How Much Is Your Future Worth?
(View the 2012 Business Plan here – more analysis to come later this evening)
California, like the rest of the country, stands at a crossroads. Either we can continue forward as before, down a path that has produced record unemployment and massive inequality – or we can do the hard and sometimes costly work of investing in and building a better future.
Let’s not kid ourselves about the crisis we face. Unemployment is sky high and showing no signs of coming down:
One big reason for the crisis is the soaring cost of our dependence on oil. California spent 60 years building a transportation system where people had to burn fossil fuels to drive or fly to their destinations, literally ripping out the efficient and electrically-powered rail systems that had fueled growth and prosperity in the state for 100 years before that. Because oil is not a renewable resource, the price will eventually rise as supplies peak and global demand soars. Sure enough, that’s exactly what happened in the last 5 years:
Looking at those stats, it’s really difficult to imagine why anyone would prefer the status quo, why anyone would argue against strong measures to produce economic recovery. Unfortunately, too many people became convinced that the last 30 years of boom and bust – where recessions appear to have come and gone like a fierce winter storm – are the norm. After three years of Depression, it ought to be clear that recovery isn’t just magically going to happen. We have to make significant changes to the way we do things in this state and this country. The status quo is unacceptable.
One reason we’re in this mess is that since about 1980, California and the United States generally refused to invest in infrastructure and transportation. When we did, we usually poured good money after bad on expanding freeways, with a pittance going to rail. Even that meager investment is showing results, with Amtrak California setting new ridership records.
But we don’t usually do more of it because we are afraid of spending money. When a proposal comes along, the default American attitude has been to look only at the bill and ignore the benefits of what is being purchased, or even the long-term savings and benefits that the investment brings. It is a self-destructive logic that ensures no progress is ever made, a recipe for permanent depression. It is an attitude that abandons the future in order to bizarrely cling to a failed present.
California is ready for passenger rail. California is ready to invest in the future. And California is ready to build the bullet train.
With that in mind, let’s take a look at what we know about the new business plan from the California High Speed Rail Authority. The projected cost is a lot higher than before. But the benefits are stronger too.
The headline is that the system can be built in sections that can operate independently – and at a profit. Under all ridership scenarios, the system turns a profit. And most importantly, by providing a sustainable way for Californians to get around the state, it begins to liberate the economy from dependence on oil, spurring significant job creation, economic growth, and new tax revenues.
The obsolete thinking would have us look only at the price tag. The sensible and accurate thinking would have us look at the entire investment, costs and benefits. And it would place at the center of the discussion the question of whether we’re willing to risk doing nothing.
Juliet Williams of the Associated Press has a good overview of the business plan, at least based on what we know so far:
The new business plan for California’s high-speed rail system shows the nation’s most ambitious state rail project could cost nearly $100 billion in inflation-adjusted funding over a 20-year construction period, according to a draft copy of the plan shared late Monday with The Associated Press.
But the plan also says the system would be profitable even at the lowest ridership estimates and wouldn’t require public operating subsidies.
The report estimates the actual cost at $98.5 billion if the route between San Francisco and Anaheim is completed in 2033. The plan assumes private investment will account for roughly 20 percent of the total cost, with much of the rest coming from additional borrowing.
Let’s take a closer look at the ridership and profitability questions, since those are the most important:
The new business plan says the system will be built in sections than can operate independently and make money, even if no more track were ever built, [California High Speed Rail Authority Board Member Dan] Richard said. Planners hope each new section will generate momentum — and private investment — to complete subsequent sections.
The business plan also says the high-speed rail system will use existing rail lines to carry passengers on the final legs into San Francisco and the Los Angeles basin. Doing so instead of building new high-speed lines not only saves money but makes the project more politically palatable by reducing neighborhood objections….
Even under the most conservative ridership projections, the report said the rail system would have a net operating profit.
It pegs ridership at anywhere from 7.4 million to 10.8 million riders by 2025 for an initial southbound phase. Even at low ridership projections, the project would have a net operating profit of $352 million a year, the report said.
In other words, rather than trying to come up with the entire project cost all at once, the business plan would leverage available public and private funding to build a segment at a time. Each segment would generate ridership, profit, and momentum to continue funding the construction of additional segments. That’s the model that has been used, with some variations, in France and Spain to build their extensive rail networks.
