[Federal Register Volume 61, Number 245 (Thursday, December 19, 1996)]
[Notices]
[Pages 67093-67106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32199]


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DEPARTMENT OF TRANSPORTATION
Federal Transit Administration


Section 5309 (Section 3(j)) FTA New Starts Criteria

AGENCY: Federal Transit Administration (FTA), DOT

ACTION: Notice.

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SUMMARY: The Federal Transit Administration (FTA) is issuing this 
Notice describing the criteria it will use to evaluate candidate 
projects for discretionary New Starts funding under Title 49 United 
States Code (U.S.C.) Section 5309 (formerly Section 3 of the Federal 
Transit Act (FT Act)). These criteria replace those which have been in 
force since the May 18, 1984, Statement of Policy on Major Urban Mass 
Transportation Capital Investments. The new criteria, together with the 
FTA/Federal Highway Administration (FHWA) planning regulations (23 CFR 
Part 450), implement the requirements of Title 49 U.S.C. Section 
5309(e) (formerly Section 3(i) of the FT Act), which was modified by 
the Intermodal Surface Transportation Efficiency Act of 1991. This 
section requires a project to be (``A) based on the results of an 
alternatives analysis and preliminary engineering, (B) justified based 
on a comprehensive review of its mobility improvements, environmental 
benefits, cost effectiveness, and operating efficiencies, and (C) 
supported by an acceptable degree of local financial commitment, 
including evidence of stable and dependable financial sources to 
construct, maintain, and operate the [project].'' This Notice sets 
forth the approach FTA will use to evaluate candidate projects in terms 
of their justification and local financial commitment. These criteria 
will be used to evaluate projects in order to make recommendations for 
funding these projects in the annual report to Congress required by 49 
U.S.C. 5309(m)(3) (formerly Section 3(j) of the FT Act).

EFFECTIVE DATES: This Notice will be used to evaluate projects for 
discretionary new start funding recommendations for the 1999 Fiscal 
Year.

FOR FURTHER INFORMATION CONTACT: Richard Steinmann, Office of Policy 
Development, FTA, Washington, DC. 20590, (202) 366-4060.

SUPPLEMENTARY INFORMATION:

I. Background

    Since the early 1970's, the Federal government has provided a large 
share of the Nation's capital investment in urban mass transportation, 
particularly for ``New Starts'' (major new fixed guideway transit 
systems or extensions to existing fixed guideway systems). By the mid-
1970's, because of the magnitude of the New Start commitments being 
proposed, the Department found it useful to publish a statement of 
Federal policy to ensure that the available resources would be used in 
the most prudent and effective manner. The first such statement was 
issued in 1976. It introduced a process-oriented approach with the 
requirement that New Start projects be subjected to an analysis of 
alternatives, including a Transportation System Management alternative 
which used no-capital and low-capital measures to make the best use of 
the existing transportation system. The Statement also required 
projects to be ``cost-effective.''
    This policy was supplemented in 1978 by a ``Policy on Rail 
Transit.'' This Statement reiterated the requirement for Alternatives 
Analysis, established requirements for local financial commitments to 
the project, established the concept of a contract providing for a 
multi-year commitment of Federal funds, with a maximum limit of Federal 
participation (the Full Funding Grant Agreement--FFGA), and required 
that local governments undertake supporting local land use actions. 
This was supplemented by a 1980 policy statement which linked the 
Alternatives Analysis requirement to the Environmental Impact Statement 
development process.
    These principles were reiterated and refined in a May 19, 1984, 
Statement of Policy on Major Urban Mass Transportation Capital 
Investments. The major feature of this Policy Statement was 
introduction of an approach for making comparisons between competing 
projects. To do so, a rating system was established under which 
projects were evaluated in terms of a cost effectiveness index of 
forecast incremental cost per incremental rider for the build 
alternative, compared with the TSM alternative as the base. Further, 
index threshold values were established which projects had to pass in 
order to be considered for funding. In addition, the criteria to be 
used to judge local financial commitment were spelled out.
    The principles of the 1984 policy statement were later incorporated 
into law with enactment by Congress of the Surface Transportation and 
Uniform Relocation Assistance Act of 1987 (STURAA). This act added a 
new Section 5309(e) (formerly Section 3(i) of the Federal Transit Act), 
establishing in law a set of criteria which New Starts projects must 
meet in order to be eligible for Federal discretionary grants. 
Specifically, projects had to be ``cost-effective'' and ``supported by 
an adequate degree of local financial commitment.'' STURAA also added a 
new Section 5309(m)(3) (formerly Section 3(j)), requiring an annual 
report to Congress laying out the Department's recommendations for 
discretionary funding for New Starts for the subsequent fiscal year.
    To implement the requirements set forth in STURAA, on April 25, 
1989 FTA (then the Urban Mass Transportation Administration) issued a 
Notice of Proposed Rulemaking. The Proposed Rule would have codified 
the requirements of the 1984 Policy Statement and proposed making the 
``Cost Per New Rider'' Index and

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threshold values regulatory. However, in the FY 1990 and FY 1991 
Appropriations Acts, Congress directed that this rulemaking not be 
advanced (See the Department of Transportation and Related Agencies 
Appropriations Act, 1990 (Pub. L. 101-164) and Department of 
Transportation and Related Agencies Appropriations Act, 1991 (Pub. L. 
101-516)). On February 3, 1993, this rulemaking was withdrawn.
    The Intermodal Surface Transportation Efficiency Act of 1991 
(ISTEA) made substantial changes to the legislative basis for the 
criteria which the Department is to use with respect to candidate 
projects for Section 5309 (formerly Section 3) New Starts funds. 
Specifically, the original requirement in Section 5309(e)(2) (formerly 
Section 3(i)(1)) that a project be ``cost-effective'' was expanded by 
the requirement that the project be ``justified, based on a 
comprehensive review of its mobility improvements, environmental 
benefits, cost-effectiveness, and operating efficiencies.'' In 
addition, 49 U.S.C. 5301 et seq. now also includes certain 
``considerations'' in Section 5309(e)(3) (formerly Section 3(i)(2)) and 
``guidelines'' in Section 5309(3)(4) (formerly Section 3(i)(3)) to be 
taken into account in determining how well the project meets the 
criteria set forth in Section 5309(e)(2) (formerly Section 3(i)(1)).
    In addition, ISTEA modified the requirements for metropolitan and 
statewide transportation planning. These changes were then reflected in 
the modifications to the joint Federal Highway Administration (FHWA)/
FTA planning regulations made on October 28, 1993. The most significant 
change under these regulations in the context of New Starts funding is 
the requirement that all major transit and highway capacity expansions 
be subjected to a Major Investment Study (MIS) before a specific major 
investment project is included in local transportation plans or 
Transportation Improvement Programs. While not a direct product of 
statutory mandate, the MIS process reflects the general policy 
direction of ISTEA. This change integrates the requirement for an 
alternatives analysis of major transit investments contained in Section 
5309(e) (formerly Section 3(i)) into the ongoing transportation 
planning process. In addition, it requires that Major Investment 
Studies be conducted on a multimodal basis.
    Executive Order 12893, signed by President Clinton on January 26, 
1994, describes the principles which Federal agencies are to apply in 
determining how to invest in all forms of infrastructure, including 
transportation. The Order requires a systematic analysis of the costs 
and benefits of proposed investments, and sets out the parameters for 
such analysis. The Order calls for efficient management of 
infrastructure, including a focus on the operation and maintenance of 
facilities, as well as the use of pricing to manage demand. Private 
sector participation in investment and management of infrastructure is 
encouraged. Federal agencies are also to encourage State and local 
governments to implement planning and management approaches which 
support these principles. The Executive Order calls for comparison of a 
comprehensive set of options and consideration of quantifiable and 
qualitative measures of benefits for all programs.
    Each year FTA submits to Congress a report on the level and 
allocation of funding to be made available under the New Starts 
program, as required by Section 5309(m)(3) (formerly Section 3(j)). In 
an attempt to broaden the information provided in a manner that was 
consistent with the revised allocation criteria of ISTEA, the FY 1994, 
1995 and 1996 reports included several indices for each proposed 
project, where they were available. Thus, rather than relying only on a 
single measure with a specific threshold, FTA has relied on a 
combination of a variety of factors to determine project merit, 
consistent with ISTEA:
     For cost-effectiveness, the ``cost per new transit trip'' 
measure;
     A rating of the level of mobility improvement afforded by 
the project, based on the projected total number of hours of travel 
time saved per day by the project, when compared with the baseline 
alternative [10,000 or more hours saved was rated ``high,'' fewer than 
10,000 hours saved was rated ``medium,'' and projects anticipated to 
increase total travel time were rated ``low''];
     For environmental benefits, the U.S. Environmental 
Protection Agency classification of the city for ozone [``extreme,'' 
``severe,'' ``serious,'' ``moderate,'' ``marginal,'' ``sub-marginal,'' 
``transitional,'' and ``attainment''] and for carbon monoxide 
[``serious,'' ``moderate,'' ``not classified,'' and ``attainment''], as 
an indication of the severity of the region's air quality problem 
(these classifications do not indicate the extent to which the proposed 
project might impact local air quality but they are relevant to whether 
or not the project might be exempt under Section 5309(e)(6) from 
justifications that would otherwise be required); and
     For operating efficiencies, the estimated reduction in 
systemwide operating cost per passenger, [a 5 percent or higher 
reduction was rated ``high,'' a smaller reduction was rated ``medium,'' 
while an increase in per passenger costs was rated ``low''].
    In addition, FTA has given significant weight in these reports to 
the readiness of projects to progress and the local financial 
commitment to the projects in determining which projects to recommend 
for funding.
    FTA's evaluation of the local financial commitment to a proposed 
project focuses on the proposed local share of project costs, the 
strength of the proposed capital financing plan, and the stability and 
reliability of sources of operating deficit funding. Local share refers 
to the percentage of capital costs to be met with non-discretionary 
funding, and includes both the local match required by Federal law and 
any capital ``overmatch.'' Overmatch is accounted for in the rating 
process because it reduces the required Federal commitment, thus 
leveraging limited Federal funds, and because it indicates a strong 
local commitment to the project.
    The evaluation of each project's proposed capital financing plan 
takes two principal forms. First, the plan is reviewed to determine the 
stability and reliability of each proposed source of local match. This 
includes a review of inter-governmental grants, tax sources, and debt 
obligations. Each revenue source is reviewed for availability within 
the project timetable. Second, the financing plan is evaluated to 
determine if adequate provisions have been made to cover unanticipated 
cost overruns. The strength of the capital finance plan is rated high, 
medium, or low.
    The third component of the financial rating is an assessment of the 
ability of the local transit agency to fund operation of the system as 
planned once the guideway project is built. This rating focuses on the 
operating revenue base and its ability to expand to meet the 
incremental operating costs associated with a new fixed guideway 
investment and any other new services and facilities.

