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June 2012
by Angela Cotey, Associate Editor
Three years ago, California high-speed rail officials and supporters were feeling good about the near-term future of the state's proposed bullet train project. Voters had approved a nearly $10 billion bond measure to help finance a statewide high-speed rail system that, for two decades, had been part of California's long-range transportation plan. The U.S. Department of Transportation promised $3.3 billion for the project as part of the High-Speed Intercity Passenger Rail program and, if all went as planned, many millions or even billions more could be made available. Environmental work was being conducted up and down the 800-mile route and, while not entirely snag-free, moving at a pretty good clip.
But during the past two years, the Obama administration's high-speed rail program has hit a variety of well-documented roadblocks, from governors turning back federal dollars to Republican members of Congress denying future funds — even pulling back some unspent money — to individual projects being slammed by politicians and conservative groups that say the money would be better spent on other infrastructure improvements.
Opponents have been particularly critical in California, where the high-speed rail program has become the Obama administration's signature project. Among the concerns: the project won't yield enough benefits for its enormous cost; the state can't afford to take on the project while dealing with massive debt; there is a lack of funding beyond the initial slew of federal dollars and state bond funds; and more oversight is needed.
Amid the criticism, the state Legislature as of press time still was deciding whether to authorize the sale of $2.7 billion in bonds to help finance the project. As legislators continued to weigh their concerns about the project against the benefits it could provide, pressure was mounting for quick action. The bonds would provide the matching dollars required by the Federal Railroad Administration (FRA); without the Legislature's approval — and soon — federal dollars and deadlines are at risk.
For that reason, the California High Speed Rail Association (CHSRA) officials have to proceed as if the project is a sure thing, despite the funding uncertainty. They've been working feverishly during the past several months to ease legislators' concerns. Under the leadership of new board Chairman Dan Richard, the authority has revised its cost estimates and construction plans to create what CHSRA officials believe is a more manageable project. They're also working to improve relationships with high-speed rail stakeholders.
After decades of planning and discussion, it's time for California's high-speed rail project to finally get off the ground — or die under the weight of the political and financial circumstances that have come to define the project over the past several years.
For Richard, making sure shovels hit the ground this year has become his full-time job. Appointed to the board by Gov. Jerry Brown in August 2011, Richard is a former Bay Area Rapid Transit board member and also has experience with infrastructure financing, public policy and government relations, and legal affairs. Brown also appointed Michael Rossi to the board. A global investment banker and former Bank of America vice chairman, Rossi serves as the governor's senior adviser for jobs and business development.
The appointments — along with Brown's simultaneous declaration of support for the project and statement that CHSRA needed to do a better job overseeing it — marked a turning point for high-speed rail in California, Richard says.
"Having the governor's support was absolutely essential," says Richard. "Without that, I don't think the project would have progressed."
Richard and Rossi immediately began familiarizing themselves with the project and challenges surrounding it. They also got to work on the authority's soon-to-be-released draft business and financial plan and began forming a strategy on how to gain more public and political support, which had waned in light of the project concerns.
However, when the much-anticipated draft business plan was released on Nov. 1, 2011, it only added fuel to the controversy surrounding the project. Capital costs for the system more than doubled initial estimates, totaling about $98 billion, and the construction timeline was extended. In addition, authority officials acknowledged that private investment in the system — which many legislators were banking on to help justify launching construction on the initial segment — likely would not occur until after the first phase of construction was complete.
But Richard and Rossi defended the plan, saying it was the most realistic and honest assessment of the project yet. Prior to the plan's release, Rossi spent "hours and hours" reviewing, challenging, questioning and testing ridership forecasts, as well as capital costs, operating and maintenance costs, and then translating those numbers into year-of-construction dollars, says Richard.
"It was important to have numbers we thought were highly defensible, reasonable and conservative. We felt it was important to try to regain credibility in terms of the numbers," he says. "Now, this had a political cost to it because people have not put those numbers in context, but we did talk about what it meant to build the project in terms of fully inflated dollars."
In January, with Richard and Rossi taking the lead on the business plan per Brown's orders, CHSRA CEO Roelof van Ark resigned and Chairman Tom Umberg stepped down. Van Ark cited a desire to focus on his family and other interests as his main reason. Umberg, a law firm partner and member of the Army Reserve, wasn't able to devote the full-time attention needed to advance the project into construction.
The resignations gave Brown an opportunity to install one of his advisers to the top board post. He appointed Richard chairman.
Richard's first order of business: to build — or, in some cases, mend — relationships with other state transit agencies, legislators and communities.
"There was a sense among a number of regional transit operators in California that high-speed rail was its own separate system, and that it would be built no matter what, and that it was of lesser importance to tie into the regional system," he says.
