13.1 STUDY OBJECTIVE AND APPROACH

The State of North Carolina retained the services of SAIC to investigate the economic and social returns of alternative high speed rail investment strategies to link Charlotte, Raleigh, and intermediate points with Richmond, Washington DC, and the Northeast high speed rail corridor (NEC). A previous cost-benefit analysis showed that improvements along the Raleigh to Charlotte segment, independent of a connection north to Richmond and beyond were not economically justified.¹⁸ The analysis in this report considers the economic implications of a northern high speed rail connection from Charlotte through Richmond (via the S Line) to the NEC. Such a high speed rail connection would reduce travel times significantly for trips north of Raleigh and integrates North Carolina's rail service into the NEC, the most highly traveled rail corridor in the nation. This study uses cost-benefit analysis measures to gauge the magnitude of the public benefits and costs of such a high speed network and the measures of economic efficiency that determine the ranking of alternative investment strategies for the system.

This report integrates the results from other major studies of the SEHSR, past and present. The primary sources of data for the analysis are the demand forecasting analysis and the operating and maintenance and capital cost estimation completed earlier.¹⁹ The economic analysis model measures the benefits to all users of the transportation system as well as non-users such as environmental benefits. These benefits are then compared to the costs of constructing, operating and maintaining the system to determine which option produces the most value for the state of North Carolina.

13.2 FUTURE AND CURRENT SERVICE ALONG THE SEHSR

Current rail service north of Raleigh runs on the CSX A Line, while the engineering evaluation for high speed rail improvements recommended the use of the CSX S Line. The S Line is shorter than the A line, is very lightly used for freight traffic and offers the lowest cost to upgrade. The capital cost to upgrade this route to high-speed service is estimated at $265.9 million. The combined capital costs for the entire route between Charlotte and Richmond range between $637.2 million and $791.4 million.

13.2.1 BENEFITS TO CURRENT SERVICE

The investments in existing route improvements as well as in reclaiming abandoned right way will benefit existing passenger and freight service currently operating in the Corridor. There are several other passenger trains running through North Carolina which could benefit from the improved speeds and higher capacities on track segments that would be upgraded for the SEHSR project. They are:

• The Crescent: travels daily over the NCRR between Greensboro and Charlotte;
• The Silver Star: could use the S Line between Richmond and Raleigh;
• The Auto Train: could use the S Line between Richmond and Raleigh with some re-routing;
• The Silver Meteor: could use the S Line between Richmond and Raleigh with some re-routing; and
• The Silver Palm: could use the S Line between Richmond and Raleigh with some re-routing.

Passengers on each of these trains have the potential for significant timesaving due to higher speed limits and improved reliability. The cost-benefit analysis identifies these benefits and includes them in an overall analysis of SEHSR improvements. In addition, Amtrak would benefit significantly from higher speeds on the SEHSR through reduced labor costs on each route. Faster speeds, in effect, increase the labor and capital productivity of railroads.

13.2.2 BENEFITS TO FUTURE SERVICE

Over the course of the past two years, NCDOT has identified three SEHSR operating scenarios for evaluation out of the original options. These were chosen based on financial and operational feasibility analysis. The options are:

• Base Case: existing fares ($0.11/passenger mile), existing frequencies, speeds with currently planned improvements;
• Scenario 4: enhanced fares ($0.17/passenger mile), three round trip New York to Charlotte trains, three round trip Raleigh to Charlotte trains, 100 mph speeds; and
• Scenario 6: enhanced fares, four round trip New York to Charlotte trains, four round trip Raleigh to Charlotte trains, 100 mph speeds.

Each scenario has been evaluated in terms of operating and maintenance (O&M) costs and ridership and revenue analysis. The results of these previous analyses serve as inputs for the cost-benefit analysis.

13.3 STUDY METHOD

The cost-benefit analysis evaluation framework for this study is conceptually compatible with state-of-the-art standardized models used by the US Department of Transportation including the Federal Railroad Administration (FRA). The model adopts standard cost-benefit analysis techniques to compare the economic value and return on rail investments to the public and private sector. The preferred option maximizes total net benefits. The following sections summarize the key components of the analysis.

