Subject: Preview of Opposition Should We Do NEC HSR Work
From: "Eric Schwerin" <[email-masked]>
To: "Hunter Biden" <[email-masked]>, "Michael Muldoon" <[email-masked]>
Date: Tue, 15 Feb 2011 08:42:27 -0500

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« Iranians Demonstrate against DictatorshipAmerica’s Voice May Need More Speech Therapy »
The High Cost of Gravy Trains
By Jay Weiser
February 14, 2011, 1:17 pm
Notwithstanding his proposal to spend $53 billion on an upgraded national passenger rail system, Vice President Joseph Biden is the problem, not the solution. Each weekday, 30 Amtrak Acela express trains stop in Wilmington, Delaware, despite a 2006 population of only 72,826, perhaps because it used to shave 14 minutes off Biden’s commute from Washington, D.C. as a senator, compared to the Northeast Regional. The more stops, the longer the trip, and the less attractive the train is, compared to other transportation modes.

Biden wasn’t the worst offender, since Wilmington is a significant business center. The late Senator Robert Byrd required Amtrak to maintain passenger service to ten West Virginia towns, including Thurmond (with a population of seven last census; $43 for a 7.5-hour trip from Washington, D.C.). Amtrak also stops in Harper’s Ferry (a 2000 population of 307; $14 from Washington), where John Brown led his raid, giving rise to the Civil War song:

John Brown’s body lies a-mouldering in the grave,
His soul’s marching on!

Senator Byrd’s pork is marching on.

Pew Subsidyscope measured Amtrak’s loss per passenger at $32 in 2008, though Acela made a $41 per passenger profit. The Sunset Limited (New Orleans to Los Angeles) lost a whopping $462 per passenger. And, ominously, given the Obama administration’s West Coast high-speed rail plans, the Coast Starlight (Los Angeles to Seattle) loses $136 per passenger.

Even in the heavily traveled Northeast Corridor, true high-speed rail (which involves dedicated high-tech tracks and rolling stock) would draw only 3.7 million additional passengers by 2030 compared to an upgraded Acela, according to Amtrak. Though it claims 10.3 million additional passengers by 2040,  the benefits of an upgraded Acela will max out.

The problem is the cost. Using Amtrak’s own projections, the $117 billion (2010 dollars) in infrastructure spending needed for true Northeast Corridor high-speed rail would produce an annual $900 million operating surplus (a princely 0.77 percent annual return). Applying Amtrak’s 7 percent discount rate, true high-speed rail would barely pay for itself (a 1.05 benefit-cost ratio), even though Amtrak includes in the benefits hard-to-measure positive externalities such as travel time savings, energy benefits, commuter network benefits, air system impacts, and market productivity benefits.

Sounds (slightly) good so far. But Amtrak apparently doesn’t include financing costs in its capital cost estimate, which over a 40-year period would be huge. Large public construction projects typically have minimum cost overruns of 30 percent as well as long delays (witness Boston’s Big Dig). The eminent domain litigation for new rights of way across nine states and the District of Columbia would take at least a decade. It often results in vastly higher payments to property-owners than projected, as in New York City’s Times Square project. And if political pressure requires every high-speed rail train to stop in Wilmington and other small cities, many of high-speed rail’s time-saving benefits will evaporate.

Given the risk of eminent domain,  construction overruns, ridership, and positive externality overestimates, a 7 percent discount rate appears wildly optimistic. Since costs are frontloaded and benefits only become significant after 2030, a higher, more realistic discount rate would turn the project into a deficit black hole—even before including financing costs. That’s why the public shouldn’t back expensive, risky projects unless the projected benefit-cost ratio going in, using a discount rate applicable to a risky private development project, is at least 2.5.

Biden did not call for a rationalization of Amtrak’s routes, according to the press reports. He apparently didn’t even invite his son, lobbyist and former Amtrak Board of Directors Vice Chairman Hunter Biden, to participate in his announcement. The $53 billion could pay for nonstop high-speed rail shuttle service between Washington, D.C., and Wilmington every 10 minutes, but that doesn’t make it a good investment.

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Eric D. Schwerin
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