Thursday, September 8, 2011

Another slant on poorer people having to pay for a high-speed train to be used by richer people

A nice article that hits on the key issue of the promised "profitability" of high-speed rail.  Let's be clear here about what the word "profitable" means.  

Private sector businesses are based on capital investments (such as opening a restaurant).  Once operating, the restaurant must produce not merely revenues, but enough to cover the cost of daily operation and payments on the borrowed capital required to open the restaurant in the first place. But, in fact even more revenue than that is required, since we have not accounted for "profits" which is the surplus sum remaining after interest and principal payments have been made, along with paying all the staff, utilities, raw materials, insurance, etc., etc.  The only restaurants that are profitable that way are the very busy ones; the ones that don't have "slow" nights.

There's an old saying in the restaurant business:  "You know how to make a small fortune in the restaurant business?  Start with a large one."

My point here is that first of all NO high-speed train has EVER been profitable in the sense described above. And, as Brian Picone points out in his article, only two HSR systems have "broken even" on their operating costs, which do not include repayment of the original capital investments (usually made by the taxpayers) which include interest and borrowed principal, and certainly don't produce surplus revenues which can accurately be called "profits."  

All of which is to say that high-speed rail is a money loser; not a money maker.  So, the next question becomes, how much money will it lose?  Well, the more expensive the train is to build and operate, the more we can be absolutely positive the train will lose.  That, in turn calls for subsidies. (The way Amtrak is perpetually subsidized by the taxpayers.)  And that means, that not only will the taxpayers be charged to build the train out of their taxes, thereby reducing the amount of taxes that go into, say, education, but they will be charged forever to keep the train operating.

To put this bluntly, the taxpayers are going to get screwed by high-speed rail.

1. The taxpayers will have to eat all the capital development costs.  Is that a lot?  The realistic current going cost for the California system is $100 billion and that may be a low estimate.  Whether state bonds, or federal handouts, $100 billion + is a huge amount of money for this project, especially when those funds are thereby not available for other trivial things like water, medical care, education, electricity, the justice system and so on.

2. The taxpayers will have to come up with a big part of the operating costs by subsidizing them.  Whatever the ticket costs will be, they won't be enough for daily operation, maintenance and replacement.  And, that's forever.

3. Unless the taxpayers are affluent and can afford to ride a train whose ticket costs are the most expensive train tickets there are, they won't ever get to ride on a train that their tax dollars have built.

Isn't that good enough reason to stop this project before it begins?

High Speed Rail: Hardly an Investment in Future
Brian Picone in National, General Politics 1 week ago

After learning that my PolicyMic colleague Chris Sedor had written on the benefits of high speed rail, I wanted to invite our readers to consider an alternate perspective. With President Barack Obama likening opposition to rail projects with “Third World" infrastructure policy, it is important to point out the consequences of government investment in high speed rail. Such investments will certainly help select groups to “win the future” — but they are a net loss for the taxpayer and have questionable environmental benefits.

High speed rail proponents are fond of touting such projects as “investments in our future.” However, the term “investment” is misleading. Investment implies that the party doing the investing will also suffer the consequences if an endeavor loses money. But when high speed rail projects lose money — as they do almost universally — the taxpayer is on the hook, not the politicians who vote in favor of them.

Even advocates of high speed rail admit that such projects almost never cover their operating costs. Iñaki Barrón de Angoiti, director of high-speed rail at the International Union of Railways in Paris, admits that while he favors such projects, they “are not a profitable business.” He goes on to point out that only two high speed rail routes in the world actually break even – one from Paris to Lyon and one from Tokyo to Osaka. Of course, rail proponents fail to mention the 11 other countries that consistently require large taxpayer subsidies to keep their lines operational.

Furthermore, the French and Japanese systems claim profitability based on flawed accounting principles. The French accounting system treats taxpayer subsidies for the high speed rail as “commercial revenues." This makes the French program’s $1.75 billion in profits much less impressive – especially considering that, according to a 2008 study by Amtrak, French taxpayers spend close to $10 billion per year subsidizing the high speed rail system.

The Japanese system has an even worse record. Within two decades of being established, Japan’s high speed rail system had accumulated such massive amounts of debt that the entire system had to be privatized. Japanese taxpayers were then stuck with the system’s $280 billion in debt, which they are still paying off today. If Japan and France are the world’s two best examples of high speed rail success, then perhaps we should reconsider.

Even China, a nation that is no stranger to infrastructure investment, is shying away from high speed rail. In 2010, the Chinese Academy of Sciences urged the government to reconsider further investment in high-speed rail, due to the current system’s tremendous debts. According to Zhao Jian, a professor at Jiaotong University in Beijing, “high speed rail is a big loss … the operation cost is too high.”

Claims that investment in high-speed rail will create new jobs are dubious. The California High Speed Rail Authority (CHSRA) predicts that 98% of its future riders are folks that would otherwise drive or fly to their destinations. This means that nearly all of the employment created by such high speed rail projects will simply be re-allocated from the airline and automobile industry. This may change the composition of employment in the U.S. economy, but not the level — while still giving the appearance of job creation.

Some proponents suggest that the environmental benefits of high-speed rail justify its costs. However, Berkeley professor Arpad Horvath claims that high speed rail “can be either better or worse for the environment than air or car travel.” The environmental benefits of high speed rail projects, Horvath explains, can only be realized if trains can achieve “very high” levels of ridership. According to three of Horvath’s colleagues at Berkeley, however, this is doubtful. They found that the high ridership projections published by CHSRA were “flawed and unreliable," adding that the forecasts were “based on professional judgment instead of on observed data.” California’s State Auditor and Legislative Analyst’s Office have also questioned the projections. A Reason Foundation study predicted that actual ridership would be 50% less than CHRSA’s actual projections – calling into question any potential environmental benefits of the project.

Of course, some people will benefit from high speed rail projects. Large corporations that build trains, banks that finance public debt, and wealthy people who can afford expensive train fares will be better off. But while they’re off “winning the future,” average citizens and taxpayers will be, as usual, footing the bill.

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