- CONTINUED OVERSIGHT OF THE CALIFORNIA HIGH-SPEED RAIL PROJECT

[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

CONTINUED OVERSIGHT OF THE CALIFORNIA HIGH-SPEED RAIL PROJECT

=======================================================================

(115-51)

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON RAILROADS, PIPELINES,
AND HAZARDOUS MATERIALS

OF THE

COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

SECOND SESSION

__________

AUGUST 9, 2018 (Sacramento, California)

__________

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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

BILL SHUSTER, Pennsylvania, Chairman

DON YOUNG, Alaska PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee, ELEANOR HOLMES NORTON, District of
Vice Chair Columbia
FRANK A. LoBIONDO, New Jersey EDDIE BERNICE JOHNSON, Texas
SAM GRAVES, Missouri ELIJAH E. CUMMINGS, Maryland
DUNCAN HUNTER, California RICK LARSEN, Washington
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHAEL E. CAPUANO, Massachusetts
LOU BARLETTA, Pennsylvania GRACE F. NAPOLITANO, California
BOB GIBBS, Ohio DANIEL LIPINSKI, Illinois
DANIEL WEBSTER, Florida STEVE COHEN, Tennessee
JEFF DENHAM, California ALBIO SIRES, New Jersey
THOMAS MASSIE, Kentucky JOHN GARAMENDI, California
MARK MEADOWS, North Carolina HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT PERRY, Pennsylvania Georgia
RODNEY DAVIS, Illinois ANDRE CARSON, Indiana
MARK SANFORD, South Carolina RICHARD M. NOLAN, Minnesota
ROB WOODALL, Georgia DINA TITUS, Nevada
TODD ROKITA, Indiana SEAN PATRICK MALONEY, New York
JOHN KATKO, New York ELIZABETH H. ESTY, Connecticut,
BRIAN BABIN, Texas Vice Ranking Member
GARRET GRAVES, Louisiana LOIS FRANKEL, Florida
BARBARA COMSTOCK, Virginia CHERI BUSTOS, Illinois
DAVID ROUZER, North Carolina JARED HUFFMAN, California
MIKE BOST, Illinois JULIA BROWNLEY, California
RANDY K. WEBER, Sr., Texas FREDERICA S. WILSON, Florida
DOUG LaMALFA, California DONALD M. PAYNE, Jr., New Jersey
BRUCE WESTERMAN, Arkansas ALAN S. LOWENTHAL, California
LLOYD SMUCKER, Pennsylvania BRENDA L. LAWRENCE, Michigan
PAUL MITCHELL, Michigan MARK DeSAULNIER, California
JOHN J. FASO, New York STACEY E. PLASKETT, Virgin Islands
A. DREW FERGUSON IV, Georgia
BRIAN J. MAST, Florida
JASON LEWIS, Minnesota
MIKE GALLAGHER, Wisconsin

(ii)

Subcommittee on Railroads, Pipelines, and Hazardous Materials

JEFF DENHAM, California, Chairman

JOHN J. DUNCAN, Jr., Tennessee MICHAEL E. CAPUANO, Massachusetts
SAM GRAVES, Missouri DONALD M. PAYNE, Jr., New Jersey
LOU BARLETTA, Pennsylvania ELIJAH E. CUMMINGS, Maryland
DANIEL WEBSTER, Florida STEVE COHEN, Tennessee
MARK MEADOWS, North Carolina ALBIO SIRES, New Jersey
SCOTT PERRY, Pennsylvania JOHN GARAMENDI, California
MARK SANFORD, South Carolina ANDRE CARSON, Indiana
TODD ROKITA, Indiana RICHARD M. NOLAN, Minnesota
JOHN KATKO, New York ELIZABETH H. ESTY, Connecticut
BRIAN BABIN, Texas CHERI BUSTOS, Illinois
RANDY K. WEBER, Sr., Texas FREDERICA S. WILSON, Florida
BRUCE WESTERMAN, Arkansas MARK DeSAULNIER, California
LLOYD SMUCKER, Pennsylvania DANIEL LIPINSKI, Illinois
PAUL MITCHELL, Michigan GRACE F. NAPOLITANO, California
JOHN J. FASO, New York, Vice Chair PETER A. DeFAZIO, Oregon (Ex
JASON LEWIS, Minnesota Officio)
MIKE GALLAGHER, Wisconsin
BILL SHUSTER, Pennsylvania (Ex
Officio)

(iii)

CONTENTS

Page

Summary of Subject Matter........................................ vi

WITNESSES

Hon. Calvin L. Scovel III, Inspector General, U.S. Department of
Transportation, Office of Inspector General:

Oral statement............................................... 6
Prepared statement........................................... 8
Brian P. Kelly, Chief Executive Officer, California High-Speed
Rail Authority:

Oral statement............................................... 13
Prepared statement........................................... 15
Louis S. Thompson, Chairman, California High-Speed Rail Peer
Review Group:

Oral statement............................................... 24
Prepared statement........................................... 26
Robbie Hunter, President, State Building and Construction Trades
Council of California:

Oral statement............................................... 28
Prepared statement........................................... 29

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Hon. Zoe Lofgren of California................................... 4
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

CONTINUED OVERSIGHT OF THE CALIFORNIA HIGH-SPEED RAIL PROJECT

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THURSDAY, AUGUST 9, 2018

House of Representatives,
Subcommittee on Railroads, Pipelines, and Hazardous
Materials,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to call, at 10:39 a.m., in
the Sonora Conference Room, John E. Moss Federal Building, 650
Capitol Mall, Sacramento, California, Hon. Jeff Denham
(Chairman of the subcommittee) presiding.
Mr. Denham. The subcommittee will come to order. Without
objection, the Chair is authorized to declare a recess at any
time.
I ask unanimous consent that Members not on the
subcommittee be permitted to sit on the subcommittee in today's
hearing and ask questions. Without objection, so ordered.
First, let me thank our hosts for their generosity in
opening up this great facility this morning, and I welcome our
distinguished witnesses and thank them for their testimony as
well.
This is the fourth hearing that we have held since I have
been subcommittee chair. Over 6 years, we have done four of
these hearings to go over the oversight of this project. We
have been discussing for quite some time the higher cost, the
projections. As chairman, I have scrutinized the authority's
confusing business plans that are clearly not grounded in
reality, and I have warned that the continued disregard of
facts on the ground will lead to skyrocketing costs and public
outrage.
And here we are today discussing a business plan that has
grown to a $100 billion cost estimate, and that is without--
when it passed, some of us here voted for or against this in
the legislature when it was on the 2008 ballot. It was supposed
to include the North Valley and Sacramento area. This $100
billion does not include San Diego south of Los Angeles, nor
does it include the original plan to include the Sacramento
area, and yet it is still $100 billion. It was also supposed to
be done by 2020, 2 years from now, and now, if Sacramento is
ever included, it would be two decades beyond that.
So continued oversight of this project is important not
just to the Central Valley and for California but for the
Nation as well. This project is continuing to become the poster
child for mismanagement and runs the risk of diminishing public
perception of much-needed passenger rail projects across the
country. This is one of the reasons why, in 2017, I requested a
Federal audit from the U.S. Department of Transportation
Inspector General Cal Scovel, who is testifying here today. I
look forward to hearing from Mr. Scovel about the methodology
and trajectory of the audit moving forward.
This project has been awarded nearly $4 billion in Federal
funding and represents nearly 40 percent of all high-speed rail
funding for the entire country awarded by the Federal Railroad
Administration. That is an investment made by the Federal
taxpayer, as the country has watched costs go up, plans change,
and scope of service reduced. When the voters of California
approved Prop. 1A to fund this project, they thought they were
approving a $33 billion project. It barely passed at 52 percent
of the vote, but that $33 billion was also promised, $9.95
billion coming from the taxpayers of California. It was
supposed to be put together in equal thirds with the taxpayers
on the hook for that $9.95 billion and had approximately the
other two-thirds coming from Federal Government and private
financing. And now, the estimate is $100 billion without San
Diego or Sacramento.
With the authority's record of consistently missing
deadlines and experiencing cost overruns, the authority itself
has given no one in the Central Valley in my district reason to
believe that anything in regards to this project will go
according to plan.
I would like to start off by highlighting some of the
changes even from the 2016 business plan to the 2018 business
plan. The schedule for completing the segments has slipped by
several years from the 2016 plan. Completion of the valley-to-
valley segment changed from 2025 to 2029, and phase 1 estimated
completion has gone from 2029 to 2033. Again, Prop. 1A was
supposed to be completed L.A. to San Francisco, to San Diego,
to Sacramento 2 years from now for $33 billion. Now, if you
have that entire project, you are looking at a two-decade delay
and over $100 billion in increased cost. The estimated funding
shortfall is roughly equal on the first segment of this, the
Central Valley segment. Now that it has changed from the
Central Valley north to San Francisco, that estimated funding
shortfall is roughly equivalent to the cost of building the
tunnels through the Pacheco Pass to link Gilroy to the Central
Valley segment.
The concern of this going forward is even for this new
blended route, just from the short of Bakersfield, outside of
Bakersfield to San Francisco, the funding gap is the cost it
would take you to go through the Tehachapis, meaning even in
this short term, the missing funding piece and the delay that
we have still ends up not completing the segment at all.
Look, here is the bottom line. California voters narrowly
approved this with 52 percent of the vote. That was done in
2008. It was based on a business case that is unrecognizable
today from even the authority's own plans. If this project is
going to move forward and the authority is going to continue to
ask for more tax dollars from the Federal Government, we need
to know what those funds or finances would be. If the authority
can't provide specific deliverables in a timeframe, then I
believe that California voters deserve the right to take this
back to the ballot and decide whether or not they still support
a new project. Keep in mind that most of the Federal money
allocated to this project was part of the previous
administration's stimulus package, yet we are here today 10
years later with very little to show for it.
The inspector general audit will analyze the protocol that
was followed to ensure safeguards were in place when allocating
expending those grants, as well we have got other issues in
California. We are still facing a water crisis here, and a
fraction of this money could have solved our entire water
crisis, still creating the same jobs, some would argue more
jobs. But as elected leaders, we have got an obligation to make
sure that we are good stewards of the tax dollar. And it is
unfortunate that the State doesn't have that same political
commitment to providing a reliable water supply to California
as it does funding a bullet train that has not, is not, and
will never deliver on the promises that were originally made to
voters.
Mr. Denham. At this time, I would now like to recognize Mr.
Garamendi for 5 minutes for any opening statement he may have.
Mr. Garamendi. Thank you, Mr. Chairman.
I am standing in for the ranking member of the
subcommittee, and it is obviously a privilege to be able to do
that.
From your comments, Mr. Chairman, it appears as though you
are opposed to the continued funding for the high-speed rail
and would like to see it stopped. If that is the case, this
hearing is going to be extremely important. Unfortunately, Mr.
Scovel's testimony will be of really no value at this point
because he has had less than 4 months to develop his report.
So we are going to go forward. I am looking forward to the
testimony from the witnesses here. I think it is going to be
extremely important. I also want to recognize my colleagues,
all of whom--well, with the exception of Ms. Lofgren--were in
the legislature and were deeply involved in this program during
its inception and its early years.
There are a couple of things I think we need to be aware of
here. First of all, hopefully, this will be a productive
conversation, but I do think it is important to look at the
history of Federal funding for this project, and it does, as
you said, Mr. Chairman, stem from the Great Recession of 2008
and the American Recovery and Reinvestment Act, which
appropriated $2.55 billion for the Central Valley portion of
the project. At that time, California's unemployment rate was
12.2 percent compared to 4.5 percent today.
While the State struggled with the economic downturn, the
Central Valley suffered even more. In 2010, Stanislaus County
had an 18.3 percent unemployment rate, and Merced County was
close to 21 percent. And as Mr. Hunter will testify in his
testimony, the planning and construction of the project in the
Central Valley helped to bring this 18 percent unemployment
rate in Stanislaus County down to 7 percent where it stands
today. This was brought through the direct employment of over
2,000 skilled trade workers and $2 billion in economic activity
in the valley. At the same time, the authority has contracted
with roughly 500 companies in the Central Valley--in
Stanislaus, Merced, Fresno Counties in the area--to supply
equipment, components, and other necessities for this project,
helping to grow the existing economy.
Once the Silicon Valley to the Central Valley component is
complete, nearly $50 billion in economic activity will be
brought to the Central Valley alone. The completion of the
valley-to-valley segment would provide an important connection
between these two distant communities, providing economic and
social benefits to both areas.
I also want to thank the California High-Speed Rail
Authority, namely the chair of the board, Dan Richard, for
helping ensure that this project is an American-made project so
that our tax dollars are spent promoting American jobs and
industries.
The authority originally requested a Buy America waiver
that would have allowed up to 70 train sets to use foreign
components and foreign-sourced steel. When I called Mr. Richard
about this issue, he immediately pulled their waiver request
and committed to make it in America. I want to thank the
authority for their quick response and commitment to promoting
good American manufacturing jobs.
While I am excited about the economic impacts of this
project to date, like you, Mr. Chairman, I do have many
questions about how the authority plans to fund the remainder
of the project and in a way that is both responsible to the
taxpayers and potential future riders. I do appreciate Mr.
Thompson's testimony on behalf of the Peer Review Group, and
look forward to hearing what he has to say regarding where we
go from here. We will have that testimony in a few moments.
In closing, while recognizing there are many challenges
that will be highlighted by you, Mr. Chairman, I would like to
note that we have been here before. California didn't become
the world's fifth-largest economy by chance. We accomplished
this by investing in our State, investing in its
infrastructure, in its agriculture, in its water systems, in
its universities, and in its research and educational systems.
The same project that made the city of Los Angeles possible,
the water system, has now made it the second-most-populous city
in the Nation.
We build airports, we build roads, and if we are able to
maintain the excise tax on the fuel, we will continue to build
our transportation systems. I note that some perhaps even
sitting at this table are opposed to that, and that is a
question for the ballot in November.
Well, we have got things to do, we have got places to go,
and we need people that are willing to build it. With that, Mr.
Chairman, I yield my time.
Mr. Denham. Thank you, Mr. Garamendi.
[Ms. Lofgren's prepared statement follows:]

Prepared Statement of Hon. Zoe Lofgren of California
Thank you Chairman Denham, Acting Ranking Member John Garamendi,
and my colleagues on the committee for allowing me to participate in
today's hearing in Sacramento.
As the chair of the California Democratic Congressional Delegation
and cochair of the California High-Speed Rail Caucus along with Reps.
Jim Costa and Lou Correa, I would like to reaffirm the Delegation's
strong support for the California High-Speed Rail Project.
We understand the importance of public oversight and applaud the
Authority's transparency as it constructs the nation's first high-speed
rail system and the most ambitious public transportation project in the
country. We also welcome the California State Joint Legislative Audit
Committee's decision to request an independent audit, which will give a
different and impartial perspective on the project.
Since the last oversight hearing two years ago in San Francisco,
the need for high-speed rail in our state has increased tremendously.
Housing costs in the Bay Area continue to skyrocket due to strong
economic growth in the Bay Area. For example, Google recently proposed
a transit-oriented community of offices, residences, shops and
restaurants near Diridon Station in San Jose to where 15,000 to 20,000
employees will eventually work. As a result of this unprecedented
growth, the region has struggled to keep up with demand for affordable
housing to the point where families earning $117,000 now qualify as
``low income.''
As a resident of San Jose, I know firsthand the traffic congestion
and affordable housing challenges in our area. San Jose, along with Los
Angeles, and San Francisco, rank among the top five most gridlocked
cities in the nation. Home prices, especially in the Bay Area, continue
to increase. As of spring 2018, the median Bay Area home price hit a
record high of $820,000.
Recognizing the need for more affordable housing, the residents of
Santa Clara County overwhelmingly passed Measure A, the Affordable
Housing Bond, by nearly 70 percent of the vote. The Measure allows
Santa Clara County to borrow up to $950 million to provide affordable
local housing for vulnerable populations including veterans, seniors,
the disabled, low-income individuals, and individuals suffering from
mental health or substance abuse illnesses. So, people in the Bay Area
are willing to do their part for housing.
Traffic congestion will become more of a problem in the future as
California's population is projected to grow to 51.1 million by 2060,
30-percent increase from today's population of 39.4 million. It is
estimated that without the high-speed rail project, California would
need to build more than 4,000 new freeway lane miles, 115 airport gates
and four new runways just to keep up with population growth.
High-speed rail is not a new technology for other countries. China,
Japan, Turkey, Spain, Germany, and the United Kingdom are all currently
constructing high-speed rail track. Other countries such as Saudi
Arabia, Morocco, and even Uzbekistan are building brand new high-speed
rail systems.
The new 2018 Business Plan creates a plan to deliver an operable
segment between Silicon Valley and the Central Valley by 2029. It also
extends the line to run from San Francisco to Bakersfield, which will
generate higher ridership and revenue. A shortened commute between
these two communities will open up an affordable housing market for
those working in the Bay Area and create much needed economic growth in
the Central Valley. According to the High-Speed Rail Authority, a trip
from San Jose to Fresno would be reduced to about an hour, from the
three hours it currently takes to make the trip by car.
Advancing the Silicon Valley to Central Valley Line will continue
to yield enormous dividends throughout the state. As the Authority
contracts with new companies--and those firms hire new workers--the
program will further bolster a new high-speed rail industry in
California.
A recent analysis shows that a completed Silicon Valley to Central
Valley Line will support almost 240,000 job-years of employment and
nearly $50 billion in economic activity over the lifetime of the line's
construction.
Of those, over 100,000 are direct job-years, meaning they are
direct beneficiaries of the high-speed rail investment--with 83,900 of
these direct job-years projected in the construction industry.
Governor Brown has left the project poised for completion for his
successor. Last year, the Legislature approved and Governor Brown
signed AB 398 extending the Cap-and-Trade Program through 2030. On an
ongoing basis, without any need for annual appropriations, 25 percent
of the yearly cap-and-trade revenue will fund continued development and
construction of the high-speed rail system. To date, the project has
already received $2.04 billion in Cap-and-Trade Funds.
High-speed rail construction has been under way in the Central
Valley for several years now with 21 construction sites across 5
counties and 2,000 construction jobs, the majority of which are held by
local residents--954 reported living in Fresno County, 145 live in
Madera County, and 172 live in Kern County. The unemployment rate in
Fresno County has dropped to 7.5 percent as a result, one of the lowest
rates since 2000. According to a recent report by the Mineta
Transportation Institute, construction in the Central Valley has led to
significant economic impacts through increased employment of more than
25,000 full-time equivalent job years over a 15-year period.
Californians, including folks in my home district of San Jose, are
seeing immediate benefits from California's high-speed rail project.
The Authority unanimously approved $713 million for its share of
funding for the $2 billion Caltrain Electrification Project. Caltrain
electrification will increase ridership and reduce commute times while
allowing for blended integration of high-speed rail to San Francisco.
According to Caltrain, full electrification which is scheduled to
be completed by 2021, could reduce carbon emissions by 97 percent a
year and allow trains to enter and exit stations more quickly than
diesel-powered engines. This will reduce pollution while increasing
ridership and improving commute times. Caltrain also estimates that
over the course of construction, the project will generate an
additional 9,600 direct and indirect jobs.
The new Business Plan also makes concurrent regional investments in
Southern California including the remaining Prop 1A bookend funds in
the rail corridor between Burbank and Anaheim to improve train lines
and improve freight in the area.
It's clear the State of California has demonstrated its commitment
to fund high-speed rail alongside strong support from our community and
key stakeholders. But my Republican colleagues are still attempting to
impede the flow of federal funds to California. Not only do these
attacks slow down our efforts to build high-speed rail, it also sends a
warning message to private investors and to other states and regions
developing much-needed major infrastructure projects.
I call on my colleagues in Congress to be a partner in this
project. Providing a significant, long-term revenue stream for the
project will go a long way towards making American high-speed rail a
reality.
The California High-Speed Rail project is the largest and most
ambitious infrastructure endeavor of our time. When completed, it will
move people swiftly and it will immediately ease congestion and improve
air quality in California while creating thousands of jobs.
Our global competitors certainly aren't holding back on their high-
speed rail infrastructure. That's because around the world, high-speed
rail has been shown to be an effective, popular and profitable mode of
transportation.
I would also like to note, before serving in Congress, I was in
local government, and I remember building big projects. It is easy to
criticize, harder to build. When we built Highway 85 down in Santa
Clara County, the section from 101 to 280 was done and it took decades
to get 280 to the southern 101. So you do these in pieces, and that is
just the way big construction projects go.
When it comes to transportation, I believe the United States should
be second to none. It was solid investments in infrastructure that
helped make the 20th century the American century. California's High-
Speed Rail project can help continue that kind of success for our
country in the century to come.

Mr. Denham. I would now like to welcome our witnesses here
today. Our panel is comprised of Inspector General Cal Scovel,
United States Department of Transportation; Mr. Brian Kelly,
CEO of the California High-Speed Rail Authority; Lou Thompson,
chairman of the California High-Speed Rail Peer Review Group;
and Mr. Robbie Hunter, president of the State Building and
Construction Trades Council of California.
I ask unanimous consent that our witnesses' full statements
be included in the record. Without objection, so ordered.
Since your testimony has been made part of the record, the
subcommittee would request that you limit your oral testimony
to 5 minutes.
We will begin now with Mr. Scovel. Welcome to the
committee. You may proceed.

