Opponents to California High-Speed Rail Board: Show Us the Money!

Bereft of private investment, how can the $68 billion project proceed? That's the question about 20 members of the public repeated in their public comments at Tuesday's High-Speed Rail Authority meeting in Fresno. To their surprise, it was answered.

4 minute read

November 20, 2015, 8:00 AM PST

By Irvin Dawid

"It’s a fair question for citizens to ask," responded authority board Chairman Dan Richardnotwithstanding all opponents reading from the same script provided by the Kings County-based Citizens for California High-Speed Rail Accountability, according to Tim Sheehan of the Fresno Bee. Specifically, opponents asked:

It has come to our attention that Japan consortium responded to your request for private investment to fund the construction of the California High-Speed Train Project. Is it true that they advised you that they will not invest in your project ...?

"In fact, Proposition 1A, the $9.9 billion high-speed rail bond measure approved by California voters in 2008, requires that the state’s bond money only be spent to match funds from other sources," wrote Sheehan in an earlier piece. [See ballot language specifying private funds below.]

"The rail board typically doesn’t respond directly to questions or comments posed during the public comments, but Richard opted to answer the queries," writes Sheehan.

“Is it true that these companies have refused to invest? No, it’s not true,” Richard said. “That’s not the question we asked. We did not ask if they would invest  (T)here’s a lot of confusion about what we asked and what was the response.”

The board had sent inquiries to interested parties and received 36 "Expressions of Interest for Delivery of an Initial Operating Segment," according to a document dated September 30 [PDF].

What the authority asked of the private sector:

"The 'request for interest' from the railroad and infrastructure industry was aimed at trying to determine whether an ongoing stream of income from California’s greenhouse-gas reduction program, better known as cap-and-trade, would be seen as sufficient by the private sector as a way to finance part of the construction, 'and if not, what ideas would they give us to make financing more achievable?'” writes Sheehan.

(T)he responses received by the agency last month uniformly suggested that the project likely would not attract private-sector investments without a greater infusion of government money or a guaranteed return on investment – subsidies that are forbidden under state law. [Emphasis added].

Ballot language of Proposition 1A, 2008 provided by chaptered legislation, AB 3034 [PDF]

"SAFE, RELIABLE HIGH-SPEED PASSENGER TRAIN BOND ACT. To provide Californians a safe, convenient, affordable, and reliable alternative to driving and high gas prices; to provide good-paying jobs and improve California's economy while reducing air pollution, global warming greenhouse gases, and our dependence on foreign oil, shall $9.95 billion in bonds be issued to establish a clean, efficient high-speed train service linking Southern California, the Sacramento/San Joaquin Valley, and the San Francisco Bay Area, with at least 90 percent of bond funds spent for specific projects, with federal and private matching funds required, and all bond funds subject to independent audits?" [Emphasis added].

While it is highly unlikely the project can expect to receive additional federal funding with the current Republican-controlled Congress, it did receive "about $3 billion in federal stimulus and transportation funds," writes Sheehan, courtesy in part due to new Republican governors in Wisconsin, Ohio and Florida who rejected rail stimulus funding in 2010 in hopes they could use it instead for road projects. They couldn't, explained then DOT Secretary Ray LaHood, so funding was redirected to other states, particularly California.

That leaves the private sector having to play a crucial financial role, Sheehan explained in his October 9 piece.

That means if the gap – or perhaps a canyon – is to be filled between the $6 billion now available to the rail authority and the projected $68 billion needed to complete the San Francisco-Los Angeles Phase 1, the bulk of the financial expectations will fall to the private sector. The cost of the Merced-Burbank stage is forecast at about $31 billion.

“Eventually we’ll be ready to look to the private sector for their participation and funding,” stated Chairman Dan Richard after reading the the responses from the 36 companies. “We’re just not there yet.”

Richard said none of the industry responses include a concrete plan “that adds up to $20 billion of new money that we’ve estimated could be supported from the projected revenues” from ridership, real estate and other income sources.

Changes in the bond market has proven difficult for the privately funded, Orlando to Miami All Aboard Florida project. "The Florida Development Finance Corp. this week postponed a $1.75 billion unrated bond sale," notes a Planetizen post last week.

The Frontier Group published a report for U.S. PIRG in 2011 on financing high-speed rail project readers may find of interest: "High-Speed Rail: Public, Private or Both? Assessing the Prospects, Promise and Pitfalls of Public-Private Partnerships" [PDF]. According to the executive summary:

All high-speed rail public-private partnerships require substantial public investment.

Even as California nears construction of the nation’s first high-speed rail line, however, it remains unclear just how the private sector will participate in building out the nation’s high-speed rail network.

Funding from Asian rail companies which team-up with national banks could play a decisive role as they have shown in high-speed and maglev projects in TexasMaryland, and California's "other" high-speed rail project. 

Hat tip: Metro Library

Tuesday, November 17, 2015 in Fresno Bee

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