California’s Transportation Future – The Common Road

LA-Freeway-Xchange-110-105With light rail, high speed rail, and possibly passenger drones and hyperloop pods just around the corner, it’s easy to forget that the most versatile mode of transportation remains the common road. Able to accommodate anything with wheels, from bicycles and wheelchairs to articulated buses and 80 ton trucks, and ranging from dirt tracks to super highways, roads still deliver the vast majority of passenger miles.

As vehicles continue to evolve, roads will need to evolve apace. Roads of the future will need to be able to accommodate high speed autonomous vehicles. They will also need to be smart, interacting with individual vehicles to safely enable higher traffic densities at higher speeds. But can California build roads competitively? How expensive are road construction and maintenance costs in California compared with other states in the U.S.? How can California make the most efficient use of its public transportation funds?

PHYSICAL VARIABLES AFFECTING CONSTRUCTION COSTS

The Federal Highway Administration maintains a cost/benefit model called “HERS” (Highway Economic Requirements System) which they use to evaluate highway construction and highway improvement projects. One of the products of HERS is the FHWA’s most recent summary of road construction costs, updated in 2015. Its findings reveal both the complexity facing any cost analysis as well as the wide range of results for similar projects.

For example, on the FHWA website’s HERS summary page, Exhibit A-1 “Typical Costs per Lane Mile Assumed in HERS by Type of Improvement” data is presented in nine columns, each representing a typical project category for which the FHWA analyzes costs. They are: “Reconstruct and Widen Lane,” “Reconstruct Existing Lane,” “Resurface and Widen Lane,” “Resurface Existing Lane,” “Improve Shoulder,” “Add Lane, Normal Cost,” “Add Lane, Equivalent High Cost,” New Alignment, Normal,” “New Alignment, High.”

The FHWA then break their results in each of the nine project categories into two broad groups; rural and urban. Within each of those two groups, they offer the subgroups; “Interstate,” “Other Principal Arterial” (these two are combined in the “Rural” group), “Minor Arterial,” and “Major Collector.” This creates seven cost groups, each of which are then further split. For “Rural” categories, they split into “Flat,” “Rolling,” and “Mountainous.” For “Urban” categories, they split into “Small Urban,” “Small Urbanized,” “Large Urbanized,” and “Major Urbanized.”

To make a long story short, and to state the obvious, “cost per lane mile” is never one number. The FHWA’s HERS table, which itself is a reductive, arguably arbitrary summary, there are 252 distinct cost per lane mile estimates, 24 per project category. And within these nine categories, the range of costs is dramatic.

According to the HERS analysis, adding a new lane to an interstate on flat terrain in a rural area costs $2.7 million per lane mile. To do the same thing in a major urbanized area costs $62.4 million per lane mile, more than twenty times as much. Even minor projects display wide ranges in cost. Resurfacing an existing lane of a principal arterial in a flat, rural area costs $279,000 per lane mile. To do the same in a major urbanized area costs $825,000 per lane mile, three times as much.

The fact that topography, existing usage and population density affect road construction costs isn’t news. But the wide variation in costs that result from these physical variables compounds the other major factor affecting road construction costs, which is the political and economic environment of the states where projects occur. As will be seen, the FHWA compiles state by state data on road construction. This data, however, is apparently not sufficient to allow the FHWA to produce a HERS summary showing costs per lane mile by state.

EXAMINING FEDERAL DATA ON ROAD EXPENDITURES BY STATE

The FHWA Office of Highway Policy Administration does issue a highway statistics report, updated annually, that provides valuable per state data on highway mileage and transportation budgets. Their 2016 report is available but incomplete (still missing key tables such as “Disbursements by States for Highways”) so the 2015 report is still the most current. These tables are uniformly formatted and downloadable.

California’s Spending per Mile vs. Condition of Roads

An excellent analysis of FHWA data is produced every year by the Reason Foundation. Earlier this year they released “23rd Annual Highway Report,”ranking each state’s highway system in 11 categories, including highway spending, pavement and bridge conditions, traffic congestion, and fatality rates.” Highlights from this study can offer insights into how efficiently California is spending its highway dollars compared to other states through using the following logic: How does California rank in terms of how much it spends per mile, compared to how California ranks in terms of the condition of its roads.

Overall California is ranked 43 among the 50 states “Total Disbursements per mile.” California is ranked 41 in “Capital & Bridge Disbursements per mile,” 47 in “Maintenance Disbursements per mile, and 46 in “Administrative Disbursements per mile.” In terms of road condition, California is ranked 33 in “Rural Interstate Pavement Condition,” 45 in “Urban Interstate Pavement Condition,” and 46 in “Rural Arterial Pavement Condition.”

There’s not too much you can conclude from that in terms of efficient use of funds. Among the 50 states, California appears to be at or near the bottom 10% in spending per mile of road, and also in pavement condition.

In terms of cost-efficiency, among all states, this data suggests California is in the middle of the pack.

How Centralized Are California’s Road and Highway Agencies?

Within the FHWA data an interesting finding is the great variation between states in road mileage under state administration vs. road mileage under other administration – mostly cities and counties, but also federal. Only a few states, mostly the larger western states, have any significant mileage administered directly by the federal government – Alaska 14%, Arizona 22%, Idaho 16%, Montana 16%, New Mexico 16%, Oregon 28% and Washington 11%, and Wyoming 13%. Most all other states have low single digit percentages of roads administered by the federal government. The national average is 3%. California, only 6%.

State administration of road construction is higher, but still relatively low. The national average is 19% of road mileage administered by state agencies. California’s is significantly lower than average, at only 8%. Altogether, nationally, 78% of road mileage is administered by local agencies, mostly cities and counties. In California, 87% of road mileage is administered locally.

Before inferring too much from this fact, that road construction and administration is overwhelmingly ran by local agencies, FHWA funding data is useful. The data shows that total funding for roads in California in 2015 was $19.0 billion. Of that, 44% ($8.3 billion) was for “Capital Outlay,” which refers to new roads, new lanes on existing roads, new bridges, and bridge upgrades. The national average is 47% of all road spending on capital.

More to the point, the CalTrans budget in 2015 was $10.5 billion. According to the California Office of Legislative Analyst, that “includes $3.9 billion for capital outlay, $2 billion for local assistance, 1.8 billion for highway maintenance and operations, and $1.7 billion to provide the support necessary to deliver capital highway projects. How much of that was reported to the FHWA as part of the total $8.3 billion spent on capital? Certainly the $3.9 billion “for capital outlay.” Probably the “$1.7 billion to provide the support necessary to deliver capital highway projects”? What about the $2.0 billion of local assistance? For capital projects, it appears that between $5.6 billion and $7.6 billion of the total spending of $8.3 billion came from CalTrans.

The State of California’s role in total spending on road transportation is also reflected in the budget allocations in that year for the California Highway Patrol, $2.4 billion, which is included in the FHWA’s total for California, under “Law Enforcement” ($3.4 billion). It is possible, if not likely, that the state’s $1.1 billion for the Dept. of Motor Vehicles is included either in the Law Enforcement or Administration categories in the FHWA data, or allocated between them. Finally, the finance charges – interest payments and debt retirement totaling $1.5 billion – are not coming out of the budgets for the state’s transportation agencies, but some percentage of that total is paid by the state. Altogether it is likely that the State of California directly funded about $12 billion, roughly 63% of the $19 billion spent on road construction and administration in 2015.

Based on funding data, state agencies clearly play a central role in constructing and maintaining California’s roads.

California’s Spending per Lane Mile vs. Percentage of Lane Miles in Urban Areas

An interesting alternative way to get at how efficiently California uses its public transportation funds is to evaluate based on the expanded variables of total lane-miles instead of state administered road mileage, and total spending on roads by all public transportation agencies instead of just Caltrans. The rationale for using lane-miles relies on the assumption that it is more costly to build a mile of six lane highway (three lanes in each direction) than a mile of two lane road, meaning that lane miles provides a more meaningful denominator, if the numerator is total public spending on roads. The rationale for examining spending by all public transportation agencies relies on the assumption that many, if not most of the political and economic factors that govern road construction costs in California are common throughout the state, having the same effect on construction costs regardless of the funding source.

Using FHWA data on lane miles and total spending by state to calculate spending per lane-mile, California was found to average $43,999 in total spending per lane-mile. This ranks California 42 among all states. The national average is $25,474 in transportation spending per lane-mile. Put another way, for every dollar that, on average, is spent to build and maintain a lane-mile in the nation as a whole, California spends $1.73. This suggests that California is not spending its transportation funds nearly as efficiently as the most other states, but without considering other variables this is a misleading statistic.

