Private-sector money commitment still lacking for high-speed rail project

Leaders with the California High-Speed Rail Authority are tempering expectations for imminent investment by the private sector in its statewide bullet-train project after receiving three dozen “expressions of interest” from companies around the world.

The companies or teams of firms responded last month to the agency’s request for information and ideas on how a public-private partnership could be structured to complete an initial operating segment of the rail system from Merced to Burbank. They reportedly weighed in on how the authority can best approach such issues as attracting industry investment and financing, packaging contracts for infrastructure and equipment, and phasing of the development.

“This is pretty much a who’s who of people who would be involved in big infrastructure around the world … from financing through delivery, operation and maintenance,” authority CEO Jeff Morales told the agency’s board at its meeting Oct. 6 in Sacramento. “The response was very positive, very encouraging, and I think it underscores the level of interest throughout the industry around the world in this program.”

But Morales, board chairman Dan Richard and others on the board cautioned that what’s still lacking from any of the proposals is a definite proposal to pony up money to build the system.

“A few years back, we had to go to New York to meet with all of these kinds of entities, and we spent about a week doing that,” Morales said. But after Gov. Jerry Brown and the Legislature approved steering 25 percent of cap-and-trade money from California’s greenhouse gas-reduction program to high-speed rail, “now they’re coming to see us. They’re not bringing a checkbook with them yet, but they’re bringing their ideas, their interest and their commitment to work with us.”

Private investment in some form is required to be a key part of the money that will be needed to build a train system between San Francisco and Los Angeles. In fact, Proposition 1A, the $9.9 billion high-speed rail bond measure approved by California voters in 2008, requires that the state’s bond money only be spent to match funds from other sources.

In 2008, those money sources were anticipated to be significant contributions from the federal government and private industry. But a Republican-controlled Congress is steadfastly opposed to direct any more federal money to California’s project for the foreseeable future. That means if the gap – or perhaps a canyon – is to be filled between the $6 billion now available to the rail authority and the projected $68 billion needed to complete the San Francisco-Los Angeles Phase 1, the bulk of the financial expectations will fall to the private sector. The cost of the Merced-Burbank stage is forecast at about $31 billion.

“The problem I have is that in a lot of the political dialogue, people tend to garble up what they mean when they talk about the private sector coming in,” Richard said. “The private sector was always going to be part of high-speed rail. … But when people talk about the private sector, what they’re really talking about is who’s going to bring new money.”

Richard said none of the industry responses include a concrete plan “that adds up to $20 billion of new money that we’ve estimated could be supported from the projected revenues” from ridership, real estate and other income sources.

Richard said he’s read all of the submissions, which have yet to be made public but which the agency said will be summarized for legislators and the public. “It is a step,” he said. “I just don’t want us getting too far ahead of ourselves in what we’re telling the public and ourselves is going to be inherent in these responses as I’ve read them.”

Board member Michael Rossi, a former banking executive, and vice chairman Tom Richards, a Fresno developer, echoed the chairman’s sentiments. “The section that pertains to finance, there is absolutely nothing new in it from all the conversations we’ve had from Day One about the requirements that people believe are necessary to make funding available at an earlier stage,” Rossi said, referring to suggestions of subsidies or minimum financial guarantees that are expressly prohibited by Proposition 1A. “So we just want to be very careful. … On the finance side that is a non-starter because we already have a set of requirements from the state.”

Richards said he, too, was encouraged by the volume of responses, but acknowledged that it seems too early to expect solid financial commitments.

“I’m amazed that there are so many major companies around the world who are seeing this project as the viable project that it has become,” Richards said. “I’m also surprised by reading each of these (about) the amount of time that was devoted to putting together these responses. The private sector doesn’t do that if they think they’re on a fishing trip.

“Eventually we’ll be ready to look to the private sector for their participation and funding,” he added. “We’re just not there yet.”

Still, other board members saw reason for optimism. “This is one of the key turning points because there is an awful lot of excitement and discussion,” board member Daniel Curtin said. “Thirty-six responses is pretty impressive. … It makes it look a lot more serious than it did three months ago.”

This story was originally published October 9, 2015 at 2:01 PM with the headline "Private-sector money commitment still lacking for high-speed rail project."