Palo Alto City Council

City of Palo Alto

Palo Alto, CA 94301
Cc: James Keene, Curtis Williams

Subject: Caltrain Go-Passes, Palo Alto, the Stanford Hospital

and JPA Taxpayers

Elected Municipal Officials:

Stanford’s $140M “Mitigation” Offer For Hospital Expansion

Approval

Stanford University/Hospital has offered the City of Palo Alto “compensation” to the
tune of $140M in hopes of (effectively) buying the approval of the City, needed to
expand its hospital. This “compensation package” includes dollars for housing, some
health care, and transportation impact mitigation. A significant portion of this “package”
is a $92M traffic mitigation component—Caltrain Go-Passes for its employees for the
next fifty years, or so.

Ninety-two million dollars ($92M) is clearly a significant amount of money, which begs
the question—how will this money be spent, and how will it be a “public benefit” so that
it should be considered in this “mitigation package”?

Caltrain Go-Passes

Ridership numbers for Caltrain’s 2009-2010 year show about 1.1M riders. Considering
Caltrain’s operating and capital budgets (about $130M), the cost-per-rider (one-way) is
about $12.00. Caltrain currently charges 12.50 for one-way/six zones service. Based on
50-weeks/5-days-a-week use of the train, this service costs $6,250 a year. Caltrain also
offers a monthly pass for $331, which comes to $3,972 year. For larger companies and
schools, Caltrain offers the Go-Pass, at $155/employee. (If Caltrain also recovered its
asset costs from farebox revenues, the cost-per-ride would be about $20 [+/-]—depending
on the amortization period, and the actual cost of assets (land, rolling stock,
infrastructure, etc., and actual ridership).

If used 52-weeks/2 trips-per-day, the cost-per-ride for a Go-Pass is about 21 cents. For
the more typical 50-week/2 trips-per-day use, the cost-per-ride is about 31 cents. The
difference between the actual $12/ride cost-for-service and the 20-30 cents charged Go-
Pass riders is almost $12—paid for by the taxpayers, through county/state/federal grants

Clearly, Caltrain Go-Passes are very, very, under-priced, compared to the cost of
providing this service.

Public Benefit of “Go-Passes” For Stanford?

There has been no clear proof of public benefit offered by Stanford, or Palo Alto, to date,
to justify this $92M expenditure being a bona fide public benefit. The all-too-often
offered mantra that “we’re taking cars off the road” can only be the rationale for any
“public benefit”. But so far, no traffic modeling of the current University/Hospital has
been offered, nor has there been any long-term modeling for the expanded Hospital (and
other projected University growth).

With the current $155/rider Go-Pass cost, $1.9M a year ($92M over 50-odd years), this
comes to about 11,900 Go-Passes. (Of course, with future increased costs, this estimate
of Go-Passes is necessarily high. And—if Caltrain were to more appropriately price Go-
Passes, then the number of Go-Passes that can be purchased with $1.9M a year will be
greatly reduced.)

Recently, someone close to the “Friends of Caltrain” published data that Stanford
currently purchases about 10,100 Go-Passes, at a yearly expense of about $1.5M. So,
increasing the yearly expenditure to $1.9M will add about 1,200 passes. However, what
does this current, and future, Caltrain ridership mean in terms of taking “cars off the
road”?

It seems that Stanford claims that about 3,000+ people actually use their Stanford-
provided Go-Passes. How many of these people might carpool, or use other public
transportation, if Caltrain were to cease operating is unknown. Certainly any claims that
all 3,000+ people would use cars, and that all of these cars would clog Palo Alto streets
would be impossible to prove--particularly since Highway 280/Sandhill Road is heavily
used by Stanford employees/visitors, as is El Camino Real in Menlo Park.

So, given that Stanford is already spending $1.5M on Go-Passes, the increase to $1.9M in
terms of vehicle reduction in Palo Alto, is simply unknowable. At best, it represents
about 1,700 (maximum) vehicles that would possibly not use any of the many
roads/streets offering access to the Stanford lands.

Lastly, Stanford is not offering any traffic mitigation for Menlo Park, East Palo Alto,
Atherton, Mountain View—all of which will necessarily see increased traffic due to the
Hospital’s expansion. Certainly these Cities deserve some compensation also.

Public Subsidy of “Go-Passes” Passed to Stanford

At first blush, the idea of Stanford offering to increase its purchase of Go-Passes seems
like a good idea. However, a closer examination of the severe under-pricing of Go-
Passes raises a very large “red flag” which should be examined by everyone in Palo Alto
—particularly its planning department, and its City Council.