One of the largest factors determining cost per lane-mile is urbanization. This is clearly evident in the previously mentioned FHWA website’s HERS summary page, Exhibit A-1 “Typical Costs per Lane Mile Assumed in HERS by Type of Improvement,” where costs per lane-mile are uniformly higher in urban areas, and in some cases far higher. As noted earlier, “According to the HERS analysis, adding a new lane to an interstate on flat terrain in a rural area costs $2.7 million per lane mile. To do the same thing in a major urbanized area costs $62.4 million per lane mile, more than twenty times as much.”

The idea that road construction costs more in urban areas can be attributed to several interrelated factors: Land values are typically greater in densely populated areas. Construction challenges are greater in urban areas where it is more likely that existing structures may have to be acquired and demolished to permit road construction or widening. Labor costs are typically higher in urban areas. Urbanized regions also are likely to have more local restrictions on development, leading to more costly permitting processes and higher fees. There are other key factors influencing road construction costs – for example, climate and topography – but urbanization is easily quantifiable and likely the most significant of them.

For this reason, the following chart includes not only spending per lane-mile by state, but also includes the percentage of lane-miles, by state, that are in urban areas. Here, California distinguishes itself as one of the most urbanized states, having 59% of its lane-miles within urban areas. The national average, by contrast, is almost half that; only 31% of the nation’s lane miles are located in urban areas. Tracking these two rankings, spending per lane-mile and percentage of urban lane miles, permits an illuminating comparison. If one assumes there is a correlation between cost per lane mile and percentage of lane miles in urban areas, then how a state ranks in one should be similar to the how it ranks in the other.

Six states conform exactly to this assumption. Utah, for example, is the 24th most expensive state to construct roads per lane-mile, and it has the 24th most rural percentage of roads. Similarly, Illinois has a $/mile rank of 34, and it has a rural road % rank of 34. Texas, Pennsylvania, New Jersey, and the District of Colombia all have $/mile rankings exactly equal to their rural road % ranking. Five more states have a deviation between their $/mile rank and their rural road % rank of only one. California’s is only two – it is ranked 42 in its cost per lane mile, making it quite expensive relative to most states, but it is ranked 44th in its percentage of lane-miles in rural areas, meaning it is one of the most urbanized states.

The final set of columns on the chart, on the right, show a score for each state based on the rural road percent ranking less the $/mile ranking. If the score is negative, that means the state spending on lane miles ranks better (less per mile) than its rank based on its percentage of rural lane-miles. In other words if the score is negative, that means the state is spending less per lane mile than one might expect based on their level of urbanization, and if the score is positive, the state is spending more per lane mile than one might expect based on their level of urbanization.

Once again, California is in the middle of the pack.

Spending per Lane-Mile by State; Percentage of Urban Lane-Miles by State
(Source: Federal Highway Administration, 2015)

If one assigns any credence to these rankings, it presents interesting questions. Why is it that states like Georgia and Tennessee, which are relatively urbanized, are among the top performers in terms of being able to cost-effectively construct and maintain their roads? In the case of Tennessee, it isn’t as if they’ve neglected their roads, they are in the top ten in all three FHWA measurements of pavement condition. Georgia’s scores on pavement condition put them in the middle among states.

In some of the poorly ranked states, topography and climate may be factors. Alaska, the one of the least urbanized states nonetheless is one of the most expensive states to build and maintain roads, which should come as no surprise. Most of the states with low scores have harsh climates.

A final note regarding California – while it shows a high correlation between its cost per lane-mile and its level of urbanization, it does not score well in the three pavement condition indexes; 33 out of 50 for rural interstates, 45 out of 50 for urban interstates, and 46 out of 50 for rural arterial roads.

California can do better.

OBSERVATIONS AND RECOMMENDATIONS

Federal data indicates that while California scores poorly compared to other states in terms of road conditions, California also spends less than other states in terms of expenditures per lane mile. Considered in isolation, those two facts only suggest that California is using its transportation funds no more and no less efficiently than the average state. While federal data also indicates that California, overall, spends nearly twice as much per lane-mile as the national average, California is also more heavily urbanized, and normalizing for that reveals again that California is being roughly as cost effective in its use of transportation dollars as the average state.

When factoring in the condition of California’s roads, however, which are near the bottom in pavement condition indexes, California is not using its transportation dollars as well as it could.

Anecdotally, literally everyone surveyed – and we talked with representatives from dozens of agencies, research firms, and transportation agencies – agreed that per mile road construction costs are higher in California than most other states. But the federal data we had access to does not offer documentary proof of that, and Caltrans, despite numerous attempts, could not produce data on per mile construction costs that could be compared to national averages.

The lack of transparency, the complexity, and the subjective nature of any resulting analysis makes it difficult to assert with any certainty where California falls relative to other states – it is either somewhat below average, or far below average, but making that call requires a level of evidence and clarity that is simply not available. Ultimately it does not matter where California falls in that continuum, because regardless of how efficiently California spends their public transportation funds per lane mile of new or upgraded roads, there are ways to improve. The following recommendations were heard repeatedly, from contractors, trade associations, and researchers familiar with the topic. The first two in particular:

(1) Reform CEQA

CEQA, or the California Environmental Quality Act, is a “statute that requires state and local agencies to identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible.” While the intent behind CEQA is entirely justifiable, in practice it has added time and expense to infrastructure projects in California, often with little if any actual environmental benefit. An excellent summary of how to reform CEQA appeared in the Los Angeles Times in Sept. 2017, written by Byron De Arakal, vice chairman of the Costa Mesa Planning Commission. It mirrors other summaries offered by other informed advocates for reform and can be summarized as follows:

  • End duplicative lawsuits: Put an end to the interminable, costly legal process by disallowing serial, duplicative lawsuits challenging projects that have completed the CEQA process, have been previously litigated and have fulfilled any mitigation orders.
  • Full disclosure of identity of litigants: Require all entities that file CEQA lawsuits to fully disclose their identities and their environmental or, increasingly, non-environmental interest.
  • Outlaw legal delaying tactics: California law already sets goals of wrapping up CEQA lawsuits — including appeals — in nine months, but other court rules still leave room for procedural gamesmanship that push CEQA proceedings past a year and beyond. Without harming the ability of all sides to prepare their cases, those delaying tactics could be outlawed.
  • Prohibit rulings that stop entire project on single issue: Judges can currently toss out an entire project based on a few deficiencies in environmental impact report. Restraints can be added to the law to make “fix-it ticket” remedies the norm, not the exception.
  • Loser pays legal fees: Currently, the losing party in most California civil actions pays the tab for court costs and attorney’s fees, but that’s not always the case with CEQA lawsuits. Those who bring CEQA actions shouldn’t be allowed to skip out of court if they lose without having to pick up the tab of the prevailing party.

(2) Restructure Caltrans

Caltrans currently outsources only about 10% of its work. Despite repeated attempts to legislate changes that would require Caltrans to use contractors to lower costs, no action has been taken. In a report prepared in 2015 by state senator Moorlach, the failure of California’s legislature to implement reforms is described: “In previous administrations, Governor Schwarzenegger pushed for an 89/11 ratio and could not achieve it. Even Governor Brown proposed a reduced ratio that was rejected by the Legislature.”

By maintaining permanent engineering staff instead of contracting, whenever projects are concluded these engineers are often idle until another project comes along. The Legislative Analyst’s Office in 2015 reported that there were 3,500 of these positions created for programs that have expired, requiring an extra $500 million each year.

The advantage of contracting out engineering work isn’t merely based on more efficiently allocating personnel to projects to avoid down time. When Caltrans does the designing, then puts the project out for bids, the contracting companies have to conduct redundant design analysis in order to prepare their bids. This also contributes to increased costs which are passed on to the taxpayer as well as extra time. In moving to a system where Caltrans just specifies the project goals and lets the contractors prepare competitive bids based on in-house designs, the taxpayer saves time and money. Ways to restructure Caltrans might include:

  • Immediately increase the ratio of contracted work from 10% to 20%.
  • Permit the headcount of in-house engineers at Caltrans to reduce through retirements and voluntary departures, systematically increasing the ratio of contracted work as the number of Caltrans in-house engineers decreases. Set a goal of at least 50% contracted work within five years.
  • Abolish the current requirement that the state legislature has to approve any projects that are contracted by Caltrans instead of designed in-house.

(3) Decentralize and Innovate

On the FAQ page for Elon Musk’s Boring Company, the following innovations are proposed to lower the cost of tunneling by a factor of between 4 and 10: (1) Triple the power output of the tunnel boring machine’s cutting unit, (2) Continuously tunnel instead of alternating between boring and installing supporting walls, (3) Automate the tunnel boring machine, eliminating most human operators, (4) Go electric, and (5) Engage in tunneling R&D. More generally, on that FAQ page the following provocative assertion is made: “the construction industry is one of the only sectors in our economy that has not improved its productivity in the last 50 years.”

