Friday, October 3, 2008

Quantifying Prop 1A's Economic Stimulus

NOTE: We've moved! Visit us at the California High Speed Rail Blog.

At this week's California High Speed Rail Authority board meeting in Fresno, UC Merced economics professor Shawn Kantor presented a study showing that high speed rail would provide $3 billion in economic benefits to the Central Valley. Kantor's study also suggested that the economic stimulus of high speed rail, in the form of new jobs and new economic activity, would pump around $2 billion into the state budget in the form of increased income tax revenue. UPDATE: The complete study is located here.

This comes on the heels of other reports showing the regional economic impact of Prop 1A. The Bay Area Council Economic Institute published a study suggesting that HSR will create 48,000 permanent jobs in the SF Bay Area alone, and will create between 100,000 and 128,000 jobs "during the period of construction."

Both Kantor and the BACEI studies emphasize the productivity gains that will come from high speed trains:

Kantor said his tally includes savings that high-speed rail would provide the region's residents in time and money that otherwise would be spent on driving to the Bay Area or Southern California, including gas, maintenance and parking.

The estimated economic benefit also includes productivity gains, Kantor said. "You can sit on a train and work, make phone calls, and be productive."...

[From the BACEI study:] From a business standpoint, reducing the time lost by commuters in Bay Area traffic will increase business productivity. Bay Area commuters lose approximately 150,000 hours each day to congestion, at an annual economic cost of approximately $2.6 billion.

A similar study conducted by the San Diego Institute for Policy Research indicated 45,000 long-term jobs would be created by high speed rail in the San Diego region.

These studies provide a solid counterpoint to the completely discredited Cox-Vranich study arguing that high speed rail will cost California money. In fact it will save California money, add needed tax revenue to the state budget, and most importantly, create hundreds of thousands of jobs that this state so desperately needs.

Prop 1A is economic stimulus, as well as a transportation solution, a method to achieve energy independence, and a tool in the fight against global warming. California needs high speed rail to secure its 21st century future.


Brandon in California said...

Over 93,000 jobs! Wow!!! That is a lot!

Robert Cruickshank said...

That's at minimum, and the LA-OC-Inland Empire region hasn't been accounted for. I also suspect these to be conservative estimates.

Rafael said...

If HSR really is going to net the Central Valley $3 billion in direct benefits, the cities and counties served there should be prepared to invest about $1 billion of their future revenue into the construction of their HSR stations and immediate environs.

These funds would not need to be appropriated up front and, they would be conditioned on CHSRA meeting a series of milestones related to its updated business plan. The actual impact on the cities' and counties' budgets would be spread out over the 2012-2018 construction period of the starter line. The planned stations between Sacramento and Merced would not impact budgets before 2018, so there's plenty of time to plan ahead.

Analogous arguments should be made to secure $1 billion from the Bay Area (all before 2018) and $2 billion from SoCal (50% after 2018, for the spur to San Diego).

The long time horizon means the current credit crunch will have no bearing on this concept of early commitments. The short-term objective is to bump up total "in-state public contributions", i.e. to put more skin in the game early on. If the Feds and private investors only match prop 1A funds, there won't be enough to complete the starter line, much less the entire network.

Anonymous said...


You can believe me or not, but one of my most serious objections to Prop 1A and the project is the way it has falsely been promoted.

Kopp has repeatedly said, the taxpayers will not be asked to put up more than the 9.95 billion. It is one of the key promotional items he speaks about.

Now as you point out, the numbers, even by their own cost projections don't pencil out. Yet as promoters they don't talk about this.

It is devious. I think it goes to the core of the reason why we don't have a business plan before the election.

Mike Fogel said...

I love to hear these numbers of 100k+ of jobs created - but I don't really understand how CAHSR could create THAT many jobs. The railway won't employ more than 10k people directly, will it? Is it actually expected that 10 jobs will be created out in the general economy for every CAHSR job?

I'm not an economist... anyone with a good explanation or just details about these numbers?

Anonymous said...

michael j.- look at it like this. 90 years ago the state started to invest in paved roads to connect remote towns to bigger cities. Term was "Farm to Market". Can you see how that would build jobs?

HSR is like the same thing, enabling people to get places easier so that more commerce can happen.

-anon, 'cause I can

Spokker said...

Any problems with this report?

Anonymous said...

What would 700Billion buy? 18 of the systems that were trying to build..per the SFGate.

Rafael said...

@ morris brown -

prop 1A will not require a tax hike at the state level. It's a subtle distinction, but an important one. Also, CHSRA's funding plan has long called for a contribution from the cities and counties served. This is fair because they will reap most of the benefits - places like Redding and San Luis Obispo will not. Of course, how they choose to finance their contributions is up to them. The same is true of the hoped-for federal contribution.

It's patently obvious that prop 1A by itself will not be enough to fund 1/3 of even the starter line - never mind the whole network. Construction cost escalations in recent years mean the bond volume - set well before 2002 - ought to have been adjusted. Unfortunately, the California budget could not shoulder that without a politically deadly tax hike, so the bond volume was left alone.

CHSRA hasn't belabored this point because it wanted to establish the concept of federal and private matching funds as such. In the US, this is not a commonly used financing model. It will now have to be applied to "in-state public contributions" to make ends meet.

Rafael said...

Here is a report by the Bay Area Economic Forum on the economic stimulus HSR would deliver in the Bay Area.

Anonymous said...

michael - HSR will create jobs in the Central Valley by dramatically lowering transportation costs to the state's major business centers (the SF Bay Area and Los Angeles). If Fresno is suddenly 1 hour from the Silicon Valley and Los Angeles rather than 3 hours, that will make it significantly more attractive to start a business there. It's not really about each HSR job creating more jobs.

That said, real economists (including Kantor) do not count job creation as a benefit per se, unless unemployment is above the "natural rate" of unemployment (i.e. there are unutilized resources). You'll note that Kantor doesn't include the jobs as benefits in his summary of the economic benefits.

Anonymous said...