Two Appeals: Metrolink Track improvements
Appeal Brief
Appeal Letter
Appeal Analysis
Citation: Second Appeal by the Metropolitan Transportation Authority for reconsideration of expenses related to emergency Metrolink rail transport as eligible.
Cross-Reference: Subject: Emergency work, Emergency period, expenses related to leased property. FEMA Record: DSR #'s 73903, 96887, 73944, 96885, and 96886, 96888, 96889, 73964, 73965.
Summary: The MTA appeals the FEMA's findings that a certain portion of the expenses related to emergency rail service are ineligible because (1) they were incurred outside of the time frame for eligible work, and/or (2) they were for ineligible items.
Issues: (a) Should FEMA consider expenses outside of the eligible time frame for a rail project when (1) the time frame was less that had hitherto been anticipated because of the early completion of the repairs to the highways, and (2) because the costs of canceling contracts and shutting down a project midway are substantially the same as completing it? (b) Should expenses related to the relocation of tenants with leases that allow the property to be reclaimed by the subgrantee without penalty on short notice be allowed as eligible?
Findings: (a) The early completion date for the freeway work was evident with enough warning to allow timely termination of the projects. (b) FEMA eligibility does not include relocation expenses for commercial tenants leasing property from a subgrantee when the leases allow termination without liquidated damages on short notice. (c) Other expenses were reviewed and found ineligible because they were not disaster related.
Rationale: (a) The eligible work was intended to serve transportation needs only during an emergency period while the freeways were closed. The funds were not intended to provide funding for a permanent infrastructure improvement project. When the emergency period ended, the funding is terminated, even though the project was not complete. (b) The costs related to relocation are by contract incurred by the lessees, who are ineligible for FEMA funding.
The first appeal analysis and other relevant documentation is attached as a source of additional information regarding the Subgrantee's second appeal.
BACKGROUND
To help address transportation needs following the January 1994 Northridge earthquake, local, state and federal agencies sought to jointly develop alternate means of conveyance while area freeways I-5 and SR-14 were being repaired. One of the agencies involved in this effort was MTA, which is responsible through Metrolink for managing much of the region's commuter rail system.
In the immediate wake of the earthquake, Metrolink representatives inspected track and facilities in accordance with its Emergency Response Manual, with commuter service resuming January 19, 1994. Damage Survey Report (DSR) 73944 was obligated August 12, 1994, to fund an estimated $178,559 in contract costs associated with the safety inspections.
Although freeway reconstruction began almost immediately after the earthquake, it was initially estimated that portions of the freeways could remain inoperable until early 1995. By contrast, he rail system was fully operational two days after the earthquake. Since the commuter rail system suffered only minor effects, it became a viable alternative to damaged freeways.
Metrolink also had the ability to immediately expand its rail service north of the Golden State and Antelope freeways, and following the earthquake service was added to include Santa Clarita to Palmdale Junction, Palmdale Junction to Lancaster, and a 11-mile westward extension on the Ventura Line to Oxnard. While an interim agreement allowed Metrolink to operate between Palmdale Junction and Lancaster, construction of a permanent track was necessary for long-term service. Improvements were also necessary on existing track between Santa Clarita and Palmdale. In conjunction with the expanded rail service, new stations and additional cars were added along both rail lines to handle the anticipated increase in ridership.
On March 7, 1994, DSR 73903 was obligated for $3,402,100 to fund for 90 days after the earthquake the entire operating cost of the commuter service rail from Santa Clarita to Lancaster and the incremental operating costs of the remaining Santa Clarita and Ventura lines. Additional operating costs for the Santa Clarita and Ventura lines were addressed in supplemental DSR 73956, obligated January 14, 1995, for $1,947,100. Also included in DSR 73956 was an extension of the eligible periods for operating expenses - to July 7, 1994, for the Santa Clarita line, and to September 2, 1994, for the Ventura line.
Following completion of construction, Metrolink began operating the Palmdale Junction to Lancaster track on July 1, 1994. One week later, on July 8, 1994, the Golden State and Antelope freeways re-opened, ending the period of eligibility for projects related to emergency public transportation. (The eligibility period for construction projects was subsequently extended to July 31, 1994.)
A number of Damage Survey Reports (DSRs) were approved as emergency protective measures to provide estimated funding for commuter rail construction, repairs and track improvements. DSR 73915 and DSR 73964 provided $11,123,858 and $5,688,568, respectively, for construction of the new commuter rail track. DSR 73917 and DSR 73965 provided $19,451,452 and $732,285, respectively, for track improvements, which were designed to increase train speed and improve track safety. DSR 73957 provided $184,929 for repair of damaged Metrolink facilities and DSR 73944 provided $178,509 for emergency safety inspections. FEMA subsequently voided both supplemental DSRs 73964 and 73965 pending review of actual costs.
Following a request from MTA for supplemental funding, FEMA and Price Waterhouse undertook a comprehensive review of MTA large projects to determine actual, eligible costs. Based upon the findings, published October 15, 1996, in Review of the Metropolitan Transportation Authority DSRs Related to Track Construction, Track Inspections, Immediate Repairs, and Commuter Line Operating Expenses, FEMA prepared five new DSRs to address eligible and ineligible cost items and to replace voided DSRs 73964 and 73965.
Table 1 - DSRs Based on FEMA/Price Waterhouse Review
FIRST APPEALS
New DSRs 96886, 96888, and 96889, and voided DSRs 73964 and 73965, were the subject of one MTA first appeal, filed July 24, 1997. (DSRs 96885 and 96887 were appealed by MTA separately from the others.)
The MTA appeal challenged $7,613,470 in costs determined by the FEMA/Price Waterhouse review to be ineligible for reimbursement. Specifically, MTA disagreed with $4,942,600 found ineligible because the construction costs were incurred outside the eligible timeframe; and $2,670,870 in other disallowed expenses. In a May 28, 1998, letter to OES, FEMA informed the state that this first appeal was denied because "MTA did not provide any additional documentation to indicate that the conclusions reached during the original preparation of the October 15, 1996, Final Report were in error or were based upon incomplete assertions or documentation."
The other two of the DSRs produced as a result of the Price Waterhouse Report - DSR 96885 and DSR 96887 - were the subject of another first appeal from Mgu questioned the amount of funding deobligated under DSR 96885 ($73,337 in funds previously estimated on DSR 73944) and DSR 96887 ($2,398,725 in funds previously estimated on DSRs 73903 and 73956). Specifically, MTA disputed $1,996,083 in deobligations between the two DSRs, of which $1,831,148 was disallowed as ineligible expenses and $164,935 was disallowed as outside the eligible timeframe. The first appeal analysis from FEMA considered the information available from MTA in its letter of appeal and determined that the deobligations in DSRs 96885 and 96887 were appropriate.
THE DAMAGE
These appeals relate to cost incurred by the MTA to provide temporary alternative modes of transportation during the time that the Golden State and the Antelope Freeways were out of service as a result of earthquake damage to their bridge structures.
SECOND APPEAL REQUEST
SECOND APPEAL #1
The second letter of appeal from MTA challenges $358,323 in funds deobligated in DSR 96887. (Although the appeal letter references both DSRs 96885 and 96887, there is no indication from the specific cost items questioned that DSR 96885 is a subject of the second appeal.) Specifically, MTA requests reconsideration of:
After reviewing the MTA second appeal, OES recommends the reinstatement of $159,620 deobligated in DSR 96887: $80,593 for marketing costs, $20,590 for costs within the timeframe, and $58,437 (out of $257,140) for eligible costs during the period of emergency operations.
SECOND APPEAL#2
The second letter of appeal from MTA regarding DSRs 96886, 96888, 96889, 73964, and 73965 requests reimbursement of $8,497,910 from FEMA for disaster-related costs. Specifically, MTA requests reconsideration of:
Regarding the relocation of tenants that had facilities on the railroad right of way, MTA argues that provisions in 44 Code of Federal Regulations (206.226(e)(2)), the Stafford Disaster Relief and Emergency Assistance Act (Sec. 414), and the Uniform Relocation Assistance & Real Property Acquisition Policies Act make these expenses eligible for reimbursement.
Lastly, regarding the other unaddressed expenditures, MTA believes that the FEMA/Price Waterhouse review mistakenly omitted $2,321,010 in costs from its final reconciliation that should have been included in DSRs 96888 and 96889.
In its letter of transmittal, OES recommends that "FEMA reconsider the eligibility of the MTA expenses that were incurred for track-related construction work that was completed after July 31, 1994, due to the fact that there were special circumstances that surrounded the completion of this project." OES also recommends that FEMA reimburse MTA for $1,536,313 in relocation and demolition expenses, as these costs were incurred in performance of a track-related construction project. Finally, OES recommends that FEMA review the $2,321,010 in unaddressed project expenditures and fund those determined to be eligible.
DISCUSSION
At the beginning of each appeal, the MTA makes the request that FEMA immediately reimburse the MTA a sum of "undisputed approved funding for the emergency operations." In appeal #1, the requested amount is $765,816, and in appeal #2 it is $7,837,787. Both appeals refer to their attached "enclosure #1" but these sums are not identified on the enclosures. Since the MTA goes on to say that they have never "disputed or appealed the approved funding for emergency operations"it can only be assumed that these sums are not included in the subject of these appeals. If such amounts are approved but not yet paid, it can be taken up with the State, as FEMA's funds are passed to the state to be disbursed to the subgrantees.
The rest of the discussion is broken into two parts, each responding to the separate appeals.
ANALYSIS OF APPEAL #1
Ineligible Costs ($257,140)
There are five independent items cited by MTA under ineligible costs for which reimbursement is sought. All items relate to deobligations addressed in DSR 96887.
MTA submitted a total of $859,904 in marketing and public safety program costs. During the FEMA/Price Waterhouse review, it was determined that these expenses did not represent incremental marketing and public safety costs, but rather all costs incurred during the period January 17 to July 7, 1994. Using information supplied by MTA, reviewers found that of the total, $683,365 represented emergency costs and $176,539 non-emergency costs. By comparing MTA's pre-disaster ($66,374/mo) and post-disaster ($151,927/mo) marketing and public safety expenditures it was possible to determine the eligible incremental expenses for the two rail lines. The monthly increase of $85,553 multiplied by the eligible time period of 5.66 months provided an eligible amount of $484,229. The total emergency marketing and public safety costs of $683,365 less eligible incremental costs of $484,229 left a $199,136 disallowance.
MTA contends in its appeal that $80,593 of the $199,136 disallowance should be reinstated. Specifically, MTA argues that the figure of $66,374 used by FEMA skews the analysis as it represents the average monthly cost for marketing and public safety for five lines operated by Metrolink, not just the Ventura and Santa Clarita lines. Based on its calculations, the correct disallowance total should be $118,543 - leaving $80,593 to be reimbursed.
An examination of the working documents used by FEMA and Price Waterhouse reviewers makes clear, however, that the $66,374 figure does in fact represent the average, monthly pre-disaster cost for only the Santa Clarita and Ventura lines. The methodology used by the reviewers:
There are two independent items cited by MTA under costs outside timeframe for which reimbursement is sought. All items relate to deobligations addressed in DSR 96887.
Construction Expenses Outside Eligible Timeframe ($4,640,587)
The first MTA appeal argued that "the actual contracted work was done within the emergency period and detailed on the individual invoice. The invoice was dated after the emergency period because it was issued on a monthly or quarterly basis after the service had been rendered." FEMA's cost review in the first appeal analysis, however, identified charges that were incurred after the emergency period ended, and concluded that "the information provided on these invoices does not lend support to MTA's claims that invoiced costs occurred during the emergency period." In its second appeal, "the MTA acknowledges that some of its work was completed after July 31, 1994." MTA argues instead that for reasons of fairness the disallowed construction costs should be reimbursed even though they were incurred after the July 31, 1994, cutoff:Although the highway reconstruction was completed in July 1994, the MTA was not instructed to cease work; nor was it informed, at that time, that costs would be ineligible. The MTA good faith efforts should not be impacted by the early completion of highway repair. At the initiation of the MTA work, all parties agreed that the highway work would take 18 months to complete. The MTA was never officially notified by FEMA that the highway would be completed earlier than expected. The MTA relied on the information available at the time when initiating the work and should not be penalized for such reliance.be reiits costs, and relying on that promise when it initiated construction and ordered materials needed to complete the construction. As explained in the first appeal analysis, the regulation under which the construction DSRs were funded and which determines the eligibility of these expenses claimed by MTA is 44 CFR 206.225(d) emergency public transportation:Emergency public transportation to meet emergency needs and to provide transportation to public places and such other places as necessary for the community to resume its normal pattern of life as soon as possible is eligible. Such transportation is intended to supplement but not replace predisaster transportation facilities that remain operable after the disaster. FEMA funding for such transportation will be discontinued as soon as the needs have been met. Since the freeways reopened July 8, 1994, FEMA considers the emergency situation to have ended as of July 7, 1994. FEMA extended the period of eligibility to July 31, 1994, so that the majority of MTA's construction costs would be reimbursed.
