Quotulatiousness

March 4, 2012

Passenger rail as the ultimate political luxury good?

Filed under: Economics, Government, Politics, Railways — Tags: , , , — Nicholas @ 00:14

A post at Coyote Blog from last month looks at the eye-popping financial arrangements keeping the New Mexico “Railrunner” passenger service in operation:

Of course, as is typical, the Republic article had absolutely no information on costs or revenues, as for some reason the media has adopted an attitude that such things don’t matter for rail projects — all that matters is finding a few people to interview who “like it.” So I attempted to run some numbers based on some guesses from other similar rail lines, and made an educated guess that it had revenues of about $1.8 million and operating costs of at least $20 million, excluding capital charges. I got a lot of grief for making up numbers — surely it could not be that bad. Hang on for a few paragraphs, because we are going to see that its actually worse.

The equipment used in the New Mexico Railrunner operation looks remarkably similar to what GO Transit runs in the GTA:

Click to see original image at Coyote Blog

Anyway, I got interested in checking back on the line to see how it was doing. I actually respected them somewhat for not running mid-day trains that would lose money, but my guess is that only running a few trains a day made the initial capital costs of the line unsustainable. After all, high fixed cost projects like rail require that one run the hell out of them to cover the original capital costs.

As it turns out, I no longer have to guess at revenues and expenses, they now seem to have crept into the public domain. Here is a recent article from the Albuquerque Journal. Initially, my eye was attracted to an excerpt that said the line was $4 million in the black.

[. . .]

Now it looks like taxes are covering over half the rail’s costs. But this implies that perhaps $10 million might be coming from users, right? Nope, keep reading all the way down to paragraph 11

    The Rail Runner collects about $3.2 million a year in fares and has an annual operating budget of about $23.6 million. That does not include about $41.7 million a year in debt service on the bonds — a figure that include eventual balloon payments.

So it turns out that I was actually pretty close, particularly since my guess was four years ago and they have had some ridership increases and fare increases since.

At the end of the day, riders are paying $3.2 million of the total $65.3 million annual cost. Again, I repeat my reaction from four years ago to hearing that riders really loved the train. Of course they do — taxpayers (read: non-riders) are subsidizing 95.1% of the service they get. I wonder if they paid the full cost of the train ride — ie if their ticket prices were increased 20x — how they would feel about the service?

If all of that wasn’t enough, the financing arrangement has a nasty sting in the tail: in the mid 2020’s, the state will owe two separate payments of over $200 million. Enjoy the subsidized rides now, folks … the payment comes due just in time for your kids to face as they graduate.

January 27, 2012

Is VIA Rail an unaffordable luxury?

Filed under: Cancon, Economics, Government, Railways — Tags: , , , — Nicholas @ 00:02

It hurts me to admit that long-distance passenger rail is an expensive relic of the past, and Canada’s government-owned passenger rail corporation is little more than a drain on the budget. I’m a railway fan: I founded a railway historical society, for crying out loud. I love trains, although I rarely get to use them myself. The freight railway business is doing well and it should continue to do so, as it’s generally much more economical for long-haul bulk cargo than any other option. But unlike in Europe, where population density allows passenger railways to remain a key part of the transportation network, distances and population distribution mean passenger railways can only operate profitably in a few areas (Windsor-Toronto-Montreal-Quebec City, and Boston-New York-Washington, for example).

Lorne Gunter says that recent reports about the federal government looking to sell off some or all of VIA Rail make lots of sense:

Bloomberg reported last week that the federal Tory government is quietly contemplating privatizing some or all of VIA Rail. Good. It’s about time, just as it was about time in 1991 when the Tories under Brian Mulroney thought about selling off VIA, or in 2000 when the Chretien Liberals considered it, or 2003 (Liberals again) or 2009 — the first time the current crop of Tories mulled it over.

It’s easy to imagine that every few years, Transport Canada bureaucrats return to the cabinet drawer marked “Keeping the Minister Preoccupied,” extract the file labelled “Secret Plans to Privatize VIA,” blow off the cobwebs and hand it to their latest boss. Then they sit back and wait for the predictable outcry from assorted special interests and from those few central Canadians who do actually use the train regularly.

Most years, VIA spends nearly twice as much as it makes. In 2010, for instance, VIA’s expenses were $536 million, while its revenues were just $274 million. That left a deficit of $262 million that had to be made up by Ottawa. Put another way, for every dollar VIA charges passengers for tickets, taxpayers put in 96 cents.

Shortly after we got married, Elizabeth and I took the train from Toronto to Halifax and had a great time: it was a very enjoyable trip, and we thought of the train ride as part of the vacation, not just a means of transportation. I’ve always wanted to ride The Canadian all the way to Vancouver, but at no point in the last thirty years have I simultaneously had the time available for the trip (four days on the train in each direction) and the money (right now, with a big seat sale going on it’d cost $2,137 for coach seats or $5,253 if we took a cabin). If that’s only half of what the trip would cost at market rates, there’s no way the service could support itself.

