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High-speed rail depends on $55B in federal funds

 

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Although planners of California’s bullet train won praise last week for candor about the train’s cost, an analysis of their 230-page plan shows they are still making highly speculative assumptions about funding and ridership. 

Despite hostility toward the project from Republicans in Congress, the California High-Speed Rail Authority expects to receive $55 billion in federal grants – including $13 billion in the next 10 years.

The planners are also counting on Congress to approve a new form of infrastructure bonds – and to get 27 percent, or $13 billion, of all those bonds issued nationwide.

And they expect to draw $11 billion in private capital, based on ridership estimates that suggest Merced will draw more passengers than Penn Station in New York City.

The latest business plan

Highlights of the California High-Speed Rail Authority’s new business plan, released last week:

Cost: Construction cost estimate has tripled since 2008 to $98.5 billion.

Federal funding: Expects $55 billion in federal funds through the project’s completion in 2033. Only $3 billion has been committed so far.

Private funding: Expects $12 billion to $13 billion in qualified tax credit bonds, which would be sold to investors over the next decade, and an additional $11 billion raised directly from investors once trains start running in 2022.

Ridership: Expects to make a profit even if ridership is low. Forecasts 23 million to 34 million riders in 2035.

Source: California High-Speed Rail Authority

Reporting by Ronald Campbell, The Orange County Register

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The business plan portrays a project that will be rolling in money – eventually billions of dollars in profits annually – but only after it begins carrying passengers in 2022. 

Until then it will depend on billions of dollars every year from congressional leaders who have labeled it a boondoggle.

The rail authority is proposing to build the project in phases – the same way, the business plan notes, that California built the mammoth State Water Project and I-5 through the Central Valley during the 1960s and '70s.

There is, however, a key difference between those projects and high-speed rail: Those earlier projects had dedicated streams of money that kept engineers and construction crews busy, year after year, decade after decade.

The state will spend all of its current federal grant money on the first 130 miles of track from Bakersfield to Fresno.

Despite the mocking nickname critics have given that link – “the train to nowhere” – it will have no train. There is no money in the budget for a high-speed train on that segment.

The backup plan is to let Amtrak run its heavy, 79-mph engines on the new tracks. That will shave 45 minutes off the 2½-hour run between Bakersfield and Fresno. A million passengers a year take that ride.

If there is ever to be a high-speed train in California, it will arrive with the second phase, after the authority extends the tracks some 100 miles to the north or south of that first segment, to either San Jose or the San Fernando Valley.

Total price tag for the second phase: between $19.4 billion and $25.8 billion. The authority will spend all its remaining state bond money – $5 billion – on that second phase. It hopes to somehow raise $7 billion to $8.5 billion in federal grants from 2015 to 2021.

As for the remaining $12 billion to $13 billion needed for the second phase, the authority is banking on something that Congress has not even authorized: “qualified tax credit bonds.”

Legislation proposed earlier this year by Sens. Ron Wyden, D-Oregon, and John Hoeven, R-N.D., would create a 10-year, $50 billion pool of these bonds for sale to private investors to fund transportation improvements.

The rail authority needs 26 percent of the national total to help put high-speed rail in operation.

Once trains start running – 2022 in the authority's plan – everything changes.

The authority predicts it will clear a $200 million profit that first year even if ridership is low. By 2035, profits could surpass $2 billion, by 2060 $7 billion.

With that kind of money rolling in, the authority expects to attract nearly $11 billion in private investment to help build later phases soon after the trains begin running.

Even then, however, it will continue to need federal money – on average, $4.1 billion a year from 2022 through 2033.

The private money hinges on ridership estimates, which have drawn scorn in the past. 

In contrast with its prior studies, the authority uses what appear to be conservative benchmarks in its new business plan. It estimates that over the next three decades, airfares and gasoline costs will remain constant. Only rising population and road congestion will push people onto the rails.

Still, one critic had a field day with some of the new numbers.

For example, the business plan predicts that in 2030, 14,400 passengers per day will board southbound bullet trains in Merced. That's more than the daily departures last year from the busiest Amtrak depot in the United States, Penn Station in New York.

The idea that Merced, a small farm and college town, could someday outstrip New York is absurd, said Richard Tolmach, president of the California Rail Foundation.

He also questioned the plan's forecast of $759 million in annual revenue for the Bakersfield-San Jose segment in 2025. Amtrak's San Joaquin service, which connects Bakersfield with Sacramento and the Bay Area, generated just $31.3 million in ticket sales in 2010 – 1/24th the amount predicted in 15 years.

The authority has itself to blame for its credibility problems.

In 2000, a predecessor agency estimated it could construct a 703-mile rail line from San Francisco to San Diego for $25 billion.

In November 2008, just before voters approved the $9.95 billion rail bond, the authority pegged the cost of the 520-mile San Francisco-Anaheim line at $33.6 billion.

In December 2009, using inflation-adjusted “year of expenditure” dollars, the authority said it could build the San Francisco-Anaheim project for $42.6 billion.

This was the background for the authority's announcement last week that the cost had soared to an inflation-adjusted $98.5 billion.

The main reason for the huge increase: The authority missed the real estate boom.

The train alignment cuts through some of the fastest-growing parts of the state, areas that added tens of thousands of houses and offices during the past decade. Planners at the rail authority didn't pay attention for years.

So in areas such as Santa Clarita, the Antelope Valley and the towns in between, the engineers have had to scrap plans to lay rails on the ground. Instead, they now expect to build viaducts – elevated tracks – or tunnels to take the train over or around homes, offices and businesses.

Between 2009 and 2011, planners added 20 miles of tunnels and 60 to 90 miles of viaducts to the project. At least 37 percent of the train's alignment will be in a tunnel or viaduct.

That adds up to big money. The authority estimated that all the viaducts, tunnels, embankments and trenches it added to the project since 2009 accounted for 80 percent of the cost increase.

The $98.5 billion price tag stirred outrage when it was announced last week.

State Sen. Doug LaMalfa, R-Richvale, said he would introduce legislation to put the voter-approved rail project back on the ballot.

“In three years, we've seen the cost of this project increase 300 percent from what voters were told in 2008,” LaMalfa said. “Californians deserve honesty from their government.”

State Sen. Alan Lowenthal, D-Long Beach, a longtime critic of the rail authority, called the new estimate “a shock.”

But the new, higher price tag should not have been a surprise. Before inflation, it's $67 billion – in line with the $63 billion estimate last May by the Legislative Analyst's Office.

Even the new estimate, however, may not be the last word.

“There is absolutely no reason to have any confidence that it will only be $98.5 billion,” said Alain Enthoven, an emeritus management professor at Stanford and critic who lives near the train alignment. “It's only an estimate from people who have a lousy record.”

Lowenthal said the authority's plan to build the project in phases is “more realistic” than its previous plan.

“I am cautiously optimistic,” he said. “But time is not our friend.” 

Ron Campbell reports for The Orange County Register and can be reached at rcampbell@ocregister.com.  Lance Williams reports for California Watch and can be reached at lwilliams@cironline.org. This story resulted from a partnership among California news organizations following the state's high-speed rail program, including The Fresno Bee, The Sacramento Bee, California Watch, The Bakersfield Californian, The Orange County Register, the San Francisco Chronicle, The (Riverside) Press-Enterprise, The San Diego Union-Tribune, KQED, the Merced Sun-Star, The San Luis Obispo Tribune and The Modesto Bee.

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