Here are two brief comments by William Grindley and his team, whose name often appears in this blog. He's the financial wizard who has done tons of analysis of the high-speed rail project in California and can describe, down to the dollar, why it can't be built without all the billions it will take, and our tax dollars will have to pay for it. And, if they ever do build it, our tax dollars will have to pay for at least half if not a great deal more of the operating expenses.
These two comments are the first of several. We'll bring the others on this blog when they come to hand.
What my friend and colleague did not incorporate into these brief notes is the issue of politics in HSR funding. He raises the rhetorical question: Will there be future federal HSR funds? Not if the Republicans have any say about it.
As you know, it is the House, with its Republican majority, that zeroed out HSR funds for the remaining FY2011 budget. They even "clawed-back" $400 million of unobligated funds remaining in the DOT fund pool for this year.
Now the issue is the FY2012 budget. The fighting over it has already been hot and heavy. It will be the highest priority concern beyond the resolution of the debt ceiling debate which the Democrats (and all Americans) really want resolved in order not to halt the US's world economic standing. The Republicans are seeking further budget cuts as a condition of agreeing to the raising of the debt ceiling.
After that, the entire national budget will be up for consideration, and for our purposes, so will the Transportation Budget re-authorization. And our big question is, will there be high-speed rail funding in it, and if so, for whom and for how much?
We, of course, want no funds committed to HSR at all, and certainly no funds for California. We want the project stopped before it becomes no longer unstoppable.
I should note that this seeking of HSR termination is no longer considered a curmudgeon's, NIMBY, contrarian position. It has become widespread and the increased volume of press attention reflects that.
Now, regarding the second brief note from William, the issue of subsidies, this problem will cause a major disruption in the HSR agenda, even though the rail authority is in denial, and everyone else is well aware of it.
AB3034, the authorizing legislation that created Proposition 1A, and defines the HSR project in its entirety, says the following about subsidies:
2704.08(2)(J) The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.
That's an unambiguous prohibition. No subsidies. No ifs, ands, or buts. In other words, the rail system, once operating, even on a short section or segment, cannot be subsidized by the government at the local, state or federal level. Which means the ticket sales have to cover ALL operating, maintenance and non-capital development costs.
As we have said repeatedly, there are only two real high-speed rail corridors in the world that break even or do better; the Paris to Lyon section of the TVG, and the Shinkansen route from Tokyo to Osaka. Those may be the most heavily used HSR segments in the world. We are told that the Acela (which shares rail corridors and is not true HSR) from Washington to Boston also breaks even. Perhaps.
All of which is to say, that the likelihood of this California train -- the operating costs for which will be among the highest in the world -- breaking even has even a lesser chance than winning the lottery. Problem? Just wait!
================================
ON THE LIKELIHOOD OF MORE FEDERAL CONSTRUCTION MONIES
Brief Note #1 – May 23, 2011
From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six subsequent Briefing Papers. Available at http://www.cc-hsr.org/
Finding: On May 2nd the Peer Review Group said the Authority “. . will soon need assurance of more federal funding.” and “. . private sector funding will be difficult to secure unless the public sector funding is available and reliable..” A week later the LAO’s report noted that the availability of additional funding “. . necessary to complete the project is highly uncertain.”1 And on May 11th, the Authority’s CEO said that without a Federal commitment, the project would not attract private investors”2
Background: Thirty months after Prop1A, only $3.3Billion of Federal grants is available to be matched with up to an equal amount of California’s GO bonds. Given that the project’s designers assumed at least $18Billion of ‘free’ Federal grants to ‘jump start’ the project, what is the potential for further Federal funds?3
While the DOT still has some yet un-obligated high-speed rail (HSR) grant funds from the FY2009 ARRA program, this March the President agreed to ‘zero out’ new HSR funds for the present fiscal year (FY2011). Then on May 4th, the President submitted the “Transportation Opportunities Act” requesting $37.6Billion over the next six years to build new high-performance rail.4 This is part of his $53Billion vision to connect 80% of Americans by high-performance rail.
Unfortunately for that vision, the submission is in a budget category commonly called Pay-Go. This means the Administration is required to either show where new revenues come from to provide the $37.6Billion, or where they intend to cut existing programs’ spending to fund the vision. No such documentation accompanied the $37.6Billion request.
