Last week, the Trump administration fulfilled yet another promise when it canceled nearly $1 billion in taxpayer funding for California’s high-speed rail project between Los Angeles and San Francisco. In the midst of yet another infamous Infrastructure Week, this announcement was an important development in the effort to ensure that when it comes to the allocation of public resources, taxpayers aren’t on the hook for unrealistic boondoggles that both violate private property rights and provide a nonexistent return on investment.
The use of public resources in public rail projects is not inherently inappropriate. These investments, however, must be subject to serious scrutiny given the amount of money that backers seek for direct subsidies, loan guarantees, and ongoing financial support from taxpayers. At the end of its life this year, the California rail effort was projected to cost nearly $100 billion by the time it was completed in 2033, three times the original projections.
As the New York Times explained, “The cost was originally supposed to be split among the state, the federal government, and private businesses.” In July 2018, before the project was abandoned, a University of California, Berkeley professor and member of the committee appointed by the legislature to review the project explained, “At the moment, 100% of the cost is going to be absorbed by the taxpayers.”
From cost overruns to exaggerated ridership projections and eminent domain complications, the California train to nowhere provides an unfortunate case study in the evolution of high-speed rail projects in the United States.
That’s why the effort underway in Texas to build a high-speed rail project that connects Dallas and Houston should not be fast-tracked anytime soon.
On an estimated project cost of $15-18 billion, it’s worth noting that the Texas rail project has received less than $400 million dollars in loans from a bank and investment corporation backed by the Japanese government. This figure includes an additional bridge loan provided by an investor to service the accumulating foreign debt. Assuming this project is only as costly as projections suggest and is built within the time frame outlined by backers, that leaves more than $14 billion in project costs that have yet to be raised or financed. So, where might that come from?
A competing French technology company has explained, “it’s not going to happen on private financing” and provided important global context for the pipe dream of fully financing the project with private capital in stating: “Nowhere in the world have high-speed rail projects become reality without government participation.”
The Texas Central website even acknowledges, “the project will explore all forms of capital available to private companies to finance debt for the project including federal loan programs like RRIF and TIFIA.” The Railroad Rehabilitation and Improvement Financing program can be used to “fund up to 100% of a railroad project” for direct loans and loan guarantees of up to $35 billion. A Reason Foundation study of Texas Central in 2017 found that these loans “lack stringent taxpayer protections,” concluding that “the project will inevitably have to be bailed out by the taxpayers of Texas.”
It’s questionable as to whether Texas Central even qualifies for these loans. Under the definition and requirements of RRIF loans, it may not actually legally operate a railroad, a view that has been upheld in a Leon County, Texas, court. The decision may have ramifications beyond rail proponents’ ability to secure federal loans because legally operating as a railroad is also required for eminent domain purposes.
In an April 11 letter to the chairman of the U.S. Surface Transportation Board, Rep. Kevin Brady, R-Texas, rightly urged the board to reject Texas Central’s petition to exercise federal eminent domain powers in order to take private land between Dallas and Houston for the train’s tracks. He explained that because the project does not connect to any existing federal or interstate railways, it does not qualify for the use of federal eminent domain authority.
Proponents of the Texas Central Rail project should start being a little more honest about the project. This isn’t a utopian free-market solution to infrastructure, and for the most part it won’t be a privately financed enterprise. Without the coercive use of eminent domain and billions of dollars in risky taxpayer-backed loans, this train might never leave the station.
If the abysmal failure of the California experience taught us anything, it’s that an early death of this project might be best for everyone.
Paul Blair (@gopaulblair) is director of strategic initiatives at Americans for Tax Reform and a contributor to the Washington Examiner’s Beltway Confidential blog.