II. Policy Discussion Paper

    In order to generate comment from the public on the best approach 
FTA could take to implement the changes required by ISTEA in the 
context of the Executive Order, on September 28, 1994, FTA issued a 
Policy Paper entitled ``Revised Measures for Assessing Major 
Investments: A Discussion Draft.'' The paper was circulated to a broad

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audience, including State and local governments, transit agencies, 
Metropolitan Planning Organizations (MPOs), consultants, and other 
interested parties. Comments were requested on the paper and all 
aspects of the issue, due November 1, 1994, although FTA continued to 
accept comments received through December 15, 1994. The following 
summarizes the discussion paper.
    The paper laid out FTA's objectives for developing new criteria and 
procedures for appraising candidate new start projects, responsive to 
the ISTEA mandate. In sum, FTA believed that its appraisal procedures 
should seek to be comprehensive, effective, efficient, objective, and 
comprehensible.
    The paper noted that the key issue in deciding on an appraisal 
approach is balancing ``comprehensiveness'' and ``simplicity.''
    Three approaches were described: (1) A full Social Cost Benefit 
Analysis (SCBA), where an attempt is made to identify all costs and 
benefits and reduce them to dollar terms; (2) scoring methods in which 
projects are rated against a set of criteria, scores for each are 
assigned, weights for each are established, and composite scores 
calculated; and (3) a multiple measure method in which projects are 
evaluated against several criteria, results are displayed, but no 
effort is made to develop a single composite score.
    The paper indicated FTA's preference to use a strategy based on the 
concepts of SCBA, but which uses a multiple measure method to evaluate 
the costs and benefits identified. In this way, the merits of each 
candidate project can be weighed explicitly against the full range of 
criteria called out in ISTEA. In addition, both market and nonmarket 
benefits would be weighed equally. All of the four major elements 
mentioned in ISTEA--mobility improvements, cost-effectiveness, 
operating efficiencies, and environmental benefits--would be fully 
considered. In addition, the approach would take into account the 
``considerations'' included in Section 5309(e)(3) (formerly Section 
3(i)(2)), particularly land use policies and patterns.
    Based on a detailed review of a wide range of candidate measures, 
the paper suggested use of the following measures as a means of 
assessing how well candidate New Starts projects are ``justified'':
    1. For ``cost-effectiveness''--the total incremental cost per 
incremental transit passenger-trip (or possibly, per incremental 
passenger-mile in certain cases), where the projected streams of 
capital and net operating costs and passenger-trips have been (in the 
case of the costs) expressed in constant dollar terms, and (in all 
cases) both cost and ridership have been discounted at the social 
discount rate, compared to the Transportation System Management (TSM) 
alternative.
    2. For ``mobility improvements''--(1) the projected aggregate value 
of travel time savings per year (forecast year) anticipated from the 
new investment compared to the TSM alternative. This aggregate includes 
the travel time impacts on people using competitive modes, along with 
those on the trips made by transit (both new and former transit 
riders). It is a net figure in the sense that travel time increases 
should be explicitly considered and used to offset the time savings of 
those people who experience savings. It would be expressed in absolute 
and regional percentage change terms. It would be valued using a set 
percentage of the average wage rate in the urbanized area. (2) the 
absolute number of zero-car households (or alternatively, the people 
resident in those households) located within \1/2\ mile of boarding 
points for the proposed system increment, compared to the TSM 
alternative.
    3. For ``operating efficiencies''--(1) the forecast change in 
operating cost per vehicle service-hour (or service-mile), for that 
part of the system that will be directly affected by the proposed new 
investment, expressed in absolute and regional percentage change terms, 
compared to the TSM alternative. (2) the forecast change in passengers 
per vehicle service-hour (or service-mile), calculated on the same 
basis, also expressed in absolute and regional percentage change terms, 
compared to the TSM alternative. (3) the forecast change in passenger 
miles per vehicle service-hour (or service-mile), calculated on the 
same basis, also expressed in absolute and regional percentage change 
terms, compared to the TSM alternative.
    4. For ``environmental benefits''--(1) the value of the forecast 
change in criteria pollutant emissions and in greenhouse gas emissions, 
ascribable to the proposed new investment, discounted and levelized, 
expressed in absolute and regional percentage change terms, compared to 
the TSM alternative.
    The value of the emissions would be calculated based on 
standardized assumptions about the unit value of each emission. (2) the 
forecast change in the consumption of fuels of different types, 
ascribable to the proposed new investment, discounted and levelized, 
expressed in absolute and regional percentage change terms, compared to 
the TSM alternative.
    5.For ``transit supportive existing land use policies and future 
patterns''--the degree to which local land use policies are likely to 
foster transit supportive land use, measured in terms of the kinds of 
policies in place, and the commitment to these policies.
    The paper indicated FTA's view that this set of indicators best 
addresses the most significant issues related to project justification 
identified in the revised language of Section 5309(e) (formerly Section 
3(i)). The paper noted that FTA intended to continue using the present 
approach to assess local financial commitment issues (as required by 
Section 5309(e)(2)(C) (formerly Section 3(i)(1)(c)). In addition, the 
paper noted that the proposed set of indicators provides for an 
assessment which fully considers major benefits, including those which 
cannot easily be quantified or monetized. Moreover, while there were 
some obvious interrelationships among the indices, ``double-counting'' 
was minimized by keeping them relatively independent.
    It is important to note that the paper proposed a different 
approach to measuring ``cost-effectiveness'' than the ``cost-per-new-
rider'' measure (really incremental cost per new transit ride) 
previously used by FTA. That measure included not only cost and 
ridership projections, but also attempted to account for mobility 
effects by using monetized time savings as an offset to costs. 
Additionally, the threshold values specified for that measure 
implicitly made generous allowances for the inclusion of environmental 
and safety issues on a comparable basis. The proposed measure defined 
``costs'' more narrowly, comprising only the monetary value of 
construction, operations, and maintenance. This is because the mobility 
and environmental considerations were addressed explicitly by other 
proposed measures.
    The paper indicated that another major difference in the proposed 
new cost-effectiveness measure was that it included annualized, 
levelized costs and ridership differences calculated over the analysis 
period, rather than costs and ridership differences calculated based on 
a single forecast year. While past practice has included estimates of 
costs on a year-by-year basis over the analysis period, accurate 
assessment of the ridership impacts could require multiple ridership 
forecasts (for example, the year of opening, the forecast year, and the 
year at the end of the analysis period). The paper also acknowledged 
that it may be possible to synthesize forecasts of the year of opening 
and year at the end of the forecast period using forecast year

