Posts

State Audit Exposes High Speed Rail’s Epic Waste of Time and Money

Although the midterm election was held on November 6th, the news media was absorbed for several weeks with undecided close races and the strength of the “blue wave,” especially here in California. Perhaps that is why a report from the Auditor of the State of California on the High Speed Rail Project issued the following week did not receive as much attention as it would otherwise warrant.

To understand just how damning the HSR audit was, just consider the subtitle:  “Flawed Decision Making and Poor Contract Management Have Contributed to Billions in Cost Overruns and Delays in the System’s Construction.”  But like many government documents, the audit is couched in bureaucratic language that ordinary citizens may not understand.  For that reason, below are the summary points as provided by the state auditor with accompanying translations.

Auditor: “Although the Authority has secured and identified funding of over $28 billion that it expects will be sufficient to complete initial segments, that funding will not be enough to connect those segments, or finish the rest of the system—estimated to cost over $77 billion.”

Translation: The Authority has succeeded in talking both the federal government and the state of California into providing billions of dollars on a failed project and yet still has no idea where the rest of the money will come from.

Auditor: “It has incrementally modified its plans for a fully dedicated high-speed rail system since 2012 and now intends to share—blend—existing transit infrastructure wherever feasible. Although blending is less costly, it subjects high-speed trains to lower speed limits and may require sharing time on the tracks with other rail operators.”

Translation:  All those promises made to voters about getting from San Francisco to Los Angeles in less than three hours were never serious.

Auditor: “The fact that [the Authority] has now exhausted all feasible options to use existing infrastructure raises concerns about its ability to mitigate future cost increases.”

Translation: The Authority has followed Willie Brown’s advice. The former Assembly Speaker, in a moment of candor, once told the San Francisco Chronicle, “In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”

Auditor: “The risk of additional cost increases is high. Costs to date have been significantly greater than originally projected because the Authority moved forward before it completed many critical tasks such as purchasing land, planning how to relocate utility systems, or obtaining agreements with external stakeholders.”

Translation: The Authority’s modus operandi can be distilled into three words: “Fire, ready, aim.”

Auditor: “This risk contributed to $600 million in changes to construction contracts.”

Translation: $600 million (over half a billion dollars) in unnecessary expenditures to date is just a preview of the waste we’ll see in future years.

Auditor: “If the Authority does not complete construction by the federal government’s December 2022 deadline, it may need to repay $3.5 billion.”

Translation:  The Authority is going to have to spend tens of millions of dollars on Washington lobbyists to make sure this doesn’t happen.

Auditor: “[The Authority] needs to improve its contract management to control soaring costs—it currently has 56 contract managers throughout its organization, but these individuals generally do not serve in contract management roles full time. Moreover, it has placed portions of its oversight of large contracts into the hands of outside consultants.”

Translation: It’s hard to determine which is worse; the gross mismanagement by managers within the Authority or the fact that it is being ripped off by outside consultants.

For years, transportation experts, taxpayer advocates and fiscal conservatives have watched the horror show known as California’s high-speed rail project unfolding before our very eyes.

While we would hope that a new crop of legislative leaders would take a keen interest in protecting taxpayers as well as ensuring that valuable transportation dollars are spent wisely, the reality is that there are too many vested interests reaping billions of dollars from the project to allow serious oversight.

This virtually guarantees that California will continue to throw good money after bad for years to come.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

California’s Transportation Future, Part One – The Fatally Flawed Centerpiece

California’s transportation future is bright. In every area of transportation innovation, California-based companies are leading the way. Consortiums of major global companies have offices throughout the San Francisco Bay area, pioneering self-driving cars that consolidate technologies from not just automakers, but cell phone manufacturers, chip designers, PC makers, telecoms, and software companies. In Southern California from the aerospace hub surrounding LAX to the Mojave desert, heavily funded consortiums experiment with everything from passenger drones to hyperloop technologies to hypersonic transports. It’s all happening here. It’s wondrous.

Meanwhile, instead of preparing the roads for smart cars, or designing hubs that integrate buses and cars-on-demand with aerial drones and hyperloop systems, the centerpiece of California’s transportation future is a train that isn’t very fast, being built at what is probably the highest cost-per-mile in the history of transportation, which hardly anyone will ever ride.

There is a stark contrast between California’s private entrepreneurial culture, as reflected in the marvels of transportation engineering they are developing, and California’s political culture, as reflected in their ongoing commitment to “high speed rail,” in all of its stupefying expense, its useless grandeur, its jobs for nothing, its monumental initial waste, situated miles from nowhere. Exploring that stark contrast, its origins, the players, the projects, the problems and the solutions, will be the topic of this and subsequent reports.

HIGH SPEED RAIL – THE FATALLY FLAWED CENTERPIECE

The fatally flawed centerpiece of California’s transportation future, the “Bullet Train,” unfairly dominates California’s transportation conversation. Unfair not only because it represents a prodigious waste of public resources and an epic failure of public policy, but because in spite of the Bullet Train fiasco, California’s private sector is designing and building a transportation future for the world at dazzling speed. But before surveying the excellent progress being made elsewhere in the Golden State, it is necessary, yet again, to tick through the reasons why the Bullet Train is the wrong solution, in the wrong place, at the wrong time.

Fifty years ago, before air travel became affordable to nearly anyone, before you could fly from San Francisco to Los Angeles for less money than it would cost in gasoline to drive there in your car, rail travel might have made sense. But today, airfare is only about twice the cost of bus fare, with total air travel time a minute fraction of what the same trip would take on a bus.

Fifty years ago, before land values and environmentalist lawsuits rendered any capital project prohibitively expensive, building a high-speed rail corridor between San Francisco and Los Angeles might have made sense. But today, the latest cost estimates for the SF/LA route exceed $100 billion.

Unrealistic Projections

High speed rail makes sense for intercity applications in megapolises. For example, a high speed rail line connects three of Japan’s largest cities, Tokyo, Nagoya, and Osaka. Nearly all of this 300 mile corridor is urbanized – in all, over 70 million Japanese live in this region of Japan.

By contrast, just phase one of the California high speed rail project, linking San Francisco with Los Angeles, will be 520 miles long, connecting about 24 million people. This doesn’t pass the density test. Compared to a successful high speed rail system – which the Tokyo/Osaka system certainly is – the San Francisco/Los Angeles system would be nearly twice as long, and serve only about one third as many people.

Put another way, there are 233,000 Japanese, per mile, living along the Tokyo/Osaka route, whereas there are 46,000 Californians, per mile, living along the proposed San Francisco/Los Angeles route. That means there are five times as many potential riders on Japan’s centerpiece bullet train as there might be on California’s.

Low ridership isn’t just a consequence of insufficient population density, although that is a critical precondition. Low ridership also stems from impracticality. The California High Speed Rail Authority’s 2018 “business plan” is disingenuous on this topic. They claim that travel to and from the airport chews up time, yet ignore travel time to and from a high-speed rail station. Travel time to these stations, air vs. rail, are entirely offsetting. Then they claim time that boarding high speed rail is quicker than boarding an airplane. Why? A frequent air traveler has TSA Pre, and typically sails through check-in and security. And won’t security be in place for high speed rail? Of course it will. Boarding time – also entirely offsetting. Which brings us to the actual travel time.

The current projection according to the CA HSR 2018 business plan (ref. page 7) is three hours for nonstop service from San Francisco to Los Angeles. This is definitely a best-case estimate. As reported on March 18th in the Los Angeles Times, “Of the roughly 434 miles of track between Los Angeles and San Francisco, 136 miles — nearly one-third of the total — could have at least some speed restrictions.” This would include tunnels, sharp curves, all transits through urban areas, and, incredibly, shared track and shared right-of-way with conventional rail carriers.

It is going to take twice as long to travel from San Francisco to Los Angeles via high speed rail vs. an airplane. Let’s not forget there are three major airports in the San Francisco Bay Area – SJC, OAK, and SFO. Five major airports serve the Los Angeles area – LAX, ONT, BUR, LGB and SNA. And flights connect all of them to each other, all day, every day.

Perpetual Financial Drain

Even if you accept the official projections for California’s high speed rail, the financial projections are unlikely to attract private capital. The table depicted below uses baseline projections from the CA HSR 2018 business plan (numbers directly taken from the business plan are highlighted in yellow, with numbers in intermediate years, which were not disclosed in the business plan, arrived at by extrapolation) to construct a cash flow for the “Phase One” portion of the project, those segments connecting San Francisco to Bakersfield. All of the variables are taken from that document. Several generous assumptions are necessary to accept these projections. They are:

(1) The entire capital cost for construction of the Phase One system linking San Francisco to Bakersfield is $40.1 billion (ref. page 32, exhibit 3.2 “Summary of Cost Estimates by Phase and by Range”). This is crazy. It will probably cost half that just to bore a tunnel under the Pacheco Pass.

