oversight

Commuter Rail: Potential Impacts and Cost Estimates for the Cancelled Hudson River Tunnel Project

Published by the Government Accountability Office on 2012-03-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to the Chairman, Subcommittee on
             Surface Transportation and Merchant
             Marine Infrastructure, Safety, and Security,
             Committee on Commerce, Science, and
             Transportation, U.S. Senate
March 2012
             COMMUTER RAIL

             Potential Impacts and
             Cost Estimates for the
             Cancelled Hudson
             River Tunnel Project




GAO-12-344
                                            March 2012

                                            COMMUTER RAIL
                                            Potential Impacts and Cost Estimates for the
                                            Cancelled Hudson River Tunnel Project
Highlights of GAO-12-344, a report to the
Chairman, Subcommittee on Surface
Transportation and Merchant Marine
Infrastructure, Safety, and Security,
Committee on Commerce, Science, and
Transportation, U.S. Senate

Why GAO Did This Study                      What GAO Found
Studies have estimated that transit         Studies estimated that the Access to the Region’s Core commuter rail project
travel demand between New Jersey            would have provided mobility benefits, but other benefits would either have been
and Manhattan will increase by 38           limited or are difficult to measure. According to various studies:
percent by 2030. The Access to the          • The project would have helped meet the projected increase in travel demand
Region’s Core commuter rail project            and improved mobility by doubling the number of daily peak period trains, and
was designed to help meet that rising          significantly increasing daily trips between New Jersey and Manhattan—from
demand. In October 2010, the                   about 174,000 without the project to 254,000 with the project by 2030—while
governor of New Jersey, citing
                                               reducing transfers and station crowding and improving reliability of service.
potential cost growth and the state’s
fiscal condition, withdrew state support    • The project potentially would have generated economic activity in the region in
and cancelled the project. The New             the form of jobs and income, business activity, and increased home values,
Jersey Transit (NJT) was the lead              but many economic effects were hard to predict with certainty. For example,
agency for the project, supported by           the extent to which the project would shift the location of economic activity,
the Port Authority of New York and             versus providing additional net economic activity, is uncertain.
New Jersey (Port Authority). The            • The project was estimated to have created limited but mostly positive
project was to be partially funded             environmental effects—in particular, improved air quality—and included
under the Federal Transit                      measures to mitigate negative effects such as noise and storm water runoff.
Administration’s (FTA) New Starts
program.                                    Over time, the cost estimates for the project increased from an initial estimate of
GAO was asked to examine (1) what           $7.4 billion in 2006. In 2008 and 2010, FTA performed risk assessments and
would have been the mobility,               revised the cost estimate. FTA and NJT agreed upon a baseline cost estimate of
economic, and environmental benefits        $8.7 billion in 2009. After considering comments from NJT, which projected lower
of the project according to major           costs than FTA, FTA revised its estimate and issued a cost estimate of $9.8
planning studies; (2) the project cost      billion to $12.4 billion in October 2010. As of April 2010, federal sources were
estimates over time; and (3) how, if at     expected to fund about half the cost, with the remainder divided between New
all, documents prepared as part of the      Jersey Turnpike funds and the Port Authority.
New Starts process addressed
potential cost growth for the project.      Because the project was terminated before FTA and NJT entered into a full
GAO reviewed the literature and major
                                            funding grant agreement, there was no final agreement by all the parties on the
project planning studies, FTA reports,      issue of responsibility for project cost growth. While the Secretary of
and economic and cost estimates by          Transportation and the governor of New Jersey held discussions on additional
NJT and other planning organizations.       funding options, planning documents did not address the source of funding of
GAO interviewed officials from FTA,         potential cost growth for the project.
state and local transit agencies, and
local planning organizations. GAO is
                                            Map of Proposed Access to the Region’s Core Project
making no recommendations in this
report.
The Department of Transportation
provided technical comments, which
GAO incorporated in the report.




View GAO-12-344. For more information,
contact David Wise at (202) 512-3834 or
wised@gao.gov.

                                                                                       United States Government Accountability Office
Contents


Letter                                                                                    1
              Background                                                                  3
              Anticipated Benefits of ARC Project                                         7
              Project Cost Estimates Increased Over Time and about Half the
                Planned Funding Was from Federal Sources                                15
              Planning Documents Did Not Determine the Source of Funding of
                Potential Cost Growth                                                   20
              Agency Comments                                                           20

Appendix I    Federal Transit Administration’s New Starts Process                        22



Appendix II   GAO Contact and Staff Acknowledgments                                      24



Tables
              Table 1: Selected Cost Estimates for the ARC Project, 2006-2010           15
              Table 2: Proposed Funding by Source, as of April 2010                     19


Figures
              Figure 1: Route of Proposed ARC Project, NJT Lines and Major
                       Highways, 2009                                                     5
              Figure 2: Selected Long-term Environmental Effects of ARC
                       Project                                                          13
              Figure 3: Relationship of Estimated Cost and Uncertainty During
                       Project Planning and Implementation                              17




              Page i                                                GAO-12-344 Commuter Rail
Abbreviations

ARC                        Access to the Region’s Core
FTA                        Federal Transit Administration
PATH                       Port Authority Trans-Hudson
Port Authority             Port Authority of New York and New Jersey
NJT                        New Jersey Transit


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Page ii                                                         GAO-12-344 Commuter Rail
United States Government Accountability Office
Washington, DC 20548




                                   March 9, 2012

                                   The Honorable Frank R. Lautenberg
                                   Chairman
                                   Subcommittee on Surface Transportation and Merchant Marine
                                     Infrastructure, Safety, and Security
                                   Committee on Commerce, Science, and Transportation
                                   United States Senate

