HSR projected real estate costs nearly double to $1.5 billion for Valley segment

HSR right-of-way costs

CA High-Speed Rail CEO Brian Kelly addresses the reasons why right-of-way costs are rising for San Joaquin Valley route sections.
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CA High-Speed Rail CEO Brian Kelly addresses the reasons why right-of-way costs are rising for San Joaquin Valley route sections.

Among the many challenges that threaten California’s embattled high-speed rail project now under construction in the San Joaquin Valley, one of the more persistent has been the state’s difficulties in buying the real estate it needs for the route.

When the first $1 billion construction contract was awarded in 2013 for a 29-mile stretch in Fresno and Madera counties, only a few of the parcels of property needed for right of way were available for the contractor to start work. And while the California High-Speed Rail Authority and its property consultants are making progress, there are still hundreds of parcels remaining to be bought or condemned before work can commence on them.

And as engineers tinker and fine-tune the design of the three construction segments between Madera and Bakersfield, the overall number of parcels needed has grown, putting the agency even further behind – even as an economy in rebound after the 2007-09 recession sends real estate prices ever higher.

The California High-Speed Rail Authority’s Construction Package 1 spans about 32 miles from north of Madera to south of Fresno. Tim Sheehan The Fresno Bee

The combined result is that the total estimated cost for property in the Valley has nearly doubled in just four years, as have other costs for the 120 miles of the route for which work is under way. In 2014, the budget for real estate acquisition was about just over $764 million. Now, the estimated costs are projected to be more than $1.5 billion – of which a little more than $1 billion had been spent as of July 31.

Brian Kelly, CEO of the California High-Speed Rail Authority since February, discussed the agency’s real-estate difficulties, among other challenges, in a talk in Fresno with financial supporters of the Maddy Institute, a public-policy analysis and leadership program at Fresno State.

“We have to learn from our past mistakes. While it was great that we started construction in the Central Valley when we did, we probably started too early,” he said. “We didn’t have all of the right of way in hand, so even today as we are in construction … we are still catching up on making sure we have all of the parcels to complete this section.”

Kelly said that when the initial route was identified between Madera and Bakersfield, the expected number of parcels to be acquired was estimated at about 1,400.

“As you go through design and you develop the project further, our parcel number has grown. So instead of being 1,400, we’re now up to about 1,900. That’s about 500 more parcels,” Kelly said in an interview after his presentation. “We have a lot of parcels here.”

Kelly said he believes the project planning is far enough long now that 1,900 is a stable estimate and not expected to grow further. “We’re not going to expand that and we are moving forward on procurement,” he added. We now have about 1,400 parcels in hand.” As of early August, about 1,200 of those parcels have been cleared for contractors to begin construction work.

The slow pace of lining up the necessary property has not only been a factor in pushing back the progress on construction – after all, you can’t build if you don’t own the land – it’s also meant that as land prices recover, the needed property costs more.

“Some of the price driver is tied to just the delay in working up that (right of way) process,” Kelly acknowledged. “When you have a delay in right of way, particularly at a time when land values are going north, you have a cost impact. That’s part of what’s happened here.”

The rail agency has shuffled its management team to strengthen supervision, “and we have developed a strategy for how we acquire the last 500 parcels,” Kelly told The Bee. “Our plan is by the middle of next year, the middle of 2019, we’re going to have most of those outstanding parcels in hand.”

Grant agreements with the Federal Railroad Administration that provided several billion dollars in federal stimulus and railroad money for construction in California came with stringent spending deadlines that forced the state rail authority to prematurely enter into its first three construction contracts in the Valley, before there was nearly enough property secured for meaningful construction.

“The lesson learned is, when you go into the next construction contract, don’t make that mistake again,” he said. “Going forward, we’ll make sure the right of way is all in hand” and better understand all of the needs for relocating underground utilities – another of several factors that have driven costs up far higher than originally expected in the Valley. “When we do that, we’ll have a more efficient operation. We will not continue the practice that has cost us these increases.”

The right of way puzzle has been complicated in the Valley, where the only two segments of the statewide project have been environmentally approved by both the state and federal governments. That still leaves eight more segments, from San Francisco to Los Angeles/Anaheim, and to Sacramento and San Diego, that await environmental analysis and approval. And the state cannot even start trying to acquire land in those segments until those environmental hurdles are cleared.

Under agreements with the federal government, the environmental work for all 10 sections has to be completed by 2022.

Tim Sheehan: 559-441-6319; Twitter: @TimSheehanNews.