Sunday, January 25, 2009

A Tale of Two Stimuli

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

Friday's New York Times examined China's economic stimulus plans which are heavy on high speed rail:

China is already two months into its effort. And while Democrats have put aside calls for big transportation projects, with the House bill allocating less than 5 percent of spending for the construction of highways, rail lines and mass transit programs, China is furiously pouring concrete and laying rails.

A $17.6 billion passenger rail line across the deserts of northwest China, a $22 billion web of freight rail lines in Shanxi province in north-central China and a $24 billion high-speed passenger rail line from Beijing to Guangzhou here in southeastern China are among the biggest projects. But extra spending is being planned in practically every town, city and county across the country....

China has already built as many miles of high-speed passenger rail lines in the last four years as Europe has in two decades. A new bullet train from Beijing to Tianjin, opened last summer, travels at up to 217 miles an hour; the top speed of Amtrak’s Acela Express trains in the Northeastern United States is 150 m.p.h., and it is only briefly attained.

The government has nearly finished the construction of a high-speed rail route from Beijing to Shanghai at a cost of $23.5 billion — almost equal to the price of the entire Three Gorges hydroelectric dam project on the Yangtze River. The authorities recently disclosed that they had 110,000 workers laboring to finish the route as quickly as possible.

China's economy, which saw rapid growth over the last 15 years as Americans consumed virtually anything China produced, is hitting the wall, and the government hopes that HSR will provide not just jobs, but seed long-term economic growth and make the country less dependent on energy imports.

Meanwhile, what are we doing here in the US? Stiffing high speed rail and other forms of mass transit so Obama can try in vain to win Republican votes by offering wasteful and inefficient tax cuts.

This blog has consistently argued for including significant HSR spending in the stimulus. Obama seems pretty strongly opposed to doing so, for reasons only he can explain. But we have an opportunity to push back against the failed policies of the past and strike a blow for mass transit.

Oregon Democrat Peter DeFazio is angry that Obama has excluded mass transit funding in the stimulus - and has decided to do something about it. DeFazio is offering an amendment to increase rail funding in the stimulus by $2 billion. It's not remotely enough - it should be at least a $15 billion increase - but at this point it's the politics that matter. A successful amendment will show that there is public and Congressional support for passenger rail funding. It will help beat back ridiculous Republican claims that such spending is "pork" and make it easier to pass HSR funding later in the year.

The DeFazio amendment will first be heard by the House Rules Committee on Tuesday. That is where our lobbying efforts need to be directed for now. California has three members of this committee (click their names to send an email):

David Dreier - Republican from 26th District (San Gabriel Valley foothills). Phone numbers: DC office (202) 225-2305, San Dimas office (909) 575-6226, Toll-free (888) 906-2626

Doris Matsui - Democrat from 5th District (Sacramento). Phone numbers: DC office (202) 225-7163, Sacramento office (916) 498-5600

Dennis Cardoza - Democrat from 18th District (Stockton, Modesto, Merced). Phone numbers: DC office (202) 225-6131 or (800) 356-6424, Merced office (209) 383-4455, Modesto office (209) 527-1914, Stockton office (209) 946-0361.

Contact them and tell them to vote FOR the DeFazio amendment. We will then let you know when and how to contact your member of Congress when the amendment goes to the floor.

More from DeFazio and policy geek Rachel Maddow on the stimulus:

UPDATE: Transportation for America has more information on the DeFazio amendment and the need to stop massive cutbacks in transit service across the country. Again, this is not HSR-specific, but a political victory here makes it easier for us to get HSR properly funded later in 2009. They are suggesting folks call House Rules Committee chair Louise Slaughter.

For those curious about talking points with the California representatives, note that for HSR to be successful, there must be robust transit connections at each HSR station. Cutbacks that transit agencies are currently facing will have a difficult time being restored in the future, and will hurt the development of a transit network around HSR stations.


Brandon in California said...

Kudos to China.

In one respect, it is more difficult today to ask China to get onboard efforts to fight greenhouse gas emmissions and global warming given their strong efforts on high-speed rail while the US is taking much smaller steps by comparison.

But, comparing the two is also like comparing apples to oranges. Two immediate differences come to mind, environmental laws (NEPA & CEQA) and a government run by the people.