Based on available documentation, it is difficult to believe that MTA was unaware that (1) FEMA funding of its emergency construction costs would only be eligible until the freeways reopened; and that (2) the freeways would reopen sooner than originally expected. The timeline included in the FEMA/Price Waterhouse review notes that in January 1994, when FEMA's role relative to emergency transportation was first discussed, "all parties were informed that FEMA funding would stop when the emergency need was met. This date was defined as when the freeways reopened and normal commuter traffic patterns could be established."Again according to the timeline, by April 1994 "it became clear that the freeways were going to be completed ahead of schedule." Also in April, "FEMA inspectors informed MTA that it would be responsible for any work performed after the emergency period. FEMA reiterated that the basis for funding is the emergency period, and that the emergency period for transportation would cease once the freeways reopened."Further, in the May 19, 1994, Los Angeles Times, an article in the Metro section was headlined: "As Freeway Opens, Many Stick to Mass Transit; Commuting; Experts warn that Metrolink, other services need aggressive marketing. Real test is expected in July, when Antelope Valley interchange opens" (emphasis added).
This information strongly supports the appropriateness of FEMA's original determination that construction costs incurred by MTA outside of the emergency time period are not eligible for reimbursement.
Disallowed Relocation and Demolition Costs ($1,536,313)
In the course of constructing new track between Palmdale Junction and Lancaster, the MTA incurred $1,480,788 in costs for relocation of tenants on the MTA-owned right of way to cover acquisition costs for structures and improvements, relocation costs, goodwill, consulting and appraisal fees (relocation expenses) for nine businesses that were leasing land from the Subgrantee in the right-of-way and which needed to be relocated. The MTA also expended $55,525 in costs for related demolition work. DSR 73915, which was written to fund the new track construction, specifically excluded costs associated with relocation, acquisition, and demolition. According to the commercial lease agreement Metrolink had with each of its tenants, either party had the right to terminate the lease with 30 days written notice. Upon termination of the lease, the only compensation for which Metrolink would have been liable was rent paid in advance beyond the termination date.
MTA argues that provisions in 44 Code of Federal Regulations (206.226(e)(2)), the Stafford Disaster Relief and Emergency Assistance Act (Sec. 414), and, particularly, the Uniform Relocation Assistance & Real Property Acquisition Policies Act make relocation and demolition expenses eligible for reimbursement.
Section 419 of the Stafford Act, Emergency Public Transportation, authorizes funding for "temporary public transportation service ... to meet emergency needs." Pursuant to this Section, Subgrantee was determined eligible for funding in the amount of $10,011,477 to cover the cost of construction of the track. Reimbursement for relocation costs was denied on the basis that the applicable lease agreements contained thirty (30) day termination clauses.
The documentation provided includes a copy of a Commercial Lease, dated May 2, 1978, entered into between Janet Jordan and Yolanda Higuera d/b/a the Bushwackers (Lessees) and the Southern Pacific Transportation Company (Subgrantee is the successor-in-interest). The Lease provides for the right of the Subgrantee to terminate the Lease upon short notice, as well as the right to demolish the structures thereon without providing compensation to the Lessees. Specifically, Paragraph 17 of the Lease grants either party the right to terminate the lease upon 30 days written notice. In addition, pursuant to paragraph 7, the Lessees can, prior to termination of the Lease, remove from the leased premises any structures or improvements they wholly own. If, however, they fail to remove such structures, the structures may, at the option of the Subgrantee, become the sole property of the Subgrantee. Also, the Subgrantee may, at the expense of the Lessees, restore the leased premises to substantially the condition it was in at the time Lessees took possession.
It is Subgrantee's position that, notwithstanding the provisions of the Lease, it was required, pursuant to the Uniform Relocation Assistance and Real Property Acquisition Act of 1971, 42 USCA 4010, et. Seq., (The Act), to provide relocation expenses. It is FEMA's determination, however, that the Act does not apply to this project. The Act applies to federally assisted projects that cause a person to become displaced. A "displaced person" is defined as a business which becomes displaced b y a project undertaken with Federal financial assistance in which it is determined that such displacement is permanent (Section 4601 (6)(A)(i)(II)). The implementing regulations, at 49 CFR 24.2 (g)(2)(iv), "Persons not displaced," further provide that the determination as to whether a person is required to relocate permanently shall be made in accordance with guidelines established by the Federal agency funding the project. As stated, FEMA approved the project as a temporary emergency measure.
In addition, Section 4601(6)(B)(ii) of the Act makes clear that the definition of a "displaced person" does not include a person "who occupies such property on a rental basis for a short term or a period subject to termination when the property is needed for the program or project." In this case the property was initially leased for a one-year period. Paragraph 18 of the Lease further provides that after the end of the one-year period, it will revert to a month-to-month tenancy upon the same terms and conditions.
In addition to the fact that the month-to-month tenancy was subject to termination upon short notice, Paragraph 1 of the Lease reflects that the Subgrantee reserved for itself the right to construct a track in the right-of-way. This is consistent with a determination that the right-of-way was leased on a short term basis subject to a short termination period in order to enable the Metropolitan Transit Authority/Railroad to terminate the Lease arrangement when it was needed for the purpose of constructing a project such as the one under consideration.
Accordingly, the relocation and demolition costs paid by the Subgrantee are not eligible for reimbursement.
Expenditures Not Addressed by FEMA/Price Waterhouse Review ($2,321,010)
MTA states that $2,321,010 in emergency construction costwere notaterhouse review and should be reimbursed. As Table 2 indicates, FEMA records do not reflect unaccounted for expenses relating to those construction projects:
Table 2 - Emergency Construction Costs
In examining the MTA claim, it appears the $2,321,010 discrepancy is comprised of:
CONCLUSIONS
For the reasons explained above, FEMA has determined that the amounts under appeal are ineligible with the exception of the amount of $7,021 identified in Appeal #1 on page 7 for costs outside of the time frame.
