I hope that you have been following this paper by William Grindley. If you scroll down the list of entries on the right side of this blog, you will see the titles for Part I. and Part II. I did not provide the three pages of reference/citations/bibliography found at the end of this paper, but can do so upon request. Grindley's comments and conclusions are extremely well documented. They are not constructed out of thin air.
The central point, I should reiterate, is the flawed financial data and assumptions perpetrated by the CHSRA. We simply cannot believe any of their numbers. As Grindley points out, there is now more than enough prima facie evidence that the rail authority is not competent to manage this project and persists in ignoring that fact by continuing to function as a public relations organization intent on pulling the wool over our eyes, as they used to say. I believe that their motives are self-serving, political and financial.
All the rail authority rhetoric to the contrary notwithstanding, there is no real intention to build the high-speed rail enterprise that their press releases promise. That is enough reason to terminate the project.
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Begin Part III.
The Embarrassments Of December 2010 - the last month of 2010 was a nadir for the Authority: but possibly not its last. CHSRA has participated in a charade that the high-speed rail project was continuing to move forward, but its still-unofficial Peer Review group publically called for a 'Reset Button' on further activities.
Californians Are Laughing At The Train To Nowhere -
On December 2nd the CHSRA Board announced the first part of Phase One would be from Borden-to-Corcoran, a route never discussed with local residents or politicians. Merced to Fresno and Fresno to Bakersfield had been discussed, analyzed and presented to community groups over the prior eighteen months. The CHSRA's December 2nd choice brought a strong rebuke to DOT Secretary La Hood and the FRA Administrator from local Democratic Congressman Dennis Cardoza.
Following the grant of an additional $616 million (net) from the FRA on December 9th, the southern end point was moved from south of Fresno to an unspecified location north of Bakersfield. On December 20th 2010 the CHSRA Board adopted Borden-towards-Bakersfield as the first section of its project. The possibility of that section choice meeting the 'no operating subsidy' provisions of AB3034 are stunningly improbable.
The day after the initial but unofficial November 24th Borden-to-Corcoran announcement, the CHSRA CEO admitted that there wasn't enough in their present budget for that portion to build the rail bed, install electrification, and buy rolling stock. No explanation has been given for this change, as 2009 estimates had included rolling stock and electrification costs. The increase suggests how inaccurate the entire set of 2009 estimates for other, already more expensive sections or segments, must be: nor is there a guarantee the Borden-towards-Bakersfield track bed's costs will not increase.
CEO van Ark also said that CHSRA would approach Amtrak to operate on the Borden-towards-Bakersfield tracks; legally consistent with FRA grant rules requiring track be useable by some other federally funded entity such as Amtrak, should the rest of the CHSR system not be completed. Amtrak has not stated whether it has either officially heard of that request or whether it will accept the offer.
But van Ark's announcement about Amtrak carries serious technical challenges. If that section must be built to carry heavy Amtrak equipment or freight, won't costs rise because the heavier rolling stock needs more substantial track beds? CHSRA's consultant engineers have explained that the design of the track for lightweight high-speed rail needs to be rigid and on a concrete bed; incompatible with existing conventional track, designed to flex under heavier freight and conventional passenger trains' loads. The conventional rail design parameter would render the Borden-towards-Bakersfield track useless for high-speed rail. Conversely, if the Borden-towards-Bakersfield track design follows high-speed rail specifications and conventional Amtrak trains operate on them, they would soon become unsafe for both conventional and future high-speed rail use.
If conventional rail tracks were installed first, they would need to be completely replaced if Phase One of the CHSR project ever comes to fruition. CHSRA management's objective, to build something rapidly, conflicts with its consulting engineers' knowledge. Pursuing mutually exclusive design parameters would be another example of CHSRA's ineptitude and a colossal ($5.65 billion) waste of money.
What Price The Glory Of High-Speed Rail Without Trainsets - In January 2010, the Obama Administration awarded California $2.25 billion for its Phase One (LA/Anaheim to SF Transbay Terminal). Some of those monies were dedicated to complementary projects, so by mid-year the Authority had $1.65 billion for Phase One. Three subsequent grants, in October and December ($715 million, $16 million and $616 million net of non-high-speed rail projects) brought CHSRA another $1.35 billion. The last grant of net $616,000,000 ($616 million) made on December 9th, redirected to California the ARRA funds that had been rejected by Governors-elect of two states.
At the close of December, the CHSRA had $2,987,000,000 ($2.987 billion) of Federal grants available for a Central Valley section. If matched with the proper mix of authorized State bonds ($2.578 billion), CHSRA would have $5,565,000,000 ($5.565 billion) to build a Central Valley section. The CHSRA calls it a 'section' because the term 'segment' requires connecting two CHSR stations, and segments must legally meet other AB3034 requirements.
At the December 20, 2010 Board meeting CEO van Ark explained that engineering work over the next few months would determine how far south the Authority can build a section starting in Borden, going through Fresno, and towards Bakersfield. CHSRA's objective is go as far as the $5.565 billion will allow. CHSRA's current estimates range from a total of about 80 miles, to 110 miles, or up to 123 miles. This leads to three estimates of costs per mile, $70 million, $51 million, or $45 million.
