Legal Handbook for the New Starts Process (2010)

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35 and approval from the Office of the Secretary of Trans- portation and the Office of Management and Budget. CHAPTER VIII: SMALL STARTS AND VERY SMALL STARTS A. The Statutory and Regulatory Framework SAFETEA-LU created a new “Small Starts” Pro- gram145 (“Capital Investment Grants Less than $75,000,000”) with simplified and more streamlined procedures for smaller New Starts projects. 1. Project Cost To be eligible, a Small Starts project must have a § 5309 Federal New Starts share less than $75 million with a total project cost of less than $250 million. Small Starts projects are to be analyzed and rated under a more simplified New Starts criteria process. 2. Eligible Projects Eligible Small Start projects include new fixed guideway systems and extensions, including bus rapid transit, streetcar, and commuter rail. Also eligible are non-fixed guideway corridor improvements (e.g., bus rapid transit) if a substantial portion of the project op- erates in a separate right-of-way in a defined corridor dedicated for public transit use during peak hours or if it has other characteristics of a fixed guideway system. Under FTA guidance, projects proposed in corridors with any preexisting elements are not eligible for Small Starts funding. The current statutory exemption for projects costing under $25 million from the New Starts process will be eliminated once the Small Starts regulation is final.146 Pursuant to FTA guidance, projects that would oth- erwise qualify for funding as a New Starts project may not be subdivided into several Small Starts projects. 3. Separate Funding Category Beginning in Fiscal Year 2007, the Small Starts pro- gram is funded at $200 million per year under the over- all § 5309 Capital Investment Program. 4. Selection Criteria FTA may provide Small Starts funding for a project only if FTA finds that the project is based on the results of planning and Alternatives Analysis; justified based on a review of its public transportation-supportive land use policies, cost-effectiveness, and effect on local eco- nomic development; and supported by an acceptable degree of local financial commitment.147 Regarding local financial commitment, the proposed local source of capital and operating financing must be determined to be stable, reliable, and available within 145 49 U.S.C § 5309(e). 146 49 U.S.C. § 5309(e)(1)(B). 147 49 U.S.C. § 5309(e)(2). the proposed project timetable.148 Moreover, if FTA gives priority to projects that are providing more local share than required, “…the Secretary shall give equal consid- eration to differences in the fiscal capacity of State and local governments.” 149 Because the program is expected to be as highly competitive as the New Starts program, FTA in its guidance strongly encourages project sponsors to pro- vide an overmatch under the Small Starts program. 5. Advancement of Project to Development and Construction/PCGA Small Starts projects are subject to project justifica- tion and financial commitment ratings of High, Me- dium-High, Medium, Medium-Low, or Low. In contrast to the New Starts project development process, a Small Starts project that meets requirements may advance from planning and Alternatives Analysis to project de- velopment and construction. Rather than an FFGA, a Small Starts project is de- fined by a PCGA.150 FTA may enter into a PCGA only if a project has been rated as High, Medium-High, or Me- dium. A PCGA specifies the scope of the project, its es- timated net project cost, the project construction sched- ule, the maximum amount of § 5309 funding for the project, a schedule of future federal funding, and the source of local funding. The agreement may include a commitment to provide funding for the project in future years. 6. Small Starts Program Regulation The Secretary was to issue a regulation covering the Small Starts program 6 months after enactment of SAFETEA-LU. An NPRM on New Starts and Small Starts was issued on August 3, 2007, but as noted above, the rulemaking was put on hold by Congress and was subsequently withdrawn by FTA. The Small Starts program is thus operating on the basis of guidance is- sued by the FTA.151 B. Sponsors Submit Detailed Cost Estimate Using FTA’s Standardized Cost Categories 1. Project Sponsors Document A project sponsor documents its funding strategy, specifying dollar amount and percentage of Small Starts funds requested and sources of the proposed non- Small Starts funds. 2. Funding Request Limits A Small Starts project may request up to 80 percent of the net project cost up to $75 million, but FTA en- courages project sponsors to request the smallest amount necessary to complete the project. This does not 148 49 U.S.C. § 5309(e)(5)(A). 149 49 U.S.C. § 5309(e)(5)(B). 150 49 U.S.C. § 5309(e)(7). 151 74 Fed. Reg. 7388 (Feb. 17, 2009).

