Sunday, October 5, 2008

If It Were Up To Them We'd Still Be In the Depression

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

Another weekend, another round of media articles trying to convince Californians that somehow, an economic downturn caused by overdependence on oil should not be addressed by job-creating projects that would provide renewably powered transportation and enable economic growth over the long term. Today it's the Redding Record-Searchlight making the argument that somehow Prop 1A would hurt California's budget and economy, when in fact it is a necessary part of the solution.

This is Shasta Dam under construction in 1942:

It remains a key part not just of the state of California's overall water storage and provision system, but was crucial to the Redding economy during the 1930s and in the years since.

It was also a Depression-era project. Built at a time when California barely had enough money to balance its own budget. In 1933 California passed a bond measure allowing money to be spent on the dam - $170 million, a significant sum in those days. By 1935 California had secured federal funds to help begin construction on the dam. The jobs created by the dam project and the long-term value of the Central Valley Project were considerable. Redding got badly needed jobs as well as flood control. California got jobs and a base for long-term agriculture, an industry that remains significant to this day in Redding.

Had California rejected the 1933 Shasta Dam bond, chances are the dam would not have been built for a decade or two. Redding would have lost out on those crucial jobs in the depths of the Depression and California agriculture might not have had the stable water source it needed to be productive for these last 70 years.

We can go on. The Golden Gate Bridge funding fell through after the 1929 stock market crash - so voters in the North Coast counties that comprise the Golden Gate Bridge District had to approve bonds, which they did in November 1930. Similar bonds had to be sold for the San Francisco-Oakland Bay Bridge, also in the depths of the Depression. The two bridge projects not only provided jobs when they were desperately needed but enabled massive economic growth in the Bay Area after World War II.

The argument that we cannot build high speed rail because of the economic crisis or credit crunch simply doesn't hold water. The economic downturn is an argument FOR high speed rail. Worse, the Redding Record-Searchlight's reasons for not supporting Prop 1A make little sense:

An alluring investment in 21st-century transportation for a growing state? Yes. It's also $10 billion that California doesn't have.

Of course California doesn't have $10 billion - which is why we're going to borrow it. The state's nonpartisan Legislative Analyst has determined we actually can afford Prop 1A. Repayment lasts over a 40-year term. The jobs, tax revenue and economic activity created by high speed rail combined with the savings on oil consumption and carbon emissions are likely to outweigh the annual debt service cost.

If it were up to HSR deniers like the Redding Record-Searchlight we'd still be in the Depression. We wouldn't have the dams and bridges that made our late 20th century prosperity possible. And if we follow their advice we will have a hard time getting out of whatever we're going to call this economic crisis.


Ian Paul Beam said...

Somehow I'm not too surprised that the Searchlight came out against Prop 1A. Though I am ashamed to say that it's my hometown paper.

Granted, we're located in an area that won't be immediately served by HSR, but for once I wish they'd thought of the greater good and supported 1A.

Robert Cruickshank said...

It would be one thing if the Record-Searchlight said they opposed it because Redding wasn't included. I'd still disagree with that assessment - at least Redding has passenger train service, whereas Monterey still does not - but I would understand it.

The reasons they gave, though, are absurd. Especially for a city that owes so much of its present prosperity to a dam built in the depths of the Depression, paid for by California bonds issued during a budget crisis and augmented by a massive federal infusion of cash. It defies logic.

Earl G. said...

What defies logic, Robert is your not understanding what a lousy, poorly designed project this really is. From the selection of the route, to dishonesty in promotion, this project must go down in flames.

From what you get of most of the media, with the exception of the LA Times, and that was qualified, Prop 1A is going to fail.

Rafael said...

@ earl g. -

funny thing, democracy. People actually make up their own minds rather than letting the media do it for them. I doubt the 85% of Californians that would be served by the HSR network will pay all that much attention to this particular paper's opinion.

