Appendix B Page 1 of 18
APPENDIX B
CALIFORNIA HIGH SPEED RAIL SYSTEM
A COMPARISON OF DIFFERENT
FINANCING ALTERNATIVES
FOR THE INITIAL PHASE ONE CORRIDOR
SAN FRANCISCO TO ANAHEIM
June 9, 2010
William H. Warren
williamhwarren@ stanfordalumni. org
650- 321- 8638
Appendix B Page 2 of 18
INTRODUCTION
The Challenge – To understand the financial consequences of the High Speed Rail ( HSR) System on the State of California and its taxpayers.
Background – The HSR Authority’s mission is to build a statewide high speed rail network, over the next 15 to 20 years, connecting:
In the north – San Francisco, Oakland, San Jose, and Sacramento
Through – Stockton, Merced, Fresno, and Bakersfield
In the south – Los Angeles, Anaheim, Irvine, San Diego, and Riverside
Prop 1A and AB 3034 authorized $ 9.95B in State Bonds, $ 9.1B of which is for HSR, and which needs matching funds
Between 2010 and 2020, Phase One will connect the “ underlined” cities. Project cost of construction & trains - $ 43B
I estimate the follow on- phases to complete the network will be an additional $ 30B to $ 35B, which is an additional 70% to 80%.
The HSR Authority’s 2009 Phase One Business Plan projects the following Ridership volumes, Revenues, Operating Costs, and “ Surplus”, which
I call Operating Margin. Note their inflation rate takes the 2009 $’ s on the left side into “ Year of Estimate” $’ s on the right side of the table.
Table 1 - Summary of the Ridership and Financial Operating Results for Phase One, from the 2009 Business Plan
Operating Inflation Operating Operating
Year Riders Revenue Revenue Costs From 2009 Revenue Revenue per Costs Margin
( Millions) $ B, 2009 $ per Rider,$ $ B, 2009 $ @ 3.0% $ B, YOE$ Rider, YOE$ $ B, YOE$ $ B, YOE$
2020 13.50 0.95 70.37 0.68 1.38 1.32 97.41 0.94 0.37
2025 36.50 2.55 69.86 1.02 1.60 4.09 112.11 1.64 2.46
2030 39.30 2.75 69.97 1.04 1.86 5.12 130.17 1.93 3.18
2035 41.00 2.87 70.00 1.07 2.16 6.19 150.96 2.31 3.88
The 41M riders in 2035 is their annual forecast from their detailed forecast of 121,000 riders per day, for Phase One. I have used prior Business
Plans to estimate the completed network, with all the cities, to be in the range of 76 M riders in 2035, which are 224,000 riders per day. This is an
increase of about 85%.
There is no technical breakthrough required – this is all known engineering and technology; used in safe, reliable transport in Europe and Asia.
The challenges are financial - available investment ( construction) capital, and political management of decision making under uncertainty ( such as
ridership forecasts).
To paraphrase a famous quote – “ If we build it, will they come?” The answer to this question will determine if the HSR System will have positive
Operating Margins, and will the Margins be sufficient to recover the $ 43B, to approximately $ 80B, that will be invested by the taxpayers of
California, by the taxpayers of the United States, as well as the cities, counties, and private/ sovereign sources of capital who may invest.
Appendix B Page 3 of 18
TWO VIEWS OF THE WORLD
There are two different views on who owes what to investors and taxpayers: The HSR Authority and The State of California
• The HSR Authority does not believe it has to measure its financial performance by returning all of the capital invested, plus a fair rate of
return. It believes it will be responsible for returning some of it, and maybe guaranteeing some revenues streams. In effect, this guarantees
investors in this position a fixed rate of return. For example, the HSR Authority believes they are not responsible for repaying the $ 9B in
Bonds authorized in 2008; rather, the State of California is responsible.
• The State of California needs to understand and measure the overall impact this program has on the future tax obligations of its taxpayers - as
measured by this program’s ability to retire debt or equity investments, plus additional subsidies that may be needed to cover any obligations
that the Operating Margins cannot service. Included in this measurement is the servicing of the $ 9B in Bonds authorized in 2008.
The best way to measure these issues is to project the amount of cash flow, after servicing the financial obligations, and determine what is the peak
negative cash flow, and when does the cumulative cash flow reach breakeven. This avoids issues of P & L financial accounting requirements that
confuse “ profits or losses” with cash surplus or deficiencies. It also determines both the peak cash deficiency and when it will be repaid.
