Money Train - The American Spectator | USA News and Politics
Money Train

“Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail,” President Obama declared in his State of the Union address, making it the most ambitious element of his vision for “winning the future.”

Invoking national pride, Obama mused that “America is the nation that built the transcontinental railroad, brought electricity to rural communities, constructed the interstate highway system.” Sadly, he lamented, the U.S. now lags behind Europe, Russia, and China in modern transportation infrastructure.

If the nation met his goal for high-speed rail adoption, he said, “This could allow you to go places in half the time it takes to travel by car. For some trips, it will be faster than flying — without the pat-down. As we speak, routes in California and the Midwest are already under way.”

To most Americans, the passing reference to California was likely an afterthought, lost amid all the dreamy rhetoric of rebuilding the nation. But upon closer inspection, the state’s proposed high-speed rail system serves as a perfect example of the gap between the promise of transformational liberalism and the reality of big government. Taxpayers everywhere should pay attention, because the project has already been granted $3.2 billion in federal funds, mostly through Obama’s economic stimulus package — and its backers hope to gobble up billions more over the next decade.

The $43 billion transportation project to link Los Angeles to San Francisco with a bullet train by 2020 would be considered grandiose during the plushest of times, yet it’s being pursued during an era when governments at all levels are mired in deep fiscal crises. The plan has been subject to a series of scathing reports by independent analysts, raising concerns about everything from its cost estimates to its business model. The University of California at Berkeley has questioned its lofty ridership projections. And even the Washington Post has editorialized against it.

Although voters in the financially strapped Golden State approved a ballot measure in 2008 authorizing up to $9.9 billion in bonds to build the rail system, the project has encountered a lot of opposition as it has progressed. Several cities are suing to prevent the trains from tearing through their downtowns. Farmers are worried that the tracks will carve up their land. Some environmental groups normally predisposed to supporting high-speed rail have turned against the proposed route, fearing its effects on undeveloped areas. When the High-Speed Rail Authority announced that the initial section of the line would be built in the state’s less inhabited Central Valley region, many were puzzled as to why they didn’t begin by connecting large cities with more potential riders. As a result, critics dubbed it the “train to nowhere.”

“The cost projections are overly optimistic,” Wendell Cox, a public policy consultant and co-author of a critical report for the libertarian Reason Foundation, says. “The ridership projections are absolutely crazy. The thing will have no impact on highway traffic and will have little or no impact on the amount of planes in the air. This project really defines the term ‘boondoggle.'”

The project will rise or fall based on federal commitments, a reality that spurred California state senator Doug LaMalfa to visit Washington in early January to make a rather unusual request for a state legislator.

“I know they’re not used to this, but I asked them to stop sending us money,” LaMalfa, a Republican, said. “Please stop sending us money….When they send us money, it actually costs us money.”

So, at a time of unprecedented debt, why are the state government and the Obama administration still committed to the high-speed rail project? Why are planners starting the construction in a tiny, almost-unknown town outside of Fresno rather than in a major population center? And is there any chance of putting the brakes on the project?

BRINGING HIGH-SPEED RAIL to America has been a decades-long dream for liberals, who have long envied Europe’s extensive rail system. Building a high-speed rail network, they hope, would move the nation away from automobiles and reduce pollution. It has the added bonus of being a massive, centrally planned public works project. The problem is just because rail has worked elsewhere, that doesn’t mean it makes sense here.

“We’re not like Spain or France, where the population densities are a lot higher, and the cities are not as spread out,” Ken Orski, a former transportation official in the Nixon and Ford administrations and publisher of the newsletter Innovation Briefs, says. “So you can connect cities like Barcelona and Madrid or Paris and Marseilles easily.”

In addition, large European cities have “distribution systems,” meaning that when passengers arrive at a station, they can get where they need to go by public transportation or walking, without a car. By contrast, in a city like say, Fresno, a person would be stranded without one.

“So people who are saying ‘Look at Europe, why can’t we be like Europe?’ I don’t think they really realize the difference between our geographic and demographic conditions and theirs,” Orski says.

The only place where high-speed rail could theoretically make sense would be the Northeast corridor from Washington to Boston, which would pass through Baltimore, Philadelphia, and New York. The problem is, Orski explains, it’s likely “50 years too late,” because the area along that route is already densely populated and developed, making it cost prohibitive to acquire right of way.

