Posts Tagged ‘Train.to.Nowhere’

The 2018 Tax Offender of the Year

Monday, December 31st, 2018

Another year has gone by. And that means it’s once again time for that most prestigious of prestigious awards, the Tax Offender of the Year. As usual, there’s a plethora of nominees. As usual, I wish there weren’t any deserving winners.

The Tax Cuts and Jobs Act (TCJA) received a nomination. “This isn’t tax simplification, and few have received benefits,” a correspondent told me. The first part of the statement is absolutely true. The TCJA is anything but simplification. As for few receiving benefits, almost all the provisions of the TCJA impact 2018 taxes (and onward). We’ll have a much better idea of what this law will (or won’t) due to taxpayers in a few months. I’m holding this nomination in abeyance until next year.

The Miccosukee tribe of Indians received another nomination. The tribe has been fighting a losing battle over the taxation of profits from their casino in southern Florida. The tribe itself is exempt from taxation (it’s a sovereign nation); however, members of the tribe are not exempt based on distributions of those profits. This issue has been percolating up and down the Tax Court, District Courts, and the 11th Circuit Court of Appeals for a few years. On June 4th the 11th Circuit ruled in United States v Jim:

When an Indian tribe decides to distribute the revenue from gaming activities, however, the distributions are subject to federal taxation. Id. § 2710(b)(3)(D). The Indian tribe, as a consequence, must report the distributions, notify its members of their tax liability, and withhold the taxes due on them. Id. § 2710(b)(3)(D); 26 U.S.C. §§ 3402(r)(1), 6041(a).

In the case before us, an Indian tribe engaged in gaming activities. Each quarter, the tribe used the revenue of the gaming activities to fund per capita distributions to its members. But the tribe disregarded its tax obligations on these distributions. It neither reported the distributions nor withheld taxes on them…

In this appeal, the member and the tribe contend that the District Court erred in concluding that the exemption for Indian general welfare benefits did not apply to the distributions. The tribe alone asserts that the District Court erroneously upheld tax penalties against the member and incorrectly attributed to the member the distributions of her husband and daughters. Lastly, the tribe argues that the District Court erred by entering judgment against it as an intervenor.

We affirm the ruling of the District Court in each of these matters. The distribution payments cannot qualify as Indian general welfare benefits under [the Tribal General Welfare Exclusion Act] because Congress specifically subjected such distributions to federal taxation in [the Indian Gaming Regulatory Act]. The member has waived any arguments as to penalties or the amount assessed against her, and the tribe lacks a legal interest in those issues. The District Court did not err in entering judgment against the tribe because the tribe intervened as of right and the Government sought to establish its obligation to withhold taxes on the distributions. [footnote omitted]

This taxpayer owes $278,758.83 as of April 9, 2015; the tribe and its members could owe more than $1 billion in personal income taxes. Yet that sum pales in comparison to our ‘winner.’


As most of you know, I grew up just outside of Chicago. I have fond memories of riding the El and of taking the train up to Milwaukee. Subways and other forms of mass transit work well in dense cities such as Chicago, New York, and Boston.

Amtrak, however, has been a money loser. Running passenger trains through the northeast corridor ekes out a profit, but the rest of the service doesn’t make money. Put simply, you need a dense corridor to make trains a winner.

In November 2008, California voters passed Proposition 1A. As noted in the ballot summary, “Provides for a bond issue of $9.95 billion to establish high-speed train service linking Southern California counties, the Sacramento/San Joaquin Valley, and the San Francisco Bay Area.” The argument in favor stated:

Proposition 1A is a $9.95 billion bond measure for an 800-mile High-Speed Train network that will relieve 70 million passenger trips a year that now clog California’s highways and airports—WITHOUT RAISING TAXES…

Proposition 1A will save time and money. Travel from Los Angeles to San Francisco in about 2½ hours for about $50 a person. With gasoline prices today, a driver of a 20-miles-per-gallon car would spend about $87 and six hours on such a trip.

The rebuttal to the argument stated:

Prop. 1A is a boondoggle that will cost taxpayers at least $20 billion in principal and interest. The whole project could cost $90 billion—the most expensive railroad in history. No one really knows how much this will ultimately cost.

Now that we’re ten years after passage, we can determine that both sides were wrong. The last official analysis showed a price tag of $77 billion. The New York Times, in an article this past July, upped the price to $100 billion. So both sides were wrong about the cost, but the opponents had the right idea. And with this project years from completion and the cost having risen every time there’s been a new analysis, I’ll take the over on $100 billion. That’s why California’s high speed rail project (aka “The Train to Nowhere”) is this year’s Tax Offender of the Year.

So where will the money come from to build the train? It’s not coming from this Congress; President Trump and Republicans in Congress vociferously oppose the project. Proposition 1A says that the train must be self-supporting; less than 3% of high-speed train networks in the world are self-supporting. Authority Spokeswoman Lisa Marie Alley told the Sacramento Bee “We haven’t been shy about the fact that this project was never fully funded.” The hope is that once the system begins to operate that it will show private industry its usefulness and that they would be willing to invest in the project.

