Previewing the 2011 Business Plan

Aug 28th, 2011 | Posted by

The latest Business Plan for the California high speed rail project is due to be released in October, and there’s a lot riding on it. Many legislators have declared that the Plan has to show a viable path forward for the project, particularly its financing, or else they might be interested in pulling the plug. Governor Jerry Brown’s recent vote of confidence for the project may lower the stakes somewhat, but he too will want a good business plan in order to build confidence.

So the Business Plan presentation at last week’s California High Speed Rail Authority board meeting takes on particular significance.

The presentation indicates that an “Enhanced Economic Benefit Assessment” will be part of the plan:

• The most comprehensive and well vetted economic benefit analysis to-date of California’s HSR system being developed

• Results will reflect peer reviewed and approved travel demand model, updated inputs, and best practices from federal and state review agencies

• Statewide workshops were conducted in Bay Area, Central Valley, and Bay Area with leading academics, representatives of MPOs, COGs, economic development agencies, and other policy and planning groups, to present our economic impact methodologies and receive feedback

• Benefit-cost ratio. Discounted public benefits over the extended life of the investment are expected to be well above the discounted costs

• Public benefits include travel time and reliability savings both for train users and highway and air travelers; also includes environmental and safety benefits, energy savings, and other factors

• Full costs include both initial capital construction, yearly operations and maintenance and periodic rehabilitation and replacement of equipment and systems.

This is really good stuff, implying that the Authority fully understands what HSR critics vehemently refuse to acknowledge: that any Business Plan, any cost assessment, has to include the entire picture, including the enormous economic benefits of the system and the costs of doing nothing.

But the meat of the Business Plan will involve how the system is to be funded, constructed, and operated. In November 2010 the Peer Review Group said that one of the most important things the Authority needed was to determine its business model. Last week’s update suggests there has been progress down this path:

Under all business model options government plays lead organizational role

Options for private involvement to meet two objectives
• Contain costs and mitigate risk
• Generate more funds

Private investment opportunity driven by HSR ridership
• Early phases require public investments to construct
• Later phases can leverage ridership revenues and public investment to attract private investment

This is sensible. The private sector won’t just build tracks, they are interested in profiting off of ridership. And let’s be clear, most private investors are not worried about the lack of riders. Private sector interest in HSR is strong, and they offered to pay cost overruns in Florida because they knew the system would have generated surpluses. A UBS study in 2010 found that the main risks to HSR investment were political, and not that there was a risk of low ridership.

On the other hand, we need to be wary of private investment in the high speed rail system. Yonah Freemark at The Transport Politic has been raising that concern for several years now, and his recent post Doing Right by the Public: PPPs in High-Speed Rail is worth considering here:

With a promise to the state’s citizens that another demand for California-wide funds will be avoided, few local dollars to contribute, and an utter inability to rely on Washington for practically anything, that means the system will have to find private investors to join in. Whatever the relative merits of allowing private companies to invest in what is fundamentally public infrastructure, California has no other place to turn for the successful completion of its system.

Hard to argue with this statement. Freemark then takes a look at two French HSR PPP models and a recent USDOT report to draw some important conclusions about the impact of PPP on HSR:

It would be a mistake to conclude from these examples that private-sector involvement will save any significant money over the long-term. Fundamentally, the creation of PPPs to fund projects such as California High-Speed Rail does not mean that the public at large will end up being responsible for a smaller percentage of overall costs. Indeed, the U.S. Department of Transportation’s Office of Inspector General released an under-recognized report last month that expounded on this fact significantly.

By considering a series of PPP highway projects in the U.S. and abroad, the study noted that they “have a higher cost of capital than traditional public financing… [and] involve equity investors who own stakes in the projects, share in the profits, and expect to earn higher rates of return for the risk they undertake,” in addition to having to pay taxes public projects do not have to pay. Even if PPPs have lower design and construction costs, may be able to more effectively increase tolls, decrease percentage of evading users, and take more advantage of concessions*, they are usually not able to offset the higher costs resulting from the formerly noted issues….

In other words, while the taxpayer may appear to be getting a discount now by having a business group pay for infrastructure, users of that same infrastructure will inevitably have to face the costs of future tolls. In the case of high-speed rail, replacing public sector investment during the construction phase with privately financiers using loans means higher ticket prices in the future to pay back a portion of the costs of construction. There is no free lunch.

Freemark is pointing out that if California has to turn to a larger portion of private financing in order to get HSR up and running, it will likely require higher fares once the system is open. That won’t mean nobody will ride the trains, but it may mean that not as many people will be able to ride as there ought to be.

He goes on to lay out the two sides of the case for and against funding HSR out of user fees:

The question is whether benefits of a transportation investment advantage the entire public or whether they are reserved to the specific people who take direct use of it. Transportation economists are convinced of the value of user fees, which assume that it is inefficient to carry out redistribution through indirect means, and for them, it makes perfect sense to charge users the full cost of not only the operation but also the construction of the infrastructure they are using. (Many economists would also argue that high-speed rail projects have significant positive externalities like pollution reduction and land use prioritization attached to them that demand direct grants from the government to cover some costs.) This user-fee approach is the method being used in the financing systems of the PPPs discussed here.

Others, however, would argue that the benefits of infrastructure like high-speed rail are economy-wide and that they should be paid for not only by users but by all members of the population through taxes. If we take this side of the argument, it becomes less clear that the best value for the society is to divert most costs to users. A grant-based system assumes that benefits of a transportation investment are felt by people throughout a country (such as through economic growth) and therefore just charging the riders for the costs of capital investments would be inappropriate.

Aside from being a good explanation of why I am deeply skeptical of “transportation economists,” Freemark does a good job here of explaining the stakes. HSR’s benefits are indeed economy-wide, and it makes the most sense for everyone to help build it. After the experience with the transcontinental railroads, where farmers, industries, and even entire political systems were held in thrall by the railroad barons, American politicians in the 1950s insisted that the Interstate Highway System be funded by everyone through gas taxes, whether or not a purchaser of gas ever drove on an interstate freeway. Californians subsidized the construction and operation interstates in the middle of North Dakota and vice-versa, and the American economy grew as a result. Any “transportation economist” who discounts these benefits is no “economist” but just a shill for right-wing ideology.

HSR would be best off if it followed the model used by France in the 1970s to build the TGV, as explained by DoDo in his Puente AVE article from 2009. The French government prioritized ridership, and generated a lot of it by subsidizing ticket prices:

This commitment to “democratizing” high speed rail was reinforced by the Socialist government of the early 1980s. Indeed, under the Mitterrand presidency, the SNCF introduced a remarkable publicity slogan to promote the TGV: “Progress means nothing unless it is shared by all” (Le progrès ne vaut que s’il est partagé par tous”).

