“Traditionally, transportation projects of this magnitude can rely on the federal government as a funding partner with grants of up to 50 percent or higher. The Legislature and the voters of California, in approving Proposition 1A, assumed significant federal participation – 1/3 of the total cost. With a federal contribution for these extensions, its share of the total funding for the Silicon Valley to Central Valley line would still be only 25 percent of the total investment, far below the norm,” the report states in section 6, which details long-term funding strategies, assumptions and plans.

But based on what’s happened in Washington in recent years, the notion that “traditional” federal support for major transportation projects will help California secure more funding doesn’t seem grounded in reality. The prospect of Congress earmarking funds to help one state build a bullet-train network seems unlikely for two reasons.

‘Monumental waste of precious transportation dollars’

One reason is specific. House Republicans, led by Majority Leader Kevin McCarthy of Bakersfield, have been critical of the California project for years. They’ve cited the decision to give more than $3 billion in 2009 stimulus bill funding to the state as an example of wasteful stimulus spending and highlighted missed deadlines for starting construction. McCarthy co-authored a January 2015 op-ed for the Sacramento Bee spelling out his implacable opposition:

The current plan for high-speed rail is nearly twice as expensive as promised to California taxpayers. The projected travel times and fares have nearly doubled. The plan bears no resemblance to the one put before voters in 2008. One analysis after another has raised these red flags, but supporters in Sacramento refuse to admit that fundamental flaws exist and continue to press on, no matter the cost.

 

These objective reviews expose a business plan flawed at its core – unrealistic ridership numbers, a ballooning price tag (just last year, the California High-Speed Rail Authority increased its cost estimate for a Central Valley segment by $1 billion) and private investment that is still nowhere to be found. …

 

This is not what voters envisioned when Proposition 1A was presented to them. It is now clear that this project remains wholly unviable and is a monumental waste of precious transportation dollars that would be far better spent on roads, light rail and traditional heavy rail.

They were right to wonder about the MSM coverage. The state Supreme Court declined to review a state appellate court ruling that said Sacramento Superior Court Judge Michael Kenny was wrong to block bond sales in his November 2013 decision on the project.

But in the big picture, the appeals court ruling that the state high court upheld is hardly favorable to the state government or the bullet train:

The appeals court that vacated … Kenny’s ruling to block the project did not say that Kenny’s conclusion that the HSRA violated Proposition 1A was wrong. Instead, the decision held that a trial judge had no authority to block construction until the legislature and the High Speed Rail Authority approved a final business plan.

“The scope of our decision is quite narrow,” the judges wrote in the first paragraph.

The decision went on to reinforce two key protections contained in Proposition 1A — both meant to ensure that the state didn’t spend billions on initial construction only to run out of money before a financially viable train system could be built. Judge Kenny ruled that the state had to identify “sources of funds that were more than theoretically possible” in explaining how it would pay for the project’s $31 billion, 300-mile initial operating segment. He also said that the HSRA had to complete environmental reviews for the entire segment before construction could begin. The appeals court contradicted him on neither point.

The appellate court underscored that the law requires the state to establish “financial viability” for the bullet train’s first segment by adhering to a voter-approved “financial straitjacket.” It said that bond funds could only be spent after a funding plan gained approvals from the state finance department, the Joint Legislative Budget Committee, and an independent financial analyst who certified the plan’s soundness — specifically that if built as planned, the bullet train could operate without a taxpayer subsidy. The appeals court judges also agreed with Judge Kenny that the rail authority had to obtain “all the requisite environmental clearances before construction begins.”

These are shortcomings that [the state of California] cannot easily finesse.

That’s from a City Journal piece I wrote last month.

Money isn’t coming from state, feds or contractors

I got a little pushback on the assertion that the environmental clearances requirement can’t be finessed from those who see the state’s establishment as so corrupt that some judge somewhere can be persuaded to go along with sham claims from the state. But I don’t think it will be that easy. Environmentalists will freak out if the California Environmental Quality Act is sidestepped on a big project because of the precedent it would set. Powerful greens and groups like the Sierra Club and the NRDC like having CEQA be a powerful tool to block growth, and if the bullet train is collateral damage, so be it.

But I got no credible pushback and really never have on my assertion that the $25 billion or so funding shortfall for construction of the initial $31 billion, 300-mile segment cannot be finessed. That’s just too much of a gap.

The slice of cap-and-trade revenue going to the bullet train is so small compared with the project’s overall budget needs that Associated Press called it “symbolic.” The federal government isn’t going to pay for California’s project in an era in which domestic discretionary spending is the no. 1 target of budget hawks in both parties. And while rail authority board chair Dan Richard may have convinced James Fallows and one naive state reporter that bullet train contractors are bullet train investors, that claim is laughable.

