Mass Transit: Actions Needed for the BART Airport Extension
Published: 1996-05-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Pursuant to a congressional request, GAO reviewed the Bay Area Rapid Transit District's (BART) plans to extend its transit system to the San Francisco International Airport, focusing on the: (1) actions the Federal Transit Administration (FTA) must take before agreeing to fund the project; (2) factors that could affect the project's current schedule and estimated cost; and (3) project's finance plan, particularly assumptions that could affect its viability.
section_title: What GAO Found
paragraphs: GAO found that: (1) before signing the BART funding grant agreement, FTA must ensure that BART has met all environmental requirements and secured necessary project financing; (2) FTA must also certify that BART environmental and financing plans, and cost estimates are reasonable and determine whether other transportation alternatives have been considered; (3) FTA and BART may not be able to resolve congressional concerns 60 days prior to the signing of the funding agreement, which BART expects to occur in October 1996; (4) BART estimates that its airport extension project will cost $1.167 billion, with construction beginning by October 1996 and line opening in October 2000; (5) the BART construction schedule is ambitious, since environmental reviews may not be completed by October 1996, and expected savings from innovative technology and cost escalations are uncertain; (6) BART expects to obtain $750 million in federal funding, with the remaining $471 million coming from the San Francisco airport, the state, and local sources; (7) BART must develop a borrowing program, since its accelerated construction schedule will outpace its funding; and (8) factors that could affect the finance plan's viability include BART receiving sufficient federal funds each of the next 7 fiscal years, the state allowing BART to use its own revenues as secondary collateral for loans, the airport providing its $200 million contribution, and other state and local contributors capping their BART pledges due to budget constraints.

section_title: Letter
paragraphs: The Bay Area Rapid Transit District (BART) intends to spend over $1.1 billion, including $750 million in federal funds, to extend mass transit service to the San Francisco International Airport. The project is controversial, encountering both widespread support and opposition in the San Francisco Bay area. The controversy, which includes concerns over the project’s environmental impacts and cost, has resulted in two redesigns of the project since 1992. Before the Federal Transit Administration (FTA) can provide BART with the funds requested, federal law requires FTA to ensure that BART complies with federal environmental laws and develops a viable financing plan.
Concerned about the overall cost of the project, you asked us to describe (1) the actions the FTA must take before agreeing to fund the project, (2) the project’s current schedule and estimated cost and the factors that could affect them, and (3) the project’s finance plan, including assumptions that could affect its viability.
subsections: section_title: Background
paragraphs: The BART rail system covers over 70 miles and serves more than 70 million annual riders throughout four counties in the San Francisco Bay area. Dating back to the opening of the BART system in 1972, transportation planners envisioned a system that would bring travelers and airport employees into the San Francisco International Airport. These plans began to take shape in 1991, when the Congress authorized an extension of the BART system to the airport as part of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). In the act, the Congress authorized $568,500,000 for two BART projects and one light rail project in Santa Clara county. The act directed the Secretary of Transportation to fully fund the BART airport extension project, and if necessary, use the unobligated balance in the Mass Transit Account of the Highway Trust Fund.
In 1992, the Bay Area’s Metropolitan Transportation Commission (MTC) completed the first of three draft EISs for the project. As a result, local transit agencies selected an alternative that proposed to link together BART’s and Caltrain’s (the commuter rail operator’s) systems and the airport, at one intermodal location west of the airport. The estimated cost of this alternative was $960 million. However, local opposition to environmental impacts and concerns over ridership forecasts required a study of new alternatives. Subsequently, BART took the lead in preparing a new draft EIS and in April 1995 selected an alternative that would bring the BART system directly into the airport via a subway. The estimated cost of this alternative was $1.27 billion. While this alternative mitigated some of the concerns about environmental impacts and ridership, there was continued opposition to the project. The airport objected to the impacts that the proposed subway’s construction would have on the airport, and the House and Senate Conference Committee report accompanying DOT’s fiscal year 1996 appropriations expressed concerns about the project’s cost.
As a result, BART developed new alternatives and studied them in a third draft EIS. In September 1995, BART selected a new preferred alternative, which changed the project’s entrance into the airport from a subway to an aerial (elevated track) approach. The current project consists of about 8 miles of straight mainline track running south from the existing end of the BART line at the city of Colma to the city of Millbrae, with an incorporated “Y-stub” aerial line diverging from the mainline track and running southeast into the airport, then southwest out of the airport to Millbrae (see fig. 1). The aerial line would include a transit station adjacent to a planned international air terminal and would be linked to the airport’s light rail system to circulate passengers through the airport. Besides the airport and Millbrae stations, the project would include the Hickey and the Tanforan station north of the airport. Under this option, BART has reduced the estimated cost to $1.167 billion, primarily from savings associated with eliminating the more costly subway option.
The overall purpose of the BART airport extension is to help relieve existing and anticipated highway congestion and improve air quality in the region. The traffic on local highways, including Interstate 280, Interstate 380, and Highway 101 regularly exceeds the existing capacity. For 1990 to 2010, MTC forecasts a 16-percent increase in traffic between San Francisco and counties in the South Bay area, including a 52-percent increase in traffic to and from the airport. San Francisco International Airport is proceeding with a $2.3 billion expansion and projects its annual passengers will increase by 21 million between 1990 and 2006. In addition, the San Francisco Bay area has been unable to meet federal air quality standards. The BART extension to the airport is one of the key transportation related antipollution measures. Recognizing growth in the region, the governor of California, on April 29, 1996, designated the BART airport extension project as one of the state’s top three transportation priorities.
section_title: FTA Must Review the Finance Plan and Answer Congressional Concerns Before Signing a Full Funding Grant Agreement
paragraphs: While DOT has announced its support for a full funding grant agreement, key activities remain before FTA can sign one. The agreement will establish the terms and conditions for federal participation, including the total amount of federal transit funds for the project. However, before signing the agreement, FTA must ensure that BART has met all environmental requirements and developed an adequate finance plan. In addition, a Conference Committee report has requested that FTA certify to the House and Senate Appropriations Committees that BART’s environmental and finance plans are reasonable and determine if various transit alternatives have been considered to meet the Bay area’s future transportation needs.
On March 13, 1996, DOT announced its intention for FTA to sign a full funding grant agreement with BART for the proposed extension to the airport. This announcement was supported in the administration’s fiscal year 1997 budget request, which included $51 million for BART. FTA’s Circular C5200 on full funding grant agreements states that the agency generally expects to enter into such an agreement within 120 days after the conclusion of the environmental process, which is marked by the issuance of the final EIS and a record of decision. The application for a full funding grant agreement includes certain key features, including a description of the project and its scope, a finance plan, an estimate of baseline costs and the schedule for completing the project, the schedule for receiving federal funds, and a description of environmental mitigation measures. The finance plan must demonstrate that BART and other local entities have the financial capacity to build, operate, and maintain the project.
Before signing the full funding grant agreement, FTA must first approve the final EIS. Second, BART and FTA must complete negotiations on the project’s finance plan—based on BART’s April 1996 draft plan. To assist it, FTA is employing outside consultants to assess BART’s construction costs and the viability of the finance plan. Under its planned construction schedule, BART expects to have the finance plan approved and to receive a full funding grant agreement from FTA by October 1996.
Finally, the Conference Committee report accompanying DOT’s fiscal year 1996 appropriations act requests FTA to certify in writing to the Congressional Appropriations Committees that the project has resolved a number of significant issues. The report requests that this certification be delivered 60 days before the administration signs a full funding grant agreement with BART. To answer the concerns cited in the Conference Committee report, FTA must certify that a final cost analysis and finance plan have been completed and reviewed and that the federal share for the project has been reduced,the final EIS has been completed and approved, a study to consider a direct commuter rail (Caltrain’s) link to the airport has been considered in conjunction with the BART project, and the share of cost to be borne by the airport and its users is consistent with federal transportation policy and regulations.
BART and FTA are working to resolve the Appropriations Committees’ concerns. However, it is unclear if all of the issues will be resolved by August 1996—60 days before the date BART expects FTA to sign a full funding grant agreement. As discussed in the following two sections, FTA and BART have many issues to resolve before FTA can provide the Appropriations Committees with the requested certifications.
section_title: BART’s Construction Schedule and Cost Estimates
paragraphs: In its April 1996 draft finance plan, BART estimated that the project would cost $1.167 billion, construction would begin by October 1996, and revenue operations would begin in October 2000. Three issues remain that may affect BART’s ability to begin the project as scheduled and complete construction within the estimated cost: (1) whether environmental reviews, including the final EIS and a wetlands permit, will be complete before October 1996; (2) whether the use of innovative contracting procedures will produce the expected savings; and (3) whether BART has adequately included contingencies and cost escalations in estimating the project’s total cost.
subsections: section_title: BART Is Finalizing the EIS and Seeking Environmental Clearances
paragraphs: BART has obtained approval from the U.S. Fish and Wildlife Service (the Service) and must complete two additional environmental reviews before FTA can approve the project. The two issues must be resolved before construction can begin. BART must (1) resolve concerns expressed about the draft EIS and complete the final EIS and (2) obtain a wetlands permit from the U.S. Army Corps of Engineers (the Corps). Delays in finalizing the EIS or obtaining the permit could delay the October 1996 startup.
