Sunday, March 13, 2011

About High-Speed Rail: Democrats and Republicans; A plague on both their houses.

Let's get right to the point; high-speed rail is about politics on both sides of the aisle.  John Mica, a Republican, has an ideological bias favoring private business operating transit, whether urban, regional or inter-city.  

He and I agree that what has been taking place is an enormous mistake with the assumption that the government will front the endless billions necessary to build high-speed rail in the US.  But  calling for a "partnership" between government and private sectors is also fraught with danger and irreparable harm to taxpayers.

Quick overview history:  There were many railroad operators throughout the United States in the early 20th century, including the operators of the famous "20th Century Limited" trains.  They ran both freight and passenger on their tracks and shared their tracks with each other to achieve a vast rail network of tens of thousands of miles.  

However, passenger was never the revenue producer that freight was.  By the '70s, they were all happy to unload passenger rail to Congress, which created Amtrak.  And then Congress had to provide the subsidies for Amtrak.  Some say it amounts today to about $50 per seat, per ticket, averaged.  That's why the Republicans are eager to terminate this endless subsidizing for Amtrak, presumably returning it to be a private enterprise again.  That's not going to happen.

The grandiose high-speed rail projects overseas, in the UK with the Chunnel as an example, flipped back and forth between public and private several times, went nearly bankrupt, loans had to be restructured, etc.  Same problem in South Korea, also Taiwan.

The point is, regardless of Congressman Mica's private sector ideology, unless there is money to be made, there will be no private investment.  Which brings us to the California example.

The CHSRA has identified the need and promise of funding that are to come from the private sector, in the many billions.  However, since California state law prohibits government guarantees for income from those private loans, how will that be possible?  

The private sector, unlike the government, doesn't have tax dollars to give away.  Private investments are just that, revenue producing.  If HSR has to be subsidized (which it is everywhere in the world) then it can't be profitable, unless of course, the government assures interest payments from the taxpayers.

That means, the government (that's us) builds the train and turns it over to private investors who make money off the operation, which is subsidized by the government (that's us, remember?) in order for the operation to make money.  The lenders win; we lose.

We are told by the CHSRA, many times in fact, that there are 80 private investors just chomping at the bit to put their funding into this project, including several countries, among them China and Japan.  Why would they do that?  There can be no investment return, despite the Rail Authority's fantasy claims that once operational, the HSR will generate $3 billion annually in surplus revenues.  Yeah, right!

The answer is that some of these industries/nations would obtain the design/build construction and manufacturing contracts, as well, perhaps, as becoming the operators.  That is to say, China is eager to replicate China's high-speed rail -- which we admire so much -- in California.  They would actually own it, lock, stock and barrel.  But, the government; i.e., California, would have to subsidize it to make up the investment returns for China.

In addition, China makes all this happen at their low wholesale costs, but their build and delivery costs are calculated in retail numbers, the difference for which we in California would also be responsible.  That is to say, they would make money by building and operating it up front and then subsequently through subsidies -- forever -- from the state.  Good deal for them; bad deal for us. Plus it gets their foot in the US door.  Get this headline:  The US Leads the World in High-Speed Rail Built and Owned by China!

That, of course, may not happen.  China is running into it's own financial/inflationary difficulties. But, all of this is to say that Mica's hopes for major private participation in high-speed rail is misconceived and would still require massive state and national government outlays.

Finally, when Mica also seeks to develop conventional rail, especially urban and regional, "also expanding passenger rail service where it makes sense for the taxpayers"  it does make more sense.  But for very high-end, very high-cost high-speed rail development, it doesn't make any sense.

But, "Stephen Gardner, the vice president of policy and development for Amtrak"  has it right, when he points out that without stable government subsidy payments, neither Amtrak can run on it's own, and certainly high-speed rail can't.

Mica has put himself between a rock and a hard place.  He rejects exclusively government expenditures for a railroad system. He wants them to incorporate private investors and operators.  But, we already know from history that this is extremely unlikely.  

Mica wants to be seen as both a friend of high-speed rail and a loyal supporter of the Republican agenda which emphasizes private activities as opposed to public ones.  Presumably and ideologically, he would oppose public education, for example, and turn it over to private schooling corporations who would operate such schooling profitably (and therefore more effectively).  Public trains and public schools appear "socialist" to Republicans. For them, the government can't do anything right.  

As this article says, according to Mica, the Administration has credibility problems with high-speed rail.  He's right. But, so does he.
White House Program Has Credibility Problem
Posted: March 12th, 2011 09:11 PM CDT

E&E News PM

Jason Plautz, E&E reporter

The chairman of the House Transportation and Infrastructure Committee today called on the White House to reconsider the entire way it has implemented its high-speed rail program in light of the rejected funds from Florida's scuttled rail project.

There's a "credibility" problem with the Obama administration's rail-expansion plans, Rep. John Mica (R-Fla.) said, given the fact that Florida Gov. Rick Scott (R) returned $2.4 billion in rail grants just months after Republican governors in Ohio and Wisconsin sent back their funds.

"I consider myself one of the strongest supporters of bringing true high-speed rail to the United States and," he said at a hearing of the Railroads, Pipelines and Hazardous Materials Subcommittee. "But the launch has been an absolute disaster."

Mica also leveled criticism at California's planned high-speed rail project, saying that the first leg of construction in the Central Valley would have "marginal" ridership and would require heavy subsidization.

Mica suggested that the administration should have given out a greater share of the money to projects in the Northeast Corridor. A longtime critic of the Amtrak system, Mica also urged the government to allow private companies to take on rail lines with government help.

[Edit. I removed the lengthy discussion about Florida]

Mica and other committee Republicans pushed federal officials to focus more on privatizing the rail lines and involving businesses. While the Florida line would have accepted private bids to cover remaining costs and maintenance and the California line will be bringing on private companies, there has been little partnership to date. Mica pointed to the rail networks in Japan and Europe as successful instances of private partnership.

"Not that I'm unwilling to have the federal government underwrite some of the construction costs or the infrastructure ... but from an operational standpoint, I know we can attract private-sector capital if they have the opportunity to not only help develop or help finance and help construct, but also give us help to operate," Mica said.

Mica said his committee's upcoming transportation reauthorization bill would include provisions to involve the private sector.

Szabo [edit. Head of the FRA] said that he was encouraged to see states already thinking of bringing on private-sector involvement for their projects and said that his agency was working hard to implement a pilot program that would bring private companies on board for two existing Amtrak routes.

However, Stephen Gardner, the vice president of policy and development for Amtrak, warned that privatization was "not a silver bullet" and that Amtrak had in fact been created to smooth over problems from private businesses operating passenger rail lines in the 1960s.

"The main issue here is stable, dedicated funding," Gardner said, adding that all international models had robust public investments. "Without stable funding [from the federal government], you won't bring in private-sector interest."