Wednesday, November 2, 2011

Looking at the cost inflation of HSR with adjusted numbers

First of all, we must acknowledge a distinction between costs based on current evaluations and costs based on "year-of-expenditure" evaluations.  As you might expect, out-years raise the costs.  That is, the longer we project an expenditure the greater it's cost will be. The second additional complication is "inflation-adjusted" dollars. These are critical issues with the pricing forecast for construction of the California high-speed rail system. We haven't been comparing apples and apples.  I won't repeat the article's detailed explanation.

The take-away here is that the costs didn't, as I have erroneously persisted in saying, triple.  But they have increased by more than twice.  I appreciate the correction. 

Ironically, the rail authority is being congratulated by Legislators for their newly discovered honestly in pricing forecasts, rather than being castigated by them for having misled the voters in 2008 with low-ball cost figures. It should be fairly obvious that they knew even before the '08 elections what the actual costs would be.  Why is this any different than being suckered into buying something for $100. only to discover, once you have it, that it actually costs $250?  Why is there no "Caveat Emptor" with this project?

The article also makes an assumption that I had, until recently, rejected; that is, if the voters were to choose to vote for High-Speed Rail today (knowing what they now know) they would vote against it with a larger majority than those who voted for it in 2008.  I only wish that were true, but, unfortunately, we will never find out.

Let me make my point this way: high-speed rail failure is our failure.  We should all know better than being suckered into this deal.  Yet, the selling continues, with the support of the Democrats who are desperate for the free $3.5 billion from Washington. A few of us are complaining; most of us are indifferent. And some of us, hoping to profit personally in some way, are pushing like crazy for it.

They, the Democrats, will not acknowledge that those $3.5 billion of free dollars (paid by all American taxpayers) will cost California huge amounts of money forever.  Why not?  Because by the time most of us find out that the state government is cutting useful and essential services, like education and medical benefits in order to pay the interest and subsidies on this luxury train project, they will have been out of office and retired.  It's their children and grandchildren that will be left to pay the eternal debts generated by this boondoggle.

High-Speed Fail, v. 2.0

Ninety-eight point five billions dollars. That’s the new cost of California’s high-speed rail line from Los Angeles to San Francisco, according to a business plan released yesterday by the California High-Speed Rail Authority.

At least, that’s the cost reported (a half day in advance of the plan’s release) by the Los Angeles Times. The reason why the cost has more than doubled from previous estimates is that the Authority is now proposing to not finish the line until 2033 (vs. 2019 in the previous plan–see p. 52), and the added years of inflation make the cost higher in “year-of-expenditure” (YOE) dollars. When adjusted for inflation to today’s dollars, the cost is “only” $65 billion.

The media doesn’t seem to get the distinction between YOE and inflation-adjusted dollars. The same LA Times article notes that the previous business plan estimated a cost of $33 billion in 2008, which mysteriously went up in 2009 to $45 billion–in fact, the $33 billion was inflation-adjusted dollars while the $45 billion was YOE dollars.

The bad news for rail advocates is that the media, which happily printed the lower, inflation-adjusted numbers before the 2008 election, is now highlighting the higher YOE numbers, making appear costs have tripled from $33 billion to $98.5 billion in just three years, when in fact they “only” doubled.

(Actually, the original cost estimate, in 1996, was a little more than $10 billion, which is about $15 billion in today’s dollars, so costs have more than quadrupled since then. Even with the low 1996 estimate, researchers at the University of California calculated that “high-speed rail would be California’s most expensive mode of intercity transportation”–see pp.21-25.)

Other media reports are playing up the path of destruction the rail line will take through cities and opposition to the rail line from the Union Pacific Railroad and “farming giant J. G. Boswell.” “All Aboard the Train to Bankruptcyville,” read signs in California’s Central Valley. All these things make clear that rail advocates have lost the public-relations battle: If it were on the ballot today, high-speed rail would lose by a much larger margin than it won by in 2008.

Since it isn’t on the ballot, the question is what opponents can do about it. “Scrapping the railroad would all but send $650 million down the drain, as the rail authority has spent that much planning the project since 1998,” warns the San Jose Mercury-News. This is an idiotic argument, of course; more persuasive to some elected officials is the fact that giving up on the project would mean returning $2.2 billion to the federal government: no politician wants to lose face by giving up that kind of money.

Maybe opponents should lobby Congress to allow California to keep the money if it spends it on more worthwhile transportation projects that won’t require further federal infusions and bailouts.

The scary thing is that, unless the legislature decides to halt the project, the Authority is almost certain to begin construction next year of a high-speed rail line to nowhere. It has less than $9 billion in hand, which might be enough to build (if there are no more cost overruns) from Corcoran to Borden–i.e., from the prison town where Charlie Manson lives to a ghost town. As the Mercury says, building this line will “provide a 45-minute shortcut for the 3,000 [daily] riders on Amtrak’s San Joaquin line” (and that optimistically assumes Amtrak will have trains that can operate both at conventional speeds and high speeds).

From out in right field, former General Motors executive Bob Lutz suggests that the feds raise gas taxes to “pay for upgrades of the nation’s aging rail system.” Apparently, Lutz, whose company was bailed out by the feds, hasn’t heard the news that America’s railroads are healthier than they have ever been, if you don’t count the obsolete portion of them that is dedicated to passenger trains. [edit. In other words, freights are healthier, passenger is obsolete.]

The real news in the Authority’s new business plan is the projected 14-year delay in completion. That means that a whole lot more people who voted for the project in 2008 won’t live to see it completed.

More relevant, perhaps, it also means that any projections of future needs or benefits are just that much more uncertain. The big argument for the rail line is that it will save energy, but the Authority’s 2005 environmental impact report erroneously assumed that cars in the future would be no more energy efficient than they are today. In fact, if auto manufacturers meet Obama’s fuel-economy standards, cars in 2033 will use only about half as much energy, per passenger mile, as cars today, which is a lot more fuel-efficient than what Amtrak uses. Airplanes are also expected to become far more energy-efficient, so the case for high-speed rail comes down to little more than political pork barrel.

No comments: