oversight

Public Transit: Funding for New Starts and Small Starts Projects, October 2004 through June 2012

Published by the Government Accountability Office on 2012-11-14.

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

                United States Government Accountability Office

GAO             Report to Congressional Committees




November 2012
                PUBLIC TRANSIT

                Funding for New
                Starts and Small Starts
                Projects, October 2004
                through June 2012




GAO-13-40
                                            November 2012

                                            PUBLIC TRANSIT
                                            Funding for New Starts and Small Starts Projects,
                                            October 2004 through June 2012
Highlights of GAO-13-40, a report to
congressional committees




Why GAO Did This Study                      What GAO Found
FTA, through the Capital Investment         Local funding exceeded total federal funding contributions for the 25 New Starts
Grant program, which includes the           projects, accounting for $16.3 billion, or almost half, of $33.8 billion of total
New Starts and Small Starts programs,       project funding (see figure below) from October 2004 through June 2012. This
provides funds to transit project           outcome reflects the Federal Transit Administration’s (FTA) policy to encourage
sponsors to build new or expanded           project sponsors to seek less than 60 percent of the project’s costs from New
fixed-guideway transit systems. Small       Start funds—less than the allowable 80-percent New Starts-share maximum.
Starts also includes projects known as      Local agencies used a wide variety of sources, but most commonly used sales
Very Small Starts projects. These three     taxes for their contributions to the projects; sales taxes were used for 13 of the
categories—New, Small, and Very
                                            25 projects. Federal funds from all sources for New Starts projects totaled about
Small projects—vary by total project
                                            $15.2 billion. The New Starts program alone provided about $14 billion, or 92
cost and amount of the Capital
Investment Grant program contribution
                                            percent of the federal funds during this period. Federal-aid highway funding that
to the cost. For New Starts, total          was “flexed,” or transferred, to transit was the second largest source of federal
estimated project costs exceed $250         funds, providing about $720 million. Finally, states provided about $2.3 billion, or
million; for Small Starts, they are less    about 7 percent of total funding, to 13 of the 25 projects. States obtained most of
than $250 million, and for Very Small       this funding from bonds or other debt mechanisms.
Starts they are less than $50 million.
For New Starts the federal contribution
is at least $75 million, for Small Starts   Conversely, total federal funding was the largest source of funding for the 32
it is less than $75 million.                Small and Very Small Starts projects, constituting about $1.4 billion, or two-thirds
                                            of $2.1 billion in project funding (see figure below). Most federal funds, about
                                            $1.1 billion of the $1.4 billion, came from the Small Starts and Very Small Starts
The Safe, Accountable, Flexible,            programs. Flexed federal highway funds again were the second largest federal
Efficient Transportation Equity Act: A      funding source and provided about $195 million. Local agencies provided about
Legacy for Users directed GAO to            $513 million or about 24 percent of total project funding. Local sales taxes, the
annually review FTA’s New Starts            primary source of local funding, were used on about half of the projects and
program. This report discusses the          provided 55 percent of local funding. States again provided the smallest share,
extent to which project sponsors use        about $188 million or almost 9 percent of total funding, and 17 of the 32 projects
non-New Starts funding to help              received state funding. States obtained most of the funding from bonds and other
construct New Starts, Small Starts and
                                            forms of debt.
Very Small Starts projects. GAO
reviewed financial information for all of
the 25 New Starts and 32 Small Starts
and Very Small Starts projects FTA
identified as receiving construction
funding from October 1, 2004, through
June 2012. GAO interviewed FTA
officials regarding program data and
officials from 8 project sponsors to get
their views on funding sources. GAO
also reviewed relevant federal laws
and other documentation. DOT officials
reviewed a draft of this report and
provided technical comments, which
GAO incorporated as appropriate.


View GAO-13-40. For more information,
contact David Wise (202) 512-2834 or
wised@gao.gov.



                                                                                     United States Government Accountability Office
Contents


Letter                                                                                   1
              Background                                                                 3
              Local Funding Was the Largest Share of Total Funding for New
                Starts Projects and Comes from a Wide Variety of Sources                 8
              Federal Funding Was the Largest Share of Total Funding for Small
                Starts and Very Small Starts Projects                                  14
              Agency Comments                                                          19

Appendix I:   GAO Contact and Staff Acknowledgments                                    22



Table
              Table 1: Select Categories of Transit Capital-Investment Grant
                       Projects, by Total Cost and Federal Contribution                  4


