TEA-21 authorized a total of $36 billion in “guaranteed” funding through fiscal year 2003 for a variety of transit programs, including financial assistance to states and localities to develop, operate, and maintain transit systems. Under one of these programs, the New Starts program, FTA identifies and funds worthy fixed guideway transit projects, including heavy, light, and commuter rail, ferry, and certain bus projects (such as bus rapid transit). FTA funds New Starts projects through full funding grant agreements (FFGA), which establish the terms and conditions for federal participation in a project. By statute, the federal funding share of a New Starts project cannot exceed 80 percent of its net cost. To obtain a FFGA, a project must progress through a regional review of alternatives and meet a number of federal requirements, including providing data for the New Starts evaluation and ratings process. Projects presented to FTA for evaluation go through a lengthy process from planning to preliminary engineering and final design, which may culminate in a FFGA and the actual construction phase. FTA conducts management oversight of projects from the preliminary engineering stage through construction. All projects that do not have an existing or pending FFGA and are in preliminary engineering or final design are considered to be in the New Starts pipeline. There are currently 52 projects in the pipeline. Figure 1 illustrates the overall planning and project development process for New Starts projects. To determine whether a project should receive federal funds, FTA’s New Starts evaluation process assigns ratings based on a variety of financial and project justification criteria and then assigns an overall rating. These criteria are identified in TEA-21 and reflect a broad range of benefits and effects of the proposed projects, such as capital and operating finance plans, mobility improvements, and cost-effectiveness. FTA assigns proposed projects a rating of high, medium-high, medium, low-medium, or low for each criterion. The individual criterion ratings are combined into the summary financial and project justification ratings. On the basis of these two summary ratings, FTA develops the overall project rating using the following decision rules: Highly Recommended requires at least a medium-high for both the financial and project justification summary ratings. Recommended requires at least a medium for both the financial and project justification summary ratings. Not Recommended is assigned to projects not rated at least medium for both the financial and project justification summary ratings. Not Rated indicates that FTA has serious concerns about the information submitted for the mobility improvements and cost- effectiveness criteria because the underlying assumptions used by the project sponsor may have inaccurately represented the benefits of the project. Not Available is the rating given to projects that did not submit complete data to FTA for evaluation for the fiscal year 2004 cycle. Although many projects receive an overall rating of “recommended” or “highly recommended,” only a few are proposed for FFGAs in a given fiscal year. FTA proposes “recommended” or “highly recommended” projects for FFGAs when it believes that the projects will be able to meet certain conditions during the fiscal year that the proposals are made. These conditions include the following: The local contribution to funding for the project must be made available for distribution. The project must be in the final design phase and have progressed to the point where uncertainties about costs, benefits, and impacts (e.g., environmental or financial) are minimized. The project must meet FTA’s tests for readiness and technical capacity. These tests confirm that there are no cost, project scope, or local financial commitment issues remaining. FTA implemented two changes to the New Starts process for fiscal year 2004. First, in response to language contained in a conference report prepared by the House Appropriations Committee, FTA instituted a preference policy in its ratings process favoring current and future projects that do not request more than a 60 percent federal share. Second, FTA revised its cost-effectiveness and mobility improvements criteria by adopting a Transportation System User Benefits (TSUB) measure that gives equal weight to benefits for both new and existing transit system riders. Project sponsors we interviewed endorsed the TSUB measure, but implementing it has been difficult for both FTA and the project sponsors because of the variety of local travel forecasting models that exist and problems with those models. These difficulties resulted in some projects not being rated for the fiscal year 2004 cycle. The New Starts evaluation and ratings process for fiscal year 2004 was generally similar to that of fiscal year 2003, but FTA implemented two changes that are described in its Annual Report on New Starts for Fiscal Year 2004. First, in response to language contained in a conference report prepared by the House Appropriations Committee, FTA instituted a preference policy in its ratings process favoring current and future projects that do not request more than a 60 percent federal share. To achieve this, FTA changed its criterion related to capital finance plans to give projects seeking a federal share greater than 60 percent a “low” financial rating. A “low” financial rating is likely to result in a “not recommended” overall rating. Second, FTA changed the calculation of the cost-effectiveness and mobility improvements criteria by adopting the TSUB measure. The TSUB measure replaced the “cost per new rider” measure that had been used in past ratings cycles. According to FTA, the new TSUB measure reflects an important goal of any major transportation