The California High Speed Rail Authority released its 2018 draft business plan on Friday, and the news is not good. Not only have costs gone up with no new revenue in site, the authority now admits it’s unlikely to build any actual high speed rail service for at least a decade.
How did we get to this unfortunate place? Since voters originally approved a $10 billion bond issue to launch the system in 2008, two important events happened:
1) Central Valley representatives insisted the system start in the Valley, with no benefit to the coastal cities. While the system was originally billed as a quick way to serve Los Angeles and San Francisco, San Joaquin Valley representatives saw it as an opportunity to diversify and grow the Central Valley economies, by linking this largely impoverished part of the state to the thriving coastal cities. As a result, they insisted on starting the system in the Valley, where it would provide no benefit to the major population centers on the coasts. It’s the equivalent of starting LA Metro Rail in the suburban San Fernando Valley, or BART in the East Bay suburbs. Most train systems need to go back to voters for multiple rounds of funding. But in this case, voters in Los Angeles and San Francisco have no stake in the system. Had the system instead been started between San Francisco and San Jose and also between Los Angeles Union Station and Anaheim (and up to northern Los Angeles County), there would have been something to show for the initial investment and more political support to complete it (and less litigation and opposition from the Central Valley residents).
2) Republicans took over Congress in 2010 and have since refused to return Californians’ tax dollars to the project. With that Tea Party election that year, Republicans withdrew the federal purse strings for the project. While the federal government is happy to pay 90 to 100 percent of the costs of new highways, and 50 percent of the costs for new rail transit, so far California residents have been on the hook for $17 billion of the roughly $20 billion in costs to date.
Nothing can be done about the first event, which is a mistake that the authority has since tried to rectify by dedicating some funds to improve Caltrain and Metrolink in the coastal cities.
The second event could potentially be remedied this November, if a “blue wave” removes Republican control of Congress. While President Trump could veto any subsequent infrastructure plans that funds high speed rail, he will have lost leverage at that point. And revenue to fund non-automobile infrastructure like high speed rail could come from sources like a new carbon tax, passed via reconciliation in the Senate.
Still, hoping for a political shift is not exactly a great business plan. In the meantime, the authority appears set to finish the 119 mile first segment in the Valley. Then, absent new revenue, they’ll probably hand it over to Amtrak to run regular diesel trains on it, biding time until political and economic fortunes change in the state and the country at large.
Google made headlines recently for buying a huge property adjacent to the future downtown San Jose high speed rail station, per the San Francisco Chronicle:
Google has been in negotiations with San Jose since June for a planned “village” that would feature up to 6 million square feet of office, research and development, retail and amenity space near San Jose’s Diridon Station. The development could bring 15,000 to 20,000 jobs, Nanci Klein, San Jose’s assistant director of economic development, previously told The Chronicle.
To be sure, this property would be valuable for Google even without high speed rail, as it’s at the heart of San Jose’s light rail network. But high speed rail will only increase the value, as it would give Google employees high-speed train access to businesses to the south and through the San Joaquin Valley — and eventually Los Angeles.
So the question is: would a property owner like Google be willing to help finance high speed rail, which is badly in need of cash? It’s the old school way of funding trains: leverage the future increases in property values around the stations to finance the transportation.
Given the slow trickle of state dollars and nonexistent federal funds, high speed rail leaders will need to get creative about how to find money to keep construction going. A large company like Google could greatly help with the search.
UPDATE: Initial reports that the electric vehicle tax credit was killed in the Senate version may have been inaccurate. The text of the amendment contained some obscure language that actually indicates that it was not adopted in the ultimate bill.
Donald Trump’s electoral college win a year ago certainly promised a lot of setbacks to the environmental movement. His administration’s attempts to roll back environmental protections, under-staffing of key agencies enforcing our environmental laws, as well as efforts to prop up dirty energy industries have all taken their toll this year.
However, until the tax bill passed the Senate this week, much of that damage was either relatively limited in scope or thwarted by the courts. But the new tax legislation now passed by both houses of Congress, and still in need of reconciliation and a further vote, could dramatically undercut a number of key environmental measures in ways we haven’t yet seen from this administration.
