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Out of Control Policy Blog Archives: 3.2.14–3.8.14

California 2014 High Speed Rail Business Plan Is Off Track

This upcoming November will be the sixth anniversary of the passage of California Proposition 1A to fund high-speed rail. The original goal was to provide rail service between Los Angeles and San Francisco in 2 hours and 30 minutes. Despite being panned by the Legislative Analyst’s Office, the University of California Berkeley and even the lieutenant governor, nothing can stop this runaway train.

Since our last installment of the CA HSR drama, the project’s cost has been reduced to 68 billion dollars because of a decision to use a blended rail system. The blended system will use a combination of pre-existing lines. While this helps reduce construction costs it also increases travel times. Curiously the high speed rail team continues to insist that the travel times remain unchanged and that speeds of 110 mph can be reached. Because of current commuter rail congestion on these lines, it is impossible for trains to reach these speeds. A more realistic travel time for the blended rail would be between 4 hours 35 minutes and 5 hours 25 minutes depending on the number of stops in between.



 

High Speed Rail

High Speed Rail (Blended)

Amtrak Rail

Inter City Bus

Air Travel

Cost

$68

$86

$62

$35

$70-100

Travel Time

2 Hr. 40 Min.

2 Hr. 40 Min.

11 Hr. 44 Min.

7-8 Hours

1 Hour, 15 Min.

 

 

*All figures for a one way weekday trip from Los Angeles to San Francisco.

**High Speed Rail figures from 2008 & 2012 Business plans respectively.

Even with the use of blended rail, the project is slated to cost more than twice the original estimate of 33 billion dollars. Riders could take a flight from Los Angeles International to San Francisco International in 75 minutes for $85. Price conscious riders could elect to take inter-city buses instead of trains at prices that are half the cost.

While the train’s construction costs are estimated to be 68 billion dollars, its secured funding is a measly $3.5 billion from the 2009 federal stimulus package. The rail project has insufficient funding to complete its initial route. A state judge ruled against allowing bond funds to be used for the rail line unless the High Speed Rail Authority (HSRA) could prove there are sufficient funds to build the initial portion of the line. Further, the CA HSRA has $68 million in unpaid bills, for which it has no way of paying.

High-speed rail proponents’ hope that the private sector will agree to help fund the high speed rail. So far there has been little private sector interest. And since it is extremely doubtful the line will break even, let alone post a profit, any private company would be foolish to invest in this line. To date, there are only two profitable high speed rail lines; one in Japan (Osaka-Tokyo) and another in France (Paris-Lyon).  A third rail line in Japan (Hakata-Osaka) breaks even but all other such lines lose money.  The financial success of these two lines is due in part to a population’s support of train travel and high gasoline taxes.

High Speed Rail: Complete System

The map above shows the absurdity of the CA high-speed rail project. In its recent 2014 business plan draft the HRSA provides readers a map showing all the lines that will transverse the Golden state. The map is less than honest. It includes already existing rail lines in California, slated to receive upgrading during the project’s duration. The Amtrak Surfliner is one such example. The map also shows the completed length of the rail line. The information conveyed by the map is misleading since it is extremely doubtful that the entire line will be built given the less than adequate funds procured by California.

A more realistic map would show just the initial operating section. The reader would see that since the taxpayers’ billions were spent on the initial section, there is insufficient funding for expanding the line to either Los Angeles or San Francisco.

High Speed Rail

The federal government would grant funds for the train’s construction, only if it traversed the central valley. However, most of the central valley cities including Bakersfield, Fresno, Merced and Palmdale are not large enough to add significant ridership. The initial section will end in the San Fernando Valley which is largely a residential suburban community, not a central city with extensive transit connections.

It will take 4 years and another $20 billion before the northern end of the line would be expanded to San Jose. However, the line will end in San Jose which is not connected to the BART transit system. This means riders would still have to transfer to another mode of transport if they plan to continue to San Francisco or Oakland. BART may expand to San Jose, but that expansion is not a certainty.

