Thursday, June 30, 2011

Isn't it time to face the financial facts about High-Speed Rail?

In intensely Democratic California, there are a few conservative Republican demographics, Orange County being among them.  So, this editorial from the Orange County Register comes as no surprise. Remember the rule:  Democrats for High-Speed Rail, Republicans against it.

By now, a lot of issues have become clear; that is, whether the CHSRA cleans up its act, or is removed from the management of the project which becomes relocated elsewhere in the State Administration, isn't that important.  What's important is the bottom line.  The cost factor.  Can this state and the federal government afford to build California's $100 billion high-speed train?

What does the current situation look like? Does anyone see this Congress coming up with tens of billions of dollars to keep this project going? Does anyone see this economy suddenly recovering and surplus revenues becoming available for the largest infrastructure project ever undertaken in California?

Emeritus Professor of Economics Alain Enthoven has estimated a total final cost of the proposed rail system at $243 billion. Is that too far-fetched?  Is a price rise from less than $2 billion to more than $7 billion too far-fetched for the new Bay Bridge? How about the Boston Big Dig, that went from an estimated $2 billion to the current number of $22 billion? Too far-fetched?

And, by the way, behind each of these enterprises stands the Parsons Brinckerhoff Corporation as the prime contractor.

How can it not be obvious to everyone that the $10 billion state bond issue for the train, if sold, will cost state taxpayers over $1 billion a year for the next generation?  And if not sold, the rules of "GO" bonds is that the promised funds can be spent anyhow. Our tax dollars at work!

How can it not be obvious that this train will, like all other high-speed trains in the world, lose money and require government subsidies permanently to keep operating?

Why would any private rail operator take on this project unless government subsidies are provided to create the surplus revenues necessary for the investors in this train to make their investments in the first place?  And those, the law specifies, aren't allowed.

At this point, the State Democrats continue to cling to this project, despite all the mitigating facts, for one reason only.  And that is the promised $3 billion from the Department of Transportation in Washington.  

So, now the train advocates have to justify their train support with an explanation of why that "free" $3 billion will not cost California endless billions which it does not have and cannot obtain from the federal government or private investors.  And, blather about how it's good for our future is not an answer.

Published: June 29, 2011
Updated: 4:26 p.m.

Editorial: Bullet train's folly factor rises

California's High-Speed Rail Authority "is plunging forward despite repeated warnings that it may be tens of billions of dollars short of the money needed to build and operate the system," according to a June 23 report by investigative reporters Ronald Campbell of the Register and Lance Williams of California Watch, a news organization founded by the independent, nonpartisan Center for Investigative Reporting.

Their report detailed shortcomings of the touted train to link San Francisco with Los Angeles. It was the latest in a series of red flags signaling trouble ahead for the project, including critical reports by the state treasurer, legislative analyst, the Legislature and separate university studies. In 2008 voters approved $9.95 billion in bonds to cover a fraction of the cost. But costs and their burden to taxpayers are only part of the problem.

As the Register-California Watch report noted, estimates have escalated dramatically. In 1996 costs were projected to be a mere $15 billion. That increased to $26 billion by 2002, $45 billion by 2010 and now are projected to soar to an unimaginable $243 billion if the project follows the cost-overrun patterns of the new San Francisco Bay Bridge and Boston's Big Dig road project. We see no reason to think it won't.

Train advocates dismiss the $243 billion estimate by Stanford management professor Alain Enthoven, but their best counter-argument seems to be the words of train spokesman Jeffrey Barker, who concedes it's difficult to put a precise price tag on the project. Difficult indeed.

"All megaprojects have cost overruns," Mr. Enthoven said. "For a state project, if they figure on $43 billion, and then it turns out to be $66 [billion] or $80 billion, then it's the taxpayer of the state of California" who pays.

Perhaps the most stable aspect, reported the Register, is the voter-approved bond financing. But even that will cost taxpayers far more than the $9.95 billion they approved. The state's legislative analyst said selling all the bonds would trigger $1 billion per year in interest payments from the state's general fund, "to be recouped from either new taxes or program cuts," the Register reported.

The bond money and interest payments will be wasted if the balance of funding is not obtained. The state treasurer fears the train's "lack of a disciplined business plan that makes any sense" will discourage Wall Street from investing the private capital required. And that's if costs are held to $45 billion.

The Register-California Watch reported that the legislative analyst said federal funding may fall $15 billion short of what is needed, and that two studies show the train prospects for profitability are founded on deeply flawed ridership forecasts.

If the bullet train cannot attract enough riders to operate profitably, the ballot measure approved by voters prohibits tax subsidies. No private operator, which is what the project envisions, will continue in business at a loss, which means that if this boondoggle ever is built, whole or in part, it may end up as a museum to folly.

Next year the Legislature will be asked to approve selling construction bonds. If this train isn't derailed before then, legislators should stop it dead in its tracks at that point.

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