This is one of those long, detailed overviews of the California high-speed rail project. The authors have taken pains to represent the position of the Rail Authority and its self-justification, as they identify all the criticisms that have been levelled at the project, and at the Rail Authority which has so severely mis-managed this enterprise.
Our interest however, requires asking some other questions not discussed here. If none of the mismanagement, dis-information, secrecy, extremely poor communications and abrasive interactions with the community had not taken place, would this project thereby become acceptable? Would we be willing to spend whatever it would finally cost? Even if the financials still work out the same; even if it is still unaffordable and will underperform on every measure?
Or, would honest assessments of the project prior to it being presented to the voters; that is, its real ultimate costs; its realistically low ridership projections; its inevitable subsidy costs to the state; its collateral damage to each and every community through which it would pass -- if all that information had been made available, would the voters have supported this project? And would we now be caught up in this endless back and forth between all the critical agencies and objectors up and down California with the Rail Authority? I don't think so.
Furthermore, we cannot look at this HSR project in California without understanding the larger, National context and its political underpinnings which we have been describing all these months. And here, the central problem is that high-speed rail was not conceived contextually. There is no prior comprehensive over-view of how people are, or aren't traveling, and how they might get around in the future.
Should be have been investing far more in our urban and regional transit networks across the US? How will high-speed rail fit into an overarching transit plan for the US that also incorporates air travel and its potential future, as well as the future of individual vehicular transit? We just don't know. We haven't studied it.
And, the federal government sits on a whole host of unanswerable questions. What are the cost-benefit variables of various transit modes and where does HSR fit into that picture? What are the fundamental differences between Europe, Asia and the US regarding transit? What can and can't we afford as we contemplate a decaying infrastructure scenario that is grossly under-funded even as we don't know how to fund our high-speed rail plans, but promote them nonetheless?
Even though the sub-title of this article is Questions about California's plans for High-Speed Rail, there is actually only one question in the article about costs. I find that odd. There should be many questions, costs certainly being one of them.
From experience elsewhere and in the US, we have learned that in recent years it has become customary to seek support for major infrastructure projects by lying about their inevitable costs. Bent Flyvbjerg has documented large numbers of such examples.
The rail authority persists in quoting a figure of $43 billion and the media persist in repeating it as truth. A much more plausible number exceeds $100 billion. With such a cost, can HSR be "done right" in California? Is it right to spend that much on a 400 mile long railroad train? Has anyone looked at the comparable costs of a train intended to go over 200 mph, compared to one going only 150 mph, or 110 mph? How much is 10 mph worth in billions? And who, if anyone, really benefits?
Are we willing to use our borrowed dollars, to be replaced by taxing ourselves, our children and their children, to build one railroad costing $50 million per mile, $80 million per mile, and even over $100 million per mile? Will a railroad make as much difference in all our lives as the builders keep promising, or is it merely night-time TV infomercial hype?
Has high-speed rail as a concept and vision caused all of us to entirely lose our sense of proportion? We should be questioning far more than the costs and ridership. We should be questioning if this is the right thing to be doing right now or over the next twenty years in the US. We should be asking if this project will realistically make things better or far worse.
I have not yet heard this question asked and answered truthfully.
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Published: June 23, 2011
Updated: June 24, 2011 9:48 a.m.
Analysts question cost, ridership for high-speed rail project
By LANCE WILLIAMS California Watch And RONALD CAMPBELL The Orange County Register
Questions about California's plans for high speed rail
Public records show that the state High-Speed Rail Authority, the agency spearheading the bullet train, 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.
It's a bold vision for 21st-century California: a future in which travelers will never again have to fight freeway traffic or cram onto overbooked airliners.
Instead, they'll step aboard a 220-MPH bullet train in Southern California and, less than three hours later, exit in downtown San Francisco.
Entranced by that vision, California is set to commence the biggest public works project in 50 years. Next year, the state says it will break ground on the first segment of the bullet train network, a stretch between Fresno and Bakersfield.