Unfortunately, California HSR is stuck with a provision forbidding subsidization of operations. This was inserted by right-wing State Senator Roy Ashburn as a price of support for putting Prop 1A on the ballot in 2008. It’s a stupid and pointless provision – every other form of transportation in the state is subsidized, and there’s nothing wrong with that. HSR can operate without subsidies, but it will happen at the cost of ensuring that, paraphrasing Mitterrand, progress won’t be shared by all.

In any event, the CHSRA’s Business Plan preview makes clear that private funding “will require ridership from Central Valley connection to Northern and/or Southern California,” which should be good news for those who are still convinced that the Central Valley segment is a “train to nowhere.” What this means is that private funding might well materialize to link the Central Valley segment to San José, or to fulfill Paul Dyson’s dream of finally closing the missing link from Bakersfield to LA.

The preview also indicates that the project will “Need approx. $3-$4 billion/year for 15+ years” to get built. Where will that come from? That’s the all-important question:

State:
• G.O. Bonds ($9 B total capacity; $2.8 B to be allocated for ICS)
• Other potential new state revenues to “leverage” for financing (e.g., GHG reduction credits, etc.)

Federal:
• Initial $3.3 B secured
• Existing appropriation and grant programs – can leverage but are not enough
• Need new committed programs within approx. 4 years that could support full funding grant agreement (e.g., trust fund/reauthorization); tax credit bonds (leveraging state bonds); commuter rail programs in urban corridors)

Local:
• Locally funded station development (e.g., SF, Anaheim, LA)
• Transit‐oriented development and station‐area retail has minor role
• Locally approved sales tax for matching funds could be explored for later phases

Private:
• Limited appetite for “greenfield” ridership risk transfer
• Revenue‐backed financing
• Other project‐generated revenues (e.g., advertising etc.)

Of these, the most important are probably the “new committed programs” that will be needed from the federal government within 4 years, and the “revenue-backed financing” from the private sector. Some may point out that Congress is currently in no mood to provide those programs, to which I would point out the polls that show Republican control of Congress may end in January 2013.

Ultimately, this isn’t a technical question or a financial question, but a political question. If the political will to help lead California into the 21st century and deal with our economy, energy and environmental crises is there, then we will find a way to pay for high speed rail. It’s cheaper than the alternatives, and in a state and country as wealthy as California and the United States, getting the money is easy so long as the desire is there to do it.

If the political will isn’t there, then HSR won’t be built in the near future. That’s no surprise and no different from anything this blog has been saying since it launched in March 2008. We know that the public has the political will. We know that Governor Brown and the Assembly have the political will. We know that President Obama and the US Senate have the political will.

At this point I’d say the crucial institution is the California State Senate. If they too are willing to help build a better future for California, then we will figure out how to make HSR work. But if they’d rather follow Senator Alan Lowenthal and refuse to build for the future, preferring to let a failed status quo continue, then we will have to wait a while for HSR to get under way.

  1. Paulus Magnus
    Aug 28th, 2011 at 23:01
    #1

    What is the actual good of subsidizing HSR fares? Why in the world should we unnecessarily run the system at a loss?

    TomW Reply:

    Every other transportation system in California is run at a loss – why should HSR be different?

    Paulus Magnus Reply:

    Two wrongs don’t make a right, surely your mom taught you that as a child.

    randyw Reply:

    Government is not a business. Governments can capitalize on external benefits. You don’t cancel public schools because they don’t pay tuition to cover there teachers salary. The purpose of public education is to make children smart, but among the many benefits is that they will pay more taxes which incidentally pays for there kids teachers. Fire stations, good universities — even private ones, roads, police, armies, libraries have never run a profit, but society rightfully understands that everyone is better off that they exist.

    Paulus Magnus Reply:

    Government is not a business. Governments can capitalize on external benefits.

    That they can, which helps account for the capital cost. It does not, however, provide a rationale for the subsidization of the operating costs, especially when the marginal external benefits of such trips are so very low.

    randyw Reply:

    What is your logic? I’m all for the train being as profitable as makes sense, but there is no hard line between capital and operational costs. We should build school building but not pay teachers? When you pretend there is a distinction, it leads to irrational economic decisions. We could build bridges that never need to be maintained with enough money, but it would not make economic sense.

    Alon Levy Reply:

    If only there were ways to distinguish

    Derek Reply:

    “Governments can capitalize on external benefits.”

    But “less environmentally damaging than the alternatives” is not a benefit. It’s simply less ungreen.

    randyw Reply:

    I agree we should all eat eggs from backyard chickens and walk to work, but…

    The cost of doing nothing is not nothing. The population is growing. If we don’t choose AN alternative we have just chosen to slowly make all of the interactions that make an economy work slower and more costly. I think that generally the economic impact is actually tends to be understated – while the CO2 reduction overstated.

    What is the economic benefit of a better connection between:
    – The creatives of the bay area – pixar/ lucas/ electronic gaming companies – to los angles studios?
    – The bay areas solar tech and computer hardware companies to Los Angles manufacturing?
    – The urban universities to the central valley populations?
    – A transportation system that is not completely reliant on oil.
    – etc

    joe Reply:

    HSR connects the Coasts to the Central Valley. Solar companies HQ and do R&D in San Jose but fabricate in Oregon. HSR opens the CV up to manufacturing. It becomes the infrastructure to allow day trips between the plant and the corporate office.

    VBobier Reply:

    Then I guess You like having dirt roads and no police or fire services? Those are subsidized, so suck It up wimp.

    Paulus Magnus Reply:

    Do try commenting again once you’ve understood what the concept of an operational subsidy is.

    VBobier Reply:

    I get an SSI check of $830.40 a month currently(that’s Supplemental Security Income), So I think I understand It better than most.

    Paulus Magnus Reply:

    And I don’t get paid much more with my current job.

    Alon Levy Reply:

    Personally, I’d be happy if the government decided to stop subsidizing intercity driving, too. Regional transportation is sometimes a lifeline to people; intercity transportation is not.

    VBobier Reply:

    You don’t live in a Desert on a fixed income.

    Joey Reply:

    The only reason it’s possible to live there is because the government subsidized certain aspects of that lifestyle.

    VBobier Reply:

    I didn’t have much choice in 2004, so this is where I’m at. As like I said in an earlier post I only get so much, My body only works so well and so I’m unable to work as I’m physically disabled and so My income is fixed/limited. If I had more income I could buy a house now instead of waiting until Congress acts on the Ag bill.

