WMATA was created in 1967 by an interstate compact that resulted from the enactment of identical legislation by Virginia, Maryland, and the District of Columbia, with the concurrence of the U.S. Congress. Since then, WMATA has been responsible for planning, financing, constructing, and operating a comprehensive mass transit system for the Washington metropolitan area. WMATA began building its Metrorail system in 1969, acquired four regional bus systems in 1973, and began operating the first phase of Metrorail operations in 1976. In January 2001, WMATA completed the originally planned 103-mile Metrorail system that now includes 83 rail stations on 5 rail lines. WMATA operates in a complex environment, with many organizations influencing its decision-making and funding and providing oversight. WMATA is governed by a Board of Directors, which sets policies and oversees all of WMATA’s activities, including budgeting, operations, development and expansion, safety, procurement, and other activities. In addition, a number of local, regional, and federal external organizations affect WMATA’s decision-making, including: (1) state and local governments, which subject WMATA to a range of laws and requirements; (2) the Tri-State Oversight Committee, which oversees WMATA’s safety activities and conducts safety reviews; (3) the National Capital Region Transportation Planning Board (TPB) of the Metropolitan Washington Council of Governments, which develops the short- and long-range plans that guide WMATA’s capital investments; (4) the Federal Transit Administration (FTA), which provides oversight of WMATA in many areas; and (5) the National Transportation Safety Board, which investigates accidents on transit systems as well as other transportation modes. WMATA estimates that its combined rail and bus ridership will total 324.8 million passenger trips in fiscal year 2001, making it the second largest heavy rail rapid transit system and the sixth largest bus system in the United States, according to WMATA officials. WMATA’s proposed fiscal year 2002 budget totals nearly $1.9 billion. Of the total amount, about 56 percent, or $1.06 billion, is for capital improvements; 42 percent, or $796.6 million, is for operations and maintenance activities; and the remaining 2 percent, or $37 million, is for debt service and other projects. WMATA’s funding comes from a variety of federal, state, and local sources. Unlike most other major urban transit systems, WMATA does not have dedicated sources of revenues, such as local sales tax revenues, that are automatically directed to the transit authority. WMATA receives grants from the federal government and annual contributions by each of the local jurisdictions that WMATA serves, including the District of Columbia and the respective local jurisdictions in Maryland and Virginia. For example, in its fiscal year 2002 proposed operating budget totaling $796.6 million (for rail, bus, and paratransit services), WMATA projects that approximately 55 percent of its revenues will come from passenger fares and other internally generated revenues, and 45 percent will come from the local jurisdictions served by WMATA. With regard to its capital program for infrastructure renewal, WMATA projects that about 47 percent of its proposed 2002 budget will come from federal government grants, 38 percent from federally guaranteed financing, and 15 percent from the local jurisdictions and other sources. WMATA has also received funding directly through the congressional appropriations process over the past 30 years— totaling about $6.9 billion—for construction of the originally planned subway system. WMATA did not have to compete against other transit agencies for this funding, which ended in fiscal year 1999. Metrorail’s expenses and revenues represent the largest portion of WMATA’s operating budget. For example, in fiscal year 2000—the latest year for which final actual figures are available—Metrorail’s operating expenses accounted for 56 percent, or $392.1 million, of WMATA’s overall operating costs of $704.8 million. At the same time, Metrorail’s passenger fares and other revenues accounted for about 76 percent, or $292.5 million, of WMATA’s overall internally generated revenues of $384.9 million. As a measure of financial performance, Metrorail’s cost recovery ratio (revenues divided by expenses) represents one of the highest of any rail transit system in the nation, according to FTA. For example, during fiscal years 1996 through 2000, Metrorail recovered, on average, 73 cents for every dollar that WMATA spent to operate and maintain the rail system. With regard to capital investment issues, GAO issued a report in December 1998 that identified capital decision-making principles and practices used by outstanding state and local governments and private sector organizations. In order to evaluate the extent to which WMATA followed best practices in planning, selecting, and budgeting for its capital investments, we compared WMATA’s practices with