Consider that the first segment will run from Shafter, just north of Bakersfield, to Madera, a bit south of Merced. It does go through the San Joaquin Valley’s largest city, Fresno, but it does not run through Visalia; instead, it runs near Hanford. I’ll be blunt: There’s no chance that the first segment will be self-supporting. There aren’t enough riders wanting to commute between these cities to make the line profitable. Additionally, state route 99 runs between all these cities. Yes, it will take longer in a car but you have your own transportation when you get to your destination, and you don’t have to wait for the train.

Where high speed rail works is in dense corridors. For example, the Japanese bullet trains run between such cities as Tokyo (population 38 million for the metropolitan area), Osaka (19 million), and Nagoya (9 million). The California bullet trains will initially run between Shafter (population 19,608) and Madera (population 65,508). If we use Bakersfield (840,000 for the metropolitan area) and Fresno (972,000) we get something a little better. Still, how many people really commute between these cities? Having lived in Visalia for years, I can state unequivocally it’s not a lot.

Proponents argue that once the train reaches the Bay Area and Southern California, ridership will pick up; both metropolitan areas have millions of residents. But there’s a huge difference between Tokyo and either California metropolitan area. The Tokyo metropolitan area is 5,240 square miles with a population of 38 million. The Los Angeles metropolitan area is 33,954 square miles with a population of 18.7 million. The Bay Area is 10,191 square miles with a population of 7.77 million. Put simply, Japan is densely populated so train travel works very well.

Additionally, there are several airports serving both the Los Angeles metropolitan area (Los Angeles International, Burbank, Ontario, Long Beach, and Orange County) and the Bay Area (San Francisco, San Jose, and Oakland). There are numerous flights between each of the Southern and Northern California airports. These flights take about one hour and cost about $100. High speed rail is going to have to beat that in some way in order to attract paying customers. Frankly, I doubt either will happen.

If the system is built, I do think that it will attract riders going to and from the Central Valley. There aren’t many flights to Fresno from the Bay Area (or from Los Angeles). There’s also the issue of demand; there really isn’t that much into the Valley. But the service can certainly attract riders there. However, it’s not going to be near enough riders for the project to pay for itself.

The problem for California taxpayers is that they are liable for the project. Those bonds will need to be paid back. There’s a need for at least another $70 billion to finish the line. The best estimate for the annual subsidy is $100 million. Yes, I know that Proposition 1A specified that there can’t be a subsidy. Does anyone really believe that California’s politicians will follow the law on this? (Hint: I don’t.)

But Russ, this is a state project. Its impact is limited to California. If California wants to shoot itself in the foot, we should let it. The problem with that argument is that the next time the California economy suffers a downturn, California will run to Congress for a bail-out. Today, the Trump Administration is likely to tell California, “No.” However, I have my doubts that a future Democratic administration won’t go for a bail-out on this project, leaving non-Californians liable for this boondoggle. There’s a need for $70 billion. The sooner that this project is put out of its misery the better for both California and the country.

Quentin Kopp, a former Supervisor in San Francisco, was the man who introduced the project and was a proponent. He told reason.com

It is foolish, and it is almost a crime to sell bonds and encumber the taxpayers of California at a time when this is no longer high-speed rail. And the litigation, which is pending, will result, I am confident, in the termination of the High-Speed Rail Authority’s deceiving plan…

[The selling of bonds is] deceit. That’s not a milestone, it’s desperation, because High-Speed Rail Authority is out of money.

California High Speed Rail is a worthy winner of the 2018 Tax Offender of the Year award.


That’s a wrap on 2018. I wish you and yours a happy, healthy, and prosperous New Year!

The Price Tag on California’s Train to Nowhere Jumps Another 17%

Friday, March 9th, 2018

What is the cost to fly from Los Angeles to San Francisco? I decided to check Southwest Airlines for a date one month out (April 11th); the cost is $50 each way or $100 for the round trip. I think you’d agree that’s not particularly expensive.

On the other hand, the cost for California’s “Train to Nowhere”–the planned high-speed rail line that will run from Los Angeles to San Francisco–is now estimated at $77 Billion. That’s up another $11 Billion from the $66 Billion I had heard last year. And the project is now estimated to start in 2029, with full service only in 2033. This is all buried in the Draft 2018 Business Plan of the California High-Speed Rail Authority.

There are also estimated revenue numbers and cash flow numbers that are, frankly, hysterical…unless you’re a California taxpayer. The project will magically have positive cash flow from operations the moment it begins running in 2029. Yet less than 3% of all high-speed rails systems make money. And this high-speed rail line will initially run from the booming metropolis of Shafter to the slightly more booming metropolis of Madera.