China has neither, and by comparison, they also have much dirtier air (among other things) as a consequence.

But, yes... interested and motivated persons should email their representatives... especially if those you listed represent them.

And, as I mentioned twice previously, although CHSRA may not be ready to turn dirt in the next 6 to 12 months, stimulus funding for CHSRA could be used to purchase critical right of way - such funding may not directly flow into the economy; however, not all of it will sit idle in bank accounts.... some will flow out, and some will go to support our banking system too (b/c banks will have more deposits/capital).

Brandon in California said...

^^^ I should have cited the reference to Amtrak made in the previous blog post. If Amtrak will be enabled to use stimulus funding to purchase ROW, shouldn't systems like CHSRA too?

Robert Cruickshank said...

This whole "turn dirt in 6 or 12 months" approach is nonsense - and not your nonsense, Brandon, but that of Obama and his advisors. As Paul Krugman pointed out on ABC this morning, this is going to be a prolonged slump. The CBO projects 8% unemployment in 2011 - HSR *will* be ready to "turn dirt" then. What better way to ensure Obama's reelection than to show Americans video of him with the shovel on the Central Valley line, and hard hats laying track?

I'm not saying we should toss NEPA and CEQA. Instead, we need to recognize that this economic slump resembles the Great Depression (and by year's end most Americans will be speaking of this as a new Depression) and that we should think about medium-term job creation and long-term value as well as short-term stimulus (which will be best accomplished by boosting the safety net and doing something about health care).

Spokker said...

The transit cuts in St. Louis are insane. Not only are they raising fares, but they cut bus service by a whopping 43.7 percent. Their light rail was cut 32 percent.

That is unfathomable to me and it should not happen in America.

Taylor Weston Hickem said...

Although most of the time I would fault China for its hubris that it feels so confident that its projects will have a rate of return

-- in these economic times, that hubris is exactly what is called for --

The US leadership does need to wake up and realize that this is a prime opportunity to invest in infrastructure, and actually make a difference for the future generations. Oil is everything, and transportation is 2/3 of the Oil issue.

Therefore transportation is 2/3 of everything! high speed rail has the minimum political support required to justify spending billions on laying the first tracks.

Now is the time for America to lead once more, Obama says, so lets see him do it!

China has MAGLEV
The US has AMTRAK . . .

Definitely a wide open opportunity to take the lead once again.

Question --

Has anyone seen the new blogs/websites that Obama has been posting to allow for everyday people to suggest ideas on how their administration can make improvements?

There's already a huge section on HSR/Light Rail, here's a link

Has anyone here added any comments to the official White House feedback website on this issue ?

Rafael said...

How come this amendment has to be introduced by a Congressman from Oregon? Is the entire California delegation in both the House and the Senate out to lunch on HSR?

@ spokker -

most states are legally required to balance their budgets. Only the federal government is allowed to run up deficits.

HR 1 includes funds to help those states plug the budget holes that have resulted from a collapsing tax base and skyrocketing new registrations for unemployment benefits.

At $42 billion, California's deficit is far greater than that of all other states combined, so don't expect the Feds to plug the hole entirely. The Golden state is also already at 9.3% unemployment, rising fast.

Robert Cruickshank said...

Good questions, Rafael. DeFazio has been a persistent critic of the Bush-Obama stimulus strategy, and was a passionate opponent of the banking bailout. He is also the second highest ranking Democrat on the Transportation committee behind Oberstar. So for a combination of those reasons he is leading the fight to restore transit funding.

BruceMcF said...

Transport Stimulus: Doing It Right

Brandon in California said...

These are unusual circumstances. Normally I would not support using stimulus funds to plug state budget holes... because the holes represent a structural imbalance.

Sorry, I know we've heard that term numerous times. But it is correct. An infusion is not going to plug the hole in future years.

The problem with economic slowdowns, even small ones, but I suspect big ones too... is that once revenue streams get ratched down, they never return to their previous track.

Imagine a simplified algebra plot with revenues and operating costs plotted over time. Over time those trend upward together... and crossing the "Y" access at roughly the same spot. Or so we hope.

But, like today, they are not together with revenues tracking downward or flat while operating costs continue their ascent. When revenue returns to a predicable path... it never catches up to the other! And, the gap between the two becomes an annual operating budget deficit each year unless operating costs are reduced or new annual operating revenues found.

