Senate Committee on Transportation
Hon. Lena A. Gonzalez, Chair
PRESENTED TO:
LEGISLATIVE ANALYST’S OFFICE
High-Speed Rail 2023
Project Update Report
MARCH 28, 2023
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Introduction
Statutory Reporting Requirements. State law requires the
High-Speed Rail Authority (HSRA) to prepare a business plan every
even year that provides certain key information about the planned
high-speed rail system. State law also requires HSRA to prepare
a project update report (PUR) every odd year that provides certain
updated information, such as related to costs and schedule. As we
discuss in further detail later, Chapter 71 of 2022 (SB 198, Committee
on Budget and Fiscal Review) expanded the required elements of the
PUR.
2022 Business Plan Deferred Some Updates to 2023 PUR. HSRA
adopted its 2022 business plan on April 27, 2022. HSRA indicated
at that time that the 2022 business plan was intended to serve as
a bridge document and that a more comprehensive analysis and
update would be provided as part of the 2023 PUR.
2023 PUR Released in March 2023. HSRA released its most recent
PUR on March 1, 2023.
Overview of Handout. This handout (1)provides background
information on the planned high-speed rail system and the
Legislature’s actions in 2022-23, (2)describes the major features of
the 2023 PUR, (3)identifies issues for legislative consideration, and
(4) highlights near-term questions facing the Legislature.
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Project Delivery Plan
Phase I Consists of Multiple Segments. Phase I would provide
service for about 500 miles from San Francisco to Anaheim. As
shown in the figure, the delivery of Phase I is divided into segments.
— The first segment to be completed is the Central Valley Segment
(CVS), which extends for 119 miles through the Central Valley
from Madera (about 25 miles north of Fresno) to Poplar Avenue in
Shafter (about 20 miles north of Bakersfield). This segment is also
referred to as the Initial Construction Segment.
— After the construction of the CVS, the project is planned to be
extended north to Merced and south to Bakersfield. This 171-mile
segment is referred to as the Merced-to-Bakersfield segment.
— Ultimately, the project is envisioned to then be extended first to
San Francisco and then to Anaheim. The segment between San
Francisco and Bakersfield is referred to as the Valley-to-Valley
line.
Figure #
High-Speed Rail Project Divided in Multiple Segments
Sacramento
Stockton
Merced
San Jose
Gilroy
San Francisco
Fresno
Bakersfield
Kings/Tulare
Palmdale
Los Angeles
Anaheim
Riverside
Shafter
Phase I
Valley-to-Valley Line
Central Valley Segment
Pacific Ocean
Madera
Merced-to-Bakersfield Segment
Handout.ait ARTWORK #230195
Graphic Sign Off
Secretary
Deputy
Chief Dep.
Analyst
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(Continued)
State Also Supporting Bookend and Connectivity Projects. In
addition, HSRA and state and local partner agencies have initiated
a variety of projects on commuter rail lines. These include “bookend
projects” along the proposed high-speed rail alignment in the
San Francisco Bay Area and Southern California. For example,
a significant bookend project is the electrification of the Caltrain
Corridor in the San Francisco Bay Area. Various partner agencies also
have initiated “connectivity projects” intended to provide benefits to
existing commuter rail systems that are planned to connect to the
high-speed rail system.
Project Delivery Plan
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Project Funding and Expenditures to Date
Proposition1A Bonds
Voters Approved Bonds 15 Years Ago. Proposition1A
(2008) authorized the state to sell about $10billion in general
obligation bonds—$9billion for the high-speed rail system itself, with
the remainder to support connectivity projects. (Of the $9billion,
HSRA has set aside $1.1billion to contribute to locally administered
bookend projects.) Proposition 1A specified certain conditions
that the system must ultimately achieve, including that the train
service provided by HSRA or pursuant to its authority not require an
operating subsidy.
