If you haven't read Richard Trainors investigative journalism articles about high-speed rail politics in California, be prepared to be surprised and shocked.
Someone reminded me about Richard Trainor today. Who is Richard Trainor, you are asking?
He's a journalist in California who has devoted his life to researching the shenanigans and hanky-panky of leading politicians in our state. My introduction to his writings came in 2004, when his material revealed the corruption and sleazy back-room politics behind the California high-speed rail project. I've been a fan ever since.
This first article is from Calwatchdog and was published December 12th of last year. The article beneath that is from 2003, when high-speed rail was merely another political football in Sacramento, with little hope of a future. Look where we are now.
I've cited Trainor previously, including this past December when this first article appeared. With more blog readers now, I'm bringing it back to remind those who read it last year, and introduce this history to new readers.
Here are some references to Trainor's other work:
Rail: Pork Barrel Land Scam
DEC. 12, 2010
By RICHARD TRAINOR
When the bond initiative to build a peripheral canal fell apart this past June it might also have signaled the end of the line for the $45 billion high-speed train proposal. This is another project pegged for funding by issuing state bonds.
What both projects have in common, despite their likely failures in the same years, 1982 and 2010, is the fact that both were classic pieces of low-ball political processes that benefited inside investors, primarily companies connected to Richard C. Blum, Sen. Dianne Feinstein’s husband.
On some of these projects, the benefit was best measured in the stock price increases of the corporations earmarked to build them.
On the high-speed train project, investigations by the state auditors and a peer review committee headed by Will Kempton, the former director of Caltrans, are under way. High-speed train litigation is also in progress at the Sacramento Superior Court. The court won’t hear the case until after the first of the year.
The legal action was brought against the project and its lead agency, the California High-Speed Rail Authority (CHSRA). California taxpayers have already spent close to $1 billion for CHSRA operation and its many studies focused on the routing of the train, on its ridership and marketing studies and business plans. The suits are focused on the ridership studies.
The plaintiffs in the court action are the cities of Atherton, Palo Alto and Menlo Park, joined by the Planning and Conservation League, the California Rail Foundation and a group called Transdef which filed amicus briefs along with them . PCL’s executive director Gary Patton says the train project has a bad smell to it. “This whole thing is a scam and a shakedown of California taxpayers.
The California High-Speed Rail Authority is running a smoke-and-mirrors show with their studies that we don‘t believe.”
California State Treasurer Bill Lockyer is skeptical whether financial investors think the high-speed train bonds are marketable.
California voters approved the sale of the $10 billion rail bond money in 2008, but whether the bonds will fly is another question entirely. Lockyer would have to sell the bonds, but he’s not convinced he can. Joe De Anda, the press secretary for Lockyer, made the following comment: “His (Lockyer’s) sense from speaking to Wall Street investors is that there is some hesitancy in selling these bonds. Investors would look very seriously at this project before they’d make that kind of investment.’
And so the high-speed train creaks along on its rocky roadbed. The relationships between the legislative backers and the financial beneficiaries of these multibillion-dollar transportation projects like the high-speed train and the Bay Bridge illustrate how political processes can be used to produce profits.
These profit-producing political processes began in 1982 with the first high-speed train project.
They continued with the new Bay Bridge process from 1997-98, proceed to the present high-speed train process and conclude with the now postponed peripheral canal project that Gov.-elect Jerry Brown has inherited for a 2012 election.
Some of the corporations involved in these projects have been earmarked with legislation carried by politicians who have a financial interest in these projects. The corporations on the high-speed train are Lockheed-Martin and URS.
URS was owned by Richard C. Blum until 2005. In 1998 when the Bay Bridge process got going, URS was the eighth largest engineering and design corporation in the world. By the time Blum sold URS in 2005, it was Number One.
Feinstein served on a number of different committees that approved contracts for companies owned by Blum. Sometimes she carried federal legislation that earmarked these corporations, including URS on the high-speed train and the San Francisco Airport expansion of 2000. URS won the airport expansion contract in a design competition that was posted on the very day the “competition” closed.
The expansion didn’t go forward, but URS experienced a significant stock price increase during the time the legislation went through. URS stock went from $12 a share to $19 a share in three months time.
