And yet they still propose spending $6 billion on a Central Valley Railroad
Dan Richard, Chairman of the California High-Speed Rail Authority, told Senators and the public at a Senate Hearing held March 13 that with respect to the about-to-be-released Revised 2012 Business Plan:
“I don’t believe we are going to be able to look you in the eye or look the public in the eye and tell them that we have any greater clarity about the funding today than we did on November 1st when we issued our draft plan.” [Note 1]
The risk of a $6 billion “stranded investment” in the Central Valley
The Authority was created sixteen years ago and tasked with preparing a high-speed intercity rail plan and to “designate an entity with stable and predictable funding sources to implement the plan”. [Note 2]
In failing to come up with a funding plan the Authority is failing to address the most critical finding contained in the report recently issued by the Peer Review Group. Specifically, the Peer Review Group found the Authority’s funding plan, contained in their Draft 2012 Business Plan, not “feasible” [Note 3] and noted that lack of a feasible funding plan for completing Phase 1 of their project, San Francisco to Los Angeles, made it very risky to spend $6 billion on the Initial Construction Segment (ICS) of 130 miles running from somewhere north of Fresno to somewhere north of Bakersfield. And in fact, the Peer Review Group could not recommend release of rail bonds for this very reason. [Note 4]
Senator Joseph Simitian’s opening remarks lamented on this same issue when he reminded listeners that the Draft 2012 Business Plan shows only $10 billion in approved state bonds and $3 billion in federal matching funds for a project slated to cost at least $98 billion. Moreover, the senator noted that the $85 billion shortfall exists at a time when the climate for further federal funds is difficult at best, no private funds are available, and the Authority has stated that it has no intention of asking the voters to approve additional bonds. He then went on to remind everyone that the Authority proposes spending $2.7 billion, or nearly a quarter of the state rail bonds, in the Central Valley along with $3.5 billion, 100% of the federal matching funds, for 130 miles of track in a low ridership area that will not provide high-speed rail service to anywhere because it will lack trains and electrification. Its only tangible benefit will be to reduce commute time by perhaps 45 minutes for the few riders in this area. [Note 5]
Throughout the 2 ½ hour hearing which was followed by nearly three hours of public comment that did not subside until 12:30 am, other senators, Will Kempton – Chairman of the Peer Review Group, and members of the Legislative Analyst’s Office (LAO) made the same point about the risk of creating a $6 billion “stranded investment” in the Central Valley if tens of billions of dollars in additional funding never materialized.
Rail Authority Chairman Richard tried to address these concerns by claiming near the end of the hearing that the Revised 2012 Business Plan will break the construction of the high-speed rail system into smaller pieces and that each piece will (a) have a complete funding plan in place; (b) will have immediate independent utility; and (c) will meet the requirements of Proposition 1A prior to the Authority requesting state bond proceeds for its construction. [Note 6] However, when earlier in the hearing he was pressed by Senator Lowenthal on whether the ICS could be constructed to provide high-speed rail service, Rail Authority Chairman Richard stated that the Authority “never intended, our business plan does not contemplate, that we would operate a high speed rail system only in the Central Valley”. [Note 7] It is this assertion that seems to run counter to Proposition 1A in that the law stipulates no less than eleven requirements that must be met before funds can be released for construction of a “corridor” or “usable segment”. These requirements include high-speed train service, ridership and revenue projections, and planned passenger service. [Note 8]
Mr. Richards defended the Central Valley investment by claiming that as laid out in the Draft Business Plan:
“While this investment might meet a legal threshold test (of independent utility), certainly as a matter of public policy it (the independent utility) did not rise to the level, I think, where people were comfortable…..and that that type of public investment would on a stand-alone basis, if that’s what it came to, would not have sufficient utility.” [Note 9]
The Authority is now focused on making the ICS meet the public policy test. No details were provided, but the statement was made that “there are opportunities for multiple uses of that track-way that can provide immediate benefits as well as the foundation for longer term high-speed rail development in the state… so we will be coming back to you with something.” [Note 10]
Mr. Richard continued to defend starting construction in the Central Valley by asserting :
• All ridership numbers, even for high-speed rail operating from Merced to Sylmar, would have sufficient ridership (to avoid a subsidy).
• This would require 2.2 million riders and studies indicate 4.5 million riders for this segment in 2022 or 2023.
