Pie in the sky train estimates will bankrupt us

November 18, 2015

As originally published in the New Hampshire Union Leader

The Pappas-Van Ostern Express is a good example of bad math driving debt and leaving taxpayers with an empty wallet. Last week’s news release was not a new train plan but simply the old unaffordable plan with all the estimates revised down to make it appear cheaper but grotesquely unrealistic. This sort of new math is how governments go bankrupt.

Efforts to spend $300 million on a train that would require large annual operating subsidies have stalled. In an effort to revive the plan — or perhaps just to put out a news release — Executive Councilors Colin Van Ostern and Chris Pappas put out what they described as a “draft financing option.” Their goal is to jump start discussions that have lagged.

Pappas and Van Ostern have been the leading supporters of the train since their elections in 2012. And for Van Ostern, he has it at the heart of his economic development agenda in his gubernatorial campaign.

Their news release is not a new plan but rather a wildly optimistic reworking of already unrealistic numbers in a train study from a year ago.

The train would require a huge capital investment and then an annual operating subsidy. Underestimating each of these factors leads supporters to conclude the train is suddenly more affordable.

The Manchester option would require a total capital investment of $303 million. As the initial study did, the Pappas-Van Ostern plan counts on a capital investment from Massachusetts of $63.6 million. Given the significant budget problems in Massachusetts, their aid seems less than realistic as does the hope that the federal government would count the Massachusetts contribution as part of our local commitment to be matched.

The federal matching program supporters hope to tap is described as “chronically oversubscribed and thus extremely competitive.” But then again there is no financial cost to optimism.

If all goes well and Massachusetts rides to our rescue and we win the competitive federal process, supporters would then have us use about 75 percent of the state’s bonding capacity for one year on the train project. The annual cost of bonding, if all goes well, will be about $6 million.
At this point, supporters are merely guilty of optimism. Now the problems come in.

Supporters would have to believe that — unlike any other commuter train in existence — operations will more than pay for themselves and reduce the state’s annual costs below the $6 million bonding payment.
The closest analogue to the proposed train is the Portland-Boston Downeaster. It is remarkably successful by train standards, carries 530,000 passengers per year, but requires an annual subsidy of $8.4 million. Despite that, the Pappas-Van Ostern projection is that their train would be the best performing in the entire country — better than any New York train where the population density is extraordinary, better than all the other Boston trains in any direction, and exponentially better than anything seen or projected. Rather than covering 45 percent of its costs like most trains and the Downeaster, the PVO projection is closer to 90 percent.
That sort of optimism leads to financial problems. In planning for our own train, we would be more realistic to think of the $8 million the much-touted Downeaster loses. That raises the state’s annual need to $14 million each year.
Both last year’s plan and the PVO news release assume some offsets. The plan anticipated parking revenue of $500,000 to $900,000. The PVO release raises that to $1 million on higher fees.

As a discussion starter, the PVO release suggests local property taxes — through a local development district and supplemented by a local charge when that falls short — to cover $1-$3 million. I’m sure that will be very popular in Manchester and Nashua.
Even if they’re right about parking and local property taxes, they need $10-$12 million per year or double their estimate.

The policy goal is to aid commuters. The Downeaster moved 530,000 people for $8.4 million. The express buses in the I-93 corridor moved 550,000 people for just $750,000 — and didn’t require $300 million in capital costs.
Too often government loses sight of the policy goal and the most efficient way to achieve it.

Even worse, politicians are regularly tempted to use unrealistic numbers to make choices easier. Optimistic but unrealistic budget numbers created a huge hole, required a federal bailout, and led to the largest budget crisis in history. This is how it starts.