Friday, January 9, 2009

Republican Budget Stalemate Hurts HSR Project

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

At yesterday's CHSRA board meeting the effect of the state's budget crisis on HSR became clear - unless Republicans stop obstructing a budget solution, the Authority may have to suspend planning and design work, and terminate contracts with consultants and engineers whose accumulated expertise on our HSR project has become vital.

The California High Speed Rail Authority's budget for the current fiscal year, which ends in June, included $29 million from the sales of high-speed rail bonds authorized by voters in November. But because of the state budget crisis, the credit crisis and the poor market for bonds, the state treasurer has not sold any of the rail bonds.

That's left the rail authority without cash at a time when Californians are eager to see the 800-mile fast train system built. At an authority meeting Thursday, officials said they had halted payments on engineering and design contracts in progress and are holding off on awarding new contracts.

"Unfortunately, I have quite a backlog of bills that need to be paid, but no money to pay them," said Carrie Pourvahidi, deputy director for the authority.

The article is a bit misleading on this. The credit crisis and the poor market for bonds are part of the issue. But the state budget crisis is THE central issue. The crisis has led Treasurer Bill Lockyer to refuse to try and sell authorized bonds, and led the Pooled Money Investment Board to stop all infrastructure spending. To the extent that the market for California bonds isn't good because of the budget crisis, it's because the bond markets are concerned that the state may default on its debts.

And why is that a possibility? Because Republican politicians - from legislators to Arnold Schwarzenegger - continue to block a budget solution. I usually try to keep my more partisan comments to Calitics but we cannot escape the fact that it is Republican obstruction alone blocking a solution. Democrats have compromised far more than the media reports - agreeing to nearly $8 billion in spending cuts that have their labor allies VERY angry with them. Speaker Karen Bass agreed to most, but not all of Arnold's demands on cutting environmental and labor protections. But Arnold vetoed the Democrats' solution, and Republicans refuse to budge.

That won't stop HSR deniers from using this manufactured budget crisis to blame HSR. They've done it before - when the CHSRA wasn't funded as a result of the summer budget delay, pushing back the release of the 2008 Business Plan, HSR deniers said it was a sign the CHSRA was a flawed agency unfit to manage the project. It is likely we will see the HSR deniers use thus cash crunch story for the same purposes.

Arnold has proposed giving the CHSRA the funding they need:

On the other hand, the governor's early state budget proposal for the 2009-10 fiscal year includes $123.8 million for high-speed rail, just a half million dollars short of the agency's request.

But if he keeps blocking budget deals, this doesn't really matter. If consultants and engineers are let go, they may decide to take their expertise elsewhere in the country or in the world, and we will not easily replace them.

The big picture involves conservative anti-government ideologies. One reason the HSR deniers oppose the project is they refuse to accept that government can plan and implement this kind of project effectively, even though HSR has been successfully built by governments around the world. By starving government of revenue they are able to "prove" their case with a self-fulfilling prophecy. They opposed Prop 1A and HSR, so they starve the Authority of funds and then say "oh wow they can't manage money!"

California Republicans need to recall their Constitutional obligations to this state and provide it with a balanced budget that protects Constitutionally-guaranteed services - and respects the will of the millions of Californians who voted their endorsement of HSR by approving Prop 1A on November 4.


Clem said...

> If consultants and engineers are let go, they may decide to take their expertise elsewhere in the country or in the world, and we will not easily replace them.

The firms involved have every interest in proceeding at risk, i.e. using their own means to continue the work. They know they will be made whole once the budget works itself out, and shelling out a few million dollars is probably no big deal for Parsons and the like.

Anonymous said...


They should hire me I have promoted it more in the last 15 years out of my own pocket than all the groups in the country put together---are the oil companies paying you right now to shut up while the stimulas money is being given out?

We need projects that will help people in regions and all areas of the state. For over a decade thousands of people have been speaking out wanting rail passenger service in cities that would benefit from the economic boost. In 2007 the state Transportation Department recommended it in a study including St. Louis, Kirkwood, Sullivan, Rolla, Lebanon, Springfield, and Branson. Service should also be considered to Kansas City from Springfield.

In southwest Missouri we need new jobs. An effort of ten years to bring Technology Jobs is what the people want which is new better paying jobs of the future. Research and development of solar, wind, and other forms of new products of the future can be done at the Technology Park.
The Stimulus money needs to be spent on long term projects the people want not just some road projects to make the auto, concrete, and gas people happy! Remember we are competing for jobs of the future with countries like India and China who are getting the best laugh right now when it comes to the economy!


Steven L. Reed
1441 South Estate Ave.
Springfield, MO 65804


Anonymous said...

On a economic tangent-

I don't understand why the Treasury doesn't just buy some of California's bonds. This would be an effective way of making sure infrastructure spending doesn't slow, and would ensure adequate funding of HSR.

