California turns to feds to cover fresh bullet train shortfall
7 min read
The Biden administration will need to cover a significant new funding gap if California’s controversial bullet train is to remain on track.
But it’s unclear whether federal support, if it materializes, would be sufficient to overcome the tough economic environment, political opposition on state and federal levels and constantly rising costs that dog the nation’s largest infrastructure project.
The California High-Speed Rail Authority, which oversees the project, this month released a project update, the most comprehensive report since December 2021. The news was grim, showing major cost increases coupled with a 25% dip in projected future ridership.
The authority blamed global inflation, increased project scope and “an enhanced contingency for risk” necessary to meet federal guidelines for the cost increase, and stagnant California population growth and post-pandemic work-from-home trends for reduced ridership projections.
The cost escalation makes it more important than ever that the feds step up by providing grants from the 2021 Infrastructure Investment and Jobs Act, authority officials said.
The first ask: $8 billion in federal funds over the next five years to fund the 171-mile starter segment connecting Merced to Bakersfield. The line would be built out in phases, based on the flow of federal funds.
The pursuit of federal funds is a “high, high, high priority for us,” said authority CEO Brian Kelly during a March 16 board meeting.
The IIJA “presents a remarkable opportunity for the authority, the first I’ve seen since the [American Recovery and Reinvestment Act] grants,” Kelly said. “We have a great opportunity to re-establish that important partnership with the federal government to move our work forward.”
With a price tag that’s climbed to $128 billion, the California bullet train is considered the most expensive infrastructure project in the country. The 500-mile line promises a ride time of less than three hours between San Francisco and Los Angeles along a route that extends through the cities of the Central Valley. It’s one of only a handful of high-speed train projects in the U.S., and the only one that’s publicly owned.
Since the start, it’s been hindered by change orders and time delays that have driven up costs. So far, the state has funded 85%, but the authority wants to dial that back to 65%, with the feds stepping in to cover the rest.
California voters in 2008 approved $9.95 billion in Proposition 1A bonds to kick off the project, which was then estimated to cost $33 billion and be finished by 2020.
The initial 171-mile segment, far from either Los Angeles or San Francisco, is now estimated to cost up to $33 billion, up from $23.4 billion last year. That leaves a funding gap of between $10 billion to $12 billion.
The full 500-mile system price tag may now total up to $127.9 billion, leaving a $100 billion funding gap.
The authority forecasts it will have around $25 billion in available funding through 2030, enough to finish most of the 119-mile “test segment” that’s currently under construction.
Start dates have also been pushed back, with the 171-mile segment now set to open for service between 2030 and 2033. Ridership has been revised downward, to 31.3 million riders in 2040 for the full 500-mile system, from 38.6 million in 2020.
The updated figures show that “a significant funding gap has emerged for the Merced to Bakersfield segment,” said Helen Kerstein, principal fiscal and policy analyst at the Legislative Analyst’s Office, the Legislature’s nonpartisan fiscal advisor.
The price tag for the initial segment does not include additional elements like trains and bookend projects, Kerstein noted.
“Even if the state gets the $8 billion that the authority is targeting, there’s still going to be potentially billions that the state will need to identify, and that $8 billion itself is uncertain,” she said.
The state Senate Transportation Committee is holding a hearing Tuesday on the project update, and the LAO is expected to testify.
Currently, the bullet train funding comes from a continuous appropriation of 25% of the state’s annual cap-and-trade auction revenues, a somewhat uneven revenue stream that brings in around $800 million a year. Since 2014, the authority has received a total of $5.4 billion in cap-and-trade funds through the November 2022 auction.
Proceeds from the $9.9 billion 2008 general obligation bond authorization also fund the project.
Last year, the Legislature approved the issuance of the remaining $4.2 billion bonds and directed the authority to make the Merced to Bakersfield line its highest priority. The state’s March 8 sale of $1.8 billion of federally taxable general obligation bonds included some proceeds for high-speed rail, according to a spokesperson for the State Treasurer’s Office, but no additional deal is yet on the calendar.
