Archive for June, 2009

Governator Busts open the Broken Bay Bridge

On the first day of February, 2005 the Senate Transportation Committee convened for a hearing at the California State Capitol to discuss the Bay Bridge.

The Transportation Committee, then chaired by Antioch Democrat Tom Torlakson was meeting to decide whether or not they should proceed with the self-anchored-suspension (SAS) “signature span” that had been chosen in 1998, or whether they should finish the bridge as a “skyway.”

Schwarzenegger favored the latter option, citing it as being cheaper and easier to build than the self-anchored suspension tower.

In either case, the Bay Bridge is woefully over budget, at this point somewhere close to $6 billion before the bridge is finished in 2015. The original budget was pegged at $1.285 billion for the whole bridge, with the “signature span” on one end joining to a viaduct section at the other. The “skyway”, which was the preferred choice of Caltrans and the Pete Wilson administration in 1997, was only supposed to cost $1 billion.

Committee chairman Torlakson opened the hearing at 9:27 a.m. by asking the following question: “How did we get to this point and how did the costs on the Bay Bridge skyrocket so high, and what should we do now?”

Vice-chairman, Republican Tom McClintock of Thousand Oaks, was blunt. Referring to the ballooning budget on the Bay Bridge, he called it the “fiasco of the century. We need to get to the bottom of how these decisions were made, and we have an obligatory opportunity to correct them.”

There was a corrupt process that attended the Bay Bridge decision-making process when it occurred in 1997-98 and it attended it still. This hearing hinted at what that corrupt process involves, but didn’t reveal it entirely.

The first witness to testify in front of the committee was Will Kempton, the new director of Caltrans. Kempton was leading the charge to abandon the SAS for the skyway. “We looked at the SAS complexity and the risk, and we concluded that the skyway is easier to build. The skyway will result in $300-500 million in savings and the bridge would be finished in 2012,” said Kempton.

The SAS proponents, led by San Francisco bridge design winner Donald McDonald, said this isn’t so. Their bridge is completely designed and approved and ready to go. “There’s nothing new about this kind of bridge,” says McDonald. “The SAS is a buildable bridge and it can be completed on time.”

Ephraim Hirsch, an engineer on the panel of experts who made the bridge decision in May of 1998, and supports the SAS said: “The SAS should be built. It’s the most prudent and seismically sound bridge.” Hirsch also characterizes the bridge decision-making process as “an open process”, a claim disputed by many of the witnesses who were present during the 1997-98 Bay Bridge design competition.

All the McDonald team is waiting for is somebody to bid on the tower. The previous bid of $1.4 billion to build just the tower section—more than the original  budget for the entire bridge—has expired, and new bids would have to be invited. The SAS tower section is now projected to cost somewhere in the $1.9 billion range. The state audit attributes much of that cost increase to the SAS’s complex tower design.

The inside favorite to build the “skyway” was Kiewit-Pacific, which already has the contract to build the 1.2 mile “skyway” section currently under construction. “Nobody other than Kiewit is going to bid that viaduct. They already have a leg up,” said Robert H. Luffy, the CEO of American Bridge. His company has the inside track to build the SAS, perhaps in partnership with the Fluor Corporation of Orange County. It should also be noted that before he became director of Caltrans, Kempton was a vice-president with Kiewit.

In the seven hours of hearings held that day, the Bay Bridge contenders fought a heated battle over what went wrong, and how best to fix it. “It’s actually criminal the way this thing has been handled,” said SAS proponent Paul H. Mueller, a friend and supporter of McDonald..

Those words spoken by Mueller, an engineer, were probably the most accurate assessment of the whole process since the project first got underway in early 1997.

During a break in the Assembly Transportation Committee hearing, when Torlakson and McClintock were asked by this reporter if they were serious about investigating possible conflicts of interest, they both said that they would if there was evidence to support the allegation.

As Caltrans director and former Kiewit executive Kempton put it: “This is my watch. I am in charge. I am accountable.”

Those words might come back to haunt Kempton, Governor Schwarzenegger and others involved in the Transcam schemes.

The Bay Bridge has been a process rife with corruption from the beginning, and has proven a veritable gold mine for insiders. The enabling Bay Bridge legislation was a means of making a fortune in stock options for insiders, through the publicly traded company that was first in line for the Bay Bridge contract in 1997.

In order to understand how this den of corruption and profiteering came into place we have to go back to 1997, when the Bay Bridge design “competition” was convened. In doing so we discover something that Senators Torlakson and McClintock and many other legislators, law enforcement agencies, and public watchdog groups have ignored for the past ten years.

Like the Bullet Train in 1981-83, The Bay Bridge brouhaha began as a story. This one floated up in the San Francisco Chronicle on January 9, 1997.

