A recent decision to start California's high-speed-rail line in Central Valley has prompted Caltrain to reconsider its seven-year-old partnership with the agency overseeing the controversial rail project, Caltrain officials said at a Town Hall meeting in Palo Alto Tuesday morning (May 17).

Santa Clara Supervisor Liz Kniss, who sits on Caltrain's governing board, hosted the meeting in Palo Alto City Hall to update the community about Caltrain's ongoing financial struggles and its efforts to electrify the financially troubled train system. But the discussion also touched on California's controversial high-speed-rail project, a sore subject in Palo Alto and around the Peninsula.

The high-speed-rail line is slated to stretch from San Francisco to Los Angeles and to pass through the Peninsula along the Caltrain corridor. In 2004, four years before California voters approved a $9 billion bond for the new rail line, the rail authority and Peninsula Corridor Joint Powers Board (JPB), which oversees Caltrain, entered into an agreement to work together on the new rail line. The parties amended the agreement in 2009, after the bond's passage.

The arrangement seemed like a win-win situation. The rail authority needed Caltrain's right-of-way to make the system work, while Caltrain officials saw the rail project as a possible way to electrify the popular but cash-strapped system. But with high-speed rail facing its own financial challenges, as well as increasing skepticism from Peninsula residents, Caltrain is giving this partnership a second thought.

At Tuesday's meeting, several audience members questioned Caltrain's partnership with the rail authority and encouraged the JPB to take a more assertive stance. Palo Alto resident Hinda Sack said Caltrain should have a greater say in its partnership with the rail authority.

Kniss, a former Palo Alto mayor, said the relationship between the agencies has always been tentative and subject to changes.

"It's like many arrangements," Kniss said. "I'd call it, maybe they were in the engagement phase.

"Caltrain got the ring but never got a wedding band."

Mark Simon, Caltrain's executive officer for public affairs, said his agency entered into a partnership with the rail authority because it felt the high-speed-rail project could help it achieve the ultimate goal of electrifying the Caltrain system, a goal that he and Kniss say is necessary to ensure the long-term viability of the popular commuter service.

He also said Caltrain has been "rethinking our relationship with high-speed rail" since the rail authority approved a plan to start the line in Central Valley. The plan has prompted many legislators, watchdogs and concerned citizens to wonder whether the Peninsula segment will ever get built. On the bright side, the plan created a welcome reprieve for many Peninsula officials, including the Palo Alto City Council, who felt the project is moving too fast and in the wrong direction.

"I think we all breathed a sigh of relief when the money went to Central Valley and we had ourselves a little more time to reach these decisions and think about what we can do," Simon told the audience Tuesday morning.

Some on the Peninsula still hope the high-speed-rail line and Caltrain can work together. Last month, state Sen. Joe Simitian, D-Palo Alto, U.S. Rep. Anna Eshoo, D-Palo Alto, and state Assemblyman Rich Gordon, D-Menlo Park, proposed a plan in which high-speed rail and Caltrain would "blend" on the Peninsula. The plan calls for an electrified Caltrain system that would serve high-speed-rail passengers on the San Jose-to-San Francisco segment of the line.

The plan met a cool reception at the most recent meeting of the rail authority's board of directors. Several members, including board Chair Curt Pringle, suggested that the proposal could be little more than an attempt by Peninsula legislators to take money from the high-speed rail and use it for Caltrain's needs.

For Caltrain, the uncertainty over the Peninsula segment means it has to look for other ways to raise the roughly $1.5 billion needed to electrify the system. The three partnering agencies have already set aside $269 million for the project and expect to receive about $350 million more in grants. Even so, Caltrain is still looking for about $640 million to make electrification possible, said Marian Lee, Caltrain's executive officer for planning and development.

California’s high-speed-rail project, as envisioned in Proposition 1A, faces significant risk of never reaching completion, the state’s non-partisan Legislative Analyst’s Office (LAO) said in a brutal report released Tuesday. Reasons include unrealistic funding assumptions, weak leadership overseeing operations, and federal deadlines being missed because of public opposition.

