Legislative Analyst’s First Look At 2009 Business Plan

Jan 12th, 2010 | Posted by

Supposedly the big news at yesterday’s Assembly Transportation Committee hearing was the Legislative Analyst’s Office releasing their first take on the 2009 Business Plan. To hear some people tell it, pearls were clutched, gasps were heard, and pandemonium broke loose. Watch the video for yourself here.

Or maybe that was The Godfather, Part II, I can’t remember.

Looking at the LAO document, I’m surprised by how unsurprising it actually is. This is their first take on the 2009 Business Plan, which they said was much improved upon the 2008 Business Plan. But the LAO document focuses on the negatives, which was probably to be expected. There are three specific areas the LAO was concerned about in the 2009 Business Plan: risk, timelines, and funding.

For a project that is still very much in development, especially in terms of the full funding, none of that should be a surprise. The 2009 Business Plan is a snapshot of a project in evolution. Any expectation that all the financial details would have been ironed out in a year is absurd and unrealistic, but then, HSR often gets burdened with absurd and unrealistic expectations, particularly from skeptics and critics. Certainly the things the LAO points to deserve resolution, and we fully expect they will be resolved. But to use this report, as some want to, as evidence of a flawed project is itself a flawed analysis.

Let’s have a closer look.

Inadequate and Incomplete Discussion of Risk. The plan’s discussion of risk management is significantly inadequate, lacking any description of mitigation processes or detailed consideration of many key types of risk.

No Risk Management Strategy. The plan contains no discussion of the authority’s plans or processes to (1) identify potential threats or (2) manage, respond, and mitigate those threats. The plan only states that the authority “believes it is aware of all existing threats and is taking the appropriate steps to prevent or mitigate those threats.”

Unknown Confidence in Projections. The plan does not provide any numerical ranges nor confidence intervals for projections contained in the plan (such as cost, revenues, or ridership). Without this information, the risk of not realizing the forecasted ridership, revenues, or costs is unknown.

Inadequate Discussion of Key Types of Risks. The plan contains no detailed discussions or consideration of even the most significant risks to the project, such as ridership and funding.

The LAO goes on to mention specific risks of low ridership and low funding. Are we to believe that the CHSRA erred in not discussing these in great depth?

I don’t think so. Sure, a detailed discussion such as the LAO wants might be worthwhile and I suspect we’ll see that in the 2010 Business Plan. But we don’t need that data to understand these risks, which are inherently political risks.

The main risk is that the CHSRA will not get sufficient federal funding. That’s a very real possibility. President Obama is throwing away political capital by the day and Congress is becoming an institution incapable of action. Every sign we’ve seen from the federal government in 2009 was encouraging, but it’s true that there is a risk that the climate may change and HSR might not get the funding it needs.

In that case, the HSR project has much bigger problems than a lack of “confidence intervals” in the Business Plan. Without full federal funding, the SF-LA project isn’t going to happen. Pieces will be built, and it’s unclear what that would look like. Should the CHSRA address that issue in its Business Plan? Probably. Is it fatal that they didn’t? Not really. Again, we know that federal funding is make-or-break, and we don’t need a Business Plan to tell us that. If it’ll make the LAO happy, go for it, but I’m not going to worry about it, since we’re already well aware of the importance of ongoing federal support.

The LAO also criticizes the timeline:

Uninformative Timeline. The program management and project delivery timelines contained in the plan are very general and provide little opportunity for increased accountability. There are few deliverables or milestones included against which progress can be measured.

Inconsistent Order of Events. Because the timelines in the plan are so general, it is unclear in what order various events will occur. For example, regulatory approvals are expected by 2018 but procurement is scheduled to be complete by 2014. This could mean the train technology and rolling stock will be procured before regulatory agencies approve their use.

Is the timeline vague? To some degree, yes. That’s partly because the final decisions on project implementation haven’t yet been made. Once they have been, then it is absolutely the right time to begin holding CHSRA accountable on that front.

As to the issue of procurement and regulatory approvals, sure, the CHSRA ought to be clearer on that point too. But that’s a bit of nitpick in the bigger picture.

Finally, the LAO closes by saying “Funding plan uncertain; appears to violate law.” Oooo! Strike the jarring chord, CHSRA is in trouble now!

Or is it?

Operating Subsidy Necessary for Private Funding. The Proposition 1A bond measure explicitly prohibits any public operating subsidy. However, the plan expects the following items to be funded by the private sector.

Revenue Guarantee. The plan assumes some form of revenue guarantee from the public sector to attract private investment. This generally means some public entity promises to pay the contractor the difference between projected and realized revenues if necessary. The plan does not explain how the guarantee could be structured so as not to violate the law.

Operations Insurance. The plan anticipates the cost of insurance for operating the system would not be borne by the private operator. If the public sector pays for insurance, that would constitute an operating subsidy in violation of Proposition 1A.

Putting a ban on operation subsidies in Prop 1A was immensely stupid, but I guess we have no choice but to live with it. Still, this doesn’t scare me.

Why? Because it all comes back to the issue of private funding. And as we’ve been discussing since the 2009 Business Plan was released, there was a genuine issue with the level of private funding anticipated. You can indeed get more private funding by giving them a public backstop, a guarantee that the public will bear the risk. If that violates Prop 1A, then I think that’s cause for celebration – the role of private funding should be minimized here, and the public should be paying most if not all of the construction cost.

