Bullet Trains in the United States

The Rio Campinas bullet train really is fast — at least, with regards to the approval of the needed funds for the project’s construction. The government just published Provisional Measure Number 511, conceding a Treasury guarantee to the Brazilian Development Bank to finance the project with $20 billion reales, at subsidized interest rates, with no requirement for any type of insurance or guarantee for the private contractors.

In one strike, the government dismantled the two possible debates over the need for the investment of billions: It made it a done deal through the provisional measure, preventing the processing of the project by law through the various Congressional commissions and avoiding the fact that the resources are processed by the General Budget of the Union. This has put in motion an extra-budgetary mechanism with little transparency in a practice that is becoming routine in federal treasury management.

In a piece already well-commented on in the press* (available at http://www.senado.gov.br/senado/conleg/textos_discussao.htm), I argued that the bullet train project has several problematic points: budgeted costs below international averages, overly optimistic estimates of demand, expensive fares, nonexistent contingency funds for unexpected costs, poor integration with other modes of transportation, lack of evaluation of less expensive alternative projects and, mainly, a high probability of creating a financial drain of more than $30 billion reales for the treasury. All of this without a guarantee that the investment will be useful or efficient.

It is interesting to see that in the United States, there is an intense debate over high-speed trains. Although no investments have begun, two lines have been analyzed for years: one in Florida linking Orlando and Tampa (with an extension to Miami) has been debated since 1976, and one in California, a 1,100 km system linking San Francisco, Los Angeles, San Diego and other cities that has been discussed since 1980.

Both of these projects, and many others around the country, have had ups and downs over the past few decades and have practically died out after finding that the costs would be extremely high for state taxpayers. President Obama, however, brought new enthusiasm to supporters of these projects with the approval by Congress of the economic stimulus package in the beginning of 2009, which provided an initial allocation of $8 billion to support state investment in high-speed trains, with over $1 billion per year over five years.

The criticisms that have been leveled at these kinds of projects are very similar to those made about the Brazilian project: overestimates of demand and costs, inadequacies in connections, etc. In the case of Florida, for example, it is argued that the train from Tampa to Orlando would take 55 minutes in comparison with the 90 minute trip by car — but the train option requires that the passenger go by car to the central station in Tampa and spend time parking and buying tickets (which can take more than an hour). Upon arriving in Orlando, the passenger would get off at the international airport, which is 16 km from the center, without adequate public transportation to get into town. In the case of California, different studies are conflicting: Cost estimates fluctuate between $25 billion and $42 billion, the projected fare is not competitive with air fare, and estimates of the number of trips vary between 40 million and 100 million annually, with the lower limit already considered to be an overestimate.

Although there are many similarities with the Brazilian project, it is worth noting three points in which the decision process is different from that of the Brazilian one.

Firstly, the federal or state funds already allocated to the projects have passed through their budgets and therefore the scrutiny of the legislature.

Secondly, the taxpayers were consulted several times about the convenience of the projects. In Florida, the electorate voted on an amendment to the state constitution to decide on the construction of the train, deciding in favor of it. In 2003, facing the lack of funds to bankroll the project, a new amendment was voted on, this time to remove the text approved in 2000; this was also accepted by the electorate. In California, the legislature voted in 2004 to authorize a bond of $10 billion to finance the project. In 2008, the debt issue was submitted to the voters, who approved it, but its implementation is still pending — a scene that seems unlikely to change in the future, considering the serious fiscal crisis now faced by that state.

Thirdly, no one in the United States dares to say that these projects will be self-sustaining and require no permanent transfer of public resources. Even the greatest enthusiasts of the trains recognize that permanent public subsidies to cover operating costs and capital expenditures will be necessary.

Today in Brazil, parliamentary debate and the opinion of the voters do not count. Billion dollar resources that fund the work at subsidized interest rates are outside the budget. Most amazing of all, government officials, while at the same time supporting strong public subsidies for the project (even by using state pension funds), repeat endlessly that the investment will pay for itself with revenue from tariffs alone. Will Brazil, with its history of socialization of losses through public spending, be able to achieve a self-sustaining project — something not even considered possible in the United States, where there is much greater experience in private financing of infrastructure investments?

Just in time, in spite of federal offers of help, the recently elected governors of Florida, Wisconsin and Ohio delayed or canceled investments in high-speed trains, as the cost-benefit ratio was unfavorable for state taxpayers.