A short front-page story on the left-hand gutter, co-authored by Eric Ingram and the Chronicle’s Capitol Bureau chief correspondent Greg Lucas, previewed the idea that a “signature span” cable-stayed bridge would be cheaper to build than the “skyway” that Governor Pete Wilson favored.

The story previewed a new Bay Bridge design. It was a 650-foot single-masted, cable-stayed bridge, built out of concrete. A cable-stayed bridge is one whose deck is fastened to a tower or other anchorage by a series of cables up to the bridge deck.

The story went on to say that Caltrans was chasing some deadlines that required it to move forward quickly. ”The issue has taken on added urgency because deadlines are approaching for awarding several multi-million [dollar] retrofitting contracts,” they reported, and said the Chronicle had managed to obtain a copy of the report, which was supposed to have been kept sealed.

A little less than two months later, on March 10, 1997, another front-page story was published in the Chronicle.

This was a two-page feature by Alan Temko, the Chronicle’s Pulitzer Prize-winning architecture critic. Temko’s story profiled a bridge “designed” by the late T.Y. Lin. Temko derided the skyway proposed by the Wilson crew as “a freeway on stilts.” He went on to state: “That’s why the Chronicle asked the renowned structural engineer T.Y. Lin to create a true alternative.”

This new bridge was also a concrete structure, a 600 foot single-mast, cable-stayed bridge that seemed a mirror image of the bridge published in the Chronicle two months beforehand. But the price was now $1.2 billion, a half-billion-dollar increase in two months, despite the fact that the bridge tower was fifty-feet shorter.

At any rate, the Chronicle’s lobbying for a new signature span that could compare with the Golden Gate Bridge was effective. By signing off on the terms of the Quentin Kopp bill, SB 60 in the spring of 1997, Wilson took the decision-making power over the bridge away from Caltrans and handed it to the MTC. This agency would then choose the design and award the contract.

In mid March of 1997, the MTC selected a chairperson for the new Bay Bridge Task Force. The person they chose was Mary King, an Alameda County Supervisor.

On March 28, 1997, the EDAP committee selection was complete, with Joseph Nicoletti chosen as the EDAP chairman. Nicoletti was an engineer with URS Greiner.

Outsiders who tried to enter designs for a new Bay Bridge weren’t greeted warmly.

“We heard that they were going to be selecting a bridge and that the process was supposedly open,” Sacramento bridge design team member Rick Feher told me. “An engineer named Brian Maroney, who was the Caltrans project manager on the Bay Bridge, told us to call the MTC. Marjorie Blackwell, the MTC spokesperson, told us that she didn’t know anything about it. This was on April 28. Several calls later, Daniel [Coman, Feher’s partner] reached Steve Heminger of the MTC, who said he’d Fax us the criteria, a document which was apparently drafted April 29.”

The Request for Proposals, or RFP’s as they’re known in engineering parlance, was for a supposedly open competition that would be convening two weeks later. It was hardly enough time necessary for other engineering and design firms who were out of the California loop to prepare proposals for the upcoming “competition.”

When I spoke to Denis Mulligan, then a spokesperson with Caltrans, he took issue with the Coman-Feher charge of an unfair process. So did MTC Bay Bridge Task Force chairwoman Mary King, and others.

It would be one thing if criticism of the decision-making process was coming only from the losers, designers like Coman-Feher, or Dr. Abolhassan Astaneh-Asl, an engineering professor at U.C. Berkeley. But much of the criticism regarding this process came from members of EDAP itself. Some said the process was a stacked deck that constituted a clear conflict of interest, because fellow EDAP members were judging their own designs.

“Nobody outside of the Caltrans loop was allowed onto the committee,” one EDAP member, a San Francisco architect named Jeffrey Heller, told me. “We said this process needs a whole lot of improvement. Some of us on the panel kept pressing for better designs and better concepts, but we were hopelessly outgunned by the insider, old boys club.”

EDAP member Steve Thompson, a Mill Valley architect, recalls the first EDAP meeting, held in May 1997. “When we first impaneled EDAP and polled the members of the group as to who had a potential conflict of interest regarding bridge designs that they had entered in the competition, at least two-thirds of the members raised their hands and said that they had a proposal in front of EDAP.”

Astaneh and Thompson told me they stumbled upon a private meeting which was indicative of how the competition was a closed shop to all but insiders. “The Caltrans Peer Review committee (a group within EDAP) was holding meetings with design team members without the rest of us on EDAP being present,” said Thompson. “These were people from the same companies as those putting forward proposals, and they were closed to any but those from the firms on the panel.”

Elihu Harris, who was then Mayor of Oakland and a Bay Bridge Task Force committee member, echoed Thompson’s comments. ”There was a definite conflict of interest. I wasn’t satisfied that there was an open process, and I felt at odds with this whole thing right from the beginning. It was a preordained conclusion we were being handed. This is a bridge to the past, not to the future,” Harris told me when I interviewed him at his office in 1998.

