Investors Line Up for HSR Profits

Oct 2nd, 2012 | Posted by

One of the core arguments made by opponents of passenger trains is that nobody will ride them and the system won’t be profitable. Personally, I don’t care whether the system is profitable or not, that isn’t the point. The purpose of any transportation is to find effective ways to move people given your political, geographic, and energy constraints. Profit should be a side issue at best. But as it turns out, most high speed rail lines do turn a profit, including the Acela.

Amtrak Acela

Investors are quite well aware of this. And as Jeff Siegel argues at Seeking Alpha, they are ready to take a piece of the HSR profit pie:

While California has issued $2.6 billion in state bonds and has received $3.2 billion in additional federal funds for track construction, I anticipate 2013 will open the door for private sector involvement.

And this will go beyond just the California high-speed rail line.

Here’s the deal: Set aside California’s high-speed rail system for a moment and take a look at Amtrak. Aside from the Northeast Corridor, it’s just not profitable.

And let’s face it; this is something the government doesn’t really have the capacity to fix. I would actually argue it’s the government that’s responsible for the inefficiencies keeping Amtrak from being profitable (again, outside the Northeast Corridor).

So it was no surprise when the International Business Times reported that there are now a number of U.S. venture firms — including the Carlyle Group — as well as some foreign companies from India, France, and China looking to pony up to get a piece of this action.

I would profoundly disagree with the point that government involvement is why Amtrak isn’t profitable. If it were, why does the Acela make money? The problem is that for purely political and ideological reasons, the government isn’t allowed to make the capital investments that would make the rest of Amtrak’s routes profitable by upgrading speed and reliability. Of course, I also don’t care whether Amtrak is profitable or not, but let’s be accurate about why is isn’t.

But Siegel’s broader point is that the private sector understands quite well that riders will flock to HSR systems when they are built, that profits are generated, and that therefore there’s an opportunity for them here. And he’s definitely right about that.

In Japan, Korea, and throughout Europe, high-speed rail has proven to be profitable.

All of these systems eventually incorporated some form of public-private partnerships where the private sector was embraced, not ignored….

In fact, because the potential profitability from these new high-speed rail systems is so staggering (we’re talking billions of dollars a year in direct and indirect revenue streams), I don’t think it’ll be much longer before a round of hefty campaign contributions results in Washington warming up to the idea….

High-speed rail is coming, my friends. And I have no doubt we’re going to be able to profit along the way.

The italics were in the original post, as Siegel wanted to make sure his readers got the point. With government stepping up to help support the project, especially with an initial capital investment, the risks are lowered and the private sector becomes willing to act. Those who argue the private sector should do this alone show they don’t actually understand how the investors make decisions or how they assess risk. It’s just not feasible for the private sector alone to finance and build megaprojects. Government has to play a role.

If it were up to me, government would not just play a role, it would be the entire cast. As we’ve seen on France’s TGV, Spain’s AVE, or the Amtrak Acela, government has repeatedly demonstrated that it is quite capable of building and operating efficient, popular, and yes, profitable HSR service. Any extra money should be plowed into system maintenance and expansion, not put in the pockets of people who are already wealthy.

Alas, that battle was lost in California some years ago, and may be lost at the federal level soon too. It’s worth continuing the struggle, but it’s not worth holding up the HSR project over it. California and the nation need high speed rail, as it’s an essential piece of a sustainable 21st century infrastructure and economy. We can always reverse the political economy of bullet trains later on down the line.

  1. synonymouse
    Oct 2nd, 2012 at 09:28

    hsr profitable? – ho, ho, ho.

    There really is a Santa Claus. For PB, Heminger, Villa, Adelson, Wynn, Barry Zoeller and so forth.

    synonymouse Reply:

    Left out Tutor-Saliba from the A list of profiteers.

  2. morris brown
    Oct 2nd, 2012 at 10:10

    Robert above here writes:

    ” One of the core arguments made by opponents of passenger trains is that nobody will ride them and the system won’t be profitable. Personally, I don’t care whether the system is profitable or not, that isn’t the point.”

    Well Robert you should care because Prop 1A specifically says the HSR project will not need a subsidy; if proven to need a subsidy funding would be illegal and the project would have to halt.

    Of, course you and others are of the opinion that now that the voters passed Prop 1A, they can float the bonds and spend the funds in almost any fashion they please.

    How else can one explain that the current plan to build the first section costing over $6 billion will not be electrified, violating a clear mandate contained in Prop 1A. Then the Democratic leadership also approved $1.2 billion for bookend funds, which clearly are not going to HSR but rather to (at least partly) rail modernization (ie CalTrain’s electrification and purchasing of new rolling stock). All of this to be challenged in court.

    Derek Reply:

    Morris, you’re saying it’s wrong to electrify the bookends and it’s wrong not to electrify the central valley segment. Your logic truly is puzzling.

    Alan Reply:

    His logic is both circular and dead wrong. Nothing in Prop 1A prevents the bond funds from being expended in a way which benefits commuter rail IN ADDITION TO HSR. In fact, it’s quite clear that that is exactly what was expected–that the HSR project *would* also benefit regional transportation.

    The argument concerning the CV stretch has been argued and re-argued endlessly. It’s obvious that the whole thing can’t be built at once, and one has to start somewhere. “Somewhere” has been determined to be the CV, whether Morris likes it or not.

    As to his comments on profitability–Morris is just getting more and more desperate when he sees evidence that not only does the private sector see a likelihood of profitability, but they want a piece of the action. Morris just keeps repeating the same myths. He’s convinced himself, but that’s about it.

    VBobier Reply:

    Agreed Alan…

    morris brown Reply:

    @ Derek

    That is not what I am saying… what I am saying is by law, the CV section needs to be built as electrified, not as some off in the distant “possibility” of being electrified in the future. That is the law as laid down in AB-3034 / Prop 1A.

    On the bookends, they are taking HSR funds and using them without building any “usable segment” as defined and even say they will use part of the funds to fund CalTrain rolling stock. Even the LEg Counsel opinion / ruling said that was illegal.

    In any case HSR is dead here under present funding…. note the use of the new term “rail modernization”, and downplaying HSR.

    Derek Reply:

    Electrification at this point in time doesn’t meet the “independent utility” requirement of the federal funding. The wires would be sitting there idle, rusting away, depreciating and costing money in loan interest.

