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Rail authority spends hundreds of millions with little oversight

High-Speed Rail Authority

California is about to build the largest public works project in the state's history: a system of high-speed, electric passenger trains. And even before a spade of dirt is turned, perhaps late next year, the state will have spent about $630 million.

What does California have to show for it?

Thousands of pages of strategies, studies and plans – and a chorus of concern over the California High-Speed Rail Authority's budget management and its ability to monitor an army of consultants.

The Fresno Bee, as part of a project with California Watch, has examined the rail authority's 15-year budget history and current consulting contracts. By far, the largest chunks of cash have been paid to consultants and contractors hired by the authority, which has only a small in-house administrative staff.

Over the past two years, however, state oversight agencies repeatedly have cited problems – contract payments made without verifying that work was actually performed, payments for services or equipment not covered in consulting contracts, and a lack of policies and procedures to review invoices and payments.

With spending set to leap from millions of dollars per year in planning to billions per year once construction begins, those worries are now magnified.

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The first 520-mile phase between San Francisco and Los Angeles, through the San Joaquin Valley, is expected to cost at least $43 billion over the next decade – and likely much more.

"We're rapidly approaching a time when I'm going to have to ask myself, 'Is (the rail authority) capable of delivering?' " said state Sen. Joe Simitian, D-Palo Alto, a frequent critic of the authority's management. "That remains a question mark in my mind."

The authority says it needs consultants because the scale of the project is bigger than the agency's staff can handle on its own.

"Through consultants, we can leverage a lot more experts rather than hire someone into a state job that we'll only need for a few months or years," said Jeffrey Barker, the authority's deputy executive director for communications. But Barker acknowledges it's a challenge to keep tabs on them all.

Escalating spending

The California High-Speed Rail Authority was created by the state Legislature in 1996 to develop a high-speed train system. In its first decade, only twice did the agency's annual budget exceed $4 million a year – enough to employ a handful of staff, cover administrative expenses and hire consultants to do the heavy lifting.

That included a preliminary business plan at a tab of about $5.4 million between 1997 and 2000 and a statewide environmental assessment that totaled more than $17 million between 2000 and 2006.

Between 1997 and 2007, the authority received more than $32 million from the state's Public Transportation Account, which is fed by sales taxes on gasoline and diesel. About $11 million more came from other state transportation accounts. A little more than $4 million came from federal transportation trust funds.

Intensified planning over the past several years has ramped up the authority's spending dramatically. As construction approaches, the agency's budget rocketed from less than $5.2 million in 2005-06 to more than $220 million in the 2010-11 budget year that ended June 30.

The acceleration has been sharpest since California voters approved Proposition 1A in 2008. The bond measure provides up to $9.95 billion for construction of the statewide train system. Since Prop. 1A was approved, nearly $400 million in bond money has been allocated to the authority for its operations. The federal government also kicked in more than $144 million in 2010 and 2011.

Most of that continues to flow to consultants.

The authority's single largest current contract is with Parsons Brinckerhoff, an American subsidiary of English engineering and construction firm Balfour Beatty. Under its $199 million, seven-year deal, Parsons Brinckerhoff is managing the overall high-speed rail program on behalf of the authority. That includes overseeing regional engineering and environmental contractors - each of which is being paid tens of millions of dollars.

The authority has more than $800 million in contracts with consultants handling different agency functions.

Not all of the contracts are for engineering. There are multimillion-dollar contracts for video and animation production and for financial services. The authority even hired a consultant to monitor its project-management consultant.

Last month, another contractor, Ogilvy Public Relations Worldwide, quit the $9 million, five-year contract it inked in 2009 to develop and carry out a public outreach and communications program. The company's announcement came amid rumors that the authority's board was considering firing the firm.

The current contracts don't count millions spent in the agency's early years on initial business plans and environmental reports. Those include a 2005 environmental-impact report that cost $17.7 million to examine the entire statewide proposal and narrow down the routes to be evaluated in later, more detailed studies and a separate 2008 report that evaluated route options between the Bay Area and Central Valley.

Since 2006, consultants have been working on plans for each of the system's eight segments, refining route options and detailing the environmental and economic effects. Draft reports for the first two sections – Merced to Fresno and Fresno to Bakersfield – are due to be issued this month.

The combined cost of the environmental review and preliminary engineering for the system sections around the state added up to more than $210 million between 2006 and 2010.

Management concerns

As the rail authority gets closer to asking for billions in Prop. 1A bond funds to start construction in 2012 and 2013, some observers are getting nervous about whether the agency can meet its deadlines and effectively manage all of its consultants.

The authority has a staff of fewer than two dozen state employees handling administrative, clerical and contract management functions.

Since 2009, the state Legislative Analyst's Office, the state auditor, the state Office of the Inspector General and the rail authority's own Peer Review Group have issued separate reports that, among other issues, cite weaknesses in the agency's overall management and its oversight of contracts.