Federal law required BART to obtain the Service’s approval of measures to mitigate the project’s impacts on endangered species. The project will directly impact the habitat of the San Francisco Garter Snake (a federally listed endangered species) and the California Red Legged Frog (a federally listed threatened species), both which live on the airport’s property that will be used for part of the project’s construction. Since March 1995, BART has been coordinating with the Service to develop and finalize plans for mitigating impacts to the snakes’ and frogs’ habitat and in January 1996 submitted a mitigation proposal to the Service. On May 20, 1996, the Service issued an opinion of “no jeopardy” on the project’s impact to both species. The Service found that BART’s mitigation plan, which included enhancing the snakes’ and frogs’ habitat at a location several miles from the construction area, was acceptable for ensuring the continued existence of the species.
In September 1995, BART issued a second supplemental draft EIS. In the draft statement, BART changed the project’s entry into the airport from a subway to an aerial approach, thereby responding to a congressional request to reduce the project’s cost and the impacts that construction would have on the airport. In November 1995, the boards of directors of BART and the San Mateo County Transit District (SAMTRANS) adopted this approach as the locally preferred alternative. BART held public hearings on the new alternative and received 800 comments on the draft statement. According to BART’s schedule, it plans to receive FTA’s approval for the final EIS by June 14, 1996, and expects FTA to issue the record of decision by mid-August 1996. Under regulations implementing the National Environmental Policy Act, during this time FTA must provide a 30-day public comment period; BART must assess and incorporate any comments received; and FTA must review and assess the comments and how BART responded to them. According to FTA officials, they expect to issue the final EIS in early June 1996.
Finally, federal law requires BART to obtain a section 404 wetlands permit from the Corps. As with the requirements for protecting endangered species, BART must develop a plan for mitigating the project’s impacts to wetlands. The amount of wetlands affected is about 1 acre. BART has been coordinating with officials from the Corps and submitted a permit application in February 1996. According to BART, the Corps has provided preliminary agreement on its wetlands mitigation plan. However, a final permit cannot be issued until after FTA approves the final EIS and signs a record of decision for the project. Corps officials stated that a permit could be issued by September 1996. Construction affecting the wetlands cannot begin until the Corps issues the wetlands permit. BART’s schedule for completing these reviews, as well as securing the environmental permits and obtaining a full funding grant agreement appears in appendix I.
section_title: BART Project Includes Innovative Contracting Procedures
paragraphs: The BART airport extension is one of four nationwide projects selected by FTA in response to ISTEA’s requirement that the agency demonstrate the benefits of using innovative contracting procedures to reduce the project’s time and cost. Since this project is intended as a demonstration, little empirical evidence currently exists to confirm the 15- to 20-percent cost savings BART has assumed it will realize from using the innovative procedures known as design-build contracting. BART has built into each of the design-build contracts an 18.5-percent contingency amount for cost increases. As described below, much of the cost savings stems from reducing construction time. But these savings could be offset by higher borrowing costs should federal appropriations be less than specified in BART’s draft finance plan.
According to BART officials, design-build is an emerging method for implementing construction of new rail transit systems and has the capacity to save significant time and money. Under conventional procurement, a public agency is typically responsible for managing a project from planning to completion. Most of the project’s elements are segmented into components (contracts) that are separately bid and administered through the design, construction, testing, and startup phases by the agency. Design-build procurement in the public sector refers to a process whereby a public agency awards a single master contract to a private firm for the final design, construction, and startup of a public works project. After certification that the project is complete, the contractor turns the keys over to the agency.
According to BART officials, the reduced costs from using the design-build approach are obtained primarily by reducing the construction time and administrative costs. On the airport extension project, BART estimates that one-third less time will be needed to construct the project as a result of awarding only four design-build contracts rather than using multiple conventional contracts. BART estimates that it will complete the project in about 50 months, beginning in October 1996. In comparison, on BART’s recent $1.2 billion project under which two new stations opened since last year and three additional stations will open this year, BART used conventional procedures, which will require about 78 months to complete, and awarded 50 major contracts. Extrapolating from this experience, BART projected that for the airport extension project a design-build approach would reduce costs by 15 to 20 percent over conventional procedures.
However, FTA officials stated that since the BART airport extension project is intended to demonstrate any potential cost savings derived from design-build procedures, it would be difficult to predict the exact savings from employing this method. A 1994 report, prepared for FTA, on design-build projects stated that although the use of the method is very common for transit projects outside of North America, the North American experience is limited and has provided mixed results.