    If you’re in favor of wasting money like that, then from now on you have no right to complain that high speed rail is a waste of money.

    morris brown Reply:


    Read Prop 1A. The clear requirement for the State bond funding is building in usable segments
    “; that is the law. Prop 1A differs from the Fed requirement of “independent utility”; No such requirement exists in Prop 1A. Your statement claiming I am “ir favor of wasting money” is just plain juvenile. If you are complaining about electrification going idle and not needed, none of the knowledgeable legislators endorsed the CV section on the basis of it being needed and cost effective as built.

    J. Wong Reply:

    It’s your interpretation of the law. So you’ll bring a suit and it’ll be up to the judge to decide if your interpretation is correct.

    Robert Cruickshank Reply:

    Yes, I am well aware of that requirement. It was a stupid thing put in by Roy Ashburn so he would be willing to vote to put it on the 2008 ballot. It has no place being in the law and I would love to see it repealed at the earliest opportunity. However, I’ve never made a fuss about it, because I also know that HSR will have little trouble fulfilling that requirement, pointless though it may be.

  3. Jo
    Oct 2nd, 2012 at 12:05

    If some well placed campaign contributions can bring about some form of sensible public private partnerships that would finally bring sensible 21st century transportation and infrastructure improvements to this country (of which rail must be included), all the better. I guess it is the only thing politicians in this country have come to understand – that having to have campaign contributions to get something done is necessary. And if it helps alleviate some the wild ass extremism that this country has unfortunately been experiencing – all the better.

  4. John Nachtigall
    Oct 2nd, 2012 at 13:15

    No passenger train system makes a “profit” because none of them pay for the capital investment and most can’t even pay for the operating costs. But that is not the point of this article anyway.

    All this article proves is that the smart money on Wall Street is ready to take advantage of a “stupid” government agency, in this case the HSR Authority. It is just the sharks circling the seals at this point.

    They can make money if the line does not. For examples…

    1. Building the line
    2. Mainentace contracts on the building and rolling stock
    3. System mangement contracts
    4. Ticketing and website systems
    5. Capital equipement (rolling stock, traffic management systems, etc.)
    6. The dreaded (and most profitable) consulting services.

    All the people who sell this equipment and these services to HSR will make a profit, but that in turn acutally reduces the chances of the line making money because the more they charge the less the HSR will make.

    PS. As noted above you need no subsidy to run this line and be in compliance with prop 1A, so yes you should care about profit.

    Jon Reply:

    No highway system makes a “profit” because none of them pay for the capital investment and most can’t even pay for the operating costs.

    So what’s your point? Unless you’re happy riding horses across the plains, you have to accept that spending money on transportation infrastructure is necessary for economic activity, even if it doesn’t directly generate a profit. This applies to both roads and railroads.

    Derek Reply:


    You could just as easily say that “spending money on food is necessary for economic activity, even if it doesn’t directly generate a profit,” and that therefore we should give everyone free hamburgers. (Please read the analogy at that link.)

    If the roads don’t break even on costs and user revenue, it’s a sign that there’s more than the optimal amount of road lane-miles, or that the price of using them is below the going rate determined by supply and demand.

    Jon Reply:

    “You could just as easily say that “spending money on food is necessary for economic activity, even if it doesn’t directly generate a profit,” and that therefore we should give everyone free hamburgers.”

    Jesus, talk about reductio ad absurdum.

    I stated that spending some money on transportation infrastructure is necessary for economic activity. It’s also fair to state that spending some money on food is necessary for economic activity- you can’t have economic activity if everyone’s starving.

    That does not imply that we need to spend infinite amounts of money on transportation infrastructure or food. We do not need to give everyone free hamburgers, or spend trillions on unnecessary freeways, or spend trillions on gold-plated rail infrastructure. But some expenditure is required on all of these things.

    You are totally misusing the analogy given on the (excellent) Greater Greater Washington blog.

    Derek Reply:

    Jon, please explain why roads cannot or should not generate a profit.

    Jon Reply:

    When did I say that they shouldn’t? My opinion is that the construction and maintenance of roads should be more than covered through an increased gas tax and congestion charging, and the surplus from those taxes put towards the construction and maintenance of sustainable transportation projects, such as rail and bicycle infrastructure.

    Alon Levy Reply:

    Ew. Did you really just endorse not subsidizing food even if people starve?

    Anyway, the big difference is a matter of basic necessities. So we know that in a regime where government subsidies are earmarked to specific things, like the US (Medicaid, food stamps, Pell grants, public housing), we need to answer the question, “How much mobility is really required?” This includes both social spending (highly subsidized local bus systems) and general economic spending.

    The other possibility is to forget about earmarked welfare and go for cash benefits and see what people spend on. Health and education you’d probably want to earmark anyway but they’re special in many ways. People given enough money in welfare spend on food and rent, of course. Generally not so much on driving unless the general urban layout is so auto-centric it’s necessary.

    Derek Reply:

    Did you really just endorse not subsidizing food even if people starve?

    Correct. It’s a terrible idea to give everyone welfare just because a few people need it.

    adirondacker12800 Reply:

    In some cases it’s not a subsidy to everyone. Sugar for instance, on the world market, is cheaper than high fructose corn syrup. Drives jobs out of the US because if the sugar is in a product it’s not taxed… candy manufacturers are leaving the US for Mexico and Canada.

    Derek Reply:

    Yes, distorted markets create unemployment. That’s why subsidies are as bad as tariffs.

    Alon Levy Reply:

    No passenger train system makes a “profit” because none of them pay for the capital investment and most can’t even pay for the operating costs. But that is not the point of this article anyway.

    None, except the entire Japanese rail network, the entire French intercity rail network, the entire German intercity rail network, the entire Korean intercity and maybe also commuter rail network, the Spanish AVE network, and now that interest rates have been lowered to reasonable levels THSR.

    John Nachtigall Reply:

    I assume you are talking about the statement “most can’t even pay for the operating costs” because I know those examples don’t account for the capital.

    So you have 5 examples in the world which contains 1000′s of intercity and intracity passemger rail. I would say that counts as “most can’t pay for the operating costs”. In the US alone there must be dozens of commuter systems that can’t pay and Amtrac goes without saying.

    Alon Levy Reply:

    All those examples include capital depreciation and interest. In Europe it’s called an infrastructure charge because of separation of infrastructure and operations. In Japan, Korea, and Taiwan it’s just depreciation and interest on long-term debt.

