California High Speed Rail: Financial Realities and Goodbye Judge Kopp

SF Examiner, 3/31/11.

by Kathy Hamilton

Special Board Meeting: The Match CHSRA will offer for the Florida funds

There was no rubber stamping of CEO Van Ark’s recommendation to have California contribute a 30% match for federal funds application for the extension of the central valley segment.  Nearly all of the board members present took issue with the amount of the match but board member David Crane, the financial expert, put Van Ark on the hot seat about the wisdom of his recommendations.

The board eventually reduced that match to 20% in order to reduce the burn rate of the bond funds that are disappearing fast from the limited $9 billion bond for HSR.  The staff had hoped it would get approval for enough funds to extend the central valley segment into Bakersfield and Merced in what the Authority called their base application for $1.80 billion called Option 1, meaning the main application.

Under a separate application they will ask for approval for extensions to the Base Application:

2A Extending West of the Wye toward San Jose for 39 miles (estimated cost $1.2 Billion)

2B Extending South of the Bakersfield Station toward Palmdale for about 15 miles. (estimated cost  $1.67 Billion)

Chairman Pringle was the first to say he did not want to send in applications for the “extensions” if for any reason it would give the federal government the opportunity to pick the option thereby taking the power away from the board to determine the first operable section.

In the end, since there was not enough money to do both, the Authority will ask the FRA to approve both and give the board the right to choose one.

Bottom line the California High Speed Rail went after all the Florida Funds.

Here are some memorable quotes:

Crane: Directed toward Van Ark, “Do I have it right that we have already committed $2.75 billion of our state match and if we do what you proposed we will have used about $3.3 billion so more than a third for High Speed Rail?  Are you comfortable with that?” Crane points out that they will have spent a third of the bond money for about 1/7th of the cost of the project of which he used $43 billion as the base.  Note:  If independent sources are correct and the revised figure is more like $65 billion.

Van Ark reminded Crane that local and private funds could also be used for matching down the road.   Van Ark’s proposed FRA request was designed to enable them to complete the first segment from Merced to Bakersfield.  He added that the FRA would also value that completion.

But Crane continued, “Why is it that California has been the only one to commit the most money every time?”  He goes on to articulate that other bidders offered 20% when we offered 50%.  Crane reminded Van Ark and the board that they have a relatively small bond in a world that is difficult to issue bonds.  He advised the staff they should begin writing construction companies that want to win the bid [to build and operate the railroad] and get the highest possible price for state with the lowest match possible. See Financial Risks

Later in the meeting Crane continued about the match issue, “The feds are making available $2.4 billion, you need 1.8 billion.” He reminds the CEO they are ” in a world where Obama is dying to have a partner in High Speed Rail anywhere in this country.”  [] I don’t know why we don’t say to them [FRA] we need $1.8 billion and we’ll do a 10% match. To say, we’re not going to go out for more federal money now because we’re going to get private funds later is really living in the clouds.  We need to play hard ball here.  Crane suggested they could always put up more money later if they needed to.

Lynn Schenk added she too was not comfortable with the 30% and added, “We’re burning through our bond money, and I want to urge caution.  The bond money was very hard to come by, we can’t contemplate that there will be more and we’re not allowed to use any state money for operation.  We need to be very careful in offering that up.”

Social Justice:

Schenk also urged the board to schedule a meeting to discuss environmental justice issues. She pointed to an earlier public comment speaker, Julian Comacho, president of the Hispanic Contractors Association in California who represented a group called APAC (Associated Professionals and Contractors for California), an umbrella group who deals with social justice issues for neighborhoods and cities with protected classes that have populations of poor and the small farmers.  He asked the Board if they were going to do an Environmental Justice Study and if not, were they prepared to return the federal funds that have been invested. Note: Madera county in the central valley has populations poorer than in the Appalachias..

Schenk reminded the board that she lived through the building of the 105 freeway and the destruction it caused to low income communities in Los Angeles area.  She added, “I want to make sure that we don’t repeat history because we haven’t studied it.”

The Competition:

There was lots of discussion about who the competitors were and basically the biggest competitors are the Northeast, Illinois and possibly Washington State. Wisconsin and Ohio dropped out in addition to Florida.

As reported in the AASHTO Transportation report, “The designation of the Northeast Corridor as a federally recognized high-speed-rail corridor will allow Amtrak to apply for grant funding from Florida’s rejected high-speed rail-funds for projects on the corridor,” according to a statement issued by the senators. “Previously, only the Northeast states could apply for projects on the NEC. Permitting Amtrak to apply will allow projects that connect the entire Northeast Corridor to be considered for funding and will bring Amtrak’s extensive knowledge of the operations and maintenance of the Northeast Corridor into the grant process.”

Regarding the success of the grant application, Vice Chairman Umberg was asking Van Ark about if the FRA has the final decision as to who gets the money and Van Ark answered yes. Umberg followed up and asked if they have other guidelines that must be followed through Congress.  Van Ark replied that they always go through Congress. Obviously concerned, Tom Umberg then restates his question, ” Let me go back to the very beginning. So once we apply, once FRA designates who’s getting what, if Congress, either house stops it, it’s done.”  Van Ark agreed it could be stopped.

Goodbye Judge Kopp

One interesting note, Quentin Kopp was replaced at the latest High Speed Rail Board meeting, without mention or ceremony. Chairman Pringle made only a brief mention that Bob Balgenorth, had joined the board and was sworn in earlier. Balgenorth is president of the California State Building and Construction Trades Council.

Judge Kopp was not afforded the same honors that his former colleague Rod Diridon was which included a speech listing his accomplishments nor a plaque upon his exit.  No doubt this was the result of tense board relations in the previous months over conflict of interest allegations aimed at the board members.

Though many peninsula people did not agree with his stance on High Speed Rail or his stern and at times crusty approach toward them, he was a formidable opponent. Both astute and crafty, knew how to get things done and had dedicated much of his life to transportation.  For almost 40 years he worked in various positions such as attorney, state senator, Board of supervisors to many local municipalities and transit boards, talk show host, judge and his last appointment to the High Speed Rail by the senate was in 2006. He was elected as the Chair of the High Speed Rail Authority that same year.  His precision with the law coming from his solid legal background will be missed.

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