                                   Dear Mr. Chairman:

                                   The Access to the Region’s Core (ARC) project was a planned commuter
                                   rail project designed to help address the problem of increasing travel
                                   demand between New Jersey and New York City. Current tunnel, bridge,
                                   and rail infrastructure serving this corridor is already at or near capacity;
                                   this increase in travel demand, fueled by population growth in the region
                                   west of Manhattan and employment within Manhattan, could result in
                                   more congestion and greater delays for commuters. The planned project
                                   was to connect existing rail lines, build two tunnels under the Hudson
                                   River, and expand New York Penn Station. However, on October 27,
                                   2010, the governor of New Jersey, citing potential cost growth and the
                                   state’s financial condition, withdrew state support and cancelled the
                                   project.

                                   The New Jersey Transit (NJT) and other project sponsors began planning
                                   for the project in 1995, and in 2003, completed the first major planning
                                   study, which assessed numerous alternative solutions to the problem of
                                   constrained capacity and possible routes under and across the Hudson
                                   River. The project was further developed through the federal
                                   environmental impact review process, completed in 2009. 1 In addition,
                                   both NJT and local planning organizations conducted various studies of
                                   the expected transportation and economic impacts of the project. Cost
                                   estimates were developed throughout the planning process, but the final
                                   estimate and funding commitments were still under discussion between



                                   1
                                    The National Environmental Policy Act of 1969 (1) mandates consideration of
                                   environmental impacts before any federal action likely to significantly affect the
                                   environment is undertaken and (2) establishes the environmental impact process to
                                   identify potential environmental impacts and develop plans to mitigate negative ones.




                                   Page 1                                                         GAO-12-344 Commuter Rail
New Jersey and the Federal Transit Administration (FTA) when the
project was cancelled.

As requested, this report addresses the following questions: (1) What did
major planning studies find would have been the estimated mobility,
economic, and environmental impacts of the ARC project? (2) What have
been the ARC project cost estimates over time, who developed those
estimates, and what sources of funding were identified? (3) How, if at all,
did documents prepared as part of FTA’s New Starts funding process
address potential cost growth for the ARC project?

To address these questions, we reviewed all major planning studies
prepared for the project and FTA reports about the project. 2 We also
reviewed planning and economic analyses of the project done by NJT
and outside organizations. We examined the methodologies used by the
studies and determined that the studies were sufficiently reliable for the
purposes of our report. We reviewed documents from NJT and FTA that
provided or discussed various project cost estimates. We interviewed
officials from federal, state, and local agencies; private planning
organizations; and academia; specifically, FTA, Amtrak, Office of the
Governor of New Jersey, Office of the Attorney General of New Jersey,
NJT, the Port Authority of New York and New Jersey (Port Authority),
New York Metropolitan Transportation Council, North Jersey
Transportation Planning Authority, Regional Plan Association, Tri-State
Transportation Campaign, and Rutgers University. In addition, to
determine how potential cost growth was addressed, we reviewed various
declarations submitted in connection with NJT’s response to FTA’s
demand for repayment of expended project funds, the general project
agreement between NJT and the Port Authority, and FTA’s financial
assessment of NJT’s financial plan that was submitted as part of the
application to advance the project to its final design.

We conducted this performance audit from February 2011 through March
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for


2
 Those studies were the major investment study; draft, supplemental, and final
environmental impact statements; and various FTA reports, such as risk assessment
reports, financial assessments of NJT’s financial plan, and annual reports on funding
recommendations.




Page 2                                                         GAO-12-344 Commuter Rail
                     our findings and conclusions based on our audit objectives. We believe
                     that the evidence obtained provides a reasonable basis for our findings
                     and conclusions based on our audit objectives. During our review, we
                     suspended our work for about 6 weeks until the resolution of a dispute
                     between the Department of Transportation and New Jersey concerning
                     the repayment of federal funds already spent on planning the project.



Background
Reason for the ARC   Commuter demand and congestion between New Jersey and New York
Project              City across the Hudson River is projected to increase as the limited
                     passenger rail infrastructure continues to age, highlighting the need for
                     improvements to the trans-Hudson commuter rail system into Manhattan.
                     Planning agencies have forecasted that, fueled by population growth in
                     regions west of the Hudson River and employment within Manhattan,
                     demand for mass transit service crossing the Hudson River between New
                     Jersey and nearby counties in New York and midtown Manhattan will
                     grow by about 38 percent by 2030. This could result in more congestion
                     and longer delays on existing roads, bridges, passenger rail, and other
                     public transportation modes crossing the Hudson River. At the same time,
                     the aging passenger rail infrastructure—comprising two single-track
                     tunnels under the Hudson River leading to New York Penn Station—limits
                     commuter rail capacity into Manhattan. The 100-year-old tunnels cannot
                     meet the access and mobility demands of the future, given the projected
                     growth in the region.

                     In 1995, the three major local transit agencies—NJT, the Port Authority,
                     and the Metropolitan Transportation Authority 3—jointly conducted a major
                     investment study 4 to consider ways to improve access between midtown



                     3
                      The Port Authority operates and maintains the region’s three major airports, six bridges
                     and tunnels connecting New York and New Jersey, the Port Authority Trans-Hudson
                     (PATH) rapid transit system, and other transportation facilities. The Metropolitan
                     Transportation Authority is the New York transit organization whose agencies are
                     responsible for New York City buses and subways, the Long Island Rail Road and Metro-
                     North Railroad, and various bridges and tunnels.
                     4
                      The intent of a major investment study is to identify and compare the costs, benefits, and
                     impacts of a range of transportation alternatives to provide decision-makers with the
                     information needed to implement the most appropriate solution in a transportation corridor.




