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Op-Ed: Even SMART's Adjusted Expenditures are Incorrect

Economist Mike Arnold, an opponent of the passenger rail system, says CFO Farhad Mansourian's recalculations need to be recalculated again.

On July 22, Interim CFO Farhad Mansourian that he had identified additional costs raising the project cost from the $330 million presented to the Metropolitan Transportation Commission in June to $404 million, an increase of $74 million. He then concluded that, “The options identified for board consideration illustrate that the concept of passenger rail remains sound and achievable.”  

A careful review of the report’s numbers indicates the opposite it true because the report contained several errors.   

Once these errors are corrected, before adjusting for deferral of the startup date to a point later than 2014, SMART is left with a $43 million deficit.  

First, the corrected calculation of SMART’s deficit removes $10 million in savings associated with shutting down during the construction phase. Freight rail sources indicate that no such agreement exists beyond what is already included in the operating agreement between SMART and the North Coast Railroad Authority and that the freight owner is not inclined to interrupt freight service for three years.

Second, Mansourian's starting point is $5 million different than what was provided to the MTC in June in official documents posted to the MTC website and agenda for its July 13 Programs and Allocations subcommittee chaired by Marin County Supervisor Steve Kinsey. This means the deficit is another $5 million higher than reported.

Third, the calculations in the attached table accepts the report’s savings from higher sales tax revenues and lower operating and maintenance costs but then calculates how these funds affect bonding capacity.  Mansourian incorrectly assumed these savings would increase bonding capacity dollar for dollar when due to discounting the savings it is about half the claimed amount. 

In addition, since it there will be fewer years that the train will operate, the reported savings associated with lower operating and maintenance costs needs to be prorated.  These adjustments increase the deficit by another $17 million.

In total, the adjustments indicate that the deficit corrected for the report's errors is $43 million.

Finally, based on the reports reported savings from deferring rail service — saving $12 million each year service is delayed — the deficit can be closed by delaying startup by 3.6 years. 

Even if the “add-backs” identified in the report are excluded, rail service would have to be delayed 2 ½ years for the project to be fully funded.

Gayle R August 03, 2011 at 02:57 PM
SMART is not, was never and won't ever be smart. End the madness.

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