Figures
              Figure 1: Total Number of New Starts, Small Starts, and Very Small
                       Starts Projects by Transit Mode, October 2004 through
                       June 2012                                                         7
              Figure 2: Federal, State, and Local Funding Shares of New Starts
                       Projects, October 2004 through June 2012                          9
              Figure 3: Sources of Federal Funding for New Starts Projects,
                       October 2004 through June 2012                                  11
              Figure 4: Sources of State Funding for New Starts Projects,
                       October 2004 through June 2012                                  13
              Figure 5: Sources of Local Funding for New Starts Projects,
                       October 2004 through June 2012                                  14
              Figure 6: Federal, State, and Local Funding for Small and Very
                       Small Start Projects, October 2004 through June 2012            15
              Figure 7: Sources of Federal Funds for Small Starts and Very Small
                       Starts Projects, October 2004 through June 2012                 16
              Figure 8: Sources of State Funds for Small Starts and Very Small
                       Starts Projects, October 2004 through June 2012                 17
              Figure 9: Sources of Local Funds for Small Starts and Very Small
                       Starts Projects, October 2004, through June 2012                18




              Page i                                           GAO-13-40 New Starts Funding
Abbreviations

BRT               bus rapid transit
CMAQ              Congestion Management and Air Quality Improvement Program
DOT               Department of Transportation
FTA               Federal Transit Administration
SAFETEA-LU        Safe, Accountable, Flexible, Efficient Transportation Equity Act—
                  A Legacy for Users
MAP-21            Moving Ahead for Progress in the 21st Century Act
STP               Surface Transportation Program
TIFIA             Transportation Infrastructure Finance and Innovation Act




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Page ii                                                     GAO-13-40 New Starts Funding
United States Government Accountability Office
Washington, DC 20548




                                   November 14, 2012

                                   Congressional Committees

                                   The Federal Transit Administration (FTA), through its Capital Investment
                                   Grant program, 1 provided about $15.1 billion to New Starts, Small Starts,
                                   and Very Small Starts projects over the past 8 fiscal years. 2 Transit
                                   systems, provide billions of passenger trips nationwide annually and help
                                   meet the increased demand for transit services. The Safe, Accountable,
                                   Flexible, Efficient Transportation Equity Act—A Legacy for Users
                                   (SAFETEA-LU) created Small Starts for lower-cost New Starts projects.
                                   FTA created the Very Small Starts category for very low cost projects.

                                   In addition to New Starts’ funding, project sponsors use a variety of other
                                   federal, state, and local funding to construct these projects. Assembling
                                   these funding sources to pay for New Starts’ projects is challenging.
                                   While the New Starts program allows FTA to pay as much as 80 percent
                                   of a project’s net capital cost, the actual New Starts’ share of funding for a
                                   project is typically much lower. FTA’s policy is to encourage project
                                   sponsors to seek less than 60 percent of the project’s capital cost from
                                   New Starts’ funds. Additionally, while states may transfer or “flex” certain
                                   federal-aid highway program funds to use for transit projects, the source
                                   of these funds—the Highway Trust Fund—is on our high-risk list because
                                   revenues from motor fuel and other highway-use taxes to support the




                                   1
                                    Under the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for
                                   Users (SAFETEA-LU) Pub. L. No. 109-59, 119 Stat. 1144, 1573-1589 (2005) the 49
                                   U.S.C. 5309 Capital Investment Grant program comprised three FTA funding programs:
                                   Major Capital Investment (New Starts and Small Starts), Fixed Guideway Modernization,
                                   and Buses and Bus-Related Equipment and Facilities. Given that this report utilizes
                                   program data during the time period of October 1, 2004, through June 30, 2012,
                                   discussion of programs in this report primarily reflect statutory provisions in place during
                                   that time and do not focus on various amendments made subsequently in July 2012 by
                                                                             st
                                   the Moving Ahead for Progress in the 21 Century Act (MAP-21) (Pub. L. No. 112-141,
                                   126 Stat. 405 (2012).
                                   2
                                    SAFETEA-LU created Small Starts to streamline the project development process and
                                   evaluation and rating criteria that apply to larger-dollar New Starts projects. FTA created
                                   an even more streamlined evaluation process for Very Small Starts. See table 1 for more
                                   information.




                                   Page 1                                                       GAO-13-40 New Starts Funding
Highway Trust Fund are eroding. 3 Further, states and localities have
faced reduced revenues, and there are many demands on the remaining
revenues.

SAFETEA-LU required that we report annually on FTA’s New Starts
program. 4 This report responds to this mandate and describes the extent
to which New Starts’ and Small Starts’ project sponsors use sources of
funds other than the Capital Investment Grant program, such as local
funding, private funding, state funding, or other federal funding to
construct New Starts and Small Starts projects.