                     Page 3                                                         GAO-12-344 Commuter Rail
Manhattan and the growing population west of the Hudson River. They
evaluated more than 100 alternatives, including commuter railroad, bus,
light rail, subway, automobile, and ferry. The study, completed in 2003,
recommended three alternatives for advancement to the federal
environment impact process. While these alternatives would have
provided more train capacity and were expected to meet projected
demand, they did not share all of the elements of the final ARC project. In
the draft environmental impact statement, published in 2007, NJT
identified the alternative that became the final ARC project. Project
development and refinements continued until completion of the
environmental review process and entry of the project into final design in
2009. Figure 1 shows the new tracks, tunnel, and station that the project
would have built. In addition, the project would have added a yard in New
Jersey for storing trains that are not in service during the middle of the
day, five station entrances at the New York Penn Station Expansion, and
three elevator entrances that met the Americans with Disabilities Act
requirements.




Page 4                                               GAO-12-344 Commuter Rail
Figure 1: Route of Proposed ARC Project, NJT Lines and Major Highways, 2009




Agencies Involved and                  NJT applied for federal funding for a portion of ARC costs through FTA’s
Their Roles                            New Starts program. 5 Under this program, funding is directed to public
                                       agencies on a largely competitive basis primarily for the construction of
                                       new fixed-guideway transit systems and the expansion of existing fixed-
                                       guideway systems. Federal funding for the construction of New Starts
                                       projects is committed in a full funding grant agreement, which is a


                                       5
                                        49 U.S.C. §5309(b)(1).




                                       Page 5                                              GAO-12-344 Commuter Rail
                             multiyear funding agreement between the federal government and a
                             public agency. Although the ARC project was cancelled prior to obtaining
                             a full funding grant agreement, FTA provided some federal funding for
                             preliminary engineering, final design, and a portion of construction costs
                             for the project. The construction funding was provided through an early
                             system work agreement. Appendix I provides an overview of the New
                             Starts process.

                             While NJT sponsored the project and would have been the prime
                             operator of services on the completed project, state and local funding for
                             ARC would have come from the New Jersey Turnpike Authority and the
                             Port Authority. As part of the federal planning process for transportation,
                             the region’s two metropolitan planning organizations—the North Jersey
                             Transportation Planning Authority and the New York Metropolitan
                             Transportation Council—adopted the project into their metropolitan
                             transportation improvement plans, as required for federal funding.


Termination of the Project   While the New Jersey governor had affirmed support for the ARC project
                             in an April 6, 2010, letter to the Secretary of Transportation, on October
                             27, 2010, the governor announced the cancellation of the project, citing
                             potential cost growth and the state’s fiscal condition. At the time of
                             cancellation, NJT had completed most of the requirements needed to
                             obtain additional federal funding. In particular, NJT had completed an in-
                             depth environmental review and received FTA’s commitment of $601
                             million in New Starts funds to pay for initial construction activities. 6 At the
                             time of cancellation, NJT was negotiating the final cost estimate of the
                             project with FTA in order to obtain the full funding grant agreement. This
                             agreement would have provided the commitment for the full federal share
                             of funds for the project.




                             6
                              The $601 million was obtained through an early system work agreement between FTA
                             and NJT.




                             Page 6                                                     GAO-12-344 Commuter Rail
Anticipated Benefits
of ARC Project
Regional Travel Demand   According to the studies we reviewed, the ARC project would have
and Mobility             provided a significant increase in rail capacity for moving commuters
                         between New Jersey and New York. NJT and other planning organization
                         officials said that increases in capacity were a key mobility benefit of the
                         project. The tunnel would have added two train tracks under the Hudson
                         River, and as a result:

                         •   The number of trans-Hudson peak hour trains (from 7:30 a.m. to 8:30
                             a.m.) would have more than doubled—from 23 to 48 trains per hour.

                         •   The peak hour use of passenger capacity would have decreased from
                             a near-capacity 95 percent to 60 percent at completion, providing
                             additional capacity to accommodate future passenger growth.

                         •   The benefits of other planned NJT rail expansions would have been
                             enhanced.

                         With this increase in capacity, projections made as part of the project’s
                         environmental study showed an anticipated increase in transit ridership
                         as follows: 7

                         •   Daily trips between New Jersey and New York Penn Station would
                             have increased from about 174,000 without the project to about
                             254,000 (a 46 percent increase) with the project by 2030. 8

                         •   Considering the effects on other transit facilities, the project would
                             have generated about 32,500 new daily transit trips across the
                             Hudson by 2030.

                         The ARC project would have reduced the need for passengers to transfer
                         between trains, meaning many riders could commute on only one train.


                         7
                          The ridership data presented are comparisons of the project’s effect on estimated
                         ridership to the “no-build” alternative. The no-build alternative includes the effects of other
                         future transportation projects currently planned for the region.
                         8
                          New Jersey Transit and Federal Transit Administration, Access to the Region’s Core
                         Final Environmental Impact Statement (FEIS), October 2008.




                         Page 7                                                             GAO-12-344 Commuter Rail
Passenger transfers lengthen commuting times and avoiding transfers
provides a benefit to riders. As a result of the ARC project, it was
estimated that:

•      Five existing NJT lines would have no longer required passengers to
       transfer trains to get to Manhattan.

•      Daily passenger transfers would have declined from about 32,100
       without the project to 1,000 with the project, a 97 percent reduction,
       as estimated in the environmental study.