In the case of work outside the time frame, the eligible work was intended to serve transportation needs only during an emergency period while the freeways were closed. The funds were not intended to provide funding for a permanent infrastructure improvement project. When the emergency period ended, the funding is terminated, even though the project was not complete. (Had it been known at the outset that the rail construction would not have been able to have been constructed in time to meet the emergency needs, but only to serve long term benefits, none of the expenses would have been determined to be eligible at the beginning.)
In the case of costs related to relocation, FEMA finds that the terms of the lease allow termination on short notice and thus do not obligate the Subgrantee to bear these costs, so they are not eligible for FEMA funding.
Appeal Brief
| Disaster | FEMA-1008-DR |
| Applicant | Los Angeles County Metropolitan Transportation Authority |
| Appeal Type | Second |
| PA ID# | 037-91170 |
| PW ID# | 73903,73944,73964-5,96885-9 |
| Date Signed | 1999-03-05T05:00:00 |
Cross-Reference: Subject: Emergency work, Emergency period, expenses related to leased property. FEMA Record: DSR #'s 73903, 96887, 73944, 96885, and 96886, 96888, 96889, 73964, 73965.
Summary: The MTA appeals the FEMA's findings that a certain portion of the expenses related to emergency rail service are ineligible because (1) they were incurred outside of the time frame for eligible work, and/or (2) they were for ineligible items.
Issues: (a) Should FEMA consider expenses outside of the eligible time frame for a rail project when (1) the time frame was less that had hitherto been anticipated because of the early completion of the repairs to the highways, and (2) because the costs of canceling contracts and shutting down a project midway are substantially the same as completing it? (b) Should expenses related to the relocation of tenants with leases that allow the property to be reclaimed by the subgrantee without penalty on short notice be allowed as eligible?
Findings: (a) The early completion date for the freeway work was evident with enough warning to allow timely termination of the projects. (b) FEMA eligibility does not include relocation expenses for commercial tenants leasing property from a subgrantee when the leases allow termination without liquidated damages on short notice. (c) Other expenses were reviewed and found ineligible because they were not disaster related.
Rationale: (a) The eligible work was intended to serve transportation needs only during an emergency period while the freeways were closed. The funds were not intended to provide funding for a permanent infrastructure improvement project. When the emergency period ended, the funding is terminated, even though the project was not complete. (b) The costs related to relocation are by contract incurred by the lessees, who are ineligible for FEMA funding.
Appeal Letter
March 5, 1999
Mr. D.A. Christian
Governor's Authorized Representative
Governor's Office of Emergency Services
Post Office Box 419023
Rancho Cordova, California 95741-9023
Ref: PA 037-91170, Metropolitan Transportation Authority, Appeal #1: Metrolink Track Improvements, Palmdale Junction to Lancaster & Safety Inspections of the Rail System: DSR 73903, 96887 & 73944, 96885. Appeal #2: Metrolink Track Improvements, Countywide, DSRs 96886, 96888, 96889, 73964, 73965
Dear Mr. Christian:
This letter is in response to your letters of September 8, 1998 and October 8, 1998, forwarding two Second Appeals of the above referenced Damage Survey Report (DSRs) submitted by the Metropolitan Transportation Authority to OES on February 17, 1998, and forwarded by you to FEMA on July 9, 1998 and August 7, 1998. The applicant has requested funds to cover expenses related to the construction and maintenance of rail systems to provide emergency alternate transportation during the period of freeway reconstruction.
As explained in the enclosed analysis, FEMA has found that, with the exception of $7,021, these costs are not eligible for FEMA funding. The eligible work was intended to serve transportation needs only during an emergency period while the freeways were closed. The funds were not intended to provide funding for a permanent infrastructure improvement project. When the emergency period ended, the funding was terminated, even though the project was not complete. In the case of costs related to relocation, FEMA finds that the terms of the lease allow termination on short notice and thus do not obligate the Subgrantee to bear these costs, so they are not eligible for FEMA funding.
Accordingly, the applicant's appeal is approved only for the amount of $7,021 out of the total of the $8,856,233 under appeal. By copy of this letter, I am requesting the Federal Coordinating Officer to prepare a DSR for the amount of $7,021.
Please inform the applicant of this determination. In accordance with the appeal procedure governing appeal decisions made on or after May 8, 1998, my decision constitutes the final decision on this matter. The current appeal procedure was published as a final rule in the Federal Register on April 8, 1998. It amends 44 CFR 206.206.
Sincerely,
/S/
Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate
Enclosure
cc: Christina Lopez
Federal Coordinating Officer
Northridge Long-Term Recovery Area Office
Mr. D.A. Christian
Governor's Authorized Representative
Governor's Office of Emergency Services
Post Office Box 419023
Rancho Cordova, California 95741-9023
Ref: PA 037-91170, Metropolitan Transportation Authority, Appeal #1: Metrolink Track Improvements, Palmdale Junction to Lancaster & Safety Inspections of the Rail System: DSR 73903, 96887 & 73944, 96885. Appeal #2: Metrolink Track Improvements, Countywide, DSRs 96886, 96888, 96889, 73964, 73965
Dear Mr. Christian:
This letter is in response to your letters of September 8, 1998 and October 8, 1998, forwarding two Second Appeals of the above referenced Damage Survey Report (DSRs) submitted by the Metropolitan Transportation Authority to OES on February 17, 1998, and forwarded by you to FEMA on July 9, 1998 and August 7, 1998. The applicant has requested funds to cover expenses related to the construction and maintenance of rail systems to provide emergency alternate transportation during the period of freeway reconstruction.
As explained in the enclosed analysis, FEMA has found that, with the exception of $7,021, these costs are not eligible for FEMA funding. The eligible work was intended to serve transportation needs only during an emergency period while the freeways were closed. The funds were not intended to provide funding for a permanent infrastructure improvement project. When the emergency period ended, the funding was terminated, even though the project was not complete. In the case of costs related to relocation, FEMA finds that the terms of the lease allow termination on short notice and thus do not obligate the Subgrantee to bear these costs, so they are not eligible for FEMA funding.
