» Despite an excellent proposal and significant state support, the project cannot hope to attract private investors without a larger commitment of aid from Washington. Meanwhile, Europe continues to invest.
The long hoped-for private financing necessary to construct the California High-Speed Rail project will not come as easily as originally planned.
That, at least, is the conclusion of the authority empowered to build the project, the nation’s single-largest infrastructure program. According to the Los Angeles Times, in a letter to legislators this week the agency warned that the private money that it had counted on to cover a third of the project’s more than $45 billion costs would likely not be available until after parts of the line were up and running. The problem is that investors are concerned about the fact that of the expected major contribution from the federal government, only $3 billion has been authorized so far — and opposition in Congress to President Obama’s high-speed rail program means more money will be difficult to get, at least until after the 2012 elections.
The letter was essentially a preview of the authority’s new business plan, which is due to be submitted November 1. The plan must be approved by the state legislators in order for state funding to be spent on the 220 mph line, which is designed to connect Los Angeles and San Francisco, with future links to San Diego and Sacramento.
The news is embarrassing for the authority, which has been arguing for years that it could attract billions in private funds before the project was ready to be built, but it is not altogether surprising given the situation in which it has been placed. As I argued in mid-2009, California may well “never receive a guarantee that the feds will fully fund their prescribed share of the entire corridor’s construction costs. This is a huge problem, because a public agency shouldn’t be expending massive amounts of money on sections of a train system it doesn’t know it can finish completely. The private partners California hopes to interest in its program will not be excited about helping out on a train line they aren’t sure will ever open.“
And indeed, this has been a legitimate concern about the Obama Administration’s high-speed rail program since it was first formulated. Though it is designed to sponsor major projects like California’s, its small appropriation ability means that the commitments it should be making — California wanted upwards of $10 billion from Washington, equal to the full amount thus far appropriated by Congress to the national program — cannot be distributed. The fact that the House and Senate have yet to agree on a long-term transportation bill, and the fact that Republicans have shown no interest so far in funding more intercity rail programs using the public purse, suggests that the situation is unlikely to get better for now.
This is likely to put a dent in plans to open the new rail line by 2020.
The California authority has developed a series of potential solutions to the problem, which must be solved if the agency wants to use the federal grants it has received thus far, since they must be spent by 2017. One option is to use federal loan guarantees and tax credits to provide an incentive for private investors to put their funds into the project or to leverage the $9 billion in state funds (authorized by the public in a 2008 vote) through the bond market, which could allow a tripling of available money. This would all have to be paid off eventually through public sector tax funds or user fees. While the California network is to be operationally profitable like virtually every high-speed rail system, it is unclear whether receipts will be large enough to cover capital costs.
The other possibility is to shorten the planned route, replacing what was originally supposed to be a full new line from San Francisco to Los Angeles with a feeder line that would speed up existing Amtrak trains. Because the federal government has committed to a Central Valley segment between Merced and Bakersfield as the first section fo the route to be constructed, it seems likely that the authority would have to concentrate its resources on this project.
In some ways, this could be a reasonable approach. Trains between Oakland and Bakersfield currently take six hours to complete their journey, but the high-speed line would allow 52-minute trips between Merced and Bakersfield, compared to three hours today. Thus constructing just this segment would reduce Oakland-Bakersfield trips to less than four hours — a massive reduction in journey times — if the appropriate rolling stock were available.
Of course, this would do little to address the greater concern, which was supposed to be linking San Francisco and Los Angeles in 2h40. Currently, there are no direct trains into San Francisco, and the coastal route along which Amtrak trains run from Oakland to L.A. requires 11 to 12 hours of journey times. There is no train link between L.A. and Bakersfield. Because of the federal government’s previous decision to concentrate its resources in the Central Valley, resolving this issue will have to wait for another time if more funding is not found in the short term. But one wonders whether a link between Oakland and Bakersfield will be enough in itself to generate profitable ridership that convinces private investors to commit to the project, as the authority seems to be implying.
This news comes just as the European Union announced its most recent Ten-T program, which is investing €31.7 billion in ten E.U.-scale corridors, most of which are designated for high-speed rail. Member countries have committed to hundreds of billions of euros more to build the projects, and indeed, there are active plans for new lines in most European countries. This is a prime example of governments thinking seriously about how to invest their limited resources in transportation projects that will pay off in the long-term.
Some might argue that the United States and Europe are simply different, that private investors here recognize that Americans will not ride trains and thus will not commit to funding irrational projects. But the ability of European countries to attract private partners to cover up to half of the costs of their new rail lines has a lot more to do with the fact that there has been a solid commitment from governments there to invest in those programs, whereas American policy on the issue has been erratic at best.
The problem is that California has been shunted into an impossible position: forced to make due with very limited federal funds despite a large commitment from state voters, the authority cannot attract private dollars. This is not, I would argue strongly, the fault of the authority or the Department of Transportation, which has funded it so far; blame rests entirely on a Congress that has been incapable of having a serious discussion (and making a final decision) about the merits of major investments in the nation’s transportation infrastructure. Instead, it continues to hand out small amounts, enough to keep projects like California’s alive but not enough to actually implement them.
But California is still in a bind. It must either must cancel work — a dead-end proposition that will inevitably require unearthing the proposal in a decade — or build a much-shortened segment with far fewer benefits to the state. While it would be nice to get from Oakland to Bakersfield more quickly, the advantages of such a project pale in comparison to those of a full San Francisco-to-Los Angeles line.
None of this news should be cause for celebration for opponents of spending on government infrastructure. The millions of people who are expected to ride the high-speed rail system every year will have to get between their destinations by some mode, and California’s air and roads infrastructure is at capacity. No high-speed system means spending just as much — or more — public dollars on upgrades to the existing system. Meanwhile, even if the financial costs of upgrades to highways and airports were similar to those of building the new rail network, the society’s economic costs of doing so are completely different: The high-speed rail system would offer an ecologically friendly alternative that reinforces the city centers of the state instead of furthering sprawl.
Without a real sign of commitment from the federal government, however, projects like California’s simply will not be able to be constructed in the United States. This speaks volumes of the ability of the American public sector to invest in projects that are beneficial to the society as a whole from a long-term perspective.
Image above: California High-Speed Rail, from California High-Speed Rail Authority