(2) Ridership on this segment will grow to 31.9 million fares per year by 2035. Assuming primarily commuter traffic, this assumes over 120,000 riders per day (ref. page 90, exhibit 7.1 “Ridership: Silicon Valley to Central Valley Line through Phase 1,” “Medium Ridership”).

(3) Incredibly, fare revenue will hit $1.86 billion by 2035. This assumes an average ticket price, in 2017 dollars, of $60. This, in turn, infers that the average commuter will be spending $1,220 per month to ride the bullet train (ref. page 90, exhibit 7.3 “Farebox Revenue: Silicon Valley to Central Valley Line through Phase 1,” “Medium Revenue”). This is perhaps the most far fetched of all assumptions made in the entire business plan. Imagine over 120,000 regular commuters spending $1,200 per month to ride this train, noting the fact that this sum would not include the additional costs virtually all commuters would incur to travel from their home to the HSR station, and then from the HSR station to their workplace, on both their outbound and inbound commute, day after day.

(4) Operations and maintenance for the train will be a mere $1.4 billion in 2035, then, after adjusting for 3% inflation, will only increase 11% by 2060 even though ridership is projected to rise from 31.9 million passengers in 2035 to 51.2 million by 2060 (ref. page 91, exhibit 7.5 “O&M Costs: Silicon Valley to Central Valley Line through Phase 1,” “Medium Cost Estimate”). This defies credulity. How will ridership increase by 61% between 2035 and 2060 while O&M costs only increase 11%?

(5) “Lifecycle Costs,” the capital reinvestment necessary to replace worn out rolling stock and other fixed assets, i.e. “capital rehabilitation and replacement costs for the infrastructure and assets of the future high-speed rail system,” as near as can be determined from the 2018 business plan, is estimated to only total around $5 billion between commencement of operations in 2029 and 2060, over 30 years (ref. page 91, exhibit 7.6 “Lifecycle Costs: Silicon Valley to Central Valley Line through Phase 1,” “Medium Lifecycle Cost”).

(6) In the analysis below, loan payments are deferred for up to ten years until rail operations begin in 2029. In reality, of course, payments begin as soon as the money is loaned. Notwithstanding that, the annual loan payments are calculated based on loan of $40.1 billion, a 30 year term, and 5% interest.

CALIFORNIA HIGH SPEED RAIL
CASH FLOW USING 2018 BUSINESS PLAN’S “BASELINE” PROJECTIONS, $=M

Taking into account these are – for the six reasons just stated – very optimistic projections, there remain problems with these numbers that would give any investor pause. For starters, there is a cumulative negative cash flow of $14 billion, representing the period up until 2039 when the system is projected to become cash-positive. This represents over 20 years of negative cash flow. Where will this $14 billion come from? Bear in mind it will be more than $14 billion, since payments on the loans commence when the monies are loaned, not when the system begins operations. Maybe some of it will come from “cap and trade” proceeds, although if so, it would consume nearly all of them. Would private investors step up?

The problem with that is if you review this best-case scenario, you can see that selling the future positive cash flow to finance the initial negative cash flow would yield an internal rate of return of 4.7%. While that’s not an impossibly low rate for a municipal financing, it is exceedingly low for a private financing subject to this level of risk. And what about the risk?

High Speed Rail Cash Flow Using Conservative Assumptions

The next chart shows a cash flow scenario for high speed rail, phase one, with key assumptions changed. Instead of costing $40.1 billion, it costs $49 billion, the “High” range of cost estimates as disclosed on the HSR 2018 business plan, page 32. Instead of an average ticket price of $60, a more affordable $30 price is used, based on the assumption that the average commuter will not be willing to spend more than $600 per month on train fare. As ridership grows by 60% between 2035 and 2060, operations and maintenance costs are escalated by 30% instead of only 11%. And instead of spending a mere $5 billion on ongoing capital investments between 2029 and 2060, that is doubled to a still paltry $10 billion. What happens?

CALIFORNIA HIGH SPEED RAIL
CASH FLOW USING ALTERNATIVE (CONSERVATIVE) PROJECTIONS, $=M

As can be seen on this alternative analysis, if ridership revenue is significantly lower than projected, and if – one might argue – realistic operations and capital budgets are projected, and, if one merely uses the HSR Authority’s own high estimate of capital costs, there is no financial viability whatsoever to this project. The internal rate of return formula basically blows up, which is what happens when you burn through $91 billion before having your first break-even year in 2059. The question instead becomes, what else might Californians have done with $50 billion? The other question raised by this more conservative financial scenario, more disturbing, is what if high speed rail never makes money? How many additional tens of billions will be required to subsidize its operation?

The problem with dismissing these more bleak financial scenarios is simple: this is the sort of analysis that any savvy investment banker would start with. Then they would ask questions. WHY do you think 120,000 people are going to be willing to spend $1,200 per month in train fares to commute, not even including their costs to get to and from the train station? WHY do you think you can increase ridership by 60%, but only increase operations costs by 11%? WHY do you think you can operate a $50 billion railroad, and only expect to reinvest ten percent of that amount in capital equipment over thirty years?

The “Monte Carlo” Method of What-If Analysis

Instead of confronting these questions in plain English, the high speed rail authority did what-ifs using a “Monte Carlo” analysis. Here’s how they describe this (ref. page 93):

“Breakeven forecasts measure the likelihood that farebox revenue is equal to or greater than operations and maintenance costs in a given operating year. The analysis works as though there are two large bags full of marbles, one with thousands of marbles each representing a potential operations and maintenance cost, with more of the marbles having values around the median cost estimate than around the extreme (high or low) values. The second bag of marbles contains potential revenue outcomes, again with more marbles with values around the median than the high or low outliers.

The breakeven Monte Carlo analysis simply “picks” one marble at random from the revenue bag and one marble at random from the cost bag, subtracts the number written on the cost marble from the one written on the revenue marble and records the value. The analysis then puts the marbles back into their respective bags and repeats the process thousands more times which builds a distribution of potential results and generates a degree of confidence (or confidence interval, expressed as a percentage) as to the likelihood of project breakeven.”

If anyone wonders why projects in California cost far more than they should, please consider the role of consultants. The variables governing success or failure for California’s high speed rail project are tangible. They require urgent debate by practical people. How much will it cost to bore a tunnel through the Pacheco Pass? How likely is it that Union Pacific will share their right-of-ways with high speed rail, and if so, how much will that reduce costs, and how much will that reduce the speed of the train along those segments, and why? What is the real cost of the many engineering and environmental studies, and how many of them are necessary? Why is it that so many other nations, from socialist Europe to fascist China, manage to build these systems for a fraction of what Californians must expect to pay?

These are the questions that require answers. Counting metaphorical marbles does not add value to the process, nor does it add credibility to the financial projections. These qualitative questions regarding California’s high speed rail project have not been answered, because perhaps they cannot be answered. But the reasons California’s high speed rail system is so staggeringly, prohibitively expensive, are not problems that are confined to the high speed rail project. They infect every infrastructure program in the United States, and especially in California. Identifying the reasons infrastructure projects cost far more than they should, along with exploring tantalizing alternatives to high speed rail, will be the topic of future reports.

 *   *   *

Edward Ring co-founded the California Policy Center in 2010 and served as its president through 2016. He is a prolific writer on the topics of political reform and sustainable economic development.

 

 

Jeff Morales defends California High-Speed Rail to a Santa Clarita delegation at the California State Capitol, March 15, 2015.

Is the California High-Speed Rail Authority Paying for Legendary Leadership?

Why Aren't Unions Fighting California's Bullet Train Boondoggle?

Back in 2008, voters in California approved Prop. 1, a statewide initiative to spend, “$9 billion for building a new high-speed railroad between San Francisco and Los Angeles.”

Total cost, $9.5 billion. Remember that?

Quoting further from the original initiative’s ballot language:

“Bond Costs. The costs of these bonds would depend on interest rates in effect at the time they are sold and the time period over which they are repaid. The state would make principal and interest payments from the state’s General Fund over a period of about 30 years. If the bonds are sold at an average interest rate of 5 percent, the cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year. Operating Costs. When constructed, the high-speed rail system will incur unknown ongoing maintenance and operation costs, probably in excess of $1 billion a year. Depending on the level of ridership, these costs would be at least partially offset by revenue from fares paid by passengers.” (ref. UC Hastings Scholarship Repository, Propositions, California Ballot Propositions and Ballot Initiatives)

Over time, fantasy always yields to reality.

The most recent reputable estimate of High Speed Rail costs come from an in-depth special report published last month by the Los Angeles Times, entitled “$68-billion California bullet train project likely to overshoot budget and deadline targets.”

The title of that special report says it all. California’s High Speed Rail was sold to voters for an amount that is at least seven times less than our most recent estimate of costs, and if the author of the LA Times special report is to be believed, it is very unlikely this project will come in for a total cost under $100 billion.

High speed rail was sold to voters back in 2008 in roughly the same way pension benefit enhancements were sold to naive politicians back around 1999. In both cases, the decision makers were told it would cost next to nothing. Isn’t this called fraud? To sell a good or service to a consumer at a given price, then come back and demand ten times as much money?