To provide this information, we focused on New Starts, Small Starts, and
Very Small Starts projects that FTA identified as receiving construction
funding from the Capital Investment Grant program during the time period
October 1, 2004 (fiscal year 2005), through June 30, 2012. We excluded
“exempt” projects, which are not subject to FTA evaluation and rating
requirements. 5 We reviewed SAFETEA-LU; FTA guidance related to
project funding for New Starts, Small Starts, Very Small Starts; and other
relevant FTA and Department of Transportation (DOT) documents. To
obtain information on project funding sources, we:

•   Analyzed and summarized project data, including cost, mode of
    transit, and funding sources, from the Annual Report on Funding
    Recommendations for fiscal years 2005 through 2013, for all 25 New
    Starts and 32 Small Starts and Very Small Starts projects FTA
    identified. We considered Very Small Starts to be a subset of the



3
 Congress has transferred $34 billion from general revenues to supplement Highway
Trust Fund revenues from fiscal year 2008 to fiscal year 2010, and in 2012 appropriated
an additional $18.8 billion in general revenues for fiscal years 2013 and 2014 to replenish
the trust fund balance. See GAO, Highway Trust Fund: All States Received More Funding
Than They Contributed in Highway Taxes From 2005 to 2009, GAO-11-918 (Washington,
D.C.: Sept. 8, 2011).
4
 Pub. L. No. 109-59, 119 Stat. 1144, 1585 (2005). MAP-21, enacted into law in July 2012,
changed this GAO annual reporting requirement to a biennial reporting requirement. Pub.
L. No. 112-141, 126 Stat. 405 (2012).
5
 Exempt projects are projects in which the federal New Starts contribution is under $25
million, regardless of total project cost. Pursuant to SAFETEA-LU, the exempt category is
to expire upon the effective date of the FTA final regulation pertaining to an evaluation and
rating process for Small Starts as SAFETEA-LU required. FTA issued a Notice of
Proposed Rulemaking in January 2012 (77 Fed. Reg. 3848 (Jan. 25, 2012)); however, as
of October 1, 2012, a final rule has not been published.




Page 2                                                       GAO-13-40 New Starts Funding
                 Small Starts program, and therefore combined the results of these two
                 groups of projects. We obtained additional project-funding data from
                 FTA to update project financial information and obtained additional
                 information from project sponsors to clarify information when needed.
                 We reviewed source documentation and interviewed agency officials
                 to determine the reliability of the project data collected. We
                 determined that the data were sufficiently reliable for the purposes of
                 this report. We present the data and resulting findings as of June 30,
                 2012; however, transit project costs and financing may change over
                 time.
             •   Selected eight transit sponsors to interview and obtain more detailed
                 information about why they used the funding sources they used for
                 their projects. We selected projects to obtain a mixture of projects
                 along several criteria, including size of project, such as New Starts or
                 Small Starts; transit mode, such as light rail or commuter rail; and
                 geographic location. 6 The information from these examples cannot be
                 used to make inferences about the population because in a
                 nonprobability sample some elements of the population have no
                 chance of being selected.
             We conducted this performance audit from February 2012 through
             November 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 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 objective.


             Under SAFETEA-LU, FTA’s primary funding for new or extensions to
Background   existing fixed-guideway transit systems 7 was the Major Capital
             Investment component of the Capital Investment Grant program, which
             was a discretionary program funded from annual appropriations rather



             6
              We selected the following projects: Central Corridor Light Rail Transit, Minneapolis-St.
             Paul MN; Central Florida Commuter Rail, Orlando, FL; RapidRide F Line, King County
             WA; Mid-Jordan LRT, Salt Lake City, UT; Dyer Corridor BRT, El Paso, TX; Perris Valley
             CR Line, Riverside County, CA; Dulles Metrorail HR, Northern VA; East Bay BRT,
             Oakland, CA.
             7
              A fixed guideway is a separate right-of-way for the exclusive use of public transportation
             services, such as a fixed rail line or exclusive lanes for buses and other high-occupancy
             vehicles.




             Page 3                                                       GAO-13-40 New Starts Funding
than the Highway Trust Fund. The Major Capital Investment Grant
program includes New Starts, Small Starts, and a subcategory of Small
Starts known as Very Small Starts. These categories have different
funding requirements. (See table 1.)

Table 1: Select Categories of Transit Capital-Investment Grant Projects, by Total
Cost and Federal Contribution

 New Starts              Total estimated project cost is $250 million or more or federal
                         contribution is $75 million or more
 Small Starts  Total estimated project cost is under $250 million and federal
    Very Small contribution is under $75 million
    Starts     Total estimated project cost is under $50 million
Source: GAO analysis of FTA documents.

Notes: Federal contribution here refers to 49 U.S.C. § 5309 Major Capital Investment funds only.
Projects may have other sources of federal funds, such as the American Recovery and Reinvestment
Act of 2009 (Pub. L. No. 111-5, 123 Stat. 115 (2009)), Federal Highway Administration Congestion
Mitigation and Air Quality Improvement, or other FTA program funds.
Table excludes “exempt,” Fixed Guideway Modernization, and Buses and Bus-Related Equipment
and Facilities projects.


