HIGH-SPEED 

PASSENGER RAIL

Preliminary Assessment of 

California’s Cost Estimates 

and Other Challenges

Statement of Susan A. Fleming, Director 

Physical Infrastructure Issues 

Testimony

Before the Committee on 

Transportation and Infrastructure, 

House of Representatives 

For Release on Delivery 

Expected at 9:30 a.m. EST 

Thursday, December 6, 2012 

GAO-13-163T 

United States Government Accountability Office

GAO 
 United States Government Accountability Office 

Highlights of GAO-13-163T, a testimony 

before the Committee on Transportation and 

Infrastructure, House of Representatives 

December 6, 2012 

HIGH-SPEED PASSENGER RAIL 

Preliminary Assessment of California’s Cost 

Estimates and Other Challenges 

Why GAO Did This Study 

The California high-speed rail project is 

the single largest recipient of federal 

funding from the Federal Railroad 

Administration’s (FRA) High Speed 

Intercity Passenger Rail (HSIPR) grant 

program. The 520-mile project (see 

map) would link San Francisco to Los 

Angeles at an estimated cost of $68.4 

billion. Thus far, FRA has awarded $3.5 

billion to the California project. The 

Authority has to continue to rely on 

significant public-sector funding, in 

addition to private funding, through the 

project’s anticipated completion date in 

2028. This testimony is based primarily 

on GAO’s ongoing review of the 

California high-speed rail project and 

discusses GAO’s preliminary 

assessment of (1) the reliability of the 

project’s cost estimates developed by 

the Authority and (2) key challenges 

facing the project. 

As part of this review, we obtained 

documents from and conducted 

interviews with Authority officials, its 

contractors, and other state officials. 

GAO analyzed the extent to which 

project cost estimates adhered to best 

practices contained in GAO’s Cost 

Estimating and Assessment Guide 

(Cost Guide), which identifies industry 

best practices to ensure cost estimates 

are comprehensive, accurate, well 

documented, and credible—the four 

principal characteristics of a reliable 

cost estimate. GAO also reviewed 

project finance plans as outlined in the 

Authority’s April 2012 revised business 

plan. To identify key challenges, GAO 

reviewed pertinent legislation, federal 

guidelines and best practices related to 

ridership and revenue forecasting, and 

interviewed, among others, federal, 

state, and local officials associated 

with the project. 

What GAO Found 

Based on an initial evaluation of the California High Speed Rail Authority’s 

(Authority) cost estimates, GAO found that they exhibit certain strengths and 

weaknesses when compared to best practices in GAO’s Cost Guide. Adherence 

with the Cost Guide reduces the risk of cost overruns and missed deadlines. 

GAO’s preliminary evaluation indicates that the cost estimates are comprehensive 

in that they include major components of construction and operating costs. 

However, they are not based on a complete set of assumptions, such as how the 

Authority expects to adapt existing high-speed rail technology to the project in 

California. The cost estimates are accurate in that they are based on the most 

recent project scope, include an inflation adjustment, and contain few mathematical 

errors. And while the cost estimates’ methodologies are generally documented, in 

some cases GAO was unable to trace the final cost estimate back to its source 

documentation and could not verify how certain cost components, such as stations 

and trains, were calculated. Finally, the Authority evaluated the credibility of its 

estimates by performing both a sensitivity analysis (assessing changes in key cost 

inputs) and an independent cost estimate, but these tests did not encompass the 

entire cost estimate for the project. For example, the sensitivity analysis of the 

construction cost estimate was limited to 30 miles of the first construction segment. 

The Authority also did not conduct a risk and uncertainty analysis to determine the 

likelihood that the estimates would be met. The Authority is currently taking some 

steps to improve its cost estimates. 

The California high-speed rail project faces many challenges. Chief among these 

is obtaining project funding beyond the first 130-mile construction segment. While 

the Authority has secured $11.5 billion from federal and state sources, it needs 

almost $57 billion more. Moreover, the HSIPR grant program has not received 

federal funding for the last 2 fiscal years, and future federal funding is uncertain. 

The Authority is also challenged to improve its ridership and revenue forecasts. 

Factors, such as limited data and information, make developing such forecasts 

difficult. Finally, the environmental review process and acquisition of necessary 

rights-of-way for construction could increase the risk of the project’s falling 

behind schedule and increasing costs. 

