High Speed Rail:Taxpayer Risk Assessment

Presentation by Wendell Cox

Heritage Foundation4 March 2011

High Speed Rail: Taxpayer Risk Assessment

Needs Versus Wants

Broken Promises: Capital Cost Escalation

Exaggerations: Air & Road Congestion

Exaggerations: Environmental Impact

Taxpayer Risk: International

Protecting Taxpayers

The California High Speed Rail Proposal: A Due Diligence ReportThe Tampa to Orlando High Speed Rail Project: Florida Taxpayer Risk Assessment

Needsv.

Wants

The ContextUNPRECEDENTED PUBLIC FISCAL CHALLENGES

Stop buying things we don’t need

Planning Process v. TaxpayersBROKEN PROMISES & EXAGGERATIONS

California V. the TaxpayersFALLING RIDERSHIP – ADVOCACY BY THE LEGISLATURE

Annual Ridership (Millions)

CALIFORNIA COURT DECISION

“Voters know that the arguments in the ballot pamphlet are advocacy, but they assume – wrongly, in this case – that the ballot label, title and official summary are objective.  We are very pleased that the Court’s ruling demands that, in the future, only an objective party can prepare those portions of the ballot material which are currently recognized as being ‘official.’”

O’Hare International Airport: Chicago

Interstate 5 between San Francisco & Los Angeles

Chicago O’Hare International Airport

HighSpeed RailThe Need?

Per Passenger Mile: 2006$

Federal Profits & SubsidiesTRANSPORTATION PROGRAMS: 2006

COST PROJECTIONS

• SUBSIDIES• PROJECTIONS• FLYVBJ

Broken Promises:Capital Costs

Kunming (Yunnan) Railway Station

Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying.

Capital Cost OverrunsINTERNATIONAL RESEARCH

Low End

Of Range:

May have

Been 300%

Flyvbjerg Magnitude

Cost Escalation

Capital Cost Increases: CaliforniaBEFORE A “SHOVEL IS TURNED”

Projected and Potential Costs & SubsidiesTAMPA TO ORLANDO HIGH SPEED RAIL LINE

HSR not Principal

Justificationfor

Expansion

ExpansionNot

Justified

Faulty PlanningUSING URBAN HIGHWAY COSTS IN RURAL AREAS

CALIFORNIAPROJECTION

(EXAGGERATEDCOSTS)

$66 BILLIONHSR ATTRIBUTABLE

COST USINGFHWA UNIT COSTS

$0.3B

1. Expansion not needed2. Used urban costs in rural areas3. Attributed all avoided costs to high speed rail

IMAGE

Most High Speed Rail = Faux Speed Rail

Fast Mail1877

NYC-Niagara

Capital Cost Increases: Chicago - St. LouisTHE ELUSIVE 4-HOUR SCHEDULE

Faux Speed Rail

Generally

less effective than

high speed rail

Broken Promises:Ridership & Revenue

Los Angeles

Ridership Projections HighRESULT: LOWER REVENUES (& LOSSES)

Flyvbjerg Magnitude

Ridership Exaggeration

California: Faulty ProjectionsAIRLINES AND HIGH SPEED RAIL SYSTEMS

Before

Ridership

Projection

Reduction

Population: Florida & Northeast CorridorORLANDO-TAMPA V. WASHINGTON-NEW YORK

Population (Millions)

Ridership: Florida & Northeast CorridorORL-TPA COMPARED TO WASHINGTON-NEW YORK

Annual Rides (Millions)

San Francisco

Exaggerated Claims:Air & Auto Congestion

Faulty PlanningUSING OUT-DATED AIRLINE VOLUMES

Impact on Airlines & AirportsMARGINAL, AT BEST

O’Hare International Airport: Chicago

Even with the large diversion of air passengers predicted by the Rail Authority (35% to 56%), we found that the projected runway demand at SFO would only be reduced 4-7%, due to the large number of SFO flights not associated with the California market. …Finally, it is possible that the airlines wouldcompete more effectively with fares than assumed in the HSR report.

Regional Airport System Plan (San Francisco Bay Area)

Potential for GHG Reduction: AirlinesCOMPREHENSIVE HSR SYSTEM: 2030

Jamin, Shafer, Ben Akiva & Waitz, 1999

• CONNECTIVITY (LAST MILE PROBLEM)• CAR NEEDED TO COMPLETE TRIP

• CONGESTION IS IN URBAN AREAS– NOT BETWEEN

• HIGH TOLLS:– TOKYO-OSAKA $100+– PARIS-MARSEILLE $75+

• GASOLINE– JAPAN: Nearly $6/Gallon– FRANCE: Nearly $7/Gallon

HSR Competes Poorly with CarsCOSTLY, SHORT TRIPS DOOR-TO-DOOR TIME LONG

Millau Viaduct, France

HSR Cannot Compete with CarsNEED FOR A CAR AT THE DESTINATION

Automobile travel differs from air or rail travel in that it generally involves door-to-door service, offers greater flexibility in time of departure, and does not require travelers to share space with strangers. Consequently, rail travel must be extremely competitive in other dimensions, such as speed or cost, to attract automobile travelers.

Higher isMore TrafficCongestion

Vol

ume/

Cap

acity

Rat

io

Highway Capacity

Before

Ridership

Projection

Reduction

Faulty Planning CLAIMED AUTO TRAFFIC CONGESTION IMPACTS

Faulty PlanningCLAIMING LITTLE PARKING NEEDED: USING TRANSIT

Southern Greenland

Exaggerated Claims:Environment

Shenyang, China

Cost Effective Greenhouse Gas ReductionUN IPCC MAXIMUM RANGE

$20 $50Market

Less than$15

McKinseyAverage

$17

Above $50 is wastefulDetracts from efforts to reduce GHGs

Cost per Ton of CO2 Removed: California2030 PROJECTIONS & IPCC CEILING

IPCC CEILING ($

50)

New Ridership

Projection would

Increase 50%

Potential for GHG Reduction: AirlinesCOMPREHENSIVE HSR SYSTEM: 2030

Jamin, Shafer, Ben Akiva & Waitz, 1999

GHG Emissions/Air Passenger MileLOS ANGELES-SAN FRANCISCO: LIFE-CYCLE

Grams/Air Passenger Mile

Estimated fromChester & HorvathU.Cal (Berkeley)

Adjusted for

Airline

Passenger Miles

Average OccupancyAirline, Car. HSR 60% Occupancy

California: 71 Year GHG PaybackCONSTRUCTION & OPERATIONS

• CHSRA ridership assumptions

• UC Berkeley “Mid-Point” Projections

HSR INDUSTRY

Misleading claims

Power Generation

(Nuclear Power)

Rail investments are in general not a cost-effective climate policy instrument. The reason is that despite great investment costs it is only possible to affect a very small part of carbon dioxide emissions from the transport market.

High Speed Rail & GHG EmissionsSTUDIES FROM SWEDEN & THE UK

Includes

Construction

Impacts

(Unique)

Taxpayer Risk:International DB Frankfurt Train: Gare de l’est

Iñaki Barrón de Angoiti, director of high-speed rail at the International Union of Railways in Paris, referred to the short Paris-Lyon and Tokyo-Osaka routes as the only ones in the world that have “broken even.”

The New York Times, May 29, 2009

Profitability Claims ONLY PARIS-LYON & TOKYO-OSAKA (MAYBE)

Japanese National Railroad: The RecordLOSSES, DEBT & PRIVATIZATION: 1950-1986

Tokyo-Osaka Opens

Privatization (1987)

Impact on NationalDebt ($US Billions)

European Passenger RailPUBLIC FUNDING: INCLUDING OFF BALANCE SHEET

AMTRAK IGREPORT

Perils of Private InvestmentTAIWAN & UNITED KINGDOM

Albuquerque

ProtectingTaxpayers

Stop buying things we don’t need

1: No tax funding: high speed rail is not needed.

2: If public financing:

(A) Surety bond (performance bond) for Flyvbjerg magnitude cost escalation.

(B) Consortium investors: Unlimited corporate guarantees (including repayment).

Paris 1890s