State audit blasts High-Speed Rail Authority

New report finds flaws in agency's oversight of contracts, management of risks

California's controversial high-speed-rail project risks major delays because of poor planning, a shaky business plan and lax oversight by the state agency charged with building the $43 billion system, a new report from the California State Auditor Elaine Howle has found.

The audit, which the state auditor's office released Thursday, identifies a myriad of flaws in the California High-Speed Rail Authority's effort to implement the 800-mile rail system, for which state voters approved $9.95 billion in 2008. The audit found that the rail authority has failed to carefully track the work of its contractors; has not figured out exactly how it will pay for the colossal project; and has spent at least $4 million on invoices without receiving evidence that the work in the invoices was performed.

"The report concludes that the High-Speed Rail Authority has not adequately planned for the future development of the program," Howle wrote in the cover letter of the report, which carries the descriptive title, "High-Speed Rail Authority: It Risks Delays or an Incomplete System Because of Inadequate Planning, Weak Oversight, and Lax Contract Management."

Many of the audit's findings echo the concerns recently expressed by Legislative Analyst's Office; by state Sens. Joe Simitian and Alan Lowenthal; and by a multitude of rail watchdogs and project opponents. Chief among these is the concern that the rail authority's business plan has failed to identify the necessary funding sources for the project and to adequately consider some of the project's biggest risks.

The rail authority's 2009 business plan projected, for example, that the rail authority would receive $4.7 billion from the federal government as part of the American Recovery and Reinvestment Act. So far, the agency has only received $2.25 billion.

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

The report also notes, however, that the rail authority is working to improve its approach to managing funding risks. The agency recently hired a risk-insurance manager and revised its risk-management process. The audit states that the authority "must ensure that these actions for managing risk are fully implemented so it can respond effectively to circumstances that could significantly delay or even halt the program."

The new report is particularly scathing in its review of the rail authority's oversight of contracts. The auditor's office found that the rail authority "does not generally ensure that invoices reflect work performed by contractors." Though the rail authority's program manager is required to review each invoice and make sure the work was performed before notifying rail authority staff to release money for the funds, that procedure has not been followed. In fact, the audit found that the rail authority paid at least $4 million to regional contractors without documented notification from the program manager.

In other cases, the rail authority paid contractors for work or for items that were not part of their terms of agreement. In one case, it reportedly spent $46,000 on furniture for its program manager. The payment was "based on an oral agreement, despite the fact that its written contract expressly states that oral agreements not incorporated in the written contract are not binding." The written contract, the audit notes, requires the program manager to "provide its own furniture, equipment and systems."

The audit also points out one case in which the rail authority paid a regional contractor more than $194,000 to subcontract for tasks that were not included in the work plan. The rail authority also reportedly paid its program manager $53,000 for work on a federal grant application -- work that was also not included in the work plan.

The rail authority's program manager, not named in the audit, is the firm Parsons Brinckerhoff.

The report also had major questions about the peer-review committee, which was mandated by state legislation and which is supposed to be reviewing the rail authority's plans. Auditors found that only five of the eight members of the committee have actually been appointed. The auditor's office also found that members of this group have not been holding public meetings -- which the auditor's office believes may violate the Bagley-Keene Act, which governs open meetings.

The audit recommends that the rail authority produce "alternate funding scenarios"; keep better track of its expenditures; and make sure it receives accurate reports on contractors' progress.

Curt Pringle, chair of the rail authority's board of directors, wrote in his response to the auditor's office that the rail authority agrees with the auditor's recommendations, but not the report's title.

"We do believe, however, that the report's inflammatory title is overly aggressive considering that the contents of the audit's findings are not equally scathing," Pringle wrote. "While the Authority is appreciative that the report in its entirety reflects more objectively the challenges of a state entity in transition from a planning body to one responsible for implementing a large-scale infrastructure project, we also appreciate that not all Californians are able to read each and every word in the audit report and therefore may be misled by the title and headlines contained within."

The rail authority also wrote in its response to the audit that it is already working to update its risk-management practices; clarify its efforts to secure private funds for the rail project; and implement a database that tracks expenditures.

