Thursday, November 10, 2011

High-Speed Rail's "New Beginnings"

It's not a "new beginning," despite what the rail authority is trying to get us to believe.  It's not a business plan.  Business plans lay out how things will get done and how much it will cost and where the capital funds will come from.  

This CHSRA plan is not actually so much of a plan as it is a marketing document, and it doesn't tell us any of the things we should be told in a business plan. The numbers, whether they have changed from the prior business plan or not, still don't add up.  That includes their promised "profitability," a catchy term by which they actually mean surplus operating revenue.  There won't be any of that surplus and there certainly won't be any "profitability."

Let's be clear about the word profitability once and for all so there is no further confusion from the rail authority.  In any business, profits are what's left -- the net -- after all the expenses have been paid, including the interest on the initial loan (such as any mortgage or bond), intended replacement costs, maintenance, upkeep, insurance, lease fees, rents and capital upgrades to maintain level of service. 

By that standard, there is no "profitable"  high-speed rail, or any passenger rail regardless of speed for that matter, in the world.  When the rail authority claims this notion, as Mr. Richards of the Board has done, quoting Mr. Rossi, also a Brown appointee on the Board, they are lying. 

All passenger rail is subsidized by their respective governments as a public service utility. A few are able to cover their operating costs, but they still receive subsidies, since the operators and the infrastructure owners are not the same thing. All of them!  (It's no big thing to break even as an operator if there are  no infrastructure operating costs (including depreciation, etc.) to account for. (To help understand the distinction, think of the 'infrastructure' as a huge main-frame and the 'operators' as the software users of that hardware.)

By the way, why aren't the future HSR operators involved in this business plan and these discussions?
Who, for example, will "own" the rolling stock? California or the operators?  Why is the CHSRA not only involved in infrastructure development, but operational matters as well? Do they intend to both build AND operate?  But, I digress.

This so-called "new beginning" is a major acknowledgement of something we all have known for a long time.  

1.They can't build this train to conclusion because there will be no further funding from any source.
2. It will never produce "surplus revenues" and will require subsidies somehow, either state or federal (and that's not allowed).
3. It will take, not 9 (as this article states), but 14 years and probably more to "complete" and become fully operational.  Roughly 25 years from now.  That's far later than promised in Proposition 1A. 
4. Their new cost number, $98.5 billion, isn't the real new cost number and that will be far, far higher when all costs are calculated. $240 billion has been calculated.
5. Their ticket cost projections are ridiculously low and totally out of sinc. with ticket costs for HSR anywhere else in the world.
6. It will take more like 4 hours to make the SF to LA trip, rather than 2 hours 40.  The vaunted 'High-Speed' has just become lower and thereby fails to meet Prop. 1A legal requirements, as do a number of other CHSRA intentions.

For Simitian or Lowenthal or any other legislator to take this new business plan seriously is grossly insulting to the intelligence of the California voters. 

But, the most interesting aspect of this new business and funding plan is this.  They were obliged in Proposition 1A to complete a 'segment' to be able to operate independently as high-speed rail AND, they were obliged to have funding in hand in order to do so.  However, this ICS/IOS plan is  intended to let them wiggle out of that obligation with "Initial Construction Sections" and "Initial Operating Sections," neither of which are completed "segments," as required.

The 'Initial Construction Section,' from Merced to Bakersfield, for which they supposedly do have the promised $6+ billion, cannot not run high-speed rail; it may only run slow, Diesel-powered Amtrak. Without further funding, that 'section' is all they will have to show for their having spent close to $1 billion in preparation and pre-costruction work.

Changing some jargon to get away with something obviously illegal is not a business plan improvement, with more "honesty" and "transparency," is it?

They know that they don't have funds for the 'Initial Operating Section' which will attach to this first Central Valley construction section either north or south, and those funds must be in place to meet Prop. 1A requirement.  Failing that, there can be no Prop. 1A funds available to them. And, therefore, starting any construction without all the funding in place for one completed segment is illegal.

What the new business plan demonstrates is their inability to build this project. Like a confession, this plan document is a kind of unintentional testimony to guaranteed failure. 

 That's their "new beginning!"  Got a problem with that?

High-speed rail board says plan is 'new beginning'
Michael Cabanatuan, Chronicle Staff Writer
Thursday, November 10, 2011

When the California High-Speed Rail Authority released the long-awaited revision of its business plan, officials heralded the report as "a new beginning" for efforts to build the nation's first railroad with trains running at speeds up to 220 mph.

The report takes a blunt new approach to the project, hoping to convey a new open and honest attitude to combat the spreading impression of the authority as an arrogant, inflexible agency that can't be trusted.

