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California High Speed Rail Is an Attractive Investment

Robert-Cruickshank.gifBy Robert Cruickshank
California High Speed Rail Blog

In the comments on a previous article I wrote, there is an interesting discussion about private investment in high speed rail, including some understandable concerns about whether that money will materialize given the worsening credit crunch facing the global economy.

California HSR is actually very well positioned to benefit from this, and there is every reason to expect that private investors will line up around the block to be a part of it. To understand that point we must first look to France where SNCF has turned a profit by emphasizing high speed rail. (Hat tip to The Overhead Wire)

Guillaume Pepy, SNCF chairman and chief executive (PDG) since February, says that, unlike his predecessors who had to manage a railway recession, he is presiding over an accelerating boom. The state-owned SNCF delivered a net €1.1bn (£875m) profit last year and first-half figures, due next week, are said to be sparkling. Pepy envisages up to 80m extra passenger trips this year or an increase of around 8%.

"This change will speed up because we are facing a twin energy and environment crisis," he says, pointing to surging fuel costs and growing personal worries about carbon footprints. "People want sustainable mobility and, in France, more trains and more SNCF."

Rail travel is booming around the world as well as here in California, as the latest numbers prove. Given that oil prices are going to remain high for the foreseeable future, we can reasonably expect train ridership to continue rising.

In other words, ridership will grow. And what do private investors look for? Growth opportunities. Don't be fooled by the weakening economy - there remains an enormous amount of capital sloshing around global markets, looking for a good rate of return. Currently a lot of that capital is in oil, creating speculation that is partly responsible for the high level of oil prices (but only partly - the underlying fundamentals of insufficient supply to meet demand remain likely to keep prices high for a long time to come).

But even though oil prices are on a long-term upward trajectory, they are also volatile. Over the last week prices fell by $10/bbl before rising again. Private capital would prefer a much more stable and reliable investment. Something fixed, that won't be ephemeral, and something that offers the prospect of long-term growth.

Meaning infrastructure. It's no accident that the largest funds are looking to own physical things instead of worthless mortgage tranches or the declining dollar. Abu Dhabi's purchase of the iconic Chrysler building is but one example of the trend. More relevant is Argentina's high speed rail example, financed by a French bank.

High speed rail would be an extremely attractive investment even in a bad economy and during a credit crunch. It offers returns with very little risk. Every high speed rail system in the world has strong ridership levels and most generate operating surpluses. SNCF relied on it to return to profitability. Here in California the long-term airline crisis and oil crisis, as well as global warming rules, will help sustain high levels of demand.

The key is public funding. A presentation at the June 2008 CHSRA meeting explained the results of a survey of private investors who might be interested in our project. Many were supportive, but said that they needed a minimum of 60% public funding to be willing to invest, and would be most comfortable with 75%. In other words, the state of California needs to provide the first stake, and then the federal government.

Given that HSR is such an undisputed global success, it should not be difficult to attract private investment. Proposition 1 is the necessary first step to bringing that about. If we vote for it, we will build it - and they will come.

Robert Cruickshank is a historian, activist, and teacher living in Monterey. He is a contributing editor at Calitics.com and works for the Courage Campaign, in addition to teaching political science at Monterey Peninsula College. Currently he is completing his Ph.D. dissertation in US history, on progressive politics in San Francisco in the 1960s and 1970s. A native Californian, he was raised in Orange County and educated at UC Berkeley. This article originally appeared on the California High Speed Rail Blog http://cahsr.blogspot.com/ which he publishes.

Posted on July 13, 2008

Comments

I remain unconvinced that high-speed rail is anything other than another boondoggle. I'd have to see a mountain of evidence that it would reduce carbon emissions and more to convince me it would not be a financial loser.

Some questions:

Who is going to build it?

What experience to they have in doing this?

How much will right of way cost?

What about the demand for intermediate stations; if the thing stops every 50 miles it ain't gonna be 'high speed'.

I do stipulate that it might be good substitute for air travel, which as we are now aware is really a bad thing for the atmosphere, but as for replacing cars....

....nuh gonna happen.

Plus, in the current envrionment where the concrete-headed ReThugs are blocking what should be done as far as taxes and expenditures are concerned I'd much rather see the state spend the money on more Solar Roofs or the Solar Grand Plan.

What if every Californian could come home and plug in his all-electric car?

This scheme could be made a reality and we can afford it.

Those who think we can and will abandon the trillions, yeah with a big fat T, we've got invested in roads, traffic control, highways and all the infrastructure cars use are dreaming. The quickest way to avoid the Road to Olduvai Gorge is a combination of The Solar Grand Plan and all-electric cars.

