High Speed Rail Gamble May Go Off the Tracks

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

If we build (some of) it, they will invest.

That is the key to the business plan the California High Speed Rail Authority put forward yesterday, in a new effort to quiet the critics of a program that had spun out of control. The Authority now estimates the cost of the high speed rail to be $98.5 billion just for the first phase, more than double the $40 billion cost voters were told when a nearly $10 billion bond was on the 2008 ballot.

The California high speed rail project was supposed to be funded with state, federal and private funds. The narrow victory for the bond committed the state, though the federal government and private investors have not been so eager to jump in.

Under the new business plan, private capital investment in the system is not assumed until the first Initial Operating Section of the plan is in place and generating revenues. Then the plan expects private investors to step up and that no state operating expenses will be required.

How can we be sure of these claims when previous judgments about the high speed rail program have been so far off?

If you re-read the arguments made in the ballot booklet for the bond proposition you’ll see that proponents claimed, “Ten years of study and planning have gone into PREPARING FOR construction, financing, and operation of a California bullet train network…”

The capitalized PREPARING FOR was in the ballot booklet. Yet less than a year later assumptions made by the supporters of the bond and their ten-year study proved false. One example we were told, a ticket from San Francisco to Los Angeles would cost $50. The new business plan pegs the SF-LA ticket cost at $81, a 62% increase. Wonder what it will be when, and if, the train is finally running?

To be fair, opponents of the bond didn’t hit their projection either. They claimed the whole project could cost $90 billion. They were low!

The new business plan admits, “Building the entire system will take longer and cost more than previously estimated…The 2012 Business Plan marks the transition from the vision of a world-class high-speed rail system to the realities of building and operating that system.”

Which means after ten years of study, “realities of building and operating that system” were not understood by the rail supporters when voters were asked to commit $10-billion. That $10-billion bond was said to equal about 25-percent of the project’s cost. Now it is pegged at a mere 10-percent of the first phase.

Supporters of high-speed rail are gambling that the first segment, the Initial Operating Section, will be profitable which in turn will lure private investors.

The word “gamble” is appropriate.

According to the plan, “The priority is to construct the first Initial Operating Section, or IOS. At that stage, a private operator will be brought on board to operate service, and the potential for attracting private capital investment is greatly enhanced.”

Highlighted in bold in the report: Private-sector involvement is feasible because each of the operating sections generates a net operating profit.

Potential? Feasible? It does not sound like the planners are certain that the private funds will be available.

Given the track record of high speed rail authority projections, the speculation that each section will generate a profit has to be treated with suspicion.

Senator Doug LaMalfa is already calling for a second vote on the rail bond given the new information on the cost of the project.

Remember the high speed rail measure, Proposition 1A, saw $2.6 million spent on the Yes side and nothing spent on the no side. Despite that disparity, it barely passed with just over 52% of the vote. A favorable title for the ballot measure was written by the legislature, which prompted a lawsuit by the Howard Jarvis Taxpayers Association. The suit resulted in an appellate court decision prohibiting the legislature from taking such action again – but the decision came too late to alter the title and summary of Proposition 1A.

What the electorate would do if they had a second chance to vote on the bond is anybody’s guess. But the PR effort to bring the voters on the side of the bullet train began when the new plan was revealed yesterday.

The business plan is here.

 

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