So the annual VIA subsidy amounts to an income transfer from people in most of the country who never use a passenger train to people in the central core of the country who prefer to take the train rather than drive their cars from Toronto to Montreal, but wouldn’t do so if they had to pay anywhere close to the full fare for their trips.

Every time I write about the absurdity of keeping VIA rolling, I get letters from people who insist they prefer the train to flying, driving or taking the bus or who believe trains have a lighter environmental impact or who say they can’t afford other modes. Fine, but why is it taxpayers’ duty to split the cost of your unprofitable preferences with you, 50/50?

December 12, 2011

Defining crony capitalism

Filed under: Economics, Government, Liberty, Politics — Tags: , , , , , — Nicholas @ 14:51

Bill Frezza explains what crony capitalism is and how it differs from free market capitalism:

If defenders of capitalism hope to win over fair-minded fellow citizens who are honestly upset and confused, we need to define these terms and answer some basic questions. In what ways are Crony Capitalists and Market Capitalists the same and in what ways are they different? What makes the former immoral and the latter virtuous? Why are Crony Capitalists a threat to democracy and prosperity while Market Capitalists are essential to both? How is it that ever larger numbers of Market Capitalists are being corrupted, turning into Crony Capitalists? And what can we do to reverse that trend?

All capitalism is driven by greed — the desire to not only achieve economic security, but to amass pools of capital beyond one’s basic needs. This capital can fuel the kind of conspicuous consumption that offends egalitarians. But it also finances investments in new products and businesses, without which the economy cannot grow. [. . .]

What makes Crony Capitalists different is their willingness to use the coercive powers of government to gain an advantage they could not earn in the market. This can come in the form of regulations that favor them while hindering competitors, laws that restrict entry into their markets, and government-sponsored cartels that fix prices, grant monopolies, or both.

Crony Capitalists are also more than happy to help themselves to money from the public treasury. This can come from wasteful or unnecessary spending programs that turn government into a captive customer, subsidies that flow directly into their coffers, or mandates that force consumers to buy their products.

[. . .]

Beyond these obvious Crony Capitalists lies a slippery slope designed to attract and entrap Market Capitalists: the tax code. By setting nominal corporate tax rates high while marketing tax breaks to specific companies and industries, Congress assures itself a steady stream of campaign contributions from companies looking to lighten their tax load. While there is no shame in reducing one’s tax burden from 35% to a more globally competitive 20%, is it any wonder that people get sore when some extremely profitable corporations manage to get their tax burden down to nearly 0%?

December 9, 2011

Basic rule of political economics: subsidies result in higher costs

Filed under: Economics, Education, Government, USA — Tags: , , , — Nicholas @ 00:03

Virginia Postrel explains how federal funding to university students has created price inflation among universities:

As veteran education-policy consultant Arthur M. Hauptman notes in a recent essay: “There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions. Common sense suggests that growing availability of student loans at reasonable rates has made it easier for many institutions to raise their prices, just as the mortgage interest deduction contributes to higher housing prices.”

It’s a phenomenon familiar to economists. If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. Much of the value of the subsidy will go not to the intended recipients but to whoever owns the input. The classic example is farm subsidies, which increase the price of farmland.

[. . .]

This doesn’t mean that colleges capture all the aid in higher tuition charges, any more than capital-equipment companies get all the benefit of investment tax credits. But it does set up problems for two groups of students in particular. The first includes those who don’t qualify for aid and who therefore have to pay the full, aid-inflated list price. The second encompasses those who load up on loans to fill the gaps not covered by grants or tax credits only to discover that the financial value they expected from their education doesn’t materialize upon graduation.

That’s the situation many young people find themselves in today, which is one reason for their anger. The other is a widespread feeling, which the recession has intensified, that higher education is unfairly insulated from the everyday competitive pressures most people have to cope with. Instead of having to find ways to operate more efficiently and deliver ever-more value without raising costs, the way private-sector managers do, college administrators seem able to pass higher and higher bills on to their customers and the public.

September 16, 2011

Ontario’s clean energy Potemkin village

Filed under: Cancon, Economics, Politics, Technology — Tags: , , , , , , — Nicholas @ 10:50

John Ivison reports on a recent photo op by Premier Dalton McGuinty:

The solar energy company touted this week by Ontario Premier Dalton McGuinty as a flagship of the province’s clean energy economy has halted production because of slow demand.

Mr. McGuinty was flanked by Eclipsall Energy Corp.’s workforce when he visited its Scarborough solar panel plant Tuesday, but there was no mention that the production line is temporarily shut down. When my colleague Tamsin McMahon visited the plant she found the reception desk was empty, the cafeteria was closed and only a handful of employees milling around inside the sparsely furnished building.