The current Caltrain pricing of Go-Passes is very “deep” shows deep, deep, discounting.
If the actual cost-to-provide this service were $12/ride—then the Go-Pass subsidy is more
than $11.50/ride. This difference is currently being paid by the taxpayers, through the
many funds transfer mechanisms conceived by government officials over the years.
So, what does this Go-Pass discount mean to Stanford?

Using the following simple calculation:

Stanford-Caltrain-Service-Cost= ~3000 riders/day * $24/day * 250 days ~= $18M.

(Saturday/Sunday service would increase this $18M number in proportion to the actual
Stanford traffic.)

So, Stanford is currently buying about $19M (or more) in Caltrain service for about
$1.5M. The taxpayers are paying the difference. Stanford is certainly a beneficiary of
this (effective) taxpayer transfer of funds.

The question must now asked: “Would Stanford actually pay the full cost of Caltrain
service, if the Go-Passes were terminated?” Isn’t it about time to ask Stanford this
question?

50-Year Public Cost of Caltrain Go-Passes For Stanford

Given the fact that the public is subsidizing Caltrain to provide almost free transportation
service to Stanford, what will the cost to the public be for this “public benefit” that
Stanford is offering Palo Alto for its Hospital approval?

Again, using the simplest numbers:

Public-Subsidy = ($18M/year-$1.5M/year) * 50 years ~= $1.8B.

(Note—inflation, and other upward pressures on Caltrain costs—such as increased labor

union salary/benefit demands—will likely see this number much larger than suggested
here—possibly approaching $2.5B to $3.0B)

Conclusion

While much of this short paper focuses on taxpayers indirectly funding Stanford through
Stanford’s use of Caltrain Go-Passes, the real problem is that Caltrain seems to have
developed a business model that assumes that: Taxpayer will contribute over 50 percent
of the revenue needed to operate this railroad. Clearly, the cost-to-provide-service
numbers are constantly climbing—mostly through continually rising labor/benefit costs.
There seems to be little evidence of management activities that parallel the private sector,
particularly since the labor contract is outsourced to Amtrak for management—which has
little reason to control costs, as Amtrak is itself a recipient of billions of Federal taxpayer
dollars.
Caltrain needs to terminate Go-Passes as soon as possible. While Stanford may be the
largest recipient of this “largesse” at the moment, offering this steeply discounted fare has
clearly costs the taxpayers millions of dollars yearly, and help to put Caltrain in the “red”.
One can only wonder what the financial impact on Caltrain would be if 100,000 Go-
Passes were sold? Ridership would grow to 100,000 people a day, but the revenue for
this 100,000 people would be only $15.5M. This is simply insane. There is no other way
to describe Caltrain business practices, where Go-Passes are concerned.

Elected officials should always be reviewing their budgets, the need for infrastructure
upgrades in their cities, and their future revenue growth to determine what financial
problems are on the horizon. As they do, they should be asking why the taxpayers, that
they took an oath to represent, should be subsidizing large, deep-pocket, employers, like
Stanford, to the tune of millions of dollars a year providing Go-Passes.

Elected Officials—please consider this matter and discuss it with your VTA and Caltrain
Board Members. Something needs to be done quickly to stem the never-ending flow of
“red-ink” generated by Caltrain management. Given Caltrain’s inability to manage its
own finances without considerable public subsidy, should terminating this railroad as
soon as possible be a top priority for local governments?

Sources:
http://www.caltrain.com/about/statsandreports/Ridership.html
http://www.caltrain.com/about/statsandreports/Comprehensive_Annual_Financial_Report
s.html
http://www.caltrain.com/about/statsandreports/Budgets.html

Wayne Martin
Palo Alto, CA
www.scribd.com/wmartin46
www.twitter.com/wmartin46

Note 1 – Ridership data provided by Caltrain is based on actual counts during “February”
of each year. “February” numbers are likely to be higher than “June” numbers, since
school is in session. Summer numbers also likely include some tourist traffic, but there is
no way to effectively estimate these numbers. As such, yearly ridership estimates based
on February numbers are likely in some error. Additionally, ridership numbers do no
align with fiscal data.

Note 2 -- Most estimates of the sort providing herein have much hope of being correct
beyond ten years’ passage of time. Estimates for fifty years have little likelihood of
being cost to the actual passage of time. It is hard to believe that the City of Palo Alto is
allowing Stanford to make claims about its behavior, or costs, that are fifty years in the
future.