As Expected, Private Investors Showing Interest in CA HSR

Jul 21st, 2014 | Posted by

A common criticism leveled against the California high speed rail project is that private investors haven’t committed anything to the project. That’s always been a flawed argument. This blog has repeatedly made the point that private investment will show up once the state government has shown it is committed to delivering its own funding to the project, without which no private investor is going to be interested in it.

That’s exactly what is happening right now. With the recent budget vote to deliver hundreds of millions of dollars a year in cap-and-trade funds to the California HSR project, private investors are now stepping up just as we always said they would:

Inking a deal that will send the project hundreds of millions of dollars a year in fees collected from polluters is the signal the private sector was waiting for, according to formal letters of interest the state received last month. With only a fraction of the project’s funding in hand, the state needs private investment for about one-third of the final price tag to have any hope of completing the rail line.

“The new funding gives us confidence that as political leanings and priorities change, it won’t be easy for the government to back out of its end of the deal,” said Stephen Polechronis, senior vice president of Los Angeles-based AECOM, one of the world’s largest engineering and construction firms. “We feel we have a partner now.”…

But it’s significant that Vinci Concessions, a French company that is considered a world leader in developing highly technical high-speed rail projects, is one of the nine companies that eagerly wrote to California about the bullet train last month. Several other firms that wrote letters are based in Spain, also home to a state-of-the-art system….

“Developing the first high-speed rail corridor in the United States is an extremely exciting proposition,” said Sidney Florey, Vinci Concessions’ director of North American business development, whose company is now building a bullet train between Tours and Bordeaux in France. “If California makes the right offer, anybody in this industry would be interested.”

This isn’t the first time that the private sector has shown interest. The Authority has been receiving letters and proposals from the private sector for years now, ongoing proof that the private side was always interested in getting involved. But the cap-and-trade vote has produced a different and much greater level of interest that has grabbed the media’s attention.

Let’s hope this is the first sign of a turnaround in the media’s narrative about the project. With cap-and-trade funding and now meaningful steps toward private funding, the HSR project is on more solid ground than it has been since the Tea Party takeover of the House in 2010.

Note: apologies for the lack of posts in recent days, as I was in Detroit for the Netroots Nation conference. And yes, I rode the People Mover in a complete loop. It was…somewhat useful. Bring on Woodward Avenue light rail!

Dan Richard’s Canonical Smackdown of Anti-HSR Talking Points

Jul 15th, 2014 | Posted by

James Fallows’s series at the Atlantic is really getting good. Chris Reed of U-T San Diego, a right-wing ideologue and a notorious opponent of HSR, called Fallows “clueless” about the bullet train. But Fallows has dealt with fools before, and wasn’t about to be intimidated by Reed. Fallows turned to California High Speed Rail Authority board chairman Dan Richard for a response, and it’s really damn good:

1. All the wonderful things the train allegedly does don’t matter if it can’t be paid for. There is at most $13 billion in state and federal funding for a project that has a price tag of $68 billion (a price tag that no one really believes is accurate). There is no prospect for further federal funding in an era in which discretionary domestic spending is being squeezed as never before. State funding of $250 million a year from fees from California’s nascent cap-and-trade pollution-rights market begins this budget cycle. But that is a pittance, and if they’re off the record, no state lawmaker will admit to wanting taxpayers to foot the entire bill. So why can’t the private sector come to the rescue? Because…

[Richard replies] Chris Reed’s funding analysis is simplistic and deeply flawed. First and foremost, virtually no project knows where all the funding is coming from at the outset. When we started BART to SFO, we were supposed to have $750 million in federal funding. We had virtually none for years and Sen. Dianne Feinstein and I walked out of Sen. Mark Hatfield’s office in 1994 with the first $25 million, which was a pittance. In the end, we received all $750 million and that was after Republicans took control of the Congress and 1994 and we were assured we wouldn’t get another dollar of federal monies. The California High-Speed Rail program has been held to a standard that no other program has had to face, which is to address calls for how the entire system will be funded, in advance. Nevertheless, here’s a broad outline:

• Cap and Trade dollars could provide billions for the project. The state talks of our allocation in terms of percentages because to speak of specific dollars would send signals to the carbon traders about what the expected the price of carbon credits. Still, the $250 million in first year funding is considered a modest amount compared to what future dollars would bring. Moreover, the cap and trade dollars, as more experience is gained, allow us to finance the construction of certain legs and build simultaneously, thereby reducing costs. Our $68 billion estimate includes inflation at 3% per year. Not only has inflation been below that amount, but for every year we cut off the construction time, we save about $1 billion dollars.

