Thursday, July 21, 2011

When investors speak about the California High-Speed Rail project, we should listen.

This editorial is from Investors' Business Daily. These are not the idle rants of NIMBYs. This article  targets the money people who think in dollars and cents.  Financially, this California High-Speed Rail project doesn't stand muster. We've posted all the Grindley papers for a long time, making this particular case, dollar by dollar. 

Given the harsh and critical tone, I would assume that this financial 'world' trade publication is telling us what a lousy investment HSR is. The article is hardly the endorsement that financial folks want to read if they are contemplating a major loan to California to build this train.

The editorial confirms what some of us have been saying for years.  

They will never assemble enough funds to build it.  The can lie about the costs all they want, but the financial community does its due diligence.  What is now promised to cost $43 billion (before construction has even begun) will surely go above $100 billion.  Who will loan that kind of money?  Especially with no ROI.

Profits? What public service utility delivers profits?  Amtak costs taxpayers over a billion a year.  Yet, the rail authority talks of 'surplus revenues' of one billion dollars per year from running a luxury train from Los Angeles to San Francisco.

The fact is that ALL high-speed rail systems are subsidized.  That means, even if they may break even on operating costs, all the capital development funding are all sunk costs, not to be recouped except through taxation. And in most cases, operating HSR costs the government (read taxpayers) plenty.

California voters were under the impression that the $9.95 billion bond issue would somehow be "free" money, since it would come from bond buying investors.  They didn't understand that every dollar the state borrows will cost taxpayers at least two dollars.  And the nine billion is a scratch on the surface of the real costs. 

There will be no private investors.  And if there are, quickly look beneath the surface of the press releases. What's the scam here? How will it cost the taxpayers to make such loans profitable?

The editorial pulls no punches. And neither should we. The project must be stopped. Now.

Derail High-Speed Spending

Posted 06:54 PM ET
21 July 2011
Budget: President Obama won't put high-speed rail on the block to ease the debt crisis. He insists we need to keep up with China. But its rail has become a $300 billion boondoggle.

Yes, that's billion with a b. China's Railway Ministry continues to lose money and is now an eye-popping $267 billion in the hole.

With its grandiose bullet trains, which largely run empty, Beijing has created a hidden debt bomb threatening its banking system. Almost all the funds to build the communist state's high-speed lines have been borrowed from Chinese banks.

"In China, we will have a debt crisis — a high-speed rail debt crisis," Zhao Jian, a professor at Beijing Jiaotong University, recently told the Washington Post.

He added: "I think it is more serious than your subprime mortgage crisis. You can always leave a house or use it. The rail system is there. It's a burden. You must operate the rail system, and when you operate it, the cost is very high."

This is the system Obama praises and wants America to model. In his infinite wisdom, he has called for a six-year, $53 billion spending plan for high-speed rail.

He intends to build lines across the country so that one day 80% of Americans will have access to high-speed trains — assuming they'll want to ride them (instead of flying, which is faster and often cheaper). Even China's peasants don't want to ride theirs. Ridership is so low, the ministry recently had to slash ticket prices to attract passengers.

The lack of use should come as no surprise. High-speed rail is a money loser everywhere in the world it's been tried.

Beijing sped building of its high-speed network as part of its stimulus spending in response to the global financial crisis. Obama did the same, shoveling billions to states willing to build their own multibillion boondoggles. Several governors, including those in Ohio, Wisconsin and Florida, wisely turned down the federal rail money.

California, on the other hand, jumped at the chance to squander scarce taxpayer dollars on a pie-in-the-sky plan to build a bullet line between San Francisco and Los Angeles. The project's already plagued by engineering and cost woes.

The California High-Speed Rail Authority plans to bring the rail through the Mohave Desert's steep Tehachapi Pass, where trucks crawl at 35 mph.

Tunneling under the mountain is the only option. But a train entering a small tunnel in the Tehachapi Mountains at 180 mph — as California's rail ministry has depicted in a laughable video rendering — would be like slamming into a wall. Compressed air isn't forgiving.

To overcome the piston-effect pressure changes, the tunnel would have to be built with cavernous proportions. And there'd have to be two of them, one in each direction, both running some 15 miles long.

The Chunnel connecting London and Paris cost roughly $15 billion, and that was back in the '80s, so figure that amount and then some for California's tunneling project alone. And there are no guarantees it would work. In the end, Chunnel engineers never fully solved the drag problem and had to reduce train speeds.

China hasn't had to deal with anything like the Tehachapi Pass. Yet each segment of its high-speed rail system has been far costlier to build than first figured. California — and U.S. — taxpayers would be eating similar cost overruns, perhaps for decades.

So who could possibly benefit from such a boondoggle? Unions, along with the politicians they vote for — in this case Obama and California Democrats, who'll be able to trade construction jobs and other union sop for votes.

Poor construction and safety problems have forced Beijing to reduce top train speeds from 218 mph to 186 mph. It's also slowing construction of new lines until ridership catches up.

Meanwhile, it's full steam ahead for the Obama Express to Debtville. Obama insists his precious infrastructure projects are off-limits in budget-cutting talks.

Republicans should derail his high-speed spending, starting with the $8 billion down payment he made for such rail projects in the new budget.

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