Like the 1930’s state water plan, California is stymied in its plan to re-engineer the Sacramento Delta for a massive water project.  The plan includes building a water superhighway interchange that would allow fresh water to run into the Delta to restore fish habitat, while water also would be conveyed underneath the Delta to Central Valley farms and Southern California cities.

But how will the plan be able to surmount the state’s “project killer” environmental law: the California Environmental Quality Act?  Is the only solution to have the project’s Environmental Impact Report conducted under federal rather than state law?  That is the path California’s High-Speed Rail Project and recent fracking regulations have been taking. And it may signal the path the Delta Tunnels and Bay Delta Conservation Plan will have to take.

History is not exactly repeating itself in the Delta, but as Mark Twain once remarked, history sometimes “rhymes.”  What is happening today sounds much like what happened in the 1930’s in California with the Central Valley Water Project.

Central Valley Project as forerunner

California first came up with a Comprehensive Water Plan in 1921, but the Legislature didn’t authorize the Central Valley Project until 1933.  However, California couldn’t finance the bonds for the project in the midst of the Great Depression of the 1930s.  The federal government stepped in to take over the project in 1934.  Construction didn’t begin until about 1939, 18 years after the state water plan was devised.  Today, California has been trying to implement its new water plan for 31 years since the proposed Peripheral Canal Project was defeated at the ballot box in 1982.

The federal Central Valley Project is not the same as the State Water Project, which was built beginning in the 1960s with state bonds.  To give an idea of the magnitude of the CVP, it delivers about 7 million acre-feet of water to farm, cities and wildlife.  About 6 million acre-feet of water go to farms.  An acre-foot of water is enough for two urban households for a year or one third of an acre of farmland for a year.

By comparison, the State Water Project supplies about 1 million acre-feet of water to farmers and about 3 million acre-feet of water to Northern and Southern California cities during wet years, when not blocked by environmental lawsuits.

Not only did federal takeover of the CVP in the 1930s solve its financing problem, it solved the political conflict between farmers and cities.  The CVP became a water superhighway that mainly served Central Valley farms. By contrast, the State Water Project was a high-speed water conduit mainly serving Northern and Southern cities.

Today, the solution to the state’s water issues is to build a water interchange in the Delta with a separate conveyance system for the environment and another for farmers and cities.  Mixing farm and city water with environmental water is like mixing semi-trailer trucks, bike lanes and endangered turtle crossings on the same freeway. It leads to endless conflicts and court ordered water shutdowns.  It is better to put water into separate ditches for each.

In California, water is a socialized system, not a market. But the second-best thing to a market might be separate water systems for cities, farmers and the environment, wherever possible. The proposed Bay Delta Conservation Plan accomplishes some of this.  Good fences create good neighbors and separate ditches minimize water wars. The Delta Tunnels concept of a super water interchange partly puts water into separate ditches and pipes.

Is Twin Tunnels Project on same track as High-Speed Rail?

The harbinger of what may happen with the proposed Delta Twin Tunnels Project is California’s High-Speed Rail Project.  Recently, both Democrats and Republicans have colluded to switch the environmental clearance of HSR from California’s tough green law to the more lenient federal law.

In February, Rep. Jeff Denham, R-Calif., asked the U.S. Surface Transportation Board to determine if it had paramount jurisdiction over the environmental clearance for the HSR Project.  He is chairman of the Subcommittee on Railroads, Pipelines and Hazardous Materials. The STB, chaired by Obama-appointee Daniel R. Elliott III, ruled it had superior jurisdiction over the environmental clearance process.

This means California’s HSR project will be subject to more lenient federal environmental law.  Both Democratic Gov. Jerry Brown and State Attorney General Kamela Harris had been angling for some time to find a way to run around CEQA for HSR.  This now poses the question of whether the only way to get California’s Twin Tunnels and Delta Restoration Plan approved is to find a similar way around CEQA.

California recently passed a pro-fracking bill, SB4, which establishes a threshold criterion for environment review of oil and natural gas fracking projects. If a fracking project stays within the threshold, then CEQA is not triggered.

California’s water projects may “rhyme” but have no reason. Like California’s HSR Project and new pro-fracking bill, a detour may have to be created around California’s “project killer” environmental law for its Twin Tunnels and Water Bond.  Like the 1930s, federal involvement may be the only way to get a water project done in California.

He’s earned street cred — as in Wall Street — from co-founding the company that grew into PayPal; co-founding Tesla Motors, the most successful electric car start-up company; and founding SpaceX, to which NASA has outsourced future trips to the International Space Station.

On Monday, Musk shared his much-hyped plan for a so-called “Hyperloop,” a high-speed transportation system that would be a visionary alternative to California’s planned high-speed rail system.

The Los Angeles billionaire offered a hint of its design this past Thursday during a Google Hangout with British billionaire Richard Branson, founder and chairman of Virgin Group. (Branson also is bullish on commercial space.)

