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Secret High Speed Rail Funders Revealed

The business plan always assumed private investors will provide $10 billion or more to build the system, but finding investors was unsucessful. Finally, several willing investors seem to have been found.

 

The March 13 High Speed Rail (HSR) meeting organized by Senator Simitian examined many critical issues related to the project and revealed improved schedules, as well as the identity of two investors willing to pay for rail upgrades on the Peninsula.

HSR Authority (HSRA) Chair Dan Richard and board member Jim Hartnett proposed improving existing rail service by upgrading and electrifying tracks between San Jose and San Francisco, and in the Los Angeles area shortly after work is begun in the Central Valley. A new business plan will be issued soon showing faster completion and lower cost.  Richard acknowledged that HSR still hasn’t identified the essential private investors needed to complete the project.

Thursday, sources were identified to provide $1.456 billion to electrify and upgrade Caltrain along the peninsula, with $1.206 billion from HSR bonds and Federal grants.  Another $250 million would come from local sales taxes, bridge tolls, and state grants.  That still leaves the total project short by about  $10 billion.

I have contacts with informed sources that believe investors have been found and billions will be committed soon.   Goldman Sachs was hired to secure investors.  They will be paid to find suckers willing to invest $10 billion or more. Since the fee will be taxpayer money Goldman Sachs assured the HSRA that they will minimize charges and expect it to be under $200 million.

One investor that seems convinced HSR is a wonderful opportunity expects to invest $5 billion in the next year. He is very busy now, but should have resources available this summer. Goldman Sachs assured the HSRA that the Easter Bunny is totally on board and will invest billions.  

There are several potential sources of the other $5 billion in 2013. Right now the best bet seems to be Santa Claus, who also is eager to invest in such a high-return project as HSR.  Most of the elves also are fully committed to invest.  Dopey signed on at once and brought most of the other elves along, but Grumpy has been resisting and hasn’t agreed to participate yet. The reindeer have been holding out. Donner and Blitzen  raised many concerns about the HSR business plan.  They pointed out that they have been providing transportation for centuries and really understand the operations and business issues, and they have very little faith in the HSR business plan. Santa Claus thinks he can win them over in a few months, but if not his investment will be less than $5 billion.

Goldman Sachs apparently doubts the HSR business plan.  If Santa Claus does make a significant investment, Goldman Sachs will invest heavily in coal futures, expecting that with little if any return on his investment, Santa Claus won’t have the resources to stuff stockings with his normal gifts, and will have to substitute coal lumps.

Considering the lack of agreement and commitment by the Santa Claus organization, Goldman Sachs has lined up an alternate investor who appears ready to invest at least $2 billion, and maybe as much as $3 billion. The Tooth Fairy will invest if Santa Claus provides less than $5 billion. HSRA expects to soon be funded fully by these investors.

