California High-Speed Rail Gets $2.25 Billion from Feds, Only $30 Billion (or $70 Billion) to Go!

The White House has announced that California will receive $2.25 billion in federal funds for its planned high-speed train project. While this was the largest amount devoted to a single project, it was significantly less than the $4.6 billion the state had sought. In all, the federal government has promised $8 billion for high-speed rail projects across the nation—spread across 13 planned corridors in 31 states—to be paid from American Recovery and Reinvestment Act “stimulus” funds.

In addition, the Obama administration has pledged $1 billion in high-speed rail funds per year for the next 5 years. Yet, even if California got a similar share of these future funds, which would total approximately $1.4 billion over 5 years, this plus the $2.25 billion announced last week and the $10 billion authorized by state voters in November 2008 would represent but a drop in the bucket for a project estimated by advocates to cost $45 billion. A Reason analysis of the project projected a more realistic cost estimate of between $65 billion and $81 billion.

While high-speed rail advocates celebrated the infusion of federal funds, the recent announcement only illustrates the large gulf between how much money is “available” and how much will be required to actually complete these projects, or the gap between fantasy and reality. As a recent San Diego Union-Tribune editorial notes,

But if anything, a focus on how the project is supposed to be financed inevitably illustrates the enormity of its folly. In November 2008, with their approval of Proposition 1A, California voters authorized what was billed as a down payment of $9.95 billion toward construction of a high-speed rail system. So the federal funds mean the state has now secured $12.29 billion of the $40 billion it needs.

Where is the remaining $27.71 billion supposed to come from?

High-Speed Rail Authority officials expect about half of the project to be paid for by the federal government, meaning they’re counting on nearly $18 billion more. They admit they have no grounds for this expectation. President Barack Obama’s announcement this week of a freeze on discretionary domestic spending to curb the vast federal deficit makes this assumption even more ludicrous.

The remaining funding — about $10 billion — is supposed to come from private investors. But this is even more unlikely than Washington supplying an additional $18 billion.

Again, this is assuming that the project actually ends up costing only $40 billion, which, if the High-Speed Rail Authority’s other assumptions are any indication, is extremely unlikely. In the much more likely event that the project ends up costing twice that much, the state and federal governments would have to come up with an additional $70 billion.

How the remainder of the money is to materialize is anyone’s guess, although it is a safe bet that enormous taxpayer subsidies—from both the state and federal governments—will be required to fund the high-speed rail projects.

Related Materials:

The California High-Speed Rail Proposal: A Due Diligence Report

California Legislative Analyst’s Office analysis of the latest high-speed rail “business plan” (January 2010)

“State voters were railroaded” (op-ed in the San Diego Union-Tribune)

” See also the recent blog posts on the topic by my Reason colleagues Bob Poole (“Florida’s High-Speed Rail Route Is Going to Be Very Costly for Taxpayers”) and Shirley Ybarra (“‘Single Best Investment’ (High Speed Rail) … I Doubt It”).

Adam Summers is a senior policy analyst at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He has written extensively on privatization, government reform, law and economics, and various other political and economic topics.