More Bad News for High-Speed Rail

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Tuesday, July 5, 2011 | The California High-Speed Rail Authority has yet another management problem, this time an inability for months to contract with a financial consultant, according to the analysis of legislation to be heard today in a state Senate committee.

Disclosure of the consultant contract problems came last week at virtually the same time the Rail Authority lost its PR firm. Ogilvy Public Relations, the company hired to promote California’s plans for an Anaheim-to-San Francisco high-speed rail system, resigned just before it was going to be fired, according to the San Jose Mercury News.

And in a another bit of bad news, Gov. Jerry Brown, while signing the new state budget last week, cut $147,261,000 from high-speed-rail related projects, leaving just $7 million to improve local transit systems that will feed into the overall rail project. In addition, he recommended that the Rail Authority coordinate its work with Caltrans.

The proposed rail system was approved by voters in 2008 and is estimated to cost $43 billion to $65 billion.

It has faced myriad management problems, including faulty ridership estimates, failure to develop a business plan, and criticism from state auditors charged with protecting public assets.

Hearings are scheduled today at the Senate Transportation Committee on two bills related to moving management of the project away from the Rail Authority.

One by Assemblywoman Cathleen Galgiani (D-Livingston) would create a department of high-speed trains within the state’s Business, Transportation and Housing Agency to handle actual management, leaving the nine-member rail board to set overall policy.

Another measure by Assemblywoman Bonnie Lowenthal (D-Long Beach) would free the Rail Authority from oversight and approval by other state agencies when it buys, sells, leases or rents land. Currently, the state Department of General Services, the Finance Department and state Public Works Board review such transactions. Caltrans doesn’t undergo such scrutiny, and Lowenthal’s bill would provide similar exemptions.

A staff analysis of the Lowenthal bill lists many of the management problems the Rail Authority has had and adds a new one.

The Rail Authority is supposed to develop a basic business plan and submit it to the Legislature by Oct. 1, and according to the committee analysis, a request for proposal was sent to financial consultants a year ago this month.

“Due to poor management and a protest by a losing bidder,” the staff analysis said, “the HSRA [High-Speed Rail Authority] was unable to enter into a contract for the services of a financial consultant until June 8, 2011.” That means it had just four months to prepare the business plan.

“In light of the HSRA’s difficulty in managing the procurement of a relatively low-value professional services contract and the LAO’s [Legislative Analyst Office’s] recommendation that there is a need for ‘hands-on involvement by the state,’ ” the staff analysis said. The transportation committee staff report suggested the full committee change the Lowenthal bill.

The suggested change would require the Rail Authority to contract with Caltrans “for the day-to-day management” of all the oversight exemptions in the bill.

The rail board, currently in charge of planning the train system, hopes to break ground in the Central Valley next year, although it doesn’t know where it will get the money to finish the project.

From the Mercury News Story:

Rail authority leaders had planned to ask the agency’s board on July 14 to fire Ogilvy and search for a new PR firm. But Ogilvy leaders apparently caught wind of the news, first circulated internally on Monday, and by Thursday morning Rail Authority CEO Roelof van Ark had received the firm’s resignation letter.

“We are unable to develop a solid working relationship with your agency, and that impeded the kind of top-notch work we are accustomed to providing our clients,” Michael Law, Ogilvy PR’s West Coast managing director wrote to van Ark.

Reached late Thursday, Law said the firm “elected” to leave the contract but still “believes in the project.”
Rail authority Deputy Director Jeff Barker said the agency has budgeted $2.3 million for PR in the fiscal year that began Friday. Rail planners will be launching a search for a new PR firm this month and consider communications and outreach to be critical.

Ogilvy signed a $9-million contract with the Rail Authority in 2009. It was supposed to extend for 4½ years.

The Mercury News story said former Rail Authority board member Quentin Kopp accused the PR firm of charging the state “thousands of dollars for simple tasks such as a few hours of reading news articles. He also accused them of overbilling the authority several hours for brief meetings.”

On June 30, the same day the news broke about Ogilvy, Brown slashed high-speed rail spending for fiscal 2011-2012 to just $7 million from the proposed $147 million for work to enhance local transit systems that would act as feeder routes for the main rail line.

He criticized the Rail Authority’s planning in preparing its spending proposal.

“The High-Speed Rail Authority, the Department of Transportation, and local jurisdictions should work together to develop a comprehensive statewide rail plan,” he said in his veto message.

“The projects identified for funding by Caltrans and the California Transportation Commission appear unrelated to the high-speed rail project or an integrated rail plan,” he added., “As plans for the high speed route are further developed, the Authority should work with local agencies to build mutually beneficial projects.”

Another piece of bad news for the rail project:

According to the Senate Transportation Committee staff analysis of Galgiani’s bill, when voters in 2008 approved $9 billion for the rail system, $8.1 billion was allocated for construction and $900 million for planning, engineering and administration.

In the three years since then, the staff analysis said, $377.2 million has been spent on management and project development, leaving, according to the Legislative Analyst’s Office, $522.8 million.

With construction scheduled to begin in the Central Valley next year and expected to take five years, as well as planning and engineering costs for the rest of the Anaheim-to-San Francisco route, a “burn rate” of $100 million a year would eat up all the bond money allocated for project development and overhead.

“Then what?” the staff analysis asked. “If the bond funds run out, there is no apparent source of funding for the ongoing operations of the proposed DHST [Department of High-Speed Trains].”



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