Report 2011-504 Recommendations and Responses in 2015-041
Report 2011-504: High-Speed Rail Authority Follow-Up: Although the Authority Addressed Some of Our Prior Concerns, Its Funding Situation Has Become Increasingly Risky and the Authority's Weak Oversight Persists
| Department | Number of Years Reported As Not Fully Implemented | Total Recommendations to Department | Not Implemented After One Year | Not Implemented as of 2014-041 Response | Not Implemented as of Most Recent Response |
|---|---|---|---|---|---|
| High-Speed Rail Authority | 3 | 23 | 5 | 4 | 4 |
Recommendation 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.
Response
The Authority continues to work with stakeholders (cooperating agencies, the Legislature, federal government, and the private sector) to define alternative delivery scenarios on blended systems operations. These alternatives will have different levels of costs and differing funding needs. 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, the ICS, is fully funded.
The 2014 Business Plan identifies the High-Speed Rail project is also a candidate for Cap and Trade funds. The 2014-15 Budget contained $250 million of cap and trade funds to advance the program. With the passage of SB 862, on an ongoing basis, without the need for annual appropriation, 25% of the annual Cap and Trade proceeds will go to the continued development and construction of the high-speed system. This will be reflected in future business plans. The 2014 Business Plan clearly identifies known sources of funding and the funding needed to complete the full Phase 1 program over the next 20 plus years based on the facts known as of May 2014. To provide increased clarity from the 2012 Business Plan, the additional funding needed is labeled as "uncommitted" to ensure that it is clear that these funds were not currently identified as of May 2014.
Future Business Plans will continue to be updated with additional information on Cap and Trade funds which, depending on actual program performance, could fund significant portions and, possibly all, of the IOS. They will also further describe how capital that can be raised based on the project's net cash flow once operations begin that can be used to help build additional parts of the Phase 1 system. Also, as previously noted, the Authority will only proceed to construction on any segment when all necessary funding has been identified.
- California State Auditor's Assessment of Status: Partially Implemented
- Estimated Completion Date: May 2014
- Response Date: September 2015
Recommendation To: High-Speed Rail Authority, California
To add clarification to the first recommendation we made in our prior report that stated, “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,” the Authority should also present viable alternative funding scenarios for phase one in its entirety that do not assume an increase in the federal funding levels already identified in the 2012 draft business plan. If the Authority does not believe that such alternatives exist, it should publicly disclose this in its 2012 final business plan.
Response
The Authority continues to work with stakeholders (cooperating agencies, the Legislature, federal government, and the private sector) to define alternative delivery scenarios on blended systems operations. These alternatives will have different levels of costs and differing funding needs. 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, the ICS, is fully funded.
The 2014 Business Plan identifies the High-Speed Rail project is also a candidate for Cap and Trade funds. The 2014-15 Budget contained $250 million of cap and trade funds to advance the program. With the passage of SB 862, on an ongoing basis, without the need for annual appropriation, 25% of the annual Cap and Trade proceeds will go to the continued development and construction of the high-speed system. This will be reflected in future business plans. The 2014 Business Plan clearly identifies known sources of funding and the funding needed to complete the full Phase 1 program over the next 20 plus years based on the facts known as of May 2014. To provide increased clarity from the 2012 Business Plan, the additional funding needed is labeled as "uncommitted" to ensure that it is clear that these funds were not currently identified as of May 2014.
Future Business Plans will continue to be updated with additional information on Cap and Trade funds which, depending on actual program performance, could fund significant portions and, possibly all, of the IOS. They will also further describe how capital that can be raised based on the project's net cash flow once operations begin that can be used to help build additional parts of the Phase 1 system. Also, as previously noted, the Authority will only proceed to construction on any segment when all necessary funding has been identified.
- California State Auditor's Assessment of Status: Partially Implemented
- Estimated Completion Date: May 2014
- Response Date: September 2015
Recommendation To: High-Speed Rail Authority, California
To ensure that the public and the Legislature are aware of the full cost of the program, the Authority should clearly disclose that the 2012 draft business plan assumes that the State will only be receiving profits for the first two years of operation in 2022 and 2023, and potentially not again until 2060 in exchange for the almost $11 billion the Authority assumes it will receive from the private sector over a four-year period.
Response
The 2014 Business Plan in the Financial Analysis and Funding chapter describes that "Once the IOS is in operation, cash flows will be available from the project that can be used to support capital from government, private-sector debt programs and private sector equity investments. As discussed in the next section, $6.2 billion to $12.4 billion is anticipated to be available from project supported capital sources for use in developing the Bay to Basin."
As in typical concession transactions, the Authority would, through a competitive procurement, sell the operating rights for the segment for a period of time, such as thirty years. The concessionaire would pay the Authority upfront, an amount based on the projected revenues from the system over that time (e.g., the $6.2-12.4 billion referenced above). The Authority would then use that upfront payment to help with the expansion of the system, and the concessionaire would use the revenues generated over time by operations to recoup its investment. This process would be repeated for subsequent operating segments.
- California State Auditor's Assessment of Status: Partially Implemented
- Estimated Completion Date: May 2014
- Response Date: September 2015
Recommendation To: High-Speed Rail Authority, California
To avert possible legal challenges, the Authority should ensure that the independent peer review panel adheres to the Bagley-Keene Open Meeting Act or seek a formal opinion from the Office of the Attorney General (attorney general) regarding whether the panel is subject to this act.
Response
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 Status: Will Not Implement
- Response Date: October 2013