How can California use public transportation dollars to nurture innovation that will deliver more people to more places, faster, safely, for less money? One way would be to nurture competition by nearly eliminating Caltrans. Why should one state agency control nearly two-thirds of the funds for road construction and maintenance in California? Why not reduce Caltrans to a couple dozen administrators to handle federal regulations and direct federal funds and move all road work, expansion and maintenance to the counties? The counties can conform to a general state plan, but there’s no reason to have a state bureaucracy any more when the counties can be challenged to be more efficient, effective and non-duplicative in their work.

Imagine the innovation that might come out of Santa Clara County, where stretches of roadway could be immediately prioritized to add smart lanes where autonomous cars – including mini-buses and share cars – can operate safely at much higher densities and speeds. Imagine the innovation that might come out of Los Angeles County, where entire transit corridors could have congestion greatly relieved because thousands of cars are being swiftly and safely transported from point to point in underground tunnels. Imagine the innovation that might come out of San Francisco, where congestion pricing completely eliminates their chronic gridlock, or out of Orange County, where private investors team up with public agencies to use roboticized equipment to perform heavy road construction at a fraction of the cost for conventional processes?

Why not decentralize transportation management in California and turn the counties into laboratories of innovation?

(4) Expand Into the Vastness of California

It is an accident of history that California is so densely urbanized. Most metropolitan regions on the east coast, developed gradually over three centuries or more, have thousands of square miles of spacious suburbs, and tens of thousands of even more spacious expanses of moderately settled lands on the edges of remaining wilderness areas. California, in stark contrast, has nearly 18 million people residing in greater Los Angeles and over 7 million people residing in the greater San Francisco Bay Area. If you add residents of the San Diego region and Sacramento regions, you account for 32 million out of a population of 39 million. And yet all of California’s urban areas, the most densely urbanized in the nation, only constitute five percent of its 163,696 square miles! The math is compelling – you could settle ten million people in four person households on half-acre lots and it would only consume 1,953 miles. Double that for roads, parks, commercial and industrial space, and you are still only talking about urbanizing another 2.4% of California’s land. The idea that we cannot do this is preposterous.

The cost of infrastructure, roads in particular, is much higher in urban areas. So why not expand along the nearly empty Interstate 5 corridor, creating new towns and cities that are spacious and zoned to never become congested? Why not upgrade I-5 to accommodate high speed smart vehicles that provide nearly the speed of high-speed rail, while preserving the point-to-point convenience that only a car can offer? Why not expand along the entire fringe of California’s great Central Valley, where currently thousands of square miles of cattle rangeland are being taken out of production anyway? Why not build more roads on this raw land, bringing down the cost both for roads and the homes that will be built around them?

(5) Change the Conventional Wisdom

California’s policymakers have adhered increasingly to a philosophy of limits. Urban containment. Densification. Less energy use. Less water consumption. Fewer cars and more mass transit. But it isn’t working. It isn’t working because California has the highest cost of living in the nation. Using less energy and water never rewards consumers, because the water and energy never were the primary cost within their utility bills – the cost of the infrastructure and overhead was the primary cost, and those costs only go up with renewables. Cramming home construction into limited areas not only destroys the ambiance of existing neighborhoods, but simply cannot increase the supply of homes enough to lower the cost.

There is a completely different approach that would cost less and improve the quality of life for all Californians. Without abandoning but merely scaling back the ambition of new conservation and efficiency mandates, free up funds to build safe, generation III+ advanced nuclear reactors. At the same time, construct desalination plants on the Southern California coast, enough of them to supply the entire Los Angeles basin with fresh water. Instead of mandating water rationing for households, put the money that would have been necessary to retrofit all those homes into new ways to reuse water and capture storm runoff.

Paying for all of this wouldn’t have to rely exclusively on public funds. Private sector investment could fund most of the energy and water infrastructure. Water supplies could be even more easily balanced by permitting water markets where farmers could sell their water allotments without losing their grandfathered water rights. If the permit process and mandated design requirements were reduced, builders could carpet former cattle ranches with new homes, sold for a profit at affordable prices.

CONCLUSION

This is the final segment of a four part excursion into California’s transportation future. In each section the same themes emerged: It isn’t just what gets built to serve future Californians, it’s how cost effectively the money is spent. Innovation and regulatory reform – CEQA in particular, but also repealing SB 375AB 32, and related anti-growth legislation – together have the potential to lower the cost of infrastructure, transportation in particular, by at least 50%.

California’s current policies have stifled innovation and created artificial scarcity of literally every primary necessity – housing, energy, water and transportation. Each year, to comply with legislative mandates, California’s taxpayers are turning over billions of dollars to attorneys, consultants and bureaucrats, instead of paying engineers and heavy equipment operators to actually build things.

The innovation that persists despite California’s unwelcoming policy environment is inspiring. Right here are the pioneering companies that will deliver flying cars, commercial access to outer space, breakthrough modes of transportation such as hyperloop and urban tunnels. Right here are the companies that will deliver self-driving cars, cars on demand, high-speed smart cars. These things will happen within a time frame that is, by the standards of human history, breathtakingly short. And with the right assortment of pro-growth policies in place, more of them will happen right here.

California’s transportation future cannot be predicted with any certainty. If the past few decades have taught us anything, it is that innovation routinely delivers products and solutions that nobody could have possibly imagined. But it is a reasonably safe bet that the common road is the most useful mode of transportation infrastructure for which public policy can risk public funds. A flat surface where wheeled conveyances of every conceivable design can all travel from point to point, clean, smart, versatile, sustainable, and fast.

Edward Ring co-founded the California Policy Center in 2010 and served as its first president.

California’s Transportation Future, Part One – The Fatally Flawed Centerpiece

California’s Transportation Future, Part Two – The Hyperloop Option

California’s Transportation Future, Part Three – Next Generation Vehicles

REFERENCES

[1] Federal Highway Administration – Highway Economic Requirements System

[2] Office of Highway Policy Information – Highway Statistics 2015

California’s Transportation Future – The Hyperloop Option

In July 2012, Elon Musk sat down for a “fireside chat” with Sara Lacy, founder of the PandoDaily website. In between discussions of PayPal, Tesla and SpaceX, 43 minutes in, Musk unveiled his idea for the “Hyperloop,” a new transportation technology that “incorporates reduced-pressure tubes in which pressurized capsules ride on air bearings driven by linear induction motors and air compressors.”

The concept wasn’t new. Hyperloop concepts have existed for nearly 200 years. Small scale “pneumatic railways” were actually built in Dublin, London, and Paris, mostly as a novelty, as far back as the 1850s. In 1910, American rocket pioneer Robert Goddard proposed a train that would go from Boston to New York in 12 minutes. Goddard’s design advanced the technology, replacing wheels with magnetic levitation of the passenger capsule inside a vacuum-sealed tunnel.

Musk’s “Hyperloop Alpha” study was released by a joint team from SpaceX and Tesla in August 2013. This 58 page study remains an excellent investigation of the financial and engineering feasibility of Hyperloop technology. The concept is relatively simple. Passengers and freight travel in “pods” or “capsules,” through a tube that has had all the air pumped out, eliminating the friction of air resistance. Moreover, these pods ride on electromagnets, repelled away from the inner surface of the tube, eliminating the friction of wheels. Not only would these electromagnets keep the pods levitated off the inside surfaces of the travel tube, but through “linear induction,” they would provide the force to propel the pod through the tube. Most proponents claim these innovations make speeds feasible in excess of 700 MPH.

A system like this, assuming there were nonstop service, could deliver passengers from San Francisco to Los Angeles in around 30 minutes. From the Hyperloop Alpha report, here is the route a Hyperloop system could take in California:

“Hyperloop Alpha” – The Original Proposed Route Connecting SF to LA

Hyperloop alpha

The Hyperloop Alpha study was released as an open source document, and none of the companies currently developing Hyperloop systems are directly affiliated with Musk or his companies. Since 2013, at least three noteworthy companies have emerged. Each of these companies have developed substantial technical changes to the design imagined in Musk’s Hyperloop Alpha study. And sadly, despite two of them being headquartered in California, none of these companies are currently proposing a system to connect San Francisco to Los Angeles.