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results and well known factors relating typical trends in ridership for 
new transit investments. The paper asked for views on how much 
additional effort would be required to calculate estimated ridership 
impacts for multiple forecast years. It also asked for views on how 
much accuracy would be gained by such multiple forecasts, compared with 
reliance on synthesized forecasts based on typical trends in ridership 
growth.
    The paper noted that FTA was considering a change in the approach 
for valuing travel time savings from past practice. In the past, FTA 
specified the use of $4.80 per hour of travel time savings for work 
trips and $2.40 per hour of travel time savings for non-work trip, for 
use in calculating the offset to costs. This value was based on a 
factor of 40 percent of the national average wage rate for work travel, 
and one-half this amount for non-work travel. The paper cited recent 
analysis of the valuation of time in other programs of the Department 
of Transportation and elsewhere in government that suggested that this 
value is inconsistent with these other practices. For example, analysis 
of models used by the Federal Highway Administration indicates use of a 
much higher factor of wage rates for travel time savings. Accordingly, 
FTA is participating with other elements of the Department to develop 
consistent approaches for valuing travel time savings. The paper stated 
that, in the interim, FTA expected to use a factor of 80 percent of the 
local wage rate for calculating the value of travel time savings.
    The paper noted also that, in the past, FTA did not attempt to 
value the environmental benefits of transit investments. The benefits 
of emission reductions can take a variety of forms, such as improved 
visibility, crop yields, and public health. The Environmental 
Protection Agency (EPA) is currently developing, pursuant to Section 
812 of the Clean Air Act, standard monetary values of such benefits. 
The paper stated that the results of this analysis were expected to be 
available in 1995, and may be used to evaluate the environmental 
benefits of transit.
    Absent standard values of the benefits from emission reductions, 
the paper noted that ``avoided cost'' is an inferior, but potentially 
useful approach. The avoided cost approach, which generally is only 
applicable to nonattainment and maintenance areas, uses standard unit 
costs of pursuing alternative means of achieving emission reductions as 
a proxy for the benefits of such emission reductions. Some EPA analyses 
have, in the past, used the avoided cost approach.
    Pending further analysis by EPA and additional work by FTA with 
other agencies within and outside the Department of Transportation, the 
paper stated that FTA intended to use values based on avoided cost as 
an interim proxy for the benefits of emission reductions in the 
relevant nonattainment/maintenance areas.
    The paper noted that the standard unit values proposed were based 
on nationwide averages and, therefore, did not reflect the fact that 
the cost of achieving emission reductions by alternative means varies 
depending on project location. The paper stated that if the 
environmental impacts of a proposed transit project are significant, 
additional analysis to develop an avoided cost relevant to that 
specific nonattainment/maintenance area would be appropriate.
    The paper indicated that the set of measures recommended was 
selected to be mindful of the need for multimodal project appraisal 
measures. While the measures included in FTA's revised New Starts 
Criteria will be used primarily by FTA to make informed decisions about 
project ratings in the annual Report on Funding Levels and Allocations 
of Funds, required by 49 U.S.C. 5309(m)(3) (formerly Section 3(j) of 
the FT Act), an effort had been made to make some of the measures 
applicable at the local level when multimodal studies are conducted.
    The paper indicated that an examination of nine prototypical 
Alternatives Analysis/Draft Environmental Impact Studies (AA/DEIS) 
suggested that the new indices should be calculable in the major 
investment study phase of planning without significant extra work on 
the part of local project sponsors.
    The paper indicated FTA's intention to apply the proposed measures 
to projects which have not yet completed the Alternatives Analysis 
process. Projects which were in Preliminary Engineering would not have 
been required to undergo the additional analysis. These projects would 
have been evaluated based on existing data.
    The paper stated that the criteria proposed were intended to be 
interim measures. As noted earlier, SCBA forms a useful tool for 
analyzing the worthiness of public investments. However, the key to 
successful SCBA is the proper accounting for and monetizing of the full 
range of the benefits of a proposed investment. The paper stated that 
it is FTA's belief that while it is possible to quantify and monetize 
many of the benefits of transit investments, as evidenced by the 
approach proposed, ascribing a monetary value to many of the benefits 
is particularly difficult.
    This is particularly true in the absence of Government-wide 
standard values for some of the benefits which may be ascribed to 
transit projects. In addition, there was an absence of general 
agreement on even the valuation of certain other benefits, such as 
those related to the land use effects of transit investments.
    This lack of Government-wide standard values or generally agreed 
valuation was given as the key reason why FTA would be unable to use 
SCBA as the sole recommended approach at this time. In the paper, FTA 
indicated its intention to conduct research into the valuation and 
monetization of the benefits of transit investments in order to develop 
an accepted approach. As this research proceeds, FTA intends to apply 
it to the quantified benefits of the investments being considered, in 
order to move closer to a complete SCBA approach. This research should 
permit FTA to begin to construct partial indices of costs and benefits 
as part of its evaluation of project worthiness. With time, more 
complete indices can be constructed, ultimately resulting in a full-
fledged SCBA approach.
    In addition to requesting comments on the specifics of the criteria 
proposed, FTA also asked that the following questions be specifically 
addressed in replies:
    1. Are there other ways FTA could manage the ``New Starts'' program 
and still comply with statute (e.g. , industry standards and 
measurements which FTA accepts and utilizes for the Section 3(j) 
Report)?
    2. What are the key issues in monetizing transit's benefits? What 
information is now available? What are the most fruitful areas for 
research?
    3. What approaches are available for valuing travel time savings? 
How should the value of travel time savings be set? Is a value based on 
average wage rates appropriate? Is 80 percent appropriate? Is it 
appropriate to use different values by trip purpose? By mode? By type 
of time saved (e.g. wait time versus in-vehicle time)?
    4. What approaches are available for valuing emission reductions? 
How should the values of unit emission reductions be set? Are the 
values suggested by EPA based on cost-avoidance appropriate?
    5. Is the overall appraisal strategy (i.e., use of the multiple 
measure method) appropriate? Can the use of this strategy be made 
workable without explicitly specifying how FTA will trade off between 
the criteria? Should FTA, instead, specify that it will explicitly

[[Page 67097]]

weight one or more of the criteria more heavily? If so, which one(s), 
why and how?
    6. Are the particular measures proposed for each of the ISTEA 
justification criteria appropriate? Do the proposed measures adequately 
represent the criteria called out in Section 5309(e) (formerly Section 
3(i))? Are the proposed measures workable? Can data be developed for 
the measures as part of the normal process of evaluating major 
investments? Are the measures likely to be able to distinguish between 
projects of varying merit?
    7. How can FTA assure the quality of the data submitted in support 
of proposed projects in terms of the measures proposed when Major 
Investment Analyses are to be conducted as part of the Metropolitan 
Planning Process, as called for in the Final Rule on planning, issued 
October 28, 1993? How can FTA assure consistency among cities in terms 
of modeling input assumptions (e.g., gasoline prices, inflation rates, 
or modeling methods)? Must it?
    8. Is this approach sufficiently quantifiable to allow for the 
Secretarial findings and determinations for funding required by the 
Federal Transit Act, and for FTA ranking among candidate projects?
    9. How much additional effort is involved in calculating the 
proposed annualized, levelized cost-effectiveness index using multiple 
forecasts of ridership impacts? How many different year forecasts are 
needed to accurately portray the stream of ridership impact benefits? 
Which years are most appropriate to forecast (year of opening, forecast 
year, last year of analysis period, other years)? How much additional 
accuracy is gained compared to synthesizing the stream of ridership 
impacts using a single forecast year and known trends in ridership 
growth for new investments?