Table 2 is a simple example on how Operating Margins are impacted by the servicing of debt and equity investments and capital equipment
replacement programs. It also shows how these results lead to annual cash flows and to cumulative cash flows over a number of years. Using this
methodology, the model I have calculates the annual cash flows, based on various assumptions, such as the amount of different types of debt or
equity investments, and their committed rates of return ( interest rates), and Operating Results.
Table 2 - How Operating Results Become Cash Flows Over Time
Years
Operating
Margins
( positive or
negative)
Less
Debt and
Equity
Repayments
Less
Capital
Equipment
Replacement
Yields Annual Cash
Flow
( positive or
negative)
And
Produces, Over Time, Cumulative
Cash Flow
( positive and/ or negative)
On the next two pages we will examine three cases, each with a different mix, and amount, of financing sources, starting with data in the HSR
Authority’s 2009 Business Plan. This first case is the “ Mostly Grants” case, then I modified the mix to create the “ More Debt Mix” case, and
finally the “ Mostly Private” case. These three cases are shown on the next page, in Table 3. I assumed a set of interest rates for each source of
funds. If the HSR Authority is not responsible, I set it to “ None”.
We will also examine two alternative forms of equity financing. First, equity which is serviced and retired over a period years, with a “ fixed
annual return” which includes an interest payment, using a Sinking Fund ( effectively, it is like an unsecured debt). Second, equity which has no
annual repayment and, therefore, the return is “ at risk”. Here, the recovery of the investment, and any return, is at the end of a number of years.
The Business Plan discusses a 16% after tax ROI for equity investors, so I used 21%, pre- tax, for the “ fixed return” cases and 0% for the “ at risk”
cases. The model calculates the “ at risk” ROI, based on the cash available at the end of the number of years.
Appendix B Page 4 of 18
THE MIXES OF FINANCING
Table 3 - Sources of Funds for the Three Cases The Three Cases My Assumed Interest Rates
Source Description
Mostly
Grants
$, B
More Debt
Mix
$, B
Mostly
Private
$, B
HSR
Authority
Taxpayers
of
California
Prop 1A State Bonds 9.10 9.10 9.10 None 5.9%
Federal Grants - No repayment 18.00 5.00 4.50 None * 0.0%
Federal Guaranteed Loans/ Bonds 0.00 10.00 0.00 5.0% 5.0%
Local Investment, returned over period, at given % fixed return 4.50 4.50 0.00 None 7.5%
Private Debt, returned over period, at given % fixed return 7.70 9.80 20.30 6.0% 6.0%
Private Equity, Sinking Fund for period, at given % Fixed Return, or At Risk 3.30 4.20 8.70 21.0%/ 0% 21.0%/ 0%
Total 42.60 42.60 42.60
* While not considered here, California’s taxpayers are responsible for about 12% of this debt through their Federal taxes.
The following chart, Table 4A, summarizes the cash flow impacts of the three different cases of financing, at 100% of the 2009 Business Plan and
equity financing at a Fixed Return. Then it summarizes the same cash flow impacts if Boardings are 25% less than in the Plan, resulting in 75% of
the Plan’s Revenue and Operating Costs. Note that in Case 3, the drop of $ 10B in Margin over the years requires an additional subsidy of $ 10B to
service the Debt and the Fixed Return. The Fixed Return is, in effect, a guarantee of ridership and revenue, at the Operating Margin level.
Differences from lower inflation rates or longer periods of repayment are much less than the differences due to the financing mix, the interest
rates, and the Revenues and Costs Plan attainment. The model currently deals with the 2020 to 2035 period, with operational forecasts from the
2009 Business Plan. I also used the Plan’s extrapolation of Operating Margins for the 2036 to 2045 period to allow ROI calculations out to 2045.
