Transit Projects Need a Single Decision-Maker

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

Summary

A major driver of high transit costs is the power imbalance between the transit agency building the project and the third parties that have to give their approval for the project to advance. New transit construction must navigate potential vetoes from other government agencies that need to issue permits, utilities that need to agree to move or reconfigure their infrastructure, and many other affected asset owners. In the US, negotiations with these third parties are handled on an individual, ad hoc basis. This leads to value extraction that can verge on extortion — the transit agency must negotiate with each third party for their approval, often by acquiescing to third-party demands to cover extraneous costs or expand project scope to address a pet issue.

Cost-effective global peers offer an alternative: a state-led conference of all parties that identifies conflicts during an early and time-limited comment period, mitigates issues, and empowers the state government to adjudicate tradeoffs without prolonged litigation. This creates transparency and coordination, ensuring all third parties have input but preventing any one actor from withholding approval and extorting the project behind closed doors. The time-bound process ensures delay cannot be used as a tactic to gain leverage over a project. This fair and transparent process rebalances the power dynamic between the infrastructure delivery agency and the affected third parties, addressing project impacts while removing opportunities for delay and extortion. 

Problem

Transit projects must endure a multi-checkpoint process to mature from an idea to an operational revenue service. Between conceptual planning and final design, projects are typically subject to several phases of design review. At each checkpoint, third parties (local governments, utilities, private railroads, and other infrastructure owners) can — and often do — force projects to expand scope, schedule, and budget. The system allows for excessive value extraction in the form of additional costs and side payments to satisfy a third party that could otherwise delay or veto the project.

This dynamic holds across the globe, but America’s laws and institutions are unusually open to lawsuits, making them uniquely unsuited to managing negotiations and resolving conflicts for complex infrastructure. The use (and abuse) of environmental review processes such as the National Environmental Policy Act (NEPA) and “mini-NEPAs” like the California Environmental Quality Act (CEQA) to stymie infrastructure has been well documented.¹ 

As Circulate Planning & Policy’s The Powerless Broker details, bilateral third-party negotiations have added tens of millions of dollars in utility and municipal infrastructure costs to California transit projects after contracts were tendered.

• Phase 1 of LA Metro’s Purple Line subway project incurred millions in change orders for extra work and time-related overhead due to late-breaking revisions to the proposed electrical work required by the municipal utility and Bureau of Engineering. 
• The California High-Speed Rail Authority was similarly forced to issue change orders well after its contract was signed. Local governments and utilities cited a speculative need for future road or utility capacity, which required costly project redesign and construction resequencing. 
• In a particularly egregious case, the City of Beverly Hills denied LA Metro necessary street-closure permits in order to compel the Metro and its contractor to build the city a new police kiosk. The City of Beverly Hills also updated the project’s cooperative agreement with additional work restrictions after the contract was awarded and signed, delaying the project and forcing LA Metro to pay its contractor millions in additional costs. 

Though these examples are specific to California, the same dynamic holds anywhere transit agencies have money and outside parties have leverage to extract it. The NYU Transit Costs Project has documented similar value extraction for park and sewer improvements on the Second Avenue Subway project, which added further permitting delays and costs. And Sound Transit’s program for light rail construction in the Seattle area has been plagued by requests for expensive, bespoke parking garages — one city demanded road re-paving using exorbitantly high-quality concrete that is typically used for hydroelectric dams; others demanded road widenings or extorted unreasonably high payments for permits to temporarily shut down traffic lanes.² 

Italy used to suffer a similar affliction. Prior to the 1990s, Italy’s infrastructure projects (such as its rail modernization initiative) were often stalled by having to sequentially apply for and obtain permits from third parties. Negotiations to move a utility line or close a street were discretionary, opaque, and protracted. After a 1992 bribery scandal (dubbed Tangentopoli, or “Bribesville” in the press) exposed widespread corruption in public works construction contracts, reformers overhauled the review process to enable transparency, information sharing, and open discussion of public infrastructure.³ Crucially, Italy placed the consolidated decision-making for the limited avenue of appeals in the hands of political decision-makers, not courts. This resulted in a new administrative process for handling third-party conflicts. 

