Wednesday, March 7, 2012

Paying through the nose of high-speed rail in California

As always the gloomy-Gus in these matters, I would say that things have taken a turn for the worse.  We've been talking, in these blog entries, about the changing agenda of the California HSR project in order to save their 'worthless hides.'  They are now reconceiving what they will do and how they will do it.

No longer content to take the available funding of $3.3 billion from the FRA and an additional $2.7 billion from the Prop. 1A bond funds, many transportation organizations and legislators state and national in California are seeking to milk this project for additional funds before all the money runs out and there may not be more.

This appears to be part of Governor Jerry Brown's strategy:

1. The 'Prime Objective' is to hang on to the FRA award of $3.3 billion, by starting the project in the Central Valley, the sooner the better. Right now that looks like early 2013.

2. Diversify the project by getting funds into the two population centers, the Bay Area and the LA Basin, where most of the voters are.

3. Diffusing the key criticisms levelled at the HSR project, such as the inordinately high costs, by claiming otherwise. And suggesting that by using existing rail corridors, costs will be far less.  Also, by supporting claims that the project, upon completion, will be profitable.

So, here's the situation.  The voters were lied to when they voted for this project.  The lying continues, from the Governor on down, about this project's merits and potential.  The costs are now exposed for how incredibly high they will be, and we can be assured they will be far higher than currently claimed, just based on experience elsewhere.  We already know, for example, that whatever we build will cost at least twice as much here in California than it did elsewhere in other countries.

We've been lied to about the numbers of jobs that will be created although that has become the federal government's major project justification. Furthermore, the government in Washington keeps promoting this "unfunded mandate" by pushing the project without paying for it.  Thereby leaving the ball in our court in California.  And, as we know, California's pants pockets are empty and inside out!

Now, whoops, we learn that the costs for spending state funds on this project are really outlandishly high.  Did I mention that this new revised business plan will seek further funding from Prop. 1A bond sources as well as local sources?  They may not seek those additional funds this year, but they sure will in upcoming years. RIght now, the deal is to get this damn thing started and not raise more hackles.

Other states that turned down the federal government's pathetically skimpy seed money to start HSR in those respective states, knew that those dollars would not be free; that the states themselves would be taxed to pay for the building and completion of the rail project. 

It will be like that in California as well, and here comes the accounting to explain how that will happen. Bond funds will cost at least two dollars for each dollar borrowed.  And those are borrowed bond funds the total costs of which will fall on the state's taxpayers.

The LAO office in Sacramento calculates over $700 million in annual costs to the state if the entire bond package of $9 billion were sold on the muni bond market.  That's money not going to schools, for example. 

Needless to say, the rail authority thinks that's money well spent. Why? Because they claim the railroad will be making lots of money.  Their spokesman, Lance Simments, says that it's an investment.

"Investments mean you have to spend some money, but you think you can get more back."

Some money?  A total of $18 billion from the state's treasury is more than "some!" What Mr. Simmens doesn't tell us is that some investments are more risky than others. He doesn't show us an "investment grade" business plan or financial plan. Like the Governor and the rest of these slick HSR salesmen, he doesn't have a clue to how this project gets paid for in order to become operational in order to make those promised profits.

Why doesn't Mr. Simmens also tell us that unless there is even one fully operational segment, there can be no revenues from the farebox whatsoever, much less any profits.  Building a little piece of the high-speed rail system is like being a little bit pregnant; either it's a fully built out operational system from LA to SF, or it isn't.

And, we already know that except for one or two exceptions, all high-speed rail projects worldwide are subsidized money losers.

Mr. Simmens, please feel free to invest your own, personal wealth on this snake-oil project, not ours, the taxpayers of California and the rest of the United States.

Borrowing costs for bullet train revised upward
California now will have to allot more than $700 million a year to repay billions of dollars to build the high-speed rail system's first phase, the nonpartisan legislative analyst's office finds.

By Ralph Vartabedian and Dan Weikel, Los Angeles Times
March 7, 2012

California's distressed state budget will have to allot more than $700 million each year to repay billions of dollars that officials plan to borrow to build the first phase of a proposed bullet train, a nonpartisan government research office has found.

The repayment projection by the state legislative analyst's office includes principal and interest on $9.95 billion in high-speed rail bonds approved by voters in 2008. The figure is higher than in the past — partly because of higher borrowing rates — and does not count millions of dollars already being paid annually on about $500 million in debt incurred to plan the system.

The new estimate is part of an analysis of a proposed statewide vote on the controversial $98.5-billion fast-train link between Los Angeles and the Bay Area. The bullet train's impact on the cash-strapped state general fund budget, which funds schools and other basic services, could be a major point of contention in the Legislature this year.

The California High Speed Rail Authority wants to use $2.7 billion of the bond money and $3.3 billion in federal grants to build a 130-mile section of track in the Central Valley. The entire first phase of the system between San Francisco and Anaheim will cost an estimated $98.5 billion. The cost of the full system, extending to San Diego and Sacramento, has not been calculated.

With the state short about $86 billion to finish the initial phase, the project has faced increasingly tough questions in Sacramento, even while Gov. Jerry Brown has reiterated his support.

"What about the economic benefits of the investment?" asked rail authority spokesman Lance Simmens. "Investments mean you have to spend some money, but you think you can get more back."

State Sen. Doug LaMalfa (R-Richvale) has joined forces with former Central Valley congressman George Radanovich to seek a new public vote on the project. The California secretary of state's office has yet to approve their petition for signature gathering. LaMalfa also has introduced a separate bill in the Senate to stop the project.

"The amount of bond debt service for this rail would more than offset the cuts to the University of California, California State University or Medi-Cal," LaMalfa said. "Look at all the things that are important to this state. People want a new vote."

A separate effort to put the bullet train back on the ballot, filed by Peter Seidel of Beverly Hills, was approved by the secretary of state in January. That measure is called the "No Train Please Act." Seidel could not be reached for comment.

"We really don't know who he is," said Jim Earp, a Sacramento-based labor leader who backed the bond measure in 2008 and sits on the California Transportation Commission. "I am not losing a lot of sleep over that one."

The initiatives need more than 807,000 valid signatures by June 21 to qualify the measures for the November ballot. Support for the project has eroded as questions about the rising cost and uncertain future financing have grown.

A recent Field Poll found that two-thirds of likely voters in the state want another chance to vote on the project and 59% would reject it because of the price tag. The results are similar to those of a public opinion survey done earlier this year by Probolsky Research of Newport Beach, which found that 62.4% of likely voters would reject the project if given the chance.

The 2008 ballot measure said borrowing $9.95 billion would cost the state $647 million annually. Now, the payments could reach $750 million annually, said analyst Brian Weatherford.

That would equal about a 9% increase to the state's current $8.5-billion annual bond debt service. State Treasurer Bill Lockyer believes there are "substantial unanswered questions about the project's funding, and until those questions are adequately answered, it's premature to take the plunge" of moving forward, a spokesman said.

Killing the project now could save the state $709 million annually if additional bond sales are stopped, the legislative analyst said in a letter to the state attorney general last week.
Copyright © 2012, Los Angeles Times

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