Who will pay if NLX fails?


NLX

I was asked to write an opinion piece for The Pine City Pioneer: Who will pay if NLX fails? in response to one put forward by project consultant Alexander Metcalf of TEMS:

"TEMS, the consultant hired to advocate for the project, asserts that revenue will exceed operating costs at higher speeds. I agree that both revenue and costs will increase with speed, whether one increases faster than the other is an empirical question on which forecasts are highly questionable for a variety of reasons, not the least of which is lack of existing service on which to base such assumptions. Many have suggested the Downeaster is the most comparable market.

The Downeaster already carried 300,000 riders in 2005 and was in fact forecast to carry 625,000 passengers between Boston and Portland in 2015, so, [the fact] that it exceeds 525,000 riders in 2012 after a major investment is hardly testament to it beating targets. http://www.edrgroup.com/pdf/report-downeaster-final.pdf

More important is to compare the structure of the markets. Boston and Portland are less than 100 miles apart. Duluth is 137 miles from Minneapolis, so you would expect more trips between Boston and Portland if the sizes of the city pairs were equal. They are not.

The population of metropolitan Portland, Maine (516,000) exceeds that of Duluth (280,000); while the metropolitan Boston combined statistical area (7.6 million) remains larger than the Twin Cities (3.6 million). The number of trips between two places is a product of their sizes and inversely proportional to the travel time. On a population basis alone we expect the Boston to Portland market to have almost four times as many trips as Minneapolis to Duluth.

Of course metropolitan Boston has much greater transit use (12.2 percent) than Minneapolis (4.7 percent), and much better connections so that will also tend to increase ridership for the Downeaster above what the NLX should expect.
Unfortunately, U.S. experience with passenger rail for the past 50 years suggests the forecasts are optimistically biased in favor of the project in order to increase the likelihood they will be funded. The question at hand is will the project in fact recover its operating and capital costs?

We have no evidence it will. TEMS admits that Amtrak considers state revenue as income. A subsidy is a subsidy whether it comes from the federal, state, or local government. So even if the Northeast Corridor were operationally profitable (conveniently forgetting capital costs, which need to be paid somehow), that is not evidence any other particular route would be. Just because it pays its utilities (operating costs) doesn’t mean it pays its mortgage (capital costs). Who will pay if the NLX fails to meet revenue hopes?"

David Levinson

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This page contains a single entry by David Levinson published on April 15, 2013 10:10 AM.

Inform pedestrians, not drivers was the previous entry in this blog.

Adventures in Forecasting Intercity Rail: NLX edition is the next entry in this blog.

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