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Gambling Taxpayer Money on a High-Speed Train to Vegas

Posted By Wendell Cox On January 14, 2013 @ 9:08 pm In Featured | Comments Disabled

Even as the President and Congress have again failed to deal with the genuine fiscal threats [1] facing the nation, the Department of Transportation (DOT) is considering gambling $5.5 billion [2] in taxpayer funds on a high-speed train to Las Vegas.

The loan could be approved under the Federal Railroad Administration’s Railroad Rehabilitation and Improvement Financing (RRIF) Program. The loan would be by far the largest ever made under RRIF and would exceed the gross amount of all loans made throughout its history.

The train, called Xpress West [3], would operate from Victorville, California, to Las Vegas, Nevada. Promoters expect people to drive 50 to 100 miles to get to the station and then get off the freeway, park, and board the train for the final 175 miles to Las Vegas. Nowhere in the world do people drive so far to board a train for such a short trip.

The promoters of this plan claim that fares will pay to build the line, something even the International Railway Union admits has happened only twice in a half century of high-speed rail.

Absurdly optimistic ridership and revenue projections are “business as usual” in such projects. The situation is so dire that Oxford University academic research calls it “lying” and further says that promoters are engaging in “strategic misrepresentation” to improve the chances of approving projects.

We examined the train’s projections in a taxpayer risk assessment [4] for the Reason Foundation and found a level of optimism that was stunning. Promoters anticipate ridership four times that of Amtrak’s Acela high-speed train in the high-density Washington and New York corridor.

By comparing the Southern California-to-Las Vegas market to others with similar characteristics, we estimated that the actual ridership and revenue would be approximately two-thirds less than projected. That would mean the train would be unable to repay its loan from federal taxpayers.

At this likely level of ridership, default on the federal loan seems likely to occur sometime in the first decade. If the costs of building the train increase, as the Oxford University research has documented for other projects, the line might be only partially completed, with the states of Nevada and California—and their local governments—being faced with the potential of a huge financial bailout.

Project promoters claim that the traffic congestion on Interstate 15 will induce large numbers of people to transfer to the train after having driven from 50 to more than 100 miles to get to the station. Indeed, drivers encounter most of the traffic congestion between Los Angeles and Victorville, before they would get on the train, rather than between Victorville and Las Vegas.

Our review of weekend travel reports [5] indicates that door-to-door travel delays returning from Las Vegas rarely exceeded one hour (on a four- to five-hour trip) and occur for only a few hours on the last day of the weekend. Nearly all of the time, driving will be slightly faster than the door-to-door travel time including the high-speed train.

Further, it will be expensive to ride the train. Based upon the project planning documentation and Department of Energy projections, the out-of-pocket cost of driving is expected to be approximately one-half the train fare. The average car between Los Angeles and Las Vegas has 2.7 occupants. Even with one occupant, the car is likely to be less expensive, and with two occupants, the car is likely to be far less expensive.

More recently, project promoters have claimed that the train will link further to Palmdale, where it would connect with the proposed California High Speed Rail line. This would do virtually nothing to make the Vegas train commercially viable. The California High Speed Rail line is doubtful at best. It is many billions of dollars short of its requirements and even if it were to be completed, it would not be available for the Las Vegas connection until long after the likely loan default. Finally, the extension to Palmdale could not reasonably be expected to make up the huge likely revenue deficit.

This, of course, would not be the first time the federal government has gambled hard-earned taxpayer money. An eventual default could be more than 10 times the taxpayer cost of the infamous Solyndra loan guarantee [6]. The federal government has no business gambling taxpayer funds on this project and should decline the loan application.

While it would be inappropriate to risk taxpayer funds to support leisure travel in the best of times, it would go beyond the pale to provide funding while Congress and the President continue to (unsuccessfully) argue over what taxes to raise and what programs to cut. If the project were financially viable, it would be financed by the commercial financial sector. They have passed on the gamble. So should the federal government.

Wendell Cox is a visiting fellow at the Heritage Foundation. In a 2000 report, he predicted the eventual bankruptcy of the Las Vegas Monorail [7], which project promoters claimed would be able to repay $600 million of bonded debt. That report used similar analysis, and its accurate prediction of both bankruptcy and realistic ridership was predicated on overly optimistic revenue and ridership statistics, which were the basis of bond issues.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2013/01/14/gambling-taxpayer-money-on-a-high-speed-train-to-vegas/

URLs in this post:

[1] genuine fiscal threats: http://www.heritage.org/research/reports/2013/01/fiscal-cliff-deal-added-47-billion-in-spendinghttp:/www.heritage.org/research/reports/2013/01/fiscal-cliff-deal-added-47-billion-in-spending

[2] gambling $5.5 billion: http://www.ocregister.com/opinion/train-382696-vegas-taxpayers.html

[3] Xpress West: http://blog.heritage.org/2012/08/22/xpresswest-high-speed-rail-project-speeding-toward-a-taxpayer-bailout/

[4] taxpayer risk assessment: http://demographia.com/xpresswestreport.pdf

[5] Our review of weekend travel reports: http://reason.org/news/show/xpresswest-train-most-congestion

[6] Solyndra loan guarantee: http://blog.heritage.org/2012/11/06/green-graveyard-an-in-depth-look-at-governments-bad-bets-on-19-now-bankrupt-companies/

[7] predicted the eventual bankruptcy of the Las Vegas Monorail: http://www.publicpurpose.com/ut-lvmono-0006.pdf

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