Here again I’d welcome more clarity from the CHSRA, but I don’t see this being any big surprise, we’ve known that we want to minimize private funding, so we ought to go out and do that.

They go on to question the assumptions of federal funding:

Federal Funding Expectations Highly Uncertain. The plan assumes between $17 billion and $19 billion from federal funds by 2016, or nearly $3 billion per year for the next six years. In comparison, over the past five years California has received roughly $3 billion per year of formula funding for the state’s entire highway system, which is primarily funded through federal gas tax collected in the state

This is really misleading. HSR is a special project and is not at all going to be comparable to the $3 billion per year we get in highway dollars. That latter money comes decades after the federal government spent billions to build interstate freeways here, on a 90-10 match. If all goes according to plan, long-term HSR funding in a new Transportation Bill could be as much as $10 billion per year over the next six years. It is entirely plausible that California, with the most advanced plan and with a sizable state match, will get 1/3 of that money. To assume HSR funding would be treated in Congress like highway money is simply ignorant. You’d think the LAO would know better than to make such a basic mistake.

So has the LAO found some faults with the 2009 Business Plan? Absolutely. Should those flaws be addressed? Of course. Are those flaws surprising? Not really, not for a project still in evolution. Should we be scared? I don’t see why we should be. The LAO’s report on the 2008 Business Plan was damning, but that didn’t hurt the HSR project or CHSRA in any obvious way. The legislature is going to continue to support HSR, and while the usual HSR deniers are going to find ways to use ANY problem to argue that the whole thing is a bad idea, we know better than that.

That all being said, the LAO document is itself incomplete, and not just because it’s their own first draft. They discuss ridership risk, but don’t acknowledge that other HSR systems around the world have had no problem generating ridership or operating surpluses. The LAO – and certainly uninformed legislators like Assemblymember Joan Buchanan – seem to want to compare HSR to AC Transit, even though the comparison is rather deeply flawed. The California HSR plan should be compared to other HSR systems around the world, not to a local bus service.

More fundamentally, their analysis falls into the usual trap of assuming that the cost of doing nothing is zero. It’s not. What are the risks to California if we do NOT build HSR? What are the risks to the budget from declining gas tax revenues? What are the risks to the budget of the impact of global warming and dependence on fossil fuels? Has the LAO considered the tax income to the state that would be generated by spending on HSR construction?

If the LAO plans to analyze HSR in isolation, instead of in context, then their analysis isn’t worth very much. Just as the LAO wants a better Business Plan from the CHSRA, we too want a better analysis of that plan from the LAO.

  1. Nadia
    Jan 13th, 2010 at 06:49

    A different perspective from San Diego:


    Robert Cruickshank Reply:

    Of course the SD U-T is going to say that – they have long opposed HSR and are using this as another weapon to attack something they dislike.

    Those of us who support HSR, and those of us who want sound and responsible public policy, should use the LAO report as a tool in our existing and ongoing battle over the role of private funding.

    Truth be Told Reply:

    That’s it, Cruikshank. Kill the messenger. Keep spinning pal, we’ve been on to you for a long time.

    Bobierto Reply:

    U-T is against HSR but the city council and our state legislators are pretty much behind it. It’s like these Fox news types that hide behind “fair and balanced” … the U-T editorial page is about as balanced as that of the Wall Street Journal, though their news reporting is relatively balanced, I have to admit. While I’m griping, what’s with calling yourself “Truth be Told” when it seems you mostly just sling insults on this board? If you’re tell truth, why not post some truths?

    Brian Stanke Reply:

    They are pulling out the old “more than all Amtrak” line. As if a bunch of once-a-day trains, going an average of 30 mph, is a better comparison than all the real high speed rail lines in over 10 countries that exist today. That was debunked long ago:

    It is not shooting the messenger when supporters point out the message they bring is a fact-impervious recycling of lot debunked old lies and distortions.

    jimsf Reply:

    What’s worse, teh fact that media outlets can publish trash as news, or the fact that there are so many americans who actually believe it.

  2. Observer
    Jan 13th, 2010 at 08:26

    Is this what they mean by ridership risk? http://news.yahoo.com/s/afp/20100110/bs_afp/taiwantransportrail_20100110225624

    AndyDuncan Reply:

    Actually that’s what they mean by funding risk. If the new loan allows the Taiwan HSR system to cover it’s operating expenses (which it has, and which is all that the CAHSR is projected to do) as well as it’s debt service, it will be a raving success and the third HSR line in the world to pay for both it’s construction and operation. If not, then it’s a cautionary tale of funding a public infrastructure project purely through private means, and it will need a government bailout.

    But let’s be clear: the system is covering it’s operating expenses.

    TedCrocker Reply:

    Andy, Please clarify something for me. The article states that in three years the THSR has incurred losses equal to 2/3 of its capitalization. That’s a big chunk. You state the THSR has covered both its operating expenses and debt service (presumeably for the construction). The article blames the increased debt on unplanned decreased ridership due to the economy. The down turn in the economy didn’t start three years ago, so is this accurate to say they’ve lost money for the past three years?

    The THSR was very lucky they were able to take advantage of lower interest rates. CHSRA may not have that luxury as inflation kicks in while our bond ratings drop. I wonder what kind of risk management the CHSRA has built into its Business Plan to account for increased rates and possible bond rate changes?

    AndyDuncan Reply:

    You state the THSR has covered both its operating expenses and debt service (presumeably for the construction).