• Today in the Central Valley the San Joaquin Amtrak carries 1 million riders and 200,000 of these take a bus from Bakersfield to Los Angeles. Metrolink carries 1.5 million riders annually between Los Angeles and Palmdale.
• Today, with a lower level of service, this region serves 2.5 million riders (1+1.5). [Note 11]
This “admittedly anecdotal” example of a possible use for the Central Valley ICS is questionable since by Mr. Richards own words, only 200,000 of his cited 2.5 million Amtrak and Metrolink riders actually travel inter-regionally between the Central Valley and the LA Basin. This then is the minimum ridership for high-speed rail between the Central Valley and the LA Basin, NOT 2.5 million. Moreover, additional funding of $27.2 billion, more than four times the cost of the ICS, is needed to complete Initial Operating Section-South connecting Merced to Palmdale. [Note 12]
After listening to Mr. Richard, Will Kempton, Chairman of the Peer Review Group, was asked if he had heard anything new to help alleviate his concerns over the risk of a “stranded investment” in the Central Valley and he could not cite anything said by Mr. Richard. He was, however, hopeful the Revised Business Plan would address this issue. [Note 13]
Reducing the overall project cost by utilizing the “blended approach”
Both Authority Chairman Richard and Authority Member Hartnett provided some details of their new blended approach for someday getting high-speed trains into the LA Basin and the Bay Area. Their claim is that by using existing Metrolink and Caltrain right-of-ways, the eventual cost can be brought down and immediate benefits derived. Reduced costs are important in that by reducing costs the overall project shortfall of $85 billion is reduced, and this in turn lowers the risk of a “stranded investment” in the Central Valley. The timeframe for completing the blended approach work in the LA Basin and in the Bay Area, now termed the “book ends” of the HSR line, was given as 8-10 years with funding probably being requested “much sooner than 5 years from now”. [Note 14]
The “blended approach” in the peninsula, as proposed,involves the electrification and installation of positive traction control along the Caltrain tracks between San Francisco and San Jose at a cost of “$1.5 billion or so”. [Note 15] In the south it would involve upgrading Metrolink tracks between Anaheim and Palmdale at a cost of roughly $2 billion to eliminate tight curves, add grade separations, passing track, and other unspecified improvements that would allow Metrolink to operate at a maximum speed of 90mph between Anaheim and Los Angeles Union Station (current maximum speed is 79mph) and at a maximum speed of 125mph between LAUS and Palmdale where riders would then connect with the high-speed rail system to Bakersfield. [Note 16]
While this approach was generally applauded by the LAO and the Chairman of the Peer Review Group, once again Mr. Richard’s own testimony seemed contradictory in places. Specifically, Mr. Richard stated towards the end of his testimony that:
“Proposition 1A requires (section 2704.08, paragraph (c)(2) of the Streets and Highway Code) parts (a) through (k) being met before releasing bond funds….Many of those things that people would have us do in the bookends don’t meet those conditions.” [Note 17]
An 11th hour request for funding
Notwithstanding unresolved issues about the risk of a $6 billion stranded investment in the Central Valley and the dubious legality of using HSR bond proceeds to electrify Caltrain and improve Metrolink service, Senator Simitian closed the hearing by focusing on the lateness of the Revised Business Plan and the likelihood that the legislature, as well as the public, the LAO, and the Peer Review Group, will have only about 8 weeks to digest and approve the request for the release of $2.7 billion in rail bonds if the legislature is to meet the June 15 constitutionally mandated deadline for approving a state budget.
In one of his more forceful statements of the hearing, Senator Simitian admonished the Rail Authority by stating:
“You heard Mr. Kempton say earlier, once we start down the path we are making some commitments that take us a very long way out into the future at very great expense. And even if we scale it back to just the proposal before us, we are talking about 6.2 billion dollars. We are talking about 100% of the federal funding that is available and a quarter of the bond funding that the state voters have approved. That is not a set of decisions that should be hurried when we don’t yet know, after three and a quarter years, what the plan of the high speed rail authority is. So I am encouraging you all, in the strongest possible terms, to think about ways in which we can ensure that both the legislature and also, as I said earlier, the public have the opportunity to thoroughly vet whatever it is you deliver at the end of March/beginning of April.” [Note 18]
In fact the senator could have made an even more forceful statement by quoting from the Proposition 1A law itself which states:
“No later than 90 days prior to the submittal to the Legislature and the Governor of the initial request for appropriation of proceeds of bonds…..the authority shall have approved and submitted to the Director of Finance, the peer review group….and the policy committees with jurisdiction over transportation matters and the fiscal committees in both houses of the Legislature, a detailed funding plan for that corridor or a usable segment thereof.” [Note 19]
Clearly this 90 day requirement will not be met if the Authority formally requests release of bond funds when they approve the Revised Business Plan at their April 5th meeting.
