Friday, November 4, 2011

Want that gravy on the side? The High-Speed Gravy Train

This is among the more, tell-it-like-it-is articles from the last two days.  The first thing that John Seiler picks up on is something that I criticize constantly; that is, fudging numbers to make them appear lower.  Sale, this week only! $7.99!  Why not $8.00? One penny less makes it appear that it's in the seven dollar range, not eight dollars.  Well, our CHSRA friends have done the same thing, billing their new costs at $98.5 billion, not $100 billion. Makes it appear less.  Car dealers do that all the time. Call that marketing.  

But - but - but I thought that this new business plan was all about "honesty" and "transparency."  Apparently not. The rail authority is in the real estate business, not the transportation business.

Do you suppose that the California voters will support any additional bond funding for this project?  With a $100 billion project, even the current $10 billion bond issue, approved by the voters in 2008, won't go very far.  We're talking in-deep-debt-doo-doo California, with its bond offerings approaching junk bond status. The rail authority has, from the beginning, promised that the taxpayers would not be obliged to provide one penny more than the $10 billion bond issue.  With this new price forecast, can California stick to that promise?  We'll see.

The best thing Seiler does in his argument is show how Jerry Brown, absolutely determined to obtain that $3.5 billion promised to California by the FRA in Washington, constructed the agenda to obtain this particular new business plan, which he supports so enthusiastically.  There were several steps which this article lays out, beginning with his placement of two new guys on the CHSRA Board, and for whom the entire business plan was re-written last minute, weeks after it was due.

What we are now confronting is a whole new set of "facts" and directions.  The total cost for the first phase, from SF to LA will now cost $100 billion. (We feel free to round that up.)  The ticket costs (one way) have dropped from around $150 to $81. They loved the former ridership numbers, so roundly criticized by the Berkeley Institute for Transportation Studies, and they continue to defend and love them now. But, with all these shifting numbers, they still promise huge profitability.

Until recently, that ridership number has been dropping at about the same speed as the price of the project has been rising. I strongly suspect that they will each continue to do so.  Ridership forecasts are the critical "independent" variable that determines success or failure.  All HSR opposers argue that their ridership numbers are grossly inflated and totally unrealistic. Indeed, the rail authority's documentation is a great example of Gi-Go; garbage in; garbage out. 

It will take longer, by 14 years, to complete that first phase, which, as we know, doesn't include Sacramento going north, or San Diego, going south. That means 2033 before any HSR trains start actually running.  And that means, if you follow me, that all those promised "permanent jobs," half a million of them -- those that should emanate from the very existence of this train -- would NOT begin to multiply until after 2033.  This sure is a vision of the future; the distant future, and in a galaxy far, far away. 

What technologies do you think they will deploy by that time?  What they so much admire today running on China's new and unfinished tracks (or off those tracks)? Those video images appear so futuristic now, but look at the state-of-the-art trains we were running thirty years ago, if you see what I mean.


NEW: Call It the High-Speed Gravy Train
NOV. 3, 2011

So what’s going to happen with the California High-Speed Rail project? The new business plan of the California High-Speed Rail Authority increases the estimated cost from $40 billion to $99 billion.

Just the number shows it’s really about politics: The $99 billion figure has two digits, instead of three if it were $100 billion. It’s like the sale at a store is $9.99 instead of $10.00. So these are Government Numbers, not real numbers.

And behind the politics is the money. That’s why they really should call it the High-Speed Gravy Train.

It’s clear now that the choo-choo will get, at most, only $13 billion: about $3 billion from the federal government and $9.9 billion from Proposition 1A, which misled voters passed in 2008, before they realized their economy was collapsing into a pile of guacamole on the I-5 freeway during a 100-degree summer day.

There’s no way voters will approve any more bond money. And with Republicans in charge of the U.S. House of Representatives, there’s no way the feds will send any more money out to California. Republicans also well could take over the U.S. Senate and the White House next year.

So, the question resolves to: How to make sure they can slurp up that $13 billion for the High-Speed Gravy Train?


