Peer Review Group Wants to Delay HSR Bond Funds – Gov. Brown Disagrees8 min read

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2012 starts off with a bang on Tuesday as the Peer Review Group released its report on the California High Speed Rail plan. The headline is the most unfortunate recommendation of the report that the legislature delay releasing the Prop 1A bond funds:

Until a final version of the 2010 [sic] Business Plan is received, we cannot make a final judgement on the Funding Plan. Therefore, pending review of the final Business Plan and absent a clearer picture of where future funding is going to come from, the Peer Review Group cannot at this time recommend that the Legislature approve the appropriation of bond proceeds for this project.

To which Governor Jerry Brown responded: that doesn’t change a damn thing. As reported by KQED’s John Myers, Brown’s office said the report’s concerns “are not new or compelling enough” to stop the project now.

Those are the headlines. Now let’s take a deeper look at what is going on here.

As I’ve been arguing, California’s high speed rail project is getting screwed not by any internal flaws or by public rejection, but by the decision of the far-right extremists in the House of Representatives to oppose high speed rail funding. By calling into question future federal support for HSR, the House has made it easier to attack the California project. As we all know, the $10 billion in voter-approved bond funding and $4 billion in federal stimulus is not enough to complete the project or to build an initial operating segment that can generate its own revenue. That enables further attacks on the project, using the argument that no guarantee of future funding means no funding at all and therefore we shouldn’t even begin any construction whatsoever.

There’s no doubt that the lack of secured, full funding is a problem. The question is how does one resolve it? Do you assume that the federal government will never spend another dime on high speed rail again and call it a day? Or do you press onward and build what you can, working to change Congress’ mind while also hoping that the initial construction can itself act as a spur to win more funding?

The Peer Review Group makes it clear in their conclusion that the funding issue is at the heart of their concerns:

We cannot overemphasize the fact that moving ahead on the HSR project without credible sources of adequate funding, without a definitive business model, without a strategy to maximize independent utility and value to the State, and without the appropriate management resources, represents an immense financial risk on the part of the State of California.

And they develop it at the outset, arguing that the Initial Construction Segment can’t generate its own revenue or serve as a test track for HSR, and because there’s no other funding yet identified, building the ICS would somehow be a net negative to the state finances, ignoring any discussion of the economic stimulus it would provide.

They go on to argue the ICS “is not a very high speed railway (VHSR), as it lacks electrification, a VHSR train control system, and a VHSR compatible communication system. Therefore, it does not appear to meet the requirements of the enabling State legislation.”

That line in particular drew the ire of the California High Speed Rail Authority, which said in a press release today:

Thomas Fellenz, Chief Counsel of the Authority noted: “The Report makes unfounded assumptions about the consistency of the Authority’s plans with Proposition 1A, the High Speed Rail bond measure. Frankly, not only are these legal conclusions beyond the expertise of the authors, but attorneys at the state and federal government level and the legislative author of the bond measure, profoundly disagree. All have expressed confidence that our Financing Plan is consistent with the bond measure. Ironically, several other recommendations of the Peer Review Committee are directly contrary to the plain language of Proposition 1A and could not be implemented by the Authority.”

Overall, the Authority contended, the Peer Review Group erred in its report particularly by not having any consultation with the Authority about these issues:

While some of the recommendations in the Peer Review Group report merit consideration, by and large this report is deeply flawed, in some areas misleading and its conclusions are unfounded.

Unfortunately, many of the most egregious errors and unsupported assertions would have been avoided with even minimal consultation with the CHSRA. Although some high-speed rail experience exists among Peer Review Panel members this report suffers from a lack of appreciation of how high speed rail systems have been constructed throughout the world, makes unrealistic and unsubstantiated assumptions about private sector involvement in such systems and ignores or misconstrues the legal requirements that govern the construction of the high speed rail program in California.

In recommending against proceeding with the high speed rail development “at this time,” the Report ignores many components of the CHRSA’s recent Draft Business Plan and attempts to promulgate a new standard of project feasibility that is inconsistent with national funding of transportation projects.

The report went on to criticize the Authority for not having chosen a business model, and for not releasing its internal models used to make the most recent ridership assumptions in the 2012 Business Plan. But it is the funding question that makes up the core of the Peer Review Group’s concerns.

Along with Governor Brown, other HSR supporters quickly fired back at the report. The California Labor Federation offered this criticism:

Today’s Peer Review Panel report on the California high-speed rail project misses the mark. With California facing a jobs crisis and an urgency to upgrade our failing transportation infrastructure, further delay in breaking ground on high-speed rail is neither prudent nor responsible.

Any project that’s the size and scope of high-speed rail is bound to encounter difficulties along the way. But rather than working to implement the vision of high-speed rail, the panel suggests derailing the project at a critical stage, which would put billions in federal funding at risk. That’s not a viable solution for California.

The Peer Review Group would indeed risk billions in federal funding. They would also risk putting Californians on the hook for the cost of doing nothing – the more than $100 billion it will cost to expand freeways and airports to meet the demand HSR would carry, and the costs of further dependence on oil and lost economic activity.

Their argument appears to be that if the state delays selling the Prop 1A bonds, that somehow the federal funding questions would be resolved. But the only resolution would be that Congress would give up on HSR funding for several years to come. By proceeding on construction now, however, the state would generate further momentum to provide federal funding to turn the Initial Construction Segment into an Initial Operating Segment. After all, the Peer Review Group’s other concerns can all be easily addressed – it’s the federal funding question that is the biggest hang up. However, there’s no realistic scenario by which California refusing to spend HSR money now would somehow produce Congressional willingness to provide more money in the future.

Ultimately, then, this is a political and not a technical question. Should California start building and use that to generate momentum for federal funding, or not start building and basically give up? The latter is the route taken by people like Scott Walker and Rick Scott. The former is the route California took in 2008 and vindicated when Barack Obama delivered $8 billion in federal stimulus for HSR in 2009.

There’s no doubt this report will be used by HSR critics in Sacramento to argue against spending the bond money. But they’ll have to fight Governor Brown, President Obama, California’s Democratic Congressional delegation, and the California Labor Federation. In an election year, with many legislators running in unfamiliar and unsafe districts in a top-two primary, the support of all those figures (and the campaign contributions of the Labor Fed) will matter more than ever.

So we will see what happens in the coming months. The battle lines are drawn, and the immediate future of California high speed rail hangs in the balance. The legislature ought to continue ahead with high speed rail, as that’s the only way to generate momentum for more funding to complete the system. Otherwise it will be many more years before the stars align again to get the project going again, as the costs of doing nothing continue to mount. That’s not good for California or its finances.

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Robert Cruickshank writes on California politics at Calitics.com. You can follow him on Twitter @cruickshank or find him on Facebook. This article originally appeared on the California High Speed Rail blog.

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