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

Letter

Background

TEA-21 authorized a total of $36 billion in “guaranteed” funding through 2003 for a variety of transit programs, including financial assistance to states and localities to develop, operate, and maintain transit systems. One of these programs, the New Starts program, provides funds to transit providers for constructing or extending certain types of mass transit systems. A full funding grant agreement (FFGA) establishes the terms and conditions for federal participation, including the maximum amount of federal funds available for the project, which by statute cannot exceed 80 percent of its estimated net cost. The grant agreement also defines a project’s scope, including the length of the system and the number of stations; its schedule, including the date when the system is expected to open for service; and its cost. To obtain a grant agreement, a project must first progress through a local or regional review of alternatives, develop preliminary engineering plans, and obtain FTA’s approval for final design.

TEA-21 requires that FTA evaluate projects against “project justification” and “local financial commitment” criteria contained in the act. FTA assesses the project justification or technical merits of a project proposal by reviewing the project’s mobility improvements, environmental benefits, cost-effectiveness, and operating efficiencies. In assessing the stability of a project’s local financial commitment, FTA assesses the project’s finance plan for evidence of stable and dependable financing sources to construct, maintain, and operate the proposed system or extension. In evaluating this commitment, FTA is required to determine whether (1) the proposed project’s finance plan incorporates reasonable contingency amounts to cover unanticipated cost increases; (2) each proposed local source of capital and operating funds is stable, reliable, and available within the timetable for the proposed project; and (3) local resources are available to operate the overall proposed mass transportation system without requiring a reduction in existing transportation services.

Although these evaluation requirements existed prior to the enactment of the act, TEA-21 requires FTA to (1) develop a rating for each criterion as well as an overall rating of highly recommended, recommended, or not recommended and use these evaluations and ratings in approving projects’ advancement to the preliminary engineering and final design phases and approving grant agreements; and (2) issue regulations on the evaluation and rating process. TEA-21 also directs FTA to use these evaluations and ratings to decide which projects to recommend to the Congress for funding in a report due each February. These funding recommendations are also reflected in the department’s annual budget proposal. In addition, TEA-21 requires FTA to issue a supplemental report to the Congress each August that updates information on projects that have advanced to the preliminary engineering or final design phases since the annual report.

FTA’s Evaluation and Rating Process for New Starts Proposals Finalized

In April 2000, we reported that FTA had made substantial progress in developing and implementing an evaluation process that included the individual criterion ratings and overall project ratings required by TEA-21. Before TEA-21 was enacted, FTA had already taken steps to revise its evaluation process of the New Starts program because most of the evaluation requirements contained in the act were introduced by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). FTA uses the results to approve projects for the preliminary engineering and final design phases, to execute grant agreements, and to make annual funding recommendations to the Congress. FTA’s final rule, issued in December 2000, formalized the evaluation and rating process. This year’s process used most of the procedures set forth in the final rule.

New Starts Evaluation and Rating Process Assesses Project’s Justification and Local Financial Commitment

FTA’s current New Starts evaluation process assigns candidate projects individual ratings for each TEA-21 criterion to assess each project’s justification and local financial commitment. The process also assigns an overall rating that is intended to reflect the project’s overall merit. FTA considers these overall ratings to decide which projects will proceed to the preliminary engineering and final design phases, be recommended for funding, and receive full funding grant agreements (see fig. 1 for an illustration of the process).

A project’s overall rating is a combination of the project’s justification and local financial commitment ratings. With respect to project justification, FTA provides individual ratings for the four criteria identified by TEA-21— mobility improvements, environmental benefits, operating efficiencies, and cost-effectiveness—as well as the degree to which existing development patterns and local land-use policies are likely to foster transit-supportive land use. According to FTA, the agency also considers a variety of other factors when evaluating the project’s justification, including the degree to which policies and programs are in place as assumed in the forecasts, the project’s management capability, and additional factors relevant to local and national priorities. To evaluate a project’s local financial commitment, FTA rates the project on its capital and operating finance plans and the local share of its costs. Due to the competitive nature of the New Starts program, FTA is continuing to encourage project sponsors to lower the requested New Starts funding.

