Bullet Train Economics

by Greg Justice

OFTEN maligned as science fiction in the United States, high-speed rail (HSR) is a fact of life and a viable form of transportation in much of the developed and even developing worlds.

It is the most environmentally-friendly form of mass transportation in the world; it uses the least amount of energy while transporting more people. Further, HSR is also the safest form of transportation in the world. Only four accidents – including the recent no-injury derailment in Japan – and 164 fatalities have occurred worldwide since 1964. And not even one fatality occurred on any HSR train in Japan during the 9.0 earthquake in March 2011.

Contrast that to the 32,367 highway-related deaths that occurred in 2011—in the US alone.

Twenty-one nations have HSR systems in regular revenue operations, with another twenty-one nations now in the planning planning stages. The closest thing to HSR in United States is the “Acela” system serving Boston to D.C., and administered by Amtrak. It runs between 125-150 MPH; the generally accepted speed of HSR is a 155 MPH or more.

With the passage of Proposition 1A in 2008, voters chose to make HSR in the nation’s most populated state a reality, and perhaps unwittingly renewed the debate over the merits and impact of this transportation. With every G20 country except Canada and the U.S. planning for a national HSR system, I argue the train is needed for California to remain economically viable and globally competitive, as well as focused on sustainability.

HSR is not a new issue. In 1993, the California State Legislature established the California High-Speed Rail Commission to study the potential for a Northern California Southern California connector. By 1996, studies by the Commission concluded that a HSR system in California was feasible. And necessary.

That same year, the Legislature enacted Senate Bill 1420 to make permanent the entity, now named the HSR Authority, as well as to initiate a system-wide business plan.

In 2000, the HSR Authority released their first plan, a 703-mile system serving all major metropolitan areas, at an estimated cost of $25 billion. Because the plan called for an initial sale of almost $10 billion in General Obligation bonds by the State Treasurer, voter approval was needed.

On November 4, 2008, voters approved Proposition 1A with 53% of the vote. A few days later – November 7, the Authority released an updated business plan reflecting a larger system, 800 miles, and a bigger price tag—$33 billion.

The following year, amidst controversy over the true cost of the system and administrative mismanagement, the Legislature enacted Senate Bill 783 mandating an updated business plan by the end of fiscal year 2012-13, and updates every two years thereafter. In April 2011, the Authority released another draft business plan putting the costs of a full system – LA-SF via the Central Valley, with extensions to Sacramento and San Diego – at nearly $100 billion.

The Authority then significantly revised its plans, and a year later, released an updated business plan. The Authority’s new priority is the 520-mile LA-SF segment at a reduced cost of $68.4 billion. Because of higher costs and the reduced likelihood of further federal funding, Governor Brown announced in January of last year that monies collected from the State’s Cap-and-Trade auction would support the HSR system.

Two aspects of the system that have been hotly debated are the promised environmental benefits and whether the system will actually attract the ridership necessary to sustain operations without government subsidies.

There are significant environmental effects associated with the first construction phase. The full-system, however, which will be run on renewably-generated electricity will dramatically curtail – and later eliminate – emissions for the system, making it the cleanest HSR system in the world.

Revised ridership scenarios and models by the Authority’s independent Ridership and Review Panel, UC Berkeley, and Cambridge Systematics project an operating surplus even amidst conservative ridership figures.

However, none of these arguments have been as dominate as that of the overall costs of the system. At just over $68 billion for the initial LA-SF segment, conservative legislators have called the system a “boondoggle,” and believe California cannot afford this at the time of record multi-billion dollar deficits.

This view is incredibly short-sighted and goes against the history and spirit of our state’s civil planners and engineers, and fails to address the what California stands to lose if we do not build a HSR system.

With HSR not in place, many regions throughout the state will see a major loss of economic activity, and forfeit employment that would have occurred under HSR.

Individually, the State’s seven largest regions are expected to bring in around $28-29 billion annually by 2030 – in 2008 dollars – as a result of HSR. Taken aggregately in consideration of the multiplier effect, the statewide estimated total for economic activity increases to $38 billion a year by 2030. In 2010 terms, that amount is 2% of California’s gross domestic product.

Additionally, without the system in place by 2030, the state will miss out on an estimated 1,246,000 “job-years” in employment created both directly through construction activity, as well as indirectly through multiplied economic activity. (“Job-Years” is a measurement of employment length, as opposed to numbers of jobs; such a measure is recommended as more accurate for employment estimates for infrastructure by the United States Bureau of Economic Analysis.)

Not only does California stand to lose billions in estimated revenue related to the construction and operation of HSR, opponents also underestimate the overall change to California’s quality of life if the system is not built.

According to USC and Department of Finance projections, California is expected to reach between 41.4 and 50 million in population by 2030 – two years after the LA-SF segment is expected to be complete.

With this population growth, planners forecast an increase of 100 billion vehicle miles travelled (VMT) on the state’s roadways – 380 billion in 2010 to 480 billion in 2030. California will need 4,300 new highway lane miles, 115 new airport gates, and four new airport runways – all at an estimated cost of $158 billion.

The California Department of Transportation also estimates the 50-year operations and maintenance costs of these new roadways to be an additional $132.8 billion. Building the HSR will accommodate the increased transportation demands and negate aforementioned construction.

The debate over the HSR system continues, despite the fact that Californians approved the system under Proposition 1A (2008).

With the LA-SF phase projected to cost $68.4 billion, the overall cost to California and our citizens is much greater economically and environmentally if the system is not built.

The loss of economic activity if HSR is not built is estimated to reach $38 billion annually by 2030 – 2% of California’s 2010 GDP. The money spent establishing the new infrastructure needed to accommodate increased transportation needs if the system is not built is projected at $290.8 billion – $158 billion for building the infrastructure, $132.8 for 50 years of operations and maintenance.

These costs do not even include a monetization of health effects resulting from an estimated 100 billion additional vehicle miles travelled by motorists, 12.7 billion additional gallons of oil consumed by vehicles and 12 billion more tons of carbon dioxide emitted from increased automobile travel.

Like all major infrastructure projects in California’s history – the State Water Project and Bay Area bridges — the HSR system should not be seen as a major expense, but rather a wise investment addressing our present and future mobility, infrastructure and citizens’ needs.

With more young adults turning to environmentally-friendly forms of transportation and abandoning single passenger vehicles altogether, the demand for the system is not only present in current modeling, but likely to increase around the time the system is scheduled to be open in 2028.

The California high-speed train is in all aspects a train to the future; to heightened economic activity and employment, to the modernization of our State’s infrastructure and transportation network, and most importantly, to the increased environmental protection of our citizenry and our abundant natural resources.