California’s High-Speed Rail update:

The High-Speed Rail project continues to live despite being extremely short of resources and a dwindling fan base. The purpose of this article is to review what was promised in the past and where we stand today. First let’s look at a Congressional Committee meeting held this month.

Congressman Jeff Denham chaired the fourth high-speed rail public hearing by the federal Railroads, Pipelines, and Hazardous Materials Committee, in Sacramento on Thursday, August 9^th. The witnesses were primarily advocates of the project. Both witnesses and participants on the dais agreed there was not enough money to complete even Part 1 of Phase One of the rail project spanning from Los Angeles to San Francisco. Those participating as witnesses were High-Speed Rail CEO Brian Kelly, Peer Review Group Director Lou Thompson, The Honorable Calvin L. Scovel III, Inspector General, U.S. Department of Transportation Office of Inspector General and Robbie Hunter, President of the State Building and Construction Trades Council of California. State Senator Andy Vidak (R) was scheduled to attend as a witness but did not appear. He is not a fan of the project and is extremely knowledgeable about it. Here is a written statement he provided for the public hearing.

There were some old familiar faces sitting on the dais who served in California’s Senate who are now in the US Congress. Congressman Alan Lowenthal (D), Congressman Mark DeSaulnier (D) and Congressman Doug La Malfa (R) were present. Congresswoman Zoe Lofgren, the Democratic representative from San Jose was the strongest cheerleader of the program as was the Union Representative, Robbie Hunter, who was there as a witness supporting the project.

Jeff Denham and Doug LaMalfa spoke strongly against the project. LaMalfa reminded the audience that Lowenthal and DeSaulnier voted with him, against the first appropriation for the high-speed rail program in 2012.  While neither Lowenthal or DeSaulnier outright criticized the program as they had done in California, they weren’t offering full-throated support either and voiced innuendos that they still weren’t really fans of this project. It seemed as in the past years they support the concept of high-speed rail but they acknowledged then and now there are major issues. DeSaulnier said he had ridden high-speed rail all over Europe and Asia, he added not at taxpayers’ expense, and said the executives operating those systems were skeptical of California’s high-speed rail program. Lowenthal wanted to know what he could tell his constituents when they will see something since the project was developing from the Central Valley headed North instead of the original plan to go South. He noted that Southern California had the population density and they voted for the Proposition but weren’t getting a lot to show for it.

Lowenthal is right. To date the Rail Authority has allocated $76 million for the badly needed grade separation called Rosencrans/Marquerdt located in the city of Sante Fe Springs, in Los Angeles County and $18 million to help fund engineering and technical studies in order to aid station development in Los Angeles Union Station. This is only a small part of the $500 million that was promised to Southern California in 2012 as part of high-speed rail bookend funding. In contrast, all of the bookend funding plus more has been allocated to Caltrain in Northern California, exceeding $700 million in funding but of course the project is headed North first and Caltrain’s electrification project from San Francisco to San Jose and possibly Gilroy is a key element needed for high-speed rail.

Everybody agreed the lack of funding is the biggest challenge. But frankly no one seemed unduly concerned about that enormous elephant in the room. The theme seemed to be it cost a lot of money to do great things.

In general CEO Brian Kelly’s estimates for costs were low and future capital estimates were high.   Example he said cap & trade income is estimated at $750 million, the business plan shows a range of $500 to $750 million. (Page 41 of the business plan). Kelly also stated they have about $22 billion in capital but on page 42 on chart 3.5A it shows that without being able to finance future revenues, the best case scenario is a range of $15-18 billion which represents remaining money available to spend.

Peer Review Group short of the required 8 members:
There is a little known fact that the Peer Review Group only has 3 of the 8 required Peer Review members, missing are crucial financial and construction expertise. Therefore, opinions stated in peer review documents are not the product of a greatly debated “group think” but that of a small group headed by Director Lou Thompson, a longtime transit advocate. He has served faithfully for years, without pay as does all committee members, and has been the only spokesperson that appeared publicly for the group over the last few years. Unfortunately, there have been construction issues lately such as a bridge that had to be taken down due to structural issues and there is no peer review member with construction expertise in the current trio. Plus, there are other construction issues brewing now. The public has sent rail project concerns about serious issues such as high-voltage wires, inferior construction involving questionable curves which has the possibility of dire consequences. So far responses from the Rail Authority have been inadequate.

