Today’s Bakersfield Californian has a good, in-depth article on the latest effort by the California High Speed Rail Authority to issue a “request for expressions of interest” for international companies and potential private sector partners.
While this is certainly not the first time the CHSRA has solicited responses from the private sector, the Bakersfield Californian article points out that this comes at an important moment in the project’s development. The nature of private sector involvement could determine how much money is needed to get the project built – and how much the private sector plans to contribute.
This process is driven by decisions made way back in the Schwarzenegger Administration (remember him?) that emphasized high speed rail would be built in California not on the model of BART or Metro Rail, where government owns and operates the system and contracts with the private sector to build it – but that HSR would be a public-private partnership, an opportunity for the private sector to do much more and potentially reap greater profits.
I’ve never been a fan of this approach, and one of the very first posts on this blog back in 2008 was about my deep skepticism of using public-private partnerships on the HSR project. But Schwarzenegger wanted it to happen as a condition of his support for the $9 billion in bonds to go to the ballot, and so the deal was cut, though the decisions about what exactly the private sector’s role would be were kicked down the road.
And so here we are, seven years later, with the CHSRA starting to give serious thought to this all important question. The Bakersfield Californian lays out the various options like this:
As the rail authority tries to bring in the private sector, and to a large extent diminish its own central role, many options are on the table. For example, it could hand over much of the rest of the construction, train manufacturing and operation to a single company willing to pay for the privilege. Or, it could set up a series of smaller agreements with different companies…
One option, he said, is to proceed as do major European high-speed rail systems: Have the agency own everything and operate the system itself. Another is to contract with a private company to run the trains but leave ownership to the rail authority.
Or, he said, the authority could build the system and then line up a franchise operator who would get some say in “setting fares, estimating demand, providing capacity, etc.,” like the British do. This gives the government greater control than do other models, but at a cost of retaining commercial risk, which the state may not want.
Another possibility Thompson cited was to give an operating company a full concession to operate the system, including providing the trains. Although this would garner private investment, he said it’s “not a silver bullet since the arrangement can never be any better than the fundamental business performance of the system. He noted that Taiwan tried this and failed.
Otherwise, the system could be fully privatized, as happened in Japan in 1987. The problem with that model, Thompson said, is that payments from the private company might never amount to what taxpayers paid to build the system.
I would strongly prefer the first option, but given the need for private funding to help close the gap and get the system built, I am guessing that some of the other options are more likely.
The key is that whatever the private sector’s role is, it has to be subordinate to the effective operation of the system, including maximizing ridership so that the system can play as large a role as possible in meeting the state’s transportation and carbon reduction needs. A private operator, for example, would be strongly tempted to maximize revenue from fares even if this has the effect of reducing ridership or making the trains unaffordable to working-class Californians.
It will certainly be interesting to see what responses CHSRA gets.