The Hyperloop “involves a tube,” said Musk, confirming some online speculation, “but not a vacuum tube,” like those that used to be seen pre-ATM at bank drive-throughs.

What Musk has in mind, he said, is a “fifth mode” of transport “after planes, trains, cars and boats.”

That fifth mode would send passengers hurtling through low-pressure tubes in ultra sleek pods at speeds of up to 800 miles per hour. At that clip, a trip from Los Angeles to San Francisco would take a mere half hour. That’s two hours and eight minutes faster than California’s bullet train promises to make the 432-mile jaunt.

Hyperloop vs. high-speed rail

And the Hyperloop would have other advantages over the state’s vaunted high-speed rail system.

It could never crash, like the high-speed train that went off the rails in Santiago de Compostel, Spain last month, killing 79 passengers. It would be self-powered, using solar energy, which would save a fortune in electricity costs. And the ticket price for that L.A. to San Francisco excursion would be considerable lower than the $81 projected for the planned bullet train.

Perhaps the most appealing feature of Musk’s Hyperloop — at least where California taxpayers are concerned — is that it would cost nowhere near the whopping $68 billion it will cost to build the state’s high-speed rail line.

Moreover, with the backing of a proven entrepreneur like Musk, the Hyperloop could attract the billions of dollars in private investment that the state’s proposed bullet train promised, but has failed to deliver.

If there is one big reason not to get overly enthusiastic about Musk’s proposed “Hyperloop” it’s that Musk, the visionary, says he’s too busy with Tesla and SpaceX to undertake yet another Big Hairy Audacious Project.

So, on Monday, he unveiled his design for the Hyperloop, answered a few questions, then busted a move.

But that was all good. Musk doesn’t have to be the guy who actually builds the Hyperloop. There are a number of extant companies that could conceivably make that happen. And Musk could help finance the project by making a few calls to billionaire pals like Branson.

By Wayne Lusvardi

Why did Gov. Jerry Brown travel to China on a trade mission to secure investment from them for the California High Speed Rail Authority?

The answer is that proposed public transportation projects keep chugging along because of subsidies and cost shifting that can be generated through political deals.

The bullet-train project has run into financial trouble because the state can’t afford any more of its bonding capacity for the project beyond the $9.95 billion from Proposition 1A, the 2008 initiative voters passed. Voters are highly unlikely to approve more bonds for the project. Additionally, private U.S. investment markets are reluctant to invest in such an obviously unprofitable venture.

As shown in the table below from the U.S. General Accounting Office, the project would generate no effective positive cash flow and needs an infusion of $13.1 billion of private capital to be economically feasible. The project would be even more shaky if there were cost overruns typical of most large government public-works projects.

California High Speed Rail Funding Sources

Borrowing

But why would California seek Chinese investment and why would China be remotely interested?

One reason: California is seeking China to be an investor because the U.S. Treasury is dependent on borrowing from China. China could be recompensed by the U.S. Treasury for investing in California’s bullet train by paying a slightly higher interest rate on bonds sold to China.  Moreover, the U.S. Congress would be less likely to cut any future subsidies to the bullet train. The federal government already has pledged to spend $3.5 billion on the project.

California unsuccessfully sought to use $1 billion of annual funds generated from its Cap and Trade pollution permit auctions to pay for green power to run its high-speed trains.

If California could alternatively secure an annual transportation subsidy from Congress to operate the train, this could serve as an indirect subsidy to green power companies and to its regulated electric utilities that have a green power mandate. This funds transfer would be a federal transportation subsidy indirectly subsidizing California’s green power mandate.  It would be a “subsidy subsidizing a subsidy” — also known as an indirect fund transfer that would shift costs from state taxpayers to federal taxpayers.

But the Republican-controlled U.S. House of Representatives has been reluctant to pop for any such subsidies.

China takes a financial bullet?

But suppose the House did go along, perhaps after switching to Democratic control after the 2014 election? China could cut a more favorable deal with the Obama-run U.S. Treasury in return for investing in California’s bullet train. The U.S. borrows $120 billion from China each year, or $10 billion per month. And, in turn, the U.S. Congress might approve transportation subsidies to California’s Bullet Train.

China would appear to be taking a bullet in the head if it invested in California’s High Speed Rail Authority. But in the complex world of public financing, China may be willing to sink money into a loser bullet train project if it were to get a premium on its purchase of bonds from the U.S. Treasury.

Yet even this scenario seems implausible. While Brown was in China, an independent study by the Reason Foundation found that bullet train ridership is way overestimated and a trip from San Francisco to Los Angeles would take a slow 4 hours, much more than the 2 hours and 40 minutes promised to voters by Prop. 1A.

This comes only four months after the U.S. Government Accountability Office study mentioned above, which found the train ould generate effectively no profits and was based on inflated assumptions.

It is hard for the average voter to understand why China would invest in a project with negative cash flow because it is so irrational on its face. The Chinese, who have re-learned capitalism fast after dumping Maoist communism in 1979, also are unlikely to make sense of funding the project.