NLX redux

I get into a Letter to the Editors battle over in Pine City. I am responding to this about everyone’s favorite intercity rail project, the Northern Lights Express. Keep in mind that the titles of Letters to the Editor are written by the editors, not the author.

Metcalf off the rails on NLX project

Posted: Thursday, May 2, 2013 10:04 am

Professor David Levinson | 0 comments

I am surprised at the Ad Hominem nature of the attack by Metcalf, whom I have never met, but desperate people say desperate things. I won’t respond in turn. I will say though I am trained as an engineer, I have done a significant amount of work in the related field of transportation economics and travel demand modeling. I worked as a demand modeler for 5 years and wrote my doctoral dissertation on the choice of financing mechanisms for highways, which I published as Financing Transportation Networks. I serve on the Editorial Board of the Journal of Transport Economics and Policy. I have over 100 peer-reviewed papers (see http://nexus.umn.edu/papers_journals.html), many of them on the topic of transportation economics, and hosted the International Transport Economics Conference in 2009, held at the University of Minnesota. I think I am qualified to write a letter to the editor.

So to begin, what are Metcalf and TEMS doing in this letter if not advocating for the project?

The letter says: “However, the Northeast corridor does not need an operating subsidy as it goes faster than 110 mph. It makes a good operating profit, just as the NLX will if speeds are kept up to 110 mph.” The key word is “operating”, meaning it does not include “capital.” This is a classic shell game. Operating revenue pays for the drivers and fuel, but not the longer-lived trainsets and tracks. Something else must pay for those. Also, the NLX is not the Northeast Corridor and nothing magically happens when speeds reach 110 mph; you get a few more riders in exchange for burning more fuel and paying more upfront for straighter and flatter tracks.

Metcalf writes: “The issue is can the service be franchised, by covering its operating costs and by covering operating costs only. If the train runs at 110 mph the answer is yes, it will cover its operating costs. The state and local communities will only be on the hook for annual operating subsidy not capital costs.”

Yes, state and local communities will be on the hook for the annual operating subsidy. This subsidy is what enables the franchised service to cover its costs. It gets revenue from passengers (farebox recovery) and from subsidy. The capital costs are of course generally paid “up front” by selling bonds. Those bonds will have to be paid back by someone or risk default. Often these bonds are backed by the downstream revenue source of the project they are supporting (they should be, otherwise the public is on the hook for paying them back), if the bond market has confidence that there will be sufficient revenue to pay back the bonds, otherwise it is backed by general revenue. Sure, having someone else (e.g. your Uncle Sam) pick up 80% of the check for the capital costs is better for you than picking that up yourself, that doesn’t mean the cost isn’t paid.

The letter asserts: “The Casino attracts nearly 8 million trips per year with over 3 ½ million visitors or 20,000 trips per day.”

That sure sounds like a big number, so, being an engineer, I looked at the traffic counts (http://www.dot.state.mn.us/traffic/data/maps/trunkhighway/2010/counties/pine1.pdf), which counts cars, not people. I-35W has about 20,700 vehicles per day just outside Hinckley in 2010 (total both directions). Near the Casino, there is a count of 9,600 vehicles per day (4,800 in each direction). East of the Casino, traffic counts are 5,100. So from the counts, it looks like the Casino is generating about 4,500 vehicles per day (both directions) or 2,250 vehicle trips into the site (we can annualize this: 2,250*365=821,250, a bit less than 8 million). Now of course, many of those vehicles are workers (the workforce is between 1,000-2,000), so won’t be taking a train. Others are delivery people and so on. So there are maybe 750-1500 vehicles per day of visitors coming in. Some of those vehicles are buses (and have lots of people), some are cars (and carry one to four typically). For what fraction of those people will taking the train be better?

Let’s do a thought experiment: Think about a typical trip-maker, two adults visiting the Casino for some entertainment. They leave their house in the northern Minneapolis suburbs (since there are different casinos serving other suburbs). Will they drive to downtown Minneapolis and pay for parking at the new Interchange Station? (unlikely). Will they drive to a suburban Minneapolis station and park, and pay for two round-trip tickets, and wait for a train, and then have to transfer when they get to Hinckley (since the train is not likely to drop people off at the Casino’s doorstop without a lot of added cost to build a diversion across I-35W), and then the same when going home? (perhaps) Will they drive straight to the Casino? (most likely).

A bigger market are people riding a tour bus, which picks them up at or near their residence. A train can’t beat that, even if it is faster. A train trip also has a lot of slow bits, like getting to the station and waiting for the train, and getting off the train, and going to your actual destination.

So yes, the cursory letter-to-the-editor level gravity model analysis skips the major metropolis of Hinckley Grand Casino and its 1,000 daily incoming vehicle trips. If the train captures five percent of those, its another maybe 100 daily passengers alighting at the station (if private vehicles carried 2 persons each) each way each day, less than 36,500 passengers alighting at Hinckley per year on a line that is purported to carry 10 to 20 times as many.

Next let’s consider the forecasts. We must ask “which forecasts?” Different professional forecasters looking at the line have come up with significantly different forecasts of demand for the line. Notably the State Railway Plan from 2010 (only three years ago) had ridership levels at half what the most recent Environmental Assessment projects. I won’t be getting into why the forecasts might be different (I am sure if you have read this far into the letter, you can surmise, and I suggest you read Flyvbjerg’s Megaprojects and Risk, or his research papers, on the subject for more details.)

The Best forecast from the State Railway Plan for this corridor has just over half the ridership of the more recent Environmental Assessment. The Base case is less optimistic with about one-third the riders.

It has been said that “Gambling is a tax on people who are ignorant of statistics.” Perhaps we should rephrase that … “Investing in transportation infrastructure and hoping for profits is a tax on people who are ignorant of history.”

This is a general problem, not only applied to rail, not just the US, and not only to the NLX corridor. The collective profits from US Airlines from the dawn of the passenger aviation era in the 1930s to the present are negative. The history of railroads is the history of bankruptcy. Minnesota’s storied Northern Pacific went bankrupt in 1875, and again in 1893. James J. Hill’s Great Northern acquired the St. Paul & Pacific Railroad from the bankrupt Northern Pacific and to launch his empire. The beauty of bankruptcy is it wipes out the original investors, but leaves the investment intact. Amtrak, nominally a “for-profit” corporation, was formed in 1970 to relieve freight railroads from their money-losing passenger operations in which they were disinvesting. More recent investments that have failed their initial investors include the Channel Tunnel (reorganized twice), which benefit/cost studies have shown would have been better for Britain if it had not been built (Anguerra (2006)).

There are many other examples, some are described in my book: Garrison, Wm and Levinson, D. (2006) “The Transportation Experience.” Oxford University Press.

See also: Adventures in Forecasting Intercity Rail: NLX edition, Who will pay if NLX fails, Does NLX make sense for Pine County, High-speed rail to Duluth gains steam