those of leading public and private organizations that we studied in 1998. Accordingly, in this report, we assess the extent to which WMATA (1) integrates its organizational goals into the capital decision-making process through structured strategic planning and needs determination processes, (2) uses an investment approach to evaluate and select capital assets, and (3) maintains budgetary control over its capital investments. One of the key operating challenges facing Metrorail has been the increasing problems caused by the advancing age of its existing infrastructure. Metrorail has experienced vehicle, escalator, elevator, and other system equipment and infrastructure problems over the past several years. These problems have resulted in, among other things, an increasing number of train delays. For example, the number of train delays due to system problems increased from 865 in fiscal year 1996 to 1,417 in fiscal year 2000, or by about 64 percent. WMATA attributes these problems primarily to its aging rail equipment and infrastructure. Forty-five percent of Metrorail’s 103-mile system is from 17 to 25 years old, and another 33 percent is from 9 to 16 years old. Similarly, 39 percent of Metrorail’s 762- car fleet has been operating since 1976; another 48 percent went into service during the 1980s. WMATA has estimated that the expected useful life of a rail car is 40 years if a major renovation is performed at the mid- point of the car’s life cycle. WMATA is addressing Metrorail’s equipment and infrastructure problems through a number of projects in its capital-funded Infrastructure Renewal Program (IRP), described in detail later in this letter. One key IRP project—the Emergency Rail Rehabilitation Program—is focused on improving Metrorail’s service reliability problems. Through this program, now in its second year, WMATA has made significant progress in implementing many rail system improvement projects. For example, by August 2000, WMATA had completed almost all of the program’s accelerated car maintenance projects on such critical components as brakes and doors on over 600 rail cars. In addition, WMATA’s statistics show that for the period covering July 2000 through January 2001, the number of passenger offloads had decreased by 15 percent, compared with the same period in the previous year. In particular, WMATA officials noted that offloads during the spring “Cherry Blossom Season” in the metropolitan Washington, D.C., area, decreased, on average, from 9 per weekday in 1999 to 4.8 per weekday in 2001. Furthermore, by June 2000, work was under way to maintain and rehabilitate 170 station escalators. IRP includes other key projects, such as the rail car rehabilitation project, which will enhance the reliability of 364 cars that were built in the 1980s. These cars will be overhauled and rehabilitated under a 5-year contract awarded in December 2000. WMATA expects to take delivery of the first rehabilitated cars in August 2002. Metrorail also faces another significant operating challenge brought about by ever-increasing ridership. Metrorail is now operating at near capacity during peak demand periods, causing some uncomfortably crowded trains. WMATA’s recent studies on crowding found that demand has reached and, in some cases, exceeded scheduled capacity—an average of 140 passengers per car—during the peak morning and afternoon hours. For example, of the more than 200 peak morning trips that WMATA observed over a recent 6-month period, on average, 15 percent were considered “uncomfortably crowded” (125 to 149 passengers per car), and 8 percent had “crush loads” (150 or more passengers per car). Metrorail’s overcrowded conditions are primarily the result of the substantial growth in ridership it has experienced over the last several years, an insufficient number of rail cars to operate more and longer trains on a regular basis, and system and other constraints on expanding rush-hour trains from six cars to eight cars—the maximum size that station platforms can accommodate. WMATA has several actions under way to ease Metrorail’s overcrowded conditions. Most notably, the agency ordered 192 new rail cars that it had expected to begin deploying in the summer of 2001. We note, however, that WMATA suffered a setback in June 2001 when it took action to delay delivery of these cars until the rail car contractor corrects technical problems. As of late June 2001, WMATA officials told us that they expect to begin phasing the first new cars into service by the fall of 2001. Over the next year or so, WMATA plans to deploy the majority of these cars where and when the heaviest ridership is occurring, allowing for adjustments to train sizes. For example, on some lines, the train size will change from four cars to six cars. WMATA is also examining Metrorail’s core capacity needs to determine, among other things, what improvements in capacity—cars and power, for example—will be required to operate eight-car trains on a regular basis during peak demand periods.