But public records show that the state High-Speed Rail Authority, the agency spearheading the bullet train, 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.
"There is an air of unreality" about the project's $45 billion construction budget, a panel of experts warned the state Legislature last year.
It's a "big gamble" to start construction, the nonpartisan Legislative Analyst's Office warned in May, saying financing was "highly uncertain."
The project lacks "a disciplined business plan that makes any sense," says state Treasurer Bill Lockyer. He fears Wall Street won't invest anywhere near the $12 billion in private capital needed to build the system.
Undergirding the warnings, an inquiry by California Watch and the Orange County Register has found, are a tangle of related concerns:
A financing gap: The appointed officials who make up the rail authority say they will rely on $19 billion in federal aid to pay for the 800-mile system. But the legislative analyst says federal funding may amount to less than $4 billion -- a $15 billion shortfall.
Ballooning costs: The rail authority's $45 billion construction estimate may be $22 billion too low, the legislative analyst says. Cost overruns of the sort that have afflicted other big U.S. projects could drive the actual price above $200 billion, according to a critical study by a Stanford University professor.
Dubious projections: The bullet train's prospects for turning big profits are founded on ridership forecasts that are deeply flawed, two studies claim. Rather than making billions in profits, high-speed rail might actually "incur significant revenue shortfalls," a UC Berkeley study found.
The bullet train's boosters say these concerns are unfounded or overblown. They say they are confident that sufficient funds will be found to build the bullet train. Rail is the cheapest way to meet the transportation needs of California's burgeoning population, which could reach 50 million by 2030, advocates say.
The authority has based its cost estimates on mountains of studies, deputy director Jeff Barker said. When the legislative analyst criticizes the authority's cost estimate, he said, it's "simply dumbing down the process."
Worse, the analyst's solution – delay – is guaranteed to increase the price, Barker added.
"The sooner we build it," said rail authority chairman Tom Umberg, a former Orange County legislator, "the less expensive it will be."
BOLD PROMISES
Japan, France and Spain are among the nations that have turned to high-speed rail to solve 21st century transportation problems.
For a generation, transportation planners in the Golden State have looked to trains as well. In a state where the car is king, some saw rail as a way to break the increasingly expensive cycle of building new freeways to ease traffic gridlock, only to see the new roads fill up with cars again.
There were other foreseen benefits: Reining in urban sprawl. Reducing dependence on foreign oil. Cutting smog. And, of course, the economic boost that would come with a massive public works project.
In 1996, the legislature created the rail authority, with members appointed by the governor and legislature. In the years that followed, the authority spent about $60 million planning a system of electric trains that would link California's major cities, records show.
Then, in 2008, state voters approved issuing $9.95 billion in bonds to begin building the system. Trains would be fast, frequent and cheap to ride, voters were told. Once the system was built, it would make money. No taxpayer subsidy would be allowed.
In the depths of a recession, the economic boost the project would provide was another selling point: Advocates said the bullet train would create 160,000 construction jobs and 450,000 permanent jobs -- "American jobs that cannot be outsourced," the ballot argument said.
With the election of President Obama, the project got another boost: $3.48 billion in federal stimulus funds. Almost half of that came when Ohio, Florida and Wisconsin dumped planned rail projects, saying they didn't pencil out.
SCRUTINY AND ALARM
With the federal funds came deadlines: California was told it had to begin construction in 2012. As high-speed rail rolled onto the fast track, there came official scrutiny -- and then alarm.
In the past two years the state auditor, UC Berkeley's Institute of Transportation Studies, the legislative analyst and a peer review group expert panel formed by the legislature have studied the project's finances.
So have a Stanford-trained econometrician and a Stanford management professor affiliated with a Palo Alto citizens group called Californians Advocating Responsible Rail Design.
The studies have repeatedly red-flagged the project -- starting with its source of funds.