In addition, the cost savings from the design-build procedures are time-dependent; that is, the method assumes that with fewer contracts, BART can complete the project in less time. Less time means less money needed. However, the shorter construction period also requires BART’s financial contributors to provide larger contributions over a shorter period of time. As discussed in the next section on BART’s finance plan, BART anticipates that federal appropriations for the project will increase from the $10 million for fiscal year 1996 to between $50 million and $121 million each year for fiscal years 1997 through 2003. Should these appropriation levels not materialize, the cost of the project would increase because BART would have increased borrowing costs. Any cost savings derived from the design-build approach could thereby be offset.
section_title: Contingencies and Cost Escalations
paragraphs: Because of the scale and risk of the project, BART has added on to construction and design estimates 18.5 percent for the four design-build contracts. These amounts for contingencies and cost escalations—totaling approximately $107 million—are included in the project’s overall cost of $1.167 billion. In addition, BART has included a separate $80 million contingency amount specified as a line item in its finance plan, resulting in a total of $187 million for contingencies. In commenting on BART’s finance plan, FTA found that BART’s contingency amounts were low on the basis of past experiences with other transit projects. FTA recommended an additional contingency funding source and a contingency level higher than 18.5 percent to cover potentially higher environmental costs for mitigating the impacts on wetlands and for connecting the project to the airport terminal. In commenting on a draft of our report, BART stated that surcharges collected at its Daly City station would be set aside in a capital reserve account to cover unexpected cost growth beyond the project’s $1.167 billion budget. These surcharges would generate $2 million a year. If additional funds are needed, premium surcharges could be imposed for trips at the airport station. These surcharges could generate $3 million to $4 million each year but would not be available until the airport station opened in 2000.
These additional funds may be needed to cover a potential $40 million cost escalation not included in BART’s finance plan. In an April 1996 report on BART’s cost estimates, FTA’s project management oversight consultant found that BART calculated its costs based on a midpoint of construction in 1997. The consultant stated that BART should have used 1999 as the midpoint of construction. As a result, BART’s cost estimate for the project does not account for 2 additional years of anticipated inflation and is therefore understated by $40 million.
section_title: The Project’s Financing
paragraphs: BART’s April 19, 1996, draft finance plan, specifies the level and timing of the contributions the transit agency expects to receive from FTA and state and local contributors. Specifically, the plan anticipates that the federal government will provide funding of $750 million. BART anticipates finalizing agreements with the state, the San Francisco airport, and other regional transit agencies to provide the $417 million local share. From our review of the finance plan and our discussions with officials from FTA, the airport, regional transit agencies, and the state, we have identified four factors that could affect the plan’s viability. First, although BART’s finance plan assumes that the Congress will appropriate $51 million to $121 million annually for the next 7 fiscal years, FTA has advised BART to revise its plan and lower the appropriation levels expected each year. As a result, the project’s borrowing costs will increase. Second, BART must secure changes in California law to facilitate establishing a borrowing program to cover expected cash shortfalls. Third, the airport has not identified the source of funding it will use to meet its $200 million commitment to the project. And, fourth, all of the remaining local contributors face financial limitations that have capped their current pledges.
subsections: section_title: Federal Funds Are Expected to Provide Two-Thirds of the Project’s Financing; Cash Shortfalls Are Also Expected
paragraphs: Federal funds are expected to cover about two-thirds of the total cost for the project—approximately $750 million. Despite this large federal share and the commitment of local contributors, the accelerated construction pace will result in BART’s incurring expenses more quickly than it will receive funding. As a result, BART will experience cash shortfalls of up to $240 million during the 50 months of construction. This situation will require it to borrow funds to fill the gap between revenues and expenses. BART is working to develop a borrowing program to address the revenue gap, including securing a second source of collateral to back up the expected federal appropriations.
Figure 2 shows the funding sources for the BART project. The $750 million federal contribution includes $40 million in interest costs associated with BART’s need to issue debt to finance cash shortfalls occurring during construction. BART expects additional funds from the airport ($200 million), the state ($108 million), SAMTRANS ($99 million), and MTC ($10 million). BART cannot contribute to the capital costs of the project, since it is precluded by state legislation from making expenditures for extending service or facilities outside the geographic boundaries of its district until it fulfills certain commitments within its original district.According to BART officials, the agency will not have fulfilled these commitments before completing the airport extension project.
Appendix II displays BART’s April 1996 draft finance plan for the airport extension. The finance plan shows that federal contributions will continue after revenue operations for the project begin in fiscal year 2000 and construction ends in fiscal year 2001. This is because BART will be using federal funds received in fiscal years 2002 and 2003 to pay back principal and interest from debt (short-term notes) that it must issue during construction. BART must issue the debt because construction will be completed over 50 months but financing will be stretched over 84 months. As BART spends funds for construction faster than it receives them, a cash shortfall will result. The largest shortfall is $240 million in fiscal year 2000.
