Mass Transit: FTA Needs to Better Define and Assess Impact of	 
Certain Policies on New Starts Program (25-JUN-04, GAO-04-748).  
                                                                 
The Transportation Equity Act for the 21st Century (TEA-21) and  
subsequent legislation authorized about $8.3 billion in 	 
guaranteed funding for the Federal Transit Administration's (FTA)
New Starts program, which funds fixed guideway transit projects, 
such as rail and trolley projects, through FFGAs. GAO assessed	 
the New Starts process for the fiscal year 2005 cycle. GAO	 
identified (1) the number of projects that were evaluated, rated,
and proposed for new FFGAs and how recent changes to the process 
were reflected in ratings; (2) the proposed funding commitments  
in the administration's budget request and legislative		 
reauthorization proposals; and (3) the extent to which amounts	 
appropriated since 1998 fulfilled FFGAs.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-748 					        
    ACCNO:   A10606						        
  TITLE:     Mass Transit: FTA Needs to Better Define and Assess      
Impact of Certain Policies on New Starts Program		 
     DATE:   06/25/2004 
  SUBJECT:   Mass transit funding				 
	     Mass transit operations				 
	     Performance measures				 
	     Program evaluation 				 
	     Program management 				 
	     Strategic planning 				 
	     Transportation legislation 			 
	     Transportation statistics				 
	     Federal aid for transportation			 
	     FTA New Starts Program				 

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GAO-04-748

United States General Accounting Office

                     GAO Report to Congressional Committees

June 2004

MASS TRANSIT

 FTA Needs to Better Define and Assess Impact of Certain Policies on New Starts
                                    Program

                                       a

GAO-04-748

Highlights of GAO-04-748, a report to congressional committees

The Transportation Equity Act for the 21st Century (TEA-21) and subsequent
legislation authorized about $8.3 billion in guaranteed funding for the
Federal Transit Administration's (FTA) New Starts program, which funds
fixed guideway transit projects, such as rail and trolley projects,
through FFGAs. GAO assessed the New Starts process for the fiscal year
2005 cycle. GAO identified (1) the number of projects that were evaluated,
rated, and proposed for new FFGAs and how recent changes to the process
were reflected in ratings; (2) the proposed funding commitments in the
administration's budget request and legislative reauthorization proposals;
and (3) the extent to which amounts appropriated since 1998 fulfilled
FFGAs.

GAO recommends that the Secretary of Transportation direct the
Administrator of FTA to (1) clearly explain the basis on which it decides
which projects will be recommended for funding outside of FFGAs, such as
projects considered to be meritorious, and what projects must do to
qualify for such a recommendation and (2) examine the impact of FTA's
policy favoring projects requesting less than 60 percent New Starts funds.
Department officials generally agreed with the information provided and
concurred with the recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-748.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud at
(202)512-2834 or [email protected].

June 2004

MASS TRANSIT

FTA Needs to Better Define and Assess Impact of Certain Policies on New Starts
Program

For the fiscal year 2005 cycle, FTA evaluated 38 projects, rated 29
projects, and proposed 7 projects for funding. FTA recommended 5 of the 7
projects for full funding grant agreements (FFGAs). FTA considered the
remaining 2 projects to be meritorious and recommended a total of $50
million for these projects in fiscal year 2005. However, FTA does not
clearly explain how it decides which projects will be recommended for
funding outside of FFGAs or what project sponsors must do to qualify for
such a recommendation. Last year, in response to language contained in
appropriations committee reports, FTA instituted a policy favoring
projects that seek a federal New Starts share of no more than 60 percent
of the total project cost-even though the law allows projects to seek up
to 80 percent-in its recommendation for FFGAs. According to FTA officials,
this policy allows more projects to receive funding and ensures that local
governments play a major role in funding such projects. FTA describes the
60 percent policy as a general preference; however, FTA's fiscal year 2005
New Starts report suggests that this policy is absolute in that projects
proposing more than a 60 percent federal New Starts share will not be
recommended for an FFGA. Therefore, FTA agreed to describe the policy as a
general preference in future reporting instructions, thus allowing for the
possibility of exceptions. Although most of the projects evaluated during
the current cycle proposed a federal New Starts share of less than 60
percent of total project costs, some project sponsors GAO interviewed
raised concerns about the difficulties of securing the local funding
share. However, the overall impact of this policy on projects is unknown.

The administration's fiscal year 2005 budget proposal requests $1.5
billion for the New Starts program, a $225 million increase over the
amount appropriated for the fiscal year 2004 cycle. Congress is currently
considering legislative reauthorization proposals, which contain a number
of provisions and initiatives for the New Starts program including
streamlining the New Starts evaluation process for projects requesting
less than $75 million in New Starts funds, expanding the definition of
eligible projects, changing the ratings categories, and maintaining the
maximum federal New Starts share at 80 percent of total project cost.
Project sponsors GAO interviewed had varying views on these provisions,
but most said that clear definitions would be needed for any proposed
changes to the New Starts process.

All 26 projects with existing FFGAs have not received funds as scheduled-
the amount of funding appropriated was less than the amount authorized and
scheduled by the FFGA. According to FTA, all completed projects have
received the total amount authorized in the FFGAs, but not necessarily
according to the original FFGA schedule. As of March 2004, the 26 projects
have received a total of $294 million, or 5 percent, less than the amount
scheduled by the projects' FFGAs. The amount and timing of differences
varied for each project. Project sponsors GAO interviewed have developed
methods to mitigate the impact of receiving less than the scheduled annual
amount for their project, but these methods can generate additional costs.

Contents

  Letter

Results in Brief
Background
Recent Changes to the Evaluation and Rating Process Present

Challenges and Raise Concerns

Administration's Proposal Requests Increased New Starts Funds and
Legislative Reauthorization Proposals Would Expand and Streamline the
Program

Project Sponsors Have Taken Steps to Address Variances in

Funding Conclusions Recommendations for Executive Action Agency Comments
and Our Evaluation

1 3 5

11

22

26 28 29 29

Appendixes

                                       Appendix I: Appendix II: Appendix III:

Appendix IV:

Scope and Methodology

Projects Evaluated for the Fiscal Year 2005 Cycle

Cumulative Shortfalls by Project with Full Funding Grant Agreements

GAO Contact and Staff Acknowledgments

GAO Contacts
Staff Acknowledgments

                                     31 33

36

38 38 38

Tables  Table 1: FTA's Criteria for Assigning Overall Project Ratings   10 
           Table 2: Cost-Effectiveness and Land Use Ratings for Projects  
                                Proposed for Funding                       17 
                   Table 3: Criteria for New Starts Share Rating           19 
                     Table 4: Projects Contacted for Our Review            31 
Figures  Figure 1: New Starts Planning and Project Development Process     
                      Figure 2: New Starts Evaluation and Ratings Process 7 9
              Figure 3: The Number and Percentage of Projects Rated by    
                        Category, Fiscal Years 2003 to 2005                13 
              Figure 4: Total New Starts Funding Proposed for Fiscal Year 
                                                                     2005 
                                Equals $1.5 Billion                        23 

Contents

Abbreviations

FFGA full funding grant agreement
FTA Federal Transit Administration
LRT Light Rail Transit
MOS minimal operating segment
TEA-21 Transportation Equity Act for the 21st Century
TSUB Transportation System User Benefits

This is a work of the U.S. government and is not subject to copyright
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separately.

A

United States General Accounting Office Washington, D.C. 20548

June 25, 2004

The Honorable Richard C. Shelby
Chairman
The Honorable Paul S. Sarbanes
Ranking Minority Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Don Young
Chairman
The Honorable James L. Oberstar
Ranking Minority Member
Committee on Transportation and Infrastructure
House of Representatives

Since the early 1970s, the federal government has provided a large share
of
the nation's capital investment in mass transportation. Much of this
investment has come through the Federal Transit Administration's (FTA)
New Starts program. The New Starts program awards full funding grant
agreements (FFGAs) for fixed-guideway rail, certain bus projects, trolley,
and ferry projects.1 An FFGA establishes the terms and conditions for
federal participation in a project, including the maximum amount of
federal
funds available for the project, which by statute cannot exceed 80 percent
of its net cost. Since 1998, FTA has funded or recommended 26 projects for
FFGAs-the total estimated cost of these projects exceeds $17.5 billion.

Under the Transportation Equity Act for the 21st Century (TEA-21)2 and
subsequent amendments, Congress authorized approximately $8.3 billion

1Fixed-guideway systems use and occupy a separate right-of-way for the
exclusive use of public transportation services. They include fixed rail,
exclusive lanes for buses and other high-occupancy vehicles, and other
systems.

