Dan Richard’s Canonical Smackdown of Anti-HSR Talking Points
James Fallows’s series at the Atlantic is really getting good. Chris Reed of U-T San Diego, a right-wing ideologue and a notorious opponent of HSR, called Fallows “clueless” about the bullet train. But Fallows has dealt with fools before, and wasn’t about to be intimidated by Reed. Fallows turned to California High Speed Rail Authority board chairman Dan Richard for a response, and it’s really damn good:
1. All the wonderful things the train allegedly does don’t matter if it can’t be paid for. There is at most $13 billion in state and federal funding for a project that has a price tag of $68 billion (a price tag that no one really believes is accurate). There is no prospect for further federal funding in an era in which discretionary domestic spending is being squeezed as never before. State funding of $250 million a year from fees from California’s nascent cap-and-trade pollution-rights market begins this budget cycle. But that is a pittance, and if they’re off the record, no state lawmaker will admit to wanting taxpayers to foot the entire bill. So why can’t the private sector come to the rescue? Because…
[Richard replies] Chris Reed’s funding analysis is simplistic and deeply flawed. First and foremost, virtually no project knows where all the funding is coming from at the outset. When we started BART to SFO, we were supposed to have $750 million in federal funding. We had virtually none for years and Sen. Dianne Feinstein and I walked out of Sen. Mark Hatfield’s office in 1994 with the first $25 million, which was a pittance. In the end, we received all $750 million and that was after Republicans took control of the Congress and 1994 and we were assured we wouldn’t get another dollar of federal monies. The California High-Speed Rail program has been held to a standard that no other program has had to face, which is to address calls for how the entire system will be funded, in advance. Nevertheless, here’s a broad outline:
• Cap and Trade dollars could provide billions for the project. The state talks of our allocation in terms of percentages because to speak of specific dollars would send signals to the carbon traders about what the expected the price of carbon credits. Still, the $250 million in first year funding is considered a modest amount compared to what future dollars would bring. Moreover, the cap and trade dollars, as more experience is gained, allow us to finance the construction of certain legs and build simultaneously, thereby reducing costs. Our $68 billion estimate includes inflation at 3% per year. Not only has inflation been below that amount, but for every year we cut off the construction time, we save about $1 billion dollars.
• Private Sector — Yes Virginia, there is strong private sector interest. People who talk about the lack of private sector involvement generally have no clue how the private sector works. Among other things, one should not want the private sector investment to occur at the outset, because the private sector prices risk and the risk would be highest then. However, our ridership estimates, which have been scrubbed by everyone from two independent peer review groups to the GAO, show that the system, as it is built out, will generate billions of dollars in excess of operating costs. Like the Japanese and other systems, our business model is to sell the rights to operate on our infrastructure to the private sector. We believe the NPV of the excess revenues will be between $12 billion for the initial operating segment and $20 billion for the line from LA to SF. At $20 billion, that would mean the private sector would be putting up about 1/3 of the system costs, doing that along the way to help us build out the full system.
• Development Potential — In Japan one-third of the revenues earned by Japan Rail East, one of the private sector operators of the Shinkensen comes from real estate development around the stations. We have not even begun to explore how to maximize that potential. In Arlington Virginia, station area planning resulted in such a dramatic explosion of mixed use development, generating such enormous property tax increments that the county was able to lower its other property taxes (source: Bob Dunphy, formerly with Urban Land Institute, now teaching at Georgetown). Senate President Darrell Steinberg proposed last year a bill that would allow for tax increment financing of any development within one mile of a high speed rail station. Sharing those tax increments with local communities would be appropriate, but we’d still be able to develop an enormous funding base.
• Use of the infrastructure — Again, we’re just beginning to look at maximization of the infrastructure we’d be building. Leasing the right-of-way (ROW) for fiber optic cable, as we did at BART, would generate significant revenues. Energy development in our ROW would be another money maker.
The point is that this is a long-term program. Our cap and trade funds are actually one of the more stable transportation funding mechanisms around (especially compared to the current situation of the Highway Trust Fund).
Finally, I do believe there will be additional federal support over time. Experience shows that to be the case, especially if legs of the system are up and running and it’s a matter of closing gaps, etc.
That’s just the first of seven epic smackdowns Richard delivers to Reed. Go read all seven, including Richard’s response on Prop 1A legality, the 2:40 travel time requirement, public and political support, and more. Bookmark it for future reference. It’s that good.