URS was earmarked for the high-speed rail project by enabling federal legislation backed by Feinstein in 2001. Another corporation earmarked for high-speed trains was Lockheed-Martin, the owners of Transrapid International, a firm that builds magnetic levitation, or maglev high-speed trains.
URS also builds maglevs. The first such maglev contract URS received was for a $2.3 billion maglev line between downtown Shanghai and the Shanghai Airport. Shanghai is San Francisco’s sister city and was designated as such in 1985 when Feinstein was mayor of San Francisco.
Blum has an interest in a number of corporations that do business in China, including Northwest Airlines, Texas Pacific, Newbridge Capital and the Shanghai-Pacific Group. The new high-speed train CHSRA is promoting was supposed to connect the state’s main population centers of Los Angeles, San Francisco and Sacramento and cost $45 billion. It was recently downsized to a mini starter line that would run between Fresno and Bakersfield.
The first high-speed train bill and the Bay Bridge bill (AB3647 from 1982 and SB80 from 1997) were both primarily authored by Mehdi Morshed. He also was one of the principal bill drafters of SB1856 (2002) with former Treasurer Phil Angelides. After promoting the bill when he was running for governor in 2004, Angelides was forced to recuse himself from any further promotion because of a conflict of interest. Until recently, Morshed was the executive director of CHSRA. Angelides was recently heading the federal investigation of Goldman-Sachs.
The high-speed train from 1982 was scheduled to run between San Diego and Los Angeles. It was never built and Californians forgot about bullet trains for a few years.
But in the 1980s the high-speed train process got started again. In 1996, then-Sen. Quentin Kopp joined with fellow Sen. Jim Costa of Fresno to co-author SB1420.This bill revived the dormant California High-Speed Rail Authority. In 1998, Congress authorized the Transportation Empowerment Act for the 21st Century, known by its acronym, the TEA 21 Act. The table was set for a new high-speed train stock trading bonanza.
“The fortunes of these companies (like URS) and the market’s reflection of them tend to be driven by trends, like the Kobe earthquake or the TEA-21 Transportation package that Congress passed that tends to affect the market,” said Chris Hussey, an analyst with Goldman-Sachs. Hussey specializes in engineering stocks like URS.
The new high-speed rail project got up to full speed in 2001, when U.S. Sens. Jim Jeffords and Frank Lautenberg authored S1900, a bill that allowed Amtrak to sell $10 billion in bonds for high-speed rail projects. It envisioned the project as a private/public partnership.
Additional federal legislation was passed to provide $950 million to implement maglev trains in a number of pilot programs, including one in California being led by URS. On the maglev part of the package, the federal legislation named Transrapid International as the company who would provide the maglev trains. Transrapid had been acquired by Lockheed Martin in November 1999.
After a trip to Germany in the fall of 1998, where the maglev was shown off, some members of the CHSRA began lobbying for maglev. But Dean Dumphy, California secretary of Business, Transportation and Housing in the Pete Wilson administration, thought the promoters of maglev were a bit too zealous. In a Dec. 9, 1998 letter, he wrote to Michael Tannenbaum of CHSRA: “Neither the Governor, any part of his administration, nor I support the California application that commits the state to build a multibillion-dollar high-speed train with technology that is not in revenue service and has no record of reliability.” Dunphy went on to say that the application would “benefit one vendor — Transrapid International,” and that he found “such underhanded and meddling behavior reprehensible.”
The letter might have slowed the high-speed train process but it didn’t stop it. Gov. Arnold Schwarzenegger was a keen high-speed train advocate, as is Jerry Brown. Schwarzenegger pushed for the high-speed train project at the same meeting in 2009 when he laid out his ambitious plan for the water bond initiative to build a new peripheral canal. Jerry Brown signed the first high-speed train bill in 1982. Attempts to contact Mehdi Morshed to ask him about his work on these transportation spot bills and the connections to stock price increases of the corporations in line for the contracts proved unsuccessful.
Train activist Richard Tolmach wrote a story in the Sacramento Bee’s Sunday Forum section on Jan. 14, 2004 titled “Playing Fast and Loose with Fast Trains Here.” Tolmach ripped the new high-speed rail plan to shreds. “Critics say the authority’s work during the past five years has been tainted by a uniquely Sacramento combination of campaign contributions, sole-source contracting and questionable back-room technical decisions,” Tolmach wrote. “The result is that the California High Speed Rail project now looks like a combination of a pork barrel and a land scam… Some observers even suggest that the route planning process is being abused by project insiders to manipulate investor expectations.”
