Report 2011-504 Recommendation 1 Responses

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 (Release Date: January 2012)

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

Please see the Authority's response to this finding in Report 2009-106.

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

We consider this recommendation resolved, with reservations. The Authority, as well as its peer review group, have acknowledged the challenge of obtaining adequate funding for this project on an ongoing basis. The Authority also outlines potential sources of funding moving forward in its business plan. We caution the Authority to continue to expand on this analysis in future business plans and to ensure it discusses the availability—or lack of availability—of public funds including federal funds. We note also that the Authority discusses where it estimates the status of the project to be as of 2020, the date the Legislature originally intended for the project to be complete, and estimates completion of phase one in 2025. We caution the Authority to continue to discuss how changing funding sources may continue to delay completion of the project.

Annual Follow-Up Agency Response From September 2015

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 Annual Follow-Up Status: Partially Implemented

Until the business plan reflects the possibility of reduced or delayed funding from the planned sources and sufficient alternative funding scenarios, we will continue to report the status of this recommendation as partially implemented.

Annual Follow-Up Agency Response From October 2014

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 rail 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 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 Annual Follow-Up Status: Partially Implemented

The Authority has taken steps to develop alternative funding scenarios, such as the infusion of cap and trade funds; however, the business plan does not reflect the possibility of reduced or delayed funding from the planned sources.

Annual Follow-Up Agency Response From October 2013

As reported in our one-year response dated January 24, 2013, to the California State Auditor, 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'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, the ICS, 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 a potential funding source for the high-speed rail project. Such funds, if used, would be applied to the completion of the IOS after the construction of the first construction segment, which is fully funded and was approved for appropriation in July 2012. 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 early 2014.

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

1-Year Agency Response

The Authority stated that it continues to work with stakeholders to define alternative delivery scenarios on blended system operations. Additionally, the Authority asserted that in the spring of 2012, the Department of Finance and the Administration identified cap-and- trade revenues as a potential funding source for the program. Further, the Authority stated that it will work with the Department of Finance to define a specific plan for the use of cap-and-trade funds, which it claims 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 1-Year Status: Partially Implemented

Although the Authority's business plan includes three alternative funding scenarios, all three assume a similar or increased level of federal funding compared to the Authority's primary plan, which the federal government has not indicated will occur.

6-Month Agency Response

The Authority stated that it continues to work with stakeholders to define alternative delivery scenarios on blended system operations. Additionally, the Authority asserted that in the spring of 2012, the Department of Finance and the Administration identified cap-and-trade revenues as a potential funding source for the program. Further, the Authority stated that it will work with the Department of Finance to define a specific plan for the use of cap-and-trade funds, which it claims will be presented in detail in the next business plan to be issued in draft in the fall of 2013. However, although the Authority's business plan includes three alternative funding scenarios, all three assume a similar or increased level of federal funding compared to the Authority's primary plan—which the federal government has not indicated will occur. (See 2013-406, pp. 241-242)

California State Auditor's Assessment of 6-Month Status: Partially Implemented

All Recommendations in 2011-504

Agency responses received after June 2013 are posted verbatim.