investment—reducing the amount of travel time and out-of-pocket costs that people incur for taking a trip (i.e., the cost of mobility). In contrast to the previous “cost per new rider” measure, the TSUB measure gives equal weight to both new and existing transit system riders by measuring not only the benefits to people who change transportation modes (e.g., highways to transit) but also benefits to existing transit riders and highway users. Figure 2 illustrates the New Starts evaluation and ratings process, including the changes made to the process for fiscal year 2004. The TEA-21 legislation that authorizes the New Starts program states that federal grants are to be made “for 80 percent of the net project cost, unless the grant recipient requests a lower grant percentage.” The legislation further provides that, in evaluating grant applications, FTA shall consider the degree of local financial commitment and the extent to which the local commitment exceeds the minimum nonfederal share of 20 percent. For the fiscal year 2004 cycle, FTA instituted a 60 percent preference policy that ultimately is likely to result in an overall rating of “not recommended” for projects that seek more than a 60 percent federal share. Although TEA-21 authorized FTA to consider local financial commitments that increase the local share of net project cost, and it vested FTA with discretion as to how to achieve this, the Secretary of Transportation is required by law to issue regulations defining the manner in which projects will be evaluated and rated. In December 2000, FTA finalized a regulation that stated that the evaluation and ratings process would consider, among other things, the extent to which projects have a local financial commitment that exceeds the 20 percent minimum. Essentially, this regulation merely restated the TEA-21 statutory criteria. Also, when FTA implemented its 60 percent preference policy, it did not amend its regulations to support the change in policy or its current procedures. By not amending its regulations, which have the full force and effect of law, to reflect this change, FTA has not provided an opportunity for public comment on its new policy. Furthermore, explicitly stating all of FTA’s criteria and procedures in regulations would help to ensure that project sponsors, Metropolitan Planning Organizations, and others involved in considering potential New Starts projects were fully aware of FTA’s preference policy and could make their investment decisions on the basis of a transparent evaluation and ratings process. FTA has stated that in instituting the 60 percent preference policy, it was following congressional direction as expressed in a conference report prepared by the House Appropriations Committee. That report states “the conferees direct FTA not to sign any new full funding grant agreements after September 30, 2002, that have a maximum federal share of higher than 60 percent.” As stated previously, TEA-21 provides FTA with discretion to give priority to projects that have a federal share lower than 80 percent. FTA officials told us that favoring projects with a federal share that does not exceed 60 percent would allow more projects to receive New Starts funding and would help ensure that local governments play a major role in funding such projects. Of the 32 projects that were rated for the fiscal year 2004 cycle, 4 received a “low” financial rating and a “not recommended” overall rating because, among other reasons, they proposed a federal share above 60 percent. According to FTA, since the release of FTA’s Annual Report in February 2003, one of these projects—the San Juan Tren Urbano Minillas Extension project—was withdrawn and the three remaining projects are continuing to address their financial issues. FTA officials expressed the view that reducing the level of federal share to 60 percent has a minimal impact because, over the last 10 years, the federal share for New Starts projects’ grant agreements has averaged around 50 percent and has been trending lower. However, many of the project sponsors we interviewed (7 of the 11) noted that the reduced federal share did, in fact, have an impact on their projects’ schedule and financing, which had to be revised prior to or during the ratings process. FTA’s decision to institute its preference policy for projects that seek no more than a 60 percent federal share may also adversely affect future projects, according to project sponsors that we interviewed, as the following examples illustrate. Six of the 11 project sponsors said that continuing a 60 percent preference policy for the amount of the federal share for projects might reduce the number of future projects because of difficulties faced by local and state governments in providing an increased local share. Transit industry officials we interviewed agreed with this statement. Nine of the 11 project sponsors said that the unequal federal share for highway and transit projects could bias the local decision-making process in favor of highway projects. Highway projects generally receive a federal share of 80 percent or more, in contrast to the current preference policy of a 60 percent federal share for New Starts transit projects. The nine project sponsors we interviewed who were affected by the TSUB measure believed it was an improvement over the previous “cost per new rider” measure because the TSUB measure takes into account a broader set of costs and benefits to the overall transit system. For example, the measure considers mobility benefits related to improved travel time for all users of a transportation corridor, rather than benefits accruing from only new riders. However, many project sponsors encountered difficulties in providing accurate data needed to calculate the new TSUB measure. To implement the TSUB