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High Speed Rail – Unsustainable California: The Top 10 Issues Facing the Golden State

Thomas Hawk / Flickr

In Brief

The California High-Speed Rail project faces substantial financial, legal, operational, and even political challenges that show a serious lack of foresight and responsible governance.

Introduction

In response to declining infrastructure and a fragmented rail transit system, California has undertaken the construction of a High Speed Rail (HSR) system. For two decades, the estimated $67.6 billion project has been in its planning and development phase, but the state has made little progress.

The current plan intends to use multiple construction phases to build the rail system and connect the San Francisco Bay Area with the Los Angeles Metropolitan Area. The rail’s stated purpose is to link the two regions, boost the state economy, and promote population growth. Officially, the estimated travel time between the locations will be 2 hours and 40 minutes.

As part of the national High Speed Rail Development Act of 1994, the Intercity High Speed Rail Commission (later the California High Speed Rail Authority, also known as CHRSA) established initial plans for a high speed rail corridor in California. The newly-established CHRSA was tasked with planning, developing, and constructing the rail.

Table 7a: California High-Speed Rail Quick Facts

Category

Variable

Measure

Travel Time

CHSRA Travel Time

2.6 Hours

Third Party Estimate

3.5 – 4.5+ Hours

Cost

Advertised Price to Voters

$40 billion

CHRSA 2011 Cost

$98 – $115 billion

CHRSA 2014 Draft

$67.6 billion

Ridership Estimates

CHRSA (2012)

24.1 – 41.1 million riders

CHRSA (2014)

19.6 – 31.8 million riders

Third Party Estimate

5-7 million riders

Despite the CHRSA’s positive assessments of its own project management, many experts’ analysis and third-party groups find that the project’s financial, operational, and technical estimates are unrealistic. For instance, independent studies have shown that the rail, which cannot legally operate on a government subsidy may never generate enough revenue to recoup its costs. Even the earliest iteration of the CHRSA’s Business Plan faced criticism. Its optimistic estimates of travel cost were still found to be nearly 50% less cost efficient than driving or flying. Further, the original $25 billion from the 2000 Business Plan has now ballooned to $67.6 billion.

Figure 7b: High-Speed Rail Construction Plan Figure 7b: High-Speed Rail Construction Plan

Unsecured Funding

Funding for the plan still isn’t secured. The federal government has set aside approximately $3 billion through the 2009 federal stimulus. At the state level, voters approved $9 billion in state-issued bonds to fund the project through Proposition 1A (2008). Additionally, Governor Jerry Brown has proposed using $250 million from “cap-and-trade” auctions’ proceeds for the project. The sum of these funds is wholly inadequate for any real progress toward the rail’s official $67.6 billion estimated cost, even excluding potential cost overruns (Figure 7c).

Figure 7c. Funding Sources (CHRSA Forecast vs. Currently Available Figure 7c. Funding Sources (CHRSA Forecast vs. Currently Available)

Two-thirds of the first phase ($32 billion cost), planned between Merced and the San Fernando Valley, remains unfunded. California’s volatile fiscal history, waning public support, legal challenges, and budget uncertainties threaten the project’s future.

In addition to its financial hurdles, the CHSRA has faced legal challenges since the 1990s. Recently, a Sacramento County Superior Court Judge ruled that the state failed to comply with voter-approved restrictions that the state needs to identify sources of funding ahead of construction. Currently, the state has identified only $12 billion of the $31 billion required for the first phase. The legality of the Governor’s proposal to use $250 million in cap-and-trade funds toward the train’s cost has also been called into question.

The initial portion of the first segment is expected to connect Madera to Fresno, and its construction will produce an estimated 1,000+ jobs and will take place over four years. This initial segment’s estimated cost is $1-1.5 billion and Tutor Perini, Inc. won the contract with a $985 million bid. The firm made the lowest bid, and many criticized the contractor selection process because they believed it weighted bid price more and engineering quality less than it should have. Furthermore, a bid is not always a clear reflection of a project’s final cost: Tutor Perini has a history of cost overruns, such as its BART extension construction, Oakland Coliseum retrofit, and a Los Angeles subway construction project.

