UMTA Project Oversight and Mass Transit Issues

Published by the Government Accountability Office on 1990-08-08.

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

                 UMTA Project    &night    and lpus Transit   Issues
For Release                                                        a
On Delivery
Expected at
930 a.m., PDT
August 8. 1990

                 Statement of
                 John W. Hill, Jr., AssmIate Directm
                 Resources. Camunity,  and Ecam6c Development Division

                 Before the
                 Subcommittee    on Housing and urban Affairs
                 Comittee on     Banklng. HortsMg, ad Urban Affairs
                 United States    Senate
                 In San Jose,    California           ..
wr.     chairman          andMembers                of the       Subcommittse:

          I am pleased              to be here           today        to dimcuss         our work          aasessing
local        transit          authorities'            managenent            of the Department               of
Transportation's                  (DOT) Urban Has0 Tramporbtion                              Administration
(UMTA) grants                 and how well            TJl!TA is       overseeing         active      grants
totaling         about         $33 billion            nationwide            as of Member             31, 1989.
These grants              have bsen awarded                     to about       700 stste      and local
grantees         to     help      fund       over     4,400 mass transit                projects.            Ikring
the     19808,         UHTA limited            its      oversight           of grantmsbyallwing
grantees         to     certify         that     they      would        properly      manage the grants                 in
accordance             with     grant        conditions             and federal       requirements.

          In    summary,          our prior           and current            work to date           as well       as
that      of   DOT's Office              of Inspector                General        (OIG) has shown that
federal        mass transit              grant        progrsms          are at high-&k               for
mismanagement                 because:

        --     Grantees,           in    sane cases,                were not using         grant      funds       for
               project          purposes         or according               to federal       requiresents              even
               though          grantees        certified             that    they    would    properly           manage
               federal          funds.         Our work             at two grantees          and an analysis                 of
               a limited           number        (25)      of       DOT OIG audit         reports          indicated
               that      UMTA grantees               qUeStiOnably             used over       $100 million              of
               grant          funds,

          --   UMTAgs oversight                   mechanisms                say not be effective                      in
               detecting          grantees              noncompliance             with      grant         conditions               or
               federal       requirements.                   Our prior                reports      and curreut                   vmk
               indicate       that         this         occurred            bscause       UIcTA’s avsrsight                      tcsls
               were not       effectively                 or thoroughly                 used.          DOT has
               recognized          that          UMTA has a saterial                      weakness            with      the
               oversight          of      its     grant      programa.

          Our testimony            will          also     include            a discussion              of lJMTA grasts
in California,             San Prancisco                  Say Area sass                 transit         projectr,                and
traffic        congestion.              mrther,            we will            offsr       issues        for

Subcommittee             consideration                  during        its     deliberations               of UMTA~s

          Now I would         like         to provide                a brief      background             on        U14TAms

grant      programs        and its              management            and oversight               cf    federal            mass
transit        grants.


          Under    the     Urban        Mars Transportation                       Act of          1964,        as amendsd,
UMTA is authorized                 to      provide         assistance             for      developing                and                 i

opsrating         mass transportation                      syrtems            through       grauts            to     state        and
local      entities--generally                     transit            authurities--the                 grantees.                  UmA
provides        grants      primarily              through            two program--the                   Section             3
Discretionary             Grant        program           and the            Section      9 Forsula             Grant

program.l                   Funds from           both      programs            are wed              to     construct          new
transit          projects,             such       as light          rail         ~ystess:            refurbish            existing
rail         systems;          or purchase                bums.          In adcUtion,                    forsula         graut        funds
are used to                  support       the      operation            of sass transit                      systsms.

             over      half      of the discretionary                          grafts         are        earmarked by the
Congress              for     specific           mass trausit              projecta:            tha remainder                    are
selected              aud awarded               by OIEIA'o Mmiuistrutor.                                 Formula         grants,        as
the     name suggests,                   are      apportion&I              asmg          urban           areas      by a
statutory              formula         based       on population                  data        and transit                service        and
ridership              statistics.                Dependins             qoll      the        type        of   grant,       grantees
contribute              matching           funds         that     usually             rauge     from          20 to       50 percent
of     the      net     project          coat.           U’MTAcurrently                  wersmes              over       $33 billion
in active              grants        nationwide.                 During         fimcal         ymarm 1986 through
1990,        UMTA funding                will      prwids           as estirated                $13.6          billion           in
section          3 and 9 grauts,                   or about             $2.7 billion                 snnually            (sea fig.