Nonetheless, when candidate Obama began speaking glowingly about high-speed rail during the Democratic primaries, liberals only cheered him on.

“This is something that we should be talking about a lot more,” Obama said in a May 2008 event in Beech Grove, Indiana. “We are going to be having a lot of conversations this summer about gas prices. And it is a perfect time to start talk about why we don’t have better rail service. We are the only advanced country in the world that doesn’t have high-speed rail.”

A few months later, in Milwaukee, he reiterated that “the time is right now for us to start thinking about high-speed rail as an alternative to air transportation, connecting all these cities and think about what a great project that would be in terms of rebuilding America.”

In February 2009, Obama made sure that the economic stimulus package included $8 billion in funding for high-speed rail projects (he originally requested $10 billion).

“I put it in there for the president,” then chief of staff Rahm Emanuel said in an interview with Politico, explaining how high-speed rail funding was inserted during congressional negotiations. “The president wanted to have a signature issue in the bill, his commitment for the future.”

Secretary of Transportation Ray LaHood told National Public Radio that “this is the transformational issue for this administration when it comes to transportation. I think President Obama would like to be known as the high-speed rail president, and I think he can be.”

In April 2009, Obama, with vice president Joe Biden (who has long boasted of riding the train from Wilmington to Washington each day when he was a senator), outlined a vision for building a high-speed rail system. Obama employed the same sort of big government jingoism as in this year’s State of the Union address.

“There’s no reason why we can’t do this,” Obama said. “This is America. There’s no reason why the future of travel should lie somewhere else beyond our borders. Building a new system of high-speed rail in America will be faster, cheaper, and easier than building more freeways or adding to an already overburdened aviation system — and everybody stands to benefit.”

He continued, “Now, I know that this vision has its critics. There are those who say high-speed rail is a fantasy — but its success around the world says otherwise.”

In January 2010, when it was time to award grants for high-speed rail projects through the stimulus, California was the big winner — having received $2.25 billion in federal funds.

BACK IN 1996, the state legislature created the California High-Speed Rail Authority to develop an inter-city high-speed rail service. After several delays, the issue was taken to voters in 2008, who approved a ballot measure allowing the state to issue $9.9 billion in bonds for the purposes of planning and building the system. The measure received the support of 53 percent of Californians. Under the terms of the proposal, however, the state could only issue the bonds and spend the money by matching funding from other sources. Thus, it was fortuitous for the Authority that the approval of the ballot measure coincided with Obama’s election and expanded Democratic majorities in Congress full of legislators hoping to use the economic crisis as an excuse to dole out hundreds of billions of dollars to their pet projects.

The federal government’s largesse came with a number of strings attached that affected both the timeline and location of the initial section of construction on the high-speed rail line. In late October 2010, just a week before Election Day, the Obama administration raised eyebrows when it directed $715 million in additional money into the project, this time as a grant from the Federal Railroad Administration. Interestingly, the money was specifically directed toward building the first segment in the Central Valley, which would seem like a bizarre choice given its lower population density. Influential Sacramento Bee columnist Dan Walters pounced: “You’d have to be terminally naive not to believe that the splashy announcement, made personally by an Obama administration official in Fresno, was to help an embattled local congressman, Democrat Jim Costa, stave off a very stiff Republican challenge.” Costa ended up being reelected by a margin of 3,000 votes, and wasn’t declared the winner by the Associated Press until three weeks after the election.

Things took a more perplexing turn last December, when California’s High-Speed Rail Authority announced its choice for the initial 65-mile segment of the line, connecting Borden and Corcoran. If you haven’t heard of them, don’t feel bad — neither have most Californians. Together the towns have an estimated population of 25,000. But as the San Jose Mercury News noted, Borden “is an unincorporated community for which the U.S. Census Bureau doesn’t even keep official population estimates.”

Democratic Rep. Dennis Cardoza, no doubt frustrated the railroad money wasn’t going into his district, dubbed it the “train to nowhere.” In reality, “tracks to nowhere” might have been a bit more accurate, as the Authority never had plans to run actual high-speed trains until more than 200 miles of the system are built, and the rails reach one of California’s major cities.

