America / Economy / Energy / Fiscal policy / U.S. Domestic Policy

The High-Speed Rail Boondoggle

In January 2009, then president-elect, Barack Obama, rode into Washington, DC on an Amtrak train.  His, pre-inaugural, one-day trip was a symbolic nod to Lincoln’s similar journey, some years ago.  Exactly one month later, now, President Obama signed in-to-law the American Recovery and Reinvestment Act (ARRA).  The ARRA, among other things, provided $8 billion towards planning, building and implementing a new high-speed and intercity rail system.  The following year, a Democrat-controlled Congress allocated another $2.5 billion to the project.  Since then, disputes have flared over the enormous costs in comparison to what the potential benefits may actually be.

From 1990 through 2007, the Federal Railroad Administration (FRA) calculated that Congress allocated $4.17 billion in total, an average of $232 million per year to high-speed rail projects.  In just two fiscal years – FY2009 and FY2010 – under Mr. Obama’s initiatives, Congress allocated $10.5 billion: a 151.7 percent increase in total funding.  And, if averaged against the FRA’s yearly calculations: a 2,162 percent increase, per year.  These numbers do not even include the $27 billion that was given to states, for highways, that can be re-allocated to this rail project (if a state so chooses), and the 2008 Passenger Rail Investment and Improvement Act that authorized $1.5 billion, over fiscal years 2009 to 2013, for high-speed rail development and improvements.

The ongoing and capital costs associated with the high-speed and intercity rail projects are massive.  But, is it worth it?  The short and sweet answer is no, it is not.  And, here’s why:

Development of railroad infrastructure, and improvements to existing rails are costly and unpredictable.  Rail lines across the U.S. are separated by classes – numbering 1 through 8 – that determine the allowable maximum speed of a train using said track. The speed in which a train needs to travel and the cost of railroad infrastructure development have a positive relationship.  Meaning, the higher the maximum allowable speed is, the more money it will cost to build and maintain it.  Not only does the cost for infrastructure development increase, but also, new safety measures must be implemented; further increasing immediate and long-term costs. In a recent study, the Department of Transportation (DOT) concluded that the track improvements needed to reduce the travel time from Washington, DC to New York City and New York City to Boston, by just 30 minutes, would cost $31 million per mile or roughly $14 billion.

To establish a true high-speed rail system, with trains traveling up to 220 mph, entirely new and high-speed-only, dedicated rail lines would have to be built.  California has proposed just such a new project: a 520-mile high-speed rail line from Los Angeles to San Francisco.  In late 2011, the state filed a report that projected the cost of the project: $98 billion or $188.4 million per mile.  To put this in perspective: you could build 39 Hoover Dam’s*; pay 59,000 elementary school teachers salary for 30 years; or provide a robust budget for worldwide embassy security for the next 68 years.

The expected costs are even more difficult to quantify than usual since infrastructure development is overtly project and site-specific.  As well, it should be noted that government calculations for projected costs of projects are notoriously and reliably underestimated.  In fact, a recent study examining 258 infrastructure projects around the world concluded that 90% of the projects estimated costs were well below the actual expenditures.  Most glaring of these: rail projects, on average, ended up costing 46 percent more than was first estimated.

After billions of dollars have been spent to design, construct and implement the high-speed and intercity rail systems; another problem emerges.  It was noted, in one recent study that operating costs are – as a rule – generally higher than the revenue that is earned.  “Few, if any, passenger rail operations anywhere in the world generate sufficient revenue to cover all capital as well as operating costs.”  Every intercity train service in the U.S., except Amtrak’s Acela, is already subsidized due to inability to cover operating costs.

Amtrak, America’s passenger rail service is, in essence, a government-controlled company. The federal government owns all issued and outstanding preferred stock.  In FY2011, Amtrak received $563 million for operating costs and $922 million for capital programs.  In July of this year, Amtrak announced its high-speed plan, which would only cover the Northeast Corridor.  The cost of the plan: $151 billion.  Revenue, gained from fares, will play a crucial role in Amtrak’s gross revenue production.  In a nutshell, Amtrak is going to need very high levels of ridership.  One study estimated that simply to justify the cost of such a project, Amtrak would need to carry at least 6 to 9 million passengers in the first year alone.  In 2011, Amtrak’s high-speed service, in the Northeast Corridor, carried only 3.4 million passengers.

The positive effects that may potentially come from the new high-speed and intercity rail service appear, by some expert’s opinions, to be minimal, at best.  One such expert argues that the congestion of highways – a main reason stated for the need for high-speed rail – will produce lackluster results.  New ridership for intercity trips will only grab roughly one percent of automobile riders currently in the Northeast corridors largest market, New York City to Washington, DC, according to a DOT study.  This is not enough to even make a miniscule dent in traffic congestion.

The modal options available to the public and which one they decide to use, will be determined by too many variable factors – such as locale, distance, and social aspects – to quantify a good reason for the money being spent on the rail project.

The impact on the environment – another highly touted aspect of the initiative – will also be much less significant than previously believed.  If ridership does not increase significantly, reductions in carbon emissions will be minimal.  The carbon being emitted during construction, maintenance and upkeep of the rails will also offset the purported reductions in carbon emissions.  A study that analyzed the reduction of greenhouse gases in the proposed London-to-Scotland rail showed a mere 0.2 percent greenhouse gas reduction below their current emission rates.   Notably, the 0.2 percent reduction rate was only realized after assuming that every person who stopped flying from London to Scotland would only use the rail, and that the rail itself would not produce any greenhouse gases.

Investing in our nation is vital to our recovery.  But, sound investments in a stagnant economy must be made.  The egregious amounts currently being spent, under Mr. Obama’s initiatives, are increasing our debt and will force a large encumbrance on our future generations.  The math on high-speed rails just does not add up.


*Determined using a price of $170 million – an average of the estimated $165 to $175 million cost of the project – and than adjusted for current inflation.