The GAO Didn't Endorse the California High-Speed Rail Project

GAO says "there is increased risk of such things as cost overruns, missed deadlines, and unmet performance targets"

The Government Accountability Office (GAO) recently issued its congressionally-requested report on the California high-speed rail project. The rail project’s promoters have gone out of their way to characterize the GAO analysis as giving the California plan a "clean bill of health and the California High-Speed Rail Authority (CHSRA) claims GAO gave the project "high marks." 

The GAO report, California High-Speed Passenger Rail: Project Estimates Could Be Improved to Better Inform Future Decisions, however, does not represent the endorsement suggested by proponents. The first paragraph makes this clear:  

The California High-Speed Rail Authority (Authority) met some, but not all of the best practices in GAO’s Cost Estimating and Assessment Guide (Cost Guide) for producing cost estimates that are accurate, comprehensive, well documented, and credible. By not following all best practices, there is increased risk of such things as cost overruns, missed deadlines, and unmet performance targets. 

Capital Costs

While CHSRA has met some of the GAO's best practices, the worldwide experience has been so inaccurate as to suggest that rail industry "best practices," fall far short what taxpayers are entitled to expect. This is illustrated by the leading international research, led by Bent Flyvbjerg at Oxford University, with Nils Bruzelius at the University of Stockholm and Werner Rottengatter at the University of Karlsruhe and a former chairman of the prestigious World Conference on Transportation Research Society (WCTRS). 

Moreover, the GAO implication that additional cost overruns could occur should be sobering to a state whose taxpayers have already seen costs escalate from four to more than five times the international average cited in the Flyvbjerg research. This is may be a world record and is documented in our just released Updated Due Diligence Report examining the latest cost and ridership estimates for the California high-speed train. 

Indeed, the reaction to the far higher costs announced in late 2011 was so negative that CHSRA was forced to reduce its projected costs by substituting a "blended system" likely incapable of traveling between San Francisco and Los Angeles at the legally required two hours and forty minutes (2:40). We estimate a minimum travel time of 3:50. 

The "bait and switch" from high-speed rail to a blended system lost CHSRA one of its most important advocates. Former State Senate Transportation Chairman and CHSRA Chairman Quentin L. Kopp has said that the blended system "is no longer a genuine high speed rail system," calling it " the great train robbery." 

Ridership Projection

GAO characterized the CHSRA ridership and revenue projections as "reasonable." However that assessment is predicated on a "check the boxes" review. GAO "analyzed the extent to which the Authority’s ridership model methodology adhered to FRA guidance and generally accepted practices and reviewed peer review reports assessing the model’s methodology." As in the case of the cost projections, however, the problem is not that CHSRA failed to follow industry procedures, it is that the projections used in rail industry have routinely produced unreliable results. Flyvbjerg, et al find that the average actual ridership of rail systems falls short of projections by nearly 30 percent.

Just two of the flawed planning assumptions that were not analyzed by GAO make the point. 
The first issue is that CHSRA assumes that it will be less costly to ride the train than drive. That is not what people will perceive, nor will it be the basis of their decisions to ride or drive. Drivers generally consider only gasoline costs, a point made by CHSRA consultant Cambridge Systematics in its review of the Xpress West high speed rail proposal (proposed Victorville, California to Las Vegas train): “travelers will rarely consider the full range of auto operating costs in their trip decisions.”

Cambridge Systematics continued: "Usually, auto travelers will consider their cost of travel to be only their out-of-pocket gas costs" and, "While higher per mile costs are more consistent with the true costs of driving (including operating, maintenance, and ownership costs), they are generally not considered by travelers for specific travel decisions."

Yet, CHSRA and its same consultant, Cambridge Systematics, inflate their assumptions to include "non-gasoline" automobile operating costs. As is indicated in our Due Diligence Report Update, the substitution of a more reasonable assumption could drop the projected number of drivers attracted to high-speed rail by half, which would also reduce that revenue source by a similar amount.

The second issue is the assumption that most of the riders would be attracted from cars. This is contrary to the international experience, in which most riders are attracted either from airlines or from already existing rail services, which are scant in California.

These two issues, the upward skewing automobile costs and the assumption that most riders would come from automobiles are the kind of flawed assumptions behind the erroneous ridership projections that have led to the planning train-wrecks indicated by Flyvbjerg, et al. Either of these deficiencies is sufficient to reduce ridership and revenue so much that California taxpayers would have to subsidize day to day operations. 

Funding

GAO makes it clear that there are substantial barriers to the obtaining the "other people's money" that CHSRA will need to finish the high-speed rail line. GAO describes the challenge of obtaining the planned federal subsidies, which it notes would require an annual appropriation 60 percent greater than all the federal funding for transit rail projects around the country and at least that much more than given to the nationwide Amtrak rail system. Obviously the chances of one state receiving so much financial largesse from the 49 others seems fanciful, to say the least. 

The Bottom Line

The bottom line of the GAO report is that CHSRA has checked the procedural boxes. The more important issue is that important premises were beyond the GAO's scope of work and are faulty, which should be little comfort to California taxpayers. It should also concern federal taxpayers whose elected representatives in Washington continue to face pressure from well-funded high-speed rail proponents to open wide the federal spigot, despite unprecedented fiscal challenges. 

Wendell Cox is principal of Demographia, a public policy firm. Joseph Vranich is an Irvine, Calif.-based business consultant.






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