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A congressional oversight hearing, focused on the concerns surrounding the troubled California high-speed rail project, cast new doubts on the likelihood of the project’s political survival.

The December 15 hearing was the second of two hearings called by the House Transportation and Infrastructure Committee to examine the Administration’s "missteps" in handling the high-speed rail program. Before a largely skeptical groups of committee members — Reps Mica (R-FL), Shuster (R-PA), Denham (R-CA), Miller (R-CA), Napolitano (D-CA), and Harris (R-MD)— two panels of witnesses offered a mixture of support and criticism concerning the project’s impact, financial feasibility and prospects for the future. The first panel comprised six California congressmen — three testifying against the project (Reps. Nunes (R), McCarthy (R) and Rohrabacher (R)), three in support of it (Reps. Cardoza (D), Costa (D) and Sanchez (D).) The second panel consisted of FRA Administrator Joseph Szabo, California Rail Authority CEO, Roelof Van Ark, local elected officials and representatives of citizen groups.

A Brief Project Overview

The proposed high-speed line, from Sacramento and San Francisco to Los Angeles and San Diego, was originally estimated to cost $43 billion in 2008 when the state’s voters approved a $9.95 billion bond measure (Proposition 1A) to help finance the project.  Since then, the total cost estimate for the project has more than doubled to $98.5 billion and the completion date has been pushed back by 13 years to 2033.

The "initial construction section" of 140 miles is proposed to be built in the sparsely populated Central Valley from south of Merced to north of Bakersfield. The $6 billion project is to be financed with a $3.3 billion federal contribution and $2.7 billion worth of state Proposition 1A bonds. Construction is to begin in 2012. However, to qualify as an "Initial Operating Segment" as required by the authorizing bond measure and capable of running high-speed trains, the line has to be extended by another 290 miles to San Jose (or 300 miles to the San Fernando Valley), at an additional cost of $24.7 billion.

To finance the latter construction, the California Rail Authority’s business plan calls for $4.9 billion in Proposition 1A bonds and assumes a $19.8 billion federal contribution – $7.4 billion in federal grants and $12.4 billion in the yet to be created Qualified Tax Credit Bonds (QTCB). The latter assumption came in for sharp committee criticism as wishful thinking. The bill authorizing QTCB (or TRIP) bonds, proposed by Sen. Wyden (D-OR), is not given much chance of passing in the House. Even if passed, it would only offer $1 billion for the California HSR project rather than $12.4 billion as claimed in the Authority’s business plan. Further federal high-speed rail grants are equally uncertain given the bipartisan congressional refusal to appropriate funds for high-speed rail two years in a row. In other words, the funding for the Initial Operating Segment hinges on highly questionable assumptions as to continuing federal aid.

Even more conjectural are the Authority’s funding assumptions for the subsequent phases of the project— a line extension from San Jose to the San Fernando Valley and a southern connection, to Los Angeles and Anaheim. That phase of construction according to the Authority’s business plan, would require a further federal contribution of $42.5 billion between 2021 and 2033 (plus $11 billion in private investment).

Left unstated in the Authority’s business plan, one informed observer speculated, is the secretly entertained hope that by 2015 (when the additional federal funding will be needed), the economic circumstances — and perhaps political circumstances as well — will have changed, allowing a resumption of generous federal support.

A "Boondoggle" or a "Compelling Opportunity for Our State"?

Witnesses testifying before the committee aligned along predictable fault lines. Critics of the rail project (mostly, but not all, Republicans) tended to focus on the specific weaknesses of the project: its unrealistic assumptions concerning future funding; the quixotic choice of location for the initial line section ("in a cow patch," as several lawmakers remarked); a lack of evidence of any private investor interest in the project; the eroding public support for the project (nearly two-thirds of Californians would now oppose the project if given the chance, according to a recent poll); the "devastating" impact of the proposed line on local communities and farmers; and the unrealistic and out-of-date ridership forecasts (with more passengers in 2030 predicted to board trains in Merced, a small farming community in Central Valley, than in New York’s Penn Station). Other witnesses asserted that the current project is vastly different from the one Californian voters approved in 2008; and that it is lacking proper management oversight (it is a project "of the consultants, by the consultants and for the consultants" one witness remarked).