The Mercury News reported, “Even rail authority member Rod Diridon, of San Jose, said he spent four hours on the phone with authority staffers trying to make sense of it. ‘I’m still struggling to understand why the originating system wouldn’t interconnect to major communities,’ Diridon said.” Diridon, according to the article, went on to say that “federal officials have threatened to yank funds if the authority hasn’t chosen a starting point by the end of the month…”

As the Authority was fighting off the “train to nowhere” label, it had some good luck — incoming Republican governors John Kasich and Scott Walker turned down high-speed rail stimulus funds granted to Ohio and Wisconsin, saying they couldn’t afford the rail projects given their states’ fiscal problems. The Obama administration acted quickly to divert $624 million of the rejected money to the California project. The new infusion, with matching amounts from California, allowed the Authority nearly to double the proposed first segment, to 123 miles, and make it reach just north of Bakersfield (though short of its downtown).

Officially, the Authority gives several explanations for the location of the first section. The cost of building in the Central Valley and of acquiring any land is cheaper, and the terrain is much flatter.

Rachel Wall, a spokeswoman for the Authority, explains that “that is the most amount of infrastructure for the least amount of money.”

In addition, under the terms of the federal funding, California must have a contingency plan for using the new tracks if the whole system doesn’t get built. The current plan would connect up with existing tracks, allowing Amtrak to use them if all else fails. Of course, the $5.5 billion cost of the first phase of construction is a high price for a set of tracks that would merely enable Amtrak to slightly increase speeds for that one stretch.

“Our intention is to build the statewide system,” Wall emphasizes. “That is our sole intention.”

The centerpiece of the proposed 800-mile system is a line that promises to transport passengers from San Francisco to Los Angeles in two hours and 40 minutes, with extensions planned to Sacramento and San Diego.

THE MAJOR DILEMMA in rail construction is that building in the higher-density population areas where there is more demand for public transportation creates more resistance. Yet by choosing to start in the middle of the state, the Authority is gambling that it will be able to overcome community opposition as it approaches the major population centers.

The project is already encountering opposition from the agricultural community in the supposedly easy section of the line. Diana Peck serves as the executive director of the Kings County Farm Bureau, based in Hanford, which is near the midpoint of the proposed first segment. “It’s not the path of least  resistance that they think it is,” she says of the Authority’s thinking. “It’s disheartening when people don’t understand the magnitude of agricultural production and what it requires, and they think they’re just going to come and cut through open space. It’s not the case.”

What worries farmers is that the proposed route would divide their land at a diagonal, disrupting their expensive irrigation systems. Given that the railroad would need at least 100 feet of right of way, farmers don’t know how they’ll transmit water to their land that would now be on the other side of the tracks. Even if they can figure that out, given that high-speed trains will be whizzing by at 220 miles per hour, there won’t be the normal number of railroad crossings. Farmers fear that they’ll have to drive six to eight miles just to get back and forth on their own property. Even worse, some parcels of land could be impossible to get to at all, boxed in between the tracks and somebody else’s private property. Such complications would depress the value of the farms in a region where agriculture is the leading industry.

Peck says that farmers have raised their concerns to rail officials on many occasions, even traveling to meet with them in Sacramento. But she laments that while the officials listen, they have not actually responded to questions. The option of legal action remains on the table if the Authority continues to ignore them, she says.

The Authority will also run into complaints as it moves north to Madera, where officials are already raising concerns over one of the proposed routes. “We see more problems and issues than any benefit,” Madera mayor Robert Poythress says.

One of the concerns is that the town, which is already divided by a highway, would become further divided by the high-speed rail tracks. Local officials are pushing for the Authority to build a park along the tracks, or do something else to mitigate the effects of having bullet trains shoot through their town, yet the budget is unlikely to allow for that. “Right now, we’ve been only promised negative impacts,” Poythress said. “I think they’re just staying, ‘Damn the torpedoes, full speed ahead,’ that once they build it people will see how neat it is and resistance will subside.”

Azteca Milling, which processes corn for making tortillas and tamales, has said it would leave California if the Authority chooses a proposed route that would force them to give up their Madera plant. The plant has more than 100 employees, and has corn contracts with 45 local farmers, according to the Madera County Economic Development Commission.