2Pub. L. No. 105-178, 112 Stat. 107 (1998).

in New Starts contract authority through 2003.3 Although this level of
funding was higher than it had ever been, the demand for these resources
is also increasing. For example, in 1998, TEA-21 identified over 190
projects nationwide as eligible to compete for New Starts funding. Several
additional projects not authorized in TEA-21 have since received
congressional appropriations. Because of this demand, TEA-21 directed FTA
to prioritize projects for funding by evaluating, rating, and recommending
potential projects on the basis of specific financial and project
justification criteria and to issue regulations outlining its evaluation
and rating process. FTA issued the regulations for evaluating and rating
New Starts projects in fiscal year 2001. For the fiscal year 2004 cycle,
FTA made two changes to the evaluation and ratings process. First, FTA
implemented the Transportation System User Benefits (TSUB) measure as a
variable in the calculation of cost-effectiveness and mobility
improvements. The new measure is intended to calculate the change in the
amount of travel time and costs that people incur for taking a trip.
Second, in response to language contained in appropriations committee
reports, FTA instituted a preference policy favoring projects that seek a
federal New Starts share of no more than 60 percent of the total project
cost. Both of the changes are reflected in the project justification and
financial ratings of a project, respectively, which, in turn, are combined
to form a project's overall rating.

TEA-21 also requires us to report each year on FTA's processes and
procedures for evaluating, rating, and recommending New Starts projects
for federal funding and on the implementation of these processes and
procedures. This report discusses (1) the number of projects that were
evaluated, rated, and proposed for new FFGAs for fiscal year 2005 and on
how the recent changes to the process were reflected in ratings; (2) the
proposed funding commitments for New Starts in the administration's fiscal
year 2005 budget request and legislative reauthorization proposals; and
(3) the extent to which amounts appropriated since 1998 fulfilled FFGAs.
To address these objectives, we reviewed the administration's fiscal year
2005 budget request and legislative reauthorization proposals as

3Contract authority is the amount of funding Congress has authorized FTA
to commit to New Starts projects for a given authorization period. The
Surface Transportation Extension Act of 2004, Part II, Pub. L. No.
108-224, 118 Stat. 627 (2004), extended TEA-21 until June 30, 2004.
Proposed reauthorization legislation in both the House and Senate would
authorize similar funding levels for the New Starts program. For example,
S. 1072 would authorize $9.6 billion in New Starts contract authority over
the next 6 years; H.R. 3550 would authorize $9.4 billion.

well as FTA's annual New Starts reports and records on funding authorized
and appropriated to projects with existing FFGAs. We also interviewed FTA
officials, representatives of the American Public Transportation
Association and sponsors of 15 projects in preliminary engineering or
final design, and 5 projects with existing FFGAs. In addition, we attended
FTA's meeting with project sponsors, the New Starts Roundtable, in April
2004. We conducted our work from February 2004 through June 2004 in
accordance with generally accepted government auditing standards. (See
app. I for more information about our scope and methodology.)

Results in Brief	For the fiscal year 2005 cycle, FTA evaluated 38
projects, rated 29 projects, and proposed 7 projects for funding.4 FTA
recommended 5 of the 7 projects for full funding grant agreements (FFGAs).
FTA considered the remaining 2 projects to be "meritorious and worthy of
funding" and proposed a total of $50 million for the 2 projects-a
substantial increase over amounts proposed for similar projects in prior
years. FTA has not, however, clearly explained to project sponsors how it
decides which projects will be recommended for funding outside of FFGAs or
what they must do to qualify for such a recommendation. Last year, FTA
made two changes to its evaluation and ratings process. First, FTA
instituted a new measure to calculate a project's cost-effectiveness-the
cost per hour of Transportation System User Benefits (TSUB)-to replace the
"cost per new rider" measure. Project sponsors we interviewed generally
believe the TSUB measure is an improvement over the old measure. Although
FTA has provided training and technical assistance, many project sponsors
continue to experience difficulties producing reliable local travel
forecasts that are used in the calculation of the new measure. Second, in
response to appropriations committee reports, FTA instituted a preference
policy favoring projects that seek a federal New Starts share of no more
than 60 percent of the total project cost-even though the law allows
projects to seek up to 80 percent-in its recommendations for FFGAs.
According to FTA officials, this policy will allow more projects to
receive funding and ensure that local governments play a major role in
funding such projects. Although FTA has the statutory authority to
favorably rate proposed projects that request a lower New Starts share, in
our view, FTA's policy is permissible as long as projects are not required
to request less than an 80 percent federal New Starts share in order to be
considered for a

4Nine of the projects were statutorily exempt from the rating process
because project sponsors requested less than $25 million in New Starts
funding.

recommendation for an FFGA. FTA describes the policy as a general
preference; however, FTA's fiscal year 2005 New Starts report suggests
that this policy is absolute in that projects proposing more than a 60
percent federal New Starts share will not be recommended for an FFGA.
Therefore, FTA agreed to describe the policy as a general preference in
future reporting instructions, thus allowing for the possibility of
exceptions. Although the majority of the projects evaluated during the
current cycle proposed a federal New Starts share of less than 60 percent,
some project sponsors we contacted raised concerns about the difficulties
of securing the local funding share and state that FTA's push for a lower
federal New Starts share would likely affect other transit projects in
their area or their decision to advance future transit projects. However,
the overall impact of this policy on projects is unknown.

The administration's fiscal year 2005 budget proposal requests $1.5
billion for the New Starts program, a $225 million increase over the
amount appropriated for the fiscal year 2004 cycle. The majority of the
$1.5 billion, $931 million or 61 percent, would be allocated to existing
FFGAs. In addition to the fiscal year 2005 budget for New Starts, Congress
is currently considering legislation to reauthorize federal surface
transportation programs, including the New Starts program. Proposed
reauthorization in both the Senate and House bills contains a number of
provisions and initiatives for the New Starts program.5 Some of the key
provisions would streamline the New Starts evaluation process for projects
requesting less than $75 million in New Starts funds, expand the
definition of eligible projects, change the rating categories, and
maintain the maximum federal funding share for a New Starts project at 80
percent of the project's net cost. The project sponsors we interviewed had
varying views on these provisions, but most said that clear definitions
would be needed for any proposed changes to the New Starts process. For
example, most project sponsors we interviewed were supportive of
implementing a streamlined evaluation process for less expensive projects,
but stated that clearly defined criteria would be necessary in
implementing the new process.

All 26 projects with existing FFGAs have not received the level of federal
funding that was scheduled and authorized by the projects' FFGAs.
Variances in funding can occur for several reasons, including
congressional decision making and project management oversight costs. As
of March 2004, the 26 projects have received a total of $294 million, or 5
percent, less

5H.R. 3550, 108th Cong. (2004), and S. 1072, 108th Cong. (2004).

than the amount authorized by the projects' FFGAs. The amount and timing
of these differences in funding varied for each project. According to FTA,
all completed projects have received the total amount authorized in the
FFGAs but not necessarily according to the original FFGA schedule. FTA
officials also stated that FTA will continue to request funds to be
appropriated to fulfill the amounts authorized in existing FFGAs. Project
sponsors we interviewed have developed methods to mitigate the impact of
receiving less than the scheduled annual amount for their project. For
example, some project sponsors entered into partnerships with the state
and/or local government, while others implemented interim funding
mechanisms to cover any funding differences, including issuing bonds or
loans to generate necessary funds. Although project sponsors have used
these methods to avoid delays and changes in scope, they can generate
additional costs.

We are making two recommendations to the Secretary of Transportation to
direct the Administrator, FTA, to (1) clearly explain the basis on which
it decides which projects will be recommended for funding outside of
FFGAs, such as projects considered to be meritorious, and what projects
must do to qualify for such a recommendation and (2) examine the impact of
the preference policy on projects seeking or considering New Starts
funding and examine whether its policy results in maximizing New Starts
funds and local participation.

The Department of Transportation, including FTA, reviewed a draft of this
report. FTA officials generally agreed with the information provided and
concurred with its recommendations.

Background 	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.6 Under one of these programs, New Starts, FTA identifies and
funds worthy fixedguideway transit projects, including heavy, light, and
commuter rail; ferry; and certain bus projects (such as bus rapid
transit). We have recognized the New Starts program as a model that the
federal government could use for approving other transportation projects.

6"Guaranteed" funds are subject to a procedural mechanism designed to
ensure that a minimum amount of funding is made available each year.

FTA generally funds New Starts projects through full funding grant
agreements (FFGAs). An FFGA establishes the terms and conditions for
federal participation in a project, including the maximum amount of
federal funds available for the project, as well as the project's scope,
schedule, and cost. By statute, the federal funding share for a New Starts
project cannot exceed 80 percent of its net cost. To obtain an FFGA,
projects must go through an extensive process from a regional multimodal
transportation planning process to preliminary engineering to final design
and construction. (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. After a locally preferred alternative is
selected, project sponsors submit a request to FTA for entry into the
preliminary engineering phase.7 Following completion of preliminary
engineering, 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. FTA oversees the 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.

7During the preliminary engineering phase, project sponsors refine the
design of the proposal, taking into consideration all reasonable design
alternatives, which results in estimates of costs, benefits, and impacts
(e.g., financial or environmental). According to FTA officials, to gain
approval for entry into preliminary engineering, a project must (1) have
been identified through the alternatives analysis process, (2) be included
in the region's long-term transportation plan, (3) meet the statutorily
defined project justification and financial criteria, and (4) demonstrate
that the sponsors have the technical capability to manage the project
during preliminary engineering.

Figure 1: New Starts Planning and Project Development Process

Source: FTA.

To determine whether a project should receive federal funds, FTA's New
Starts evaluation process assigns ratings on the basis of a variety of
financial and project justification criteria and determines an overall
rating. These criteria are identified in TEA-21 and reflect a broad range
of benefits and effects of the proposed projects, such as capital and
operating finance plans, mobility improvements, and cost-effectiveness. As
figure 2 shows,

FTA has developed a series of measures for the project justification
criteria. FTA assigns proposed projects a rating of "high," "medium-high,"
"medium," "low-medium," or "low" for each criterion. The individual
criterion ratings are combined into the summary financial and project
justification ratings. However, FTA does not weigh each individual
criterion equally when calculating the summary financial and project
justification ratings. For the summary project justification rating, FTA
uses primarily two criteria-cost-effectiveness and land use.8 Each of
these criteria account for 50 percent of the summary project
justification. Although FTA considers the full range of criteria,
according to an FTA official, the other criteria do not produce meaningful
distinctions among projects and, therefore, are not given an official
weight in the ratings process.9 FTA plans to consider revisions to the
measures for the other criteria after the authorizing legislation is
passed.

8The land use criterion examines the extent to which the levels of
population, employment, and other trip generators in the area are
sufficient to support a major transit investment, as well as the
community's commitment to land use policies that will facilitate and
promote transit use.

9According to FTA, these criteria may be considered by the administration
and Congress as funding recommendations and decisions are made.

Figure 2: New Starts Evaluation and Ratings Process

Source: FTA.

Note: The shaded boxes indicate changes in the evaluation process made in
fiscal year 2004. The share of non-New Starts funding has always been a
measure used in the New Starts evaluation; however, for the fiscal year
2004 cycle, FTA instituted a policy favoring projects that request less
than 60 percent.

aAccording to FTA, this optional criterion of "other factors" gives
grantees the opportunity to provide additional information about a
project's likelihood for overall success.

On the basis of the summary project justification and financial ratings,
FTA develops the overall project rating. (Table 1 describes the criteria
FTA uses to assign overall project ratings.) The exceptions to the
evaluation process are statutorily "exempt" projects, which are those that
request less than $25

million in New Starts funding.10 These projects are not required to submit
project justification information and do not receive ratings.

Table 1: FTA's Criteria for Assigning Overall Project Ratings

Overall rating category Criteria

Highly recommended	Requires at least a "medium-high" for both the
financial and project justification summary ratings.

Recommended 	Requires at least a "medium" for both the financial and
project justification summary ratings.

Not recommended	Assigned to projects not rated at least "medium" for both
the financial and project justification summary ratings.

Not rated	Indicates that insufficient information was submitted or that
FTA has serious concerns about the information submitted for the mobility
improvements and cost-effectiveness criteria because the underlying travel
forecasting assumptions used by the project sponsor may have inaccurately
represented the benefits of the project.

Source: FTA.

Last year, we reported that FTA implemented two changes to the New Starts
process for the fiscal year 2004 cycle.11 (These changes are shaded in
fig. 2.) First, FTA changed the calculation of the cost-effectiveness and
mobility improvements criteria by adopting the Transportation System User
Benefits (TSUB) measure. This measure replaced the "cost per new rider"
measure that had been used in past ratings cycles. According to FTA, the
new measure reflects an important goal of any major transportation
investment-reducing the amount of travel time that people incur for taking
a trip (i.e., the cost of mobility). In contrast to the "cost per new
rider" measure, the new measure considers travel time savings to both new
and existing transit system riders. Second, in response to appropriations
committee reports, FTA instituted a preference policy favoring projects
that seek a federal New Starts share of no more than 60 percent of the
total

1049 U.S.C. 5309(e)(8)(A).

11U.S. General Accounting Office, Mass Transit: FTA Needs to Provide Clear
Information and Additional Guidance on the New Starts Ratings Process,
GAO-03-701 (Washington, D.C.: June 23, 2003).

project cost. Under this preference policy, FTA gives projects seeking a
federal share of New Starts funding greater than 60 percent a "low"
financial rating, which further results in a "not recommended" overall
project rating.12

As required by statute, FTA uses the evaluation and ratings process, along
with its consideration of the stage of development of New Starts projects,
to decide which projects to recommend to Congress for funding.13 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:

o 	The local contribution to funding for the project must be made
available for distribution.

o 	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.

o 	The project must meet FTA's tests for readiness and technical capacity,
which confirm that there are no cost, project scope, or local financial
commitment issues remaining.

Recent Changes to the Evaluation and Rating Process Present Challenges and
Raise Concerns

Of the 38 projects evaluated for the fiscal year 2005 cycle, 29 were rated
and 9 were statutorily exempt from the rating process because they
requested less than $25 million in New Starts funding. While the project
ratings for the fiscal year 2005 cycle reflect a general improvement over
the previous year, ratings are not as high as those achieved for the
fiscal year 2003 cycle. FTA proposed 7 projects for funding for the fiscal
year 2005 cycle, including 5 projects for FFGAs. The remaining 2 projects
were

12Although the non-New Starts share accounts for only 20 percent of the
summary financial rating, FTA's preference policy supersedes the overall
financial rating when the non-New Starts share is greater than 60 percent.

13FTA makes these funding recommendations in its annual New Starts report
to Congress due in February.

considered to be "meritorious and worthy of funding" and FTA proposed a
total of $50 million for these projects-substantially more than amounts
proposed for similar projects in prior years. FTA did not, however,
clearly explain to project sponsors how it decides which projects will be
recommended for funding outside of FFGAs or what they must do to qualify
for such a recommendation. FTA implemented two changes to its evaluation
and ratings process for the fiscal year 2004 cycle: implementation of a
new cost-effectiveness measure and adoption of the 60 percent federal New
Starts share preference policy that contributed to lower ratings. Although
many of those projects were able to overcome challenges with the new
measure for the current cycle, ratings reflected that some projects were
still unable to generate reliable local travel forecasts. Also, while the
majority of the projects evaluated during the current cycle requested a
federal New Starts share of less than 60 percent, some project sponsors
raised concerns about FTA's preference policy, including the challenges
associated with securing the local funding share.

Project Ratings for the Current Cycle Reflect Improvement but Have Not
Returned to Fiscal Year 2003 Levels

Project ratings are generally higher for the fiscal year 2005 cycle than
for the fiscal year 2004 cycle but are still lower than ratings for fiscal
year 2003. Of the 38 projects FTA evaluated for the fiscal year 2005
cycle, 29 were rated, and 9 were statutorily exempt from the ratings
process because project sponsors requested less than $25 million in New
Starts funding. Figure 3 shows that the percentage of projects that
received ratings of "recommended" or "highly recommended" rose from 44
percent for the fiscal year 2004 cycle to 59 percent for the fiscal year
2005 cycle. FTA attributes the increase in "recommended" projects over
last year's total to improved submissions, notably improved financial
plans, and a better understanding of and increased comfort with the
estimation of project benefits among project sponsors. In addition, FTA
rated 7 projects as "not recommended" and designated 5 projects as "not
rated." According to FTA, most of the projects that received a rating of
"not recommended" submitted poor financial plans-that is, plans that FTA
considered overly optimistic in their assumptions about costs and revenue
growth, or demonstrated no commitment of funds. For the projects that
received a rating of "not rated," either FTA had significant concerns with
the travel forecasts submitted by the project sponsor or the project
sponsor did not provide all of the information necessary for a complete
submission. (See app. II for a full listing of ratings for projects
evaluated for the fiscal year 2005 cycle.)

Figure 3: The Number and Percentage of Projects Rated by Category, Fiscal
Years 2003 to 2005

Distribution of New Starts project ratings 30

25

25

20

15

10

5

0 Highly Recommended Not recommended Not rated or not recommended
available

FY 2003

FY 2004

FY 2005

Source: GAO analysis of FTA data.

FTA proposed 7 projects for funding for the fiscal year 2005 cycle. FTA
proposed 5 of the 7 projects for FFGAs, including Cleveland, Euclid
Corridor Transportation Project; Las Vegas, Resort Corridor Fixed
Guideway; New York, Long Island Rail Road East Side Access; Phoenix,
Central Phoenix/East Valley Light Rail Transit (LRT) Corridor; and
Pittsburgh, North Shore LRT Connector. These projects are expected to be
ready for FFGAs by the end of fiscal year 2005. The total costs of these 5
projects are estimated to be $7.6 billion. The total federal New Starts
share is expected to be $3.7 billion.