Originally, there was some hope that Republicans in the U.S. Senate would weaken some of the draconian environmental measures in the original House tax bill. But that was largely dashed by the late Friday night, partisan vote in the U.S. Senate. First, the bill targets clean technology while promoting dirty energy:
- The renewable energy tax credits for wind and solar are severely undercut by an obscure provision in the bill called Base Erosion and Anti-abuse Tax (BEAT), as Greentech Media reports. While analysts are still reviewing the provisions to discern the likely impact, initial assessments are that this bill language could greatly hurt the industry by decreasing the value of the credits.
- Similarly, the reinstatement of the alternative minimum tax for corporations, which was not in the House bill, also hurts the market for renewable tax credits, if not devastates it. By inserting this provision at the very last minute, Senate leaders attempted to offset some of the other tax cuts and projected deficits by ensuring corporations pay a minimum tax. The problem is that it renders many tax credits worthless, as businesses will no longer need them. Particularly hurt are wind energy projects, which rely on the production tax credit, as well as solar projects that rely on the investment tax credit.
- As a dirty cherry on top, the Senate bill opens the Arctic National Wildlife Refuge to oil drilling.
On housing, the tax bill has the potential to devastate affordable housing. Affordable projects often rely on tax credits for financing. As Novogradac & Company writes, the BEAT provision will dampen corporate investors from claiming tax credits like the low-income housing tax credit (LIHTC), new markets tax credit (NMTC), and historic tax credit (HTC), all used to fund affordable and other infill projects. Other changes in the bill promise further dampening of financing for affordable housing.
The only good news for environmental and housing advocates is that there is still a chance to make changes in the bill through the conference committee. And that the provisions here can be rescinded in 2021 with a new congress and president.
California’s Central Valley is the state’s defining geographical feature. It’s the country’s breadbasket, with over 400 commodity crops, including all the almonds grown in the country. At the same time, it’s poverty-stricken, with Fresno the second poorest city in the U.S., and yet oil rich down by the deeply Republican Bakersfield.
It’s also one of the most environmentally vulnerable region in the state, with one of the most polluted air basins in the country. And as the Los Angeles and San Francisco Bay Area regions say no to new housing, sprawl is spreading into the Valley from these areas, as workers choose cheap housing and super commutes. Sprawl is also the norm around the Valley’s large cities along Route 99 on the eastern side. Like Los Angeles before it, the flat terrain means the region has no real geographical impediments to sprawl.
High speed rail could make the sprawl even worse, as the train will spur growth in places like Fresno, which will be just an hour or so from the booming coastal job centers (Berkeley and UCLA Law released a report on the subject in 2013, along with recommendations to combat the problem).
People in the Valley are well aware of the risk. Former Fresno mayor Ashley Swearengin, a rare Republican high speed rail supporter, tried to do the right thing to encourage more downtown-focused growth in Fresno and not allow the urban core to get hollowed out by competition from nearby cheap sprawl.
But Mayor Swearengin and other downtown booster’s efforts are threatened by Fresno’s neighbor Madera County next door, whose leaders prefer the model of continued sprawl over productive farmland and open space. The result will be the usual negatives we see elsewhere in the state: more traffic, worse air quality, and lost natural resources.
Marc Benjamin and BoNhia Lee detailed the new sprawl projects in the Fresno Bee last year:
Madera County is on the verge of a building boom that creates the potential for a Clovis-sized city north and west of the San Joaquin River, with construction starting this spring.
Riverstone is the largest of the approved subdivisions in the Rio Mesa Area Plan. It’s underway on 2,100 acres previously owned by Castle & Cooke on the west side of Highway 41 and north and south of Avenue 12. Castle & Cooke had plans to build there for about 25 years.
It’s the first of several subdivisions in the county’s area plan to be built. Over the past 20 years, Riverstone and other projects were targeted in lawsuits, many of which have been settled, but some still linger. But some critics contend that the new developments will worsen the region’s urban sprawl.