    I have these 5 examples because I don’t actually make proclamations about the profitability of railroads without looking at financial statements. I’m fairly certain the intercity trains in Switzerland are profitable, and I think but don’t know it’s also true in most other European countries. In other words, pretty much the entire developed world ex-North America.

    John Nachtigall Reply:

    Alon, that is just flat out misleading

    For example, the Taiwan system specifically went bankrupt. They changed the rules on the infastructure so they could claim an operating profit.

    And depreciation of rolling stock is not the same as depreciation of the initial capital investment. Just be honest, if you have include the cost of building the system rail is not “profitable” which is why it is not run as a private enterprise. Even in Europe and Japan those operators are extensions of the government

    But even if I buy your argument, it is still a handful compared to all worldwide systems. I bet you can’t even prove a majority in Europe. Think of the systems in Eastern Europe, the ex-Russian republics, and UK, they don’t make money. Then add China and I get Taiwan back because let’s face it if you have to declare bankruptcy you are not profitable. I also will pick up everything in Africa, as well as North and South America

    Like I said, the majority don’t even have operating profits

    swing hanger Reply:

    “…and Japan those operators are extensions of the government”

    Wrong. Most railway operators in Japan are private enterprise. Admittedly, they are not solely railway operators, but use their railway services synergistically with their other business ventures.

    Alon Levy Reply:

    It’s not misleading at all. In Japan, the debt for constructing the Shinkansen was devolved down to the JRs when JNR was privatized; the government only wiped debt for past operating losses on commuter trains, which it was unwilling to subsidize in real time. (Nowadays the commuter trains are profitable, too. Amazing what you can do when you shrink your workforce by a factor of 4.)

    In Taiwan, the interest rate was initially 8%. The system moved to profitability after depreciation within two years, but the debt interest killed it. This is what the bankruptcy was about. The government took over, reduced interest to a more reasonable 2%, and now the system makes a profit.

    In the UK, they make money. It’s privatized. Around London even the commuter services are profitable, because of very high fares.

    In Continental Europe, there are infrastructure charges, covering construction costs and maintenance. On some LGVs they cover much more and are net profiteering by RFF. And RFF has to deal with pre-breakup-of-infrastructure-and-operations SNCF debt coming from both construction and past operating losses. Just because the government does it doesn’t automatically mean it loses money.

    In China, some lines are profitable when you count in construction costs, but most aren’t. But bear in mind that they’re paying first-world costs for construction while having residents who can only pay third-world fares. It works on Beijing-Shanghai because it’s a very thick market and the people on the corridor are middle- or even middle-high-income, but elsewhere it doesn’t.

    So what you’re telling me is that third-world skeletal low-speed rail networks are losing money while first-world intercity networks make money, and as a result California HSR will lose money.

    adirondacker12800 Reply:

    Because deep in his heart he wants California to be a third world experience.

    DK Reply:

    Alon, you’re mistaken if you think UK rail is profitable

    Many franchises pay fees to run the lines but when the network subsidies are taken into account almost all are subsidised.

    The two big intercity lines (East Coast ML and West Coast ML) are basicially profitable. Virgin only gets subsidies because they screwed the government over on contract negotiations in 2006. The next franchise for the line had companies fighting like rats in a sack to shower money on the government. Before it turned into a big legal mess yesterday.

    John Nachtigall Reply:

    Alon, come on, look at your examples

    Japan is profitable…after they forgave the past debt
    Taiwan is profitable….after they lowered the interest rate
    China is not profitable….but it is not their fault

    Just admit that rail in the vast majority of cases can not cover capital costs and in the majority of cases can’t cover operating costs.

    I am saying it does not matter where you are (1st or 3rd world) rail loses money. Every rail line in America loses money on both an operating and total cost (including capital) basis except Acela which only loses money if you count capital costs. the US is most certainly 1st world.

    Why is CAHSR different than every other rail line in the US and most of the world. It is going to lose money

    Peter Reply:

    John, reread what Alon wrote: In Japan the debts for operating costs for commuter trains were erased. No debts for HSR trains had to be erased.

    In Taiwan, an unreasonable interest killed profitability. That, by the way, is what happens when you expect private lenders to pony up for these types of projects. Government financing is the only reasonable way to go with this type of stuff.

    Finally, China, well, they’re special. It is completely their fault that they’ve overbuilt their system beyond belief as a national pride symbol. There is no way they were ever going to be “profitable” with that system. You just can’t compare that with California’s modest plans.

    Alon Levy Reply:

    Well, there is one important parallel between China and California: high construction costs. China’s construction costs are fairly high, and are especially high given people’s ability to pay fares. So this means CRH can either charge first-world fares and have too few riders to pay back construction, or charge third-world fares and not make enough operating profit per rider to pay back construction. In this context it matters that the profitable lines are in the richest parts of China, where people can afford to pay first-world fares or something approaching them.

    Of course, what Chinese people can pay now is not what they’ll be able to pay in 20 years. Growth changes things. It happened, more slowly, in what is now the first world, in the 19th century. A mid-century pamphlet poking fun at the Railway Mania brought up a parody example of a line through a remote part of Scotland, as if nobody in their right mind would build a railroad there; by the end of the century there were in fact two lines running in that area.

    Derek Reply:

    “Japan is profitable…after they forgave the past debt”

    Once again, John. Read carefully this time, ok? Japan’s forgiven rail system debt included commuter trains. The Shinkansen, taken alone, didn’t need a bailout.

    John Nachtigall Reply:

    so some lines in Japan…not all…are “profitable”??

    My statement was “most rail systems can’t pay for operating costs” That is a true statement worldwide. on a worldwide basis with certain exceptions, they have to be subsidized for operating costs and capital

    Peter Reply:

    So what is your argument, John? That CAHSR will not be profitable because the majority of all rail systems are not profitable (including everything from streetcars through HSR)? That’s a fallacious argument.

    You need to look at peer systems. Is Amtrak’s long-distance system a peer system? No. Is Caltrain a peer system? No.

    Is the German ICE network a peer system? Yes. Is the French TGV network a peer system? Yes.

    Are the former two profitable? No. Are the latter two profitable? Yes.

    Alon Levy Reply:

    “Just admit”? Can you understand what “past operating costs” mean? It means JNR was losing money in the 1970s, which it covered through issuing debt rather than government subsidies in the 1990s its mainland descendants became operationally profitable. The profits were enough to pay for construction debt on the Shinkansen, but not enough to pay debt on operating losses from when operating costs were much higher.