In addition, FTA considered 2 other projects in final design to be
meritorious and recommended a total of $50 million for these projects in
fiscal year 2005. FTA proposed $30 million for the Charlotte South
Corridor LRT Project and $20 million for the Raleigh Regional Rail
Project- substantially more than amounts proposed for similar projects in
prior years. According to the fiscal year 2005 New Starts report, these
meritorious projects are "located in areas that are highly congested or
rapidly growing, and that have demonstrated a high level of local
financial commitment and strong support from local citizens, businesses,
and elected officials."14 However, the report does not clearly explain to
project sponsors how FTA decides which projects will be recommended for
funding outside of FFGAs or what they must do to qualify for such a
recommendation. FTA officials explained that the 2 projects considered to
be meritorious this cycle are closer to being ready for an FFGA than the
other projects evaluated; however, FTA did not believe the 2 projects
would be ready for an FFGA in fiscal year 2005. FTA officials also told us
that decisions to recommend funding for projects outside of FFGAs are made
on an annual basis and are dependent on the readiness of the projects and
the availability of funds after funding for existing or new FFGAs is
allocated. This explanation, however, is not included in its New Starts
report or other published guidance.

FTA has funded similar projects in the past. For example, for the fiscal
year 2003 cycle, FTA considered 5 projects in preliminary engineering to
be meritorious.15 At that time, FTA had proposed $4 million for 4 of the 5
projects and $15 million for the remaining project. FTA reported in its
annual New Starts report that the 5 projects "may be ready to progress
through final design and construction by the end of fiscal year 2003."16
However, by the fiscal year 2005 cycle, only 1 of the projects had an
FFGA. The remaining 4 projects were either being proposed for an FFGA for
the fiscal year 2005 cycle (3) or still in preliminary engineering (1).
Therefore, in the past, FTA's recommendation for funding for projects
considered to be

14U.S. Department of Transportation, Federal Transit Administration,
Annual Report on New Starts: Proposed Allocations of Funds for Fiscal Year
2005 (Washington, D.C.: 2004).

15The 5 meritorious projects for the fiscal year 2003 cycle were Chicago
Ravenswood Line Expansion, Cleveland/Euclid Corridor Transportation
Project, Las Vegas/Resort Corridor, Minneapolis/Northstar Corridor
Commuter Rail, and New York/East Side Access.

16U.S. Department of Transportation, Federal Transit Administration,
Annual Report on New Starts: Proposed Allocations of Funds for Fiscal Year
2003 (Washington, D.C.: 2002).

meritorious does not guarantee that a project will advance to final design
and construction as quickly as anticipated.

Cost-effectiveness Ratings Indicate Continued Problems with the
Implementation of the TSUB Measure

Project sponsors continue to experience challenges calculating
costeffectiveness. Last year, we reported that many project sponsors
experienced difficulties that prevented them from producing accurate local
travel forecasts to calculate the TSUB measure, resulting in 11 projects
designated as "not rated" for cost-effectiveness. Since that time, the
sponsors for 8 of those 11 projects were able to submit sufficient
information to receive a rating for cost-effectiveness, suggesting that
they were able to overcome the travel forecasting problem that they had
experienced during the first year of the measure's implementation.
However, 6 additional project sponsors were unable to generate reliable
local travel forecasts and thus could not calculate a valid TSUB value for
the fiscal year 2005 cycle, resulting in a total of 9 of the 29 projects
designated as "not rated" for cost-effectiveness.17 According to FTA, the
major problem in implementing the measure this cycle stemmed from problems
with the underlying local travel forecasting models, not FTA's software or
the TSUB measure. For example, FTA noted that 22 of the 29 projects rated
this year required some involvement by FTA to improve the accuracy of
their travel forecasts. Last year, we recommended that FTA issue
additional guidance describing its expectations regarding the local travel
forecasting models and the specific types of data FTA requires to
calculate the measure. FTA concurred with this recommendation and provided
additional guidance in its updated reporting instructions, issued in June
2003, and has continued to provide technical assistance to project
sponsors.18

Despite the difficulties encountered in implementing TSUB, FTA and most of
the project sponsors we interviewed believe that this new measure is an
improvement over the "cost per new rider" measure because it takes into
account a broader set of benefits to transit riders. These benefits
include reductions in walk times, wait times, ride times, and numbers of
transfers, all of which produce perceived savings in travel time or
"travel time

17Projects receiving a "not rated" in cost-effectiveness for the fiscal
year 2005 cycle either received an overall rating of "not rated" or "not
recommended."

18U.S. Department of Transportation, Federal Transit Adminstration, Office
of Planning, Reporting Instructions for the Section 5309 New Starts
Criteria (Washington, D.C.: June 2003).

benefits" for new riders as well as existing transit riders. By contrast,
the "cost per new rider" measure recognized benefits only for new transit
riders and did not measure benefits to existing transit riders.

Although the majority of project sponsors we interviewed believe the new
measure is an improvement over the old one, many raised concerns about the
implementation of TSUB, including the approach for calculating TSUB and
the weight FTA applies to the cost-effectiveness criterion. For example,
they were concerned that the measure did not capture all benefits that
accrue to the transportation corridor, notably for highway users; the
amount of time provided to incorporate changes to their local travel
forecasting software was insufficient; and the weight FTA applies to the
cost-effectiveness criterion is disproportional to other criteria.
Specifically, many project sponsors were unclear about the basis for a
45-minute cap on travel time savings included in the calculation of
TSUB.19 According to an FTA official, this cap allows FTA to limit travel
time savings to less than 45 minutes, which they feel is appropriate, when
examining the benefits of each project. FTA's experience has been that
time savings in excess of 45 minutes is usually due to problems with the
local travel forecasting model. However, FTA has allowed for exceptions to
the cap in the past if well justified by local project sponsors.

FTA assigns a significant weight to the cost-effectiveness criterion in
comparison with other criteria used to calculate the project justification
rating. According to the New Starts report, cost-effectiveness accounts
for 50 percent of the project justification rating. Land use accounts for
the other 50 percent. Thus, although cost-effectiveness accounts for 50
percent of the project justification rating, a "low" cost-effectiveness
rating can be offset by a "high" land use rating.20 This appears to be the
case for the majority of projects proposed for funding for the fiscal year
2005 cycle. As table 2 shows, five of the seven projects proposed for
funding received a "low-medium" cost-effectiveness rating. However, the
projects' land use ratings raised their summary project justification
ratings to "medium," which allowed them to receive an overall
"recommended" rating.

19In August 2003, FTA found that this cap was being applied inconsistently
in the software, requiring project sponsors to recalculate TSUB measures.
FTA officials extended submission deadlines for an additional 2 weeks, but
project sponsors we interviewed indicated that more time was needed.

20According to FTA officials, FTA does not advance projects to the next
stage of development or funding unless they have at least a "low-medium"
cost-effectiveness rating.

Table 2: Cost-Effectiveness and Land Use Ratings for Projects Proposed for
Funding

Cost-effectiveness rating

Land use rating

Project justification rating

                                    Project

Charlotte, South Corridor LRT

                                          Low-medium Medium-high    Medium    
                      Cleveland, Euclid   Low-medium Medium-high    Medium    
                Corridor Transportation                           
                                Project                           
                  New York, Long Island       Medium         High Medium-high 
                    Rail Road East Side                           
                                 Access                           
                       Phoenix, Central   Low-medium    Medium      Medium    
                Phoenix/East Valley LRT                           
                               Corridor                           
                Pittsburgh, North Shore   Low-medium Medium-high    Medium    
                          LRT Connector                           
                 Raleigh, Regional Rail   Low-medium    Medium      Medium    
                                Project                           
                      Las Vegas, Resort  Medium-high    Medium    Medium-high 
                         Corridor Fixed                           
                               Guideway                           

                                  Source: FTA.

Most Project Sponsors Proposed a Federal New Starts Share of Less Than 60
Percent, but Some Raised Concerns about FTA's Push for Lower Federal New
Starts Share

FTA instituted a policy favoring projects that seek a federal New Starts
share of no more than 60 percent of the total project cost in fiscal year
2004. According to FTA, this preference policy responded to language
contained in a conference report, prepared in November 2001, by the House
Appropriations Committee. The report states "the conferees direct FTA not
to sign any new FFGAs after September 30, 2002, that have a maximum
federal share of higher than 60 percent."21 Similar language has been
included in all subsequent appropriations committee reports. Further, FTA
officials told us that this policy would allow more projects to receive
funding by spreading limited resources among them and ensure that local
governments whose regions stand to receive substantial benefits for the
project play a major role in funding such projects. However, when FTA
implemented the 60 percent policy, it did not amend its regulations to

21H.R. Conf. Rep. No. 107-308, p. 114 (Nov. 30, 2001).

support the change in policy or its current procedures. As a result, we
noted last year that FTA did not provide an opportunity for public comment
on the impact of the preference policy. We further advised that explicitly
stating criteria and procedures in regulations would ensure that project
sponsors were fully aware of the preference policy. Accordingly, last year
we recommended that FTA amend its regulations governing the New Starts
share for projects to reflect its current policy. FTA disagreed with our
recommendation, noting it was not required to issue regulations because
the policy was not legally binding. Moreover, according to FTA officials,
the preference policy is explained in both the fiscal year 2004 and 2005
New Starts reports and in its June 2003 reporting instructions.