The financial expert is also missing though it doesn’t take a rocket scientist to figure out they don’t have the money to build even one viable section.

The public deserves a fully staffed Peer Review Group and the various government officials need to work on the appointments.

This begs the question as to why we have this under-staffed condition.  As one former state transportation official put it, ” But then why would the legislature or the governor staff an organization that would be so critical of the project and point out its shortcomings with such clarity and credibility?”

See page 113 of the business plan for their opinion of the high-speed rail project.

Update, 10/25/2018: Shortly after the publication of this article, the peer review group began adding members. They now have a total of six including someone knowledgeable about construction. Coincidence or a result of this information being made public no one knows for sure, however, the gap in membership had existed for years. This writer had also checked and discussed with extremely credible sources about the absence of members within days of publication of this article.

Trip Times:

During the Congressional meeting, there were misstatements about the required run time for the train. According to Prop 1A, it has to go 2 hours and forty minutes end to end from Los Angeles to San Francisco and there are other time requirements for other paired cities. This matters because if the Authority goes beyond 3 hours the train will not be competitive with airlines.

When asked about this CEO Brian Kelly admitted, they weren’t running non-stop trains, the fastest train was running with two stops. However, the run time calculations prepared on a computer program shows they could achieve it if it did run non-stop. The wording in Prop 1A in regard to time states that the train must be “designed to achieve” certain time requirements. That’s very deceptive wording. The public actually thought that an express train would run in 2 hours and forty minutes from end to end. But it is not true in real life because what was measured was a pure run-time calculation by a computer program.  See an article written by K. Hamilton February 2016 and scroll down to the travel time explanation.

Prop 1A also requires other city pairs with to meet certain time requirements and states very clearly it cannot exceed those times.  Example: between San Jose and San Francisco (TRANSBAY not 4^th and King). It cannot exceed a 30-minute travel time. At a Senate meeting, former CEO van Ark is on record saying it can’t make that time. Other computer runs have been published by Caltrain showing times higher than 30 minutes. See the Peer Review Letter explaining the skepticism and complication of travel time in their letter August 2013. They also explain a little more about “pure run times.” The pages are not numbered but on page 5 under Train Performance Calculation and Trip Time Analysis. In a nutshell, they don’t believe it’s very realistic.

By the way, another important reality is that it is highly unlikely that communities of any decent size will allow the train to run through their communities at break neck speeds and therefore as a result any real travel time will be increased. The Authority recognizes this and has made statements in the 2018 business plan acknowledging the problems with making the Prop 1A required travel times.

In the Authority’s Draft 2018 business plan they predicted 3 hours and 32 minutes but there were detailed notes in that draft business plan on page 118 that stated in the final business plan they will make the required time. Even in the final business plan on page 7, it states that the train will make the LA to San Francisco run in under 3 hours.

The purpose of the rest of this article is to update the public by category showing what was promised in the past and where things are now. First we have the vote.

• The original vote: The Proposition passed in November 2008- the public voted 52.6% vs. 47.4% to allow the high-speed rail project to go forward.   But reported in a poll May 2018, it’s a different story.
• While 48% still like the idea of high-speed rail, given the fact that “the cost has doubled to $77 billion and the schedule has stretched to 2033, just 31% want to continue to pay for it.   See the full story from the LA Times

Concerning cost estimates to build the project:
Before the vote in 2008- $32.785 billion to $33.625 billion

After the vote in 2009-$42.6 billion

Winter 2011-Draft business plan- $98 to $117 billion. (The honest plan)

April 2012-Final business plan-$68.4 billion (blended plan introduced)

2014 Business Plan-$68 billion

2016 Business Plan-$64 billion

2018 Business Plan mid-range-$77 billion- high range $97 billion. Peer Review group suggested at a Legislative meeting to estimate the high-end.

