Friday, March 30, 2012

Will High-Speed Rail be a permanent drain on the California budget? Is the Pope a Catholic?

Granted that this article doesn't come from the New York Times, the Washington Post, or the LA Times.  Nonetheless, it asks the right questions and perceives the problem for what it really is.

A highly debt ridden state -- California -- is intent on borrowing $9 billion.  That's an enormous amount of money.  And, repaying it with interest over the life of the General Obligation Bond will cost at least $18 billion. Like any mortgage, this is not free money. It promises to be a debt burden for generations to come.

Yes, I understand the Keynesian principle that during economic crises, a nation does well to borrow money to inject into the economy, especially at bargain interest rates.  But, you really have to ask what for? To whom will these borrowed dollars flow in the construction of a high-speed train?

The zillions of promised workers hired for construction and the secondary labor market?  I don't think so.  My anticipation is that these dollars will flow to the contractors and their contractors, to the hundreds upon hundreds of consultants, to the foreign manufacturers of HSR hardware, and to those public as well as private organizations that will be involved in "laundering" these construction funds as they pour through the pipeline.

And all for what? A train that will have its construction costs continue to rise during the life of the construction process.  Now they admit to $117 billion.  It most likely will rise to twice or even three times that amount.  Those are the lessons of the history of rail infrastructure and other development projects in this century, world-wide.  (Bay Bridge: $1.6 billion; now $6.7 billion! Boston Big Dig: $2 billion; now well over $22 billion.)

It will be a train with operating costs so high that even the most costly train tickets available will not be sufficient to cover those costs.  As with almost all high-speed rail systems world-wide, subsidies are a permanent condition of operation.  California's train will be no different.  

If the rail authority tells you otherwise, don't believe them.  They want you to think that the train will be profitable because that is what the law requires.  That is to say, the law prohibits any subsidies. And those surplus revenues generated by HSR are intended to expand the system to Sacramento and San Diego.  How likely is that?

What I find interesting about this part of the law is that it cannot be enforced until the train is fully in operation for a period of time.  And then what?  So, now it's 2035 and Oooops, it's not profitable. They built a $300 billion train and can't pay to operate it. Who are they going to arrest? The members of the California High-Speed Rail Authority? Of course not.  The legislature and the governor -- whoever they are in 2035 -- will pass a subsidy tax law, covering the part of the train operating costs not covered by the train tickets.

That means, your children's taxes will not only go to meet the bond issue costs, but also go to operating a train that most of those children won't be able to afford to ride. And those are dollars not available for, among other things, education.

Which leads me to a final point about legalities and the law.  Many of us are constantly concerned about the violation of the requirements stated in Proposition 1A and AB3034. And we should be.  

However, it should also be clear by now that the rail authority, the Legislature and the Governor are going to spin all their "illegal" actions regarding this project with Orwellian double-speak verbiage that makes the unlawful lawful. 

Don't like it? Sue them!

Bullet train will bleed California budget

March 28, 2012 5:00 PM

The Orange County Register

Voters approved $9.9 billion in bonds in 2008 to partially fund California's proposed $33 billion high-speed rail project. The price since has increased to as much as $118 billion. The completion date has been extended 12 years, to 2032.

To use $3.3 billion in federal funds, train backers need legislative approve to sell $2.7 billion of the bonds. The Legislative Analyst says more than $700 million a year from the state's general fund would be needed to pay bond interest.

Budget-strapped California should not pay for an initial 130 miles of track in the Central Valley that won't connect metropolitan centers, and won't have trains running on it until it does.

The Community Coalition on High Speed Rail, a Northern California nonprofit, doesn't like the idea of a 20-foot-high wall and high-voltage wires 20 feet overhead powering 200 trains a day at 120 mph through neighborhoods. The coalition used the Rail Authority's own questionable ridership estimates to show that even if the hoped-for passengers materialize, to meet realistic costs, "future Legislatures and future administrations will have to provide annual subsidies in the range of billions of dollars."

The 2008 ballot measure forbids operating subsidies. The only alternative, says the coalition, is to price tickets for luxury riders. Voters misled in 2008 into voting for this boondoggle didn't intend to subsidize train operations, or to create a luxury service.

A ballot initiative to de-authorize bond sales is gathering signatures to put it on November's ballot. This costly endeavor isn't guaranteed to succeed. If it does, there will be opposition financed by crony capitalists, seeking billions in government contracts, even if trains never roll.

Those who want the government to force Californians out of their cars and into tax-subsidized trains should ask why no private entity has invested a dime. It is because of operating losses identified by the Community Coalition.

Sadly, there may now be enough legislative votes to approve selling bonds to provide seed money. Rail officials are offering to divert some of the train's billions to finance local rail improvements, north and south. We believe that would be illegal. But cronyism isn't limited to the private sector.

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