Worst American Rail Project Ever?

Last week I was in Albuquerque several hours early for my meeting in Santa Fe.  Several years ago I had written about the Railrunner passenger rail line that operates from south of Albuquerque north to Santa Fe.  Our Arizona Republic had written a relentlessly positive article about the line, focusing on how much the people who rode on it loved it.  Given that the picture they included in the article showed a young woman riding in a nearly empty car, I suspected that while the trains themselves might be nice for riders, the service probably wasn't a very good deal for taxpayers.

Of course, as is typical, the Republic article had absolutely no information on costs or revenues, as for some reason the media has adopted an attitude that such things don't matter for rail projects -- all that matters is finding a few people to interview who "like it."  So I attempted to run some numbers based on some guesses from other similar rail lines, and made an educated guess that it had revenues of about $1.8 million and operating costs of at least $20 million, excluding capital charges.  I got a lot of grief for making up numbers -- surely it could not be that bad.  Hang on for a few paragraphs, because we are going to see that its actually worse.

Anyway, I was in Albuquerque and thought I would ride the train to Santa Fe.  I had meetings at some government offices there, and it turns out that the government officials who spent the state's money on this project were careful to make sure the train stopped outside of their own workplaces.    I posited in my original article that every rider's trip was about 90% subsidized by New Mexico taxpayers, so I might as well get my subsidy.

Well, it turned out I missed my chance.  Apparently, trains do not run during much of the day, and all I saw between 9:30AM and 4:00 PM was trains just parked on the tracks.  I thought maybe it was a holiday thing because it was President's Day but their web site said it was a regular schedule.  I caught the shot below of one of the trains sitting at the Santa Fe station.

Anyway, I got interested in checking back on the line to see how it was doing.  I actually respected them somewhat for not running mid-day trains that would lose money, but my guess is that only running a few trains a day made the initial capital costs of the line unsustainable.  After all, high fixed cost projects like rail require that one run the hell out of them to cover the original capital costs.

As it turns out, I no longer have to guess at revenues and expenses, they now seem to have crept into the public domain.  Here is a recent article from the Albuquerque Journal.  Initially, my eye was attracted to an excerpt that said the line was $4 million in the black.  Wow!  Let's read more

New Mexico Rail Runner Express officials said Wednesday the railroad will receive an additional $4.8 million in federal funding this year that puts the operating budget more than $4 million in the black.

The injection of new money boosts Rail Runner’s revenues this year to $28 million, well in excess of expected operating costs of $23.6 million, said Terry Doyle, transportation director of the Mid Region Council of Governments, which oversees Rail Runner.

OK, I am not sure why the Feds are putting up money to cover the operating costs of local rail lines in New Mexico, but still, this seems encouraging.  This implies that even without the Fed money, the line was withing $800,000 of breaking even, which would make it impressive indeed among passenger rail lines.  But wait, I read further down:

The announcement comes as state lawmakers debate a measure that would require counties with access to the Belen-to-Santa Fe passenger railroad to pay for any deficit in Rail Runner’s operations with local taxes. Currently, almost half its revenues, $13 million, comes from local sales taxes.

Oops, looking worse.  Now it looks like taxes are covering over half the rail's costs.  But this implies that perhaps $10 million might be coming from users, right?  Nope, keep reading all the way down to paragraph 11

The Rail Runner collects about $3.2 million a year in fares and has an annual operating budget of about $23.6 million. That does not include about $41.7 million a year in debt service on the bonds — a figure that include eventual balloon payments.

So it turns out that I was actually pretty close, particularly since my guess was four years ago and they have had some ridership increases and fare increases since.

At the end of the day, riders are paying $3.2 million of the total $65.3 million annual cost. Again, I repeat my reaction from four years ago to hearing that riders really loved the train.  Of course they do -- taxpayers (read: non-riders) are subsidizing 95.1% of the service they get.  I wonder if they paid the full cost of the train ride -- ie if their ticket prices were increased 20x -- how they would feel about the service?

