Trump Can’t Stop California Bullet Train Paid With Bond Sale

California isn’t letting litigation or Donald Trump stand in the way of one of the most expensive and controversial projects in the U.S.

The state on Thursday sold $1.25 billion in taxable bonds to finance a $64 billion high-speed rail system, the first indebtednes issue for building since voters approved it nearly a decade ago. The offering marks a show of religion from officials that the project will proceed despite a lawsuit from a district and farmer opposed to it and roadblocks from the Trump administration, which has delayed a award that would have benefited the bullet train operating from San Francisco to the Los Angeles area.

The general-obligation debt, backed by California’s full religion and credit, isn’t dependent on the success of the project, the first publicly financed U.S. high-speed rail line. Lack of federal supporting would push more of the burden on Californians to finance the project, which Democratic Governor Jerry Brown tells will transform the traffic-choked state by increasing access to affordable housing and boosting local economies.

“California can well afford it, and it will construct our state a much better place, ” he said in February in a recorded news conference to which his press office referred in response to questions. “I know we’re going up against a very red tide here of opposition. This thing is a long-term project, and one way or another we’re going to get it.”

It’s a good time for California to borrow, with its bond ratings their highest since the turn of the century and after it turned a spate of deficits into surpluses. The state’s 10 -year tax-exempt securities yield about 2.3 percent, or 0.24 percentage point more than benchmark indebtednes, less than half the premium it paid three years ago, data compiled by Bloomberg show. Yields on the newly issued fixed-rate taxable bonds ranged from 1.25 percent for securities due in 2018 to 2.37 percent for those working due in 2022, according to the state treasurer’s office.

After years of delay, due partly to legal challenges, building is underway on 119 miles of track in the Central Valley. By 2029, if work goes as schemed, passengers will be able to travel at speeds of more than 200 miles an hour between San Francisco and Anaheim, south of Los Angeles, according to the California High-Speed Rail Authority.

Voters in 2008 approved virtually $10 billion of general obligations for the project, and of that, about$ 1 billion has been sold to finance expenses such as design and environmental reviews, according to the state treasurer’s office. So far, work has cost about$ 3 billion, with about $2.35 billion coming from the federal government.

On April 26, opponents of the project will ask a Sacramento County Superior Court to block the state from employing proceeds from the bond marketing for it. A victory for the opponents could result federal officials to demand that the state pay back money it has so far received, according to bond documents circulated to investors.

Another risk: future federal awards may not roll in. The high-speed rail authority’s most recent business scheme in May 2016 said it plans to seek additional funds from Washington, without specifying the amounts.

Already, a $647 million federal award slated for the electrification of another passenger rail line, which is also needed for the high-speed system, was suspended by Trump’s administration after California’s House Republicans asked for it to be withheld.

One of them was U.S. Representative Jeff Denham, from the Central Valley, who said he doubts the project will get additional federal dollars until there’s a full explanation of all funding sources and costs.

“If you’re going to continue to obligate state dollars that you do not have, then you’re in jeopardy of at some phase all federal departments calling for those working notes to be due, which could then set public safety dollars at risk, other transportation dollars at risk or education dollars at risk, ” told Denham, who sits on the transportation and infrastructure committee.

Under the measure approved by voters, California’s department of finance must review the funding plan for each segment of the rail before permitting the use of bond funds. It did so in March, saying that for the $7.8 billion Central Valley portion, the risks “are more limited because the bulk of funding is nearly in hand, and much work has already been completed.”

A study previously commissioned by the U.S Treasury Department under then-President Barack Obama listed the project as among 40 with major economic importance that were at risk of not coming to fruition. Under an assumption that the costs totaled $59 billion, it pegged the net financial benefits at at the least $130 billion.

“There are a lot of federal questions, ” told Howard Cure, head of municipal research in New York at Evercore Wealth Management. “When you don’t have the Republican contingent from your state pushing for it, it is potentially a big problem.”

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