CALIFORNIA CAN’T AFFORD

HIGH-SPEED RAIL

© 2008 by Arthur J. Ringham

SUMMARY

The history of large rail and other transportation projects warns us that California High-Speed Rail (HSR) will probably be a monumental failure. Construction costs could be 2 to 3 times projections or $80 to $120 billion instead of $40 billion. Ridership and revenue will probably be one-half to one-third of forecasts. Instead of an operating surplus, a huge deficit is more likely. A subsidy will probably be needed and bonds could default requiring a taxpayer bailout.

Since most claimed benefits depend on ridership, they will be far less than estimates. The shift of riders from cars and planes to high-speed trains will miss predictions by a wide margin. Consequently a major part of future highway and runway construction dollars claimed to be saved by HSR will still be spent. This will be in addition to costs for building and operating an underutilized high-speed rail system. Reductions in air pollution and energy usage will fall far short of projections. Terrorist security costs, risks and implications have not been addressed.

Planned construction of HSR spans most of a decade. Communities and businesses along the right-of way will be disrupted and residential areas devastated throughout this period. Local gridlock will be aggravated. Ultimately most of High-Speed Rail’s advantages will benefit primarily those who travel significant distances between regions, which most Californian may do only a few times per year. HSR does nothing to alleviate urban gridlock, which commuters suffer twice every day.

The California High-Speed Rail Authority is mounting a major campaign to hype benefits and convince voters to approve the bonds. They believe promotion is their job. It is not in their self interest to identify potential problems or risks. They present an appealing case based on overoptimistic projections to convince well-intentioned but misinformed voters. As November approaches we can also expect a media blitz urging bond passage funded by special interests hoping to gain billions. If history repeats and reality becomes far less than advertised, taxpayers will get stuck with a huge tab. The impossible dream will become a horrible nightmare we can’t afford.

ADVOCACY BY HSR AUTHORITY

First let’s understand where the High-Speed Rail Authority is coming from. Their lead website item says “Established in 1996, the California High-Speed Rail Authority is charged with the planning, designing, constructing, and operating a state of the art high-speed train system.” Determining its feasibility or economic justification is not part of their charge. Their job is get it built.

There are no Federal or State requirements for any kind of an Economic Impact Report or financial justification. The HSR Authority has made overoptimistic cost, revenue and cash flow projections. These are part of the required thick EIR/EIS reports of environmental justification and efforts at public support for bond funding. If we think the hype is optimistic, we should recognize they see it as part of their job: get the system built and running. They don’t show realistic financial viability or tell us about risks. It would undermine their advocacy.

ECONOMICS

Inherent Forecast Bias

Credible studies abound on the over-optimism of transportation project forecasts including many by Professor Bent Flyvbjerg of Aalborg University in Denmark. In a December, 2003 article in Engineering News-Record he wrote, “Undoubtedly, most project proponents believe their projects will benefit society and that they are thus justified in cooking costs and benefits to get projects built”. He calls this “Strategic Misrepresentation”. One of his studies, published in 2005, found that over 90% of rail project ridership estimates were overestimated. Average overestimates for 25 projects throughout the world were 106%. Another study of 44 rail projects showed average cost overruns of 45%.

A U S Department of Transportation study of 10 rail projects showed actual costs ranging from 10% below to 106% above estimates and actual ridership 28% to 85% lower than forecast.

A familiar case is the high speed “Chunnel” train between England and France where actual traffic in the 1990-91 opening year was 18% of forecast and the construction cost overrun was 80%. The consortium which built the Chunnel went bankrupt in 2006 with a debt of $12 billion. Eurostar trains, operated by a separate company, continue to run. Actual ridership through the Chunnel in 2007 was 8.26 million or 55% of the 15 million forecasted.

Ridership Forecasts

These involve projections as far as 2030 for a system that does not exist and has no bench mark to use as a reference. This is a daunting challenge fraught with uncertainty and a wide margin of error which increases with the distance to the future forecast horizon. The HSR 2005 EIR/EIS projects “as many as” 68 million passengers annually by 2020. Their 2007 forecast predicts annual ridership of 100 million or more by 2030. Some of their hype claims ridership up to 117 million.

Relate this to BART’s experience with the San Francisco airport extension. The BART 1996 EIR developed by Parsons-Brinckerhoff (also the lead consultant for the HSR EIR/EIS) projected initial daily ridership of 39,500 and daily ridership of 68,600 by 2010. When the airport extension opened in 2003, daily ridership averaged 16,600 or 42% of projections. Recent reported data (July to September 2007) indicated that ridership leveled off at 17,452, only 25% of the EIR projection for 2010. In January, 2008 BART discontinued service between Millbrae and the airport due to low ridership. Interestingly, HSR plans include a Millbrae stop as an airport link.

Also compare HSR forecasts with actual ridership of Acela, the high-speed train serving the U S northeast corridor with a population greater than California. Acela carried 3.2 million passengers in 2006. California HSR should be more modern and much faster and population may grow 50% by 2030. But is it reasonable that HSR will carry its forecasted 68 million passengers in 2020 and 117 million in 2030? These numbers are 21 and 36 times Acela 2006 ridership.

The Los Angeles Red Line subway has less than half the ridership forecast when the line was approved.

HSR compares its plans to legendary Bullet trains in Japan and wants us to believe it will achieve similar results in California. Following are comparisons of 2007 Japan data with HSR 2020 and 2030 projections:

California

Japan-2007 HSR-2020 HSR-2030

Land area Japan vs CA - Sq. miles 145,000 156,000 156,000

Population – millions 127 44 51

Population density per square mile 876 282 327

High speed train tracks – miles 1300 700 700

Maximum train speed – mph 186 220 220

Annual ridership - millions 280 68 100

Annual HSR trips per person 2.2 1.5 2.0

Gasoline cost per gallon $5.60

California and Japan are quite different. Japan has far higher population density and shorter distances between major cities, ideal for train travel. Their Bullet train system was well established before freeways, and gasoline has been about twice as expensive in Japan as here. Air fares between major cities within Japan are much higher than rail and a lot more than California air fares for the same distance. Californians have been wedded to cars and freeways for over two generations. It is absurd that California high speed rail travel can even approach its popularity in Japan.

Based on the above considerations it seems realistic to conclude that actual HSR ridership is more likely to be in the range of one-third to one-half of projections.

Benefits Depend on Ridership

Virtually all claimed HSR benefits depend on ridership. HSR ridership forecasts appear grossly overstated. So, resulting benefits must be similarly overstated:

· Fewer passengers will shift to HSR from planes and cars.

· Actual savings in highway and runway construction costs will be far less than claimed. In addition there will be construction costs to build HSR and operating costs to run underutilized trains.

· Pollution reductions and energy savings will be less than predicted.

· Promised operating surpluses will become deficits forcing subsidies.

· Bonds could default and require a bailout.

HSR UNDERESTIMATED COSTS

Costs for building the 700 mile HSR system are estimated at $40 billion in 2005 or 2006 dollars. Bills will be paid in 2009 to 2020 dollars. The $10 billion bond issue has been delayed 4 years, but the bond amount has not been increased. Will more bonds, a special tax or more Federal funding be needed later? Look at cost growth for the San Francisco Bay Bridge Seismic Retrofit project for the East span:

Year Projected Total Cost

1997 $1.3 Billion

2001 $2.6 Billion

2004 $5.1 Billion

2008 $6.4 Billion

The new span is scheduled to open in 2013. What will total costs be by then?

Boston’s “Big Dig” transit project is a famous example of underestimated costs. Original cost estimate: $2.6 billion. Actual total cost: $22 billion including $7 billion interest. The Big Dig main contractor was a joint venture of Bechtel and Parsons, Brinckerhoff. The Project Manager for the California HSR EIR/EIS was Parsons, Brinckerhoff who are likely to bid for big HSR engineering and construction projects. Credibility?

Terrorist Security Costs

The EIR/EIS and HSR hype make no mention of terrorist security measures. In fact, a 10 minute video touting HSR, pictures Quentin Kopp, Chairman of the California High Speed Rail Authority saying, “I don’t have to get there two hours before flight time. I get there fifteen minutes before the train departs”. This is misleading, but it is part of his job – with added irrational exuberance.

Quentin Kopp’s statement, coupled with failure to address the security issue in the EIR/EIS, suggests that HSR has not planned for security measures similar to those existing for air travel. Isn’t it likely the HSR system would be a potential terrorist target? A bomb could be placed anywhere along the 700 miles of track, or anywhere on a train that is much longer than an airplane. Remember the 2004 Madrid terrorist train bombing which killed about 190 and wounded almost 2,000.

Would the Department of Homeland Security require airport-like security for HSR? Would security measures at 25+ stations and along the 700 mile right-of-way have costs requiring higher fares or government (taxpayer) subsidies? Would the extra security delays and increased “door to door” trip times reduce forecasted shifts of riders from planes and cars?

Considering inherent ”Strategic Misrepresentation”, Murphy’s Law, cost overrun examples, and other unknown costs such as terrorist security measures, actual costs could be two to three times estimates or $80 to $120 billion rather than $40 billion.

Right-of-Way Costs

HSR plans are based on using major segments of the Union Pacific Railroad right-of-way for its preferred route. In May, 2008 Union Pacific notified the High-Speed Rail Authority that it needed its own right-of-way for freight operations and did not want to share it for high-speed rail. Other freight railroads may follow. This means that significant sections of new right-of-way will have to be obtained for HSR by Eminent Domain with added costs probably in the billions.

