Emergency Relief: Status of the Replacement of the Cypress Viaduct
(Letter Report, 05/06/96, GAO/RCED-96-136).

Pursuant to a congressional request, GAO reviewed the status of the
replacement of the Cypress Viaduct in Oakland, California, focusing on
the: (1) expected completion date and reasons for construction delays;
(2) estimated cost of the project and reasons for any cost growth; and
(3) guidance governing the Federal Highway Administration's (FHwA) use
of emergency relief funds.

GAO found that: (1) the California Department of Transportation
(Caltrans) has completed one-third of the Cypress Viaduct's construction
and expects to have the project completed by 1998; (2) the replacement
of the Cypress Viaduct has been hampered by public opposition,
environmental concerns, and railroad negotiations; (3) Caltrans
estimates total project costs will be $1.13 billion, 90 percent of which
is federally financed through an emergency relief program; (4)
construction costs are higher than originally planned because Caltrans
underestimated the costs of constructing the freeway, managing traffic,
and relocating rail yards; (5) Caltrans risks incurring additional costs
because the project is in the early construction stages; (6) FHwA
approved funding for the Cypress Viaduct without determining whether it
was economically justified to prevent recurring damage and without
placing limits on the use of emergency relief funds; (7) FHwA based its
funding decision on the emergency relief manual and whether improvements
could be performed using emergency relief funds or traditional
transportation funds; and (8) the alternative that FHwA approved
resulted in more extensive construction, higher costs, and greater risk
of delay than would have occurred in rebuilding the structure prior to
the earthquake.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-136
     TITLE:  Emergency Relief: Status of the Replacement of the Cypress 
             Viaduct
      DATE:  05/06/96
   SUBJECT:  Funds management
             Public roads or highways
             Highway planning
             Road construction
             Construction costs
             Federal aid for highways
             Disaster relief aid
             Highway engineering
IDENTIFIER:  Loma Prieta Earthquake
             San Francisco Bay (CA)
             Oakland Cypress Viaduct (CA)
             FHwA Emergency Relief Manual
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Transportation, Committee on
Appropriations, House of Representatives

May 1996

EMERGENCY RELIEF - STATUS OF THE
REPLACEMENT OF THE CYPRESS VIADUCT

GAO/RCED-96-136

Emergency Relief

(342911)


Abbreviations
=============================================================== ABBREV

  Caltrans - California Department of Transportation
  DOT - Department of Transportation
  EIS - environmental impact statement
  ER - emergency relief
  FHWA - Federal Highway Administration

Letter
=============================================================== LETTER


B-270494

May 6, 1996

The Honorable Frank R.  Wolf
Chairman, Subcommittee on
 Transportation and Related Agencies
Committee on Appropriations
House of Representatives

Dear Mr.  Chairman: 

In October 1989, the Loma Prieta earthquake struck northern
California, causing severe damage to the San Francisco and Oakland
area.  The earthquake killed 67 people, injured 3,757, left 12,000
homeless, and caused property damage in excess of $10 billion.  In
Oakland, the earthquake collapsed a two-tiered portion of Interstate
880 known as the Cypress Viaduct, killing 42 people.  Because the
Cypress Viaduct was an integral component of the area's
transportation system, its destruction has caused severe congestion,
mobility problems, and financial losses. 

Six and one-half years after the earthquake, replacement of the
Cypress Viaduct is not complete.  Concerned about reports of delays
and high growth in its cost, you requested that we review the current
status of the project.  Specifically, you requested information on
the (1) status of construction, expected completion date, and reasons
for any delays; (2) estimated cost of the project and reasons for any
growth in its cost; and (3) guidance governing the Federal Highway
Administration's (FHWA) use of emergency relief funds. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The California Department of Transportation (Caltrans) has completed
about one-third of the construction.  Currently, Caltrans expects to
complete one portion of the project in 1997 and the entire project in
1998.  Although the emergency relief program is designed to assist
states in quickly repairing highways to their predisaster condition,
several factors have slowed the replacement of the Cypress Viaduct. 
Construction did not begin until early 1994 because Caltrans had to
(1) address public opposition to replacing the existing structure in
its original location, (2) complete an environmental review to select
a new alternative that would address the public's concerns, and (3)
negotiate with and compensate the railroads for building the project
on railroad property.  Since construction began, most of the
components of the project have progressed on schedule. 

