Viva Las Vegas - A Solyndra-Like Transportation Disaster Waiting To Happen

Yesterday we reviewed the overwhelming evidence why President Obama's dream and fantasy of using hundreds of billions of taxpayer money to build out a nation wide high speed rail network is pure political class insanity. The primary reason why such a network is just plain stupid to invest in is because there already is a viable, low cost, effective, and most importantly, a private sector transportation alternative that uses no taxpayer wealth to transport and deliver people all over the country.

This alternative is the new bus economic models and companies that have grown profitably, significantly and without taxpayer help over the past few years. These bus companies very efficiently and inexpensively serve the many city pairs that the high speed rail line pipe dream would serve.

Fortunately, given the good sense of some politicians not to waste taxpayer money on such folly and the reality of a sour economy and reduced government tax revenue, many of these high speed rail plans have been derailed, saving untold billions of dollars of taxpayer wealth, at least temporarily. These new generation of bus companies will continue to serve millions and millions of Americans travelers in comfort, inexpensively, and now.

However, as we all know, once a bad political idea takes hold, it is sometimes difficult to rip it out by its roots. Such is the case with high speed rail. According to an article in the November 28, 2011 issue of Business Week magazine:

• It takes a typical Los Angeles gambler about three  hours to drive from LA to Las Vegas.
• A developer, who built some of Las Vegas' largest casinos, wants to build a rail link from LA to Vegas that will cut that travel time down to about 80 minutes and cost about $75 round trip.
• The rail line would start in Victorville, California which is about 85 miles northeast of LA.
• The developer's company has already put up more than $40 million of the $6.5 billion that is needed to actually build the high speed rail line.
• Plans to build the rail line have been in the works for over a decade but so far, no track has been laid. However, all of the necessary environmental studies and regulatory reviews have been completed.
• But as is often the case, this part of the private sector now wants the American taxpayer, via the Federal government, to provide a massive loan guarantee worth $4.9 billion to start the construction of the rail line.
• This loan guarantee would have to be approved by the Federal Railroad Rehabilitation and Improvement Financing Program that is run by the Federal Railroad Administration which provides loans to and loan guarantees for building and maintaining railroads.
• This Federal program has been around thirteen years and in total has loaned out or guaranteed loans worth a total of only $1.59 billion worth of taxpayer wealth. Thus, just this one program would be more than three times what this program has done in total over thirteen years.
• This loan guarantee request is almost ten times what the Solyndra loan guarantee was for, another untested market concept that turned out to be a business, financial, and taxpayer disaster.

First of all, you start to understand why the Federal government is so far in debt if you have organizations such as the Railroad Rehabilitation and Improvement Financing Program and the Federal Railroad Administration. What do obscure government agencies like this do and are they really needed?

But the focus on this post is why do we think that this high speed rail link merits the risking of taxpayer money? The negatives and insanity of this proposal are many:

• How many people do we really think are going to transport themselves to Victorville, a town that is 85 miles outside of Los Angeles just to get onto a high speed train line to get to Las Vegas?
• Wouldn't simple logic tell you that most people would rather take the one to two hour trip to get to the station and use that time to go directly to Las Vegas where they would have the use and convenience of their own car?
• If I do have to transport myself 85 miles to get the train, I am expending gas costs to drive to the station, I am likely paying for parking to leave my car at the California station while I travel to Las Vegas, and then on return, I have to pay for more gas to get home. While the ticket costs $75, a traveler on this rail line would have additional costs including the gas required to travel to and from the California station, parking at that station, and the cab fare needed to travel around Las Vegas while in town. How many people are willing to spend this much larger sum of money, and time inconvenience, just to get to Las Vegas?
• If this is such a good idea for getting gamblers to Las Vegas, wouldn't those that benefit from getting gamblers to Las Vegas be more than willing to pay for the construction of this rail line? According to an article in the Las Vegas Examiner newspaper earlier this year, the top 23 casinos in Las Vegas, (not all casinos, just the largest 23) had $4.68 billion in revenue in 2010, almost the same amount that the developer wants the taxpayer to guarantee for the rail line. Why not make all Las Vegas casino operators finance the high speed rail line out of their billions of dollars in annual revenue?
• If this is such a good idea and the casinos funded the construction, there would still be thousands and thousands of jobs created for the state of Nevada, the main reason why our old friend Senator Harry Reid wants the government loan guarantee approved. But if this was done with casino money, the same jobs would be created and taxpayer money would not be at risk.
• Before any tax payer money is put at risk on this folly, it would be very interesting to see what politicians received what types of campaign donation support and contributions from what casino interests.
• Do we really think that this small government agency is able and competent enough to handle a loan program like this that is three times what its entire thirteen year historical loan portfolio is?
• If this is such a great transportation opportunity, why wouldn't the new generation of bus companies like Megabus, which we reviewed yesterday, not be a far better option, especially since it would not use taxpayer wealth? Megabus and other bus companies would pick people up at LA curbside locations and not require a Las Vegas visitor to travel 85 miles to get to a train.
• Wouldn't the $6.5 billion be far better spent building out the local LA mass transit system which would serve many more people every working day?

But beyond these logic reasons why this is another Solyndra failure waiting to happen. Do some simple math and then ask yourself why this makes sense to risk taxpayer  money:

1. Construction Cost of Project - $6.5 billion (assuming no cost overrruns, a very weak assumption, given the political class historical track record)
2. Assume a forty year life before major renovations have to be done.
3. Average annual construction cost spread out over 40 years = $162.5 million a year.
4. Assume that for every $75 ticket sold, the operator of this line makes $20 in profit after paying for utilities, salaries, and other expenses.
5. Number of riders a year needed to cover the annual $162.5 million construction costs = 8.125 million riders a year
6. Number of riders a day needed to cover the annual $162. 5 million construction costs = 22,260 daily riders.
7. Estimated daily visitors to Las Vegas from all over the world - about 100,000 a day.

Do we really think that 22,000 or so people, just from the greater LA area, are going to travel 85 miles to  a town outside of the LA city limits to get on a train to go gamble in Las Vegas EVERY DAY? Do we really think that this train will eventually account for over 20% of the total number of visitors that come into Las Vegas EVERY DAY?

Do we really think that the road infrastructure around Victorville, California can handle the additional cars needed to transport 22,000 people to the train station every day? I doubt it, and if the roads to Victorville cannot handle it, there would be additional costs of building out infrastructure, roads and possibly parking, to handle the traffic.

And that 22,000 daily usage estimate is for just a breakeven scenario. It assumes that there are no cost overruns and the per ticket profit is a generous $20 or a 27% profit margin per ticket. It assumes there are no additional engineering or environmental studies needed.

Just like Solyndra, the warning signs of impending disaster are all there. Unfortunately, the taxpayer risk on this folly is ten times as worse. Viva Las Vegas but let Las Vegas pay for this rail travesty itself.


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