Mass Transit: Actions Needed for the BART Airport Extension (Letter
Report, 05/31/96, GAO/RCED-96-176).

Pursuant to a congressional request, GAO reviewed the Bay Area Rapid
Transit District's (BART) plans to extend its transit system to the San
Francisco International Airport, focusing on the: (1) actions the
Federal Transit Administration (FTA) must take before agreeing to fund
the project; (2) factors that could affect the project's current
schedule and estimated cost; and (3) project's finance plan,
particularly assumptions that could affect its viability.

GAO found that: (1) before signing the BART funding grant agreement, FTA
must ensure that BART has met all environmental requirements and secured
necessary project financing; (2) FTA must also certify that BART
environmental and financing plans, and cost estimates are reasonable and
determine whether other transportation alternatives have been
considered; (3) FTA and BART may not be able to resolve congressional
concerns 60 days prior to the signing of the funding agreement, which
BART expects to occur in October 1996; (4) BART estimates that its
airport extension project will cost $1.167 billion, with construction
beginning by October 1996 and line opening in October 2000; (5) the BART
construction schedule is ambitious, since environmental reviews may not
be completed by October 1996, and expected savings from innovative
technology and cost escalations are uncertain; (6) BART expects to
obtain $750 million in federal funding, with the remaining $471 million
coming from the San Francisco airport, the state, and local sources; (7)
BART must develop a borrowing program, since its accelerated
construction schedule will outpace its funding; and (8) factors that
could affect the finance plan's viability include BART receiving
sufficient federal funds each of the next 7 fiscal years, the state
allowing BART to use its own revenues as secondary collateral for loans,
the airport providing its $200 million contribution, and other state and
local contributors capping their BART pledges due to budget constraints.

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

 REPORTNUM:  RCED-96-176
     TITLE:  Mass Transit: Actions Needed for the BART Airport Extension
      DATE:  05/31/96
   SUBJECT:  Mass transit operations
             Subway construction
             Construction costs
             Construction grants
             Federal aid for transportation
             Environmental impact statements
             Future budget projections
             Borrowing authority
             Intergovernmental fiscal relations
IDENTIFIER:  FAA Airport Improvement Program
             Highway Trust Fund
             San Francisco (CA)
             San Francisco Bay Area Rapid Transit System (CA)
             San Mateo (CA)
             California
             
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Cover
================================================================ COVER


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

May 1996

MASS TRANSIT - ACTIONS NEEDED FOR
THE BART AIRPORT EXTENSION

GAO/RCED-96-176

Actions Needed for the BART Airport Extension

(342910)


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

  AIP - Airport Improvement Program
  BART - Bay Area Rapid Transit
  CTC - California Transportation Commission
  DOT - Department of Transportation
  EIS - environmental impact statement
  FAA - Federal Aviation Administration
  FFGA - full funding grant agreement
  FTA - Federal Transit Administration
  GAO - General Accounting Office
  ISTEA - Intermodal Surface Transportation Efficiency Act
  LPA - locally preferred alternative
  MOU - memorandum of understanding
  MTC - Metropolitan Transportation Commission
  PFC - passenger facility charge
  PMOC - project management oversight consultant
  SAMTRANS - San Mateo County Transit District
  SFIA - San Francisco International Airport
  STIP - State Transportation Improvement Program

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


B-270493

May 31, 1996

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

Dear Mr.  Chairman: 

The Bay Area Rapid Transit District (BART) intends to spend over $1.1
billion, including $750 million in federal funds, to extend mass
transit service to the San Francisco International Airport.  The
project is controversial, encountering both widespread support and
opposition in the San Francisco Bay area.  The controversy, which
includes concerns over the project's environmental impacts and cost,
has resulted in two redesigns of the project since 1992.  Before the
Federal Transit Administration (FTA) can provide BART with the funds
requested, federal law requires FTA to ensure that BART complies with
federal environmental laws and develops a viable financing plan. 

Concerned about the overall cost of the project, you asked us to
describe (1) the actions the FTA must take before agreeing to fund
the project, (2) the project's current schedule and estimated cost
and the factors that could affect them, and (3) the project's finance
plan, including assumptions that could affect its viability. 


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

Although the Department of Transportation (DOT) has announced its
intention for FTA to sign a funding agreement with BART, FTA must
provide a number of assurances before the agreement can be concluded. 
Specifically, FTA must ensure that BART has developed sound
environmental plans and secured the necessary financing to build the
project.  In addition, FTA has been requested by the House and Senate
Appropriations Committees to certify that BART's environmental and
finance plans are reasonable and determine if various alternatives
have been adequately considered to meet the San Francisco Bay area's
future transportation needs.  The Committees requested that FTA
submit the certification 60 days before signing a funding agreement. 
BART and FTA are working to resolve the Committees' concerns;
however, it is unclear if all of the issues will be resolved by
August 1996--60 days before the date BART expects FTA to sign a
funding agreement in October 1996. 

BART estimates that its extension to the airport will cost $1.167
billion.  Construction is expected to begin by October 1996 and the
line is projected to open in October 2000.  BART's schedule is
ambitious.  Whether or not BART can begin the project by October 1996
and complete construction within the estimated cost depends on
whether (1) environmental reviews--the final environmental impact
statement (EIS) and wetlands permit--are complete, (2) the use of
innovative construction procedures will produce the expected savings
and (3) BART has adequately included contingencies and cost
escalations in estimating the project's total cost. 

BART's April 1996 draft finance plan states that $750 million in
federal appropriations would be needed to complete the project.  The
remaining $417 million of the project's cost would come from the San
Francisco airport, the state, and local sources.  Four assumptions in
the finance plan could affect its viability.  First, the project's
borrowing costs could grow should BART not receive federal
appropriations of between $51 million and $121 million each year for
the next 7 fiscal years.  Second, the California state legislature
must amend BART's statute to allow BART to pledge its own revenues as
a source of collateral for a borrowing program.  BART must establish
a borrowing program because expenses are expected to exceed revenues
during the height of construction and produce cash shortfalls of up
to $240 million.  Third, the San Francisco airport, which has pledged
up to $200 million for the project, has yet to identify how it
intends to fund its contribution--either through revenue bonds,
passenger facility charges, or the use of federal funds from the
Airport Improvement Program.  Finally, all of the remaining state and
local contributors face financial limitations that have capped their
current pledges to the BART project. 


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

The BART rail system covers over 70 miles and serves more than 70
million annual riders throughout four counties in the San Francisco
Bay area.  Dating back to the opening of the BART system in 1972,
transportation planners envisioned a system that would bring
travelers and airport employees into the San Francisco International
Airport.  These plans began to take shape in 1991, when the Congress
authorized an extension of the BART system to the airport as part of
the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). 
In the act, the Congress authorized $568,500,000 for two BART
projects and one light rail project in Santa Clara county.  The act
directed the Secretary of Transportation to fully fund the BART
airport extension project, and if necessary, use the unobligated
balance in the Mass Transit Account of the Highway Trust Fund. 

In 1992, the Bay Area's Metropolitan Transportation Commission (MTC)
completed the first of three draft EISs for the project.  As a
result, local transit agencies selected an alternative that proposed
to link together BART's and Caltrain's (the commuter rail operator's)
systems and the airport, at one intermodal location west of the
airport.  The estimated cost of this alternative was $960 million. 
However, local opposition to environmental impacts and concerns over
ridership forecasts required a study of new alternatives. 
Subsequently, BART took the lead in preparing a new draft EIS and in
April 1995 selected an alternative that would bring the BART system
directly into the airport via a subway.  The estimated cost of this
alternative was $1.27 billion.\1 While this alternative mitigated
some of the concerns about environmental impacts and ridership, there
was continued opposition to the project.  The airport objected to the
impacts that the proposed subway's construction would have on the
airport, and the House and Senate Conference Committee report
accompanying DOT's fiscal year 1996 appropriations expressed concerns
about the project's cost. 

As a result, BART developed new alternatives and studied them in a
third draft EIS.  In September 1995, BART selected a new preferred
alternative, which changed the project's entrance into the airport
from a subway to an aerial (elevated track) approach.  The current
project consists of about 8 miles of straight mainline track running
south from the existing end of the BART line at the city of Colma to
the city of Millbrae, with an incorporated "Y-stub" aerial line
diverging from the mainline track and running southeast into the
airport, then southwest out of the airport to Millbrae (see fig.  1). 
The aerial line would include a transit station adjacent to a planned
international air terminal and would be linked to the airport's light
rail system to circulate passengers through the airport.  Besides the
airport and Millbrae stations, the project would include the Hickey
and the Tanforan station north of the airport.  Under this option,
BART has reduced the estimated cost to $1.167 billion, primarily from
savings associated with eliminating the more costly subway option. 

   Figure 1:  The BART Extension
   to the San Francisco
   International Airport

   (See figure in printed
   edition.)

The overall purpose of the BART airport extension is to help relieve
existing and anticipated highway congestion and improve air quality
in the region.  The traffic on local highways, including Interstate
280, Interstate 380, and Highway 101 regularly exceeds the existing
capacity.  For 1990 to 2010, MTC forecasts a 16-percent increase in
traffic between San Francisco and counties in the South Bay area,
including a 52-percent increase in traffic to and from the airport. 
San Francisco International Airport is proceeding with a $2.3 billion
expansion and projects its annual passengers will increase by 21
million between 1990 and 2006.  In addition, the San Francisco Bay
area has been unable to meet federal air quality standards.  The BART
extension to the airport is one of the key transportation related
antipollution measures.  Recognizing growth in the region, the
governor of California, on April 29, 1996, designated the BART
airport extension project as one of the state's top three
transportation priorities. 


--------------------
\1 The 1992, April 1995, and current estimates are not comparable
because they are not in same-year dollars. 


   FTA MUST REVIEW THE FINANCE
   PLAN AND ANSWER CONGRESSIONAL
   CONCERNS BEFORE SIGNING A FULL
   FUNDING GRANT AGREEMENT
------------------------------------------------------------ Letter :3

While DOT has announced its support for a full funding grant
agreement, key activities remain before FTA can sign one.  The
agreement will establish the terms and conditions for federal
participation, including the total amount of federal transit funds
for the project.  However, before signing the agreement, FTA must
ensure that BART has met all environmental requirements and developed
an adequate finance plan.  In addition, a Conference Committee report
has requested that FTA certify to the House and Senate Appropriations
Committees that BART's environmental and finance plans are reasonable
and determine if various transit alternatives have been considered to
meet the Bay area's future transportation needs. 

On March 13, 1996, DOT announced its intention for FTA to sign a full
funding grant agreement with BART for the proposed extension to the
airport.  This announcement was supported in the administration's
fiscal year 1997 budget request, which included $51 million for BART. 
FTA's Circular C5200 on full funding grant agreements states that the
agency generally expects to enter into such an agreement within 120
days after the conclusion of the environmental process, which is
marked by the issuance of the final EIS and a record of decision. 
The application for a full funding grant agreement includes certain
key features, including a description of the project and its scope, a
finance plan, an estimate of baseline costs and the schedule for
completing the project, the schedule for receiving federal funds, and
a description of environmental mitigation measures.  The finance plan
must demonstrate that BART and other local entities have the
financial capacity to build, operate, and maintain the project. 

Before signing the full funding grant agreement, FTA must first
approve the final EIS.  Second, BART and FTA must complete
negotiations on the project's finance plan--based on BART's April
1996 draft plan.  To assist it, FTA is employing outside consultants
to assess BART's construction costs and the viability of the finance
plan.  Under its planned construction schedule, BART expects to have
the finance plan approved and to receive a full funding grant
agreement from FTA by October 1996. 

Finally, the Conference Committee report accompanying DOT's fiscal
year 1996 appropriations act requests FTA to certify in writing to
the Congressional Appropriations Committees that the project has
resolved a number of significant issues.  The report requests that
this certification be delivered 60 days before the administration
signs a full funding grant agreement with BART.  To answer the
concerns cited in the Conference Committee report, FTA must certify
that

  -- a final cost analysis and finance plan have been completed and
     reviewed and that the federal share for the project has been
     reduced,\2

  -- the final EIS has been completed and approved,

  -- a study to consider a direct commuter rail (Caltrain's) link to
     the airport has been considered in conjunction with the BART
     project, and

  -- the share of cost to be borne by the airport and its users is
     consistent with federal transportation policy and regulations. 

BART and FTA are working to resolve the Appropriations Committees'
concerns.  However, it is unclear if all of the issues will be
resolved by August 1996--60 days before the date BART expects FTA to
sign a full funding grant agreement.  As discussed in the following
two sections, FTA and BART have many issues to resolve before FTA can
provide the Appropriations Committees with the requested
certifications. 


--------------------
\2 The House Appropriations Committee was concerned about the cost of
the subway alignment, for which the federal share was $800 million. 


   BART'S CONSTRUCTION SCHEDULE
   AND COST ESTIMATES
------------------------------------------------------------ Letter :4

In its April 1996 draft finance plan, BART estimated that the project
would cost $1.167 billion, construction would begin by October 1996,
and revenue operations would begin in October 2000.  Three issues
remain that may affect BART's ability to begin the project as
scheduled and complete construction within the estimated cost:  (1)
whether environmental reviews, including the final EIS and a wetlands
permit, will be complete before October 1996; (2) whether the use of
innovative contracting procedures will produce the expected savings;
and (3) whether BART has adequately included contingencies and cost
escalations in estimating the project's total cost. 


      BART IS FINALIZING THE EIS
      AND SEEKING ENVIRONMENTAL
      CLEARANCES
---------------------------------------------------------- Letter :4.1

BART has obtained approval from the U.S.  Fish and Wildlife Service
(the Service) and must complete two additional environmental reviews
before FTA can approve the project.  The two issues must be resolved
before construction can begin.  BART must (1) resolve concerns
expressed about the draft EIS and complete the final EIS and (2)
obtain a wetlands permit from the U.S.  Army Corps of Engineers (the
Corps).  Delays in finalizing the EIS or obtaining the permit could
delay the October 1996 startup. 

Federal law required BART to obtain the Service's approval of
measures to mitigate the project's impacts on endangered species.\3
The project will directly impact the habitat of the San Francisco
Garter Snake (a federally listed endangered species) and the
California Red Legged Frog\4 (a federally listed threatened species),
both which live on the airport's property that will be used for part
of the project's construction.  Since March 1995, BART has been
coordinating with the Service to develop and finalize plans for
mitigating impacts to the snakes' and frogs' habitat and in January
1996 submitted a mitigation proposal to the Service.  On May 20,
1996, the Service issued an opinion of "no jeopardy" on the project's
impact to both species.  The Service found that BART's mitigation
plan, which included enhancing the snakes' and frogs' habitat at a
location several miles from the construction area, was acceptable for
ensuring the continued existence of the species. 

In September 1995, BART issued a second supplemental draft EIS.\5 In
the draft statement, BART changed the project's entry into the
airport from a subway to an aerial approach, thereby responding to a
congressional request to reduce the project's cost and the impacts
that construction would have on the airport.  In November 1995, the
boards of directors of BART and the San Mateo County Transit District
(SAMTRANS) adopted this approach as the locally preferred
alternative.  BART held public hearings on the new alternative and
received 800 comments on the draft statement.  According to BART's
schedule, it plans to receive FTA's approval for the final EIS by
June 14, 1996, and expects FTA to issue the record of decision by
mid-August 1996.  Under regulations implementing the National
Environmental Policy Act, during this time FTA must provide a 30-day
public comment period; BART must assess and incorporate any comments
received; and FTA must review and assess the comments and how BART
responded to them.  According to FTA officials, they expect to issue
the final EIS in early June 1996. 

Finally, federal law requires BART to obtain a section 404 wetlands
permit from the Corps.\6 As with the requirements for protecting
endangered species, BART must develop a plan for mitigating the
project's impacts to wetlands.  The amount of wetlands affected is
about 1 acre.  BART has been coordinating with officials from the
Corps and submitted a permit application in February 1996.  According
to BART, the Corps has provided preliminary agreement on its wetlands
mitigation plan.  However, a final permit cannot be issued until
after FTA approves the final EIS and signs a record of decision for
the project.  Corps officials stated that a permit could be issued by
September 1996.  Construction affecting the wetlands cannot begin
until the Corps issues the wetlands permit.  BART's schedule for
completing these reviews, as well as securing the environmental
permits and obtaining a full funding grant agreement appears in
appendix I. 


--------------------
\3 16 U.S.C.  section 1536. 

\4 The California Red Legged Frog is the primary food source of the
San Francisco Garter Snake. 

\5 A supplemental EIS is required when significant new information or
changed circumstances make data in a prior EIS incomplete.  Two
supplemental drafts have been prepared to assess additional
alternatives. 

\6 33 U.S.C.  section 1344. 


      BART PROJECT INCLUDES
      INNOVATIVE CONTRACTING
      PROCEDURES
---------------------------------------------------------- Letter :4.2

The BART airport extension is one of four nationwide projects
selected by FTA in response to ISTEA's requirement that the agency
demonstrate the benefits of using innovative contracting procedures
to reduce the project's time and cost.  Since this project is
intended as a demonstration, little empirical evidence currently
exists to confirm the 15- to 20-percent cost savings BART has assumed
it will realize from using the innovative procedures known as
design-build contracting.  BART has built into each of the
design-build contracts an 18.5-percent contingency amount for cost
increases.  As described below, much of the cost savings stems from
reducing construction time.  But these savings could be offset by
higher borrowing costs should federal appropriations be less than
specified in BART's draft finance plan. 

According to BART officials, design-build is an emerging method for
implementing construction of new rail transit systems and has the
capacity to save significant time and money.  Under conventional
procurement, a public agency is typically responsible for managing a
project from planning to completion.  Most of the project's elements
are segmented into components (contracts) that are separately bid and
administered through the design, construction, testing, and startup
phases by the agency.  Design-build procurement in the public sector
refers to a process whereby a public agency awards a single master
contract to a private firm for the final design, construction, and
startup of a public works project.  After certification that the
project is complete, the contractor turns the keys over to the
agency. 

According to BART officials, the reduced costs from using the
design-build approach are obtained primarily by reducing the
construction time and administrative costs.  On the airport extension
project, BART estimates that one-third less time will be needed to
construct the project as a result of awarding only four design-build
contracts rather than using multiple conventional contracts.  BART
estimates that it will complete the project in about 50 months,
beginning in October 1996.  In comparison, on BART's recent $1.2
billion project under which two new stations opened since last year
and three additional stations will open this year, BART used
conventional procedures, which will require about 78 months to
complete, and awarded 50 major contracts.  Extrapolating from this
experience, BART projected that for the airport extension project a
design-build approach would reduce costs by 15 to 20 percent over
conventional procedures. 

However, FTA officials stated that since the BART airport extension
project is intended to demonstrate any potential cost savings derived
from design-build procedures, it would be difficult to predict the
exact savings from employing this method.  A 1994 report, prepared
for FTA, on design-build projects stated that although the use of the
method is very common for transit projects outside of North America,
the North American experience is limited and has provided mixed
results.\7

In addition, the cost savings from the design-build procedures are
time-dependent; that is, the method assumes that with fewer
contracts, BART can complete the project in less time.  Less time
means less money needed.  However, the shorter construction period
also requires BART's financial contributors to provide larger
contributions over a shorter period of time.  As discussed in the
next section on BART's finance plan, BART anticipates that federal
appropriations for the project will increase from the $10 million for
fiscal year 1996 to between $50 million and $121 million each year
for fiscal years 1997 through 2003.  Should these appropriation
levels not materialize, the cost of the project would increase
because BART would have increased borrowing costs.  Any cost savings
derived from the design-build approach could thereby be offset. 


--------------------
\7 Booz, Allen & Hamilton Inc., Evaluation of Houston's Turnkey
Experience (July 1994). 


