Capital Investment Grants Program: FTA Should Address Several Statutory Provisions
Released: 2018-05-31T00:00:00

Letter

Background

The primary source of federal funding for new fixed-guideway projects or extensions to existing fixed-guideway systems is FTA’s Capital Investment Grants program, which is a discretionary and competitive grant program funded through annual appropriations. The program is governed by statutory provisions, and funding is provided in the form of a construction grant agreement, which is subject to congressional appropriations.

Projects that compete for funding through the Capital Investment Grants program are designed and implemented by project sponsors, which are usually local transit agencies. Prior to 2012, project sponsors typically applied for funding as either a New Starts or Small Starts project. New Starts projects are capital investments whose sponsors request $100 million or more in Capital Investment Grants funding or have an anticipated capital cost of $300 million or more. Small Starts projects are capital investments whose sponsors request less than $100 million in Capital Investment Grants funding and have an anticipated capital cost of less than $300 million.

In 2012, Congress created a third category of eligible projects called Core Capacity projects. Unlike New Starts and Small Starts, for which the amount of funding project sponsors request and the anticipated capital cost of a project are key factors, Core Capacity projects are not defined by cost. Instead, Core Capacity projects are “corridor-based capital investments” in existing fixed-guideway systems that increase the capacity of a corridor by not less than 10 percent, in a corridor that is at or above capacity or is expected to be within 5 years. Examples of Core Capacity projects include capital investments to expand a transit system’s platforms and acquire real property, rights of way, or rail cars associated with corridor improvements increasing capacity.

To enter the Capital Investment Grants program, project sponsors submit an application to FTA with information on the proposed project, such as a description of the transportation problem the project seeks to address, among other requirements. If accepted into the program, project sponsors must then follow a multi-step, multi-year development process outlined in statute during which FTA determines if the project is eligible for funding through the Capital Investment Grants program. The development process that project sponsors must follow varies depending on whether the project is a New Starts or Core Capacity project, or a Small Starts project. For example, New Starts and Core Capacity projects are required to complete a two-phase development process. During the first phase, called Project Development, project sponsors must complete an environmental review process outlined in the National Environmental Policy Act of 1969 and address other statutory requirements. Project sponsors must also provide FTA with sufficient information for FTA to evaluate and rate the project, among other FTA requirements. To complete the second phase, called Engineering, project sponsors must, among other requirements, develop a firm and reliable cost, scope, and schedule for their project and obtain all non-Capital Investment Grants program funding commitments. Small Starts projects complete a development process that is similar but consists of only one phase, called Project Development.

During the development process, FTA is required to evaluate and rate projects using a number of statutory criteria designed to assess the merit of a project (i.e., project justification). For example, for Core Capacity projects, FTA is required to evaluate and rate a project against six criteria: (1) mobility improvements, (2) environmental benefits, (3) cost- effectiveness, (4) the congestion relief associated with the project, (5) the economic development effects associated with the project, and (6) the existing capacity needs of the corridor. FTA is also required to evaluate and rate the local financial commitment to a project, including evidence of stable and dependable financing sources, as well as the project sponsor’s ability to operate the project and continue to operate any related transit system. FTA’s ratings are “point-in-time” evaluations—meaning that they can change—as a project progresses through the development process.

To receive funding, project sponsors must complete the development process outlined in statute and meet all statutory eligibility requirements. Projects must also address all FTA requirements, and FTA must recommend the project for funding to Congress. FTA’s recommendations are based on its evaluation and rating of the project using the criteria specified in statute, the availability of Capital Investment Grants program funds, and the readiness of the project, such as whether the project’s cost, scope, and schedule are advanced enough to be considered reliable. As mentioned earlier, the funding that projects receive is subject to congressional appropriations.

As we previously reported, both MAP-21 and the FAST Act made numerous changes to the Capital Investment Grants program. For example, in addition to establishing Core Capacity projects as a new category of eligible projects, MAP-21 reduced the number of phases in the development process that projects in the Capital Investment Grants program must follow to be eligible for and receive funding. According to FTA officials, changes the FAST Act made to the program include raising the dollar threshold for eligibility for New Starts and Small Starts projects and increasing the number of projects that are eligible for funding by allowing joint public transportation and intercity-passenger-rail service to compete for funding.

FTA Has Not Addressed Three Out of Four Outstanding Statutory Provisions

FTA has not addressed three of four outstanding statutory provisions concerning the Capital Investment Grants program. As shown in table 1, three of these provisions stem from MAP-21, which was enacted in 2012, and the fourth stems from the FAST Act, enacted in 2015.