At that first EDAP meeting in May of 1997, the agenda alone told the tale. First the EDAP committee received a presentation on cable-stayed bridges. Then the Ventry team’s Mark Ketchum, who worked on the design previewed in the January 9, 1997 Chronicle float story, gave a presentation. Ketchum was followed by his mentor, T.Y. Lin, who was also a member of EDAP. The next witness was an engineer from Parsons-Brinckerhoff, followed by a representative from URS. At the end of the day, EDAP tossed Astaneh a bone and let him speak about his steel bridge retrofit. But as Heller told me: “It was clear that this panel was leaning towards a cable-stayed bridge.”

As on the bullet train in 1982, Calrans had been cut out of the loop. And like Bruce Young’s spot bill, AB 3547 in 1982, Quentin Kopp’s 1997 spot bill, SB 60, seems to have been the vehicle for a few sharp investors to make serious profits. The company that made these windfall profits was URS Greiner, an engineering & design company then controlled by Richard C. Blum, U.S. Senator Dianne Feinstein’s husband.

The language in SB 60 was amended to provide bridge toll surcharges for seismic retrofits. It also all but named the MTC/EDAP Bay Bridge, which was yet to be officially selected. As the bill itself states, “$80 million will be provided for a cable suspension design” on the Bay Bridge. In short, it named the two finalists in the MTC-EDAP design “competition”: the T. Y. Lin designed “cable”-stayed bridge and the Donald MacDonald designed self-anchored “suspension” bridge. It must also be remembered that URS was first in line for the no-bid Bay Bridge contract, # 59N770, if the bridge was contracted out to a private company.

Further underscoring the significance of the stock connections are the following points. (1) After the amendments were added to SB 60 in late spring of 1997, URS stock shot up from 10 to 18 1/2. (2) URS stock fluctuated according to changing legal perceptions as to whether “contracting out” was still in effect. When it was allowed, URS stock rose. When Sacramento Superior Court Judge James Ford prohibited the practice, in August 1998, URS fell. When Judge Ford exempted the Bay Bridge from his ruling, URS rose again.

During the Bay Bridge selection process, board members of URS Greiner issued themselves almost 5 million shares of stock in the form of 10K options, first in March of 1997, then again in March of 1998. As noted above, U.S. Senator Dianne Feinstein’s husband, Richard C. Blum, was then the primary shareholder in URS.

The Selling Shareholders Amendments filed with the SEC regarding the first stock issuance of URS stock were for 2,933,748 shares of penny stock issued to BK Capital Partners I, II, III and IV, four companies owned by Richard Blum and the billionaire Bass Brothers, from Fort Worth, Texas.

The URS stocks were issued March 25, 1997, three days before Joseph Nicoletti of URS was named chairman of The Bay Bridge EDAP committee. The Selling Shareholders Amendments filed with the SEC stipulated that the shares could be sold at market rate, and that those who were issued the stock were acting as their own underwriters, and were entitled to all the profits derived from their sale.

As the document states under the section titled “Risk Factors” in the subtitled section “Dependence upon Government Contracts”: “‘The Company derives a substantial portion of its revenues from local, state and Federal government agencies. The demand for the Company’s services is directly related to the level of funding of government programs that are created in response to public concern with rebuilding and expanding the nation’s infrastructure and addressing various environmental concerns. The Company believes that the success and further development of its business is dependent, in significant part, upon the continued existence and funding of such programs and the Company’s ability to participate in such programs… A substantial portion of the Company’s current and anticipated work is related to government contracts.’”

The amendment also stated that the four BK Capital companies intended to sell all the shares they had issued themselves.

The companies made a profit of close to $74 million during the Bay Bridge process. Some of Blum’s fellow URS board members exercised similar SSA’s filed with the SEC in the spring of 1998 during the final days of the MTC/EDAP selection process. Their profit taking ranged from URS CEO Martin Koffel’s $10 million, to Treasurer Kent Ainsworth’s $3.36 million, down to URS board member Joseph Master’s $547,000. The 1.1 million shares of URS stock issued to eight URS board members had a value of $25 million in less than six months.

Added to the BK Capital Partners’ $74 million profit and the $390 million increase in outstanding revenues of URS Greiner reported between 1998 and 1999, this demonstrates how a transportation infrastructure selection process can produce fantastic profits.

The Bay Bridge RFP’s stipulated that seismic safety was the number one priority for the new bridge design. It says precisely this in the RFP that came out in the spring of 1997. In the section titled “Design Criteria,” the second paragraph begins “Post-Earthquake performance of the new structure should be high.” One of the members on EDAP was the late Bruce Bolt, a U.C. Berkeley professor who specialized in seismology. Yet, I never once heard the EDAP committee fully address the seismological concerns raised by a number of critics during the hearings. Nor was any empirical evidence on post-earthquake performance ever presented to the public at the EDAP hearings I attended. “Seismic safety and proper design and engineering weren’t adequately examined,” said Elihu Harris. The attitude at EDAP, which I heard expressed numerous times, was that the engineers would work out the seismological problems later.

