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). Preliminary Assessment of California’s Cost Estimates

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. These four characteristics help minimize the risk of cost overruns, missed  deadlines, and unmet performance targets. Based on our ongoing review, we have found that the Authority’s cost  estimates exhibit strengths and weaknesses. 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. The cost  estimates include the major components of the project’s construction and  operating costs. In addition, the Authority did not clearly  describe certain assumptions underlying both cost estimates. The Authority followed some, but not all, best practices in the Cost Guide  to ensure that the cost estimate is well documented. 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. 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. The  Authority also did not compare their operating-cost estimate to an  independent cost estimate. The Authority is taking steps to improve its cost estimates. California High-Speed Rail Project Faces Financial and Other Challenges

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. While the  Authority has secured $11.5 billion from federal and state sources for  project construction, almost $57 billion in funding remains unsecured. 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. Chief among these are  (1) limited data and information, (2) risks of inaccurate assumptions, and  (3) accepted forecast methods vary. The Authority’s forecasts included each of these key  components in developing the ridership and revenue forecasts for the  April 2012 revised business plan. 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.
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.