Wednesday, May 11, 2011

Governor Brown: Pull the plug on high-speed rail

Alexander Hunter, Washington Times

The legislature analyst's report raises imporant questions about the California high-speed rail project, but it doesn't go far enough.

It's not just a matter of the project's "management structure": the project was fatally flawed from the beginning, since it was sold to voters based on inflated ridership numbers and underestimated operational expenses.

According to Prop. 1A, the system is supposed to be self-supporting, unlike any high-speed rail system in the world. There's been no private money invested in the system, because investors know that, without a state guarantee of a return, they can't make any money on their investment.

The $9 billion in bonds are not marketable for the same reason, not to mention the huge cost to state taxpayers if they are sold. From the analysis on the ballot in 2008:

"If the bonds are sold at an average interest rate of 5 percent, and assuming a repayment period of 30 years, the General Fund cost would be about $19.4 billion to pay off both principal ($9.95 billion) and interest ($9.5 billion). The average repayment for principal and interest would be about $647 million per year."

We have to look at the numbers from CHSR's own business plan to see how implausible the whole project is:

Federal Grants: $17-19 billion
State Grants (Prop. 1A bonds): $9.95 billion
Local Grants: $4-5 billion
Private Debt or Equity Funding: $10-12 billion

The Federal money is increasingly unlikely, the bonds aren't marketable, and there's no private investment, and does anyone really think that cities and counties are willing or able to throw $4-5 billion into the pot?

Turning this misbegotten project over to CalTrans won't make it any better. It was only sold to California voters based on wildly inflated future passenger numbers. The Governors of Wisconsin and Florida understood that, if they accepted the Federal seed money, their taxpayers would be responsible for the inevitable cost overruns in building the sytem and for operating it if/when it was built.

We can only hope this report is the beginning of the end for this boondoggle. Governor Brown should pull the plug on this project.

See also Randal O'Toole on the latest allocation of Federal money.