    Not sure where you got that, I read and re-read my comment and I’m confident that it clearly states the system is only covering it’s operating expenses. I even make a point of trying to clarify it there with that last line: “But let’s be clear: the system is covering it’s operating expenses.”.

    I’ll try to make it even more clear:

    – The line is covering it’s operating expenses
    – The line was privately funded with high interest rate loans (80% of total costs)
    – The ridership on the line is lower than projected
    – The lower ridership provides enough revenue to cover operating expenses
    – The lower ridership does not provide enough revenue to also cover the debt service
    – The resulting losses have eaten up 2/3rds of their cash
    – New loans have been secured at very low interest rates (1.83 percent according to the yahoo article)
    – The resulting decrease in debt payments should allow the line to break even
    If that happens, then the line will be only the 3rd line to pay for it’s full cost (the other two being Tokaido and Paris-Lyon)
    – If that doesn’t happen, the line will need a government investment to cover the capitol costs
    – The CAHSR system has never been expected to pay off the original debt and has never been marketed as such
    – The Taiwan HSR system, by breaking even on operating expenses even with ridership 1/3rd that of projections, is yet another reason to believe that the CAHSR system will also be able to cover it’s operating expenses, even with reduced ridership

    That said, I think California’s method of paying for everything with bonds and fees is idiotic, but that’s what happens when it takes a simple majority to pass a bond measure and a supermajority to pass a tax hike. If our bond rates go up significantly, we’ve got more to worry about than whether HSR will get built. But those rates are irrelevant to the CAHSR system because the system is not required to pay off the state and federal funds that will be used to pay for it.

  3. mike
    Jan 13th, 2010 at 09:43

    Putting a ban on operation subsidies in Prop 1A was immensely stupid

    Why? There is absolutely no reason for this thing not to run in the black from an operating perspective. Allowing otherwise simply opens the door to rent-seeking. The state shouldn’t be subsidizing the operating costs any more than it should be subsidizing ridiculous tunnels for every town that wants one.

    Robert Cruickshank Reply:

    We subsidize the operating costs of our freeways. Why should those get special treatment?

    spokker Reply:

    Because they funnel cheap Chinese shit into our WalMarts.

    jimsf Reply:

    freeways in cali need to become tollways like back east. period.

    Alon Levy Reply:

    Because HSR runs operating profits everywhere in the world. Even financially shaky lines like THSR are operationally profitable. To not insist on the same standards in California is to invite unnecessary cost escalations and revenue shortfalls.

    mike Reply:

    First of all, I don’t support most of the freeway subsidies either.

    More importantly, unlike most freeways, HSR actually has the ability to generate an operating surplus. Why shouldn’t we expect it to, at the very minimum, break even? I see no benefit to setting the bar lower than that – all you are doing is advertising to every potential operator (be it public or private) that you expect the thing to be run in an inefficient, stupid manner.

    Robert Cruickshank Reply:

    Freeways can generate operating surpluses. I have no doubt that if we tolled Interstate 5 between Stockton and Santa Clarita we could generate more than enough money to pay the operating cost and then some.

    mike Reply:

    I’m not sure about that – even some of the SoCal toll roads, which should be some of the most attractive roads from an “investment” standpoint, have basically gone bankrupt. That said, you won’t hear me complaining about tolling freeways, particularly congestion related-tolls!

    adirondacker12800 Reply:

    Toll roads in the Northeast and Midwest “make” money – there’s a complex set of hidden subsidies going on that would also be given to “free” roads. But they pay for themselves.

  4. synonymouse
    Jan 13th, 2010 at 11:06

    Please go ahead and include provisions in the enabling legislation for operating subsidies for the hsr. It will be the political coup-de-grace for the CHSRA.

    This thing is certain to compete for operating subsidies with urban transit systems, ie. BART, from the get-go. That’s why BART quietly works against the hsr, as in scuttling the TBT tunnel.

    The hsr’s circuitous alignment, podunk stops, and intentional routing thru urban areas guaranteees unprofitability. Environmental negatives, noise and vibration in particular, will bring a constant stream of complaints and probably litigation from towns enroute, which will result in slower speeds and overall travel times.

    The legislature should demand an alternative I-5-Grapevine option be prepared.

    Brian Stanke Reply:

    The operating subsidy ban will probably never change.

    Why don’t you or “Truth be Told” address the fact that no HSR system in the world has operating losses requiring an operating subsidy?

    As Robert as indicated the proponents aren’t really interested in maximizing private funding, especially if it requires revenue guarantees to them. If the private investors want in on the $2+ billion/year in operating surpluses HSR will make (per 2009 business plan) they need to take the risk on. That is the point of private investment, they help control the project risk because it is THEIR financial risk.

    synonymouse Reply:

    Absent guarantees, aka subsidies, private capital is not going to want to touch the hsr unless it can have a handle on the details of planning, construction and operation. No one is that stupid. At the very least it would insist on a private operator lest union compensation packages run totally out of control. That means gerrymandering woiuld have to be undone.

    The I-5 bare-bones, quick-start alternative should have been retained as a fallback option. Better yet,the public should have been permitted a route selection as an addendum to Prop 1A. Instead a gratuitous detour was slipped into benefit LA . Now you have buyers remorse – payback is a bitch.

    Brian Stanke Reply:

    Well SNCF wants to be involved WITH Route 99, Palmdale, and Pacheco. So that I-5 dog don’t hunt.

    Of course SNCF or others would be involved in a design/build/operate contract, which would be how they control “the details of planning, construction and operation.”

