CHSRA’s Backup Funding Plans Show Need To Win Federal Funding
The California High Speed Rail Authority will discuss a draft response to the flawed State Auditor’s report at their board meeting this Thursday. One element of their response deals with the Auditor’s nonsense claim that the CHSRA’s funding plan is too risky. Mike Rosenberg wrote a very good article on that aspect late on Friday evening:
In its response, the agency said it has asked its financial consultants to find additional ways to bankroll the San Francisco-to-Los Angeles rail line. The auditor and project critics fear the agency’s current funding plan is too optimistic, which could result in delays or a partial railroad that cannot be completed.
First, let us be very clear here: the Auditor is completely mistaken to fear that a “partial railroad that cannot be completed” could be a result of the HSR project. The Auditor apparently did not understand the concept of “independent utility” – meaning any spending of currently secured money can only go to HSR projects that can be usable even if that’s all that is ever built. Whether that failure to understand was an oversight (calling into question the Auditor’s competence) or a deliberate slight (calling into question the Auditor’s objectivity) is still unknown.
But as a result of the Auditor’s criticism, the CHSRA is examining alternative funding strategies:
But the alternative funding options will outline how the agency could finance construction under the best- and worst-case scenarios, in case the agency cannot get the federal grants it expects or has difficulty attracting investors, for instance.
Rail authority officials have said the backup funding plans could simply show that the state will get its money over a longer period of time, which would drive up project costs because of inflation.
Let’s hope the Authority is familiar with the fate of the Seattle Monorail, which found itself short in its motor vehicle excise tax revenues and proposed to get its money over a longer period of time. The media ran with the proposed estimate, blowing it all out of proportion, and when the possible $11 billion figure (for a monorail that was to cost between $1-$2 billion) was publicized, it was enough to convince voters to kill the project at the November 2005 election.
The CHSRA ought to take care how it reports on such a worst-case scenario. They also should point out that such a long-term construction plan would only come about because the Auditor misunderstood some basic things about how infrastructure projects get funded by the feds (you have to have all your environmental work done AND local/state funds; until then federal funding is merely a wish and a hope no matter what it is you’re trying to build).
It does appear that the CHSRA board also understands another extremely important point – that there is such a thing as too much federal funding:
But Diridon said the newest plans could also show more reliance on private financing. While it would decrease the agency’s dependence on government grants, he cautioned about giving the project’s reins over to investors.
“We have to be careful that we don’t give up so much control over the project that ultimately fares are too high or the quality of service would be eroded without the control of the state,” Diridon said.
Diridon is putting it mildly. We have a significant amount of evidence that too much private investment will cause the financial and operational problems that HSR critics wrongly claim will result from public funding. Taiwan is the classic cautionary tale, with about 80% of its construction costs coming from the private sector. The debt service was unrealistic, and Taiwan’s HSR system was forced to open with a truncated line. Although Taiwan saw high HSR ridership levels and significant modal shift away from planes and cars to the trains, the debt service levels were so high that default was inevitable, and a state bailout ultimately necessary. A similar fate befell the Channel Tunnel, built primarily with private funds at the ideological insistence of Margaret Thatcher.
Overreliance on private funding would be a disaster for California high speed rail. The way we avoid that is to secure the federal funding we need to complete the project and ensure that private funding comes at small, acceptable levels (with minimal levels of risk). The State Auditor did not appear to understand this, nor do those in the Legislature who ostensibly support HSR but are touting the Auditor’s report seem to understand how that flawed report could undermine the effort to win federal funding.
Finally, nobody seems to be discussing the risks and costs that come with doing nothing. Sadly, that’s an ongoing problem here in California, where people assume that if we don’t build HSR, we face no risks and no costs.
The risks and costs that come with not building HSR are considerable. If California remains dependent on oil, we might see increased pressure to open the coast to more offshore drilling, which will eventually cause a repeat of the 1969 Santa Barbara oil spill or the 2010 Gulf of Mexico oil spill and cause major damage to the state’s environment and economy. We will definitely face the economic impact of rising gas prices, which will cripple any economic recovery we might experience in the near future.
After having sat in traffic on Interstate 5 in the middle of the Central Valley today (thank god I was able to turn off at Highway 46, having only to suffer about 15 minutes of slow-going), and watched the massive backup from Santa Barbara to the edges of the San Fernando Valley on Highway 101 on Saturday, I can also attest to the costs of the existing traffic congestion. If somehow there is a miraculous innovation that enables electric cars to be built and charged at or below the present cost of gas-powered cars – and that enables the resulting massive electricity demand to be met cheaply – then California will still be faced with a huge bill to widen the freeways, a bill that has been estimated to run between $80 and $160 billion. (Highway 99 widening alone will cost at least $25 billion).
Of course, there are the environmental costs of all that driving, and the huge risk to the state’s economy of the changes to our climate that our dependence on oil has produced and will continue to exacerbate if not reduced.
None of those risks or costs was included in the State Auditor’s report. They should have been, and the Authority would be wise to mention those risks and costs in their own reply. It’s about time that someone took a look at the true risks and costs faced by California regarding HSR, instead of making an artificially limited study as the State Auditor did.