Ever since the 2008 high-speed rail ballot initiative passed, the California High Speed Rail Authority has claimed that there is private sector interest in building the state’s high-speed rail line. Eighteen years have passed since the ballot initiative, and not a single dollar of private investment has been made. Yet, California High Speed Rail Authority CEO Ian Choudri recently told the Fresno Bee, “We are bringing the private sector in, and they are investing.”
To bolster their claim of new private interest, rail proponents often cite Japan’s Shinkansen bullet train system. While that system is privately operated, it was funded by the Japanese government. More recently, rail supporters have touted private interest in US rail projects, including the Brightline Miami-to-Orlando line in Florida, Brightline West from Las Vegas to Rancho Cucamonga, and Texas Central from Dallas to Houston. But the private Texas Central project is in hibernation due to skyrocketing costs before construction ever started. Brightline West is relying on $3 billion in taxpayer funding, and Brightline Florida is facing bankruptcy due to billions in ballooning debt and ridership far below expectations.
As Brightline West is experiencing, one of the challenges of building infrastructure in California is the high cost. It costs two to three times as much to build a mile of rail in Pasadena as in Paris, France. The California Environmental Quality Act (CEQA) and other laws drive up legal and consultant costs and cause delays. It’s expensive to buy land and right-of-way in the state’s major cities, and high union and labor costs also raise costs.
As a result, the California rail project seeking private funding would have to generate higher ridership than in Paris or Tokyo for investors to recoup their investment. The private sector won’t invest in anything unprofitable, and almost every rail line in the world requires subsidies. There are two lines—Tokyo to Kyoto in Japan and Paris to Lyon in France, where the trains’ ticket prices and value capture (development around the stations) cover 100% of the capital and operating costs. But that is two out of almost 100 lines worldwide.
The reason those two lines are profitable is that they were built before Japan and France had mature aviation and rail systems. Both countries were still emerging from World War II. They had very different development patterns from those of the U.S. Today, 90% of travelers between Paris and Lyon and almost 80% between Tokyo and Kyoto choose rail. Convincing enough Californians not to drive or fly to reach even a third of those travel-share percentages is something we’re extremely unlikely to see.
So real private investment in the state’s high-speed rail plan would have to take the form of a public-private partnership, in which the government and private company share the funding and the risks. Right now, the rail authority’s work with Momentum Alliance Partners is a standard engineering contract paid for by taxpayers. Another of the private companies that Choudri says is interested, Systra, has been doing design work for the authority for years, again paid for by taxpayers.
“The next 30 months will be about identifying investment plans and looking at which areas we can commercialize the assets sooner,” Choudri told the Fresno Bee.
That timeline highlights the rail project’s dysfunctional bureaucracy. Nearly two decades after it began, the state needs another two and a half years of meetings and planning to figure out how to utilize the private sector. And what Choudri describes is not private investment, in which companies put their own money at risk. It is taxpayer-funded contracting that guarantees the companies payment for their work.
If the state insists on continuing the rail boondoggle, which it shouldn’t, private companies may help speed up some construction. But the rail authority must ensure that the contracts hold companies fully responsible for cost overruns and delays. Otherwise, this so-called private investment being touted by the rail authority could simply be companies seeing a chance to get a share of the project’s ongoing waste of tens of billions of taxpayer dollars.
Baruch Feigenbaum is managing director of transportation policy at Reason Foundation.