While Professor White makes a number of factual and numerical errors, the gist of his argument is exactly right. We are being taken for a ride by the Democratic Legislature, which up to now has avidly supported this project, by the Governor, and certainly by those rascals on the CHSRA Board.
Even their CEO, Roelof Van Ark, who was hired for his skills at turning a failing company around, as he did several times in Europe, and who was cold-bloodedly determined to proceed with this project regardless of any political shenanigans of the Board, has been diverted from his intended agenda to play silly games as outlined in the new business plan. Had Mr. Van Ark any integrity, he would resign. But, the $400K annual salary with perks may be too much to simply walk away from.
Prof. White is angry and his anger takes the form of sarcasm. Therefore, one has to read the article with caution and not miss the intention behind many of his observations whereby he means the opposite of what he says.
This high-speed rail project is a financial disaster. In the last paragraphs, Prof. White makes the observation that the high-speed rail authority has the obligation to protect the California public. That's an arguable point. However, it is not arguable that the Legislature and Governor, our elected representatives, have a duty and responsibility to protect us from all disasters, including financial ones.
So far, the Governor and Legislature are doing a lousy job of it.
Take this bullet train. Please
California's proposed high-speed rail project is a costly boondoggle.
By Richard White
November 6, 2011
So, the California High-Speed Rail Authority was wrong. The bullet trains from Anaheim and Los Angeles to San Francisco will not cost $34 billion as originally estimated, or $43 billion as the authority insisted just two years ago, but closer to $100 billion. Critics say the agency's new $98.5 billion estimate is low, and the authority admits it might go as high as $117.6 billion, but for sake of argument call the cost $100 billion.
The authority is offering us less for more. The original system included Sacramento and San Diego. They are not part of this estimate. They will be added in Phase 2, and the authority does not say what Phase 2 will cost. Critics of the plan estimate the total cost at $180 billion.
This is a lot of money in a state cutting back its higher education system, shortchanging its K-12 system and watching its existing infrastructure decay at an alarming rate. This is roughly five years of funding for the University of California and roughly 2 1/2 times the governor's proposed annual budget for K-12.
But forget about that. The new report from the same old consultants assures us that we don't need to worry about where the $100 billion will come from or who will actually ride this railroad. The new report has new numbers — most assuredly correct numbers, because why shouldn't we trust these people? And they have a plan.
To build a $100-billion system we have $3.3 billion from the federal government for high-speed rail and another $3.25 billion in federal stimulus funds. [This is not correct. There are $3.5 billion in federal funds and the rail authority will use $2.7 billion from the $9.95 billion state bonds.] There is $9 billion in bond money approved by voters in 2008 through Proposition 1A. What we will do is build the first sector from Bakersfield to Merced. Yes, Bakersfield to Merced. Then we will need further federal, state and local aid, which if it comes at all will have to come at the expense of other far more feasible and necessary transportation projects.
But the plan expects the first segments to turn a profit and attract private investment. Really. The plan says we will build incrementally, not finishing the system until 2030, with it fully operational in 2033. And each completed segment will draw additional private investment. If we are going to build incrementally, why not just wait? The Chinese rush to high-speed rail is not working out as well as it might. It is plagued by technical problems, cost overruns, corruption, low ridership and high fares. New technologies tend to improve with time and grow less expensive. Look at your computer.
Because only two high-speed systems — Tokyo to Osaka and Paris to Lyon, neither of them comparable to the California route — turn a profit, the report resorts to another measure. It assures us that high-speed rail systems throughout the world pay their operating costs and maintenance from fares. [They don't] But this is not a profit. A profit means you repay the cost of building [and operating] the system, the interest on the money borrowed to build it and gain something besides. A profit is necessary if you are going attract private capital. This report skirts the issue of capital costs — the costs of investment and interest. If we got a free railroad, we might be able to maintain it from ticket fares alone (although I doubt it), but this railroad will cost more capital than we have. Capital costs money. [Prof. White is incorrect. This train will not be able to operate on ticket fares alone. It will require additional subsidies to cover operating costs, replacement costs, insurance, and other non-capital costs.].
But let's imagine the first segment does turn a profit from that assuredly lucrative clientele ready to go back and forth between Bakersfield and Merced. The profit will be the result of public investment. This segment of the line will be a gift from the federal government and California taxpayers. Any ensuing section, however, will entail much higher capital costs because private investors will expect a return. So the first section doesn't really tell us the cost of the ensuing sections.
The report says the private sector will absorb the risk. Really. It won't demand a subsidy or a public guarantee, because Proposition 1A prohibits this. That other public/private partnerships like Freddie Mac and Fannie Mae have not always been examples of financial rectitude and have needed public bailouts shouldn't bother us. God forbid we learn from experience. And the Legislature would never change the rules, even to rescue a white elephant in the San Joaquin Valley. Really.
The California High-Speed Rail Authority has created a set of models and scenarios to answer the objections to its earlier models and scenarios. These will be parsed in much more detail than I can do here, but it is best to note the assumptions. First, its model assumes that the rail passenger fare will always be cheaper than airfare or driving. A ticket from San Francisco to Anaheim will be $72 in 2005 dollars. This is projected out to 2030.
Second, the ridership will be immense — anywhere from 28.6 million to 37.1 million. This admittedly may appear realistic compared with the 90 million once promised. [117 million.]It is, however, not far from the 39 million projected in 2009. The agency can't go much below this. It needs high ridership or the model for turning a profit falls apart.
But these kinds of projects always overestimate their ridership. Actual ridership of the BART line to San Francisco's airport, for example, was in 2009 only 25% of the 2003 prediction. If California high-speed rail captured the same percentage of riders as Amtrak's Acela does today in the Northeast corridor, an area with a long tradition of rail travel and a higher population than California, it would have about 5 million riders, not 28 million to 37 million. Uh-oh.
Read the fine print. The report contains a disclaimer. The ridership projections are estimates. They are "subjective judgments" and "may differ materially from the actual future ridership and revenue." They should not be "construed to constitute a guarantee, promise, or representation of any particular outcome(s) or result(s)." You have been warned.
Like any magicians, the writers turn attention elsewhere. High-speed rail will supposedly relieve us of $170 billion in airport and highway costs. We are really $70 billion ahead. How do we know this? Well, they told us, even though most airline traffic coming into and out of the state has nothing to do with travel between San Francisco and Los Angeles (let alone Merced and Bakersfield). And unless we build separate freight lines, trucks will continue to thunder down Interstate 5.
These are all old tricks. I have written in my recent book, "Railroaded," about the original transcontinental — the Central Pacific/Union Pacific, a road that lacked traffic and acquired a huge debt. In his draft of the 1872 Central Pacific annual report, Leland Stanford — either from unusual honesty or from normal carelessness — listed all the company's debts, including the capital costs: the principal and interest owed the federal government. The reader can almost hear his partner Collis P. Huntington's long-suffering sigh as he wrote: "I shall strike the interest out unless I get the reasons why they were put in as this report is to help the sale of stock and this item of say $80,000,000 is not in that direction."
The ghost of Huntington hovers over the California High-Speed Rail Authority. Its members are supposed to protect the California public, but there is too much money to be made from this project to do that. They are boosters who tell us what they want us to know. They sell the Legislature short, and in this they may be right. They sell the governor short, and in this too they are probably right. They also sell the California public short. They think we are suckers.
I hope they are as wrong in this as they are in their calculations.
Richard White is a professor of history at Stanford University and the author of "Railroaded: The Transcontinentals and the Making of Modern America."
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