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Uploaded: Friday, January 6, 2012, 4:56 PM
Updated: Sunday, January 8, 2012, 12:54 PM
Report: Halt state funding for high-speed rail
Peer-review group finds flaws in business plan for controversial system
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by Gennady Sheyner
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 | California's quest to build a high-speed rail system between San Francisco and Los Angeles suffered a heavy blow Tuesday when a peer-review committee recommended that state legislators not fund the project until major changes are made to the business plan for the increasingly controversial line.
In a scathing report, the California High-Speed Rail Peer Review Group found that the business plan the California High-Speed Rail Authority unveiled in early November offers inadequate information about funding, fails to answer the critical question of which operating segment will be built first, and features a phased-construction plan that would violate state law. The group, which is chaired by Will Kempton, recommends that the state Legislature not authorize expenditure of bond money for the project until its concerns are met.
The rail authority responded to the report by disputing many of its findings and by claiming that it "suffers from a lack of appreciation of how high-speed rail systems have been constructed throughout the world." The authority also said in a statement that the peer-review group's report "makes unrealistic and unsubstantiated assumptions about private sector involvement in such systems and ignores or misconstrues the legal requirements that govern the construction of the high speed rail program in California."
The report deals the latest of several recent setbacks to the project, for which state voters approved a $9.95 billion bond in 2008. Since then, the project's price tag more than doubled and several agencies, including the Legislative Analyst's Office and Office of the State Auditor, released critical reports about the project.
In its letter to the Legislature, the peer review group highlighted some of the same flaws that local officials and watchdogs have long complained about, most notably a deeply flawed funding plan. The project currently has about $6 billion in committed funding and the rail authority plans to make up much of the balance from federal grants and private investments -- investments that would be solicited after the first major segment of the line is constructed. The peer-review group found this plan to be vague and insufficient.
"The fact that the Funding Plan fails to identify any long term funding commitments is a fundamental flaw in the program," the report states. "Without committed funds, a mega-project of this nature could be forced to halt construction for many years before additional funding could be obtained. The benefits of any independent utility proposed by the current Business Plan would be very limited versus the cost and the impact on state finances."
The group also faulted the rail authority's business plan for failing to choose the "initial operating segment" for the rail line. Though the authority has decided to build the first leg of the line in Central Valley, this segment would not be electrified and would serve largely as a corridor for testing the new line. The first "true" high-speed rail segment would be built later and would stretch either north toward San Jose or south toward San Fernando Valley.
Though the peer-review group acknowledged that a phased approach is the only feasible way to build the system, it also found that this plan violates a requirement of Proposition 1A, which mandates that the rail authority identify funding for the first usable segment of the line before construction begins. The Central Valley segment, the peer report notes, "is not a very high-speed railway (VHSR), as it lacks electrification, a CHSR train control system, and a VHSR compatible communication system. Therefore, it does not appear to meet the requirements of the enabling State legislation."
The peer review group also wrote in its letter that the authority should have determined in its business plan whether the first "operating segment" would go north or south from the Central Valley. Its letter states that "it is hard to seriously consider a multi-billion dollar Funding Plan that offers no position on which IOS should be initiated first."
"This indecision may also have consequences in obtaining environmental clearances. We believe that the Funding Plan as proposed should not be approved until the first IOS is selected."
The report reserves "final judgment" on the funding plan because the rail authority's business plan is still in draft form and subject to revisions. But it also makes clear that major changes would have to be made before the project warrants state funding. The letter notes that while legislators could potentially come up with a funding source for the project, without such a source "the project as it is currently planned is not financially 'feasible.'"
"Therefore, pending review of the final Business Plan and absent a clearer picture of where future funding is going to come from, the Peer Review Group cannot at this time recommend that the Legislature approve the appropriation of bond proceeds for this project," the peer group's letter concludes.
