Bullet-train agency chided for deceptive claim

bullet.trainThe California High-Speed Rail Authority’s first business plan warned that the project would struggle to attract outside investors without some sort of revenue or ridership guarantee. That led the Legislative Analyst’s Office to repeatedly warn such guarantees would be illegal under Proposition 1A, the 2008 bond measure approved by voters giving $9.95 billion in seed money to the project. That’s because if the guarantees weren’t met, taxpayers would have to provide subsidies to the investors, which Prop. 1A forbids.

However, the rail authority has consistently maintained it has identified several potential investors. Los Angeles Daily News business columnist Susan Shelley, who attended recent community meetings sponsored by the authority in the San Fernando Valley, writes that these claims are misleading:

[State officials] insisted that the bullet train is financially viable and won’t need taxpayer subsidies to operate. They offered up a stack of year-old letters from private sector companies as evidence.

 

But the letters are about construction loans, not financial self-sufficiency. In the very first letter a CEO writes, “we believe that long-term funding by the State is needed.”

 

The second letter says the project could be completed “with funds from the state” in combination with private financing, if the state provides “a multi-year source of repayment.”

 

The would-be private sector partners were offering to help us borrow money, which we would then give to them to build the bullet train.

Schwarzenegger wanted China as partner

I once had a conversation about the California bullet-train project with a high-powered Wall Street analyst whose primary focus is large public-private collaborations on big infrastructure projects. (The analyst was in San Diego to consult on stadium plans.)

The analyst laughed at the idea that the state of California would attract a private sector investor because of the ban on even the possibility of subsidies.

At least some members of the Schwarzenegger administration must have reached this conclusion as well. It’s why Gov. Arnold Schwarzenegger traveled to China in 2010 to seek a bullet-train partner. The Chinese government encouraged Schwarzenegger to believe this was in the realm of possibility.

But more recent coverage has depicted China and other nations with high-speed rail experience as wanting to be a contractor-financier, not a partner:

Chinese state firms are poised to be strong contenders in the race to make high-speed trains that will sprint between Los Angeles and San Francisco, part of a $68 billion project to bring the service to the United States for the first time.

 

While “bullet train” manufacturers from Germany, Japan, South Korea and France are expected to be among those jockeying for the estimated $1 billion train contract, China’s ability to offer low prices and hefty financing appear to make it the one to beat, say lobbyists and industry insiders.

That’s from a May 21 Reuters story.

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  1. Ronald Stein
    Ronald Stein 8 June, 2015, 09:14

    Since state law says that the system MUST OPERATE WITHOUT A TAXPAYER SUBSIDY, which may necessitate higher fares per mile, compared with other similar rail systems worldwide, which will adversely affect ridership projections.

    If, and a big IF, the bullet train ever progresses, those engineering and construction technical challenges to get over the mountains between Bakersfield and Los Angeles will be reviewed and scrutinized under a microscope. The result of those public reviews would result in an image for the public of safety concerns that would then negatively impact any potential ridership for decades. In addition, there may not be engineering or construction firms large enough to take on the liability exposure to their firms to take on this “mission impossible” to get the train over the grapevine.

    Driving or flying can be done at virtually any time of day, but the inflexibility of how many train departure times would be available from a limited number of trains would impact the convenience factor offered by cars and planes and thus also adversely affect train ridership. The snowballing effect of lower ridership would be higher fares for those that do use the train as there would be no state subsidies available.

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Chris Reed

Chris Reed

Chris Reed is a regular contributor to Cal Watchdog. Reed is an editorial writer for U-T San Diego. Before joining the U-T in July 2005, he was the opinion-page columns editor and wrote the featured weekly Unspin column for The Orange County Register. Reed was on the national board of the Association of Opinion Page Editors from 2003-2005. From 2000 to 2005, Reed made more than 100 appearances as a featured news analyst on Los Angeles-area National Public Radio affiliate KPCC-FM. From 1990 to 1998, Reed was an editor, metro columnist and film critic at the Inland Valley Daily Bulletin in Ontario. Reed has a political science degree from the University of Hawaii (Hilo campus), where he edited the student newspaper, the Vulcan News, his senior year. He is on Twitter: @chrisreed99.

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