    Nathanael Reply:

    I’m very much of the belief that we’d be better off if we charged “full price” for a lot of things…and then handed a large check — enough to live off of, at a minimal level — to every man, woman, and child in the United States to spend as they wished. In many ways this is better than random subsidies to individual operations.

    To make this work you still have to eliminate the externalities, so cars have to be charged for their pollution, etc.

    But of course right now we DON’T give every man, woman, and child a check sufficient to cover basic needs. Therefore we have to subsidize a lot of basic needs as well. That includes housing and transportation.

    Andre Peretti Reply:

    In “socialist” France intercity highways are built and operated by big capitalist firms while in capitalist America they are public and subsidized. As regards transport, the U.S seems to be far more socialist than Europe.

    Dan Reply:

    Speaking for those of us in Phase2 (San Diego), I’d be VERY opposed to subsidizing HSR fares. Without profits, additional infrastructure buildout is seriously unlikely to occur.

    synonymouse Reply:

    Of course they are going to subsidize fares. The entire concept of California hsr has been dumbed down to a collection of regional mass transit operations connected by the most expensive, most meandering detours thru the boonies. Palmdale does not just demand a free gold-plated BART but subsidized fares to LA as well.

    Risenmessiah Reply:

    The problem with your statement is that you already do subsidize fares for everything except HSR.

    First, your gas taxes build roads in places you never travel. But secondly, Amtrak California receives a subsidy from the public transportation account (PTA) for its operations for the Surfliner, San Joaquins, and Capitol Corridor. (And to be real frank, that money also ends up in transit systems all over the state). But then there’s also the reality that especially for places like Fresno and Bakersfield your federal tax dollar subsidizes air service to those locations by direct payments (Essential Air Services program), tax credits and deductions (most airlines are run at a huge loss and owned by holding companies), and stuff like the ByPass Mail Program in places like Alasaka which are cash cows…

    Southwest Airlines has created the illusion that they are “profitable” because of its strategy of moving into a metro area and picking an old, unsafe airport (Midway, Burbank) and then using the landing fees at that airport against the legacy carriers at their hubs until the legacies can’t beat them, and ask them to pay rent at MegaPort international.

    So then, how can HSR systems turn profits? It’s no surprise that the two biggest leaders (Japan, France) are the two G8 economies who had been most vulnerable to increases in oil and gasoline prices for the last forty years. Robert would just assume turn against using fossil fuel entirely in the US, but therein lies the problem: our military superiority is dependent on it. The Navy has been working flat-out to come up with an alternative fuels for its craft to lessen its dependence on black gold, but that moment hasn’t happened yet.

    Nathanael Reply:

    The Navy, unfortunately, is the only branch of the military seriously trying to get off of oil. The Air Force is sort of trying. The Army, which could get off of oil most easily, is the most institutionally resistant to change and really isn’t trying very hard at all.

    Alon Levy Reply:

    Can you explain more? I’m interested to hear what the military is doing on that front.

    Paulus Magnus Reply:

    A lot of the military bases are adding solar, the Navy and Air Force both have programs for synthetic fuel (of various sorts), and the USN has also been the major funding behind Polywell fusion attempts (which would be incredibly good if it panned out, if not, not too much money down the drain). They are also looking at more nuclear vessels. It’s likely that the next LHA class after the America class will be nuclear powered.

    The Army can’t really get off oil easily, it would have the worst time actually, thanks to all their vehicles.

    D. P. Lubic Reply:

    I also understand the Army is working on solar power for electrical generation at forward bases and camps. The idea behind that is that solar power, particularly in a place like Iraq or Afghanistan, means you don’t have to haul in diesel fuel for generators and other secondary power needs. Supposedly they even hoped to save money; seems the “fully burdened cost” of fuel delivered in the field can be up to $400 per gallon. This is when the fuel has to be delivered in a heavily armed convoy, or flown in, or some other wild delivery scheme has to be used. What they don’t have to haul in is something that they don’t have to pay security for, something they don’t have to worry about.

    http://cleantechnica.com/2010/09/14/u-s-army-deploys-solar-power-backpacks-in-afghanistan/

    http://science.dodlive.mil/2010/08/24/new-army-battery-recharging-kits-run-on-renewable-energy/

    http://gas2.org/2009/10/19/400-dollar-per-gallon-gas-and-the-green-war-of-the-future/

    The comments on the last one are stupid. The commentor is apparently not familiar with the Maryland class battleships of the 1920s (one of which was the West Virginia, which was heavily damaged at Pearl Harbor but was raised to fight again). These ships used steam-turbine-electric drive, which was dependable, flexible, and had advantages in equipment layout compared with traditional geared shaft drives.

    D. P. Lubic Reply:

    A bit more:

    http://thehill.com/homenews/administration/63407-400gallon-gas-another-cost-of-war-in-afghanistan-

    http://www.army.mil/article/63389/

    http://www.msnbc.msn.com/id/7745709/ns/us_news-environment/t/army-lightens-load-solar-power/

    There’s more around if you look using a search term along the lines of “US Army Solar Energy.”

    Truthfully, I am amazed that things like this, including the cost of getting fuel and other supplies to forward units, does not get more airplay or ink. It is important in that it illustrates a very big reason to bring back rail, including local trolley cars–the stuff we run things on is expensive, it’s going to get worse, and it’s a serious strategic vulnerability.

    Nathanael Reply:

    Oh, they’re huge. I’ve been hoping the people within the Army pushing for “solar battalions” will get more traction within the giant, very resistant-to-change bureaucracy. I actually suspect that this is part of the future of warfare, and the first military to fully get off of oil will have a massive, massive advantage.

    Nathanael Reply:

    The Navy has been making monumental efforts to make its ships as energy-efficient as possible — largely because it allows them to stay out at sea longer. They’ve been pouring money into it. As a side effect they’re deploying the same technologies in their land encampments.

    The Air Force has been heavily investigating synthetic crop-based jet fuels and lubricants.

    The Army has had some very inspired people working on energy efficiency (insulation) and solar energy in forward camps, so as to cut the massive supply line costs — but these people haven’t made much headway in changing operational practices, for whatever reason. The Army just seems to be slow to change.

    elportonative77 Reply:

    Yeah but it will eventually. We’ve already seen that our ships, planes and vehicles can run on alternatives all that’s left is to get some farmer or entrepreneur to do it.