Proposition 1A Dollars Fully Appropriated, but Not Fully
Expended. The Legislature appropriated the last of the
Proposition1A monies as part of the 2022-23 budget process. To
date, HSRA and partner agencies have spent about $4.9billion of
the Proposition 1A funds—just over $4billion on the high-speed
rail project (including bookend projects) and about $825million
on connectivity projects. As such, about $5.1 billion remains to be
expended.
Cap-and-Trade Auction Revenues
Project Receives Continuous Appropriation of Cap-and-Trade
Revenues. In 2014, the state began providing cap-and-trade auction
proceeds—which are deposited into the Greenhouse Gas Reduction
Fund (GGRF)—for the high-speed rail project. Since 2015-16, the
project has received a continuous appropriation of about 25percent
of annual cap-and-trade revenues. Through December 31, 2022, the
project has received about $5.5billion from GGRF, of which HSRA
has spent about $3.7billion. The cap-and-trade program currently is
authorized to continue through 2030.
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Federal Grant Awards
Federal Government Provided Large Grants in 2009 and 2010.
The federal government has awarded HSRA two major grants
totaling $3.5billion. First, the state received $2.6billion in American
Recovery and Reinvestment Act funds in 2009, which HSRA has fully
expended. Second, the state received a $929million grant from the
federal High-Speed Passenger Rail program in 2010 (“FY 10 Federal
Grant”). The federal grant agreements included certain conditions,
including that the state (1)use the funds to support the construction
of a segment useable for intercity passenger rail and (2)complete all
environmental reviews for Phase I.
Federal Government Terminated Then Subsequently Restored
One of These Grants. In May 2019, the federal government
terminated the FY 10 Federal Grant, arguing that the project had
failed to meet grant requirements and make reasonable progress.
However, the state challenged this decision in court. In June 2021,
the federal government announced a settlement with the state to
restore this funding. As part of this settlement, HSRA entered into
a revised agreement with the federal government, which includes
certain modified conditions, such as specifying that the CVS track be
electrified.
Federal Government Recently Provided Two Small Grants.
HSRA also has received a few small federal grants. Most notably,
the project recently received two Rebuilding American Infrastructure
with Sustainability and Equity grants totaling a combined
$49 million—$24 million in 2021 for improvements near the city
of Wasco and $25 million in 2022 for the design of the Merced
extension.
Project Funding and Expenditures to Date
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Key Actions in 2022-23 Budget Process
Appropriated Remaining Proposition1A.As noted, the
2022-23 budget package appropriated essentially all of the remaining
unappropriated Proposition1A bond funds—$4.2billion—forthe
high-speed rail project.
Adopted Statutory Changes. The package also included associated
budget trailer legislation. Some of the key provisions included:
— Expressing legislative intent to (1)prioritize funding for planning
and constructing the Merced-to-Bakersfield segment and
(2)complete Phase I of the project.
— Prohibiting HSRA from entering into new commitments using
GGRF outside of activities supporting the Merced-to-Bakersfield
segment, except as specified. Such exceptions include the use of
GGRF for certain environmental review and project management
work, as well as for up to $500 million in additional activities. This
prohibition is in effect until the Merced-to-Bakersfield segment is
fully funded or through June 30, 2030, whichever occurs sooner.
— Establishing an independent HSRA Office of the Inspector General
(OIG) with various authorities and responsibilities. The legislation
also specifies a process for appointing the Inspector General (IG)
in which the Governor selects an individual from a list of three
candidates identified by the Joint Legislative Audit Committee
(JLAC).
— Limiting the use of the $4.2billion Proposition1A appropriation
to the Merced-to-Bakersfield segment, with $2.2billion available
only after HSRA or the OIG submits a specified report and
notification to the Governor and Legislature.
— Requiring HSRA to notify the chairpersons of the relevant
committees of both houses of the Legislature before submitting a
federal grant application and before releasing a request for proposals
for certain contracts, such as for the acquisition of trainsets.
— Specifying that future PURs and business plans include certain
additional information, such as updated schedules and costs for
various activities related to completing the Merced-to-Bakersfield
segment.