FTA’s financial advisers stated that BART’s request for appropriations of $120 million in the later years of the finance plan represent 18 percent of the total $660 million in FTA’s current annual budget for the New Starts program. Accordingly, FTA advised BART to reevaluate the finance plan by assuming a lower level of annual federal funding. In its April 1996 revised plan, BART assumed lower federal appropriations for the early years of the project but higher federal appropriations in the last 3 years. BART also reduced the interest rate it assumed it would have to pay for its borrowing program from 6.25 percent to 5.5 percent. The annual level of federal appropriations and the assumed interest rate can affect BART’s borrowing costs. Table 1 compares BART’s current finance plan to funding scenarios that vary the level of federal appropriations and the interest rate. FTA has advised BART that borrowing costs are federally reimbursable. However, in commenting on the draft of our report, FTA stated that the federal contribution for the BART project will be capped at $750 million; BART would bear any and all expenses beyond those identified in the grant agreement as necessary to complete the project. The federal contribution will be finalized in the grant agreement, which is still subject to negotiation between FTA and BART.
With different federal appropriations and interest rates, BART’s borrowing costs could increase from its current estimate of $40 million to about $70 million should federal appropriations be provided over a longer time than the 7 years in BART’s plan. In contrast, BART could incur no borrowing costs if it received federal appropriations over 5 years, with a peak appropriation of $294 million in fiscal year 1999. Appendix III provides further details on these different financing scenarios.
section_title: State Legislation Needed to Establish Borrowing Program for the Airport Extension
paragraphs: BART does not have the authority to pledge its own revenues as a secondary source of collateral for a borrowing program it must establish to meet the expected cash shortfalls. As mentioned earlier, California state law prohibits BART from using its own revenues for the purpose of extending service or facilities outside its district. While the expected federal funds would serve as the primary source of collateral for the issued notes, BART’s financial consultant advised the agency that it would need a secondary source of collateral to obtain a lower financing rate. As of May 15, 1996, BART was working to secure support in the California legislature to allow it to pledge its revenues as collateral. BART expects the legislation to pass, since it has support of key state legislators.
BART has identified the potential surcharges at the airport station and Daly City station as the source of its collateral for the project. According to BART, the proposed legislation would also allow it to pay for cost overruns exceeding the planned contingency funds, as described earlier. Without the change in state law, BART proposes to either take out a mortgage on some of its transit facilities or rely only on future federal appropriations as the source of collateral. According to BART’s financial advisers, these two options would increase BART’s financing rate by one-half to 1 percent.
section_title: Limitations on the Use of Airport Funds
paragraphs: The San Francisco International Airport Commission has committed up to $200 million for the BART airport extension. Airport officials described their commitment as the maximum contribution for the BART project. As of May 15, 1996, the Airport Commission had not determined the source of funds it would use to pay for that portion of the BART project located on the airport’s property—the aerial structure and mass transit terminal. FTA’s financial advisers stated that since the airport’s contribution represents 17 percent of the project’s total cost, FTA should closely monitor BART’s process for obtaining a firm financial commitment from the airport.
In August or September 1996, BART expects to secure a comprehensive agreement with the Airport Commission specifying the airport’s financial participation in the project. Airport officials stated that revenue bonds or passenger facility charges (PFC) were potential sources of funds and that the outcome of negotiations with the airlines would determine the funding source. Airport officials stated that the airport was financially strong and would meet its financial commitment to BART within the Federal Aviation Administration’s (FAA) guidelines.
The airport’s contribution would be limited in accordance with a March 3, 1995, memorandum by FAA outlining how airport resources could be used for the BART extension project and what types of activities could be funded. FAA found that the construction of the BART terminal itself at the airport would be eligible for funding by the Airport Improvement Program (AIP) or the airport could institute PFCs if it retained ownership of the facility. In addition, other airport revenues could be used for the BART terminal. FAA stated that the line into the airport would be ineligible for AIP or PFC funds because the line would not be for the exclusive use of airport patrons. However, the airport could use other revenue sources, such as bonds, to partially pay for the line. FAA’s memorandum was written before the project was redesigned from including a subway to including the current aerial configuration. BART officials believe that the new configuration would address FAA’s concerns, since the redesigned line would be used solely for airport patrons. However, according to the manager of FAA’s district office, the airport has not requested a decision from FAA on whether the new configuration would in fact address the agency’s concerns and be fully eligible for AIP or PFC funds.
The airport’s contribution is also limited by a position stated by the Mayor of San Francisco in a March 27, 1996, letter to BART. In the letter, the Mayor states that the airport will not pay for any BART construction activities west of Highway 101 (the highway that provides primary access to the airport). The “Y” portion of the BART project would be affected by the mayor’s limitation, since this portion of the project is located on the airport’s property but the airport would be precluded from funding this portion. The Mayor wrote the letter because of his concerns that the airport’s contribution to pay for this portion of the BART project would jeopardize revenues the city receives each year from the airport.
section_title: Limitations on Local and State Funding
paragraphs: The BART airport extension will be constructed largely in San Mateo County—south of San Francisco. Because San Mateo County is not in BART’s service district, SAMTRANS—the county’s mass transit operator—entered into an agreement with BART whereby it will contribute $330 million to various BART projects (including $99 million for the airport extension) in exchange for BART service into the county. SAMTRANS officials stated that the $99 million was the most that they could commit to the construction of the project. In addition, SAMTRANS’ Board of Directors stated that it would not assume responsibility for cash-flow financing and cost overruns during the project’s construction.
