Economists: Rail Transit Benefits do not Justify Costs

COST Commentary: This paper confirms a long held COST position with this statement: “Although not unanimous, we found widespread agreement among economists. Most conclude that rail transit usually does not make good on its core promises, such as reducing traffic congestion, improving the environment, and helping the transit-dependent poor”.

The undeniable reality of rail transit’s shortcomings to support traditionally touted benefits led many rail supporters to turn to “economic development” as their major argument for rail transit. As COST has noted for some time, and, this article confirms, economic development is as ephemeral as the previous claims. RAIL TRANSIT COSTS TOO MUCH AND DOES TOO LITTLE.
Published in ‘Privatization Watch’ by Reason Foundation, 2007

Does it Deliver?
Examining Whether Rail Transit Spurs Economic Development

By Ted Balaker

In anticipation of the Phoenix area’s first light rail line a recent Arizona Republic opinion piece considered some of the most popular justifications for rail transit. After deciding that rail makes good on some promises but not others, the author concluded that, on balance, building rail was a good idea. The primary reason wasn’t that it would reduce traffic congestion, improve mobility, or help the transit-dependent poor. The verdict was based mainly on the belief that light rail would spur economic development and the author pointed to a single example (Dallas) where rail was associated with higher property values.

Many communities around the nation come to favor rail transit, in part at least, because they expect it to energize the economy. But will it and to whom should we turn to help us make up our minds?

Perhaps we should consider what economists have to say. After all, they are trained in benefit-cost analysis and that should be at the core of the debate: Will benefits outweigh costs? Indeed the author of the Arizona Republic article cited a study by two economists to make the case for rail. But does that study agree with what other economists have found and what do these experts say about other justifications for rail?

Recently, Cecilia J. Kim and I conducted a literature review to figure out whether economists (those with advanced degrees in economics or those who have taught economics at the college level) think building rail transit is a good idea (see “Do Economists Reach a Conclusion on Rail Transit?” available online at

Although not unanimous, we found widespread agreement among economists. Most conclude that rail transit usually does not make good on its core promises, such as reducing traffic congestion, improving the environment, and helping the transit-dependent poor. But what about economic development?

Making conclusions can be tricky. On the one hand properties close to rail stations may benefit from greater accessibility. On the other hand, stations come with assorted nuisances (noise, traffic congestion, safety concerns) that may depress property values.

In Dallas, closeness was associated with higher rates of appreciation compared to other areas. In fact, the positive effect held only for areas within one quarter-mile of rail stations. While investigating rail transit in St. Louis, a St. Louis Federal Reserve economist discovered both an “accessibility” effect and a “nuisance” effect, but, on balance, the “positive accessibility effect outweighs the negative nuisance effect; so, the net effect of MetroLink on property values is generally positive.” Economists from Cal State Fullerton report that light rail enhanced residential property values 2 to 18 percent in Portland, Sacramento, San Diego, and Santa Clara. But again, properties located too close to a station (less than a quarter-mile) may suffer nuisance effects and lower property values. Still, rail seemed to help property values more than it hurt them. Can we assume that rail tends to make cities more prosperous? Not exactly.

In their analysis of 16 cities over a 30-year time span, economists from Brown University and Tufts reveal that household income in new rail transit-accessible areas was below that of other areas. And, except for Atlanta and Miami, the income gap widened after new rail lines opened. The authors suggest that this supports the view that public transit is a “poverty magnet.”

Rail systems also tend to drain more from a local economy than they contribute, according to an analysis conducted by economists from the Brookings Institution and U.C. Berkeley. The researchers did not come to this conclusion by simply noting that all systems operate in the red; instead they also accounted for larger societal benefits that transit officials frequently tout. Even so only one system passed the benefit-cost test. Except for San Francisco’s BART, every rail system drained more from the economy than it contributed. In most cases the yearly drain was in the neighborhood of hundreds of millions of dollars—for example, $171 million in St. Louis, $221 million in Portland, and $457 million in Dallas.

What about transit-oriented development (TOD)? It’s hard to find a long-range transportation plan anywhere that isn’t peppered with optimistic references to TOD. The idea is to encourage economic development, alter travel patterns, and reduce congestion, often by building high-density, mixed-used developments that encourage walking and transit use and discourage driving. Metropolitan planning organizations typically refer to TOD as if the case were closed, as if this kind of planning delivers the results it promises. Yet, after sifting through the academic evidence a U.C. Irvine-UCLA research team discovered that “there is little credible knowledge about how urban form influences travel patterns. Given the enormous support for using land use and urban design to address traffic problems, it was somewhat surprising…to find the empirical support for these transportation benefits to be

Measuring rail’s economic impact can be especially difficult because researchers must control for many factors, from market forces to public policies on issues as varied as crime rates, regulatory climate, and the quality of public schools. Before pondering rail transit, one economist urges policymakers to consider a different question: “Why is economic development not occurring in a given area in the first place? Possible reasons include relatively high cost to business startups, unattractive locations (crime, poor infrastructure) and unnecessary zoning and regulations.” In other words, focus first on the core duties of government.

The public debate often strays from some simple considerations. It is not enough to show that rail (or any other public policy) provides benefits. Benefits must outweigh costs. Rail projects cost hundreds of millions—even billions—of dollars. One would expect this level of spending to generate some benefits. There are many ways to pursue economic development, but modest benefits don’t justify steep costs. Paving streets with gold may well increase the value of neighboring properties, but few would call this good policy.

And if it is to be viewed as the best choice, policymakers must be able to determine that it is more effective than all other options at achieving a particular goal.

Finally, of those economists who offer a bottom-line, big-picture assessment of rail transit, the vast majority agree that benefits simply don’t outweigh costs. Even a relatively rail-friendly economist acknowledges the widespread skepticism in his field: “The dominant view of economists has been that rail investments generally have been ineffective and expensive, and the benefits do not justify the costs.”

Ted Balaker is the Jacobs Fellow at Reason Foundation and co-author of The Road More Traveled (Rowman &amp Littlefield).

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©2007 Coalition On Sustainable Transportation