We haven’t had much to say about the supposedly abuilding high speed train line between San Francisco and Los Angeles, or at least its initial 119 mile segment running from Madera to Fresno (aka the middle of nowhere), because there hasn’t been much news on that subject. But news came with a bang on the front page of today’s Los Angeles Times (Cost of State’s Train Surges, Jan.17, 208, p. A1) bringing the dispatch that the financial condition of the train project is parlous. The now conceded increase in the cost of that segment jumped from an estimated $2.8 billion to — are you ready? — $10 billion. This, we are told, is the worst-case scenario that was “long forewarned” but the warning was rejected by the railroad project’s management. Now it is coming to pass.
So much for the news which, as it turns out, is no news at all. Overruns of this kind, that belatedly try to raise the excuse of “higher cost of land acquisition” are old hat. Our own files contain an old article in a conservationist magazine called Cry California. The Spring 1966 issue contains an article by Joseph C. Houghteling, then member of the California Highway Commission, entitled Confessions of a Highway Commissioner at p. 29. In it the author reveals that “Actual costs were an average of 32 percent above estimates, most of the increment coming from additional right-of-way costs.” (at p. 30). That was a half century ago, and evidently not much has changed since then.
If you want an insight into how this happens, take a look at 40 Loyola L.A. L. Rev. at 1108, footnote 162, for an extensive collection of studies indicating that underpaying property owners for land taken from them is common in California as well as in other states. In a nutshell, appraisers of thousands of parcels constituting a major right-of-way are under pressure to come in with low opinions of value to impress their condemnor-clients and because unsophisticated and unrepresented property owners believe that “you can’t fight city hall” and accept those lowball offers in disproportionate numbers. For an explanation of this process by a prominent appraiser, see Ibid, at pp. 1106-1107, footnote 158. In other words, lowballing by condemnors is common and property owners who refuse condemnors’ pre-condemnation offers and try their cases, whether before judges or juries, usually recover compensation quite a bit higher than those offers, often higher by millions of dollars. For some outstanding examples of the stunningly higher awards granted by courts, or even agreed to by condemnors once the weaknesses of their own appraisals are exposed, see Ibid, at pp. 1146-1148.*
So if the California high speed railroad builders are experiencing unanticipated costs of right-of-way acquisition, they are only treading an old beaten path of their own making. California law requires explicitly that condemnees be paid the highest price that their property would bring in a voluntary market transaction. So it should not come as a surprise that when instead condemnors try to lowball condemnees, the compensation they have to pay is higher than their hopes.
* Our favorite case of that sort is People ax re. Dept. of Transp. v. Sothern Calif. Edison Co (2000), where California DOT deposited $245,000 as its good faith estimate of “just compensation” for a partial taking of a major electrical transmission line, but at trial (a) the jury awarded some $49.5 million, and (b) on appeal the California Supreme Court affirmed and ordered the State not to brief the issues of valuation because the court would not consider them.