13.3.1 BENEFIT CATEGORIES OF SEHSR IMPACTS

Improvements to existing rail service may reduce the costs of an individual's travel both in terms of "out-of-pocket" costs and travel time costs. These benefits are commonly represented as the change in "consumer surplus". Consumer surplus is defined as the difference between what someone is willing to pay for a service and what he or she actually pays. This measure includes the value that rider's place on timesaving, out-of-pocket cost savings, and the value of any amenities provided by the rail mode relative to other modes. Passengers on through trains also benefit directly from reduced travel times and improved amenities on the SEHSR.

In additional to benefits to rail passengers, improvements to existing rail service may precipitate shifts in users of the transportation system that affect users of other modes. For example, shifts from auto to rail improve the efficiency and reduce costs for users of the highway system. Non-user benefits also result from a more efficient transportation system. For example, reduced vehicle miles traveled (VMT) reduces vehicle emissions thereby improving environmental quality and associated health effects to society at large. In additional to user and non-user benefits, operating profits (losses) from operating the SEHSR system are included as benefits (costs).

Figure 13-1 shows how benefits are broken into various categories.

13.3.1.1 BENEFITS TO RAIL PASSENGERS

User benefits are usually thought of in terms of the impact on users of a particular transportation facility before and after an investment. User benefits are calculated net of any fares paid. The typical components of direct user cost savings are as follows²⁰:

• Travel Time Savings for SEHSR Passengers. High-speed rail improves travel times on the rail line, benefiting existing rail users and new rail users diverted from slower modes. These benefits are expressed in monetary terms by applying an assumed value of time.
• Travel Time Savings for Existing Service. Other Amtrak trains, the Silver Star and the Crescent, will be able to use the SEHSR infrastructure and are capable of significantly reducing travel times over improved infrastructure. These benefits will accrue to passengers on these trains in terms of time savings and to Amtrak in terms of reduced operating costs (see below).
• Value of Service Quality. Calculated based on the observed ability of premium equipment and on-board services to increase ridership and value. This study assumes a 13 percent ridership gain due to service attributes based on widely used estimates from other similar studies.

Benefits to users of other modes can be categorized as follows:

• Travel Time Savings (Automobiles). Calculated based on a reduction in travel time for highway users stemming from users being diverted from automobiles to the rail mode.
• Highway Safety Benefits. Calculated based on a reduction in accidents (fatal, personal injury and property damage) stemming from users being diverted from automobiles to the rail mode.
• Grade Crossing Accident Cost Savings. Calculated based on a reduction in accidents (fatal, personal injury and property damage) resulting from grade crossing improvements implemented as part of the SEHSR project. This category also takes into account the new crossings created by reinstated abandoned right of way.
• Vehicle Operating Cost Savings. Calculated for all users who continue to drive after a highway investment or a transit investment that shifts travel from the roadway to the rail or bus mode. Changes in vehicle operating costs are expected if there is a change in trip speed. Often, improved performance of the highway mode increases vehicle operating costs since optimal vehicle efficiency is achieved at speeds below current average speeds.
• Time Savings for Freight Rail. Higher speeds increase the capacity of the existing infrastructure and will allow reduced travel times for freight operators.

Non-user benefits are conferred upon agencies or individuals that are not using the transportation infrastructure. The non-user benefits included in the evaluation model are as follows:

• Environmental Cost Savings. Rail trips diverted from auto trips contribute to lower net vehicle emissions since the locomotive has a far lower emission rate per passenger mile.
• Highway Maintenance Cost Savings. To the extent that rail trips are diverted from automobiles, State DOTs will experience reduced maintenance expenses on the highway network.
• Amtrak/Passenger Rail Operating and Maintenance Costs Savings. Higher speed trains improve the productivity of labor and capital assets using the higher speed track. Reduced trip speeds reduce the labor required to provide each trip. This productivity benefit will accrue to current trains operating over the SEHSR including the NCDOT funded trains (Carolinian and Piedmont) and other Amtrak trains (primarily the Crescent, the Silver Star, and Auto Train).
• Operating Impacts for Freight and Passenger Operators. Profits earned by the SEHSR operator are counted as system benefits while losses are counted as a cost. Any change in the costs or revenues derived by freight railroads is counted as a benefit (cost) in the cost-benefit evaluation.

13.3.2 PROJECT COSTS INPUTS

The economic feasibility of a project is determined by comparing the sum of discounted benefits as described in the previous section, to the sum of discounted costs. These costs include capital costs to construct the system including trackage and stations and the purchase of locomotives and train sets.

