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Reason Foundation

Funding for CA High Speed Rail is Not Even Close

Adrian Moore
August 3, 2010, 11:13am

"Investors shy from California rail plan" is the headline of a weekend story in the Fresno Bee. The article points out that:

California -- which is seeking to build the nation's first high-speed rail -- is still banking on the federal government covering roughly 40% of the tab. The state is on the hook for 20% -- all coming from $9 billion in bond borrowing that voters authorized in 2008. So far, $258.4 million of the bonds have been sold, according to the Treasurer's office.

And the other 40% is supposed to come from local governments and the private sector.  Local governments in CA are facing bankruptcy, so the idea they will cough up $5 billion for HSR is ridiculous.

And

To lure private money, the rail authority says in its business plan that it expects to provide a revenue guarantee to investors "in the event that system revenues are significantly lower than forecasted." However, the voter-approved bond measure bars the state from providing an operating subsidy -- and the business plan "does not explain how the guarantee could be structured so as to not violate the law," the nonpartisan Legislative Analyst's Office said in a January report.

hmm. How's that supposed to work? The private sector won't invest unless they are reasonably sure they will make a profit. The CA HSR will only make a profit under the rosiest of assumptions. So private investment won't happen unless the state says they will pay the private investor's profit if the revenue from the train is not enough. So taxpayers will be in the profit guarantee business. Lovely.

It just keeps smelling fishier and fishier.


Adrian Moore is Vice President, Policy


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