Niagara Falls Bridge Commission: Audit of Capital Development Efforts and
Selected Financial Practices (Chapter Report, 09/07/95, GAO/RCED-95-92).
The Niagara Falls Bridge Commission owns and operates three of four
international bridges across the Niagara River linking New York State
and Ontario. The Commission's operations have never been independently
reviewed by a government body. GAO and the New York State Office of the
State Comptroller jointly reviewed the Commission's operations. This
report addresses the Commission's (1) efforts to finance and administer
its 30-year capital program and (2) internal controls used to ensure
that its business affairs were appropriately conducted. This report also
discusses the extent of authority for governmental oversight of the
Commission.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-95-92
TITLE: Niagara Falls Bridge Commission: Audit of Capital
Development Efforts and Selected Financial Practices
DATE: 09/07/95
SUBJECT: Financial statement audits
Financial records
State and local procurement
Erroneous payments
Billing procedures
Bridges
Transportation research
Intergovernmental relations
Operations analysis
IDENTIFIER: New York
Ontario (Canada)
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Cover
================================================================ COVER
August 1995
NIAGARA FALLS BRIDGE COMMISSION -
AUDIT OF CAPITAL DEVELOPMENT
EFFORTS AND SELECTED FINANCIAL
PRACTICES
GAO/RCED-95-92
(340632)
Abbreviations
=============================================================== ABBREV
ACHP - Advisory Council on Historic Preservation
GAO - General Accounting Office
GSA - General Services Administration
IRS - Internal Revenue Service
OSC - New York State Office of the State Comptroller
SHPO - State Historic Preservation Officer
Letter
=============================================================== LETTER
B-260182
September 7, 1995
The Honorable John J. LaFalce
House of Representatives
Mr. Samuel S. Sansone
Chairman
Niagara Falls Bridge Commission
Main P.O. Box 1031
Niagara Falls, NY 14302
This joint report by the U.S. General Accounting Office and the New
York State Office of the State Comptroller responds to a request for
information on certain operations of the Niagara Falls Bridge
Commission. We jointly reviewed the implementation and financing of
the Commission's 30-year capital program, as well as selected
internal controls to determine whether the Commission's business
affairs were conducted in a prudent manner. We also reviewed the
responsibility for governmental oversight of the Commission.
Please contact Kenneth M. Mead on (202) 512-6192 or David R.
Hancox, Audit Director, Division of Management Audit, New York State
Office of the State Comptroller on (518) 486-5874 if you have any
questions about this report.
Kenneth M. Mead Robert H. Attmore
Director, Transportation and Deputy Comptroller
Telecommunications Issues New York State Office
Resources, Community, and of the State Comptroller
Economic Development Division
U.S. General Accounting Office
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
The Niagara Falls Bridge Commission (Commission) owns and operates
three of four international bridges across the Niagara River linking
the roadways between New York State and the Province of Ontario.
Because the Commission's operations have never been independently
reviewed by a governmental body, Representative LaFalce asked the
U.S. General Accounting Office (GAO) and the New York State Office
of the State Comptroller (OSC) to review the Commission's operations.
This report addresses the Commission's (1) efforts to finance and
administer its 30-year capital program and (2) internal controls used
to ensure that its business affairs were appropriately conducted.
The report also discusses the extent of authority for governmental
oversight of the Commission.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
The Commission was established in 1938 by a joint resolution of the
U.S. Congress to construct and operate a bridge across the Niagara
River. The Commission now owns and operates three bridges across
this river: the Rainbow, Whirlpool Rapids, and Lewiston-Queenston
bridges. The Commission is administered by eight commissioners:
four appointed by the Governor of New York and four appointed by the
Premier of the Province of Ontario. The Commission derives its
revenues from bridge operations; it does not receive any
appropriations from U.S. federal, state, or local governments or
from the Canadian government. To meet projected traffic needs
through the year 2020, the Commission developed a 30-year capital
program in September 1990 to improve its bridges and their
administrative areas, including approaches, toll booths, and customs
and immigration facilities. The Commission had planned to complete
major renovations at all three of its bridges between 1993 and 1997.
Legislation passed in December 1991 allows the Commission to issue
bonds that are exempt from U.S. federal income taxes.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
The Commission's capital program is a complex undertaking that
required extensive coordination and agreements with several federal
and state entities, as well as entry into the capital bond market.
The Commission began efforts to obtain agreements on historic
preservation and environmental assessment as early as 1990, but its
projects have been delayed in part because of misunderstandings about
approvals or agreements needed and the sources from whom they needed
to be obtained. In 1992, the Commission financed its capital
program, issuing over $120 million in tax-exempt bonds and
refinancing this debt a year later to take advantage of lower
interest rates. The Internal Revenue Code requires that bond issuers
have reasonable expectations of spending bond proceeds within certain
time frames. However, the delays in implementing the Commission's
major projects have resulted in it not expending the tax-exempt bond
proceeds in the time frames it had originally planned, and the
majority of the bond proceeds remain unspent.
GAO and OSC found that the Commission had new policies in place to
guide procurement and the remuneration of commissioners but that in
some instances it had not followed these policies consistently.
Specifically, GAO and OSC found errors in payments made in both
procurement and commissioner remuneration, and some attorneys' fees
were not supported by detailed billings.
There are no federal or state laws that explicitly provide authority
for governmental oversight of the Commission. Some of the
Commission's difficulties in coordinating and implementing its
capital program might have been alleviated if it had had the benefit
of oversight and help from an appropriate governmental body. The
Commission has requested that members of its congressional delegation
seek legislation that would provide for periodic governmental audits
of its operations.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
COMMISSION EXPERIENCED
DELAYS IN IMPLEMENTING ITS
CAPITAL PROGRAM
-------------------------------------------------------- Chapter 0:4.1
The Commission's major capital projects have been delayed or
postponed. The Commission's first project--the U.S. plaza at the
Rainbow Bridge--has been delayed about 2 years in large part because
it experienced difficulties coordinating with federal and state
entities to obtain the historic preservation, environmental impact,
and land exchange agreements required to implement the project. Part
of the difficulty occurred because the Commission did not obtain
required input by the New York State Historic Preservation Officer
until well into the process on the mistaken assumption that contacts
with another New York State official would suffice. Concerns about
the visual impact of the Commission's original design for the U.S.
plaza at the Rainbow Bridge on the historic natural setting of
Niagara Falls led to its redesign at an added cost of about $300,000.
Agreement with federal and state agencies on the process needed to
proceed with the project was not finalized until May 1995.
Similarly, the Commission planned to transform the Whirlpool Rapids
Bridge from a local traffic route to a commercial truck corridor.
The Commission, however, had to reconsider its plans because of
evolving findings of regional transportation studies that indicate
that this expansion would not likely be needed before the year 2000.
In addition, agreements were needed with New York State and the
Province of Ontario for road connections needed to make the project
viable. Environmental studies and a land option for this postponed
project have cost the Commission about $1.4 million. Both projects
were to be completed in 1996, but the Rainbow Bridge project is not
expected to be completed before the end of 1997 or mid-1998, and the
Whirlpool Rapids Bridge project, the most costly of the three bridge
projects, has been postponed until the state and province take
certain actions related to future road connections to this bridge.
The Commission issued $121 million in tax-exempt bonds to fund its
capital program in May 1992 but was not in position to begin
implementing the major parts of its capital program. The Commission
refinanced its debt with a second bond issuance of $133 million in
July 1993 to take advantage of lower interest rates. As of August
31, 1994, the Commission had paid consultants over $5 million and had
incurred other costs of almost $6 million related to its two bond
issuances. The Internal Revenue Code requires that for bonds to be
exempt from federal income taxation bond issuers must have a
reasonable expectation of spending bond proceeds in certain time
frames. To address this requirement, the Commission stated in its
bond offering statement in May 1992 that it reasonably expected at
least 85 percent of the spendable proceeds of its bonds would be
expended within 3 years. While project delays have caused the
Commission to not expend the bond proceeds as it anticipated, the key
question from a tax administration standpoint is whether it had a
reasonable expectation of doing so at the time the bonds were issued.
Since this determination is within the jurisdiction of the Internal
Revenue Service (IRS), it would be inappropriate for GAO and OSC to
offer opinions on the application of these laws and regulations.
CERTAIN COMMISSION
OPERATIONS COULD BE IMPROVED
-------------------------------------------------------- Chapter 0:4.2
GAO and OSC found that the Commission did not consistently follow
good business practices in its procurement and in reimbursing
commissioners for their travel and related expenses. In procuring
goods and services, the Commission did not consistently require or
document competition, prepare written contracts, or ensure adequate
review of ordering, receiving, and paying for goods and services. In
providing remuneration to commissioners, it did not consistently
follow its policies for obtaining approvals and proper documentation
prior to payment, and errors occurred. For example, in reviewing
expense reimbursements to commissioners, GAO and OSC found that over
half of the claims were not approved or were not fully supported by
documentation. Recognizing that some improvements may be needed, the
Commission in May 1995 took action to initiate a contract for a
comprehensive review of its management and internal controls.
State and federal law do not provide for authority for overseeing or
explicit responsibility for auditing the Commission by any
governmental entity. Consequently, no governmental entity, federal
or state, has overseen the activities of the Commission since it was
established. The absence of explicit authority to audit the
Commission affected GAO and OSC's audit. Specifically, the
Commission's independent audit firm denied GAO and OSC access to
workpapers of its audits on the basis that neither entity has
authority over the Commission, and in October 1994, the Commission's
chairperson terminated the GAO and OSC audit. The Commission itself
has recognized this lack of oversight authority and has requested
that members of its congressional delegation seek legislation that
would provide for periodic governmental audits of its operations.
Given its increasing revenues and the complexity of its capital plan,
some type of oversight could be helpful.
OBSERVATIONS
---------------------------------------------------------- Chapter 0:5
If it is determined that governmental oversight by a state or federal
entity is appropriate, the enabling federal legislation for the
Commission would need to be modified. The Governor of New York
currently appoints four of the commissioners, and the bridges are to
be conveyed to the state of New York and Canada once the bonds and
the related interest are paid off. If the state of New York is to
have oversight authority, that state's law would have to be modified
as well.
In addition, GAO and OSC identified a number of areas that the
Commission may wish to consider to improve its operations, including
(1) taking steps to identify and comply with all applicable federal
and state requirements in implementing future phases of its capital
program; (2) updating its capital program and retiring unneeded
bonds; (3) developing formal policies on per diem and travel
reimbursement to commissioners; and (4) ensuring that existing
procurement policies for competitive bidding, written contracts,
authorization of payments, and documentation of expenses are
consistently followed.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6
GAO provided a copy of a draft of this report to the Commission for
its review and comment. The Commission provided extensive comments.
