Time to End Obama’s Costly High-Speed Rail Program
Published on February 11, 2011 by Ronald Utt, Ph.D.Link: http://www.heritage.org/Research/Reports/2011/02/Time-to-End-Obamas-Costly-High-Speed-Rail-Program
Abstract: President Barack Obama’s high-speed rail program promises to spend hundreds of billions of dollars in federal and state funds to provide mediocre passenger rail service to an extremely small fraction of travelers. In this time of tight budgets, neither the federal government nor the states can afford such extravagance. Instead of creating a heavily subsidized, underutilized passenger rail system, Congress and the Administration should promptly end the program and use the recovered funds to reduce the federal budget deficit.
In his State of the Union address, President Barack Obama attempted to revive his faltering high-speed rail (HSR) program by doubling down on his commitment to it: “Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail.… As we speak, routes in California and the Midwest are already underway.”[1]
The reality is that the Midwest routes have been cancelled by newly elected governors in Ohio and Wisconsin, who have returned $1.3 billion in federal HSR grants to the U.S. Treasury, and California’s worsening budget crisis will discourage any state investment in its HSR system, which will cost between $42 billion and $80 billion to complete. Despite these setbacks, however, President Obama is now proposing an extravagantly costly system to serve the “urbanized” population (80 percent of the total U.S. population) that resides in the 514 communities and metropolitan areas.
Although the President offers no cost estimate for this ambitious project, which would use immense federal subsidies to undermine the existing private and tax-paying bus and air service to these communities, it would likely be one of the costliest and most underutilized federal programs in American history. As noted, California’s HSR plan to connect Los Angeles with San Francisco could cost up to $80 billion, Amtrak estimates that HSR in the Northeast Corridor would cost $117 billion, and the modest Tampa to Orlando plan will come in at $3 billion or more.
A federal commitment to HSR has been a key component of President Obama’s domestic policy agenda since he took office. In the first month of his Administration, President Obama used the American Recovery and Reinvestment Act (the “stimulus” package) to create a new federal program to build a comprehensive HSR system. Congress agreed to dedicate $8 billion of the $787 billion in stimulus spending to begin developing HSR in the United States. In addition, Obama requested and Congress approved an additional $5 billion over the next five years beginning in fiscal year (FY) 2010. At the same time, then-Chairman of the House Committee on Transportation and Infrastructure James Oberstar (D–MN) announced that the next highway reauthorization bill would include an additional $50 billion for HSR.
Shortly thereafter, the many industries benefiting from massive federal spending on HSR formed the US High Speed Rail Association to lobby for the program.[2] Reflecting the excitement that gripped the new Administration, President Obama proclaimed in April 2009:
What we’re talking about is a vision for high-speed rail in America. Imagine boarding a train in the center of a city. No racing to an airport and across a terminal, no delays, no sitting on the tarmac, no lost luggage, no taking off your shoes…. Imagine whisking through towns at speeds over 100 miles an hour, walking only a few steps to public transportation, and ending up just blocks from your destination. Imagine what a great project that would be to rebuild America.[3]
Even though the President’s HSR plans have suffered several major setbacks and the federal budget faces a $1.4 trillion deficit, the Administration remains undeterred in its pursuit of this costly scheme. In mid-February, Vice President Joseph Biden provided a few more details on the President’s proposal when he announced plans to spend $57 billion on HSR over the next six years.[4]
The President’s High-Speed Rail Program Unravels
Despite the President’s continued enthusiasm for his HSR proposals, several major setbacks have occurred over the past year, including the realization by most Americans that they preferred to live in the 21st century, not the late 19th. In January 2010, the Federal Railroad Administration (FRA) announced that it would spend more than half of the $8 billion in the so-called HSR grants on for-profit freight railroads to benefit existing slow-speed Amtrak lines and proposed Amtrak-style service.
