San Francisco's housing prices have nowhere to go but up. Whether it can stabilize prices or not, it will never again be affordable, and low income residents will continue to leave. Other coastal U.S. cities should take note.Read More
The official fiscal analysis of California's High Speed Rail program has looked just a few decades into the future to assess its impact, but HSR is a 100-year investment. What do costs and revenues look like in that distant future?Read More
Last week UCLA published a working paper arguing that urban transportation projects were more cost-effective at reducing greenhouse gas emissions than high-speed rail (HSR). I posted a critique of that paper, focusing first on the benefits side of the ledger, showing that the authors had overstated the user savings of light rail, bus, and bicycle infrastructure projects while HSR's savings may have been undersold. This week, I'm going to look at costs.
I want to start this out by noting that the study's authors, Juan Matute and Mikhail Chester, Ph.D, seem to be focused on making a case for using the state's cap-and-trade revenues for what they view as worthy investments. That's fine, and there should be a debate about how those funds are spent, but the premises of that debate should be accurate. I don't think this working paper meets that requirement in its current form.
LA's Orange Line bus rapid transit and bicycle path, and Gold Line light rail services are all great projects, and we absolutely should invest in more bicycle paths, light rail, bus rapid transit, and pedestrian facilities. The error in the UCLA report is in the belief that these projects are in competition with HSR, which shouldn't be the case.
Now, onto the numbers.
CAPITAL AND OPERATING COSTS
The California High Speed Rail Authority's 2014 Draft Business Plan says the project should cost $54.9 billion in 2013 dollars to build up to Phase 1, which gets us from San Francisco to Los Angeles. If this estimate sounds low, it's because reports on the rail line often use year-of-expenditure numbers, but we're going to use 2013 dollars for capital, revenue, and costs to keep things simple and consistent. (The UCLA authors use this same 2014 draft business plan for their report, by the way.) The following table shows the projects estimated capital cost; the relevant number can be found in the last row of the "Cumulative Capital Cost (Billions 2013$) column:
According to the UCLA study, $54 billion is the total high-speed rail project cost. That's wrong. The authors make the erroneous assumption that HSR will operate at a zero-profit level, apparently using an obscure table from page 55 of the 2014 business plan that shows a net operating cash flow of $165 million. For whatever reason, they seem to have interpreted this number as the total profit of the project for its entire lifecycle. I suspect it actually represents a single year's profit in an early year of the initial operating segment's active service, but it doesn't actually matter because we have much more detailed figures in this very same business plan.
First let's look at operating/maintenance costs and lifecycle costs. Here are the tables that summarize those costs:
There are low, medium, and high ridership scenarios, which effect these costs: more riders means higher operations, maintenance, and lifecycle costs (as well as higher revenues, which we'll get to). They only provided the annual O&M costs at five-year intervals, so I summed them up by averaging the costs at adjacent 5-year periods, then multiplying that average cost by 5 for every column except for 2060, which is the final year of the project's lifecycle. Here's an example:
O&M costs under the high ridership scenario are projected to be $403 million in 2025 and $920 million in 2030. Averaging those numbers gives us an annual cost of $661.5 million, for a total of $3.3075 billion over five years from 2025 to 2029. This isn't perfect but it's a close approximation, and revenues are summed in the same way so any error should be canceled out on the revenue side.
Lifecycle costs mostly consist of rolling stock replacement, so costs don't vary too much whether the trains are used frequently or not. They just get old after a while.
Here's a table I made of total operations, maintenance, and lifecycle costs through 2060:
Now, if the UCLA authors' assumption is correct, revenues should come out to about the same as costs. That's not the case, as you'll see below.
First, here's another table from the business plan. This one is projected farebox revenues under the three ridership scenarios:
This is just farebox revenue, i.e., the revenues from ticket sales. It doesn't include any ancillary income, such as advertising or food and beverage sales. According to the business plan, ancillary income can add anywhere between 2 and 30 percent to revenues above ticket sales. I'm going to assume that ancillary income adds 10 percent to revenues—with opportunities for transit-oriented development and the potential for high-profit services targeted at business travelers, I think this is fairly conservative.
