Posts tagged ‘Santa Fe’

Tailgating at the Opera

I grew up in Texas and I am not sure the concept of tailgating I was weaned on was flexible enough to encompass the opera.  But it's good to try new things.  Here are a couple of photos from my first trip to the Santa Fe Opera

IMG_0728s IMG_0729s

Didn't see any cornhole games though.

Worst American Rail Project Ever?

Last week I was in Albuquerque several hours early for my meeting in Santa Fe.  Several years ago I had written about the Railrunner passenger rail line that operates from south of Albuquerque north to Santa Fe.  Our Arizona Republic had written a relentlessly positive article about the line, focusing on how much the people who rode on it loved it.  Given that the picture they included in the article showed a young woman riding in a nearly empty car, I suspected that while the trains themselves might be nice for riders, the service probably wasn't a very good deal for taxpayers.

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.

Anyway, I was in Albuquerque and thought I would ride the train to Santa Fe.  I had meetings at some government offices there, and it turns out that the government officials who spent the state's money on this project were careful to make sure the train stopped outside of their own workplaces.    I posited in my original article that every rider's trip was about 90% subsidized by New Mexico taxpayers, so I might as well get my subsidy.

Well, it turned out I missed my chance.  Apparently, trains do not run during much of the day, and all I saw between 9:30AM and 4:00 PM was trains just parked on the tracks.  I thought maybe it was a holiday thing because it was President's Day but their web site said it was a regular schedule.  I caught the shot below of one of the trains sitting at the Santa Fe station.

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.  Wow!  Let's read more

New Mexico Rail Runner Express officials said Wednesday the railroad will receive an additional $4.8 million in federal funding this year that puts the operating budget more than $4 million in the black.

The injection of new money boosts Rail Runner’s revenues this year to $28 million, well in excess of expected operating costs of $23.6 million, said Terry Doyle, transportation director of the Mid Region Council of Governments, which oversees Rail Runner.

OK, I am not sure why the Feds are putting up money to cover the operating costs of local rail lines in New Mexico, but still, this seems encouraging.  This implies that even without the Fed money, the line was withing $800,000 of breaking even, which would make it impressive indeed among passenger rail lines.  But wait, I read further down:

The announcement comes as state lawmakers debate a measure that would require counties with access to the Belen-to-Santa Fe passenger railroad to pay for any deficit in Rail Runner’s operations with local taxes. Currently, almost half its revenues, $13 million, comes from local sales taxes.

Oops, looking worse.  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?

Of course, the Railrunner folks are right on the case.  They have just raised prices, which "could" generate $600,000 in extra revenue, assuming there is no loss in ridership from the fare increases (meaning assuming the laws of supply and demand do no operate correctly).  If this fare increase is as successful as planned, they will have boldly reduced the public subsidy to just 94.2% of the cost of each trip.

By the way, it is interesting to note in this Wikipedia article (Wikipedia articles on government rail projects generally read like press releases) that ridership on this line dropped by over half when the service went from free to paid (ie when the government subsidy dropped from 100% to 95%).  The line carries around 2000 round-trip passengers (ie number of boarding divided by two) a day.  It is simply incredible that a state can directly lavish $60 million  a year in taxpayer money on just 2000 mostly middle class citizens.  That equates to a subsidy of $30,000 per rider per year, enough to buy every daily round trip rider a new Prius and the gas to run it every single year.

Postscript:  This person seems to get it.  One thing I had not realized, the trip from Albuquerque to Santa Fe that I did in my rental car in 60 minutes takes 90 minutes by "high-speed rail".

Minimum Wage Hypocrisy

I thought this was amazing, from an article by John Fund on the activist group ACORN.  Most of the article is about allegations of election fraud, but this caught my eye:

Founded by union organizer Wade
Rathke in 1970, Acorn boasts an annual budget of some $40 million and
operates everything from "social justice" radio stations to an
affordable-housing arm. Still run after 36 years by Mr. Rathke as
"chief organizer," it is best known for its campaigns against Wal-Mart,
and for leading initiatives in six states to raise the minimum wage....