At the same time, as citizens of states receiving the money began to inspect the Obama plan’s cost estimates, travel benefits, and long-term subsidy obligations more closely, support for HSR began to wane, and gubernatorial candidates in Wisconsin, Ohio, and Florida who opposed or were skeptical about HSR won their elections. The new governors of Wisconsin and Ohio have since canceled their states’ programs, and the Florida program, one of only two real HSR programs funded by the FRA, is under review by the new governor. The California program, the only other real HSR proposal, will likely not be built because of its exceptionally high cost and California’s long-term, systemic fiscal crisis.
Despite Congress’s commitment of significant funding to the program and the President’s giddy excitement about an America transformed by an inefficient, inconvenient, and wildly expensive mode of travel, the President’s HSR program is in a state of collapse. The new Congress should put an end to what little life remains in this futile and costly exercise and use any recovered funds for deficit reduction.
Ohio and Wisconsin Reject the Federal Funds. For inexplicable reasons, in January 2010, the FRA awarded $4.5 billion (56 percent) of the HSR funds to existing freight railroads for track improvements that would benefit them and existing and prospective slow-speed Amtrak service that shares the same tracks under contract with the freight railroads that own the tracks on which Amtrak operates. The FRA awarded just $3.5 billion (44 percent) to only two genuine HSR projects, those in California and Florida.[5] Not surprisingly, HSR advocates were disappointed and expressed their concerns accordingly.
Because all of these projects—slow-speed and high-speed—would require substantial state matching funds and perpetual state operating subsidies (since no passenger rail system in the U.S. and only a handful abroad earn a profit or break even), any state accepting the money would also be accepting a significant, long-term financial liability at a time when most states are hard-pressed to meet the core responsibilities of education, law enforcement, and public health.
Consequently, supporting or opposing the President’s rail plan became an issue in several gubernatorial races, particularly in Wisconsin, Ohio, and Florida, where the winning candidates either opposed or questioned the value of the federal rail grant. In Wisconsin, incoming Governor Scott Walker (R) opposed the plan, and outgoing Governor James Doyle (D) suspended the project in response to the voters’ decision.
In Ohio, gubernatorial candidate John Kasich (R) campaigned against accepting the $450 million HSR grant to provide passenger service between Cleveland, Columbus, Dayton, and Cincinnati, and Governor Kasich canceled the project shortly after he assumed office. A September 2009 study of the Ohio project’s viability concluded that the average speed of the service would not exceed 39 miles per hour when the stops were included and that its cost would be closer to $581 million.
In response to the threatened rejection, U.S. Secretary of Transportation Ray LaHood argued, “If you build it they will come,” and “People like to ride trains.… You don’t build these trains to travel faster, although sometimes you do.”[6] Apparently, Ohio voters were unmoved by Secretary LaHood’s rationalizations and elected Kasich governor.
The FRA has since diverted the $810 million to extend Amtrak’s Hiawatha line from Milwaukee to Madison and the $450 million to be spent in Ohio to other HSR projects, primarily in California and Florida.
California Dreamin’ Meets the Fiscal Nightmare. California’s HSR plan was the most ambitious of the plans that sought FRA funding. The FRA awarded California $2.3 billion to start the project in January 2010 and added $624 million in December 2010, albeit with a set of peculiar restrictions that have further undermined the public’s perception of the President’s HSR program.
As originally proposed and endorsed by referendum in 2008, the state’s HSR plan was to build a main north–south line connecting Los Angeles, Bakersfield, Fresno, and San Francisco with planned service expansion to San Luis Obispo, San Diego, Stockton, and Sacramento. Approximately 1,955 miles of track was to be built or upgraded. Building the initial 800-mile core of the system was initially and officially estimated to cost $43 billion.
In January 2010, California received $2.3 billion, by far the largest of the FRA HSR grants, to begin work on its system. By then, however, California’s fiscal situation had deteriorated further, and private investors expressed little interest in investing the estimated $9 billion to make it work. Numerous reports and studies suggested that costs could reach $80 billion and that ridership would be less than projected.[7]
The evidence suggests that California’s HSR project will likely never be built. Indeed, in mid-February, an independent fiscal watchdog group in California estimated that the cost of the first phase of the system has escalated to $63 billion.[8]
Apparently, the FRA felt the same way. When it redirected a portion of the Wisconsin and Ohio money to California, it required California to spend the first $4.3 billion in state and federal funds on a 54-mile line in the San Joaquin Valley to connect the city of Corcoran (population 25,700) with Borden, an unincorporated town in Madera County. As one analyst has concluded, “The segment was adopted under pressure by the United States Department of Transportation, which was interested in ensuring that the line would be usable (have ‘independent utility’) by Amtrak should the high speed rail project be cancelled due to lack of funds.”[9] In effect, the FRA is hedging its bets and salvaging what it can in recognition that California may never build the system.
If this sort of costly bet hedging is what passes for fiscal responsibility in the Obama Administration, then this grant seems ripe for a congressional rescission that would recapture the money for the government and apply it to deficit reduction. Congress would be hard-pressed to find an annual savings ofnearly $3 billion from a single unpopular project, and California’s beleaguered budget would also benefit.
Obama and Japan Bribe Florida to Stay with the Plan. With several states rejecting the President’s HSR plan and returning hundreds of millions of dollars in unwanted federal subsidies, and with California unlikely to build its system, the President and Secretary LaHood have turned their attention and the taxpayers’ resources to a costly attempt to keep the faltering Florida program alive. Because the Florida and California systems were the only genuine HSR projects in the President’s plan, failure in Florida would reduce the President’s program to nothing more than a costly and unneeded subsidy for profitable, privately owned freight railroads.
A failure in Florida would also leave many foreign manufacturers and foreign engineering and consulting services without the multibillion-dollar contracts that they had hoped to win and in which they had “invested.”
- Spain’s Talgo had been actively working the Wisconsin project but will close its Wisconsin plant in 2012 because the state terminated the project,
- Germany’s Siemens funded an economic analysis of the benefits of HSR for the Orlando– Tampa region,
- France’s TGV has sponsored HSR conferences in the Midwest,
- China has been poking around the California project, and
- Japanese companies and the Japanese government have been looking at opportunities in all of the projects but have since focused on the Florida project as the other opportunities in the U.S. have disappeared or diminished.
During his successful 2010 gubernatorial campaign in Florida, Rick Scott (R) expressed skepticism about the value of the project and promised a careful review of it if he was elected. He promised that concerns for the taxpayer would be paramount in his decision. Governor Scott has since begun that review, and the President and the Global High Speed Rail Industrial Complex are making every effort to ensure that he decides in favor of the project. With the Wisconsin and Ohio projects terminated and California unlikely to build its HSR system, introducing HSR into America now depends entirely upon Florida, and the U.S. and Japanese governments are piling on the subsidies to ensure that this happens before Congress ends the program.
The 84-mile line connecting the Orlando airport with downtown Tampa is projected to cost $2.7 billion.[10] The FRA initially offered to cover $1.25 billion of the cost in the first round of grants awarded in January 2010. Despite growing opposition and skepticism across the nation, Congress appropriated an additional $800 million to the Florida project in October 2010, and the President added $342 million in December from the HSR funds returned by Wisconsin and Ohio. Altogether, the federal government has promised to cover $2.4 billion of the projected $2.7 billion cost, leading one Florida journalist to speculate that “if we hold out a little longer, they’ll come back and give every Floridian an extra $100 and a free puppy.”[11]
Within the month, the Obama Administration proved the journalist’s speculation to be essentially correct, albeit without the puppies. On January 8, 2011, Japanese Foreign Minister Seiji Maehara visited Governor Scott and suggested that Japan would like to be a financial backer for up to 60 percent of Florida’s share in the system. Given the project’s estimated cost of $2.7 billion and the federal subsidy of $2.4 billion, the Japanese government appears to be committing itself to financing up to $210 million of the project’s cost.
Three days later, the Japan Bank for International Cooperation announced that “it would extend loans to projects not only of developing economies but those of rich countries, as it prepares to finance the JR Tokai consortium’s bid for the $2.7 billion first phase (Orlando–Tampa) of the Florida high-speed rail project.”[12] The JR Tokai consortium consists of 11 Japanese companies, including Mitsubishi Heavy Industries.
In effect, the Obama HSR program is morphing into a jobs-for-Japan program. Early reports indicate that the Japanese financial contribution will be in the form of a loan that will need to be serviced either by the HSR system and its riders or by Florida taxpayers if the system does not make a profit, which only a tiny fraction of HSR systems do.[13]
Despite the huge costs that the system will incur, its performance will be mediocre compared to other systems. As a recent Reason Foundation report reveals, Florida’s proposed HSR system is expected to be more hype than high-speed:
[T]he proposed speeds are substantially below those of state-of-the-art high-speed rail systems in China, Japan and France, which operate from 34 to 70 percent faster on comparable segments. The Tampa to Orlando high-speed rail line speeds are more on a par with Amtrak’s Acela service in the Washington to Boston corridor. Part of the reason for the slower speeds of the Tampa to Orlando line is its operation as a tourist rail shuttle service within the Orlando metropolitan area.[14]
The report estimates that the project could actually cost up to $3 billion more than the estimated $2.7 billion.[15] Although the status of the Florida project remains in limbo as of mid-February, Governor Scott noted in his February 7, 2011, budget proposal:
Florida accepted one-time handouts from the federal government. Those temporary resources allowed state and local governments to spend beyond their means. There was never any reason to think that Florida taxpayers could continue that higher level of spending once the federal handouts are gone. The false expectation by federal hand-outs are the reason we hear about a multi-billion dollar deficit.
As one observer noted, “The words ‘high-speed rail’ and ‘operating subsidies’ were not mentioned, but the implication was clear.”[16]
Given the growing opposition from the public, Members of Congress, and state and local officials to Obama’s HSR program and the uncertain and disappointing prospects for those systems targeted for federal funding, Congress should consider terminating the program or, at a minimum, placing a temporary hold on any spending for it. Once this is done, Congress should use the time to conduct comprehensive hearings on the benefits of these projects and to consider whether an HSR program makes economic sense in any region of the United States.
Learning from Europe’s Mistakes
Advocates for more spending on passenger rail, including HSR, often point to Europe and Japan as role models and aspirational goals for American policy. This Euro-envy manifests itself in the promotional statements of America’s rail hobbyists and the foreign companies that hope to sell billions of dollars of equipment, consulting, project management, and engineering services.
For example, in an April 2009 press conference, President Obama played the envy card, arguing, “Now, all of you know this is not some fanciful, pie-in-the-sky vision of the future. It is now. It is happening right now. It has been happening for decades. The problem is that it’s been happening elsewhere, not here.” Obama went on to extol HSR systems in France, Spain, China, and Japan and concluded, “There’s no reason why we can’t do this. This is America. There’s no reason why the future of travel should lie somewhere else beyond our borders.”[17]
If one’s knowledge of European travel preferences comes from Time, The New York Review of Books, and Pink Panther movies, then the President’s statement would seem to ring true. Sadly, the reality is quite different. European and Asian governments have paid staggering sums to subsidize a mode of travel that only a small and shrinking share of their populations uses.[18]
In its most recent report on European travel patterns, the European Commission noted that passenger rail’s share of the European market (EU-27) declined from 6.6 percent in 1995 to 6.3 percent in 2008, reaching a low of 5.9 percent in 2004. Market shares for autos and buses also fell over the period, while the airlines’ market share jumped. In effect, Europeans are adopting more American modes of travel, despite massive taxpayer subsidies for rail. They are shifting their travel to unsubsidized, taxpaying airlines, which expanded their market share from 6.5 percent in 1995 to 8.6 percent in 2008. Indeed, by 2008, passenger rail’s share of the transportation market was the lowest of all modes, except travel by sea and motorcycles.[19]
Although the total size and scope of European subsidies for passenger rail are not known, a recent report by Amtrak’s Inspector General indicated that they are sizable and likely exceed what the U.S. government pays for highways. One purpose of the review was to address the contention that passenger rail in other countries, especially HSR, operates at a profit (that is, without subsidies).
For 1995–2006, the study found that the governments of Germany, France, the United Kingdom, Spain, Denmark, and Austria spent “a combined total of $42 billion annually on their national passenger railroads.”[20] These six countries have a combined population of 269 million, and their expenditure of $42 billion on passenger rail in 2006[21] is roughly proportional to the $54.8 billion that the government of the United States (population of 309 million) spent on all forms of transportation, including highways, rail, aviation, water transport, and mass transit.[22]
Data from individual countries reveal the financial catastrophes that the U.S. could confront if it embraces Euro-style passenger rail programs. According to the left-leaning The Economist, passenger rail subsidies reached $8.9 billion in 2008– 2009, and the magazine wondered:
It is not clear why the public should be heavily subsidizing a mode of transport that accounts for a tiny minority of all travel: 8% of the total distance travelled in Britain during 2009, compared with 85% by cars and vans. The relatively few who use railways often are disproportionately well-off: three-fifths of the traffic is concentrated in the wealthy commuting counties of the south-east.[23]
Despite these massive subsidies, rail ticket prices are still comparatively high. At present, two people traveling from Heathrow airport to downtown London can hire a limousine that meets them at the baggage claim and takes them directly to their destination for less than the cost of taking the Heathrow Express to Paddington Station and then taking the Tube or a taxi to their final destination.
Although the U.K. system is mostly low-speed rail, the nation’s one foray into HSR—the Channel Tunnel Link connecting London to Paris and Brussels—has been a costly experience. The infrastructure cost of connecting London’s St. Pancras station with Folkstone (a distance of 67 miles, including 15 miles of tunnels) at the Channel tunnel entrance totaled ₤6.9 billion ($11 billion), including $8.3 billion in loans and $2.7 billion in grants to the original private contractor that built and operated the line. That contractor has since relinquished its ownership of the line, and the U.K. government expects to sell it for $2.4 billion, for a potential loss of $8.6 billion.[24]
Meanwhile the signature Eurostar London–Paris– Brussels service that runs on the line has never exceeded half of what was projected in the project’s feasibility study.
The Real Reason for High-Speed Rail or Any Rail
With all of the evidence indicating that HSR is an exceptionally costly and inefficient means of travel that only a few passengers choose to use, it is difficult to explain the obsession of some, including the President and members of his Cabinet, with this mode of travel. In part, this obsession seems to have little to do with travel per se, but rather with the quality of the travel experience.
Secretary LaHood apparently believes that this is an appropriate federal goal. He has observed, “People like to ride trains.… You don’t build these trains to travel faster, although sometimes you do,” and added that “people could read books, work on their computers, eat and perform other tasks on trains that are difficult or illegal to do while driving.”[25]
Secretary LaHood’s clumsy defense of the costly inefficiency of rail travel was expressed more elegantly, spiritually, and nonsensically by the late British historian Tony Judt:
If we lose the railways we shall not just have lost a valuable practical asset whose replacement or recovery would be intolerably expensive. We shall have acknowledged that we have forgotten how to live collectively. If we throw away the railway stations and the lines leading to them—as we began to do in the 1950s and 1960s—we shall be throwing away our memory of how to live the confident civic life.… If we cannot spend our collective resources on trains and travel contentedly in them it is not because we have joined gated communities and need nothing but private cars to move between them. It will be because we have become gated individuals who don’t know how to share public space to common advantage. The implications of such a loss would far transcend the demise of one system of transport among others. It would mean we had done with modern life.[26]
This, apparently, is a rationale for spending billions of dollars on a travel mode that few people will ride. On the one hand, passenger rail allows people to eat and to play with their computers, but on the other hand, it allows them to share public space to common advantage, retrieve the memory of living the confident civic life, and remember how to live collectively.
While intriguing, exotic, and potentially therapeutic to some lonely souls, retrieving a memory of living the confident civic life does not seem worth the several hundred billion dollars the plan would cost. Congress and the President could do well by identifying higher priorities that better merit federal attention.
—Ronald D. Utt, Ph.D., is Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
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