November 28, 2018

Is the Federal Transit Administration’s Capital Investment Grant (CIG) program sitting on over a billion dollars of funding provided by Congress instead of providing that money to subway, light rail, and bus rapid transit projects across the country? Or is the CIG program a ticking time bomb with nearly $5 billion in unfunded liabilities that will come due in future years, when future Congresses are not legally bound to make good on those promises?

The answer is “both” – depending on how you look at it. But examining at the unusual way in which the CIG program is set up also raises a larger question of why transportation programs are allowed to run up such unfunded liabilities in a way available to no other federal programs.

As soon as this week, the FTA is expected to sign its first full funding grant agreement (FFGA) for a “new start” transit project in more than a year, for the Santa Ana, California streetcar system. The Seattle Times reported on November 19 that FTA was 30 days away from signing a much larger FFGA for Sound Transit’s Lynnwood Link light rail extension. And earlier today, FTA announced that it was allocating appropriations towards the next segment of the Los Angeles Westside Purple Line extension and three much smaller projects (the Tempe, AZ streetcar, the Minneapolis Orange Line BRT, and the Dallas DART platform upgrades)  – which, they press release says, means that “the present administration is committing to execute an additional four agreements for $1.5 billion in CIG funding if those projects continue to meet the CIG program requirements.”

The new grant agreements and funding announcements provide a good opportunity to re-examine the funding status, and long-term financial stability, of these programs.

The CIG program. The Capital Investment Grants program, established under 49 U.S.C. §5309, is actually three separate programs, all funded by annual discretionary appropriations to the same budget account:

• “New starts.” This longstanding program funds projects for new transit systems, or new operable segments of existing transit systems. They have to be “fixed guideway” systems which means heavy rail, light rail, streetcar, or bus rapid transit with a dedicated right-of-way. And new starts are so expensive that they require multi-year promises of federal funding, the schedule for which is laid out in a full funding grant agreement (FFGA) signed by FTA and the transit agency.
• “Core capacity.” This program was created in the 2012 MAP-21 law because Chicago wanted federal money for some projects that weren’t going to add new lines or new stations – but would upgrade existing lines and stations so they could accommodate more passengers. A project that increases the capacity of an existing corridor by at least 10 percent qualifies. These projects are also big and expensive and usually require multi-year construction agreements.
• “Small starts.” These are like new starts, but they require less than $100 million in federal CIG funding (or the total project capital cost is under $300 million), so they can usually be paid off in a single year of federal appropriations, and their approval process by FTA takes less time.

Unallocated/unobligated funding. The pro-transit advocacy group Transportation for America has been running a Twitter campaign against the Trump DOT all year, running a ticking clock on their website based on when the fiscal 2018 omnibus appropriations bill was enacted and claiming that $1.8 billion in FY 2017 and 2018 CIG funding is “in FTA’s hands” and has not been obligated for specific projects, via signed grant agreements, in a timely manner.

(Legally speaking, there is no clock on the FY 2017 money – it is available “until expended,” which means until the sun burns out. And while Congress did set a clock on the obligation of some of the FY 2018 money, the first deadline isn’t until December 31, 2019, so Congress clearly wasn’t expecting much of the money to be obligated in the first few months after enactment.)

In terms of enacted appropriations, once the Santa Ana and Seattle Lynnwood agreements are signed in the coming days, here is ETW‘s calculation of the amount of unallocated money provided for each of the three CIG programs in the 2017 and 2018 appropriations acts, versus the amounts that have been dedicated to specific projects via the signing of a grant agreement since the appropriations laws were enacted:

By our counting, FTA will indeed have close to $1.4 billion in federal appropriations without grant agreements for the CIG account after the next two grant agreements are signed. If the four projects in today’s announcement get their grant agreements formally signed, this will deduct another $100 million from FY17-18 new starts funding, another $51.2 million from FY17-18 core capacity, and another $149.1 million from FY17-18 small starts, reducing the uncommitted balances to $110 million, $597.4 million, and $351.8 million, respectively. But nothing is official, or even quasi-official, (see bel0w)  until the grant agreements get signed.

