Wednesday, May 2, 2012

When this High-Speed Rail disaster is finally build, who will be around to say "I told you so."

Wolf RIchter poses the situation with high-speed rail very well in this article. California continues to operate along the edge of an economic cliff.  Nonetheless, the Governor and fellow Democrats are determined to juggle a number of running chainsaws as they stumble along the precipice.  (Is that too many metaphors all at once?)

However, the rail authority keeps reassuring us that they know what they are doing. They keep generating new phraseology to cover their improvisations, but it's all theater; show business.  No substance.  Like those theater stagings where the front of the "flat" shows a house, but the back is nothing but sticks and canvas. (Sorry, yet another metaphor.) 

"Initial Investment," "blended system," "Initial Construction Segment," "value engineering," "Initial Operating Segment." What do these terms mean? They mean that they have fundamentally changed their game plan due to the realities of no further funding from Washington. And it means that they have moved away from the commitments required in the authorizing laws.

Here's the thing.  All the numbers that the rail authority is putting out, the total costs of construction, the number of annual riders, the time it will take from LA to SF, the number of jobs, the environmental impact, etc. etc. are all based on predictions; forecasts.

We can and do challenge them and, against their mathematical models, produce data that demonstrates the incorrectness of their numbers.  Nonetheless, the only way we can empirically and factually prove that their numbers have been all wrong, is not until the train becomes fully operational.  And that won't be for what, two decades?

At this time, they will tell us that it's their word against ours. Their "facts" disagree with our "facts." If we don't like it, sue them!

Then as construction commences next year, and after two decades they get a train running, what will we do when the total costs have risen to $200 billion and continue to climb?  When their ridership is grossly less than what they predicted?  When their train tickets cost so much more than they are saying now? When there have been far fewer jobs than estimated? When their operating costs are staggeringly high and need to be massively subsidized, as this article suggests?

Will we all then say, we shouldn't have built this train?  It was a huge mistake that we will be paying for forever? We stupidly supported the building of the most expensive White Elephant in the history of the US?

It should be totally apparent to every one of us that the Governor and rail authority don't give a damn what several dozen complainers like us have to say. The Governor calls us "decliners," a strange word but adequately dismissive, like Rod Diridon's infamous "rotten apples."  

And, those of us still around twenty years from now, what will we say, "We told you so?"

'The Great Train Robbery' Is Costing California Billions Every Year

Wolf Richter, Testosterone Pit | 
May 2, 2012, 8:23 AM | 
Wolf Richter is an entrepreneur, executive, and writer based in San Francisco.

The hoped-for April spike in personal income tax revenues for the State of California fell once again below the overoptimistic assumptions used to get the budget to “balance.”

Instead of the $9.4 billion that the government had counted on collecting in April, it only collected $7.4 billion, according to the nonpartisan Legislative Analyst's Office. A 21% shortfall! In addition, corporate taxes were $450 million below forecast. After months of “disappointing” tax revenues, the total shortfall in income taxes now amounts to $3.5 billion for fiscal 2012 ending June 30.

The budget, supposedly balanced when it was passed last summer, had been spewing red ink from day one. Tax revenues were one problem. Expenditures were the other. The most recent re-revisions pegged the deficit at $9.2 billion. That was a few weeks ago. Now it’s going to be re-re-revised to nearly $12 billion. And the dance of shuffling funds between accounts, slowing payments to municipalities, begging Wall Street for loans, and selling crappy bonds will start all over again.

Yet permanently broke California, instead of fixing its fiscal problems, is getting ever more entangled in a mega-project of JELL-O-esque nature: high-speed rail between San Francisco and Los Angeles. In 2008, voters authorized $9.95 billion in general obligation bonds to fund the first stage of the $35.7 billion project; the federal government would pick up a chunk, and it would be profitable! By November 2011, costs ballooned to a range between $98.5 billion and $117.6 billion—though construction hadn’t started yet. And all heck broke lose.

The California High-Speed Rail Authority (CHSRA) then dared to request $2.7 billion, the first tranche of the bond money, to be matched with $3.5 billion in federal money, for 130 miles of track in the Central Valley from just north of Fresno down to Bakersfield. Lacking electrification, it could only be used by regular diesel trains. In January, the High-Speed Rail Peer Review Group recommended that the project be put on hold: if future funding didn’t materialize, that initial section in the Central Valley would become an icon of high-cost rail from nowhere to nowhere.

Resistance to the project became insurmountable. So, Governor Jerry Brown installed some new folks at the CHSRA—which suddenly chopped the price tag by 30% to a range between $68 billion and $80 billion. OK, on the Peninsula south of San Francisco and in the LA Basin, the system would be more like commuter rail. And it would also include more "medium-speed" links. Travel times would creep up. High-speed service, where available, might be ready by 2028.

“The great train robbery,” is what retired Judge Quentin Kopp called the new plan—and he, as state senator, co-authored the bill that created the first high-speed rail study.

But it gets even worse: turns out, operating costs are based on fantasy assumptions. The CHSRA plan assumes that it would cost 10 cents per passenger mile (the average cost of carrying one passenger one mile at a given load factor) when international high-speed rail systems averaged 43 cents per mile, according to a report that just surfaced. The low-cost leader was Italy with 34 cents per mile; at the upper end were Germany and Japan with 50 cents per mile; Amtrak’s Acela Express, though not truly high speed, was in the middle with 44 cents per mile. And in California, it’s going to be 10 cents per mile?

The CHSRA correctly assumes that train tickets compete with air fares and the cost of driving, which, despite our incessant complaints, are lower in California than overseas. Thus, the US market requires cheaper tickets. And to make the project appear profitable, and thus more digestible for the taxpayer, the CHSRA lowered its projected operating costs to less than a quarter of the international average.

But if actual operating costs are 43 cents per mile and not 10 cents per mile, annual subsidies of $2 billion to $3 billion would be required just to keep the trains running, according to the report. Yet, AB3034, the California High-Speed Train Bond Act, makes these subsidies illegal. A conundrum that the Legislature, the Administration, and the CHSRA have so far successfully ignored.

Thus, our dream of having a profitable high-speed rail system has gone up in subsidies, so to speak, at least in the current scenario, though scenarios change with the seasons, in the hope that money will start flowing soon. But the last thing California has is money—with its economy and budget still in shambles. And it may not just be California.

"Despite all of the rhetoric to the contrary, it looks like the air got let out of the balloon," commented the members of the ISM-Chicago Business Survey that had suddenly taken a turn for the worse. And now there are real reasons for concern. Read.... Calamity Economy Rearing its Ugly Head Again?

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