Friday, April 30, 2010

The Audit Debate Continues

This post is stolen quite shamelessly from activist Martin Engel. Thanks Marty.

There are numerous articles today about the State Audit of the high-speed rail's books. They all bring different issues to light. Here are two of them, including one from Dan Walters of the Sacramento Bee, the Dean of California's political reporters.

Based on these articles, the actual Auditor report, all the prior Legislative Analyst's Office reports, the statements by Senators Simitian and Lowenthal, and the several reviews of the misconceived ridership numbers, a solid, unambiguous case is gradually coming together. The California High-Speed Rail Authority is leaving a trail of mis-management and incompetence. They persist in committing sins of omission and comission. It's time to say, sin no more!

Let me say that another way. The organization that has successfully convinced the California voters of the efficacy of this HSR project, has now become its own worst enemy. If this project is terminated or fails mid-stream, so to speak, it will be their own fault. If California loses the $2.34 billion ARRA stimulus fund award by 2012 (a credible possibility), it will the rail authority's own fault. If the Legislature and Governor fail to remove this Board, relieving them of their duties, and place this project within a competent Transportation organization in this state where it belongs, it will be THEIR fault.

What was to have become a legacy and vanity project for the Governor and the politicians closely affiliated with this project, will become a political mill-stone around their necks. It will certainly be a legacy, but just he opposite of what they have in mind.

It's time to bombard the Legislature and the Governor's office with letters. When is enough, enough?

When do we, mercifully, render a coup de grace and put this severely damaged creature to rest? When will our state government send out the clowns and bring in the professional grown-ups to run this project?

And, as DeSaulnier's new legislation suggests, anything this big ought to be subject to Legislative/Senate control, including the appointments to manage this project.

The first step is for the Legislature, both houses, to acknowledge that we cannot go on like this and major, fundamental changes are in order.

Final point: California is positioning itself as the high-speed rail leader in the US. So far, not so good. Unless things are turned around, and quickly, we will be the leader all right, but not they way we hoped for.

Good job, Ben Silverfarb.

Printed from THE DAILY JOURNAL, dtd. 04/30/2010

Auditor lists high-speed rail's pitfalls

April 30, 2010, 03:40 AM

By Bill Silverfarb Daily Journal staff

The California High-Speed Rail Authority risks delays or an incomplete system because of inadequate planning, weak oversight and lax contract management, according to a state auditor's report released yesterday.

The report by California State Auditor Elaine Howle is critical of the rail authority's reliance on federal funds to the tune of nearly $19 billion despite having no commitments beyond the $2.25 billion the state received in January in American Recovery and Reinvestment Act funds.

The rail authority's plan for spending includes nearly $12 billion in federal and state funds through 2013, more than 2.5 times what is now available, according to the auditor's report.

The report was released just as legislation authored by state Sen. Mark DeSaulnier, D-Concord, to increase oversight of how public money is spent on high-speed rail passed the Senate by a bipartisan vote of 26-8.

Senate Bill 965 will help expedite the creation of thousands of California jobs, according to DeSaulnier.

The auditor's report echoes concerns local leaders on the Peninsula have made for months - that the rail authority's business plan and ridership estimates are inaccurate and that there is not enough money to build the "right" system from San Jose to San Francisco.

The rail authority is planning a route with electrified bullet trains traveling from Los Angeles to San Francisco at a cost of more than $40 billion. It received a significant boost when voters approved Proposition 1A, a $9.95 billion bond in November 2008.

But Burlingame Mayor Cathy Baylock contends residents in her city approved the bond without the knowledge that the Caltrain corridor would be used to accommodate high-speed rail.

Burlingame, along with Belmont, Atherton, Menlo Park and Palo Alto formed the Peninsula Cities Consortium in 2009 to put pressure on the rail authority to build the right system.

Three of those cities, Atherton, Menlo Park and Palo Alto, sued the rail authority last year to try to force the system over the Altamont Pass as opposed to the Pacheco Pass.

The approach to sue, however, riled leaders in other cities who said litigation is only meant to delay the project and jeopardize hundreds of thousands of statewide jobs.
High-speed rail trains will not run through Daly City, for instance, but the city still has a stake in the project, said Councilman David Canepa.

Any attempt to stall the project, Canepa said, risks thousands of jobs on the Peninsula. Daly City's unemployment rate, after all, is about 12 percent, well above the rest of the county.