    And it’s the same with HSR vs. Amtrak. Amtrak is run with steam-era operating rules. HSR won’t be, despite the ticket punchers. You’re comparing vastly different levels of efficiency, just like with 1970s’ JNR and today’s JRs. The Acela and Regional achieve operating profitability by charging much higher fares than is normal on HSR around the world; their operating costs are about 26 cents per passenger-km, whereas as far as I can tell the operating costs of SNCF (TGV, low-speed intercity, and TER combined) are 11 cents per passenger-km.

    It’s really amazing. There’s a crop of people – say, pretty much every conservative HSR opponent and every libertarian who’s not involved with the Market Urbanism people – who on the one hand say government rail doesn’t work, and on the other hand, immediately think that ticket punchers, 3-hour workdays, hour-long turnaround times, chronic lateness, rules mandating every EMU be maintained as intensively as a locomotive, and construction contractor mafias are a God-given fact about rail.

    John Nachtigall Reply:

    I take it all back Alon….you are right.

    Because being “profitable” totally counts if you throw out the debts (operating or otherwise) from decades of unprofitable operation?!

    Holy cow.

    I will explain this using an example you will like.

    The airline industry in the US (and actually worldwide) is not profitable. If you add up all the money they have lost in bankrupcy and balance that with all the money they have made the “good years” they are still in the hole.

    Does that mean that you can’t run a profitable airline…no…Southwest does just fine thank you, but overall, the industry is a money loser

    Same thing with Rail (except worse). Rail is a money loser, not a money maker. The reason people assume that inefficient operations of rail is a “God-given” fact is because overall…it is.

    There may be reasons to build HSR, but it will never make money

    Alon Levy Reply:

    You still don’t get it. Japanese rail has gotten more efficient. In the 1970s, it lost money, before depreciation and interest. In the 1990s, it made money after depreciation and interest on construction (but not on past operating losses). In between, the government embarked on a decade-long efficiency program including slicing the workforce by a factor of 4 and privatization, and the privatized companies spun off the money-losing rural branch lines to local governments to take care of. (No, this isn’t most train travel in Japan – most train travel is urban commuter lines, of which about half have been under continuous private operation, and Shinkansen, with a handful of legacy intercity lines.)

    The appropriate analogy is if the US raises Amtrak efficiency and builds HSR on the NEC to the point that Amtrak is profitable on the whole. This is possible and easy – Amtrak has no past operating debts to worry about. Does this mean that Amtrak is still unprofitable because in the years 1971-2012 the government subsidized its losses? Or does this mean Amtrak used to be unprofitable but no longer is?

    Now, let’s compare this to airlines. With airlines, there is no trend toward greater efficiency and profits, except insofar as the legacies are slowly losing market share to Southwest and JetBlue. American was a basket case in the 1980s; it is still a basket case. American and United aren’t weighed down by past operating debts. They’re weighed down by present-day inefficiencies that they refuse to fix. Not the same thing.

    jonathan Reply:

    No passenger train system makes a “profit” because none of them pay for the capital investment and most can’t even pay for the operating costs. But that is not the point of this article anyway.

    John, you’re being a wanker. Please stop. By your criteria above, no trucking firm, no delivery firm, UPS, FedEx, none_ of them make a “profit” because they do not pay the cost of _maintenance_ for the US road system. Forget capital investment.

    Airlines don’t pay the captial infrastruture investment costs, though I can’t say that they don’t pay maintenance costs.

    Grow up, dude. Learn some arithmetic. Live in the real world. Don’t you claim to be an engineer?

    John Nachtigall Reply:

    I am an engineer. And I never claimed that roads or airlines make a profit either. All forms of transit are subsidized (even walking because sidewalks are mandated and not paid for my users).

    The claim in the article was that Acela makes a profit. That is not true. They dont account for the capital investment. The proper claim is they have an operating surplus, maybe even they are cash flow positive, but you can’t make a “profit” if you don’t count the cost of the capital.

    And everyone is ignoring the main point which was that private investment can make plenty of money if the system is losing money. Why no discussion on that.

    Derek Reply:

    you can’t make a “profit” if you don’t count the cost of the capital.

    It’s called an “operating profit.” And yes, you can.

    John Nachtigall Reply:

    only if you redefine the term “profit”. Which is why these theoretical discussion only work for government projects, because an actual buisness would fail if they only had “operating profit” Someone has to pay for the capital

    Derek Reply:

    If a rail line can’t pay off the construction debt but is able to pay its own operating expenses, it’s cheaper to keep the rail line in operation.

    Only if it can’t pay its operating expenses in the foreseeable future would it be cheaper to shut it down.

    John Nachtigall Reply:

    Or you don’t build it in the first palace because you know it can’t pay back the capital costs

    Peter Reply:

    Some countries, and I’m explicitly excluding the U.S., have come to the realization that rail investments by the government are an excellent way to improve the economy. Just because the rail system itself doesn’t make back the money invested in it doesn’t mean that there aren’t external economic benefits. These potential benefits for the economy have also been identified for California. They just can’t come into being if we don’t build the system.

    Peter Reply:

    Also, please don’t take this to mean that I don’t think CAHSR will be profitable. Once the system reaches SF to LA with one-seat rides, even with the “blended system”, it will doubtlessly be profitable.

    John Nachtigall Reply:

    A completly reasonable arguement. While I disagree it is an excellent way to improve the economy, I agree that you the government can invest in things that will not make money (non-toll bridges) for the good of the public.

    You can’t, however, then claim it is profitable.

    And for the record I am sure CAHSR will not be profitable. If they manage to get it built (which I doubt) we will see who turns out to be correct.

    Peter Reply:

    Of course it can be profitable. Unlike the non-toll bridge, which effectively cannot bring in revenue, a train can. That’s what tickets are for. Just because something is “for the good of the public” doesn’t mean it can’t be profitable. That argument makes no sense.

    jonathan Reply:

    John, of _course_ we can claim that the _service_ is probitable!
    Your argument is exactly the same argument as claiming that we cannot say UPS or trucking firms are probitable. Yet they _are_, because the costs of the infrastructure aren’t included. They are treated as externalities. (One can make the same argument about airlines).

    Why do you think rail service should be held to a different standard?