measure, FTA developed a software package, called Summit, to extract certain data from local travel forecasting models that are used in planning transit projects. FTA hired contractors to assist project sponsors in using the Summit software to calculate the TSUB value. During the implementation process, FTA discovered that many of the local travel forecasting models had underlying errors. Some of these errors were significant due to faulty design and assumptions made in some of the local travel forecasting models; others were simple coding errors in the models. As a result, many projects experienced difficulties that prevented them from calculating an acceptable value for the TSUB measure. According to FTA’s Annual Report, 11 of the 32 projects rated for the fiscal year 2004 cycle were identified as being unable to calculate a valid TSUB value. As a result, these projects were “not rated” for the cost- effectiveness criterion. Additionally, 7 of the 9 project sponsors we interviewed who were affected by the TSUB measure encountered difficulties in the measure’s implementation: 5 had difficulty getting their local transit forecasting models to generate the data needed for FTA’s software to calculate the measure, 3 did not have adequate data to develop the measure, and 2 said that FTA did not provide enough documentation about the measure and the software used to calculate the TSUB. As described above, FTA officials told us that they believe the major problem in implementing the TSUB measure stemmed from problems with the underlying local travel forecasting models, not FTA’s software or guidance on the measure. Nonetheless, FTA is taking some steps to address the problems raised in the implementation of the TSUB measure. For example, FTA hired contractors to work with transit sponsors to correct problems with the local travel forecasting models and the software used to calculate the TSUB measure. These contractors provided technical support to all affected project sponsors and assisted some sponsors in correcting the underlying problems identified in their local travel forecasting models. FTA officials also told us that they are continuing to work closely with the 11 project sponsors who were unable to calculate values for the TSUB measure. When the problems in the projects’ local travel forecasting models are corrected and data are resubmitted to FTA for evaluation, FTA plans to re-rate these projects. As soon as a project receives a revised rating, FTA officials told us that they would inform Congress and other appropriate parties. Project sponsors we interviewed told us that they would have benefited from additional guidance and other technical support, such as documentation for the software used to calculate the TSUB measure. They also requested additional opportunities to discuss their concerns and provide input to FTA officials about the measure. FTA officials told us that they are developing software documentation for the TSUB measure and plan to release it in June 2003. Furthermore, FTA has held a series of four roundtable discussions with project sponsors and transit industry officials, specifically on the TSUB measure and its implementation. FTA plans to hold two additional roundtable discussions during fiscal year 2004. FTA officials and a FTA consultant told us that they anticipate that fewer projects will have difficulties calculating accurate TSUB values in future New Starts evaluation and ratings cycles. FTA plans to continue addressing technical problems related to inaccurate local travel forecasting models on a case-by-case basis. FTA officials also acknowledged the need to develop a more systematic approach for dealing with these problems. Of the 52 projects FTA evaluated for the fiscal year 2004 cycle, 32 were rated and 20 were statutorily exempt from the ratings process because they requested less than $25 million in New Starts funding. Figure 3 shows the results of the process for the fiscal year 2004 cycle and how they compare with those of fiscal year 2003, when 50 projects were evaluated. From fiscal years 2003 to 2004, the number of “recommended” projects decreased from 25 to 12, while the number of projects that received a rating of “not recommended” rose from 4 to 11. The primary reasons for these changes were (1) lower financial ratings, which resulted from the inability of some projects to conform to the reduced federal share, and (2) “low” ratings received on the cost-effectiveness and mobility improvements criteria resulting from implementation of the new TSUB measure. In addition, the number of projects that were “not rated” or “not available” rose from 2 to 7, largely due to difficulties project sponsors had in determining a value for the TSUB measure. Following the fiscal year 2004 New Starts evaluation and ratings process, FTA proposed four projects for new federal funding commitments. Inclusion of one of them—the Chicago Ravenswood Line Expansion project—is unusual because FTA assigned it an overall project rating of “not rated” even though, on the basis of FTA’s New Starts regulations, a project must have an overall rating of at least “recommended” to receive a grant agreement. According to FTA officials, this project could not be rated because its local travel forecasting data and models did not support calculation of the new benefits measure. However, the officials told us that they decided to select this project for a proposed grant agreement because they believed that the data problems would be corrected, and the project would be able to achieve a “recommended” rating. Along with the other three proposed projects, FTA officials believe that the Chicago Ravenswood Line Expansion project will be ready for a grant agreement by the end of fiscal year 2004. Officials said that other projects that received overall