State Auditor Continues Blaming High Speed Rail for Congress’s Failures
Back in April 2010 the State Auditor released a report that was unfairly critical of the California High Speed Rail Authority. The State Auditor argued that California was uncompetitive for federal funds (as it turned out we won half of the $8 billion in HSR stimulus funds) and ignored the then-Democratic Congress’ interest in finding long-term funding for high speed rail. Further, the State Auditor held the CHSRA responsible for these things, even though they have no control at all over what Congress does.
In 2011 a Republican House did gut HSR funding, but again this was not the CHSRA’s fault. But in a new report the State Auditor continues to hold the CHSRA responsible for Congress’ failures on funding transportation policy. The result is yet another flawed report from a State Auditor who does not appear to have a strong grasp of transportation funding.
Although the Authority has secured funding for the Initial Construction Section (construction section)—the first portion of the program—the program’s overall financial situation has become increasingly risky, in part because the Authority has not provided viable funding alternatives in the event that its planned funding does not materialize. In its 2012 draft business plan, the Authority more than doubles its cost estimates for phase one of the program, to between $98.1 billion and $117.6 billion. Of this amount, the Authority has secured approximately $12.5 billion to date. The success or failure of the program consequently depends upon the Authority’s ability to obtain between $85.6 billion and $105.1 billion by 2033.
So the Authority gives itself 21 years to get as much as $85 billion from the federal government (although they will need much less – once an Initial Operating Segment is open, private money will step up to the plate). They’ll obviously need money sooner than that, and while this present Congress isn’t likely to give it, this present Congress is not going to last beyond the end of this year. Democrats continue to dominate the generic Congressional polls, a key indicator of their growing chances to reclaim the House in November. So the chances of the Authority getting more federal funding in the near future are not nearly as bleak as critics imagine.
The State Auditor doesn’t explain any of this. Instead they continue to bash the project as “risky”:
In its 2012 draft business plan, the Authority identifies the federal government as by far the largest potential funding source for the program, yet the plan provides few details indicating how the Authority expects to secure this money. Further, the plan does not present viable alternatives in the event that it does not receive significant federal funds. In fact, one of the funding options the Authority characterizes as an alternative is not yet approved for use on high-speed rail projects. Although it is possible that the Authority may obtain the necessary funding to move forward with the program, it risks significant delays or the inability to proceed if it does not.
The problem is that this isn’t unique to high speed rail. Many transportation projects, like BART to San José, rely on getting federal funds that they’re not guaranteed to receive.
But we can make a bigger point. If Republicans prevail in November, winning the Senate and the White House in addition to the House, one could then say that pretty much everything the State of California does is “risky” since federal budget cuts could undermine virtually every service and program currently provided by the state, from schools to parks to roads. The State Auditor isn’t really telling us anything useful here.
Some of the State Auditor’s concerns border on the absurd:
Further, the Authority’s 2012 draft business plan still lacks some key details about the program’s costs and revenues. In particular, only within the business plan’s chapter about funding—more than 100 pages into the plan—does the Authority mention that phase one could cost as much as $117.6 billion, whereas it uses one of its lower cost estimates of $98.5 billion throughout the plan. Moreover, neither of these cost estimates includes phase one’s operating and maintenance costs, yet based on data included in the 2012 draft business plan, we estimate that these costs could total approximately $96.9 billion from 2025 through 2060. The Authority projects that the program’s revenues will cover these costs but it does not include any alternatives if the program does not generate significant profits beginning in its first year of operation. Further, the plan assumes, but does not explicitly articulate, that the State will not receive any profits between 2024 and 2060, because private sector investors will receive all of the program’s net operating profits during these years in return for their investment.
The State Auditor doesn’t examine the rising cost of oil or other globally successful HSR systems (virtually all of them, including the Amtrak Acela, cover their own operating costs), simply assuming that the system will somehow have trouble, unlike all the other HSR systems, in covering its costs. If the State Auditor still thinks gas will be at $4 a gallon 50 years from now they are simply delusional.
As to the state not receiving any profits, well, unfortunately that’s by design. But that isn’t a problem for the HSR project, since Prop 1A mandates that the state not subsidize its operations. That’s a moronic and stupid rule, but it is also a rule the system can meet. If the system covers its own costs, as global evidence suggests it will, then the state faces no obligations and if private sector investors get all the profits, that’s stupid but not necessarily a financial problem from the state’s perspective.
The State Auditor makes their own anti-rail biases clear in the way they attack the ridership studies by innuendo:
The accuracy of the Authority’s estimates of the program’s profits depends upon its ridership projections, which are thus fundamental to private investors’ interest. The ridership model the Authority presents in its 2012 draft business plan assumes an average ticket price of $81 and projects that passengers will take a total of 29 to 43 million annual trips by the completion of phase one. However, when the Authority’s chief executive officer commissioned a ridership review group to independently assess the ridership projections, he handpicked the group’s members, which may call into question the independent nature of their assessment.
OK, this is simply bullshit. If the State Auditor cannot actually find technical fault with the ridership recommendations or the peer review of those numbers, they have no business impugning the peer review group or Roelof van Ark for putting it together. This kind of baseless attack has no place in an official report such as this.
The report goes on to make a number of recommendations regarding contract oversight and those are all well and good. But it is frustrating to see the State Auditor continuing to hold the CHSRA responsible for Congress’ failures, and their unfair attack on the peer review of the ridership numbers is a particularly ridiculous move that shows their inherent biases.