Costly California bullet train will be billions more due to inflation, says board

Inflation and supply-chain issues are combining to drive up the forecast cost of high-speed rail construction between Merced and Bakersfield by billions of dollars by the time the anticipated stretch becomes operational.

The timeline for electric passenger trains to start running on the 170-mile route — most recently expected by 2030 — is also undergoing strain, with California High-Speed Rail Authority officials reporting Thursday that the “schedule envelope” now extends to somewhere between 2030 and 2033.

Rail authority CEO Brian Kelly, addressing the agency’s board members Thursday, advised that an upcoming project update report due to the state Legislature on March 1 will include changes to the cost and schedule projections for the Merced-Bakersfield portion of the route.

The Valley segment is planned to be the first operational portion for what is ultimately planned as a 520-mile system to connect San Francisco and Los Angeles/Anaheim by way of Fresno and the San Joaquin Valley.

“We’re updating all of those cost estimates (and) we’re doing it in a high inflationary period,” Kelly told The Fresno Bee in an interview this week. “That’s not just affecting us but affecting transportation megaprojects all over the country and certainly in California.”

Kelly said state legislators, in a budget agreement last year to free up the last $4.2 billion from a 2008 bond measure for high-speed rail construction, directed the rail authority to prioritize completion of the Merced-Bakersfield section. Construction is underway on about 119 miles of the route from northwest of Madera to near Shafter, in Kern County.

But extending the construction work north to downtown Merced and south to downtown Bakersfield “comes with a new scope, and we have to recognize that,” Kelly said.

“It’s a little bit more than what we had before,” he added, “and it’s very clear that federal help … is going to be key to us getting this project done.”

Higher cost estimates

In the California High-Speed Rail Authority’s 2022 business plan sent to the state Legislature last year, cost estimates for the planned Merced-Bakersfield interim operating segment ranged from $22.5 billion and about $24 billion.

As the agency attempts to account for inflation from the 2022 business plan, the new cost range is rising to between $29.8 billion and $32.9 billion for completion of the Valley sections, Kelly reported.

“Our projections are going up a bit, and we’re going to have to deal with that,” Kelly told The Bee. “We reset our pricing to 2022. When we projected going forward, our escalation rate used to be 2%.“This year it’s 5 1/3%. The next couple of years will be over 3% using Department of Finance projections.”

One issue the authority realized last year is that the agency underestimated the cost of installing track and systems on the Merced-Bakersfield route. “We saw the supply chain impacts in the marketplace and we saw the inflationary impacts,” Kelly said. “So now we’ve upped our estimates for what track and systems will cost going forward.”

Rising costs since ‘08

Cost and schedule fluctuations are nothing new for the controversial bullet-train project since 2008, when voters approved Proposition 1A, a $9.95 billion high-speed rail bond measure. Since then, California received more than $3 billion in federal railroad and economic stimulus funds in 2010 and 2011.

The San Francisco-Los Angeles/Anaheim system was once expected to cost somewhere around $43 billion; that later ballooned to almost $100 billion in late 2011 before the state rail agency sought ways to bring the costs back down.

The newest figures reported Thursday by Kelly, and which will be included in the March 1 project update report to legislators, offer a base estimate of $106.1 billion, but with a possible range from as low as about $88.5 billion to a high of almost $128 billion.

The variability reflects ongoing uncertainty over the cost of key construction features including tunnels through the mountains between the San Joaquin Valley and Gilroy/San Jose and through the San Gabriel Mountains between Palmdale and Burbank.

Taking longer to build

Also uncertain is whether the state will be successful in its applications for what will likely be billions of dollars from the Biden administration under the federal Bipartisan Infrastructure Law — and what that will mean to the construction schedule.

Slippage in the construction schedule has been a chronic concern for the rail authority because much of the money awarded to California by the federal government in 2010 and 2011 came with a requirement that the money be spent by the end of 2017.

That deadline compelled the agency to rush forward with construction contracts in the San Joaquin Valley before it had acquired the vast majority of the property needed to build the route.

It’s a mistake that the agency is vowing to avoid repeating on its extensions to Merced, Bakersfield and in other parts of the state.

“Because construction is out of sequence, the construction delays are on us, and we’ve paid a price for that,” Kelly told the board.

“We have a schedule envelope of between 2030 and 2033 for operations to begin,” he said. “The biggest risk is the availability of funding … as we make the schedule going forward.”

“To be clear, all of the work outside of the 119 miles (from Madera to Shafter) will require federal help,” Kelly added. Without additional funds from the Bipartisan Infrastructure Law, it would not be possible for the state to shoulder the entire cost of building the extensions into Merced and Bakersfield.

The 119 miles now under construction could function as a test track for trains once tracks and systems are built, and the state does have the money it needs to accomplish that. But operations will require the route to be able to serve functional stations in Merced, Fresno, Hanford and Bakersfield.

“We will not have to wait a long time to know if we have a full federal partnership,” Kelly said to the board members.

The rail authority has applications to the Federal Railroad Administration for $300 million for grade separations in the Shafter area, and Kelly said applications are due in April for the Federal-State Partnership for Intercity Passenger Rail — a five-year program that includes a first-year pot of about $4.5 billion.

The U.S. Department of Transportation turned down an application last year from the rail authority seeking $1.2 billion from a much broader program from the Bipartisan Infrastructure Law. The Federal-State Partnership program is more directly aimed at passenger rail.

Over the next few years, the rail authority will apply for federal grants to achieve a slew of goals:

“From a management perspective I’m still eyeing 2030. But I’ve got to get funding,” Kelly told The Bee. “And that’s a big risk. Because it’s not just funding; it’s also the timing of the funding because there are contracts that we’ve got to let to meet those deadlines. I’ve got to know I’ve got the money.”