"It is clear ... that current authority staff resources are not at all adequate for the job at hand," peer review group chairman Will Kempton wrote in May in a letter to authority CEO Roelof van Ark. Unless more people can be hired, "the authority is only going to fall further and further behind, especially as construction commences."

Questionable bill-paying practices were targeted by other analysts. "The days of paying bills that show no deliverables, no progress reports, no tasks performed and no timesheets must end," Inspector General Laura Chick stated last fall.

The authority acknowledges the problems and says it's taking steps to solve them. It's trying to hire more in-house staff – and has hired yet another consultant. San Francisco-based T.Y. Lin International has an $8 million contract to monitor the work of Parsons Brinckerhoff.

Simitian, the Bay Area legislator, noted the apparent irony. "Now they have an $8 million contract to manage the $199 million contract, which is to manage the entire project," he said.

Barker, the authority's spokesman, said using another consultant was unavoidable.

"We recognized that we needed better oversight of the main contractor," Barker said. "We didn't have the staff to do it, so we hired an engineering firm to look over (Parsons Brinckerhoff's) shoulder."

This year, the Legislative Analyst's Office supported a budget increase to improve the authority's computer technology services and its staff by 15. Both steps, analysts said, would improve the authority's ability to manage its budget and supervise its contracts and consultants.

Reliance on outsiders

Experts say it's not unusual for states to rely on highly paid consultants for specialized expertise on major engineering projects.

"Would California be able to hire hundreds of employees who are experts in high-speed rail?" said Christopher Barkan, director of the Rail Transportation and Engineering Center at the University of Illinois at Urbana-Champaign. "And if it did, where on earth would they find them?"

The authority's spokesman said the consulting contracts are effectively putting hundreds of people with specialized expertise to work on the overall project when they are needed most. Each stage of work, such as environmental analysis, preliminary engineering and right-of-way acquisition, requires different types of expertise for limited periods of time, Barker said.

Critics and backers alike agree that consultants are necessary for the amount and level of design, engineering and environmental work required for a project of this scale.

"I know $630 million is a lot of money, but this will be an 800-mile system, and there are studies needed that most people wouldn't even think about," said Assemblywoman Cathleen Galgiani, D-Livingston. Galgiani, who wrote the law putting Prop. 1A on the ballot and has been an ardent supporter of the authority.

Simitian, the Bay Area senator, acknowledged what he called the "extraordinary" pre-construction requirements.

"But while that may be understandable, it's also what I think makes a lot of folks nervous," he added. "We may not know for a decade whether it was money well spent."

While it's been expensive and time-consuming, experts say California's work has paid off by attracting federal grants for construction.

When the federal government awarded $8 billion to high-speed rail projects across the country in early 2010, California got $2.25 billion – the most of any state. "The U.S. Department of Transportation said California was ready and deserved a significant chunk of money," said Barkan, the Illinois professor.

So far, the Federal Railroad Administration has committed nearly $3.5 billion to help build the first Valley section between Madera and Bakersfield. The authority plans to match that with about $2.75 billion from Prop. 1A.

Since the mid-2000s, "it was well-known in U.S. transportation and rail circles that California was the most well-prepared and was on the cutting edge of planning for high-speed rail," Barkan added.

Added oversight?

Still, there are calls for greater accountability for the authority.

Two bills in the state Legislature would bolster oversight of the rail authority by putting it under the auspices of the state's Business, Transportation and Housing Agency.

Galgiani, who wrote of one of the bills, said Capitol politics has limited the authority's efforts to hire more in-house staff. "The conversation has so far been centered around criticism," she said. "But there's far more that legislators could be doing and should be doing to make this project a success."

"If the authority needs legislative approval to hire staff, then we need to give it to them," she added. "Then we have every right to ask them to be accountable."

Simitian said he believes the authority is making progress on its management issues, but added that it's happening far more slowly than he and other lawmakers had hoped.

"It's fair to say that it's an extraordinary challenge to go from being a small planning and advocacy agency before the bond passage to being the agency responsible for the design, construction, financing and operation of a multibillion-dollar transportation mega-project," Simitian said.

"Perhaps in hindsight, it was naive to think the authority could make that transition quickly or easily," he added. "But here we are, pushing three years since Prop. 1A, and this is still an organization that's struggling, to say the least."

Galgiani, however, said the authority remains on track to start construction on time.

"The voters only approved Prop. 1A about 2 1/2 years ago," she said. "The shovels will be in the dirt in September 2012, less than four years after Prop. 1A. I challenge anyone to point to any large transportation project that has moved forward this quickly."

Tim Sheehan is a business reporter and covers high-speed rail for The Fresno Bee. The reporter can be reached at tsheehan@fresnobee.com or 559-441-6319. This story resulted from a partnership among six California news organizations following the state's high-speed rail program: The Fresno Bee, The Sacramento Bee, California Watch, The Bakersfield Californian, The Orange County Register and the San Francisco Chronicle.

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