Whatever the outcome of the new high-speed train project, the money was already made in the stock market. Between Oct. 29, 2001 and April 4, 2002, insiders on the board of directors at URS and Lockheed Martin made $203,416,298 from non-general issue penny stocks they cashed out in insider trades. On one trade alone, on Jan. 4, 2002, Richard Blum sold more than 5 million shares of URS stock and made $20,778,320.
Some of the financial analysts who reviewed the data relating to these transportation projects believe they indicate a pump-and-dump scheme at work.
The late Kord Hennessy, a stockbroker who specialized in construction industry stocks reviewed a file on URS. The analysis he provided had to do with the Bay Bridge and a series of URS stock issuances that took place in the springs of 1997 and 1998, “It’s pretty clear what’s happening, and the correlation between the legislation and URS stock prices is pretty revealing. When the (Bay Bridge) bill (SB60) is introduced, they’re chugging along with 70,000 shares traded a day and level around $7 a share. Then the bill is amended and the prices and volumes go up. They’re dumping, look you can see it,” said Hennessy, directing me to the insider index. “This is a classic pump-and-dump scenario. And we’re talking about Richard Blum here, right? This isn’t peanuts; this is wealth and how it’s really created that we’re seeing at work here.”
Repeated calls and emails were made or sent to Feinstein seeking comment. Feinstein’s communication director Gil Duran, Jerry Brown’s press spokesman when he was mayor of Oakland, didn’t return this reporter’s request for a comment on high-speed trains. Duran and Sen. Feinstein were both informed what the contents of this story would include.
December 9, 2003
Process and Profits
The California Bullet Train, Then and Now
By RICHARD TRAINOR
A high-speed train project and a new Bay Bridge might not appear to have much in common except for the fact that both are multi-billion dollar transportation projects that have yet to be built. But like the Bay Bridge, which many stock market analysts say helped produced such fantastic paper profits for politically-connected businesses, the bullet train bill of 1982 was also the vehicle from which a number of companies benefited.
These companies, many of them Japanese corporations, saw their stocks soar during a perception-driven process that all but named them in the bullet train legislation. Now a new $35 billion high-speed train is being promoted in California, and it has also produced profits during the legislative processes of both the federal and state legislation enabling it.
The three different projects, the bullet train of 1981-83, the Bay Bridge of 1996-2002, and the high-speed train of 1998-2001, are separated by a 20 year span but they have a great deal in common.
First, let's examine the bullet train of the early eighties.
Twenty-two years ago, on April Fools Day of 1981, a pair of articles were published in the business section of The New York Times that didn't seem in the least bit related. The first story gave an overview of the Japanese economy. In it, the Times correspondent asserted that the economy was in the midst of a recession due to inflation and economic stagnation. The article suggested that Japanese industries would need to export hard goods if the economy was going to bounce back.
Reporter Agis Salpukas wrote the other Times story. Salpukis described how a new bullet train was being considered between Los Angeles and San Diego. The article also mentioned that the California bullet train project had the backing of a Japanese billionaire by the name of Ryoichi Sasagawa, who said he willing to help to finance the project by providing the backers with a $5 million grant for preliminary marketing studies.
The bullet train was one of Jerry Brown's dream projects during his two term stint as governor of California. When Adriana Gianturco became Brown's chief of Caltrans, she soon began pushing for a California bullet train. In 1978, Gianturco commissioned a San Diego-Los Angeles corridor study and produced some preliminary high-speed rail work-ups.
But the project was going nowhere. Gianturco was despised by the powerful state senator from San Jose, Alfred Alquist, then chairman of the Senate Appropriations committee. During one of her bullet train presentations Alquist told Gianturco that if he heard the words "bullet train" come out of her mouth again he would cut off all of Caltrans legislative funding. Gianturco did as she was told and gave up on the idea of a California bullet train.
But Jerry Brown didn't want to let go of his bullet train dream, and when his former Secretary of Business, Transportation and Housing, Richard Silberman, became chief-of-staff after Gray Davis left in 1981, the bullet train crusade commenced again.
