Bruce Murphy
Back in the News

Talgo Files Claim Against State

State would have to pay $136 million for canceling train contract.

By - Nov 8th, 2013 11:30 am
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As Patrick Marley and the Milwaukee Journal Sentinel reported today, the U.S. arm of the Spanish train-maker Talgo has filed a $65.9 million claim against the state, “setting up a likely lawsuit and reviving debate over Gov. Scott Walker‘s rejection of $810 million in federal stimulus money for a high-speed rail line.”

Talgo’s $65.9 million claim against the state Department of Transportation includes $18.6 million in unpaid invoices and interest, $23.5 million in lost business, $10.5 million in damage caused by state officials “continually defaming” Talgo’s reputation and $9.8 million in lost maintenance work.

If Talgo was successful in its suit, taxpayers would have to pay Talgo $65.9 million “and immediately refund $70 million to bond holders rather than paying that sum off over the coming years,” Marley writes.

Talgo has filed this claim with the Wisconsin Claims Board. “If the Claims Board were to agree with Talgo,” writes Scott Bauer for the Associated Press, “the Republican-controlled Legislature and Walker would also have to sign off, something unlikely to happen. If the claim is rejected, Talgo could take its case to court.”

In short this dispute is likely to take some time to settle.

As I’ve previously reported, the Talgo plan for Wisconsin actually had its roots in efforts made by Republican Gov. Tommy Thompson. “The state of Wisconsin has been planning this for ten years,” said Nora Friend, Talgo’s vice-president for public affairs. “It was Tommy Thompson’s vision that (Gov.) Jim Doyle put into implementation.”

Though Gov. Walker put an end to the high-speed rail plan for Chicago to the Twin Cities via Milwaukee and Madison, Walker made it clear he would honor the state contract with Talgo for the Hiawatha line from Chicago to Milwaukee.  “Gov Walker called us,” Friend recalls. “He said I am a supporter of the Hiawatha Project. I have no issue with it.”

But the Walker administration was painted into a corner on this issue by Republicans on the Legislature’s Joint Finance Committee, who wanted no part of any contract with Talgo.

The result was a colossal waste of government spending. In Wisconsin, the state signed a July 15, 2009 contract to pay $47.5 million to purchase two trains, and a December 30, 2009, contract to pay Talgo $4 million annually for 20 years for maintenance of the trains. To help attract Talgo’s plant to Milwaukee, the city spent nearly $11 million and state invested another $3.5 million to upgrade the 82-acre site Talgo still occupies.

If Talgo is successful with its suit, the bill for taxpayers would rise much higher.

Update 3:25 p.m. November 8: A new story by the Washington Post portrays Wisconsin as the classic example of how Republican governors like Scott Walker help defeat — in many areas of the country — President Barack Obama’s vision for a network of high speed rail in America. The story also offers opposing takes on the issue from Walker and Milwaukee Mayor Tom Barrett.

Categories: Back in the News

28 thoughts on “Back in the News: Talgo Files Claim Against State”

  1. Dave K. says:

    Oh, come one, how long do I need to wait to hear Bob Dohnal use the term “choo choo train”.

  2. Dave K. says:

    Don’t forget to stop by Trainfest this weekend – it’s the best model railroad festival in the world! http://www.trainfest.com

  3. Chris Jacobs says:

    I don’t see how Talgo can come up with a random number like 10.5 million for defamation. I’d like to see the itemized bill for that. Lost maintenance work for something that is never built? This one needs to go to court. Looks like a very unscrupulous company to ever be in business with in the future. Imagine the cash we’d have to fork over if the state was involved with Talgo for years in the future.

  4. Justin A says:

    Doyle shouldn’t have signed contracts with Talgo knowing full well that Walker was going to kill the project and we wouldn’t be in this predicament. Thanks Doyle.

  5. Dave Reid says:

    @Chris The trains are built, and just sitting there.. You’re blaming Talgo? That’s pretty backwards. The organization that proved you shouldn’t do business with them was the State of Wisconsin under leadership that failed to complete their obligations.