New Starts project sponsors also have drawn on other sources of federal
funding—transportation formula grants, Fixed Guideway Modernization
grants, Buses and Bus-Related Equipment and Facilities grants, and
flexible funding from the federal highway program. The Urbanized Area
Formula Grant program made federal resources available to urbanized
areas for transit capital assistance, as well as for operating assistance in
smaller urbanized areas, and for transportation related planning. 8 Fixed
Guideway Modernization grants 9 were also distributed by formula and
helped ensure the proper renovation of the nation’s older rail transit




8
 Amendments by MAP-21 maintain the basic structure and criteria of the Urbanized Area
Formula grants but, among other things, broadened eligibility to include job access and
reverse commute projects.
9
 Under MAP-21 amendments, the Fixed Guideway Modernization program was repealed.
MAP-21 establishes a new grant program to maintain public transportation systems in a
state of good repair, as well as projects to replace and rehabilitate transit. State-of-good-
repair funding is limited to fixed-guideway systems including rail, bus rapid transit, and
passenger ferries. State of Good Repair projects are to be funded under one of two
formulas—either a high-intensity fixed-guideway formula or a high-intensity motorbus
formula (high-intensity motorbus refers to buses operating in high-occupancy vehicle
(HOV) lanes).




Page 4                                                             GAO-13-40 New Starts Funding
systems. The Buses and Bus Related Equipment and Facilities 10 program
provided capital assistance for new and replacement buses, related
equipment, and facilities. Flexible highway funds are formula funds from
the Highway Trust Fund that may be transferred to FTA and used for
transit projects. Such funds include Surface Transportation Program
(STP) and the Congestion Mitigation and Air Quality Improvement
Program (CMAQ) funds. 11 Recovery Act funds have also been used for
New Starts Projects.

To receive FTA New Starts funding, project sponsors go through a
number of project development phases in accordance with federal
requirements. Then FTA may recommend a New Starts project for
funding. If Congress appropriates funds for a project, FTA provides funds
to construct New Starts projects through multiyear Full Funding Grant
Agreements. FTA provides funds to Small and Very Small Starts projects
through multiyear Project Construction Grant Agreements or 1-year
Capital Grants. 12

Any transit project that fits the broader definition of a new fixed-guideway
capital project or extension project is eligible to compete for funding under
either the New or Small Starts programs. 13 These include:




10
  MAP-21 repealed this discretionary grant program and replaced it with a formula-based
grant program.
11
  The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) (Pub.L.No. 102-
240, 105 Stat. 1914) and subsequent reauthorization acts gave states and urbanized
areas greater flexibility in selecting transportation projects to be funded with federal-aid
highway formula funds. The Surface Transportation Program (STP) and the Congestion
Mitigation and Air Quality Improvement (CMAQ) Program are referred to as “flexible
funding” programs because they may be used on a range of projects, including transit and
highways, and funds made available for transit may be transferred to and administered by
FTA.
12
 FTA may use a 1-year grant for projects whose total funding request is less than $25
million and whose request can be met with a single year or existing appropriations.
13
  The term “new fixed-guideway capital project” means a minimum operable segment of a
capital project for a new fixed-guideway system or extension to an existing fixed-guideway
system. Under MAP-21, “new fixed guideway capital project” means (1) a new fixed-
guideway project that is a minimum operable segment or extension to an existing fixed-
guideway system; or (2) a fixed-guideway bus rapid transit project that is a minimum
operable segment or an extension to an existing bus rapid transit system. 49 U.S.C. §
5309(a)(5).




Page 5                                                       GAO-13-40 New Starts Funding
•   Commuter rail—systems that operate along electric or diesel-
    propelled railways and provide train service for local, short distance
    trips between a central city and adjacent suburbs.
•   Heavy rail—systems that operate on electric railways with high-
    volume traffic capacity and are characterized by separated rights-of-
    way, sophisticated signaling, high platform loading, and high-speed,
    rapid-acceleration rail cars operating singly or in multi-car trains on
    fixed rails.
•   Light rail—systems that operate on electric railways with light-volume
    traffic capacity and are characterized by shared or exclusive rights-of
    way, or low or high platform loading, single or double car trains, and
    overhead electric lines that power rail vehicles.
•   Streetcars—systems that are similar to light rail, but distinguishable
    because they are usually smaller and designed for shorter routes,
    more frequent stops, and lower travel speeds.
•   Bus rapid transit (BRT)—bus systems that vary in design, but
    generally including service enhancements to attract riders and provide
    similar transit-related benefits as rail transit, characterized by
    improvements such as dedicated running ways, improved stations,
    improved vehicles, intelligent transportation systems to speed service
    and provide information, off-vehicle fare collection, special branding of
    the service, and frequent service. 14

