Cap-and-trade program could provide funds for high-speed rail

The Fresno BeeMarch 31, 2012 

A new financing strategy is a centerpiece of a revised business plan that state leaders will unveil Monday in Fresno for the proposed high-speed train system.

Rather than rely on uncertain future federal transportation funds, money from the auction of air-pollution credits -- the state's "cap-and-trade" program -- can provide a "backstop" source of money for the California High-Speed Rail Authority, authority chairman Dan Richard told reporters Saturday.

The state has about $3.5 billion in federal stimulus and transportation funds from the Obama administration to build from Fresno to Bakersfield. That would be matched by almost $3 billion from Proposition 1A, a high-speed rail bond approved by California voters in 2008.

But critics say the authority had not identified potential sources of money to build anything beyond that initial segment.

Gov. Jerry Brown suggested in January that cap-and-trade money paid by industries to offset pollution could be a funding source for high-speed rail. In his proposed 2012-13 state budget, Brown estimates that cap-and-trade could generate as much as $1 billion a year for California.

Cap-and-trade is a state program that requires industries to reduce their air pollution below certain thresholds.

If companies cannot achieve the reductions in time, they can buy credits built up by companies that comply ahead of schedule. The state will sells those credits in auctions.

"We now believe we have a funding plan that allows us to plan for and commence development of the nation's first operable self-sustaining, high-speed rail system," Richard said.

Construction is still proposed to begin in Fresno late this year or early next year, Richard said. But instead of a stand-alone stretch to Bakersfield, the segment will be part of a unified plan to build a line for electrically powered trains from Merced to the San Fernando Valley by 2022.

A Merced-Burbank line would become the first operational segment for high-speed trains to carry paying passengers. The revised business plan shifts the authority's focus from building new tracks in Los Angeles and the Bay Area dedicated to high-speed trains, which would run on existing upgraded tracks or right of way shared by L.A's Metrolink trains and the San Francisco peninsula's Caltrain commuter trains. The plan describes it as a "blended system" of track infrastructure and operations.

The system would allow conventional trains to make use of high-speed tracks before the fast trains are ready to carry paying passengers and would enable coordination of high-speed and conventional trains on the same tracks once high-speed service begins.

An earlier version of the business plan released in November estimated the cost of a blended system between Los Angeles and San Francisco at $79 billion, Richard said, while building a full system of tracks dedicated only to high-speed trains in the Bay Area and Southern California would cost $98 billion.

The latest business plan estimates the cost of a blended system at $68.4 billion, allowing for inflation over the next 16 years; fully dedicated high-speed tracks in the major urban centers have been ruled out.

The Merced-Burbank line would cost about $31 billion, allowing for inflation.

Connecting the San Joaquin Valley to Southern California in one continuous development plan, Richard said, answers concerns by critics about the Fresno-Bakersfield segment becoming "a train to nowhere" if no future revenue source is found.

Critics included the state Legislative Analyst and a peer-review group of transportation experts required by Prop. 1A, which allocated $9 billion for high-speed rail.

Their main gripe, Richard said, was that high-speed rail, unlike other transportation projects, lacked a guaranteed revenue source such as a gas tax.

"What has happened in the last few weeks is that the governor's office and the Department of Finance have basically structured it so that high-speed rail will be able to make application for cap-and-trade revenues, should we need it," he said.

Richard and a fellow authority board member, Michael Rossi, said the agency still will seek federal funds over the coming decade to build the Merced-Burbank section, even though the Republican-controlled Congress has denied the Obama administration's requests for future money for high-speed rail projects.

"We're hoping to get a federal commitment over the next 10 years of at least $4 billion, and we're going to do everything we can to develop private-sector revenues from station development, right-of-way leasing and advertising," Richard said. "If that doesn't close the gap, we've got the cap-and-trade funds as a backstop."

The revised business plan predicts that in 2022, the first year of operations with paying passengers between Merced and Burbank, high-speed trains would provide 2.9 million to 5 million rides. Even with the most pessimistic estimate, Rossi said, more than enough tickets would be sold to cover the cost of operations and maintenance without any state subsidy. The break-even point, he added, is about 2.3 million riders.

"We feel good that we've addressed a lot of the public concerns" from the Nov. 1 version of the business plan, Richard said. "It's not like there aren't still going to be challenges and even uncertainties, but we feel this is a very reasonable and workable path forward for the state."

Not everyone is likely to be convinced, however.

State Sen. Doug LaMalfa, R-Willows, had not seen the updated business plan, but said he remains concerned about how the system will be paid for. "Where does the rest of the money come from?" asked LaMalfa, who is spearheading an effort to repeal Prop. 1A.

He also has doubts that the proposal lives up to what voters approved in 2008.

Voters believed that "it would be a true high-speed rail from one end to another and that it has to operate on its own, that the state can't be underwriting it," LaMalfa said. "This is far short."

Richard said the authority's latest plan does cost more than the $43 billion anticipated in 2008 but does what the law requires. "With this blended system, we can get from Los Angeles Union Station to the Transbay Terminal in 2 hours 40 minutes, hitting speeds of 220 mph and operating that system without a subsidy, precisely as is commanded by Prop. 1A," he said. "And we don't need to build anything else in order to achieve that."

Authority board members said the new plan provides benefits for the San Joaquin Valley even before high-speed trains begin rolling. Federal funding strings require work on the Fresno-Bakersfield stretch to be completed by fall 2017. Richard said the authority will work with Caltrans to improve existing freight tracks used by Amtrak's San Joaquin trains.

The Associated Press contributed to this report. The reporter can be reached at (559) 441-6319, tsheehan@fresnobee.com, or on Twitter: @tsheehan

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