America's vast financial industry is not a charitable institution.
It needs to be made clear to me why any private investor would invest in a money losing proposition like high-speed rail. Don't these investors all do their homework, their due diligence? What am I missing here when the HSR bureaucracy, the advocates, and the Republicans call for private partnership?
Is there an assumed obligation on the part of the government, as partner, to secure and guarantee profitable returns on private investment? Since private investments are loans, is there a foreclosure protection clause that protects private investors from losses if the project -- in this case, high-speed rail -- becomes a huge and endless money drain? And wouldn't these assurances come on the backs of taxpayers? How stupid is that?
In California's Proposition 1A, there is an unambiguous requirement for there to be no state or federal operating subsidies for high-speed rail. Will the Rail Authority be able to find loopholes in that edict?
Don't investors invest in order to derive dividends and to have their investment grow in value? And can't we begin with the assumption that high-speed rail projects world wide are money sink holes?
We do know that only one passenger rail segment in the US actually breaks even; that is, generates enough ticket sales revenue to cover its operating costs, and that is the Washington to Boston Amtrak/Acela route. Furthermore, among the many high-speed rail systems worldwide, only two -- the Paris to Lyon and the Tokyo to Osaka segments -- do better than break even.
ALL others -- I say again, ALL others -- everywhere, are government subsidized. All of them. The rail authority would have you believe that they are all hugely profitable. Not true. Indeed, the CEO of Amtrak Joseph Boardman has stated publicly in Congressional testimony that except for that one DC to Boston corridor, all Amtrak routes are money losers. Which is to say, that in the US, all passenger rail, with one exception, is a money loser and requires annual Congressional subsidies.
I should also add that despite the best ridership performance records this past year, Amtrak is deeper in the red than ever. Go figure!
Therefore, even as Amtrak is seeking private investors for its Northeast Corridor Amtrak/Acela upgrades -- they are calling them 'high-speed' -- what will be the basis for these loans? What's the equity and what are the returns?
The Rail Authority would have us believe that the California high-speed rail system is one of those money maker exceptions. However, not according to William Grindley and his associates who have done the math. (You can download all their many papers from the CC-HSR web-site: This rail authority would also sell you the Brooklyn Bridge, if they were operating in Brooklyn.
We already know the background story. The CHSRA has been persistently untruthful about the key numbers which must appear in an investment grade business plan. No such plan exists. The numbers, like their ridership numbers and construction costs, have been fluctuating wildly over the past several years. The point is, the CHSRA has taken great pains to conceal the most critical fact of all; that they will never, ever, be profitable; that they will require permanent subsidies from either the state or federal government, and that, we know, is illegal.
Those facts of subsidy requirements are the the track record of all HSR operators in every country running high-speed rail. They are also validated by academic research by Prof. Bent Flyvbjerg and his team at Oxford University who has identified the pattern of passenger rail development projects that consistently provide low-ball construction costs and grossly exaggerated ridership forecasts.
The GOP, with Transportation Committee Chairman John Mica in the lead, have talked frequently about private investments in the high-speed rail projects. I need to understand why he thinks that would happen. And, I want to ask the House Republicans who propose such private investment as a condition for HSR development, what if none materialize? What's Plan B? They have already made their predispositions clear when they zeroed out the HSR funds from the remaining FY2011 transportation budget.
Will they make private investment a pre-condition for the inclusion of HSR federal funding in the as yet unresolved FY2012 Transportation Budget?
Don't hold your breath to find out. Also, don't hold your breath waiting for private investors to step forward to lend capital to this deteriorating HSR project.
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GOP to press Obama for private bids on $117B rail project
By Emily Cahn - 05/23/11 12:12 PM ET
Republicans on the House Transportation and Infrastructure Committee will use a Thursday hearing to press the Obama administration to rely more on private investment for a high-speed rail project in the Northeast.
Committee leaders noted the benefits high-speed rail would provide to cities in the Northeast in a memo distributed by Republican staff, and stressed that the corridor between Boston and Washington, D.C., was an ideal location for the investment.
Still, the memo also highlighted that a future project must be supported by private investors and not rely too heavily on federal funds.
“While the need and opportunity for a successful true high-speed rail project exists, the Federal government cannot carry the full financial burden of public infrastructure projects,” the memo states. “Private industry must step up and help fill the gaps in high-speed rail funding and operations.”
President Obama has made the creation of a high-speed rail line a priority of his administration, but has received backlash from Republican governors, who said they were worried their states would be hit with some of the costs for the railroad upgrades. Florida GOP Gov. Rick Scott turned aside federal funds.
The for-profit company Amtrak announced last week that it will look to private investors to help fund a high-speed rail line on the Northeast Corridor — one of the busiest rail lines in the country. But a company spokesperson said Amtrak does not know how large a percentage of the project’s funding will come from private investors and won’t know until after June 10, when proposals from interested backers are due.
“We will look to the proposals to help us generate how much private investment we think we’d be able to obtain,” Amtrak spokesman Steve Kulm said. “So we don’t have that number now.”
Transportation Committee Chairman John Mica (R-Fla.) scheduled the hearing before the Amtrak announcement, Justin Harclerode, a spokesman for the committee, said in an email.
"Mica has long supported a strong private sector lead for high-speed rail development in the [Northeast Corridor], and has been very skeptical of Amtrak’s plan and ability to effectively deliver true high-speed service there or anywhere," Harclerode said.
According to the committee, the project will cost a “staggering” $117 billion and would take 30 years to complete.
It suggests a different public-private partnership strategy for putting together the high-speed rail project. Under the plan, bids for the system would be made by private companies, with Northeast states managing infrastructure and operations.
“There is clearly a need for federal financial support for a project of this scope and magnitude, but competition will keep the costs as low as possible,” the memo states.
Railway industry leaders, the president of a major investment firm and a fellow at the libertarian Reason Foundation will testify before the full committee on the advantages of a public-private investor partnership proposal at Thursday’s hearing.
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