Monday, September 19, 2011

If the federal government won't pay for California's HSR, who will?

The point in the article below is well taken. The rising costs of HSR in California appear to be unstoppable and the funds don't exist.  And, they aren't going to exist.  

Like a yacht, it's not merely the purchase price that's so high, it's the "upkeep."  The rail authority, determined to build this monstrosity, keeps 'low-balling' the costs and keeps exaggerating the ridership numbers.  

The next business plan, due in October, will again include the same ridership forecast that has been analyzed and rejected by the Berkeley Institute for Transportation Studies.  That's an argument between the rail authority and its critics that will never be resolved to anyone's satisfaction. And the rail authority could care less!

But, is it important?  Yes, because ridership indicates revenue income.  And without enough riders, and the extremely high operating costs, the train, IF ever built, will continue to cost billions.  So, with five million rather than forty million riders annually, there are projected to be net annual losses of as much as 4.5 billion dollars.  So, by 2050, the state of California will be on the hook for over $240 billion.

While that's high, it's not really surprising if you have read the writings of Bent Flyvbjerg. (Google him) 

What is surprising is the relentless determination of the federal government to so aggressively promote a project for which they won't pay. What they have been putting out as incentive dollars are a pittance against the real predictable costs.

So, President Obama, who is going to pay for this project if not the federal government?  This State is nearly dead broke.

Private sector?  Any investor who does their due diligence will discover only a money black-hole with negative revenues.  Only fools would put investment dollars into this White Elephant. 

The amounts of money involved in HSR are staggering. Up to now, oversight and accountability has been negligible.  Here are some stories of the early days of US railroading, to which the HSR supporters love to point as an example of American fortitude.

Does anyone remember learning about the "Credit Mobillier Scandal" in American History? In the 1880s,  "Certain officers of the Union Pacific formed a separate construction company to raise capital and ensure that influential backers received a suitable return on their investment -- which in one year alone totaled 348 percent. Investigations held after the scandal broke in 1872 revealed that key congressmen had accepted Credit Mobilier stock as a gratuity. Ulysses S. Grant and future President James A. Garfield were among those implicated." <>

Here's another story about our early transcontinental railroad.  "Thomas Durant and the Union Pacific"
Main articles: Thomas C. Durant and Union Pacific Railroad
In contrast to the relatively straightforward arrangements for the Central Pacific, the Union Pacific which was to ultimately build nearly 2/3 of the track was to be mired in controversy and scandals while its controlling partner Thomas C. Durant got rich as he took advantage of lax or non-existent government oversight during the Civil War.
The enabling legislation for the Union Pacific required that no partner was to own more than 10 percent of the stock. However, the Union Pacific had problems selling its stock. Durant enticed investors with a scheme where he would put up the money for the stock if they would just put their names on it. Then Durant wound up taking the stock from the investors and was to end up controlling about half the stock of the railroad.
The initial construction of railroad went over land that Durant owned around Omaha. Being paid by the mile, the railroad built oxbows of extraneous track never venturing further than 40 miles (64 km) from Omaha in the railroad's first 2? years.
Durant manipulated market prices on his stocks by spreading rumours about which railroads were to be connected to the Union Pacific. First he ran up the stock of his M&M Railroad while secretly buying stock in the depressed Cedar Rapids and Missouri Railroad (CR&M), then running up CR&M stock with new plans to connect the Union Pacific to it at which point he began buying back the M&M stock at depressed prices. The gambit is estimated to have raised $5 million for his cohorts and him.[15]

People will say, but look how much the intercontinental railroad has acommplished. Yes it has.  But that was in the 19th century, when the only other locomotive power available were horses. It is possible to argue that the days of rail are over in the United States.  We'll do that in another blog entry.

There should be no doubt that a number of people are going to become very rich because of the California high-speed rail project.  Reminder: Those are our tax dollars that will flow into a select number of pockets. 

One example will be Parsons Brinckerhoff, the company now in charge of contracting for design and construction for the CHSRA.  That was the company, along with Bechtel, that ran up the costs of the Boston Big Dig from several billion dollars to twenty two billion dollars by the time there were done and there are still outstanding legal issues not yet resolved.

So, I want to ask this one question:  Who, in God's name, is going to put a stop to this great mistake?

Published: Sept. 19, 2011 Updated: 3:47 p.m.

Critics: Rail cost may top $100 billion


Long-time critics of the high-speed rail project reached back five centuries Monday to find its equal in futility.

This image provided by the California High-Speed Rail Authority shows an artist's conception of a high-speed rail car in California. Officials on Thursday Dec. 2, 2010 approved a $4.3 billion proposal to build California's first segment of high-speed rail line that would run through the state's agricultural heart. 

Like the Spanish Armada, sailing off to meet the better-manned, better-armed English, the California High-Speed Rail Authority is working “in the confident hope of a miracle,” Alain C. Enthoven, William C. Grindley and William H. Warren wrote.

And like the doomed armada the authority is spending boatloads of cash — $700,000 every working day, according to their 67-page report.

They forecast that the first phase of the 200-mile-per-hour train, running from Anaheim to San Francisco, will cost $66 billion — compared with the $43 billion predicted by the authority. As for the more extensive system that voters approved in 2008, extending from San Diego to Sacramento, they say that will cost $116 billion.

The bond issue voters approved was for just $9.95 billion. Federal and private funds are supposed to fill the gap.
Prospects for more federal money have all but disappeared since Republicans took control of the House of Representatives in the 2010 election. No private money has been committed to the project.

The authors of the critical report all live in the South Bay area, a hotbed for opponents of the project. Lead author Alain Enthoven, an emeritus management professor at  Stanford, lives within 100 yards of the proposed rail right-of-way — close enough, he told us last spring, that the project would hurt his own and his neighbors’ property values.

The authority projects that its trains will have 39 million riders a year — a forecast that has been criticized by, among others, the UC Berkeley Institute of Transportation Studies. Enthoven and his colleagues say a more realistic estimate would be 5 million riders, the same number that uses the popular Acela service operated by Amtrak between Boston and Washington, D.C.

But that wouldn’t be enough to pay the bills, as high-speed rails’ promoters promised the voters.

The authority projects that the high-speed trains would produce a surplus of $2.4 billion every year. After adjusting for much lower ridership and much higher costs, Enthoven et al. say the real cash flow would be a net loss of $2.2 billion to $4.6 billion.

It gets worse: The authority projects that the trains would produce a cumulative 30-year cash flow from 2020 through 2050 of $72 billion. The Enthoven group says that during the same period the trains would pile up a debt on the state’s books to the tune of $65 billion to $137 billion.

We’ve asked the High-Speed Rail Authority for comment.

In any case, the agency is due to release a comprehensive business plan, including updated ridership forecasts and a detailed strategy for paying for the project, in October.

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