The California High–Speed Rail Authority (HSRA) assumed the state would receive $17-$19 billion from the Federal Rail Authority, but to date has only received $3.6 billion, the report stated.

“Given the federal government’s current financial situation and the current focus in Washington on reducing federal spending, it is uncertain if any further funding for the high-speed rail program will become available,” LAO representatives wrote. “In contrast to the interstate-highway system, which was constructed with the dedication of funding from the federal-excise tax on gasoline, federal funding for high-speed rail is not supported by a dedicated-revenue stream and, therefore, must compete with other annual federal funding priorities.”

HSRA’s latest 2010 business plan indicated the potential need for a “state-operating subsidy,” which is contrary to explicit provisions in Proposition 1A, said the LAO. Proposition 1A assumed the state would sell $9 billion in general-obligation bonds—however, California would incur annual-debt-service payments of $1 billion for the next two decades, should the state sell bonds.

“Due to the dire condition of the state’s general fund, adding such costs for debt service in the near future means that the Legislature would have to consider reducing costs for other state programs, or increasing revenues to offset these costs,” the LAO wrote.

Federal funding came with strict deadlines, which caused HSRA to hastily approve construction of the Central Valley segment without proper analysis of future funding sources. Potential ridership of a high-speed rail line within the Central Valley segment alone would be “insufficient to operate the system without a substantial subsidy,” and significant local opposition over how the alignment of the tracks could affect agricultural operations makes meeting federal deadlines unlikely, the LAO concluded.

The current HSRA board does not have the proper engineering or construction management expertise to effectively and efficiently build a successful high-speed-rail program. As a result, LAO recommended replacing HSRA with the California Department of Transportation.

“We recommend that the Legislature remove decision-making authority over the high-speed rail project from the HSRA board to ensure that the state’s overall interests, including state fiscal concerns, are fully taken into account as the project is developed,” the LAO stated.

California legislators need more time from the federal government to make more informed decisions, and the state needs to improve governance and oversight of the project in order to ensure the increased success of the high-speed-rail project, the LAO concluded.

California's proposed high-speed-rail system is facing potentially crippling threats from looming federal deadlines and weak oversight by the agency charged with building the project, the state Legislative Analyst's Office concluded in a new report.

The scathing report, which the nonpartisan office released Tuesday morning, recommends stripping the California High-Speed Rail Authority of its decision-making powers and giving the California Department of Transportation (Caltrans) oversight over the increasingly controversial project. The Legislative Analyst's Office also concluded that the rail authority's business plan remains deeply flawed; that most of the revenues the agency is banking on to fund the new system are unlikely to materialize; that the project will cost far more than the rail authority's official estimate of $43 billion; and that the rail authority's decision to begin the line in Central Valley is a "big gamble" based on "faulty assumptions."

The report, titled "High-Speed Rail Is at a Critical Juncture," comes as another major blow to a project that voters approved in November 2008 but that has since been plagued by financial uncertainty and scathing criticism from communities along the proposed route. While previous audits had also highlighted flaws in the rail authority's business plan, ridership assumptions and day-to-day operations, the new report goes a step further and argues that the state Legislature should reject the rail authority's funding request for the next fiscal year and halt the project altogether unless federal deadlines are renegotiated and the governance structure for the project is revamped.

"We have concluded that the current governance structure for the project is no longer appropriate and is too weak to ensure that this mega-project is coordinated and managed effectively," the report states. "These changes in governance need to be made soon, in our view, because HSRA has already begun the process to move toward the award of multi-billion dollar construction contracts for the project."

Eric Thronson, the analyst who wrote the report, presents several alternatives to the existing governance structure, which consists of nine appointed board members, a handful of paid staff members and hundreds of consultants. The project, Thronson wrote, could be shifted to Caltrans, an agency with far more oversight and expertise in transportation projects, or moved to a newly created state department dedicated to high-speed rail. Thronson argued in the report that the existing structure gives the rail authority too much autonomy and not enough accountability to the Legislature or the governor.

"The considerable autonomy," Thronson wrote, "does not ensure that the board keeps the overall best interests of the state in mind as it makes critical decisions about the project."

