November 15, 2018
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report regarding the California High-Speed Rail Authority's (Authority) contracting and cost control practices. This report concludes that the Authority's flawed decision making regarding the start of high-speed rail system construction in the Central Valley and its ongoing poor contract management for a wide range of high-value contracts have contributed to billions of dollars in cost overruns for completing the system.
The Authority began construction in the Central Valley in October 2013 despite being aware of the risks associated with beginning construction early—the fact that the Authority had not acquired sufficient land for building, had not determined how it would relocate utility systems, and had not obtained agreements with external stakeholders. These unmitigated risks have contributed to $600 million in costs overruns thus far for the three active Central Valley construction projects, with another $1.6 billion in additional costs needed to complete the projects. The Authority has cited the terms of a 2010 federal grant—which originally required construction to be complete by 2017—as the primary factor in its decision to begin construction when it did. However, we determined that even with a grant deadline extension until December 2022, the Authority could miss the new deadline unless Central Valley construction progresses twice as fast as it has to date. Missing the deadline could expose the State to the risk of having to pay back as much as $3.5 billion in federal funds.
The Authority has partially offset Central Valley cost overruns, as well as those projected elsewhere in the system, by planning to share existing rail infrastructure where possible. However, the Authority acknowledges that it has identified every feasible option to do so and therefore cannot continue to use this approach to offset costs. Moreover, despite its challenging financial situation, we determined that the Authority has failed to implement sound contract management practices. As a result, it cannot demonstrate that the large amounts it has spent on its contracts have been necessary or appropriate.
ELAINE M. HOWLE, CPA
California State Auditor