  6. Dave Reid says:

    @Justin A He should stop governing before his term is up? Further, these trains were for use on the Hiawatha route, which Walker has many times said he supports.

  7. Bruce Thompson says:

    My recollection is that both Doyle and the Obama administration were more generous to Walker than they needed to be: Doyle by stopping work on the Milwaukee-Madison project once Walker made clear he was going to kill it and the US by not requiring Wisconsin to return the funds already spent.

  8. David Ciepluch says:

    What a disaster Walker and his incompetent uneducated willfully ignorant stooges have been for the State of Wisconsin. Their only belief systems come from a deeply flawed political theology bought by corporations and the laws they receive from them through ALEC. So much long term damage!

  9. Justin A says:

    Walker is the best thing to happen to Wisconsin in a long time. He would have been even more successful had the Doyle/Obama political disaster not left him such a mess to clean up regarding the high speed choo choo boondoggle.

  10. Tyrell Track Master says:

    Eveything about this is so depressing it kills me. Shame, shame, shame on Scott Walker for this.

    That said – is there any glimmer of hope that a new administration could turn this back? ie, convince Talgo to hang tight for another year?

    For that matter, is there anything that Chris Abele and Tom Barret can do to get back some of that funding for the Hiawatha?

    This whole thing is just insane!!!

  11. Dave K. says:

    Justin A wins the booby prize for being the first person to use “choo choo” train in their rhetoric! Love it!

  12. Tom Bosworth says:

    The money wasn’t wasted when Walker canceled the project. The money was wasted when Dole signed the contract.

    Far, far better to pay to get out than to have completed Thompson and Doyle’s boondoggle.

    And just a trivial, tin-foil hat wearing ultra-right wingnut loonie question: Exactly which part of the State Constitution empowers the the state to provide train service?

    Or does whatever you think is good policy trump the Constitution?

  13. Tom D says:

    Tom Bosworth, it’s in the State Constitution in 2 different places:

    Article VIII, Section 7, paragraph (2) of the Wisconsin Constitution says:

    “Any other provision of this constitution to the contrary notwithstanding:
    (a) The state may contract public debt and pledges to the payment thereof its full faith, credit and taxing power:
    1. To acquire, construct, develop, extend, enlarge or improve land, waters, property, highways, railways, buildings, equipment or facilities for public purposes.”

    Article VIII, Section 10, paragraph (2) of the Wisconsin Constitution says:

    “The state may appropriate money in the treasury or to be thereafter raised by taxation for: … The acquisition, development, improvement or construction
    of railways and other railroad facilities.”

    These were added to the State Constitution in 1992, specifically for the Hiawatha, I believe.

    Also, remember that these Talgo trains were to be used for the existing Chicago-Milwaukee service, something that Walker otherwise supports. Do you think that the Chicago-Milwaukee train is a “boondoggle” that should not be subsidized by the state?

  14. Tom Bosworth says:

    Tom D: Thank you for the Constitutional provisions. They appall me, but at least the government is acting within the Constitution. for acquiring, constructing, developing, extending, enlarging or improving the railroad.

    That still does not authorize operating, nor subsidizing operating costs.

    “Do you think that the Chicago-Milwaukee train is a “boondoggle” that should not be subsidized by the state?’

    Yes. Government should not own the means of production, but so long as it does, I see no excuse for average and lower income taxpayers to pay to subsidize business travel by people with higher incomes. I see no excuse for upper income taxpayers to be forced to subsidize train travel they do not use. Nor do I see any justification for taxpayers to subsidize tourists going to or coming from Chicago.

    People who want to travel by train should pay for it out of their own pockets. If that means trains will go out of business, that is a good thing. Subsidizing one means of transportation is not justification for subsidizing them all. Better to get rid of the subsidies altogether, and let them duke it out in the market.

    Transportation is an industry. Let the various players compete without the government playing favorites. Then we can have something approximating an efficient, market determined industry instead of one where politics determines winners and losers.

  15. Tom D says:

    Tom Bosworth, do you oppose highway and airline subsidies, too?

    All US transportation (except freight railroads and toll highways) is subsidized.