ratings of “recommended” or “highly recommended” would not be ready at that time. Figure 4 summarizes the ratings of the four proposed projects, which are further described in appendix I. The administration’s fiscal year 2004 budget proposal requests that $1.5 billion be made available for New Starts, a $0.3 billion increase over the fiscal year 2003 level. The budget proposal also contains three initiatives—reducing the federal share to 50 percent, allowing nonfixed guideway projects to be funded through New Starts, and replacing the “exempt” classification with a streamlined ratings process for projects requesting less than $75 million in New Starts funding. The administration’s budget proposal for fiscal year 2004 requests that $1.5 billion be made available for the construction of new transit systems and expansion of existing systems through the New Starts program—an increase of $0.3 billion, or 25 percent over the $1.2 billion appropriated for fiscal year 2003. The commitment authority for fiscal year 2004 and beyond will be addressed in the next surface transportation authorization legislation. Because FTA’s fiscal year 2004 budget proposes that $1.5 billion in commitments be made available for the New Starts program, FTA expects that the new commitment authority adopted in the authorization legislation will, at a minimum, be sufficient to cover this amount. Figure 5 illustrates the specific allocations FTA has requested for fiscal year 2004. It shows that $1.08 billion would be allocated among 21 projects with existing grant $235 million would be allocated among the 4 projects proposed for new FFGAs; $121.2 million would be allocated among other projects in final design and preliminary engineering that do not have existing, pending, or proposed FFGAs (these projects may include those designated by Congress); $55 million would be allocated to 1 project with a pending grant agreement (i.e., the FFGA was proposed in an earlier year, but has not yet been completed); and the remainder of the funds would be allocated to other mandated projects and oversight activities. The administration has proposed that the federal share of New Starts project costs be reduced from the current statutory maximum level of 80 percent to a statutory maximum of 50 percent. The possible advantages of this proposed reduction would be similar to those cited by FTA officials as justification for the 60 percent preference policy—that is, the change may allow FTA to fund additional projects and the local governments sponsoring the projects would be encouraged to provide a greater degree of financial commitment. However, a reduction in the federal share may adversely affect some future projects. Nine of the 11 project sponsors we interviewed were opposed to a reduction of the federal share for projects from the current statutory level of 80 percent to 50 percent. These sponsors said that a reduced federal share may make it more difficult for communities to participate in the New Starts program because they will have to provide an increased local share. It may also affect local decision making because it would make the federal share for transit projects higher than that required for most highway projects, which generally receive a federal share of 80 percent or more. We reported in 2002 that a number of the nation’s leading transportation experts had suggested that federal matching requirements should be equal for all transportation modes to avoid creating incentives for local decision makers to pursue projects in one mode that might be less effective than projects in other modes. However, as we noted earlier, over the past 10 years requests for federal assistance for New Starts projects have averaged around 50 percent and have been trending lower. Another initiative proposed in the administration’s fiscal year 2004 budget proposal would allow certain nonfixed guideway transit projects (e.g., regular or express bus service) to be eligible for New Starts funding. Currently, New Starts projects are exclusively on fixed guideways and occupy a separate right-of-way. According to FTA, the proposal would allow project sponsors to choose the most appropriate mode to serve specific corridors. Three of the 11 project sponsors we interviewed supported the initiative because they believed that it gives local communities greater flexibility when choosing types of transit projects. Seven of the 11 project sponsors we interviewed questioned the need for allowing nonfixed guideway projects into the New Starts process. They were concerned that there would be less emphasis on traditional fixed guideway New Starts projects. Transit industry officials we interviewed shared this concern. Finally, the administration has proposed replacing the “exempt” classification with a streamlined ratings process for projects requesting less than $75 million in New Starts funding. Currently, projects seeking less than $25 million in New Starts funding are exempt from the ratings process and are not evaluated on the same project justification criteria as projects requesting more than $25 million. By eliminating the “exempt” classification and replacing it with a streamlined ratings process for projects requesting less than $75 million, FTA would ensure that all projects receive a rating and are evaluated on the basis of the same criteria. This is a hallmark of performance-oriented evaluation. However, 6 of 11 project sponsors we interviewed opposed eliminating the “exempt” classification. These project sponsors believed that elimination of the “exempt” classification would reduce the number of funding applications from smaller cities because of the cost and time involved in providing the full evaluation data. Figure 6 summarizes the advantages and disadvantages of the three proposed initiatives