I invite Richard or Fallows or anyone to show me a single bullet-train project anywhere in the world in which private investors were lured in without promises of minimum annual revenue or ridership.

They won’t because they can’t. And such guarantees are banned for the California bullet train under Proposition 1A, the 2008 state law approved by the voters giving the go-ahead to the bullet train project.

Will the state figure out a way to waste billions of dollars on a white elephant rail line in the Central Valley? Maybe.

But call me naive: I actually think that Proposition 1A’s safeguards will kick in and save the day — as soon as the rail authority, the Legislature and the Brown administration ratify a new business plan.

Kenny objected to the idea the state could treat prospective federal funding and private-sector investment as dependable and likely sources of money. What does the 2014 business plan point to for future funding? More money from the federal government and private-sector investment.

As the kids say, epic fail. In the sequester era of declining discretionary domestic spending, the chance that Congress will play for one state’s hugely expensive infrastructure project is distant at best. The chances for private investment are even worse. As the LAO pointed out in 2010, such investments are very unlikely without a revenue or ridership guarantee. But such guarantees are illegal under Prop 1A, the 2008 state ballot measure that gave $9.95 billion in seed money to the bullet-train project.

Incredibly, the Fresno Bee wrote a 1,000-word story that never mentioned the financing angle. The Los Angeles Times at least mentioned the angle, though it never specifically noted that the state still has a business plan that Judge Kenny will find deficient.

Want to let state know your view of bullet train? Here’s how

I look forward to leaving a pungent voicemail. Your means of commenting:

— Online comment form through the Draft 2014 Business Plan website at:
www.hsr.ca.gov/About/Business_Plans/Draft_2014_Business_Plan.html

— By email at 2014businessplancomments@hsr.ca.gov

— Voice mail comment at 916-384-9516

Back to the MSM coverage of the biz plan. Maybe the LAT reporter just assumes that it’s impossible for the state to meet Kenny’s hard-financing requirement, so he doesn’t dwell on the angle. But how can the Fresno Bee not even mention this? Bizarro.

By Chris Reed

Last month’s Los Angeles Times’ bombshell about the state bullet-train project could scarcely have made those in charge of the California High-Speed Rail Authority look worse. The Times reported that in determining who would be chosen to build the first segment of the project from Madera to Fresno, a rail authority committee — after a long, well-publicized public hearing — decided to emphasize competence and design skills by ruling that only the three contractors rated highest in this area would be considered. But the rules were subsequently changed with the bare minimum of publicity. The result was the authority’s favored bidder was the one with the cheapest bid. It was Sylmar-based Tutor Perini — a consortium which had the worst “technical” ranking of any bidder and would have been ineligible under the original rules.

A later Fresno Bee report confirmed the Times’ findings.

The letter-of-the-law defense, delivered righteously

But the rail authority decided the best defense was a good offense. New CEO Jeff Morales was sharply critical of the reporting by the Times. The authority’s argument, boiled down, was that everything it had done was done in satisfaction with authority rules and state laws. Since what was done was by the book, Morales argued, it was outrageous for anyone to suggest there was anything wrong with the decision. Everything was “careful and transparent.”

CHSRA board chairman Dan Richard also offered this critique, suggesting routine decision-making was being depicted as scandalous by out-of-control journalists.

But as Morris Brown detailed on Fox & Hounds, the decision to emphasize technical competence in picking a contractor was done in high-profile fashion, while the the decision to de-emphasize technical competence was buried in a 150-page addendum that was posted on the authority’s website — with no acknowledgement that a major change had been made.

The wrong bunch to claim the moral high ground

But Morales’ and Richard’s strategy of attack isn’t just misleading, based on the background provided by Morris Brown. There’s also this larger context: No state agency in California has less claim to the moral high ground than the California High-Speed Rail Authority. It narrowly won passage of $9.95 billion in state bond fund seed money from state voters in November 2008 after failing to meet a state law requiring that a business plan for the project be made public before the vote.

Within days after the vote, the plan was released — and one of its key provisions was based on the assumption that private investors could be attracted if they were given a ridership guarantee. But such a guarantee would have violated the state law that banned further California taxpayer subsidies of the project. (If ridership guarantees to investors are not met, taxpayers would have to pay investors.)

That is the original sin of the bullet train debate — the rail authority keeping this damning detail from the public.

In the years since, claims and promises made by the rail authority on the bullet train have proven to be grossly wrong — and all in ways that make the project worse. The total project cost is far higher. The individual ticket cost is going to be higher. The number of jobs that will be created is lower. The environmental benefits won’t show up for decades, if then.

But most of all, there’s this: What the CHSRA is building simply isn’t a statewide bullet train.