Table 4A – Cash Flow Results with the Private Equity investment having a Fixed Return
From The View of the: HSR Authority Taxpayers of California
Revenues
and
Costs, %
of Plan
First Year
of Positive
Cash Flow
Peak
Cumulative
Negative
Cash Flow
First Year
Cumulative
Positive
Cash Flow
First Year
of Positive
Cash Flow
Peak
Cumulative
Negative
Cash Flow
First Year
Cumulative
Positive
Cash Flow
Case: $, B $, B
1. Mostly Grants 100% 2022 ( 1.25) 2024 2024 ( 4.19) 2033
( In Business Plan) 75% 2023 ( 1.71) 2026 > 2035 >( 8.68) Never
2. More Debt Mix 100% 2024 ( 4.03) 2032 > 2035 ( 14.05) Never
( Grants and Debt) 75% > 2035 ( 8.00) Never > 2035 >( 24.56) Never
3. Mostly Private 100% 2035 >( 14.45) > 2035 > 2035 >( 24.92) Never
( Debt and Equity) 75% > 2035 >( 24.97) Never > 2035 >( 35.43) Never
Appendix B Page 5 of 18
THE MIXES OF FINANCING ( Continued)
The following chart, Table 4B, summarizes the cash flow impacts of the three different cases of financing, at 100%, and 75%, of the Business Plan
and equity financing with an At Risk Return. The At Risk investors are assumed to get all the cash in the HSR System, at a specific date in the
future, ranging from 2030 to 2045. Note the dramatic drop in Peak Cumulative Negative Cash Flows in Table 4B, compared to Table 4A.
Table 4B – Cash Flow Results with the Private Equity investment having an At Risk Return
From The View of the: HSR Authority Taxpayers of California
Revenues
and
Costs, %
of Plan
First Year
of Positive
Cash Flow
Peak
Cumulative
Negative
Cash Flow
First Year
Cumulative
Positive
Cash Flow
First Year
of Positive
Cash Flow
Peak
Cumulative
Negative
Cash Flow
First Year
Cumulative
Positive
Cash Flow
Case: $, B $, B
1. Mostly Grants 100% 2021 ( 0.19) 2021 2023 ( 2.04) 2025
( In Business Plan) 75% 2021 ( 0.28) 2022 2023 ( 2.73) 2030
2. More Debt Mix 100% 2022 ( 1.47) 2024 2025 ( 4.69) 2035
( Grants and Debt) 75% 2023 ( 2.03) 2027 > 2035 >( 10.40) Never
3. Mostly Private 100% 2022 ( 1.69) 2025 2023 ( 3.65) 2030
( Debt and Equity) 75% 2023 ( 2.37) 2028 > 2035 ( 6.11) Never
Lastly, it is important to understand the investor’s Internal Rate of Return on the Equity Investment ( ROI), for the Fixed Return option, and the At
Risk option ( which is a one time “ at risk” payout for different ends of the investment period). This is shown in Table 5.
Table 5 – What is the Private Equity Investor Really Achieving as a Return?
Revenues &
Costs, % of
Plan
2030
Fixed
Return
2030
At Risk
Return
2035
Fixed
Return
2035
At Risk
Return
2040
Fixed
Return
2040
At Risk
Return
2045
Fixed
Return
2045
At Risk
Return
Case:
1. Mostly Grants 100% 6.8% 9.1% 8.7% 10.0% 9.5% 9.7% 9.9% 9.3%
( In Business Plan) 75% 6.8% 7.1% 8.7% 7.9% 9.5% 7.8% 9.9% 7.9%
2. More Debt Mix 100% 6.8% 4.4% 8.7% 6.2% 9.5% 6.9% 9.9% 7.2%
( Grants and Debt) 75% 6.8% - 1.6% 8.7% 1.7% 9.5% 3.6% 9.9% 4.7%
3. Mostly Private 100% 6.8% - 0.5% 8.7% 2.4% 9.5% 3.8% 9.9% 4.7%
( Debt and Equity) 75% 6.8% - 8.1% 8.7% - 3.0% 9.5% .1% 9.9% 1.9%
Note that the investor never gets to a 21% return, because the money is invested when construction begins in 2012 and no returns occur until
2020, when operations begin, driving down the ROI. Also note that in the At Risk Option, the larger amounts of debt in the Mix and Private cases
( as opposed to the “ free money” of the Grant case) reduces the amount of cash available at the end of each payout period, driving down ROI.
Appendix B Page 6 of 18
CONCLUSIONS FROM THE THREE CASES
This chart, Table 6, summarizes the different cases and results we have just analyzed. The First Year of Positive Cash Flow, the Peak Cumulative
Negative Cash Flow, and the First Year of Cumulative Positive Cash Flow are shown for the HSR Authority and the State of California. For the
Equity Investor, the ROI is shown. Moving from the “ Grants” case to the “ Private” case, the results move from “ Good” to “ Bad”.
