Against California High Speed Rail by Mark R. Powell

A Peek at the Pathetic Situation of California High-Speed Rail

Much like a failing student who delays bringing home a report card, California’s High-Speed Rail Authority  (the Authority) is stalling in the delivery of their Business and Funding Plans.  However, the state legislature passed  AB-115 in June requiring minimal Business and Funding Plan details be reported to them by October 14, 2011 as a requirement for the Authority accessing the second half of money budgeted for it this fiscal year.  This just released information gives considerable insight into the wretched state of the soon to be released High-Speed Rail Business and Funding Plans. [Note 1]

Funding High-Speed Rail:
A prime concern of the legislature is that without some type of revenue guarantee there will be no private funds forthcoming for the construction of the system.  Moreover, Proposition 1A, the Safe, Reliable, High-Speed Passenger Train Bond Act passed by the voters in November of 2008, clearly states that the system must be profitable and rules out revenue guarantees along with other types of operating subsidies. 

The Authority addressed the issue of operating subsidies by stating publicly for the first time something they must have known privately for a long time.  That is, there will be no private funds becoming available until a profitable Initial Operating Section (IOS) is in operation and generating positive cash flow.  Quoting directly from their report:

“(the) Authority has determined that attracting private capital investment prior to proving revenue operations without some form of revenue guarantee would be extremely expensive, if it was possible. While not eliminating the possibility that private investment would be achieved at an earlier stage, the Authority is planning for a more likely market scenario in which private capital is attracted based on the revenues of the project once revenues are proven. This transaction would be timed and structured such that an external revenue guarantee is not needed. This represents a different approach than was contemplated in the 2009 Business Plan and the April 2010 Addendum.” [emphasis added]  [Note 2]

The Authority’s report goes on to state that a profitable Initial Operating Section (IOS) would entail much more track and equipment than can be built with funds on hand today.  In fact, in the July, 2011 Board Meeting both CEO Roelof van Ark and Chief Engineer Hans van Winkle are on record agreeing that it might require track stretching from San Jose to Palmdale (connecting into San Francisco and Los Angeles via Caltrain and Metrolink respectively) before profitable ridership levels could be achieved. [Note 3]   Current funds on hand allow for only a small section of track to be built in the Central Valley at a cost of $6 billion.

With no private funds and with the federal government’s elimination of grants for high-speed rail as part of its efforts to curtail future deficits, the state legislature demanded to know where funds will come from to build the Initial Operating Section of high-speed rail.  The Authority answered with a discussion of Qualified Tax Credit Bonds (QTCB’s).  Holders of QTCB’s would receive a federal tax credit in lieu of interest paid by the state.    In a complicated financing scheme, the Authority claims:

  “ a federally‐authorized QTCB program for HSR would enable the Authority to combine federal and state financing tools to secure a total of 3.5 times the net bond proceeds of the state’s general obligation bonds alone” (i.e. the $9 billion authorized by Proposition 1A).  [Note 4]

A major flaw in this funding scheme is that no high-speed rail QTCB’s are currently authorized by the federal government while a lone bill merely proposing to establish a QTCB program for high-speed rail languishes in a Senate sub-committee.   In today’s federal fiscal environment this “funding plan” amounts to no more than hoping for a miracle.

Worst Case Scenario (the likely case):
The legislature rightly went on to ask the Authority how the risk of spending $6 billion for the first section of track in the Central Valley would be mitigated “for a constrained funding environment, including what investments would be made and construction completed if the non-bond resources only equal bond funding”.  In other words, the legislature demanded to know the benefits to Californians if $3 billion in federal grants matched with $3 billion in Proposition 1A Bonds turns out to be the sum total of all high-speed rail funding.

In a bizarre response, the Authority touted the would-be benefits of their proposed $6 billion high-speed rail segment claiming that if connected into the existing Amtrak San Joaquin rail line it would save Amtrak riders as much as 45 minutes in travel time.[Note 5] The Authority fails to mention that Californians and American taxpayers would be stuck with principal and interest payments of $400 million/year  for the next 30 years so that approximately half a million Amtrak riders/year could save three quarters of an hour of travel time.  This equates to a cost of nearly $1100 for every passenger-hour of travel time saved.  One is compelled to ask, “who are these Amtrak riders who’s time is so valuable?”

With no source of private funds, no source of additional federal funds, and no practical use for $6 billion of high-speed rail needlessly carving out of path of destruction through prime farmland in California’s Central Valley, Californians await the release of the Authority’s formal Business and Funding Plans and hope that the end of California’s foray into high-speed rail finally comes to an end. 

Statements made in this article are supported by footnotes shown below.  Original source documents can be obtained by clicking on the highlighted notes imbedded in the article.


Note 1   Report in Response to AB 115, Chapter 38 of the Statutes of 2011 (items a and b)

Note 2   Report in Response to AB 115, Chapter 38 of the Statutes of 2011 (items a and b)
page 2, “Current Approach”

Note 3   Video of July Authority Board Meeting, Item #7, at 4 hours, 11 minutes, 14 sec of video

Note 4   Report in Response to AB 115, Chapter 38 of the Statutes of 2011 (items a and b)
page 6, “Alternative Approaches”, paragraph 3

Note 5   Report in Response to AB 115, Chapter 38 of the Statutes of 2011 (items a and b)
page 8, “Conclusions”, paragraph 5

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