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High Speed Rail and Public Private Partnerships in California: A Shotgun Wedding?

Robert-Cruickshank.gifBy Robert Cruickshank

This has been published on my new California High Speed Rail blog.

As those of you who have been reading me for the last year know, I love high speed rail. And you'd also know that I am deeply skeptical - to put it mildly - of public private partnerships (P3). So what am I to do when they are joined together in a shotgun wedding? From a press release put out by the California High Speed Rail Authority:

"California High-Speed Rail Authority Executive Director Mehdi Morshed, joined Governor Schwarzenegger Tuesday in participating in a roundtable discussion at the State Capitol regarding the importance of investing in California's infrastructure and maintaining the state's economic growth through public private partnerships.

"Mr. Morshed noted the California proposed system of high-speed trains offers a unique opportunity to develop a new model for "P3" or public private partnership financing....

"Mr. Morshed noted that high-speed trains are attractive to private investors because California's proposed system will bring a $1 billion annual profit or surplus, once built."

Now it's not as if this is totally new. The 2002 Implementation Plan always envisioned that private financing would play some sort of role in the HSR project, although at the time it was expected to be limited to the bonds.

But what exactly is meant by "private financing" - and how bad might this really be for HSR? The Authority's finance team anticipates public-private partnership opportunities will include project debt financing, vendor financing, system operations and private ownership.

I can live with private involvement in debt and vendor financing, even though government can always borrow more cheaply. System operations is iffy at best - government runs the French, Spanish, German, and Japanese lines quite well, and when system operations were privatized in Britain, the results were deadly. Private ownership, however, is a line we must not cross - public ownership of infrastructure is key to an effective, safe, and affordable transportation system for Californians. High speed rail is an economic catalyst and an environmental and sustainablity necessity. It needs to be held in public hands for public uses, and not hollowed out for private profit.

And that $1 billion is a very, very enticing figure, especially for private companies and investors, who likely see in public infrastructure the kind of profit opportunities that they are now being denied in real estate and financial speculation. But that $1 billion would also be incredibly useful in building out the full HSR network envisioned in the 2002 Implementation Plan - or extending the service beyond its current routing (building an Altamont Pass alignment, for example).

In Europe, those operating surpluses are regularly plowed back into expansion of the HSR network. Spain's first HSR line, the AVE train from Madrid to Córdoba and Sevilla, proved so profitable that RENFE (Spain's government-owned rail network) was able to plow that money into recent extensions to Malaga, Valladolid, and Barcelona. France's state-owned rail network, SNCF has been able to do the same with expansion of its TGV lines as well. The operating surplus alone does not pay for these projects, but it helps reduce the added bond or tax monies needed to construct the new lines. Or, the surplus could be used to pay the bonds off ahead of schedule.

So there is a strong incentive to use those operating surpluses for HSR upgrades and extensions or bond repayment, instead of handing it over to private investors. But it seems clear that P3 is the price of obtaining Governor Arnold Schwarzenegger's support for the plan. From the press release:

The bond measure, which is within the Schwarzenegger Administration's current debt capacity guidelines, will also provide nearly $1 billion for improvements to local and regional passenger trains projects that complement and connect with the high-speed train system. The bond is also a significant component of the Governor's Strategic Growth Plan as described in his proposed 2008-09 budget.

That section, especially the language about "debt capacity guidelines," seems a very clear signal to me that Arnold is going to throw his weight behind the November HSR bond - but only because it promotes his goal of P3 for public works.

It's a shotgun wedding, and the question is, how should we react? Is HSR worth the price of P3? Already we're having to accept a lot of tough things to get this project moving. The Pacheco Pass alignment seems less ideal from a ridership and environmental perspective. And the plan floated by Fiona Ma and Cathleen Galgani to drop the insistence that LA-SF be the first line to open risks building a system that contains a missing link.

But neither are these poison pills. As I noted above, the Implementation Plan always called for private investment, to leverage the state, local, and federal funding. What seems more worrisome here is that Arnold is using HSR to advance a privatization agenda that is already being implemented in our state. HSR is too important a project to force into a shotgun wedding with Arnold's privatization push.

Robert Cruickshank is a historian, activist, and teacher living in Monterey. He is a contributing editor at Calitics.com and works for the Courage Campaign, in addition to teaching political science at Monterey Peninsula College. Currently he is completing his Ph.D. dissertation in US history, on progressive politics in San Francisco in the 1960s and 1970s. A native Californian, he was raised in Orange County and educated at UC Berkeley.

Posted on March 13, 2008

Comments

Amazingly, I agree with a lot of what you are saying here. While I believe in contracting out, I'm not big on P3. They're fundamentally different. I don't mind competitive bidding as far as companies who want to build it, but P3 would involve leasing the land, which provides the state a windfall now (probably why Arnold likes it), but we'll be paying through the roof for years after in order to use HSR.

I'm not voting for the HSR bond. I have said why many times before: the bond is too premature. The $9.95 billion is an arbitrary number, and we haven't obtained the bidding, commissioned the engineering, etc... first. Back in the Pat Brown days, we did all those things, and then borrowed only what was necessary to finance it.

If you've ever wondered how government's predicted costs end up to be half of what it actually is, that's why! The HSR will probably cost $80 billion at least, but the state isn't accurately estimating the full cost, nor how it will get all the money necessary. I see no reason the HSR will get built even if this bond passes. Before borrowing money from our grandchildren, the least they should do is what I've described here

Posted by: Ben at March 13, 2008 03:18 PM

Before we all buy the "Monorail" in the Simpsons episode and soak the taxpayers...

Show me HOW-HOW exactly you will get a 200MPH train to go through Soledad Canyon and over Tehachapi Pass where current track speeds are as slow as 20-25MPH.

