Southwest LRT has $534 million funding shortfall, audit shows

MINNEAPOLIS (FOX 9) - Southwest Light Rail remains $534 million short, with officials making little progress to close the funding gap for Minnesota's most expensive public construction project seven months after they first revealed the shortfall.

A report released Friday by the Minnesota Legislative Auditor describes a cascade of cost overruns and delays that swelled the project's budget to $2.74 billion and pushed back its opening date to 2027.

Officials at the Metropolitan Council, which oversees transit projects, knew years ago that the costs would grow, the audit found. The budget ballooned because of uncertainty about the location of freight rail along the project's alignment, the construction of a light rail tunnel in Minneapolis's Kenilworth corridor, and a crash protection wall separating light rail tracks from freight rail west of downtown Minneapolis, auditors said.

"More than $500 million of the project's estimated $2.74 billion budget is currently unfunded, and the Metropolitan Council - the agency responsible for overseeing the design, engineering, construction, and future operation of the light rail line - has not yet identified a funding source," auditors wrote. Met Council's chairman did not take issue with the report's findings.

The 14.5-mile Minneapolis to Eden Prairie line is shorter than originally planned and has one fewer station, a result of cost-cutting moves undertaken in the mid-2010s.

Still, the project's budget has doubled from $1.2 billion in 2011, when light rail was expected to start service in 2018. Met Council has since issued a series of new forecasts, setting on the 2027 opening date earlier this year.

Met Council officials are working with DFL Gov. Tim Walz's office and the projects two main funders - the Federal Transit Administration and Hennepin County - to figure out what to do. Minnesota law prohibits additional state money from flowing to the project.

Change orders not included

Met Council started the bidding process for Southwest Light Rail's civil construction contract in 2018 without including two expensive change orders, even though project officials knew they would need to be included, auditors found.

Project officials said delaying the bids would push back the project's timeline and increase costs, two things that happened anyway.

"I think that’s nothing short of deceptive," said state Sen. Scott Dibble, DFL-Minneapolis. "That’s hiding the ball. It’s deceiving elected officials and the public, and it’s outrageous."

Met Council awarded the $799 million civil construction contract to Lunda McCrossan Joint Venture. In March, the council reached a settlement with its contractor that adds up to $210 million to the contract. The council is negotiating a similar settlement with its systems contractor, Aldridge-Parsons Joint Venture, though the extra costs are expected to be less significant.

Project officials say Southwest Light Rail construction is 60% done, but that drops to 25% along the half-mile Kenilworth tunnel in Minneapolis. Soil conditions and the presence of a condo tower feet from the construction site have led to costs and delays.

In January, crews stopped tunnel construction when the condo owners found cracks in their building. An engineering firm hired by Met Council blamed most of the cracking on weather and other factors not related to construction.

The council and the condo residents are negotiating a settlement, with former Minnesota Supreme Court Chief Justice Kathleen Blatz as the mediator. Construction restarted with extra monitoring.

In some southwest suburbs, work appears much closer to completion. City officials in Eden Prairie have asked if revenue service can start in the suburbs before the Minneapolis portion is finished, something project officials say is not feasible.

"We're going to sit with 2027 [as the opening] for the time being," project manager Jim Alexander said at an Aug. 3 Met Council meeting. "If we can do better than that, we certainly will do that."

Elect the Met?

Scrutiny will continue into the 2023 legislative session, when a bigger audit is scheduled for release. Dibble and state Rep. Frank Hornstein sought the audit after the cost overruns and missteps came to light in 2021.

Dibble and Hornstein said they would reintroduce a bill next year seeking to make Met Council members subject to elections. Right now, Minnesota's governor appoints the members.

"In terms of avoiding this kind of debacle in the future, we have to have an accountable, elected, transparent Metropolitan Council," said Hornstein, the House Transportation committee chairman. Dibble is the lead Democrat on the Senate Transportation committee.

Republicans have called on Met Council to stop construction.