in the administration’s fiscal year 2004 budget proposal, as expressed by FTA officials and project sponsors we interviewed. Although FTA has the authority to favorably rate proposed projects that request a lower federal share, it also has a responsibility to fully inform all transit agencies of changes that are made to the evaluation and ratings process. Because FTA has not revised its regulations to reflect its 60 percent preference policy, transit sponsors, other members of the transit community, and the public may not be fully aware of FTA’s preference policy and have not had the opportunity to formally comment on it. By revising its regulations to reflect its current policy, FTA would have the opportunity to obtain public comments on its proposed rulemaking, thus increasing the transparency of the agency’s decision-making process and ensuring that the views of affected transit agencies and other interested parties are considered in that process. In its implementation of the Transportation System User Benefits measure, FTA discovered that many local travel forecasting models used by project sponsors in planning New Starts projects were flawed or had difficulty generating the required data. FTA officials considered this to be a major problem and they acknowledged the need for a more systematic way to address the problem across all transit agencies that are current or future New Starts project sponsors. FTA has assisted project sponsors on a case- by-case basis and plans to do so in the future. Additional guidance from FTA on what specific information is required from local travel forecasting models could help transit agencies generate accurate data for the measure. To ensure that the New Starts regulations reflect FTA’s actual evaluation and ratings process and procedures, the Secretary of Transportation should direct the Administrator, FTA, to amend the agency’s regulations governing the level of federal funding share for projects to reflect its current policy. To systematically address the problems with the implementation of the Transportation System User Benefits measure, the Secretary of Transportation should direct the Administrator, FTA, to issue additional guidance to transit agencies describing FTA’s expectations regarding the local travel forecasting models and the specific type of data FTA requires to calculate the measure. We obtained oral comments on a draft of this report from the Department of Transportation. Department officials generally agreed with the information presented in the report and they provided technical clarifications, which we incorporated as appropriate. They concurred with the recommendation about providing guidance on the user benefits measure and said that they will consider the recommendation about amending the regulations related to federal funding share. To describe the changes in the New Starts process, we analyzed information in FTA’s Annual Report on New Starts for Fiscal Year 2004. To identify any issues related to those changes, we interviewed FTA officials and contractors hired by FTA to implement those changes; 11 of the 52 sponsors of fixed guideway transit projects being considered for New Starts funding in fiscal year 2004; Metropolitan Planning Organization (MPO) officials involved in 5 of the projects whose sponsors we interviewed; and transit industry officials, including senior officials at the American Public Transportation Association and the Chair of the New Starts Working Group—an organization of New Starts project sponsors, MPOs, and private transit industry firms, who advocate improvements to the New Starts evaluation and ratings process. To determine how many New Starts projects were evaluated, rated, and proposed for funding in fiscal year 2004, we analyzed information in FTA’s Annual Report and in various budget and financial documents prepared by FTA. To identify proposed funding commitments and initiatives related to New Starts in the administration’s fiscal year 2004 budget proposal—and the challenges they might present for future projects—we reviewed pertinent FTA documents, including its Annual Report and proposed budget, and we interviewed a wide variety of officials affected by the changes. These included the individuals listed above (FTA officials, project sponsors, MPO officials, and transit industry representatives). We conducted our review from March 2003 through June 2003 in accordance with generally accepted government auditing standards. We are sending copies of this report to congressional committees with responsibilities for transit issues; the Secretary of Transportation; the Administrator, Federal Transit Administration; and the Director, Office of Management and Budget. We will also make copies available to others upon request. In addition, this report will be available at no charge on our Web site at http://www.gao.gov. If you or your staffs have any questions on matters discussed in this report, please contact me at siggerudk@gao.gov. An additional key GAO contact and contributors to this report are listed in appendix III. The Chicago Transit Authority (CTA) is planning a series of capital improvements to enhance the operation of the Ravenswood heavy rail line, which currently experiences capacity problems through a high- density 9.3-mile corridor. The Ravenswood Line Expansion Project would allow CTA to expand platforms and stations along the existing line to accommodate longer trains. The overall capital cost of the project is estimated at $529.9 million. The federal share requested is $245.5 million (46 percent). At present, this project has been identified as “not rated” due to concerns about some of the information underlying the calculation of the Transportation System User Benefits (TSUB) measure. However, on the basis of work conducted to date, the