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The Economics of High Speed Rail

Original post made by stephen levy, University South, on Dec 10, 2011

I have shared three major concerns with transportation and elected officials in California.

Ridership

I travel to Los Angeles for business a few tines a year. If high speed rail were available now I would choose it over air travel.

But it is not available now and the HSR trip to Los Angeles will not be available for at least 20 years. In that time I expect techology to replace much business travel.

My trips to Los Angeles usually take a day (or two) for at most 2-3 horus of meetings. I appreciate the face to face contact but it comes with a big price in terms of time and travel costs. Just like more people are talking to family members via Skype or similar technology, I expect that technology will replace travel for an increasing number of business trips well before HSR reaches across the state.

I am concerned that the HSR Authority's ridership projections do not fully account for this reduction in business travel.

Job Impacts

Much is made in public discussion about the job creating potential of high speed rail. But the numbers are being exaggerated and jobs that are 10 years off won't help in today's era of high unemployment.

The Authority's consultants developed this concept of job-years. One job for one year is one job-year but the same new job for five years is five job-years. In addition in the publicity the "years" got dropped and 100,000 job years over the next five years became 100,000 jobs instead of 20,000 additional jobs for five years.

While I favor more infrastructure investment including on transportation and 20,000 new jobs are helpful, two things need to be remembered. The first is that even in the recession California has more than 15,000,000 jobs so 20,000 added jobs is not much. To put this in perspective the state has added more than 250,000 jobs during the past 12 months.

Moreover, this kind of funding only adds jobs when there is high unemployment. In many future years HSR funding would only compete with or replace other funding that would also add to job levels.

Since any new infrastructure spending will add jobs, this brings me to the third concern--is HSR the best use of valuable transportation infrastrucure funding.

From my experience working with regional agencies in California HSR is not the best use of scarce funds even if everything in the business plan worked out as they believe it will.

I am in favor of spending this much or more on transportation infrastrcuture. But I would focus it on more immediate people and goods moving investments serving intra-regional travel where most trips are taken. Such investments would serve more people and businesses and could be completed far before the now 2030s completion anticipated for HSR.

I am sure if the Governor and President asked regional leaders for ideas about large transportation investments they could come up with a list that is more immediate and with a better payoff than HSR funding as currently planned in California--bigger, bolder and better.

Comments (17)

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Posted by Susan
a resident of Midtown
on Dec 10, 2011 at 5:01 pm

Mr Levy,

"I am in favor of spending this much or more on transportation infrastrcuture"

Are you also willing to continue to increase tuition on our college students, in order to pay that money? Are you willing to raise taxes on the middle class and poor, for example to increase the fuel tax, in order to cover that bill...or are you one of those "tax-the-rich" clowns?


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Posted by Walter_E_Wallis
a resident of Midtown
on Dec 11, 2011 at 9:57 am

Walter_E_Wallis is a registered user.

HSR, Light Rail et al makes no sense as standalone. Any intercity transit must have express and freight capacity to foot the bill. The fare box will never make it. To the extent HSR is passenger only it is doomed to failure.


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Posted by stephen levy
a resident of University South
on Dec 11, 2011 at 11:51 am

stephen levy is a registered user.

Susan asked how I would pay for the increased infrastructure investment I support. It is a good question.

I favor paying for infrastructure with bond financing approved by voters and including a repayment source and by user fees. Becasue the state portion of HSR funding is provided by a General Obligation bond approved by voters but without a payment source, HSR funding does compete with education and health services in the state budget.

I prefer the local method of infrastructure funding where voters approve a funding source when they vote for new bonds such as was the case for library and school bonds in Palo Alto.

Having voters approve a new funding source when they approve long-term borrowing makes for better decision making (if you want it, pay for it) and also prevents state bond issuance from taking money away from other programs to repay the debt. I would make an exception for state bonds that went to support school construction in poorer districts.

The other source of infrastructure funding is locally approved taxes such as the sales tax increases for transportation approved by voters in Santa Clara County as well as user fees such as toll roads and water supply improvements paid partially by user fees as well as increased fuel taxes.

I do believe in increased infrastructure investments to improve quality of life and economic competitiveness but I also suppport paying for them so as not to adversely affect spending on education and safety net programs.

But that support does not extend to every infrastructure investment such as HSR. I think there are better ways to spend scarce infrastructure dollars.


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Posted by Resident
a resident of Another Palo Alto neighborhood
on Dec 11, 2011 at 1:03 pm

Mr Levy

I disagree with your assessment of bonds.

I did not agree with the library bond to refurbish 5 libraries. I do like libraries and Mitchell Park defintely needed to be upgraded, but I did not agree with the proposed idea to keep 5 libraries. I was never asked if I would prefer to keep 2 libraries plus childrens.

