UMTA Project Oversight and Mass Transit Issues

Published by the Government Accountability Office on 1990-08-07.

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

                    United States General Accounting OIlIce / ‘;/ / q 7 S

                                                                   llllllllll Ill II

For Release         lUMTA Project   Oversight   and Mass Transit     Issues
On Delivery
Expected at
9:30 a.m., PDT
August 7, 1990

                     Statement of
                     John W. Hill, Jr., Associate Director
                     Resources, Community, and Economic Development              Division

                     Before the
                     Subcommittee on Housing and Urban Affairs
                     Committee on Banking, Housing, and Urban Affairs
                     United States Senate
                     In Los Angeles, California


GAO/T-REED-go:103                                                                        160(w7)
                                     I                                     GAO   FOraP
Mr. Chairman and Members of the Subcommittee:

          I am pleased           to be here today to discuss                           our work assessing
local      transit          authorities1             management of the Department                        of
Transportation's                (DOT) Urban Mass Transportation                            Administration
(UMTA) grants               and how well             UMTA is overseeing                active      grants
totaling       about         $33 billion             nationwide            as of December 31, 1989.
These grants           have been awarded to about 700 state                                 and local
grantees       to help          fund over 4,400 mass transit                           projects.          During
the 19808, UMTA limited                       its      oversight           of grantees      by allowing
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         programs           are at high-risk           for
mismanagement because:

        -- Grantees,             in some cases,                    were not using        grant      funds       for
             project          purposes         or according               to federal       requirements
             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.

              -- UMTA's oversight                  mechanisms may not be effective                       in
                  detecting      grantees            noncompliance             with     grant      conditions        or
                  federal      requirements.                 Our prior         reports         and current         work
                  indicate      that        this     occurred            because UMTA's oversight
                  tools      were not effectively                    or thoroughly             used.    DOT has
                  recognized         that     UMTA has a material                     weakness with          the
                  oversight      of its            grant     programs.

              Our testimony          will     also         include        a discussion          of UMTA grants
    in California,            Los Angeles            area mass transit                 projects,       and
    traffic       congestion.           Further,            we will        offer      issues     for
.   Subcommittee           consideration             during        its     deliberations           of UMTA's

              Now I would like              to provide            a brief      background          on UMTA's
    grant      programs       and its        management and oversight                      of federal         mass
    transit      grants.


              Under the Urban Mass Transportation                              Act of 1964, as amended,
    UMTA is authorized               to provide            assistance          for    developing       and
    operating       mass transportation                     systems through             grants     to state        and
    local      entities--generally                 transit         authorities--the              grantees.
    UMTA provides           grants      primarily            through        two programs--the            Section
    3 Digcretionary            Grant program and the Section                            9 Formula Grant


    p r 0 g r a m .l       F u n d s fro m b o th p r o g r a m s a r e u s e d to c o n s tru c t                new
     .,     .,
    transit           projects,         s u c h a s light         rail      system s ; refurbish                existing
    rail         system s : or p u r c h a s e b u s e s .            In a d d i tio n ,      fo r m u l a g r a n t
    fu n d s a r e u s e d to s u p p o r t th e o p e r a tio n                 o f m a s s transit            system s .

                 O ver h a l f     o f th e discretio n a r y             g r a n ts a r e e a r m a r k e d b y th e
    C o n g r e s s for         specific        m a s s transit          projects:         th e r e m a i n d e r a r e
    selecte d          a n d a w a r d e d b y U M T A Is A d m inistrator.                   F o r m u l a g r a n ts,      as
    th e n a m e s u g g e s ts,         a r e a p p o r tio n e d       among urban areas by a
    sta tu tory          fo r m u l a b a s e d o n p o p u l a tio n          d a ta a n d transit            service
    a n d ridership              sta tistics.            D e p e n d i n g u p o n th e typ e o f g r a n t,
    g r a n te e s c o n trib u te           m a tch i n g fu n d s th a t usually              r a n g e fro m 2 0 ,to
    5 0 p e r c e n t o f th e n e t project                  cost.        U M T Acurrently            oversees over
    $ 3 3 billion              in a c tive      g r a n ts n a tio n w i d e .      D u r i n g fiscal          years
    1 9 8 6 th r o u g h 1 9 9 0 , U M T Afu n d i n g w ill               p r o v i d e a m e s tim a te d       $ 1 3 .6
    billion          in sectio n         3 a n d 9 g r a n ts,           or a b o u t $ 2 .7 billion             annually
    (see fig .           1).