•      Riders travelling between New Jersey and Manhattan would have
       experienced an average of 23 minutes of travel time savings per trip.

By building a second rail tunnel between New Jersey and Manhattan, the
ARC project would have increased the overall reliability of rail service and
added flexibility during service disruptions. A disruption of service in the
existing NJT tunnel for any reason can result in major delays. Currently,
one 15-minute train disruption in the existing tunnel can delay as many as
15 other NJT and Amtrak trains. 9 The ARC project would have provided:

•      Flexibility to reroute trains from one tunnel to the other, if necessary.

•      Continuous weekend service as new tunnels could remain open
       during tunnel maintenance. (Currently, with only one tunnel, traffic
       must be limited to perform necessary maintenance.)

•      Better reliability, allowing for faster transit. Average scheduled time
       from Newark, New Jersey, to Manhattan would decrease by 5 minutes
       during peak times and 3.5 minutes off-peak.

Even with the added trans-Hudson commuters, the environmental study
found that the new station would have reduced crowding at the adjacent
New York Penn Station:

•      Average passenger egress time from New York Penn Station would
       have decreased from 80 to 60 seconds (a 25 percent decrease).




9
    Amtrak currently uses the existing tunnel as part of its Northeast Corridor service.




Page 8                                                              GAO-12-344 Commuter Rail
•    The new station would have resulted in a projected decrease in peak
     hour ridership at New York Penn Station of 37 percent—from about
     27,800 passengers without the project to 17,200 with the project in
     2030—thus alleviating crowding.

Additionally, the environmental study estimated that, in general, the
increased rail capacity across the Hudson River would have reduced the
amount of travel by automobile that would otherwise occur. Port Authority
officials told us that this increased rail capacity would help ease road
congestion for trans-Hudson commutes. Specifically, the study projected
that by 2030:

•    Daily trans-Hudson automobile trips would be reduced by about
     22,100 trips, or 4.9 percent, compared to the number of automobile
     trips without the project.

•    Daily automobile vehicle miles traveled would have been reduced by
     about 590,000 miles compared to vehicle miles traveled without the
     project.

•    Daily automobile vehicle hours traveled would have been reduced by
     about 22,000 hours compared to vehicle hours traveled without the
     project.

According to the environmental study, mobility may further deteriorate
without the ARC project. The New York City region faces serious mobility
issues and, as we have mentioned previously in this report, travel
demand is projected to increase significantly. Environmental study
forecasts estimated that trans-Hudson transit travel demand would rise
from about 550,000 riders in 2005 to about 760,000 in 2030, an increase
of about 38 percent. Without the tunnel, the environmental study
projected that demand would not be met, and congestion and delays
would increase. All the major trans-Hudson crossings—NJT, the Port
Authority Trans-Hudson (PATH), and vehicular tunnels and bridges—are
at or near capacity. 10 According to the environmental study, the increased
demand would stress the entire transportation network, including
roadway, bus, ferry, and commuter rail systems.



10
 PATH is a rapid transit system between New Jersey and Manhattan operated by the
Port Authority.




Page 9                                                     GAO-12-344 Commuter Rail
                    However, it is difficult to precisely determine the long-term effects of not
                    building the tunnel because various other agencies are building, planning,
                    or exploring the possibility of transportation improvements that could
                    affect overall mobility in the region. Local transportation officials cited a
                    number of projects that could affect congestion and commutes in the
                    region, although some are at the conceptual phase, and may or may not
                    be built. Possible projects include the extension of a subway line from
                    New York City to New Jersey, Amtrak’s proposal to add a train line from
                    New Jersey into New York City, bridge and transit tunnel improvements, a
                    new bus terminal, and improvements to help freight flows into New York.
                    Thus, the overall effect of canceling the ARC project must be understood
                    in the regional context, and the effect is dependent on what transpires
                    with these other projects.


Economic Activity   Studies estimated the ARC project would have generated economic
                    activity in the region that would have affected jobs and personal income,
                    business activity, and home values, among other things. Most of the
                    economic effects were expected during the building phase of the project.
                    The studies we reviewed used regional economic models to measure the
                    economic effects. However, the results of these models depend on larger
                    economic conditions, such as the level of unemployment. The results
                    cannot be regarded as certain in all economic conditions. The studies
                    addressed several aspects of economic activity as follows:

                    •      Jobs and personal income. The environmental study estimated that
                           during construction the ARC project would have provided about
                           59,900 jobs directly onsite and total additional employment in the
                           region of about 98,300 jobs. 11 The environmental study also
                           suggested that over the longer term, the rail line would have required
                           an estimated 410 jobs directly in transportation. Another study
                           estimated that the project would generate about 5,700 construction-
                           related jobs each year during the 9-year construction. 12 In addition, 10
                           years after completion of the project, the same study estimated the
                           region would gain 44,000 new jobs as a result of improved access,
                           which would make the region more competitive compared to other




                    11
                         A job is defined as one year of work for one worker.
                    12
                         NJT, Economic Benefits of the Trans-Hudson Express Tunnel (2006).




                    Page 10                                                       GAO-12-344 Commuter Rail
       regions. 13 The same study estimated that 10 years after completion,
       the project would have added almost $4 billion in personal income to
       the region, in 2006 dollars.

•      Business activity. The ARC environmental study estimated the project
       would have produced an additional $9 billion in business activity
       during construction and $120 million per year in business activity over
       the long term.

