High Costs Threaten California’s High-Speed Rail Project, But the Wider Context Must be Understood

» Over the long run, California’s fast train project remains within an acceptable range of costs, despite recent increases.

The release of the California High-Speed Rail Authority’s revised business plan on Tuesday underlined concerns about the future viability of the nation’s biggest proposed transportation project: Not only would its completion have to be delayed significantly — to 2033 or later — but projected costs have risen dramatically, to $98 billion in year-of-expenditure dollars. In a political environment where making a large long-term commitment to anything other than the military is almost impossible, the increasing costs required to pay for the program put in doubt its future. This fast train project designed to connect Los Angeles and San Francisco in 2h40 is not dead, but its completion is less likely now than it was last week.

The steadily rising nature of the public expenditures that would be required to build the project as now designed have been roundly criticized in some quarters, and it is true that the project’s increasing reliance on very heavy and expensive infrastructures like viaducts and tunnels may be unnecessary by international standards. But the project’s per-mile costs — even with the cost increase — are not hugely different from those in other developed countries for rail systems offering speeds of up to 220 mph.

Yet the broader issue is how the project’s price compares to that of existing public sector transportation investments and the economy as a whole, and as the chart above demonstrates, its ostensibly enormous price is, well, relatively small.

Between now and 2033, the rail project would cost between $65 and $75 billion (in 2010 dollars). Over the same period, Caltrans, California’s Department of Transportation, can be expected to spend at least $286 billion (also in 2010 dollars), mostly on roads projects, assuming that its current annual budget of about $13 billion (including federal and state outlays) stays intact. In truth, considering that there is considerable support for increasing infrastructure spending in general, that figure is likely to go up considerably.

Compare those figures to the state’s GDP, which is estimated at about $1.9 trillion a year. Over the course of twenty-two years, the state will produce $42 trillion in output (again, in 2010 dollars) — assuming no growth in the economy, despite the fact that California’s population is expected to grow by seven to seventeen million people by 2040.

This very conservative* estimate, then, suggests that a high-cost rail project would not only represent only 0.18% of a heavily depressed state economy over 22 years, but also that it would only account for 21% of the broader state transportation budget, which would remain mostly focused on highway construction and maintenance, as in the status quo. On average, the U.S. invested between 2.5 and 3% of its GDP on publicly sponsored infrastructure between the 1950s and 1990s. The full cost of the California project thus comes to appear far less dramatic.

The project becomes even less problematic considering it is, like almost every high-speed rail project, expected to be operationally profitable, and that its benefits to the society will be larger than its costs. The analysis done by the authority, based on decreased travel times, lower use of fuel, reduction in pollution, increases in productivity and reliability, and a decline in traffic accidents, suggests a decent benefits-cost ratio of 1.5 to 1.8. This does not include other benefits, such as the ability to avoid building hundreds of lane-miles of new highways and expanded airports to accommodate the mobility needs of millions of new California residents.

Nor is such a significant investment in one project out of the international norm. The Grand Paris Express, designed to connect the suburbs of the French capital with a circumferential rail network, will cost about $40 billion to build (including ancillary improvements in the existing system). This alone will represent about 0.4% of the Paris region’s GDP between now and 2025. Both the Paris and California projects will contribute massively to the economic growth of the regions in which they are being built.

The question, then, is two-fold: First, what level of investment should the country make in its transportation system? Second, are other transportation projects more valuable than the California rail project?

The first issue is political: Is there sufficient support among electoral constituencies in California to allow for the continued sponsorship of what will be a drawn-out process with plenty of controversy? California Governor Jerry Brown appears to remain on board, as does, surprisingly, at least one member of the state GOP delegation. The rail authority’s attempt to stage the project — beginning with a segment between the Central Valley and either the Los Angeles Basin or Bay Area, and then moving for a full-length line — is one way to make the project more palatable in the short term.

More broadly, the state must make a decision about how it wants to invest in its transportation future. As already noted, the state department of transportation is likely to invest about $300 billion in mostly highway infrastructure over the next two decades. With so much spending directed towards the roads network, it cannot be easy to dismiss a large spending commitment to rail. But the difference between the two is obvious: Because the rail line is a single project (despite its statewide implications), it is viewed in terms of its huge costs and long-term lifecycle; the roads improvements likely to occur during the same period are four times as expensive — but broken into much smaller, shorter-term projects, so they are far less politically vulnerable.

And the system will surely need further support from the federal government, which the authority hopes to convince (over the next few decades) to chip in $20 billion or more in grants. Because of the insecure fiscal situation, private funding for the project will have to wait. Nevertheless, a future Congress that considers high-speed rail an acceptable mode of transport will likely fund projects nationwide; remember that earlier in 2011, President Obama proposed entirely seriously investing $53 billion in fast trains. Though that effort was not successful, the idea is clearly on the minds of policymakers.

None of this suggests that it would be a bad idea to reduce the costs of the project. The cost of the line cannot continue to increase infinitely (though the authority’s math in this business plan is based on the considerable preliminary engineering completed since the last plan in 2009, so that doesn’t seem likely). The whole line cannot be put into tunnels or onto viaducts in order to avoid community opposition, or it will become impossible to fund.

At a certain point, the question is therefore whether there are other programs that would provide better societal benefit than the high-speed rail system, and this is a valid conversation worth exploring. From my perspective, moving the money into roads infrastructure would be simpleminded considering the need to expand mobility options and decrease levels of pollution. It could also be possible to use the funds for local transit expansion, which has plenty of unmet capital needs, especially in California’s largest cities. But who in the state is proposing a comprehensive effort to upgrade rail and bus networks? And how would that spending address the needs of intercity travel?

* And admittedly back-of-the-envelope, but the point is to highlight proportions here, not specific values.