The first step was to involve someone who knows how to make sure the federal gravy is delivered in a freight car. That’s why Gov. Jerry Brown got his Jobs Czar, Michael Rossi, involved in the project.

As I reported when Rossi was given the Jobs Czar post, his background mainly has been as a Bailout King, for example for General Motors. The guy knows how to get the federal taxpayers’ cash flowing to projects.

The second step was to pump out a more realistic business plan. The $40 billion price tag touted in 2008 was as outdated as the breathless rhetoric of top High-Speed Rail booster Arnold Schwarzenegger. So yesterday’s plan was just what was needed. It basically says: Yes, it’s going to cost a bit more and have a bit less ridership, but it’s still a great idea. And it’ll create 100,000 jobs!

As Authority member Dan Richard said, “This is us telling it like it is to the public — no sugar-coating, no baloney.” But it tastes like sugar dumped on baloney.

The third step now is to get the federal money flowing out to the early parts of the project. Rossi should help there.

The fourth step will be to float that $9.9 billion in bond money. That’s a tough one, but not impossible. In October, Treasurer Bill Lockyer irresponsibly floated another $4.2 billion in bonds (for non-High-Speed rail projects), which will cost taxpayers twice that to pay back, $8.4 billion.

That means the state’s yearly bond payments from the general fund rose from 3.4 percent of general-fund spending in fiscal year 2003-04, to 7.8 percent for 2011-12. Bond advisers say only up to 5 percent is prudent.

The cost, about $7 billion a year from the general fund, is the lion’s share of the $10 billion in tax increases that Gov. Jerry Brown failed to get this year, but still is seeking. Put another way, without the bond payments, there would be plenty of money to go around, and Brown wouldn’t have to ask to squeeze taxpayers more. This again proves my maxim, “Bonds are delayed tax increses.”

So, getting that $9.9 billion will depend on the state’s economy recovering, which everybody always expects. A recovering economy would mean more general-fund money. But what if there is no recovery?

A tax increases also would mean more general-fund money. That is, if the tax increases didn’t make the business climate so much worse that even more companies leave the state, and the anticipated revenues with them.

But it should be possible to get, say, $2 billion a year in new bond funding for five years. That would keep the High-Speed Gravy Train flowing.

They probably could do it with all their fantasy talk about creating 100,000 more jobs while creating a California green Ecotopia.

The Dream

Here’s the first three paragraph of the Authority’s press release:

SACRAMENTO, Calif. – The California High-Speed Rail Authority today released a new business plan that lays the foundation for an economically viable high speed rail system that will create 100,000 jobs in the next five years, and is expected to generate another 1 million jobs moving forward.  California’s high speed rail system, the first in the nation, is also expected to reduce carbon emissions by 3 million tons annually. 

The new business plan describes a phased approach to construction that will allow the Authority to adapt to changing financial conditions as it moves forward, segment by segment. The plan also updates cost estimates, ridership figures and funding expectations to reflect current economic realities. The result is a fiscally sound project that will attract and drive private investment, generate strong revenues and operate without any public subsidies, just as other high speed rail networks do throughout the world. 

“We have carefully constructed a business plan that is mindful of the economic and budgetary constraints facing both the state and the nation,” said Authority Board Chairman Thomas J. Umberg. “It will deliver to California and Californians a cost-effective, efficient, and sensible alternative to more highways and increased airport congestion.” 

That’s really a work of art. Whoever wrote it is the Hemingway of political propaganda, all understated prose and the promise of adventure.

Not just 100,000 jobs, but 1 million jobs!

It’s “phased,” “segment by segment”! They’re not just going to blow the $99 billion all at once. They’re going to take their time and get it right. They’re making a list and checking it twice!

Their business plan is “carefully constructed”!

The project is “fiscally sound”!

And they’re “mindful of the economic and budgetary constraints”!

Just watch them ladle that $13 billion in gravy out of your kitchen, onto the freight cars and into the mouths of the special interests that will profit.

No comments: