High-speed rail board seeks private-sector ideas, interest on financing, development

One of the chief criticisms leveled at the California High-Speed Rail Authority over the past couple of years has been the lack of private-sector investment in its ambitious statewide bullet-train program. Those investments were promised to voters in Proposition 1A to make up about one-third of the money needed to build the system.

But that was when the cost for the program was projected at about $43 billion for a system to connect San Francisco and Los Angeles by way of the San Joaquin Valley. Now, the forecast is about $68 billion to reach downtown San Francisco and downtown Los Angeles. The agency has about $6 billion available to build about 120-130 miles of the line in Fresno, Kings, Madera, Tulare and Kern counties — a combination of about $3 billion in federal stimulus and transportation funds and about $3 billion from Prop. 1A, the $9.9 billion high-speed rail bond measure approved by California voters in 2008.

Beyond that, however, there is nary a private-sector dollar in sight.

Mindful — and repeatedly reminded — of that reality, the agency this week issued a “request for expressions of interest” from private industry, seeking input on how businesses believe they can best participate in financing, building and delivering a ready-to-operate system of electric passenger trains by the early 2020s.

The 17-page document sheds a little more light on how the agency envisions attracting private investment: a strategy to seek a developer to design, build, finance and maintain its “initial operating segment,” a 300-mile stretch from Merced to Burbank that would form the first operational stretch on which electric trains would carry passengers, in exchange for a 25- to 50-year schedule of “availability payments” to repay the developer’s capital investment. The presumed source of money for repayment is a stream of cap-and-trade money — funds paid by industries to the state to buy air pollution credits under California’s landmark greenhouse-gas reduction program. The rail authority is scheduled to receive 25% of the state’s cap-and-trade money on an ongoing basis. That is expected to amount to about $500 million in the 2015-16 budget year that begins July 1.

Remaining money from Prop. 1A — about $4 billion of which is still uncommitted — would be used to make “milestone” payments based on yet-to-be-determined benchmarks and match a portion of the developer’s investment in capital costs, but according to the authority’s request, “the developer would be expected to finance the remaining costs.”

Crucial cap-and-trade

“The authority anticipates committing some or all of its remaining Prop. 1A and future (cap-and-trade) proceeds to fund the milestone and availability payments” on a massive development contract to get the Merced-Burbank segment up and running by 2022, according to the document.

The cap-and-trade money, authorized by the state Legislature in 2014, is a key to the agency’s hopes for attracting private investment. Rail authority board chairman Dan Richards told his colleagues at their meeting in Sacramento last month that the point is “to go to the private sector to ask them if they have an interest in the program at this point (and) given where the program is right now, to step forward with some proposals.”

Jeff Morales, the agency’s CEO, said that private interest surged after the Legislature’s cap-and-trade vote. “We saw a demonstrable shift in our discussions with the private sector, because they recognized it for what it was: a clear and strong statement by the governor, by the Legislature, that the state was committed to seeing this program move forward,” Morales told the authority board in May.

Representatives of construction companies and investment firms have visited Sacramento to meet with the authority’s staff for “one-on-one discussions with some of their individual ideas and demonstration of interest to be part of this program,” said Frank Vacca, the authority’s chief program manager.

But, Morales allowed, “we do not have any specific proposals for investment.”

The formal request for expressions of interest is seen as a way to nudge companies to move beyond vague statements of support and make more meaningful overtures and offer specific ideas for developing the system. Vacca described it as “part of the strategy in looking at ways to leverage cap-and-trade, to advance the program in a faster, more economical way.”

“Faster” and “more economical” are becoming critical factors for the rail agency. Construction has started on a 29-mile segment between Fresno and Madera, a contract has been awarded for a 65-mile section from Fresno to the Tulare-Kern county line, and bids are being sought for the third Valley segment, about 22 miles from the Tulare-Kern line to Shafter. The authority expects work on those sections to be completed by late 2018. But to continue development north to Merced and south through Bakersfield and Palmdale to Burbank in time to begin carrying passengers in 2022, the authority needs to get a move on.

A sense of urgency

“I think we’re in a point in our program that we need to solicit as much input as we can from examples that have been tried around the world,” Vacca said. “We’re at a point in our program (that) in the next six to twelve months, we have some hard decisions to make on going forward on additional procurements.”

And with a Republican-controlled Congress determined to continue blocking the federal government from providing any more money for California’s high-speed train system and ongoing gnashing of teeth over the system’s cost — estimates have yo-yo’d from $43 billion in 2009 to $98 billion in 2011 to $68 billion in 2012 — the agency is continuing to look for ways to stretch the dollars it does expect to get.

The potential responsibilities that a developer would be expected to take on under a system-delivery contract include maintaining the Valley segments already under contract or out for bids; designing and building the rest of the initial operating segment between Merced and Burbank; installing steel tracks for the entire Merced-Burbank segment; designing, building and maintaining communication, signal and electric power systems between Merced and Burbank; providing financing for developing the segment and making sure that all of the components work together.

Similarly, developers could pitch their ideas for delivering a northerly route ranging from Bakersfield to San Jose.

The authority is asking industry representatives to submit their responses by Sept. 14, but said it may consider responses after that. Those would be followed up with one-on-one meetings between the authority and would-be partners that are deemed capable of leading a bidding team to develop one or both of the operating segments.

This story was originally published June 28, 2015 at 3:06 PM with the headline "High-speed rail board seeks private-sector ideas, interest on financing, development."