Saturday, November 5, 2011

California's Bullet Train Folly

Three years ago, California voters agreed to support the development of a High Speed Rail network to run from Los Angeles to San Francisco.  The estimate at that time for the total cost of the project was $33 billion.  The main feature was the concept of a bullet train that could wisk passengers between California's largest cities in under 3 hours or so and do so more competitively than via air travel.  The plan was seen as one offering multiple benefits - jobs for the construction of the rail line, jobs for the operation of the rail line, and economic benefitst that would offer a positive return on the investment as well as covering the operational costs.

However, there were a number of shortcomings in the plan.  Many of these are highlighted by California's Legislative Analyst's Office, a non-partisan fiscal and policy advisory group.  The route was uncertain and right of way would need to be purchased.  Environmental and other details needed to still be worked on.  There was no real financial model for the operation or profitability of the rail line let alone if the system would need passenger subsidies as the Amtrak system needs. 

Despite all of these, the California High Speed Rail Authority, a government created agency tasked with the construction and operation pressed forward to build the network.  Assisting financially was the US Government, with $3.6 billion already transferred, and a total level of support approaching nearly $19 billion.  The balance of funds, beyond the state bond issue and the federal assistance, was anticipated to be raised from private investors and partners.  Very few of these have stepped forward.

On November 1, 2011, the California High Speed Rail Authority reported in their latest financial projection, the costs for the construction of the network from Los Angeles to San Francisco has nearly tripled - increasing from around $33 billion to just over $98 billion.  In addition to the stunning cost increase, the timeframe to build the line would be a full decade longer than originally projected.

The fact that, within just three short years, the projections for the cost and delivery of this major infrastructure project have increased so dramatically is reflective of the incompetence of Government and Government agencies within California.  But the story get's even worse than the annoucement from earlier this week.

On Thursday, Nov 3rd, the California High Speed Rail Authority filed an appropriation request with the State Legislature asking to draw on $6 billion ($3.3B Federal grants and $2.7B in CA bonds) to start construction of the line between 2 towns in California's Central Valley - Chowchilla and Bakersfield. This despite the lack of an economic model for passenger revenues which would preclude any need for subsidy or a viable plan to address the environmental / land ownership issues.  Those are apparently seen as 'details' to be worked out after the network is built.

But buried within that request (and the above LA Times story) is something that trumps even that level of mismanagement by the CHSRA....that the system cost of $98 billion (triple the estimate 3 years ago) could increase by another $19 billion depending on the route and construction features!

That's right, rather than $98 billion, we could be looking at a $117 billion bullet train line from LA to SF - nearly 4 times the original estimate.  To put it a slightly different way, the CHSRA is so unsure as to what their cost model will be, they are asking for a 20% contingency amount on top of the revised cost estimate of $98 billion. 

You have to wonder if these people realize that they are talking real money - not monopoly or play money?  Or that they have a responsiblity to the taxpayers to define a viable business model before they start construction?  Or part of that responsiblity includes managing the project in such a way where costs don't triple in just three years, the launch date doesn't extend out another decade, and they don't need a $20B contingency fund on top of the tripled cost estimates.

If someone tried to run a major project like this in the private sector, they would find themselves rapidly without a job.  Why do the Exective Board members of the CHSRA (and some of the Executive Staff) still have jobs?  Well, of the 9 member board, 5 are political appointees of the Governor, 2 are political appointees of the State Senate Rules Committee, and 2 are political appointees by the Speaker of the State Assembly.  All of those making the appointments are either Democrats or dominated by Democrats (Rules Committee).

One of the Vice Chairmen of the Board for CHSRA is Lynn Schenk, who was the Chief of Staff for Governor Gray Davis until his defeat in the 2003 recall election.  She was appointed by current Governor Jerry Brown.  The other Vice Chairman, Thomas Richards, also appointed by Governor Brown, runs a Fresno, CA based real estate investment, development, and construction company and is a significant contributor to liberal Democrat candidates in Californa.  The Chairman, Thomas Umberg, is another liberal Democrat, a litigation lawyer, and a former Assemblyman in California's Legislature where he authored bills promoting the progressive agenda.  He was appointed by, wait for it, the hard left union activist, John Perez, a Democrat from Los Angeles who is now the Speaker of California's Assembly.

From this leadership in the CHSRA, seaped in the Progressive / Democrat mindset, it's no surprise that there is little fiscal discipline, accountability, or even a grasp of fiscal responsibility.  To this leadership team it is play money....because it comes from the 'government', not the taxpayers.  That's why this project, if permitted to continue, will become one of the biggest and most expensive flops in history of the US and California.

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