Map of Planned California High-Speed Rail System and Construction Timeline 

View GAO-13-163T. For more information, 

contact Susan A. Fleming at (202) 512-2834 

or flemings@gao.gov. 
Page 1 GAO-13-163T 

United States Government Accountability Office

Washington, DC 20548 

Chairman Mica, Ranking Member Rahall, and Members of the 

Committee: 

Thank you for the opportunity to be here today as the committee 

examines the Department of Transportation’s (DOT) High Speed Intercity 

Passenger Rail (HSIPR) program.1

 As you know, this program was 

established to provide grant funds to states and others to develop highspeed intercity passenger-rail corridors and projects. HSIPR is 

administered by the Federal Railroad Administration (FRA), and, as of 

October 2012, almost $10 billion has been obligated for 150 projects 

under this program, though it has received no appropriations since fiscal 

year 2010. The projects range from multibillion dollar high-speed rail 

systems, like that in California, to smaller projects designed to improve 

speeds, frequency, and reliability of conventional intercity passenger-rail 

service. 

My statement today will discuss our ongoing examination of the California 

high-speed rail project—the largest recipient of HSIPR grant funds to 

date. We are providing preliminary observations based on our work to 

date, particularly related to the California High Speed Rail Authority’s 

(Authority) project cost estimates. We also identify some of the key 

challenges facing the project. Our ongoing review, which this committee 

and other Members of the House requested, focuses on assessing the 

reliability of the project’s cost estimates and financing plans, evaluating 

the reasonableness of ridership and revenue forecasts, and examining 

the comprehensiveness of potential project economic impacts. As such, 

we are assessing the quality of the information used by policymakers and 

not evaluating the merits of the project itself, which should be considered 

in light of whether this project best meets the transportation needs of the 

estimated 51 million Californians in 2050. 

This testimony is based on our preliminary assessment of the first phase 

of the project’s cost estimates using GAO’s Cost Estimating and 

Assessment Guide2 (Cost Guide). While FRA did not require HSIPR grant 

 

1

The program was authorized under the Passenger Rail Investment and Improvement Act 

of 2008 (PRIIA). Pub. L. No. 110-432, Div. B (Oct. 16, 2008). 

2

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009). 

 
 

Page 2 GAO-13-163T 

applicants to follow the Cost Guide, the Cost Guide identifies best 

practices that help ensure cost estimates are well documented, 

comprehensive, accurate, and credible. The Cost Guide has been used to 

evaluate cost estimates across the government, including infrastructure 

projects. We also assessed the Authority’s analysis of the project’s 

finance plans as outlined in the Authority’s April 2012 revised business 

plan. We analyzed the extent to which the project’s cost estimates 

adhered to the best practices contained in the Cost Guide and 

interviewed Authority officials, its contractors, and other federal officials. 

To identify key challenges, we reviewed pertinent legislation, federal 

guidelines and best practices related to ridership and revenue 

forecasting, prior GAO reports on the topic of high-speed passenger rail 

and reports published by the DOT’s Office of Inspector General (OIG). In 

addition, we interviewed federal, state, and local officials associated with 

the project as well as members of the ridership and revenue peer review 

panel established by the Authority. We also reviewed the status of the 

project’s environmental reviews and sought to identify legal challenges to 

the project as well as interviewed officials from the Authority, the 

California Department of Transportation, and other state officials about 

right-of-way acquisition.3

 We conducted our work in accordance with 

generally accepted government auditing standards. We plan to report the 

final results of our work in early 2013. 

While high-speed passenger rail has been in operation in Europe and 

Asia for several decades, it is in its relative infancy in the United States. 

The Passenger Rail Investment and Improvement Act of 2008 (PRIIA) 

called for development of high-speed rail corridors in the United States 

and led to establishment of the HSIPR program. FRA administers the 

HSIPR program as a discretionary grant program to states and others. 

This program was appropriated $8 billion in funding from the American 

Recovery and Reinvestment Act (Recovery Act) in 2009 and an additional 

$2.5 billion in funding from the fiscal year 2010 DOT Appropriations Act.4

According to FRA, as of October 2012, about $9.9 billion has been 

 

3

This project will construct new rail right of way to provide service, some of which may 

require acquisition of privately owned land. 

4

Pub. L. No. 111-5, 123 Stat. 208 (Feb. 17, 2009); Pub. L. No. 111-117, 123 Stat. 3056 

(Dec. 16, 2009). For fiscal years 2011 and 2012, no appropriations were made to the 

program. For fiscal year 2011, $400 million in unobligated funds were rescinded. Pub. L. 

No. 112-10, § 2222 (Apr. 15, 2011). 

