California’s Bullet Train in the Court of Public Opinion

Posted by Ken Orski on Monday, November 14th, 2011

Innovation NewsBriefs
Vol. 22, No. 31

California’s Bullet Train in the Court of Public Opinion

A business plan released on November 1 by the the California High-Speed Rail Authority (CHSRA), has placed the price tag for the LA-SF bullet train project at $98 billion— trippling the $33 billion estimate provided in 2008 in the voter-approved Proposition 1A. At the same time, the date of project completion has been pushed back by 13 years — from 2020 to 2033.

California state legislators who must soon decide whether to proceed with the high-speed rail project are facing an increasingly skeptical climate of opinion.  A growing body of their colleagues who formerly supported the rail authority, including state Senators Alan Lowenthal, Joe Simitian and Mark DeSaulnier, have been shocked by the new estimate and have begun to question the wisdom of proceeding with the project. Other legislators intend to go further. State Sen. Doug LaMalfa said he will sponsor a bill to put the voter-approved rail project back on the ballot. House Majority Whip Kevin McCarthy announced that he will introduce legislation that would freeze federal funding for the project for one year so that congressional auditors can review its viability.

At the federal level, chances of further funding for the California project are judged to be negligible, with Congress having virtually zeroed out high-speed rail funds in the FY 2012 federal budget.

At the same time, the bullet train is rapidly losing public support. Nearly two-thirds of California’s likely voters would, if given a chance, stop the project according to a recent opinion survey. Organized opposition within the state is widespread. Public interest groups and watchdog coalitions such as  Californians Advocating Responsible Rail Design (CARRD), the Community Coalition on High-Speed Rail, the California Rail Foundation, and the Planning and Conservation League have repeatedly challenged the Authority’s cost estimates, ridership projections and rail alignments. They have testified against the project in public hearings and taken the Authority to court. Recently, they scored a legal victory when a state judge ruled that the Authority has to reopen and revise its environmental analysis of a controversial alignment.

A team of respected independent experts, comprising Stanford economist Alain Enthoven, former World Bank analyst William Grindley and financial consultant William Warren, have reinforced the growing feeling of doubt about the project’s viability by challenging the rail authority’s assumptions and pointing out the flaws in its business  plan.

Finally, at both the national and state levels, the bullet train project is receiving an increasingly skeptical press scrutiny. Nearly every newspaper in the state (with the exception of the LA Times and SF Chronicle) has turned critical.  News services, notably California Watch (founded by the Center for Investigative Reporting) and investigative reporters, such as SF Examiner’s Kathy Hamilton, Mercury News’ Mike Rosenberg and OC Register’s Steve Greenhut are providing incisive critical analysis to counter the steady flow of publicity generated by the Authority and its supporters.

Critical commentaries in mainstream press vastly outnumber favorable stories. We reprint three recent examples below.


The Train to Neverland
The Wall Street Journal , November 12, 2011

California Governor Jerry Brown must have loved “The Little Engine That Could” as a kid. Last week his state’s high-speed rail authority released a new business plan that estimates its 500-mile bullet train from San Francisco to Anaheim will cost $98 billion. The state and federal governments are broke, and private capital won’t finance the project, but Mr. Brown still thinks the state can build the train.

Three years ago the rail authority sold a $9 billion bond measure to voters on the pretext that the bullet train would cost $33 billion and be financed mostly by private investors and Uncle Sam. They also claimed the train would draw 90 million riders per year—about 15 times what Amtrak’s Acela in the Northeast draws—and wouldn’t need a subsidy. Taxpayers were all aboard.

Then reality struck. A study last year by Stanford economist Alain Enthoven, former World Bank analyst William Grindley and financial consultant William Warren examined high-speed trains in Europe and Japan and concluded that the California train could cost upward of $100 billion and would be lucky to draw 10 million riders. The authors also reported that investors were refusing to finance the project without a subsidy, which the bond measure that voters approved had prohibited.