Constructing and upgrading the SEHSR route is divided between capital costs, engineering costs, and operating and maintenance costs. In addition, these costs can be divided between those costs funded by North Carolina and those funded separately. Separately funded improvements are grade crossings, which are to be funded through FRA safety programs. To determine whether the project is a good idea generally, all costs and benefits are counted in the analysis. To determine whether the investment benefits North Carolina, only costs to North Carolina and benefits accruing to the state and its residents are counted.

13.3.3 PROJECT EVALUATION FRAMEWORK

The project evaluation compares all benefits of the project to its costs and is derived from principles that are widely accepted for evaluating public sector policies, investments and programs. This cost-benefit analysis forecasts the full range of impacts from the project and estimates the net economic value of high-speed rail along the SEHSR, in dollar terms, over the useful life of the project. Figure 13-2 presents an overview of the analytical framework applied to each scenario.

Figure 13-2: Cost-Benefit Analysis Framework

Costs are spread over the construction period and discounted in the same manner as benefits over the life of the project. The benefits of the project will also change over time as the rail mode gains more acceptance in the marketplace. The first couple years of analysis include the capital and engineering start up costs followed by a time stream of benefits net of operating and maintenance costs to calculate the net yearly benefits for the analysis period. The discounting procedure enables decision-makers to evaluate future benefits and costs in terms of their present-day value.²¹ This is a standard way of giving due weight to nearer-term versus distant (thus less valued) outcomes.

The cost-benefit analysis estimates the economic value of the investment over the life of the project in dollar terms. The following table describes the results of a cost-benefit analysis and how each result allows policy makers to choose between transportation projects.

Project feasibility is assessed based on NPV and ROR. The scenario with the highest NPV is the preferred alternative. The preferred alternative is economically advantageous if NPV is greater than zero and the ROR meets or exceeds the "hurdle rate". Of course whether a project that deserves to be built is "feasible" must be assessed based on other financial factors such as availability of public funds and the long-term financial viability of the enterprise.

Timing is vitally important in the cost-benefit analysis of any major capital program. Simply altering the year in which costs or benefits occur can profoundly alter cost-benefit analysis results.

A well-known issue in cost-benefit analysis is that benefits derived far in the future tend to be discounted so heavily that they create minimal benefits in a present value sense. When a major capital project is considered, the costs occur in the near future and are discounted a little, while benefits are derived after construction and are discounted a great deal. The cost-benefit results of the SEHSR will depend on whether the implementation phase of the project is short and whether market success is achieved early on.

13.3.5 VALUE ASSIGNMENT & ANALYSIS ASSUMPTIONS

A major difficulty in developing credible cost-benefit results lies in the monetary valuation of transportation benefits. It is not questioned that transportation investments in general and SEHSR in particular can produce timesavings, reduce emissions, and enhance safety. Controversy arises when monetary values are attached to each of these items.

Attaining agreement regarding the proper value of time, value of air quality improvements, and perhaps most controversial, values for reduced injuries and fatalities from accidents is difficult, but not impossible. Extensive research has been conducted in all these areas to reach some conclusions about the proper values for these items. Values of time are typically based on average income with differing values for each trip purpose. Business travelers are assumed to value time more than leisure travelers are.

Emission reductions are valued based on complex algorithms of vehicle miles traveled, combined with average speeds and fuel consumption rates to estimate emission rates by type. Volumes of emissions are then assigned an economic value, based on widely used methodologies, and total environmental cost savings are calculated. Accident costs are valued according to fatalities, injuries, and property damage avoided. These values are typically assigned according to FHWA standards.

Most assumptions in this analysis are based on North Carolina specific data or results from other members of the project team. For example, assumptions for the value of time and the discount rate are consistent with those used in the economic impact analysis being conducted by KPMG Peat Marwick. Explanations and sources for assumptions and assigned values can be found in the full SAIC report.

A 20 year stream of benefits to riders, users of other modes, and the state as a whole are compared to the stream of costs associated with constructing, operating and maintaining the service. For consistency the costs associated with the service were derived from the engineering evaluation and are as follows:

While the construction costs are equivalent between scenarios, operating and maintenance and equipment acquisition costs vary by scenario. The following table compares the O&M and equipment costs associated with each scenario.