THE MAJOR HYPERLOOP CONTENDERS

Virgin Hyperloop One, founded in 2014, is based in Los Angeles. They have over 300 employees and have raised over $295 million in investment capital. The company was rebranded in October 2017 after receiving a significant investment from Virgin Group founder Richard Branson. In May 2017 they began testing a Hyperloop system on a 500 meter “development loop” built in the desert north of Las Vegas. Regarding next steps for the company, a spokesperson for Virgin Hyperloop One claimed “we’ve already seen ground-breaking commitments in India, UAE, Saudi Arabia and the U.S.” He said construction of the Mumbai-Pune route in India could begin as early as 2022 and be completed in less than five years for passenger operations.

Virgin Hyperloop One’s 500 meter long “DevLoop” in the Nevada Desert

Virgin Hyperloop

Hyperloop Transportation Technologies, or “HTT,” founded in late 2013, is based in Culver City in the Los Angeles area. They claim to have over 800 collaborators located all over the world who are working mostly in exchange for stock options.  While HTT uses crowd sourcing and is crowd funded, they have developed proprietary technology. An HTT spokesperson reached for comment said “The model is tricky to define. It isn’t open source, we call it ‘open collaboration.’ We don’t disclose our patents and schematics, we have signed contracts and non-disclosure agreements. But this way qualified candidates can be found worldwide and can contribute their talents in exchange for stock options.”

A Harvard Business School case study on HTT had this to say about the company’s prospects using this business model: “Rather than employees, HTT has invited over 800 people to contribute a minimum of 10 hours per week in exchange for future equity. Everything from recruitment, incentives, culture, technology, and intellectual property controls are handled with the idea that a community can work together to solve a global problem (transportation) by ‘turning a collective passion into a vision and the vision into a reality.’ The open question is how this approach will fair as the organization moves from design to delivery.”

Apparently so far HTT’s novel approach to financing and recruitment is working, because in April 2018 they announced construction of a kilometer-long test track near its R&D center in France near Toulouse. In addition to being headquartered in California with a test track underway in France, HTT has entered into government partnerships to perform feasibility studies and testing in Slovakia, India, as well as in the U.S. states of Ohio and Illinois. HTT also has impressive commercial technology partners including AECOMAnsys, and Oerlikon.

Hyperloop Transportation Technology’s full-scale tubes are transported to French test site 

Hyperloop

Another entrant in the Hyperloop industry is Transpod, founded in 2015, based in Toronto with satellite offices in Italy and France. In 2018 they announced plans to build a half-scale, 3 kilometer test track in France. Transpod president Sebastien Gendron, reached by phone, said construction would start this summer. He expected it to be ready for tests to begin within a year, or by Spring of 2019. He stated the decision to go at half-scale was based on a need to finalize the technology based on the results of the testing.

The designs Transpod are exploring are illustrative of the variations in the engineering solutions being developed at these three main competitors. Gendron explained that to reduce the cost per kilometer of tube, a major factor is the type of magnetic levitation. “We are developing technology to keep 80-90% of the levitation system on the vehicle itself,” he said. This would eliminate the need for expensive permanent magnets powered up for the entire length of the corridor. Like his counterparts at Virgin One Hyperloop and HTT, Gendron was reluctant to explain further details of their proprietary technology.

Hypothetical Hyperloop Station (artists rendering from Transpod)

Hypothetical Hyperloop

WILL HYPERLOOP WORK AND IS IT SAFE?

A rather caustic attempt to debunk Hyperloop technology was released in July 2016 by Phil Mason, a British scientist and videoblogger who has nearly 800,000 subscribers to his YouTube channel. His video, entitled “The Hyperloop Busted!,” has gotten over 1.5 million views, and takes a dim view of Hyperloop technology. Some of Mason’s criticisms are valid but obvious, and not deal killers. In particular, that Hyperloop systems will cost more than claimed by proponents, and that Hyperloop systems will use more energy than claimed by proponents. Mason is almost certainly correct in these criticisms, but they don’t necessarily kill the argument for Hyperloop transportation solutions. How much more will they cost? How much more energy will they consume? Other concerns merit more attention.

For example, Mason claims that current designs for lengthy Hyperloop routes don’t take into account thermal expansion of metal tubes that are literally hundreds of miles long. When reached for comment on this challenge, a Hyperloop One spokesperson said “We have successfully built a test track in the Nevada desert which is the perfect environment to test the impact of temperature changes upon the Hyperloop tube as temperatures range from over 100F to below freezing. The DevLoop tube experiences daily movement due to expansion and contraction of the steel during temperature swings. To accommodate this movement, we have designed proprietary structural systems into the DevLoop columns to allow for this movement which allows the tube to expand and contract without causing structural damage to the tube, vacuum, and other supporting mechanisms. As systems get longer, we are confident that we can build a flexible, strong, affordable, safe system that can endure a multitude of weather conditions given our testing experience in the harsh climate of the Nevada desert.”

Until systems get longer, it is difficult for Hyperloop proponents to muster convincing arguments that it will be absolutely safe. Depressurizing a tube several hundred miles long is a major engineering feat requiring a lot of energy, as is constructing a tube that long that is capable of structurally withstanding depressurization. There are many unanswered questions.

How will passenger pods exit the main Hyperloop route and switch onto sidings to board and disembark passengers at intermediate stops? How will pods airlock themselves to exit points at the station without letting air into the tube? Since these pods will be traveling at very high speeds, packing almost unimaginable kinetic energy, how certain can operators be that a pod might never bump into the inside of the tube? Wouldn’t a minor “bump,” at high speed in a narrow tube, result in a catastrophic collision, rupturing and depressurizing the tube and likely killing not only the passengers in the colliding pod, but all the passengers in all the pods transiting the tube as they encounter a wall of air?

THE TUNNELING OPTION

One of the strongest arguments for Hyperloop systems, should they function as planned, is that implementing them uses less space. Hyperloop systems can be put onto pylons, elevating the tubes so they don’t disrupt activities on the ground below them, whether that is farmland or the median of a divided highway or freeway. Hyperloop tubes can also be buried underground, enabling them to establish routes through densely populated cities.

It may be that the first use of Hyperloop technology will be within urban areas, where the space advantage they offer constitutes a more decisive argument for investing in a system than the maximum speeds they might achieve on longer routes. It may be the technology can be perfected at lower, safer speeds. Elon Musk, who is not directly involved with any of the companies vying to build the first Hyperloop systems, has founded The Boring Company, where he hopes to apply the same aggressive innovation to tunneling technology as he has applied to rocketry with SpaceX.

If SpaceX challenges NASA in the field of rocketry, The Boring Company faces a similarly entrenched competitor in the German firm Herrenknecht AG. Founded in 1975, its massive factory nestled along the Rhine, this multi-billion dollar company sells tunneling systems – sophisticated snakelike machines that can be over 1,000 feet long – all over the world. Herrenknecht TBMs (tunnel boring machines) dug the 35 mile long Gotthard Base Tunnel under the Swiss Alps in 2009, the longest and deepest tunnel in the world. Today, most of Herrenknecht’s TBMs are digging subways in urban areas, primarily in the Middle East and Asia. For more on Herrenknecht and tunneling technology today, read “The Long Dig” (New Yorker, 2008), or watch this fascinating animation of an operating TBM.

Tunneling, like blasting payloads into low earth orbit, is extremely expensive. But The Boring Company claims tunneling costs can be dramatically reduced. On The Boring Company’s FAQ page, the following innovations are proposed: (1) Triple the power output of the TBM’s cutting unit, (2) Continuously tunnel instead of alternating between boring and installing supporting walls, (3) Automate the TBM, eliminating most human operators, (4) Go electric, and (5) Engage in tunneling R&D, “the construction industry is one of the only sectors in our economy that has not improved its productivity in the last 50 years.”

Apparently tunneling, whether for Hyperloop pods, or just electric powered “skates,” has the attention of the Los Angeles City Council, which in April 2018 approved a CEQA exemption so The Tunneling Company can immediately begin digging a 14 foot diameter, 2.7 mile long tunnel through the heart of West LA. The Boring Company believes they will complete this tunnel in 9 months. Don’t laugh. SpaceX is now routinely reusing first stage rocket boosters, an achievement that eluded NASA for decades. And imagine how long it would take LA Metro to complete the same project.

According to The Tunneling Company, tunneling using conventional methods costs about $1.0 billion per mile. But the current standard for a one-lane tunnel is approximately 28 feet. By placing vehicles on a stabilized electric skate, the diameter can be reduced to less than 14 feet. The area of a 14 foot diameter circle is 615 square feet, whereas a 28 foot diameter circle has an area of 2,463 square feet, exactly four times as much. If Musk is correct that a 14 foot tunnel – which just happens to be the diameter of the tunnel he’s been approved to dig in Los Angeles – is a viable size for mass transit, he’s just brought costs down by 75%. If other proposed innovations are successful, The Boring Company may reduce tunnel costs from $1.0 billion per mile per lane to $100 million per mile per lane. As shown in this animation, electric “skates” can carry cars through these tunnels at speeds of 120 MPH, using elevators to move them down to the tunnel and back up to the roads.

THE FUTURE OF HYPERLOOP TECHNOLOGY

The pace of innovation clearly makes a case that California’s high speed rail project could end up being obsolete before it’s even completed, at staggering expense. But can the same be said for the Hyperloop? What are the emerging competitors to Hyperloop?

Within urban areas, where transportation challenges remain most acute, tunnels underground don’t have to move people at 700 MPH through zero PSI to constitute breakthrough improvement. They can use proven, much safer technology, such as electronic skates that transport cars through tunnels at normal air pressure. Traveling from the San Fernando Valley to downtown Los Angeles takes about 15 minutes if you’re going 120 MPH. You don’t need to go faster.

Between urban areas, there is a clear case for Hyperloop as a superior competitor to high speed rail. Assuming the safety issues and remaining technical challenges can be overcome, it is probably cheaper to construct, and it’s much faster. But these are big ifs. And even if Hyperloop can compete with high speed rail, that’s a low bar. What about conventional air travel? Can Hyperloop construct a network of zero PSI tunnels that connect every major city in California, the way, for example, Southwest Airlines does today?

And at what point does Hyperloop itself become obsolete, unable to cost-effectively compete with new innovations? When the energy density of batteries descends to under 400 watt-hours per kilogram (the best are currently already packing about 300 watt-hours per kilogram), high-speed electric planes become feasible. Because these planes would not have air-breathing jet engines, they could ascend to 60,000 feet where the thinner air offers less resistance, allowing them to travel at supersonic speeds using less energy. And because these planes could be designed like the V-12 Osprey, with rotating engine nacelles, they could take off and land vertically, eliminating the need for airport runways.

One big problem with Hyperloop, ultimately, is same problem with any rail transport. You can only go where the rails – or tubes – go. And only very specialized vehicles can go onto these rails, or into these tubes. Roads, on the other hand, can accommodate anything with wheels. The air, an even more versatile transportation medium, can accommodate anything that flies.

The next article in this series will examine advances in small scale transportation innovations. Advanced vehicles designed for roads and for flight. These new technologies will deliver passengers and freight at high speeds, with ranges that reach from the fringes to the center of large urban areas. It may be that embedded rail or tunnel technologies only make sense in the most densely packed urban cores, or along heavily traveled transportation corridors.

It makes sense to come up with high speed options to connect California’s North Central Valley to the Silicon Valley, or to connect California’s South Central Valley to the Los Angeles Basin. To connect the Silicon Valley to Los Angeles does not make sense for high speed rail, because it doesn’t go fast enough to compete with jets. Whether or not Hyperloop technology provides any of these solutions depends on whether it can indeed reduce the costs significantly below high speed rail, at the same time as it delivers safer, much faster transportation than high speed rail. It also depends on what other high-tech transportation solutions are on the way, using those most versatile of all transportation technologies, wheels and wings.

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This article is the 2nd in a series on California’s transportation future. The first installment was “California’s Transportation Future, Part One – The Fatally Flawed Centerpiece,” published in April 2018. Edward Ring co-founded the California Policy Center in 2010 and served as its president through 2016. He is a prolific writer on the topics of political reform and sustainable economic development.

The Fatally Flawed Centerpiece of California’s Transportation Future

High speed rail constructionCalifornia’s transportation future is bright. In every area of transportation innovation, California-based companies are leading the way. Consortiums of major global companies have offices throughout the San Francisco Bay area, pioneering self-driving cars that consolidate technologies from not just automakers, but cell phone manufacturers, chip designers, PC makers, telecoms, and software companies. In Southern California from the aerospace hub surrounding LAX to the Mojave desert, heavily funded consortiums experiment with everything from passenger drones to hyperloop technologies to hypersonic transports. It’s all happening here. It’s wondrous.

Meanwhile, instead of preparing the roads for smart cars, or designing hubs that integrate buses and cars-on-demand with aerial drones and hyperloop systems, the centerpiece of California’s transportation future is a train that isn’t very fast, being built at what is probably the highest cost-per-mile in the history of transportation, which hardly anyone will ever ride.

There is a stark contrast between California’s private entrepreneurial culture, as reflected in the marvels of transportation engineering they are developing, and California’s political culture, as reflected in their ongoing commitment to “high speed rail,” in all of its stupefying expense, its useless grandeur, its jobs for nothing, its monumental initial waste, situated miles from nowhere. Exploring that stark contrast, its origins, the players, the projects, the problems and the solutions, will be the topic of this and subsequent reports.

HIGH SPEED RAIL – THE FATALLY FLAWED CENTERPIECE

The fatally flawed centerpiece of California’s transportation future, the “Bullet Train,” unfairly dominates California’s transportation conversation. Unfair not only because it represents a prodigious waste of public resources and an epic failure of public policy, but because in spite of the Bullet Train fiasco, California’s private sector is designing and building a transportation future for the world at dazzling speed. But before surveying the excellent progress being made elsewhere in the Golden State, it is necessary, yet again, to tick through the reasons why the Bullet Train is the wrong solution, in the wrong place, at the wrong time.

Fifty years ago, before air travel became affordable to nearly anyone, before you could fly from San Francisco to Los Angeles for less money than it would cost in gasoline to drive there in your car, rail travel might have made sense. But today, airfare is only about twice the cost of bus fare, with total air travel time a minute fraction of what the same trip would take on a bus.

Fifty years ago, before land values and environmentalist lawsuits rendered any capital project prohibitively expensive, building a high-speed rail corridor between San Francisco and Los Angeles might have made sense. But today, the latest cost estimates for the SF/LA route exceed $100 billion.

Unrealistic Projections

High speed rail makes sense for intercity applications in megapolises. For example, a high speed rail line connects three of Japan’s largest cities, Tokyo, Nagoya, and Osaka. Nearly all of this 300 mile corridor is urbanized – in all, over 70 million Japanese live in this region of Japan.

By contrast, just phase one of the California high speed rail project, linking San Francisco with Los Angeles, will be 520 miles longconnecting about 24 million people. This doesn’t pass the density test. Compared to a successful high speed rail system – which the Tokyo/Osaka system certainly is – the San Francisco/Los Angeles system would be nearly twice as long, and serve only about one third as many people.

Put another way, there are 233,000 Japanese, per mile, living along the Tokyo/Osaka route, whereas there are 46,000 Californians, per mile, living along the proposed San Francisco/Los Angeles route. That means there are five times as many potential riders on Japan’s centerpiece bullet train as there might be on California’s.

Low ridership isn’t just a consequence of insufficient population density, although that is a critical precondition. Low ridership also stems from impracticality. The California High Speed Rail Authority’s 2018 “business plan” is disingenuous on this topic. They claim that travel to and from the airport chews up time, yet ignore travel time to and from a high-speed rail station. Travel time to these stations, air vs. rail, are entirely offsetting. Then they claim time that boarding high speed rail is quicker than boarding an airplane. Why? A frequent air traveler has TSA Pre, and typically sails through check-in and security. And won’t security be in place for high speed rail? Of course it will. Boarding time – also entirely offsetting. Which brings us to the actual travel time.

The current projection according to the CA HSR 2018 business plan (ref. page 7) is three hours for nonstop service from San Francisco to Los Angeles. This is definitely a best-case estimate. As reported on March 18th in the Los Angeles Times, “Of the roughly 434 miles of track between Los Angeles and San Francisco, 136 miles — nearly one-third of the total — could have at least some speed restrictions.” This would include tunnels, sharp curves, all transits through urban areas, and, incredibly, shared track and shared right-of-way with conventional rail carriers.

It is going to take twice as long to travel from San Francisco to Los Angeles via high speed rail vs. an airplane. Let’s not forget there are three major airports in the San Francisco Bay Area – SJC, OAK, and SFO. Five major airports serve the Los Angeles area – LAX, ONT, BUR, LGB and SNA. And flights connect all of them to each other, all day, every day.

Perpetual Financial Drain

Even if you accept the official projections for California’s high speed rail, the financial projections are unlikely to attract private capital. The table depicted below uses baseline projections from the CA HSR 2018 business plan (numbers directly taken from the business plan are highlighted in yellow, with numbers in intermediate years, which were not disclosed in the business plan, arrived at by extrapolation) to construct a cash flow for the “Phase One” portion of the project, those segments connecting San Francisco to Bakersfield. All of the variables are taken from that document. Several generous assumptions are necessary to accept these projections. They are:

(1) The entire capital cost for construction of the Phase One system linking San Francisco to Bakersfield is $40.1 billion (ref. page 32, exhibit 3.2 “Summary of Cost Estimates by Phase and by Range”). This is crazy. It will probably cost half that just to bore a tunnel under the Pacheco Pass.

(2) Ridership on this segment will grow to 31.9 million fares per year by 2035. Assuming primarily commuter traffic, this assumes over 120,000 riders per day (ref. page 90, exhibit 7.1 “Ridership: Silicon Valley to Central Valley Line through Phase 1,” “Medium Ridership”).

(3) Incredibly, fare revenue will hit $1.86 billion by 2035. This assumes an average ticket price, in 2017 dollars, of $60. This, in turn, infers that the average commuter will be spending $1,220 per month to ride the bullet train (ref. page 90, exhibit 7.3 “Farebox Revenue: Silicon Valley to Central Valley Line through Phase 1,” “Medium Revenue”). This is perhaps the most far fetched of all assumptions made in the entire business plan. Imagine over 120,000 regular commuters spending $1,200 per month to ride this train, noting the fact that this sum would not include the additional costs virtually all commuters would incur to travel from their home to the HSR station, and then from the HSR station to their workplace, on both their outbound and inbound commute, day after day.

(4) Operations and maintenance for the train will be a mere $1.4 billion in 2035, then, after adjusting for 3% inflation, will only increase 11% by 2060 even though ridership is projected to rise from 31.9 million passengers in 2035 to 51.2 million by 2060 (ref. page 91, exhibit 7.5 “O&M Costs: Silicon Valley to Central Valley Line through Phase 1,” “Medium Cost Estimate”). This defies credulity. How will ridership increase by 61% between 2035 and 2060 while O&M costs only increase 11%?

(5) “Lifecycle Costs,” the capital reinvestment necessary to replace worn out rolling stock and other fixed assets, i.e. “capital rehabilitation and replacement costs for the infrastructure and assets of the future high-speed rail system,” as near as can be determined from the 2018 business plan, is estimated to only total around $5 billion between commencement of operations in 2029 and 2060, over 30 years (ref. page 91, exhibit 7.6 “Lifecycle Costs: Silicon Valley to Central Valley Line through Phase 1,” “Medium Lifecycle Cost”).

(6) In the analysis below, loan payments are deferred for up to ten years until rail operations begin in 2029. In reality, of course, payments begin as soon as the money is loaned. Notwithstanding that, the annual loan payments are calculated based on loan of $40.1 billion, a 30 year term, and 5% interest.

CALIFORNIA HIGH SPEED RAIL
CASH FLOW USING 2018 BUSINESS PLAN’S “BASELINE” PROJECTIONS, $=M

Taking into account these are – for the six reasons just stated – very optimistic projections, there remain problems with these numbers that would give any investor pause. For starters, there is a cumulative negative cash flow of $14 billion, representing the period up until 2039 when the system is projected to become cash-positive. This represents over 20 years of negative cash flow. Where will this $14 billion come from? Bear in mind it will be more than $14 billion, since payments on the loans commence when the monies are loaned, not when the system begins operations. Maybe some of it will come from “cap and trade” proceeds, although if so, it would consume nearly all of them. Would private investors step up?

The problem with that is if you review this best-case scenario, you can see that selling the future positive cash flow to finance the initial negative cash flow would yield an internal rate of return of 4.7%. While that’s not an impossibly low rate for a municipal financing, it is exceedingly low for a private financing subject to this level of risk. And what about the risk?

High Speed Rail Cash Flow Using Conservative Assumptions

The next chart shows a cash flow scenario for high speed rail, phase one, with key assumptions changed. Instead of costing $40.1 billion, it costs $49 billion, the “High” range of cost estimates as disclosed on the HSR 2018 business plan, page 32. Instead of an average ticket price of $60, a more affordable $30 price is used, based on the assumption that the average commuter will not be willing to spend more than $600 per month on train fare. As ridership grows by 60% between 2035 and 2060, operations and maintenance costs are escalated by 30% instead of only 11%. And instead of spending a mere $5 billion on ongoing capital investments between 2029 and 2060, that is doubled to a still paltry $10 billion. What happens?

CALIFORNIA HIGH SPEED RAIL
CASH FLOW USING ALTERNATIVE (CONSERVATIVE) PROJECTIONS, $=M

As can be seen on this alternative analysis, if ridership revenue is significantly lower than projected, and if – one might argue – realistic operations and capital budgets are projected, and, if one merely uses the HSR Authority’s own high estimate of capital costs, there is no financial viability whatsoever to this project. The internal rate of return formula basically blows up, which is what happens when you burn through $91 billion before having your first break-even year in 2059. The question instead becomes, what else might Californians have done with $50 billion? The other question raised by this more conservative financial scenario, more disturbing, is what if high speed rail never makes money? How many additional tens of billions will be required to subsidize its operation?

The problem with dismissing these more bleak financial scenarios is simple: this is the sort of analysis that any savvy investment banker would start with. Then they would ask questions. WHY do you think 120,000 people are going to be willing to spend $1,200 per month in train fares to commute, not even including their costs to get to and from the train station? WHY do you think you can increase ridership by 60%, but only increase operations costs by 11%? WHY do you think you can operate a $50 billion railroad, and only expect to reinvest ten percent of that amount in capital equipment over thirty years?

The “Monte Carlo” Method of What-If Analysis

Instead of confronting these questions in plain English, the high speed rail authority did what-ifs using a “Monte Carlo” analysis. Here’s how they describe this (ref. page 93):

“Breakeven forecasts measure the likelihood that farebox revenue is equal to or greater than operations and maintenance costs in a given operating year. The analysis works as though there are two large bags full of marbles, one with thousands of marbles each representing a potential operations and maintenance cost, with more of the marbles having values around the median cost estimate than around the extreme (high or low) values. The second bag of marbles contains potential revenue outcomes, again with more marbles with values around the median than the high or low outliers.

The breakeven Monte Carlo analysis simply “picks” one marble at random from the revenue bag and one marble at random from the cost bag, subtracts the number written on the cost marble from the one written on the revenue marble and records the value. The analysis then puts the marbles back into their respective bags and repeats the process thousands more times which builds a distribution of potential results and generates a degree of confidence (or confidence interval, expressed as a percentage) as to the likelihood of project breakeven.”

If anyone wonders why projects in California cost far more than they should, please consider the role of consultants. The variables governing success or failure for California’s high speed rail project are tangible. They require urgent debate by practical people. How much will it cost to bore a tunnel through the Pacheco Pass? How likely is it that Union Pacific will share their right-of-ways with high speed rail, and if so, how much will that reduce costs, and how much will that reduce the speed of the train along those segments, and why? What is the real cost of the many engineering and environmental studies, and how many of them are necessary? Why is it that so many other nations, from socialist Europe to fascist China, manage to build these systems for a fraction of what Californians must expect to pay?

These are the questions that require answers. Counting metaphorical marbles does not add value to the process, nor does it add credibility to the financial projections. These qualitative questions regarding California’s high speed rail project have not been answered, because perhaps they cannot be answered. But the reasons California’s high speed rail system is so staggeringly, prohibitively expensive, are not problems that are confined to the high speed rail project. They infect every infrastructure program in the United States, and especially in California. Identifying the reasons infrastructure projects cost far more than they should, along with exploring tantalizing alternatives to high speed rail, will be the topic of future reports.

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Edward Ring co-founded the California Policy Center in 2010 and served as its president through 2016. He is a prolific writer on the topics of political reform and sustainable economic development.

California: Time for a Major Change in Course

Governor Jerry Brown, California Attorney General Xavier Becerra, legislative and other government officials are fixated on battling the new administration in Washington with almost total disregard for California’s major problems and unmet needs. Failure to address these pressing problems threatens the viability of a state whose status is rapidly being transformed from “golden” to “tarnished.”

To help the political class refocus on the important, here is a list of the most exigent problems accompanied by modest solutions, as compiled by a couple of veteran taxpayer advocates who speak with, and hear from, thousands of California taxpayers.