After analyzing the documentation submitted by the project’s sponsors, FTA assigns a descriptive rating (high, medium-high, medium, medium-low, or low) for each of the project justification and local financial commitment criteria. As figure 1 shows, once the individual criterion ratings are completed, FTA assigns summary project justification and local financial commitment ratings by combining the individual criterion ratings. In developing the summary project justification rating, FTA gives the most weight to the criteria for transit-supportive land use, cost-effectiveness, and mobility improvements. The summary local financial commitment ratings, the measures for the proposed local share of capital costs and the strength of the capital and operating financial plans are given equal consideration. FTA combines the summary project justification and local financial commitment ratings to create an overall rating for the project of highly recommended, recommended, or not recommended. To receive a highly recommended rating, a project must have summary ratings of at least medium-high for the project justification and local financial commitment. To receive a rating of recommended, the project must have summary ratings of at least medium. A project is rated as not recommended when either summary rating is lower than medium. FTA has also added one-letter indicators to the not recommended rating that explain where an improvement is needed—“j” for project justification, “o” for the operating finance plan, and “c” for the capital finance plan.

In preparing its New Starts funding proposal each year, FTA first accounts for projects with existing grant agreements. Consideration is then given to projects with an overall rating of recommended or higher. However, some projects rated as highly recommended or recommended may not meet FTA’s readiness test for funding. A project passes the readiness test when there is a minimum of risk associated with the project being constructed on time and within budget. FTA uses a number of milestones to make this determination. For example, FTA determines whether the necessary real estate has been acquired, utility arrangements have been made, and local funding sources are in place. According to an FTA official, this ensures that there are no “red flags” signaling that the project has outstanding issues it must address. In addition, FTA considers the following issues in evaluating grantees: the degree to which the transit agency has a satisfactory plan to manage an existing bus fleet to ensure no degradation of service for users of a current system; compliance with the Americans with Disabilities Act of 1990, including obtaining financial commitments necessary to maintain accessible service, make necessary improvements, and comply with key requirements for stations; and compliance with air quality standards in the region.

For its New Starts report for fiscal year 2003, FTA evaluated a total of 50 projects and provided overall ratings for 31 of these projects. Of the 31 projects that were rated, 25 were rated as recommended, 2 projects were rated as highly recommended, and 4 projects received not recommended ratings. According to FTA, few projects received highly recommended ratings because FTA has set the bar high for such ratings. Projects must have a good strong rating for justification (i.e., at least a medium) and a strong local financial commitment rating (i.e., at least a medium-high) to receive such ratings. FTA believes that few projects received a not recommended rating because project officials have a better understanding of the evaluation and rating process and criteria being used to assess a project’s justification and local financial commitment.

In assigning overall project ratings, FTA emphasized the continuous nature of project evaluation. Throughout the New Starts report, FTA underscored the fact that as candidate projects proceed through the final design stage, information concerning costs, benefits, and impacts will be refined. Consequently, FTA updates its ratings and recommendations at least annually to reflect this new information, changing conditions, and refined financing plans. Thus, a project that is rated as recommended in the fiscal year 2003 report could receive a higher or lower rating in the fiscal year 2004 report to reflect changes in the project. For example, in the fiscal year 2002 report, the Charlotte (South Corridor Light Rail Transit) project received a recommended rating. However, this year the project received a highly recommended rating. FTA attributed the project’s improved rating to strong transit-supportive land-use policies in place to support the proposed light rail project and an improved finance plan.

Final Rule Refines New Starts Evaluation Process

Although the criteria and measures in the New Starts evaluation and rating process have not changed, FTA’s final rule, issued in December 2000, made a number of refinements to the process. The final rule was used as FTA considered its New Starts proposals for fiscal year 2003. The most significant changes to FTA’s evaluation process focus on four key issues: the measure of cost-effectiveness, the use of a no-build and Transportation System Management (TSM) alternative for evaluation purposes, the overall project rating, and the measure for mobility improvements.

