High Speed Boondoggle
by Robert Poole
Issue 205 – June 6, 2012
Two new reports from very credible sources have raised serious questions about the new, scaled-back business plan adopted by the California High Speed Rail Authority (HSRA). It significantly down-sized the project, lopping off the costly and controversial urban sections in the San Francisco Bay Area and greater Los Angeles area, by putting the HSR trains onto upgraded existing commuter rail tracks (at lower speeds) rather than on all-new right of way. That reduced the HSRA’s budget for Phase 1 from the previous $98 billion to “just” $68 billion. The downsized Phase 1 would permit the first trains to operate all the way from Los Angeles to San Francisco by 2028.
The California Legislative Analyst’s Office (LAO) came out strongly against the plan, recommending that the Legislature not approve an initial bond issue. The LAO report criticized the proposed funding plan (which assumes greatly increased federal funding, plus investments by local governments and the private sector) as almost entirely speculative. But California cannot make use of its current allocation of $3.3 billion in federal money unless it issues an initial $2.6 billion of the $9 billion in state HSR bonds authorized by the voters in 2008.
A second blow to the HSRA’s credibility came several weeks later, when the Community Coalition on High Speed Rail released the latest in a series of critical reports authored by Stanford University management professor Alain Enthoven and former World Bank official William Grindley. They looked into the HSRA’s projected operating cost (a key factor in the business plan’s alleged operating profit) and found it grossly understated. The plan assumes operating costs of about 10 cents per passenger mile, less than one-fourth as much as the 40 to 50 cents per passenger mile of HSR systems in Europe and Asia. Those costs ranged from a low of 34¢/pass.-mi. in Italy to 50¢/pass.-mi. in Germany and Japan.
Grindley told the Los Angeles Times that it appeared that the HSRA’s consultant developed a bottom-up estimate of operating costs, summing as many as 30 components, to reach the 10¢/pass.-mi. figure. But given the real-world costs reported by HSR systems today, that figure lacks credibility.
In response to the poor quality of analysis underlying the current generation of proposed U.S. HSR systems, the U.S. DOT’s Office of Inspector General released an audit report on March 28, 2012: “FRA Needs to Expand Its Guidance on High Speed Rail Project Viability Assessments.” (CR-2012-083) The report points out that the Federal Railroad Administration “has established only minimal requirements and guidance on the information [that] grant applicants must provide to FRA on project viability.” It goes on to discuss the factors most critical to an assessment of economic viability and offers numerous suggestions on how to conduct such assessments in a more rigorous manner. FRA says they fully concur with the recommendations and will produce such guidelines by March of next year.
At the very least, FRA should hold off decisions about any new HSR funding until the guidelines are in place and are being followed by applicants for funding.
Robert Poole is editor of the Reason Foundation’s Surface Transportation Innovations, where this first appeared.