A Poor Investment, Poorly-Executed

As part of my continuing intermittent series of posts publicly worrying about California lighting its money on fire with a high-speed rail construction project, I offer yet another post publicly worrying about California lighting its money on fire with a high-speed rail construction project. And again I want to impress the viewer with the nuance that I want to have high-speed rail here — I’m just convinced that the state is botching the job.

Only now, it’s not just me who has that impression. You may now count the Federal General Accountability Office as among that number, advising that the state will need another fifty-two billion dollars to complete the project, three-quarters of it Federal:

The project’s funding, which relies on both public and private sources, faces uncertainty, especially in a tight federal and state budget environment. Obtaining $38.7 billion in federal funding over the construction period is one of the biggest challenges to completing this project. In the latter stages, the Authority will also rely on $13.1 billion in private-sector financing, but will require more reliable operating cost estimates and revenue forecasts to determine whether, or the extent to which, the system will be profitable. The Authority’s plan recognizes the uncertainty of the current funding environment and is building the project in phases. The Authority has also identified an alternative funding source. However, that funding source is also uncertain.

That’s right, taxpayers. [Switch to bad Dr. Evil impersonation] We’re going to need another fifty-two billion dollars to finish this project. Ooh. That’s a nice high-speed rail construction project you’ve got going there. Ten billions dollars of white-collar graft and corruption invested in. It’d be a shame if you ran out of money to finish it and had nothing to show for all those bonds. [Pout, exit mad Dr. Evil impersonation mode.]

Seriously, is there anyone reasonable out there, not suffering from some kind of unfortunately diminished mental capacity, who didn’t see this coming?

It’s no wonder that the GAO has some questions about the accounting controls on the project. The original project was supposed to have a bottom line of thirty-three billion dollars, which would include ten billion in matching funds from the Feds, which was why the state was in such a hurry to pass that bond measure back in 2008 and the rest to come from private fundraising. Endpoint-to-endpoint service, we were told, would be delivered by 2020.

Har-de-har-har. Private fundraising. I’m not a financial planner or a hedge fund manager or anything like that. But even an economics neophyte like me can see that if I were thrust into such a role, the appropriate reaction to the opportunity to invest in this Cal Rail project is to scoff. Yes, I said “scoff.” You go to your investors and tell them you went all in on a project that would offer transportation fares well above the competition, with a twenty-year lead time between an actual investment of triple the prospectus cost, and even beginning to recoup the initial investment costs for twenty years. We’ll just buy some nice Southwest Airlines common stock instead and avoid the breach of fiduciary duty lawsuits. And if in 2040, Cal Rail is raking in the bucks hand over fist and your investors are nominating you for the Cornelius Vanderbilt Visionary Empire Builder Award, you are gonna look so smart! Then you can scoff at me, and we’ll be even.

But let’s get back to that GAO report. More than thirty-eight billion dollars has to come from Congress. You remember, those same guys who locked themselves in to sequestration just this week. What reaction does Cal Rail think it’s going to get from Congress? “Oh, hey, yeah, we just got a rate reduction on our cable bill. So here’s your thirty-eight billion dollars right here. Pay us back when you can!”

It’s not going to happen. California needs to figure out how to do this itself. And if it’s going to be done in any fashion that makes any kind of economic sense, it needs to be done as ruthlessly as the United States’ original railroads were built back in the nineteenth century. Which means, among other things: 

  • Condemning a lot of land, whether people like it or not, right now, and mandating that Cal Rail starts to lay the goddamned track already.
  • Grant blanket variances on environmental impact and mitigation measures. Stop spending money on consultants and lawyers and accountants, and start spending it on engineering and construction crews.
  • Permit the Governor to sit directly on the board so he can flex some political muscle and require Cal Rail to stop making penny-wise and pound-foolish shortcuts like conforming to existing urban rail lines which will produce substantial speed reductions in the end product.
  • Retract the waiver of sovereign immunity in the state tort claims act so that every county, city, and private landowner affected by the project can’t file a lawsuit against the project. If that’s going too far, then have the Attorney General consolidate all of the litigation into a single complex case, and pass a law requiring all suits against Cal Rail be presented in that complex case before the same judge or special master.
  • You want help from Congress? Ask Congress to pass variances easing Federal environmental impact reporting and set up a special fast-track condemnation valuation Court with a special grant of jurisdiction over the whole project, so that landowners can have a meaningful and fair forum to present their Fifth Amendment claims and get paid and get them out of the picture.

Are wild critters going to die and is farmland going to get gobbled up by the right-of-way? You bet. Will the condemnation of existing development have an economic impact disproportionately borne by individuals who won’t actually be fully compensated by the condemnation purchase funds? Yes.

But an ambitious infrastructure project comes at a cost, a cost measured in things other than just dollars. If we aren’t willing to pay that cost, then we aren’t actually willing to have high-speed rail at all. So Cal Rail, salvage this. Condemn the land, pay off the landowners, tear down whatever’s on the land, and frickin’ get on with it, the way you should have started doing about three years ago.

Burt Likko

Pseudonymous Portlander. Homebrewer. Atheist. Recovering litigator. Recovering Republican. Recovering Catholic. Recovering divorcé. Recovering Former Editor-in-Chief of Ordinary Times. House Likko's Words: Scite Verum. Colite Iusticia. Vivere Con Gaudium.


  1. Burt, it’s almost like you think we can’t have our cake and eat it too.

    • And build a high-tech 100,000-degree oven so we can bake it in 10 seconds.

    • Let me see, I have a Cake Impact Assessment Form around here somewhere…

      • Oh, good, please fill that out in triplicate, and make sure it is process dated by the 30th of March.

  2. http://www.cahsrblog.com/2013/03/gao-report-validates-hsr-ridership-and-revenue-projections/

    A rebuttal showing that perhaps the GAO wasn’t so much worried about the funding as the simple fact that the funding might be in trouble because crazy people make up a large part of the majority party currently in power.

    I’m sorry, a report saying, “funding might be at risk because a chunk of people in power are fundamentally opposed to this project” isn’t proof for people fundamentally opposed to the project to say, “see, this is a bad idea!” I mean, you can be for or against HSR in Cali without using this report as proof.

  3. I increasingly have my mind boggled by the costs of government projects. I get that there is more to it than laying rails and paying the people who lay them, both in terms of the infrastructure and people on the ground AND all the other things involved… but still, with the proper motivation (e.g., not simply having a seemingly endless pot of public money from which to draw), I’m tempted to think that such projects could be done just as well for much, much less.

    $52 billion? For train tracks? SRSLY?

    • I’m tempted to think that such projects could be done just as well for much, much less.

      They can be, but for some reason, they just aren’t in the United States. Here’s a good article about it:

      American taxpayers will shell out many times what their counterparts in developed cities in Europe and Asia would pay. In the case of the Second Avenue line and other new rail infrastructure in New York City, they may have to pay five times as much.
      Amtrak is just as bad. Its $151 billion master plan for basic high-speed rail service in the Northeast corridor is more expensive than Japan’s planned magnetic levitating train line between Tokyo and Osaka, most of which is to be buried deep underground, with tunnels through the Japan Alps and beneath its densest cities.

      The numbers for California’s proposed high-speed rail system are similarly shocking.

    • How much for the land on which the rails sit? The communities on the west side of the Denver metro area are looking at completing the interstate ring. The cost of the roadbed and the paving and such are pretty typical — but the cost of acquiring the land from its private owners at today’s market rates is staggering.

      • Well, I would hope that very, very, very few dollars would be spend before reasonable rates for that land were negotiated. To me, not actually having ownership of the land or a reasonable path to ownership, would make the project a non-starter.

        • And this is why we build gondolas! (or ought to at any rate…)

  4. For all the money spent on condemnation and the rest of it — why don’t we just put tunnel boring machines on the job, putting the trains underground where there’s any point of contention? The technology is well understood, the Chunnel proved it can be done and worked out the kinks, AlpTransit’s Gothard Base Tunnel shows the technique is extensible, Seikan went through far worse geology.

    I smell a boondoggle, a mountain of political plums and payouts, a forest of nepotism. We can think bigger than this. Go underground. Makes all this condemnation nonsense irrelevant.

    • I assume the Japanese know (and we must to some degree as well, what with the LA subway and all) how to harden such tunnels against small t0 mid-size earthquakes?

      Would a tunnel be more, or less, susceptible to sabotage than surface rail? Maybe that’s a wash, since a tunnel is presumably somewhat harder for saboteurs to gain unauthorized access to; but, if sabotaged, a tunnel is also harder to repair quickly?

      • Yes, I suppose you’re right, but all sorts of transport are susceptible to sabotage. Tunnels have numerous advantages in this situation though: the bigbig deal is real estate.

        Seikan was a monster. I enjoy following gigantic projects. Seikan’s geology got so weird they pulled the TBMs and went to work manually, back to drill and blast. Titanic undertaking. Only the Japanese would have the konjyo to even start it. At the risk of sounding all weeaboo, I swear, the Japanese engineers I’ve worked with exhibited more fortitude in the face of the damned-near-impossible than most soldiers I knew.

        • Or maybe they just lacked the imaginativeness to realise that what they were doing was dumb and they should have built another airport instead.

          • Seikan is one of the greatest endeavours in human history to date. It’s up there with the pyramids and the Central Pacific’s route through the Sierras.

    • ” why don’t we just put tunnel boring machines on the job, putting the trains underground where there’s any point of contention? ”

      Welp the date isn’t April 1 so I guess you’re serious

      But I think it might be a bad idea to run 200-mph trains in a tunnel that goes through an earthquake fault zone

      • Well, Jim, the Japanese have transported something north of seven billion passengers on the Shinkansen high speed system without a single fatality due to collisions or derailments.

        Here’s the way it works: there’s an earthquake anywhere along the line, the train stops. Problem solved.

