The utter stupidity of governments.

The utter stupidity of governments.

I decided, while doing research on budgeting and government spending that I’d do a series of articles, published randomly, on the absolute utter stupidity of government and our “public servants”. Today is installment one and unfortunately, I’m sure I’ll never run out of material.

Today we’re going to look at what is arguably the biggest financial boondoggle ever considered by the US government in conjunction with state governments. High speed rail, specifically in California. I’m not even going to address the argument that there is no market for high speed rail in the US, that is simply a scat throwing match. We’re just going to look at the economics of the proposal. And I’ll give you a hint, this makes Solyndra look like the best investment in the last century.

As a refresher, the Obama administration was looking for “shovel ready jobs” three years ago and decided to throw some billions to several states to get them started on high speed rail systems. Call this another episode in Green Fail!. California, which should surprise no one, jumped at the chance to get their hands on three plus billion of your money for “infrastructure projects”. Their initial estimate was about $60B to build the system and California voters passed a bond issue for about $9B to get things rolling. Then the planning body came in with their second estimate, something between $99B and $120B. Surprisingly, they were sent back to the drawing board and version three just hit the fan. Let me note that the Legislative Analyst’s Office (LAO), a nonpartisan fiscal and policy group has turned thumbs down on the project and you really should read the whole report. The California Legislature and Governor Brown will likely push ahead anyway. I’ll cut to the chase, here’s their summary:


In April 2012, the HSRA released its most recent business plan that estimates the cost of constructing the first phase of the high–speed train project at $68 billion. However, the HSRA only has secured about $9 billion in voter approved bond funds and $3.5 billion in federal funds. Thus, the availability of future funding to construct the system is highly uncertain. […]

We find that HSRA has not provided sufficient detail and justification to the Legislature regarding its plan to build a high–speed train system. Specifically, funding for the project remains highly speculative and important details have not been sorted out. We recommend the Legislature not approve the Governor’s various budget proposals to provide additional funding for the project.

A look at the details is really interesting. The most important thing to remember while we dissect this is the fact that we are talking about a project that is planned for completion in stages from 2021 through 2028. Now take a deep breath and think about how the monthly estimates of things like new jobs or unemployment applications or housing starts change dramatically on a month-to-month basis and then consider that costing out a major construction project ten to twenty years in the future is significantly more prone to unknowns and intangibles. If you think these “estimates” are any good, I can get you a great deal on Kansas swamp land.

Here’s what the LAO has to say about the cost estimates…


The 2012 revised business plan includes detailed “low” and “high” cost estimates for Phase 1 Blended that range from $68.4 billion to $79.8 billion.

So, we’re dealing with a range, and they’ve chosen to publicize the low end of the range. Heh. If that doesn’t cause a tic in your eye, this will…


According to HSRA, in addition to reducing costs, the changes identified in the revised 2012 business plan would result in a system with less capacity and reduced ridership.

Specifically, the HSRA estimates that the projected ridership would be about 30 percent lower than estimated in the November 2011 draft business plan. […]

The business plan continues to assume, as required by Proposition 1A, that the high–speed rail system will not need an operating subsidy.

Hmmm. Ridership is going to be 30% lower than original estimates – five months ago – and the system is going to not need any operating subsidy because Prop 1A says they can’t have one. I wonder what might happen, 20 years from now, if state of California dumps billions into this program and, like Amtrak, it runs a deficit? Ask the city of Los Angeles. Or Miami. Or Phoenix about any of their light rail systems.

If that’s not enough, let’s look at where they’re getting the money for this. Or at least where they say they’re getting the money. Remember, we’re talking about the low-ball estimate of $68.4B.

· $11.5B in secured funds from Prop 1A and federal grants. 16.8% of total.

· $38.6B in unsecured funds or California cap & trade auction revenue. 56.4% of total.

· $13.1B in private capital, unsecured. 19.2% of the total.

· $5.2B in “other” funding, unsecured and undefined. 7.6% of the total.

Bottom line, they’re ready to spend almost $12B on a project that they’re low-balling the cost and have no real plan to get the additional $57B that, at a minimum, will be required to complete the project. In 20 years. A side note worthy of comment is the “cap & trade” funds from the state of CA. This is a government program unique to the state of CA where the state is issuing carbon allowances that will be salable, the goal of the program is to reduce greenhouse gases. The probability that the program will generate the revenue that the state is projecting is not good, just look at their record on estimating tax revenue from their citizens. More likely is the probability that more businesses will flee the state.

We started with LAO’s conclusions and I’m going to end with their pointed commentary about the process that the high speed rail proponents have gone through to this point. I really doesn’t require further comment from me, and as this drama unfolds over the next several months, remember this:


As described earlier, the most recent business plan makes significant changes to how the construction of the high–speed rail project would proceed… we are concerned that the decisions to make the above changes have been rushed with many important details not having been sorted out. While the HSRA has been planning for the project over the past 15 years, the proposed modifications, which substantially change how the project would proceed, were developed within the last couple of months…