    So where is the big problem? The fatal flaw? It doesn’t exist does it.

    synonymouse Reply:

    The SNCF can pick up the check and run evey bit as fast as Bechtel-Balfour-Beatty or Veolia.

    On ignore la SNCF.

    Brian Stanke Reply:

    Ok synonymouse you officially have no argument. If SNCF invests a couple billion here in CA and then runs without asks for any return; that is a gift. The fact that you think that SNCF or any other private investor is going to get PAID, rather invest THEIR MONEY shows you have no idea what you are talking about.

    Please consult the dictionary for the word “investor” before commenting again.

    synonymouse Reply:

    Yes, that is exactly what I am saying. When reality dawns upon them they will insist upon being paid contractually, not in stock options or anthing the sort. Just like Bechtel.

    Peter Reply:

    “When reality dawns upon them”

    Who the hell do you think SNCF is? They know what they’re doing, they’ve got their big-boy boots on.

    As Brian Stanke said, you have no idea what you’re talking about.

    synonymouse Reply:

    Promises come cheap, as with Ansaldo Breda in LA.

    The SNCF will either cut a sweetheart, guaranteed deal, or they will bail.

    Peter Reply:

    Investors might even invest for the sole purpose of showing their products to a new market. They may not expect money to directly arise from such investment.

    I’m not saying that SNCF wouldn’t expect to make money on their investment at some point, but they’d be in it for the long haul, not a fast buck, as synonorodent seems to believe.

    Alon Levy Reply:

    Synonymouse, in French ignorer means to not know – cf. ignorant. What you said is “We don’t know about SNCF.”

    To ignore is ne pas rendre compte de: on ne rend pas compte des américains idiots qui pensent que les LGVs ne peut pas avoir des aiguilles.

    Alon Levy Reply:

    Okay, can we pretend that I didn’t say “ne peut pas” but “ne peuvent pas”?

    Joey Reply:

    You still fail to explain why HSR in California will need an operating subsidy.

    synonymouse Reply:

    If the hsr concept had distinct profitability potential private entrepreneurs would be interested in building and operating same. Bill Gates’ personal fortune alone is probably enough to build it. That’s how railroads got built in the 19th century.

    If the State of California wants to’get into the business of subsidizing intrastate travel it would be better off running its own airline or bus line.

    AndyDuncan Reply:

    I hope you don’t use any of our other unprofitable systems. Like city streets. Sewers. Electrical grids. Airports. Freeways. Schools. Bridges. Tunnels. The Armed Forces. The Police. The Fire Department. The Parks Service. Hospitals. The Judicial system. The water coming out of the taps in your house. Those can’t possibly be a good idea because they’re not profitable, right? That’s really as deep of an investigation as is ever needed when determining if something is worthwhile.

    As long as you don’t poop, move, drink or breathe, and as long as nobody ever does anything bad to you, private industry is there for you every step of the way.

    Back in reality, private investment simply doesn’t have the patience and isn’t set up in a manner to handle the long term investments that those services and infrastructure represent. Roads and schools don’t have to be profitable in operation because they can, when done properly, provide external benefits to society that are both obvious and difficult to quantify in any sort of timeframe attractive to private investors.

    HSR is a strange and very unique infrastructure project that offers external benefits in excess of the initial investment, provides a less expensive option than the alternatives, and yet will still turn an operating profit, unlike nearly every other public project ever.

    Of all the things to be clamoring against wasting money on, the one project that actually has a good shot at not costing the state money in perpetuity is the one project that fiscally conservative people should be encouraging.

    spokker Reply:

    If HSR could be studied, designed, built and opened in a year, the private sector would do it.

    spokker Reply:

    “That’s how railroads got built in the 19th century.”

    Private railroads got massive land grants from the federal government.

    Private entrepreneurs aren’t prescient when it comes to what’s profitable or not. Look at what’s going on at NBC. Their 10PM timeslot and late night programming is in shambles. They are going to lose millions on the Winter Olympics.

    I’ve always found the phrase “If it’s going to be profitable, a private company would have done it already” funny. It assumes that the private sector is infallible!

    synonymouse Reply:

    The television media are government regulated monopolies. That’s how come you can’t say **** on tv. That would be especially true for NBC, which is in the process of being taken over by Crapcast, one of the most egregious monopolies in the US. It regularly extorts increases from hapless residents of areas which cannot get OTA tv.

    AFAIK the entire Hong Kong subway network was built and operated by a private company.

    AndyDuncan Reply:

    AFAIK the entire Hong Kong subway network was built and operated by a private company.

    At some point you’re going out of your way to be incorrect, the first result on google shows that the system was built by the government and later privatized.

    So, you know, government investment into the infrastructure, profitable private company operating and maintaining it.

    Sounds familiar.

    Bianca Reply:

    The television media are government regulated monopolies. That’s how come you can’t say **** on tv.
    You need to consult a dictionary. “Monopoly” does not mean what you seem to think it means. The broadcast TV networks are by no means monopolies. Government-regulated, yes. Monopoly, no.

    The only industries that are exempt from US anti-trust laws are baseball, health insurance, and certain agricultural and fishing co-operatives.

    Alon Levy Reply:

    First, infrastructure takes many years to pay off. I think the Tokaido Shinkansen paid its construction debt in 11 years, but the Tokaido Shinkansen is an outlier in many ways.

    Second, infrastructure has significant positive externalities, such as economic development and environmental benefits, which give it a better ROI for governments than for the private sector.