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(Continued)
Actions Considered Along With Broader Transportation Package.
The above actions were part of a larger budget package agreement
that also included $9.5 billion from the General Fund for various
transportation infrastructure programs. (The Governor’s budget for
2023-24 proposes to reduce this amount by $2.2 billion.)
Key Actions in 2022-23 Budget Process
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Project Status
Environmental Reviews Are Still in Progress. HSRA has completed
the environmental reviews for about 85 percent of the Phase I
alignment (422 out of 494 miles). The authority expects to complete
the remaining environmental reviews for (1) Palmdale to Burbank by
November 2023 and (2) Los Angeles to Anaheim by December 2025.
Right-of-Way Acquisitions for CVS Nearly Complete and Utility
Relocations in Progress. As of January 2023, HSRA had (1) acquired
about 96percent of the parcels necessary for the construction of the
CVS (2,213 of 2,299) and (2) completed just over half of the utility
relocations (978 of 1,836) planned for the CVS.
Construction of CVS Civil Works Is Well Underway. In 2015, HSRA
initiated construction of the CVS. To date, HSRA has completed
several major structures, such as overpasses and viaducts, as well
as the realignment of a portion of State Route 99. Overall, HSRA
reports that, as of December 2022, roughly three-quarters of the CVS
structures were either in progress or complete. HSRA estimates it will
complete the civil works for the CVS in 2026.
Track and Systems Contract Procurement Pulled. In 2019,
HSRA initiated a procurement to contract for (1) the construction of
track and associated systems (such as electric catenary and signal
systems) and (2) 30 years of infrastructure maintenance. In October
2022, shortly before the contract award was anticipated to be made,
HSRA decided to pull back the solicitation due to concerns over
the bid environment, among other factors. HSRA intends to issue a
revised solicitation—with a modified scope—sometime in 2023.
Process of Appointing an Inspector General Is Underway. The
selection of the newly created IG is currently underway. Specifically,
JLAC has received applications and currently is in the process of
selecting three nominees to submit to the Governor for consideration.
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Major Features of 2023 PUR—Project Delivery
Continues Focus on Merced to Bakersfield. The 2023 PUR
continues the approach first presented in 2019 of focusing the state’s
efforts on the construction of the Merced-to-Bakersfield segment.
This focus is consistent with legislative direction, as articulated in
Chapter 71.
Continues Intent to Use Third-Party Operator for Interim Service.
HSRA proposes to launch interim high-speed passenger service
on the Merced-to-Bakersfield segment sometime between 2030
and 2033. HSRA does not anticipate operating this interim service.
Instead, it expects to lease the right to use its track to a third
party—likely the San Joaquin Joint Powers Authority, which currently
oversees the Altamont Corridor Express (ACE) and San Joaquins
services.
Continues to Plan for Other Segments of Phase I. HSRA continues
to work towards completing the environmental reviews for the
remainder of Phase I, consistent with the federal grant requirement.
The authority intends to advance design for each section of Phase I
as it is environmentally cleared, in order to improve its understanding
of potential engineering and construction issues, as well as potential
risks and costs. It also plans to submit federal grant applications
to help fund these planning activities, including submitting a grant
application by April 21, 2023 for $194 million for design work for the
San Jose-to-Merced segment and Bakersfield-to-Palmdale segment
(proposed to be matched by $48 million in GGRF).
Articulates Intent to Commence Other Phase I Activities Starting
in 2025. Additionally, HSRA intends to begin other activities—such
as right-of-way acquisitions, utility relocations, and agreements with
third parties such as utilities and railroads—in 2025 for the segments
beyond Merced-to-Bakersfield, pending funding availability. The 2023
PUR continues to envision the Valley-to-Valley line being completed
after the CVS, followed by the Southern California segments.
