The California High-Speed Rail Authority’s rough year continues with the departure of another top executive at the agency overseeing the state’s $64 billion bullet-train project.

Jon Tapping, the agency’s director of risk management since 2012, is leaving, the Los Angeles Times reported in a story that quoted an unnamed agency official describing internal “chaos.” Authority Chief Executive Jeff Morales left in June. Morales’ second-in-command, Dennis Trujillo, quit in late 2016.

This leaves the authority with three high-profile vacancies as it tries to move ahead with a long-troubled project that’s taken a series of hits throughout 2017. Among the bad news:

– On Oct. 1, the Times printed a report that internal authority documents showed the initial 119-mile segment being built in the Central Valley would cost $8 billion, 27 percent more than the authority’s public declarations that the segment would cost $6.3 billion. The overrun estimate may prove low. In January, documents surfaced that showed federal rail officials expected an overrun in the 50 percent range.

– On Sept. 24, a critical Fresno Bee analysis showed how the authority’s original plan to complete a Merced-to-Bakersfield segment by Sept. 30, 2017, had long since been abandoned because of the authority’s unrealistic expectations about how quickly property could be obtained and environmental approvals be secured. The analysis also cited ongoing lawsuits. The Bee noted that the starting date for passenger service was now projected to be 2025 – 17 years after California voters approved $9.95 billion in bond seed money for the project, initially estimated to cost $32 billion.

Court ruling clears way for potent CEQA lawsuits

– On July 27, the California Supreme Court overturned a lower-court ruling and said state-owned rail projects were not completely exempt from the California Environmental Quality Act and other state environmental laws. The case involved another state project besides the bullet train, but legal analysts said there was no question it would apply.

CEQA has been a powerful tool against projects large and small in California for decades. The state Supreme Court ruling paves the way for a wave of CEQA lawsuits by deep-pocketed interest groups against now-pending environmental impact reports for bullet-train segments in Silicon Valley and the Los Angeles area.

Even individual citizens without high-powered legal teams can stall projects using CEQA. San Francisco’s plan to add bicycle lanes to encourage bicycle commuting was delayed for five years by a self-described “dishwasher from Mendocino.”

– On July 17, the Legislature approved a measure to extend the state’s emissions cap-and-trade program by 10 years, with a handful of Republicans providing crucial support after then-Assembly GOP leader Chad Mayes of Yucca Valley secured support for a provision that could eventually halt the bullet-train project.

“The concession … places a constitutional amendment drafted by Mayes before state voters in June 2018,” CalWatchdog reported in July. “If passed, it would lead to a one-time up-and-down vote in the Legislature in 2024 on whether to continue allowing the use of cap-and-trade revenue to fund the project. But the threshold wouldn’t be a simple majority. A two-thirds vote would be required to allow continued use of the funds – presumably giving GOP lawmakers a prime chance to pull the plug.

This amounts to a bet that the bad news about the project would continue. With the exodus of top staff, the confirmation of major cost overruns and the new certainty about another round of legal challenges, so far that’s what’s come to pass.

Train company owned by Germany may win key contract

Rail authority officials, however, say critics of the project ignore the steady progress it is making, with more than 400 small businesses and 1,400-plus “craft workers” proceeding in building the initial segment.

The rail authority board is likely to make a crucial decision at its meeting Thursday. DB Engineering & Consulting USA, a subsidiary of Deutsche Bahn AG, is expected to be given a $30 million contract to design and operate the initial segment from San Jose to the Central Valley.

Deutsche Bahn AG, which is owned by the German government, is competing with companies from Spain, Italy and China for the contract. In 2015, it was the world’s largest railway company based on revenue and the ninth-biggest carrier of global freight, according to industry reports.

Four months after then-California High Speed Rail Authority Chief Executive Jeff Morales told authority board members he was moving on and two months after Morales made his decision public, the agency overseeing the state’s $64 billion bullet train project hasn’t settled on his successor.

In 2012, four months after Chief Executive Roelof van Ark abruptly left following two stormy years, Morales already had the job. This time around, the same speedy selection process seemed likely. The RT&S transportation industry website reported after Morales’ decision was announced in April that the board was likely to have his replacement approved before Morales’ final day of June 2.