    And third, Bill Gates is an expert on software, not trains.

  5. jamiewhitaker
    Jan 13th, 2010 at 11:54

    I’ve heard today that S&P lowered the State of California credit rating to A- …. this isn’t good news for the marketability of Prop 1a bonds, especially if uncertainty increases about the fiscal solvency of the state as time goes by …

  6. Elizabeth
    Jan 13th, 2010 at 12:27

    One thing to understand is that the way the business plan is set up now, even if the system generated operating profits, California taxpayer’s would still be on the hook if it didn’t generate enough money to service $10 billion worth of debt.

    Another thing to understand is that according to AB3034 (which would have to go back to voters to be amended), there is no state bond money for construction unless you have all the money for a high speed rail segment lined up. If you stick to the construction schedule in the biz plan, this means that the almost all the private money, the local money and the $18 billion of fed money needs to be in the bag by 2012.

    Something has to give. Our stance is that we need to figure out now what that is.

    Brian Stanke Reply:

    Prop 1A requires:
    “2704.08. (a) Proceeds of bonds described in paragraph (1) of subdivision (b) of Section 2704.04 shall not be used for more than 50 percent of the total cost of construction of each corridor or usable segment thereof of the high speed train system, except for bond proceeds used for the purposes of subdivision (g).”

    and defines:
    “(g) “Usable segment” means a portion of a corridor that includes at least two stations.”

    So the money needs to be lined up for a “usable segment” not an entire corridor. The solution to this is of course is more Federal funds, not changing Prop 1A or pulling the plug. Would you not agree Elizabeth?

    morris brown Reply:

    Mr Stanke your reading of Prop 1A is correct. What Elizabeth stated was “if you stick to the construction schedule”, which envisions working on all parts of the system in parallel, then you would indeed need to have all the funds for all the segments in hand, before any construction work on any segment can be funded.

    This has huge implications, as I have written before here, and to the Authority and to the Legislature, in the issue of using Prop 1A bond funds to match the Federal Stimulus funding applications.

    The Authority and the Governor, promised the Feds that funds received from these applications would able matched by Prop 1A funds. Yet the applications as sent out, do not result in “usable segments” or corridors. The legislature will not legally be able to expend Prop 1A funds to match any Federal dollars received for construction from the stimulus package.

    Not being able to use Prop 1A funds to match, will mean any of the projects for which stimulus funds were requested will not be able to be completed (unless other funds are secured). Not being able to compete these projects, will not meet the Federal requirement that the resulting project must have utility.

    So its all a big mess. I wrote the Authority before the stimulus applications were sent out about this problem. They chose to ignore my input; they have to date not responded at all on this issue.

    spokker Reply:

    So it won’t be built. What’s the problem?

    Dan S. Reply:

    Is there anything prohibiting the federal government from giving us 3 billion of the stimulus funds with no requirement for Prop 1A matching? I mean, even if we promised we’d match, they don’t have to require it, right? They might be impressed enough that we have this pile of 9 billion sitting here to use as soon as we line-up the full funding, and deem that reason enough to send us piles of cash.

    Also, if “usable segment” really is just two stations and track in-between, then we probably could build such a thing with the amounts we requested from the stimulus. I mean, it doesn’t sound like a very difficult requirement to meet. Heck, write “Palo Alto Concrete Barrier Station” on one cardboard sign, “Diridon Pan-Galactic” on another, hang them next to the CalTrain tracks, and call it a day! ;-)

    morris brown Reply:

    The applications for stimulus funds are quite specific in detailing where the money will be spent.

    Thus in the LA to Anaheim applications, by far and away, what would most likely be considered the most complete segment on completion, there will still be no electrification or PTC.

    In the Bay area, almost all the funds go to electrification — HSR tracks and the myriad of grade separations not funded.

    I presume Dan S., you weren’t being serious, but I just wanted to be clear.

    Brian Stanke Reply:

    The solution to lower ridership risk is that the private investors gets hit if the ridership is slower to ramp up then expected. They are investing (taking risk) not buying state bonds. If they want to profit big they need to take on risks. Otherwise they should to go buy state bonds instead.

    Brandon from San Diego Reply:

    Of course, there are things an operator can do to lower costs if ridership is lower than expected – such as adjusting service to match ridership.

    Tho, for this size of system or complexity, a hypothetical 10% change in service will not result in a 10% change in operating cost.

    mike Reply:

    Re: the $10 billion debt service comment. I don’t understand, are you saying that the Prop 1A bond spending will represent net govt spending for the State of CA if they surpluses don’t cover all of the bond interest? I don’t think anyone on either side expects the surpluses to cover the Prop 1A bond interest…the voters knew that Prop 1A was a net expenditure when they voted for it (or at least all the voters with any reasonable intelligence knew that).

    Elizabeth Reply:

    The $10 billion I’m referring to is NOT the bond issue. I’m talking about the $10 billion in private debt that is proposed.

    Brian Stanke Reply:

    So the business plan needs to be revised to show that the ridership risk is on the private investors/operators?

    Is that what you propose Elizabeth? If not what do you propose “has to give”? Should the state eventually issue a revenue bond backed by the state GF for the final portion of project funding? Or should the state provide a guaranteed return to the private investors (basically heads they win, tails we lose)? Or should the Authority increase their ask for Federal funds, either as grants or loans?

    What are the potential answers, and which do you support? Some positive potential solutions would be appreciated.

