Los Angeles Red Line: Financing Decisions Could Affect This and Other Los
Angeles County Rail Capital Projects (Letter Report, 05/14/96,
GAO/RCED-96-147).
Pursuant to a congressional request, GAO reviewed the Los Angeles County
Metropolitan Transportation Authority's Red Line subway project,
focusing on the: (1) project's estimated cost; (2) Authority's financing
plans; and (3) Federal Transit Administration's (FTA) oversight of the
project's quality control and assurance practices.
GAO found that: (1) as of February 1996, the project's estimated total
cost was $5.9 billion; (2) project costs have increased due to
construction problems, new construction requirements, and project
enhancements; (3) additional design problems and pending lawsuits may
further increase project costs; (4) the Authority plans to use $3.1
billion in federal funds and $2.8 billion in state and local funds to
finance the project, but it may not realize about $380 million of the
total; (5) the Authority may have to reduce the funding or scope of
other rail projects, defer or cancel planned projects, or extend the
project's construction schedule to cover current or future funding
shortfalls, but extending the project's construction schedule could also
increase costs; (6) in response to FTA actions, the Authority is
reorganizing its quality control and assurance programs and increasing
program staff; and (7) FTA has increased the number of on-site oversight
personnel to improve project monitoring.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-96-147
TITLE: Los Angeles Red Line: Financing Decisions Could Affect This
and Other Los Angeles County Rail Capital Projects
DATE: 05/14/96
SUBJECT: Mass transit operations
Construction costs
Subway construction
Construction grants
Quality control
Project monitoring
Cost overruns
Intergovernmental fiscal relations
Federal aid to localities
IDENTIFIER: Los Angeles (CA)
Los Angeles County (CA)
Los Angeles Subway Transit Project (CA)
FTA New Starts Capital Discretionary Grant Program
DOT Surface Transportation Program
FHwA Congestion Mitigation and Air Quality Improvement
Program
FTA Urbanized Area Formula Grant
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved. Major **
** divisions and subdivisions of the text, such as Chapters, **
** Sections, and Appendixes, are identified by double and **
** single lines. The numbers on the right end of these lines **
** indicate the position of each of the subsections in the **
** document outline. These numbers do NOT correspond with the **
** page numbers of the printed product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** **
** **
** with the message 'info' in the body. **
******************************************************************
Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Transportation and Related
Agencies, Committee on Appropriations, House of Representatives
May 1996
LOS ANGELES RED LINE - FINANCING
DECISIONS COULD AFFECT THIS AND
OTHER LOS ANGELES COUNTY RAIL
CAPITAL PROJECTS
GAO/RCED-96-147
Los Angeles Red Line
(345618)
Abbreviations
=============================================================== ABBREV
CMAQ - Congestion Mitigation and Air Quality Program
FTA - Federal Transit Administration
GAO - General Accounting Office
STP - Surface Transportation Program
Letter
=============================================================== LETTER
B-270347
May 14, 1996
The Honorable Frank R. Wolf
Chairman, Subcommittee on Transportation
and Related Agencies
Committee on Appropriations
House of Representatives
Dear Mr. Chairman:
This report responds to your August 23, 1995, request that we review
selected aspects of the Los Angeles County Metropolitan
Transportation Authority's (Authority) Red Line subway project in
California. The federal government has committed to fund $2.8
billion, or about 51 percent, of the Red Line's final design and
construction costs of $5.5 billion. The costs were identified in
grant agreements between the Federal Transit Administration (FTA) and
the Authority.\1 These agreements commit federal funds, subject to
appropriations, from FTA's "new starts" capital discretionary
program.
The 23.4-mile Red Line project consists of three segments. Segment
one--4.4 miles--is in service; construction of segment two--6.7
miles--is about 70 percent complete. The third segment--12.3
miles--is divided into three extensions: the construction of the
North Hollywood extension is 18 percent complete, the final design of
the East Side extension is 10 percent complete, and the design of the
Mid-City extension is on hold while the Authority assesses other
alignment options. In response to your request, we reviewed (1) the
project's estimated cost and (2) the Authority's financing plans. We
are also providing information on FTA's oversight of the project's
quality control and quality assurance practices.
--------------------
\1 These agreements are called full funding grant agreements. Most
recently, the agreement for the third segment of the project was
amended to provide additional funds and to lengthen the funding
period so that an additional extension could be included. This
amendment increased the project's total cost from $5.2 to $5.5
billion.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
As of February 1996, the Authority estimated the total cost of the
Red Line project at $5.9 billion, about 8 percent ($427 million)
above the $5.5 billion estimated in the grant agreements. The
project's cost has increased as a result of (1) construction
problems, such as realignment of a station to avoid unanticipated
groundwater and soil contamination; (2) new construction
requirements, such as upgrading stations to comply with the Americans
with Disabilities Act; and (3) enhancements to the project, such as
an additional station entrance. The February 1996 cost estimate
could increase because of the need to realign the Mid-City extension,
additional design problems, and pending lawsuits.
The Authority plans to fund $3.1 billion of the project's $5.9
billion cost with federal funds and the remainder with state and
local funds.\2 However, about $380 million in federal, state, and
local funds committed may not be realized. For example, the
California state legislature recently diverted $50 million in funds
slated for the Authority's bus operations. To offset that loss, the
Authority provided funds for bus operations that had been committed
to the Red Line project. FTA officials believe that the Authority
can use sales tax revenues that it has allocated to other rail
capital projects to cover funding shortfalls. However, doing so
could result in the need to reduce the funding or scope of other
transit construction projects, defer or cancel projects, or extend
the schedule for completing the Red Line, which could also increase
the project's cost.
The Authority is implementing a plan to improve its overall
management of the project's construction by, among other things,
reorganizing its quality control and quality assurance programs and
increasing the staffing levels for quality assurance and safety. FTA
and the Authority agreed to the plan after FTA stopped tunneling
under Hollywood Boulevard and suspended--from October 5 to November
10, 1994--future federal funding for the project. FTA took this step
after the types of changes FTA had recommended over time were not
made.
--------------------
\2 Although the grant agreements provide an upper limit of $2.8
billion for funding this project with new start funds, other eligible
federal funds from programs such as the Surface Transportation
Program are also being used. When these funds are included, the
total federal contribution to the project increases to about $3.1
billion.
BACKGROUND
------------------------------------------------------------ Letter :2
The Authority has designed an integrated transportation network for
Los Angeles County called the Metro System. To develop part of that
system, it has signed three grant agreements with FTA to help fund
the final design and construction phases of a heavy rail system
called the Red Line.\3 As shown in figure 1, the Red Line links with
other parts of the Metro System--the Blue and Green lines, which are
light rail systems. The Green Line and part of the Blue Line are
operational; both have relied solely on local funds to pay the
construction costs. The Authority will use state and local funds for
the Pasadena Blue Line, which is under construction. In contrast,
the Red Line project is being designed and constructed using federal,
state, and local funds. As of February 1996, about $3.3 billion had
been appropriated for the project: $1.8 billion from the federal
government; $393 million from the state government; and $1.1 billion
from local governments.
Figure 1: The Metro System
(See figure in printed
edition.)
Source: Los Angeles County Metropolitan Transportation Authority.
The Authority is responsible for the design, construction, and
operation of the Red Line project. Day-to-day design activities are
managed by an engineering management consultant, while construction
activities are managed by several construction management
consultants, all under contract to the Authority. FTA approves and
oversees expenditures of federal funds for the project and has hired
a contractor, Hill International, Inc., to help ensure that the
Authority maintains a reasonable process for successfully designing
and constructing the project and to monitor the Authority's
development and implementation of the project.
--------------------
\3 The Red Line has been redesigned several times. In 1983, it was
18.6 miles long with 18 stations. In 1988, it was redesigned to 17.3
miles long with 16 stations to avoid areas where methane gas was
found. In 1993 and 1994, the system was expanded to include two
additional extensions, increasing the total length of the system to
23.4 miles.