Of course, the Railrunner folks are right on the case.  They have just raised prices, which "could" generate $600,000 in extra revenue, assuming there is no loss in ridership from the fare increases (meaning assuming the laws of supply and demand do no operate correctly).  If this fare increase is as successful as planned, they will have boldly reduced the public subsidy to just 94.2% of the cost of each trip.

By the way, it is interesting to note in this Wikipedia article (Wikipedia articles on government rail projects generally read like press releases) that ridership on this line dropped by over half when the service went from free to paid (ie when the government subsidy dropped from 100% to 95%).  The line carries around 2000 round-trip passengers (ie number of boarding divided by two) a day.  It is simply incredible that a state can directly lavish $60 million  a year in taxpayer money on just 2000 mostly middle class citizens.  That equates to a subsidy of $30,000 per rider per year, enough to buy every daily round trip rider a new Prius and the gas to run it every single year.

Postscript:  This person seems to get it.  One thing I had not realized, the trip from Albuquerque to Santa Fe that I did in my rental car in 60 minutes takes 90 minutes by "high-speed rail".

  • shotgunner

    I've read your blog for quite sometime now. I believe you speak the truth. In the analysis below I question the veracity of the data provided you buy the officials.

    The numbers in this post don't pass the sniff test.

    At a reported revenue from riders of $3.2 million and (rounded up) rider census of 2,000 round trip tickets, this equates to $1600 per round trip fare. Using the 1700 round trips mentioned in the Rio Grand Foundation article the revenue generated would be $1882 per round trip.

    The maximum possible ticket cost on the website is $18 round trip.

    1700 round trips generated a maximum of $30,600

    Somebody fudged the figures you used. Where did the other 99.5% come from? Advertising in the cars?

    To break even they should be charging $39,000 per round trip. A 99.5% subsidy.

    The fact we can make the numbers get real close just by dropping zeros sorta points to a purposeful "typo". They could never actually publish that they only generated $30,600 in fares because the public would go nuts. Nobody would think that is reasonable. Not even a central planning government official.

    If I am mistaken in my math, please point out my error.

    I love the fact "high speed rail" take 1.5X the time it takes to drive.

  • shotgunner

    oops, delete if you like. They are actually getting 3400 riders per day not yearly. Usually they use yearly numbers to make things seem so large!

  • http://www.riograndefoundation.org Thomas Molitor

    Nice prediction. Now send the article along to Gov. Brown and California who are about to make the same mistake.

    http://www.huffingtonpost.com/2012/02/19/jerry-brown-high-speed-rail_n_1287206.html

    The only chance high-speed rail has of covering its operating costs is a ridership region as densely populated as Japan or in Taiwan between Taipei and Kaohsiung.

    The population between Albuquerque and Santa Fe is sparsely populated Indian reservations and the stray roadrunner or two. Nice thing about the NM Railrunner is never having to give up your seat to a fellow passenger because there are none.

  • NL_

    Seems downright economically illiterate to conflate capital contributions and cash flows. If an entrepreneur told potential investors that his revenues were $28M over costs of $24M, without specifying that a huge chunk of that $28M was from capital infusions, we'd be seeing orange jumpsuits and hearing about how horrible white-collar crime is.

    Unless the business model is a pyramid scheme, and the revenues are supposed to come from scamming the other investors, you can't mix together capital infusions with operating revenues like they're the same thing.

    If that worked, then you could take a money-losing business and make it a great deal by contributing a huge pile of capital. You can try contributing $100M to a jewelry kiosk at the mall losing $4k per month, but unless you're about to do some amazing improvements with the capital, all you did was find a stellar way to under-invest $100M while still losing ~$4k per month.

  • Caspian

    This is a gift from our last governor.
    In your research did you happen to find all the track that was bought but is never used?
    The corruption in this state is unbelievable
    .

  • NL_

    Cars are great because the up-front investment is achievable even for lower-income people (most people with work can afford some type of working car) and because it goes where you go on your schedule. I've taken trains and buses many places I've lived, but it's shockingly convenient when I drive anywhere. The car departs exactly when I'm ready, makes unplanned stops and detours right when I want, and I don't have to worry about jostling for seats with strangers.