Historically, FTA used a cost per new rider measure to indicate the cost- effectiveness of a proposed project. The consensus of commenters on the proposed rule was that the focus on new riders ignores benefits provided to other riders, which may bias the measure against cities with “mature” transit systems, where the focus of a proposed project may be to improve service, not attract new riders. In response to comments on the proposed rule, FTA replaced the cost per new rider measure with a new measure of transportation system user benefits. According to FTA, this measure is based on the basic goals of any major transportation investment—to reduce the amount of travel time and out-of-pocket costs that people incur for taking a trip (i.e., the cost of mobility). This approach deemphasizes the number of new riders by measuring not only the benefits to people who change transportation modes (e.g., highways to transit) but also benefits to existing riders and highway users.

FTA no longer evaluates a proposed project (such as light rail) against both a separate no-build and TSM alternatives. For fiscal year 2003, FTA evaluated proposed New Starts projects against a single “baseline alternative” agreed upon by project sponsors and FTA. The baseline alternative involves transit improvements that are lower in cost than the proposed New Start project, which result in improved transit mobility compared to the no-build alternative. The purpose of the baseline comparison is to isolate the costs and benefits of the proposed major transit investment.

FTA has also added one-letter indicators to the not recommended rating to explain where improvement is needed—j for project justification, o for the operating funding plan, and c for the capital finance plan. For example, in the fiscal year 2003 New Starts report, the Cincinnati (Interstate 71 Corridor Light Rail) project was found to need improvement in the capital finance plan and was rated as not recommended (c).

Finally, FTA refined the measure for mobility improvements. In the past, this measure was based on (1) projected savings in travel time and (2) the number of low-income households within a half-mile of the proposed stations. In response to concerns about the scope of this measure, FTA added a new factor for destinations of jobs within a half-mile of boarding points on the new systems. This new factor complements the existing factor of low-income households within a half-mile of boarding points.

FTA Proposes Four Projects for New Starts Funding in Fiscal Year 2003

FTA’s New Starts report and budget for fiscal year 2003 requests that $1.21 billion be made available for the construction of four new transit systems and expansions of existing systems through the New Starts program (see app. I for FTA’s 2003 budget proposal and project ratings). After amounts for FTA oversight activities and for other purposes specified by TEA-21 are subtracted, a total of $1.19 billion would remain available for projects in fiscal year 2003. Of this amount, a total of $1.03 billion would be allocated among 25 projects with existing grant agreements. An additional $134.1 million would be allocated to the four projects proposed for grant agreements. The remaining $31 million would be allocated to five “meritorious” projects to continue project development. (See fig. 2.)

For fiscal year 2003, FTA evaluated 50 projects and prepared ratings for 31 of them. Of the 31 projects that received ratings, FTA rated 27 projects as highly recommended or recommended, and proposed executing new grant agreements for 2 projects that are expected to meet the readiness criteria by the end of fiscal year 2003. In addition, FTA is proposing two other projects for grant agreements for fiscal year 2003. These two projects— New Orleans (Canal Street Spine) and San Diego (Oceanside-Escondido Rail Corridor) were not rated this year. Although they were proposed for funding commitments last year, the grant agreements were not executed, and FTA characterizes the projects as pending federal commitments. According to FTA, the ratings for these two projects from last year are still valid. (Table 1 shows the ratings for the four projects recommended for New Starts funding in fiscal year 2003.)

As table 1 shows, one of the four proposed projects received a highly recommended rating on the basis of its strong cost-effectiveness rating, good mobility improvement rating, and a demonstrated local financial commitment to build and operate the project. The proposed San Diego (Oceanside-Escondido Rail Corridor) project received a medium-high rating in mobility improvement because it is expected to serve 15,100 average weekday boardings in 2015, and 8,600 new daily riders. According to FTA, it will also help to eliminate the heavy congestion of northern San Diego County along the Route 78 corridor, saving 700,000 hours of travel time a year compared to the TSM alternative. In addition, according to FTA, the high ratings for the proposed project’s capital and operating financing plans reflect the solid financial condition of the transit agency and the other funding partners, as well as the sufficient projected revenue growth and contingencies.