But the CHSRA board met in closed session on the succession issue on May 10 and June 14 without reaching a decision. The rail agency’s number two job – deputy chief executive – has also been vacant since Dennis Trujillo left in December.

The empty slots atop the CHSRA power structure come at a critical time.

According to a federal report prepared under the Obama administration, the state’s high-speed rail project is already seven years behind schedule and on its way to having a 50 percent cost overrun on the $6.4 billion, 118-mile first segment now being built in the Central Valley.

The project also continues to face legal challenges which argue that it violates the terms of Proposition 1A, the 2008 ballot measure providing $9.95 billion in bond seed money for the project. The rail authority has won most recent judgments. But opponents remain confident they eventually will prevail because of a 2014 state appellate court ruling that held the project still was subject to a financial “straitjacket” that would require it to show short- and long-term financial viability without public subsidies before the project could significantly proceed. The project’s struggle to attract private investment shows that at least in the private sector, there are many doubts that the bullet train could operate successfully without such subsidies.

Obama administration rules could haunt project

But the election of Donald Trump as president in November also has led to a huge new headache for CHSRA. All 14 California House Republicans have urged Transportation Secretary Elaine Chao to reverse Obama administration actions that loosened federal rules to give California access to about $3 billion in federal dollars for the project.

Rep. Jeff Dunman, R-Turlock, and his colleagues have focused their harshest fire on a 2012 decision that gave the state the go-ahead to spend about $200 million in federal funds but not have matching state spending. The decision went against longstanding Washington precedent.

Withdrawing all federal funding could also be justified by citing the Obama administration’s 2009 regulations for projects that were to be paid for or partly paid for with money from the economic stimulus bill passed a month after President Obama took office. The Federal Railroad Administration rules said projects that didn’t demonstrate “reasonableness of financial estimates” and “quality of planning process” would get no funding.

That’s the same agency which recently concluded the project was seven years behind schedule and on course for a 50 percent cost overrun on its initial segment

The California High Speed Rail Authority board’s next meeting is July 18 in Sacramento.

The chief executive of the California High-Speed Rail Authority – former Caltrans director Jeff Morales – is resigning in June from the agency after five years overseeing the state’s $64 billion bullet train project.

The announcement Friday prompted Gov. Jerry Brown and others to praise Morales for leading the authority during a contentious period in which it managed to break ground on the bullet train’s system initial 118-mile segment but struggled to find funding that would actually allow for construction of a statewide network. That’s what voters were promised in 2008 when they approved Proposition 1A, which provided $9.95 billion in bond seed money to a project then estimated to cost $43 billion.

But the timing of Morales’ departure could lead to a melancholy final two months on the job for the rail executive if House Republicans get their way. House Majority Leader Kevin McCarthy, R-Bakersfield, and the other 13 California House GOP members have launched a several-pronged front to try to get the Trump administration to prevent already-committed federal dollars from ever being spent on the project.

Their most visible effort came in February. That’s when their lobbying was seen as prompting Transportation Secretary Elaine Chow to put on hold a promise made late in the Obama administration to provide $647 million to electrify tracks in Silicon Valley leading to San Francisco – a crucial part of the governor’s plan to have a “blended” system of high-speed and regular rail.

Key Obama administration decisions could be rolled back

But California House Republicans also want to “claw back” some of the funding and procedural decisions in Washington made related to the project. This push received an unexpected boost in the final weeks of the Obama presidency when a confidential Federal Railroad Administration report was leaked to the Los Angeles Times. It predicted the first segment of the bullet train that the rail authority had long said would cost $6.4 billion could instead cost $9.5 billion to $10 billion.

Based on this evidence of dubious management and on the rail authority’s inability to attract investors – raising questions about financing – the U.S. Transportation Department appears to have grounds to rescind decisions made in 2009 and 2012 that enabled the project to end up getting about $3 billion in federal funds.

The 2009 decision was the original DOT move to make the California bullet-train project eligible for federal funding from the massive omnibus stimulus bill adopted soon after President Obama took office. The decision required an analysis concluding the project was properly funded and had responsible and thorough planning that substantiated expectations of success.

The 2012 decision was in the form of an agreement that allowed California to bypass the tradition of state and federal infrastructure projects being jointly funded on a dollar-for-dollar basis. Instead, California was allowed for at least three years to get an advance on federal dollars in return for guaranteeing eventual matching funds – totaling $200 million as of June 2015. The federal government has the authority to demand the state match what it has already spent before allowing another dollar to go California’s way.

Is new state law a tweak or a ‘material’ change?

A revocation of these bullet-train-friendly decisions isn’t the only possible twist that Morales faces in his final two months on the job.

Central Valley farmer John Tos, Kings County, the city of Atherton and several other Central Valley groups – the same coalition that previously filed, with some success, legal challenges against the state project – may have their first hearing this week on a new lawsuit in Sacramento Superior Court. (A previous hearing scheduled for last week was delayed, so another delay is possible.)

The lawsuit challenges the legality of the December vote of the California High-Speed Rail Authority to authorize the selling of $3.2 billion in state bonds for the project under the authority granted it by Assembly Bill 1889, a measure by Assemblyman Kevin Mullin, D-South San Francisco, that was enacted last year. It loosened bond-spending restrictions in Proposition 1A, the 2008 measure funding the rail project.

Mullin and other Democrats depicted the change as a routine tweak in the law. Attorneys for Tos, Kings County and Atherton will seek an injunction against any sale of the bonds on the grounds that there is no provision in Proposition 1A allowing for it to be subsequently “materially” altered by the California Legislature.

But it seems safe to say the rail authority didn’t expect implacable, unyielding opposition from this group: Wealthy equestrians. For months, they have targeted plans to put the tracks for high-speed rail in parts of the San Fernando Valley that are beloved by horse owners and riders.

Attempts to reassure the equestrians that the effects would be minimal blew up in the rail authority’s face in March. The authority touted a study from the San Jose State-based Mineta Transportation Institute that said the bullet train would have little effect on horses and riding along the Tujunga Wash and other communities in the Santa Clarita-Sunland area.

Leaders of the equestrian communities in the north San Fernando Valley —  home to an estimated 10,000 horses — dismissed the report as untrustworthy because rail authority Chief Executive Jeff Morales and former bullet-train board member Rod Diridon serve on the institute’s board.

Bullet-train board chairman Dan Richard further undermined confidence in rail authority claims at a March public meeting when he noted that in Europe, cows have become used to the noise of passing bullet trains. The comparison of cows to horses — considered an unusually high-strung animal — prompted laughter and disbelief.

‘Environmental justice’ move not paying off

The bullet-train route was changed in ways that outraged equestrians in response to criticism that previously planned routes would bisect working-class, largely Latino communities in more populated parts of the San Fernando Valley. Richard likened this decision to “environmental justice” at the March public meeting. But the route change hasn’t won much praise from opponents of the previous alignment, who still see the bullet train as more trouble than it is worth.

Now rail authority officials find themselves caught in an unexpected crossfire from both wealthy and working-class critics in the San Fernando Valley. A recent Los Angeles Times story treated the rich equestrians’ grievances with the same sympathy that previous coverage had shown for protesters from Pacoima and Sylmar:

Dale Gibson grimly shook his head, his white cowboy hat blocking out the bright afternoon sun.

“How about this mess,” he said, walking through his Sunland ranch in the shadow of the San Gabriel Mountains.

Gibson, a rodeo cowboy and stuntman who has performed in more than five dozen films, was pondering the prospect of 220-mph bullet trains rocketing about 100 feet from his competition arena along the Big Tujunga Wash. He boards about 100 horses on 5 acres and, on many days, is out teaching children and actors the finer points of riding.

“It would be like trying to ride your horse down the runway at LAX,” Gibson said. “We will be done.”

Study seeing minimal effect widely ridiculed

Meanwhile, the Mineta Institute study’s findings continue to draw mockery from equestrians who see it as confirmation that they’re not being taken seriously. The study stated that compared to humans, “horses are somewhat deaf.”

The assertion outrages Gibson who, to prove his point, made a kissing sound to a horse about 50 feet away. The animal raised its head. “Does he look deaf to you?” asked Gibson, who serves on the Los Angeles Equine Advisory Committee.

“Deaf?” he said. “I don’t think so.”

That’s also from the recent Times account.

The only conceivable way to placate both the equestrian community and residents of San Fernando, Sylmar, Pacoima and neighboring towns is to build a 20- to 24-mile segment of the bullet train underground. But given that studies suggest it costs nine times as much to build underground tracks as above-ground tracks, that could balloon the cost of the estimated $64 billion project by at least $20 billion.

The state government presently doesn’t have enough money to complete the project’s initial $21 billion segment in the Central Valley. The prospect it may have to spend far more than expected to bring the bullet train to the Los Angeles region could make it even more difficult to attract the private investors that the rail authority has been hunting for without success since 2008.

“The state rail authority is studying an alternative to build the first segment in the Bay Area, running trains from San Jose to Bakersfield,” the Los Angeles Times reported. “If the plan does change, it would be a significant reversal that carries big financial, technical and political impacts, especially in Southern California.” Local officials and residents have argued that the area’s transportation needs and challenges far outweigh those in the San Francisco Bay Area, where public transportation is dense and plentiful.

Moving the goal posts

The controversial, last-minute shift hinted at pessimistic calculations within the state’s High Speed Rail Authority as to how best to mitigate cost pressure and environmental constraints faced in the south, where any rail line will have to navigate — and penetrate — the area’s rugged natural terrain. “This new interest in building from the north first comes just one week after announcing an $800,000 effort to find a suitable starting location in Burbank, near L.A.,” Business Insider noted. “The hope is that the north-first plan would be less risky, making it more likely that construction can begin before the project becomes politically nonviable.”

In addition to changing the project’s starting line, the new plan also shifted its destination — another concession to the dramatic obstacles posed by a scheme routed directly into the L.A. basin. “The alternative being examined would run from Silicon Valley to Bakersfield and be less costly than the current proposal to connect the Central Valley with Burbank because it wouldn’t entail expensive tunneling costs,” as the San Jose Mercury News observed. “The outcome of the new evaluation will be known in the coming weeks, when the state unveils its 2016 business plan. The document will be the most comprehensive update for the $68 billion project in four years.”

At the same time, however, local officials in Bakersfield have yet to warm to the new proposal. “Connecting California high-speed rail between Kern and the Bay Area before building south toward Los Angeles would not resolve the touchier issues surrounding the project’s local impacts, but it would provide more time for planning the route south from Bakersfield,” they have informed the Bakersfield Californian. “There have been contentious discussions about different proposed alignments through Kern and how they would affect local homes, businesses, schools and churches, as well as Kern’s prospects for landing a maintenance facility that would bring more than 1,500 good jobs.”

Feet to the fire

The changes have come hot on the heels of a sharp escalation in lawmakers’ displeasure toward rail authority officials. Since October of last year, when the Los Angeles Times broke news of the authority’s secrecy over anticipated cost overruns, the project’s fortunes have fallen under increasing scrutiny in Sacramento. In the story, the paper recalled, it “found that the years remaining before the deadline were not enough to construct 300 miles of track, bore 36 miles of mountain tunnels, build six train stations, erect high-voltage electrical systems and construct a heavy maintenance facility. The story was based on comments by tunnel engineers, construction experts and geologists.”

“The story also reported that the agency’s primary consultant, Parsons Brinckerhoff, had submitted a cost estimate in October 2013 that projected a 31 percent increase in the cost of the initial construction segment and a 5 percent increase in the cost of the full 500-mile system. The estimate, which was the culmination of a two-year effort by a team of engineers, was not used when the state issued its 2014 business plan several months later.”

At a recent hearing called to address that and other issues, lawmakers were told that the Times had made a mistake about the ballooning cost of construction.

“Rail Authority CEO Jeff Morales said that’s not accurate,” KQED reported. “There was no 31 percent increase in the cost of the program,” according to Morales. “We did not withhold information about a cost increase in the program because there was no increase in the program.”

Through an in-depth investigation, the paper revealed embarrassing details of the train’s lurching progress toward an apparent morass of spiraling costs, spooked investors and — worst of all — an engineering disaster in the making.

Heads in the sand

In one particularly galling example of misfeasance, when California’s main project management contractor, Parsons Brinckerhoff, raised the alarm years ago, it was simply ignored by the authority’s top brass. A document obtained by the Times revealed that Parsons Brinckerhoff had briefed state officials on the spiraling cost projections in October of 2013. “But the state used a lower cost estimate when it issued its 2014 business plan four months later,” noted the Times. “Jeff Morales, the rail authority chief executive, said he was not aware of the Parsons Brinckerhoff projection. A spokeswoman for the authority declined to discuss the differences in the estimates.”

