Bloomberg News

California High-Speed Rail Relies on Risky Funding, Auditor Says

January 26, 2012

Jan. 24 (Bloomberg) -- California’s plan to build a high- speed train network relies on risky funding and oversight of the agency charged with building the rail lines remains weak, according to a state audit.

While the California High-Speed Rail Authority names the U.S. government as its largest potential funding source for the $98.5 billion project, its business plan provides few details on how it will obtain the money, state Auditor Elaine Howle said today in a report. The plan also leaves out $96.8 billion in operating and maintenance costs from 2025 to 2060, she said.

California is the only U.S. state working to lay tracks for trains to run as fast as 220 miles (354 kilometers) an hour. The network would connect San Francisco to Los Angeles by 2033. On Jan. 3, a legislative review panel recommended against selling debt to start the project. Ten days later, the authority’s chief executive officer and board chairman said they would step down. Governor Jerry Brown, a Democrat, remains behind the project.

“We’re working with the auditor’s office on identifying deficiencies and we’ll continue to work with them,” Lance Simmens, an authority spokesman, said today by telephone. The agency will deal with the auditor’s concerns in a revised business plan to be released in the next month, he said.

Revenue Estimates

Howle also listed concerns that the authority’s revenue estimates and ridership projections may not be accurate. The projections are fundamental to attracting private investment.

Nothing in the audit suggests that the work should be halted, Simmens said.

The state, which has received $3.5 billion in U.S. funds for the project, has said it would need $17 billion to $19 billion in federal money for the work. Congress eliminated high- speed rail funds requested for 2012. State voters in 2008 approved the sale of $9.95 billion in bonds to finance the work. Most of the bonds haven’t been sold.

Howle said understaffing at the authority has left it struggling to oversee contractors and subcontractors, who outnumber agency employees by about 25 to 1. She said the authority has delegated too much control to contractors and may lack the information needed to make critical decisions.

--Editors: Ted Bunker, Pete Young.

To contact the reporters on this story: James Nash in Sacramento at jnash24@bloomberg.net; Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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