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California’s Bullet Train — On the Road to Bankruptcy

Posted by Ken Orski on Wednesday, June 1st, 2011

Innovation NewsBriefs
Vol. 22, No. 16

For California’s high-speed rail boosters including their chief cheerleader, U.S. Transportation Secretary Ray LaHood, the month of May must have felt like a month from hell. First came a scathing report by California legislature’s fiscal watchdog, the non-partisan Legislative Analyst’s Office (LAO), questioning the rail authority’s unrealistic cost estimates and its decision to build the first $5.5 billion segment in the sparsely populated Central Valley between Borden and Corcoran. That segment, the LAO noted, has no chance of operating without a huge public subsidy, yet the terms of the voter-approved Proposition 1A, explicitly prohibit any operating subsidies.

These concerns were echoed by an eight-member Independent Peer Review Group. “We believe the Authority is increasingly aware of the challenge of accurate cost estimating,” wrote its chairman Will Kempton in a letter to the California High-Speed Rail Authority’s CEO, Roelef van Ark. The Legislative Analyst‘s Office had concluded that if the cost of building the entire Phase I system were to grow as much as the revised HSRA estimate for the Central Valley segment (an increase of 57%), the Phase I system would end up costing not $43 billion as originally estimated, but $67 billion.

The two reports unleashed a torrent of criticism from the press. In sharply critical editorials, The Wall Street Journal and the Los Angeles Times questioned the project’s fiscal viability and the Authority’s poor decisionmaking. The project is “a monument to the ways poor planning, management and political interference can screw up major public works,” opined the LA Times. (“California’s High Speed Train Wreck,” May 16). “If the state can’t come up with enough money to finish the route, a stand-alone segment in the Central Valley would literally be a train to nowhere and a big drain on taxpayers,” said the Wall Street Journal (“California’s Next Train Wreck,” May 18). “The legislature needs to kill the train now. Once this boondoggle gets out of the station, the state will be writing checks for decades,” added the Journal in its most recent editorial (“Off the California Rails,” May 30). The San Francisco Examiner and The Sacramento Bee also have been critical in their reporting. Governor Brown needs to “squarely address the issues raised by the legislative analyst’s report,” a Sacramento Bee editorial urged.

Even some of the state’s former legislative supporters, such as state senators Joe Simitian, Alan Lowenthal, Anna Eshoo and Mark DeSaulnier have expressed reservations and urged the Authority to rethink its direction. “I don’t want to see an EIR (Environmental Impact Report) completed for a project that will never be built,” Senator Joe Simitian told Roelef van Ark at a Senate Budget Subcommittee hearing on financing the first rail segment in the Central Valley.

At the urging of the Legislative Analyst’s Office, the rail authority asked the U.S. DOT for more flexibility about where and when to build the initial “operable” segment. The LAO went as far as recommending that “If the state can’t win a waiver from the federal government to loosen the rules and the timing for using high-speed rail grants, it should consider abandoning the project.” Not only would the Central Valley segment, by itself, have insufficient ridership and revenues to stand on its own, the Legislative Analyst wrote, but “the assumption that construction of the Central Valley segment could move quickly because of a lack of public opposition has already proved to be unfounded.” The LAO suggested several alternative segments that could be more financially viable and economically beneficial than the Central Valley segment. They included Los Angeles-Anaheim, San Francisco-San Jose and San Jose-Merced.

But in a remarkable exercise of inflexibility and delusion, the U.S. Department of Transportation turned a deaf ear to the request. “Once major construction is underway…the private sector will have compelling reasons to invest in further construction,” the DOT letter stated in an assertion totally unsupported by any evidence.

“California is a test case for whether high-speed trains can succeed in the U.S. — and so far, the state is failing the test,” the LA Times editorial concluded. The feds’ refusal to reconsider their position has substantially magnified and accelerated the likelihood of that failure.

C. Kenneth Orski is a public policy consultant and former principal of the Urban Mobility Corporation. He has worked professionally in the field of transportation for over 30 years, in both the public and private sector. He is editor and publisher of Innovation NewsBriefs, now in its 22nd year of publication.

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