The California High Speed Rail lost in court yesterday to two west bay community NIMBY groups. Now there is no other choice then for the HSR system to also abandon Pacheco Pass an turn to the Altamont Pass and serve the east bay only from Los Angeles.
As is so typical in California after being assured everything was OK for the route and voters went to the polls last November and approved the first $10 billion in bonds, well guess what it wasn't OK. A judge ruled yesterday that no HSR will run up the west bay side of San Francisco bay between San Jose and San Francisco. By going over the Altamont and serving the eastbay only it should also save about $10 billion in construction costs. San Francisco will always be an entity unto itself and deservedly so.
Now Californians can go ahead wth a HSR system between San Diego /Los Angeles and Sacramento/Oakland as it should have been in the first place. The costs for just those portions was put at $30 Billion which is a substantial savings from the $40 billion original estimate that included Pacheco Pass, San Jose and the west bay to San Francisco. This should also speed up the completion by about 10 years as well.
Al - in - Stockton
Isn't NIMBYism a wonderfull thing?
These will be the very same people crying to high heaven when they miss their train because they are stuck in the 2 hour commute crossing the bay bridge....
Have fun with your trains
I'd be curious as to what grounds the judge said he had for prohibiting the use of the San Francisco route. Judges aren't supposed to be super-legislators who are free to impose their policy preferences on lesser mortals. If the judge did this out of thin air, he is likely to be reversed by an appellate court. On the other hand, the California legislature is so wacky that they may have actually enacted some "NIMBY" protecting provisions in California law on which this decision was based.
Regardless, if the LA -Bay Area line can't serve San Francisco, the entire project should be scrapped. The whole thing was wacky to begin with - billions of dollars to provide a land based service which would be inferior to what airlines now provide. The only real advantage of rail vs airlines would have been the ability of rail to operate into city centers (assuming, that is, that most of its potential customers would be going from city center origins to city center destinations, which really can't be assumed in this day and age). Without direct San Francisco access, that advantage (such as it is) is lost. But, California being what it is, they will probably spend the billions of dollars on this white elephant anyway (rather than spending it on expanding regional rail services that might actually do some good), and then wonder why the state continually flirts with bankruptcy.
The two reports can be found at the following for anyone wishing to read.
http://www.mercurynews.com/topstories/ci_13209866
http://www.mercurynews.com/breakingnews/ci_13211991
I find the rulings very interesting and without UP cooperation it is dead in the westbay and over Pacheco Pass. I have attended meetings of the California High Speed Rail authority since the beginning and find the latest alternative put forth via Altamont Pass to be most interesting and probably the least disruptive.
Not being a California lawyer I wonder if UP cannot be made to co-operate by way of condemnation? I think opponents are being way too optomistic.
blue streak 1 Not being a California lawyer I wonder if UP cannot be made to co-operate by way of condemnation? I think opponents are being way too optomistic.
State law can't generally be used to condemn an active rail line. It's "preempted" by Federal law, primarily the Interstate Commerce Act. The only way it can be done is if the condemnor gets the STB to first approve an "adverse abandonment" of the line, something that's not going to happen on an active line.
Still, I agree that the opponents may be too optimistic. From later reports I've seen on the court decision, it was based on some relatively minor defects in the environmental documentation, all of which seem to be correctable. With respect to UP, I'm not familiar enough with the high speed proposal to know preceisely what line segment is involved. However, it's perfectly reasonable for UP to refuse to agree to allow a freight line to be used for high speed trains (particularly if they would be running at high speeds on the shared track) - the two services really aren't compatible on the same tracks. On the other hand, if the issue is freight operating windows (for example, on the SF-San Jose line), that's likely something that can be worked out
Any luck selling those bonds? The state is handing out IOUs to people. is totaly broke and you think someone is going to pour money into a boondoggle? Good luck. I hope you live to see something.
NIMBY types, for crying out loud! I hope their property gets taken by the government for a new highway.
ndbprr Any luck selling those bonds? The state is handing out IOUs to people. is totaly broke and you think someone is going to pour money into a boondoggle? Good luck. I hope you live to see something.
In another thread a few months ago, I pointed out that California has the worst bond rating of any state by both rating agencies, and I thought an underwriting brokerage would be committing professional suicide by going anywhere near that proposed issue. No one took issue with that viewpoint and the time; and if there has been any change in the state's financial condition, that piece of news has escaped me.
Dakguy201 ndbprr Any luck selling those bonds? The state is handing out IOUs to people. is totaly broke and you think someone is going to pour money into a boondoggle? Good luck. I hope you live to see something. In another thread a few months ago, I pointed out that California has the worst bond rating of any state by both rating agencies, and I thought an underwriting brokerage would be committing professional suicide by going anywhere near that proposed issue. No one took issue with that viewpoint and the time; and if there has been any change in the state's financial condition, that piece of news has escaped me.
It is usually possible to sell debt, even it is junk, as long as the interest rate is high enough to justify the investor risk. This is especially true if the issuer buys insurance for the bonds. Unfortunately, poor bond ratings mean that the issuer will pay more in interest than if the bonds were of higher quality.
In the case of a business, the cost of debt is passed on to the customers in the price of the goods and services or the stock holders if the pricing mechanism will not absorb the interest. Of course, a prudent management would not issue debt unless it believed that it could service the debt through its pricing mechanism.
In the case of a public entity, like the California HSR project, much of the higher bond interest will be worn by the taxpayers, since the project is unlikely to recover its operating costs let alone its capital costs. The people of California have the highest combined tax burden of any state. Hopefully, they will use the HSR trains in droves. They are surely paying for it. Visitors to California should also use the system whenever possible. They too will be paying for it through large federal subsidies.