Payments on these construction costs will be paid from the California state general fund, and based on a $100 billion total cost and a 5.0% interest rate, that comes out to $166 per year per California resident. Not that much? Unimpressed? Put another way, based on roughly six million taxpaying households in California (about half of California’s 12 million households pay no taxes; their sales tax burden is largely offset by the earned income tax credit), construction of this train will cost $1,084 per taxpaying household per year.

Do you want to pay $1,000 per year for a project that will not alleviate California’s transportation challenges one bit? A project that will lose money forever? A project that will use up massive amounts of capital that could be deployed to achieve literally dozens of other huge and vitally needed infrastructure objectives?

This is where California’s labor leadership, by continuing to support high speed rail as a centerpiece project, are showing how out of touch they truly are with the average working family. Because they are unwilling to fight for major infrastructure investments that would improve the quality of life and lower the cost of living for all Californians; improvements to existing rail, upgraded roads, state-of-the art natural gas and 5th generation nuclear power stations, reservoirs and aquifer storage projects, upgraded sewage treatment plants to produce potable water, and much, much more. If California’s labor leaders care about all workers, they will find the vision and courage to fight for these useful amenities, instead of promoting high speed rail.

20151123-UW-HSR
High Speed Rail CEO Jeff Morales made $477,760 in 2014

A legitimate role for government spending is to make strategic investments that reduce costs for basic necessities. That is what makes a nation prosperous. That is a proper use of public funds. Artificially inflating the costs for energy, water and transportation – which is the current policy of California’s government, abetted by big labor in this state – is a crime against the people of California.

 *   *   *

Ed Ring is the executive director of the California Policy Center.

California High Speed Rail's Dubious Claims of Environmental Benefits

Editor’s Note: There are dozens of major infrastructure investments that would yield positive economic returns to Californians. Spending over $100 billion on high-speed rail is definitely not one of them. But as Kevin Dayton explains in this article, even the environmental benefits of high speed rail are questionable, if not a complete fabrication. This isn’t Dayton’s first expose of the high speed rail disaster; for more withering details, read “Unions Virtually Alone in Love with California High-Speed Rail,” and “California High-Speed Rail Business Plan Misrepresents Project Labor Agreement.” California’s so-called “bullet train” is a textbook case of crony capitalists and corrupt politicians hiding behind environmentalist rhetoric to justify an epic waste of taxpayers money. And with all the construction projects California really could benefit from, the unions pushing high-speed rail should be ashamed of themselves (ref. “Construction Unions Should Fight for Infrastructure that Helps the Economy.”)

Earth Day 2014 deserves a detailed report on the environmental achievements of California High-Speed Rail, the spine of the mass transit connectivity system that will one day transport you between your own home transit village and another transit village.

And yes, you WILL ride, because artificial government cost barriers will discourage you from driving and flying. A governor and legislators who today are merely students protesting at a University of California campus somewhere will enact such policies between 2028 and 2041.

Trees-for-Shade and Other Schemes for “Net Zero Emissions”

The California High-Speed Rail Authority claims it will achieve “net zero emissions” when it builds its “First Construction Segment” from Madera to Bakersfield by 2017. This program will allegedly allow the Authority to avoid adding to the state’s carbon footprint already imprinted by the lifestyles of Hollywood celebrities and other top Democratic Party campaign contributors.

Net zero emissions means lots of free and discounted stuff to the San Joaquin Valley. The Authority plans to plant 5,000 trees, buy new school buses for school districts, and buy new irrigation pumps and tractors for farmers. (If you’re a farmer in the San Joaquin Valley now forced to buy a pump to extract water from a new deeper well, save your receipts.)

The Authority will also require certain emissions standards for construction equipment, require contractors to recycle 100 percent of concrete and steel from construction and demolition activities, and divert 75 percent of non-hazardous waste from landfills as a way to reduce greenhouse gases. The guy in Pixley with one excavator from the old family business will NOT be working on this project.

Global sea levels are already falling in anticipation of the tree planting program. As required as a condition of 2012 state legislative appropriations, the California High-Speed Rail Authority produced a report in June 2013 entitled “Contribution of the High-Speed Rail Program to Reducing California’s Greenhouse Gas Emission Levels.” Here’s an excerpt:

The Authority is committed to achieving zero net greenhouse gas emissions related to construction activities. While construction activities will generate greenhouse gas emissions, when coupled with the Authority’s strategy, the result is zero net direct construction greenhouse gas emissions. For example, the estimated greenhouse gas emissions associated with construction activities, materials deliveries, and worker travel for Construction Package 1, the first 29-mile construction segment of the high speed-rail system from Madera to Fresno, of 30,107 metric tons of CO2e, from 2013 to 2018, would be offset at the start of construction through a tree planting program that the Authority is developing. This multi-faceted forestry program will introduce enough trees into the region where construction is taking place to honor the Authority’s commitment to offset the direct greenhouse gas emissions associated with construction. The program is planned to include urban forestry and tree planting, through regional tree foundations, which compounds greenhouse gas emissions reductions by providing shade and other amenities with tangible local economic benefits. The program could also include providing shade trees to interested home owners

These will be big leafy trees – not tall skinny palm trees like the ones now shunned in the City of Los Angeles Million Trees LA program because palm trees don’t provide enough shade. Already state and local legislators are angling for trees in their districts. (They don’t seem to be thinking about the public costs of irrigating and maintaining those trees, though.)

Some people think this tree-planting program is farcical. Why not just plant 100,000 trees as an emissions offset and skip building the $68 billion high-speed rail line between San Francisco and Los Angeles? And why borrow money via bond sales, use it to buy trees for interested home owners, and then pay the money back with interest over 35 years? Using borrowed money from bond sales to buy iPads might be a better investment.

As another example of offsetting greenhouse gas emissions, the California High-Speed Rail Authority report also touts “an agreement with the California Department of Conservation (DOC) and the Madera and Merced County Farm Bureaus to assist in obtaining farmland conservation easements from willing sellers located near the high-speed rail alignment between Merced and Bakersfield.” This agreement is the result of a 2013 settlement of an environmental lawsuit against the California High-Speed Rail Authority. Less than a month after the California High-Speed Rail Authority released its report citing this agreement, an article in the Fresno Bee reported that the California High-Speed Rail Authority had failed to make the $5 million payment required in the settlement to establish the program.

Everyone Wants Some Cap-and-Trade Money

Everyone loves a windfall, whether it’s the Peace Dividend, the Tobacco Settlement, Facebook IPO tax revenue, or First 5 California. There’s now a new, exciting one in California: Cap-and-Trade auction proceeds, sometimes called “allowances” but more accurately called “taxes.”

Governor Brown has proposed spending $250 million of planet-saving Cap-and-Trade auction proceeds on California High-Speed Rail in his fiscal year 2014-15 state budget and 33% of proceeds in future years. State Senate pro Tem Darrell Steinberg will reportedly counter with a proposed budget that designates about 20% of proceeds for the high-speed train program. Some environmental groups – in particular the Sierra Club – oppose spending Cap and Trade auction proceeds on California High-Speed Rail at this time. Some Democrats agree and think other programs are more worthy.

Everyone wants this money taken from the polluters. At budget subcommittee hearings about spending Cap-and-Trade funds, lobbyists line up to advocate for their organizations and causes to get money or more money from it. Politics will play a role in how much goes to the train.

For the California High-Speed Rail Authority, Cap-and-Trade revenue may be essential to preserve the program. A court has blocked the state from selling Proposition 1A bonds, thereby also jeopardizing the expenditure of federal matching grants for the program. Governor Brown and the California High-Speed Rail Authority have been forced to seek this funding now to keep the high-speed train program moving into its first construction contract.

Is California High-Speed Rail Authority Justified in Getting Cap-and-Trade Money?

In its February 2014 report “The 2014-15 Budget: Cap-and-Trade Auction Revenue Expenditure Plan,” the California Legislative Analyst’s Office (LAO) described Governor Brown’s $250 million Cap-and-Trade proposal for California High-Speed Rail. The report was lukewarm about using Cap-and-Trade auction proceeds for High-Speed Rail:

“Some Outcomes Would Depend on Changes in Behavior. In addition, the amount of greenhouse gas reductions for some proposed programs would depend on changes in behavior that are difficult to predict. For example, the administration assumes that the high-speed rail…proposals would result in some individuals shifting their mode of transportation, resulting in a net reduction in vehicle miles traveled in cars. While such changes might very well occur and could result in net greenhouse gas emission reductions, it would be difficult to predict with precision the likely marginal net greenhouse gas reduction due to these efforts. This uncertainty increases the risk that the administration’s plan would not achieve its maximum potential emission reductions.

