Thursday, March 10, 2011

Identifying the inflated numbers to sell the high-speed train in Florida; by Wendell Cox

What Wendell Cox accurately portrays here is the interaction of two phenomena that have become as predictable as a scientific proof.  When it comes to rail development projects, there are two major distortions that are the basic justifications for that project.  Cost projections and ridership predictions.

As we have been watching, the ridership numbers offered by the CHSRA moved from 117 million annual riders in 2008, through 93 million, then down to 60+ million and now hovers at 40 something million.  And these latest number have been challenged by academics with no axe to grind.  

Just as Wendell explains for Florida, likewise in California the predictive value is based on the legitimacy of the organization hired to produce those numbers, in this case, Cambridge Systematics, Inc.  These guys are not saints.  When offered a million dollars for a contract to deliver pumped up ridership numbers, they delivered.

As Wendell does here in this article, we've mentioned Bent Flyvbjerg's work before.  He has made a research based case for predicting the inflation of ridership numbers as the basis for getting funding, public or private, for rail projects. "Here," as Reagan famously said, "we go again!"  They did it in Florida; they are doing it in California.  

Not only the inflation of ridership numbers, mind you, but the promised revenue surpluses.  The Rail Authority promised -- promised -- that not only would the CHSRA train make money, it would produce surpluses; that is, net profits after covering the cost of operations and maintenance. They often quoted the number $3 billion annually.  We don't hear about that so much anymore. 

That expansive prediction by the Rail Authority is based on pointing out that EVERY high-speed rail system in the universe makes money, or at least breaks even. As it happens, only two rail segments in the world barely break even, and all the rest, in every country, are massively subsidized.  

California's definitely will be subsidized. Fortunately, the authorizing legislation doesn't allow state subsidies.  How they'll solve that paradox remains to be seen.

We can't walk away without also mentioning the cost projections which, just as the ridership numbers have been going down, the cost numbers have been going up.  Before the 2008 elections, the voters were told it would cost, first $33 billion, and then, $43 billion.  

At around the same time, during Senate committee hearings in Sacramento, the then Executive Director, Mehdi Morshed said to some of us that the cost would be between $45 billion and $50 billion. At that moment, it became apparent that the Rail Authority didn't have a clue.  They were making these numbers up out of their heads.

Most recently, the CARRD group computed numbers provided by the CHSRA and totalled up $64 billion. It's still climbing, and my own estimate, based on Flyvbjerg and others' research, suggests a cost of well over $100 billion.  And that's money that's nowhere in sight; not in Sacramento, not in Washington. 

It's difficult to judge that if the CHSRA had come out with the truth about all these numbers would the voters have rejected Proposition 1A in the 2008 election. I strongly suspect not. They were persuaded by their own fanciful thinking and chose to believe all the gross exaggerations that accompanied this HSR vision for California. But the truth has a way of working itself into the minds of more and more people, and today, the stark reality of this vastly overpriced luxury train that will have few riders is beginning to sink in nationwide, as the press indicates.  It costs too much and isn't needed.  People are starting to wise up.

Now's a good time, to quote Nancy Reagan, to "just say no."

New, Even More Exaggerated, Florida High-Speed Rail Numbers

Wendell Cox
March 10, 2011, 5:53pm

A new ridership study suggests that the Tampa-to-Orlando high-speed rail line, which has already been rejected by Gov. Rick Scott, would have generated even more passengers than previously projected and would have been profitable nearly immediately.  

The Tampa Tribune's Ted Jackovics writes: 

High-speed trains that Gov. Rick Scott rejected would carry more passengers and operate at a greater financial surplus than projected in a 2009 federal application, data the state released Wednesday showed.

Figures averaged from findings by two independent consulting firms showed more than 3.3 million people would have ridden the Tampa-Orlando line in its first full year of operation in 2016, compared with a projection of 2.4 million in a previous study.

The latest reports the Florida Department of Transportation commissioned at a cost of $1.3 million indicate a $10.24 million surplus from high-speed rail operations in 2016, with ticket revenue of $60.8 million, $12.3 million more than predicted before.

Those ridership and revenue figures do not include the so-called "captive market" between Orlando International Airport, the Orange County Convention Center and Disney World, which would add another 4 million riders and $56.3 million in ticket revenue to 2016 operation.