Under the current system, he noted, board members aren't required to have "specific expertise" relating to management of a major construction project. He also pointed out that the agency's board members are not subject to direction by the executive branch or the legislative confirmation process.

"This relative lack of accountability to either the executive or legislative branches creates a risk that the board will pursue its primary mission -- construction of the statewide high-speed rail system – without sufficient regard to other state considerations, such as state fiscal concerns," he wrote.

Of the two proposed alternatives, the report leans in favor of shifting the project to Caltrans. The report recommends that the Legislature pass a bill in the current session making the switch.

The new report also backs up recent claims by rail watchdogs that the rail authority's estimated $43 billion price tag for the rail system is far too low. The segment between San Francisco and Los Angeles, Thronson wrote, is "likely to cost much more." He estimated the cost of the project to be about $67 billion, echoing a similar estimate that was issued in February by the Palo Alto-based group Californians Advocating Responsible Rail Design.

Palo Alto officials have also grown increasingly skeptical about the rail authority's official projection of the rail line's costs. The city had sent the rail authority a letter in March asking for an updated estimate but did not receive a response.

The rail authority currently has about $5.5 billion on hand in state and federal funds for construction of the rail line and is banking on future contributions from the federal government, private investors and local agencies to help pay for the system. These assumptions are overly optimistic, the new report argues.

The rail authority's 2009 business plan estimates that the project will obtain between $17 billion and $19 billion in federal funds. So far, it has received $3.6 billion, and the Republican majority in the U.S. House of Representatives has opposed making additional appropriations for high-speed rail.

A proposal by three Peninsula lawmakers to blend California's proposed high-speed-rail system with Caltrain ran into opposition Thursday morning from the state agency charged with building the new rail line.

The California High-Speed Rail Authority had its first chance Thursday to discuss a proposal by state Sen. Joe Simitian, D-Palo Alto, U.S. Rep. Anna Eshoo, D-Palo Alto, and state Assemblyman Rich Gordon, D-Menlo Park, to blend the controversial rail system with what the lawmakers called a "21st Century Caltrain." The three legislators also called for the rail authority to abandon any design options that include aerial alignments and to scale back its environmental analyses for the overall project, which still includes discussion of four-track lines.

Though the proposal has won plaudits in Palo Alto and other Peninsula communities, members of the rail authority voiced concern and frustration about the plan, which they said could derail the agency's ongoing analyses. Chairman Curt Pringle and board member Lynn Schenk both wondered whether the proposal is nothing more than an attempt by Peninsula politicians to take money from the rail project and use it for the cash-strapped Caltrain system.

The three legislators promoted their plan as an example of what they call "high-speed rail done right." In unveiling their plan on April 11, they said blending the two systems on the Peninsula would save billions of dollars by avoiding the need to build a duplicative rail system. They also argued that the rail authority's planned Environmental Impact Report for the full system is considering expensive alignments that may never get built and suggested that the environmental report study the scaled-back system.

The rail authority has about $5 billion allocated for the rail system, which it estimates to cost about $43 billion. Rail watchdogs have disputed this number and said the cost would exceed $60 billion.

The board discussed the Simitian plan after hearing a detailed presentation from its consultant about the latest plan to phase in construction of the San Francisco-to-San Jose segment. The authority's engineering firm, HNTB, is considering a variety of options for the Peninsula segment, include aerial viaducts as well as open and partially covered trenches. But rather than approving the proposed plan and committing to funding further analysis of phased implementation, the rail authority's board decided to delay any action until members learn more about the legislators' proposal.

Pringle even suggested that the rail authority stop spending money on the Peninsula segment until they get more clarity on the new plan.

"I'm stymied," Pringle said. "Do we tell our team to continue to study this process, or do we want to throw it all out and respond to this letter?"

Pringle also said he's not interested in spending high-speed-rail money for projects other than high-speed rail and questioned the motive of the three legislators.

"Is it a true intent to see high-speed-rail service all the way to the (Transbay) Terminal, or is this letter a smokescreen -- just a way we want to capture a greater share for our local rail uses."