Table 6 – Economic Impact on the Three Stakeholders, for different Funding Cases, Operating Results and Type of Equity Investment
HSR Authority State of
and
California
Its Taxpayers
Equity
At
Investor
2045
Cases and Descriptions Revenues
and
Costs, %
of Plan
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Case:
1. Mostly Grants
( In Business Plan)
100% 2022
($ 1B)
2024
2021
($. 2B)
2021
2024
($ 4B)
2033
2023
($ 2B)
2025
10% 9%
With a heavy mix of Grants
( 43% of total financing)
75% 2023
($ 2B)
2026
2021
($. 3B)
2022
> 2035
>($ 9B)
Never
2023
($ 3B)
2030
10% 8%
2. More Debt Mix
( Grants and Debt)
Less Grants, with a
100% 2024
($ 4B)
2032
2022
($ 1B)
2024
> 2035
($ 14B)
Never
2025
($ 5B)
2035
10% 7%
heavy mix of Federal Loans
and Bonds, plus Private
Investments ( 57%)
75% > 2035
($ 8B)
Never
2023
($ 2B)
2027
> 2035
>($ 25B)
Never
> 2035
>($ 10B)
Never
10% 5%
3. Mostly Private
( Debt and Equity)
Mostly Private
100% 2035
($ 15B)
> 2035
2022
($ 2B)
2025
> 2035
($ 25B)
Never
2023
($ 4B)
2030
10% 5%
Investments ( 68%), with
just the State Bonds of
$ 9.1B, plus $ 4.5B in Grants
75% > 2035
($ 25B)
Never
2023
($ 2B)
2028
> 2035
($ 35B)
Never
> 2035
>($ 6B)
Never
10% 2%
Good Good
Marginal Marginal
Bad Bad Fixed Return
Good Good Good
Marginal Marginal
Bad At Risk Return Bad
Appendix B Page 7 of 18
CONCLUSIONS FROM THE THREE CASES ( Continued)
From the First Case – with a heavy mix of Grants ( 43%)
• The Authority’s point of view – as they are not required to service the debt associated with repaying either the State bonds or the contributions
from cities and counties, the Authority will only have a two or three year negative cash flow. True for both types of Equity.
• The State and taxpayers’ point of view – at 100% of Revenues and Fixed Return equity, the cash flow does not go positive for five years but
the State will have to subsidize the program to a peak of about $ 4B, and it may never get repaid. If Revenues and Costs are at 75% of Plan the
subsidy will exceed $ 8B, and there is never a year of positive cash flow. With At Risk equity, these negative peaks are cut in half.
• The minor Equity investment makes the same returns for At Risk or Fixed Returns – about 8% to 10 %.
From the Second Case – less Grants, with a heavy mix of Federal Loans and Bonds, plus Private Investments ( 57%)
• The Authority’s point of view – at 100% of Revenues and Fixed Return equity, the cash flow does not go positive for five years and they will
need about $ 4B, and it may not be repaid until 2032. If Revenues and Costs are at 75% of Plan, the subsidy will reach $ 8B, and it may never
get repaid. This $ 4B increase is, in effect, a guarantee of ridership/ revenues to provide an “ agreed to” rate of return to the Private Equity
investor. With At Risk equity, these negative peaks are cut by 75%.
• The State and taxpayers’ point of view – at 100% of Revenues and Fixed Return equity, the cash flow never goes positive and the State and
the taxpayers will have to subsidize the program to a peak of over $ 14B. If Revenues and Costs are at 75% of Plan, the subsidy will exceed
$ 24B, and it, also, may never get repaid. Here the guarantee has grown to $ 10B. With At Risk equity, these peaks are cut by 60%.
• The small Equity investment makes the same return for Fixed Returns – about 10%, but the At Risk Returns drop to 5% to 7%.
From the Third Case – mostly Private Investments ( 68%), with just the State Bonds of $ 9.1B, plus $ 4.5B in Grants
• The Authority’s point of view – the HSR Authority will need a subsidy of between $ 15B and $ 25B, by 2035, from the State to provide a Fixed
Rate to the investors, depending on the Revenues and Costs being 100% or 75% of Plan. There is no year of positive cash flow before 2035,
and the subsidy may never be repaid. Here the guarantee remains at $ 10B. With At Risk equity, these negative peaks are cut 85%.
• The taxpayers’ point of view – the subsidy from the State and the taxpayers could be in the $ 25B to $ 35B range, by 2035, depending on the
Revenues and Costs being 100% or 75% of Plan with Fixed Rate equity, and may never be repaid. Here the guarantee is also $ 10B. With At
Risk equity, these negative peaks are cut 85%.