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(Continued)
Removes Single Track as an Option. HSRA plans to proceed with
double tracks and does not plan to request that bidders provide
estimates on a single-track option. (Under a single-track option,
passing tracks would be constructed to allow approaching trains to
go by each other.) This is a different approach from the 2022 business
plan, which included both single and double-track options and stated
that constructing the double-track option was contingent on the
receipt of additional federal funds.
Adds Some New Elements to Project Scope. The 2023 PUR now
proposes to add a solar and battery storage system to the project. It
also reflects a change in the location for the Merced station so it will
be co-located with planned stations for the ACE and San Joaquins
services, consistent with Chapter 71. While HSRA had expressed an
intent to utilize a combined station to facilitate transfers for a couple
of years, the associated costs of this approach were not reflected in
the 2022 business plan.
Shifts Some Scope and Costs to Merced-to-Bakersfield
Segment. The 2023 PUR reflects the cost to build a permanent
station at F Street in Bakersfield as part of the Merced-to-Bakersfield
segment. HSRA indicates that the 2022 business plan instead
attributed this cost to the Bakersfield-to-Palmdale segment.
Additionally, the 2023 PUR reflects the costs of a more significant
maintenance facility as part of the Merced-to-Bakersfield segment
compared to what was previously assumed. These costs were
previously reflected in “other project costs” that were not attributed
to any specific construction segment.
Major Features of 2023 PUR—Project Delivery
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Major Features of 2023 PUR—
Schedule Projections
Reflects Delays Compared to 2022 Business Plan. As shown in
the figure, the 2023 PUR identifies delays in various activities. For
example, it assumes Phase I will be environmentally cleared by late
2025 rather than 2024. Additionally, it projects completing the civil
works for the CVS by 2026 rather than 2023 as envisioned in the
2022 business plan.
Does Not Revise the Schedule Beyond Merced to Bakersfield.
The 2023 PUR does not provide a revised schedule for the
Valley-to-Valley segment, which the 2022 business plan assumed
would be completed in 2031, or for Phase I, which previously was
estimated to be completed in 2033. Given the other projected delays,
these activities likely also are behind schedule.
2023 PUR Anticipates Delays for Completing Some Key High-Speed Rail Activities
Activity
Estimated Completion Date
2022 Business Plan 2023 PUR
Phase I environmental work 2024 December 2025
CVS civil works Quarter 4 of 2023 2026
CVS track and systems work, commence train testing 2025 2028
Launch interim Merced-to-Bakersfield service 2029 2030 to 2033
Valley-to-Valley line construction 2031 Not updated
Phase I construction 2033 Not updated
PUR = project update report and CVS = Central Valley Segment.
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Major Features of 2023 PUR—Cost Projections
Base Capital Cost Estimates for Phase 1
(Dollars in Billions)
Segment/Activity
2022
Business Plan 2023 PUR
a
Change From
2022 to 2023 Percent Change
Merced to Bakersfield
$23.9 $35.3 $11.4
b
48%
Central Valley Segment
14.5 18.3 3.8 26
Merced extension
2.4 4.5 2.1 86
Bakersfeld extension
1.2 3.3 2.0 164
Solar and utility interconnection
0.0 0.2 0.2 N/A
Trainsets
0.7 0.6 -0.1 -17
Maintenance facility and simulator
0.02 0.4 0.4 2,222
Bookend commitments
1.3 1.3 — —
Other
c
3.8 6.8 3.0 79
Other Northern California
$23.8 $27.1 $3.3 14%
San Francisco to San Jose
1.7 5.0 3.3 201
San Jose to Gilroy
6.0 6.0 — —
Gilroy to Carlucci Road
13.6 13.6 — —
Central Valley Wye balance
2.2 2.2 — —
Advance design costs
0.2 0.2 — —
Southern California
$41.4 $40.2 -$1.2 -3%
Bakersfeld to Palmdale
18.4 17.1 -1.2
d
-7
Palmdale to Burbank
16.8 16.8 — —
Burbank to Los Angeles
2.9 2.9 — —
Los Angeles to Anaheim
2.9 2.9 — —
Advance design costs
0.4 0.4 — —
Other System Costs
$5.1 $5.1 — —
Solar power generation balance
0.0 0.2 $0.2 N/A
Heavy maintenance facility balance
0.5 0.3 -0.2
e
-43%
Trainset balance
4.6 4.6 — —
Total Costs $94.2 $107.6 $13.4 14%
a
For Merced to Bakersfield, HSRA has modeled that there is a 65 percent chance that the costs will remain within this budgeted amount (compared to a
70 percent chance under the approach HSRA previously used for this segment).