  • GoneWithTheWind

    Our small town "invested" an a variation of bus service they call the EmX. It has dedicated lanes for the bus only. It is a much larger bus carrying about twice as many passengers as a regular bus. The new lanes cost millions to build. Each bus cost close to a million to buy. Our small town traffic was nver so bad that a ruglar bus wouldn't have worked just fine. None of our busses are typically "full" or even half full. A typical non-rush hour bus might have three passengers and it is not unusual for a bus to run most of the route totally empty. The ONLY reason they built the EmX is because it was free money. The taxpayers didn't want it. The bus patrons didn't want or need it. It was a collusion between the busdrivers unions, local politicians and congressmen. I have considered making a documentary. I would ride each of the bus lines and sit all the way to the back with the camera trained down the aisle showing hour after hour of no passengers. I am willing to bet that running a camera on the bus would get me kicked off or arrested. I think they have something to hide.

  • Another guy named Dan

    It seems to me that the "honest" way to present the numbers is to count the sales tax subsidies (at least) against the debt service interest and amortized principal. Of course this then means that they have both huge operating losses and capital shortfalls.

    It looks to me that they are achieving a positive EBIT-DA. I've always believed that good companies report their bottom line, marginal companies report their cash flow, and failing companies report EBIT or EBIT-DA.

  • marco73

    In the linked article, the writer points out that the capital bonds have huge balloon payments just down the road. While the proponents crow about how they are in the "black", there is a $230 million payment due in 13 years and another $250 million in 15 years.
    So are officials setting aside approximately $20 million per year, so that they will be able to pay those balloons?
    Of course not. Spend every penny now. Hopefully the officials will have all moved on to greater things, and those balloon payments will be someone else's (read: taxpayers)headaches.

  • bradley13

    I grew up in Albuquerque, and I always thought that a rail connection between Albuquerque and Santa Fe could make a lot of sense. There's a lot of traffic between the cities, and a fast connection would save driving and parking. Sadly, almost the most important factor: there's nothing between the two cities to cause right-of-way problems, raise objections about noise, etc - it's just empty land.

    When I was back in Albuquerque for a visit, I was therefore really excited to find out that a rail line now exists! Of course, I had to try it. Oh. My. God.

    First, as you found out, the schedule is bloody inconvenient. It basically only runs at commuter times - and even then the choice of times is not very generous. The trains we were on were pretty full. Uncomfortable seats, noisy train cars, and - rather important in New Mexico - lousy air-conditioning.

    The tracks are no better - they must be used by a lot of freight trains, because they are bumpy and uneven, and in generally poor shape.

    Then the speed. For most of the you felt like you were crawling - on some stretches you would be almost faster jogging. You can drive the distance in under an hour. A train ought to be at least as fast. Instead, at 90 minutes, it is massively slower.

    Who would want to spend an extra *hour* every day commuting? It's no wonder they don't run more trains - not enough people are stupid enough to want to spend 3 hours a day in crappy, uncomfortable train cars?

    But the train stations are pretty - that must be where they spent the money. Fail.

  • Mark2

    @shotgunner, you are right the numbers seem to be a bit optimistic in regards to ridership, but they are averaging 2000 per day, which is 4000 rides * 365 = 1,460,000 rides a year. 3,200,000 / 1,460,000 is an average ticket price of $2.19 which seems low, until you see their fare schedule.

    http://nmrailrunner.com/PDF/Schedules/Fares%20Chart%202-2010.pdf

    It is pretty amazing you can get a round trip to From Albuquerque to Santa Fe, for only 9 bucks unless you are a kid or senior, then it is only 6!

  • Charles

    I'm from Albuquerque. The Railrunner is known locally as the "Railroader." It was represented to cost about 150 million to construct. Naturally bonds were issued to pay the cost. About 6 months ago there was an article in the Albuquerque Journal by someone who serves on the Metropolitan Transit Board stating that the construction cost, with interest, will be approximatley 1.3 BILLION over the next 25 years. OUCH! And that figure does NOT include the replacement of rolling stock.

