Economics

California is Headed for a Real Fiscal Train Wreck

The state should spend less before calling on Uncle Sam

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With credit markets in New York in crisis last week, California Gov. Arnold Schwarzenegger sent an extraordinary letter to Treasury Secretary Henry Paulson asking for $7 billion. Although the governor has since withdrawn that request, it testifies to the dire state of his budget.

Yet days before penning his note, the governor told an audience at the Commonwealth Club of California not to worry about the state's budget crunch and to approve $9.95 billion in new debt on the November ballot to build a bullet train to connect Los Angeles to San Francisco: "Just because we have a problem with the budget does not mean people should vote 'no' on high-speed rail." (A spokeswoman confirmed Monday that, despite the request for federal money, the governor still supports the initiative.)

Actually, the state's budget woes should give votes pause—especially since high-speed rail is a fantasy that has as much chance of delivering on its promises of creating 450,000 jobs, vanquishing road congestion and lowering greenhouse gases as "Conan the Barbarian" had of winning the Oscar.

The Golden State's finances are a mess. California's general obligation debt has tripled in the past six years and is now almost equal to the state's $145 billion annual budget. Even without any new loans, in three years the state will spend a record 6.1% of its budget just to service the debt it already has. What's more, with the economic slowdown, the state is now expecting a deficit larger than $1.1 billion for the first three months of this fiscal year. The state's rainy-day fund is running dry, which has hurt its credit rating.

Under such circumstances, the prudent course would be to avoid taking on new debt, even for worthwhile projects, much less sure-shot losers such as the high-speed rail. But in California, prudence is in short supply.

With the governor's support, rail backers in the "Transportation and Land Use Coalition" want to make the Golden State the bullet-train beacon for the rest of the country. Proposition 1A, the bond initiative, represents the first phase of their plan that, once fully in place by 2030, will run high-speed rail from northern San Francisco to southern San Diego, connecting a string of cities in between. What's more, voters are being told after the initial $9.95 billion the project will not need another dime of state funding.

The California High Speed Rail Authority, the state agency overseeing the project, maintains that the Los Angeles to San Francisco line will be so lucrative that it will generate enough revenue to pay for its own operating costs, as well as much of the remaining network, with private investors and Uncle Sam making up the difference.

But there is little reason to believe such cost or revenue projections. The Rail Authority admitted recently that the new estimate of $45 billon is 50% above the original 1999 estimate of $30 billion and more than double what California needs to update and expand existing rails and roads, according to the Howard Jarvis Taxpayers Association.

An analysis by the Reason Foundation has found that even this figure understates the final price tag by about $30 billion because the Authority has not fully taken into account the added expense of building in the world's most active geological zone and erecting sound walls to abate noise and other nuisances. This is not surprising since political authorities habitually underestimate the cost of megaprojects. Bent Flyvbjerg, a Danish researcher who analyzed 258 infrastructure projects around the world, reports in his book Megaprojects and Risk: An Anatomy of Ambition (Cambridge University Press, 2003) that rail projects on average cost 45% more than originally advertised.

Another rosy assessment comes in estimates of annual ridership. The Rail Authority says the trains will carry 65 million riders each year. But the Reason Foundation's study gives a much lower estimate—23 million riders annually—after looking at Japan and France, which have the world's strongest markets for rail. Neither country has achieved the kind of ridership California is predicting and both countries have far higher population densities in the cities served by their bullet trains than Los Angeles and San Francisco.

To attract riders, California's rail will have to out-compete cars and airplanes by keeping a lid on commute times and fares. To keep commutes short, the state legislature has put statutory limits on travel times. The Los Angeles-San Francisco commute, for instance, is legally required to come under two hours and 42 minutes. This is probably impossible because it would mean that the train will have to post average (not potential) speeds of 200 miles per hour, something that has not been achieved anywhere in the world, even in places whose flat topography allows for far straighter routes.