      CONTINGENCIES AND COST
      ESCALATIONS
---------------------------------------------------------- Letter :4.3

Because of the scale and risk of the project, BART has added on to
construction and design estimates 18.5 percent for the four
design-build contracts.  These amounts for contingencies and cost
escalations--totaling approximately $107 million--are included in the
project's overall cost of $1.167 billion.  In addition, BART has
included a separate $80 million contingency amount specified as a
line item in its finance plan, resulting in a total of $187 million
for contingencies.  In commenting on BART's finance plan, FTA found
that BART's contingency amounts were low on the basis of past
experiences with other transit projects.  FTA recommended an
additional contingency funding source and a contingency level higher
than 18.5 percent to cover potentially higher environmental costs for
mitigating the impacts on wetlands and for connecting the project to
the airport terminal.  In commenting on a draft of our report, BART
stated that surcharges collected at its Daly City station would be
set aside in a capital reserve account to cover unexpected cost
growth beyond the project's $1.167 billion budget.  These surcharges
would generate $2 million a year.  If additional funds are needed,
premium surcharges could be imposed for trips at the airport station. 
These surcharges could generate $3 million to $4 million each year
but would not be available until the airport station opened in 2000. 

These additional funds may be needed to cover a potential $40 million
cost escalation not included in BART's finance plan.  In an April
1996 report on BART's cost estimates, FTA's project management
oversight consultant found that BART calculated its costs based on a
midpoint of construction in 1997.  The consultant stated that BART
should have used 1999 as the midpoint of construction.  As a result,
BART's cost estimate for the project does not account for 2
additional years of anticipated inflation and is therefore
understated by $40 million. 


   THE PROJECT'S FINANCING
------------------------------------------------------------ Letter :5

BART's April 19, 1996, draft finance plan, specifies the level and
timing of the contributions the transit agency expects to receive
from FTA and state and local contributors.  Specifically, the plan
anticipates that the federal government will provide funding of $750
million.  BART anticipates finalizing agreements with the state, the
San Francisco airport, and other regional transit agencies to provide
the $417 million local share.  From our review of the finance plan
and our discussions with officials from FTA, the airport, regional
transit agencies, and the state, we have identified four factors that
could affect the plan's viability.  First, although BART's finance
plan assumes that the Congress will appropriate $51 million to $121
million annually for the next 7 fiscal years, FTA has advised BART to
revise its plan and lower the appropriation levels expected each
year.  As a result, the project's borrowing costs will increase. 
Second, BART must secure changes in California law to facilitate
establishing a borrowing program to cover expected cash shortfalls. 
Third, the airport has not identified the source of funding it will
use to meet its $200 million commitment to the project.  And, fourth,
all of the remaining local contributors face financial limitations
that have capped their current pledges. 


      FEDERAL FUNDS ARE EXPECTED
      TO PROVIDE TWO-THIRDS OF THE
      PROJECT'S FINANCING; CASH
      SHORTFALLS ARE ALSO EXPECTED
---------------------------------------------------------- Letter :5.1

Federal funds are expected to cover about two-thirds of the total
cost for the project--approximately $750 million.  Despite this large
federal share and the commitment of local contributors, the
accelerated construction pace will result in BART's incurring
expenses more quickly than it will receive funding.  As a result,
BART will experience cash shortfalls of up to $240 million during the
50 months of construction.  This situation will require it to borrow
funds to fill the gap between revenues and expenses.  BART is working
to develop a borrowing program to address the revenue gap, including
securing a second source of collateral to back up the expected
federal appropriations. 

Figure 2 shows the funding sources for the BART project.  The $750
million federal contribution includes $40 million in interest costs
associated with BART's need to issue debt to finance cash shortfalls
occurring during construction.  BART expects additional funds from
the airport ($200 million), the state ($108 million), SAMTRANS ($99
million), and MTC ($10 million).  BART cannot contribute to the
capital costs of the project, since it is precluded by state
legislation from making expenditures for extending service or
facilities outside the geographic boundaries of its district until it
fulfills certain commitments within its original district.\8
According to BART officials, the agency will not have fulfilled these
commitments before completing the airport extension project. 

Appendix II displays BART's April 1996 draft finance plan for the
airport extension.  The finance plan shows that federal contributions
will continue after revenue operations for the project begin in
fiscal year 2000 and construction ends in fiscal year 2001.  This is
because BART will be using federal funds received in fiscal years
2002 and 2003 to pay back principal and interest from debt
(short-term notes) that it must issue during construction.  BART must
issue the debt because construction will be completed over 50 months
but financing will be stretched over 84 months.  As BART spends funds
for construction faster than it receives them, a cash shortfall will
result.  The largest shortfall is $240 million in fiscal year 2000. 

   Figure 2:  Funding Sources for
   the BART Extension to the San
   Francisco International Airport

   (See figure in printed
   edition.)

Dollars in millions

Note:  The percentages do not total to 100 percent because of
rounding. 

Source:  GAO's summary of data from BART. 

FTA's financial advisers stated that BART's request for
appropriations of $120 million in the later years of the finance plan
represent 18 percent of the total $660 million in FTA's current
annual budget for the New Starts program.  Accordingly, FTA advised
BART to reevaluate the finance plan by assuming a lower level of
annual federal funding.  In its April 1996 revised plan, BART assumed
lower federal appropriations for the early years of the project but
higher federal appropriations in the last 3 years.  BART also reduced
the interest rate it assumed it would have to pay for its borrowing
program from 6.25 percent to 5.5 percent.  The annual level of
federal appropriations and the assumed interest rate can affect
BART's borrowing costs.  Table 1 compares BART's current finance plan
to funding scenarios that vary the level of federal appropriations
and the interest rate.  FTA has advised BART that borrowing costs are
federally reimbursable.  However, in commenting on the draft of our
report, FTA stated that the federal contribution for the BART project
will be capped at $750 million; BART would bear any and all expenses
beyond those identified in the grant agreement as necessary to
complete the project.  The federal contribution will be finalized in
the grant agreement, which is still subject to negotiation between
FTA and BART. 



                                Table 1
                
                Interest Costs Associated With Different
                            Funding Options

                         (Dollars in millions)

                                               Borrowing     Borrowing
                                               costs (at     costs (at
                                                    5.5%         6.25%
                              Appropriatio      interest      interest
Funding scenario              ns                   rate)         rate)
----------------------------  ------------  ------------  ------------
BART's finance plan           $51.1 in             $40.0         $45.4
                               year 1
                               $70-$110 in
                               years 2-4
                               $120 in
                               years 5-7
President's FY 1997 request   $51.1 in             $46.4         $52.7
 and                           year 1
 equal appropriations in FY    $90.5 in
 1998-2004                     years 2-8
President's FY 1997 request   $51.1 in             $61.0         $69.3
 and                           year 1
 equal appropriations in FY    $79.2 in
 1998-2005                     years 2-9
President's FY 1997 request   $51.1 in                 0             0
 and                           year 1
 variable appropriations in    Rising to
 FY 1998-2001                  $294.2
                               in FY 1999
----------------------------------------------------------------------
Source:  GAO's analysis of data from BART. 

With different federal appropriations and interest rates, BART's
borrowing costs could increase from its current estimate of $40
million to about $70 million should federal appropriations be
provided over a longer time than the 7 years in BART's plan.  In
contrast, BART could incur no borrowing costs if it received federal
appropriations over 5 years, with a peak appropriation of $294
million in fiscal year 1999.  Appendix III provides further details
on these different financing scenarios. 


