After massive flood damage and a near catastrophe at Oroville Dam in February, and in light of the future risk of drought and flooding, this much is clear: California’s critical water infrastructure is badly in need of repair. In fact, the state has almost $50 billion in unmet flood management infra-structure needs, according to Gov. Jerry Brown.
Given these significant new costs and needs, plus the state’s growing budget and pension requirements as well as the very real probability that the Trump administration is going to reduce California’s share of funding for critical things such as education, health care, and transportation, the state’s proposed bullet train is not something we can afford and should be cancelled immediately.
There are moments when circumstances require clear thinking and a willingness to ask hard questions and change course — moments when a fresh look is needed to prevent a tragic mistake. California’s governor and Legislature need to realize that we are at that moment now for the state’s high-speed rail project.
Let me provide five reasons why:
This venture is now absurdly expensive. The original $33 billion price tag has grown to at least $65 billion and some estimates are as high as $100 billion. In addition, the original Los Angeles-to-San Francisco ride time has almost doubled to nearly four hours. Here’s one way to put that mammoth price tag into perspective. California would actually be better off buying an airline than building this high-speed train. Southwest Airlines is a public company with a market value of $33 billion. If the company were willing to sell, its shareholders could probably command a premium of at least 20 percent, which means (in theory, anyway) that the state could buy it for roughly $40 billion. That might be less than half of what the train will wind up costing, and it would be available in one year, not 20. Southwest makes about $2.4 billion a year in profit, so California’s state-owned airline could provide us all with $1 billion a year in free or discounted flights anywhere in the state – and still it would make an annual profit of $1.4 billion. Now, I’m not really proposing that California should buy Southwest, but this example should tell us something about how excessive the price tag has become and how little Californians would get for their money.
The chances that California will ever build a high-speed train all the way from San Francisco to Los Angeles are remote. In the original plans, construction was to begin from Bakersfield to the San Fernando Valley. All that has changed. The revised plan starts with the easiest part, before moving on to the much more difficult and costly construction challenges closer to Los Angeles and San Francisco. According to a leaked federal gov ernment report, even work on the easiest part is running seven years behind schedule. And that’s without trying to build in the most densely populated regions of California.
Potential private investors have shown no interest in backing this rail project. With cost overruns already in the tens of billions of dollars, and significant delays and uncertainty, the private sector is saying this is a bad investment and will not help to pay for it, which was part of the original financing plan promised to voters.
Without private ownership, even if it’s finished, this train– as is the case with every U.S. and European passenger train– will actually require significant annual taxpayer subsidies. Amtrak, which began operations in 1971, is still receiving federal subsidies of $1 billion a year, including for the popular high-speed train Acela Express that runs between Washington, D.C., and Boston.
As bold and futuristic as it might have sounded nine years ago, high-speed rail is really a 20th century solution for the 21st century. For California, the future of transportation is driverless cars, buses, and trucks; improving airports (such as Los Angeles International Airport); smart roadways; high-density mass transit; and light rail. That is also where investors, airlines, and taxpayers are putting their money.
California needs to shift its focus and funding to more urgent and productive priorities such as repairing our dams and levees, fixing roads, building urban light rail, widening highways, supporting our public schools and universities, providing health care, funding pensions, and improving public safety and the environment — needs that will be pushed aside if this one megaproject is allowed to make unlimited claims on increasingly limited state and federal resources. These investments would also do far more to foster the growth of the economy, jobs, and tax revenue.
Advocates of the bullet train will plead that we have already poured billions into the work and that to back off now would be to waste all that money. However, almost nothing has been built. The whole thing is still essentially an idea. California can still walk away from it. A few billion dollars lost is very unfortunate, but it’s far better to do that and prevent a $100 billion tragedy.
It’s time to put a bullet in this bullet train.
Russell Goldsmith is chairman and chief executive of City National Bank and chairman of RBC’s U.S. Wealth Management business. He also chairs the Los Angeles Coalition for the Economy & Jobs.