Friday, September 16, 2011

By 2055, HSR in California will cost taxpayers $240 billion

In the prior blog entry, I stated that the total cost for the total high-speed rail system in California, if fully built out as currently projected, would cost $240 billion by 2055.

Here is the empirical evidence and case for that amount.  It's from the Grindley-Warren Notes.  This is from Note #17.

See:  The web-site provides an Analysis Chart as well.  


From the authors of The Financial Risks Of California’s Proposed High-Speed Rail Project, six subsequent Briefing Papers, and The Financial Analysis of Proposed CHSR Project. Available at:

Finding: Repaying construction costs for the ‘entire system’ over the full thirty years of debt amortization burdens the State and taxpayers with three times previous estimates.
Background: The 2009 CHSRA Business Plan, which covered only the first sixteen years of operations (2020-2035), focused on the construction and operation of Phase One, but not the repaying construction costs. 

Note #16 compared those years’ financial results using the 2009 Plan’s assumptions, as well as a 2011 estimate of increased Phase One construction costs using only the present, in-hand Federal grants.1

But Prop 1A and AB3034 authorized the CHSRA to plan to build and operate the ‘entire’ system connecting seven cities.2 This Note provides a preliminary view of the financial ramifications of building the ‘entire system’. 

Importantly, it also reflects the complete, thirty-year repayment period, financial impacts.

Results For Phase One – Based on 2011’s estimate of $66Billion construction cost and only in-hand Federal Grants, this column provides the same annual financial information as in Note #17. Here the cumulative negative cash flow grows from $65Billion in the 100% Case to $137Billion in the No Operating Margin Case as Operating Margins drop from about $2.4Billion to zero per year.

Results For The ‘Entire System’ – Early 2011 estimates of the cost to build the ‘entire system’ were $116Billion; about 75% more than just the Phase One cost and nearly three times the 2008 CHSRA estimate. Even assuming an additional $3Billion of Federal grants still requires borrowing about $110Billion, increasing the annual debt service cost by about $8Billion.

Assuming that operations for the ‘entire system’ start in 2025, five years after Phase One, and revenues, costs and operating margins increase by the same 75%; the operator’s $2.4Billion Average Annual Operating Margin in the 2009 Plan will grow to $4.2Billion.8 Even results from the 100% Case show that the Operating Margin will not cover the entire debt-servicing requirement, leading to a thirty- five year cumulative negative cash flow of $114Billion. In the No Operating Margin Case, the cumulative negative cash flow grows to $240B. These obligations remain after counting any Operating Margin. Some source, namely California’s corporate and individual taxpayers, must service that obligation.

Conclusions: Using the complete thirty-five year payback period, the cumulative negative cash flows for Phase One double to about $137Billion in the No Operating Margin Case.9 Completion of the ‘entire system’ leads to cumulative negative cash flows of $114Billion – $240Billion. Proceeding to build Phase One is highly questionable; but planning to build the ‘entire system’ exhibits extremely risky behavior.


1Phase One (San Francisco-Los Angeles/Anaheim) financial and debt analysis can be found in Note #17 at 

2 Prop1A ballot descriptions and AB3034 refer to the seven-city system (Los Angeles, Irvine, Riverside, San Diego, San Francisco, Oakland, and Sacramento) as the ‘entire system’ whose construction was estimated at about $45Billion. 

3 See: The Financial Analysis of the Proposed CHSR Project, June 2011, pgs. 8, 9, 14 at 

4 See: The Financial Analysis of the Proposed CHSR Project, June 2011, Exhibit 1: Appendix A & B, pages 39 and 54 to 58, at 

5 HSRAReportToTheLegislature;December2009;page93,“FundingSourcesSummary” 

6 An all debt, versus debt and equity, formula is used as debt is cheaper to the State than equity. Debt is assumed to be serviced at 6% over 30 years. 


8This assumption means that additional miles of track will create additional Revenues per mile and Operating Expenses per mile as in Phase One. 

9 In Note #17 the baseline is the CHSRA’s first sixteen years of repayment. See at:

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