Most significantly, the Commission objected to the discussion of the
tax-exempt status of its bonds and disagreed with the draft report's
characterization of the project delays. With regard to the
discussion of the relationship of IRS rules to the Commission's
tax-exempt bonds, the Commission and its consultants said that
raising questions about the tax-exempt status of the bonds could
potentially have negative effects on the bondholders and suggested
that any discussion of this issue should be withdrawn from the
report. We disagree. It was not GAO and OSC's intent to create a
perception that the tax-exempt status of the bonds is in jeopardy.
Clearly, any decision related to this issue is properly within the
purview of the IRS, and it would be inappropriate for GAO and OSC to
speculate on the application of these laws and regulations. The
report has been clarified to make it clear that GAO and OSC are not
offering an opinion on this issue. However, the standards under
which GAO and OSC conduct their work require a review of compliance
with laws and regulations that are significant to the audit
objectives, one of which was the financing of the capital program.
In light of the fact that the Commission has experienced delays in
expending its tax-exempt proceeds as it had projected in its bond
offering statement, GAO and OSC believe that they would have been
remiss not to include a discussion of this issue in the report.
The Commission also objected to GAO and OSC characterization of the
cause of delays in gaining the approvals necessary to move forward
with the construction of the Rainbow Bridge project and said that the
many approvals needed to proceed with this project are virtually
completed. The discussion of this issue has been expanded to more
clearly show the chronology of events and the Commission's
misunderstandings of the types and sources of agreements required to
proceed with this project. The Commission entered into a memorandum
of agreement with appropriate federal and state entities in May 1995
(after the draft report had been provided to the Commission) that
establishes the framework for moving forward with this project. The
agreement is a positive step toward project implementation, and GAO
and OSC believe that such an agreement earlier in the process could
have precluded the delays the Commission experienced on this project.
The Commission said that it has taken GAO and OSC's specific
observations on ways to improve its operation under advisement. The
Commission has also taken some actions to implement the suggestions.
For example, the Commission said that it is contracting for a
comprehensive management and internal control review and intends to
review its capital program and to consider capital program options,
including the possibility of retiring unneeded bonds. GAO and OSC
believe that these steps, as well as other recent developments (such
as completing the memorandum of agreement in May 1995 with several
federal and state agencies for the Rainbow Bridge project) are
positive actions that address a number of the issues raised in this
report.
Because of their voluminous nature, the Commission's comments are not
reprinted in their entirety in this final report. GAO and OSC have,
however, considered all of the comments in preparing this final
report and have updated and revised the report as appropriate. The
Commission's cover letter and separate comments from the Canadian
commissioners are included, along with GAO and OSC's responses to
them, in appendixes I and II.
INTRODUCTION
============================================================ Chapter 1
The Niagara Falls Bridge Commission (Commission) owns and operates
three of the four international bridges across the Niagara River that
link the roadways of New York State and the Province of Ontario in
Canada. The Commission is administered by a board of eight
commissioners, four of whom are appointed by the Governor of New York
and the other four by the Premier of the Province of Ontario. In
1990, the Commission adopted a plan for a long-term capital program
to make improvements at its bridges and relieve delays and traffic
congestion at them.
THE NIAGARA FALLS BRIDGE
COMMISSION
---------------------------------------------------------- Chapter 1:1
The U.S. Congress created the Commission by a joint resolution in
1938 "to construct, maintain, and operate" a single international
bridge across the Niagara River. The Commission was given authority
over two additional bridges in congressional amendments in 1946,
1949, and 1953 and now manages the Rainbow, Whirlpool Rapids, and
Lewiston-Queenston bridges. (Fig. 1.1 shows the location of these
three bridges.)
Figure 1.1: Location of the
Bridges Under the Jurisdiction
of the Niagara Falls Bridge
Commission
(See figure in printed
edition.)
The joint resolution also established relationships between the
Commission and the U.S. federal, New York State, and Canadian
governments. The resolution has no counterpart in Canadian or New
York State legislation. The resolution's provisions are to be
enforced by either the New York State Attorney General, the
appropriate U.S. district attorney, or the Solicitor General of
Canada. The resolution also provides for the eventual conveyance of
the bridges under the Commission's control to the state of New York
and Canada.
The Congress provided authority for the Commission to operate and
finance bridge operations. The Commission is administered by a board
of eight commissioners. Under the terms of the joint resolution, the
state of New York has authority to appoint four commissioners, and
Canada--through its designee, the Premier of the Province of
Ontario--appoints the other four. The Commission employs about 110
staff, of which 86 are toll collectors and maintenance staff, while
the remainder are administrative staff, including the general
manager. In addition to the Commission's employees, Canadian and
U.S. customs and immigration officials also work on Commission
properties.
The Commission derives its revenues from bridge operations. The
resolution gives the Commission the authority to fix and charge tolls
for transit over the bridges and to use these funds to maintain,
repair, and operate the bridges. The Commission's audited financial
statements for the fiscal year ending October 31, 1993, show revenues
of $24.3 million, consisting of tolls ($10.6 million), interest ($7.2
million), rent from leasing space in its buildings ($5.5 million),
and other sources. Expenses were $17.6 million, including $7.4
million in interest, $5.7 million in salary and fringe benefits, and
$4.5 million in other expenses.
The Commission does not receive any revenue or appropriations from
U.S. federal, state, or local governments or from the Canadian
provincial government. The Commission does, however, receive rent
for space used by the U.S. Customs Service and the Immigration and
Naturalization Service for inspecting people and goods entering the
United States. Although the Commission does not receive direct
appropriations, it does benefit from the ability to issue tax-exempt
bonds.
The joint resolution further states that any liability or obligation
incurred by the Commission is to be paid solely from the funds
provided for under the joint resolution; no resulting indebtedness is
to be considered an indebtedness of the United States. The joint
resolution also gives the Commission the authority to issue bonds to
help pay for the cost of the bridges and other necessary expenses.
The Intermodal Surface Transportation Efficiency Act of 1991 states
that "the Commission shall be deemed for purposes of all Federal law
to be a public agency or public authority of the State of New York,
notwithstanding any other provision of law." The essence of this
provision is that interest on any bonds that the Commission issued
after 1991 could be considered exempt from federal income tax. Once
the bonds issued for the bridges and the related interest are paid
off, the bridges are to be conveyed to the state of New York and
Canada. Subsequently, the Commission is to be dissolved by order of
the State Comptroller of New York.
THE COMMISSION'S LONG-TERM
CAPITAL IMPROVEMENT PROGRAM
---------------------------------------------------------- Chapter 1:2
In the late 1980s, the Commission was faced with several concerns
related to its bridge crossings. At peak periods during the summers
and on weekends, severe traffic congestion on the Commission's
bridges resulted in long lines of cars and significant delays. The
delays were not caused by insufficient bridge capacity, but rather by
the time required for customs and immigration inspections at
international border crossings. In response to projections of
further traffic increases, the Commission undertook a long-term
capital improvement program entitled A Thirty-Year Plan (the Plan).
In addition, officials from the U.S. Customs Service and the
Immigration and Naturalization Service had said that they needed
improved working facilities because the space that they leased from
the Commission was antiquated, unsafe, and insufficient.
This Plan, published in September 1990, set forth capital projects to
meet projected traffic needs through the year 2020. The Plan called
for expanding the capacity for collecting tolls and conducting
inspections and for improving working facilities at the Commission's
three bridges. These projects, estimated in 1990 to cost $122
million, were to be financed through long-term bonds and accumulated
Commission revenues. The Plan also called for the possible future
construction of a new bridge to handle traffic volumes expected to
exceed the capacity of the existing bridges. The Commission updated
its cost and construction schedules when it issued bonds to fund work
on the existing bridges in 1992. (See table 1.1 for an overview of
the proposed bridge projects and their updated costs and schedules.)
Table 1.1
Capital Improvement Projects Identified
in the 1992 Bond Offering Statement
(U.S. Dollars in millions)
Estimate
d cost
in 1991- Constructi
1992 Description of on
Bridge dollars project\a schedule
------------ -------- ---------------------- ----------
Rainbow $46.5 Widening bridge 1993-1996
approaches,
installing new toll
and inspection
booths, and
constructing new
operations and other
buildings
Whirlpool $118.3 Redecking upper level 1994-1996
Rapids of bridge,
constructing new
terminal facilities,
relocating railroad
tracks, and
reconfiguring highway
approaches
Lewiston- $12.1 Adding toll and 1995-1997
Queenston inspection booths,
expanding existing
building and support
facilities
Proposed new $102 Constructing four- 2001-
bridge lane bridge near 2004\b
existing Whirlpool
Rapids Bridge,
enlarging terminal
facilities, and
reconfiguring highway
approaches
----------------------------------------------------------
\a Project descriptions were obtained from the Niagara Falls Bridge
Commission's A Thirty-Year Plan. The remainder of the information in
table 1.1 was obtained from the Official Statement of the Niagara
Falls Bridge Commission $121,000,000 Toll Bridge System Revenue
Bonds, Series 1992.
\b These dates derive from the Commission's A Thirty-Year Plan. The
bond offering statement did not specify a date for this project.
RAINBOW BRIDGE IMPROVEMENTS
-------------------------------------------------------- Chapter 1:2.1
Located within sight of Niagara Falls, the Rainbow Bridge is
reportedly the second busiest point of entry to the United States,
serving a mix of tourist and local traffic. Rainbow Bridge carries
vehicles, as well as the greatest number of pedestrians of the
Commission's three bridges. (See table 1.2 for traffic statistics
for the Commission's bridges.) Currently, this bridge has four toll
booths in New York and five in Canada, in addition to eight primary
inspection lanes in New York and eight inspection lanes in Canada.
The new construction will expand the bridge plaza to provide 6 toll
booths and 20 primary inspection lanes on the U.S. side. The
construction will provide for one-way tolls, after which toll booths
will no longer be needed in Canada. Canada will have fewer
inspection lanes--16--because it processes cars faster.
Table 1.2
Traffic Statistics for the Commission's
Bridges for the Year Ended October 31,
1993
((Statistics in thousands))
Whirlpool Lewiston-
Rainbow Rapids Queenston
Bridge Bridge Bridge
------------------------------ ------------ ------------ ----------
Automobiles 4,299 1,710 3,954
Trucks 4 12 649
Buses 48 2 22
Other vehicles 18 6 31
Total vehicles 4,368 1,730 4,656
Pedestrians 590 52 1
----------------------------------------------------------------------
Note: These traffic statistics were for the most recent fiscal year
available when our audit ended.
Source: GAO's presentation of traffic statistics reported by the
Commission.