III. Summary of Comments on Discussion Paper

    At the close of the comment period, a total of 31 responses had 
been received. Comments were received from 13 transit operators, nine 
Metropolitan Planning Organizations (MPO's), three State DOT's, two 
Councils of Government, one county government, one city government, one 
university, and one major organization representing the interests of 
the transit industry (on behalf of 13 transit operators, two MPO's, 12 
consultants, and two local governments).
    Four central issues emerged from these comments. First, there was 
considerable confusion regarding the relationship between the proposed 
policy revisions and the Major Investment Study (MIS) process required 
under the joint FTA/FHWA planning regulations. Specifically, 16 
responses (including the transit industry group's) spoke to this issue, 
either directly or by noting that the criteria should apply to both FTA 
and FHWA projects.
    The MIS process requires an evaluation of alternatives using 
criteria such as cost effectiveness; mobility improvements; social, 
economic, and environmental effects; safety; operating efficiencies; 
land use and economic development; financing; and energy consumption. 
The information generated through this process will be used as the 
primary source of information for the purposes of 49 U.S.C. 5309(e) 
(formerly Section 3(i) of the FT Act).
    This Notice clarifies the intent of the revised FTA criteria, 
making it clear that the intermodal decisionmaking process is carried 
out on the local level as part of the MIS and affirming that FTA will 
use the criteria only for purposes of allocating discretionary New 
Starts funds. Accordingly, the name has been changed from ``Major 
Investments Criteria'' to ``Section 5309 (Section 3) FTA New Starts 
Criteria'' to reflect the true role of the policy in evaluating 
projects for the purposes of recommending discretionary Federal funding 
allocations. It also notes that the criteria are interim until a fully-
defined multimodal cost-benefit method is developed. Finally, it 
reiterates that local MIS decisions are based on local criteria and 
policies, and that the FTA criteria are to be used for Federal funding 
recommendations in the annual Report on Funding Levels and Allocations 
of Funds.
    However, this Notice does not (and cannot) address immediate 
concerns that highway projects are not required to undergo similar 
evaluation at the Federal level. There is a fundamental difference 
between FTA and FHWA capital investment programs. The FTA New Starts 
program is discretionary in nature, and requires a determination by the 
Secretary of Transportation that a project meets the statutory 
justification criteria. The measures described in this notice will be 
used to determine whether those criteria have been met, and to make 
comparisons among projects for funding purposes. FHWA funds highway 
projects through a formula program; once the planning process has 
identified a highway project as the best alternative, it is funded out 
of the formula funds apportioned to that State. There is no requirement 
for a separate determination of project justification at the Federal 
level.
    It is important to note, however, that the same local evaluation 
process should apply to both highway and transit alternatives being 
considered in an MIS. It is only after the MIS process has resulted in 
the selection of a project at the local level, and funding is sought 
from FHWA or FTA, that the programmatic differences in Federal capital 
investment programs become an issue.
    The second central issue involved the use of the Transportation 
System Management (TSM) alternative as the base for evaluating the 
benefits of the proposed New Start project. The transit industry group 
commented that the distinction between the TSM and no-build (or ``do-
nothing'') alternatives was becoming blurred as regions implement 
Congestion Management Systems under the planning regulations. Seven 
other comments raised the same issue.
    The argument in favor of the TSM basis has been that it provides a 
level playing field for evaluation of projects on a nationwide basis. 
Use of the no-build scenario as the baseline, the argument goes, would 
introduce a bias against cities with an already-significant commitment 
to transit; the incremental benefits of a new start would appear 
smaller than for cities with less existing transit.
    The transit industry group argued that requiring a separate TSM 
alternative is no longer realistic, given requirements for regions to 
develop Congestion Management Systems (CMS) under the joint planning 
regulations. These cities will be required to take some steps to 
improve congestion, whether or not a new transit system is built. In 
essence, the argument goes, the no-build alternative becomes the TSM 
alternative. However, CMS strategies are only candidates for inclusion 
in long-range plans, and do not necessarily fit the definition of a no-
build alternative which includes existing and committed projects and 
policies. The TSM alternative allows the comparison of more costly new 
start projects against lower-cost alternatives in order to determine 
the extent to which travel benefits may be generated at less cost; to 
focus on doing more with less.
    FTA is not persuaded that the transportation strategies developed 
in response to CMS requirements completely eliminate the need for 
studying system management-related alternatives to a new start. 
However, the argument has merit. In response to these comments, the 
final policy statement calls for evaluation of the new start 
alternative against both the TSM

[[Page 67098]]

alternative and the no-build case. This will provide a better 
assessment of the relative benefits of each than would a comparison 
between build and TSM scenarios, and TSM and no-build.
    The third issue concerned the proposed use of multiple forecast 
years for evaluating costs and benefits, to account for the fact that 
the benefits from transit accrue over time. The comments almost 
universally indicated that the effort involved in calculating benefits 
for multiple forecast years would far outweigh the small gains in 
accuracy. This point was made by 12 of the commenting entities, though 
two supported the proposal.
    The discussion draft proposed the use of three forecast years: 
system opening, forecast year, and the end of the forecast period 
(years 7, 15, and 30). The intent was to increase the accuracy of 
ridership impact assessments, which accrue over time. However, the 
consensus of the comments received on this issue was that the 
additional cost and effort involved in using multiple forecast years 
far outweighed any gains in accuracy over single-year forecasts.
    In response to these comments, the final policy statement adopts a 
single forecast year methodology, using year 20 of the analysis period. 
Opening year forecasts performed by project planners would be used for 
financial analysis and to verify the likelihood of ridership forecasts. 
This is consistent with current industry practice under existing FTA 
evaluation methodology, and does not increase the local planning 
burden. It is also consistent with requirements for a 20-year planning 
horizon for the transportation plans required by the joint FTA/FHWA 
planning regulations.
    The final central issue involved the need to ensure the accuracy of 
the data and modeling inputs (such as gasoline prices and inflation 
rates) used for project evaluation. Fifteen comments were received to 
the specific question posed for this issue; the responses indicated a 
need to consider local conditions and policies in project evaluations, 
but also were strongly in favor of applying consistent standards to all 
projects. However, opinion was divided as to whether national standards 
or local policies and criteria should take precedence. The transit 
industry group suggested a peer review process to set consistent 
standards for project evaluation.
    In order to balance the need for consistent national standards with 
the industry desire for input into standard modeling assumptions, the 
final policy statement calls for FTA to develop and issue advisory 
guidance to be provided through training, documented case studies, and 
preparation of manuals of best practice. Industry peer groups will 
review specific projects to determine the degree of consistency of 
modeling inputs and their relative success. This meets both the need 
for consistent national standards and the desire of the transit 
industry to have input into the standard modeling assumptions. It also 
retains FTA involvement in assuring data quality while avoiding the 
impression of mandated Federal standards.
    These central themes emerged from comments to the nine questions 
posed in the discussion draft. These questions and a summary of the 
responses are outlined below:

Question 1: ``New Starts'' Program Management

    The discussion draft solicited comments as to whether there might 
be other ways FTA could manage the ``New Starts'' program and still 
comply with statute.
    Comments: The responses to this question generally indicated that 
the proposed policy represents an improvement over the existing 
process. The transit industry group commented that, under a narrow 
interpretation, the statute does not require comparisons among 
projects. They would prefer that FTA rely on MIS results to justify a 
project, and simply report this information in the annual Report on 
Funding Levels and Allocations of Funds. Other responses noted an 
apparent disconnect between the major investment policy and the MIS 
process required under the FTA/FHWA planning regulations.

Question 2: Monetizing Transit Benefits

    Comments were solicited concerning the key issues in monetizing 
transit's benefits; specifically, what information is now available, 
and what are the most fruitful areas for research.
    Comments: The most frequent response was that local needs and 
priorities vary to the extent that monetizing benefits may not be 
relevant for national comparisons. Other benefits, such as reduced wait 
times, fewer transfers, and better reliability are not so easily 
monetized.
    Suggested areas for research included the exploration of ``shadow 
pricing'' to account for factors such as the ability to forgo a second 
car or the benefit to the region of having a ``backup'' transportation 
mode; the marginal cost of transportation alternatives; and 
quantification of the ``cost avoidance'' benefits of transit, such as 
social and economic costs and long-term energy and environmental 
benefits.

Question 3: Value of Travel Time Savings

    Comments were solicited regarding available approaches for valuing 
travel time savings; methods for setting the value of travel time 
savings; use of values based on average wage rates; and use of 
different values by trip purpose, mode, and time saved.
    Comments: Nearly a third of the responses to this question 
addressed the need to account for regional variations in prevailing 
wage rates; otherwise, this measure would be biased in favor of larger 
areas with higher costs of living.
    Comments from the transit industry group indicated that its members 
could not reach consensus as to whether local or national wage rates 
were more appropriate. As an alternative, it suggested that time is a 
limited resource that should be conserved, and the measure should be 
expressed as a percentage of time saved due to a major investment. 
Opinion was split as to whether different values by mode or trip 
purpose were appropriate.

Question 4: Value of Emissions Reductions

    The discussion draft solicited comments on available approaches for 
valuing emission reductions, setting values for emissions reductions, 
and the use of EPA cost-avoidance values.
    Comments: There was general agreement among those who responded to 
this question that the cost-avoidance method is acceptable, though some 
cautioned that this approach undervalues the true cost of emissions. 
One transit operator in a western state suggested that market values be 
permitted in areas where programs exist for buying/selling emissions 
credits.
    There was some concern that the use of a single national standard 
would not reflect regional air quality situations. Others cited the 
need for a measure that was meaningful to the average citizen, such as 
``pollution per mile.''

