California’s Costly High-Speed Rail Hoax: Using Borrowed Money to Build a Flawed Train

by Chuck DeVore

California has the worst bond rating in the nation, hovering just above junk bond status.  A lower bond rating means higher interest rates when selling bonds – and California already spends $10 billion per year in bond principal and interest repayments.

In this, as in many other things, California leads the nation, for better or for worse (repaying the money borrowed for President Obama’s Stimulus will cost every American $280 a month for life).

Some people place a portion of California’s debt problem at the feet of voters who approve nearly every bond initiative, from $3 billion for an embryonic stem cell research bond to $10 billion in debt to build a high-speed rail system.

It’s hard to blame citizens of the Golden State for voting for debt when the most famous Californian, Governor Arnold Schwarzenegger, proclaims bonds “a gift from the future.”  It’s also hard to blame voters for approving bonds when the bond ballot descriptions and arguments are chock full of shaky claims.

Take November 2008’s much promoted High-Speed Rail Initiative, Proposition 1A.  Voters approved it by 52-48 after proponents, such as train manufacturers and unions poured $2.5 million into the effort.  As with almost every bond measure, there was no funded opposition.  The measure’s proponents, big business and labor unions, claimed that the trains would offer time-saving travel “AT A CHEAPER COST!” than air travel or car.  And that, the train would, “give Californians a real alternative to skyrocketing gasoline prices and dependence on foreign oil while reducing greenhouse gases. Building high-speed rail is cheaper than expanding highways and airports to meet California’s population growth.”

Really?  Who checks these claims?

A widely read California columnist recently noted that the cost estimates for the fast train were rapidly unraveling only 18 months after the vote.  According to the signed ballot argument train fares were sold to voters as going for “about $50 a person” for a ride from Los Angeles to San Francisco.  Now the estimated cost for that same train ticket has soared to $105.  The doubled cost to riders has tanked train ridership estimates by one-third.

An additional report from the San Jose Mercury News revealed that the train’s crucial ridership numbers were based on an unpublished study rather than the disclosed peer reviewed documents.  A High Speed Rail Authority internal memo indicates the public employees deliberately withheld the final assumptions, presumably to ease passage of the controversial bond initiative.  (A trick learned from the Global Warming community, perhaps?)

Meanwhile, as the state teeters on insolvency, the repayment cost is still anticipated by the High-Speed Rail Authority to hit $647 million annually, an estimate that lacks even a basic level of credibility as California’s bond interest rates are expected to soar as they reach junk status.

I was pleased to author the arguments against Proposition 1A, along with Tom McClintock, then a Senator, now a Congressman, Senator George Runner, Jon Coupal, President of the Howard Jarvis Taxpayers Association, and others.  We wrote that repaying the bond would cost $20 billion; or about $2,000 for each California family of four over the life of the bond.  If California’s bonds go to junk status, the annual repayment cost would escalate to more than $960 million per year, taking an additional $1,000 bite out of the typical California family’s budget over 30 years.

Further, the bond repayment costs will be in addition to a heavy yearly subsidy from state taxpayers to keep the train from operating in the red.  This train subsidy will take scarce tax funds from road and highway construction, as well as such mundane things as buses for urban mass transit.

California is tapped out.  We can borrow no more.  The question is, will voters realize this and start to hold on tight to their wallets in future elections?

As for the rest of America, look to California and take careful notice: incurring mountains of debt without the ability to reliably repay it comes at a high cost.  Out of control debt encumbers future generations with crushing repayment obligations – essentially subjecting America’s youth to taxation without representation while consigning them to a life with a lower standard of living than their parents and grandparents.


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Posted Feb 8th 2010 at 8:42 am in Economics, Federal Spending, News, Obama, Politics, State Politics | 218 Comments