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HSR Compilation Report July 2011

HSR Compilation Report July 2011

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Published by Aaron Fukuda
A review of information on the California High Speed Rail Authority provided by Assemblywoman Harkey.
A review of information on the California High Speed Rail Authority provided by Assemblywoman Harkey.

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Published by: Aaron Fukuda on Jul 25, 2011
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A Compilation Report on issues, concerns and actions July 2011

Is High Speed Rail Coming Through Your Town Soon?

By: Assemblywoman Diane Harkey
73rd AD

The Legislature Lacks Information because the High Speed Rail Authority Lacks Details
•Legislature suffers from a lack of good information that is needed to make decisions about the appropriation of funds for the high-speed rail project. Given the very large size of this project, its extended construction timeline, and the novelty of this type of project for California, it is reasonable that some key project decisions must be based on the best available analysis and assumptions rather than hard numbers. (HSR at Critical Junction; LAO Pg 11)
– The December 2009 business plan of the High-Speed Rail Authority (Authority) lacks detail regarding how it proposes to finance the high-speed rail network (program) and mitigate associated risks. – The Authority …Anticipates needing $17 billion to $19 billion from the federal government. ..it will need $10 billion to $12 billion in private investment…the Authority has not received any commitments from private investors. Additionally, a revenue guarantee, without which the private investors are unlikely to participate, lacks specifics. (State Auditor; pg 17)

Cost Estimates - Outdated & Likely Understated
“the …project is likely to cost much more than the $43 billion originally estimated for the first phase from San Francisco to Anaheim. …For example, based on the state’s agreement with FRA, the cost of the initial construction segment between Fresno and Bakersfield alone is now estimated to be $4.5 billion, which is 57 % higher. ..If the cost of building the entire Phase 1 system were to grow as much as the revised HSRA estimate for the 100-mile segment discussed above, construction would cost about $67 billion.” (LAO)

Vague CHSRA Funding Plans
Private investors …will require a revenue guarantee. The business plan… indicates the Authority plans to rely on them to supply $10 billion to $12 billion, primarily backed by projected future operating surpluses…50 parties who responded to the spring 2008 request and others [state that] private investors will require minimum revenue guarantee from a public entity in the event that ridership projections, and thus operating surplus projections, are not met. This viewpoint is also expressed in the 2009 CHSRA business plan. (State Auditor Pg22) The Authority’s spending plan includes almost $12 billion in exclusively federal and state funds through 2013, more than 2.5 times what is now available. Before it may commit funds from Prop 1A for construction, state law requires that the CHSRA: 1) have estimates of the full cost of construction; 2) identifies the sources of all funds; 3) the anticipated time of receipt based on commitments or assurances from potential funding sources; 4) verified by Director of the Department of Finance. (State Auditor; pg 21)

No State Subsidies?
Potential Need for Operating Subsidies Could Lead to General Fund Cost Pressures. The CHSRA’s business plan indicates that the initial costs of operating a high-speed rail system may exceed $1 billion per year.
– Proposition 1A requires HSRA to submit a plan which certifies that, once complete, service will not require a local, state, or federal operating subsidy prior to appropriation of the $9 billion in state bond funds for capital costs. – The state could discover during development or after construction …that the system needs [an operating] subsidy. If the train does not attract the number of riders projected, operating revenues would likely be less than expected. This situation could place an additional financial pressure on the state’s General Fund. (HSR at Critical Juncture; LAO; Pg 7-8)

That a revenue guarantee might violate state law - CHSRA consultant indicated that the revenue guarantee would not be used as an operating subsidy but a limited-term contingent liability used to support up-front capital investment…Therefore, a guarantee could increase costs to the public [or General Fund. No] indication of who would be responsible or… cost. (State Auditor pg 22-23)

Can You Define Subsidy?
• Section 2704.08 (J) in Assembly Bill 3034 of August 2008 states, “The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.”

However, there is confusion over the definition…
• “initial operating years of any project...especially in one in which the initial phase cannot serve primary markets as planned, will incur early operating losses…As noted in our November report, the definition of operating subsidy is unclear and urgently needs further clarification by the Legislature.” (CHSRA Peer Review Committee Report to CHSRA May 2, 2011)

CHSRA on Compliance Issues
No system in place to track expenditures funded by Proposition 1A to ensure compliance with statutory limitations on administrative and preconstruction task costs… As Authority staff began spending funds from Proposition 1A in 2009, we expected them to have defined the types of costs …and to have established systems for recording, reporting, and planning for these costs, but that was not the case. CHSRA…needs to develop some systems to track and report on the use of Recovery Act funds. Because of its $2.25 billion federal award, the Authority will be required to comply with both the Recovery Act reporting requirements…and with the readiness requirements of the California Recovery Task Force. (State Auditor ; pg. 28-29)

HSR Ridership Calculations Don’t Add Up
We can say that the sheer number of constraints placed on the model parameters makes this model system unreliable for predicting the shares of the competing modes (air, train, automobile and HSR) in the CHSR corridor. While there are advanced econometric techniques that could alleviate some of the biases we have found, it is likely that application of these techniques would lead to larger standard errors than are reported. ..the true confidence bands around the estimates from these models …are probably wide enough to include demand scenarios where HSR will lose substantial amounts of money as well as those where it will make a healthy profit. (ITS Berkley, pg 9-10)