Other cost issues and a prediction:
Regarding costs, the project has had tremendous issues with acquiring the land necessary to start construction in a timely manner. They have paid millions to contractors in delay fees since the Authority was so far behind in acquiring key lands needed for construction and the contractors sat with newly purchased equipment waiting for the project to begin. See LA Times article on this subject.

The cost for the 119 miles has risen from $6 billion to what now could cost as much as $12.6 billion for this one area that is the least challenging. It is flat and mostly undeveloped but there has been strong and unexpected citizen opposition.

Ancient History 2012

Back in March 2012, before the vote to appropriate the first construction dollars, the Authority was questioned relentlessly by then Senator Simitian from the Bay Area and Senator Alan Lowenthal from Southern California.   Here’s Senator Simitian’s favorite quote which he repeated in many meetings that preceded the first appropriation vote.

“I sat at this same desk in January 2010 with Senator Lowenthal and raised these same issues with your predecessors. The core proposal is the primary expenditure is $6 billion dollars for a non-high-speed conventional system of 130 miles in a low ridership area with no guarantee of additional funding after the construction of that project. A project which has minimal independent utility which our legislative analyst’s office has characterized as very modest.” Now I wouldn’t be as anxious about the lack of a funding guarantee for the future if we were going to spend that six billion dollars on a “hot damn” great improvement to public transportation for California but we’re not. That’s the issue. And sprinkling a little dough in Northern California and sprinkling a little dough in Southern California and talking about plans for a decade hence, which may or may not be realized if the funding is or isn’t forthcoming. We’ve talked about the political uncertainty which is attached to that funding. It doesn’t obviate the concern that many of us have about 6 billion dollars for 130 miles of conventional rail in a low ridership area.”

Dan Richard was also at that State Senate meeting in 2012 and in answer to these concerns voiced by Senators Simitian and Alan Lowenthal, he said he would like to comment if the worst case happened and nothing but the first small segment was built. Richard admitted, “We don’t get a high-speed rail system, but we get a lot.”

Here’s how Dan Richard responded: (nearly verbatim)

Well, may I comment on this? Let me make 3 points here. First of all, it’s your last point, Senator [Lowenthal], that I’d respectfully disagree with when you say, “We’re stuck.” Because this goes back to the question of what are we exactly stuck with? And I think you heard commentary from the peer review group, that in their pending report they are going to address the question of what they consider to be the worst-case situation. So, let’s stare into the maw of the worst case. So, the administration’s request is that you allow us to access $2.7B worth of the body of the bond money, and also that you appropriate, as you must, the federal share. So, it’s $2.7B. It’s got – that carries a debt service on it, but we probably would not be using the whole $2.7B in this first year – we certainly would not – so it has whatever debt service level that it’s got. We’ve already heard, and Senator DeSaulnier asked the Leg Analyst to verify that the special funds that the administration sees as the repayment mechanism, given the terrible challenges you have in the general fund, are there and then the question that legitimately asked and needs to be addressed is about the sufficiency of those funds.

What you’d be left with, and by the way, excuse me, the administration’s request is also for the appropriation and accessing the bond funds for $720M for the connectivity dollars that were also in Prop 1A. In addition to that we have indicated to you that in the future we’d be coming forth seeking additional bond fund access to effectuate these MOUs we’ve signed in northern and southern CA.

So what we’re looking at right now, for those dollars is the acquisition of right-of-way that doesn’t exist today, in the fastest growing part of the state in the Central Valley, and that ROW will have a value of hundreds of millions of dollars and it’ll be harder and harder to achieve in the future. We are looking for the construction of the spinal segment of the America’s first true HSR system. But in the meantime, something that has immediate and dramatic benefits by mixed use with the existing and popular San Joaquin service taking at least an hour, perhaps 1.5 hours off the transit time up and down the CV between Bakersfield & Sacramento and into Oakland.