Principal owner Tim Jones’ vision for his nearly 6,600-home development a few miles north of Woodward Park is a subdivision with six separate themed districts. Riverstone will compete for home buyers with southeast Fresno, northwest Fresno, southeast Clovis and a new community planned south and east of Clovis North High School.
The Rio Mesa Area Plan will result in more than 30,000 homes when built out over 30 years. About 18,000 homes have county approval. The contiguous communities could incorporate to create a new Madera County city that could dwarf the city of Madera and have a population greater than Madera County’s current population of 150,000.
In the coming years, an additional 16,000 homes are proposed in Madera County. On the east side of the San Joaquin River, in Fresno County, about 6,800 homes are approved in the area around Friant and Millerton Lake.
Defenders of these sprawl projects claim that some are mixed-use developments located close to distributed job centers, minimizing the chances that they will become merely bedroom communities of Fresno. But as the development continues outward, it undercuts the market for infill housing, leading to a vicious downward spiral that we saw hit downtowns throughout the country in the middle of last century.
The best way to solve these growth issues is better regional cooperation, particularly around some type of urban growth boundaries. The growth boundaries can be de facto through mandatory farmbelts, rings of solar facilities, and possibly better pricing on sprawl projects to account for their externalities. Or they can be actual limits on growth and urban expansion outside of already-built areas.
Without concerted action, and with the high speed rail coming from Fresno to San Francisco soon, we may soon find that it’s too late to undo the damage in the Central Valley.
After I just wrote that the cap-and-trade extension to 2030 throws a lifeline to high speed rail in California, I read in today’s San Francisco Chronicle that California Republicans think they’ve potentially “de-railed” their hated train by helping to extend the program:
In extending California’s cap-and-trade system of controlling greenhouse-gas emissions through 2030, lawmakers approved a Republican plan this week to put a constitutional amendment before voters that seeks to give the minority party more say over how the program’s money is spent. One-fourth of that money — more than $1 billion so far and $500 million projected a year in the future — goes toward high-speed rail, a project that Republicans widely oppose.
With the proposed $64 billion train line between Los Angeles and San Francisco facing not only Republican opposition but financial struggles, any cut in funding from the cap-and-trade program could be fatal.
“This absolutely calls into question the viability of high-speed rail going forward,” said Assemblyman Marc Steinorth, R-Rancho Cucamonga (San Bernardino County), who voted to extend cap and trade in part because of the proposed constitutional amendment. “If the bullet train can’t prove its worth, (this amendment) provides a pathway to ending the funding for the boondoggle once and for all.”
The logic to me is basically ridiculous. First, the constitutional amendment has to be passed by the voters, which is a big “if.” Second, the amendment won’t even affect any dollars until 2024, at which point the vote in the legislature would have to take place. And finally, even if a spending plan kills high speed rail, a simple majority vote of legislators after 2024 can change the spending priorities again.
The bottom line: the extension of cap-and-trade both shored up the existing cap-and-trade market through 2020 by increasing business confidence that the program is here to stay, and it gave the train line at least 4 additional years after 2020 to compete for funding under the program.
To be sure, there are still funding risks for high speed rail by relying on cap and trade. The legislature can try right away to tweak the funding formulas for how auction proceeds are spent, although this governor would likely veto any plan that diminishes funds for his priority project. And the amount of money from cap and trade may not be enough to finish the first section anyway from north of Bakersfield to San Jose.
Ultimately, the best bet for high speed rail is a new U.S. Congress that pays its share of federal dollars for the project, or a private investor to step up, which so far hasn’t happened. But the extension of cap and trade can only be seen as a positive at this point for high speed rail.
Last night the California Legislature scored a super-majority victory to extend the state’s signature cap-and-trade program through 2030. It was a rare bipartisan vote, although it leaned mostly on Democrats. My UCLA Law colleague Cara Horowitz has a nice rundown of the vote and its implications, as does my Berkeley Law colleague Eric Biber on the bill.