Some Reductions Would Likely Occur Beyond 2020. We also find that some proposed activities would not contribute significant greenhouse gas reductions before 2020, which as mentioned above, is the statutory target for reaching 1990 emissions levels. For example, plans for the high-speed rail system indicate that the first phase of the project will not be operational until 2022. Moreover, the construction of the project would actually generate greenhouse gas emissions of 30,000 metric tons over the next several years. The High-Speed Rail Authority plans to offset these emissions with an urban forestry program that proposes to plant thousands of trees in the Central Valley. We also note that High-Speed Rail Authority’s greenhouse gas emission estimates for construction do not include emissions associated with the production of construction materials, which suggests that the amount of emissions requiring mitigation could be much higher than currently planned. Therefore, it is possible that the construction of the Initial Operating Segment may result in a net increase in greenhouse gas emissions, even when accounting for proposed offsets.”

The report also listed several implementation problems of the Governor’s proposed plan to spend Cap-and-Trade auction proceeds.

Will California High-Speed Rail Actually Reduce Greenhouse Gas Emissions?

Don’t abandon construction of that giant sea wall yet, City of Santa Cruz. The hype about California High-Speed Rail saving the planet is compromised when one considers boring things, such as cement production for civil construction and the accuracy of ridership prediction models.

In the fall of 2010, two experts in Civil and Environmental Engineering at the University of California, Berkeley published a report entitled “Life-Cycle Environmental Assessment of California High Speed Rail.” This report suggested that claims of major reductions in greenhouse gas emissions because of California High-Speed Rail might be unfounded.

“Taking life-cycle and ridership uncertainty into account can yield drastically different estimates about the energy efficiency of different transportation modes…The life-cycle inventory for high-speed rail shows that accounting for infrastructure construction and electricity production adds 40 percent to the energy consumed by the trains’ operations alone…Greenhouse gas emissions increase by about 15 percent, primarily because of the concrete used in construction – half a kilogram of CO2 is emitted for every kilogram of cement produced. Infrastructure construction will emit roughly 490 million metric tons of greenhouse gases, which are approximately 2 percent of California’s current annual emissions. As was the case with the life-cycle inventory of conventional modes, the majority of emissions are released not from the electricity needed to propel the high-speed trains, but from the indirect and supply-chain components.

We can estimate the energy payback period for high-speed rail by comparing the energy used in its construction with the resulting energy savings in its operation, but only by making assumptions about ridership. The payback period evaluates the upfront energy or emission investment in deploying high-speed rail infrastructure against the potential reductions over time. The California High-Speed Rail Authority provides a ridership estimate, but as we noted above, ridership is uncertain, and for an entirely new mode it is very uncertain. Thus California high-speed rail warrants ridership evaluation for both high- and low-ridership scenarios. We consider high ridership as strong adoption of high-speed rail at the expense of auto and air travel, mid-level ridership as moderate adoption of high-speed rail, and low ridership as poor adoption of high-speed rail where travelers favor auto and air. For high ridership scenarios, the energy payback period on the initial investment is eight years, for mid-level ridership 30 years, and never for low ridership (when under-used high-speed rail is coupled with increased utilization of auto and air travel). For greenhouse gas emissions the payback period for rail is six years for high ridership, 70 years for mid-level ridership, and never for low ridership…Thus the California high-speed rail system can reduce greenhouse gas emissions, but may do so only over a very long period, and will do so in exchange for other air emissions.”

Such thinking was never presented in your 4th grade ecology class. Why do things have to be so complicated?

It Could All Be Moot: Cap-and-Trade May Not Survive Lawsuits Anyway

In April 2013, businesses and organizations filed lawsuits (Morning Star Packing Co., et al. v. California Air Resources Board, et al., Case No. 34-2013-80001464 and California Chamber of Commerce, et al. v. California Air Resources Board, et al., Case No. 34-2012-80001313in Sacramento County Superior Court contending that the revenue-generating auction provisions of the California Air Resources Board Cap and Trade regulations are unconstitutional, not authorized under state law, and illegal taxes under Proposition 13 and Proposition 26.

On August 28, 2013, Sacramento County Superior Court judge Timothy M. Frawley sided with the California Air Resources Board. However, he noted that “On balance, the court agrees that the charges are more like traditional regulatory fees than taxes, but it is a close question. Contrary to what [the California Air Resources Board] argues, the charges have some traditional attributes of a tax.”

He also ruled that “Although AB 32 does not explicitly authorize the sale of allowances, it specifically delegates to [the California Air Resources Board]the discretion to adopt a cap-and-trade program and to “design” a system of distribution of emissions could be freely distributed to covered entities or to non-regulated entities, who could then convert the value of the allowances into cash by selling them in the allowance market.”

The plaintiffs have appealed the decision, and the cases are likely to end up at the California Supreme Court. Don’t pay the bills with Cap-and-Trade just yet.

About the Author:  Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com.

Cap and Trade Revenue to Fund High Speed Rail?

Liberals and good government advocates frequently decry citizens’ mistrust in government, especially in California. Over the last decade and a half, numerous surveys have confirmed that voters distrust government on several levels including waste, corruption and lack of responsiveness to legitimate public needs.

The recent criminal exploits – both actual and alleged – of three California state senators is going to add fuel to the fire of outrage on the part of voters when it comes to their attitudes about government.

But outright corruption certainly isn’t the only cause of voter angst. Even if conduct falls short of criminality, the “pay to play” culture in Sacramento leaves most voters feeling like penniless souls standing outside of the expensive restaurant (Chez Capital) looking in through the window at all the politically connected fat cats being fed scrumptious meals.

And nothing frustrates knowledgeable voters like being fed outright falsehoods by our elected leaders. On this latter count, let’s add the absurd contention by the Brown Administration that the diversion of $250 million of “cap and trade” revenue to the High Speed Rail project will help California advance its climate change agenda.

For the purpose of this article, let’s assume that anthropogenic climate change is real, meaning that activities of man are having a global impact on weather. (Of course, some of us can still actually distinguish between correlation and causation, but that’s beside the point).

As most people know, California’s response to climate change was AB 32, itself subject of ongoing litigation. At the core of AB 32 is the requirement that Greenhouse Gas (GHG) emissions be reduced 80% of 1990 levels by 2050. The agency charged with implementing AB 32, the California Air Resources Board (CARB) has created a “cap and tax” program that sucks hundreds of millions of dollars out of the private sector economy annually.

But CARB’s program has created a “cache of cash” that has politicians salivating like a Pavlov puppy. Brown’s desperate attempt to fund HSR – even for a short period of time – has him gazing longingly at the money that CARB has generated, supposedly to pay for programs that actually reduce GHGs.

And make no mistake, California’s High Speed Rail project is in trouble. After a series of hostile court rulings and the unwillingness of Congress to throw good money after bad, the most famous boondoggle in California history appears to be hanging on by a thread. But for reasons unknown, Governor Brown has doubled down on the “Train to Nowhere.”

Keeping in mind that everything we’ve been told about the HSR project has been exposed as a lie (from total cost, trip times, availability of revenue from the federal government and private investors, ridership projections, etc.) Brown now heaps on another whopper: HSR is a legitimate project for use of cap and tax funds because it will reduce GHG.

But no one, and we mean no one, actually believes this. The Legislature’s own Legislative Analyst stated that “we find that there is significant uncertainty regarding the degree to which each investment proposed for funding would achieve GHG reductions.” And in a report issued just last week, the Reason Foundation blows the doors off the contention that HSR will reduce GHG emissions. Indeed, the very construction of the project will generate a vast amount of GHG: “High-speed rail (HSR) construction will create substantial GHG. HSR, which is forecasted to begin operations in 2022, cannot reduce GHG emissions before AB32’s 2020 horizon and the project’s construction must [itself] purchase credits through the cap and trade program.”

When pundits wonder why Californians don’t trust government, Brown’s plan to divert a potentially illegal source of revenue to a potentially illegal public works project probably qualifies as Exhibit A.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Construction Unions Should Fight for Infrastructure that Helps the Economy

One primary reason California has the highest cost-of-living (and cost of doing business) in America, combined with a crumbling infrastructure, is because California’s construction unions have allied themselves with environmental extremists and crony “green” capitalists, instead of fighting for what might actually help their state.

California’s construction unions ought to take a look around the rest of the country, where thousands of jobs are being created in the energy industries – really good jobs – doing something that actually helps ordinary people. Because the natural gas revolution unleashed in North Dakota, Texas, Wyoming, Colorado, Utah, New Mexico, Pennsylvania, West Virginia, and Ohio is creating thousands of jobs in those states at the same time as it lowers the cost of energy for consumers who struggle to make ends meet.

More generally, construction unions should remember that it is not only how much their own members earn that matters, but how much things cost everyone. If things cost less, you can make less yet enjoy the same standard of living. When unions fight for high paying jobs on projects that are useless, they only help themselves. When they fight for projects – such as natural gas development – that lower the cost of energy, they are helping everyone.

The California Public Policy Center released a new study this week entitled “The Benefits and Costs of Oil and Gas Development in California,” written by Dr. Tim Considine, an energy economist with the University of Wyoming. In the study, Considine estimates the recoverable reserves of shale oil in the South San Joaquin Valley to total 15 billion barrels, with another 10 billion barrels offshore in the Santa Barbara Channel, accessible now from land-based wells using slant drilling. At $100 a barrel, this is $2.5 trillion worth of oil. And where there’s oil, there’s gas – over 12 trillion cubic feet just offshore in the Santa Barbara channel. What are we waiting for?

Developing these sources of energy over the next 25 years in California, according to Considine, could create up to 500,000 high paying jobs in the energy industry and inject hundreds of billions of tax revenue into the state’s government. When are California’s construction unions going to fight for something that actually helps all Californians?

Instead, apparently, they are lobbying hand in hand with environmental extremists for a “Bullet Train” that almost nobody will ever ride – costing taxpayers over $100 billion so it can operate at a loss – and “Delta Tunnels” that will cost tens of billions and not increase the supply of fresh water in California by so much as one drop.

Can unions themselves be guilty of “labor malpractice”? Because unions are supposed to fight for the interests of ordinary people. They are not supposed to join hands with rich, elitist, misanthropic environmentalist fanatics who live in wealthy coastal enclaves, who would be thrilled if gasoline cost over $10.00 a gallon, and electricity rates were over $1.00 per kilowatt-hour. That’s where we’re headed in California if construction labor doesn’t wake up and fight for ordinary people.

Here are two visions of California’s infrastructure priorities:

(1) Spend $150 billion on a bullet train that almost nobody rides and operates at a loss, and build two “delta tunnels” that do not result in one drop of additional water storage or supply. Prohibit development of any fossil fuel reserves in California. Finance this prodigious waste of money through increasing taxes along with proceeds from “carbon emissions auctions” that enrich Wall Street billionaires and crony “green” capitalists. Continue to neglect California’s infrastructure.

(2) Develop California’s energy resources using private financing, creating hundreds of thousands of high-paying jobs, generating hundreds of billions in tax revenue, and lowering the cost of energy to consumers. Use proceeds to help finance infrastructure investments that benefit all Californians:
–  New aquifer and surface water storage.
–  Desalination plants on the Southern California coast.
–  New power stations – natural gas and nuclear.
–  New natural gas pipelines connecting California to the rest of North America.
–  A liquid natural gas terminal off the Central California coast.
–  Upgraded freeways, bridges, and existing rail corridors.

Which of these visions delivers prosperity to the most people? Which creates more jobs for members of construction unions? Which reflects truly beneficial infrastructure priorities for California?

California’s construction unions have thousands of members who want to build and produce real assets. This distinguishes them from public sector unions, who have an incentive to deny infrastructure spending because it takes tax revenue out of their own pockets. Public sector unions use environmentalist extremists for cover – it justifies them keeping public funds for their pay and benefits instead of investing in infrastructure. There is NO identity of interests between public sector unions and construction unions, other than a residual ideological affinity that falls apart under logical examination.

Perhaps it is time for California’s construction unions, joined by people of conscience from all unions, to care more about all of California’s workers. Perhaps it is possible for construction union leadership to agree to disagree with union reformers on the issue of open shops vs closed shops, or project labor agreements vs. free and open competition, and at least recognize together that environmentalist extremists have too much power in California. They should be challenged, before more money we don’t have is spent on projects we don’t need, simply because it was politically feasible and created a handful of jobs.

*   *   *

Ed Ring is the executive director of the California Policy Center

RELATED POSTS

Bipartisan Solutions For California, October 27, 2013

Forming a Bipartisan Consensus for Public Sector Union Reform, January 28, 2014

California High-Speed Rail Business Plan Misrepresents Project Labor Agreement

Before submitting its business plan to the state legislature every two years, the California High-Speed Rail Authority is required to produce a draft and encourage public comments. Its new 2014 draft plan includes a deceptive paragraph touting the union Project Labor Agreement added to bid specifications without any public deliberation or vote. This deserves public comment.

Background on the Project Labor Agreement for California High-Speed Rail

At its December 6, 2012 meeting, the California High-Speed Rail Authority board voted for a fairly innocuous Community Benefits Policy that stated the Authority’s desire for “optimizing benefits to California communities, small businesses, and residents through participation of community-based small businesses and individuals in economically distressed areas in the construction of the system.” It was a scheme to provide legal backing for a union monopoly on construction of the California High-Speed Rail system, the most expensive construction project in human history.

In late December 2012, the California High-Speed Rail Authority staff added an addendum to the bid documents for the 29-mile initial construction segment of rail line between Madera and Fresno. Disguised under the name “Community Benefit Agreement,” the Project Labor Agreement mandated by the High-Speed Rail Authority is a traditional boilerplate agreement with the State Building and Construction Trades Council of California for construction companies and professional construction service companies.

For the agreements, see the December 26, 2012 Draft Project Labor Agreement as Addendum 8 and see the August 13, 2013 final executed version of the Project Labor Agreement for California High-Speed Rail.

To portray this union mandate as something that would help “disadvantaged” workers in California’s Central Valley to get jobs, the Project Labor Agreement included a section that set a goal for contractors to hire certain classifications of people (such as homeless, ex-offenders, etc.) from zip codes anywhere in the United States that would fall under a definition of “economically disadvantaged” or “extremely economically disadvantaged.”

Not surprisingly, the public responded with disbelief and derision to the California High-Speed Rail Authority’s absurd claim to be a solution to social problems by serving as an employment agency. For example, the March 4, 2013 Sacramento Bee article High-Speed Rail Project Targets ‘Disadvantaged’ Workers in the Central Valley reported the following:

In addition to veterans, former foster children and single parents, the classification includes high school dropouts, the homeless and people who have been convicted of a crime. “There’s another chapter in the high-speed fail saga, and I almost can’t do this one with a straight face,” Assemblyman Brian Jones, R-Santee, said in a recent installment of “Are You Kidding Me?” a video series in which Jones vents political frustrations. “What a social engineering disaster this is going to be, and add to California’s laughingstock reputation.”

The Sacramento Bee March 5, 2013 editorial Should Ex-Cons Get Dibs on Rail Project? was also skeptical:

People who are qualified, have been in prison and served their debt to society should not be denied a chance to work on high-speed rail or any other government project. But that they should be given preference above other equally qualified long-term unemployed is absurd…The real beneficiaries of the agreement are the state’s building trades unions. Embedded in the agreement are provisions that make it more likely that union workers will be employed on the project almost exclusively…

And that claim is true, of course. A line-by-line analysis of the so-called Community Benefit Agreement reveals its subtle, tricky language. Loopholes will allow unions to control the project workforce while avoiding the challenging task of overcoming the problems of individuals who have difficulty finding and holding decent jobs. For a comprehensive analysis of the Project Labor Agreement, see my January 11, 2013 blog post Analysis of the Phony Community Benefits and Other Provisions in the Union Project Labor Agreement for the First Segment of California’s High-Speed Rail.

What the Project Labor Agreement does achieve is a guarantee of construction trade union support for an extremely costly, unpopular, and troubled project. See my January 21, 2014 www.UnionWatch.org article Unions Virtually Alone in Love with California High-Speed Rail.

For a narrative on how the Project Labor Agreement was apparently planned and implemented behind the scenes, see my April 29, 2013 blog post Newly Obtained Documents Reveal Which Elected Official Was the Catalyst for the Project Labor Agreement on California High-Speed Rail: Fresno Mayor Ashley Swearengin.

What Does the Draft 2014 Business Plan Claim About the Project Labor Agreement?

Connecting California, the Draft 2014 Business Plan for the California High-Speed Rail Authority issued on February 7, 2014, states the following on page 23 about the Project Labor Agreement:

Additionally, the Authority Board of Directors has approved a Community Benefits Policy that will ensure that 30 percent of the hours will be performed by National Targeted Workers and that 10 percent of the hours will be performed by disadvantaged workers. According to the National Targeted Hiring Initiative, disadvantaged workers either live in an Economically Disadvantaged Area or face specific barriers to employment. The impact of the Authority’s policy will be most strongly felt in the Central Valley where the design-build contractors will be required to fulfill these requirements and where the majority of workers will qualify as disadvantaged workers. At the same time, the Fresno Regional Workforce Investment Board received a $1.5 million grant to train hundreds of people for jobs in constructing the project.

This paragraph is riddled with inaccuracies and distortions. If you choose as a resident taxpayer of California or the United States to comment on this paragraph, below is a list of some ideas worthy of your elaboration.

Problems with Draft Business Plan Description of the Community Benefits Policy

1. The vague and innocuous “Community Benefits Policy” adopted by the Board of Directors was in practice implemented through a Project Labor Agreement subsequently negotiated and executed between the State Building and Construction Trades Council of California and the California High-Speed Rail Authority. The Draft Business Plan distorts by not recognizing this.