COSTS HAVE NOT GROWN
SIGNIFICANTLY SINCE FUNDING
AGREEMENTS BUT COULD CONTINUE
TO INCREASE
------------------------------------------------------------ Letter :3
As of February 1996, the Authority estimated the project's total cost
at $5.9 billion, an 8 percent ($427 million) increase over the $5.5
billion estimated in the grant agreements. As shown in table 1, this
increase was the result of construction problems, new construction
requirements, and enhancements of the project. For example, on
segment one, unanticipated groundwater and soil contamination
resulted in costs for cleanup as well as for purchasing property on
the right-of-way for a new station alignment that avoided the
contaminated area. In addition, on segment two, the Authority's
Board of Directors approved $65 million to add a new station entrance
and make some modifications to stations for commercial development.
Furthermore, during the construction of segment two, a small part of
Hollywood Boulevard collapsed into the subway tunnel being dug under
the roadway, creating a 70-by-70-foot-wide sinkhole. As a result of
this and prior problems, the Authority fired the contractor.
Contract costs resulting from the firing and from the rebidding of
the remaining work will add about $67 million to the project's costs.
The Authority believes its cost containment program has helped to
keep cost increases to a minimum.
Table 1
Estimated Cost Growth for the Red Line,
as of February 1996
(Dollars in millions)
Total cost in Estimated
grant Current growth in cost Reason for estimated growth in
agreements forecast (percentage) cost
-- -------------- -------------- -------------- --------------------------------
Se $1,250 $1,450\a $200 Additional real estate
g (16) purchased, $49 M
m
e Realignment to avoid
n contaminated soil and
t groundwater, $61 M
1
Higher engineering costs due to
redesign, delays, and
redundancies in scope, $90 M
Se $1,446 $1,641\ $195 Americans with Disabilities Act
g (13) requirements, $6 M
m
e Station enhancements, $65 M
n
t Earthquake program, $1 M
2
Sinkhole repair and completion
of contract, $67 M
Increased costs for
engineering, insurance, real
estate, handling of hazardous
wastes, and utilities, $56 M
Se $2,781 $2,813\b $32 Delay in awarding final design
g (1) contract for the East Side
m extension, $29 M
e
n Artwork for stations, $2.4 M
t
3 Study of the impact of
earthquakes,
$0.3 M
Connector for future expansion,
$0.3 M
====================================================================================
To $5,477 $5,904 $427
t (8)
a
l
------------------------------------------------------------------------------------
\a Actual cost (segment is complete).
\b As of April 1996, the estimated cost growth for the East Side
extension has decreased from $29 to $8 million as a result of cost
mitigation measures such as revised packaging and sequencing of the
construction work.
Source: Based on data from the Authority.
The project's cost could increase beyond the $5.9 billion estimate.
For example, on segment three, the design of the Mid-City extension
was suspended following the discovery of high concentrations of
hydrogen sulfide gas on the planned tunnel alignment. The Authority
is considering two alternatives: (1) constructing shallow
underground stations and a tunnel, estimated to cost an additional
$190 million, or (2) constructing a subway with aboveground stations,
estimated to cost an additional $130 million. A third
option--constructing a deep tunnel with a different alignment--is
being studied because of public opposition to the proposed
aboveground stations and the estimated costs of the first two
alternatives. Authority officials estimate that it could take up to
8 years to complete the Mid-City extension after the Authority's
board chooses an alternative.\4
The Authority has made management decisions that may increase costs
in the short term but that could provide better quality design work
and forestall costly water damage to the tunnel. For instance, the
final design of the East Side extension is behind schedule because
the Authority is requiring the design contractor to, among other
things, implement new quality control and cost containment procedures
and perform additional geotechnical studies of fault areas before
proceeding. In addition, the Authority has implemented some
mitigation measures for the North Hollywood extension that are
delaying construction, including performing additional grouting to
stabilize the soil and prevent water from flowing into the tunnel.
