Panel Puts Cap on Cost Overruns for Metro Rail

In an effort to ease the Los Angeles City Council’s concerns about escalating Metro Rail construction costs, the Los Angeles County Transportation Commission on Wednesday voted to impose a 10% cap on future cost overruns in the $3.7-billion project.

The City Council, which is paying for about 6% of the cost to build the 17.3-mile subway from downtown Los Angeles to the San Fernando Valley, had previously balked when the commission asked it to assume up to 10% of the cost overruns for the second phase of the project. City officials said they would accept liability for no more than 5% or $90 million.

Scaling Back

In the compromise agreement approved Wednesday, the commission proposed that it split any cost overruns equally with the city, each assuming liability for up to 5% of any costs that went over budget on Phase 2. If escalating costs pushed the contracts over that limit, money would be saved by scaling back expenditures, eliminating features or postponing construction of stations, commission officials explained.

The council is expected to approve the agreement, and that would clear the way for the commission to apply for federal funds to finance this next 6.8-mile phase of the project, which will punch the twin subway tunnels from McArthur Park out to Hollywood Boulevard and Vine Street.

Led the Fight

“This satisfies the concerns of the City Council,” said Councilman Michael Woo, who sits on the commission. He said Councilman Nate Holden, who led the fight to limit the city’s obligation for cost overruns, has said he will support the commission’s compromise agreement.

The city had previously agreed to fund its $96-million share of the second phase and, with the limits put on by the compromise, is expected to sign the funding agreement.

Metro Rail financing is complex. Half of the funds come from the federal government, with the state and local governments paying the remaining costs. The commission is the designated funding authority. All cost overruns must be paid by local governments.

The issue of cost overruns has become a primary concern since a commission audit released earlier this month revealed that the first 4.4-mile phase of the project that is being built by the Southern California Rapid Transit District is two years behind schedule and $135 million over its budget.

Turn It Over

The commission audit, done by an outside consultant, reported that costs had gone up in large part because of transit district red tape and poor project management. The commission wants to take project management away from the RTD and turn it over to a new agency that would be set up just to build rail transit in the county.

Until the commission audit was released, transit district authorities had maintained that the project was on time and within budget. The district’s own audit, released the same day as the commission’s audit, reported the overruns were no more than 8%, or $102 million.

District officials angrily charged that the commission was exaggerating the problem in an effort to push the district aside and take over building of the subway.