Case Study: California High-Speed Rail Project and Obama's Stimulus

This case study examines the California High-Speed Rail Authority's (CHSRA) efforts to secure $4.7 billion in federal stimulus funding for the California high-speed rail project. It explores the project's background, including voter approval of Proposition 1A, the emphasis on green credentials and job creation, and the Obama administration's infrastructure stimulus package. The case delves into the challenges and criticisms surrounding the project, such as cost concerns, ridership projections, and financial viability. It further analyzes the project's funding strategy, including federal sources, state bonds, and potential private-sector partnerships (P3s), highlighting the importance of coordinating funding streams and the conditions for private-sector engagement. The case also discusses the project's cost-benefit analysis, assumptions regarding construction timelines, and the quantification of social benefits, comparing them with the costs.

Running head: PROJECT MANAGEMENT
Project Management
[Name of the Student]
[Name of the University]
[Author note]

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CHSRA or the California High Speed Rail proposed a project in front of Obama
Administration to get approval regarding the application of $4.7 billion in federal stimulus
funding. This application was presented in order to make advances in the engineering, design and
construction of the high-speed rail system as proposed by California. The board of Authority’s
and the staffs were very much optimistic about results that would be obtained after the
construction of the 800 mile high speed rail corridor. This corridor would be connecting all the
major regions and cities of the state. In November 2008 the citizens of the state had voted and
approve the proposition 1A authorizing the state to issue the bonds worth $995 billion for the
construction of the initial segment of the system which was running about 465 miles starting
from San Francisco to Los Angeles-Anaheim in Orange County. Heavy emphasis was put upon
the “green” credentials by the CAHSR promoters during the campaign, mainly the role that it
would be playing in the reduction of the emission of the various greenhouse gases. However the
follow up surveys conducted over the voters after the month of November revealed the fact that
the potential related to generation of jobs has proven to be the most decisive against the
drawback of an economic recession which was feared by many people that it was worsening. In
the month of February 2009 when the passage of the Proposition 1A was done, the Obama
administration which was coming had been associated with signing into a law which was a
massive $787 billion economic stimulus package which initially promised to pour billions of
federal dollars into the project related to major infrastructure and the public works which also
included the $8.4 billion for the 11 designated high-speed rail corridor in the United States. An
October 2009 deadline was set by the Federal Railroad Administration in order to propose and to
receive 45 applications from 25 different states for total of around $50 billion. In case if the

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requested are awarded at full amount then the CSHRA would be taking the lion’s share of the
federal high speed rail funding which are available.
Along with this it seemed that the Authorities were well positioned in order to
capitalization on the priorities of the Obama administration but due to the fact that the California
corridor had made most of the advances in its planning process by having its own estimates
regarding the creation of the 130,000 jobs related to construction. Besides this the state had also
made a pledge regarding the matching with the federal funds in order to have a total investment
of around $10 billion. The request of California also included an amount of $2.19 billion for the
Los Angeles-Anaheim leg, along with $1 billion for the San Francisco-San Jose leg, and smaller
amounts of money for the engineering work, right-of-way acquisition and other preconstruction
activities. The initial sources of funding are mainly combined with the powerful California
Congressional delegation were also in favor of this project and was also associated with
providing the CHSRA with renewed confidences regarding the securing of the estimated $34
billion is necessary for the purpose of constructing the first phase of the system.
Besides this the CHSRA also got support from outside California and also many of the
Americans who wondered why the US was far behind the other countries while developing the
high-speed rail service. The High-speed rail or the HSR mainly referred to the trains that were
capable of travelling at a speed of at least 150 MPH. Amtrak a government owned company in
the year of 1970 created an intercity rail service in the US in order to relive the American’s
freight regarding the losing of money in the passenger lines. Most of the services were operated
by Amtrak over the tracks of the freight railroads. But the minimum speed that was considered to
be safe was 79 miles per hour and sometimes even less.

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However HSR was considered to be a good idea by many peoples and besides this the
critics present in the Reason Foundation which was a conservative thinking tank along with the
Howard Jarvis Taxpayers Association a California-based watchdog organization was associated
with advocating the limited taxation and the government has been associated with publishing a
lengthy report in the month of September in 2008 was sharply associated with criticizing the
proposal of CHSRA. Along with this report has also been persuasive enough in order to prevent
the passage of the Proposition 1A. However certain troubling questions were raised regarding the
cost of the project, ridership as well as the system performance.
The HSR system collect its revenue from the fares paid by the passengers which were
projected in order the various operating costs which were not at all enough to underwrite the
entire capital cost that is required by the system. The roughly estimated cost for Phase 1 would
be around $34 billion in order to build and an amount of $1,276 million annually for the purpose
of operating in the year of 2030 in order to have a net cash flow of around $1079 million by that
year. It was also estimated by the consultant of the authority that the annual cash flow would be
sufficient enough in order to provide support to the $6.5 to $7.5 billion in the private financing
were the systems that were to be operated as a public-private partnership between the state and
the private train company. The business plan was also associated with proposing reminder of
around $34 billion in the capital cost that was to be raised from the federal government from the
state bond issue that was approved by the voters in November 2008 and also from the local
government.
In the federal sources some current and anticipated future high speed rail program was
included and along with this the $8.4 billion that were contained in the 2009 stimulus package,
the Obama administration’s 2010 budget also recommended $1billion annually for the high