b
$1.7 billion of the $11.4 billion difference is due to scope that was shifted from other portions of the project budget.
c
Includes project development and support, stations, track and systems balance (including Central Valley Segment second track), and contingency balance.
d
Reflects the shift of $1.2 billion for a permanent Bakersfield station and Bakersfield utility costs to the Merced-to-Bakersfield segment.
e
Reflects the net result of (1) shifting $481 million in maintenance facility costs to Merced to Bakersfield and (2) $275 million in additional maintenance facility
costs.
PUR = project update report; N/A = Not Applicable; and HSRA = High-Speed Rail Authority.
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(Continued)
2023 PUR Estimates $13.4Billion in Higher Costs for Phase I.
As shown in the figure, the 2023 PUR estimates total base costs to
complete Phase I at $107.6 billion, which is an increase of about
$13.4billion (14 percent) over what was included in the 2022 business
plan.
Reflects $11.4Billion in Higher Costs for Merced to Bakersfield.
The 2023 PUR adds roughly $11.4 billion to the estimated cost for the
Merced-to-Bakersfield segment (from $23.9 million to $35.3 million).
This represents a nearly 50 percent increase in costs for the segment
compared to last year. According to HSRA, this includes:
— $3.9 billion related to scope changes, such as to reflect the costs
of a combined station in Merced and a new proposed solar and
battery storage system.
— $3.7 billion related to contingencies and other factors.
— $2.1 billion related to inflation and timing impacts. (The 2023
PUR now assumes an inflation rate of 5.3 percent in 2023, falling
to 2 percent starting in 2027. The 2022 business plan assumed
2.25 percent in 2023, increasing to 3 percent starting in 2025-26.)
— Shifting $1.7 billion to the Merced-to-Bakersfield segment,
including costs related to the new station in Bakersfield
($1.2 billion) and maintenance facilities ($481 million).
Reflects $3.3 Billion in Higher Costs for Constructing San
Francisco to San Jose. The 2023 PUR updates the cost estimate
of the recently environmentally cleared San Francisco-to-San Jose
segment from $1.7 billion to $5 billion (roughly three times as much).
Major Features of 2023 PUR—Cost Projections
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(Continued)
Reflects Offsetting Changes to Other System Costs. The
2023 PUR reflects changes to some project costs that are not
associated with specific segments. This includes an increase of
about $200 million associated with the portions of the solar and
battery system outside of Merced to Bakersfield. It also includes
a net decrease of about $200 million in maintenance facility
costs. (This includes a combination of shifting some costs to the
Merced-to-Bakersfield segment, as discussed above, the impact
of which is partially offset by increased cost estimates for other
maintenance facility-related costs.)
Does Not Revise Other Cost Estimates. The 2023 PUR does not
make any adjustments to the cost estimates for the other segments
of Phase I—such as Southern California or between San Jose and the
Central Valley Wye—to account for factors such as cost escalation
or additional changes that may be needed to address community
concerns. For example, the draft environmental document for the
Palmdale-to-Burbank segment contains cost estimates of over
$22 billion—notably higher than the $16.8 billion reflected in the 2023
PUR.