Opposition to California’s high-speed rail project has been strong since Gov. Jerry Brown first threw his weight firmly behind the idea. Critics have predictably held up the Times report as proof that they saw its failures coming from a figurative mile away. As the Reason Foundation suggested as early as 2008, “cost overruns were likely, state and federal funding would not be sufficient to cover the costs of the project, the state would have to spend more money, and private investors would not be making up the difference,” as Scott Shackford noted at Reason.com.

A policy earthquake

The challenges revealed by the report go far beyond those objections, however, raising the specter of dangerous environmental damage done virtually blind. “It will be the most ambitious tunneling project in U.S. history. Crews will have to cross the tectonic boundary that separates the North American and Pacific plates, boring through rock formations and earthquake faults, some of which are not mapped,” the San Francisco Chronicle noted. James Monsees, “one of the world’s top tunneling experts and an author of the federal manual on highway tunneling,” said the plan was unrealistic. “Faults are notorious for causing trouble,” he cautioned.

That trouble could well become calamitous — especially given California’s propensity for large earthquakes affecting populations centers. As the Los Angeles Times added:

“A 2012 report by Parsons Brinckerhoff, obtained by The Times, warned the rail authority that the ‘seismotectonic complexity … may be unprecedented’ and that the rail route would be crossing faults classified as ‘hazardous.'”

But the tunnel trouble arose from the authority’s inability to surmount public criticism to easier, more direct routes. “The original plan was to build the train route up along the 14 Freeway, but a host of nearby residents from Pacoima to Acton, many freaked out about a high-walled train corridor cutting through their towns,” according to Curbed Los Angeles. “Angry citizens in San Fernando even interrupted an informational meeting in on the rail project to protest its dangers to the local economy and the ‘death wall’ that would split the town in two along the route.”

That led the authority toward the current, disparaged tunneling plan — and, last month, a request for “permission to test-drill deep beneath the Angeles National Forest to determine the feasibility of digging a rail tunnel through the rugged San Gabriel Mountains near Santa Clarita,” as the San Gabriel Valley Tribune noted. Among officials, the fear of another public outcry has yet to abate. “In what only can be described as an unusual process, the U.S. Forest Service is asking the public for their thoughts on whether to allow the rail authority to proceed with its tunnel study,” the Tribune added.

Buying land for California’s bullet train remains a slow and contentious process for the state’s high-speed rail agency — but the state’s top rail official said this week he doesn’t expect any “significant” project delays as a result.

The California High-Speed Rail Authority must still acquire rights to nearly 1,000 land parcels in the Central Valley for the first leg of the 800-mile rail network, expected to one day stretch from Sacramento to San Diego.

As of July, it had legal possession of just 300 of the 1,277 necessary parcels for the initial Merced-to-Bakersfield line. This 130-mile portion has been called the “backbone” of the project.

The first 29 miles of that leg is expected to be built by the end of 2017 or early 2018, rail officials said this week.

The agency would need to significantly quicken its pace to open its initial operating section, from Merced to Burbank, by the authority’s estimated 2022 time-frame.

Jeff Morales, the rail authority’s CEO, said in an interview on Wednesday that acquiring land is “a big, big focus.”

In the meantime, he said, construction crews will work at key points along land already acquired until the authority obtains the rest.

“We don’t see a significant impact” to the construction timeline, Morales said. “We built in contingencies.”

Still, Morales said, the authority will issue a revised construction timeline for the first 29 miles this fall. He said that revision should better match up construction work with land recently acquired, but added that he does not expect it will push back the initial project’s end-date.

First stretch under construction

Heavy construction started in Madera in June to build the first of 16 concrete footings for an elevated rail bridge over the Fresno River. That work is part of the Central Valley’s first 29-mile stretch, from Madera to Fresno counties. But even for this earliest of projects, the state has just 223 of 543 parcels needed for construction, which is expected to be complete in 2017.

Landowners have alleged the authority’s property agents are using pressure tactics to speed up the process. They’ve also said they’ve received low-ball offers.

Rail authority officials said this week they’re committed to improving the process and making fair offers. Morales said the authority plans to train and retrain its right-of-way consultants, streamline its internal processes and add more staff.

