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Light-Rail Costs Off Track?: Analysts Say Reserve Funds May Be Short

Posted on: Sunday, 9 April 2006, 06:00 CDT

By Richard Rubin, The Charlotte Observer, N.C.

Apr. 9--Charlotte could exceed its $427 million light-rail construction budget, according to analysts who say contingency funds "appear insufficient to complete the project."

That's the most recent warning from KJM & Associates, a California firm hired by the federal government to watch over the rail line.

CATS officials downplay the alarm, but if the analysts are right, the city could face another round of difficult decisions to contain the project within its budget.

The rail line's contingency fund, set aside to deal with unforeseen problems, has been whittled from almost $24 million to $6.5 million, said Ron Tober, CEO of the Charlotte Area Transit System.

However, he added, because all the major contracts have been awarded already, CATS should have enough money to get through its fall 2007 opening.

"We don't expect that we're going to consume all of that contingency, unless we have a weather event or something radically unexpected," Tober said.

The 9.6-mile line along South Boulevard is Charlotte's first foray into passenger rail, and it marks a major investment in the city's attempt to reshape parts of itself into a more densely developed urban area.

When the rail line opens in fall 2007, CATS expects 9,100 riders per day, and city officials hope the line can attract condominiums and new businesses along the corridor.

It has also attracted critics. Cost estimates have consistently risen since 1998, when voters approved a half-cent sales tax increase to pay for light rail, better buses and future transit options.

Rough calculations first pegged the price at $227 million, but as CATS developed a more detailed design, that estimate jumped to $331 million, then to $371 million, then to $398.7 million.

Last year, the cost rose to $427 million, as materials prices rose and bids came in far above their budgets. To keep the costs from rising further, CATS replaced steel with concrete, eliminated some artwork and slowed the project, delaying the opening date from April 2007 until August 2007.

Tober acknowledged that breaking the $427 million cap could hurt CATS's credibility with the public.

"We have worked our butts off to stay within that number, despite what we had to deal with," he said.

Recently, CATS officials have described the opening date as "fall 2007" because of disputes with Norfolk Southern over how many railroad employees would be available to prevent freight train accidents during construction.

CATS eventually asked members of Congress to nudge top railroad executives, and Norfolk Southern recently added two more workers to the project.

Tober said he is not ready to announce an official start date, though he expects it to be sometime in October or November 2007.

At one point, CATS's plans included a Dec. 14 opening date, and the KJM report called that a "critical concern." CATS's contract with the federal government includes a Dec. 31 deadline.

KJM officials declined comment on their recent reports and referred questions to the Federal Transit Administration.

FTA spokesman Paul Griffo would not answer questions about the Charlotte project, instead issuing this statement:

"The Federal Transit Administration's oversight program helps us identify challenges in major construction projects early on. That has allowed us to work with CATS as it addresses a number of timing and budgetary challenges to ensure it completes this project on time and on budget."

Still, Tober said, CATS is in "good shape" with the FTA.

He and project manager David Leard noted that CATS established the contingency amount in conjunction with the federal government and a previous oversight firm.

In comparison with many construction projects that put 10 percent or 15 percent in contingency, CATS's 5.5 percent set-aside may seem small. But it makes sense, CATS officials said, because many of the contracts had already been awarded by the time the contingency was set. Earlier in the project, the contingency percentage was higher, but it shrank to cover rising costs.

Even if CATS runs through the remaining $6.5 million left in the contingency fund, Tober has a few ideas about where he could find up to $8 million in extra money within the project: an insurance reserve, excess land that can be sold and a park-and-ride lot that a private developer may build.

If that's not enough, CATS would have to find more money in its overall budget, which is funded with the half-cent sales tax.

Tober said he's confident that -- barring a hurricane or similar catastrophe -- the project will meet the $427 million budget.

"The (firm) is not here on site, does not know what's going on," Tober said. "They're consultants. They have a job to do that they try to cover themselves on. ... We don't always agree with their assessments."

Richard Rubin: (704) 358-5832

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Copyright (c) 2006, The Charlotte Observer, N.C.

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Source: The Charlotte Observer (Charlotte, N.C.)

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