William Grindley and Bill Warren's Brief Notes on the California High-Speed Rail Project Financials: Some Comments from the Authors

We've been posting a series of brief notes from William Grindley and his team. These are researched and documented comments on various aspects of the California High-Speed Rail Project.  We will continue to post these as they become available to this blog site.

Here is a statement by William Grindley and William Warren who have collaborated on all these documents including the main papers which you can download from the web-site for CC-HSR. 

The urgency to write a one-hundred page report, six Briefing Papers and a series of Brief Notes came from the continued lack of an investment-grade financial plan needed for a project of this size. In 2009-2010 several person-years of analysis showed what had been promised voters in 2008 was no longer part of the plan; that the CHSRA's methods used to determine ridership, operating revenues and expenses were opaque or unreliable; and that neither was a CHSRA financial team in place, nor was there any interest from private sector financiers to participate with at risk' investments. As of mid-2011 the Authority has not addressed any of those concerns. 

To contrast their published works with that of the CHSRA, the authors not only reference the sources that lead them to their conclusions, but also have drafts of their work reviewed by the people now expected to provide 60-80% of the financing - the leaders of California's business and financial community. Their October 2010 report, The Financial Risks of California's Proposed High-Speed Rail Project, gained the endorsement of over seventy of those leaders and has been cited by the US and international media.  

Four reasons have heightened the authors' original concerns: 1) the precipitous decline, if not disappearance, of Federal monies for the next six years, 2) the near-certainty of continued construction costs increases, 3) the certainty that California's cash-strapped cities and counties cannot provide $5Billion of 'free money' to the project, and 4) the extremely high probability that the Authority's estimated operating results will not be achieved; therefore Section 2704.08(J) of AB3034 cannot be met. 

Using the Authority's own data, they learned there are insufficient funds to service the construction debt. This will result in a $10-$50 Billion of cumulative negative cash flows in the train's first fifteen operating years. Since all high-speed rail systems in the world require subsidies, the authors are also certain more subsidies will be required to meet the annual operating shortfall; perhaps as large as that required to service the construction debt.

#########

And here is the current complete list of Brief Comments.  There are now ten of them.  There will be more in the future. We'll post them as we get them. 

#1 – ON THE LIKELYHOOD OF MORE FEDERAL CONSTRUCTION MONIES

#2 – ON RIDERSHIP AND RIDERSHIP FORECASTS

#3 – ON COST OVERRUNS WHILE BUILDING MEGAPROJECTS

#4 – ON CONSTRUCTION JOBS IN THE HIGH SPEED RAIL PROJECT

#5 – ON PERMANENT JOBS CREATED BY THE HIGH SPEED RAIL PROJECT

#6 – ON HIGH-SPEED RAIL’S NEED FOR OPERATING SUBSIDIES

#7 – ON PRIVATE CAPITAL FOR CALIFORNIA’S HIGH-SPEED TRAIN

#8 – ON TICKET PRICES FOR THE HIGH-SPEED TRAIN

#9 – ON THE PROBABLE TAX IMPACTS OF THE HIGH-SPEED TRAIN

#10 – ON ASSUMPTIONS ABOUT OPERATING EXPENSES