Although FTA's preference policy, as expressed in the recent New Starts
report, favors projects that request a federal New Starts share of no more
than 60 percent, FTA is encouraging project sponsors to request an even
lower federal New Starts share. Specifically, some project sponsors have
stated that FTA encourages project sponsors to propose a federal New
Starts share of no more than 50 percent-which is consistent with the
administration's reauthorization proposal. This push for a lower New
Starts share is reflected in FTA's rating process. As table 3 indicates,
the lower the amount of New Starts funding requested, the higher the New
Starts share rating. According to the New Starts report, the non-New
Starts share rating accounts for 20 percent of a project's financial
rating.22

22The strength and reliability of the project's capital and operating
plans account for 30 and 50 percent, respectively, of the project's
financial rating.

                 Table 3: Criteria for New Starts Share Rating

New Starts share New Starts share rating Overall project rating

Less than 35 percent High	Dependent on the ratings for the other financial
criteria and the project justification rating.

Between 35 and 49 percent Medium-high	Dependent on the ratings for the
other financial criteria and the project justification rating.

Between 50 and 59 percent Medium	Dependent on the ratings for the other
financial criteria and the project justification rating.

60 percent or greater Low Not recommended

Source: GAO analysis of FTA data.

The project sponsors we contacted expressed concerns about the preference
policy.23 Although the majority of the projects evaluated during the
current cycle requested a federal New Starts share of less than 60
percent, many of the project sponsors we interviewed indicated that they
had proposed a share that was in line with FTA's policy in order to remain
competitive. More than half of those interviewed told us they faced
difficulties in advancing New Starts projects under such a policy. For
example, some project sponsors told us that transit projects have a
difficult time competing with highway projects in the local planning
process because highway projects typically require a 20 percent local
match, whereas New Starts projects require a match of at least 40 percent.
Other project sponsors described the limited resources available at the
local level to advance New Starts projects. A number of project sponsors
also expressed concerns about FTA's efforts to lower the federal New
Starts share to 50 percent. For example, one project sponsor indicated
that their

23In addition to concerns about the percentage of New Starts funding,
project sponsors from two projects expressed concerns about FTA's practice
of limiting the overall dollar amount for individual projects. According
to these project sponsors, FTA limits the total amount of New Starts
funding for an individual project to $500 million. These project sponsors
noted that for larger projects, a cap on the overall dollar amount is of
more concern than the percentage of the New Starts share. An FTA official
told us that they do not have a formal policy to limit the overall dollar
amount for individual projects. Rather, FTA advises project sponsors that,
historically, it has not recommended more than $500 million in total, or
$100 million per year, for individual projects.

project would have to drop out of the process, others indicated that the
projects would have to be redesigned, and one project sponsor indicated
that requesting a lower federal New Starts share would weaken the
project's financial plan.

According to the fiscal year 2005 New Starts report, projects that request
more than a 60 percent federal New Starts share are not recommended to
Congress for FFGAs. Specifically, the fiscal year 2005 New Starts report
states that "projects seeking a federal New Starts share over 60 percent
of total costs are given a `low' rating for local financial commitment,
regardless of the ratings received for the capital plan and operating
plan. This `low' rating further results in a `not recommended' overall
project rating." Projects receiving an overall "not recommended" rating
are not proposed for an FFGA. An FTA official told us that for the fiscal
year 2005 cycle, no project received an overall "not recommended" rating
solely due to this policy preference.

The enabling legislation for this program states that federal grants are
to be for 80 percent of the net project cost, unless the grant recipient
requests a lower grant percentage.24 TEA-21 required FTA to consider the
strength of the local financial commitment, including the extent to which
the project will have a federal New Starts share of less than 80 percent.
In our view, FTA's policy to favor projects with a lower federal share is
permissible as long as projects are not required to request less than an
80 percent federal New Starts share in order to be considered for
recommendation for an FFGA. FTA's description of the preference policy in
its fiscal year 2005 New Starts report suggests that this policy is
absolute in that projects proposing more than a 60 percent federal New
Starts share will not be recommended for an FFGA. However, FTA has assured
us that this is a general preference and it may make exceptions to this
policy. 25 FTA has agreed to clarify in its upcoming reporting
instructions that this is a general preference policy, thus allowing for
the possibility of exceptions.

2449 U.S.C. S: 5309(h).

25FTA officials stated that it makes exceptions to the preference policy
and demonstrated its willingness to do so by recommending a project for an
FFGA at an 80 percent federal New Starts share in fiscal year 2003.

FTA Continues to Develop Guidance for Two New Requirements That It
Instituted for the Fiscal Year 2005 Cycle

FTA instituted two new requirements for New Starts projects for the fiscal
year 2005 cycle that were independent of the rating process. First, FTA
required project sponsors to submit a supplemental document-a "make the
case" document-that articulates the benefits of the proposed New Starts
project. Project sponsors are expected to "make the case" by describing
why the project is needed and why it is the best alternative available to
meet these needs. According to an FTA official, the "make the case"
document is intended to help FTA interpret the data produced by the local
travel forecasting models. For example, the supplemental document could be
used to explain unusual results produced by the local travel forecasts. In
addition, an FTA official stated that the document would aid FTA in
preparing the profile summaries of projects for the annual New Starts
reports. FTA officials note, however, that many of the "make the case"
submissions for the current cycle did not meet their expectations. For
example, some of the submissions provided only a justification of the need
for a corridor improvement; others consisted solely of a summary of
financial and political commitment. An FTA official acknowledged that FTA
could have done a better job in defining the purpose of the document and
stated that FTA plans to provide more guidance in the near future.

The second new requirement instituted for the fiscal year 2005 cycle is a
risk assessment. The risk assessments are intended to identify the issues
that could affect schedule or cost, as well as the probability that they
will do so. It is also used as a project management tool by the project
sponsor and an FTA oversight tool. FTA's project management oversight
contractors have been conducting the assessments, focusing on the projects
that are closest to receiving an FFGA. As of May 2004, FTA has completed
risk assessments for four projects.26 Eventually, FTA intends to conduct
risk assessments on projects in earlier phases of development. FTA
officials plan to issue more guidance on this new requirement. In
addition, FTA continues to share and exchange information with project
sponsors through FTA-sponsored roundtables and New Starts workshops.27

26FTA is currently conducting risk assessments for five additional
projects.

27The roundtable is a forum for sharing information among FTA staff and
project sponsors considering New Starts projects.

Administration's Proposal Requests Increased New Starts Funds and
Legislative Reauthorization Proposals Would Expand and Streamline the
Program

The administration's fiscal year 2005 budget proposal requests $1.5
billion for the New Starts program, a $225 million increase over the
amount appropriated for fiscal year 2004. Proposed legislation to
reauthorize federal surface transportation programs in the House and
Senate would expand the New Starts program to include a wider variety of
transit projects as well as streamline the New Starts evaluation process
for projects requesting less than $75 million in New Starts funding, among
other things. Project sponsors had mixed reactions to these proposals and
called for clear definitions.

Administration's Proposed Fiscal Year 2005 Budget Requests a 15 Percent
Increase in New Starts Funding

In its budget proposal for fiscal year 2005, the administration requests
$1.5 billion for the construction of new transit systems and the expansion
of existing systems through the New Starts program-an increase of $225
million, or 15 percent, over the amount appropriated for fiscal year 2004.
Figure 4 illustrates the specific allocations FTA has proposed for fiscal
year 2005, including the following:

o 	$931 million (61 percent) would be allocated among 26 projects under
construction with existing FFGAs,

o 	$295 million (19 percent) would be allocated among the 5 projects
proposed for new FFGAs,

o 	$151 million (10 percent) would be allocated among other projects in
final design and preliminary engineering that do not have existing
FFGAs,28 and

o 	$50 million (3 percent) would be allocated for 2 projects considered to
be meritorious by FTA.

28TEA-21 limits the amount of New Starts funding that can be used for
purposes other than final design and construction to not more than 8
percent of funds appropriated. FTA expects that no more than 8 percent of
the $151 million will be allocated for purposes other than final design
and construction. However, FTA officials noted this decision ultimately
rests with Congress.

Figure 4: Total New Starts Funding Proposed for Fiscal Year 2005 Equals
$1.5 Billion

1%

Mandated projects ($10 million)

1%

Oversight activities ($15 million)

3%

Meritorious projects ($50 million)

Pending FFGAs ($80 million)

Other projects in final design and preliminary engineering ($151 million)

Proposed FFGAs ($295 million)

Existing FFGAs ($931 million)

Source: GAO analysis of FTA data.

FTA has limited commitment authority remaining-about $200 million- through
June 2004. According to FTA officials, the commitment authority for fiscal
year 2005 and beyond will be addressed in the next surface transportation
authorization legislation. FTA officials told us that neither the amount
of commitment authority remaining nor the delay in reauthorizing TEA-21
affected the number of projects proposed for an FFGA for the fiscal year
2005 cycle. However, FTA officials noted that FTA will not be able to
execute all 5 proposed FFGAs until additional commitment authority is
provided through congressional authorization.