See figure 1 for the modes of the 57 transit projects FTA identified as
approved transit projects under the Capital Investment Grant program
from October 2004 through June 2012. Of these, 23 of 25 New Starts
projects were for rail projects of various types, while 28 of 32 Small Starts
and Very Small Starts projects were BRT projects. 15




14
  Under MAP-21, the New Starts Program may fund fixed-guideway bus rapid transit
projects defined in part as a bus capital project in which a majority of the project operates
on a separated right-of-way dedicated for public transportation during peak periods,
represents a substantial investment in a single route in a corridor, and includes features
that emulate the services provided by rail fixed guideway systems. In addition, the Small
Starts Program may fund corridor-based bus rapid transit projects defined, in part, as bus
projects that represent a substantial investment in a defined corridor, as demonstrated by
features that emulate the services provided by rail fixed-guideway systems, but the
majority of which does not operate in a separated right-of-way dedicated for public
transportation during peak hours.
15
  For more information on BRT project sizes and costs see GAO, Bus Rapid Transit:
Projects Improve Transit Service and Can Contribute to Economic Development,
GAO-12-811 (Washington, D.C.: July 25, 2012).




Page 6                                                        GAO-13-40 New Starts Funding
Figure 1: Total Number of New Starts, Small Starts, and Very Small Starts Projects
by Transit Mode, October 2004 through June 2012




Project sponsors use revenues, such as the federal grants discussed
above, sales taxes, fees, concessions, etc., to pay the project’s costs. 16 In
some cases, such revenues are not available when the project costs
need to be paid. Thus, financing mechanisms entail borrowing money,
either through bonds, loans, or other mechanisms, to pay these projects
costs as they come due. These financing mechanisms require a


16
  Note that fare-box revenues are not included in this list. Fare-box operating revenues
generally do not recover the operating costs of transit systems. On average, from 2004
through 2008, transit systems recovered about 34.6 percent of their operating costs
through fares. Fare-box recovery as a percentage of total transit system operating costs
also varies by transit mode. The most recent available national data shows that from 2004
through 2008, heavy rail systems recovered 59.4 percent, commuter rail systems
recovered 48.7 percent, light rail systems recovered 27.0 percent, and bus systems
recovered 27.0 percent.




Page 7                                                     GAO-13-40 New Starts Funding
                       repayment source. In many instances, using project financing requires
                       developing and imposing new revenue streams to repay loans or bonds
                       issued to support the investment. Tax exempt bonds, which government
                       entities can use to finance capital projects, reduce federal tax revenue;
                       however, they provide a less expensive source of financing to project
                       sponsors. 17


                       From October 1, 2004, to June 30, 2012, local funding exceeded total
Local Funding Was      federal funding 18 for the larger New Starts transit projects and accounted
the Largest Share of   for about half of all project funds. Of the total $33.82 billion in funds for
Total Funding for      New Starts projects from all sources, local agencies contributed about
                       $16.25 billion, states contributed about $2.34 billion, and the federal
New Starts Projects    government from all sources contributed about $15.23 billion (see fig. 2).
and Comes from a       This outcome reflects the emphasis FTA has placed on local agencies
                       providing a larger matching share of projects’ costs than the allowable
Wide Variety of        minimum-matching amount of 20 percent.
Sources




                       17
                         Interest earned on most bonds issued by state and local governments is tax-exempt.
                       This means that the interest paid to bondholders is generally not included in their gross
                       income for federal income tax purposes, and the federal government forgoes tax revenue
                       on tax-exempt bonds—we projected foregone federal tax revenues of about $37 billion in
                       2007. The federal tax exemption lowers the bond issuer’s borrowing costs and may
                       provide equivalent or higher after-tax yields to investors than alternative investments that
                       are not tax-exempt. See GAO, Tax Policy: Tax-Exempt Status of Certain Bonds Merits
                       Reconsideration, and Apparent Noncompliance with Issuance Cost Limitations Should Be
                       Addressed, GAO-08-364 (Washington, D.C.: February 15, 2008) for further information on
                       the impact of tax-exempt bonds.
                       18
                        For the purposes of this report, total federal funding includes federal funding from the
                       Capital Investment Grant program as well as any other sources of federal funding.




                       Page 8                                                       GAO-13-40 New Starts Funding
Figure 2: Federal, State, and Local Funding Shares of New Starts Projects, October
2004 through June 2012




This distribution mirrors the most recent U.S. Department of
Transportation’s Conditions and Performance report findings, which
shows that in 2008, federal funding from all sources for all transit capital
expenditures was about $6.4 billion, while local capital funding was about
$7.7 billion. 19 From 2005 to 2008, local funding for all transit capital
expenditures, not just New Starts projects, exceeded total federal funding
for 3 of the 4 years.