The other three projects proposed for grant agreements received overall ratings of recommended. All were rated medium or medium-high on the project justification and local financial commitment criteria. For instance, the New Orleans (Canal Street Spine) project’s recommended rating was based on its strong cost-effectiveness rating and demonstrated local financial commitment. According to FTA’s New Starts report, the transit agency has committed 100 percent of its local capital and operating funds through funding sources such as a loan that would be paid back by a new sales tax on hotels and motels. In contrast, the sponsor of another project that was not recommended for funding in 2003 has been unable to designate specific capital funds or identify specific revenue sources for operating the proposed project. The New Orleans (Canal Street Spine) project’s strong financial rating also reflects FTA’s favorable assessment of the transit agency’s action to reduce recent deficits through fare increases, tax increases, and use of leases for new buses.

Twenty-five other New Starts projects received highly recommended or recommended ratings but were not proposed for grant agreements. Two of these projects, San Diego (Mid-Coast Corridor) and Charlotte (South Corridor LRT), received highly recommended ratings based on their strong cost-effectiveness, transit-supportive land-use, and local financial commitment ratings but were not proposed for funding. Charlotte did not meet FTA’s “readiness” test. FTA officials told us that the San Diego (Mid- Coast) project met FTA’s evaluation and rating criteria as well as its readiness test but was not selected because completing the San Diego (Mission Valley East LRT) extension (an ongoing project) is the transit authority’s top priority, and FTA officials believe that the authority may not have the financial capacity to fund both projects at this time. The other 23 projects were rated overall as recommended. Many of these projects were not proposed for grant agreements in fiscal year 2003 because they are in the early stages of development and are not ready for final design or construction.

Finally, FTA rated four proposed projects as not recommended primarily because of low local financial commitment summary ratings due to the lack of committed local funding to build and operate the systems or the lack of clearly defined cost estimates and contingencies. For instance, one of the four projects received low ratings for the stability and reliability of its capital and operating finance plans, reflecting FTA’s concern about the large share of uncommitted and/or unidentified local funding, and the absence of an operating plan. Other reasons for receiving a not recommended rating include a lack of demonstrated progress since last year’s rating, the relatively high level of New Starts funding proposed, and the reliance on the passage of a sales tax referendum for a portion of the local share.

FTA Ends TEA-21 Authorization Period with Unused Commitment Authority

Implementing FTA’s New Starts report and budget proposal for fiscal year 2003 would leave FTA with about $310 million in unused commitment authority. Although FTA has been faced with an impending transit budget crunch for several years, the agency would end the TEA-21 authorization period with unused commitment authority for several reasons. First, the Congress in fiscal year 2001 substantially increased FTA’s authority to make contingent commitments, subject to future authorizations and appropriations. Second, to preserve commitment authority for future projects, FTA did not request any funding for preliminary engineering activities in the fiscal year 2002 and 2003 budget proposals—a routine practice in prior years. Third, in determining which projects are ready for a grant agreement, FTA has applied stricter tests for readiness and technical capacity. As a result, fewer projects than expected were recommended for New Starts funding for 2002 and 2003. For instance, only 2 of the 14 projects that FTA estimated last year would be ready for grant agreements in fiscal year 2003 are being proposed for funding commitments. Finally, about half of the unused commitment authority results from FTA’s response to the recommendation in our August 2001 report to release $157 million in commitment authority reserved for a Los Angeles subway project for which the federal funding commitment had been withdrawn.

Record Amounts Provided for New Starts Program

FTA was authorized to make a record level of funding commitments— about $10 billion—for the New Starts program from 1998 through 2003. TEA-21 provided the majority of FTA’s commitment authority, authorizing $6.09 billion in “guaranteed” funding for the New Starts program. In addition, TEA-21 and the Department of Transportation’s Appropriation Act for fiscal year 2001 authorized FTA to make an additional $3.4 billion in contingent commitments, subject to future authorizations and appropriations. Contingent commitment authority is designed to allow FTA to execute grant agreements that extend beyond the 6-year period of TEA-21. TEA-21 authorized contingent commitments in an amount equivalent to the last two years of “guaranteed” funding authorized by the act. The fiscal year 2001 appropriations act increased FTA’s contingent commitment authority to an amount equivalent to the last 3 fiscal years of funding. According to FTA officials, after accounting for required projects for Dulles, Chicago, and Minneapolis, this “extra year” of contingent commitment authority provided FTA with about $500 million beyond that provided by TEA-21 that could be used to fund additional projects.

