The Corner

High-speed Rail to Nowhere

The Washington Post’s Charles Lane has a really good yet infuriating piece today on California’s high-speed rail project. As you know, the Golden State has been pushing, at the encouragement of the federal government, an increasingly expensive high-speed-rail project. The rationale behind the multi-billion-dollar train is its ability to stimulate the economy and create jobs for many years to come. But as Lane explains, even ignoring the mountain of evidence accumulated in the past about high-speed rail’s inability to stimulate much of anything aside from debt, this particular project is on track to become yet another boondoggle.

The latest authoritative warning came last week from the California High-Speed Rail Peer Review Group, which called the program “an immense financial risk” for the state and refused to recommend that the state legislature sell $2.7 billion in bonds to start a 130-mile initial stretch of the system.

Thanks to federal policy, if California does not start work on the rail line by Sept. 30, it will lose an additional $3.3 billion in federal money — possibly dooming the system.

But the Catch-22 is that, if California does start building without securing future funding, it could end up with a $6 billion track to nowhere. As the Peer Review Group (PRG) explains, that’s because, for economic-stimulus reasons, Washington insisted that California build the initial stretch between two outposts in the lightly populated San Joaquin Valley.

“[M]oving ahead . . . without credible sources of adequate funding, without a definitive business model, without a strategy to maximize the independent utility and value to the State, and without the appropriate management resources, represents an immense financial risk on the part of the State of California,” concluded the PRG, an independent body established by the 2008 referendum that authorized $9 billion in high-speed rail bonds.

Of course, lawmakers in California dismiss the report and would like to to move ahead with the project. This is amazing especially considering how much evidence we have that high-speed rail is, at best, a “questionable investment even if California could afford to build it,” as Lane says. In this piece, for instance, the Cato Institute’s Randy O’Toole shows that high-speed rail creates almost no new mobility (it adds  a tiny number of new travelers), which means no real value. And then, of course, it’s a terrible investment for taxpayers, who will be taking a risk as well as subsidizing a transportation system that most of them won’t use. (The estimate is that the overall high-speed rail system envisioned by president Obama will serve only 8 percent of Americans.) O’Toole explains:

Unlike the interstates, which were paid for exclusively out of gasoline taxes and other highway user fees, all of the capital costs and much of the operating costs of high-speed trains will be subsidized by taxpayers who will rarely ride the trains. This is the way it works in France and Japan, where — despite having population distributions much more conducive to rail travel — residents ride high-speed trains an average of less than 500 miles a year.

There are many reasons why  passenger rail service doesn’t work in America. As Robert Samuelson wrote in the Washington Post a few months ago:

Interstate highways shorten many trip times; suburbanization has fragmented destination points; air travel is quicker and more flexible for long distances (if fewer people fly from Denver to Los Angeles and more go to Houston, flight schedules simply adjust). Against history and logic is the imagery of high-speed rail as “green” and a cutting-edge technology.

And Lane confirms:

But the sprawling, decentralized cities of the United States do not make convenient destinations for train travelers. International experience shows that high-speed rail entails expensive debt service and large operating subsidies. This would likely be the case here as well, since, for better or worse, rail must compete with well-established air and car options. Business travel is one ostensible purpose of bullet trains in California, but increasingly people meet via video conference.

Contrary to what many Americans think, the French do have nice and fast trains but they don’t use them enough to make them profitable. Even though France’s geography is better suited to rail travel than America’s, only one French high-speed line breaks even, and relatively few people use this expensive system of transportation.

And yet these projects looked good on paper. That’s not surprising, considering that inaccurate estimates of demand plague infrastructure projects. A study of 208 projects in 14 nations on five continents shows that nine out of ten rail projects overestimate actual traffic. Moreover, 84 percent of rail-passenger forecasts are wrong by more than 20 percent. Thus, for rail, passenger traffic averages 51.4 percent less than estimated traffic. This means that there is a systematic tendency to overestimate rail revenues. 

The same body of work has also shown that project promoters routinely ignore, hide, or otherwise leave out important project costs and risks to make total costs appear lower. Researchers refer to this as the “planning fallacy” or the “optimism bias.” Scholars have also found that it can be politically rewarding to lie about the costs and benefits of such projects. The data show that the political process is more likely to give funding to managers who underestimate the costs and overestimate the benefits. In other words, it is not the best projects that get implemented, but the ones that look the best on paper.

Finally, as my colleague Matt Mitchell and I have documented in the past, claims that investment in infrastructure projects will stimulate the economy and will create many jobs are, at best, dubious. 

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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