Caltrans estimates that the project's total cost will be $1.13
billion.  Of this amount, $1.01 billion, or about 90 percent, will be
federally financed through the emergency relief program, which
provides financial assistance to help states repair or rebuild
federal-aid highways damaged during natural disasters.  California
will finance the remainder.  The current cost estimate is about $210
million higher than the estimates Caltrans prepared during 1990-91,
primarily because Caltrans underestimated the costs of constructing
the freeway, managing traffic, and relocating the rail yards. 
Furthermore, although Caltrans does not anticipate further cost
increases, the risk of an increase remains because major projects
worth about $560 million are still in the early stages of
construction. 

FHWA's regulations limit the use of emergency relief funds for
improvements to or changes in the character of a destroyed facility. 
The regulations allow for funding "betterments"--such as relocation,
replacement, upgrades, or added features that did not exist prior to
the disaster--only when they are clearly economically justified to
prevent recurring damage.  In the case of the Cypress Viaduct, FHWA
did not consider the relocation a betterment and approved funding to
significantly relocate the Cypress Viaduct without (1) making a
finding that the relocation was economically justified to prevent
recurring damage or (2) placing limits on the use of the emergency
relief funds.  Instead, FHWA based its funding decision, in part, on
its Emergency Relief Manual, which provides inconsistent information
on how to address improvements required as a result of an
environmental review and whether improvements and costs above those
required to fix or replace a structure should be funded with
emergency relief funds or with traditional transportation funds.  The
alternative that FHWA approved resulted in more extensive
construction, higher costs, and greater risks of delays than would
have occurred in replacing the structure along its original
alignment. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Loma Prieta earthquake, measuring 7.1 on the Richter scale,
struck northern California on October 17, 1989, causing many deaths
and widespread property damage.  It also severely damaged several
major transportation structures in the Bay Area, including the
Embarcadero Freeway, the Bay Bridge, and the Cypress Viaduct.  To
help the area cope with the earthquake's impact on transportation,
the Congress appropriated $1 billion in federal transportation
emergency relief assistance in fiscal year 1990 and an additional
$315 million in fiscal year 1994.  California allocated over
three-fourths of this assistance to the Cypress Viaduct project. 

The emergency relief program, administered by FHWA, provides
financial assistance to states and local highway agencies to help
repair federal-aid highways seriously damaged during natural
disasters--hurricanes, earthquakes, volcanoes, and floods--or by
catastrophic failures.  As a kind of insurance against catastrophe,
the program provides states with funding above and beyond their
regular federal highway funding.  The program's funds are not subject
to a state's yearly funding limit and thus pay for projects that do
not have to compete against other needs within the state.  By law,
FHWA can provide a state with up to $100 million in emergency relief
funding for each natural disaster found eligible for funding. 
However, the Congress has passed special legislation lifting this cap
for specific disasters. 

The criteria for administering emergency relief funds are set out in
23 C.F.R.  section 668.  In addition, FHWA's Emergency Relief Manual
provides FHWA's division offices, located in each state, with the
operating procedures for implementing the program.  These offices
process state highway agencies' applications for funding and make
decisions on the eligibility of specific projects.  During the first
180 days following a disaster, the program covers up to 100 percent
of emergency repairs to restore essential highway traffic service and
protect remaining facilities.  In addition, for the Cypress Viaduct
replacement project, the Congress made all repairs during the first
180 days 100 percent eligible for emergency relief funding.  For
permanent restoration work or repairs after the first 180 days, the
federal share of costs varies with the type of federal-aid highway. 
For projects on the interstate system, the federal share generally is
90 percent of eligible costs. 

The Cypress Viaduct project reestablishes a link in the Bay Area's
freeway system, which connects the East Bay area (including Oakland)
with San Francisco via the Bay Bridge and with Interstate 80 to the
north.  The project replaces the 1.5-mile connection that was lost
during the earthquake with roughly 5 miles of new freeway segments,
providing direct access to both the Bay Bridge and Interstate 80.  It
also includes several new interchanges and improves access to the
Port of Oakland.  It realigns the original freeway to the west,
taking it out of a residential neighborhood and into active rail
yards (see fig.  1).  The project comprises seven separate major
construction projects, each covering a specific segment of the work
and ranging in value from $22 million to $162 million.  (App.  I
shows the location, scope, and status of each segment of the
project.)