I still have to pay for what I didn't want.

I don't like that analogy.

However, I am a HSR supporter, but I would like to see better funding options. I would like to see a higher gasoline tax to fund transportation statewide and I would like to see more tolls on roads such as I5 and an airline ticket tax within the state to levy (get it) those that do travel between SF and LA larger contributors than those that don't.

The type of tax which raises more money from those who use a service more than those who seldom do, provides options and choices to those who use the service, is a much better way to raise the money.

Like the library bond, taxing those who don't want it, don't use it, and can choose to use another service instead, makes much more sense.


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Posted by Susan
a resident of Midtown
on Dec 11, 2011 at 1:15 pm

Mr. Levy,

Thank you for your clarifications.

Bond issues, whether local or state-wide, are loans that need to be paid off. For many decades, this simple understanding has not been understood by those who reflexively vote for them. They were, in essence, seen as free money. I am guilty of the same thing. No longer, though, because the ratings agencies are now in charge of both local and state projections.

Are we now in a more realistic environment, where voters are forced to consider trade-offs? For example, is a new library worth a reduction in fire/police department protection; is HSR worth an increase in college tuition? Or are the poor and middles classes willing to agree to more taxes (e.g. fuel and sales taxes)?


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Posted by Paul Losch
a resident of Community Center
on Dec 12, 2011 at 8:37 am

I largely agree with Steve, and I am not his "schill." I have weighed in my own PA Online Blog numerous times about how the concept of CA HSR makes no sense for numerous reasons.

One thing about his commentary that I had not thought about before is that trips/travel will potentially shrink as technologies such as Skype reduce the need to travel for meetings or conferences.

Actually, that already is the case, it just is getting easier as time goes on. But, there is another point...

Travel, especially internationally, whether for business or pleasure, creates personal connections that do not come from a LinkedIn account or a Facebook page or a conference call on line.

I actually find it sad that as we get more global, we distance ourselves from others around the world by relying on technology to be the source of discourse.

Personal connections will never lose their importance.


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Posted by No-More-Property-Tax-Based-Bonds
a resident of Another Palo Alto neighborhood
on Dec 12, 2011 at 9:06 am

> I prefer the local method of infrastructure funding where voters
> approve a funding source when they vote for new bonds such
> as was the case for library and school bonds in Palo Alto.

The problem with voter-approved bonds is that the issues have become so complicated that the electorate, which often can exceed the number of voting property owners in some locations (like San Francisco, and approaching 50% in Palo Alto), are not likely to take the time to understand the underlying issues, or have to pay the taxes directly.

Take the Palo Alto library. Many of the voters in Palo Alto live in "affordable"/government subsidized housing—like Channing House, Stevenson House and Lytton Gardens. These properties are tax exempt (from ad velorem taxes), and only pay a few hundred dollars in "parcel taxes", no matter how many people are living in these sorts of facilities. Most of these voters are older, and easily targeted by "election consultants" (like Larry Tramutola:

Web Link)

who has gotten very wealthy telling various big government/tax-and-spend types (like Steve Levy) how to target various voter groups, like "renters" and people living in tax exempt housing, to voter Yes on new property taxes—making it very clear that they will not have to pay.

As to this wretched new library—technology has changed so much in the past ten years, that this monument to technologic illiteracy will never be used by "the children"—which turns out to be the never ending campaign tactic by the Steve Levys of this town. They wrap themselves in a phalanx of children with balloons, and the target older people to vote new taxes on younger people. Look around you .. there are very few people reading books and newspapers anymore. Even the people using the libraries are overwhelmingly using "free Wifi" (which is not free when you consider the cost of the building and the cost of the salaries/benefits of the many, many, library staff that sit there "minding the store" while people use information resources on the cloud. It would have made a lot more sense to use a little bit of that money to build a state-of-the-art network, than a big, backward, Steve Levy-style, brick-n-mortar mausoleum full of "books" and space.

And let's not forget Prop.13, either. About 20% of Palo Alto pays less than $1,500 per year in Property Taxes. Most of these people are frequent voters. Levy has claimed in other postings that he has lived here for over thirty years. So, if he was the owner-of-record for his home, circa 1976, he too is lively to be paying no more than $1,500 a year in property taxes. Any "ad velorem" taxes for new "infrastructure" will affect him a lot less than people who have moved into the community since 1995, when the property prices were less than half what they are now.

So—given that Mr. Levy is not likely to ever pay more than a hundred dollars, or so, on any property tax-based infrastructure funding—why wouldn't he be supportive of building lots of new infrastructure—pushing the taxes off on his neighbors.