But these new projections deserve an even quicker dismissal than the previous exaggerated ridership numbers on the Tampa-to-Orland train route.

Our Reason Foundation evaluation of the Tampa to Orlando high-speed rail line noted that the original ridership projections were already unreasonably high. Planners projected that the Tampa-to-Orlando line would carry two-thirds the ridership of the Washington, DC-to-New York Amtrak Acela Express high-speed rail service (which runs at about the same average speed as the proposed Florida line). It would be kind to call this projection "implausible," given that the Washington, DC-to-New York market is eight times the size of the Tampa-to-Orlando market, and it has more tourism.

This week's ridership projections exaggerate the previously exaggerated projections even more.

In a market with 80 percent less population and less tourism than Washington-to-New York, planners were projecting ridership at only 30 percent less. Now, these new projections place Tampa-Orlando ridership at least as high as in the Washington-to-New York corridor. This requires a child-like faith that Floridians are likely to take the train eight times as often as people in the Washington-to-New York corridor. Economists have developed something called the "laugh test" for numbers like these.

Comprehensive international research, led by Oxford University Professor Bent Flyvbjerg has shown that ridership projections on large passenger rail projects overstate actual ridership by an average of 65 percent. This exaggeration of ridership results in an exaggeration of revenue levels, which increases the likelihood of losses.

The notoriously inaccurate ridership projections and related under-estimation of costs that have plagued the international planning industry have imposed billions of dollars of unplanned costs on unsuspecting taxpayers. The Flyvbjerg international study found the underestimation of costs and overestimation of ridership and revenue so pervasive that they labeled it "strategic misrepresentation," which they also called "lying." They essentially attributed this costly practice to an interest on the part of project promoters to proceed with projects based upon "low-ball" costs and revenues, because if more realistic costs and revenues were projected, the projects would not be approved.

But it is not just taxpayers who are unsuspecting. Some media outlets have accepted the new projections as if they are ultimate truth. They more likely the equivalent of fairytales. One Miami Herald article went so far as to imply that the size and number of offices of the international planning firms placed their work beyond question. The article noted that one of the companies authoring the new ridership study is "a transportation and infrastructure consulting firm founded in 1952 and has 56 offices in eight countries." The other is noted as having 16 offices worldwide.

Wow.  International offices must make a study credible. Any examination of the rail projects evaluated by the Oxford-led research team would reveal the involvement of a similar array of international planning firms with bad ridership estimates. Governments and taxpayers have trusted the work of international planning firms on projects such as the Taiwan high-speed rail line, the Korea high-speed rail line and Boston's "Big Dig."

In Taiwan, ridership has been 44 percent less than projected and the government has had to take over billions in debt. In Korea, the ridership has been one-half below the projections. In Boston, the tunnel and highway project ended up costing five times more than projected (including interest), after adjustment for inflation.

The Las Vegas Monorail also provides a vivid illustration of how international planning firms can get it wrong. The promoters of the Las Vegas Monorail retained one of the world's leading planning firms, which, yes, had offices around the world and had been involved in many other prestigious major infrastructure projects. The resulting "investment grade" ridership projection indicated that 53,500 people would ride the monorail daily and that it would be profitable.

We analyzed the projections and the market, and concluded that the ridership would be lower - at between 16,900 and 25,400 daily riders. And sure enough, even before the recession, the Las Vegas Monorail was averaging only 21,000 riders per day and sustained devastating financial losses. As we also predicted, the Las Vegas Monorail defaulted on its bonds and filed for bankruptcy. Worse, the bond insurer also filed bankruptcy.

The bondholders lost virtually all of their $600 million investment. The "investment grade" ridership projection would have been more accurately been labeled as a "fairytale grade" ridership projection.

Of course, the investors had voluntarily purchased the bonds and were not compelled to invest by any government. On the other hand, thanks to Gov. Scott's rail money rejection, the taxpayers of Florida narrowly avoided being compelled to pay liabilities that could have risen well into the billions of dollars, if the predominant experience had been repeated here.

Even before the new report, the Orlando-Tampa ridership projections and claims of profitability were highly questionable. These latest numbers are simply not plausible and Gov. Scott has still done the right thing for taxpayers.