Accordingly, the applicant's appeal is approved only for the amount of $7,021 out of the total of the $8,856,233 under appeal. By copy of this letter, I am requesting the Federal Coordinating Officer to prepare a DSR for the amount of $7,021.
Please inform the applicant of this determination. In accordance with the appeal procedure governing appeal decisions made on or after May 8, 1998, my decision constitutes the final decision on this matter. The current appeal procedure was published as a final rule in the Federal Register on April 8, 1998. It amends 44 CFR 206.206.
Sincerely,
/S/
Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate
Enclosure
cc: Christina Lopez
Federal Coordinating Officer
Northridge Long-Term Recovery Area Office
Appeal Analysis
The Los Angeles County Metropolitan Transportation Authority (MTA) submitted two second appeals on July 9, 1998 and August 10, 1998 to the Governor's Office of Emergency Services (OES). These appeals focus on FEMA's disallowance and deobligation of certain costs associated with MTA activities following the January 1994 Northridge earthquake. The second appeal identified here as "Appeal #1" from the MTA was forwarded to the Northridge Long-Term Recovery Area Office on September 8, 1998, and "Appeal #2" was forwarded on October 8, 1998.The first appeal analysis and other relevant documentation is attached as a source of additional information regarding the Subgrantee's second appeal.
BACKGROUND
To help address transportation needs following the January 1994 Northridge earthquake, local, state and federal agencies sought to jointly develop alternate means of conveyance while area freeways I-5 and SR-14 were being repaired. One of the agencies involved in this effort was MTA, which is responsible through Metrolink for managing much of the region's commuter rail system.
In the immediate wake of the earthquake, Metrolink representatives inspected track and facilities in accordance with its Emergency Response Manual, with commuter service resuming January 19, 1994. Damage Survey Report (DSR) 73944 was obligated August 12, 1994, to fund an estimated $178,559 in contract costs associated with the safety inspections.
Although freeway reconstruction began almost immediately after the earthquake, it was initially estimated that portions of the freeways could remain inoperable until early 1995. By contrast, he rail system was fully operational two days after the earthquake. Since the commuter rail system suffered only minor effects, it became a viable alternative to damaged freeways.
Metrolink also had the ability to immediately expand its rail service north of the Golden State and Antelope freeways, and following the earthquake service was added to include Santa Clarita to Palmdale Junction, Palmdale Junction to Lancaster, and a 11-mile westward extension on the Ventura Line to Oxnard. While an interim agreement allowed Metrolink to operate between Palmdale Junction and Lancaster, construction of a permanent track was necessary for long-term service. Improvements were also necessary on existing track between Santa Clarita and Palmdale. In conjunction with the expanded rail service, new stations and additional cars were added along both rail lines to handle the anticipated increase in ridership.
On March 7, 1994, DSR 73903 was obligated for $3,402,100 to fund for 90 days after the earthquake the entire operating cost of the commuter service rail from Santa Clarita to Lancaster and the incremental operating costs of the remaining Santa Clarita and Ventura lines. Additional operating costs for the Santa Clarita and Ventura lines were addressed in supplemental DSR 73956, obligated January 14, 1995, for $1,947,100. Also included in DSR 73956 was an extension of the eligible periods for operating expenses - to July 7, 1994, for the Santa Clarita line, and to September 2, 1994, for the Ventura line.
Following completion of construction, Metrolink began operating the Palmdale Junction to Lancaster track on July 1, 1994. One week later, on July 8, 1994, the Golden State and Antelope freeways re-opened, ending the period of eligibility for projects related to emergency public transportation. (The eligibility period for construction projects was subsequently extended to July 31, 1994.)
A number of Damage Survey Reports (DSRs) were approved as emergency protective measures to provide estimated funding for commuter rail construction, repairs and track improvements. DSR 73915 and DSR 73964 provided $11,123,858 and $5,688,568, respectively, for construction of the new commuter rail track. DSR 73917 and DSR 73965 provided $19,451,452 and $732,285, respectively, for track improvements, which were designed to increase train speed and improve track safety. DSR 73957 provided $184,929 for repair of damaged Metrolink facilities and DSR 73944 provided $178,509 for emergency safety inspections. FEMA subsequently voided both supplemental DSRs 73964 and 73965 pending review of actual costs.
Following a request from MTA for supplemental funding, FEMA and Price Waterhouse undertook a comprehensive review of MTA large projects to determine actual, eligible costs. Based upon the findings, published October 15, 1996, in Review of the Metropolitan Transportation Authority DSRs Related to Track Construction, Track Inspections, Immediate Repairs, and Commuter Line Operating Expenses, FEMA prepared five new DSRs to address eligible and ineligible cost items and to replace voided DSRs 73964 and 73965.
New DSR | Purpose | Total Amount Obligated |
96885 | Deobligate $73,337 from DSR 73944 | $105,172 |
96887 | Deobligate $2,398,725 from DSRs 73903 and 73956 | $2,950,475 |
96886 | Obligate $79,493 to supplement DSR 73957 | $264,422 |
96888 | Obligate $3,554,041 to supplement DSR 73915 | $14,677,899 |
96889 | Obligate $970,444 to supplement DSR 73917 | $20,421,896 |
| y | MTA's Total Eligible Expenses | $38,419,864 |
FIRST APPEALS
New DSRs 96886, 96888, and 96889, and voided DSRs 73964 and 73965, were the subject of one MTA first appeal, filed July 24, 1997. (DSRs 96885 and 96887 were appealed by MTA separately from the others.)
The MTA appeal challenged $7,613,470 in costs determined by the FEMA/Price Waterhouse review to be ineligible for reimbursement. Specifically, MTA disagreed with $4,942,600 found ineligible because the construction costs were incurred outside the eligible timeframe; and $2,670,870 in other disallowed expenses. In a May 28, 1998, letter to OES, FEMA informed the state that this first appeal was denied because "MTA did not provide any additional documentation to indicate that the conclusions reached during the original preparation of the October 15, 1996, Final Report were in error or were based upon incomplete assertions or documentation."
The other two of the DSRs produced as a result of the Price Waterhouse Report - DSR 96885 and DSR 96887 - were the subject of another first appeal from Mgu questioned the amount of funding deobligated under DSR 96885 ($73,337 in funds previously estimated on DSR 73944) and DSR 96887 ($2,398,725 in funds previously estimated on DSRs 73903 and 73956). Specifically, MTA disputed $1,996,083 in deobligations between the two DSRs, of which $1,831,148 was disallowed as ineligible expenses and $164,935 was disallowed as outside the eligible timeframe. The first appeal analysis from FEMA considered the information available from MTA in its letter of appeal and determined that the deobligations in DSRs 96885 and 96887 were appropriate.
