California Learning Expensive Lesson on Cost of ‘Free’ Money
By James Wigderson
Special Guest Perspective for the MacIver Institute
Last year when Governor Scott Walker was a candidate, he made it clear that he would stop a supposedly high-speed rail line between Milwaukee and Madison. Some speculated that Walker would be forced to break his promise because the project would be too far along when he took office. Others speculated that Walker would break his promise because: “Who would turn down $810 million in federal money?”
Where? California, to be exact.
At the time Walker campaigned against the proposed high-speed rail line, one of the concerns was the hidden costs to Wisconsin. Those hidden costs included possible cost overruns, construction and maintenance for local train stations, maintenance of the lines and ongoing operating costs.
Indeed, California hasn’t even laid track yet and already cost overruns are threatening the project. The estimated cost for the project is $43 billion. Well, that’s the official number. Outside groups are putting the cost at closer to $65 billion or more, while the Legislative Analyst’s Office said $67 billion.
That’s a lot more than the $6.3 billion currently available to California to spend on the project. Of that, only $3.5 billion comes from the federal government, and that’s only if California breaks ground for the train in 2012. The rest comes from $10 billion in bonding that the voters approved provided there was matching federal funds.
To beat the 2012 deadline, California is going to use the majority of the federal funds to build the first leg of the high-speed train between Corcoran, CA (pop 24,813) and Borden, CA (unincorporated) in the Central Valley. One California blog described it as, “somewhere outside of Fresno to somewhere else kind of closer to Bakersfield.”
That makes about as much sense as building a high-speed train between Merrill, WI and Lac Du Flambeau, WI, let alone between Madison and Milwaukee. But it’s somewhat-with-lots-of-strings-attached-free-federal money, right?
Other critics are calling California’s high-speed train start, “the train to nowhere,” after the infamous “bridge to nowhere” in Alaska that was a symbol of federal pork projects.
The leg between Corcoran and Borden will probably not attract the ridership necessary to pay the operating costs, so state taxpayers will have to subsidize the system. They should get used to it, as a recent study at the University of California – Berkeley raised serious concerns about the ridership estimates for the high-speed rail line even if it is ever completed between Los Angeles and San Francisco.
That’s becoming a big “if.”
California just received more bad news about the financing for the proposed high-speed rail line. The House Appropriations subcommittee on Transportation, Housing and Urban Development just voted to cut the Obama Administration’s transportation request for passenger rail by nearly $7 billion, leaving only enough money in the transportation budget to pay for Amtrak and some smaller projects, according to the Los Angeles Times. With Congress in an anti-spending mood, and with even California’s congressional delegation recognizing that there might not be more federal money coming, California’s high-speed rail project could be in even more trouble.
California is often cited as the poster child of states in fiscal crisis. Because of their precarious state budget situation, for the high-speed rail line to be completed, the $60 billion was going to have come from someplace other than Californians. What California rail enthusiasts are discovering is that Margaret Thatcher was right when she warned, “eventually you run out of other peoples’ money.”
Perhaps Californians can use this opportunity to dodge the bullet train just like Wisconsin did, months ago, thanks to Scott Walker.
As the magazine The Economist wrote recently when editorializing against high-speed rail for Britain, high-speed rail is really not all that great. It tends to displace economic development rather than make it grow, and benefits the major hub (like London) rather than the outlying communities that are promised the economic benefits. It’s much more expensive than merely improving the existing infrastructure, although a new train system certainly lends itself to political photo opportunities.
In California, Governor Jerry Brown recently made two appointments to make a “fresh review” of the high-speed rail project. Brown also must approve any bonding that is issued to fund the train. If it looks like a high-speed train in the middle of nowhere with no prospects for adding onto it further, the prudent thing for California to do would be to drop the project entirely.
Maybe Brown should call Governor Scott Walker and ask him how to word the press release?