Besides Brown's obsession with bullet trains, there was keen interest in the project coming from Washington, D.C. There, the president and vice-president of AMTRAK, Alan Boyd and Larry Gilson respectively, were leading the effort to bring high-speed rail to California.
What Boyd and Gilson did was either shrewd or cynical, depending on how you define loaning yourself money from a public corporation to start your own private, for-profit corporation. Boyd and Gilson did just that, engineering a $750,000 from AMTRAK to form their new corporation, American High Speed Rail Corporation. When the loan was made, Boyd and Gilson were still drawing AMTRAK salaries. Most of the money that from the loan was paid to the Arthur D. Little Company of Boston to fund the first bullet train marketing study.
Boyd and Gilson had by then formed an alliance with Sasagawa, the controversial Japanese billionaire. The bullet train now began building up steam. Sasagawa was a close associate of the Rev. Sun Myung Moon and was a prime supporter of Moon's World Anti-Communist League. Sasagawa's fortune was largely derived from his interests in speedboat racing-a sport long tarred by ties to organized crime enterprise.
After the story in The New York Times, Sasagawa invited a number of California state legislators to Japan to look at bullet trains. Among those who made the trip were Senators Alfred Alquist and John Foran. Foran was then the Senate Transportation Committee chairman; he is currently a senior partner with Nossaman, Guthner, Knox and Elliott. Foran is also the man who founded the Metropolitan Transportation Commission in 1969-the Bay Area regional planning organization that made the decision to select the new Bay Bridge in 1998- and he is still the MTC's chief lobbyist.
Among the Assembly members to make the trip to Japan was Bruce Young, then the Assembly Transportation Committee chairman. Also along for one of those bullet train rides to Japan was Mike Roos, the Assembly Majority Leader.
In the spring of 1982, Gilson and Boyd came out west to pitch legislators on the wonders of the bullet train. They met with key legislators like Foran, Alquist and Roos and (then-Assemblyman, now Senator) Lou Papan to tout their project. They also announced that they thought they had secured the support of The Los Angeles Times and the Copley newspaper chain.
The legislative action on the bullet train in 1982 was a mirror image of what later occurred on the Bay Bridge in 1997 with Senate Bill 60, authored by then Senator Quentin Kopp, an independent from San Francisco. Kopp is now a San Mateo Superior Court Judge.
First, Bruce Young introduced a spot bill. The bill, AB 3647, was purely regulatory in nature and had nothing to do with bullet trains. This "nothing" bill floated through the respective committees and legislative houses until August of 1982 when it was "hijacked" and amended with legislation that all but named a number of Japanese companies as contractors for the project.
A source at the State Treasurer's office under the legendary Jesse "Big Daddy" Unruh told me what happened on AB 3647. "I got a call on a Friday from someone who said that there were some people here in town (the AHSRC backers) and that they had a piece of legislation that we might want to take a look at because it involved state bonds."
This person was then summoned to a Friday meeting with Mehdi and Linda Morshed. The Morsheds were then the chief transportation committee consultants in the California State Legislature. Mehdi worked in the Senate for John Foran, while Linda worked in the Assembly for Bruce Young.
The Morsheds presented my source with a sample draft of the bill. He saw that the state had a potential liability if the bonds failed. He then asked if he could look it over more carefully. The Morsheds asked if he could make his changes to it by the end of day. The source said he would need the whole weekend. On Monday, August 23, he gave the Morsheds his amended version of their draft language. On Wednesday, August 25, the bill was sent to the joint legislative conference committee.
The legislature had passed all of its legislation by then, and the only thing left for them to do was to resolve the differences between the Senate and Assembly versions of the bills in the conference committee. Suddenly AB 3647 was hijacked and amended with the addition of the new paragraph that called for "$1.25 billion in tax exempt California state revenue bonds for a Shinkansen-type bullet train" that would be operated by a private company for profit. AB 3647 also exempted the bullet train from having to be approved by the California Coastal Commission and with having to comply with the California Environmental Quality Act. Both the CCC and CEQA were environmentally-conscious pieces of legislation that Jerry Brown had put forward during his reformer period of the early seventies,
AB 3647 was passed out of conference committee, and after only five minutes of floor debate it was approved by the legislature. A month later, on September 29, 1982, Jerry Brown signed the bill into law, saying "the bullet train is controversial because the technology is not a way of life in California or in the nation." On October 12, 1982, AB 3647 became law.
