More Setbacks for California’s Embattled High Speed Rail Project

Ken Orski
Editor/Publisher of Innovation NewsBriefs, a transportation newsletter

Reps. Denham and Latham request a GAO review

The Sacramento Court’s November 25 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 in recent days. The project was dealt another serious blow on November 26, 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) to 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, notably, 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.”

Surface Transportation Board (STB) Ruling

In the meantime, in yet another reversal, the Surface Transportation Board has denied the Authority’s request for an early conditional approval to move forward with construction on 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 3rd.

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” and for which the Authority awarded a $1 billion construction contract earlier this year.

While the Authority sought to minimize the impact of the STB ruling, independent observers believe 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.”

Although the STB decision may or may not affect the inital construction schedule, it has added to the overall sense of uncertainty and precariousness that increasingly clouds the future prospects of the project. Typical of the growing doubts and shaken confidence in the project 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 taxpayer’s 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 transportatioin 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.

House Railroad Subcommittee 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 will be: Why did FRA and the Authority amend an existing grant agreement to provide the Authority with money in advance of the state’e matching funds?  (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? And where will the $31.5 billion needed to complete the 300-mile Initial Operating Segment (IOS) between Merced and San Fernando Valley come from? (so far, the Authority has only $6 billion — $3.25 billlion in federal funds and $2.7 billion in Proposition 1A funds appropriated to match the federal funds).

(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, posted at https://sites.google.com/site/hsrcaliffr/home/briefing-papers/11-2013-report-for-the-federal-railroad-adminstration.)

December 13 Court hearing: The Litigation Enters a Second Phase 

The plaintiffs will be back in court on December 13 to launch the second phase of the litigation. In it, they will allege that 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 the project’s fiscal soundness is viewed by prospective financial backers. This should be a 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.

Cross-posted at innobriefs.com.

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