   Figure 1:  Design and Location
   of Project Relative to Original
   Structure

   (See figure in printed
   edition.)

Note:  The indication of north is approximate. 

Source:  Based on a Caltrans illustration. 


   AFTER 6 YEARS, CONSTRUCTION IS
   ABOUT ONE-THIRD COMPLETE
------------------------------------------------------------ Letter :3

Although the emergency relief program is designed to assist states in
quickly repairing highways to predisaster conditions, several factors
have slowed the replacement of the Cypress Viaduct.  Part of the
delay in constructing the project has resulted from public opposition
to replacing the old, doubled-decked structure in its original
location.  In response to public concerns, Caltrans identified
several alternative alignments that it studied in a 2-year
environmental review.  In 1991, Caltrans and FHWA decided to replace
the destroyed 1.5-mile structure, which had bisected a residential
area, with a new 5-mile structure running through active rail yards. 
Further delays occurred because Caltrans needed additional time to
negotiate right-of-way issues with the railroads and because
constructing the highway amid the rail yards created logistical
problems. 

As of March 1996, FHWA had obligated nearly $1 billion to the
project, or about 35 percent of all the emergency relief obligations
FHWA has made nationwide since 1989.  These obligations also
represent over 95 percent of the emergency relief funding for the
project.  To date, Caltrans has awarded contracts for all of the
major construction projects.  As table 1 shows, the seven projects
are at various stages:  one project is complete, five are under way,
and one is just beginning.  According to Caltrans officials, taken as
a whole, the project is about one-third complete.  As of March 1996,
Caltrans estimated that it will not complete the entire project until
1998.  However, by offering contractors incentives for early
completion, Caltrans expects to complete one major portion of the
project in 1997.  Completing this portion will allow traffic using
Interstate 880 access to the Bay Bridge, thus reestablishing a
critical link lost during the earthquake. 



                                Table 1
                
                     Status of the Project's Major
                         Construction Segments

                                                                  Cost
                                                  Percentage  (dollars
                            Date     Estimated  completed as        in
                        contract    completion      of March  millions
Project                  awarded          date          1996         )
--------------------  ----------  ------------  ------------  --------
Project A               01/09/95         05/97            37      $105
Project B               05/08/95         07/97            18        92
Project C               01/11/94         12/95           100        22
Project D               01/28/94         08/96            84        39
Project E               04/11/95         06/97            36       155
Project F               08/18/95         01/98            25       162
Project G               03/21/96         10/98             0        46
----------------------------------------------------------------------
Note:  Appendix I shows the location of each project. 

Source:  Based on information from Caltrans. 

Although it will take Caltrans about 9 years from the time of the
earthquake to complete the entire project, most of the delays
occurred before construction began.  Immediately following the
earthquake, FHWA and Caltrans planned to replace the Cypress Viaduct
as it existed prior to the earthquake, with a new double-decked
structure.  However, immediate replacement of the viaduct was not
possible because the original structure had divided an Oakland
neighborhood, and local residents objected to replacing the structure
as it had been before the earthquake.  For example, numerous
residents objected to rebuilding in the pre-earthquake location
because they said doing so would cause pollution and congestion and
reduce growth.  In addition, in December 1989 the Oakland City
Council passed a resolution opposing any construction in the
viaduct's original corridor, stating that rebuilding would continue
to divide the community and hinder its economic and social growth. 

Consequently, Caltrans had to identify several new alternative
alignments for the structure.  Because of the size and complexity of
the alternative alignments proposed, Caltrans had to assess their
impact in an environmental impact statement (EIS),\1 which it
prepared in 1990-91.  In January 1992, FHWA finalized the
environmental review by issuing a record of decision on the project. 

When, as a result of the environmental review, Caltrans and FHWA
selected an alignment that shifted the project out of the residential
neighborhood and into the area of active rail yards, Caltrans had to
undertake extensive and protracted negotiations with the Southern
Pacific and Santa Fe railroads to work out the details of removing
and relocating the rail yards.  Between 1992 and 1994, as it
developed the final engineering plans for major segments of the
project, Caltrans and the railroads were reaching agreement on how to
relocate the existing rail yards, what type of track and railroad
standards would be needed, and what the total cost of relocating the
rail yards would be. 