You've got to spend money to make money. And if you haven't got any to spend, you need to borrow. There's a severe credit crunch right now, but by the time CHSRA has to sell bonds to raise a large amount of cash for actual construction, it will either be long over or everyone will be living in a cave anyhow.

Anonymous said...

Much of the Anti-1A is from a one company that owns many small newspapers in California. Granted this is paper is not one of them but alot of anti 1a stuff is. There
not even from California.

EARL G. said...

Robert writes:

The state's nonpartisan Legislative Analyst has determined we actually can afford Prop 1A.

Right now Robert that State can't afford anything. The Governor writes "Bush please lend us $7 billion -- we can meet our payrolls." We obviously can't afford Prop 1A.

The the stock market now down another 550 points, oil below 90 / barrel.

The State cna't float bonds it wants to right now. How can you cay,we can afford Prop 1A.

Sean O'Donnell said...

Great blog! I just came across your blog looking at your article about bond debt and I took a look at a few others including this one.

First, I agree that this will create jobs and has potential to stabilize the economy on a minor scale but I do disagree with you on the issue as a whole. I wish California, along with the whole US, had efficient and reliable transportation comparable to Western Europe and Asia, but we must be practical when it comes to the financial aspect. As you have already discussed, this measure would cost around $10 billion in principal accumulating to a little less then $20 billion over 30 years. Looking at only these numbers, I would be all for it. It would only cost $647 million a year…a faction of 1% of our budget. But, there are more numbers to take into consideration. First, is the whole project projected to cost $10 billion? If that’s so, we won’t get too far and the HSR plans will collapse again as they did in the late 90’s and early 2000’s. The project will cost at least three times as much as the initiative qualifies for bonds. Once we are already in the project, we will have to continue no matter how much it costs…this is a tactic done by defense/government contractors to get contracts. It is also done in this since as well. This is what you do: Promise something at a relatively low price and be as broad as possible so when you change the whole thing, it won’t be your entire fault.

Another negated topic encompassed by the bond debt discussion. What about the debt we already have? Currently California retains $53 billion of current debt with another $68 billion awaiting to be sold. A total of $121 billion! This would add on another $10 billion…plus interest.

We must figure out how to pay for these types of things with money we already have so when our future comes, we won’t have to repeatedly apologize to our grandchildren about what we did to their future.

Rafael said...

@ earl g. -

the $7 billion shortfall is not due to a lack of income but to when that income becomes available in the course of the fiscal year. California has long taken out short-term bridging loans to cover expenses in the fall and winter and paid them off after April 15.

The problem is that right now, even interbank lending has reached exorbitant rates - it's a crisis of trust, which the $700 billion bailout is supposed to address. For now, states, businesses and individuals alike are discovering that their banks are aggressively reining in even long-established lines of credit.

The upshot is that California cannot obtain the bridging loans it needs to keep going for the next few months. Many other states are in the same boat, but California's needs are the greatest by volume so the Governor gave early warning of a potential problem. If the Treasury structures its deals such that states are among the first non-bank customers who regain access to credit, there may be no need for a direct bridging loan from the Fed to Sacramento.

As for HSR, the prop 1A bonds would not be offered for sale for several years yet, by which time the present credit crunch will either have eased or the US is a third world country.

You should be more worried about the $20 billion in road construction bonds that were approved in 2006 - those projects are now reaching a level of maturity where they need significant capital to proceed. Many of those will now suffer delays and quite possibly, cost escalation.

@ sean -

welcome to the blog. For your reference, the $9.95 billion bond volume in prop 1A would only cover a fraction of the total capital investment.

The California High Speed Rail Authority (CHSRA) intends to build the San Francisco-Anaheim first, at an expected cost of $30-$35 billion (an updated business plan is expected in a few weeks' time), with initial service in the 2018-2020 timeframe. The spurs to Sacramento and San Diego, respectively, will be constructed in Phase II and bring the total to around $45 billion.

There is an explicit commitment that HSR construction will not lead to future state bonds nor to state tax increases. There is a range of opinions on whether that commitment will be kept.

