California High Speed Rail: Service to Stockton Unlikely

The Project California voters will be asked to approve a nearly $10 billion bond issue in the November election as the beginning of funding for the a high-speed rail system intended to serve San Francisco, Los Angeles, San Diego, Sacramento, Fresno, Riverside-San Bernardino and points between. Promoters claim that the remaining necessary funding (from $45 billion to $71 billion, depending upon who you believe) would come from the federal government and private investors. There is no federal program to provide such massive funding and private investment seems highly unlikely given the overwhelming prospects for financial failure.

The Issue The CHSRA lacks a comprehensive financing plan. The proposed state bonds would be insufficient to build Phase I, much less the rest of the system. Little appears firm about potential matching funds from federal and local governments and from potential investors. The state Senate Transportation and Housing committee has issued cautionary statements about the availability of matching federal funds. Also, CHSRA advisor Lehman Brothers has outlined risks that can be a barrier to private investment, including cost overruns, failure to reach ridership and revenue projections and political meddling. Meanwhile, the cost of the project continues to grow.

In the final analysis, it will be most difficult for CHSRA to obtain sufficient financing to complete the Phase I San Francisco–Los Angeles–Anaheim route. This Due Diligence report concludes that commercial revenues from that route are unlikely to be sufficient to pay operating costs and debt service, much less finance Phase II and other extensions. As a result, it seems highly unlikely that the Inland Empire-San Diego, Sacramento, East Bay San Jose to Oakland and Altamont Pass routes will be built. Further, in the worst case, funding shortfalls could require greater use of modestly improved conventional rail infrastructure in Phase I, which could add hours to the promised travel times.

All of this could lead to negative financial consequences, such as substantial additional taxpayer subsidies, private investment losses, and commercial bond defaults.

Adapted from The California High Speed Rail Proposal: A Due Diligence Report By Wendell Cox & Joseph Vranich

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