July 5 (Bloomberg) -- California’s Assembly gave preliminary approval to begin construction of a $68 billion high-speed passenger rail line down the spine of the most populous U.S. state, even as polls show waning public support.
The bill advances to the Senate and Governor Jerry Brown, an advocate of the bullet-train to link San Francisco and Los Angeles. It authorizes the state to begin selling $2.6 billion of bonds already approved by voters. The federal government has promised $3.3 billion in matching funds.
“We’ve spent two years talking about if and how this project should be built,” said Bob Blumenfield, a Van Nuys Democrat who chairs the Assembly budget committee. “It’s time we move forward with this project.”
California is the only U.S. state working to lay tracks for trains running as fast as 220 miles an hour (354 kilometers an hour), after Congress cut off 2012 funds for such projects. The plan has been criticized for its cost, choice of routes and the wisdom of spending on high-speed rail when deficits have led to deep cuts to schools and the poor.
While 53 percent of voters approved bonds for the project in 2008, 59 percent would now oppose the plan if given another chance to vote, according to a USC Dornsife/Los Angeles Times poll released June 3 . In a Field Poll released today, one in three likely voters said they’d be less inclined to support Brown’s proposal for a tax increase if lawmakers approved the rail funding.
The California High-Speed Rail Authority in April chopped $30 billion off a price tag that had ballooned to $98.5 billion for the system. When voters approved the the bonds, the state was estimating the cost at $43 billion.
“This is absolutely nuts,” said Assemblyman Tim Donnelly, a Republican from San Bernardino. “We’re going to build a train we don’t need, with money we don’t have. I can’t believe we are even having this conversation.”
If bond sales go ahead, the state will start construction on the first 130-mile stretch of rail down California’s Central Valley. It’s that initial route, connecting the least populated portion of the state, that has spurred opposition to the plan.
The route runs from Merced, about 120 miles south of Sacramento, the capital, to the San Fernando Valley, north of Los Angeles. To connect with the population centers of Los Angeles and San Francisco, the bill authorizes $2 billion of bond funds to upgrade existing commuter and freight lines to handle high-speed traffic.
California is already the most indebted U.S. state, with $73.2 billion of general-obligation bonds outstanding and the authority to sell another $33.1 billion.
The high-speed rail debt won’t be sold as a separate offering. Instead, it’s to be part of multiple general-obligation bond offerings from which the proceeds are used for various purposes such as schools, roads and bridges.
An initiative on the November ballot, sponsored by Brown and a teacher’s union, will ask voters to temporarily raise the state sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent and to boost taxes on income starting at $250,000. The rate for those making $1 million or more a year, now 10.3 percent, would rise to 13.3 percent.
If voters reject the tax increase, it will trigger $6.1 billion of cuts -- $5.5 billion coming from schools, enough to pay for three weeks of classes.
A California bond maturing in February 2022 traded June 28 at an average yield of almost 2.7 percent, or about 0.73 percentage point more than an index of top-rated muni debt with a similar maturity, according to data compiled by Bloomberg. The securities were issued in March at a yield of 2.78 percent, or 0.88 percentage point above the benchmark.
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