But such resistance is minor compared to what the Authority is already encountering along the San Francisco Bay coast, where several affluent communities are up in arms over a proposed route that they fear would tear apart their downtowns. The cities of Palo Alto, Atherton, and Menlo Park have joined several environmental groups in a lawsuit against the Authority, hoping to stop that route by challenging the environmental review process.

“The problem with this routing is it runs literally right through the downtowns of these cities,” said Stuart Flashman, an Oakland-based attorney representing the plaintiffs. “Back in the early 20th century, there were all these elevated railroads being built in the middle of cities, and what we learned is they ended up causing a lot of blight. And these cities realize that if you put this 40-foot-high elevated rail structure through our downtown areas, we’re going to have blight.”

While the cities would be willing to accept a tunnel instead of an elevated track, Authority officials have thus far balked at the cost — and rail supporters have argued that if those cities want a tunnel, they should pay for the added cost, not taxpayers in the rest of the state.

Some of Flashman’s clients are environmental groups who are predisposed to liking high-speed rail, but are concerned that as the train spreads out into rural areas and spurs growth, it could lead to sprawl.

“What my clients who support high-speed rail are concerned about is that the result of this project is going to be a poorly done project that will sour Californians, and perhaps the whole country, on high-speed rail,” he said. “If it’s done poorly, it will leave a sour taste in people’s mouths, like redevelopment in the 1950s, where people came in and said, ‘we’re going to do slum clearance’ and they tore down whole communities. And today, people cringe whenever anybody mentions redevelopment, because people remember that. And that’s what they’re worried about, that this will leave a lot of bad memories that will poison the waters for years to come.”

In a series of court decisions in 2009, a judge ruled that the Authority had to redo its environmental impact report, but denied a request to halt further work on the project. The Authority has argued that the route that is preferred by the cities would increase travel times and require the taking of more property through eminent domain.

Wall, the Authority spokeswoman, says they are continually trying to work closely with local communities to “minimize impact as much as possible.”

“Communities throughout the state have concerns about the project and they have a right to, and that’s why we’ve set such a vigorous environmental review process,” she says. “We have an overwhelming support by Californians to do something about our transportation alternatives here. So there still is support for high-speed rail in California.”

EVEN IF CALIFORNIA rail builders are able to overcome community opposition, the Authority has been subject to critical reports in the past year from the state auditor, inspector general, legislative analyst’s office, an independent review group, and the University of California at Berkeley, raising questions about either planning, the business model, or the ridership estimates.

Under the terms of the ballot measure, the high-speed rail system, once built, cannot have its operating costs subsidized by taxpayers, an unusual arrangement for public transportation projects. Measuring demand is obviously the key ingredient to making business projections, but predictions for ridership have been wildly at odds. In 2007, the Authority commissioned a study that estimated that the high-speed rail system would attract more than 100 million passengers by 2030. Two years later, the number had dropped dramatically, to 39 million. And according to Berkeley’s Institute of Transportation Studies, that still isn’t a reliable figure.

“We found that the model that the rail authority relied upon to create average ridership projections was flawed at key decision-making junctures, ” said the project’s main researcher, Samer Madanat, professor of civil and environmental engineering, in a press statement announcing the June 2010 study. “This means that the forecast of ridership is unlikely to be very close to the ridership that would actually materialize if the system were built. As such, it is not possible to predict whether the proposed high-speed rail system will experience healthy profits or severe revenue shortfalls.”

One of the problems with the model that the Authority relied on was that the individuals surveyed were not representative of the typical California traveler. “For example,” the study notes, “nearly 90% of long distance (more than 100-mile) business passenger trips are made by car, while 78% of the long distance business travelers sampled for the study were traveling by air.”

Price will be a key determinant of demand, and yet those estimates have also varied wildly. The Authority initially claimed that a one-way ticket between Los Angeles and San Francisco would cost $55, but that price has already nearly doubled, to $105.

Wall responds that the initial ridership models, done by the respected firm Cambridge Systematics, were conducted for the narrower purpose of assessing environmental impact, and they shouldn’t be viewed as the final numbers. “The ridership model will continue to be refined as the project continues, as the environmental [review] process continues,” she says. “So it wasn’t a one-shot chance at the ridership model.”

