The Impact of Opportunity Cost in Public Infrastructure Projects: A Case Study of High-Speed Rail in California

Public infrastructure projects are not small projects and require considerable planning and cost-benefit analysis. That’s because there’s an opportunity cost for every project. When a city or state allocates money for one project, what else are they sacrificing? What resources could they have deployed?

One great example of opportunity cost in public infrastructure is the California High-Speed Rail (CAHSR) project. The project had been authorized for funding back in 2008, when California voters passed Proposition 1A—a measure that allocated $9.95 billion to build out the first segment of the new railroad system. (hsr.ca.gov, 2021)

The project has since been hit with numerous delays. At first, the first half was supposed to be completed by 2020. But now, it appears that only a small fraction might be completed by 2030 or beyond. The first is that the project would require much greater funding to make it feasible, and whether those proposed costs are worth it is a debate that has pitched politicians against each other.

Let’s take a closer look at the CAHSR and how opportunity cost has played a role.

Overview of the California High-Speed Rail Project

The CAHSR was initially presented as a more affordable and effective means of traveling to and from high-traffic cities in the state.

Phase 1 of the proposal, for which funding was approved in 2008, would link a transit route from San Francisco to Los Angeles.

The 494 miles between LA and San Francisco normally is about a 6-hour and 20-minute drive at significant gasoline costs and wear and tear on the cars. But high-speed rail would cut that to just 2 hours and 40 minutes.

Additional phase 2 add-ons to the rail system would reach north to Sacramento and south to San Diego.

But new figures from officials in 2024 said only finishing the first segment from San Francisco to Los Angeles would now cost another $100 billion. It’s more expensive than originally planned, so there’s a very obvious concern.

How Opportunity Cost Contributes

Opportunity cost in public infrastructure is the value of other potential projects you give up when investing in a particular project.

What does the more than $100 billion investment in the CAHSR mean? There’s less money making its way in:

·      Renewable energy development: The investment in the CAHSR comes at the cost of other, more directly environmental projects, such as solar farms or electric vehicle infrastructures that can directly cut emissions and enable goods to be produced more efficiently.

·      Urban transit: Hundreds of major cities and metro areas across California are congested and have few streamlined transit options. In the long run, the CAHSR will facilitate speedy travel from city to city, yet this is not the end of it; we will still face inner-city transport challenges—as in the case of the California megaregion.

·      Housing and urban development: Investing in the CAHSR diverts funding away from generating affordable housing solutions in areas of the state where individuals and families cannot afford California’s burgeoning cost of living.

But these are opportunity costs, and this is why our big projects have lengthy delays or challenges getting the green light. But it’s particularly challenging to identify billions of dollars of new funding when the project costs have grown beyond the original proposal.

And places like California have pressing matters, including the recent Los Angeles wildfires, where so many resources have to be funneled into cleanup, rebuilding, and support for those whose lives have been changed by these disasters.

The Pros and Cons of the California High-Speed Rail Project

Now a little deeper into this topic, let’s weigh the pros and cons of the CAHSR.

The Pros

·      Lowers greenhouse gas emissions by offering an alternative to car or air travel.

·      Creates thousands of jobs in construction and through long-term operations.

·      Enhances interconnectivity and shortens commutes between major population centers and hinterlands.

·      Reduces road traffic and congestion by providing an alternative transport mode.

The Cons

·      A lot of land use could threaten ecosystems, and construction machinery would temporarily raise carbon emissions.

·      The first phase of the project has a narrow scope, and many areas of the state are being underserved.

·      A marathon timetable to execution where capital could go toward addressing more pressing problems.

·      Project costs are ballooning to the point of asking whether the CAHSR is worth the time and money.

What We Can Learn from the Pros and Cons of the CAHSR Project

The takeaway here is that big public infrastructure projects of this nature are a balancing act. Policymakers must evaluate the benefits and drawbacks of implementing them to achieve optimal results.

Sadly, however, many transit experts have claimed CAHSR was deployed much too soon. It needed a whole lot more planning and analysis to make sure there was advance alignment of budgets, materials, timelines, and land use considerations.

Conclusion

All things considered, the CAHSR project offers a great opportunity for more convenient accessibility and travel among all of the major regions of the state. But there are also downsides, as well as opportunity costs of what else state dollars could be spent on.

State officials’ current estimate is for a 171-mile segment between Merced and Bakersfield to open in 2030 to 2033. It has 119 miles of it under construction right now.

Will it be worth the cost? Can it even be completed in that time frame? We’ll have to wait and see.