But it is more accurate to break this up into three separate amounts – $210 million on-hand for future new start project payments, $647 million on-hand for future core capacity project payments, and $501 million on-hand for future small starts. We can take those in reverse order.

Small starts. T4A’s points are most aptly taken regarding the small starts program. While Transportation Secretary Chao, in hearings before Congress, has tried to argue against signing multi-year FFGAs in the absence of on-hand appropriations (more on that below), that argument doesn’t apply to one-off small start projects. FTA’s most recent annual report on the CIG program shows at least 25 small start projects in Table 2A with an overall project rating of at least “medium” or higher. None have a total CIG cost share over $100 million, and many cost far less than that. (five of those got signed grant agreements since that report was issued). If FTA really decided to make it a priority, they could work with transit agencies to sign even more small start grant agreements in the coming months and draw down that $501 million in uncommitted funding fairly quickly, and as mentioned above, today’s announcements could add two new projects to the list at about $75 million in federal CIG funding apiece in the coming months. There’s no reason not to sign agreements committing FY 2017 and 2018 appropriations to small starts the minute the projects are ready.

Core capacity. Both new starts and core capacity function on a “crawl before you walk” system – potential projects have to be approved by the FTA to go into a “project development” phase, and then if the bugs get worked out, the project is approved to go into the next phase, “engineering.” Only after graduating from both of those phases can a project get a construction grant agreement signed.

In the case of the core capacity program, there are two projects that currently have grant agreements (Caltrain Peninsula Electrification, and Chicago Red/Blue Line Modernization). There are only two other core capacity projects in the engineering phase, and they are both relatively small – between the two of them, they only need $46 million in additional federal appropriations (in both cases, Congress enacted money dedicated to those projects in past years to bank it while those Senators had it available to them).

According to the FTA website, none of the other core capacity projects have yet progressed to the engineering phase, meaning that they are not yet eligible for construction grant agreements. So, legally, FTA cannot obligate $603 million of that $649 million until the projects get farther along in the environmental permitting and local finance/participation processes.

The fact that there is over $600 million in core capacity money just sitting around is a historical aberration and can be solely attributed to Rep. Rodney Frelinghuysen (R-NJ), the outing chairman of the House Appropriations Committee, trying to stockpile money that will eventually be spent on the Portal North Bridge replacement, part of the mammoth Gateway Program of passenger rail upgrades in New York and New Jersey. Portal North, which should be the next core capacity project in line to get a grant agreement, wants an eventual federal CIG share of $772 million for the project.

But now we get into the peculiar multi-year nature of new start and core capacity projects. The $649 million in on-hand uncommitted appropriations for core capacity projects has to be weighed against the $940 million in appropriations in future years, starting in fiscal 2019, required by the the two projects with signed FFGAs. Then, if all of the other core capacity projects in the engineering or project development phases eventually get their grant agreements signed, that will be an additional $2.23 billion in future federal CIG appropriations required, for an eventual total federal liability in FY 2019 and future years of $3.17 billion, as shown below.

When weighed against the future needs of the program, the $649 million in uncommitted core capacity appropriations no longer looms so large. It is enough to cover either the ongoing Caltrain or Chicago projects (but not both), so an additional $291 million in future appropriations will need to be made just to pay off those two projects with existing grant agreements. And if FTA were somehow able to sign construction grant agreements for the other five core capacity projects in the development “pipeline,” the core capacity program would have $2.522 billion in unfunded liabilities that the Appropriations Committees would have to provide in fiscal 2019 and future years.

But, from the future liabilities perspective, the core capacity program is on solid ground compared with the new starts program.

