Taxes & Spending

California High-Speed Rail Still on Track to Nowhere

The nonpartisan Legislative Analyst’s Office (LAO) in California has released a devastating report on the California High-Speed Rail project.  The report highlights the follies of the project managers and the crippling fiscal impact the project will continue to have on state and federal-level coffers.

The California High-Speed Rail Act, which is now in its 15th year since being passed in 1996, established the California High-Speed Rail Authority (HSRA) and detailed a plan to establish high-speed rail in California by 2020.  The project has been bogged down by numerous delays and constant calls for additional funding.

The LAO report said, “In our view of the business plan in early 2010, we concluded that its funding assumptions are optimistic and that it’s unclear how the state will be able to secure the necessary funding to complete the project.”

The massive high-speed rail project poses an enormous challenge for a California budget that runs a deficit of nearly $15 billion.  The most recent high-speed rail cost estimate of $43 billion is not only too low, but the project itself has no steady line of revenue.

The LAO said that the business plan includes “unrealistic assumptions about the receipt of federal funds to build the project, no discussion of the challenges of the general fund debt-service costs, as well as a lack of identified sources for other funding.”  The annual debt service for the project alone could be “roughly $1 billion for the next two decades.”  The debt-service cost may now be unavoidable because statewide voters approved Proposition 1A in 2008.  The measure enacts the sale of $9 billion worth of bonds in 2008.

So a project with unrealistic cost estimates relies on an overtaxed California general fund and the overtaxed American people.  Worse still is the LAO projection for ridership, and the unlikely completion of the track.

Construction of the high-speed rail won’t begin until 2012, and when it does it will be placed in an area between Fresno and Bakersfield in California’s Central Valley.  Besides starting in the least economically viable section of the three sections of planned track, project managers are taking an enormous gamble in assuming that the entire project will be completed.

The LAO report contends that the odd placement for the new track was due to ill-advised policies of both state and federal agencies.

The HSRA chose to start the Bakersfield-Fresno section because they thought it would be the easiest section to maneuver around environmental laws and local opposition.  Unfortunately for the project, the LAO reports, “Significant local opposition has arisen, relating largely to concerns over how the alignment of tracks could affect agricultural operations.”

A federal bureaucracy handled the transfer of stimulus package funds to the high-speed rail project.  The Federal Rail Authority (FRA) mandated that the state obtain environmental clearance by 2011, which pushed the HSRA to start building in what it assumed would be the less environmentally restrictive Central Valley.  The FRA realized that the deadline was too swift and changed it to 2017, but the HSRA had already made the decision to build in Bakersfield-Fresno.

The dilemma for the entire rail project is that the gamble to build the easiest portion of the track has already met significant resistance, and the costs have already run dramatically higher than predicted.  The LAO stated, “The cost of the initial construction segment between Fresno and Bakersfield alone is now estimated to be $4.5 billion, which is 57% greater than was assumed in the original plan.

Those numbers extrapolated to measure the entire project would conservatively be $67 billion instead of $43 billion.  That is, if there are relatively few difficulties throughout the course of the project.

If it turns out that California cries uncle and stops the funding for high-speed rail after the Bakersfield-Fresno section is finished, it will have successfully completed—after nearly two decades of funding and planning—a 120-mile track in one of the least populated and most agricultural parts of the state.  On top of that, the completed high-speed rail would require massive subsidies just to survive.

The California high-speed rail has already taken nearly twice as long to complete as the Transcontinental Railroad, and it has yet to reap any benefits for the state of California or the nation.

California has a quickly degrading and poorly maintained system of roads, failing and overpriced public schools, consistently high taxes, and a hole in its budget a mile wide.  The California high-speed rail fiasco is a perfect illustration of why all these pernicious problems have come to pass.


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