Schenk, who is one of the founding members of the rail authority, agreed with Pringle and said she would hate to see "our precious high-speed-rail funds" diverted to other causes, particularly local ones.

"I don't want to see (that) money used to bail out any regional transportation system, including the Surfliner in my own community and especially Caltrain and others."

Jim Hartnett, the newest member of the rail authority, was less hostile to the lawmakers' proposal and asked for a fuller analysis of whether and how their plan could be implemented. He said the lawmakers' two-page letter outlining the proposal does not constitute a specific plan and proposed a more thorough discussion of the proposal.

"It's not a bailout of Caltrain from my perspective," Hartnett said. "It's 'How will this system be most effective if it's funded and have the capacity to carry ridership?'"

The board voted unanimously to continue discussing the Peninsula design options at its next meeting.

The first segment of California's proposed high-speed-rail line would extend from the unincorporated Central Valley community of Borden to the Bakersfield area under a new plan approved by the California High-Speed Rail Authority this week.

The rail authority shocked city officials throughout the state on Dec. 2 when it selected a segment between Borden and Corcoran as the launching point for the San Francisco-to-Los Angeles line. The selection angered rail critics and city officials from larger Central Valley cities, some of whom branded the proposed system a "train from nowhere to nowhere."

Since the decision, the rail authority received a $616 million grant from the Federal Railroad Administration. The money was initially allocated to Ohio and Wisconsin, but was redirected to California after the two states scrapped their rail programs.

The federal funds would have to be matched with money from Proposition 1A, the $9.95 billion bond measure California voters passed in November 2008.

The rail authority decided on a 7-0 vote Monday to use the money to stretch the initial segment of the rail line to just north of Bakersfield. The authority also directed $500,000 to Bakersfield and another $500,000 to Merced for rail station design. These grants would have to be matched by local funding.

The new federal funds leave the rail authority with about $5.5 billion for the system, which would connect San Francisco and Los Angeles by 2020 and would stretch to Sacramento and San Diego in later phases.

With some Golden State home prices skyrocketing again, the focus is turning to the California region that could be truly ground zero platinum for the nation's next real estate boom.

According to California Association of Realtors (CAR) vice president and chief economist Leslie Appleton-Young, the San Francisco Bay Area, including Silicon Valley, is at the top of the heap.

"Right now, the Bay Area is leading California's recovery because the area has fewer subprime loans and this area is truly unique, with unique properties," Appleton-Young said at a recent Silicon Valley Association of Realtors (SILVAR) meeting in Palo Alto last week.

Even the Bay Area weather is cooperating. After several unusually heat-wave filled summers, the region has returned to its temperate-best Mediterranean like climate, a perfect inducement for home shopping.

In May, 8,264 homes closed escrows in the nine-county San Francisco Bay Area, up 18 percent from April and 11 percent from May 2009, according to MDA DataQuick.

For the next minute, imagine yourself at a car dealership. You're strapped for cash but find a sleek new ride and ask the salesman for a deal.

He quotes you a number that's four times what you have in the bank. And, he warns, even that price isn't fixed -- there's no guarantee you won't pay more in the end.

What do you do?

For California, the lure of its new ride -- a bullet train system capable of whisking passengers between the Bay Area and Los Angeles -- has proved so enticing that the state jumped at the deal, even though it has only a quarter of the money needed.

That's leading some critics to ask whether the state's largest project ever could also prove to be its most financially disastrous.

California is less than two years from the planned start of construction on the nation's first high-speed rail line, which would open in 2020. The trains will zip along the Caltrain corridor from San Francisco to San Jose and then on to Anaheim, a three-hour journey end to end.

It has the potential to create jobs while offering a cheaper, greener and faster form of travel. It could also be another nail in the state's financial coffin.

The California High-Speed Rail Authority, created to carry out the project, told voters in 2008 that the rail line would cost $33.6 billion. The price has since jumped 27 percent, to $42.6 billion.

That much cash could pay to build a new Bay Bridge, extend BART to San Jose and Livermore, and repair California's water system -- with enough left over to erase the state's budget deficit.