The problem is that stimulus funding is not an annual stream that can be programmed, let alone assumed. It plugs a whole; however, only temporary.

These ARE unusual circumstances and use of stimulus funds is a decision to be made by our elected officials and made for a variety of very merit worthy purposes, however, long-term something needs to be done to ratchet costs down and/or increase revenue streams.

Taylor Weston Hickem: Yes & Yes

BruceMcF said...

However, quite clearly, if a state budget is in structural balance, then it will be in a deep deficit in this economic environment, and balancing the budget requires either moving to a massive structural surplus to offset the cyclical deficit, or deficit spending.

The first option, if practiced by all fifty states, of course, makes economic conditions worse. Its pure Hooverian economics, run an annually balanced budget, inflate spending during booms when government spending crowds out private spending, and deflate spending during busts when government spending would employ otherwise unemployed and unemployable people and equipment.

And note that the "not shovel ready" argument is BOTH flawed AND bullshit ... there are plenty of shovel ready projects. Indeed, fund roughly $30b at the level of $100 per resident for each transit authority (or if there is none city or country), set out the list of allowable Energy Independent Transport projects, and dictate that any account that is not spent inside a year has the funds re-distributed to those that did spend their money ... and getting the money spent quickly will not be a big problem.

As long a capital backlog and electric vehicles (either all electric or pluggable hybrid) are an allowed spending item in the list, if outlying areas cannot find enough sidewalks to build and bike racks to place, then the Chicago Transit Authority and similar big metro TA's will have no trouble spending all their account in the first year and spending all of the left-over money they get allocated in year two.

Andy Chow said...

China is quite different in that the railroad is nationalized and that intercity rail remains a primary travel method for the working class. Right now is the busiest travel season because of the lunar new year.

A nationalized system has the advantage of better coordination and keep rail as a national priority. However, HSR in China may remain a luxury because of high ticket prices.

NickR said...

"we have an opportunity to push back against the failed policies of the past and strike a blow for mass transit."

"It will help beat back ridiculous Republican claims that such spending is "pork" and make it easier to pass HSR funding later in the year."

A point of constructive criticism regarding the HSR efforts. First, I will mention that I strongly support the HSR project and would love to be involved in any capacity.

Second, I must say that the attitude and tone of the writing here does not turn me onto HSR but rather away from it -- and as stated, that comes from an HSR supporter.

I find the tone of the blog to be consistently "us" against "them", with the "us" being permanent or transient support of HSR and the "them" to be either non-supporting factions -- or perhaps more worrisome -- parties currently silent on the issue.

The issue of the California High Speed Rail project as a political issue is definitely a point that needs addressing due to the environmental and financial impacts of such a large-scale problem and solution. However, consistently, I wait for information regarding the business case and find myself consistently waiting.

Quoting the numbers of Spanish train ridership and Chinese investment are fantastic supporting points however what is the defacto business case for this project? Where is it?

Looking at the official HSR site, there is plenty of material to educate voters yet from an investment perspective, the case is significantly light. The former battle has been won -- the project has been approved -- and now I think it behoves HSR organizations to address the latter.

We can either continually point out at the lack of investment and support from the process and community or continue and now establish the next vanguard -- the investment case. Show investors this thing can make money and they will build upon the mandate themselves.

Robert Cruickshank said...

NickR, I'm not sure what you mean by "business case" for HSR. The 2008 Business Plan was published in November and the voluminous source documentation has been included. Last year when the CHSRA published an RFEI they included revenue forecasts, of which more detailed studies are available on the library page of the CHSRA.

Part of the tone of this blog stems from the nature of its primary authors. I work in public policy activism and advocacy - I understand quite well the state and national political scene, and to some extent the local political scene depending on which part of CA we're talking about. Rafael is a world-class expert on HSR technology and engineering (and has a good nose for HSR culture).

We don't have anyone coming at this from an investment perspective. I am not entirely convinced that is a core part of this project, to be honest. HSR will generate operating surpluses but this train isn't being built to turn a profit - it's being built to fill a need, to provide a service.

