The Obama administration issued a landmark change this week in its formula for federal financing of mass transit, raising hopes among Maryland officials for approval of Baltimore's east-west Red Line while prompting calls from the project's critics for the state to go back to the drawing board.

U.S. Transportation Secretary Ray LaHood announced plans Wednesday to scrap the Bush administration's rigid cost-benefits test for funding transit projects.

Under the new policy, the Federal Transit Administration would consider "livability issues" - including economic development and environmental considerations - instead of a strict analysis of ridership and congestion relief.

"We're going to free our flagship transit capital program from long-standing requirements that have allowed us only to green-light projects that meet very narrow cost and performance criteria," LaHood said. "Instead, as we evaluate major transit projects going forward, we'll consider all the factors that help communities reduce their carbon footprint, spur economic activity and relieve congestion."

The announced change, while praised by many transit advocates, remains short on specifics. The Transportation Department will still have to go through a painstaking rule-making process to define what the administration means by "livability."

Nevertheless, Maryland Transportation Secretary Beverley K. Swaim-Staley welcomed the policy change, saying it gives Maryland "a much greater chance to compete" for federal transit dollars. She expressed hope that the change would put Maryland in a better position to win approval for the Red Line project - perhaps with some "tweaks" that would make it more attractive.

The Bush policy had been widely criticized by transit advocates and big-city officials as unresponsive to the needs of urban communities. During development of the state's proposal for the 18-mile Red Line, the formula at times constrained planners from adopting plans that would have made the project less controversial.

The old guidelines were one of the major reasons the state decided against proposals that would have run the Red Line underground along Boston Street in Canton and Edmondson Avenue in West Baltimore.

Last summer, after a long process of planning and public input, Gov. Martin O'Malley chose a $1.6 billion alternative that would adopt light rail as the mode of travel for the line from Woodlawn to Bayview. Under the plan he submitted to the federal government, the Red Line would run in a two-track tunnel under downtown, Harbor East and Fells Point and a single-track tunnel under Cooks Lane in West Baltimore.

The decision to run the line on the surface in Canton and West Baltimore has aroused opposition to the project in those parts of the city. Meanwhile, the decision to run the line on a single track under Cooks Lane - a move explicitly designed to bring costs within the Bush formula - has been criticized as a safety hazard.

Swaim-Staley said the Cooks Lane decision is one she hopes will be revisited now that the Obama administration has changed federal transit policy. She also would not rule out a second look at tunneling under neighborhoods where surface light rail has been unpopular.

But the secretary sounded a cautionary note about more tunneling, which could add hundreds of millions of dollars to the Red Line budget - at least half of which would likely have to be paid for by the state.

"We still have to do cost-effective projects," she said. "Federal funding is still going to be a major issue. State funding is still going to be a major issue. ...It's not a game-changer in that respect."

Some advocates, however, said the policy change should prompt the state to pull back the application it has submitted to the federal transit agency to rework it.

The Transit Riders Action Council of Metropolitan Baltimore said the MTA should go back to the drawing board and study building a subway - an alternative eliminated early in the planning process. Swaim-Staley said that is unlikely.

Ben Rosenberg, a Canton resident and opponent of a surface line on Boston Street, urged the MTA to withdraw the pending application for Red Line funding - a move that could set the timetable back years. He argued that the delay should not be an issue.

"It's no big deal because there's not going to be the state funding availability for some time," he said.

But Greater Baltimore Committee President Donald C. Fry opposed any move that could hold up the Red Line, which is unlikely to open before late this decade even under the best circumstances.

"The state should not pull back and delay the progress we've made to date on the Red Line," he said. "It would be a setback for Maryland to delay this any longer."