What’s important to understand regarding the seismic issue is the joining of one bridge typology to another. The eastern span of the existing Bay Bridge was a cantilevered truss section, which joined a viaduct section at an angle. This is where the bridge failed during the Loma Prieta quake in 1989, at a juncture called E-9. Now EDAP was in the process of doing the same thing, by picking another bridge that was really two bridges—a cable-stayed bridge joining a viaduct, which would join at an even greater angle than the original one. “That’s where the transfer point in an earthquake would be,” EDAP chairman Joseph Nicoletti admitted to me when I interviewed him at URS’ California Street office on June 26, 1998. “The tower is the thing that will take the seismic jolt.” Bridge designer Donald McDonald admitted the same thing when I interviewed him at his San Francisco office in the spring of 1999. “The transfer point is where the greatest impact would take place, that’s true, but this bridge will withstand the greatest seismic event foreseeable. We’re working that out with further design improvements,” McDonald told me.

But the design eventually chosen by EDAP was never submitted for shaker-table testing or computer modeling to show its expected seismic performance. Not until the selection was made was the modeling done, and it wasn’t shown to the public. It was shown only to the members of EDAP and the Bay Bridge Task Force on a private plane, as they cruised above the Bay Bridge, a source on EDAP told me.

During the rest of the Bay Bridge EDAP hearings, through May of 1998, I watched EDAP try to shoehorn the cable-stayed and viaduct Bay Bridge through, using the Chronicle to apply pressure whenever it was needed. As EDAP vice-chairman John Kriken admitted: “There were a lot of institutional forces driving this and the San Francisco Chronicle was very much in the forefront of this process.”

The new Bay Bridge has so far cost Californians over $5 billion, quadruple the original projected cost of the “skyway” that Alan Temko dismissed as a “freeway on stilts.” The construction has been funded out of bridge toll surcharges created by passage of the Bay Bridge bill, SB 60, whose legality is also questionable. Passed in 1997, it allows the MTC to impose bridge toll surcharges on the seven Bay Area bridges under its authority.

But Proposition 192, passed by the California electorate a few months earlier in November, 1996, specifically forbade bridge toll surcharges and mandated that seismic retrofits of bridges be paid for with state bond money. A state initiative like 192, passed by California’s voters, usually takes precedence over a statutory law passed by the legislature, like Senator Quentin Kopp’s SB 60. Strangely, the Planning and Conservation League, which sponsored 192, never bothered to challenge the legality of SB 60 in court. When I asked Jerry Meral (then president of PCL) why he never pressed the issue Meral shrugged: “I was too busy and there were other issues we’d moved on to.”

Six months after the Bay Bridge show officially concluded in June of 1998, there was some new action. On February 24 of 1999, chairwoman Mary King of the Metropolitan Transportation Commission’s Bay Bridge Task Force, the woman who set up EDAP, convened a special meeting to address the concerns of the U.S. Navy, Mayors Willie Brown of San Francisco and Jerry Brown of Oakland, and the Bay Area’s Congressional delegation. The Task Force meeting at the MTC office in downtown Oakland was held to discuss the proposed alignment route chosen for the new eastern span of the bridge. The meeting had been sought by the Bay Area’s five-member congressional delegation, including U.S. Senator Dianne Feinstein.

Signed by Senators Barbara Boxer and Dianne Feinstein, and Representatives Nancy Pelosi, Ellen Tauscher and Congressman George Miller, the letter said they “wanted to achieve community consensus” in regard to the project and directed MTC to consider the “redevelopment and land use impact issues of the local communities.” They also wanted the MTC to look at a bridge using the southern alignment that San Francisco Mayor Willie Brown then said he favored… again. On the day scheduled, not one of them bothered to show up for the meeting they had requested.

The First Transcam: The Bullet Train, 1981-83

On April Fools Day 1981, a pair of articles were published in the business section of the New York Times. At first, the stories didn’t seem at all related.

The first story gave readers an overview of the faltering Japanese economy, which was in the midst of a recession due to inflation and economic stagnation. The article posited the theory that Japanese industries would need to export hard goods if they were going to recover.

A reporter named Agis Salpukas wrote the other story. It floated the idea that a new bullet train was being considered for California. The train being considered was supposed to run between Los Angeles and San Diego. The Salpukas story also mentioned the fact that the California bullet train had the backing of a Japanese billionaire, who was helping to fund the project by providing the backers with a $5 million grant for preliminary marketing studies. The backer was Ryoichi Sasagawa.

