The California High-Speed Rail Authority Broke the Law.
Kings County and Some Farmers Caught It.
Now a Judge Is Restoring Accountability to the Taxpayers.
The California High-Speed Rail Authority stretched credibility with its analysis of the capability of its bullet train to achieve certain travel times required under Proposition 1A (the November 2008 statewide ballot measure authorizing the state to borrow $10 billion by selling bonds to investors).
California Streets and Highway Code Section 2704.09 (implemented by voters as Proposition 1A) states that “The high-speed train system to be constructed pursuant to this chapter shall be designed to achieve the following characteristics: (a) Electric trains that are capable of sustained maximum revenue operating speeds of no less than 200 miles per hour. (b) Maximum nonstop service travel times for each corridor that shall not exceed the following: (1) San Francisco-Los Angeles Union Station: two hours, 40 minutes. (2) Oakland-Los Angeles Union Station: two hours, 40 minutes. (3) San Francisco-San Jose: 30 minutes…”
Californians tend to have an optimistic vision of the future, whether it is a dream of a cleaner planet, a dream of personal wealth, or a dream of leaving a symbol of human achievement and advancement for future generations. At one time or another, your vision of a better California life in the future may have included high-speed trains zipping between major cities.
It’s always fascinating watching videos of high-speed trains in Europe or Japan – for example, see this video of a French train built by Alstom achieving 357 mph in 2007. (Alstom is the #19 donor on the Top-40 Donors to Campaign to Convince California Voters to Borrow $10 Billion to Start Building High-Speed Rail.) Some Californians have seen such trains or even ridden them in person: for example, former Assemblywoman (and current candidate for California Board of Equalization) Fiona Ma of San Francisco was a member of a California legislative delegation that went to France, and she reportedly was the only American on that French train that reached 357 mph. (The rest of the delegation – Assembly Speaker Fabian Nunez and Assemblymen John Laird, Joe Coto, Mike Duvall, and Bob Huff – met instead with a French transportation official.)
Why can’t we have a high-speed train in California?
Well, the problem with dreams is finding a way to pay for them. And at this time, under the current state leadership, under current financial realities, under current planning and projection models, the California High-Speed Rail project is destined to be The Debacle to End All Debacles.
What is the Purpose of the California High-Speed Rail Scam Web Site?
This web site is an attempt to consolidate history and information about California’s High-Speed Rail into one web site, in order to show how this wildly-disorganized project about to launch in the middle of San Joaquin Valley farm country could bankrupt the state and burden our next generations of Californians with unbelievable debt.
If you dig into the public documents related to this project over the past 20 years, you’ll see a common theme: no one is sure how much it will cost, who will pay for it, where it will go, and who and how many people will use it. This is a problem that a variety of independent government agencies, private organizations, and experienced journalists have pointed out repeatedly. Since Proposition 1A passed with 52.7% of the vote in November 2008, many more Californians have realized this project is going to be a “boondoggle,” a “scam,” or a “debacle.” But it continues on, for the reasons outlined below.
The Spring 2012 Environmental Law and Policy Journal of the University of California, Davis School of Law summarized the mundane but difficult tasks behind a reasonably-objective evaluation of the California High-Speed Rail dream:
However, planning a new high-speed rail line requires balancing the immediate environmental damage that is necessary to construct the rail system, and the environmental impacts of continued operation against the anticipated long-term benefits of emission reduction and traffic decongestion. The policy decision to pursue high-speed rail also includes economic assessment of the project’s commercial viability, which depends on modeling forecasts of ridership demand and construction costs beyond simply the environmental impact costs.
A profitable operation of the California High-Speed Rail will require people to see VALUE in paying their own money to ride it. As they like to say in San Francisco, Americans tend to think as selfish individuals rather than as a social collective. Regular people make decisions primarily based on consideration of their own time, interests, and money instead of seeking what’s collectively good for the people and the planet.
The variables involved in predicting the future of High-Speed Rail are almost impossible to quantify, but it does not take much imagination to see it as a fiscal disaster for taxpayers. For example, will ordinary Californians ride the High-Speed Rail if Southwest Airlines responds to competition by cutting ticket prices? If airport governing boards such as the San Francisco Airport Commission and the Los Angeles World Airports Board of Commissioners react to competition from the High-Speed Rail by cutting fees and renegotiating contracts, than government entities will compete against each other and lose even more money, with taxpayers as the unwilling “investors” picking up the bill.
Why Is This Incredibly Costly Megaproject Continuing Despite So Much Uncertainty?
Certain politicians, for unknown psychological reasons, continue to force this project forward as a “vision” or as some sort of New Deal jobs program equivalent to building the Hoover Dam. But many elected officials originally supportive of the High-Speed Rail have become disillusioned or even disgusted with the project.
