In 2010 Amtrak laid out its vision for High Speed Rail in the Northeast Corridor (NEC).5 At the time it estimated that development of HSR on the NEC alone would cost $117 billion (in 2010 dollars).
A review of the Amtrak proposal shows that the system envisioned would never come close to repaying its costs. As forecast by Amtrak, the fully built High Speed Rail in the Northeast Corridor (HSR-NEC) would have annual revenues of $2.533 billion. Operating and maintenance costs would come to $1.605 billion yielding an operating profit of $928 million. But fully amortizing the construction costs (over 30 years at an interest rate of 4.5 percent—roughly the rate on 30 year Treasury debt) adds an additional $7.2 billion in annual costs. The HSR-NEC therefore is designed with a built-in loss of $6.25 billion per year.
To put this in perspective, Amtrak envisions 17.7 million passengers a year, yielding an average fare of $143 per trip. Each of these trips would have a built-in subsidy of $353 per passenger. That passenger subsidy is calculated from the debt service cost on the initial construction less the projected operating profit and assumes that the operating profit is returned to the Treasury. If, as Amtrak argues for, the operating profit is retained for investment in additional high speed rail, the subsidy rises to $406 per passenger.
A sensitivity analysis shows that additional fiscal dangers exist in this proposal. If Operating and Maintenance Costs are only 5 percent higher than forecast, the operating profit of $928 million disappears and becomes an annual operating loss of $757 million. A combination of 20 percent higher costs, 20 percent lower revenue (if, for example, airlines competitively reduce fares to retain traffic) coupled with the construction subsidy creates a system with a built-in loss of $14 billion a year. Forecasts for the costs and revenues associated with transportation project are notoriously optimistic.
In 2008 The High-Speed Rail for the Northeast Corridor 5 Department of Transportation analyzed 21 transit projects (including commuter rail, light rail, heavy rail, and bus rapid transit) and found that, on average, their costs exceeded early estimates by 40 percent. Similarly, a subset of 18 projects showed that on average actual ridership was only 61 percent of what was forecast when the project was envisioned. Only two projects (both light rail) met or exceeded their ridership forecasts.6 Given this bleak financial analysis, it should come as no surprise that three states—Wisconsin, Ohio and most recently Florida—have already rejected the high speed rail funding put forward by the Administration earlier this year.
The Washington Post on May 18th characterized California’s use of federal funding for its HSR project as a scandal. The current model (the one embraced by Amtrak), characterized by a large upfront capital investment by the federal government which is then turned over to Amtrak, is clearly one that is not achievable given the current fiscal realities.