Mark Tracy March 27, 2012 at 08:24 PM
The so-called "train to nowhere" is going to connect the big cities of San Francisco, Los Angeles, and San Diego; not to mention the cities of the Silicon Valley and a host of other cities in between. The closest thing we have to high speed rail in this country, Acela Express, is making a lot of money.
Ted Crocker March 28, 2012 at 12:35 AM
Who ever wrote this opinion piece, I love it! Made my day. Thanks! Mark, You still haven't figured out that it doesn't matter to the democratic legislators if this thing is ever built. If it did, then once they realized they couldn't meet the terms of the bond measure, and it couldn't be built without tremendous financial risk to the tax payers and the state, they'd have shut it down. The only reason they would choose to continue despite the law is driven by something else far less noble. They're going to get the shovels in the ground despite the law, but you and I won't live to see it completed and by then they'll have to rebuild/tear out what they started to build due to decay or obsolescence ( http://stilgherrian.com/politics/unreliable_bangkok_8_henge/ ).
Michael March 28, 2012 at 04:44 PM
HSR will be profitable in CA. It will easily gain over 50% of market share, and with lower costs and virtually limitless capacity for on-time travel, it could easily take 80% of the market. All this while massively expanding the travel capacity between SF and LA. The airlines cannot compete. There is no market of 3 hour travel where airlines successfully compete against HSR. Just look at these market shares from the US and around the world. London-Paris 80% HSR Paris-Leon 95% HSR NYC-Boston 40% Rail (not hsr only 125 mph) DC-NYC over 60% HSR http://www.silverrailtech.com/blog/when-do-people-switch-train-over-flying-35hrs Even without HSR the NY-Boston and DC-NY passenger routes are profitable. Keep in mind these are the only passenger rail lines america with dedicated tracks allowing on schedule service. The real boondoggle is road and highway spending. Every lane added provides very small increments of new capacity that is consumed immediately. Without user fees, road demand is consumed instantly whenever added. Gas taxes only pay for a portion of new capital construction of interstate highways. Most roads are paid for through the general funds of counties and states. Lets move forward to a market economy for transportation and allow cars, planes and rail to compete on their efficiencies and capacity, rather than the socialist system in the US with government funded free roads and federally subsidized air travel.
Ted Crocker March 28, 2012 at 06:36 PM
Michael, When advocates say HSR will be profitable, they mean it will cover operating costs, not capital costs. Only two segments within two systems in the world achieve this (Paris-Lyon and Osaka-Tokyo), but they don't pay for the rest of the system, and that was achieved only after years of massive government subsidies. If the CA system, which was supposed to cost $33, but now costs $100B, and could cost who-knows-what by the time it is completed (Bay Bridge is 6x original), at what point do you say it is not worth it? There has to be a breaking point. I note that Parsons-Brinckerhoff, who was selected project manage this project also managed Boston's Big Dig and that project went from an estimated cost of $2.6B to a running total of $22B. That CA HSR project's breaking point was laid out in the bond measure (AB3034), but the law is now being ignored.
Ted Crocker March 28, 2012 at 06:37 PM
cont... In the case of CA, when you cannot afford what you have, if you want to add something new, you have to be willing to let something else go. What are you willing to let go? Education? I will remind you that highway building will continue as HSR primarily competes with short hop (300-500 mile) airlines, not commuter traffic. Also, highways are usable by everyone, not so HSR on fixed tracks. Think of it this way. The roof on your house is leaking, but you'd like a new Prius to replace your 5 year old Chevy Malibu. You only have enough money to do one or the other. Which are you going to chose? Jerry Brown chooses to buy the Prius (more like a Tesla). Do I think HSR should play a part in the future? Yes, but let's start with a good design and not one driven by politics and greed. And let's make sure we can afford it. http://calrailnews.com/crn0811extract.pdf
Michael March 28, 2012 at 07:02 PM
cont. Why are conservatives fighting private enterprise, while endorsing socialized transportation? California cannot afford NOT to build HSR. We cannot afford to build more highways. too much money has been invested in a costly to maintain, very low capacity primary mode of transportation in our state. Lastly, where do you plan on building your new highways? Where on the peninsula can you add another 8 lane highway. Where will we build runways? Two tracks of rail down the state means we don't have to build more runways. If not HSR, how will you invest in the future transportation.
Michael March 28, 2012 at 07:04 PM
Ted, At what point do you say a socialized road network is not worth it? The US road/highway infrastructure is the largest single public works project in world history. Unfortunately, virtually transportation systems require initial capital cost.. The only mode of transportation that has covered its own capital cost, is the rail industry. HSR has deliberately be designed as private enterprise with limited public seed money (10billion). As most highway and airport projects go, big dig had no private financing. CAHSR has always relied manly on private financing. It is such a shame that something as politically agnostic as how to get from here to there has become this politicized. In the anti Obama fervor, Florida canceled its privately financed HSR project which had no state obligations for capital construction nor operations. Only because rail has become politicized as a liberal transit mode. The markets know rail is more cost effective and efficient, let them work.
Michael March 28, 2012 at 07:16 PM
cont. Lastly, a single track of HSR is cheaper per mile than one lane of highway for capital construction and maintenance. yet has orders of magnitude higher capacity. so, if CA ever plans on adding one more lane of traffic north and south to just one of our highways (I5, I99 or 101), HSR will have already been cheaper in capital costs. Not only will it have been cheaper the expanding a single lane to one N-S highway in california, It will also more the double the existing capacity of highways and airplanes. HSR is not overpriced. It is the most cost efficient way to build transportation. The tesla in your model is the highway system, HSR is the low cost option.