    D. P. Lubic Reply:

    “. . .all that’s left is to get some farmer or entrepreneur to do it.”–El Porto Native

    The big problem is scaling it up. A great many people do not comprehend just how much oil we use (and waste, too). It’s been estimated that to get just our transport system off the oil standard with alcohol would take all the cropland of the country. It’s a bad idea for a variety of reasons, but you have to ask if you want to choose between eating and driving.

    This is part of what makes an electric railroad of any type so attractive; the kilowatts can come from any source, and that source doesn’t have to deal with the handicap of being portable. That’s still a serious problem for battery cars, and it’s why airplanes aren’t likely to be electric.

    For portable power that is not capable of being connected to a stationary power plant while on the move, oil is still the best thing available, packing a huge amount of energy in a small space that’s fairly easy to handle. But what happens when there isn’t enough oil to go around, or at least it’s priced at more than most people can afford?

    Dan Reply:

    I agree that all other forms are subsidized. My statement was meant as more of a political commentary — if the phase 1 stuff is subsidized beyond construction (i.e. fares), then I doubt the political willpower will exist to construct phase 2.

    Risenmessiah Reply:

    That’s really unlikely given how local jurisdictions behave inside special transportation districts like BART or Metrolink. You would be amazed how even the most far-flung places want to be on the line as soon it becomes within even the realm of the mere possibility. Temecula wants metrolink, Stockton wants BART, and on it goes…

    Robert Cruickshank Reply:

    It enables more people to use the system for affordable travel, whether commuting or other purposes. That helps support job creation of various kinds.

    Same reason we continue to subsidize freeways and other passenger rail systems in California.

    Alon Levy Reply:

    Everything could be justified on those grounds. The War on Iraq created a lot of jobs for private military firms, defense contractors, and construction companies. Freeways create so many jobs for construction and auto workers that there’s an entire industry devoted to lobbying for more of them and less of any alternative. And so on.

    Nathanael Reply:

    Actually, that’s not the same argument at all. Robert is arguing that transportation in particular provides a large economic multiplier, bigger than other services; you’re simply making the “any economic activity boosts all economic activity” argument. Both are actually *true*, but yours is an argument for any project, and Robert’s is only an argument for transportation.

    Dan S. Reply:

    Had to scroll all the way down here to find someone actually answering the post! :-)

    My answer would be that a subsidy would be useful to drive ridership up when the system opens. I truly believe that this HSR line will be able to generate operating profits quite readily without subsidy, but in the aims of reaching that point quickly, I think a short-term subsidy would be quite useful. It’s a new mode of transportation and a subsidy would be good mechanism to help drive people to use it. Once ridership has proven to be strong and stable, I would remove the subsidy and start milking it for profits to be re-invested in extensions and other state transit improvements.

  2. Alon Levy
    Aug 28th, 2011 at 23:14
    #2

    The TGV is profitable. The slogan used by Mitterand should be thought of as a marketing strategy that does not charge a premium fare over low-speed travel, in order to attract higher ridership. HSR has to deal with depreciation and interest on capital more than with operating costs; the more riders it can spread the fixed cost among, the more profit it’s going to make.

    Andre Peretti Reply:

    The slogan owes nothing to Mitterrand. It was invented by the SNCF’s “communicants” who adapted a quote from Aristotle: “knowledge is worthless if it is not shared”. The SNCF’s presenting a marketing strategy as an act of faith in social progress is now a case study in some business schools.
    The truth is that, as more high-speed rolling stock was delivered by Alstom/Bombardier, loss-making conventional trains were retired, leaving the TGV as the only choice for Grandes Lignes (long trips). What some might have regretted as “the death of our good old trains” was presented as democratic access to “the train of the rich”.
    The socialist government didn’t cry a river over the death of subsidized trains. In fact, Mitterand was the president who de-nationalized the greatest number of public services for efficiency’s sake. His finance minister also made a decision which is now coming back to haunt us: he stopped selling treasury bonds to the public and decided to float them on the financial market for better flexibility. A move the Japanese didn’t imitate. The Japanese debt is 200% of its GDP, but 90% of the bonds are owned by Japanese citizens. Contrary to the U.S or France, Japan is its own creditor and is immune to S&P ratings.

    Alon Levy Reply:

    To be fair to Mitterrand, the US is immune to S&P ratings just as much as Japan. After the S&P downgrade, the US bond interest rate went down rather than up.

    If France hadn’t let the Germans run its monetary policy, chances are it would be equally immune to the Very Serious People’s perceptions of its budget seriousness. Though even now, its bond interest rate is low; being the largest province and primary partner in the German empire makes you almost like the seat of the empire and gives you perks that smaller provinces like Spain and Ireland don’t get.

  3. Donk
    Aug 28th, 2011 at 23:22
    #3

    The business plan is irrelevant. If the CAHSRA deposited a turd on a piece of paper and called it a “business plan” HSR supporters would still be supportive of HSR. If the CAHSRA had a bipartisan panel of economic experts and a panel of international HSR leaders draft a “business plan”, the naysayers like Morris, Elizabeth, Peninsula, and Lowenthal will still criticize it.

    Bottom line is that it is ridiculous to ask for a public works project to create a viable business plan. Especially when all other public works projects are not held to this standard. The only reason that HSR is expect to come up with a business plan is because it is one of the few pubic works projects that will actually be able to make a profit.

    D. P. Lubic Reply:

    “Bottom line is that it is ridiculous to ask for a public works project to create a viable business plan. Especially when all other public works projects are not held to this standard.”–Donk

    It’s also worth asking whether the status quo is affordable. So many bring up the point of the need for more money for schools, and also for roads, both maintenance and some new expansion. But are new school buildings really needed in some cases? And can we really afford the roads? Can we really afford the oil dependency and the limits of auto travel?*

    *This refers to the limits of drivers’ abilities and the limits of economical speeds attainable by cars. Cars can go much faster, but fuel/energy consumption goes up very fast above 60 mph or so. It goes up for trains, too, but the comparable penalty isn’t that bad, largely because a train is long and skinny in proportion. Such a form is inherently more aerodynamic; it’s also what makes ocean liners and clipper ships as fast as they are in their element. Classically, trains didn’t even begin to have wind resistance problems until speed got over 85 mph. Below that, it was (and is) relatively unimportant, even with lumpy steam locomotives pulling heavy riveted coaches and Pullmans.

    Nathanael Reply:

    Schools need funding. New school buildings, however, often don’t. The main problem here is the constant demand for sports facilities and suchlike gubbage, which really are unnecessary to the mission of a school. Watching this happen in my hometown. Again.

    Alon Levy Reply:

    In my former town, existing school buildings have lead paint and no budget to fix it. I have a friend who volunteers to paint over the old lead paint to make it non-hazardous to students.