After spending a cumulative $51 billion dollars the high speed rail line will still not be finished. It will take another $17 billion and 14 years before Los Angeles and San Francisco are finally connected.



Section

Section Cost

Cumulative Cost

Service Begins

Initial Operational Section

31 Billion

31 Billion

2022

San Jose Extension

20 Billion

51 Billion

2026

San Francisco to Los Angeles

17 Billion

68 Billion

2028

Source: 2014 High Speed Rail Authority Business Plan Draft

California has just barely survived fiscal implosion. Any excess revenues should go towards filling gaps in the state budget or placing reserves in a rainy day account to avoid future fiscal disasters. The High Speed Rail line isn’t a railroad to nowhere. It just never reaches its destination.

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The Intentionally Unrealistic FY2015 Budget

This morning the White House released its FY2015 budget, which was swiftly and predictably pronounced dead on arrival.

But over the past several years the President's budget proposal hasn't really been intended to be a budget proposal. It has morphed into a policy document that will guide various legislative priorities for the Democratic Party, and create a single source to unify the message of Democrats campaigning in the midterms (or at least that's what the White House hopes the party's nominees do).

The budget will ironically also likely unify the message of Republicans, who will be justified in pointing out that the Obama 2015 budget crazily proposes:

  • Spending $3.9 trillion next year, which is $350 billion more than this year;
  • Intentionally spending $564 billion more than the White House projects will be collected in tax revenues, which is a big deficit number even if it is lower than the massive trillion dollar deficits at the start of the Obama presidency;
  • Increasing taxes by nearly $100 billion a year on high-income earners, which would be $1 trillion less in taxpayer pockets between 2015 and 2025;
  • Spending two-thirds of the budget on entitlements, but no substantive entitlement reform;
  • Spending $135 billion on research and development (read: "pet projects of the administration's cronies");
  • Spending more money on failed federal job-training programs by creating yet another one called the New Career Pathways center;  
  • Universal Pre-K;
  • A $5.5 billion bailout for insurance companies losing money on the Affordable Care Act; and
  • That tired claim that the Affordable Care Act is helping to slow health care costs and is creating "savings".

The budget also includes raising the federal minimum wage to $10.10 per hour-even though the President already signed an executive order imposing the tacit federal spending program in February.

It should be noted that the budget completely ignores the already weak Budget Control Act that Congress agreed to as a means of political cover for raising the debt ceiling. The President's budget proposes roughly $1.2 trillion in discretionary spending even though Congress has already agreed to appropriate $1.014 trillion in FY2015.

What is most interesting about the budget document is the framing of its tax proposals, all of which are some of the same things the White House has pushed for unsuccessfully in its previous six years.

For example, the "Fair Share Tax," more commonly known as the "Buffet Rule" would fix effective tax rates at certain levels for high earners. There are some standard arguments against the government taking more money from individuals, but this particular tax proposal creates the opportunity for us to all have fun defining the word "fair" how we want. Just shooting from the hip here, but I think it would be fair if the top 1% paid 35% of all taxes. And, let's see, maybe the top 5% could cover 60% of all the tax revenue the government collects. And, hell, how about if half of the country pays 97% of all taxes. That sounds fair in my random definition. Or, at least, it sounds like it is pretty much the reality of the most recent tax data.

Meanwhile, the bottom 50% of America get hit with regressive monetary policy, regressive sin taxes, and zoning restrictions that drive up housing and rent prices. That Buffet Rule would really be helping fix income inequality, no? 

Another example: The budget would cut "$4 billion in taxpayers subsidies" to the oil and gas industries, which is good. But it would just turn around and waste that responsible "no market distortion" idea and spend money creating a "permanent tax credit" for renewable energy production. Cue the yet to be written Remy rap about government picking winners and losers here.

