An Economic and Policy Analysis of the Introduction of High-Speed Rail in California: Phase One from the San Francisco Bay Area to Los Angeles and Anaheim

Should Phase One of California’s high-speed rail (HSR) system be built? With a rapidly growing population and congested airports and highways, California plans to build the nation’s first, true HSR system, with 800 miles of track connecting all major cities with 220 mph trains. California High-Speed Rail Authority (CHSRA) now estimates capital construction costs for Phase 1 alone (the 520-mile San Francisco to Los Angeles / Anaheim segment) will be $98.1 - $117.6 billion, up from a previous $40 billion estimate. The Rail Authority also asserts that comparable, expanded, intra-state transportation (airport/highway) capacity would have $171 billion in capital costs. Despite highly attractive (but debatable) HSR system economic/environmental benefit claims, California faces criticism for the project, a lack of funding to complete it, and must now decide how to proceed.

To answer the basic research question, this author chose a research objective of analyzing comparative capital construction costs of Option 1 (building the HSR system) and Option 2 (a combination of expanded highways/airports), in Net Present Value terms, on the assumption that California will definitely need to build something to ease existing congestion and accommodate significant population growth across the next several decades (7.6 to 17.2 million more Californians by 2040). Numerous HSR studies were consulted, but none contained NPV analyses, save for a CHSRA study with minimal back-up data and questionable conclusions. This author constructed dozens of spreadsheet-based scenarios to analyze the effects of varying numerous cost-related factors for Options 1 and 2. Sensitivity analysis also varied discount rates and included an estimation of HSR total cost that includes Operations and Maintenance costs and Capital Asset Renewal costs.

Key research findings indicated that, based on current capital cost data, the HSR system should be built, even before considering possible strong benefits. HSR could save California $25 billion in NPV terms versus Option 2 (4% real discount rate), and would still save half that much even when conservatively including O&M and CAR estimations for Option 1 only. Varying discount rates and other parameters did not materially alter this conclusion, though the magnitude of savings changes when varying the discount rate.