Sunday, November 6, 2011

How CA High Speed Rail Could Win My Support

"Hope for the best and prepare for the worst."

The Los Angeles Times has put out several stories this week on the California High Speed Rail Authority's upwardly revised cost estimate for completing the bullet train: $98.5 billion. This is an increase over the $43 billion figure the Authority has been throwing out for a while based on a longer time-horizon for completing the project (2033), and an assumption of a higher inflation rate over that time. At this point I trust the Authority's cost estimates about as much as I would trust myself to perform brain surgery, and I'm not alone. In this analysis I will be treating any cost they project as a minimum cost and any revenues they project as maximum potential revenues.

I've written about my high speed rail (HSR) concerns before. What I have to say today is similar, but with a new conclusion: I cannot support this project unless and until it gets itself together financially. Believe me, I don't say that lightly, and I say it with a heavy heart.

The Authority's new Draft 2012 Business Plan proposes laying out an Initial Construction Segment (which will not be operable) in the Central Valley. This will expand into an Initial Operating Section, which will supposedly operate at a profit, thus attracting private capital to the project's construction costs. There's a serious problem here: even if some private investment is attracted, there is still a need for significantly more public support. This is borne out by the experience of other countries. Here's an extended quote from a study entitled "High Speed Rail, Public, Private, or Both?" by the U.S. PIRG Education Fund (2011, p. 13). I should note that this study argues in favor of the concept of building HSR in California:
"Government officials and the media sometimes believe that privatization enables the public sector to get something for nothing—brand-new infrastructure paid for entirely through private-sector investment. In the case of high-speed rail, there has been no such thing as a fully privately funded modern high-speed rail line anywhere in the world.

Recent high-speed rail lines built or begun in Europe have typically required government entities to pay more than half the costs of the project."
More than half the costs of the project. That is, at least $44.25 billion in this case.

Even the Authority's own business plan says it "does not assume [private] capital investment in the system until the first Initial Operating Section is in place and generating revenues" (p. ES-10). The Authority projects this segment to cost $33.2 billion in year of expenditure dollars (i.e. at least $33.2 billion) compared to available funding of $13 billion (see below). Where is the extra $20 billion + of public money going to come from? Count all of the things that could go wrong here: we could fail to come up with the needed money, the system could fail to be profitable and attract no private investment, and as has happened in the past, the Authority could be grossly underestimating the cost of the project.

Some factors that could negatively impact the profitability of HSR in California are our relatively low gasoline costs compared to other HSR countries (e.g. Japan, France) and the fact that the United States had the highest rate of vehicle ownership in the world in the year 2000 [Shoup (2005) The High Cost of Free Parking p. 679].

Another argument that is brought up by HSR advocates is that if we don't do HSR we'll just have to expand airports and highways at public expense. I find this argument unconvincing. Perhaps we will deal with added congestion on I-5 and at our airports, but the same lack of money and willingness to tax ourselves that are the biggest obstacles to building HSR will probably also block us from making those investments regardless of how "needed" civil engineers and transportation planners say they are. No matter how "needed" something is, it can't happen without money, so the argument dodges the key question of where the money will come from.

The bullet train proposal doesn't exist in a vacuum. It exists in a state that is as close as it gets to broke. We've cut back dramatically on everything: K-12 education; aid to the poor, elderly and disabled; universities; transit operating assistance; our prisons are unconstitutionally overcrowded; you name it. In California it's very hard to raise taxes because of 1978's Proposition 13, which requires a 2/3 vote for the approval of tax increases. "Fees" face a similar obstacle thanks to 2010's Proposition 26. For the record, I think both of these propositions are terrible.

For what it's worth, to win my support, California HSR has to be backed with a California HSR tax. That's right, a tax. Bullet train advocates need to do the hard work of getting a tax passed in the State of California. It could be a gasoline tax hike (preferably), an income tax hike, a sales tax hike, that part I'm not as concerned about. In general terms, we should never borrow money at the state level without simultaneously passing a tax or offsetting spending cut to pay for that borrowing.

The tax and spend model can work very well. Thanks to Los Angeles County's Measure R (passed in 2008), we're enjoying 30 years worth of expanded support for transit operations and new transit lines in the county. It has spurred calls to use the revenue stream as collateral to get low-interest loans from the federal government to accelerate the new construction at a time of tragically high unemployment (i.e. "30/10" and "America Fast Forward").

So far the only serious money for the CA bullet train is from 2008 state borrowing ($10 billion) and federal grants ($3 billion) both of which Republicans are foaming at the mouth to eliminate. Private investors are on the sidelines. To date the money we've borrowed for CA HSR has no new revenue stream to support the debt service. That means it eventually has to start displacing other state spending, which I'm loath to do. This is the case because the state is constitutionally required to balance it's budget every year.

Remember, I'm not necessarily talking about HSR in other states, I'm talking about the specific situation we have here in California. If there is a dedicated state revenue stream for HSR, I can support it. If not, I have no idea how the project can even be finished, and I fear what it will do to the finances of a state that is already on fiscal life support, and will be for some time to come.

High speed rail could be a great asset to the state by providing a convenient, green transportation option that reinvigorates urban life, but only if there is a realistic plan backed by real tax money. I hope HSR will be feasible, profitable and popular, but it might not be. So at the end of the day we face a simple choice: either we're willing to pay a state HSR tax, indefinitely in the worst case scenario, or we're willing to further cut already devastated public services, or we should cut our losses now.

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