Edit post

Edit your reply below.

Post Body
Enter your post below.
"According to the thinking of Rep. Mica the money to build his proposed high speed from DC to NYC will come from the private sector, raised by all those business that are just chomping at the bit to put their great management skills to work building, owning, operating and making huge profits on this service."  "May I ask where you think all the money will come from for highways and airways?"  "Since gas is already up $1 to $2 a gallon since just a couple of years ago, do you think debt ridden Americans can afford to spend more for gas?  I suspect that the part of the airline ticket that goes to support air traffic control already falls short of the cost, so between the cost of fuel for airlines and possible additions to pay for air traffic improvements, it seems likely that air fares will also go up."If high speed rail or any passenger rail had a reasonable probability of providing an acceptable return on invested capital (ROI), investors would have jumped on it long ago.  There have been several attempts to turn a profit running passenger trains, e.g. original Auto Train, American Orient Express, etc.  Most of them failed. Approximately 15 years ago a group of investors proposed building a high speed rail system from Dallas/Fort Worth to San Antonio.  They planned to raise some of the capital in the securities market, but from the get go they stated that they would require significant government monies to make a go of it.  The Texas Legislature would not go along with the project, and it died.  The problem, as most business analysts know, is that the potential for decent returns in any form of passenger rail is not there.  Any public firm that put shareholder money into it would have the shareholders knocking down the board room door.  And it would not be to offer congrats all around.  Also, privately held companies know not to do it.  This is why passenger rail systems are operated by governments or contracted to private operators (Australia, New Zealand, etc.) with a guaranteed return. When adjusted for inflation, Americans are paying about the same for a gallon of gasoline as they paid in 1981.  However, their household incomes, when adjusted for inflation, are somewhat greater than they were in 1981.  This is why the cost of a gallon of gasoline is not breaking most family budgets.  Many Americans have opted for large, gas guzzling SUVs and pick-ups.  And because they live, on average, farther from work than they did in 1981, they drive more, which means they burn more gasoline than they did in 1981.  So many families are looking at a higher constant dollar fuel bill than they did in 1981.   U.S. airways are burdened by a few chokepoints.  But technological improvements, i.e. better computers, air navigation aids, landing systems, etc., will expand significantly the capacity of the airways.  This is what the FAA is proposing, and it is getting legislative buy-in to make it happen.  Who will pay for the updates?  Mostly the users!  The incremental cost to the users to upgrade the airways will be relatively small.  The FAA estimates that it will cost $22 billion to upgrade the air traffic control system.  Assuming the cost of the new system is depreciated over 25 years, and assuming that the growth in air traffic is four per cent a year, the increase would average 73 cents per ticket or 22 one hundredths of one per cent on an average domestic airfare through the third quarter of 2007 of $324.29.  Most of the FAA budget (85 per cent) is covered by aviation fuel taxes and fees.  The other 15 per cent is covered by an intergovernmental transfer from the general fund.  It too is paid for by the users through general taxes.In 2007 U.S. commercial airlines carried approximately 679 million domestic passengers.  Most of them pay federal income taxes, and many of them work for organizations that also pay federal income taxes.  It is these taxes, above and beyond the direct user taxes, that pay for the intergovernmental transfer.  So the users are funding most of the FAA budget.  Undoubtedly, many roadways need to be improved.  Here too technological enhancements will help expand the capacity of the system.  GM, for example, has developed a prototype car that can be guided by sensors embedded in the highway.  If this system or something like it was adopted for the Interstate highway system, as well as limited access federal and state highways, it could significantly increase the capacity of existing roadways.  Who will pay for the highway improvements?  Again, it will be the users.  How much will it cost to improve existing highways or build new ones?  Estimates are difficult to determine because improvements will be funded by numerous governments, as well as authorities, i.e. federal, state, county, local, toll road authorities, etc.  In addition, how much additional capacity needs to be built is debatable.  A recent Texas Transportation Commissioner said that the state gasoline tax would need to be raised from 20 cent per gallon to 90 cents per gallon to meet Texas' highway build needs.  This sounds like a huge increase in one of the highway user fees.  As a per cent increase, it is.  But as a per cent of personal vehicle ownership costs, it is very small.  Approximately 146 billion gallons of gasoline were burned in 2007 by American motorists.  If the gas tax was raised to 90 cents a gallon, it would generate approximately $132 billion per year.  