California High-Speed Rail No. 9 and the Chairman’s Turn Again

As a reminder, this is No. 9 in a series on the plan for a north-south California High-Speed Rail system, which according to me deserves national attention as the highest-stakes infrastructure project underway anywhere in America now. For previous installments see No. 1, No. 2, No. 3, No. 4, No. 5, No. 6, No. 7, and No. 8. We have a few more installments still to go.

When last we visited this topic, with No. 8, eight readers were offering eight complaints about the concept and execution of the system. Back in early July, with No. 3, the chairman of the High-Speed Rail Authority, Dan Richard, replied to some preceding rounds of criticism. He is back again, with his answers to the latest crop.

‘m quoting his replies (nearly) in full, not because I think he deserves the last word on the topic—hey, it’s my site, I’ll get the last word myself—but because this is a hugely consequential decision for California and America, and the details of the pros and cons matter.

Below I’ve summarized the eight previous complaints, with excerpts from the criticisms in italics. The rest of the material is from Dan Richard. Over to him.

Criticism #1: The ridership projections are unbelievable.

This is a key issue, so let me respond in some detail. Just declaring the ridership projections “unbelievable” does not make them so.

Early ridership projections were subject of criticism. However, the new leadership team took a very different approach. Our ridership and revenue models are quite sophisticated and have been subjected to multiple tests.

First, we performed high, medium & low assessments based on sensitivity analyses. When we finished those, we arbitrarily cut estimated revenues in each case by 30% to see if the resultant values would still exceed costs. However, we’ve taken that a step further, based on recommendations from Peer Review Group and engaged in a probabilistic approach known as Monte Carlo analysis that runs a range of potential outcomes – again subjecting these to a further arbitrary 30% revenue reduction. Again, all outcomes exceed costs. We don’t believe any other infrastructure project has approached its ridership/revenue analysis in as comprehensive a fashion.

There are two external peer review groups that have reviewed this work. We further tested our model by running values through it for the northeast corridor and it accurately correlated to both historical and projected data. Finally, the federal General Accountability Office (GA) was asked by Congress to review our program; the GAO found our methodology for ridership, revenue and O&M costs to be reasonable.

Yes, it is true that there are about 15 million annual trips between the LA Basin and SF Bay areas by highway and air and that those trips are about evenly divided between the two modes. Those numbers are on the low-end of estimates, but generally in the ballpark. However, this view neglects to take into account all of the trips taken within the LA to SF corridor that are not complete end-to-end routes.

For instance, a college student at UC Merced may drive several times a year to visit her parents at home in San Jose, or a small businessman in Palmdale may need to check in on his Burbank branch once a week. There are roughly 100 million such intermediary trips taken on an annual basis — virtually all of which would be made more convenient by high-speed rail. This is where a substantial amount of our ridership will come from.

While I think viewing ridership in this context largely negates the writer’s argument over our projections, I would also point out that perhaps part of the reason why there aren’t more trips between LA and SF is that current travel options are just not very attractive. Hours on the road or in airports appeal to virtually no one, while a quick and efficient high-speed rail trip between LA and SF will become a no-brainer for many who think such a trip is too much of a pain to make today.

By the way, our ridership numbers are based on an assumption that our fares would be 83% of a discounted airline fare, or about $86 one way (2013 dollars). Current standard LA-SF airfares are more in the range of $250 one way.

We currently have the most traveled air corridor in the country between LA and SF with 40% of the flights delayed. Experience around the world shows that HSR captures about 70% of the traffic in such corridors (the Acela shows similar splits in the Northeast).

[From previous post:] So I ask, why with a rail trip of over 2h40m and fares 50% of airfares, why would 9.5 M LA Basin and SF Bay travelers in 2030 choose rail over highway and air?

Because it’s faster and cheaper than flying, a more pleasant journey and more reliable in bad weather.

[A trip by air includes getting to the airport and perhaps an hour or more of being hassled over security, et al. But wouldn’t the same be true for HSR rail if it becomes a reality?…Why would a traveler in 2030 elect to take the HSR rather than drive, when at present he is willing to spend 6 h on the road rather than fly?]

