“The Great Train Robbery,” California Version

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com

The hoped-for April spike in personal income tax revenues for the State of California fell once again below the overoptimistic assumptions used to get the budget to “balance.” Instead of the $9.4 billion that the government had counted on collecting in April, it only collected $7.4 billion, according to the nonpartisan Legislative Analyst's Office. A 21% shortfall! In addition, corporate taxes were $450 million below forecast. After months of “disappointing” tax revenues, the total shortfall in income taxes now amounts to $3.5 billion for fiscal 2012 ending June 30.

The budget, supposedly balanced when it was passed last summer, had been spewing red ink from day one. Tax revenues were one problem. Expenditures were the other. The most recent re-revisions pegged the deficit at $9.2 billion. That was a few weeks ago. Now it’s going to be re-re-revised to nearly $12 billion. And the dance of shuffling funds between accounts, slowing payments to municipalities, begging Wall Street for loans, and selling crappy bonds will start all over again. But there’s a savior on the horizon: the Facebook IPO that will solve all budget problems forever. Ha, read.... Give us the Facebook Manna Now.

Yet permanently broke California, instead of fixing its fiscal problems, is getting ever more entangled in a mega-project of JELL-O-esque nature: high-speed rail between San Francisco and Los Angeles. In 2008, voters authorized $9.95 billion in general obligation bonds to fund the first stage of the $35.7 billion project; the federal government would pick up a chunk, and it would be profitable! By November 2011, costs ballooned to a range between $98.5 billion and $117.6 billion—though construction hadn’t started yet. And all heck broke lose.

The California High-Speed Rail Authority (CHSRA) then dared to request $2.7 billion, the first tranche of the bond money, to be matched with $3.5 billion in federal money, for 130 miles of track in the Central Valley from just north of Fresno down to Bakersfield. Lacking electrification, it could only be used by regular diesel trains. In January, the High-Speed Rail Peer Review Group recommended that the project be put on hold: if future funding didn’t materialize, that initial section in the Central Valley would become an icon of high-cost rail from nowhere to nowhere.

Resistance to the project became insurmountable. So, Governor Jerry Brown installed some new folks at the CHSRA—which suddenly chopped the price tag by 30% to a range between $68 billion and $80 billion. OK, on the Peninsula south of San Francisco and in the LA Basin, the system would be more like commuter rail. And it would also include more "medium-speed" links. Travel times would creep up. High-speed service, where available, might be ready by 2028.

“The great train robbery,” is what retired Judge Quentin Kopp called the new plan—and he, as state senator, co-authored the bill that created the first high-speed rail study.

But it gets even worse: turns out, operating costs are based on fantasy assumptions. The CHSRA plan assumes that it would cost 10 cents per passenger mile (the average cost of carrying one passenger one mile at a given load factor) when international high-speed rail systems averaged 43 cents per mile, according to a report that just surfaced. The low-cost leader was Italy with 34 cents per mile; at the upper end were Germany and Japan with 50 cents per mile; Amtrak’s Acela Express, though not truly high speed, was in the middle with 44 cents per mile. And in California, it’s going to be 10 cents per mile?

The CHSRA correctly assumes that train tickets compete with air fares and the cost of driving, which, despite our incessant complaints, are lower in California than overseas. Thus, the US market requires cheaper tickets. And to make the project appear profitable, and thus more digestible for the taxpayer, the CHSRA lowered its projected operating costs to less than a quarter of the international average.

But if actual operating costs are 43 cents per mile and not 10 cents per mile, annual subsidies of $2 billion to $3 billion would be required just to keep the trains running, according to the report. Yet, AB3034, the California High-Speed Train Bond Act, makes these subsidies illegal. A conundrum that the Legislature, the Administration, and the CHSRA have so far successfully ignored.

Thus, our dream of having a profitable high-speed rail system has gone up in subsidies, so to speak, at least in the current scenario, though scenarios change with the seasons, in the hope that money will start flowing soon. But the last thing California has is money—with its economy and budget still in shambles. And it may not just be California.

"Despite all of the rhetoric to the contrary, it looks like the air got let out of the balloon," commented the members of the ISM-Chicago Business Survey that had suddenly taken a turn for the worse. And now there are real reasons for concern. Read.... Calamity Economy Rearing its Ugly Head Again?

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blunderdog's picture

Rail is a pretty good way to move big stuff around, but we're too fractured as a community to even admit we have any desire or need to move big stuff around.

Maybe next century.  We've got a collapse we're trying to get through, here.