              U M T A , a s th e a g e n c y th a t           reviews a n d a p p r o v e s m a s s transit
    g r a n ts,      is responsible              for e n s u r i n g th a t        g r a n te e s a r e c o m p l y i n g
    w ith     th e various            r e q u i r e m e n ts stip u l a te d       in th e U r b a n M a s s
    T r a n s p o r ta tio n       A ct a n d in u n i fo r m g r a n t r e g u l a tio n s           th a t     apply
    g o v e r n m e n tw i d e .      T h e u n i fo r m g r a n t r e g u l a tio n s        include,          among

    lIn a d d i tio n , U M T Aa d m inisters several smaller g r a n t p r o g r a m s for
    e fforts      s u c h a s m a s s transit p l a n n i n g , d e s i g n i n g a n d d e v e l o p i n g
    m a s s , transit     for th e h a n d i c a p p e d a n d elderly, a n d s u p p o r tin g m a s s
    transit       research.
other      things,           federal      purchasing          and contracting            standards          for
recipients           of federal            funds.      In lieu          of more direct           oversight         to
ensure         compliance,             UMTA relies       on grantees'             certifying        that     they-
-the     grantees --will                comply with       all        applicable       federal
requirements.                 To supplement           self-certification               and oversee
grantees'         compliance,             UMTA's regional               offices     have a number of
monitoring          tools         including         grantee         financial      and progress
reports,         site        visits,      annual      audits,         and triennial            reviews      (see
fig.     2).

         The UMTA work that                   we have underway focuses                   on determining
the extent          of grantees I noncompliance                         and the reasons           for UMTA's
oversight         weaknesses.               Reviews have started                  or will       soon start         in
UMTA 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.


                                   NT OF GRANT FUNDS

        Our work at 2 grantees                       and analysis           of 25 OIG audit              reports
identified          grantees'            questionable           use of over $100 million                   in
grant      funds.        This work showed that                       grantees      had not always
complied        with     grant          conditions      and federal             requirements         even
though       they certified               that      they had internal              management control

systems in place            to ensure such compliance                        (see fig.        3).
Following         are    a few examples            of these        findings:

      -- The OIG reported                  that      one UMTA grantee               had been
            improperly            charging        indirect,        services,         handling,        and
            material        costs       to UMTA projects             since      1974.         This
            resulted        in an estimated                $17.9 million            in overcharges              to
            UMTA grants              even though       the OIG had repeatedly                    brought
            this        problem       to the attention             of the grantee             and UMTA.
            Neither        UMTA nor the grantee                   has, as yet,          corrected          the

      -- According           to another            OIG report,         a grantee         had included
            land acquisition               and construction                claims     of $6.3 million
            that        were not in the grant                 agreement        and its        procedures
            for     obtaining          a $29.5 million             grant     were questioned.                   The
            transit        agency reimbursed               UMTA $6.3 million              for       the
            questionably              used funds.

      -- We and the OIG determined                         that     another         grantee      may have
            used UMTA-funded inventory                        on non-grant           projects.            The
            grantee        consequently           may have spent about                  $4 million          for
            unnecessary              purchases.        UMTA is negotiating                with       the
            grantee        to recover        unallowable            costs.

   L -- An:OIG survey                  of grant       close-out       practices          in one UMTA

              region      disclosed           that     grantees       had not taken          sufficient
              action      to close          out grants          at project        completion.            Timely
              grant     close-outs            are particularly              important       because
              unused funds that                should        be returned        to UMTA are not
              available       for     other          approved     projects.           We found           .: ,, .~:$??. .
                                                                                                                   1.. 1
              indications           that     grantee         delays       in initiating         grant
            closeouts        may be a problem                   in two other          UMTA regions.
            UMTA has also              indicated         that     grantee       close-outs        may be a
            problem        nationwide.

        I would now like              to focus          on UMTA’s oversight                of federal
mass transit           grantees.

   TA 077-T               OF GRANT=

       In 1985, we reported                    that     UMTA needed better                assurances       that
grantees      complied       with          federal      reguirements.2                We also     supported
UMTA's use of triennial                     reviews      that     were mandated by the Surface
Transportation            Assistance          Act of 1982.            Although         at the time of             .
our work,       UMTA could           not provide             us information           on the focus         of
the reviews        or how they would be conducted,                             we believed        that
triennial       reviews,       if     properly          implemented,           would afford        UMTA an
opportunity        to supplement              their      existing         oversight       mechanisms for
ensuring      grantees'       compliance              with      federal      requirements.
However,       the triennial           reviews      do not appear to have been
properly       implemented.

