backtop


Print


The Obama administration has been admonished by critics for supporting California's high-speed rail project, which has seen rising costs. In reality, this may be one of the administration's more reasonable investments as it would put the U.S. in a rare class of tech leaders.  (Source: Google Images)

The rail project is now estimated to cost as much as $50B USD, based on the latest revisions from the CHSRA.  (Source: CHSRA)

The U.S. spends $80B USD to imprison almost 1 percent of its population -- more than any other country in the world. Meanwhile, some begrudge the federal government spending $8B USD to allow the U.S. to join Europe, Japan, and China as the sole proprietors of high speed rail.  (Source: LA Times)

High speed rail would relieve the traffic burden that has stretched national highways to the breaking point. It would also allow people to reach their destinations much faster, opening new inter-city business opportunities.  (Source: Google Images)
Critics and supporters conjure up factually lacking reports and claims -- politics as usual, you could say

California's rail project is a glowing beacon of progress according to its proponents and a horrid mark of financial gluttony to its critics.  Now, yet another injection of federal funding has arrived, and despite its small size it has sent the figurative train of political debate hurtling from the station with little pause for reason.

I. High Hopes

In the horror classic The Blob a gelatinous alien space beast attacks a hapless small town, slowly engulfing its residents and bleeding them dry.  If critics are to be believed, a similar situation may be playing out financially, 53 years later, in the home of Hollywood -- California.  

The state has planned an ambitious high-speed rail project, which looks to connect many of the state's biggest cities -- Los Angeles, Fresno, Anaheim, and San Francisco, to name a few -- with 220 mph lines.

Under the controversial American Recovery and Reinvestment Act (ARRA) of 2009, pushed by President Obama, states could receive matching federal funds for high speed rail projects.  California, already deep into its high speed rail plans jumped at the opportunity.

In 2008 Californian voters, under the narrowly passed Proposition 1A, had authorized the state's creation of $9B USD in bonds to directly support the construction project.  Under the proposed scheme, the construction of the initial San Francisco to Anaheim stretch of track would cost up to $33.6B USD, a sum which would see private investors pay $7.5B USD, the federal government pay up to $16B USD, and the state pay the remaining $10.1B USD.

Some sources such as Fox have erroneously suggested or alluded that Governor Arnold Schwarzenegger (R) did not accept federal funds while incoming Governor Jerry Brown (D) did.  Writes Fox News in a story co-authored by the Associated Press:

Arnold Schwarzenegger, while governor, said the total $43 billion cost was too prohibitive to create the 220-mile per hour system, but his successor, Gov. Jerry Brown, has accepted federal cash, in what will now be divided between three areas.

Reality is a bit different.  It was in fact Gov. Schwarzenegger who requested those funds in the first place, requesting $4.7B USD in an Oct. 2009 ARRA application.

And the Republican governor's request was answered by the Obama administration.  In Feb. 2010 California received $2.25B USD in funding for the construction, followed by another $715M USD in Oct. 2010.  And in Dec. 2011, California received $624M USD in federal funds that were going to go towards cancelled high-speed projects in Ohio and Wisconsin.  And in May 2011, California received $300M USD more in funds from the cancelled Floridian high-speed rail project.

The project looked poised to get off to a terrific start, with $9B USD in voter-approved state funding and $3.889B USD in federal cash on hand.  But all was not well.

II. Pouring Money on a Wounded Beast?

If you ask proponents of the high speed rail project they'll defend it saying that, true, costs have risen, but that they won't rise further and that the costs of inaction will be much higher.  If you ask critics (like Fox News), they'll be quick to point out that costs have already risen and will likely rise more.

Regardless of who is right, the bottom line is that costs did rise -- even by the state's accounting.

The California High Speed Rail Authority (CHSRA) in 2009 revised its estimate from $33.6B USD to $42.6B USD.  The question became where the extra funding will be obtained.  There's still no clear answer on that, as federal funding will require matching state or private contributions, and state contributions will require additional voter debt initiatives.

The cost of an initial third of the San Francisco-Anheim line, pegged at $7.1B USD, recently was revised upwards $2.9B to $6.8B USD, with CHSRA CEO Roelof van Ark speculating that a bump to the $42.6B USD total line cost would likely occur as a result.  He comments, "We've had cost increases, but I believe the costs are now realistic and fair."

Some say the problem of rising costs may be exacerbated if the state is unable to sell the original approved debt obligation.  Some sources have suggested that bonds are not selling as expected [Fox News], with some reporting [San Francisco Chronicle] that the state is also issuing a multitude of other bond-driven projects, which may result in multiple projects going underfunded due to lack of debt purchasers.