The senator might also have pointed out that “the road” is longer than $98 billion in that extensions to Sacramento and San Diego adding 10’s of billions of dollars to the cost of the project are needed if voters are ever to have what they were promised in November 2008. On this point the rail authority’s business plan is mute. In fact, no business plan since 2000 has included a cost for the entire statewide system. Then it was only $25 billion. [Note 20]
The results from twelve years of environmental, ridership, and construction cost studies now lead Californians to now oppose high-speed rail by a margin of 2 to 1. [Note 21] In the words of Senator Simitian, “a wise man once told me that when you find yourself riding a dead horse, it’s time to dismount”. [Note 22] Wise words indeed.
Anyone watching the hearing video or present at the time could not help but be impressed with the thoughtfulness of the senators’ questions and their genuine concern for getting value from taxpayer expenditures. There even seemed to be concern over not using federal dollars to create a “stranded investment” in the Central Valley. Californians are, after all, Americans. Even if just viewed from a selfish perspective, one in eight federal dollars comes from Californians or $412 million of the $3.3 billion in federal matching funds.
Lastly, this hearing went on from 7 pm until after 12:30 am with public comment taking nearly 3 hours. To his credit, Senator Simitian listened courteously to all members of the public, giving them their due respect; even the member of the public who introduced himself as “god” and refused to give his full name. The senator’s performance was indeed impressive and all Californians should be thankful for his work.
Factual statement made in this article are footnoted below and can be accessed by clicking on the note shown in the body of the article.
Note 1: Quote from Dan Richard at 30 minutes 5 seconds into Part 1 of Senate Hearing Video
Note 2: Senate Bill 1420 of 1996, section 185010, paragraph (h)
Note 3: January 2012 High-Speed Rail Peer Review Group Report, page 4, first complete paragraph
Note 4: January 2012 High-Speed Rail Peer Review Group Report, page 7, final paragraph under “Conclusions”
Note 5: Statement made by Senator Simitian at 6 minutes 40 seconds into Part 1 of Senate Hearing Video
Note 6: Mr. Richards comments at 34 minutes 20 seconds into Part 4 of Senate Hearing Video.
Note 7: Conversation between Senator Lowenthal and Mr. Richard 47 minutes 33 seconds into Part 1 of Senate Hearing
Note 8: Text of Proposition 1A, Section 2704.08, paragraph (c)(2)
Note 9: Quote from Dan Richard at 22 minutes 5 seconds into Part 1 of Senate Hearing Video
Note 10: Quote from Dan Richard at 22 minutes 50 seconds into Part 1 of Senate Hearing Video
Note 11: Dan Richard’s claim that Merced to Sylmar HSR would be profitable at 49 minutes 35 seconds into Part 1 of Senate Hearing Video
Note 12: Exhibit 8-24 contained in Draft 2012 Business Plan
Note 13 Mr. Kempton’s answer to a question asked at 18 minutes 18 seconds into Part 2 of Senate Hearing Video
Note 14 Mr. Richard’s remark made at 45 minutes 20 seconds into Part 1 of Senate Hearing Video
Note 15 Mr. Hartnett remark on cost of blended approach in the Bay Area at 33 minutes 45 seconds into Part 1 of Senate Hearing Video
Note 16: Mr. Kempton’s comments on the blended approach in Southern California at 15 minutes 15 seconds into Part 2 of Senate Hearing Video
Note 17: Mr. Richard’s comments on the blended approach at 14 minutes 53 seconds into Part 4 of Senate Hearing Video
Note 18: Senator Simitian’s comments on the timing of the budget request for HSR at 35 minutes 0 seconds into Part 4 of Senate Hearing Video
Note 19: Text of Proposition 1A, Section 2704.08, paragraph (c)(1)
Note 20: California High-Speed Rail Business Plan published in the year 2000, Section 2.3 entitled Capital Costs
Note 21: Field Poll conducted November 15-27, 2011
Note 22: Senator Simitian’s quoted at 33 minutes 35 seconds into Part 4 of Senate Hearing Video