Saturday, November 07, 2015

No private investment in high-speed rail

California Common Sense

Chris Reed
City Journal
4 November 2015

California’s politicians keep pretending private investors want in on the state’s silly bet on high-speed rail.

In November 2008, California voters narrowly approved Proposition 1A, which provided $9.95 billion in government money for a statewide bullet-train network. The initiative passed, even though the California High-Speed Rail Authority had been legally required to release a detailed, updated business plan by October 1 of that year, so that voters would have time to learn exactly how the state planned to finance what was then billed as a $43 billion project—and no updated plan was in view. Rail officials failed even to release a preliminary report before the election, claiming that state legislators’ long delay in passing the fiscal 2008–09 budget made doing so impossible.

Within days of Prop. 1A’s passage, however, the High-Speed Rail Authority at last released the plan. Just as critics had predicted, the document insisted that private investment would be easy to come by. All investors needed, the plan said, was “financial and political commitments from state officials that government would share the risks to their participation.” 

In other words, if California promised that taxpayers would guarantee ridership and revenue, then investors would come flocking. The problem? Prop. 1A explicitly banned taxpayer subsidies for the bullet-train project. Had the business plan been released before the election, it would have undercut the “no-downside” narrative offered by the project’s political champions, including Governor Arnold Schwarzenegger and Senator Dianne Feinstein.

Since then, rail-authority leaders have continued to pretend that massive private investment is just around the corner. Initially, these claims were buttressed by vague generalizations. In recent years, however, the authority has tried to suggest that contractors interested in working on the now-$68 billion project might also be willing to help finance it. Most reporters on the state government beat have swallowed these claims uncritically. A July 2014 San Jose Mercury-News story noted that “a deal that will send the project hundreds of millions of dollars a year in fees collected from polluters is the signal the private sector was waiting for.” 

But here’s what the coverage usually leaves out: the private-sector companies sniffing around the bullet-train project never invest without government promises to step in if things don’t go according to plan.

Only Ralph Vartabedian of the Los Angeles Times appears to understand that the project probably won’t get the funding it needs without taxpayer subsidies. “Major construction, equipment and engineering firms around the world, responding to a solicitation to form a partnership with the California high-speed rail project, have raised serious concerns about the state’s shortage of funding, the potential need for long-term operating subsidies and whether the project can meet the current construction schedule,” he reported last month. “The appeal for financial and technical partners drew responses from across Europe, Asia and the U.S. But none of the companies expressed a readiness to invest their own money, and some included reservations about the risks.”

Vartabedian’s analysis, and his paper’s in-depth look at the bullet-train project detailing how state rail-authority officials buried a report predicting a $9 billion cost overrun on the initial 300-mile segment, have shaken up California public-policy circles. The Times coverage seems certain to trigger legislative hearings. State Senate president Kevin de León, a Los Angeles Democrat, has already expressed his skepticism about the project, as has Lieutenant Governor Gavin Newsom, who wants to be governor. 

What was shaping up as one of the world’s biggest government boondoggles might yet be averted at a cost of only a few billion—which sounds like a bargain, compared with digging the financial hole still deeper.

Chris Reed is an editorial writer for the San Diego Union-Tribune.

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