Improvements planned for the Rainbow Bridge also include major
updating and expansion of the bridge plaza's facilities to include
new buildings for customs and immigration operations and for bridge
maintenance, as well as a duty-free store. The new operations
building was originally designed as a three-story structure sheathed
in reflective glass, rising 75 feet over the road surface and arching
600 feet across the bridge apron. The design would require the use
of about half an acre of Niagara Reservation State Park land adjacent
to the bridge plaza. To prevent any overall loss of parkland, the
Commission proposes exchanging two land parcels--an unneeded portion
of its own easement on the south side of the Rainbow Bridge plaza and
land near the Whirlpool Rapids Bridge--for the needed parkland on the
north side of the Rainbow Bridge.
WHIRLPOOL RAPIDS BRIDGE
IMPROVEMENTS
-------------------------------------------------------- Chapter 1:2.2
The Whirlpool Rapids Bridge is an 1897 structure located 1.4 miles
north of the Rainbow Bridge. The Whirlpool Rapids Bridge currently
has two primary inspection lanes in the U.S. and three in Canada and
two toll booths in Canada. The bridge has two levels, serving
vehicles and pedestrians on the lower level and trains on the upper
level. The bridge does not currently carry large commercial trucks
because of its design and limited customs inspection facilities. The
Commission planned to upgrade the bridge's upper level to accommodate
vehicles including trucks, as well as trains; to design and construct
highway approaches and bridge plazas; and to relocate railroad
tracks. The Commission also planned to install four one-way toll
booths and to expand the number of inspection lanes to allow four
inspection booths in each direction. The additional vehicular lanes
on the upper level and access for commercial trucks were intended to
relieve pressure on the Lewiston-Queenston Bridge, currently one of
only two commercial routes across the Niagara River.
LEWISTON-QUEENSTON BRIDGE
IMPROVEMENTS
-------------------------------------------------------- Chapter 1:2.3
The most modern of the Commission's three bridges, the
Lewiston-Queenston Bridge, was opened on June 28, 1963, and is about
7 miles north of Niagara Falls. The only one of the Commission's
bridges that can accommodate all types of commercial vehicles, the
Lewiston-Queenston Bridge directly connects the New York State
Thruway with Canadian highways to Toronto. The only other commercial
route across the Niagara River is the Peace Bridge in Buffalo, New
York, which is operated by the Buffalo-Ft. Erie Bridge Authority.
Currently, the Lewiston-Queenston Bridge has eight one-way toll
booths located in Canada--four for cars and four for trucks or cars.
This bridge's plazas currently house eight primary car inspection
lanes and three primary truck inspection lanes in each direction.
The Commission has considered adding two toll booths for cars and
four additional primary inspection lanes on each side of the border
for automobiles.
PROPOSED NEW BRIDGE
-------------------------------------------------------- Chapter 1:2.4
If traffic is sufficiently heavy, the Commission's 30-year Plan also
proposed the construction of a new four-lane international bridge 200
feet north of the existing Whirlpool Rapids Bridge. To serve the new
bridge, terminal facilities slated to be constructed earlier at the
nearby Whirlpool Rapids Bridge would be enlarged and approach
roadways widened and extended to connect major U.S. and Canadian
highways with the new bridge. The old Whirlpool Rapids Bridge would
continue to serve trains and small tourist buses.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:3
Because the operations of the Commission have not been reviewed by a
governmental entity during its more than 50 years of existence,
Representative LaFalce asked GAO and the New York State Office of the
State Comptroller (OSC) to review its operations. Specifically, our
objectives were to review
the Commission's efforts to finance and administer its capital
program and
the Commission's internal controls used to ensure that its business
affairs were appropriately conducted.
In the course of our work, we also reviewed responsibility for
governmental oversight of the Commission.
To determine how the Commission financed and administered its capital
program, we met with Commission officials and consultants to discuss
their capital program. We also reviewed relevant Commission records.
In addition, we met with officials from U.S. federal, New York
State, and Canadian agencies affected by the capital program, federal
agencies that oversee tax-exempt bonds, and individuals with
expertise in municipal bond financing.
To assess the Commission's internal controls, we examined Commission
records on selected administrative operations and discussed them with
cognizant Commission staff. Specifically, we reviewed policies and
practices on the procurement of goods and services and payments and
reimbursements to commissioners. We also performed preliminary
reviews of the Commission's investment functions and found no
weaknesses in this area. We planned to rely on tests of the
Commission's internal controls performed by the independent audit
firm that conducted the Commission's most recent annual financial
statement audit.
To review responsibility for governmental oversight of the
Commission, we reviewed pertinent federal and state legislation and
identified the relationship between federal and state governments and
the Commission. We also determined what financial and other reviews
of the Commission have been performed since its creation in 1938.
We conducted our work between May and October 1994. We experienced a
number of impairments to the scope of our audit in the course of our
review. Specifically, (1) we were not afforded the opportunity to
ask individual commissioners about their rationale for key decisions,
such as the amount and timing of the bond issuances; (2) the
independent audit firm denied our request and similar requests by the
Commission that we be granted access to its workpapers documenting
its assessment of the Commission's internal controls; and (3) the
chairperson of the Commission terminated our audit work at the
Commission on October 2, 1994, before we had obtained complete
details of issues under review. The chairperson objected to the
nature of our questions, our alleged predetermined attitude,
questioning of judgments within the sole prerogative of the
Commission, and our request to interview individual commissioners.
Because our audit work was terminated, we were unable to expand our
review of internal controls and cannot comment on the degree to which
the internal control issues we discuss in chapter 3 are
representative of other operational areas at the Commission. Except
as noted above, our work was conducted in accordance with generally
accepted government auditing standards.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 1:4
The Commission provided detailed comments on a draft of this report.
The comments included a letter from the Commission's general manager
and 17 exhibits. Because of the voluminous nature of the comments,
they have not all been included in this final report. However, we
have reviewed and analyzed the comments and materials provided by the
Commission and have revised and updated the report as appropriate.
The executive summary of this report summarizes the Commission's most
significant comments, and appendixes I and II include the general
manager's letter, a memo prepared by the Canadian Commissioners, and
our responses to them. In addition, at the end of chapters 2 and 3,
we have summarized the Commission's response to our suggestions for
improvements and our evaluation of their responses.
THE COMMISSION HAS EXPERIENCED
DIFFICULTIES IN IMPLEMENTING ITS
CAPITAL PROGRAM
============================================================ Chapter 2
The Commission has experienced difficulties in implementing major
projects in its capital plan that have resulted in delays and
postponements. The Commission's bond offering statements projected
completing major improvements at the Rainbow Bridge by January 1996,
but it has yet to obtain all key agreements and clearances needed to
proceed with this project and now expects to complete this project in
late 1997 or 1998. In addition, the Commission had planned to
convert the Whirlpool Rapids Bridge from a local traffic corridor to
a major commercial truck and passenger vehicle route by July 1996,
but plans for this project have been postponed. The Commission's
plans to upgrade this bridge in the near term differed in important
aspects from regional transportation plans for this bridge, and major
road connections needed to make this route viable for commercial
truck traffic have not been agreed to.
The Commission issued $121 million in tax-exempt bonds in 1992 to
finance its capital program and refinanced this debt by issuing $133
million in bonds in 1993 to take advantage of the very favorable
interest rates available at that time. The Internal Revenue Code
requires that for a bond to be eligible for tax-exemption, bond
issuers must have a reasonable expectation of using the proceeds of
the bonds within certain time frames. To address this requirement,
when the Commission issued its bonds in 1992, it stated that it
reasonably expected to use 85 percent of the spendable proceeds of
the bonds within 3 years. Because of delays in the capital program,
this has not occurred. Since the application of tax laws and
regulations is within the jurisdiction of the Internal Revenue
Service (IRS), it would be inappropriate for us to offer opinions of
the application of these laws and regulations to particular factual
situations.
As of August 31, 1994, the Commission had spent over $5 million for
consultants to assist with its capital program and had incurred other
costs of almost $6 million to finance its two bond issuances.
COMMISSION'S MAJOR BRIDGE
PROJECTS HAVE BEEN DELAYED OR
POSTPONED
---------------------------------------------------------- Chapter 2:1
The Commission has encountered significant delays in implementing its
capital program. The Commission has experienced difficulties in
finalizing key agreements on historic preservation and environmental
impact, as well as permission for a land exchange needed to move
forward with construction of the U.S. plaza on the Rainbow Bridge.
The Commission has also indefinitely postponed work on the Whirlpool
Rapids Bridge--its most expensive project--because of questions
raised by Canadian agencies from which agreements would be required
and because of a downturn in traffic.
The nature and complexity of these projects meant that the Commission
needed to meet numerous requirements for historic preservation and
environmental assessment, obtain the agreement of the U.S.
Department of the Interior for a land exchange, and coordinate with
other entities on regional transportation plans. At least in part
because it did not coordinate with other affected entities and obtain
key agreements, the Commission's projects have been delayed.
RAINBOW BRIDGE PROJECT HAS
UNDERGONE MAJOR DESIGN
CHANGES TO GAIN APPROVAL
-------------------------------------------------------- Chapter 2:1.1
At least five federal and state agreements were needed in conjunction
with the first segment of the capital program--work on the U.S.
plaza of the Rainbow Bridge. Although the Commission began efforts
to seek agreements as early as 1990, it did not enter into a formal
agreement on the process for obtaining them until May 1995, in part
because of misunderstandings about the types of approvals needed and
the appropriate authorities from whom the approvals and agreements
were needed. Hence, the Commission has incurred additional costs for
the partial redesign of this project, and the Rainbow Bridge project
has been delayed.
RAINBOW BRIDGE PROJECT
TRIGGERS FEDERAL AND
STATE REQUIREMENTS
------------------------------------------------------ Chapter 2:1.1.1
The National Historic Preservation Act requires federal entities to
take steps to protect National Historic landmarks from the potential
adverse effects of proposed federal projects. Specifically, the act
and its accompanying regulations require broad consultation among the
independent federal Advisory Council on Historic Preservation (ACHP),
the State Historic Preservation Officer (SHPO), affected agencies,
and the public, resulting in an agreement on actions to mitigate any
adverse effects of the project. The act applies to the Rainbow
Bridge project because (1) the Commission leases space in its
buildings to federal agencies for customs and immigration activities;
(2) the bridge and its related structures are eligible for listing on
the National Register of Historic Places; and (3) the plaza is on an
easement within the boundaries of the Niagara Reservation, which has
been designated both an endangered National Historic Landmark and a
National Natural Landmark.
The National Environmental Policy Act and the State Environmental
Quality Review Act, like the National Historic Preservation Act,
require that potential adverse impact be identified and mitigated and
call for consultation with affected agencies. Federal guidelines
require the entity undertaking a project to determine the appropriate
level of environmental review, which can range from the completion of
a checklist in response to plans for certain repairs or alterations,
to an environmental assessment that briefly analyzes a project's
impact, to a full environmental impact statement for major
undertakings. Federal guidelines include indicators to determine
whether an area is environmentally significant and may require a full
study. The Rainbow Bridge project met at least three of these
indicators: it is located near a unique geological feature, lies
within parklands, and is likely to affect historic properties.