          UMTA, as the                 agency           that     reviews         Mb       approvrs             msss transit
grants,          is     responsible               for      msuring             that     grantees              are complying
with      the       various          reguirsments                stipulated             in     the        Urban        Ha88

Transportation                  Act and in uniform                       grant        mgulations                 that      apply
governmentwide.                      The -uniform               grant      regulations                   include,        among

lIn addition,      uI(TA administers   several smaller     grant programm for
efforts   such as~sstransit          phnning,    designing anddevslopiug
sass transit     for the handicapped      and elderly,    and supporting mass
transit   research.
Other      things,              federal       purchasing               and contracting                    standards          for
recipients           of         federal        funds.           In lieu          of nor8 direct               oversight                to
ensure       COmplia~~8,                  UNTA       relies      on grantees'               C8rtifyiXIg             that         they-
-the      grantees--will                   comply        with      all        applicable           federal
requirements.                    To suppl-t                   self-certification                    and oversee
grantees'           co?Bpliance,              tINTA           rmgional           offfcms        have        a number of
monitoring           tools           including           grantee             financial        and prograss                 reports,
site      visits,          annual          audits,         and triennial                  reviaws          (SW fig.              2).

          Th8 UNTA work                that        we have UnderVay                      fOCusas       on determining
th8     eXt8Ilt      Of         QrZUlt888'         noncompliance                 and the reasons                for        IJIWA’a

oversight           w8akn8sses.                  Reviews         have started               or will          soon start                in
UNTA Regions               II      (New York City),                    III      (Philadelphia),               V (Chicago),
and IX (San Francisco).

          I would          now like           to      discuss          our preliminary‘assessment                            of
grantees'           management              of grant            funds.

          Our work          at     2 grantees             and analysis               of 25 OIG audit                  reports
identified           grantees'             quastionabla                 Um      of   Ovmr $100 million                      in
grant      funds.           This       work        &owed        that         grantees        had     not      always
complied          with      grant         conditions            and f8deral               rmquir-ts                 evan
though       they        certified            that      they      had internal               management control
syrters       in    place          to ensure            such compliance                    (se8 fig.          3).

Pollowing           are    a few       8xamples              of these           findings:

      --The             OIG    reported              that     on8UNTAgrantee                     hadban           isproperly
              charging             indirect,            sartricms,            handling,          andmterial               costs
              to ULZTA projects                      since        1974.         Thisresultsdinanesti~ted
              $17.9        rillion        in ovmrchaqes                       toUl@fAgramtseventhoughthe
              OIG had repeatedly                       brought           this      probla         to the attention                  of
              the     grantee          and UmA.                   NeitherUMT&northegrant~has,                                       as
              yet,        corrected            the     problem.

     --       ~ccorciing             to another              OIC report,            a grantee            had includad
              land        acquisition             and construction                      claims     of      $6.3 million
              that        wars not        in thegrantagre-tand                                     its      procsdures
              for     obtaining           a $29.5             million           grant     wers     questiona&                 The
              transit         agency           reimbursed              UNTA      $6.3 million             for     the
              questionably              used funds.

     --     We and the OIG detersbed                                   that      another         grantss         may have
            used UI4TA-funded                    inmntory               on non-grant              projects.             The
            grantee           COnSegUwtly                   lay       have spent          about      $4 million            for
            unnecessary               purchases.                  UMTA is         negotiating             vith     the
            grantee           to     recoverunallouablecosts.

     --     An 0rG suwey                 of grant              cl ose-ollat        practioes             in on8 tmTA
            region          disclosed            that        grantees           had not taken              sufficient
            action          to close           out      grants          at projact          completion.                 Timely

               grant     close-outs           are particularly                   important         because          unused
               funds     that    should        be returned              to UHTA are not                  available             for

               other     approved        projects.              We found          indicutionu             that      grantee
               delays      in   initiating             grant        closeouts          say bs a problem                   in
               two other        UNTA     regions.              UNTA has          also        indicated       that
               grantee       close-outs          may be a problem                   nationwide.

