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California High Speed Rail Business Plan Part I - Cost

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Review of the California High Speed Rail Business Plan of November 2011 Part I - Cost

In November 2011 the California High Speed Rail project provided to the public an updated business plan. The plan provided new estimates of the cost, which will be described here. For details about the route itself and other background information, please refer to my previous article on California High Speed Rail . For details about the ridership of the project, please see here . For details about the phasing of the plan, please see here . Stay tuned for further reviews of the plans phasing, ridership estimates, and other aspects.

Cost

The cost of the plan keeps increasing. First the plan was going to cost $33.6 billion in 2008, and this raised to $42.6 billion in 2010. Now, the cost of completing the plan is pegged at $98 billion. However, there are two things to keep in mind: first, the relative cost of this in comparison with the total amount of money Caltrans will spend is small and two, the cost is based on completing the whole system.

First, despite sounding expensive, the $98 billion, as described on the Transport Politic , represents only 21% of the total amount of money Caltrans, the state transportation department, will spend on transportation through 2033.

Second, the $98 billion is based on completing the whole system. Because the system will be built incrementally, significant value will be realized far below the whole system is completed. For example, completion of the Bay to Basin section, which will provide high speed rail service between San Jose, Merced, and the San Fernando Valley, will only cost $48 billion. Under the Bay to Basin scenario, residents in the Bay Area could easily access the high speed rail's San Jose terminus via Caltrain and BART, while residents in Southern California could access the San Fernando Valley via Metrolink and potentially future Metro light rail or BRT extensions.

Sources of Funding

The high speed rail project has enough funding from the federal government and the voter-approved bond initiative in November of 2008 to complete the initial 130 mile segment between Fresno and Bakersfield. Beyond that additional funding would be required, which would presumably come from one of three sources: state (and local), federal, or the private sector.

Possibility of More State and Local Funding

Given the current state of California's state and local government budgets, where essential services and employee compensation are being systematically reduced, it is unlikely that needed funds can come from these sources. While theoretically voters could tax themselves to raise funds for the high speed rail project, because state and local combined sales taxes, the only taxes that are likely to be able to be raised) already approach 10%, it is unlikely that any further tax increases will happen.

Possibility of More Federal Funding

The possibility of more federal funding depends on the makeup of Congress and the Oval Office in upcoming years. While President Obama and some Democratic members of Congress have expressed enthusiasm for high speed rail, many Republicans have derided it as a "boondoggle". In a world where Democrats control both Congress and the White House I believe that more federal funding will be available for California high speed rail, especially since the project, out of all the high speed rail corridors in the United States, is by far the farthest along. However, Republican obsession with cutting taxes and budget deficits at any cost indicate that if Republicans are in charge no further federal funding for this project will be forthcoming.

Possibility of Private Funds

The possibility of private sector funding, which the business plan heavily relies on to construct further segments of the system, is a wildcard at this point. Certainly, if business plan projections of operating profits are correct, then the private sector should be jumping at the chance to invest in this project. However, they are not going to do so until they see that high speed rail in this country can actually work as advertised.

What Happens If No Further Funding Is Forthcoming After the Initial Segment is Built?

Detractors of the project have brought up a concern that the initial segment could become a white elephant if further funding to extend the system does not appear. Of course, if one looks at the initial segment in a vacuum, they are correct: very few people want to travel between Fresno and Bakersfield. However, they overlook the fact that existing San Joaquin trains will be able to use the new tracks even if a statewide system fails to materialize. According to the business plan, the new tracks will save 45 minutes off a one way trip on the line, one of the three busiest Amtrak lines in the country, between San Jose and Bakersfield.

Cost of Alternatives to the California High Speed Rail Network

By 2033 California is expected to increase in population by an amount equal to the current population of the state of New York. The vast majority of these newcomers will surely settle in the two mega-regions of California: the San Francisco Bay area and Southern California. Without high speed rail these people will have to travel between these two areas by car/bus or airplane. The business plan estimates that $171 billion will have to be spent on expanding roads and airports through 2033 in the absence of a high speed rail network in order to provide enough mobility for the state. Of course, this amount of money assumes it is even possible to expand airports and roads in urban areas in the amount required - a dubious assumption given the outcry local residents made when LAX attempted to widen the distance between two of its runaways in response to safety concerns. In addition, the business plan assumes that the cost of air travel will be similar in 2033 as it is today - another dubious assumption given that the cost of oil is likely to skyrocket between now and then as demand continues to increase while the remaining supply decreases.

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