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Funding questions loom over high-speed rail's new plan

California High-Speed Rail Authority's new business plan struggles to find funding sources for first usable stretch of $68-billion line

Seeking to comply with a legislative requirement, the agency charged with building California's high-speed-rail system on Monday released an updated business plan that offers upgraded ridership projections, revised construction plans and very few answers on the critical question of how the system will be funded.

The business plan, which was a requirement of the appropriation bill the state legislature passed in 2012, serves as an upgrade to a plan that the rail authority submitted two years ago. Though the 2012 plan alleviated some concerns in Palo Alto and along the Peninsula by scrapping the highly contentious proposal for a four-track system (with Caltrain on the outside tracks and high-speed rail inside) in favor of a more palatable two-track one (in which the two agencies share the same tracks on the Peninsula), the document was criticized by local officials, watchdogs and one Sacramento County judge for failing to disclose how the California High-Speed Rail Authority plans to pay for the first usable stretch of the $68-billion line. Known as the "initial operating section," this portion of the line would stretch from Merced to San Fernando Valley and would cost about $31 billion, according to the rail authority's new estimate.

The new plan, like prior ones, leaves this question of how to pay for the segment largely open. Though it keeps the price estimate for the full line at $68 billion -- same as in the 2012 plan -- and introduces a new funding mechanism supported by Gov. Jerry Brown, it fails to account for more than $20 billion in funding that the first segment needs and doesn't yet have.

So far, the rail authority has roughly $6 billion committed to constructing the first portion of the line, a 29-mile stretch between Madera and Fresno that would not have any actual trains. The agency's failure to identify funding sources for the usable segment prompted Judge Michael Kenny to conclude in November that the rail authority acted in violation of Proposition 1A, the $9.95 billion bond voters approved for the rail system in 2008. Kenny ordered that the rail authority rescind its business plan. In a separate ruling, he also denied the rail authority's request to validate $8 billion in bond expenditures, saying in his ruling that he was not convinced by the process in which state officials vetted the rail authority's request for funding.

The rail authority's business plan is unlikely to satisfy Kenny's concern. Though it includes upgraded methodology for calculating ridership and revenue projections and remains optimistic about the rail line's financial viability, it provides only the faintest indication of where the $20 billion would come from. The agency, which in late January appealed Kenny's ruling, is preparing to use $3.3 billion in committed federal funds and about $7 billion in Proposition 1A funds, of which $4.2 million has already been allocated. This leaves a $21-billion budget hole that the rail authority hopes to fill with private investments that have yet to materialize and proceeds from the state's cap-and-trade program, which are included in Brown's proposed budget but have yet to be approved by the legislature.

Even if the cap-and-trade proceeds are ultimately allocated for the rail project, the $250 million that Brown proposed to dedicate to high-speed rail would come nowhere near filling the chasm between the how much the project has for the first segment and how much it would need. Yet the new business plan argues that the ongoing commitment of these funds is "important in several key respects, both for enhanced transportation and the reduction of greenhouse gas emissions through electrified train service."

The rail authority also expects this new funding source to bring in private investment, a key component of all prior business plans. The new plan states that the commitment of state funding will "allow the Authority to leverage both public and private financing and, depending on the level of commitment, potentially finance the completion of the IOS."

The 2014 business plan also includes an expanded section on risk and new methodology for calculating risk through a simulation tool called the Monte Carlo risk analysis. The technique used in the 2014 plan, is "fundamentally different from that used in 2012, and represents a much more comprehensive methodology." The result, however, is pretty much the same. Once again, the plan argues that the system will be financially viable and "will not require an operating subsidy, consistent with other systems around the world."

The ridership forecast estimates that 10.4 million passengers will ride the rail system in 2025 under the "medium" scenario and that the number will gradually increase over the years, reaching 38.5 million riders in 2060. The business plan notes that the updated numbers how a higher ridership than previously projected, "on average, approximately 25 percent higher in the Medium scenario."

Projected farebox revenues follow a similarly upward track, gradually rising from $801 million in 2025 to $7.9 billion in 2050. Overall revenues are lower in this plan than in the 2012 version largely because riders are expected to take shorter trips than was previously projected. Even so, the plan predicts that the system would be financially feasible.

In a statement, rail authority CEO Jeff Morales said the new plan maintains the "core elements" of the 2012 version -- "a better, faster and cheaper high-speed rail that forms the backbone of a statewide rail modernization program."

"The updated forecasts and analyses continue to show that, as the system develops over time, it will generate financial value through positive net operating cash flow and attract private investment," Morales said.

The plan is still in draft form. Anyone wishing to comment on the document can fill out an online form on the business plan website or email 2014businessplancomments@hsr.ca.gov.

Comments

 +   Like this comment
Posted by Paul Losch
a resident of Community Center
on Feb 11, 2014 at 10:52 am

When I was a little boy at Harvard Business School, my professors taught us to distinguish between the spending decision and the financing decision.

Pony and cart.

High Speed Rail, as it has been conceived for California, is a bad idea. Too many people are spending time trying to get funding for what is a bad spending decision.


 +   Like this comment
Posted by B. Bush
a resident of College Terrace
on Feb 11, 2014 at 2:39 pm

Good Day to all, my sincere and utmost admiration for a tough decision by the court. But in a time where ineffectiveness and tax payers being misled is the norm, someone had to take a stance. Please don't take this note as condemnation of the High Speed Rail system, in fact I support it 100%, but the management need is very apparent, i.e. Provide the transparency necessary to get this project moving and back on track, no punt intended.

Best Regard and Good Luck

B Bush


 +   Like this comment
Posted by Unaffordable
a resident of Old Palo Alto
on Feb 11, 2014 at 5:33 pm

The state cannot afford HSR and Jerry Brown of all people should know it.

Homeowners cannot afford to have their property seized by the state without market value compensation, but Eminent Domain allows a nearly bankrupt state to seize homes and land along railroad lines without ANY compensation. Imagine making mortgage payments on a house that does not exist, while you pay rent elsewhere,

This HSR thing is out of control, the public has been deceived, and yet the band plays on.

Shameful! This is like sleazy Depression-Era politics.


 +   Like this comment
Posted by Jen
a resident of Charleston Gardens
on Feb 11, 2014 at 8:45 pm

The 'new and improved!' cost estimate, $68B or $67B, a carefully calculated number $1B less than the previous estimate is laughable. If the CA HSR Authority has deluded themselves that they think they can project the cost of a huge project like this that will span decades with $1B precision, they really are idiots. The 'new' business plan is probably little more than the business plan from 2011 with a few new pictures and charts, which one of the HSR Authority board members called a 'marketing brochure' a few years ago because they really had no firm facts or numbers to put in it. In other words, it was all made up. Chances are, the most recent business plan with glowing ridership projections and revenues are made up too.

And once again; who, where, or what are these 'private' investors, funding sources, and investments that the HSR Authority keeps trotting out as their fiscal savior? No private entity will invest a dime in this turd on rails without guarantees (backed by your tax dollars) of significant return. The guaranteed return on 'investment' is the only way HSR can attract initial investors, or insiders, to attract any truly outside investments without tax payers gurantees.

CA HSR has always been a fraud, and nothing seems different now than in 2008.


This bit below was posted back in 2011 Web Link , As far as I'm concerned, nothing has changed.

$99 billion divided by about 37 million residents equals about $2676 of wealth extracted from every person in the state. Multiply that by at least 2 or 3 to account for interest that must be paid to service this debt, and you end up with a realistic estimate of just how much the CA High Speed Rail project will cost every citizen in this state, around $8000. That of course assumes that the cost of the project caps at $99B. Considering that the CA HSR generated that $98B estimate, the odds are high that that figure is grossly underestimated.

That money will either come from higher taxes, or from reduced services. Do you like your neighborhood schools, depend on services provided by the state, enjoy state parks for recreation, think decently supported public services (including emergency services) are an important part of your quality of life in California? With CA HSR, you have a choice; pay for a train to nowhere via significant lost state services, about $7B to $10B each year for the next 30 years, or pay more in taxes for decades to come.

