Politics & Policy

The Bullet Train to Bankruptcy

Researchers and residents are growing suspicious of high-speed rail in California.

Californians have a reputation for questioning authority. And increasingly, they appear to be questioning the High-Speed Rail Authority, which voters empowered in 2008 to issue $9.95 billion in bonds and build the nation’s largest such system.

Opposition hasn’t reached critical mass — not yet. But it is broad, and it includes Republicans, some Democrats, community groups, local governments, fiscal conservatives, and neighborhood preservationists.

#ad#Reports from respectable engineering and financial teams, including state agencies, paint a far gloomier picture than the happy-talk done deal that’s been portrayed in the national media. Lawsuits further complicate the picture. The more money California sponges from states that have rejected federal high-speed-rail dollars, the more local support, which is critical for additional funding, seems to be melting away.

Money, or lack thereof, is the biggest problem, says Republican assemblywoman Diane Harkey, who spent 30 years in corporate finance and banking and has introduced a bill to defund high-speed rail. “We’re de facto bankrupt,” she adds. “We’re in this huge hole with a structural deficit. We’re trying to issue bonds for public works in the billion-dollar range and having problems getting any takers, and our rates are sky-high for municipal debt. . . . Is issuing more debt for high-speed rail a priority when competing for scarce resources for education, water, and local transportation?”

Just this week, a new report raised even more questions about plans to pay for the project: Compared with the plan the voters passed, the authors found, costs have doubled to $66 billion, and the scope of the project has been dramatically reduced. If built according to the original specs, the project would have the potential to almost double the state’s bonded indebtedness, to $200 billion or more. This would cost each of California’s 40 million residents $275 to $320 annually for 30 years.

The report, by retired Silicon Valley executives William H. Warren and William Grindley and Stanford Business School professor Alain Enthoven, used the Authority’s own, frequently revised line items to come up with the true price tag. A report by CARRD (Californians Advocating Responsible Rail Design) came up with similar numbers independently. And these estimates assume, Warren says, that a Republican House will provide $15 billion in “free money,” that municipalities will kick in $5 billion, and that private investors will contribute $35 to $54 billion.

Also devastating to supporters of the project are studies by official and quasi-official agencies that have questioned not just costs, but ridership and revenues — and thus the business plan that underlies the scheme. These include the state’s official “peer review” panel that oversees the Authority. In a critical 2010 draft report, it pointed out that the “Institute for Transportation Studies at the University of California at Berkeley, the Legislative Analyst’s Office, and the State Auditor’s office have raised sufficient concerns with the demand model so as to call into question the project’s fundamental basis for going forward.”

What’s the big deal about ridership estimates? The plan that voters approved specified that there would be no operating subsidies once the project had been built; therefore, if the ridership estimates are unreasonably high, there will be a budget gap. This creates what the panel called a “Chicken and Egg” problem: Investors expect a certain rate of return, and if it isn’t guaranteed, they’re not going to put up money; but the government can’t guarantee a rate of return, because to do so would be to promise illegal subsidies in the event of a shortfall. According to Harkey, the Democratic-controlled legislature is still waiting for new ridership estimates from the Authority, and it appears to be slow-walking the project until it sees something credible. A delay seems far more likely than outright killing the project, which is due to start in 2012.

Warren adds: “The real problem is, how will the legislature know they have a ridership estimate they can believe in — there is no track record of such estimates’ being correct. . . . The idea of doing a small project and seeing if they can validate a smaller forecast [before moving on to the full, massively expensive project] is not an idea they seem to be able to understand.”

#page#Costs aren’t the only problem. There are serious issues with rights of way, condemnations, and what the trains will do to communities in their path, which include some of the wealthiest in the United States. Ravi Mehta is legislative representative for the San Francisco Peninsula cities of Atherton, Menlo Park, and Palo Alto, all of which are suing the Authority on environmental grounds. Mehta is traveling to Washington this week to lobby Congress to slow down the mandated deadlines in the current high-speed-rail legislation to allow for more community input. Noise levels and track location — will it be sunken, at grade level, or elevated? — are among the issues, as well as the business plan and ridership estimates. “The cities — not just the councils, but the community itself — supported high-speed rail, and they’re still supportive, but only if it’s done right.” Mehta told National Review Online. “What the initiative said, and how it was implemented, are two different things.”

#ad#With Peninsula communities objecting, Harkey says, the Authority shifted its attention to California’s economically depressed Central Valley, where land is cheaper and the residents desperate for jobs. Harkey calls this a “railroad to nowhere” ploy, designed get the project off the ground before opponents are fully organized, and then force a commitment to build the rest of the system so the original leg won’t go to waste. But there, too, opposition is developing, as the reality of high-speed rail — the disruption of communities, farms, and irrigation systems — has begun to sink in.

David Rogers, supervisor in District 2, Madera County, recently excoriated the High-Speed Rail Authority before an assembly hearing: “I regret to tell you that despite all our hard work and good will, the High-Speed Rail Authority has disregarded our offers and ideas . . . given us lip service to placate our demands, and blatantly and arrogantly ignored us.” He called the Authority a “master manipulator pitting Central Valley city against city, county against county, farmer against farmer, by dangling promises of maintenance jobs and temp construction jobs in front of our impoverished region.”

Rogers’s view of the Authority as a “master manipulator” is increasingly shared by other Californians. There is a proposal in the legislature by state senator Alan Lowenthal (D., Long Beach) to fire the existing board and bring in nonpartisan experts to run the show. Recent e-mails that got loose from the Authority have only reinforced that position; they demonstrate Astroturfing at its finest. In one, Roelof van Ark, head of the Authority, tells a PR firm that represents labor-union backers and potential bidders on state rail contracts to turn out at a public hearing and drown out naysayers. The recipient of that e-mail, Jo Linda Thompson of Thompson Public Affairs, forwarded the request to a virtual who’s-who of rail-engineering and consulting firms, as well as foreign high-speed-rail vendors who expect to do business with van Ark. The list, which was provided to National Review Online, includes foreign train manufacturers Siemens and Talgo. The Authority has also been accused of conflicts of interest and petty graft.

Critics also say that the rail project will crowd out more important infrastructure projects that have been neglected for years, on which the state should be spending almost $40 billion a year. Deferred maintenance may run as high as $500 billion. Harkey says the Central Valley needs an upgraded Route 99 a lot more than it needs a railroad. “This is tragic,” Warren adds. “There are so many other things in California that need money. The roads are in horrible condition.” Because of service cutbacks, “the commuter rails I used to ride are fading into the sunset.”

The best hope for an immediate breather, if not a total elimination of the program, appears to be congressional Republicans. Besides Peninsula lobbyist Mehta, financial whiz Grindley, a lifelong Democrat, is headed to Washington this week with a copy of his report to talk to House Republicans.

This is his third trip, and Grindley has given up on the congressional branch of the party that led him into the Peace Corps under Kennedy, and later to work for USAID and the World Bank. “They’re very courteous and say, ‘You’re going to get this $3 billion whether you like it or not.’” He adds, “This is a bad project, and I’m ashamed of my party.”

— Lou Dolinar is a retired columnist and reporter for Newsday.

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