Is Cap-and-Trade California HSR’s Savior?
The Tea Party, including Republican representatives from the Central Valley, are adamantly opposed to new federal funding for high speed rail. Hell, they’d love to take back existing federal funding for it. This has important consequences in California, where an expected federal contribution in the tens of billions of dollars was being counted on to help build HSR. That was plausible in 2009 and 2010 when President Barack Obama and a Democratic Congress were debating how much the federal government should spend on HSR, rather than whether we should spend. But until the Tea Party is tossed from power, we cannot expect any more federal funds. Who knows when that will happen.
Judge Michael Kenny’s ruling last week requires the California High Speed Rail Authority to revise its financing plan to identify sources of revenue. This should be seen as an opportunity to address the Tea Party problem and for California to begin funding HSR itself, without being dependent on the whims of extremists in Congress. To some degree a California-only plan would be a win for the Tea Party, but it’s a small price to pay to help address the economic, energy, and environmental problems that HSR will help solve.
The place to begin in with SPUR’s July 2012 proposal Getting High Speed Rail On Track, which laid out a detailed and reasonable plan to fund the cost of bullet trains from San Francisco to Los Angeles:
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
And a handy image comparing their plan to the 2012 Business Plan:
When I wrote about this back in 2012 I suggested that not only were these good ideas, that we can and should expand them to fund other rail needs as well, sort of like how Props 111 and 116 in 1990 funded a wide range of transportation projects. That still stands today.
All of these are good ideas. But I want to focus today on one of them: the cap-and-trade revenues.
SPUR’s plan includes a total of $13 billion from cap-and-trade between now and 2020. It’s the second largest sum of their California-only plan, after a higher gas tax. The revenues are already coming in, so it is also one of the easiest sources of money to tap, along with one of the largest.
So far California has raised $1.4 billion in cap-and-trade revenues. The auctions held in 2013 were very successful – all allowances are now selling out, with multiple bids per allowance, and with the markets seeing the process as stable, familiar, and reasonable. The system already survived a challenge at the November 2010 election, so it isn’t going away.
If we assume there’s no increase in the revenues from these auctions (and the whole point is that there is an increase, since the purpose is to reduce carbon emissions by reducing the number of permits available) that means California will have raised $9.8 billion from cap-and-trade between by 2020. Not all of that will be available for HSR. If HSR got $500 million per year, a sum Governor Jerry Brown has already suggested, that’s $3.5 billion by 2020 and $8.5 billion by 2030. That’s not so far off the SPUR goal of $13 billion.
But we don’t have to assume a static number. One could budget for an increase in overall cap-and-trade revenue over the next 16 years and then devote an increasing amount of funds to HSR from that growing pie. In other words, you could budget $500 million a year now, $750 million by 2017, $1 billion by 2020, and $1.5 billion by 2023. Those numbers are off the top of my head, but you see where I’m going here. Under that plan you would definitely reach a total of $13 billion for HSR by 2030.
This is exactly the same way the state budgets everything else it funds, estimating annual increases in revenues and using that to pay for ongoing services, so it would be much more difficult for anti-HSR forces to try to undermine this in court. The cap-and-trade revenues must be spent on projects that reduce carbon emissions, and HSR is certainly one of them.
Using cap-and-trade funds for HSR has precedent and broad support. The California Air Resources Board, which oversees the cap-and-trade auctions and the implementation of AB 32, has already voted to support using revenues on HSR, among other things. Metro also indicated its support for using cap-and-trade revenues for rail, bringing the political weight of Los Angeles County local governments behind the concept. The HSR advocacy group Californians For High Speed Rail has long supported the idea.
The whole SPUR list of proposed funding sources deserves discussion and, in my view, support. I’ll talk more about each of them in the coming days and weeks. But the cap-and-trade revenues are the revenues that can most easily plug the hole created by the Tea Party’s attack on passenger rail, as well as satisfy Judge Kenny. I would not be surprised to see cap-and-trade revenues become part of the CHSRA’s plan going forward, and that is something we should encourage and support.