• Private Sector — Yes Virginia, there is strong private sector interest. People who talk about the lack of private sector involvement generally have no clue how the private sector works. Among other things, one should not want the private sector investment to occur at the outset, because the private sector prices risk and the risk would be highest then. However, our ridership estimates, which have been scrubbed by everyone from two independent peer review groups to the GAO, show that the system, as it is built out, will generate billions of dollars in excess of operating costs. Like the Japanese and other systems, our business model is to sell the rights to operate on our infrastructure to the private sector. We believe the NPV of the excess revenues will be between $12 billion for the initial operating segment and $20 billion for the line from LA to SF. At $20 billion, that would mean the private sector would be putting up about 1/3 of the system costs, doing that along the way to help us build out the full system.

• Development Potential — In Japan one-third of the revenues earned by Japan Rail East, one of the private sector operators of the Shinkensen comes from real estate development around the stations. We have not even begun to explore how to maximize that potential. In Arlington Virginia, station area planning resulted in such a dramatic explosion of mixed use development, generating such enormous property tax increments that the county was able to lower its other property taxes (source: Bob Dunphy, formerly with Urban Land Institute, now teaching at Georgetown). Senate President Darrell Steinberg proposed last year a bill that would allow for tax increment financing of any development within one mile of a high speed rail station. Sharing those tax increments with local communities would be appropriate, but we’d still be able to develop an enormous funding base.

• Use of the infrastructure — Again, we’re just beginning to look at maximization of the infrastructure we’d be building. Leasing the right-of-way (ROW) for fiber optic cable, as we did at BART, would generate significant revenues. Energy development in our ROW would be another money maker.

The point is that this is a long-term program. Our cap and trade funds are actually one of the more stable transportation funding mechanisms around (especially compared to the current situation of the Highway Trust Fund).

Finally, I do believe there will be additional federal support over time. Experience shows that to be the case, especially if legs of the system are up and running and it’s a matter of closing gaps, etc.

That’s just the first of seven epic smackdowns Richard delivers to Reed. Go read all seven, including Richard’s response on Prop 1A legality, the 2:40 travel time requirement, public and political support, and more. Bookmark it for future reference. It’s that good.

Bad Political Analysis Makes for Bad HSR Criticism

Jul 14th, 2014 | Posted by

James Fallows’s series on California High Speed Rail continues at the Atlantic, where he offers this effort to fairly summarize the critics’ case against the project. Here’s what he sees as the top anti-HSR arguments:

The main claims are:

• A high-speed rail system might be great in theory, but the realities of this plan fall far short.

• It will cost too much, take too long, use up too much land, go to the wrong places, and in the end won’t be fast or convenient enough to do that much good anyway. And, from some people,

• It’s an old-tech band-aid to a problem that really calls for a “disruptive”-tech fundamental solution, from self-driving cars to the Elon Musk-style hyperloop.

I agree with this, to a point. These tend to be the surface justifications and rationalizations. There are the underlying criticisms that are less overtly articulated, but animate those above objections:

• NIMBYism. We’re seeing this in Florida as neighbors fight the All Aboard Florida project, and have seen it with rail projects in LA that everyone agrees are good (like Beverly Hills’ freakout over the Westside Subway). There are a lot of people who just don’t want this thing in their backyard, and as we learned on the Peninsula in 2009, they are willing to do whatever it takes to torpedo HSR.

• Anti-rail attitudes. You can see this driving each of the three points Fallows cites above, an attitude that rail is either an inherently bad idea or not something that can ever succeed in California. As Fallows noted when he started his series, California HSR resembles closely the systems he used in China and has seen elsewhere. All the evidence so far has shown that California’s system will have the same success as seen in China, in Spain, in France, and elsewhere. But for those who are just ideologically opposed to rail, nothing will convince them until the system is already up and running.

Then there’s another category of criticism, which is really best described as concern trolling. It’s from folks who say they support HSR but think that the way this project is being built will somehow undermine its fortunes with the people of California.

So far the polls indicate that isn’t happening, as PPIC found in March that a majority of Californians support high speed rail. But this type of anti-HSR attitude persists. Fallows posted a long excerpt from one person making this kind of criticism:

I am very supportive of a high speed rail network in theory; very few people I have talked to are not. Driving between Los Angeles and San Francisco is a good 8 hours, while by plane it is a 45-minute hop, plus the two hours and massive frustrations of the airport; neither option is optimal. People already commute two hours one way between the Central Valley and the Bay Area, daily. Outside of the reflexively anti-government types who would oppose any state project, most people can see the attraction of the idea.

However, the actual execution of the high-speed rail plan is what has gone and lost my support. While a high speed land connection between Los Angeles and San Francisco would certainly make money, the high initial investment is obvious. Shorter segments between San Francisco and Sacramento, Los Angeles and Las Vegas, or even Los Angeles and San Diego would make money almost immediately. However, none of those things is what they are building. Instead, they are building the line between Bakersfield and Merced, with the further extensions only in later phases at undetermined dates.