THE DAMAGE
These appeals relate to cost incurred by the MTA to provide temporary alternative modes of transportation during the time that the Golden State and the Antelope Freeways were out of service as a result of earthquake damage to their bridge structures.
SECOND APPEAL REQUEST
SECOND APPEAL #1
The second letter of appeal from MTA challenges $358,323 in funds deobligated in DSR 96887. (Although the appeal letter references both DSRs 96885 and 96887, there is no indication from the specific cost items questioned that DSR 96885 is a subject of the second appeal.) Specifically, MTA requests reconsideration of:
- $257,140 considered ineligible costs for emergency operations;
- $80,593 disallowed as normal marketing and public safety program costs; and
- $20,590 determined to be outside the eligible timeframe.
After reviewing the MTA second appeal, OES recommends the reinstatement of $159,620 deobligated in DSR 96887: $80,593 for marketing costs, $20,590 for costs within the timeframe, and $58,437 (out of $257,140) for eligible costs during the period of emergency operations.
SECOND APPEAL#2
The second letter of appeal from MTA regarding DSRs 96886, 96888, 96889, 73964, and 73965 requests reimbursement of $8,497,910 from FEMA for disaster-related costs. Specifically, MTA requests reconsideration of:
- $4,640,587 in construction expenses determined to be outside the eligible timeframe;
- $1,536,313 in disallowed relocation and demolition costs; and
- $2,321,010 in other expenditures not addressed by the FEMA/Price Waterhouse review.
Regarding the relocation of tenants that had facilities on the railroad right of way, MTA argues that provisions in 44 Code of Federal Regulations (206.226(e)(2)), the Stafford Disaster Relief and Emergency Assistance Act (Sec. 414), and the Uniform Relocation Assistance & Real Property Acquisition Policies Act make these expenses eligible for reimbursement.
Lastly, regarding the other unaddressed expenditures, MTA believes that the FEMA/Price Waterhouse review mistakenly omitted $2,321,010 in costs from its final reconciliation that should have been included in DSRs 96888 and 96889.
In its letter of transmittal, OES recommends that "FEMA reconsider the eligibility of the MTA expenses that were incurred for track-related construction work that was completed after July 31, 1994, due to the fact that there were special circumstances that surrounded the completion of this project." OES also recommends that FEMA reimburse MTA for $1,536,313 in relocation and demolition expenses, as these costs were incurred in performance of a track-related construction project. Finally, OES recommends that FEMA review the $2,321,010 in unaddressed project expenditures and fund those determined to be eligible.
DISCUSSION
At the beginning of each appeal, the MTA makes the request that FEMA immediately reimburse the MTA a sum of "undisputed approved funding for the emergency operations." In appeal #1, the requested amount is $765,816, and in appeal #2 it is $7,837,787. Both appeals refer to their attached "enclosure #1" but these sums are not identified on the enclosures. Since the MTA goes on to say that they have never "disputed or appealed the approved funding for emergency operations"it can only be assumed that these sums are not included in the subject of these appeals. If such amounts are approved but not yet paid, it can be taken up with the State, as FEMA's funds are passed to the state to be disbursed to the subgrantees.
The rest of the discussion is broken into two parts, each responding to the separate appeals.
ANALYSIS OF APPEAL #1
Ineligible Costs ($257,140)
There are five independent items cited by MTA under ineligible costs for which reimbursement is sought. All items relate to deobligations addressed in DSR 96887.
- $132,367 for the Herzog Contracting Corporation. Following the October 1996 FEMA/Price Waterhouse review, these charges were transferred to construction expenses for project F64 (Santa Clarita to Palmdale), and eligible costs were reimbursed under DSR 96889. The MTA appeal states that the vendor charges were for maintenance and should not have been reimbursed as track construction expenses. Since the costs from the Herzog Corp. have already been addressed through DSR 96889, there is no need to consider an administrative adjustment here. If MTA thought that the level of reimbursement in DSR 96889 was incorrect, then that contention should have been pursued directly through DSR 96889, which has not been done.
- $66,336 for National Railroad Passenger. Again based on the review, FEMA determined that these charges were ineligible because "any repairs or maintenance related to the FHWA funded engines or rail cars should be reimbursed by FHWA." The MTA argues in the appeal that its lease did not include maintenance and repairs of equipment. But without additional supporting documentation from MTA as to the nature of its lease agreement with FHWA, it is impossible to modify the previous determination.
- $53,328 for 12 invoices from Watt Enterprise Company. In Appendix B of the FEMA/ Price Waterhouse review of MTA costs, it is noted that $53,328 in property lease charges from the Watt Enterprise Co. for Acton Station appear ineligible because they are addressed in DSR 73969. The MTA appeal states that there is no reference to lease costs in that DSR. But on page 2 of the narrative for DSR 73969, FEMA has provided for $19,998 in lease costs, based on $3,333 a month for six months (January 21 to July 20, 1994) - an amount supported by invoice charges from Watt Enterprise. If MTA thought that the level of reimbursement in DSR 73969 was incorrect, then that contention should have been pursued directly through DSR 73969.
- $4,247 for security services from U.S. Guards Company. The deobligation was based upon the discovery of a duplicate invoice for security services at the Camarillo station during August 1994. The basis for seeking reinstatement of this amount is not entirely clear from the appeal letter, and MTA has not submitted documentation to dispute the double billing. FEMA found the duplication in a comparison of journal vouchers S01106 and S001067, both of which were supplied by MTA. In journal voucher S01106, there is a $4,247.18 charge described as "inv 518 from 048," while journal voucher S001067 has the same dollar charge described as "Camarillo Tx from 048." The apparent duplication also appears on page 1 of the spreadsheet supplied by MTA (Enclosure 3).
- $862 for five invoices from Pacific Bell Company. As expladisa states that costs associated with operating the Oxnard layover facility at Montalvo - which is how these charges are described in the MTA spreadsheet - are not reimbursable. The MTA appeal states that the charges were not for operating the station, but rather for the cost of faxing train orders to train operators during the emergency operation period. There is, however, no documentation provided by MTA to support its contention, and a search of available invoice material at the FEMA Pasadena office did not yield suitable supporting evidence.