•      Home values. Another study estimated that houses in New Jersey
       communities served by the ARC project would see an average
       increase in home value of $19,000, or 4.2 percent, resulting from
       more efficient local travel and improved access to high paying jobs in
       New York City. 14

•      Tax revenues. Studies also indicated that increased tax revenues
       would have resulted from the increases in economic activity from the
       ARC project. The environmental study estimated that during
       construction, $1.5 billion in federal, state, and local taxes would have
       been generated, as well as an additional $16 million annually after the
       project was completed. Another study estimated that the project would
       result in an additional $375 million each year in property taxes
       generated by local governments. 15

While economic benefit would accrue to the region as a result of the
project, the net magnitude of the benefit is unclear and would be difficult
to assess, for several reasons. First, the closer the economy is to full
employment, the less net effect the project would have on total economic
activity. During the planning and development of this project, the level of
employment dropped as a result of the recession, which should have
increased project benefits, but given the duration of construction,
employment levels could have varied again if the economy rebounded.
This makes assessing the net employment benefits difficult. Second, the
project’s effects could be limited to shifting the location of economic
activity, rather than providing additional net benefits. If there is less local
economic growth in New Jersey as a result of canceling the project, this


13
    Ibid.
14
 Frank Hebbert, Juliette Michaelson, Andrew Turco, Jeff Zupan, The ARC Effect (New
York, NY: Regional Plan Association, 2010).
15
    Ibid.




Page 11                                                    GAO-12-344 Commuter Rail
growth may simply shift to another part of the region or nation. Third, the
project’s economic impact also depends on how it was financed. Deficit
financing—borrowing—provides an increase in the total amount of
spending, which will have economic effects. In contrast, financing the
project through taxes means that existing government and household
spending to some extent is simply directed a certain way, rather than
increasing the total amount of such spending. Analyzing the impact of the
project in the context of these variables—the unemployment rate when
the project is being built and project financing—was beyond the scope of
the studies we reviewed.

The net impact on housing prices is also difficult to assess. First, the
analyses—done several years ago—may not fully capture the effects of
recent declines in the housing market. Second, impacts on the housing
market throughout the metropolitan area would, to some extent, reflect
population shifts—some house prices may go up as a consequence of
improved access to transit, while prices in other less desirable locations
may go down. However, shifting the location of households and business
activity does not necessarily expand the overall economy. Also, benefits
to homeowners and commuters from the project would significantly
overlap, since they are to some extent the same people; that is, the
change in a homeowner’s real estate value is the result of the
improvement in travel time.

Finally, even though the project was cancelled, all of the anticipated
economic activity was not necessarily lost. For example, according to Port
Authority officials, the Port Authority redirected funds it had allocated to
the ARC project to other projects in the region, which could increase
employment and economic activity tied to those projects. Likewise, funds
that New Jersey planned to allocate to the ARC project were reallocated
to the state’s highway trust fund, which would then support economic
activity related to highway projects. However, these highway projects
would not necessarily be in the New York City region.




Page 12                                              GAO-12-344 Commuter Rail
Environmental Effects                   The ARC environmental study estimated the project would have created
                                        limited, but mostly positive environmental effects. (See fig. 2.)

Figure 2: Selected Long-term Environmental Effects of ARC Project




                                        a
                                         Environmental justice is the fair treatment and meaningful involvement of all people regardless of
                                        race, color, national origin, or income with respect to the development, implementation, and
                                        enforcement of environmental laws, regulations, and policies.

                                        The primary positive effect would have been a long-term reduction in air
                                        pollution, although it is difficult to predict how much this reduction in
                                        pollutants would affect the entire New York City region. Air quality effects



                                        Page 13                                                                 GAO-12-344 Commuter Rail
are of particular relevance in the development of transit projects. FTA,
pursuant to law, includes whether a project is in an area that has not
attained air quality standards required by the Clean Air Act as a factor in
selecting projects for the New Starts program. 16 According to the
Environmental Protection Agency, the entire New York City region is out
of compliance with certain ambient air quality standards that are designed
to protect public health. The project would reduce automobile trips and
thereby decrease emissions that contribute to existing air quality
problems in the region and related public health problems. According to
the Environmental Protection Agency, adverse health effects associated
with air pollutants include increased respiratory symptoms, hospitalization
for heart or lung disease, and premature death. Local transportation
agency officials told us that air quality factors were important when
considering the potential environmental effects of the ARC project. Over
the long term, air quality would have been positively affected due to an
estimated overall daily decrease of about 590,000 in vehicle miles
traveled in the region and about 22,100 fewer trans-Hudson vehicle trips.
While longterm air quality effects were generally positive in nature, the
results of these changes would be dispersed over the entire metropolitan
area, and were too difficult to estimate for the New York region, as noted
in the environmental study.

According to the environmental study, other adverse environmental
effects would have been short term and mitigated. Among the
environmental effects were negative effects on air quality, mainly related
to dust created by excavation and construction and exhaust emissions
from equipment, noise, potential storm water runoff, vibration, potential
soil erosion, and potential disturbance of various contaminated sites. FTA
determined that these short-term negative effects were adequately
addressed by mitigation plans. 17




16
 49 C.F.R. §611.3(c)(1).
17
  FTA issued a Record of Decision for the ARC project in 2009, signaling the project had
satisfied National Environmental Policy Act of 1969 requirements. In it, FTA determined
that the project’s negative effects were adequately addressed by mitigation plans.




Page 14                                                        GAO-12-344 Commuter Rail
                                         In 2003, the first cost estimates for the concept of a new commuter rail
Project Cost                             tunnel between New Jersey and New York—developed by NJT and other
Estimates Increased                      local agencies in the major investment study—ranged from $2.9 billion to
                                         $3.6 billion (in year 2000 dollars). 18 These estimates were for a project
Over Time and about                      that was largely conceptual and did not rely on significant engineering
Half the Planned                         design work. Further, not all project costs and elements were included in
Funding Was from                         these estimates.