And as for fares, the Rail Authority is promising a $70 ticket between Los Angeles and San Francisco. This is about half of Japan's Tokyo-Osaka ($135) and France's Paris-Marseille ($140) train and far less than the $172 Amtrak charges riders traveling between New York and Washington—all of which are shorter and, with the exception of Japan, heavily subsidized.

It seems that California is promising to build a train that is faster, cheaper, more efficient, and serves more riders than any high-speed train in the world. And all it has to do to pull off this miracle is defy the laws of economics and physics.

This is the kind of creative thinking possible only in the land of Hollywood, but odds are that eventually reality will sink in and California will have to abandon its rail just like Texas, Florida, and Southern California were previously forced to do with their far less ambitious proposals. Yet should it proceed, this rail will likely become a gigantic white elephant requiring vast amounts of taxpayer dollars.

Regardless of whether California voters green light this project, Uncle Sam should have no part of it—either directly by offering California matching rail grants as it is hoping or indirectly by approving any future requests for emergency cash. American taxpayers should not subsidize California's fiscal train wreck.

Shikha Dalmia is a senior analyst at the Reason Foundation. This article originally appeared in The Wall Street Journal.

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  1. Someone’s gonna think that’s a picture of Shikha Dalmia unless you say otherwise.

  2. Maybe Arnie can put a call in to Dubai for a loan?

  3. You’re such a killjoy. C’mon, big, fast, shiny new trains!!! FAST super FAST Trains!

    Choo-choo, woohoo!
    TRAINS!!!

    Mono-doh!

  4. You’re all economic girlie-men!

  5. and this article coming from a organization that get hundreds of thousands of dollars $$$$$$$$ from the oil companies!! Read here:

    http://www.exxonsecrets.org/html/orgfactsheet.php?id=63

    No wonder they oppose anything that doesn’t use oil and is good for the state. Wouldn’t trust them as far as I could throw them!!

    Go high speed rail and vote Yes on 1A

  6. How much would it take to bail out California, since it’s all the rage nowdays?

  7. I tell you. LoneWacko’s worst nightmare could be the best thing that ever happened to this country. We should just give California to Mexico. Texas too!

  8. Warren, even better – let’s build a NAFTA SuperRailway from Mexico City to Vancouver, with all kinds of American stops along the way.

  9. Hey “J”oe with a capital “J” should we drink now? Oh, what the hell. DRINK!

  10. The proposed cost — $9.95B — should be a red flag that they just made up this number, trying to advertise a teaser rate of just under $10B. Next — “oh, you want RAILS on that railroad? Well, that’ll cost a bit extra, but hey, we’ll throw in free mats!”

  11. Yes it will cost more than projected and will take longer to build than thought and when it is complete no one will be sorry it exists and everyone will wonder why we didn’t do it 10 years ago.

  12. Joe, the messenger has nothing to do with the fact that California cannot afford to borrow another 10 BILLION (plus future operating subsidies) for anything, much less something as pie-in-the-sky as high speed rail.

  13. Again, if this thing is going to make money like gangbusters why aren’t private companies falling over each other trying to get one up and running?

  14. I have inside information that indicates that California will secede and become part of Austria. It will be divided into two states: Oberokalifornien and Niederokalifornien. Arnold Schwarzenegger will be Landeshauptmann of Niederokalifornien, and Wolfgang Puck will be Landeshauptmann of Oberokalifornien.

    Unfortunately, my sources are unable to tell me why California would join Austria and not some other country. Mysterious.

  15. Again, if this thing is going to make money like gangbusters why aren’t private companies falling over each other trying to get one up and running?

    Because government is so much better at inves …

    HAHAHAH!

    * Whew *

    Couldn’t get all the way through that with a deadpan face.

  16. Again, if this thing is going to make money like gangbusters why aren’t private companies falling over each other trying to get one up and running?

    This actually makes since to me. Private developers would have to pay people for the land they want to use,* the state only has to pay a nebulous and judge-defined “fair market value.”

    *or the lawyers fees for getting the state to steal it for them.

  17. Gosh, another post on this subject?

    Again, if this thing is going to make money like gangbusters why aren’t private companies falling over each other trying to get one up and running?