At over $70 million per mile, this would be one of the most expensive civilian infrastructure projects in US history which does not serve a market in it's own right. Whatever its length, and bearing in mind the technical contradictions, that section must be part of a larger CHSRA plan. Otherwise it simply replicates an existing Central Valley Amtrak line.
Californians are asking what were the Federal and State governments thinking about this project? Can these bodies answer:
Why is the Federal Government helping fund about 15% to 20% of the Phase One (SF-LA/Anaheim) tracks, but has made no commitment to continue to grant the remaining plus-$16 billion required by CHSRA as the Federal portion of its 2009 Business Plan capital allocation estimates?
Why can't the Federal and State governments recognize that as estimates for Borden-towards-Bakersfield section have crept past $5.65 billion in the least-cost part of Phase One, that the final costs of the LA-SF build out are unlikely to be less than $55 billion, and may exceed $80 billion, not CHSRA's proclaimed $43 billion? [also see Reference note 44]
Why can't the Federal and State governments recognize the importance of the fact that twenty-five months after Prop 1A, no private sector commitments have been identified for the $10-12 billion of private debt and equity, called out in the 2009 Business Plan? If the CHSR were even vaguely profitable, major financiers would have found the project long ago.
Why can't the Federal and State governments recognize that the required $4.5 billion of local government grants or loans, called out in the 2009 Business Plan cannot be met; nor will be met from cash-starved cities?
Why would the Federal Government partially fund a project that, because it has no chance of ever being financially self-sustaining (the AB3034 provision), will exacerbate California's fiscal problems?
Ultimately, the legal question is whether any section of the Central Valley project is really high-speed rail. There is no rolling stock or electrification proposed, and subsidized Amtrak has not committed to using the new rails. So is the Borden-towards Bakersfield section a high-speed rail project as per FRA specifications, and the stipulations of both AB3034 and Prop 1A?
What utility will the Central Valley section serve is hard to fathom, other than pointing to poor Board leadership, the Authority's disconnect between management's goals and engineering parameters, the poor work product of it consultants and management, and the political goals of DOT/FRA officials. It has been and continues to be an embarrassment to the institutions of State government and the people of California.
The Peer Review Group Met And Issued A 'Push The Reset Button' Report - Although required by AB3034 (Section 185035 of the Public Utilities Code) a Peer Review Group never convened in 2008 or 2009. Members of the Peer Review Group first convened in June 2010, then conferred four times subsequently. The Group, chaired by Will Kempton, formerly director of California DOT, reported, "There is now considerable uncertainty and unreliability of federal funding combined with the state's structural deficit, overreliance on federal funding and budget unpredictability," and "The lack of a clear financial plan is a critical concern," and an "air of unreality" about expectations that the federal government will grant them $17 billion to $19 billion.
Other items from the peers include:
The "absence of a credible financial plan" has become a "critical concern". The Authority needs to define more clearly what role various involved parties should play with regard to the project's ownership, construction, financing and general management;
Authority officials need to be more forthcoming about how they think the project will be affected by changing estimates of passenger demand, revenues, investment costs, operating costs and project timing;
A legal opinion is required to distinguish the 2008 bond measure's prohibition on any public "operating subsidy" from the private sector's request for revenue guarantees;
Essentially, the Peer Review Group wishes to re-start the entire project. Whether that requires simple legislative approval, or whether AB3034 and Prop 1A must be rescinded to accomplish that needs to be answered. But even the peers believe the project as presented today is gravely, if not mortally wounded.
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An Unfolding Financial and Political Tragedy - The visionary concept of CHSR has been plagued with consultants' and contractors' questionable work product, managed by a small and inexperienced CHSRA staff and overseen by a politically appointed Board with no expertise in building or operating a high-speed rail system. The results have been poor, if not manipulated, work products, badly managed work processes, community alienation throughout the state and shoddy governance by the Board. In their defense, since no high-speed rail system in the world is without financial subsidies, their position has always been untenable. But why this embarrassment has continued so long - and by mid-2011 will have cost Californians nearly a half-billion dollars - is not defendable.
As the Financial Risks report shows, the CHSR project is likely headed towards never-ending subsidies. Debt incurred in its first fifteen operating years could range from $20,000,000,000 ($20 billion) to $60,0000,00,000 ($60 billion). Falling on top of California's current debt load of about $90,000,000,000 it could well contribute to the State's bankruptcy. For a State government, whose fiscal situation is already precarious, this would be a financial tragedy.
But the greatest risk to not being able to build the legally demanded, financially sustainable section, segment or system is yet another loss of faith in government to lead, to plan in the public interest and to provide cost-effective services. Inaction in the face of solid evidence of the unfolding financial tragedy and the intransigence of the Authority to change its behavior makes citizens lose confidence in elected officials' duty to protect their state's best interests. Once lost, that confidence is not regained for decades, if then. Thus the loss of faith in the political process would be the real tragedy that California cannot afford.
