Here is Larry Gilbert's blog article about the issue of CHSRA legality regarding their intention to begin HSR construction in the Central Valley and their use of State bond funds.
In yesterday's blog, we printed Attorney Mike Brady's letter to the CHSRA Peer Review Committee indicating his concerns about the potentially illegal expenditure of Proposition 1A funds for this construction. This article by Larry Gilbert looks at that argument from a somewhat different perspective.
The bottom line on all this is the bottom line; that is, the highly flawed financial dimensions of this project in California are the core problem.
Simply put, it won't fly.
Over the next several days, we will be printing a lengthy paper by William Grindley, called "A Train to Nowhere But Bankruptcy." It is critical to document our concerns as thoroughly as possible. One of the purposes of this blog is to provide a platform for such thoughtful comment and documentation.
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IS CA HSR compliant with Prop 1 A and AB 3034?
BY LARRY GILBERT – JANUARY 10, 2011
While we are bombarded by pundits making predictions and statements about the pro’s and con’s of the proposed high-speed rail lets look in the rear view mirror before heading any further down that “special interest” track.
The story must begin with hard facts, not speculation or emotion. Let’s set aside the “sell job” that was done by special interests in first presenting this major project.
In addition to our Tuesday, November 4, 2008 General Election booklet we received a 16 page SUPPLEMENTAL from Sec. of State Debra Bowen defined as a “Supplemental Official Voter Information Guide.”
Prop 1 A, narrowly approved by the voters of California, authorized the sale of $9.95 billion in general obligation bonds to plan and partially fund the construction of a high-speed train system in California, and to make capital improvements to state and local rail service.
“Of the total amount, $9 billion would be used, together with any available federal monies, private monies, and funds from other sources, to develop and construct a high-speed train system that connects San Francisco Transbay Terminal to Los Angeles Union Station and Anaheim, and links the state’s major population centers, including Sacramento, the San Francisco Bay area, the Central Valley, Los Angeles, the Inland Empire, Orange County, and San Diego.” Page 5.
“bond funds may be used to provide only up to half of the total cost of construction of each corridor or segment of a corridor. The measure requires the authority to seek private and other public funds to cover the remaining costs.”
The proposed law, Section 9, Chapter 20 (commencing with Section 2704) is added to division 3 of the streets and highways code.”
Let’s review some of the requirements spelled out in Section 2704.08
(2) The plan shall include, identify, or certify to all of the following:
(B) A description of the expected terms and conditions associated with any lease agreement or franchise agreement proposed or entered into by the authority and any other party for the construction or operation of passenger train service along the corridor or usable segment thereof.
(C) The estimated full cost of constructing the corridor or usable segment thereof, including an estimate of cost escalation during construction and appropriate reserves from contingencies.
(D) The source of all funds to be invested in the corridor, or usable segment thereof, and the anticipated time of receipt of those funds based on expected commitments, authorizations, agreements, allocations, or other means.
(E) The projected ridership and operating revenue estimate based on projected high-speed passenger trial operations on the corridor or usable segment
(F) All known or forseeable risks associated with the construction and operation of high-speed passenger train service along the corridor or usable segment thereof and the process and actions the authority will undertake to manage those risks.
(J) The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.”
As I have no intention of typing 15 pages of text let me add a few observations starting with the Legislative Analyst comments.
"The authority estimated in 2006 that the total cost to develop and construct the entire high-speed train system would be about $34 billion. While the authority plans to fund the construction of the proposed system with a combination of federal, private, local and state monies, no funding has been provided.”
Since this booklet was published we have received around $3 billion from the Federal government. What about the remaining $80 billion for the entire system?
The Rail Authority’s Business Plan, conveniently received AFTER we voted, estimates it needs $17 billion to $19 billion in federal funds. While receiving a partial award to prime the pump, do we have a commitment for that federal money as the entire system is to be completed and in operation by 2020?
“When constructed, additional unknown costs probably in excess of $1 billion a year to operate and maintain a high-speed system.”
In arguing in support of Prop 1A it acknowledges this to be an 800 mile network yet we now hear of costs pegged at $43 billion just to travel from San Francisco to LA.
[Edit.]
In opposing prop 1A those objecting point out that no one knows what the whole project will cost saying it might reach $90 billion. They also pointed out that “the full faith and credit of the state of CA is hereby pledged for the punctual payment of both principal of, and interest on, the bonds.” And that was only the first $9.95 billion.
Those in favor led us to believe that the ridership numbers would be 70 to 100 million passenger trips by 2030, but have since drastically lowered those inflated numbers to 39 million.
They also conned voters into believing that high speed train travel from Los Angeles to San Francisco would be “about $50 a person” yet they have since raised that one way ticket cost to $105.
We are currently paying about $5 billion annually in debt service on our $90 billion of outstanding state bonds. That does not include the currently authorized, but unissued, $40 billion in various state Bonds that will push the annual debt service even higher.
At a time when our new governor is sending out trial balloons of new taxes and fees, the last thing we need to do is releases these approved Bonds to the open market.
There is nothing blocking our legislature from applying the brakes to this runaway pipe dream before we begin writing checks to cover the debt service.
Over the next 30 years this $9.95 billion Measure could have been used to buy:
“22,000 new teachers, firefighters; or law enforcement personnel for 10 years.
Health care for all children in the state for many years.
Updated and improved California’s water system to provide a reliable supply of safe, clear water.
Upgrade and expand existing transportation systems including roads throughout California, which would really reduce traffic and emissions.”
On Page 7 the HSR supporters claim that the high–speed network “requires NO TAX INCREASE and is subject to strict fiscal controls and oversight. It’s simple and fair–once completed THE USERS OF THE SYSTEM PAY FOR THE SYSTEM.”
If we issue the bonds the annual debt service will further reduce funds available to governor Brown to run our state government.
We have already read of abuses by members of the authority. And who pays for the 800 mile system BEFORE its completed?
Sadly, former governor Schwarzenegger, who was a champion of the high-speed rail, vetoed a listing of demands in the Oct. budget designed to keep the HSR Board accountable for this project. Those vetoed budget provisions required:
1. Legal analysis of a revenue guarantee, to answer whether or not it is a disguised subsidy
2. A summary of expenditures for community outreach, particularly how the monies for Ogilvy are being used
3. A financial plan with alternative funding scenarios, since mid-2010 it was clear that there were no forthcoming private sector monies or local government grants
4. both investment grade business and risk mitigation plans demanded by AB 3034, but never delivered,
5. A response to the April 2010 State Auditor’s report, which roundly criticized the performance of the program Management Contractor, Parsons Brinkerhoff,
6. A report on how the authority has addressed the ten recommendations of the Bureau of State Audits (BSA).”
[Edit.]
It is never too late to stop a project. Simply look at my home state where New Jersey governor Christie stopped the multi-billion dollar ARC Tunnel to New York City.