Major Features of 2023 PUR—Cost Projections
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Major Features of 2023 PUR—Funding Sources
Identifies Funding From Various Sources and Assumes Robust
Cap-and-Trade Revenues. HSRA estimates that available funding
sources will provide a total of between $23.5billion and $25.2billion
for the Merced-to-Bakersfield segment, depending on future
cap-and-trade auction revenues. The estimated range is somewhat
higher than assumed in the 2022 business plan (between $21.2billion
and $25.2billion). The main difference is that the 2023 PUR assumes
the project will receive between $750 million and $1 billion per year
from cap-and-trade (projecting recent GGRF revenue trends will
continue), whereas the 2022 business plan assumed it would receive
$500 million to $1 billion per year.
2023 PUR’s Estimated Merced-to-Bakersfield
Segment Funding and Costs
(In Billions)
Projected Funding
Amount
Federal Funds
ARRA
$2.6
FY 10 federal grant
0.9
RAISE grants and other
0.1
Subtotal, Federal Funds
($3.6)
State Funds
Proposition 1A
$8.5
Cap-and-trade received through November 2022
5.5
Future cap-and-trade
6 - 7.7
a
Subtotal, State Funds
($20 - $21.7)
Total Funding Available $23.5 - $25.2
Merced to Bakersfield Costs
Amount
Central Valley Segment
$18.3
Merced and Bakersfeld extensions
7.7
Other
9.3
Total Costs $35.3
a
Assumes cap-and-trade revenues of between $750 million and $1 billion annually.
PUR = project update report; ARRA = American Recovery and Reinvestment Act;
and RAISE = Rebuilding American Infrastructure with Sustainability and Equity.
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(Continued)
Reflects at Least $10 Billon Funding Gap. The 2023 PUR identifies
a roughly $10 billion to $12 billion gap between the estimated
revenues and the updated cost estimate for completing the segment.
This is in contrast to the 2022 business plan, which estimated that
revenues would be roughly equivalent to costs.
Identifies $8 Billion Target for Federal Funds. The 2023 PUR
identifies a target of attaining $8 billion of additional federal
funds from various competitive grant programs authorized by the
Infrastructure Investment and Jobs Act and the Inflation Reduction
Act. (Because the state has not yet attained these funds, they are
not reflected in the above figure.) HSRA assumes the project will
rely on federal funds to complete various key activities, such as the
purchase of trainsets and construction of the second track, as well
as the right-of-way acquisition and construction of the Merced and
Bakersfield extensions.
Does Not Identify Specific Funding Sources for Remainder of
Phase I. The 2023 PUR continues to suggest that the state’s goal is
to complete Phase I. However, it does not identify specific sources
of funding to construct any portion of Phase I beyond Merced to
Bakersfield.
Major Features of 2023 PUR—Funding Sources
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Major Features of 2023 PUR—
Ridership Estimates
Revises Ridership Estimates Downward. The 2023 PUR revises
high-speed rail ridership estimates for the first time since 2020. It
now estimates the Valley-to-Valley segment will have ridership of
11.5 million annual passengers by 2040, down from the previous
estimate of 18.4 million (38 percent decline). HSRA also estimates
Phase I will have ridership of 31.3 million annual passengers by
2040, compared to the previous estimate of 38.6 million (19 percent
decline).
These revised estimates are based on a new ridership model, as well
as revised assumptions, such as about population and employment
growth, and travel behavior.
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Key Issues for Legislative Consideration
Large Funding Gap Has Emerged for the Merced-to-Bakersfield
Segment
Funding Gap of at Least $10 Billion for Merced to Bakersfield
Could Grow. The 2023 PUR estimates a funding gap of roughly
$10 billion to $12 billion for completing this initial segment, due to
various factors such as changes in inflation estimates and scope.
However, the risk that this funding gap could grow even larger is
significant.
— Actual Costs Could Be Even Higher. The project has a history of
cost increases, and inherent cost risks are associated with large
and complex construction projects. Also, while the CVS is well
underway, the Merced and Bakersfield extensions still are in the
early planning stages, and thus subject to additional uncertainty.