Issues considered under the National Historic Preservation Act
overlap with issues of the environmental analysis. The review
processes for both the National Historic Preservation Act and for
federal and state environmental laws are consultative processes
designed to identify all adverse effects of proposed projects, to
consider alternatives, and to identify measures that could be taken
to mitigate any adverse effect of the project. While the review
process under the National Historic Preservation Act is concerned
with accommodating historic preservation concerns, federal and state
environmental reviews are more broadly focused. Environmental
reviews are designed to determine whether the project may affect its
surroundings including, among many elements of consideration,
historic places.
The results of the historic and environmental analyses are also
considerations in the approval of a land exchange needed for the
Rainbow Bridge project. The federal Land and Water Conservation Fund
Act of 1965 provides that any lost parklands, including easements,
must be replaced with land of equal or higher value. As planned, the
Rainbow Bridge project required about half an acre of additional land
to expand the U.S. plaza--land that is within the Niagara
Reservation State Park. For the parcel of parkland adjacent to the
Rainbow Bridge, the Commission proposed to exchange land near the
Rainbow Bridge for which it now holds an easement and land near the
Whirlpool Rapids Bridge. The exchange of this state parkland
required agreement from the New York State Office of Parks,
Recreation, and Historic Preservation. Because the Niagara
Reservation had received funding from the Land and Water Conservation
Fund, the exchange also requires the Department of the Interior's
approval. A factor the two agencies consider in granting their
approval for such exchanges would be the results of the historic
preservation and environmental consultation processes for the
project.
MISUNDERSTANDINGS ABOUT
REQUIREMENTS LED TO
DELAYS
------------------------------------------------------ Chapter 2:1.1.2
Under federal regulations, the SHPO is a key participant in the
historic preservation review process and must be consulted.
Furthermore, the regulations require that the ACHP be involved in the
consultation process when a National Historic Landmark may be
adversely affected. The regulations recommend that these
consultations take place as early in the planning as possible to
provide maximum flexibility in resolving any identified conflicts.
In 1990, the Commission took two steps it regarded as initiating
coordination for the historic review process. However, neither of
these steps directly involved the SHPO or the ACHP. As a
consequence, the views of key officials were not obtained until the
process had been underway for 2-1/2 years.
The first step the Commission took to involve historic preservation
interests in the project was to include an employee of the state's
Office of Parks, Recreation, and Historic Preservation on the
project's design selection committee in 1990. In New York, the SHPO
is a designated official within the state's Office of Parks,
Recreation, and Historic Preservation. The Commission has stated
that it included the employee on the design selection panel for the
purpose of ensuring input regarding historic preservation, and that
since the design selection was unanimous, historic preservation
interests were addressed. However, the state park's representative
on the panel was not authorized to represent the state of New York in
making decisions regarding the historical preservation of properties
within the Niagara Reservation. Federal regulations specify that the
SHPO is the appropriate official to represent the interests of the
state in preserving its cultural heritage.
In 1990, the Commission took the second step by initiating
coordination with the Deputy Commissioner for Planning and
Development of the state's Office of Parks, Recreation, and Historic
Preservation. This official consulted with the Commission regarding
the land exchange necessitated by the project. Commission officials
cited an October 1990 letter from this official as signifying his
intent to guide them in their historic preservation and environmental
consultation processes and to act as their liaison to the state
agency. This letter commented on land use matters and cited concerns
about the Commission's plans and notes that the Rainbow Bridge
proposal represented an adverse effect on a National Historic
Landmark. The letter directed the Commission to contact and consult
with specified agencies and individuals, including the SHPO and the
ACHP. However, this official told us that his role was principally
limited to land acquisition and usage and that he was not responsible
for the historic preservation review process. The official could not
explain why the Commission had the impression that he was
coordinating the historic preservation aspects of the Rainbow Bridge
project for the state since he was not the SHPO. The Commission's
mistaken reliance continued for 2-1/2 years, during which time it had
no contact with the SHPO or the ACHP.
The SHPO was aware of the Rainbow Bridge project but said that she
had not been consulted by the Commission in accordance with federal
regulations. The SHPO maintains that, due to the large number of
projects requiring historic preservation determinations, those
initiating a project have the responsibility under federal and state
law to consult with her office before any final decision is made to
proceed.
In November 1990, Commission consultants together with various
representatives from the state's Office of Parks, Recreation, and
Historic Preservation agreed that an environmental assessment would
be the appropriate level of analysis for the Rainbow Bridge project.
While an environmental assessment may have been an appropriate first
step, the project had at least three features that suggested a full
environmental impact statement might be needed.
Acting on this agreement, the Commission's consultants began an
environmental assessment in late 1990. The first product of the
assessment process was a November 1991 report on the effect of the
proposed project on historic properties that concluded that although
the project would directly affect the National Historic Landmark
Niagara Reservation, it would have no significant adverse impact.
However, this report was prepared without input from either the SHPO
or the ACHP. The Commission's consultants then produced a draft
environmental assessment and issued it for comment in December 1992.
The draft assessment concluded that the proposed project would have
no significant averse impact. During the subsequent comment process,
the SHPO's concerns surfaced about the project's visual impact on the
Niagara Reservation. In March 1993, the SHPO disagreed with the
finding of no significant impact. Both the SHPO and the Commission
told us that this was the first instance in which the Commission was
notified of such concerns.
The SHPO urged the General Services Administration (GSA), which
leases space from the Commission to house federal customs and
immigration operations at the bridge and which was familiar with
historic preservation and environmental reviews, to take the lead in
seeking the needed agreements. GSA officially assumed responsibility
for coordinating the historic preservation and environmental reviews
for the Rainbow Bridge project in June 1993 and has begun to obtain
the needed agreements. As required by the National Historic
Preservation Act, GSA formally notified the SHPO and the ACHP of the
project on June 30, 1993. ACHP then requested assistance from its
consulting agency, the National Park Service, to assess the project's
potential impact on the Niagara Reservation. In December 1993, the
National Park Service concluded that the proposed project was
incompatible with the setting. Subsequent to this report, the
Commission decided to amend its design for the Rainbow Bridge plaza.
In April 1994, GSA announced that it would require a full
environmental impact statement for the Rainbow Bridge project. A
preliminary draft of this document was available for public comment
in December 1994. The final draft of the document was delayed to
allow consultation under the historic preservation review process,
which was largely completed in May 1995. GSA expects to announce the
availability of the final draft of the environmental impact statement
by the end of July 1995, and, if no further substantive comments are
received, it expects to complete the environmental review process
with a record of decision in late August.
On several occasions, the Commission's general manager told us that
the Commission and its consultants had relied on the Deputy
Commissioner for Planning and Development in their decision to
perform an environmental assessment instead of a full environmental
impact statement and relied on him to conduct their coordination with
other units within the Office of Parks, Recreation, and Historic
Preservation. In commenting on a draft of this report, the
Commission said that the advice received from that state official was
from the person whom they thought to be the "person in charge of" the
Office of Parks, Recreation, and Historic Preservation. However,
federal regulations clearly require consultation with the SHPO and
ACHP, and the Deputy Commissioner told us that he could not explain
why the Commission misunderstood the requirements.
REDESIGN IS IN PROGRESS
TO ALLAY CONCERNS ABOUT
VISUAL IMPACT
------------------------------------------------------ Chapter 2:1.1.3
With 80 percent of the project's design completed, the Commission, in
January 1994, resolved to make substantial changes to the proposed
design. As a result, the Commission incurred redesign costs that it
estimates at about $300,000. In May 1995, the Commission, GSA, ACHP,
the SHPO, and the National Park Service signed a memorandum of
agreement as required by federal regulations implementing the
National Historic Preservation Act. The parties agreed that further
design of the project will be reviewed at specific points, as well as
on processes to resolve any differences of opinion concerning the
project.
The May 1995 agreement also indicated that the SHPO would recommend
to the New York State Office of Parks, Recreation, and Historic
Preservation that it seek approval from the National Park Service to
execute the land exchange required for completion of the project.
The agreement further indicated that the National Park Service would
expeditiously approve the land transfer upon such request from the
state. The Commission's May 1992 bond offering stated that the
Rainbow Bridge project would be completed in January 1996, but the
Commission now expects to resume construction at the Rainbow Bridge
at the end of 1995 and to complete it by the end of 1997 to mid-1998.
WHIRLPOOL RAPIDS BRIDGE
PLANS POSTPONED
-------------------------------------------------------- Chapter 2:1.2
Capacity improvements at the Whirlpool Rapids Bridge, at an estimated
cost of $118 million, were to have been the most expensive of the
three projects funded by the Commission's bonds. The improvements
would permit use of the bridge for the first time by large commercial
trucks and included the construction of warehouse and inspection
facilities for commercial vehicles. This expanded usage would be
accomplished by altering the bridge's upper deck for use by large
trucks with access to that level from roadways and plazas to be
constructed by the Commission. The new approaches to the bridge
would be connected to local roads for the near term and later to
major highways. The bond offering statements show that construction
was to have occurred from June 1994 to July 1996. The improvements
required coordination with other agencies and a number of agreements
before project initiation. Specifically, the Commission needed
approvals for road connections to make the project viable,
environmental analyses in both the U.S. and Canada, and additional
land acquisitions in both countries.
While the Commission moved forward with plans for improving Whirlpool
Rapids Bridge, New York State and Province of Ontario agencies were
conducting ongoing studies--one of which included Commission
representatives--to assess regional transportation needs. The
findings of these studies differed somewhat with Commission plans for
this bridge. In light of the issues raised by these two
transportation studies and a downturn in traffic volume, the
Commission and its consultants reviewed the status of its capital
program in July 1994 and postponed the Whirlpool Rapids Bridge
project. As a result, the Commission may have incurred expenses that
may have limited value if and when this project is resumed.
COMMISSION INCURRED
EXPENSES FOR AGREEMENTS
AND APPROVALS NEEDED FOR
THE WHIRLPOOL RAPIDS
BRIDGE PROJECT
------------------------------------------------------ Chapter 2:1.2.1
In proceeding with its plans to upgrade the Whirlpool Rapids Bridge,
the Commission incurred expenses for environmental impact studies and
an option to purchase land that would be needed to upgrade this
bridge. First, the Commission anticipated the need for full
environmental impact studies in both countries because the project
would cause some major changes in land use. The studies were begun
in mid-1992. As of August 31, 1994, the Commission had spent about
$500,000 on environmental studies, which have been suspended. While
the work done thus far may be usable if the project eventually
proceeds as planned, it may be of limited value if the major
improvements at the Whirlpool Rapids Bridge are not needed in the
near future.
