Saturday, February 19, 2011

Joel Kotkins summary of what the situation is right now with HSR and why

This article is probably one of the best summaries  of why the President and his Administration are so recklessly pushing a high-speed rail infrastructure project for the United States that has no cost ceiling whatsoever, nor any plan for funding it to completion.

At least Christopher Columbus had an idea about where he was heading, even if he was wrong. 

The high-speed rail program is being promoted with no clue to how it will turn out, how it will be paid for, or how it will or won't integrate with the rest of the nation's totally inadequate and obsolete rail and transportation networks.

Joel Kotkin uses the perfect phrase for this: "policy delusion."  He quotes Robert Samuelson's article which we posted on this blog recently, picking out the expression: "a triumph of fancy over fact."  

This is what we have been saying for years.  HSR in the US, and certainly in California, has been a heavily marketed concept, but no more than a fantasy or vision.  There has NEVER been any substance to how this concept would realistically play out in geography, money or concrete.  All the promotional rhetoric was filled with vague and empty promises.  It has been a "sales job" with no product to sell, just smoke and mirrors. Numbers were being thrown around that sounded good, with no empirical basis.  That's still going on right now.

At the risk of repeating myself, this exercise in futility will cost, in California alone, well over $100 billion dollars.  Yet, no one has any idea about the funding source other than government borrowed money, both state and federal, that the taxpayers must re-pay, with interest.

Those who believe that federal dollars are "free," unlike the state bond funds, need to do more homework on how government financing works.  The debt for the US exceeds 14 trillion dollars and the interest payments constitute one third of all discretionary federal budgeting. If pursued as the Administration intends, this infrastructure mistake will contribute to the federal deficit and debt immensely. Thoughts about the return on investment (ROI) are nebulous and empty promises.

Promoters claim that HSR can be "profitable."  That's not a good word since in the private sector, there is such a thing as profit or the business wouldn't exist.  In the public sector, and most HSR is in the public sector world-wide, the governments don't seek or earn 'profits.'  So, what we're talking about here is "surplus revenue" generated by the ticket sales.  

What the CHSRA would have us believe when it promises us surplus revenues is that  it costs the government less to build and operate HSR than the revenue generated by ticket sales, and therefore they can use those 'surplus revenues' to build more segments and also cover their operating costs.  And even repay the borrowed bond funds. How can anyone possibly believe this?  That's not happening anywhere and it won't happen in California.  That's already been amply demonstrated by the several Grindley papers, also presented in this blog.

In short, HSR permanently costs all governments tax dollars to operate them.  Such subsidies may be obvious and direct, or invisible and indirect.  But, they are there.  And they certainly will be here.

Regarding the prestige reason for building HSR, keeping up with China is a stupid and implausible reason.  The Chinese have already overbuilt their HSR  system and are having second thoughts about their obsessive expansionism.  We would do well to have those second thoughts as first thoughts right now, before we commit more dollars we don't have.

Perhaps the most telling part of this article looks at California's agenda (in bold).  Living here, we know the most about it.

I can't speak about the underlying advocacy organizations in other states, but here in California the California High-Speed Rail Authority has mismanaged the project so severely that legislation is now entering the state legislature pipeline that would remove the project from the rail authority's hands.  Other laws are being written that would undo the Proposition 1A bond issue that launched HSR in California in 2008.  

None of these efforts will solve this problem; they will only treat the symptoms.  The burden of responsibility lies with the Congress.  They need to terminate this entire HSR effort. They can do it in such a way that it provide political cover and 'face-saving' for both Parties.  

Here's how.  In the sixties, when the Democratic Congress was promoting massive investments in US education, Pres. Richard Nixon proposed an alternative route.  He indicated that we did not yet know enough about how to improve the nation's schools, and he thereby created  -- at far lower cost -- an agency called The National Institute of Education.  The intent was to conduct R&D to ascertain the best ways to improve the schools and learning for those who were at risk and struggling. [Disclosure:  I was a part of that creation and one of the first senior program officers in this new agency.]  

In other words, rather than pour billions into something we don't understand and don't really know how to do, we could create a national R&D agency for transportation and transit.  This agency could create a master strategy and appropriate policies for all modalities in the movement of people and goods (not just HSR). It would enter the national debate about what we do and don't need.   Both advocates and critics for all modes of transit would have their voices heard.  

Thinking carefully and understanding before doing is not a bad approach at both the personal and national levels.




by Joel Kotkin 02/18/2011

Perhaps nothing so illustrates President Obama’s occasional disconnect with reality than his fervent advocacy of high-speed rail. Amid mounting pressure for budget cuts that affect existing programs, including those for the inner city, the president has made his $53 billion proposal to create a national high-speed rail network as among his top priorities.

Our President may be an intelligent and usually level-headed man, but this represents a serious case of  policy delusion. As Robert Samuelson pointed out in Newsweek, high-speed rail is not an appropriate fit for a country like the U.S. Except for a few areas, notably along the Northeast Corridor, the U.S. just lacks the density that would make such a system work. Samuelson calls the whole idea “a triumph of fancy over fact.”

Arguably the biggest problem with high-speed rail is its extraordinary costs, which would require massive subsidies to keep operating. Unlike the Federal Highway Program, largely financed by the gas tax, high-speed rail lacks any credible source of funding besides taxpayer dollars.