When we initiated our review, FTA officials told us FTA did not have immediate plans to address the outstanding statutory provisions due to the administration’s stated intent to phase out the Capital Investment Grants program. As mentioned earlier, in 2017 the President’s Fiscal Year 2018 budget first proposed phasing out the program, stating that future investments in new transit projects should be funded by the localities that use and benefit from those projects. Since then, FTA’s annual reports to Congress, which contain funding recommendations for the program, have reflected this direction. For example, FTA’s Fiscal Year 2018 report recommended that Congress only fund those projects that had already received a grant agreement through the program, and FTA’s Fiscal Year 2019 report stated that FTA neither requests nor recommends any funding for projects in the Capital Investment Grants program beyond those that have already received a grant agreement. However, as also mentioned earlier, in March 2018 the Consolidated Appropriations Act, 2018, provided the program with more than $2.6 billion, and also directed FTA to continue to administer the Capital Investment Grants program in accordance with the program’s procedural and substantive requirements. Following the enactment of the Consolidated Appropriations Act, 2018, FTA officials told us that they are reviewing the law and determining next steps. However, they did not indicate that they have any immediate plans to address those provisions. Moving forward, if FTA does not take steps to address the outstanding provisions, FTA runs the risk of violating federal law.

During our review, FTA officials told us that other factors have also influenced FTA’s decisions. For example, FTA officials noted that since our last report, issuing regulations regarding the evaluation and rating process for Core Capacity projects was not identified as one of the Department’s regulatory priorities and, currently, FTA has no plans to issue such regulations. However, issuing regulations to address this provision is important. FTA’s policy guidance notes that aspects of the development process, such as the steps to get into and through the development process, were not subject to public outreach and are open to be discussed in future updates to the Major Capital Projects rule. While FTA officials emphasized that the agency’s policy guidance is intended to serve as a guide for running the program until such time that FTA initiates further rulemaking, FTA’s policy guidance also notes that further rulemaking is needed to fully implement the changes MAP-21 and the FAST Act made to the Capital Investment Grants program. Until FTA initiates this rulemaking, it is unclear when if at all, FTA might address most of these outstanding provisions.

With respect to addressing the program of interrelated projects provisions, FTA officials reiterated their concerns, as we noted in our last report, that establishing an evaluation and rating process for a program of interrelated projects is difficult. As an example, FTA officials noted that as part of the New Starts, Small Starts, and Core Capacity evaluation process, FTA takes into account factors such as a corridor’s current ridership estimates and future ridership projections. According to FTA officials, evaluating and rating projects that encompass multiple corridors is challenging because it requires that FTA establish new measures and breakpoints—that is, thresholds for FTA’s ratings. Both FTA officials and the American Public Transportation Association representatives we spoke with told us that FTA has sought input from the transit industry in the past to help address these concerns. However, FTA officials also told us that addressing their concerns requires additional research and public outreach on FTA’s part and that undertaking that work has not been a priority of the Department of Transportation. Representatives from two of the sponsors we spoke with, as well as representatives of the American Public Transportation Association, told us that the transit industry is interested in seeing FTA implement the program of interrelated projects provisions and that doing so could help transit agencies deliver projects more efficiently. For example, according to one sponsor, implementing those provisions could help this sponsor purchase materials in bulk and reduce costs. Until FTA takes steps to address this provision, the federal government or project sponsors may be missing opportunities to deliver transit projects more efficiently.

In the case of the FAST Act’s provision establishing a pilot program— called the “Expedited Project Delivery for Capital Investment Grants Pilot Program,” designed to create a fast-track approval process for projects that meet specific statutory criteria, such as having a maximum federal share of 25 percent—FTA published a notice in the Federal Register in 2016 stating that it would publish guidance describing the process project sponsors should follow to apply for consideration as a pilot project. However, at the time of our review, FTA had not provided sponsors with information that describes the process they should follow to apply for consideration as a pilot project. FTA officials told us that project sponsors have generally not expressed interest in participating in the program under the FAST Act, and most of the project sponsors that we spoke with agreed. Specifically, four of the six Core Capacity project sponsors told us that some FAST Act requirements, such as a requirement that projects in the program be supported in part by a public-private partnership, made participating in the program less attractive. According to two of the sponsors, private investors do not have an incentive to invest in public transit projects unless they can profit from their investment, but the FAST Act limits that opportunity by requiring that projects participating in the pilot program be operated and maintained by employees of an existing public transportation provider. Nonetheless, in February 2018, the President’s infrastructure plan recommended restructuring this program, with changes, to better achieve the goals of expediting project delivery. Among the changes recommended are allowing the pilot program to be available to all projects and not just on a pilot basis, and increasing the federal share from 25 to 50 percent. Taking steps to describe the steps project sponsors should follow to apply for consideration as a pilot project under this program could help FTA better understand whether further changes are needed.