In these locations of steep grades and sharp curves, the ultimate one being caused the "Tehachapi Loop" where trains do a 360 degree climbing/decending circling turn at 20MPH, I suspect the egineering to "straighten out" the track and shallow the grades would be COST PROHIBITIVE.

Not to mention the co-location of the San Andreas Fault!!!

The high speed rail website DOES NOT say how to build in these locations either. Probably wants the $$ before the reality of cost overruns really kicks in.

In it's current form, this is a really DUMB IDEA.

Posted by: Jay Gould at March 14, 2008 11:50 AM

I too have a big problem with a $40 billion (or $80 billion) pricetag. Talk about sticker shock !

We could have HSR in California within our lifetimes if CHSRA, their consultants and politicians wouldn't keep gold plating this project.

We need a HSR bypess line between Fremont and Santa Clarita via the I-5 corridor (to connect with existing networks in L.A. and the Bay Area). Not a 200 mph BART line in a ditch through Plamdale, Bakersfield and Fresno.

There could be 3 hr. end to end trip times (comprable with flying) between L.A., S.F., Sac. or Fresno by using the existing lines to feed the HSR segments. We do not need to double the price to provide Fresno and Palmdale with 1.5 hr. service.

Build it incrementally, starting with a new line from the edge of L.A. to the edge of the Bay Area for the express trains. The local trains to Central Valley trains could use it too and achieve major time savings.

That's how they do it in Europe where they know what they are doing. The current over-priced proposal may have to go down before we can build something that is affordable.

Posted by: Transit Planner at March 14, 2008 01:28 PM

Transit Planner:

But everyone knows this project is not about providing needed transportation. Its all about giving San Jose, San Francisco and Anaheim anchor points with tons of money to pour into their coffers.

There is no real congestion along I-5; we don't need a rail link from north to south.

From the CHSR own website, what they are out after is 450,000 new jobs in the central valley and 300,000 man years of construction jobs.

Where do they think they are going to get 119 million passengers per year to ride and make this economically feasible. We built a good highway system, and people are going to continue to use it.

Posted by: Steve Johnson at March 15, 2008 06:26 PM

I have great difficulty in understanding people who oppose to the energy efficient, safe, reliable transportation system.

Shell Oil Company is predicting that after 2015 supply of cheap oil will no longer keep up with demand. The year of 2015 is only 7 years away. All American will greatly suffer from the lack of cheap oil. My guess is that after 2015, prices of not only oil but all other things will go up steady, i.e., INFLATION. Monetary value will decrease very quickly. Probably the dreadful inflation would not be understood by most Americans because very few had such inflation before.

So don't take negatively but start thinking about how to conserve oil. The high speed train is one of ways but it takes to build far longer than 7 years. So we have to start conserving oil by other ways immediately.

Posted by: Hitoshi Maruyama at March 16, 2008 06:20 AM

Like you and your readers, I too am a believer in California progress. One of the areas of progress in which I believe is the creation of a sophisticated regional and urban mass transit system for two population centers: The greater Bay Area, now called a super-region going from Sacramento in the north, into the tri-valley, and south to Monterey. The other region is the Los Angeles Basin, going east as far as there are population centers whose residents commute or could commute into business centers throughout greater LA.

This is not the place to trot out details, facts and figures, about population sizes, costs, demography, and existing transit, or lack of transit issues.

What we are advocating is a multi-modal (not rail exclusive), comprehensive network that is highly integrated, that has major arterials and a vast network of “capillaries.” With extensive bus use, flexibility can be sustained as population regions wax and wane. The most outstanding virtue or characteristic of this system is convenience. That means ease of use, point to point speeds rivaling or exceeding private automobile use, clean, safe and comfortable vehicles, and connectivity as close to door-to-door as possible.

It includes automobile use as and wherever necessary, including parking availability, as well as enabling walking and biking for those willing and able. It is possible to elaborate on the features of such a system in far greater detail.

Now comes the hard part. What California doesn’t need is rail north-south connectivity. Even if it did, it would be very far down on the priority list, which rates the regional mass transit systems much higher. The fact is, north south transit in the air or on the highways is not gridlocked. That is only the rhetoric of the train promoters.

Furthermore, the train in question will be a – let us not mince words here – a luxury train for the well-to-do, for professionals in suits and for tourists headed for Disneyland; in short, a train the government has no business building. It will not be, indeed, CHSRA has made every effort to avoid its being, a commuter train system. They will leave that to others.

The eventual $40 billion, which will become $100 billion as everyone who has done their homework already knows, would be far better spent on the two population regions’ transit needs; not on a pork-barrel boondoggle like this train.

Posted by: Martin Engel at March 16, 2008 02:24 PM

P3 has been a disaster for our community in Ventura County. We bid a new sewer plant using this formula and we ended up with $100 a month sewer bills. Any opportunity for local jobs was lost as we entered into a 20 year contract with American Water(owned by German Corp., RWE). Almost $250 million will be removed from our community of 15,000 in the next 20 years. How does this help the City or the State of California? It didn't have to be this way but the marketing and political power of these companies coupled with the support of the Governor will be devastating.

Posted by: Gayle at March 18, 2008 12:42 PM

My beef with the HSR as proposed is that it is too much a political delivery and not enough based on what a wonderful form of transit a High-Speed Rail can and should be. The California HSR as presented to us clearly wants to deliver too much to too many locations, and I predict therefore that it is going to be slower than presented to us, and attracting fewer people than expected. Some economic reasoning is in place to make some adjustments, such as I present on my PPP (with moving visuals to make it more fun than the average PPP), located at : http://www.pentapublishing.com/online.html

Posted by: Fredrick Schermer at April 10, 2008 04:17 PM

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