The state’s pace of acquiring land has picked up in recent months. In March, for example, it had legal possession of just 139 parcels.

“We’re seeing an uptick,” Morales told an authority finance committee on Tuesday in Sacramento. “We do expect, based on specific changes we’ve made, the pace to pick up over the next few months.”

The state has also sped up its use of eminent domain.

In July, it listed 159 parcels under “parcel to condemn,” or to take following a fair market offer. That’s up from 33 under the same listing in March.

Use of eminent domain

In an interview after Tuesday’s board meeting, Dan Richard, chairman of the rail authority’s board, said the agency wants to avoid eminent domain as much as possible. That’s because the associated legal process can take longer than negotiating directly with a landowner, Richard said.

In 2008, California voters authorized nearly $10 billion in bonds for the bullet train project by approving Proposition 1A. The ballot measure said the network would link the state’s urban centers from Sacramento to San Diego, with the San Francisco to Los Angeles connection serving as the central line. Cost estimates for that central line have ranged as high as $96 billion, but were revised downward in recent years to $68 billion.

At the authority’s finance committee meeting, board members urged rail authority staff to find ways to improve and speed up land acquisition. But given the complexities of the project, they said they remained realistic about how quickly the authority could move.

“Major government infrastructure projects all have issues. What we’re trying to do is stay ahead of the issues and correct the issues,” said Tom Richards, the board’s vice chairman and a Fresno resident.

“I don’t think anyone thought this was going to be easy, so I guess we’re all right,” added Mike Rossi, also a board member.

Contact reporter Chris Nichols at chris@calwatchdog.com or on Twitter @ChrisTheJourno

Here’s why the nature of the congressional budget fight is significant to the state’s bullet train: As Joel Fox noted earlier this month, the California High-Speed Rail Authority is counting on federal money to construct the $68 billion project.

Jeff Morales, chief executive officer of the High Speed Rail project, argued … [federal]  funding would arrive. He said the message from the High Speed Rail authority to Washington is “leave us alone” for two years. In other words, the project has the resources to get the project started and then he expects Washington would get on board once they see progress.

The squeeze on domestic discretionary spending

But it’s not 2009, with a Democrat-controlled Congress and White House passing $800 billion stimulus bills. It’s a much-different Washington, as I detailed here.

The big majority of Democrats and Republicans alike accept that we are in a new sequester-driven era of relative federal frugality, in which even military spending is contained as Social Security, Medicare and welfare benefits keep eating up a bigger percentage of revenue. The squeeze on discretionary domestic spending grows with every budget.

Against this backdrop, it is simply ludicrous for one state government to think lawmakers from the other 49 states will decide to fund its gigantic public works project. But that is just what Gov. Jerry Brown and the California High-Speed Rail Authority say they believe about the $68 billion bullet train. …

By any measure, the bullet train is shaping up as a boondoggle. But even if it were a shining testament to state planning and innovation, the idea that lawmakers from the rest of America would carve money out of a very constricted federal budget to pay for a California-only project is preposterous.

Earlier this year, The New York Times took a broader look at state bullet-train projects and federal funding. It too was skeptical of the sort of scenario Morales lays out for future money from Congress.

The quote the Times used from Morales is funny, at least if it is what passes for optimism in the CHSRA:

“The Golden Gate Bridge was tied up for years in hundreds of lawsuits. We haven’t had quite that many.”

Editor’s Note: This is Part 2 of a series looking in depth at the latest hearing in the state Senate on California’s high-speed rail blueprint. Part 1 is here.

Skepticism took center stage as the Senate Transportation and Housing Committee held hearings on Gov. Jerry Brown’s proposal to use cap-and-trade revenues to fund the project. The committee reviewed the California High-Speed Rail Authority’s 2014 Draft Business Plan and evaluated the project’s potential for success.

Committee Chairman Mark DeSaulnier, D-Walnut Creek, grilled CHSRA CEO Jeff Morales about getting votes in the Legislature for the cap-and-trade proposal. DeSaulnier was the only senator at the hearings, a video of which is here.

Cap-and-trade revenues come from quarterly auctions of greenhouse gas emission credits by the California Air Resources Board. The program operates under the authority of AB32, the Global Warming Solutions Act of 2006.

Morales said high-speed rail meets the requirements of the cap-and-trade program, but referred the senator to the California Air Resources Board. He added that high-speed rail was part of CARB’s scoping plan before the 2008 vote on Proposition 1A, by which voters authorized the high-speed rail project.

DeSaulnier asked what would happen if the Legislature didn’t approve the cap-and-trade dollars for the train. Morales replied he wanted first to talk about what approval would look like.

He said cap-and-trade dollars would keep the program moving. But that if they don’t get the funding, they would have to look elsewhere for more money. “We would not have the same kind of certainty that we would have with the governor’s proposal” on using the cap-and-trade funds, he said.

DeSaulnier told Morales there will be cap-and-trade fund discussions as the budget debate heats up. But DeSaulnier said the Brown administration faces a huge challenge to get cap-and-trade fund votes. DeSaulnier even said he most likely would be voting No.

DeSaulnier warned Morales that they need to have an honest discussion about the risk about authorizing $250 million of cap-and-trade money that DeSaulnier believes would be better spent in a more targeted way, as proposed by the Legislative Analyst.

Financing

Morales confirmed there aren’t any additional grants on the immediate horizon, as the government moved away from grants toward bond financing.

As to private investment, he said there’s strong interest, but nothing certain. “They’re not there yet,” he said of private investors.

Essentially that means no private investor has jumped in and said, “Let us buy the rights to run this train system for you.” No private investment is predicted to be in the picture until the train is built and carries proven ridership.

Business plan

Morales testified that the 2014 Draft Business Plan builds on the 2012 Business Plan.

He said the CHSRA is doing better with the engagement of stakeholders, meaning anyone or any entity affected by the project, such as cities, counties, railroads and residents.

He admitted the CHSRA hasn’t solved all the problems. But he believes most stakeholders would acknowledge the CHSRA is working with them fairly and openly.

In particular, he testified that the CHSRA’s governance has shown a vast improvement. In 2012, they had two-dozen people. Now they have 120 people on board and will fill all remaining slots by June. “We have government people making government decisions,” Morales said.

He said he appreciated many of the comments that were in the Background Paper prepared by the Senate Transportation and Housing Committee. But he took issue with one statement that judged the project a failure. Speaking for the folks working at the CHSRA, he said he didn’t think it was fair to judge the project because they hadn’t laid any track yet and these projects take time.

Other projects 

DeSaulnier revealed that he spoke to the staff of famed mega-project expert Bent Flyvbjerg during the Bay Bridge hearings. Flyvbjerg’s staff reported two types of projects were particularly vulnerable to very high cost overruns: tunnels and rail projects, which run as much as 4-1/2 times estimates. High-Speed Rail is by definition a rail project and has tunnels including the treacherous Tehachapi Mountain range.

But, DeSaulnier quickly added, Caldecott Tunnel was done on time and on budget, so those statistics didn’t always hold true.

DeSaulnier said the 2014 Draft Business plan is more robust than previous business plans, but still leaves a lot of assumptions. He pointed out the plan wouldn’t be adequate even to get a small-business loan.

DeSaulnier also brought up the ongoing lawsuits against the high-speed rail project, and asked if Morales had confidence that the project will move forward past the lawsuits. The case now is before the Third Circuit Court of Appeal.

“We’re moving forward in good faith in the law and in compliance with it,” Morales said.

Jobs 

With California’s unemployment rate stuck at 8 percent – and even higher in the area where the first rail construction could begin – DeSaulnier asked about jobs creation.

Morales said almost 6,700 people now are working on the project. “The greatest percentage of jobs will come during heavy construction,” he added.

Tutor Perini Corp., the main construction firm, has contracts with 27 small businesses, most in the Central Valley, with others throughout California. Morales said the jobs are providing economic benefits in those troubled areas and will bring “unprecedented investment in the Central Valley,” as well as help diversify the area’s economy.

There’s been another funding twist for the California bullet-train project. The Federal Railroad Administration has agreed to delay the due date for $180 million in state matching funds for the project from April 1 to July 1,  according to a press release from Rep. Jeff Denham’s office.

This gives Gov. Jerry Brown and the California High-Speed Rail Authority breathing room to work with the Legislature and try to convince lawmakers to allocate $250 million in state cap-and-trade auction revenues for the rail project.