The new report presents a potentially devastating blow to the rail authority, which is banking on getting $2.7 billion in Proposition 1A funds for construction of the Central Valley segment. The agency has also received $3.5 billion in federal grants.
The state funds are particularly critical given the lack of private investment and increasing local opposition. The authority had acknowledged that private investment would not start coming in until later phases. Future federal funding is also deeply uncertain at a time when many Republicans in the House of Representatives are vehemently opposing the project.
Roelof van Ark, CEO of the rail authority, said in a statement that the recommendations of the committee "simply do not reflect a real world view of what it takes to bring such projects to fruition."
"It is unfortunate that the Peer Review Committee has delivered a report to the Legislature that is deeply flawed in its understanding of the Authority's program and the experience around the world in successfully developing high speed rail," van Ark said.
Rail authority officials also argued that the peer-review group's report could jeopardize federal funding for the project. Thomas Umberg, chair of the authority's board of directors, said the board takes seriously "legitimate critiques" of the rail program, including recommendations that the authority hire more staff.
"However, what is most unfortunate about this Report is not its analytical deficiency, but that it would create a cloud over the program that threatens not only federal support but also the confidence of the private sector necessary for them to invest their dollars," Umberg said in a statement.
The authority's Chief Counsel Thomas Fellenz called the committee's findings about the project's inconsistency with Proposition 1A "unfounded assumptions." The group's legal conclusions, he said in a statement, are not only "beyond the expertise of the authors, but attorneys at the state and federal government level and the legislative author of the bond measure, profoundly disagree."
The authority also submitted an eight-page letter to state Legislators responding to the peer-review group's criticisms. The authority disputed in its letter the peer-review group's finding that the "initial construction segment" in Central Valley would violate Proposition 1A and argued that the group's demand for a long-term funding plan fails to consider how major transportation projects are normally built.
"By this measure, none of the unconstrained regional transportation plans of any transportation authority should be pursued," the letter from Umberg states. "No project, in our experience, has fully identified funding sources for the entire project at this stage and it is both unfortunate and inappropriate for the Committee to apply this test only to high speed rail." Are you receiving Express, our free daily e-mail edition? See a sample and sign-up for Express.
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| Comments
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Posted by [removed], a resident of another community, on Jan 7, 2012 at 9:39 am Dear Editor,
For many of our regional residents that have used high speed rail in Europe and Asia it is unimaginable that USAmerica, especially a technology state such as California, cannot put this well-developed technology into profitable operations.
It makes no sense and deserves a comparative view by journalists that can say "why does it work elsewhere but can get started here?"
Allied news service courtesy
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Posted by Douglas, a resident of the Blackhawk neighborhood, on Jan 7, 2012 at 3:58 pm Finally someone is yelling, "the emperor has no clothes." About damn time as this project should have NEVER been approved in the first place! What a waste of money...
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Posted by High Speed Rail Fan, a resident of the Alamo neighborhood, on Jan 9, 2012 at 8:28 am Of course we should have a high speed rail system! More than one, actually. The transportation situation in this country is sad to pitiful. Anybody ridden AMTRAK lately? When we did we looked out the window and realized the cows were walking faster than the train! Never again! Figure out the funding and get going, we are way behind!
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Posted by Huh?, a resident of the Danville neighborhood, on Jan 9, 2012 at 12:43 pm Every single criticism of the California High Speed Rail venture could have been (and was) used against BART in the 1960s. Can you imagine where the Bay Area would be without it today? That's also true of the Interstate Highway system in the 50's. If we don't build it we'll be behind the 8 Ball in the future. Planning for the future requires starting to build stuff today that we'll need 20 years from now. Obviously, there's money at stake; with high speed rail there will be less gas and diesel burned, fewer airline seats sold. Any wonder why there are naysayers with really, really big megaphones, shouting out doom and gloom? Follow the money...
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Posted by FanDanville, a resident of the Danville neighborhood, on Jan 9, 2012 at 12:51 pm
What is the Usage assumption behind this idea and how is it derived?