    Dan S. Reply:

    Yeah, I also don’t understand how the business plan puts CA taxpayers on the hook for 10 billion in private investment. First off, the biz plan is not a contract nor a final plan of action, it’s just a proof-of-concept to show that the numbers can work. Isn’t that right? So I agree with the notion that it doesn’t require the level of thoroughness that a company trying to launch an IPO would need.

    Second, I thought we were also saying that we couldn’t have an operational subsidy if we use the Prop1A funds. Doesn’t a private-investment guarantee constitute an operational subsidy?

    Anyway, I don’t think the biz plan deserves this level of scrutiny, at least given my understanding of its purpose.

    Elizabeth Reply:

    Yes, an private-investment guarantee would seem to constitute an operational subsidy, which is why the LAO called this out in their report.

    mike Reply:

    Okay, that makes more sense.

  7. Daniel Krause
    Jan 13th, 2010 at 12:34

    It is sad how so many newspapers seem to be in the business of outrage and cynicism rather than trying to help promote any sort of vision for society. It comes down to the fact that the hard right, that now has seized control of so many newspapers in CA, simply doesn’t believe in a civil society and in fact are so anti-social they enjoy undermining any sort of community values that things like HSR represent. Gates, guns, and grills in front of oversized SUVs motoring down 20-lane multi-billion dollar pollution factories is the vision of these anti-social group of people. We must take them head on as they threaten to destroy whatever decency and civility that is left after 30 years of anti-government hysteria. Without HSR, we lose untold billion from the federal gov in the future. How stupid.

    Please write to the U-T if you have time and you don’t by their negative spin on all that is good for a civil socety.

    Brandon from San Diego Reply:

    No, I believe papers like the UT are struggling to find an audience. If they are not controversial… they have fewer readers. The unfortunate thing, in my mind, is that some are becoming so desparate that they are increasingly reminding folks of tabloid papers or the silly crap that pops up in the news from time to time…., such as the Hallocaust never happene , or that the lunar landing really occurred on a Hollywood movie set.

    “Permanently derailed / High-speed rail’s illegal business plan…” what the heck is that!

  8. jimsf
    Jan 13th, 2010 at 16:02

    One thing ( and this has become fairly typical of the party of negativity recently) I haven’t heard from any of the opponents is their solution to providing for californias transportation future. Considering the current budget crisis is temporary, and considering that it will be followed by another boom time,the predictable population growth over the next 50 or more years, and the fact that california has to compete on the global stage, clearly there needs to be investment in mobility for that future. And, considering it takes decades of planning and construction to bring such an infrastructure on line, what do they propose we should be doing right now? Nothing? That would be pretty irresponsible. Building more freeways? Neither popular, greener, nor less expensive not to mention they can’t match the speed of travel. Expanding airports? Again, neither popular, greener, nor less expensive than hsr. and far less convenient for a large chunk of california who would benefit much more from high speed rail.

    Tell me opponents, what is your solution? Id love to hear it. Be sure to include the timeline, the funding source, the costs and the benefits that exceed hsr benefits.

    post it here> we’ll all wait….

  9. jimsf
    Jan 13th, 2010 at 16:04

    and consider that every investment in passenger rail in california has been met with un imagined success, and every up grade to such services has resulted in even higher ridership success.

  10. Gianny
    Jan 13th, 2010 at 16:11

    All I know is that atleast the LATIMES has been publishing positive reports about high speed rail from all over the War. A couple of months ago was about Japan, this time its Spain.


  11. Clem
    Jan 13th, 2010 at 22:01

    Now if only BART projects received the same level of financial scrutiny… financial risk, ridership risk, yadda yadda yadda. Follow my gaze to Millbrae/SFO.

    Oh, and does anybody know the ROI on the Devil’s Slide tunnel?

    synonymouse Reply:

    Posters on this site show impressive technical expertise but are clueless when it comes to Bay Area political realities. The simple fact is that BART is part and parcel of the Pelosi political machine which dominates the Bay Area and the system for all its faults has achieved the status of a sacred cow. BART’s capital needs and desires are enormous. BART could easily dispatch the hsr’s 40 billion.

    BART management is aware of the hsr as a competitor for both construction and operating funding but wait until BART’s militant unions figure it out. The hsr doesn’t even have a union. BART unions have already opposed the Oakland Airport people mover for funding reasons. That move failed, but I think it was only meant as a shot across the bow. The people mover had been in the pipeline for a long time and abandoning it at such a late date would have been politically embarrassing.

    Please – no nonsense about how the hsr doesn’t compete with existing urban transit systems for money. It does. There is no such thing as a sacrosanct earmark when the treasury is empty. Schwarzenegger is pulling the earmarks off everything. Bonds don’t solve the fiscal crowding out problem either because they increase the level of indebtedness and reduce the level of confidence.

    The only way for the hsr to not compete with existing subsidized transit operations would be if it were to built and operated by a private concern. It can’t and won’t because at best it is only border line viable with the most direct route and certainly not with the current gerrymandered iteration.

    jimsf Reply:

    Do you just wake up everyday and make up something new?

    Peter Reply:

    I think he just has a word randomizer and spouts out the same stuff every day.

    I’m pretty certain he was responsible for a huge number of anonymous postings on the old blog.

    He’s never cited any authority and only flings conspiracy theories.

  12. morris brown
    Jan 14th, 2010 at 06:26


    Devil’s slide was never promoted as anything other than solving an existing problem. It was quite clearly going to be an rather expensive solution that took over twenty years to gain enough public support to finally get approved. Nobody expected any ROI on that project — it was promoted as such.