Additionally, the Commission purchased an option on land that would
be needed when the Whirlpool Rapids Bridge project got under way.
The project as originally planned required about 50 acres of land
owned by the Canadian National Railway for the construction of
approach roadways and inspection facilities. Rather than purchase
the land outright, the Commission purchased an option in June 1993 to
maintain flexibility for phasing in the capital program. As payment,
the Commission placed $15.5 million in Canadian currency in escrow,
with the interest accruing to Canadian National. Because of
uncertainties about the future of the Whirlpool Rapids corridor and
concerns about potentially high environmental cleanup costs, the
Commission terminated the option in June 1994. We estimate that
interest foregone by the Commission was about $875,000 when converted
to U.S. currency.
TRANSPORTATION STUDIES
CONFLICT WITH PLANS FOR
WHIRLPOOL RAPIDS BRIDGE
------------------------------------------------------ Chapter 2:1.2.2
After the Commission issued its Thirty-Year Plan, two studies were
conducted by regional transportation agencies which resulted in
recommendations for the Whirlpool Rapids corridor that conflicted in
some way with the Commission's plans. One study questioned the
routing of large commercial trucks over the Whirlpool Rapids Bridge
and construction of the related commercial vehicle warehouse
inspection facilities in the bridge plaza areas, while the other
study questioned highway connections the Commission had planned. The
resulting uncertainty about fundamental elements of the planned
project was a major factor in postponing the project.
A joint U.S.-Canadian study of Niagara River bridges, initiated in
November 1990, resulted in recommendations for the Whirlpool Rapids
Bridge that differed from the Commission's plans. The Niagara
Frontier U.S.-Canada Bridge Study was jointly sponsored by
transportation planning agencies of New York State and the Province
of Ontario to assess regional transportation needs. Issued in March
1993, the study recommended short-, medium-, and long-range plans for
the Commission's three bridges, as well as for the Peace Bridge in
Buffalo. The study disagreed with the Commission's plans to route
large commercial trucks across the bridge, and for the near term, the
study recommended smaller changes in contrast to the Commission's
major construction plans.
For the period prior to the year 2000, the study recommended only
changes to the Whirlpool Rapids Bridge plazas and approaches in
contrast to the Commission's plans to construct roadways, truck
inspection stations, and warehouse facilities by 1996. For the
period after 2000, the study recommended upgrading the bridge's upper
level as one alternative to be explored for relieving anticipated
congestion. However, in contrast to the Commission's plans, this
study did not envision the use of the upper level by large commercial
trucks. The study recommended that use of the bridge be restricted,
as it currently is, to open bed and single commodity trucks, and the
plan specified that provision for commercial vehicle warehouse
inspection facilities, planned by the Commission, not be made.
While the bridge study was under way, another study was started that
drew into question the major highway linkages that were needed to
make this project feasible. The Commission's Thirty-Year Plan called
for it to acquire land and construct roadways from the bridge out to
major local streets by 1996. In the longer term, connection would be
made by U.S. and Canadian agencies to major highways in each
country. The second study, TransFocus 2021, was issued in draft for
comment by the Province of Ontario in April 1994 and finalized in
April 1995. The study called for an environmental assessment as well
as a study of the feasibility and timing of linking the Whirlpool
Rapids Bridge with highway 420 in Canada, rather than the linkage
with Canadian highway 405 which the Commission had planned. This
change would impact the land required by the Commission in Canada.
Canadian officials expect resolution of the question concerning
highway routes by mid-1996, at which time an environmental assessment
could be initiated to determine the impact of expansion of the bridge
corridor.
Agreements would also be required in New York before the Whirlpool
Rapids corridor could be upgraded. New York State's area
transportation planning organization approved the project for its
long-range plan in December 1993. This process recognizes plans for
road connections to the interstate highway system sometime after 1999
but does not identify any funding for these connections. State
transportation officials told us the Commission began coordinating
with them when they initiated the environmental impact study on this
project; this study would have identified all needed agreements and
clearances. However, that effort was halted in January 1994.
In light of the recommendations of these two transportation studies,
a downturn in the volume of bridge traffic, and other issues, the
Commission in July 1994 postponed the project, the completion of
which was scheduled for mid-1996. In conjunction with this decision,
the Commission also discussed, but did not resolve, the issue of
early retirement of some of the Commission's debt.
PLANNED WORK ON
LEWISTON-QUEENSTON BRIDGE
HAS BEEN POSTPONED
-------------------------------------------------------- Chapter 2:1.3
As a result of the questions raised about the future of the Whirlpool
Rapids Bridge, work planned by the Commission for the
Lewiston-Queenston Bridge has also been postponed. Although some
work has been completed on this bridge, the Commission has begun to
explore alternatives for reconfiguring the Lewiston-Queenston Bridge
to increase its capacity beyond that envisioned by the original plan.
The revisions would permit this bridge to absorb some of the traffic
that the upgraded Whirlpool Rapids Bridge would have handled.
PROJECT DELAYS HAVE LIMITED
EXPENDITURE OF BOND PROCEEDS
---------------------------------------------------------- Chapter 2:2
In May 1992, the Commission financed its capital program with $121
million in tax-exempt bonds, and in July 1993, the Commission
refinanced this debt by issuing $133 million in such bonds. In 1992,
the Commission stated that it reasonably expected at least 85 percent
of the spendable proceeds of its bonds would be expended within 3
years of May 20, 1992, the date of release of the Commission's
original bond issuance statement. Because of delays in implementing
the capital program, the Commission has not achieved this level of
expenditures. The Internal Revenue Code requires that bond issuers
have a reasonable expectation, at the time of bond issuance, that the
bond proceeds will be spent within certain time frames.
COMMISSION TOOK ADVANTAGE OF
LOW INTEREST RATES
-------------------------------------------------------- Chapter 2:2.1
To save bond issuance costs and lock in favorable interest rates, the
Commission issued sufficient bonds to cover cash needs for work on
all three existing bridges rather than financing each project
separately. When the Commission refinanced its bonds in 1993, it
obtained an average of a 5.4-percent interest rate, which is a
historically low long-term rate over the last 30 years, according to
the Commission's bond counsel. The bonds also include a provision
that permits the redemption of most of the Commission's bonds at full
face value if the Commission's engineers certify that all or part of
the capital program cannot be carried out or has to be curtailed.
The Commission has spent funds for consulting fees, reconfigured
truck lanes on one bridge, installed some automated toll equipment,
and widened the U.S. plaza on the Rainbow Bridge to accommodate
additional toll and inspection booths. As of August 31, 1994, the
Commission still had about $43 million U.S. and $64 million Canadian
(a total of $90 million if Canadian funds are converted to U.S.
currency)\1 in bond proceeds available. However, because of
questions about the planned upgrading of the Whirlpool Rapids Bridge,
the Commission may not need all of these funds in the near term
unless the cost of the work on its other bridges expands to require
more funding.
--------------------
\1 Bond proceeds were invested in both the United States and Canada
because the capital program's costs will be incurred in both
countries. Since the time of these investments, the Canadian dollar
has decreased in value in relation to the U.S. dollar.
IRS REQUIRES THAT BOND
ISSUERS HAVE REASONABLE
EXPECTATIONS OF SPENDING
BOND PROCEEDS WITHIN
SPECIFIED TIME FRAMES
-------------------------------------------------------- Chapter 2:2.2
The Internal Revenue Code includes several restrictions on the usage
of tax-exempt bonds. Among these rules are restrictions on hedge
bonds enacted to prevent the early issuance of bonds to hedge against
potential future increases in interest rates. Under the Internal
Revenue Code, unless the bond issuer reasonably expects that 85
percent of the spendable proceeds of a bond issue will be spent in 3
years from the date of issuance, the bonds may be considered hedge
bonds.\2 If the bonds are hedge bonds, the bonds will not be
considered tax-exempt unless the issuer has a reasonable expectation
of spending: 10 percent of the spendable proceeds of the issue
within 1 year of issuance; 30 percent within 2 years; 60 percent
within 3 years; and 85 percent within 5 years.\3 The Commission
stated in its bond offering statement in May 1992 that it reasonably
expected at least 85 percent of the spendable proceeds of its bonds
would be expended within 3 years of May 20, 1992. However, due to
delays in implementing the capital program, this has not occurred.
The key question, however, is not whether the proceeds are actually
spent within these time frames, but rather whether the bond issuer
had a reasonable expectation of doing so at the time the bonds were
issued.
During our work, we met with IRS officials to discuss generally the
application of the hedge bond rules, as well as the Commission's
financing circumstances. These officials told us that the IRS
considers a number of factors in taking action in such situations but
would not discuss the particular circumstances of the Commission's
bonds. Since the application of tax laws and regulations is within
the jurisdiction of the IRS, it is our policy not to offer opinions
of the application of these laws and regulations to particular
factual situations.
--------------------
\2 26 U.S.C. �149(g)(3).
\3 26 U.S.C. �149(g)(2).
COSTS ASSOCIATED WITH FINANCING
AND IMPLEMENTING COMMISSION
PROJECTS
---------------------------------------------------------- Chapter 2:3
Because the Commission lacked expertise on its own staff, it retained
attorneys, engineers, architects, underwriters, and bond counsel to
assist in coordinating with outside entities, obtaining needed
agreements, designing its projects, and financing its capital
program. The Commission had spent over $5 million on consultants and
other advisers as of August 31, 1994. (See table 2.1 for a listing
of the Commission's costs for consultants and advisers.) Furthermore,
in addition to payments to consultants, the Commission has incurred
almost $6 million in costs to finance the two bond issues for its
projects. (See table 2.2 for a listing of bond issuance costs.)
Table 2.1
Commission Payments to Consultants and
Advisers as of August 31, 1994
((Dollars in thousands))
U.S. Canadian
Type of consultant or adviser dollars dollars
------------------------------------------ ---------- --------------
Architectural/Engineering $4,122 $688
Legal 570 68
Other (includes traffic consultants, 174 175
lobbyists, etc.)
======================================================================
Total $4,866 $932
----------------------------------------------------------------------
Notes: Excludes costs for bond counsel and underwriters.
Columns may not add due to rounding.
Source: OSC's analysis of Commission data.
Table 2.2
Commission Costs for Bond Issuance
((U.S. dollars in thousands))
Cost item 1992 bond issuance 1993 bond issuance
------------------------------ ------------------ ------------------
Bond insurance $1,527 $1,133
Underwriters' fees 1,534 819
Co-bond counsel fees 307 259
Other fees and charges 141 118
======================================================================
Total issuance costs $3,509 $2,329
----------------------------------------------------------------------
Source: OSC's analysis of Commission data.
In addition, each of the bond offerings sold at a discount, which had
the effect of reducing the proceeds to the Commission. The discounts
on the two bond issuances totalled over $5 million (about $3.67
million for the 1992 bonds and $1.45 million for the 1993 bonds).