According to FTA, it has already committed approximately $8.9 billion for New Starts projects and program activities. Specifically, about $7.2 billion is committed to the 25 projects with existing grant agreements. After accounting for other requirements (such as the cost of project management oversight), which are expected to total about $1.7 billion, about $1.1 billion remains for new grant agreements in fiscal year 2003. (Table 2 summarizes FTA’s commitment authority and funding commitments, as of March 2002.)

Implementing FTA’s New Starts report and budget proposal for fiscal year 2003 would leave FTA with about $310 million in unused commitment authority. The budget proposes $55 million for two new projects and $79.1 million for the two projects with pending grant agreements for fiscal year 2003. However, the $134.1 million requested for these projects for 2003 will only be a “down payment” on what would amount to a total federal commitment of $785 million for these four projects over the next several years, if no changes were made to the current project proposals. This amount also includes $27 million for four meritorious projects without grant agreements, as well as a fifth project that was mandated by the Congress in fiscal year 2001 with funding of $4 million. Therefore, FTA ends the TEA-21 authorization period with $310 million in unused commitment authority.

To preserve commitment authority, FTA did not request any funding for preliminary engineering activities in the fiscal year 2002 and 2003 budgets. According to FTA, it has provided an average of $150 million a year from fiscal year 1998 through fiscal year 2001 for projects’ preliminary engineering activities. However, FTA did not recommend any funds for preliminary engineering activities in fiscal years 2002 and 2003. According to a senior FTA official, this approach allowed the agency to conserve funds for existing and new grant agreements and ensured that funds were only provided to projects that were ready to move forward. The official further noted that projects may use other federal funding for preliminary engineering activities and no project should be negatively impacted if New Starts funding was not provided for these activities in 2002 and 2003. Officials from several transit projects in the preliminary engineering phase that we contacted in 2001 indicated that they would use other federal funds and/or state and local funds to pay for their preliminary engineering work.

Fewer Projects Than Anticipated Receive Grant Agreements

More state and local transit agencies than ever are competing for New Starts funds. However, FTA’s stricter tests for readiness and technical capacity resulted in fewer projects that were ready for a grant agreement and thus recommended for funding for 2002 and 2003. As mentioned earlier, FTA uses a number of milestones to determine whether a project is sufficiently developed to be considered for a grant agreement. For example, FTA determines whether the necessary real estate has been acquired, utility arrangements have been made, and local funding sources are in place. According to an FTA official, this ensures that there are no red flags signaling that the project has outstanding issues it must address. For instance, only 2 of the 14 projects that FTA estimated last year would be in or ready to enter the final design phase at the end of fiscal year 2002— signaling that they were ready to execute a grant agreement—are being proposed for funding commitments in fiscal year 2003. Several of these projects have not yet been approved to enter the final design phase. Like the approval to enter preliminary engineering, FTA reviews the project’s costs, benefits, and impacts under the project evaluation criteria to determine when a project is ready to enter the final design phase.

FTA identified five meritorious projects that it is recommending for $31 million in funding in fiscal year 2003 to continue their development. These projects have met the planning requirements of the New Starts program and have strong local financial commitments. However, they all have outstanding issues, such as environmental and financing concerns, which prevented them from passing FTA’s readiness test. For instance, one project must resolve technology issues that relate to bus rapid transit buses—60-foot hybrid-electric buses with left and right side doors for access. Another project is addressing historic preservation issues related to several stations that would be reconstructed as part of the project. Finally, the scale of one project requires further work before a federal commitment can be made. The project is too large (estimated total project cost of $4.4 billion) for the normal minimum operable segment concept on which a grant agreement is based to work and is expected to require funding over several authorization periods. According to a senior FTA official, the project’s sponsors and FTA need to determine how to resolve this issue and proceed forward.

