Friday, June 10, 2011

William Grindley's Brief Note #1: No More Funding for HSR After This

The overarching theme of these seven notes which will appear in this blog, starting with #1 here, is 

HSR Finances and Why They Fail. 

This is the first of a series of seven short notes on the financial basis of High-Speed Rail in California.  It's written by William Grindley and William Warren, both financial experts with years of experience in both the public and private sector in executive positions. 

What's also important here is that these notes, in draft form, first were vetted by over 50 financial experts in the Bay Area.   These notes are the result of continuing research work done by Grindley and his team on the HSR finances.

I should say at this point that these authors have nothing personal to lose or gain regarding high-speed rail, except that which all other Californians will lose, in the form of large amounts of wasted taxes that should be dedicated to important problems that this state faces. 

 At the beginning of Grindley's efforts, many of his colleagues had no awareness of high-speed rail in California, which, until this year, has managed to stay under the radar.  The screwing up and political shenanigans of the CHSRA have been going on for decades, but most people, until recently, didn't know or care.  That goes even for the voters who supported the project in 2008.

Anyhow, here we will post this series of Brief Notes, one at a time, as a separate series of blog entries.

You can find all of William Grindley and his team's papers on this web site:

What's #1 about?  There will be no more federal funds for the California high-speed rail project beyond what is already available.  That means, they have about $3 billion of federal funds, to be matched with CA Bond funds, so that they can start laying some track in the Central Valley. . . . and then run out of funds.  Those tracks will be useless except for Amtrak, which doesn't need more tracks there.

The easiest way to understand this issue is to appreciate that the Republicans won the House of Representatives and now control the budgeting.  They oppose high-speed rail.  Hence, any future HSR fund requests by the Democrats will be strongly opposed by the Republicans, who are even going after the slashing of the Amtrak budget.  This is all about passenger rail which, while not defunct in the US, is certainly a niche market in the transit industries. 

Then you should ask, if they can't get enough money to finish this project, why start it?

Brief Note #1 – June 6th 2011

From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six subsequent Briefing Papers. Available at

Finding: On May 2nd the Peer Review Group said the Authority “. . will soon need assurance of more federal funding.” and “. . private sector funding will be difficult to secure unless the public sector funding is available and reliable..” A week later the LAO’s report noted that the availability of additional funding “. . necessary to complete the project is highly uncertain.”1 And on May 11th, the Authority’s CEO said that without a Federal commitment, the project would not attract private investors”2

Background: Thirty months after Prop1A, only $3.3Billion of Federal grants is available to be matched with up to an equal amount of California’s GO bonds. Given that the project’s designers assumed at least $18Billion of ‘free’ Federal grants to ‘jump start’ the project, what is the potential for further Federal funds?3

While the DOT still has some yet un-obligated high-speed rail (HSR) grant funds from the FY2009 ARRA program, this March the President agreed to ‘zero out’ new HSR funds for the present fiscal year (FY2011). And the House Budget Committee has vowed to eliminate funding in FY 2012. Then on May 4th, the President submitted the “Transportation Opportunities Act” requesting $37.6Billion over the next six years to build new high-performance rail.4 This is part of his $53Billion vision to connect 80% of Americans by high-performance rail.

Unfortunately for that vision, the submission is in a budget category commonly called Pay-Go. This means the Administration is required to either show where new revenues come from to provide the $37.6Billion, or where they intend to cut existing programs’ spending to fund the vision. No such documentation accompanied the $37.6Billion request.

Conclusions: Today, there is no reliable source of where over 70% of the construction costs’ funds will come from. Public transportation proponents agree there is little to no chance of gaining new Federal project monies for high-speed rail until at least the close of 2017; a year after even a re-elected Obama Administration leaves office.

With the near certainty that there will be no new Federal monies for six or more years, and a gap in Federal funds of at least five times what the project has in hand, it seems prudent to seek other funds prior to starting construction in 2012, or cut the losses to the State’s fiscal balance until a clear demonstration of both financial sources and operating sustainability.


1. Letter from Chair Will Kempton to CEO Roelof Van Ark; May 2nd 2011. 8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

2. CEO Roelof Van Ark; CA Assembly hearing on high-speed rail; May 11th 2011, minute 59 of YouTube recording.

3. California High Speed Rail Authority, Report to the Legislature, December 2009; page 93

4. Section 24602 (a), Network Development Program; Transportation Opportunities Act; pg. 12. This six year capital budget covers FY2012 through 2017.
See: 8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

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