More logical fallacies, some public finance, and putting money where your train is

The CALHSRA response to their Peer Review Panel’s finding that the Central Valley portion of the California HSR project is not finically feasible:

“While some of the recommendations in the Peer Review Group report merit consideration, by and large this report is deeply flawed, in some areas misleading and its conclusions are unfounded. …Although some high-speed rail experience exists among Peer Review Panel members, this report suffers from a lack of appreciation of how high-speed rail systems have been constructed throughout the world, makes unrealistic and unsubstantiated assumptions about private sector involvement in such systems and ignores or misconstrues the legal requirements that govern construction of the high speed rail program in California.”

Or, as my four year-old neighbor girl who is Never Seen Without Tiara says: neener neener.

Yesterday, I covered the logical fallacy known as “slippery slope” arguments. Today, we’ll cover the logical fallacies known as “Argument From Authority” and “Ad Hominem.” The first is the chest-beating: “we are the experts in high speed rail, so we’re right” (argument from authority) and “those other people, blesstheirhearts, ain’t as smart as we is” (ad hominem).

Ever since the Peer Review Group came out with their report, I’ve had to hear one person after another explain about how HSR makes money “all over the world.” Great. You know what? Restaurants all over the world make money, too. But other restaurants go bankrupt, too. The fact that we haven’t seen HSR bankruptcies around the world during a pretty bad downturn makes me suspect that their profits come from creative accounting with lots of hidden subsidies thrown in because intercity transport markets of other kinds have bankruptcies, consolidations, and service suspensions rather routinely because of financial problems.

Nobody–not even the CHSRA–thinks the Central Valley links are going to generate an operating surplus. You need the large market areas of Los Angeles and San Francisco to do that, and I’m not convinced that even then we’d get surpluses–but it’s not impossible or laughable that we would, particularly if taxpayers eat all the costs of construction.

The bottom line is always in the financing, if you know where to look:

General obligation bonds encumber California taxpayers with the debt service for the bonds. Revenue bonds encumber the project itself: these are paid off with the revenues from the project.

If you always make money with HSR–that is, if your service actually generates an operating surplus— why did Prop 1A to fund high speed rail in California specify general obligation bonds rather than revenue bonds?

Why? Either:

a) you think the project can make money, and you want to give a gift to your concessionaire buddies by having taxpayers eat the capital investment costs; or
b) you know full well your project will never generate a surplus that can pay off the bonds.

Either way, troubling.