The CARES Act Funding for Transit Needs Oversight to Prevent Waste and Abuse
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Commentary

The CARES Act Funding for Transit Needs Oversight to Prevent Waste and Abuse

Congress has provided transit agencies with a massive windfall during the coronavirus pandemic, it now needs to conduct vigorous oversight of that spending. 

The coronavirus-related stay-at-home orders and economic shutdowns have created a dire financial situation for most transit agencies. Mass transit operators have asked passengers who have other transportation options not to use transit systems, and those who do ride must stay six feet apart. The pandemic and financial crisis are largely beyond its control.

Earlier this month, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided $25 billion in supplemental (emergency) federal funding for transit. But in a rush to pass the stimulus bill, Congress created a poorly designed transit program that has the potential to create fraud, waste, and abuse. 

To comprehend the problems with CARES, it helps to understand existing grant and formula funding programs under the FAST (Fixing America’s Surface Transportation) Act. There are 36 different transit programs supporting everything from capital investment (5,309 grants) to the Zero Emission Research Opportunity program. Some are formula-based (written by Congress in the FAST Act) and some are discretionary (evaluated by the Federal Transit Administration—FTA). 

The existing transit programs are far from perfect. The 36 programs are at least 26 too many. This system encourages grantees to use all federal funding rather than just the money that they need because any unutilized funding must be returned to the federal government and transit agencies that don’t spend all their grants will receive less funding in the future. Therefore, grantees have no incentive to reduce their spending.

Typically, awardees have three-to-eight years to spend these grants. And if an agency needs more time beyond the grant obligation closeout date it can ask for an extension (as part of a recovery schedule) for another one-to-three years. This is far more time than is necessary for most legitimate projects. 

But the existing program at least has some accountability measures seeking to ensure that funds are expended wisely and not abused. By contrast, CARES resembles the American Recovery and Reinvestment Act (ARRA) of 2009, passed during the Obama administration in response to the recession of the late 2000s.

In reviewing the spending, the Office of Management and Budget and Inspector General reported oversight problems and misappropriated funding with ARRA. Sadly, it appears neither Congress nor the executive branch learned any lessons from ARRA. 

In general, transportation spending is a poor fit for stimulus funding. Major capital construction projects require years to plan and construct. The timelines can be sped up only a certain amount. It is unlikely that a project slated for construction in 2025, for example, could be started this year. Some maintenance projects can be accelerated, but they lack the same economic impact. 

And the CARES spending has many other problems. The biggest is the price tag. Typically, tranist agencies ask for twice as much money as they need, assuming Congress will provide them about 50 percent of the total. In this case, the American Public Transportation Association (APTA) asked for $12 billion and Congress provided $25 billion.

Normal annual transit funding under the FAST Act is around $12 billion, meaning this “emergency funding” is more than twice the annual funding. CARES gave no other non-health care program such a huge percentage increase. 

And even though most transit agencies don’t yet have actual plans to spend the new CARES Act funds, some transit agencies are calling for even more funding. New York Metropolitan Transportation Authority (MTA), which has received $3.8 billion in CARES funding, is requesting an additional $3.9 billion.

Based on spending patterns from Sept. 11, ARRA, and SuperStorm Sandy, it would take MTA two years to spend the first $3.8 billion. It is possible that the funding will be spent on new railway construction or rail operations that have nothing to do with the coronavirus. 

A well-designed program would have focused funding on COVID-related expenses. Yet, FTA is allowing transit agencies to use the money for projects that have no relation to COVID-19. The funds can be used for needs dating back to Jan. 2020. 

Additionally, instead of clawing back unused funding from fiscal year 2018 to fiscal year2020 and refunding that money to taxpayers, as is the usual practice, FTA is allowing transit agencies to reprogram and adjust so that COVID-related expenses can receive funds from past years that are still available but not yet obligated. And FTA is allowing agencies to cherry-pick projects without showing any cost-benefit analysis or legitimate need.