I happily admit that I do not see the politics of HSR in neutral terms. It would be great if HSR were debated on its merits. Unfortunately it's not. There are some Californians and Americans, generally conservatives but not exclusively so, who do not accept that intercity passenger rail is part of our future, who prefer to rely on the transportation methods and models of the 20th century, and who believe any government spending on trains is inherently wasteful. These aren't people that can be convinced by logic; that's not how American politics works these days. Maybe in some future time it can happen but we're not at that place.

If we want to build HSR we need to build on our successes in 2008 and continue to show the flawed thinking of our lingering opponents in the state legislature, in Congress, in the media, and around the state.

I support HSR because I believe California's future depends upon it and on projects like it. So I'm not going to shy away from pushing hard for its success.

NickR said...

Hi Robert,

We are agreed on your belief that California's -- and indeed perhaps the global economy -- depends on projects like HSR. From an environmental perspective, we must reduce carbon emissions and from a macro-financial perspective, we must change the way we live and consume.

I reside in London and last September took a trip to France. I walked to a tube stop, rode the Underground to St. Pancras and then boarded the Eurostar for Paris.

Once in Paris, took the Metro to the RER and arrive in the suburbs. The following day, Took the RER to a TGV line and out to the Loire Valley. After a week's bicycle trip, we reversed course.

I should very much like California's future to include the similar capability. However, having grown up in Los Angeles and resided in San Francisco for many years, I know that there are several shifts that must occur if we are going to get people out of their cars and off of extremely-short haul airline routes.

Further, over the course of the year in an MBA program, I looked at social entrepreneurship, especially public-private partnerships and emerging forms of capital available to finance large projects.

The information in the library is a great start -- it's what convinced me that this rail project is a financial possibility and not a pipe dream. And I think it needs to go further.

By business case, I mean a proper pro-forma set of financial statements that will put HSR on par with a private infrastructure project.

In many examples of high-speed trains, we're talking about at best less capitalistic economies (England, France, Spain) and at worst, planned economies (China). In those cases, the government waves the magic money wand and things start to happen. Before you get jealous, also consider those nations' extremely high tax rates and/or lack of market economies.

California is probably the most capitalistic expression of the United States. Thus, technical comparisons to other nations are fine however political/financial comparisons are not.

If HSR will generate operating returns, let's show that. I want to say that put on a 5 - 10 year time horizon inside a solid financial model shifts the argument from needing government funding to simply getting government approval.

Thanks to the financial crisis, heaps of cash are sitting on the sidelines begging for investable projects. HSR has the unique advantage of being a government initiative. As we are seeing with US treasuries on the open-market, US projects are still the biggest piggy banks in the world.

Further, evolutions in capital investment allow such concepts as quasi-equity arrangements, convertible shares and tiered capital risk.

Guess the final point is that innovative projects require innovative financing and rather than focusing squarely on fighting battles, if a business case can be made for this lovely train, the markets will push it forward and the political side becomes a non-issue.

I cannot claim to know very much about American politics -- perhaps I never did -- however I do know the words of Mother Teresa. Don't invite me to an anti-war rally, invite me to a peace rally.

Contemporary strategy theory says to ignore competition and focus solely on consumers (read: Apple). Thus, my point about letting the detractors be. Let them sit there and detract for as long as energy is expended fighting them, that energy is not being put in to building HSR.

On a final note, I have the utmost appreciation for everyone involved in this work and think that when it materializes, a great victory will have been accomplished that will further set the tone for national infrastructure investment.

Alon Levy said...

Nick, France and Spain could be plausibly called less capitalistic than the US. But Japan has lower taxes and less spending than the US, and post-Thatcher Britain has relatively few business regulations. Hong Kong and Singapore have long histories of governmental spending on urban rail, and it's likely that if either had needed intercity rail, the government would've built it.

Conversely, California is one of the higher-taxes, higher-spending states in the US. A Californian's effective top income tax rate is currently 46%, higher than Britain's 40% and France's 48%-with-a-20%-standard-deduction. Increasingly the purest expression of the American model of capitalism is Texas, with low taxes, low social spending, and lax regulations; still, Texas was the first state to approve HSR development, which was stalled only because of lawsuits by Southwest and the newly elected Governor George W. Bush.

timote said...

Personally, and perhaps this is naive, but I've never bought into the public/private partnership aspect of this project. If we happen to get some private money, great, but it seems like such a long shot to me that I don't put a lot of thought into it.