In addition, the timing and magnitude of individual New Starts projects dictates how much commitment authority is available for future projects. For example, the total New Starts share for the five meritorious projects is about $2.8 billion. If one or two of these projects had matured faster and been ready for a grant agreement, FTA would have essentially exhausted its commitment authority. A senior FTA official acknowledged that it would have been “a very different ball game” if more projects had been ready for a grant agreement this year or if one large project, such as New York (Long Island Railroad East Side Access)—with a New Starts share of $2.2 billion—had matured faster.

Finally, FTA recently increased its available commitment authority by $157 million by releasing amounts associated with a project for which the federal funding commitment had been withdrawn. As of August 2001, FTA had reserved $647 million in commitment authority for a New Starts project in Los Angeles. At that time, we reported that two segments of that project had been suspended for over 3 years and that FTA had informed the project sponsors that it no longer had funding commitments for these segments. We also stated that releasing the commitment authority attributable to projects for which the federal funding commitment had been withdrawn would significantly increase FTA’s flexibility to execute grant agreements for additional projects. Therefore, we recommended that FTA adopt the practice of releasing such commitment authority and, specifically, that it release the $647 million reserved for the two segments of the Los Angeles project. In its New Starts report and budget proposal for fiscal year 2003, FTA has proposed a funding commitment for one of the previously suspended segments (Eastside); however, because the other suspended segment (Mid-City) is not a candidate for a funding commitment at this time, FTA has released the associated commitment authority, increasing its available commitment authority by $157 million.

Proposals to Cap New Starts Funding May Bring Mixed Results

Since the potential demand for New Starts funding is extremely high, the administration and others have proposed limiting the amount of New Starts funds to less than the authorized 80 percent share. A cap on New Starts funds would allow more projects to receive funding but could have an effect on specific projects that are currently being developed. For example, based on current project cost estimates, a 60-percent cap on New Starts funds for the 49 projects currently in final design or preliminary engineering would result in about $500 million that could be used to fund additional projects. Two projects that currently have a New Starts share at 80 percent, account for the majority of funds that could be redirected. According to officials from several transit agencies, the impact of a proposed cap on individual projects would vary. Some projects would be able to make up for the reduced New Starts funding while others would not be able to tap into any other funding sources and would have to modify their projects’ scope or schedule or even terminate them. Finally, several officials from MPOs pointed out that limiting the New Starts funding share to 50 or 60 percent could have an affect on the transportation decisionmaking process. Specifically, officials from several MPOs stated that a cap on New Starts funds could influence their selection of highway over transit projects since the decisions are often affected by the availability of funds from various federal programs and which projects will receive the highest federal share.

Several Proposals Would Limit New Starts Funding

In order to manage the increasing demand for New Starts funding, there have been several proposals to limit the amount of New Starts funds that could be applied to a project. For instance, the president’s fiscal year 2002 budget recommended that New Starts funding be limited to 50 percent of project costs starting in fiscal year 2004. (Currently, New Starts funding— and all federal funding—is capped at 80 percent.)

In addition, the conference report that accompanied the fiscal year 2002 Department of Transportation appropriations act directs FTA not to sign any new full funding grant agreement after September 30, 2002, that has a maximum federal share higher than 60 percent. According to FTA, these proposals are consistent with its recent practice of seeking a local share of more than 20 percent in order to manage the increasing demand for New Starts funding.

FTA officials told us that limiting the New Starts funding to 50 or 60 percent would ensure that local governments play a major role in funding New Starts projects. Under such a cap, local governments will need to decide to apply either other federal funds or local funds to proposed New Starts projects based on their priorities. An FTA official also pointed out that a 50 or 60 percent cap would allow more projects to receive New Starts funding; however, the official acknowledged that limiting New Starts funding may prevent some projects from being developed or moving forward because of limited local funding.