In early 1994, while these negotiations continued, Caltrans began
constructing two major segments of the project.  However, Caltrans
has periodically had to halt construction to allow trains to pass
through the site.  Project B, in particular, has experienced
construction delays because of the need to accommodate rail traffic. 
According to Caltrans officials, project B, which is currently 18
percent complete, is the only major project that is experiencing
problems with its schedule.  However, they expect project B, as well
as all of the other major projects, to meet the estimated completion
dates shown in table 1. 


--------------------
\1 An EIS must include an analysis of the social, economic, and
environmental impact of proposed alternates. 


   COST OF REPLACING THE CYPRESS
   VIADUCT HAS INCREASED
   SIGNIFICANTLY
------------------------------------------------------------ Letter :4

As of March 1996, Caltrans estimated that the total cost of replacing
the Cypress Viaduct will be $1.13 billion.  Of this amount, $1.01
billion, or about 90 percent, will be federally financed through the
emergency relief program; California will finance the remainder. 
This estimate is significantly higher--as much as $824 million--than
the previous estimates documented in a 1989 post-earthquake damage
assessment and in the EIS completed in 1991.  The increases have
occurred because of significant changes in the project's scope and
refinements from the earlier estimates.  The current estimate is also
$210 million higher than the baseline cost estimates\2 prepared
during 1990-91, prior to FHWA's approval of the current project's
design.  Most of these increases have occurred because Caltrans
incurred additional costs for construction, traffic management, and
relocation of the rail yards once construction began.  Furthermore,
although Caltrans does not anticipate further cost growth, an
increase could occur because major construction projects worth about
$560 million are still in the early stages. 


--------------------
\2 "Baseline cost estimates" refers to several separate estimates
that Caltrans prepared for different activities. 


      FHWA AND CALTRANS HAVE
      CONTINUALLY REFINED THE COST
      ESTIMATES
---------------------------------------------------------- Letter :4.1

On October 30, 1989, FHWA engineers, following the agency's Emergency
Relief Manual, inspected the collapsed Cypress Viaduct.  On the basis
of this inspection, they prepared a damage assessment, estimating
that replacing the destroyed structure along its predisaster
alignment would cost $306 million.  This estimate was a conceptual
estimate based on the inspection rather than on detailed engineering. 
It included the costs for items such as removing the old structure,
managing traffic, building a new structure, and engineering.  In the
estimate, FHWA recognized that more detailed engineering would be
required to refine the project's estimated costs. 

However, after preparing this initial estimate, FHWA and Caltrans did
not complete a detailed estimate for rebuilding the Cypress Viaduct
as it existed prior to the earthquake.  Instead, as noted earlier,
public opposition to rebuilding the structure at its original
location led Caltrans to prepare an EIS and ultimately to select a
new alignment for the project.  In the EIS, the costs for this
alternative were estimated at $695 million, or about $400 million
more than the estimate based on the damage assessment, primarily
because of additional costs for acquiring rights-of-way and
relocating the rail yards.  Furthermore, the estimate in the EIS
included only the capital costs--for construction, rights-of-way, and
relocation of the rail yards--and excluded the costs for engineering
and traffic management.  As a result, it did not provide a
comprehensive initial, or baseline, cost estimate for the project. 

According to Caltrans and FHWA officials, the estimate in the EIS did
not include the noncapital costs because there was no requirement to
present them.  To arrive at a complete baseline cost estimate, we
worked with Caltrans to identify other cost estimates that it had
developed while preparing the EIS, including estimates for
engineering, traffic management, and several other items.  By adding
these cost estimates to the estimate in the EIS of $695 million, we
calculated a baseline cost estimate of $919 million for the project. 


      MOST COSTS INCREASED ONCE
      CONSTRUCTION BEGAN
---------------------------------------------------------- Letter :4.2

Caltrans' current estimate of $1.13 billion is about $210 million
higher than the baseline estimate of $919 million.  Table 2
identifies the cost increases from the baseline estimate by project
element. 



                                Table 2
                
                   Cost Increases by Project Element

                         (Dollars in millions)


                                                              Differen
Project element                           Baseline   Current        ce
----------------------------------------  --------  --------  --------
Emergency opening                         $ 18.2\a    $ 20.0     $ 1.8
Preliminary engineering                      110.7     110.2     (0.5)
Construction                               534.8\b     663.7     128.9
Rights-of-way and relocation assistance      130.0     140.8      10.8
Railroad relocation                          100.0     122.2      22.2
Traffic management                            25.5      50.9      25.4
Performance agreement                            0      17.3      17.3
Other archeological work                         0       4.0       4.0
======================================================================
Total estimated cost                        $919.2  $1,129.1    $209.9
----------------------------------------------------------------------
\a All costs are in nominal dollars. 

