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California's bullet-train project met with more uncertainty as costs climb

by RALPH VARTABEDIAN LOS ANGELES TIMES (TNS) | September 13, 2020 at 1:00 a.m.

LOS ANGELES -- It was just last year that Gov. Gavin Newsom said he would need to downsize California's ambitious bullet-train project, because the state could afford only a limited system from Merced to Bakersfield.

But even the viability of that scaled-down, $20.4 billion plan is becoming uncertain as construction costs rise in the San Joaquin Valley, expected revenue is under pressure and land acquisition problems continue to mount.

The changing conditions have prompted the California High-Speed Rail Authority to launch a comprehensive reassessment of its plans, said Chief Executive Brian Kelly, who is facing tougher questions by state leaders, given the austere outlook.

"I just want the truth," said Assembly Transportation Chairman Jim Frazier, a Discovery Bay Democrat and former general contractor who has grown distrustful of the project's planning. "I want an independent analysis of what can be accomplished and how much it is going to cost."

Contractors for the rail authority are filing large change orders and delay claims, according to disclosures by the agency and internal documents obtained by the Los Angeles Times. Additional land is also needed, adding to costs.

At the same time, the bullet train's funding has taken several big hits. California's cap-and-trade greenhouse gas auction system has provided about $3 billion to the rail project since 2015 and is counted on to provide at least $500 million annually until 2030.

But as a result of covid-19's economic impacts, the last two auctions shorted the project by $140 million from what the authority had budgeted.

The Trump administration last year terminated a $929 million grant, which is in legal dispute. But the money is still counted in the project budget.

Cumulatively, the increased costs and decreased revenue are saddling Newsom's plan with a potential fiscal hole of more than $1 billion. At the same time, some valley property owners are growing increasingly frustrated, having waited for years to be compensated for their land and endured disruptions caused by construction.

The project will face a tough hurdle if weak revenue and rising costs drive a request for more money to just complete the San Joaquin Valley construction, Frazier said.


Frazier still supports the concept of high-speed rail but is blunt that the public "is getting less and it is costing more" and "there is a point of no return, obviously."

The impacts of covid-19 are forcing the rail authority's reassessment, Kelly said. The money to execute the entire Los Angeles-to-San Francisco project was never in hand, and the state has incrementally managed the project, step by step, the agency's CEO said.

The new assessment, he said, is examining four issues: revenue, costs, project scope and the schedule, resulting in a pause in finalizing the 2020 business plan. Any changes would be submitted to the rail authority board and then the governor, Kelly said.

"Challenges come," he added. "It is part of life, the global pandemic."

The Times asked the governor for an interview on the problems facing his project. In response, Transportation Secretary David Kim said in a statement, "Gov. Newsom remains committed to building high-speed rail in California, starting with electrified track in the Central Valley."

The governor's plan was always at risk because of thin financial margins. Under his blueprint, the state could count on $20.6 billion coming in by 2030 to pay for the 171-mile system. Trains are supposed to start running by 2028.

The revenue picture could brighten if and when the covid-19 pandemic ends and an improving economy drives the need for more greenhouse gas permits. The rail authority was once optimistic that an extra $2.8 billion would flow out of the auctions, but only three of 21 auctions since 2015 were high enough to support those projections.

"There is a lot of uncertainty," said Ross Brown, a greenhouse gas expert at the Legislative Analyst's Office. Brown expects improved results in a November auction, but future-year revenue depends on a variety of factors, such as emissions technology and economic growth.

Bullet-train supporters are also pinning their hopes on a Joe Biden presidential victory, combined with Democratic control of Congress. Biden, a longtime proponent of passenger trains, has called for a "rail revolution" and might support additional federal funding for the California project. But if elected, he'd face pressure from multiple interests on how to spend any stimulus money.

The bigger risk facing Newsom's blueprint falls on the cost side of the equation, which appears to be deteriorating.

The rail authority agreed in November 2019 to pay $134 million for causing delays to a construction team led by Spanish firm Dragados. The claim was disclosed in rail authority documents but has not been previously reported.

In June, Tutor Perini, the firm leading construction in the Fresno County area, was paid more than $400 million for delays and construction changes.

Kelly, the chief executive, said those payments will be covered by contingency funds built into the project's budget, but much of the contingency created only last year has been used up.

In addition, Tutor Perini has a pending demand for an additional $500 million, according to nonpublic correspondence from construction manager Garth Fernandez to Tutor Perini on July 1, which was obtained by The Times. Such demands are often settled for less, Kelly said.

Tutor Perini's original contract was for $1.02 billion, but has increased to a current value of $2.2 billion, not including the pending claim, according to the correspondence.


The claims for both Dragados and Tutor Perini relate largely to acquiring land. The project was supposed to be "shovel ready" in 2009 when the Obama administration issued a $2.2 billion federal grant from the recession stimulus program, but in fact the state did not own a single square foot of property.

The rail authority estimated in June that it would need 2,353 parcels in the Central Valley, but had acquired only 1,664 -- leaving 689 parcels still to be acquired.

By comparison, in June 2019, the rail authority thought it needed 1,843 parcels and had acquired 1,516 -- short by 327. So, the authority needs to buy far more parcels today than it did a year ago when it was already far behind schedule.

In the past 12 months, the authority acquired only 148 parcels. Unless it accelerates its performance, it could take four years to get all of the property and only then could the rail authority commence construction -- blowing federal deadlines. Kelly said the most recent quarter showed strong improvement and noted that the rail authority is being fully transparent by disclosing such details.

An internal planning document obtained by The Times shows that just in the Fresno area the project is contending with 52 "critical" problems that could delay the schedule.

"Every one of those drives the duration of the job," said a key engineer who is not authorized to speak to the news media. "It isn't getting any better."


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