Background 
 

Page 3 GAO-13-163T 

obligated for 150 projects.5 The California high-speed rail project is the 

largest recipient of HSIPR funds, with approximately $3.5 billion (about 35 

percent of program funds obligated). We have previously reported on 

high-speed rail and the HSIPR program. For example, in March 2009 we 

reported on the challenges associated with developing and financing 

high-speed rail projects. These included securing the up-front 

investments for such projects and sustaining public and political support 

and stakeholder consensus.6

 We concluded that whether any high-speed 

rail proposals are eventually built hinges on addressing the funding, 

public support, and other challenges facing these projects. In June 2010, 

we reported that states would be the primary recipients of Recovery Act 

funds for high-speed rail, but many states did not have rail plans that 

would, among other things, establish strategies and priorities of rail 

investments in a particular state.7

California’s high-speed rail project is poised to be the first rail line in the 

United States designed to operate at speeds greater than 150 miles per 

hour.8

 The planned 520-mile line will operate between San Francisco and 

Los Angeles at speeds up to 220 miles per hour (see fig.1). At an 

estimated cost of $68.4 billion,9

 it is also one of the largest transportation 

infrastructure projects in the nation’s history. The project’s planning began 

in 1996 when the Authority was created but began in earnest after initial 

funding was approved in 2008 with the passage of Proposition 1A, which 

authorized $9.95 billion in state bond funding for construction of the highspeed rail system and improvements to connections (see fig. 2). 

Construction is expected to occur in phases beginning with the 130-mile 

first construction segment from just north of Fresno, California, to just 

north of Bakersfield, California. In July 2012, the California legislature 

appropriated $4.7 billion in state bond funds. The process of acquiring 

 

5

Five of these projects were pending obligations. 

6

GAO, High Speed Passenger Rail: Future Development Will Depend on Addressing 

Financial and Other Challenges and Establishing a Clear Federal Role, GAO-09-317

(Washington, D.C.: Mar. 19, 2009). 

7

GAO, High Speed Rail: Learning From Service Start-Ups, Prospects for Increased 

Industry Investment, and Federal Oversight, GAO-10-625 (Washington, D.C.: June 17, 

2010). California has a state rail plan that is in the process of being updated. 

8

Amtrak’s Acela service is capable of operating at speeds greater than 150 miles per hour 

but is not currently authorized by FRA to do so. 

9

All costs are in year-of-expenditure dollars unless otherwise noted. 
 

Page 4 GAO-13-163T 

property for the right-of-way and construction is expected to begin soon. 

Request for proposals to select construction contractors and right-of-way 

acquisitions were issued in March and September 2012, respectively. 

According to the Authority, a design-build contract for the first 

construction segment is expected to be awarded in June 2013 with 

construction potentially commencing no earlier than summer 2013. 

Figure 1: Map of Planned California High-Speed Rail System and Construction 

Timeline 

a

The IOS includes the first construction segment. The construction southward of the IOS will continue 

as funding becomes available (anticipated after 2015). b

Early investments will be made in the bookends of the system (San Francisco peninsula and in the 

Los Angeles basin) beginning in 2013. 
 

Page 5 GAO-13-163T 

Figure 2: Timeline of California High Speed Rail Project 

The project underwent substantial revision earlier this year after the 

Authority issued its November 2011 draft business plan in response to the 

initial high cost and other criticisms. Most significantly, the Authority 

scaled back its plans to build dedicated high-speed rail lines over its 

entire length. Instead, the April 2012 revised business plan adopted a 

“blended” system in which high-speed rail service would be provided over 

a mix of dedicated high-speed lines and existing and upgraded local rail 

infrastructure (primarily at the bookends of the system on the San 

Francisco peninsula and in the Los Angeles basin). This change was 

made, in part, to respond to criticism that the cost of the full-build system 

contained in the November 2011 draft business plan—$98.5 billion—was 

too high. The revised cost in the April 2012 plan was $68.4 billion. In 

addition, the ridership and revenue forecasts in the April 2012 revised 

business plan reflected a wider uncertainty range than the forecast 
 

Page 6 GAO-13-163T 

presented in the November 2011 plan.10 For example, in the November 

2011 draft business plan, the Authority estimated 2030 ridership to be 

between 14.4 million and 21.3 million passengers and annual revenues of 

the high speed rail system to be between $1.05 billion and $1.56 billion.11

This range increased in the April 2012 revised business plan, to between 

16.1 million and 26.8 million passengers and annual revenues to be 

between $1.06 billion and $1.81 billion.12 The Authority attributed the 

increase in the uncertainty range to additional conservatism in the low 

ridership estimate and the ridership changes to several factors such as 

the adoption of the blended approach which, among other things, allows 

one-seat service from San Francisco to Los Angeles to begin sooner than 

the original full-build approach. However, over time ridership forecasts 

under the blended approach are less than the original full-build approach. 