The White House has so far offered the state $3.2 billion in grant money—provided that it builds the train in a way that guarantees a taxpayer loss. Transportation Secretary Ray LaHood has required the state to construct the first segment in the scarcely populated Central Valley and break ground next year. The Obama Administration’s logic seems to be that if it forces the state to build a train to nowhere, the state will then dig deeper into taxpayer pockets to connect it to somewhere.

The rail authority last year chose to build the first segment between Merced and Bakersfield. The state watchdog Legislative Analyst’s Office called the decision a “big gamble” since ridership would be too low to operate the train without a subsidy. And if the project runs over budget—what are the chances?—the authority won’t have enough money to complete the segment or electrify the tracks. The best outcome then would be for the authority to sell the tracks to a museum for an exhibit on California dreams.

At the urging of the state analyst’s office, the legislature directed the authority to produce a more honest business plan before the state issues bonds. The authority now predicts that the train will draw 37 million riders by 2040—about equal to the state’s current population—and turn a profit on all segments. Sounds fantastic. Literally. They make the math work by assuming per-mile ticket prices at about half of what most high-speed trains around the world charge and an operating margin that’s about 50% of their revenues. Most high-speed trains run at a loss or just break even

Rail authorities say that once the first segment turns into a gusher of revenue, private money will jump on board and finance the train’s completion. When that doesn’t happen, there’s Plan B: public borrowing.

Hold that idea. The state treasurer’s office recently released a report warning that the state can’t afford to authorize much more debt without severely squeezing public services. Debt service costs California $7 billion per year. Borrowing $90 billion to finance the train would cost about $10 billion a year. Forget about building new schools or revamping the state’s rickety water system.

Fortunately, the rail authority needs the legislature’s approval before it can start wasting taxpayer money and evicting home and business owners to pave the way for the train with no future. The legislature should just say no, but if members lack the nerve, they could at least leave the decision up to voters.

State Senator Doug LaMalfa suggests that the legislature give voters a do-over on the $9 billion bond measure they approved in 2008 when they were high on hope. Sounds reasonable. Congressman Kevin McCarthy of Bakersfield has also proposed legislation to freeze federal funding for the project, which would make the train a nonstarter. It’s time Governor Brown put away childish things.

California’s high-speed rail system is going nowhere fast
The Washington Post, November 13, 2011

Things just  went from bad to worse for high-speed passenger rail in California. After the Golden State’s voters approved a $9 billion bullet-train bond issue in 2008, officials said they could build an 800-mile system by 2020, for $35.7 billion. The cost projection now, as issued by the state Nov.1: $98.5 billion , with a completion date of 2033.

Time to pull the plug, right? Not according to Gov. Jerry Brown (D). The new “business plan is solid and lays the foundation for a 21st-century transportation system,” he said. Equally upbeat, Transportation Secretary Ray LaHood offered Mr. Brown his congratulations on “a sound, step-by-step strategy for building a world-class high-speed rail network.”

This is unreal. Apart from the bond issue and $3.6 billion in federal funds already in hand, the cash-strapped state hasn’t credibly identified a source of funds for the system. The new report basically repeats previous assertions that, if California builds, federal and private-sector dollars will come. This is wishful thinking in an era of massive federal deficits, and if the opportunities for the private sector were really so great, where are the companies clamoring to invest?

Actually, the gigantic cost estimate amounts to an indirect confirmation of the doubts voiced in several independent analyses, which have focused on not only the rail plan’s mythical funding but also its high ridership projections— and the attendant risk that California will get stuck with expensive operating subsidies as well as billions in debt service.

Of course, that risk would occur only in the decreasingly probable event that California actually finishes the railroad. A more plausible scenario is that the state manages to construct merely a line between two points in the rural Central Valley before its cash peters out.

Why? The Obama administration has made clear that the state will lose $2.3 billion in federal funds unless it starts construction by October 2012. The money comes from the 2009 American Recovery and Reinvestment Act — the stimulus bill — and that law’s purpose was to get people to work, pronto. The deadline is inflexible.