--------------------
\8 BART's service district comprises San Francisco, Alameda, and
Contra Costa counties.  The airport extension will be constructed in
San Mateo County. 


      STATE LEGISLATION NEEDED TO
      ESTABLISH BORROWING PROGRAM
      FOR THE AIRPORT EXTENSION
---------------------------------------------------------- Letter :5.2

BART does not have the authority to pledge its own revenues as a
secondary source of collateral for a borrowing program it must
establish to meet the expected cash shortfalls.  As mentioned
earlier, California state law prohibits BART from using its own
revenues for the purpose of extending service or facilities outside
its district.  While the expected federal funds would serve as the
primary source of collateral for the issued notes, BART's financial
consultant advised the agency that it would need a secondary source
of collateral to obtain a lower financing rate.  As of May 15, 1996,
BART was working to secure support in the California legislature to
allow it to pledge its revenues as collateral.  BART expects the
legislation to pass, since it has support of key state legislators. 

BART has identified the potential surcharges at the airport station
and Daly City station as the source of its collateral for the
project.  According to BART, the proposed legislation would also
allow it to pay for cost overruns exceeding the planned contingency
funds, as described earlier.  Without the change in state law, BART
proposes to either take out a mortgage on some of its transit
facilities or rely only on future federal appropriations as the
source of collateral.  According to BART's financial advisers, these
two options would increase BART's financing rate by one-half to 1
percent. 


      LIMITATIONS ON THE USE OF
      AIRPORT FUNDS
---------------------------------------------------------- Letter :5.3

The San Francisco International Airport Commission has committed up
to $200 million for the BART airport extension.\9 Airport officials
described their commitment as the maximum contribution for the BART
project.  As of May 15, 1996, the Airport Commission had not
determined the source of funds it would use to pay for that portion
of the BART project located on the airport's property--the aerial
structure and mass transit terminal.  FTA's financial advisers stated
that since the airport's contribution represents 17 percent of the
project's total cost, FTA should closely monitor BART's process for
obtaining a firm financial commitment from the airport. 

In August or September 1996, BART expects to secure a comprehensive
agreement with the Airport Commission specifying the airport's
financial participation in the project.  Airport officials stated
that revenue bonds or passenger facility charges (PFC) were potential
sources of funds and that the outcome of negotiations with the
airlines would determine the funding source.  Airport officials
stated that the airport was financially strong and would meet its
financial commitment to BART within the Federal Aviation
Administration's (FAA) guidelines. 

The airport's contribution would be limited in accordance with a
March 3, 1995, memorandum by FAA outlining how airport resources
could be used for the BART extension project and what types of
activities could be funded.  FAA found that the construction of the
BART terminal itself at the airport would be eligible for funding by
the Airport Improvement Program (AIP) or the airport could institute
PFCs if it retained ownership of the facility.  In addition, other
airport revenues could be used for the BART terminal.  FAA stated
that the line into the airport would be ineligible for AIP or PFC
funds because the line would not be for the exclusive use of airport
patrons.  However, the airport could use other revenue sources, such
as bonds, to partially pay for the line.  FAA's memorandum was
written before the project was redesigned from including a subway to
including the current aerial configuration.  BART officials believe
that the new configuration would address FAA's concerns, since the
redesigned line would be used solely for airport patrons.  However,
according to the manager of FAA's district office, the airport has
not requested a decision from FAA on whether the new configuration
would in fact address the agency's concerns and be fully eligible for
AIP or PFC funds. 

The airport's contribution is also limited by a position stated by
the Mayor of San Francisco in a March 27, 1996, letter to BART.  In
the letter, the Mayor states that the airport will not pay for any
BART construction activities west of Highway 101 (the highway that
provides primary access to the airport).  The "Y" portion of the BART
project would be affected by the mayor's limitation, since this
portion of the project is located on the airport's property but the
airport would be precluded from funding this portion.  The Mayor
wrote the letter because of his concerns that the airport's
contribution to pay for this portion of the BART project would
jeopardize revenues the city receives each year from the airport. 


--------------------
\9 In BART's finance plan, the airport's contribution is divided
between $87 million that would be included in the full funding grant
agreement and $113 million that the airport would pay independently. 


      LIMITATIONS ON LOCAL AND
      STATE FUNDING
---------------------------------------------------------- Letter :5.4

The BART airport extension will be constructed largely in San Mateo
County--south of San Francisco.  Because San Mateo County is not in
BART's service district, SAMTRANS--the county's mass transit
operator--entered into an agreement with BART whereby it will
contribute $330 million to various BART projects (including $99
million for the airport extension) in exchange for BART service into
the county.  SAMTRANS officials stated that the $99 million was the
most that they could commit to the construction of the project.  In
addition, SAMTRANS' Board of Directors stated that it would not
assume responsibility for cash-flow financing and cost overruns
during the project's construction. 

SAMTRANS will also pay for the operation and maintenance of the
airport extension line.  According to SAMTRANS officials, the
operating costs will be recaptured through passenger fares and
surcharges; provisions for these charges have been included in their
agreement with BART.  Reports by FTA indicate that SAMTRANS has the
financial capacity to fund the $99 million contribution to BART. 

The California Transportation Commission has pledged $98 million in
state transportation funds for the project.  According to Commission
officials, the original funding source, the state's Transit Capital
Improvement Fund, is experiencing constraints because of the
volatility in gasoline tax revenues and variation in the amount of
the gasoline tax the legislature allocates to transportation.  While
Commission officials stated that the Transit Capital Improvement Fund
may not have sufficient balances to fully fund the BART project in
the future, the Commission reaffirmed its $98 million commitment to
the project in a January 1996 letter to us, explaining that State
Transportation Improvement Program funds already allocated for a
different BART project could be transferred to the airport extension. 

A second planned source of state funds will come from revenues
generated from a tax passed in 1990, known as Proposition 116. 
Commission officials stated that $10 million in state Proposition 116
funds will be allocated to the BART airport extension, as agreed to
by San Mateo County.  No additional Proposition 116 funds would be
available for the project. 


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

The BART extension to the airport is at a critical point in terms of
the need for close oversight by FTA and congressional scrutiny of the
project.  BART's timetable for beginning construction by October 1996
is ambitious and highly dependent on the expeditious approval of
critical environmental mitigation and finance plans by FTA.  BART's
finance plan provides little room for error.  It depends on large
annual federal appropriations, cost savings derived from new
contracting procedures, and state approval to help secure debt
financing. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We provided a draft of this report to FTA and BART for review.  We
met with FTA officials, including the Director of the Office of
Planning, to discuss their comments on the draft.  In general, FTA
officials considered the report to be a fair representation of the
facts related to the BART airport extension project.  FTA stated we
should stress that the BART project is the product of sound regional
transportation planning and a high priority in the region and the
state.  FTA also suggested that we emphasize the benefits of the
proposed project in reducing traffic congestion, particularly since
additional congestion is expected as a result of the airport's
expansion.  We believe the report clearly indicates how the current
project was developed, the strong level of regional and state
support, and the project's benefits in reducing traffic congestion. 

