All Aboard the 21st Century

By Connie Kwong Source: HSR

For Californians, it’s no secret that the high-speed rail has been a source of controversy in the Golden State. When construction workers broke ground on the $68 billion project on Monday, Jan. 5, it was hardly the beginning of the end to years of political battles over funding and the legality of the project. At the high-speed rail inaugural ceremony, Gov. Jerry Brown expressed his enthusiasm by declaring, “California, since the beginning, has undertaken big tasks and entertained big ideas.” It’s true that California has historically been a trailblazer with its flourishing tech industries and progressive politics. But to people living in other countries around the world, or even just across the nation in the Northeast, Gov. Brown’s words and the controversial nature of this public infrastructure development might seem rather backwards.

That’s because California, with the countless freeways spanning its landscape, as well as most of the United States, are home to a damaged and underdeveloped transportation infrastructure system. In 2013, the American Society of Civil Engineers gave D’s to the categories of “Roads” and “Transit” and a C+ to “Rail” in its report card on America’s infrastructure. The organization notes, “45% of American households lack any access to transit, and millions more have inadequate service levels,” and that “42% of America’s major urban highways remain congested, costing the economy an estimated $101 billion in wasted time and fuel annually.” Meanwhile, high-speed rail and other state-of-the-art mass transit technologies have existed for decades in countries like Japan, France, and Russia. Currently, the only high-speed rail system in the U.S. is the Acela Express running from Boston to Washington, DC.

Clearly, the status quo needs to change. If done correctly, California’s high-speed rail project will set an excellent example in effective government public policy regarding the economy and the environment for other states to follow, especially because these two areas will become increasingly intertwined as time progresses. I say “done correctly” because it’s grossly inaccurate to deny that the current game plan has flaws and weaknesses – the biggest being funding issues and long-term planning.

A primer in public finance

There have been several key funding milestones for the high-speed rail. In 2008, Californian voters approved Proposition 1A, a $9.95 billion bond measure to begin construction. After Pres. Obama made high-speed rail a goal in his transportation policy agenda in 2009, California received $3.5 billion in federal funds in 2010. In June 2014, the state legislature appropriated $250 million in revenue generated from the state’s cap-and-trade program for the high-speed rail. Although the current price tag on this project is $68 billion, costs are expected to increase as the project continues. Consequently, budgetary issues have been a rallying point for many opponents of the project.

However, an article in Salon points out,

Americans have effectively given up on a visionary politics, as the 2014 midterms exemplified. The country turned its back on activist government, mainly because they so rarely see anything come from it that they can touch and feel. They resist paying taxes because they can’t identify what they get in return. Infrastructure projects can provide powerful symbols of that return on investment, and show that only effective government can create such lasting monuments to progress.

Thus, the high-speed rail makes for an excellent case study in public finance. We can look at some projections and collected statistics to evaluate the positive spillover effects of this public infrastructure project.

Job growth is one of the most visible effects. The California High-Speed Rail Authority (CHSRA) estimates that the project will create 20,000 construction jobs annually for five years during the first leg of the project, and an additional 67,000 jobs annually for 15 years as the high-speed rail expands to include service between the Bay Area and Los Angeles. The increased economic activity resulting from the development and implementation of the high-speed rail could indirectly generate up to 400,000 permanent jobs statewide. Moreover, the CHSRA’s community benefits agreement ensures a 30 percent small business participation rate in the project, as well as a Targeted Worker Program that will provide jobs to workers living in economically disadvantaged areas. In its Small BusinessParticipationand Jobs Report for the First Quarter of the 2014/15 Fiscal Year, the CHSRA reported that 190 small businesses worked on the project, logging a total of 328,388 hours. So not only does the project create jobs, it also has the potential to help mitigate the problems of unemployment and poverty.

Moreover, the high-speed rail can also influence growth in educational attainment for workers, resulting in a more diversely skilled Californian work force. The Mineta Transportation Institute of San Jose State University (MTI) explains that this is because each phase of the project requires significantly different mixtures in demand for education and training. For instance, it points out that community colleges have a large capability to change based on learning needs for the project, such as creating courses, certificate programs, and special associate’s degrees related to high-speed rail construction management. The MTI’s report also emphasizes the need to boost higher education attainment in science and engineering, especially in transportation engineering programs.