If the initial offering was purchased by a French consortium of HSR interests, it raises several questions. Did they buy the bonds for investment purposes? Or did they buy them as leverage to participate in the building, equipping, or operation of the rail line?
I have doubts that the purported sale of bonds to French HSR interests is real.
To attempt to find out, I spent considerable time on the web site of the California High Speed Rail Authority. The site badly needs updating -- for example it shows a route up the west side of the Bay. The financing page makes no mention of any bonds actually being sold, although it does contain a quotation from a Lehman Brothers investment banker supporting the idea they can be sold. Unfortunately, Lehman has been out of business for a year now.
I'd appreciate any reference to a source that indicates the actual sale of the bonds.
Dakguy201 I have doubts that the purported sale of bonds to French HSR interests is real. To attempt to find out, I spent considerable time on the web site of the California High Speed Rail Authority. The site badly needs updating -- for example it shows a route up the west side of the Bay. The financing page makes no mention of any bonds actually being sold, although it does contain a quotation from a Lehman Brothers investment banker supporting the idea they can be sold. Unfortunately, Lehman has been out of business for a year now. I'd appreciate any reference to a source that indicates the actual sale of the bonds.
Sam1 It is usually possible to sell debt, even it is junk, as long as the interest rate is high enough to justify the investor risk. This is especially true if the issuer buys insurance for the bonds. Unfortunately, poor bond ratings mean that the issuer will pay more in interest than if the bonds were of higher quality.
If bonds were sold; two items
1. Was is the face value interest rate
2. More important what are they selling for?
ex;; a $1000 face value bond at 10% is $100 interest a year
if it sells for 1100 then the effective interest is about 9.09% interest.
if it sells for $900 then the effective interest is 11.1% interest.
so ntil we know the face values and the actual selling price we cannot know how much the bonds are costing.
blue streak 1 Sam1 It is usually possible to sell debt, even it is junk, as long as the interest rate is high enough to justify the investor risk. This is especially true if the issuer buys insurance for the bonds. Unfortunately, poor bond ratings mean that the issuer will pay more in interest than if the bonds were of higher quality. If bonds were sold; two items 1. Was is the face value interest rate 2. More important what are they selling for? ex;; a $1000 face value bond at 10% is $100 interest a year if it sells for 1100 then the effective interest is about 9.09% interest. if it sells for $900 then the effective interest is 11.1% interest. so ntil we know the face values and the actual selling price we cannot know how much the bonds are costing.
What you say is correct, but the key point is that lower rated bonds, i.e. B+ compared to AA, for example, will cost the issuer more in interest. Even a few additional basis points can add millions if not billions to the cost of the project over the life of the bonds, which will probably carry maturity dates up to 30 years.
Most people, when they quote the cost of a project, fail to factor in the cost of the financing over the life of the project.
Are you positive about anything other than your preening pride in your "wisdom" concerning practically everything?
The California HSR Authority claims the project will cost approximately $40 billion. The Government Accounting Office (GAO), in a 2008 review of some of the proposed high speed rail projects in the U.S., estimated the cost of the California project at $38.2 billion. The GAO performed its review because all of the projects are seeking federal financing for at least a portion of the project.
California voters authorized the issuance of $9 billion in state backed bonds to help fund the initial portions of the high speed rail project. The average rate for a sample of California investment grade bonds, taken from Fidelity Investments (A or above), due in approximately 30 years is 5.77 per cent. If the initial bonds are issued for 30 years, which is a normal practice, the cost of the interest and principal associated with the bonds will be approximately $18.9 billion. If $40 billion of bonds are ultimately issued at the state's weighted average cost of capital (interest rate), the cost of the project will be approximately $83.8 billion, which is considerably higher than the advertised sticker price of $40 billion. Given the nature of these projects, if the California HSR project comes in at $40 billion, it will be a minor miracle. These numbers are for investment grade bonds.
If the bonds for the rail project are rated lower than A, i.e. BBB-, then the cost of the project could be higher. For example, if the interest rate is 7 per cent, then the cost of the project would be $95.2 billion. On the other hand, if the federal government shoulders a significant portion of the cost of the project, with the effect being to lower the interest burden, the project might have an average weighted cost of capital of 4.5 per cent, in which case the cost of the project would be approximately $72.7 billion.
There is nothing magical about understanding the impact of finance charges on the cost of a project if one has a rudimentary understanding of finance. The calculations are straight forward.
MunicipalBonds.com does not show any California High Speed Rail Bonds for sale. This does not mean, however, that they have not been sold to an investment bank for re-packaging or have been placed with an institutional buyer.
To complicate this argument more today's (WED) Wall St Journal stated that California is having no trouble in raising $8.8 billion for a municiple deal. The rate the WSJ quotes on short term May and June 2010 notes is a mind boggling 1.25 and 1.5 %. Final price to be set today. These are not long term bonds of course but may give some indication of what HSR bonds will do.
I am not familiar with the California HSR plan details along the San Jose-Gilroy segment that UP and communities are objecting to for their respective reasons; but it seems that some resolution of technical issues would be possible. My opinion from afar is that the Altamont route would be a huge regret.
blue streak 1 To complicate this argument more today's (WED) Wall St Journal stated that California is having no trouble in raising $8.8 billion for a municiple deal. The rate the WSJ quotes on short term May and June 2010 notes is a mind boggling 1.25 and 1.5 %. Final price to be set today. These are not long term bonds of course but may give some indication of what HSR bonds will do.
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