She also cited a survey by the American Public Transportation Association finding that 62 percent of Americans said they would “definitely” or “probably” use high-speed rail if it were a travel option.

However, as long as there is uncertainty about the ridership potential, it adds to the other problems facing the project. Doubts about ridership fuel community opposition, because people ask why they should have to put up with disruption to build a rail service that won’t be utilized. And in the coming years, it will be harder to convince a more skeptical Congress — not to mention private companies — to invest in a project where it’s unclear that enough demand exists to justify the cost.

IN DECEMBER, California’s projected budget deficit swelled to $25.4 billion, raising further doubts about whether the state could afford such an extravagant public works project.

If the system is fully built, it would cost an estimated $647 million a year for 30 years for state taxpayers to pay off the $9.9 billion in bonds that would need to be issued. State Sen. LaMalfa says that this is particularly irresponsible at a time when people are already protesting proposed cuts to education and health care services.

“We do not have the money to make the payments on this rail system,” LaMalfa explains.

Madera’s Poythress echoes similar sentiments. “I have to salute the states that turned down the money,” he says, referring to Wisconsin and Ohio, “because I think what they’re doing is turning down future problems. But we seem to be welcoming the money with open arms.”

The only way that the Authority is able to unlock the bond money is to receive funds from other sources. So far, that has meant federal funding, as the private sector sits on the sidelines.

“We know that private funding will probably materialize after the big federal funding commitments come through,” Wall acknowledges.

Some have raised questions about the reliability of the estimate that the entire system would cost $43 billion. A Reason Foundation study projected that the real cost would be far higher, in the range of $65 billion to $81 billion. Wendell Cox, one of the authors of the study, says that based on international data, the cost of these types of projects tends to be underestimated by 40 percent to 100 percent, because public officials have every incentive to low-ball the figures to get projects approved.

Even if the $43 billion is accepted at face value, the funding is still a daunting challenge. According to the Authority’s business plan, it needs to receive at least $18 billion in federal funding to complete the project, with the rest coming from the state bonds and private sources. Yet the project received a windfall in 2010 largely due to a confluence of historical factors that are unlikely to be repeated, namely, a Democratic president and Congress coming into power with a crisis they didn’t want to waste.

“We got the most out of any state in the nation, $3.2 billion,” Wall boasts. “So when we matched that with the state funding, we have $5.5 billion after one year of pursuing federal funding heavily.”

With the change of leadership in Congress, there are several proposals by members of the new Republican majority in the House aimed at rescinding unspent stimulus funds and denying future funding to high-speed rail. While it’s a matter of some debate on Capitol Hill as to whether money that’s already been designated for the California high-speed rail project can be canceled, the state is clearly facing a less sympathetic federal financing environment this year.

The California High-Speed Rail Peer Review Group, an independent panel created to oversee the project, raised alarms in November 2010 over the Authority’s inadequate staffing levels, business model, risk management, and financial uncertainty. On the latter point, the group’s report wrote: “In light of the public concern over excessive government spending, how will the Authority close the gap between any funding resources and the project’s total estimated cost? What will the Authority’s course of action be if the funding gap cannot be closed?”

The Authority is undeterred, and Wall says it will continue to “compete aggressively for federal funding.” Ideally, the Authority would like to see an ongoing appropriation of more than $1 billion a year for the project, a commitment that its officials claim will attract private investment.

LaMalfa has introduced a bill in the California senate that would halt any spending on the high-speed rail project until a new, independent analysis could be conducted on the projected cost. After that, he would support holding a new ballot referendum on high-speed rail, providing voters with more accurate data than existed when it went before voters in 2008. In the meantime, he’s urging members of Congress to do what they can to rescind funds directed to the high-speed rail project, and deny any future requests.

“The money the federal government will be sending us will cost us money in the state, because it props up something that doesn’t add up,” LaMalfa says. “If they [cancel the funding], I think the whole house of cards comes down no matter what we do here in the [California] legislature.” 

Sign Up to receive Our Latest Updates! Register

Notice to Readers: The American Spectator and Spectator World are marks used by independent publishing companies that are not affiliated in any way. If you are looking for The Spectator World please click on the following link:

Be a Free Market Loving Patriot. Subscribe Today!