Lost in the politics is what this means for high speed rail. The system has a fixed and dwindling amount of federal and state funds at this point, and it’s relying on continued funding from the auction of allowances under cap-and-trade to build the first segment from Fresno to San Jose and San Francisco.
If the auction was declared invalid or ended at 2020 with depressed sales, the system would be in major jeopardy of collapsing before construction even finished on the first viable segment. Now it has some assurance of access to funds.
But of course it’s not that simple. The bill that passed yesterday has diminished available funds set aside for the programs that have been funded to date with cap-and-trade dollars. As part of the political compromises, more auction money will now go to certain carve-outs, like to backfill a now-canceled program for wildfire fees on rural development.
And another compromise may put a ballot measure before the voters, passage of which would require a two-thirds vote for any legislative spending plan for these funds going forward. That means Republicans — who generally hate high speed rail — would be empowered to veto future spending proposals.
Still, high speed rail once again has a lifeline, as do the other programs funded by cap-and-trade, such as transit improvements, weatherization, and affordable housing near transit. It’s an additional victory beyond the emissions reductions that will take place under this extended program.
California’s cap-and-trade program likely can’t survive in its current form after 2020 without a two-thirds vote of the legislature to reauthorize it. That’s because a central feature of the program involves auctioning allowances to pollute, which courts are likely to consider to be a “fee” that requires two-thirds approval of the legislature under 2010’s voter-approved Prop 26.
With that high hurdle, advocates have been scrambling to get the needed votes. Despite having a Democratic super-majority in both houses of the legislature, a number of key Democrats are opposed to (or at least skeptical of) cap and trade, because they fear the program allows polluters to continue polluting disproportionately in “environmental justice” communities — predominantly low-income communities of color.
So advocates have had to seek a bipartisan two-thirds solution, which requires oil-and-gas industry support. And that means major concessions to the fossil fuel industry.
But at the same time, the fossil fuel industry has lost leverage. The passage last year of SB 32, to extend the greenhouse gas reduction goals from 2020 to 2030, and AB 197, which allows for direct command-and-control regulation of polluting facilities, has put their back against the proverbial wall. And they recently lost their lawsuit challenging the legitimacy of the current auction mechanism. Industry would rather have the more “flexible” cap-and-trade system now, where they can seek reductions in the most economically efficient manner.
So there are some industry concessions and some environmental wins in the apparent consensus bills unveiled on Monday. First, AB 398 would officially extend the cap-and-trade program to 2030. In a big win for industry, the legislation would prevent local air districts in California from imposing their own limits on greenhouse gas emissions from sources already covered under cap and trade. As the San Francisco Chronicle describes, it would “effectively kill long-running efforts by Bay Area air quality regulators to place hard limits on emissions of carbon dioxide and other heat-trapping gases from local oil refineries.”
In another win for industry, the bill puts a ceiling on the price of allowances (permits to emit one metric ton of greenhouse gases under the cap). To date, allowance prices have typically hovered at or near the current price floor. Consider the ceiling a gift to industry by giving them a maximum penalty they’d have to face for polluting.
But in a concession from industry, the bill would reduce the use of “offsets” (projects outside of the capped facilities that help reduce greenhouse gases) and require that half of them occur in California or have a direct environmental impact on the state. The use of offsets weaken the sale of allowances by giving industry a cheaper out, so this is good news for the integrity of allowances.
Finally, the bill would prioritize the kind of state programs that could receive funding from the auction proceeds. The money must first go to efforts to control toxic air pollution from mobile or stationary sources like factories and refineries, second to low-carbon transportation projects, and third to sustainable agriculture programs.
This last provision is potentially a mixed bag on impacts, since it doesn’t necessarily track the highest emitting sources. But it may allow continued funding for high speed rail, which is on financial life support and at this point is only propped up by cap-and-trade proceeds. The governor doesn’t want to see the project die, which was part of his motivation for getting the auction reauthorized.