The Central Valley & Agri-Cultural Genocide
Federal Funds Deadlines and Requirements Leading to Risky Decisions $2.3 B in ARRA Fed Funds originally came with strict deadlines that have proven to be difficult for the state to meet. Requirements that funds be spent building an initial section of the train line in the Central Valley would have insufficient ridership and revenues would be insufficient to operate the system without a substantial subsidy. Central Valley was chosen because there was little public opposition. The September 2011 deadline for environmental clearance work has been dropped and meeting the 2017 deadline for spending all ARRA funds looks problematic Significant local opposition has arisen; tracks could affect agricultural operations. (HSR at Critical Juncture, LAO; Pg 8-9)

Questioning the High Speed Rail Authority
Assemblywoman Harkey and Senator Lowenthal questioning the project & Authority •http://www.youtube.com/watch?v=5a9gROsdSlU&feature=related •http://www.youtube.com/user/derailhsr#p/u/51/9zabuRbLlew •http://www.youtube.com/user/derailhsr#p/u/55/nslMiQQm-gw •http://www.youtube.com/user/derailhsr#p/u/60/hnI4CYF0NK8 Legislative Analyst Office Report: High Speed Rail is at a Critical Juncture •http://www.lao.ca.gov/reports/2011/trns/high_speed_rail/high_speed_rail_051011.pdf The State Auditor’s Office Report on the High Speed Rail Authority •http://www.bsa.ca.gov/pdfs/reports/2009-106.pdf The Institute of Transportation Studies from The University of California, Berkeley Report Review of “Bay Area/California High-Speed Rail Ridership and Revenue Forecasting Study •http://www.its.berkeley.edu/publications/UCB/2010/RR/UCB-ITS-RR-2010-1.pdf

Media Reaction: Washington Post
• If federal high-speed rail investment makes sense at all, it's probably in the densely populated Northeast Corridor, where demand for passenger trains is highest. At the very least, California should have to fill in its project's economic and logistical blanks before any more money - from state taxpayers or the rest of us - is spent. – Washington Post

Media on Ridership
• Supposedly 39 million people will eagerly pay much more than an airfare in order to travel slower. Between 2008 and 2009, the projected cost increased from $33 billion to $42.6 billion. – Newsweek In 2010, Amtrak carried 29.1 million passengers for the entire year. That's about 4 percent of annual air travel (2010 estimate: 725 million passengers). – Washington Post The irony is that California has the highest rate of car-ownership in the country, if not the world. It also, despite years of neglect, has one of the best road networks anywhere—certainly leagues ahead of Japan’s. On top of that, it enjoys a highly competitive network of budget airlines serving its main cities. – The Economist

On Debt & Taxpayer Dollars
• “if I had to sell a pure • “We must examine and high speed rail bond, re-examine every that the uncertainties, possible way to save the (issues of) revenue taxpayer dollars” – stream…passenger Governor Jerry Brown volume…revenues were so unsettled that no investor would want to take that risk.” State Treasurer Bill Lockyer

But Other Countries Are Doing It

Japan, with the world’s leading system, illustrates the financial devastation that high-speed rail can produce. For 25 years, Japan borrowed to build a system serving the ideal rail corridor, nestled along a single coast with a population of more than 75 million people. Ridership was artificially increased by high gasoline prices and one of the highest highway tolls in the world. – National Review

Building trains is an immensely costly enterprise--not just financially costly, but environmentally and personally costly, as people and habitats are uprooted, and metal is tortured into rails and switches and cars. If you are going to install one, you should be reasonably certain that there will be people around with an interest in riding your train. After all, a train running mostly empty emits a lot of carbon. – The Atlantic

Media Coverage on the Subsidy Question
• But the rail authority’s analysis suggests that it will be unable to attract the minimum $10 billion in private funding it needs without a revenue or ridership guarantee. The Legislative Analyst’s Office says such a guarantee amounts to a promise of a subsidy if the project doesn’t meet expectations, and is thus illegal. – San Diego Union Tribune Ridership on a train traversing our sprawling state is unlikely to ever be high enough to be profitable without heavy, ongoing taxpayer subsidies. – Orange County Register It is dismaying that the federal government has offered $2.8 billion for the project, when even a cursory examination would show that the rail system cannot operate without huge continuing handouts from a state that has the largest budget deficit in the nation. – Oakland Tribune

LAO: Voter Packet with Corresponding AB 3034 Language (AB 3034 Passed in 2008 is the CHSRA Authorizing Legislation)
• Limitations “…. bond funds may be used to provide only up to one-half of the total cost of construction of each corridor or segment of a corridor. The measure requires the authority to seek private and other public funds to cover the remaining costs. The measure also limits the amount of bond funds that can be used to fund certain pre-construction and administrative activities.” Accountability and Oversight “… Specifically, the bond funds must be appropriated by the Legislature, and the State Auditor must periodically audit the use of the bond funds. In addition, the authority generally must submit to the Department of Finance and the Legislature a detailed funding plan for each corridor or segment of a corridor, before bond funds would be appropriated for that corridor or segment. The funding plans must also be reviewed by a committee whose members include financial experts and high-speed train experts. An updated funding plan is required to be submitted and approved by the Director of Finance before the authority can spend the bond funds, once appropriated.” Bond Costs “…If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of 30 years, the General Fund cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment …would be about $647 million per year.” Operating Costs “… When constructed, the high-speed train system will incur unknown ongoing maintenance and operation costs, probably in excess of $1 billion a year.”