Iff prop 1A passes, CHSRA's first objective will need to be raising several billion in additional "in-state public funds" from the cities and counties served. These would essentially be commitments to spend local money on stations and their environs in the 2012-2018 timeframe. There would be no immediate impact on local authority budgets.

Next, CHSRA will need to lobby Congress and woo private investors. The objective is to secure matching funds for the $11-$12 billion "in-state public funds" from each of these sources, to pay for the starter line. It is very likely that not all of the required funds will be committed up front as all parties will want to keep a tight rein on project management during the entire construction process.

The prop 1A bonds, for example, would require annual appropriations by the California state legislature. The measure also limits state spending to no more than 50% of the cost of any one segment. In practice, appropriations may not happen unless the number is closer to the 33% implied by the business plan.

Operational surpluses, which are the norm for HSR systems, are then supposed to support non-state bonds for funding Phase II.

As for burdening the next generation - they are the ones who most need HSR rather than even more highways and runways. The cost of doing nothing is NOT zero, as the state's population is expected to grow to 50 million by 2050.

Spokker said...

rafael, thank you for the summary of the high speed rail situation up to now. Things like that help to keep us on the same page.

Brandon in San Diego said...

No, the state is expected to grow to nearly 60 million by 2050. Specifically, teh California Department of Finance published a projected estimate on July 2007 saying the state population be 59.507 in 2050.

It's not 50 million as you cite. But, i cannot place blame. That 50 million figure is incorrectly forwarded many times.

The link (excel file):
California DOF 2050 Projection

Brandon in San Diego said...

I messed up the coding. Here's the address:

Brandon in San Diego said...

Mmm... tonight from home I will provide the correctly formatted link.

Anonymous said...

@brandon in san Deigo

Actually the population of California will be 100 million by 2050. I can push the numbers as well as anyone.

We will need 5 HSR lines not just this one and the state will be expected to float 1.5 trillion in debt to build the infrastructure needed to support this population.

Of course by then, 75% of the desert in California will be covered with solar panels, and California will be supplying the whole world with electricity, not just the US, but the whole world. Our economy will be 3 times bigger than the whole US economy is now.

You won't be around, nor will I be, but utopia is on the horizon.

Robert's sons and grandsons will be trumpeting the world with the forward thinking message he was preaching back in 2008.

bossyman15 said...

Ummm off topic...

I was wondering is the prop 1a on state wide ballot (all of california) or just areas (cities) where cahsr will serve?

Anonymous said...


REGION: High-speed rail finally reaches ballot

Critics say system wouldn't stay within costs or live up to travel times

By DAVE DOWNEY - Staff Writer | Monday, October 6, 2008 12:16 PM PDT ∞

California's nearly $10 billion high-speed rail bond didn't move to the ballot fast.

It was supposed to go to voters in 2004. But it was delayed ---- twice. Finally, California voters will see it Nov. 4.

Through Proposition 1A, Californians will be asked to authorize selling bonds to raise a $9 billion down payment for a proposed $54 billion, 700-mile statewide passenger rail system linking the state's major urban areas with trains traveling as fast as 220 mph.

Proponents tout the train as a crucial, forward-looking public works project that would speed up travel throughout the state and clean up the environment.

Critics say it would run over budget, never be completed, and would not even run on time.

In San Diego County, the train is being touted as a way to relieve commuter congestion and a tool for wringing more capacity out of tiny Lindbergh Field.

The bonds also would raise $950 million for improvements to existing railroads, such as the one on the North County coast that is part of the nation's second-busiest passenger-train corridor.

The total cost of the bonds would come to $19.4 billion, factoring in the $9.5 billion interest cost, according to California's legislative analyst. It would cost in excess of $1 billion a year to operate the system.

San Diego and Riverside counties both figure prominently in the high-speed rail system, as the line would run through Temecula/Murrieta, Escondido and University City on the way to downtown San Diego, with a possible connection at Lindbergh Field.