Sponsors Have Mixed Reactions to Legislative Reauthorization Proposals and
Call for Clear Definitions

Congress is currently considering legislation that would reauthorize all
surface transportation programs, including the New Starts program.29 Both
the Senate and House bills contain a number of provisions and initiatives
for the New Starts program.30 Some of the key provisions of these bills
would (1) streamline the evaluation process for projects under $75
million, (2) expand the definition of eligible projects, (3) change the
ratings categories, and (4) maintain the maximum federal New Starts share
at 80 percent.31 The project sponsors we interviewed had mixed reactions
to these provisions. In addition, most of the sponsors called for clear
definitions to any changes to the New Starts process.

o 	Streamline the New Starts evaluation process for projects under $75
million. The Senate proposal would allow the Secretary of Transportation
discretion to develop a streamlined evaluation process for projects
requesting less than $75 million in New Starts funds. This provision would
eliminate the "exempt" classification for projects requesting less than
$25 million in New Starts funding and would allow FTA to analyze and rate
all projects through a streamlined process. The House proposal would
establish a "Small Starts" program for projects requesting between $25
million and $75 million in New Starts funding, and these projects would be
evaluated through a streamlined ratings process. In addition, the House
proposal would maintain the exempt classification allowing projects
requesting less than $25 million in New Starts funding to be exempt from
the evaluation and ratings process. Most project sponsors we interviewed
were supportive of implementing a streamlined evaluation process for less
expensive projects. Some stated that a less robust evaluation process for
less expensive projects makes sense, and others said it would allow cities
to consider a range of potential projects without having to develop an
expensive project.

29Both the Senate and House bills have been passed by their respective
chamber and are currently awaiting conference.

30H.R. 3550, 108th Cong. (2004), and S. 1072, 108th Cong. (2004).

31Both the Senate and House proposals contain additional provisions that
would affect the New Starts program. For example, the Senate proposal
includes the creation of a new pilot program to demonstrate the advantages
of public/private partnerships for New Starts projects and a provision to
review the impact of allowing transit contractors to receive performance
incentive awards if projects are completed below their original estimated
cost. The House proposal would require FTA to provide notice and an
opportunity for public comment before issuing any nonregulatory
substantive policy statements.

However, some said that clear definitions and criteria would be necessary
in implementing the streamlined evaluation process.

o 	Expand the definition of eligible projects. Currently, TEA-21 limits
New Starts funding to fixed-guideway projects.32 Both the House and Senate
reauthorization proposals would allow certain nonfixed-guideway transit
projects (e.g., bus rapid transit operating in nonexclusive lanes) to be
eligible for New Starts funding, opening the program up to projects that
currently are ineligible. Specifically, the Senate proposal would allow
nonfixed-guideway projects requesting less than $75 million to be eligible
for New Starts funding. The House proposal would expand New Starts funding
eligibility to include nonfixed-guideway projects with a majority of
fixed-guideway components seeking between $25 million and $75 million, as
part of its "Small Starts" initiative. The majority of project sponsors we
interviewed supported this initiative, some noting that broadening the
program to include nonfixed-guideway projects would open more transit
possibilities for localities. However, some project sponsors did express
concerns about the already high demand on New Starts funding and noted
that nonfixed-guideway projects could receive funds through other federal
programs or capital funds. As a result, a number of project sponsors that
support expanding the program said increased and/or separate funding and a
clear definition of eligible projects are needed. Others were reluctant to
support the expansion of New Starts to include nonfixed-guideways
projects, citing a lack of funds and the importance of maintaining the
fixed-guideway focus of New Starts.

o 	Change the rating categories. Under TEA-21, FTA assigns summary ratings
of "highly recommended," "recommended," and "not recommended" to projects
requesting New Starts funding. The Senate reauthorization proposal would
revise the current rating system and implement five levels of ratings:
"high," "medium-high," "medium," "medium-low," and "low." The House
proposal would maintain the current ratings system. Project sponsors were
unsure of the impact of the proposed changes, and a few requested clearly
defined criteria for each new rating category. Some sponsors told us they
were not concerned with the ratings scale as long as it was clearly
defined. Other

32Fixed-guideway systems use and occupy a separate right-of-way for the
exclusive use of public transportation services. They include fixed-rail
systems, exclusive lanes for buses and other high-occupancy vehicles,
ferries, and other systems.

project sponsors said they did not care what the new rating categories
were called-they just want to know what rating is needed to secure an
FFGA. In addition, two sponsors said the new system could be more easily
conveyed to local officials.

o 	Maintain a maximum New Starts share at 80 percent. Currently, TEA21
allows a maximum New Starts share of 80 percent for individual projects.
Both the House and the Senate versions of the TEA-21 reauthorization
proposals would maintain the maximum New Starts share at 80 percent, in
contrast to the administration's reauthorization proposal, which would
lower the maximum New Starts share to 50 percent. Furthermore, the House
bill specifically prohibits FTA from requiring a nonfederal share that is
more than 20 percent of the project's cost. Currently, FTA is encouraging
project sponsors to request no more than 50 percent in New Starts funding
for their projects. As noted earlier, some project sponsors we interviewed
were concerned about the potential impact of reducing the New Starts share
to 50 percent, including the effect of this change on the balance between
highway and transit project funding.

Project Sponsors Have Taken Steps to Address Variances in Funding

All 26 projects with existing FFGAs have not received funds as scheduled-
that is, the amount of funding appropriated was less than the amount
scheduled in the FFGA. FFGAs are multiyear contractual agreements between
FTA and project sponsors for a specified amount of funding, which are
subject to the annual appropriations process. The full amount of funding
is committed to the projects over a set period, and the FFGA contains a
schedule of annual federal payments to fulfill FTA's commitment. According
to FTA, all completed New Starts projects received the total FFGA amount
but not necessarily according to the original FFGA schedule. FTA will
continue to request funds to be appropriated to meet the amounts
authorized in existing FFGAs. As of March 2004, the 26 projects have
received a total of $294 million, or 5 percent, less than the amount
authorized by the projects' FFGAs.

The amount and timing of the differences in funding varied for each
project, but all 26 projects with FFGAs received less than the scheduled
amount at some point. As of March 2004, 7 had received over 10 percent
less than the scheduled amount, 2 had received between 5 and 10 percent
less than scheduled, and 17 projects had received up to 5 percent less
than scheduled. The timing of the differences in funding also varied. Some
projects experienced substantial differences between appropriated and

scheduled amounts at the beginning or near the end of their FFGA, but it
was more common for projects to experience funding differences throughout.
(See app. III for the total amount of differences for each project with an
existing FFGA.)

Several factors contributed to projects receiving less New Starts funding
than scheduled. The amount of funding authorized by an FFGA is subject to
the annual appropriations process and, therefore, differences may arise
because of congressional decision making. In addition, projects receive
less than the amounts authorized by the FFGAs because FTA retains 1
percent of the funding provided each year to cover the cost of its project
management oversight.33 According to FTA officials, each year FTA requests
funding to cover the project management oversight costs, but these funds
are typically not appropriated. FTA may also request that less New Starts
funding be appropriated to a project than scheduled by the FFGA if it is
concerned about a specific project's progress; however, FTA officials said
they rarely recommend less funding than is scheduled.

Faced with these variances in funding, project officials we interviewed
have developed methods to mitigate the impact of receiving less than the
scheduled annual amount for their project. Some project officials entered
into partnerships with the state and/or local government. For example, one
transit agency arranged for the state to contribute more funds early on in
the project and, as a result, the funding schedule did not adversely
affect the project. Other projects implemented interim funding mechanisms
to cover any FFGA variances, including issuing bonds or loans to generate
necessary funds. None of the 5 project officials we contacted had to
change the scope or schedule of their project solely due to funding
variances. However, officials from these projects said that interim
financing ultimately increased the cost of the project. For example, the
Portland Interstate MAX project incurred approximately $3 million in
borrowing costs, which equaled 4 percent of the total local commitment to
the project.

33The project management oversight program is designed primarily to help
ensure that grantees constructing major capital projects, such as New
Starts projects, have the qualified staff and procedures to successfully
build the projects according to accepted engineering principles. To
implement this program, FTA enters into contracts with competitively
selected engineering firms, which serve as an extension of its limited
technical staff. The project management oversight activities are supported
by a statutorily limited set-aside of the funds made available annually
for certain transit programs.

Conclusions	To receive an FFGA, projects must go through a lengthy
evaluation process by FTA-from planning to preliminary engineering to
final design. The steps for advancing through the evaluation process and
securing an FFGA are well documented in FTA's New Starts reports and other
published guidance. Documentation of these steps is important to ensure a
common understanding among projects sponsors and to increase the
transparency of the process. Like other programs, the transparency of the
New Starts process is critical in ensuring that project sponsors view the
process as fair and objective. Although the process for securing an FFGA
is well-defined, FTA's identification of meritorious projects-and the
subsequent proposed funding of these projects-is not. While FTA officials
were able to provide us additional insight regarding funding
recommendations for these projects, FTA's New Starts reports and other
published guidance are not clear in its meaning. In particular, the
rationale for the funding recommendation for these two projects in FTA's
New Starts Report for Fiscal Year 2005 is very broad and lacks necessary
detail. FTA does not explain how it decides which projects will be
recommended for funding outside of FFGAs and what project sponsors must do
to qualify for such a recommendation. In addition, FTA did not justify the
level of funding proposed for these projects for fiscal year 2005-which is
a substantial increase compared to amounts proposed for similar projects
in the past. Consequently, it is difficult to understand why these two
meritorious projects are more worthy of funding than other projects in the
pipeline.