36 preclude the project sponsor from applying federal funds, other than Small Starts funds, to the project. C. Small Starts—Results of Planning and Alternatives Analysis While through the rulemaking process commenters had proposed that the Small Starts Alternative Analy- sis phase be streamlined, FTA has kept Alternatives Analysis essentially the same as under the New Starts process with some modifications. For example, com- menters had proposed that the definition of the Small Starts baseline should be the same as the NEPA “no build” alternative in all cases. FTA, in its August 3, 2007, NPRM on Major Capital Investment Projects, did not accept that but did propose a more streamlined process. The agency acknowledged that many Small Starts will be TSM improvements—lower-cost, opera- tions-oriented upgrades to existing transit services that do not require construction of a new fixed guideway— and that in such cases a no-build alternative would be the appropriate Small Starts baseline. As a compro- mise, FTA proposed to accept a no-build alternative as the Small Starts baseline unless the proposed project included a dedicated right-of-way for 50 percent or more of its length in the peak period, in which case TSM would “usually” be the Baseline Alternative. Again, this FTA rulemaking has been withdrawn. D. Project Development 1. Project Development Phases Perhaps the most significant aspect of the Small Starts program is that all PE and Final Design work is combined into one phase. Note, however, under NEPA regulations, Final Design activities may not commence before completion of the NEPA process. Beyond this, the project development process parallels the New Starts project development phase rather than signifi- cantly streamlines it, and FTA has received criticism in this regard that is likely to be responded to in a future rulemaking. 2. Pre-Award Authority As with the New Starts process, Small Starts pro- jects entering project development receive blanket pre- award authority to incur project costs for PE costs in- curred before grant approval. Upon completion of the NEPA process, pre-award authority is automatically granted for Final Design and to acquire real estate and relocate businesses. All other activities must receive an LONP to be eligible for federal reimbursement. Under both pre-award authority and an LONP, all federal re- quirements must be met before incurring costs to retain eligibility of the costs for future FTA grant assistance. 3. Project Justification As with the New Starts process, project justification under Small Starts involves a comparison between the proposed Small Starts project and a Baseline Alterna- tive. FTA will approve the Baseline Alternative to be used in the evaluation of Small Starts before the project is allowed to enter into project development. E. Project Justification Rating 1. Criteria Rather than all of the project justification criteria used under the New Starts program, the Small Starts program limits the criteria to land use, cost- effectiveness, and other factors (including economic development).152 FTA continues to review how to de- velop rating criteria for economic development. Note, moreover, that on May 19, 2009, FTA published a Fed- eral Register Notice of Availability of Proposed Guid- ance on New Starts/Small Starts Policies and Proce- dures and Request for Comments.153 For Small Starts, FTA proposed that the project justification rating of a project seeking Small Starts funding be based on rat- ings for the following criteria with the proposed weights shown in parentheses: cost effectiveness (one-third), economic development effects (one-third), and land use policies supportive of public transportation (one-third). 2. Cost-Effectiveness A significant change proposed by FTA in terms of the Small Starts program is that projects be evaluated based on the opening year of service versus the New Starts planning horizon covering no less than 20 years. At the same time, the number of user benefits used in the calculation will be increased by a factor of 1.5, re- flecting a national 20-year growth assumption. Because of this shorter time frame, FTA believes the Small Starts planning and project development phases can be simplified. F. Financial Capability While the overall financial capability requirements are similar to the New Starts requirements, FTA’s re- view has been streamlined significantly. A project will receive a Medium rating for local financial commitment if there is a reasonable plan to secure local share, the project operating and maintenance budget is under 5 percent of the agency’s operating budget, and the agency is in sound financial condition. If a project can- not meet these conditions, it must submit a detailed financial plan as under the New Starts criteria. G. Overall Rating All Small Starts projects will need to achieve an overall rating of Medium or better, consisting of a Me- dium or better rating for both project justification and local financial commitment. 152 49 U.S.C. § 5309(e)(4). 153 74 Fed. Reg. 23776 (May 19, 2009).

