The 2012 CAHSR business plan has some bombshell construction cost numbers: the headline number is $98 billion, leading to predictable complaints that the cost has run over by a factor of 3 over the original $33 billion budget of 2008. This is somewhat misleading since it includes inflation, but there’s still a factor-of-2 real cost overrun to investigate: in 2010 dollars the cost is $65 billion, as predicted by CARRD though with a somewhat different distribution of cost overrun among the various segments.

Some of it is scope creep that could be removed later via value engineering, and some is additional delays. The new plan assumes construction will take until 2033, vs. 2020 originally. The one point of light is that the initial construction segment (ICS) from Fresno to Bakersfield is still within budget, giving time to send the people involved in scope creep to early retirement and do the designs better. The biggest cost overruns are on the Peninsula and LA Basin segments, which are now up to $25 billion, about triple the original cost estimate. This already suggests that lack of money is what is causing costs to grow: just as it’s expensive to be poor, so is it expensive for an agency to have no money and drag construction over decades, in many segments.

But it’s not just the delays. The Peninsula blended plan includes many extra features, such as $1.5 billion for 80 km of electrification (in Auckland the same amount of electrification cost $80 million), $1 billion for 10 km of very tall and unnecessary viaducts through downtown San Jose, and $500 million $1.9 billion to tunnel under Millbrae (see update below) in order to preserve BART’s three tracks.

There’s scope creep and there’s scope creep. Sometimes, a project’s costs go up because new features are added that are useful (for example, converting a single-track diesel project into a dual-track electrified light rail, as was done on the LA Blue Line), or that are necessary but were glossed over initially in order to keep cost estimates down. A little bit of the latter kind of scope creep is present in the Central Valley, in the form of more viaducts than originally planned; CARRD’s cost overrun estimate was based entirely on taking CAHSR’s unit costs and applying them to the added features as of 1-2 years ago. But the kind of scope creep we see on the Peninsula is entirely different: they are adding features that are of marginal operational use, and instead exist mainly to reinforce agency turf lines (namely, separation of agencies at San Jose).

My suspicion is that the same is true of the other segments. The fact that a cost overrun was averted on the initial construction segment in the Central Valley, after extensive value-engineering (for example, fewer viaducts), shows that the one segment CAHSR needs to build within budget in order to survive is indeed being built within budget. The other segments, for which the HSR Authority hopes to obtain private and local funding, offer easy opportunities for contractor profiteering: once the initial segment is built, there may well be momentum to complete the system, and the consultants could strong-arm local governments and the federal government to cough up more money. Indeed, no extra features useful to passengers have been added – everything is just about agency turf and more viaducts.

The only places where there could plausibly be an honest overrun, which cannot be eliminated simply by putting adults in charge and going back to older plans, are the mountain crossings. And indeed, the Grapevine alternative, now posited to be $1-4 billion cheaper than the Tehachapis, could resolve the major issue heading south toward the LA Basin. In the north, they keep studying the Altamont overlay with options including one proposed by SETEC that lets trains run at full speed right up until the built-up area of southern Alameda County; together with the Dumbarton water tunnel, it could help the project stay within budget by switching to a superior alternative, and avoid the San Jose viaduct mess entirely.

Although the political supporters of CAHSR tend to discount the Grapevine and be skeptical of switching to Altamont, they are still interested in the option of value-engineering. But it’s stupid to first propose an outrageous plan and then value-engineer it back to the original cost estimate. It offers no political advantages over doing it right the first time, and just breeds justifiable mistrust of the authority. For all I know, there could be a large real overrun that is not the result of agency turf wars.

To make sure people don’t react to the apparent factor-of-three overrun the way they should – i.e. propose to pull the plug unless costs are scaled down to reasonable levels – the 2012 plan includes higher numbers for the cost of doing nothing, i.e. of expanding freeways and airports to provide the same capacity. It was originally $100 billion, and is now $170 billion. This is less self-serving than it seems: the plan assumes a slower buildout and higher inflation, which accounts for most of the difference. But it’s still a backhanded way of trying to force the state to kick more money toward the contractors. If they can slow down airport and freeway construction (thereby increasing the final cost), perhaps they can halt it entirely – fair’s fair.

I’m still optimistic that they could put adults in charge and reduce costs to the original estimate, as they already have in the Central Valley. That is, if the federal government dangles a few billion dollars for the LA-Bakersfield segment and demands even a modicum of accountability, then they will gladly use the money to build a useful initial operable segment and only try to extort the public later. But optimistic and certain are not the same, and it’s an outrage that such a project could cost $65 billion. The tunnel-heavy Shin-Aomori extension of the Tohoku Shinkansen cost $4.6 billion for 82 km, a little more than half the proposed per-km cost of the new business plan – and Japan is a high-construction cost country.

Unless they cut the costs, I don’t see how I can continue to support the project. The initial construction segment, useless as it is on its own, is fine; the question is whether it stakes the territory for a very expensive future extension, or for one with reasonable cost. Since I doubt they’ll be able to get any additional money until they connect to the LA Basin except from the federal government and even then it will be a small number of billions, I think it’s the latter option. But the rest should be scrapped and restarted unless the construction costs drop dramatically. I would peg the maximum that the project can cost before it should be canceled, on the outside, at $60 billion or so in today’s money. This assumes timely construction – waiting decades with rapidly depreciating track hosting limited service makes the situation worse. The only consolation I have is that no matter what, the other projects they could spend the money on if CAHSR is canceled are even worse. And this says more about those other projects than about CAHSR.