Where is the Survey of Who and How Many people would ever use this line....and for what intended purposes? Shouldn't that be the primary starting point?
99% of the time that I am using the surface route from SF to LA, it is because I'm helping someone move their belongings or to go on a vacation or camping or togo visit relatives on a holiday (usually with some side diversions as well). So I would need to be able to bring a lot of items and people along. And I would need to get around a lot on the other end. How would this train ever service my needs?
The only concept I could support would be some sort of "ferry" train, high speed or otherwise, that people could park their cars on and then dis-embark at certain locations.
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Posted by Huh?, a resident of the Danville neighborhood, on Jan 9, 2012 at 1:33 pm FanDanville, why do you load your post with false assumptions? Specifically, why do you use the phrase "the surface route"? Over 95% of the time **I** go from here to LA I fly. Portal to portal, high speed trains would beat flying to 95% of the destinations in LA, at a much lower energy cost per passenger. There are dozens of flights every day, and they're packed.
Sure, if we build high speed rail some people will still drive. But if we don't build high speed rail we'll need to build even more airports and freeways (and spend a lot more time in TSA lines and traffic jams) to transport all the people traveling around the state.
Time doesn't stand still. Population and the economy grow. What's the best way to plan for the future? By figuring everyone else will do what one guy does today? Really?
Like I said, every argument used against high speed rail today was used against BART 50 years ago. Including yours.
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Posted by john tanner, a resident of the Danville neighborhood, on Jan 9, 2012 at 3:46 pm High speed rail in California at this juncture is a complete waste that only a moron or someone on the take would support. California's infrastructure and city layout do not compare to either Europe's or Japans. To build this boondoogle will far exceed $100B. What else can we build for that much. How about four lanes for route 5 and improved freeways? How about freeway trains in San Diego, LA, Sacramento and more lines for Bart? I will be my life that non-subsidized ticket prices between LA and SF will far exceed the price of airfare, and since it will be possible for a terrorist to kill as many people with a bomb there will be the same check-in process as at airports. And since there is but one main terminal, there will be the same car rental and parking lot charges and hassles as for airplanes.
I can get from here to LA via car in 5 hours no problem. Via high speed train I would estimate at best 4.5 hours. Leave house two hours before departure time, park, bus transport, check in, security, train time, desembark, bus, rent car, drive to destination.
Let's do our own arithmatic on a business analysis. Let's suppose that ridership is 10M people per year. Typical businesses look for investment write offs of 10 years, but lets be generous and give these clowns 100 years to make back $100B dollars at zero percent interest. So at 10M passengers per year (that is 27,397 passengers per day, which any non-moron knows is not possible), the ticket cost has to capture $100 per passenger ($100 x 10M = $1B)
But please note. 100 years at 0% interest is ridiculous. Just as 10M passengers per year is ridiculous.
Vote to kill this project as soon as you can. If it is such a good investment idea, I am more than happy to let the "1%" fund it and let them reap the profits, with no recourse to public debt like the solar company that went bankrupt. I can guarantee you there is not one sane investor alive that would put a penny into this money loser.
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Posted by Douglas, a resident of the Blackhawk neighborhood, on Jan 9, 2012 at 4:49 pm john tanner - that was very well said and I completely agree!
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Posted by Sam, a resident of the Danville neighborhood, on Jan 10, 2012 at 12:32 pm So, what will happen is that we won't build it now. The Central Valley will continue to grow over the next 30 years (because that's where more people and businesses will locate). Then when we really, really need that rail service, it will cost 10x as much and we will all be kicking ourselves that we hadn't done it sooner.
The real question is not whether California will need a high-speed rail service connnecting SF and LA through the ever-growing Central Valley -- but, rather, WHEN we should start building it. It's a question of timing and balancing the need with the cost. Maybe it's too soon now. But, soon it will be too late and really prohibitively expensive.