• The larger Equity investment makes the same return for Fixed Returns – about 10% %, but the At Risk Returns drop to 5% to 2%, due to the
large amount of debt being served. Reducing the size of the Equity investment, with a Fixed Return, dramatically cuts peak negative cash
flows for the HSR Authority and the State and taxpayers.
Appendix B Page 8 of 18
IN CLOSING
We need to answer the key questions:
Operational -
• “ If we build it ( per the Cost estimates), will they come ( per the Ridership forecasts)?” What if we are wrong about the volume of traffic,
the competitive pricing reaction of the airline industry, or the cost effectiveness of automobiles?
• What is our level of confidence in the Construction Cost estimates, the Ridership forecasts, and the Operating Margin forecasts? How can
we validate these assumptions, without betting $ 40B to $ 60B?
Financial -
• Is the assumption of a subsidy, to finance debt and a “ Fixed Return” equity investment, compliant with AB 3034 and Prop 1A?
• Without large amounts of Grants, is there ever going to be enough Operating Margin in this program to permit a private investor to make a
reasonable “ At Risk” rate of return ( ROI) on an Equity Investment to fund the construction costs?
o If not, what Terms and Conditions will be required to gain such an At Risk investment?
o As we have seen, guaranteed “ Fixed Returns”, on large equity investments, will lead to major peak negative cash flows that may
never be recovered. We may be better off to have all Private Investments as 6% Debt, and subsidize a peak negative cash flow of
about $ 6B at 100% of the Revenue and Cost Plan ($ 16B at 75% of Plan).
The Big Picture -
• Are the taxpayers ready for these possible burdens, plus an additional 70% to 80% for the follow- on phases to complete the system?
• Are the children of the taxpayers going to think we showed great wisdom and courage, and that we made the right investment choices and
decisions for the State and its citizens?
Appendix B Page 9 of 18
CALIFORNIA HIGH SPEED RAIL SYSTEM
EXAMPLE OF HSR
FINANCIAL MODEL
The following page is an example of the model's results and it represents the results summarized in Section 4.1, as Case 1A.
Please contact Mr. Warren to request a copy of the Excel model and a Word document on how to use the model. His contact
information is on page 1.
The page shows to a peak cumulative negative cash flow, in $ Billions, of ( 4.19) in cell U20, for the year 2023, and a positive number
of .35 in cell U30, for year 2033.
Appendix B Page 10 of 18
HSR Financial Cash Flows With Financing Alternatives
Appendix B Page 11 of 18
CALIFORNIA HIGH SPEED RAIL SYSTEM
AN ANALYSIS OF TICKET PRICE REDUCTIONS
ON DIFFERENT
FINANCING ALTERNATIVES
FOR THE INITIAL PHASE ONE CORRIDOR
SAN FRANCISCO TO ANAHEIM
July 5, 2010
William H. Warren
williamhwarren@ stanfordalumni. org
650- 321- 8638
Appendix B Page 12 of 18
Background
On June 9, 2010, I released my latest financial analysis of the California’s High Speed Rail program. This analysis is included in a PDF document
named HSR Financial Presentation. This presentation is titled, on its first page, “ A Comparison of Different Financing Alternatives”, dated June
9, 2010.
My Recent Pricing Analysis
Subsequently, I have been working on a detailed analysis of the pricing that is in the HSR 2009 Business Plan. The purpose of this presentation is
to share my conclusions on this most interesting subject.
There is a companion eleven page document, " Analysis of the HSR’s Planned Pricing”. The first two pages summarize my conclusions and the
remainder of the document discusses my analysis. This “ Analysis” document refers to four Excel spreadsheets titled “ Average Fares”, these
contain all the details of my analysis.
As will be apparent, while a considerable amount of effort has been invested into this task, but I believe I have just scratched the surface of this
topic. The net of my conclusions is that I believe that the prices, and therefore, the revenues in the Business Plan are overstated by at least 25%,
for the same volume of passengers and the same market share penetration. Given my lack of visibility into the HSR's details behind their
Business Plan, I may be totally incorrect, but I doubt it.
Therefore, my recommendation is that an independent organization be brought in to validate my work, or to validate the numbers in the HSR
Plan.
After completing this presentation, please look over the “ Analysis” document. As I mentioned, you can get an overview on the first 2 pages.
Please also look at the last “ Average Fares” spreadsheet. This sheet is my updated version of Table C from the Business Plan, which shows my
changes to their pricing and revenues by market segment.