\b This cost figure is 15 percent higher than Caltrans' estimate for
construction ($465 million) in the EIS because it includes estimated
costs for construction engineering. 

Source:  GAO's analysis of data from Caltrans. 

As table 2 shows, construction is the major element contributing to
the cost increases.  The increases are primarily due to the unplanned
costs of controlling and disposing of contaminated soil and
groundwater (approximately $40 million), additional requirements for
seismic strengthening (approximately $35 million to $40 million), and
provisions for contract incentives to speed up construction
(approximately $24 million).  Other major increases resulted because
Caltrans underestimated the costs of managing traffic and relocating
the rail yards.  For example, Caltrans underestimated by about $22
million the costs of replacing the existing track and structures with
equivalent facilities built to the rail industry's current standards. 
In addition, after completing the EIS, Caltrans agreed to compensate
the city of Oakland with a package of benefits, known as the
performance agreement, to mitigate some of the financial impact of
losing the Cypress Viaduct. 

The final cost could increase beyond the current estimate of $1.13
billion because major projects worth about $560 million are still in
the early stages of construction.  In addition, cost increases on the
project have contributed to a shortfall in the emergency relief
available for other damage caused by the Loma Prieta earthquake. 
According to Caltrans, it will be seeking an additional $112.5
million in emergency relief funding for three projects in San
Francisco County that are eligible for funding through the emergency
relief program. 


   FHWA'S GUIDANCE PROVIDES
   INCONSISTENT INFORMATION ON
   USING EMERGENCY RELIEF FUNDS
------------------------------------------------------------ Letter :5

FHWA's regulations allow the use of emergency relief funds for
betterments.\3 According to the regulations, such betterments are
eligible for emergency relief funding only when they are clearly
economically justified to prevent future recurring damage.\4 FHWA
officials told us they had approved funding to significantly realign
the Cypress Viaduct without making such a finding because they did
not consider the relocation of the project to be a betterment within
the terms of their regulations. 

As a result of this interpretation, the agency based its funding
decisions, in part, on guidance in its Emergency Relief
Manual--guidance that provides inconsistent information on how to
address improvements recommended as a result of an environmental
review.  While the design approved by FHWA may be a reasonable
approach for addressing environmental concerns, the decision to fund
the entire project with emergency relief funds raises questions about
the appropriateness of using emergency relief funds to fully pay for
future projects in similar circumstances. 

The emergency relief program is aimed at helping states quickly
repair damage to federal-aid highways resulting from disasters.  The
program establishes limits on the use of the funds and precludes
using the funds to correct non-disaster-related deficiencies or to
improve replacement highway facilities beyond meeting the current
standards.  The emergency relief regulations do not address
situations in which projects entail an environmental review.  In
addition, FHWA's Emergency Relief Manual states that environmental
reviews will not be a major factor for most emergency relief projects
and that most emergency relief projects will be exempt from such
reviews. 

The replacement of the Cypress Viaduct highlights a dilemma between
quickly replacing a damaged facility using emergency relief funds and
addressing environmental considerations.  When FHWA officials,
following the Emergency Relief Manual, assessed the damage to the
Cypress Viaduct shortly after the earthquake and prepared the initial
cost estimate of $306 million to rebuild it along the same alignment,
their decision was consistent with the goals of the program--quickly
replacing the destroyed facility and restoring predisaster traffic
service.  However, when community opposition and environmental
concerns precipitated a call for alternatives, FHWA did not approve
the relocation on the basis of the emergency relief regulations,
which allow for relocations only when they are clearly economically
justified to prevent recurring damage.  Instead, FHWA approved the
relocation on the basis of the results of the EIS, without preparing
an economic justification. 