To date, the state of California and the federal government have 

committed funding to the project. In July 2012, the California state 

legislature appropriated approximately $4.7 billion dollars in Proposition 

1A bond funds, including $2.6 billion for construction of the high-speed 

rail project and $1.1 billion for upgrades in the bookends.13 The federal 

government has also obligated $3.3 billion in HSIPR grant funds.14 Most 

of the HSIPR money awarded to the project was appropriated under the 

Recovery Act and in accordance with governing grant agreements must 

be expended by September 30, 2017. In addition, approximately $945 

million in fiscal year 2010 funding was awarded to the project by FRA and 

is to remain available until expended. 

 

10The Authority retained Cambridge Systematics—a transportation consulting firm that 

provides ridership forecasting and modeling services—to develop a travel-demand model 

that was used to generate the November 2011 ridership and revenue forecasts. 

Cambridge Systematics also prepared the updated ridership and revenue forecasts that 

were included in the April 2012 revised business plan. 

11These revenue forecasts are in 2010 dollars. 

12These revenue forecasts are in 2011 dollars. 

13An additional $819.3 million was appropriated by the state legislature for connectivity 

projects and about $252.6 million for environmental, system design, and preliminary 

engineering work. 

14Approximately $231 million in additional HSIPR grants have also been awarded 

primarily for environmental review and preliminary engineering work. In addition, $400 

million was awarded to the Transbay Joint Powers Board for construction of a train box at 

the Transbay Transit Center in San Francisco. The Transbay Transit Center is the 

expected northern terminus of the California high speed rail line. 
 

Page 7 GAO-13-163T 

The Authority estimates that the high-speed rail project in California will 

cost $68.4 billion to construct and hundreds of millions of dollars to operate 

and maintain annually. Since the project is relying on significant 

investments of state and federal funds—and, ultimately private funds—it is 

vital that the Authority, FRA, and Congress be able to rely on these 

estimates for the project’s funding and oversight (see table 1 below for a 

summary of the sources of funding). GAO’s Cost Guide identifies best 

practices that help ensure that a cost estimate is comprehensive, 

accurate, well documented, and credible. 

 A comprehensive cost estimate ensures that costs are neither 

omitted nor double counted. 

 An accurate cost estimate is unbiased, not overly conservative or 

overly optimistic, and based on an assessment of most likely costs. 

 A well-documented estimate is thoroughly documented, including 

source data and significance, clearly detailed calculations and 

results, and explanations for choosing a particular method or 

reference. 

 A credible estimate discusses any limitations of the analysis from 

uncertainty or biases surrounding data or assumptions. 

These four characteristics help minimize the risk of cost overruns, missed 

deadlines, and unmet performance targets. Our past work on high-speed 

rail projects around the world has shown that projects’ cost estimates tend 

to be underestimated.15 As such, it is important to acknowledge the 

potential for this bias and ensure that cost estimates are as reliable as 

possible. 

Based on our ongoing review, we have found that the Authority’s cost 

estimates exhibit strengths and weaknesses. The quality of any cost 

estimate can always be improved as more information becomes 

available. And based in part on evaluations from the Peer Review Group, 

the Authority is taking some steps to improve the cost estimates that will 

be provided in the 2014 business plan. 

 

15GAO-09-317. 

Preliminary 

Assessment of 

California’s Cost 

Estimates 
 

Page 8 GAO-13-163T 

The Authority followed best practices in the Cost Guide to ensure 

comprehensiveness, but also exhibited some shortcomings. The cost 

estimates include the major components of the project’s construction and 

operating costs.16 The construction cost estimate is based on detailed 

construction unit costs that are, in certain cases, more detailed than the 

cost categories required by FRA in its grant applications. However, the 

operating costs were not as detailed as the capital costs, as over half of 

the operating costs are captured in a single category called Train 

Operations and Maintenance. In addition, the Authority did not clearly 

describe certain assumptions underlying both cost estimates. For 

example, Authority officials told us that the California project will rely on 

proven high-speed rail technology from systems in other countries, but it 

is not clear if the cost estimates were adjusted to account for any 

challenges in applying the technology in California. 

The Authority took a number of steps to develop accurate cost estimates 

consistent with best practices in the Cost Guide. The estimates have 

been updated to reflect the new “blended” system which will rely, in part, 

on existing rail infrastructure; they are based on a dataset of costs to 

construct comparable infrastructure projects; they contain few, if any, 

mathematical errors; and they have been adjusted for inflation. For 

example, the Authority’s contractor used a construction industry database 

of project costs supplemented with actual bid-price data from similar 

infrastructure projects. However, the cost estimates used in the April 2012 

revised business plan do not represent final design and route alignments, 

and the estimates will change as the project moves into construction and 

operation. The Authority did not produce a risk and uncertainty analysis of 

its cost estimates that would help anticipate the impact of these changes. 

