California's Bullet Train: On the Road to Bankruptcy

'... no chance of operating without a huge public subsidy'
By: Kenneth Orski | Posted: June 1, 2011 3:55 AM
Ken Orski
For California’s high-speed rail boosters, including their chief cheerleader, U.S. Transportation Secretary Ray LaHood, the month of May was a month from hell.

First came a scathing report by the California Legislature’s fiscal watchdog, the nonpartisan Legislative Analyst’s Office (LAO), questioning the rail authority’s unrealistic cost estimates and its decision to build the first $5.5 billion segment in the sparsely populated Central Valley between Borden and Corcoran.

That segment, the LAO noted, has no chance of operating without a huge public subsidy. Yet the terms of the voter-approved Proposition 1A explicitly prohibit any operating subsidies.

These concerns were echoed by an eight-member independent peer review group. "We believe the Authority is increasingly aware of the challenge of accurate cost estimating," wrote the group's chairman, Will Kempton, in a letter to the California High-Speed Rail Authority’s CEO, Roelef van Ark. The LAO had concluded that if the cost of building the entire Phase I system were to grow as much as the revised HSRA estimate for the Central Valley segment (an increase of 57 percent), the Phase I system would end up costing not $43 billion as originally estimated, but $67 billion.

The two reports unleashed a torrent of criticism from the press. In sharply critical editorials, The Wall Street Journal and the Los Angeles Times questioned the project’s fiscal viability and the Authority’s poor decision-making.

The project is "a monument to the ways poor planning, management and political interference can screw up major public works," opined the LA Times ("California’s High-Speed Train Wreck," May 16). "If the state can’t come up with enough money to finish the route, a stand-alone segment in the Central Valley would literally be a train to nowhere and a big drain on taxpayers," said the Wall Street Journal ("California’s Next Train Wreck," May 18).

"The Legislature needs to kill the train now. Once this boondoggle gets out of the station, the state will be writing checks for decades," added the Journal in its most recent editorial ("Off the California Rails," May 30). The San Francisco Examiner and The Sacramento Bee also have been critical in their reporting. Gov. Brown needs to "squarely address the issues raised by the legislative analyst’s report," a Sacramento Bee editorial urged.

Even some of the state’s former legislative supporters, such as state Sens. Joe Simitian, Alan Lowenthal, Anna Eshoo and Mark DeSaulnier have expressed reservations and urged the Authority to rethink its direction. "I don’t want to see an EIR (environmental impact report) completed for a project that will never be built," Sen. Joe Simitian told Roelef van Ark at a Senate Budget Subcommittee hearing on financing the first rail segment in the Central Valley.

At the urging of the Legislative Analyst’s Office, the rail authority asked the U.S. Department of Transportation for more flexibility about where and when to build the initial "operable" segment. The LAO went as far as recommending that, "If the state can’t win a waiver from the federal government to loosen the rules and the timing for using high-speed rail grants, it should consider abandoning the project."

Not only would the Central Valley segment, by itself, have insufficient ridership and revenues to stand on its own, the legislative analyst wrote, but "the assumption that construction of the Central Valley segment could move quickly because of a lack of public opposition has already proved to be unfounded." The LAO suggested several alternative segments that could be more financially viable and economically beneficial than the Central Valley segment. They included Los Angels-Anaheim, San Francisco-San Jose and San Jose-Merced.

But in a remarkable exercise of inflexibility and delusion, the U.S. DOT turned a deaf ear to the request. "Once major construction is under way ... the private sector will have compelling reasons to invest in further construction," the DOT letter stated in an assertion totally unsupported by any evidence.

"California is a test case for whether high-speed trains can succeed in the U.S. -- and so far, the state is failing the test," the L.A. Times editorial concluded. The feds’ refusal to reconsider their position has substantially magnified and accelerated the likelihood of that failure.

Kenneth Orski is editor and publisher of Innovation NewsBriefs, a transportation newsletter now in its 20th year of publication. Orski served as associate administrator of the Urban Mass Transportation Administration under Presidents Nixon and Ford and, after leaving government, founded a transportation consultancy counseling corporate clients and agencies in federal, state and local government.

Comments (7)

Henry Porter
6:58PM JUN 1ST 2011
What is it going to take to drive a stake through the heart of this money gobbling monster?
8:46AM JUN 1ST 2011
California State Assemblywoman Diane Harkey clearly gets the fact that the CAHSR PR machine is wasting millions in CA taxpayer dollars keeping this boondoggle of a project on minimum life support - but the feds are putting the final nail in the coffin:
8:45AM JUN 1ST 2011
CA Treasurer Bill Lockyer, the California politician responsible for selling these CAHSR bonds, said on March 14, 2011 to an LA news reporter that no one is interested in buying CA HSR bonds because the CAHSR is more interested in issuing bad PR, rather than coming up with a sound business plan. Until there is a sound business plan, or even a half-baked one, then no one will invest in this stinker of a project. Interviewer asks: “so are investors saying we’re interested, but it doesn’t look like you guys [CAHSR Authority] know what you’re doing” & Lockyer responds: “that’s what they’re saying”; Interviewer: “what do you think?” & Lockyer responds: “well, I think the same thing.” High faluting ideas are one thing, wasting your nest egg investing in a stinker is quite another - see interview here:

Listen to words of the actual California High Speed Rail Authority, and the California State Senators/Assemblymembers asking critical questions of CAHSRA - a video speaks more than a thousand written words - this is not the Chairman or Board who should oversee a $100 Billion dollar plus project:
(CAHSR upsetting Big Agriculture, ignoring residents, as usual) (Chairman Pringle - a little sassy, isn't he?) (Senator Simitian - you don't want to upset this guy, for sure)
(Simitian, Lowenthal, all California legislators are "concerned" about the CAHSRA...)

The greatest waste of taxpayer dollars in California history is about to be started (and eventually abandoned) in California's Central Valley, called the "California Train to Nowhere..."

And, see the 5/25/2011 California Subcommittee Hearing on Transportation, and the Assemblyman from Hanford, CA (i.e. Central Valley) complaining to CAHSR CEO Van Ark about this constituent farmers being "thrown out" of "public" CAHSR meetings, about PR where CAHSR shows up to give information about which route CAHSR has chosen to go through their farmlands (upwards of 1500 acres of prime agricultural land) without an "open microphone", so there is no public input, and how CAHSR is not listening to farmers who are worried about the overall cost to taxpayers of California, and that the train won't be built after their water wells, farmland, houses, and way of life are destroyed forever:
3:12AM JUN 2ND 2011
8:42AM JUN 1ST 2011
You forgot to mention that your funded by the oil industy..kenney
Ted C
1:59PM JUN 1ST 2011
He may be backed by big oil, but he didn't tell the LAO, the Treasurer, the AG, etc., etc. what to say. Ken has nicely put all that information here into one article which apparently, like the DOT, you want to turn a blind towards. You can't get something for nothing, and that is exactly what the tax payers were promised. Problem is the truth is catching up with the lies.
3:22AM JUN 2ND 2011
Ted Crocker you you have to go on a webpage in Florida to spread your lame Nimby lies.. you need to be exposed where you live in your home SO what that you're doing to California can be seen by all the people that voted for HSR in California

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