The hunt for dollars to build the $64-billion bullet train

Dec. 24, 2016 3 AM PT

The California High-Speed Rail Authority quietly approached federal officials in July to discuss an ambitious solution to its most pressing problem, one that has hung over the project for more than five years.

The state does not know where to find all of the $64 billion it will cost to get the first passengers rocketing between San Francisco and Los Angeles on a bullet train.

With the Obama administration on its way out, it seemed like a good time to nail down more long-term federal support on the assumption that Hillary Clinton would be the next president.

So the state set up a meeting to ask the U.S. Department of Transportation to publicly announce a federal loan of up to $15 billion that would help build an initial rail segment from San Jose to Shafter, northwest of Bakersfield, which would cement federal support during the transition to a new presidential administration.

Such a loan — even the commitment for one — would also show potential private investors that the project was “creditworthy,” according to a briefing document for the meeting.

But federal officials did not go along with the state’s suggestion. “At this time, California has not submitted a financing request,” said Clark Pettig, press secretary for the Transportation Department.

They are going to have to put a lot more money into this project than they thought.

— Elizabeth Alexis, co-founder, Californians Advocating Responsible Rail Design

Federal officials are unlikely to make any new loans in the next month. Meanwhile, the election of Republican Donald Trump makes the rail authority’s funding problem more serious than ever.

The project has long been vilified by congressional Republicans, particularly by House Majority Leader Kevin McCarthy (R-Bakersfield), who has called it a “boondoggle” that was “doomed to fail from the start.”

And House rail subcommittee Chairman Jeff Denham (R-Turlock) has vowed to block any future federal funding for the project, citing long-standing concerns about its poor management controls and planning.

Senior congressional staffers say they don’t have any direct knowledge of Trump’s views or those of Elaine Chao, his pick for Transportation secretary, but they doubt they will attempt to challenge the existing Republican opposition to the project.

Robert Poole, transportation policy director at the libertarian Reason Foundation, said he too is doubtful that Trump and Chao would support the project with new money. Poole noted that Chao, a former deputy secretary at the Transportation Department, has supported projects that have private backing, something California’s bullet train lacks.

If those expectations are borne out, it would leave the project on a continued search to fill giant gaps in its funding, even as construction of rail bridges, viaducts and trenches through a section in Fresno accelerates.

Voters approved a $9-billion bond for what was then a $33-billion project in 2008, but most of that money has been hogtied by complex taxpayer protections that were part of the ballot proposition. The rail project has been unable to satisfy those rules.

The Obama administration provided $3.5 billion in grants. And California lawmakers gave the project rights to 25% of the proceeds from the state’s greenhouse gas permit auctions, but those funds have fallen sharply below expectations this year.

An effort to tap private investors for cash proved futile when more than two dozen companies said they wouldn’t put any money into the project until the state proves the system can operate profitably carrying passengers.

The most immediate problem is unlocking the bond funding, which could keep the project going for at least several years. The rail authority believes it has a solution, thanks to a key assist this summer from the Legislature — assuming the maneuver is legal.

Opponents have already filed a suit against the plan.

The original bond measure set up tough conditions: The rail authority had to identify all the sources of money needed to build a usable segment of high-speed rail before starting construction; it had to prove that it would not need an operating subsidy; it had to show it could design the system to move passengers from Los Angeles to San Francisco in two hours and 40 minutes; and much else.

Until now, the rail authority could not show it had all the money in hand to build an actual operating segment. But the Legislature found a fix.

Assemblyman Kevin Mullin (D-South San Francisco) authored AB 1889, which addresses what the original act meant when it said a segment had to be “suitable and ready” for high-speed rail. Under the Mullin bill, the rail authority can use bond funds that would enable bullet train operations “after additional planned investments are made.” That means that the rail authority could spend the bonds without any immediate plan to carry passengers.

The bill also allows the rail authority in December to approve two funding plans.

One plan provides for building what amounts to a 119-mile test track from Madera to Shafter for $7.8 billion. After the testing is completed, the rail authority said in its funding plan that it would explore other uses for the track, though they would not immediately include high-speed trains.

Another funding plan, for $819 million, was approved to help convert the Caltrain commuter rail system from diesel to electric power along the route leading into San Francisco.

Stuart Flashman, a Bay Area attorney, filed suit against the funding plans immediately on behalf of several antirail groups and local government units, asserting it is unconstitutional for the Legislature to amend or alter a voter-approved proposition and bond act.

Flashman has said court rulings since the 1920s have gone against the Legislature and local boards that attempted to modify or clarify bond propositions.

“I told the high-speed rail board they need to take this back to the voters,” Flashman said.

Rail authority spokeswoman Lisa Marie Alley said the agency does not comment on pending litigation.

Richard Hasen, a UC Irvine law professor and expert on election law, said that unless the bond act specifically granted the Legislature the power to make interpretations or amendments, the Mullin bill’s funding plans could be found unconstitutional.

But since the bond act does provide the Legislature with a major role in approving funding plans, the legal issues in the case could be quite complicated, Hasen added.

Alley said the two funding plans were “significant decisions … that will accelerate the program, continuing progress on the nation’s first high-speed rail program.”

The Mullin bill was so important that the rail authority apparently never moved ahead with its plan for a federal loan, according to sources knowledgeable about the matter.

The watchdog group Californians Advocating Responsible Rail Design obtained the briefing document about the loan plan under a Public Records Act request.

Elizabeth Alexis, a co-founder of the group, said the funding problems are putting California in exactly the position it wanted to avoid, increasing the state’s financial commitments while the benefits of an actual train service move further into the future.

“It is a desperate move,” she said. “It is exactly the bind that the Legislature didn’t want to put itself in. They are going to have to put a lot more money into this project than they thought.”

Mullin, whose district includes the section of Caltrain track that will be electrified, said his legislation simply “clarified the term ‘suitable and ready’ ” and will help the state to meet its obligation to deliver funding for an appropriation made in 2012.

Mullin said in a statement that he is confident the lawsuit against AB 1889 will be unsuccessful, noting that he had attorneys help draft his bill.

“Our transportation infrastructure has many needs, and AB 1889 will allow Caltrain to address one of those needs by moving forward with electrification of their system, providing both short- and long-term benefits,” Mullin said. “It’s going to be a big deal for the [San Francisco] Peninsula both economically and environmentally.”

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