2. The California High-Speed Rail Authority board has never commented on the Project Labor Agreement (aka “Community Benefit Agreement”), discussed it as a formal agenda item, or voted on it. In a January 16, 2013 email about the Project Labor Agreement to the former chairman of Fresno County Economic Opportunities Commission, the Small Business Advocate of the California High Speed Rail Authority stated that “The Community Benefits Agreement (CBA) is an internal administrative document that was not necessarily intended to be circulated for public comment.”

3. As the implementation document for the “Community Benefits Policy,” the Project Labor Agreement (aka “Community Benefit Agreement”) does not and cannot “ensure” that any percentage of hours will be performed by any specific type of worker. It sets goals and requires signatory parties to “exert their best efforts,” have “efforts made,” make their best effort,” “make every effort,” “recognize a desire,” “acknowledge” goals, and “exercise full support of this policy.” The Draft Business Plan distorts by not recognizing this.

4. As the implementation document for the “Community Benefits Policy,” the Project Labor Agreement (aka “Community Benefit Agreement”) does not and cannot “ensure” that Central Valley workers from “Economically Disadvantaged Areas” will perform any percentage of hours. Workers from any “Economically Disadvantaged Area” in the country are eligible to fulfill the goals. The Draft Business Plan distorts by not recognizing this.

5. As the implementation document for the “Community Benefits Policy,” the Project Labor Agreement (aka “Community Benefit Agreement”) does not and cannot “ensure” that truly “disadvantaged” workers will fulfill the goals. First, a specific zip code may include households in dire poverty but also include households that are well-off. In addition, the nine categories of “disadvantaged worker” include a category for a military veteran of any background or an entry-level apprentice, who may come from any background. The Draft Business Plan distorts by not recognizing this.

6. The Draft 2014 Business Plan states that “the majority of workers [from the Central Valley] will qualify as disadvantaged workers.” This is conjecture – no one has been hired yet for any trade work. In addition, there is no indication of how many workers will actually be long-term residents of the Central Valley, how residency will be determined, or how unions will dispatch workers through the “registration facilities and referral systems established or authorized by this Agreement and the signatory Unions” as indicated in the Project Labor Agreement (aka “Community Benefit Agreement”). The Draft Business Plan distorts by not recognizing this.

7. The Draft 2014 Business Plan does not mention key provisions of the Project Labor Agreement (aka “Community Benefit Agreement”) related to union hiring hall dispatching procedures and mandatory employer and employee payments to union trust funds:

  • Contractors must “recognize that the Unions shall be the primary source of all craft labor employed on the Construction Contract for the Project” (Section 7.1) through a system in which “one Core Worker shall be selected and one worker from the hiring hall of the affected trade or craft and this process shall repeat until such C/S/E’s requirements are met or until such C/S/E has hired five (5) such Core Workers for that craft., whichever occurs first. Thereafter, all additional employees in the affected trade or craft shall be hired exclusively from the applicable hiring hall list.” (Section 7.1.2)
  • Employees must “comply with the applicable Union’s security provisions for the period during which they are performing on-site Project work to the extent, as permitted by law, of rendering payment of the applicable monthly dues and any working dues” (Section 6.2)
  • “All employees covered by this Agreement (including foremen and general foremen if they are covered by the Schedule A Agreement) shall be classified and paid wages, benefits, and other compensation including but not limited to travel, subsistence, and shift premium pay, and contributions made on their behalf to multi-employer trust funds, all in accordance with the then current multi-employer Schedule A Agreement of the applicable Union.” (Section 8.1) 

8. Although the Fresno Regional Workforce Investment Board did receive a $1.5 million grant to train construction workers, the Draft Business Plan does not indicate that training is being done through construction trade unions with additional requirements related to union representation. It does not indicate how much grant money is being transferred to union-affiliated trust funds or how trainees will pay union dues and initiation fees.

9. There are reports that the Fresno Regional Workforce Investment Board web site was not functional for months because of an alleged “backlog of registrants.” How many people registered, what was the extent of complaints that led to the shutdown and continued during the shutdown, and has this program adequately served the public? The Draft Business Plan neglects this issue.

10. Has the Project Labor Agreement (aka “Community Benefit Agreement”) been approved by the Federal Railroad Administration, as required in Section 3 of Executive Order 13502? The Draft Business Plan neglects this issue.

How Do Californians and Americans Comment on This Matter?

To ensure that the public has an opportunity to respond, the Authority is providing five methods for submitting comments on this draft plan:

1. Online comment form through the Draft 2014 Business Plan website at http://www.hsr.ca.gov/About/Business_Plans/Draft_2014_Business_Plan.html

2. By email at 2014businessplancomments@hsr.ca.gov

3. By U.S. mail to the Authority:

California High-Speed Rail Authority
Attn: 2014 Business Plan
770 L Street, Suite 800
Sacramento, CA 95814

 
4. Voice mail comment at 916-384-9516.

5. Provide public comment at the Authority’s Board of Directors Meeting on February 11, March 11 and April 10.

The Draft 2014 Business Plan can be found online at http://www.hsr.ca.gov/About/Business_Plans/Draft_2014_Business_Plan.html

 


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.

 

 

 

Unions Virtually Alone in Love with California High-Speed Rail

Even close observers of the California High-Speed Rail Authority have struggled to track developments for the state’s planned bullet train. The debacle began in November 2008, when 52.7% of California voters approved Proposition 1A and triggered serious planning for what could be the most expensive construction project in human history. With that kind of money at stake, unions were obviously inspired to be part of this boondoggle.

Kings County Says No to CaHSRThe California High-Speed Rail Authority has become justly notorious for backroom deals, secretive administrative actions, and lack of transparency. But most Californians are at least vaguely aware that the project has been mismanaged and misrepresented.

Proposition 1A – placed on the ballot by the California State Legislature – authorized the State of California to borrow $9.95 billion to begin design and construction of a $45 billion complete high-speed rail system linking San Francisco, Los Angeles, San Diego, and Sacramento. Including interest payments, the Proposition 1A commitment was estimated to be $19.4 billion to $23.2 billion for bonds to be paid back over 30 years. According to Proposition 1A, that money borrowed by the state was supposed to be supplemented with significant funding from the federal government, private investors, and municipal governments.

Proposition 1A also promised that the bullet train would be able to travel non-stop from San Francisco to Los Angeles in 2 hours, 40 minutes. Presumably many Californians who voted for it – including the 78.4% of San Francisco voters who approved it – imagined a fast train speeding between two world-class cities along the median of Interstate 5. They were wrong.

Here’s the current appalling status of California High-Speed Rail:

1. The California High-Speed Rail Authority has spent $587 million on consultants as of September 30, 2013. The California State Treasurer has sold at least $703 million worth of bonds (Buy America Bonds and perhaps others) for California High-Speed Rail as of May 13, 2013.

2. The estimated cost has been dramatically revised. Instead of being $45 billion for the entire system, it is now $68 billion just for the line between San Francisco and Los Angeles, and the high-speed rail will be “blended” with other commuter rail lines at the beginning and end of the route. One group has estimated that the entire system may exceed $200 billion if bond interest is included and the federal government does not provide additional grants.

3. The California State Treasurer cannot sell the Proposition 1A state bonds because a judge determined in November 2013 that the California High-Speed Rail Authority failed to comply with the law. While the California High-Speed Rail Authority has already obtained $2,942,000,000 from the federal government, possibly under false pretenses of a commitment to matching funds, the Republican majority in the U.S. House of Representatives is intent on stopping further grants until the Authority gets its act together. No private investors have emerged – corporations want to GET money from the Authority through contracts, not give it money to be squandered. Cities in the San Joaquin Valley where the line will be built first have no money to invest in it – Fresno is nearly bankrupt.

4. Governor Jerry Brown desperately included $250 million in his 2014-15 budget for California High-Speed Rail to be obtained from “Cap and Trade” allowances paid by emitters of greenhouse gases as part of the California Global Warming Solutions Act of 2006 (Assembly Bill 32 or AB 32). But the project is expected to increase greenhouse gas emissions during four years of initial construction. The Authority claims it will earn the Cap and Trade funds because offsets from its tree planting program (as well as other activities such as “cleaner school buses and water pumps in Central Valley communities”) will allow it to produce “zero net emissions.”

5. With the “blended” plan, there are serious challenges to achieving the 2 hour 40 minute travel time required in law. An analysis claiming that the time can be met includes the train going over the Tehachapi mountain range (north of Los Angeles) at 150+ miles per hour. There is idle talk about digging a long tunnel for the bullet train through the seismically-active San Gabriel Mountains from Palmdale to Los Angeles, but this is probably to lull citizens of Santa Clarita into believing the rail won’t go through their town.

6. To the surprise and confusion of hipster high-speed rail supporters in San Francisco and Los Angeles, this bullet train will be a local, with stops at least in Merced, Fresno, Hanford or Visalia, Bakersfield, and Palmdale. In June 2013, the Authority awarded a $970 million contract (with provisions for an additional $55 million) to Tutor Perini/Zachry/Parsons (a joint venture) to design and build the first 29-miles of the high-speed rail between Madera and Fresno by February 2018. People are supposed to be able to ride the high-speed rail between Merced and Palmdale by 2022.