However, the $9 billion represents a fraction of what is needed to build the system's $33 billion first phase, the section between Anaheim and San Francisco. Thanks to passage of a law last summer, the bond money may be used anywhere in the state.

Still, there is sharp disagreement over whether any of the down payment will make its way to San Diego and Riverside counties, which are in the second phase.

Escondido Mayor Lori Pfeiler, a longtime project supporter, said San Diego and Riverside counties can make a strong case for grabbing a share of bond proceeds because projections show the local line would attract more passengers than any other in the state.

And, Pfeiler said, Temecula-Murrieta is one of the fastest-growing places in the state with a huge need for travel options that compete favorably with the car.

But Ron Roberts, a Temecula councilman and board chairman of the six-county Metrolink commuter rail system, said the project is so expensive and the region is so far down the line in terms of priority that money may never flow beyond Los Angeles.

"I know, in my lifetime, I'm not going to see the second phase," said Roberts, 68. "And I doubt very much that anyone else will see the second phase."

Project backers counter that the state bond will be enough to get the project started and put it on a path to completion.

Backers say the bond is meant only to generate seed money and that federal grants and private investment dollars will provide the rest needed for the first phase.

And they say profits from the first phase would provide the cash for extending the line east to Riverside County and south to San Diego County.

Profit and lost opportunity

Wendell Cox, a prominent rail critic in St. Louis who analyzed the California project for the Reason Foundation, a free-market think tank in Los Angeles, suggests the system won't make any profit and, rather, will run a deficit that would require annual subsidies from the state budget.

"What you have at the High Speed Rail Authority is a bunch of cheerleaders," Cox said of the state agency that planned the rail venture. "Anybody who thinks the high-speed rail system would be profitable must think that subprime loans could be profitable, too."

Quentin Kopp, a retired judge who is the authority's chairman, disagreed,

"That is contradicted by the fact that in every single country, 10 other countries, these systems have operated with operating revenue exceeding expenses," Kopp said. "And we fully expect ours to do the same."

Whatever the case, John Chalker, a California Transportation Commission member from San Diego who supports the project, said the ballot proposition will find the road to passage bumpy because of the economy.

"Clearly, Main Street is now feeling the impact of the financial crisis," Chalker said. "And that is going to have an impact on voters' decisions."

Still, as far as Solana Beach Councilman Joe Kellejian is concerned, the decision that voters make Nov. 4 could very well determine whether the project is built.

"It may be an opportunity lost if the folks in the state of California don't approve Prop. 1A," Kellejian said.

It is an opportunity to build a system that works much like the speedy rail systems in Japan and Europe, proponents say.

If built, riders could board in San Diego and reach Los Angeles in a little more than an hour.

"We're always wringing our hands about where to site another airport, and about traffic," said Lynn Schenk, a High Speed Rail Authority board member from San Diego who served as chief of staff for former Gov. Gray Davis. "We have a river of red lights in each direction on every freeway."

Pfeiler said this is an opportunity to relieve packed freeways and airports without building new ones.

"If we can't invest billions in a new airport somewhere, we better relieve pressure where we can," she said, noting residents could take the train instead of a commuter plane to Los Angeles International Airport to catch an international flight.

But the amount of relief depends on the number of riders, and there is dispute over how many there would be.

The authority projects the number would reach a minimum of 65 million riders a year by 2030 and as many as 96 million.

The report by Cox and Joseph Vranich, an author of books on trains, said the state would attract one-third as many riders.

"They have made absolutely absurd, if not insane, ridership projections," Cox said.

He said the projections are inflated in part because the authority cannot deliver its advertised travel times.

Cox said, for example, that it would take three hours and 40 minutes to travel from Los Angeles to San Francisco instead of an hour less, as the authority says.

And he said the cost ---- in 2008 dollars ---- will reach $65 billion to $81 billion, not $54 million.

Schenk said the authority stands by its numbers, which are the result of years of detailed research.