          I would       now like        to    focu8      on WXTA1s oversight                      of     faderal       mass
transit        grantees.

          In   1985,     we reported           that      UHTA nseded better                     assurances           that
grantees        complied        with     federal         requirssests.2                       We also      supported
UHTA's use of triennial                      reviews       that       were mandated by ths                        Surface
Transportation             Assistance          Act of          1982.       Although            at the      time      of
our work,         UNTA could           not provide             us    infOmtiOn                on the      focus      of

the   reviews          or how they           vould      be conducted,               we believed            that
triennial         reviews,       if     properly         implemsnt8d,               would       afford       U?lTA     an
opportunity            to supplemmt            their       existing           oversight          mechanisms            for
ensuring        gra&888'         cospliance             with        federal       rsquiraents.                   Novever,
the   triennial          reviews        do not appear                to have bees properly

            Needy Better         -That            Grw8                            WV     Wim
                                    (GAO/RCBD-85-26, ?rb.                         19, 1985).

          In March                 1989,    we reported              on UHTA~m oversight                    of the
Southeastern                     Pennsylvania          Transportation                 Authority's                (SEPTA)
procurement                  activities.3              Major         procurement              problems          had been
identified                  in    a 1987 UHTA-funded                   indspendent             procureaent                 review.
Our review                was directed              tovard       determining                why U?STA'r own
oversight              tools         had failed            to detect          these         problems.

          Our report                 disclosed         that      lJHTAQs triennial                    revfev         of     SEPTA
did      not        include          a detailed            procurement              assessment,           yet        indicated
that      SEPTA had complied                        with      procurement             requirements.                   Further,
single             annual         audits     performed           by    public         accounting            firms           did    not
include             an evaluation              of    SEPTA’m          compliance             with       federal
procurement                  requirements.                 We concluded              that      UH!TA*s nonitoring
procedures                were       inadequate            to detect          the     weaknesses            in       SEPTA~S

procurement                  system        and made several               recomendations                   to        the
Secretary              of        Transportation             to better          focus         UHTA'8 monitoring
tools         to     detect          procurement            deficiencies.

          In        addition,          UMTA requires                 grantee8         to     submit       quarterly
financial             and progress               reports.             Hovever , at            one UMTA region                     we
found       that          report8          submitted          by 80~        grantee8            either         did        not
contain            enough          information             to be used a8 a monitoring                            tool        or UMTA
did     not        use them for              this     purpose.            The acting             UlfTA     rqional
manager            told          us that     these         reports      did     not         contain       the        information
needed to detect                grantee            problems.

          Based upon this               work        and that           of the       OIC, DOT identified
UHTA@s oversight                 Of grantee8               as I material              internal            Control
weakness          in its        1989 report               to the       President           reguired             by the
Federal         Hanagersm Financial                       Integrity          Act    of 1982,             a8 mended.
One reason             UMTA cited            for    its      overright         problem8             is    its     ever-
growing         workload         and shrinking                staff.          The report             atates        that         "In
order      to     improve       project            OVerSight,           additional            8taffing            is
needed."              To correct        this        management control                     veakness,             the report
states         that      TJMTA will           requira         additional            resources             in both         FY
1991 and 1997-a

          In    its      description           of    the      problem,         the        report         states        that
"The number of               grants          as well         as the dollar                amount of UMfA”s                    grant
program         has increased.                 Currently,              [WA         grants      knagement                staff
are     carrying]          double       the case             load      of the       early      1980ms.s                 In it8
1991 budget,              WXTA requested                  an additional             10 staff             for     grantee

         Since         ve are      in California,                  I thought         it     would         be useful            to
discuss         UMTA grants            for     California              ma88 tramit             projects            and
projects          that     are being           planned          and con8tructed                in        the San
Francisco             Bay area.

          As of December 31,                  1989, UM!TA va8 Overseeing                          about     $3.6
billion       in active           grants       to    California             grantees.             This     represents
about      11 percent          of the         active        mA        grants      nationwide              (see fig.
41.       San Francisco            and San JOSe metropolitan                           area8       grantees
receive       about      $1.3      billion,          or abut              36 percent         of    the     active
grants       in    California.