MTA submitted a total of $859,904 in marketing and public safety program costs. During the FEMA/Price Waterhouse review, it was determined that these expenses did not represent incremental marketing and public safety costs, but rather all costs incurred during the period January 17 to July 7, 1994. Using information supplied by MTA, reviewers found that of the total, $683,365 represented emergency costs and $176,539 non-emergency costs. By comparing MTA's pre-disaster ($66,374/mo) and post-disaster ($151,927/mo) marketing and public safety expenditures it was possible to determine the eligible incremental expenses for the two rail lines. The monthly increase of $85,553 multiplied by the eligible time period of 5.66 months provided an eligible amount of $484,229. The total emergency marketing and public safety costs of $683,365 less eligible incremental costs of $484,229 left a $199,136 disallowance.
MTA contends in its appeal that $80,593 of the $199,136 disallowance should be reinstated. Specifically, MTA argues that the figure of $66,374 used by FEMA skews the analysis as it represents the average monthly cost for marketing and public safety for five lines operated by Metrolink, not just the Ventura and Santa Clarita lines. Based on its calculations, the correct disallowance total should be $118,543 - leaving $80,593 to be reimbursed.
An examination of the working documents used by FEMA and Price Waterhouse reviewers makes clear, however, that the $66,374 figure does in fact represent the average, monthly pre-disaster cost for only the Santa Clarita and Ventura lines. The methodology used by the reviewers:
- A spreadsheet provided by MTA detailed total system-wide marketing and public safety costs from 1992, as well as the direct and indirect allocations posted to the Ventura and Santa Clarita lines.
- Using the spreadsheet data, total system-wide costs for marketing and public safety were identified for the 6.5 months immediately preceding the earthquake. These total system-wide costs equaled $18,380.44 for public safety and $990,660.20 for marketing.
- Total costs for the time period were assigned to the Ventura and Santa Clarita lines based on the MTA indirect allocation rates detailed in the spreadsheet: 15.6 percent for Ventura and 14 percent for Santa Clarita. This resulted in a preliminary cost total for public safety of $5,440.61 and marketing of $293,235.42.
- Direct allocations for public safety and marketing costs as listed in the spreadsheet were added to their respective components: $4,619.02 for public safety and $130,788.65 for marketing.
- Indirect and direct allocations for both cost components were summed to obtain public safety and marketing totals for the time period June 30, 1993, to January 17, 1994: $10,059.63 for public safety and $424,024.07 for marketing.
- Finally, the sum of these two figures, $434,083.70, was divided by the 6.54 month timeframe to obtain an average monthly cost for the Ventura and Santa Clarita lines: $66,373.65.
There are two independent items cited by MTA under costs outside timeframe for which reimbursement is sought. All items relate to deobligations addressed in DSR 96887.
- $14,041 from an $18,136 invoice for Commuter Transportation. The invoice covers telephone operators provided by the vendor for the month of July. As the emergency public transportation period for the Santa Clarita Line ran only through July 7, 1994, the $4,096 represents the pro-rated eligible amount.
In its appeal, MTA states that the invoice covers both the Santa Clarita and Ventura lines, and since the emergency operation period for Ventura ran until September 2, 1994, the unpaid portion of the invoice for July should be reimbursed. MTA also states that Metrolink is unable to separate the vendor's charges for the two lines. FEMA's decision to pro-rate the invoice for the month of July was based on the assumption that the service provided was for the Santa Clarita line only, and on the MTA spreadsheet, too, the charges are ascribed solely to the Santa Clarita project. On the July invoice itself the costs appear as "earthquake related expenses" and do not further specify for which line or lines the service was provided. It is not unreasonable to assume, however, that the temporary telephone operators provided their emergency information service for both lines, which makes a partial reinstatement in order. As no specific cost breakdown is available from Metrolink, a further assumption that the service was provided equally between the two lines justifies a reinstatement of $7,021.
Santa Clarita Lineyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy Ventura Line
$9,068= month of Julyyyyyyyyyyyyyyyyyyyyy $9,068 = month of July
$9,068/31 x 7 = $2,048 appropriate pro-rate
$2,047 FEMA overpayment ($4,095 - $2,048)
$9,068 less $2,047 overpay = $7,021
- $6,549 from a $9,179 invoice for Mass Electric Construction. The costs in question appear on a vendor invoice covering the two weeks ending July 10 and July 17, 1994. As the work related to the Santa Clarita Line, the cutoff date for eligible emergency activities was July 7, 1994, and the $2,630 paid was pro-rated to reflect four days of the week July 4-July 10. Although the MTA appeal argues that the deobligated charges were actually for services during the month of May 1994, the invoice from Mass Electric upon which the FEMA determination was based clearly indicates that the period covered was July 1994.
Construction Expenses Outside Eligible Timeframe ($4,640,587)
The first MTA appeal argued that "the actual contracted work was done within the emergency period and detailed on the individual invoice. The invoice was dated after the emergency period because it was issued on a monthly or quarterly basis after the service had been rendered." FEMA's cost review in the first appeal analysis, however, identified charges that were incurred after the emergency period ended, and concluded that "the information provided on these invoices does not lend support to MTA's claims that invoiced costs occurred during the emergency period." In its second appeal, "the MTA acknowledges that some of its work was completed after July 31, 1994." MTA argues instead that for reasons of fairness the disallowed construction costs should be reimbursed even though they were incurred after the July 31, 1994, cutoff:
Based on available documentation, it is difficult to believe that MTA was unaware that (1) FEMA funding of its emergency construction costs would only be eligible until the freeways reopened; and that (2) the freeways would reopen sooner than originally expected. The timeline included in the FEMA/Price Waterhouse review notes that in January 1994, when FEMA's role relative to emergency transportation was first discussed, "all parties were informed that FEMA funding would stop when the emergency need was met. This date was defined as when the freeways reopened and normal commuter traffic patterns could be established."Again according to the timeline, by April 1994 "it became clear that the freeways were going to be completed ahead of schedule." Also in April, "FEMA inspectors informed MTA that it would be responsible for any work performed after the emergency period. FEMA reiterated that the basis for funding is the emergency period, and that the emergency period for transportation would cease once the freeways reopened."Further, in the May 19, 1994, Los Angeles Times, an article in the Metro section was headlined: "As Freeway Opens, Many Stick to Mass Transit; Commuting; Experts warn that Metrolink, other services need aggressive marketing. Real test is expected in July, when Antelope Valley interchange opens" (emphasis added).