Appendix B Page 13 of 18
Implications on Financing Alternatives
The follow comparison will be helpful in putting my conclusions in perspective.
Please look at the following one page summary chart " Pricing Summary", which focuses on the implications for the State of California and its
taxpayers. It is identifies as “ Table 6 – State”. You can refer to the other three attachments, Table 6, Table 6A, and Table 6B for additional
backup information, as needed. Note that this chart focuses on the impacts on the State of California and its taxpayers, not on the High Speed Rail
Authority.
1. Ridership at 75% - As is well known, the ridership numbers have been challenged by many organizations, and when I did my work on the
financial and funding alternatives several months ago I did a " Case" that looked at ridership numbers and operating costs being at 75% of the
planned numbers, but ticket prices remaining at 100% of planned numbers. The results of these 75% ridership numbers Cases are shown on the
rows of " Table 6", in my Financial Presentation of June 9, 2010
The results for these cases are shown on the “ Pricing Summary” chart. If you look at the Table 6 columns, and just focus on my Case 1, " Mostly
Grants", which is in the 2009 Business Plan, I showed that for the State of California, if a fixed return is guaranteed to the private investor, a
subsidy of over $ 9B will be needed and it will never be repaid, if only 75% of the plan is attained. ( Just above these cells it shows that if ridership
was a 100% of Plan, the $ 9B drops to $ 4B and is repaid by 2033.) If the private investor is " at risk" with 75% ridership, the subsidy drops to $ 3B,
and is repaid by 2030. Naturally under the Case 3, Mostly Private", the subsidies are $ 35B and $ 6B, and they are never repaid.
2. Ticket Prices at 75% - Now consider the effect of a pricing reduction, not a ridership reduction. The impact on the State of California is
actually must worse. This stands to reason, because if ridership stays at 100%, while prices drop by 25%, operating costs have to stay at 100%,
and therefore the negative cash flows are worse. Please look at the columns " Table 6A" which deals with a 25% drop in price per ticket, but
leaves ridership and operating costs at 100%.
Under the first case of " Mostly Grants" the subsidy the State will have to fund is $ 16B or $ 5B, for the fixed or at risk alternatives, compared to the
$ 9B to $ 3B in Table 6 ( which, as I said above, dealt with a 25% reduction in ridership and operating cost, in effect holding the ticket prices at
100%). And in the Mostly Private case, the subsidy grows to $ 43B or $ 13B, as opposed to the $ 35B or $ 6B in Table 6.
3. Ridership and Ticket Prices at 75% - To complete the circle - what happens if the ridership and operating costs drop by 25%, but the per ticket
price also drops by 25%? The answer is shown in the columns " Table 6B". Here the Mostly Grants case shows the subsidy grows to $ 22B or
$ 11B, ( compared to the $ 9B or $ 3B in Table 6) and the Mostly Private case grows to $ 49B or $ 20B ( compared to the $ 35B or $ 6B).
Appendix B Page 14 of 18
In Summary
I believe the important point here is that while the State has spent a great deal of effort trying to understand the ridership question, not enough
time has been spent looking at the pricing question.
This is why I recommended, on the second page of my “ Analysis” document, that an independent organization be charged with either validating
my pricing work, or the work that is in the 2009 Business Plan. The economic impact, of a drop in the per ticket price, is very large, and may have
more consequences than any changes in the ridership model and the associated operating costs.
Since this Pricing Analysis and my earlier Financing Alternatives document lead me to believe that substantial subsidies will be required to
support the HSR program, and AB 3034, and Proposition 1A, specifically said no subsidy was to be provided to this program, I believe it is
appropriate that the State urgently investigate this situation.
Appendix B Page 15 of 18
PRICING SUMMARY
CONCLUSIONS FROM THE THREE CASES AT 75% OF PLAN AND/ OR TICKET PRICE CHANGES
This chart, Table 6 State - compares the 100% Plan Cases and Cases at 75% of Ridership and Operating Costs ( Table 6), and Price Per Ticket
down 25% ( Table 6A), and a combination of both 75% of Ridership and Operating Costs, and Price Per Ticket down 25% ( Table 6B).