  • car highway roadRoads & Highways – Just about any road trip one drives on in California confirms that we have gone from a world leader in highway capacity and quality to barely a third world contender. Major changes are in order. Our gasoline tax must be dedicated to roads and highways alone, not to other general fund uses like paying off state general obligation bonds, as is now the practice. Also, Senator John Moorlach’s demands to reform Caltrans should be a top priority. California spends 4.7 times as much per mile of state highway than the national average, according to the Competitive Enterprise Institute, and a 2014 government report concluded the transportation agency was over-staffed by 3,500 positions. Additionally, we should end the practice of requiring “prevailing wages” on public works projects, which are estimated to add up to 20 percent on every road and other public improvement.
  • Energy Costs – Gasoline formulation requirements, “cap and trade” and other responses to climate change must be revisited with demonstrable science and hard-headed realism to help low and middle income Californians who struggle with the costs of transportation and household energy. This is not climate change denial, but rather a recognition that it is patently unfair to burden the citizens of one state with the entirety of a global problem.
  • Business Regulations and Lawsuit Abuse – Manufacturing restrictions, wage and salary rules, workers’ compensation standards, frivolous lawsuits and “sue and settle” standards have driven the aerospace and most other manufacturing industries out of California. Time for tort and regulatory reform to establish a business-friendly climate that will encourage refugees to return and lure others to relocate here. Note: The Nestle Corporation has just announced it is moving its U.S. headquarters from Glendale to Rosslyn, Virginia taking hundreds of high paying jobs with them.
  • Land Development and Housing Costs – The mid ‘70s pioneering California Environmental Quality Act has created a nightmare for those seeking affordable, conveniently located housing, workplaces and shopping centers. It has been used as a weapon by environmentalists, competitors, “NIMBYs” and labor organizations to limit – and dramatically drive up the cost of homes, apartments and other needed facilities. Fortunately, despite the best efforts of some in Sacramento, Proposition 13 remains on the job protecting homeowners from runaway property taxes that could force them from their homes.
  • Public Transit – Gov. Brown’s “Bullet Train to Nowhere” is in a death spiral due to lack of public support, refusal of the federal government and the private sector to provide additional funds, and out of control costs due to mismanagement, malfeasance and insurmountable engineering hurdles. But fixed route/fixed rail transit remains part of the liberal social planners’ mantra. Other than in highly congested urban areas, public transit is unjustifiable in terms of both capital and operating costs. With the advent of Lyft, Uber, self-driving cars and even Elon Musk’s Hyperloop — that, within a few years, could move passengers at a faction of the cost of rail — private companies and entrepreneurs are offering answers to the mobility problem. This justifies placing renewed emphasis on fixing and expanding our highway system.
  • Education Improvements and Cost Control – “School choice” is the answer to improving K-12 student learning results. The political clout of the California Teachers Association and other teacher unions has blocked progress. Properly framed ballot initiatives may be the only realistic avenue to reform as we must stop the automatic and mindless Proposition 98 commitment of nearly half of general fund revenues – regardless of need – to K-12 and community colleges.
  • Public Employee Wages, Benefits and Pension Reforms – Public sector compensation costs for California, at both the state and local levels, are now clearly unsustainable. According to the Department of Labor, California state and local employees are the highest compensated in all 50 states. Pay, benefits and pensions of public employees have become disproportionate to their private sector counterparts who foot the bill. Adding to the approaching calamity is mismanagement – which has included criminal bribery – at CalPERS, the state’s largest public employee pension fund. Politically motivated investment strategies and fanciful predictions of return on those investments have left taxpayers on the hook for hundreds of billions of dollars in unfunded liability for current and future retirees. Consideration must be given to shuttering CalPERS and fairly allocating to each current employee their share of the retirement funds, arranging for the public employer to make up the difference for what has been promised to date, and move from “defined benefit” to “defined contribution” plans for all existing and future employees. Otherwise, this pension burden has the potential to grow so large that California will not be able to fund the most basic services and as residents flee to other states, the last one out will be asked to turn out the lights.

We call on our representatives to stop pursuing discretionary causes and pet projects and come to grips with these real problems facing all Californians.

Lewis K. Uhler is Founder and Chairman of the National Tax Limitation Committee and National Tax Limitation Foundation. He was a contemporary and collaborator with both Ronald Reagan and Milton Friedman in California and across the country.

Jon Coupal is the President of the Howard Jarvis Taxpayers Association. He is a recognized expert in California fiscal affairs and has argued numerous tax cases before the courts. 

This piece was originally published by HJTA.org

Tech founders want California to secede

As reported by CNN Money:

Shervin Pishevar, an early Uber investor and cofounder of Hyperloop, posted a series of tweets Tuesday night announcing his plans to fund “a legitimate campaign for California to become its own nation.”

And no, he’s not joking.

“Yes it’s serious,” Pishevar told CNNMoney in an e-mail. “It’s the most patriotic thing I can do. The country is [at] a serious crossroads.”

Within hours, several other tech founders offered their support for the plan.

“I was literally just going to tweet this. I’m in and will partner with you on it,” Dave Morin, an investor and founder of private social networking tool Path, tweeted in response to Pishevar.

“I support you in this effort let me know what I can do to help,” Marc Hemeon, a former Google employee and founder of Design Inc., wrote on Twitter. …

Click here to read the full article

Hyperloop vs. High-Speed Rail

HyperloopWhen Elon Musk first proposed the hyperloop as a transportation alternative, he projected sealed tubes would hurl a pod between San Francisco and Los Angeles in 35 minutes. At the time, Musk’s vision was compared to the newly minted high-speed rail project that was projected to cover the same ground in 2.5 hours and be outmoded before it was finished.

Yesterday, in the Nevada desert the hyperloop had its first test. A sled rocketed from 0 to 60 miles per hour in 1.1 seconds propelled along a track by magnets for 300-plus yards. The company behind the test, Hyperloop One, was satisfied with the results. The Los Angeles based company is aiming to run a full-scale, full-speed hyperloop prototype through what is often described like a vacuum tube by the end of the year.

While the hyperloop system was projected by some as an alternative to high-speed rail, former California secretary of business, transportation and housing, Dale Bonner, told a Milken Institute Global Conference forum at the beginning of the month that both forms of transportation would be necessary for a burgeoning population. Saying that he heard that in 10-20 years an entire population the size of Chicago would be dropped on Los Angeles, Bonner argued all innovate transportation systems would be needed, from hyperloop to high speed rail to the sharing economy transportation systems.

Brogan BamBrogan, co-founder and chief technical officer of Hyperloop One (formerly Hyperloop Technologies), which is running with Musk’s idea, told the conference that while most people have been talking about hyperloop pods as people movers, one great advantage of hyperloop would be carrying freight.

BamBrogan noted that California had two of the busiest ports in the country. He envisions the system as energy efficient, weather proof, and non-polluting. Anyone stuck behind the slow-moving line of trucks coming from the San Pedro ports up the Long Beach Freeway spewing exhaust will appreciate BamBrogan’s vision.

But the people mover aspect also could have profound impact on other social issues, if the predictions made at the conference play out.

California’s steep cost of housing is driven, in part, by the lack of places to build. BamBrogan suggested the hyperloop could reset land values and grow suburbs 30 or more miles from the city when it only takes six minutes to commute to downtown Los Angeles’s Union Station.

Hyperloop is counting on investors to help fund the project, something that has been lacking with high-speed rail.

However, Bonner warned that re-thinking might be necessary with dramatic changes in transportation. If fewer people use cars in a shared economy, there will be fewer fees and taxes paid associated with car ownership. There would also be fewer citations issued with accompanying fines.

The Milken Global Conference panel was called Harnessing Technology for the Future of Cities. BamBrogan’s hyperloop discussion starts around minute 18.

This piece was originally published by Fox and Hounds Daily

Is Hyperloop Technology the Future of CA Transportation?

Hyperloop mockupElon Musk proposed it years ago. This January, he announced he’d enable teams to test it out on a track in Texas. But the first entrepreneur to ink a deal for a Hyperloop test track will bring the concept to life in California.

According to Navigant Research and CBS News, Hyperloop Transportation Technologies — an entity that picked up independently where Musk left off with the idea — “has inked a deal with landowners in central California to build the world’s first Hyperloop test track.” Beginning in 2016, HTT would oversee construction of five miles of track along I-5, where, once completed, test speeds will be kept to around 200 miles per hours — less than a third of the top rate of travel envisioned by Musk.

Outlays for the fully-completed Hyperloop would likely come in far under the budget for California’s high-speed rail project, even with cost overruns:

The 5-mile test track is estimated to cost about $100 million, which Hyperloop Transportation Technologies hopes to pay for with its initial public offering (IPO) later this year, according to Navigant’s blog. Assuming building costs remain the same, a 400-mile (644 km) track between Los Angeles and San Francisco would cost about $8 billion (not including development costs), experts estimate. This price tag is still far less than that for California’s planned high-speed rail project, which could cost $67.6 billion, according to the California High-Speed Rail Authority.