Except that our program is not just high-speed rail. This is an essential point. It’s an entire rail modernization program. We’re simultaneously investing in beefing up urban and regional rail systems with strong intermodal connections. In 2030 one can go from SF to LA Union Station and take a subway to Santa Monica or a Metrolink train to Ventura, likely faster than going by car.

[Unlike the Northeast corridor, there are relatively few folks living in the towns between the endpoints. And from discussions with these folks I found that most live in these smaller places because they hate LA and SF and have no reason to go there.]

I have to disagree. First, what does “…relatively few folks living in the towns between the endpoints” mean? Fresno is 80% the size of Baltimore; Bakersfield is 20% larger than Newark; Modesto is three times the size of Wilmington and Merced (which no one on the east coast has heard of), has about the same population as Trenton. Air service between the San Joaquin Valley and LA or SF is extremely limited and quite expensive (e.g., 900 bucks from Fresno to LA). A one-hour train trip can replace a three-hour drive.

[Finally the cost of $68 billion is excessive. It amounts to $200M/mile for the undeviated 344 mile distance between LA and SF…]

First of all, the first phase of our system will cover 520 miles, not to avoid tunneling but rather to connect major population centers; in today’s costs that is about $54 billion or roughly $100 million per mile, which is not uncommon for transit systems. (The $68 billion figure represents the fully inflated cost of the project over its construction life.; no one else bothers to present numbers that way). Moreover, our first construction contract bid came in almost 40% below estimates.

[Perhaps we should let the Japanese build the system, but they would likely choose maglev over rail, despite the fact that they operate one of the few highly profitable high speed passenger rail systems in the world.]

Actually, virtually every high-speed rail system in the world has positive cash flows from operations. Some have paid back some of their initial capital. We feel strongly (as do the Peer Review groups that have analyzed our project) that we’ll be generating positive cash flows as well.

Criticism #2: The cost estimates are unbelievable, among other problems.

[The HSR Authority and anybody associated with this cannot be trusted. Past cost estimates have ranged from $40 billion to $100 billion and now down to what, $80 billion?.. We’re being lied to, openly.]

When Governor Brown’s team came in we took a hard look at the costs. We said that the $33 billion number (which may have been in 2006 dollars; no one is certain at this point) that were called out in the 2008 ballot measure would cost more than that, namely about $60-some billion in 2011 dollars; on a fully inflated basis over 15 years, that would have been $98 billion. We then embarked on a cost-saving campaign to use existing trackway in urban areas, reducing the $98 billion number to $68 and we’re embarking on further cost reductions. We have tried to be transparent and it’s all laid out in great detail in our business plans.

[HSR works best between cities with lots of mass transport…]

As part of our statewide raid modernization plan, there will be a growing network of commuter rail, subway, intercity trains, etc. Undoubtedly, there will also be social media-driven services like Uber and Lyft, along with driverless vehicles, etc.

[Business travelers now can make trip in one day between SF / LA. It’s a long day, sure, but it’s feasible because aircraft travel is so fast. Not so with HSR, so many business travelers will shun it. Families then? No… your cost for 4 people is simply going to be much less driving than paying for 4 tickets.]

As noted above, 40% of LA-SF air trips are delayed, mainly due to weather. As for families, our ridership models account for different trip choices for business and personal travel. The operator of the trains will optimize revenues with a variety of pricing strategies and that may well include discounted trips that work well for families, in the same way airfares can be expensive or cheap depending on how and when they are purchased.

[It’s being built in a corridor that doesn’t have a demand problem (down the Central Valley)… I’m guessing a substantial part of any Central Valley congestion is freight trucks, which HSR won’t do a thing to solve.]

Sure it will. Today, the Amtrak San Joaquin train service is the fifth busiest Amtrak service in the U.S. It handles about 1.3 million trips per year and some of those folks have to take the bus from Bakersfield to LA. That service is growing at double digit rates. Building a new passenger only line in that corridor can free up rail capacity for movement of agricultural produce. Right now, big agribusinesses are telling us that they are begging the freight rail operators for more rail capacity but it’s not there. Let’s get those trucks off the highway and move more goods by freight rail, which we can do if we have a new dedicated passenger service by high speed rail.