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Posted by For a high-speed rail system, a resident of the Alamo neighborhood, on Jan 11, 2012 at 8:10 am If you build it they will come.
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Posted by John Tanner, a resident of the Danville neighborhood, on Jan 11, 2012 at 9:48 am If we use Sam's logic, we should have built it twenty years ago, when it made no sense then too. If growth continues unabated in the Central Valley, which I believe it will not unless it is supporting Sacto or Bay Area metropolisis (which would be better served with extended metro rail lines), then it will be an even better idea at that time. However I don't see business folk jumping on rail and bus lines already available throughout the central valley. The Air industry has ample capacity to support increased ridership between LA and Bay Area. When that capacity is exceeded, the high speed rail will finally become much more desireable. And for sure there are only a very small fraction of people that are going between LA/SF and some destination in the central valley.
Don't forget that one of the main selling points and why many voters opted for supporting it, was that it would be "good for jobs." Well, I wager that "good for jobs" when funded by taxpayers, is not all that good. And certainly Obama's borrowing to finance construction and other jobs has not been roundly supported. So tax payer funded jobs is at a low ebb.
As I said, if it is such a good idea, let the capitalist profiteers fund the project. They are funding toll roads! Have them fund the toll rail! They invest in solar, some of them smart enough to rip off taxpayers with government loans due to a lax political climate.
High speed rail is high level thievery!
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Posted by John Tanner, a resident of the Danville neighborhood, on Jan 11, 2012 at 10:01 am If you build it they will come... Sure and at a huge subsidy from the government, which NOBODY wants. Ask yourself why you want government to subsidize a business that is best left to stand on its own?
Amtrak is already hugely funded by government and it's ridership numbers are pitiful. And who do you know that has uses Amtrak, besides desperate college students? But I bet you know tons of people that use bart, airplanes and freeways.
Take note that Berkshire Hathaway just purchased a major rail company that is in the cargo hauling business. Mainly because rail is a great investment for the capatilists because it is profitable (it competes very well with air cargo, ship cargo and trucking). But rail when it is not profitable is a lousy business. Do you see any Bain style private capital companies clamoring to buy out Amtrak from the government? No, because it remains a terrible investment.
Propose building it and they (meaning those that feed, trough-style, on the government dole) will certainly come.
In fact they will lobby, High Speed Rail Authority members, financial industry that sells the bonds and the construction industry that hopes to reap billions in contracts, in droves.
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Posted by FanDanville, a resident of the Danville neighborhood, on Jan 11, 2012 at 11:48 am
“Huh? wrote:
FanDanville, why do you load your post with false assumptions? Specifically, why do you use the phrase "the surface route"? Over 95% of the time **I** go from here to LA I fly. “
Huh?,
Did you miss the fact that I ASKED the relevant question, right up front, about how the Train Promoters were making their assumptions about how much and for what purposes the Train would be used.
I’m not making the “assumptions”.
I am stating how I do trips to LA. (I’m not assuming that you do the same and you are welcome to state your usage of trips to LA.)
99% of MY trips to LA are driving.
01% of MY trips to LA are flying. Of those flying trips, at least 50% of those are flights going somewhere else. So LA is just a hub and I would not be taking the Train for those flights anyway.
So, for me, comparison of the Train vs Driving is important and relevant.
I’d like to know WHAT USAGE ASSUMPTIONS the Train Promoters are using and how they obtained them!
“Huh? wrote:
Portal to portal, high speed trains would beat flying to 95% of the destinations in LA, at a much lower energy cost per passenger. “
I don’t know how you are predicting that “high speed trains would beat flying” and what assumptions you’re making in that prediction.
But, at this point, I don’t believe you one bit that the train trip would be significantly faster (or get me significantly closer to my final destination). My gut tells me that your prediction is wrong and inaccurate. Especially once you factor in the time that it will ALSO take to go through the TSA lines to get on the Train. You didn’t include that in your predictions, did you?