    John Nachtigall Reply:


    UPS pays taxes and pays income tax. They pay for roads, just not directly (i.e. tolls). Also, they are one of millions that use that infastructure. Roads don’t make a profit, but they are paid for with taxes that the users pay. And as I pointed out in previous posts everyone benefits from roads regardless of if they directly use them or not.

    Passenger rail, on the other hand, does not have millions of users. The infastructure is split between passenger and freight. In cases like light rail there is only 1 user. So that user (just like on roads) has to pay.

    It is not a different standard for rail. The people who use and benefit from the system have to pay. Rail just has a limited set of users and people who benefit.

    Joey Reply:

    So you feel comfortable saying that the government should try to serve all trips with roads, simply because everyone uses roads to some (not equal) degree, even if it is cheaper and more effective to serve some of those trips using another mode?

    adirondacker12800 Reply:

    Passenger rail most certainly does have millions of users. almost 5 million a day in New York City alone.

    Peter Reply:

    And those external benefits easily make the investment in CAHSR worthwhile.

    adirondacker12800 Reply:

    Yes, like automobile drivers get subsidized by property tax payers and truck drivers get subsidized by the automobile drivers and property tax payers.

    jonathan Reply:

    John, you are still applying a double standard.

    nd everyone is ignoring the main point which was that private investment can make plenty of money if the system is losing money. Why no discussion on that.

    What the heck? Trucking firms make money even though “the system” — including building and maintaining the roads is losing money hand-over-fist. What’s your point? Why should capital investment in rali lines be viewed any differently than capital investment in roads? Hmmm?

    John Nachtigall Reply:

    where do you think the money from roads comes from…a money fairy. It is from taxes (income, gas, etc.) the users of the road system pay those taxes. The only thing is it is not direct (i.e. tolls). Trucks do not get a free ride on the system

    Joey Reply:

    Those “user fees” are more or less the same regardless of how much one uses roads, directly or indirectly (noting that gas taxes don’t cover operations let alone construction). Why should it be any different for railway infrastructure?

  5. Reedman
    Oct 2nd, 2012 at 13:23
  6. Jo
    Oct 2nd, 2012 at 13:26

    The same can be said about public roads, highways, and airports; public money to build and maintain them, and then the airlines, trucking companies, and automobile manufactures, etc. that use them all make a profit. The question is – in the 21st century, which is now more cost effective, and efficient, not to mention sustainable?

  7. Reality Check
    Oct 2nd, 2012 at 13:35

    Last week’s Daily Post story about HSRA paying UP to study HSR use of their ROW:

    Published Wednesday, September 26, 2012, by the Daily Post (Palo Alto)

    HSR takes step toward fruition
    Union Pacific agrees to study use of their rails

    By Jeramy Gordon
    Daily Post Associate Editor

    The California High-Speed Rail Authority is closer to overcoming one of the obstacles it faces in building a railroad system on the Peninsula that will eventually reach Los Angeles.

    The rail authority needs the permission of Union Pacific to use its right of way in several areas along the HSR’s San Francisco-to-LA route.

    Documents released by the rail authority show it has reached an agreement for Union Pacific to study the HSR plan. The study could lead to Union Pacific granting permission for the rail authority to use its right of way.

    The rail authority has agreed to pay Union Pacific up to $750,000 to conduct the study, plus an additional $150,000 for the company to participate in future high-speed rail planning.

    Union Pacific owns the freight-train rights to the Caltrain tracks, and has the final word about whose trains run on those tracks. Union Pacific’s opposition to high-speed rail on the Peninsula is cited in the lawsuit Palo Alto, Menlo Park and Atherton have brought against the bullet train project.

    An attorney representing the municipalities says he hasn’t seen the agreement yet, but it could impact his case.

    “This could impact the case in a lot of ways,” said Stuart Flashman, an attorney representing the coalition. “If it involves the Caltrain stretch of tracks, it will have a big impact.”

    In 2008, California voters approved high-speed rail, and support was strong on the Peninsula, too. Then, when Peninsula residents realized the plan would call for the seizure of homes and businesses near the tracks, and the likely elevation of trains on pylons, local opposition to HSR surged.

    The total cost of connecting San Francisco to Los Angeles and Anaheim with high-speed service by 2020, previously estimated at $43 billion, is expected to rise to at least $68 billion.

    The authority is under a tight deadline to break ground or risk, losing federal funding and this agreement is a step toward meeting that deadline.

    jim Reply:

    Does anyone know which documents the third para refers to?

    Richard Mlynarik Reply:

    Sekrit MOUs, I imagine.

    I also imagine CARRD or somebody similar will need to post these public documents publically because the 100% bought and paid for PBQD-controlled “public” agency sure as hell isn’t in a hurry to do so.

    MOU BNSF Burlington Northern Prel MOU 3-16 -11 Exctd 4 9 11.pdf
    MOU UPRR Union Pacific Capitol Corridor Blended Service 07-2012.pdf
    MOU UPRR Union Pacific Executed 2011-05-10121901034.pdf
    MOU UPRR Union Pacific Reimbursement Agreement 04-2012.pdf
    MOU re CHSRA Development (Executed Copy).pdf

    Elizabeth Reply:

    Your not-so-subtle hint is our command (only 4 because 2 of above are identical).

    I don’t see any agreement for Caltrain corridor. As a matter of fact, I don’t see that much agreement (which may be a testament to the starting place for these negotiations). The meatiest one is the most recent UP one.

    Jon Reply:

    That is actually a very interesting document, and gives a fairly clear picture of how blended operations in Northern California will work. It also states very clearly that CAHSR will not run any trains on or electrify the line between Palmdale and the San Fernando Valley.

    Joey Reply:

    Was there ever any question of this? The current Palmdale-Sylmar line is irreparably unsuitable for HSR even without this agreement.

    Tom McNamara Reply:

    I don’t see any agreement for Caltrain corridor. As a matter of fact, I don’t see that much agreement (which may be a testament to the starting place for these negotiations).


    The goal of said agreement is to find agreement for the “Northern California Unified Service” that would link to HSR in Merced. “NCUS” is not going to be electrified, and it is going to use existing state-supported or JPB services. The way you have to read these documents, the goal is to create a way so that Northern California passengers can get to Merced in the first place using the EXISTING infrastructure and services.

    The issue is, of course, that because these are “commuter” services, the various players in transportation all want a say on how the network is expanded out.

    But, the key distinction here is that right now, UP can’t really oppose outright what is proposed because it already allows commuter services to share its track and the HSR line from Merced to Bakersfie—Palmda—Victorville is going to be grade separated and not UP’s problem.