"Our unemployment rate is unacceptable," Canepa said. "This project will bring in white-collar and blue-collar jobs. Too many other cities have been dominating the conversation regarding high-speed rail. Let's get people to work."

The rail authority held public meetings in 2008 regarding its environmental impact report that concluded the Pacheco Pass, and therefore the Caltrain corridor, would be the preferred route for high-speed trains. But those meetings were held in San Jose and San Francisco, Baylock said, leaving the Peninsula's 17 other cities that straddle the train tracks without a voice in the review process.

Burlingame has made it clear it wants the tracks to be buried underground. The alternatives analysis document recently released by the rail authority highlights the track's vertical options as it zips through each city on the Peninsula.

In Burlingame, the tracks will either be in a cut-and-cover trench or on an aerial cement structure, according to the alternatives analysis report.

Neither option suits Burlingame, however, Baylock said.

"A 100-foot right-of-way would be needed for this project in Burlingame," Baylock said. "It will put our historic resources at risk and possibly split our city in two."
The rail authority estimates construction of a cut-and-cover trench in Burlingame alone to cost up to $1.2 billion.

"They better have the money before they break ground," Baylock said. "We're worried they will get it half built and then run out of money."

The announcement of $2.25 billion in federal stimulus money has also put pressure on competing segments of the project to get construction started as soon as possible so that more federal grants may be sought.

"All these things are closing in on us. There is a push to break ground to meet an artificial deadline for federal funds," Baylock said.

Baylock is also not happy with the rail authority's contention that if a city wants the tracks buried then the city needs to pay for it.

"We do not have $900 million sitting around," Baylock said.

An idea to float local bonds to pay for the added expense of tunneling tracks, for instance, has gained steam in recent weeks.

Palo Alto Mayor Pat Burt has suggested a regional bond measure should be considered to build the "right" system. Burt is also critical of Caltrain's contention that it will fail financially if high-speed rail trains do not one day come up the Peninsula.

Caltrain needs to electrify and grade separate all of its crossings to maintain future service, an impossibility without rail authority money.

Burt wants Caltrain to have a plan "B."

The state auditor, in yesterday's report, wants high-speed rail to also have a plan "B."

"The program risks significant delays without more well developed plans for obtaining or replacing federal funds," according to the state auditor's report.

Creating a viable funding plan may be a challenge as matched funding for the least expensive corridor eligible for Recovery Act funds - Los Angeles to Anaheim - amounts to $4.5 billion, while projected costs total $5.5 billion, according to the auditor's report. Barring additional non-Proposition 1A funding, the rail authority may have to settle for a plan covering less than a complete corridor. The rail authority must decide relatively quickly which corridors will receive federal funds, according to the auditor's report.

DeSaulnier's legislation is meant to address some of the state auditor's concerns.

"SB 965 provides the oversight needed to assure that the concerns of the state auditor are resolved," according to DeSaulnier. "Additionally, because of some of the mismanagement issues identified in the report, I am asking the Senate leaders to consider whether those appointed to the Authority in the future should be subject to Senate confirmation. This would include a public hearing where these kinds of problems can be anticipated, discussed and avoided."

Bill Silverfarb can be reached by e-mail: or by phone: (650) 344-5200 ext. 106.

Here is a point that I have made before. One major trigger in the Recession from which we are now ostensibly emerging was the sub-prime mortagage/housing bubble. This HSR project is also a form of sub-prime mortgage. The bond issue funds, anticipated private investments and other capital revenue borrowing to build the train are not yet in hand and may well never materialize. The State bonds are to be released only on a matching basis. Essentially, it's all going to be borrowed money. The federal funds are also borrowed, but are expected as a 'gift' for the State.

There will be interest payments due and, at the end, a return of principal to the lenders. None of that funding is in hand and it looks very iffy. Nonetheless, the rail authority is going ahead, making vast committments that they can't cover, even with loans. That is one definition of a sub-prime mortgage.

Like Wall Street, they are gambling with our money.

One scenario maye that they will start digging holes, run out of cash, and have to foreclose/default on the initial investments and what they have started. The rail authority, in its arrogance, believes itself to be "too big to fail" and will get bailed out by the federal government.

CHSRA, don't count on it.

Dan Walters, a senior journalist for the Sacramento Bee, has written this article about the State Audit for the Modesto Bee.

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