California’s Proposed $68 Billion High-Speed Rail Running Into Financial Hurdles

California’s Proposed $68 Billion High-Speed Rail Running Into Financial Hurdles

California’s plan to build the most expensive public-works project in the history of the United States has run into some financial hurdles. The proposed high-speed rail line linking Los Angeles with San Francisco needs private companies to contribute as much as $35.5 billion towards the project. However, contractors and banks who have evaluated the project may not be so willing to contribute.

Builders have begun clearing land and construction is underway on the first 29 miles of the project in the San Joaquin Valley. The project is planned to cover an 800-mile network with trains capable of traveling at 220 miles per hour.

But, the construction may be premature. Initial financiers of the project have called on California to contribute more than the $10 billion in bond funds already set aside for the project. This is needed in order to assuage the doubts of potential investors who have trouble believing the project will turn into a reality.

This creates a problem for Governor Jerry Brown and other supporters of the project. He must now persuade the state’s residents to contribute more than already approved under a 2008 vote.

Dan Richard, chairman of the California High-Speed Rail Authority, stated that, “We still have a funding gap. But we’re going to build this project notwithstanding that, because we can close that funding gap.”

Some builders, contractors and lenders who have expressed concerns about the project include AECOM, Kiewit Corp and Barclays, Plc. Kiewit reported that, “Given the proposed delivery approach and available funding sources, we believe there are a number of concerns which the authority must address. The ability to service raised financing does not mean that such a large financing amount could in fact be raised.”

Supporters of the rail are counting on private companies to finance the majority of the project’s costs. Funding now consists of the approximately $10 billion in general-obligation bonds as well as federal grants of about $3.2 billion and 25% of the project’s proceeds from auctioning greenhouse gas credits.

The project has many critics, including Republican Congressman Jeff Denham. He represents an agricultural region of the state that is set to be bisected by the rail line. He has called the project a “boondoggle” that will simply run out of money before it reaches major population centers.

Richard said that the state is in a tight spot because in 2008, the project received a 53% approval rating from voters – who allowed for only $10 billion of taxes to be used for the project. That approval has now fallen below 50%.

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