    And the conspiracy talk about PB is hilarious because at this point the document doesn’t show any bias toward BART….

    Joey Reply:

    It looks like it mostly has to do with increases in passenger service over existing routes. The agreement with HSR seems to be the same as it always was – HSR cannot use any part of UP’s right of way except to cross over or under it, and even then must not actually touch the ROW except by specific exception (my guess is that this might mean a bridge column here or there). Take note of this, joe.

    Also, the agreement seems to prohibit improvements to the Capitol Corridor for the time being. Maximum of 20 round trips per day (currently what is operated) between Oakland and Martinez until HSR starts operating, and beyond that any more will require capital improvements. Speeds are also limited indefinitely to 79 mph between Oakland and Sacramento.

    Tom McNamara Reply:

    My interpretation on that is that the Capitol Corridors and San Joaquins are being wound down with the advent of HSR into a mutant form of ACE. Thus, you will have 110mph service between Sacramento/Merced through Niles Canyon splitting off again to serve San Jose or Oakland. This service would stay intact no matter how much BART or HSR expand.

    joe Reply:

    CC and SJ wind down or is it remotely possible to offer additional service since CC has many local stops? The time horizon is not the next 5 years. Add a zero. 50 years.

    Tom McNamara Reply:

    It’s possible, but Part XLXXVII 1/4 of Richard’s “sekrit conspiracy” is that BART (which administers both the Capitols and ACE) would love to shift more capacity through Altamont so that it has a reason to extend BART into Livermore/Stockton/Hetch Hetchy. Right now, ACE’s ridership is too paltry to make that case, but if you disconnect the Capitols…it’s a different story.

    Peter Reply:

    Please take off the tinfoil hat, Tom. Capitol Corridor provides a lot of local service along the I-80 corridor. ACE/SJ does not provide the same. Capitol Corridor will continue running long after HSR’s full build-out is up and running.

    Alon Levy Reply:


    Jon Reply:

    You’re way over thinking this. See exhibit A? That’s the plan.

    The news here is that they might operate passenger trains on the currently freight only UP tracks in the CV. I guess this would be for express service from the Bay Area and Sac to Merced, to connect with the IOS.

    Tom McNamara Reply:

    I’m not over-thinking anything.

    BART already administers and controls the Capitol Corridor and Altamont Corridor Express. If the District gains control of the San Joaquins as well, it has an incentive to not make redundant services. Thus, that leads me to think that the Capitols would be phased out because all but one station before Sacramento (Davis) is located in a County that is part of the Metropolitan Transit Commission.

    I mean think about it: BART wants diesel commuter trains to stay primarily in areas that won’t support BART service and wants to limit those trains in places that will….

    Richard Mlynarik Reply:

    BARTD the agency (ie the one that administers the irrelevant little zero-ridership Capitol Corridor toy train) doesn’t care about anything.

    The contractors that control the big big capital spends that are laundered by BARTD (and who, by an amazing coincidence, are also those controlling CHSRA) care about big capital spending, not about where it is or whether it serves any strategy or any conspiracy.

    The more trailing zeroes, the better. The more useless the better, because they’ll just get to come back and spend more money to “fix” things. And repeat. The more redundancy the better.

    Follow the money. That’s all. End of story. Spending money is done purely to have spent money, not in order to pursue some sort of plan or strategy, except in the most negative sense.

    thatbruce Reply:

    Union Pacific owns the freight-train rights to the Caltrain tracks, and has the final word about whose trains run on those tracks. Union Pacific’s opposition to high-speed rail on the Peninsula is cited in the lawsuit Palo Alto, Menlo Park and Atherton have brought against the bullet train project.

    This sounds familiar.

    ( A strict reading of the SP/PCJPB purchase agreement would mean that UP would need to give permission for ‘commute’ service trains to operate beyond milepost 0.147 at 4th&King into Transbay. )

    VBobier Reply:

    Since the UP is now just a Tenant on the Peninsula or “User”, I don’t see how or why the UP would have any say in Caltrain operations, especially from milepost 0.147 at 4th&King into Transbay, 1.7 of that trackage rights agreement allows for Intercity Passenger Service by “Owner”, 1.10 allows for all new trackage that “Owner” may add and that is the responsibility of the “Owner”, “Owner” is the Peninsula Corridor Joint Powers Board or PCJPB.

    thatbruce Reply:


    Item (B) of the initial recitals reads:

    B. Pursuant to the Sale Agreement, Owner acquired the Peninsula Main Line and the Santa Clara/Lick Line for the purpose, in part, of providing Commuter Services (as defined in Section 1 hereof) and for any purpose other than those reserved exclusively to User in the Sale Agreement and User retained for itself and its successors and assigns a perpetual and exclusive easement (as set forth in the deeds and assignments conveying said properties) in and trackage rights over such properties acquired by Owner for User’s present and future Freight Service and Intercity Passenger Service (both as defined in Section 1 hereof).

    As the Owner, the PCJPB gets to do anything it likes that is related to providing Commuter Services, except for stuff that the User (SP/UP) has an exclusive on. Section 1.5 gives milepost limits to the permissible extent of the Commuter Service, and explicitly excludes any ‘Intercity Passenger Service’, that being the province of the NRPC/Amtrak, or an operator designated by the User.

    Section 1.7 refers to the property owned by the Owner/PCJPB which underlies track dedicated solely to the User’s services (Freight and Intercity Passenger Service).

    Section 1.10 refers to any track that the PCJPB puts in between San Jose and Lick/Gilroy for PCJPB’s exclusive use.

    Read through the comments made on Clem’s blog for the collection of previous interpretations. My own take is that Caltrain needs UP’s permission to operate any passenger services extending beyond SF to Gilroy, but Caltrain doesn’t need UP’s permission to construct infrastructure along the Caltrain ROW.

  8. morris brown
    Oct 2nd, 2012 at 14:18


    I suggest you read AB-3034 because your statement

    “Nothing in Prop 1A prevents the bond funds from being expended in a way which benefits commuter rail IN ADDITION TO HSR, doesn’t speak to the heart of the matter.

    In this case, what we have is benefits to commuter or regular Amtrak type of service, without the needed components necessary to be useful to HSR. The Prop 1A funding was for HSR not for rail modernization as a priority — all of this is quite clear and will be determined to be as such in the courts.