There are 4 million people who live in the Central Valley. They face many problems, including having some of the worst air quality in the nation, high unemployment and poverty rates, etc. High Speed Rail is one important way to connect the Valley with other economic centers of the state, improving transportation, air quality and land use.

[It bypasses, and has no plans, to connect to Sacramento or San Diego. Ridiculous.]

The way the bond measure was written, those cities aren’t bypassed, but are in Phase 2 of the program…

[California (and maybe the nation) can’t build a damn thing right…. Oh, Governor Brown’s response to the Bay Bridge’s cost and structural problems? “Shit happens.”]

Yes, the Bay Bridge had issues, but that doesn’t mean we can’t build anything. We are using a design-build approach for High-Speed Rail. It shifts appropriate risks to the contractors. We have put together perhaps the most sophisticated risk assessment/risk management program for any infrastructure project in the U.S. We have open and transparent reporting systems so that the public and the Legislature can monitor costs and schedules. I can’t say there won’t be problems, but we’ve studied other major infrastructure projects and have a good handle on how to build this. Again, we have peer review groups looking over our shoulder.

[HSR in general is fine, when done correctly, and it could be done correctly in California, but the current project pretty much guarantees it won’t.

Instead why not build in corridors of proven demand? That would be Sacramento-Bay Area, where the Amtrak Capitol Corridor runs now. An HSR there would be fantastic, and if it failed at least wouldn’t cost a hundred billion dollars or more.]

First, the bond measure set priority for LA/Anaheim to San Francisco. Second, while the Capitol Corridor is a highly successful enterprise, its route along the coast is not amenable to high-speed service; an entirely new route would be required that will be much more expensive. I won’t say that the project, as we inherited it, was perfectly planned, but we can deliver a modern, clean, effective transportation system serving millions of Californians.

Criticism #3: Earthquakes!

[I know that living in the seismic zone has not prevented Japan from building a successful high speed train such as the bullet train from Tokyo to Osaka … I have some concerns about whether Californians would accept the costs necessary to make such a project safe during relatively large quakes.]

We are very aware of the spectacular engineering achievement of the Japanese high-speed rail system. Their techniques for dealing with active seismic zones are the envy of the world and we will adopt them. The Japanese were the first to develop an early warning system that detects p waves from earthquakes, which travel at twice the speed of the main shock waves. During the terrible earthquake of 2011, that detector system cut the power and stopped a high speed train traveling in the Fukashima region that was so devastated. In 50 years of operation, the Japanese have never had an injury or fatality on their high speed rail system. Yes, we can and will adopt this approach.

Criticism #4: Even in Europe, HSR is an impractical boondoggle.

[I think Americans like it because it is a fun and convenient way for tourists to travel between a few make tourist destinations when they have no schedule to meet. Practical, cost effective transportation it is not…. That is under ideal European conditions. Between SF and LA, you have a much smaller potential ridership, a worse network of feeder lines, and higher costs.]

European countries continue to add to their high-speed rail systems and replace other modes of transportation

[HSR in California is a boondoggle and a gigantic waste of money. You’re likely subsidizing each potential rider with trends of thousands of dollars construction costs alone, plus more subsidies in operating costs…. HSR represents political corruption, crony capitalism, and vote buying at its purest.]

I know we live in a time of cynicism with strong distrust of government, but these statements are polemical and not based on fact. No subsidies will be given. None. It would violate the bond act and we believe the system will generate significant positive cash flows. Sorry to dispel the notion that this is all to support expensive union contracts; all federally-funded projects are based upon prevailing wage-labor rates and have been for decades. Please read our business plan – the trains will be operated by the private sector, not public sector.

We see this train service as operating at many levels to serve working class Californians and not just affluent ones. Oh, and by the way, our policy is that 30% of all contract dollars must be spent on small businesses. That’s $1.8 billion for small businesses in the Central Valley over the next five years, just on the first construction segment.