  5. That’s not too bad.

    The brand new Chuo Shinkansen, the one that’s going to be a maglev train between Tokyo and Osaka is slated to cost JR something in the order of 70 billion dollars. Granted, it won’t cost a dime of government funding, but it’s like a 300 mile long track. Train itself is supposed to make 315mph.

  6. I think the biggest problem is that American passenger rail is so far behind that they don’t really have the proper experience to plan and construct a proper HSR line. They really should farm it out to someone who knows what they’re doing, like SNFC or JR Central.

    • Really, GE does wonderful engines, rolling stock is not the issue. It’s a numbers game, Nob. Seikan is in competition with aircraft, an industry in which Americans are still competing and winning.

      Shinkansen works in Japan basically because the old Japanese National Railroad went into receivership. There’s a lot of accounting hooey going on between Shinkansen and JR and the good ol’ Japanese government. Massive sums of debt were written off, all the upfront costs. Nobody really knows how much Seikan cost. All that washed away when JNR was privatised. JR is something of an illusion and its finances are dodgy as hell.

      JR is great if you’re running a railroad. But I wouldn’t trust JR to build anything. Shinkansen’s finances were always a dog’s dinner of fraud and underestimation.

      Nor is their engineering all that good. Tunnel boring machinery is an international venture: Caterpillar and Herrenknecht dominate the space. But not everything can be done with a TBM: now that’s where the Japanese truly dominate. They are the best miners and blasters anywhere. Nobody else even comes close.

  7. There will be a time for regional high-speed rail in the US — but that time hasn’t arrived yet. Three-quarters of $52B is $39B. $39B federal dollars spent to expand the light rail systems already under construction in the American West — every major metro area in the West other than Las Vegas is at some stage of construction — and you could easily gain a million riders per day. Far more daily passenger-miles than California HSR is going to deliver.

    • Portland’s is working, isn’t it? or doens’t it count as major?

      • Yep. Running systems in Portland, Seattle, Denver, Phoenix, Salt Lake City, and the several (verging on many) systems in California. Some with expansions under construction or planned. Wikipedia lists 30 light rail and tram systems in the US; 14 of those are in the 11 western states from the Rockies to the Pacific. There are also a variety of heavy commuter-rail systems in the West, including a 100-mile run up and down New Mexico’s central corridor.

        I believe every metro area with a million or more people, except Las Vegas, has light rail now. I’m not counting Las Vegas’ monorail, although if they actually extend it out to the airport it’s going to suddenly start carrying a lot more people.

        • Never happen; the Vegas mob makes too much money from the cab companies. It’s the same reason that the first HSR route was not “Los Angeles to Las Vegas”.

    • I agree with this. It would be a much better investment to spend money to expand already existing transit systems rather than build HSR. HSR is somewhat useless without local transit.

    • We should be clear that there are three kinds of rail systems in play. I’m seeing some confusion between these tiers of rail service. High-speed interregional rail lines fulfills a different mission from commuter rail, both of which fulfill different missions from local rail. In New York, the Acela Express is different than the LIRR is different from the NYMTA (commonly called “the subway”).

      If it is ever built, Cal Rail’s mission will be closer to that of the Acela than the LIRR.

      There has been talk of high-speed rail connections from Los Angeles to Las Vegas since before I was a teenager. There is obviously huge demand for it. And if it ever comes to fruition, it’ll be a boom time for cabbies in Vegas. But I’ll believe it when I see it.

  8. I’m going to give you fifty bucks to buy new shoes. I think the world needs more wing-tips though, and I like suede and the colors red and green, so you can only use that fifty bucks to buy red suede wing-tips with green patent-leather applique. And you have to get them cleaned regularly so they don’t get all scuffed and ugly–and you have to buy that service up front, so that I can be sure you actually do it. (And of course I’ll come round to check every so often–I want to make sure my fifty bucks is money well spent!)

    Oh, and if any of this costs more than fifty bucks, you have to pay the extra. And actually the fifty bucks is just a loan. But don’t worry, you’ll be stylish and hip in your new wing-tips, and I’m sure that if you wear them to a job interview you’ll get a high-paying new job with no trouble, and you’ll totally be able to cover it.

  9. I am not a big fan of public high speed rail projects. They tend to be high cost, impractical, show projects. Typically, they take funding from busses, but they lack flexibility. If demographics change, it is very costly to shift rail. Buses can be rerouted much more easily. Buses also tend to be much cheaper per passenger, if I am not mistaken.

    I was particularly happy when Rick Scott refused the federal money for high speed rail in Florida. That is probably the only time I have been happy about anything Rick Scott has done. If the state took the money and started a project, it would have probably cost a hell of a lot more in the long run, sucking up state funds and resources for years.

    • These pro-bus arguments kept being made all the time but rail based transit attracts a more regular ridership than bus based transit in most circumstances. Rail based transit also makes transit-centered development easier.

      • The latter part is true. The former part depends on how you look at it. Bus’s don’t require a particular type of development, which is their primary advantage. They take advantage of existing development and infrastructure.

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