Experts urge 'thorough reassessment' of rail plans

Independent peer-review panel urges rail authority to select a business model, refine ridership numbers and review financing projections

Potentially fatal flaws are threatening California's proposed high-speed rail system, according to a new report by a panel of "peer group" experts.

The six-member panel called for a "thorough reassessment" of key engineering, financial, economic and managerial issues, and urged agreement between the Legislature, the governor and the California High-Speed Rail Authority as to how to resolve the issues.

Major flaws include "totally inadequate" authority staffing, uncertain funding, questionable ridership assumptions, poor risk assessments and no viable business plan, the experts warned in a new report unofficially leaked to the media starting late last week.

The report, by a six-member California High-Speed Rail Peer Review Group, echoes previous findings by State Auditor Elaine Howle and the Legislative Analyst's Office and adds fresh critiques of project. The report calls on the authority to create a better business plan and do a more thorough analysis of risks.

Under the present plan, the system would stretch from San Francisco to Los Angeles by 2020 and relay passengers from the Bay Area to Southern California in less than three hours. Last week, the authority's board of directors approved a stretch between Borden and Corcoran in the Central Valley as the starting point for the line, but stressed that its objective remains a statewide system.

But the authority's business plan for an 800-mile system remains riddled with uncertainties, the report states. Among the biggest obstacles is a lack of a "business model" (different than a "business plan") that would make the system viable.

"The proposed business model for the HSR project has not received enough attention and yet is probably the critical organizing principle around which most issues will need to be resolved," the group said. Selecting a business model for the system "may be the most difficult of the decisions the Authority now faces," it said in the report.

The peer group specifically calls on the authority to decide whether high-speed rail should operate as a public entity (much like BART), as a mostly private enterprise, or as a combination.

"The Authority's actual decision must be the result of a careful balance of finances, private and public costs and benefits, and risk sharing, among other factors," the report stated, noting that neither a fully public nor a fully private model are likely. "What the group does strongly believe, though, is that the progress on the HSR system is critically dependent on action by the Authority to identify the business model option it will pursue or, at least, to start the process of selecting the preferred approach.

"It will not be possible for the group to reach a judgment on the viability of any plan or request for use of bond funding without a much better understanding of the authority's proposed business model."

The new report, like previous audits, also expresses concern about the lack of funding for the project, which has an estimated price tag of $43 billion. California voters approved a $9.95 billion bond for high-speed rail in 2008.

Will Kempton, chair of the group, wrote in the report's cover letter that building such a system would be a "daunting task under the best of circumstances" and that meeting the challenge would "require a thorough re-assessment of a number of crucial engineering, financial, economic and managerial issues, and will require agreement among the Legislature, the Governor and the Authority on what the resolution of those issues should be."

The report calls the lack of a "clear financial plan" a "critical concern." The report particularly takes issue with the rail authority's projection that it will receive between $17 billion and $19 billion in federal funding for the project. This projection, along with the authority's expectations of local and state funding, gives the financial plan an "air of unreality," the report states.

"For these reasons, the project, as of now, has only limited credibility with private investors," the report states. "The demonstration of firm public sector financial commitments will be an absolute necessity, prior to approaching sources of private capital."

The cost of the rail system could go up further, the report notes, because of community opposition, most notably on the Peninsula, where Palo Alto, Menlo Park and Atherton are suing the rail authority over its environmental study. The authority should "conduct more detailed and transparent sensitivity analyses of the impact on the expected outcomes of variations in demand, revenues, investment costs, operating costs and project timing."

"All 'mega projects' such as High-Speed Rail carry significant risk and uncertainty," the report stated. "Community opposition to the project's proposed alignment between San Francisco and San Jose, as well as the early stage of the system's overall design status (among many other issues) will cause the cost of the project to fluctuate."

The peer group also acknowledges that the rail authority remains grossly understaffed and states that its current staffing level "is inadequate to oversee a project of this magnitude, no matter what business model is ultimately chosen." It calls on state legislators to ensure that the agency has the staff necessary to manage the project because "anything less will ensure major problems of budget control, accountability, and schedule."

Jeff Barker, deputy director of the rail authority, said the agency "continues to make progress on addressing the challenges that go along with a project of this size and scope, which have been well documented in previous reports."

Barker told the Weekly in an e-mail that the authority's staff will work with the board of directors on development of a business model in the middle of 2011 and that it is moving ahead with its plans to refine the ridership projections. As part of the latter effort, the authority will create a five-member Ridership Peer Review Committee to vet the latest forecasts.

Barker acknowledged the challenge of attaining more than $11 billion in federal funding, but noted that the state has secured almost $3 billion in federal funds in less than a year.

"California has been more successful than any other state in garnering federal support for its high-speed train project, but today's report should be a wake-up call that a commitment of ongoing federal support for the project is still crucial to its future," Barker said in an e-mail.

