XpressWest High Speed Rail Line to Las Vegas is a Huge Taxpayer Gamble

The Federal Railroad Administration (FRA) is nearing the end of its review of an application for a $6 billion loan to finance the XpressWest high-speed rail line from Victorville, CA to Las Vegas, NV. While critics worry about the risk of default, XpressWest developers promise tremendous economic and environmental benefits.

According to XpressWest’s website, the high speed rail line project from Victorville, California to Las Vegas, Nevada is expected to create 80,000 construction related jobs. The total economic output of the project is estimated at $7.8 billion. Once completed, the rail line is predicted to divert over 2 million annual automobile trips from the I-15 freeway running between Los Angeles and Las Vegas, which translates into roughly 440,000 fewer barrels of oil consumed each year. The line would eventually be linked to the California High Speed Rail line, recently approved for construction, which would run from the Bay Area to San Diego once completed.

So how does the FRA come up with the $6 billion to loan to XpressWest? The answer is an underutilized federal program called the Railroad Rehabilitation and Improvement Financing program (RRIF). The program was established by the Transportation Equity Act for the 21stCentury, which authorizes the FRA to provide direct loans for development of new railroad facilities and improvement of existing facilities. The $6 billion requested by XpressWest is more than ten times the size of the next largest RRIF loan, a $562.9 million loan made to Amtrak in 2011.

With such a large loan, the risk of default and subsequent taxpayer bailout are a serious concern for the FRA. Critics of the XpressWest plan, such as the Reason Foundation and other conservative groups, point to the fact that ridership and demand predictions built into the financing plan were based on data from 2005, before the recession seriously impacted tourism and travel. Others question the level of demand among vehicle-owning residents of suburban Southern California for alternative transportation between either Los Angeles or Victorville — a small desert town about an hour drive east of Los Angeles — and Las Vegas.

A hypothetical comparison of the potential costs of a trip from Los Angeles to Las Vegas on the XpressWest and by car gives some perspective on the debate. If a Los Angeles resident drove the 265 miles to Las Vegas averaging 22 mpg on the highway with gas at $4.20 per gallon, the trip would cost $50.59, almost identical to the proposed $50 fare for the same trip using Los Angeles' Metrolink railway and connecting to XpressWest in Victorville. However, a spike in gas prices, like the one that occurred in California over the past few weeks, could make XpressWest a more appealing option, especially with deals offered for round trip tickets.

XpressWest’s success depends on several cost and convenience variables working in its favor. Rising gas prices will work to its benefit and trends in improving fuel economy of new cars will work against it. An offer of free parking at rail stations in Victorville and Los Angeles could significantly improve the convenience factor of the proposed project for residents of suburban Southern California.

Hopefully, an economic recovery will reignite demand for travel to Las Vegas and variables such as gas prices and convenience factors will work to XpressWest’s advantage. But even under the most optimistic scenarios, XpressWest is a somewhat risky bet with $6 billion of your money. If the project goes the direction of subsidy-laden Amtrak, taxpayers could be on the hook for a bailout.