The state will need an additional “dedicated revenue stream” to help secure federal funding beyond 2030, the authority said in the update report.
“More than anything, the project needs stabilized, long-term funding,” Kelly said in the introduction. “We have been engaged with our federal partners about this challenge, and we believe that we have a strong strategy to be successful at the federal level. At home, we need an answer on how this project will be funded after 2030. Megaprojects that last for decades need long-term, stable funding. Every country around the world that has built high-speed rail has dedicated billions of dollars over several decades to see it through. We don’t have one penny of state support for this project identified after 2030.”
At the board meeting, Kelly said the authority is putting together an advocacy and lobbying team to target federal funds, and has held positive meetings with federal transportation and railroad officials over the last few months.
President Joe Biden is a well-known train aficionado, and Transportation Secretary Pete Buttigieg has expressed his support for high-speed rail during various Congressional hearings.
But a new Republican majority in the House could hurt the effort. House Speaker Kevin McCarthy, a Republican from Bakersfield, recently told CalMatters that “in no way, shape or form should the federal government allocate another dollar to California’s inept high-speed rail.”
And in January, the U.S. Department of Transportation rejected the authority’s request for a $1 billion MEGA grant, on the grounds that it was not cost effective.
At the board meeting, Kelly acknowledged the MEGA grant application “didn’t go very well for the state of California. The DOT said, ‘We need an understanding of how you will apply over the next five years, and what your milestones are,'” Kelly said.
“The advocacy team is going to be pretty critical,” director Lynn Schenk told Kelly. “It’s really critical we be really strategic in the team we put together for this go-round.”
The lack of federal commitment to high-speed rail is why the U.S. lags the rest of the world with the technology, said Ezra Silk, political director for the U.S. High Speed Rail Coalition.
“The federal government has been so stingy historically when it comes to high-speed rail, so we have private companies like Brightline or state governments like in California that are picking up an enormous share of the tab,” Silk said.
The federal government has allocated about $4 billion to high-speed rail altogether, while spending $2 trillion on highways and $800 billion on aviation since World War II, Silk said.
The key is to get at least one bullet train up and running so Americans can see why they’re so popular in other countries, he said.
“If we can leverage funds from the Bipartisan Infrastructure Act to demonstrate the technology, that will change the whole game for high-speed rail in America.”
The IIJA did not allocate funding specifically for high-speed rail, but the law includes $75 billion for rail, much of which will be distributed as competitive grants.
The authority so far has submitted federal grant applications totaling $325 million, according to Kelly.
The authority’s largest upcoming application will be a $3 billion request under the Federal-State Partnership for Intercity Passenger Rail grant program, Kelley said. Applications are due on April 21.
This fiscal year, that program is giving out $4.56 billion for projects that are not located on the Northeast Corridor. The program over five years totals $12 billion for projects outside the Northeast Corridor.
Brightline West, which is building a $10 billion, 218-mile, high-speed system from southern California to Las Vegas, is applying for the same grant, asking for $3.75 billion. The company will apply through the state of Nevada, not California, Kelley told board directors, some of whom expressed disappointment at the competition.
“It’s disheartening to see we have another neighbor competitor,” director Ernest Camacho said.
The only significant chunk of federal money the bullet train has won so far brought challenges that translated into higher costs.
The Obama-era $2.5 billion ARRA grant required the money be spent by September 2017, Kelly said. That prompted the authority to award contracts before it had a detailed understanding of the work.
“Not enough preconstruction work was done prior to the contracts being awarded,” he said. “We’ve learned that lesson the very hardest way you can learn that lesson.”
Going forward, the authority will award contracts based on a design-bid-build structure to allow more time for early design, Kelley said. “And we will probably want to do smaller contracts,” he added. “It’s taken a long time to learn it but that’s why we are where we are.”
