16 July 1997

Dr. Stanley Marshall, Executive Director
The James Madison Institute
P. O. Box 13894
Tallahassee, Florida 32317

Re: An Analysis of the Economic Impacts of Florida High Speed Rail

Dear Dr. Marshall:

I have reviewed the above report, which was sponsored by the Florida Department of Transportation and Florida Overland Express, and produced by Florida State University and the University of South Florida (June 1997).

I am more than a bit surprised that the state of Florida would fund such a study before revising its high speed rail projections to reflect the revolutionary market changes that have occurred since the present ridership projections were completed. The present high speed rail ridership projections had assumed that economy air fares would be approximately 67 percent higher than economy high speed rail fares. Our James Madison Institute report (Evaluation of the FDOT-FOX Miami-Orlando-Tampa High Speed Rail Proposal, April 1997) noted that average air fares had dropped to 13.6 percent below projected high speed rail fares. But the situation has worsened. New United States Department of Transportation data indicates that average fares for the Miami/Fort Lauderdale to Orlando/Tampa markets has dropped to 38.4 percent below projected high speed rail fare in those markets (see The Urban Transport Fact Book: Florida Average Air Fares Fall Below Average Fare Required to Cover High Speed Rail Fixed Costs, attached). Since the present high speed rail projections were completed, average air fares have dropped approximately 65 percent.

The importance of the air-rail fare comparison is simple --- for the high speed rail line to attract air passengers, its average fares must be no higher than the average air fare. Air fares have dropped so far that the high speed rail line would be unlikely to cover its fixed costs (capital and debt service) at such fares. Using the model developed for our report, the new lower fare structure would require at least $6.7 billion of additional state subsidies, even if present ridership, capital and operating costs were achieved (an eventuality I believe highly unlikely). This would increase state subsidies by nearly 3.5 times.

The radically lower air fares should have been apparent to virtually anyone with even a fleeting knowledge of transportation in Florida. For the state to have expended public funding for such a study seems injudicious, to put it mildly. It would have made as much sense for White Star Lines to have commissioned a 1914 economic impact study of the Titanic without accounting for the fact that the vessel had sunk more than a year earlier.

In view of virtually unreal set of circumstances evaluated by the reports, there is little point in lengthy analysis. However, a few comments are in order:

  • An Analysis of the Economic Impacts of Florida High Speed Rail suggests that high speed rail would reduce traffic related fatalities and injuries, but fails to review the safety related impacts of highway improvements that could alternatively be funded with the state subsidy. Our Evaluation of the FDOT-FOX Miami-Orlando-Tampa High Speed Rail Proposal shows that, at a minimum, alternative highway investment would reduce traffic fatalities by 1,300 and traffic related injuries by 71,000 over 40 years compared to high speed rail.

  • Like our report, An Analysis of the Economic Impacts of Florida High Speed Rail finds that air travelers will generally not improve their travel times by switching to high speed rail.

  • The time savings relative to automobile travel used in An Analysis of the Economic Impacts of Florida High Speed Rail appear to be overly optimistic in that the high speed rail travel times do not appear to include realistic travel times to and from high speed rail stations.

A significant portion of the economic benefits projected by An Analysis of the Economic Impacts of Florida High Speed Rail are in consumers surplus, non-user benefits and reduced congestion costs. All of these benefits are, necessarily, subjective and are not market determined. As Nobel Laureate Frederik Hayek pointed out, the market price cannot be known outside the market. In my judgement, such economic projections are no more reliable than the hyperinflating currency of a failing third world nation.

But most importantly, I believe that An Analysis of the Economic Impacts of Florida High Speed Rail is of virtually no practical value since it evaluates a market situation that simply no longer exists, and had not existed well before publication of the report.


Wendell Cox,

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