And she said she is confident the project will be built ---- everywhere in the state.

"I believe that I am going to ride on that high-speed rail system," said Schenk, who is 63. "I may be pushed on in a wheelchair, but I am going to ride it."

Contact staff writer Dave Downey at (760) 745-6611, ext. 2623, or

Rob Dawg said...

Cox said, for example, that it would take three hours and 40 minutes to travel from Los Angeles to San Francisco instead of an hour less, as the authority says.

It will "usually" take this long. Really. There isn't enough capacity to have all the ridership AND all the service envisioned. There will be several skip stop runs daily that will likely do the 2:50 but they will only do that by impacting shorter route multi-stop trips. It is called circuit density.

Anonymous said...

rob dog writes:

There will be several skip stop runs daily that will likely do the 2:50 but they will only do that by impacting shorter route multi-stop trips. It is called circuit density.

Whether any trips will be that fast is in fact in question; certainly if they are forced to the heavier cars that may be demanded by the FRA, they will never make that kind of time.

More to the point is customer convenience. How can they hope to compete against a group like Southwest Airlines, which offers multiple flights, every hour on the hour and from many different airports in both the South and North. It doesn't make any sense. Furthermore argue all you want about point to point travel time because of security checks at airports. That is getting better, and by the time this project might be built, they will be a problem of the past.

The trip from South to North is really too long to be competitive with air travel, which after all goes straight line and at a much faster overall speed.

Just consider, you don't see Southwest putting any funds into defeating this Prop 1A. They don't fear the train. They will eat it lunch, which will result in the train running the huge predicted deficits every year.

Spokker said...

"Just consider, you don't see Southwest putting any funds into defeating this Prop 1A."

There sure were scared of HSR in Texas. Now American Airlines and Continental Airlines are part of The Texas High Speed Rail and Transportation Corporation.

Maybe Southwest is wising up and seeing how CAHSR could act as a passenger collector system for them. Hell, there might even be some codesharing going on.

political-i said...

@ anon 4:41

These trains will run on separate right of way. The potential private investors could be airlines since the high speed trains are lower cost to operate than airplanes. Air France come 2010 when Europe officially opens competition for high speed rail will provide service of its own.
Security Checks, sure they might be faster, but there are not many ways to fight LINES which takes up time.
With Southwest's hedges nearly about to expire, cutting costs is something they might want to do which is why they are probably not tying to oppose this system. If it does not generate much profit for them, they will not fight it.
This project also looks at not only current travelers but future travelers due to affordability of rail transport. Especially in the underserved Central Valley.
So for those of you HSR deniers, please look to Taiwan's recent development and actually do some darn research before you cry about how this is going to be a total disaster. What is a total disaster is building more lanes onto freeways and adding even more congestion.

YES on1a said...

Who cares if it takes 3hrs20 mins its alot better than 10 hours by Amtrak.This is not just about SFtoLA the trains arent going to 100 be percent full leaving SF and LA. All trains even HST make some stops nor is it about driving airlines out of business.its about fast movement around the state.try driving to Fresno..or flying expensive!! Wendle Cox and rest of these people dont even live here just out of state rightwing lobbies
and newspaper groups..and outside of the Menlo Park nimbys we dont need outsiders telling us what to do!!

Anonymous said...

A suggestion for a poll or open thread.

Who has actually ridden a high speed train? Which one? How many trips?

I'm well past 50 trips.

Robert Cruickshank said...

I am surprised there's even discussion about the airlines. It has been quite conclusively proved, all around the world, that HSR eats deeply into airline traffic. We see it even on the Acela route, which has over 40% of the traffic on the Northeast Corridor. Not a single HSR line anywhere in the world struggles because of competition with airlines.

Someone above mentioned Southwest's fuel hedges. That's a key point. The only reason they haven't had to dramatically cut flights or raise fares and fees is because of those fuel hedges. When those start expiring in two years Southwest is going to be in trouble just like all the other airlines.