FHWA said that because the relocation was not a betterment, the
emergency relief regulations, which place limits on funding
improvements to or changes in the character of a destroyed facility,
were not applicable.  Instead, the agency relied on its Emergency
Relief Manual to determine which of the project's costs should be
paid with emergency relief funds.  However, the manual provides vague
and inconsistent guidance on how to administer the program,
particularly when a more expensive alternative is selected as a
result of an environmental review.  For example, one section of the
manual states that betterments, including relocations, must be
quickly justified without extensive public hearings or environmental,
historical, right-of-way, or other encumbrances.  However, the manual
also states that betterments resulting from environmental or permit
requirements beyond the control of the highway agency are eligible
for emergency funds.  Therefore, even if FHWA had determined that
relocating the structure was a betterment, it would have faced
inconsistent guidance in determining whether to fully fund the
project with emergency relief funds.  These and other inconsistencies
confront FHWA officials when they are determining if emergency relief
funds can be used to pay for highway improvements that enhance the
postdisaster transportation network rather than return it to its
predisaster condition.  (App.  II cites sections in FHWA's manual
that present inconsistent information.)

According to FHWA officials, given the severe destruction and trauma
of the disaster and the inconsistencies in the emergency relief
guidance, it was difficult for them to make decisions about
eligibility on the basis of hard and fast rules.  Therefore, the
officials used maximum discretion to ensure that the project was
fully funded. 

Currently, the Department of Transportation (DOT) is contemplating
changes to the emergency relief regulations (23 C.F.R.  section 668). 
DOT's notice of proposed rulemaking has focused on expanding the
eligibility of the program by, for example, permitting a state to use
emergency relief funds to repair roadways damaged as a result of
overusing the existing roadways to reach and repair a disaster site. 
The proposal does not clarify the appropriate limits of the emergency
relief program or address the inconsistencies in the current guidance
concerning environmental reviews. 


--------------------
\3 The regulations describe betterments as "relocation, replacement,
upgrading or other added features not existing prior to the
disaster."

\4 23 C.F.R.  section 668.109(b)(6). 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

The project to replace the Cypress Viaduct has taken longer and cost
more to complete than initially estimated because local opposition,
environmental requirements, and railroad relocation activities have
delayed construction and expanded the scope of the project.  Although
the project is nearly one-third complete and most of the emergency
relief funds have been obligated, the project can still offer some
valuable lessons about FHWA's regulations and guidance for
administering the emergency relief program. 

We acknowledge the need to replace the Cypress Viaduct in a manner
that addressed public concerns, and we do not take issue with the
decision to shift the project from its predisaster location to its
new location.  However, we question whether the improvements and
costs resulting from the significant relocation and changes in scope
should have been funded through the emergency relief program rather
than the traditional transportation programs.  Under its regulations,
FHWA could have required a baseline cost estimate for replacing the
Cypress Viaduct along its original alignment and limited the use of
emergency relief funds to those replacement costs. 

FHWA's funding decisions raise questions about whether the agency's
regulations and guidance establish clear limits on funding projects
through the emergency relief program, particularly when an
environmental review recommends enhancements to a facility beyond its
predisaster condition.  As DOT rethinks its emergency relief program,
it has an opportunity to clarify what costs are eligible for funding
through the emergency relief program rather than the traditional
federal-aid highway programs.  Answering this question is important
because emergency relief funds are provided to states above and
beyond their annual highway allocations and are not subject to the
states' limitations on obligations.  Clearly laying out the
appropriate uses of emergency relief funding in situations involving
environmental reviews would help define the limits of the program,
enabling FHWA officials to better control the costs of major and
complex emergency relief projects. 


   RECOMMENDATION
------------------------------------------------------------ Letter :7

We recommend that the Secretary of Transportation direct the
Administrator, Federal Highway Administration, to modify the
emergency relief guidance to (1) make the agency's emergency relief
regulations and manual consistent and (2) clearly define what costs
can be funded through the emergency relief program, particularly when
an environmental review recommends improvements or changes to the
features of a facility from its predisaster condition in a manner
that adds costs and risks to the project. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We provided a draft of this report to DOT for review and met with DOT
and FHWA officials, including the Associate Administrator for Program
Development and the Acting Chief of the Federal Aid and Design
Division, to discuss their comments on the draft.  The FHWA officials
reemphasized the importance of the environmental review process in
their funding decisions.  They also disagreed with our
characterization of the project as a betterment and, therefore,
disagreed with our conclusion about their funding decision. 