Individual New Starts projects varied in complexity of funding
arrangements as indicated, in part, by the number of different federal,
state, local government, and private-funding sources that were used for
each project. New Starts projects had from 2 to 11 funding sources. For




19
  Capital expenditures in the Conditions and Performance report include both the design
and construction of new transit system and extensions of existing transit systems (New
Starts) and the modernization and replacement of existing assets. Therefore, capital
spending other than New Starts is included in the analysis. U.S. Department of
Transportation, 2010 Status of the Nation’s Highways, Bridges and Transit: Conditions
and Performance (Washington, D.C.: March, 2012).




Page 9                                                     GAO-13-40 New Starts Funding
                          the 25 projects, 6 had 2 or 3 sources, 11 had 4 to 6 sources, and 8 had 7
                          sources or more. The median number of funding sources was five.


Federal Funding Sources   Total federal funding applied to New Starts projects came overwhelmingly
for New Starts Projects   from the New Starts program itself. Of about $15.23 billion in total federal
                          funding for New Starts projects, about $13.98 billion came from the New
                          Starts program and about $1.25 billion from other federal programs. (See
                          fig. 3 below.) New Starts funding made up the largest part of total federal
                          funding for all New Starts projects and covered about 39 percent of total
                          estimated project costs across all 25 projects. At the individual project
                          level, while New Starts funding made up the 80-percent-allowable share
                          of total estimated project costs in one case, the total project cost funded
                          by New Starts ranged from 25 percent to 63 percent for the other 24
                          projects.

                          Flexible federal-aid highway funds were the second largest category of
                          total federal funding, providing $720 million in funds, or almost 5 percent
                          of the federal total across all projects. 20 In all, 15 New Starts projects
                          used flexible highway funds for New Starts transit projects. However,
                          these highway funds tended to be relatively small proportions of the total
                          project cost. CMAQ funds provided most of the flexible highway program
                          funds, and were used on 10 projects. A project sponsor we interviewed
                          indicated that CMAQ funding was the most flexible of the highway-funding
                          options because it could be used for many different construction
                          purposes. One project sponsor we spoke with explained that the state
                          highway funds the project had for its BRT project could be used only on
                          state roads. However, the project sponsor was able to use federal flexible
                          funds on other non-state roadway alignments.

                          Funds from other FTA programs provided about $185 million, or about 1
                          percent of total federal funding. A total of 9 of the 25 New Starts projects
                          used non-New Starts FTA funding, either from the Urbanized Area
                          Formula program, the Fixed Guideway Modernization formula program, or
                          Buses and Bus Related Equipment and Facilities discretionary program.
                          In addition, one project used a $280 million Transportation Infrastructure



                          20
                            Ongoing work shows that more than half of all flexible funding transferred to FTA from
                          2007 through 2011 was used to purchase vehicles—both rail cars and buses—or for
                          transit infrastructure construction.




                          Page 10                                                     GAO-13-40 New Starts Funding
Finance and Innovation Act (TIFIA) loan to help finance the project. 21 One
project sponsor with whom we spoke indicated that at the time, the TIFIA
program provided a less-expensive way to finance the project. Another
project sponsor that specifically considered, but did not use TIFIA,
indicated that when putting the funding together for the project, TIFIA was
not cost-effective for the sponsor, and the sponsor believed the loan
process would have taken longer than it wanted.

Figure 3: Sources of Federal Funding for New Starts Projects, October 2004
through June 2012




21
  The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) program
(23 U.S.C. §§ 601-610) provides credit assistance for qualified projects of regional and
national significance through loans, loan guarantees and standby lines of credit. Certain
large-scale surface transportation projects, including transit projects, are eligible for
assistance. See GAO, Surface Transportation: Financing Program Could Benefit from
Increased Performance Focus and Better Communication, GAO-12-641 (Washington,
D.C.: June 21, 2012) for more information on TIFIA.




Page 11                                                     GAO-13-40 New Starts Funding
State Funding Sources for   State funds were used on 13 of 25 New Starts Projects, and as noted
New Starts Projects         above, state contributions to New Starts Projects have been much less
                            than either federal or local funding. Lesser state involvement is not
                            surprising, as historically the federal government has partnered with local
                            agencies to construct transit capital projects. When state funding was
                            applied to projects, it was most frequently through bonding, which was
                            used in 8 of 25 projects. 22 Generally, financing through mechanisms such
                            as bonds was the source of about $1.68 billion or about 72 percent of the
                            all-state contributions (see fig. 4). For two New Starts projects, states
                            provided a total of about $303 million, about 13 percent of state
                            contributions to the projects, from their general revenues. Two of the New
                            Starts projects benefited from a total of about $202 million in funding from
                            dedicated state mass-transit funds. Officials from one of these two
                            projects pointed out the considerable advantage of having a state fund
                            specifically dedicated to supporting New Starts projects in simplifying the
                            task of assembling project funding.