The statutory provision FTA has addressed relates to a MAP-21 provision directing FTA to use an expedited technical-capacity review process for certain experienced project sponsors. At the time of our 2016 report, FTA was in the process of finalizing the development of a tool to address this provision, and since then, FTA has implemented that tool. Specifically, the tool helps FTA staff determine the level of review required of project sponsors based on a number of risk factors, such as the complexity of a proposed project and the sponsor’s experience level. According to FTA, this tool helps FTA staff develop project-specific oversight plans that specify the resources FTA should devote when overseeing a particular project. Projects that FTA determines are at lower risk have fewer oversight resources allocated to them, and FTA officials told us that they have been using this tool on all projects in the program since mid-2017.

FTA Has a Process to Verify That Requirements Are Met before Recommending a Core Capacity Project for Funding

Based on our review of FTA’s policy guidance, instructions for applying to the Capital Investment Grants program, and interviews with FTA officials and six Core Capacity project sponsors, we found that FTA has established a process to verify that proposed Core Capacity projects meet statutory requirements before recommending projects for funding. In addition, based on our review of documentation supporting FTA’s funding recommendations for the two Core Capacity projects with grant agreements as of June 2017, as well as interviews with FTA officials and both project sponsors, we found that FTA took steps to verify that the statutory requirements were met before recommending those two projects for full funding grant agreements. Representatives of the other four sponsors we spoke with also confirmed that FTA is taking steps to verify that their projects meet the statutory requirements. Such requirements include specific project eligibility and other requirements that projects must meet during the Project Development and Engineering phases of the development process.

Project Eligibility: Under statute, Core Capacity projects must meet specific eligibility requirements. For example, along the lines previously noted, statutory provisions require that a Core Capacity project be a substantial corridor-based capital investment located in a corridor that is at or over capacity, or projected to be at or over capacity within the next 5 years. These projects must also increase the corridor’s capacity in the peak hour and direction of travel by not less than 10 percent. To verify that projects meet these requirements, project sponsors and FTA officials told us that FTA staff assisted project sponsors in refining their project’s corridor (see fig. 1), and reviewed information provided by the sponsors on such things as the corridor’s current ridership estimates; the type, configuration, and capacity of light- and heavy-rail cars; and the number of seats on commuter rail cars. FTA’s policy guidance outlines the criteria that FTA uses, criteria that FTA developed after consulting industry standards and reaching out to the transit industry. FTA officials emphasized that they apply these criteria consistently across projects when evaluating whether a project’s corridor is at capacity.

As another example, under statute, Capital Investment Grant funding for Core Capacity projects may not be applied to “state of good repair” improvements to the transit system. “State of good repair” improvements include, among other things, the replacement or rehabilitation of existing rail cars, tracks, or communications equipment due to normal wear and tear or preventive maintenance. Core Capacity projects are likely to be intertwined with state of good repair improvements, however, and FTA staff work with project sponsors to identify which project costs within the project corridor are eligible to receive Core Capacity funding and which are related to maintaining a state of good repair.

Project Development Phase: As with the project eligibility requirements discussed above, statutory provisions identify specific requirements that must be met during the Project Development phase, and we found that FTA has a process to verify that those requirements are met. For example, under statute, Core Capacity projects have 2 years after the day on which they enter into Project Development to complete the activities required to obtain a project rating by FTA. Completion of the Project Development phase is marked by the completion of the environmental review process required under the National Environmental Policy Act of 1969 and FTA’s assignment of a project rating. FTA’s policy guidance encourages project sponsors to perform whatever work they feel is necessary prior to requesting entry into Project Development to enable them to complete this phase within 2 years. According to both FTA officials and representatives from each of the six Core Capacity project sponsors, FTA staff work closely with project sponsors to assist them with preparations to enter Project Development, review their documentation, and complete this phase on time. Further, each of the six Core Capacity project sponsors we spoke with told us that FTA follows up with sponsors to ensure that all statutory and FTA requirements for the Project Development phase are met. For example, the project sponsors reported that FTA officials hold a variety of periodic (e.g., weekly, monthly, quarterly) meetings with project sponsors during which they discuss various aspects of the sponsor’s progress toward meeting the statutory requirements.