Willing to aid and abet the remaining supportive politicians are powerful special interest groups that see California High-Speed Rail as a way to make a lot of money off of taxpayers, who are required to give money to the Government to fund its operations.
There is one section of this web site that reveals the core of the California High-Speed Rail Scam: the list of the top-40 contributors to the campaign to pass Proposition 1A in November 2008. That statewide ballot measure authorized the State of California to borrow $10 billion (actually $9.95 billion) by selling bonds to Wall Street investors, thus providing seed money to start construction of a high-speed rail system estimated at that time to be $45 billion.
Of these 40 top donors,
38 37 are corporate entities in the transportation infrastructure or construction industry (some of which have since merged) or construction unions. Some people call this group the “transportation-industrial complex,” hearkening back 50 years to the “military-industrial complex” that President Eisenhower warned Americans to beware. And yes, Pacific Gas & Electric is very involved in construction and may end up providing electricity for High-Speed Rail. (See Cronyism at Any Speed: California Utilities, in Search of Taxpayer Windfall, Lobby for High Speed Rail.)
(Of the other
two three donors, one was a Political Action Committee that transferred money leftover from a bond campaign eight years earlier – a noteworthy story in itself; another was the California Nurses Association; a third was a philanthropist not normally associated with causes supported by 78.4% of voters in San Francisco.)
One other economic segment is going to make a lot of money off of the California High-Speed Rail: the financial services industry. How?
Wall Street Investors Won’t Lend Money to California Because They Like Trains. They Buy Bonds Because They Want Taxpayer-Funded Interest Payments, Paid for by You
A Senate Appropriations Committee legislative analysis for Assembly Bill 3034 in 2008 provided some estimates of how much interest California taxpayers would have to pay for borrowing $9.95 billion for the High-Speed Rail project through bond sales.
The Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century is the only bond act currently qualified to appear on the November 2008 statewide ballot. If all $9.95 billion worth of G.O. bonds are issued and sold as 30-year bonds at an average interest rate of 5%, the total principal and interest cost over this period is $19.4 billion, or $647 million of debt service per year for 30 years.
…if the term of bond maturity is extended from 30 years to 40 years, assuming 5 percent interest and 3 percent inflation. Annual General Fund debt service payments (assuming they are level over the term) would be $580 million for 40 years, rather than $647 million annually for a 30 year term, but the total debt service would be $23.195 billion for 40 year bonds, rather than $19.418 billion for 30 year bonds. These figures are in current dollars.
It’s likely that many of the California voters who supported Proposition 1A in the November 2008 election did not understand that they were giving permission for their government to borrow money from Wall Street investors by selling bonds. In addition, financial service corporations will receive fees for the bond transactions. Taxpayers will pay back the original amount borrowed (the “principal”) along with interest payments to the investors. Bonds are NOT free money!
According to the California State Treasurer’s annual State of California Debt Affordability Report (released in October 2012), as of June 30, 2012, the state had $73 billion in outstanding debt from general obligation bond sales and another $33 billion of bond sales authorized by voters but not yet sold. The state’s total bond debt was $135 billion. California’s ratio of debt service to General Fund revenues was 7.9 percent in 2011-12, and its ratio of debt to various other factors placed California well above the indebtedness median of the ten most populous states. (Texas has the lowest debt ratios; California is about the same as Illinois; only New York is worse.) For bond ratings, California has the lowest state rating from Fitch and S&P and the second-lowest state rating from Moody’s.
And this state debt does not include the many billions of dollars of debt incurred by California local governments. That debt includes bonds sold for construction programs at K-12 school districts and community college districts. Did you know that in the November 2012 election, voters in California authorized 90 educational districts to borrow a total of $13.3 billion for construction by selling bonds to investors? (No, you didn’t: powerful people don’t want you to know.)
Who is going to pay back all this money, plus the principal and interest on the billions borrowed for High-Speed Rail?
Where’s the Confidence of the “Private Sector” and Local Governments for Investing in the High-Speed Rail? There Isn’t Any.
They say that in the Gold Rush, the people who made the money were the ones who sold pickaxes, supplies, and services: NOT the people who sought the gold.
Notice the big corporations and the One Percent aren’t investing in the operation of the High-Speed Rail. They don’t want to be part of that risk. Instead, they’re selling supplies (trains, rail, etc.) and professional services (legal, lobbying, public relations, design, engineering, etc.)
Section 2704.07 of the California Streets and Highways Code, as added through Proposition 1A, states that “The authority shall pursue and obtain other private and public funds, including, but not limited to, federal funds, funds from revenue bonds, and local funds, to augment the proceeds of this chapter.” And Section 8(e) of Assembly Bill 3034 (Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century), signed into law in 2008, states that “The high-speed passenger train bond funds are intended to encourage the federal government and the private sector to make a significant contribution toward the construction of the high-speed train system.”