The FTA officials stated that design-build contracting procedures
should be characterized as new, rather than unproven, methods for
containing cost growth.  The purpose of the demonstration project is
to determine whether this contracting method will, in fact, help
contain costs for large transit projects.  We revised the report to
characterize design-build procedures as a new, rather than unproven,
contracting method.  The FTA officials also suggested technical and
editorial changes to the report.  Where appropriate, we incorporated
these changes into the report. 

BART provided written comments on our draft report.  Overall, BART
stated that the draft report in large part accurately represented the
facts associated with the proposed airport extension project. 
However, BART did not concur with the opinions we reached in our
"Results in Brief" and "Conclusions" sections.  For example, BART did
not agree with our characterization of design-build as an unproven
contracting method for transit projects.  BART also disagreed with
our conclusions that its timetable for the project was very ambitious
and that its finance plan had little room for error.  As explained,
we revised the report to characterize design-build as a new, rather
than unproven, contracting method.  However, we continue to believe
that BART's timetable is ambitious, particularly since BART expects
FTA to sign a full funding grant agreement by October, yet FTA has
not approved the final EIS, the airport will not identify its funding
commitment until September, and FTA has yet to certify to the
Appropriations Committees that the project has resolved a number of
significant issues.  We also continue to believe that the finance
plan has little room for error because state legislation has not yet
been amended to allow BART to pledge its assets as collateral,
limited funding sources are available to cover cost growth beyond the
project's $1.167 billion budget and contingency amounts, and BART may
not have adequately escalated the costs to cover 2 years' worth of
inflation (about $40 million).  BART's detailed comments and our
responses are found in appendix V. 


---------------------------------------------------------- Letter :7.1

We performed our review from October 1995 through May 1996 in
accordance with generally accepted government auditing standards.  To
accomplish our objectives, we gathered information from BART and FTA
officials in San Francisco and Washington, D.C.  Appendix IV contains
the details of our scope and methodology. 

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 14 days after the date of this letter.  At that time, we will
send copies to the Secretary of Transportation, the Administrator of
FTA; the General Manager, BART; cognizant congressional committees,
and other interested parties.  Copies will also be available upon
request. 

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

Sincerely yours,

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


BAY AREA RAPID TRANSIT DISTRICT'S
SCHEDULE AND MILESTONES FOR THE
AIRPORT EXTENSION PROJECT
=========================================================== Appendix I



   (See figure in printed
   edition.)

Legend

BART = Bay Area Rapid Transit District
EIS = environmental impact statement
FTA = Federal Transit Administration
LPA = locally preferred alternative
FFGA = full funding grant agreement
MTC = Metropolitan Transportation Commission
CTC = California Transportation Commission
STIP = State Transportation Improvement Program
SFIA = San Francisco International Airport
MOU = memorandum of understanding

Source:  GAO's analysis of documents from BART. 


BART'S DRAFT FINANCE PLAN (APRIL
1996)
========================================================== Appendix II

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $70,000       $90,000         $110,000    $121,000    $121,000    $121,430          $0          $0      $750,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $169,400      $153,700         $155,479    $138,400    $121,000    $121,430          $0          $0    $1,054,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $363,991      $517,691         $673,170    $811,570    $932,570  $1,054,000  $1,054,000  $1,054,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801      $1,961    ($202,229)       ($240,840)  ($202,430)   ($81,430)     $40,000     $40,000     $40,000
 balance
Annual                   $0          $0          $0          $0          $0       $11,128          $13,252     $11,139      $4,481          $0          $0          $0       $40,000
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:  The $40 million dollars in financing costs are covered in the
federal contribution to the project. 

BART's finance plan assumes a yearly financing rate of 5.5026
percent. 


VARIOUS FINANCING SCENARIOS
ASSUMING DIFFERENT LEVELS OF
FEDERAL APPROPRIATIONS
========================================================= Appendix III



                                                                                     Table III.1
                                                                       
                                                                         Financing Scenario That Uses BART's
                                                                        Financing Plan and a Borrowing Rate of
                                                                                     6.25 Percent

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $70,000       $90,000         $110,000    $121,000    $121,000    $121,430          $0          $0      $750,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $169,400      $153,700         $155,479    $138,400    $121,000    $121,430          $0          $0    $1,054,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $363,991      $517,691         $673,170    $811,570    $932,570  $1,054,000  $1,054,000  $1,054,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801      $1,961    ($202,229)       ($240,840)  ($202,430)   ($81,430)     $40,000     $40,000     $40,000
 balance
Annual                   $0          $0          $0          $0          $0       $12,639          $15,053     $12,652      $5,089          $0          $0          $0       $45,433
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:  The borrowing rate that BART used for its calculations in its
draft finance plan was 5.5026 percent.  The finance plan mentioned
that the rate could be as high as 6.25 percent, which is the rate
used for this scenario. 

Because of rounding, amounts may add to slightly different cumulative
values, financing costs, and totals than the ones shown. 



                                                                                     Table III.2
                                                                       
                                                                         Financing Scenario That Includes the
                                                                         President's Fiscal Year 1997 Budget
                                                                            Request and Then Assumes Level
                                                                         Appropriations From Fiscal Year 1998
                                                                               Through Fiscal Year 2004

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $90,490       $90,490          $90,490     $90,490     $90,490     $90,490     $90,490          $0      $750,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $189,890      $154,190         $135,969    $107,890     $90,490     $90,490     $90,490          $0    $1,054,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $384,481      $538,671         $674,640    $782,530    $873,020    $963,510  $1,054,000  $1,054,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801     $22,451    ($181,249)       ($239,370)  ($231,470)  ($140,980)   ($50,490)     $40,000     $40,000
 balance
Annual                   $0          $0          $0          $0          $0        $9,973          $13,172     $12,737      $7,758      $2,778          $0          $0       $46,418
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:  This scenario uses the borrowing rate that BART used for its
calculations in its draft finance plan, 5.5026 percent. 

Because of rounding, amounts may add to slightly different cumulative
values, financing costs, and totals than the ones shown. 



                                                                                     Table III.3
                                                                       
                                                                         Financing Scenario That Includes the
                                                                         President's Fiscal Year 1997 Budget
                                                                            Request and Then Assumes Level
                                                                         Appropriations From Fiscal Year 1998
                                                                           Through Fiscal Year 2004, With a
                                                                            Borrowing Rate of 6.25 Percent

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $90,490       $90,490          $90,490     $90,490     $90,490     $90,490     $90,490          $0      $750,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $189,890      $154,190         $135,969    $107,890     $90,490     $90,490     $90,490          $0    $1,054,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $384,481      $538,671         $674,640    $782,530    $873,020    $963,510  $1,054,000  $1,054,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801     $22,451    ($181,249)       ($239,370)  ($231,470)  ($140,980)   ($50,490)     $40,000     $40,000
 balance
Annual                   $0          $0          $0          $0          $0       $11,328          $14,961     $14,467      $8,811      $3,156          $0          $0       $52,722
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note:  Because of rounding, amounts may add to slightly different
cumulative values, financing costs, and totals than the ones shown. 