OSC's municipal financing specialists evaluated the costs of the 1992
and 1993 bond issuances for their reasonableness. The specialists
said that given the international nature of the Commission and its
newness to the tax-exempt bond market, the costs of both the 1992 and
1993 issuances appeared to be reasonable. The specialists commented,
however, that charges by the underwriter totaling about $120,000 for
clearance and for computer and communications are either not
typically paid by issuers or, if paid, are charged at much lower
levels than charged to the Commission. The specialists could not
assess the reasonableness of the bond counsels' costs because these
costs were not supported by detailed billings.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:4
The Commission's capital program is a complex and sophisticated
undertaking that required extensive coordination and agreements, as
well as entry into the capital bond market. In May 1992, the
Commission issued $121 million of tax-exempt bonds. However, the
majority of the bond proceeds remain unspent because each of the
Commission's projects has been delayed or postponed. Delays at the
Rainbow Bridge plaza project occurred largely because the Commission
did not obtain needed governmental clearances.
In May 1995, the Commission entered into a memorandum of agreement
for the Rainbow Bridge plaza with several federal and state agencies
that identifies the roles and responsibilities of all parties and
lays the groundwork for moving forward with this project. The future
of the Commission's plans for the Whirlpool Rapids Bridge project,
however, is less certain. In July 1994, the Commission deferred the
schedule for the Whirlpool corridor until such time as the
transportation plan being developed by the Canadian Ministry of
Transportation is more firmly developed and the New York State
Department of Transportation is ready to schedule a connection to the
Commission's Whirlpool facilities.
IRS rules require that bond issuers have a reasonable expectation of
spending tax-exempt bond proceeds within certain time frames. While
project delays have caused the Commission to not expend the bond
proceeds as it anticipated, the key question is whether it had a
reasonable expectation of doing so at the time the bonds were issued.
Because determinations on compliance with these requirements are
within the jurisdiction of the IRS, we cannot speculate on whether
the IRS would review the Commission's bonds.
OBSERVATIONS
---------------------------------------------------------- Chapter 2:5
Because neither GAO nor OSC has explicit audit authority over the
Commission, we are not making any formal recommendations.
Nevertheless, we identified a number of possible steps the Commission
can take for improving the implementation of its capital improvement
program. In order to ensure the orderly implementation and financing
of its capital program, the Commission may wish to develop a formal
update to its long-term capital program (A Thirty-Year Plan),
including, as appropriate, plans to address the early retirement of
debt resulting from funds derived from the 1992 and 1993 bond issues
that may no longer be needed. It would be appropriate for this
update to also include a strategy for obtaining the necessary input
and/or agreements from appropriate transportation, environmental,
historic preservation, and other involved agencies and associations
before implementing its capital program.
AGENCY COMMENTS AND OUR
EVALUATION
---------------------------------------------------------- Chapter 2:6
In commenting on a draft of this report, the Commission strongly
objected to the inclusion in the report of any discussion of the
tax-exempt status of its bonds and disagreed with the discussion of
project delays for the Rainbow Bridge project. With regard to the
discussion of the relationship of IRS rules to the Commission's
tax-exempt bonds, the Commission and its consultants said that any
discussion of the tax-exempt status of the bonds could potentially
have negative effects on the bondholders, was not rooted in fact, and
suggested that any discussion of this issue should be withdrawn from
the report.
It was not our intent to create a perception that the tax-exempt
status of the bonds is in jeopardy, and the report has been clarified
to ensure that the reader is not led to this conclusion. However,
the Commission certified that it reasonably expected to spend 85
percent of the bond proceeds within 3 years of issuance. Three years
have passed since bond issuance, and less than one-third of the bond
funds have been expended. Clearly, any decision related to this
issue is properly within the purview of the IRS, and it would be
inappropriate for us to speculate on the application of these laws
and regulations. However, the standards under which we conduct our
work require a review of compliance with laws and regulations that
are significant to the audit objectives, one of which was the
financing of the capital program. In light of the fact that the
Commission has experienced delays in expending its tax-exempt
proceeds as it had projected in its bond offering statement, we
believe that we would have been remiss had we not included a
discussion of this issue in the report.
The Commission also objected to our treatment of the cause of delays
in gaining the approvals necessary to move forward with the
construction of the Rainbow Bridge project and said that the many
approvals needed to proceed with this project are virtually
completed. The discussion of this issue has been expanded to more
clearly show the chronology of events and the Commission's
misunderstandings of the types and sources of agreements required
that led to delays in this project. The Commission entered into a
memorandum of agreement with appropriate federal and state entities
in May 1995 (after the draft report had been provided to the
Commission for comment) that establishes the framework for moving
forward with this project. While the agreement is certainly a
positive step toward project implementation, we believe that
completing such an agreement earlier in the process could have
precluded the delays the Commission has experienced on this project.
On the other hand, the Commission said that it has taken our
suggestions with respect to updating the Plan, the possible
retirement of a portion of its debt, and the desirability of
developing a strategy for obtaining necessary input and agreements
from other agencies under advisement to the extent that these
recommendations have not already been superseded by events. For
example, the Commission said that it has largely completed the
process of developing collaborative strategies with appropriate
agencies involved in the environmental and historic preservation
process. The Commission has recently taken steps, such as completing
a memorandum of agreement in mid-May 1995 with several agencies
regarding the renovation of the Rainbow Bridge plaza, that are moving
this project closer to implementation. The overall theme of our
suggestions, however, was not intended to be project specific, but
rather to apply to the entire capital program. In this context, we
continue to believe that the suggestions we made could be beneficial
in the Commission's management of its overall capital program.
CERTAIN COMMISSION OPERATIONS
COULD BE IMPROVED
============================================================ Chapter 3
We performed a limited review of the Commission's internal controls
over its business affairs. We found that the Commission had new
policies in place to guide procurement and the remuneration of
commissioners but that in some instances it had not ensured that
these policies were consistently followed. For example, over half
the commissioners' expense claims that we reviewed lacked proper
approvals or were missing at least part of the required
documentation. We found errors in payments made in both procurement
and commissioner remuneration. The Commission has since taken action
to recover the overpayments. Finally, because some attorneys' fees
were not supported by detailed billings, we could not assess the
nature or reasonableness of the cost of the legal services provided.
Recognizing the need for a comprehensive assessment of its internal
controls and practices, the Commission plans to contract for such a
review.
No federal or New York State legislation specifically provides for
oversight of the Commission. Because the Commission may benefit from
periodic oversight by a governmental body, we have identified options
for permanently designating a governmental entity to oversee the
Commission's operations.
PROCUREMENT POLICIES WERE NOT
ALWAYS FOLLOWED
---------------------------------------------------------- Chapter 3:1
It is generally good business practice to obtain vendor competition
for significant purchases of goods and services. To assess the
Commission's procurement procedures, we selected 51 of the 238
purchase orders issued by the Commission from January 1, 1993,
through June 16, 1994, for review. Although 28 (of the 51) purchase
orders were for amounts that exceeded $5,000, the Commission had no
documentation in its files to indicate that it used vendor
competition to obtain the goods and services in question. In
responding to a draft of this report, Commission staff said that
competition had not been used in 17 (of the 28) instances because of
"unavoidable necessity." However, documentation of the unavoidable
necessities was not present in the Commission's files. For the
remaining 11 instances, Commission staff told us that vendor
competition had been used but that it had not retained the quotations
from the vendors that were not selected.
Prior to January 1994, the Commission did not have written
procurement policies and procedures. In January 1994, the Commission
formalized its procurement policies and procedures to require some
form of vendor competition and written contracts. Specifically, the
Commission's policy requires, when feasible, at least three written
quotations for purchases greater than $5,000 and written contracts
for purchases of more than $20,000 in one year from the same vendor.
According to the Commission's general manager, the Commission had
been using the policies and procedures that were formalized in
January 1994 for some time prior to that date. However, in
responding to the draft report, the Commission also indicated that
staff could not determine exactly which policy was in effect on what
dates.
Twenty-two of the 28 purchase orders that were for more than $5,000
were issued prior to January 1994, when the Commission formalized its
procurement policies. The remaining six were issued after the
policies were formalized. We found, however, that the Commission did
not have formal contracts for three purchase orders, ranging in
amount from $20,112 to $48,000, that were issued after the Commission
formalized its policies. The Commission said that there were unique
circumstances associated with four of the six orders issued after the
policies were formalized. In one instance, for example, verbal
(instead of written) quotations were obtained because time was of the
essence or other factors mitigated the use of written quotations.
However, documentation of such mitigating factors was not maintained
in the files.
During our work, we also noted that the Commission overpaid one
vendor $1,100 for uniforms. Our limited review of payments to
consultants disclosed three similar overpayments totaling about
$2,300. The overpayments resulted from paying the same charges twice
on separate account statements, not identifying an inaccurate invoice
total, and paying an invoice credit balance. Commission staff
informed us that the three overpayments have been or will be
recovered from the vendors.
In responding to the draft report, Commission officials indicated
that, because our audit uncovered some actual control problems, they
had issued a request for proposal for a major management and control
review that would address procurement issues.
COMMISSIONER REMUNERATION
POLICIES WERE NOT CONSISTENTLY
FOLLOWED
---------------------------------------------------------- Chapter 3:2
The Commission did not consistently follow its policies when
providing remuneration to the commissioners. As a result, some
expenses were not properly authorized and/or documented. The
Intermodal Surface Transportation Efficiency Act of 1991 authorized
reimbursement to commissioners for actual expenses incurred in the
performance of official duties and a per diem allowance of $150 when
rendering service as a member. According to this federal
legislation, the per diem is to be paid on a fiscal-year basis and
should not exceed $10,000 for any commissioner in any fiscal year.
Our review of the Commission's fiscal year 1993 payments to
commissioners found some errors in payments of the per diem allowance
and inadequate documentation and authorization for expense
reimbursements.
Controls are in place to ensure that the per diem limit is not
exceeded on payments to commissioners. Commission policy requires
each commissioner to file a quarterly attendance report detailing the
date and nature of the service rendered in order to receive an
allowance. The quarterly reports are to be reviewed by the
chairperson or vice chairperson of the Commission, one of whose
signatures is required to authorize payment. The Commission has no
written policy defining the circumstances in which a payment should
be allowed. The general manager commented that the chairperson is
familiar with the commissioners' duties; he or she uses best judgment
when determining the duties eligible for payment of the per diem
allowance.
We reviewed all per diem payments to commissioners during the
Commission's 1993 fiscal year. In that year, a total of $69,950 in
per diem allowances was paid to the eight commissioners. In addition
to being paid for Commission and committee meetings, per diem was
paid for conferences, meetings, and public relations events. In no
instance was a commissioner paid for an event that could not be
construed as serving the Commission. Of the eight commissioners,
three received the maximum allowable amount of $10,000 for that year.
