Central Artery/Tunnel Project: Cost and Financing (Stmnt. for the Rec.,
07/11/96, GAO/T-RCED-96-218).
GAO provided a statement for the record on Massachusetts' Central
Artery/Tunnel project. GAO noted that: (1) there may not be sufficient
state and federal funding to complete the project by 2004; (2)
Massachusetts faces challenges in maintaining its commitment to its
statewide road and bridge improvement program and the Central
Artery/Tunnel project; (3) the total cost of the project is estimated at
$7.8 billion, but the estimate does not account for the effects of
inflation; (4) total project costs could exceed $11 billion; (5) it is
too early to determine whether Massachusetts will meet all of its cost
containment goals; (6) federal sources have provided $4.1 billion of the
$4.7 billion obligated for the project; (7) Massachusetts plans to rely
more on state funding sources to finance the project, since future
federal funding is uncertain; (8) Massachusetts' plans to accelerate
project construction has created funding shortfalls; (9) options to
address funding shortfalls include short-term financing, extending the
construction schedule, reducing the scope of the project, and reducing
funding for other state transportation projects; and (10) Massachusetts
is considering borrowing funds in 1998 to help finance the project and
repaying these amounts with federal funds received in 2002.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-RCED-96-218
TITLE: Central Artery/Tunnel Project: Cost and Financing
DATE: 07/11/96
SUBJECT: Intergovernmental fiscal relations
Construction costs
Road construction
Cost sharing (finance)
Future budget projections
Public roads or highways
Cost control
Construction contracts
Federal aid to states
IDENTIFIER: Massachusetts
Boston (MA)
Central Artery/Tunnel Project (Boston, MA)
Massachusetts Road and Bridge Improvement Program
FHwA Interstate Construction Program
FHwA Federal-Aid Highway Program
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Cover
================================================================ COVER
Before the Joint Committee on Transportation,
The Commonwealth of Massachusetts
Hearing Held on
July 11, 1996
Statement Submitted on
July 11, 1996
CENTRAL ARTERY/
TUNNEL PROJECT - COST AND
FINANCING
Statement for the Record by
John H. Anderson, Jr., Director,
Transportation and Telecommunications Issues,
Resources, Community, and Economic
Development Division
GAO/T-RCED-96-218
GAO/RCED-96-218T
(342922)
Abbreviations
=============================================================== ABBREV
============================================================ Chapter 0
Chairman Havern, Chairman Cahir, and Members of the Committee:
Thank you for inviting us to provide this statement for the record as
part of your hearing on House Bill 6203, An Act Relative to the
Removal of Tolls on the Massachusetts Turnpike. This bill would,
with some exceptions, prohibit the Massachusetts Turnpike Authority
and Massachusetts Port Authority from changing or eliminating tolls
at any state toll facilities until the feasibility study for a Boston
metropolitan area unified transportation system, mandated in state
law in 1995 and due on December 1, 1996, is completed.
You asked us to focus our statement on our May 1996 report on the
Central Artery/Tunnel project.\1 In summary, our report found that
the estimated total costs of the project are $10.4 billion and could
increase if cost containment goals are not met. Furthermore, we
concluded that the state and federal funding available to
Massachusetts to finance the Central Artery/Tunnel project might not
be sufficient to complete the project as scheduled by 2004. Although
the amount of federal funding that will be available to Massachusetts
after federal fiscal year 1997 is not known, shortfalls exist under
all scenarios modeled in the Massachusetts Highway Department's (MHD)
February 1996 Central Artery/Tunnel project finance plan. While the
finance plan discusses options for addressing the shortfall, state
officials told us that a plan has not been selected to date, pending
completion of the feasibility study. In selecting a plan, the state
faces challenges to both maintain its commitment to its statewide
road and bridge improvement program and build the Central
Artery/Tunnel project.
--------------------
\1 Transportation Infrastructure: Central Artery/Tunnel Project
Faces Continued Financial Uncertainties (GAO/RCED-96-131, May 10,
1996).
PROJECT COSTS
---------------------------------------------------------- Chapter 0:1
Massachusetts' official estimate of the total cost of the Central
Artery/Tunnel project, as updated in January 1996, is $7.8 billion.
However, that estimate excludes over $1 billion in costs that were
included in previous estimates and does not account for the effects
of inflation. Our analysis shows that the project's costs would
total $10.4 billion if the excluded costs and the effects of
inflation were considered. Moreover, the $10.4 billion assumes that
the state will be successful in meeting the aggressive cost
containment goals established in 1995 for the project. While the
MHD's cost containment initiatives demonstrate that it is serious
about containing project costs, it is too early to tell whether the
state will meet all of its cost containment goals, and the results to
date have been mixed.
The project still faces several risks that could increase its costs.
For example, much of the construction work remaining on the project
is underground tunneling. Federal Highway Administration (FHWA) and
state officials agree that this work is inherently risky, given the
uncertainties of underground work in a densely populated urban area.