                            22
                              Bonding is a form of borrowing in which a borrower issues bonds which are purchased
                            by investors. The bond issuance provides cash immediately in the form of bond proceeds.
                            Over time, the borrower makes interest and principle payments to investors to retire the
                            debt obligation.




                            Page 12                                                   GAO-13-40 New Starts Funding
                            Figure 4: Sources of State Funding for New Starts Projects, October 2004 through
                            June 2012




Local Funding Sources for   Local support for New Starts projects is characterized by a diversity of
New Starts Projects         funding sources, with sales taxes and municipal-county funds being the
                            most frequently used. Local sales taxes were used for 13 of 25 New
                            Starts projects and county or municipal funds were used for 9 of these
                            projects. The dollar distribution of local funds is somewhat complicated by
                            two projects in New York City, which comingle the sources of local funds.
                            These projects account for about one-third of the total $16.25 billion in
                            local funding provided to the 25 projects (see fig. 5). For local funding
                            sources that we can directly trace, local sales taxes of about $4.5 billion
                            were the largest single source, constituting about 28 percent of all local
                            funds. While highway tolls and transit agency funds each constituted
                            about one-tenth of local funding, only the Dulles rail extension is using
                            highway tolls to help pay for the transit project.




                            Page 13                                               GAO-13-40 New Starts Funding
                        Figure 5: Sources of Local Funding for New Starts Projects, October 2004 through
                        June 2012




                        Small Starts and Very Small Starts projects were more dependent on total
Federal Funding Was     federal funding than New Starts projects. For the 32 Small and Very
the Largest Share of    Small Starts projects FTA identified as receiving construction funds from
                        the Capital Investment Grant program from October 2004 through June
Total Funding for       2012, about $1.43 billion of about $2.13 billion in total project funding
Small Starts and Very   came from the federal government—about two-thirds of the total
Small Starts Projects   estimated projects costs (see fig. 6). States provided about $188 million,
                        while local agencies provided about $513 million. While local agencies
                        provided about half the funding for New Starts projects, they provided
                        about one-fourth the funding for Small and Very Small Starts projects.




                        Page 14                                               GAO-13-40 New Starts Funding
                            Figure 6: Federal, State, and Local Funding for Small and Very Small Start Projects,
                            October 2004 through June 2012




                            The number of separate funding sources for Small and Very Small Starts
                            projects varied from 2 to 10 sources. For 13 projects there were two
                            funding sources—the federal Small Starts or Very Small Starts funding
                            and one other state or local source. Of these 13 projects, 5 used state
                            funds and 8 used local funds as the second source. However, even with
                            the lower costs of these projects compared to New Starts, 5 projects still
                            had relatively complex funding arrangements, using 6 to 10 funding
                            sources.


Federal Funding Sources     Similar to New Starts projects, FTA’s Small and Very Small Starts funds
for Small Starts and Very   provide most of the federal funds for these Small and Very Small Starts
Small Starts Projects       projects. Of the roughly $1.43 billion in total federal funds, about $1.14
                            billion came directly though the Small and Very Small Starts program (see
                            fig. 7). Officials from two of the eight project sponsors we interviewed
                            cited the recent economic downturn and local funding uncertainty as
                            reasons to pursue federal Small Starts funding. One of the sponsors also
                            considered the level of competition from large cities for Small Starts
                            funding to be lower—the level of competition was a factor in the decision
                            to apply.

                            Also similar to New Starts, flexed federal-aid highway funds totaling about
                            $195 million were the second largest source of federal funds for Small



                            Page 15                                                 GAO-13-40 New Starts Funding
                            and Very Small Starts projects, and exceeded the approximately $95
                            million from other FTA programs applied to Small Starts and Very Small
                            Starts projects. Flexed federal-aid highway funds came primarily from
                            CMAQ and STP funds. One of the sponsors we spoke with said the main
                            advantage with using CMAQ funds was that they can be used for
                            intelligent-transportation system features such as bus cameras, smart
                            card readers, and real time arrival signs as well as other passenger
                            amenities.

                            Figure 7: Sources of Federal Funds for Small Starts and Very Small Starts Projects,
                            October 2004 through June 2012




State Funding Sources for   States contributed a total of about $188.4 million to 17 of 32 Small Starts
Small and Very Small        and Very Small Starts projects from October 2004 through June 2012.
Starts Projects             (See fig. 8.) The other (15 of 32) Small and Very Small Starts projects
                            received no state funding. As was the case with New Starts, a large
                            majority of state contributions, about $129.5 million of the $188.4 million,
                            came from bonds or other forms of debt. State funds from lottery
                            proceeds were used for 3 projects and provided about $26.1 million, or
                            about 14 percent of all state funds.