The line between these two cities would be, basically, useless; to attempt a simile to another part of the country, this would be as if the Acela didn’t go between DC and Boston, just between Trenton and Newark. Its actually even worse, since unlike Trenton and Newark, Bakersfield, Fresno, etc. have no public transit to speak of, and so the train would only be useful for stranding you at the train station. However, while they are still planning and seeking funding for the further portions, this is all the line will be, and knowing California, this situation will last for years (it’s already taken us six to even get to this point).

Building this section first, without connecting any major population center to any other, therefore seems like an investment with no hope of a return. In the meantime, the people already opposed to the system (which are particularly numerous in the Central Valley) will be joined by those opposed to government waste in general, who will point to a train that has already cost billions of dollars and still connects nowhere to nowhere, and say, “enough, pull the plug, this has been a waste of money.” Once that happens, the political realist in me has to acknowledge that there is no way promises of “but if we extended it further, it would actually work” would get any traction, and the idea would be dead. As I have remarked with my friends, only half-jokingly, if they wanted to kill the idea of high speed rail in California forever, they couldn’t have gone about it much better than this.

To this pessimistic political outlook, I could also add the accusations of mismanagement of the funds already spent, and the compromises that are watering down the project as it moves along (portions of the line are now not even going to be high-speed), but those are already documented by actual journalists. My main feeling, though, is that if they wanted this to work, they should have gone about it any other way than what they have.

This person bought the BS “train to nowhere” claim hook, line, and sinker. He or she makes repeated references to “political reality” and assumes that the decision to build in the Central Valley first has badly eroded public support for the system.

But there’s no evidence at all to back up this claim. In fact, the evidence suggests that the decision to start in the Valley has done nothing at all to dent public support for HSR, given that the level of public support found in the PPIC poll is about the same as what we saw on election day in November 2008.

Californians understand how phasing works, and they understand that nobody is actually talking about building HSR in the Valley alone and doing nothing else ever to connect it to the coasts. This person sets up a strawman, and Californians have already seen right through it.

His or her history of the project is also flawed, leaving out the fact that when the decision was made in 2010 to start in the middle and build outward, long-term federal funding still looked like a strong possibility. He or she makes it sound instead like the state and federal governments decided in 2010 to start in the middle and shrug their shoulders about what comes next, which is not at all an accurate statement about what happened.

In fact, just this month the state legislature began discussing how to get the tracks to the coast, as Senate President Pro Tem Kevin De León has started talking about how to build from Palmdale to Burbank. The state legislature also came up with billions in new funding for HSR via cap-and-trade revenues, which will help ensure that the tracks being built in the Valley aren’t stranded.

Uninformed, inaccurate political analysis tends isn’t going to help us get high speed rail built any faster.

What Happened When an HSR Supporter Went to the Central Valley?

Jul 9th, 2014 | Posted by

James Fallows is a nationally prominent writer for The Atlantic. He’s also a fan of high speed rail, having gotten to know it well when living in China. Last year, when writing about Governor Jerry Brown, Fallows mentioned Brown’s work on HSR and his own support of the project.

Fallows didn’t leave it there. In the last year he’s been doing a lot of research into high speed rail, including several trips to the Central Valley. So what was the result?

I’ll let Fallows tell you in his own words:

As I’ve read and interviewed over the past year, including on reporting trips to California’s Central Valley, I’ve become more strongly in favor of the plan, and supportive of the Brown Administration’s determination to stick with it. In installments to come I’ll spell out further pros and cons of the effort, and why the pros seem more compelling.

Unlike many California-based reporters, Fallows has plenty of experience with HSR, and therefore he’s not inclined to see it as some exotic weird thing but as a normal piece of modern infrastructure. Instead he looks at the evidence and discovers, lo and behold, it’s an even better idea than he thought:

For the meantime, here are three analyses worth a serious read:

• An economic impact analysis prepared by the Parsons Brinckerhoff firm for the High-Speed Rail Authority two years ago, which looked into likely effects on regional development, sprawl, commuting times, pollution, and so on.

An analysis by law school teams from UCLA and Berkeley, which concentrated on the project’s effects in the poorest and most polluted part of the state, the central San Joaquin Valley.

• A benefit-cost analysis by Cambridge Systematics, of the “net present value” of a California high-speed rail system. (NPV is a standard way of comparing long-term costs and benefits.) It had charts like these on the likely longer-term benefits of the project, and said that the costs would be significantly less.

Fallows’ post also includes several maps, many of which emphasize the importance of reducing air pollution in the Central Valley. That’s a point this blog has made often and I’m glad to see it getting a broader audience.

And best of all, this is just the first installment in a series Fallows and The Atlantic are rolling out on California high speed rail. So look for more in depth discussion of the project there. I’m glad that they’re covering this, and bringing some light where we’ve sorely needed it.