Acorn is vulnerable to charges
it doesn't practice what it preaches. Its manual for minimum-wage
campaigns says it intends "to push for as high a wage as possible." But
it doesn't pay those wages. In 2004 Acorn won a $9.50 an hour minimum
wage in Santa Fe, N.M., for example, but pays its organizers $25,000 a
year for a required 54-hour week--$8.90 an hour. This year Acorn had
workers in Missouri sign contracts saying they would be "working up to
80 hours over seven days of work." Mr. Rathke says "We pay as much as
we can. If people can get more elsewhere, we wish them well."

In 1995 Acorn unsuccessfully sued
California to be exempt from the minimum wage, claiming that "the more
that Acorn must pay each individual outreach worker . . . the fewer
outreach workers it will be able to hire." Mr. Rathke acknowledges
higher wages can cost some jobs but that the raises for other workers
are worth it.

I am not sure this hypocrisy even requires further comment.  It is particularly hilarious that he argues that economic arguments against the minimum wage (e.g. that they reduce jobs) apply to a non-profit but not to for-profit companies.

This is also hilarious, for a group that is at the forefront of trying to unionize Wal-Mart:

One of them, Sashanti Bryant of
Detroit, Mich., was a community organizer for Acorn....Ms. Barton
alleges that when she and her co-workers asked about forming a union
they were slapped down: "We were told if you get a union, you won't
have a job." There is some history here: In 2003, the National Labor
Relations Board ordered Acorn to rehire and pay restitution to three
employees it had illegally fired for trying to organize a union.

I Don't Know the Economics Term for This

While I sometimes get grouped into economics blogs, I actually don't have a degree in the subject.  I have an MBA, some practical experience, some hobbyist reading, a few undergraduate courses, and, as my wife can attest, a willingness to pretend I know what I am talking about.  Unfortunately, that is not enough in this case.

Over the last 6 months, I have observed an interesting phenomena in the Phoenix area, one which I am sure I am not the first to discover, but I don't have enough background to put a name on it.  Here is what is going on:

Over the last year or two, the Phoenix real estate market has been red hot.  This has caused a lot of individual investors to make local real estate investments (I discussed more about this here).  The preferred type of investment seems to be to buy an old house on valuable land, tear it down, and sell the new house for a profit.

All fine and normal so far.  The interesting part comes when the investor chooses the style and appearance of the new home.  Remember that these are typically highly leveraged investments.  Investors take out a large mortgage, and that mortgage has to be paid every month that the investor cannot sell the home.  It is critical, then, that the investor build a home that is designed in a way to be most likely to sell.

Let's imagine that the pool of possible house buyers have the following preferences (I am making these numbers up):

  1. Tuscan / Mediterranean style, 40%
  2. Santa Fe style, 25%
  3. Santa Barbara style, 20%
  4. New England style, 10%
  5. Ultra modern style, 5%

With only limited information on what is going on in the market around them (ie what others are planning to build) all of these investor-builders pick the most popular style on the list, thereby apparently maximizing their ability to sell the home.  As a result, every tear down / rebuild / remodel I see in our area is a new Tuscan home.  So, while 40% of buyers (or whatever the number is) want Tuscan, 100% of the supply is Tuscan.  By the way, the same thing apparently happened in the last big Phoenix real estate boom back in the 1980's, since nearly every house in our neighborhood that was built in the early eighties was built in what we call the "santa barbara" style.

This is obviously some type of market failure, but I don't know what it is called.  I might call it the "variety failure".  To a large extent, this dynamic is made possible by the fact that many of the investors in the real estate market are only entering the housing market for a single transaction, and are not well informed of the actions of other sellers in the market.  In most other industries, investors need to make money over multiple transactions over many years, which mutes this effect.  For example, there are always farmers who try to plant this year what was earning good money last year, but these players in the market are usually weeded out over time as last year's shortage leads to this year's glut and financial losses.  Also muting this failure nowadays are changes in manufacturing techniques, which allows low cost production of greater variety, as well as expansion of specialty retail space (e.g. category killers like Petsmart or Borders), which allows display of more product variations.