How California Could Pay for HSR Itself
With the State Senate vote last week to proceed with high speed rail construction, there’s been increasing attention paid to the financing of the high speed rail project – namely, the fact that there’s still a long way to go to fully fund the entire system. Keep in mind that most transportation projects in America are planned this way, with design and even some initial construction taking place before every dollar needed has been identified and secured. Still, for the HSR project to succeed, we have to figure out how to fully fund this system.
The 2012 Business Plan currently envisions nearly $40 billion in federal funding, spaced out over 20 to 30 years. That’s a little more than $1 billion per year, a reasonable assumption to make assuming Democrats retake the House and pass a transportation funding bill that creates a long-term HSR funding source.
But as we know, Congress could remain hostile to HSR. That hostility could last just a few more years, or it could go longer. Further, dependence on federal funding may not give California HSR planners the flexibility they need to build the project right (and no, I’m not talking about sending the trains along I-5 in the Central Valley, that would be a stupid idea). Whatever the reason, California should develop a plan to fund HSR itself.
And that’s exactly what the San Francisco Planning + Urban Research Association has developed. Known as SPUR for short, they released last week a new study titled Getting High Speed Rail On Track that lays out a plan for funding California HSR without relying on a federal contribution. It’s a sensible proposal that is quite doable not only from a funding perspective, but also from a political perspective:
We in California can still build high-speed rail by relying on a combination of road tolls, vehicle license fees, gas taxes, regional general obligation bonds, value capture mechanisms and revenues from the state’s cap-and-trade auctions. These local sources yield more than $2.7 billion annually. Over the 20-year construction of the high-speed rail system, these sources could replace the entirety of the expected $38.3 billion federal investment. In addition, they could also replace the current unspecified $5 billion from additional local, state and private sources….
Our assumptions are as follows:
• An increase in the gas tax of 6 cents per gallon for 20 years
• Road tolls of $4 per vehicle on six highways that parallel high-speed rail as it enters the Bay Area and Southern California
• An $8.50 increase in the annual vehicle license fee (VLF) for 20 years
• A regional general obligation bond for green power for Caltrain and BART that also includes $1 billion for electrification and grade separation
• $13 billion from the annual state cap-and-trade auction revenues until 2020
• Various value capture tools (impact fee, tax increment, Mello Roos district) at five high-speed rail stations
The report delves into more detail on these concepts and I encourage you to go there and parse the details for yourself. SPUR’s report includes this graphic representation of how their plan stacks up against the current Business Plan:
Each of these funding sources could be used solely to fund HSR – or they could be part of a larger effort to provide Californians with more affordable alternatives to burning oil in order to get around. A gas tax increase is badly needed to fund more transit around the state, including local bus systems. Including HSR funding as part of a larger, long-term, phased gas tax increase is sensible.
Road tolls are a good policy tool for California anyway, and one could charge a toll higher than $4 on those routes in order to fund commuter rail, commuter bus, and HSR services. The case for ending the freeway is strong and over the coming years I would fully expect to see serious proposals emerge to start tolling freeways like Interstate 5 in the Central Valley. Some might propose doing it in order to solve the state’s general fund problems, but it ought to be done to fund mass transit and HSR.
The Vehicle License Fee badly needs to be increased. Until 1998, California charged a 2% VLF and people got by just fine. Before leaving office, Governor Pete Wilson pushed through a huge tax cut in 1998 that included a VLF reduction to 0.65%. That cut was reversed by Governor Gray Davis in 2002 in order to help close the state’s budget deficit, and was a major issue in the 2003 recall. After Arnold Schwarzenegger was elected governor, he pushed through a cut back to the post-1998 level. The 2003 cut in the VLF is a major reason why California faces a structural revenue shortfall. That cut costs the state $6 billion a year, one of the most damaging of Arnold Schwarzenegger’s legacies for the Golden State. An $8.50 increase in the VLF is a very small amount, and one could propose a larger increase, perhaps in the $20 to $40 range, that would generate funds for other transit services alongside the $8.50 for HSR.
The value capture tools and the use of cap-and-trade fees are both no-brainers when it comes to funding HSR, and both are already being seriously discussed in Sacramento. Additionally, the SPUR proposal discusses a regional green energy general obligation bond that would help electrify more rail and bus service in the Bay Area as well as build high speed rail.
Together these amount to a very sensible set of proposals to fund HSR from within California alone. Each funding source also makes sense as a broader initiative to improve transportation funding in California, and not just solely as a means to fund HSR alone.
But can they actually be done? Are they politically viable? I believe they are. Local governments have used VLF increases in recent years to fund transportation infrastructure, and the fact that California’s VLF used to be more than double what it is now is a good argument for moving back to it. California voters have approved higher gas taxes in the past, particularly 1990′s Prop 111. As gas prices have soared in recent years, smaller increases become more palatable. In 2005 Washington State voters rejected an effort to repeal the state legislature’s enactment of a 9.5 cent gas tax increase. A statewide gas tax increase is clearly necessary in order to start developing post-oil transportation infrastructure. The value capture tools are likely to happen in any case, and cap-and-trade fees have been repeatedly floated by Governor Jerry Brown as a possible method of helping fund the HSR project. A general obligation bond for green infrastructure would not be so different from 2004′s Prop 71, which used the sale of general obligation bonds to set up the California Institute of Regenerative Medicine.
While those options are all viable, that’s not the same thing as them being easy wins. Legislators will need to see that voter hostility to new taxes is not as strong as it’s reputed to be. That requires the passage of Proposition 30, the tax increase measure backed by Governor Brown that includes the “millionaire’s tax” backed by the Courage Campaign (where I used to work). If Prop 30 passes, it would also boost high speed rail as it would prove a clear rejection of the argument that voters might reject the taxes because of HSR.
SPUR’s proposal deserves very serious consideration, and should become the basis of an alternative to federal funding should Congress continue to prove to be an obstacle.