The implementation of FTA's policy favoring projects requesting a federal
New Starts share of less than 60 percent also continues to create
challenges for some project sponsors and raises concerns. According to
FTA, its policy is in response to language contained in appropriations
committee reports and will result in more projects receiving funding by
spreading limited resources among them and ensuring that local governments
whose regions would benefit from the project play a major role in funding
such projects. However, many of the project sponsors we interviewed
experienced challenges in trying to secure a larger local match to comply
with FTA's preference policy. Several project sponsors also stated that
FTA's push for a lower federal New Starts share would likely affect their
decision to advance future transit projects. Therefore, it is important
for FTA to understand how this policy affects local decision making with
regard to proposing and funding New Starts projects, as well as whether
the policy is maximizing New Starts funds and local participation.

Recommendations for Executive Action

To ensure that FTA's New Starts evaluation process and policies are
objective, transparent, and comply with federal statute, we recommend that
the Secretary of Transportation direct the Administrator, FTA, to take the
following two actions:

o 	Clearly explain the basis on which it decides which projects will be
recommended for funding outside of FFGAs, such as projects considered to
be meritorious, and what projects must do to qualify for such a
recommendation. These explanations should be included in FTA's annual New
Starts report and other published New Starts guidance.

o 	FTA should also examine the impact of its preference policy on projects
currently in the evaluation process, as well as projects in the early
planning stages, and examine whether its policy results in maximizing New
Starts funds and local participation.

Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Transportation for
review and comment. Officials from the Department and FTA, including the
Associate Administrator for Planning and the Environment, indicated that
they generally agreed with the report and its recommendations. According
to FTA officials, the FTA New Starts program has been recognized as
wellmanaged, with consistent, proven results and accomplishments. They
recognized, however, the need to further improve program guidance and
operation. Specifically, FTA agreed to more clearly explain, in its
guidance to project sponsors, the basis on which it decides which projects
will be recommended for funding outside of FFGAs. In addition, in the
draft of this report, we recommended that FTA revise its guidance to
clarify that exceptions to the preference policy are permissible. In
discussions with FTA officials about the draft of this report, FTA agreed
to clarify the preference policy by clearly stating it is a general,
rather than an absolute, preference in its upcoming reporting instructions
and other appropriate sources, making a recommendation to take such action
unnecessary. Therefore, we eliminated our recommendation on this matter in
our final report. Finally, FTA officials also provided technical
clarifications, which we incorporated as appropriate.

We are sending copies of this report to congressional committees with
responsibilities for transit issues; the Secretary of Transportation; the
Administrator, Federal Transit Administration; and the Director, Office of

Management and Budget. We also will make copies available to others upon
request. In addition, this report will be available at no charge on the
GAO Web site at http://www.gao.gov.

If you or your staff have any questions on matters discussed in this
report, please contact me at [email protected]. GAO contacts and key
contributors to this report are listed in appendix IV.

Katherine A. Siggerud Director, Physical Infrastructure

Appendix I

Scope and Methodology

To address our objectives, we reviewed the administration's fiscal year
2005 budget request and legislative reauthorization proposals, the Federal
Transit Administration's (FTA) annual New Starts reports, records on
funding authorized and appropriated to projects with existing full funding
grant agreements (FFGAs), and federal statutes pertaining to the New
Starts program. In addition, we interviewed FTA officials and
representatives from the American Public Transportation Association and
attended FTA's New Starts roundtable with project sponsors in April 2004.

We also conducted semistructured interviews with project sponsors from 15
projects in preliminary engineering or final design to gain their
perspectives on recent and proposed changes to the New Starts program and
5 projects with FFGAs to discuss their experiences in dealing with
shortfalls in federal funding for their New Starts projects. (See table 4
for a listing of all projects contacted.) The results of these interviews
are not generalizable to all project sponsors, however we used multiple
criteria in selecting the projects to ensure we evaluated a diverse group
of projects. Specifically, to select the 15 projects in preliminary
engineering or final design, we considered projects' overall ratings for
the fiscal year 2005 cycle, mobility and cost-effectiveness ratings for
fiscal years 2003 to 2005, percentage of New Starts funding requested for
fiscal years 2003 through 2005, total cost, and location. We obtained this
information from FTA's annual New Starts reports for fiscal years 2003
through 2005. In selecting the 5 projects with FFGAs, we considered the
size and timing of any differences between the amount of funding
authorized in projects' FFGAs and the amount of funding appropriated to
the projects for fiscal years 1998 through 2004. We obtained information
on the amount of funding authorized and appropriated to projects with
existing FFGAs from FTA.

Table 4: Projects Contacted for Our Review

City, state Project

Projects in preliminary engineering or final design

Boston, MA Silver Line Phase III

Charlotte, NC South Corridor Light Rail Transit (LRT)

Columbus, OH North Corridor LRT

Denver, CO West Corridor LRT

Fort Collins, CO Mason Transportation Corridor

Los Angeles, CA Mid-City Exposition LRT

       Louisville, KY Transportation Tomorrow South Central Corridor LRT

Appendix I Scope and Methodology

(Continued From Previous Page)

                              City, state Project

Miami, FL North Corridor Metrorail Extension

Minneapolis-Rice, MN Northstar Corridor Rail Project

New Orleans, LA Desire Streetcar Line

New York, NY Long Island Railroad East Side Access

Norfolk, VA Norfolk LRT project

Philadelphia, PA Schuylkill Valley MetroRail

              Phoenix, AZ Central Phoenix/East Valley LRT Corridor

Pittsburgh, PA North Shore LRT Connector

                          Projects with existing FFGAs

Chicago, IL Ravenswood Line Extension

Denver, CO Southeast Corridor LRT

Fort Lauderdale, FL South Florida Commuter Rail Upgrades

Portland, OR Interstate MAX LRT Extension

Washington, D.C. metropolitan Largo Metrorail Extension area

Sources: GAO and FTA.

To ensure the reliability of information presented in this report, we
interviewed FTA officials about FTA's policies and procedures for
compiling the annual New Starts reports, including FTA's data collection
and verification practices for New Starts information. We also reviewed
documentation for the database FTA uses to compile, analyze, and store
data for New Starts projects. In addition, during our semistructured
interviews with project sponsors, we asked about the accuracy of the
information about their projects presented in the annual New Starts
reports. Finally, we tested the reliability of FTA's records of the amount
of funding authorized and appropriated to projects with existing FFGAs by
comparing a nonprobability sample of the records with FFGAs. We concluded
that the FTA information presented is sufficiently reliable for the
purposes of this report.

Appendix II

Projects Evaluated for the Fiscal Year 2005 Cycle

Dollars in millions

Overall project rating/status

           Total New Starts funding scheduled by FFGA or requested by project
                                                                     sponsors

Phase of project

          Projects with existing full funding grant agreements (FFGAs)

              Atlanta-North Springs Extension               FFGA         $370 
     Baltimore-Central Light Rail Transit (LRT) Double      FFGA   
                          Tracking                                 
           Chicago-Douglas Branch Reconstruction            FFGA   
        Chicago-North Central Corridor Commuter Rail        FFGA   
          Chicago-Southwest Corridor Commuter Rail          FFGA   
         Chicago-Union Pacific West Line Extension          FFGA   
             Chicago-Ravenswood Line Extension              FFGA   
               Denver-Southeast Corridor LRT                FFGA   
        Fort Lauderdale-South Florida Commuter Rail         FFGA   
                          Upgrades                                 
                Los Angeles-North Hollywood                 FFGA   
             Minneapolis-Hiawatha Corridor LRT              FFGA   
          New Orleans-Canal Street Light Rail Line          FFGA   
         Northern New Jersey-Hudson Bergen Minimal          FFGA   
                  Operating Segment (MOS1)                         
          Northern New Jersey-Hudson Bergen (MOS2)          FFGA   
            Northern New Jersey-Newark Rail Link            FFGA   
           Pittsburgh-Stage II LRT Reconstruction           FFGA          100 
           Portland-Interstate MAX LRT Extension            FFGA          239 
            Salt Lake City-CBD to University LRT            FFGA           85 
          Salt Lake City-Medical Center Extension           FFGA           54 
        San Diego-Mission Valley East LRT Extension         FFGA          330 
        San Diego-Oceanside Escondido Rail Corridor         FFGA          152 
     San Francisco-Bay Area Rapid Transit Extension to      FFGA          750 
                          Airport                                  
                    San Juan-Tren Urbano                    FFGA          302 
            Seattle-Central Link Initial Segment            FFGA          500 
          St. Louis-Metrolink St. Clair Extension           FFGA          244 
       Washington, D.C./MD Largo Metrorail Extension        FFGA          260 
                          Subtotal                                     $7,417 

         Appendix II Projects Evaluated for the Fiscal Year 2005 Cycle

                         (Continued From Previous Page)

Dollars in millions

                                           Total New Starts funding scheduled
                              Overall project by FFGA or requested by project
                                      Phase of project rating/status sponsors

