High-Speed Platinum Contracts

JAN. 13, 2012


It’s like a runaway train pushing a side a cow on the tracks. Controversy over the $98.5 billion-dollar-and-growing price tag? Move aside! The California High-Speed Rail Authority held a seemingly “regular” monthly meeting in Los Angeles on Thursday. But the real story was a brewing controversy about an obscure, costly proposal for the high-profile project, which could add to the already skyrocketing costs to build a High-Speed Rail system in the state.

AB 1254, authored by Assemblyman Mike Davis, D-Los Angeles, would require that a minimum of 25 percent of the workforce used at each worksite be from the local workforce. And it would require that a minimum of 25 percent of the aggregate dollar amount of contracts awarded be subject to project labor agreements.

Forget the free market and competitive bidding. High-Speed Rail could be constructed using more expensive, “platinum” union contractors, if AB 1254 is passed. Prevailing wages and union labor contracts could become the roadblock to non-union private sector contractors working on high-speed rail construction.

Status of High-Speed Rail Today

The recently passed SB 52, known as “The Jobs and Economic Improvement Through Environmental Leadership Act of 2011,” establishes California Environmental Quality Act permit streamlining. But it does so only for projects costing $100 million or more. And it requires high wages — specifically, prevailing wages as determined by the state of California. Prevailing wages are paid at union-wage scales instead of current market-based wages determined by what the market will bear.

“What may have once seemed a worthy project has been exposed as a high-speed marketing charade to the sophisticated voters of California,” Assemblywoman Diane Harkey, R-Dana Point, said at a press conference this week. At the conference, she introduced legislation to halt state debt funding of the High-Speed Rail project. “The Legislature would be wise to do their job and stop the financial and real property carnage.”

As reasons enough to pull the plug on the project, Harkey cited a lack of future federal funding and a lack of oversight, accountability and inconsistency in route and planning. “Our governor is asking for long-term increases, while recommending cuts to education and public safety. This one project has the potential to double our state’s debt and become a huge future drain on our state’s budget,” Harkey added. “California does not need a shiny new heavily subsidized toy with no confirmed ridership.”

In fact, California’s existing rail and roadway infrastructure is in need of attention and funding. But that’s not part of the high-speed spending plan.

Many rail followers anticipated that the board members of the California High-Speed Rail Authority were planning on discussing and supporting Assembly Bill 1254, the new bill that requires the California High-Speed Rail Authority to perform at least 25 percent of its contracts under a Project Labor Agreement. But that issue was pulled from the agenda the evening before the Thursday meeting.

How Did PLAs Become Part of the Deal?

“The State Building Trades made a strategic blunder in exposing their intent to force construction contractors to sign a PLA by having this bill introduced,” said Kevin Dayton, government affairs director for the Association of Builders and Contractors, a non-union contractors’ association. “It provides specific, explicit documentation proving the PLA plot, when HSR board member Balgenorth could have imposed the PLA in a sneaky, underhanded way through manipulating the design-build contractor for the first phase.”

Dayton explained that Balgenorth wrote an opinion piece in the November 27, 2011 Bakersfield Californian newspaper promoting construction of the state’s proposed $98.5 billion High-Speed Rail as a better alternative to the construction and modernization of freeways and airports. Balgenorth wrote, “High-speed rail is the only viable means of making sure our transportation infrastructure can meet our growing demand. Continuing to build more and more freeways and airports would be more expensive, more environmentally damaging, and less efficient for moving millions more Californians up and down our state.”

Dayton asked recently in a story for The Truth About PLAs, “What would lead Balgenorth to make such a bold public assertion? Is it possible he has greater wisdom and foresight than the average Californian about getting a speedier ride from Madera to Corcoran after 2017?”

Balgenorth, head of the California State Building and Construction Trades Council, AFL-CIO, is also on the High-Speed Rail Board of Directors — quite a coup, according to Dayton.

In March 2011, the Democrat-controlled State Senate Rules Committee appointed Balgenorth to a vacant seat on the California High-Speed Rail Authority Board of Directors. Dayton said that Russ Burns, the business manager for Operating Engineers Local No. 3, also serves on the nine-member board.

Dayton said that likely construction contract scenarios include the California High-Speed Rail Authority’s Board of Directors’ approval of a resolution requiring its contractors to sign a Project Labor Agreement. Or political pressure could be exerted behind the scenes to convince the prime contractor to negotiate and sign a PLA, without any explicit direction from the High-Speed Rail Authority. Either scenario will cost taxpayers significantly more than competitive bids would cost.

Californians Would Reject Rail Bond

In 2008, voters narrowly approved Proposition 1A, the “Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century.” It green-lighted the issuance of $9.95 billion in general obligation bonds for the project. A recent Field Poll found that, by a nearly two-to-one margin, Californians would reject the $9.95 billion bond if again presented with the choice at the ballot box.

The fiscal estimate provided by the California Legislative Analyst’s Office said, “State costs of about $19.4 billion, assuming 30 years to pay off both principal ($9.95 billion) and interest ($9.5 billion) costs of the bonds. Payments of about $647 million per year.

“When constructed, additional unknown costs, probably in excess of $1 billion a year, to operate and maintain a high-speed train system. The costs would be at least partially, and potentially fully, offset by passenger fare revenues, depending on ridership.”

In a 2011 report on the High-Speed Rail plans, the California Legislative Analyst’s Office recommended that, because of numerous problems, the first segment of the train should be built somewhere other than Bakersfield to Fresno. It added that, “based on our analysis, other segments could provide greater benefit to the state’s overall transportation system even if the rest of the high-speed rail system were not completed.”

The LAO report also said that the project has “governance problems” and that control of the project should be transferred from California’s High-Speed Rail Authority to the California Department of Transportation.

But none of the dire warnings has put an halt to the rail project.  Instead, it appears that many in the state Legislature, as well as Gov. Jerry Brown, are insisting that High-Speed Rail receive full taxpayer funding and support.

At a time when California is nearly bankrupt and facing crushing deficits for generations to come, Harkey said that funding such a large “non-priority project” would likely divert funds from local transportation, and starve other necessary state programs.

But critics insist that the High-Speed Rail “boondoggle” has become a full-blown train wreck, as California faces an actual cash deficit of $21 billion, amounting to nearly one-quarter of the total $88.5 billion state budget. And those numbers come from the State Controller.


Write a comment
  1. Tom O
    Tom O 13 January, 2012, 09:35

    I guess you didn’t see the recent report from the San Diego Unified School District that showed that the Project Stabilization agreement had a positive effect on costs and schedules. And this was a report that was request by Board Member Scott Barnett, a staunch fiscal conservative who was previously opposed to PLAs. He has since said that the San Diego School District PLA is good for taxpayers. And, by the way, if PLAs increase costs like you say…then why are growing numbers of cost-conscious, profit-oriented companies like Gillette, Reebok, Disney, Toyota, and even WalMart using them. The answer is simple: THEY WORK! Do your readers a favor and try to be at least a little more objective, and stop simply regurgitating the talking points from the ABC, who has a vested interest in keeping PLAs out so that they can bring their undocumented and illegal workers in to take jobs from California workers!

    Reply this comment
  2. Mike Marsella
    Mike Marsella 13 January, 2012, 11:57


    The San Diego Unified School District report is a fraud. The district’s crooked consultant cherry picked data to refute the truth and district’s own data which found their PLA policy reduced competition and wasted money.

    The real data, which can be found here, demonstrates how the district’s PLA policy reduced the number of bidders and left cost savings on the table:

    And to your other point: Private companies use PLAs for a variety of reasons, including the fact that construction unions extort companies into using PLAs through a variety of underhanded corporate campaign and political tactics. Greenmail is a favorite in California.

    Finally, you know ABC is not interested in promoting an illegal workforce. Stop lying. ABC wants skilled American citizens to build this country. They want to help their qualified member contractors win work and deliver that work safely, ethically and profitably. All ABC members want is a fair CHANCE at competing for and winning taxpayer-funded construction projects. It will result in job for ALL Californians, not just Californians that are union members.

    Go back to DC with the rest of the special interest slimeballs, Tom.

    Reply this comment
  3. CalWatchdog
    CalWatchdog Author 13 January, 2012, 12:53

    Tom —

    Since you claim that I am a mouthpiece for the ABC, would you prefer that I regurgitate the talking points from your labor union, the AFL-CIO affiliated Building and Construction Trades Department?

    School Districts have a vested interest in providing reports like San Diego’s because they all want more bond money for school construction and modernization. And because the construction is on state owned property, for state-run schools, Project Labor Agreements and prevailing wage agreements have to be used. But these agreements freeze out private sector contractors, who are just as qualified, skilled and trained as union contractors.