New starts. Once Santa Ana and Seattle Lynnwood are signed, there will be $210 million in formally unallocated new start money on-hand. This will make a total of ten new start projects with active FFGAs. Those projects will require $4.75 billion in CIG appropriations in fiscal 2019 and future years. This is over 22 times the $210 million in appropriations currently on-hand.

Beyond that, there are four new start projects currently in the final “engineering” phase, and if they get their grant agreements signed, they will eventually require $4.16 billion in future federal appropriations. Congress has pre-appropriated just $15 million towards those projects (for one of the two Minnesota projects). The Los Angeles Purple Line Extension Segment 3, to which FTA allocated $100 million today, will require $1.3 billion in federal appropriations over the coming decade, if the grant agreement gets signed.

And, looking down the road, there are currently another eight new start projects in the project development phase. Seven of those will cumulatively require an eventual $5.067 billion in CIG appropriations, and the eight is the Hudson River Tunnel (part of Gateway), the sponsors of which are optimistically asking for a total federal CIG appropriation of $6.7 billion.

All told, the agreements currently signed, plus those in the pipeline, would require an eventual $20.7 billion in future federal appropriations in fiscal 2019 and future years. This is almost 100 times the $210 million in uncommitted appropriations currently on-hand for the program.

Summary: If it were a high priority, the Trump Administration could almost certainly do a better job in moving mass transit “small starts” through the process and awarding them construction grant agreements using on-hand appropriations. But the $858.6 million in uncommitted appropriations from fiscal 2017-2018 for the new start and core capacity programs must be weighed against the $5.692 billion in unfunded liabilities for those programs, from construction grant agreements already signed or which will be signed by next month, which leaves net unfunded future liabilities of $4.833 billion for those programs.

Even if you look at average total funding for these programs (for existing and new grant agreements), the new start pipeline represents about 15 years worth of average annual appropriations. And the creation of core capacity and the expansion of small starts does appear to have eaten away at the core new start mission of the CIG program. Past appropriation levels are shown below (FY19 is the average of the House and Senate bills).

How is this even legal? At this point, some of the more budget-minded among you may say, “Wait a minute. I thought that annual discretionary appropriations couldn’t be committed in advance of their existence. Isn’t the whole meaning of the word “discretionary” in this context that Congress has the discretion to increase, reduce, or eliminate appropriations for that account each year in the annual appropriations act, without exposing the federal government to legal liability? How is this possible?”

You would be right to be confused. If CIG full funding grant agreements actually made legally binding promises of future federal funding, the FTA employee who signed the agreement could go to jail.

The AntiDeficiency Act was first enacted in the 1870s by Congress to regain some of its power of the purse. As currently codified, it reads like so:

The AntiDeficiency Act, As Codified in Title 31, United States Code:

§1341. Limitations on expending and obligating amounts

(a)(1) An officer or employee of the United States Government or of the District of Columbia government may not-

   (A) make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation;

   (B) involve either government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law…

§1350. Criminal penalty

An officer or employee of the United States Government or of the District of Columbia government knowingly and willfully violating section 1341(a) or 1342 of this title shall be fined not more than $5,000, imprisoned for not more than 2 years, or both.

Even though no one has ever been imprisoned in the history of the AntiDeficiency Act (violations of the law are usually punished by suspensions, firings, and requiring the agency head to write personal, groveling letters to the President of the United States, the Speaker of the House, the President of the Senate, and the Comptroller General explaining how it happened, who was punished, and Why It Will Never Happen Again), the prospect of two years in the pokey is still serious. This is why the underlying CIG statute (49 U.S.C. §5309) states that while a full funding grant agreement “may include a commitment, contingent on amounts to be specified in law in advance for commitments under this paragraph, to obligate an additional amount from future available budget authority specified in law,” that “The agreement shall state that the contingent commitment is not an obligation of the Government.”

