Is CASHR A Worthwhile Project From California's Perspective?

Background of the California High Speed Rail project

Is CASHR a worthwhile project from the state’s perspective? Why?

CHSRA or the California High Speed Rail proposed a project in front of Obama Administration to get approval regarding the application of $4.7 billion in federal stimulus funding. This application was presented in order to make advances in the engineering, design and construction of the high-speed rail system as proposed by California. The board of Authority’s and the staffs were very much optimistic about results that would be obtained after the construction of the 800 mile high speed rail corridor. This corridor would be connecting all the major regions and cities of the state. In November 2008 the citizens of the state had voted and approve the proposition 1A authorizing the state to issue the bonds worth $995 billion for the construction of the initial segment of the system which was running about 465 miles starting from San Francisco to Los Angeles-Anaheim in Orange County. Heavy emphasis was put upon the “green” credentials by the CAHSR promoters during the campaign, mainly the role that it would be playing in the reduction of the emission of the various greenhouse gases. However the follow up surveys conducted over the voters after the month of November revealed the fact that the potential related to generation of jobs has proven to be the most decisive against the drawback of an economic recession which was feared by many people that it was worsening. In the month of February 2009 when the passage of the Proposition 1A was done, the Obama administration which was coming had been associated with signing into a law which was a massive $787 billion economic stimulus package which initially promised to pour billions of federal dollars into the project related to major infrastructure and the public works which also included the $8.4 billion for the 11 designated high-speed rail corridor in the United States. An October 2009 deadline was set by the Federal Railroad Administration in order to propose and to receive 45 applications from 25 different states for total of around $50 billion. In case if the requested are awarded at full amount then the CSHRA would be taking the lion’s share of the federal high speed rail funding which are available.

Along with this it seemed that the Authorities were well positioned in order to capitalization on the priorities of the Obama administration but due to the fact that the California corridor had made most of the advances in its planning process by having its own estimates regarding the creation of the 130,000 jobs related to construction. Besides this the state had also made a pledge regarding the matching with the federal funds in order to have a total investment of around $10 billion. The request of California also included an amount of $2.19 billion for the Los Angeles-Anaheim leg, along with $1 billion for the San Francisco-San Jose leg, and smaller amounts of money for the engineering work, right-of-way acquisition and other preconstruction activities. The initial sources of funding are mainly combined with the powerful California Congressional delegation were  also in favor of this project and was also associated with providing the CHSRA with renewed confidences regarding the securing of the estimated $34 billion is necessary for the purpose of constructing the first phase of the system.

Funding and support for CASHR

Besides this the CHSRA also got support from outside California and also many of the Americans who wondered why the US was far behind the other countries while developing the high-speed rail service. The High-speed rail or the HSR mainly referred to the trains that were capable of travelling at a speed of at least 150 MPH. Amtrak a government owned company in the year of 1970 created an intercity rail service in the US in order to relive the American’s freight regarding the losing of money in the passenger lines. Most of the services were operated by Amtrak over the tracks of the freight railroads. But the minimum speed that was considered to be safe was 79 miles per hour and sometimes even less.

However HSR was considered to be a good idea by many peoples and besides this the critics present in the Reason Foundation which was a conservative thinking tank along with the Howard Jarvis Taxpayers Association a California-based watchdog organization was associated with advocating the limited taxation and the government has been associated with publishing a lengthy report in the month of September in 2008 was sharply associated with criticizing the proposal of CHSRA. Along with this report has also been persuasive enough in order to prevent the passage of the Proposition 1A. However certain troubling questions were raised regarding the cost of the project, ridership as well as the system performance.  

The HSR system collect its revenue from the fares paid by the passengers which were projected in order the various operating costs which were not at all enough to underwrite the entire capital cost that is required by the system. The roughly estimated cost for Phase 1 would be around $34 billion in order to build and an amount of $1,276 million annually for the purpose of operating in the year of 2030 in order to have a net cash flow of around $1079 million by that year. It was also estimated by the consultant of the authority that the annual cash flow would be sufficient enough in order to provide support to the $6.5 to $7.5 billion in the private financing were the systems that were to be operated as a public-private partnership between the state and the private train company. The business plan was also associated with proposing reminder of around $34 billion in the capital cost that was to be raised from the federal government from the state bond issue that was approved by the voters in November 2008 and also from the local government.

Criticism of CASHR

In the federal sources some current and anticipated future high speed rail program was included and along with this the $8.4 billion that were contained in the 2009 stimulus package, the Obama administration’s 2010 budget also recommended $1billion annually for the high speed rail present over the following five years. The legislation was also being introduced simultaneously in the congress in order to create a permanent and dedicated HSR funding mechanism.