    The HSR project has been promoted from the beginning meeting certain goals. The promoters did say that 117 – 120 million passengers would be using the system by 2030. They did say it would be profitable. They did say that extensions to the line would be paid by profits from the system. They did say that California voters would not ever be asked to ever put up additional funds. They stated that phase one would cost 32 billion, not the now estimated 42 billion. They promised the voters a business plan before the 2008 election.

    They did all of this false promotion to pass Prop 1A. It passed 52 to 48 and only then with a multi million dollar campaign financed mostly by labor unions.

    Bart is a whole of magnitude smaller when your talking about financial risks. This project is so large, that failing will have very major effects on the whole California economy. It deserves every bit of scrutiny it is getting and even more.

    mike Reply:

    The HSR project has been promoted from the beginning meeting certain goals. The promoters did say that 117 – 120 million passengers would be using the system by 2030. They did say it would be profitable. They did say that extensions to the line would be paid by profits from the system. They did say that California voters would not ever be asked to ever put up additional funds. They stated that phase one would cost 32 billion, not the now estimated 42 billion. They promised the voters a business plan before the 2008 election.

    Oddly, none of those 6 claims appear anywhere in Prop 1A summary, which is the actual information viewed by 95% or more of the voters. (Well, that’s the maximum amount of information…probably half of them didn’t read much beyond the title before checking Yes or No.) In fact, none of those claims even seem to appear in the argument/rebuttal section of the voter’s guide!

    Arthur Dent Reply:

    Many voters get their information from the League of Women Voters, a reputable non-partisan organization. Their analysis of Prop 1A stated that “The system is forecast to potentially carry over 100 million passengers per year by 2030.”


    As far as the business plan, they were required by law to deliver their business plan to the public by September 2008.

    mike Reply:

    The promoters did say that 117 – 120 million passengers would be using the system by 2030.

    Actually, this claim really has me intrigued, because the HSR opponents keep using it again and again and again, and yet I never see any evidence for it. It’s like one of those Bush claims that he repeats so many times that you can’t even remember whether it’s true or whether you just think it’s true because he keeps saying it to you over and over.

    So my challenge to Morris (and Arthur, and anyone else interested) is the following: By “promoters” I can only assume you mean Kopp or Diridon. Please find one or more quotes by Kopp or Diridon (ideally both, but in a pinch either will do) in which they claim that ridership is forecast to be 117 million riders/year in 2030.

    117 million (or higher) has to be the actual forecast – it can’t just be something like “over 80 million” or “up to 117 million”, because Morris is claiming that 117 million is the lower bound.

    I’m not saying for sure such a quote doesn’t exist. But I am saying that I haven’t seen such a quote, and that is quite shocking given that Morris et al imply that Kopp and Diridon were publicly promoting such a number at every opportunity they had.

    Elizabeth Reply:

    Google “Quentin Kopp” and 117 million and you will find him quoted in at least 20 different publications making this statement.

    The claim comes directly from the ridership analysis which is on the High Speed Rail website. The number comes from the model for the complete system (to Sacramento and SD) in 2030, assuming that auto travel costs increase by 50% more than high speed rail or plane costs.

    mike Reply:

    Elizabeth, could you please provide a link to one or more of those 20 different publications? In the first page of links that came up in the Google search you suggested, none of them appear to include the quotation in question.

    Arthur Dent Reply:

    Need help with your homework?

    1. http://www.cahighspeedrail.ca.gov/faqs/ridership.htm
    “The most recent ridership forecasts for the California High-Speed Train Project estimate between 88 – 117 million passengers annually by 2030 for the entire 800-mile high-speed train network”
    2. http://www.cahighspeedrail.ca.gov/images/chsr/20080319105301_RFEI.pdf
    “The high-speed train system will provide passenger rail service for between 93 and 117 million passengers annually by the year 2030”
    3. http://www.cahighspeedrail.ca.gov/images/chsr/20081016170953_Technology.pdf
    “The most recent ridership forecasts for the California High‐Speed Train Project estimate between 88 – 117 million passengers annually by 2030 for the entire 800‐mile high‐speed train network”
    4. http://www.cahighspeedrail.ca.gov/library.asp?p=6118
    “The CS study, which was prepared for the Metropolitan Transportation Commission (MTC), show the potential ridership of the high-speed train system in the range of 86 million to 117 million passengers per year”
    5. http://www.cahighspeedrail.ca.gov/images/chsr/20081003135956_HSRCentralValleyReportFINAL-2.pdf
    “By 2030 the system is projected to accommodate 117 million passengers.”
    6. http://www.cahighspeedrail.ca.gov/images/chsr/20080319105408_Exhibit_A.pdf
    “The proposed HST system is projected to carry as between 93 – 117 million passengers
    annually by the year 2030.”
    8. http://www.cahighspeedrail.ca.gov/images/chsr/20080529173625_Sec_3.17_CumAnalysis.pdf
    9. http://www.cahighspeedrail.ca.gov/images/chsr/20090317155703_HSTProjectEnvMethodologiesV2Feb1709.pdf
    “The high-speed train system is projected to carry 88–117 million passengers annually by the year 2030.”
    10. http://www.cahighspeedrail.ca.gov/images/chsr/20090708124109_AppendixI.pdf

    There’s a quick 10. If you’re observant you’ll notice that all 10 came from the CHSRA’s own website. You can find more by searching for:
    117 million site:www.cahighspeedrail.ca.gov

    mike Reply:


    All of your links FAIL on at least two counts.