The breakeven analysis in the report states,

There is a 78 percent probability that the Silicon Valley to Central Valley Line farebox revenue covers its operations and maintenance costs in 2029; by the opening year of Phase 1, the breakeven probability rises to 96 percent, and is >99 percent by 2040. The breakeven analysis only considers farebox revenue; the probability of breaking even increases further when considering bus and ancillary revenue.

The reality is that there is almost no chance of that happening…if the project is ever completed. Frankly, the best bet for California is to end this boondoggle. Unfortunately, the unions love it (lots of union labor working on it); the project is giving new meaning to the self-perpetuating organization. As I wrote the last time I looked at this,

Meanwhile, Quentin Kopp, the man who introduced the rail line, now calls the line foolish. In an interview with reason.com he said,

It is foolish, and it is almost a crime to sell bonds and encumber the taxpayers of California at a time when this is no longer high-speed rail. And the litigation, which is pending, will result, I am confident, in the termination of the High-Speed Rail Authority’s deceiving plan…

[The selling of bonds is] deceit. That’s not a milestone, it’s desperation, because High-Speed Rail Authority is out of money.

The only good news is I get to use one of my favorite images again:

via GIPHY

The Train to Nowhere Remains a Boondoggle

Friday, September 22nd, 2017

California’s high speed rail, aka The Train to Nowhere, remains likely to never carry passengers between Northern California and Southern California. Perhaps the segment linking Merced and Shafter (just north of Bakersfield) will run (although unlikely at high speed); more likely, it will never run. So the image that comes into my mind is the following:

via GIPHY

There have been some developments since I last reported on the train. First, the California Supreme Court ruled at the end of July that California law was not preempted by federal law and that a number of environmental suits against the high speed rail authority could continue.

Meanwhile, Quentin Kopp, the man who introduced the rail line, now calls the line foolish. In an interview with reason.com he said,

It is foolish, and it is almost a crime to sell bonds and encumber the taxpayers of California at a time when this is no longer high-speed rail. And the litigation, which is pending, will result, I am confident, in the termination of the High-Speed Rail Authority’s deceiving plan…

[The selling of bonds is] deceit. That’s not a milestone, it’s desperation, because High-Speed Rail Authority is out of money.

Ouch. Baruch Feuigenbaum, assistant director of transportation policy for the Reason Foundation, stated, “The costs of building [high-speed rail] projects usually vastly outweigh the benefits…Rail is more of a nineteenth century technology [and] we don’t have to go through these headaches and cost overruns to build a future transportation system.”

Look on the bright side Californians, the project will likely need subsidies from the state of only $100 million a year. That’s not bad, right?

Or better, I’m sure the 10 Shafterites looking to head to Merced each day will love the train (as will the 20 residents of Merced looking to head to Shafter each day).

Train to Nowhere is Significantly Overbudget

Saturday, January 14th, 2017

The Los Angeles Times has a report today that California’s bullet train may cost 50% more than initially thought…and that’s in the “easy” section to build (in California’s flat Central Valley). It’s now estimated to cost somewhere between $9.5 to $10 billion (rather than the initially budgeted $6.4 billion).

I’ve written about this train before. The train makes no sense; if the train is completed (a dubious assumption), how many people will use it when you can fly between Los Angeles and San Francisco for less than $100 in one hour?

Meanwhile, Governor Jerry Brown is telling Californians that the state is likely running a budget deficit. An obvious solution—but one that will not happen in the Bronze Golden State—is to end the train to nowhere.

I remain quite happy to no longer be a taxpayer in California.

A Train to Nowhere

Wednesday, June 22nd, 2016

I haven’t posted on California’s bullet train in some time (I’m no longer a resident of the Bronze Golden State), but it’s time to once more post about the train to nowhere. In theory, this train will connect Los Angeles and San Francisco. The first part of the route being built is between Shafter and Merced. Shafter is about 18 miles northwest of Bakersfield. How many riders do you think are interested in taking that segment when (or better put, if) it opens?

The whole idea of the train makes little sense given that airlines fly regularly between Southern and Northern California. The price-tag of the train has gone from about $10 billion to over $60 billion; meanwhile, funding from the federal government has dried up.

Yesterday the Los Angeles Times released a story that notes that almost every high-speed rail line needs taxpayer subsidies, a direct contradiction of what the high speed rail authority has stated. And this gem was noted from an April hearing:

Assemblyman Jim Patterson (R-Fresno) asked [rail authority Chairman Dan] Richard, “Do you know of any high-speed rail operations around the world that make substantial profit?”

Richard answered, “Actually all of them, virtually all of them, make operating profit.” He defined that as being able to cover costs after the expenditure of capital to build the systems.

“Ha, OK,” Patterson said.

The Spanish study showed that 3 of 111 high speed rail lines cover their costs, or 2.7%. Or better put, 97.3% do not cover their costs.

I’m glad I’m no longer a California taxpayer.