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Another Bullet Train Boondoggle Bites the Dust

Adrian Moore
July 12, 2013, 10:29am

Some good news.  My colleague Wendell Cox writes:

The application for a $5.5 billion federal taxpayer loan to start construction on the proposed Victorville California to Las Vegas high-speed rail line has been suspended indefinitely, according to Rep. Paul Ryan, chairman of the U.S. House of Rep.'s budget committee and Sen. Jeff sessions, ranking member of the US Senate budget committee. In a July 11 letter, Congressman Ryan and Sen. Sessions indicated that former US Sec. of Transportation Ray LaHood had informed the operator, Xpress West, of the decision.

Ryan and Sessions related that Secretary LaHood’s letter, “explains that ‘serious issues persist’ with the XpressWest loan application; that there are ‘significant uncertainties still surrounding the project’; and that, as a result, USDOT has "decided to suspend further consideration" of the XpressWest loan request.”

The nature of the cited "serious issues" and “significant uncertainties” are not known made public by USDOT, but they are manifest. They were detailed in our August 2012 policy report--The XpressWest High-Speed Rail Line from Victorville to Las Vegas: A Taxpayer Risk Analysis.

Congressman Ryan and Sen. Sessions, had written a joint letter dated March 7 to Secretary LaHood characterizing the taxpayer risks as untenable and heavily citing our report. They asked for a Government Accounting Office investigation of the project and asked Secretary LaHood to suspend final determination on the taxpayer loan until the GAO investigation is completed.

Our report had expressed concern that there might not even be a market for the service, since no place in the world do people drive 50 to 100 miles to get to a train to take them the last 175 miles. 

Even it were assumed that such an unconventional market existed, we judged the ridership, and thus the revenue projections to be grossly exaggerated. Unlike the project ridership projection consultants, we applied a “reference class” ridership analysis, which used actual ridership from other similar routes around the world. That yielded a forecast from 53 percent to 76 percent below promoter projections. This could have led to losses of from $4.3 billion to $10.4 billion over 24 years. The report predicted a default on the federal taxpayer loan by the ninth year of operation (In 2000, we made a similar default projection, due to the similarly bloated ridership estimates by promoters of the Las Vegas Monorail. That project subsequently defaulted on its bonds).

The Victorville to Las Vegas train depended on a long-term (35 year), $5.5 billion to $6.5 billion low interest loan from the Federal Railroad Administration's Railroad Rehabilitation and Improvement Financing Program (RRIF). No payments would have been required for the first six years. Our concern was that, if ridership was not sufficient to cover the operations and loan payments, taxpayers could lose the entire amount --- approximately 10 times the loss in the well publicized taxpayer loss in the Solyndra loan guarantee. This does not include the inevitable subsidies from taxpayers of California and Nevada that would have likely been necessary to keep the line running.

Xpress West was just another of a number of high speed rail projects around the world marketed as commercial ventures. Yet, the International Union of Railways indicates that only two routes, Tokyo to Osaka and Paris to Lyon have recovered their capital and operating costs from commercial revenues. In the end (or the beginning), the taxpayers virtually always pay. They have been spared that fate by the Department of Transportation decision in the Xpress West case.

There has been no statement from Xpress West. 


Adrian Moore is Vice President, Policy


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