Ted Crocker March 29, 2012 at 06:20 PM
The problem is, in the case of HSR, the voters were promised something for nothing. Obama promised a $500B - $1T nationwide HSR system with $8B in his pocket. In the case of the highways, at least they had a fuel tax from day one that helped to pay for the system. Admittedly, with the fuel efficiency of today's cars, that tax no longer covers the maintenance and the tax (subsidy) should be increased. Given the lack of funding for HSR, we cannot ignore the one thing we have learned over the last 140 years and that is that freight rail makes money, passenger rail does not. Despite the HSRA's claims that they had over 1100 interested applicants, NO private money has stepped forward for the CAHSR project. Why? Because unlike our legislators, they can read a business plan.
Ted Crocker March 29, 2012 at 06:20 PM
I don't know where you are getting the idea that HSR is the most cost efficient system to build. Amtrak did their own study: "In the United States, passenger rail (Amtrak) is the most heavily subsidized of all passenger travel modes, requiring a federal subsidy of $237.53 per 1,000 passenger miles, compared to $4.23 for commercial aviation and $1.50 for intercity busses.[3] Rail subsidies in Europe are just as high, if not higher." "For 1995-2006, the study found that the governments of Germany, France, the United Kingdom, Spain, Denmark, and Austria spent "a combined total of $42 billion annually on their national passenger railroads."[9] The $42 billion that these six countries, which have a combined population of 269 million, spent on just passenger rail in 2006[10] is roughly proportionate to the $54.8 billion (most of which was funded by user fees) that the government of the United States (population of 309 million) spent on all forms of transportation, including highways, rail, aviation, water transport, and mass transit.[11]". One other thing you should know. I voted for Obama and I voted for prop 1a, so this is more than just a partisan issue. I have many Democratic friends who are very pissed about the way their vote has been turned around into something they were not promised at all.
Michael March 30, 2012 at 10:06 PM
Ted, you should note that your quotes are from the Heritage foundation, not Amtrak. Hardly unbiased sources. While they did invent the free market health insurance mandate in Romney/Obamacare, they aren't the most neutral of sources. The most alarming of your statements is that the majority of US transportation funding is generated from user fees. Unless you live on an interstate freeway, and can ignore all the other street infrastructure for driving, this is just wrong. Also, you need to consider Amtrak as two separate entities. The first is a profitable passenger railway that operates regularly scheduled trains on multiple tracks (lanes) in the northeast corridor. This system dominates transit between cities in its service with over 50% of the riders between NYC, Philly, Boston and DC.
Michael March 30, 2012 at 10:07 PM
Cont. The second amtrak is not a competitive transportation system. It is a series of leisure trains that operate over freight railways in the US. Since amtrak has no control over the private railway construction or scheduling. These trains do not provide frequent, reliable service between their cities. These are unprofitable for many reasons, including their very slow speed limited by poorly maintained one track freight lines. These trains must pull over and stop every time a train wants to go by in the opposite direction. While this may be ok for freight, It does not work for passenger travel. Imagine if the interstates operated with one lane to be shared in both directions, where all the cars going north had to pull over to let cars go south. That wouldn't work well either. HSR will never suffer the issues of Amtrak outside the North East corridor. With dedicated tracks that allow trains to pass in opposite directions without stopping, HSR will provide frequent, reliable and cost effective service.
Ted Crocker March 31, 2012 at 05:04 AM
I do think HSR makes sense on the NE corridor (Acela) as only there do we have the population density to support it. We're going to continue to disagree on the viability of HSR within CA, especially so long as the HSRA continues to ignore the advice of organizations like the California Rail Foundation and people like Bent Flyvberg, and instead listen to the politicians. http://www.calrailfoundation.org/HSR.html
Michael March 31, 2012 at 03:31 PM
That's interesting. Contrary to popular belief, Los Angeles is actually the densest urban region in the US. Other california cities follow. While Manhattan may be a denser city core, the NYC region and suburbs are actually less dense than most CA metropolitan areas. http://www.governing.com/blogs/by-the-numbers/california-cenus-population-density-urbanized-areas-cities.html So if density is the issue, california leads the nation in urban density. Also, after the North East Corridor where you believe HSR makes sense, California is home to amtraks next two highest ridership routes, the Pacific Surfliner (LA-SD) and the Capitol Corridor (SJ to SAC). The san Joaquin between oakland and bakersfield has the 6th highest ridership even though it doesn't even reach LA. http://en.wikipedia.org/wiki/List_of_Amtrak_routes#Current_routes
Michael March 31, 2012 at 03:31 PM
Imagine how much better these lines would perform under HSR, that would unify the current fractured system, close the gaps, provide dedicated tracks and eliminate the single track delays and provide a line between LA and SF. For all the parameters that determine if HSR will be successful, California exceeds all other successful markets. SFO to LA populations and urban densities down the route through the valley exceed that of Paris-Lyon, making it an even larger market than the most profitable HSR line. Existing rail ridership on the 3 California funded rail lines (without SF-LA) are among the top 6 US Intercity rail lines. Also, The california rail foundation, beyond its convenient name has always been against HSR in California. They are one of the major opponents of Prop 1A. http://ballotpedia.org/wiki/index.php/California_Proposition_1A,_High-Speed_Rail_Act_(2008)

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