Alas, there is only one place where the state could finish the necessary environmental impact statements and other bureaucratic requirements before the use-it-or-lose-it date: a thinly populated 130-mile stretch of flatland that starts just north of Fresno and ends just north of Bakersfield.

U.S. and California officials tout this lonely corridor as the “spine” of a system that will connect big cities later on. After all, they argue, the interstate highway system started in Kansas. But that project had a dedicated funding source from the get-go: the federal highway trust fund, supported by fuel taxes.

More realistically, Sacramento’s Legislative Analysis Office calls the Central Valley starting point a “big gamble.” In the all-too-likely event that funding for the rest of the system never materializes, the report adds, “the state will be left with a rail segment unconnected to major urban areas that has little if any chance of generating the ridership to operate without a significant state subsidy.” It would be a train to nowhere, but at least it would go nowhere fast.

As questionable as this project is, we would have less business objecting if the only money at risk was California’s. But the Obama and Brown administrations are talking about devoting the nation’s funds to what looks more and more like a boondoggle. If the president and governor won’t slam on the brakes, then Congress or the California legislature must find a way to prevent the spending. Somebody, please, stop this train.


High-Speed rail depends on $55B in federal funds

California Watch, November 12, 2011 (by Ron Campbell and Lance Williams)

Although planners of California’s bullet train won praise last week for candor about the train’s cost, an analysis of their 230-page plan shows they are still making highly speculative assumptions about funding and ridership.

Despite hostility toward the project from Republicans in Congress, the California High-Speed Rail Authority expects to receive $55 billion in federal grants —  including $13 billion in the next 10 years. The planners are also counting on Congress to approve a new form of infrastructure bonds — and to get 27 percent, or $13 billion, of all those bonds issued nationwide. And they expect to draw $11 billion in private capital, based on ridership estimates that suggest Merced will draw more passengers than Penn Station in New York City.

The business plan portrays a project that will be rolling in money — eventually billions of dollars in profits annually — but only after it begins carrying passengers in 2022. Until then it will depend on billions of dollars every year from congressional leaders who have labeled it a boondoggle.

The rail authority is proposing to build the project in phases—the same way, the business plan notes, that California built the mammoth State Water Project and I-5 through the Central Valley during the 1960s and ’70s. There is, however, a key difference between those projects and high-speed rail: Those earlier projects had dedicated streams of money that kept engineers and construction crews busy, year after year, decade after decade.

The state will spend all of its current federal grant money on the first 130 miles of track from Bakersfield to Fresno. Despite the mocking nickname critics have given that link —“the train to nowhere”— it will have no train. There is no money in the budget for a high-speed train on that segment.

The backup plan is to let Amtrak run its heavy, 79-mph engines on the new tracks. That will shave 45 minutes off the 2½-hour run between Bakersfield and Fresno. A million passengers a year take that ride.

If there is ever to be a high-speed train in California, it will arrive with the second phase, after the authority extends the tracks some 100 miles to the north or south of that first segment, to either San Jose or the San Fernando Valley.

Total price tag for the second phase: between $19.4 billion and $25.8 billion. The authority will spend all its remaining state bond money — $5 billion— on that second phase. It hopes to somehow raise $7 billion to $8.5 billion in federal grants from 2015 to 2021. As for the remaining $12 billion to $13 billion needed for the second phase, the authority is banking on something that Congress has not even authorized: “qualified tax credit bonds.”

Legislation proposed earlier this year by Sens. Ron Wyden, D-Oregon, and John Hoeven, R-N.D., would create a 10-year, $50 billion pool of these bonds for sale to private investors to fund transportation improvements. The rail authority needs 26 percent of the national total to help put high-speed rail in operation. Once trains start running — 2022 in the authority’s plan — everything changes. The authority predicts it will clear a $200 million profit that first year even if ridership is low. By 2035, profits could surpass $2 billion, by 2060 $7 billion.