The shift reflects both a new attitude toward dealing with the public and design, acknowledging that sharing operations with commuter rail operations on the Peninsula and in Southern California will help get a fast rail connection between the state's two largest regions completed more quickly, less expensively and with less community opposition.

The new attitude, and approach, was spurred by a makeover in the nine-member High-Speed Rail Authority board, which gained four new members in the past year - two appointed by Gov. Jerry Brown and two by state Sen. President Pro Tem Darrell Steinberg, D-Sacramento.

"This is not a small change in a relatively short period of time," said state Sen. Joe Simitian, D-Palo Alto, who has been critical of the rail authority's approach to the project. "This is a major change in perspective."

$98.1 billion
But the new perspective comes with a $98.1 billion price tag - more than twice the earlier official estimates - along with lower ridership figures and an extra nine years to build the Bay Area-Los Angeles segment in phases.

The new approach appears to have calmed some of the criticism of the 800-mile high-speed rail project, but the higher price has given ammunition to opponents who had already labeled the project a boondoggle. At least one rail foe, state Sen. Doug LaMalfa, R-Richvale (Butte County), wants to put the project back on the ballot for a public vote on whether to proceed. California voters backed the project in November 2008 with 52.7 percent supporting a $10 billion bond measure for a project then estimated to cost $43 billion.

The authority plans to start construction of the first segment of high-speed train tracks - a 130-mile stretch from the northern edge of Bakersfield to near Chowchilla - in about a year, with $3.3 billion in federal stimulus funds and $2.7 billion in state bond money. But the Legislature must approve the release of the state funds, and include the money in the state budget, before ground can be broken.

Which means the authority needs the support of the Legislature, and the public, if California is to start building the nation's first high-speed rail system.

"This is a watershed moment," Simitian said.

a different approach
Gov. Jerry Brown did not respond to questions about the change in the authority board, but it's widely acknowledged that his appointment of two financial experts, Dan Richard, a former BART director and Pacific Gas and Electric executive, and Michael Rossi, a former financial industry executive and the governor's jobs czar, was intended to steer the authority in a more forthright direction. Senate appointees Jim Hartnett, an attorney and former Redwood City mayor, and Bob Balgenorth, president of the state Building and Construction Trades Council, also helped move the board, and the business plan, in a new direction, board members and legislators say.

"The governor said he'd like to see everybody get their act together," Richard said.

'rightful distrust'
The authority, under the previous board, gained a reputation for pushing forward with its plans without listening to communities along its intended right of way. That feeling was particularly strong on the Peninsula, where engineers insisted on elevated tracks and a wide four-track right of way that residents felt would divide communities.

"There was a fair amount of rightful distrust of the rail authority's work," Hartnett said.
The new directors have used the business plan, which was released last week, to mend the agency's reputation and push the project forward.

Richard focused on the financial assumptions of the business plan, he said, while Rossi delved into the ridership estimates. Hartnett worked on the "blended approach," which relies on incorporating Caltrain on the Peninsula and Metrolink in Southern California.

Under the phased construction plan, the San Joaquin Valley segment would next be extended either to San Jose or to the San Fernando Valley, and high-speed trains would start to run while the other end of the line is constructed. Until the commuter lines can be electrified, and rails improved to accommodate high-speed trains, passengers would have to transfer to diesel trains to get to downtown San Francisco or Los Angeles.

trying to 'get it right'
Financially, Ross said, the plan relies on high estimates for construction costs, low estimates for revenue and ridership, and assumes that construction will take longer than originally anticipated.
"The plan," Richard said, "is a major departure from the thinking of the past. It is not a promotional plan; it is a business plan."

Hartnett said the plan "has to be solid enough" to restore the confidence of critics.
"We don't get another chance at this," he said. "We've got to get this right."

questions remain
But critics haven't been silenced.

"The business plan is the first step in the right direction," said state Sen. Jean Fuller, R-Bakersfield. "While many in the valley would like to see additional transportation infrastructure, it's questionable if this project is viable when you weigh the cost and impact to local communities."
Others, however, are more skeptical.

Elizabeth Alexis, co-founder of Californians Advocating Responsible Rail Design , a Peninsula group that has been critical of the authority, said that she's met with Rossi and Richard, but that the ridership model remains seriously flawed, and so does the authority's relationship with the public.
"The new board members would like to erase what's happened," she said, "but you can't. There's a lot of water under the bridge."

E-mail Michael Cabanatuan at

This article appeared on page A - 1 of the San Francisco Chronicle
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