Monday, March 14, 2011

Why California should reject high-speed rail

Last month the NY Times was baffled when Florida Governor Rick Scott rejected federal high-speed rail money: "There is no sound economic justification for the decision by Gov. Rick Scott of Florida to reject $2.4 billion in federal financing for the vital Tampa-to-Orlando high-speed rail project. Political pandering to his Tea Party supporters is the only explanation we can come up with."

Apparently they didn't do much research to come up with that dumb explanation. I don't know about the Tea Party, but in general conservatives have been a lot more sensible about high-speed rail than liberals, including the Chronicle's Debra Saunders. Wendell Cox explains why Governor Scott was right:

US rail grants will obligate taxpayers
by Wendell Cox
New Geography

The US Department of Transportation has announced a competitive grant program to reallocate funding that was refused by Florida for a proposed high speed rail line from Tampa to Orlando. The line was cancelled by Governor Rick Scott because of the prospect for billions of dollars of unplanned obligations that could have become the responsibility of the state's taxpayers.

Eligibility: Eligible applicants are states, groups of states, Amtrak or other government agencies that are authorized to "provide intercity or high-speed rail service on behalf of states or a group of states." The grant program requires recipients of grants (read "taxpayers") to provide financial support to intercity and high speed rail passenger rail programs in the event that cost and ridership projections are optimistic (a routine occurrence).

Obligation to Pay for Cost Overruns: As in the program announced in 2009, the state, group of states, or government agency will be required to demonstrate its financial capacity (that is, the capacity of their taxpayers) to pay for cost overruns (page 9). This open-ended liability led Governor Chris Christie of New Jersey to cancel a new transit-Hudson River rail tunnel, which had costs that were escalating out of control that would be the obligation of the state's taxpayers. Governor Christie and Governor Scott were both aware of the disastrous record of major infrastructure cost overruns, such as in the Boston Big Dig project, the Korean high-speed rail program, and the overwhelming majority of passenger rail projects in North America and Europe, according to a team led by Oxford University Professor Bent Flyvbjerg.

Obligation to Pay Operating Costs: Moreover, inaccurate passenger and revenue forecasts have been pervasive in high-speed rail systems, as has been documented by Flybjerg, who found that cost overruns occurred in nine out of ten projects: "...we conclude that the traffic estimates used in decision making for rail infrastructure development are highly, systematically and significantly misleading."

This is illustrated by the fact that even a decade and one-half after the Eurostar London to Paris and London service was opened, ridership remains 60 percent below projection. Ridership on the Taiwan and Korea high speed rail systems has been one-half or more below projections. Our analysis of the Tampa to Orlando line revealed exceedingly high ridership projections, which were inexplicably raised even higher in a new report just released. Failure to achieve ridership projections increases the likelihood that a line will need operating subsidies, which would be the ultimate responsibility of taxpayers under the USDOT program.

Federal Grant Repayment Obligation: Moreover, taxpayers of any grant recipient would be required to repay part or all of the federal grant if a sufficient level of service is not maintained for a period of 20 years (page 41). The operation of this provision is illustrated by recent Florida experience. Tri-Rail, the Miami area's commuter rail service only narrowly escaped having to repay $250 million when its service level was deemed to not meet requirements of a federal grant by early in the Obama presidency. Tri-Rail was rescued by a state subsidy of nearly $15 million annually, which restored an artificially high level of service.

Intercity and High Speed Rail Program: The federal intercity and high-speed rail program is largely limited to upgrades of Amtrak-type service. Before Governor Scott's decision, only two of the programs (Florida and California) would have achieved international standard high speed rail speeds.

Thanks to High-Speed Train Talk for the link.


Pension reform for San Francisco

From Public Defender Jeff Adachi's pension reform website:

We learned a lot from the Prop B campaign. Also, since the original proposition was drafted, the pension and benefits crisis has grown even deeper. Going forward, we are going to be drafting a new measure that will not only address the problems identified with the original Proposition B measure, but also more comprehensively address the growing pension and benefits crisis our city is facing.

As a starting place, the following principles are offered to help guide the discussion.

1. Any real solution must offset the city’s cost to the pension fund and result in immediate savings in order to address the city’s current fiscal crisis.

Proposition B would have resulted in immediate savings of $121 million each year, every year. Any solution proposed must provide similar immediate relief. The only way to achieve this is to increase contributions by existing employees to their pensions. Increasing contributions by future employees has little to no effect on the city’s current fiscal crisis.

Historically, when the city has increased employee contributions, the city has also given its employees a concurrent increase in wages. In most instances, this has served to increase the cost to taxpayers.

For example, in 2010, the Mayor and the Board of Supervisors agreed to give 10,000 city employees a 6% raise in exchange for a 7.5% contribution towards their pensions. This agreement actually exacerbated the city’s pension problems, since the taxpayers are on the hook not only for the 6% raise, but also for a 6% pension increase when the employees who received the raise retire. This “raise” will continue to cost taxpayers hundreds of millions of dollars in the future.

2. Any real solution must increase the existing employees’ share of the health care costs.

Currently, city employees pay nothing for their health care costs, while the City pays 100% of the employees’ health care, and pays 75% of their family’s health care costs. Proposition B would have required city employees to pay anything above 50% of their dependent’s health care, using the lowest cost plan. During the campaign, Prop B opponents claimed that these changes were too drastic. A possible compromise solution would be to require city employees to pay at least 50% of the cost of the dependent’s health care plan they currently use, or to require that city employees earning above a certain income level to pay more for their health care costs.

However, these would not come close to the $80 million in annual savings that Prop B would have realized.

3. Retiree pension and health care costs must be addressed.

While a retiree’s pension is treated as a vested right, their health care costs are not. For retirees, retirees’ health care costs are set by the Charter. A similar provision could require a higher health care contribution by retirees who receive higher-end pensions or choose more expensive health care plans.

4. Police and fire employees should be required to contribute more to their pensions than other city employees.

This is because their pension costs as well as the benefits they receive are much greater. Police and fire employees are able to retire at 55 years of age with 90% of their last year’s income, while other city employees retire at 62 with 75% of their last year’s income. According to CALPERs, the state’s public safety pension fund, police and fire employees live just as long as other public employees, and thus, their pension costs are being borne by other city employees who must contribute equally to the pension fund. 2002’s Proposition H requires the police and fire to enter into a cost-sharing agreement with the city to bear their share of the cost of these enhanced benefits. It should first be determined what the real cost of these benefits are, and a fair amount, such as 50%, should be contributed by police and firefighters to their pensions, over and beyond what they currently pay.

5. For new employees, the city should consider increasing the retirement age, and explore the fiscal impact of combining a defined pension program with a 401K.

While this won’t have any immediate fiscal impact, since new rules relating to retirement benefits cannot be applied to existing employees, it would help ensure that the city does not find itself in the situation it is now in the future. Many states and cities have put forth new retirement plans for new hires which have accomplished this.

6. Pensions should also be capped at a certain amount to avoid obligating taxpayers to pay extravagant pensions

Currently, over 100 public safety officers earn over $247,000 a year, not including benefits. They will each earn an annual pension which is 90% of their last year’s income upon their retirement. One out of every three city employees earns over $100,000 a year, and will receive between 75-90% of their last year’s pay upon retirement.

Pensions were never meant to provide an extravagant income to city employees, even those who are high earners. These pensions should be capped at a reasonable amount, so that employees can still earn good incomes, but not retire with $150,000-$250,000 annual pensions. Also, multipliers which increase pension costs, such as salary bumps for retention and training, should not be included in their pension payouts.