The Cost Guide recommends conducting a risk and uncertainty analysis 

to determine the primary risk factors and assess the likelihood that they 

may occur, helping to ensure that the estimate is neither overly 

conservative nor optimistic. 

The Authority followed some, but not all, best practices in the Cost Guide

to ensure that the cost estimate is well documented. In many cases, the 

methodologies used to derive the construction cost estimates were well 

documented, but in other cases the documentation was more limited. 

For example, while track infrastructure costs were thoroughly 

 

16Operating costs include maintenance costs. 
 

Page 9 GAO-13-163T 

documented, costs for other elements, such as stations and trains, were 

supported with little detail or no documentation. Additionally, in some 

cases where the methodologies were documented, we were unable to 

trace the estimates back to their source data and recreate the estimates 

using the stated methodology. For example, we were unable to identify 

how the operating costs from analogous high-speed rail projects were 

adjusted for the California project. 

The Authority took some steps consistent with our Cost Guide to ensure 

the cost estimates’ credibility, but not with respect to some best practices. 

In order to make cost estimates credible, GAO’s Cost Guide

recommends: 

 testing such estimates with sensitivity analysis (making changes in 

key cost inputs), 

 a risk and uncertainty analysis (discussed above), and 

 an independent cost estimate conducted by an unaffiliated party to 

see how outside estimates compare to the original estimates. 

While the Authority performed a sensitivity analysis for the first 30 miles of 

construction and an independent cost estimate for the first 185 miles of 

construction in the Central Valley, neither covered the entire Los Angeles 

to San Francisco project. For the operating-cost estimate, the Authority 

conducted a sensitivity test under various ridership scenarios; however, 

this test was designed to measure the ability of the system to cover 

operating costs with ticket revenues and not to determine the potential 

risk factors that may affect the operating-cost estimate itself. The 

Authority also did not compare their operating-cost estimate to an 

independent cost estimate. Finally, as noted above, the Authority did not 

perform a risk and uncertainty analysis, which would improve the 

estimates’ credibility by identifying a range of potential costs and 

indicating the degree of confidence decision-makers, can place on the 

cost estimates. 

The Authority is taking steps to improve its cost estimates. To make its 

operating-cost estimate more comprehensive and better documented, the 

Authority has contracted with the International Union of Railways to 

evaluate the existing methodology and data and help refine its estimates. 

In addition, to improve the construction cost estimates, the Authority will 

have the opportunity to validate and enhance, if necessary, the accuracy 

of its cost estimates once actual construction package contracts are 
 

Page 10 GAO-13-163T 

awarded for the initial construction in the Central Valley in 2013. The bids 

for the first 30-mile construction package are due in January 2013 and will 

provide a check on how well the Authority has estimated the costs for this 

work as well as provide more information on potential risks that cost 

estimates of future segments may encounter. 

In addition to challenges in developing reliable cost estimates, the 

California high-speed rail project also faces other challenges. These 

include obtaining project funding beyond the first construction segment, 

continuing to refine ridership and revenue estimates beyond the current 

forecasts, and addressing the potential increased risks to project 

schedules from legal challenges associated with environmental reviews 

and right-of-way acquisitions. 

One of the biggest challenges facing California’s high-speed rail project is 

securing funding beyond the first construction segment. While the 

Authority has secured $11.5 billion from federal and state sources for 

project construction, almost $57 billion in funding remains unsecured. A 

summary of funding secured to-date can be found in Table 1. 

Table 1: Funding Secured for Constructing the High-Speed Rail Project 

(Dollars in billions) 

State high speed rail bonds $8.2a

Federal HSIPR grants 3.3 b

Total secured funding $11.5

Source: GAO analysis of FRA grant information and the California High Speed Rail Authority April 2012 Revised Business Plan. 

a

The Authority expects approximately $8.2 billion in proceeds from the $9.95 in authorized 

Proposition 1A high-speed rail bonds to be available for construction of high-speed rail. The 

remainder is for connectivity projects and engineering and environmental work. 

b

Approximately $3.3 billion of $3.5 in obligated HSIPR grants is available for construction of highspeed rail project. The remainder is for engineering and environmental work. 

As with other large transportation infrastructure projects, including highspeed rail projects in other countries, the Authority is relying primarily on 

public financial support, with $55 billion or 81 percent of the total 

construction cost, expected to come from state and federal sources. A 

summary of the Authority’s funding plan can be found in table 2. 

