What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing this past november, president joe biden signed his 1 trillion infrastructure bill into law. The law allocates 66 billion of new funding to amtrak the country's state-operated railroad company. The u.s is miles behind the likes of china, japan and many european countries. When it comes to high-speed rail.

Railway transportation can be very good for the economy and the environment. It offers cheap, reliable transportation that connects major metropolitan areas. Trains also emit far less carbon dioxide than automobiles or airplanes on a passenger-mile basis. So, on the surface biden's, railway investment might seem like a really good idea, but this is not the first time the us has embarked on a multi-billion dollar high-speed rail project.

Perhaps the most ambitious high-speed rail project in modern us history was approved all the way back. In 2008., it promised to take passengers across the 400 mile journey from san francisco to los angeles in just three hours, a dream that would take more than six hours by car. The economic and environmental benefits were great enough to more than justify the 33 billion initial price tag. As you might have guessed, the project was perhaps the single largest and most embarrassing public infrastructure disaster in u.s history, overly ambitious targets, regulatory issues and general mismanagement have turned the project into a massive money, sucking black hole today more than a decade after the train was Originally approved its cost has ballooned to almost 100 billion dollars and is yet to transport a single passenger.

In fact, the situation has gotten so bad that governor gavin newsom was forced to scale down the project, saying that will only travel from merced to bakersfield, far shorter than the original plan in this video. We'll look at why the california high-speed rail project was such a disaster and importantly, whether or not the new biden, rail projects will share the same fate. The california rail project was first conceived all the way back in 1996, when the state government set up a commission to look into the benefits and viability of a high-speed rail system. By this point, countries like japan already had successful high-speed rail systems of their own.

California. Wanted to recreate the success and take it to the next level by making perhaps the largest and most sophisticated railway in the world. After many years of careful study, the commission finally recommended a massive project to connect san francisco, with los angeles. The project was projected to create hundreds of thousands of jobs and bring billions of dollars worth of economic development.

They estimated the line could transport 100 million passengers per year at 100 per ticket. This would generate 10 billion dollars of annual revenue for the state. With support of then governor arnold schwarzenegger, 53 of california, voters approved the project in a 2008 ballot measure. Of course, building such a massive project isn't free as part of the initiative.

Voters also approved a 9 billion government bond issuance to fund initial development. The total project cost was originally projected at 33 billion, with the remainder coming from a combination of federal grants and state tax revenue. But given the high expected demand from passengers and the benefits to the broader economy, the investment was well worthwhile. In 2010, the obama administration awarded the state 2.25 billion dollars to help with the project as part of their 2009 stimulus package.

This number eventually increased to 4 billion dollars. With the project approved and funding secured, the high-speed rail authority started hiring architects and engineers to begin the design they spent years meticulously planning every single detail of the railway. In fact, they were so meticulous that they didn't award the first construction contract until 2013. Five years after california, voters approved the train from the beginning.

They knew the construction would take a long time. The idea was to have the main san francisco to la route, ready for passenger service by 2020.. Of course, 2020 has already passed, and not a single passenger has been transported on the line. The first 29-mile stretch of the railway was awarded to a joint venture of construction companies, including the publicly traded tudor parony corporation.

The price tag was about 1 billion and they were scheduled to start in 2013, but the problems would begin years before. The first track was laid to construct a railway. You need land to build it on. The government does not own all the land in california, so they need to purchase it from existing owners.

The railway mainly goes through rural areas occupied by various farms. The state has to buy the land from the farmers if even one farmer doesn't want to sell their land, this could derail the whole project. When this happens, the state has to invoke imminent domain to force the farmers to sell their land, and whenever courts are involved, things always take longer than planned. It is estimated that thousands or possibly even tens of thousands of land parcels will be needed to complete the whole project for the first 29 mile section.

It took them two years longer than expected to acquire land from hundreds of different farmers and residential land owners. The state had not used imminent domain on this scale for a long time, their lawyers were ill prepared to argue on behalf of the rail authority. Many of the cases were held up in court for many months as the landowners haggled over the price, but even once they started construction. The incompetence of their design caused even further delays.

In many areas. They failed to adequately consider the various pipelines and underground electrical lines. The railway would disrupt in cases where the pipelines would not be able to safely go under the main track. They would have to be rerouted to other areas.

This entails using even more imminent domain to acquire additional land, adding months or even years to the project duration, and not only do these problems delay the completion date. They also add billions of dollars of extra costs. The state rail authority awards a construction company contract and tells them to start construction at a certain date. For example, in one year's time the contractor hires workers buys equipment and otherwise prepares for construction, but in many cases the land acquisition process takes longer than expected.

So the construction can only begin in two years instead of one. When this happens, the state has to compensate the contractor for all the money and time they wasted by waiting for the land acquisition to finally be ready. A damning report by the california state auditor said the rail authority failed to acquire sufficient land, determine how it would reallocate utility systems or obtain agreements with external stakeholders before starting construction. These failures directly led to 600 million dollars of cost overruns by 2018..

Another problem is getting environmental approvals from regulators. The train passes through many wetlands and natural habitats that are home to endangered birds, water sources and other things that are of environmental concern. For every section of the track, the rail authority has to submit environmental impact reports for approval from various regulatory bodies. Only after they're approved can the construction begin.

