GAO Report Validates California High-Speed Rail Project

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The independent, nonpartisan, federal watchdog agency, the U.S. Government Accountability Office (GAO), gave the California high-speed rail project passing marks in an audit released last Friday. The report found that the California High-Speed Rail Authority has produced "reasonable" ridership and revenue forecasts in its Revised 2012 Business Plan, while also pointing out that the project's cost estimates could be improved and that future funding for the project remains uncertain. Jeff Morales, CEO of the Authority, called the GAO's report, "an important validation from a highly respected government watchdog." "This is a very good, very strong, report card." Dan Richard, board chairman of the Authority said. "It's not straight A's, but we will aspire to improve in the areas where the GAO tells us we can do much better."

The Authority's business plan forecast that annual ridership will grow to between 16 million and 27 million by 2030, depending on various future conditions, such as the price of fuel. The plan's high ridership scenario assumes a fuel price of $6.11 and the low scenario assumes a price of $2.60 in 2030. Fares for high-speed rail are assumed to be 83% of San Francisco-Los Angeles airfare in 2009. The plan also projected that the high-speed rail system would generate annual revenues of between $1 billion and $1.8 billion in 2030 and proved that no public operating subsidies will be required under any scenario.

Read the GAO report.

The report states that the Authority's most recent cost estimates were accurate according to the GAO's own Cost Estimating and Assessment Guide, but that additional information could be provided to make them more comprehensive, credible and well documented. The latest cost estimate for the "blended" high-speed rail system between San Francisco and Los Angeles/Anaheim is $68.4 billion. The Authority's Revised 2012 Business Plan relies on the federal government to kick in $38.7 billion and the private-sector to pony up an additional $13.1 billion over the course of construction. The project has already secured $11.5 billion ($8.2 billion in state and $3.3 billion in federal funds) to begin building the the first phase of construction in the Central Valley this summer. According to the business plan, no additional funding will be needed until 2015 when it hopes to begin the second phase of construction.

The GAO report states that the project's funding "faces uncertainty, especially in a tight federal and state budget environment." However, it goes on to say, "the Authority's plan recognizes the uncertainty of the current funding environment and is building the project in phases" which "is typical for major transportation infrastructure projects."

More from the GAO report:
"Based on [the GAO's] past work on high-speed rail, successful projects require significant and sustained financial commitments from the public sector before private investors will participate, and the Authority's plan reflects this funding model. For example, in Japan, private investment is contingent on substantial government investment. Other federally-supported transportation programs--like those for highway and certain transit infrastructure--rely on a dedicated revenue source for their funding and allow for multi-year funding agreements for eligible projects. In contrast, the HSIPR program has not been funded with a dedicated revenue stream, but from the general fund, a process that means that the program has to compete for appropriations with other discretionary programs."

"Our past work on high-speed rail systems has shown that private sector investment is easier to attract only after the public sector has made a substantial capital investment in the system."

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