Conclusions: Today, there is no reliable source of where over 70% of the construction costs’ funds will come from. Public transportation proponents agree there is little to no chance of gaining new Federal project monies for high-speed rail until at least the close of 2017; a year after even a re-elected Obama Administration leaves office.
With the near certainty that there will be no new Federal monies for six or more years, and a gap in Federal funds of at least five times what the project has in hand, it seems prudent to seek other funds prior to starting construction in 2012, or cut the losses to the State’s fiscal balance until a clear demonstration of both financial sources and operating sustainability.
------------------------NOTES---------------------------
1. Letter from Chair Will Kempton to CEO Roelof Van Ark; May 2nd 2011.
http://www.google.com/search q=ca+high+speed+rail+peer+review+letter+may+2+2011&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
2. CEO Roelof Van Ark; CA Assembly hearing on high-speed rail; May 11th 2011, minute 59 of YouTube recording.
3. California High Speed Rail Authority, Report to the Legislature, December 2009; page 93
4. Section 24602 (a), Network Development Program; Transportation Opportunities Act; pg. 12. This six year capital budget covers FY2012 through 2017. See: http://www.google.com/search?q=Transportation+Opportunities+Act&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-
US:official&client=firefox-a
##################
ON HIGH-SPEED RAIL’S NEED FOR OPERATING SUBSIDIES
Brief Note #2 – May 25, 2011
From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six Briefing Papers. Available at http://www.cc-hsr.org/
Finding: Section 2704. 08(J) of AB3034 says California’s high-speed rail
system cannot have an operating subsidy.
Background: All high-speed rail systems in the world require subsidies. At least five independent studies and experts agree:
A 2004 study documented Acela’s losses at $51Million; but ‘covered’ by an overall annual subsidy of nearly $1Billion for Amtrak.1
In April 2008, Amtrak’s Inspector General said; “European Passenger Train Operations operate at a financial loss and consequently require significant Public Subsidies.”2 In May of 2009 Iñaki Barrón de Angoiti, Director of High-Speed Rail at the International Union of Railways (IUR), said, “Only two routes in the world — between Tokyo and Osaka, and between Paris and Lyon — have broken even.”3
In December 2009 the US Congressional Research Service (CRS) said of high-speed rail: “Typically, governments have paid the construction costs, and in many cases have subsidized the operating costs as well.”4
In July 2010 a World Bank report cautioned that governments planning high-speed rail systems: “. . should also contemplate the near-certainty of copious and continuing budget support for the debt.”5
Conclusions: These statements are powerful indicators of high-speed rail’s need for subsidies while discrediting proponents’ claims to voters in 2008 that “THE USERS OF THE SYSTEM PAY FOR THE SYSTEM”.6 Such subsidies would violate AB3034, even if called a revenue guarantee.7
The proposed project cannot financially function without a legally forbidden operating subsidy. Even at a $43Billion construction cost, debt servicing that would create negative cash flows; while a $66Billion construction bill would require $5-$7Billion of annual debt servicing.8 No plausible scenario for the train’s operating margins suggest there will be the cash flow to service debt that substantial.
-------------------Notes---------------------
1. Amtrak Reform Council; An Action Plan for the Restructuring and Rationalization of the National Intercity Rail Passenger System; Report to Congress; February 2002; page 96
2. See: Amtrak, Office of the Inspector General: EVALUATION REPORT E-08-02 Public Funding Levels of European
Passenger Railroads: April 22, 2008
3. Spain’s High-Speed Rail Offers Guideposts For U.S.” NY Times, May 29, 2009
4. Op.cit: Peterman, Frittelli, and Mallett, W.; CRS; pg.1.
5. Paul Amos, Dick Bullock, and Jitendra Sondhi “High-Speed Rail: The Fast Track to Economic Development?”: World
Bank Report No 55856; July 2010: Summary; pg.6 - See<http://wwwwds.
DF/558560WP0Box341SR1v08121jul101final.pdf
6. The Official Voter Information Guide of the Tuesday, November 4, 2008 California General Election:
7. The Authority never responded to ta February 2010 demand to clarify the distinction between a subsidy and a revenue
guarantee and reiterated by State Senator Joe Simitian in a Senate Transportation Committee hearing of 5 May 2011.
8. See: Big Trouble For California’s $66Billion Train; at http://www.cc-hsr.org/
