The Troubled Future of the California High-Speed Rail Project

A congressional oversight hearing, focused on the concerns surrounding the troubled California high-speed rail project, cast new doubts on the likelihood of the project’s political survival.

The December 15 hearing was the second of two hearings called by the House Transportation and Infrastructure Committee to examine the Administration’s "missteps" in handling the high-speed rail program. Before a largely skeptical groups of committee members — Reps Mica (R-FL), Shuster (R-PA), Denham (R-CA), Miller (R-CA), Napolitano (D-CA), and Harris (R-MD)— two panels of witnesses offered a mixture of support and criticism concerning the project’s impact, financial feasibility and prospects for the future. The first panel comprised six California congressmen — three testifying against the project (Reps. Nunes (R), McCarthy (R) and Rohrabacher (R)), three in support of it (Reps. Cardoza (D), Costa (D) and Sanchez (D).) The second panel consisted of FRA Administrator Joseph Szabo, California Rail Authority CEO, Roelof Van Ark, local elected officials and representatives of citizen groups.

A Brief Project Overview

The proposed high-speed line, from Sacramento and San Francisco to Los Angeles and San Diego, was originally estimated to cost $43 billion in 2008 when the state’s voters approved a $9.95 billion bond measure (Proposition 1A) to help finance the project.  Since then, the total cost estimate for the project has more than doubled to $98.5 billion and the completion date has been pushed back by 13 years to 2033.

The "initial construction section" of 140 miles is proposed to be built in the sparsely populated Central Valley from south of Merced to north of Bakersfield. The $6 billion project is to be financed with a $3.3 billion federal contribution and $2.7 billion worth of state Proposition 1A bonds. Construction is to begin in 2012. However, to qualify as an "Initial Operating Segment" as required by the authorizing bond measure and capable of running high-speed trains, the line has to be extended by another 290 miles to San Jose (or 300 miles to the San Fernando Valley), at an additional cost of $24.7 billion.

To finance the latter construction, the California Rail Authority’s business plan calls for $4.9 billion in Proposition 1A bonds and assumes a $19.8 billion federal contribution – $7.4 billion in federal grants and $12.4 billion in the yet to be created Qualified Tax Credit Bonds (QTCB). The latter assumption came in for sharp committee criticism as wishful thinking. The bill authorizing QTCB (or TRIP) bonds, proposed by Sen. Wyden (D-OR), is not given much chance of passing in the House. Even if passed, it would only offer $1 billion for the California HSR project rather than $12.4 billion as claimed in the Authority’s business plan. Further federal high-speed rail grants are equally uncertain given the bipartisan congressional refusal to appropriate funds for high-speed rail two years in a row. In other words, the funding for the Initial Operating Segment hinges on highly questionable assumptions as to continuing federal aid.

Even more conjectural are the Authority’s funding assumptions for the subsequent phases of the project— a line extension from San Jose to the San Fernando Valley and a southern connection, to Los Angeles and Anaheim. That phase of construction according to the Authority’s business plan, would require a further federal contribution of $42.5 billion between 2021 and 2033 (plus $11 billion in private investment).

Left unstated in the Authority’s business plan, one informed observer speculated, is the secretly entertained hope that by 2015 (when the additional federal funding will be needed), the economic circumstances — and perhaps political circumstances as well — will have changed, allowing a resumption of generous federal support.

A "Boondoggle" or a "Compelling Opportunity for Our State"?

Witnesses testifying before the committee aligned along predictable fault lines. Critics of the rail project (mostly, but not all, Republicans) tended to focus on the specific weaknesses of the project: its unrealistic assumptions concerning future funding; the quixotic choice of location for the initial line section ("in a cow patch," as several lawmakers remarked); a lack of evidence of any private investor interest in the project; the eroding public support for the project (nearly two-thirds of Californians would now oppose the project if given the chance, according to a recent poll); the "devastating" impact of the proposed line on local communities and farmers; and the unrealistic and out-of-date ridership forecasts (with more passengers in 2030 predicted to board trains in Merced, a small farming community in Central Valley, than in New York’s Penn Station). Other witnesses asserted that the current project is vastly different from the one Californian voters approved in 2008; and that it is lacking proper management oversight (it is a project "of the consultants, by the consultants and for the consultants" one witness remarked).

Defenders of the project (mostly, but not all, Democrats) resorted largely to abstract arguments about the merits of building a high-speed rail system in California. They saw the project as a compelling long-term vision, as a travel alternative to congested highways and air lanes, as a way to reduce greenhouse gas emissions, and as a means of creating thousands of jobs. They argued about the difficulty and prohibitive costs of the alternative of building more highways and airports to accommodate future population growth.

Federal officials are fond of reminding us that construction of the interstate highway system also began "in a cow patch " — in that particular case, a wheat field in the middle of Kansas. But they ignore a fundamental difference between the two decisions: the interstate highway system was backed from the very start by a dedicated source of funds, thus ensuring that construction of the system would continue beyond the initial highway segment "in the middle of nowhere." 

The California project has no such financial assurance. Should money for the rest of the system never materialize— as is likely to happen— the state will be stuck with a rail segment unconnected to major urban areas and unable to generate sufficient ridership to operate without a significant state subsidy. The Central Valley rail line would literally become a "Train to Nowhere" — a white elephant and a monument to wasteful government spending.

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Even the $100B is off. They don't take into account the interest payments needed during construction, ie like a construction loan for a building. I calculate that the pre-opening interest cost would be about $40B.

HSR is a lesson for all of us in political prevarication and its how they fool us into agreeing to their pet projects. Very ugly.