And, with further investments, that strengthens and improves the efficiency, the safety and the reliability of the existing rail networks there. And, that with the $720M of connectivity funds, funds absolutely essential projects in the south and the north, projects like the interregional connector which is the #1 priority of LA MTA. Projects like the improvements to Los Angeles to San Diego line, south of Anaheim, which is the second most traveled Amtrak service as you know. And, the leading towards the step of electrification of Caltrain, and money for VTA and money for ACE, and money for BART, etc. etc. So, when you say that’s what we’re stuck with, Senator, I have to differ. That is what we get.”

Richard admitted, “We don’t get a high-speed rail system, but we get a lot.”

Commentary:

So we get to spend a bunch of money on transit projects and purchase a right of way which by the way destroys family farms, dairies, homes and businesses but the public does not get what it voted for. Not so sure how much time is cut from the Amtrak ride. But one thing is sure without capital funding money materializing,  the public doesn’t get High-Speed Rail. Somehow this does not seem right. See below about future potential of grants.

At the May 15, 2018 Board Meeting in San Jose, after Dan Richard was confronted with the above Simitian quote  during the public comment period, he was compelled to respond. The speaker had challenged the lack of progress and the fact they were not building one usable segment that could run without a subsidy.

Richard responded toward the end of the meeting.  He said when he heard the Simitian quote  he had post-traumatic stress syndrome remembering that quote but then he went on to say how great the project was going. He quoted Nancy Pelosi that dirt was flying in the Central Valley, they were transforming Fresno and they were employing 2000 people.  They were not going to leave the Central Valley behind.  For his entire comment on youtube at the 1:10:38 minute marker.

Just to make it perfectly clear, the Central Valley was not selected because it needed the development the most or that it had the highest unemployment;  it was chosen because that’s what the feds directed. They didn’t want the money spread around the state. They wanted it to be spent primarily in one area.  It was with profound disappointment the day the board found out it had to be the Central Valley.  Bottom line besides the fact it was the least expensive segment to start,  it was the only segment that was far enough along in the environmental process to use the ARRA money and spend it by September 2017.

Outside grants and spending:
In the beginning the Authority thought the cost to build the project would be divided among 3 main players. One, the state, two the federal government and three, private investors.

According to the December 2009 Legislative Report here is where the funding would come from:

Federal grants $17-19 billion

State grants $9 billion

Local grants $4-5 billion

Private funding $10-12 billion

Total Range $40,000 ‐ $45,000

But so little of what was expected has materialized. The costs have more than doubled and other than the state’s $9.95 billion, the feds came up with only $2.553 billion from American Recovery and Reconstruction Grant (ARRA) and $929 million called the 2010 Grant. All the ARRA money has been spent and the 2010 grant can’t be accessed until the Authority uses state money to match the federal dollars spent through the ARRA program. Zero private investors have come forward saying they want to invest without a financial guarantee which is forbidden by state law.

Cap-and-trade funding remains but is considered volatile. Originally cap-and-trade was considered a back-stop and now it’s the only source of new funding. Currently the Rail Authority receives 25% of the income that is derived from the cap and trade auction. No one is ever sure what the number will be and some quarters near-to-nothing was collected.

According to the latest business plan as of 12/2017 they have collected $1.103 billion in revenue and with construction costs rising, it will take decades if at all, to be built.

According to the newest July 2018 Financial Executive Summary Report the Authority has spent a total of $4.612.1 billion. In addition, it has received some cap-and-trade dollars but not enough to make up the shortfall of federal and private investment funds. They only have funding from that source, 25% of the proceeds until 2030 and yet they estimated funding until 2050 plus with increasing funding as the years go on.  BTW, it is expected that in time that the revenue will drop from cap-and-trade as the polluters learn to be more environmentally aware. The Authority still says it wants to borrow money on that revenue but many including the Peer Review Group does not think the income is stable enough to do so without paying an enormous interest rate.

Highway funds could be hijacked:

There’s one more bit of hope, in the future the rail project could be the recipient of “transportation project” funding from the gasoline tax, primarily intended for roads. But the future for those funds are very much up in the air. The law will face a public vote in November to overturn the gas tax which narrowly passed last year. As it stands today, it could add up to 12 cents to each gallon of gas for every man and woman who drives a vehicle. Some of those funds could go to high-speed rail, permitted under the term transportation projects, whether they ever step foot on a high-speed rail train or not.