Sasagawa said he was absolutely committed to seeing that a new bullet train came to California, and would fund a hundred such studies if necessary.. The start-up corporation promoting the train was called American High Speed Rail Corporation.

The bullet train was one of Jerry Brown’s pipe-dream projects during his two terms as Governor, at least that’s how it was regarded. When the brilliant but high-strung Adriana Gianturco became Jerry Brown’s chief of Caltrans in 1976, she began pushing for a bullet train.

In 1978, Gianturco commissioned a San Diego-to-Los Angeles high-speed rail corridor study and Caltrans did some preliminary work-ups. But the project was going nowhere. Gianturco was on San Jose Senator Alfred Alquist’s shit list. Alquist was then the chairman of the Senate Appropriations Committee. In other words, he ran one of the legislature’s two money committees.

Alquist loathed Adriana. During one of her bullet train presentations—in 1978, I believe—Alquist told Gianturco that if he ever heard the words “bullet train” come out of her mouth again he’d cut off all of Caltrans’ funding. Gianturco did as she was told and gave it up. But Jerry wouldn’t let go of his pipe dream, and when his former Secretary of Business, Transportation and Housing, Richard Silberman, the Jack-in-the-Box billionaire, became Brown’s Chief-of-Staff, the Japanese-funded bullet train crusade commenced again.

Besides Jerry Brown’s interest in bullet trains, there was now a national interest coming from Washington, D.C. There, the president and vice-president of AMTRAK, Alan Boyd and Larry Gilson respectively, were leading the effort to bring high-speed rail to California.

What Boyd and Gilson did was either shrewd or cynical, depending on how you define loaning yourself money from the public corporation you work for to start your own private, for-profit corporation. At the very least it seemed unethical. Boyd and Gilson loaned themselves $750,000 from AMTRAK to fund their new corporation, American High Speed Rail Corporation (AHSRC), which officially came into being on December 16, 1981. When the loan was made, Boyd and Gilson were still drawing AMTRAK salaries. Most of the money Boyd and Gilson loaned themselves was paid to the Arthur D. Little Company of Boston, Mass. for the first bullet train marketing study.

The train then began building up steam. California legislators began receiving free junkets to Japan so they could check out an actual bullet train. Among those going to Japan were the two legislative chairmen of the California state legislature’s transportation committees, Assemblyman Bruce Young, from Norwalk, and Senator John Foran, from San Francisco. Also making one of these junkets was Assemblyman Mike Roos, Willie Brown’s Assembly Majority Leader. Roos was Willie’s Field Marshall in the Assembly, and Roos’ chief bright boy on his staff was a funny-looking Greek kid from Sacramento, a Harvard grad with a big Adam’s apple and thick, dorky glasses named Phil Angelides. Angelides was first a staffer for Jerry Brown. Then he went to work for Roos, Willie’s floor leader. Angelides later served as the California State Treasurer from 1998-2006, and was also the Democratic Party’s gubernatorial candidate in 2006.

Footing the bill for all these junkets was Sasagawa and a lobbying group called Californians for Economic and Environmental Balance, CEEB, as they were commonly called. The man who brought CEEB into being was Jerry Brown’s father, Pat Brown. In the background were Nossaman, Guthner, Knox and Elliott, the main transportation-lobbying firm in Sacramento, maybe the Number One transportation- lobbying firm in the United States until recently.

From the Center for Investigative Reporting in San Francisco, I was able to obtain files that claimed Sasagawa’s money was largely derived from his interests in speedboat racing, which was then a known Yakuza, organized-crime enterprise.

Also in these files were allegations regarding Sasagawa’s career before the Japanese fascists came to power. They said that Sasagawa was a suspected World War II war criminal, and the U.S. State Department had acquired evidence that tied him to the assassination of Japanese Prime Minister Takeshi Inuki, in 1936. I saw telegrams from The State Department attesting to this, and recommending that Sasagawa be tried as a war criminal. Then they let him walk without coming to trial.

Four months after the “float” story in the New York Times Sasagawa started flying all those California legislators to Japan.

In early 1982, Larry Gilson and Alan Boyd came west to pitch California legislative unbelievers on the wonders of high-speed rail. They hosted parties in San Francisco and Los Angeles, pitching their project. In January of 1982, just weeks after forming their corporation, American High Speed Rail in Delaware, they hosted a reception for Sasagawa at The Sanwa Bank in Sacramento. They met with key legislators like Senators Foran and Alquist, and with Assemblymen Mike Roos and Lou Papan to tout their project. They also enlisted the support of Lynne Schenck, a key aide to former Secretary of California Business, Transportation and Housing Richard Silberman. Schenck then worked as assistant to Jack Harper, Silberman’s successor at BTH. AHSRC also announced that they had managed to secure the support of the Los Angeles Times and the Copley newspaper chain.