We found four errors in per diem payment amounts. Payments to one
commissioner exceeded the maximum allowable by $1,550 because the
commissioner's expenses were tracked on a calendar-year basis instead
of a fiscal-year basis as required by the 1991 act. This error had
been recognized by the Commission before our review: part of the
overpayment had already been deducted from this commissioner's per
diem allowance payments at the time of our review, and the rest was
to be deducted before the end of the fiscal year. In three instances
in fiscal year 1993, commissioners were paid two per diem allowances
for one day. In one of these instances, a duplicate claim was
mistakenly paid, while in the other instances, more than one function
was served on a single day. In response to our questions, the
Commission clarified its policy so that only one per diem payment
will be provided for a day, regardless of the number of services
rendered. The general manager reported that he requested that the
commissioners adjust future per diem claims to provide for repayment
to the Commission of the extra per diem amounts.
Commissioners may also be reimbursed for travel and other
Commission-related expenses, but the guidelines on reimbursing
commissioners for Commission-related expenditures are very general.
Commission policy requires that all expenses be fully documented on
an expense report accompanied by receipts and submitted for approval
by the chairman or the vice chairman. The policy provides examples
of reimbursable and nonreimbursable expenses and notes that excessive
expenses will not be reimbursed. The general manager said that it is
up to each commissioner to apply judgment when making travel
arrangements. He also said that the Commission prefers not to
establish written guidelines for travel and other reimbursements
because it considers commissioners' requests for payment as generally
reasonable and it wishes to maintain flexibility. We believe that a
vague policy is undesirable because it is open to a wide range of
interpretations.
We reviewed all expense reimbursements to commissioners made in
fiscal year 1993, which amounted to $12,328 U.S. and $18,195
Canadian. The commissioners generally filed the required quarterly
expense reports. Most of these expenses were for mileage,
transportation, and meals. The expenses were related to a variety of
events, including Commission or committee luncheon or dinner
meetings; meetings with a variety of federal, state, and local
representatives; and professional meetings. Most of the claims for
expense reimbursement we reviewed were clearly connected to
Commission business. However, we noted claims for registration at a
San Diego conference, which included meals, for two commissioners'
spouses. The Commission does not have a specific policy related to
this issue, but the general manager said that it is common practice
for public authorities to pay registration fees for spouses. The
Commission did not pay for the wives' travel.
All required approvals and documentation were available for 45
percent of the commissioners' expense claims paid in fiscal year
1993. Of the remaining 55 percent of the expense claim payments, 18
percent lacked approval, 22 percent had no documentation, and 15
percent contained both documented and undocumented expenses. The
general manager acknowledged that procedures might not have been
followed in some instances.
SOME ATTORNEY FEES WERE NOT
SUPPORTED BY DETAILED BILLINGS
---------------------------------------------------------- Chapter 3:3
The Commission sought legal assistance in coordinating its capital
program with outside entities, obtaining needed agreements, and
issuing bonds. The costs for these services were not supported by
detailed billings. In 1991, the Commission retained the services of
an attorney to function as special counsel to represent the
Commission and appear for it before any federal, state, or local
agencies and provide any other legal and public affairs service the
Commission might require. This attorney was retained under a
$100,000 annual retainer, which he received in quarterly payments in
addition to expenses. His duties included serving as counsel for the
1992 bond offering, negotiating with federal and state agencies, and
working to obtain authority for the Commission to issue bonds exempt
from federal and state taxes. In addition to the $100,000 the
attorney was paid in 1993, his affiliated law firm was separately
paid over $61,000 for its work as counsel on the 1993 bonds. Fees
paid to the attorney and his affiliated law firm totaled about
$450,000 through August 31, 1994.
Another law firm was also hired to assist with obtaining authority
for the Commission to issue tax-exempt bonds and to serve as co-bond
counsel. This firm was paid about $200,000 for its work on each of
the two bond issuances. The principal attorney involved said that
billings were based on hourly rates; he noted that the cost of the
second bond issuance was similar to that of the first because of the
complexity of the second issuance.
We could not assess the nature or reasonableness of the cost of the
legal services provided because neither the contracts for services
nor the billings were sufficiently itemized. The municipal finance
specialists with whom we consulted could not assess the
reasonableness of these costs because the Commission did not enter
into specific written agreements for the counsels' services on the
bond issuances. These specialists said that such agreements should
define the services to be provided and estimate the resulting fees.
Our review of the cost of the legal services was further hampered by
invoices that did not provide details on the actual time spent or the
rates charged for bond issuance efforts. Without these documents, it
is not possible to assess whether the counsel's billings were
reasonable for the time and effort spent on the bond issuances.
LEGISLATION DOES NOT EXPLICITLY
AUTHORIZE GOVERNMENTAL
OVERSIGHT OF THE COMMISSION
---------------------------------------------------------- Chapter 3:4
Since the Commission was created in 1938, it has grown from an
operation managing one international bridge to one managing three
bridges and a complex, long-term capital improvement program. As
part of our work, we ascertained what external reviews of the
Commission's operations are required and have been performed.
Neither the joint resolution of the U.S. Congress that created the
Commission in 1938 nor the six subsequent amendments to date assign
responsibility for any governmental entity to oversee or audit the
Commission. Furthermore, no New York State legislation provides for
oversight of the Commission. A Canadian audit official said that the
Province of Ontario has also not reviewed the Commission's
operations. Consequently, no governmental entity has overseen the
Commission's activities in more than 50 years.
The joint resolution did call for an accurate and publicly available
record of bridge costs, expenses for operating and maintaining the
bridge, and tolls collected. The Commission has submitted its books
annually to Deloitte and Touche or its predecessor firm for review.
The Commission itself has recognized this lack of oversight
authority. This joint review was performed with the consent of the
Commission. The Commission has said on several occasions that it
considers itself a federal entity and has requested that federal
legislation be passed to give GAO permanent authority for overseeing
the Commission. However, there are numerous links between the
Commission and New York State, including the fact that the Governor
of New York appoints the U.S. commissioners, and the state has a
long-term ownership interest in the bridges.
Governmental oversight might also give the Commission access to
advice on the planning, coordination, and financing of major capital
projects, thereby helping it to avoid the kinds of problems the
Commission has encountered. Advice on such issues as the timing and
amount of bond financing and governmental requirements for major
projects is available from some governmental entities that serve in
this type of oversight capacity. New York State, for example,
provides such advice on projects and their financing to similar state
authorities and municipalities.
POSSIBLE STEPS FOR IMPROVING
CERTAIN COMMISSION OPERATIONS
---------------------------------------------------------- Chapter 3:5
Because neither GAO nor OSC has the explicit authority to audit the
Commission, we are not making formal recommendations for improving
Commission operations. We believe, however, the Commission may wish
to consider taking steps to strengthen its compliance with existing
Commission policies and procedures in such areas as (1) obtaining and
documenting sufficient price quotations where required, (2) preparing
written contracts for multiple purchases from the same vendor that
exceed $20,000 within a year, (3) having the chairperson or vice
chairperson review and approve all claims submitted by the
commissioners, and (4) having commissioners adequately document
claims for the reimbursement of travel expenses. To improve its
internal controls over payments and ensure that commissioners receive
remuneration only for appropriate expenses, the Commission may wish
to consider developing formal policies and procedures to (1) preclude
the duplicate payment of accounts payable balances, (2) ensure that
totals shown on invoices and account statements have been calculated
accurately, and (3) delineate clearly those expenses that will be
covered by per diem and travel reimbursements to commissioners.
Finally, to ensure reasonable payment of consultants for services
rendered, it would be prudent for the Commission to
require consultants to provide the Commission with detailed
breakdowns of the amounts they bill it for professional services
and
establish the amounts and/or rates associated with specific
professional services before such services are rendered and
billed for.
OPTIONS FOR OVERSEEING THE
COMMISSION
---------------------------------------------------------- Chapter 3:6
Several options are available for overseeing the Commission. One
option would be to designate OSC as the permanent authority for
overseeing the Commission. The state already audits similar state
bridge commissions and is in a position to provide both audit
oversight and advice on capital projects and financing.
Additionally, the bridges will ultimately be conveyed to the state of
New York and Canada once the bonds issued for the bridges and the
related interest are paid off. The state's oversight would then be
consistent with the state's responsibility for owning and operating
the bridges. Another option would be to grant oversight authority to
GAO or another federal entity. However, GAO's primary function is to
oversee the auditing of federal agencies and programs that spend
federal funds, which the Commission does not do.
If it is determined that governmental oversight by a state or federal
entity is appropriate, the enabling federal legislation for the
Commission would need to be modified. If the state of New York is to
have oversight authority, that state's law would have to be modified
as well.
AGENCY COMMENTS AND OUR
EVALUATION
---------------------------------------------------------- Chapter 3:7
In commenting on a draft of the report, the Commission recognized
that some improvements may be needed in its management and internal
controls and has issued a request for proposal to perform a
comprehensive management and control review. We believe that this is
a positive step, particularly if the proposed study includes the
issues we have raised earlier in this chapter on possible steps for
improving certain Commission operations.
With regard to options for future oversight of the Commission, the
Commission said its belief that the Office of the New York State
Comptroller does not have jurisdiction over any entity similar to the
Commission and also noted that it had previously requested that
members of its congressional delegation seek legislation to give GAO
authority to conduct periodic audits of its operations. While the
Office of the New York State Comptroller does have experience
auditing other entities similar to the Commission, such as the Peace
Bridge in nearby Buffalo, New York, we believe that it would be
inappropriate for us to specifically recommend whether OSC or GAO
should be given permanent oversight authority over the Commission
because such a decision is properly within the legislative purview of
the federal and state governments. Nevertheless, we continue to
believe that it may be beneficial for the Commission to receive
periodic oversight from some appropriate governmental body.
(See figure in printed edition.)Appendix I
GAO'S AND OSC'S RESPONSE TO THE
COMMENTS OF THE GENERAL MANAGER OF
THE NIAGARA FALLS BRIDGE
COMMISSION
============================================================ Chapter 3
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's and OSC's comments on a May 9, 1995, letter
from the general manager of the Niagara Falls Bridge Commission.
1. The Commission's response to our draft report included the
general manager's May 9, 1995, letter and 17 exhibits. The general
manager's letter and the comments of the Canadian commissioners are
included in this final report. The remainder of the materials
provided by the general manager have been considered in the
preparation of this final report but are not appended to the report
because of their voluminous nature.
2. It was not our intent to create a perception that the tax-exempt
status of the bonds is in jeopardy, and we have clarified our report
to ensure that the reader is not led to this conclusion. Clearly,
any decision related to this issue is properly within the purview of
the IRS, and it would be inappropriate for us to speculate on the
application of these laws and regulations. However, the standards
under which we conduct our work require that we review compliance
with laws and regulations that are significant to the audit
objectives, one of which was the financing of the capital program.
