Wall Street Journal

REVIEW & OUTLOOK

FEBRUARY 14, 2011

Runaway Trains
Obama's high-speed rail plan is a fiscal pipedream.
We suppose every President is entitled to a pipedream, but President Obama's vow in his
State of the Union address that 80% of Americans should have access to high-speed rail
in 25 years is a doozy. Vice President Joe Biden has followed up by proposing $53
billion in high-speed rail funding over the next six years. Seriously?

On recent evidence, this train is running in reverse. Though the Obama Administration
has allocated more than $10 billion for high-speed rail projects the past two years, the
new Republican governors of Wisconsin and Ohio, Scott Walker and John Kasich, have
rejected the federal money. They don't want to put their taxpayers on the hook for
projects destined for Insolvency Junction. Florida Governor Rick Scott is also
reconsidering his state's proposed Orlando-Tampa line.

Even California, that famous incubator of pipedreams, is having second thoughts. The
state has proposed an 800-mile high-speed rail plan from San Diego to San Francisco.
Bay area residents are now protesting that the line will damage property values, while
Central Valley farmers complain the line will ruin their land. The greater wonder is how
the state will pay for a $43 billion train even as it's facing a $28 billion budget gap over
the next 18 months and $20 billion annual deficits four years after that.

Two years ago California taxpayers approved a $9.95 billion bond initiative to fund the
train, buying the pitch that it would create hundreds of thousands of jobs and attract 94
million riders. The state's high-speed rail authority told voters a one-way ticket from San
Francisco to Los Angeles would cost $55—about the price of a Southwest flight. They
said private equity firms were dying to invest, and that the train would operate without a
public subsidy.

Studies by economists and financial consultants Alain Enthoven, William Grindley and
William Warren have since debunked the rail authority's claims. Based on the costs of
high-speed rail lines in Europe and Japan, the price tag likely will fall between $62
billion and $213 billion. A one-way ticket from San Francisco to Los Angeles will cost
about $190, which means more people will choose to fly.

Because of uncertainty over costs and ridership forecasts, private equity firms say they
won't invest without a revenue guarantee, i.e., an operating subsidy. Even if the state
somehow manages to attract $10 billion in private equity, its business plan calls for
another $5 billion in local grants and $15 billion more in federal funds. The $15 billion
that they want from the feds would be nearly a third of Mr. Biden's $53 billion figure.
Maybe high-speed rail is a back-door bailout for California.

Messrs. Obama and Biden argue that the U.S. has to invest in high-speed rail to stay
competitive with the world. Only if we're competing in the Debt Bowl. Two high-speed
railways in the world have broken even, and those are in densely populated areas of
France and Japan where people drive less because gas prices are twice as high as in the
U.S., and many foreign intercity highways levy tolls.

The only area of the United States where high-speed rail begins to make sense is along
the high-traffic, high-population Northeast Corridor from Washington, D.C., to Boston.
Amtrak's Acela peaks at 150 miles per hour but averages only about 70 miles per hour
because it has to share tracks with other trains. A truly high-speed rail that runs on its
own dedicated track could reach 220 mph and cut the travel time nearly in half.

While such a line might offer benefits for the region's commuters, Amtrak estimates the
line would take 25 years to develop and cost $117 billion. According to a 2009 study by
the Congressional Research Service, six to nine million riders would need to take the
train each year to justify the costs of high-speed rail systems similar to those in other
countries. The Acela carried 3.4 million people in 2008.

Until the proponents of high-speed rail solve the problem of runaway costs, we'll stick
with the train in Disney's Fantasyland. Who knows, maybe 80% of the country has taken
it for a ride by now.