By Noel T. Braymer
A constant complaint by critics of the California High Speed Rail project and of High Speed Rail in general is they are money wasting boondoggles which will be a drain on the taxpayers with no benefit for them. For the critics High Speed Rail is an example of Government waste and inefficiency. Is this true? The State of California will own the new High Speed Railroad once it is built. But private companies winning contracts through competitive bidding are designing, building and will operate California’s High Speed Rail. When preparing for this project the California High Speed Rail Authority studied High Speed Rail projects around the world for ideas on how to build High Speed Rail in California economically.
One such idea being used in the construction of High Speed Rail in California is what is call Design-Build construction. In the past separate contracts have been issued for major projects to an engineering company which would draw up the plans for construction. At the same time a construction contractor would get the contract for the construction. This can lead to delays and problems. Work would be delayed if there were problems with the plans and needed to be redone or weren’t done on time. By having the contractors also designing the work, many of these problems can be avoided. Since one company is doing the whole job, there is better communications between design and construction. Also with this approach since the contractor is also the designer, there is more incentive to reduce waste and increase efficiency in order to make more money on the project and stay on or under budget.
How successful is this approach? Every major contract for the California High Speed Rail project had bids lower, often much lower than the cost estimate by the project’s engineers. Because of this the project is million of dollars under budget with every contract being built. The media has made a fuss over isolated cases of some increases of specific segments on a contract. But this is part of the normal course of construction because not every contingency can be anticipated. That is why construction budgets include funding for contingencies. The budgets of every segments are still under budget when it comes to contingency spending. Many of the contractors have experience world wide building High Speed Railroads. They are using this experience to build this project faster and cheaper than was expected. This is being done by private, for profit companies not government agencies.
Another constant claim from High Speed Rail critics is that California’s High Speed Rail service won’t operate at a profit costing the taxpayers money to subsidize government employees. Yet these critics fail to provide a single example of a High Speed Rail passenger service where this is true. In most countries today, the railroads both conventional and High Speed are usually owned by the State or a non-profit company which is controlled and funded by the government. But the operators of the trains are private, for profit companies. Some services can earn subsidies for commuter services or rural areas. But to win the franchise an operator must win it by competitive bid to give the best value for the taxpayers. In the case of intercity services and in particular High Speed Rail service, the bidders for these franchises bid to PAY the highest amount to run such services. This is true over most of the world. As part of this bidding process, capital improvements paid for by the winning bidder is often expected for capital improvements including train equipment and station improvements. Yet private companies bid for these projects and make money doing so even paying the government for their use of the railroad and capital investments for the right to run trains in many places in the world.
This is the plan for the California High Speed Rail project once it is ready to start operation. A private operator will bid to pay the State to operate High Speed Rail service and make money doing so at the same time. Much has been said by High Speed Rail critics about the lack of private investors willing to invest money in this project, which is proof that the private sector knows that California High Speed Rail is a boondoggle. The California High Speed Rail project from the beginning has been set up as a Public-Private Partnership or PPP. The original plan for this has been for a third of the spending to come from the State, a third from the Federal Government (the Federal Program to fund High Speed Rail improvements was largely developed under the George W. Bush administration) and a third from the Private sector. The California High Speed Rail Authority now has enough money with $20 billion dollars to build High Speed Rail in the San Joaquin Valley from Wasco to San Jose. With an additional $2.9 billion they are asking from the Federal Government, they plan to extend High Speed service to Bakersfield and San Francisco. Running to these endpoints will greatly increase the ridership and revenues for this Initial Operating Segment which will the minimum service than can be expected to operate at a profit.
The reason private investors haven’t yet pledged funding for this project is it isn’t ready yet for private funding. Expect this to change after 2018. The reason for this is one thing an investor wants in a project before investing is to see if the project is ready to be built. A major part of this is the selection of the final route and having all of the environmental clearances needed for construction. This process is still underway for Phase One of the project between Anaheim to Bakersfield and from Madera to San Francisco. Having all the work for Phase One cleared for future construction gives investors more confidence in the Project. While construction isn’t even planned yet to be finished for the Initial Operating Segment until 2024, the Authority is busy getting all the planning and environmental clearances done by 2018. This is being done to be ready once current construction in the San Joaquin Valley is finished in 2019 to approach private investment for the rest of Phase One. By 2019 when current work in the San Joaquin Valley will be finished, work to get to San Jose will be ready to start. While service isn’t planned until 2025, the choice of an operator will be needed to prepare for the start up by 2025 which hopefully will include service between San Francisco and Bakersfield. But even with San Jose-Wasco service the Initial Operating Segment is expected to operate at a profit.
An ongoing topic of conversation in the San Joaquin Valley is over the location of the central maintenance facility for High Speed Rail trains in the San Joaquin Valley. There is major competition for this facility among cities in the Valley which all want the economic boost that will come from the jobs of servicing the High Speed Rail Trains. Before the current 2016 Business Plan, the expectation was that High Speed Rail Service would begin by 2022 and that by 2016 or so an announcement would be forth coming on the location of the maintenance facility and for an order to build the High Speed Rail Cars. Since the updated 2016 Business plan there has been no talk of the future location of the central maintenance facility or of ordering equipment. Just a couple of years ago there was a plan for a joint order of High Speed Rail equipment with an order by Amtrak to replace its Acela trainsets between Washington, New York and Boston. The California High Speed Rail Authority pulled out of this plan over a year ago.
While this is only speculation, there is the possibility the High Speed Authority might do what many countries do and have the successful bidder for the California High Speed Rail franchise buy their own equipment and manage the construction of the central maintenance facility. This would be an example of private capital being used to help build California’s High Speed Rail service. Another area where we can expect private capital investment will be at and around the High Speed Rail stations. With increased rail passenger service there has always been commercial development throughout history. Most rail passenger service improvements are driven by land development. A major part of the private investment for California High Speed Rail will be for development. So why haven’t investors come forward for this. Simple, the service isn’t at the point yet for investors to get involved since the stations aren’t even ready to be built for a service which won’t be running before 2025. Remember 2/3’s of the construction costs is planned to be paid for by State and Federal Funding.
Government generally pays for infrastructure such as roads, airports and ports. In California the State will own the High Speed Railroad. A major problem for this project has been the games to block funding for this project for partisan reasons. The law creating the California High Speed Rail Authority was signed into law in 1996 by then Republican Governor Pete Wilson. It has and continues to have bi-partisan support. It is a sad commentary that many of the people who oppose High Speed Rail construction, also oppose increased funding to rebuild our aging infrastructure. This is from a mistaken belief that this will save money. But the reality is a healthy, growing economy is based on spending for investments including infrastructure. The definition of a third world county is the poor state of it’s infrastructure. In many ways, past policies risk turning the Country and California into a third world country. In the last 8 years California has seen a major economic turnaround, particularly in the urban areas. A major factor for this is the transportation sale taxes approved by the voters in several counties which has funded major transportation construction projects which have done much to stimulate the economy. In much of the rest of the country without such spending the economy is declining.