          Although       the      Bay area          grantee*          receive         significant           UMlYA
funding,          UMTA fund8        do not          represent           the tajOr           8Ource Of MS3
transit       funding.            For example,              the Hetropolitan                Traruportation
Commission,          the San Francisco                  Bay regional                 tra.mBportation           planning
agency,       has adopted           a rail          extension           program that              cells      for    five
projects          to be built          at an estimated                  total        cost    of $7.35         billion
#rough        the    year      2000.          Of thf8        -OIllIt,     the CmiSSfOn        rxpect8
federal       funding        of    $691 aillion,                 provided    federsl     fund8 are
available,          or less        than       30 percent            of the       total      co8t.          Hare     than     60
percent       of the total             cost     will        be funded           from local           sources,
including          new half-percent                 sales        taxerr     approved         in Al-a,               Contra
COSta,       and San Mateo counties.

          The extent         of Federal             participation               in Bay area
transportation            projects            varies        considerably.                The Bay Area Rapid
Transit       SyStoP'S         San ~axICiSC0                airport         ti-fOn            i8 l Stiraf&              t0
cost      $590 million,            vith       WA       funding            $442 million,            or 75 percent.
In contrast,           the     Guadalupe            Corridor          project         received           $257 million

in      federal        funds,       or 47 percent              of the estimated                 total       project
cost       of     $550 million.           Other        planned        Bay Area Rapid                    Transit       System
extensions,             estimated        to     cost     $1.03      billion,           are not           expected       to
receive           federal       funds.

           Mr.     Chairman,         I vould         now like       to focus           on an issue            that      is
important             to California            and the subject              of your other                 panels-
traffic          congestion.

           Traffic       congestion            is    a fact       of life       for     most         metropolitan
drivers          in    the United        States--especially                    in the Los Angeles                     and
San Francisco               Bay areas--         where congestion                is     approaching            gridlock
proportions.                In November             1989, we reported                 that       Los Angeles           and
San Francisco/Oakland                    ranked        first       and second,               respectively,             in
daily       vehicle         miles     of metropolitan               travel.'            Traffic           congestion
facing          metropolitan          areas         cannot     be solved         by any single                solution,
such as expanded                mass transit            nystems.            Absent           other       actions,       such
as dramatic             increases        in the        price       of automobile                CaEnuting,           people
using       mass transit             instead         of their       automobiles               will       be replaced         in
the       long     run by new automobile                  users.

4Trafiic comreg$tiQn .                                                                                  tGAo/Fmm-90-1,
Nov. 30, 1989).
          In a December           1989 report            on traffic            congestion5,              we
evaluated        three       congestion            reduction        strategies:                  construction            and
reconstruction,              transportation              systems         management,              and advanced
technologies.               The report         noted      that,         according          to     the Federal
Highway       Adsinistration,               effective           congestion             mduction          requires         the
balanced       use of a variety                of strategies                 and techniques              rather       than
relying       on any one in              particular.             !Fh6    report         recm            rdad that        DOT
d6V6lOp       an integrated              fedaral        COngeStioWraduCtfOn                       strat6gy        ahd use
appropriate            evaluation          mechanisms           to d&amine               tha      effectiveness                of
cong6stion        reduction           programs.

          California         has approved              several      measures            intended         to plan         for
congestion        relief.            For example,             California            now requires              urban
counties       to adopt         congestion           management plans                   to show how
congestion        will       be reduced.             These plans              are      rsguired         to be
consistent        with       regional        and statewide               transportation                 plans,

          Developing         effective         strategies           to       relieve       traffic         congestion
requires       the      cooperation          of     federal       , state        and local             govarments.
We are       pleased        to participate              in th6 Subcommittee98                         hearings      in
California        to     obtain       regional          views     as a forsrunnar                     of the     national
debate       on WEfTA’s reauthorization.                         In this         context,              I would like
to briefly        talk       about       W14TAgsr6authorization                        issu60.