SAMTRANS will also pay for the operation and maintenance of the airport extension line. According to SAMTRANS officials, the operating costs will be recaptured through passenger fares and surcharges; provisions for these charges have been included in their agreement with BART. Reports by FTA indicate that SAMTRANS has the financial capacity to fund the $99 million contribution to BART.
The California Transportation Commission has pledged $98 million in state transportation funds for the project. According to Commission officials, the original funding source, the state’s Transit Capital Improvement Fund, is experiencing constraints because of the volatility in gasoline tax revenues and variation in the amount of the gasoline tax the legislature allocates to transportation. While Commission officials stated that the Transit Capital Improvement Fund may not have sufficient balances to fully fund the BART project in the future, the Commission reaffirmed its $98 million commitment to the project in a January 1996 letter to us, explaining that State Transportation Improvement Program funds already allocated for a different BART project could be transferred to the airport extension.
A second planned source of state funds will come from revenues generated from a tax passed in 1990, known as Proposition 116. Commission officials stated that $10 million in state Proposition 116 funds will be allocated to the BART airport extension, as agreed to by San Mateo County. No additional Proposition 116 funds would be available for the project.
section_title: Conclusions
paragraphs: The BART extension to the airport is at a critical point in terms of the need for close oversight by FTA and congressional scrutiny of the project. BART’s timetable for beginning construction by October 1996 is ambitious and highly dependent on the expeditious approval of critical environmental mitigation and finance plans by FTA. BART’s finance plan provides little room for error. It depends on large annual federal appropriations, cost savings derived from new contracting procedures, and state approval to help secure debt financing.
section_title: Agency Comments
paragraphs: We provided a draft of this report to FTA and BART for review. We met with FTA officials, including the Director of the Office of Planning, to discuss their comments on the draft. In general, FTA officials considered the report to be a fair representation of the facts related to the BART airport extension project. FTA stated we should stress that the BART project is the product of sound regional transportation planning and a high priority in the region and the state. FTA also suggested that we emphasize the benefits of the proposed project in reducing traffic congestion, particularly since additional congestion is expected as a result of the airport’s expansion. We believe the report clearly indicates how the current project was developed, the strong level of regional and state support, and the project’s benefits in reducing traffic congestion.
The FTA officials stated that design-build contracting procedures should be characterized as new, rather than unproven, methods for containing cost growth. The purpose of the demonstration project is to determine whether this contracting method will, in fact, help contain costs for large transit projects. We revised the report to characterize design-build procedures as a new, rather than unproven, contracting method. The FTA officials also suggested technical and editorial changes to the report. Where appropriate, we incorporated these changes into the report.
BART provided written comments on our draft report. Overall, BART stated that the draft report in large part accurately represented the facts associated with the proposed airport extension project. However, BART did not concur with the opinions we reached in our “Results in Brief” and “Conclusions” sections. For example, BART did not agree with our characterization of design-build as an unproven contracting method for transit projects. BART also disagreed with our conclusions that its timetable for the project was very ambitious and that its finance plan had little room for error. As explained, we revised the report to characterize design-build as a new, rather than unproven, contracting method. However, we continue to believe that BART’s timetable is ambitious, particularly since BART expects FTA to sign a full funding grant agreement by October, yet FTA has not approved the final EIS, the airport will not identify its funding commitment until September, and FTA has yet to certify to the Appropriations Committees that the project has resolved a number of significant issues. We also continue to believe that the finance plan has little room for error because state legislation has not yet been amended to allow BART to pledge its assets as collateral, limited funding sources are available to cover cost growth beyond the project’s $1.167 billion budget and contingency amounts, and BART may not have adequately escalated the costs to cover 2 years’ worth of inflation (about $40 million). BART’s detailed comments and our responses are found in appendix V.
We performed our review from October 1995 through May 1996 in accordance with generally accepted government auditing standards. To accomplish our objectives, we gathered information from BART and FTA officials in San Francisco and Washington, D.C. Appendix IV contains the details of our scope and methodology.
As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 14 days after the date of this letter. At that time, we will send copies to the Secretary of Transportation, the Administrator of FTA; the General Manager, BART; cognizant congressional committees, and other interested parties. Copies will also be available upon request.
