State Auditor Continues Blaming High Speed Rail for Congress’s Failures

Jan 25th, 2012 | Posted by

Back in April 2010 the State Auditor released a report that was unfairly critical of the California High Speed Rail Authority. The State Auditor argued that California was uncompetitive for federal funds (as it turned out we won half of the $8 billion in HSR stimulus funds) and ignored the then-Democratic Congress’ interest in finding long-term funding for high speed rail. Further, the State Auditor held the CHSRA responsible for these things, even though they have no control at all over what Congress does.

In 2011 a Republican House did gut HSR funding, but again this was not the CHSRA’s fault. But in a new report the State Auditor continues to hold the CHSRA responsible for Congress’ failures on funding transportation policy. The result is yet another flawed report from a State Auditor who does not appear to have a strong grasp of transportation funding.

Although the Authority has secured funding for the Initial Construction Section (construction section)—the first portion of the program—the program’s overall financial situation has become increasingly risky, in part because the Authority has not provided viable funding alternatives in the event that its planned funding does not materialize. In its 2012 draft business plan, the Authority more than doubles its cost estimates for phase one of the program, to between $98.1 billion and $117.6 billion. Of this amount, the Authority has secured approximately $12.5 billion to date. The success or failure of the program consequently depends upon the Authority’s ability to obtain between $85.6 billion and $105.1 billion by 2033.

So the Authority gives itself 21 years to get as much as $85 billion from the federal government (although they will need much less – once an Initial Operating Segment is open, private money will step up to the plate). They’ll obviously need money sooner than that, and while this present Congress isn’t likely to give it, this present Congress is not going to last beyond the end of this year. Democrats continue to dominate the generic Congressional polls, a key indicator of their growing chances to reclaim the House in November. So the chances of the Authority getting more federal funding in the near future are not nearly as bleak as critics imagine.

The State Auditor doesn’t explain any of this. Instead they continue to bash the project as “risky”:

In its 2012 draft business plan, the Authority identifies the federal government as by far the largest potential funding source for the program, yet the plan provides few details indicating how the Authority expects to secure this money. Further, the plan does not present viable alternatives in the event that it does not receive significant federal funds. In fact, one of the funding options the Authority characterizes as an alternative is not yet approved for use on high-speed rail projects. Although it is possible that the Authority may obtain the necessary funding to move forward with the program, it risks significant delays or the inability to proceed if it does not.

The problem is that this isn’t unique to high speed rail. Many transportation projects, like BART to San José, rely on getting federal funds that they’re not guaranteed to receive.

But we can make a bigger point. If Republicans prevail in November, winning the Senate and the White House in addition to the House, one could then say that pretty much everything the State of California does is “risky” since federal budget cuts could undermine virtually every service and program currently provided by the state, from schools to parks to roads. The State Auditor isn’t really telling us anything useful here.

Some of the State Auditor’s concerns border on the absurd:

Further, the Authority’s 2012 draft business plan still lacks some key details about the program’s costs and revenues. In particular, only within the business plan’s chapter about funding—more than 100 pages into the plan—does the Authority mention that phase one could cost as much as $117.6 billion, whereas it uses one of its lower cost estimates of $98.5 billion throughout the plan. Moreover, neither of these cost estimates includes phase one’s operating and maintenance costs, yet based on data included in the 2012 draft business plan, we estimate that these costs could total approximately $96.9 billion from 2025 through 2060. The Authority projects that the program’s revenues will cover these costs but it does not include any alternatives if the program does not generate significant profits beginning in its first year of operation. Further, the plan assumes, but does not explicitly articulate, that the State will not receive any profits between 2024 and 2060, because private sector investors will receive all of the program’s net operating profits during these years in return for their investment.

The State Auditor doesn’t examine the rising cost of oil or other globally successful HSR systems (virtually all of them, including the Amtrak Acela, cover their own operating costs), simply assuming that the system will somehow have trouble, unlike all the other HSR systems, in covering its costs. If the State Auditor still thinks gas will be at $4 a gallon 50 years from now they are simply delusional.