Moving on to entitlements: Republicans will complain that the budget does nothing of substance on Social Security or Medicare/Medicaid-and they will be right. But they will also complain that their idea of using chained-CPI was ignored and that this could be part of a grand bargain to fix entitlements-and they would be wrong if they think the change would have a substantive affect on entitlements. The President called for entitlement reform in his state of the union, but predictably decided a midterm election year would be bad idea to propose a substantive idea (though he also failed to suggest any serious entitlement reform in non-midterm years so perhaps that has nothing to do with the no walking-the-talk).

Departments that would see an increase in spending: Education, Veterans Affairs, Energy, Transportation, Social Security Administration, Commerce, and the National Science Foundation. The bulk of the increase in spending will come from a $68.6 billion boost for Education and a $65 billion boost for the VA. Virtually every other department would see some level of cuts from FY2014 to FY 2015, even with the increase in spending levels. 

Lest my cynicism suggest that everything in the President's budget is bad, I will point out that there is a proposal to lower corporate tax rates and eliminate deductions, which is scored to increase revenues from corporations. Here, I think might be something that Congress could consider, as long as the increased revenues went to pay down the deficit. In this case, they are not and that creates a problem. Some of my libertarian colleagues might further press that cutting rates and eliminating loopholes created by regulatory capture is a good thing, but that the tax change should be made revenue-neutral.

Additionally, the Defense Department is proposing cuts to troop levels and equipment expenses, which is the right approach for the bloated DoD budget in principle. The Defense budget would fall $495.6 billion from FY2014 levels, more than all other department cuts combined.

There is also a proposal to expand the Earned Income Tax Credit. Here, Congress could do something crazy, but conceivable: help the poor and make the tax code more responsible at the same time. Simply expanding the EITC by itself is a bad idea, but using it as a means of reducing welfare expenditures is not. There are lots of ideas amongst libertarians on the value of having a basic income as part of fiscal policy, and if Congress chooses to pursue changes to the EITC there might be an opportunity to think about a truly bipartisan fiscal fix for the country. Not that the plan would actually get passed or anything, but there might be an opportunity to talk about it. (That's what passes for optimism when it comes to this budget analysis.) 

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Shallal's Top-Down Plan for D.C. Schools Hurts Parent Choice

D.C. Mayoral candidate Andy Shallal’s white paper on education has created significant buzz. 

Shallal accuses Mayor Vincent Gray, and former Mayor Adrian Fenty, of increasing mayoral control of schools and of not listening to Washington’s parents and students. 

However, Shallal’s white paper makes it clear that Shallal himself thinks he knows what parents and students want, and would continue to increase centralized power over schools.

Shallal’s most presumptuous statement, perhaps, is that parents “don’t fundamentally want choices.” Instead, he claims they want schools within walking distance. To satisfy the desires of parents (according to Shallal) he is calling for a moratorium on charter schools locating near traditional public schools. Contradictory to his opposition of “centralization” under Fenty and Gray, Shallal is willing to assume that he knows what parents want even better than parents themselves do, and will speak for them. 

Further, Shallal’s call to place a moratorium on charters conflicts with the paper’s praise for the Harlem Children’s Zone – an organization that provides community services and operates several charter schools in New York City. Ironically, a moratorium could prevent schools like the Harlem Children Zone charters from opening here in Washington.

The white paper also refers to the expansion of charter schools as the “drip-drip” of a destructive force. The waiting lists for D.C. charter schools prove that parents want choices. In 2003-04 there were 37 charter schools in Washington. In 2012-13 there were 57 charter schools operating 106 campuses. More charter schools open because parents want them to. 

Some parents desire neighborhood schools, but there is demonstrable evidence that many others are proponents of school choice. Over 15,000 students appeared on D.C. charter school wait lists this school year. Shallal seems to assume that parents like charters just because they exist. 