Defenders of the project (mostly, but not all, Democrats) resorted largely to abstract arguments about the merits of building a high-speed rail system in California. They saw the project as a compelling long-term vision, as a travel alternative to congested highways and air lanes, as a way to reduce greenhouse gas emissions, and as a means of creating thousands of jobs. They argued about the difficulty and prohibitive costs of the alternative of building more highways and airports to accommodate future population growth.

Federal officials are fond of reminding us that construction of the interstate highway system also began "in a cow patch " — in that particular case, a wheat field in the middle of Kansas. But they ignore a fundamental difference between the two decisions: the interstate highway system was backed from the very start by a dedicated source of funds, thus ensuring that construction of the system would continue beyond the initial highway segment "in the middle of nowhere." 

The California project has no such financial assurance. Should money for the rest of the system never materialize— as is likely to happen— the state will be stuck with a rail segment unconnected to major urban areas and unable to generate sufficient ridership to operate without a significant state subsidy. The Central Valley rail line would literally become a "Train to Nowhere" — a white elephant and a monument to wasteful government spending.
 
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The Census Bureau released their yearly population estimates today. As noted by Wendell Cox, the estimates showed signs of the South's continued leadership in population expansion. While the overall numbers of people involved are much smaller, the Dakotas, in particular North Dakota, also showed signs of growth worthy of note. According to the Census Bureau, North Dakota now has an estimated population of around 683,000, up over 11,000 in just one year. This made it the 6th fastest growing state in the nation over the past year- a notable achievement in its own right for a state more accustomed to dealing the challenge of outmigration.

However, the most interesting thing about the new estimate is that it represents a new record population for the state. There have never been more North Dakotans then there are today. The previous high count was about 680,000 way back in 1930. With the onset of the depression, the state entered a long period largely marked by periods of population decline and stagnation.

As a lifelong North Dakotan, I've occasionally found myself having difficulty coming to grips with our state's recent prosperity. North Dakotans can be a self effacing lot, and it sometimes seems that there’s a still a healthy dose of skepticism among my fellow citizens regarding our current good fortune. We’re not used to being on top like this, seeing our often ignored home highlighted in the press for its economic strength and tagged as "the state the recession forgot." For decades, we've been trying to find ways to deal with what seemed an inexorable cycle of rural decline and depopulation. While the new estimate is just a number, it does serve to break a bit of a psychological barrier for the state. We’re not just making up lost ground anymore- we’re now in uncharted territory and building beyond previous limits. It's a refreshing change.

Historians refer to the 1880s and period from 1900-1915 as the “Great Dakota Booms”. Growth was unchecked in what became North and South Dakota, and the population soared as immigrants poured into the region in search of economic opportunity. While oil has taken the lead role in place of land in this performance, it appears that our corner of the nation is in another "Great Dakota Boom" for many of the same reasons. Hopefully it will prove lasting. I, and my fellow North Dakotans will just have to learn to deal with prosperity. Call it “How North Dakota (and Matthew) Learned to Stop Worrying and Love the Boom”.

All in all, it's a good time to be a Nodak.

Bert Sperling just released a new list of  “The Best Places to Hit Refresh” and perhaps surprisingly many are located in the much-ignored flyover states. According to the list, five cities throughout the Midwest and Great Plains perfect for those looking to start over. Their methodologies included looking at the city’s overall population, unemployment rates, rates of singles living in the city, and the types of economies that the city can call their own—from oil in the upper Great Plains to education in the eastern Midwest.

What cities grace the list and why? In fifth place, Sioux Falls, SD, with its location in a state with some of the country’s most business-friendly laws (no corporate income tax, for example), low unemployment rate (5.5%), and a singles rate that rivals some of the larger U.S. metros (19th in the nation) allows for a perfect opportunity for those looking to start over. An economy that includes a number of banks and other financial firms and excellent health care has attracted a huge growth rate in recent years.