37 H. Authority to Proceed to Project Construction Grant Agreement 1. Funding Recommendations As with New Starts projects, FTA’s funding decision for Small Starts projects is distinct from the project evaluation and rating process. Projects that meet or exceed the criteria for Small Starts are eligible, but are not guaranteed, to be recommended for funding. Fund- ing decisions for the Small Starts program are included in the Annual Report on Funding Recommendations. 2. Requirements to Proceed to PCGA A project proceeding to a PCGA must (i) Be authorized for construction by federal law. (ii) Have an overall rating of Medium or better. (iii) Meet all applicable federal and FTA program re- quirements. (iv) Be ready to use Small Start funds. I. Project Construction Grant Agreement The statutory requirements applicable to the Small Starts program provide for a PCGA,154 which FTA has described as a simplified FFGA. FTA negotiates a PCGA with the grantee during project development. As with the FFGA, FTA must provide Congress 60 days’ notice of its intent to enter into a PCGA. The terms and conditions of the PCGA include, at a minimum: 1. The grantee will be required to complete construc- tion of the project, as defined, to the point of initiation of revenue operations, and to absorb out of local or non § 5309 Capital Investment Grant funds any additional costs incurred or necessitated by the project during con- struction. 2. FTA and the grantee will establish a schedule for anticipating federal contributions during the construc- tion period. 3. Specific annual contributions under the PCGA will be subject to the availability of appropriations and the ability of the grantee to use the funds effectively. 4. The total amount of federal funding under PCGAs and potential funding under Letters of Intent will not exceed the amount authorized for Small Starts under 49 U.S.C. § 5309. J. Very Small Starts—Created by FTA, Not Statute When it issued its New Starts and Small Starts pro- posed rulemaking, FTA proposed the creation of a Very Small Starts program. This was an FTA proposal; it was not required by a provision of law. As noted earlier, FTA has withdrawn this rulemaking, although there is still guidance on the Very Small Starts program on FTA’s Web site. 154 49 U.S.C. § 5309(e)(7). 1. Very Small Starts—Key Features FTA guidance provides that Very Small Starts must meet Small Starts eligibility requirements; must have a total project cost of less than $50 million and an aver- age cost of less than $3 million per mile (exclusive of rolling stock); and must have at least 50 percent of the project in a fixed guideway during the peak period or when congestion inhibits transit system performance or be a corridor bus project that includes the following elements: • Substantial transit stations. • Traffic signal priority/preemption, to the extent, if any, that there are traffic signals on the corridor. • Low-floor vehicles or level boarding. • Branding of the proposed service. • Ten-minute peak/Fifteen-minute off-peak head- ways or better while operating at least 14 hours per weekday (not required for commuter rail or ferries). • Located in corridors with existing riders who will benefit from the proposed project in excess of 3,000 per average weekday. • Having a total capital cost less than $50 million (including all project elements) and less than $3 million per mile, exclusive of rolling stock. Projects that would otherwise qualify for funding as a New Starts or Small Starts project may not be subdi- vided into several Very Small Starts projects. 2. Project Development and Evaluation Process FTA’s proposed project development process is simi- lar to that for the Small Starts process and, indeed, for the New Starts process. For Very Small Starts, “…[t]he steps that must be undertaken are essentially the same as those required under section 611.17 for New Starts PE and final design, but again combined and tailored to the much smaller scale of the proposed Very Small Starts project.”155 As with Small Starts, the project must be rated at least Medium to advance into project devel- opment. Also as with Small Starts, the commitment document for a Very Small Starts project would be the PCGA. 3. Warrants Perhaps most significant about FTA’s proposed Very Small Starts program would be its reliance upon “war- rants” by a project sponsor that it meets a set of defined characteristics. That is, [b]ecause Very Small Starts projects are made eligible based on a set of project characteristics that assures that they are effective and cost-effective, rather than rate these projects on the basis of an evaluation of informa- tion, FTA will simply assign an overall project justifica- tion rating of “medium” to these projects if they meet the predefined characteristics, although “other factors” can be used to increase this rating.156 155 72 Fed. Reg. 43328, 43359 (Aug. 3, 2007). 156 Id.