As to the state not receiving any profits, well, unfortunately that’s by design. But that isn’t a problem for the HSR project, since Prop 1A mandates that the state not subsidize its operations. That’s a moronic and stupid rule, but it is also a rule the system can meet. If the system covers its own costs, as global evidence suggests it will, then the state faces no obligations and if private sector investors get all the profits, that’s stupid but not necessarily a financial problem from the state’s perspective.

The State Auditor makes their own anti-rail biases clear in the way they attack the ridership studies by innuendo:

The accuracy of the Authority’s estimates of the program’s profits depends upon its ridership projections, which are thus fundamental to private investors’ interest. The ridership model the Authority presents in its 2012 draft business plan assumes an average ticket price of $81 and projects that passengers will take a total of 29 to 43 million annual trips by the completion of phase one. However, when the Authority’s chief executive officer commissioned a ridership review group to independently assess the ridership projections, he handpicked the group’s members, which may call into question the independent nature of their assessment.

OK, this is simply bullshit. If the State Auditor cannot actually find technical fault with the ridership recommendations or the peer review of those numbers, they have no business impugning the peer review group or Roelof van Ark for putting it together. This kind of baseless attack has no place in an official report such as this.

The report goes on to make a number of recommendations regarding contract oversight and those are all well and good. But it is frustrating to see the State Auditor continuing to hold the CHSRA responsible for Congress’ failures, and their unfair attack on the peer review of the ridership numbers is a particularly ridiculous move that shows their inherent biases.

  1. VBobier
    Jan 25th, 2012 at 21:50

    The State Auditor’s are simply incompetent or should I say the State Auditor’s out of their their depth.

  2. joe
    Jan 25th, 2012 at 22:12

    The ridership model the Authority presents in its 2012 draft business plan assumes an average ticket price of $81 and projects that passengers will take a total of 29 to 43 million annual trips by the completion of phase one. However, when the Authority’s chief executive officer commissioned a ridership review group to independently assess the ridership projections, he handpicked the group’s members, which may call into question the independent nature of their assessment.

    No rules were broken,no guidelines disregarded. If the Auditor thinks an independent body should convene review panels (like the National Academy’s National Research Council, then The Auditor should address *all* reviews including Berkeley’s review which was not independently selected either.

    Independent does not me independent of the CAHSRA, it also means independent from the LAO, Lowenthal and other political agendas.

  3. Prideaux
    Jan 25th, 2012 at 22:13

    Robert, would you accept any criticism of this plan as valid? I think not. When every analyst in the state agrees that the plan is not viable, one may assume that there is something to it. Your dismissal of the PRG report is particularly telling – 6 of 8 members were appointed by HSR supporters Schwarzenegger and Lockyer.

    Ideology seems to have overwhelmed what reasoning ability you may have. Any observer can discern the massive flaws in this plan and the drastic difference between what voters were told and the reality the CHSRA concealed.

  4. morris brown
    Jan 25th, 2012 at 22:39

    As predictable as the sun rising every morning, Robert attacks everybody and every agency that finds fault with the CHSRA or the HSR project. We have the State Auditor the latest to be attacked in this rant, but the LAO and the Peer Review Group, have been subjected to similar and. of course, Senators like Simitian, Lowenthal and DeSaulnier fall into that category as well.

    It really doesn’t matter, since dozens of print and video media do not support his views.

    The title of this latest putting blame on Congress and absolving the CHSRA is really crazy.

    The Feds gave over $3 billion to the project and were told that an additional 12 to 17 billion (depending on the time frame) would be needed from them to complete Phase 1.

    Now the game has changed, and the Feds are being asked to supply $50 billion or more to complete phase 1. That is Congress’s fault?

    No wonder all support for further funding in Congress has evaporated. The project and the Authority have lost support of Obama as well apparently, since no mention of High Speed Rail was included in last nights State of the Union Address. What a change from last year.