TESTIMONY OF HON. CALVIN L. SCOVEL III, INSPECTOR GENERAL, U.S.
DEPARTMENT OF TRANSPORTATION, OFFICE OF INSPECTOR GENERAL;
BRIAN P. KELLY, CHIEF EXECUTIVE OFFICER, CALIFORNIA HIGH-SPEED
RAIL AUTHORITY; LOUIS S. THOMPSON, CHAIRMAN, CALIFORNIA HIGH-
SPEED RAIL PEER REVIEW GROUP; AND ROBBIE HUNTER, PRESIDENT,
STATE BUILDING AND CONSTRUCTION TRADES COUNCIL OF CALIFORNIA

Mr. Scovel. Chairman Denham, Ranking Member Garamendi,
members of the subcommittee, thank you for inviting me to
testify on the Federal Railroad Administration's oversight of
the High-Speed Intercity Passenger Rail Program. Since 2009,
Congress has appropriated over $10 billion for this program,
and almost 39 percent of that has gone to the planned high-
speed rail corridor here in California.
Since 2012, my office has completed seven audits related to
FRA's oversight of the high-speed rail program, and we have
additional reviews ongoing. To date, we have issued 21
recommendations to FRA about its high-speed rail program
oversight, and the agency has completed action on 20 of them.
Today, I will describe steps FRA has taken to address our
published recommendations. I will then update you on the status
of our ongoing audit, which is focused on FRA's oversight of
its grants to the California High-Speed Rail Authority.
As our work shows, FRA has faced challenges in implementing
and overseeing high-speed rail in the 10 years since the
program was created. On the implementation side, these
challenges included developing a coherent nationwide plan for
high-speed rail, as well as communicating guidance to help
States, including California, plan and implement their
projects.
In response to our recommendations, FRA undertook a
national rail planning effort that defined measurable
performance goals and clear stakeholder roles. It also improved
some of its project planning materials. For example, FRA
developed guidance to improve how grantees forecast ridership
and revenue and estimate the costs and benefits of planned
projects. This guidance can inform California as it develops
future business plans and other supporting plans for high-speed
rail.
FRA also faced numerous challenges relating to grant
management and oversight. Along with quickly establishing a new
grant program, FRA had to distribute and oversee more than $10
billion in Federal funds, including the $3.5 billion it granted
to California. To its credit, FRA has addressed certain
weaknesses we identified with its grant program, such as those
related to amending and monitoring grant agreements.
California's FRA grant has been amended six times. For example,
a 2012 amendment allowed the State to expend Federal funds
before it paid State matching funds. While grant amendments
occur for a variety of legitimate reasons, FRA has a
responsibility to ensure that they do not result in
unacceptable risk to Federal investments.
In response to our recommendations, FRA updated its
guidance on mitigating risks during the grant amendment
process. In addition, FRA now requires its staff to report
suspected fraud, waste, and abuse to our office for
investigation. FRA also updated its web-based project
management tracking tool and amended its procedures for
following up on problems it identifies during grant monitoring.
If applied consistently, this can be a useful tool.
FRA's steps in these areas are commendable. However, to
protect Federal funds, management attention and strong
oversight remain critical. Our ongoing work continues to assess
FRA's grant oversight to identify additional areas for
improvement. In particular, at your request, Mr. Chairman, we
recently started an audit of FRA's oversight of its grants to
the California high-speed rail project. We will assess FRA's
risk analysis, assessment, and mitigation efforts, as well as
its procedures for overseeing the expended Federal funds.
To meet these objectives, we are currently reviewing those
expenditures, including invoices submitted to FRA by the
authority, to determine whether Federal funds expended complied
with applicable Federal laws and regulations. We are also
interviewing FRA staff and examining other grant documentation,
all with the goal of evaluating FRA's analysis of risks that
may be associated with the California high-speed rail
initiative.
Because our audit is still in its initial phase, we are not
yet able to report on any preliminary findings, in accordance
with Federal auditing standards. However, as our audit
progresses, we will brief FRA on our findings and reach out to
other stakeholders, including the rail authority, as needed, to
validate and discuss our results. We plan to issue our report
in late spring 2019. We are committed to working with FRA to
improve its oversight and stewardship of Federal funds, and we
will keep you apprised of this and any other related work.
Mr. Chairman, this concludes my prepared statement. I will
be happy to answer questions you or other members of the
subcommittee may have.
[Mr. Scovel's prepared statement follows:]

Prepared Statement of Hon. Calvin L. Scovel III, Inspector General,
U.S. Department of Transportation, Office of Inspector General
Introduction
Chairman Denham and members of the subcommittee, thank you for
inviting me here to discuss our past and ongoing audit work related to
the Federal Railroad Administration's (FRA) oversight of the High-Speed
Intercity Passenger Rail (HSIPR) program. As you know, FRA administers
the HSIPR program, a discretionary grant program created by the
Passenger Rail Investment and Improvement Act of 2008 (PRIIA).\1\
Between 2009 and 2011, Congress appropriated over $10 billion for the
program, and as of July 2018, FRA had disbursed $8.6 billion of those
funds. Nearly 39 percent of HSIPR program funding has been dedicated to
California's planned high-speed rail corridor between San Francisco and
Los Angeles, managed by the California High-Speed Rail Authority
(CHSRA).
---------------------------------------------------------------------------
\1\ Pub. L. No. 110-432 Div. B.
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Since HSIPR was launched, we have identified a number of
implementation challenges for FRA, including developing written
policies and practices to guide the program's grant lifecycle process
and oversight activities. To date, we have issued 21 recommendations
related to FRA's oversight of HSIPR. FRA has taken action on 20 of
them, and we continue to monitor FRA's oversight of the program.
My testimony today will focus on (1) steps FRA has taken to address
our recommendations related to HSIPR program oversight and (2) the
status of our ongoing audit on FRA's oversight of its grants to CHSRA
for high-speed rail.
Summary
FRA faced several challenges in developing an oversight framework
for the HSIPR program but took action to address many of them in
response to our previous findings and recommendations. For example, FRA
improved some of its HSIPR project-planning materials, which now
include guidance to help grantees such as CHSRA forecast ridership and
revenue, evaluate public benefits, and estimate operating costs. FRA
also took steps to address certain weaknesses in its oversight of HSIPR
funds. For example, following our 2015 audit that identified challenges
with amending and monitoring compliance with HSIPR grant agreements,
FRA updated its guidance on identifying and mitigating risks during the
grant amendment process and added a requirement that Agency staff
report suspected fraud, waste, or abuse to DOT-OIG for investigation.
Other FRA actions based on our recommendations include grant-management
training for its staff and a web-based tracking tool that can help the
Agency monitor California's compliance with the terms of its grant
agreement. Given the importance of grant oversight for ensuring proper
stewardship of taxpayer dollars, our office continues to monitor FRA's
efforts to oversee the HSIPR program. At your request, Mr. Chairman, we
recently initiated an audit of FRA's oversight of its grants to the
California high-speed rail project, which will assess the Agency's risk
analysis, assessment, and mitigation efforts, as well as its procedures
for overseeing the expended Federal funds. To meet these objectives, we
will examine FRA's management of the HSIPR program in general and
specifically the oversight of its grants to CHSRA. Given that our audit
is still in its initial phase, the evidence we have collected is not
yet sufficient to allow us to discuss our preliminary findings. We
expect to report on the results of our review in spring 2019.
Background
Congress directed FRA in PRIIA to establish a grant program to fund
various types of intercity passenger rail improvements, while
continuing to carry out its prior responsibilities, including its
oversight of Amtrak. These new responsibilities greatly expanded FRA's
role in developing and managing the Nation's rail system. In addition,
4 months after PRIIA's enactment, the American Recovery and
Reinvestment Act of 2009 (ARRA) \2\ appropriated $8 billion to FRA to
develop and implement the HSIPR grant program and established
aggressive requirements for the timing of fund obligations and
expenditures. Congress has since not reauthorized the HSIPR program,
but the Fixing America's Surface Transportation Act of 2015 \3\
established a new Consolidated Rail Infrastructure and Safety
Improvement program to fund rail infrastructure and safety projects.
---------------------------------------------------------------------------
\2\ Pub. L. No. 111-5.
\3\ Pub. L. No. 114-94.
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In 2008, California voters approved Proposition 1A, which
authorized $9.95 billion in State funding for the construction of the
California high-speed rail system and connection improvements to
existing passenger rail systems. CHSRA is charged with planning,
designing, and constructing the 520-mile rail system, which is expected
to operate between San Francisco and Los Angeles at speeds of up to 220
miles per hour.
Through the HSIPR grant program, FRA awarded the State
approximately $3.3 billion in capital construction funds and $231
million for environmental review and preliminary engineering work, for
a total of approximately $3.5 billion (see table). The California high-
speed rail project is the largest recipient of HSIPR funds,\4\ with
approximately 39 percent of program funds obligated. Most of the funds
awarded to the project were appropriated under ARRA and, in accordance
with the governing grant agreement, were expended prior to the
statutory deadline of September 30, 2017.\5\ An additional $929 million
in Federal funding--appropriated in fiscal year 2010--remains
unexpended. Under the terms of its grant agreement with FRA, CHSRA must
first provide State funds to match the Federal ARRA expenditures before
FRA will release the fiscal year 2010 appropriated funding. Through the
end of fiscal year 2017, CHSRA had provided $293.1 million of its total
$2.5 billion matching share for the Federal ARRA grant.
---------------------------------------------------------------------------
\4\ Other major recipients of HSIPR grant funding include the
States of Washington ($751.6 million), Illinois ($1.1 billion), and
North Carolina ($520 million).
\5\ $5.1 million in unspent funds were returned to the Treasury
following their statutory expiration.

Table. California High-Speed Rail: Identified and Proposed Sources of
Funding \\
------------------------------------------------------------------------
Funding Source Amount Purpose
------------------------------------------------------------------------
American Recovery and $2.6 billion...... Planning and
Reinvestment Act (Federal)-- environmental
awarded August 17, 2010. work on Phase I,
as well as
construction on
the initial
Central Valley
segment.
------------------------------------------------------------------------
FY2010 Appropriations (Federal)-- $0.9 billion...... Construction on
awarded December 16, 2009. the initial
Central Valley
segment.
------------------------------------------------------------------------
California Proposition 1A Bond $10 billion....... Planning and
Sale Proceeds. construction
throughout Phase
I.
------------------------------------------------------------------------
California Cap-and-Trade $1.7 billion...... Planning and
\\ proceeds received construction
through December 2017. throughout Phase
I.
------------------------------------------------------------------------
Future California Cap-and-Trade. $4 billion to $4.5 Planning and
billion. construction
throughout Phase
I.
------------------------------------------------------------------------
California Cap-and-Trade $3.9 billion to Planning and
Financing projections from 2024- $11.1 billion. construction
2050 \\. throughout Phase
I.
------------------------------------------------------------------------
Projected Total Funding for All $23 billion to $30.7 billion.\\
of Phase I.
------------------------------------------------------------------------
Projected Total Cost for All of $63.2 billion to $98.1 billion.
Phase I.
------------------------------------------------------------------------
\\ Source: CHSRA 2018 business plan and grant agreements
\\ California launched its Cap-and-Trade program in 2013.
Through the program, the California Air Resources Board sets an
overall emissions target for the State and sets a limit on carbon
dioxide emission levels from certain entities. A portion of the
proceeds from the sale of emissions allowances finances the high-speed
rail project.
\\ These projected sources of funding are between $32.5 billion and
$75.1 billion less than the total projected costs for the entire Phase
I system (San Francisco to Anaheim).

FRA's largest grant to CHSRA \6\ is directed toward completion of
preliminary engineering and environmental review in support of the
entire 520-mile system and construction of an initial 119-mile segment
of the system in California's Central Valley. The grant agreement
requires CHSRA to match the $2.5 billion Federal investment and
complete the scope of work.
---------------------------------------------------------------------------
\6\ FRA has executed four grant agreements that will benefit
California High-Speed Rail, including: (1) an agreement with CHSRA
governing $2.5 billion in ARRA funds, referenced above; (2) an
agreement with CHSRA to govern the award of approximately $930 million
appropriated in fiscal year 2010, which also supports construction of
an initial rail segment in the Central Valley; (3) an agreement with
CHSRA that contributes funding to a project to install positive train
control on existing track between San Jose and San Francisco; and (4)
an agreement with the Transbay Joint Powers Authority that contributes
funding to the construction of the Transbay Terminal Center.
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Since 2012, we have issued seven reports related to the HSIPR
program (see exhibit).
FRA Has Faced Challenges in Implementing and Overseeing the HSIPR
Program but Has Made Improvements
Since the creation of the HSIPR program, FRA has faced challenges
in implementing and overseeing it, including administering and managing
over $10 billion in grant funds. To its credit, FRA took action on our
recommendations related to project planning and worked to address
certain weaknesses we identified in its oversight and management of
HSIPR funds. Such actions have the potential to improve any future
administration of California's railroad programs, including the high-
speed rail project.
FRA Has Taken Steps To Improve Its Guidance for High-Speed
Rail Planning and Decision Making
FRA's challenges with the HSIPR program have included developing a
coherent plan for rail that integrates the entire country and
communicating guidance to help States such as California plan and
implement high-speed rail projects. For example, in 2012 we reported
that the lack of a clearly defined, long-term vision for national
intercity passenger rail impeded States' abilities to develop their own
rail plans and passenger rail improvement projects.\7\ Uncertainty
about the Federal role and interstate coordination also made it
difficult to attract private sector investment.
---------------------------------------------------------------------------
\7\ FRA Has Made Progress Implementing PRIIA Responsibilities, but
Challenges for Long-Term HSIPR Remain (OIG Report No. CR-2012-072),
March 2012. OIG reports are available on our website at http://
www.oig.dot.gov/.
---------------------------------------------------------------------------
FRA has since taken action to address six of our recommendations
related to project-planning guidance. For example, FRA developed a
variety of materials to respond to our recommendation that it complete
a National Rail Plan with measurable performance goals and clear
stakeholder roles. One significant component of those efforts was a
rail planning study for the Southwest Region--comprised of California,
Nevada, and Arizona--which identified high-level ``candidate
corridors'' for potential investment, alternatives for addressing
certain multi-state planning governance and institutional challenges,
and lessons learned that could be applied to future regional planning
efforts. In addition, in response to PRIIA requirements and our
recommendation, FRA issued guidance to help States develop their own
rail plans, including the processes for plan development, specific
elements that must be included, and data and methodological
requirements. These plans and guidance are now available to California
as it continues to develop both its overall State rail planning efforts
as well as any future business plans specifically for the high-speed
rail program.
FRA has also taken some steps to improve its ability to make
funding and planning decisions. Specifically, one of FRA's key
responsibilities and challenges in implementing HSIPR is assessing the
economic viability of proposed projects and deciding which ones to
fund. In 2012, we reported that FRA had established only minimal
requirements and provided HSIPR grant applicants limited guidance on
how to determine a project's viability.\8\ As a result, FRA lacked
consistent information to aid its decisions regarding which high-speed
rail projects to fund. In response to our findings, FRA developed
guidance to help potential grantees prepare HSIPR ridership and revenue
forecasts, public benefits valuations, and operating cost estimates. In
addition, the Agency established specific requirements for these
forecasts, valuations, and estimates for each level of HSIPR project
development. In 2016, FRA published detailed benefit-cost analysis
guidance and a cost-estimation guide that States can use to inform
decision makers about the trade-offs involved in passenger rail
investment. This guidance can inform California as it develops any
future high-speed rail business plans as well as other supporting
plans, such as those for service and development and continuing
operations. As such, it may improve the quality of the estimates of
ridership, revenue, public benefits valuations, and operating costs for
the system.
---------------------------------------------------------------------------
\8\ FRA Needs To Expand Its Guidance on High-Speed Rail Project
Viability Assessments (OIG Report Number CR-2012-083), March 2012.
---------------------------------------------------------------------------
FRA Has Worked To Address Certain Weaknesses in Its
Management and Oversight of HSIPR Funds
HSIPR gave FRA significant new grant-making and oversight duties,
presenting unique challenges. Along with quickly establishing a new
grant program, the Agency now had to distribute and oversee more than
$10 billion in appropriated grant funds, including the $3.5 billion
granted to California. FRA has taken some steps to address initial
weaknesses in its HSIPR grant oversight policies, procedures, and
practices. For example, FRA developed-and has continued to refine-its
grants management manual in response to our recommendations.\9\ This
manual clarifies the Agency's policies and procedures and guides FRA
staff oversight during all stages of the grant administration process,
including solicitation, award, administration, monitoring, and
closeout.
---------------------------------------------------------------------------
\9\ Completing a Grants Management Framework Can Enhance FRA's
Administration of the HSIPR Program (OIG Report No. CR-2012-178),
September 2012, and FRA Improved Its Guidance on High-Speed Rail Grant
Agreements, but Policies and Procedures for Amending and Monitoring
Grants Remain Incomplete (OIG Report No. ST-2015-038), April 1, 2015.
---------------------------------------------------------------------------
In particular, one challenge area included the process for amending
grants. Once FRA has awarded an HSIPR grant, the Agency may amend an
agreement to change the funding amount, the grant's objectives, or the
terms governing the Federal and the grantee's funding contributions to
the project, as needed. For example, California's FRA grant has been
amended six times, including a 2012 amendment that allows the State to
expend Federal funds in advance of its provision of State matching
funds, which are typically required to be spent concurrently with the
Federal funds. While the need to amend a grant amendment may arise for
a variety of legitimate reasons, FRA has a responsibility to ensure
that the amended grant terms and conditions do not result in
unacceptable risk to Federal investments. In response to our findings
and recommendations, FRA updated its policies and procedures to include
more robust guidance on identifying and mitigating risks during the
grant amendment process. These policies and procedures position FRA to
provide greater transparency regarding its decisions on grant
amendments, including its sixth amendment to its grant to CHSRA.\10\
---------------------------------------------------------------------------
\10\ FRA has amended its grant agreement with CHSRA six times.
However, the Agency executed the sixth only subsequent to the issuance
of our report on April 1, 2015. The sixth amendment--signed on May 18,
2016--extended the grant's period of performance from September 30,
2017, to December 31, 2022, among other changes.
---------------------------------------------------------------------------
FRA has also developed some tools and training for its staff to
help improve the Agency's oversight of its HSIPR grants. Our 2012
review found that the Agency's ability to effectively administer and
ensure the accountability of HSIPR grant funds was hindered by the lack
of experience and expertise of FRA staff. In response to our
recommendations, FRA now provides required training in grant-management
best practices, monitoring and risk assessment, and fraud awareness and
prevention to all Agency grants management staff.
In addition, FRA has taken action on OIG recommendations related to
its processes for monitoring grantee efforts to comply with the terms
of their grant agreements and to resolve problems that the Agency
identifies through its monitoring reviews. As we noted in prior audits,
FRA has faced challenges in this area in the past. For example, we
reported in 2015 that FRA staff closed six findings from the Agency's
review of a grant to CHSRA without documenting the grantee's actions to
correct the problems. These findings included problems regarding
schedule slips, implementation of its required risk-management plan,
and cost-estimate reports. As a result, it was difficult for FRA to
follow up to ensure CHSRA and other grantees resolved identified
problems. In response to our recommendations, FRA updated its web-based
project management tracking tool and amended its procedures to
strengthen its tracking and follow up on any problems it identifies
during grant monitoring, such as those identified for the CHSRA grant.
FRA also introduced a specific requirement that Agency staff report
suspected fraud, waste, or abuse to DOT-OIG for investigation. As such,
the Agency may be in a better position to track California's compliance
with the terms and conditions of its grant agreement, use that
information to guide its ongoing oversight, and detect and report
potential fraud. Given the importance of grant oversight for ensuring
proper stewardship of Federal funds, our office continues to review
FRA's role in providing HSIPR program oversight.\11\
---------------------------------------------------------------------------
\11\ In addition to the ongoing audit discussed in this testimony,
our audit of FRA's use and acquisition of Monitoring and Technical
Assistance Contractors for High-Speed and Intercity Passenger Rail
grant oversight is in process.
---------------------------------------------------------------------------
FRA's Oversight of the California High-Speed Rail Project Is Focus of
Ongoing OIG Audit
Mr. Chairman, at your request, we are currently reviewing FRA's
oversight of its grants to CHSRA for the California high-speed rail
project. As you know, in a letter to our office, you noted the
significant funds provided to CHSRA for high-speed rail and cited
concerns regarding FRA's oversight of expenditures and CHSRA's
compliance with Federal requirements. Your letter also expressed
concerns about the Agency's assessment of risk associated with CHSRA's
ability to provide required matching funds and its analysis of risk
when reviewing CHSRA's business plans and financial reports.
We announced our audit in April 2018, and it is currently underway.
In accordance with your request, our audit objectives are to assess
FRA's (1) risk analysis, assessment, and mitigation efforts--
particularly regarding the availability of non-Federal matching funds,
business plans, and financial reporting--and (2) procedures for
determining whether Federal funds expended complied with applicable
Federal laws and regulations. Our audit specifically focuses on FRA's
work to oversee the CHSRA grants.
To meet these objectives, we are currently reviewing data related
to Federal expenditures, conducting interviews with FRA staff, and
examining a variety of documentation--including policies, procedures,
risk assessments, and invoices--related to FRA's management of the
HSIPR program generally and oversight of its grants to CHSRA
specifically. This will include onsite interviews of CHSRA and FRA
representatives here in California, in addition to our work at FRA
Headquarters.
We briefed FRA on the purpose, objectives, and proposed scope and
methodologies of our review in late April. Our audit is now currently
in its initial phase--known as the Survey phase--during which we test
our methodologies and develop preliminary findings. Subsequently, the
audit will move into the Verification phase, during which we refine our
methodology, collect additional data, finalize our audit findings, and
develop recommendations. After completing this phase, we will brief FRA
on our findings and recommendations and reach out to other
stakeholders, including CHSRA, as needed to validate and discuss our
results. We will then issue a draft report to FRA, and the Agency will
have an opportunity to review and respond to it. FRA's response will be
included as an appendix to our final report, which is typically
published 6 to 8 weeks after we provide a draft to the auditee.
We plan to transmit our final report on FRA's oversight of CHSRA in
spring 2019 to this subcommittee and FRA, and will post it on our
public website. Given that our audit is still in its initial Survey
phase, we are not yet able to report on our preliminary findings, in
accordance with Federal auditing standards.\12\ However, we will keep
this subcommittee apprised of the status of our review and also inform
FRA about our progress and findings as our standards and process
dictate.
---------------------------------------------------------------------------
\12\ We are conducting this review in accordance with generally
accepted Government auditing standards as prescribed by the Comptroller
General of the United States. These standards require us to obtain
sufficient, appropriate evidence to support any findings or conclusions
that we present. At this stage, the evidence that we have collected is
not yet sufficient to allow us to publicly discuss our preliminary
findings.
---------------------------------------------------------------------------
Conclusion
FRA's grant programs present distinct opportunities for advancing
high-speed rail transportation, but also require an unprecedented level
of stewardship to safeguard the billions of taxpayer dollars involved.
While FRA has made progress in implementing HSIPR and resolving many of
the weaknesses identified in our audits, continued management attention
and strong oversight will remain critical to ensure that Federal funds
are not subject to an unacceptable level of risk. In addition, our work
will continue to assess FRA's grant management to identify additional
areas for improvement. We thank you and this subcommittee for keeping
focus on this important area and will keep you informed as we monitor
FRA's efforts to oversee the HSIPR program, including developments with
the California High-Speed Rail Authority and our ongoing review.
This concludes my prepared statement. I will be happy to answer any
questions you or other members of the subcommittee may have.
Exhibit. OIG Reports on the HSIPR Program Since 2012
FRA Has Made Progress in Implementing PRIIA
Responsibilities but Challenges for Long-Term HSIPR Remain (OIG Report
CR-2012-072), March 6, 2012
FRA Needs To Expand Its Guidance on High-Speed Rail
Project Viability Assessments (OIG Report CR-2012-083), March 28, 2012
Completing a Grants Management Framework Can Enhance
FRA's Administration of the HSIPR Program (OIG Report CR-2012-178),
September 11, 2012
FRA's Requirements For High-Speed Rail Stakeholder
Agreements Mitigated Risk, but Delayed Some Projects' Benefits (OIG
Report CR-2013-007), November 1, 2012
NEPA: FRA Coordinates as Required, but Opportunities
Exist to Modernize Procedures and Improve Project Delivery (OIG Report
CR-2014-010), December 5, 2013
FRA Continues To Make Progress Implementing PRIIA
Responsibilities but Faces Challenges With Rail Planning (OIG Report
CR-2014-030), February 25, 2014
FRA Improved Its Guidance on High-Speed Rail Grant
Agreements, but Policies and Procedures for Amending and Monitoring
Grants Remain Incomplete (OIG Report ST-2015-038), April 1, 2015

