Sunday, June 12, 2011

William Grindley's Brief Notes #6: Subsidizing the Rich: Paying Through the Nose for High-Speed Rail

This is issue is among the most provocative and angry-making.  While high-speed rail promoting elected officials like Cathleen Galgiani claim how profitable high-speed rail is around the world -- and she's not the only one -- the fact is that with two exceptions, each and every HSR system is a money loser.  They are almost all subsidized.  Farebox receipts; that is ticket sales, don't cover operating costs.  Why is that so terrible?

Because these trains are not public mass transit. HSR is not intended for all of us, rich or poor.  They are not the commuter trains that the working stiffs of America will be taking daily to go to work. High-Speed Rail around the world is luxury, premium transit. They are the Donald Trump five star version of hotels.  The ticket costs are the highest of any passenger rail service.  That means that only the well to do can and will afford to take these trains.  We've made this point many times on this blog.  It will be the professional "suits" with their lap-tops and travel expense accounts that take these trains.

Unlike the US, most of the rest of the world is very class conscious and accepting of a hierarchical and stratified society.  The rich are entitled, so to speak.  Therefore, they are also entitled to the expensive, first-class accommodations HSR provides.  The rest of us take regular trains, even including express trains, but at far lower cost.  To sum this point up, high-speed rail is not "public transportation."

Most people don't get that.  They should.

As William Grindley points out, in order to operate, all such trains worldwide require subsidies.  And, these subsidies come from the government; that is to say, from taxes.  It will be no different with the California HIgh-Speed Rail project. We taxpayers will be obliged to subsidize this train for the well to do.  What's wrong with that picture?

But wait, subsidies are not allowed for this California train. By law.  Nonetheless, the rail authority and their supporters, including all those who already know what the realities are, advocate this project anyhow.  That makes not sense.  Why build a train that CAN'T be subsidized yet will require it in order to operate?  Why are we trying to fit a square peg into a round hole?

One possibility is that the rail authority is determined to wiggle out of that legal constraint somehow.  They will work to find a way to subsidize the operations of the train.  And we will be obliged to pay through our taxes, through the nose!

This is all wrong.  One major problem is that the rail builders, the CHSRA, intends to "own" the project once in operation.  They are political empire builders who have no intentions of going away when the project is completed.  They are not buidling this train for the rest of us with our money.  They are building it for themselves and their croneys.  

This is all so poisonous that the project should be eligible for a complete FBI investigation.

Brief Note #6 – June 6th 2011

From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project and six Briefing Papers. Available at
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 six independent studies, experts and union officials 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

In May 2011 the AFL-CIO’s Transportation Trades Department, said; “There is no high-speed passenger rail system in the world that operates without significant government assistance,” . . Private sector companies simply cannot make a profit without federal support.” 6
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”.7 Such subsidies would violate AB3034, even if called a revenue guarantee.8

The proposed project cannot financially function without a forbidden operating subsidy. Even at a $43Billion to build, servicing construction debt creates negative cash flows; while a $66Billion construction bill would require $5-$7Billion of annual debt servicing.9 No plausible scenario for the train’s operating margins suggest there will be the cash flow to service debt that substantial.


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://www- x341SR1v08121jul101final.pdf 

6. Statement of Edward Wytkind, president of the AFL-CIO’s Transportation Trades Department concerning the proposal to privatize ACELA in the NE Corridor. See: 

7. The Official Voter Information Guide of the Tuesday, November 4, 2008 California General Election: 

8. The Authority never responded to a 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. 

9. See: Big Trouble For California’s $66Billion Train; at

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