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California High-Speed Rail Doomed

June 28, 2016  By Virginia Postrel, Bloomberg article and LA Times The total construction cost estimate has now tripled to $98 billion from the original $33 billion, despite trims in the routes planned. The first, easiest-to-build, segment of the system -- the “train to nowhere” through a relatively empty stretch of the Central Valley -- is running at least four years behind schedule and still hasn’t acquired all the needed land. Predicted ticket prices to travel from LA to the Bay have shot from $50 to more than $80. State funding is running short. Last month’s cap-and-trade auction for greenhouse gases, expected to provide $150 million for the train, yielded a mere $2.5 million. And no investors are lining up to fill the $43 billion construction-budget gap. Now, courtesy of Los Angeles Times reporter Ralph Vartabedian, comes yet another damning revelation: When the Spanish construction company Ferrovial submitted its winning bid for a 22-mile segment, the proposal included a clear and inconvenient warning: “More than likely, the California high speed rail will require large government subsidies for years to come.” Ferrovial reviewed 111 similar systems around the world and found only three that cover their operating costs. This research should surprise no one who pays attention. Even advocates acknowledge that almost all high-speed rail systems need ongoing subsidies.

California's high-speed rail project increasingly looks like an expensive social science experiment to test just how long interest groups can keep money flowing to a doomed endeavor before elected officials finally decide to cancel it. What combination of sweet-sounding scenarios, streamlined mockups, ever-changing and mind-numbing technical detail, and audacious spin will keep the dream alive? Sold to the public in 2008 as a visionary plan to whisk riders along at 220 miles an hour, making the trip from San Francisco to Los Angeles in a little over two and a half hours, the project promised to attract most of the necessary billions from private investors, to operate without ongoing subsidies and to charge fares low enough to make it competitive with cheap flights. With those assurances, 53.7 percent of voters said yes to a $9.95 billion bond referendum to get the project started. But the assurances were at best wishful thinking, at worst an elaborate con.

But the California High-Speed Rail Authority steadfastly maintains that its trains will be the exception: “HIGH-SPEED RAIL IN CALIFORNIA WILL NOT REQUIRE OPERATING SUBSIDIES,” a 2013 fact sheet declared, in all caps. The authority has to keep up the charade or admit to breaking the promises that persuaded voters to back the project in the first place.

At an April state assembly hearing, the authority’s chairman asserted that “virtually all” the world’s high-speed rail operations make operating profits. Not true. “It is very easy to falsify a claim like ‘Every HSR system in the world collects revenues that cover their cost,' ” Bent Flyvbjerg, a professor at Oxford’s Saïd Business School who studies infrastructure cost overruns, told Vartabedian.

The truly damning revelation, however, isn’t just that Ferrovial’s research flatly contradicts the California authority. It’s that the company's warning on subsidies disappeared from the version of the bid posted on the state’s website. The Times obtained a copy of the full document on a data disk under a public records act request.

The high-speed rail project is a classic example of how concentrated benefits and diffused costs shape public policy, even when the general public has a direct say. Back in 2008, the bond referendum faced no organized opposition. Voters might have preferred that the money go to schools, parks, roads, social services or even local trains, but those alternatives weren’t on the ballot. It was an up-down vote on whether to let a tiny bit of tax money per person go to fund a really cool train -- and all the companies that would work on building it. Voters looked at the streamlined concept images and thought, Wouldn’t that be great? Whoosh!

But a closer look even back then would have made it clear that, barring a miracle, the rail project wouldn’t keep its promises. To do so, it would have to be the fastest, most popular bullet train in the world, with many more riders per mile and a much greater percentage of seats occupied than the French and Japanese systems -- a highly unlikely prospect. Yet only the most determined wonk would have discovered these comparisons.

Some of those who knew better still succumbed to the glamour of the idea. “There's something undeniably alluring about a bullet train -- the technology is so powerful, the speed so breathtaking, it makes quotidian trips seem exotic,” opined the Times's editorial board in October 2008. Admitting that “it seems close to a lead-pipe cinch that the California High-Speed Rail Authority will ask for many billions more in the coming decades, and the Legislature will have to scrape up many millions of dollars in operating subsidies,” it nonetheless concluded that “we still think voters should give in to the measure's gleaming promise.” Give in they did.

Eight years later, the legislature is getting antsy. Last month, the state assembly unanimously passed a bill requiring that the authority provide clearer statements of route changes and projected expenses, including borrowing costs. The state senate will hold a hearing on the bill Tuesday.

The measure sounds like basic democratic hygiene. But it’s a big deal. "It is the awakening of the magnitude of the issue in front of us,” the bill’s sponsor Jim Patterson, a Republican from Fresno, told the Times. "The project has moved from spotty opposition in the legislature to growing concern.”

Lieutenant Governor Gavin Newsom, the first announced candidate for governor in 2018, has said that barring something “really significant,” he can’t see taking the money from other infrastructure projects. The officials who have to make the budget tradeoffs that weren’t on the ballot in 2008 are finally pushing back. The question now is when they’ll have the guts to pull the plug.

Virginia Postrel at vpostrel@bloomberg.net