Sunday, March 20, 2011

When it comes to High-Speed Rail, you know that it's show-business!

It was not my intention to comment about a television debate held yesterday (3.19.11) at San Jose State's TV Department about high-speed rail. But, upon reflection, I've changed my mind.  The TV Department faculty are in production, creating lengthy presentations about a variety of major issues, high-speed rail among them.

The moderator was Bob Rucker, an experienced broadcast member of the TV (Broadcast Journalism) Department.  The four discussants included Rod Diridon, with whom we are all familiar in California. He's a former California High-Speed Rail Authority Board member.  He still speaks as if he were in that role, although someone else now occupies his former chair.

One of Rod's memorable phrases regarding those of us on the Peninsula who objected to the intrusiveness of the rail project was, "We will overrun you."  During a CHSRA Board meeting he identified those of us who were complaining about the rail authority's intentions as "rotten apples."  You get the picture.

Sharing the pro-HSR side was Sam Liccardo, also a high-speed rail advocate. He is a San Jose City councilman who primarily addressed the impact that HSR funding would have in his community, how it would stimulate business, urban development, economic recovery and provide jobs. He actually said very little about the train itself, except to admire and declare his need for it.

While well intentioned but not well informed, Sam was pretty much constrained by his ideological beliefs, rather than the facts on the ground.  As you know, my favorite quotation from Upton Sinclair is: "It is very difficult to get a person to understand something when his salary depends on his not understanding it." That's Sam.

On "our" side, we were most ably represented by environmental attorney Gary Patton who has become a major presence on the Bay Area Peninsula, coordinating, supporting and leading an organization (CC-HSR) dedicated to influencing political forces in Sacramento to "do it right."

While I disagree with the conception of seeking to have the state government manage a project that cannot be done "right,"  I certainly applaud Gary's forthright and formidable stand -- I sensed court room experience here -- as he confronted, fact- equipped, Diridon and Sam Liccardo.   The fourth member was yours truly, the "retired old guy" from Menlo Park.  In retrospect, I regret having neglected mentioning this blog during introductions.  So much for being humble!

That takes care of scene setting and introductions.  The basic argument from Diridon was, as ever, based on his position that "they" know what they are doing and we should trust them.  "We have the most PRESTIGIOUS engineers, high-speed rail specialists, designers, etc. etc. under contract." "They know what they are doing."  He also said that "Van Ark and the engineers are not very good at communications." (As if the Board was!) "That's how engineers are," he claimed.

So, at one and the same time, Mr. Diridon both credited the awesome power of the HSR engineers, but blamed them for the only problem he believes the rail authority has, poor engineer communications.  And that, dear friends, justifies the $9 million dollar expenditure for Ogilvy public relations. Spending additional millions to overcome the communications limitations of "the most expensive rail engineers in the world." Of course, you should be asking what a government agency is doing, using tax dollars to promote, with aggressive marketing, its product, HSR.

The trust-us-we-know-what-we-are-doing claim was his basic argument and response to all criticisms and challenges.  The word 'prestigious' surfaced a number of times in his statements. The company, Cambridge Systematics, Inc., responsible for the highly flawed ridership numbers, was credited with doing all of CHSRA's number crunching, according to Diridon.  "They are the world's best and they produced everything we know," he said.  Somebody has been taken for a fool here, and with our money.

In retrospect, I should have challenged Mr. Diridon's repeated contention about the superior competence of his staff, the Director Van Ark, and the many contractors in the CHSRA's employ by asking why, if they are so prestigious and competent, the Board constantly second-guesses them, contradicts their decisions, and micro-manages the design of this enormously technical and complex undertaking.  But, that would have been quibbling.

Another interesting discussion was costs.  Gary Patton challenged Diridon numerous times about the inadequacy of their business plans.  Needless to say, the Diridon answers were circuitous and non-substantive.

As we know, the ridership issue is the crux of their inadequate business plans, which I will explain in a moment.  The CHSRA has produced several business plan iterations, but only in response to persistent pressure from Senators Lowenthal and Simitian in the State Legislature.  In each case, their insufficient and vague information provisions were castigated by a number of state agencies.  We've described this in previous blog entries.

And here was Mr. Diridon's response to this negligence in providing an adequate business plan.  "We don't have the money; we need two million dollars to do this."  I said promptly that they had already spent over $1 billion dollars on nothing but paperwork. How much more money could they need to meet the most basic requirement?

Please note that they failed to produce a business plan, claiming lack of money well before the 2008 elections during which the bond issue would be decided on.  They were legally obliged to produce an up-to-date business plan before the election.  They failed to do so.  Their excuse was lack of sufficient funding.  Here we go again. And, even though they now have an October 1 deadline for an "investment grade" business plan, they already acknowledge that they won't be able to meet it.  Why not?

Here is their excuse.  The rail authority, consistently evasive about producing this, had intended to retain Price Waterhouse Cooper for that purpose.  However, the accounting firm and the rail authority recently parted ways.  One reason given is that the contract requirements included the obligation for the financing firm to also secure the elusive private funding sources now absent.  That request was deemed excessive.  There may be other reasons, such as Price Waterhouse not wishing to be tainted by incompetence and possible corruption, the way that Arthur Anderson was tainted by Enron.  We don't know that of course.

Back to the ridership issue for the business plan.  This is explained in great detail by William Grindley and his colleagues in their financial papers.  (See: A business plan should explain all the financial details of this project.  That means highly reliable ridership forecasts. Those are currently absent.  Without ridership forecasts, there can be no revenue predictions and therefore it cannot be known whether this project will generate the often claimed revenue surpluses ($3 billion in profits annually, they say), or operating losses to be subsidized by the state government. Furthermore, without revenue surpluses, private investors cannot be found since there will be no return on investment (ROI).

In order to avoid having to tell the truth; i.e., that this project will never pay for itself or be able to operating without subsidies, a truthful "investment grade" business plan is the last thing this rail authority wants to make public.

At the same time, construction cost projections are climbing daily and will ultimate surpass $100 billion dollars.  That is not the initial $33 billion told to the voters in 2008.  As more Californians become aware of the profound shortcomings in the management of this project, and that word also gets out to congressional legislators, the winds of change will be upon us. We're watching closely.

If you feel that all this is too much detail about high-speed rail, I remind you that we are talking about spending $100 billion of your tax dollars.  A better way of saying that is throwing $100 billion into a black hole! I would argue that you can't know enough about this project in California and in the US.

I don't know when this TV program will air.  If I find out, I will relay that information.