Leo Mednik, Eclipsall’s chief financial officer, said the production line halt is because the company has already completed its current order book. “It’s no secret that the market is slow and there have been delays. That’s part of it — part of it is logistics. Our production team went through our purchased inventory a lot quicker than expected,” he said.

Not only is the plant not working to capacity: it’s only working at all because of government subsidies:

The Liberal government’s efforts have created jobs — though the 20,000 number touted by Mr. McGuinty seems highly questionable, far less the 50,000 he says will be created by the end of next year. In addition, they are hardly high wage, high skilled jobs the Premier claims (Eclipsall pays 20% over minimum wage to its workers, who assemble glass and solar cells imported from Asia, thereby qualifying for the Liberal Green Energy Act’s 60% domestic content rule).

The question is: how sustainable are these jobs? Mr. Mednik admitted that if the domestic content rule was removed, Eclipsall and other Ontario manufacturers would not be able to survive. “Frankly, it would be very difficult for any start-up to compete” against cheaper Chinese producers, he said.

He said it is a question of when, rather than if, the 60% threshold is removed. Both the European Union and Japan have taken the FIT program to the World Trade Organization and want the local content requirements removed. They claim this Buy Ontario provision is a prohibited subsidy. The FIT program might also soon become subject to a NAFTA dispute case, after American renewable company Mesa Power Group said it would file a complaint.

August 8, 2011

Subsidized flights from remote locations

Filed under: Government, Politics, USA — Tags: , , , — Nicholas @ 12:57

Steve Chapman knows where to get the “best” deal in government subsidy of domestic flights:

As a resident of Illinois, I’d never had any particular desire to fly from McCook, Nebraska, to Denver. But lately, I’ve been looking for an opportunity. Turns out the federal government is willing to pay me a handsome fee to do it.

Oh, I wouldn’t get the cash directly. But the Department of Transportation provides more than $2 million to subsidize that particular route, which works out to about $1,000 for every passenger. My fare, meanwhile, would be less than $150.

I could get an even bigger hand on the hop from Lewistown, Montana, to Billings—$1,343. But if I’m feeling the need for indulgence, there is nothing to beat the flight from Ely, Nevada, to Denver, for which Washington will kick in $3,720. For that sum, of course, it could buy me a perfectly functional used car.

These extravagances are part of the Essential Air Service initiative, which is part of the reason for the recent congressional impasse over a bill to keep the Federal Aviation Administration operating.

July 13, 2011

Expanding government-provided flood insurance?

Filed under: Economics, Environment, Government, USA — Tags: , , , , , — Nicholas @ 12:42

It has always amazed me that the US government is the primary insurer for flood damage, but the idea of putting the few remaining private insurace companies out of business is insane:

The House of Representatives is scheduled this week, as early as today, to consider an extension and “reform” of the National Flood Insurance Program (NFIP), administered by FEMA. Since Hurricane Katrina in 2005, the NFIP has been about $18 billion in the hole. And this is from a program that only collects around $2 billion a year in premiums, which barely covers losses and expenses in a normal year. So make no mistake, the NFIP is still on course to cost the taxpayer billions more in the future.

Even before Katrina, the Congressional Budget Office estimated that the NFIP was receiving a subsidy of close to a billion dollars a year. Under CBO’s optimistic projections, the House’s reform bill would increase NFIP revenues by about $4 billion over the next ten years, making only a small dent in the program’s current deficit.

If private insurers aren’t willing to offer insurance to people and businesses located on flood plains, isn’t that a strong indication that building a house or a plant on that location is a bad idea? Why should people who chose not to locate in risky locations be forced to subsidize the risk-taking of those who do?

October 29, 2009

Amtrak: still losing $32 per passenger on every trip

Filed under: Economics, Government, Railways, USA — Tags: , , , — Nicholas @ 12:52

Amtrak would not survive without federal government subsidy, as most people already know. What you may not have realized is just how much taxpayers subsidize every rider:

The Pew Charitable Trusts SubsidyScope Project has just released a new report that finds 41 out of Amtrak’s 44 routes lose money. The losses ranged from nearly $5 to $462 per passenger, depending upon the line, and averaged $32 per passenger. According to the report:

The line with the highest per passenger subsidy — the Sunset Limited, which runs from New Orleans to Los Angeles — carried almost 72,000 passengers last year. The California Zephyr, which runs from Chicago to San Francisco, had the second-highest per passenger subsidy of $193 and carried nearly 353,000 passengers in 2008. Pew’s analysis indicates that the average loss per passenger on all 44 of Amtrak’s lines was $32, about four times what the loss would be using Amtrak’s figures: only $8 per passenger. (Amtrak uses a different method for calculating route performance).

The Northeast Corridor has the highest passenger volume of any Amtrak route, carrying nearly 10.9 million people in 2008. The corridor’s high-speed Acela Express made a profit of about $41 per passenger. But the more heavily utilized Northeast Regional, with more than twice as many riders as the Acela, lost almost $5 per passenger.

« Newer Posts

Powered by WordPress