Table 6 State – Economic Impact on the State of California, for different Funding Cases, Operating Results and Type of Equity
Investment
Table 6 75% of
Plan
Table 6A
75% of
Ticket Price
Table 6B
Plan and
75% of
Ticket Price
Cases and Descriptions Revenues
and
Costs, %
of Plan
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Case:
1. Mostly Grants
( In Business Plan)
100% 2024
($ 4B)
2033
2023
($ 2B)
2025
2024
($ 4B)
2033
2023
($ 2B)
2025
2024
($ 4B)
2033
2023
($ 2B)
2025
With a heavy mix of Grants
( 43% of total financing)
Change to
Plan and/ or
Price
> 2035
>($ 9B)
Never
2023
($ 3B)
2030
> 2035
>($ 16B)
Never
2027
($ 5B)
> 2035
Never
>($ 22B)
Never
Never
($ 11B)
Never
2. More Debt Mix
( Grants and Debt)
Less Grants, with a
100% > 2035
($ 14B)
Never
2025
($ 5B)
2035
> 2035
($ 14B)
Never
2025
($ 5B)
2035
> 2035
($ 14B)
Never
2025
($ 5B)
2035
heavy mix of Federal Loans
and Bonds, plus Private
Investments ( 57%)
Change to
Plan and/ or
Price
> 2035
>($ 25B)
Never
> 2035
>($ 10B)
Never
Never
>($ 32B)
Never
Never
>($ 17B)
Never
Never
>($ 38B)
Never
Never
>($ 24B)
Never
3. Mostly Private
( Debt and Equity)
Mostly Private
100% > 2035
($ 25B)
Never
2023
($ 4B)
2030
> 2035
($ 25B)
Never
2023
($ 4B)
2030
> 2035
($ 25B)
Never
2023
($ 4B)
2030
Investments ( 68%), with
just the State Bonds of
$ 9.1B, plus $ 4.5B in Grants
Change to
Plan and/ or
Price
> 2035
($ 35B)
Never
> 2035
>($ 6B)
Never
> 2035
($ 43B)
Never
> 2035
>($ 13B)
Never
Never
($ 49B)
Never
Never
>($ 20B)
Never
Appendix B Page 16 of 18
CONCLUSIONS FROM THE THREE CASES
This chart, Table 6, summarizes the different cases and results we have just analyzed. The First Year of Positive Cash Flow, the Peak Cumulative
Negative Cash Flow, and the First Year of Cumulative Positive Cash Flow are shown for the HSR Authority and the State of California. For the
Equity Investor, the ROI is shown. Moving from the “ Grants” case to the “ Private” case, the results move from “ Good” to “ Bad”.
Table 6 – Economic Impact on the Three Stakeholders, for different Funding Cases, Operating Results and Type of Equity Investment
HSR Authority State of
and
California
Its Taxpayers
Equity
At
Investor
2045
Cases and Descriptions Revenues
and
Costs, %
of Plan
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Case:
1. Mostly Grants
( In Business Plan)
100% 2022
($ 1B)
2024
2021
($. 2B)
2021
2024
($ 4B)
2033
2023
($ 2B)
2025
10% 9%
With a heavy mix of Grants
( 43% of total financing)
75% 2023
($ 2B)
2026
2021
($. 3B)
2022
> 2035
>($ 9B)
Never
2023
($ 3B)
2030
10% 8%
2. More Debt Mix
( Grants and Debt)
Less Grants, with a
100% 2024
($ 4B)
2032
2022
($ 1B)
2024
> 2035
($ 14B)
Never
2025
($ 5B)
2035
10% 7%
heavy mix of Federal Loans
and Bonds, plus Private
Investments ( 57%)
75% > 2035
($ 8B)
Never
2023
($ 2B)
2027
> 2035
>($ 25B)
Never
> 2035
>($ 10B)
Never
10% 5%
3. Mostly Private
( Debt and Equity)
Mostly Private
100% 2035
($ 15B)
> 2035
2022
($ 2B)
2025
> 2035
($ 25B)
Never
2023
($ 4B)
2030
10% 5%
Investments ( 68%), with
just the State Bonds of
$ 9.1B, plus $ 4.5B in Grants
75% > 2035
($ 25B)
Never
2023
($ 2B)
2028
> 2035
($ 35B)
Never
> 2035
>($ 6B)
Never
10% 2%
Good Good
Marginal Marginal
Bad Bad Fixed Return
Good Good Good
Marginal Marginal
Bad At Risk Return Bad
Appendix B Page 17 of 18
CONCLUSIONS FROM THE THREE CASES WITH JUST TICKET PRICE CHANGE
This chart, Table 6A, compares the 100% Plan Cases and Cases with just Price Per Ticket down 25%. Ridership and Operating Costs are at 100%
of Plan.
