California’s decadelong attempt to connect its
major cities with high-speed trains has officially ended in failure.

During his State of the State address on Tuesday, Gov. Gavin Newsom announced that the railroad will never
reach Los Angeles or San Francisco. What should have been a $15 billion project
was going to cost at least $77 billion. And while Newsom made the call, cost-overruns
of this magnitude were going to render the project a failure regardless of
whether trains ever run in the Central Valley.

The end of California’s high-speed rail dream
highlights the challenges of attempting to manage railroads through politics.
California’s project suffered from many of the same procurement cost problems that Amtrak
does, but unlike Amtrak, California’s government-backed railroad would have had
to lay hundreds of miles of new track.

Building new surface infrastructure is necessarily
costly in places like California, where land values are high. But land value is
only one piece of the high-cost puzzle. Building such infrastructure in any
location also generates
negative externalities
in the places it passes through, meaning
political pressure will build within those communities to mitigate whatever
problems the new infrastructure triggers. Additionally, bypassed communities are
likely to resist any project altogether. In extreme cases, this can mean being
forced to select a worse route that adds to costs, as happened in California’s
case with its approach to Los Angeles.

In the wake of Newsom’s announcement, Virgin
Trains walked back its intended initial
public offering. It had planned to connect to the high-speed state network,
building a branch that would connect Los Angeles and Las Vegas. With the
California project off the books, the company will now focus on linking its
existing Miami-West Palm Beach line to Orlando, Disney and, eventually, Tampa.
Texas Central is also ready to break ground on its Houston-Dallas railroad once
it finally receives federal approval.

These privately financed lines face fewer
points of political feedback than their publicly financed peers in California.
No road or rail project is completed without some level of political consent, but
ensuring that political feedback does not derail the entire project is the
fundamental problem that the rail- and road-building process faces. What this
failed experiment makes clear is that California did not have enough safeguards
in place to keep the project from spiraling well beyond its original budget.

Under the political management model, ongoing
changes, poor leadership and poor planning don’t get punished. In contrast, investors
in private lines would punish a company that acts as a poor steward of dollars
meant to lay track. These investors have stronger incentives to get a
project right the first time — and to plan for future updates from the outset —
than their political peers; they have reason to get second and third opinions
from engineers to ensure that the most profitable project is built. Political
meddling costs them dollars in the long run and makes it harder for them to
borrow to finance construction, so it is kept to a minimum.

The free market can be both a source of
capital and a source of technical oversight. Projects that lack these
mechanisms risk cost escalation and budget overrun. The specter of California’s
unbuilt railroad is here to stay, its rump line reminding all of what could
have been. Those who believe there is a future for publicly-funded American
passenger rail will need to contend with the reality that public oversight has
failed — with all the world watching.

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