Now that's "morality" .. Palo Alto style.
----


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Posted by Resident
a resident of Another Palo Alto neighborhood
on Dec 12, 2011 at 9:18 am

With my contacts who travel for business, they have not seen a particular decrease in the amount of travel, either domestic or international. What they have seen is the type of business travel has changed.

Many meetings are now taking place with conference calls taking the place of regular planning sessions, product updates, etc. But when it comes to signing a deal, these still seem to be done face to face, not because an online signature is required, but because the necessary handshake and congratulatory dinner is required. It is also unlikely that a new client/customer/supplier relationship will ever take place unless not only a face to face relationship occurs, but that a visual inspection of the site/facilities/backupstaff etc. takes place. New contracts with the same two parties may take place online, but it is a hard sell to completely trust an online relationship without a physical meeting/visit taking place.

The other even bigger source of business travel is the trade conference/show/event. MacWorld, etc. are huge events and are not only sources of seeing and sharing new productlines, but also the very necessary networking that takes place. Even small events in rather obscure trades, are creating the need for attendees to travel long distances. This type of travel is often seen as a perk rather than a chore, and in good economic times for various industries, this type of travel will not diminish any time soon.

I tend to think that the regular short one day travel may diminish somewhat, but the overnight and longer visits may actually increase particularly in the several location trips which are becoming more viable.

This fact will contribute to the instate business travel market as well as domestic and international. In other words, an Asian company may send delegates to Macworld or some SF based event, followed by a trip to LA area meeting and ending with a New York marketing trip before returning to Asia by way of a Canadian stopover.

Don't dismiss business travel.


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Posted by No-More-Property-Tax-Based-Bonds
a resident of Another Palo Alto neighborhood
on Dec 12, 2011 at 9:29 am

> One thing about his commentary that I had not thought about
> before is that trips/travel will potentially shrink as
> technologies such as Skype reduce the
> need to travel for meetings or conferences.

Low cost/high quality video conferencing systems have not been generally available in the past. Most of these systems have required more bandwidth than was generally available to large companies. The rise of wireless broadband, still in its infancy, will be, in its own right, an "incubator" for many new services that will affect the need for business travel. Levy is not incorrect in his assessment; neither is he the first to make the observation. High quality/low cost video delivery systems are now the norm.

There are many implications to this new technology. For instance, the same technology that allows B2B interfaces that might reduce the need for travel (on an HSR, say) can also be utilized to increase on-line shopping, which will have a real impact on "local retail". Local retail creates local jobs, and produces more revenue than property taxes, in places like Palo Alto. So, having a robust Internet, providing a full set of "next generation" capabilities, will no doubt have a distinct impact on much local retail.

While ultimately raises the question: just how much "government" can any society afford. Currently, the "byte" of government at all levels, is over 50% of the GDP. Just home much more can the ineffective, often dishonest, and incompetent, governments take from the private sector before the private sector collapses?

It's unlikely that we can afford all of the tax-and-spend projects that the Steve Levy types can dream up. It's imperative that people band together, and fight him (and the forces behind him) tooth and nail, before we lose our ability to chart our own futures.


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Posted by Susan
a resident of Midtown
on Dec 12, 2011 at 3:15 pm

Regarding property taxes, I remember when I was a renter in Palo Alto. I voted for all bond issues, becasue I always thought it was a freebie. Then my landlord raised my rent, and I asked him why. He said he was just passing along his increased costs, although he did not mention tax increases. It took me some time to figure it out, but I was, indeed, paying his increased tax bills. I have since purchased my own home in Palo Alto and, should I ever need to rent it out, I will also pass along tax increases to my renters.

There is no free lunch!


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Posted by stephen levy
a resident of University South
on Dec 12, 2011 at 3:54 pm

stephen levy is a registered user.

One poster does not like bonds to pay for infrastructure and cites the library bond which he/she says is they do not use much.

He/she favors user fees so that users will pay the majority of infrastructure costs.

I agree that user fees are important but their use is limited. I don't see the rationale or methodology for financing activities such as public libraries or schools or public safety facilities with user fees. Most residents see value to the community for these services and the 70% of residents who supported the library and school bonds agree becasue many or most do not use either facilities.

I don't see a better approach to funding these invesments than having a vote of the people who are then willing to put up the money. If you don't like a project, argue against it but that doesn't mean bonds and associated taxes are the wrong way to pay for infrastructure that cannot be financed solely by user fees.

As far as not paying for what you don't think has value, lots of folks would love to be able to deduct the cost of the war in Iraq from their federal taxes but that is not the way it works.

The rationale for bond financing is that these projects have large up front capital costs and will last a long time. So 30-year bonds make sense especially when you add in the chance for voters to have a say in these decisions.

As Susan said there is no free lunch, whcih is one of the reasons I think state bonds such as HSR should come with a tax--1) so that no one thinks they are free and 2) as Susan pointed out, so they don't take funds away from education and other programs.


