Monday, January 31, 2011

The National Review attack on high speed rail

Wendell Cox, a noted opponent of high speed rail programs, has a new article in the National Review criticizing President Obama's call for more high speed rail funding in the state of the union address, calling it "hard to imagine a more unnecessary program". As is generally the case with such critics, the criticisms leveled are generally flawed or even completely misrepresent reality. Let's begin, shall we?

For example, people who travel between Los Angeles and San Francisco — along the route planned for one of the nation’s first high-speed-rail projects — already have choices. They can fly, drive, take the bus, or travel by train. True, some would prefer to tax their fellow citizens so that they can have another choice, high-speed rail. But indulging this desire would be as legitimate as funding government grocery stores for people who prefer not to shop at their local grocery chains.
Merely two paragraphs into the article and already Cox is waving the flag of the the dreaded "specter of communism" by suggesting that high speed rail is somehow comparable to government grocery stores. But in so doing, he has shown himself to be either completely ignorant of the facts surrounding the financing of the California high speed rail project or to simply be lying about them in service of personal political and financial gain. Neither of those alternatives speak well of him.

Is there a tax involved with the California high speed rail project? The answer is no.Proposition 1A, the Safe, Reliable High-Speed Passenger Train Bond
Act, established no tax for the construction of the high speed rail system. Rather, it authorized the sale of nine billion dollars in bonds to be used for the construction. While these are general obligation bonds and face the possibility of being repaid through the general fund, the reality is that the California high speed rail system is expected to post a sufficiently high profit that will be able to pay off the bonds from its own revenue, without a single tax dollar from Californians. Don't believe me or the high speed rail authority? How about SNCF, the operator of France's quite profitable high speed TGV lines?

There is a somewhat better case to be made with the Federal grants to the high speed rail authority, of which 3.5 billion dollars has been granted so far. The best that can be said of these is that they are prior existent tax dollars, coming from the general fund, to which California is a major net contributor, representing a normal use of discretionary funding rather than a specific tax for the construction of the project. There is, however, no need for the government to simply grant the money. Future federal monetary aid could easily be in the form of a loan with the interest rate set to inflation, slightly above inflation, or at a fixed percentage slightly higher than that of treasury bonds, giving the federal government a direct profit on the venture rather than the current indirect profit venture from corporate taxes on the operator (should it be operated by a private company) and income taxes from the higher wages and economic activity engendered and enabled by the rail system.

While we are at the issue of taxation, however, what precisely is the problem with levying taxes to pay for the high speed rail system? It was the promise of taxes with Federally backed bonds and the wholesale granting of land that paid for the first transcontinental railroad (and two of the three others) so that people could have a choice other than months by horse, walking, or ship. It was also taxes, most egregiously, coming in part from the railroads themselves, that paid for the highways and airports that gave new, highly subsidized, choices that made passenger rail too unprofitable to justify new private capital investment and operation. What, then, is the problem with a tax that finances this choice?

But most importantly, what the high speed rail costs is in many ways less important than what it doesn't cost. By building high speed rail and thus diverting short range intrastate air traffic to rail, the congested airspace and airport terminals are able to free up space for more long range airplanes, their proper role. This delays or entirely eliminates the necessity of spending tens or hundreds of billions of dollars to upgrade current airports and build new ones in order to handle the expected demand, much of which would come, not from user fees, but from taxes on local citizens. The same goes for the expansion of highways, especially in the Central Valley, which currently does not have much choice of transit means to Los Angeles or San Francisco, but also in both Southern and Northern California. Not a peep is made of a 3.3-4.5 billion dollar project that would expand the I-5 over a mere thirty miles, yet to expand commuter and high speed rail projects which provide a valuable alternative and reduce the need for future expansions, and do so at a lower cost and higher passenger capacity than high expansions which result in simply more highway congestion, is somehow equated to be with communism.