The legislative action on the first bullet train was a mirror image of what later occurred in almost every other Transcam bill process covered in my forthcoming book, Paradise Lost? .

The first thing they did was to introduce a “spot” bill by Assembly Transportation Committee chairman Bruce Young. The bill, AB 3647, was purely regulatory in nature and had nothing whatsoever to do with bullet trains. This bill floated through the respective committees and legislative houses without notice or controversy until late August of 1982, when it was hijacked and amended with legislation that all but named the Japanese companies. As soon as the bill was passed, the stocks of these companies soared.

A source that served under the legendary Jesse “Big Daddy” Unruh when he was Treasurer told me what happened on AB 3647. “I got a call on a Friday from someone who said that there were some people here in town (the AHSRC backers) and that they had a piece of legislation that we might want to take a look at because it involved state bonds.”

This source was then summoned to a Friday meeting with Mehdi and Linda Morshed. The Morsheds were then the chief transportation committee consultants in the California State Legislature. Mehdi worked in the Senate for John Foran, while Linda worked in the Assembly for Bruce Young.

The Morshed’s presented this person with a sample draft of the bill, who told me he saw that the state had a potential liability if the bonds failed. He asked the Morsheds if he could have a little bit more time to look it over more carefully. The Morsheds asked if he could make his changes by the end of day. The source said he would need the whole weekend. On Monday, August 23, 1982 my source told me he gave the Morsheds his amended version of the bill. On Wednesday, August 25, the bill was sent to the joint legislative conference committee.

The legislature had passed all of its legislation by then, and the only thing left for them to do was resolve the differences between the Assembly and Senate versions in the joint conference committee. The two legislative leaders, Senate Rules Committee chairman David Roberti and Assembly Speaker Willie Brown, appointed the six members of the joint conference committee.. The conference committee members were John Foran, Robert Beverly, and Jim Mills from the Senate, and Larry Stirling, Richie Robinson and Bruce Young from the Assembly. Suddenly, the AB 3647 bill about highway regulations was amended. The Morshed’s gutted the bill, striking out the language entirely and replacing it with a paragraph that called for “$1.25 billion in tax exempt California state revenue bonds for a Shinkansen-type bullet train” to be operated by a private corporation for profit.

Mills was the lone dissenter to the conference committee’s final report. “The whole thing, from the AMTRAK loan to American High-Speed Rail Corporation, which I opposed because I sat on the AMTRAK board at that time, to the conference committee bill of Young was totally unethical, and these guys were using their connections to that Japanese billionaire to make money for themselves,” Mills later told me.

AB 3647 was passed out of the joint conference committee by a 5-1 vote with Mills dissenting. After five minutes of floor debate, the bill was approved by the entire legislature. A month later, on September 29, 1982, Jerry Brown signed the bill into law, saying “the bullet train is controversial because the technology is not a way of life in California or in the nation.”

On October 12, 1982, AB 3647 became California law.

Shortly after the bill passed, a couple of Japanese companies associated with bullet train production—the kind of exportable hard goods sales which the New York Times said were necessary in order for the Japanese economy to recover—experienced sharp increases in their stock prices. The firms were Kawasaki Heavy Industries and Mitsubishi.

Both firms were involved in the manufacture of Japanese “Shinkansen” bullet trains. In December of 1981, Kawasaki stock was trading at $117 a share, Mitsubishi at $166 a share. In August 1982 after AB 347 had passed both houses of the California legislature, Kawasaki was trading at $159, Mitsubishi at $230.

Another company whose stock price dramatically increased during the bullet train legislative process was Irvine Sensors. This company was going to be providing the signaling equipment for the new bullet train. Irvine Sensors was an over-the-counter stock that started trading at $3 a share on October 13, 1982 the day after the legislation became law. By December it was trading at $7 a share.

The passage of AB 3647 stunned many observers, including Adriana Gianturco, who had been led to believe that a bullet train would fall under the aegis of Caltrans. In fact, Alan Boyd and Larry Gilson of American High Speed Rail had promised Gianturco when she met with them in the spring of 1982 that Caltrans would still be involved in the project. Gianturco told me this when I interviewed her in the spring of 1983. Gianturco then found that Caltrans was cut out of the process entirely. American High Speed Rail Corporation would instead build the bullet train with private engineering and design, and construction firms like the Irvine Company and the Fluor Corporation, the two biggest developers in Orange County, and both politically wired. The environmental work on the project was going to be the responsibility of a firm called Woodward-Clyde. AHSRC was supposedly on the hook if the system failed to perform as advertised, or if the tax-exempt revenue bonds failed.

The bullet train process and the low-ball legislation outraged a number of environmental groups and citizens along the route. AHSRC held a number of public and legislative meetings in an attempt to mollify them with some pork. Station stops were promised to so many small communities that the train would spend most of its time braking or accelerating; rarely hitting its 125 mile-per-hour top speed where it was most efficient. The promoters also promised clean-up legislation to the environmentalists.

