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Commentary: High-speed rail project is a train wreck

March 21, 2014|By Keith Curry

As a financial advisor to governments, your job is to tell sometimes hard truths about the financial implications of public plans. Governments ignore these financial consequences at the peril of taxpayers and long-term financial health.

Unfortunately, the California High-Speed Rail Authority's financial plan, as it is currently conceived, ignores some hard truths. It would be a slow-moving train wreck that would do economic damage to California for generations.

I should know. Fifteen years ago, I was the financial advisor to California High-Speed Rail.

In 1999, the system was estimated to cost $24 billion to $34 billion and take 10 years to construct from downtown San Francisco to downtown Los Angeles. In looking at the various means available to the state to finance the project, it quickly became apparent to us that system revenues were too speculative and too far off in the future to be the basis of a financial strategy.

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At that time, train fares were estimated to be 60% of airfares between L.A. and the Bay Area. It was a time when air costs were higher (pre-Southwest expansion), and the key assumption was a less-than-three-hour travel time from city center to city center. Now, flight costs are actually lower in real terms, the travel time significantly longer, and the proposed system does not come anywhere close to connecting the city centers.

In order to actually generate the construction funding required, we identified the fact that the system must seek its own dedicated funding source. Trying to use existing funding sources would simply take funds away from schools and other important state priorities. We specifically determined that trying to use state general obligation bonds would not be feasible and would exhaust the state's borrowing capacity and unfairly crowd out funding for water, highways and schools.

If the state wanted to build this project, we said, it needed to be honest with Californians and ask them to consider enacting a dedicated funding source. We advised the rail authority to give voters the ability to decide for themselves, with all the financial pros and cons on the table, whether this project was worthy.

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