Jumbotron's picture

LOL !!!

I wish I still had that inaugural edition of High Technology Magazine from 1984.  Front Cover was a utopian painting of a high speed rail train zooming through the California countryside.  Inside the article talk about the plans in Californian and in Florida ALREADY ON THE DRAWING BOARD (remember...1984) for high speed rail by end of the 80's. 

LOL !!!

User 3461's picture

There's a "high speed" rail going in between STL & CHI. I wonder if it stinks like its CA sister?

orwell6's picture

And to think...the sister liberal state ...Wisconsin... avoided such folly.  

Mr. Noatak's picture

My opinions only:

Good friends, the real issue here (or the story within the story) is this:

A state cannot print its own money. Therefore, how can a state maintain a fiscal deficit for five minutes, let alone years? Think about this. If any state is allowed to maintain an annual deficit by any means, it undermines confidence in the national monetary system.

For that matter, how are our 50 states any different than the countries which make up the European union (with Germany playing the role of Washington, D.C.)?

Ghordius's picture

I'm not sure where you are heading, though please consider that Germany is not playing the role of Washington, D.C., it's playing the role of the Rust Belt before it decayed. The German political system is defending the producers in the eurozone - and not only the German ones. The game is "how much industry has to be shifted to the East?". According to the City of London, all of it.

2012wiki's picture

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Bobportlandor's picture

100 BILLION for a choo choo train.

Time to get Back to the future, and get chinese labor.


Seariously How may people here KNOW even if they never held a sledgehammer before, can lay one mile of track for less then 277 million a mile?

For 30 million I will hire 200 men @ 150,000 a year and in one year it will be done.

Rail + Ties + gravel + grading + Surveying + a few bridges add 1 billion

trains = 300 million

stations 1 billion

total cost 2.33 billion

ok I'm off 100% 4.66 billion

add my profit 4 billion

bribes to politicians 800 million

Total cost 10 billion


People your getting the shaft.

AnAnonymous's picture

Do you declare land Indian domain so you can seize them for minimal compensation (that is the costs of the armed thugs to oust people living on it)?

Just wondering. Indeed, US citizen economics avoided this kind of cost in the US but the question is: where are the Indians?

ddtuttle's picture

Hello, average car gets about 20 mpg which is 20 cents per mile.  Thats right: a 3000 lb car with ONE person in it is more efficient thant the high speed rail at realistic price of 50 cent per mile.  Of course, the train has to be full for that figure.

A 747 gets 109 miles per passenger gallon, or 3.6 cents per passenger mile.  A more realistic would be a 737 NG with 123 passengers and about 54 miles per passenger gallon or 13.6 cents per passenger mile.  I'm not including operating costs for the plane, but they have to be comparable.  Assuming the same 50 cents per passenger mile that leaves $22,000 to pay the crew landing fees and maintenance.  Besides the plane is a lot faster.

Now just consider the $100 Billion, not including operating costs.  Assume it runs for 20 years with 1000 passengers per day.  That $13,698 per passenger trip.  This is a crime!  As soon as it went past a few billion, they should have ditched to whole project.  Its total bullshit. 


pitz's picture

40 cents a passenger mile?  Insane.  The A380 gets 80 passenger miles per gallon.  Figure $4/gallon, that's 5 cents per passenger mile.  Even when you include all the other non-fuel costs, the A380 is still under 15 cents/passenger mile.  Southwest Airlines has a CASM of 12 cents.  d

Demologos's picture

The so-called conservative pundits writing for the Orange County Register and other outlets have been using the high-speed rail project as a pinata for months.  Yes, it has been a clusterfuck in progress but that doesn't mean it is the wrong thing to do.  First, get the politicians out of the planning meetings and put someone in charge who has actually built something.

Per passenger mile, electrified high-speed rail is eight times more energy efficient than travel by jet, and four times more efficient than travel by car.  As long as that ratio holds, and until jets and cars are designed to be powered by butterfly farts, the energy cost will always be less for rail.  That is, the energy component of the ticket cost will increase eight times faster for jet travel.  Thirty years ago, gas cost 32 cents/gallon and now it is nearly $4/gallon (when California's higher taxes are deducted).  I'm going to stick my neck out here and predict that if the same curve slope is maintained, gas will cost nearly $40/gallon thirty years from now.

Every form of transportation is subsidized, from sidewalks to subways.  The purpose of building public transportation, even if it requires some subsidy, is to increase commerce and that is exactly what California needs.  Once built, the technology will improve to increase speed and efficiency.  A study of high-speed rail for Florida demonstrated that if a freight component is added during off-peak hours, the system will pay for itself in five years.

