California High Speed Rail Is an Attractive Investment4 min read


In the comments on a previous article I wrote, there is an interesting discussion about private investment in high speed rail, including some understandable concerns about whether that money will materialize given the worsening credit crunch facing the global economy.

California HSR is actually very well positioned to benefit from this, and there is every reason to expect that private investors will line up around the block to be a part of it. To understand that point we must first look to France where SNCF has turned a profit by emphasizing high speed rail. (Hat tip to The Overhead Wire)

Guillaume Pepy, SNCF chairman and chief executive (PDG) since February, says that, unlike his predecessors who had to manage a railway recession, he is presiding over an accelerating boom. The state-owned SNCF delivered a net €1.1bn (£875m) profit last year and first-half figures, due next week, are said to be sparkling. Pepy envisages up to 80m extra passenger trips this year or an increase of around 8%.

“This change will speed up because we are facing a twin energy and environment crisis,” he says, pointing to surging fuel costs and growing personal worries about carbon footprints. “People want sustainable mobility and, in France, more trains and more SNCF.”

Rail travel is booming around the world as well as here in California, as the latest numbers prove. Given that oil prices are going to remain high for the foreseeable future, we can reasonably expect train ridership to continue rising.

In other words, ridership will grow. And what do private investors look for? Growth opportunities. Don’t be fooled by the weakening economy – there remains an enormous amount of capital sloshing around global markets, looking for a good rate of return. Currently a lot of that capital is in oil, creating speculation that is partly responsible for the high level of oil prices (but only partly – the underlying fundamentals of insufficient supply to meet demand remain likely to keep prices high for a long time to come).

But even though oil prices are on a long-term upward trajectory, they are also volatile. Over the last week prices fell by $10/bbl before rising again. Private capital would prefer a much more stable and reliable investment. Something fixed, that won’t be ephemeral, and something that offers the prospect of long-term growth.

Meaning infrastructure. It’s no accident that the largest funds are looking to own physical things instead of worthless mortgage tranches or the declining dollar. Abu Dhabi’s purchase of the iconic Chrysler building is but one example of the trend. More relevant is Argentina’s high speed rail example, financed by a French bank.

High speed rail would be an extremely attractive investment even in a bad economy and during a credit crunch. It offers returns with very little risk. Every high speed rail system in the world has strong ridership levels and most generate operating surpluses. SNCF relied on it to return to profitability. Here in California the long-term airline crisis and oil crisis, as well as global warming rules, will help sustain high levels of demand.

The key is public funding. A presentation at the June 2008 CHSRA meeting explained the results of a survey of private investors who might be interested in our project. Many were supportive, but said that they needed a minimum of 60% public funding to be willing to invest, and would be most comfortable with 75%. In other words, the state of California needs to provide the first stake, and then the federal government.

Given that HSR is such an undisputed global success, it should not be difficult to attract private investment. Proposition 1 is the necessary first step to bringing that about. If we vote for it, we will build it – and they will come.

Robert Cruickshank is a historian, activist, and teacher living in Monterey. He is a contributing editor at and works for the Courage Campaign, in addition to teaching political science at Monterey Peninsula College. Currently he is completing his Ph.D. dissertation in US history, on progressive politics in San Francisco in the 1960s and 1970s. A native Californian, he was raised in Orange County and educated at UC Berkeley. This article originally appeared on the California High Speed Rail Blog which he publishes.


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