Given these risks, closely monitoring the project's cost performance
is important because the total costs could exceed $11 billion if
historic patterns of cost growth, rather than the project's cost
containment goals, prevail. Moreover, a full disclosure of the
project's total costs provides the only basis for the Congress, state
leaders, and the public to understand the extent of the federal and
state investment in the Central Artery/Tunnel project. Full
disclosure is also the only means of providing a consistent baseline
for measuring changes in the cost of the project over time.
PROJECT FINANCE
---------------------------------------------------------- Chapter 0:2
As of March 1, 1996, federal sources had provided $4.1 billion of the
$4.7 billion in funds obligated for the project, while state funds
provided about $650 million. However, in the current federal fiscal
environment, the amount of future federal funding is uncertain, and
Massachusetts plans to increasingly rely on state sources to finance
the project. To date, most federal funding for the project has come
from the Interstate Construction Program, the program begun in 1956
to build the Interstate Highway System. That program, which had
dedicated federal funds for specific interstate projects, has ended,
and the Central Artery/Tunnel project received its final federal
funds under this program in fiscal year 1995. On June 19, 1996, the
Appropriations Committee of the U.S. House of Representatives
reported the U.S. Department of Transportation's fiscal year 1997
appropriations bill to the full House. In its report to the House,
the Committee warned of the unlikelihood of any further dedicated
federal funding for the Central Artery/Tunnel project. The report
noted that the federal funds provided in fiscal year 1995
". . .are intended to be the final contributions for
construction under the Interstate program. Accordingly,
Massachusetts must accept the risks associated with potential
cost overruns and possible reductions in future federal-aid
apportionment levels..."
The amount of federal funding that will be available to Massachusetts
after federal fiscal year 1997 will not be known until the Congress
reauthorizes the federal aid highway program sometime in 1997.
However, funding shortfalls exist under all scenarios modeled in
MHD's finance plan.\2 For example, under one scenario modeled at the
request of FHWA, Massachusetts would experience a shortfall of $1.9
billion between federal fiscal years 1996 and 2000. These shortfalls
could increase if the state does not meet its cost containment goals.
These shortfalls occur in large measure because of Massachusetts'
plans to accelerate the project's construction and begin numerous
projects within a short period of time, with plans to pay for them
over several years. Specifically, Massachusetts plans to award 26
contracts, totaling $3.7 billion, in this manner--including contracts
totaling over $2 billion in fiscal year 1996. According to MHD, this
strategy will save $1 billion in total costs for the project and 5
years in construction time. The Secretary of the U.S. Department of
Transportation must approve these contracts.
The state's finance plan identifies several options to address the
shortfall, but none has been selected to date. These options include
short-term financing, extending the project's schedule, reducing the
project's scope, and reducing the funding for other state
transportation projects. MHD considers short-term state financing to
be the most viable option. For example, the state's ongoing
feasibility study is examining whether to establish a metropolitan
highway system in Boston. This system, if established, could lead to
the issuance of toll-financed revenue bonds to help finance the
Central Artery/Tunnel project. MHD is also considering borrowing
funds in the 1998-2001 period and repaying these amounts with federal
funds received by the project in 2002 and later. While less than
$200 million in new obligations will remain to be incurred by the end
of fiscal year 2002, MHD's finance plan assumes that the Central
Artery/Tunnel project will continue to receive one-half or more of
the federal-aid highway funds apportioned to Massachusetts between
fiscal years 2002 and 2005. According to the state's finance plan,
these funds could then be used to repay the debt incurred in order to
cover funding shortfalls.
State officials told us that an option for addressing projected
funding shortfalls would not be selected until the state's
feasibility study is complete. Since a finance option has not been
selected, FHWA has required Massachusetts, as a condition of further
approval of the $3.7 billion in construction contracts the state
plans to award, to demonstrate that unencumbered bonding authority or
third party financing exists to cover the entire amount of a contract
at the time of the contract's award. This will require that
appropriate state legislation be enacted to meet the project's
contracting requirements.
As part of its overall plan for financing the Central Artery/Tunnel
project, Massachusetts must also consider funding sources to maintain
its $400 million annual statewide road and bridge improvement
program. Between fiscal years 1992 and 1995, the federal
contribution to the statewide road and bridge program was over $200
million a year. The state's finance plan shows that the federal
contribution could be reduced to $130 million a year by 1998.
Massachusetts officials told us that the state is committed to
maintaining a $400 million annual statewide construction program and
would increase the state's funding in the future if necessary to make
up for the reduction in federal funds.
--------------------
\2 These scenarios included the $600 million in funding provided in
state legislation for the Central Artery/Tunnel project in 1995,
including the $100 million contribution from the Massachusetts
Turnpike Authority.
-------------------------------------------------------- Chapter 0:2.1
Messrs. Chairmen, this concludes our prepared statement.
*** End of document. ***