Here is how you start to undo the clusterfuck.  First run the route along existing freeway rights of way, saving billions in property acquisition.  Then, start it at the base of the Grapevine where everyone can see it as they travel into and out of the LA basin.  Build a freight conveyor that will move materials to the front end of the construction location.  It can be simple like an overhead cable system used for logging or even a water flume to float the materials along.  Power the system with either pebble-bed nuclear reactors or thorium cycle reactors.  Finally require the construction companies to develop new methods for mass-producing the guideways and supports on site.

When it is done, you have a new homegrown industry that California can market around the country and world.  And instead of using petroleum we have to buy (or steal) from people who don't like us on the other side of the planet, the electricity powering the system will be produced locally, keeping billions of dollars in our economy, not in the economies of despotic and brutal monarchies.

Leraconteur's picture

The problem isn't HSR, it's The United States.

The country is populated by mostly over-weight, poorly educated, lower middle class workers who earn less than $27k per year and are debt slaves addicted to TV, fast food, SSRI's and Corn Syrup.

The country has not been able to elect effective leadership that does as the people wish, for at least 12 years.

The 'leaders', politicians and unions involved in any HSR project scew it up so badly due to greed, corruption and mis-management, that to construct one is pointless.

The fact is that The USA is a second rate nation with a big gross income and a massive military and little else.

In short, the country is disfunctional and cannot get its shit together.

HSR is just a symptom of the deeper ailments that are killing the nation.

WAMO556's picture

Dude, YOU are out of your fucking mind! California is doing its best to literally drive any and all business out of the state! I live there and making plans to get the hell out no later then august. And the reason you ask? The government is FULL of communists. These people think that the government IS the reason for having a successful business climate. They get PAID alot of money these public workers do, and... they are comfortable with the corrupt policies that they are advancing. Why? Because they get paid. Take for instance a San Diego Police man, officially he gets paid 40,000 a year, add in overtime he gets about 100,000 a year, when it is time for retirement, which number do you think that he gets the 40 or 100. That's right you guessed right - he gets the 100,000 a year retirement even though he only funded the 40,000 a year, and if that cop plays his cards right, he gets a 1 MILLION dollar bonus!!!!! Folks that is right!!!   But we wouldn't want to denigrate the patriotic actions of the cop, that cop is only ONE EXAMPLE of how corrupt the whole system - and there are plenty of corrupt city and county officials thinking that they are entitled to other peoples money. I pay my taxes to fund these idiots, but only for a short time longer. My friends have all ready left and walked away from their homes, my family plan on doing the same for the exact reason of defunding these vampires that call themselves PUBLIC SERVANTS!! Public Servants is a oxymoron - they serve themselves and laugh at the Civilians who pay their salaries. What a waste!

John_Coltrane's picture

I bet you didn't include the energy costs to construct the rail system did you?  That's what proponents of hybrid cars (they need expensive batteries) and solar power (very expensive storeage) always do.  Or the value of people's time?

Central planning and industrial policy advocates need to STFU!

Lednbrass's picture

Its quite simple really. If California wants a high speed train, they can raise the money within the state and build it. Expecting Federal money is ridiculous.

If not, they can STFU.

bunnyswanson's picture

Florida was offered the HSR too but republican governor refused it. 



(From link below):  The obligations under this MOU of the State of California or its political subdivision are subject to the availability of appropriated funds. No liability shall accrue to the State of California or its political subdivision for failure to perform any obligation under this MOU in the event that funds are not appropriated."

From:  http://www.cahighspeedrail.ca.gov/assets/0/152/269/779050f7-af03-44bc-94a0-93f475e81c2a.pdf  - Memorandum of Understanding

Anaheim was excluded from the line to save 60 billion - a relatively small sum (considering the huge tourist resort ).  Some Anaheim citizens went berserk because of this.  HSR Authority had meeting and put it back on the map - as a stop.  Or so they say.  Here is the Anaheim map.  Notice the child-like scrawl compared to the other routes and their maps.  Here it is


http://articles.glendalenewspress.com/2012-04-10/the818now/tn-818-0410-congressional-panel-launches-probe-of-californias-highspeed-rail-project_1_high-speed-rail-project-important-transportation-projects-congressional-panel   Corruption Eruption




Map of California prisons:



"Vague" is word used to describe the HS Railway plans.