                                                                                     Table III.4
                                                                       
                                                                         Financing Scenario That Includes the
                                                                         President's Fiscal Year 1997 Budget
                                                                            Request and Then Assumes Level
                                                                         Appropriations From Fiscal Year 1998
                                                                               Through Fiscal Year 2005

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $79,179       $79,179          $79,179     $79,179     $79,179     $79,179     $79,179     $79,179      $750,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $178,579      $142,879         $124,658     $96,579     $79,179     $79,179     $79,179     $79,179    $1,054,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $373,170      $516,049         $640,706    $737,285    $816,464    $895,643    $974,821  $1,054,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801     $11,140    ($203,872)       ($273,304)  ($276,715)  ($197,536)  ($118,358)   ($39,179)     $40,000
 balance
Annual                   $0          $0          $0          $0          $0       $11,218          $15,039     $15,227     $10,870      $6,513      $2,156          $0       $61,022
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:  This scenario uses the borrowing rate that BART used for its
calculations in its draft finance plan, 5.5026 percent. 

Because of rounding, amounts may add to slightly different cumulative
values, financing costs, and totals than the ones shown. 



                                                                                     Table III.5
                                                                       
                                                                         Financing Scenario That Includes the
                                                                         President's Fiscal Year 1997 Budget
                                                                            Request and Then Assumes Level
                                                                         Appropriations From Fiscal Year 1998
                                                                           Through Fiscal Year 2005, With a
                                                                            Borrowing Rate of 6.25 Percent

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $79,179       $79,179          $79,179     $79,179     $79,179     $79,179     $79,179     $79,179      $750,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $178,579      $142,879         $124,658     $96,579     $79,179     $79,179     $79,179     $79,179    $1,054,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $373,170      $516,049         $640,706    $737,285    $816,464    $895,643    $974,821  $1,054,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801     $11,140    ($203,872)       ($273,304)  ($276,715)  ($197,536)  ($118,358)   ($39,179)     $40,000
 balance
Annual                   $0          $0          $0          $0          $0       $12,742          $17,081     $17,295     $12,346      $7,397      $2,449          $0       $69,310
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note:  Because of rounding, amounts may add to slightly different
cumulative values, financing costs, and totals than the ones shown. 



                                                                                     Table III.6
                                                                       
                                                                         Financing Scenario That Includes the
                                                                          Appropriations Needed to Fund the
                                                                        Design-Build Project With No Borrowing
                                                                                        Costs

                                                                                (Dollars in thousands)


                    Through
                       1994        1995        1996        1997        1998          1999             2000        2001        2002        2003        2004        2005         Total
---------------  ----------  ----------  ----------  ----------  ----------  ------------  ---------------  ----------  ----------  ----------  ----------  ----------  ------------
====================================================================================================================================================================================
Revenues
Federal Transit     $22,500     $33,000     $10,000     $51,070     $68,039      $294,190         $148,611     $82,590          $0          $0          $0          $0      $710,000
 Administration
State                14,561           0       5,060       7,300      20,000        25,000           26,079           0           0           0           0           0       $98,000
 transportation
 funds
State                     0           0           0      10,000           0             0                0           0           0           0           0           0       $10,000
 Proposition
 116 funds
West Bay Bridge           0       1,000       1,000       2,000       2,000         2,000            2,000           0           0           0           0           0       $10,000
 tolls
San Francisco             0           0           0      17,400      17,400        17,400           17,400      17,400           0           0           0           0       $87,000
 Airport
San Mateo            14,561           0           0       5,139      60,000        19,300                0           0           0           0           0           0       $99,000
 matching funds
====================================================================================================================================================================================
Total revenues      $51,622     $34,000     $16,060     $92,909    $167,439      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Expenses
Engineering and      $8,467     $14,115     $22,318     $22,540     $24,940       $26,240          $27,090     $22,290          $0          $0          $0          $0      $168,000
 management
Right-of-way              0           0           0      37,800      50,400        37,800                0           0           0           0           0           0      $126,000
Construction              0           0           0      18,800     141,400       267,600          137,000      55,200           0           0           0           0      $620,000
Vehicles                  0           0           0       3,750      17,500        26,250           30,000      22,500           0           0           0           0      $100,000
====================================================================================================================================================================================
Total expenses       $8,467     $14,115     $22,318     $82,890    $234,240      $357,890         $194,090     $99,990          $0          $0          $0          $0    $1,014,000
====================================================================================================================================================================================
Cumulative          $51,622     $85,622    $101,682    $194,591    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 revenues
Cumulative           $8,467     $22,582     $44,900    $127,790    $362,030      $719,920         $914,010  $1,014,000  $1,014,000  $1,014,000  $1,014,000  $1,014,000
 expenses
Cumulative          $43,155     $63,040     $56,782     $66,801          $0            $0               $0          $0          $0          $0          $0          $0
 balance
Annual                   $0          $0          $0          $0          $0            $0               $0          $0          $0          $0          $0          $0            $0
 financing
 costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SCOPE AND METHODOLOGY
========================================================== Appendix IV

To determine what actions FTA must take before issuing a full funding
grant agreement, we reviewed the Federal Transit Act, as amended,
FTA's Circular C5200 on full funding grant agreements, and the
National Environmental Policy Act.  We also interviewed FTA legal
counsels in headquarters and Region 9, FTA headquarters and Region 9
program officials, and BART officials responsible for project
management.  To determine congressional requirements placed on FTA
regarding the BART airport extension, we reviewed federal legislation
and the relevant Conference Committee report. 

To describe the project's current schedule and estimated cost and
factors that could affect the cost, we interviewed officials at FTA
Region 9 and BART, and we reviewed cost information contained in each
of the draft EISs, the report on the locally preferred alternative,
and reports by BART's financial consultant.  We also reviewed project
and construction schedules submitted to FTA by BART.  We reviewed
reports from FTA's financial consultant for the project, FTA's annual
reports, and oversight documents by Region 9 officials.  In addition,
we reviewed information from critics of the project, including local
transportation agency officials; transportation planners; and
industry, environmental, and transit user groups.  To assess BART's
progress in meeting environmental requirements needed to begin
construction, we interviewed officials from FTA, BART, the U.S.  Fish
and Wildlife Service, and the Army Corps of Engineers.  In addition
to reviewing each draft EIS, we reviewed the biological assessment
for endangered species. 