Additionally, while the project incorporates updated inflation
estimates for the Merced-to-Bakersfield segment, these are not
specific to the construction sector. To the extent that inflation
in construction costs continues to outpace overall inflation or
that recent elevated inflation trends are more persistent than is
currently assumed, this could result in even higher project costs.
— Some Expected GGRF Monies May Not Materialize. The
funding plan assumes that the higher cap-and-trade revenues
the state has received over the past couple of years will
continue through 2030. We caution, however, that forthcoming
cap-and-trade revenues are subject to notable uncertainty, and
this lack of clarity grows substantially the further into the future
they are projected. Accordingly, the project could receive a
smaller amount from GGRF than the 2023 PUR assumes.
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(Continued)
Unclear if Federal Funds Will Materialize. HSRA has set a target
of attaining roughly $8 billion in additional funding from the federal
government. However, even this amount would not fully meet the
currently identified funding gap. Additionally, how much funding the
state will receive from the federal government is highly uncertain.
For example, from 2021 through March 2023, HSRA applied for at
least $1.6 billion in federal funds but only received $49 million thus
far. (Applications totaling $327 million are still pending, and HSRA
has notified the Legislature about its intent to apply for two grants
totaling $3 billion in additional federal funding by April 21, 2023.)
Most recently, HSRA was unsuccessful in securing two federal grant
applications totaling over $1.2 billion, as the U.S. Department of
Transportation deemed the proposals as not cost-effective.
No Funding Plan Beyond Merced to Bakersfield
Over $80 Billion Funding Gap for Phase I Likely to Grow. Based
on HSRA’s current estimates, the project has a funding gap of over
$80 billion to complete Phase I. However, estimates for portions of
Phase I beyond Merced to Bakersfield are subject to substantial
uncertainty and therefore could ultimately be much higher. Some
reasons include (1) many of these segments are in the early planning
stages and additional changes to scope may be necessary as
designs are refined, (2) some segments involve relatively complex
and unpredictable work (such as tunneling), and (3) the state has
experienced significant construction cost escalation since some of
these costs were last comprehensively updated.
No Plan for Addressing the Phase I Funding Gap. At this time,
HSRA has not identified how the construction costs for the portions
of Phase I beyond the Merced-to-Bakersfield segment would be
funded. HSRA indicates that the project needs ongoing state and
federal funding to implement its long-term goals. However, it has not
identified a specific, credible plan for (1) how much funding it would
secure from each specific source or (2) how it plans to obtain such
funds. Absent such a plan, the path to completing Phase I is unclear.
Key Issues for Legislative Consideration
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(Continued)
Reduced Ridership Could Affect Business Case
Lower Ridership Could Increase the Likelihood of Operating
Subsidy. The lower ridership estimate is likely to reduce the
net operating revenues, which could affect the business case
for high-speed rail and make it more difficult for it to meet the
Proposition 1A requirement that the project not require an operating
subsidy. (We note that HSRA argues that this requirement would not
apply if it uses a third-party operator to run the service—as it plans to
for the Merced-to-Bakersfield segment.)
Project Oversight Continues to Be Important
Legislature Created Framework for Improved Oversight. With the
passage of Chapter 71, the Legislature created a strong framework
for additional project oversight, such as the establishment of an
independent OIG. The benefits of these actions should start to
become apparent as the OIG gets up and running over the coming
year.
Key Issues for Legislative Consideration
LEGISLATIVE ANALYST’S OFFICE
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Key Near-Term Questions Facing the
Legislature
The Legislature took important actions last year to provide additional
project direction and establish a framework for enhanced oversight. However,
given the significant changes reflected in the 2023 PUR, the Legislature may
want to consider whether additional actions beyond those taken in 2022-23
are merited. As it does so, some key questions we suggest the Legislature
keep in mind include:
Is the Legislature Still Committed to Merced to Bakersfield?