With no money to build it, the odds of the cost spiraling out of sight high, no riders to pay for it, NO private investors on the horizon, and a 'business plan' that is really nothing more than a marketing brochure to manage it, and yet it persists. If this isn't a greasy pork project, I don't know what is. Mr. Gordon, do the right thing; terminate the funding for the CA HSR Authority, and disband the CA HSR Authority before they have the opportunity to squander another billion on their fantasy train to nowhere.


 +   Like this comment
Posted by Jerry Underdal
a resident of Barron Park
on Feb 12, 2014 at 12:29 pm

Jerry Underdal is a registered user.

Eminent domain can compel sale of property, it does not allow confiscation of it. People's homes or property cannot be seized by the government for any purpose, railroad construction included, without compensation. There are plenty of legitimate reasons to be wary of the use of eminent domain but uncompensated confiscation is not one of them.


 +   Like this comment
Posted by Monstro
a resident of Downtown North
on Feb 13, 2014 at 12:08 pm

The PA NIMBYs are so selfish and short-sighted that they want to punish the entire state of California to keep a few extra trains from running each day through their community. Just like when you guys voted down BART down the Peninsula back in 1962, you are making a stupid mistaken.

Thanks heavens the voters of the good State of California can still override your foolishness.


 +   Like this comment
Posted by not Monstro
a resident of Midtown
on Feb 13, 2014 at 1:03 pm

What do you want to bet "Monstro" doesn't live near the tracks or have kids at Paly.


 +   Like this comment
Posted by Monstrosity
a resident of Palo Alto High School
on Feb 13, 2014 at 3:24 pm

Good point, not monstro: kids at Paly, especially in the buildings near the tracks, have a hard time hearing their teachers or each other when they CalTrains go by, or, God forbid, a freight train. It is especially unnerving during any test-taking, most importantly Finals. The shaking in addition to the noise intensifies the negative experience.

Even if HSR is relatively quiet, there is still the added shaking, the sound of the wheels on the track, the horns, the bells at Churchill and Alma, and the sound of the train cutting through the air to add to the current noise overload. This intrusion should NEVER be allowed near schools!


 +   Like this comment
Posted by Maren
a resident of Charleston Meadows
on Feb 13, 2014 at 8:35 pm

Monstrosity, if it really is that disruptive to the kids, they should have probably not picked a school next to one of the busiest rail lines in the country. You really expect kids at paly to deserve everyones sympathy?


 +   Like this comment
Posted by Billius
a resident of Downtown North
on Feb 13, 2014 at 8:39 pm

Perhaps Monstro can elaborate just how HSR will benefit the entire state of California?

One thing is for sure, the entire state of California will end up holding the bag when it comes to paying for HSR. No Federal dollars, no private investors, and insufficient projected ridership revenues to even operate the train. When the final bill comes due, it is very likely that HSR will cost several hundred billion dollars, which divided by 37M citizens in CA, is many thousands of dollars of wealth extracted from every persons pocket in this state. Furthermore, much, perhaps most, of the cost to build HSR will be owed to out of state, or even foreign companies with the expertise to actually build a usable HSR system. That expertise simply does not exist in California. All the locomotives and passenger cars will also probably be built out of state, perhaps over seas, again, that manufacturing capability does not exist in California that I am aware of.

So, since most of the construction cost, several hundred billion dollars, will quickly leave the state, and California will be left paying the tab, all I see is a massive debt, and dollars that could have been spent boosting the CA economy, being spent elsewhere. Sounds like a real winner.


 +   Like this comment
Posted by Even Gavin Newsomr!
a resident of Downtown North
on Feb 15, 2014 at 5:44 pm

Even the Lt Governor is against the outrageous expense that California cannot possibly afford to build the HSR. Like most democrats, he feels that the time and money should be spent productively, not wasted on something that will never pay for itself.