An Uncertain Plan for an Already Uncertain Future

In other instances of high speed rail construction, dependence on other forms of transport dropped significantly due to induced competition (Figure 7d). Should California High Speed Rail be as successful as the Business Plan’s claims, riders would be forgoing other forms of transport and the state may lose business activity throughout the rest of the transit sector. The Business Plan estimates the value of “disbenefits and mitigations” at between $145 and $239 million during the construction period. The San Jose Mercury News reviewed the High Speed Rail’s Business Plan and determined that it exaggerated its 1 million job creation estimate and that 20,000 – 60,000 jobs would be more realistic.

Figure 7d: Popularity by Transport Method Figure 7d: Popularity by Transport Method

When they voted to pass Prop 1A in 2008, California citizens voted to fund an approximately $40 billion project. As we noted in our 2012 analysis of the project, that cost estimate doubled within just a few years of the vote before reaching its current $67.6 billion. They voted to introduce a self-sustaining system that could operate efficiently and at high speeds. However, the most recent plans propose blended rail systems that combine both high- and low- speed rail, which would not deliver the anticipated “High Speed Rail” classification throughout the entire system. The 2 hour 40 minute ride may increase to more than 3 to 4 hours according to a recent Reason Foundation study. Likely as a result of many of the changes to their original expectations, nearly two-thirds of voters want the State Legislature to re-vote on High Speed Rail.

Conclusion

Reduced public support, legal setbacks regarding compliance with Proposition 1A, concerns about eligibility for federal and state funds, and insufficient private sector investment all throw the project’s future existence into jeopardy. Unfortunately, the California High Speed Rail project runs the risk of becoming a boondoggle. Its inability to secure funding, high potential for cost overruns, and limited capacity to operate as a self-sustaining system all illustrate that the project’s implementation over two decades has been both haphazard and ineffective.

Works Cited [+ Expand]

California High Speed Rail Authority. “Connecting California: Draft 2014 Business Plan.” February 7, 2014. http://www.hsr.ca.gov/docs/about/business_plans/FINAL_Draft_2014_Business_Plan.pdf.
Vranich, Joseph and Wendell Cox. “California High Speed Rail: An Updated Due Diligence Report.” Reason Foundation.April 2013. http://reason.org/files/california_high_speed_rail_report.pdf.
California High-Speed Rail Authority. 2000 and 2014 Business Plan. http://www.hsr.ca.gov/About/Business_Plans/
Sheehan, Tim. “New California high-speed rail business plan gets first public airing.” The Fresno Bee. February 11, 2014. http://www.fresnobee.com/2014/02/11/3763866/new-california-high-speed-rail.html.
Vartabedian, Ralph and Chris Megerian. “Gov. Brown wants to tap cap-and-trade funds for Bullet Train.”Los Angeles Times. January 7, 2014. http://articles.latimes.com/2014/jan/07/local/la-me-bullet-new-money-20140108.
Tutor Perini Corporation. “Press Release: Tutor Perini Joint Venture Selected for $985 Million California High-Speed Rail Design-Build Contract.“ Business Wire. April 17, 2013. http://www.businesswire.com/news/home/20130417005345/en/Tutor-Perini-Joint-Venture-Selected-985-Million.
Rosenberg, Mike. “California high speed rail’s choice: Price or quality in building first leg?” San Jose Mercury News. June 6, 2013. http://www.mercurynews.com/ci_23398404/california-high-speed-rails-choice-price-or-quality.
American Public Transportation Association. “An Inventory of the Criticisms of High Speed Rail: With Suggested Responses and Counterpoints.” January 2012. http://www.apta.com/resources/reportsandpublications/Documents/HSR-Defense.pdf.
Rosenberg, Mike. California high-speed rail jobs estimate too good to be true. San Jose Mercury News. http://www.mercurynews.com/ci_19596026.
Knight, Christopher. “California’s High-Speed Rail Realities: Briefly Assessing the Project’s Construction Cost, Debt Prospects, and Funding.” California Common Sense. July 5, 2012. Pages 1-2. http://cacs.org/research/californias-high-speed-rail-realities-briefly-assessing-the-projects-construction-cost-debt-prospects-and-funding/
Poll: Two-thirds of California voters support high-speed rail revote. San Jose Mercury News.David Siders. http://www.mercurynews.com/california-high-speed-rail/ci_19481327

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