    Same reason private companies didn’t fall all over each other to build the Interstate Highway System.

  18. You know who else made the trains run on time?

  19. No wonder they oppose anything that doesn’t use oil and is good for the state. Wouldn’t trust them as far as I could throw them!!

    I say we get some subsidized oil, pour it on the trains (when they’re built) and set them on fire.

    Too subtle?

  20. So does Katie M-W still heart Arnold?

  21. “But in California, prudence is in short supply.”

    And always has been.

  22. I am aghast at my fellow Californians who think our Governator has done an admirable job-this will be his legacy to us if it passes! Maybe we deserve what we get when we elect “movie stars” to run our state! However, if it does manage to alter the physical universe-what’s the big deal about going from LA to Frisco in two hours? Ever hear of a phone? Imagine what communication technology will be in 5o years while we are still paying for this boondoggle. I’d like to know where the money goes for this one….

  23. Again, if this thing is going to make money like gangbusters why aren’t private companies falling over each other trying to get one up and running?

    The Texas San Antonio-Dallas light rail proposal kept foundering on one point. No one could figure out how to get the fare lower than what Southwest Airlines charged.

  24. This article claims a trip from S.F to L.A. in under 2 hours and 42 minutes would require an average speed of over 200 miles per hour, but http://www.cahighspeedrail.ca.gov/map.htm
    shows a distance of 432 miles from L.A. to S.F. along the proposed route. Using some advanced 5th grade math, this turns out to require an average speed of 160 miles per hour.

    Presumably, there would be some sort of express service, to avoid having to stop at a bunch of places in between.

    I still think that high speed rail is a stupid idea, but this particular argument isn’t very convincing.

  25. At least San Fran and LA aren’t at risk for any earthquakes that could cripple the system in minutes.

  26. At least San Fran and LA aren’t at risk for any earthquakes that could cripple the system in minutes.

    Even if an earthquake were to occur on one of the most active faults in the world, at least now I know it would probably only affect 23 million trips a year, not the state’s conservative estimate of 65 million. Whew!

  27. The monorail is more of a Shelbyville idea, anyway.

  28. Again, if this thing is going to make money like gangbusters why aren’t private companies falling over each other trying to get one up and running?

    Its proponents are saying that it will be a mix of public and private financing, as in, “Look! The public doesn’t have to put up all the dough!”

    Of course, mixed public/private is worse than pure public. Let’s see, where else have we seen private profits coupled with public losses recently?

  29. We could just run more normal-speed trains on the existing train tracks between L.A. and San Francisco. But I guess that wouldn’t be as cool.

  30. Oh, by the way, for non-Californians, the number of trains currently running is one per day. The Amtrak “Coast Starlight” tourist train. Well, it runs once per day when it isn’t broken down or stopping in the middle of nowhere because of union shift-change rules.

  31. This is the kind of creative thinking possible only in the land of Hollywood,

    Unfortunately, Hollywood would never get involved in such a boondoggle. Hollywood knows how to make money. No, this creative thinking is only possible in one place: government.

  32. If Arnie follows the U.S. Constitution, Article 1, Section 10
    section 10 he will not have a problem as the State(s) may only
    pay their debts in gold and silver coin. Ok why have they not done this before?

  33. For 45 billion, the guv could give the 800,000 residents of San Francisco $56,000 each so they can move to LA. Another problem solved by a simple redistribution of wealth.

  34. Paul,

    Unfortunately you haven’t done any research. High speed rail lines all over the world are making a profit that equates to billions in revenue. So before you call this idea a boondoggle, read a little bit.

  35. Tom,

    Or anybody. Serious question:

    As I pointed out in a comment above, there are already conventional train tracks running between L.A. and San Francisco. Currently, there is only one conventional-speed train running between the two cities daily. Could we get most of the benefits of the proposed plan for much less cost by simply running more conventional trains. Is it absolutely essential to the plan that the trains be high-speed?

