Legal Handbook for the New Starts Process (2010)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

9 3. $25 Million Threshold Before SAFETEA-LU created the Small Starts pro- gram, the statute exempted a project from the New Starts process when the § 5309 assistance provided for a new fixed guideway capital project is less than $25 million. SAFETEA-LU added the Small Starts program and provided that the $25 million exemption would end once a final regulation applicable to Small Starts was issued.45 That regulation is on hold, and thus the $25 million threshold remains in effect. 4. New Starts Project Eligible Applicants Entities eligible to apply for and receive New Starts and Small Starts funds include a local governmental authority, including a political subdivision of a state or states; an Indian tribe; and a public corporation, board, or commission established under state law.46 CHAPTER II: FTA PROJECT EVALUATION AND RATING PROCESS A. Purpose and Statutory Basis Significant federal funds are made available by FTA for new fixed guideway investments at the local level. SAFETEA-LU, for example, authorizes $6.6 billion in total funding through FY Year 2009 for more than 330 possible New Starts projects identified or earmarked in the statute.47 All of those projects are not going to be funded; federal transit law creates detailed criteria a project must meet before it can be assured of funding. Any such New Starts project must emerge from a re- gional, multimodal transportation planning process and then proceed through the project development phase— Alternatives Analysis, PE, and Final Design—followed by, if all is well, a recommendation for funding by FTA in its Annual Report on New Starts and the execution of an FFGA. The process is long and complex. In presentations on the New Starts process, FTA staff emphasize that FTA’s goal is to fund meritorious projects by developing reliable information on project benefits and costs; en- suring that projects are treated equitably across the country; and facilitating communication among FTA, the transit industry, and Congress. Because discretionary federal funds are being made available, FTA’s administration of the New Starts pro- gram is closely watched and is not without controversy. Much attention has focused on FTA’s decision in its 2005 Dear Colleague letter48 and in its August 2007 45 49 U.S.C. § 5309(e)(1)(B). 46 49 U.S.C. § 5302(a)(6). 47 See § 3043, Project Authorizations for New Fixed Guide- way Projects, Pub. L. No. 109-59, 119 Stat. 1144 (2005). 48 FED. TRANSIT ADMIN., Changes to the New Starts Rating Process, Dear Colleague Letter (Apr. 29, 2005), available at http://www.fta.dot.gov/documents/Dear_Colleague_Letter_Apri l-29-2005.pdf . NPRM49 to place increased weight and attention on the cost-effectiveness criterion. This is, in part, why Con- gress put the NPRM on hold and why it added language in the SAFETEA-LU Technical Corrections bill to the effect that FTA must give comparable, but not necessar- ily equal, weight to each of the factors discussed below. FTA thus is engaged in a review of its New Starts pro- gram and is developing new guidance and new regula- tions to address the hold on its regulation and the new statutory language. In the meantime, FTA is expected to return generally to the multimeasure project evalua- tion approach it used before the 2005 Dear Colleague letter was issued. B. Project Evaluations—Criteria How does FTA decide whether or not to fund a par- ticular New Starts project? During the project develop- ment phase, a New Starts project is continuously evaluated by the FTA on the basis of a variety of statu- tory criteria. Based on these evaluations, FTA makes decisions about moving projects along through the pro- ject development process. Based on statutory require- ments, FTA uses two broad evaluation criteria, project justification and local financial commitment. The project justification criteria are specified in law50 and summarized in FTA guidance.51 They include the following: Mobility Improvements. FTA measures this by user benefits per passenger mile on the project, transit- dependent user benefits per passenger mile on the pro- ject, number of transit dependents using the project, and share of user benefits received by transit depend- ents compared to share of transit dependents in the region. Environmental Benefits. FTA considers the current air quality designation by the Environmental Protection Agency (EPA) and essentially provides that projects in nonattainment areas for any transportation-related pollutants receive a High rating, while projects in at- tainment areas receive a Medium rating. Cost Effectiveness. FTA measures this criterion as the cost per hour of travel time saved using the Trans- portation System User Benefit (TSUB) measure. (The next section of this Handbook, Project Ratings, dis- cusses legislation that effectively requires FTA to place less emphasis on the cost-effectiveness criterion.) TSUB was introduced in 2000–2001 and replaced FTA’s “in- cremental cost per incremental rider” measure. The TSUB is meant to reflect the significant user benefits of a new transit project based largely on projected time- savings. In brief, the TSUB is calculated by taking the total cost of building and operating a transit project and 49 72 Fed. Reg. 43328 (Aug. 3, 2007). 50 49 U.S.C. § 5309(d)(2)(B). 51 FED. TRANSIT ADMIN., 2009 NEW STARTS AND SMALL STARTS EVALUATION AND REPORTING PROCESS (2007 (as re- vised)), available at http://www.fta.dot.gov/planning/newstarts/planning_environme nt_9063.html.

10 dividing that by the estimated travel time riders would save under the project; the result essentially is how the project’s cost-effectiveness is determined. More specifically, a project sponsor uses local models to forecast ridership in the year 2030, the year chosen to estimate benefits over time. A Baseline Alternative assuming low-cost improvements to the transportation network is compared to the proposed New Starts pro- ject. Travel-time savings from a proposed transit project can result from a shorter wait, a shorter walk, or shorter in-vehicle times. Factors beyond time are also taken into account—travel time reliability and conven- ience, for example. FTA uses a software tool called Summit to analyze and report travel demand model results. Summit is designed to calculate and report the user benefit measure automatically. FTA introduced Summit to provide consistent reporting measures, add a degree of transparency, and level the playing field among projects. The TSUB currently does not quantify all benefits; for example, the travel-time savings to highway users resulting from less congestion because of the New Start project. Rather, FTA factors in a con- stant savings to all projects in this regard and is work- ing with FHWA to see if more specific data can be en- tered into its Summit software program to capture these savings. FTA’s cost-effectiveness review ulti- mately leads to a project cost per mile for each New Starts project. A project with a per-mile cost of under $11.99 is given the highest rating; a project that ex- ceeds $30 per mile is rated lowest. A medium rating is given to a project with a per-mile cost of $15.50 to $23.99. These numbers are adjusted annually for infla- tion. Finally, a project sponsor that has private sources of funding or private equity funding sources as part of its financial plan should discuss with FTA the possibility that the availability of those funding sources could lower its cost-effectiveness rating. FTA explored such an approach when it developed guidance in connection with its Public–Private Partnership Pilot Program.52 Operating Efficiencies. FTA measures this by system operating cost per passenger mile. Note that in its New Starts guidance,53 FTA has indicated that it would no longer evaluate operating efficiencies as a stand-alone criterion. Rather, FTA has concluded that the operating 52 See FTA’s Notice establishing its Public Private Partner- ship Pilot Program, 72 Fed. Reg. 2583, Jan. 19, 2007, and FTA’s discussion of this issue in its 2007 NPRM on New Starts (Arrangements under which private sector interests take re- sponsibility for the design, construction, operations, finance, and maintenance of projects can result in transferring much of the long term risk of project capital and operating costs to the pri- vate partner...As a result, projects which utilize such ap- proaches are likely to be rated better, because operating costs will be lower (producing better ratings of cost effectiveness), and the reliability of the estimates of such costs will be higher (pro- ducing higher ratings of reliability)). 72 Fed. Reg. 43328, 433334 (Aug. 3, 2007). The future of the “Penta P” program in the new administration is uncertain. 53 FED. TRANSIT ADMIN., supra note 51. efficiencies of proposed New Starts projects are ade- quately captured under FTA’s measure for cost- effectiveness. A project sponsor is free to show operat- ing efficiencies separately if it chooses. Transit-Supportive Land Use and Future Patterns. FTA measures this by reviewing existing land use poli- cies and future plans and policies. Transit-oriented de- velopment is encouraged. A key goal is to link mixed- use and high-density development in the transportation corridor to maintain riders and attract new ones. Economic Development Effects. This criterion was added by SAFETEA-LU. FTA continues to develop ways to measure and quantify the effects of economic devel- opment. Reliability of Forecasts. Although forecasting reli- ability is not specifically a project justification criterion, FTA continues to focus on the reliability of a project’s forecasts and works on ways to consider or measure the reliability of forecasts, including focusing on the statu- tory requirement for Before-and-After studies (see Chapter V.K) once a project is completed to compare project forecasts with actual experience. Other Factors. FTA also considers a variety of other factors when evaluating project justification, including the nature and extent of the transportation problem the project plans to address, and other factors the project sponsor believes make the case of the proposed project but are not captured elsewhere. In particular, FTA con- siders the substantive arguments made for the worthi- ness of a project in the “Making the Case” document a project sponsor develops, a brief (three-page) narrative designed to describe succinctly the benefits of the pro- posed project compared to its Baseline Alternative. While these multimodal measures are included in the statute, FTA over the past few years has focused mostly on the cost-effectiveness and land use criteria. As noted, however, Congress in 2008 directed FTA to give comparable, but not necessarily equal, weight to each project justification criteria in calculating the overall project rating.54 The local financial commitment criteria are specified in law55 and require an acceptable degree of local finan- cial commitment for the project. FTA generally gives a higher rating based on a higher non-New Starts share of funding. Many localities seek Federal New Starts funding, and the process is highly competitive. Having a strong local match commitment is critical for a project to proceed. While the statute requires a minimum of 20 percent local share, in fact localities provide approxi- mately 50 percent of total project cost. Without a strong local share commitment, a project is unlikely to receive federal support. The proposed local source of capital and operating fi- nancing must be stable, reliable, and available within the proposed project timetable. A variety of resources may be used to provide local financing beyond the Fed- 54 The SAFETEA-LU Technical Corrections Act of 2008, Pub. L. No. 110-244, 122 Stat. 1572 (2008). 55 49 U.S.C. § 5309(d)(4)(A).

11 eral New Starts § 5309 share, including dedicated local sales or property taxes, flexing federal funds from the Surface Transportation Program administered by FHWA, toll revenues, and dedicated state funding. Moreover, the statute requires that “[l]ocal resources are available to recapitalize and operate the overall proposed public transportation system, including essen- tial feeder bus and other services necessary to achieve the projected ridership levels without requiring a reduc- tion in existing public transportation services or level of service to operate the proposed project.”56 This language was added by SAFETEA-LU. FTA has been placing increasing emphasis on this element of a proposed pro- ject’s local financial commitment and will review a pro- ject carefully to make certain that its implementation will not detract from or harm existing transit services. In short, FTA briefly summarizes the measures to be used for the evaluation of the local financial commit- ment to a proposed New Starts project in the FY 2009 evaluation cycle as follows:57 First, the local share rating, which takes into account the amount of the proposed share of total project costs from sources other than the § 5309 New Starts or Small Starts program, including federal formula and flexible funds, the local match required by federal law, and any additional capital funding; Second, the capital finance plan rating, which reviews the strength, stability, and reliability of the proposed capital financial plan; and Third, the operating finance plan rating, which reviews the ability of the sponsoring agency to fund operation and maintenance of the entire system as planned once the project is built. C. Project Ratings Each of the project justification criteria and the local financial criteria is given an individual rating. As re- quired by statute,58 FTA assigns ratings of High, Me- dium-High, Medium, Medium-Low, or Low throughout the process as information on different elements of the project is refined and updated. This five-level system mandated by SAFETEA-LU replaces the three-level system required under TEA-21 of Highly Recom- mended, Recommended, and Not Recommended. It is important to understand that these ratings can and do change as information is being updated, refined, and more focused the farther along a project is in the project development process. The overall project rating is de- termined by averaging the ratings for project justifica- tion and local financial commitment. Moreover, the statute specifically provides that a project is ready for an FFGA only if it “…has been rated as medium, medium-high, or high….”59 56 49 U.S.C. § 5309(d)(4)(A)(iii). 57 FED. TRANSIT ADMIN., supra note 51. 58 49 U.S.C. § 5309(d)(5)(B). 59 49 U.S.C. § 5309(d)(B)(ii). The various ratings are then combined by FTA into summary project justification and finance ratings for each New Starts project under review. How the differ- ent ratings are weighted is thus critically important. FTA has often stressed the importance of the cost- effectiveness criteria. Indeed, the FTA’s NPRM on New Starts issued in August 200760 would have imposed a weighting of 50 percent on the cost-effective criterion alone. As noted, FTA has withdrawn this rulemaking.61 Because of concern about how much weight FTA would have placed on the cost-effectiveness criterion, Congress included a provision addressing this issue in the SAFETEA-LU Technical Corrections Act of 2008.62 It added at the end of the statutory ratings provision a requirement that FTA “…shall give comparable, but not necessarily equal, numerical weight to each project jus- tification criteria in calculating the overall project rat- ing.”63 FTA will undertake new rulemaking to address this and other requirements, and will provide interim guidance in the meantime. Indeed, on May 19, 2009, FTA published a Federal Register Notice of Availability of Proposed Guidance on New Starts/Small Starts Poli- cies and Procedures and Request for Comments.64 In that notice, FTA proposed to make significant changes in the weight it assigns the different criterion, as fol- lows: mobility improvements (20 percent), environ- mental benefits (10 percent), cost effectiveness (20 per- cent), operating efficiencies (10 percent), economic development effects (20 percent), and land use policies and future patterns supportive of public transportation (20 percent). For Small Starts, FTA proposed that the project justification rating of a project seeking Small Starts funding be based on ratings for the following criteria with the proposed weights shown in parenthe- ses: cost effectiveness (one-third), economic develop- ment effects (one-third), and land use policies suppor- tive of public transportation (one-third). FTA has noted that when the average of its ratings is unclear (for example, a project justification rating of Medium-High and a local financial commitment rating of Medium), it will round up the overall rating to the higher rating (e.g., project justification rating of Me- dium-High and local financial commitment rating of Medium yields an overall rating of Medium-High) ex- cept in the following circumstances: A Medium overall rating requires a rating of at least Medium for both project justification and local financial commitment. A Medium-Low overall rating requires a rating of at least Medium-Low for both project justification and local financial commitment.65 60 72 Fed. Reg. 43328 (Aug. 3, 2007). 61 74 Fed. Reg. 7388 (Feb. 17, 2009). 62 The SAFETEA-LU Technical Corrections Act of 2008, Pub. L. No. 110-244, 122 Stat. 1572 (2008). 63 Id. 64 74 Fed. Reg. 23776 (May 19, 2009). 65 FED. TRANSIT ADMIN., ANNUAL REPORT ON FUNDING RECOMMENDATIONS, PROPOSED ALLOCATIONS OF FUNDS FOR