Is the $98 billion admission smart or dumb politics for HSR?

The California High Speed Rail authority released a business plan that upped the cost of the state’s high speed rail from I believe $42 billion (In my defense, their decoy numbers have jumped around a bit) to $98 billion. The story appears in the Los Angeles Times here.

Take a look at the story; the additional costs are associated in the business plan with extending the construction by another 10 years. Whenever I read a business plan from these folks, the lizard part of my brainsays we are dealing with a lemon market and I become immediately critical of every single claim the seller makes. So what? The admission that the cost is likely to be just shy of $100 billion (my best students estimated it at $105 billion) strikes me as a gambit to try to wring as much money as possible from both Federal and state supporters.

See, for example, exhibit a: this story covering a letter from the California High Speed Rail Authority telling legislators what everybody with any sense already knows: no private money is going to darken the agency’s door until the state and the Feds have eaten all the capital risk. Quelle surprise.

Given the emphasis and increasingly persistent calls for Federal help, I think this “It’s going to to cost us $98 billion if we have to extend construction dates” is a scare tactic. Give us more money to get started sooner and that scary, scary $98 billion price tag goes down! Like magic!

Only it doesn’t really go away because we’re at the end of 2011, there’s no way that project could be constructed by the 2020s anyway, even if all of us immediately stopped flinging away money on silly things like education and medical care for foster kids in favor of giving it all to the California High Speed Rail Authority.

It’s a pretty good gambit. If they get the federal money faster than they are currently, they can always say that the feds didn’t give them enough to prevent the delays and see? We told you it would cost more if you didn’t fund us up front. They have a built-in rationale for the likely cost over-runs.

There’s part of me that thinks I’m giving them too much credit with the scare tactic. After all, they do politically dumb things all the time, like, say, planning to demolish the school attended by the children of one of the state’s leading Republicans. D’oh! Just to be clear: the goal is to make sure that the project goes close enough to Senator Bedfellow’s constituents that they get to have some of the billions, but not so close that his kids’ school is going to have to rebuild somewhere else.

I’m happier that the closer-to-reality price tag is out there; it at least forces people to wake up. The HSR authority is right that the longer construction and financing period will increase costs, and people should be aware of that. And they should also be aware that most of us who follow this kind of work do not think that this project can be delivered for anything under $90 billion under even happy assumptions. And they should be aware that private investors are not going get themselves leveraged for construction costs; the best we will get is clawbacks in leasing the facility later.

So here are the questions: If this is a gambit, should the feds jump in to give them more cash upfront to try to jumpstart the project and try to curtain the higher costs? If the business plan is not a gambit, is the project worth $98 billion to the state? Proponents say that’s still cheaper than expanding airports and highways, but those generally run $4 to $5 billion a pop, so doing the math might help us. Even if it’s not cheaper than expanding airports and highways, perhaps that price tag is still worth it?

I will leave you with one more story from the LA Times, this one from Sunday, on the predatory subprime lending in used cars in Los Angeles. A woman who has a child with asthma, faces a two-hour bus ride to get to her $27000 a year job at UCLA. So she buys a used car from loan sharks because cars are immensely useful. 1) Nobody who makes $27K can afford to live anywhere near UCLA, so we have an affordable housing problem; 2) the subway to the sea would probably cut down her transit ride time by a lot, but I still think she’d have so many transfers it would be cheaper and faster for her to drive; 3) if she works at UCLA, why can’t her child receive care there for his asthma and 4) if I were going to spend $98 billion on something, it would probably be on 1 through 4.

One thought on “Is the $98 billion admission smart or dumb politics for HSR?

  1. It is pretty clear state politics today are dominated by the recession and budget shortfall. The only way out is controlled spending which means across the board cuts from education to pensions. In addition the state should cut payroll taxes for newly started business for up to four years. Or some other program to incentivize small business. California has a great entrepreneurial spirit. Government leaders must encourage the flow of investment capital to the state. Rebuilding this sate goes through small business.

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