High-speed rail destined for failure, at taxpayers’ expense

You’ve probably heard about the Dallas-to-Houston high-speed “bullet train” proposal, but you may not have heard many of the details beyond the claim that it can make the trip in less than 90 minutes and will be privately financed and won’t cost taxpayers a dime.

The reality isn’t so clear-cut, and taxpayers should be watching their wallets.

The company behind this proposal, Texas Central Partners, promises that the estimated $15 billion cost of construction is backed by private investors. However, the construction does rely on eminent domain, which a state district judge blocked last week, and very well might rely on public funds.

“As for federal loans, the project will explore all forms of capital available to private companies to finance debt for the project, including federal loan programs like RRIF and TIFIA,” according to the project website.

These loans are either direct government loans or private loans with a government guarantee. In either case, if the project fails, the taxpayers are left on the hook for the unpaid balance and accrued interest.

So what’s the risk of that actually happening?

Unfortunately, it is unclear if this high-speed train will earn enough from operations to pay back the potential taxpayer-backed debt. Revenue will depend on a sizable number of commuters switching from air or car to high-speed rail. Previous studies have shown it’s unlikely that enough people will change their transportation habits to make such a rail line profitable.

Turning to the track record, there are only two high-speed rails lines that have operated at a profit according to a 2013 Reason Foundation study: the Tokaido Shinkansen from Tokyo to Osaka and the LGV Sud-Est from Paris to Lyons. Without digging too deep into financial details, it’s worth noting that the train station at the Paris end of the LGV Sud-Est line handles more than 90 million passengers each year.

What about lines with less successful records?

The Reason study looked at highspeed rails lines in 25 countries, found two profitable lines and one running at breakeven. The other cases, including other lines in Japan and France, operated at a loss and were subsidized by taxpayers. The key difference between success and failure is the capital cost — the expense of construction, land acquisition, design and so on. The capital cost was $2.6 million per mile for the Shinkansen line and $3.3 million per mile for the LGV Sud-Est line. Costs of other lines have run as high as $163 million per mile.

The Taiwan High Speed Rail — a privately funded, government backed project — narrowly averted bankruptcy in 2015 with substantial government concessions. The Taiwan line, like the proposed Texas project, uses the Japanese Shinkansen technology. It had ridership of more than 47 million passengers per year but had a capital cost of approximately $39 million per mile for its two-track, 214-mile system.

So, how does Texas Central compare?

The profitable lines have an average capital cost per mile of less than $3.5 million. Texas Central has a projected $62.5 million per mile.

The other half of the success equation is ridership. The Tokyo-Osaka line carried 170 million passengers last year , the Paris-Lyon line carries more than 20 million passengers each year, and Taiwan High Speed Rail served over 47 million passengers annually at the time of its financial crisis. Texas Central forecasts 5 million riders by 2026 and 10 million by 2050.

We should all want high-speed rail in Texas to be successful — even more so if tax dollars are at stake. Unfortunately, the plan is on the high end of capital costs per track mile and on the low end of passengers, the two most important predictors of success. Take all of this into consideration, and ask yourself: Is this project worth a potential $15 billion or more in bailouts? Wall is senior vice president at Moody Rambin, a Houston commercial real estate brokerage and management firm.