Each scenario is analyzed using the evaluation model to measure the total impact of the SEHSR improvements against the total costs of the implementation. The analysis will show the impacts of the full implementation of improvements between Charlotte and Richmond using the CSX S line north of Raleigh and compare the results to those found in the previous cost-benefit study of the SEHSR using the A line.

13.4 SEHSR COST-BENEFIT EVALUATION RESULTS

13.4.1 SCENARIO 4: SIX ROUND TRIP TRAINS

This option envisions three round trips between Charlotte and Raleigh and three round trips between Charlotte and New York City. The demand estimates show ridership nearly tripling for Scenario 3 and adding another 10 percent for Scenario 6.

The cost-benefit analysis results for Scenario 4 are given in the following table:

The results of the analysis show that total benefits exceed total costs for Scenario 4. The results indicate that this project is worthy of public investment. The net present value figure shows the discounted value of benefits net of costs over the 20 year analysis period. The benefit-cost ratio exceeds one and the rate of return exceeds the discount rate reinforcing the positive cost-benefit results.

As expected, benefits to users are by far the largest benefit category at 83 percent of total benefits (62 percent for SEHSR riders, 21percent to other rail passengers). Benefits to users of other modes, non-user benefits, and grade crossing accident reduction combine for the remainder. Figure 13-3 illustrates the distribution of benefits.

Figure 13-3: Distribution of Benefits for Scenario 4

13.4.2 SCENARIO 6: EIGHT ROUND TRIP TRAINS

This option envisions four round trips between Charlotte and Raleigh and four round trips between Charlotte and New York City. The demand estimates show additional ridership over Scenario 3 of 10 percent.

A 20 year stream of benefits to riders, users of other modes, and the state as a whole are compared to the stream of costs associated with constructing, operating and maintaining the service. The capital costs associated with the service are identical to Scenario 3 and the operating and trainset costs are provided in the cost benefit analysis for scenario 6 shown in Table 13-5.

These results are similar to Scenario 4. The project remains economically beneficial with slightly more positive results than Scenario 4. The discounted value of benefits exceed costs by $412 million over 20 years with correspondingly positive results for the benefit-cost ratio and rate of return.

User benefits are again the dominant benefit category. The distribution of benefits for Scenario 6 is presented in the following figure:

Each scenario proves to be a positive public investment for North Carolina. Scenario 6 is slightly more positive due to the additional riders. The cost-benefit analysis suggests that the benefits derived by those additional riders exceed the additional O&M and equipment costs for Scenario 6.

13.5 COMPARISON TO PREVIOUS RESULTS

This analysis finds that both Scenarios 4 and 6 are economic "winners" for the state of North Carolina. The project as currently envisioned includes the acquisition of the CSX S line between Raleigh and Richmond. Previous analysis has assumed the continued use of the A line. The results of this study indicate the timesavings available to the SEHSR service from using the S line are decisive for the project. The S line cuts up to one hour and 45 minutes from the Raleigh to Richmond segment helping to integrate the SEHSR service into the Northeast Corridor. This turns out to be important to the positive results found here.

The following table presents the cost benefit analysis results from the previous analysis of the SEHSR over the A line compared to the current scenarios incorporating the S line.

13.6 SUMMARY AND CONCLUSIONS

Based upon the analysis performed by SAIC, the following conclusions have been reached.

Benefits of the SEHSR will outweigh its costs. The analysis shows that high speed service from Charlotte to the NEC via the S line would have between $317 and $412 million in benefits to users and non-users of the transportation system, depending on the level of service initiated.

A higher level of service may have greater benefits to the SEHSR than profitability. The analysis in chapter 10 determined that lower level of high speed service (six round trips) may be more profitable; i.e., increasing frequencies may not always reap more profit. This cost-benefit analysis, however, has determined that the overall benefits of higher frequencies (eight round trip trains) to users and non-users of high speed rail are higher than the scenarios with lower frequencies. Additional analysis will be needed to determine the optimal level of service for the SEHSR.

The economic efficiency of the SEHSR is highly dependent on the construction of a high speed connection to the NEC. An earlier cost-benefit study determined that a high speed system between Charlotte and Raleigh may not have be an economic winner for North Carolina. This study clearly shows that the fully operational high speed network from Boston to Charlotte would have benefits far greater than a system operating in North Carolina alone. This confirms an FRA study that identified a combined NEC/SEHSR corridor as having the best cost-benefit ratio of any high speed corridor in the nation.