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The downtown extension, originally planned by Southern Pacific Railroad in the early 20th century, was the centerpiece of a 1983 plan by Peninsula Rail 2000 to upgrade Caltrain shortly after PR2000 was founded. In the late 1980s and early 1990s, Caltrans sponsored studies that have laid the groundwork for the extension and Caltrain electrification.

In 1988 regional leaders agreed on a list of rail capital projects for which funding would be sought. This list included the downtown Caltrain extension. Known as MTC Resolution 1876, this agreement resolved differences between San Francisco, East Bay, and Peninsula interests on which rail projects should receive federal and state funding. In June of the same year, San Mateo County voters approved a 1/2-cent sales tax to fund transportation projects, including the acquisition of Caltrain's right-of-way from Southern Pacific, and a portion of the cost of the downtown extension. In November 1992 San Mateo County voters again affirmed their support for the extension in advisory Measure C, by a 78% margin.

Currently, the downtown SF Caltrain extension is the only major unbuilt project from the Resolution 1876 list. The extension is part of an ambitious plan by the City and County of San Francisco to rebuild the Transbay Terminal, the hub for regional bus carriers that serve San Francisco, located at First and Mission Streets.

     
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