Next on the list is a tie between two more southwestern cities: Lawton, OK and Logan, UT. Both of these locales offer low unemployment rates (5.6% and 5.7%, respectively) and a high singles rate (15.9% and 16.4%). Lawton’s economy consists mostly of the Fort Sill U.S. military base, while Logan’s boasts Utah State University as its major economic provider.

Next up is the city of Lincoln, NE whose residents enjoy the lowest unemployment rate in the country at 4.1%. The city’s economy is composed of several financial and insurance firms, a Goodyear tire factory, and the University of Nebraska at Lincoln which helps to give the city a high rate of singles at 15.1%.

The second best city to start over is the northern city of Fargo, ND. Home to Microsoft Business Solutions, Fargo began its growth even before the explosion of the oil and gas industry in western North Dakota. The populace enjoys the nation’s third-lowest unemployment rate at 4.5%, while the presence of North Dakota State University and Minnesota State University at Moorhead contribute a high rate of singles (15.9%) as well as a young feel to the isolated city.

Finally, the best city to start over according to Sperling is the Midwestern college town of Iowa City, IA. The city boasts a very low unemployment rate (4.7%), a high singles rate (16.1%), and a well-educated workforce thanks to the presence of the University of Iowa. The city’s culture is positively affected by Chicago’s proximity and the university’s label as a Big Ten college, as well as a diverse student population. Iowa City is a flourishing Midwestern city with deep cultural roots that make for a great place to not only start over, but to live as well.

All of this comes at a perfect time after a University of Iowa journalism professor, Stephen Bloom, openly marginalized the state of Iowa’s populace as the “elderly waiting to die”. Sperling’s list helps to solidify Iowa (and the rest of the Midwest and Great Plains) as a hopeful place with opportunity as fertile as the soil itself.

Illinois has become famous for producing Barack Obama, but now another sort of fame is in the news. The Illinois Policy Institute has come out with a devastating report on “the state of Illinois”:

Illinois residents are fleeing the state. When people leave, they take their purchasing power, entrepreneurial activity and taxable income with them. For more than 15 years, residents have left Illinois at a rate of one person every 10 minutes.

Recent data from the Internal Revenue Service shows that, in 2009, Illinois netted a loss of people to 43 states, including each of its neighbors – Wisconsin, Indiana, Missouri, Kentucky and Iowa. Over the course of the entire year, the state saw a net of 40,000 people leave Illinois for another state.

The data reflects a continuation of a trend of out-migration from Illinois that has lasted more than a decade. Between 1995 and 2009, the state lost on a net basis more than 806,000 people to out-migration. 

When people leave, they take their income and their talent with them. In 2009 alone, Illinois lost residents who took with them a net of $1.5 billion in taxable income. From 1995 to 2009, Illinois lost out on a net of $26 billion in taxable income to out-migration.

Illinois lost one person every 10 minutes between 1995 and 2009. Will the people who stay in Illinois demand reform before more wealth and jobs leave the state?

A recent poll of 3,000 C-level manufacturing company executives found that 85% see certain manufacturing functions returning to the U.S., citing increasing costs overseas (37%), logistics/delivery demands (20%), quality issues (7%) and other reasons (37%).

From the Cook Associates Survey:

85 percent of manufacturing executives see the possibility of certain manufacturing operations returning to the U.S., with 37 percent citing overseas costs as the major factor. Nineteen percent cited logistics and 36 percent stipulated other reasons, including economic/political issues, quality and safety concerns, patriotism and overseas skills shortages for highly technical manufacturing processes.

Cook Associates Executive Search polled nearly 3,000 manufacturing executives primarily in small- to mid-sized U.S. companies from October 13 through November 18, 2011. Participants consisted of C-level executives (CEO, CFO, COO) and key functional Vice Presidents (Operations, Manufacturing, Supply Chain).The survey data was supplemented by written comments submitted by individual executives.

The survey identified low-volume, high-precision, high-mix operations, automated manufacturing and engineered products requiring technology improvements or innovation as the primary forms of manufacturing returning to the States.