Saturday, October 22, 2011

Even The California High-Speed Rail Authority Has Given Up On Private Investments.

The rail authority is now saying that private investments -- which were promised to be one third of the total costs (with roughly one third from the federal government and one third from the state bonds, and some local in the mix)  -- won't be available until the train is operating.  That's not what the voters were led to believe when the passed the bond issue in 2008.  In fact, these fictitious promised private investors won't be hanging around even after the train gets operating (which may be never).  

The reason for that is that without profits from the train's operation, there won't be returns on investment (ROI).  However, there is one way to assure those investment returns, and that's with a government guarantee.  That means that the state will assure an investment return, even if the train loses money.  Who's on the hook for that?  The taxpayers, of course.

But, wait. There's more.  Proposition 1A  didn't guarantee a revenue return for investment, but, to the contrary, guaranteed that there would be no additional revenues from the state, regardless of their purpose(bond repayment; operational, maintenance and replacement costs).  In other words, government guaranteed returns on investment are illegal.  So, with no further state funding, and no train profits, this train should not proceed in its development.

Most HSR around the world don't make a profit, or let's call that a "surplus revenue." Train operations costs more than the farebox returns, even though those tickets are already the most expensive train tickets you can buy.  The CHSRA keeps assuring us that there will be so many riders (ridership numbers) that they will make a surplus revenue.  But, as we all know, they have been fudging those numbers since well before the 2008 elections, at which time they promised 117 million annual riders.

That ridership number is now down to 39 million annual riders and is still far too high. It's more than what the NorthEast Corridor HSR project anticipates, and that's the most population-dense region of the US.  And that's what the ridership number fights have been all about.  With too few riders in the forecast, there should be no train.  Be assured that the rail authority knows that and that's why they have been manipulating (lying about) these numbers.  They're still at it.  One projection is that for every ticket sold, the taxpayers would be on the hook for $1,100. That's PER TICKET!

One more point about financing.  The intended private financing was to be deployed in order to help build the train.  What's the point if those funds don't become available until after the train construction is complete?  Furthermore, in the original CHSRA promise, the revenue returns were also to cover the cost of the state bonds, which will require two dollars for every dollar borrowed.

The fact is, there's no way in hell that those bond repayment funds will be generated by this train, under the best of circumstances.  The tax payers will be on the hook (that's the best way I can express this) for not only for the repayment and interest on all $9 billion from the bonds, but for an additional large number of billions each year, forever.

The rail authority, by not telling us the truth about all this when the voters voted, committed "fraud on the voters," which itself is a legal term refering to a felony.  So, where is the FBI? 


Investors may not back bullet train until after it's running, agency says

In a letter to key legislators, the California High-Speed Rail Authority's acknowledgment about private funding again raises serious questions about how the $43-billion construction cost will be paid over the next decade.

By Ralph Vartabedian, Los Angeles Times
October 18, 2011

Investors may not be willing to back the state's bullet train project until after it begins operating, the California High-Speed Rail Authority said in a letter to key legislators, an acknowledgment that again raises serious questions about how the $43-billion construction cost will be paid over the next decade.

The letter gives a preview of the authority's upcoming business plan, a critical document that is supposed to address long-standing concerns that it lacks a credible blueprint for building and operating the system. Even supporters of the Southern California-to-San Francisco system have said the previous business plans were unrealistic in their estimates of construction costs and ridership numbers, among other things.

The business plan is expected to be filed Nov. 1; it and a related funding plan must be approved by the Legislature before the state can issue any of the $9 billion voters approved for the project in a 2008 bond measure. The Legislature has a 60-day window to approve the plans and then begin committing the state to bonds that would take several decades to pay off.

The authority wants to begin building an initial segment of the system from south of Chowchilla to north of Bakersfield, taking the trains through the Central Valley agriculture belt. That segment would cost about $6 billion, exactly what the authority would have in hand from past federal grants and matching bond funds.

Under the terms of federal grants that are providing about $3 billion in funding, the money has to be spent by 2017, putting the state on a tight schedule to approve the plan, obtain permits and build the initial segment.

Originally, the authority hoped to build the system based on three sources of funding: federal, state and private money. The letter by the authority, sent Friday, said for the first time that private investors are unlikely to put up cash before the system is operating.

Although it is not impossible to find some private money, the letter said "the authority is planning for a more likely market scenario in which private capital is attracted based on the revenues of the project once revenues are proven." The failure to attract private investors earlier is seen by many critics as evidence that the state's plan is excessively risky.

With private investors out of the picture and Congress now balking at providing any more than the existing funding, the upcoming business plan has to answer how it could hope to complete the project. One option appears to be a financing tool, being considered in a U.S. Senate subcommittee, in which the federal government would provide tax credits to holders of bonds used to help build the system, according to the authority's letter to the Legislature's budget committees.

Even if the Senate legislation were enacted, however, it would establish only a $50-billion program for all 50 states, leaving critics wondering about how realistic the authority is being in trying to raise the money. The authority could potentially seek to use the tax credit bonds to leverage its own bonds, securing more than three times the existing $9 billion through a financial engineering structure that would link the bond programs, according to the letter.

The financing tool, known as qualified tax credit bonds, would grant tax credits to the owners of the bonds in partial or full substitution for interest payments. That resulting loss of federal revenue flies in the face of the battle to reduce spending, a key reason that House Republicans have vowed to freeze expenditures on the rail project.

"The entire plan is wishful thinking," said Elizabeth Alexis, a co-founder of Californians Advocating Responsible Rail Development, a Bay Area group that has been critical of the authority's planning. "If it is a real possibility that the authority is not going to get more federal money in the future, then is there something different it should be doing with the money we do have? They don't answer that question."

But the state may be in a tough spot. Gov. Jerry Brown, who must give his own blessing to issue the bonds, is under pressure from the Obama administration to carry forward the existing plan to build a system that would send trains at up to 220 mph from Southern California to the Bay Area. Whether the Federal Railroad Administration would give Brown flexibility to change the plan or the route may be doubtful, political experts say.
Copyright © 2011, Los Angeles Times

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