In 2008, California voters approved Proposition 1A, which authorized $9.95 billion in state bond funding for construction of the California high- speed rail system and connection improvements to existing passenger rail systems. Proposition 1A established several requirements for this high-speed rail system, such as that the rail system must be capable of sustained operating speeds of no less than 200 miles per hour, and once built, must operate without a public subsidy. The planned 520-mile high- speed rail system will operate between San Francisco and Los Angeles at speeds up to 220 miles per hour (see fig.1). The Authority is the state entity charged with planning, designing, and constructing the California high-speed rail system. The Authority has a nine-member policy board appointed by the California legislature and Governor, and a staff of approximately 55 state employees who oversee, among other things, contracts for environmental review, preliminary engineering design, preliminary right-of-way acquisition tasks, contractor oversight and other activities. Construction of the California high-speed rail project is expected to occur in phases beginning with a 130-mile section from just north of Fresno, California, to just north of Bakersfield, California. Construction will begin in the Central Valley and proceed to other portions of the corridor as funding is available. The Central Valley is the furthest advanced in terms of design and engineering work, as well as environmental reviews. For example, FRA approved a preferred route alignment for the Merced to Fresno, California, portion of the corridor in September 2012. According to FRA, the federally funded portion of the project in the Central Valley has more complete cost estimates than subsequent segments given that has more complete cost estimates than subsequent segments given that preliminary engineering and environmental reviews are complete or nearly complete. Other project segments, however, are in different stages of development and have different levels of information from which to develop cost estimates. In July 2012, the California legislature appropriated $4.7 billion of the $9.95 billion in state bond funds, including $2.6 billion for construction of the high-speed rail project and $1.1 billion for upgrades in the San Francisco peninsula and in the Los Angeles basin (commonly referred to as the “bookends”). The process of acquiring property for the right-of-way and construction has begun. Requests for proposals to select construction contractors and right-of-way acquisition were issued in March and September 2012, respectively. In addition, in January 2013, the Authority awarded a project and construction management contract for the initial phase of California’s high-speed rail project. According to the Authority, a design-build contract for the first construction (covering approximately 30 miles) is expected to be awarded in June 2013 with construction planned to commence in summer 2013. (See fig. 2). The federal government has committed funding to the project. The FRA awarded the state approximately $3.3 billion in capital construction funds and $231 million for environmental review and preliminary engineering work under the HSIPR program for a total of approximately $3.5 billion.The California high-speed rail project is the largest recipient of HSIPR funds, with about 35 percent of program funds obligated. Most of the HSIPR money awarded to the project was appropriated by the Recovery Act and, in accordance with governing grant agreements, must be expended by September 30, 2017.million in fiscal year 2010 funding was awarded to the project by FRA and is to remain available until expended. While the funds remain available until expended under FRA’s fiscal year 2010 appropriation, the governing grant agreements specify the schedule for expenditure of funds. In addition, approximately $945 Even though some funding has been committed, additional funding will be needed to complete the project. For example, according to the Authority’s finance plan, over $38 billion in federal funds and over $4 billion from Proposition 1A proceeds will be needed to complete Phase 1 of the project. In addition, the Authority is also planning to obtain another $13.1 billion in private-sector capital to help defray the cost of construction after the initial operating segment is completed in 2028. As the federal agency responsible for awarding and overseeing grants to HSIPR applicants, the FRA established guidance outlining requirements and procedures and developed an oversight program to ensure that the project’s goals, objectives, performance requirements, budgets, and other related program criteria are being met. Thus far, FRA’s guidance to HSIPR grant applicants has been limited with respect to developing cost estimates and ridership and revenue forecasts. The Department of Transportation’s Office of Inspector General (DOT OIG) noted that the lack of clear, detailed guidance allows for analyses of widely varying quality, making it difficult to accurately assess whether projects will be viable or require substantial financial support and has recommended FRA improve its guidance. In addition, we have previously reported that a clear definition of the federal role, goals, and objectives in conjunction with a robust grant oversight program, is critical to FRA making sound federal investments in high-speed rail projects. The Authority is required to prepare and periodically submit to the state legislature a business plan, which must identify, among other things, ridership estimates, operating and maintenance costs, and the source of The Authority’s next business plan is expected to be project funding. released in 2014. Several groups have been established to review and comment on the estimates presented in the Authority’s business plans. For example, an independent peer review group (PRG) was established in accordance with California law to evaluate the Authority’s funding plans and report its judgment as to the feasibility and the reasonableness of the plans, appropriateness of assumptions, analyses and estimates, and any observations or evaluations it deems necessary. In addition, the Authority convened a Ridership and Revenue Peer Review Panel (Panel) to review the Authority’s ridership and revenue-forecasting process and outcomes and conduct an in-depth review of the models used to estimate ridership and revenue and the forecasts derived from them. The California state auditor is required to periodically audit the Authority’s use of bond proceeds. In response to the initial high estimated cost of building the San Francisco to Los Angeles route—about $98 billion—and other criticisms of the Authority’s November 2011 draft business plan, the project underwent substantial revision for the April 2012 revised business plan. Most significantly, the Authority scaled back its plans to build dedicated high- speed rail lines over the project’s 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 (entirely at the bookends of the system on the San Francisco peninsula and in the Los Angeles basin). The estimated cost in the April 2012 revised business plan is $68.4 billion. The ridership and revenue forecasts in the April 2012 revised business plan also changed from the November 2011 plan. For example, in the November 2011 draft business plan, the Authority provided low and high estimates of ridership in 2030 of 14.4 million and 21.3 million passengers. In the April 2012 revised business plan, these estimates increased by 12 and 26 percent, respectively, to 16.1 million and 26.8 million. Revenues similarly increased between the two plans from a low and high estimate of $1.05 billion and $1.56 billion in the November 2011 plan to $1.06 billion and $1.81 billion in April 2012. The ridership and revenue estimates increased because among other things, a “one-seat” service from San Francisco to Los Angeles would begin sooner under the blended approach than the original solely dedicated lines approach. However, by 2040 ridership forecasts under the blended approach are less than the original full build approach. The range between the high and low estimates also increased between the November and April plans reflecting a greater degree of uncertainty in the estimates. We have previously reported that forecasting ridership and revenue is a complex and iterative process and that early stage estimates should be based on the best available data and what is initially known about the proposed project. As additional information becomes available, the Authority’s model used to produce the forecasts is intended to be updated. Development of the high-speed rail system has been controversial with many strongly held beliefs among the numerous supporters and opponents of the project. Supporters have cited the need for high-speed rail to address growing congestion concerns, particularly in the metropolitan areas, and to address future transportation demands. Supporters have noted that California’s expected population growth—which is expected to increase from 38 million in 2012 to an estimated 51 million Californians in 2050—and economic growth will continue to place more demands on California’s transportation infrastructure requiring that significant new capacity be added to its transportation network. Further, supporters argue that the cost of expanding the current network of highways and airports to meet current and future transportation needs is cost prohibitive and would be detrimental to air quality and that high-speed rail will increase economic development in local communities to be served by high-speed rail and generate new jobs. In addition, supporters also note that several critical airport and highway expansions are infeasible due to land constraints, particularly at key airports and urban segments of highways. Opponents of the plan have argued, among other things, that the cost of the high-speed rail system is too great and that future funding for the system is too uncertain given the current fiscal environment. Opponents have also raised concerns about the credibility of the ridership and revenue forecasts presented in the Authority’s business plans and specifically, the system’s ability to attract the ridership levels needed to avoid public operating subsidies. Local communities and property owners in California’s Central Valley have also raised concerns about the project and its potential impact to the agriculture sector in the region.