Additional Projects Could Be Funded with A Cap

Lowering the share to 50 or 60 percent may provide an opportunity to spread available New Starts funds more widely. In the last 10 years, the New Starts share for projects with a grant agreement has averaged around 50 percent and has been trending lower. For the 18 grant agreements signed between October 1999 and November 2001, the overall New Starts share was 46 percent, somewhat below the 56 percent average share of grant agreements signed in 1992-1997. For individual projects, the New Starts share has varied considerably from the mean—from a low of 19 percent to a high of 80 percent. If the 18 grant agreements signed in the 1999-2002 timeframe had been capped at 60 percent, $4.05 billion of New Starts funding would have been committed to these projects instead of $4.30 billion (a difference of about $250 million). With a 50-percent cap, the New Starts commitment would have totaled $3.65 billion (a difference of about $650 million).

A cap on New Starts funds for the 49 projects currently in final design or preliminary engineering would have a much greater effect. These 49 projects are currently proposing $20.59 billion in New Starts funding. A 60- percent cap would result in about $500 million that could be used to fund additional projects; a 50-percent cap would result in slightly over $1 billion that could be allocated to other projects. Two projects (Philadelphia Schuylkill Valley MetroRail and San Juan Tren Urbano Minillas Extension), that currently have a New Starts share at 80 percent, account for the majority of funds that could be redirected—85 percent of the $500 million and 61 percent of the $1 billion. According to FTA officials, the proposed projects’ local share and percentage of New Starts funds could change as the projects proceed through the final design stage.

Many of the project sponsors that initially proposed a New Starts share of over 50 percent have responded to FTA’s suggestion to lower their planned New Starts funding in order to be competitive with other projects. For example, several projects have adjusted their financial plans for fiscal year 2003 to reflect a decrease in the New Starts share of their total cost. Seven projects that initially proposed New Starts shares from 63 percent to 80 percent in fiscal year 2002 lowered them this year to between 32 percent and 60 percent. Several project officials told us that they lowered their New Starts proposals to become more competitive in response to FTA’s suggestions.

A Cap on New Starts Funds Could Affect Specific Projects and the Planning Process

The proposed caps could affect a number of projects currently being developed. For example, 10 of the 49 projects that are currently in the final design or preliminary engineering stages plan to use New Starts funds to pay for over 60 percent of their total costs; an additional 9 projects plan to use over 50 percent (app. II provides a list of the 19 projects). The projected use of New Starts funds for these 19 projects ranges from 51 percent for Little Rock (River Rail Project) to 80 percent for Galveston (Trolley Extension), Nashville (East Corridor Commuter Rail Project), Alaska (Knik River to Wasilla Track Improvements), Philadelphia (Schuylkill Valley MetroRail) and San Juan (Tren Urbano Minillas Extension). According to officials from several of these transit agencies, the impact of a proposed cap would vary. For example, officials from several projects stated that their projects’ scope or schedule would have to be modified or even terminated because they may not be able to tap into any other funding sources to account for lower than planned New Starts funding. An official from one project added that a change in the project’s scope would also have a negative impact on service, ridership, and overall cost-effectiveness. In contrast, officials from several projects indicated that their projects would continue as planned because they would seek other federal or local funds to make up for reduced New Starts funding. For example, an official from one project stated that, if necessary, it would issue bonds to offset any shortfall in New Starts funding.

Any decision to make up the difference with additional federal or local funds could affect other local transportation projects. For example, officials from several projects stated that providing additional funds to their New Starts projects would most likely result in other projects in the area receiving less funds, being delayed, or terminated. An official from one project stated that redirecting funds from highway or other transit projects would indefinitely delay these projects until additional funding is available. However, according to several project officials, obtaining additional funding could be difficult since many states and localities are currently facing significant budget deficits or funding shortfalls. Several project officials noted that a cap could mean that localities would have to reevaluate the priority of transportation projects, including New Starts projects, in the area and make difficult decisions such as delaying or even terminating projects until the local share is raised. Finally, officials from several projects noted that the cap would have a greater impact on areas trying to develop a first time, fixed-guideway or bus rapid transit system where the benefits of the system have not yet been proven.