Question 5: Use of Multiple Measures

    Comments were solicited on the appropriateness of the overall 
strategy (i.e., use of the multiple measure method). Specifically, 
input was sought on whether this strategy can be made workable without 
explicitly specifying how FTA will trade off between the criteria, or 
whether FTA should, instead, specify that it will explicitly weigh one 
or more of the criteria more heavily.
    Comments: The respondents generally agreed that the multiple 
measure method proposed is appropriate. Opinion was split as to how (or

[[Page 67099]]

whether) the criteria should be weighted. Some favored no weighting, 
others asked that FTA specify which criteria would be more heavily 
weighted, and others said that the weights should be determined 
locally. The transit industry group supported an unweighted system as 
being more consistent with an emphasis on local goals and values.
    There was also general agreement among the commenters that the 
criteria should be multimodal; i.e., developed jointly by FTA and FHWA 
and apply to both highway and transit projects. Many asked how this 
process related to the MIS.

Question 6: Proposed Justification Measures

    Comments were sought on the appropriateness of the proposed 
measures for each of the ISTEA justification measures, whether the 
proposed measures adequately represent the criteria called out in 
Section 5309(e) (formerly Section 3(i)), whether they are workable, 
whether data can be developed for the measures as part of the normal 
process of evaluating major investments, and whether the measures are 
likely to be able to show a distinction between projects of varying 
merit.
    Comment: The use of zero-car households as a basis for evaluating 
mobility improvements generated substantial comment. Most comments 
indicated that this measure did not adequately capture the basic 
mobility function of transit. Suggested alternatives included 
automobiles per capita, the number of low-income households within \1/
2\-mile of boarding points, and a measure accounting for relative time 
savings from areas of high transit dependence to critical destinations.
    Opinion was scattered regarding measures for operating 
efficiencies. Among the comments that specifically addressed the 
measures proposed, there was some consensus that passenger-based 
measures were preferable to vehicle-based measures.
    Most comments on the criteria for transit-supportive land use 
concerned the difficulties involved in determining what to measure. 
Problems cited included the difficulty of obtaining regional land-use 
commitments before a project has been approved, the subjectivity of 
this measure, and the difficulty in making comparisons from region to 
region.

Question 7: Quality and Consistency of Data

    The discussion draft specifically requested comment on how FTA can 
assure the quality of the data submitted in support of proposed 
projects in terms of the measures proposed, and how to assure 
consistency among cities in terms of modeling input assumptions.
    Comments: Responses to this question generally supported the need 
to ensure quality and consistency of data through fair and consistent 
inputs. The transit industry group spoke to the need to ensure 
consistency with respect to basic modeling inputs, and recommended a 
peer review within the industry to accomplish this.
    Other suggested methods included relying on FTA-established 
standards and guidelines and relying on the results of the MIS process.

Question 8: Quantifiability of Approach

    Comments were solicited concerning whether this approach is 
sufficiently quantifiable to allow for the Secretarial findings and 
determinations for funding required by the Federal Transit Act, and for 
FTA ranking among candidate projects.
    Comments: There was general support for the multiple-measure 
approach, tempered with concern of a return to the use of a single 
number for comparison purposes. The transit industry group expressed 
support for greater use of qualitative methods and a descriptive 
ranking of projects.
    Two responses commented that the overall approach favors extensions 
to existing systems over new systems.

Question 9: Additional Effort for Multiple Ridership Forecasts

    The discussion draft solicited comments regarding the additional 
effort involved in calculating the proposed annualized, levelized cost-
effectiveness index using multiple forecasts of ridership impacts, and 
how much additional accuracy is gained.
    Comments: Almost all of the responses to this question indicated 
that the additional effort required for multiple forecast years far 
outweighs any gains in forecast accuracy, and that such an effort was 
tremendously burdensome when compared to requirements for highway 
projects.
    FTA also received substantial comment on the specific measures 
proposed for the individual project justification criteria that were 
incorporated into the multiple measure method. Specifically, projects 
would be evaluated according to the following five criteria: cost 
effectiveness, mobility improvements, operating efficiencies, 
environmental benefits, and transit-supportive land use policies. These 
criteria are specified in 49 U.S.C. 5309(e) (formerly Section 3(i) of 
the FT Act). The transit industry group recommended a sixth evaluation 
criterion for ``system development and performance,'' which would 
measure the historical and projected level of commitment a region must 
have in order to have a successful high-capacity transit project.

Criteria: Cost Effectiveness

    The proposed measure for cost effectiveness was the total 
incremental cost per incremental passenger-trip (or -mile), where the 
projected streams of capital and net operating costs and passenger 
trips have been expressed in constant dollar terms and both cost and 
ridership have been discounted at the social discount rate. This was a 
departure from the current ``cost per new rider'' method, which assigns 
costs and benefits to passengers assumed to have been diverted from 
private vehicles.
    Comments: Most of the comments received objected to a measure based 
on costs per ``new rider,'' contending that it is confusing to the 
public and decisionmakers, and that it does not account for the many 
intangible benefits of transit. Some (including the transit industry 
group) supported a modified Social Cost Benefit Analysis (SCBA), even 
though the discussion draft outlined several pitfalls with applying 
this type of analysis to transit projects.
    The transit industry group proposed that, if a ``modified'' SCBA 
approach could not be used, a ``descriptive'' approach would be the 
next best alternative. FTA would classify each project, based on a 
comprehensive review of the other measures, as ``Cost-Effective,'' 
``Marginal,'' or ``Not Cost-Effective.''
    Response: After much consideration, FTA has retained the use of a 
single ``cost-per-incremental-rider'' index. While not a perfect 
measure, it has the advantage of retaining the only ``hard'' number in 
the evaluation process. It is also more easily understood than abstract 
ratings of ``high,'' ``medium,'' or ``low.'' Further, dropping the 
index would appear to be a step back from a true cost-benefit analysis, 
when FTA is in fact moving toward a more complete assessment.
    The new cost-per-incremental-rider measure has been revised from 
the traditional index, which subtracted the value of travel time 
savings from annualized incremental costs. The index will now be 
calculated using only the

[[Page 67100]]

projected change in annual transit ridership and total (Federal and 
local) capital investment and operating cost. Because travel time 
savings are now reported separately in assessing mobility improvements, 
this measure will focus exclusively on incremental ridership. The 
aggregate change in systemwide annual ridership will also be reported.

Criteria: Mobility Improvements

    The proposed measures for mobility improvements included (1) the 
projected aggregate value of time savings per year (forecast year) 
anticipated from the new investment, compared to the TSM alternative, 
valued as a percentage of the average wage rate in an urbanized area; 
and (2) the absolute number of zero-car households (or residents of 
those households) located within \1/2\-mile of boarding points for the 
proposed system increment.
    Comments: Most of the comments received on this measure addressed 
the need to account for regional variations in prevailing wage rates; 
otherwise, commenters said, this measure would be biased in favor of 
larger areas with higher costs of living.
    The transit industry group indicated that its members could not 
reach consensus as to whether local or national wage rates were more 
appropriate. As an alternative, it suggested that time is a limited 
resource that should be conserved, and the measure should be expressed 
as a percentage of time saved due to a major investment.
    Nearly all comments objected to the use of zero-car households as a 
basis for measuring basic mobility. The transit industry group 
suggested that low-income households be used instead of zero-car 
households, and recommended an additional measure of mobility including 
the number of jobs within 30-45 minutes transit travel time and the 
number of low-income households within 30-45 minutes travel time of 
jobs. This group's comments also suggested that travel time savings 
should be ``net'' across all modes (highway and transit) and exclude 
those who shift to transit and incur longer travel times by choice 
(arguing that for these people, other intangible benefits outweigh the 
extra travel time). Including projected changes in highway travel times 
associated with the proposed transit project, the comment suggested, 
would account for the overall effect on mobility in the corridor.
    Response: FTA recognizes the need to consider that people who 
switch to transit can incur longer travel times but are gaining other 
benefits (such as reduced travel under congested conditions, improved 
ride quality, reduced overall commuting costs, etc.). Therefore, any 
such travel time increase should not be counted against overall travel 
time improvements for new riders. FTA has therefore adopted a consumer 
surplus approach in the final policy statement, which will account for 
the aggregate value of travel time savings and other travel benefits 
for new riders. Travel time savings and other travel benefits for 
existing transit riders and remaining highway users would be included 
in the overall measure. Values would be expressed in terms of the 
dollar value of the projected travel benefits for the project study 
area. The value of travel time would be set at 80 percent of the 
average wage rate in the urbanized area. This approach provides a 
better picture of overall mobility improvements associated with a 
proposed major investment.
    FTA is also persuaded that the use of zero-car households as a 
measure for basic mobility is much more problematic than using low-
income households. Therefore, the final policy statement uses the 
absolute number of low-income households located within \1/2\-mile of 
boarding points associated with the proposed system. This measure is 
not limited to stations that are part of the proposed project, and 
includes boarding points that will feed into the new system.

