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Train wreck

Alberta's high-speed train proposal is on collision course with fiscal reality.

Mark Milke - July 20, 2009

With multi-billion dollar “stimulus” projects rolling out from governments this year, politicians should pick up a copy of a 2003 book, Megaprojects and Risk: An Anatomy of Ambition. Given the recent report on the feasibility of a high-speed train in Alberta, it would be especially useful to that province’s politicians.

In Megaprojects, authors Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter, who surveyed decades of stimulus infrastructure in Europe, concluded (unsurprisingly to anyone aware of the cost overruns endemic to megaprojects around the world – just think of Montreal’s very expensive Olympic Stadium, BC’s 1990s fast ferry boondoggle, the Vancouver Convention Centre or the 2010 Winter Olympic games) that the numbers produced by analyst were not to be trusted.

The authors (all academics and urban planners involved in transportation issues) write that, ultimately, most major projects were low-balled in terms of their predicted cost to the public treasury. “Whether we like it not,” they write, “megaproject development is currently a field where little can be trusted, not even - some would say especially not - numbers produced by analysts.”

The high-speed train report prepared for the province by TEMS/Oliver Wyman, might be a temporary exception to the Megaprojects rule. Refreshingly, the study gave no recommendations. It did, however, lay out a range of scenarios and figures.

For example, four different types of rail technologies were surveyed with costs ranging between $3B and $20B. The study clearly states that taxpayers and politicians should be under no illusion that the private sector could profitably finance this megaproject. Such a project, write the TEMS analysts, “calls for a substantial investment by both the public and private sectors.”

The study does make reference to the usual number of "benefits" which readers and especially boosters might misinterpret. For example, depending on the technology used, the supposed economic benefit of an Alberta high-speed train might range from$4.6B to $33.4B.

But that's not the same as tax revenues. Under the worst-case scenario, and over the lifetime of the high-speed rail project, it is estimated that between just $33M to $69M in new tax revenue would accrue to Alberta and the federal government.

Governments might recoup between $800M to $1.7B if the $20B option was chosen and all its assumptions pan out. Either way, that's a massive negative return to governments on their initial $3B or $20B cost, to say nothing of the additional interest costs. By my calculation, an outlay of, say, $10B in financing over 30 years at 4% interest would cost $21.2B in interest over those three decades.

More articles by Mark Milke