In a very interesting turn of events, the Assembly Transportation Committee, usually friendly toward the Rail Authority, put them on the spot with probing questions about the business plan as well as the general condition of the project. Conspicuously absent was long time high-speed rail supporter, Assembly Member Cathleen Galgiani from the Central Valley. But others asked tough questions of the Authority including Chairperson Bonnie Lowenthal (D), Assembly Member Diane Harkey (R) and Assembly Member Joan Buchanan (D) from 15th district which includes Contra Costa County.
The most critical testimony by far was the report by the Legislative Analyst’s office (LAO). Farra Bracht told the panel that the bond act “did require certain things be included prior to requesting an appropriation of bond proceeds for construction of the high-speed rail system. These include identifying a corridor or usable segment thereof, all sources of committed funds, the anticipated time for receipt of those funds and completing all project level environmental clearance for that segment. So far our review finds that the funding plan does not meet these key statutory requirements.” She goes on to explain that “committed funding sources are only provided for the ICS [initial construction section], which is 130 miles that runs south of Merced and North of Bakersfield."
For a complete view of Ms. Bracht’s opening statement see the you-tube. 5 minutes. http://www.youtube.com/user/derailhsr#p/u/7/QZJTTmuAf90
There were many other concerns. The LAO’s complete outline can be found at: http://www.lao.ca.gov/handouts/transportation/2011/HSRA_Business_Funding_plan_11_29_11.pdf (begin at page 5 concerning the testimony above)
As background, the Authority approved their funding plan in the November board meeting and they were applying for funding for what they called the initial Construction Section (ICS), which is only a portion of what could be considered a usable segment. This ICS terminology is not found in the law that governs the project. They also approved two initial operating segments (IOS) however they did not choose if would expand to either the San Fernando Valley or toward San Jose after the building of the ICS. They would do that later. The law (Assembly Bill 3034) requires that building begin with either a corridor or a usable segment, thereof, which is defined as a building site between two stations and when complete would be usable for high-speed rail service. One of the tests to be considered usable, is that it is required to be electrified and many other requirements found in Assembly Bill 3034, none of those items are planned for the ICS.
Not starting with a usable segment is the very basis of the lawsuit recently filed by Central Valley citizens, Aaron Fukuda and John Tos and Kings County. http://www.examiner.com/transportation-policy-in-san-francisco/hsra-can-t-use-prop-a-state-funds-for-the-central-valley-project
If the Authority is permitted to build the ICS, they want to select later the IOS section they plan to construct and it could bring the price of the Initial Operating Segment up to $30 billion dollars, dollars the authority board clearly does not have now. Building the smaller section first (ICS) is no doubt an attempt to use the federal monies that would be lost if the project is not completed by 2017.
Note: There have been many statements by public officials and in the press that the building must begin by fall of 2012, however, there does not appear to be any public document or contract reviewed so far that indicates an official requirement for a construction or signed construction contracts to begin by the fall of 2012. The completion date of 2017 remains the one date that seems to be in concrete.
Shouldn’t there be an overall State Transportation Plan, asked Assembly Member Buchanan? She explained how different European transportation systems were to California, how they connected regional transportation to High Speed Rail. She likened starting with High-Speed Rail first to starting at #7 of a 10 step process to build something, always screws left at the end. Buchanan wondered if her constituency would rather solve their daily commute issues which would allow them to spend more time with their families or to spend money on a high-speed train that they would use on a far less frequent basis.
Later in the meeting,HSR Board Member Richard said he understood the value of regional rail, being on the board of BART, but felt that High Speed Rail was important to add to the transportation mix. He also reminded the group that the state would not be able to use 1A funds earmarked for high-speed rail or the federal matching funds for other projects. He told the panel that the transportation system was extremely important to the state. While the panel understood that, Assembly Member Buchanan shot back, “So is education.”
Ridership was also discussed. “The ridership numbers are bloated,” said Assembly member Diane Harkey and until we have an independent ridership model, we won’t know anything about 20 years from now. She felt the state would be on the hook for the operational shortfall should the ridership not pan out. “The ridership is the key to this entire project,” Harkey said. Michael Rossi responded that an investment grade ridership would be required before an investor would invest in the project.