Note: OIG reports are available on our website at http://
www.oig.dot.gov/.

Mr. Denham. Thank you, Mr. Scovel. Mr. Kelly, you may
proceed.
Mr. Kelly. Good morning, Mr. Chairman. Thank you for the
opportunity to be here today. Also, good morning, Acting
Ranking Member Garamendi, and other members of the committee.
My name is Brian Kelly, and I am the----
Mr. Denham. Mr. Kelly, can I have you pull the microphone
up----
Mr. Kelly. Sure.
Mr. Denham [continuing]. A little bit closer?
Mr. Kelly. Sorry, Mr. Chairman. Again, my name is Brian
Kelly. I am the CEO of the California High-Speed Rail
Authority, a position I was appointed to in February of this
year. Prior to this position, just by way of background, I
served as secretary of the California State Transportation
Agency for 5 years, and prior to that spent 18 years working in
the California State Senate where I got to know many of you.
Good to see you again, and welcome back to Sacramento.
I was drawn to the high-speed rail program because, in my
view, it is the most transformative project I have seen in 24
years of working in transportation policy in the State. It is
capable of delivering very important mobility, economic, and
environmental objectives. In my first 6 months on the job, I
immediately set to work developing our guiding documents to get
this project on the track for success, including the adoption
of the business plan, which we will go into greater detail
today. We have also adopted Program Baseline, which is a
multiyear document to guide our work to implement the 2018
business plan and includes a definition of scope, schedule, and
cost for early investments.
We are completing work now on a program management plan,
which is a reorganization of our organization to assure we have
resources in the right place and addressing our challenges that
are before us to deliver this project on time.
And then finally, we will be taking up a new strategic
plan, which will lay out how we will achieve our mission,
vision, and goals through measurable performance metrics that
we will use to provide project update reports to all of our
oversight committees, this one, as well as legislative.
In addition to these organizational improvements, it is
worth noting that the authority has made important progress in
the project since this subcommittee's last field hearing. We
have three construction packages that have advanced to create
an overall investment of over $3 billion on construction-
related activities in the Central Valley. Bridges, viaducts,
grade separations are becoming clearly visible at multiple
locations, and we have 20 major projects underway today.
We have dispatched more than 2,000 workers that have good-
paying jobs on the project, and, as was noted earlier, we are
employing over 437 small businesses, including 142
disadvantaged businesses and 52 disabled-veteran businesses.
We did meet the ARRA [American Recovery and Reinvestment
Act] expenditure deadline of September 2017 in our FRA grant
agreement, and the authority is now accessing Proposition 1A
bonds for construction while our cap-and-trade dollars appear
to have stabilized. With this great progress, however, the
project does face challenges, and our 2018 business plan laid
out a vision to implement this project in the face of these
challenges, which are not dissimilar to those that confront
projects around the world of similar magnitude and complexity.
For the first time in this plan, the authority is assigning
costs to risks that were identified in prior plans, and we
present a baseline cost estimate for all project sections.
Also for the first time, the plan discontinues the past
practice of estimating project costs with a specific dollar
estimate, and instead, recognizing that many elements of the
project are still in the early project development phase, the
plan estimates cost utilizing baseline estimates and ranges.
Our baseline estimate for valley-to-valley is $29.5 billion.
Our baseline estimate for the entirety of phase 1 is $77.3
billion. The revised baseline cost estimates show an increase
in cost largely driven by the effects of inflation, increased
contingency for risks, and previously identified construction
delays in the Central Valley.
Schedule for the valley-to-valley service and our full
phase 1 service are pushed out 4 years respectively, and the
schedules will be affected primarily by the timing and
availability of funding for project implementation. The plan
also outlines a financing strategy consistent with the one
contained in the 2016 business plan to better align our cap-
and-trade funds with capital needs for the project so we can
deliver the benefits at the earliest possible time.
Our strategic investment priorities in the plan include
five priorities: one, meet all of our commitments to our
Federal funding partner under our grant agreement; two, extend
the valley-to-valley service from San Francisco to Bakersfield,
which is the highest revenue, highest ridership initial
service; deliver in the short term 224 miles of high-speed,
rail-ready infrastructure for use by 2027; isolate the
tunneling in the Pacheco Pass as the final missing link to
complete the valley-to-valley service; and continue our bookend
investments in southern and northern California.
In closing, Mr. Chairman, I would just like to conclude by
reiterating my perspective that this transformative project is
unique in its ability to provide vital mobility, economic, and
environmental benefits to Californians, and with that, Mr.
Chairman and Members, I am happy to answer your questions
today. Thank you.
[Mr. Kelly's prepared statement follows:]

Prepared Statement of Brian P. Kelly, Chief Executive Officer, the
California High-Speed Authority
Chairman Denham, Acting Ranking Member Garamendi, and Members of
the Subcommittee, I appreciate the opportunity to appear before you
today to discuss the California High-Speed Rail program as part of the
Subcommittee on Railroads, Pipelines, and Hazardous Materials ongoing
oversight. I am Brian Kelly, Chief Executive Officer of the California
High-Speed Rail Authority (Authority). I was appointed to my current
position by the Authority's Board of Directors in January 2018 and
since I began the job on February 1, I have dedicated myself to
producing the Authority's 2018 Business Plan, the Program Baseline, and
a new Project Management Plan that re-organizes the Authority to focus
resources on key needs to deliver this project.
In this testimony, I will highlight major areas of progress the
Authority has made since this Subcommittee's last oversight hearing in
June 2017. I will also summarize the key elements of the Authority's
2018 Business Plan,\1\ including the challenges we currently face and
our plans to address those challenges so that we can deliver the
modern, efficient high-speed rail system that California voters
demanded 10 years ago.
---------------------------------------------------------------------------
\1\ The California High-Speed Rail Authority 2018 Business Plan.
---------------------------------------------------------------------------
Mr. Chairman and Acting Ranking Member, much has happened since
this Subcommittee's last oversight hearing. Construction of the 119-
mile Central Valley segment continues to advance, with completion of
several major structures and more becoming clearly visible throughout
the region. This construction has put more than 2,000 men and women to
work on good paying jobs, and our work to date has been bolstered by
more than 400 California-based small businesses, including Disabled
Veteran Businesses. All told, the high-speed rail project has already
generated between $5 and $6 billion in economic activity.
While tremendous progress is being made on the project, we are also
facing cost and schedule pressures that are not unusual for megaproject
of this scale, but must be addressed by implementing a new way of doing
business at the Authority. In this testimony I will outline those
issues as well as our approach to applying lessons learned to date to
ensure we do not face the same challenges in the future.
Finally, I want to be clear that in this constrained funding
environment, one fundamental truth remains evident about this project--
as was the case when the voters of California passed Proposition 1A in
2008, the project does not have all of the dedicated funding necessary
to complete the entire Phase 1 system. This fact requires us to build
the project in stages. While we complete environmental work Statewide
and ready all segments for investment as resources materialize, our
fundamental objectives remain unchanged from the 2016 Business Plan: to
initiate high-speed rail passenger service as soon as possible so we
both demonstrate its benefits and begin generating revenues that will
then attract private sector participation and help fund extending the
system beyond an initial operating line. And while delivering an
initial operating line, we will also make strategic concurrent
investments throughout the State that will provide early benefits to
local communities and regional transportation systems while linking
those segments together over time. We believe this approach remains
prudent and doable, and I look forward to sharing our plans with the
Subcommittee today.
Major Areas of Progress
Construction, Jobs and Small Businesses
Mr. Chairman, construction has significantly advanced since the
last time the Authority appeared before this Subcommittee. Our progress
includes:
Three Construction Packages have advanced to create an
overall investment of $3.08 billion through January 31, 2018 on
construction related activities in the Central Valley;
Bridges, viaducts and grade separations are becoming
clearly visible at multiple locations, with 20 major projects currently
underway;
Three major structures have been completed--the
Cottonwood Creek guideway structure, the Fresno River Bridge and the
new Tuolumne Street Bridge, which opened to traffic in August 2017;
For more detailed construction updates, including videos of our
progress, please visit buildhsr.com.
This construction progress has brought with it great benefits to
California workers and small businesses, as the Authority maintains its
aggressive 30 percent goal for small business participation. I am proud
to report that there are 437 small businesses on the project, including
142 DBEs and 52 DVBEs.
Additionally, you may recall that in June 2017 the Authority had
dispatched approximately 1,200 craft labor workers to its design-build
construction package sites. Mr. Chairman, there are now over 2,000
dispatched workers on the high-speed rail project, a number that has
had a decidedly positive impact on the Central Valley's economy.
Mr. Chairman, Acting Ranking Member, and Members of the
Subcommittee, our Chairman has extended an invitation to you to tour
our Central Valley constructionsites. That invitation remains open and
I would be pleased to take you on a tour to see the structures, talk to
the workers, and experience firsthand the effect of this transformative
investment on the Central Valley.
September 30, 2017 American Recovery and Reinvestment Act (ARRA)
Deadline
At the time of this Subcommittee's last field hearing, construction
of California's high-speed rail project was being fully supported by
the approximately $2.5 billion in funds made available by ARRA through
the Authority's partnership with the Federal Railroad Administration
(FRA) and its participation High-Speed Intercity Passenger Rail (HSIPR)
program.\2\
---------------------------------------------------------------------------
\2\ The Authority received a $2.552 billion Federal Railroad
Administration (FRA) High-Speed Intercity Passenger Rail (HSIPR) grant
funded by ARRA, a $928 million HSIPR grant funded by the Consolidated
Appropriations Act, 2010 (Fiscal Year 2010 Appropriation Act, P.L. 111-
117), and other funds made available through Federal appropriations and
grants.
---------------------------------------------------------------------------
Mr. Chairman, I am pleased to report to you today that the
Authority, thanks to its strong partnership with the FRA, was able to
meet the September 30, 2017 statutory deadline for expenditure of ARRA
funds. Moving forward, construction will be funded by using State
resources (outlined in Section C) until the additional Fiscal Year 2010
Federal funding can be applied to the project per the Authority's grant
agreement with the FRA.
When ARRA was enacted, its stated purpose was to create jobs, aid
the economic recovery of the nation's poorest areas, spur technological
development, and build new transportation infrastructure that provides
long-term economic benefits. Based on my testimony today, we believe it
is clear that California's high-speed rail program made a significant
contribution to achieving those goals.
State Funding: Cap and Trade and Proposition 1A
Mr. Chairman and Acting Ranking Member, while the Federal
Government is a critical and necessary partner in the high-speed rail
program both today and in the future, the majority of funding currently
committed to the program is being provided by the State of California.
Indeed, the Authority has made significant advancements to access
and expend State funds to build high-speed rail. Last year, Assembly
Bill (AB) 398 was approved by the Legislature and signed into law by
Governor Edmund G. Brown Jr. AB 398 strengthened and extended the
horizon of the Cap-and-Trade Program by 10 years through December 31,
2030. This represents a forecast of $7.5 billion in additional funding,
which is another important step taken by the State to solidify funding
for the project. Since AB 398 was passed, quarterly Cap-and-Trade
auctions have been strong and consistent--an indication that the market
has reacted positively to the legislation and that the proceeds will be
a more reliable source of funding to advance the high-speed rail
program. To date, $2.04 billion in Cap-and-Trade proceeds has been
appropriated for high-speed rail.
Over the last year additional steps were taken to access
Proposition 1A funds to continue work and begin to meet the FRA grant's
match requirements. The Authority has now accessed $1.632 billion of
Proposition 1A construction bonds and is putting them directly to work
in the Central Valley.
Additionally, the Authority has accessed the $600 million in
Proposition 1A bond funds appropriated for Caltrain's Peninsula
Corridor Electrification Project. We have also committed $114 million
of Cap and Trade proceeds to this vital project, which represents 36
percent of the total funding. When completed, an electrified Caltrain
will provide immediate environmental and service benefits to Bay Area
commuters while paving the way for high-speed rail access to San
Francisco in the future.
In Southern California, the Authority has accessed $76.67 million
of Proposition 1A bond proceeds to contribute to the $155.3 million
Rosecrans-Marquardt grade separation project cost. The grade crossing
is currently rated by the California Public Utilities Commission as the
most hazardous in the State. The 2018 Business Plan contemplates that
the remainder of the $500 million appropriated for projects in Southern
California will be dedicated to the Link US project that will modernize
Los Angeles Union Station to improve passenger rail operations and
ready the station for high-speed rail's future integration.
Progress on Environmental Clearance and National Environmental Policy
Act (NEPA) Assignment
The 2018 Business Plan reaffirms the Authority's commitment to the
FRA grant agreement's requirement for completion of environmental
review on all segments by 2022.
Over the last 2 years, the Authority reached major milestones in
advancing environmental clearances on two Central Valley extensions
including:
The release of the Draft Supplemental Environmental
Impact Report/Environmental Impact Statement (EIR/EIS) for the Locally
Generated Alternative in the Bakersfield area of the Fresno to
Bakersfield Project Section. Final environmental clearance of this
section is scheduled for October 2018.
The selection of a preferred alternative for the Central
Valley Wye area of the Merced to Fresno Project Section near
Chowchilla.
This fall, our board will move forward to adopt a final
EIR/EIS for the Bakersfield Locally Generated Alternative and will
consider the adoption of preferred alignments for the four segments
South of Bakersfield.
The Authority and FRA have also been working cooperatively over the
last year on the assignment of responsibility for compliance with NEPA
to the State of California. In November 2017, a draft application for
that assignment was released for public review and comment. In May of
this year, the FRA published California's final application for
assignment and a draft Memorandum of Understanding (MOU) in the Federal
Register, starting a 30-day public comment period that ended on June 1.
The NEPA Assignment Program is designed to streamline environmental
reviews, find efficiencies where possible and complete the process
faster, without diminishing the rigor of the environmental analysis or
the opportunities for the public meaningfully to engage with the
program. We look forward to our continued work with the FRA to make
those goals a reality. We are anticipating a final decision on the NEPA
assignment this summer.
Early Train Operator Procurement
The 2016 Business Plan included a procurement strategy that called
for an Early Train Operator (ETO) to be brought on as soon as possible
to be a long-term partner into the high-speed rail operations and
ridership ramp-up phase.
Strategically partnering with a private sector operator will help
ensure that the system is designed to enhance its ultimate commercial
value and profitability. The ETO will help the Authority reduce any
early year losses as the system is ramping up and optimize system
performance while maximizing revenue generation with the goal of
creating enterprise value in a financially non-subsidized high-speed
rail train system.
In November 2017, the Authority awarded the ETO contract to DB
Engineering & Consulting USA. DB Engineering & Consulting USA has
extensive international high-speed rail delivery, operations and
maintenance experience. The ETO will be a key partner for the Authority
moving forward in the areas of: procurements for trains, track and
systems; maintenance facilities; station design and passenger
operations; revenue collection; market brand; and, financial planning
and modeling, including ridership and revenue estimation. Under my
direction, the ETO is currently conducting a detailed analysis on the
cost estimates included in the 2018 Business Plan and on potential
interim service options that I will further detail later in my
testimony.
Key Elements of the 2018 Business Plan
Core Tenets and Commitments in 2016 Business Plan Remain Unchanged
Mr. Chairman and Acting Ranking Member, as you know the Authority
is required by California State law to produce a Business Plan every 2
years. On March 9, we released the Draft 2018 Business Plan beginning a
60-day public comment period before the plan was finalized, approved by
our Board of Directors in May, and submitted to the California State
Legislature on June 1.
The 2018 Business Plan describes the same developments I have so
far shared with you today. It also presents updated ridership, revenue
and other forecasts, and discusses the various challenges facing the
program that I will detail later in my testimony.
In addition to these updates, the 2018 Business Plan is
fundamentally based on the same goals as the 2016 Business Plan. First
and foremost, we remain committed to meeting the requirements of our
grant agreement with the FRA. Additionally, we maintain the following
organizational tenets:
Initiate high-speed rail service in California as soon as
possible.
Make strategic, concurrent investments that will be
linked over time and provide mobility, economic and environmental
benefits at the earliest possible time.
Position ourselves to construct additional segments as
funding becomes available.
We believe these key principles remain sound, and they will
continue to guide our decisionmaking as I will outline later in this
testimony.
Changed Circumstances and Challenges Demand a New Way of Doing Business
As you know, Mr. Chairman, in January of this year the Authority
announced that costs on the first construction section in California's
Central Valley had risen. This means that the Central Valley segment
will cost $10.6 billion as opposed to the 2016 Business Plan estimate
of $7.8 billion. As described in the 2018 Business Plan, this cost
growth is attributable to risks that were identified in previous
business plans, but are now being quantified and included in our
estimates.
These risks were primarily generated from issuing construction
contracts early in a process that was focused on project development
and planning. There were many unknowns remaining, and setting fast-
track schedules to meet the ARRA spending deadline increased risk by
requiring multiple concurrent activities.
As described in Chapter 4 of the 2018 Business Plan titled Lessons
Learned and Managing Risks, the Authority has made a number
organizational changes and applied new management principles to ensure
that these types of issues do not affect future construction segments.
For example, the Authority will no longer move into construction
without having acquired right-of-way and secured necessary third party
agreements, thus reducing the risk of cost and schedule growth.
By applying these lessons learned, the Authority also has new cost
estimates for the Valley to Valley Line (San Francisco to Bakersfield)
and the Phase I system (San Francisco to Los Angeles). As you can see
from the graphic I have provided, the major drivers of new costs on
Valley to Valley and Phase I are inflationary growth due to extended
schedules, the increase of contingency levels based on our experience
to date, and previously identified costs tied to construction delays in
the Central Valley.
Included in these updated capital costs is the introduction of cost
ranges to the Authority's estimates. Delivering the high-speed rail
program involves the implementation of a series of highly complex,
integrated megaprojects. As we move the program forward there are, and
will continue to be, uncertainties around cost, funding and timing.
Apart from the 119-mile Central Valley Segment, which is under
construction, most of our current cost estimates are based on
preliminary environmental reviews, design and alignment assumptions
that are still early in the project lifecycle process. Our past
practice has been to provide point estimates too early in the process.
In the 2018 Business Plan, we present cost ranges to more accurately
reflect where we are in the project development process. I have a
provided an additional graphic to summarize these ranges.