Under statute, to assign a project rating, FTA must evaluate and rate Core Capacity projects against specific project justification criteria and local financial commitment criteria, as well as ensure that the project has satisfied the project eligibility and other statutory requirements, such as having been selected as the locally preferred alternative and adopted into the appropriate regional transportation plans. To obtain the information needed to make these evaluations, FTA provides project sponsors with reporting instructions and templates on its website specifying its documentation requirements. These instructions and templates allow for the standardized review of the project eligibility requirements previously discussed, as well as aspects of the project justification and local financial commitment criteria. Representatives of two of the six Core Capacity project sponsors described these instructions and templates as helpful, and said the templates enable them to gauge what their project’s potential rating might be. Representatives of four sponsors also reported that when completing the templates they are in frequent contact with FTA officials to help ensure they are appropriately providing all required information. FTA officials inform sponsors that the agency reviews completed templates along with other information to assign project ratings.

Pursuant to statute, once FTA determines that a Core Capacity project meets the specified project eligibility requirements, assigns the project a rating, and determines that the environmental review process has been completed, among other requirements, the project is ready to enter the Engineering phase. Before advancing the project to Engineering, FTA requires project sponsors to provide proof that at least 30 percent of the non-Capital Investment Grants funding necessary to complete the project is committed, as well as a variety of other documentation, such as a 20- year financial plan; a detailed cost estimate; a detailed project management plan and project schedule; a preliminary safety hazard, threat, and vulnerability analysis; and a draft “before and after” study plan. Once a project sponsor indicates it is ready to advance its project to the Engineering phase, FTA assigns oversight contractors, who take a prominent role in overseeing the day-to-day management of the project in order to provide FTA with ongoing reports of the project sponsor’s financial and technical progress.

Engineering Phase: Based on our review of documentation for the two Core Capacity projects that have received a grant agreement, we found that FTA also has a process to verify that the requirements specified in statute applicable to the Engineering phase are met before recommending a Core Capacity project for funding. Pursuant to statute, during the Engineering phase the project sponsor must continue to show the financial capability to complete the project and maintain and operate the future transit system with stable and dependable funding sources. FTA requires that project sponsors show increasing financial capacity during the first 3 years in this phase by providing proof of commitments for at least 50 percent of all non-Capital Investment Grants funding. Pursuant to statute, project sponsors must also continue to show the technical capability to complete the project. FTA requires that project sponsors show increasing technical capacity during this phase by making sufficient progress advancing the level of project design.

According to representatives from the two Core Capacity projects that have received a grant agreement, FTA’s oversight contractors interact with project sponsors frequently throughout the Engineering phase, and are responsible for assisting FTA in determining whether sponsors have the technical and financial capacity to complete their projects. Both FTA officials and the two project sponsors reported that these oversight contractors review project documentation throughout the Engineering phase to verify that the sponsor meets FTA requirements to execute a grant agreement, and are otherwise acceptable for advancing a project. In reviewing documentation for the two Core Capacity projects that have received a grant agreement, we found these oversight contractors provided FTA with their comprehensive assessments of the project sponsor’s technical and financial capacity. FTA officials said they use these assessments when evaluating whether a project should be recommended for a grant agreement.

Conclusions

For years, the Capital Investment Grants program has served as the primary source of federal financial assistance to new transit projects across the United States. During this review, however, the future of that program has been unclear, given the administration’s stated intent to phase out the program and FTA’s actions, which have reflected that direction. The Consolidated Appropriations Act, 2018, provided FTA with both the funding to continue awarding grants through the program and the direction to administer the program in accordance with the requirements specified in law. FTA stated that it is reviewing the law and determining next steps but did not indicate that it has specific plans or timeframes for addressing the three outstanding provisions discussed in this report. By not addressing those provisions, FTA runs the risk of failing to implement provisions of federal law, and the federal government or project sponsors may be missing opportunities to deliver transit projects more efficiently.

