Central Valley Gets Full $4.3B Rail Funding

SACRAMENTO-Following last week’s announcement that the California High-Speed Rail Authority was awarded $715 million from the federal government, bringing to $4.3 billion the funding secured to begin construction on the core of the system in 2012, as GlobeSt.com previously reported, federal officials have clarified where the funding will be spent. According to the officials, the entirety of the federal funding California has received so far “must be spent in one of the two Central Valley sections of the project.”

What that news means is that the $4.3-billion in infrastructure investment will be directed somewhere in the region between Merced and Bakersfield. The California High-Speed Rail Authority CEO Roelof van Ark revealed that he received a letter on Wednesday from Federal Railroad Administrator Joe Szabo, outlinings the federal agency’s requirement that all federal funds for the project must be directed to either the Merced-to-Fresno or to the Fresno-to-Bakersfield portion of the project. To read the full letter, click here.

Micro and macro infrastructure implementations usually influences commercial real estate in drastically different ways, says Los Angeles-based Saman Shams, a managing director of ICO Group of Cos. He explains to GlobeSt.com that on one hand you may have local and micro level changes that are profound. “Take for example the metro at the W hotel in Hollywood. On day one, that metro influenced the hotel, which continues to materially influence surrounding retail business and landlords with a halo effect,” he says.

On the other hand, Saman says, “larger regional implementations such as the proposed high speed railway tend to have more redistribution of development than development itself—especially under the current economic conditions.” He adds that “Connecting people regionally between areas like Merced and Bakersfield is beneficial for the overall local economies and may have some spillover effect.”

Although Saman doesn’t expect any significant development to occur, “the more interesting thought is the real estate asset classes in those areas, which stand to benefit from the impending regionalism.” He points out that the labor market—especially hit hard in the Central Valley—is seeking temporary work and permanent jobs wherever they can find them. “We can extrapolate asset classes that stand benefit at the margin,” he says.

The available funding total incorporates the Authority’s January 2010 American Recovery and Reinvestment Act federal funding award, matched dollar-for-dollar with state funds, and last week’s award of $715 million matched with an additional 30% in state funding. “The Central Valley is indeed key to creating the core of a true high-speed rail system in California, as that is where our trains will travel truly high speeds of 220 miles per hour,” van Ark says. “But no matter where we start building, the goal remains the same: a statewide high-speed rail system up and running in 2020 connecting the Bay Area with the metropolitan area of Los Angeles and Anaheim, that creates thousands of jobs, improves air quality, and provides us all with a cheaper, faster and more convenient way to travel.”

The first phase of the 800-mile project will connect the Bay Area with Los Angeles and Anaheim, traveling through Merced, Fresno and Bakersfield. California has received the largest amount of federal funding awarded to this work in any state, which signals that the project has the confidence of the Obama administration, according to a prepared statement. 

Board members are currently in discussions to consider formal criteria to guide the selection of which of the segments of the project will receive the initial capital funding. The proposed criteria reflect both the legal requirements in Proposition 1A and federal law, as well as steps to maximize the benefits to the public while minimizing risks to project completion.

 The legal requirements include meeting the federal deadline of fall 2017 for completing construction and “operational independence”—meaning quantifiable benefits such as improved travel reliability, reduced travel time, or more frequent intercity rail service, even if the overall high-speed rail system is not completed, says the release. 

Other factors proposed for consideration include: “ensuring that the first segment built forms the core of a statewide system; building the most useful high-speed train infrastructure at the lowest cost; and any other factors, including potential litigation, that could delay construction.” 

The Board is scheduled to select the project section which is first to be constructed at its December meeting. The selection of a heavy maintenance facility will not be a part of that decision, and will not be decided until after the environmental review process has been completed.