Lemieux: Jeopardy - New Hampshire Edition

I’ll take “Candidates Say the Darnedest Things” for $200, Alex.

This candidate for Governor says, if he’s elected, he will plunge his state $72 million into debt, combine it with $78 million in federal funds the government doesn’t have, plus $64 million from a neighboring state’s insolvent rail transit agency, plus $21 million from one or more yet-to-be-found private partners, and spend it all to create statewide economic growth by resurrecting a dead 19th Century passenger rail service that hardly anyone would use.

Who is Colin Van Ostern, Alex?

Right, for $200.

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The funding plan outlined in the 11/13/15 Patch article (“Pols Outline NH Passenger Rail Plan”) can best be described as a best case scenario. The latest passenger rail feasibility study (Study), dated October 2014, has this to say:

“Totaled together, and assuming contributions at the levels suggested ..., nearly 40 percent of the capital costs ... could be paid for by MassDOT/MBTA.” (Study, Appendix 3, “Financial Plan”, p. 19, emphasis added).

“The annual debt service must be viewed as a best case, since agreements with Massachusetts on cost sharing are subject to additional discussion and negotiation.” (App. 3, page 21, emphasis added)

MASSACHUSETTS MONEY

MassDOT: The Study presumes $45.5 million worth of infrastructure work in Massachusetts “could” be paid for with $45.5 million from MassDOT (App. 3, p. 22).

Passenger rail is being marketed by the NHRTA as a path to economic development in NH and as a way to “attract young talent” from Boston (where the cost of living is higher), with the expectation that they would reverse commute by rail to jobs in New Hampshire (where jobs pay less).

An underlying assumption is that MassDOT would contribute $45.5 million toward a project that would benefit New Hampshire, at Massachusetts’ expense? Another assumption is that MassDOT would not want to exercise its option to spend only $22.75 million of its own money and apply for its own federal grant for the rest.

MBTA: The Study also assumes bankrupt MBTA would “donate” $18 million worth of trackage rights plus $33.2 million worth of rolling stock. (App. 3, pp. 19 & 22)

Interpretation: The funding plan will work as long as MassDOT and MBTA donate (“contribute”) $96.7 million to NH.

There is no “Plan B”.

GOVERNMENT MONEY

Financial Plan Version: The Study’s Financial Plan (App. 3, p. 22, Table 5.4) is predicated on New Hampshire applying for—and getting—$122.2 million from one or more federal sources, matched by $45.5 million from MassDOT, $51.2 million from MBTA and $26.2 million from NH. If you’re following the bouncing ball, you see that the $45.5 million that is planned to be used to pay for 100% of the track work between Lowell and Nashua, is to be used again as the 50 percent match for federal funds that would be spent in NH.

The prime federal funding candidate (FTA New Starts program) is limited to $75 million. So the Study suggests the funding gap could be covered by CMAQ (highway money) and the contributions from MBTA that are already included elsewhere. (App. 3, pp. 7, 20-22)

Final Report Version: The Study’s Final Report offers a somewhat different plan. Figure 18 shows the NH share of costs, “after federal grants and MA contributions”, is a more reasonable $72 million.

Van Ostern-Pappas Version: The Van Ostern-Pappas plan (Patch) assumes $78 million federal, $72 million from NH, $20.8 million from a private developer and $75.9 million from Mass.

PRIVATE MONEY

The Van Ostern-Pappas plan is predicated on one or more private sector investors spending $20.8 million to build four train stations, presumably in hopes of recovering their investment, plus a profit, from the flow of 780 passengers per station per day. This is a curious move since shifting the station cost to a private developer would save MassDOT $20.8 million, not NH.

If there is a profit to be made in operating the stations, why would the state give that profit away and not use it to offset anticipated losses? If there is not a profit, what private investor would be generous enough to donate $20.8 million without expectation of a return on his/her investment?

