Congressional Republicans Try to Block Federal Loan for Vegas HSR
XpressWest has been waiting to hear from the federal government about their $5.5 billion loan request to help construct the high speed rail project from Victorville to Las Vegas (eventually connecting to Los Angeles via Palmdale). If the lead Republican budget-writers have anything to say about it, however, that loan won’t ever be approved.
Last week Senator Jeff Sessions and Representative Paul Ryan wrote to Ray LaHood urging him to reject the XpressWest loan application. Sessions is the ranking Republican on the Senate Budget Committee, and Ryan is the chair of the House Budget Committee and former vice-presidential nominee. Both are strongly supportive of austerity, despite its colossal failure around the globe, and both oppose high speed rail.
Their letter cites the work of the vehement rail hater Wendell Cox as reason to deny the application:
Yet the risks to the taxpayer from financing this project are untenable. The Reason Foundation recently issued a Taxpayer Risk Analysis [the Cox report linked above -RC] of the XpressWest project which identified several significant concerns….the analysis considered high speed rail projects from around the world and found those projects “plagued by overoptimistic ridership and revenue forecasts, financial losses, and capitol cost overruns.” With this international experience in mind, the Reason Foundation analysis suggests that “the very existence of much of the XpressWest market is speculative and the actual ridership could be a mere fraction of the forecast.” Other serious concerns addressed in their analysis include the exaggeration of market data, faulty capital cost estimates, and inadequate business plans. Accordingly, the Taxpayer Risk Analysis concluded that the XpressWest project “entails enormous risks for taxpayers” with “little or no prospect for [this] train to generate sufficient fares and commercial revenues to repay a federal loan of between $5.5 billion and $6.5 billion.
But these are just assertions by Cox and now Sessions and Ryan without much basis in fact. HSR systems around the world routinely meet their ridership projections, though it takes about five years to reach that level. HSR systems around the world also generate enough revenue to cover the cost of their operations, including the much slower Amtrak Acela. There is no HSR system in the world that has been a failure from the ridership or operating revenue perspective, and as anyone who has been stuck in the horrible Interstate 15 traffic to and from Vegas knows, there is very much a market for this train.
We do know from the example of Taiwan that HSR can get into trouble if revenues are expected to also pay back a loan on an aggressive repayment schedule. But that’s the beauty of the Railroad Rehabilitation and Improvement Financing (RRIF) loan that XpressWest seeks. Its repayment terms are very generous. Repayment periods can last up to 35 years and interest rates can be the same as those the government gets – and right now those are still very low. Sessions and Ryan acknowledge this in their letter as a reason why XpressWest wants an RRIF loan, but they didn’t follow the logic to its conclusion. The international experience shows that this is precisely the type of loan that makes the most sense for an HSR project, and therefore that the risk to the taxpayer is quite low.
To Republicans, of course, the risk to the taxpayer isn’t based in fact but in ideology. They believe nobody rides passenger trains in America, so any such attempt to fund one is doomed from the start. They mention that government might have to subsidize its operating costs and even though the global experience suggests they don’t, they’re ignoring the fact that government massively subsidizes roads without any expectation that they’ll cover their costs.
Their letter appeals to failed right-wing economic philosophy as a basis for rejecting the request:
For these reasons, we are deeply troubled by the prospects of subsidizing another costly, wasteful, and risky high-speed rail project, particularly when our nation is facing a debt crisis that threatens the well-being of the current and future generations of Americans….We would urge the Administration to reject the XpressWest loan application and to direct its available RRIF funds to more worthy transportation infrastructure projects that could truly provide a reasonable rate of return to the taxpayers of this nation.
The irony here is that of all the possible transportation projects that could provide a reasonable rate of return, it’s a high speed rail system. As we know, the so-called “debt crisis” doesn’t threaten anything in reality, certainly not the well-being of any current or future generation. So that’s easily dispensed with as a justification for denying this loan.
Other right-wing organizations are weighing in supporting the Sessions-Ryan letter, including the Heritage Foundation:
High-speed rail is one of the more expensive and thus unviable forms of transportation. If it worked, the commercial financial sector wouldn’t have steered clear of it before costly federal subsidies came along.
The Administration is determined to pursue high-speed rail despite the tremendous risk to taxpayers. Sessions and Ryan are right to question this truly wasteful project, the XpressWest boondoogle.
Actually, the commercial financial sector today is extremely unwilling to lend money to anyone for anything – just ask people who have tried to buy a home or start a business in recent years. In the US it’s very unusual for the commercial financial sector to fund any kind of project at this cost, so it makes sense that XpressWest went to the government. And as we showed above, XpressWest gets a better deal from the government which in turn makes the project more viable, not less.
Ray LaHood should approve this loan without further delay. Let’s have two high speed rail projects under construction in California in 2014, not just one.