading limited  resources among them and ensuring that local governments whose regions  would benefit from the project play a major role in funding such projects.  However, many of the project sponsors we interviewed experienced  challenges in trying to secure a larger local match to comply with FTA’s  preference policy. Several project sponsors also stated that FTA’s push for a  lower federal New Starts share would likely affect their decision to  advance future transit projects. Therefore, it is important for FTA to  understand how this policy affects local decision making with regard to  proposing and funding New Starts projects, as well as whether the policy is  maximizing New Starts funds and local participation.
section_title: Recommendations for Executive Action
paragraphs: To ensure that FTA’s New Starts evaluation process and policies are  objective, transparent, and comply with federal statute, we recommend  that the Secretary of Transportation direct the Administrator, FTA, to take  the following two actions:   Clearly explain the basis on which it decides which projects will be  recommended for funding outside of FFGAs, such as projects  considered to be meritorious, and what projects must do to qualify for  such a recommendation. These explanations should be included in FTA’s  annual New Starts report and other published New Starts guidance.
FTA should also examine the impact of its preference policy on projects  currently in the evaluation process, as well as projects in the early  planning stages, and examine whether its policy results in maximizing  New Starts funds and local participation.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Transportation for  review and comment. Officials from the Department and FTA, including the  Associate Administrator for Planning and the Environment, indicated that  they generally agreed with the report and its recommendations. According  to FTA officials, the FTA New Starts program has been recognized as well- managed, with consistent, proven results and accomplishments. They  recognized, however, the need to further improve program guidance and  operation. Specifically, FTA agreed to more clearly explain, in its guidance  to project sponsors, the basis on which it decides which projects will be  recommended for funding outside of FFGAs. In addition, in the draft of this  report, we recommended that FTA revise its guidance to clarify that  exceptions to the preference policy are permissible. In discussions with  FTA officials about the draft of this report, FTA agreed to clarify the  preference policy by clearly stating it is a general, rather than an absolute,  preference in its upcoming reporting instructions and other appropriate  sources, making a recommendation to take such action unnecessary.  Therefore, we eliminated our recommendation on this matter in our final  report. Finally, FTA officials also provided technical clarifications, which  we incorporated as appropriate.
We are sending copies of this report to congressional committees with  responsibilities for transit issues; the Secretary of Transportation; the  Administrator, Federal Transit Administration; and the Director, Office of  Management and Budget. We also will make copies available to others  upon request. In addition, this report will be available at no charge on the  GAO Web site at http://www.gao.gov.
If you or your staff have any questions on matters discussed in this report,  please contact me at siggerudk@gao.gov. GAO contacts and key  contributors to this report are listed in appendix IV.
section_title: Scope and Methodology
paragraphs: To address our objectives, we reviewed the administration’s fiscal year  2005 budget request and legislative reauthorization proposals, the Federal  Transit Administration’s (FTA) annual New Starts reports, records on  funding authorized and appropriated to projects with existing full funding  grant agreements (FFGAs), and federal statutes pertaining to the New  Starts program. In addition, we interviewed FTA officials and  representatives from the American Public Transportation Association and  attended FTA’s New Starts roundtable with project sponsors in April 2004.
We also conducted semistructured interviews with project sponsors from  15 projects in preliminary engineering or final design to gain their  perspectives on recent and proposed changes to the New Starts program  and 5 projects with FFGAs to discuss their experiences in dealing with  shortfalls in federal funding for their New Starts projects. (See table 4 for a  listing of all projects contacted.) The results of these interviews are not  generalizable to all project sponsors, however we used multiple criteria in  selecting the projects to ensure we evaluated a diverse group of projects.  Specifically, to select the 15 projects in preliminary engineering or final  design, we considered projects’ overall ratings for the fiscal year 2005  cycle, mobility and cost-effectiveness ratings for fiscal years 2003 to 2005,  percentage of New Starts funding requested for fiscal years 2003 through  2005, total cost, and location. We obtained this information from FTA’s  annual New Starts reports for fiscal years 2003 through 2005. In selecting  the 5 projects with FFGAs, we considered the size and timing of any  differences between the amount of funding authorized in projects’ FFGAs  and the amount of funding appropriated to the projects for fiscal years 1998  through 2004. We obtained information on the amount of funding  authorized and appropriated to projects with existing FFGAs from FTA.
To ensure the reliability of information presented in this report, we  interviewed FTA officials about FTA’s policies and procedures for  compiling the annual New Starts reports, including FTA’s data collection  and verification practices for New Starts information. We also reviewed  documentation for the database FTA uses to compile, analyze, and store  data for New Starts projects. In addition, during our semistructured  interviews with project sponsors, we asked about the accuracy of the  information about their projects presented in the annual New Starts  reports. Finally, we tested the reliability of FTA’s records of the amount of  funding authorized and appropriated to projects with existing FFGAs by  comparing a nonprobability sample of the records with FFGAs. We  concluded that the FTA information presented is sufficiently reliable for the  purposes of this report.
section_title: Projects Evaluated for the Fiscal Year 2005 Cycle
paragraphs: Projects with existing full funding grant agreements (FFGAs)
Baltimore–Central Light Rail Transit (LRT) Double  Tracking Chicago–North Central Corridor Commuter Rail Chicago–Union Pacific West Line Extension Fort Lauderdale–South Florida Commuter Rail  Upgrades  Northern New Jersey–Hudson Bergen Minimal  Operating Segment (MOS1)
Northern New Jersey–Hudson Bergen (MOS2)
Projects considered to be meritorious.
section_title: Cumulative Shortfalls by Project with Full Funding Grant Agreements
paragraphs: Total authorized and  scheduled in full funding  ($360,785) ($12,418,193) ($4,824,837) ($2,137,215) ($1,237,615) ($5,969,600) ($35,158,211) ($24,992,274) ($11,210,695) ($663,339) ($2,670,672) ($16,455,206) ($2,402,995) ($313,896)
Total authorized and  scheduled in full funding  ($1,342,076) ($1,120,854) ($41,584,710) ($1,127,405) ($3,719,376) ($41,489,474) ($7,382,694) ($9,659,711) ($54,818,940) ($1,186,586) ($53,383) ($10,132,887)
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, other key contributors to this  report were Chris Bonham, Jay Cherlow, Elizabeth Eisenstadt, Rita Grieco,  Kara Finnegan Irving, Elizabeth McNally, Sara Ann Moessbauer, and Stacey  Thompson.
section_title: GAO’s Mission
paragraphs: The General Accounting Office, the audit, evaluation and investigative arm of  Congress, exists to support Congress in meeting its constitutional responsibilities  and to help improve the performance and accountability of the federal government  for the American people. GAO examines the use of public funds; evaluates federal  programs and policies; and provides analyses, recommendations, and other  assistance to help Congress make informed oversight, policy, and funding  decisions. GAO’s commitment to good government is reflected in its core values of  accountability, integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and  correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site  daily. The list contains links to the full-text document files. To have GAO e-mail this  list to you every afternoon, go to www.gao.gov and select “Subscribe to   e-mail alerts” under the “Order GAO Products” heading.
subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs