Private Funding of Rail Transit? Not Likely.

Will the Private Sector Fund Rail?

by Robert Poole, Reason Foundation

In a number of writings in recent years, I have tried to disabuse transportation planners of the idea that either rail transit or high-speed rail is a business, in which the private sector would invest and take business risks in order to make a return on its investment. Thus far, of new high-speed rail systems worldwide, only two (Tokyo-Osaka and Paris-Lyon) have recovered their capital costs from the farebox. All the others have gotten a large fraction, and in some cases 100%, of their capital costs from general taxpayers. And every one of the new US urban rail transit systems developed in the past 40 years has been built entirely with taxpayer money (and most recover half or less of their operating costs from their passengers).

The only two states now going forward with true high-speed rail projects (on separate right-of-way) are California and Florida. Both are hoping to attract private money, but when you read the fine print, it’s not likely to be at-risk capital investment. A recent Bond Buyer article quotes a Florida HSR consultant suggesting a “super turnkey” type of involvement, under which the state would design and build the line and the private sector would operate and maintain it.

But a different type of public-private partnership is being negotiated in France, for that country’s newest TGV line: 186 miles from Paris to Bordeaux. The government last month selected the winning bidder (from among three teams) for a 50-year concession to partly finance, build, operate, and maintain the high-speed guideway for this line. Under the terms of the bid, the national and local governments would put up 50% of the capital costs while the LISEA consortium, headed by Vinci, will put up the other half. The consortium would be paid track access charges based on the number of trains run by state railway operator SNCF and potentially other train operators, once EU rail service is deregulated in the near future. Thus, the consortium would actually be taking traffic and revenue risk on its half of the $9.6 billion project cost (assuming the deal gets signed without the insertion of some kind of state revenue guarantee). My source at SNCF tells me this would, indeed, be the first such case in France, and to the best of my knowledge, it would be the first time in the world where the private sector takes HSR traffic risk.

Something equally new is being attempted in the Dallas/Ft. Worth metro area, for the proposed Cotton Belt commuter rail line that would link both Ft. Worth and various Dallas suburbs to the DFW airport. The Regional Transportation Council (the MPO) is going out to bid for an “innovative finance partner” to think outside the box and come up with a way for the private sector to fund, not just finance, this $1 billion project. In other words, new revenue sources, not just financial engineering, is what the RTC hopes to find. Among the ideas to be considered, according to Public Works Financing , are:

-Income-based fare structures (basically cost-based fares for most passengers with discounts for low-income ones)

-Pay parking at stations

-Tax-increment financing and transit-oriented development (i.e., value capture)

Frankly, I remain a skeptic of both the French HSR project and the Cotton Belt line, but I will certainly keep an open mind as we see what happens with these innovative attempts.

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