Pending lawsuits could also increase costs. For example, tunneling
under Runyon Canyon Park is scheduled to begin at the end of May
1996. However, a lawsuit filed by two environmental groups seeks to
prevent digging and tunneling below the canyon until federal, state,
and local agencies develop a supplement to the 1989 environmental
impact statement. If the tunneling is delayed, the project's
schedule would be extended, thereby increasing costs. Other lawsuits
could also increase costs because they include financial claims
against the Authority. The lawsuits are by retail establishment
owners affected by settlement on Hollywood Boulevard and the
construction contractor fired by the Authority for inadequate
construction techniques.\5
Depending on the outcome of the lawsuits and the ability of the
Authority's existing insurance to cover any awards against the
Authority, the risk remains that the project's cost will increase.
--------------------
\4 The Authority's board was tentatively scheduled to select the
preferred alternative at its June 1996 board meeting. A proposal to
explore the third option was approved at the April 1996 board
meeting; selection of an option is expected in April 1997.
\5 The Authority has filed a cross complaint against the construction
contractor for breach of contract, among other things.
FINANCING POTENTIAL FUNDING
SHORTFALLS MAY RESULT IN
DIFFICULT DECISIONS
------------------------------------------------------------ Letter :4
The Authority estimates that it has secured sufficient federal,
state, and local funding to finance $5.9 billion, its current
estimate of the project's total cost. However, about $380 million in
financing commitments may not be realized. Furthermore, as noted
earlier, the cost could increase beyond the current estimate.
Therefore, to cover current and future funding shortfalls, the
Authority may have to make difficult decisions, such as reducing the
funding or scope of other rail capital projects; deferring or
cancelling planned transit projects; or extending the schedule for
completing the Red Line, which could further increase the project's
cost.
FINANCING THE PROJECT'S
CURRENT ESTIMATED COST
---------------------------------------------------------- Letter :4.1
The Authority plans to fund $3.1 billion of the project's $5.9
billion total cost with federal funds and the remainder from state
and local funding sources.\6 Most of the federal funds--$2.8
billion--are from FTA's new starts discretionary capital program. An
additional $300 million has been provided from other federal
programs, including the Surface Transportation and Congestion
Mitigation and Air Quality programs--highway programs that provide
states with the flexibility to use these funds for transit projects.
California has committed about $539 million of the project's
funding.\7 The majority of these state funds, about $500 million, are
being provided from state gas tax revenues, which are allocated to
both highway and transit projects. The remainder of the state's
share of the cost of the project will come from revenues generated
from general obligation bonds for rail capital projects.
Local funding for the project--about $2.3 billion--comes from three
sources: Los Angeles County, the city of Los Angeles, and
assessments levied on properties adjacent to the planned stations.
Los Angeles County dedicates revenues from a 1-cent sales tax to the
Authority for existing transit systems and new transit projects in
the Los Angeles area; the Authority has allocated about $1.6 billion
of these revenues to the Red Line. Some funds from the county's
dedicated sales tax are returned to the surrounding cities. The city
of Los Angeles uses a portion of these funds to finance the 7 percent
of the project's costs that it has committed. The Authority
estimates that the remainder of the local funding for the project
will be derived from assessments levied on the retail properties
adjacent to planned Red Line stations on all three segments because
the Authority has or will designate the areas to be taxed as "benefit
assessment districts," since these areas may derive benefits from the
project.
--------------------
\6 The sources of funding for the project are shown in detail in
appendix I.
\7 This figure does not include federal funds from the Surface
Transportation and Congestion Mitigation and Air Quality programs
that the state has dedicated to the Red Line project.
FUNDING COMMITMENTS MAY NOT
BE REALIZED
---------------------------------------------------------- Letter :4.2
About $380 million committed by federal, state, and local governments
toward the current cost estimate of $5.9 billion may not be realized.
On the federal level, there is currently a $94 million shortfall.
Under the grant agreements for the Red Line, the federal government
committed, subject to annual appropriations, $2.8 billion for the
expected life of the project. The agreement breaks this total down
into yearly amounts that are also contingent upon congressional
action to appropriate funds. In fiscal years 1995 and 1996, the
Congress did not provide the annual commitments identified in the
grant agreements, resulting in the funding shortfall. While the
grant agreements allow the federal government to provide additional
funds at a later date to cover any annual shortfalls, and the
Authority's long-range plan assumes that the shortfalls will be made
up, federal budget constraints could make it difficult to make up
existing or additional shortfalls in the future. Authority officials
indicated that they could absorb an additional small shortfall in
fiscal year 1997 but may not be able to complete the Red Line as
scheduled if there are future shortfalls in the federal funding.
