$27.71 billion to go / Federal funding doesn’t mean high-speed rail project adds up

San Diego Union-Tribune Editorial
Friday, January 29, 2010 at 12:04 a.m.

Supporters of a $40 billion private-public joint venture to establish a high-speed rail system linking Northern and Southern California reacted jubilantly to yesterday’s Obama administration announcement that the state would be given $2.34 billion for its project. Gov. Arnold Schwarzenegger and Senate President Darrell Steinberg – both big bullet train fans – issued news releases that amounted to self-congratulatory odes to their wisdom in backing a visionary project that will create “jobs, jobs, jobs,” in the governor’s words.

But if anything, a focus on how the project is supposed to be financed inevitably illustrates the enormity of its folly. In November 2008, with their approval of Proposition 1A, California voters authorized what was billed as a down payment of $9.95 billion toward construction of a high-speed rail system. So the federal funds mean the state has now secured $12.29 billion of the $40 billion it needs.

Where is the remaining $27.71 billion supposed to come from?

High-Speed Rail Authority officials expect about half of the project to be paid for by the federal government, meaning they’re counting on nearly $18 billion more. They admit they have no grounds for this expectation. President Barack Obama’s announcement this week of a freeze on discretionary domestic spending to curb the vast federal deficit makes this assumption even more ludicrous.

The remaining funding – about $10 billion – is supposed to come from private investors. But this is even more unlikely than Washington supplying an additional $18 billion.

All you have to do is read the rail authority’s original business plan for this to become apparent. Potential investors “made it clear that they would need both financial and political commitments from state officials that government would share the risks to their participation,” the plan noted.

But Proposition 1A’s language doesn’t allow state government to “share the risks.” It explicitly says the high-speed rail system “will not require a local, state or federal operating subsidy.”

This hasn’t sunk in with the rail authority, incredibly enough. The Legislative Analyst’s Office noted that the latest version of its business plan “assumes some form of revenue guarantee from the public sector to attract private investment. This generally means some public entity promises to pay the contractor the difference between projected and realized revenues if necessary. The plan does not explain how the guarantee could be structured so as not to violate the law.”

The rail authority’s response? OK, we won’t guarantee revenue levels; we’ll guarantee ridership levels – as if that’s not the same thing!

This slippery parsing isn’t just laughable. Given the billions of dollars involved – and the high-speed rail project’s potential to be the worst public works boondoggle in U.S. history – it is insulting.

And so we await a second round of news releases on high-speed rail from Schwarzenegger and Steinberg. These will explain why the two state leaders would back a multibillion-dollar project with an illegal business plan.

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