    As to the private sector ever coming in with funds, what a joke — we have heard that song and dance for over 4 years now.

    Alon Levy Reply:

    A lot of people call me Alan, but I think it’s the first time you’re calling someone named Alan by my name.

    For the record, I try to avoid arguments about what 1A does or doesn’t allow.

    morris brown Reply:

    @Alon Levy

    My apologies — my comment was meant to be directed at Alan and not you.


  9. Shane Phillips
    Oct 2nd, 2012 at 17:05

    To be fair, it’s true that the government is the reason Amtrak is unable to be profitable, but not for the reason most people seem to imply. The reason Amtrak is unable to be profitable is because it is required by the government to operate its Long Distance Routes. There is simply no way for these to turn a profit. The long distance route doing the best is losing $61 per rider, whereas the worst loses $373(!!!). Per rider! If Amtrak were allowed to dump these routes it’d have profited approximately $70 million last year (specifically, the NEC spine profited $230 million, and the state-supported routes lost $160m). You can see how each individual line does and my breakdown at my own blog, too:

    But instead of investing the amazing profits that Acela is making into better, faster service and more train cars to add capacity (and therefore perform an even greater quantity of profitable service), it’s instead being wasted on poorly utilized, expensive, and extremely inefficient long distance lines like the Sunset Limited. If people want to complain about how bad Amtrak is doing and how it’s the governments fault, especially politicians themselves, the first step is to stop mandating service that is guaranteed to lose money. If you’re not going to do that then you might as well admit your opposition is driven purely by ideology because there’s no solution as long as these routes continue to be required by the government.

    The state-supported routes generally lose a little money per rider but I’m personally okay with that because the same is true of airplanes, cars, buses, etc., and these routes have far higher ridership. The long-distance routes, however, are a joke, and either need to disappear or start charging far higher fares.

    Robert Cruickshank Reply:

    The long distance routes actually have decent ridership, especially the Coast Starlight. They provide a comfortable alternative to driving, helping reduce carbon emissions. And they provide intercity travel options to areas that don’t otherwise have them, aside from driving.

    Who cares if they are money losers? Why should a transportation system have to turn a profit? People keep assuming that they must, and acting on that assumption, but I am calling BS. Show me the reasons why we should care whether a public service is profitable. Most people don’t care. They just want a system that works well. For Amtrak to do that, especially on the long distance routes, they need to invest more money in equipment and tracks. I believe that ought to happen without regard to profits.

    joe Reply:

    But lazy free-loaders will take our money and ride these subsidized trains instead of working and paying taxes.
    “I’ve been on foodstamps and welfare, did anyone help me out? No!”

    Richard Mlynarik Reply:

    Who cares if they are money losers? …

    Ladies and gentlemen, here’s why human civilization and the planetary holocene ecosystem are doomed.

    Numbers are stupid things! Have faith! Close your eyes and wish! Wish really, really hard!

    joe Reply:

    If public infrastructure is not operated for profit, it will kill us.

    Another conservative talking point.

    Neville Snark Reply:

    Richard M, as a test: Suppose a rail line, or any other ‘public’ service, required $10/year subsidy; it is therefore technically a money loser. You’d say that’s all right, wouldn’t you? (make the slightly preposterous assumption that graft etc is especially a problem). Robert C: I assume also that there are limits to how much a rail line can lose money and for it still to be worth keeping it open. So the question is how much money a line can lose — which is a extremely complicated issue of balancing the many factors pro and con.

    Drunk Engineer Reply:

    Order of magnitude check on aisle 3 please.

    neville snark Reply:


    joe Reply:

    It’s like this:

    Defense spending is an order of magnitude or maybe two orders of magnitude greater than HSR projects and orders of magnitude more in carbon emissions.

    So critics who say HSR policy is going to ruin the planet need a head exam.

    Alon Levy Reply:

    Would you buy a half-liter bottle of water for $10?

    Alon Levy Reply:

    Here’s what I said yesterday (it was about bus vs. train mode wars on the NEC, but it’s equally true of your advocacy for more Amtrak):

    Transit activists for the most part have not only political but also personal preferences for travel by transit. When I visited Buffalo, I took the Empire Service instead of flying. This creates a skewed impression for what’s good; to me, the Empire Service is a semi-useful service, even as to the average traveler it might as well not be there. If the existing service is straightforwardly a worse version of good service – such as a commuter train that should run faster and more frequently, or an intercity train that should be HSR – this is not a problem. But if it is different – such as a bus where a train is more appropriate, a light rail or dedicated subway line where an S-Bahn is appropriate, or even a rapid transit line in the wrong type of neighborhood – then the activism can be in a wrong direction.

    Now, I’m not hardcore enough to take LD trains. I take TGVs at longer range than is normal, and if I lived in Tokyo and needed to travel to Fukuoka regularly I’d take the Shinkansen instead of flying. So to me the Empire Corridor exists, which it doesn’t to most people, but the Coast Starlight doesn’t.

    But from the perspective of the average user, none of those Amtrak services exists. The difference is that with corridor services the obvious flashy upgrade, HSR, will make them exist, whereas no such thing is possible with the Starlight. You say it gets decent ridership. Well, it doesn’t. It gets a little more than a thousand riders per day; any medium-sized city has bus stops with more riders than this. It’s not reducing carbon emissions, because people aren’t taking it.

    Paul Druce Reply:

    Amtrak LD routes are fundamentally money losers and nothing will change that. But I have yet to hear why those routes ought to exist instead of replacing them with Greyhound.

    jimsf Reply:

    because no one wants to spend 3000 miles on a bus.

    Paul Druce Reply:

    As Amtrak happily points out, most travelers are going to intermediate destinations, not end to end, and such long distances are easily handled by airplanes, as 99.999999% of all travelers already do, because it is cheaper and faster than Amtrak long distance.

    adirondacker12800 Reply:

    …yes it’s very very difficult to get to Fargo if you are on the plane flying between Chicago and Seattle.

    Shane Phillips Reply:

    Robert, I’m a big supporter of California HSR and would be even if it weren’t expected to be profitable, but there’s a big difference to me between subsidizing something at, say $10 per ride, and subsidizing it at $60-400 per ride. Car driving is subsidized, aircraft are subsidized, everything’s subsidized to some degree, but these all tend to be on the order of $1-10 per trip. Trains should be competitive with that unless there’s some overwhelming reason for keeping them running.

