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State treasurer worries about bullet train’s finances

CalPERSState Treasurer Bill Lockyer

California’s vision for an 800-mile bullet train system is bold and appealing, but the project’s finances aren’t penciling out, the state’s top financial official warns.

In an interview with California Watch, state Treasurer Bill Lockyer said the state’s $45 billion high-speed rail project is fraught with “unanswered questions” about construction financing and operating revenues.

He said it was important for Gov. Jerry Brown and the state Legislature to get satisfactory answers before the state begins the planned sale of $9.95 billion in bonds next year so construction can begin.

“I love the idea – the idea is bold,” Lockyer said. 

But he said he worries the project is counting on billions in federal aid and private financing that may never materialize.

“I think the federal funding is too speculative,” Lockyer said of the project’s financial plan. “I think the likelihood of significant private capital is questionable.”

At another point, he said, “I’ve been disappointed by the lack of a disciplined business plan that makes any sense, and I’m not sure the economics work out.”

Some of Lockyer’s comments were included in a weekend report by California Watch and The Orange County Register about the bullet train’s financing issues. The treasurer’s criticism mirrored aspects of critiques made by the state Legislative Analyst’s Office, the state auditor and UC Berkeley’s Institute of Transportation Studies.

Here are some other highlights of his remarks:

Initial concerns

In 2008, after voters approved the rail bond measure, Lockyer said he was concerned that Wall Street would shun the bonds.

Lockyer said he initially presumed that “we would go to market with a high-speed rail bond;” that is, bonds tied to the bullet train project.

“I was worried that if I had to sell a pure high-speed rail bond, that the uncertainties, the (issues of) revenue stream and passenger volume and fare box revenues were so unsettled that no investor would want to take that risk,” he said.

Actually, the rail bonds are to be “just a vanilla general obligation bond, backed by the state’s credit,” Lockyer said. Thus, they pose no special marketing problems.

Bonded debt

Nevertheless, the bonds for rail raise questions about the state’s overall debt load, he said.

Lockyer said that in the next 25 years, the state will be asked to build about $400 billion worth of infrastructure projects – everything from schools to flood control measures. “I don’t see the likelihood of public bond financing for as much as half of that number,” he said.

He continued: “There is a growing sensitivity to public debt loads. The state’s debt service obligation has been increasing rapidly.

“It‘s the fastest-growing segment of the state budget. … We’re getting in the neighborhood of 7 percent of the general fund being for debt service.”

And so, “because of the inability to finance all the needed infrastructure investments and the constraints on the growth of debt, it requires us to start allocating between the differing competing needs,” he said. That’s the question for the governor, the state Department of Finance and the Legislature, he said: Is it prudent to cancel another worthwhile project and sell bonds for rail, given the project’s unsettled finances?

A strategic error

Lockyer also suggested the California High-Speed Rail Authority might have made a strategic mistake by opting not to begin construction in either the Bay Area or the Los Angeles basin.

Instead, the initial line will run between Corcoran, near Bakersfield, and Borden, near Fresno.

“It seems to me they made a serious error in starting in the Central Valley, rather than building out either one of the two ends of the line that are going to be experiencing high traffic volumes,” he said.

“They need to show some success, and Bakersfield to Borden I don’t think is going to convince people that this is a great thing to do.

“I understand why – they say, ‘Well, we’re ready to go and we can lay some track now, and we’re going to have to do it eventually.'

“But in terms of convincing the public that it makes sense, that’s not a home run.”

Lockyer is one of California’s most prominent Democrats – before he was elected treasurer, he was state attorney general, president of the state Senate and an assemblyman from San Leandro.

But concerns about the California bullet train’s finances are shared by some Republicans. Last week, U.S. Rep. Paul Ryan, R-Wisconsin, chairman of the House Budget Committee, mockingly bestowed a “budget boondoggle award” on the project. He ridiculed the Central Valley route as a “train to nowhere.” 

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