News

Critics slam high-speed rail business plan

Peninsula economists say project would endanger California's economy

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.

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"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.

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Gennady Sheyner
 
Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

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Critics slam high-speed rail business plan

Peninsula economists say project would endanger California's economy

by / Palo Alto Online

Uploaded: Tue, Oct 12, 2010, 11:38 am

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.

Comments

BoxCarWillies
Jackson Park
on Oct 12, 2010 at 2:27 pm
BoxCarWillies, Jackson Park
on Oct 12, 2010 at 2:27 pm

YAH!!!! Someone FINALLY screaming it: The Emperor has no clothes!
This particular HSR plan is a total SHAM!


Seer
Blossom Valley
on Oct 12, 2010 at 2:44 pm
Seer, Blossom Valley
on Oct 12, 2010 at 2:44 pm

* 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.

I hear this argument over and over, yet of all the high-speed rail systems in the world, I believe the only one that has full farebox recovery is the airport line in Shanghai. Every other line has subsidies. Yet developed, successful countries around the world keep building them - why do you suppose that is?

The answer is that the rail line itself generates economic activity. Studies published in Germany and France have shown this to be the case, but they didn't take the myopic, blinders-on approach these ivory-tower accountancies did: they took a look at overall economic activity including the cost of taxes to support the line and determined it was a net positive.

In other words, you can't look at the HSR authority, the state government, or even the finances of local cities and come to an accurate conclusion about whether this project is a good idea.

A good comparison would be if your wife looked at the amount you spent on your car to get to work. She would be outraged and tell you to get rid of it, unless she realized that it enabled you to actually "bring home the bacon": in other words your income had to be balanced against the cost of the car.

Similarly, the net economic effect of HSR - taking into account projected per-barrel oil prices in 2020 of over $500 - have to be taken into account to calculate the net present value of the project.

What these accountancies have done is corrupt and criminal - essentially creating a well-crafted lie by taking advantage of people's blind spots and their desire to give their decisionmaking power away to "experts."


Lorraine
Whisman Station
on Oct 12, 2010 at 3:11 pm
Lorraine, Whisman Station
on Oct 12, 2010 at 3:11 pm

Seer
The (not so well crafted) lies have been coming from CHSRA from the very beginning. Whether because of deliberate fraud, because of gigantic egos, or because of just plain incompetence, the likes of Diridon, Copp, Pringle and the others have wasted millions of dollars that we can't afford on studies, salaries, public relations campaigns, furniture, and who-knows-what in order to advance their agendas. It's time for these folks to man up and concede that HSR at this time is a mistake. If they won't pull the plug, the State of CA must do that for them. The evidence continues to stack up against this project. End the misery now instead of foisting the consequences on generations to come.


Three Blind Mice
The Crossings
on Oct 12, 2010 at 3:25 pm
Three Blind Mice, The Crossings
on Oct 12, 2010 at 3:25 pm

Seer:
Don't you see? Your wife is right to complain about how much you spend on your car. You should be taking high speed rail to work.


Ronly Donly
Rex Manor
on Oct 12, 2010 at 3:49 pm
Ronly Donly, Rex Manor
on Oct 12, 2010 at 3:49 pm

Face it -- HSR, like prisons and street drugs, is a conduit for money, with no requirement for meeting performance specifications. Those who benefit will do whatever they can to continue receiving their benefit, while also doing whatever they can to keep the source away from their neighborhoods.


Chuck
Gemello
on Oct 12, 2010 at 4:19 pm
Chuck, Gemello
on Oct 12, 2010 at 4:19 pm

How do we repeal this bond measure?


Mike Laursen
Monta Loma
on Oct 12, 2010 at 4:40 pm
Mike Laursen, Monta Loma
on Oct 12, 2010 at 4:40 pm

re: "The answer is that the rail line itself generates economic activity."

Possibly. But you have to consider that letting taxpayers keep more of their money also generates economic activity. You'd have to not just show that the rail line would generate economic activity, but that it would generate more than if the money were invested elsewhere.


Rail
Old Mountain View
on Oct 12, 2010 at 7:10 pm
Rail, Old Mountain View
on Oct 12, 2010 at 7:10 pm

How much to take HSR to DisneyLand and back, for a family of 4? $400? Maybe $500 including rental car?

How much to drive? $100?

Might be fun once... I bet the novelty wears off for most folks.


USA
Registered user
Old Mountain View
on Oct 12, 2010 at 9:32 pm
USA, Old Mountain View
Registered user
on Oct 12, 2010 at 9:32 pm

Don't forget to include the cost of getting from the HSR-to-Nowhere terminal across LA to Disneyland. Times four. Each way.