--------------------------------------------------------------------------------------------------------------------------------------------------------
2016 Net Design/ Central Extension to
Capital Carryover Escalation Contingency Scope Valley Total Increase SF, New Total
Cost Increase Impact Increase Increase Increase Since 2016 Bakersfield \\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CV $7.8B $2.8B $10.6B \\ Updated Central Valley estimate-at-complete.
\\ Represents minimal capital investment to extend Silicon Valley to Central Valley to San Francisco and Bakersfield; full build-out of these sections
are captured in PH1 crosswalk numbers.
\\ Notes: Totals may not sum due to rounding.

----------------------------------------------------------------------------------------------------------------
LOW (YOE $ BILLIONS) BASE (YOE $ BILLIONS) HIGH (YOE $ BILLIONS)
----------------------------------------------------------------------------------------------------------------
Central Valley Segment $10.1 $10.6 $12.2
Silicon Valley to Central Valley Line $25.1 $29.5 $36.8
\\
Phase 1 System \\ $63.2 $77.3 $98.1
----------------------------------------------------------------------------------------------------------------
\\ Sillicon Valley to Central Valley--YOE$ based on completion date of 2029.
\\ Phase 1 YOE$--2033 was used as basis for projecting YOE$.

Clearly, the risk and complexity associated with delivering this
program of megaprojects requires the Authority to change the way it
manages, makes project-level decisions and plans for future
construction. We have taken many positive steps over the last year on
this front, including bringing in new executive leadership and
implementing strengthened programmatic decisionmaking processes--this
includes the development of a Program Baseline that I will summarize in
further detail later in my testimony.
Finally, our Board's Finance and Audit Committee continues to hold
monthly meetings where the project's status, including budgets and
schedules, are transparently disclosed to the public. Through these
measures, our intent is to develop a track record of improved
performance.
New Implementation and Delivery Strategy
Mr. Chairman and Acting Ranking Member, as I described earlier, our
key objectives remain the same. However, the changed circumstances I
have also laid out have led us to a new implementation and delivery
strategy. In the 2018 Business Plan, we now define the Silicon Valley
to Central Valley Line as service between San Francisco and
Bakersfield. This line has stronger ridership potential and higher
commercial value than the shorter line between San Jose and Poplar
Avenue (north of Bakersfield) laid out in the 2016 Business Plan. This
is a strategic enhancement that will generate higher revenue which can
then be used to help fund expanding the system in Southern California.
Connecting Merced as part of this initial line remains a high priority,
but, as in 2016, funding for this connection still must be identified.
Due to the increased project scope and the cost challenges I have
described, the Silicon Valley to Central Valley line is facing an
estimated funding shortfall that is approximately equivalent to the
cost to construct the tunnels through the Pacheco Pass--the critical
link between the Silicon Valley and the Central Valley. In more
detailed terms, our current projections of total Silicon Valley to
Central Valley funding available is $19 billion to $26.8 billion from
Federal and State resources. Our estimate of the cost to build the
Silicon Valley to Central Valley Line is $29.5 billion.
Mr. Chairman, I want to clarify why our estimated available funding
is presented in what may seem as a broad range. As you know, a
significant amount of State funding dedicated to the project comes from
California's Cap and Trade program. While the project is guaranteed 25
percent of those revenues, the total amount of revenue generated by the
program on a quarterly basis is variable. While those revenues have
stabilized thanks to the passage of AB 398, they remain subject to
projection and estimates.
For the purposes of the 2018 Business Plan we assume that $750
million in annual Cap and Trade proceeds will be dedicated to the high-
speed rail project. We believe this is a reasonable estimate based on
the California Legislative Analyst's Office projections contained in
their December 2017 report ``Cap-and-Trade Extension: Issues for
Legislative Oversight''.\3\
---------------------------------------------------------------------------
\3\ ``Cap-and-Trade Extension: Issues for Legislative Oversight''.
---------------------------------------------------------------------------
Our phasing approach focuses on completing the Central Valley and
the San Francisco to Gilroy segments first, working toward beginning
interim operations. As I will describe in more detail, over the coming
year we will be working with our Early Train Operator as well as other
experts to analyze opportunities to begin early service on the Central
Valley and Peninsula segments while also seeking input on creative
funding and delivery strategies to connect those two lines as quickly
as possible.
High-Speed Rail Remains Necessary to California's Transportation Future
A final aspect of the 2018 Business Plan that is important to note
is its enumeration of the reasons why high-speed rail is still the
right choice for California's transportation future. Californians voted
for high-speed rail because they recognized its unique ability to
transform the State for generations to come.
Mr. Chairman and Acting Ranking Member, I have spent 25 years
working in the field of transportation policy, and I have never seen a
project that matches high-speed rail's ability to positively impact
this State. The fact of the matter is California's transportation
system, once the envy of the world and a key driver of economic
prosperity, is becoming increasingly gridlocked, and it's a problem
that will only worsen. While the State has committed significant
resources to improving its roads, highways and bridges, simply building
more freeway lanes and airport runways is not a practical response to
our rapidly growing population.
A new approach is needed, and high-speed rail remains the best
option for dealing with the pressures of a growing populace. It is a
proven approach that has been successful abroad. For instance, when
high-speed rail service was introduced between Madrid and Seville,
Spain, the share of trips taken by plane was reduced from 40 percent to
13 percent, and rail trips grew from 16 percent to 51 percent.
Additionally, in France, travel habits changed after high-speed rail
became an option for travelers between Paris and Lyon, with the share
of rail trips growing from 40 percent to 70 percent. Simply put, this
type of mode shift will decrease congestion on our roads and airport
runways while saving Californians time and money.
Moreover, connecting our megaregions with a fast, efficient
transportation system will provide for sustained economic growth by
creating a better jobs-housing balance throughout the State, providing
access to new job opportunities, and generating new workforce
development possibilities.
In addition to these macroeconomic impacts, the project is and will
continue to have extraordinary direct economic benefits. Indeed, a
forward-looking analysis shows that a completed Silicon Valley to
Central Valley Line will support nearly 240,000 job years of employment
and nearly $50 billion in economic activity over the lifetime of the
line's construction.
Of equal importance are the immense environmental benefits that
will be produced by the operation high-speed rail in California. The
average annual greenhouse gas emissions savings of the system, 1.5
million metric tons of carbon dioxide equivalent, is projected to be
the equivalent of taking 322,000 passenger vehicles off the road, and
169 million gallons of gasoline avoided, every year.
Mr. Chairman and Acting Ranking member, I believe that for these
reasons it is clear that California high-speed rail is a critically
important infrastructure investment for both the State and nation's
future. In fact, the need for this program is greater now than when the
project was approved by Californians in 2008. The question is no longer
``can we afford to build this project?'' but, ``can we afford not to
build this project?''
Looking Ahead
Utilizing the Program Baseline and Management Plan to Advance
Construction
Mr. Chairman and Ranking Member, I have made reference throughout
this testimony to the need to change the way the Authority conducts its
business. In June of this year, we took an important step toward this
goal with the implementation of a Program Baseline.
The baseline outlines the ``what'' and ``when'' for the high-speed
rail program. It includes the scope, schedule, costs and budget to
deliver the priorities set in the 2018 Business Plan. It is driven by
expected environmental Record of Decision dates and identifies key
milestones for future procurements leading to operations. In addition,
it contains an initial risk assessment which will require further
refinement during baseline updates and establishment of a structured
risk mitigation management process.
This baseline includes costs associated with the construction of
the Silicon Valley to Central Valley Line and all Phase 1 planning and
environmental documentation costs required by the grants awarded to the
Authority by the FRA. The Authority's revised schedule estimates for
achieving environmental clearance, or Records of Decision (RODs), are
described in the graphic I have provided.

------------------------------------------------------------------------
Preferred
Alternative Circulation of Assumed Baseline
Project Section Selection Draft EIR/EIS ROD Dates
(Baseline) (Baseline)
------------------------------------------------------------------------
San Francisco-- Dec-19 Mar-20 Mar-21
San Jose
San Jose--Merced Sep-19 Dec-19 Nov-20
Central Valley Complete Sep-18 Jul-19
Wye
Fresno--Bakersfie Complete Complete Oct-18
ld LGA
Bakersfield--Palm Oct-18 Jul-19 Jun-20
dale
Palmdale--Burbank Nov-18 Dec-19 Jan-21
Burbank--Los Nov-18 Sep-19 Jul-20
Angeles
Los Angeles-- Nov-18 Nov-18 Oct-19
Anaheim
------------------------------------------------------------------------

Implementation of the baseline is an important step to improve
program delivery management and enable greater visibility on how future
decisions may impact program costs and schedule. Development of the
baseline involved the creation of a centralized data base that captures
all spending to date, as well as schedules and project budgets. From
this, the Authority will develop refined reporting that will provide
trends related to actual expenditure versus plan and future forecast;
schedule critical path elements; and risk/contingency management
efforts.
Our management team understands this challenge and has reviewed the
organization's structure, strengthened oversight functions and
initiated new business processes to support improved decisionmaking and
risk management, as outlined in our recently completed Program
Management Plan.
Developing Innovative Approaches to Commence Revenue Service and
Construct Pacheco Pass Tunnels
Mr. Chairman, as I have stated previously our No. 1 priority is to
initiate high-speed rail service as soon as possible. Over the coming
months and years we will be looking to expertise from around the world
for innovative approaches to beginning America's first true high-speed
rail operations.
As described in the 2018 Business Plan, we see two fundamental
paths toward commencing high-speed rail service: 1. Potential early
service on the San Francisco to Gilroy and Madera/Merced to Bakersfield
lines; and, 2. Developing innovative approaches to delivering the
Pacheco Pass tunnels to commence service on the fully Silicon Valley to
Central Valley Line.
Analyzing Options for Early High-Speed Rail Service
The strategy outlined in the 2018 Business Plan to incrementally
deliver the Silicon Valley to Central Valley Line would create
approximately 224 miles of high-speed-rail-ready infrastructure on two
different lines, one in the Central Valley and one connecting San
Francisco to Gilroy. Both lines could be ready for service as early as
2027--and delivering early benefits on the way to completing the full
Silicon Valley to Central Valley Line.
To that end, we will work to identify how to put each segment of
the system into service once completed. The Authority, working with our
Early Train Operator (ETO), will explore options for how best to put
infrastructure into service. Early train service decisions will include
the type of service and the operator of those services that will ensure
full compliance with our Proposition 1A requirements. We have begun
this analysis and our intent is to include the results in the Project
Update Report to the California Legislature in March 2019.
Capturing International Expertise for Innovative Delivery
of Pacheco Tunnels
Mr. Chairman, as you know our 2018 Business Plan is very clear that
the Pacheco Pass tunnels that will connect the San Francisco--Gilroy
and Merced/Madera--Bakersfield sections of the Valley to Valley line
are unfunded, and that the closing of that gap will be among the
highest priorities for the Authority over the coming years. Our first
step in delivering the tunnels will be to ``de-risk'' construction by
completing project development and other early works--geotechnical
analysis, environmental review, design, right-of-way acquisition--
first.
Additionally, we will engage the Federal Government and public and
private sector experts to examine tunnel design options that maximize
operational efficiency, safety, environmental stewardship and cost
containment.
Tunnels of this magnitude and complexity have been constructed
internationally. Five high-speed rail tunnels of the same length and
longer have been successfully completed worldwide, and another six are
currently in planning and under construction. Our tunnel design and
construction approach involves taking advantage of international
expertise and lessons learned on other high-speed rail programs
worldwide.
By year's end, we will convene a blue-ribbon panel of
internationally recognized experts in various tunnel disciplines. This
panel will advise us on a range of issues and questions, with specific
early focus on the Pacheco Pass tunnels. In seeking this feedback, the
Authority will focus on three primary areas: 1. technical
specifications and cost; 2. delivery models, contract packaging and
risk transfer; and, 3. procurement and funding strategies.
We believe this is a prudent approach in the face of funding
uncertainty and look forward to working with the Committee, the
Administration, and the private sector to make this vital connection a
reality.
Future Funding
Mr. Chairman and Acting Ranking Member, in closing I would like to
briefly discuss future funding for the California high-speed rail
program. We are very clear in our 2018 Business Plan that aspects of
the project remain unfunded. That is why we have devised the
incremental delivery approach to build segments with independent
utility.
While we understand the budget realities facing the Congress and
recognize that the way transportation projects are funded must and has
changed, it is also our strong belief that this project is of national
significance and is deserving of additional partnership with the
Federal Government.
The State of California is stepping up to the plate to fund this
critical investment--over 86 percent of the funding committed to this
program to date has come from the State-level. Given this
disproportionality, we believe there should be innovative partnering
opportunities between the State and Federal Government to move this
project forward.
Specifically, we believe that over the course of the development of
the program, there will be opportunities for significant additional
Federal involvement in the form of infrastructure financing. One
expression of support for ongoing major transportation infrastructure
projects is the infrastructure plan proposed by the current
administration. Now under consideration in Congress, the plan includes
several elements that would make a variety of financing tools for high-
speed rail available. This includes infrastructure investment
incentives and expanded Federal credit programs, such as Railroad
Rehabilitation and Improvement Financing (RRIF) and Transportation
Infrastructure Finance and Innovation Act (TIFIA) loans.
These programs could provide the high-speed rail project with a low
cost of debt and more flexible repayment terms. Should an
infrastructure program that includes these and other potentially
favorable financing tools be passed into law, it would provide an
opportunity to seek and secure additional Federal financial support
that could coincide with the Silicon Valley to Central Valley Line and/
or extensions to complete the Phase 1 System. We believe that the
program, using a mix of matching funds from State sources, could
deliver the benefits and funding leverage that the Federal Government
is seeking to achieve.
Conclusion
In closing, I would like to thank you again for allowing me to
provide you with an update on the exciting progress the Authority has
made toward implementing the nation's first high-speed rail system. I
look forward to continuing to work with the Subcommittee to ensure that
California's high-speed rail system is built correctly, cost-
effectively, and in the best interest of the nation's and California's
taxpayers.

Mr. Denham. Thank you, Mr. Kelly. Mr. Thompson, you may
proceed.
Mr. Thompson. Thank you, Chairman Denham and Ranking Member
Garamendi, members of the subcommittee. I appreciate the
opportunity to appear before you today.
As you know, I am the chairman of the Peer Review Group.
This was a group created by the legislation, Proposition 1A, to
report to the legislature on issues on business plans or
anything else that we see in the project that we believe the
legislature will find interesting.
We have written a number of letters to the legislature, and
I have testified a number of times before the legislature on
various issues on this project. I can summarize my testimony
here today by saying that it is surprisingly similar to what I
said in 2013 before this subcommittee in Madera. We think that
the bottom line on this project now consists of a number of
points. One is that building and operating high-speed rail in
California is typical of a megaproject, and indeed, Mr.
DeSaulnier held hearings on megaprojects and why they are so
hard, and we had a long colloquy about that issue.
We believe that the authority has made real progress in
establishing a capable and experienced management team, but
that team has a golden bear by the tail. There is nothing in
the experience to date that is atypical of a project of this
size. Certainly when grand visions meet reality, all kinds of
things happen and costs are usually higher than we expected,
things take longer, and problems that we never thought about
emerge, and this is exactly what you would expect on this kind
of project.
The experience to date has been with the typical kind of
civil construction, which is almost a highway project thus far.
And so what we are learning to date about that, we will be able
to apply to this kind of construction in the future when those
lessons are beginning to be applied.
Many aspects of the project--especially track construction,
electrification, signaling, and especially tunneling--haven't
been encountered yet, so the cost estimates for that have to be
viewed as having a pretty wide range of outcomes, not
necessarily bad, not necessarily good, but a wide range that we
are going to have to deal with for the time being.
The demand forecasts, although they have been done by
professional demand forecasters, are not related to an existing
ridership base. They are based on economic modeling. Greenfield
models where service is brandnew like these are inherently
subject to a wider range of uncertainty than brownfield models
where we already have service and the question is how much will
the demand increase if we improve the service, very different.
All of the other high-speed rail projects have been constructed
with existing service to go from. As a result, the forecast of
revenues and the costs are also, as of now, subject to pretty
wide ranges of outcomes.
Having acknowledged all of this, the key problem for the
authority and the project is having a stable and reliable
policy and financing framework, and they don't have that now.
It will not be possible to manage this project in the future
properly without having that stable funding, adequate funding,
and policy framework.
They are now encountering the kind of commitments that they
need to make and the kind of decisions that need to be made
that can only be made when there is certainty to work with. It
just isn't fair to ask the project to be managed without that
framework. Now, this is an issue that came up in 2013, and I
think Mr. Costa at that time was not happy with my answer,
which was you have got to have a better financing framework
than you have now.
Having said all of this, this concludes what I want to say
today, and I will be happy to answer any questions that you
have. Thank you.
[Mr. Thompson's prepared statement follows:]

Prepared Statement of Louis S. Thompson, Chairman, California High-
Speed Rail Peer Review Group
Mr. Chairman and Members of the Subcommittee, my name is Louis S.
(Lou) Thompson, Chairman of the California High-Speed Rail Peer Review
Group. I am happy to appear at your invitation and hope that the
experience and work of the Peer Review Group (the Group) will be useful
to you in your deliberations on this important topic.
The role of the Group is established in State law. When the voters
approved the Proposition 1A bond measure in 2006, the State Legislature
passed AB3034 that mandated that ``the Authority shall establish an
independent peer review group for the purpose of reviewing the
planning, engineering, financing, and other elements of the authority's
plans and issuing an analysis of the appropriateness and the accuracy
of the authority's assumptions and an analysis of the viability of the
authority's financing plan, including the funding plan for each
corridor required pursuant to subdivision (b) of Section 2704.08 of the
Streets and Highways Code.'' The law provides for eight members, of
which there are five currently serving. The members are appointed by
various State authorities including the Secretary of the California
Department of Transportation, the Director of Finance, the State
Treasurer and the State Controller. The law requires that the Group
members possess various types of experience including finance, planning
and construction of high-speed rail, environmental issues and operation
of intercity or commuter passenger train service. The Group began its
work in 2009.
The members of the group have very wide experience in
transportation planning, project planning and management, and operation
of rail passenger services at various levels, including high-speed
rail. The Group's members have not attempted to analyze all the details
of the Authority's designs or plans. Instead, we have focused on
broader policy, financial and economic issues where our expertise may
have most value.
The Group reports directly to the Legislature. Members of the Group
are not employees of the State of California. The Group has no staff or
budget and members receive no compensation other than expenses for
travel, food and lodging. We conduct our discussion by email, phone and
in person as needed and we have met from time to time with members of
the Legislature, legislative staff, the Legislative Analyst's (LAO)
staff and the GAO and we have testified at a number of legislative
hearings. We have also held a number of meetings with the Authority and
with Authority staff and believe we have developed an effective working
relationship. The Group has issued a number of reports or letters, all
of which have been posted to the Group's website at www.cahsrprg.com.
The website also includes all responses to questions we have posed to
the Authority.
The Group has consistently maintained that we support an
appropriate role for high-speed rail in California as a part of the
State's overall transportation system. With this said, we have had, and
continue to have, a number of concerns about the project. Our objective
in expressing these concerns, which we believe is in accord with the
purposes of the Act, has been first to strengthen the project and
second to ensure that the Legislature and the public fully understand
and accept the risks as well as the benefits of the project. Our
experience has been that the better a project is understood at the
beginning, the better it will be able to weather the inevitable
problems that occur along the course of planning, construction and
operation.
As you may know, I testified before this subcommittee on May 28,
2013, in Madera in its first field oversight hearing of the Project.
What I have to say today is fully consistent with that testimony and
with my recent testimony before the California Assembly and Senate
Transportation and Budget Committees on April 2, and April 3, 2018, in
the Legislature's hearings on the Authority's 2018 Draft Business Plan.
An excerpt from that testimony is below:

The Group believes that the high-speed rail project has now
reached a point where difficult decisions need to be made about
the project's future scope and funding. Quite simply, as a
result of cost increases and changes in funding sources, the
Authority can no longer complete a link from the Central Valley
either to the LA Basin or to San Jose and the Peninsula. Thus,
as it stands today, there is little prospect for a system that
would generate enough cash-flow to contribute to future
investment.