More than a million signatures have been gathered when only 500,000 were needed to ensure its place on the November Ballot. If overturned it will plug up another possible revenue stream for the high-speed rail project. See LA Times article.

What’s under construction now:
Right now, the Rail Authority is building 119 miles in the Central Valley, with Fresno as the beehive of activity. This is what they said they would do back in 2012 as the starting point, except the miles dropped from 130 originally estimated. That’s not an insignificant drop since the cost per mile according to the Peer Review Group is $129.8 million per mile.

The Authority says they are concentrating on building the Central Valley to the Silicon Valley. Here’s what the business plan says this segment will cost approximately $29.5 billion, that’s the mid-range price and $36.8 billion is the higher range cost without adding in the missing pieces and tunnels.

They do not have all the money to build this segment so they are postponing the tunneling of Pacheco Pass as well as the underground tunnel from 4^th and King to San Francisco Transbay until they can find funding sources. These costs are necessary to complete Bakersfield to San Francisco Transbay Terminal will conservatively cost more than $12 billion dollars so they aren’t off by a little.

Note: The bottom line result is the Central Valley will not connect to Northern California without the Pacheco Pass tunnels and can’t go to Transbay Terminal until this is funded. In addition, they suggest that they want to extend the electrification of Caltrain to Gilroy, a bit south of San Jose. That sounds good to lots of people in Gilroy especially since Caltrain is a commuter service but Union Pacific flat out owns that route and they have not agreed to allow such electrification of their track. They have been very stern in other areas of the state when their property wants to be used or shared by others.  San Francisco to San Jose is different. It was sold years ago to the Caltrain Board, the Joint Powers Board and as part of that deal Union Pacific only has vestige rights on the route.

Here’s a short NY Times article that also explains the current status of the train project.

The only issue I have with the NY Times article is it reports that the state has $28 billion to build the train. By the way, if the $28 billion was accurate, which it is not, it would be conservatively $50 billion short of a mid-range cost estimate.

To help explain the numbers first see exhibit 3.5 in the 2018 Business Plan on page 42 which is very easy to understand. It shows what dollars the Authority started with, what they spent and what’s left to spend on the first operating segment. It says they have a total of $12.618 billion. They’ve spent $4.062 billion and have $8.556 billion left. Below this sub-total line-is the fantasy area. It involves future revenue from the cap-and-trade program that is non-existent by statute beyond 2030 plus it estimates revenues as rising in later years.  Next the business plan projects financing future cap-and-trade revenues coming in from now, past 2030 and to year 2050 when there is no such agreement to extend cap-and-trade beyond 2030.

If you look at Exhibit 3.5A (without financing Cap-and-Trade) which is located below Exhibit 3.5 also on page 42 in the business plan, it is more honest because there is no program identified to finance cap-and-trade revenue and cap-and-trade only goes until 2030 not 2050. The idea of financing the cap-and-trade revenue stream also seems to be a long shot. The revenue is based on a percentage of unknown revenue. According to the Peer Review Group in its review of the business plan, “Cap and Trade is too volatile to support monetization by the private sector except at a high-risk premium.”

Bottom line the rail authority doesn’t have $28 billion, it’s more like $15 to $18 billion found in the right column under the remaining revenue on Exhibit 3.5A.

Where the rest of the money is coming from, nobody knows and in all likelihood, it will be in excess of $50 billion. In the new business plan, the new CEO, Brian Kelly states that he believes it is not unreasonable to expect a chunk of money to come from the federal government. But that is unreasonable since the federal government has not given large infrastructure grants in years and with the federal deficit the way it is, probably not any time in the future

Environmental Work and the expected start of the high-speed rail system:

Back several years ago just about all segments were supposed to have completed environmental planning by 2011/2012. See the Legislative Report published April 2010, page 9.

Today located on page 88 of the 2018 Business Plan, it shows that most segments will not complete the environmental reviews until 2019 and 2020.That’s eight years behind. Plus, there is no estimate at all for environmental work completion for San Diego and Sacramento which is called Phase 2.

