Wednesday, February 27, 2013

Problems with the HSR Business Plan

Below is page 63 from California High-Speed Rail Authority's 2012 Draft Business Plan, "Comments on the 2012 Business Plan to CHSRA by CEOs and Investors, including assessment of improvements and remaining weaknesses to the Plan from a financial point of view," by Alan Enthoven, William Grindley, William Warren, Alan Bushell, and Michael Brownrigg. If you're new to the high-speed rail issue, Brief Notes by William Warren is a good place to start.
To even the casual reader, the new Plan’s promises are very different from what voters approved in 2008 and what analysts found in the 2009 Plan. Table A1 shows that in a side-by-side analysis. With the exception of the constancy of ridership forecasts, almost everything else has changed.

Here are some of the promises made to Californians when they voted on Prop 1A in November 2008. The following statements all come from the State of California November 2008 Voter Guide mailed to households. The Voter Guide was what many, probably most, voters were given to decide whether to support the initiative, since the Business Plan AB3034 required before the November 2008 election was not available until after the election.

THEN: “Proposition 1A is a $9.95 billion bond measure for an 800-mile High-Speed Train network…linking San Diego, Sacramento, San Francisco and Los Angeles…that will cost an estimated $45 billion to build.”

NOW: The Phase 1 system will only stretch from San Francisco to Anaheim with no service to Sacramento or San Diego or other terminal points. It will cost at least $98.5 Billion to build. The timing and added expense for the San Diego and Sacramento linkages are unknown but are probably 60-70% of Phase 1 (Los Angeles/Anaheim to San Francisco) for a total estimated cost of $170 Billion+.

THEN: “California’s high-speed rail network requires NO TAX INCREASE.”

NOW: Since the Authority acknowledges that public money must be used for at least the first $62 billion in capital expense ($31 billion in construction expense and $31 billion at least in financing charges) before private sector investors will come in, and that exceeds the $9 Billion of State liability, then either there will be new taxes to pay for the system or equivalent cuts must be made elsewhere in California’s budgets for schools, safety, levees, etc, or the Federal Government will have to contribute grants of $22 Billion, which will be financed by public debt to be paid for by all taxpayers of America.

THEN: “Travel from Los Angeles to San Francisco will cost about $50 a person.”

NOW: Tickets in the 2012 Business Plan between Los Angeles/Anaheim to San Francisco supposedly cost $81. If European pricing were adopted (on a price-per-passenger-mile basis) then the one-way ticket cost would jump to roughly $175 (.43/mile x 400 miles) which is in line with an equivalent mileage Acela ticket on the North East Corridor today.

THEN: “High-Speed Trains require one-third the energy of air travel and one-fifth the energy of auto travel.”

NOW: New federal mileage regulations will substantially improve the energy efficiency of automobiles, as will the rising number of electric and hybrid vehicles. Jets are also becoming much more fuel efficient in light of high oil prices, as one would expect. Therefore, these energy “savings” for high-speed rail are substantially overstated.

THEN: “Proposition 1A will protect taxpayer interests with public oversight and detailed independent review of financing plans; also it will require matching private and federal funding to be identified BEFORE state bond funds are spent.”

NOW: Not even according to the Draft 2012 Plan will there be matching money from the private sector until at least 2023. Many members of the public and many city and State officials do not believe there has been adequate oversight of the Authority; true independent reviews of the ridership models by UC Berkeley, CARRD and others have been dismissed by the Authority; in expressing his disgust with Authority spending, a former Board member[Quentin Kopp] and staunch supporter wrote in March 2011: “The August 2010 invoice of Robinson Communications includes: on August 11, 2010, 3 hours for Mr. Robinson to attend the Transbay Terminal groundbreaking at $300/hour, a total of $900, and 3 hours for Patty Jo Rutland of his office, attending the same function for $200/hour, and total of $600. Thus, the Authority was billed $1,500 by Robinson Communications for their attendance at that event.” What a waste of taxpayers’ money!.


NOW: As our analyses make clear, and as CHSRA implicitly acknowledges when it says the private sector will not invest until HSR proves it can be profitable, there is no guarantee the system’s revenues will actually cover operating costs (let alone capital expense charges). In the United States, a “successful” mass transit system is one in which fare box revenues cover 45% of the operating expenses. Certainly, High Speed Rail will be able to charge more than a commuter rail, but the risk of not covering all expenses is real. If the profits do not occur, then either the system will be shut down or the State’s General Fund will have to make up the difference at the expense of other priorities.

THEN: “Proposition 1A will create…450,000 permanent jobs.”

NOW: According to the 2012 Draft Business Plan “Once fully operational, the Bay to Basin system will directly employ approximately 2,900 people, and the Full Phase 1 system will employ about 4,500.” Where are the other 445,000 employed? The reality is that whatever new jobs are created; they are just jobs that would have existed in the airline and automotive market places if HSR did not exist. This is because the HSR system is not creating new passengers; it is taking them from existing and growing markets.

THEN: The ballot description and ballot language were drafted by high-speed rail proponents in California’s Legislature.

NOW: A State judge invalidated this means of putting initiatives in front of voters, arguing that it is misleading to do so.

It should be clear to readers by now that the history of this project is most aptly described as a string of broken promises. It is time to put the matter back to the voters.



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