Shortly thereafter, a number of Japanese companies associated with bullet train production experienced sharp increases in their stock prices. The firms were Ishi Shiba, Kawasaki Heavy Industries and Mitsubishi, and they all rose upwards of 40%.
The passage of AB 3647 stunned many observers, including Adriana Gianturco, who had been led to believe that a bullet train would fall under the aegis of Caltrans. In fact, she claimed Boyd and Gilson had promised her that when they met with her in the spring of 1982. Now Gianturco discovered that Caltrans was cut out of the process, and the American High Speed Rail Corporation would build the bullet train in partnership with private engineering and design and construction firms like the Irvine Company and the Fluor Corporation. Moreover, AHSRC was supposedly on the hook if the system failed to perform as advertised or if the tax-exempt revenue bonds failed.
At a Senate Transportation Committee hearing, on February 12, 1983, one of the chief bullet train critics came forward to give testimony. Jonathan Richmond was a Fullbright scholar who specialized in transportation and he had questioned the ridership projections in the Arthur D. Little report, which until then had never been made public.
Richmond was then an employee of the Southern California Association of Governments (SCAG), and before he took the stand, the committee chairman, John Foran, read a letter that said that Richmond was "appearing here on his own and does not represent SCAG." Then, after being all but discredited by Foran as a credible witness, Richmond presented the committee with the theretofore-secret Arthur D. Little study and tore its ridership projections to shreds.
Five months later, the city of Tustin released a "white paper" detailing the politics behind the passage of AB 3647 and exposing the murky Japanese connections. This reporter was the author of that report. American High Speed Rail Corporation then folded its tent and a California bullet train faded into memory.
But, in 1996, the bullet train began gathering steam for another run in the Golden State.
This time around, one of the new high-speed wonder trains initially being promoted by the California High Speed Rail Authority (CHSRA) was a magnetic levitation or "mag lev" train. And many of the principal players in the new train system had hovered around the 1982-83 campaign.
Mehdi Morshed, the legislative wizard who wrote AB 3647 and SB 60 (the Bay Bridge bill), is now the California High Speed Rail Authority's executive director. Morshed's former Senate boss, John Foran is also working for the new high-speed train with Nossaman, Guthner, Knox and Elliott. This limited law partnership is stocked with former state legislators and is probably the most powerful transportation lobbyist firm in the nation. They, too, are veterans of the bullet train of 1982-83, having been its main lobbyist advocates back then.
The new high-speed train being promoted is a statewide system that will connect San Diego to the San Francisco Bay Area and continue to a final stop in Sacramento. The price tag for this new system is pegged at $25-35 billion. The business plan of CHSRA contains projected ridership figures that are robust and travel times that are rapid, and it sings the praises of mag-lev and other high-speed train systems.
As a matter of fact, the former Secretary of Business, Transportation and Housing in the Pete Wilson administration thought that the promoters of mag-lev were a bit too zealous in their promotion of it. After a trip to Germany, where the experimental mag-lev train was shown off, some members of the CHSRA began lobbying for an application for mag-lev. In a December 9 1998 letter he wrote to Michael Tannenbaum of the CHSRA, Dean Dunphy, then-Secretary of BTH in the Wilson administration, had this to say: about an application for mag-lev. "Neither the Governor, any part of his administration, nor I support the California application that commits the state to build a multi-billion dollar high-speed train with technology that is not in revenue service and has no record of reliability." Dunphy went on to say that the application would "benefit one vendor- Transrapid International" and that he found "such underhanded and meddling behavior reprehensible."
But as soon as Wilson left office, the push began again for mag-lev. At the six or so meetings I attended of the California High Speed Rail Authority in the summer of 1999, the first item up on the agenda was mag-lev. When the California high-speed rail bill was going through in 2002, mag-lev was still being considered as one of the possible train systems.
The drive for a new high-speed train system is also backed by congressional legislation that was passed in the fall of 2001. Some of the federal legislation provided for $970 million in start-up funds to consider seven possible mag-lev pilot programs in the United States, including two in California--one of which would connect the Los Angeles basin to a system that would eventually connect all the way through to Sacramento. The company that Congress chose for the mag-lev system is Transrapid International, a German company that was acquired by Lockheed-Martin in 2000.