At the same time, the high-speed rail will also stimulate economic integration within the state. According to the CHSRA’s Economic Impact Analysis Report, this is because unlike highways, railways by nature are “a nodal system that reinforces accessibility to key points on the network.” The trains, which will travel the 520 miles between San Francisco and Los Angeles in two and a half hours, will save Californians hours in car rides and millions of dollars in plane tickets. Many Californians would also have the option to work farther away from home but still have a manageable commute. Additionally, the high-speed rail will incentivize commercial and housing development around station stops. The CHSRA also finds that despite the overall strength of the Bay Area’s technology industry in northern California, the region is experiencing slower economic growth than the rest of the state and would likely benefit from greater integration with firms and industries centered in different parts of the state. The report also notes that 37 percent of the state’s GDP can be attributed to service industries like information, finance, insurance, real estate, and professional and technical services. However, the share of these industries is overwhelmingly concentrated in Los Angeles and San Francisco, which constitute 44 and 42 percent respectively of these industries. Smaller cities located along the rail like Bakersfield and Fresno would therefore benefit from increased market and transportation access to larger cities, enabling them to tap into a bigger share of these service industries and further diversifying economic activity within the state.

Of course, the most important effect of the high-speed rail is its environmental impact. By 2050, California’s population is expected to reach 50 million. As the population grows, so will the demand for intrastate transit. Building more airports and freeways as an alternative to the high-speed rail is estimated to be $158 billion, which is more than two times the $68 billion cost of the high-speed rail. This would also be an unsustainably carbon-intensive solution, especially when considering that eight out of the 10 worst American cities in daily average pollution are located in California. Thanks to the state’s Renewables Portfolio Standard requiring one-third of all electricity to be derived from renewable sources by 2020, the high-speed trains will run substantially on wind and solar energy. In his inaugural address, Gov. Brown proposed raising that standard to 50 percent of all electricity by 2030.

A new legacy

Infrastructure development is arguably the best example of effective government because of the positive spillover effects it generates. This is especially crucial, given the political gridlock we currently experience in Washington. The California high-speed rail project therefore has the potential to demonstrate good governance. Policymakers need to recognize that the project’s success is highly contingent on starting conversations between the right people. Organizations like the Mineta Transportation Institute and the UC Davis Institute of Transportation Studies are leading the way in the state by generating important research and hosting forums and events to inform policy. But there also needs to be cooperation between the state and the private sector, because funding remains an area of concern for the project.

Public funding problems are inherently political. But we shouldn’t look at the high-speed rail and other issues of public finance as embodiments of the notion that government and business are substitutes. Rather, we need to consider how government and business can act as complements to benefit society, because embracing a project means embracing the idea and reality that government should have an actively pragmatic role in society. So when we recognize how population growth and global warming pose numerous challenges to the future, we need to recognize that effective transportation policy plays a significant role in addressing those problems. Already, there has been increased dialogue between the state and private investors regarding further funding for the project. The Fresno Bee points out that allocating cap-and-trade revenue towards the high-speed rail was overall a good signal to investors because it demonstrated the viability of the project. Given that this is the most ambitious public infrastructure development in the nation in decades, “investors may be willing to assume increased risk in exchange for gaining a toehold in the high-speed rail market in the United States.”

It’s true that most of the U.S. is years behind other countries in its public transportation systems. But I’d like to think that when Gov. Brown described how the long-overdue high-speed rail was an example of how California has historically “entertained big ideas”, he was also speaking about the big idea that good government can exist. After all, the history of American government can be interpreted as an ongoing pursuit of that idea. As one article in Salon summarizes, “those who would drown government and create an own-your-own society cannot explain away the Hoover Dam, or the New York City subway, or the roads linking Maine, Florida, Arizona and Idaho. Those projects worked in their time, and high-speed rail can work for the 21st century.” California has the vision for the idea, and breaking ground on the high-speed rail is a good sign. But only time will tell if the state can successfully employ and maintain the right public policy tools to ensure that the high-speed rail is completed and produces positive spillover effects for the economy, the environment, and ultimately, the future.

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