At one legislative meeting, Jess Unruh was called to testify and said: “I am here to bite the bullet on this bullet train.” Unruh, the former all-powerful Assembly Speaker, confessed that he too had been promised studies showing how the bullet train would produce such fantastic ridership figures that it would shortly be in the black, with the ability to cover the tax-exempt state bonds.

On February 12, 1983, at a Senate Transportation Committee hearing I attended, one of the bullet train’s chief critics came forward to testify. Jonathan Richmond was then a visiting Fullbright scholar and London School of Economics graduate. He specialized in transportation issues and questioned the figures contained in the Arthur D. Little marketing study report, which until then had never been made public.

Richmond was then a full-time employee of the Southern California Association of Governments (SCAG), the regional government and planning agency for metropolitan Los Angeles. Before he took the stand, committee chairman John Foran read a letter that said Richmond was “appearing here on his own and does not represent SCAG.” Then, after being all but discredited by Foran, Jonathan Richmond presented the Senate Transportation Committee and the assembled press with the theretofore “secret” Arthur D. Little study, which had been funded with the AMTRAK loan to AHSRC.

Richmond tore it to shreds. The studies were flawed, said Richmond. The numbers in the Arthur Little report didn’t make sense. They wouldn’t stand up; they were make-believe. Richmond demonstrated that the methodology used to assemble the figures showing the bullet train could operate without further state funding was insupportable, until John Foran shut him up. AHSRC tried to undo the damage, but it was too late. Their credibility was shot.

Six months later, the City of Tustin released a “white paper” detailing the politics behind the passage of AB 3647, exposing the murky Japanese connections and the bill’s effect on the Japanese corporations’ stocks. American High Speed Rail Corporation, the bastard offspring of AMTRAK’s Alan Boyd and Larry Gilson, then folded its tent and the bullet train faded into memory.

Paradise Lost

Part One

Beginning in 1981 and continuing through 2008, an interconnected series of transportation and land use bills were introduced and passed in the California State Legislature. These bills benefited politically-powerful insiders with billions of dollars in profits that were achieved through ethically and legally prohibited means.

There are at least eight transportation and/or land use legislative processes that these actions include. Among them are the first bullet train bill in 1982, followed by the Bay Bridge selection process in 1997. They also include the Catellus Development-Mission Bay project in San Francisco in 1997, the Headwaters Forest acquisition in 1999, the Desert Wildlands Act of 2000, and back to the new high-speed rail project of 2001-2002.

These political processes all had many elements in common. The players who put these corrupt political practices in action were all part of the same group based in San Francisco, and operating from Washington, D.C., the State Capitol in Sacramento, and  San Francisco City Hall.

The methodology this political machine has employed to produce multi-billion-dollar profits through a corrupt political practice has been refined almost to an art form by the insiders of this group.

Usually, the process begins with a news story that floats the idea: whether it’s a train or a bridge or an airport expansion. Both the first bullet train and the Bay Bridge processes were born with front-page stories boosting the idea. On the bullet train it was a front-page story in the New York Times, published on April Fools Day, 1981.  The Bay Bridge deal began with a front-page story published in the San Francisco Chronicle on January 9, 1997.

What both stories essentially did was to “float” these ideas (a high-speed train, a new Bay Bridge) in front of the public partly as a way to gauge the political support for each project. Both “floats” had the requisite effect; both projects gained sufficient public support to proceed, and both produced huge stock profits.

Both projects were empowered by the language of the bills that produced them. On the bullet train and Bay Bridge bills, each was a so-called “spot” or “space-saver” bill. What this means is that both bills were largely empty shells when they were introduced until a deal had been made to fill the “spot” or “place.” Neither bill had to do with trains or bridges until they were amended during the course of their legislative process.

When the bills were amended it was with language that either directly named the corporation about to receive the multi-billion dollar contracts, or seemed tailor-made for that corporation to do so.

Most of these bills were written by Mehdi Morshed, the former legislative transportation consultant who is now the executive director of the California High-Speed Rail Authority. Morshed began his career as a transportation committee consultant in the legislature, as did Morshed’s wife Linda. Mehdi Morshed also wrote the new piece of legislation for high-speed trains in California (a bill sponsored by then-State Senator Jim Costa in 2002) which produced a hefty profit for insiders at URS Greiner and Lockheed-Martin in 2001-2002, and he has also participated in drafting language for other transportation and land use projects, some of them directly related to the Bay Bridge or high-speed rail.

It is supposedly illegal to write legislation targeting a specific corporation, but this has never been enforced on these projects.

What we seem to have here is almost a form of political gangsterism practiced by a very effective and methodical political machine. The main players from this machine are U. S. Senator Dianne Feinstein, her husband, multi-millionaire investment banker Richard C. Blum, and former San Francisco Mayor Willie L. Brown Jr.

