More Setbacks for California's Embattled High-Speed Rail Project

More Setbacks for California's Embattled High-Speed Rail Project
December 12, 2013

Kenneth Orski

Kenneth Orski (korski@verizon.net) is editor and publisher of the Innovation Briefs newsletter. (read full bio)

The Sacramento court's decision denying the California High Speed Rail Authority (CHSRA) access to Proposition 1A bond funds was the first in a series of setbacks suffered by the high-speed rail project over a period of days.

The day after that court decision, the project was dealt another serious blow when two influential members of Congress, Jeff Denham (R-CA), chairman of the Railroads Subcommittee of the House Committee on Transportation and Infrastructure, and Tom Latham (R-IA), chairman of the House Transportation Appropriation Subcommittee, requested the General Accountability Office (GAO) review the federal grant agreements with the Authority in light of the court's rulings.

"... We are concerned about FRA's [the Federal Railroad Administration's] stewardship of Federal funds ..." their joint letter stated. "It is of particular concern that FRA executed grant agreements with the Authority and subsequently amended those agreements to allow the expenditure of Federal funds in advance of State matching funds."   

Referring to the court bond validation ruling, the two lawmakers questioned how the Authority will be able to match the federal grants. Under the grant agreements, California is obligated to match the federal contributions with about $2.7 billion of its own money. Without access to the bonds, California will have to find other funding sources, the letter stated.

The congressmen asked GAO to look into a number of other issues, including whether the Authority is "violating or on the verge of violating" its grant agreements with the Federal government, whether the recent state court rulings put the FRA in violation of any Federal laws, and "what responsibility falls on FRA to re-evaluate the grant agreements in light of these court rulings."

Transportation Board Denies Request

In the meantime, in yet another reversal, the Surface Transportation Board denied the Authority's request for an early conditional approval to move forward with construction of the 114-mile Fresno-to-Bakersfield leg of the project before environmental reviews are completed. The Authority "has not presented any unique or compelling reason" why conditional approval should be given, the board wrote in a four-page decision issued on December 3.

The Fresno-to-Bakersfield leg includes the southernmost five miles of the 29-mile Merced-to-Fresno stretch which constitutes the Authority's "Initial Construction Section" (ICS) and for which the Authority awarded a $1 billion construction contract earlier this year. 

Likely to Raise Costs

While the Authority sought to minimize the impact of the STB ruling, independent observers say the board's decision is likely to delay and drive up the cost of the initial construction job and may require the contract to be renegotiated if the required environmental reviews are not completed by July of next year.

"If we get to June and we still haven't gotten the environmental clearances,"  the Authority spokeswoman was quoted as saying, "then we'll take another look and see what that means for us."

It remains unclear if the STB decision will affect the initial construction schedule, but it has added to the overall sense of uncertainty and precariousness that increasingly clouds the future of the project. Typical of the growing doubts and shaken confidence in the California HSR venture were comments by Ann Begeman, the STB Board's vice chairman: 

"Today's decision acknowledges the growing controversy regarding California's bond funding process. Considerable federal taxpayers' dollars are already at stake and the recent state court decisions may very likely impact construction timing and costs. Just as we need to consider the environmental aspects along with the transportation merits of this project before getting further approval, we should also understand its funding aspects. ...The Authority's current petition fails to include any details about the project's finances. That void needs to be corrected before the Board acts further."  

Railroad Subcommittee Sets Hearing

Nor was this the end of the project's tribulations. The administration of the federal grants to the California HSR project will be the subject of a hearing by the House Railroad Subcommittee according to unofficial sources. Initially scheduled for December 12, the hearing has been postponed to January 14. 

Among the issues Subcommittee Chairman Jeff Denham (R-CA) is expected to explore are:

  • Why did FRA and the Authority amend an existing grant agreement to provide the Authority with money in advance of the state's matching funds? (This is a departure from standard federal/local cost-sharing agreements which require funds to be spent concurrently.)
  • How does the Authority propose to match the federal contribution now that the Court has barred access to Proposition 1A bond funds?
  • Where will the $31.5 billion needed to complete the 300-mile Initial Operating Segment (IOS) between Merced and the San Fernando Valley come from? So far the Authority has only $6 billion -- $3.25 billion in federal funds and $2.7 billion in Proposition 1A funds appropriated to match the federal funds. Authority chairman Dan Richard and Federal Railroad Administrator Joseph Szabo are expected to testify along with other expert witnesses.   

Litigation Enters a Second Phase  

The plaintiffs will be back in court on December 13 to set the trial date for the second phase of the litigation. They will allege the project has strayed significantly beyond the 2008 promises of the Proposition 1A bond measure. Specifically, they will argue that the Authority's plan for a "blended system" of high-speed trains on Caltrain's commuter tracks in the Bay Area and Metrolink tracks in the south cannot meet the performance requirements of Proposition 1A -- notably a nonstop trip between Los Angeles and San Francisco in 2 hours 40 minutes and provisions that the system operate without public subsidies.

Whatever the ultimate outcome of the second phase of the litigation (and plaintiffs' attorneys feel confident they have a solid case), the project's series of recent reverses has had a serious impact on public opinion and, possibly, on the confidence with which prospective financial backers view the bullet train's future and fiscal soundness. This should be cause for worry for the project's promoters who have been arguing that the bullet train will be seen as an attractive investment opportunity by the private sector once the 300-mile stretch of the line (Madera-to-San Fernando Valley) is built and operational.

Further delays in the project’s groundbreaking (already more than a year behind schedule), the prospect of multiple challenges over bond validation, a likelihood of drawn-out negotiations over right-of-way acquisition, steadfast Congressional opposition to providing further federal funds, and, most importantly, the Authority's inability to identify credible sources of non-federal money to complete the entire Initial Operating Segment, all add up to a very problematic future for this "transformative" project.

Used with permission of Innovation NewsBriefs at innobriefs.com.

Internet Info

For a more detailed discussion, see a recent briefing paper by William Grindley and William Warren "DOT/FRA Has Several Reasons to Withhold Further Funding from California's High-Speed Rail Project," November 2013: https://sites.google.com/site/hsrcaliffr/home/briefing-papers/11-2013-report-for-the-federal-railroad-adminstration.

Kenneth Orski

Kenneth Orski (korski@verizon.net) is editor and publisher of the Innovation Briefs newsletter. (read full bio)