    Highway user fees pay a lower percentage of highway costs than fares do on the Hiawatha. The Pew Charitable Trusts says that in 2007, highway user fees only covered 51% of highway costs (and that percentage has surely declined since.)

    http://www.pewtrusts.org/news_room_detail.aspx?id=56233

    Train riders pay more than that. In FY 2012, Hiawatha ticket revenue covered 59% of Hiawatha costs. And that 41% of the cost over and above ticket revenue does NOT all come from taxpayers. Some of it comes from the $300 million Amtrak made in 2012 on its profitable east coast routes.

    And its not just highways getting subsidies. The federal government pays outright cash subsidies to entice airlines (like United Express) to fly into smaller airports (like Eau Claire). (Google “Essential Air Service”.)

    As for the State Constitution not explicitly permitting railroad operation or subsidy, it doesn’t permit highway operation, either, but Wisconsin does just that (24/7 state patrols, lighting, snow removal, rest areas, etc).

  16. Tom Bosworth says:

    “do you oppose highway and airline subsidies, too?”

    Yes. As I already said, subsidizing one set of players does not justify subsidizing another set.

    If we want to find out what are the most efficient uses of people’s resources, eliminate the subsidies entirely. If auto users discover the true cost of auto transportation they may very well decide to voluntarily use the train or the bus. Only if the subsidies are removed from autos, trains, busses, and airplanes can consumers make decisions informed by the true cash costs as well as other factors like time and convenience.

    Some people may choose to pay more per mile to drive because of the convenience of the individual automobile, especially if they have to go several places at the other end.

    On another trip, the same people may choose the train because they can read or work while en route, and don’t need anything save a taxi at the other end. Perhaps the train will be more per mile, but be more convenient. Maybe an intercity bus would be. Maybe a carpool. In a subsidized market there is no rational way to make an informed decision, other than on the prices we see, not on the actual costs. That inherently creates inefficient use of resources.

    If we want to make transportation as efficient as possible, the only option is to eliminate subsidies and let each consumer make individual choices based on their needs for that particular trip.

  17. David Ciepluch says:

    Then the military budget needs to be added to the cost of oil that is hugely subsidized to keep sea lanes open and protected and the cost of wars in the Middle East. That would come out to at least $500 per gallon of gasoline or more. That is the true cost of oil. Even WWI and II were connected to Middle Eastern oil rights as the British moved in and along with the USA and other countries drew the maps and garnered access to Arab oil.

  18. David Ciepluch says:

    When the rail line industry started up in the 1800s, they were provided free land by the Federal Government, and an alternating square mile on either side of the track across the country. Rail companies have always been in the real estate business more than transportation. Also this was land stolen from Native Americans that had been in the Americas for over 10,000 years. So Native Americans provided a subsidy to start up the rail lines. Through warfare, disease, and starvation, over 100 million Native Americans lost their lives and way of life as the invading Europeans crossed the continent.

  19. Tom Bosworth says:

    David Ciepluch: “Then the military budget needs to be added to the cost of oil that is hugely subsidized to keep sea lanes open and protected and the cost of wars in the Middle East.”

    I think one can make a strong argument for that. Subsidizing investment in dangerous parts of the world encourages mis-investment.

    Subsidies for politically preferred investments act much like voluntary subsidies to charities like hospitals, hospices, colleges, or museums: The purpose of the subsidy is to get more of what is subsidized. When we subsidize investing in politically unstable areas, we get more such investments, and we don’t see the real costs because they are not incorporated into the price of the resulting product. Instead they are buried in the military budget.

    When we subsidize investment elsewhere, we inherently reduce the relative attractiveness of investing in the US. That reduces jobs here, lower demand for US labor reduces wages for Americans, makes us more dependent on unstable suppliers, and gets us politically and military involved with people who despise us. Where is the upside?

    Except, of course, for those who are getting the subsidy.

  20. Tom Bosworth says:

    David Ciepluch: “Native Americans provided a subsidy to start up the rail lines.”

    It does seem like a bad deal, doesn’t it?

    I’m not sure that ‘subsidy’ is really the correct term, though. “Armed robbery” seems more like it. It is more complex than that as we had the intersection of very different cultures with very different concepts of land ownership rights. That was bound to produce conflict. You do have a reasonable point though.