Revenues with and without this additional income can be found below:
|Scenario||Farebox revenue||Ancillary income||Total revenue|
We've got a lot of numbers at this point, so lets put them all together. Here's capital, operating, maintenance, and lifecycle costs, plus revenue, all in the same table:
|Ridership||Capital||O&M / Lifecycle||Revenue||Net cost|
o rather than a $54.9 billion total project cost, as the authors assert, the actual cost according to the CA HSR Business Plan projects that costs will range from $15 to $41 billion through 2060. That's still a huge amount of money, but consider the fact that this is a 520-mile mega-project, and that it's very likely that a portion of this project will be funded with federal assistance (not in the next few years, but this is a long-term project and politics shift rapidly) and/or private partnerships. Accounting for federal and private funding sources, it's entirely possible that the project could net a profit for the state of California in the long term, as well as boosting the regional economy and reducing greenhouse gas emissions statewide.
A study prepared by Parsons Brinckerhoff (and commissioned by the California High Speed Rail Authority) estimates that 4,200 new lane-miles of highway, 115 new airport gates, and 4 runways would need to be constructed to match the capacity of HSR, all at a cost of over $130 billion. This is bogus, frankly, since I don't think anyone believes we're ever going to construct an extra six lanes of freeway between LA and SF. It's quite clear that the vast majority of that highway capacity would never be built in the absence of HSR, though some of the airport expansion remains a distinct possibility.
Despite this transparent attempt to justify the cost of high-speed rail, I think reasonable people can agree that some expansion of airports and highways will be necessary over the next 45 years to accommodate additional trips of 200-500 miles—unless we build high-speed rail. Is it so hard to imagine that the cost of highway and airport expansions wouldn't reach into the tens of billions over that time period? I, for one, would rather spend that on an emissions-free, displacement-lite transportation mode.
Last, we should consider the timeline under consideration here: 2025-2060. Implicit in this study period is the assumption that once the ball drops and 2060 begins, the whole process starts anew. New rails, new trains, new legal bills, new tunneling, new acquisition costs, new everything. Did New York cave in all its subway tunnels after 35 years of operation and start from scratch? It's silly to take such a short-range view on such a monumental project.
There will certainly be significant replacement costs as infrastructure ages into disrepair, but consider the fact that right-of-way acquisition is expected to cost $12 billion, more than a fifth of HSR's total capital cost. That's something you only pay for once. Stations also won't have to be re-constructed, just renovated over time, which is probably accounted for in operations and maintenance anyway. Even track construction, which accounts for nearly half of the total project cost, will be cheaper the second time around. If tracks don't need to be fully replaced after 35 years of use, the costs will be even lower.
Assuming even the medium ridership scenario, if we extend the timeline of high-speed rail service into the year 2100 we easily achieve profits on operations and capital. And that's exactly the perspective we should be taking on this project—it's a long-term investment in California's future, not a short-term economic recovery effort. This is transportation for the long haul (ho ho!), and over the long haul it can be a money-maker that actually helps the state fund other important infrastructure projects, including urban transportation like light rail, bus service, and bicycle and pedestrian improvements.
I don't think profitability should be the primary goal of HSR, but when you take into account the opportunities for federal and private funding, reduced highway and airport expansion costs, and a longer operations horizon, California high-speed rail has potential to make a lot of money for the state. That's something that urban transportation projects can't say, but that shouldn't be an argument against those forms of investment. Instead, it should be viewed as an argument for high-speed rail—the sooner it begins operation, the sooner it can start creating a funding stream for our state's various other infrastructure needs.
UCLA's Institute of Transportation Studies released a working paper report* two days ago, which makes the claim that local transit and active transportation upgrades are a more cost-effective way to reduce greenhouse gas emissions (GHGs) than California's planned high-speed rail (HSR) line from Los Angeles to San Francisco. And if their numbers are to be trusted, those local projects are way more cost-effective: when all is said and done, they calculate that HSR will cost approximately $361 per metric tonne of GHG reduction — 30 times more than a tonne sells for in California's cap-and-trade market — while Los Angeles' Orange Line Bicycle Path will actually save the state over $3,600 for every metric tonne of GHG reduction that they achieve. The Orange Line Busway and Gold Line light rail services both fall somewhere in between, but look much better than high-speed rail by this metric.
I'm going to take a look at why this is completely wrong in two parts.
Today will be the (relatively) short post, regarding their misleading calculation of "Net User Costs" for high-speed rail and other transportation infrastructure.
Here's an adaptation of the table from their paper, which shows the costs of reducing greenhouse gas emissions. Notice that in the first column the full public cost is actually lowest for high-rail; only after they account for "Net User Costs" are factored in does HSR end up looking so bad.
|Cost per metric tonne of GHG reduction:|
|Full Public Cost||Full Public Cost Less Net User Costs|
|California High-Speed Rail||$461||$361|
|Orange Line Busway||$1,074||-$676|
|Gold Line Light Rail Transit||$3,458||-$1,233|
|Orange Line Bicycle Path||$1,061||-$3,670|
So what are "Net User Costs"? They're the amount you save when you switch from one mode of travel to a cheaper mode. When I switch from driving to work to taking the Gold Line, I go from paying whatever it costs to operate my car to paying $1.50 for a one-way fare on LA's Metro system. When I switch from flying to taking high speed rail, my ticket cost drops from $97 to $81. It's in this conversion that UCLA's working paper so significantly misrepresents the private savings of local transit and bicycling relative to high-speed rail.
There are a few problems here. The first is a bit abstract — it's actually the use of this metric in the first place. It completely ignores those that switch from driving to high-speed rail, because this is switching from a less expensive mode to a more expensive one. From the perspective of this paper, those diversions don't exist, or at best they're implicitly judged as mistakes. But people generally act pretty rationally, and someone that decides to trade in a car trip for a train trip is probably doing so for completely valid reasons. Maybe they don't want to deal with traffic, or they put a premium on their time, or they want to work during their trip. If the benefits of taking the train outweighed the costs, they'd either find another way to get there or they wouldn't make the trip at all. Reducing all decisions to the immediate monetary cost isn't very instructive, and the reality of millions of people choosing to use the Acela high-speed rail service in the Northeast, rather than driving, highlights that.
The second point is easier to understand, and probably more significant. Net user costs are an easy calculation for air to rail: the ticket cost of one minus the ticket cost of the other. Things get tricky when measuring the cost of switching from car to bike or bus, however. To calculate the savings, the report's authors need to know the cost of the new trip — easy: bikes are free and buses are $1.50 — and the cost of the car trip it replaced. The driving cost is found by multiplying the trip distance by the standard IRS mile rate, which is mostly used for deducting business-related transportation expenses. As of 2012, that rate was 55.5 cents per mile.
The reason this number is so inappropriate is that the mileage rate is "based on an annual study of the fixed and variable costs of operating an automobile," and the vast majority of people switching from their car to the train aren't getting rid of their cars (sadly), they're just using them less. Most of those "fixed and variable costs" — insurance and car payments in particular, as well as depreciation — are accruing no matter how much or how little you drive; most car owners that switch to transit or bicycling are only saving on gas, and perhaps parking in very dense areas. I wrote about this car ownership sunk cost bias last year. Though it's dependent on the driver, gas probably account for less than a quarter of most people's car expenses, so this study probably overstated the Net User Cost savings by a factor of 4, at least.
As a side note, since it's (falsely) assumed that no one is switching from driving to using HSR for their long-distance travel, the rail line doesn't benefit from this nifty accounting trick. That's convenient, since if driving actually did cost 55.5 cents per mile, it would cost $211 to drive from LA to SF — more than double a high-speed rail fare.
As someone who's been car-free for going on six years, I'm the last person to criticize someone trying to raise the profile of local transit and active transportation investments — I rely on them every day and frequently write about the need for more. Even though most people don't get rid of their cars when new transit services arrive, some do, and that's amazing. We should celebrate and encourage that. But at the same time, pitting different forms of clean, efficient transit against one another isn't productive, especially when those transit types serve entirely different purposes. I feel that this recent UCLA report understated the benefits of HSR while overselling the benefits of rail, bus, and bike infrastructure. In truth, they're both outstanding investments and perfect complements, and we should be striving to find ways to build more of each.
The second part to this critique will come soon, with a focus on the differences between high-speed rail and local transit infrastructure, and why they shouldn't be considered competitive with one another.
*Streetsblog LA has a great summary of the report's findings.