Denham, a Turlock Republican, considers the move risky.  This is from his Feb. 21 press release:

“The Federal Railroad Administration [FRA] is protecting the Authority yet again and putting California taxpayers at greater risk. It has long been clear that the Authority would be unable to provide the funds required in their grant agreement. In December 2012, the FRA changed their agreement to allow for a tapered match rather than the standard concurrent match. Now they’ve changed the agreement again. With billions in federal taxpayer dollars on the line, what changes are next from the FRA? The American people – and Californian taxpayers – deserve to see their money used responsibly.”

But there are also additional important changes in the federal funding agreement outlined in the letter that rail authority CEO Jeff Morales released Feb. 20. The new funding contribution plan shifts a large amount of funding responsibility in coming years to the federal government, with a significant decrease in California’s contribution compared with the original plan, according to bullet-train financial expert William Warren. (Along with William Grindley, Warren has co-authored numerous briefing papers regarding rail-authority data.)

U.S. taxpayers at risk for single-state project

These changes leave the U.S. taxpayers in all 50 states with more exposure while pushing a troubled, legally questionable California state project forward.

The state has been receiving federal funds upfront for planning and environmental work for the past year, with the state’s required match delayed until later.  The original funding plan required a simultaneous match, according to a May 25, 2011, letter to the state from Roy Kienitz, who was then undersecretary of policy for the U.S. Department of Transportation. “On the matter of using federal funds up front to postpone use of the State’s matching funds, we hope you will understand why this is not feasible,” Kienitz wrote. ” Both the fiscal year 2010 appropriations law and the FRA grant commitments require matching funds as a prerequisite for this project to go forward.  California was awarded funding based in part on the impressive state match promised in the grant applications.  Withholding these matching funds would put the California’s high-speed rail project in serious jeopardy.”

Kienitz left the agency and, within a year, joined Parson Brinckerhoff, the primary consultant on the high-speed rail  project.  Shortly thereafter, in 2012, a revised federal funding plan — the fifth version — was published. It said the federal funds could be spent first and matching state bond funds could be spent starting in April 2014.

It had been expected that the rail authority would have access to state bond funds by April 2014, but two November  court decisions by Sacramento Superior Court Judge Michael Kenny dashed those hopes. The judge found the state had failed to meet its legal obligation under Proposition 1A to identify firm funding and complete environmental reviews for the entire initial operating segment of 300 miles before beginning construction. He also ruled the state could not begin selling state bonds funded by the proposition because they had not followed procedural safeguards related to bond sales.

State wants strings taken off some federal funds

Morales has also asked for a shift of $145 million in federal funds from construction to the planning and environmental category.  The feds had construction dollars in their funding agreement with the state, but the rail authority had to get specific permission to use those funds.  Judge Kenny’s rulings effectively halted the spending of state bond funds for construction, but they did not forbid the spending of federal funds — even for construction.

This request for the shift of funds might be because the Federal Railroad Administration usually releases grant funds as a project progresses, a little at time.  The authority is not ready for construction yet and needs more funds to move the project forward. It also has a lot of old bills to clear up — $63 million, it was revealed at the rail authority board’s Feb. 11 meeting.

In his letter to the FRA, Morales wrote that the authority does not anticipate using state Proposition 1A funds until July 1, 2015.  It is not explained whether that is because the authority doesn’t think it will need the state funds until then or because that’s when officials expect the funds to become available after legal challenges are resolved. But the American Recovery and Reinvestment Act of 2009 (ARRA) requires all federal funding to be used by September 2017 or the state will forfeit unspent funds.

While the governor wants to use cap-and-trade dollars as a state source of funding, only the Legislature can approve an appropriation. Many lawmakers appear to question the legality of using cap-and-trade fees for the bullet train.  Environmental groups also object.

Nevertheless, Dan Richard, chairman of the rail authority board, said at a Jan. 15 House transportation committee hearing that he had promising talks with environmental groups on using the cap-and-trade funds for the rail project.

Meanwhile, above and beyond the maneuvering on federal and state funding, the 3rd District Court of Appeal is now reviewing the Nov. 16 decision by Judge Kenny requiring the authority to rescind its funding plan. The appeals court is reviewing the ruling at the direction of the California Supreme Court, which was asked by the Brown administration to expedite a review of the ruling because of the administration’s contention that Kenny’s decision imperiled the project.