Federal Sources                          In 2006, after the sponsoring agencies selected a locally preferred
                                         alternative, FTA accepted $7.4 billion as the first cost estimate for the
                                         project. This estimate included an expanded New York Penn Station as
                                         well as construction, engineering, oversight, and management costs;
                                         operational systems; rolling stock; real estate; startup cost; and
                                         environmental mitigation. ARC project cost estimates increased over time
                                         as shown in table 1.

Table 1: Selected Cost Estimates for the ARC Project, 2006-2010

                         Source        Amount (dollars
Estimate source          agency        in billions)          Date          Comments
FTA approval for entry   FTA           $7.4                  8/4/2006      Included elements, such as a tunnel to serve both the
into preliminary                                                           existing New York Penn Station and a station
engineering                                                                expansion that was not part of the major investment
                                                                           study alternatives. A locally preferred alternative was
                                                                           approved in early 2006.
Draft Environmental      NJT           $7.4                  2/9/2007      Re-examined the preferred alternative as a result of
Impact Study                                                               public comments and preliminary engineering effort.
Supplemental Draft       NJT           $7.6                  3/14/2008     Modified the preferred alternative, which resulted in
Environmental Impact                                                       slight cost increase.
Study
2008 FTA Risk            FTA           Range of              8/7/2008      Established a baseline cost estimate.
Assessment                             $9.5-12.4
2008 FTA Risk            FTA           Range of              8/26/2008     FTA estimate considering comments from NJT.
Assessment Revised                     $8.4-12
2008 FTA Risk            FTA           $9.1 for New Start   9/3/2008       FTA estimate after discussions with NJT and
Assessment Final                       evaluation purposes                 assurances by NJT on addressing risks.
                                       $8.7 accounting for
                                       railcar depreciation
Final Environmental      NJT           $7.6                  10/27/2008    Issued after 2008 FTA Risk Assessment, and was
Impact Statement                                                           unchanged from earlier estimates.



                                         18
                                          In 2011 dollars, the cost estimates ranged from $3.69 billion to $4.58 billion.




                                         Page 15                                                          GAO-12-344 Commuter Rail
                         Source   Amount (dollars
Estimate source          agency   in billions)             Date            Comments
Approval of Entry into   FTA      $8.7 (baseline for     1/27/2009         The $8.7 billion estimate includes only vehicles needed
Final Design                      the full funding grant                   in opening year, and was to be used as the basis of the
                                  agreement)                               full funding grant agreement. The $9.2 billion estimate
                                  $9.2 (including                          includes vehicles for operation through 2030.
                                  additional cost
                                  through 2030)


Early System Work        FTA      $8.7                     8/14/2009       Used estimate from FTA’s 2009 approval of entry into
Agreement Approval                                                         final design.
Letter
Estimate at Entry into   NJT      $8.7                     1/20/2010       Calculated an estimate similar to FTA’s 2009 approval
Final Design                                                               of entry into final design.
Revised Estimate at      NJT      $8.7                     4/1/2010        Calculated an estimate similar to FTA’s 2009 approval
Final Design                                                               of entry into final design.
Section 5309 New         NJT      $8.7                     4/29/2010       Calculated an estimate similar to FTA’s 2009 approval
Starts Application                                                         of entry into final design.
Update
2010 FTA Risk            FTA      $10.878 (low)            8/16/2010       Risks include higher cost for design services,
Assessment                        $12.232 (medium)                         construction, and risks to stakeholders.
                                  $13.736 (high)
NJT ARC Projected        NJT      $8.7 (low)               8/17/2010       NJT response to FTA’s 2010 risk assessment.
Cost Range                        $9.5 (medium)
                                  $10 (high)
2010 FTA Risk            FTA      $9.775 (low)             10/4/2010       FTA’s response to NJT comments.
Assessment Revised                $10.847 (medium)
                                  $12.432 (high)


                                    Source: FTA and NJT.


                                    Note: Costs are in year of expenditure dollars.


Cost Estimate Increases             In general, changes in cost estimates throughout the process of planning
                                    and designing a transportation project are normal and may happen for a
                                    number of reasons. 19 First, as a project progresses from a concept on
                                    paper to final design and construction, a more accurate understanding of
                                    what a project entails may evolve. The change in cost estimates may
                                    reflect a more accurate understanding of what actually constitutes the



                                    19
                                      Reasons for changes in project cost estimating can be found in GAO, Cost Estimating
                                    and Assessment Guide, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009).




                                    Page 16                                                             GAO-12-344 Commuter Rail
project. For example, according to Port Authority officials, early in the
project they learned that there were no existing surveys of New York
Penn Station, and they had to survey the station before detailed designs
could be developed. As shown in figure 3, cost estimates are more
uncertain at the beginning of a project (the range is wide), because less is
known about its detailed design and construction requirements, and
therefore the opportunity for change is greater.

