(CN) – The agency tasked with analyzing legislation has found the embattled California high-speed rail project has immediate- and long-term funding issues, boasts an “ambitious” construction schedule that potentially rests on overly optimistic assumptions and may have violated the spirit of the voter-approved plan by outsourcing too much to the private sector.
The California Legislative Analyst’s Office report issued Friday provides more bad news for the transportation project that has been repeatedly dogged by escalating cost estimates that now peg the price tag at $80 billion, poor contract management and delays that mean the first trains won’t run on tracks until at least 2029.
Additionally, the report says the immediate- and long-term construction schedule is “ambitious” and may prove difficult to meet even as near- and long-term funding challenges confront the authority. The analyst is also critical of the California High-Speed Rail Authority’s recent business moves that have hindered future flexibility.
“With these issues in mind, the Legislature will want to consider whether it is comfortable with HSRA’s proposed approach, would like an alternative approach, or would like to preserve its flexibility to change the project in the future,” the analyst says in the report.
The rail authority said Friday the report brings up issues the agency already dealt with in its most recent business plan. The rail authority is required to provide a business plan to the Legislature annually.
“We are transparent about the issues before us and our recommendations to address these issues,” said Brian Kelly, CEO of the rail authority on Friday. “The authority is steadfast in its effort to deliver electrified high-speed rail for Californians at the earliest possible time.”
The report comes on the heels of a report in the Los Angeles Times that includes commentary from former employees about a poor management culture in the higher ranks of the project, where employees were punished for raising critical questions or offering honest assessments about the pace and efficiency of the project.
The gravest revelation came from a former employee of WSP, who accused the firm of altering documents to artificially inflate progress. WSP is a lead consultant for the rail authority.
On Friday, the LAO said a potential issue with the project is the rail authority’s propensity to outsource critical work to third parties like WSP and the early train operator.
“HSRA’s proposal to use a third‑party public entity to operate the Merced‑to‑Bakersfield interim service in order to facilitate compliance with Proposition 1A does not appear to be consistent with the spirit of the measure,” the report states.
The rail authority has already awarded contracts to an international consortium of transportation companies to operate trains in the interim period when the 119-mile segment of track between Bakersfield and Merced is completed, but the rest of the track is still underway.
The analyst said that even the Central Valley line’s completion is up in the air, as the schedule and funding outlined in the business plan relies on assumptions and requires complex planning together in a seamless manner that has yet to materialize for the project.
Part of the problem is that the certain aspects of construction must be completed by 2022 to meet the requirements attached to the initial $3.5 billion grant disbursed by the federal government.
“This leaves little margin for error if property acquisitions or civil works are delayed,” the report says. “In order to meet the federal grant deadline for construction work, HSRA will have to significantly increase its spending rate, including for construction and environmental work.”
Another problem for the rail authority is that the Trump administration is actively trying to rescind elements of that federal grant, trying to get the state to cough up nearly $1 billion.
The rail authority’s spending plan “assumes that the state will retain the $3.5 billion of federal grants that the federal government might ultimately rescind,” the report states.
Other funding elements rely on cap-and-trade funds which come with a high degree of uncertainty, according to the report.
The report makes clear these funding issues only relate to the near-term implications of the Central Valley portion of the project, but asserts that the longer-term issues related to the entire $80 billion project are even less certain.
The long-term funding issues are certainly nothing new, but in an environment where stocks have entered a bear market and the specter of coronavirus hovers over everything related to economics, the uncertainty is further heightened.
The report also warned the Legislature to be wary of assumptions made by the early train operator that could paint an overly optimistic picture of the preferred way to proceed. Additionally, the analyst warned that key contracts are about to be handed out, including whether to electrify the track and to build extensions from the current track to various city centers.
“This is because the HSRA has indicated that it plans to move forward this year with various actions that would make it more difficult for the state to select an alternative option in the future rather than the HSRA’s approach of focusing on launching interim service on the Merced‑to‑Bakersfield segment,” the report states. “Accordingly, it will be important for the Legislature to determine if it is comfortable with HSRA’s proposed approach.”
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