In spite of the legislature's decision---by only one vote---authorizing $4.7 billion in state bonds for high-speed rail, the project is still in big trouble, as the Examiner reported the other day:
The U.S. Government Accountability Office issued a detailed report on the $68 billion undertaking, which is slated to be the largest public works project in state history. While the report indicated that the California High-Speed Rail Authority, which is overseeing the project, has exhibited some best practices in developing its long-term strategy for the plan, questions remain---including volatility in ridership projections, lingering environmental issues and, most pressing, a lack of funding.
This is like a parody of objective reporting. Putting the situation plainly: the ridership projections from the high-speed rail authority have always been bullshit, inflated to make the project look plausible; there are several lawsuits on both environmental issues and whether the project is anything like what state voters passed back in 2008; and there's money to begin only a fragment of the project in the Central Valley.
So far, roughly $11.5 billion in state and federal sources have been identified for the project, leaving a $57 billion shortfall. Of the remaining funds needed, the authority has projected that $37 billion will come from Washington, yet lawmakers have been divided on the federal spending practices. The GAO report noted several roadblocks. “Given that the program has not received funding for the last two fiscal years and that future funding proposals will likely be met with continued concern about federal spending, the largest block of expected funds is uncertain,” the report said.
The reality is that there's no way the feds are going to give California $37 billion for his project. From the GAO's report:
Of the total $55 billion in state and federal funding, about $38.7 billion are uncommitted federal funds, an average of over $2.5 billion per year over the next 15 years. Most of the remaining funding is from unidentified private investment once the system is operational---a model that has been used in other countries, such as for the High Speed One line in the United Kingdom. As a result of the funding challenge, the Authority is taking a phased approach---building segments as funding is available. However, given that the HSIPR grant program has not received funding for the last 2 fiscal years and that future funding proposals will likely be met with continued concern about federal spending...
Yes, the high-speed rail "model" in other countries is to build these systems with tax money and after they are built turn them over to private companies to operate. But even after the systems are built, they are all still subsidized by taxpayers, which is prohibited in the authorizing legislation for California's high-speed rail system.
The Examiner, in the interests of pseudo-objectivity, allows Ron Diridon to muddy the waters on the issue:
But Rod Diridon, former chairman of the authority, said that once construction begins next year on the project in the Central Valley, private investors will take interest, knowing California is serious about the undertaking. Although the authority expects to receive $13 billion in private investment, Diridon said private consortia---from countries such as China, South Korea and Japan---would be willing to put up $55 billion so long as they get to run the system and receive profits.
Why would investors be interested in a small piece of the system in the Central Valley, assuming the fragment survives litigation? Private vendors will surely be interested in selling California rail cars and the technology to run the system if/when it's built, but the notion that they'll be interested in giving the state $55 billion to build the system is simply a lie.
Nor is private capital interested in "at risk" investment in California’s high-speed rail project. Investors want a subsidy, even if called a revenue guarantee. The Authority’s Board has known this since June 2008. Five months before Prop 1A their own consultants, the Infrastructure Management Group, told the Board that all the operators and equipment manufacturers, and nine out of ten builders, responding to their Requests for Expressions of Interest (RFEI) were reluctant to invest unless a large portion of the capital costs were from State and Federal sources. The report says:
“Nearly all RFEI respondents noted that they would be unlikely to commit the resources necessary to participate in a procurement of this magnitude until after strong financial backing for the Project was provided by the public sector.”
Conclusions: The project’s capital development and operations costs are completely dependent on federal or state funding. No "at risk" private money has come or is likely to come to the project without a subsidy or its surrogate, a revenue guarantee---forbidden by Section 2704.08 (J) of AB3034.
Labels: Examiner, High-Speed Rail