In 1995, the state legislature diverted $50 million in state sales
tax revenues that had been committed to the Authority for its bus
operations.\8 Since the legislature specified that the shortfall
could not be allowed to affect the bus program, the Authority
provided to bus operations $50 million in county sales tax revenues
that had been slated for segment three. Authority officials told us
that they must offset this loss through operating efficiencies over
the next 4 years and may delay segment three by 1 year.
Some of the Authority's local revenue commitments may also not be
realized. The Authority is currently working with the city to reach
agreement on its commitment to contribute $200 million for segment
three. The Authority's long-range plan indicates that if the city's
contribution to the project does not materialize, funds slated for
current and planned rail construction projects, such as the Pasadena
Blue Line and further extensions to the Red Line, would be needed to
make up the shortfall. Diverting these funds could delay the
affected projects by up to 3 years. Furthermore, the Authority's
long-range plan also states that $36 million of the expected $75
million in estimated revenues from assessments levied on retail
properties adjacent to the planned stations for segments two and
three may not be realized because retail property owners oppose the
assessment.
--------------------
\8 The funds were transferred to the county's general fund to be used
for health care programs.
FUNDING FUTURE COST
INCREASES MAY REQUIRE
DIFFICULT DECISIONS
---------------------------------------------------------- Letter :4.3
Apart from the revenues from the county's dedicated sales tax, the
Authority's funding sources for cost increases beyond the $5.9
billion estimate are somewhat limited. Federal funds will likely not
be forthcoming to finance further cost increases for the Red Line
project. The grant agreements essentially limit the federal
government's exposure to increased costs for the project by capping
the federal share from the new starts discretionary grant program at
$2.8 billion.\9 However, an extraordinary cost provision in the
agreements allows the Authority to seek additional federal funds
under certain circumstances, such as higher-than-estimated inflation.
In 1995, the Authority requested an additional $30 million in federal
funds under this provision for segment one. While FTA has not
formally responded to the Authority's request, FTA officials told us
that because of the amount of competition for new starts
discretionary grant funds, FTA is unlikely to grant this or future
requests for funds above the level in the grant agreements. In fact,
FTA has approved only one of several requests for extraordinary costs
from grantees in the new starts program--for the St. Louis
Metrolink--in the last 5 years.
Without increased federal funds, the Authority will have to turn to
state and local funding sources. However, the state will provide
funds only in the case of extraordinary costs. On the other hand,
the city of Los Angeles will pay 50 percent of the cost increase for
segment one--up to $100 million--and has committed to pay up to $90
million for segment two. The city has made no commitment to fund
cost increases for segment three.
The remaining local funding source is the county's dedicated sales
tax. FTA and Hill International officials believe that one way the
Authority can absorb increases above the current cost estimate is by
using revenues that the Authority currently allocates to other rail
capital projects. However, Authority officials told us that the
amount of flexibility the Authority has in a given year is limited,
in part because about 70 percent of discretionary sales tax revenues
are allocated to the bus program and the Authority does not plan to
use these funds for the Red Line project. Therefore, any decision to
use sales tax revenues could adversely affect other rail capital
projects. For example, when the recent recession reduced planned
revenues, the Authority allocated these losses to the Pasadena Blue
Line project. This delayed the project, which was not yet under
construction, for 3 years.\10 This decision meant that the Red Line
would not lose revenues and could maintain its construction schedule.
To determine how much flexibility it has to address a cost increase
and/or revenue loss, the Authority assesses the magnitude of the
increase and/or loss, the Red Line's completion schedule, the
available bonding capacity based on sales tax revenues, other
potential sources of funding, and the impact on other rail capital
projects. For example, the Authority recently determined that it had
enough bonding capacity to provide $40 million toward the cost
increase for segment two and still maintain the Red Line's
construction schedule. However, Authority officials acknowledge that
if the bonding capacity is not sufficient and no other funding
sources are available, the Red Line's completion schedule would have
to be extended and the project's cost could increase.