Part of the pitch for high-speed rail is nationalistic. To be a 21st century super power, we must emulate current No. 2 China. But this is a poor reason to indulge in a hugely expensive program when the U.S. already has the world’s most evolved highway, freight rail and airline system.

Also, if the U.S. were to follow the Chinese model, as some have suggested, perhaps it should impose rule from a Washington version of a centralized authoritarian government. After all, dictatorships are often quite adept at “getting things done.”  But in a democracy “getting things done” means balancing interests and efficiencies, not following orders from above.

In China high-speed rail is so costly that the trains are too expensive for the average citizen. Furthermore, construction costs are so high the Chinese Academy of Sciences has already warned that its debts may not be payable. This experience with ballooning costs and far lower fare revenues have raised taxpayer obligations in Taiwan and Korea and added to heavily to the national debt in Japan.

The prospect of mounting and uncontrollable costs has led governors to abandon high-speed projects  in Ohio, Wisconsin and most recently Florida, where a battle to save the Tampa-Orlando line has begun . In times of budget stress, the idea of building something new, and historically difficult to contain by costs, becomes a hard sell.

Oddly, the leaders of California, faced with one of the worst fiscal positions in the country, are determined to spend several billions on what Sacramento Bee columnist Dan Walters has dubbed a “train to nowhere” for 54 miles between Madera and Corcoran — two unremarkable and remote Central Valley towns. The proposal makes the former Alaska Sen. Ted Stevens’ notorious ”bridges to nowhere” project seem like frugal public policy.
California’s train to nowhere has been justified as part of wider project to construct a statewide system. But the whole idea makes little financial sense: The University of California’s Institute for Transportation describes the high-speed proposal as based on an “inconsistent model” whose ridership projections are simply not “reliable.”
Equally suspect are cost estimates, which have doubled (after adjustment for inflation) from 1999 to $42.6 billion last year and. A new study says that the project could currently cost close to $65 billion. Costs for a ticket from Los Angeles to San Francisco, originally pegged at $55 one way, had nearly doubled by 2009, and now some estimates place it at about to at least a $100 or perhaps much as $190 — considerably more than an advanced-purchase ticket on far faster Southwest Airlines.
There’s growing political opposition to the system as well, and not just among penny-pinching right-wingers. Residents and local officials in the San Francisco Peninsula, a wealthy and reliably liberal portion of Silicon Valley, largely oppose plans to route the line through their communities. This includes some prominent liberal legislators, such as San Mateo’s Assembly Jerry Hill, who has threatened to put high-speed rail back on the ballot if costs start to surpass initial estimates. Another Democrat, California Treasurer Bill Lockyer has doubts that the rail authority will be able to sell the deal to potential bond-buyers   due in part to a lack of consistent estimates in ridership or cost.

So why is Obama still so determined to push the high-speed boondoggle? Largely it’s a deadly combination of theology and money. Powerful rail construction interests, notably the German giant Siemens, are spreading cash like mustard on a bratwurst to promote the scheme. Add to that construction unions and the ever voracious investment banks who would love to pocket fees for arranging to sell the bonds and you have interests capable of influencing either party.

Then there’s what might be called the “density lobby” — big city mayors, construction firms  and the urban land owners. These magnates, who frequently extort huge public subsidies for their projects, no doubt think it grand to spend billions of public funds on something that might also increase the value of their real estate.

And finally there are the true believers, notably planners, academics, green activists and an army of rail fans. These are people who believe America should be more like Europe — denser, more concentrated in big cities and tied to the rails. “High speed rail is not really about efficient transport,” notes California transit expert and accountant Tom Rubin. “It’s all about shaping cities for a certain agenda.”

Yet despite their power, these forces face mounting obstacles. As transportation expert Ken Orski points out, the balance of power in the House now lies with suburban and rural legislators, whose constituents would not benefit much from high-speed rail. And then there are governors, increasingly Republican and conservative, very anxious not to add potentially huge obligations to their already stressed budgets.

The most decisive opposition, however, could come from those who favor transit spending but understand to the need to prioritize.  High-speed rail is far more expensive than such things as fixing current commuter rail and subways or expanding both public and private bus service. Indeed, the money that goes to urban rail often ends up being diverted from other, more cost-effective systems, notably buses.

The choice between high-speed rail and more conventional, less expensive transit has already been presaged in the fight against expanding LA’s expensive rail system by organizations representing bus riders. These activists contend that rail swallows funds that could be spent on buses
Much the same case is being made the San Francisco peninsula. The opponents of high-speed rail on the San Francisco Peninsula are outraged that the state would spend billions on a chancy potential boondoggle when the popular Caltrain commuter rail service is slated to be curtailed or even eliminated.

One can of course expect that anti-spending conservatives will be the biggest cheerleaders for high-speed rail’s decline. But transit advocates may be forced to join the chorus of opposition, in order to steer   transit spending towards more basic priorities as buses in Los Angeles, subways in New York or commuter rail in the San Francisco Bay Area.

In an era of tough budgets, and proposed cutbacks on basic services, setting sensible transportation priorities is crucial. Spending billions on a conveyance that will benefit a relative handful of people and places is not just illogical. It’s obscene.

This piece originally appeared in Forbes.
Joel Kotkin is executive editor of and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.