Regional Alliance For Transit
To: Work Program Committee Chair J. Baker & members of the Committee
Date: 10 April 1998
Subject: Agenda item 8, BART-MTC JPA
RAFT does not want to see other transit systems such as SF Muni, AC Transit and samTrans hurt by unanticipated, chronic and sizable cash flow demands of the Millbrae project. MTC should make sure BARTs financial problems do not jeopardize other transit systems.
Since BARTs previous request to reactivate the San Francisco Bay Area Transit Financing Authority (WPC, December 1997), three events have occurred to make its plan yet more troublesome for regional policy makers.
1. In the memorandum from the Executive Director no mention is made of a report by the United States General Accounting Office on eight large transportation projects (GAO/RCED-98-64) released two months ago to the House of Representatives. The first chapter is devoted to the BART project. In the reports summary, the GAO writes:
Despite the large federal commitment, the transit systems finance plan projects annual cash shortfalls that will peak at $184 million in 2001. Accordingly, the transit system has established a short-term borrowing program to address these financing gaps. However, the financing gap may be larger than projected in the transit systems most recent finance plan because the plan assumes higher federal contributions than those specified in the grant agreement. As a result, cash shortfalls could reach almost $290 million, and the transit system may need an additional $29 million to finance these shortfalls.
In calculating the financing gap, GAO used BARTs own cost estimate of the contract for line, trackwork and systems. The contract was let after the GAO report was prepared, and we now know the actual cost overrun on just this one contract is $112 million. The GAO report says the financing gaps may be more than double what BART estimated, but with the first cost overrun the gaps may be even greater than those stated by GAO.
As a debtor BART must pay interest and repay the principal on its borrowings through the BART-MTC JPA. BART should show that it can afford to do both without having to: 1) cut service; 2) delay further the vital rehabilitation program; or 3) raid the finances of other transit systems.
BARTs SRTP (October 1997) shows an unusual line item in its ten year pro forma called Additional Cost Containment & Revenue Enhancements. The same years (2001-2004) that BART is expecting to pay increased interest costs on the JPAs commercial paper ($27 million) are the years that BART needs to find $70 million to balance its operating budgets. BARTs operating budgets could be nearly $100 million in the red over a 4 year period.
2. While BART today approaches WPC for permission to increase the budget for Millbrae, it is deferring, again, its own vital rehabilitation program. Consider that since BART came before WPC in December, it has now added seismic projects totalling $245 million to its system rehabilitation program. Not one dollar has been identified to pay for these new life-safety programs.
Exclusive of the seismic programs, unfunded priority programs identified in the ten year Capital Improvement Program by BART just last October amount to more than $550 million. So while BART attempts to go deeper into debt to build the Millbrae extension, it is at a loss to find funding for nearly $800 million in vital system rehabilitation work. BART is going deeper into debt to build to Millbrae while it is putting its existing and expensive system at risk.
3. Since Decembers WPC meeting, BART has begun to secure additional fundsthe amount is in question, but about $400 millionfor two projects in Alameda County, an extension to Warm Springs and an extension to the Oakland Airport. Earmarks approved by the House of Representatives last month include funds to prepare alternatives analyses for both proposed extensions. What is the priority for BARTcost ineffective expansion or system rehabilitation?
Then there is the outstanding unaddressed issue of just why BART needs MTC to sign on as partner to borrow up to $300 million via commercial paper. Is the need for a JPA somehow related to bond covenants on the tremendous amount of already outstanding long term debt? Given BARTs debt load and operating budget deficits, what value should be assigned to its guarantee to indemnify MTC?