California is not a state that comes to mind when talking about fiscal responsibility. It is a state mired in terrible spending ideas, after all. It’s the first state to seriously look into a single-payer healthcare system (they found that creating such a system would require doubling the state budget). It’s a state that is drowning in over a trillion dollars of unfunded pension liability. It’s a state famous for raising taxes on everyone they can (except tech corporations in Silicon Valley, who they fear will flee the state), and for terrible legislation concerning the Second Amendment. Soon, they will also be famous for designing a bullet-train to nowhere, and doing so in a way that likely violates legal constraints on the project.
The bullet train, which Governor Jerry Brown pushed for along with most of the California Democrat Party, went from being a mediocre idea to a complete boondoggle in less than a decade. Nine years ago in a slim victory, California voters gave the state permission to issue a $9.95 billion bond to build the bullet-train project, which was to cross the state. At the time, the estimated cost of the project was $43 billion dollars. Today, the project’s estimated cost is $64 billion, and the scope of the project continues to shrink, all while the project ignores an important legal constraint concerning cost.
You see, when voting on the project began, citizens were wary of yet another California infrastructure boondoggle. In order to allay their fears, the California High-Speed Rail Authority (who oversees construction of the project) included language in proposition 1A concerning cost. Specifically, the passage said that the construction of the first portion of the rail was not to begin until the state had enough funds on-hand to build a segment that would be self-sustaining. In other words, the first segment had to be built so that it would cover its own cost of operation.
The state is currently seven years behind schedule, but that would seem to be the least terrible thing that can be said about the high-speed rail. For their first segment (which must be self-sustaining, if you recall), they decided to build a high-speed rail that begins in San Jose and terminates in an almond orchard located in Kern County, a rural county in California.
Perhaps this is why the rail authority is incapable of filling key leadership positions, such as the position of CEO. In 2012, following the resignation of CEO Roelof Van Ark, the rail authority found a new CEO in just four months, hiring Jeff Morales. In November 2016, when Jeff Morales confirmed his plans to leave the rail authority in June 2017, the search began for a new CEO for the organization. That search remains fruitless still, six months after the departure of Morales.
The rail authority held a closed session on November 15, 2017, to address their lack of leadership and hopefully find a CEO, and the result remains unknown. However, the group has still not released a name to the public to take up the mantle of leadership for the project, and prospects of finding one before 2018 look seem bleak. A Los Angeles Times article depicting disarray at the rail authority, as well as the continuing failures of the rail authority, may be the reason that no transportation executive is forthcoming to take on the project.
Or maybe the questionable funding future of the program is scaring executives away from the leadership position. According to the Legislative Analysts’ Office (LAO) report, the funding is heavily tied to reliance on funding from California’s cap-and-trade program, which involves the auctioning of pollution rights. The state appears to be issuing $5.2 BILLION in bonds that they are backing with proceeds from the cap-and-trade auctions which have yet to happen, which the LAO suggest is not a certain source of income.
In other words, after the rail authority exhausts the $10 billion in state and federal funds that they currently have on hand, there is not likely to be any new funding source forthcoming. The state can’t eternally offer bond money based on uncertain cap-and-trade income that may not materialize.
As for attracting outside investors, the state can’t attract investors to a government program without having some projection for long-term profitability, which would mean estimating future ridership or revenue and making a guarantee of one or the other to individual investors. But the LAO pointed out in 2010 that doing so appears to be illegal, so no intelligent investor will be spending money on the project.
The project is dead in the water, and it appears that it is only a matter of time until the state runs out of funds and is left with a derelict rail. It’s time for Jerry Brown and other gubernatorial candidates in the state to make clear how they plan to salvage the project, or to make plans to abandon it.