Hardeep Ramesh, MS ISE
Engineering Economics (ISE 460)
University of Southern California
December 3, 2010
California High Speed Rail (CHSR) system is a mega project planned by the California High Speed Rail Authority (CA HSRA), connecting the major metropolitan areas of California. The project finalized in mid 2000, is estimated to be one of the most expensive of its kind. It is in the lines of the high speed rail systems existing in France, Japan and China. The cost of the total project, which will cover around 800 miles, is estimated to be around $45 billion as of 2008. At this time of economic instability and no proper funding expected the big question is that - is the project economically feasible?
This case study evaluates the financial benefits of the project. It will show the various sources from which the project will be benefited. Since it is a public investment if the total benefits are more than the total costs it is said to be economically feasible. This case study uses the benefit-cost analysis as an evaluation to establish this. It uses only the benefits and costs which are quantifiable and those which are not duplicative.
California’s burgeoning population and increasingly congested highways and airports demanded new transportation solutions. Highway construction The California High Speed Railway Authority (CHSRA) was created in 1996 to build a high-speed train system connecting California’s major metropolitan areas. By 2000, the authority had developed investment-grade ridership forecasts, revenue, cost and benefit of the system. The high-speed train system will create more economic stimulus and cost less than half as much as the alternative - building more lanes, bridges and ramps along highways; and terminals, gates and run-ways at airports. The Authority’s studies show that the full system, serving 30 stations, will attract 42 to 68 million passengers per year in 2020, operate at a surplus and cost over $33 billion to build. If built, the high speed trains capable of reaching 220 mph (350kmph) are anticipated to link San Francisco and Los Angeles in as little as two and a half hours if non-stop. The planned system would also serve other major California cities such as Sacramento, San Jose, Fresno, Bakersfield, Anaheim, Irvine, Riverside and San Diego.
The estimate of the project was raised to $40.5 billion in 2005 after the final evaluation of Environmental Impact Report/Environmental Impact Statement (EIR/EIS). In 2008 the cost of the project further rose to $45.4 billion due to inflation. It was approved by the voters of California on November 4, 2008. The project was authorized with the passage of Proposition 1A, which has issued US$9.95 billion in general bond obligations for the project. The system will be carried out in two phases, Phase I and Phase II. The cost of Phase I being $30.7 billion and that of Phase II being $14.7 billion.
The two phases are:
Phase I: San Francisco-San Jose-Merced-Fresno-Bakersfield-Palmdale-Los Angeles-Anaheim Phase II: Sacramento connection (Merced area) to SF Bay Area and Los Angeles; San Diego-Riverside-Los Angeles
The methodology used here is a very simple calculation of the total costs and total benefits and to find the benefit-cost ratio. The computation of the benefits directly utilizes the latest ridership and revenue forecasts for the high-speed train service and the procedures are consistent with guidance provided by the Environmental Protection Agency (Guidelines for Preparing Economic Analyses) and the Federal Highway Administration (Economic Analysis Primer). The costs considered are the capital costs and the operating & maintenance costs. Then using the benefit-cost analysis concept learned in ISE 460, the benefit-cost ratio is determined. The emphasis of the whole study will be on this analysis...