California High-Speed 

Rail Project Faces 

Financial and Other 

Challenges 

Challenges To Securing 

Project Funding 
 

Page 11 GAO-13-163T 

Table 2: California’s Funding Plan for Construction of the High-Speed Rail Project, according to the April 2012 Revised 

Business Plan 

(Dollars in billions) 

Funding source 

First 

construction 

Initial operating 

segment Bay-to-Basin

Phase 1 

blended Total 

Federal $3.3 $20.3 $8.4 $10.0 $ 42.0 (61%)

State high-speed rail bond 2.7 4.4 0.0 1.1 8.2 (12)

Locally generated 0.0 0.7 1.2 3.1 5.0 (7)

Subtotal public 6.0 25.4 9.6 14.2 55.2 (81%)

Private investment 0.0 0.0 10.1 3.0 13.1 (19)

Operating cash flow 0.0 0.0 0.2 0.0 0.2 (0)

Subtotal private investment 

and operating cash flow 

0.0 0.0 10.3 3.0 13.3 (19%)

Total $6.0 $25.4 $19.9 $17.2 $68.5 (100%)

Source: GAO analysis of California High Speed Authority’s April 2012 revised business plan. 

Of the total $55 billion in state and federal funding, about $38.7 billion are 

uncommitted federal funds, an average of over $2.5 billion per year over 

the next 15 years. Most of the remaining funding is from unidentified 

private investment once the system is operational—a model that has 

been used in other countries, such as for the High Speed One line in the 

United Kingdom. As a result of the funding challenge, the Authority is 

taking a phased approach—building segments as funding is available. 

However, given that the HSIPR grant program has not received funding 

for the last 2 fiscal years and that future funding proposals will likely be 

met with continued concern about federal spending, the largest block of 

expected funds is uncertain. The Authority has identified revenues from 

California’s newly implemented emissions cap and trade program in the 

event other funding is not made available, but according to state officials, 

the amounts and authority to use these funds are not yet established.17

 

17California’s Legislative Analyst’s Office has evaluated the risks of applying cap and trade 

revenues to the high-speed rail project. See Legislative Analyst’s Office, The 2012-2013 

Budget: Funding Requests for High Speed Rail (Sacramento, CA: Apr. 17, 2012). 
 

Page 12 GAO-13-163T 

Developing reliable ridership and revenue forecasts is difficult in almost 

every circumstance and for a variety of reasons. Chief among these are 

(1) limited data and information, (2) risks of inaccurate assumptions, and 

(3) accepted forecast methods vary. Although forecasting the future is 

inherently risky, reliable ridership and revenue forecasts are still critical 

components in estimating the economic viability of a high-speed rail 

project and in determining what project modifications, if any, may be 

needed. For example, the financial viability of California’s high-speed rail 

project depends on generating sufficient ridership to cover its operating 

expenses. Ridership and revenue forecasts enable policymakers and 

private entities to make informed decisions on policies related to the 

proposed high-speed rail system and to determine the risks associated 

with a high-speed rail project when making investment decisions. 

Addressing these challenges will be important for the Authority as it works 

toward updating its ridership and revenue forecasts for the 2014 business 

plan. 

Limited data and information, especially early in a project before specific 

service characteristics are known, make developing reliable ridership and 

revenue forecasts difficult. And to the extent early stage data and 

information are available, they need to be updated to reflect changes in 

the economy, project scope, and consumer preferences. For example, in 

developing the ridership and revenue forecasts for the April 2012 revised 

business plan, the Authority updated several assumptions and inputs 

used to develop the initial ridership and revenue forecasts that were 

presented in the November 2011 draft business plan. Authority officials 

said this update was done, in part, to build in additional conservatism in 

the ridership forecasts, in particular in the low scenario, and to avoid 

optimism bias. Among other updates, the Authority revised model 

assumptions to reflect changes in current and anticipated future 

conditions for airfares and airline service frequencies, decreases in 

gasoline price forecasts, and anticipated declines in the growth rates for 

population, number of households, and employment. Peer review groups, 

such as the Ridership and Revenue Peer Review Panel (Panel) 

established by the Authority, and academic reviewers have examined the 

Authority’s ridership and revenue forecast methodology. These reviewers 

Challenges to Developing 

Ridership and Revenue 

Forecasts 
 

Page 13 GAO-13-163T 

recommended additional improvements to the model going forward.18 For 

example, in developing the forecasts used for the April 2012 revised 

business plan, the Authority relied on data from a 2005 survey that was 

conducted at airports, rail stations, and by telephone from August to 

November 2005.19 In a May 2012 report to the Authority, the Panel 

pointed out limitations with this data source and recommended that new 

data be collected to supplement the existing data for model enhancement 

purposes. Authority officials stated that they are currently developing a 

new revealed-preference and stated-preference survey to update the 

2005 survey data and that they plan to begin collecting this new survey 

data in December 2012.20 Portions of the new 2012 data will be used to 

re-estimate and re-calibrate the ridership model to develop updated 

ridership and revenue forecasts for the 2014 business plan. The Authority 

also plans to develop a new version of the model that will make full use of 

the new 2012 survey data; however, the new model is not expected to be 

developed in time for the 2014 business plan. It will be important to 

complete these future model improvements as the project is developed. 

