Policy Study

California High-Speed Rail: An Updated Due Diligence Report

The California high-speed rail project cannot be delivered at the cost promised to taxpayers, is based upon a business plan incapable of delivering on its legal requirements and is justified by proponents based upon unachievable benefits

Reason Foundation’s 2008 report, The California High Speed Rail Proposal: A Due Diligence Report, warned that plans by the California High Speed Rail Authority (CHSRA or Authority) issued prior to and during 2008 were inaccurate, misleading and not in compliance with California statutes. As well, it found that the Authority’s financing plan overstated projected revenues and private financing, and understated capital requirements and operating subsidies needed from taxpayers. Subsequent independent studies and new Authority documentation have proven virtually every characterization in Reason’s 2008 Due Diligence Report to be accurate or understated.

This report updates Reason’s 2008 Due Diligence Report by addressing and evaluating numerous changes in California’s plan to build a high speed rail (HSR) system between San Francisco and Los Angeles via the San Joaquin Valley. This Due Diligence Update addresses the Authority’s revised documentation, business plans and public statements issued between 2008 and late-2012, which are found to be similarly inaccurate, misleading and in violation of the laws guiding the project. Additional analysis is warranted to respond to the Authority’s newer yet illusory capital cost reductions, likely capital cost escalations, need for operating subsidies, slower train schedules, high ridership projections, and the inability to meet the statutory requirement to link Los Angeles and San Francisco in 2 hours and 40 minutes or less.

The primary focus of this Due Diligence Update is the CHSRA’s Draft Revised Business Plan issued in April 2012 that outlines how high speed trains will operate on the same tracks as local commuter trains (“blended systems”) into San Francisco and Los Angeles, which now are called the “bookends” of the system. The blended system replaced the cost-prohibitive Full Phase 1 system that had new rail lines dedicated exclusively to high speed trains into San Francisco and Los Angeles. Despite the characteristics of the blended system that slow train-speed and shorten lines, which makes the system less high-speed and less competitive, CHSRA continues to use the ridership and train-speed data from the Full Phase I system in its original plan in its analysis of the blended plan’s viability.

Current plans are now identified as “Phase 1 Blended,” which the CHSRA estimates will cost as much as $63.2 billion in 2011 inflation-adjusted dollars ($78.0 billion in year-of-expenditure dollars) with the only sources of funding being $9 billion in California Proposition 1A general obligation bonds and $3.5 billion in federal grants. Further funding is highly speculative if not outright non-existent for the remaining capital needed, which may exceed $50 billion.

As will be shown in this Due Diligence Update, the CHSRA April 2012 Business Plan is so deficient that it is inconceivable that policymakers would continue to rely on its assertions to evaluate the program. This report is not alone in identifying shortcomings in CHSRA’s plans and documentation, and will include findings from other state agencies and independent reviewers.

Attachments

Joseph Vranich is president of Spectrum Location Solutions. Mr. Vranich has been involved in rail passenger issues for more than 40 years. He has advocated building high-speed train systems through public-private partnerships and served as President/CEO of the High-Speed Rail Association in the early 1990s, where he won the Distinguished Service Award. He has testified numerous times before the U.S. Congress on high-speed rail and Amtrak-including Amtrak's high-speed Acela program. Early in his career he served as an Amtrak public affairs spokesman.

He has spoken internationally at the invitation of Japan's Ministry of Transport, Japan's Railway Technical Research Institute, European railway suppliers, and addressed a visiting Chinese government delegation in comments that were published in Vital Speeches. Also, he has met with the U.S. Department of Transportation, the Office of Management and Budget, and the U.S. General Accountability Office on rail passenger issues and was a U.S. Senate appointee to the Amtrak Reform Council.

Mr. Vranich is co-author of The California High-Speed Rail Proposal: A Due Diligence Report published by Reason Foundation in September 2008, which anticipated many of the project's shortcomings that have come into public view.

He is the author of Supertrains (St. Martin's Press, 1991), a book advocating construction of high-speed rail systems in the U.S. His second work, (St. Martin's, 1997), recommended creation of public-private partnerships and competitive franchising. His most recent book, End of the Line: The Failure of Amtrak Reform and the Future of America's Passenger Trains (AEI Press, 2004), outlined how Amtrak failed to comply with reform laws; it also detailed development of Amtrak's high speed Acela trains and examined railway reforms in 55 nations.

Wendell Cox is principal of Demographia, a St. Louis region-based public policy firm. Mr. Cox was appointed to three terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley, where he introduced the amendment to Proposition A (1980) that established the local funding set-aside for the Los Angeles light rail and metro lines. He was also appointed to the Amtrak Reform Council by Speaker of the House Newt Gingrich to complete the unexpired term of New Jersey Governor Christine Todd Whitman. There, he was instrumental in forging the final financial self-sufficiency plan that was required by the U.S. Congress.

He served for nine years as a visiting professor at the Conservatoire National des Arts et Metiers in Paris, where he lectured on transport and demogaphics. He lectures widely and is a frequent op-ed commentary contributor. His regular "newgeography.com" column includes "The Evolving Urban Form" series, consisting of profiles of world urban areas.

Mr. Cox's professional endeavors on urban and intercity transport have the objective of ensuring that riders and taxpayers receive fair value in return for their funding and that scarce public resources are directed to the most beneficial projects and programs.

Demographia's "Public Purpose" website (www.publicpurpose.com) was designated twice by the National Journal as a "Top Transport Internet Site." Demographia's principal website (Demographia.com) is home of the Annual Demographia International Housing Affordability Survey, with metropolitan area data in six nations and Hong Kong and Demographia World Urban Areas, the only annual compendium of population, land area and density data for identified urban areas with more than 500,000 population.

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets. Moore leads Reason's policy implementation efforts and conducts his own research on topics such as privatization, government and regulatory reform, air quality, transportation and urban growth, prisons and utilities.

Moore, who has testified before Congress on several occasions, regularly advises federal, state and local officials on ways to streamline government and reduce costs.

In 2008 and 2009, Moore served on Congress' National Surface Transportation Infrastructure Financing Commission. The commission offered "specific recommendations for increasing investment in transportation infrastructure while at the same time moving the Federal Government away from reliance on motor fuel taxes toward more direct fees charged to transportation infrastructure users." Since 2009 he has served on California's Public Infrastructure Advisory Commission.

Mr. Moore is co-author of the book Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry said, "Speaking from our experiences in Texas, Sam Staley and Adrian Moore get it right in Mobility First." World Bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

Moore is also co-author of Curb Rights: A Foundation for Free Enterprise in Urban Transit, published in 1997 by the Brookings Institution Press, as well as dozens of policy studies. His work has been published in the Wall Street Journal, Los Angeles Times, Boston Globe, Houston Chronicle, Atlanta Journal-Constitution, Orange County Register, as well as in, Public Policy and Management, Transportation Research Part A, Urban Affairs Review, Economic Affairs, and numerous other publications.

In 2002, Moore was awarded a World Outsourcing Achievement Award by PricewaterhouseCoopers and Michael F. Corbett & Associates Ltd. for his work showing governments how to use public-private partnerships and the private sector to save taxpayer money and improve the efficiency of their agencies.

Prior to joining Reason, Moore served 10 years in the Army on active duty and reserves. As an noncommissioned officer he was accepted to Officers Candidate School and commissioned as an Infantry officer. He served in posts in the United States and Germany and left the military as a Captain after commanding a Heavy Material Supply company.

Mr. Moore earned a Ph.D. in Economics from the University of California, Irvine. He holds a Master's in Economics from the University of California, Irvine and a Master's in History from California State University, Chico.