In other words, if Congress decides to stop funding FFGAs halfway through construction, the local transit agency has no legal recourse. The grant agreements clearly spell that out in legalese. Nevertheless, the transit agency would be in a world of financial pain were such a thing to happen – agencies are allowed to spend their own money in advance in anticipation of eventual federal reimbursement, and the political consequences of such a thing happening have always been enough for Congress to keep annual funding for the installments of signed FFGAs more or less on schedule.

But it is hard to see the whole FFGA process as anything other than an attempt to bypass the AntiDeficiency Act and create some kind of commitment of future appropriations for a discretionary program, even if it it isn’t technically legally binding, so as to tie the hands of the Appropriations Committees to some extent.

When this process was first created, new starts weren’t dependent on the annual discretionary appropriations process. New starts were funded by multi-year contract authority provided in appropriations acts starting in 1970. As this August 2017 ETW article spells out in more detail, the multi-year general fund contract authority expired, and Congress created a formal letter of intent program for new starts in the 1978 surface transportation act in hopes of continuing the program through the annual discretionary appropriations process.

That system did not last long, and the creation of the Mass Transit Account of the Highway Trust Fund in 1982 allowed new starts to be funded with multi-year contract authority again starting in 1983. But in the 2005 SAFETEA-LU law, Congress decided to kick new starts out of the Highway Trust Fund and make them wholly dependent on annual general fund appropriations. The thinking was that the political alliances supporting new starts would have more success before the Appropriations Committees than would other transit programs. But they kept the multi-year FFGA process for the program even while taking away the multi-year budget authority for the program. This was, as far as we can tell, a first.

There are a few other federal grant programs that also allow this kind of administrative “non-commitment commitment” in advance of budget authority (it is often called a “letter of intent,”). But as far as we can tell, every single example is in the transportation field. Originally, mass transit allowed letters of intent (later renamed FFGAs) for transit new starts that were funded with multi-year contract authority, on an informal basis. (There were no statutory rules on such LOIs, which was problematic – Mort Downey, the Assistant Secretary of Transportation for Budget and Programs under President Carter, told me that they had a hard time tracking down all of the transit promises that outgoing SecDOT Bill Coleman had made to various cities during 1976).

But in those days, DOT had most of the money in-hand already in the form of multi-year contract authority drawn on the general fund. And the authorization bills used to have a ceiling on the aggregate amount of the federal commitment to FFGAs that could be signed at any one time (called “contingent commitment authority”) which was a percentage of total program size.

Today, there is no legal limit to the aggregate amount of money that the Department of Transportation can promise to transit agencies using non-legally-binding FFGAs. The Appropriations Committees of the future would be faced with the dilemma of deciding whether or not those commitments were morally minding on them (instead of legally binding).

In 1987, Congress created a similar letter of intent program for the Airport Improvement Program (which is also entirely funded out of multi-year contract authority, and it also had a statutory cap on the total amount that could be promised by  letters of intent, keeping it under the total amount of authorized contract authority. But starting in 2003, more and more transportation (and transportation security) programs were created with this kind of ADA work-around.

We did a word search of the entire United States Code for the phrases “letter of intent,” “contingent commitment,” and “not an obligation” to find all such programs, and they are listed below.

From a Congressional procedure and political perspective, the question is: do the non-transportation authorizing committees realize that this option is available to them? Why are federal grants to state and local governments for transportation privileged above grants for water infrastructure, law enforcement, community development, environmental remediation, broadband infrastructure, etc.? Why can’t those authorizing committees establish programs to force the Appropriations Committees to make good on their authorized funding levels?

Epilogue: Today’s announcement that the Administration was setting aside $100 million of fiscal 2018 appropriations towards the next leg of the Los Angeles Purple Line extension will no doubt be greeted with joy by transit advocates, but it is crucial to remember that, if a grant agreement for the project is signed next spring, it will promise an additional $1.2 billion in future appropriations that don’t exist yet. Total multi-year promises from the CIG program, on which the Appropriations Committees must make good in fiscal 2019 and future years, already total $5.7 billion and the LA Westside’s $1.2 billion brings that total to $6.9 billion.