Criteria: Operating Efficiencies

    The discussion draft proposed that the measure for operating 
efficiencies be based on (1) the forecast change in operating cost per 
vehicle service-hour (or -mile) for the part of the system affected by 
the new investment, expressed in absolute and regional percentage 
terms, (2) the forecast change in passengers per vehicle service-hour 
(or -mile), and (3) the forecast change in passenger-miles per vehicle 
service-hour (or -mile).
    Comments: The transit industry group suggested that the measures 
for operating cost and passengers per vehicle service-hour or -mile 
would be more meaningful if a common base were used when comparing 
projects. They recommended a ``bus equivalent'' capacity measure based 
on the standard 40-foot transit bus, which is similar to the passenger-
car equivalent measure used for highway performance in the Highway 
Capacity Manual issued by the Transportation Research Board. Standard 
industry capacity measures such as place-miles or seat-miles are not 
easily understood by the public, and the use of revenue vehicle-miles 
without accounting for the vast differences in capacity of the various 
transit modes is misleading. Use of the bus equivalent provides for a 
more accurate view of efficiency, considering the larger capacity of 
rail cars, and makes rail alternatives look (correctly) better than if 
unweighted vehicle miles are used.
    The industry group's comments also suggested that the measure for 
the forecast change in passenger-miles per vehicle service-hour (or -
mile) be dropped. This measure would be helpful in true multimodal 
comparisons, such as comparing fixed-guideway transit projects to High-
Occupancy Vehicle projects and/or highway improvements, but would tend 
to be equal for alternatives of similar length and therefore of limited 
use.
    Response: While FTA agrees that the bus-equivalent capacity measure 
will perhaps be more easily understood by the public than seat-miles or 
place-miles, especially when comparing among bus and rail modes, such 
measures may actually be more confusing to local and Federal 
decisionmakers accustomed to traditional measures of capacity. In 
addition, a ``bus-equivalent vehicle-mile'' measure would impart an 
additional analysis and reporting requirement on project sponsors. In 
order to avoid adding burdensome additional requirements to the local 
project development process, FTA has adopted for this measure the 
forecast change in operating cost per passenger-mile, for that part of 
the system that will be directly affected by the proposed new 
investment, expressed in terms of absolute dollar value. This will 
focus attention on the overall change in costs to produce a unit of 
service for the customer. Further, it avoids the problems inherent in 
making comparisons across modes which use vehicles with substantially 
different capacities.

Criteria: Environmental Benefits

    Comments: The most frequent comments on the measures for 
environmental benefits addressed the issue of placing a value on 
emissions reductions. The transit industry group and a transit operator 
in a western state both supported the use of market-based values where 
they are documented and available, at local option. Otherwise, standard 
national values should be used.
    Response: FTA recognizes the importance of avoiding the ``one-size-
fits-all'' approach to program management. However, the use of 
``national standards'' lends a degree of simplicity to the evaluation 
process,

[[Page 67101]]

reducing the reporting and data-collection burden on project sponsors. 
Use of consistent standards also permits greater comparability of 
projects among cities, which is consistent with the purpose of these 
criteria and the statute from which they are derived. Therefore, this 
measure will be based on standardized national assumptions about the 
unit value of each emission.

Criteria: Transit-Supportive Land Use

    Comments: Most of the comments on the criteria for evaluating 
transit-supportive land use policies concerned the difficulties 
involved in determining what to measure. Problems cited included the 
difficulty of obtaining regional land-use commitments before a project 
has been approved, the subjectivity of this measure, and the difficulty 
in making comparisons from region to region.
    The transit industry group suggested the use of a descriptive 
rating of projects according to factors such as existing land use, 
containment of sprawl, transit-supportive corridor policies, supportive 
zoning regulations near transit stations, tools to implement land use 
policies, and performance of those policies. Alternatively, a 
``multiple criteria ordinal ranking'' approach could be used, where the 
project would be given a rating of ``high,'' ``medium,'' or ``low'' 
according to the same factors.
    Response: The final policy statement implements a combined rating 
for important land use factors consisting of both ``high,'' ``medium,'' 
and ``low'' ratings and corresponding descriptive indicators. Projects 
will be rated according to existing land use, containment of sprawl, 
transit-supportive corridor policies, supportive zoning regulations 
near transit stations, tools to implement land use policies, and the 
performance of land use policies. The one-word rating acts as a summary 
for the evaluation of each respective factor, while the description 
acts as the definition of that rating. Ratings for transit supportive 
land use will be developed in the same manner as that currently used by 
FTA to assess financial capacity, and expressed in a single rating 
based on the ratings for each factor.
    In addition to these five criteria, the transit industry group 
suggested a sixth that would measure the historical and projected level 
of commitment a region must exhibit in order to have a successful high-
capacity transit project (i.e., a new start). This criterion would 
address a number of factors which would otherwise be overlooked by the 
other measures. These would include (1) local efforts to adopt and 
enforce transit-supportive parking policies, (2) efforts to coordinate 
highway and transit project development (for example, withdrawing a 
highway improvement project in favor of the proposed transit 
investment), and (3) an ``implementation capability'' measure to judge 
the likelihood that forecast costs will be accurate. This last factor 
would focus on the ability of a region to successfully implement a 
major transit investment, based on its record of experience with such 
projects. Descriptive ratings were recommended for each of these 
factors; alternatively, a ``multiple criteria ordinal ranking'' 
approach could be used, where the project would be given a rating of 
``high,'' ``medium,'' or ``low'' according to the same factors.
    FTA recognizes that there are often additional factors which may 
contribute to the overall success of the project. Thus, in response to 
this recommendation, FTA has adopted a sixth project justification 
criterion for ``other relevant factors.'' This criterion will evaluate 
the degree to which the institutions (local transportation planning, 
programming and parking policies, etc.) assumed in the forecasts are in 
place, the capability of project sponsors to manage a project of the 
planned scope, and such other factors as may be relevant to the 
successful implementation of the project and/or local and national 
priorities. This provides an added assessment of the likelihood of a 
successful transit investment, measured against regional 
considerations. The measure combines both the ``high,'' ``medium,'' and 
``low'' ratings with the descriptive ratings, as appropriate, in order 
to provide both a ``summary'' rating for each factor and its 
definition.
    This comment also recommended that factors for successful 
implementation of transit-supportive land use plans be included in this 
measure. However, this would largely duplicate the information 
collected under the evaluation criteria for ``Transit Supportive Land 
Use Policies.'' While it may be possible to combine these two criteria, 
the use of a separate measure for land use is more consistent with 
statute.

IV. Explanation of Policy

Statement of Federal Transit Administration Policy--Criteria for 
Discretionary New Starts Funding

    Section 5309(e)(2)-(7) of Title 49, United States Code (U.S.C.) 
(formerly Section 3(i) of the Federal Transit Act [FT Act]), requires 
the Secretary to make certain findings before new transit fixed 
guideway and extension projects are eligible for assistance under 49 
U.S.C. Section 5309 (formerly Section 3). Specifically, a project must 
be ``(1) based on the results of an alternatives analysis and 
preliminary engineering, (2) justified based on a comprehensive review 
of its mobility improvements, environmental benefits, cost 
effectiveness, and operating efficiencies, and (3) supported by an 
acceptable degree of local financial commitment, including evidence of 
stable and dependable funding sources to construct, maintain, and 
operate the system or extension.''
    In addition, Section 5309(m)(3) (formerly Section 3(j)) requires 
the Secretary annually prepare a report to Congress outlining ``a 
proposal of the allocation of the funds to be made available to finance 
grants and loans for construction of new fixed guideway systems and 
extensions to fixed guideway systems among applicants for such 
assistance.'' This annual Report on Funding Levels and Allocations of 
Funds (the ``Section 3(j) Report'') is submitted annually as a 
collateral document to the President's budget.
    This Statement of Federal Transit Administration (FTA) Policy 
describes the criteria FTA will use to make the statutory determination 
required under Section 5309(e)(2)-(7) (formerly Section 3(i)) and to 
determine the recommendations included in the annual report to Congress 
required by Section 5309(m)(3) (formerly Section 3(j)). These criteria 
apply only to projects seeking Federal discretionary funds for new 
transit fixed guideway and extension projects (``new starts'') under 
Section 5309 (formerly Section 3).
    Title III of ISTEA exempted a number of specific projects from the 
New Starts criteria described in Section 5309(e)(2)-(7) (formerly 
Section 3(i)). Additionally, Section 5309(e)(6)(A) (formerly Section 
3(i)(5)(A)) exempts projects if: (1) they are located in an extreme or 
severe nonattainment area and are a transportation control measure (as 
defined by the Clean Air Act) required to carry out an approved State 
Implementation Plan; or (2) the total amount of funding to be provided 
under Section 5309 (formerly Section 3) is less than $25,000,000, or 
less than one-third of the total cost of the project or program of 
projects as defined by the Secretary. However, FTA may still rate such 
projects for informational purposes only, to the extent relevant 
information is available.

