Tuesday, September 6, 2011

The California Central Valley's Frank Oliveira talks about the impossible costs of High-Speed Rail

One of the most articulate residents of California's Central Valley, Fran Oliveira, has been a persistent critic of the HSR project and its immense potentional for physical and financial damage to the Valley and its agricultural industries.

Frank's detailed analysis makes the case that there is not now, nor will there be, enough funding available to build this train.

I agree.  So, one might ask, why are the elected officials, the Governor and the Legislature, pursuing this project so aggressivley.  To my mind, there is only one plausible answer, the "free" $3.5 billion from the Department of Transportation promised to this California project.  

Does it have strings attached?  Of course it does. These $3.5 billion federal dollars will put California on a debt path to which there is no end.  The state will be obliged to finance the costs of the loans on the state bonds, and subsidize the costs of operations of the train -- if it ever becomes operational -- forever. 

So, why are our politicians so eager to bring those $3.5 billion into California? Politics.  Money talks. For a state billions in the hole, $3.5 billion is a lot of money. It will be the centerpiece of their political futures. 

Let me say it one more time:  It's not about the train; it's about the money!

Here is Frank's summary of the salient numbers which spell out, so to speak, the doomed path of the train project and the harm it will cause.  Thanks, Frank.

Eleven Simple Ugly Financial Things About The California High-Speed Rail Authority (CHSRA) And The High-Speed Rail Project in California.

1- In 2008, Proposition-1A advertised that this project would cost $33 Billion and now it is estimated to conservatively going to require $67 to $87 Billion to complete. Many believe it will cost more than that.

2- In 2008, Proposition-1A authorizes the state to borrow $9.95 Billion to build approximately 800 miles of high-speed rail track, not to borrow $33, $67 Billion or even much more. The state does not have enough money on hand or the authorization to borrow the money needed to complete this project. This project cannot be completed as designed in today's economy with the money the state has to work with to run the state.

3- In 2008, Proposition-1A advertised that the federal government would probably bear approximately 1/3 of the $33 Billion, or around $11 Billion. The federal government has only conditionally agreed to provide around $5 Billion and the cost of the project has far increased from the original $33 Billion price tag. The federal government recently experienced serious debates about its credit worthiness which makes it unlikely that the federal government will ever fund a third of this project. The federal government has never agreed to fund a third of this project.

4- Considering #1, #2 & #3, if the state borrows the $9.95 Billion and the federal government gives the state the almost $5 Billion, the state would have around $15 Billion.  That is $52 Billion short of the $67 Billion that they need to build this project. Many people believe that the cost will be much higher.

5- In 2008, Proposition-1A advertised that private investors would fund approximately 1/3 of the $33 Billion or around $11 Billion. There are no private investors yet and the cost projections of the project are now much higher than $33 Billion.

6- The interest on the Proposition-1A  $9.95 Billion in state general obligation bonds will be paid out of the state general fund which will further reduce the amount of services such has law enforcement and fire protection the state can provide its citizens, unless, taxes collections and fees are increased. 

Note: counties are now being forced to house state prison felons to reduce the inmate population in the California Department of Corrections. It is projected that the interest on the bonds will be $10 Billion over the next twenty years. 

Note: if these monies are borrowed, spent and paid back, without much, much, more money being spent, only the track from Fresno to Bakersfield will be built.

7- Considering #4, 5# & #6, after spending the Proposition-1A money and the federal money and paying back the bonds, we will have invested $14.95 Billion into the rail project at a cost of $19.95 Billion and we will still be missing more than $52 Billion  needed to complete the project.

8- Considering #7 and assuming that there are 30 million men, women and children living in California, they all each will have to pay $665 dollars to build the Fresno to Bakersfield section ($19.95 Billion divided by 30 Million). Since not all of Californians pay income taxes, the $665 number will top $1,000 for those who pay taxes. According to the CHSRA, you will not able to ride the train until the next section is funded and built. When that is done, you will be able to ride the train for 83% of an airfare ticket, according to the CHSRA.

9- It is now estimated that the section of track from Fresno to Bakersfield will cost around $13 Billion to build. It is believed to be the easiest section of eight planned sections to build. If the CHSRA is right, the entire project should really cost more than $104 Billion ($13 Billion x 8, $10 Billion of State General Fund bond interest payments not factored). 

That is in 2011 dollars and not the costs of construction 10 years from now. It will be more, much more.

10- Considering #8 & #9, if the project is going to cost $114 Billion to finish ($9.95 Billion borrowed state dollars +  $10 Billion state interest payments + $5 Billion federal dollars =  $25 Billion +/- combined with $89 Billion dollars of money yet to be determined from where or under what terms =  $114 Billion) divided by 30 million Californians puts every man, woman and child's share of the bill at more than $3,800. by default. Since everyone does not pay taxes, the share to the tax paying citizen of California will top $7,000, for an opportunity to ride the train for 83% of a plane fare. 

Those who do not pay taxes probably will not be able to afford to ride the train. Many who do pay taxes, will also not be able to afford to ride the train.

11- The CHSRA has spent more than $630 Million to date on planning and they have not figured out yet that they do not have enough money available to build this project.

Using CHSRA's current plan and mode of operation, this project cannot be successfully built. This is not a matter of whether or not you like the high-speed rail or not or whether you are a democrat or republican. There simply is not enough money committed to succeed and there is not enough money available to the state to do this without severely compromising the services it provides its citizens.

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