 +   Like this comment
Posted by Pat Markevitch
a resident of Downtown North
on Feb 16, 2014 at 1:52 pm

Monstro, voters in Santa Clara county, including Palo Alto were not allowed to vote on BART back in the 1960's. There was only 5 counties included in the original plan for a rapid transit system between the East Bay and San Francisco. San Mateo county pulled out of the agreement prior to the election followed by Marin County.


 +   Like this comment
Posted by resident 1
a resident of Adobe-Meadows
on Feb 16, 2014 at 2:24 pm

In the land of eminent domain a person can be paid the tax assessed value - not the market value of the land. If someone has owned a property for 30 Years - like the farmers in central valley - the tax assessed value is very low. The differential to market value is pure profit to the state. The tax assessed value usually only changes when the land has transferred ownership.

HSR is really a transfer of wealth in the form of property and taxes assessed to finance the effort. As in all efforts to get people to give up personal property to live in multiple unit dwellings the transfer of wealth has occurred. There would be a relatively small number of entities that own vast amounts of property. And then you would be taxed to support this HSR building. That is what people are arguing about.


 +   Like this comment
Posted by resident 1
a resident of Adobe-Meadows
on Feb 16, 2014 at 5:49 pm

I don't get Monstro - the people who are suing are the people in the central valley. As they should - their land that has been in their family is being taken from them. It is a transfer of wealth - there will never be a train.
I agree on BART - there should be a complete loop around the bay - for our part on the 280 side of the city so we are connected to San Mateo, RWC, MP, LA, LAH, MV, and Cupertino to San Jose.
The east coast is pushing for a mag-lev train in conjunction with Japan - check it out on Google. They will be using existing rights of way. That is the best idea for starters and federal funding.


 +   Like this comment
Posted by Bye Jerry
a resident of Adobe-Meadows
on Feb 17, 2014 at 5:24 pm

Now that Gavin Newsom has publicly come out opposed to CA HSR, he could probably successfully challenge Jerry Brown for the Governors office. Jerry's sole purpose in Sacramento these days is funding CA HSR at any cost (yours really), and his delta water pipe project, again at your expense. The Republicans plan to hammer at Jerry on the fiscal foolishness of both projects, and Jerry has left himself no way out believing that both are crucial to solidify his legacy in California. Since the Republicans really have no viable candidate for Governor, Gavin could probably pick up quite a bit of Republican voters solely for his opposition to Jerry's main prize, HSR.


 +   Like this comment
Posted by Craig Laughton
a resident of College Terrace
on Feb 17, 2014 at 5:34 pm

>Gavin could probably pick up quite a bit of Republican voters solely for his opposition to Jerry's main prize, HSR.

Possibly so. His problem was that he, along with unanimous support of the Palo Alto city council, voted to support this turkey.

I did not, from the beginning, because it did not pencil on so many levels. Which is to say, "I told you so!" My own ego would not allow me to say less.


 +   Like this comment
Posted by Crescent Park Dad
a resident of Crescent Park
on Feb 18, 2014 at 7:12 pm

We can reasonably assume that any GOP candidate for governor will be crushed.

Would you rather have pro-HSR Jerry Brown or (now) anti-HSR Gavin Newsom? For me, I'd like to see Newsom say that he would take a conservative approach on all things fiscal and not go off and spend the projected budget surplus beyond what was promised (increased school funding).


 +   Like this comment
Posted by resident 1
a resident of Adobe-Meadows
on Feb 24, 2014 at 12:15 pm

You all need to go to Google - East Coast Mag-Lev train - there are numerous entries on this and Youtube videos. The people behind this are previous governors, senators, etc. If High Speed rail is going to happen anywhere it will be on the east coast. If you look at some of the comments about our California version they are really caustic - they think the initial HSR should be LA to San Diego.
I think the only reason that we here are for this is that we are suppose to get some funding for an electrified Caltrain.
We don't need an electrified system - we need some new locomotives - they are out there. We need to maintain the current tracks so that we can also move freight. We need BART on the 280 side of town to enhance the choices we have to reduce the number of cars on the road here and now.


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