Figure 3: Relationship of Estimated Cost and Uncertainty During Project Planning
and Implementation




Second, costs can appear to change if they are not expressed in a
consistent manner, that is, in constant year dollars (to eliminate any
inflationary effects) versus year of expenditure dollars (that may mask any
changes in real terms because of inflation). Third, project cost estimates
are sensitive to factors such as changes to the scope of the project. In
some cases, a sponsor may reduce the scope or add more features to
the project as the design progresses. Uncertainty of the costs is reduced,
as the project scope is better defined, but costs also may increase.
Fourth, cost estimates can change as risks are assessed and reassessed
throughout project development, resulting in the amount FTA requires
project sponsors to set aside for project contingency to increase or
decrease. For example, FTA officials said risk factors could include
changes in real estate costs, new information involving surface or


Page 17                                                  GAO-12-344 Commuter Rail
                            subsurface ground conditions and materials, or the degree of competition
                            among contractors. According to FTA officials, risks like these can affect
                            the cost of a project, and sponsors may never adequately address all of
                            them, but at a minimum both the sponsor and FTA must be aware of what
                            those risks are.

                            The ARC project cost estimates increased from the $7.4 billion estimate
                            in 2006 for a number of reasons:

                            •    In 2008, FTA’s cost estimates ranged from $9.5 billion to $12.4 billion,
                                 based on potential scenarios in its 2008 Risk Assessment, which not
                                 only assumed different levels of risk but also included $1.7 billion set
                                 aside for contingency. 20 After discussions, FTA and NJT agreed upon
                                 a baseline cost estimate of $8.7 billion in 2009.

                            •    FTA’s 2010 Risk Assessment contained the next estimated cost—as
                                 high as $13.7 billion—as the engineers developed a more accurate
                                 understanding of what the project entailed. However, NJT did not see
                                 costs rising to this level and projected a lower expected cost range,
                                 including a maximum $10 billion final cost. After considering
                                 comments from NJT, FTA revised the cost range to $9.8 billion to
                                 $12.4 billion. This estimate included a more refined cost estimate of
                                 potentially higher construction and other work costs. In addition, the
                                 contingency amount was increased due to reassessment of risks
                                 related to delays in awarding project contracts.

Federal, State, and Local   Federal, state, and local sources would have funded the ARC project, as
Funding Sources             shown in table 2. As of April 2010, about half the estimated cost of about
                            $8.7 billion would have come from federal sources with the remainder
                            divided at the local and state levels between the Port Authority and the
                            New Jersey Turnpike Authority. In addition to New Starts funds, New
                            Jersey was planning to use certain federal highway funds that may be
                            used for transit capital purposes. New Jersey planned to use part of its
                            federal Congestion Mitigation and Air Quality Improvement and National
                            Highway System funding for the ARC project. State and local funds
                            included $3 billion from the Port Authority, which formally approved this


                            20
                              FTA performs an assessment of cost and schedule risk of a New Starts mega-project
                            (those with $1 billion or more in capital costs) when the project enters into the preliminary
                            engineering phase. For all New Starts projects, FTA performs a risk assessment before a
                            project enters final design and before approving a full funding grant agreement.




                            Page 18                                                          GAO-12-344 Commuter Rail
funding commitment. The state of New Jersey planned to add $1.25
billion that was to have come from increased tolls on the New Jersey
Turnpike.

Table 2: Proposed Funding by Source, as of April 2010

                                                     Total funds (dollars       Percentage
    Source of funds                                           in millions)          of total
    Federal
    New Starts                                                       $3,000          34.5%
    Flexible federal highway funds (Congestion                        1,319            15.2
    Mitigation and Air Quality Improvement
    Program, National Highway System)
                                             a
    American Recovery and Reinvestment Act                              130             1.5
    Total federal                                                    $4,449          51.1%
    Local
    Port Authority                                                    3,000            34.5
    State
    New Jersey Turnpike Authority                                     1,250            14.4
    Total project                                                    $8,699         100.0%
Source: FTA.


Note: 7otals may not add due to rounding.

a
American Recovery and Reinvestment Act of 2009, Pub L. No. 111-5.


In August 2009, FTA entered into an early system work agreement with
NJT. This agreement, which FTA and NJT amended in 2010, made
available about $910.3 million for certain project activities, such as tunnel
construction contracts, property and easement acquisitions in New York,
professional services related to the project’s final design, construction
permits, insurance, and a contingency reserve. 21 As of 2010, NJT
expended about $271 million of the $910.3 million. When the project was
cancelled, the Department of Transportation claimed that the $271 million
in expended federal funds should be recovered by the federal
government, and New Jersey disputed this claim. On September 30,



21
  The early system work agreement committed $601 million in New Starts funds, and
authorized the use of about $179.2 million in Congestion Mitigation and Air Quality
Improvement funds and $130 million from the American Recovery and Reinvestment Act
of 2009.




Page 19                                                             GAO-12-344 Commuter Rail
                        2011, the Department of Transportation and New Jersey agreed that New
                        Jersey would return $95 million, which included $51 million in New Starts
                        funds and $44 million in American Recovery and Reinvestment Act funds.
                        In addition, New Jersey agreed to spend about $128 million in Congestion
                        Mitigation and Air Quality Improvement funds on transit projects approved
                        by the Department of Transportation. Because the project was terminated
                        before FTA and NJT entered into a full funding grant agreement, there
                        was no final commitment by all the parties to fully fund the project.


                        The general project agreement, which was a document prepared as part
Planning Documents      of the New Starts process and signed by NJT and the Port Authority in
Did Not Determine       2009, addressed potential cost growth. According to the agreement, if
                        costs exceeded $8.766 billion (or if less than $3 billion was provided by
the Source of Funding   FTA), both parties agreed to work together to obtain additional funding
of Potential Cost       sources. According to Port Authority officials, although both parties signed
Growth                  the agreement, there was no commitment of assistance from the Port
                        Authority in the event that the project experienced cost increases. Port
                        Authority officials told us that the agency’s existing $3 billion commitment
                        was the maximum the agency could provide to the project, given the
                        constraints of their overall capital program. In the weeks preceding the
                        project’s cancellation, the Secretary of Transportation and the governor of
                        New Jersey held discussions on additional funding sources for the ARC
                        project or a reduction in project scope. The additional funding options
                        discussed included increased funding by the federal government, New
                        Jersey, and the Port Authority; a federal railroad loan; or a public-private
                        partnership contribution. 22 Because the project was terminated before a
                        full funding grant agreement was entered into between FTA and NJT,
                        there was no final agreement by all the parties on the issue of
                        responsibility for ARC cost growth.