Such criticism, however, may be unfounded.  Foreign governments have jumped to support the project.  China, who looks to sell high-speed trains to the Calif. rail system, offered to loan it up to $7B USD, contingent on U.S. federal government support.  And Japan offered an even bigger $40B USD loan, which could come in the form of bond purchases.

In short, the state should have no trouble in coming up with debt obligations, if voters are charitable enough to approve them.

But these critics may be missing the point.  Even if the state can muster an infinite supply of money, where will the end point be?

That's a tough question that no one can seem to answer.  People tend to fall into the camp of the optimists who predict that the line will generate a surplus, allowing early construction to pay for costs on later construction.  They also cite that the early part of the line cuts through urban areas, so the cost is predictably higher and will drop as construction reaches less population-dense areas.

Critics meanwhile have floated bold predictions -- some in excess of $100B USD.  State Sen. Doug La Malfa (R-Willows) is among the critics.  He's billed the train as the "train to nowhere" (ouch, Anaheim and San Francisco!) and stated, "This thing is well on its way to massive cost overruns."

The key thing is that anyone could be right at this point.  Construction hasn't even started yet.  For all the financial tug and pull, shovels aren't set to hit the ground until Sept. 2012, and the full line (including the extension to Los Angeles) won't be complete until 2020, under the current plan.

III. So What's the Big Fuss?

The debate that's playing out is largely based on principal, with both sides pretending as if the construction has already started and that the line has either been a tremendous success or an epic failure.

In short, there's no shortage of rhetoric of all flavors, but precious little reality.

The latest debate was triggered by the Obama administration (or, more aptly, the Department of Transportation) granting $179M USD more in ARRA funds to the high-speed rail project.  Considering that the government has loaned nearly 20 times that to the state already, it's somewhat surprising that the loan triggered such a fiery debate, but, hey, people love to argue.

Somewhere along the way, the debate on both sides has yet again been hijacked by speculative political ramblings.

For a more realistic example of both the good and evil of high speed lines, one can look to China.  China has pledged over $1T USD ($1,000B USD) to build high speed lines that vastly outstretch the respectively "small" stretch of track in California.  And they've actually built some of the track.

The track is working -- and has growing levels of riders.  That's the good.  The bad is that government construction left the line with substandard stretches of track that has forced it to slow the lines to less-than-record speeds -- speeds more similar to those of their European and Japanese peers.

Still at the end of the day, China now has a certified high-speed rail system, which is in active use.  It was expensive, as were similar systems in Japan and Europe, but it puts China in a rare class.

The U.S. is not in that class -- yet.  It's still stuck in the slow lane, with urban commuters putting along at 60-70 mph (or taking the occasional plane when they're lucky).

IV. Does the U.S. Want to Lead the World?

Ultimately the rail debate is a question of whether the U.S. is going to be a world leader or accept being a technological laggard.  You'll seldom here critics framing the debate in that context.  And you'll seldom hear proponents voicing that kind of thought without adding embellishments on how "cheap" and "profitable" the projects will be.

High speed rail isn't cheap and it may not be directly profitable for some time.  But it is a game-changer to a nation's broader economy.

Obviously a careful eye must be kept on these kinds of projects to make sure they're done as affordably as possible.  But ultimately -- like the national highway system in the mid twentieth century -- high speed rail is a modern era project that must be done if a nation wants to be a legitimate modern superpower.  In other words, cost is important, but abandoning projects is not a viable alternative.

It's interesting that the nation is so obsessed with debating the $8B USD in federal funding (from the ARRA) at a time when few are talking about other areas where the budget is being so liberally (not in a political sense) applied.  

For example the U.S. in 2010 spent a projected $80B USD or more [source] -- much of it from a federal level -- to incarcerate almost 1 percent (~2 million) of its adult population, with another 2 percent (~5 million) released on probation or parole [source].  That's more prisoners, per capita than any other nation in the world.  Of those incarcerated, 70 percent were imprisoned [source] for non-violent crimes and drug offenses.  A high percentage of these drug offenses are for a certain forbidden substance that is decriminalized in several states and authorized for medical use in many states.

Meanwhile the U.S. federal government gave $17B USD [source] in 2009 to the governments of Iraq, Afghanistan, Egypt, and Pakistan.  Of these nations, Egypt has seen its government overthrown since on allegations of corruption, while Afghanistan has struggled under the weight of similar allegations of sweeping bribery and corruption.  And Pakistan has been implicated in sheltering Osama bin Laden, the world's most famous terrorist.

So while politicians bicker about what may be $10B USD in federal funding, nearly eight times that gets blown on questionable foreign aid and on imprisoning non-violent would-be taxpayers.  When looked at in that context, you'll realize that no matter where most of the voices fall in the rail debate, it's the same old story -- politics.




"My sex life is pretty good" -- Steve Jobs' random musings during the 2010 D8 conference













botimage
Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki