The Future of California's High-Speed Rail Is in Private Sector Hands
This summer Californians heard two kinds of news about their proposed high-speed rail line from Los Angeles to San Francisco: bad and worse. First questions arose about the forecasting model used to determine ridership and revenue estimates. Then the cost estimate for the first segment of construction, in the state's central valley, jumped from $43 billion to at least $63 billion after a review. Then the Los Angeles Times, which has supported the project in the past, wondered if the line will become a "crushing financial burden" on state taxpayers.
But the news may be turning with the fall leaves. Earlier this month, on the same day President Obama urged Congress to pass a jobs bill aimed at America's small businesses, the California High-Speed Rail Authority promised to dedicate 30 percent of the line's construction work to the state's own small businesses. The work in the central valley, which is supposed to begin next year, is expected to generate tens of thousands of jobs for the region. And a peer review panel of global high-speed rail experts recently gave the authority's ridership estimates a vote of confidence.
The approved ridership figures are particularly encouraging as the state shifts its attention to attracting private investments. The authority's updated business plan — which it will use to solicit bids for the central valley segment — won't be released until next month, but a sneak peek of the plan [PDF] shows a clear emphasis on raising private capital. Doing that successfully will require public seed money, which the project has in the form of $6 billion in federal funding, and strong ridership estimates, which just got a bit stronger with the new peer review.
By now the authority surely recognizes that the future of the project rests on its ability to recruit private money. A commitment of additional state funds seems all but impossible, especially with the rising cost estimates. The House is intent on keeping rail funding low and recently set the 2012 budget discussion for rail at $7 billion less [PDF] than Obama would like. The president's jobs bill proposes $4 billion in high-speed rail funding, and a strong case can be made for giving it all to California. Still, there's zero certainty the plan will pass, and California can't afford to wait long to find out: the state must spend its federal funding by 2017 or forfeit it, which means construction needs to start in 2012.
This push for private capital brings good and bad news of its own. On one hand there appears to be a substantial amount of private money out there ready to be invested in infrastructure — upwards of $250 billion [PDF], according to one recent analysis. On the other, private-public partnerships carry risks and must be approached with caution. Two reports on PPPs released this July, one by U.S. PIRG and one by the Department of Transportation, make these risks perfectly clear.
In simple terms the danger boils down to profit. Private interests may put up capital now, but that's only because they expect revenue later. If you think Acela is expensive, don't expect lower fares from a rail operator that exists solely to make a quick and hefty profit. At some point the public will pay for the rail line, if not through tax dollars and federal funding now, then through ticket costs later. As the DOT report puts it: "In other words, a PPP primarily changes the timing with which funds become available, not the amount of the funds."
Still, the creation of America's model high-speed rail line was never going to occur without some risk, and concerns over private investment can certainly be addressed with proper planning. Both the PIRG and DOT reports point out measures that public agencies can take to mitigate problems that come with private partnerships. U.S. PIRG, for instance, cautions that the public "must retain control over key transportation-system decisions." Let's hope California heeds this kind of advice, because PPPs, for better or worse, may be the state's only hope of building the line anytime soon.