Update: here is the cost escalation breakdown. It’s overwhelmingly the addition of new features, i.e. tunnels and viaducts, most of which are unnecessary (though one major issue, additional tunnels from Palmdale to LA, is required due to further study showing the need for more environmental protection). For example, Millbrae gets a gratuitous tunnel, previously estimated at $500 million, now estimated at $1.9 billion (p. 20). Unsurprisingly, SF-SJ has the biggest overrun, a factor of 2.5. Hat-tip goes to Clem for noting the extra cost of Millbrae, which I missed looking at just the business plan.

Update update: the California HSR Authority links rotted away, but were replaced with new ones. The page references remain valid; the reference to the cost in the first link at the beginning of this post is PDF-p. 15, and the reference to the breakdown of cost overrun by segment is in the update link, PDF-pp. 7-10. The cost estimate for the project was since revised down to $53 billion, in 2011 dollars, in the final 2012 business plan (see PDF-p. 23); this is entirely from leaving out the LA-Anaheim and SF-SJ segments for later, which avoids the Millbrae tunnel and other Peninsula luxuries, but does not address the extra costs of going through Palmdale or the cost overrun just south of San Jose.

You’ve heard it before: the US is falling behind China and Europe, and has to build more infrastructure to stay competitive in the 21st century. It’s unavoidable in almost any Thomas Friedman article. Boosters, construction industry interests, and even ordinary high-speed rail supports keep asking, how can a country grow without matching other countries’ HSR investment? Never once do they stop to ask why HSR should do anything to help increase competitiveness, beyond vague promises about reducing oil dependence and carbon emissions, issues for which HSR is roughly priority #20.

Countries do not in fact compete with one another. This is made clear in Paul Krugman’s 1994 article in Foreign Affairs, Competitiveness: A Dangerous Obsession. If China builds HSR and becomes richer as a result, the US does not suffer. It’s not competing with Chinese productivity in any meaningful way. In principle, the effect on US wages could be negative if production moves to China or positive if the larger Chinese market buys more American goods; in practice, the effect of other countries’ growth on the US is negligible.

But let’s zoom in and discuss how exactly HSR, or other large infrastructure projects, could lead to more competitiveness. They could boost productivity, but that is mostly an issue for freight transportation. Passenger transportation is mainly a consumer product, not a producer product. In fact, during its own spurt of fast growth from the 1960s to 1997, South Korea lagged in building passenger transportation, explicitly because it prioritized capital investments in industry over such consumer products as highways.

International corporations looking for a place to site a new factory will not look at the general infrastructure situation; they’ll look at what’s useful to their needs. Nissan chose Smyrna, Tennessee for its plant because it had good freight rail and Interstate access and was in a low-wage, anti-union state. The closest thing to passenger-oriented infrastructure that we could look at in such cases is international airports, and the Nashville area only has a small one; Nissan, and the other Japanese and European companies locating plants in the South, would have clustered in Atlanta, Dallas, and Houston if they’d cared.

Let’s zoom in even more, specifically on Nissan and what it’s done to Smyrna. Smyrna is a company town; Nissan even told it to zone the area around the plant as industrial-only, on the theory that commercial development would distract the workers too much. In any other context, the proponents of competitiveness and high-value-added industrial policy would decry such cases as a race to the bottom; and yet, those are among the few situations in which there’s actual competition among regions. The local drivers of a productive economy, rather than one that’s simply a passive recipient of other companies’ transplant factories, have nothing to do with infrastructure megaprojects. Silicon Valley exists because of Stanford, not because of the Peninsula Line or US 101.

At least, there’s competition among regions looking for foreign investment. In other contexts, it’s not as clear. The effects of HSR on national economic growth are too small to be visible, which means that it’s impossible to conduct a study that reliably tells if they exist. But the effects on regional development, a related trope, are decidedly mixed. It’s clear that HSR promotes development near the station; it’s unclear whether it actually develops the surrounding areas, rather than merely concentrates development near the station. Evidence from the Shinkansen as well as other high-speed systems is decidedly mixed – see for example this review.

Building public infrastructure is not a race. Other countries’ experience is a good teacher of what works and what doesn’t, and, provided adjustments for different circumstances are made, can help gauge whether HSR will be successful in the US. However, there is a very big difference between saying that HSR succeeded on a route similar to an American proposal and saying that the US must build because other countries are building as well.

As Krugman notes, the mentality of treating things as if they were races oversimplifies, and leads to bad projects. In the case of transportation, it means focusing on visibility, prestige, and spectacle rather than on cost-effectiveness, usability, and mode share. This is where development-oriented transit comes in: one of the causes of airport transit boondoggles is the insistence of cities and airport authorities that their airport access be world-class, which means a no-expense-spared people mover or, worse, premium rail link to downtown. Those projects, too, often come with promises of competitiveness, as if an airline is going to choose its hub based on the existence of a rail link with a 10% mode share rather than low landing fees or proximity to many travelers and destinations.

At least, development-oriented transit is transit. Paul Barter’s thesis explains how in the postwar period, Asian cities often started building freeways simply because that was what the US was doing and they wanted to be modern. I’m most reminded by the line from the Onion, attributed to the Chinese government: “this year, a million people in China will die from cancer – cancer is a very modern disease.” HSR exists largely because Japan National Railways President Shinji Sogo refused to accept a railway decline and instead built the Tokaido Shinkansen. Although HSR is not freeways, some of the rhetoric coming from various boosters glorifying China’s lack of environmental and community protection has the same basic problem of placing a national race over quality of life.

(Some) HSR projects are good economic and transportation development; they should be sold as good economic and transportation development. Read this summary on Reason & Rail and note how nowhere does Paulus Magnus mention competitiveness. Japan didn’t build the Shinkansen in order to compete with anyone, and France and Germany didn’t build the LGVs and ICE system in order to compete with Japan. If what they’ve done has succeeded then it’s likely that similar American lines could also succeed and should be built, but it’s not a race and the concept of being behind or of needing to imitate what others have done promotes boondoggles, not good transit.