California's long-struggling high-speed train may enter into a public-private partnership for future construction backed by a securitization of the state's cap-and-trade revenues, said Ian Choudri, CEO of the California High-Speed Rail Authority, on Wednesday.
Choudri, who took over as CEO last August, is also focused on "commercializing" the authority's assets, including land and stations, to generate revenue that can plowed back into building out a full system.
Speaking Wednesday at the U.S. High Speed Rail Conference in Washington, D.C., Choudri touted the project as the only high-speed electric train under construction in North America and said private investment would be key to building out the full Los Angeles to San Francisco system.
He outlined the authority's past mistakes — such as starting in the Central Valley — and chief challenges like regulation and litigation. He said he's working with state lawmakers to gain greater authority over sticking points like eminent domain and environmental regulations.
Choudri took the stage in D.C. less than an hour after California Gov. Gavin Newsom announced a revised budget proposal that includes sending the bullet train a minimum of $1 billion a year. The revenue will come from the state's cap-and-trade program, which would carve out 25% for the HSRA. Newsom wants to extend the cap-and-trade program through 2045.
The authority will seek to securitize that funding stream, Choudri said.
"This is a moment for the project that, since I came on board in September, we have worked very hard to get to — a place where we have secure funding," Choudri said.
He said the authority plans to meet in June with potential private partners about future stages of the project.
"We're thinking of asking financing and concessionaires to discuss with us in a formal way and provide us their thoughts," he said.
A spokesperson confirmed that the authority is considering a securitization of the cap-and-trade revenue as part of a future P3. When asked if it would be a design-build-operate-finance-maintain structure, the spokesperson said it would be "premature to speculate on the scope of any potential partnerships or procurements."
The state would continue to build out the 119-mile "test" segment and possibly the full initial 171-mile segment, with the current funding model, Choudri said. The authority hopes to begin design on the longer segment within the next two years.
"That's why a P3 is very important to us," he said.
Newsom's revised budget proposal, released Wednesday, notes that the cap-and-trade carve out will "establish a stable and predictable funding stream" for the bullet train.
"A guaranteed minimum funding level will also improve the project's ability to attract private capital and leverage additional funds upfront, which will accelerate project delivery, lower long-term costs, and increase flexibility through alternative delivery methods," the proposal said.
"I am committed to high speed rail. We are on other side of it and we want to get it done," Newsom said during a press conference on the revisions to his proposed fiscal 2025-2026 budget. "I want to get it done and that's why it's still reflected in the cap-and-trade extension in the budget."
The project's funding sources so far include cap-and-trade revenue, general obligations bonds, and federal grants.
Choudri said he's spent seven months talking to lawmakers to try to explain the viability of the project — "not only build, but operate and maintain and how the cost would be recovered," he said.
Part of that plan is to commercialize the authority's assets to generate revenue that will go into the operation and maintenance and future capital build.
"This starts giving us a visibility in how fast we can monetize the assets we have and take some of that additional revenue and put it back into the capital project," he said. "Which was never a plan before. This [previously] was funded entirely by the state taxpayers. Now we're looking at [how] you can do both."
Newsom's commitment follows the Trump administration's
President Trump on May 6 vowed the government would not pay for the train, calling it "the worst cost overrun I've ever seen."
With the fresh cap-and-trade funding, the authority won't need federal funds, Choudri said. That marks a shift from his predecessor,
"We'll proceed; we don't see any problem now after what we heard today" from the governor, Choudri said Wednesday. He noted the project has spent more than $13 billion so far, 78% of which came from the state.
He added that he hopes the federal government remains a partner. "Why on earth are we talking about taking money away from a public program that delivers the first high-speed rail system in North America?"
Voters in 2008 approved $10 billion of GO bonds for the rail line, which at the time carried a $33 billion price tag and was estimated to be completed by 2020. After years of delays and cost overruns, the estimated cost has ballooned to $128 billion with no clear completion date on the full San Francisco to Los Angeles route.
The full route's shortfall is as high as $99 billion,
In July,
State and federal regulations have proved to be major challenges, Choudri said, and he's talking with California lawmakers to win exemptions to the California Environmental Quality Act, since the project touts a significant reduction in greenhouse gas emissions.
A major early mistake was the decision to start in the Central Valley, Choudri said.
"If I could back 15 years ago, I will build into population centers and then get out and get to other towns, but that's not what the [federal] funding was for," he said. "We were getting federal commitments with strings attached." The result was starting to build in the Central Valley.
"It was not wrong to say we need to connect through the Central Valley," he said. "What was not right was that we started there."
The goal is to connect the Central Valley to other areas to boost economic development and housing affordability, he said.
A bullet train from Merced to Bakersfield has a "negligible" economic impact. With a line from the Central Valley to Palmdale, however, "the impact is one hundred times more," he said, adding it would help solve the state's notorious affordable housing crisis by offering commuter routes between areas like Silicon Valley to Fresno.
"It's amazing to see what this connectivity does to the economics, to the housing, to growth in the Central Valley," Choudri said. "We are seeing the results of ridership modeling very recently and we were amazed by that."
Keeley Webster contributed to this report.