    I have read that a lot of the plantations in the Confederacy went belly up after the war, because once they had to pay their labor, even puny wages, they couldn’t turn a profit.

    That suggests to me that at least some of those plantations never did make a profit by growing rice and cotton. They made their money by robbing slaves of their labor.

  21. Bruce Thompson says:

    Tom,
    I think you can make an intellectually reputable argument that for eliminating all subsidies for transportation. They distort economic decisions, disfavoring local production of goods and encouraging sprawl. But that is very unlikely to happen.

    But it is very hard to argue that if you are going to subsidize motor vehicle transportation, that other forms of transportation should have to go it alone. Generally, good economic policy would say that there needs to be a compelling reason to favor one competitor over another.

  22. Tom Bosworth says:

    Bruce, I agree that eliminating subsidies, aka kicking corporate welfare queens off the dole, is very difficult. However, I am still satisfied that multiplying the numbers of corporate welfare queens is not the solution to the original distortion.

    The more corporate welfare queens we create, the more difficult it becomes to eliminate subsidies because there are ever more people profiting from using government to take from taxpayers and consumers that which they would not voluntarily give in a market economy.

    The Republican Party has long been every bit as much the party of corporate welfare queens as the Democrats. Just as we have passed the day of 1930s corporate fascism, it is time to get rid of today’s version, ideally without a world war.

    Empowering yet more welfare queens is not the solution: It is the problem itself.

    It may be that our current government disfunction will indeed provide the means to end corporate welfare. Simple penury may stop the corporatism. Detroit, however, as well as several California cities, demonstrate that that is not necessarily so.

    Of course, we may also revisit the German experience of 1921-22 and it’s aftermath. Those who maintain that it can’t happen here because “THIS is America” are utterly deluded. It can happen here. It may happen here. It is hard to believe that we will pay off our federal, state, county, and municipal debts without simply printing money at an ever greater rate. Perhaps we will, but I can’t bet on it. I think we are in far more serious trouble than our politicians admit.

    Corporate welfare is not the whole problem, but it is a critical part, and it is standing in the way of the solution.

    Rome fell, and Europe entered a thousand year night. So one day will the United States fall. And that day may be coming soon, within out lifetimes or those of our children. We can reverse the trend, but we are far along the road to our own long night.

  23. David Ciepluch says:

    My understanding is only one President in the history of the USA had a true balanced budget, Andrew Jackson. As the world reaches tipping points in many areas including energy production and consumption, there may be many shocks to the country and world in the very near future. Humans require food, water, clothing, shelter, and love for their very survival. Economic collapse would remove some of these requirements. Take electricity out of equation for a few weeks of our lives and it will provide an idea of what life could be like.

    In many ways our Federal government appears incapable of solving the national problems. Most of us are left to figure out how best to have a quality life on the local level where we live, work, and play. Improving energy efficient transportation systems is one of them. Many are being priced out of car ownership altogether. Again in the near future, mass public transit may be the best option to move some goods and people.

  24. David Ciepluch says:

    Millions of slaves were brought to the colonies and USA from Africa. During 1792, when Thomas Jefferson found out that slavery was the #2 economic indicator of wealth in the new country, he never again mentioned slavery in his public life. He was the owner of 600 slaves, all related. So talk about a huge subsidy.

    Someone is always paying for someone else’s benefit. That could also include corporations that are lowering wages and benefits across the planet and avoiding all rules and environmental regulations in the process thereby leaving $billions in permanent damage for the next generations to live or die with their scorched earth practices.

    There is always some sort of subsidy involved to get the ball rolling and for the benefit of a majority and hopefully fairness and common good. That is how a civilized society evolved – sharing roles in various expertise for the benefit of the commons and a complex society.

  25. Tom Bosworth says:

    David: “Take electricity out of equation for a few weeks of our lives and it will provide an idea of what life could be like.”

    Life would cease to exist for most people in the US if we had a nationwide blackout which lasted a few weeks. Without electricity to extract, purify, and distribute potable water, most people would be dead a week or so after the back up generators ran out of fuel, especially if the blackout occurred during the summer.