    As Alon said, there simply aren’t enough people riding these routes. For all long distance routes there are slightly under 5 million trips taken, and yet those are costing us $530 million per year, more than $100 per person. What are we getting for that? It’s just diverting people who would most likely either fly or take the bus, and yet it’s cheaper than either of those options! Perhaps I’m mistaken, but I don’t think many people are choosing Amtrak because it’s the cheapest option – looking at the Empire Builder from Seattle to Chicago, the fare is only $159, whereas Greyhound (ugh) is $189 and flights are around $180-200. Given that the Amtrak trip has a 2 night stay built in, how do these cost the same amount? Given that Empire Builder loses $100 per rider, is it so insane to ask that they just charge $100 more? I really don’t think it’d have a massive impact on ridership, and if it did, so what. We don’t need to be throwing away money on Empire Builder if it’s costing us necessary improvements to the NEC spine and the few profitable state-supported routes. (I live in Seattle, by the way.)

    Shane Phillips Reply:

    On a related note, is there any data on the income demographics of Amtrak long-distance route users? I have a strong suspicion that a large amount of their users are not people looking for the cheapest possible route from A to B. They’re just getting it because we’re way undercharging them for some inane reason.

    Peter Reply:

    Given that the Amtrak trip has a 2 night stay built in, how do these cost the same amount?

    That’s for a coach seat. A sleeper would be ridiculously expensive over that distance.

    Shane Phillips Reply:

    I’ve never ridden a long distance route, how does it work? Does it stop overnight for people to sleep elsewhere or something?

    Peter Reply:

    No, you either get a coach seat that you sleep in, or you pay a lot of money to reserve a room to sleep in. Extra cost for a room with a private shower/toilet combo (not kidding, the shower is mounted above the toilet). The train doesn’t stop overnight.

    Shane Phillips Reply:

    Gotcha. That’s what I assumed. That still amounts to two overnight stays though, whether they’re comfortable or not. Regardless, it’s a minor point, and I still come back to the question of why this should be even cheaper than a Greyhound bus.

    Peter Reply:

    I dunno, less fuel burn per passenger?

    Alon Levy Reply:

    Because they have cheaper coach seats and more expensive sleepers.

    Also, Greyhound is ungodly expensive. Compare their prices in the Northeast with the prices of the express bus companies.

    Shane Phillips Reply:

    Sure Alon, but I’m referring specifically to service that’s competitive with Amtrak’s long distance routes, not state-supported routes or NEC service.

    Donk Reply:

    Maybe it’s because Amtrak long distance routes have an on time performance of 0.00000000001%. And you have to show up at the train station at 3:45 am. And the train only runs on MWF.

    John Nachtigall Reply:

    simply it is not a “public service” Amtrac is a private company. If they were a branch of the US government then your argument may hold merit, but they are not.

    Peter Reply:

    Of course it’s a public service. Stop being intentionally dense. While Amtrak may be a private corporation on a legal basis, it is essentially wholly owned by the federal government, and its Board of Directors are appointed by the President, subject to confirmation by the Senate.

  10. William
    Oct 2nd, 2012 at 19:35

    Just need anther $20 billion to complete IOS…

  11. D. P. Lubic
    Oct 2nd, 2012 at 21:25

    Off topic, but perhaps of interest–A bunch of Democratic party voters, some of whom were not the brightest bulbs from the box, had their registrations changed to Republican:

    VBobier Reply:

    Oh that is so not fair, Marvin wants His Illudium Pu-36 back…

    D. P. Lubic Reply:

    Also for smiles, another one rides the bus–in this case, a writer from the New Yorker:

  12. joe
    Oct 3rd, 2012 at 04:14


    Gov Brown Vetoes Law Proposed By Long Beach State Senator Alan Lowenthal – Again
    For the second time in a year, Gov. Jerry Brown has vetoed a bill championed by State Sen. Alan Lowenthal (D-Long Beach) …

    “I’m disappointed and left shaking my head,” Lowenthal said in a statement direct to the Business Journal. “I worked very hard over the past year to make sure that the bill met with everyone’s approval, including addressing those issues cited by the governor in his veto message last year. Then, at the 11th hour, the governor decided to move the goal posts yet again with never-before heard concerns from some lawyers at Caltrans. It saddens me that this governor has chosen faceless bureaucrats over cyclists’ safety.”

    Though Brown raised no objections to this clause last year, he cited it as his reason for vetoing the bill this year.

    Both bills allowed for motorists on two-lane roads to cross a solid double yellow lane divider in order to give the necessary three feet of clearance.

    “Crossing a double yellow line is an inherently dangerous act that increases the risk of head-on collisions,” Brown wrote in a memo explaining his veto. “When a collision occurs, it will result in a lawsuit where the state is likely to be sued as a ‘deep pocket.’ By making it legal to cross a double yellow line, the bill weakens the state’s defense to these lawsuits. Caltrans proposed a solution to insulate the state from costly lawsuits while still providing the three-foot safety buffer for bicyclists. Unfortunately, the author declined to amend the bill.”

    D. P. Lubic Reply:


    joe Reply:

    Best Friends Forever.

    Jerry Brown is messing with Alan “HSR pain-in-the-ass” Lowenthal over a bill Alan’ has a personal interest.

    synonymouse Reply:

    Lowenthal is making points with the cyclist lobby. There are more cyclists and more are being being hit by automobiles.

    More California cities veering toward bankruptcy. Waiting to see Palmdale on the list:

    Peter Reply:


    “Cyclist lobby” – Other than in SF, I’m pretty sure cyclists have about as much pull as the guys who show up in jester outfits for public comment.

    Peter Reply:

    Who cares. If I’m passing a bicyclist, I’m giving him a wide berth, no matter what the law says about double yellows. If there’s an oncoming car, I’ll just slow and wait until I can pass the bicyclist safely. BFD

  13. William
    Oct 3rd, 2012 at 13:21

    Is it possible for the state to set up a HSR company, say a $100 billion company, with a board of directors, and sells shares of it to investors, foreign HSR consortiums, etc… at $1 per share, so the investors can be represented by directors based on shares they buy, and influence design decisions based on number of shares they buy…


    Elizabeth Reply:

    We have such a thing. It is called our legislature and unfortunately, not always but all too often, the influence people have is related to the money they contribute to get people elected to said body.

    William Reply:

    What I forgot to say is to have the money investors spent to buy shares of the company goes toward completion of phase 1, or even phase 2.

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