Boondoggle Alert: CA’s Politicians Pretend Private Investors Want In On High-Speed Rail

high speed rail trainIn November 2008, California voters narrowly approved Proposition 1A, which provided $9.95 billion in government money for a statewide bullet-train network. The initiative passed, even though the California High-Speed Rail Authority had been legally required to release a detailed, updated business plan by October 1 of that year, so that voters would have time to learn exactly how the state planned to finance what was then billed as a $43 billion project—and no updated plan was in view. Rail officials failed even to release a preliminary report before the election, claiming that state legislators’ long delay in passing the fiscal 2008–09 budget made doing so impossible.

Within days of Prop. 1A’s passage, however, the High-Speed Rail Authority at last released the plan. Just as critics had predicted, the document insisted that private investment would be easy to come by. All investors needed, the plan said, was “financial and political commitments from state officials that government would share the risks to their participation.” In other words, if California promised that taxpayers would guarantee ridership and revenue, then investors would come flocking. The problem? Prop. 1A explicitly banned taxpayer subsidies for the bullet-train project. Had the business plan been released before the election, it would have undercut the “no-downside” narrative offered by the project’s political champions, including Governor Arnold Schwarzenegger and Senator Dianne Feinstein.

Since then, rail-authority leaders have continued to pretend that massive private investment is just around the corner. Initially, these claims were buttressed by vague generalizations. In recent years, however, the authority has tried to suggest that contractors interested in working on the now-$68 billion project might also be willing to help finance it. Most reporters on the state government beat have swallowed these claims uncritically. A July 2014 San Jose Mercury-News story noted that “a deal that will send the project hundreds of millions of dollars a year in fees collected from polluters is the signal the private sector was waiting for.” But here’s what the coverage usually leaves out: the private-sector companies sniffing around the bullet-train project never invest without government promises to step in if things don’t go according to plan.

Only Ralph Vartabedian of the Los Angeles Times appears to understand that the project probably won’t get the funding it needs without taxpayer subsidies. “Major construction, equipment and engineering firms around the world, responding to a solicitation to form a partnership with the California high-speed rail project, have raised serious concerns about the state’s shortage of funding, the potential need for long-term operating subsidies and whether the project can meet the current construction schedule,” he reported last month. “The appeal for financial and technical partners drew responses from across Europe, Asia and the U.S. But none of the companies expressed a readiness to invest their own money, and some included reservations about the risks.”

Vartabedian’s analysis, and his paper’s in-depth look at the bullet-train project detailing how state rail-authority officials buried a report predicting a $9 billion cost overrun on the initial 300-mile segment, have shaken up California public-policy circles. The Times coverage seems certain to trigger legislative hearings. State Senate president Kevin de León, a Los Angeles Democrat, has already expressed his skepticism about the project, as has Lieutenant Governor Gavin Newsom, who wants to be governor. What was shaping up as one of the world’s biggest government boondoggles might yet be averted at a cost of only a few billion—which sounds like a bargain, compared with digging the financial hole still deeper.


  1. Give me a break. The questions submitted by the authority to interested parties in the project DID NOT ASK FOR INVESTMENT with the submission of such letters.

    The financing questions specifically asked were:

    11.7 Funding and Financing Questions

    7. Given the delivery approach and available funding sources, do you foresee any issues with
    raising the necessary financing to fund the IOS-South project scope? IOS-North project
    scope? Both? What are the limiting factors to the amount of financing that could be raised?

    8. What changes, if any, would you recommend be made to the existing funding sources?
    What impact would these changes have on raising financing?

    9. Given the delivery approach and available funding sources, is an availability payment
    mechanism appropriate? Could financing be raised based on future revenue and ridership
    (i.e., a revenue concession)? Would a revenue concession delivery strategy better achieve
    the Authority’s objectives?

    No questions asking for financing that day.

    And by the way, Michael Cahill, president of Siemens Industry Inc.’s mobility division, said his company didn’t propose private financing because the state’s request wasn’t specifically set up for a financial proposal. But, he said, Siemens could be interested in making a financing pitch at some point.

    “We didn’t propose anything concrete in terms of private money going in, because there wasn’t an opportunity to do that,” he said. “Which doesn’t mean we wouldn’t be interested. Quite the opposite.”

  2. I still don’t want that damn RR -as it creates more EXPENSIVE PROBLEMS! It has created more and more problems that Brown does not want to address.Time to stop it now !

  3. Gotta Gedada Displace says

    Don’t sell our public serpents in Sacto short ! They have never abandoned their goal of snatching bankruptcy from the jaws of solvency!

  4. Lets SEE the money. Not ours but private investors!
    I suggest that voters will wake up soon and get rid of liberal radical spendthrifts in our government. Calif. is in such trouble that it doesn’t need more inflicted on its citizens. We always see the money too, slide downhill from our north and eastern communities to the bottom heavy south. When do these politicians allow us a break?
    Good cartoon BTW on this story.

  5. Diane, I just don’t think the voters are smart enough to get rid of the liberal spenders. After all they kept electing Boxer, Feinstein, Pelosi and Brown. And the next bunch coming up is Newsome and Harris.
    I’ll bet that 99% of them don’t know what “Sharia Law” is or know in what city the Declaration of Independence was signed. The best solution would be to form two California’s, one with the liberal Coast and the other with the rest of the State,

  6. This high speed rail project is turning out to be very much not as represented, especially the cost. It should be completely dropped.

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