Meanwhile, AB 167 is a must-pass companion bill would require stricter air pollution monitoring around industrial facilities and tougher penalties for violating pollution regulations. This measure allows environmental justice advocates to claim some victory be securing the promise of direct emissions reductions from nearby polluters.
A number of environmental groups are not happy with the concessions, although the bill has received support from the likes of Environmental Defense Fund and tepidly from billionaire environmental activist Tom Steyer.
For my part, I think it’s an okay but not great deal. It’s probably worth continuing the state’s cap-and-trade program, if nothing else to try to prove the concept in case it can be workable in other states and nationally. And the auction proceeds provide some useful funding for everything from weatherization to transit to low-income housing.
Meanwhile, the state still retains a lot of authority over polluters via SB 32 and the state implementation of the Clean Air Act, and multiple complementary policies are still needed and remain in effect to reduce greenhouse gas emissions, such as the renewable energy, energy storage, energy efficiency, and electric vehicle mandates.
The vote could come as soon as Thursday, so stay tuned for the results.
UPDATE: The vote was just postponed to Monday, which could mean they’re having trouble getting the needed votes.
Joe Mathews usually writes insightful columns about California’s economic and environmental challenges. But he whiffed in yesterday’s piece in the San Francisco Chronicle extolling the virtues of the notorious “high desert corridor” freeway project in Southern California.
I’ve discussed the project briefly before, but it’s basically a gold-plated freeway. It’s hardly different than any other that Southern Californians have been building for over a half-century now, all of which have combined to create the region’s current sprawl, traffic, and air quality problems.
This particular freeway would connect Palmdale with Apple Valley in the ecologically sensitive high desert north of urban Los Angeles, just over the San Gabriel Mountains formed by the San Andreas Fault (see map above and below). It would run about 63 miles, in a three-to-six-lane configuration. That route is currently served by a slow-going, mostly two-lane highway through cities like Lancaster, Adelanto, Victorville, and Hesperia.
In terms of its environmental impacts, the freeway would allow those cities along the route and any new ones off the new freeway offramps to sprawl unobstructed over these desert sensitive lands. The end result will be a continued spread of the urban megalopolis over the desert.
So why is this freeway gold-plated? The project includes space for high-speed rail, an energy transmission line, and even a bicycle lanes in parts. Importantly, it would allow high speed rail (and many cars) to travel easily from Interstate 5 near the Grapevine to the San Joaquin Valley across the desert to Interstate 15 in Victorville and Apple Valley, en route to Las Vegas.
Despite the sprawl risk, Joe Mathews seems to be enamored of the project in part because of this rail connection. But also because of the potential for easier goods movement:
Today, international trade is slowed in the L.A. Basin by the dense traffic in the seaports and on the streets. Advocates of the corridor say it could become a new “inland international port,” with logistics facilities, rail and local airports tied close together to move cargo. Such a port would allow the logistics industry to expand beyond the basin, bringing more jobs to the desert for local residents and shortening their commutes.
At the same time, the project could take traffic off of Los Angeles’ roads, while providing infrastructure to encourage more green technology and transportation. (On the less green side, supporters believe manufacturers will flock to the High Desert Corridor, because it is outside the basin and its air regulation.)
Mathews never once mentions the obvious concern with building yet another Southern California freeway: more inducement to build car-oriented sprawl, which leads directly to the exact challenges crippling Los Angeles: crushing traffic, poor air quality, and lack of open space. Not to mention a harsh quality of life spent car commuting all day. And any temporary alleviation of traffic in urban Los Angeles to the south will just induce more driving, as we’ve seen happen over and over again.
For this reason, environmental groups like Climate Resolve oppose the project. They note that the environmental review on the project failed to account for this sprawl inducement. Instead, the state’s transportation agency simply assumed in the environmental review documentation that this exurban growth will happen anyway. Conveniently, with that baseline in mind, this freeway (they argue) will in fact lessen traffic.
The story of Los Angeles should by now be obvious to everyone, especially Mathews: freeways don’t work at promoting smart land use, and they don’t alleviate traffic. They create more of it. And they crush a region’s environment, mobility, and quality of life in the meantime.