Please contact me at (202) 512-2834 if you or your staff have any questions. Major contributors to this report are listed in appendix VI.
section_title: Bay Area Rapid Transit District’s Schedule and Milestones for the Airport Extension Project
paragraphs: Major Process Subtask Milestone Completion Date (Figure notes on next page)
section_title: BART’s Draft Finance Plan (April 1996)
paragraphs: ($202,229) $11,128 ($202,430) ($81,430)
BART’s finance plan assumes a yearly financing rate of 5.5026 percent.
section_title: Various Financing Scenarios Assuming Different Levels of Federal Appropriations
paragraphs: Table III.1: Financing Scenario That Uses BART’s Financing Plan and a Borrowing Rate of 6.25 Percent ($202,229) $12,639 ($202,430) ($81,430)
Because of rounding, amounts may add to slightly different cumulative values, financing costs, and totals than the ones shown.
subsections: section_title: Table III.2: Financing Scenario That Includes the President’s Fiscal Year 1997 Budget Request and Then Assumes Level Appropriations From Fiscal Year 1998 Through Fiscal Year 2004
paragraphs: ($181,249) $9,973 ($231,470) ($140,980) ($50,490)
Because of rounding, amounts may add to slightly different cumulative values, financing costs, and totals than the ones shown.
section_title: Table III.3: Financing Scenario That Includes the President’s Fiscal Year 1997 Budget Request and Then Assumes Level Appropriations From Fiscal Year 1998 Through Fiscal Year 2004, With a Borrowing Rate of 6.25 Percent
paragraphs: ($181,249) $11,328 ($231,470) ($140,980) ($50,490)
Table III.4: Financing Scenario That Includes the President’s Fiscal Year 1997 Budget Request and Then Assumes Level Appropriations From Fiscal Year 1998 Through Fiscal Year 2005 ($203,872) $11,218 ($276,715) ($197,536) ($118,358) ($39,179)
Because of rounding, amounts may add to slightly different cumulative values, financing costs, and totals than the ones shown.
section_title: Table III.5: Financing Scenario That Includes the President’s Fiscal Year 1997 Budget Request and Then Assumes Level Appropriations From Fiscal Year 1998 Through Fiscal Year 2005, With a Borrowing Rate of 6.25 Percent
paragraphs: ($203,872) $12,742 ($276,715) ($197,536) ($118,358) ($39,179)
section_title: Scope and Methodology
paragraphs: To determine what actions FTA must take before issuing a full funding grant agreement, we reviewed the Federal Transit Act, as amended, FTA’s Circular C5200 on full funding grant agreements, and the National Environmental Policy Act. We also interviewed FTA legal counsels in headquarters and Region 9, FTA headquarters and Region 9 program officials, and BART officials responsible for project management. To determine congressional requirements placed on FTA regarding the BART airport extension, we reviewed federal legislation and the relevant Conference Committee report.
To describe the project’s current schedule and estimated cost and factors that could affect the cost, we interviewed officials at FTA Region 9 and BART, and we reviewed cost information contained in each of the draft EISs, the report on the locally preferred alternative, and reports by BART’s financial consultant. We also reviewed project and construction schedules submitted to FTA by BART. We reviewed reports from FTA’s financial consultant for the project, FTA’s annual reports, and oversight documents by Region 9 officials. In addition, we reviewed information from critics of the project, including local transportation agency officials; transportation planners; and industry, environmental, and transit user groups. To assess BART’s progress in meeting environmental requirements needed to begin construction, we interviewed officials from FTA, BART, the U.S. Fish and Wildlife Service, and the Army Corps of Engineers. In addition to reviewing each draft EIS, we reviewed the biological assessment for endangered species.
To describe the project’s financing plan, we interviewed officials at FTA and each of the local agencies involved in the project’s financing, including BART, the San Mateo County Transit District, the San Francisco International Airport, the California Transportation Commission, and the Metropolitan Transportation Commission. We obtained and reviewed documents from these officials regarding their financial contribution to the plan. To further assess the airport’s contribution to the plan, we obtained the Federal Aviation Administration’s (FAA) guidance on allowable costs and interviewed FAA officials. We also reviewed analyses of BART’s commercial borrowing program that were contained in reports from BART’s financial consultant.
section_title: Comments From BART
paragraphs: The following are GAO’s comments on BART’s letter dated May 23, 1996.
subsections: section_title: GAO’s Comments
paragraphs: 1. In regard to coordinating with the airport, previous documents by BART and statements of FAA and San Francisco airport officials contradict BART’s current concern that it will miss a “window of opportunity” should construction not move forward immediately. First, BART’s September 1995 draft EIS found that the BART project’s impact on the construction schedule of the airport would be nominal. The report noted that BART and the airport would have to coordinate minor changes and minimal modifications to align their respective projects. Second, the airport director stated to us that changes in BART’s construction schedule would not adversely affect the airport’s expansion plans: No major design changes would be needed to accommodate the BART project. FAA officials stated that the BART project is an add-on to the airport’s construction plans. Therefore, the airport can complete its construction without the BART extension’s being complete.