To describe the project's financing plan, we interviewed officials at
FTA and each of the local agencies involved in the project's
financing, including BART, the San Mateo County Transit District, the
San Francisco International Airport, the California Transportation
Commission, and the Metropolitan Transportation Commission.  We
obtained and reviewed documents from these officials regarding their
financial contribution to the plan.  To further assess the airport's
contribution to the plan, we obtained the Federal Aviation
Administration's (FAA) guidance on allowable costs and interviewed
FAA officials.  We also reviewed analyses of BART's commercial
borrowing program that were contained in reports from BART's
financial consultant. 




(See figure in printed edition.)Appendix V
COMMENTS FROM BART
========================================================== Appendix IV



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on BART's letter dated May 23, 1996. 


   GAO'S COMMENTS
-------------------------------------------------------- Appendix IV:1

1.  In regard to coordinating with the airport, previous documents by
BART and statements of FAA and San Francisco airport officials
contradict BART's current concern that it will miss a "window of
opportunity" should construction not move forward immediately. 
First, BART's September 1995 draft EIS found that the BART project's
impact on the construction schedule of the airport would be nominal. 
The report noted that BART and the airport would have to coordinate
minor changes and minimal modifications to align their respective
projects.  Second, the airport director stated to us that changes in
BART's construction schedule would not adversely affect the airport's
expansion plans:  No major design changes would be needed to
accommodate the BART project.  FAA officials stated that the BART
project is an add-on to the airport's construction plans.  Therefore,
the airport can complete its construction without the BART
extension's being complete. 

More importantly, BART needs to secure a financial commitment from
the airport.  BART's additional information provided in its response
does not lessen the concerns we raised about the airport's
contribution to the project.  First, the Airport Commission has not
provided FTA or BART with a written agreement committing to its
portion of the project's cost nor has it determined the source of
funds it will use to pay for that portion of the BART project located
on the airport's property.  Second, FAA has not reviewed or approved
the source of funds the airport can use for the BART project.  Until
these issues are resolved, the project does not have a firm
commitment to cover nearly one-fifth of the project's $1.167 billion
cost. 

2.  Where appropriate, we have updated the draft report to include
the more current information that BART presented.  In particular, we
have updated the report to indicate that the U.S.  Fish and Wildlife
Service issued a no jeopardy opinion on May 20, 1996, regarding the
project's impacts to endangered species.  We also updated the report
to show that FTA expects to approve the final EIS in early June.  At
that time, the final EIS is subject to a 30-day comment period and
subsequently will result in FTA's issuing a record of decision for
the project by mid-August. 

3.  In regard to cost savings from using design-build procedures, we
agree that this method has been used successfully in improving public
and private sector construction projects.  However, as FTA's
consultants on design-build procedures noted in their 1994 report,
the experience with these procedures for transit projects is common
outside of North America, and these experiences may not be directly
transferable to the U.S.  environment.  For example, transit agencies
in foreign countries have greater control over land use than their
U.S.  counterparts, thus facilitating public-private partnerships for
the development of fixed guideway (transit) systems.  In addition,
the combination of design and construction disciplines within a
single private entity tends to be a fairly prevalent practice in many
countries but relatively new in the United States.  FTA's consultants
also noted that much of the experience gained by design-build
projects outside the transit industry may not be directly
transferable to that industry because of differences in industries'
structures and the types of technologies used.  As a result of the
limited experience with design-build procedures in an American
contracting environment, FTA selected the BART project to demonstrate
any benefits from using these innovative contracting procedures to
reduce a project's schedule and cost.  Accordingly, we affirm our
concerns with BART's projection of 15- to 20-percent savings from
employing design-build contracting procedures. 

In regard to the project management oversight consultant's (PMOC)
report, the PMOC did not assess the certainty of BART's estimated 15-
to 20-percent cost savings attributable to design-build procedures. 
However, the PMOC expressed concern that BART's estimates did not
take into account 2 years of inflation, thereby underestimating the
project's total cost by as much as $40 million.  We have updated the
body of our report to incorporate the PMOC's concerns. 

We have revised the report in response to BART's explanation of why
it included 18.5 percent in the design-build contracts to cover
contingencies.  However, it should be noted that BART's portrayal of
the combined amounts for contingencies as 43 percent of the
construction costs is misleading.  Cost growth in nonconstruction
areas, such as vehicle acquisition and financing, must also be funded
by these contingency funds.  The total amount for contingencies
represents about 16 percent of the project's total cost. 

4.  We changed the report to state that FTA intends to cap the
federal contribution at $750 million for the BART project; BART would
bear any and all expenses beyond those identified in the grant
agreement as necessary to complete the project.  However, FTA does
not expect to conclude a grant agreement with BART until October
1996; the final federal contribution that would be included in the
grant agreement is still subject to negotiation between FTA and BART. 

In regard to surcharges, while we recognize that BART proposes to use
surcharges to cover unexpected cost growth, the ability of these
surcharges for this purpose is limited.  The Daly City station
surcharge is projected to provide BART with $2 million each year to
cover unexpected cost growth.  This represents two-tenths of 1
percent of the project's total cost.  The proposed premium surcharge
at the airport would generate $3 million to $4 million each year, or
three-tenths of 1 percent of the project's total cost.  Furthermore,
the airport surcharge would not be available until the airport
station is open--currently projected for October 2000.  In addition,
none of these surcharges can be applied until the state legislature
passes an amendment to BART's legislation. 

5.  We recognize that the project has strong support, including
support from the governor and state legislature.  However, during the
course of our review, we also discovered opposition to the project
from numerous groups, including local transit advocates,
environmental groups, the Air Transport Association, and area
businesses.  In addition, two of BART's board members expressed
concern to us about the cost-effectiveness of the project.  We also
observed at a public hearing on the BART project that many transit
users and advocates in San Mateo county were concerned about the
impact of this project on their current transit system, particularly
the impact on Caltrain.  Many of these opponents also testified
before the House Appropriations Committee, which highlights the
controversial nature of the project. 

6.  We have modified our draft report to include the new information
on environmental approvals.  While BART has made progress in gaining
environmental approvals, we continue to consider the project's
timetable ambitious.  In addition, we cannot reconcile BART's concern
over our conclusion with its previous statement that the "window of
opportunity" will close without FTA's speedy approval. 

Furthermore, BART's comments do not address a major obstacle for the
financing plan, namely a change in California law needed to finance
anticipated cash-flow shortfalls.  We continue to believe that there
is little room for financial error.  As noted earlier, the surcharges
BART cites to create a capital account for funding shortages would
produce annual revenues equaling less than 1 percent of the project's
current cost. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION

CHICAGO

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

SAN FRANCISCO

Linda Chu
Julie M.  DeVault

WASHINGTON, D.C. 

Phyllis F.  Scheinberg
John H.  Skeen, III

OFFICE OF INFORMATION MANAGEMENT
AND COMMUNICATIONS

Armetha Liles


*** End of document. ***