    Nathanael Reply:

    Cool!

    Dan S. Reply:

    More to the point, even if the CHSRA published a truly gold-plated business plan with Carl Icahn and Warren Buffett as co-authors and listing committed investors and pledges of support from a majority of Dem and GOP Senators, it would not change the situation that those Californians who are against the project would remain against the project. If you don’t want a new train built in your comfortable suburb then it won’t really matter to you if it is making money or not. The business plan just happens to be a red herring that seems to be sticking for the moment when thrown against the wall of current local newspaper-column discourse.

    But what lingering questions will it really answer. To build it, we need a decade or more of multi-billion dollar yearly grants from the feds. To nobody’s surprise, the feds will be more generous when the Dems are in control and the GOP years will be slightly more penurious. Once built, it will be used by the many Californians who travel along its route, and probably the more than 50% of voting Californians who voted in favor of 1A will celebrate.

    So yes, I agree, the business plan is irrelevant.

    Well, that’s my opinion! (Probably won’t stick to anything though!)

  4. peninsula
    Aug 28th, 2011 at 23:24
    #4

    Robert says: “In any event, the CHSRA’s Business Plan preview makes clear that private funding “will require ridership from Central Valley connection to Northern and/or Southern California,” which should be good news for those who are still convinced that the Central Valley segment is a “train to nowhere.” What this means is that private funding might well materialize to link the Central Valley segment to San José, or to fulfill Paul Dyson’s dream of finally closing the missing link from Bakersfield to LA.”

    Wrong. What they’re saying is no private investment happens until ridership is there – not before. This actually does nothing to change the fact that ICS IS indeed a train to nowhere, with no ridership, no revenue, no hope of private investment, until the ENTIRE USABLE segment is built and goes in to HSR service. And Usable segment (IOS) is not built until public funding is found to do that – when, who, how? – no one knows – including CHSRA (at least not according to these materials). CHSRA makes it quite clear here that public funding, not private will have to build ALL the infrastructure. Private funding will show up to operate it, backed by a revenue stream, and will reap the upside revenue potential in exchange for taking that operating risk.

    The question of whether the “political will” is there – what you’re taking about Robert is the political will of the legislators to ignore the will of voters in Prop 1A and approve the funding plan without any compliance to Prop1A requirements. And its a great question – will this legislature have the stomach for such an explicit violation of the will of the people? Brown – who apparently has no conscience, a suspended sense of reality, and nothing to lose in terms of a career of any kind past 3 years from now, clearly has the ‘will’ to try to pull that fast one on the people. But will any of those other legislators?

    Tony d. Reply:

    Its amazing what these damn NIMBYS will come up with just to try and trash the project. All in the name of keeping trains out of their backyards. Selfish, whiny a$$ holes if you ask me. By the way Robert, excellent post!

    Alan Reply:

    “Selfish, whiny a$$ holes if you ask me.”

    No kidding! And also arrogant, when you consider that by using the screen name “peninsula”, he/she implies that he/she speaks for the entire Peninsula. We know that is not true.

    Richard Mlynarik Reply:

    Fortunately for all, you no longer need to post, as Alan already speaks for you. We know this is true.

    William Reply:

    No, CAHSRA said Public Sector Investors had shown interest in IOS, once the State has commit itself to the ICS.

    Luckily, it is of minor opinion that CASHRA had not comply with Prop. 1A.
    Independent Utility – Checked
    Constructing Section fully funded – Checked

    Peter Reply:

    In other words, there’s a good likelihood that private investors will step forward very soon (after the RFQs go out) with funding for the IOS.

    peninsula Reply:

    Did either of you even read the board materials or even just bother to listen to the CHSRA authority representative speak about the funding model in the meeting? CHSRA themselves saying in no uncertain terms no private investment will happen until after revenue generating operation is producing cash flow on the IOS. period. governmental funding will have to build the infrastructure. period.

    You guys love to talk about private sector “showing interest”. Sure, like vultures show interest in dead things. There are a lot of businesses, unions, even foreign governments showing up with their hands out- why wouldn’t they want a piece of the US/CA handout?

    BTW you wont’ find the terms “Independent Utility or ‘Initial Construction Segment” in Prop 1A. Those are measurables completely defined by the CHSRA that don’t have a bit of relevance in the determination of whether they are meeting the terms of the bond measure.

    D. P. Lubic Reply:

    I haven’t been following all the details because I don’t live in California, but as I recall, the “independent utility” requirement came not from California, but from the Federal boys. Seems even then they were worried that full funding would not be available at the beginning, and that there was a possibility that might be all that would be available for a time. In short, it was a conservative approach; build something useful for regular trains even if the full build-out and the true dream is delayed or even cancelled. I would have no problems with that, although some would suggest it is overly conservative, which in this case means cautious.

    All this fuss about now not being a good time to build also strikes me as hollow. I personally heard just that 20 years ago in regard to my trolley proposal when times were good, indeed just as good times were getting started. I heard it cost too much, everyone was supposedly broke, it wasn’t the right time then, it’s not the right time now, when will it be the right time? Hell, I heard noise like that around the idea of getting Amtrak in better shape in the 1970s. This was after the first oil embargo, and people were saying we just had to muddle through because we could bring back trains, and besides, no one wanted to ride trains.

    Sounds more like excuses to keep us in cars and keep us giving money to the oil biz to me.

    As it is, this so-called “railroad to nowhere” does serve a couple of cities of considerable size, and the semi-fast running that will be possible on it will still help the overall times of the Amtrak trains that will use it until more of the system comes into service.

    D. P. Lubic Reply:

    “You guys love to talk about private sector “showing interest”. Sure, like vultures show interest in dead things.”–Peninsula

    Peninsula brings up a point that is important, more than he realizes. I think modern business is very risk adverse. We have “conservative” types talk about how business can be bold and how private enterprise is willing to take risks and so on. From what I’ve seen over the years, that’s a load of horsefeathers. About the only people who really take risks anymore are the little mom and pop businesses, and most of those don’t last long because of the failure rate. The big boys want a guarantee before they put their money down. They are anything but gamblers and risk takers, and have no vision, no creativity.

    Don’t believe me? Ask yourself when was the last time anything really big came out of corporate America. Was it the PC and the programs that made it run–or did those come out of some garage and a kid who dropped out of college? When was the last time you saw a movie or television show that wasn’t based on a comic book or an earlier movie or an earlier TV show? Where are the modern counterparts to a Walt Disney, a Bill Gates, a Steve Jobs?

    adirondacker12800 Reply:

    Where are the modern counterparts to a Walt Disney, a Bill Gates, a Steve Jobs?

