February 12, 2019

Earlier today, new governor of California, Gavin Newsom (D), told state legislators in his first “State of the State” address that he was backing away from plans to build a high speed rail project that would connect San Francisco and Los Angeles, but that he would finish the segment of the project currently underway in the central part of the state.

Newsom said “Right now, there simply isn’t a path to get from Sacramento to San Diego, let alone from San Francisco to LA. I wish there were. However, we do have the capacity to complete a high-speed rail link between Merced and Bakersfield.”

The governor also said “Look, we will continue our regional projects north and south. We’ll finish Phase 1 [San Francisco to Anaheim] environmental work. We’ll connect the revitalized Central Valley to other parts of the state, and continue to push for more federal funding and private dollars. But let’s just get something done.”

Newsom’s statement was basically an admission that he didn’t want to go through the charade of pretending to identify the $65 billion that the Golden State needs to find, from somewhere, in a mathematically consistent budget plan, to finish Phase 1 of the ongoing high-speed rail project from San Francisco to Anaheim. He was, no, doubt, aware of the stark nature of the chart put together by the California State Auditor three months ago in its audit of the project, shown below (the chart is Figure 3 in the PDF version of the audit report):

He also said that he was replacing the chairman of the California High Speed Rail Authority (CHSRA) with his own economic development director, and instituting new transparency measures: “We’re going to hold contractors and consultants accountable to explain how taxpayer dollars are spent – including change orders, cost overruns, even travel expenses. It’s going online, for everybody to see.”

A State of the State address, like any big political speech, is full of broad strokes and lacks a lot of specifics, so some people (Streetsblog Cal in particular) were representing Newsom’s announcement as something other than what it appeared to be to us (looks to us like he’s putting all plans for construction west/northwest of Merced or south of Bakersfield on indefinite hold until some outsider shows up to give California a large chunk of $65 billion).

Proof will arrive in the state budget.

Newsom was required by law to submit a budget for the July 1, 2019 – June 30, 2020 fiscal year to the legislature by January 10, which he did (read it here) – but that was only his third day in office. So his real budget proposal will come when the governor is allowed to make revisions to the budget proposal in April and May.

By that point, the new chairman of CHSRA will have had time to work with the budget office and figure out a plan. (CHSRA only has to produce a business plan in even-numbered years, but they may get to working on an interim, scaled-back document given the governor’s new strategy). At a minimum, the budget needs to answer these questions:

What does “complete a high-speed rail link between Merced and Bakersfield” really mean? CHSRA has broken up all of Phase 1 into segments, and the one under construction right now is the 119-mile Central Valley Segment, defined here. This is the segment that got all of the federal construction appropriations from the 2009 ARRA and fiscal 2018 regular appropriations acts. Originally budgeted at $6.0 billion, the cost has now increased to between $10.1 and $12.2 billion (with CHSRA using a midpoint range of $10.6 billion, which is the amount shown in the chart above). However, simply completing that $10.6 billion segment won’t satisfy Newsom’s pledge to “complete a high-speed rail link between Merced and Bakersfield,” for three reasons:

1. The Central Valley Segment stops short of Bakersfield. As the CHSRA map shows, the 119-mile segment terminates on its south end at Poplar Avenue, in the middle of an orchard between the towns of Wasco and Shafter. Because of planning delays, extending into Bakersfield proper and building a station in downtown Bakersfield was budgeted in the next segment, Valley to Valley (and the route wasn’t nailed down until three months ago), and CHSRA estimates that extending into Bakersfield and building the station would cost another $1.9 billion. The budget, or else a revised CHSRA plan, would need to clarify this.
2. The Central Valley Segment’s north terminus is in Madera, 34 miles south of Merced.  CHSRA hasn’t identified the cost of a straight Merced-to-Madera leg but the latest business plan indicated that the cost of building the Y-shaped interchange so trains coming north from Madera could either go north to Merced or west to Gilroy, along with the extension in to Merced, was $2.4 billion.
3. None of the $10.6 billion in Central Valley Segment funding is budgeted to buy any high-speed trains. (Yes, it sounds ridiculous. See for yourself in the capital annex to the 2018 CHSRA Business Plan. Line 70 of Table 2. Zero dollars for vehicles.) Extending high-speed rail to the Central Valley presumably means buying high-speed trainsets, which also weren’t budgeted until the Valley to Valley segment. They proposed $1.1 billion to buy 16 trainsets, but that was to go all the way to San Jose, and you wouldn’t need that many for just Merced-Bakersfield, so say 6 trainsets at $75 million each, for $450 million. Otherwise, they could just let the existing Amtrak trains use the new high-speed tracks, which would allow them to go 120 miles an hour instead of the current 79 miles per hour. (41 mph faster divided into $12.5 billion capital cost means that each additional mph would have cost over $300 million.)

Will the budget propose to change the cap-and-trade revenue allocation? When California legislators extended the state’s carbon emission cap-and-trade program in 2017, they continued to dedicate 25 percent of the receipts from the cap-and-trade auctions to CHSRA through 2020. These currently bring in $700-900 million per year to CHSRA but can vary widely. The 2017 law also extends the cap-and-trade program itself through 2030, which means legislators will get to reallocate the money.

Will the governor’s budget (this year or next year) continue to dedicate 25 percent of cap-and-trade money to CHSRA, even after construction of Merced to Bakersfield is completed in 2023 or so? (It seems pretty doubtful that Newsom will push the proposal in the CHSRA 2018 business plan to extend cap-and-trade to 2050, allow CHSRA to issue bonds based on future cap-and-trade proceeds until 2050, and then guarantee the bonds in case of carbon market fluctuations.)

And will they propose using more of the $9 billion in Proposition 1A state bonds to finish the Central Valley segment and into Bakersfield and Merced? The 2018 CHSRA business plan had proposed leaving $4.2 billion of the Prop 1A money for Valley to Valley and instead using $3.1 billion in future cap-and-trade revenues to finish the Central Valley Segment. If Newsom is really interested in putting the rest of the project on hold, he could use more of the Prop 1A money for Central Valley and move cap-and-trade money to mass transit, or renewable energy, or any other carbon-reducing strategy.

Feb. 14 addendum: Newsom’s reference to President Trump in his speech did not go unanswered. At 8:30 p.m. on February 13, Trump tweeted, “California has been forced to cancel the massive bullet train project after having spent and wasted many billions of dollars. They owe the Federal Government three and a half billion dollars. We want that money back now. Whole project is a ‘green’ disaster!”

This caused Newsom to tweet back: “Fake news. We’re building high-speed rail, connecting the Central Valley and beyond. This is CA’s money, allocated by Congress for this project. We’re not giving it back. The train is leaving the station — better get on board! (Also, desperately searching for some wall $$??)”

The Twitter spat does not bode well for the prospect of Trump signing a bill that will give tens of billions to California to continue construction of the project outside the Central Valley.

Feb. 15 addendum: Today’s Los Angeles Times reports that Newsom said yesterday that “The money that exists will allow us that 171-mile system [from Merced to Bakersfield]. Beyond that there’s no identifiable money. I also made that point. Everyone knows that. I said it. But that doesn’t mean we give up.” This is consistent with our conclusion above – Newsom is going to stop his predecessor’s practice of pretending that California can build anything beyond Merced-Bakersfield on its own, without substantial funding coming in from outside.