5naffic  C-n.                            Feder&Lgtforts                 to    T*pme             &Q-
(GAO/PEKD-90-2,              Dee:     5,    1989).
          Mr. Chairman,                 as you know, lagielation                          authorizing           the
f6dsral          highway         and m6es transit               pr~gmme              Will      6Xpir6      n6xt       y6ar.
The nation's                 surface      transportation             problems               h6V6     fundam6nt6Zly
changed since                 the     programs          were initially               authorimd            in    1964.
With      this        in mind,          the    debate       has begun on how to                      etructurr          rmw
federal          surfacs          transportation             prograSS.

          In February                1990,     DOT iSSU6d its              etat6m6nt               of national
transportation                  policy,        Movinsr.                            This     l tat6m6nt         eat8     th6
framework             for     developing          new surface            tr6nsportation                  progrs~~,              In

June 1990,             the      California             Departmnt         of        Transportation              issued         its
report       BPQressm                             TrTChallanaes.                                          The report
details          Californians             recommndatione                 for
                                                                       a new national
transportation                  program.          It     was d6V6lOpsd through consultation
with      state,            regional,         and local        officials             and private           busineer
representatives                     from California            and throughout                  the    nation.

          With        respect         to urban          mass transit               programs,         we are       in the
process          of    identifying             and analyzing             l svsral           reauthorization
iSSU6S.            In analyzing               these      issues , WI vi11                 obtain      input       from
federal          agencies,            state     and 10cal          governments,                and the privatr
sector.            The iSeU6e w6 have identifbd                               to     dat6      includr         th6

       --   What are           the appropriate                  federal,       state,      and local
            govsrnment            roles       in planning,               ov6rs6eing,         and evaluating
            mass transit             projects?

       --   Should        mass transit               op6rating           assistance        b6 r6duc6d               or
            elininated            and local           e6tching           rrrquirurnts             incroa66d           or


       --   Can     intermodal             r6gional        traneport6tion               planning             approach68
            be adopted            to promote           the       ue6 of      a combination               of    highway
            and Sass transit                  systen       option6          to 8OlV6       traneportation
            problems           in urban            amas?         I%YUShould        state          and local
            government            planning          efforts        be fundsd          to   provide            incentives
            for     ensuring         regional          and intereodal              planning?

       --   TO    facilitate              implenenting            regional       (Lnd intrreodal
            planning,           should        federal           funding      rsguir6m6ntS               b6    Ch6ng6d

            to    allow        flexible        use of highway                and MSS         transit           funde?
            should        highway          trust      funds       b6 usad interchangeably                       by
            state      and local            governmnte             for     combined        transit            and
            highway        project8           in    Order to t6ilOr              tr6m3pOrtatiOn                 OptionS
            to their           specific        n66ds3

       AS   the     Congress         proceade          With       r6authorization,                 it    met        take
into   consideration              today'8          climat6        of fiscal       constraint.                  This
will   be the       climate        under which             th6     Subcommittee            will         b6

deliberating           r6aUthOriZing       mass transit                    programs       IWCt year.
Further,         becausa      of the massive          f6deral              budget     d6fiCit,          f6deral
funds      for    mass transit         programe       will           rerain     scarce           compared     vith
the   n66d       for   mass transit       SySt6mS          for        urban     and suburban
communities.            Therefore,       scarce       f6deral              lc~ss transit           r6sourca

must be spent           in the most 6fficient                    and economical                  manner

                                           -      -    -         -     -

        This      concluder      my testimony,               I will           be glad       to anewmr any
qu6stions         at   this    time.

Pfgurc   1

GAO Section 3 and Section 9
    Appropriations-Fy 86-90
             1.2 DalIart? In Billions
             1.1 -1--*1...-1--1.-3151.
               1966                    1907        1908   1989
               Fiscal Years                   .:

               -     Section 3-Capital
               - - - Section g-Capital
               -     Section 9-Opefating
Figure   2

GAO UMTA Oversight

               UMTA has several oversight
               mechanisms -
             l Grantee reports
             f Site visits
             * Preaward, triennial, and
               procurement system reviews
             l Independent annual audits
Figure   3

GAO Preliminary Results-
    Types of Grantee Mismanagemc
             l   Untimely grant closeout
             l   Improper charges (land acquisi
                 labor, material, etc.)
             l   Improper contracting
             9 Unnecessary purchases
Figure   4

GAO Active UMTA Mass Transit Granl
             Total $33.2 Billion Nationwide

               $3.6 Billion