Amtrak's $151B Price Tag Hits a High Speed Bump
Business + Economy

Amtrak's $151B Price Tag Hits a High Speed Bump

Imagine riding from Philadelphia to New York in only 37 minutes, or from Boston to Washington, D.C., in just three hours on a cutting-edge, high-speed transportation network linking every major city in the Northeast, essentially, a rail-centric economic "mega-region."

Those are just some of the promises behind Amtrak's ambitious new high-speed rail proposal for the Northeast Corridor, the railway stretch between Boston and Washington D.C. Under the plan, the aging, crowded infrastructure of the region's existing rail system would be replaced by a network on par with the most advanced systems in the world. According to Amtrak, the project, which would be completed by 2040, would ensure the economic viability of the region for decades to come, cementing its status as one of the most important business districts in the United States.

To many observers, that sounds wonderful in theory. There's one problem: The cost. Amtrak, which for years has drawn criticism for its inability to turn a profit, has admitted that its newest vision would cost a staggering $151 billion, most of which would come from government funding. That's a massive price to pay at a time when the federal government is struggling to find ways to deliver on such entitlement programs as Social Security and Medicare.

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Yet Amtrak executives say that the investment, like investments that have been made in high-speed rail elsewhere in the world, would prove to be well worth it. According to experts at Wharton and the University of Pennsylvania, the massive project does in fact hold vast economic potential, and could, over the long haul, help revive local economies, improve employment numbers and generate greater productivity up and down the Corridor, while at the same time alleviating congested roadways and airspace. Those exact same arguments, they note, have been borne out by recent high-speed rail successes in the United Kingdom, and were also used by high-speed rail backers in California to win approval in early July for a multibillion-dollar line between Los Angeles and San Francisco.

At the same time, these experts add, there's no easy way to predict the economic benefits of these projects. That's because, when it comes to high-speed rail, "economic benefits" are apparently difficult to define, making the sales pitch for any high-speed rail project almost as difficult as building one.

"The benefits [of the Amtrak] project are pretty diverse," says Robert Yaro, a practice professor in city and regional planning at the University of Pennsylvania School of Design. "We wouldn't be the first country to do this, as basically every other major industrialized country is already moving along with improvements of this kind. But yes, the economics are hard to get at. They are fairly long-range and fairly diffuse."


"It's tough to convince people that just because you have a positive cost-benefit ratio, a project is worthwhile. Most people have a hard time seeing that," notes W. Bruce Allen, an emeritus professor of business economics and public policy at Wharton. For example, "if you try to tell [someone] that so-called 'time benefits' are worth so much money, they'll ask you, 'Well, can I see that? Is that real money?'" Although high speed rails shorten commuter times considerably, such factors as "time saved" and "increased productivity" are not necessarily "real" money to the average citizen, Allen points out , And as a result, not to the politicians holding the purse strings, either.

But Allen, who has spent years studying rail systems worldwide, says he's convinced that Amtrak's proposed high-speed rail project could – like the Los Angeles-to-San Francisco line proposal has promised – truly revolutionize the way business is done along the Corridor. He adds, however, that most Americans probably have their doubts, and many politicians have legitimate concerns about the enormous outlay of public funding. Furthermore, well-publicized accidents, such as a 2011 high-speed rail crash in Wenzhou, China, have shown that these advanced rail systems are not immune to tragedy.

"We know that there are benefits of many kinds, and certainly one of them of is the newfound access for the workforce to more jobs in more markets," says Marilyn Jordan Taylor, dean of the University of Pennsylvania School of Design and partner in charge of the urban design and planning practice at Skidmore Owings & Merrill LLP. "It creates job mobility for people without forcing those people to move."

"Taylor, who along with Yaro teaches a seminar about high-speed rail at Penn, isn't just basing that claim on her years of work in the transportation industry. In fact, evidence from her own students – who recently produced a report about high-speed rail that helped inform Amtrak's long-term vision – and from researchers overseas, including the United Kingdom, corroborate her views.

Yaro notes that Sir Peter Hall, a celebrated transportation expert at University College in London, has spent years studying the impact of the U.K.'s various high-speed rail initiatives. And according to Hall's work, there is simply no denying these projects' impacts: High-speed rail in the U.K. has created new opportunities both for workers along the lines and for the cities and towns they serve. "Hall was looking at the benefits for cities that were brought [closer] to London with the addition of the high-speed rail," he says. "And the results were pretty dramatic – not in every city, but almost every city. Those cities that benefited saw improved numbers for employment, for rental rates, for payrolls. So the conclusion was that high-speed rail is basically an 'enabler.' It doesn't guarantee that these kinds of places will turn around, but it does enable them to do so. In most cases, it delivers."