This dilemma does not come as a surprise--it happens nearly
every time when we try to translate a megaproject from a grand
vision into a working system and it is not necessarily a
reflection on the competence or honesty of the people of the
Authority who have been trying to build the system.

The critical question is ``where to from here?'' The draft Plan
doesn't really discuss choices in addressing this question. The
Group laid out four very general options in our letter, though
we don't pretend that there might not be other or better
options others could suggest. First option: we could stop here
and go home. Second, we could complete the work in the Central
Valley along with the committed improvements on the bookends.
Third, we could adopt what is in effect the proposal in the
draft Plan and add a connection to Gilroy and Bakersfield and
improve LA Union Station while awaiting better command over the
design and cost of the Pacheco Pass tunnels and developments
that might reveal new possibilities for funding partners. Or,
fourth, we could recommit to the full Phase I with the
understanding that such a decision would have to be based on
adoption of a credible long term plan to finance the system
including the possibility that system costs might well come in
at the high end of the range.

We do not view the first option--simply stopping--as credible.
It would leave California with nothing useful and the State
might have to pay back the Federal ``American Recovery and
Reinvestment Act'' (ARRA) money. The second option--stopping
with the Central Valley plus the existing bookend improvements
would work, but would limit the value of the result. The third
option--as in the draft Plan--probably makes the best of the
situation, especially in bringing near-term benefits to the
millions of current passengers on the bookends, but it leaves
the State short of a system that would be able to contribute to
financing of the remainder of the system. The fourth option,
completing Phase I as originally planned, meets the
requirements of Proposition 1A, but cannot be done with current
funding provisions or sources.

Simply put, we do not believe that it is fair or credible to
ask management to deliver a long-term project of this size and
complexity with sources of funding that are inadequate in total
and unreliable in any given year. If the project is to go ahead
beyond essentially the second option, the State will need to
develop a source of funding that is up to the task. This is not
a new issue: it was clear in the 2016 Business Plan that there
was a remaining gap that would have to be funded in order to
build the system to the point where it could begin to generate
potential investment from the private sector. What is new is
the increasing size of the gap along with a clearer
understanding of the need to make HSRA's funding stable and
predictable.

There are obvious ways to fill the gap: increase the share of
Cap and Trade receipts going to the project and guarantee the
Authority's income or permit the Authority to issue bonds to
the State against predicted revenues; a tax on fuels; or a
sales tax as was proposed in the 2000 Business Plan. There are
other sources that might emerge like future Federal grant
programs, Federal loans, etc., but then again, they might not.
The problem will need to be addressed in one way or another if
even the third option is to be completed.

In parallel with dealing with the need for an improved approach
to funding, especially because the State's role is likely to
grow, we recommend that the Legislature revalidate the priority
of the high-speed rail in the light of the competing needs
elsewhere in transportation and elsewhere in the overall
budget. This is a task that the Governor's Office and the
Department of Transportation, along with the communities
affected would be well suited to carry out for the Legislature.

We do have some recommendations for specific changes in the
final Plan:

Include inputs from the early operator as soon as
possible
Provide a better explanation of the Business Model
Put more emphasis on developing detailed agreements
with the bookend operators and the freight railroads
Develop a long-range program for addressing grade
crossings
Clarify the performance of the system in its trip
time calculations and schedules
Continue to show show projections as ranges rather
than point estimates
Provide better back-up for claims for benefits to
urban and regional development.

While we hope these can be addressed in the final Plan, we
believe the Legislature's immediate focus should be on the
funding and policy issues.

In summary, I think the bottom line consists of a few points:

Building and operating high-speed rail in California is a
good example of a ``mega-project'' that is going to be an immense,
enormously complex undertaking. We believe that the Authority has made
real progress in establishing a capable and experienced management
team, but the team faces many challenges.
There is nothing in the experience to date that is
atypical of a project of this size. Certainly when projects begin to
encounter the real world, costs are usually higher than expected,
things take longer and unexpected problems emerge.
Experience to date has mostly been with the type of civil
construction for which a lot of expertise to date already exists in the
State. Future projections for this type of work will improve based on
this experience.
Many aspects of the project--track construction,
electrification, signaling, and especially tunneling, are still to
come, and projections for these elements are still subject to a wide
range of outcomes.
Demand forecasts, though professionally conducted, are
not related to an existing ridership base, but are instead based on
economic modeling. ``Greenfield'' models like these are inherently
subject to a wider range of uncertainty. As a result, forecasts of
revenues and operating costs are necessarily subject to the same ranges
of uncertainty.
Having acknowledged all of this, though, the key problem
for the Authority and the Project is having a stable and reliable
policy and financing framework within which to plan and manage.

The Peer Review Group has worked hard to assist the Legislature and
the Congress in understanding the project's risks and challenges as
well as its benefits. Our job is to assist in ensuring that the
information you use in making those policy decisions is as complete,
objective and unbiased as possible. We hope this is useful as the
California Legislature and the Congress work to make the decisions
regarding tradeoffs in benefits, costs and risks associated with the
California high-speed rail project, as well as other transportation
projects in the United States.
Thank you for your consideration. I will be happy to try to answer
any questions you may have.

Mr. Denham. Thank you, Mr. Thompson.
Mr. Hunter, welcome. You may proceed.
Mr. Hunter. Good morning, Chairman Denham, Ranking Member
Garamendi, and committee Members of Congress. You know, my name
is Robbie Hunter. I am the president of the State Building and
Construction Trades Council. I am an ironworker by trade, and I
have worked for almost 30 years in Los Angeles on bridges and
highways, so I am a tradesman. I represent workers that work in
construction.
This project, as of this time, we have over 2,000 workers
working for private contractors throughout the project. These
contractors are union and nonunion. We represent 400,000
workers; 48,000 of them are apprentices. We have taken in many
veterans, and Congressman Denham has been a large supporter in
ensuring that we live up to the obligation to put veterans to
work and put disadvantaged workers from the valley in these
projects, in the apprenticeship, and ensure that local workers
are on those job sites. We have worked diligently to do so.
The workers we represent do work for private contractors.
They contribute a portion of their wages for their medical
coverage and pension to assure in their older years that they
are not a burden to the Federal or State Government.
You know, we have built an infrastructure of California for
over 100 years. We have worked on the viaducts. We have worked
out of State to do the Hoover Dam and the Golden Gate Bridge,
and we are used to controversy on these projects. But we try to
put our heads down and deliver projects using the least amount
of people doing the least amount of time, do it once and do it
right, and that is our obligation. And we have fulfilled it on
this project and intend to do the same.
I have been all over the world looking at projects to see
how they are done from hydro dams to power plants. We have
looked at the use of high-speed rail in Spain and many other
countries, in Germany, and I have sat on high-speed rail
passing the Autobahn, trucks 130 miles an hour, and we pass
them like they are sitting still and there is a glass of water
on the table that barely moves. This is the infrastructure of
tomorrow for the growing population of 50 million.
It also economically we believe will open the valley, make
it--we are in danger of losing large industries like Microsoft
and others that are based--technology industries that are
drivers of our economy. If we cannot provide housing for the
workforce and access to get them to those jobs, we could lose
these industries, lose our economy. And we are the fifth-
largest economy in the world. This is a necessity for the
economic future of California.
I am open to answering any questions. I have submitted
testimony, which I am not going to read. I am going to take the
advice of the chair. But I would be glad to answer any
questions. And I wanted to thank everyone on this committee for
the support of workers no matter what party you come from
because you all have done that. Thank you.
[Mr. Hunter's prepared statement follows:]

Prepared Statement of Robbie Hunter, President, State Building and
Construction Trades Council of California
Good Morning.
My name is Robbie Hunter, and I am the President of the State
Building and Construction Trades Council of California. I am an iron
worker by trade, and spent 27 years working in the field building
skyscrapers and bridges throughout California. It is my pleasure to
appear before this Subcommittee again, and I thank you for the
opportunity to provide testimony today on California's visionary high-
speed rail program.
Our council represents in excess of 400,000 skilled and trained
California construction workers, including 48,000 apprentices that have
graduated or the equivalent from California high schools. These workers
are employed by private construction companies and are responsible for
delivering needed infrastructure, housing and commercial properties
throughout our State.
The work force that we represent keeps California's economy--the
world's fifth largest--moving. These are skilled, highly trained
workers that set aside a portion of their hourly wage for their pension
and medical benefits and even in retirement are not a burden on the
State or Federal taxpayers.
I am very proud to report that at this very moment, over two
thousand of these workers, who are residents of the Central Valley, are
on the job building the nation's first high-speed rail system.
As you know, Mr. Chairman, the Valley was hard hit by the Great
Recession and has always been an area of California that has had among
the highest unemployment and poverty rates in our State, but it is
currently experiencing a major economic recovery thanks in no small
part to the construction of high-speed rail. Indeed, the investment the
State of California has made in partnership with the Federal Government
has generated an estimated 11,300 job-years of employment and about $2
billion in total economic activity to date in the Central Valley.
This incredible economic stimulus will only grow as construction
expands and California turns its attention to connecting the Central
Valley construction with the San Francisco Peninsula.
The Central Valley to Silicon Valley line will generate close to
$50 billion in economic activity during construction and will provide
an estimated 240,000 job-years of work in a region that has been left
behind from the economy's recent recovery.
Of those, over 100,000 are direct job-years, meaning they are
direct beneficiaries of the high-speed rail investment--with nearly
85,000 of these direct job-years projected in the construction
industry.
Beyond these immediate benefits, the wider effect that high-speed
rail will have on California's economy is hard to overstate. The
Central Valley has been characterized as an ``island'' that is isolated
from the rest of the State by transportation, geographic and economic
barriers. High-speed rail will help break down those barriers.
Today, what should be a straightforward trip from Fresno to San
Jose, is either a long, frustrating drive, or, on existing passenger
rail can take from four to five hours and involve multiple transfers.
The same trip on high-speed rail will take about 1 hour--with no
transfers.
Connecting the Central Valley and the Bay Area--and their unique
economies--provides an opportunity to bring about a better jobs and
housing balance through effective land use and transit oriented
development. These new connections will help support economic
revitalization, affordable housing and workforce development goals.
When the system is ultimately built out to connect the downtowns of
San Francisco and Los Angeles, with many cities in between, we will
have an unprecedented connection between the centers of our economy--
our corporate headquarters, global finance and business services, high
tech companies, media and cultural centers, agricultural businesses and
our scientific and technical research universities.
But the economic benefits are not reason alone to support the high-
speed rail project. Chief among the many reasons that high-speed rail
is essential to California's future is the mobility benefits it will
bring. California needs a third mode of mass transportation. One that
is efficient, clean, and sustainable.
The rest of the world has recognized what high-speed rail can
offer, and I believe Californians will look back with gratitude at the
vision of this generation's leaders, whose foresight resulted in less
congestion at roads and airports and a healthier environment.
The question is no longer whether we can afford to build high-speed
rail, but whether we can afford not to.
The fact is that our transportation system is already overburdened
and our State's population will pass 50 million by mid-century.
Clearly, doing nothing is not an option and building evermore roads
and airport runways to meet California's travel demands is unrealistic,
unstainable, and less affordable than high-speed rail.
We have learned from places like Spain, France, China, Japan and
many other countries that high-speed rail is the most efficient and
preferred mode of transportation between population centers 100 to 500
miles apart.
That is precisely the corridor California's high-speed rail will
serve. In sum, high-speed rail will:
Reduce traffic congestion on the State's highways and at
the State's airports.
Reduce California's dependence on foreign oil.
Reduce air pollution and global warming greenhouse gases.
Provide fast, time-saving connections between
California's major population hubs while bringing economic development
along its route.
And, bring all those thousands of good jobs to working
families across the State, and in particular, to families in the
Central Valley.
California has always been at the cutting edge, and our can-do
spirit toward solving the most pressing problems of the day is what has
attracted so many millions of people to the Golden State. Our
predecessors made the big investments and took on bold endeavors that
naysayers proclaimed impossible. I believe it is our responsibility to
do the same and to pass on a better State to the next generation.
I look forward to answering any questions you may have about this
much needed project and look forward to working with you to make sure
this project receives the funding it richly deserves so that we can
finish the work we've started.

