Massive cost overruns threaten to derail the bullet train. Here’s what has to change

Only two years ago, the California rail authority unveiled an ambitious plan to begin operating a segment of bullet train service between San Jose and the Central Valley by 2025. It would take nearly every penny in its checkbook, but the rail authority assured the public it would work.

But that plan has been crushed by the acknowledgment Tuesday that the cost of building just 119 miles of rail between the farm towns of Madera and Wasco has soared from about $6 billion to $10.6 billion, siphoning off money that the authority had planned to allocate to the ultimate goal of connecting Los Angeles and San Francisco.

It has left the broader high-speed rail project, a lofty objective that Gov. Jerry Brown has pursued since the 1980s, in an existential crisis.

Over the next year, Brown, the Legislature and the next governor will have to decide whether to create new revenue sources, dramatically delay its construction or scale it far back from a complete 550-mile system, among other possibilities.

“The financial demand for this is so enormous,” said Martin Wachs, a UCLA transportation expert and a member of a peer review panel that oversees the project. “We should have been more ready for this. The costs always rise and the schedule always slips, but that doesn’t mean the project isn’t justified.”

The rail authority last week named a new chief, longtime government executive and political insider Brian Kelly, who faces a big task to shore up the rail authority, restore the confidence of skeptical officials and fix a broad range of management, financial and political problems facing the authority across the state.

When he begins the job on Feb. 1, Kelly said he wants to conduct his own fresh assessment to determine how he can stabilize costs, reduce future expenses, ensure past mistakes are not repeated and guarantee that the 2018 business plan, due next month, will be viable.

“I don’t think the public expects this program to be challenge-free,” Kelly said in a recent interview. “We have to say what we are going to do about them.”

The disclosure of higher costs by the state’s leading consultant, WSP, marked the first time that the rail authority publicly discussed the magnitude of its financial problems.

Until now, rail authority Chairman Dan Richard has repeatedly disputed assessments that its cost estimates were too low, including a confidential analysis by the Federal Railroad Administration in late 2016 that projected rising costs in the Central Valley and a projectwide cost estimate in 2013 by WSP.

The authority has asserted it could build world-class tunnels through California’s geologically complex mountains much faster and for far less than the nation’s top tunnel engineers believed.

It gambled that it could issue construction contracts without the necessary land and then buy up the required parcels in a matter of months.

It counted on private investors to underwrite a big chunk of the project without giving them a financial guarantee that they would not lose money.

And it figured the easiest part of the system to build would be in the Central Valley, where farmland was cheap and there were no mountains to cross, allowing it to quickly construct a functional part of the system as it proposed two years ago.

Those and many other bets failed, leaving the project in jeopardy.

The problems have not dashed the hopes of many proponents, however. Robbie Hunter, president of the state building and construction trades council, said the current 1,500 construction workers on the job in the Central Valley are not the main reason for his support.

“Our airports are crowded and the freeways are jammed, so we need this third mode of fast and clean transportation that people can afford,” Hunter, an iron worker, said. “The alternative will not be cheap either.”

Nobody, he added, can blame the hard hats for the problems.

Dragados USA, part of a Spanish construction giant that is building structures and rail line in Kings County, filed a $275-million claim against the rail authority for not delivering land it needed for work, the Los Angeles Times has learned. The claim, a copy of which was provided by Sacramento attorney Lisa Nicolls, asserts the company was delayed by 868 days. Rail authority spokeswoman Lisa Marie Alley said the claim was settled last month for $51 million and was included in the cost overrun reported last week. Tutor Perini, a contractor that is building in Fresno County, won a multimillion-dollar delay claim earlier.

As problems have multiplied, top executives have left or were kicked out. Kelly is coming in as chief executive seven months after the prior chief, Jeff Morales, left. The authority’s chief operating officer post was vacant for more than a half-year until Joseph Hedges, from the Washington State Department of Transportation, was appointed Friday. Its chief risk officer and its executive in charge of land acquisitions are being filled on an acting basis. Last week, its chief administrative officer, Rosemary Sidley, exited as well.

One of the key tasks ahead, Kelly said in an interview, will be bolstering the staff of the rail authority, so it can rely less on consultants.

An executive with one of the nation’s largest engineering firms, who works on the bullet train project, said conditions at the authority are chaotic. “The people inside the authority are all very nervous the program is going so badly and a new administration will be coming in,” said the executive, who spoke on the condition of anonymity because he is not authorized to talk about the project publicly. “They are looking for a way out.”

Even at the existing price tag of $64 billion for the entire Los Angeles to San Francisco system, the state bonds, federal grants and greenhouse gas fees earmarked for the project through 2025 leave a funding gap of roughly $45 billion. Higher costs will only widen that chasm.

An official close to the project acknowledged that the increasing costs render essentially impossible the current plan for a $21 billion San Jose to Central Valley starter system. Even before the cost increase, there was a funding shortfall: a plan to borrow $5.2 billion against future greenhouse gas fees fell apart, leaving the agency with a checkbook containing only about $16 billion of the needed $21 billion.

“They can’t do it,” said the source, who feared professional repercussions if he was identified by name. And returning to the Legislature for an additional appropriation is risky, since the original funding was supposed to build rail line miles further through Bakersfield. “Any time you want more money to complete less work is a big ask.”

As a result, political experts, passenger rail advocates and officials close to the project presume it will evolve into piecemeal segments in the north, center and south that could remain separated indefinitely.

“This project is becoming a Silicon Valley commuter project, Fresno to San Jose and on to San Francisco,” said Paul Dyson, president of the Rail Passenger Assn. of California.

That means Southern California should consider an electrified system from Lancaster to southern Orange County, he said.

“I would have liked this to be acknowledged as a necessary first phase from the beginning,” Dyson said. “If these regional networks develop, we [can] decide whether to invest in the link between the two.”

The assessment is shared by some top Democratic staffers in the Legislature, who say there is no prospect for the money to build through the difficult Southern California mountains, which would probably cost more than $20 billion. And the original goal of a second phase that would connect to San Diego and Sacramento is a distant dream.

Art Bauer, a former transportation staffer in the state Senate who played a key role in the project’s early phases, said, “Southern California may be on the verge of holding the bag.”

The prospect is infuriating to many proponents who consider such an outcome an outright failure. Hasan Ikhrata, executive director of the Southern California Assn. of Governments, said he is heartened by the appointment of Kelly, who previously served as the secretary of the California state transportation agency.

But he warned that his board, which represents 191 cities in Southern California, is growing “very angry” over the status of the project and word that it may have to be truncated.

Another looming issue is the agreement the association signed with the rail authority, which promised up to $1 billion in rail investments in Southern California. Ikhrata says the rail authority has so far delivered just $15 million; Alley, the agency’s spokeswoman, says it is awaiting additional project requests.

“I hope the vision of connecting Los Angeles and San Francisco is achieved, because anything less is not a success,” Ikhrata said. “If this doesn’t end up connecting the two points, then it is a waste of time and a waste of money.”

[email protected]

Follow me on Twitter @rvartabedian