Wednesday, December 7, 2011

Where is our government when the bills come due on high-speed rail?

Just some brief comments preceding this article.  Most articles in the press, especially recently, have made much of the actual costs of the high-speed rail project in California.  It went from $43 to almost $100 billion.  That's a big jump. But, it should not have been surprising.  Some of us have been predicting over $100 billion since before the 2008 elections. And, the cost, as the rail promoters suggest, could be a great investment since they promise all the benefits this project will bestow upon California.

And there's the disagreement.  It's not just that the construction costs are ridiculously high and promise to rise even higher when there will be even greater "transparency" in the disclosures.  It's that the cost/benefit equation which, upon close analysis and lots of arithmetic, is highly unfavorable.  Sometimes, very expensive things are worth it.  But that's not the case here. The taxpayers will never get their money's worth.

The train is not only a fiscal drain for construction in California, that drain is on the entire national economy.  It's also going to be a drain when it's operational and that, though not permitted, would be on the state economy.  None of these costs have been fully calculated yet. While at the same time, the benefits have been wildly exaggerated, whether jobs, positive economic impact, the environment, or whatever.

But there are other, major, not yet calculated costs. The land acquisition costs, which should be identified right up front, have not been entered into the equation.  Then, there are other costs, so far neglected, such as insurance coverage for liability as part of the operating expenses, and the accumulation of capital for replacement, which, with high-speed rail especially, is stunningly high.

And, finally, there are incalculable indirect costs to us, those affected by the rail corridor and its very broad shadow across the urban and rural landscape.  Those are never discussed.

There can be no extra golf strokes, or "Mulligans" for this high-speed rail game.  The rail authority has been given a free pass up to now, and that has to stop.  This game should be called, due to inclement financial weather.  

Californians on High-Speed Rail Project: "Mulligan!"
By Troy Senik on December 6, 2011 9:39 PM

You've got to hand it to California: it's a state that goes big on everything. And now, one of the voters' big ticket purchases from recent years is engendering a super-sized case of buyer's remorse.

In 2008, a majority of Golden State voters approved Proposition 1A, a bond proposal for the state to borrow nearly $10 billion for the construction of a statewide high-speed rail network. The initiative's passage was owed at least in part to the grandiose claims of its proponents -- claims that included the creation of 450,000 jobs and an annual reduction of greenhouse gas emissions by 12 billion pounds.

 The reality, however, has proved to be starkly different. Three years later, not a single inch of track has been laid. And the project's original cost estimates -- pegged at about $40 billion -- have now soared to nearly $100 billion (it doesn't help that the state's public High Speed Rail Authority has dumped more than $12 million into PR efforts).

As a result, California voters seem to have had enough. A new Field Poll reveals that nearly 60 percent of the state's residents would dump the high-speed rail project if given the chance to vote on it again.

As the Sacramento Bee reports:

Of voters who supported the bond measure in 2008, 37 percent would vote against it today, according to the poll. People who originally voted against the measure remain nearly unanimous in their opposition, at 96 percent, while those who didn't vote three years ago or can't recall how they voted oppose it by a 2-1 margin, 57 percent to 28 percent.

There are two lessons here. The first is to beware of public sector supplicants promising that their utopia is only one bond issuance away from reality. The second is that California's initiative system is a bad way to set spending priorities. As I noted in a recent piece for City Journal California, the result is almost always what we're seeing here: aspirational public policy that sounds good until the bill comes due.

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