Regional Alliance For Transit
To: Work Program Committee Chair J. Baker & members of the Committee
Date: 11 December 1997
Subject: Agenda item 3, MTC-BART JPA
A financing proposal without numbers draws attention to itself. Staffs memorandum does not give an impression about how much money will be borrowed to meet expenditures pending receipt of committed cash. It also does not provide the public with information about the amounts of interest that will be owed on borrowings related to the Millbrae extension. We note that when referring to federal funds, the word commitment is not used without a modifier in the Millbrae FFGA:This contingent commitment of funds under 49 U.S.C. §5309(g) does not constitute an obligation of the United States.
Last spring, BART released a report entitled BARTSan Francisco Airport Extension Project Capital and Operating Finance Plan, April 1997. It is clear from it that BART must borrow money to build the extension. In the report, BART estimated that debt service would total $24 million. There were two requirements that had to be met to limit the interest to $24 million: 1) funding for the project had to be as predicted as to timing and amounts and 2) costs could not rise. In the eight months since the reports release, the funding has been about half that expected and costs have risen significantly. The $24 million estimated by BART is no longer a reasonable figure.
In 1996, the General Accounting Office developed two alternative funding scenarios to that are presented in summary in the April BART report. The more conservative of the GAO scenarios assumed BARTs debt service for the project would amount to $53 million. An underlying assumption was that BART would receive $55 million from the federal government this current fiscal year. The amount that was awarded two months ago was just $29.9 million, about $25 million less than expected. Therefore, even the conservative GAO scenario is no longer applicable.
According to the BART report, from fiscal years 1994 through 1997 the Millbrae project (tied in with Tasman) has received less funding than expected. Now we know this is true for fiscal year 1998 as well. Is there a plan to deal with the funding shortfalls besides hurling regional funds at the project in piecemeal fashion? What other projects in the region will be sacrificed to pay the interest on BARTs growing indebtedness? The numbers are getting larger all the timeif federal funds received are half of what BART expects through fiscal year 2003, the amount BART will need to borrow could be over $300 million.
According to the San Francisco Independent newspaper (December 2, 1997), the low bid for line section work was considerably more than BARTs estimate. Rather than $410 million, the low bid on this one project segment is $522 million. Thus, costs have risen $112 million. Does this mean another $112 million will be borrowed by BART? We understand the average cost overrun on the three previous BART extensions was 70%; $112 million is about an 11% increase, so there may be additional overruns, given the history of BARTs cost estimates. Is there a plan to deal with cost overruns on this project? What projects in the region will be sacrificed to pay for cost overruns?
Combining the known shortfall this year in federal funding of $24.9 million with the $112 million cost overrun, the cost of the Millbrae project has increased by $137 million. Every month since BARTs April financial report the funding requirement has grown by $17 million.
BARTs April report lists three sources of funds to help cover cost overruns. These appear to be inadequate for the job at hand. A surcharge could be levied at Daly City station to raise $2.5 million a year, which BART would bond against to raise $32.5 million in debt. This increase in BARTs indebtedness could cover 29% of the cost overrun on the line section.
A second possible way to cover cost overruns cited by BART is to levy a surcharge at the airport terminal. While reducing ridership, the surcharge would raise about $3.5 million per year. This stream of cash flows could be used to issue another $32.5 million in debt. This debt, along with the Daly City surcharge debt, could cover 58% of the $112 million line section cost overrun.
Another $7.8 million could be raised by bonding against advertising revenues and by levying a parking fee at San Mateo County stations. Combined with the other two debts, BART can cover just 65% of the line section cost overrun. No other sources for covering cost overruns are identified in the April report.
RAFT is concerned that the region is not planning systematically for reduced revenue flows and extra costs related to this large project to the airport and to Millbrae. RAFT does not want to see other transit systems such as the SF Muni hurt by chronic, unanticipated cash flow needs of the Millbrae project.
The staff memorandum also mentions that BART may want to utilize commercial paper borrowings, through the JPA, for other projects besides Millbrae. Again, how much money may be borrowed and how will BART pay the interest? The Commissions GRAC notes that BART has a line item in its SRTP called additional cost containment and revenue enhancements. Any debt service added as a result of the issuance of commercial paper will make the ten year operating budget more out of balance than it appears already. Is there a plan for BART to retire any commercial paper issued by the JPA, or will it just be converted to long term debt?