    Tending to their CDOs and CDSs. Or busy looking over there patents to see who they can sue for infringement. Or both.

    Alon Levy Reply:

    When was the last time you saw a movie or television show that wasn’t based on a comic book or an earlier movie or an earlier TV show?

    The Wire, Mad Men, Inglourious Basterds, There Will Be Blood, Rome…

    I think I know what article you’re implicitly referencing, and said article is explicitly saying that a) it’s only talking about movies, and b) it’s talking about middlebrow movies, below the level of There Will Be Blood but above the level of Steve Martin flicks. If everything were like what said article holds as its ideal of original filmmaking – Inception – then I might as well stop watching movies.

    jonah Reply:

    Well, There Will Be Blood is actually an adaptation of a novel written over 80 years ago… But I get your point.

    Alon Levy Reply:

    It’s very loosely based on Oil!. All the themes in the movie are either minor issues in the book or completely nonexistent. The movie is a character study; the book is socialist polemic.

    Nathanael Reply:

    Incumbents in an industry are *always* risk averse. That’s why they’re incumbents.

    There have been some weird apparent exceptions lately. The massive accounting frauds which the major banks have been engaged in seem pretty risky, don’t they? Well, hey, risky for *someone*, bt not for the bank executives, who walk away with their bonuses whether the banks succeed or fail. A little conflict-of-interest analysis often shows apparent risk to be a matter of risking “someone else’s” stuff.

    As an aside, you could also look at the wars being conducted; if there were any risk that any of these wars would *actually* end up back in the US, more than a few acts of terrorism, then I suspect many of the incumbents in the military-industrial complex would surrender immediately.
    For most countries, actual wars on home territory after a long period of peace at home often involve the entire older staff being replaced by younger people who haven’t gotten used to “the way we always did things”.

    Risenmessiah Reply:

    I posted this yesterday peninsula and nobody responded…perhaps because it debunks your entire argument?

    Morris seems to continually struggle with Streets and Highways Code 2704.08(f):

    In selecting corridors or usable segments thereof for construction, the authority shall give priority to those corridors or usable segments thereof that are expected to require the least amount of bond funds as a percentage of total cost of construction.

    Among other criteria it may use for establishing priorities for initiating construction on corridors or usable segments thereof, the authority shall include the following: (1) projected ridership and
    revenue, (2) the need to test and certify trains operating at speeds of 220 miles per hour, (3) the utility of those corridors or usable segments thereof for passenger train services other than the high-speed train service that will not result in any unreimbursed operating or maintenance cost to the authority , and (4) the extent to which the corridors include facilities contained therein to enhance the connectivity of the high-speed train network to other modes of transit, including, but not limited to, conventional rail (intercity rail, commuter rail, light rail, or other rail transit), bus, or air transit.

    In other words, the tracks don’t have to be exclusively used for HSR. They just need to be able to support whatever operator’s service has the wherewithal to provide. Moreover, CalTrain has sought to imply that this is why they need to be electrified so that it can be compatible with HSR. But that’s speculative. Metrolink can’t electrify that easily and it may very well use HSR tracks between Los Angeles and Anaheim. So can Amtrak’s San Joaquins.

    Morris’ whole argument comes down to the meaning of Streets and Highways Code: 2704.08(c)(2)(I):

    One or more passenger service providers can begin using the tracks or stations for passenger train service.

    If that doesn’t include non-HSR service, someone ought to tell the guys at CalTrain….

    peninsula Reply:

    Risenmessiah: The ‘whole argument’ certainly does not boil down to 2704.08(c)(I). A-K have to ALL be satisfied, relative to the Usable Segment for which they are submitting the funding plan.

    2704.08(c) (with regard to the funding plan for the usable segment:)
    (2) The plan shall include, identify, or certify to ALL of the following:

    (A) The corridor, or usable segment thereof, in which the authority is proposing to invest bond proceeds.

    (B) A description of the expected terms and conditions associated with any lease agreement or franchise agreement proposed to be entered into by the authority and any other party for the construction or operation of passenger train service along the corridor or usable segment thereof.

    (C) The estimated full cost of constructing the corridor or usable segment thereof, including an estimate of cost escalation during construction and appropriate reserves for contingencies.

    (D) The sources of ALL funds to be invested in the corridor, or usable segment thereof, and the anticipated time of receipt of those funds based on expected commitments, authorizations, agreements, allocations, or other means.

    (E) The projected ridership and operating revenue estimate based on projected high-speed passenger train operations on the corridor or usable segment.
    (F) All known or foreseeable risks associated with the construction and operation of high-speed passenger train service along the corridor or usable segment thereof and the process and actions the authority will undertake to manage those risks.

    (G) Construction of the corridor or usable segment thereof can be completed as proposed in the plan.

    (H) The corridor or usable segment thereof would be suitable and ready for high-speed train operation.

    (I) One or more passenger service providers can begin using the tracks or stations for passenger train service.

    (J) The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.

    (K) The authority has completed all necessary project level environmental clearances necessary to proceed to construction.

    No one ever said they can’t operate another service on the line once built – the point is they cant qualify for the bond funds unless they are submitting fully funded plans for a complete usable segment, that can be completed per the funding plan, and upon completion will be SUITABLE AND READY for high speed rail operation (whether they decide to operate disney rides or freight trains on it after they build it.) Additionally note K – which will not be true in October, when they are saying they plan to submit this funding plan.

    As for D, not only will they not be showing “source of all funds for the usable segment”, they won’t even be showing the source of ALL funds for the CV ICS Segment.

    So no, the existence of (I) doesn’t help them qualify for their bond funds and doesn’t effect my argument in the least.

    joe Reply:

    “(2) The plan shall include, identify, or certify to ALL of the following:”

    I here by certify that the HSR Plan meets ALL of the following.

    Risenmessiah Reply:

    A “usable segment” must contain two stations. Fresno to Bakersfield fits that definition. I recognize the track must be suitable and ready, but again, if an operator decides to not put electric trains on it… I don’t think that disqualifies the line from being unsuitable.

  5. Tony d.
    Aug 29th, 2011 at 09:26
    #5

    Robert,
    Any chance the “mega consortia” being bandied about by Rod Diridon, which could consist of Silicon Valley companies, will help finance a Merced-San Jose leg of HSR?

    Risenmessiah Reply:

    The question is…does the consortia want to acknowledge that type of weakness to its competitors that it needs to control costs by having a ready supply to cheap land or labor in the CV?

