Our review of the San Francisco Bay Area Rapid Transit District's (BART) revenues, expenditures, and workers' compensation practices highlighted the following:
The San Francisco Bay Area Rapid Transit District (BART)—the fifth largest heavy-rail transit system in the United States, with a weekday average of 400,000 users—faces uncertainty regarding how it plans to pay for all $9.6 billion in capital improvement and reinvestment projects it has identified. Further, BART's fiscal situation leaves little room for additional revenue allocations from its operating budget to address these underfunded capital projects, requiring it to seek funding through bonds, tax increases, or other means.
BART is currently engaged in three large capital projects (referred to as the Big Three within BART) to replace and expand its fleet of railcars, expand its vehicle maintenance facility, and replace its train control system. BART is also in the planning stages of identifying its capital needs to repair or replace other infrastructure beyond its Big Three projects. The need for BART to make significant investments in its infrastructure is not surprising given, for example, that 439 of BART's 669 railcars have been in service since the district opened in 1972. Our review of the depreciation schedules shows that the current fleet of railcars will reach the end of their useful lives by 2026. According to BART's assistant general operations manager, it first attempted to replace its fleet of railcars in 2004, but stopped due to a lack of funding. Similarly, BART has been trying to replace its train control system since 1994, but its first attempt went awry because of technological and vendor-acquisition issues that ultimately resulted in litigation and a settlement with the vendor in December 2010.
Although our audit found that BART's focus on its future capital expenditure needs appears reasonable, BART faces uncertainty regarding how it will pay for anticipated capital spending. For example, although it anticipates receiving sufficient funding from a mix of federal, state, local, and internal revenue sources for 775 new railcars and an expanded maintenance facility, BART still faces potential cash-flow shortfalls in some years in which the projects' expenses are forecasted to exceed the revenues designated for these projects. BART also has yet to secure all of the necessary funding for the train control system project.
In addition to its Big Three capital projects currently planned, which it expects to cost $4 billion, BART has identified over $5.6 billion in capital projects needed to repair or replace infrastructure that is in poor or very poor condition and to maintain a state of good repair and expand the system. This need touches on all aspects of BART's infrastructure, including tracks, stations, and power systems. In response to federal requirements, BART began implementing a capital asset management program in fiscal year 2012-13. Although this process is still evolving, BART is working toward fully implementing this program, which identifies and prioritizes capital projects based on risk.
BART's ability to meet its operating and capital expenditure needs is constrained by operating budget deficits that are projected beginning in fiscal year 2015-16. These operating budget deficits are projected to grow from $5.9 million in fiscal year 2015-16 to $57.3 million in fiscal year 2017-18. As a result, BART will not be able to rely on its operating budget to pay for its capital needs. Instead, it is considering several options to close the capital funding shortfall, including placing revenue measures on the 2016 or 2018 ballot for general obligation bonds or sales tax increases.
To determine the accuracy of its projected revenues and expenditures, we compared BART's operating projections from fiscal years 2007-08 through 2012-13 to its actual financial performance. BART management demonstrated a reasonable track record of developing projections that generally fell within 5 percent of actual performance, indicating that its projection methodology yielded valid results. We also reviewed significant components and the key assumptions underlying BART's financial forecasts for fiscal years 2015-16 through 2018-19. For these forecasts, BART used a similar projection methodology, which employed modest growth assumptions, generally between 3 percent and 5 percent. Although financial forecasts are by nature imprecise, our impression is that BART's projections for fiscal years 2015-16 through 2018-19 appear plausible.
BART is aware that it needs to develop a plan to fund its significant capital projects and, as our report acknowledges, it is evaluating how best to secure the additional funding. We met with BART's executive management in mid-March 2015 to discuss our report's conclusions. We also provided BART with a copy of our draft report in early April 2015. BART's management provided limited oral comments that were technical in nature. We considered BART's comments when preparing this public report.