There's almost always a trade-off between environmental impact and cost a few years into the project. The rail authority was short on cash and desperately looking for ways to cut costs. In 2014, there was listing bids from contractors to build a section of the track in san joaquin valley, a spanish company called dragados said they could reduce the cost of the project by 300 million dollars. By reconfiguring some of the designs, the rail authority jumped at the opportunity to save so much money.

Unfortunately, these design changes were made after the environmental impact report was approved. Making material changes would require new environmental assessments, both federal and state regulators, including the u.s fish and wildlife service, objected to many dragon doses proposed changes. One senior engineer told the times that quote: it is mind-boggling that they could entertain some of the things that dragados propose to have changes like this. They should have just started with a new environmental document and gone back to the beginning.

Unquote, while dragados's cost cutting measures were supposed to save 300 million dollars for the project, it actually ended up costing an additional 800 million dollars and adding years of delays to resolve all the environmental issues. The fact that they entertained these cost-cutting measures that were almost certain to fail showed how desperate california had become to finish the project quickly, and they had good reason to be desperate. Remember that california had received almost 4 billion in federal grants from the 2009 stimulus package. As a condition of receiving this money, the rail authority must meet certain milestones around construction progress.

If they fail to meet these targets, they could be forced to pay this money back to the federal government and california was nowhere near the milestones. Fortunately, the obama administration was supportive of high-speed rail and they gave california an extension to 2022, but in 2019 the trump administration was less friendly to the golden state. They blocked one billion dollars of additional funding that had not yet been vested, citing lack of progress on what was increasingly looking like a massive boondoggle governor gavin newsom sued, the trump administration. He claimed that the withholding of funds was politically motivated as trump lost the state by more than 30 in the previous election.

But regardless of these criticisms, even newsom himself had to admit that the high-speed rail project was a disaster in his first state of the state. Address he said there was no path forward to completing the project as it was originally proposed. Let's be real. The current project as planned, would cost too much and respectfully take too long.

There's been too little oversight and not enough transparency right now. There simply isn't a path to get from sacramento to san diego, let alone from san francisco to la i wish there were, however, we do have the capacity to complete a high-speed rail link between merced and bakersfield. The new plan is, to only finish the railway, from merced to bakersfield and abandon the original plan to go from san francisco to la most of the construction to date has been between merced and bakersfield. So this is the most realistic portion of the line to complete the san francisco bay area has almost 8 million people, and la has almost 4 million.

Both cities are major economic centers with tremendous business travel and tourism. A railway between these two cities would almost certainly be highly trafficked and profitable merced, on the other hand, is a small city with a population of 82 thousand. It's hardly thought of as a major tourist destination. Bakersfield is larger, with a population of 400 000, but it's by no means a metropolis.

Furthermore, neither city has a developed railway system, so when you get out of the train station, you'll be forced to take a taxi or uber. This negates much of the cost savings and environmental benefits of using rail transportation. In the first place. The new smaller plan is expected by many observers to cost a grand total of up to 100 billion dollars and not be completed until 2029.

This is nine years later and almost 70 billion dollars more expensive than the original plan, and given california's track record of delays, even these estimates could prove optimistic to put the 100 billion price tag into perspective. California has 160 000 homeless people, which is more than any other state in the country. With this money, you could give every one of them 625 thousand dollars, which should be enough to buy a home for every one of them. The tens of billions of dollars, the californian and u.s taxpayers, have poured into this project may as well have been flushed down a toilet.

The end result will be a railway connecting two relatively minor cities with very little passenger traffic. At current estimates, the cost per mile building the high speed rail in california is more than 150 million dollars per mile. That's more than two super luxury gulfstream private jets per mile. According to the world bank, china builds this domestic high-speed rail for 30 million dollars per mile or roughly one-fifth of california.

While some of this can be attributed to cheap labor costs, this alone cannot explain a five times differential. The fact of the matter is the u.s. Just isn't well suited to building large-scale, complex public infrastructure projects. The legal system is too slow to deal with imminent domain cases on a large scale, and the environmental regulations are too restrictive in a place like china.

It's much easier for the government to acquire private property and their environmental regulations are far more relaxed. Joe biden has often been called amtrak joe by the media because of his long-standing support for railroad development in his 1.2 trillion dollar infrastructure bill. He is allocating 66 billion dollars to railways. Much of this money will go to modernization and repairs of the existing amtrak lines and upgrades to the highly traffic northeast corridor.

There is also 10 billion dollars in funding earmarked for high-speed rail, of which california will likely get at least a couple billion to help finish. Their immersive to bakersfield line many rail advocates were disappointed in the infrastructure plan, as less than one percent of the money was allocated to high-speed rail. But given the money sync that the california rail experiment has been, we should be perhaps grateful that biden is limiting the country's losses to just 10 billion dollars, alright, guys that wraps it up for this video. What do you think about high speed rail? Do you think the california project will ever get completed? Let us know in the comments section below, if you enjoyed this video, make sure to hit the like button and subscribe.

So you don't miss future videos as always. Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.