    Richard Mlynarik Reply:

    Any chance the “mega consortia” being bandied about by Rod Diridon, which could consist of Silicon Valley companies, will help finance a Merced-San Jose leg of HSR?

    I asked this Bay Area expert — who has a much better track record in the fields of transportation planning and megaproject funding and management than Diridon’s — and he indicated didn’t seem likely, what with the whole Whore of Babylon thing and all.

    Robert Cruickshank Reply:

    I hadn’t seen that…got a link?

    Tony d. Reply:

    Robert,
    The story regarding the mega-consortia of 100 companies (Rod Diridon) was in that NY Times article from about a month ago. I got the link from this site.

    Richard Mlynarik Reply:

    Here’s another Bay Area transportation expert with a better mega-consortium management record than Rod Diridon’s.

    Peter Reply:

    Here’s some stuff about the mega-consortium in the last few paragraphs: http://www.eenews.net/public/climatewire/2011/07/18/1

    Meanwhile, the authority will look to give the private sector a bigger role in the project, to shore up its cash shortfall. Diridon said he’s in contact with companies that are already forming mega-consortia as large as 100 firms.

    “I would expect instead of covering around 10 percent of the project through private investments, that they will be covering something more like 50 percent, or in excess of 50 percent, from the private investors,” Diridon said.

  6. synonymouse
    Aug 29th, 2011 at 10:30
    #6

    The military-industrial complex can show PB, wunderman, Diridon and the consultant-contractor-labor complex how to do it right:

    http://www.foxnews.com/politics/2011/08/29/commission-30-billion-in-waste-on-iraq-afghanistan-contracts-and-grants/?test=latestnews

    William Reply:

    Since you like to label other people/organization without much proof, can I also label you “I-5 Land Interests” who will profit greatly from an I-5 HSR route, because I “think” you have an ulterior motive for pushing it?

    synonymouse Reply:

    Please label me an I-5 land baron. I love it.

  7. morris brown
    Aug 29th, 2011 at 14:45
    #7

    I have uploaded the Update on Business Plan video from the May25, 2011 meeting to YouTube.

    http://www.youtube.com/watch?v=FKefjnLK_Vw

    (41 minutes)

    William Reply:

    Anything wrong with CASHRA’s own video?

    Peter Reply:

    It’s not trustworthy, considering the source.

  8. D. P. Lubic
    Aug 29th, 2011 at 16:31
    #8

    Off topic item–the Texas High Speed Corporation site. Bruce McF doesn’t think too much of it, considering it an advocacy group despite its name and claimed actions, but it might be of interest anyway:

    http://www.thsrtc.com/info/?page_id=87

    Jim SF will be particularly interested in the artwork of the masthead, featuring what looks like a duplex design with Japanese aerodynamics.

    I’m kind of surprised the Texans used a double decker to illustrate the idea; knowing their (stereotyped?) penchant for wanting things bigger and grander than anything similar elsewhere, I would have though they would have gone in for broad gauge like the Erie’s old 6-foot measurement, or even the Great Western’s 7-foot gauge! Would give everybody room to spread out!

    :-)

    Alon Levy Reply:

    I can’t tell which trainset this is. It looks like an EMU, but the only bilevel high-speed EMUs, the E1 and E4 series, look nothing like it.

    Knowing almost nothing about domestic Texas politics, I don’t know what to think about THSRTC; I have no idea whether they’re effectively preparing the ground for HSR.

    swing hanger Reply:

    Purely the fantasy of the conceptual artist- to me it looks like the marriage of a 500 series-esque nose with an SNCF VB2N suburban EMU body. FWIW, JR Central made a pitch to Houston business leaders (last year?) for a line to D/FW presumably using their (single-level) N700i trainset.

    jimsf Reply:

    Double deck is one thing but that one just looks unnecessarily silly. its just too much.

    D. P. Lubic Reply:

    “. . .it’s just too much.”–Jim SF

    That’s the Texans for you.

    Bruce’s commentary and a proposal of his own for Texas:

    http://www.dailykos.com/story/2011/08/14/1006902/-Sunday-Train:-The-Texas-Wishbone-Regional-High-Speed-Rail

    BruceMcF Reply:

    I don’t know about “just” an advocacy group. If they are effective in their advocacy, that’d be a good thing. To get off the ground Texas needs an official state agency or authority of some kind, but that’s different from suggesting that an advocacy group of local politicians and such along the route is useless.

  9. paul dyson
    Aug 29th, 2011 at 17:24
    #9

    I don’t see much “business plan” comment related to the burden of carrying the interest on government debt through the construction period. The problem with a large system such as HSR for CA is that utility is very low indeed until the end points are connected. While you may dream about a flood of fare paying passengers wishing to ride between CV stations, the chances of them meeting even 25% of OpEx are slim. Thus the built segments of the system are a huge burden on the taxpayer until the system is complete. Will the private sector ameliorate this burden by investing in constructing infrastructure that may sit idle or under utilized for 10 years or more? Hardly likely. Ever since Margaret Thatcher strong armed the banks into funding the Channel Tunnel they have been much more circumspect about taking any real risk.
    I believe then that we have the prospect of the HSR system if and when it is completed, starting opening day with a mountain of debt. I presume that HSR advocates believe that this is acceptable and that somehow this will disappear, either into the general public obligations of either the State of California or the USA, or be somehow “restructured”, i.e. by sticking it to the original investors. For sure it will never be paid off from the farebox.
    It is unlikely that any of us will be riding true HSR trains in CA any time before 2025. We will have paid an enormous amount of money for plans and engineering, and for some “shining bands of steel” traversed by the occasional Amtrak train. We may not have any money to do any more. Would the voters have endorsed such a prospect had they known? Does a vote to issue debt for less than 25% of the cost of a project with no commitment to pay for it other than general revenue have any validity?
    Value for Money? Not convinced.

    Eric Fredericks Reply:

    “We’ll put up half the money for California HSR” says Japan’s Ambassador to the United States. I’m sure there’s more than that came from. Let’s see what happens after ROD/NOD on some of these project-level environmental documents.

    Eric Fredericks Reply:

    Oops–meant to say I’m sure there’s more “private” sources than Japan willing to put up money.

    paul dyson Reply:

    “Let’s see what happens” is much the same as “hope for the best”. Japan as a donor post tsunami? doubtful. “Put up half the money?” Only if you can take all the profit and the taxpayer donates the rest. That’s how PPPs work.

    BruceMcF Reply:

    This comment starts out with a false dichotomy ~ between a CV-only system and a system that connects the two endpoints. A system that connects the CV to either LA or the Bay at low enough transit times will have some frequency at which it will cover operating expenses. That frequency would likely not be anywhere near the frequency of the LA Basin to Bay Area service augmented by the CV traffic in both directions.

