News from the Hill: Alto—The business case is worse than ever

It has always seemed to me that what will kill the proposed Alto project is not the damage that high-speed rail would cause to the communities through which it passes, but the project’s enormous cost to taxpayers.

In early September, the cost-based case for abandoning Alto got significantly stronger. A government insider anonymously leaked the complete text of a previously redacted document to the Globe and Mail. The pages which had formerly been redacted (ie withheld), revealed three important new pieces of information:

First, that the government’s public-facing estimate as to the cost of constructing the rail line is unrealistically low. Alto publicly claims that construction will cost $60 to $90 billion; the leaked document shows that internally, the company thinks the likeliest number is $83.5 billion.

So a more realistic $30 billion cost range, with $83.5 billion as the midpoint, is that constructing Alto will cost $68.5 to $98.5 billion.

The second piece of information revealed by the unredacted documents is the government’s internal estimates as to the costs of operating the high-speed rail line, once it is completed. The cost to purchase train cars, or “rolling stock” and of operating and maintaining the rail system could be as high as $69 billion, and is unlikely to be below $64 billion. 

The unredacted document concludes that the combined cost of constructing and operating the rail line would therefore be between $148 billion and $153 billion. 

There is a third piece of information: the document predicts that over a 40-year period (starting presumably on the date in 2037 that Alto is supposed to be completed) the rail line will generate $105 billion in revenue. 

So we now have a complete business case for Alto, which has been absent until now.

In a proper business case, the promoter who is seeking to win the backing of investors first demonstrates once it is up and running, the project will generate a surplus—that is, that its revenues will exceed its expenses. Then the promoter demonstrates that the surplus will be sufficiently large to repay the costs that were incurred to build the project.

So here, at last, is the business case for Alto:

• Projected revenues, 2037 – 2077:  $105 billion.
• Projected operating expenses over the same forty years: $64 – $69 billion.
• Operating surplus over the same period: (obtained by subtracting the operating expenses from the revenues) $36 – $41 billion.
• Costs incurred to set up the project: $83.5 billion. 

If these numbers are to be believed—and there are still huge gaps, as we do not know, for example, whether interest charges on borrowed capital are included in the $83.5 billion—then this means that at the end of forty years of operations, the projected surplus will have paid down less than half of Alto’s construction costs. 

To be clear, 40 years after Alto begins operating will be the year 2077. So the business case calls for Canada to be saddled with over $80 billion in new debt by 2037, only half of which will have been shed by 2077. By this math, a child born next year will be fifty by the time the debt is half-paid back, and will be ninety by the time it is fully paid off. 

Of course, this scenario assumes all kinds of things that the planners can’t possibly actually know. For example:

• Can they be certain that forty or fifty years from now, travellers won’t prefer self-driving cars (which by then will be ubiquitous), over the train? 
• Can they be sure that smaller, faster regional air travel won’t turn out to be significantly faster than Alto? Aviation evolved a lot between 1926 and 1977. Couldn’t it evolve just as much between 2026 and the 2077 date selected by the Alto planners for their financial projections? 
• What if telecommuting grows by 3% or 4% per year between today and 2077, so that by the end of this period videoconferencing largely replaces the trips by time-pressed business travellers that are the backbone of Alto’s $105 billion in projected passenger revenues?

Based on these uncertainties, there is a real possibility that Alto will saddle the Canadian economy with a deadweight, unrecoverable loss approaching $100 billion, or $2500 for every single citizen coast to coast. The business case speaks for itself (or rather, it speaks against itself). The government should not walk away from Alto. It should run as fast as it can.

By Scott Reid, MP

The views expressed in the News from the Hill column are those of the author and do not necessarily reflect the views of Hometown News or its editorial staff.