Legislative Analyst knocks high-speed rail---again

The state's Legislative Analyst has issued another critical report---a link to one from last year---on the latest high-speed rail business plan and found it fundamentally flawed, since there's still no money to build the system. Below is an excerpt from the report that, in diplomatic language, demolishes Governor Brown's proposal to use the state's cap-and-trade system for money to build the high-speed rail system:  

Future Funds Not Identified. The future sources of funding to complete Phase 1 Blended are highly speculative. Specifically, the funding approach outlined in the 2012 revised business plan is no more certain than what was proposed in previous plans. For example, the recent plan assumes nearly $42 billion, or 62 percent of the total expected cost, will be funded by the federal government. However, about $39 billion of this amount has not been secured from the federal government.

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. In other words, it remains uncertain at this time whether or not the state will receive the necessary funds to complete the project. 

The absence of an identified funding source at the federal level makes the state's receipt of additional funding unlikely, particularly in the near term. In addition, it is unclear how much, if any, other non–state funds (such as local funds, and funds from operations and development, or private capital) have been secured. In total, only $11.5 billion (or about 17 percent) of the estimated funds needed to complete the project have been committed.

Use of Cap–and–Trade Auction Revenues Very Speculative. As discussed earlier, the plan proposes to use revenue from the state's quarterly cap–and–trade auctions, which are scheduled to begin in November of this year, to backstop any shortfall in anticipated funding from the federal government. These auctions involve the selling of carbon allowances as a way to regulate and limit the state's GHG emissions in accordance with Chapter 488, Statutes of 2006 (AB 32, Núñez/Pavley).

As we discussed in our recent brief, the use of cap–and–trade revenues are subject to legal constraints. Based on an opinion we received from Legislative Counsel, the revenues generated from the cap–and–trade auctions would constitute "mitigation fee" revenues. Therefore, in order for their use to be valid as mitigation fees, these revenues must be used to mitigate GHG emissions. Given these considerations, the administration's proposal to possibly use cap–and–trade auction revenues for the construction of high–speed rail raises three primary concerns:

Would Not Help Achieve AB 32's Primary Goal. The primary goal of AB 32 is to reduce California's GHG emissions statewide to 1990 levels by 2020. Under the revised draft business plan, the IOS would not be completed until 2021 and Phase 1 Blended would not be completed until 2028. Thus, while the high–speed rail project could eventually help reduce GHG emissions somewhat in the very long run, given the project's timeline, it would not help achieve AB 32's primary goal of reducing GHG emissions by 2020. 

As a result, there could be serious legal concerns regarding this potential use of cap–and–trade revenues. It would be important for the Legislature to seek the advice of Legislative Counsel and consider any potential legal risks.

High–Speed Rail Would Initially Increase GHG Emissions for Many Years. As mentioned above, in order to be a valid use of cap–and–trade revenues, programs will need to reduce GHG emissions. While the HSRA has not conducted an analysis to determine the impact that the high–speed rail system will have on GHG emissions in the state, an independent study found that—if the high–speed rail system met its ridership targets and renewable electricity commitments—construction and operation of the system would emit more GHG emissions than it would reduce for approximately the first 30 years. 

While high–speed rail could reduce GHG emissions in the very long run, given the previously mentioned legal constraints, the fact that it would initially be a net emitter of GHG emissions could raise legal risks.

Other GHG Reduction Strategies Likely to Be More Cost Effective. As we discussed in our recent brief on cap–and–trade, in allocating auction revenues we recommend that the Legislature prioritize GHG mitigation programs that have the greatest potential return on investment in terms of emission reductions per dollar invested. 

Considering the cost of a high–speed rail system relative to other GHG reduction strategies (such as green building codes and energy efficiency standards), a thorough cost–benefit analysis of all possible strategies is likely to reveal that the state has a number of other more cost–effective options. 

In other words, rather than allocate billions of dollars in cap–and–trade auctions revenues for the construction of a new transportation system that would not reduce GHG emissions for many years, the state could make targeted investments in programs that are actually designed to reduce GHG emissions and would do so at a much faster rate and at a significantly lower cost.

An analysis of the latest CHSR business plan from the folks at CCHSR.

Another by Mark Powell on his excellent blog on high-speed rail.