It is easy for politicians and bureaucrats to talk about beautiful visions of how schools should be. Parents and students are fed up with waiting for those visions to become real, and are choosing schools that offer a better education now.

He calls for a mayor that decides what the school system should look like and for a plan that locates feeder schools according to geography. His top-down approach is a one-size-fits-all model that will “help neighborhoods understand how to improve schools." The diversity of charter schools proves that the same plan doesn’t work everywhere.

Shallal’s white paper does make some good points. It is correct that student progress, as an indicator of school achievement, is difficult to measure, and that some assessments are poorly designed. He should consider the possibility that parents are the best way to assess school performance. When parents choose a school they show that the school is doing better than others. 

Most importantly, he is right that politicians should listen to parents, but he doesn’t see that demanding more charter school options is a way for parents to show what they want. Top-down policies, no matter who is making them, actually take autonomy away from local communities and parents. 

It is unfortunate that Shallal would ignore parents and students, limit their choices, and put more power in the hands of bureaucrats. Despite his criticism of Mayors Gray and Fenty, Shallal’s white paper is a proof that he would force Washington schools to fit his plans, ignoring the fact that not all Washington parents and students agree with them.

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Richmond CARES?

Richmond, California's public housing is dilapidated, unsafe and infested with vermin. These were the conclusions of US Department of Housing and Urban Development inspectors and of an investigative report published by the Center for Investigative Reporting (CIR), The San Francisco Chronicle and KQED.

Problems with Richmond public housing are both disturbing and long-lasting. The CIR investigation reports complaints going back several years, while 2009 media reports still available on line show that bedbugs have been long time occupants of the Richmond facilities. HUD audits and other sources also show that the Richmond Public Housing Authority has misappropriated federal funds and gotten itself into a financial crisis.

During these years of mismanagement, the Housing Authority has reported to Mayor Gayle McLaughlin and the City Council. These officials make up seven of the nine members of the city's housing commission. Housing Authority business is conducted as part of the weekly City Council meeting.

Instead of effectively addressing blighted public housing, City officials have spent considerable time debating an untested measure for preventing blight in the private housing stock: using eminent domain to take over underwater mortgages.

The theory is that foreclosed properties often deteriorate while under bank management, so blight can be avoided by keeping owners in their homes. While that makes sense, the Richmond CARES eminent domain program is poorly targeted at this effect. 

The initial pool of 624 target homes contained 444 properties with mortgages that were performing six years after they had been underwritten. Mortgages that are in good standing after six years rarely go into default - especially in a rising housing market.

Further, the pool contained homes in relatively upscale neighborhoods like Point Richmond, the Richmond Marina and the Country Club section.  Forty-three of the homes carried mortgages in excess of $600,000, and a couple even changed hands for more than $1 million before the 2008 downturn.  Since these findings were reported in a Wall Street Journal blog and by the San Francisco Chronicle, the Council decided to exclude high value properties in affluent neighborhoods from the program. But a majority of the affected loans will still be performing and thus in no immediate danger of foreclosure.

Aside from being an ineffective solution to blight, the eminent domain program has triggered litigation and jeopardized the local mortgage market. Lenders have expressed reluctance to issue mortgages in a community that has demonstrated a disregard for the sanctity of contracts. If mortgage money dries up in Richmond, the result could be additional foreclosures as short sales become more difficult.

Richmond's private sector ally in the eminent domain program - Mortgage Resolution Partners (MRP) - has agreed to shoulder the city's litigation expenses. But this promise may be hollow:  the company does not appear to have any revenue and the firm's CEO recently moved on to start another venture. If MRP is unable or unwilling to support Richmond's condemnation efforts the city would be liable for large legal expenses and potentially adverse judgments if it chooses to proceed.

Under the circumstances, the best thing that the Mayor and Council could do for the community is drop the eminent domain project and instead focus their anti-blight efforts where they can really make a difference:  in the city's very own public housing.

See more from Marc Joffe on Richmond underwater mortgages:

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