05/04/2012 05:34 pm ET Updated Jul 04, 2012

California High-Speed Rail Cost: Officials Say Expert Reports Indicate 'Wrong Numbers'

This article comes to us courtesy of California Watch.

By Lance Williams

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 claims.

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

Their report, which predicts that if built, the bullet train will need multimillion-dollar subsidies "forever," was the subject of a story earlier 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 bullet 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 (the bullet train's) 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."

William Grindley, a former World Bank executive and a co-author of the critical report, said he was trying to contact the European rail expert who edited the BBVA study to see whether he agrees that he had published incorrect data.

The BBVA study is called "Economic Analysis of High Speed Rail in Europe."

By Rossi's account, it contains operating cost data obtained from the Union Internationale des Chemins de fer, a European rail lobby. That organization, known as the UIC, has acknowledged that the BBVA study had misreported the data, Rossi said.

"The UIC has said it is a mistake," Rossi told the lawmakers. "The BBVA said they would correct it."

The issue is important because state law requires the bullet 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 bullet train 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.

Their reports are distributed by the Community Coalition on High Speed Rail, a Peninsula environmentalist group that opposes the bullet train plan.

In his testimony, Rossi criticized the experts for attempting to measure costs on the basis of passenger miles, saying that in the transportation industry it is customary to calculate expenses per seat mile, irrespective of whether the trains are running empty or full.

Comparisons are difficult anyway, Rossi said, because European railroads typically are separate businesses from the owners of the rail lines. This creates a system of internal costs and charges that won't be an issue in California, he said.

Brian Weatherford, a fiscal analyst in the state Legislative Analyst's Office, agreed that the question is complicated. But he said that the Legislature needs to get a handle on the issue of operating costs for the bullet train. The experts' report was "useful in raising questions and concerns," he said.

Lance Williams is an investigative reporter for California Watch, a project of the nonprofit Center for Investigative Reporting. Find more California Watch stories here.