7. The California High-Speed Rail Authority erred by awarding the first design-build contract for a 29-mile stretch that includes 25 miles in one segment assigned for environmental review (Merced to Fresno) and four miles in another segment assigned for a different environmental review (Fresno to Bakersfield). While it received full environmental clearance for the 25-mile stretch, it has not received clearance for the 4-mile stretch. In December 2013, the federal Surface Transportation Board rejected a secretive request from the Authority for an exemption to environmental review. If it can’t get the federal exemption, the Authority’s design-build contract is in jeopardy.

8. Owners of 370 parcels that the California High-Speed Rail Authority needs for the first 29-mile stretch are apparently resisting or holding out on selling their property. At last report in mid-December, the Authority had allegedly closed escrow on five parcels. The Authority has now received authorization from the California Public Works Board to possess two parcels through eminent domain.

Based on these eight points alone, who would still be eager to proceed with this project besides Governor Jerry Brown, the corporations seeking contracts, and a scattering of citizens committed to various leftist causes related to urban planning and environmentalism? Unions.

Union supporters at California High-Speed Rail Congressional field hearing in Madera on May 31, 2013.

Union supporters at California High-Speed Rail Congressional field hearing in Madera on May 31, 2013.

In a backroom deal, without any public deliberation or vote, the board of the California High-Speed Rail Authority negotiated and executed a Project Labor Agreement (called a “Community Benefit Agreement”) with the State Building and Construction Trades Council of California. This agreement gives unions a monopoly on construction trade work and certain construction-related professional services.

In a January 16, 2013 email about the Project Labor Agreement to the former chairman of Fresno County Economic Opportunities Commission, the Small Business Advocate of the California High Speed Rail Authority stated the following:

The Community Benefits Agreemeent (CBA) is an internal administrative document that was not necessarily intended to be circulated for public comment, however, that doesn’t mean you cannot provide me your input. The document was added to Construction Package #1 and Addendum 8 and I’ve attached it herein for your convenience. It includes regulatory compliance and is being reviewed by the Federal Rail (sic) Administration.

There is no evidence available to show that the Federal Railroad Administration approved the Project Labor Agreement, as required by law. But the final version of the agreement was signed in August 2013. No board member or administrator of the California High-Speed Rail Authority has commented in a public meeting about the agreement that will give unions control of most of the claimed 100,000 job-years of employment over a five-year period.

When State Senator Andy Vidak, with Congressman David Valadao, held a press conference critical of California High-Speed Rail on January 17, 2014 at the site of the eventually-to-be-demolished Fresno Rescue Mission, there were protesters: construction union leaders, lobbyists, public relations officials, and activists. The Fresno Bee reported this about the press conference:

In a news release prior to the announcement, Vidak indicated that his goal is to kill the bullet train. He tempered his in-person remarks, however, as he faced a crowd that included both high-speed rail critics from his home area in Kings County and a couple dozen representatives of labor unions who support the project…Rail supporters, some clad in hard hats and safety vests, booed Vidak as they wielded their own signs proclaiming high-speed rail as “good for the local economy, good for air quality and good for jobs.”

The Fresno Business Journal reported this about the press conference:

Dillon Savory, an advocate representing several local unions, commented after the event that high-speed rail would not only provide needed jobs, but it would help improve the Valley’s air, which has been heavily polluted this winter. Also, the cost of roadwork in the area is about double the cost of high-speed rail, making road construction less cost effective, Savory said. Savory criticized the anti-high-speed rail forced for trying to pit rail against water. He said the greater issue is putting people back to work with decent paying jobs. He said many union workers are only finding temporary work for about two weeks at a time. That is not putting food on the table, he said.

In 2013, Savory was the manager for the successful union-backed campaign to defeat a ballot measure (Measure G) supported by the Mayor of Fresno that would have allowed the city to outsource garbage collection. The political professionals are getting involved.

When the groundbreaking ceremony occurs for California High-Speed Rail, perhaps in an abandoned Madera County cornfield seized through eminent domain by the Authority, expect thousands of construction union workers to be bused in to block and neutralize any protesters. Governor Brown cannot suffer any more embarrassment over this boondoggle and debacle.

Bullet train path through Kings County farmland.

Bullet train path through Kings County farmland.

Sources

California Streets and Highway Code Section 2704.09 (implemented by California voters in November 2008 as Proposition 1A, as authorized by Assembly Bill 3034 (Safe, Reliable High-Speed Passenger Train Bond Act for the 21st Century)

Top-40 Donors to Campaign to Convince California Voters to Borrow $10 Billion to Start Building High-Speed Rail

Election Results by County: Proposition 1A (2008)

May 7, 2008 Senate Appropriations Committee legislative analysis for Assembly Bill 3034 (source of estimated costs of bonds, including interest payments)

American Recovery and Reinvestment Act of 2009 (ARRA) High Speed Rail Awards

July 2012 – California’s High-Speed Rail Realities: Briefly Assessing the Project’s Construction Cost, Debt Prospects, and Funding (“The Realistic – No Additional Federal Funding scenario results in a total debt burden of $203 billion between 201 3 and 2058.”)

February 11, 2013 California High-Speed Rail Authority memo “Phase 1 Blended Travel Time”

A Preliminary Timeline of Activity Concerning What Will Be $9.95 Billion Borrowed through Proposition 1A Bond Sales for California High-Speed Rail

June 2013 – Contribution of the High-Speed Rail Program to Reducing California’s Greenhouse Gas Emission Levels (includes “plans to plant thousands of new trees across the Central Valley” and “cleaner school buses and water pumps in Central Valley communities”)

November 15, 2013 – Project Update Report to the California State Legislature (source of report that $587 million was spent on consultants)

November 25, 2013 California High Speed Rail Authority Bond Validation Lawsuit Ruling

November 25, 2013 – Tos Fukuda Kings County v California High-Speed Rail Prop 1A Part 1 Ruling

November 25, 2013 Tos Fukuda Kings County v California High-Speed Rail Prop 1A Part 2 Ruling

California High-Speed Rail – Fresno to Bakersfield Surface Transportation Board Exemption Letters

Project Labor Agreement (Community Benefits Agreement) for California High-Speed Rail – Addendum 8 in Bid Specifications – December 26, 2012

Project Labor Agreement (Community Benefits Agreement) for California High-Speed Rail – Final – August 13, 2013

February 27, 2013 Fresno County Economic Opportunities Commission Chairman Wonders Why No Input Into California High-Speed Rail Authority Project Labor Agreement

Vidak Rails Against Bullet-Train Plan, Met by Bipartisan Crowd at Fresno EventFresno Bee – January 17, 2014

Vidak Calls for High-Speed Rail RevoteFresno Business Journal – January 17, 2014

California High-Speed Rail Scam

Past Articles in www.UnionWatch.org on Unions and California High-Speed Rail

Unions Creep Closer to Monopolizing California High-Speed Rail Construction – December 6, 2012

Watch Union Official’s Rude Antics at California High-Speed Rail Conference – January 15, 2013

Unions Await Fantastic Return on High-Speed Rail Political Investments – January 22, 2013

Exposing the Plot Behind Project Labor Agreement for California Bullet Train – April 30, 2013

Unions Defend California High-Speed Rail Project at Congressional Hearing – June 4, 2013

California Construction Unions Circumvent Public Scrutiny of Project Labor Agreements – September 17, 2013

 


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.

 

California Construction Unions Circumvent Public Scrutiny of Project Labor Agreements

A common and enduring complaint of the political Left is that constitutional structures established in the country’s republican form of government hinder progress and subvert the democratic will of the people.

According to such thinking, those constitutional structures need to be reformed and modernized so that government can be more “democratic.” A few astute political observers in California have noticed that unions and their political allies are advancing strategies at the state and local government levels that effectively chip away at checks and balances inherent in the structure of American constitutional government.

One example is the end of public deliberation and votes for Project Labor Agreements in the legislative branch of state and local governments. Instead, backroom deals are made in the executive branch to give unions control of the work.

In the past year, Project Labor Agreements have been imposed on four large publicly-funded construction projects without any public deliberation or votes. In some cases, the public has been denied access to the Project Labor Agreement.

1. San Diego County New Central Courthouse
Judicial Council of California – Administrative Office of the Courts
May 2013
$560 million in public funds

San Diego County New Central Courthouse Project Labor Agreement

No formal public discussion or vote on it. Repeated requests at Judicial Council meetings and to Administrative Office of the Courts staff for a public vote have been futile.