That would pay for 10,950 miles of roadway at an average cost of $12 million per mile.  If the tax on diesel fuel was increased proportionally, it would generate additional revenues that presumably could be used for highway expansions.  However, since most cars in the U.S. use gasoline, this analysis will just consider gasoline consumption.The combined state and federal gasoline tax costs the average Texas motorist's 1.7 cents a mile.  If the combined tax was raised to $1.08 per gallon, the cost for the average motorist would increase to 4.8 cents a mile.  This is a 182 per cent increase, but it is well within the ability of most motorists to pay it.  When considered in light of the total cost of vehicle ownership, which varies widely, the gasoline tax is pretty small.  For example, I drive a Toyota Corolla. It costs me 27.61 cents a mile to run it.  The gasoline tax is 1.4 per cent of my operating cost.  If it was raised to $1.08 per gallon, the tax would be 4.2 per cent of my vehicle operating costs, which is still relatively small.  Of course, the numbers would vary significantly for other motorists.Raising the gasoline tax has been a non-starter at the federal level and in most state houses for more than a decade.  Too bad!  As a result, in Texas the Department of Transportation (TXDOT) has turned to building toll roads, which in the end are costing motorists far more than hiking the gasoline tax.  I suspect that more and more highways in the U.S. will be built as toll roads.   The user fees and intergovernmental transfers for highways are more difficult to trace.  They are collected or allocated by the federal government, as well as 52 state governments, and numerous local governments, i.e. county, city, etc.    In 2007 there were approximately 204 million motorists in the U.S.  Approximately 72 per cent of them pay federal income taxes, and many of them work for organizations that also pay federal income taxes.  It is these taxes, above and beyond the user taxes, that pay for the intergovernmental transfer for the federal highway system.  The same per cent also pay the state and local taxes, i.e. sales taxes, property taxes, etc., that close the gap between highway user fees and the total cost to build and maintain the state and local roadways.  As is the case with the FAA, the users are paying for their highways, although some of the payments are indirect.    Amtrak estimates that it would cost $10 billion, excluding real estate acquisition costs, to upgrade the 457 mile Northeast Corridor to a true high speed railroad.  This would add approximately $9.60 to the price of an average ticket, before taking into account real estate acquisition costs, and assuming the number of passengers carried in 2007.  Amtrak uses a 40 year depreciation schedule for the rails, with a shorter period for some equipment.  Assuming the real estate cost, especially in urban areas, would be relatively high, it is probably fair to say that the real estate costs could double the incremental ticket cost to $19.20. The Passenger Rail Working Group estimated that it would cost $352 billion by 2050 to build its vision of a national passenger rail system.  Unfortunately, it did not estimate how many riders would use the system or how much revenue it would generate.  Accordingly, it is impossible to estimate the rider burden for the vision or the burden that would be passed on to the general taxpayer.  Amtrak carried approximately 25.8 million passengers in 2007. If every passenger took just one trip on Amtrak during 2007, approximately 12 per cent of the adult population of the United States rode the train.  By comparison, nearly 315 per cent of the adult population, using the same criteria, flew on a domestic commercial flight.  And 94 per cent of the adult population drove a personal vehicle.  Amtrak's riders also pay income taxes and many of them work for organizations that pay federal income taxes.  So they contribute to the intergovernmental transfer required to support Amtrak.  But because their base is small compared to the airline and highways user base, more of their intergovernmental transfer is paid by non-users.  In summary, the improvements to the airway system and the highway system will be funded by a large user base through user fees and general taxes.  Most of the users will continue to pay the intergovernmental transfers.  Because the user bases are so large, the increase costs can be borne easily by the users.  But in the case of Amtrak or any potential high speed rail builder, unless the per cent of people using the system increased dramatically, most of the cost would be shifted to the users of other modes of transportation. What was spent on the nation's airways or highways is irrelevant.  The costs are sunk.  The key questions is what should the nation do to meets its transportation needs?  And how much can it afford? Rapid rail is a good solution for relatively short, high density corridors where air and highway congestion is a serious problem, and where the cost to expand either is cost prohibitive.  Otherwise, passenger rail is a costly and suboptimum choice.  To do it because other countries are doing it, although we can learn from others are doing, is likely to produce the wrong outcome for America.
Tags (Optional)
Tags are keywords that get attached to your post. They are used to categorize your submission and make it easier to search for. To add tags to your post type a tag into the box below and click the "Add Tag" button.
Add Tag