During the past several months, CHSRA has signed memorandums of understanding with transit agencies in northern and southern California to establish working relationships under which the authority will front some money to make near-term local transit improvements that will lay the foundation for high-speed rail service in the long term.
Richard and other CHSRA officials also have been meeting with state legislators to review the project and business plan, and answer questions. The state Assembly and Senate each have held two hearings to discuss the project with CHSRA officials, and Assembly Budget Committee members are working closely with the authority to get information they need to vet the project, says Assemblyman Rich Gordon (D-Menlo Park), who serves on the committee.
In addition, Richard has been traveling to the communities located along the proposed high-speed rail alignment to speak with residents and local leaders.
"There's been a sense that the authority did not do a good job in reaching out to local communities," says Richard. "Our message now has been that we want to listen to concerns and work with them. That's not the easiest thing in the world to do, but we have had some good interactions … and have made small alignment changes in places like Merced and Bakersfield that have had material impact in terms of how the project would affect the communities."
Those alignment changes, as well as strides made in working with local transit agencies, were reflected in CHSRA's revised business plan released on April 2. The plan proposes a "blended" approach to building high-speed rail, under which CHSRA would upgrade existing commuter-rail lines in urban areas rather than build new, dedicated track.
For example, in the San Francisco Bay area, the authority would work with Caltrain to electrify the commuter-rail system, eliminate grade crossings and build passing tracks to lay the foundation for future high-speed rail service to San Jose and San Francisco. In the Los Angeles area, CHSRA would upgrade the existing Amtrak/Metrolink corridor between Union Station and Anaheim to improve safety, reliability and capacity, and reduce travel times.
By using more existing infrastructure, CHSRA could build the system for $68 billion — $30 billion less than what was outlined in the November plan.
In addition, the plan calls for building an initial operating segment connecting the Central Valley with the Los Angeles Basin by 2022, as opposed to the previous plan's proposal to build an initial construction segment between Madera and Bakersfield.
The newest business plan has been far better received than the previous one.
"I think it's a breakthrough — it moved away from guessing and presented a very realistic plan for the beginning of revenue service," says Mineta Transportation Institute Executive Director Rod Diridon, a past CHSRA board chairman.
For Gordon, the revised plan addresses many of the criticisms he and other legislators had with the previous one.
"This new plan reflects an awful lot of listening and I think it's a tremendous improvement over what was originally proposed," says Gordon. "It shows some early investments in the two major metropolitan areas, and you actually see some utility created in the stretch they would construct in the Central Valley."
By making rail improvements in various areas throughout the state rather than solely focusing on the Central Valley, CHSRA likely will gain more political support for the project, says Association for Public Transportation President Richard Arena.
"From that perspective, it's a much better political solution," he says. "Sometimes, you try for the perfect engineering solution, but in terms of getting votes and funding, it might not be the best way to go."
But there is a sticking point — and it's a big one — with many state legislators and residents that CHSRA officials won't be able to address in the near term. With no additional federal high-speed rail funds on the table, how will the authority pay for the remainder of the program?
"They've got less than 10 percent of what the optimal numbers are, and I say $68 billion is the optimal number because that's if everything falls into place, there are no environmental issues and the bids come in as they expect, and the odds of that happening on a big public-sector project aren't good," says Arena. "So that's the 800-pound gorilla in the room — where's this next tranche of funding going to come from?"
But when it comes to building large public transportation projects, funding uncertainty is part of the game, Richard says.
"Nobody in the transit industry ever knows where all the money's coming from — that's just the nature of being in this particular business," he says.
Instead, CHSRA officials will address the funding issue step by step.
"Our business plan assumed no additional federal funding for at least three years," says Richard. "We were both conservative and wise about how we viewed that."
Richard hopes the bipartisan support that once existed for high-speed rail will return after the upcoming election. The authority also hopes to attract private-sector dollars once the initial operating segment is up and running, and capitalize on transit-oriented development opportunities near stations. And, Brown has told CHSRA officials they can request funds through the state's new greenhouse gas cap-and-trade program, which is expected to generate up to $1 billion in annual revenue for the state.
"I think the key question is not where is all the money coming from, but how can you build this project in phases that are each usable and in so doing, have something you can build on?" says Richard.
Some members of the Legislature seem to be warming to the idea. During a late 2011 interview with Progressive Railroading's HSRupdates.com, Gordon said he was hesitant to authorize the bond sale. At that time, CHSRA still was focusing on an initial construction segment in the Central Valley.
"In the minds of many of us in the Legislature, the question becomes, 'What is the utility of a high-speed rail connection from two communities, and what if that's all that ever gets built?'" Gordon said at the time.
