The California High Speed Rail Proposal: A Due Diligence Report
The purpose of this Due Diligence Report is to examine the proposal to build a California highspeed rail system (HSR) between the San Francisco Bay Area and Sacramento to Los Angeles and San Diego via the San Joaquin Valley. The general plan is to build a system of from 700 to 800 miles with an initial state general obligation bond of $9 billion and a similar amount in grant funding from the federal government. The balance of what has now become at least a $54.3 billion system would be provided by private equity investors and commercial bond purchasers. As is noted below, the system has already encountered substantial capital cost increases and this Due Diligence report projects that the final cost of the system is likely to be between $65.2 billion and $81.4 billion (2008$).
The California High-Speed Rail Authority (CHSRA or Authority), which is responsible for the project, anticipates that operating profits will pay for operating expenses, profits to private investors, debt service to commercial bond holders and sufficient revenues to build segments beyond Phase I (downtown San Francisco to Los Angeles and Anaheim). This would include a line from Los Angeles through the Inland Empire to San Diego, a line connecting Sacramento to the system in the San Joaquin Valley, a line through Altamont Pass and an East Bay line from San Jose to Oakland. The CHSRA has expended $58 million in state funding during the last 10 years planning such a system of “bullet trains.”
It is possible that HSR can serve legitimate public and environmental purposes and be a financial success in California. However, the current CHSRA proposal cannot achieve such objectives. The principal message of this Due Diligence report is that CHSRA’s plans have little or no potential to be implemented in their current form and that the project is highly risky for state taxpayers and private investors.
The CHSRA plans as currently proposed are likely to have very little relationship to what would eventually be built due to questionable ridership projections and cost assumptions, overly optimistic projections of ridership diversion from other modes of transport, insufficient attention to potential speed restrictions and safety issues and discounting of potential community or political opposition. Further, the system’s environmental benefits have been grossly exaggerated, especially with respect to reduction of greenhouse gas emissions that have been associated with climate change.
The CHSRA documentation provides virtually no objective analysis about risks and uncertainties, nor has CHSRA documentation been scrutinized in an independent review. This report is such an effort—which is why it is a Due Diligence Report—one that examines the CHSRA’s documentation based on empirical data, historical trends and domestic and international experience.
This report specifically examines the following topics: HSR ridership and revenue, demographics, construction costs, operating costs, financing costs, airport and highway alternatives, train speeds, train designs, safety regulations and standards, greenhouse gas reductions, potential community opposition and historical experience in the United States. Regarding ridership and costs, this report evaluates projections from CHSRA and also develops independent projections.