Mr. Denham. Thank you. Thank you, Mr. Hunter. And I do
agree. You guys have done what you said you were going to do
and hired veterans and hire locally. That is an important part
of what we are discussing today.
Let me start questions here. I want to drill down on this
before we get into the audit itself and talk a little bit about
the project because I agree with Mr. Kelly that high-speed
rail, when done right, is transformative. It is transformative
to a State, to a country. It is a great people mover, but it
also frees up capacity on our roads, as well as for our freight
rail.
But as a leader in this community, it is my obligation to
make sure that this is done right, especially since I was--I
make no secret about it. I was the deciding vote in the State
senate back before this went before the voters. But it was a
$33 billion project that was supposed to be done 2 years from
now, so it is obviously drastically changed. And the question
is where do we go from here? What will this audit show? Where
will the financing come from? With a battle on the ballot this
year with the current gas tax, would we take the peer review
recommendation to do another gas tax in the future for this as
well?
And so there are a lot of questions here not only on the
funding that has been allocated through the stimulus funds or
the appropriations bill in 2010 but also on the $9.95 billion
that has been expended so far and the path forward.
So let me start, Mr. Kelly. When the voters approved Prop.
1A when the project was going to be completed in 2020, that was
a full high-speed rail service from San Francisco to L.A.,
correct? It was originally supposed to be 2020?
Mr. Kelly. Yes, I don't recall the date, but I will say
that, yes, phase 1 is San Francisco to Los Angeles.
Mr. Denham. And now the plan has projections of phase 1 to
be completed by 2033?
Mr. Kelly. That is correct.
Mr. Denham. But not to include this area of Sacramento or
San Diego, as originally proposed in Prop. 1A?
Mr. Kelly. Just to be clear, Mr. Chairman, the San Diego
extension and the Sacramento extension were always phase 2. The
bond bill itself lays out the phases under which we have to
deliver the program, and phase 1 has always just been the San
Francisco to Los Angeles stretch. Phase 2 includes extension
through the Inland Empire from L.A. to San Diego and an
extension up the valley to Sacramento as part of the phase 2
program.
Mr. Denham. I have not seen in the current plan any cost
projections or timelines on phase 2. Do you have those
projections?
Mr. Kelly. No, because we are first focused, as we are
required to under the bond bill, to deliver phase 1, and our
requirements under the law for the business plan is to lay out
how we are going to deliver the project under the bond bill,
and phase 1 is our emphasis now.
Mr. Denham. I understand the emphasis, but, as you can
understand, the voters in my district approved something that
they would like to see something in the--we are talking about a
generation away now of new voters, and so it is a relevant
question. Will it be high-speed from San Francisco to L.A.?
That is one of the things that continues to be debated.
Mr. Kelly. Yes, the system will provide huge mobility
benefits, especially when you consider versus conventional rail
or driving a vehicle. And you can only achieve that because of
the speeds that we attain through the system. Just like high-
speed rail systems in other parts of the world, where we are
going through urban areas we are on shared corridors. This is
the Silicon Valley area connecting Gilroy north to San
Francisco. And in Los Angeles for efficiency purposes to reduce
right-of-way procurement requirements, we are in a shared
corridor down there with Metrolink, LOSSAN, and the freights,
and in those sections we will operate at lower speeds, but in
between, we will be at speeds in excess of 200 miles per hour.
And we are on track to meet the schedules under the bond bill,
which is--I must say the requirements under the bond bill are
the guidelines that we use for our design and our choices to go
forward.
Mr. Denham. I am about out of time, but I do want to get
one additional question in in this first round. What is the
reason for the current delays in completion, and where do you
plan to come up with the additional funding under the 2018
plan?
Mr. Kelly. Well, the reasons of delay we have laid out in
our business plan. I would commend folks to take a look at
chapter 4. We have some--we spent a little bit--a lot of time
on some lessons learned, and I would say----
Mr. Denham. Real quickly, is it labor? Has labor been a
holdup?
Mr. Kelly. No.
Mr. Denham. No? How about CEQA [California Environmental
Quality Act]? Has CEQA been a holdup or environmental review?
Are we done with the environmental review yet?
Mr. Kelly. We are not done with environmental review yet,
and we have--particularly since I have come here with my new
team, we are proposing some things with our Federal partners to
expedite that process, so we are hoping to achieve that.
I would just say that, Mr. Chairman, I think one of the
things that we pointed out in the business plan that led to
some of the delays now are we had some requirements to quickly
spend the Federal dollars that were appropriated for the
project. We got into construction before we had all of the
right-of-way and third-party agreements done and in hand, and
that process--that is not something we will repeat, and I say
that----
Mr. Denham. I understand, but this is part of the thing
that I am taking back to Washington, DC, to explain to not only
our other members on the Transportation and Infrastructure
Committee but Congress as a whole. The question the other 49
States ask us when we are talking about funding and whether or
not we have more Federal funding is what are you doing
yourselves?
Mr. Kelly. Yes.
Mr. Denham. And if this State and this Governor continues
to waive CEQA for a new football stadium in L.A. or the
previous one that was proposed or AT&T Park, and yet we have
still not--it has been a decade now and we are still not
through the environmental process of this first one. I am not
saying CEQA needs to be waived, but there is certainly some
streamlining that could be done if this was a real priority. So
as we are looking at saving dollars and we are looking at
timelines, the rest of the country is asking what are you doing
yourselves.
Mr. Kelly. Well----
Mr. Denham. And I am out of time, but I would love to get
back to you on that.
I now recognize Mr. Garamendi for 5 minutes.
Mr. Garamendi. The chairman just asked a question. I think
you should answer it.
Mr. Kelly. OK. A couple of things. On the CEQA issue, this
is one area where we seem to have some concurrence with the
current administration at the Federal level. We have been
working for the last 8 months to get an agreement where we can
assign the NEPA [National Environmental Policy Act]
responsibilities to the State of California for moving forward
on the environmental process. That has been done only on the
highway side in this country. It started in California and has
now been done in five or six other States, and they have saved
months and millions of dollars in the process of environmental.
So we would be setting a precedent here in California by
applying that to the railroad side. That is a request that we
have before the administration now, and we are just waiting for
the approval of that. We think that will also save months and
time and money on this project. So that is one thing we are
doing.
The second thing I would just say we are doing in terms of
self-help for this project, this project is about 86 percent
being funded by State funds right now, so we are fully invested
in moving forward on this project from the State of
California's perspective between our bond dollars and our cap-
and-trade funds.
Mr. Garamendi. I thank you. I have a lot of questions. I am
going to take the rest of my time at the end of the questions
by my colleagues, all of whom were involved in this project in
the California Legislature and have a long history, and so I
would like to turn the remaining--if it is OK with the chair,
just hold my remaining 3 minutes to the end and move to Mr.
Lowenthal, who was on the committee and has dealt with this
issue----
Mr. Denham. Yes.
Mr. Garamendi [continuing]. In the past.
Mr. Denham. Thank you.
Dr. Lowenthal. Thank you, Mr. Chair, for holding this
hearing.
Mr. Denham. Are you yielding your time to Mr. Lowenthal, or
are we----
Dr. Lowenthal. I am going to start and he is going to be at
the end. The first shall be last. The last shall be first.
Mr. Denham. All good friends here, just a technical time
management.
Dr. Lowenthal. I am just following, trying to figure out
how I fit in. You know, I am really pleased to be here. I
served as the chair of the Senate Transportation Committee in
the California State Legislature, and I served 14 years in the
legislature. From the end of 2005 through 2010 I served. I was
the chair when, as Mr. Denham pointed out, we put it out of the
committee. The bond issue came before the voters in 2008, and
following that, Mr. Bauer, Art Bauer, who was on the staff of
the Senate Transportation Committee--we held multiple hearings
on the bill.
So the questions I have--and I have all along as a
supporter of the project helped to get the project out--is the
financing. Let me just be clear, as I understand now, when I
left in 2012, the State was putting up $9.95 billion. That was
in the State bond of the approximately $9 billion for the high-
speed rail. Then there was some money for the bookends and the
others out of that. The Federal Government was putting up a
little over $3 billion. I heard today $3.875 billion, so the
State, as Mr. Kelly has pointed out, really was putting up the
vast majority.
Now, I know of no high-speed rail project in the world that
the Federal Government in that country was not a major
proponent of it, but right now, we only have a small
percentage. And as I understood at that point when we passed
it, that it was the idea that the Federal Government would put
up a little bit maybe around one-third, the State would put up
around one-third, and the private sector. So my questions are
where are we in all of that moving forward?
Cap and trade, the only new money coming in is the cap and
trade. Could you tell us, Mr. Kelly, how much money is actually
coming in from cap and trade? How much do we anticipate to come
in from cap and trade? I would like to know where is the
private sector in doing this? We had hoped by this time when we
had done it that we would see more of an investment from the
private sector. I am not hearing any money coming in from the
private sector. And what do you anticipate you need from the
Federal Government really in terms of real money? It just seems
to me a $3.875 billion investment on a $77 billion project is
not going to make it, and so I would like to know really--
because to me it is all about following the money where we are.
I think you have done a great job, as was pointed out. You
know, you can't be held--you know, you are working on that, but
there is no money. Tell me where we are going with the money.
Mr. Kelly. Thank you, Congressman. A couple of points I
would make. First, you are hitting on something that has been
the single most important challenge of this project from day
one. When the voters of California passed the bond bill, they
provided $9 billion for what in that ballot analysis described
as a $45 billion project----
Dr. Lowenthal. Right.
Mr. Kelly [continuing]. Which means they provided one-fifth
of the funding for the project from day one. That has been the
challenge ever since. We had in 2008 $9 billion, in 2010 we
were up to about $12 billion. Today, with cap and trade we are
at about $21 or $22 billion. The issue with cap and trade, as
you well know, is that it is not a firm--it is an auction-based
revenue source, so it comes in highs and lows. With the passage
of legislation last year to lock that program down for 10
years, we have seen stabilized cap-and-trade revenue.
Dr. Lowenthal. So when you----
Mr. Kelly. We are estimating about $750 million a year
coming in----
Dr. Lowenthal. OK.
Mr. Kelly [continuing]. From cap and trade for this
project----
Dr. Lowenthal. OK.
Mr. Kelly [continuing]. That puts us at about $22 billion,
$21 to $22 billion for the project.
Dr. Lowenthal. In 10 years?
Mr. Kelly. Yes, over the course of the cap-and-trade
dollars just from what we have in the law today available for
this project, and what we are doing is because we are in that
constrained funding environment, our business plan lays out
building exactly what was approved in Proposition 1A but doing
it in a building-block way. I don't have all the money right
now to do everything, so I have to do it in parts.
We are under construction in a 119-mile segment in the
Central Valley. Our highest priority is to complete that, get
our environmental work done statewide on all the segments. And
it is worth noting for the panel that we have 10 segments, and
8 of them are still in environmental. And so we have to
complete the environmental process. We need the help of getting
the NEPA assignment so we can move that more quickly.
And so that is where we are. We are estimating a funding
gap to complete all of valley-to-valley of about $7 $10 billion
or, as the chairman stated earlier, roughly the cost of the
tunneling through the Pacheco Pass. Our plan is to build on
both sides of the tunnel, get the Central Valley piece in
place, extend the San Jose to San Francisco electrified project
all the way to Gilroy, and see if we can't start services there
while we focus on the unfunded tunnel part. We are bringing in
international expertise on that. These kind of tunnels are
built all over the world but not a lot here for high-speed
rail. We are bringing in international expertise on that and
private-sector partners to sort of figure out can we do any
private-sector or procurement opportunities with that tunneling
exercise there? So that is our process going forward.
On the private-sector money, I would just say this. In any
transportation project, for the private sector to come in
generally, they want low-risk projects. Right now with a
constrained funding program, we are not low risk and we are
still in environmental. So we have to get these things done.
Our process all along has been get our operating segment going,
show that we can produce revenue, and then use as a concession
there that model so we can then bring in private money.
Dr. Lowenthal. If you could just let me know----
Mr. Kelly. Sure.
Dr. Lowenthal [continuing]. Just an overview then of the
little under $13 billion that was both Federal and State, how
much of that is left, and where are we--you are saying that
there is a little bit--$750 million, was that annually?
Mr. Kelly. That is our annual cap-and-trade estimate.
Dr. Lowenthal. So that is coming in.
Mr. Kelly. Yes.
Dr. Lowenthal. That is $750 million.
Mr. Kelly. Yes.
Dr. Lowenthal. How much money do we have left in the bank?
Mr. Kelly. Well, of the Federal and State money that we
have received, we have only spent to date approximately $4\1/2\
billion, on the order of $4.6 billion. That is what has been
spent to date. And that is not just in central; it is also for
environmental work and other things. We have spent just under
$4 billion in the Central Valley I believe to date where you
are seeing the most construction activity right now. So we have
that difference plus the cap-and-trade funding. As I said, if
we have spent about $4.6 billion, we have an estimate of about
$22 billion available, so there is $18 billion unspent. But
again, that is----
Dr. Lowenthal. That is anticipated money?
Mr. Kelly. It is an assumption of the cap-and-trade money--
--
Dr. Lowenthal. That is not----
Mr. Kelly [continuing]. Continuing.
Dr. Lowenthal. That is not----
Mr. Kelly. Right.
Dr. Lowenthal [continuing]. Cash you are anticipating?
Mr. Kelly. No, it is not. That is correct. And because that
is what we have. We have a multiyear commitment of cap-and-
trade funds, and that is what we have to assume for planning
purposes. We do think that the approval of AB 398 last year
that locked in cap and trade for 10 years has had a real
stabilizing effect on the cap-and-trade program, and we have
seen that in the auctions, the last four auctions that have
been conducted since then.
So because we are in that constrained environment, that
constraint funding environment, we have proposed in the
business plan to get to the Prop. 1A program first by getting
to valley-to-valley and even doing that in segments. And the
first segment is a Central Valley piece, Bakersfield north. On
the west side of the tunnel we want to extend the San Francisco
to San Jose electrification all the way to Gilroy, and we want
to focus the unfunded part on the tunnels in the middle and
work with industry, the Federal Government, and others on
trying to get a financing solution for the tunnels to complete
valley-to-valley. So that is our fundamental program right now
that we laid out in the business plan in terms of how we move
forward.
I should also say we continue to make bookend investments
all over the State. We are funding partners on a major grade
separation in Los Angeles, and in this business plan we are
proposing to be funding partners for the rebuild of the L.A.
Union Station, which will both accommodate Metrolink, LOSSAN,
other lines down there, and ultimately accommodate high-speed
rail.
Mr. Denham. Mr. Lowenthal, you have now taken up your 5
minutes and Garamendi's 3.
Dr. Lowenthal. And your 2.
Mr. DeSaulnier. It was worth every second.
Mr. Denham. I now recognize Mr. LaMalfa for 5 minutes.
Mr. LaMalfa. OK. Thank you, Mr. Chairman. I appreciate the
hearing today and the opportunity to get this out in front of
the people of California and as well as the Federal taxpayers.
Mr. Scovel, one of my colleagues was a little tough on you
earlier about the 4 months of experience there. I note that Mr.
Kelly has 6 months on the job, so I guess that additional 2
months is the amount of time needed to reach total rail
consciousness, and so you have got that going for you, which is
nice. So, anyway, Mr. Scovel, I would like to come to you on--
take a chance on that experience you have there. And one of my
major issues is wondering about the funding. We will set aside
ridership; we will set aside all the other benefits we have
heard about. Let's talk about the funding here. So we can
identify $13 billion from the initial bond and about $3 billion
from Federal funding from ARRA, and so the only thing to add to
that since this has all come about when the first funding was
put out--I think it was in 2012 and three of us were in the
State senate, and all three of us voted no on that original
round of funding in a bipartisan way.
So the issue is $13 billion of identified money, then the
rest is going to have to come from somewhere else, the private
market out there, which is staying away in droves, and then the
cap-and-trade scheme that has been put together in California,
which the number was identified as $750 million per year on an
optimistic cap-and-trade year. What percentage is that of the
total cap-and-trade take? But then how do you see that
financing, the shortfall under the optimistic plan, which was
downsized from the $98.5 billion number we heard in November of
2011 in a local transportation committee that jumped from the
$33 billion to the $43 billion to the $98.5 billion? Then it
was downsized to $68 billion a few months later when Governor
Brown chose to use local rail in L.A. and San Francisco, which
probably isn't legal under the bond.
So we are at least $55 billion short, $87 billion short by
the realistic number of $100 billion rail system. So at $750
million of additional funding, which is unlikely to come from
the Federal Government and no new bonds seemingly on the
horizon in Sacramento to try and throw in more for that since
we have other bonds we are working on, where are we going to
get this funding----
Mr. Scovel. Thanks, Mr. LaMalfa.
Mr. LaMalfa [continuing]. That $750 million a year. Pardon
me. Go ahead.
Mr. Scovel. Thank you. The gap that you have described
between projected funding and projected cost is exactly the
kind of risk that FRA has to analyze. It is FRA's job at the
Federal level right now to protect the Federal investment.
Right now, it is about $3\1/2\ billion total; $2\1/2\ billion
has actually been spent. That was the ARRA money. There is
about $928 million more that is hanging in the balance. It is
contingent on the rail authority making good on its matching
requirement for that original ARRA money.
Setting all of that aside, as FRA goes forward and tries to
analyze the risks that the rail authority is facing, there may
not be an adequate match from the State for the Federal dollar
or the other two aspects of the 2016 amendment may not be
satisfied by the rail authority. Those three points represent,
at this time, FRA's total skin in the game.
Mr. LaMalfa. What is the danger that the State rail
authority is not meeting the obligations that the Federal
requirements are for that money and that it may even have to
come around and refund that if not, you know, providing the
match that it is supposed to do or meeting the obligations that
are set forth in the bond for a true high-speed rail train and
the Federal guidelines that go with that? What is the danger of
that?
Mr. Scovel. Well, as we see the numbers, we see the rail
authority has made good on about $293 million of the match so
far. They have advanced----
Mr. LaMalfa. $293 million out of the $3 billion plus?
Mr. Scovel. $293 million of the $2\1/2\ billion.
Mr. LaMalfa. Yes, OK.
Mr. Scovel. Right. They have advanced that as proof of
their match up through the end of fiscal year 2017. Currently,
as we understand it, the latest numbers that we have been
provided are $644 million more advanced by the rail authority
to FRA as further evidence of their making the match. FRA's
job----
Mr. LaMalfa. So total match so far is around $900 million
that they have made?
Mr. Scovel. About, yes, right.
Mr. LaMalfa. And how much have they spent of Federal money
so far?
Mr. Scovel. $2\1/2\ billion.
Mr. LaMalfa. Yes.
Mr. Scovel. There is a gap there.
Mr. LaMalfa. There is that number. And then----
Mr. Scovel. But they do have until the end of 2022.
Mr. LaMalfa. End of 2022 to make good on that----
Mr. Scovel. Yes, sir.
Mr. LaMalfa [continuing]. By matching that spending?
Mr. Scovel. Right. So, you know, progress made, challenges
remain. That is always the inspector general's eternal refrain,
I think.
Mr. LaMalfa. Thank you.
Mr. Scovel. We will have to see how it plays out.
Mr. LaMalfa. Mr. Kelly, does $750 million here even make
the interest payments on the bond?
Mr. Kelly. They won't be used for that purpose.
Mr. LaMalfa. No, but would it match that number?
Mr. Kelly. I don't know. The Prop. 1--I don't know. I am
not sure--sitting here, Mr. LaMalfa, I am not sure what the
bond payment is right now on the bond in terms of the annual
debt service.
Mr. LaMalfa. On the $9.95 billion once it is all spent?
Mr. Kelly. On the nine--yes----
Mr. LaMalfa. Yes.
Mr. Kelly [continuing]. Because that debt service----
Mr. LaMalfa. I am just wondering if it will make the----
Mr. Kelly. The debt service is not paid out of our
revenues.
Mr. LaMalfa. Someone else's revenues, OK.
Mr. Kelly. The general obligation----
Mr. LaMalfa. Mr. Chairman, I will yield back with only a
little over time. I look forward to the next round.
Mr. Denham. Thank you, Mr. LaMalfa.
Mr. DeSaulnier?
Mr. DeSaulnier. Thank you, Mr. Chairman.
It is a little odd for me to be on this side of the table
with you two, but I do remember a time when I was a Republican
many years ago. Actually, I think you should change. Anyway, we
will do rock, scissors, paper.
I just want to--two things to begin with. First of all,
sometimes my criticism has been confused with my support for
the project. California more than ever needs a world-class
passenger rail system. The only thing that has changed since I
was in the legislature, and Lou and I were having those
discussions, is that there is a greater urgency for California
to get a world-class passenger rail system. Congestion, as Mr.
Kelly knows, is up 300 percent in the urban areas in
California. We desperately need--and the rail systems, commuter
systems and transit systems, the intercity systems are
struggling. They are struggling with farebox recovery,
reliability, and safety.
So I really think that there is an opportunity here to fix
this project, and I think much of the wisdom is encapsulated in
Mr. Thompson's three or four pages within the business plan and
in his testimony as he submitted here and how much respect I
have for all four of you, but for three of you, I know you
very, very well. Mr. Hunter, the job you are doing is exemplary
for unions all over this country and the American workforce,
the training you give them, the value that you give your
customers, your contractors. And like you, I have been around
the world to talk about this project with public officials as
high as ministers of transportation in Japan and Germany and in
Paris, been to Spain, Italy. Germany, Japan, which has the best
system in the world if you ask me, and the Chinese, who gave me
a really good demonstration of their work particularly at the
Hong Kong station, which I have never seen. This is not on
public dollars. So the one thing I will say in all of those
conversations, it would be kind to say that the international
community looks at this project skeptically, particularly the
revenue.
So first with Brian, the respect I have for you for years
that I have known you when I was on the Metropolitan
Transportation Commission through the legislature, your
capacity not just for expertise but your ethics. Your
predecessor was not happy with me when in the legislature I
questioned him about his honesty on this project because quite
frankly I thought he misled me, and so I worked on legislation
to get rid of the authority because I thought they needed to
go.
One of the reasons I didn't pursue that was because the
administration agreed to put the authority under the
Transportation Administration, of which you where the
secretary, so you have been able to work with elected officials
and appointed officials and still be a truthteller. Sometimes
we didn't like your truth, but you are in a unique position to
change this project and make it successful.
However, my suspicion is you now are not on top of the
organization. You are working for the authority. So I would
like your commitment here that if you see things--and I think
you have done this in your 6 months--where the authority is
doing things that are not in the best interest of the State,
will you continue to tell them that and at this point in your
career make sure that your reputation for ethics and honesty
continues?
Mr. Kelly. I mean, yes, because I have to----
Mr. DeSaulnier. I ask----
Mr. Kelly [continuing]. I approach this--I think it is
worth just stating that I approach this as--you know, when I
was the secretary we did work on other big projects----
Mr. DeSaulnier. Right.
Mr. Kelly [continuing]. Like the Bay Bridge and others.
There is nothing better----
Mr. DeSaulnier. Why did you bring up the Bay Bridge?
Mr. Kelly. Well, because I just wanted--there was nothing
better than the--you know, we established some processes on
that project----
Mr. DeSaulnier. Right.
Mr. Kelly [continuing]. That required the transparency. And
it is the only way--this is--there is only public dollars on
this project right now.
Mr. DeSaulnier. OK.
Mr. Kelly. I am for the transparency.
Mr. DeSaulnier. And, Brian----
Mr. Kelly. It is a benefit for all of us, and it is going
to help us manage this project.
Mr. DeSaulnier. Brian, and I only bring that up in dead
seriousness because you are the person who can save this.
Mr. Thompson, the last time you testified in front of me up
the street I asked you whether the project could make the 2
hours--the commitment to the voters, and you said publicly no.
Could you tell me now 5 years later what you think the time
could be from the Transbay Terminal to Union Station?
Mr. Thompson. Well, I think the answer is the schedule that
they are showing in the 2018 business plan is around 3 hours
and 10 or 11 minutes. Could you crank up a train at midnight
with nothing else on the railway and nobody in your way and run
it without stopping from San Francisco to L.A. in 2:40? Barely.