Unlike FAST Act funding, which requires at least a 20 percent local match, COVID-19 grants require no local match. The federal government will pay 100 percent of expenses. Lacking accountability, this type of federal spending—with no local investment—encourages waste. If you were remodeling your house but your neighbor was paying for all the costs, you might buy marble floors instead of tile. Your house doesn’t need those extravagant features, but if someone else is paying, why not? With local governments having no skin in the game, there are far fewer efforts to reduce costs and save taxpayers’ money. 

Some of the CARES funding is based on transit agencies’ long-term predictions about their expected revenue losses from COVID-19. New York MTA, for instance, is estimating that the agency needs six months of emergency funding. New York City has been hit harder than anywhere in the country and nobody knows how long the shelter-in-place orders will last. And given uncertainty over the public’s willingness to resume daily life when the stay-at-home orders are lifted, there’s a great deal 

While nobody is enamored with bureaucrats, FTA staff does a decent job of rooting out fraud and abuse. But FTA has a relatively limited staff (10 regional offices each with 15-25 people) designed to monitor the existing annual $12 billion program and obligated funding from previous years. How will those staff members oversee an additional $25 billion in funding? They likely cannot. But, at the same time, it makes no sense to hire additional employees for a temporary program. 

It is also troubling that, in some cases, the CARES Act bypasses the legally-mandated mass transit project planning and implementation process. To receive funding under the FAST Act, transit projects need to be included in a region’s four-year transportation improvement program (TIP) and a statewide transportation improvement program (STIP). This ensures potential projects have done the needed cost-benefit analysis and fit into the overall transportation system. In contrast, the CARES Act awards funds to transit projects that would normally have to be funded by other FTA formulas and discretionary grant programs or with local funds. 

It is important to differentiate between legitimate coronavirus-related costs and predictable transit expenses. The primary expenses that are clearly coronavirus-related, including:

  • Enhanced cleaning processes and supplies, including the purchase of protective gear, and;
  • Reduced operating revenue resulting from stay-at-home orders by governments and an inability to collect fares safely.

 Meanwhile, other expenses clearly are not related to COVID-19, including:

  • New capital bus and rail car purchases, and; 
  • Non-critical maintenance projects that transit agencies have already delayed under normal conditions. 

Other spending may be in more of a gray area and will need to be decided on a case-by-case basis. The stimulus and supplemental transit funding should at least be limited to the existing CARES Act spending between now and when a transit service resumes normal service or the end of 2020, whichever comes first. The existing $25 billion in transit stimulus is already at least $12 billion too much.

To ensure emergency funding is spent on COVID-related emergencies, FTA should require transit agencies to detail what they plan to use the funding for and why they need the funding. While it may be unlikely that conditions will be added to the CARES Act funding, a minimum of a 20 percent local match is needed to ensure and agencies that provide a local match of 50 percent should be prioritized. This approach is common in most U.S. Department of Transportation programs under the FAST Act and should be adopted in emergency situations as well. 

Given the ongoing uncertainty with the pandemic, funding requests should be submitted within 60 days of the program’s start (March 24). Agencies can reapply, via a grant agreement, by Dec. 31, 2020. To ensure agencies are using the funding correctly, FTA can use its Transit Award Management System (TrAMS) to monitor funds. Milestones can be added to track financial drawdowns on a monthly or quarterly basis for all grants awarded. FTA employees can ensure that awarded projects meet requirements and drawdown only the funds needed. The federal government needs to ensure that grantees are equipped to build the projects and that transit agencies are not gaming the system. Finally, FTA should contract with consultants to conduct a post-coronavirus audit on the spending to determine lessons learned and provide transparency to taxpayers. 

Obviously, the pandemic has contributed to an economic downturn and prompted many American cities to mostly shutdown, severely impacting transit agencies in the process. Congress has provided transit agencies with a massive windfall, it now needs to conduct vigorous oversight of that spending. 

Baruch Feigenbaum is senior managing director of transportation policy at Reason Foundation and lead author of Reason's Annual Highway Report.