Reform Funding to Encourage Early Transit Planning

This piece is part of IFP’s Transit Abundance Playbook, a collection of proposals for reducing American transit construction costs.

Summary

Current federal grant programs for transit capital projects disincentivize good planning practices and place large financial risks on agencies. As a result, projects receive federal funding without resolving obvious constructability challenges, such as utility conflicts, and some agencies expend hundreds of millions of dollars on planning and design without ever winning a federal grant. A more iterative approach with phased payments and milestones, similar to the Federal Railroad Administration’s Corridor Identification and Development Program (Corridor ID), would enable agencies to work with federal partners to iterate on their projects and share financial risk during project development, allowing the federal government to shape projects early and ensure on-budget delivery.

Problem

As transit project costs soar into the tens of billions of dollars, local transit agencies depend on federal grants through the Capital Investment Grants (CIG) Program to cover as much as 50-60% of costs. Unsurprisingly, the prospect of billions of dollars in federal money structures how agencies plan their projects. Unlike other sources of transit construction funding, such as tax measures or state appropriations, securing a grant requires agencies to follow a precise process. First, grantees enter into the project development phase, where they define the project, assess alternatives, complete environmental review, and add the project to the state’s long-term transportation plan. Next, the grantee must sufficiently advance its design and engineering proposal to satisfy procurement requirements, and demonstrate a credible local funding source, such as a tax measure or bond, to pay for the project.¹ Once these tasks are completed to FTA’s satisfaction, the next step to secure CIG funding is negotiating a legally binding Full-Funding Grant Agreement (FFGA) so that the grantee can begin tendering construction contracts. 

This process creates two misaligned incentives: First, the planning for these megaprojects becomes laser-focused on winning a lucrative FFGA rather than identifying and planning the best project. Second, because the federal funding only becomes available after the project has completed this process, the agency risks spending hundreds of millions of dollars on planning and engineering that may not result in a federal grant. Ultimately, the New Starts structure results in underdeveloped proposals that may lack cost discipline, and leaves agencies on the hook for costs they can’t recoup.

Navigating the New Starts process is time-intensive and expensive. Bennon and Wilson (2023) show that transit projects take an average of 5–7 years to complete environmental review and secure a Record of Decision (ROD), a mandatory part of the three-step process outlined above for many transit projects. Because this sequencing emphasizes environmental impacts in the first phase of planning, grantees often overlook important (and ultimately costly) operational and constructability concerns, such as utility relocation conflicts or right-of-way acquisition challenges.² As my own research has repeatedly underscored, as a transit project moves through project initiation and planning, the central goal is winning a federal grant and not planning a constructable project. In the Green Line Extension case study, the Transit Costs Project team quotes a senior person familiar with the project as saying that “figuring out how to get the FFGA done before 2014, meant not figuring out the project.” As a result, a project that began as a $1 billion endeavor in 2012 had ballooned to $3 billion by the time the governor paused it in 2015. By overindexing on winning the grant, agencies make sub-optimal decisions that lead to expensive change orders and delay an already lengthy planning process. 

These are bad incentives. So long as federal funding is tied to a successful Record of Decision rather than a well-crafted plan, grantees will understandably continue to focus on procedural compliance rather than operational optimization and constructability. Contemporary transit projects are littered with examples of how inadequate planning drives schedule delay and exorbitant costs. Phase 1 of New York’s Second Avenue Subway, for instance, endured delays and difficulty while digging the launch box for the Tunnel Boring Machine (TBM) because the geotechnical data had not been meaningfully updated since the first (and abandoned) attempt at the project in the 1970s. This same planning failure also required the initial TBM drive to be resequenced and replanned because of differing soil conditions that rendered the $25 million hard rock TBM unusable. All told, the 40-month tunneling contract took an additional 20 months and $51 million to complete. Despite an obviously underdeveloped project plan, Phase 1 of the Second Avenue Subway complied with federal planning requirements and received $1.4 billion from the federal government. 

Since the FFGA and the promise of federal money follow a costly environmental and engineering analysis, agencies rack up hundreds of millions of dollars in expenses without knowing if they will secure an FFGA. The GoTriangle transit agency in North Carolina had the unfortunate experience of spending $157 million and eight years in pursuit of a $1.25 billion FFGA to build a new Light Rail line. When it became clear that Duke University, one of the project’s major stakeholders, would not sign a cooperative agreement, GoTriangle abandoned the project before completing the federal permitting process. If federal funding were made available earlier and in smaller increments, challenges with cooperative agreements could have been surfaced sooner, and GoTriangle and taxpayers in North Carolina could have avoided some of these losses.        