                            Page 16                                                GAO-13-40 New Starts Funding
                          Figure 8: Sources of State Funds for Small Starts and Very Small Starts Projects,
                          October 2004 through June 2012




Local Funding for Small   Many sources of local funds were used by project sponsors for Small and
and Very Small Starts     Very Small Starts projects, and local agencies contributed about $513.3
Projects                  million in all (see fig. 9). Local agencies relied heavily on traditional
                          funding sources. For example, sales taxes were used by about half, 15 of
                          32 projects, and provided most of the local funds, $286.7 million of the
                          $513.3 million. Municipal and county funds were used on 8 projects, and
                          provided the second highest total, $54.0 million, just over one-tenth of all
                          local funds. Bridge tolls provided $48.4 million, all for one project, just
                          under one-tenth of all local funds. The fact that Small and Very Small
                          Start projects cost less did not always result in simpler funding streams
                          with fewer funding sources. Ten of the 32 projects used 5 or more
                          different funding sources, and one project had 10 funding sources.




                          Page 17                                                 GAO-13-40 New Starts Funding
Figure 9: Sources of Local Funds for Small Starts and Very Small Starts Projects,
October 2004, through June 2012




At a time when local funding has become crucial for building New Starts
and Small Starts projects, many local governments are facing financial
pressure from the lingering effects of the financial crisis and economic
downturn. Unless sales tax rates are raised, the reduced economic
activity of the recession necessarily reduces the growth and possibly
amount of sales tax receipts, which provided most of the local funding for
the Small and Very Small Starts projects we studied. Under these
circumstances local governments may have difficulty providing the level
of funding they have in the past, and may need to look for more
innovative ways to fund projects. For example, one program sponsor we
spoke to explained that one of the funding sources came through a
collaborative of private philanthropic foundations. The collaborative’s goal
in this case is to help strengthen the regional economy and improve the
quality of life in neighborhoods near the light rail line. Newer, more




Page 18                                                GAO-13-40 New Starts Funding
                  innovative ways to finance transit projects, such as tax increment
                  financing districts, 23 impact fees, 24 and private capital, were used on four
                  of the Small Starts and Very Small Starts projects, and provided less than
                  one-tenth of the local funding. This could be a result of the specific time
                  frame we examined and the long lead time required to get a large capital
                  construction project to the construction phase.


                  We provided a draft of this report to the Secretary of Transportation for
Agency Comments   review and comment. DOT officials provided us with clarifying and
                  technical comments, which we incorporated throughout the report as
                  appropriate


                  We are sending copies of this report to the Secretary of Transportation,
                  the Administrator of the Federal Transit Administration, and appropriate
                  congressional committees. This report is also available at no charge on
                  the GAO Web site at http://www.gao.gov.




                  23
                    Tax increment financing is a public financing technique used by local entities to
                  encourage economic development, among other things. Typically, a public-sector agency
                  issues a special bond to finance infrastructure, e.g., public transit, necessary to support
                  new development and then uses the incremental increase in property value within a
                  formally designated district to repay the bonds. GAO, Public Transportation: Federal Role
                  in Value Capture Strategies for Transit is Limited, but Additional Guidance Could Help
                  Clarify Policies, GAO-10-781 (Washington, D.C.: July 29, 2012).
                  24
                    Impact fees are generally defined as a charge or assessment imposed by a municipality
                  or a county on a new development in order to generate revenue for funding or recouping
                  the costs of capital improvements or facility expansions necessitated by and attributed to
                  new development.




                  Page 19                                                      GAO-13-40 New Starts Funding
If you have any questions about this report, 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. Major contributors to this report are listed in appendix I.




David J. Wise
Director, Physical Infrastructure Issues




Page 20                                          GAO-13-40 New Starts Funding
List of Committees

The Honorable Tim Johnson
Chairman
The Honorable Richard C. Shelby
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable John L. Mica
Chairman
The Honorable Nick J. Rahall, II
Ranking Member
Committee on Transportation and Infrastructure
House of Representatives

The Honorable Patty Murray
Chairman
The Honorable Susan Collins
Ranking Member
Subcommittee on Transportation, Housing and Urban Development,
and Related Agencies
Committee on Appropriations
United States Senate

The Honorable Tom Latham
Chairman
The Honorable John W. Olver
Ranking Member
Subcommittee on Transportation, Housing and Urban Development,
and Related Agencies
Committee on Appropriations
House of Representatives




Page 21                                          GAO-13-40 New Starts Funding
Appendix I: GAO Contact and Staff
                  Appendix I: 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, Catherine Colwell (Assistant
Staff             Director), Robert Ciszewski, Geoffrey Hamilton, Alexander Lawrence,
Acknowledgments   Amanda Miller, Joshua Ormond and Marilynn Sergent, made key
                  contributions to this report.




(542201)
                  Page 22                                         GAO-13-40 New Starts Funding
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