Saturday, October 22, 2016

Gavin Newsom's flip-flop on high-speed rail

Karl Mondon, Bay Area News Group

Actually, when you read the story (Newsom, seeking governor’s office, now backs high-speed rail), it's a conditional flip-flop. He's "backing" the dumb project now, and after he becomes governor he will look for "a solid public funding source" to build it. Since there is no such source available, after he's elected he can just say he failed to find it and dump the project.

As it is, Newsom is taking the political risk of looking like a flip-flopper and a flab-gabber on this important issue.

The notion that private investors will step in to help build the project is fanciful. Without guarantees of a return on their investment, why would they? How would the state pay for that?

Most people have no idea how much this project will cost the state---even to pay for the original $9.95 billion in bonds authorized in Proposition 1A in 2008. The interest payments on those bonds alone will be $647 million a year! 

To complete even the first segment, the project is relying heavily on money from the cap and trade program, which is both an unreliable source and under legal challenge.


Availability of Future Cap–and–Trade Revenue to Complete IOS[initial operating segment] Could Potentially Require Certain Legislative Actions. As discussed above, about half of the funding identified in the [2016]draft business plan for the proposed IOS is from cap–and–trade auction revenues after 2020. While the administration indicates it plans to continue the cap–and–trade program beyond 2020, current law does not appear to authorize the program’s continuation beyond 2020. This means that without legislative action, the cap–and–trade funds HSRA plans to use to build the IOS would likely not be available. At a minimum, these funds are subject to considerable legal uncertainty.

The danger to California's financial future has been clear since the project's 2009 fantasy assumption about where the money to build the system would come from:

Federal Grants $17-19 billion
State Grants (Prop 1A) $9.95 billion
Local Grants $4-5 billion
Private Funding $10-12 billion
(The Financial Risks of California’s Proposed High-Speed Rail Project, page 18)

From page 37 of the same 2010 document:

This is a dangerous time for the CHSR project since its assumed financing sources have not materialized. The Federal grant funds and AB3034-initiated GO[general obligation] bonds, if buyers for those bonds can be found, bring the project’s available capital to about 11% of what it needs for Phase 1. But there are no known local government and no private sector monies in the project at present. New federal grants will be a fraction of the Obama Administration’s FY 2010 bold plans. The CHSRA could be desperate for funds to keep their project alive and the temptation to promise more than the law allows high. Without the money, and with diminishing confidence in the CHSRA’s plans, this becomes a dangerous time to risk the State of California’s financial future (emphasis added).

The analysis of the project in this document is still valid.

The danger is that the state will continue for years to dribble away billions to keep this project alive, even though there's no clear source of money to build it without selling ruinously expensive bonds or raising taxes radically.

More likely, the state will be forced to abandon the project before it's completed, having wasted billions in the process.

Even in the unlikely event the project is built, like every other high-speed rail system in the world, it will require government subsidies to operate, but that is clearly prohibited by the project's enabling legislation (see page 8 and 9). 

That's how the project was sold to the state's voters: it would be paid for by its users, not subsidized by the state's taxpayers.

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