In the 2002 session of the California State legislature a new high-speed rail bill was introduced to provide $10 billion in general obligation bonds to begin planning the routing of the high-speed train. This bill was SB 1856 authored by Fresno Senator Jim Costa. The bond issue will be presented to California voters in the November 2004 general election.
What is most interesting about SB 1856 was the precise language of the bill. The bill specified that the system must be one capable of "revenue operating speeds of 200 mph." There are, at present, only two such train systems capable of these speeds: mag-lev and the French TGV system. The bill also specifies that the bonds are "for display purposes only". This is precisely the kind of language that allows companies to make profits off of the planning process. In other words, the bill creates a perception that the train is in the works, which could have an effect on the companies who could provide such a system. One of these companies is Lockheed-Martin.
Another is URS Greiner, the engineering and design firm managed by Richard C. Blum, Senator Dianne Feinstein's husband. URS is involved in the project, but only as a subcontractor to the project manager.
Lockheed-Martin stock shot up in price during the time that the new federal and state high-speed rail bills were moving through the respective legislative processes. A look at the insider index for Lockheed-Martin during the fall of 2001- just as the final version of the federal bill was being approved- shows that insiders at Lockheed-Martin were just as savvy as some of the board members at URS Greiner were during the Bay Bridge design competition in 1997; just as savvy as the Japanese investors were in 1982 on the bullet train.
Between October 29 2001 and early 2002, Lockheed-Martin insiders traded almost 3,000,000 shares of self-issued penny stock for over $158 million. Then, in early 2002 as Senator Costa's high-speed rail bill was gaining speed in the California state legislature, the same kind of self-issued penny shares deal began with URS Greiner. This corporation is one of the high-speed rail systems projected vendors in California, and is currently a subcontractor to Parsons-Brinkerhoff, the high-speed train system's project manager. Insiders at URS issued and sold close to 1,700,000 shares of penny stock and made somewhere over $48 million while the high-speed rail bill was going through. Of that amount, Richard Blum's company, Blum Capital Partners, cashed in over 1.3 million shares for close to $37 million
Perhaps this is only coincidental, as perhaps is the fact that Lockheed-Martin skyrocketed from $53 a share to $71 a share while the state and federal legislation was proceeding through the federal and state legislative processes. Perhaps, there were other factors involved in the stock spikes.
David Townsend, a longtime political campaign consultant and former legislative staff member, is handling the public outreach for the high-speed rail project. I asked him whether he thought that such a system had a chance of ever coming into being given California's perpetual budget shortfalls. Townsend said that it could "but it would have to be a public-private partnership."
(Sure, the public funds the process while the privateers play the market and profit.) Townsend couldn't imagine all the particulars of the scenario he was outlining and said: "You should talk to Mehdi. He'll have some ideas, I'm sure. You'll like him, Richard; he's a straight-shooter." If by straight shooting, Townsend meant unerring, I couldn't have agreed more fully.
When I contacted Morshed with my findings about the stocks and questioned him about his hand in drafting the legislation, Morshed wouldn't comment. Neither would Oakland Mayor Jerry Brown, former Governor Gray Davis, or lobbyist John Foran. Governor Schwarzenegger was busy with his emergency bond measure and his flacks referred me to his website when I asked about his transportation policies.
In the back of the California High Speed Rail Authority's final Business Plan, under the Board of Advisors and Financial Plan sections, all the usual players are present. On the Board of Advisors is Norman Mineta, former vice-president of special projects for Lockheed-Martin, the company who acquired Transrapid International in the fall of 2000. Mineta is currently the U.S. Secretary of Transportation. Among the subcontractors for the Financial Plan is Nossaman, Guthner, Knox and Elliott, the lobbying group headed by John Foran.
At present, the high-speed rail project is awaiting the release of its draft EIR/EIS statement, said to be arriving in January, which then must be approved by the Federal Railroad Administration. In addition, the federal funding base must be approved with a reauthorization by Congress, which is currently considering it.
Whether or not this high-speed train ever rolls down a track in California seems hardly the issue. The political process attending it has produced some stunning multi-million dollar profits, and as Bill Wiggins, Jerry Brown's former labor advisor told me, "The profit is never in the solution, it's always in the process. Show me a good process, and I'll show you a money maker."
Richard Trainor is an investigative reporter living in Eugene, Oregon. He can be reached at: email@example.com