The FHWA officials explained that the Cypress Viaduct was damaged
beyond repair by the Loma Prieta earthquake and that a replacement
facility was eligible for emergency relief funding; however, because
of the catastrophic failure of the original double-decked structure
and reservations about the appropriate seismic design for a
replacement structure, construction of a double-decked facility was
neither practical nor feasible.  In addition, these officials
commented that a new double-decked structure would not have complied
with the requirements of the environmental review process. 
Accordingly, these officials told us, various alternatives that
provided functions and service comparable to those of the destroyed
facility were developed and assessed through that process. 

In the view of these officials, replacing the facility as originally
constructed was not a viable option and because the facility now
under construction is comparable in service and function to the
destroyed facility, the new structure is not a betterment.  As a
result, they disagreed with our conclusion that emergency relief
funding should have been limited to the cost of replacing the
destroyed facility in its original location.  Finally, the officials
indicated that it was not within FHWA's statutory authority to cap
emergency relief funding, as we suggested, at the amount of the
estimated cost for replacing the facility in its original location. 

As we noted in our conclusions, we acknowledge the need to replace
the Cypress Viaduct in a manner that addressed the environmental and
public concerns, and we do not take issue with the decision to shift
the facility to its new location.  However, we believe that
significantly altering the original alignment--a major relocation--is
a betterment because (1) the emergency relief regulations describe a
betterment as "relocation, replacement, upgrading or other added
features not existing prior to the disaster"; (2) the scope of the
replacement project changed the character of the facility by
expanding the destroyed 1.5-mile structure to 5 miles of new highway
structure; and (3) the new freeway segment adds several interchanges
that improve access to local streets and port facilities. 

Although FHWA stated that it could not limit emergency relief funds,
we believe that the existing regulations provided the agency with
sufficient authority to limit the use of emergency relief funding on
this replacement project.  The existing regulations state that
"emergency relief reimbursement is limited to the cost of a new
facility to current design standards of comparable capacity and
character to the destroyed facility." Following the regulations, FHWA
could have estimated the costs of replacing the Cypress Viaduct with
a facility built to current design standards along the original
alignment and limited the use of emergency relief funding to those
costs.  The state would then have had to use its federal-aid highway
apportionments to cover any costs not funded through the emergency
relief program. 

Finally, FHWA did not comment on our recommendation that it modify
its emergency relief guidance by making the regulations and manual
consistent and clearly defining what costs can be funded through the
emergency relief program in cases involving environmental reviews. 
We believe that the existing regulations and manual contain
inconsistencies, particularly in addressing environmental review
requirements.  If this issue is not clarified, questions will remain
as to whether emergency relief funds or federal-aid highway funds are
the appropriate means of funding highway improvements that are
recommended by an environmental review and that either correct
conditions not related to the disaster or enhance a facility. 

The FHWA officials also suggested technical and editorial changes to
the report.  Where appropriate, we incorporated these changes into
the report. 


---------------------------------------------------------- Letter :8.1

We performed our review from October 1995 through April 1996 in
accordance with generally accepted government auditing standards.  To
accomplish our objectives, we gathered schedule and cost information
from FHWA and Caltrans and assessed FHWA's procedures for
implementing the emergency relief program.  Appendix III contains
more detailed information on our scope and methodology. 

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter.  At that time, we will send copies to
interested congressional committees; the Secretary of Transportation;
and the Administrator, Federal Highway Administration.  We will also
make copies available to other upon request. 

Please call me at (202) 512-2834 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
IV. 

Sincerely yours,

John H.  Anderson, Jr.
Director, Transportation and
 Telecommunications Issues


LOCATION, SCOPE, AND STATUS OF
MAJOR CONSTRUCTION PROJECTS
=========================================================== Appendix I



   (See figure in printed
   edition.)

Note:  Artist's rendition; not to scale.  The indication of north is
approximate. 

Source:  Based on a Caltrans illustration. 


INCONSISTENCIES IN FHWA'S
EMERGENCY RELIEF MANUAL
========================================================== Appendix II

During our review of the Federal Highway Administration's (FHWA)
Emergency Relief Manual,\5 which FHWA officials state is their
principle source of guidance for administering the emergency relief
program, we noted several sections on the criteria for funding
eligibility that were inconsistent with other sections related to the
environmental review process.  In this appendix, we present those
sections of the manual that are inconsistent with other sections when
applied to the Cypress Viaduct project.  These inconsistencies
highlight the question as to whether emergency relief funds are the
appropriate means of funding highway improvements that are
recommended by an environmental review and that either correct
conditions not related to the disaster or enhance a facility. 