High speed rail is a wrong turn we cannot afford at the current time.

We need to stop consuming oil ASAP and the scheme I outline here is the quickest way to that.

Posted by: A.Citizen at July 13, 2008 06:26 AM

Both sides raise great points and A. Citizen, your concerns are valid.

To try to answer your question about the intermediate station dilemma, think of it this way. Intermediate stations don't necessarily mean slower trains. At those stations as will be with most, bypass tracks - two middle tracks - will allow express trains to bypass so-called intermediate stations while station (boarding and alighting) tracks - two outside tracks - will permit those non-expresses to stop. Unless witnessed first-hand, this is an unfamiliar concept to many.

I believe the entity that builds California's high-speed rail system must have a proven track record (pun intended). This has to be done right and that's an absolute, if this is expected to set a precedent. If built correctly, as Robert points out, people will flock to hsr. The evidence is there in Europe and Asia and even the northeastern U.S. with the Acelas. Daily commute ridership went from 45% of the 10,000 daily commuters between New York and D.C. to 54% after the higher speed Acelas went into service. Peter Richmond points this out in his Nov. 7, 2007 Parade magazine article: "A Better Way to Travel?" Travel-density worries here in California I believe are unfounded in my opinion. I understand by 2050, projections are that 8 million will call the eight-county San Joaquin Valley home. As mobility increases and the numbers moving increases, the need for infrastructure other than highways is paramount, particularly with escalating oil prices. What's more, not all travelers will have to go end to end. Those boarding at the intermediate stops will travel both north and south from say between Bakersfied and Sacramento, or from say between Merced and Bakersfield.

I'm also a firm believer that the airlines would be wise to form strategic alliances with the high-speed rail enterprise and vice versa, in other words "training" for trips under 1000 miles, and "planing" for trips over the 1000-mile threshold. (This generalization is an oversimplification, but I think the point is clear). Arrangements such as these exist elsewhere.

I also believe that financing should involve public and private concerns (PPPs). And we shouldn't overlook foreign investment. This too should be encouraged.

The last thing I have to say is Argentina, China, England, France, Germany, Japan, Mexico, Spain (my apologies to the systems or the ones under construction that I may have overlooked) can't all be wrong. If Japan as the first in the 1960s didn't take that initial step, high-speed rail may not have come about for years, if not decades, thereafter. As I understand it, Japan's Shinkansen (Bullet Train) trains leave stations every 7 minutes. This wouldn't surprise me in the least. When I paid a visit to El Cajon/Grossmont in San Diego County, the San Diego Trolley light rail trains frequented stations about once every ten minutes and they operated from early in the morning to late at night. If the ridership isn't there, then why this many trains?

Posted by: Alan Kandel at July 13, 2008 10:47 AM

"A Citizen" brings up excellent points. Especially the investment we have already made in highways and the like infrastructure along with the freedom personal vehicles provide. I think electric cars and/or hydrogen are the way to go here along with road infrastructure maintenance/improvement. Do we really need to scare the land further with a 400 plus mile railroad line?

Comrade Cruickshank's love affair with HSR in it's current form is misguided. The French example and many others are all government subsidized, not private enterprise. A "French Bank" subsidizing Argentine HSR probably has associated "buy French" equipment associated with it with all entities again doing any "investment" as an organ of the French government.

Comrade Cruickshank states: "Given that HSR is such an undisputed global success, it should not be difficult to attract private investment. Proposition 1 is the necessary first step to bringing that about. If we vote for it, we will build it - and they will come."

With a name like "Jay Gould", I understand how to milk any government "building" as Crickshank states here for personal and corporate profit at the expense of taxpayers. Crickshank's statment quoted here points out how NO INVESTORS or PRIVATE ENTERPRISE has stepped forward to build HSR. Where are they RIGHT NOW if this is a profit making enterprise? The HSR authority obviously has generated ZERO EXCITEMENT in the private enterprise sector on HSR. Quite the opposite when you consiuder after 6 years and $10 million in taxpayer money spent they haven't even lined up the UP Railroad for key right of way agreements!

And now Proposition 1 wants to saddle the state taxpayers with a $10 BILLION dollar bond for our grandkids to pay off. Plus, don't forget those federal matching taxpayer dollars too.

Heck, at least we had the "Big Four" and the Credite Mobillier (sp?) milking us back then. Now it is the government itself this time and without the middle men! I guess that is progress!

Posted by: Jay Gould at July 13, 2008 08:57 PM

Mr. Gould- If you would stop with the personal innuendos and slights (Comrade Cruikshank/Crickshank) you may even get someone to take your points seriously.

Posted by: Mike White at July 14, 2008 10:08 AM

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