    People who could walk, bike, or drive to a river, stream, or lake would have to camp there, no matter the time of year, and that water would become ever more polluted with their wastes.

    Cholera, dysentery, simple diarrhea, would all wipe out most who could still drink enough water to have otherwise survived.

    Just because people in the early 19th century survived without electricity does not mean that we could, even briefly. We are utterly dependent on electricity for water.

    A nationwide blackout would not be an inconvenience. After a few weeks there would be few left, most especially in Southern California, New Mexico, Arizona, Texas, Utah, and Florida. Surrounded by arid land, desert, or salt water, I suspect the die off would exceed 80% in the first month.

    Imagine even Milwaukee, bounded with Lake Michigan and multiple rivers: Most people could not walk to the water and home every day, so they would have to camp. In the winter they would freeze, or get soaked getting the water, and freeze. In the summer the pollution would quickly overwhelm them. Just think of the algae in the lake in late summer. Drinking lake water would not be aesthetically sub-minimal. It would kill.

  26. David Ciepluch says:

    Electricity is an example of a cooperative socialized system of energy production and delivery that is regulated and the cost is shared among many classes of consumers. There are also many subsidies in this system such as fuel like coal. Without electricity, our current civilized society and many people cease to exist.

    As a complex society, we need cooperation and cost sharing in many other areas like transportation for survival. Subsidies have always been in the mix of a cooperating society. That may mean public and private contributions. There are always people and business that like to feast at the offerings of a modern society, and many of them will try to contribute as little or or get it for free. Others will offer more than their fair share since they realize it benefits them in the long run.

  27. Tom D says:

    This has gotten way off the topic of Talgo trains, but let me weigh in.

    I think we should change building codes to require that every home have a minimal photovoltaic solar power capability. For the typical suburban house, it would provide, at a minimum, enough power during daylight to operate the well, sump pump, and the electrical portions (like thermostats, valves, fans or water pumps) of the gas or oil heating and hot water systems. Ideally there would be some additional power available at mid-day to recharge cellphones or operate radios.

    High-rise apartment buildings would be required to have power (during daylight, at least) to operate their water pump, provide heat and hot water, maintain intercom connections to the front door, provide minimal lighting in window-less hallways and stairways. Ideally, one elevator would be operated at mid-day when the solar cells were at maximum output.

    Gasoline stations should have enough solar power to operate their pumps at mid-day. After Sandy hit last year, millions of people were unable to use their emergency generators because most gas stations had no power (and those that did had hundreds waiting in line for hours or even overnight when the underground tanks ran dry).

    One note about water supplies and electric power. It is quite possible that most of NY City’s water system (which also serves some suburbs) could function indefinitely without power. 95% of NYC’s water system operates by gravity. The main City water system uses 100% surface water–no wells–from a collection of man-made reservoirs formed by damming natural streams in undeveloped, higher-altitude, forested land up to 100 miles away. The City is near sea level and the resevoirs are higher, so no pumps are used for most of the supply.

    The water in the reservoirs is so pure that the water has never been filtered (although filtering facilities are now under construction to meet federal rules). Chlorination would fail without power, but people could boil drinking water to get around that problem. NYC would face many major problems without power, but water shortages wouldn’t be one of them.

  28. David Ciepluch says:

    Planning and implementation of transportation systems and the public and private support of them are directly related to the many related issues like water, energy, waste, education, government, and all the supply and maintenance support that comes with it. All are needed for a complex society. Talgo, set up shop as a private business that would have been in place for the expected growing manufacture and maintenance of mass transit systems.

    An early bible story talks about the dreams of Joseph of the upcoming famine and the need to build storage warehouses. He went to Pharaoh and explained the dream and the vision and plan were implemented. A government supported warehouse to feed the people – how novel an idea was that one.

    How do we plan and implement and how do we pay for it in a fair and just manner to benefit the most of us and society. There will always be selfish ignorant people among us that only care about themselves and little else. They will gleefully eat the last two chickens without regard for how they will breed more to feed the village.

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