Specifically, the challenges that I would see as an investor:
1. I'd need the matching public funds lined up first. I don't want to waste my time and money on a project that gets caught up in the political whims of California or Washington.
2. This is the first high-speed rail line in one of the most plane-and-car state of a notoriously plane-and-car nation. Getting people to switch seems very problematic, adding risk to my profit proposition.

So personally, we need to line up the public ducks first - we need to settle ROW issues, political will issues, public money issues. Until those are done, I just cannot see a private investor wanting to put down money on something that could just evaporate in a political whim (see FL, TX examples). I think this is what we're doing with prop 1A, going after federal financing and starting the EIRs - getting the public financing and political will ducks lined up.

It would not surprise me if the starter line is almost entirely publicly financed and private investors come more into the picture when the system needs cash to expand (and has a revenue/profit history).

NickR said...

I had a long discussion with a colleague last night with a background in large budget project finance -- specifically infrastructure and concluded with a bit of additional research on the Eurotunnel

As far as the PPP angle, what we came up with seems to be the dominant angle in France -- that is, the state owns the track and is responsible for track maintenance whilst private companies run the trains.

Colleague explained that government(s) should fund and run the elements of the HSR project that are a natural monopoly (the track and possibly the stations) while private entities should run the competitive services.

As far as the risk from people not using the service, the initial target of the EuroStar service on which profitability calculations were made was 35% (this from a non-expert present at the table), hence the project's payback period of 2046 or so. Today, the EuroStar is receiving 70%+ of traffic over The Channel.

The situation is quite similar to the California affair. 2 regional capitals currently linked by air (1 hour) or car (many hours) with airports 30+ minutes outside the city center. Looking at the value proposition, the train is not competing on faster or slower service, as it's roughly similar when taking in account transit time to the airport, security, etc.

Thus, the value proposition is on quality of service. Flying is only going to get more obnoxious and repeated market data suggests that if two options are comparable, consumers will take the "greener" of those options.

Thus, the culture shift is probably less of a concern -- people may not be as attached to their airplanes as one might think. Cars are a different situation due to the lack of public transit in destination cities. Thus, perhaps HSR will not best the lovely drive up the I-5 but it should make short work of the plane trips.

In order to achieve that culture shift, much thought has to be given to the financial structure and resource allocation of the system. The EuroStar works because it is not a socialist people mover but a business in competition with the airlines. Fares are often in parity -- although cost structures allow each side competitive advantages depending on overall demand and percentage of advanced bookings.

To that effect, the PPP concept should be that the state secures federal matching funds and builds tracks whilst the services go out for bidding to private contractors.

The discussion and research into the EuroTunnel is quite interesting from the point of how to structure this deal. Colleague reiterated that long-term government issued bonds are about the only investments currently drawing capital however if there is a way to structure that as a mixture of federal spending and bond funding, the carrot to private community should be quite an incentive.

As this develops, it's definitely worth getting right to avoid getting another Amtrak. To get the ridership numbers required to make this a exemplary project, the target must be competition with the airlines -- thus the same quality of service and experience as the airlines. Something I personally have never found on Amtrak.

If anyone else is in London and wants to meet up for a pint and discuss, please holler!

Anonymous said...

@timoye.. actually Cailfornia has a huge passenger rail system as compared to the rest of the USA outside of the NEC. It has been growing since the early 1990s due to the passage of the 1992 rail bonds. The high speed rail is the final and biggest step in this growth. Many of these trains are now running full will HSR

timote said...


Fair enough point, and I'm not saying that I'm opposed to the PPP. I'm saying I'm skeptical and would like to see us be able to push this through even in the absence of the PPP. The more money, the merrier says I though!


Excellent background info on the EuroTunnel, thanks. You're probably right that the competition with the plane is pretty easy and we certainly know there is a lot of that traffic that occurs, so it is probably an easier sell than I imagine. Nonetheless, I'm hoping for some nice federal dollars to get this train on track.

Alon Levy said...

I'd like to add that although transit in LA and SF is laughable compared to in London and Paris, it's good enough to at least get people from the train station to hotels in the CBD as well as major corporate headquarters. In addition, both cities have good taxi service. Therefore, tourists as well as business travelers will be able to get from the station to where they need to go to without a car.