The underlying assumption in a public-private partnership like this one, is that profits are offered to attract private capital and remaining losses are spread among taxpayers.

NEW HAMPSHIRE MONEY

There is so much that could go wrong. But, let’s not dwell on that. Let’s assume the miracle happens and that everything falls into place. Even under this best case scenario, it would still leave $72 million in capital costs to be funded by New Hampshire. (Give yourself extra credit if you noticed that MA would have more skin in the game than NH.)

New Hampshire Debt Service

The study predicts the train would cost $10.8 million a year to operate and bring in $6.9 million in ticket sales, (App. 3, p. 20) for a net annual operating deficit of $3.9 million. No one is predicting that the train would ever operate in the black. So don’t count on ticket revenue to pay for any of the debt service on the bonded capital costs.

The Van Ostern-Pappas plan calls for New Hampshire to finance its $72 million share with bonds. They project debt service payments to be $6 million per year.

That might not seem like a lot of money to an executive councilor, accustomed to spending the people’s money in 7- and 8-figure chunks. But, put in terms any taxpayer can understand, it amounts to $16,400 per day. When added to the projected daily operating losses, the train would cost New Hampshire taxpayers a net of $27,000 per day.

With no net revenue, bonds would have to be backed by the state’s authority to raise broad based taxes. According to Van Ostern and Pappas, the $6 million annual bond retirement debt would be serviced by $1million in parking revenue, $1-3 million in TIF revenue and by tapping the state’s general fund for $3-4 million per year.

Parking: The Van Ostern-Pappas plan calls for free parking at rail station for the first year. The lost revenue would have to be made up from somewhere. (More extra credit if you guessed “taxpayers.”)

TIF: Van Ostern and Pappas give no clues as to how rail would create the $48-145 million increase in valuation that would be necessary, (at $20.71 per thousand, App. 3, p. 17) to produce $1-3 million per year in new TIF property taxes. It seems extremely unlikely that would happen in year one but the burden of proof is on the proponents.

They also don’t discuss the likelihood that Manchester and Nashua could be counted on to turn over to the state, $1-3 million in new property tax revenue—should it materialize at all—for 20 years. Increased tax base is supposedly the prize for Manchester and Nashua. Would they give it away?

General Fund: Van Ostern and Pappas also don’t discuss what taxes would replenish the $3-4 million per year drawdown from the general fund. Fortunately, the Study gives us a peek. (App. 3, pp, 12-19)

The Study points to a mixture of possible new and increased statewide taxes that include (but aren’t limited to):

• A new statewide property tax,
• Higher vehicle registration fees,
• Airport passenger facility charges and
• A new lottery game

Interpretation: NH’s share of passenger rail would be financed by:

• Property tax payers,
• Drivers,
• Airline passengers and
• School children.

The overwhelming majority of the people paying the bill would--to borrow a phrase from Executive Councilor Pappas--”never set foot on a train.”

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The consultant’s conclusion that passenger rail is feasible in NH is based on the assumptions that:

• Massachusetts “could” “contribute” 40 percent of the capital costs;
• Massachusetts funds can be both spent on track infrastructure upgrades in Mass and used again as non-federal match to secure federal funds for New Hampshire; and
• The New Hampshire Legislature will approve new broad based statewide taxes to pay for a train.

As unlikely as it is that the funding plan will be implemented as envisioned, there is no backup plan...no contingency. Everything has to fall into place, or the whole funding plan falls apart. The best case scenario is also the worst case scenario. It’s the only scenario.

The Study bases “feasibility”--not on the ability for passenger rail to sustain itself--by providing a transportation service that has transportation value over the long haul--but rather on the ability for the state to spread the high costs and absolutely certain significant losses among enough outside funding sources.

It is outrageous that taxpayers paid $3.8 million for this Study. It is incomprehensible that the Study was accepted by the state and by, not one, but two federal agencies!

Next time: Is there a rail runner in our future?

Dick Lemieux, P. E., Retired
Concord

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