In light of the fact that the Commission has experienced delays in
expending its tax-exempt bond proceeds compared to the expectation it
had stated in its bond offering statement, we believe that we would
have been remiss had we not included a discussion of this issue in
the report.
3. We have revised the report to note that the Commission began
coordination with other agencies as early as 1990. In addition, our
discussion of this issue has been expanded to more clearly show the
chronology of events and the Commission's misunderstandings of the
types and sources of agreements required that led to delays in this
project. The Commission entered into a memorandum of agreement with
appropriate federal and state entities in May 1995 that establishes
the framework for moving forward with this project. The agreement is
a step toward project implementation, but we believe that completing
such an agreement earlier in the process could have precluded the
delays the Commission has experienced on the Rainbow Bridge project.
4. The report has been updated to reflect that a memorandum of
agreement on the Rainbow Bridge project was signed in May 1995.
(See figure in printed edition.)Appendix II
GAO'S AND OSC'S RESPONSE TO THE
COMMENTS OF THE CANADIAN
COMMISSIONERS
============================================================ Chapter 3
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's and OSC's comments in response to the May 1,
1995, comments by the Canadian Commissioners of the Niagara Falls
Bridge Commission.
1. GAO and OSC recognize that neither agency has jurisdictional
authority over Canadian members of the Commission. In fact, neither
agency has explicit audit authority over the Commission as a whole.
However, prior to commencing our audit, we had received written
permission from the Commission to conduct the audit, and at that
time, the Commission agreed that it would cooperate and provide full
disclosure of information we needed. During the course of our audit,
we believed it was necessary to interview individual commissioners to
ascertain their rationale for key decisions (such as the amount and
timing of the bond issuances), as well as their understanding of the
requirements and obstacles that would have to be addressed to bring
various components of the Commission's capital plan to fruition. Our
disclosure in the draft report that we were denied permission to
interview the Commissioners was not intended to either criticize the
Commissioners or imply that we had authority to demand such
interviews. Rather, the disclosure was simply to explain the audit
access limitation and its impact on our ability to thoroughly address
our audit objectives. Moreover, the auditing standards under which
we conduct our work require the disclosure of limitations (called
impairments) encountered in the conduct of our work. With regard to
meeting with the Commissioners as a group, the Commission
Chairperson's August 29, 1994, letter to us that denied us permission
to speak to the Commissioners individually also suggested that we
contact the General Manager to arrange a meeting with the full board
for the purpose of discussing the results of our audit work.
However, our purpose in requesting meetings with the commissioners
was to obtain information as part of our audit work rather than to
discuss the results of our work. Contrary to the understanding of
the Canadian commissioners, we were not invited on several occasions
to meet with the commissioners as a group.
2. The scope of our audit entailed the financing and implementation
of the capital plan and selected internal controls. We believe that
the report fairly and accurately presents the results of our work in
these areas. While the results of our work and the report identify
problems in these areas, our intent is not to be negative, but rather
to identify issues, problems, and possible corrective actions that
can ameliorate such problems from recurring in the future. Along
these lines, we have included observations at the end of chapters 2
and 3 that we believe are constructive suggestions the Commission may
wish to consider to reduce the risk that the identified problems do
not reoccur in the future.
The Commission believes that it is incorrect to imply that the
Commission was less than quick to respond to all concerns. We have
revised the report to more clearly point out that the Commission's
projects have been delayed because agreements and approvals necessary
to proceed with construction had not been obtained. Finally, with
regard to the statement that the report does not recognize the
political and social pressure to get the job done quickly, the scope
of our work focused on the financing and implementation of the
capital plans and the financial and environmental rules and
regulations that were required to be followed to implement this
project.
3. The report does not state nor did we intend to imply that the
Commission hid or concealed information. However, as stated in
comment 1, our auditing standards require that we disclose in our
reports impairments encountered in our work. The statement that the
Commission provided cooperation and full disclose to all audit
personnel warrants some discussion, however. On a number of
occasions our requests for information were handled in a manner that
was less cooperative than we normally experience in our audits. For
example, on our requests for minutes of the Commission's meetings we
experienced a delay while the Commission considered whether it would
grant us access to these records. When access was granted, we were
told we could not make copies of the minutes, but rather would have
to take notes from them. In another case, we became aware of a
document prepared by the Commission's special counsel on steps
necessary to comply with historic presentation requirements. Even
though such a document was directly related to the matters under
review, we were denied access to it.
4. We regret any inconvenience we may have caused the Canadian
commissioners by conducting these interviews. During the course of
our work, we had four meetings with Canadian officials. The subjects
of these meeting related to the Commission's 30-year plan and the
potential effects of the proposed projects. The officials we met
with readily agreed to have these meetings, and, at the time, we had
no indication that these meetings were inappropriate in any way. For
two of these meetings, we provided copies of our meeting notes to the
Canadian officials with whom we met and asked them to review and
provide any comments. None of the Canadian officials disclaimed our
interpretation of their comments. Through written comments and
subsequent telephone conversations, the Ministry of Transportation
officials did, however, provide us with some additional information
and clarification on the issues discussed.
5. We recognize that the international nature of the Commission and
questions about its relationship to federal and state governments in
the United States may have contributed to uncertainties about the
procedures and requirements the Commission would have to meet to
implement its capital program. Nevertheless, in undertaking its
capital program, the Commission had the responsibility to identify
and take steps necessary to comply with the requirements for
implementing the capital program. While the Commission engaged
consultants to help it work through various requirements, it
continued to have difficulties in identifying and complying with all
requirements, contributing to delays in project implementation. For
example, the Commission's general manager told us that he believed he
had received an oral commitment from an official of the New York
State Office of Parks, Recreation, and Historic Prevention that the
official would oversee the handling of the needed clearance for
historic preservation issues. That official told us, however, that
he was not the appropriate official for historic preservation issues
but rather was responsible for only land use issues. As laid out in
federal regulations, the State Historic Preservation Officer has
responsibility for historic preservation issues. The official the
general manager thought he had assurances from was not responsible
for historic preservation issues. This type of misunderstanding
illustrates the need for the Commission to develop a strategy for
obtaining input and/or agreements from all appropriate officials as
we suggest in the conclusion section at the end of chapter 2.
6. Because this point does not discuss specific issues, we are
unable to provide a detailed response. Nevertheless, we believe that
our conclusions are not speculative and are based on the facts and
information gathered during our review. We have, in some instances,
added information to the report to further support the points we are
making.
7. It was not our intent to create a perception that the tax exempt
status of the bonds is in jeopardy, and we have clarified our report
to ensure that the reader is not lead to this conclusion. Clearly,
any decision related to this issue is properly within the purview of
the Internal Revenue Service, and it would be inappropriate for us to
speculate on the application of these laws and regulations. However,
the standards under which we conduct our work require that we review
compliance with laws and regulations that are significant to the
audit objectives, one of which was the financing of the capital
program. In light of the fact that the Commission has experienced
delays in expending its tax-exempt bond proceeds compared to the
expectations it had stated in its bond offering statement, we feel we
would have been remiss had we not included a discussion of this issue
in the report.
FEDERAL ACTION WITH REGARD TO THE
NIAGARA FALLS BRIDGE COMMISSION
========================================================= Appendix III
1938 Joint Resolution (P.L. 116): The Bridge Commission was created
by a joint resolution of Congress on June 16, 1938, "to construct,
maintain and operate" a single bridge across the Niagara River. The
joint resolution also gave the Commission the authority to "purchase,
maintain, and operate all or any existing bridges across the Niagara
River." The joint resolution gave the Commission the authority "to
fix and charge tolls" for transit over the bridge which were to be
used for "maintaining, repairing and operating" the bridge. The
resolution gave the Commission the authority to issue bonds to help
pay for the cost of the bridge and other necessary expenses.
Interest on the bonds were not to exceed 6 percent per year. The
bridge was deemed to be "an instrumentality for international
commerce authorized by the Government of the United States," and the
income derived from the bridge as well as the bonds issued by the
Commission were to be exempt from all federal, state, municipal, and
local taxes. The joint resolution also provided for the eventual
conveyance of the bridge by the Commission to New York and Canadian
interests after the bonds and interest for constructing the bridge
were paid off. Finally, the resolution stated that the members of
the Commission would not be entitled to any compensation for their
services.
The joint resolution that created the Niagara Falls Bridge Commission
has been amended six times by the Congress. No comparable
legislation was passed in Canada or New York.
1939 Amendment (P.L. 222): The amendment required that the contract
made in relation to the sale of the bonds necessary for the
construction of the bridge had to be approved by the Comptroller and
the Attorney General of the state of New York. The amendment also
repealed language from the joint resolution that characterized the
bridge as "an instrumentality for international commerce authorized
by the Government of the United States...." Finally, the amendment
repealed language from the joint resolution that gave the bridge,
income derived from the bridge, and any bonds that were issued by the
Commission tax-exempt status from all federal, state, municipal, and
local taxation.
1940 Amendment (P.L. 453): The amendment gave the Commission the
exclusive right to operate the bridge and be entitled to receive and
apply revenues from the operation of the bridge so long as any bonds
or the interest thereon, payable out of such revenues, remain unpaid.
The amendment stated that the bridge and its income should be taxed
in the same manner as a public authority or a public agency of the
state of New York.
1946 Amendment (P.L. 406): The amendment gave the Commission the
authority to issue refunding bonds, if needed, to pay and retire any
outstanding bonds of the Commission.
1949 Amendment P.L. 244: The amendment gave the Commission the
authority to also purchase and reconstruct, repair, maintain, and
operate, existing bridges across the Niagara River north of the city
of Niagara Falls. The amendment also gave the Commission the
authority to issue bonds to pay for the cost of acquiring a bridge.
1953 Amendment (P.L. 166): The amendment gave the Commission the
authority to issue bonds for the construction of new bridges across
the Niagara River. The amendment also stated that, once the payment
of bonds and interest is complete, all bridges are to be conveyed to
the state of New York and to the Canadian interests. Finally, the
amendment gave the Commission the authority to replace any of its
existing bridges with a new structure. The new structure would be
subject to the same restrictions as the old bridges.
1991 Amendment (P.L. 102-240): The amendment eliminates language
saying the Commission members cannot receive compensation.
Reimbursement of commissioners is allowed for actual expenses
incurred in the performance of their duties. A per diem allowance of
$150 per member (not to exceed $10,000 in any fiscal year) is
allowed. The amendment eliminates a 6-percent limitation on bond
interest. The amendment also states that the Commission shall be
deemed for all purposes of all federal law to be a public agency or
public authority of the state of New York. This provision allows the
Commission to issue bonds that are exempt from U.S. federal income
taxes.
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