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Like this comment
Posted by Paul Losch
a resident of Community Center
on Dec 6, 2010 at 5:55 pm

Has there been a favorable assesment of the HSR program since the voters were duped into voting in favor of it 2 years ago? None come to mind.

I opposed this as a bad policy choice, but am mindful of all the Keystone Kops sleight of hand the HSR leadership offers time and again around basic stuff--economic assumptions, ridership assumptions, questionable leadership and management, YADA YADA YADA.

What puzzles me is why thing keeps "staying alive." It never is going to happend, but more money goes down the sink hole every day while the denial continues

Like this comment
Posted by Norman Berger
a resident of Old Palo Alto
on Dec 6, 2010 at 10:15 pm

There is no way this train won't be a financial sink hole needing massive subsidies.

Lets take the $43B they say is going to be needed to build this thing out and I'll use only that number in calculation what the ridership needs to be and not the interest cost paid during the ten year build out or even the operating costs nor adminstrative costs.

To make the just the $43B viable we'll assume that the interest cost on this money is 5% so each year, without amoritization of the principal, the cost is $2.15B. Therefore each day's interest cost is $5,890,000. Futher lets say that the train will make ten round trips per day or twenty each day so that each train trip needs to bring in $294,500.

We can guess that Southwest will be charging about $100 per trip to fly and that the train would at least have to match that. Therefore each train trip has to have 2,945 passengers. If each car has 100 passengers (I don't know how close to correct this is) each full train needs thiry passenger cars. At present the CalTrain load is five passenger cars. Get where I'm going, the numbers are pretty absurd, already.

But throw in the costs of running the darn thing and I'd be surprised if the numbers above aren't doubled.

Now if that isn't enough remember the three hours it takes for the train to go from SF to LA is three times longer than an airplane ride so it has to be cheaper than that.

Also, the darn thing will cut right through our beatiful cities and state. My guess is that if it was an oil
pipeline taking exactly the same route and butchering up the terrain it would have never have gotten this far.

That this proposal has gotten this far without the careful work that the report calls for is in itself a travesty and shows how much theh 'sizzle' has dominated the 'steak', $43B worth. We should all be ashamed of ourselves.

Like this comment
Posted by Keith Ferrell
a resident of Southgate
on Dec 7, 2010 at 11:04 am

A business model that would make it viable? Why would we want that? This is California. Just tell everyone it'll save the earth and they'll vote for it. The state is $6B in the red and projected to get worse, and that doesn't factor in interest payments on the bonds they'll need to float to pay for this cluster "foxtrot".

It's amazing that people like Joe Simitian, who actually has some pull, knowing what a mess the state is in, still support this thing.

Education spending will soon be cut. And then again to fund this mistake. We'll end up with fast trains and slow kids.

The supporters (especially the unions and the genius behind light rail) will say that the state voted it in (barely), and it'll create jobs (short term). Voters have made many mistakes before and they were corrected. There is nothing that says more money needs to be spent on this.

Like this comment
Posted by Dan
a resident of Southgate
on Dec 7, 2010 at 1:16 pm

I have to admit, I voted for this thing. I guess I assumed someone else had researched it and it made sense. But, as Norman's math (above) clearly illustrates, HSL will sink our sinking State. Maybe its time to cut bait. Let's have another referendum.

Like this comment
Posted by galen
a resident of Ventura
on Dec 7, 2010 at 2:28 pm

It's encouraging to see that more and more people are realizing what a disaster-in-the-making this criminal HSR boondoggle is in reality.

The fact that green rail-fanatics wax poetic about how HSR is going to save us from "environmental catastrophe" while ignoring that the carbon break-even point for this insane venture is 76 years should tell anyone paying attention that HSR boosters have their heads someplace devoid of solar energy.

Since the "it's green" argument is a blatant lie, this whole thing boils down to money, jobs, and corrupt politics.

I have an idea, let's just pay the unions and the politicos pushing this a billion to not build HSR. No operating losses, no homes and businesses destroyed, no referendum, no lawsuits, no $100 billion boondoggle... just a cool billion up front to make this thing go away.

Sure, that would be illegal, but since when does legality enter the picture when there's billions of dollars floating around.

Like this comment
Posted by Andrea
a resident of Crescent Park
on Dec 7, 2010 at 2:30 pm

How many objective reports do we need, telling us that it's a flawed plan and can't succeed, before the Federal Government, the State Government, or even the CHSRA itself ends this folly. Are five reports enough? Has there been even one that gives a positive review? C'mon, let's stop throwing money down the drain and put it towards much needed infrastructure repair around the state.

Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Dec 7, 2010 at 3:40 pm

Walter_E_Wallis is a registered user.

Betcha they build it where it is appreciated, first, then let the rest of us whine until we are added on as afterthoughts.

Sorry, but further commenting on this topic has been closed.

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