    As for Barnett, no “staunch fiscal conservative” would ever claim that PLAs are good for taxpayers unless he was a big-government guy. And there are plenty of big-government Republicans who are not fiscally conservative.

    Barnett also proposed a $50-per-parcel tax to raise $60 million a year and restore the employee pay cuts for the school district. What a “fiscally conservative” solution to the San Diego School District debt.

    Who could forget the amazing Interstate 10, Santa Monica Freeway construction project after the 1994 Northridge earthquake? Contractor CC Meyers completed the repairs to the highway and bridges in only 66 days, instead of the 26 months (800+ days) Gov. Pete Wilson had been told the major repairs would take. Wilson created a bonus and incentive structure to get the repairs done more quickly. It’s amazing what can be accomplished when people are incentivized to do good work on a timely basis, instead of being paid to just show up everyday.

    Myers had done this previously with the I-580 San Francisco freeway repairs after the Loma Prieta earthquake in 1989. He completed the project far ahead of schedule, and at much less cost to the state.

    PLAs cost taxpayers and private sector companies much more than market-based bids, as the BCTD claims. And I haven’t even addressed how many non-union contractors report getting harassed and picketed by union contractors at jobs sites – that is for another story.

    – Katy

    Reply this comment
  4. keep da peace
    keep da peace 13 January, 2012, 16:58

    For once, I am in agreement. PLAs are not needed because this project should not even get off the ground. The Democrats want the state to foot the bill for this “shiny new toy” because they know private business would see this as a losing proposition. Even the LAO, whom I would trust more than any politician, says the train could not survive without government subsidies. That’s because, without them, only the 1% could afford to ride the train to nowhere. I am surprised the Republicans aren’t falling over this for the potential mega-contract consultant fees their biz partners could cash in on. Move over, RDAs, there’s a new form of corporate welfare riding the rails.

    Reply this comment
  5. Beelzebub
    Beelzebub 13 January, 2012, 19:19

    I see that Frick ‘n Frack (van Ark & Umberg)the CEO and Board Chair of High Speed Rail took a flying leap off the caboose today and submitted their resignation papers. Naturally the same old BS lines about needing to spend more time with the family. 😀 Then they act offended when nobody believes them whenever they open their pieholes. They just don’t want to be labeled the losers who ran the train into a brick wall. The oligarchs will find a couple other stumblebums to replace them and take the fall. I remember Umberg when he was a OC assemblyman. He’s a big lib and I thought he was full of it way back then. Just goes to show you can’t change the spots on a leopard. It would seem that professionals who agree to accept one of these high paid government appointments would see the project through to the bitter end. But when the waters got a little too rough both donned their Donald Duck water wings and rolled overboard. How’s that for perseverance and responsibility???

    Reply this comment
  6. GoneWithTheWind
    GoneWithTheWind 14 January, 2012, 08:09

    Everyone with two or more brain cells to rub together has known all along this project has nothing to do with transportation or bringing California into the 21st century or any of the other claims. This is and always has been 100% a boondogle intended to keep the unions happy and electing the Left wing politicians. In a state with record high illegal alien voting and other election chicanery this is just another example of the cabal of dirty politicians and greedy unions defrauding the tax payers again.

    Reply this comment
  7. Keep da Peace
    Keep da Peace 14 January, 2012, 10:19

    While the unions may have jumped on the bandwagon, they certainly did not think this one up. The hi speed rail idea has been around since they wanted to run a bullet train from LA to Vegas years ago. At least that one had the financial backing of the casinos (or was it the mob). The big difference now is that Democrats always seem to think the way to kickstart the economy is to create big projects like this. Then the Republicans, who poo-poo the idea at first, jump on board because they know they can make big bucks for their consultant cronies and everyone but the taxpayer footing the bill wins.

    Orange County Supervisor, Janet Nguyen, said it plainly when she was lamenting about a federal matching grant the other supervisors were balking on. “We should do this now. It’s free money”, or words to that effect. So, Democrat or Republican, Union guy or non-union guy, it is all the same to them. They think that tax money is free money.

    Reply this comment
  8. queeg
    queeg 15 January, 2012, 11:45

    Stop worrying about fairy tales…big rail is dead dead dead…..brown runs the mouth about everything…fairy tales!

    You greatest worry Prposition 13 followed by the intro of the universal health care bill…..your life may change forever in 2012!!!!!!

    Reply this comment

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