  36. The conventional train takes longer than driving and costs more.

    I live in SF and grew up in LA. I make the drive all the time. Normally I go at night and I speed. I can do it an around 5 1/2 hours. I think the train is around 8 hours. If I went in the day time the drive would be more 6-8 depending on traffic and how many stops you make. So even then its the same as the train and I have a car when I get there.

    Flying ends up being around 3-4 hours because of security, baggage, and travel to and from the airport.

    High speed train would theoretically get you there in a little under 3 hours. But you have to get to and from the station and presumably need to be there a little early to ensure you make your train. So probably 3 1/2 – 4 hours – basically the same as a plane.

    I don’t really see the advantage.

  37. Joe:

    No wonder they oppose anything that doesn’t use oil and is good for the state.

    Where will the 3,350 GWh of energy to push this train come from? Oh, renewables. Or, is that what the state tells us?

    Tom,

    touche, you are correct. I used the numbers in the article as my research.

    So, we have the statess numbers, which the article mentions, and the countering numbers from the article. The numbers in the article sound much more realistic. I’m sorry, I don’t trust the state’s numbers, but can you back them up?

    Simply telling someone that they haven’t studied their Agrippa doesn’t a counter argument make.

  38. But you have to get to and from the station and presumably need to be there a little early to ensure you make your train. So probably 3 1/2 – 4 hours – basically the same as a plane.

    This always crushes the Chamer of Commerce when you say stuff like this.

    Silverdale! Only a 30 minute Ferry ride from Seattle!

    Shyea. Lessee, I take that Ferry trip about twice a month and the average time to get from Seattle to Silverdale is 1.5 hours.

    You have to drive to the ferry dock. Then, unless the planets are aligned, you’ll never drive right on a ferry. If you plan it so you do drive right on the ferry, you’ll find that there are too many cars in front of you and *poof* that ferry’s full and you have to wait for the next ferry (add 35 minutes) now you’re up to two hours. Then once the ferry gets to the dock, it has to unload, then you have to drive to your destination. Yes, the ferry ride itself (assuming no weather or mechanical conditions are slowing the crossing time) is 35(!) minutes, the total trip time is two flipping hours.

    In worst case scenarios you’re crossing in heavy traffic time, and no matter how much planning you do, you have to wait through two or even three ferries– add an hour and a half to your trip, now that 30 min trip just became 3.5 hours.

  39. Mike Laursen there is no train that runs from LA to the Bay. You can take a train from LA to San Louis or thereabouts and then take a bus to the Bay. Or you can take a bus from LA to Bakersfield and then take a train to the Bay.

  40. Unless they just changed its route, it stops in San Jose, Oakland, and Emeryville. So, yeah it doesn’t stop in San Francisco proper.

  41. And we must be talking about different trains because the Coast Starlight doesn’t go through Bakersfield. Is it possible there are two train routes in California? I only know of the one.

  42. Mike he train goes to San Louis then you get on a bus to San Jose. Then you get back on a train.

  43. I love living in CA, except for its politics and economics. My voters ballot for this Nov is full of even more bonds and borrowing for projects than the silly train. I’m voting no on every single one of the propositions. I wish other CA voters realized that it’s real money we have to pay off. If I knew it wouldn’t fail in advance, I’d start a proposition to have no more bond borrowing propositions possible on ballots and stop letting CA decide how much debt to take on. Not that many political leaders would do much better either. *sigh*

  44. johnl, could that have been temporary because of track maintenance or some such? The Amtrak schedule definitely says that the train goes from L.A. to Oakland. I know that I’ve had relatives have to take a bus on the Sacramento to Oakland leg because of mechanical problems.

  45. Flying ends up being around 3-4 hours because of security, baggage, and travel to and from the airport. High speed train would [take you] probably 3 1/2 – 4 hours – basically the same as a plane. I don’t really see the advantage.

    And the less-than-$10b solution would be expediting the boarding process for SFO-LAX flights, which take around 2 hours when you account for everything beyond security and check-in.

