A Yellow Light on Alameda Corridor Deal : Rail link: It’s a laudable project but don’t overpay and get the financing in place first.

Congratulations to Mayor Richard Riordan and our elected officials for their determination to purchase the Alameda Corridor right-of-way from the Southern Pacific Railroad. The improvement of this vital rail link from the ports of Los Angeles and Long Beach to the rest of the nation will be an important catalyst to our economic revival.

But before the cities of Los Angeles and Long Beach sign on the dotted line, especially in the post-earthquake environment, our officials ought to look skeptically at the deal. In their admirable zeal to jump-start the project, these officials may have let their enthusiasm get the best of their business judgment.

After all, would you pay the down payment on a house without knowing if you could get a loan? That, unfortunately, is what the cities have done with their well-intentioned efforts to secure the Alameda Corridor without ensuring its financing first.

First, the cities are simply paying too much for the right-of-way. The highest objective appraisal for the property was less than one-half the $240-million purchase price announced. By agreeing to this extravagant price, the cities are implicitly endorsing Southern Pacific’s argument that it deserves to be compensated for its perceived “loss of competitive advantage,” a dubious proposition that could have serious consequences for other right-of-way purchases for the public good.

Moreover, by negotiating on their own, the cities neglected the advice of Public Utilities Commission President Daniel Fessler to utilize the enormous clout of the state’s eminent-domain powers. Recent legislation, designed with the Alameda Corridor in mind, gave the state Department of Transportation the right to condemn railroad property. In fact, the secretary of the state Business, Transportation and Housing Agency has also been directed to develop procedures for the fair valuation of railroad property by March, 1994. Given the high price tag, and the questionable legal arguments of the railroad, many Sacramento observers believe the cities should have sought the state’s assistance and taken their chances in court.

What is often forgotten is that every dollar spent on right-of-way is one dollar less that is available for financing the track improvements necessary to upgrade the level of service on the Alameda Corridor.

Second, the cities are purchasing the right-of-way without a financing plan in place for the project. However worthy it is, and it is clearly one of the most important infrastructure projects in our state, there is still no guarantee of federal or state backing for it. The cities could lose millions of dollars in interest income they could generate from the $240 million while they battle for federal and state money.

Because of the recession, shortfalls in federal allocations and voter rejection of the last transportation bond issue, for example, it is unlikely that additional state funds would be available for nearly a decade.

And, now, because of the pressing need for federal disaster relief and the state’s efforts to encourage federal assumption of the costs associated with illegal immigration, it will be all the more difficult to win the $700 million in federal funds the ports asked for just before the earthquake. If our congressional delegation fails to secure this funding, then the ports will be left without more than one-third of the money required to complete the desired improvements.

Texas recently axed a “bullet train” project because the financing plan fell apart. Los Angeles should take a lesson from this and not make the same mistake.

Moreover, the proposed financing plan is also dependent upon raising port user fees to pay for $600 million in new revenue bonds. Southern Pacific is the only railroad that has agreed to the new fees, even though all the railroads and shippers will benefit greatly from the tripling of shipments and a fourfold increase in speeds as a result of the corridor improvements.

Finally, it makes little sense for the public to have to bear any of the cost associated with the environmental clean-up of the railroad right-of-way. The cities may face an unpleasant surprise one day of millions of dollars in additional liability for toxic-waste removal and disposal.

No one with any concern for California’s economic future wants to jeopardize the Alameda Corridor project, and the proactive efforts of the cities of Los Angeles and Long Beach to move this critical project forward should be applauded. It is particularly noteworthy that Mayor Riordan has consulted with our congressional delegation to enlist their vital support.

During these hard times, and with the likely prospect of even leaner federal, state and local budgets in the near future, our elected officials should question whether this is the best deal for the public--or the best deal for one railroad, a company that has already received nearly $1 billion for other railroad property from state and local agencies since 1990.