--------------------
\5 Emergency Relief Manual, Federal Highway Administration, U.S. 
Department of Transportation, Jan.  1994. 


   STATEMENTS INCONSISTENT WITH
   FHWA'S ACTIONS ON THE CYPRESS
   VIADUCT PROJECT
-------------------------------------------------------- Appendix II:1

     "Emergency Relief (ER) funds are not intended to replace other
     Federal-aid, State, or local funds for new construction to
     increase capacity, correct non-disaster related deficiencies, or
     otherwise improve highway facilities."

     "ER participation may be prorated to the cost of a comparable
     facility when the proposed replacement project exceeds the
     capacity or character of the destroyed facility."

     "A betterment is defined as any additional feature, upgrading,
     or change in the capacity or character of the facility from its
     predisaster condition.  Betterments are generally not eligible
     for ER funding unless justified on the basis of economy,
     suitability, and engineering feasibility and reasonable
     assurance of preventing future similar damage.  Betterments
     should be obviously and quickly justifiable without extensive
     public hearing, environmental, historical, right-of-way, or
     other encumbrances.  The justification must weigh the costs of
     the betterment against the probability of future recurring
     eligible damage and repair costs."

     "Where relocation is necessary, each case must be considered
     carefully to determine what part of the relocation is justified
     for construction with the participation of ER funds."

     "Extensive relocation of a replacement bridge is an ineligible
     betterment and ER participation will be normally limited to the
     cost of the structure and a reasonable approach length."

     "Excessive delays in completing the environmental process may
     jeopardize an otherwise reasonable project by removing it from
     an eligible category under 23 U.S.C.  125.  In other words, if a
     situation persists with no corrective action for an extended
     period of time, it may be unreasonable to continue to classify
     it as a disaster related emergency, but rather as a long-term
     need to be funded with regular Federal-aid."


   STATEMENTS CONSISTENT WITH
   FHWA'S ACTIONS ON THE CYPRESS
   VIADUCT PROJECT
-------------------------------------------------------- Appendix II:2

     "In cases where a categorical exclusion classification is not
     appropriate, an environmental assessment or environmental impact
     statement must be prepared."

     "Betterments resulting from environmental or permit requirements
     beyond the control of the highway agency are eligible for ER
     funds if these betterments are normally required when the Agency
     makes repairs of a similar nature in its own work."


SCOPE AND METHODOLOGY
========================================================= Appendix III

For information on the current status of the project, its estimated
completion date, and the reasons for any delays, we interviewed
officials at FHWA and the California Department of Transportation
(Caltrans), performed in-depth file reviews, and reviewed Caltrans'
construction status reports. 

To identify the current estimated cost of the project and the reasons
for any growth in costs, we interviewed officials at FHWA and
Caltrans.  We also conducted detailed file reviews at Caltrans'
headquarters and FHWA's division office in California to identify the
construction projects that constitute the overall Cypress project and
to document their current estimated costs.  We further obtained and
reviewed cost information from FHWA's financial system to
independently validate Caltrans' cost data.  Where we found
discrepancies, we conducted follow-up interviews with project
managers and budget staff to reconcile the numbers.  To identify any
growth in the cost, we obtained baseline cost estimates prepared for
the project and compared them with the current cost estimates. 
Working with Caltrans and FHWA officials, we categorized the cost
growth by the specific dimensions of the project. 

To obtain and assess information on how FHWA has carried out its
oversight responsibilities under the emergency relief program, we
conducted interviews with FHWA headquarters personnel to understand
the program's requirements.  We also reviewed legislation
establishing the program, the program's regulations, and FHWA's
Emergency Relief Manual to obtain details on the program's
requirements.  In addition, we obtained and reviewed documents such
as the environmental impact statement and FHWA's work authorizations
to document FHWA's decisions about eligibility.  We then compared the
guidance and regulations with the actions FHWA took on the project. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION

Lynne L.  Goldfarb
Phyllis F.  Scheinberg

CHICAGO REGIONAL OFFICE

Joseph A.  Christoff
Robert M.  Ciszewski
Barry A.  Kirby
David I.  Lichtenfeld

SAN FRANCISCO REGIONAL OFFICE

Linda Chu
Julie M.  DeVault

OFFICE OF THE GENERAL COUNSEL

Michael G.  Burros


*** End of document. ***