Report 2009-106 All Recommendation Responses

Report 2009-106: High-Speed Rail Authority: It Risks Delays or an Incomplete System Because of Inadequate Planning, Weak Oversight, and Lax Contract Management (Release Date: April 2010)

Recommendation #1 To: High-Speed Rail Authority, California

To ensure that it can respond adequately to funding levels that may vary from its business plan, the Authority should develop and publish alternative funding scenarios that reflect the possibility of reduced or delayed funding from the planned sources. These scenarios should detail the implications of variations in the level or timing of funding on the program and its schedule.

Annual Follow-Up Agency Response From November 2016

In the 2016 Business Plan, attached, the Authority described its vision for a phased implementation strategy that allows for a series of phased, incremental extensions to ultimately build out the entire Phase 1 system. Just like other systems around the world, the Authority will fund and build the California high-speed rail system in a series of overlapping, not sequential, phases. The first phase that the Authority has already begun constructing is the Silicon Valley to Central Valley Line stretching from San Jose to a station north of Bakersfield.

The 2016 Business plan presents a snapshot of the funding available in addition to the many strategies and scenarios the Authority will use to implement a fully funded Silicon Valley to Central Valley Line. This includes a range of potential funding options available to pay for construction of the entire line. The range of potential available funding is based on different financing scenarios that the Authority analyzed during its business planning process. For example, in the 2016 Business Plan, the Authority discussed its plan to use annual Cap and Trade proceeds received after 2024 to repay financing. The Authority also discussed the different types of financing tools available including federal programs, revenue bonds and other sources, and how the potential proceeds could range from $5.1 billion to $5.3 billion depending on the financing scenario assumed. Ultimately, the Authority used the midpoint of $5.2 billion for planning purposes.

The Authority also laid out the goal of connecting the Silicon Valley to Central Valley Line all the way to San Francisco and Bakersfield. However, since funding may be temporarily inadequate to reach the permanent station in Bakersfield, the Authority also laid out the abridged Silicon Valley to Central Valley Line that fits within available, identified funds. In this instance, the Authority has proposed an interim station just north of Bakersfield which would still meet

California State Auditor's Assessment of Annual Follow-Up Status: Resolved

See our assessment for Recommendation #1 in our follow-up report, 2011-504.

Annual Follow-Up Agency Response From September 2015

See the first recommendation under Responses to the January 2012 report 2011-504 below for our response to this recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

We repeated this recommendation in our follow-up audit; see the authority's response and our assessment in report 2011-504, recommendation number 1.

Annual Follow-Up Agency Response From October 2014

See the first recommendation under Responses to the January 2012 report 2011-504 for our response to this recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

We repeated this recommendation in our follow-up audit; see the authority's response and our assessment in report 2011-504, recommendation number 1.

Annual Follow-Up Agency Response From October 2013

See the first recommendation under Responses to the January 2012 report 2011-504 for our response to this recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From September 2012

The Authority continues to work with stakeholders to define alternative delivery scenarios on blended systems operations. These alternatives will have different levels of costs and differing funding needs. The Authority's business plan includes a section related to the impacts of potential delay in funding or other factors on the project. The Authority has known funding sources from Proposition 1A, $3.3 billion in committed federal funding, and cash flow projections which illustrate that private sector capital should be available when the IOS has been built. The first construction phase is fully funded. The revised business plan clearly identifies known sources and the funding gap that remains to be filled over the next 20 plus years as the full system is built out.

In the spring of 2012, during finalization of the 2012 revised business plan, the Department of Finance and the Administration identified cap-and-trade revenues as potential funding source for the high-speed rail project. Cap and trade funds are available as need, upon appropriation, as a backstop against federal and local support to complete the IOS. The Authority will work with the Department of Finance to define a specific plan for use of cap-and-trade funds, which will be presented in detail in the next business plan to be issued in draft in the fall of 2013.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Recommendation #2 To: High-Speed Rail Authority, California

In order to respond effectively to circumstances that could significantly delay or halt the program, the Authority should ensure that it implements planned actions related to managing risk.

Annual Follow-Up Agency Response From September 2012

In August 2012, the Authority appointed a dedicated risk manager. He served as a risk manager on a significant public works mega-project for the last six years and has over 28 years of transportation experience, including contract management, design, maintenance, and mega-project construction. The Authority's risk manager will manage and coordinate all aspects of the Authority's comprehensive risk management program. The Authority's risk management plan is being updated to encompass the risk manager's roles, responsibilities, and accountability. The risk manager will attend risk management meetings and workshops. The risk manager along with staff, project management and the project management oversight, will continue to focus on refining and enhancing the Authority's risk management program and ensure that risks and opportunities are promptly and prudently managed. Additionally, the Authority's internal audit office hired a senior management auditor with 16 years of transportation related audit experience, expanding the audit office's ability to identify organization and program risks and provide recommendations for risk mitigation.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Recommendation #3 To: High-Speed Rail Authority, California

To avert possible legal challenges, the Authority should ensure that the review group adheres to the Meeting Act or seek a formal opinion from the Office of the Attorney General regarding whether the review group is subject to this act.