In the US, the Federal Transit Administration (FTA) requires transit agencies that receive federal grants to enter into bilateral cooperative agreements with third parties to facilitate changes to roads, utilities, and other assets. This often results in dozens of individual agreements. For example, California’s Valley Transportation Authority established 43 different third-party agreements in Phase 2 of its BART to Silicon Valley subway extension, including stipulations for design standards, design review periods, reimbursements, construction impacts, contracting standards, and more. For each agreement, an agency must negotiate directly with the third party, be it a unit of local government, a wet or dry utility, a private railroad, or an asset owner. Under FTA guidelines, transit agencies cannot begin final design or construction on federally funded projects until “critical” third-party agreements are settled — those with parties whose actions, approvals, or agreements significantly impact the project’s scope, schedule, and budget.

Unfortunately, third parties are not incentivized to adhere to transparency, objective standards, or quantifiable review periods. While FTA’s Project and Construction Management Guidelines recommend that transit agencies anticipate utility-caused delays and negotiate with utilities for accountability provisions, agencies lack the leverage to get those provisions into agreements. 

Third parties benefit from dragging out negotiations to secure contracts on more favorable terms. While transit builders are under political and financial pressure to move forward, third parties are incentivized to hold out for more flexibility, more subjectivity, and more gold plating. These misaligned incentives and the lack of any significant obligation to facilitate transit projects force transit agencies to burn overhead, expend political capital, and delay projects to get third parties on board. Larger third parties with more political or market power can press transit agencies for concessions, extracting value from the taxpayer-funded transit budget to meet the third party’s often unrelated needs, like bigger sewer pipes or wider roads. In cases where a third party has expansion plans on the books, there is a certain appeal to “digging once” and facilitating the expansion as part of a transit project — but in such cases, the third party should contribute their marginal costs through betterment reimbursements, rather than force the transit agency to pay for their entirety.

Third-party demands for value extraction from transit agencies are rarely documented. If they are, documentation is often sparse and intentionally vague to maintain working relationships between transit agencies and third parties. If intransigence by a third party has caused permitting delays, it is difficult to track and often only indirectly documented in settlements with contractors for delay damages. While this obscurity is understandable given the power imbalance between transit agencies and third parties, it can create the potential for future legal disagreements, allowing another opportunity for third parties to threaten to withhold permits. 

Costs are even more likely to balloon if agencies must absorb third-party demands midstream after construction contracts are awarded. Even a minor change, such as upsizing a 48-inch pipe to 60 inches, can add months of delay. And though a slightly larger pipe may seem trivial for billion-dollar projects, change orders and work stoppages add up. Third parties have transit agencies over a barrel, and agencies will spend whatever is necessary to keep the project on track.

Negotiations with third parties can also force project resequencing and duplicative work. Third parties often make demands that conflict with those of another: a local government’s request to redesign a grade separation may require further reviews by utility owners, which may in turn require new land rights to relocate the utilities. A late design change may cascade into another series of negotiations.⁴ 

Sometimes third parties may agree to design standards, design review processes, or mitigations in writing, only to renege on their commitment after contract award. Transit agencies trying to enforce the limited contractual rights afforded to them by cooperative agreements are loath to litigate, often acceding to value extraction to move projects along or preserve a working relationship.

The lack of a systemized forum for resolving infrastructure conflicts provides many discretionary veto points for third parties to exploit. It also distracts third parties from their core missions. Many utilities are overburdened with competing political mandates and market incentives to expand renewable energy generation, modernize their grids, improve climate resilience, and provide affordable energy to customers. Local governments face their own competing priorities, including maintaining aging infrastructure, encouraging economic development, building much-needed housing, and ensuring public safety. It is understandable that these actors would seek to offload these pressures onto transit projects, but doing so converts transit funding into a general-purpose subsidy and systematically inflates project costs.

To be clear, transit infrastructure projects should take the assets and operational needs of third parties into account and should mitigate negative project impacts. But today’s process for soliciting third-party input and clearing right-of-way for transit projects is dysfunctional and obstructive. Third parties dominate transit agencies in an essentially ad hoc negotiating process; each design approval for a bridge, utility relocation, or electronic interface allows third parties to reopen negotiations to extract more from the agency, ultimately delaying project delivery and reducing service quality. Given federal funding for most transit projects, this broken process often results in federal transit funds subsidizing unrelated costs. 

Solution

Standardized, time-bound, and transparent administrative processes with strictly defined phases for notice, comment, conflict resolution, and limited judicial review have enabled our global peers to enforce transit project cost discipline. Although the particulars vary from country to country, streamlined review has provided an orderly system through which transit agencies and third parties can advance designs and resolve conflicts. 

