Confessions of a Liberal on High Speed Rail

This was sent by William Grindley, and I post it here with permission from the author.

HIGH-SPEED RAIL; A LIBERAL’S DILEMMA


I am a liberal. I venture to say the Bay Area is a liberal bastion, and that the proposed SF-to-LA high-speed rail system finds a great deal of support here. It seems to work so well in Europe and parts of Asia. But wait, the program is more complicated than a noble idea that America should adopt. And it may come as a shock to many of us liberals to find we are helping achieve very conservative political goals.

Conservatives have been extremely successful in ‘starving the beast’ that is, keeping government starved of funds; which forces budget cuts for education, health and social assistance and programs favored by liberals. And Californians, like most Americans, consistently have little appetite for more taxes to support the starving beast. Less tax revenues and the beast starves.

Unfortunately Bay Area liberals, and all Californians, are going to have to pay for a high-speed rail network – or at least the half that financiers and bondholders for $20B of the $42.6B total will demand. That half eerily echoes the debt the State now finds itself burdened with – a state presently unable to keep teachers paid, university tuitions affordable, potholes filled, parks open, etc. etc. etc.

The problem with high-speed rail is that money isn’t free. The enabling legislation behind 2008’s Proposition 1A, requires the State to sell the $9B in authorized bonds, and pay off the $10B-$12B required from the private sector at competitive market rates. Last December State Treasurer Lockyer reported that California must now pay a real interest rate (5.93%) to attract bondholders. That’s higher than Mexico, Brasil, the Philippines or Indonesia pay, and only a quarter of a percent less than Greece. California has achieved Third World status with the world’s financial community.

Bondholders demand that rate of return – or better. If financed at the present real rate over 30 years, the $9B from Prop 1A equals over $50B, which equals fewer teachers, more potholes and more closed parks, fewer hours at DMV, etc. etc. etc. Is the picture getting clearer ?

And private investors won’t put equity into the project without an even higher return. The High-Speed Rail Authority’s projects they will need an after-tax return of 16% to risk their money. The Authority also recognizes the project is so risky, that “Without some form of revenue guarantee from the public sector, it is unlikely that private investment will occur ” A revenue guarantee is a subsidy by another name. If the project can attract the $10-12B, and pay those shareholders at the needed 20% pre-tax rate, private financiers’ contribution would cost Californians $2B-2.4B every year. That’s $70 a year for every man, woman and child in the state. Forever.

The project will also require $4B-$5B of local grants – aka money from your town is free to the high-speed rail system. San Francisco faces a budget deficit more than $500 million. San Jose, Oakland and nearly every other city in the Bay Area and state are cutting jobs and deferring capital expenditures. It’s difficult to see where local governments are going to come up with the $135 per man, woman and child in the state.

Now comes the dilemma. If you are liberal and still proud of California’s now-faded glory as a leader in an excellent education systems, and good local and state services, you should question your support for high-speed rail. If you were attracted in 2008 by the images of the gold-and-blue TGV, you made the state’s finances even more precarious. So when you see cutbacks in education, state and local government workers on furlough, more potholes on your local streets or US101, or closed parks, remember that the State’s finances are finite, and the money has to come from somewhere. We can’t have it all. In short, we liberals have helped ‘starve the beast’. Conservatives should be thanking us.



William Grindley is a resident of Atherton (151 Laurel Street, Atherton, CA 94027 (650) 324 1069) a graduate in Urban Planning from the Massachusetts Institute of Technology and a member of the Planning Commission of the Town Of Atherton.

Status Report on California's Bond Debt: Assembly Budget Hearing; December14, 2009. Bill Lockyer, State Treasurer: page 4 – True interest cost of California’s General Obligation Bonds in December 2009 was 5.93%. At this point, California pays a premium credit spread to US Treasuries of 310 basis points – a higher spread than Mexico, Brasil, the Philippines or Indonesia.


California High-Speed Rail Authority: Report to the Legislature; December 2009; pg. 108.

ibid. pg. 104

Ibid; pg. 108