    For those in AZ who do not know, New Mexico has basically had single party political rule at the state level since 1932 in each of the three branches of government. Governor Bill Richardson, who pushed the train project, was trying to burnish his Presidential resume. The Democratic controlled state legislature did not do its due diligence in investigating the project's true construction and operating costs and rubber stamped the legislation. The huge interest payments on the bonds and the yearly operating losses come out of the state transportation budget, greatly reducing the funds available for highway construction and repair.

    What happened in NM with the Railrunner is an example of the dangers of what can happen with single party rule. For anyone interested in more information about our white elephant, I recommend that you go to the web site for the Rio Grande Foundation and type in the search word "Railrunner."

  • Sam P

    GoneWithTheWind: That sounds like a bus rapid transit system (BRT)! I didn't know there was one in operation in the US. If you don't mind, where is it? BRTs were pioneered in Brazil as an inexpensive alternative to intra-city rail. (Now that I check, I see there is a list of 33 BRT systems in the US on Wikipedia, though clicking through it sounds like some of these are actually express bus routes and not buses on dedicated right of ways which I'd consider necessary for a BRT).

  • NASCAR Wife

    Since no one has mentioned it, I will. The Railrunner is another subsidy by the taxed class to government workers. The only people regularly commuting between Albuquerque and Santa Fe are state workers. Santa Fe is the capital of New Mexico, but rich, Hollywood-type, non-resident homeowners have made the city too expensive to live in for the average working stiff. The commute is short with very little traffic until one reaches Santa Fe, one of the worst designed cities (for traffic) in America. A large number of government workers have chosen to live in cheaper Albuquerque and commute to state offices in Santa Fe each day. Now the taxpayer gets to underwrite the cost of the workers' commutes. Thanks!

  • perlhaqr

    Another Albuquerque resident here. Governor Billy's Toy Train Set was a ridiculous waste of money. They could have done something like Google's commuter busses, and probably added another lane of pavement to run them in all the way from Albuquerque to Santa Fe for the same price, and then at least when they realised it was too expensive for the ridership, there would have been another lane of pavement for the drivers to make use of.

  • MJ

    So I'm curious, what was the problem that this project was supposed to solve?

  • Anonymous Mike

    My Dad lives just north of Albq and loves that train. He keeps talking about how it's great he can take it to Santa Fe and how affordable it is and all. So when I ask him how much does it cost him he keeps pointing to the ticket price and I have to explain it all to him again.

    I'm over in Washington DC area and there are boondogle projects like this galore around here. So here's a theory of why rail projects gets built and more importantly approved by voters...

    Stop thinking of them as transportation projects, they're as nominally related to solving transportation needs as SEC football players are to university students. They are prestige projects meant to make every one feel good. Coyote once wrote about modern government projects being like the Pyramids, yeah well rail projects fulfill the same need for citizens as well, at least those whose quiescence is needed to get these built. We've all sat in traffic and/or bemoaned the transportation system and politicians are eager to show they're doing something about it - building a rail system is cool and sexy (unlike buses) and we can all see it happen.

    The hoity-toity can brag about their cool new light rail system that makes their city world class - no body brags that now buses run on the Red Line every 15 minutes instead of every 20.

    I had a whole think piece written for this but I erased it because there is a better and simpler way to demonstrate it - go watch the Simpsons episode about the Bear Tax. It works because there was a problem (somebody saw a bear), the politco offered a solution (a bear patrol complete with stealth bombers), and the solution was visible and effective. The only problem was that the $5 per tax payer cost was itemized (as opposed to losing it int he public safety budget) so people got upset; you don't see that with rail because they lose it in local government budgets or fund it out of overall transportation budget (hello gas tax)

    My Dad is a smart guy and he thinks that Roadrunner is a visible effort that at least make a dent in the traffic on I-25 to Santa Fe, but he doesn't know whether that solution is effective or cost-efficient.

  • Henry Bowman

    @bradley13:

    There is absolutely no freight traffic on the railroad between Santa Fe and Albuquerque. Other than the Railrunner, Amtrak uses the track: one train in each direction per day. That is all the train traffic there is, period.

    The older section of the track is bumpy and uneven, as you state. The only reason I can think of is simply lack of proper maintenance.

  • IGotBupkis, Three Time Winner of the Silver Sow Award

    >>> NL: to worry about jostling for seats with strangers.

