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 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. In April 1999 and 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 for 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. In May 2001, FTA issued its New Starts report for fiscal year 2002, which included project evaluations and ratings based upon the revised process. FTA’s final rule, issued in December 2000, formalized the evaluation and rating process. Next year’s process will use the procedures set forth in the final rule. FTA’s current New Starts evaluation process assigns projects individual ratings for each TEA-21 criterion in order 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 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 for transit-supportive land-use policies. 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. 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. (App. I summarizes the performance measures that FTA uses in applying the criteria to develop these ratings.) 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. For the summary local financial commitment ratings, the measures for the proposed local share of capital costs and the strength of the capital and operating finance 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. In preparing its New Starts proposal each year, FTA gives first preference to projects with existing grant agreements. Following that, consideration is 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; FTA uses a number of milestones to determine whether a project is sufficiently developed 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. In addition, FTA has considered 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 the current system; compliance with the Americans with Disabilities Act of 1990, including 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 2002, FTA evaluated a total of 40 projects and provided overall ratings for 26 of these projects. Of the 26 projects that were rated, 21 were rated as “recommended,” 2 projects were rated as “highly recommended,” and 3 projects received “not recommended” ratings. According to FTA, fewer projects received “highly recommended” ratings this year because FTA set the bar higher for such ratings. FTA believes that fewer projects received “not recommended” ratings because project officials have a better understanding of the evaluation and rating process and criteria 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 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 “not recommended” in the fiscal year 2002 report could receive a rating of “recommended” or “highly recommended” in the fiscal year 2003 report to reflect changes in the project. For example, in the report for fiscal year 2001, the New Orleans Canal Streetcar project received a “not recommended” rating. However, this year the project received a “recommended” rating and was proposed for a grant agreement. FTA attributed the project’s improved rating to an improved finance plan—specifically, firmer financial commitments. 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 will be used as FTA considers its New Starts proposal for fiscal year 2003. The refinements in the final rule reflect public comments on FTA’s proposed rule, which was issued in April 1999. Comments on the proposed rule were accepted through July 1999. A total of 41 individuals and organizations provided comments. Comments were submitted on virtually every aspect of the proposed rule, but most centered on four key issues: the measure of cost-effectiveness, the continued use of a no-build and Transportation System Management (TSM) alternative for evaluation purposes, the overall project rating, and the measure for mobility improvements. Twenty-three comments were received on FTA’s use of the historical “cost per new rider” measure to indicate the cost-effectiveness of a proposed project.