Along with this the estimation of $2-3 billion in the local financial support was generally based upon the potential overlapping infrastructure that is needed between the local transit agencies and also in the high speed system. This can be better understood by using an example that is the authority has been associated with planning in order to split the cost required for certain improvements associated with the local transit agencies and specifically along with the Caltrain and the Metrolink corridors which is associated with sharing of tracks with the CHSRA trains. Besides this the additional property tax revenue could also be generated from the transit-oriented development and the commercial concessions present as the high-speed train stations along with the contribution of the right way that is owned by the cities and the counties assisted by the route proposed by the project.

The authority has also been associated with receiving more than 30 responses regarding the request for the Expression of the Internet or the RFEI in the spring of 2008 in order to gauge the potential of the participation of the private sector in the project. Besides this some of the companies have also been associated with responding which are clearly interested upon providing equipment’s for or to have their technology that are used for the construction of the system. But none of them were not prepared at such an early juncture in order to undertake the type of financial risk sharing that are outlined in the business plan. Along with this procurement of the additional public funding that for the initial phase of the project is mainly viewed as the pre-condition to any kind of private-sector engagement.

Accordingly the business plan has been associated with assuming the initial outlays that are from the federal and the state sources would be very much necessary for the purpose of securing the contributions from the P3s. besides this at the same time a provisioning of the Proposition 1A is intended mainly for the purpose of protecting the California taxpayers is associated with stipulating the fact that at least 50% of the financing needs to secured at firstfrom any other type of sources before the state bond proceeds that could be spent on any of the give statement along with making the time and coordination of the various funding streams that are extremely critical for the projects viability. If the P3s fails to be unavailable on terms of acceptable to the Authority then the cash flow from the operation of train service that could be potentially be used for the purpose of issuing the tax-exempt revenue bond present in the later stages of the project development.

Revenue projections for the HSR system

The critics also argued that such operating profits were very much doubtful. In cases if the average of  the one-way high-speed rail fares for longer interregional trips were calculated at the 50% of the equivalent one-way airfares which were translated into a fixed boarding charge of around $15 along with per-mile cost of around $0.09. Along with this, for the shorter, the intraregional commuter trips an even lower fares was assumed which was around $7 boarding fee plus the $0.06 per mile.

Along with this the CSI was also asked about for the quantification of the social benefits of a high-speed rail system and comparing them with the costs. Besides this the analysis also assumed the fact that the construction of system would begin in the year of 2012. Along with this the initial San Francisco-to-Los Angeles/Anaheim segment would be starting its operations from the year of 2020 and the whole system would be completed by the year of 2026. Besides this an assumption was made regarding the time horizon which was likely to be extended to the year of 2050 assisted the streaming of the costs and the benefits which were discounted at a real rate of 4%.

It was also estimated by CSI that the ratio of the benefits to the cost was around 2.8 to 1. The present value of the HSR construction along with operating and maintenance costs was around $53 billion in the 2008 dollars. The present value of the benefits to HSR users alone amounted to around $90 billion. The measuring of the users benefit were done according to their willingness for making payments regarding the services provided by HSR and the part of which was reflected in the actual fares and the parts n consumer’s surplus. In order to analyze the cost benefit the fares were set to 50% of the airfares which was a policy the Authority was characterized with in order to achieve a balance that exists between the “maximizing of the public benefits” and “maintaining a healthy operating surplus”. This means that the deliberate pricing of the fares below the potential riders might be willing to pay for the HSR service. Along with this, in the Jargon of the economics the difference that exists between the maximum that the passenger’s would be willing to pay and the amount that is to be actually paid that was known as the surplus of the consumers.  

Along with the reminders of the HSR,s also estimated the benefits that is having a value of about $60 billion which are generally accrued to the air and the auto travelers which are in the form of reduced delays along with less air pollution ad few auto accidents and fatalities. Besides this the diversion of the air passenger’s towards the high-speed rail would be associated with translating into substantial time as well as cost saving for the airline operators as well. Additionally assumptions are also made regarding the expansion of the airports which are existing in order to increase the future air capacity of California. In a similar way the alternative high speed rail would be associated with lowering of the number of intercity automobile passenger’s in California highways by up to an amount of 70 million annually. Along with this the presumed combination of the constant highway capacity and decreased the demand of travel via the auto which would initially lead to the reductions of the number of vehicle hours travelled which was valued at the hourly rate of around $57.72 for business or the Commute travelers and $18.33 for the leisure and the personal travelers.

The study has also argued to the fact that the cost benefit ratio was very much conservative and this is mainly due to certain benefits which had not been included and most notably have been associated with reducing the highway capital costs and the maintenance which has been associated with increasing the jobs and reducing the GHG emission from the planes and the automobiles. The diversion of the air and the auto travelers to high speed rail would for instance save the need for $82 billion in the infrastructure costs which also includes the 5 new airports.

From the above discussed topics it can be concluded that this project is totally worthy from the prospective of a state. This project would be very much beneficial for the state. Along with cost benefits the project would also be providing certain benefits like employment and many more. This construction of the high speed system would be associated with direct generation of around 130000 jobs which would be including more than 320,000 permanent jobs that results in both directly and indirectly from the system including jobs in tourism, transportation, services and security.