High-Speed Rail Authority’s Rebuttal to Trump Administration is Well Argued but Makes Questionable Claims

On June 12, the California High-Speed Rail Authority (CHRSA) released a 14-page letter rebutting the Federal Railroad Administration’s (FRA’s) case for rescinding $4 billion in grant funding. The Authority plans to provide a more detailed response in July, but the initial letter contains a lot to chew on.

Some of CHSRA’s claims are not unreasonable. For example, CHSRA pushes back against FRA’s claim that it “has made minimal progress to advance construction,” citing the many structures it has built or is completing. It is true that social media critics have exaggerated CHRSA’s lack of progress with some claiming incorrectly that it spent $11 billion to build just one 1600-foot bridge. In fact, CHRSA’s contractors have completed most of the preparations for laying track along the first 119 miles of right-of-way.

Does CHRSA Have Enough Money?

CHRSA is on weaker ground, however, when it contradicts this FRA claim:

FRA finds CHSRA is not likely to achieve its commitment to deliver the EOS [Early Operating Segment connecting Merced and Bakersfield] by 2033. … CHSRA commits to complete construction of the electrified, dedicated high-speed infrastructure for the EOS and initiate electrified high-speed passenger service on the EOS by December 31, 2033. To complete the EOS, CHSRA would need to secure approximately $7 billion in additional funding, as noted by the CHSRA IG [Inspector General]. CHSRA currently has no credible plan, beyond seeking additional Federal funds, to address this funding gap.

In response, CHRSA points to Governor Newsom’s proposal to extend California’s cap-and-trade program from 2030 to 2045, allocating $1 billion annually to the high-speed rail project. But this implies that only $3.5 billion of cap-and-trade revenue would be available to CHRSA between July 1, 2030 and the December 31, 2033 deadline—covering only half the shortfall. Cap-and-trade revenue through June 30, 2030 is already included in CHRSA’s projections.

CHRSA also asserts that it is seeking private sector funding by “commercializing assets such as trainsets, station facilities, track access, fiber, and real estate.” But private sector funding has been a goal of California high-speed rail since voters approved it in 2008. If private investment could not be found previously, it is hard to understand why a company would invest now given the project’s consistent failure to meet expectations.

Finally, CHRSA cites plans to reduce costs that will be revealed in its forthcoming  Supplemental Project Update Report. It remains to be seen whether these savings will be enough to offset a new cost overrun of $3.2 billion recently reported by KCRA.

Ridership Controversy

FRA makes serious allegations about CHRSA’s ridership claims, which have a long history of being aggressive. In 2008, Reason Foundation sharply critiqued CHRSA claims of intercity California rail ridership reaching levels of 65.5 million to 96.5 million in 2030, after the high-speed rail project was supposed to be completed. As Reason noted:

It appears that the CHSRA 2030 ridership projections are absurdly high—so much so that they could well rank among the most unrealistic projections produced for a major transport project anywhere in the world. Under a passenger-mile per route-mile standard, the CHSRA is projecting higher passenger use of the California system than is found on the Japanese and French HSR networks despite the fact that these countries have conditions that are far more favorable to the use of HSR.

But, to the extent that the debate is over whether to reject grants requested in 2023, we have to look at the Authority’s more recent forecasts.

In their grant application (which I obtained through a public records request), CHRSA projected 31.3 million riders in 2040, which is consistent with the number quoted in their 2023 Project Update Report. Last year, CHRSA further reduced their forecast to 28.4 million annual riders.

Unfortunately, the benefit-cost analysis CHRSA submitted to the FRA was based on a higher ridership forecast of 33.75 million. As a result, the benefits CHRSA claimed for the project were inflated, even if one believes their current, still optimistic estimates.

As both FRA and CHRSA agree, the recent ridership estimate is more than double the actual ridership now experienced in the Northeast Corridor. CHRSA justifies that by pointing out that their 220-mph trains will outpace the slower Acela and other Northeast Corridor trains. But this factor is easily offset by the fact that many more people live near Northeast Corridor stations compared to future California high-speed rail stations, there is generally better connecting transit service in the Northeast, and people living between Boston and Washington are already in the habit of using intercity rail.

Questionable Benefit-Cost Analysis

Aside from using an excessive ridership estimate, CHRSA’s benefit cost analysis (BCA) includes other dubious assumptions that cast doubt on its conclusion that the project’s benefits greatly exceed its costs.

For example, CHRSA estimates that it will increase real estate values by $11.8 billion near the stations served by the Phase I project. But they included assumed real estate appreciation near San Francisco’s Salesforce Transit Center which is not part of this project. The link between San Francisco Caltrain Station and Salesforce is part of a separate $8.25 billion project under consideration at the Federal Transit Administration.

The BCA also claims that high-speed rail will reduce greenhouse gas emissions by 1.29 million tons in 2040, but CHRSA subsequently reduced this figure to 0.61 million tons in its latest business plan. I suspect that the BCA estimate did not take into account the expectation that most California automobile journeys will be in electric vehicles by 2040, and EVs do not produce tailpipe emissions.

What’s Next?

When CHRSA responds more fully next month, it should be able to poke more holes in the FRA’s analysis, but I doubt whether it will persuade the Trump Administration to change its decision. Ultimately, CHRSA will probably have to go to court if it hopes to reverse the grant cancellation. The legal process will undoubtedly take multiple years, and, given the current composition of the Supreme Court, the final outcome is unlikely to go the way CHRSA would hope.

It is unfortunate that in today’s heated political environment that California’s leaders have difficulty viewing high-speed rail in a dispassionate light. Ideally, they would hire an independent expert to rerun the BCA with unbiased assumptions. If, as I would expect, the costs of continuing the bullet train project outweigh the benefits, they should wind down the project. Perhaps CHRSA could finish the initial 119-mile segment, connect it to the existing Amtrak San Joaquin service and call it a day.

Marc Joffe is President of the Contra Costa Taxpayers Association and a visiting fellow at California Policy Center.