This information strongly supports the appropriateness of FEMA's original determination that construction costs incurred by MTA outside of the emergency time period are not eligible for reimbursement.
Disallowed Relocation and Demolition Costs ($1,536,313)
In the course of constructing new track between Palmdale Junction and Lancaster, the MTA incurred $1,480,788 in costs for relocation of tenants on the MTA-owned right of way to cover acquisition costs for structures and improvements, relocation costs, goodwill, consulting and appraisal fees (relocation expenses) for nine businesses that were leasing land from the Subgrantee in the right-of-way and which needed to be relocated. The MTA also expended $55,525 in costs for related demolition work. DSR 73915, which was written to fund the new track construction, specifically excluded costs associated with relocation, acquisition, and demolition. According to the commercial lease agreement Metrolink had with each of its tenants, either party had the right to terminate the lease with 30 days written notice. Upon termination of the lease, the only compensation for which Metrolink would have been liable was rent paid in advance beyond the termination date.
MTA argues that provisions in 44 Code of Federal Regulations (206.226(e)(2)), the Stafford Disaster Relief and Emergency Assistance Act (Sec. 414), and, particularly, the Uniform Relocation Assistance & Real Property Acquisition Policies Act make relocation and demolition expenses eligible for reimbursement.
Section 419 of the Stafford Act, Emergency Public Transportation, authorizes funding for "temporary public transportation service ... to meet emergency needs." Pursuant to this Section, Subgrantee was determined eligible for funding in the amount of $10,011,477 to cover the cost of construction of the track. Reimbursement for relocation costs was denied on the basis that the applicable lease agreements contained thirty (30) day termination clauses.
The documentation provided includes a copy of a Commercial Lease, dated May 2, 1978, entered into between Janet Jordan and Yolanda Higuera d/b/a the Bushwackers (Lessees) and the Southern Pacific Transportation Company (Subgrantee is the successor-in-interest). The Lease provides for the right of the Subgrantee to terminate the Lease upon short notice, as well as the right to demolish the structures thereon without providing compensation to the Lessees. Specifically, Paragraph 17 of the Lease grants either party the right to terminate the lease upon 30 days written notice. In addition, pursuant to paragraph 7, the Lessees can, prior to termination of the Lease, remove from the leased premises any structures or improvements they wholly own. If, however, they fail to remove such structures, the structures may, at the option of the Subgrantee, become the sole property of the Subgrantee. Also, the Subgrantee may, at the expense of the Lessees, restore the leased premises to substantially the condition it was in at the time Lessees took possession.
It is Subgrantee's position that, notwithstanding the provisions of the Lease, it was required, pursuant to the Uniform Relocation Assistance and Real Property Acquisition Act of 1971, 42 USCA 4010, et. Seq., (The Act), to provide relocation expenses. It is FEMA's determination, however, that the Act does not apply to this project. The Act applies to federally assisted projects that cause a person to become displaced. A "displaced person" is defined as a business which becomes displaced b y a project undertaken with Federal financial assistance in which it is determined that such displacement is permanent (Section 4601 (6)(A)(i)(II)). The implementing regulations, at 49 CFR 24.2 (g)(2)(iv), "Persons not displaced," further provide that the determination as to whether a person is required to relocate permanently shall be made in accordance with guidelines established by the Federal agency funding the project. As stated, FEMA approved the project as a temporary emergency measure.
In addition, Section 4601(6)(B)(ii) of the Act makes clear that the definition of a "displaced person" does not include a person "who occupies such property on a rental basis for a short term or a period subject to termination when the property is needed for the program or project." In this case the property was initially leased for a one-year period. Paragraph 18 of the Lease further provides that after the end of the one-year period, it will revert to a month-to-month tenancy upon the same terms and conditions.
In addition to the fact that the month-to-month tenancy was subject to termination upon short notice, Paragraph 1 of the Lease reflects that the Subgrantee reserved for itself the right to construct a track in the right-of-way. This is consistent with a determination that the right-of-way was leased on a short term basis subject to a short termination period in order to enable the Metropolitan Transit Authority/Railroad to terminate the Lease arrangement when it was needed for the purpose of constructing a project such as the one under consideration.
Accordingly, the relocation and demolition costs paid by the Subgrantee are not eligible for reimbursement.
Expenditures Not Addressed by FEMA/Price Waterhouse Review ($2,321,010)
MTA states that $2,321,010 in emergency construction costwere notaterhouse review and should be reimbursed. As Table 2 indicates, FEMA records do not reflect unaccounted for expenses relating to those construction projects:
| y | MTA Appeal | FEMA/PW Review |
Expenses Submitted | $44,284,590 | $42,155,2451 |
Disallowed | $6,494,191 | $6,685,856 |
Eligible After Review | $35,469,3892 | $35,469,389 |
Unaddressed | $2,321,010 | 0 |
In examining the MTA claim, it appears the $2,321,010 discrepancy is comprised of:
- $1,571,325 difference between what MTA considers its total expenditures and the costs actually submitted to FEMA for reimbursement consideration;
- $558,020 in MTA revenues that FEMA used as an offset against disaster-related expenses; and
- $191,665 difference between what MTA thought had been found ineligible and the actual amount disallowed by FEMA.
CONCLUSIONS
For the reasons explained above, FEMA has determined that the amounts under appeal are ineligible with the exception of the amount of $7,021 identified in Appeal #1 on page 7 for costs outside of the time frame.
In the case of work outside the time frame, the eligible work was intended to serve transportation needs only during an emergency period while the freeways were closed. The funds were not intended to provide funding for a permanent infrastructure improvement project. When the emergency period ended, the funding is terminated, even though the project was not complete. (Had it been known at the outset that the rail construction would not have been able to have been constructed in time to meet the emergency needs, but only to serve long term benefits, none of the expenses would have been determined to be eligible at the beginning.)
In the case of costs related to relocation, FEMA finds that the terms of the lease allow termination on short notice and thus do not obligate the Subgrantee to bear these costs, so they are not eligible for FEMA funding.
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