HSR critics and opponents will immediately claim those ridership and profitability questions aren’t credible. But those arguments are completely baseless, fly in the face of the available evidence, and should simply not be taken seriously. Remember that the independent peer review found the HSR ridership numbers to be sound. And keep in mind that around the globe HSR turns a profit – in Japan and France, Spain, Russia, Taiwan, even the Amtrak Acela. And California compares favorably to those globally successful routes.
More importantly, the business plan includes a hedge. If for some reason the other segments aren’t funded, that’s fine – the segments that do get built can be independently operated, and can be done so at a profit.
Williams’ article didn’t mention the benefits of HSR, but we know them to be considerable. HSR is a boon to mid-line cities like Gilroy, Fresno and Bakersfield. It brings those cities into the globally competitive coastal economy, allowing residents there to get jobs on the coasts and allowing coastal businesses to set up shop inland where land values are cheaper.
A 2010 US Conference of Mayors report found Los Angeles alone could reap a green dividend of $10 billion a year from high speed rail – both in the jobs it creates and the spending on oil it would allow to remain in the community, redirected toward more beneficial projects. Statewide that could reach $25 or $30 billion a year.
It also will be a jobs machine:
The first 130-mile segment would create about 100,000 jobs in the hard-hit Central Valley, according to the report.
Some people will sneer at that number and others will call it overstated. Even if the total number of jobs created is just a tenth of that projected total, however, that’s 10,000 jobs in a region with unemployment hovering around 15%. Only a cruel elitist would dismiss the huge and desperately needed impact of those numbers.
Of course, some people will focus only on the possible $98 billion cost of connecting San Francisco to Anaheim. That’s not cheap. But it IS cheaper than the alternatives, a point that HSR critics and opponents will never, ever acknowledge, and a point that even the media rarely admits. Which is why Juliet Williams deserves a ton of credit for making that point in her article:
The report notes that while the $98.5 billion tab seems high, California’s growing population would otherwise require about $170 billion in new infrastructure, such as freeways and airport runways.
And that $170 billion cost is just for construction. We know that freeways do not generate a profit. They are massively subsidized, and the cost to use them is soaring – just scroll back up to the top of this post and look again at the gas price chart. That chart is predictive – in 2009 Deutsche Bank came out with this projection of where gas prices are headed:
The effect would be catastrophic for the state’s already weakened economy. The effect of peak oil – the declining rate of new oil discovery combined with ever-increasing global demand – will push prices upward until there is significant demand destruction. There are two ways demand destruction can happen – either we build alternatives to driving and enable people to use mass transit to continue getting around, or people just stop driving with no alternative in place, and economic activity falls dramatically as a result.
This process worsens with economic recovery. During the worst recession in 60 years, gas prices never fell below $3/gal in California for any significant period of time. As the economy recovers and gas demand rises, so too will the price. $5 gas is something we WILL see within the first half of this decade.
The solution is obvious: we have to build alternatives to driving. Californians understand this very well, which is why they not only approved $10 billion in high speed rail funding, but also why 2/3 of voters in Los Angeles, Santa Clara, Sonoma and Marin counties voted to tax themselves to expand their passenger rail systems.
(Some might point to electric vehicles – but even if those were widely adopted, the cost of owning a car is still high, and rising population means freeways will still be jammed. Further, it’s still impractical and undesirable to spend 6 hours in a car driving from SF to LA, disconnected from one’s digital devices and from the global economy.)
Oh, and what does Governor Jerry Brown think of all this?
Late Monday, Brown issued a statement saying the first section in the Central Valley will create jobs “at a time when we really need them.” He also noted that a high-speed rail line will accommodate the state’s population growth “without the huge expense and intractable problems of massive highway and airport expansion.”
Of course, had California listened to Jerry Brown in 1982 we might already have HSR from LA to San Diego, and could have been well along the way of building a statewide network. Hell, that statewide network could have been completed by now. Instead California doubled down on freeways and oil, helping to create the present economic crisis.
The question California has to ask itself as it looks at this project isn’t whether $98 billion is too much money. The question is “can we afford not to do this?”
If we are going to give up on our future and just accept a long-term Depression, then yeah, let’s run away screaming at a bigger cost estimate. But if we are going to embrace our future and build something better, a state where we can live affordably and travel sustainably, then let’s figure out how to make it happen. The business plan, whose details we will see for ourselves tomorrow, shows us how to get there.
I’m still as excited as ever by the California high speed rail project. And I’m still confident in its success. I hope you are too