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California HSR will not serve San Francisco

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The California HSR Authority claims the project will cost approximately $40 billion.  The Government Accounting Office (GAO), in a 2008 review of some of the proposed high speed rail projects in the U.S., estimated the cost of the California project at $38.2 billion.  The GAO performed its review because all of the projects are seeking federal financing for at least a portion of the project. California voters authorized the issuance of $9 billion in state backed bonds to help fund the initial portions of the high speed rail project.  The average rate for a sample of California investment grade bonds, taken from Fidelity Investments (A or above), due in approximately 30 years is 5.77 per cent.  If the initial bonds are issued for 30 years, which is a normal practice, the cost of the interest and principal associated with the bonds will be approximately $18.9 billion.  If $40 billion of bonds are ultimately issued at the state's weighted average cost of capital (interest rate), the cost of the project will be approximately $83.8 billion, which is considerably higher than the advertised sticker price of $40 billion.  Given the nature of these projects, if the California HSR project comes in at $40 billion, it will be a minor miracle.  These numbers are for investment grade bonds. If the bonds for the rail project are rated lower than A, i.e. BBB-, then the cost of the project could be higher.  For example, if the interest rate is 7 per cent, then the cost of the project would be $95.2 billion.  On the other hand, if the federal government shoulders a significant portion of the cost of the project, with the effect being to lower the interest burden, the project might have an average weighted cost of capital of 4.5 per cent, in which case the cost of the project would be approximately $72.7 billion. There is nothing magical about understanding the impact of finance charges on the cost of a project if one has a rudimentary understanding of finance.  The calculations are straight forward. MunicipalBonds.com does not show any California High Speed Rail Bonds for sale.  This does not mean, however, that they have not been sold to an investment bank for re-packaging or have been placed with an institutional buyer.
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