As the loan would be paid back eventually, the cost to the federal government would be small. In fact, (assuming no default), federal borrowing costs are far below state borrowing costs, so the federal government could potentially make money on the difference (T-bill rates near zero, California bond rates far from zero). A California default would be problematic, but I think the federal government would find a way to get paid anyway....

But regardless, you are right Robert. The Republicans need to wake up to reality.

Andrew said...

How fortunate that freeways naturally grow out of the ground and don't require any maintenance. Oh wait...

Rafael said...

As for the CA budget, it looks like the only way to get one is to shame the GOP caucus plus Ahnold into making some difficult compromises.

Million Man March on Sacramento, anyone?

@ Clem -

I think the consultants and engineers Robert Cruickshank was talking about are the ones with actual experience in HSR construction. The concern may be a little overblown since there aren't too many of those involved in California HSR just yet - at this point, it's mostly about securing the ROW and the civil engineering work that is the foundation for the HSR-specific track and catenaries.

He does have a point, though: with so many HSR projects around the world, unreliable funding is an excellent way to get your project relegated to the bottom of the to-do list for HSR specialists.

This is one reason California needs to ensure its universities produce homegrown civil, mechanical and electrical engineering graduates (plus transportation/urban planners, project managers, etc.)

BruceMcF said...

@ davisgrad ... the Treasury cannot buy them, since they are not being sold. That is what Robert is saying ... the "credit crunch" and "state of bond markets" are secondary issues and should not be allowed to distract us from the main issue, which is the deliberate creation of a budget crisis.

Having the Treasury buy the bonds at a penalty rate over the current Treasury bond rate would be a sure winner for the US taxpayer, since its self funding and then when the credit crunch eases, the bonds can be sold at a substantial capital gain. But first, the issue of the bonds must be approved, and that is the hold-up now.

Anonymous said...

What are these constitutionally guaranteed services?And just where are they listed?California is broke.Anyone who would spend a "few million" of their own money in this situationwill soon be broke also

Rob Dawg said...

When the budget crisis is solved what makes anyone think the sale of HSR bonds are going to be anything close to affordable in this lending environment. There are Redevelopment bonds languishing at 8-9 % double tax free.

Until the muni market corrects the CAHSR won't be be to issue any bonds because the rates would break the budget. $9b won't be enough because of excessive debt service.

Brandon in California said...

Save California
Recall a republican

James said...

It sounds like the California Republicans are holding out to pressure cutbacks in the government. That they may be effecting this delay on purpose. I just hope they don't kill the cow they are trying to milk.

Similarly a side effect of the Republican President led Iraq war is that it ran up a deficit which will force government reductions if we are to ever pay our debts. You can either fund an agenda the hard way, by the annual budget process, or come in the back door, by wartime appropriations. Unfortunately we now have a financial market meltdown, so while they are busy strangling the milk cow, the barn has caught on fire.

The market is falling apart from under us. We are close to needing depression era works projects effected by direct government intervention.

We will be extremely fortunate if they can get this economy back on course but we are a long way from a normal bond market. Time for our leaders to get off their butts and lead.

James said...

Oh yea. The cow has also been slowly getting sick since the end of the Cold War and has been donating blood to China so it wasn't feeling to good to begin with. It doesn't help that the Union boss is sitting on its back.

James said...

Wall St. was skimming the cream but the cow has gone dry.

James said...

And on the menu for our last supper, steak.

Spokker said...

I overheard a couple of older guys talking about high speed rail on the San Joaquins on Thursday. They looked like lobbyists or something and I figured they were going to Sacramento. Before I decided whether or not to talk to them they got off in Merced and boarded a special service bus operated by the local transit agency.

They were very pro-rail, but one of the guys seemed not be anti-HSR. He said, and I paraphrase, that the San Joaquins couldn't act like a feeder service to the HSR because the ridership isn't there. He also said that BNSF WANTS HSR while UP is fighting it. BNSF wants passenger traffic off its tracks and onto dedicated passenger rail lines.

He imagined BNSF as saying, "Hey, HSR? How can we help?"

It was interesting. I just wonder if those guys were important or something. They seemed to be going to a meeting to talk with someone about rail. Shrug.

Rafael said...

@ Spokker aka eavesdropper-in-chief -

it's pretty much an open secret that BNSF has been trying to sell part of its ROW to CHSRA, i.e. in the Central Valley up to south Stockton and the LOSSAN corridor as far as Fullerton. BNSF already hosts six daily Amtrak San Joaquins in the Central Valley, but those trains will not run on HSR tracks once they are laid - that old FRA mixed traffic rule strikes again. Note that the San Joaquins stop in more locations that HSR will, the very definition of a feeder system.

By contrast, UPRR has indicated it has no interest at all in selling any of its ROW. That could be a negotiating ploy or, a real headache in a number of sections, notably San Jose-Gilroy, east Bakersfield, Mojave-Palmdale, Los Angeles-Riverside and downtown Stockton.