Economic Updates

• CA State Senator Jim Costa (current Democratic Congressman) wrote legislation creating CA’s High-Speed Rail Authority to plan a 500-mile route between San Francisco & Anaheim.

• Senator Costa authors a $10 billion state bond initiative to finance the project.
  • Proposition 1A Bond Act: the high-speed rail project has to be  financially viable; trains have to operate (without subsidy) every five minutes in either direction during the day; and funds for each segment of the route need to be identified before work on the leg in question can commence. Above all, trains have to make the 520-mile (840-km) journey between the Los Angeles basin and the San Francisco in two hours and 40 minutes, reaching speeds of 220 mph (350 kph). As for ridership, the rail authority reckoned some 65m to 96m passengers per year would be traveling the route by 2020. The basic fare was to be $55 one way.

• The rail authority promises voters that the train wouldn’t require a subsidy and that the feds and private sector would pick up most of the $33 billion tab. Fifty-five percent of CA voters approve the initiative in November 2008 and not long afterward, the authority raises the price of the project to $43 billion.

• President Obama directs $2.4 billion in stimulus money to CA.

• The White House offers an additional $900 million, provided that the $3.3 billion sum be spent in the sparsely populated Central Valley.

• Farmers in the Central Valley and governments in the Valley’s Kings County and the cities of Palo Alto, Menlo Park and Atherton sue the rail authority for not adequately addressing the train’s environmental impacts. Gov. Brown proposes shielding the train from such environmental lawsuits but abandoned the idea after the Sierra Club pushes back.
• A updated review puts ridership at a more realistic 30m passengers a year, with an end-to-end ticket price of $89. Meanwhile, the overall cost of the project had soared to $98 billion. And instead of going into service by the end of the decade, the high-speed railway would not be ready until 2033.
• An uproar ensues prompting a shakeup. The new costs are subsequently pegged at around $68 billion for the first phase of the network, with an opening date in 2029 – almost a decade later than originally promised. A second phase, involving track extensions to Sacramento in the north and San Diego in the south, would follow if and when money became available.

• CA legislature authorizes $4.7 billion in bonds to start construction, but private investors refused to plunk down money without a revenue guarantee (subsidy) from the state.
• A string of Field and Los Angeles Times polls show that voters would block the train by a two-to-one margin if it were put up for a referendum. At the same time in Washington, Secretary of Transportation Ray LaHood threatened to claw back federal funding if Sacramento didn’t green-light construction before summer’s end because Republicans were threatening to claw back the money if they took the White House and Senate in November. Governor Brown used that threat to demand that legislators authorize $2.7 billion in state bonds before they adjourned. He sweetened the deal for Bay Area and L.A. legislators by adding $2 billion for regional rail projects. Included was $700 million to bail out—”modernize”—Silicon Valley’s insolvent Caltrain.

• Taxpayers start paying interest on the rail bonds—about $380 million annually for the next 30 years.

• Critics in the CA state Legislature said they would redouble efforts to seek new oversight of the project, approving a bill by the Assembly and Senate, but it is ultimately vetoed by Governor Brown.
• The project then overcomes a serious challenge, which would have taken bonds issued to help pay for the railway and reallocated the money to water projects. Challengers of the project could not collect enough signatures to put the proposition on the November ballot, the backers postponed the measure for two years. Had it been successful, the proposal would have dealt a death blow to the high-speed rail project by deleting its biggest single source of funding.
• A major law suits that threatened to derail the project was thrown out by a superior court in Sacramento, concluding that there was no evidence that the CA High-Speed Rail Authority had failed to meet its statutory obligations, as the plaintiffs alleged. The court, nevertheless, left the door open for the case to be reheard at some future date.
• A new draft business plan has now trimmed the cost of the first phase to $64 billion.
• Governor Brown Jerry Brown pushes the legislature in Sacramento into allocating the project 25% of the state’s annual “cap and trade” proceeds from auctioning off carbon credits to big polluters, which are currently worth around $1 billion a year. As a result, the rail authority has now identified the $21 billion required for building the project’s initial leg (San Jose to the Central Valley). It still needs a further $43 billion before it can start work on extending the line north to San Francisco and south towards Los Angeles.