Private Funding

Originally it was planned that HSR funding would be shared equally three ways: bonds, federal funding and the private sector. The bonds have yet to be approved and federal funding could happen but seems dependent on bond approval plus an indication that the private sector will assume some risk. To date there is little indication of significant private sector at-risk investment for HSR.

The plan for a Maglev freight and passenger train system in the greater Los Angeles area is a recent development of interest. The $26 billion rail plan, initially approved by the Los Angeles City council on January 30, 2008 would be completely paid for by a consortium of private corporations without any government funding. This suggests that economic analyses were made which convinced investors of the project’s financial viability. If California HSR is viable, why doesn’t it attract private investment? The key reason for the Los Angeles Maglev system’s viability is that, in addition to passengers, it would also carry containerized freight as its major source of revenue. HSR makes no provision for freight other than to suggest that it might be carried at night.

OTHER CONSIDERATIONS

Residential Area Devastation

Residential neighborhoods along the High Speed Rail route would be devastated. Eminent Domain would take land, homes and businesses. Property values would drop. Construction noise and disruption could span ten years. A completed HSR would bring ongoing train noise plus communities divided by ugly berms and overhead wires. Derailment of 120 to 220 mph trains, by accident or terrorists, could bring horrendous death and destruction.

Some of this devastation could be reduced by routing HSR through fewer residential areas (Altamont instead of Pacheco or highway 280 instead of the Caltrain Peninsula). Tunnels or trenches could be used but get little serious consideration because of perceived costs.

Special Interest Advocates

Many special interests stand to reap huge financial and other benefits from High-Speed Rail. Special interests include engineering and construction companies, real estate developers, speculators and brokers, equipment and infrastructure providers, labor unions, cities along the route, chambers of commerce and public agencies. Special interests have been endorsing High-Speed Rail for many years. As November approaches, advocacy efforts will intensify and big dollars could pour into a into a media blitz for voter bond support.

Examples of special interest supporters include:

· Amtrak, hoping for contracts to operate the trains

· Bombardier Co., wanting to sell rail cars and locomotives

· Caltrain, seeking HSR funds for electrification, grade separations etc.

· Parsons-Brinkerhoff and other Engineering/Constructions firms likely to bid on big HSR projects

· Japan Overseas Rolling Stock Association, promoting equipment, infrastructure and consulting sales

· State Building Trades Council, wanting jobs

· More than 35 City, County and other government agencies plus numerous Chambers of Commerce representing local interests along the route.

A Potential Remedy

The claimed benefits of HSR may sound great, but realization is improbable. Revenue will be far below optimistic forecasts and costs will greatly exceed them. Many more riders and dollars are needed. One remedy could provide both. A huge gasoline tax, raising its price to levels in Europe, could shift more people from cars to mass transit including High Speed Rail. It could fill a gigantic money pot only part of which would be needed to fund the HSR shortfall. It is highly unlikely the California public would support this increase in their daily transportation costs to pay for High Speed Rail which they may never use or only use a few times per year.

Californians need local and regional relief of gridlock which they face twice every day. High-Speed Rail will do nothing to reduce daily commuter gridlock in the greater Los Angeles and San Francisco bay areas or around other large cities. Unfortunately, a future bailout of HSR could force a huge gasoline tax or some other tax increase whether we want it or not. Continuation of the recent surge in gasoline prices could reduce gridlock but without a significant tax revenue increase for a bailout.

Higher Priorities

The California deficit has been projected at $20 billion for the next fiscal year. There is a huge Federal deficit and a national debt in the trillions. More trillions are needed to fund future Medicare and Social Security benefits. How can the Federal government afford to fund a major portion of California High-Speed Rail? It would be like a gigantic “Earmark”. Public education in California ranks among the lowest in the nation. California health care programs costing $billions are being proposed. With or without High-Speed Rail there is still a need for $billions in highway construction, regional transportation systems and restoring a decaying infrastructure. High-Speed Rail may sound nice to some, but there are higher priority needs for tax and bond dollars.

CONCLUSIONS

The High-Speed Rail hype may sound good and well intentioned voters may be misled. But grossly overstated benefits and under estimated costs make it financially irresponsible. It will be a boondoggle primarily benefiting special interests at the expense of bondholders and taxpayers. History will probably repeat itself and change an impossible dream into a horrible nightmare. We just can’t afford High-Speed Rail.

AJR, Revised 9/14/08

Arthur J. Ringham is a retired management consultant, a member of the Atherton Rail Committee and the Dumbarton Rail Citizens Advisory Panel.