More importantly, BART needs to secure a financial commitment from the airport. BART’s additional information provided in its response does not lessen the concerns we raised about the airport’s contribution to the project. First, the Airport Commission has not provided FTA or BART with a written agreement committing to its portion of the project’s cost nor has it determined the source of funds it will use to pay for that portion of the BART project located on the airport’s property. Second, FAA has not reviewed or approved the source of funds the airport can use for the BART project. Until these issues are resolved, the project does not have a firm commitment to cover nearly one-fifth of the project’s $1.167 billion cost. 2. Where appropriate, we have updated the draft report to include the more current information that BART presented. In particular, we have updated the report to indicate that the U.S. Fish and Wildlife Service issued a no jeopardy opinion on May 20, 1996, regarding the project’s impacts to endangered species. We also updated the report to show that FTA expects to approve the final EIS in early June. At that time, the final EIS is subject to a 30-day comment period and subsequently will result in FTA’s issuing a record of decision for the project by mid-August. 3. In regard to cost savings from using design-build procedures, we agree that this method has been used successfully in improving public and private sector construction projects. However, as FTA’s consultants on design-build procedures noted in their 1994 report, the experience with these procedures for transit projects is common outside of North America, and these experiences may not be directly transferable to the U.S. environment. For example, transit agencies in foreign countries have greater control over land use than their U.S. counterparts, thus facilitating public-private partnerships for the development of fixed guideway (transit) systems. In addition, the combination of design and construction disciplines within a single private entity tends to be a fairly prevalent practice in many countries but relatively new in the United States. FTA’s consultants also noted that much of the experience gained by design-build projects outside the transit industry may not be directly transferable to that industry because of differences in industries’ structures and the types of technologies used. As a result of the limited experience with design-build procedures in an American contracting environment, FTA selected the BART project to demonstrate any benefits from using these innovative contracting procedures to reduce a project’s schedule and cost. Accordingly, we affirm our concerns with BART’s projection of 15- to 20-percent savings from employing design-build contracting procedures.
In regard to the project management oversight consultant’s (PMOC) report, the PMOC did not assess the certainty of BART’s estimated 15- to 20-percent cost savings attributable to design-build procedures. However, the PMOC expressed concern that BART’s estimates did not take into account 2 years of inflation, thereby underestimating the project’s total cost by as much as $40 million. We have updated the body of our report to incorporate the PMOC’s concerns.
We have revised the report in response to BART’s explanation of why it included 18.5 percent in the design-build contracts to cover contingencies. However, it should be noted that BART’s portrayal of the combined amounts for contingencies as 43 percent of the construction costs is misleading. Cost growth in nonconstruction areas, such as vehicle acquisition and financing, must also be funded by these contingency funds. The total amount for contingencies represents about 16 percent of the project’s total cost. 4. We changed the report to state that FTA intends to cap the federal contribution at $750 million for the BART project; BART would bear any and all expenses beyond those identified in the grant agreement as necessary to complete the project. However, FTA does not expect to conclude a grant agreement with BART until October 1996; the final federal contribution that would be included in the grant agreement is still subject to negotiation between FTA and BART.
In regard to surcharges, while we recognize that BART proposes to use surcharges to cover unexpected cost growth, the ability of these surcharges for this purpose is limited. The Daly City station surcharge is projected to provide BART with $2 million each year to cover unexpected cost growth. This represents two-tenths of 1 percent of the project’s total cost. The proposed premium surcharge at the airport would generate $3 million to $4 million each year, or three-tenths of 1 percent of the project’s total cost. Furthermore, the airport surcharge would not be available until the airport station is open—currently projected for October 2000. In addition, none of these surcharges can be applied until the state legislature passes an amendment to BART’s legislation. 5. We recognize that the project has strong support, including support from the governor and state legislature. However, during the course of our review, we also discovered opposition to the project from numerous groups, including local transit advocates, environmental groups, the Air Transport Association, and area businesses. In addition, two of BART’s board members expressed concern to us about the cost-effectiveness of the project. We also observed at a public hearing on the BART project that many transit users and advocates in San Mateo county were concerned about the impact of this project on their current transit system, particularly the impact on Caltrain. Many of these opponents also testified before the House Appropriations Committee, which highlights the controversial nature of the project. 6. We have modified our draft report to include the new information on environmental approvals. While BART has made progress in gaining environmental approvals, we continue to consider the project’s timetable ambitious. In addition, we cannot reconcile BART’s concern over our conclusion with its previous statement that the “window of opportunity” will close without FTA’s speedy approval.
Furthermore, BART’s comments do not address a major obstacle for the financing plan, namely a change in California law needed to finance anticipated cash-flow shortfalls. We continue to believe that there is little room for financial error. As noted earlier, the surcharges BART cites to create a capital account for funding shortages would produce annual revenues equaling less than 1 percent of the project’s current cost.
section_title: Major Contributors to This Report
subsections: section_title: Chicago
section_title: San Francisco
section_title: Washington, D.C.
section_title: Office of Information Management and Communications
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