State audit blames bullet train mismanagement for delays and price hikes

Nov. 15, 2018 5:05 PM PT

A stinging state audit of the California bullet train project released Thursday found that flawed decision-making, organizational faults and poor contract management led to multibillion-dollar cost overruns and delays in construction.

The construction program in the Central Valley, in which the rail authority is building 119 miles of bridges, rail bed, viaducts and trenches, is $600 million over budget and at risk of missing a 2022 federal deadline for completion set under past grant agreements, the audit said.

“Missing the deadline could expose the State to the risk of having to pay back as much as $3.5 billion in federal funds,” State Auditor Elaine Howle said in a letter to Gov. Jerry Brown.

Howle suggested that much of the spending so far may have been an outright waste.

“Despite its challenging financial situation, we determined that the Authority has failed to implement sound contract management practices,” she wrote. “As a result, it cannot demonstrate that the large amounts it has spent on its contracts have been necessary or appropriate.”

The audit was released Thursday morning minutes before the California High-Speed Rail Authority board met in Burbank, where dozens of residents, mayors, school superintendents, activists and elected officials lined up to decry plans to move ahead with a Palmdale-to-Anaheim route they claimed would devastate communities with noise, visual blight and lost jobs.

After the outpouring of anger, begging and tears, the board voted to endorse the staff plan, though with a pledge to examine more thoroughly some of the community’s concerns.

The audit, ordered by the Legislature this year, found extensive mismanagement, including serious problems tracking contracts, reviewing invoices for payment and monitoring construction progress.

Mike Rossi, a former Bank of America executive who is the finance expert on the rail authority board, pledged to adopt the audit’s many recommendations, but he said that does not “signal agreement with all of its conclusions about the impact of past decisions by the authority.”

The findings of deep-rooted problems come as Brown, who has devoted his considerable political power to advancing the project, prepares to hand off leadership to Gov.-elect Gavin Newsom.

The 87-page audit gives Newsom the basis for almost any kind of restructuring he would want to make, though support for the train remains high among its key constituencies: construction companies, labor unions and Californians who have traveled by bullet train in Europe or Japan.

The push for the audit originated with Republicans in the state Senate and Assembly but was resisted by the Democratic majority until this year when delays and cost increases continued to mount. The project is 13 years behind the schedule set in the bond act approved by voters in 2008 and has grown in cost by $44 billion over its original $33-billion price target.

Newsom “has carte blanche” to begin a serious examination of how the project can be restructured, curtailed or restored, said Elizabeth Alexis, co-founder of a Bay Area rail oversight group.

But the audit also fuels opponents’ calls for a termination.

“Insurmountable funding shortfalls, continued mismanagement and hugely flawed assumptions mean this project is dead in the water,” said Assemblyman Jim Patterson, the Fresno Republican who pushed for the audit. “There will never be a completed track from the Bay Area to Los Angeles. This project cannot be revived in its current state, and this audit is further proof that the best we can hope for is a rump railroad running from Bakersfield to Madera.”

The audit covers a laundry list of problems including the authority’s failing to follow the advice of its own consultants, failing to document the reasons for cost increases, failing to properly assign staff and repeatedly amending its contracts.

The authority has 56 managers who are supposed to administer hundreds of contracts worth $5.6 billion, but the staff has high turnover and only three of those managers work full time in the crucial function, the report said.

Howle focused first on the rate of progress in building the first 119 miles of rail in the Central Valley, running between the farm towns of Madera and Wasco. The rail authority has been stymied by problems acquiring land, rerouting underground utilities and redesigning its structures, all resulting in slower-than-expected progress. Unless it can double its current rate of progress, the project is at risk of missing a federal deadline set under 2010 grant agreements, the audit warns.

Shortcomings in the agency’s ability to monitor progress on its existing $5.6 billion of construction, engineering and environmental contracts have been well known to the authority. Howle noted that the authority’s in-house audits in 2014 and 2015 identified those problems but that the authority was unable to implement corrective action.

The job of managing contracts includes tasks such as promptly reviewing invoices, monitoring the work products of contractors (such an engineering drawings or construction work) and controlling costs. An important shortcoming noted in the report is a failure to demonstrate that invoices are fully reviewed before they are paid.

One result is a greater reliance on outside consultants. For five years, rail authority executives have told The Times that they recognize a need for bolstering the ranks of state managers and relying less on outside advisors. The authority reiterated a plan to the auditor to rely less on consultants.

The authority has approved hundreds of millions of dollars in change orders, most of which it initiated and may have been overpaid. In one instance, the rail authority’s consultant advised a change on a bridge should cost $7.4 million, but the agency eventually agreed to pay a construction firm $18.6 million and then could not document later why the higher amount was appropriate, the audit said.

In some cases, the authority delayed making crucial decisions. Until 2015, the authority planned to enter downtown Los Angeles in a dedicated tunnel or a viaduct, but it then switched the strategy to having grade-level tracks on an existing Metrolink right of way. Such blending has helped avoid even greater cost increases, the auditor said, but the project “has exhausted all blending options.”

Howle made broad recommendations to improve performance by next year, such as performing a review of compliance with existing quality controls.

In the three-hour meeting Thursday, rail board members did not address the audit beyond Rossi’s statement. They sat through hours of statements by residents and representatives of Santa Clarita, Acton, Agua Dulce, Shadow Hills, Lake View Terrace, Sylmar, Sun Valley, Tujunga and other areas, who largely oppose any above-ground track.

A Palmdale city official praised the program, as did a Sierra Club official.

Santa Clarita Mayor Pro Tem Marsha McLean said the only acceptable Palmdale-to-Burbank route would be underground, nearly doubling the amount of tunnels over the 38 miles between the cities. “There must be many many mitigations if this route takes place,” she said.

Rep. Adam B. Schiff (D-Burbank) sent a statement asserting the existing plan is unacceptable. That sentiment was echoed by statements from two Los Angeles council members, a county supervisor, five local neighborhood councils and various civic associations, homeowner groups and others.

Opposition also came from farther south along the route. A representative from Vernon said the route through his city would displace 21 businesses employing 1,200 people and restrict key highway routes. The public works director of Santa Fe Springs said his city’s recommendations were ignored and asked for a delay in the board’s decision.

But the rail staff was enthusiastic about the future laid out in the staff reports.

“In 2040, 35,000 people will board high-speed trains every day somewhere in L.A. County,” Michelle Boehm, the authority’s Southern California section chief, told the board in a presentation. “Pretty cool.”

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UPDATES:

5:05 p.m.: This article was updated with additional reporting after a meeting later in the day.

This article was originally published at 10:15 a.m.