Tuesday, May 24, 2011

The Gang That Couldn't Shoot Straight - Installment No. 4 - The Hiawatha Line Fiasco

Train No. 101, the Hiawatha, led by a streamlined 4-4-2 class A steam locomotive, passes near Red Wing, Minnesota on August 4, 1937.

(Wikipedia Photo by Otto Perry.)

A Tale of Two-Tenths of One Percent of Wisconsin's Annual Transportation Budget  (or .0022).  The Infinitesimally Small Reason Wisconsin Taxpayers May Now Have To Spend $140 Million Dollars We Could Have Avoided.  The Hiawatha Line Fiasco.

"Hiawatha, had a daughter, and her name was Laughing Water,  Ha Ha, Drip Drip."
- Old summer camp rhyme bastardizing Longfellow's poem.

The drip, drip of the tale of Hiawatha that follows may be the tears of Wisconsin taxpayers.

Larry Sandler, of the Milwaukee Journal Sentinel, has done an exceptional job reporting on the economic impact on Wisconsin taxpayers from the Governor fulfilling his campaign promise to kill the development of Milwaukee-to-Madison high speed rail.

A comprehensive article on the necessary upgrades to the Hiawatha Line between Milwaukee and Chicago appeared under Mr. Sandler's by-line on May 15.  What can be taken from the article is that because we told the federal government that Wisconsin would not go forward with Madison-Milwaukee passenger rail service, we subsequently lost out on $210,000,000 in funding from the U.S. Department of Transportation that would have helped upgrade the Hiawatha Line, and the taxpayers of Wisconsin can now either foot $140,000,000 of that lost funding for necessary upgrading of the Hiawatha service or perhaps just let that service decline or come to an end.  (I frankly don't know how our contractual obligations on the Hiawatha Line vis-a-vis Illinois and the federal governments may impact our options.  Mr. Sandler's article certainly makes it sound like we are going to need to spend the money.  For example, some of the money is to make the train shed in Milwaukee where passengers board and debark ADEA compliant.)

It turns out that the $810,000,000 federal grant that the Governor rejected, while he was still just a governor-elect (more on that later) included some $140,000,000 in monies for Hiawatha service improvements that need to be accomplished to keep that service operational and thriving.  Mr. Sandler explains the problem:
Last week, the federal government rejected the state's request for more than $150 million for new locomotives, passenger cars and a maintenance base to upgrade the Hiawatha line. Also rejected was a bid for nearly $60 million in related track, signal and engineering work.
That decision followed Gov. Scott Walker's refusal to build a 110-mph extension of the Hiawatha to Madison, as part of a larger plan to connect Chicago to the Twin Cities and other Midwestern destinations. After Walker's election, the federal government pulled nearly all of the $810 million stimulus grant that would have paid for the long-planned Milwaukee-to-Madison stretch.
But Walker supported keeping and upgrading the existing Milwaukee-to-Chicago service, with backing from the Milwaukee-area business community. And since some of the $810 million would have been used to improve existing service, the state asked for $213.3 million for that purpose.
Now, after the federal rejection, the state is faced with at least $209.1 million in potential costs for the existing service. But only $69.5 million in state and federal funds has been committed to those expenses, leaving a gap of $139.6 million.
When the Governor killed the $810,000,000 grant back in December, it and other rail funds were quickly redistributed to other states.  Florida got much of it, but Florida's money became available again after Governor Scott of Florida decided that Florida would stick to highways, and he rejected it. This lead to a new round of bidding for the Florida money, and Wisconsin put in a new $210,000,000 bid for upgrading the Hiawatha line.

The federal government turned down Wisconsin.  The Governor and his supporters will surely call this political payback.  Ray LaHood, Secretary of Transportation (and a life-long Republican), in announcing the states that  received this second round of funding from the money redirected from Florida, said that the federal money was going to states that were "reliable partners" for high speed rail initiatives. That certainly had a "payback" ring to it.

But I think it was a rational decision for the federal government.  Because USDOT is primarily focused on developing a high speed rail corridor between Chicago and Minneapolis, upgrading the Hiawatha line using federal stimulus monies seems like a very poor investment when the Chicago to Minneapolis high speed line will now likely run through Rockford and up through Iowa.  Officials in both Rockford and Iowa did cartwheels when they learned of Wisconsin's rejection of the $810,000,000 in stimulus funds.

The Governor's opposition to the Milwaukee-Madison line was premised on the possibility that the state would end up on the hook for the operational costs of the line, in excess of passenger fare revenues, after it was up and running in 2013.  Here is how Mr. Sandler described it in an earlier Journal-Sentinel article back on November 1:
Operating costs are projected at $7.5 million a year, not counting the part covered by fares. But Renlund [a WisDOT official] said the state is already using federal funds to cover 90% of the Hiawatha's $5.2 million annual operating cost - leaving $520,000 a year for state taxpayers to pick up - and hopes to do the same with the new line. That would mean state taxpayers would be paying $750,000 a year for the service to Madison.
These numbers have to be put in context. WISDOT's budget is approximately $3.4 billion per year.  This means that even in a scenario where the full $7.5 million operational shortfall would be covered by Wisconsin's transportation budget, this cost would amount to about two-tenths (.0022) of one percent of the state transportation budget.  In order to avoid not putting that amount of money at risk of being "diverted" from highway repairs and construction, Wisconsin lost out on the stimulus effect of spending much of that $810 million dollars in fairly short order on hiring local engineering firms, construction firms, construction workers, and train sets from the Talgo Company, the Spanish firm that set up shop in Milwaukee.  Talgo's plan was to hire 150 Wisconsin workers to build train sets for the state and Oregon and other buyers. (More on Talgo later).