According to Authority officials, the Red Line is their number-one
rail priority and the decision on the new alignment for Mid-City--not
expected for about a year--is the single most costly increase
currently expected for the project. They stated that the project
would have to be assessed at that time to determine whether revenues
are available to fund construction or whether that extension will
have to be delayed. Depending on how long the Mid-City extension is
delayed, funding slated for other projects, such as the San Fernando
extension, scheduled to begin in 2003, could be used for Mid-City.
FTA's monitoring of financing capacity for the project, particularly
once the cost of the Mid-City extension is determined, will be
critical to help ensure that funding is available to proceed with
design and construction.
--------------------
\9 The Authority could also draw on FTA's urbanized area formula
funds and work with the state to tap other federal programs, such as
the Surface Transportation Program and the Congestion Mitigation and
Air Quality Program.
\10 The Authority's board recently agreed to an $804 million budget
for the Pasadena Blue Line, which is scheduled to be completed in May
2001.
FTA'S OVERSIGHT OF THE
PROJECT'S QUALITY CONTROL AND
QUALITY ASSURANCE PRACTICES
------------------------------------------------------------ Letter :5
In November 1994, the Authority and FTA agreed to a plan to improve
the overall management of construction of the Red Line project.
However, this plan did not come about until FTA took action to stop
tunneling under Hollywood Boulevard for the Red Line and temporarily
suspended federal funding for the project to compel the Authority to
address long-standing problems.
Among these long-standing problems was the lack of a mechanism for
elevating safety and quality assurance concerns to the appropriate
level within the Authority's and the construction management
contractor's organization. For example, during 1993 and 1994 several
inspection reports alerted the resident engineer about weaknesses in
the installation of the initial tunnel lining under Hollywood
Boulevard. However, the issue was not elevated to the Authority's
Director of Quality until excessive surface settlement occurred on
Hollywood Boulevard in the summer of 1994. The tunnel lining support
was cited as a possible cause. Because of concerns about the
management attention given to quality assurance, FTA recommended that
this function be placed sufficiently high in the Authority's and the
construction management contractor's organization to help ensure
independence and adequate attention to deficiency reports by quality
control inspectors.\11
Because corrective actions were not taken, on this and other issues,
FTA took action to stop tunneling under Hollywood Boulevard for the
Red Line and suspended federal funding--from October 5 to November
10, 1994--for the project.
As a condition for resuming federal funding, the Authority and FTA
agreed to a plan in November 1994 that called for transferring
quality assurance, quality control, and safety from the construction
management contractor to the Authority and increasing staffing for
quality assurance.\12 These actions are now being implemented. For
example, the Authority increased the number of quality assurance
positions from 4.5 staff years in 1994 to 6 staff years in 1995, and
it plans further increases.
Also, in September 1995 FTA increased the number of permanent Hill
International staff, from 5 to 7; provided 3 temporary staff, who
have been extended at least through May 1996; and increased the
frequency of interactions between Hill International, FTA, and the
Authority. With more staff, according to Hill International, four
rather than one staff members are present on the construction sites
daily.
Our past work has shown that FTA has rarely exercised the enforcement
tool of withholding funds to compel grant recipients to fix
long-standing problems.\13 With its action on the Red Line project,
FTA has seen the success of withholding funds to compel change.
Given the cost and potential risks of underground tunneling and a
history of resistance to certain quality control recommendations made
in the past, timely enforcement actions could help to ensure that the
Authority addresses key recommendations in the future.
--------------------
\11 Quality assurance includes designing the appropriate checks and
balances and ensures that the proper quality processes and procedures
are being followed. Quality control is the actual inspection of
in-process, partially completed, or fully completed work to confirm
that the standards have been met.
\12 As a result of recommendations made in an April 1995 report by
Arthur Andersen Co. on the Authority's management practices, the
Authority, with FTA's agreement, transferred the quality control
function from the Authority to the construction manager, thereby
ensuring independence.