In a 2009 business plan, the rail authority said it would draw on as much as $45 billion in funding to build the system: $17 to $19 billion from the federal government, including the stimulus money; $10 to $12 billion in private investment capital; the $9.95 billion in state bonds; and $5 billion from such local sources as parking and development fees.
But three inquiries concluded that the rail authority had been wildly optimistic about receiving billions in federal funds in an era of soaring deficits and deep budget cuts.
Noting the "deteriorating budget climate" in Congress, the peer review group last year noted an "air of unreality" about the plan.
Also in 2010, the state auditor echoed those concerns. The legislative analyst's May report was even more pessimistic, saying the rail plan was larded with "unrealistic assumptions," and suggesting the project would not get any more federal aid at all, a prospective $15 billion shortfall.
Prospects for raising $12 billion in private capital for the bullet train aren't bright either, the reviews have suggested. Echoing concerns that have also been expressed by the state treasurer, the peer review group wrote that Wall Street is aware that continued federal aid is iffy. That concern "limits the project's credibility with private investors," the group wrote.
Critics even have concerns about what seems the most solid financial commitment of all -- the state bonds.
As the legislative analyst wrote, if lawmakers authorize selling all $9.95 billion of the bonds, the interest that must be paid to investors will run about $1 billion per year -- money would come out of the state's general fund, to be recouped from either new taxes or program cuts.
"I understand that we have challenges," said Umberg, the rail authority chairman. "I understand that there are some who have made this an issue in Congress. ... But as our needs evolve, I think the policies are going to overcome the politics."
COST OVERUNS PREDICTED
The studies also have criticized the rail authority's construction cost estimates.
Those estimates have marched steadily upward -- from $15 billion in 1996, to between $43 to $45 billion in "year of expenditure" dollars for 2009, as the authority currently expresses it.
That amount dovetails with the approximately $45 billion in funding that the authority says it has identified to build the system.
So what's the actual cost?
In its study, the Legislative Analyst's office noted that the cost of building the first segment -- the 100 mile stretch between Bakersfield and Fresno -- was estimated at $2.8 billion in 2009. Today, it's increased by 57 percent, to $4.47 billion. At that rate of increase, building the entire system would cost $67 billion.
For its analysis, the Palo Alto citizens group scrutinized cost estimates submitted by the authority in applications for federal stimulus funds. The group said the actual cost to build the system was probably $65 billion.
But if it's like the new San Francisco Bay Bridge, or Boston's Big Dig highway project, the cost will be far higher, according to Stanford management professor Alain Enthoven. With the cost overruns that typically plague public works projects, the final price tag may be closer to $213 billion, he wrote.
"All megaprojects have cost overruns," Enthoven said. "For a state project, if they figure on $43 billion and then it turns out to be $66 or $80 billion, then it's the taxpayer of the state of California (who pays). There's no fairy godmother."
Enthoven lives in Atherton within a hundred yards of the train's proposed right of way and says the project will hurt not only his home but his neighborhood. Because of that, people often tell him they can't believe him.
Enthoven's answer: "Just look at the numbers."
That's the theme of the project's supporters too.
"If you think in 2035 gas is going to be a dollar a gallon and people are going to be fleeing the state," said Barker, the rail authority's deputy director, " then we probably shouldn't be building high-speed rail," he said.
It's hard to put an exact price tag on the train, he said. The estimates for the Central Valley segment rose as engineers narrowed their choices of alignments from many to a few during the environmental review. They often had to pick expensive routes.
The Central Valley segment isn't a paying route, Barker said. But the agency hopes to attract more federal money after the Central Valley segment is complete to extend the rails, either north to San Jose or south to Los Angeles.
Once that route is complete, Barker said, the authority could then sell rights to a private partner who would provide trains, electrify the route and begin operating the system. That private investment would cost about $3 billion, he said.