Chapter 71 expressed the Legislature’s intent to focus on the
Merced-to-Bakersfield segment. This approach was based on the
information available at that time that suggested that the project had
roughly sufficient funds to complete that segment. The Legislature
may want to consider the extent to which the updated information
in the 2023 PUR—such as the emergence of the multibillion dollar
funding gap—affects its intent.
What Funding Does the Legislature Want to Use to Fill the
Merced-to-Bakersfield Gap? To the extent the Legislature is still
committed to completing the Merced-to-Bakersfield segment, it will
likely need to identify billions of dollars of additional funding within
the next few years to fill the funding gap. While the Legislature does
not need to identify its specific funding plan immediately, at least
beginning to formulate its preferred funding approach soon would
allow it more time to fully evaluate and weigh the difficult trade-offs
associated with each option. Some factors the Legislature will want
to consider include:
— Financial Approach: The Legislature could use cash to pay up
front or borrow, such as by seeking voter approval for another
general obligation bond, issuing revenue bonds, or pursuing
federal financing programs.
— Fund Source: Examples of potential fund sources for
up-front cash or debt service payments include the General
Fund, additional GGRF, or truck weight fees (which currently
offset General Fund costs associated with repaying
transportation-related general obligation bonds). All of these
sources come with trade-offs, given other legislative priorities
and uses of the funds—particularly in light of the current and
forecasted out-year budget problems.
LEGISLATIVE ANALYST’S OFFICE
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(Continued)
— Existing or New Revenues. The Legislature could use existing
revenues (such as by reducing spending in other areas) or
raise new revenues (such as by increasing an existing tax or
establishing a new tax).
Does the Legislature Agree With the Elements Included in
Merced to Bakersfield? One way to help modestly decrease the
size of the funding gap could be to reduce the scope of the project
elements included in the Merced-to-Bakersfield segment. Most of
the proposed elements—such as two tracks, basic stations, and
a combined station at Merced—are important to the functioning
of basic, reliable service. However, the Legislature could consider
whether certain elements are less critical and could be removed. For
example, the 2023 PUR adds $230 million in costs—$101 million of
which are in Merced to Bakersfield—for a newly proposed solar and
battery storage system. Given the funding gap, the Legislature could
consider whether it deems this added scope to be critical to the
project.
Does the Legislature Agree With HSRA’s Planned Actions Beyond
Merced to Bakersfield? HSRA indicates that it plans to take various
actions related to segments of Phase I beyond Merced to Bakersfield.
This includes pursuing federal grants for the design of other
segments in Northern and Southern California, such as the grants
it intends to submit by April 21, 2023. Additionally, starting in 2025,
HSRA indicates it plans to start undertaking activities beyond Merced
to Bakersfield, such as right-of-way acquisitions, utility relocations,
and agreements with third parties. The Legislature may want to
consider whether it is comfortable with HSRA undertaking these
activities, particularly in light of the funding gap that has emerged
for the Merced-to-Bakersfield segment and the growing funding gap
for Phase I. If not, the Legislature could consider strengthening the
current statutory limitations to clarify its intentions.
Key Near-Term Questions Facing the
Legislature
LEGISLATIVE ANALYST’S OFFICE
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(Continued)
Does the Legislature Have Sufficient Information to Inform Its
Decisions? To the extent the Legislature feels it would benefit from
additional information and analysis—such as to justify the project’s
business case given revised ridership estimates, to gain more
confidence in the project’s cost estimates, to better understand which
project elements could be removed or modified to reduce costs, or
to assess the available funding options—it could consider funding an
appropriate third party to develop such information. The Legislature
could also consider requesting the IG, once appointed, conduct
particular analyses.
How Can the Legislature Promote the Effectiveness of the IG
in Providing Project Oversight? The IG has the potential to play a
critical role in project oversight, such as by conducting independent,
self-initiated audits. Taking legislative steps to ensure the
effectiveness of the IG will be important. This could include selecting
strong, independent candidates for the position, properly resourcing
the new office, and establishing a robust working relationship with the
ultimate appointee.
Key Near-Term Questions Facing the
Legislature