I. Planning and Project Development Procedures

    New start projects, like all transportation investments in

[[Page 67102]]

metropolitan areas, must emerge from the transportation planning 
process in order to be eligible for Federal funding. In addition, 
Section 5309(e)(2) specifies that discretionary grants or loans for new 
starts may only be approved if a proposed project is based on the 
results of alternatives analysis and preliminary engineering, and that 
certain project justification and financial criteria have been met. 
This section outlines the procedural requirements for planning and 
project development that apply to new starts. Figure 1 depicts the FTA 
new start planning and development process.

BILLING CODE 4910-57-P
      

[[Page 67103]]

[GRAPHIC] [TIFF OMITTED] TN19DE96.006



BILLING CODE 4910-57-C

[[Page 67104]]

    Planning: Sections 1024, 1025 and 3012 of ISTEA implemented a 
continuing, cooperative, and comprehensive transportation planning 
process which is to be conducted in each metropolitan area in the 
United States. This planning process leads to the adoption, by the 
designated metropolitan planning organization, of a metropolitan 
transportation plan (``plan'') and a transportation improvement program 
(TIP). The plan and TIP provide for the development and operation of an 
integrated transportation system that facilitates the efficient 
movement of people and goods. Projects proposed for FTA assistance must 
be consistent with the adopted plan and TIP. FTA and FHWA regulations 
on the metropolitan transportation planning process are found in 23 CFR 
Part 450.
    The planning process includes the development of a financial 
strategy for the construction and operation of planned facilities and 
services. The cost of the plan is constrained to the revenues 
reasonably expected to be available.
    The metropolitan planning regulations provide for a Major 
Investment Study (MIS) where the planning process identifies 
transportation problems that lend themselves to a high cost, high 
impact solution. An MIS is a corridor level analysis which evaluates 
all reasonable alternatives for addressing a transportation problem. 
(Each major corridor is considered separately to determine the 
facilities and services that will best meet its projected 
requirements.) The MIS develops information on the benefits, costs, and 
impacts of alternative strategies, leading to the selection of a 
locally preferred alternative or strategy. The selected strategy is 
then included in the metropolitan transportation plan and 
transportation improvement program. It is expected that most new start 
proposals will result from an MIS. All projects proposed for Section 
5309 funding assistance must emerge from the metropolitan planning 
process, including an MIS where applicable (an MIS is only required in 
cases where Federal funds are potentially involved in the financing of 
the selected alternative).
    The FTA/FHWA planning regulations found in 23 CFR Part 450 merged 
the alternatives analysis requirement into the metropolitan planning 
process. Thus, the completion of an MIS in accordance with 23 CFR Part 
450 satisfies the statutory requirement for an alternatives analysis.
    The alternatives analysis requirement does not apply to certain new 
start projects that, by statute, are exempted from the new start 
criteria. Under 49 U.S.C. Section 5309(e)(6)(A), projects are exempt 
from these requirements if: (a) The project is located within an 
extreme or severe nonattainment area and is a transportation control 
measure, as defined by the Clean Air Act, that is required to carry out 
an approved State Implementation Plan; (b) the amount of Section 5309 
assistance being sought for the project is less than $25 million; (c) 
the amount of Section 5309 assistance being sought is less than \1/3\ 
of the total cost of the project; or (d) the amount of Section 5309 
assistance being sought is less than \1/3\ of the total cost of a 
program of projects as determined by the Secretary.
    An MIS may be appropriate even though an alternatives analysis is 
not required by statute. Since FTA intends that an MIS be performed 
before local decisions are reached on the strategy for solving a 
corridor's transportation problems, it is likely that most exempt 
projects would emerge as a preferred solution only after an MIS is 
completed. In addition, the cost estimates and funding arrangements 
that are needed to determine if a project is exempt may not be 
available until an MIS has been completed. Even where it is clear that 
a new start alternative is exempt from the alternatives analysis 
requirement, an MIS may be an appropriate means to evaluate that 
alternative in the context of other strategies being considered for the 
corridor.
    Situations may also arise where the MIS requirements do not apply 
but an alternatives analysis is still required by statute. This could 
occur, for example, where the total cost of the project is not 
significant in regional planning terms but the Section 5309 share 
exceeds $25 million and \2/3\ of the project cost. In such cases, FTA 
will work with the local participating agencies to determine the 
appropriate scope for an alternatives analysis.
    Federal financial support for the planning process is derived from 
a number of sources, including the FTA Planning and Research Program 
under 49 U.S.C. Section 5314, and planning programs administered by the 
Federal Highway Administration. FTA Urbanized Area Formula funds under 
Section 5307 and flexible funds under the Surface Transportation (STP) 
Program and the Congestion Mitigation and Air Quality (CMAQ) Program 
may also be used to support planning. Given the significant demands 
placed on the Section 5309 new start program, FTA does not support the 
use of new start funds for planning.
    Preliminary Engineering: The preliminary engineering stage of 
project development follows the completion of the planning process, as 
evidenced by the adoption of a locally preferred alternative in the 
metropolitan area's adopted transportation plan and TIP. Under 49 
U.S.C. 5309(e)(5), a proposed new start project may advance from 
alternatives analysis into preliminary engineering only if the 
Secretary makes certain findings with regard to the completion of 
alternatives analysis, project justification, and the degree of local 
financial commitment. The Secretarial finding is not required for 
exempt projects as defined above.
    When the sponsoring agency for a new start project desires to 
initiate the preliminary engineering phase of project development, it 
should submit a request to the FTA regional office identifying the 
project. The request should provide information on the planning process 
that led to the selection of the project, including the inclusion of 
the project in the metropolitan transportation plan and TIP. The 
request should also address the project justification and local 
financial commitment criteria outlined below. (This information would 
normally be developed as part of the MIS process that led to the 
selection of the project.) Where the sponsoring agency believes that a 
proposed project is exempt from the new start criteria, the agency need 
not provide project justification and financial commitment information, 
but would request FTA concurrence that the project is exempt from the 
criteria. FTA approval to initiate preliminary engineering is not a 
commitment to fund final design or construction.
    During the preliminary engineering phase, local project sponsors 
refine the design of the proposal, taking into consideration all 
reasonable design alternatives. The PE process results in estimates of 
project costs and impacts in which there is a high degree of 
confidence. In addition, environmental requirements are completed (for 
new starts, this will normally entail the completion of an 
environmental impact statement), project management concepts are 
finalized, and any required funding sources are put in place. 
Information on project justification and the degree of local financial 
commitment will be continually updated as appropriate.
    Localities are encouraged to incorporate into their preliminary 
engineering activities, and to implement, a program of supportive 
policies and actions designed to

