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Economists slam HSR business plan

by Gennady Sheyner

Peninsula critics of California's proposed high-speed rail system released a new report Monday night challenging the economics behind the controversial, voter-approved project and accusing the agency charged with building the rail system of deceiving the public.

The 100-page report, titled "The Financial Risks of California's Proposed High-Speed Rail, was written by economist Alain Enthoven, former World Bank analyst William Grindley and financial consultant William Warren. The authors argue that the California High-Speed Rail Authority has made "implausible" claims about the costs and ridership projections of the high-speed rail line, which the authority hopes to build by 2020.

The heavily referenced report cites a slew of other recent studies criticizing various aspects of the San Francisco-to-Los Angeles line, including reports from the Legislative Analyst's Office, State Auditor Elaine Howle, and the Institute for Transportation Study at University of California Berkeley. It also surveys other existing high-speed rail systems around the world and concludes that under the current plans, California's system would not be economically self-sustainable.

Proposition 1A, which voters approved in 2008, allots $9 billion for the 800-mile project but prohibits public subsidies for rail system's operation.

The authors argue that the rail authority's plans to fund the system through a combination of federal grants, private investment and local contributions (along with the $9 billion voters approved for the system in November 2008) are more hopeful than realistic. They claim the authority has not yet received any private-investment proposals.

"To not have secured one private lender's commitment in a state that houses the world's largest and most successful risk capital companies speaks volumes," the report states.

The report's three authors write that they "do not oppose high-speed rail in concept," but challenge the assumptions in California's current plan.

"The 2008 Prop 1A promise that captured many voters was that the CHSR would not cost the taxpayers a penny," the report states. "After months of work on this report, we were forced to conclude that the Authority's promise seemed an impossible goal."

The report recommends that state officials demand a "credible financial plan"; establish an independent peer review panel to review the finances; bring in a rail builder and operator "to advise the Legislature on the financial realities of building and operating a system"; and cut off funding for the system.