In countries such as Italy, France, and Germany, negotiations are conducted through a quasi-judicial administrative process with public hearings and written submissions.⁵ This transparency discourages third-party demands for preferential treatment or the addition of unreasonable costs. Third parties that do not participate or articulate substantive concerns forfeit their right to appeal. This encourages early and substantive engagement when redesign is less costly, rather than after contracts are tendered, as was the case with the Purple Line and Beverly Hills projects. Early engagement helps transit builders plan more effectively and allows for more leverage in negotiations with third parties. The timeline for these processes is also statutorily constrained to 3–13 months, depending on the type of project and whether limited statutory extensions are invoked. Importantly, once the administrative process has concluded and the limited appeal period has run out, the transit agency may proceed with the approved work without risk of interruption or litigation.

Italy’s implementation can serve as a model for the US. In response to Tangentopoli, Italy instituted the Conference of Services (Conferenza di Servizi) administrative process in the early 1990s. The NYU Transit Costs Project’s case study of the implementation observes a spike in construction costs from the late 1970s through the mid-1990s, followed by a reduction in costs as the Conference of Services was more widely adopted. Italy is a rare example of a developed country that has successfully transitioned from high infrastructure costs to more cost-effective construction.

While Italian institutions, law, and business practices differ from those of the US, transit projects in both were plagued by diffuse authority and third-party value extraction until Italy mitigated these challenges. Italy’s administrative process should be adapted to reduce US transit costs. In the American context, these interventions are best placed at the state level, where most key decisions about transit service and expansion are made and where tradeoffs between local actors can be appropriately adjudicated.

The conference of services model

A US implementation would require a state to identify an owner to run the conference of services process, invest it with political authority, and adequately resource it to collect input from parties and make decisions. 

Where this conference of services lives is just as important as the design of the conference itself. As discussed above, fragmented authority obstructs transit projects; in the Italian system, a political minister is the ultimate authority. In the context of state government, that political authority would be best placed under the executive branch, perhaps at a new permitting department within the governor’s office, at an existing state public utility commission or public service commission overseen by appointed representatives of the governor, or with a specific appointee of the governor. An appointee of a publicly elected executive is best positioned to be accountable for hard calls between third-party demands and the public interest in advancing a cost-effective transit project. 

The appointed regulator must be empowered to make final determinations on route, design, and other elements of project scope so that the project can proceed to funding, procurement, and construction. 

Informed by the Italian model, an American conference of services process should consist of the following steps:

1. Initiation: Upon beginning preliminary design and engineering scoping, a transit agency project sponsor files an application with the relevant state-appointed regulator to start the administrative process. The state regulator verifies that the transit project is at the appropriate stage of development to convene third parties.
2. Notification: The regulator notifies all third parties that may be impacted by the transit project’s alignment and construction, sharing the conference of services schedule and key project information, including project designs and plans.
3. First review period: Third parties are granted three months to review a 30% design, identify conflicts and impacts, and develop potential solutions or mitigations.⁶ At the end of the review period, third parties submit their comments in writing, which are then shared with all parties and the public.
4. Initial hearing: One month after the end of the review period, the regulator convenes a hearing with the transit agency and third parties to review designs and plans, and develop solutions and mitigations. Depending on the project’s size and complexity, the hearing may be virtual or in person. Parties are expected to come prepared to discuss concerns and resolve conflicts.
5. Second review period: After the initial hearing, the transit agency develops 60% designs. The regulator will circulate the proposal to third parties for a three-month review period. Written submissions are due at the end of this review period.
6. Final hearing: One month after the end of the second review period, the regulator convenes a final in-person or virtual hearing for the transit agency and third parties to confirm the constructability of utility relocations and right-of-way changes and any further objective requirements for construction.
7. Determination and appeal period: After incorporating any further revisions and third-party objective requirements, the transit agency will complete 65% design documents for the regulator to circulate for a one-month appeal period. Third parties have a right of appeal only for a failure to incorporate a revision or correction previously accepted by the project sponsor and other parties during the earlier steps of the process; for instance, if the sponsor agrees during the conference or in writing to perform a cut-over for an electrical line at a particular intersection prior to proceeding with digging, then the 65% plans should reflect that commitment. As in Italy, a limited number of regulator-prescribed environmental or health agencies should have the right to appeal if they find that the proceedings have not addressed certain objective health or safety threats. An appeal by such agencies shall be evaluated and acted upon by the governor within ten days.
8. Declaration of public utility: If there are no appeals or an appeal is denied, then the regulator issues a declaration of public utility that entitles the transit agency to proceed with the work, irrespective of local government or utility permitting processes; at this stage, all scope, operational, use and code issues have already been addressed through the proceeding. In effect, the conference of services becomes the mechanism through which permits are issued. Beyond this deliberative process, there is no private right of action to enjoin or otherwise delay or stop a declaration of public utility once it has been issued. The most important reform is to replace an endless open door for requests backed by threats of litigation with a contained, deliberative process.
9. Design completion: After the declaration of public utility, the transit agency develops 100% design drawings as well as a report detailing how the designs comply with the third party requirements incorporated into the Declaration of Public Utility. The regulator will circulate these designs and the report to third parties. 