         In March 1989, we reported                  on UMTA's oversight                of the
Southeastern           Pennsylvania        Transportation            Authority's             (SEPTA)
procurement           activities.3         Major procurement                problems       had been
identified        in a 1987 UMTA-funded independent                          procurement           review.
Our review       was directed           toward      determining            why UMTA’s        own
oversight       tools      had failed          to detect     these problems.

         Our report        disclosed       that     UMTA's triennial              review      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's compliance                with    federal
procurement           reguirements.          We concluded           that     UMTAls monitoring
procedures       were inadequate               to detect     the weaknesses             in SEFTA's
procurement           system and made several               recommendations             to the
Secretary       of Transportation               to better       focus UMTA's monitoring
tools     to detect        procurement          deficiencies.

         In addition,         UMTA requires          grantees        to submit         quarterly
financial       and progress           reports.          However,     at one UMTA region               we
found that       reports         submitted        by some grantees            either     did not

3-T               it Grants. . UMTA Needs o Improve Procur ment Monitori                                     ng
at Local       Trgnsit  Authoritv   (GAO&D-89-94,   Mar. 3:, 1989):
contain      enough information              to be used as a monitoring                     tool    or
UMTA did not use them for                  this      purpose.          The acting       UMTA regional
manager told         us that      these      reports          did not contain         the
information         needed to detect              grantee        problems.

         Based upon this          work and that               of the OIG, DOT identified
UMTA's oversight          of grantees             as a material  internal             control
                                                                 _,'I .,r ....-1
                                                                                       ,_ ~ .... .
weakness in its          1989 report             to the President required by the
Federal     Managers'       Financial            Integrity    Act of 1982, as amended.
                                                                 ,,j  ".#I
One reason UMTA cited              for     its      oversight   problems is its ever-
growing     workload      and shrinking              staff.          The report      states      that "In
                                                                                               *r    -7'
order     to improve project              oversight,           additional        staffing      is
needed."          To correct      this     management control                 weakness,       the report
states     that     WMTA will        require         additional         resources       in both FY
1991 and 1992."

         In its     description          of the problem,              the report      states       that
"The number of grants              as well         as the dollar              amount of UMTA's
grant     program has increased.                   Currently,          [UMTA grants         management
staff     are carrying]         double      the case load of the early                      198O's.@'
In its     1991 budget,         UMTA requested                an additional        10 staff        for
grantee     oversight.

         Since we are in California,                       I thought     it    would be useful            to
provide     some background              information           on UMTA grants         for     California
mas$ transit         projects      and projects               that    are being      planned       and

constructed           in the Los Angeles           area.

                             MASS TWIT            PROJECTS

           As of December 31, 1989, UMTA was overseeing                           about $3.6
billion        in active         grants     to California       grantees.         This represents
about       11 percent       of the active         UMTA grants          nationwide      (see fig.
4).        The Los Angeles/Long              Beach metropolitan           area grantees
received        about     $2 billion,         or about 56 percent             of the then active
grants       in California.

           UMTA awarded the largest               active     California        grants     to the
Southern        California         Rapid Transit         District      and the Los Angeles
County Transportation                 Commission for         constructing        the first        two
segments of Metro Rail.                     These two segments are expected                   to cost
about       $2.83 billion.            Of this     amount, UMTA has committed                  $1.36
billion,        about     48 percent         of the cost.           The Commission is seeking
$688 million            from UMTA for         the third      Metro Rail        segment,       which is
expected        to cost      $1.09 billion.

           Although      Los Angeles         area grantees          receive    significant        UMTA
funding,        these     funds do not represent              the major source            of their
mass transit            funding.          For example,      the Los Angeles          County
Transportation            Commission plans          work on 16 mass transit                  projects
during       fiscal      years     1991 through         1997, at a cost         of $7.1 billion.
Of +this amount,           the Commission expects               to receive       federal       funding

of $2.1 billion                for       three     Metro       Rail     projects,           provided      federal
funds are available.                       The Commission expects                     the remaining           13
projects          to cost       about $3.2 billion                     and be entirely            financed         by
state       and local          funds.            The recently           completed           Los Angeles/Long
Beach light            rail     is an example of a project                          built      without      federal

           Mr.    Chairman,          I would 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.4        Traffic         congestion
facing       metropolitan                areas cannot           be solved          by any single
solution,            such as expanded mass transit                          systems.           Absent      other
actions,          such as dramatic                 increases           in the price           of automobile
commuting,            people       using     mass transit               instead      of their          automobiles
will       be replaced          in the long run by new automobile                                users.