It's clear to me there is more than meets the eye here.

cthulhu's picture

The problem with comparing energy-costs to energy-costs is that it's completely irrelevant. How much do railroads pay for right-of-way and track maintenance? How much do airplanes pay for air traffic control and.....uh, air?

The fastest and most effective way to use transportation to increase commerce in California would be to take every third bureaucrat in the state, tie-em down on I-5, and run semis over 'em.

AnAnonymous's picture

Adding the other costs like plane maintenance, staff salaries and the rest...

engineertheeconomy's picture

i actuall worked on the project for a while, you don't even want to know how fucked up it was...


DeadFred's picture

People in Fresno and Bakersfield might object to having this called a rail line from nowhere to nowhere.

Of course they'd be wrong.

Body of Lies's picture

The whole project is a "Body of Lies"

lamont cranston's picture

My father was Chief Administrator & Budget Director of the US Railroad Retirement Board way back in the late 50s & early 60s. I told him one day about how much I loved riding the train back home to visit our relatives from Chicago to Mississippi every summer, and to paraphrase his response "enjoy it now, without the govt supporting it, long trip passenger rail is dead."

Of course I had no clue at age 9. He did. Along those lines, he never made more than $14k/yr. Now, per their website, I see that 3-4 people do his work with far less RR employees. And probably all make $150-200K/yr.

The $$$ for rail today are not for transportation...as Slim Pickens said to Harry Dean Stanton in Rancho Deluxe, "All large scale crime is always an inside job."

Freebird's picture

Ronnie Biggs having kittens

hedgeless_horseman's picture



The Great Train Robbery by Michael Crichton is a great book.  One of my favorites.  

tempo's picture

Its like crab grass..once it gets started it will continue until it takes over the entire lawn. Tution increases, medicaid cuts, more prison released all because of the greed of a few well connected contractors and untions. Its a shame. Fairness is those who have ability get and those that have need get from those who have ability.

dolly madison's picture

We desperately need prisoners released in California.  Our prisons are so overpopulated here that a judge has ordered them released, and besides our prisoners here, we ship more prisoners out to be held in other states.  The war on drugs has went too far here, and the private prisons love the drug criminals because they are largely not violent.  It's just a racket.  It will be interesting to see where it goes after the next election where we get to vote on legalizing pot.  I think it will pass this time.  Very interesting indeed.

Ghordius's picture

dolly, I agree - please remember though that by privatizing the prisons you give an incentive to the private economy (of prisons) to expand and to spend lobbying money in having laws that increase the prison population.

Unintended consequences at work. Sometimes the efficiency of the private sector is not helpful.

While legalizing pot would release many prisoners, this powerful nexus of interests would just create new reasons to imprison more people. 

By the way, who is the next population segment that is largely not violent and would be targeted?

goldfish1's picture

"...all because of the greed of a few well connected contractors and untions..."

You need to bone up on the debt creation of the FED as suspect #1.

Lednbrass's picture

So from each according to their ability and to each according to their need?

I cant understand why that hasnt worked out for California, its been a stunning success elsewhere.

JuicedGamma's picture

 All you have to do is look at Amtrak as the model and you know what's coming down the tracks. 

bigfire's picture

Momument to Jerry Brown's ego.  A full size Gundam will be cheaper to build.

SylphGlitch's picture

Lol, which version?  Wing Zero or Strike-Freedom?

To go "full retard" on your analogy your looking at Big Zam kind of costs.

Long-John-Silver's picture

 A full size Gundam will be cheaper to build.


and California's politicians will need a Gundam to protect themselves from citizens left holding empty bags when they default on the bonds.

Careless Whisper's picture

Arnold Schwarzenegger has enlisted folksy billionaire investor Warren Buffett, the world's second-richest man, as his senior financial and economic adviser.

"Warren is helping me bring together a world-class team to assist me in addressing the problems and challenges facing businesses, investors and job creators in California," Schwarzenegger, .....

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2003/08/14/MN7302.DTL&ao=all#ixzz1tfxAZvC6

Oh, and the third guy in that photo, who was cropped out by the SF newspaper, is Jacob Rothschild:



cbxer55's picture

California Dreaming. Glad I left there in  2002.

brettd's picture

Once upon a time, it was a spectacular, breathtaking place....

Irwin Fletcher's picture

Yeah, sure, move to someplace that doesn't spend money it will never have. Ass. Then see what you get.

Long-John-Silver's picture

California Dreaming is just the starting phase of a Nightmare.