Locally-Funded Cost Increases of U. S. Rail Projects – Beyond the Perspective of General Accounting Office By Thomas A. Rubin, cpa, cma, cmc, cia, cgfm, cfm
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Locally-Funded Cost Increases of U.S. Rail Projects – Beyond the Perspective of General Accounting Office By Thomas A. Rubin, CPA, CMA, CMC, CIA, CGFM, CFM Several independent multi-city studies of U.S. urban rail mass transit construction projects over the years have documented upward cost drifts between the planning phase and completion. However, in several recent discussions of cost increases in rail projects, rail proponents and media have referred to reports issued by the U.S. General Accounting Office (GAO), most commonly, “Mass Transit – Status of New Starts Transit Projects With Full Funding Grant Agreements” (GAO/RCED-99-240) (“Status of New Starts”), as evidence that rail construction projects are being properly and competently managed and that cost overruns are not an item of major concern. For example, The Seattle Times reported on October 6, 2000: “The GAO last year examined 14 federally funded transit projects and found that about 60 percent of them, in cities such as Denver, Portland, Salt Lake City and Sacramento, were on schedule and in the black. Only three of the projects were more than 7 percent over budget.” The GAO is one of the finest and most professional organizations in its fields of expertise and its reports are overwhelmingly accurate and useful documents. However, for local citizens and decision-makers who are studying whether or not to pursue new rail lines, the GAO frame of reference may not be useful. GAO, charged with protecting the interests of the U.S. Government, is concerned solely about changes in Federal grants from the Full Funding Grant Agreement (FFGA) contract between USDOT and the local transit agency, entered into at the point that approval to construct has been given. The following analysis focuses on what was known at the time of the decision to sign that contract, or even earlier when proposing new rail starts to the public. In this type of analysis, cost and other projections predating the FFGA are very important. Also, strictly local public costs that are not part of the Federal grants are taken into account. In three specific projects covered by Status of New Starts, GAO reports cost overruns of zero, 6.8%, and zero. However, by adopting a full-cost perspective on the local share, the conclusion is far different.
More detail on the financial aspect of these projects follows: Los Angeles County Metropolitan Transportation Authority Red LineStatus of New Starts reports that Segment 3 North Hollywood of the Red Line heavy rail line from Union Station to North Hollywood in the San Fernando Valley had no cost increase on this $1,310.8 million project. However, GAO also reports that there are $33.9 million of “out of scope” modifications that are totally the responsibility of MTA. While the FFGA project is “on budget,” the costs to the grantee went up $33.9 million, which is 57% of the budgeted MTA share of the project cost, $59.2 million. Also, MTA has never acknowledged its responsibility for property damage claims due to the collapse of Hollywood Boulevard during the construction of the Red Line. These costs, many of which are applicable to Segment 3 North, are currently estimated at approximately $100 million. MTA first claimed that these costs were the responsibility of the tunneling contractor, but later agreed to release the contractor from any such liability. MTA now claims that these costs will be borne by its insurance underwriters, but they are undertaking legal action against MTA to deny coverage on grounds of MTA’s failure to properly manage the project. MTA has ignored the high potential for incurring all or part of the contested portions of these costs. In reviewing the costs of the entire Red Line, not just Segment 3 North, we find that MTA’s current budget of $4.503 billion is $1.229 billion, or 37.5%, higher than the (constant dollar) cost projection of $3.274 billion in the original 1983 Draft Environmental Impact Statement (DEIS), and $638 million, or 16.5%, higher than the (constant dollar) cost projection of $3.865 billion in the 1989 Final Supplemental EIS. Looking at the entire rail picture in Los Angeles, the map that was part of the 1980 Proposition A ballot issue presented to the voters showed eleven rail lines that would be constructed if the issue passed. Twenty years later, after a second ½¢ sales tax was enacted in 1990, there are three lines in operation (Red Line, long Beach Blue Line, Green Line), one more that is recommencing construction after been halted due to fiscal problems (Pasadena Blue Line), and no other lines that have been approved for construction. In addition, in 1998, the voters of Los Angeles, by a margin exceeding two-to-one, prohibited the use of local sales tax funds for construction of any further subways (the $4.503 billion budgeted cost for the Red Line above does not include $164 million for design of Red Line subway extensions that will now never be built). Metropolitan Atlanta Rapid Transit Authority North Line Extension Status of New Starts shows that the cost of the 2.3-mile, two-station extension of the Metropolitan Atlanta Rapid Transit Authority’s (MARTA) North Line is showing a cost overrun of $26.1 million on the $381.3 million FFGA cost, a 6.8% increase. Here we have a different type of “cost overrun” situation. Following the completion of Status of New Starts, MARTA finalized a rather rare supplement to the original FFGA financial arrangements for this project. While the cost overrun has been kept low, this has been done not by keeping the costs low, but by increasing the amount of the contract, to $463.2 million. When this FFGA cost increase is compared to the original FFGA amount, we see an increase of $81.9 million, or 21.5% (actually, it is not clear from the available information that the GAO’s $26.1 million increase is included in the above $81.9 million cost increase – if it is not included, the overrun would be $108.0 million, or 28.3%, of the original FFGA). Bi-State Development Agency (Saint Louis) Saint Clair County Light Rail Extension In Status of New Starts, GAO reports that this line is on schedule and on budget. While there does not appear to be any reason to question this conclusion at this time, a more detailed review provides a very different picture of the overall status of rail projects in the Greater Saint Louis area. Going back to the original promises that were made to the voters when the 1993 tax increase was presented, we find that the original total cost projection for this project was $360 million. The current cost projection, according to the GAO, is $339.2% – 5.8% lower than what the voters were led to believe, a commendable performance. However, the voters of Saint Clair County (located in Illinois, opposite the City of Saint of Saint Louis in Missouri) were also told that the Federal grants would be $320 million, leaving $40 million to be paid by the local sales tax. The actual Federal grants total 243.9 million (GAO), leaving $95.3 million to be paid locally. This is an increase of 53.3 million, or 138%, over what the voters were told to expect. Crossing the river to the City and the County of Saint Louis (which are two separate governmental units – the City of Saint Louis is not part of, nor located within, the County of Saint Louis), a 1994 sales tax ballot measure promised that passage would produce four additional light rail and one commuter rail lines, in addition to covering the operating shortfalls caused by the construction of the original MetroLink light rail line without a funding source. Six years later, none of these five lines are in operation, none are in construction, and none have even commenced preliminary engineering. Since the 1994 ballot issue passed, the Bi-State Development Agency and local governmental units have placed four ballot issues before the voters. All four have failed; two in Saint Charles County (1996) and one each in the City and the County of Saint Louis and in Madison County. Conclusion In its reporting on Federally-supported rail projects, GAO is focused mainly on the Federal interest in making sure that projects get completed without requirements for additional Federal funds. GAO’s reporting for every city must be re-analyzed in order to understand the cost overruns in rail construction project that become local taxpayer’s responsibility. The three examples here are not atypical. Addition detail is available from the author. Thomas A. Rubin 2007 Bywood DriveOakland, California 94602-1937 Telephone/FAX: (510) 531-0624 e-mail: tarubin@earthlink.net Cost Increases of U.S. Rail Projects Page of Download 20.31 Kb. Share with your friends:
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