A stenographer at Bloomberg is reporting an Amtrak study that says the social benefit-cost ratio of the Gateway program is about 4. Gateway, the project to quadruple the double-track line from New York to Newark, including most important the tunnel across the Hudson, is now estimated to cost $25 billion. Cost overruns have been constant and severe: it was $3 billion in the ARC era in 2003, $9 billion when Governor Chris Christie canceled it in 2010, and $13.5 billion when Amtrak took over in 2011 and renamed it Gateway. And now Amtrak is claiming that the net present value of Gateway approaches $100 billion; in a presentation from late 2016, it claims that at a 3% discount rate the benefit-cost ratio is 3.87, and compares it positively with Crossrail and California HSR. This is incorrect, and almost certainly deliberate fraud. Let me explain why.
First, the comparison with Crossrail should give everyone pause. Crossrail costs around the same as the current projection for Gateway: about $21 billion in purchasing power parity terms, but future inflation means that the $25 billion for Gateway is very close to $21 billion for Crossrail, built between 2009 and 2018. Per Amtrak, the benefit-cost ratio of Crossrail as 3.64 at the upper end – in other words, the benefits of Crossrail and Gateway should be similar. They are clearly not.
The projection for Crossrail is that it will fill as soon as it opens, with 200 million annual passengers. There is no chance Gateway as currently planned can reach that ridership level. New Jersey Transit has about 90 million annual rail riders, and NJT considers itself at capacity. This number could be raised significantly if NJT were run in such a way as to encourage off-peak ridership (see my writeup on Metro-North and the LIRR, for which I have time-of-day data), but Gateway includes none of the required operational modernization. Even doubling NJT’s ridership out of Gateway is unlikely, since a lot of ridership is Hoboken-bound today because of capacity limits on the way to New York, and Gateway would cannibalize it; only about 60 million NJT riders are taking a train to or from New York, so a more realistic projection is 60 million and not 90 million. Some additional ridership coming out of Amtrak is likely, but is unlikely to be high given Amtrak’s short trains, hauled by a locomotive so that only 5-7 cars have seats. Amtrak has an asterisk in its comparison saying the benefit-cost ratios for Crossrail and Gateway were computed by different methodologies, and apparently the methodologies differ by a factor of 3 on the value of a single rider.
That, by itself, does not suggest fraud. What does suggest fraud is the history of cost overruns. The benefits of Gateway have not materially increased in the last decade and a half. If Gateway is worth $100 billion today, it was worth $100 billion in 2011, and in 2003.
One change since 2011 is Hurricane Sandy, which filled the existing North River Tunnels with corrosive saltwater. A study on repairs recommended long-term closure, one tube at a time. But the difference is still small compared to how much Amtrak thinks Gateway is worth. The study does not claim long-term closure is necessary. Right now, crews repair the tunnels over weekends, with weekend closures, since weekend frequency is so poor it can fit on single track. The study does not say how much money could be saved with long-term closures, but the cost it cites for repairs with long-term closures is $350 million, and the cost under the current regime of weekend closures cannot be several billion dollars more expensive. The extra benefit of Gateway coming from Sandy is perhaps $1 billion, a far cry from the almost $100 billion projected by Amtrak for Gateway’s worth.
What this means is that, if Gateway really has a benefit-cost ratio approaching 4 today, then it had a benefit-cost ratio of about 7 in 2011. Amtrak did not cite any such figure at the time. In 2003 it would have have had a benefit-cost ratio approaching 25, even taking into account inflation artifacts. None of the studies claimed such a high figure. Nor did any of the elected or appointed officials in charge of the project act like it was so valuable. Construction was not rushed as it would have if the benefit-cost ratio was so high that a few years’ acceleration would have noticeable long-term consequences.
The scope of the project did not suggest an extreme benefit-cost ratio, either. ARC, then Gateway, was always just two tracks. If a two-track tunnel has a benefit-cost ratio higher than 20, then it’s very likely the next two-track tunnel has a high benefit-cost ratio as well. Even a benefit-cost ratio of 4 would lead to further plans: evidently, Transport for London is planning Crossrail 2, a northeast-southwest tunnel complementing the east-west Crossrail and north-south Thameslink. Perhaps in 2003 Port Authority thought it could not get money for two tunnels, but it still could have planned some as future phases, just as Second Avenue Subway was planned as a full line even when there was only enough money for Phase 1.
The plans for ARC included the awkward Secaucus loop bringing in trains from the Erie lines into Penn Station, with dual-mode diesel/electric locomotives. This is a kludge that makes sense for a marginal project that needs to save every penny, not for one where benefits exceed costs by more than an order of magnitude. For such a strong project, it’s better to spend more money to get it right, for example by electrifying everything. It would also have been better to avoid the loop kludge and send Erie trains to Lower Manhattan and Brooklyn, as I have proposed in various iterations of my regional rail plan.
All of this together suggests that in 2003, nobody in charge of ARC thought it was worth $70 billion in 2003 dollars, or around $100 billion in 2017 dollars. Even in 2011, Amtrak did not think the project was worth $85 billion in 2011 dollars. It’s theoretically possible that some new analysis proves that old estimates of the project’s benefits were too low, but it’s unlikely. If such revisions were common, we would see upward and downward revisions independent of cost overruns. Some rail projects with stable costs would see their benefit-cost ratios shoot up to well more than 10. Others might be revised down below 1.
What we actually see is different. Megaprojects have official estimates on their benefit-cost ratios in a narrow band: never less than 1 or else they wouldn’t be built, never more than 4 or 5 or else people might disbelieve the numbers. In an environment of stable costs, this would make a lot of sense: all the 10+ projects have been built a long time ago, so the rail extensions on the table today are more marginal. But in an environment of rapid cost escalation, the fact that benefits seem to grow with the costs is not consistent with any honest explanation. The best explanation for this is that, desperate for money for its scheme to build Gateway, Amtrak is defrauding the public about the project’s benefits.