    And I don’t even think you need to go at night and speed. I’ve made the trip in the same time during the middle of summer driving season. Maybe it’s a one-off, but I-5 seems like it’d usually be pretty dead.

    I’d start a proposition to have no more bond borrowing propositions possible on ballots and stop letting CA decide how much debt to take on.

    The easiest way to grin and bear CA’s finances is to decide you won’t live here long enough to actually ever have to pay the piper. My condolences to the children of California, of course.

  46. Maybe it’s a one-off, but I-5 seems like it’d usually be pretty dead.

    I-5 can have very heavy traffic, especially on holiday weekends. It also gets dangerous, heavy “tuley” fog. And sometimes you get the tuley fog on a holiday weekend, which really sucks.

  47. The rail situation in California is pretty much similar to everywhere else in the U.S. except for the Northeast, which has a semi-high speed line built privately decades ago but is now operated by Amtrak. Everywhere else, Amtrak and state run services run on private freight railroad tracks using conventional trains. Usually, the passenger trains are unable to run at their potential top speed of about 125 mph due to freight traffic, track conditions, and federal regulations reguarding signal systems and speed.

    California’s proposal is retarded because they want to overbuild it for a very minimal benefit. A much more viable service could be built by improving the existing infrastructure enough to take advantage of the full abilities of existing conventional trains. The distance between LA and SF could be travelled in about 3 to 3.5 hours.

    This would require building an extra track or two on existing right of way, modern signalling, and the existing equipment that Amtrak has sitting in storage could be used, for a small fraction of the cost of California’s dumb fuck proposal.

    Of course, I would prefer to see the travel industry de-regulated and de-subsidized so that private services would have a better chance of being profitable.

  48. Don’t fall for the hype Mike Larson. Amtrak has multiple services connecting LA to the Bay. They are both half train and half bus. One starts out bus and then changes to train in Bakersfield, and the other starts out train to San Louis and then changes to bus. These segments are clearly marked with bus icons on Amtrak documentation. Of course when there are problems with the track, busses are brought into other segments as well. But the trip is, at best, half bus.

    To confirm this, you can use the trip planner.

  49. There is only one high-speed rail line I would support for California: one that goes from LA/OC to Las Vegas. I would support it from my own pocket, over and over…

  50. The train situation in the US is truly one of our saddest policy f-ups, IMHO. There is train track everywhere that is never used to anything close to capacity due mostly to government regulations and lack of vision. For instance, it would be highly profitable to have an SF to Reno train (stopping at Truckee for us skiers) that runs every Friday and back on Sunday given the incredible traffic jams on this route (especially during the ski season). Instead Amtrack uses a bus through the mountains giving riders no break from the traffic.

    I loved riding on the trains in Europe and relative travel times or cost were much less of an issue since the trips were more comfortable, less stressful and sometimes much prettier. But its a hopeless battle here, so we drive or fly and thank our deity of choice (or lack thereof) for Southwest.

    BTW, I’ve most of my life in CA and love it here, but the politics are horrible. There’s always a price, no matter where you live.

  51. I use to make a regular commute from LA to San Jose. Amtrack is definitly not going to work, if you take a look at the times and the transfers to bus/trains it eats an entire day,so I ended up driving up 4 hours on monday and down 4 hours friday nite. Yes. that does indicate speeding but seemingly every one on the road passed me, then pulled off to a rest stop, then passed me again.

    Hi Speed rail would connect a large part of the state and possibly enable people to live in less congested and cheaper areas.

    Normally I hate mass transportation but this is exactly where mass transit makes sense, travel over a long distance between 2 popular destinations.

  52. I was just in Europe and I must say high-speed rail is the best way of getting around than being stuffed like cattle in a plane or being stuck in traffic with angry drivers.

    Compared to the billions in taxpayer dollars wasted on roads and highways and the hundreds of billions being wasted by people on gas and automobiles, high speed rail is truly a bargain.

    Countries around the world, including oil-rich Russia are going for high-speed rail in a big way. It is time that the US caught up before it falls even further behind.

    More in my blog:
    http://everyoneforever.org/blogger/

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