Do we actually want DesertXPress?

Note: This was reposted to accurately reflect the day it was written rather than Blogger's insistence on publishing it from when the draft was first created.

The proposed private high speed rail line between Los Angeles and Las Vegas, DesertXPress, has gotten quite a fair bit of attention and some degree of government support, such as use of the I-15 corridor. As it would, if current plans proceed at their current rate, be the first true high speed rail line in America (Acela only briefly touching 150 mph for a few miles), it also has a strong degree of support from high speed rail proponents. Is DesertXPress necessarily a rail line we want however?

To begin with, DesertXPress is not likely to succeed financially. While they have claimed to have large amounts of private capital behind them, they have also applied for a 4.9 billion dollar Railroad Rehabilitation & Improvement Financing loan from the Federal Railroad Authority. These loans carry "interest rates equal to the cost of borrowing to the government"which is currently equal to 3.75% on a 30 year bond (the Wall Street Journal is reporting about 4.3% currently). At that rate, the annual loan repayments would equal 273.4 million dollars per year (292.2 million at 4.3%), around the same amount as Taiwan High Speed Rail paid in 2010 (NT$8.9 billion, page 5; that is US$308 million today, but the NT$ has risen in value against the US$ and one year ago, that amounted to $276.2 million). The Taiwan HSR system was unable to pay the cost of financing and required a government takeover to refinance the loans at even lower interest rates despite far higher revenues than DesertXPress expects. Page 16 shows the revenue levels that DesertXPress expects to make. It is not until 2031 that revenues would be sufficiently high as to lower financial charges to only a quarter of total revenues. Given that operational profits prior to interest and taxes is less than 10% of total revenues for European high speed rail operators (running from a Spanish 2% to SNCF at 7%), it is unlikely in the extreme that DesertXPress could meet its interest expenses and would be forced into bankruptcy. This would not be the case, of course, if there should happen to be an appropriate sum of private investment to build the line rather than building it on loans, however, it raises the question of why DesertXPress would apply for a loan sufficiently large to build the entire line if it had the requisite private investment secured.

When and if DesertXPress fails, it will be a tremendous PR blow for the case of the California high speed rail program and other high speed rail programs in the United States. Any initiative that has been gotten in the public mindset is likely to be lost with such a visible failure, especially as anti-HSR groups such as Reason and Heritage seize upon it to use as an example in their mantra of the unprofitability of high speed rail (while ignoring toll roads with much higher margins being similarly crippled by debt loads).

From another standpoint, there must also be considered the nature of the line. While high speed travel between New York, Boston, and Washington D.C. is mutually enriching, high speed travel between the Los Angeles area and Las Vegas is unlikely to so be. The main industries of Las Vegas and the main reason for the relatively high level of travel to Las Vegas are parasitical in nature, gambling and the leisure and entertainment industries which serve its customer group. From the viewpoint of California, given the low return spending which the connection would bring from Las Vegas, it would be greatly preferable not to have it and instead encourage that gambling be conducted at Indian casinos within the state (such as the promotion between San Manuel and Metrolink), thus keeping the dollars and their related jobs inside California rather than exported to another state with little return.

Additionally, Las Vegas is itself of dubious quality. While there is nothing inherently wrong with responsible gambling, Las Vegas has consistently promoted itself as being the home for every vice it can, as being a destination and resort for debauchery and decadence, thus earning its nickname as "Sin City." Promoting and encouraging easier access to vice runs contrary to good order and the benefit of society and hence on that basis ought to be avoided except whereas deemed necessary by pragmatism (for instance, were it to lay upon one of the best routes connecting two worthier cities rather than being the entire purpose of the line itself).