Projects with pending federal funding commitments

Los Angeles-Metro Gold Line East Side Extension Recommended

                     Subtotal $491 Projects in final design

Charlotte-South Corridor LRTa Recommended

Cleveland-Euclid Corridorb Recommended

Galveston-Rail Trolley Extension Exempt

Kansas City-Southtown BRT Exempt

Nashville-East Corridor Commuter Rail Exempt

    New York-Long Island Rail Road East Side Accessb    Recommended     2,633 
    Phoenix-Central Phoenix/East Valley LRT Corridorb   Recommended  
          Pittsburgh-North Shore LRT Connectorb         Recommended  
             Raleigh-Regional Rail Projecta             Recommended  
                        Subtotal                                       $4,170 

                      Projects in preliminary engineering

              Boston-Silver Line Phase III            Not recommended     378 
    Bridgeport, CT-Intermodal Transportation Center        Exempt          25 
            Columbus, OH-North Corridor LRT             Recommended       264 
             Dallas-Northwest/Southeast LRT             Recommended       700 
                Denver-West Corridor LRT                 Not rated        412 
El Paso-Sun Metro Area Rapid Transit Starter Line       Exempt           8 
      Fort Collins, CO-Mason Transportation Center    Not recommended      33 
            Harrisburg, PA-CORRIDORone Rail                Exempt          25 
        Hartford, CT-New Britain/Hartford Busway        Recommended        88 
        Johnson County, KS-Kansas City, MO-I-35            Exempt          25 
                     Commuter Rail                                     
       Las Vegas-Resort Corridor Fixed Guidewayb        Recommended       160 
          Los Angeles-Mid-City Exposition LRT         Not recommended     253 
    Louisville-Transportation Tomorrow South Central     Not rated        373 
                        Corridor                                       
     Lowell, MA/Nashua, NH-Commuter Rail Extension         Exempt          18 
        Miami-North Corridor Metrorail Extension         Not rated        435 
      Minneapolis-Northstar Corridor Rail Project        Not rated        155 
           New Orleans-Desire Streetcar Line          Not recommended      69 
             New York-Second Avenue Subway              Recommended     8,404 

         Appendix II Projects Evaluated for the Fiscal Year 2005 Cycle

                         (Continued From Previous Page)

Dollars in millions

                                           Total New Starts funding scheduled
                              Overall project by FFGA or requested by project
                                      Phase of project rating/status sponsors

                      Projects in preliminary engineering

Norfolk, VA-Norfolk LRT Not rated

Orange County, CA-CenterLine LRT Recommended

        Philadelphia-Schuykill Valley MetroRail      Not recommended    2,071 
       Salt Lake City-Weber County to Salt Lake        Recommended   
                     Commuter Rail                                   
             San Diego-Mid-Coast Extension             Recommended   
           San Francisco-New Central Subway            Recommended   
      Santa Clara County, CA-Silicon Valley Rapid    Not recommended 
                        Transit                                      
                       Corridor                                      
             Tampa-Tampa Bay Regional Rail           Not recommended 
    Washington County, OR-Wilsonville to Beaverton     Recommended   
                     Commuter Rail                                   
    Wasilia, AK-Alaska Railroad-South Wasilia Track      Exempt      
                      Realignment                                    
                       Subtotal                                      $17,062c 
                         Total                                        $29,140 

Sources: GAO and FTA.

aProjects considered to be meritorious.

bProjects proposed for federal funding commitments.

cThis amount reflects the total New Starts funding requested by project
sponsors for projects in preliminary engineering.

Appendix III

Cumulative Shortfalls by Project with Full Funding Grant Agreements

                             Total             Total                
                             appropriations  authorized             
                                                and                 
                Full funding fiscal year    scheduled in Cumulative Percentage 
                       grant 2004 and       full funding                    of 
     Project       agreement          prior        grant  shortfall  shortfall 
                      amount                   agreement            
  Atlanta-North                                                     
     Springs                                                             0.10% 
    Extension   $370,543,200   $370,182,415 $370,543,200 ($360,785) 

Baltimore-Central
Light Rail Transit
(LRT) Double
Tracking $120,000,000 $78,566,416 $90,984,609 ($12,418,193) 10.35%

  Chicago-Douglas                                                       
      Branch                                                            
  Reconstruction   $320,100,000 $189,954,810 $194,779,647 ($4,824,837)   1.51% 
Chicago-North                                                        
 Central Corridor                                                       
Commuter Rail   $135,319,330 $94,705,878   $96,843,093 ($2,137,215)   1.58% 
 Chicago-Southwest                                                      
 Corridor Commuter                                                      
       Rail        $103,018,670 $75,737,275   $76,974,890 ($1,237,615)   1.20% 
Chicago-Union                                                        
 Pacific West Line                                                      
     Extension     $80,762,000  $54,476,251   $60,445,851 ($5,969,600)   7.39% 
     Chicago-                                                           
  Ravenswood Line                                                       
     Extension     $245,520,000 $20,687,385   $55,845,596 ($35,158,211) 14.32% 
 Denver-Southeast                                                       
Corridor LRT    $525,000,000 $208,447,242 $233,439,516 ($24,992,274)  4.76% 

Fort Lauderdale-
South Florida
Commuter Rail
Upgrades $110,500,000 $102,259,515 $110,500,000 ($11,210,695) 10.15%

        Los                                                            
Angeles-North                                                       
     Hollywood    $681,037,000 $680,373,661 $681,037,000  ($663,339)    0.10% 
    Minneapolis-                                                       
      Hiawatha                                                         
      Corridor                                                         
        LRT       $334,300,000 $301,166,243 $303,836,915 ($2,670,672)   0.80% 
        New                                                            
Orleans-Canal                                                       
    Street Light  $129,047,010 $112,591,804 $129,047,010 ($16,455,206) 12.75% 
     Rail Line                                                         
    Northern New                                                       
Jersey-Hudson                                                       
Bergen (MOS1)  $500,000,000 $147,597,005 $150,000,000 ($2,402,995)   0.48% 
    Northern New                                                       
Jersey-Hudson                                                       
Bergen (MOS2)  $604,088,750 $603,774,854 $604,088,750  ($313,896)    0.05% 

Appendix III Cumulative Shortfalls by Project with Full Funding Grant Agreements

                         (Continued From Previous Page)

                                 Total             Total                   
                                 appropriations  authorized                
                                                    and                    
                    Full funding fiscal year    scheduled in    Cumulative Percentage 
                           grant 2004 and       full funding                       of 
      Project          agreement          prior        grant     shortfall  shortfall 
                          amount                   agreement               
Northern New                                                            
Jersey-Newark Rail                                                         
       Link         $141,950,000   $140,607,998 $141,950,074  ($1,342,076)      0.95% 
Pittsburgh-Stage II                                                        
LRT Reconstruction  $100,200,000    $99,079,146 $100,200,000  ($1,120,854)      1.12% 
Portland-Interstate                                                        
 MAX LRT Extension  $257,500,000   $215,915,290 $257,500,000 ($41,584,710)     16.15% 
Salt Lake City-CBD                                                         
 to University LRT   $84,600,000    $83,472,595  $84,600,000  ($1,127,405)      1.33% 
  Salt Lake City-                                                          
  Medical Center                                                           
     Extension       $53,633,400    $49,914,024  $53,633,400  ($3,719,376)      6.93% 
 San Diego-Mission                                                         
  Valley East LRT                                                          
     Extension      $329,958,000   $240,617,696 $282,107,170 ($41,489,474)     12.57% 

San Diego-
Oceanside
Escondido Rail
Corridor $152,100,000 $84,888,939 $92,271,633 ($7,382,694) 4.85%

  San Francisco-                                                       
  BART Extension                                                       
        to                                                             
      Airport     $750,000,000 $568,144,320 $577,804,031 ($9,659,711)   1.29% 
San Juan-Tren                                                       
      Urbano      $307,409,854 $252,590,914 $307,409,854 ($54,818,940) 17.83% 
  Seattle-Central                                                      
       Link                                                            
  Initial Segment $500,000,000 $164,785,265 $165,971,851 ($1,186,586)   0.24% 
        St.                                                            
  Louis-Metrolink                                                      
     St. Clair    $243,930,961 $243,877,578 $243,930,961   ($53,383)    0.02% 
     Extension                                                         
    Washington,                                                        
D.C./MD Largo                                                       
     Metrorail    $260,300,000 $184,867,113 $195,000,000                3.89% 
     Extension                                           ($10,132,887) 

                             Sources: GAO and FTA.

Appendix IV

                     GAO Contact and Staff Acknowledgments

GAO Contacts	Katherine Siggerud, (202) 512-2834, [email protected] Nikki
Clowers, (202) 512-4010 or [email protected]

Staff 	In addition to the individuals named above, other key contributors
to this report were Chris Bonham, Jay Cherlow, Elizabeth Eisenstadt, Rita
Grieco,

Acknowledgments	Kara Finnegan Irving, Elizabeth McNally, Sara Ann
Moessbauer, and Stacey Thompson.

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