Annual Follow-Up Agency Response From October 2013

As reported to the California State Auditor in the Authority's SB 1452 response dated September 17, 2012, and as discussed in Will Kempton's letter dated December 13, 2012, (provided with the one-year response) to the State Auditor, the peer review group serves as an advisor to the Legislature and is not appointed by nor does it report to the Authority. The Authority, therefore, does not have the legal authority to direct how the peer review group conducts its meetings, including providing legal advice to the group about open meeting law requirements.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We remain concerned that the peer review group is subject to the Bagley Keene Open Meeting Act. We still believe the California High-Speed Rail Authority is an appropriate entity to request a legal opinion on this topic.

Annual Follow-Up Agency Response From September 2012

Under California Public Utilities Code section 185035 individuals are appointed to an independent peer review group by the Treasurer, the Controller, the Director of Finance and the Secretary of Business, Transportation and Housing. The peer review group evaluates the Authority's funding plans and prepares its independent judgment as to the feasibility and reasonableness of the plans, appropriateness of assumptions, analysis and estimates, and any other observations or evaluations it deems necessary. It reports its findings to the Legislature. While the Authority must provide any, and all, information requested by the peer review group, it does not have the legal authority to direct how the peer review group conducts its meetings including providing legal advice to the group about open meeting law requirements.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

Recommendation #4 To: High-Speed Rail Authority, California

To ensure that it does not run out of funds for administrative and preconstruction tasks prematurely, the Authority should track expenditures for these activities and develop a long-term spending plan for them. It also should develop procedures and systems to ensure that it complies with Recovery Act requirements.

Annual Follow-Up Agency Response From September 2012

The Authority has implemented a monthly control procedure and supporting spreadsheet that collects monthly cost data from CALSTARS and reports on cumulative information for administrative and pre-construction costs. The procedure and spreadsheet also supports the projections of future costs. The reporting template is updated monthly for actual results while projections for administrative and pre-construction costs will be updated annually by management supported by the PMT.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Recommendation #5 To: High-Speed Rail Authority, California

In order to plan adequately for private investment, the Authority should further specify the potential costs of planned revenue guarantees and who would pay for them.

Annual Follow-Up Agency Response From November 2011

In our AB 115 report to the Joint Legislative Budget Committee dated October 13, 2011, we presented our current funding approach which includes a projection that does not result in a need for an operating subsidy to private operators. Additionally, in our planned business model we indicate that each phase of the implementation of the system would involve private sector investment only at the point that revenue risk could be transferred and we will be able to proceed without providing a revenue guarantee or other similar mechanism to reduce the risk of the private operator(s). We believe our current approach adequately addresses the State Auditor’s recommendation. (See 2011-041, p. 138)

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Recommendation #6 To: High-Speed Rail Authority, California

The Authority should participate in the development of key policy documents, such as its business and strategic plans. Further, Authority members should adhere to their policies and procedures, including those outlining how they may communicate with contractors.

1-Year Agency Response

The Authority added language to its policies and procedures stating that the Authority—meaning the appointed members of the board—is responsible for developing key policy documents, including approving business plans and strategic plans. The Authority also added language to its policies and procedures requiring that board members communicate with contractors through the Authority’s chief executive officer. (See 2012-406, p. 191)

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Recommendation #7 To: High-Speed Rail Authority, California

In order to ensure that staff receive relevant information on the program’s status, the Authority should amend the oversight consultant’s work plan to include a critical review of the progress reports for accuracy and consistency. Authority staff also should request that the Program Manager revise its progress reports to include information on the status of contract products and services in relationship to what was promised.

1-Year Agency Response

The Authority’s project management oversight consultant amended its work plan to include review of the program manager’s progress reports. The Authority provided a March 2011 progress report from the program manager, which included a table of past-due deliverables and an analysis of the “earned value” of its work based on the deliverables. (See 2012-406, p. 191)

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Recommendation #8 To: High-Speed Rail Authority, California

To determine if it is paying invoices that accurately reflect work performed, the Authority should ensure that staff adhere to controls for processing invoices. For example, staff should not pay invoices from regional contractors until they receive written notification from the Program Manager that the work billed has been performed, or until they have conducted an independent verification.

1-Year Agency Response

The Authority developed an invoice review, verification, and approval process. Invoices now include cover sheets requiring signatures from both the program manager and the Authority. The Authority documented the process in its Contract Administration Manual, as discussed in Recommendation 10. (See 2012-406, p. 191)

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Recommendation #9 To: High-Speed Rail Authority, California

To ensure that it does not misuse public funds and can hold contractors accountable, the Authority should adhere to the conditions of its contracts and work plans, and make any amendments and modifications in writing.

1-Year Agency Response

The Authority amended its contract with a contractor to include work on an effort called “Vision California” that was originally under an oral agreement. Further, the Authority amended its contract with its program manager to require an audit-adjusted field rate for staff co-located with the Authority and using Authority facilities, also originally under an oral agreement. An “audit-adjusted field rate” is a discounted overhead rate used when consultants use client facilities. (See 2012-406, p. 191)

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Recommendation #10 To: High-Speed Rail Authority, California

To better determine if payment controls are implemented, the Authority should ensure that its written policies and procedures reflect intended controls over invoice processing and offer sufficient detail to guide staff. These procedures should include steps for documenting implementation of invoice controls.

1-Year Agency Response

The Authority amended its Contract Administration Manual to include detailed procedures for implementation of invoice review and documentation of invoice controls. (See 2012-406, p. 192)

California State Auditor's Assessment of 1-Year Status: Fully Implemented

All Recommendations in 2009-106

Agency responses received after June 2013 are posted verbatim.