Risks of inaccurate forecasts are a recurring challenge for sponsors of the 

project. Research on ridership and revenue forecasts for rail infrastructure 

projects have shown that ridership forecasts are often overestimated and 

actual ridership is likely to be lower. For example, a recent study 

examined a sample of 62 rail projects and found that for 53 of them, the 

demand forecasts were overestimated and that actual demand was lower 

than forecasted demand.21 According to the Authority, the ridership and 

 

18Several groups have examined the Authority’s ridership and revenue forecast 

methodology including the Ridership and Revenue Peer Review Panel—a panel 

convened by the Authority to conduct an independent review of the Authority’s ridershipand revenue-forecasting process and outcomes. In addition, academic experts from the 

University of California Berkeley’s Institute of Transportation Studies conducted a review 

of ridership and revenue forecast models used to develop forecasts in June 2010. 

19This survey data included revealed-preference and stated-preference mode choice data 

from air, rail, and auto trip passengers. These data were used to construct a model of 

travelers’ choices among different modes of travel, including high-speed rail, for different 

segments of the market. 

20In addition, the Authority conducted a supplemental trip-frequency survey in May 2011. 

These survey data were not used to replace the 2005 survey data but were used to 

enable recalibration and validation to more recent conditions. 

21Bent Flyvbjerg, "Quality Control and Due Diligence in Project Management: Getting 

Decisions Right by Taking the Outside View," International Journal of Project Management 

(November 2012), http://dx.doi.org/10.1016/j.ijproman.2012.10.007. 
 

Page 14 GAO-13-163T 

revenue forecasts, in its April 2012 revised business plan, include a wider 

range of ridership and revenue forecasts and lower ridership and revenue 

forecasts compared to earlier forecasts, to help mitigate the risks of 

optimism bias. In addition, the Authority performed a sensitivity analysis 

of an extreme downside scenario to test the ridership and revenue 

implications of a series of downside events coinciding, such as increased 

average rail-travel time from Merced to the San Fernando Valley and 

lower auto-operating costs. Based on this analysis, the Authority 

determined that an extreme downside scenario would be expected to 

reduce ridership and revenue forecasts by 27 percent and 28 percent, 

respectively, below that shown for the low forecasts in the April 2012 

revised business plan. According to the Authority, these forecasts would 

still be sufficient to cover the Authority’s estimated operating costs and 

would not require a public operating subsidy. Authority officials stated that 

they intend to conduct additional sensitivity analyses going forward. 

Finally, accepted forecasting methods vary, and FRA has not established 

guidance on acceptable approaches to the development of reliable 

ridership and revenue forecasts. Industry standards vary, and FRA has 

established minimal requirements and guidance related to information 

HSIPR grant applicants must provide regarding forecasts. As we have 

previously reported, different ridership-forecasting methods may yield 

diverse and therefore uncertain results.22 As such, we have 

recommended that the Secretary of Transportation develop guidance and 

methods for ensuring reliability of ridership forecasts. Similarly, the DOT 

OIG has also recommended that FRA develop specific and detailed 

guidance for the preparation of HSIPR ridership and revenue forecasts.23

Best practices identified by various agencies and transportation experts 

have identified certain components of the ridership- and revenueforecasting process that affect results more than others and that are 

necessary for developing reasonable forecasts. Among others, key 

components include processes for developing trip tables,

24 developing a 

 

22GAO-09-317. 

23DOT OIG, FRA Needs to Expand Its Guidance on High Speed Rail Project Viability 

Assessments, CR-2012-083, (Washington, D.C.: Mar. 28, 2012). 

24Trip tables are estimates of numbers of trips taken between specific locations. Trip 

tables, in conjunction with mode-choice models, provide the foundation for ridership 

forecasts. 
 

Page 15 GAO-13-163T 

mode-choice model,

25 conducting sensitivity analyses, and conducting 

validation testing. The Authority’s forecasts included each of these key 

components in developing the ridership and revenue forecasts for the 

April 2012 revised business plan.26 While addressing these components 

does not assure ridership and revenue forecasts are accurate, it does 

provide greater assurance that the Authority’s processes for developing 

these forecasts are reasonable. In our ongoing review of the California 

high speed rail project, we are evaluating the extent to which the 

Authority’s ridership and revenue forecasts followed best practices when 

completing each of these tasks. We will present the results of our 

assessment of the Authority’s process in our 2013 report on this subject. 