Recommendations for Executive Action

We are making the following three recommendations to the Department of Transportation:

The FTA Administrator should initiate a rulemaking regarding the evaluation and rating process for Core Capacity Improvement projects, consistent with statutory provisions. (Recommendation 1)

The FTA Administrator should take steps, such as undertaking additional research or public outreach, to enable FTA to evaluate and rate projects in a program of interrelated projects, in a manner consistent with statutory provisions. (Recommendation 2)

The FTA Administrator should take steps to describe the process project sponsors should follow to apply for consideration as a pilot project under the Expedited Project Delivery for Capital Investment Grants Pilot Program. (Recommendation 3)

Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Transportation for review and comment. In its comments, which are reproduced in appendix II, the Department concurred with our recommendations. However, the Department also stated in its letter that our report did not adequately describe the steps FTA has completed to implement the statutory provisions discussed in this report. Further, the Department stated that FTA has demonstrated its intent to address the outstanding provisions.

We agree with the Department that FTA has taken numerous actions toward addressing various statutory provisions of the Capital Investment Grants program, provisions contained in either MAP-21 or the FAST Act. As noted above in this report, we discussed many of those actions in our April 2016 review of the Capital Investment Grants program. At that time, we reported that FTA was making progress implementing MAP-21 and that FTA intended to take action over the next 2 years toward addressing the remaining provisions of MAP-21 and the new requirements of the FAST Act. However, as of this report, FTA has still not addressed all the provisions, and as the Department stated in its letter, FTA cannot specify when action will be taken to address the outstanding provisions. Accordingly, we believe that our assessment is an accurate reflection of FTA’s progress in addressing the outstanding statutory provisions of the Capital Investment Grants program as amended by MAP-21 and the FAST Act.

We are sending copies of this report to interested congressional committees and the Secretary of the Department of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions or would like to discuss this work, please contact me at (202) 512-2834 or GoldsteinM@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III.

Appendix I: Core Capacity Improvement Projects

Appendix I: Core Capacity Improvement Projects Project description The Metropolitan Transportation Authority proposes to implement capacity improvements to the Canarsie L Line, which operates between South Brooklyn and Manhattan. Improvements include three new power substations and other upgrades necessary to increase capacity on the line. The Metropolitan Transportation Authority estimates that when the project is complete, capacity in the corridor will be increased 10 percent.

The Dallas Area Rapid Transit is proposing to extend and modify platforms along two existing light rail lines to accommodate longer trains. The Dallas Area Rapid Transit estimates that when the project is complete, capacity in the corridor will be increased 12 percent.

The Dallas Area Rapid Transit is proposing to implement a second light-rail alignment through the central business district of Dallas to supplement the existing alignment. The Dallas Area Rapid Transit estimates that when the project is complete, capacity in the corridor will be increased 100 percent.

The Northern Indiana Commuter Transportation District is proposing to construct a second track and make additional improvements along a 26.6-mile segment of its South Shore commuter rail line between Gary and Michigan City.

The Joint Powers Board (also known as Caltrain) is implementing capacity improvements that include upgrading and electrifying a 51-mile commuter rail line extending from San Francisco to San Jose. Caltrain estimates that when the project is complete, capacity in the corridor will be increased 11 percent.

The New Jersey Transit Corporation, in cooperation with the Port Authority of New York and New Jersey, the Gateway Program Development Corporation, and Amtrak are proposing to replace an over 100-year-old drawbridge across the Hackensack River in Hudson County, New Jersey, with a new, two-track bridge, among other capacity improvements. The sponsors estimate that when the project is complete, capacity in the corridor will be increased 10 percent.

The Chicago Transit Authority is implementing capacity improvements along a 5.6-mile corridor on the north side of Chicago. Improvements include the reconstruction of four stations, the installation of a new higher-capacity signal system, and the procurement of 32 new railcars. The Chicago Transit Authority estimates that when the project is complete, capacity in the corridor will be increased 15 percent.

The Bay Area Rapid Transit District is proposing to implement capacity improvements between Oakland and Daly City in South San Francisco. Improvements include implementing communication-based train control equipment, the procurement of 252 rail cars, additional power substations, and the expansion of a maintenance facility. The Bay Area Rapid Transit District estimates that when the project is complete, capacity in the corridor will be increased 37 percent.

Appendix II: Comments from the Department of Transportation

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact above, Brandon Haller (Assistant Director); Melissa Bodeau; Kelsey Burdick; Geoffrey Hamilton; Wesley A. Johnson; Elke Kolodinski; Malika Rice; and Elizabeth Wood made key contributions to this report.