Monday, June 11, 2012

California State Legislature Assemblywoman Diane Harkey

Quick Background: Assemblywoman Harkey, and State Senator Doug LaMalfa, have been the most outspoken critical legislators in Sacramento, proposing several pieces of legisation with the intention of terminating the California High-Speed Rail Project. 

Being in the Republican minority (in both Houses), their voices falls on deaf ears among the majority Democrats who, pressured by Governor Jerry Brown, continue to support a project that has lost majority support among the voters, and continues to be exposed as totally mismanaged and fraudulent, as well as illegal on many counts. 

Here are Ms. Harkey's responses to an article that recently appeared in several northern California newspapers. What the Assemblywoman is doing here is providing a context for the high-speed rail project, and that is the state's deplorable economy.  

The Democratic "folk wisdom" holds that projects such as HSR will pump resources, especially from outside of the state such as the DOT's promise of $3.3 billion, into the state economy, thereby reducing deficit and debt, as well as creating jobs.  That could very well be the case if those dollars were devoted to infrastructure repair and upgrades, including urban and regional public mass transit reorganization and improvement.

However, for a project of such low merit -- so unnecessary and so dazzlingly expensive -- all the available dollars will only scratch the surface of those enormous costs of this project, which will go unfinished.  And that results in an enormous waste which will accomplish none of the purported goals and intentions. 

The Other Side - Rebuttal to High-Speed Rail: By The Numbers
As Published in the San Jose Mercury News and Contra Costa Times on 06/08/2012
By Assemblywoman Diane Harkey
June 11, 2012

The article states, "Plans for a high-speed rail system snaking up the spine of California have the project pegged as the state's costliest ever. Lots of numbers follow a price tag that big." However, the numbers have a few caveats and are questionable as noted below:

$69 billion: Project's projected cost over decades. This number is fairy dust to make the plan more palatable.  The new business plan states that for full build out it would require $91.5 billion and that is without the LA to Anaheim route which was recently added and definitely will include eminent domain and other issues.

$91.4 billion: Proposed 2012-13 state budget. Don't forget that the budget is minus the realignment funds of $5-6 billion that were part of the General Fund prior to 2011-12 budget (the "catch and release" program for state prisoners). As an aside, CCPOA (the prison guards) are hiring more people not less at the state level, even though the prison count is down due to realignment or relieving overcrowding issues by sending state prisoners to the county jails.

$15.7 billion: Estimated state budget deficit. This figure does not include the state's structural budget deficit of $35 billion that is cash flow fudging via borrowing and deferring school funding as well as internal borrowing from over 700 state accounts.  In addition, our long term bond debt of $90 billion has grown from $57 billion since 2007.  Our bankers are demanding trigger cuts because we have nowhere left to go for current cash flow.  We borrowed $6-7 billion in Revenue Anticipation Notes (short-term bonds) that must show 1.8 x cash flow coverage plus be paid off annually before renewing.  This is why the triggers were demanded, not because the Legislature or the Governor is volunteering to reduce state spending.

$36 million: Project's projected 2012-13 budget cost. What will it be next year? If we build a stranded project and wait for a few years to continue will the strip in the Central Valley pay for itself? Elusive cap and trade revenues cannot be used as by law they are to be used to reduce greenhouse gas (GHG) emissions by 2020. The revised 4th business plan calls for build-out by 2038. In the meantime, and if the ridership is less than projected, high-speed rail will be a net GHG emitter.

$750 million: Annual amount, on average, that the project could cost the state budget over 30 years.   Assumes we will only be indebted for the $9.95 voter approved bond debt.  What if we need to borrow more or ridership is not what the plan assumes? The Legislative Analyst claims we could see operating costs of $1 billion or more per year.

11,000: Number of public school teachers' current salaries that amount could pay a year - more with operating costs.

$3.3 billion: Federal grants tagged for project's construction - earmarked for the Central Valley and must be spent by September 2017, and matched by state funds of $2.7 billion.  Estimates are that the state will have to burn through $3.5 million per day (holidays and weekends included) to meet the Fed deadline. Is it worth nuking CEQA and setting a precedent?  Why not ask the President to give us a break on the $10 billion we owe for unemployment insurance that will eventually increase the premium on remaining employers? 

$3.7 billion: Amount Gov. Jerry Brown is asking lawmakers to spend in state bonds to start the overall project.  I believe the number is $2.7 billion. [Plus another billion for the "bookends."]

$1.3 billion: Amount of debt payments, including interest, the state would be on the hook for if the project got the ax today.  So we need to continue until build out? What would the cost be if we had to access unconventional debt, if we can't get bonds because we are tapped out as we are today? Does anyone really believe the rest of the nation will pick up the tab for California to build a train? 

$9.5 billion: State taxpayer burden if funding dries up after first segment of track is built. This assumes that the CHSRA can access all of the debt for Phase 1. Bond restrictions require not more than 50% of the cost for each corridor or useable segment thereof  to be Prop 1A bond money, so where are the remaking funds coming from? Also does this figure account for the loss to the state in jobs and human services for the Central Valley Agricultural community, and other businesses that will be decimated during construction?

$22.5 billion: Amount in debt the state would be responsible for if entire project is built. If there is one thing we can all agree upon it is that the CHSRA lacks credibility at this juncture.  Why should we accept these numbers when we don't have an accurate ridership study, true cost analysis or future funding sources lined up?

$42 billion: Highest amount of additional federal funding being hoped for. This lacks credibility.

$13 billion: Amount of private investments being hoped for.  Which we will not see if we begin in the Central Valley.

520: Length, in miles, of line from San Francisco to Los Angeles as originally approved by voters. Voters approved 800 miles from San Francisco to San Diego, for a cost of $45 billion.

Sunday, June 10, 2012

We don't need no edukatin'. We have got high-speed rail comin'.

•The California budget is a zero-sum game. Every dollar spent on HSR is not available for education.

•Education produces the state's "seed corn" for its economy. Lousy Education = Lousy Economy.

•Any macro-economist will tell you that the most important natural resource a nation or state can have is its educated population.  Without that, it's a third-world nation.   

•There are open jobs available in California but an insufficiently qualified work-force to fill those jobs.  What's missing? Education.  There are no new jobs for the un-educated or under-educated, un-trained or under-trained.

•This state once had the best -- the very best -- public education system in the US, from pre-K to graduate school.  That education system provided the brain-power/labor-force for Silicon Valley.  Silicon Valley has been California's economic engine.  You don't need to read the rest of this syllogism; you already know it. 

•Governor Brown is telling all the voters in California who put him into office, "Screw your future!  I'm only interested in the next four quarters."  That's his "hard decision." 

•The HSR advocates have it backwards. They contend that a high-speed train will stimulate a dynamic economy. A high-speed rail system will not create a dynamic economy.  Only an already dynamic economy can afford the luxury of a high-speed train.  See Spain as the latest failed economy with a high-speed train. 

•Silicon Valley is a great example of a dynamic economy.  Any "Silicon Valley" is only possible with a highly educated population. Therefore. . . . 

Wednesday, June 6, 2012

Release of California Rail Bonds may be ruled illegal: by Mark Powell



An Argument Against the California Legislature’s Release of $2.7 Billion in Proposition 1A Rail Bonds

As a safeguard against what might be termed a “stranded investment”, the Californian High Speed Rail Authority is required to submit to the legislature (and other parties) a “detailed funding plan for the corridor or usable segment thereof”, for which they are seeking state bond funds [Note 1].

AB 3034 section 2704.01 paragraphs (d) through (g) define important terms:
(d) “High-speed train” means a passenger train capable of sustained revenue operating speeds of at least 200 miles per hour where conditions permit those speeds.
(e) “High-speed train system” means a system with high-speed trains and includes, but is not limited to, the following components: right-of-way, track, power system, rolling stock, stations, and
associated facilities.
(f) “Corridor” means a portion of the high-speed train system as described in Section 2704.04.
(g) “Usable segment” means a portion of a corridor that includes at least two stations.

In their Draft 1012 Business Plan released in November 2011 the Authority proposed building an “Initial Construction Segment” (ICS) in the Central Valley using roughly $3.3 billion in federal funds and $2.7 billion in state rail bonds.  The proposed ICS was not to be electrified and there was to be no high-speed rolling stock.  In other words, it would not be ready for high-speed train service when completed. Opponents of high-speed rail saw the ICS as not meeting the requirements of a “usable segment” and the Authority seemed to implicitly agree with their opponents when releasing the Revised 2012 Business Plan the following April.  That plan deleted all references to an “Initial Construction Segment” and deleted the acronym ICS from the list of acronyms.  Instead the new plan referred to building “the First Construction of the Initial Operating Segment” in the Central Valley.

The Authority does have an adequate funding plan for their “First Construction of the Initial Operating Segment”.  It is guaranteed to be adequate because it involves building non-electrified track from approximately 1 mile north of Madera (probably on the BNSF alignment) south towards Bakersfield until they run out of money [Note 2]. However, it will be argued by opponents of HSR that the Authority needs a complete funding plan for its proposed Initial Operating Segment (IOS) extending from Merced to San Fernando (the first “useable segment”) and it will be argued that the current plan which relies on $21 billion in yet unauthorized federal support [Note 3], or Cap and Trade Funds as a “backstop” [Note 4] to the hoped for federal support, is certainly not adequate.  The opponent’s argument for the funding plan’s inadequacy is bolstered by the fact that neither the US Senate or House of Representatives has budgeted any funds for HSR for the foreseeable future and the California Legislative Analyst’s Office is on record stating that use of Cap and Trade fees would be inappropriate for a variety of reasons.

