Las Vegas High Speed Rail Federal Loan Application on Indefinite Suspension

The application for a federal taxpayer loan required to start construction on the proposed Victorville California to Las Vegas high-speed rail line has been suspended indefinitely, according to Rep. Paul Ryan, chairman of the U.S. House of Rep.’s budget committee and Sen. Jeff sessions, ranking member of the US Senate budget committee. In a July 11 letter (here), Former US Secretary of Transportation Ray LaHood informed the operator, Xpress West, of the decision in a June 28 letter, which has not been made public.

Ryan and Sessions related their briefing on Secretary LaHood’s letter, which “explains that ‘serious issues persist’ with the XpressWest loan application; that there are ‘significant uncertainties still surrounding the project’; and that, as a result, USDOT has “decided to suspend further consideration” of the XpressWest loan request.”

The nature of the cited “serious issues” and “significant uncertainties” are not known, but they are manifest. They were detailed in our August 2012 policy report for thethe Reason Foundation (The XpressWest High-Speed Rail Line from Victorville to Las Vegas: A Taxpayer Risk Analysis).

Congressman Ryan and Sen. Sessions, had written a a joint letter dated March 7 to Secretary LaHood characterizing the taxpayer risks as untenable. They asked for a Government Accounting Office investigation of the project and asked Secretary LaHood to suspend final determination on the taxpayer loan until the GAO investigation is completed.

The Reason Foundation report had expressed concern that there might not even be a market for the service, since no place in the world do people drive 50 to 100 miles to get to a train to take them the last 175 miles.

Even it were assumed that such an unconventional market existed, we judged the ridership, and thus the revenue projections to be grossly exaggerated. Unlike the project ridership projection consultants, we applied a “reference class” ridership analysis, which used actual ridership from other similar routes around the world. That yielded a forecast from 53 percent to 76 percent below promoter projections. This could have led to losses of from $4.3 billion to $10.4 billion over 24 years. The report predicted a default on the federal taxpayer loan by the ninth year of operation (In 2000, we made a similar default projection, due to the similarly bloated ridership estimates by promoters of the Las Vegas Monorail. That project subsequently defaulted on its bonds).

The Victorville to Las Vegas train depended on a long-term (35 year), $5.5 billion to $6.5 billion low interest loan from the Federal Railroad Administration’s Railroad Rehabilitation and Improvement Financing Program (RRIF). No payments would have been required for the first six years. Our concern was that, if ridership was not sufficient to cover the operations and loan payments, taxpayers could lose the entire amount — approximately 10 times the loss in the well publicized taxpayer loss in the Solyndra loan guarantee. This does not include the inevitable subsidies from taxpayers of California and Nevada that would have likely been necessary to keep the line running.

Xpress West was just another of a number of high speed rail projects around the world marketed as commercial ventures. Yet, the International Union of Railways indicates that only two routes, Tokyo to Osaka and Paris to Lyon have recovered their capital and operating costs from commercial revenues. In the end (or the beginning), the taxpayers virtually always pay. They have been spared that fate by the Department of Transportation decision in the Xpress West case.

There has been no statement from Xpress West.

(cross-posted from a Reason Foundation article by Adrian Moore).

Comments (20)

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  1. CRS says:

    A logical decision to not fund a project that would have benefitted only the promoters and wasted tax payer funds.
    A big “thank you” to those that aznalyzed the project objectively and reported the facts.

    If more such boondoggles could be stopped with such practical analyses, we could have avoided much waste such as the alternative energy and electric car frauds of the current administration.

    • Paulo says:

      Objective analysis is imperative.

      • Jerry says:

        I am not sure the analysis is necessarily objective, because lobbying effects all politics everywhere, but I just don’t think that the funds are there to negotiate whether or not it can be built.

  2. Paulo says:

    If the analysis is objective, then it warrants not funding such a project.

  3. Joe Barnett says:

    This is the problem with so-called “public-private partnerships.” The risk is socialized, and the reward is privatized.

    The Las Vegas monorail shares a problem with the proposed CA project: it doesn’t go anywhere that people want to go in sufficient numbers to defray operating costs.

    • Gary says:

      I don’t know if you could use this example for a complete indictment of public-private partnerships. The risk isn’t always socialized, and the benefit isn’t always privatized.

    • Willy says:

      I definitely agree, they aren’t implementing it, because their isn’t enough of a public need for it.

  4. Baker says:

    “Unlike the project ridership projection consultants, we applied a “reference class” ridership analysis, which used actual ridership from other similar routes around the world. That yielded a forecast from 53 percent to 76 percent below promoter projections. This could have led to losses of from $4.3 billion to $10.4 billion over 24 years.”

    Those are some ridiculous numbers right there.

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