Tragic Misunderstanding By Governor May Kill High Speed Rail in California

[courtesy of California Progress Report]

By Margaret Okuzumi
Executive Director
BayRail Alliance

Governor Schwarzenegger is on the verge of destroying the most important transportation project for the state of California, and it may be because of a misunderstanding.

Almost no one I knew could understand why the Governor has taken the approach to building high-speed rail (HSR) that he has. No one, that is, until a friend of mine had an "aha" moment while listening to David Crane in the High Speed Rail Authority meeting last month. Mr. Crane is Schwarzenegger's chief advisor on HSR.

This friend of mine has a friend who is an investment banker, and another friend who is a developer. He explained the difference to me roughly as follows:

The investment banker's approach to making money is to first assemble the money, then figure out what investments to make.

The developer's approach to making money is to design a building and determine if it will make a good return on the investment, then go out and assemble the financing to pull it off.

Developers build "things"- buildings, subdivisions, theme parks and even highways and railways. They are used to having some unknowns initially about where the money is going to come from. If the project is economically sound, then they don't worry about whether they have all the money in hand from the start; they know the investors will materialize as the project begins to become "real", as the risks are reduced by that initial investment-- the land acquired, the zoning and permitting attained, the environmental risk factors analyzed. There's still a risk that a project might not pan out for any number of reasons during the process, and that the developer will take a bath, but the developers do their homework, take a calculated risk and deal with the initial uncertainty.