    Alon Levy Reply:

    Thank you.

  10. Emma
    Aug 29th, 2011 at 17:51
    #10

    Why is there a Business plan for High speed rail but highways that have ZERO return get bipartisan approval? Pure hypocrisy.

    It’s this insane Tea Party ideology that we should run the government like a business. The government is not a company in any way. And if you ask me, we should try to avoid private funding as much as possible. Instead, we should ask for public funding. Not in our state, but maybe other states and foreign governments would like to invest and get some of the pie. The good thing about government funding is that it is a reliable and stable source not only for a few years but for decades.

    There are only two different sources that are ready to invest in something that wouldn’t pay of for more than a decade: Governments and wealthy Arabian monarchs which are kinda the government.

    synonymouse Reply:

    “The government is not a company in any way.” And more California cities are putting that morsel of wisdom into daily practice. Add Vernon to Bell on the list of our cities famously not “run like a business”. Palmdale next in the headlines? One can only hope.

    http://www.newsdaily.com/stories/tre77s6te-us-economy-california-vernon/

  11. paul dyson
    Aug 30th, 2011 at 09:24
    #11

    Seems like the plan is to hope for donations from entities that don’t require a return on their investment. These entities must have surplus cash (excludes CA and USA), capacity and desire to borrow (excludes CA and USA in the current political climate) or the willingness to make a gift to future generations of Californians (excludes almost everyone else).

    I think that California has a large enough economy which, if well managed, could fund HSR on its own. Unfortunately that’s not the world we live in.

    synonymouse Reply:

    Yes, California could finance a well-conceived, incremental rail passenger upgrade pretty much on its own. Tolmach has laid out the general lines of such an approach.

    But this cannot happen if California continues with the pattern of extremely low quality of its transit projects. BART really debuted the downward spiral with the broad gauge fiasco but it has just gotten worse over the years. Particularly noxious examples are under-utilized BART extensions, OAC’s etc. and perhaps the most egregious, Muni’s Central Subway, which they let a political hack ruin. PB and it myraid dba’s simply cannot be trusted – value engineering is a joke when the first thing you come up with is stilts in Palmdale.

    The blowback of years of greedhead irresponsibility and downright stupidity is in our face. PG&E is an appalling example and now they are going to foist the huge cost of rebuilding on the little people. Where is useless Jerry Brown in all this. Oh, appointing a PG&E flack to the CHSRA board. How would mega-Meg have been any worse?

    Peter Reply:

    “if well managed”

    Hell, doesn’t even have to be well managed if the state had a decent revenue stream, aka repeal of Prop 13.

    Paulus Magnus Reply:

    It has a plenty decent revenue stream as it is, raising housing costs is not going to be beneficial.

    Alon Levy Reply:

    It’s not going to raise housing costs. It’s going to raise property taxes. Housing prices should go down, for roughly the same reason that raising a company’s taxes is going to reduce its market cap.

    The separate problem is that Prop 13 in California is part of the same system that makes government not work. Being able to repeal it or truly do nothing (i.e. toll the freeways) is more or less equivalent to being able to manage the project well.

  12. synonymouse
    Aug 30th, 2011 at 13:02
    #12

    Proposition 13 is the means by which ordinary people of ordinary means are able to continue to live in California.

    A repeal of Prop 13 would mean a huge increase of property taxes affecting the middle and lower classes. Commercial real estate would be quickly shielded by the numerous means available to the very affluent. The devious who run our government would see to that in short order.

    The only reason Prop 13 helps the small homeowner is that the commercial interests could not devise a way to prevent it from benefitting the ordinary folk. And of course they needed the votes of the masses to pass it and protect it.

    J. Wong Reply:

    Repeal the commercial side of Prop 13. Corporations take advantage of loopholes and sell commercial properties at inflated prices without paying taxes. They do this by transferring the property to a dummy corporation at no change in basis and then selling the dummy corporation to another corporation. The dummy corporation keeps the original tax basis.

    Alon Levy Reply:

    A repeal of Prop 13 would mean a huge increase in property taxes affecting the upper classes. The lower and middle classes for the most part do not live in houses they’ve continuously occupied since the 1970s – they’ve either cashed in and moved to another state, or live in more recently constructed housing. Right now, someone living in a 15-year-old house in a drive-until-you-qualify suburban slum pays more in property taxes than someone who’s been living in the nicest part of Beverly Hills since the 1970s. A repeal would correct this imbalance.

    Richard Mlynarik Reply:

    Alon, it’s not just 1970s valuations. (Which by the way can get passed on to children without reassessment. America, the land of dynastic wealth and underclasses.)

    For example I am a huge and undeserving beneficiary of Prop 13, in my case based on late 1990s what-seemed-a-bubble-at-the-time valuaation, and pay far less for the same city services than my more recent house buying neighbours do (and less than longer term property owners.) Like the sickeningly regressive tax-subsidy for mortgages, it’s a pyramid scheme that perpetuates itself by creating newly entitled “I’ve got mine, screw you” propertied class members for as long as real estate values keep increasing which, looked at in the wide perspective, will be for as long as people keep breeding.

    Tom McNamara Reply:

    Proposition 13 is the means by which ordinary people of ordinary means are able to continue to live in California.

    No…it’s the means by which elderly people of ordinary means can use other government subsidies (Social Security, Medicare) to perpetuate a service based economy outside of a few sectors that are very difficult to move out of state.

    The housing bubble can almost completely be attributed to Prop 13: as homeowners didn’t have to face the consequence of higher property taxes they irrationally over-leveraged themselves because there was every incentive to do so. As leverage begat leverage this money started showing up in new housing market, Nevada, Arizona, you name it. And since there are anti-deficiency statutes on the books in California, homeowners have nothing to fear if they walk away.

    Nathanael Reply:

    My God. I knew syn was crazy, but crazy enough to defend the massive inequities and giveaways-to-the-very-very-rich-and-very-big-business embedded in Prop 13?

    Worse, crazy enough to defend the insane 2/3 rules in it? Even if you think property taxes should be abolished, the inability of the legislature to raise *any* taxes of *any* sort without being held hostage to a 1/3 + 1 minority in one house of the legislature is just obscene.

  13. Derek
    Aug 31st, 2011 at 16:31
    #13

    The only people who would be hit hard by a repeal of Prop 13 would be people who have massively increased their real estate equity. Would you really shed a tear for someone who has to sell their paid off $800k home and move because they can no longer afford the taxes?

Comments are closed.