Executive review of appeals of agency decisions is a departure from American reliance on the judiciary as the ultimate reviewer of agency decision-making, which has been the norm for the past 65 years. Nominally, judicial review is not supposed to substitute its legal judgement for the substantive expertise of agencies, limiting its review to compliance with administrative rules, statutes, and constitutional provisions. In practice, courts have asserted more control and practiced “Monday morning quarterbacking” of agency determinations. Judges, without subject matter expertise or political accountability, often lack the information or incentives to make good decisions on complex infrastructure projects. This dynamic also leads to agencies becoming more risk-averse as they lower their ambitions and spend more time on paperwork justifying their decisions rather than on implementing and building.

The executive branch of state governments is better suited to evaluate the specific trade-offs of a particular transit project design. A governor’s office is closer in proximity and time to agency decision-makers, and would have better access to information from all parties as it is being generated and debated during the conference of services. And as discussed above, if a governor or their appointee makes a decision or a series of decisions on transit projects – either for a transit agency or at the behest of a third party such as an investor-owned utility – they can be held accountable by the public.  

The conference of services approach allows parties to identify and mitigate environmental impacts but limits standing for appeals and litigation to qualified environmental, heritage, and health agencies. In fact, environmental review is folded into procedures such as the conference of services in many other countries, rather than being conducted through agency-led reviews and enforced through private rights of action.⁷ By providing a clear, predictable process for asset owner coordination, regulators could curb the tendency of third parties to use NEPA as a planning tool to shape project scope and outcomes, for which NEPA is neither intended nor effective.

This proposed solution would considerably accelerate transit projects. Currently, individual third-party cooperative agreements typically take at least a year for agencies to negotiate (the opacity of the process makes it hard to estimate the timeline more precisely). Agencies must have all third-party cooperative agreements in hand before their design review and revisions process can proceed, which is often further delayed by revisions and conflict with (or between) third parties. This is a process that can take 3–8 years in some cases. In contrast, the outlined process could shave 1–2 years off of transit project timelines, with much lower risk of further delay or coordination issues. Under the conference of services model, parties would be focused on reviewing proposals for safety, mobility, access, construction impacts, and code compliance, rather than extracting value.

Federal action to enable the conference of services model

Congress can help this effort by directing FTA (or FTA could act independently) to: 

1. Research global best practices for managing third-party issues through administrative processes such as the conferences of services
   Research should include review of how a conference of services and other proven methods in third-party management work in practice, how such processes can be adapted for American contexts, how to help move parties toward consensus, how to run hearings in such a process, and which existing US administrative processes already follow similar procedures. After completing this research, FTA should produce guidelines for implementation. FTA and private funders can help this effort by supporting additional research and policy recommendations.
   
2. Establish model administrative process legislation for states to adopt
   FTA should develop model state legislation on third-party management to recommend for adoption by state legislatures. Private property is often at issue in third-party negotiations, so any administrative process must be coordinated with relevant state law on administrative procedure, takings and due process.
   
3. Require or incentivize grantees to resolve third parties through a conference of services process
   FTA should update its project management guidelines to require transit agencies and their host states to use a conference of services process to speed up transit construction timelines and reduce costs. Alternatively, FTA could incentivize use of this technique by boosting project scoring for grant applications from transit projects that use a conference of services. 

Whether through federal action or states taking up these reforms on their own, it is time to unshackle US transit agencies from a process that prioritizes value extraction and procedural rights over the public good. Providing order, transparency, and certainty in negotiations with third parties can help control transit project scope, budget, and schedule.

Further reading

• Marco Chitti, Eric Goldwyn, Elif Ensari, and Alon Levy, “The Italian Case: Turin, Milan, Rome and Naples,” Transit Costs Project, 2022.