You can’t possibly be so naïve as to think that there will never be TSA lines to the Train. Just one hint of terroristic threat to the Train (or one actual incident) and there will be implementation of TSA lines (with more financial costs and travel time).
And, really, how are you going to protect all those long miles of perfectly level track between the stations?
And what about the danger from earthquakes, especially in CA? When an earthquake hits, would you rather be on the high-speed Train or on an Airplane?
“Huh? wrote:
..... But if we don't build high speed rail we'll need to build even more airports and freeways .....”
Will we really need a lot more airports? I question that.
Maybe we’ll need some more PLANES. But those are incremental costs. Just run more planes.
It’s not like you’re building a whole new separate infrastructure (train system) from the ground up.
And having more planes and more airport infrastructure is MUCH MORE ADVANTAGEOUS to us, than having a single line run to LA. These planes can get us to ANYWHERE, not just to LA.
As for needing more freeways:
Yes, maybe.
We’ll probably need more (or wider) freeways.
But those freeways will serve a lot more need, than just the run to LA.
Additionally, it is still an open question what the FUTURE is going to bring as far as freeway congestion is concerned.
Usage patterns may change. (What will be the effect of “home office” working?)
Technological innovations may change freeway congestion. (Computers driving cars for us—closer and quicker.) (Maybe we’ll have flying cars.)
The bottom-line about this Train idea is this, it is a pipe dream, a boon daggle, a costly low-priority scam, for which the Train Promoters have presented no solid basis to us to prove that the Train would significantly solve a substantial transportation problem that we are majorly suffering from. Is this the highest priority problem that we have in CA, such that we are going to throw billions at it?
It’s not really going to reduce local freeway traffic in the Bay Area.
It’s not really going to solve the current economic problems.
This whole argument that “it’s going to create jobs” is a scam. ANY NEW WORK PROJECT creates jobs, but that is no justification for the existence of the project and for spending billions of taxpayer’s dollars on it.
This PROJECT doesn’t create money, it costs money.
Only those projects that are of the highest-priority necessity (and within the authorization of government’s legitimate powers and mandates) should be done (especially ahead of other needed project ideas).
This idea that SPENDING is a magical way to get us out of economic woes is insane. It’s a Ponzi scheme: the money has to come from somewhere (and at some time). It’s building a house-of-cards and then hoping that the cure comes before the crash. We just help escalate this insanity by building an expensive, unnecessary project, like this Train.
Is it really going to be environmentally better? Is that the ultimate criteria for decision making?
It’s not enough to JUST be environmentally better.
It would be environmentally better if no one traveled by either car or train—if no one left their house at all.
It would be environmentally better if there were much fewer people in the world.....so let’s kill off half of them? That’s insane logic (unless we start with the Radical Environmentalists first).
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Posted by C. R. Mudgeon, a resident of the Danville neighborhood, on Jan 11, 2012 at 3:16 pm Just to throw another little basic math tidbit out there, the current projected construction cost (which is STILL grossly underestimating where it will end up) amounts to more than $2,500 per man, woman, and child currently residing in CA. This of course is before you get into the question of whether ongoing subsidies will be needed to keep it running.
Obviously, this only has to be paid back over a fairly long number of years. But on the other hand, if you are an actual tax-paying Californian, then your real share of the obligation is a lot higher than just $2,500 per person.
All this to get a system that MIGHT be cheaper and a tad faster than full-fare Southwest, but will almost certainly be more expensive than a nice discounted SW fare.
Maybe a better question is to ask why a HS rail system should cost $100B in the first place. But given the reality of infrastructure project costs in CA (new Bay Bridge span, 4th bore of Caldecott tunnel, Devil's slide tunnel/bypass, etc.), there should be little reason for optimism.
The only real beneficiaries will be the politicians and their cronies, who will belly up to this taxpayer trough big-time. THEY are the ones who will be on the fast-track to corrupt gains.
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