With the newest plan to connect the Central Valley segment with the L.A. Basin and make other local and regional transit upgrades, Gordon appears to be more confident in authorizing funds for CHSRA.
"The way I'm looking at it right now is that if we get some utility in the Central Valley and metropolitan areas, that improves rail transit," he says. "We haven't got high-speed rail, but until we have more funding available — which isn't today — we can't do more than that."
According to the California state constitution, the next year's budget needs to be approved by the Legislature by June 15 and signed into by the governor by July 1. If the Legislature doesn't approve the bond sale in the basic budget, it could take up the measure in a budget trailer bill, which wouldn't be approved until fall — and Brown already has indicated he doesn't want the decision to drag out that long.
"The governor, as part of his budget revision, wants an early allocation for funds that would be used to match federal dollars so that work can get started," Gordon said during a mid-May interview. "I anticipate that we'll have to make a decision sooner rather than later."
Federal officials are pressuring state lawmakers for a decision, as well. On May 10, U.S. Transportation Secretary Ray LaHood met with lawmakers in Sacramento and threatened to rescind the federal high-speed rail dollars if the Legislature does not approve the state appropriation in June.
When their decision might come is anybody's guess. With 2012 being an election year, all bets are off, Arena says.
"How interested do you think these lawmakers are going to be in sitting and debating high-speed rail when they feel like they should be out pushing their case as a candidate?" says Arena. "There are a lot of lawmakers running scared right now, and everybody's going to be out pounding the pavement to make sure they have a job next year."
During a late May interview, Richard wouldn't venture a guess as to whether he thought the Legislature would sign off on the bond sale ("I don't like to make predictions like that — it always comes across as presumptuous," he says). Officially, he says he feels "very good that we have a put a new business plan in front of the Legislature that addresses a lot of the concerns they have raised."
Provided the Legislature approves the state appropriation this month, CHSRA would begin accepting construction bids and could break ground in the Central Valley late this year.
CHSRA officials believe that would give them enough time to meet deadlines set in the American Recovery and Reinvestment Act of 2009, through which the authority is receiving federal dollars. Construction must be completed by Sept. 30, 2017. Arena isn't so sure it can happen.
"The initial phase, this 130-mile segment in the Central Valley, has a cost of $6 billion. That means they would have to spend $3.5 million a day, nearly double the typical burn rate of a big project like this," says Arena. "So you're talking about something that's pretty unique here — they'd have to not only spend the money, but spend it well and spend it soundly."
Richard isn't concerned.
"It will be challenging, but I think it can be done," he says. "We have five international bid teams and they're not going to be bidding if they don't think they can do this."
The five teams qualified to bid on the project are:
As CHSRA's path to project construction progresses, the authority will need to continue working to address its remaining roadblocks. For starters, the agency needs to fill some key management positions.
The board took a big step in doing so in late May, when it appointed Jeff Morales as CEO. Most recently a senior vice president with Parsons Brinckerhoff Americas, Morales served as the engineering firm's director of strategic initiatives and government relations.
And he's familiar with the state's high-speed project. Morales was one of two finalists for the CEO job in 2010, when the board decided to appoint van Ark to the position. At the time, CHSRA instead hired Morales as a project consultant and gave him an office at the authority's headquarters, according to a May 29 article posted on The Oakland Tribune's website. Morales' hiring is "a clear signal that the authority is focused primarily on gaining public support," the article stated.
Meanwhile, Richard also indicated the authority was in the process of hiring a new chief financial officer that had a lot of experience in the transit-oriented development arena, although no official announcement had been made as of press time.
As CHSRA's new management team begins to take shape, they'll need to continue pushing for private investment.
"You can't come up with an idea and say, 'This is a good idea and it's worthy of funding.' You have to come up with a funding source, and I think that will be the new reality for America," says Arena.
Once CHSRA begins initial construction, it can request bids from companies to own, operate and maintain the overall California high-speed rail franchise, Diridon says.
"We could see a big consortium come in and put $40 to $50 billion into the project in return for operating the franchise for 30, 40 or 50 years," he says.
Based on population growth estimates, Californians don't have time to continue to debate whether to build high-speed rail; they need to be talking about how to get it done, Diridon believes.
"We'll double in population to 60 or 70 million by the 2050s. When that happens, we'll have terminal gridlock getting in and out of metropolitan areas unless we have mass transportation-based systems to get us into employment locations," Diridon says. "High-speed rail systems around the world are the linchpin of that kind of transportation system, supported by metro, light rail, commuter rail and bikes. We have to have it if we're going to serve as a vibrant economy in the Los Angeles and Bay areas."
Based on CHSRA's latest business plan, the authority is setting the stage for building such a system. But based on the financial and political realities associated with the project, seeing that plan through will prove to be CHSRA's biggest challenge yet.
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