Bergman Cartoon

At the last HSR Authority board meeting, (Oct 6 2015), a presentation was given by CEO Jeff Morales, who had been ballyhooing that 36 private party organizations had responded to the Authority’s “Request for Expressions of Interest” invitation which was sent out a couple of months ago.

Mr. Morales would have you believe that there is now intense interest on the part of private investors to become a part of the project.   Private party funding was always envisioned to be a major source of capital to build the project, along with Prop 1A bond funds, and Federal Government grants. According to Morales, the now approved addition of State funding from Cap-and-Trade funding in the amount of around $500 million per year, was going to push private investors to invest their funds, which they had been thus far, now about 8 years into the project, been unwilling to contribute.

Well the Board discussion of these responses clearly did nothing to convince the Board that such funding was on the horizon.

Director Rossi, made the flat out statement “The section that pertains to finance.. there is absolutely nothing new in all the conversations we have had since day one”

Chair Richard was more reserved, saying another source of funds (around $20 billion) would be obtained from the operating profits generated from operation of the train. His optimism is pretty amazing. Operation of the many HSR around the world, has shown only two systems, a line in Japan with ridership of 150 million passengers per year, and a line in France, are the only lines that operate without a subsidy, much less generate profits.

Richard added… to get private funding…

“ two ways either you give them a guarantee or they see enough ridership history that they’re willing to take that risk and we’re not there yet and what I’m seeing from these proposals does not put us there yet in terms of a revenue concession model that adds twenty billion dollars of new money that we’ve estimated could be supported from the projected revenues of this project we’re getting in that direction but we are not there yet so I just want to be careful because when people start to sit down ….”

The project has become a nightmare. Original cost estimates of $32 billion for Phase I from San Francisco to Anaheim have now grown to $68 billion, not including Anaheim at the southern end. The Authority is also proposing to share the use of CalTrain tracks in the north, rather than the needed for safety and speed, fully dedicated and grade separated tracks everywhere. The Federal government, once counted on to contribute $12 to $15 billion, after its initial grant of about $3.2 billion, has said no more funds from us.

The key to any private party investment would be a guarantee their investment would be secure, and any failure of the project would result in the State repaying them for any capital they have lost. Thankfully, when Prop 1A was drafted, such a guarantee was forbidden.

Now being again rebuffed by the private sector, at what point is this project going be abandoned? The sooner the better.

The video of this discussion can be viewed here.

Political cartoon by Carl Bergman.