Denham Statement from Hearing on Oversight of California High-Speed Rail Project

Subcommittee on Railroads, Pipelines, and Hazardous Materials

Field Hearing on “Continued Oversight of the California High Speed Rail Project”

[August 9, 2018]

Opening Statement

(Remarks as Prepared)

This is the fourth hearing that I have held on the California High Speed Rail project since I became chairman of this subcommittee, and it’s the fourth hearing at which we will be discussing higher costs for the project.

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 with a $100 billion cost estimate.

Continued oversight of this project is important, not just to the Central Valley and California, but for the Nation as well.  This project is becoming the poster child for mismanagement and runs the risk of diminishing public perception of much needed passenger rail projects nationwide.

This is one of the reasons why in 2017 I requested a federal audit from U.S. Department of Transportation Inspector General Calvin Scovell, who is testifying here today.  I look forward to hearing from Mr. Scovell about the methodology and trajectory of the audit moving forward.

This project has been awarded nearly $4 billion in federal funding, and it represents nearly forty percent of all high speed rail funding awarded by the Federal Railroad Administration.  That’s 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 Proposition 1A to fund this project, they thought they were approving a $33 billion project that would receive equal parts financing from the state, federal government, and private investors.  However, since then, costs rose to $43 billion, and now the total cost is estimated up to $100 billion, but without immediate connections to San Diego or Sacramento.

Let me be clear, the 2018 Business Plan has a low-end cost estimate, or an “if everything goes according to plan” estimate, of $77 billion.  It also has a high-end estimate, if contingencies run on the expensive end, of $100 billion.

With the Authority’s record of consistently missing deadlines and experiencing cost overruns, the Authority itself has given no one in my Central Valley 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 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 the Phase 1 estimated completion has gone from 2029 to 2033.

In addition, the schedule for environmental reviews has slipped.  In the 2016 Plan it was anticipated that the Authority would complete the environmental approvals for all portions of Phase 1 of the system by 2017; in the 2018 Plan several of those dates have become 2019 or 2020, “subject to change.”  The 2018 Plan notes that the grant agreement with the Federal Railroad Administration requires that environmental review be completed on all Phase 1 sections by 2022.

The estimated funding shortfall is roughly equal to the cost of building the tunnels through the Pacheco Pass to link Gilroy to the Central Valley segment.

In the 2018 Plan, CHSRA proposes to complete the Central Valley segment and the Silicon Valley segments, leaving the Pacheco Pass tunnels, the extension from Madera to Merced, and the connection of Gilroy (the south end of the Silicon Valley segment) to the Central Valley segment as the last portion of the Valley to Valley segment, completion subject to funding availability.  The 2018 Business Plan estimates that the costs for each portion of the project will be significantly higher than was estimated in the 2016 Plan.

The Authority notes that in the past it has given precise estimates of future costs too early in the process; in the 2018 Plan it continues to give precise estimates of future costs for purposes of comparison with previous plans, but is shifting to giving estimates in ranges of cost to more accurately reflect the uncertainties of cost estimates at early stages of project development.

Last but not least, in the 2018 Business Plan, the total cost of Phase 1 of the project now has a base estimate of $77.3 billion and is projected to range as high as $98.1 billion.  This is an increase in cost of at least 20 percent from estimates in the 2016 Business Plan.

California voters narrowly approved this project’s finances in 2008, based on a business case that is unrecognizable from the Authority’s plans today.  If this project is going to move forward and the Authority is going to continue to ask for more taxpayer dollars, we need to know what those funds or financing would be buying.  If the Authority can’t provide specific deliverables and a timeframe, then I believe it would be time for Californians to go back to the polls to vote on whether to continue this project.

Keep in mind that most of the federal money allocated to this project was part of the previous administration’s stimulus package, yet here we are some 10 years later with little to show for it.  Despite chronic mismanagement and the state’s questionable finances, the previous administration chose to request additional funds and proceeded to allocate and expend federal grants. 

The Inspector General audit will analyze if protocol was followed to ensure safeguards were in place when allocating and expending those grants.

We have many problems facing California, most notably one of the worst droughts the state has ever seen.  In a state grappling with a lack of adequate water infrastructure we could have built long-term sustainable water storage for the entire Valley for a fraction of estimated the cost of this rail project.  There are many shovel ready projects that will directly benefit millions of California residents immediately.

It’s unfortunate that the state and this administration don’t have the same political commitment to providing a reliable water supply to California as it does to funding a bullet train that has not, is not, and will never deliver on the promises that were made to voters.