                        The Department of Transportation reviewed a draft of this report and
Agency Comments         provided technical comments, which we incorporated in the report.




                        22
                          The term “public-private partnership” refers to a scenario in which the private sector
                        assumes a greater role in the planning, financing, design, construction, operation, and
                        maintenance of a transportation facility compared to traditional procurement methods.




                        Page 20                                                          GAO-12-344 Commuter Rail
As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to interested congressional
committees, the Secretary of Transportation, and the Administrator of the
Federal Transit Administration. In addition, this report will be available at
no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions or would like to discuss this work,
please contact me at (202) 512-2834 or wised@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Individuals making key contributions
to this report are listed in appendix II.

Sincerely yours,




David J. Wise
Director, Physical Infrastructure Issues




Page 21                                               GAO-12-344 Commuter Rail
Appendix I: Federal Transit Administration’s
               Appendix I: Federal Transit Administration’s
               New Starts Process



New Starts Process

               The Federal Transit Administration (FTA) provided federal funding for a
               portion of the Access to the Region’s Core costs through its New Starts
               program. Under this program, funding is directed to public agencies on a
               largely competitive basis primarily for the construction of new fixed-
               guideway transit systems and the expansion of existing fixed-guideway
               systems. 1 Federal funding for construction of New Starts projects is
               committed in a document that is called a full funding grant agreement—a
               multi-year agreement between the federal government and a public
               agency that is subject to the availability of appropriations. 2 The
               agreement establishes the terms and conditions for federal financial
               participation, including the maximum amount of New Starts funding being
               committed. To obtain this grant agreement, a project must be approved
               by FTA for final design and construction and have gone through a series
               of steps that make up the New Starts approval process. Among the
               phases of the New Starts planning and development process are:
               systems planning, alternatives analysis, preliminary engineering, and final
               design.

               •   Systems planning. Systems planning involves the continuing regional
                   transportation planning process carried out by metropolitan planning
                   organizations in urban areas throughout the United States. This
                   process produces long-range transportation plans and shorter-range
                   transportation improvement programs, along with environmental and
                   other analyses.

               •   Alternatives analysis. The analysis of alternatives examines the
                   benefits and costs of different options, such as light rail or bus rapid
                   transit, in a specific transportation corridor or in a regional sub-area. It
                   concludes with the selection of a locally preferred alternative and
                   adoption of that alternative into a fiscally constrained long-range
                   transportation plan. The project sponsor submits the proposed project
                   to FTA for evaluation so as to gain approval to enter preliminary
                   engineering, the next phase of development. 3 FTA evaluation does



               1
                49 U.S.C. §5309(b)(1).
               2
                See Congressional Research Service, Public Transit New Starts Program: Issues and
               Options for Congress (Oct. 5, 2010).
               3
                FTA’s rating process is applied at each development phase in order for the project to
               move forward. Also, for mega-projects (those with $1 billion or more in capital cost) FTA
               performs risk assessments on such projects prior to approval into preliminary engineering.




               Page 22                                                        GAO-12-344 Commuter Rail
Appendix I: Federal Transit Administration’s
New Starts Process




    not include a full cost-benefit analysis, but does consider cost-
    effectiveness and other benefits of the proposed project.

•   Preliminary engineering. Preliminary engineering involves the project
    sponsor refining the project by examining the costs, benefits, and
    impacts of different design alternatives, and completing an analysis of
    environmental impacts as required by the National Environmental
    Policy Act of 1969. 4 Once preliminary engineering is complete, FTA
    evaluates and rates the project to determine whether it can be
    approved into final design.

•   Final design. In the project’s final design phase, the project sponsor
    prepares final construction plans and cost estimates, and, if needed,
    includes right-of-way acquisition and relocation of utilities.


After final design is complete, FTA may approve the project for a full
funding grant agreement, at which point the project may move into the
construction phase. In some cases, FTA may obligate some of the
funding expected to be provided in the full funding grant agreement
through an early system work agreement. Although not a guarantee of full
funding, an early system work agreement provides funding so that work
can begin before full funding is awarded.




4
 New Starts projects must fulfill the requirements of the National Environmental Policy Act
of 1969 because they involve a proposed major federal action significantly affecting the
environment. FTA requires a project to have moved beyond the environmental scoping
phase before entering preliminary engineering. National Environmental Policy Act of 1969
scoping involves identifying the alternatives that will be examined in the environmental
documents and the significant environmental issues that arise from the proposed project.




Page 23                                                         GAO-12-344 Commuter Rail
Appendix II: GAO Contact and Staff
                  Appendix II: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  David J. Wise, (202) 512-2834 or wised@gao.gov
GAO Contact
                  In addition to the contact named above, Teresa Spisak (Assistant
Staff             Director), Robert Ciszewski, Alexander Lawrence, David Hooper, Hannah
Acknowledgments   Laufe, Joshua Ormond, Amy Rosewarne, and Max Sawicky made key
                  contributions to this report.




(542180)
                  Page 24                                          GAO-12-344 Commuter Rail
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