Taxpayers Railroaded in California

June 21, 2016
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In this essay on government construction projects, I discuss how promoters use “strategic misrepresentation” to subdue taxpayer opposition and get dubious spending schemes approved. The low-balling of projected costs is a tried and true deception used by infrastructure promoters the world over.

A variation on the strategy was apparently used to gain support for California’s expensive bullet train project. The Los Angeles Times reports that while people were aware that taxpayers would pay the system’s huge construction costs, officials promised that the operating costs would be covered by rail system revenues, not taxpayers. That promise appears to have been a fraud:

When a Spanish firm submitted a bid last year to help build the California bullet train, it cautioned that taxpayer money probably would be needed to keep the system operating.

 

Having reviewed data on 111 high-speed train lines around the world, construction giant Ferrovial said, it found that all but three could not make ends meet.

 

“More than likely, the California high speed rail will require large government subsidies for years to come,” the proposal said. 

 

That warning, however, was expunged from the version of Ferrovial’s proposal posted on the state’s website. The only record of it was on a data disk provided to The Times and others under a public records act request.

 

The state rail authority repeatedly has asserted that it will not need a subsidy and that every high-speed system in the world operates without taxpayer assistance — despite significant evidence to the contrary. A number of projects around the world have failed financially, others require direct operating subsidies and many more benefit from government taxes and regulations on competing airline and highway systems, according to audits, studies and interviews.

 

But in asking taxpayers to help build the Los Angeles-to-San Francisco line, officials assured the state would be able to pay the operating costs purely from the system’s revenues — and thus not sap money needed for social services, education or other projects.

 

When California voters committed the $9 billion in bonds in 2008, the measure stipulated that the system would have to operate without future public funding.

How can citizens fight such deceptions? This episode illustrates the importance of citizen engagement and transparency in government fiscal matters. It was not a state auditor that discovered the operating subsidy cover-up, but a concerned citizen doing some poking around:

The change in Ferrovial’s proposal was first noticed this spring by Morris Brown, a Bay Area resident and former Caltech chemistry professor who closely monitors documents and statements issued by the bullet authority.

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