In  1987, the Corps began work on a comprehensive study of flood protection  alternatives for Sacramento. Design Modifications Have Greatly Raised Costs for the Common Features Project

Estimated costs for the Common Features Project grew from $57 million in  1996, when the project was first authorized, to between $270 million and  $370 million in 2002, primarily because the Corps changed the design of the  levee improvements. Estimated Costs for the American River Levee Improvements Authorized in 1996 Have More Than Tripled Because of Design Changes

The Corps’ cost estimate for the American River levee improvements  authorized in 1996 has more than tripled, from $44 million in 1996 to about  $143 million in July 2002, as shown in table 1. Natomas Basin Costs Are Expected to Increase Significantly, and Lack of Funds Has Halted Planning and Cost Estimating Efforts

The Corps’ preliminary cost estimates for the Natomas Basin component of  the project increased from $13 million in 1996 to between $112 million and  $212 million in 2002, as shown in table 2. The Corps Did Not Adequately Analyze Likely Cost Increases for the Common Features Project or Communicate Them to Congress in a Timely Manner

After the 1997 storm demonstrated vulnerabilities in the American River  levees, the Corps significantly changed the design of the levee  improvements but did not analyze the likelihood of cost increases for the  Common Features Project. Furthermore, despite experiencing significant cost increases for the 1996  work, the Corps did not conduct a cost risk analysis to determine its  exposure to potentially significant cost increases for the 1999 work. The Corps Did Not Provide Congress with Timely Information about Significant Potential Cost Increases for the American River Levee Improvements

The Corps’ planning guidance generally directs the Corps to seek new  spending authority from Congress if it determines that a project’s estimated  costs exceed the maximum project cost before it has awarded a project’s  initial contract. In addition, the Corps made mistakes in its 2002 analysis in estimating the  value of the residential properties the American River levee improvements  would protect. Additionally, for the Natomas Basin project component, we recommend  that the Secretary of the Army direct the Corps of Engineers to   analyze the costs and benefits of alternatives to the current levee  improvement plan and identify the flood protection plan that provides  the greatest net benefits and  submit a report to Congress that includes a cost estimate for all of the  planned Natomas Basin work, and wait until Congress authorizes  funding that is based on the report before beginning construction of any  Natomas Basin levee improvements. After making these design changes,  though, the Corps did not estimate the potential for cost increases due  to tripling the depth of some cut-off walls or closing the gaps in cut-off  walls at bridges and other areas. As this report documents, the Corps’ review  process was ineffective in detecting and correcting the mistakes in the  benefit analyses we identified.
Why GAO Did This Study

In 1996 and 1999, Congress authorized the U.S. Army Corps of Engineers (the Corps) to strengthen sections of the American River and Natomas Basin levees that provide flood protection for Sacramento, California. In 2002, the Corps reported that the cost of this work, known as the Common Features Project, had increased significantly. GAO was asked to determine why costs increased, the extent to which the Corps analyzed and reported the potential cost increases to Congress in a timely manner, and whether the Corps correctly estimated economic benefits.

What GAO Found

Estimated costs for the Common Features Project rose from $57 million in 1996 to between $270 million and $370 million in 2002--primarily because of design changes. For the American River, costs more than tripled from $44 million to $158 million in 2002, primarily due to changes such as deepening the walls built in the levees (cut-off walls) to prevent seepage and closing gaps in the walls at bridge crossings. Cost estimates for the Natomas Basin--still in planning--increased from $13 million in 1996 to between $112 million and $212 million in 2002. The Corps has yet to analyze alternative flood protection approaches for the Natomas Basin that might be more cost-effective. Furthermore, it has not analyzed its exposure to potentially significant cost increases for the Natomas Basin work. The Corps did not fully analyze, or report to Congress in a timely manner, the potential for significant cost increases for the American River levee improvements authorized in 1996. Specifically, a severe storm in the Sacramento area in January 1997 indicated some cut-off walls would need to be much deeper and therefore would be more costly. Corps guidance generally directs the Corps to seek new spending authority from Congress if it determines, before issuing the first contract, that it cannot complete the project without exceeding its spending limit. However, the Corps began construction in 1998 without analyzing or reporting potential cost increases. By 2003, it had committed most of the funding authorized for the entire Common Features Project to the 1996 American River work, leaving the additional 1999 work and the Natomas Basin improvements without funding. In 1996, the Corps incorrectly estimated the economic benefits for the American River levee improvements by overcounting the residential properties to be protected. In 2002, it incorrectly estimated benefits for the 1999 improvements by, among other things, miscalculating the size of the area that the improvements would protect. The Corps' quality control process was ineffective in identifying and correcting these mistakes.