This is a Great Time to Build High Speed Rail

Every few weeks or so the Los Angeles Times publishes stories by Ralph Vartabedian which are highly speculative, thinly researched and critical of the California High Speed Rail Project. The worst time for the media is when the news is boring. So for as long as there has been stories, spinning a story has been common to create drama and attract attention. For this the Vartabedian’s sensational stories have been very successful. Here we see pack journalism at work, as other media outlets republish these Times stories and creates follow up stories on the same meme. This reminds me of when I’ve glanced at tabloid publications at the supermarket. I often see headlines proclaiming again that some famous person has only weeks to live. Yet many of these folks often are still very much alive years later.

The October 8, 2015 Los Angeles Times edition had the headline “California bullet train project is attracting interest — but not funding”.This story by Ralph Vartabedian implied that the companies planning to bid for work on the California High Speed Rail Project, had no wish to provide financing for the project. Yet central to the planning for this project is private financing. Yet it appears that in Mr. Vartabedian’s research, none of the potential bidders were asked directly about this in his story. Yet this question was brought up by Sacramento Bee reporter Ted Bizjak in his article “Siemens Aims to Make Sacramento a Hub for Bullet Train” of October 19, 2015. Mr. Bizjak reported “A recent request by the rail authority for private companies to declare their interest in partnering on the project and to offer ideas on how to build the system drew three dozen responses, including from Siemens, but none of the companies offered to bring in private financing, rail officials said. Michael Cahill, president of Siemens Industry Inc.’s mobility division, said his company didn’t propose private financing because the state’s request wasn’t specifically set up for a financial proposal. But, he said, Siemens could be interested in making a financing pitch at some point.”

The recent contacts and discussions with rail contractors and operators by the California High Speed Rail Authority (CHSRA) may have already had an effect on the project. It is no secret that the operators of High Speed Rail services have wanted the initial service of High Speed Rail to serve Los Angeles from the start. Los Angeles is after the largest travel market in California and critical to ridership high enough to operate profitably. Yet current plans for the first segment of passenger service are from Merced to Burbank by 2022. Burbank is close but still 12 miles from downtown Los Angeles. Although not getting any media attention, it was recently discussed at the October Los Angeles Metro Board Meeting that the California High Speed Rail Authority had asked LA Metro to allow them to bring in High Speed Trains into Los Angeles Union Station by 2024, which is 5 years sooner than originally planned. Instead of using an underground station near LAUS as was being planned. The CHSRA now wants to bring their trains directly onto stations tracks in the middle of the station. This will be much cheaper than an underground station, quicker to build and have faster connections for passengers transferring by local trains and buses. The LA Metro Board approved the request to move directly into Union Station by the CHSRA.

The Los Angeles Times also had another recent Vartabedian story with the headline.”$68-billion California bullet train project likely to overshoot budget … Los Angeles Times–Oct 24, 2015“. This story assumes that the CHSRA is hiding costs that will sooner or later leave the taxpayer with massive debt. After the voters approved almost 10 billion dollars towards construction of High Speed Rail in late 2008, the estimated cost of the project did jumped from $32 Billion dollars to almost a $100 billion by 2011. It was at about this time that the Brown administration inherited the High Speed Rail Project. One of Governor Brown’s first acts was to appoint Dan Richard, his long time friend and adviser as Chair of the High Speed Rail Authority. Mr. Richard has done a great deal to turn the High Speed Rail Project around. One of his first challenges in 2011 was the 2012 Business Plan and getting the approval of the California High Speed Rail Peer Group which was created by the Legislature to advise it on High Speed Rail. This group is made up of experts in transportation, finance, construction, engineering and rail operations. This Group is made up of all unpaid volunteer professionals. The original Chair of this group was the widely respected Will Kempton, former head of Caltrans during the Schwarzenegger Administration. An original member of the Peer Review Group and current Chair is Louis Thompson. After a successful career at the Federal Rail Administration, he then moved to the World Bank to oversee rail development around the world. The Peer Review Group rejected the original CHSRA 2012 Business Plan. Under the direction of the Peer Review Group a largely rewritten Business Plan was adopted and is the basis of much of the current planning. The Peer Review Group was largely responsible for the current estimate of roughly $68 Billion dollars for the 520 route miles of High Speed Rail between Anaheim and San Francisco. Roughly half of this cost is to be paid with government funding and the rest privately financed to be serviced by revenues from the operation of High Speed Rail. Such Public,Private Partnerships are common around the world and are often used to build High Speed Rail. Future extensions to Sacramento and San Diego will depend on financing paid with revenue from the 520 miles of finished service.

Since the 2012 Business Plan, the High Speed Rail Authority has been able to stick to it’s original estimate of around $31 Billion dollars for the Initial 300 miles of construction between Merced and Burbank. This is almost all of the taxpayer’s money that is planned to be spent for California High Speed Rail. This is a fact usually ignored in the doomsday forecasts by High Speed Rail critics. Since the first major contracts have been signed and construction started, the bids so far have come in under budget.It is always difficult to estimate costs far into the future. But there are reasonable expectations that constructions costs shouldn’t spiral out of control in the near future. One of the major factors that in the last 40 to 50 years made long term cost estimates difficult has been inflation. But since 2008, despite many warnings to the contrary, inflation remains fairly low. In fact for many Central Banks the bigger fear remains the possibility of deflation. With this low level of inflation we continue to see historic low prime rates for borrowing money. This makes it a good time to borrow money at very low rates to build a great deal of major projects such as High Speed Rail. Another major driver of inflation is the cost of energy, particularly the cost of oil. Right now there is glut of oil. This is a result of lack of growing demand for oil around the world. We are also seeing renewable energy costs continue to go down, replacing the use of fossil fuels while keeping the cost of energy from rising.

Mr. Vartabedian can’t claim impartiality on the issue of California High Speed Rail. In one of his stories at the end of the 2014 Governor’s race he openly lamented that High Speed Rail hadn’t become a major political issue against Governor Brown. There has been a constant attempt by some Republican politicians to play partisan politics using the High Speed Rail project as a whipping boy. This hasn’t gotten these partisan politicians anywhere. Despite several calls to pass petitions to shut down the High Speed Rail Project, none have had enough signatures to even get on the ballot. The reality is that High Speed Rail is and always has been a non-partisan issue. Republican Governor Pete Wilson signed the legislation creating the California High Speed Rail Authority. Republican Governor Arnold Schwarzenegger placed the Prop 1A measure on the ballot in 2008 which gave voter approval for California High Speed Rail. Republican strongholds in the San Joaquin Valley such as Fresno, Merced and Visalia are major supporters of High Speed Rail. The same is true in conservative Palmdale. The California Chamber of Commerce supports High Speed Rail. The reason is simple, transportation is central to economic growth and local prosperity.

While there will always be uncertainties about the future, there rarely has been a better time to build than now. There are plenty of contractors looking for work and willing to bid low in efforts to find work. Energy costs and interest rates are at a historic low and major cost increases are not likely short of a major increase in demand. California is a big transportation market, and we need alternatives to the I-5 and 101 which will increasingly be subject to closures due to bad weather and traffic accidents. Many transportation experts around the world realize that California is a potential major High Speed Rail market. California is the key to major expansion of rail passenger service to most of the United States. Several countries are eager to see High Speed Rail service built in California and they want the contract for it. This will lead to one heck of a good deal from the competition for the final California High Speed Rail contract.

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