This project, with the exception of the needed high speed rail connection, should be stopped immediately, and Los Angeles leaders should ensure no more funding goes to support it.
Rather than reading Mathews’ column on it, we’d be better served reading Einstein: the definition of insanity is doing the same thing over and over again and expecting a different result.
The California Chamber of Commerce has just lost its case against the state’s cap-and-trade auction, with the news from the Los Angeles Times that the California Supreme Court has refused to hear an appeal from the state appellate court. This means the auction mechanism in the cap-and-trade program is valid at least through 2020.
As we’ve covered on this blog before (most recently with Ann’s post from last fall, which links to our other posts), industry plaintiffs had argued that the auction represented a tax that required two-thirds approval of the legislature, under Proposition 13. But the auction isn’t like a tax, the courts have now consistently and definitively ruled, allowing the current mechanism to continue through 2020.
After 2020, the auction may be subject to a different legal analysis under 2010’s voter-approved Proposition 26, which legally converted many “fees” to taxes and therefore extended the reach of the two-thirds bar. AB 32, the law that authorized the cap-and-trade program, passed in 2006 and therefore wasn’t subject to Proposition 26, which came later. Since AB 32 authorized the program specifically through 2020, it can now continue at least through that year without needing two-thirds vote in the legislature or facing further court challenges.
This is a significant win for the state for two reasons: first, it allows the auction to continue, which is a crucial feature for distributing allowances to pollute under the cap. It holds businesses economically accountable for on-site emissions reductions, rather than allowing them to get allowances for free (although there may be other, more convoluted ways that they could purchase auctions and avoid court challenges). Perhaps more importantly from a political perspective, the auction generates proceeds for the state that have been used to fund everything from high speed rail to transit and weatherization for low-income households.
Second, it means industry loses a bit of leverage to shape cap-and-trade going forward in the legislature, which is debating proposals to extend the program now. The case has loomed in the background on these debates, with industry potentially wielding it as a negotiation piece to extract concessions, implicitly if not explicitly. Coming on the heels of the passage of SB 32 and AB 197 last year, which directed more command-and-control type approaches to emissions reductions at regulated facilities, it represents another loss of leverage for industry going forward.
Meanwhile, cap-and-trade post-2020 debates are heating up at the Capitol, with the governor determined to extend the system before the August auction and solidify the program’s place through 2030, in part to ensure a continued revenue stream for high speed rail. Industry is now on board as well (although they’re trying to weaken the program as much as they can), as they’ve lost their fall back option of killing the auction completely in court and simultaneously face much more draconian command-and-control regulation if cap and trade doesn’t continue.
It makes me wonder what might have happened had the Obama Administration chose to use the Clean Air Act more aggressively back in 2009, which (if successful in court) would have made cap-and-trade at the federal level similarly more appealing for industry.
We’ll never know. But in the meantime, we can watch the political dynamic play out at the state level here in California, with one less card for industry to play at the negotiating table, courtesy of the state Supreme Court.
Perhaps a metaphor for their approach to innovation, Apple is fully embracing the sprawl office model of the past, while Google embraces the future with talks to build a downtown San Jose campus near rail.
The Apple “donut” campus (photo right), set to open soon in Cupertino, is a giant parking lot with an office building on top, no matter how many solar panels and EV charging stations the company boasts about adding. It was Steve Jobs’ last vanity project, and at heart it’s firmly of the decade he was born — the auto-oriented suburban office campus of the 1950s.
Meanwhile, Google looks to be following other advanced tech companies, like Amazon, LinkedIn, and Salesforce, by exploring options for a high-rise, infill mixed-use office right next to the future high speed rail stop and current Amtrak and Caltrain depot in downtown San Jose.
Silicon Valley is an an absolute housing and traffic crunch, due to those cities’ willingness to permit office sprawl but no accompanying housing. The choice by Apple will only reinforce that failed dynamic, while Google’s efforts show that the worker of tomorrow does not want to repeat the insanity.