In part because of the success of past projects, the U.K. is now moving forward on the so-called HS2 project, which aims to more closely link London to the cities of the Midlands, including Birmingham. "The British were the last developed country, along with [the U.S.], to develop a high-speed rail plan, and while they did make the case that such a system would be the most energy efficient way to get between [London and the Midlands], the primary reason for building this was to bring the cities in the Midlands into the business shed of London and improve their economies," Taylor notes. "Here in the Northeast, we have New York, which is always among the list of the Top 10 most important economies in the world, as well as Boston and Washington, D.C. If we could provide high-speed service here, it would unite, for instance, the Philadelphia economy more closely with the New York economy, to the benefit of both."

It was that kind of argument that helped rail advocates in California win an important victory earlier this summer – one that could see the Golden State become the first to use truly high-speed rail to connect two of its most important cities.

In early July, California lawmakers voted to move forward with a $68 billion plan to build a new high-speed rail line between Los Angeles and San Francisco, expected to be completed by 2028. The project, to be funded with state bonds, federal money and private investment (though most of that private investment has yet to be identified), has been criticized as an enormous waste of taxpayers' dollars by those opposed. But proponents, including California governor Jerry Brown, insist that, along with reducing traffic, slashing CO2 emissions by as much as three million tons a year and saving 237 million gallons of gasoline annually, the project would benefit not only the major municipalities at each terminus, but the smaller communities in between.

Yaro says a similar impact from high-speed service could be seen in the Northeast. If the line was ever fully developed, such second-tier cities as Baltimore and Trenton could also realize massive benefits, as companies located there could more easily attract labor from New York or Washington, while their citizens could pursue professional opportunities in cities that currently are out of reach. Such a system would shrink the Northeast Corridor, making it into a single labor market, rather than several disparate ones. And in the short term, the massive construction project would help create jobs all up and down the Corridor, as well as widespread spinoff economic benefits for suppliers, construction firms and other players.

According to Morris Cohen, a professor of operations and information management at Wharton, "The impact of construction is direct, immediate and observable," whereas any indirect benefits "could take a long time to be realized." Furthermore, "it is difficult to attribute benefits such as increased economic activity to infrastructure. Many factors go into decisions to invest or to grow businesses, which would be a source of benefit. Infrastructure is only one of them."

Trying to put a specific number on the impact of a high-speed rail would be a nearly impossible task, Cohen notes. Still, he adds, "I am sure this project will create long-term economic benefits. The question, of course, is, 'Do these benefits justify the cost?'"

That long-term unpredictability is certainly problematic, especially as Amtrak tries to lobby lawmakers to cough up $151 billion during a time of persistent recession. Both Yaro and Taylor say the Northeast Corridor project would not only benefit from, but very likely will need, some kind of contribution from the private sector. Moving forward, for instance, they can foresee a time when private carriers in the mold of Virgin Airlines might share rail space with Amtrak, thereby increasing the frequency of service and creating new competitive dynamics that could bring fares down.

But Yaro says he is convinced that the project is both worthwhile and reasonable. "It's a lot of money, yes, but the Northeast has a $2.6 trillion economy. It would be the fifth or sixth largest economy in the world if it were its own country. And we have this problem right now, which is that the corridor is basically full. So this is really about capacity." He notes that the existing Amtrak lines, which share space with regional rail systems such as Philadelphia's SEPTA and New Jersey Transit, are running near full capacity. Airports in Boston, New York and Philadelphia are regularly backed up, and Interstate 95 is gridlocked in most major cities during working hours.

Given the available options, then, building a new rail network, even at a cost of $151 billion, could rightly be called the most practical solution of them all. Yaro points out that it was this kind of dynamic that gave the California project proposal its winning edge. "One of the strong arguments that both [former California governor Arnold Schwarzenegger and current governor Brown] have made effectively is that although [a high-speed rail project] is expensive, the roadway and airport expansion alternatives would cost even more," he says.

Still, Allen has doubts the Amtrak proposal will gain needed traction among citizens who will likely be blinded by the price tag. "Look, I would use it," he says. "When I go to Washington, I don't fly. I take the train. I don't drive in the Corridor unless I'm on a leisure trip, and I'm a big advocate for high-speed rail. But I just don't think the guy on the street is going to buy into this. If we could wave a magic wand and a new system would instantly appear, people would flock to it. But getting there is going to be a huge battle. You have to convince people it's worthwhile to spend all this money, and that won't be easy."

This article originally appeared at Knowledge@Wharton and is used by permission.