TEA-21 authorized a total of $36 billion in “guaranteed” funding 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, New Starts, FTA identifies and selects fixed-guideway transit projects for funding—including heavy, light, and commuter rail; ferry; and certain bus projects (such as bus rapid transit). FTA generally funds New Starts projects through FFGAs, which establish the terms and conditions for federal participation in a New Starts project and also define 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 an FFGA, a project must progress through a local or regional review of alternatives and meet a number of federal requirements, including providing information for the New Starts evaluation and rating process (see fig. 1). As required by TEA-21, New Starts projects must emerge from a regional, multimodal transportation planning process. The first two phases of the New Starts process—systems planning and alternatives analysis—address this requirement. The systems planning phase identifies the transportation needs of a region, while the alternatives analysis phase provides information on the benefits, costs, and impacts of different corridor-level options, such as rail lines or bus routes. The alternatives analysis phase results in the selection of a locally preferred alternative—which is intended to be the New Starts project that FTA evaluates for funding, as required by statute. After a locally preferred alternative is selected, project sponsors submit a request to FTA for entry into the preliminary engineering phase. Following completion of preliminary engineering and federal environmental requirements, the project may be approved by FTA to advance into final design, after which the project may be approved by FTA for an FFGA and proceed to construction, as provided for in statute. FTA oversees grantee management of projects from the preliminary engineering phase through construction and evaluates the projects for advancement into each phase of the process, as well as annually for the New Starts report to Congress. We have recognized the New Starts program as a good model that the federal government could use for approving other transportation projects. To help inform administration and congressional decisions about which projects should receive federal funds, FTA assigns ratings based on a variety of financial and project justification criteria, as defined by its program regulations, 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 project, such as cost-effectiveness, as well as the ability of the project sponsor to fund the project and finance the continued operation of its transit system (see fig. 2). Projects are rated at several points during the New Starts process—as part of the evaluation for entry into preliminary engineering and final design, and yearly for inclusion in the New Starts annual report. FTA assigns the proposed project a rating of high, medium-high, medium, low-medium, or low for each criterion, then assigns a summary rating for local financial commitment and project justification. Finally, FTA develops an overall project rating of “highly recommended,” “recommended,” “not recommended,” or “not rated.” (See table 1 for the criteria FTA uses to evaluate projects.) The exceptions to this process are statutorily “exempt” projects, which are those that request less than $25 million in New Starts funding. These projects are not required to submit project justification information—although FTA encourages them to do so—and do not receive ratings from FTA; thus, the number of projects in preliminary engineering or final design may be greater than the number of projects evaluated and rated by FTA. As required by statute, the administration uses the FTA evaluation and rating process, along with the stage of development of New Starts projects, to decide which projects to recommend to Congress for funding. 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: All non-New Starts funding must be committed and available for the project. 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, which confirm there are no cost, project scope, or local financial commitment issues remaining. Of the 34 projects in preliminary engineering or final design for the fiscal year 2006 cycle, 27 were evaluated and rated and 7 were statutorily exempt from the rating process. Four projects were recommended for funding with the expectation that they would be ready for new FFGAs before the end of fiscal year 2006, and an additional 6 projects were identified as potentially receiving a recommendation for New Starts funding outside of FFGAs. The administration’s fiscal year 2006 budget proposal requests a total of $1.5 billion for the New Starts program, an amount similar to requests for the past 2 fiscal years. (See app. II for the administration’s 2006 budget proposal and FTA’s project ratings.) FTA’s Annual Report on New Starts: Proposed Allocations of Funds for Fiscal Year 2006 (“annual report”) listed a total of 34 projects in preliminary engineering and final design, and FTA evaluated and rated 27 of them. Seven were statutorily exempt from being rated because they requested less than $25 million in New Starts funding. Of the 27 projects that were rated, 2 were highly recommended, 12 were recommended, 8 were not recommended, and 5 were designated “not rated.” In its annual report, FTA said that projects were designated as “not rated” because they did not submit the required information or because of FTA’s continuing concerns about the reliability of the transportation benefits forecast for these projects. According to FTA, a principal source of these concerns was inconsistent assumptions used in defining the baseline alternative and the proposed New Starts project, making it difficult to isolate the impacts of the proposed project. In some cases, the local travel demand models were inconsistent with FTA guidance and good planning practice. FTA is currently working with the sponsors of these projects to improve the forecasts. As shown in figure 3, the combined number of recommended and highly recommended projects declined sharply from 27 in the fiscal year 2003 evaluation cycle to 14 in the fiscal year 2004 evaluation cycle, while the combined number of not recommended and not rated projects rose from 6 to 18. As we previously reported, this was primarily due to difficulties project sponsors encountered when implementing the new cost- effectiveness measure—the Transportation System User Benefits (TSUB) measure—and adjusting to FTA’s preference policy that favors projects that seek a federal New Starts share of no more than 60 percent of the total project costs. According to FTA, the information that was provided by project sponsors in their reports on TSUB highlighted previously unknown problems with many local models that forecast travel demand. FTA first incorporated both of these changes beginning with the fiscal year 2004 evaluation cycle. Project ratings generally improved (i.e., there were more projects with recommended ratings and fewer with not recommended ratings) in the fiscal year 2005 evaluation cycle as project sponsors improved their financial plans, grew more comfortable with the new cost- effectiveness measure, and made corrections and improvements to their models that forecast travel demand, according to FTA. While the combined number of not rated and not recommended projects was approximately the same in the fiscal year 2005 and 2006 evaluation cycles, the number of projects receiving ratings of at least recommended has decreased slightly again. Unlike in previous years, however, there was no obviously identifiable reason for this change, except for the fact that some projects moved out of the ratings pool and into construction, according to FTA. The fiscal year 2006 rating cycle saw the smallest total number of projects in preliminary engineering and final design during the TEA-21 period. The number of projects evaluated and rated has decreased slightly every year, from 42 projects in the fiscal year 2000 rating cycle to 27 projects in the most recent cycle. During this same time frame, the number of exempt projects grew steadily through the fiscal year 2004 cycle but has been declining ever since. FTA officials suggested that these trends could be the result of a combination of factors. First, many of the projects that TEA-21 authorized have worked their way through the New Starts process and obtained FFGAs, and thus are not subject to the annual evaluation and rating process. At the same time, new projects entered preliminary engineering each year and were rated for the first time. FTA officials speculated that additional projects would be included in reauthorization legislation and would enter the New Starts pipeline over the course of the reauthorization period. Second, FTA has increased the level of scrutiny it applies to projects attempting to advance from alternatives analysis to preliminary engineering to help ensure that only the strongest projects enter the New Starts pipeline. Third, FTA has worked with project sponsors to reduce the number of inactive projects in the New Starts pipeline. Fourth, since the time TEA-21 was enacted, some state and local transportation agencies have been feeling the impact of local budget constraints, making it more difficult to secure local funding for proposed New Starts projects. This could be exacerbated by FTA’s policy of favoring projects that seek a federal New Starts share of no more than 60 percent of the total project costs. As we reported in 2004, several project sponsors told us that FTA’s push for a lower federal New Starts share would likely affect their decision to advance future transit projects. Therefore, we recommended that FTA examine the impact of the preference policy on projects in the evaluation process.