In the prior blog entry, I stated that the total cost for the total high-speed rail system in California, if fully built out as currently projected, would cost $240 billion by 2055.
Here is the empirical evidence and case for that amount. It's from the Grindley-Warren Notes. This is from Note #17.
See: http://www.cc-hsr.org/assets/pdf/bnote-17.pdf The web-site provides an Analysis Chart as well.
"ON THE 'ENTIRE SYSTEM'S' COSTS, MARGINS AND ACCUMULATED DEBT OVER THIRTY YEARS"
ON THE ‘ENTIRE SYSTEM’S’ COSTS, MARGINS AND ACCUMULATED DEBT OVER THIRTY YEARS Brief Note #17 – August 5th 2011
From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project, six subsequent Briefing Papers, and The Financial Analysis of Proposed CHSR Project. Available at: http://www.cc-hsr.org/assets/pdf/bnote-17.pdf
Finding: Repaying construction costs for the ‘entire system’ over the full thirty years of debt amortization burdens the State and taxpayers with three times previous estimates.
Background: The 2009 CHSRA Business Plan, which covered only the first sixteen years of operations (2020-2035), focused on the construction and operation of Phase One, but not the repaying construction costs.
Note #16 compared those years’ financial results using the 2009 Plan’s assumptions, as well as a 2011 estimate of increased Phase One construction costs using only the present, in-hand Federal grants.1
But Prop 1A and AB3034 authorized the CHSRA to plan to build and operate the ‘entire’ system connecting seven cities.2 This Note provides a preliminary view of the financial ramifications of building the ‘entire system’.
Importantly, it also reflects the complete, thirty-year repayment period, financial impacts.
Results For Phase One – Based on 2011’s estimate of $66Billion construction cost and only in-hand Federal Grants, this column provides the same annual financial information as in Note #17. Here the cumulative negative cash flow grows from $65Billion in the 100% Case to $137Billion in the No Operating Margin Case as Operating Margins drop from about $2.4Billion to zero per year.
Results For The ‘Entire System’ – Early 2011 estimates of the cost to build the ‘entire system’ were $116Billion; about 75% more than just the Phase One cost and nearly three times the 2008 CHSRA estimate. Even assuming an additional $3Billion of Federal grants still requires borrowing about $110Billion, increasing the annual debt service cost by about $8Billion.
Assuming that operations for the ‘entire system’ start in 2025, five years after Phase One, and revenues, costs and operating margins increase by the same 75%; the operator’s $2.4Billion Average Annual Operating Margin in the 2009 Plan will grow to $4.2Billion.8 Even results from the 100% Case show that the Operating Margin will not cover the entire debt-servicing requirement, leading to a thirty- five year cumulative negative cash flow of $114Billion. In the No Operating Margin Case, the cumulative negative cash flow grows to $240B. These obligations remain after counting any Operating Margin. Some source, namely California’s corporate and individual taxpayers, must service that obligation.
Conclusions: Using the complete thirty-five year payback period, the cumulative negative cash flows for Phase One double to about $137Billion in the No Operating Margin Case.9 Completion of the ‘entire system’ leads to cumulative negative cash flows of $114Billion – $240Billion. Proceeding to build Phase One is highly questionable; but planning to build the ‘entire system’ exhibits extremely risky behavior.
1Phase One (San Francisco-Los Angeles/Anaheim) financial and debt analysis can be found in Note #17 at http://www.cc-hsr.org/
2 Prop1A ballot descriptions and AB3034 refer to the seven-city system (Los Angeles, Irvine, Riverside, San Diego, San Francisco, Oakland, and Sacramento) as the ‘entire system’ whose construction was estimated at about $45Billion.
3 See: The Financial Analysis of the Proposed CHSR Project, June 2011, pgs. 8, 9, 14 at http://www.cc-hsr.org/
4 See: The Financial Analysis of the Proposed CHSR Project, June 2011, Exhibit 1: Appendix A & B, pages 39 and 54 to 58, at http://www.cc-hsr.org/
6 An all debt, versus debt and equity, formula is used as debt is cheaper to the State than equity. Debt is assumed to be serviced at 6% over 30 years.
8This assumption means that additional miles of track will create additional Revenues per mile and Operating Expenses per mile as in Phase One.
9 In Note #17 the baseline is the CHSRA’s first sixteen years of repayment. See at: http://www.cc-hsr.org/