    The CHSRA is in complete disarray. VanArk leaving along with Leavitt and others. This is all congress’s fault?

    Sorry Robert, your latest article makes no sense at all.

    D. P. Lubic Reply:

    “As predictable as the sun rising every morning, Robert attacks everybody and every agency that finds fault with the CHSRA or the HSR project.”

    Except that there is plenty of blame to go around. The greatest proportion of it, in my opinion, should go to Congress and the American people themselves, particularly the rich and powerful, and I also think the old cranks who define “conservatives” these days, who managed to successfully block this and other rail projects, including local transit services, for decades. Really, this is and those other projects are things that should have been started at least after the first Arab oil embargo of 1973. That’s almost 40 years ago! We also had a second serious warning with the second Arab oil embargo (1979, 33 years ago) the run-up in oil prices during the first Gulf war (now over 20 years ago), some more volatility in oil prices following the attacks in September of 2011 (now over 10 years ago), and the run-up from more Middle Eastern instability and an overheated false economy three or four years ago.

    As to the media and other people like those in the LAO, what stands out is their abysmal ignorance of the subject. I’ve been seeing it for years, and commented on it a while back. If you missed that, let me know, and I’ll run it by again, but my guess is you are among the people I’ve met over the years who doesn’t want to face what I have to say is true. That is something Robert brought up a few days ago, that a lot of people over a certain age can’t stand the idea that the vision of the future that dates back to Eisenhower’s time no longer is valid or sustainable. Don’t you dare tell me I don’t know what I’m talking about; I’ve faced this personally, first-hand.

    This doesn’t mean this project is perfect, or even as good as it should be, but it’s what we have to work with, and the alternative is to condemn this country to endless oil wars, more dead people, and a general impoverishment as oil countries, oil companies, and the rest suck the life out of us.

    In short, we need an alternative to driving, and have needed to get cracking on it for 40 years.

    mary Reply:

    No we don’t need alternatives to driving. The US and Canada have plenty of oil,natural gas and coal. As more and more info comes to light refuting AGW theory IE Nature article showing temps have not gone up as predicted with the rise of co2. So stop with the scare mongering and waste of billions of tax payer dollars on 19th century technology.

    Peter Reply:

    “So stop with the scare mongering and waste of billions of tax payer dollars on 19th century technology.”

    Like this 19th century technology? Or this 19th century technology?

    I’m curious what Nature article purports that global warming is not tied to increases in CO2. I’m sure everyone here would be happy to read it.

    Paulus Magnus Reply:

    How, pray tell, is high speed rail 19th century technology and automobiles not?

    And while we have lots of oil, coal, and gas, even ignoring AGW these have major pollution problems which we would do well to minimize. Furthermore, they are no longer cheap.

    VBobier Reply:

    Who says? You? Who made You GOD? HSR was voted in by a Majority wanting some other way of getting up & down the state, to keep California competitive with other areas of the world, but short sighted old fogeys, known as dumb ol’sticks in the mud or losers have to object like You do. Gasoline is not going to stay at the same price that it currently resides at, as the economy improves the price will go up, as does demand for that gasoline around the world & in the USA. Don’t like that? Tough… Welcome to the real world of the 21st Century as there is no going back as Time flows only in one direction, Forward

    David Reply:

    USDA releases new Plant Hardiness Zone Map

    A new Plant Hardiness Zone Map released by the federal government Wednesday shows that temperatures across the country are getting warmer and could affect gardens and crops.

    Read more:

    Jonathan Reply:

    Interesting. And do you also deny evolution?

    D. P. Lubic Reply:

    Gee, that’s interesting, I never mentioned climate changes or the environment at all, yet “Mary” apparently figures I’m some environmental wacko. What I did mention was the financial and security threat of relying on driving, which in turn drives our dependence on oil. That black goo is, as I have noted in the past, a global commodity, in a global market. What that means is that the world sets the price for our oil–or to put it another way, we bid against China, India, and everybody else for our own oil, even if it never leaves the country.

