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Flash Report

High-Speed Rail Will Add to State's Budget Woes

Taking on $10 billion in debt to start $65-$80 billion train system is bad idea

Adrian Moore
September 19, 2008

With the state sitting on a massive $15 billion budget deficit, you’d think California would be looking for ways to cut spending. Instead, voters will decide on November ballot initiatives that could charge billions more on the state’s credit cards.

California's general obligation bond debt has nearly tripled in just the last six years, rising from $42 billion in fiscal year 2001-02 to $120 billion in fiscal 2007-08. The biggest ticket item on the November ballot is Proposition 1A, which would allow the state to authorize $9.95 billion in bonds to start a high-speed rail system.

Planners and politicians undoubtedly have romantic visions of sitting on a speeding train traveling at 200 miles per hour from Los Angeles to San Francisco. I get it. They dream it would be just like those European vacations, riding on those high-speed trains in France.

But reality bites. And California isn't like France, or Japan, or any other place where a bullet train exists or is likely to succeed.

One of the more interesting things about Prop. 1A is the amount of the bonds, just shy of $10 billion. The California High-Speed Rail Authority says it will cost $45 billion (in 2006 dollars) to build just the first two phases of the system. So where does the other $35 billion come from?

The high-spending Bush administration is going to leave the federal government facing record deficits. Gov. Arnold Schwarzenegger and the state legislature cannot agree on a budget. Local governments are trying to squeeze every penny out of every dollar they have, and they have nothing to spare. And if the private sector thought the rail plan would bring it a profit, they’d be building the high-speed train system themselves.

Another reason the private sector is unlikely to get involved is the ludicrous projections the Rail Authority is trying to sell taxpayers. They claim they are going to build a train that is faster, has more riders, is more efficient, and has lower fares than any high-speed rail system in the world, even those who have operated for years.

The Rail Authority says 65.5 million people, 88 million including commuters, will use the rail system in 2030 – and that’s their low estimate. Their more optimistic scenario suggests the system will have 96 to 117 million riders in 2030.

No other study has ever predicted anything close to that. A University of California at Berkeley report, done in the mid-1990s, predicted the state could expect 12.5 million high-speed rail riders by 2010. A 1997 report by the Federal Railroad Administration said that no high-speed rail route in the state was “commercially feasible” enough to “cover both its capital and operating costs.” That report estimated that 15.6 million Californians would use high-speed rail by 2020. Then a 2000 study by Charles River Associates predicted the rail system could garner 42 million riders a year, including commuters, by 2020.

A new Reason Foundation study, produced with the Howard Jarvis Taxpayers Association and Citizens Against Government Waste, examines all of the previous ridership estimates and finds the California high-speed rail system should expect 23 to 31 million riders by 2030, meaning the Rail Authority is likely overestimating ridership by more than 60 percent.

With the Rail Authority’s estimate so far off the mark, they’ll either have to dramatically raise the planned ticket prices – further reducing ridership – or seek taxpayer subsidies to cover the red ink. And there is going to be a lot of red ink. Research published in the Journal of the American Planning Association studied 258 public transportation projects built between 1927 and 1998 and found that rail projects had the highest cost overruns, costing taxpayers 45 percent more than projected.

If the Rail Authority is off by 45 percent, the state’s system will cost over $70 billion, not the $45-$50 billion being sold to taxpayers. The final price for the complete statewide high-speed rail system will actually be $65 to $81 billion, according to our new report. Throw in the operating costs, well over $1 billion a year, and you have a recipe for adding massive amounts to the state’s budget deficit.

With Gov. Schwarzenegger preparing to veto the state budget, maybe Californians should consider this a good time to make wise spending decisions. Let’s cut up those credit cards and pay-as-we-go. A high-speed train system might sound nice, but this isn’t the right plan and billions more of debt isn’t what the state needs right now.


Adrian Moore is Vice President, Policy


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