High-Speed Rail: Dead and Loving It
Excerpts from: reason.com/blog by Tim Cavanaugh, June 7, 2011 Thanks to the wording of the law, the California High Speed Rail project now may die a quiet death. Last Wednesday, the California Senate voted to place the California High Speed Rail Authority (CHSRA, which is currently a standalone agency) under the authority of the state’s Business, Transportation and Housing Agency. The State Assembly passed a bill that would demote the CHSRA to an “advisory body” while shifting control of the project to a “Department of High-Speed Trains.” The creation of a brand new bureaucracy is ominous. But these complementary legislative moves, by a Democratic legislature under a Democratic governor, have all the characteristics of a facesaving admission that the Golden State’s high-speed rail project is either dead or in a persistent vegetative state…The Corcoran-Borden route was selected by the Federal Rail Authority specifically for the relative ease with which the state could roll over rusticated local landowners who lack the resources to mount a challenge like the one that has emerged on the wealthy San Francisco peninsula. The legislature has so far gone along with the Legislative Analyst’s recommendations, and those recommendations include scrapping Corcoran-Borden altogether. As if that’s not enough, it turns out we won’t always have Palmdale. That plan was scrapped in favor of a track going through the Mojave Desert and the Antelope Valley into Sylmar. Now the route may be switched back to the “Grapevine” again, after a report that the Antelope Valley route would require rebuilding of the California Aqueduct and/or altering a dam. Since 1996, the Golden State has managed to disappear a quarter of a billion dollars without laying any track. In a floor speech, Assemblywoman Diane L. Harkey (R-Dana Point) argues that even the new bureaucratic deep freeze is too good a fate for the misguided HSR project. Still, better a trickle of wasted money than a torrent.

Howard Jarvis Taxpayer’s Association: Court of Appeals rules that CA Legislature violated Political Reform Act over High Speed Rail
January 28, 2011 Sacramento --- Today, Howard Jarvis Taxpayers Association won a major victory on behalf of taxpayers as well as the integrity of the ballot process. In a 23-page published decision, the Court of Appeal ruled that the California Legislature violated the Political Reform Act, an initiative approved by the voters in 1974, when it dictated the contents of what is supposed to be objective material in the ballot pamphlet. “No longer can the California Legislature use the ballot pamphlet as biased advertising for its own pet ballot measures,” said Jon Coupal, President of Howard Jarvis Taxpayers Association. At issue in the legal action was the High Speed Train Bond Act of 2008, a measure sponsored and placed on the ballot by the Legislature. Rather than complying with the voterprescribed process of having the Attorney General prepare the ballot label, title and official summary, the Legislature hijacked the process and dictated the language that would appear in the ballot pamphlet. HJTA had alleged that the material was little more than a sales job on behalf of the bond. Coupal added “the Court’s ruling is a stinging rebuke of the California Legislature for manipulating voters by substituting the proponent’s advocacy for what is supposed to be a neutral summary by an impartial third party. Voters know that the arguments in the ballot pamphlet are advocacy, but they assume – wrongly, in this case – that the ballot label, title and official summary are objective. We are very pleased that the Court’s ruling demands that, in the future, only an objective party can prepare those portions of the ballot material which are currently recognized as being ‘official.’” While the Court’s ruling does not reverse the election on the High Speed Rail bonds, it does insure that the California Legislature cannot manipulate the process in the future. Tim Bittle, HJTA’s Director of Legal Affairs who argued the case before the Court, stated, “we have no doubt that, had the voters been presented with a truly impartial ballot description, the HSR bond would have gone down in defeat.” (The HSR bond barely passed with a 52.5-47.5 % vote). “But this ruling slams on the brakes to the future manipulation of the voters by what, up until now, had been an increasing practice by the California Legislature.” Jon Coupal added, “the timing of the ruling is important for taxpayers as the Governor and the Legislature are planning to place massive tax increases on the ballot in June. This ruling will help assure that the material presented to the voters as ‘official,’ is indeed objective and not merely advertising for tax increases.” The ruling also has the potential for affecting the two measure placed on the ballot by the Legislature relating to a Water Bond and Budgeting Reform Measure. To read the full text of the Court’s ruling, visit: http://www.courtinfo.ca.gov/opinions/documents/C060441.PDF.

• • • • • • • • • www.bsa.ca.gov www.lao.ca.gov www.asm.ca.gov/Harkey www.cc-hsr.org www.HighSpeedRailBoondoggle.com www.calhsr.com www.examiner.com/user-katham3 www.youtube.com/derailhsr Other references as noted in report

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