Like Tony Soprano complaining about crime coverage

The train won’t come even close to connecting Los Angeles and San Francisco in two hours and 40 minutes, as mandated in the 2008 ballot measure providing the bond seed money. Quentin Kopp, the former state senator and judge who is considered the father of the state’s bullet train dream, is right when he says what’s being contemplated isn’t what he and other original advocates proposed. Instead, it’s a really fast train from Fresno to the northern edge of Los Angeles County, linked to regular rail in Silicon Valley and the Los Angeles metropolitan rail system.

From this perspective, the idea that rail authority honchos Jeff Morales and Dan Richard think they have the stature to lecture state journalists on the problems with their coverage is absurd. It’s like Tony Soprano complaining about the crime coverage in the Newark Star-Ledger.

And even if they did have the stature to righteously attack journalists for their CHSRA coverage, there’s this little problem. In their criticism, they haven’t laid a finger on the Times’ or the Bee’s reporting. Namely, in determining who would be chosen to build the first segment of the project from Merced to Fresno, a rail authority committee decided to emphasize competence and design skills. But the rules were subsequently changed in borderline-surreptitious fashion, and the favored bidder turned out to be the cheapest — and the one judged to have the least competence and design skills.

If Morales and Richard think this isn’t news because none of what was done was illegal, their credibility is even lower than it used to be.

By Chris Reed

The news that the former head of China’s bullet-train program is facing corruption charges probably prompts some Californians to wonder if any of the people who aggressively lied Proposition 1A to passage in 2008 should face similar charges.

This may seem far-fetched. Having politicians exaggerate or fabricate claims to win approval of pet projects is nothing new. But on a very specific point related to the 2008 campaign for the project, the law appears to have been broken by the staff of the California High-Speed Rail Authority, and in a way that helped enable Prop. 1A’s passage. I wrote about this in December 2011 on the late, occasionally great Calwhine site.

Legally required business plan not released before 2008 vote

Here’s a clip from the Oct. 9, 2008, San Francisco Chronicle that is key to understanding this scandal:

“A group opposing Proposition 1A, the high-speed rail bond measure, filed suit against the California High Speed Rail Authority on Wednesday for failing to release an updated business plan by a Sept. 1 deadline.

“’A more clear violation of law is hard to imagine,’ said Jon Coupal, president of the Howard Jarvis Taxpayers Association said in a press release. His group filed the suit and is opposing the measure.

“The suit seeks a court order mandating the report be produced ‘as required by law.’

“But authority officials say that’s impossible -– and that the association knows that.

“Legislation signed by Gov. Arnold Schwarzenegger on Aug. 27 required the updated business plan but authority officials said they wouldn’t have money to work on it until the state passed a budget, and estimated it would take 45 days to complete. The budget was signed on Sept. 23 – 85 days late.  …

“Authority spokeswoman Kris Deutschmann said most of the contents of the plan have already been made public, but they need to be compiled and updated – a process that will be completed within weeks. That could be before or after the Nov. 4 election, she said.”

Voters never told CHSRA staff said investors would want guarantees

Jon Coupal was right to be irate. Keep in mind where we were in October 2008 with the election four weeks off. As I wrote in 2011, at that point, all Californians had heard was happy talk, especially a ballot description that was so ridiculous that it prompted a state appeals court to rule the Legislature could no longer draft ballot descriptions. And when the business plan finally was released — days after the election — it was full of happy talk. But it also had one paragraph that could have turned the election had it been widely publicized (the bolding is mine):

“In the spring of 2008, the Authority issued a Request for Expressions of Interest (RFEI) as an effort to gauge private sector interest in participating in a P3 arrangement for the high-speed train project. Interest was strong, especially among construction firms, system and equipment providers, financial institutions and operators. However, most private firms responding made it clear that they would need both financial and political commitments from state officials that government would share the risks to their participation. The amount of private funding and timing of private sector participation will be a reflection of how risky the private sector perceives this project overall.”

‘Shared risk’ = implied promise of subsidies

As I noted in 2011, “shared risk” equals commitment to provide public funding — i.e., taxpayer subsidies — should ridership or revenue come up short. That’s illegal under Proposition 1A. And that is what the CHSRA business plan for the project contemplated all along — except voters weren’t told about it until days after giving their blessing (and $9.95 billion) to the project.

So is this as abjectly corrupt as the bribe-taking allegedly seen in China? No. But it’s close.

The people pushing the bullet train knew BEFORE Prop. 1A passed that it didn’t have a legal business plan and that a key promise couldn’t be met. But they didn’t share that with voters, who narrowly approved the project.

This is an appalling scandal, and a sick commentary on the people in charge of the California High-Speed Rail Authority in fall 2008.

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