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speed rail present over the following five years. The legislation was also being introduced
simultaneously in the congress in order to create a permanent and dedicated HSR funding
mechanism.
Along with this the estimation of $2-3 billion in the local financial support was generally
based upon the potential overlapping infrastructure that is needed between the local transit
agencies and also in the high speed system. This can be better understood by using an example
that is the authority has been associated with planning in order to split the cost required for
certain improvements associated with the local transit agencies and specifically along with the
Caltrain and the Metrolink corridors which is associated with sharing of tracks with the CHSRA
trains. Besides this the additional property tax revenue could also be generated from the transit-
oriented development and the commercial concessions present as the high-speed train stations
along with the contribution of the right way that is owned by the cities and the counties assisted
by the route proposed by the project.
The authority has also been associated with receiving more than 30 responses regarding
the request for the Expression of the Internet or the RFEI in the spring of 2008 in order to gauge
the potential of the participation of the private sector in the project. Besides this some of the
companies have also been associated with responding which are clearly interested upon
providing equipment’s for or to have their technology that are used for the construction of the
system. But none of them were not prepared at such an early juncture in order to undertake the
type of financial risk sharing that are outlined in the business plan. Along with this procurement
of the additional public funding that for the initial phase of the project is mainly viewed as the
pre-condition to any kind of private-sector engagement.

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Accordingly the business plan has been associated with assuming the initial outlays that
are from the federal and the state sources would be very much necessary for the purpose of
securing the contributions from the P3s. besides this at the same time a provisioning of the
Proposition 1A is intended mainly for the purpose of protecting the California taxpayers is
associated with stipulating the fact that at least 50% of the financing needs to secured at firstfrom
any other type of sources before the state bond proceeds that could be spent on any of the give
statement along with making the time and coordination of the various funding streams that are
extremely critical for the projects viability. If the P3s fails to be unavailable on terms of
acceptable to the Authority then the cash flow from the operation of train service that could be
potentially be used for the purpose of issuing the tax-exempt revenue bond present in the later
stages of the project development.
The critics also argued that such operating profits were very much doubtful. In cases if
the average of the one-way high-speed rail fares for longer interregional trips were calculated at
the 50% of the equivalent one-way airfares which were translated into a fixed boarding charge of
around $15 along with per-mile cost of around $0.09. Along with this, for the shorter, the
intraregional commuter trips an even lower fares was assumed which was around $7 boarding
fee plus the $0.06 per mile.
Along with this the CSI was also asked about for the quantification of the social benefits
of a high-speed rail system and comparing them with the costs. Besides this the analysis also
assumed the fact that the construction of system would begin in the year of 2012. Along with this
the initial San Francisco-to-Los Angeles/Anaheim segment would be starting its operations from
the year of 2020 and the whole system would be completed by the year of 2026. Besides this an
assumption was made regarding the time horizon which was likely to be extended to the year of

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2050 assisted the streaming of the costs and the benefits which were discounted at a real rate of
4%.
It was also estimated by CSI that the ratio of the benefits to the cost was around 2.8 to 1.
The present value of the HSR construction along with operating and maintenance costs was
around $53 billion in the 2008 dollars. The present value of the benefits to HSR users alone
amounted to around $90 billion. The measuring of the users benefit were done according to their
willingness for making payments regarding the services provided by HSR and the part of which
was reflected in the actual fares and the parts n consumer’s surplus. In order to analyze the cost
benefit the fares were set to 50% of the airfares which was a policy the Authority was
characterized with in order to achieve a balance that exists between the “maximizing of the
public benefits” and “maintaining a healthy operating surplus”. This means that the deliberate
pricing of the fares below the potential riders might be willing to pay for the HSR service. Along
with this, in the Jargon of the economics the difference that exists between the maximum that the
passenger’s would be willing to pay and the amount that is to be actually paid that was known as
the surplus of the consumers.
Along with the reminders of the HSR,s also estimated the benefits that is having a value
of about $60 billion which are generally accrued to the air and the auto travelers which are in the
form of reduced delays along with less air pollution ad few auto accidents and fatalities. Besides
this the diversion of the air passenger’s towards the high-speed rail would be associated with
translating into substantial time as well as cost saving for the airline operators as well.
Additionally assumptions are also made regarding the expansion of the airports which are
existing in order to increase the future air capacity of California. In a similar way the alternative
high speed rail would be associated with lowering of the number of intercity automobile

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passenger’s in California highways by up to an amount of 70 million annually. Along with this
the presumed combination of the constant highway capacity and decreased the demand of travel
via the auto which would initially lead to the reductions of the number of vehicle hours travelled
which was valued at the hourly rate of around $57.72 for business or the Commute travelers and
$18.33 for the leisure and the personal travelers.
The study has also argued to the fact that the cost benefit ratio was very much
conservative and this is mainly due to certain benefits which had not been included and most
notably have been associated with reducing the highway capital costs and the maintenance which
has been associated with increasing the jobs and reducing the GHG emission from the planes and
the automobiles. The diversion of the air and the auto travelers to high speed rail would for
instance save the need for $82 billion in the infrastructure costs which also includes the 5 new
airports.
From the above discussed topics it can be concluded that this project is totally worthy
from the prospective of a state. This project would be very much beneficial for the state. Along
with cost benefits the project would also be providing certain benefits like employment and
many more. This construction of the high speed system would be associated with direct
generation of around 130000 jobs which would be including more than 320,000 permanent jobs
that results in both directly and indirectly from the system including jobs in tourism,
transportation, services and security.