The Governor has always been supportive of the Hiawatha line as near as I can determine.  The Milwaukee Metropolitan Association of Commerce (Milwaukee's "chamber of commerce," whose business members, according to one source, ponied up nearly $400,000 to the Republican Governor's Conference to support the Governor's election) has also been highly supportive of the Hiawatha line.  What business person wouldn't be?  For $22, you can have your employee board a sparkling clean train in downtown Milwaukee and in an hour and a half be in downtown Chicago for a business meeting without the employer having to reimburse the employee $44  for mileage and $25 for parking.  The employee will also be able to get work done via free on-board WiFi, and not be stressed on arrival from fighting Chicago traffic.

The Governor, when still Milwaukee County Executive, consistently touted the remarkable passenger growth of Mitchell Field as a low-cost and convenient alternative to O'Hare Field and Midway Airport. Can you imagine what it would do for the further development of Mitchell Field to move the Airport train station even closer to the terminal in an inter-modal set-up (it is a ten minute walk to the terminals now), and have folks from Illinois be able to get from downtown Chicago or its northern suburbs in thirty or forty minutes via a 110 MPH Hiawatha?  They could avoid the hour drive from downtown Chicago to O'Hare and the minimum $16.00 a day parking in O'Hare remote Lot F, from where you have to add an additional thirty minutes to catch the overhead tram to your terminal.  Dollars spent by Illinis on food or magazines at Mitchell Field leads to sales tax revenue to help defray our cost of state government.

Talgo, the train manufacturer that has orders for two sets of trains each from Wisconsin and Oregon, has announced an intention to leave Milwaukee after the current orders are filled next year.  They and the City of Milwaukee are not happy about the quick reversal in Wisconsin's support for high speed rail. As reported in an web-blog article in November:
“This has been a huge investment for Talgo,” [Talgo spokeperson Nora Friend] says. “We entered into this agreement thinking it would be very long term.”
So did the city of Milwaukee, which has invested more than $6 million in the facility, says Milwaukee Department of City Development spokesperson Jeff Fleming, adding that Talgo's lease for the site — which is owned by the Redevelopment Authority of Milwaukee — has an "out clause" after 24 months. City officials hoped Talgo’s presence in an area that was “in dire need of revitalization” would attract more manufacturing business, says Friend.
So, the results from the Governor's killing of high-speed rail through Wisconsin can be summarized:

1.  No immediate stimulus for our state's economy from $810,000,000 in federal funds that will all get spent on rail lines in other states.

2.  A questionable return for the city of Milwaukee on the $6 million it spent to help Talgo move into the Century City site.

3.  The loss of a good manufacturing employer, probably to Illinois, taking with it 150 high-paying manufacturing jobs. (Maybe the current workers can catch the Hiawatha to work?)

4.  $140,000,000 of Wisconsin taxpayer money will likely need to be spent to keep the Hiawatha line operational.

5.  No new tax revenue generating commercial development around the stations that exist in Milwaukee and LaCrosse and won't exist in Waukesha and Madison.

6.  No alternative for kids in Wisconsin to zip back and forth to college in Madison, Milwaukee, Chicago, La Crosse or Minneapolis via high speed rail.

7.  More congestion on Wisconsin highways.

8.  Increased air pollution.

9.  More new lane construction and existing lane repair for Wisconsin highways, at annual marginal costs that will certainly exceed the annual costs of the operating expenses of the Madison-Milwaukee service.  (Here is the Governor's letter to Ray LaHood rejecting the $810,000,000 and informing Mr. LaHood that what Wisconsin really needs is a new $1 Billion Zoo Interchange in Milwaukee.)

All of these cost were incurred to avoid the mere possibility of having to shift two-tenths of one percent of the state transportation budget away from the road-builders that supported the Governor in his election bid.  The governor talks about running state government more like a business.  When a CEO of a business makes a decision that is not well thought out, and leads to monumental losses for the business, he or she often gets canned.  Perhaps the taxpayers of Wisconsin will decide to act like informed shareholders and take a similar step next year as to their "CEO."

I said earlier I would take up again the issue of Governor Walker nixing high speed rail while he was still just governor-elect.  I believe this costly debacle can't be laid at Scott Walker's feet alone.  The $810,000,000 in stimulus money was a no-brainer given the need to upgrade the popular Hiawatha line with a sizable chunk of it.  Governor Doyle had no basis for concluding from the November election results that the people of Wisconsin were, by those results, signalling a strong rejection of the high speed rail initiative.  Instead of acting like the responsible executive he was supposed to be for two more months, and concluding the deal with the federal government to secure the funds in the best interest of the state, he chose to use the high speed rail issue as a high stakes game of political chicken.  He chose to call Scott Walker's bluff on whether he would follow through on his threat to kill it.  Doyle must have figured the Democrats couldn't lose from his politicizing of the issue by leaving it up to Scott Walker's discretion.  If Scott Walker backed down, he was a waffler to his supporters.  If he didn't back down, we would come to see what a terrible decision for the taxpayers the rejection of the $810,000,000 was and it would be an issue in the next gubernatorial election.

In an earlier post I asked the question:  What detailed cost-benefit analysis did Governor Walker rely on in rejecting the high-speed rail funds?  In light of this Hiawatha debacle, it becomes even more important for the public to be informed as to the level of careful analysis applied to the decision to reject the money. Governor, show us the analyses on which you relied.  Convince us that it wasn't an example of "knee-jerk" conservatism.

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