Among intercity transport modes, only Amtrak is materially subsidized. User fees pay virtually all the costs of airlines and airports, which (together with connecting ground transportation) link any two points in the nation within a day. The intercity highway system goes everywhere, and nearly all of it was built with user fees paid by drivers, truckers, and bus companies.
Well, one of these facts is true. Amtrak is indeed subsidized, thanks to legislative mandates requiring service on unprofitable routes and immense government subsidies to build the airports and highways which it competes with. While gasoline and vehicle taxes are valuable contributors to highway construction and maintenance, they are far from "nearly all of it." In 2008, user fees in the form of tolls and fuel and motor vehicle taxes accounted for only 51.72% of highway spending with the rest made up from income, sales, and property taxes and the promise of future taxes in the form of bond proceeds. Indeed, much of the user fees is actually a bit of an accounting trick, since fuel taxes are paid on all fuels, regardless of whether or not one travels on a highway. The local roads which therefore subsidize the highways are paid for through property and sales taxes, which are most assuredly not user fees. Expansion of highways in order to deal, ineffectually, with congestion is also generally not provided for by user fees, as can be see in the earlier cited example of highway expansion in San Diego County. In that case, it is a county-wide increase in sales tax which goes to pay for it. Similar examples exist throughout the country.

How great is this cross-subsidy, you ask? Currently, 15.44 cents per gallon is levied upon gasoline in order to pay for the federal share of highways, equating to 0.68 cents per vehicle-mile at an average 2008 fuel economy, or 0.71 cents at 1997 economies, the last time it was adjusted. That is less than a tenth of the toll for state run tollways such as the Pennsylvania and New Jersey Turnpikes, which themselves are only a half or even a third of the tolls for privately run toll roads.

High-speed rail is a budget buster. Japan, with the world’s leading system, illustrates the financial devastation that high-speed rail can produce. For 25 years, Japan borrowed to build a system serving the ideal rail corridor, nestled along a single coast with a population of more than 75 million people. Ridership was artificially increased by high gasoline prices and one of the highest highway tolls in the world. Yet this modest system, only twice as long as proposed California system, played a major role in driving up a gargantuan rail debt that was transferred to Japanese taxpayers. The rail debt added more than 10 percent to the national debt. This is akin to adding $1.4 trillion to the U.S. national debt.
Japan is not an example of high speed rail being a budget buster, it is an example of why relying on independent financing while subject to political mandates can be a budget buster. Japan's rail debt was largely thanks to the Diet mandating the construction of many lines, commuter and high speed, for political reasons while also engaging in some rather corrupt practices in order to make a personal profit out of the deal, and at the same time an costly upgrade of the major Tokyo commuter lines was necessary. These are problems which require open books and independent oversight, but which can plague any problem, not merely rail.

If Mr. Cox wishes to make the comparison to adding 1.4 trillion dollars to the US national debt, a cost dwarfed by the Iraq War incidentally, then let us feel comfortable in pointing out that that would require the construction of nearly 25,000 to 50,000 miles of high speed rail. With94,000 miles of rail owned by the Class I railroads in America today, it is extraordinarily doubtful to believe that such a large amount of rail construction would be required in order to meet the 80% of Americans access goal that President Obama outlined.

Virtually everywhere high-speed rail has been constructed, financial liability has fallen to the taxpayers. In Taiwan and the United Kingdom, taxpayers assumed billions of dollars in private debts for much more modest high-speed-rail systems than Japan’s.
Meanwhile in France, Spain, and Germany, the systems run at a profit and the taxpayers are not on hold for such debts despite much larger systems than in Taiwan and the United Kingdom. These state-backed systems provide an interesting contrast to those of Taiwan and the United Kingdom which were private corporations with largely private funding, up to 80%, at high interest rates. It was these high percentages of loans and high interest rates which were to kill them. Once THSR was taken over by the Republic of China, and its loans redone at the lower interest rates which the government can receive, it began to post an operational profit.