The federal government also seems concerned with making a stranded investment and federal grant wording  tries to protect federal taxpayers by stipulating that whatever is built with federal funds must have  “operational independence” [ Note 5]. Federal grant FR-HSR-0009-10-01-00 and its four subsequent amendments along with Federal grant FR-HSR-0118-12-01-00 [Note 6] provide funding for what they refer to as “the Project”.   The grant agreements define the Project as stretching south from approximately 1 mile north of Madera towards Bakersfield and the grant agreements mandate that $108 million of the federal grants be kept in an “Interim Use Reserve” to be used to connect the new stretch of track with existing rail infrastructure so that it would have “operational independence” if funds were not forthcoming to complete the Initial Operating Section (from Merced to San Fernando).  This requirement for an Interim Use Reserve seems to argue that not even the federal government sees the Authority has having a credible funding plan to complete the Initial Operating Segment.

A closer look at Proposition 1A funding plan requirements as well as federal funding plan requirements sheds more light on the weakness of the Authority’s funding plan.

Per Section 2704.08(c)(2) the funding plan required by Prop 1A for a “corridor” or “usable segment” is to certify to the following:
(A) The corridor, or usable segment thereof, in which the authority is proposing to invest bond proceeds.
(B) A description of the expected terms and conditions associated with any lease agreement or franchise agreement proposed to be entered into by the authority and any other party for the construction or operation of passenger train service along the corridor or usable segment thereof.
(C) The estimated full cost of constructing the corridor or usable segment thereof, including an estimate of cost escalation during construction and appropriate reserves for contingencies.
(D) The sources of all funds to be invested in the corridor, or usable segment thereof, and the anticipated time of receipt of those funds based on expected commitments, authorizations, agreements,
allocations, or other means.
(E) The projected ridership and operating revenue estimate based on projected high-speed passenger train operations on the corridor or usable segment.
(F) All known or foreseeable risks associated with the construction and operation of high-speed passenger train service along the corridor or usable segment thereof and the process and actions the authority will undertake to manage those risks.
(G) Construction of the corridor or usable segment thereof can be completed as proposed in the plan.
(H) The corridor or usable segment thereof would be suitable and ready for high-speed train operation.
(I) One or more passenger service providers can begin using the tracks or stations for passenger train service.
(J) The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.
(K) The authority has completed all necessary project level environmental clearances necessary to proceed to construction.

Opponents will argue that a funding plan can only apply to a project that completes a “corridor” or “useable segment” (A) that will be “suitable and ready for high-speed train operation” (H).  The Initial Operating Segment from Merced to San Fernando could possibly meet these requirements, but the “First Construction of the Initial Operating Segment” or the “Project”, as this work is termed in the Federal Grants, cannot.  It can be argued that the current funding plan is lacking in other areas, but these two seem most critical.

In short, the executive branch of the federal government is anxious to give the Authority funds needed to build the Central Valley “Project”.  However, the law behind Proposition 1A, AB 3034, seems to dis-allow using bond proceeds for construction of the Project as defined in the Grant Agreements.  It can be argued that AB 3034 only allows for using bond proceeds to build a “corridor” or “useable segment” such as the complete Initial Operating Segment (Merced to San Fernando) and it can be argued the Authority’s funding plan for this work is grossly inadequate.

The California Legislature appears ready to release rail bonds to begin construction of “the Project” in the Central Valley in spite of the non-compliance of the Authority’s funding plan with the legislature’s own law, AB 3034.  These same lawmakers have skirted laws in the past. [Note 8] Specifically, AB 3034 mandated a grossly prejudicial wording for the November 2008 rail bond initiative ballot Title and Summary and disallowed the Attorney General’s Office from doing its duty to correct the prejudicial language as called for by the Political Reform Act of 1974.   The Attorney General in 2008, now our Governor and chief proponent of high speed rail, conspired with the legislature and allowed the lawlessness to proceed.  However, a suit was brought after the passage of “the Safe, Reliable, High-Speed Passenger Train Bond Act for the 21st Century” and the court ruled [Note 9] that the legislature did not have the right to disregard the law and dictate the Ballot Title and Summary for Proposition 1A.  Californians who now, knowing the truth about high-speed rail, oppose it by a strong margin [Note 10] can only hope that someone steps forward and successfully challenges the Legislature’s next act of lawlessness – release of the rail bonds in spite of a grossly adequate funding plan.

Factual statements made in this article are footnoted below and can be accessed by clicking on the link embedded in the article:

Note 1:  Assembly Bill 3034, section 2704.08.(c) (1)
Note 2:  Grant Agreement FR-HSR-0118-12-01-00, Attachment 3, pages 11-12
Note 3:  Revised 2012 Business Plan, Exhibit 7-10
Note 4:  Revised 2012 Business Plan, page 7-1
Note 5:  Federal grant FR-HSR-0009-10-01-00 as amended, Attachment 3A, Background and Key Assumptions section
Note 6: Federal grant FR-HSR-0009-10-01-00 and its four subsequent amendments along with Federal Grant FR-HSR-0118-12-01-00
Note 8:  High Speed Railroading of the Public article
Note 9:  Howard Jarvis Taxpayers Association versus Bowen
Note 10:  USC Dornsife/Los Angeles Times survey taken June 2, 2012