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Bullet train authority underestimates operating costs, study says

California taxpayers potentially will have to provide billions of dollars annually once the system is running, a group of financial experts say.

April 24, 2012|By Ralph Vartabedian, Los Angeles Times

The state rail authority has grossly underestimated future operating costs of California's proposed bullet train, meaning taxpayers potentially will have to provide billions of dollars annually once the system is running, according to an analysis released Monday by a group of outside financial experts.

The California High Speed Rail Authority's claim that its future system would generate hundreds of millions of dollars in surpluses is based on unrealistic assumptions about what it will cost to operate the network, according to the study group, which included former World Bank official William Grindley and Stanford University management professor Alain C. Enthoven.

The rail authority claims it can operate the 510-mile system at a cost of about 10 cents per passenger mile, less than one-fourth of the 40 cents to 50 cents it costs high speed rail operators in other countries, the analysis found. If California's bullet train operating costs rise to the international average, losses will range from $2 billion to $9 billion annually, according to the report.

"We are confounded by where the authority is getting its operating costs," Grindley said.

The group, which also includes Silicon Valley executives William Warren and Alan Bushell, has written a series of financial assessments of the bullet train plan that sharply question its economics. The four experts are affiliated with the Community Coalition on High Speed Rail, located in the Bay Area.

The rail authority disagreed with the findings in a statement.

"We have met with the authors of the report in an attempt to correct their flawed assumptions and conclusions," said rail board member Mike Rossi. The rail authority's plan uses conservative assumptions that demonstrates the system can produce an operating profit, which would revert back to the state or pay for additional rail investments, Rossi said. "Most if not all of the foreign high-speed train operators are currently operating without subsidies and some have even repaid portions of their original capital investments," he added.

The authors of the study studied both European and Asian high-speed systems. They found that costs range from a low of 34 cents per passenger mile in Italy to 50 cents in Germany and Japan, based on public reports published by those operating systems.

Grindley said it appears that the rail authority's consultant, Parsons Brinckerhoff, estimated the cost of operating the California system by assembling as many as 300 different cost inputs, though the rail authority has declined to identify all of those inputs. In most cases, California's costs would be even higher than those in Europe, including for labor and electricity, Grindley said.

Under a bond measure approved by voters in 2008, the California system is supposed to operate without a subsidy. The authority has repeatedly assured state lawmakers and the public that the system will operate at a profit from the day it begins partial operations. The $68-billion tab for building the system is not included in the operating costs.

ralph.vartabedian@latimes.com

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