State: HRT officials kept true light rail cost 'secret' from feds

NORFOLK

Months before signing legal documents assuring federal officials they could build Norfolk's starter light rail for $232 million, Hampton Roads Transit leaders knew it would actually cost tens of millions of dollars more, a new state investigation reveals.

In fact, HRT senior officials at one time maintained a separate, internal accounting of light-rail costs that was intentionally kept "secret" from government entities footing the bills, documents show.

Then bids came in, construction began and costs continued to climb, without notice to many stakeholders, state investigators said.

The current price tag: $338 million.

HRT's former leader, Michael Townes, was forced to resign earlier this year. Several other HRT employees with the project have left the agency. Light rail's champion on the City Council, W. Randy Wright, was defeated at the polls.

In February, HRT's new president and CEO, Philip Shucet, called for the investigation by the Virginia Department of Transportation's inspector general.

"HRT today is an agency that has a better, clearer understanding of what it means to be accountable, particularly when you're spending other people's money," Shucet said. "This is an agency that's learning not to fear the truth."

The "special review" released Tuesday details numerous examples of how HRT did not disclose cost overruns accurately or on time. In one example, HRT staff members informed federal officials of only about a third of identified cost increases "since we did not think it was time, or appropriate to show the whole list... "

The report does not address whether any actions by HRT staff could be pursued legally.

The report states: "There may be areas of non-compliance with FTA financial reporting and disclosure requirements, " referring to the Federal Transit Administration. It recommends that Shucet discuss with federal authorities whether his predecessors made appropriate disclosures.

Shucet said he is not aware of a federal investigation of HRT and will follow up with federal authorities as recommended.

The U.S. Department of Transportation Inspector General's office did not return phone calls Tuesday.

State Transportation Secretary Sean Connaughton, who authorized the review, said he will meet with the state inspector general's staff to get a full briefing before deciding whether to pursue the matter further.

"We'll make a decision based on the facts and on their recommendations," Connaughton said.

The report states that if HRT is found in non-compliance, the federal government could demand the return of all federal money in the project, about $192 million, or that future federal grants could be jeopardized.

Shucet said Tuesday he has "no reason to believe" federal funding is at risk.

The review tries to unravel who knew what and when regarding cost overruns. It does not name names but refers to job titles.

"Although information on increased specific LRT/Tide project costs was shared with certain external stakeholders, including the City of Norfolk, data gathered during our review supports that external stakeholders were not provided full and timely disclosure of all known project costs," the report says.

Those stakeholders include the Federal Transit Administration, HRT's governing board comprised of elected officials from local cities, and the Norfolk City Council.

The report states that "HRT management did not effectively monitor" the project. It notes that HRT failed to maintain adequate contingency balances as required and failed to secure property easements through Norfolk State University, adding costs and delays to the project.

The review also concluded that HRT's development and execution of light-rail budgets was "insufficient and ineffective."

Budget reports were often modified to include or exclude information, raising "questions regarding the accuracy or completeness of the estimate at a given point in time."

The first cost estimate was $360 million in 2001. To reduce the costs to meet the federal requirements for funding, changes were made to station designs and platforms, parking lots and the vehicle maintenance building. The price was cut to as low as $194 million in 2005.

By February 2007, when HRT applied for federal approval and funding, the cost had risen to $232 million. Some elements that were originally cut have been added back, such as safety upgrades, contributing to today's $338 million estimate.

Elected officials were dismayed by the findings.

"A lot of people knew more than they owned up to knowing," said Paul Riddick, a Norfolk councilman and chairman of the HRT board. "There's enough blame to go around, and that's unfortunate."

The report indicates that Assistant City Manager Stanley Stein and City Manager Regina V.K. Williams at times were aware of cost increases but did not report them to the council.

"I got all kinds of numbers from HRT and the numbers kept changing," Stein said. "I could not present to our City Council numbers that we didn't understand. As soon as we got numbers we could count on, we presented that information."

Norfolk Mayor Paul Fraim said, "All of us trusted HRT to construct the light-rail system on time and on budget, and we have been done a terrible disservice by their lack of competence, lack of professionalism and lack of integrity."

Shucet also requested the inspector general investigate other management practices of the previous administration.

The review found that HRT often disregarded procurement rules. The agency failed to seek competitive bids in 16 of 24 procurements reviewed by the inspector general. The report said procurement files were incomplete and did not establish impartial evaluations of proposals.

The report also concluded HRT had poor controls over money collected from passengers, which it said resulted in an embezzlement of what was originally believed to be $80,000 from bus fares. The inspector general places the loss at about $189,000. Two former HRT employees were indicted in the case in August.

Reconciliation between money collected on buses and the sums recorded in the automated fare box collectors had not taken place in two years. Agency procedures called for reconciliations twice a week.

Shucet on Tuesday announced a plan to act on 31 recommendations outlined in the report within 90 days to become "a more effective, well-run organization that is accountable to the public."

In a news briefing, Shucet said the inspector general's report "speaks to a broader overarching behavior that can cripple a public agency... and that behavior is fear. When you're trusted to spend the public's money... you're expected to tell the truth. The aura of a protective cloak leads to poor choices and to bad behavior. Concealing public information is not acceptable. And to be certain, a fear of the truth always leads to a bad end."

Jim Wood, a Virginia Beach councilman and former HRT chairman, said, "This document, while painful for the organization, is a very good document to show where the problems are and where things went off track."

A study is under way by HRT on the feasibility of extending light rail into Virginia Beach.

Wood said the report offers "a perfect road map not to follow as we move forward."

Debbie Messina, (757) 446-2588, debbie.messina@pilotonline.com