Multiple teams

HTT emerged from a crowdsourcing platform, JumpStartFund, created in 2013 by Dirk Ahlborn. “He’s used it to attract experts with day jobs at universities and companies such as Boeing and SpaceX who moonlight on the project in exchange for future profits,” as National Geographic explained.

But HTT has developed a reputation as the scrappy upstart among contending Hyperloop initiatives. Hyperloop Technologies, based in Los Angeles, assembled an all-star team. NatGeo counted “Brogan BamBrogan, a key former SpaceX engineer; Jim Messina, the manager of President Obama’s 2012 re-election campaign; David Sacks, who worked under Musk at PayPal, and Shervin Pishevar, investor in ridesharing company Uber who prodded Musk to go public with his Hyperloop vision.”

Skepticism and savvy

As has long been the case with newfangled technologies, critics have not been shy about questioning the mechanics behind Hyperloop’s eye-popping goals. Beyond simple safety concerns — a leak in the vacuum created to make it move so fast would be disastrous — critics have claimed that “solar panels alone cannot generate the energy needed for 800mph travel. Even if successful, the issue of the enormous g-forces experienced by passengers when travelling at the Hyperloop’s top speed will also need to be addressed,” Alphr reported.

But for now, the intrinsic appeal and excitement of Hyperloop has brought enough momentum to carry the project forward. Looking to capitalize on the interest, Ahlborn has even teased the ultimate in futuristic transportation: a free ride. As Endgaget noted, he revealed “he’s considering a business model that apes what we see in free-to-play mobile games. The CEO is kicking around the idea that the travel itself would either be free or dirt cheap, with passengers charged for a series of as-yet undisclosed upgrades. Of course, since we’re still a decade or more away from a commercial version of the system, there’s plenty of time for him to change his mind.”

In the meantime, Hyperloop’s innovators have already encountered initial opposition from a potentially more formidable foe than armchair critics: California’s own government. “Transit authorities in California reportedly balked at the idea,” according to Fast Company, “concerned about earthquakes and the fact that such a system would have to span all kinds of terrain and privately owned land.” With his I-5 corridor test track, Ahlborn has begun to answer at least one of those objections.

Originally published by CalWatchdog.com

Do Newer Technologies Threaten High Speed Rail?

So many lies were told to convince voters to approve the High Speed Rail project six years ago, that most Californians have soured on it. They are appalled that the estimated cost to build, the time to build, the time between destinations and the price of a ticket have all nearly doubled since voters approved a $10 billion bond to kick start the project.

Add to this that the private investment that backers promised would limit taxpayers’ liability is nowhere to be seen and it is little wonder that even the former Chairman of the High Speed Rail Authority, respected independent Quentin Kopp, has excoriated the project as it has morphed into something wholly unrecognizable from what the voters approved.

It is somewhat ironic that Governor Brown, who fancies himself as a futurist (as Governor in the 1970s he thought California should have its own satellite) wants to commit Californians to spending billions of dollars on what is increasingly apparent to be an aging technology. Today’s futurists and tech savvy interests are suggesting that investing in High Speed Rail might be tantamount to buying stock in a chain of blacksmith shops in 1910 just as the automobile began replacing the horse as the dominant form of personal transportation.

The first successful powered railroad trip is said to have taken place in the United Kingdom in 1804. More than two centuries later, the train remains the best way to move large quantities of heavy goods. But for moving people, is the huge amount of capital investment in equipment and track that impedes the crossing of vehicles and pedestrians, destroys neighborhoods and farmland, and degrades wildlife habitat, really essential?

Elon Musk, who heads successful high-tech companies Tesla Motors and SpaceX, believes there is a better way to move people. Musk favors the Hyperloop, or something similar, that would whisk travelers between San Francisco and Los Angeles in as little as 35 minutes. Compare this with a drive time of six hours, a bullet train time of about four hours, and an hour by air.

The Hyperloop is a hovering capsule inside a low-pressurized tube, supported by pylons, which can reach speeds of up to 760 mph. According to Hyperloop CEO Dirk Ahlborn, within about 10 years and with about $16 billion, Hyperloop could become a reality. He believes it would it would be easy to put together, the challenge is to come up with a good business model.

As with High Speed Rail, there are many unanswered questions and hurdles with Hyperloop. However, it does appear to be cheaper, faster and able to be completed more quickly than the bullet train and would be less environmentally intrusive.

Moreover, for taxpayers, it doesn’t appear that public dollars are being spent on the design of this project. Unlike High Speed Rail, the Bay Bridge and the Twin Tunnels projects, keeping this project in the private sector – at least in the concept and design stage – is resulting in some fairly notable progress in a short period of time.

In addition to the Hyperloop concept, rapid advances have been made with driverless cars. Fuel efficient personal vehicles directed by computers show great promise and the technology is no longer theoretical. Google has already built a prototype. And best of all, they can operate on an existing infrastructure project which we call roads.

High Speed Rail’s cost dwarfs all other public infrastructure projects by many factors.  Before we commit more money to this project – whose funding is very much in doubt – shouldn’t we be sure there isn’t a better and cheaper alternative?

This article was originally published on HJTA.org

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Elon Musk’s Hyperloop — Will It Become Reality?

Silicon Valley impresario Elon Musk’s Hyperloop transportation concept is back in the news. With a price tag that seemed daunting, especially when Musk warned he lacked the time to pursue the project, when it was advanced a year ago Hyperloop achieved little beyond sparking the imagination.

But now, Dirk Ahlborn, the head of his own California startup, has stepped forward to seize the initiative on making Musk’s super-fast trainlike vehicle a reality.

In a surprise for those outside the Silicon Valley bubble, Ahlborn recently announced  his JumpStartFund has the wherewithal to take Hyperloop off the drawing board and into reality. “I have almost no doubt that once we are finished, once we know how we are going to build and it makes economical sense, that we will get the funds,” he told Wired magazine.

Ahlborn predicts the effort will cost $16 billion and 10 years’ time, assuming a technical feasibility review planned for next year doesn’t reveal any insurmountable hurdles. In the meantime, JumpStartFund has “created the sub-company Hyperloop Transportation Technologies Inc. to develop the system,” relying on crowdfunding, crowdsourcing, and an improvised “collective” of engineers to move the ball forward, according to The Guardian.

Some 100 experts drawn from Boeing, NASA and Musk’s own SpaceX have been enlisted by JumpStartFund — and have already produced a 76-page memorandum laying out their vision for how the project can proceed.

Remarkably, JumpStartFund’s collective has “expanded on Musk’s concept and now envisions a huge interconnected Hyperloop system, spanning coast to coast and linking many of the U.S.’s major cities,” as Quartz reported.

Uncertain expectations

Back in August 2013, when Musk first revealed the Hyperloop concept, critics immediately dismissed its real-world applicability. Not only did supporters of California’s current high-speed rail project find reason for skepticism; analysts worried Musk had simply underestimated practical challenges like overheating, despite ballparking the cost of Hyperloop at somewhere around $10 billion.

Nevertheless, Musk’s track record of innovation attracted serious attention to the idea. Unlike a traditional train, Hyperloop would “send passengers hurtling through low-pressure tubes in ultra sleek pods at speeds of up to 800 miles per hour,” as CalWatchdog.com previously reported. “At that clip, a trip from Los Angeles to San Francisco would take a mere half hour. That’s two hours and eight minutes faster than California’s bullet train promises to make the 432-mile jaunt.”

Provocatively enough, from the very beginning, Musk envisioned California as Hyperloop’s home.

All told, the scheme created near-perfect conditions for a storm of media interest. Hyperloop was controversial without being outrageous, farfetched without being ridiculous, and — theoretically — competitive with one of California’s biggest and most fiercely challenged infrastructure projects in history.

But without direct funding and dedicated personnel, Hyperloop couldn’t begin the complex research and development that would lead to its construction. As media interest moved on, and Musk broke new ground with Tesla and other marquee projects, public expectations around Hyperloop moved to the back burner.

Privately, however, Hyperloop remained relevant to the kinds of people it would need to move forward.

A welcome surprise

For now, the Hyperloop team’s sky’s-the-limit approach has yet to attract the political rancor associated with California’s high-speed rail endeavor, which has benefited from the unswerving devotion of Gov. Jerry Brown.

As research advances, however, attention from policymakers and activists will likely become inevitable. The costs associated with the project — borne by private investors, not public funds — could prove enough to renew argument about the future of Brown’s bullet train.

As CNBC revealed, the Hyperloop team “estimates that the cost of the system would be $20 million to $45 million a mile, as contrast from what it says are costs of up to $200 million a mile for a conventional mass transportation system.”

This piece was originally publish by CalWatchdog.com