4Traffic          Congestion         .      rends,         Measures.        and Effects           (GAO/PEMD-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 Administration,                 effective       congestion        reduction
requires      the balanced           use of a variety            of strategies         and
techniques       rather       than relying          on any one in particular.                  The
report     recommended that             DOT develop         an integrated         federal
congestion-reduction                strategy      and use appropriate             evaluation
mechanisms to determine                 the effectiveness            of congestion           reduction

         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 required         to be
consistent       with     regional       and statewide           transportation         plans.

         Developing       effective        strategies        to relieve      traffic
congestion       requires          the cooperation          of federal,      state      and local
governments.            We are pleased           to participate         in the Subcommittee's
hearings      in California            to obtain      regional       views as a forerunner
of the national           debate       on UMTA’s reauthorization.                  In this

5-1~    Conaestlon
                 ' .   ederal Efforts                         to Imrove       Mobilitv
(GAO/PEMD-90-2, Dec. 5, 1989).
context,           I would like         to briefly         talk         about UMTA's
reauthorization              issues.

                      ION ISSUES

          Mr. Chairman,           as you know, legislation                   authorizing          the
federal       highway      and mass transit            programs will             expire      next year.
The nation's           surface      transportation               problems     have fundamentally
changed since            the programs were initially                       authorized       in 1964..
With this          in mind,       the debate has begun on how to structure                              new
federal       surface      transportation            programs.

          In February         1990, DOT issued             its     statement         of national
transportation            policy,       Novina America .                This statement           sets the
framework for developing                  new surface             transportation          programs.           In
June 1990, the California                      Department         of Transportation              issu&d'its
report      &&j& ;.                                                                         The ::eport
details       California's          recommendations               for    a new national
transportation            program.        It     was developed             through      consultation
with      state,      regional,        and local      officials            and private       business
representatives            from California            and throughout             the nation.

          With respect        to urban mass transit                     programs,      we are in the
process       of identifying            and analyzing             several     reauthorization
issues.        In analyzing            these     issues,         we will     obtain      input     from
federal       agencies,       state      and local         governments,          and the private

sector.         The issues       we have identified                  to date       include     the

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


           -- Should mass transit              operating            assistance       be reduced or
               eliminated       and local          matching         requirements        increased          or

           -- Can intermodal            regional      transportation               planning
              approaches        be adopted          to promote the use of a combination
              of highway        and mass transit              system options            to solve
              transportation            problems      in urban areas?                How should        state
              and local       government        planning            efforts      be funded to
              provide       incentives       for     ensuring         regional       and intermodal

           -- To facilitate         implementing            regional          and intermodal
              planning,       should      federal      funding          requirements          be changed
              to allow       flexible      use of highway and mass transit                           funds?
              Should highway trust                 funds be used interchangeably                      by
              state     and local        governments          for     combined transit           and
              highway projects            in order        to tailor           transportation
       1      options       to their      specific        needs?

        As the      Congress proceeds          with   reauthorization,            it    must take
into    consideration       today's     climate       of fiscal       constraint.             This
will    be the climate          under which the Subcommittee               will        be
deliberating         reauthorizing      mass transit           programs next year.
Further,         because of the massive federal                budget deficit,              federal
funds      for   mass transit      programs will        remain scarce         compared with
the need for mass transit              systems for         urban and suburban
communities.          Therefore,      scarce     federal       mass transit         resources
must be spent         in the most efficient            and economical         manner
possible.                                                      0

        This concludes          my testimony.         I will       be glad to answer any
questions        at this   time.

Figure   1

GAO Section 3 and Section 9
     *       Appropriations-Fy 86-90
             1.2 Dollars In Billions
             1.1 --111---1*1-11*11-----
               1986                  1987   1968   1989
               Fiscal Years
               -     Section 3-Capital
               - - - Section g-capital
               -     Section g-operating
Figure   2

GAO UMTA Oversight

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

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

GAO Active UMTA Mass Transit Grants
         f       Total $33.2 Billion Nationwide

                   $3.6 Billion