Finally, a cap could also affect the transportation decisionmaking process. For example, several of the MPOs we contacted told us that they are concerned that having a New Starts match for transit capital projects that is lower than the match for highway capital projects could affect balanced transportation decisionmaking and create a bias towards highway projects. In addition, according to some MPOs, a cap on the New Starts share could also influence the planning and selection of transportation projects in their city or state’s long-range plan. For example, one official indicated that his area’s long-range plan would probably move towards more highway investments. Another official pointed out that a cap could severely hamper the region’s ability to construct the new transit projects in its long-range plan, thus endangering its air quality conformity status. In contrast, some MPOs indicated that their regions prefer a multi-modal system and the types of projects selected for such plans may not be impacted by a cap on New Starts funds.

Concluding Observations

Although FTA has been faced with an impending transit budget crunch for several years, the agency will end the TEA-21 authorization period with unused commitment authority impart because fewer projects than expected were ready for grant agreements. FTA proposes projects for funding after they have met its readiness test. However, in the last several years only nine projects were determined to be ready and were proposed for New Starts funding commitments. Given the tremendous pipeline, if more projects (or a few large ones) had matured faster FTA would have been forced to make difficult funding decisions. If this were to occur in the future, FTA may have a difficult time making these decisions because it has not adopted our recommendation made in 2000 to develop a process for further prioritizing among the projects it rates as recommended or higher. Such a process would ensure that the “best” projects receive New Starts funding and allow for a better understanding of why certain projects with similar ratings may receive funding while others do not. Finally, if many projects are ready at the same time for a grant agreement, FTA may also have to adopt an ongoing practice of releasing the funding set aside for projects when the federal funding commitments have been withdrawn.

A cap on New Starts funds could allow more projects to receive funding if a significant number of projects are ready for a grant agreement at the same time. Since FTA is ending the TEA-21 authorization period with unused commitment authority, a cap imposed over the last several years would not have resulted in funding additional projects. In addition, a cap could have a negative impact on specific projects that are currently being developed as well as the transportation decisionmaking process.

Agency Comments

We provided the Department of Transportation with a draft of this report for review and comment. FTA provided some technical comments on the draft, which we have incorporated where appropriate.

Scope and Methodology

To address the issues discussed in this report, we reviewed the legislation governing New Starts transit projects, FTA’s annual New Starts reports for fiscal years 2002 and 2003, the new regulations for New Starts transit projects, and documents related to New Starts funding. We also interviewed appropriate FTA headquarters officials, 22 officials from transit agencies with New Starts projects currently in the final design or preliminary engineering phases, and officials from selected MPOs (see app. III for a complete list of projects and MPOs contacted). We performed our work in accordance with generally accepted government auditing standards from February through April 2002.

We are sending copies of this report to the secretary of Transportation, the administrator of the Federal Transit Administration, the director of the Office of Management and Budget, and other interested parties. We will make copies available to others upon request.

If you have questions regarding this report, please contact me or Susan Fleming on (202) 512-4431 or at flemings@gao.gov. Key contributors to this report were Heather Balent, Helen Desaulniers, Susan Fleming, and Rod Moore.

FTA’s Fiscal Year 2003 New Starts Ratings and Funding Recommendations

Salt Lake City – Medical Center Extension LRT

Proposed other project funding commitments Cleveland – Euclid Corridor Transportation Project Las Vegas – Resort Corridor Fixed Guideway New York – Long Island Railroad East Side Access Alaska Railroad – South Anchorage Double Track Alaska Railroad – Knik River to Wasilla Track Improvements Los Angeles – San Diego – LOSSAN Rail Corridor Improvement Pawtucket, RI – Commuter Rail Improvement Program San Francisco – Third Street Light Rail (Phase I)

Projects Proposing a New Starts Share of Over 50 Percent

Alaska Railroad (Knik River to Wasilla Track Improvements)

Los Angeles-San Diego (LOSSAN Rail Corridor Improvements)

Pawtucket, RI (Commuter Rail Improvement Program)

Salt Lake City (Medical Center Extension LRT)

Cleveland (Euclid Corridor Transportation Project)

Fort Collins, CO (Mason Street Transportation Corridor)

San Juan (Tren Urbano Minillas Extension)

Washington, D.C. (Dulles Corridor Bus Rapid Transit)

Transit Agencies and Metropolitan Planning Organizations Contacted by GAO

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