    It also means we wind up having to “protect” that oil for the world, risking our military’s collective neck just so we can drive.

    Still the best short-hand explanation of that global market and what it means:–Q9_KmAY

    Now, I’ve mentioned in the past that we need alternatives to driving for safety reasons, including the aging of our drivers with bad eyes, bad nerves, leg cramps, stiffness from arthritis, etc. (and I suffer from some of those ailments, though thankfully at this stage still not all of them, and to a certain extent to a mild degree), and for financial reasons (our gas taxes only pay about half the cost of the road system on a cash-flow basis, and to correct just that and get the road system in a state of good repair would add about a dollar to the price of gasoline now). I have, however, not mentioned a whole lot about environmental reasons because of the controversy and the difficulty of measuring the costs (at least for me), although others have worked to do so–yet I get accused of this. Hmm, let’s see, what might we guess about “Mary?”

    I’m going to guess “she’s” “older,” perhaps over 60, but not ancient, as in over 90 (this is my generational observation longer-term readers are familiar with). She sounds like some of the TEA Party people in attitude, which suggests she is white, and likely heavily into going to church (interestingly, both also apply to me). I wonder if she’s a big fan of Fox News. There’s a good chance she has never ridden a train, not even on a heritage railroad. She thinks trains are antiques, and that rail travel is akin to undoing progress, like trying to bring back the horse and buggy, and that they are socialist or something (I got accused of all that and was called a Communist for suggesting a light rail line in my community). Bet she thinks I also a “statist,” a “liberal” (funny, I’m a pro-life Catholic), and a “hipster” (I’m the biggest square I know, indeed a throwback–bring on the Glenn Miller and the blue-grass music, not to mention steam trains and interurbans).

    In short, she’s assuming all this about us, and me, and she’s all wet.

    Out of curiosity, how close do you think my guesses come?

    adirondacker12800 Reply:

    Energy Independence is just ten years away. They’ve been telling us that for almost 40 years now….

    dave Reply:

    Oh please! Stop it, 19th Century?? That statement in itself is enough to disregard the anything else you have to say. Regardless if we still have dinasour liquid to burn and then breath doesn’t mean we should line Exxon’s pockets with my hard earned cash and securing my grandchildren with polluted air, water, and food. In reality what you stated is the reason we cannot progress, your attacking the wrong thing here.

    Judge Moonbox Reply:

    I have to wonder what’s so bad about attacking the fault finders when all the fault finders get the demographics wrong. Metropolitan Fresno has almost a million people, metropolitan Bakersfield 738,000. Yet, none of the opponents recognize that these are sizable cities. Tom Brokaw referred to the ICS as serving a rural area (and talked as though that was all the CaHSRA intended to build). Also, they don’t acknowledge that there are already 6 trains going each way daily. They talk as though the only reason to take a train to Bakersfield was to be in Bakersfield. Amtrak operates 21 buses connecting arriving passengers with points south. (22 if you include an early morning bus from Fresno for people connecting to a train in LA.

    Jonathan Reply:

    Because “trains between two small cities, as the first step on the path to trains betwen SF-LA”, isn’t nearly so catchy as “train to nowhere”.

    synonymouse Reply:

    And Cleveland used to be a much larger city than either of those two.

  5. mary
    Jan 26th, 2012 at 10:10

    The only folks that will benefit from this boondoggle are Democrat Party cronies like big gov labor unions and Wall street investors. As par for the course Dem politicians like Brown use other people’s money to grease the pockets of their cronies to the detriment of all.

    Peter Reply:

    Wow, I guess we’ve been joined by the Tea Party.

    Derek Reply:

    I would have a little respect for them if they were interested in using cost-benefits analyses to evaluate projects and decide which ones to keep and which ones to toss. But they don’t appear to be quite that enlightened. The only tool they have in their toolbox is cutting taxes.

    VBobier Reply:


    adirondacker12800 Reply:

    Just because Republicans spread the cronyism far and wide doesn’t mean the Democrats do

    Sobering Reality Reply:


    David Reply:

    You must be a noob, did you see this post?