Solution

In order to improve cost discipline and speed up project delivery timelines, federal grant programs should follow an iterative process that rewards good planning and sets grantees up for success. One promising model is the Federal Railroad Administration’s (FRA) Corridor ID program, which follows a phased approach that allows agencies to co-develop their projects with federal partners while tapping a smaller amount of federal dollars along the way to a larger construction grant. This encourages agencies to spend time and resources, much of which will be federal from the outset, developing plans for constructable projects that are focused on achieving program goals. 

FTA should develop a three-step “Transit ID” program modeled on Corridor ID to fund planning that matches service improvements — faster travel times, greater frequency, and new service — and precedes environmental permitting. The bipartisan Infrastructure Investment and Jobs Act authorized the creation of Corridor ID in 2021, so the program is still in its infancy, but early returns have been positive: FRA staff has engaged grantees and host railroads to improve projects by connecting infrastructure investments with planned service goals, and provided feedback on rolling stock selection, platform heights, and right-of-way acquisition. To implement Corridor ID, FRA hired 15–20 additional staff members capable of assessing grant applications and providing technical assistance. Presumably, FTA would also need to staff up in order to be a productive partner. 

A more granular, phased FTA process would allow less experienced agencies to leverage FTA expertise to develop more comprehensive designs. Larger agencies with greater experience and capacity will likely move through the program more quickly.  

FTA should establish a normative (but not overly prescriptive) planning vision for capital projects that guides grantees through a three-step planning process. This mirrors Corridor ID’s phases, in which grantees receive a small amount of money to write a Request for Proposal, hire a consultant to do the work, and then get through environmental review. The phased process would enable FTA to engage grantees throughout the program and improve projects by encouraging grantees to highlight service goals, refine broad ideas, resolve conflicts, and collaborate with other agencies and infrastructure owners where appropriate. This would improve on the status quo by focusing transit agencies on what they need to do to build their project, rather than rushing to the FFGA.

The process could consist of three steps:

Step 1: Prospective grantees submit a high-level document describing the project, previous and ongoing project development efforts, service goals, challenges, stakeholders, feasibility, and funding needed to develop a detailed Service Development Plan. The goal of Step 1 is to quickly assess what the grantee wants to do, what needs to be done to achieve project goals, and what the potential challenges are. 

Step 2: Building on Step 1’s high-level document, Step 2 requires greater specificity and analysis. This is where the bulk of the work will happen. Here, the grantee breaks down the proposed project into smaller deliverables akin to Corridor ID’s Route Options, Service Options, Investment Packages, Design Options, Transportation Demand, Existing Conditions, Conceptual Cost Estimation, Cost-Benefit Analysis, Governance, and Implementation Plan. The overarching goal of Step 2 is to identify and assess alternatives, describe how they relate to existing conditions, map out project implementation, and develop a future service schedule or timetable that is linked to a complementary capital project inventory. By drawing the connection between operational goals (e.g., running a train every five minutes, or serving 15,000 passengers per hour per direction) and infrastructure needs (tunnel or overpass), grantees demonstrate how each piece of infrastructure helps achieve the service goals. Step 2 will take at least one year to complete and calls for significant investment from the FTA and the grantee. The work done in this phase determines the project’s overall parameters, such as the specific infrastructure projects and desired service goals, as the grantee begins preparing the environmental document required in Step 3.

Step 3: At this stage, the grantee builds on the project inventory developed in Step 2 and starts the engineering and environmental analysis required to secure an ROD and sign an FFGA with the FTA.

It is worth noting that some projects will fail to advance through every step, but by breaking up the funding into smaller amounts, FTA can determine which projects are fundable and which projects need to be overhauled to qualify for an FFGA. This has the additional benefit of giving agencies the requisite resources for planning capital expansion without committing to a specific project at the outset. 

There is no substitute for good planning. Our current grant programs require lengthy planning processes that overemphasize environmental clearance without ensuring grantees plan well. Breaking the pre-environmental stages into smaller, digestible steps — with ample opportunity for the FTA to co-develop and financially support planning — will result in better-planned, constructable projects and stronger cost discipline. 

Further reading

• US Department of Transportation, Corridor Identification and Development Program.
• Didier M van de Velde, “Learning from the Japanese railways: Experience in the Netherlands,” Policy and Society, 2013.