All of this could have been avoided. Through the years, high-speed-rail cost overruns have been well documented. Most recently, research by Bent Flyvbjerg of Oxford University, Nils Bruzelius of Stockholm University, and Werner Rothengatter of the University of Karlsruhe (a former president of the influential World Conference on Transportation Research) found that passenger-rail cost overruns above 40 percent were common and that overruns above 80 percent were not uncommon. Overruns can go even higher: On Korea’s high-speed-rail project, they were between 200 and 300 percent, the president of the country’s rail system said.
Yet how much of this is due to problems with the high speed rail projects themselves? If a project is delayed, even if through no fault of the constructing authority itself, inflation will naturally push the cost higher than previously projected. If the scope of the project is expanded, that too will push the cost higher than the original projection, but is to be entirely expected. Recently prices for construction materials have been pushed higher thanks to the development of China and other nations, leading to major cost overruns that could not have been reasonably foreseen. If these are not isolated and accounted for in the study, it is entirely worthless to cite.

High-speed-rail cost escalation has reached these shores. Even before the first shovel has been turned, California’s high-speed-rail costs have risen at least 50 percent, inflation adjusted. The cost estimates for the first approved section of the Los Angeles–to–San Francisco line, a “train to nowhere” from Corcoran to Borden, indicate escalation beyond $45 billion.
If Wendell Cox can show some actual evidence that there has been a more than twenty billion dollar increase in the expected construction cost, in year of expenditure dollars, I would be most interested in hearing of it. So too, I suspect, would the California High Speed Rail Authority.

Of course, since he has deemed fit to follow it up with the silly "train to nowhere" meme, it is more than likely that there is no such evidence. Criticizing the construction of a short portion of the overall line simply because it is not the overall line does not make any sense. As the line now extends to Bakersfield, it is equally an absurd comment without any rationale behind it. Indeed, to refer solely to the initial Corcoran to Borden section and ignore that it is funded through to Bakersfield is to, simply put, engage in a blatant lie. One might also note that the Interstates themselves similarly began in "nowhere."
In Florida, boosters tell taxpayers that their liability for the Tampa to Orlando high-speed-rail line would be only $280 million, and that, somehow, a private bidder will shower additional billions upon them to pay any cost overruns.
Since the private companies have offered guarantees to cover the cost of any cost overruns, this is merely an exercise in fear-mongering by Cox.

Even the rosy reports produced by boosters show that high-speed rail would remove only a small percentage of cars from the roads. The hope of reducing air congestion is just as elusive because travel origins and destinations are so dispersed in the United States and because the number of people forsaking air travel for high-speed rail will be small.
It is quite possible that, were high speed rail to drop from heavens today, there would not be an appreciable number of people switching from automobiles. Today, however, is not 2020 when the LA-SF line is scheduled to open, or 2030, when the ridership projections are set. By 2020, California's population is expected to increase by more than six million, a fifteen percent increase. By 2030, we are expected to hold fifty million residents. Southern California is already infamous for its heavy road congestion and no amount of freeway expansion will be able to alleviate the crush of so many additional commuters, nor, if memory serves, is it currently programmed or funded. I do not believe it unreasonable to suggest that, faced with ever increasing congestion delays and steadily rising gasoline prices, many will switch over from increasingly slow driving to traveling along the same route at 125 miles per hour in comfort and able to work productively on their way to or from their destination. Thousands already make that switch every day; it is incredibly hard to imagine that with more frequent service, average speeds more than doubling, and rising time and monetary costs to driving that a substantial number of people would not make that switch.

As for the assertion that "the number of people forsaking air travel for high-speed rail will be small" this is completely in ignorance of the actual facts. The Acela, despite averaging only 65 miles per hour between the two cities, holds 55% of the air-rail market between Boston and New York. To assert that a rail service with three times the average speed and none of the absurd TSA theater will not entice customers away from air is to blatantly ignore the reality of what even slow rail is capable of.
Voters gave the new Republican House of Representatives a mandate to cut spending. Zeroing high-speed rail out of the federal budget may be the litmus test. If Congress fails to stop this costly and unnecessary program, it would call into question the commitment to spending reduction.
The Republican House may indeed have a mandate to cut spending. But let's cut it from highway and airport expansion and invest in smart growth instead. High speed rail and commuter rail are capable of handling America's future transportation growth and cutting our dependence of foreign oil at a far lower cost than any road and air dominated plan can ever aspire to.

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