    You also don't have to worry about lugging your packages on and off the bus at each stop, and the volume can be far more than you can carry at once.

    Civilization Law Numero Uno:
    ==================================
    "Civilization advances by increasing the number of important things one can do without thinking about them"

    By this criteria, in all but the most unusual circumstances, or in the most heavily congested areas (i.e., NYC, Tokyo), buses and trains are NEVER an advancement. They require immense forethought to connect your schedule with everyone else's, and consistently take more time than a car under almost every possible circumstance with the possible exception of Rush Hours.

    Note that Rush Hours could be far better alleviated by the government taking the mass transit budgets and paying out 1/10th of them to businesses that staggered their operating times to spread the "arrival/departure loading" of employees across a wider span of 1-3 hours. Not every business can or wants to do this, but it's a market-based solution that makes far better use of money to cause road usage to distribute better.

  • Dana Majewski

    I like to call it Dollar Bill (Richardson)'s Folly.

  • Claymore

    Worse than this? Hard to imagine, but California and especially Hawaii (Oahu) are looking at bigger catastrophes.
    By the time commuter rail systems in this country "mature", the travel time typically is double that of the automobile.
    And one must add the time to commute from residence to rail site (several miles for most), and rail site to destination (at least 1/2 mile in major metropolitan areas). How do you handle child care and family responsibilities if commuting any distance? You don't; you abandon them. Your family suffers tremendously. Then if you do live in a commuter-oriented location ("Tenement-oriented development") then whenever you go outside to a concrete cafe you must endure the 20-somethings passing through life connected to their a-social networks.
    I think I'm better to earn $70k a year in Las Cruces NM or Wichita KS than to live or work in an elevator-served anything, anywhere, earning twice that. Tried that, didn't like it, and left. There is a lot to do living in Washington, Chicago, etc., but not worth it.
    This thing needs to be derailed, but if the track condition is as reported, the trains will drail themselves and the taxpayers will scream.

  • Allen

    I've always found the building of the Rail Runner baffeling. Occasionally I find it down-right frightening because of how illogical it was to build it. That it was I can only attribute to that bit of civic boosterism we all have inside us, the kind that Sinclair Lewis poked fun of in novels like Babbitt.

    A few rough points in lieu of being more eloquent :
    a) Albuquerque is a not a large city. Santa Fe is downright small. I don't mean to rip on them for that. Bigger is not better. But if you're city has less citizens than you can fit in a college football stadium, you have no business dreaming of rail let alone building it.

    b) Congestion on I25 is minimal. There are no sections of I25 in the state that are in the top 100 worst congested spots in the country.

    c) That stretch of I-25 currently handle 35-40k vehicles a day. Even if it doubles in 20 years, as some who claim to have a perfect magic ball do, that's nothing a 6 lane freeway can't handle.

    d) the local pueblos, aka reservations, are often cited as being a space constraint on the freeway. While that situation does present some issues, see point C. A 6 lane freeway can easily exist on the current footprint.

    e) If people want to commute long distances, the government should not be in the business of subsidizing and encouraging this behavior. It's befuddlement to find so many on the left that rally for lowing energy use and making do with less, yet they at the same time support programs like this that encourage folks to consume huge amounts of energy everyday.

    f) The opportunity costs are huge. THis is state where the high school graduation rate is an appalling sub 70%.

    @Coyote, IIRC you have some interest in rail news. Have you seen what is going on with the BNSF line? BNSF basically has told Amtrak since they haven't been running trains on this mainline between La Junta, Colorado and Lamy, NM that it's up to Amtrak to pay for the track upkeep. This is also the same mainline that the state of NM bought from BNSF a couple years ago and then promptly reneged.

    I don't mean to confuse folks, by "the same mainline" I'm talking about the BNSF line the rail runner runs over for the southern portion of it's route. They had to build brand new rail line for @ a 1/3 of the Rail Runner to reach Santa Fe.

  • jose

    hey are prestige projects meant to make every one feel good. Coyote once wrote about modern government projects being like the Pyramids, yeah well to text aanywheree you wanyt for free you can use textme4free.com !!!