The FeinBlum/Brown Machine was also aided by the lobbying firm of Nossaman, Guthner, Knox and Elliott, and Nossman’s main transportation lobbyist, former California State Senator John Foran. This group led by Foran handled the lobbying on five of these bills. Another key player was Morshed, the former legislative staffer who is now the executive director of the California High-Speed Rail Authority.

All of the aforementioned politically corrupt processes can be illustrated with charts analogous to the two attached charts that document the Bay Bridge and the second bullet train bill. The figures derived for these charts are all a matter of public record. The documents from which they were acquired include listings of political campaign contributions, political lobbying reports, legislative bill histories, and stock issuances and stock sales that were supplied by the principals to the Securities Exchange Commission.

The prime beneficiary of the Transcam and Landscam acts is Senator Feinstein’s husband, investment banker Richard C. Blum.

On the Bay Bridge selection process, URS Greiner, a company that was then owned by Blum, was first in line for the contract. URS turned a billion dollar profit from a near threefold increase in stock prices of URS shares during the Bay Bridge selection process.

Insiders at URS, including Blum, also made significant profits from the stock options they issued themselves during this process. Nearly 3 million shares of URS penny stock was issued to four companies held by Blum that became worth almost $74 million. Another 1.1 million shares of URS penny stock were issued to Blum’s fellow board members at URS. These stocks grew in value to almost $25 million during the Bay Bridge selection process of 1997-98.

The Catellus Development/Mission Bay project, which proceeded through the legislature at the same time the Bay Bridge deal got underway, also benefitted the corporation who sponsored the bill. This bill allowed development to proceed along San Francisco’s waterfront through a land swap between the State of California and the City of San Francisco. The Mission Bay project proved to be a billion dollar windfall for Catellus, and much of the $4 billion project has now been finished.

Not long after the Mission Bay project was passed, the Headwaters Forest deal went through. This effort, negotiated by Senator Dianne Feinstein at the behest of the Clinton Administration, proved another windfall bonanza for the sponsoring corporation, in this case timber company Maxxam Corporation. The day the deal went through, on March 1, 1999, Maxxam’s stock price per share increased by $9.89, and insiders at Maxxam made a fortune by cashing out over 1.32 million shares of stock.

A year later, in southern California, Catellus Development reaped an even richer harvest than Maxxam when it traded a huge tract of mostly worthless desert property for valuable state lands within urban centers. This massive land exchange bill, authored by Senator Feinstein, resulted in a net gain to Catellus of $11 to $15 billion, due mostly to the fact that the desert lands were revalued prior to the exchange; so the property values increased dramatically, some by over 300%. A forthcoming part of this series will describe exactly how this process occurred.

Copies of all these documents have been presented by the author to the following investigative agencies in charge of prosecuting political corruption: the FBI, the SEC, the IRS, the U.S. Attorney General’s office, the U.S. Attorney’s office in Sacramento, CA, California Governor Arnold Schwarzenegger, the California State Attorney General’s office, and to Jerry Brown personally, the Fair Political Practices Commission (FPPC), the California Auditor General’s office, the San Francisco County Grand Jury’s office, the Sacramento County District Attorney’s office and the Sacramento Police Department. Not one of these agencies has taken any action against anyone involved in these schemes.

A series of whistleblower claims were filed with the Internal Revenue Service and the State Auditor General’s office by this author and other citizens regarding the way these processes have been used to benefit insiders. A subsequent story published on this blog will detail how these agencies responded to whistleblower claims and calls for investigations; another blog installment details the lack of action by a number of public citizen watchdog associations, who have likewise declined to move against this powerful insider band.

In an email to the public interest law firm Judicial Watch, the author laid out the possible law and ethics violations that these eight separate acts have comprised. They include violations of the Securities Exchange Act of 1933 prohibiting insider trading, violations of conflict-of-interest prohibitions as applied to legislators and lobbyists, at both the state and federal level, possible income tax evasion or code violations,  business and political codes-of-ethics violations, and more, bringing up the possibility that these acts could be litigated under the RICO (organized crime) statutes, in that they involve many of the same political players in each case.

In a series of articles that will be published on this blog, we will examine all these political processes chronologically and see how this intricate game of multi-billion-dollar profiteering has progressed over the past three decades.

This reporter witnessed and reported these acts while they were occurring, and had his documentation vetted by legal counsel. This counsel verified the documents’ authenticity and said he believed these acts could be litigated under the fair Political Practices Act of 1974, specifically the section that prohibits lawmakers from taking part in a political process that benefits them financially.

The author stands by his figures and his sources, and none of the published work on these subjects has ever been criticized for inaccuracy. All the principal characters named herein were given ample time to respond to the allegations after being apprised by the author of what he intended to publish. None of them have offered comment.