    VBobier Reply:

    Interesting, problem is I’d rather trust the Devil We all know about than any Repugnican. Especially Ex-Con Newt Ging-rich…

  6. morris brown
    Jan 26th, 2012 at 15:11

    The NY Times is out with a discussion piece titled:

    Does California Need High-Speed Rail?

    A number of guest write their opinion, many of which have been on this blog or discussed here.

  7. Jon
    Jan 26th, 2012 at 15:46

    This little teaser was posted in the comments on Clem’s blog. Here’s the money quote:

    Since Richard is the new board chairman of the California High Speed Rail Authority, I ask him if the new-and-improved business plan that Gov. Jerry Brown wants on his desk any minute now will have any surprises in it. “Yes, there’s a very big surprise,” Richard says, calmly removing his classes and rubbing his eyes. And that is…? “I think it will surprise everyone that we’ve actually listened to our critics for a change,” he says with a fraction of a smile. About what, specifically? “We simply can’t ignore urban areas when we build this thing,” he says.

    So what does this mean for the revised business plan? I can think of a few possibilities, but the most likely is that the ICS continues as planned but the next stage is to upgrade the existing SF-SJ and LA-Symlar (or LA-Palmdale) lines so they can accommodate high speed trains. That way when a mountain crossing is final constructed HSR trains can get to Union Station or 4th & King without further upgrades, and the upgrades will benefit Caltrain and Metrolink in the meantime. Possibly they will use non-HSR funds for these upgrades, and the reason CAHSR is being combined with Caltrans is to facilitate this.

    I still think IOS South is the most likely possibility- note that the Supplemental Bakersfield to Palmdale EIR is being presented at the board meeting next Thursday. But any money spent on urban area upgrades in the meantime will have to be dispersed to both LA and SF for simple political reasons.

  8. morris brown
    Jan 26th, 2012 at 16:35

    Robert has nothing good to say about the Auditor’s report.

    On possible conflicts of interest the Auditor notes (see page 32 of the full report PDF)

    The State Auditor’s recent report notes problems in the conflict of interest arena. It notes, for instance, that one board member disclosed on his statement of economic interests that he was a consultant for Parsons Transportation Company?the regional contractor responsible for the San Jose-Merced portion of the program?and that he was paid between $10,000 and $100,000 annually for that work for the contractor. Although this board member appropriately reported his economic interest, the State Auditor notes that if he were to take part in a decision involving the Authority and Parsons Transportation Company while he had this financial interest, and if certain other conditions were met, he could be in violation of the political reform act, which bars public officials from using their positions to influence government decisions in which they have a financial interest.

    Apparently, the Board member who had (or has) this conflict is Dan Richard, who has now been designated to take over as Chairman of the Authority’s Board of Directors. This raises a pertinent question: is the Authority in charge of the contractors; or, are the contractors in charge of the Authority?

    Pretty interesting disclosure I would say.

    synonymouse Reply:

    If you have to ask, don’t bother reading the voters’ pamphlet.

    Sobering Reality Reply:

    Parsons is batting a thousand right now. The managed to piss of Calatrava at Denver over the airport expansion. They crapped all over his work so he basically told them to F off.

  9. Emma
    Jan 26th, 2012 at 19:00

    I could totally see the price tag jump to $117 billion if you include the LA – SD extension. Overall, if you add the Sacramento extension and the tiny piece directly connecting Sacramento and San Francisco, then you should expect $130 billion.

    You know maybe it’s time to admit that they are right and that the current HSR proposal will be far more expensive than those $43 billion we talked about back in 2008.

    synonymouse Reply:

    Van Ark attempted to rationalize and develop some cheaper alternatives for the starter.

    Sobering Reality Reply:

    There is only one rational and cheaper alternative at this point, and it doesn’t involve spending $98 billion +.

    J. Wong Reply:

    Except “do nothing” isn’t really an option, and it really isn’t cheap.

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