    (1) They only reference “up to 117 million” passengers (i.e., 117 million is the upper, not the lower bound that Morris claims). (The only exception is link 5, but that’s just a claim by Shawn Kantor, a faculty member at UC Merced.)

    (2) None of them are quotes from either Kopp or Diridon.

    Come on guys, it should not be that hard to find these quotes. After all, “promoters” sold the system to the voters on 117-120 million riders per year in 2030. And we all agree that there are no bigger promoters of HSR than Kopp and Diridon. If all the California voters heard Kopp and Diridon throwing out the 117 million number, then it should be a piece of cake for you to come up with some quotes!

    Arthur Dent Reply:

    What’s your point, Mike? That 117 million – or even 86 million, the lowest of the lower bound – is a reasonable ridership number?

    Peter Reply:

    He is making the point that your links are not what you claim them to be.

    YOUR point is in attacking a straw-man. Look it up.

  13. mike
    Jan 14th, 2010 at 11:12

    Many voters get their information from the League of Women Voters, a reputable non-partisan organization. Their analysis of Prop 1A stated that “The system is forecast to potentially carry over 100 million passengers per year by 2030.”

    Yes, the entire California HSR project is in fact a conspiracy made possible only through the complicity of the secretive League of Women Voters and their vague claim that under some forecasts the system could “potentially” carry over 100 million passengers per year…

    Meanwhile, the correct answer to Clem’s question is that the ROI on the Devil’s Slide Tunnel is a big fat zero, all of this ducking and weaving notwithstanding. It’s really that simple – no need for all of the deceptive innuendos.

  14. jimsf
    Jan 14th, 2010 at 13:20

    look just use some common sense. Yeah the numbers sound crazy at first but consider it this way. First lets imagine ca in 2030, thats 20 years from now, time for at least one or two more economic boom cycles and increases in population. We also know that much of that growth will be in the central valley and inland empire. We can expect to easily hit the 40 million mark.

    so say the goal is 100 million riders per year. BART carries 100 million per year drawing from a population of 7 million. thats for one perspective.

    100 million per year is 274,000 per day. ( less than barts daily average)

    There’s 24 stations in 2030, thats an average of 11,500 passengers per station per day or 475 passengers per hour.

    Now of course a single train per hour can hold 475 people. and of course an entire train load wont board at every station. but the larger stations with 4-8 or more trains per hour more than make up for the smaller stations so when you break it down the numbers are very realistic.

    If bart ( with all its horrors per the posters here) can get 100 million per year, from 7 million population base, then hsr can get 100 million per year from a 40 million population base.

    and say the average ticket sold was 50 bucks, thats 5 billion in revenue per year.

    someone please correct my math if im wrong)

    synonymouse Reply:

    Earth to foamers: the hsr will not come anywhere close to BART’s passenger counts. There’s not even one lousy passenger train over the Tehachapis. Don’t blame it on the freight rr’s – there’s inadequate demand; that’s why there is no service.

    jimsf Reply:

    Thats either the most ignorant thing Ive heard outside the fox new channel, or you’re lying and you know it. There is one reason only that there isn’t direct rail service south of bakersfield to los angeles and that is the freight railroad.

    There you go again with the random phrase generator.

    Peter Reply:

    He makes it up as he goes. Like Sarah Palin.

    spokker Reply:

    “There’s not even one lousy passenger train over the Tehachapis. ”

    There’s not even one lousy train over the Grapevine.

    jimsf Reply:

    And there is passenger service up to the tehachpis and from the high desert, and heres the missing link prettymuch makes sense to fill in the gap

    Joey Reply:

    If they could route some of the San Joaquín trains down to LA, then they would, and people would ride them.

    spokker Reply:

    As it stands, four or five buses meet each San Joaquin train in Bakersfield.

  15. jimsf
    Jan 14th, 2010 at 13:56

    another way to break it down to see that the numbers are fairly realistic… again looking ahead to the population and economy 20 years from now…

    take just the two main stations. SF and LA.

    Now say they have 8 trains per hour departing each. Just these two station. thats 1 departures per hour, or 384 trains per day with say 500 pax per train.

    thats 192,000 per day x 365 = 70 million per year. for just 2 stations out of 24.

    even if those trains dont run full, the other 22 stations can more than make up the difference.

    AndyDuncan Reply:

    I think the most compelling argument is that Californians make over 500 million inter-regional trips each year, a number which is expected to double by 2050. As the SNCF noted in their analysis, Californians move around over twice as much as Europeans do. The CAHSR system will connect all of the large cities in CA. Along the most popular of those routes, the system will be faster than flying. Along the rest of the routes, the system will only be competing against auto traffic. There is no significant rail or air competition for much of the system. HSR is profitable in places where it has to compete against very good alternate forms of transit like fast rail. Even the Acela is only slightly faster than the other NEC lines, and it’s selling out and making a profit. In California HSR will be competing against only cars, and gridlock is making driving untenable. You can widen the 5 from Sylmar to Livermore, but good luck widening it any further into the bay or any further south to LA. We’re spending 1 billion to add a single 10-mile northbound carpool lane to the 405. HSR is the cheap option.

  16. jimsf
    Jan 14th, 2010 at 23:19

    anyone with pulse knows that californians love to move around and have been suffering for decades with pent up travel frustration due to inadequate infrastructure options.

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