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Posted by stephen levy
a resident of University South
on Dec 12, 2011 at 4:10 pm

stephen levy is a registered user.

School bonds require a 55% approval for passage and other local bonds and transportation taxes such as sales taxes for the Santa Clara Transportation District require a 2/3 approval as do parcel taxes. And as Susan pointed out, renters as well as owners pay for these taxes.

The idea posted above that bonds and taxes are passed primarily with the votes of people who do not pay them is not correct. The Palo Alto library bond, Palo Alto school bonds and parcel taxes and our tranporatation sales taxes all passed with more than a 2/3 majority and are paid for directly and indirecty by all residents and businesses who own or rent property or buy goods and pay sales taxes.

Although posters occassioanlly make fun of people who they claim favor "tax ans spend" at least those people (including me) favor actually paying for what we want, whcih did not happen with the HSR bonds or the Iraq war or the introduction of Medicare drug benefits or the other programs that have broad support except for the paying for it part of the bargain.

While we can differ on the role of government and spending priorities, tax and spend folks do include the paying for it part in their equation as opposed to people who like the spending part but not the paying for it part.

That is another reason I like infrastructure funding proposals that include public votes that include raising the money to pay for the projects, whenever pure user funding is not appropriate, which is often the case.


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Posted by Resident
a resident of Another Palo Alto neighborhood
on Dec 12, 2011 at 4:58 pm

Stephen

I do like libraries, reread my post.

I disagreed with you that we got what we voted for.

My analogy to the library bond was that although I love and use my library all the time, I did not like the fact that I had no choice on whether I wanted all 5 libraries refurbished. I would have preferred to reduce library space, but I was never asked that question.

You seem to present a case for putting the choice on the ballot then acting on the result. Of course our libraries needed fixing but the only question we were asked did ask how we wanted them fixing.

I do agree that overall taxing is necessary, but I would not want to pick and choose which infrastructure I was in favor of supporting and only paying my taxes towards them.

I do think we need overall taxation to pay for the bulk of our infrastructure, but we also need user charges so that those who use each service pay more for them.

I don't often have cause to use our Bay Area bridges, but I pay for them as often as I do. I don't often have cause to use I5, but I would be happy to pay for the privilege of using a higher speed overall lane when I do. We are beginning to see these toll lanes on our Bay Area freeways paid by fastrak system rather than toll booths. I see no reason why this system will not eventually be put on I5 so that those who use it pay more than those who don't.

HSR should happen and funding is the big question. Our bridges were built at enormous costs at the time and we all benefit from them. Our future generations will benefit from all infrastructure that we put into place, so finding the funding is necessary. Flat taxation is part of the solution, but not the only one.


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Posted by Susan
a resident of Midtown
on Dec 12, 2011 at 5:30 pm

Mr. Levy,

I agree with you that some things are community benefits at large. I think it would be more honest if everyone knew that there is no free lunch. In this light, I think that landlords should be allowed, even encouraged, to directly pass along tax increases, AND to publicize it during the bond campaigns. I find the current method of keeping the pass-throughs in the shadows to be sneaky and dishonest.


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Posted by Walter_E_Wallis
a resident of Midtown
on Dec 13, 2011 at 12:11 pm

Walter_E_Wallis is a registered user.

HSR as such is not viable, because the ridership is way overestimated. On the other hand, if HSR were to be both freight and passenger, for a compromise 150 mph, and if the rails were common carrier open to all, I would be for it.


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Posted by stephen levy
a resident of University South
on Dec 15, 2011 at 3:23 pm

stephen levy is a registered user.

Resident,

I think we have more agreement than disagreement. I agree that both taxation and user fees are appropriate for funding infrastruture. My main point is that it is important but we should pay for it. And I do see that you support libraries but disagree on the specific approach taken in PA.

Regardless of one's position on HSR or Palo Alto libraries, voters agreed to pay for the libraries but did not raise money to pay for HSR. In fact I remember campaign ads touting "this will not raise your taxes". Of course it will divert money from education and safety net programs but that was not mentioned.

I don't know how to get around your issue that you did not like the library choices. There was extensive public input. I don't have a position on what was the right approach. I do believe that if 70% of the voters are willing to fund the project that is a strong case even if individuals disagree.

The commission I have been working with is about to issue our report on infrastructure recommedations for Palo Alto.

I will write about our work after the report is released and we can continue the infrastructure funding discussion.


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Posted by stephen levy
a resident of University South
on Dec 22, 2011 at 11:28 am

stephen levy is a registered user.

The unusual treatment of job gains from HSR that I mention in the blog has hit the mainstream media today on the front page of he San Jose Mercury News

[Web Link Web Link]


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