CA: Could this plan actually save California's high-speed rail project?

At a moment when California high-speed rail faces possible abandonment, the project's new CEO sees a tantalizing lifeline: $1 billion annually from the state, supplemented by an infusion of private capital.

It's a hopeful, perhaps heady proposition. High-speed rail has been dogged by cost overruns, construction delays and political fights since its inception in 1996, when California leaders first dazzled constituents with the promise of a three-hour train ride from San Francisco to Los Angeles. Now, the state is struggling to deliver even the middle portion of that rail system, a 171-mile stretch from Merced to Bakersfield.

The latest blow came last month, when the Trump administration threatened to pull $4 billion in federal grants for the project.

But when Ian Choudri was appointed last August to run the High-Speed Rail Authority, an agency created to plan and oversee the train system, he refused to let rising costs or critics distract him. Instead, he latched onto the public-private financing gambit, convinced that it just might work.

"We are looking at state-level commitments so that we can bring private equity partners in," Choudri said during an interview at the Marriott hotel in San Francisco, where he attended the American Public Transportation Association conference. Appearing on a panel with three executives from global infrastructure firms, Choudri inhabited a unique role: part public steward, part pitchman.

His fellow panelists appeared to be listening.

"There are significant ways to monetize (and) commercialize long linear rights of way," said Sia Kusha, senior vice president of Plenary Americas, a firm that specializes in public-private partnerships. Plenary has helped build metro rail systems, hospitals, freeway express lanes and a vast expansion of the UC Merced campus.

Although Kusha did not provide specific details about how to commercialize high-speed rail, others cited the fare box as a basic source of revenue. Beyond that, companies could develop real estate around stations or operate tunnels and charge for every train that rolls through. For businesses willing to engage in a little magical thinking, the opportunities seem boundless.

The Rail Authority would draw its $1 billion a year in state funds from a climate emissions program that pays for a wide range of clean energy goals, from public transit to electric vehicles. If it secures that bedrock support from the government, high speed rail officials will try to entice private financiers to cover the remaining costs, giving the bullet train a fighting chance of success.

Or alternatively, California could finish the first segment of high-speed rail in the Central Valley, lure in riders, then auction the rights to operate it off to private companies, said Dan Richard, former chair of the Rail Authority. He cited Japan as a model. The country constructed its own bullet train system in 1964 and had the government run it until about 1980, before "they turned around and privatized it."

"There's always been a desire to have the private sector involved at the right time, when the risk is understood," Richard said. When voters approved the high-speed rail bond measure in 2008, he noted, proponents conveyed a budgetary picture that was equal parts federal, state and private sector money.

"What Ian is trying to do now is really take the first steps in that direction," Richard said.

Other observers have doubts. Richard Tolmach, president of the California Rail Foundation, remembers how he tried steering a similar attempt to rally private money in 2010, only to see it unravel. Politicians, including the appointed members of the rail authority, needed financial aid but were largely unwilling to relinquish control over the railway design, or heed advice from industry leaders, Tolmach said.

After watching companies approach the state time and again, only to have the talks go nowhere, Tolmach has little faith that anything will change.

"A billion dollars a year will mummify the project in its current condition," he said. "They will lay a piece of track here, a piece of track there, get little pieces started but not operating." From his perspective, any notion of profiting from high-speed rail seems far-fetched.

One need not be an avowed skeptic to see that Choudri's plan will face obstacles, starting with the effort to secure that floor of state funding. While high-speed rail has an ally in Gov. Gavin Newsom, who wants to tap the $1 billion yearly allotment from California's cap-and-trade program — a clean energy fund amassed from carbon credits sold to major polluters — legislators and groups are already pushing back. Many people and agencies compete for those cap-and-trade dollars, and the program itself is set to expire in 2030. Newsom aims to extend it until 2045, changing the name to "cap-and-invest."

Lawmakers who have their own ideas for the cap-and-trade funds are wary of Newsom's proposal. Advocates like Michael Pimentel, executive director of the California Transit Association, request that the funds be shared with other forms of mass transit, which also have deep budget predicaments.

Assuming high-speed rail secures consistent state funding, its leaders may have to change the public's perception in order to court private companies. For decades, the train system has served as a poster child of California's inability to complete a mega project. Cost estimates for the Merced-to- Bakersfield section now hover at $35 billion, exceeding the original $33 billion price tag for the whole 500 mile line.

"At this point, there are a lot of unknowns," said Sebastian Petty, a senior transportation policy adviser at the public policy nonprofit SPUR. He pointed out that the state cap-and-trade funds are not guaranteed. And even with that backstop, it's not clear whether high-speed rail will unlock money from the private sector. In all likelihood, companies would need a full project update with a revised financial forecast and schedule to assess "how realistic these plans are."

Still, Newsom's appointment of Choudri marked an inflection point. Upon taking the post, the new CEO scoured through balance sheets to find savings wherever he could, while also seeking a stable revenue stream from the government to attract private equity. In January, Choudri held a forum with industry experts to discuss strategies to build smarter and faster. The day before this month's APTA conference, the Rail Authority released a request for expressions of interest in "one or more aspects" of the bullet train project.

Once private firms come in, they could solve what, according to Richard, is one of high speed rail's biggest problems: financial uncertainty that keeps prolonging the construction timeline. A steady flow of capital would make it easier to sign contracts, hire workers, put railroad spikes in the ground and avoid cost increases associated with inflation. That elusive dream of a one-seat, electrified ride from SoMa to Los Angeles, at speeds of 210 miles per hour, would finally be within reach.