Among the other challenges facing the project, which may increase the risk 

of project delays, are potential legal challenges associated with the 

environmental laws. Under the National Environmental Policy Act (NEPA) 

and the California Environmental Quality Act (CEQA),27 government 

agencies funding a project with significant environmental effects are 

required to prepare environmental impact statements or reports (EIS/EIR) 

that describe these impacts.28 Under CEQA, an EIR must also include 

mitigation measures to minimize significant effects on the environment. The 

Authority is taking a phased approach to comply with NEPA and CEQA by 

developing EIS/EIRs for both the project as a whole as well as for particular 

portions of the project. To date, program level EIS/EIRs have been 

prepared for the project as a whole (August 2005) and for the Bay Area to 

Central Valley (initial certification by the Authority in July 2008 and a 

revised final EIS/EIR issued in April 2012). Project level EIS/EIRs have 

been prepared for the Merced-to-Fresno portion of the project (issued April 

2012), and a draft EIS/EIR has been prepared for the Fresno-to-Bakersfield 

portion of the project (initial draft issued in August 2011 and revised final 

issued July 2012). Environmental concerns have been the subject of legal 

 

25Mode-choice models estimate how many travelers would choose the high-speed rail 

option versus other available modes of travel. 

26This includes validation testing of the ridership model, testing that, according to the 

Authority, was performed in January 2012 through a comparison of actual ridership (2008) 

and 2030 forecasts on Amtrak’s Acela service on the Northeast Corridor. 

2742 U.S.C. § 4321 et seq. (NEPA); Cal. Pub. Res.Code § 21000 et seq. (CEQA). 

28Under NEPA, the document is referred to as an EIS, while under CEQA it is called an 

EIR. 

Environmental Review and 

Right-of-Way Acquisitions 

May Increase Risk of 

Project Delays 
 

Page 16 GAO-13-163T 

challenges. For example, a lawsuit was filed in October 2010 against the 

Authority challenging the decision to approve the Bay Area to Central 

Valley segment based on an EIR alleged to be inadequate. Several 

lawsuits have been filed and these cases are still pending. 

The project also faces the potential challenge of acquiring rights-of-way. 

Timely right-of-way acquisition will be critical since some properties will be 

in priority construction zones. Property to be acquired will include homes, 

businesses, and farmland. Not having the needed right-of-way could cause 

delays as well as add to project costs. Acquisition of right-of-way will begin 

with the first construction segment, which has been subdivided into 4 

design-build construction packages. There are a total of approximately 

1,100 parcels to be acquired for this segment; all of which are in 

California’s Central Valley. In September 2012, the Authority issued a 

Request for Proposals to obtain the services of one or more contractors to 

provide right-of-way and real property services. The Authority estimated in 

its April 2012 revised business plan that the purchase or lease of real 

estate for the phase I blended system will cost between $3.6 billion and 

$3.9 billion (in 2011 dollars). According to the Authority, the schedule for 

right-of-way acquisition will be phased, based on construction priorities with 

delivery of all required parcels in the Central Valley no later than spring 

2016. Acquisition is anticipated to begin in February 2013. The timely 

acquisition of rights-of-way may be affected by at-risk properties—that is, 

those properties that the Authority considers at-risk for timely delivery to 

design-build contractors for construction.29 There could be a significant 

number of at-risk properties. For example, Authority officials told us there 

are about 400 parcels in the first construction package, about 200 of which 

are in priority construction zones. Of these, about 100 parcels (50 percent) 

are considered to be potentially at-risk for timely delivery. Since right-ofway acquisition has not yet begun, the extent that at-risk properties will 

ultimately affect project schedules or cost is not known. However, there 

may be an increased risk given the initial high percentage of at-risk parcels. 

 

29There could be a number of reasons why a property is deemed at-risk, including 

instances where a property owner is contesting a property valuation or a property owner 

has not yet vacated a property. 
 

Page 17 GAO-13-163T 

Chairman Mica, Ranking Member Rahall, this concludes my prepared 

remarks. I am happy to respond to any questions that you or other 

Members of the Committee may have at this time. 

For future questions about this statement, please contact Susan Fleming, 

Director, Physical Infrastructure, at (202) 512-2834 or flemings@gao.gov. 

In addition, contact points for our Offices of Congressional Relations and 

Public Affairs may be found on the last page of this statement. Individuals 

who made key contributions to this statement include Paul Aussendorf, 

(Assistant Director), Russell Burnett, Delwen Jones, Richard Jorgenson, 

Jason Lee, James Manzo, Maria Mercado, Josh Ormond, Paul Revesz, 

Max Sawicky, Maria Wallace, and Crystal Wesco. 

GAO Contacts and 

Staff 

Acknowledgments 

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