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). Authority Substantially or Partially Met GAO’s Best Practices for Producing Reliable Cost Estimates, but Can Make Improvements

		Reliable Cost Estimates Are Critical to Successful Project Planning, Funding, and Oversight, but Little FRA Guidance Is Available

The Authority estimates that Phase 1 of 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’s financing  plan, as articulated in the April 2012 revised business plan, will depend  on an additional estimated nearly $38.7 billion in federal funds, it is vital  that the Authority, FRA, and Congress be able to rely on these cost  estimates for project planning, funding, and oversight. Moreover,  the limited guidance that was provided did not reflect best practices  included in our Cost Guide. By not following all best practices, there is increased risk of  such things as cost overruns, missed deadlines, and unmet performance  targets. For example, the Authority met the best  practice for including in the cost estimates the major components of the  project’s construction and operating costs. However, the Authority will need to complete several additional updates  to improve its model and the resulting forecasts for the 2014 business  plan. For the purposes of our assessment, we identified generally accepted  travel-demand-modeling practices for high-speed rail projects from a  variety of sources and developed criteria based on these practices to  assess the reasonableness of the approach used to create the ridership  and revenue models for the California high-speed rail project. Specifically, 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. Next Business Plan Will Not Reflect All Planned Improvements to Ridership Forecasts

The Authority has plans to complete future improvements to its ridership  and revenue forecasts, including completing a new travel preference  survey and developing a second generation travel demand model. The Authority’s Funding Plan Faces Uncertainty

The project’s funding, which relies on both public and private sources of  financing, faces uncertainty about whether those funds can be obtained in  a tight federal and state budget environment. In the latter stages, the Authority will also rely on  private-sector financing, but will require more reliable operating cost  estimates and revenue forecasts to determine whether, and the extent to  which, the system will be profitable, as well as the value of any private  investment. The Authority’s financing plan recognizes the uncertainty of  the current funding environment so the Authority is building the project in  phases and has identified an alternative funding source that is also  uncertain. Public-private partnerships for intercity passenger rail, such as what the  Authority is planning for, have been proposed but not implemented in the  United States. For example, the plan identified potential user  impacts such as travel time reliability for high-speed rail users and non- user impacts such as the effects on highway congestion and economic  development around stations. These include the  following:
Future project decisions. We also found some limitations in the specific economic analyses  prepared by the Authority. In particular, the April 2012 BCA has  shortcomings that could limit its usefulness to decision makers. Constructing a high-speed rail system is not expected to meet all of  California’s future intercity travel demand. Recommendation

We recommend that the Secretary of Transportation direct the  Administrator of FRA to improve its guidance for high-speed rail project  sponsors to better ensure that cost estimates that are submitted by  applicants seeking federal funding are accurate, comprehensive, well- documented, and credible according to the best practices detailed in  GAO’s Cost Guide. DOT neither agreed nor disagreed with our recommendation. In an e-mailed response, DOT said it was pleased that the Authority met  many of the criteria in the Cost Guide for producing accurate,  comprehensive, well-documented, and credible cost estimates; that  ridership and revenue forecasts were reasonable; and that the Authority  did a comprehensive job in identifying potential economic impacts. GAO staff who made major contributions to  this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This report assesses (1) the reliability of the California High-Speed Rail  Authority’s (Authority) estimates of the project’s costs; (2) the  reasonableness of the Authority’s passenger rail ridership and revenue  forecasts; (3) the risks to the Authority’s plan to fund the project; and   (4) the comprehensiveness with which the Authority identified potential  economic impacts of the project. To assess the reliability of the project cost estimates, we analyzed the  Authority’s cost estimating approach against GAO’s best practices found in  the 2009 GAO Cost Estimating and Assessment Guide (Cost Guide). However,  some cost elements had little or no supporting  documentation.
Why GAO Did This Study

The planned 520-mile California high-speed rail project, which would link San Francisco to Los Angeles, would be designed to operate at speeds up to 220 miles per hour. At an estimated cost of $68.4 billion (in year-of-expenditure dollars), it is expected to be one of the most expensive transportation projects undertaken in the United States. The Authority is responsible for implementing the project and federal funding is being provided from the FRAs High-Speed Intercity Passenger Rail program. GAO reviewed (1) the reliability of project cost estimates, (2) the reasonableness of revenue and passenger rail ridership forecasts, (3) the risks attendant with the projects funding plan, and (4) the comprehensiveness with which the projects economic impacts were identified.
GAO obtained documents from and conducted interviews with federal officials and officials from the Authority related to cost, financing, ridership and revenue modeling and estimation, and business plans and analyses related to potential economic impacts. GAO also interviewed state and local officials as well as the projects peer review group members.

What GAO Found

The California High-Speed Rail Authority (Authority) met some, but not all of the best practices in GAO's Cost Estimating and Assessment Guide (Cost Guide) for producing cost estimates that are accurate , comprehensive , well documented , and credible . By not following all best practices, there is increased risk of such things as cost overruns, missed deadlines, and unmet performance targets. The Authority substantially met the criteria for the accurate characteristic by, for example, the cost estimate's reflecting the current scope of the project. However, the Authority partially met the criteria for the other three characteristics since the operating costs were not sufficiently detailed ( comprehensive ), the development of some cost elements were not sufficiently explained ( well documented ), and because no systematic assessment of risk was performed ( credible ). The Federal Railroad Administration (FRA) issued limited guidance for preparing cost estimates, and this guidance did not reflect best practices in the Cost Guide . The Authority plans to improve its cost estimates.
GAO found the Authority's ridership and revenue forecasts to be reasonable; however, additional updates are necessary to refine the ridership and revenue model for the 2014 business plan. GAO also found the travel-demand-modeling process used to generate these forecasts followed generally accepted travel- demand-modeling practices. For example, the Authority revised several assumptions, such as gasoline price forecasts, to reflect changes in current and anticipated future conditions. However, additional updates, such as the development of a new travel survey, will be necessary to further refine these forecasts and improve the model's utility to make future decisions. External peer review groups have also recommended additional updates.
The project's funding, which relies on both public and private sources, faces uncertainty, especially in a tight federal and state budget environment. Obtaining $38.7 billion in federal funding over the construction period is one of the biggest challenges to completing this project. In the latter stages, the Authority will also rely on $13.1 billion in private-sector financing, but will require more reliable operating cost estimates and revenue forecasts to determine whether, or the extent to which, the system will be profitable. The Authority's plan recognizes the uncertainty of the current funding environment and is building the project in phases. The Authority has also identified an alternative funding source. However, that funding source is also uncertain.
The Authority did a comprehensive job in identifying the potential economic impacts of the high-speed rail project. This includes identification of user impacts, such as effects on travel time reliability, and non-user impacts, such as effects on highway congestion. However, the nature of specific economic impacts will depend on a number of factors, including future project decisions. GAO also found limitations in the Authority's benefit-cost analysis of the project that could limit its usefulness to decision makers. Finally, GAO found that construction of the high-speed rail project will not eliminate the need for additional improvements to meet future statewide-travel demand, but current statewide- transportation assessments and planning have given little consideration to this issue.

What GAO Recommends

To produce reliable cost estimates, FRA should improve its guidance so it is in line with the best practices in GAO's Cost Guide . The Department of Transportation did not agree or disagree with the recommendation but said, with further analysis, applying the Cost Guide would be feasible. The Authority said it will incorporate many of the report's findings into future cost and ridership estimates.