[[Page 67105]]

enhance the benefits of the project and its financial feasibility. Such 
policies and actions might include:
     Zoning policies and development incentives to stimulate 
high density and mixed use development around transit stations.
     Land use plans that support or reinforce the development 
impact and shaping influence of the transit system.
     Coordinated bus and/or paratransit feeder services.
     Pricing, regulatory, or traffic control measures aimed at 
managing peak period auto use and increasing the speed of transit 
vehicles (e.g., higher parking fees and tolls, traffic metering, 
priority treatment and signal preemption for transit).
     Financing mechanisms which make use of taxes and/or fees 
paid by developers and property owners benefiting from the transit 
system.
    Preliminary engineering is typically financed with Section 5307 
funds, local revenues, and flexible funds under the Surface 
Transportation (STP) Program and the Congestion Mitigation and Air 
Quality (CMAQ) Program. Given the significant demands placed on the 
Section 5309 new start program, FTA does not support the use of new 
start funds for preliminary engineering except in the case of unusually 
large and costly projects.
    Final Design: This is the last phase of project development and 
includes right-of-way acquisition, utility relocation, and the 
preparation of final construction plans (including construction 
management plans), detailed specifications, construction cost 
estimates, and bid documents. The final design stage cannot be 
initiated until environmental requirements have been satisfied, as 
evidenced by a Record of Decision (ROD) or a Finding of No Significant 
Impact (FONSI). Final design is typically financed with Section 5309 
new start funds.
    FTA Ratings and Funding Commitments: Each year, FTA will rate the 
projects which are performing or have completed the preliminary 
engineering phase. Pursuant to 49 U.S.C. Section 5309(m)(3), FTA will 
then recommend an allocation of new start funds among projects for the 
succeeding fiscal year. The rating will be assigned based on the 
project justification and financial commitment criteria contained in 
this statement. Funding commitments will be given ultimately to those 
projects which are most highly rated and which are ready to utilize the 
funds consistent with available program authorization.
    During preliminary engineering or final design, FTA may issue a 
Letter of Intent to signal its intention to participate in the cost of 
a new start project. The Letter of Intent is a formal pledge but is not 
a Federal obligation or administrative commitment.
    When FTA has decided to participate in a project with new start 
funds, FTA and the grantee will negotiate, during final design, a full 
funding grant agreement (FFGA). The FFGA will specify a fixed ceiling 
on the Federal contribution. The grantee will be required to complete 
construction of the project, as defined, to the point of initiation of 
revenue operations, and to absorb any additional costs incurred, except 
under certain specified extraordinary circumstances. The FFGA will 
include a mutually agreeable schedule for anticipating Federal 
contributions during the final design and construction period. Specific 
annual contributions under the FFGA will be subject to the availability 
of budget authority and the ability of the grantee to use the funds 
effectively.
    The total amount of Federal obligations under full funding grant 
agreements and potential obligations under Letters of Intent will not 
exceed the amount authorized for Section 5309 new starts. FTA may also 
make ``contingent commitments,'' which are contingent upon future 
congressional authorizations, beyond the amount authorized for section 
5309 new starts.

II. Criteria for Grants and Loans for Fixed Guideway Systems

    In order to approve a grant or loan under Section 5309 (formerly 
Section 3), the Secretary of Transportation must find that the proposed 
project is justified as described in Section 5309 (e)(2)(B) (formerly 
Section 3(i)(1)(B)), and supported by an acceptable degree of local 
financial commitment, as described in Section 5309(e)(2)(C) (formerly 
Section 3(i)(1)(C)).

a. Project Justification Criteria

    To make the statutory approval required for a project to enter 
preliminary engineering, as required by Section 5309(e)(2)-(7) 
(formerly Section 3(i)), FTA will evaluate information developed in 
Major Investment Studies. The method used to make this determination 
will be a Multiple Measure approach in which the merits of candidate 
projects will be evaluated against a set of measures. These measures 
will also be used to determine which projects to recommend for funding 
in the report required by Section 5309(m)(3) (formerly Section 3(j)). 
The ratings for each measure will be updated throughout the preliminary 
engineering and final design processes, as costs, benefits and impacts 
are more precisely defined. As a candidate project proceeds through the 
stages of the development process, a greater degree of certainty is 
expected with respect to these measures. The measures are as follows:
    1. For ``mobility improvements''--(1) The projected value of 
aggregate travel time savings per year (forecast year \1\) anticipated 
from the new investment, compared to both the no-build and TSM 
alternatives \2\. This aggregate includes the travel time savings of 
people using competitive modes, along with those on the trips made by 
transit (both new and existing transit riders). It is a net figure in 
the sense that travel time increases should be explicitly considered 
and used to offset the time savings of those people who experience 
savings. Travel time savings for those switching from highways to 
transit will be calculated using a consumer surplus approach, taking 
one-half of the total travel time savings for existing riders. The net 
figure will be expressed in terms of the dollar value of the projected 
travel time savings for the study area. Total travel time savings will 
be valued at 80 percent of the average wage rate in the urbanized area. 
(2) The absolute number of low income households (households below the 
poverty level) located within \1/2\ mile of boarding points associated 
with the proposed system increment.
---------------------------------------------------------------------------

    \1\ For the purposes of this analysis, the forecast year will be 
year 20 of the analysis period. An opening year forecast will be 
used for financial analysis and as a check on initial ridership 
projections.
    \2\ In all cases, the no-build case will be based on committed 
elements of the region's transportation plan, except for the 
proposed fixed guideway or extension. As areas are required to 
develop Congestion Management Systems, and give priority to the 
strategies included in the CMS in developing long range 
transportation plans and programs, it is expected that the base case 
will include substantial system management elements designed to 
reduce congestion by improving the operation of the transportation 
system. The TSM alternative is the no-build case plus low-cost 
transportation improvements such as traffic engineering, transit 
operational changes, and modest capital improvements that improve 
transportation performance.
---------------------------------------------------------------------------

    2. For ``environmental benefits''--(1) the value per year (forecast 
year) of the forecast change in criteria pollutant emissions and in 
greenhouse gas emissions, ascribable to the proposed new investment, 
calculated according to standardized national assumptions about the 
unit value of each emission; (2) the forecast net change per year 
(forecast year) in the regional consumption of energy, ascribable to 
the proposed new investment, expressed in British Thermal Units (BTU); 
and (3) current Environmental Protection Agency designations for the 
region's

[[Page 67106]]

compliance with National Ambient Air Quality Standards. The new start 
alternative will be compared to both the no-build and TSM alternatives.
    3. For ``operating efficiencies''--the forecast change in operating 
cost per passenger-mile (forecast year), for that part of the system 
that will be directly affected by the proposed new investment, 
expressed in terms of absolute dollar value. The new start will be 
compared to both the TSM and no-build alternatives.
    4.For ``cost-effectiveness''--the incremental change in total 
capital and operating cost per incremental passenger, based on the 
forecast change in annual transit ridership (forecast year) and the 
annualized total (Federal and local) capital investment and operating 
cost, compared to the no-build and TSM alternatives.
    5. For ``transit supportive existing land use policies and future 
patterns''--the degree to which local land use policies are likely to 
foster transit supportive land use, measured in terms of the kinds of 
policies in place, and the commitment to these policies. A combined 
rating consisting of both ``high,'' ``medium,'' and ``low'' ratings and 
corresponding descriptive indicators will be used to assess each of the 
following six factors: (1) existing land use; (2) containment of 
sprawl; (3) transit-supportive corridor policies; (4) supportive zoning 
regulations near transit stations; (5) tools to implement land use 
policies; and (6) the performance of land use policies. The ratings for 
each factor will then be combined into a single ordinal rating for 
transit supportive land use.
    6. For ``other factors''--(1) the degree to which the institutions 
(local transportation planning, programming and parking policies, etc.) 
are in place as assumed in the forecasts, (2) project management 
capability, and (3) additional factors relevant to local and national 
priorities and relevant to the success of the project. Ratings will be 
expressed as appropriate in ordinal ratings and descriptive statements.

b. Local Financial Commitment

    The local financial commitment to a proposed project will continue 
to be evaluated according to the following measures:
    1. The proposed local share of project costs, defined as the 
percentage of capital costs to be met using funds from sources other 
than Section 5309, including both the local match required by Federal 
law and any additional capital funding (``overmatch''). Consideration 
will be given to the use of (1) innovative financing techniques, as 
described in the May 9, 1995 Federal Register notice on FTA's 
Innovative Financing Initiative; and (2) ``flexible funds'' as provided 
under the Congestion Mitigation and Air Quality Improvement Program 
(CMAQ) and the Surface Transportation Program (STP) under ISTEA.
    2. The strength of the proposed capital financing plan, according 
to (1) the stability and reliability of each proposed source of local 
match, including inter-governmental grants, tax sources, and debt 
obligations, with an emphasis on availability within the project 
timetable; (2) whether adequate provisions have been made to cover 
unanticipated cost overruns. The strength of the capital finance plan 
will be rated high, medium, or low.
    3. The ability of the local transit agency to fund operation of the 
system as planned once the guideway project is built, according to (1) 
an evaluation of the operating revenue base and (2) its ability to 
expand to meet the incremental operating costs associated with a new 
fixed guideway investment and any other new services and facilities. 
Ratings of high, medium, and low will be used to describe stability and 
reliability of operating revenue.

    Issue Date: December 16, 1996.
Gordon J. Linton,
Administrator.
[FR Doc. 96-32199 Filed 12-18-96; 8:45 am]
BILLING CODE 4910-57-P