Sunday, June 26, 2011

William Grindley's Brief Note #10 on HSR: "We lose money on each rider, but make it up in volume!"

High Speed Rail in California will generate $3 billion dollars in "surplus revenues" annually.  The "profits" (their word) will cover the costs of building the rest of the rail system, from Los Angeles to San Diego, and from San Francisco/Oakland to Sacramento.

If you believe that, I have a bridge to nowhere to sell you.  Where they get this stuff is anyone's guess.  The rail authority and all the supporters, both public and private, persist in claiming that all except two lines of HSR are "profitable" around the world.

That's nonsense.  They are all subsidized, either directly or indirectly.  Have you ever heard of any government project being 'profitable?' And, even with private corporate operators managing the systems in Europe and Asia, they are still basically a government rail system.  

In no case will farebox receipts cover all the costs.  Perhaps, in several instances, it could cover the operating costs, but that depends upon how you define them; what's included and what's excluded. 

So, let's just get over this one huge lie about HSR 'profitability.'  There are none.  There will be none. 

Here's Brief Note #10 from William Grindley and his team on how the HSR bureaucrats seek to bamboozle us with so-called "profitability" predictions.

Brief Note #10 – June 25th 2011

From the authors of The Financial Risks Of California’s 
Proposed High-Speed Rail Project and six Briefing Papers. 

Finding: High-speed rail’s profits are an illusion 
built on false accounting

Background: AB3034’s sponsor, Assembly Member Cathleen 
Galgiani, the CHSRA’s Board’s Chair, its CEO, and its Deputy 
Executive Director all claim high-speed rails’ profitability.1 
A 2007 Congressional hearing will clarify why they might 
want to reconsider those claims.2

France – In 1997 the state-owned railway company, 
Société Nationale des Chemins de fer français (SNCF), 
transferred the national rail infrastructure assets to the 
Réseau Ferré de France (RFF), a non-operating state-controlled 
finance agency. SNCF still operates the nation’s rail system, 
including the Train à Grande Vitese (TGV). 
The state grants SNCF $2- $3Billion annually for 
“tariff and public service contributions, concessionary 
fares and various other services” and pays a retirement 
supplement to SNCF “which is not shown on SNCF’s 
income statement.” 3 Since the French Government 
appoints twelve of the eighteen Directors of both SNCF 
and RFF, the Board has the latitude to move monies 
between what are essentially government agencies’ 
accounts to make SNCF appear profitable.

Japan – the national government pays two-thirds, 
and the proximate local
prefecture(s) one-third of the costs of building new 
Shinkansen lines. The relevant ‘private’ Japan Railway 
(JR) operator then pays a usage fee to the government.4 

Plus: “The annual Federal subsidy for the Shinkansen in 
2006 was . . a little less than $1.3Billion, and the local 
government subsidy was . . $633Million.”5 With four of 
the JRs still being government owned, the other three 
probably receiving concessionary usage fees, and the 
government annually granting the ‘private’ JRs another 
$2Billion, these subsidies certainly indicate the Shinkansen 
is not profitable by any generally accepted accounting methods.

Spain – RENFE, the national rail carrier and operator 
(RENFE-Operadora) of the high-speed network is a 
government organization, controlled by Spain’s Ministry 
of Public Works (Fomento).6 As of 2007, before the 
Madrid Barcelona line, RENFE had allocated $55Billion 
for construction of high-speed lines and another $1.8Billion 
annually for operations and maintenance. With the national 
government funding construction and
subsidizing operations, Spain’s high-speed rail system 
can hardly be considered profitable.

Conclusions: Section 2704.08(J) of AB3034 (Galgiani) 
disallows the proposed California system an operating 
subsidy. The probability of governments’ legerdemain 
in building and operating European and Japanese systems 
is very high and substantiated above. Governments have 
had decades of making these systems look profitable, 
when they actually depend on central government policies 
and largesse. Shell game anyone?


1 Member Galgiani claimed during June 3 2011 hearings on AB415: 
“The high-speed rail system in France runs with a profit margin of 
25 percent and the one on Japan at 50 percent . .” See: The Daily 
Journal from Associated Press, June 3 2011. CHSRA’s Chairman 
Tom Umberg made that claim in a Wall Street Journal Op-Ed on 
une 6 2011. On February 25th, at the Seventh Annual Regional 
Farm Bureau Conference, CHSRA CEO Roelof Van Ark said “Everywhere 
in the world, real High Speed rail can be positive and profitable.” 
CHSRA Deputy Executive Director Jeff Barker made the ‘profitable’ 
claim during a KQED Forum radio program on May 23 2011, 
which was immediately corrected by State Senator Alan 
Lowenthal as being a false claim.

2 See: International High-Speed Rail Systems: a Hearing before 
the Subcommittee on Railroads, Pipelines and Hazardous Materials 
of the Committee on Transportation and Infrastructure, House 
of Representatives; April 18, 2007.

3 Ibid. pgs 5-6.

4 Four of the seven JR operating companies, JR Hokkaido, 
JR Shikoku, JR Kyushu and JR Freight, are still owned by J
apan’s government. See:

5 Op. Cit Hearing; page 10

6 Op. Cit Hearing; pgs 10-11

No comments: