Is California's 'Train to Nowhere' a Waste of Tax Dollars?

California is about to embark on its biggest infrastructure project in decades, a project that isn't fully funded, where predictions of profitability are being questioned, and which depends largely on the American taxpayer.

Bullet train in China
Bullet train in China

"We need to know who is paying for it and who will assume the risk," says Democratic State Senator Alan Lowenthal from Long Beach.

He's talking about the $43 billion high-speed rail line which will eventually shuttle passengers between San Francisco and Los Angeles in two hours and 20 minutes at speeds up to 220 mile per hour. The first leg of the rail line, costing $5.5 billion—half coming from the federal government—will be constructed in the middle of California's Central Valley. Some critics are calling it the "train to nowhere".

Supporters say Californians want the train and will ride it.

"California's population is going to be 50 million by the year 2030," says the Vice Chair for the California High-Speed Rail Authority, Tom Umberg. "In order to effectively transport folks from north to south, south to north, we need an alternate form of transportation, and that's the high-speed rail."


Two years ago, California voters approved the sale of $10 billion in bonds to fund the rail program. Where is the other $33 billion supposed to come from? The federal government and private partners.

So far, the feds have given $2.25 billion, plus another $616 million in funds, which Wisconsin and Ohio turned down for their own high-speed rail projects. "That is a drop in the bucket," says State Senator Lowenthal.

The new Republican Congress is threatening to cut off future federal funding, and Sen. Lowenthal is concerned about a potential lack of confidence from bond buyers or would-be private partners. "We need assurances in California that there will be additional funding. Right now we don't have those assurances."

Proponents have vowed the train, once operational, will be profitable. That would be a first for mass transit in California. "We expect well over 40 million passenger to ride a year," says the Rail Authority's Tom Umberg.

However, a study this summer by UC Berkeley's Institute of Transportation Studies calls ridership forecasts "not is not possible to predict whether the proposed high-speed rail system in California will experience healthy profits or severe revenue shortfalls."

California has no choice, say those pushing for the train. "Unless you want to build 3,000 additional lanes of freeway, 91 gates at the airports, and five new have to come up with some other alternative," says former state legislator Rusty Areias. "High speed rail has proven to be the most efficient, the most environmentally compatible, and it just makes all the sense in the world to California."

Building the rail line will also create tens of thousands of jobs in a state with unemployment over 12 percent.

But will millions of Californians, notoriously averse to mass transit, ride a high-speed rail line? Planes are faster than trains and not that much more expensive, though supporters of high-speed rail says trains are faster when you take into consideration time spent at airports waiting to board.

High-speed rail has been considered a success in Europe and Asia, but Californians have a nearly unbreakable bond with their cars. Most commuters in the Golden State skip already available mass transit in favor of long commutes.

None of this may matter if the rail line is never completed. Sen. Lowenthal doesn't think the first leg should be built until financing for the entire project is guaranteed. Otherwise, "I don't know if it's a train to nowhere, but it could possibly be an orphan set of tracks," he says. "It's kind of out there all alone."

Watch for upcoming reports from Jane Wells and other CNBC correspondents on-air and online in our "The Fleecing of America"series, focusing on the federal budget, government spending, and the use of your tax dollars.