Hey, Amtrak: don't shelve that $151b HSR plan just yet

In 2012 Amtrak released their "vision" for passenger railin the Northeast Corridor (NEC), and it came with a price tag that shocked even the most ardent American rail supporters: $151 billion. I recall laughing to myself at the guts it must have taken to put together a report like that at the same time your organization is begging Congress for $400 million just to maintain operations at their current, generally low, level of service. After taking a closer look though, maybe the plan isn't quite as crazy as it seems.

To understand why, we first need to take a moment to understand the scope of the proposal. Broadly speaking, it involves two large projects: 1) upgrades to the existing corridor and 2) construction of a new, truly high speed corridor mostly parallel to the existing tracks (as well as trains to run on those new tracks). The former accounts for $33.5 billion of the total cost, the latter $117 billion. Here's what they they'd look like next to each other:

And here's the cost breakdown in greater detail:

The focus of this post is going to be on the NextGen HSR component of this proposal, the $117 billion part. The Master Plan's upgrades and Gateway program are both valuable, but less controversial and, frankly, less eye-popping in terms of cost. We'll take a look at the costs and benefits of a new HSR corridor in the Northeast, as well as some musings on how we might cobble the money together to build it.

Let's start with the benefits. First, and most important to most of us, is travel time: NextGen HSR, with top speeds of 220 mph, would cut travel times roughly in half. The trip time from New York to Boston would drop by 56%; New York to D.C. would drop by 41%. Traveling all the way from D.C. to Boston would take just over 3 hours, compared to the current six.

These times would make rail faster than air travel, door to door, and rail already has the edge for businesspeople (and anyone else) who want to work as they travel. This also relieves pressure on airports, both in terms of congestion and by reducing the need for low-profit, short-haul flights. Compared to air, rail already has the lion's (market) share of travel in this corridor; high speed rail would reinforce its position as king in the NEC.

Beyond travel times, HSR has a whole host of other benefits: fewer travel-related deaths and injuries,  reduced congestion along the I-95 corridor and other connected highways and arterials; investment and growth in second- and third-tier cities; integration with local transit, making car ownership even less essential; and, of course, reduced pollution compared to planes, cars, and even most buses.

It's also helpful to compare this investment to one likely alternative: widening highways along the corridor, especially I-95. This would undoubtedly reduce congestion, although, thanks to induced demand, only temporarily. More importantly, all of the externalities of highway widening are negative: increased pollution, greater strain on local roads, neutral or negative impacts on development, more deaths and injuries. And gasoline is only going to get more expensive. For HSR, on the other hand, all of the externalities are positive.

The costs associated with this plan are also great. $117 billion is a huge sum of money, and even a region as rich as the NEC will struggle to pull it together without an incredible act of cooperation and willpower.

The sticker price isn't the whole story, of course. To calculate the true cost we also need to take into account how much revenue is expected to come in, and this is where things get interesting. In China, despite the incredible amounts of money invested in high speed rail over the past several years, four of their lines are already profitableand this includes capital costs. This means that, in the long-term, these lines (and others as the system matures) are likely to actually turn a profit for the Chinese government--and that's before taking into account the many other economic, social, and environmental benefits that were the real driving force behind these investments. Can we do the same?

Here are the revenue and operating expense projections for the NEC with NextGen HSR (this includes the increased ridership from Master Plan upgrades, but I believe the total operating profit would remain roughly unchanged, since nearly all profit comes from HSR):

 The 2012 Vision is the one referred to in this blog post

The 2012 Vision is the one referred to in this blog post

At $1.65 billion in operating profit per year it would take nearly 71 years to pay off $117 billion. It's likely that as ridership continued to rise profits would increase as well (just as they are now on the Acela line), but for the sake of simplicity, and to be as conservative as possible, we'll assume that those levels would remain the same indefinitely. And while 71 years may sound like a very long time, rail is a very long-lived piece of infrastructure. For reference, it seems that much of the track in the Northeastern Corridor was built between the 1830s and 1917; most modifications since then have been things like electrification, crossing alterations, and so on. These would of course be provided up front in this case, and the technology is well-proven in markets across the globe. Operating expenses also already take all maintenance, including the tracks, into account.

