Special Report Slams CA High-Speed Rail Progress

high speed rail trainLike a punch-drunk fighter, the High Speed Rail Authority must be reeling from the blows landed by Ralph Vartabedian’s Special Report in the Los Angeles Times asserting with expert testimony that the project is likely over cost and behind schedule. And, an even bigger blow could come from the courts removing the rail’s one steady income stream.

The Times’ article questioned many experts about the train’s progress and potential obstacles. Chief among those were the difficulties with tunneling through Southern California areas riddled with earthquake fault lines.

Cost overruns are almost assured according to the experts. “You have an 80 percent to 90 percent probability of a cost overrun on a project like this,” according to Bent Flyvbjerg, a University of Oxford business professor and a leading expert on megaproject risk, quoted in the article. “Once cost increases start, they are likely to continue,” he added.

The project, now slated to cost $68 billion, was promised to cost $33 billion, when voters approved a nearly $10 billion dollar bond in 2008. At one time, before scaled back to the $68 billion mark, projections ran close to $100 billion.

Here’s betting, if the project is completed, it will end up in that high-priced neighborhood again.

Money was supposed to come from the private sector and the federal government. While the feds sent some seed money to California for the train, future payments appear doubtful. The private sector has not rallied to the train. Many outside investors want to see government step in with greater funding.

The main revenue stream for the project, aside from the bond money, is the dedicated cap-and-trade funds authorized by the California legislature at the behest of the governor. This revenue stream will grow annually and allow, potentially, the rail authority to seek bonds, using the revenue stream as guarantee.

However, the cap-and-trade funds could be in jeopardy depending on court action.

The California Chamber of Commerce has sued asserting that the cap-and-trade funds are a tax and thus require a two-thirds vote to take effect. Since the action creating cap-and-trade did not receive a two-thirds vote from the legislature, the Chamber argues that the funds collected under cap-and-trade are illegal.

A superior court ruled against the Cal Chamber but the Chamber appealed the ruling to the Third District Court of Appeal. The Chamber notes Sacramento Superior Court Judge Timothy Frawley called the issue of whether the levy was a tax or a regulatory fee “a close question.” The Chamber is counting on the appeals court to see the issue differently.

If so, then the revenue source for the rail would have to be reconsidered by the legislature. Given the change in public opinion on the bullet train since the 2008 bond was passed, the legislature forthrightly voting for a tax supporting the train is doubtful.

If the court rules in favor of the Chamber on the tax question, that could result in a knockout blow against the bullet train.

Originally published by Fox and Hounds Daily