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Like this comment
Posted by Martin Engel
a resident of Menlo Park: Park Forest
on Apr 30, 2010 at 5:03 pm

1. Shut off the money valve. Halt all activities.

2. Retire the CHSRA Board.

3. Go back to square 1.

4. Develop a long term California transportation strategy, policy and agenda that covers highways, airways and rail.

5. Create a cost-effective context for all transit and transportation modalities.

6. It should include the movement of goods as well as people.

7. High-speed rail is the icing on the passenger rail cake. First, bake the cake.

8. Stop constructing a Rolls-Royce we can't afford to get us to the grocery store.

9. Invest ARRA stimulus funds on necessary transit projects that will put people to work today, not over two years from now.

10. Fix what's broken now.

Like this comment
Posted by Menlo Voter
a resident of Menlo Park: other
on Apr 30, 2010 at 5:06 pm


Like this comment
Posted by liar liar pants on fire
a resident of Menlo Park: Downtown
on May 1, 2010 at 2:31 pm

Supervirorial candidates Horsely and Vargas call high speed rail a jobs creation engine.

These two candidates do not deserve our votes.

High speed rail is nothing but a fraud. It will never be built. The only thing we as the taxpayers will have to show for it is a mountain of bills from consultants, accountants, lawyers and engineers.

Like this comment
Posted by Joseph E. Davis
a resident of Woodside: Emerald Hills
on May 2, 2010 at 9:17 am

Liar, you are right as far as taxpayers are concerned. It is important to recognize that HSR supports a very important function for our political class. It allows them to direct vast resources to their buddies and favored constituencies. So whether or not it is good for the public at large (it isn't) doesn't enter into it at all.

Like this comment
Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on May 2, 2010 at 10:00 am

HSR requires high population densities along its entire route to be economically successful - look at Japan and France. California's Central Valley is the economic death for the LA-SF-Sacramento HSR proposal.

Here are their respective population densities:

California 235.68 people/sq/mi

Japan 873.077

France 1,716.743

Japan is over 3 times as dense and France is 7.5 times as dense as California. And both of their HSR systems are also substantially subsidized.

California HSR will die on its own without lawsuits.

Menlo Park and Atherton should save their money.

Like this comment
Posted by Menlo Voter
a resident of Menlo Park: other
on May 2, 2010 at 10:34 am


unfortunately, I don't think HSR will die on its own. The information put forth in the article should make that abundantly clear. There are incompetents running this program and the people pushing HSR don't care. It allows them to push money to their freinds. If it is not stopped by lawsuits the tax payer is going to end up getting the shaft.

Like this comment
Posted by James
a resident of Menlo Park: Menlo Oaks
on May 2, 2010 at 7:25 pm

While I wish HSR would die of its own accord, the State in their infinite wisdom will throw bad mmoney after more bad like they do with some many other projects. In the end it will end up costing much, much more than ever anticipated.

Anyone want to guess what a ticket to LA will cost if and when it ever gets built? Anyone even willing to guess what the final cost for construction will be? and how much over the original budget that will be?

Like this comment
Posted by Observer
a resident of Woodside High School
on May 3, 2010 at 11:22 am

quick fact check, Peter. France is not 7.5x dense of California

France: 295 people / sq mile Web Link

California 234 people / sq mile

and since both have vast swathes of empty space, it's not even clear that density is the right metric (although debt per square mile might be closer)

All for a thoughtful discussion - but one based on facts.

Like this comment
Posted by Hank Lawrence
a resident of Menlo Park: Sharon Heights
on May 4, 2010 at 8:16 am

HSR is a boondoggle. The construction and O&M costs are grossly underestimated and the ridership numbers are grossly overestimated . Look at the Northeast. It has the highest population density and income in the United States and the Acela is losing money hand over fist.

California is largely a rural state with huge population centers in San Diego, Los Angeles, San Jose, and San Francisco. It would be far better to invest in transportation in these SMSAs than to have HSR.

In fact the State would save money if it just gave away free airplane tickets to everyone who wanted to travel between these major cities instead of building the HSR.

A Caltrain subsidy is warranted because it keeps its ridership off the highways. Our highways are at fully saturated along the peninsula. If Caltrain goes under you will see traffic congestion that would make Los Angeles look like a ride in the countryside.

Rail investments should be made in the areas with the highest population densities and highway investments should be made elsewhere.

Sorry, but further commenting on this topic has been closed.

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