QUESTIONS ABOUT RIDERSHIP
But critics also take aim at the rail authority's upbeat computer forecasts, which show strong future demand for the service. By the year 2030, the bullet train system will carry as many as 117 million passengers per year, the forecasts say.
Those big numbers undergird the rail authority's claims that the bullet train will generate "over $1 billion in annual profits" when up and running.
The forecasts are the work of a consulting firm, Cambridge Systematics. It polled California travelers, collected other data and created a complex computer model to predict demand for the bullet train. To ensure accuracy, the computer model was subjected to "peer review" from outside experts. The firm was paid $2 million for its work, records show.
But two different studies have contended the forecasts are deeply flawed.
The first critique was by Elizabeth Alexis, a Palo Alto money manager with training in econometrics and co-founder of the Californians Advocating Responsible Rail Design group.
Alexis said she found that the polls used to predict demand for bullet trains were riddled with bias. For example, 96 percent of the commuters queried about whether they would prefer to get to work by bullet train were already train riders -- a tiny fraction of California commuters, and ones who were predisposed to rail travel.
Alexis said she also found that the consultants had privately made "drastic" changes to key assumptions in the computer model used to produce its results, apparently after initial results were deemed unsatisfactory. The tinkering with the model allegedly occurred after it was reviewed by the outside experts who were supposed to provide guidance on whether its results were valid.
The forecasts were no better than "tossing darts at a board," Alexis said. "I would like to have real numbers so we can have an intelligent discussion about where California should put its transportation dollars."
Concerns were underscored when UC-Berkeley's Institute of Transportation Studies weighed in. That study, commissioned by the state Senate, declared that the rail authority's model was "flawed at key decision-making junctures," as Institute Director Samer Madanat put it. The UC study also found survey bias, saying that in polling on whether business travelers would switch to bullet trains too many air travelers and not enough motorists were surveyed.
The model also exaggerated the importance of frequent service in predicting ridership, the institute said. In the end, the study was too unreliable to predict whether high speed rail would make money or "incur significant revenue shortfalls," the institute said.
The rail authority stood behind the study.
Roelof Van Ark, chief executive of the rail authority, wrote that the model was valid, "a sound tool for use in high-speed rail planning." He said there was "no foundation" for the institute's conclusion that the model was useless for predicting the bullet train's bottom line.
SHARPEST CRITIQUE
Of the critiques, the sharpest may have been the one from the legislative analyst. Delivered in May, as lawmakers struggled to close a multi-billion dollar deficit, the report recommended slashing the rail authority's budget from $192 million to $7 million.
Retired Judge Quentin Kopp, a former San Francisco lawmaker, former chairman of the rail authority and long-time advocate of the project, said he deeply resented the report: It was "devoid of data, devoid of informational fact, embarrassing," he said. Worse, it seemed to ignore the benefits that a completed rail system would bring to California.
So far, at least, neither lawmakers nor the governor have taken the axe to the rail authority's budget. Another crucial decision point comes next year, when the legislature must authorize selling rail bonds so construction can get underway.
Lockyer, the state treasurer, would like to head that off. In an interview, he ticked off his concerns. "I think the federal funding is too speculative," he said. "I think the likelihood of significant private capital is questionable." He said he was "disappointed" in the business plan, which he called undisciplined and nonsensical.
Meanwhile, the state is gearing back on its debt load to ease pressure on the budget. In this tough economic environment, it's not easy to justify borrowing billions for high speed rail, Lockyer said.
"I love the idea -- the idea is bold," he said of the project. "It's just that there are a lot of good questions that need to be answered before an investment of this magnitude gets made."
Lance Williams is an investigative reporter for California Watch. Ronald Campbell is an investigative reporter for The Orange County Register. This story sprang from a partnership among six California news organizations who have been following California's High Speed Rail Initiative: California Watch, the Bakersfield Californian, the San Francisco Chronicle, the Fresno Bee; the Sacramento Bee and the Orange County Register.
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