You can also look at it this way: construction of NextGen HSR would be complete in 2040, which comes out to about $4 billion per year in spending while it's being built. That's about a tenth of the amount the federal government spends on highways every year, and half of what it spends on mass transit, and those recipients aren't expected to pay the money back. It's a sixth of what we spend every year just on the TSA and FAA. The federal government makes these investments not because it expects to make a profit, but because mobility is important. Critically important. NEC HSR would not only drastically improve mobility for tens of millions of people every year, it would also recoup a huge portion of its cost--possibly the entire amount--in ticket sales over the coming decades. How is this a difficult choice?

Some might argue, "if high speed rail can be so popular, why not just let the private sector take care of it?" I'm sympathetic to this view, but based on the experience of places like the U.K., also quite wary of such private sector takeovers.

Tanya Snyder at Streetsblog just addressed this, noting that without an established HSR success in this country, private industry is unlikely to take the chance. For investments of this magnitude, government has to lead the way. Snyder quotes European rail consultant Jim Steer, who made the case before Congress:

[A] rail line needs to prove itself before the private sector steps up. In his testimony, he talked about a 189-mile line currently under construction between Tours and Bordeaux in France, an extension of an existing high-speed line between Paris and Tours. 
“The most problematic section of the overall route (access to central Paris) has been built,” Steer said in his written testimony, “the market for services is proven; now it’s a matter of shortening an already improved journey between Paris and Bordeaux. This project (worth $10.3 billion) has been privately funded through a PPP structure. As an extension to what is now a core national network, the perceived risks are much lower.”

If this still seems like too much of a financial and political hurdle to overcome, don't give up yet. We have options.

First, even if the private sector can't build something of this size and complexity on their own, they can certainly still contribute. This could take many forms, but one that really appeals to me is the following: government entities sell off land near HSR stations, along with very generous development rights in terms of height, floor-area-ratio, etc., and then collect a share of the income over the next several decades. Investors profit from increased demand and land values around train stations, new housing and businesses get built (which is good for everyone), and the government offsets some of its construction costs. It also lets us keep all the ticket revenue for ourselves.

Or, in the spirit of "proof of principle," we could start with just phase one of the NextGen HSR project: New York to Washington, D.C. Referring back to the projected costs table above, this section of the NEC corridor would actually be less expensive than the NY-Boston section by about $6.6 billion although they're roughly the same distance. It also stops at larger and more important cities along the way, including Baltimore, Philadelphia, and to a lesser degree Newark (and the airports for each of these cities). NY-DC is also better established as a rail corridor, controlling over 3/4 of the market relative to air, while rail accounts for just over 1/2 of trips between New York and Boston. In terms of federal support, this could be a considerably easier sell.

The inevitable success of HSR in the New York to D.C. corridor would help to galvanize support for expansion of the network, both from politicians in Washington and their constituents throughout the region. The population from New York to D.C. is also greater than that of the NY-Boston corridor, so putting together local funding to cover a share of the investment might be easier there.

Realistically, it will probably take all of the above to get things moving. NY-DC would cost about $60 billion--if the federal government covered half they'd be contributing just $2 billion per year, barely 5% of what's spent every year on highways. The remaining $30 billion might be raised through a combination of private investment and local funding, not an unreasonable prospect for the governments of D.C., Baltimore/MD, Philadelphia/PA, NJ, and New York combined, especially over a 15+ year period.. Under Amtrak's plan, New York to Boston construction would start long after New York to D.C., so the key is to get a commitment on the first step. By the time that first phase is nearing completion the case for expansion will be obvious, and irresistible.