Criticism #5: Maglev would be better—cheaper in the long run, easier to maintain, more advanced.

Maglev is an interesting technology but very expensive to build, much more so than high-speed rail. It’s also difficult to build maglev where the terrain and topography vary. It’s my understanding that these factors more than offset lower maintenance costs, should they even exist.

Criticism #6: Historical precedents in California are discouraging.

[1) the Bay Bridge—only 24 years from earthquake damage to replacement, with an endless string of engineering flaws and delays discovered along the way.]

I can’t comment on the Bay Bridge. We have a strong, accountable management team and previous critics like the state Auditor General have reported significant progress in the way the HSR Authority is organized and operates. We’ve put in place many of the governance and oversight functions required of corporations and we have high transparency in our operations. In the last three years, our progress has been good, despite litigation aimed at stopping the project.

[2) BART to SFO: estimates of ridership were grotesquely inaccurate. They’ve had to radically reduce the number of trains.]

Uh, I helped build that project [JF note: Dan Richard was on the BART board from 1992 to 2004] and it is a smashing success. The ridership projections proved inaccurate in its first few years only because of the effects on air travel of Sept 11th and the ensuing economic downturn. Within five years, the project was quite robust and today is operating at 105% of its costs from downtown SF to the airport, extraordinary for an urban mass transit system.

Criticism #7: Precedents in the rest of the country are discouraging too.

[The “Access to the Region’s Core” project (in New Jersey) was originally estimated to cost $8.7 billion; by the time it was cancelled, that estimate had risen to $11 billion. Half the original funding was to come from NY and NJ (mostly NJ). So the general tax revenues of the state would be used to construct boutique travel benefits for the highest-earning people in the state, while simultaneously increasing travel costs for everyone via gasoline taxes and toll increases.

Why should the bottom 60% or so be required to pay for a shiny new toy for the top 40%? … So, if you really want HSR in California, all you have to do is argue that the HSR ticket prices must reflect the full cost of the project.]

It’s hard to argue with the overall concern. All I can say is that we are not allowed by law to provide an operating subsidy, so indeed the ticket prices must reflect the full (operating) cost of the project. The public does pay for the initial infrastructure but there are enormous societal benefits, in terms of air quality, GHG reductions, land use, rising employment and incomes, etc. that benefit even those who don’t ride it. Today’s Amtrak service in the Central Valley is heavily used by working class Californians. I can’t make guarantees at this point, but I don’t believe the HSR fares will be out of line with the current passenger rail charges and there will be different levels of service to maximize ridership.

Criticism #8: The project will have little or no positive environmental effect.

[My understanding is that California agriculture uses about 80% of our water but provides only 5% of economic output. Ongoing drought and shifts in federal policy are only making water more expensive. So whatever the ostensible productivity of that land, the price of water means that the future of California’s economy will necessarily continue to shift toward the cities. (Hence the farmland-eating sprawl you lament.)…

I can believe that infrastructure programs can have unexpected benefits. But the systemic trends hurting the Central Valley go much deeper than transportation. The HSR won’t fix climate change.]

No, electrified HSR won’t stop all climate change, but it will provide dramatic reductions in greenhouse gas emissions, along with criteria pollutants. The air quality in the Central Valley is among the worst in the nation. 21% of the kids there have asthma. Widening state route 99, which has occurred in places (the main north-south artery on the east side of the Valley, directly connecting the cities there) gobbles up five times the farmland per mile as we would be taking for HSR. Moreover, while we can increase capacity with more trains, the highways would need ever more widening.

You are right that infrastructure projects can have unexpected benefits. One such benefit is the creation of a new industry in the Valley, providing economic diversity through support service enterprises for the HSR system. Both Fresno State and Cal State Univ. Bakersfield are beginning programs to train their engineering students to work on HSR-related systems. Tying these cities together with larger population centers also can have untold benefits.

It is true that we must get the land use right. We want to encourage high-density development around the stations and good land use planning. Otherwise, HSR could result in additional sprawl. Nothing is a given, but we clearly have our eyes on how this should be done correctly.

Happy Labor Day.