Hardin
Cuesta Park
on Oct 12, 2010 at 9:46 pm
Hardin, Cuesta Park
on Oct 12, 2010 at 9:46 pm

What these accountancies have done is corrupt and criminal - essentially creating a well-crafted lie by taking advantage of people's blind spots and their desire to give their decisionmaking power away to "experts."

----------------

I disagree with your proposition. Just because people disagree with you, does not make them uninformed, or lemmings.

You're mistaking resistance to this variant of HSR with resistance to Mass Transit solutions in general. I'm against this variant of HSR, because of poor planning, unfinished design, faulty projections, and incomplete funding.

I do believe in and support Mass Transit, even voting for HSR, before seeing the growing result of this initiative.

Its possible to think the Ford Edsel was a failure, and still consider a 67 Camaro SS to be a slice of heaven on wheels. We need to wait for the right variant of HSR, and commit the resources and time needed to build it.


Milan Moravec
Old Mountain View
on Oct 13, 2010 at 6:33 am
Milan Moravec, Old Mountain View
on Oct 13, 2010 at 6:33 am

Latest crisis at UC Berkeley. UC Berkeley’s recent elimination of popular sports programs highlighted endemic problems in the university’s management. Chancellor Robert Birgeneau’s eight-year fiscal track record is dismal indeed. He would like to blame the politicians in Sacramento, since they stopped giving him every dollar he has asked for, and the state legislators do share some responsibility for the financial crisis. But not in the sense he means.

A competent chancellor would have been on top of identifying inefficiencies in the system and then crafting a plan to fix them. Compentent oversight by the Board of Regents and the legislature would have required him to provide data on problems and on what steps he was taking to solve them. Instead, every year Birgeneau would request a budget increase, the regents would agree to it, and the legislature would provide. The hard questions were avoided by all concerned, and the problems just piled up….until there was no money left.

It’s not that Birgeneau was unaware that there were, in fact, waste and inefficiencies in the system. Faculty and staff have raised issues with senior management, but when they failed to see relevant action taken, they stopped. Finally, Birgeneau engaged some expensive ($3 million) consultants, Bain & Company, to tell him what he should have been able to find out from the bright, engaged people in his own organization.

From time to time, a whistleblower would bring some glaring problem to light, but the chancellor’s response was to dig in and defend rather than listen and act. Since UC has been exempted from most whistleblower lawsuits, there are ultimately no negative consequences for maintaining inefficiencies.

In short, there is plenty of blame to go around. But you never want a serious crisis to go to waste. An opportunity now exists for the UC president, Board of Regents, and California legislators to jolt UC Berkeley back to life, applying some simple check-and-balance management principles. Increasing the budget is not enough; transforming senior management is necessary. The faculty, students, staff, academic senate, Cal. alumni, and taxpayers await the transformation.


Mike Laursen
Monta Loma
on Oct 13, 2010 at 11:32 am
Mike Laursen, Monta Loma
on Oct 13, 2010 at 11:32 am

Agreed, Hardin. There's nothing fundamentally wrong with the idea of high-speed rail. And, of course, it's just inherently cool. But the devil is always in the details.


steve
Old Mountain View
on Oct 13, 2010 at 11:16 pm
steve, Old Mountain View
on Oct 13, 2010 at 11:16 pm

How anyone who voted for HSR can be surprised that a government program is rife with incompetence, corruption, and general inefficiency is beyond me.


Hardin
Cuesta Park
on Oct 15, 2010 at 1:06 pm
Hardin, Cuesta Park
on Oct 15, 2010 at 1:06 pm

You're throwing the baby out with the bath water.

Government involvement and support in large projects can be helpful, and in some cases absolutely necessary to provide the catalyst and reduce the level of risk to attract private enterprise to the table.

The origin of Silicon Valley can be directly traced to the investments government has made to the educational institutions, military corporations, and think-groups that existed here in the Bay Area, and who became the seeds for the innovation economy that we now have.

Government CAN be incompetent, corrupt, and inefficient. It doesn't HAVE to be.

With the current variant of HSR, I think we should pass this one up.


Kristine
Monta Loma
on Oct 24, 2010 at 7:59 pm
Kristine, Monta Loma
on Oct 24, 2010 at 7:59 pm

I wish people would be less vague about what of the high speed rail is disliked. The cost of increasing capacity in highways and airlines are far more expensive. So traffic levels are likely to be way different from today. And It's almost a guarantee that gas prices will get more expensive due to global demand. So why is gas price immune long range transport considered a boondoggle? Is there something I'm not seeing?


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