Mr. DeSaulnier. So how does that affect the business plan,
the modeling? We are competing with airlines. That was----
Mr. Thompson. The----
Mr. DeSaulnier [continuing]. A key part is making that
faster time.
Mr. Thompson. The critical question that we raised about
that is do your demand models reflect 3 hours and 10 minutes?
And the answer is yes, they do. So the demand models are
consistent with the schedule that they are proposing to
actually operate, and that means that, to the extent that the
demand models are accurate for other reasons, that they
certainly are consistent with that. But the 2:40 would be very,
very dicey.
Mr. DeSaulnier. And just if you can indulge me 1 more
second, the last question, Brian, is we have talked about this,
the international community, its revenue model is different
from what we have on many levels but value capture, and I see
Ms. Rooney in the audience. The JR lines get one-third of their
operating cost from value capture. I think we have a great
opportunity to do that from San Jose out to Bakersfield. What
are you finding?
Mr. Kelly. Yes, we do. I mean, our--in a couple of areas.
One, there may be utilization of our assets for fiber cables
and other things that you can generate revenue for, but more
importantly around our station, development is where I think
not only can you build stations serving the communities that
people want but you can also build around those stations and
part of those stations to maximize revenue for the system. And
that is the essence of the value capture for us. And I think
there is a way to do it where you are also achieving many other
important mobility and environmental objectives, and so that
would----
Mr. DeSaulnier. Thank you, Mr. Chairman. Thank you for
indulging me. Just as a point of reference, the area around the
Transbay Terminal will generate an extra $8 billion in property
tax to the city and county of San Francisco. If we use the
Japanese and the European model, one-third of that would be
going into the operations system.
Mr. Denham. Thank you, Mr. DeSaulnier. I am not as
convinced that the one around Shafter will have the same
economic development.
Mr. DeSaulnier. We can get some real high density in there
so you can go to the planning commission meetings for that.
Mr. Denham. I now recognize Ms. Lofgren for 5 minutes as
well.
Ms. Lofgren. Well, thank you very much, and, Mr. Chairman,
thank you for allowing me to participate in this hearing since
I am not a member of the committee but I am one of the cochairs
of the Congressional Caucus on California High-Speed Rail along
with Representatives Costa and Correa.
You know, as I have listened to this, I think this
oversight is important. Transparency obviously is necessary,
but I am mindful that it is hard to do big things, and it is
easy to criticize. You know, when I was in local government--I
never served in the legislature--I led the successful half-cent
sales tax that voters approved to build highways.
And, you know, building things is tough. I think this is
the largest construction project underway really in the United
States or it is the biggest thing going in the United States,
so I think it is important to have that perspective if you are
going to do big things.
And certainly we have got these projects underway all over
the world. I mean it seems to me if Uzbekistan can build a
high-speed rail system, so should we be able to do so.
Now, looking at some of the issues from my perspective--I
represent San Jose--the impact of high-speed rail connection
between the Silicon Valley and the Central Valley is something
that we think might be considerably important to both valleys.
Right now, the median price of a house in San Jose is over $1
million. The unemployment rate in San Jose is under 2 percent.
People can't find employees. And if you go to the Central
Valley, you have got housing that is very affordable and a high
unemployment rate and plenty of smart people who would like to
get those great jobs in the Silicon Valley. So I am advised--
and I guess this question goes to you, Mr. Kelly, that with
this project that we would be able to get from Fresno to San
Jose in about an hour. Is that accurate?
Mr. Kelly. Yes, that is right, between an hour and an hour
20 minutes, yes.
Ms. Lofgren. I will just point out right now it takes--I
have someone on my staff who works in San Jose. It can take her
longer than that to get from San Jose to downtown. So this will
completely change the housing and the employment opportunities
for a significant part of the State.
I would just note that, you know, we have to identify a
source of funds. And Mr. DeSaulnier and I have discussed this
often, the need to see how we might enhance revenue around
stations. But at the Diridon Station, Google has already
announced a project for 25,000 employees right within walking
distance of the station itself. And the other technology
companies are also starting, so there is going to be some
opportunity for some public-private partnership it seems to me.
And I just wanted to mention, Mr. Thompson, in terms of the
grade separation, this entire line from San Jose to San
Francisco is going to be a grade separator, we believe. I mean,
the voters of Santa Clara County taxed themselves to provide
funding that is not from the authority to do the grade
separations in all of Santa Clara County, so there shouldn't be
delay from traffic at least in any of the Santa Clara County
portions of the project.
But, Mr. Kelly, does your business plan take a look at the
technology growth and incorporate those possibilities as
revenue sources?
Mr. Kelly. We are a little bit at the front end of the
station area planning exercise. We have laid out grant awards
with cities to move forward on that. We have just become a
partner with Caltrain, VTA, city of San Jose, and I think BART
to work on the Diridon Station planning exercise----
Ms. Lofgren. Right.
Mr. Kelly [continuing]. Which has, again, just gotten
underway but we are a full partner in that exercise. Our
stations will vary from place to place because in some we will
be the primary owner of the structure and others we will not
be. Diridon is an example where we are not. We are a tenant.
But there is great opportunity for how that is developed, what
that looks like, and how you develop around there to enhance
the system, revenues for the system, and provide----
Ms. Lofgren. Right.
Mr. Kelly [continuing]. Great opportunity for people to get
around without having to drive too far.
Ms. Lofgren. Final question, when I led the traffic
authority and we built the highways, we did do a combined NEPA/
CEQA----
Mr. Kelly. Yes. Yes.
Ms. Lofgren [continuing]. And there were no corners cut. I
mean, everything was done, but it was done in a combined
fashion.
Mr. Kelly. Yes.
Ms. Lofgren. It really makes a lot of sense, so anything we
could do to help that I think would be very important to get
this done properly. And I personally would like to assist in
any way that I could on that matter.
Mr. Kelly. I appreciate that. To date we have been working
very closely with the FRA to move forward on that NEPA/CEQA
assignment. It is pending, and we are eager to get it so we can
try to achieve the savings we have seen on the highway side.
Ms. Lofgren. I will just close by saying, you know, we have
one company alone in Silicon Valley with a market cap of $1
trillion. It seems to me that, as a society, we should be able
to solve this financial problem.
Mr. Thompson. May I respond briefly to one thing you said?
I wish there was a coordinated program to get rid of the grade
crossings between San Jose and San Francisco, but there is not.
And one of the things that we have recommended repeatedly is
that such a program of State and local and high-speed rail and
Caltrain and other money be developed to get rid of those grade
crossings. They kill as many as 20 people a year on those grade
crossings, half of which may be suicides, the other half----
Ms. Lofgren. Right.
Mr. Thompson [continuing]. Of which are accidents. And that
will only get worse, a lot worse when we add a number of high-
speed trains to what is now a number of Caltrain trains and the
ability to drive across those grade crossings is going to be
continually more restrictive.
Ms. Lofgren. If I may, I spoke a little too broadly because
I can't speak for San Mateo County but I can for Santa Clara
County, and we have taxed ourselves to eliminate those.
Mr. Thompson. Yes, you have, and I hope that you can help
and others can help in pulling together a pretty comprehensive
approach to that problem because it is very serious.
Mr. Kelly. I would agree with that. I just wanted to add
one point, that whether you do a full grade separation or quad
gates and fencing are tied to the speed that you operate on in
the corridor. And we are going to meet all of our safety
standards in that corridor. We are major funding partners on a
big grade separation there now where we put in on the order of
$80 million, and we are eager to work with the local folks,
Caltrans and others, on the corridor-wide grade separation
program. So that is kind of where we are, but we are fully
committed and will be meeting all of the safety requirements at
those grade separations in that corridor.
Ms. Lofgren. Thank you, Mr. Chairman. I have overtaken----
Mr. Denham. Thank you, Ms. Lofgren. And I do agree, though,
with Ms. Lofgren on this. I think everybody up here voted for
the NEPA Reciprocity Act, NEPA/CEQA, so that we could
streamline these projects, as we want to do on water, as we are
implementing on road projects, and that is why this continues
to be a question. If we are so far behind on the environmental
review, why aren't we doing more to streamline that process?
Mr. Kelly, specifically in the Central Valley, one of the
big concerns that has come up and one that, you know, I have
read in the 2018 business plan is we are starting with two
nonconnected segments, one from San Francisco to Gilroy, the
other from Madera to Bakersfield while we wait for or we figure
out what that funding gap is to build the tunnel through the
Pacheco. Can you tell me what the new cost of the Central
Valley piece of that which runs from Madera to Shafter is?
Mr. Kelly. Yes, give me just 1 second. Sorry. We estimate
that the Central Valley segment is about $10.6 billion.
Mr. Denham. $10.6 billion? And while we are waiting for
that funding gap to come in, whatever that new revenue is, will
we have high-speed rail on that segment?
Mr. Kelly. What we have proposed in the business plan is
to--and I should say we have brought on a new early train
operator and we are working with them to analyze this, but what
we want to do is once we complete the 119 miles segment, look
at expanding further into Bakersfield, and then getting an
operating run going on just the Central Valley side, that would
be Bakersfield further north either to Madera and Merced on
that side, that analysis is underway now. We are going to
update where we are on that on our project update report in
March, but the idea is to see if we can operate a service there
on that side, as I said earlier, extend the electrification on
the west side and see if we can get some operable segments in
place while we work through the tunneling issues in the middle.
Mr. Denham. Thank you. And, Mr. Thompson, considering this
funding gap, especially on the first phase of this, it shows $7
billion to build a tunnel or somewhere in between $2 $9 billion
on the funding gap, what has the peer review recommended to
fill the funding gap both the short term and long term?
Mr. Thompson. We have made no recommendations. We simply
listed some things that the legislature might consider.
Mr. Denham. What are those things that you listed?
Mr. Thompson. Well, we listed such things as an increase in
the gas tax----
Mr. Denham. Do you know what that increase in gas tax would
be?
Mr. Thompson. I haven't calculated it----
Mr. Denham. What else have you----
Mr. Thompson [continuing]. Recently. Sales tax, that was a
proposal to finance the 2000 business plan.
Mr. Denham. Do we know what that sales tax would be?
Mr. Thompson. At that point it was 0.25 cent. It might be
more than that now. I don't know. There are other sources
available. One of the things that will be necessary is to put a
floor under the cap-and-trade funding. Otherwise, it won't be
financeable. So those are sources, but we have not recommended
anything.
Mr. Denham. I think the current gas tax based on what I had
read was I think for 12 cents is $5 billion annually. Mr.
Hunter, do you know?
Mr. Hunter. Yes, it is just short of $5 billion a year----
Mr. Denham. $5 billion?
Mr. Hunter [continuing]. Correct.
Mr. Denham. So given that parameter both short and long
term----
Mr. Thompson. Well, let's--what is it?
Mr. Denham. Mr. Kelly, you can answer this.
Mr. Kelly. I think just from----
Mr. Denham. I am sure you know these numbers.
Mr. Kelly [continuing]. My old hat, every penny raised is
about $150 million in California on the gas tax.
Mr. Denham. OK. Thank you. And, Mr. Hunter, as again I
said, you did what you said you were going to do. You have
hired veterans, you have hired a lot of locals in the
community. What is the current estimate of how many people have
been hired either by job-years or by numbers?
Mr. Hunter. Current--well, we have run in excess of 2,000
right now, but several thousand have transitioned through as
their work finished and they moved on, but we are sustaining
around 2,200. I believe the----
Mr. Denham. Those are individuals?
Mr. Hunter. Yes, individuals, and----
Mr. Denham. But you calculate this--normally, labor
calculates it by job-years?
Mr. Hunter. By years, yes.
Mr. Denham. So some have come in and some have gone out. Do
you know what those job-years are?
Mr. Hunter. Yes. As of this time, I am not sure. The way
that we are looking at it right now and the amount of workers
we have got on there for the length of the project we are
believing somewhere around 240,000 man-years and woman-years,
too, because we have got a lot of good women electricians and
other people out there. I just thought I would get that. In the
building trades we are constantly trying to change our language
to adapt to the workforce. And so 1 day of 8 hours for a worker
moved to 240,000 years, so it is substantial. I am not sure of
exactly what the man-hours are at this time. It is been in
excess of $2 billion of work in the Central Valley, and it has
driven thousands of jobs for local workers.
Mr. Denham. So do I hear you saying it is 240,000----
Mr. Hunter. Man-years.
Mr. Denham. Man/woman-years?
Mr. Hunter. Woman-years. Thank you for that. In the
construction. And we believe--we have got vast experience in
tunneling both in Los Angeles--we are doing the mass transit.
Of course we were the workforce at the Barton onto the delta.
You know, 1 mile of subway in Paris is around $500 million, the
subway, including stations.
Mr. Denham. I think this is a critical point, and it is
certainly one that I want to better understand as we move
forward. According to Prop. 1A, this was supposed to create
300,000, I believe, men and women hours through----
Mr. Hunter. Years.
Mr. Denham. Years--through the entire project, which was
supposed to be done in 2020. So if we have already done 240,000
but yet we have only done a small segment of this so far and we
have still got another 25 years, 20 years to build this thing,
Mr. Kelly, do you want to----
Mr. Kelly. Mr. Chairman, yes, can I help? We estimate from
the investments between 2006 and 2017 that the job-years is
between 28,000 and 32,000 to date during that stretch.
Mr. Denham. 28,000, OK.
Mr. Kelly. The 240,000 job-year reference is for the full
buildout of the valley-to-valley service. That will create
240,000 job-years and $50 billion worth of economic output.
Mr. Denham. Over the life of the project?
Mr. Kelly. During the construction piece of that project.
Mr. Denham. Does that change whether or not we have longer
delays?
Mr. Kelly. I am sorry?
Mr. Denham. Instead of completing it in 2020, if this is
now going to be 2033 or beyond, does that number change? Does
it extrapolate more jobs if a project has a longer time period?
Mr. Kelly. Yes, I don't know if I am answering----
Mr. Denham. Mr. Thompson, do you----
Mr. Kelly. I am sorry.
Mr. Denham. Either one.
Mr. Kelly. Yes, I am not sure if I am answering this
exactly on point. I would just say that our estimates are tied
to the schedule that we have, so we have laid out what the
Central Valley and what the--the Central Valley is from 2006 to
2017, and our estimate on valley-to-valley is for that full
buildout under our schedule, and that is the 240,000 job-years
that we estimate. And that is under the current schedule to
2029.
Mr. Denham. Thank you. Mr. Garamendi?
Mr. Garamendi. Thank you, Mr. Chairman. A couple of very
quick questions. Mr. Scovel, the issue of NEPA being taken over
by the State, why hasn't the FRA completed that? They have had
67 days to do it since June 1.
Mr. Scovel. I can't answer for FRA, sir. That will be a
question for us as we go forward with the audit----
Mr. Garamendi. OK. So it is one----
Mr. Scovel [continuing]. Part of the risk.
Mr. Garamendi. One particular issue then which we could
bang on the FRA to get done. That would then free up both money
and time.
Secondly, Mr. Thompson, you have stated categorically that
the fundamental problem is we don't have a funding source going
forward, and if we had that, things would be better but not
necessarily solved. I am a member of the Armed Services
Committee. In the next couple of days the President is going to
sign the new National Defense Authorization Act, which confirms
once again that we will have a 330-ship Navy within the next 15
years. There is no secure funding for the remaining 100 ships
to get to 330. That is both replacement, as well as the $12 to
$15 billion for two new aircraft carriers. So the funding
source even for the U.S. Navy and our national defense is an
ongoing issue year-by-year going forward.
I would just point out that for major projects--and this is
about two decades to finish this total project. Yes, we should
be concerned about a secure funding source, but it looks to me
like, Mr. Kelly, you have secured about 80 percent of the
funding necessary to complete what you now call step 1 of phase
1, which is the tunnel and San Francisco to Bakersfield.
Mr. Kelly. That is correct.
Mr. Garamendi. Is that correct?
Mr. Kelly. That is correct.
Mr. Garamendi. So about 80 percent of that in your
estimation has been secured.
Mr. Kelly. Yes, and it----
Mr. Garamendi. That is a whole lot better than we are doing
with regard to our 330-ship Navy or the $1 trillion for
replacing our strategic nuclear systems. We are not even close
to next year, let alone the next 20 years to complete those
projects. So this is not unheard of, but you are 80 percent, is
that correct?
Mr. Kelly. Yes. We estimate about $22 billion--you know,
the only caveat here is that our cap-and-trade dollars, we have
to do an estimate on them.
Mr. Garamendi. Understood.
Mr. Kelly. So we are going to be between $22 and $28
billion on that, and our estimate of cost is $29 billion----
Mr. Garamendi. And that----
Mr. Kelly [continuing]. So we have a gap between $2-$9
billion.
Mr. Garamendi. OK. So about 80 percent is secure, assuming
the cap and trade----
Mr. Kelly. That is correct.
Mr. Garamendi [continuing]. Continues to produce?
Mr. Kelly. That is correct.
Mr. Garamendi. Fair enough. Now, with regard to the
development of the tunnel project, which together with the
train operation, we have not talked about the train operation
piece of this. Can you go into that? You have talked about the
tunnel. Let's talk about the train operation.
Mr. Kelly. Can you be a little bit more specific when you
say the train operation, the--
Mr. Garamendi. Your ETO [early train operator].
Mr. Kelly. Oh, thank you. Yes, before I arrived, the
authority in, you know, making sure it can transition to
operations, went out and hired--we went through an RFP process
and brought in an early train operator from Germany, Deutsche
Bahn, who has great experience running high-speed rail is now
advising us on a couple of fronts. One, they are doing the
analysis necessary to see if we can do our operating segments
on both the west side, Gilroy to San Francisco, and in the
Central Valley to ensure that we can start a service and meet
our legal requirements in doing so. So that work is underway.
And then secondly, I asked them to take a look at our cost
estimates in the business plan to be another set of eyes on
that and advise us on the reasonableness of those estimates,
and we will have that done this fall and we will report that to
all of our oversight committees in March of 2019.
Mr. Garamendi. I think I have got about 1 minute left here.
Mr. Thompson, you have four options.
Mr. Thompson. Yes, sir.
Mr. Garamendi. Could you run quickly through them and your
preferred choice among the four?
Mr. Thompson. Well, we listed four options. Basically one
of them is to stop now.
Mr. Garamendi. Is that a good idea?
Mr. Thompson. No, it is not a good idea.
Mr. Garamendi. The second option?
Mr. Thompson. The second option would be to finish up just
what they are doing in the Central Valley. That would then
protect against a Federal claim of the money back but it would
not give you much value. The third option--
Mr. Garamendi. Is that a good option?
Mr. Thompson. The third option is essentially what they are
proposing, which is to finish the work that they are trying to
do on the bookends plus the Central Valley. That will keep the
project alive. It will keep it going, and it will get something
of value at least on the bookends in the Central Valley.
The fourth option--and this actually is an answer to your
observation. The fourth option would basically be for the
legislature and the Governor to recommit to the project and to
say we really want to do it in the face of the uncertainties
and the problems that we now know and that we will find the
funding to get the project done.
Mr. Garamendi. Which is precisely what the U.S. Congress
did in the National Defense Authorization Act. It committed
itself to a 330-ship Navy, to $1 trillion for the repurposing
and re-upbuilding of our nuclear deterrent. Money is not there,
the commitment is.
Mr. Thompson. If I were an admiral, I would feel much
better about that. And if I had an appropriation to build that
carrier, I would spend that money. What is needed here is in a
sense the State equivalent of that in which the State would
look at--one of the recommendations we have made is that they
go back to the State transportation plan, make sure this fits
the requirements that the State wants, and then commit to
getting the job done.
The problem that we are concerned about and we have
expressed this many times is that it is very difficult to
manage a $100 billion or $50 billion project with only $20
billion in hand. It is just very difficult. You have to
restructure your commitments, you have to manage it in a
different way, you have to take risks that you really shouldn't
have to take. If the State wants to do this, the resources they
can find, and they should do the project.
Mr. Garamendi. My time is over. My final 15 seconds, which
is not really available but if the chairman doesn't shut me up,
is that the Congress this year will not complete a massive
infrastructure program, but it is in the works that all of us
are committed to a major national infrastructure program. And
the question for us is will high-speed rail be part of that
infrastructure program, which includes everything from water to
sanitation to transportation of all kinds?
Thank you, Mr. Chairman.
Mr. Denham. The next chairman of the T&I Committee will get
it done.
Mr. LaMalfa, you are recognized for 5 minutes.
Mr. LaMalfa. Yes.
Mr. Denham. You can see we all get along pretty well on the
T&I Committee.
Mr. LaMalfa. Mr. Kelly, once again here when the original
vote was approved as a $33 billion project and we found out
just a couple years later it was a $98.5 billion project. It
was downsized just right at $100 billion now. So I guess what I
wonder if--I carried two bills about it in the State senate,
which my good friend heard in committee for us. It didn't pass,
but that is another thing. Senate bill 22 was to stop spending
until there was a complete plan of where the rail was going to
go, what the route was, how it was going to be paid for. It
didn't pass.
Another bill, S.B. 985, which reflected the $98.5 billion
price tag we found out about in November of 2011, to put it
back on the ballot in front of the voters. So I guess I would
pose to you or anybody watching, if you were bid for your home
to replace the roof, let's say $33,000, and when the
construction people show up and the price jumped to $98,500,
would you want another crack at a rebid or revote or something
like that? I think the people of California would on revoting
the rail.
So that said, we have heard about the problems with funding
just the Pacheco tunnel, which is a little bitty one compared
to the one you are going to have to go through the Tehachapis
with if that is indeed how you are going to link to the big
prize, L.A., where the ridership is supposed to come in. Do you
currently have a cost or an actual plan for how--with the
seismic issues or whatever the challenges are of running that
tunnel through Tehachapi, how that is going to go? What is the
price? Is it engineered out? Does that even fit with what I
talked about in S.B. 22 as even part of a plan?
Mr. Kelly. It is part of the plan to go through both the
Tehachapis and the San Gabriels to get into the L.A. Basin.
Engineers are going through the work to make sure we deal with
the seismic issues. We have as an advisory body the State's
Seismic Advisory Board, who we are interacting with on those
tunneling exercises.
Mr. LaMalfa. So in 2018 they are just now going through--
Mr. Kelly. No, no, they have--
Mr. LaMalfa.--the engineering--
Mr. Kelly. That work is underway. I mean, as I said
earlier--
Mr. LaMalfa. But it is not finished. We don't know the
price.
Mr. Kelly. It is not. Eight of our ten segments are still
in environmental, but we move designs along as we go through
that process. That segment down there is still in
environmental, but we are working through that process. It is
designed further enough where we can make cost estimates, and
we have a cost estimate for that tunneling exercise that has a
big swing right now because it could be as little as $12
billion or as much is $25 billion depending on what you do with
the--
Mr. LaMalfa. $12 to $25 billion--
Mr. Kelly. Yes.
Mr. LaMalfa.--in comparison to the $7 billion up the
Pacheco Pass?
Mr. Kelly. That is correct.
Mr. LaMalfa. Yes. How many more miles is the Tehachapi--
Mr. Kelly. I think I am going to ballpark this for here. I
can get you the specifics, but I think we have on the order of
35 miles in tunneling through both mountain segments.
Mr. LaMalfa. Thirty-five miles of tunneling versus 13 was
it--
Mr. Kelly. That is about right.
Mr. LaMalfa.--Pacheco?
Mr. Kelly. That is about right.
Mr. LaMalfa. So almost triple?
Mr. Kelly. Yes, but--yes. And, you know, we have not made
our final design choices yet, and that is going to drive cost
as well.
Mr. LaMalfa. So we don't have it--
Mr. Kelly. Our estimates in the business plan I should say
do account for those swings.
Mr. LaMalfa. Ten years after the bond we don't really know
what that plan is and what the price tag is with money that is
relied upon at $750 million at a time from cap and trade since
there is no other funding coming available--
Mr. Kelly. I would say--
Mr. LaMalfa.--to fill the gap--
Mr. Kelly. So I would say--
Mr. LaMalfa.--of $87 billion.
Mr. Kelly. Sorry.
Mr. LaMalfa. Go ahead--of $87 billion to fill the gap.
Mr. Kelly. I would just say we certainly know what the plan
is. It is consistent with our programmatic plan to do that. We
are now going through the on-the-ground environmental process
to wrap that up, and we refine costs as we go forward. That is
actually one of the reasons why in this business plan for the
first time we do layout of baseline cost estimate but we put it
in ranges because we are--
Mr. LaMalfa. Unfortunately, the plan keeps changing--
Mr. Kelly.--early in the process.
Mr. LaMalfa.--from CEO to chairman to CEO changes, so tell
me about the high-speed portion of itself, please. A recent
study was done by the authority to show that you can make it