\13 High-Risk Series: An Overview (GAO/HR-95-1, Feb. 1995).
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :6
We provided copies of a draft of this report to FTA and Los Angeles
County Metropolitan Transportation Authority officials for their
review and comment. We met with FTA officials, including the
Director, Office of Oversight, and the Program Manager for the
Project Management Oversight Program in Headquarters and with the
Director of the Office of Program Management in FTA's Region IX. We
also met with Authority officials, including the Deputy Executive
Officer for Program Management, Director for Strategic Funding
Analysis and Director for Grants Management. FTA and the Authority
generally agreed with the facts as presented. However, both
suggested that the report's presentation of FTA's oversight of the
project's quality assurance and quality control practices heavily
emphasized past problems rather than focused on recent positive
changes. We have revised that section of the report to clearly
describe the actions FTA and the Authority have taken to improve
construction management of the Red Line project. FTA and the
Authority also commented that our discussion of the project's future
growth and potential financing issues are speculative. We agree that
future projections are speculative, but the report describes clear
examples of potential reasons for cost increases, such as the
decision to realign the Mid-City extension and design delays for the
East Side extension, as well as the Authority's potential solutions
to financing these increases. The Authority was also concerned that
our discussion of cost growth, particularly in table 1, could be
misconstrued because the cost growth for segment three is an
estimate. To address their comments, we changed the title of the
table to reflect that the figures are estimates and added a footnote
stating that cost mitigation measures have reduced the estimated cost
growth for the East Side extension from $29 million to $8 million.
Both FTA and the Authority offered technical comments to clarify
information in the report, and we have incorporated these comments,
as appropriate.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7
To prepare this report, we reviewed the Authority's February 1996
Project Manager's Status and Construction Reports for each segment of
the Red Line. We reviewed supporting documentation and discussed
costs, financing, and oversight issues with officials at FTA's
headquarters in Washington, D.C.; FTA's Regional Office in San
Francisco; Hill International, Inc. in Los Angeles; and the Los
Angeles County Metropolitan Transportation Authority. We also
reviewed the Authority's 20-year transportation plan and February
1996 financial update and discussed them with officials at FTA, Hill
International, and the Authority. We performed our work from October
1995 through April 1996 in accordance with generally accepted
government auditing standards.
---------------------------------------------------------- Letter :7.1
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter. At that time, we will
send copies to the Secretary of Transportation, the Administrator of
the Federal Transit Administration, the Chief Executive Officer of
the Authority, and cognizant congressional committees. We will also
make copies available to others 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
II.
Sincerely yours,
John H. Anderson, Jr.
Director, Transportation and
Telecommunication Issues
PROJECT FINANCING PLAN BY SEGMENT,
AS OF FEBRUARY 1996
=========================================================== Appendix I
(Dollars in millions)
Segment Segment Segment
Funding source 1 2 3 Total
------------------------------ -------- -------- -------- --------
FTA new starts capital 696 667 1,416 2,779
FTA formula/STP/CMAQ\a 0 55 240 295
======================================================================
Total federal $ 696 $ 722 $1 ,656 $ 3,074
State 214 133 192 539
======================================================================
Total nonfederal match 754 919 1,157 2,830
Authority's 1-cent county 276 549 751 1,576
sales tax
Authority's capital reserve 0 22 0 22
account\b
City of Los Angeles 134 157 200 491
Benefit assessment districts 130 58 14 202
======================================================================
Total local 540 786 965 2,291
======================================================================
Total $1,450 $1,641 $2,813 $5,904
----------------------------------------------------------------------
\a The Surface Transportation Program (STP) and the Congestion
Mitigation and Air Quality Program (CMAQ) are both highway programs
whose funds can be used to finance transit projects.
\b The grant agreements required that the Authority establish a
capital reserve account to fund cost increases.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Susan Fleming
Gary L. Jones
Phyllis Scheinberg
LOS ANGELES
Gary Hammond
Roderick Moore
James Moses
*** End of document. ***