Tuesday, April 24, 2012

The California High-Speed Train will be hugely profitable. Not!

Unfortunately, Ralph Vartabedian failed to provide access to the report by Grindley, Warren, Enthoven and Bushell to which he refers in this article in the LA Times about profits by the High-Speed Rail Authority's train, if it actually ever begins operations.

Here is the report itself:  http://www.cc-hsr.org/assets/pdf/NFOS.pdf

The rail authority has been claiming since forever that their train would be "profitable."  In this context -- a government created and operated passenger rail system -- that word 'profitable' is meaningless.  'Profitable' is an appropriate term only in the private sector where capital costs are factored into revenue generation and must be amortized. This project is all about spending "other peoples' money" and therefore there can be no profits.

The word they should use is 'revenues,' such as in "surplus revenues," the surplus being the net amount after all operating and related expenses have been paid. So, we taxpayers cover the costs of the development of the rail system, but the train operator must at least break even after all operating expenses are paid.

The California high-speed rail system cannot meet that standard.  There can be no surplus revenues. It will cost taxpayers dearly to operate.  This rail line can only operate with massive subsidies. State law requires that this rail system cannot seek subsidies from the state government; that is, it must at least break even.

We already know that there are only two, or perhaps three high-speed rail operators world-wide who can claim that one of their routes is in fact breaking even; that the ticket fares cover operating expenses.  All other high-speed rail systems in the world require massive subsidies in order to operate.  

The three routes include the Japanese Shinkansen line from Tokyo to Osaka; the Paris to Lyon route of the French TGV, and the Acela route from Washington D.C. to Boston, operated by Amtrak.  All the other routes, high-speed or not, are money losers for those operators and must be subsidized by their respective governments. 

To be perfectly blunt about this, Mrs. Rossi and Richard are not telling us the truth. They claim that all High-Speed Rail systems are profitable; that is, they all generate surplus revenues. That's ridiculous.

What's the point here?  The rail authority, especially its most vocal Board members, Mr. Rossi and Richard, declare that the California high-speed rail line, once operating, will be "profitable," and therefore, require no government denied subsidies. Indeed, they make the claim that far fewer riders will be required to attain this budget balance than the projected ridership predicts.

My colleagues, Grindley, Warren, Enthoven and Bushell, all financial whizzes, have demonstrated with academic accuracy, empirical evidence and reliability, that what the rail authority states is utter nonsense.

Why would the rail authority perpetuate such nonsense? Because, self-sustaining operation is required by the authorizing legislation.  That is, the California HSR cannot legally obtain any subsidies to operate. So, for construction to begin, they need to assure us that the train will operate profitably.

It is a justification to garner support for the project by making all of us believe that we will not have to pay for this train once it is in operation; that all the costs to taxpayers will have been no more than the capital development. 

You should know that all this fabrication comes as no surprise.  It is yet one more aspect of the project about which the promoters have lied.  If the full truth about this project were known, it would have never become legislation and would certainly never have been approved by the voters.  The ballot proposition was, in fact, an assembly of lies; the ballot in 2008 was a fraud perpetrated on the voters. 

If, despite this discovery and your having read the report about the lack of truth regarding necessary subsidies, you still believe that this train project is a good thing for California and should continue, I urge you to read all the other reports written by Grindley, Warren, Enthoven and Bushell.  You can find them on this web-site: http://www.cc-hsr.org/

Needless to say, the rail authority will continue to weave a fabric of lies interminably since the final proof will only be in the pudding, so to speak.  They can, and will, continue to dispute all these findings in order to obtain and spend the available funds, and beyond if possible.

That means that until the train actually starts operating, no one can state irrefutably that it will be a huge money loser forever. By then, of course, it will be far too late to stop the development of this train.  However, there is more than enough evidence right now that compels any rational and reasonable person to admit that this high-speed rail project will be a devastating failure.

Too bad that the Governor and his minions are so deaf, blind and indifferent to the truth. 

Bullet train authority underestimates operating costs, study says
California taxpayers potentially will have to provide billions of dollars annually once the system is running, a group of financial experts say.

By Ralph Vartabedian, Los Angeles Times
April 24, 2012

The state rail authority has grossly underestimated future operating costs of California's proposed bullet train, meaning taxpayers potentially will have to provide billions of dollar annually once the system is running, according to an analysis released Monday by a group of outside financial experts.

The California High Speed Rail Authority's claim that its future system would generate hundreds of millions of dollars in surpluses is based on unrealistic assumptions about what it will cost to operate the network, according to the study group, which included former World Bank official William Grindley and Stanford University management professor Alain C. Enthoven.

The rail authority claims it can operate the 510-mile system at a cost of about 10 cents per passenger mile, less than one-fourth of the 40 cents to 50 cents it costs high speed rail operators in other countries, the analysis found. If California's bullet train operating costs rise to the international average, losses will range from $2 billion to $9 billion annually, according to the report.

"We are confounded by where the authority is getting its operating costs," Grindley said.

The group, which also includes Silicon Valley executives William Warren and Alan Bushell, has written a series of financial assessments of the bullet train plan that sharply question its economics. The four experts are affiliated with the Community Coalition on High Speed Rail, located in the Bay Area.

The rail authority disagreed with the findings in a statement.

"We have met with the authors of the report in an attempt to correct their flawed assumptions and conclusions," said rail board member Mike Rossi. The rail authority's plan uses conservative assumptions that demonstrates the system can produce an operating profit, which would revert back to the state or pay for additional rail investments, Rossi said. "Most if not all of the foreign high-speed train operators are currently operating without subsidies and some have even repaid portions of their original capital investments," he added.

The authors of the study studied both European and Asian high-speed systems. They found that costs range from a low of 34 cents per passenger mile in Italy to 50 cents in Germany and Japan, based on public reports published by those operating systems.

Grindley said it appears that the rail authority's consultant, Parsons Brinckerhoff, estimated the cost of operating the California system by assembling as many as 300 different cost inputs, though the rail authority has declined to identify all of those inputs. In most cases, California's costs would be even higher than those in Europe, including for labor and electricity, Grindley said.

Under a bond measure approved by voters in 2008, the California system is supposed to operate without a subsidy. The authority has repeatedly assured state lawmakers and the public that the system will operate at a profit from the day it begins partial operations. The $68-billion tab for building the system is not included in the operating costs.


No comments: