Misrepresenting the Benefits of High-Speed Rail

National Journal’s Transportation blog asks:

Does a recent report by the U.S. Conference of Mayors touting the economic benefits of high-speed passenger rail put to rest questions about HSR’s value as a business engine?

The report focused on four hub cities: Albany, N.Y.; Chicago; Los Angeles; and Orlando. Despite the differences of these hubs, the report found that high-speed rail networks had similar effects in all of them, including expanding markets; making business travel more efficient; and encouraging mixed-use development. Among its conclusions, the report argued for looking at these networks “in the broader context of a changing economy” that includes more long-distance tourism and business travel, and ever-wider markets and supply chains.

In 2035, the report says, high-speed rail networks around these four hubs could generate as much as $19 billion in new business. What are your thoughts on the economic potential of high-speed rail? Will it generate the bang for the buck that the report says? Are there more cost-efficient ways to link cities?

The report from the U.S. conference of mayors is mostly wishful thinking. Many of the economic benefits it claims are not net additions to economic growth, but relocation of economic activity from one part of a state or region to another part (chiefly cities). Other alleged benefits fail to consider the costs to taxpayers, and thus represent gross, not net, benefits. And still other benefits depend on very large (but non-quantified) supporting public-sector investments. Let’s examine these three points briefly.

Economic development consultants have done extensive business in recent decades producing studies purporting to show the large net benefits of taxpayer-subsidized sports stadiums and convention centers. When independent economists review these studies, they find that most of the reported benefits represent the relocation of economic activity from one vicinity to another. For example, a new sports stadium generally will attract paying customers who will also pay to park their cars, stay overnight (at least some of them) in nearby hotels, and buy meals in local restaurants. However, this spending on sports entertainment almost certainly represents the substitution of one type of entertainment spending for another that would have occurred in other ways and other locations. There is little or no net gain to the regional, state, or national economy.

The same is true of the report’s estimated benefits from higher-density development near high-speed rail stations, visitor spending due to enhanced tourism to the high-speed rail (HSR) city, and potential expansion of technology clusters. It’s easy to see why big-city mayors would be happy to have more economic activity shifted inside their borders, but this is a zero-sum game for the state and federal taxpayers who are being asked to pump (initially) tens of billions and ultimately hundreds of billions of dollars into HSR projects.

And this brings us to the second problem with these benefit estimates. For example, the report claims significant savings in time and travel cost to high-speed rail users. This is like similar studies of urban rail transit that tout the low fares (compared with the user-cost of owning and operating a car) but ignore the fact that 100% of the capital costs and (in most cities) 70% of the operating costs are paid for by taxpayers, not rail transit users. Any realistic benefits estimate must use the fully allocated cost per HSR user trip, not the hugely subsidized fare.

Third, and perhaps least appreciated, is what’s in the fine print of the study. “In all four cities, the ultimate impact on regional economic growth depends on the effectiveness of connections between HSR stations and the surrounding area.”

That’s a grudging admission that the large majority of hoped-for high-speed rail trips will not be from station to station, but from one suburban location to another suburban location. That’s because of the past 50 years’ suburbanization not only of housing locations but also of job locations. So station-to-station HSR trip times are only part of the story; whether there will be net trip-time savings compared with driving depends on comparing door-to-door travel times. That’s certainly the case for the report’s claimed benefits of facilitating very long commutes such as Palmdale to Los Angeles or Lakeland to Orlando. A footnote to one table makes it even more clear that the potential economic benefits depend on “…supportive public policies and infrastructure investments to allow the benefits of HSR to be realized, and the projected additional business development to occur.”

What it’s trying to say is that unless metro areas spend additional tens or hundreds of billions on a region-wide rail transit network, connecting everywhere to everywhere, much of the economic benefit will not materialize.

Again, that underscores that this report is nothing like a benefit/cost analysis. The costs are more or less taken as a given, able to be ignored, so that hypothetical gross benefits can absorb all the attention. Alas, the real world is not like that. The resources that building and operating high-speed rail will consume have alternative uses, with potentially greater economic value added. A benefits-only study is useless as a guide to sound public policy.