just in time on 2 hours and 40 minutes if everything goes
perfectly, but also there is some wiggle room on actually
running the trains at high speed because the bond, according to
your officials, have long contended the legal fine print does
not actually require it to operate trains on such a schedule.
So it raises the idea that the State is spending billions
on a capacity that it won't actually use because, as this was
voted in in the legislature, there was a lot of assembly
members and senators that want it to stop in their town, you
know, have it hit Hanford, have it hit Pixley, have it hit--no,
Pixley is Petticoat Junction, I am sorry. That is every other
burg on the way there. So how many trains are you going to run
per day at truly high speed in order to achieve, if everything
goes perfectly, 2 hours and 40 minutes?
Mr. Kelly. Well, I think it is worth noting here because I
know that this was part of the conversation earlier, the bond
requires that we design the system to be capable of nonstop
service between San Francisco and Los Angeles at 2 hours and 40
minutes. We are designing it to that, and our calculations show
we are meeting that.
Mr. LaMalfa. As a taxpayer--
Mr. Kelly. As an--
Mr. LaMalfa.--how many trains will they get that actually
run per day at that speed?
Mr. Kelly. I mean, that is part of the work we are doing
with the early train operator, how the system is going to
operate. Some will stop at cities. I mean, the reference to 3
hours and 10 minutes is an assumption that we have two stops
along the way. We will have some nonstop train service, but I
can't tell you today exactly how many. We are still in the
process of figuring that out.
Mr. LaMalfa. So me the voter when I was getting my bid for
my new roof back in 2008, I didn't get to have that information
at how many trains you were going to run at full speed or part
speed, how much the tunnel was going to be under Pacheco or
Tehachapi. We are finding out in 2018, and you are asking us in
one fashion or another to keep the faith in this project whose
price has tripled, whose every other number assigned to it--you
had 1 million person-years of work assigned to this at one
point. They were saying 1 million at one point.
Ridership, cost was supposed to be tied to a Southwest
Airlines ticket of about 80 bucks. A later hearing said it is
probably going to be $120, $150, $200. Who is going to afford
to ride this? Every mark has been missed on every promise made,
not by you; you have only been there 6 months. Now you have
total consciousness and so you know what is going on. But every
mark has been missed. Even Quentin Kopp, the original champion
of this thing, has pulled his support of this. And so why are
we to keep going, especially as mine and Mr. Garamendi's
district burns?
And, you know, Mr. Hunter, I want your men and women to
have a lot of work to do, and indeed we do. We have got
forestry infrastructure we need. We have got biomass
infrastructure. We need to use that forest product. We have
flood control projects that need to be completed, are way
behind on the delta and everywhere else, mine and Mr.
Garamendi's district. Water storage, we could build 20 dams for
the price of what they want to spend on high-speed rail, 20
dams. Heck, if we built four, I would be happy. Highway
repairs, airport runway extensions, even upgrades to
conventional rails that would run trains at 120 miles an hour
and get almost there as fast by the time you stop in every
little burg to have pretty decent train service.
And so instead, we get this, and we are going to pin it on
maybe another gas tax or further taxation. And then on top of
that when we talk about investment going into the bay, we are
going to then put the urban sprawl in the valley and run their
housing prices up from $350,000 or so now to start matching the
bay area of $1 million? I mean, there are a lot of ripple
effects as we pave through that farmland down there and we
eminent domain people, and at that the same time we are tearing
out almond orchards to make way.
And I hear from the rail authority they want to plant trees
to offset the CO2 that they are producing with the equipment
that they are building the rail system with. It just continues
to confound me why would we keep going on this.
So, panelists, thank you for your time today. Mr. Chairman,
thank you for a little extra time. I appreciate having this
opportunity to put this out in front of the people of
California.
Mr. Denham. Thank you, Mr. LaMalfa.
Mr. Lowenthal?
Dr. Lowenthal. Thank you. You know, we sometimes think
about people in terms of their political ideology, Republicans
or Democrats, but I would like to step back and look at this in
terms--as the only Representative here on the panel from
southern California, we have--everyone else is from the north--
what do I do when I go home--what do I tell the folks in Los
Angeles? Much of the discussion so far has been on the Central
Valley part. We have talked about the Transbay Terminal down to
San Jose, the Caltrain, what is going to happen there. We have
talked a little bit about Silicon Valley.
Talk to me, any of you, what do I go home and tell the
people in Los Angeles? Where is that focus? We are the
population center. We are the largest part of the population
center. When are we going to be involved in this and what is
going on that I can say go look, go see what is happening? This
is really where your high-speed rail money and this is how you
will benefit. So I just need a little bit to go home, what you
would think I should be saying. I understand the bookends. We
put that--I personally wanted to see much more money go out to
Palmdale from--you know, because I thought then it could be
connected out to Vegas, but that would have been another
project and another thing. I am just saying what do I see and
when will I see things in Los Angeles that will justify all of
us--we are the folks that voted for this.
Mr. Kelly. Well, let me take a shot. First, as you alluded
to, we are now full investment partners on $500 million worth
of both the L.A. Union Station rebuild that will come down
there and the grade separation at Rosecrans/Marquardt. That
will not just benefit high-speed rail but will also benefit
your regional providers down there.
Dr. Lowenthal. Right and--
Mr. Kelly. So we are part and parcel of that. We are, this
fall, picking our preferred alternatives to complete the
environmental work down in that section for the three stretches
between Palmdale all the way to Anaheim. And we are working
closely with others on investments in shared corridors, which
the legislature here recently put forth a funding package for
rail modernization investment in shared corridors like the
corridor between Burbank and Anaheim that we can invest in. We
have been doing modeling exercises with BNSF and the other rail
operators to figure out how we can all co-locate and co-work in
that area.
And ultimately, I think it will lead to a funding agreement
between the partners like we have in Silicon Valley with
Caltrain on how we move forward to make the right capital
investments in those corridors. So we have estimated a 2033
timeline, but I am hoping once we get the environmental stuff
done, which we are going to do by 2022, we will move more
quickly on shared corridor targeted investments throughout that
area that will be including grade separations and other things
to get the electrified segments in place down there. And
ultimately, we do need more revenue for that area, and we have
to work through that.
But there are things that people will see in terms of
advancement down there starting later this fall and capital
investments underway now through our bookend dollars and the
shared corridor program to help us get going.
Dr. Lowenthal. Mr. Thompson, when are we going to see
something?
Mr. Thompson. I have to defer to Brian. He knows that
answer much better than I do.
Dr. Lowenthal. Because while this is an issue because there
is a lot going on in the north, there really is, as it should
be, we are not hearing anything really in the south and, you
know, I am just saying what do I do to go home and tell people?
I am up here. We had a lot of discussion about what is actually
happening, little discussion about Los Angeles and how that is
going to be connected. Mr. Hunter?
Mr. Hunter. Congressman, you can't tell by my Irish brogue,
but I lived in L.A. for 35 years and I am--
Dr. Lowenthal. We can tell.
Mr. Hunter. And when I was in Fresno and we were, you know,
kicking off the construction, I said the Irish have a great
history of building railroads in this country, but we are going
to find the workers right here in Fresno, Madera, and in the
valley to build this project, and that is what we have done.
But we are working on a 1-mile overpass in Rosecrans. We are in
at Union Station. We have opened construction yards in
Bakersfield. You know, we have done Measure R for transit
systems within L.A. I have worked on the Burbank Transit
Center, and of course we have been in Orange County and done
the massive transit center. And, you know, it is a rock
skipping along the river, but they are all in a line, and I
think it is going to work for us.
Dr. Lowenthal. I am just saying it is a hard sell now
because we don't really see those kinds of impacts. You are
going to see much more of it up in the north, as it should, and
I am not saying it--but I am just saying we have a difficult
sell because we but we are--you know, there are small pieces as
we are doing, but we are not really seeing a real stretch that
is going to be high-speed rail or that we are seeing--see that
area. We are going to be able to get from Bakersfield to Los
Angeles in 5 years or 8 years. That is on the drawing board.
That is way in the future yet.
Mr. Kelly. I think it will be clarified further when we
complete the environmental work down there and we can start
making investments on the shared corridor, and I think people
will start to see that.
Dr. Lowenthal. I sure hope so because we don't--right now,
we are not seen as part of this. Thank you, and I yield back.
Mr. Denham. Thank you. We are going just a little bit over
time today. We are going to conclude here shortly, but we have
been yielding Republican time to Mr. DeSaulnier today. We are
glad to have him back on the Republican side. Even for only 1
day, we will take it.
Mr. DeSaulnier. I don't think I would--
Mr. Denham. Mr. DeSaulnier?
Mr. DeSaulnier.--ever get out of a primary.
Well, I want to touch on a little bit what Alan is talking
about and the challenge to get to L.A. And you both alluded to
it. So, Mr. Thompson, you mentioned the megaproject hearings we
had and the Flyvbjerg report on all the megaprojects in the
world. He estimated that--not estimated, he found that on
tunneling projects in particular and high-speed rail in
particular the cost overruns, they were very significant. I
can't remember what they were, but 30 percent or something like
that.
So given the challenges of getting over the Tehachapis--and
Brian, maybe you could answer this, too--where the grade is
significantly higher than anywhere else, grade for high-speed
rail I am told by people around the world should be about 3
percent. There, it is as much as 6 percent. So how are we going
to get through the Tehachapis and what is the real cost going
to be in order to link up?
And I know this is--I agree with what the authority is
doing in terms of changing the strategy because of this, but
maybe, Mr. Thompson and Mr. Kelly, you could talk to that.
Mr. Thompson. Well, just briefly, in history, in the 2012
business plan the authority was undecided at the draft plan
whether they were going to go south or north, and at that point
we recommended strongly that they go south because that is
where the demand is. Unfortunately, in history what happened
with the budget that they had--and this loops back to the
problem we are discussing--they had to make the choice to go
north because they only had enough money to go in that
direction, but there was never any question that the right
decision would have been to go south.
Now in the 2018 business plan, we are at the point where
they can't quite complete the northern link either, and so we
are still at this point of funding and what is the funding
source they can rely on.
As for the engineering issues of the Tehachapis, I don't
know that that is any more difficult than Pacheco. There are
earthquake problems, there are geological problems. And I know
you are doing more and more work on this, but I think what I
would say, as you suggest, the Flyvbjerg analysis suggests that
you better not be proud of your numbers until you have actually
done it. And here, I think we just have to face up to the fact
that the numbers have a pretty wide range of variation around
them. They just do. And there is no way at this stage to
eliminate that until you actually have final designs and
engineering estimates to do the work, and even then, you never
know when you start drilling the hole what you are going to
find, so let's be careful about--commitment is fine, but let's
be careful about what those numbers mean.
Mr. DeSaulnier. Brian--and the Japanese are the world's
experts at this; they have done it the most, so I hope you have
conversations with them as well.
Mr. Kelly. Yes, we are, and in fact we put in our business
plan by the end of the year we are hosting a tunneling
symposium that will bring in international expertise on this
issue where, again, you know, this tunneling stuff, it seems a
little foreign here when you talk about tunnels for high-speed
rail, but they are building them all over the world
successfully. And we intend to do that, too.
One comment I would just make about the tough choice of the
north versus south, the authority has had I think appropriately
a philosophy that we maintain in our business plan now. Because
we are in a constrained funding environment, we have to make
investments that we can complete real mobility benefits out of.
And we don't have every dime we need, and so the assessment was
made that we can get further by going north and providing
mobility and environmental benefits in the short term with the
money that we had. And if we had all the money we could, we may
have made a different choice because it is more expensive to go
south. The Tehachapis are tough, but we didn't have all those
dollars in hand, so we made the call we made.
And I still think, and we are proposing the business plan
to use a building-block approach to find midterm mobility,
environmental and economic benefits as we build the whole
valley-to-valley system, then get that operational and use some
of those revenues to go south.
The only thing I would say on the tunneling piece, it is
important to note that in the business plan and our use of
ranges on costs account for some of this difficulty and the
decisions we have to make on the designing point. That is why
for the first time we put ranges in this. We are looking at
these things and if, you know, the low end could be this, if
some of these difficulties are solved, the high end is a little
bit different depending on how bad--and we refine those costs
over time, so every time we come back, those ranges will narrow
and we will get to a refined cost as we go forward.
Mr. DeSaulnier. No, I appreciate that. Thank you, Mr.
Chairman.
Mr. Denham. Thank you, Mr. DeSaulnier.
Ms. Lofgren?
Ms. Lofgren. Just a few other observations or questions. I
think this has been a very helpful hearing, Mr. Chairman, and I
appreciate being included.
You know, thinking about big projects in our history, you
know, when Eisenhower announced we were going to do the
interstate highway project, we didn't know how we were going to
pay for it. We didn't have the money in hand, and yet if we
didn't have the interstate highway program, the country would
be in serious problems. So that really goes to the issue if we
don't do this, what will we face?
Now, I remember seeing some estimates for the lack of this
investment we would have to make different investments in
airports and lanes of highway and the like. Can you tell me,
Mr. Kelly, I mean, there is no cost-free way out of this if we
are going to continue to grow and have a vibrant economy. Isn't
that right?
Mr. Kelly. No, I mean, I described this project as
transformative before because I think it achieves what we want
to achieve in California with our transportation investments.
From a mobility perspective, there is no other project, single
project I could point to that can reduce travel times like this
can. You know, getting from Fresno to San Jose you can build a
lot more freeways, but those cars are not going to travel at
200 miles an hour and so you can't get that mobility benefit by
just doing that, not to mention--I think we are already seeing
in California--because of the housing issue, you are seeing
more and more people move and migrate toward the Central Valley
for affordability of housing--
Ms. Lofgren. Right.
Mr. Kelly.--but today, they are driving to the job centers
of the coast, and that is adding to congestion, air-quality
issues, and other things. And this is about defeating that by
offering a better alternative. And that is what we are putting
forth here.
To your question about other investments, I know there was
an analysis done I think in 2012 that suggested, you know, the
mobility benefits and the ridership numbers that we see, what
we will provide here. You know, it is the equivalent of
building 4,300 lanes of highway, expanding every airport's
runway, which is difficult in California now. And those costs
are in excess of $150 billion to do those things.
So, you know, it is all about choices. For me in my time
here, again, I haven't seen a project that I think can deliver
the mobility, economic, and environmental benefits that this
can, and that is why I am here.
Ms. Lofgren. Well, I am sympathetic to the point made by
Mr. Lowenthal, you know, because we all have--
Mr. Kelly. Yes.
Ms. Lofgren.--our bosses are the voters in our districts,
and we have to have them understand why this is of value, but I
think at a 2030 completion date, very few of us are going to be
in the Congress by the time this is all done, and yet it is
still important for the future of our State that we have this.
If we want an economy, people have to be able to move around,
and so we have to have some patience here, which is tough to
do, along with some creativity to find the missing pieces.
But I just really want to thank all of the witnesses here.
You have been enlightening to us. You have played an important
role for our State, and it is important what you do, so thank
you very much.
And, Mr. Chairman, I will yield back.
Mr. Denham. Thank you, Ms. Lofgren.
Just finally as we close out here, a couple of issues on
procedure going forward with this new audit. Mr. Scovel, if you
could just answer a couple things as we go forward. First of
all, why did you initiate doing the FRA's oversight on this?
What were the red flags that allowed you to say, yes, we need
to audit this?
Mr. Denham. We needed to audit the California high-speed
rail system, the proposal and the Federal money in it for a
number of reasons. First, FRA has appreciable dollars in it. It
is in for the tune of about $3.5 billion total; $2.5 billion of
that has already been spent. There is a matching requirement on
the State authority to match their share so that the Federal
dollars will be put to best use.
This kind of grantmaking effort is new for FRA. For many
decades, FRA was a safety regulatory body. With PRIIA
[Passenger Rail Investment and Improvement Act] in 2008,
followed very quickly by the American Recovery and Reinvestment
Act and appropriations thereafter, FRA needed to transform
themselves. We were talking about transformative efforts, but
this has been a significant lift for FRA.
At times, they have struggled with it, and I don't mean to
cast that in an overly negative light, but they have had to
work from behind the ball. One of the Members mentioned the
economic climate that we suffered in 2008, 2009, and FRA was
working very hard with interim guidance for this new
grantmaking program with staffing shortfalls, with training and
guidance shortcomings, which they recognized, but they needed
to get the money out the door and they needed to demonstrate it
in a very public way.
Since then, not only with the project approval efforts but
also with the amendment and monitoring efforts, FRA has worked
as best they could. My office has provided oversight for them,
provided numerous helpful recommendations, we trust, and FRA
has been attentive and responsive very much to their credit.
And I do want to go on record today as citing them for those
accomplishments.
But at the same time now, we need to recognize that the
Federal investment is at stake. FRA has continuing interest not
only to see the match through but also to make good on what Mr.
Kelly has described as the requirements for acceptable interim
use of the 119-mile Central Valley segment and also, 20 years
thereafter, after the match has been satisfied for the
requirement in the grant now for maintenance of the federally
funded portion in a state of good repair.
So all of that is the FRA's interest, and those are the
interests of our audit. To be clear, we are not here to audit
or answer larger questions about where the State should find
its own funding.
Mr. Denham. Sure.
Mr. Scovel. We are here to make sure that FRA satisfies its
obligations under law, one of which is to pay close attention
to the rail authority. We will use FRA from time to time as a
lens into the authority's business, particularly when it comes
to validating FRA's efforts to validate Federal expenditures to
date and funds that have been advanced as meeting the matching
requirement.
Mr. Denham. And these new authorities under the FRA and the
new obligations with a California high-speed rail, what options
does FRA have in hand to collect funding? You know, with the
State match, what is your leverage to making sure that that
State match actually happens? What can you hold up? What--
Mr. Scovel. Sure. Mr. Chairman, FRA has leverage. First of
all, it still has unexpended funds, $928 million appropriated
in fiscal year 2010. That funding slice could be suspended or
even terminated should the State authority fail to make the
match. Advancing beyond that, there is the question of an
administrative offset as it is known, which means that for
further FRA grant funds to the State, for DOT grant funds, and
even for funds payable by the United States at large to the
State of California, there could be administrative offsets in
order to satisfy or to be applied against the missing State
match.
Beyond that, there is a possible action under the Debt
Collection Act of 1982, not frequently invoked but that is on
the books. It is a possible remedy. In very recent history,
that act was invoked by the Department in a dispute that it had
with the State of New Jersey concerning about $250 million at
stake in the access to the region's core major infrastructure
project in the New York/New Jersey region.
Finally--and this would be--I would consider it a drastic
measure, but the California High-Speed Rail Authority could be
suspended or debarred from further participation in DOT's
surface transportation financial assistance programs. That
would require a finding by FRA and the Department that the
authority was not presently responsible, which sounds innocuous
enough but certainly for an entity like the authority and for
the State of California at large, that would have tremendous
impact. But that is the legal requirement for a suspension or
debarment action to take place.
Mr. Denham. Thank you. And finally, last question, as you
go into this new audit, are there findings that you found in
the 2015 audit that you feel are relevant in this one?
Mr. Scovel. Yes. Our 2015 audit looked at the amendment
processes and guidance that FRA had in place not only with
respect to the California grant but to all of its grants across
the board. And we also looked in that same audit, in the 2015
audit, into the monitoring procedures that FRA had in place.
And we found shortcomings on the amendment side. On the policy
or guidance proposals, the policy pertaining to the possibility
of a tapered match, which had been entered into by FRA with the
State authority in 2012, was in place and appeared to us to be
reasonably satisfactory.
On the other hand, aspects of guidance that pertained to
other issues that might come up in the course of amendment
negotiations between FRA and other possible grantees, parts of
that guidance were incomplete. Other pieces of guidance were
frankly missing, and so we cited those in our recommendations
to FRA.
On the monitoring side, we found that FRA had insufficient
procedures in place to account for shortcomings that it found
in its own reviews of certain grantees. And in fact, some of
the shortcomings that we found insufficiently documented by FRA
pertained to shortcomings that had been found by FRA with
respect to the California grant and the California authority,
things like schedule slips and risk management plans, cost
estimates, all of which the authority was on the hook to
provide FRA. FRA had closed those findings without documenting
them, which put the authority and FRA behind if they needed to
revisit any of those issues. There would be no corporate memory
on that stuff. So we recommended that they clean up all of that
process, and they have followed through on that, again, very
much to their credit for FRA.
Mr. Denham. Thank you.
Mr. Kelly. Mr. Chairman?
Mr. Denham. Mr. Kelly, do you have any final--
Mr. Kelly. Just--
Mr. Denham.--parting words to--
Mr. Kelly. Yes, I just think it may be helpful for the
committee to know just where we are on the match. It was stated
earlier the $2.5 billion match requirement. We are about $937
million into that. From a time perspective, we are about 15
percent through the time, and we are about just under 40
percent on having met our match, so we are ahead of pace on
meeting the match for these Federal funds.
Mr. Denham. Well, thank you. Thank you to each of our
witnesses. Certainly thank you to each of our Members for
coming to this hearing. As I have said before, this is a
critical issue. It is one of the largest projects in the entire
country, if not the largest project, which is why we have held
four oversight hearings out of the 6 years that I have been
chair of this committee.
Before I close out today, let me yield the gentleman from
Sacramento a couple of minutes in closing.
Mr. Garamendi. Let me take the first portion of those 2
minutes to thank you for the intense interest over the period
of time that you have applied to this. I also recall a
conversation I had with Mr. DeSaulnier on the floor of the
House some time ago in which he said we need to look at all of
the infrastructure in its totality and in the ways in which it
all fits together. It is not an isolated project. The high-
speed rail is not an isolated project, he said. It fits into
the highway, it fits into the airports, it fits into the ports,
and all of that infrastructure. And in that context, this is an
important part. I just note that if we don't do this, then what
must we do for transportation? And it is a number perhaps twice
as big as this one project just to do that.
And so, Mr. Chairman, as you continue your work, as the
next ranking member of the full committee, we look forward to
our work together. And with that, thank you for this hearing.
Mr. Denham. Thank you, Mr. Garamendi.
Mr. Garamendi. We shall see.
Mr. Denham. One of the most important parts of this hearing
is what we do after the hearing and making sure that we provide
questions in writing to follow up on these details and request
answers back from each one of you, so thank you in advance for
that. And thank you again for your testimonies.
If there are no further questions, I would ask unanimous
consent that the record of today's hearing remain open until
such time as our witnesses have provided answers to any
questions that may be submitted to them by writing, unanimous
consent that the record remain open for 15 days for any
additional comments and information submitted by Members or
witnesses to be included in the record of today's hearing.
Without objection, so ordered.
Again, I would like to thank our witnesses again for their
testimony. No other Members have anything to add. The hearing
stands adjourned.
[Whereupon, at 12:37 p.m., the subcommittee was adjourned.]