Moving from the “ Grants” case to the “ Private” case, the results move from “ Good” to “ Bad”.
Table 6 – Economic Impact on the Three Stakeholders, for different Funding Cases, Operating Results and Type of Equity Investment
HSR Authority State of
and
California
Its Taxpayers
Equity
At
Investor
2045
Cases and Descriptions Revenues
and
Costs, %
of Plan
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Case:
1. Mostly Grants
( In Business Plan)
100% 2022
($ 1B)
2024
2021
($. 2B)
2021
2024
($ 4B)
2033
2023
($ 2B)
2025
10% 9%
With a heavy mix of Grants
( 43% of total financing)
Price per
ticket at
75%
2023
($ 3B)
2031
2022
($. 7B)
2023
> 2035
>($ 16B)
Never
2027
($ 5B)
> 2035
10% 6%
2. More Debt Mix
( Grants and Debt)
Less Grants, with a
100% 2024
($ 4B)
2032
2022
($ 1B)
2024
> 2035
($ 14B)
Never
2025
($ 5B)
2035
10% 7%
heavy mix of Federal Loans
and Bonds, plus Private
Investments ( 57%)
Price per
ticket at
75%
Never
($ 15B)
Never
2025
($ 3B)
> 2035
Never
>($ 32B)
Never
Never
>($ 17B)
Never
10% 0.5%
3. Mostly Private
( Debt and Equity)
Mostly Private
100% 2035
($ 15B)
> 2035
2022
($ 2B)
2025
> 2035
($ 25B)
Never
2023
($ 4B)
2030
10% 5%
Investments ( 68%), with
just the State Bonds of
$ 9.1B, plus $ 4.5B in Grants
Price per
ticket at
75%
> 2035
($ 32B)
Never
2026
($ 4B)
2034
> 2035
($ 43B)
Never
> 2035
>($ 13B)
Never
10% - 4%
Good Good
Marginal Marginal
Bad Bad Fixed Return
Good Good Good
Marginal Marginal
Bad At Risk Return Bad
Appendix B Page 18 of 18
CONCLUSIONS FROM THE THREE CASES AT 75% OF PLAN AND TICKET PRICE CHANGE
This chart, Table 6B, compares the 100% Plan Cases and Cases at 75% of Ridership and Operating Costs, and Price Per Ticket down 25%.
Moving from the “ Grants” case to the “ Private” case, the results move from “ Good” to “ Bad”.
Table 6 – Economic Impact on the Three Stakeholders, for different Funding Cases, Operating Results and Type of Equity Investment
HSR Authority State of
and
California
Its Taxpayers
Equity
At
Investor
2045
Cases and Descriptions Revenues
and
Costs, %
of Plan
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Fixed
Return
At Risk
Return
Case:
1. Mostly Grants
( In Business Plan)
100% 2022
($ 1B)
2024
2021
($. 2B)
2021
2024
($ 4B)
2033
2023
($ 2B)
2025
10% 9%
With a heavy mix of Grants
( 43% of total financing)
75% and
75% Ticket
Price
> 2035
($ 5B)
Never
2022
($ 1B)
2024
Never
>($ 22B)
Never
Never
($ 11B)
Never
10% 4%
2. More Debt Mix
( Grants and Debt)
Less Grants, with a
100% 2024
($ 4B)
2032
2022
($ 1B)
2024
> 2035
($ 14B)
Never
2025
($ 5B)
2035
10% 7%
heavy mix of Federal Loans
and Bonds, plus Private
Investments ( 57%)
75% and
75% Ticket
Price
Never
($ 21B)
Never
Never
($ 7B)
Never
Never
>($ 38B)
Never
Never
>($ 24B)
Never
10% >- 5%
3. Mostly Private
( Debt and Equity)
Mostly Private
100% 2035
($ 15B)
> 2035
2022
($ 2B)
2025
> 2035
($ 25B)
Never
2023
($ 4B)
2030
10% 5%
Investments ( 68%), with
just the State Bonds of
$ 9.1B, plus $ 4.5B in Grants
75% and
75% Ticket
Price
Never
($ 39B)
Never
Never
($ 9B)
Never
Never
($ 49B)
Never
Never
>($ 20B)
Never
10% >- 5%
Good Good
Marginal Marginal
Bad Bad Fixed Return
Good Good Good
Marginal Marginal Marginal
Bad At Risk Return Bad