• The L.A. Times reports that the confidential risk analysis by the Federal Railroad Administration said that the total cost of building a 118-mile initial segment from Merced to Shafter could rise from an original budget of $6.35 billion to a range of $9.5 billion to $10 billion. The report cited significant delays in land acquisitions and environmental approvals, warning that the construction work could be delayed by as much as seven years past its original completion date of this year. In disputing the story, the rail authority letter cites its own plan to build the partial segment for $7.8 billion, which would include electrical wiring, signalling systems and track. But the federal risk analysis showing a higher cost covers less work.
• Rep. Jeff Denham (R-Turlock), chairman of the House rail subcommitee, said he would call for hearings and an audit of the project in the near future. The CA Rep. Congressional Caucus’ all sign a letter to push to have the federal government audit HSR. The feds allocated $3.5B to the project and most of it has been spent. It would be the Inspectors General or GAO who would do the report.
• CA state Senator Andy Vidak, a Central Valley Republican, asks for the Joint Legislative Audit Committee to authorize the CA state auditor to immediately initiate an audit of the rail authority, the first in several years. A similar request by Vidak was voted down last year.
• Proponents of the project pushed back stating that CA’s economy can handle the additional costs – even more than $100 billion – by increasing sales taxes or making firm commitments fro additional future funding from the state’s general fund.
• The head of the Authority steps down and the project succeeds in winning $1.25 billion through the sale of state bonds. To date the rail authority said it had spent or secured more than $20 billion to date and hopes to begin running limited train service between Bakersfield and the Bay Area in 2025.
• California’s High Speed Rail Authority gets clearance to proceed with a $2 billion plan to electrify Caltrain tracks between San Francisco and San Jose. The state Department of Finance on Friday approved the expenditure of $600 million in voter-approved bond money. The approval follows the Trump administration’s decision to fully fund a $650 million grant for the project.
• Governor Brown sends President Trump a letter asking to “delegate to the state authority” under the National Environmental Policy Act. Mr. Brown cited an executive order by Mr. Trump directing the White House Council on Environmental Quality to identify “high-priority” public works and expedite procedures for “completion of environmental reviews and approvals for such projects.” The state high-speed rail authority has complained that construction is being delayed in part due to revisions by the Federal Railroad Administration to its environmental documents. The FRA has provided $3.2 billion in seed funding for the 500-mile train, and an internal FRA analysis last November found that the first 118-mile stretch through the Central Valley was running 50% over budget and seven years behind schedule. But according to the FRA report, the biggest delays have been caused by the California rail authority’s late paperwork. Environmental litigation has also snarled construction, and the rail authority claims it need not comply with the California Environmental Quality Act (CEQA). In 2014 the federal Surface Transportation Board exempted the bullet train from CEQA, but a California appellate court subsequently held otherwise. The authority is now arguing before the California Supreme Court and Ninth Circuit Court of Appeals that federal environmental review pre-empts CEQA.

Conclusion

Ron Tutor, chief executive of Tutor Perini, which has close to 500 people working on the first segment, a Fresno to Madera branch that is slated to be completed by the summer of 2019, took issue with Goldsmith and other critics of the rail project, saying it is vital to close the U.S. infrastructure gap. “Everybody agrees that our infrastructure is woeful and pathetic when compared with other parts of the world, and this project will help us catch up,” he said. Still, critics persist. Republican legislators have continually backed measures to either place a repeal initiative on the ballot or scrap other state funding for the project, though none of those measures has moved forward. A recent legal challenge was defeated when a tentative court ruling allowed the state to spend $1.25 billion in voter-approved bond money. Topping all of this off, the authority’s chief executive, Jeff Morales, stepped down last month after five years. Lining Up

Meantime, local companies remain bullish on the project. “We have bid and will continue to bid on every area of this project that’s available,” Tutor said. Also working on the project are downtown engineering giant Aecom and G&C Equipment Corp. According to Gene Hale, president of G&C, a 23-employee Gardena construction equipment supply firm, this project has helped boost his firm’s profile, even if he has only five people working on a subcontract for the first segment. He said the work is valued at $10 million to $20 million.

Aecom has won several design and route study contracts for the rail line over the past decade worth a cumulative total of well over $100 million, including a current $32 million contract to study the route through the Altamont Pass between Oakland and Stockton. The high-speed rail line is among a number of massive infrastructure projects either under way or in the works in the region. There is also a $2 billion-plus football stadium under construction, a project with which Aecom is involved. “It’s a golden time for folks in the construction industry to use as much manpower as they can get ahold of,” Hakel said. But what distinguishes the high-speed rail venture from these other projects is that it’s being built in so many segments over so many years – the first phase, from San Francisco to Anaheim, is slated for completion in 2029.

“That allows a community of companies that does work on one segment to carry that over into work on future segments,” Hakel said. Tortured history Getting the project to this point has been a long, slow road impeded by cost overruns and opposition. The rail project, which was endorsed in 2008 by voters who approved the issuance of $9.95 billion in bonds, was originally envisioned as a means to carry passengers from Southern California to the Bay Area and Sacramento at speeds of up to 220 miles per hour, with the trip from Los Angeles to San Francisco taking less than 2½ hours.