Rail official disputes report of operating deficit

California WatchMay 2, 2012 

A report that warned of huge operating deficits for California's bullet train was based on "the wrong numbers," an official of the state High-Speed Rail Authority said.

Rail board member Mike Rossi told a legislative hearing this week that incorrect data undergirds a downbeat analysis of the high-speed train's finances published recently by four Peninsula-based financial experts.

Their report, which predicts that if built, the train will need multimillion-dollar subsidies "forever," was the subject of a story this week by California Watch.

Rossi, a former Bank of America executive and an adviser to Gov. Jerry Brown, contended that the experts' analysis was flawed because it had relied on incorrect data published by a foundation associated with the Spanish banking group BBVA.

The errors concerned operating costs for European high-speed trains, Rossi contended.

"The problem is, they picked up the wrong numbers," Rossi told members of the Assembly Transportation Committee. "The numbers they are showing for operating expenses are actually capital acquisition costs, so the data ... just isn't right."

Of the Peninsula experts, Rossi said, "It wasn't their fault; it was the compilation of the Spanish authors."

The Peninsula experts said they had never heard criticism of the BBVA data before and were trying to sort it out. The rail authority itself has cited the BBVA report in its own discussion of operating costs, they noted.

"We took the BBVA data because it was footnoted in business plan," said William Warren, a retired Silicon Valley business executive and one of the report's authors.

Of Rossi, Warren said, "If his business plan data is wrong, he needs to fix that and we need to rerun our numbers when we get that data."

The issue is important because state law requires the high-speed train to break even financially.

Boosters assert that once the $68 billion system is built, it will turn hefty profits.

But in their analysis, the financial experts said that the plan will pencil out only if the California system operates far more efficiently than any high-speed rail system in the world.

They calculated that on average, high-speed rail systems cost about 43 cents per passenger mile to operate. That is, it costs 43 cents to carry one passenger one mile. The California project is projecting costs of only 10 cents per passenger mile, the experts wrote.

Unless these extraordinary economies are actually achieved, the train will require alarmingly high annual operating subsidies -- more than $2 billion per year, the experts wrote.

California Watch is a project of the nonprofit Center for Investigative Reporting. Contact the reporter at lwilliams@cironline.org.

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