With that kind of money rolling in, the authority expects to attract nearly $11 billion in private investment to help build later phases soon after the trains begin running. Even then, however, it will continue to need federal money — on average, $4.1 billion a year from 2022 through 2033. The private money hinges on ridership estimates, which have drawn scorn in the past.

In contrast with its prior studies, the Authority uses what appear to be conservative benchmarks in its new business plan. It estimates that over the next three decades, airfares and gasoline costs will remain constant. Only rising population and road congestion will push people onto the rails.

Still, one critic had a field day with some of the new numbers. For example, the business plan predicts that in 2030, 14,400 passengers per day will board southbound bullet trains in Merced. That’s more than the daily departures last year from the busiest Amtrak depot in the United States, Penn Station in New York.

The idea that Merced, a small farm and college town, could someday outstrip New York is absurd, said Richard Tolmach, president of the California Rail Foundation. He also questioned the plan’s forecast of $759 million in annual revenue for the Bakersfield-San Jose segment in 2025. Amtrak’s San Joaquin service, which connects Bakersfield with Sacramento and the Bay Area, generated just $31.3 million in ticket sales in 2010 — 1/24th the amount predicted in 15 years.

The authority has itself to blame for its credibility problems. In 2000, a predecessor agency estimated it could construct a 703-mile rail line from San Francisco to San Diego for $25 billion. In November 2008, just before voters approved the $9.95 billion rail bond, the authority pegged the cost of the 520-mile San Francisco-Anaheim line at $33.6 billion. In December 2009, using inflation-adjusted “year of expenditure” dollars, the authority said it could build the San Francisco-Anaheim project for $42.6 billion.

This was the background for the authority’s announcement last week that the cost had soared to an inflation-adjusted $98.5 billion. The main reason for the huge increase: The authority missed the real estate boom. The train alignment cuts through some of the fastest-growing parts of the state, areas that added tens of thousands of houses and offices during the past decade. Planners at the rail authority didn’t pay attention for years. So in areas such as Santa Clarita, the Antelope Valley and the towns in between, the engineers have had to scrap plans to lay rails on the ground. Instead, they now expect to build viaducts — elevated tracks—“ or tunnels to take the train over or around homes, offices and businesses.

Between 2009 and 2011, planners added 20 miles of tunnels and 60 to 90 miles of viaducts to the project. At least 37 percent of the train’s alignment will be in a tunnel or viaduct. That adds up to big money. The authority estimated that all the viaducts, tunnels, embankments and trenches it added to the project since 2009 accounted for 80 percent of the cost increase. The $98.5 billion price tag stirred outrage when it was announced last week.

State Sen. Doug LaMalfa, R-Richvale, said he would introduce legislation to put the voter-approved rail project back on the ballot. “In three years, we’ve seen the cost of this project increase 300 percent from what voters were told in 2008,” LaMalfa said. “Californians deserve honesty from their government.” State Sen. Alan Lowenthal, D-Long Beach, a longtime critic of the rail authority, called the new estimate “a shock.” But the new, higher price tag should not have been a surprise. Before inflation, it’s $67 billion — in line with the $63 billion estimate last May by the Legislative Analyst’s Office.

Even the new estimate, however, may not be the last word. “There is absolutely no reason to have any confidence that it will only be $98.5 billion,” said Alain Enthoven, an emeritus management professor at Stanford and critic who lives near the train alignment. “It’s only an estimate from people who have a lousy record.”

Lowenthal said the authority’s plan to build the project in phases is “more realistic” than its previous plan. “I am cautiously optimistic,” he said. “But time is not our friend.”

Ron Campbell reports for The Orange County Register and can be reached at [email protected] Lance Williams reports for California Watch and can be reached at [email protected] This story resulted from a partnership among California news organizations following the state’s high-speed rail program, including The Fresno Bee, The Sacramento Bee, California Watch, The Bakersfield Californian, The Orange County Register, the San Francisco Chronicle, The (Riverside) Press-Enterprise, The San Diego Union-Tribune, KQED, the Merced Sun-Star, The San Luis Obispo Tribune and The Modesto Bee/

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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