California’s high-speed rail project could run out of money within two years before completing its first stretch of track in the Central Valley.
That's according to warnings from state budget watchdogs. Both the nonpartisan Legislative Analyst's Office, or LAO, and the Office of the Inspector General outlined major financial risks during an oversight hearing in the Assembly Transportation Committee in Sacramento last week.
Inspector General Ben Belnap warned lawmakers the project's current funding stream may not keep pace with construction costs.
“That doesn’t mean that there are not future funds coming in,” he clarified. “They would be coming in, but not at the pace we’d need to keep up with project expenditures. That’s what we’re two years away from.”
That’s because the project relies on an annual investment of $1 billion from the state’s cap-and-invest funds. Belnap said when those funds are distributed will result in the project not being able to pay for certain bills on time.
That could weaken the state’s leverage with private investors, which the rail authority is banking on after losing federal support. Belnap warned lawmakers that waiting to act could come with consequences.
“The longer we wait, the closer we get to a funding crisis that delays the project,” he said. “And the less options the state has to solve this problem, the weaker will be the state’s position to negotiate with a private equity partner.”
The money the cap-and-invest program generates — which comes from companies buying permits to emit greenhouse gases — can also fluctuate. Budget analysts warn that uncertainty makes it difficult to rely on the program as the project's long-term funding source.
Legislative changes likely required
The rail authority released a new business plan last month that proposes $2 billion dollars in project savings. The new plan also says the rail authority is pursuing other funding avenues, including borrowing and seeking federal funding.
“We are still working through the commitments that we had,” Mark Tollefson, the authority’s chief of staff, told lawmakers. “But ultimately trying to work with communities on ways where we can actually deliver service into their communities faster within schedule and within budget.”
The rail authority also stated that construction on more than 100 miles of the Central Valley line is underway, with many bridges, overpasses and viaducts already completed.
But some of the rail network’s projected savings come from scaling back project plans, including moving the Merced station out of the city's downtown to a less expensive location.
Helen Kerstein with the LAO said that would contradict a 2022 bill.
“That assumes that you would change the station locations both for Merced and Bakersfield so you would no longer be going into downtown Merced like is envisioned in SB 198,” she said.
Lawmakers would need to pass new legislation to do that.
Kerstein also warned the rail line faces a roughly $2 billion funding gap to complete the $37 billion segment between Merced and Bakersfield. She also said it has no feasible plan to get out of the Central Valley and ultimately connect Northern and Southern California due to a shortfall in the tens of billions of dollars.
Voters originally approved the project to connect Los Angeles to San Francisco in 2008. Delays and rising construction costs have pushed its estimated price tag from about $33 billion to over $120 billion today, while the timeline has slipped by decades.
Engineering challenges add billions to price tag
UC Berkeley transportation expert Ethan Elkind said much of that cost comes from the engineering challenge of connecting the Central Valley to the state's major metropolitan areas.
“The United States has never really figured out how to tunnel very well,” he explained. “Maybe we could import a bunch of Norwegian companies or something because they have figured out how to tunnel much more cheaply than we have, but these tunneling costs are exorbitant.”
The project has faced scrutiny for its delays and cost overruns that have made it a political target for Republicans. It lost a major source of funding when the Trump administration revoked roughly $4 billion in federal grants last year.
The rail authority initially sued the administration but later dropped the case, saying it wanted to avoid a lengthy legal fight it was unlikely to win.
Republican lawmakers scrutinize funding decisions
Republican Assemblymember Alexandra Macedo represents part of the San Joaquin Valley, where the bullet train is being constructed. She criticized the rail authority for dropping the lawsuit despite claiming it is still seeking federal support.
“Four billion dollars is a lot of money that, given what the LAO just told us, could be pivotal in even having some types of guaranteed timelines for the Central Valley,” Macedo said to Tollefson. “So we’re walking away from $4 billion, but we’re applying for more. The rhetoric doesn’t exactly match for me.”
Tollefson responded by noting that the federal government has not proven itself to be a reliable partner.
“We will absolutely continue to seek federal funds within this administration,” he added. “It’s unlikely that we’ll receive any additional federal dollars.”
The transportation committee member also questioned whether the project meets her Central Valley constituents’ needs.
“Anybody who believes that the Central Valley is super stoked about this, you might find some people that are, but those of us that are struggling with fundamental things like roads — that's the kind of transportation we need,” Macedo stressed.
Despite the concerns about running out of money, rail authority leaders say they still have options for seeking future funding that could give the bullet train a viable path towards full completion.
New funding sources
Private investors have been lauded as an ideal source of additional funding by the rail authority, one that doesn't rely solely on taxpayer dollars.
But that support would likely come at a cost of higher interest rates. Analysts say private investors typically look for projects with predictable revenue streams, like ticket sales, which the rail network has not yet secured.
The LAO said that might mean the bullet train would need to pay higher interest rates to attract investors.
Some experts have also signaled that another bond measure asking voters for more funding could be necessary. Elkind, with UC Berkeley, said he thinks voters would favor such a measure given that over half of Californians still support the project.
“The California voters did approve the 2008 bond measure and they've generally, despite the difficulties in getting the system built, been supportive,” he said, referring to polling data from a rail advocacy group.
Analysts say the bullet train’s future depends on whether California can secure enough money to pay for tens of billions of dollars in remaining construction costs, including the funds needed for its first Central Valley segment.