Per the 2016 LAO report 2028 was optimistically projected for the start of the operation of the high-speed rail project.

According to the 2018 Business Plan, 2033 is the newest completion date estimate but that’s just for Phase 1- San Francisco to Los Angeles/Anaheim.

The Governor’s Race:

Let’s be frank. Any Democrat running for Governor is not going to talk against Jerry Brown’s project if they want union contributions for their campaign despite what reality shows.  This is the same stuck position the California legislature is in.   Brown says he wants the system to go forward and still has power and influence to push his agenda for a little while longer.

Though Democratic front leader Gavin Newsom had expressed his concern about the project years ago, he changed that stand as he became closer to primary time. Closer to the time he needs the Governor’s support and the labor union contributions.   Now he says this:

“We need to finish the first segment, from Bakersfield to San Francisco. Get that done and we might be able to draw private investment and more federal money to finish the line,” Newsom said. “I think we’ll see huge prosperity along the route between the Central Valley and the Silicon Valley. But we do need to prove ourselves. This was according to Record Searchlight in an article written by Thomas Elias.   In the same article Newsom says in answer to the question about a new statewide vote, “That train has left the station.” See Ralph Vartabedian’s article.

But here’s the fatal flaw with Newsom’s thinking, there is no money to complete even half of the first segment which spans from San Francisco to the Central Valley. The project is missing billions in construction capital so in reality the Central Valley and Silicon Valley segment (San Jose is not exactly the heart of Silicon Valley) will not connect to each other.

The Newest Lawsuit

Prop 1A intended a very strict standard, as the courts put it. Prop 1A intended to put the Authority in a “financial straitjacket”. That is, don’t build until you have the money to complete the first segment that is ready to operate for high-speed rail service. (once it is attached to other segments.) The intent was that conventional or commuter rail could use it while waiting for the final connections. The high-speed rail system was not supposed to operate independently segment by segment. It was supposed to connect all together.

Though the language in Prop 1A was very clear, the rail authority didn’t have all the money to build a segment, nor the ability to make it high-speed rail ready. How they got around it was passing a law called AB 1889 which changed, not clarified the law. In effect changing a voter initiative that allowed for early spending for part of a segment if it was used by a commuter rail system first. That thinking twisted the intent.

Note Prop 1A state bond spending has very specific requirements different than the federal grant money. The feds said you could use the grant money if it had a fall-back position, called “independent utility” for Amtrak should the high-speed rail project not work out. The state law was to build high-speed rail only and if what was built could be used for local rail. That is great, but it was to be specifically built and ready for high-speed rail. The state has no such fallback position with the spending of bond funds until AB 1889 was passed.

The court case with a hearing scheduled mid-October, is concerning the Legislature’s attempt to change Prop 1A’s clear language through the passage of legislation. One of the supporters of the suit is Quentin Kopp, former board chairman of the HSR Authority and more importantly the developer of essential high-speed rail foundation bills years ago while he was State Senator Kopp. Also, a former Judge, Mr. Kopp was a supporter of the concept of high-speed rail but clearly not in favor of what is being proposed today.

The issue concerning this lawsuit is about one of the protections found in Prop 1A which says that the Authority cannot begin to build a segment until they have all the funds to do so and when completed it is ready for high-speed train operations. It is dead clear in the Proposition, no need for clarification by the Legislature.

Stuart Flashman addresses this and other project issues in his 17-minute radio interview taped July 31, 2018.

Conclusion:

Challenges abound from every side. There is totally inadequate funding to build even the first half of the first segment, with nothing, no money at all on the horizon for heading south through the Tehachapi’s.

Ironically the 2018 business plan states this… “All of this is built upon a foundation of safety and security, risk assessment and quality regime.”   Some of the snafu’s already question this statement and nearly nothing is built.

This article doesn’t even address some of the technical issues such as inadequate ridership, cost to ride, under-estimated maintenance costs which add up to a sure fire yet forbidden lifelong state subsidy.

It’s all about hopes and dreams…

 

Legislative Analyst report on the 2018 Business Plan.

The newest 2018 Business Plan is located here