Another subject, operational subsidy, forbidden in Prop 1A, was addressed by Bonnie Lowenthal and Diane Harkey and answered by Board member Michael Rossi.
Diane Harkey questioned how the initial operating costs could be covered day 1 and why it wouldn’t be considered an operating subsidy if there wasn’t enough revenue to cover operating costs. Rossi responded, “The way the plan is built for the first three years in 2022 and 2023 for IOS south, we make an operating profit but we don’t sell the future revenues until the third year because the private sector is only going to invest once they have stabilized revenues. [] We have built into the plan the ability to operate the HSR segment for those years and still have an operating profit.”
“Then how do you pay for the first two years?” asked Bonnie Lowenthal. Rossi responds: “ It’s a cash flow issue. What will happen is as the ticket [sales] come in, we will have sufficient revenue to pay our operating expenses. Now we may have to get a line of credit, that’s not unusual, but that’s all built into the operation.” See the 3 minute clip: http://www.youtube.com/watch?v=K5Yjtl1DfU8
Two important questions were raised by Chairperson Bonnie Lowenthal. Does this draft business plan offer the most cost effective approach to building an HSR system? Followed by, does the 2012 Draft Business Plan meet the requirements and limitations of Prop IA?
Will Kempton, chairman of the Independent Peer Review Group and CEO of Orange County Transportation Authority (OCTA) answered that the peer review group has suggested previously that the bookends (SF and LA) might have been a “safer investment if the project doesn’t continue.” “Personally I would be looking to invest Bakersfield to the San Fernando Valley” as a starting place. In answer to question 2, he stated that the peer review group will discuss ridership, operating costs etc. in their response to the legislature. He noted, the draft business plan is a substantial improvement, especially by offering a blended approach [sharing existing rail infrastructure]. Kempton says,” I would not argue that it [the business plan] doesn’t meet the requirements of 1A but I will say, “I do not have the same confidence in the funding plan.” 3 minute You-Tube http://www.youtube.com/user/derailhsr#p/u/3/QpXKw9TUYiU
After the High Speed Rail board members Richard and Rossi, Will Kempton and the LAO members, Farra Bracht and Brian Weatherford completed their presentations, a stakeholder’s panel arrived which included William Grindley, independent consultant, who discussed the capital cost gap. Cesar Diaz from the State Building and Construction Trades who discussed the importance of looking into toward the future transportation needs of the state and the importance of jobs that would result from this project and Seamus Murphy from Caltrain Government Affairs who discussed the blended system of Caltrain and High Speed Rail in the San Jose to San Francisco corridor.
A key part of the business plan is the capital gap and William Grindley addressed it. He first said,“The future of this project is not in this room or in this city, it is in the nation’s capitol.” Grindley questioned the funding required to build the Initial Operating segment. (IOS). He offered the rail authority needs an infusion of approximately $20 billion more money from the government in the form of federal tax credit bonds to complete the Initial Operating Segment (IOS.) But he said this source of capital is not available since it has not passed Congress and if it was, under the terms of SB 1436, California could only get 1 billion dollars since the legislation proposed that each state could get only 2% of the $50 billion.
Grindley also said if the IOS segment was not profitable, the state would have to absorb the costs. “There is no plan B,” he stated. He reminded the committee that high-speed rail funds were zeroed out for FY 2011 and two weeks ago, the FY 2012 funds was zeroed out as well. “Not only did it pass the Republican controlled house by 72%, it passed the democratic controlled senate by 70% including the zero out votes of Senators Boxer and Feinstein. At best getting more federal money is going to be like pushing a very large rock up a very steep hill.” http://www.youtube.com/user/derailhsr#p/u/10/KQiA2LzAz0Q
Monday, December 5th the Senate Transportation Committee and the Senate’s Select Committee on High Speed Rail will host a meeting on the business plan at 10 am in the Capitol in room 112.
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