A recent article in the Economist on California High-Speed Rail (HSR), touted Cheaper, Slower as if it was a good thing. Quoting the “Fresno Bee”, The CEO of the HSR Authority has decided to extend the first phase of the project, which was due to complete in 2017, until September 18.
As a result of this extension, which is expected to result in less weekend and overtime work, the California HSR Authority is expecting to save $150 Million of taxpayers’ money. This is being promoted as a good thing. I’m not sure I agree.
You see, for Taxpayers to benefit, the State as a whole has to be financially sound. This means that Revenues Minus Expenditures has to be at least zero, if not positive, and anything that increases revenue or decreases expenditures is generally good, unless the State is running a deficit, in which case the State needs to look at each action and see what the costs of the action are.
In this case, the cost of delaying the project is delaying revenues another year. If you look at the revenue projections for the project, available at this link on the California HSR site, you will see that they are massive. Over 2 Billion annually. Now while it’s true that this is just one piece, from Bakersfield to Fresno / Madera, due to the lack of travel options in the area and the fact that it is a vital part of the corridor between LA and San Jose, the revenue projections for this piece alone appear to be over 25% of the total projections. In other words, to save this 150 Million, the State is delaying at least 500 Million of Revenue by at least a year. Now, HSR does have a high operating cost, we don’t know what the profit margins are, and the HSR might actually be projected to lose money early on, but I’d like to see a full cost benefit analysis of what it is costing in the long run to achieve a projected savings of $150 Million. Until someone does this, we have no idea what the projected savings really are, and even less of an idea as to what the savings will even be as they might not even materialize when you consider expected labour increases, expected material cost increases (given the fact that inflationary times are back), and the fact that a whole slew of things could go wrong to cause delays that need to be made up with overtime.
I’m a little disappointed the Economist took the Fresno Bee at their word. An analysis really is needed here.