So far the encouragement doesn’t seem to be working. The November 2008 California High-Speed Train Business Plan offered some theories:
Private Funding/Public-Private Partnerships (P3): Interest from the private sector is strong and diverse. The Authority, assuming normalized market conditions, is targeting $6.5-$7.5 billion in potential P3 funding for the Los Angeles/Anaheim to San Francisco section of the project. Major sources of investment are likely to include private equity funds, pension funds, new infrastructure funds and corporate operational partners.
In the spring of 2008, the Authority issued a Request for Expressions of Interest (RFEI) as an effort to gauge private sector interest in participating in a P3 arrangement for the highspeed train project. Interest was strong, especially among construction firms, system and equipment providers, financial institutions and operators.
However, most private firms responding made it clear that they would need both financial and political commitments from state officials that government would share the risks to their participation. The amount of private funding and timing of private sector participation will be a reflection of how risky the private sector perceives this project overall.
In other words, if taxpayers pay for it and take the financial risk, corporations will invest in it! Sounds familiar; hasn’t the United States experienced enough of this kind of “investment” strategy?
In October 2008, the California High-Speed Rail Authority issued a “Report of Responses to the Request For Expressions of Interest For Private Participation in the Development of a High-Speed Train System in California,” as ”intended to assist the Authority in these efforts as they relate to the availability, magnitude, and timing of private funds, and the public-private partnership (P3) structure and project delivery mechanisms that the Authority should consider.” The report includes these observations about potential private investment:
In general, construction firms focused on strong financial support from the public sector for the HST Project as their primary criteria for participation. Funding from state and federal sources and environmental clearance were noted as the most important criteria by over 90 percent of contractors. As a result of possible future payment risks, construction firms are also likely to pay close attention to ridership and revenue forecasts and risk sharing arrangements; three-fourths of respondents indicated these criteria as key factors for participation…Echoing the sentiments of construction firms, systems and equipment providers also identified a strong financial commitment from the public sector as their most important criteria for participation. Funding from state and federal sources was identified by all equipment providers as important to their involvement in the Project.
In contrast to equipment providers and contractors, financial institutions focused on concession terms and risk sharing arrangements as their most important criteria for participation in the Project. Four out of five firms selected project cost, fare-setting capability, contractual concerns, concession terms and risk sharing as vital criteria for participation. Public funding was identified by three out of the five participants as important to their participation.
Public funding requirements from both state and federal sources and potential concession terms were of equal importance to all system operators. The five operators were also in agreement as they each cited risk-sharing arrangements, fare-setting capability, and ridership and revenue forecasts as vital criteria for participation. They were also in unanimous agreement of the top six participation requirements stated previously: state funding, federal funding, ridership and revenue forecasts, risk sharing, local funding and fare setting. These firms were also strong advocates of local funding and environmental clearance.
Several respondents…indicated that investments subject to repayment from public dollars are seen as substantially less risky than those subject to ridership risk.
Over 90 percent of RFEI respondents cited a strong commitment of public funds from federal, state and/or local sources as a prerequisite for their participation and continued interest in the HST Project. Nearly all RFEI respondents noted that they would be unlikely to commit the resources necessary to participate in a procurement of this magnitude until after strong financial backing for the Project was provided by the public sector.
Respondents also commented on the overall level of public funding needed. Several RFEI respondents communicated that public funding on the order of 60 to 70 percent of total Project costs would be expected for the HST Project. One respondent cited an expectation that was slightly higher, at 80 to 85 percent. Several respondents advocated for public moneies paying for much of the up front, civil works expenditures, with private money to follow later in the Project. It was clear from RFEI responses that only after a strong commitment of public dollars to ensure Project viability would there be serious interest in private investment in the HST Project.
Significant time and financial resources are necessary in order for private firms to remain committed to participation in the Project, and these resources are unlikely to materialize without a strong message from the public sector that the HST Project will receive the support necessary from the public sector to make the Project a reality.
In other words, hand over the cash, taxpayers, and then we’ll talk! Disillusioned about this? These companies are in business to make money, not to save the planet.
Regarding the local government investment, why don’t we see cities on the rail line from San Francisco through Fresno and Bakersfield to Los Angeles asking their citizens to vote on borrowing money for this project through bond sales (and paying back the principal and interest through taxes)? Isn’t this rail line going to make a lot of money, with lots of potential revenue for municipalities on the line?
Instead, San Francisco is deliberating over investing tax money in local transportation concerns, such as spending up to $500 million for infrastructure to encourage bicycle use. In November 2008, 78.4% of voters in San Francisco approved bond sales for High-Speed Rail that were only approved by 52.7% of voters statewide. Where’s the local investment?