How Project Labor Agreement was implemented:

Background:

  • Judicial Council of California Imposes Project Labor Agreement on San Diego Courthouse – www.UnionWatch.org – June 8, 2013
  • Courthouse to be Built Under Labor Pact – San Diego Union-Tribune – June 7, 2013
  • I’ve Failed So Far in Seeking the Project Labor Agreement from the California Administrative Office of the Courts for the New San Diego Central Courthouse – www.LaborIssuesSolutions.com – July 10, 2013
  • Not Accountable for Project Labor Agreement – Until Now: Mailers Inform Judges About Union Deal of Administrative Office of the Courts – www.LaborIssuesSolutions.com – June 24, 2013
  • Coalition for Fair Employment in Construction to Hold Press Conference – June 20, 2013 at 11:00 a.m. – Condemning San Diego Courthouse Project Labor Agreement – www.LaborIssuesSolutions.com – June 20, 2013
  • Union Quest for Project Labor Agreements from Judicial Council of California and Administrative Office of the Courts Succeeds with San Diego County Central Courthouse  – www.LaborIssuesSolutions.com – June 8, 2013
2. San Diego Convention Center Phase 3 Expansion
City of San Diego
November 2012
$520 million in public funds

San Diego Convention Center Phase 3 Expansion Project Labor Agreement

No formal public discussion or vote on it. Appears to be a violation of a voter-approved city ordinance prohibiting the city from entering into contracts that require companies to sign Project Labor Agreements.

How Project Labor Agreement was implemented: Secret Deal between Mayor and Union Official to End Union Lawsuit and CEQA Objections to San Diego Convention Center Phase 3 Expansion

Lawsuit filed by Coalition for Fair Employment in Construction to get Project Labor Agreement after repeated rejections of public records requests: Coalition for Fair Employment in Construction v. City of San Diego

Background:

3. California High-Speed Passenger Train – First Construction Segment (Madera to Fresno)
California High-Speed Rail Authority
December 2012
$985 million in public funds

California High-Speed Rail Project Labor Agreement (Community Benefits Agreement) 2012

No formal public discussion or vote on it. Repeated requests at California High-Speed Rail Authority meetings for a public vote have been futile.

Bid specifications require prime contractor to sign Project Labor Agreement, so there is a government mandate to sign it.

California High-Speed Train Project – Request for Proposal for Design-Build Services

Background:

4. New Sacramento Kings Arena (Entertainment and Sports Center)
City of Sacramento (Public-Private Partnership)
September 2013
$448 million (includes $258 million in public funds

No formal public discussion or vote on it. Public does not have access to Project Labor Agreement. A proposal circulates to release the Project Labor Agreement to the public and have the Sacramento City Council vote on it.

Eight Steps to Possibly Alleviate Taxpayer and Contractor Outrage about the Backroom Deal for a Project Labor Agreement on Construction of the Sacramento Kings Arena

Background:


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.

Election Gains for California Unions in 2012 Drive Push for Project Labor Agreements

The explosion of Project Labor Agreements on government projects in California since the November 6 elections is not surprising to long-time observers of labor union initiatives at local governments.

In the six months after the November 2008 Presidential Election, emboldened and confident construction trade unions won Project Labor Agreements at eleven local governments in California. It was a dramatic upsurge from the usual handful of Project Labor Agreements that California local governments had considered each year.

Four years later, the November 2012 Presidential Election once again expanded and solidified gains for union-backed candidates at local governments in California. And again, the result is a flurry of new government requirements that construction companies sign Project Labor Agreements with unions as a condition of contract work. Here’s a timeline of Project Labor Agreement activity in California since November 6.

November 6: voter approval of Proposition Z means that the San Diego Unified School District extends an existing Project Labor Agreement with the San Diego County Building and Construction Trades Council to construction funded by an additional $2.8 billion in bond sales, as directed by a resolution passed by the board of directors on July 24, 2012.

November 8: union officials and representatives of the outgoing Mayor of San Diego triumphantly announce a “deal” that ends union environmental objections to the planned San Diego Convention Center Phase 3 Expansion. A November 15 press release from the San Diego County Building and Construction Trades Council confirms that contractors will now be required to sign a Project Labor Agreement as a condition of working on the expansion. The City of San Diego refuses to provide the Project Labor Agreement to the public.

December 11: the board of trustees for Milpitas Unified School District approves a Project Labor Agreement with the Santa Clara and San Benito Building and Construction Trades Council.

December 26: a Project Labor Agreement is finalized and then added as Addendum 8 to the bid specifications for the first construction segment of California High-Speed Rail, without discussion or a vote by the High-Speed Rail Authority Board of Directors.

January 24: the board of trustees of Coast Community College District in Orange County discusses a Project Labor Agreement with the Los Angeles-Orange County Building and Construction Trades Council.

February 6: the board of trustees of the Solano Community College District hears a scheduled staff presentation about a Project Labor Agreement with the Napa-Solano Building and Construction Trades Council.

February 6: the board of trustees of Coast Community College District hears a scheduled staff presentation about a Project Labor Agreement with the Los Angeles-Orange County Building and Construction Trades Council. The board appoints a task force to study the issue and return with a report.

February 12: the board of trustees for Lynwood Unified School District approves a Project Labor Agreement with the Los Angeles-Orange County Building and Construction Trades Council.

February 13: the board of trustees for Ohlone Community College District in Fremont approves a Project Labor Agreement with the Alameda County Building and Construction Trades Council.

March 6: the board of trustees of Solano Community College District hears formal scheduled presentations from groups supporting and opposing a Project Labor Agreement.

March 6: the board of trustees for El Monte Union High School District votes 3-2 to table consideration of a Project Labor Agreement negotiated with the Los Angeles and Orange Counties Building and Construction Trade Council.

March 6: multiple speakers tell the board of trustees of Coast Community College District during general public comment that they oppose a proposed Project Labor Agreement with the Los Angeles and Orange Counties Building and Construction Trade Council.

March 12: the board of trustees for San Francisco Unified School District directs staff to develop a local contracting and hiring policy to include in a planned Project Labor Agreement with the San Francisco Building and Construction Trades Council.

March 19: the board of trustees for Hartnell Community College District in Salinas discusses a Project Labor Agreement with the Monterey/Santa Cruz Building and Construction Trades Council.

March 19: the El Monte City Council approves a Project Labor Agreement with the Los Angeles and Orange County Building Trades Council.

April 1: the board of trustees for Rancho Santiago Community College District votes 5-2 to begin negotiations for a Project Labor Agreement with the Los Angeles-Orange County Building and Construction Trades Council.

April 3: the board of trustees of Coast Community College District again discusses a Project Labor Agreement with the Los Angeles-Orange County Building and Construction Trades Council. On a 3-2 vote, the board rejects a proposal to begin negotiating a Project Labor Agreement with union representatives and again instructs the task force to study the issue and return with a report.

April 8: the Pasadena City Council approves negotiations for a Project Labor Agreement on the Glenarm Power Plant Repowering Project with the State Building and Construction Trades Council and the Los Angeles-Orange County Building and Construction Trades Council.

April 9: the Sonoma County Board of Supervisors establishes a Project Labor Agreement Ad-hoc Committee based on a priority set by the board at its February 8 strategic planning session to consider a Project Labor Agreement policy with the Sonoma, Lake & Mendocino Counties Building and Construction Trades Council.

April 10: the board of trustees for El Monte Union High School District pulls from their meeting agenda a scheduled vote on a Project Labor Agreement negotiated with the Los Angeles and Orange Counties Building and Construction Trade Council.

April 16: the American Canyon City Council holds a “study session” on a Project Labor Agreement with the Napa-Solano Building and Construction Trades Council.

April 16: the board of trustees for the College of Marin approves the expansion of its existing Project Labor Agreement with the Marin Building and Construction Trades Council to include the New Academic Center. The board also holds a “study session” on Project Labor Agreements.

April 23: in response to a lawsuit, the City of San Diego provides the public with a copy of the Project Labor Agreement announced in November 2012 for the San Diego Convention Center Phase 3 Expansion.

April 23: the board of trustees for the San Francisco Unified School District approves a local contracting and hiring policy to include in a planned Project Labor Agreement with the San Francisco Building and Construction Trades Council.

April 29: the public obtains records indicating that the Mayor of the City of Fresno asked the U.S. Secretary of Transportation to approve a targeted hiring policy for California High-Speed Rail included in the context of a Project Labor Agreement.

April 30: a task force at Coast Community College District votes to recommend to the full board of trustees that it not require contractors to sign a Project Labor Agreement with the Los Angeles-Orange County Building and Construction Trades Council.

May 7: the board of trustees for Hartnell Community College District in Salinas votes 4-3 to negotiate a Project Labor Agreement with the Monterey/Santa Cruz Building and Construction Trades Council.

Union officials supporting a Project Labor Agreement get ready for the May 7, 2013 meeting of the Hartnell Community College District board of trustees. "P.L.A. Yes!"

Union officials supporting a Project Labor Agreement get ready for the May 7, 2013 meeting of the Hartnell Community College District board of trustees. “P.L.A. Yes!”


Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com. Follow him on Twitter at @DaytonPubPolicy.