Federal Transit Administration (FTA) believes that the remaining issues will be resolved in the near future and that an overall project rating of “recommended” is likely to be granted. The Las Vegas Regional Transportation Commission (RTC) is proposing a 2.28-mile Resort Corridor Automated Guideway Transit (elevated monorail) project. The monorail will serve the Las Vegas central business district and the resort corridor along the Las Vegas “strip.” The estimated capital cost for the project is $324.8 million. RTC is seeking $159.7 million (50 percent) in New Starts funding. The Las Vegas Resort Corridor Project received a “high” rating for cost- effectiveness, as demonstrated by its high transit system user benefits. The New York Metropolitan Transit Authority (MTA) is designing a direct access for Long Island Rail Road (LIRR) passengers to a new passenger concourse in Grand Central Station in Midtown Manhattan. The 4-mile, two-station commuter rail extension under the East River will contribute to the overall growth of the nation’s largest commuter rail system. The projected capital cost of the project is $5.3 billion. MTA is requesting $2.6 billion (49 percent) in New Starts funding. LIRR has 162,000 daily riders, and this project will allow them to access the east side of New York by connecting LIRR with Grand Central Station. FTA officials believe that the project will reduce travel time for many riders. The Central Puget Sound Regional Transit Authority (Sound Transit) is proposing a 24-mile Central Link light rail transit line from central Seattle toward, but not connecting to, the Seattle-Tacoma airport. The total capital cost for the project is estimated at $2.5 billion. Sound Transit is expected to seek $500 million (20 percent) in New Starts funding. The Central Link project entered Preliminary Engineering in July 1997 and Final Design in February 2000. FTA originally entered into a full funding grant agreement for the “Seattle Sound Move Corridor” project in January 2001. Congress and the Department of Transportation’s Office of the Inspector General raised significant questions about the project costs and directed Sound Transit to reexamine the entire project to reduce risks and better meet budget limitations. Sound Transit identified the Central Link component of the larger Seattle Sound Move Corridor project as its new minimum operable segment. Las Vegas (Resort Corridor Fixed Guideway) New York (Long Island Railroad Eastside Access) Pittsburgh (North Shore Connector Light Rail Transit) San Francisco (New Central Subway Project) Washington, D.C. (Dulles Corridor Bus Rapid Transit) In addition to the person named above, other key contributors to this report were Alan Belkin, Christine Bonham, R. Stockton Butler, Brandon Haller, Bert Japikse, Ryan Petitte, and David Laverny-Rafter. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. To have GAO e-mail this list to you every afternoon, go to www.gao.gov and select “Subscribe to GAO Mailing Lists” under “Order GAO Products” heading.

Summary: Under the Transportation Equity Act for the 21 st Century (TEA-21), Congress authorized federal funding for New Starts fixed guideway transit projects--including rail and bus rapid transit projects that met certain criteria. In response to an annual mandate under TEA-21, GAO assessed the New Starts evaluation and ratings process for the fiscal year 2004 cycle, including (1) changes to the process and any related issues and (2) any challenges related to New Starts initiatives contained in the administration's fiscal year 2004 budget proposal. FTA made two changes to the New Starts evaluation and ratings process for the fiscal year 2004 cycle. First, in response to language contained in a conference report prepared by the House Appropriations Committee, FTA adopted a 60 percent preference policy, which in effect, generally reduced the level of New Starts federal funding share for projects from 80 percent to 60 percent. Because FTA has not revised its program regulations to reflect this change, transit agencies, project sponsors, and the public did not have an opportunity to formally comment on the change. Explicitly stating its criteria and procedures in regulation would allow those involved in considering potential projects to make their investment decisions on the basis of a transparent process. Second, FTA revised some of the criteria used in the ratings process to include a new Transportation System User Benefits measure. Project sponsors GAO interviewed said that the measure was an improvement over the previous benefits measure because it considers benefits to both new and existing transit system riders. However, many project sponsors experienced difficulties in generating a value for the measure for a number of reasons, such as problems with their local forecasting models. FTA officials are working closely with project sponsors to correct these problems, but more guidance may be necessary to avert similar difficulties in the future. The administration's fiscal year 2004 budget proposal requests that $1.5 billion be made available for New Starts for that year, a 25 percent increase over fiscal year 2003. The budget proposal contains three initiatives--reducing the federal share to 50 percent, allowing certain nonfixed guideway projects to be funded through New Starts, and establishing a streamlined ratings process for projects requesting less than $75 million in New Starts funding. These initiatives may allow FTA to fund more projects and give local communities flexibility in choosing among transit modes. However, they may also create challenges for some future transit projects, such as difficulties in generating an increased local funding share or a reduction in the number of smaller communities that will participate in New Starts.