SAN FRANCISCO — California’s plan for a bond-funded high-speed train system just got more expensive. Fifty billion dollars more expensive.
The higher price tag, revealed this week when the California High-Speed Rail Authority released an updated business plan, includes proposals to leverage more debt through means like qualified tax-credit bonds and private-activity bonds.
The HSRA projects capital costs could reach $98.5 billion in year-of-expenditure dollars over 30 years to build 500 miles of high-speed passenger train lines between San Francisco and Los Angeles. Last year, the authority said it expected a high-end cost of $45 billion.
“Two words: sticker shock,” said John Pitney Jr., a professor of politics at Claremont McKenna College in Los Angeles. “The new cost estimates could give pause to a lot of people in California and create political difficulties in moving this project forward.”
Pitney said the new sticker price could be difficult to sell to residents when all levels of government are cutting back.
High-speed rail advocates see the high cost as justified by the state’s rising population and associated transportation needs over the 30-year period.
Rod Diridon, executive director at San Jose State University’s Mineta Transportation Institute and former chair of the High-Speed Rail Authority’s board, said fast trains are more cost-effective than expanding highways and airports.
“High-speed trains are a critical investment in our future,” Diridon said in a statement. “HSR will cut travel times and costs while moving people to work and products to the market more competitively with the rest of the world.”
Despite the fiscal reality, most California Democrats praised the new business plan for being realistic.
Gov. Jerry Brown quickly came out with a statement Tuesday in support, saying the project would create hundreds of thousands of jobs, link the state’s population centers, and avoid major airport and highway expansions.
“The High-Speed Rail Authority’s business plan is solid,” Brown said.
Treasurer Bill Lockyer, who noted in his recent debt affordability plan that bullet trains could add to the state’s long-term debt needs, said his office is reviewing the plan and will offer a financial assessment.
Lockyer said authority officials are having a “more honest discussion” about the costs, benefits, and feasibility of the rail projects. “That new approach deserves praise,” the treasurer said.
The state’s Republican minority was not as enamored. Senate Republican leader Bob Dutton of Rancho Cucamonga called the rail project a “boondoggle.”
“Even before the first shovel of dirt has turned, the cost estimates have nearly tripled,” he said in a press release.
Though the price tag has raised eyebrows, the new plan includes the use of existing rail lines in urban areas, in an effort to temper objections from “not-in-my-backyard” opponents that have plagued the HSRA’s planning.
The political theater is just a preview of what is to come during legislative hearings next year. If approved, construction on the first line in the Central Valley would start next fall.
Lawmakers created the rail authority in 1996 to plan a high-speed passenger train system to link the Los Angeles and San Francisco Bay regions. In 2008, plans came closer to reality when voters approved a $9.95 billion general obligation bond measure to seed construction.
The authority’s new business plan lays out the construction and estimated funding for the high-speed systems in five stages through 2033. They include an initial segment in the Central Valley between Bakersfield to Fresno at a cost of $6 billion; an extension either north to San Jose or south to the San Fernando Valley at up to $26 billion; a northern or southern extension that was passed over in the first extension; running trains into downtown San Francisco and Los Angeles and Anaheim; and finally, Anaheim extensions to Sacramento and San Diego.
State and federal funding has been authorized for the initial $6 billion Central Valley construction segment.
So far, $300 million of state GO bonds have been issued for the authority. It said it plans to use $2.7 billion for the first phase of the program, $5.3 billion on the next phase, and the balance for the rest. About $700 million will be used for preliminary design, engineering, and administrative work.
The $9.95 billion bond authorization was always envisioned as a down payment.
The authority will ask lawmakers to appropriate the $2.7 billion in bond funding in next year’s budget.
Because the bond measure forces the HSRA to find matching funds as well as sets caps on its use for preliminary work, it has had to look to other sources for the majority of financing.
As part of the strategy, rail officials hope to use the majority of state bond money to help secure long-term qualified tax-credit bonds through a yet-to-be-approved federal program.
For instance, in one of the financing scenarios for linking the Central Valley line to either San Jose or the San Fernando Valley, the authority would leverage $4.9 billion of state bonds for $12.3 billion of tax-credit bonds.
In the last 10 years, Congress has authorized $35 billion of the tax-credit bonds for various projects. The business plan bases its tax-credit bond assumptions on a bill introduced in the U.S. Senate by Ron Wyden, D-Ore., and John Hoeven, R-N.D., that would create a $50 billion program for surface transportation projects using the tax-credit bonds.
Rail officials said in the business plan the tax-credit bond program for transportation would allow state or local issues to sell the qualified tax-credit bonds with the federal government subsidizing all of the annual interest cost.
Additionally, such tax-credit bonds could be set up with an internal debt-service sinking fund that could be reinvested up to a set rate, currently around 4%, which could be used for repayment of principal at maturity, according to the business plan.
As a result, the authority said the Prop. 1A bond payments could secure 3.5 times their principal without raising costs for the state.
The business plan also laid out a plan to use private-activity bonds for financing.
If the rail facilities are owned by neither the state or local government, the private-activity bonds would not be subject to the $95 per-capita annual volume cap, according to the rail authority.
Rail officials pointed to the U.S. Department of Transportation’s SAFETEA-LU program that has a $15 billion nationwide volume cap for private-activity bonds, of which only $6.3 billion has been issued or allocated.
The private-activity bonds would fit well with the program’s aim to include public-private partnerships as a major part of the funding puzzle.
The authority said it would pursue P3s to attract private capital “at the point when appropriate conditions exist” throughout all stages of the program for design-build construction contracts, operations contracts, and for rolling stock and capital maintenance.
However, the majority of the money, mostly in the later stages, is set to come in the form of federal grants, up to as much as 80% of the overall cost.
Last year, Washington awarded California a $2.25 billion grant from the American Recovery and Reinvestment Act’s high-speed rail program. The authority hopes to get help from various other federal transportation programs.