This posting was updated September, 2012.

COST Commentary: As noted in the first article below, there are only two high speed rails (HSR) in the world which have been fully paid for (cost of building and operating) by commercial enterprises based on user fares and without government subsidies. COST is supportive of this article’s conclusions: The author, Wendell Cox, applauds the Texas HSR objective to be profitable considering all implementation and operating costs based on user fares or to not proceed. This will be the first proposed HSR in the US to be based on a sound financial approach. However, based on the history of high speed rail financial “failures,” Cox is skeptical the proposed Dallas to Houston HSR can be profitable; in which case it would not be pursued according to its promoters.

COST shares Cox’ skepticism because this HSR does not seem to have the demographic and ridership characteristics necessary for profitability. Private investors are not likely to consider 50-100 year investments as is often the rationale used by rail supporters in justifying the obvious lack of cost-effectiveness and huge tax subsidies for almost all US passenger rail systems. Passenger Rail technology is already outdated for the vast majority of its uses and will become even more obsolete with developing transportation technology.

In the second article below, Sam Staley presents a slightly different perspective on intercity passenger rail in the U.S. He is perhaps a little more positive regarding the possibility of reviving passenger rail in the U.S. considering a number of key “subject too” and “what if” conditions including holding taxpayers harmless.

COST also agrees with Mr. Staley’s key bottom line: “Both these projects deserve close scrutiny as their plans unfold, both for the lessons that can be learned as well as what models are most likely to work if passenger rail is expected to re-emerge as a viable alternative in the U.S.” We have significantly less optimism that passenger rail will provide the critical profitability required by private investors to make it a “viable alternative” other than possibly in very few corridors. To date, there are no profitable intercity passenger trains in the U.S.


by Wendell Cox 08/23/2012 in newgeography

The Central Japan Railway (Note 1), which operates one of only two high-speed rail segments (Tokyo Station to Osaka Station) in the world that has been fully profitable (including the cost of building), proposes to build a line from Dallas to Houston, with top speeds of 205 miles per hour. This is slightly faster than the fastest speeds now operated. This line is radically different from others proposed around the nation and most that have been proposed around the world. The promoters intend to build and operate the route from commercial revenues.

There is the understandable concern that eventually, the promoters will approach the state or the federal government for support. Not so, say Texas Central High Speed Railway officials. According to President Robert Eckels, not only is there no plan for subsidies, but “investors would likely walk away from a project that couldn’t stand on its own.” He also told the Texas Tribune “If we start taking the federal money, it takes twice as long, costs twice as much,” Eckels said. “My guess is we’d end up pulling the plug on it.”

Eckels is a former Harris County Judge (Houston), a position the equivalent of a county commission or county board of supervisors chair in other parts of the nation. Eckels developed a reputation for fiscal responsibility during his tenure at the county courthouse.

The Texas project is in considerable contrast the California High Speed Rail project, which if built, is likely to require a 100 percent capital subsidy and perhaps subsidies for operations. It is also different from the Tampa to Orlando high speed rail project, which would have required a 100 percent capital subsidy and was cancelled by Florida Governor Rick Scott. The Texas project can also be contrasted with the Vegas to Victorville, California XpressWest high speed rail line that would require at least a $5.5 billion federal loan and a subsidized interest rate. Our recent Reason Foundation report predicted that XpressWest would not be able to repay its federal loan from commercial revenues and could impose a loss on federal taxpayers of up to 10 times the Solyndra loan guarantee loss (see The Washington Post, “Solyndra Scandal Timeline”).

From the horrific record of private investment in startup high speed rail lines and the huge losses that have been typical, I am certainly skeptical. The Taiwan high speed rail private investors have lost two-thirds of their capital investment and debts are guaranteed by the government. The Channel Tunnel rail line to St. Pancras station has been bailed out by British taxpayers. However, if any company can make money at high speed rail in the United States, it would be the Central Japan Railway.

So far the Texas Central High Speed Railway seems to be doing it right. Like the other intercity modes, the airlines system and the intercity highway system (Note 2), this project would be paid for by people who use it.

Without government subsidies or loans, the Texas Central High Speed Railway will certainly have an incentive to get the sums right. If they are not, it sounds like the plug will be pulled. If they are, high speed rail could be on the right track in the United States for the first time. More power to them.
Note 1: Central Japan Railway, and other companies purchased the assets of the Japanese National Railway in the late 1980s. The nationalized railway had run up a debt of nearly $300 billion, which was eventually transferred to taxpayers.

Note 2: There is a small subsidy to the airline system from the Federal Aviation Administration. Intercity highways have been financed by users until contributions from the federal general fund in recent years. However these contributions have been far less than diversions over the past 30 years from highway user fees, principally to mass transit a major transfer of highway trust fund interest to the general fund and now ongoing interest transfers.

How the Private Sector Just Might Revive Intercity Passenger Rail in the US

Samuel Staley in Planetizen, Mon, 08/27/2012

For those following the intense debate over intercity passenger rail in the US, the following recent news items might have a few planners scratching their heads:

1. A private company, Florida East Coast Industries (FECI), has launched a $1 billion privately funded effort to create a conventional rail service between Miami, Florida and Orlando;

2. Transit skeptic Wendell Cox acknowledges that a high-speed rail line connecting Houston to Dallas might actually work. [see article above]

What gives? Has Hell frozen over?

Not quite, but the prospects for intercity passenger rail have certainly brightened because private companies have stepped up to the plate for these projects. And it’s likely to be the private sector that saves rail in the current fiscally constrained environment despite the high flying rhetoric of the Obama Administration.

When private companies put their own equity on the line for these projects, their benefits become more transparent and tangible while the projects themselves become more manageable. Perhaps most importantly in the current political environment, properly structured public private partnership could effectively hold taxpayers harmless.

Both these projects deserve close scrutiny as their plans unfold, both for the lessons that can be learned as well as what models are most likely to work if passenger rail is expected to re-emerge as a viable alternative in the US.

In the Florida case, FECI is eschewing taxpayer subsidy and owns much of the right of way (and tracks) from Miami to Cocoa. New tracks would have to be built to Orlando, which is an international destination with one of the state’s busiest airports. The entire trip would take three hours in a corridor that puts 50 million people within access to the rails (also serving as testimony to the poor quality intercity air service within the state). Eventually, the company expects to extend the line to Tampa and Jacksonville.

Perhaps most importantly, FECI bills itself primarily as a real-estate developer. In other words, FECI expects to use its ability to tap into traditional direct user fees, like fares, and the real-estate value created through improved access to the rail lines to make the project commercially successful.

The Texas case appears to be more straightforward and traditional in design. Central Japan Railway intends to build the rail line without taxpayer subsidy. Top speeds are expected to exceed 200 mph, thus likely becoming the first intercity passenger rail line in the US to approach true high-speed rail speeds. The project’s cost will include all the expenses to build and operate the line, and presumably this would be run through a public-private partnership agreement. Officials at the private Texas Central High-Speed Railway say allowing their firm to develop the project will potentially cut years off the construction timeline and substantially reduce costs by avoiding the regulatory strings that go with federal money. The Texas rail project apparently does not depend on land development.

Personally, I’ve never completely written off the potential for intercity passenger rail to be revived in the US. Some corridors are tantalizingly close to viability. The 3C Ohio corridor connecting Cleveland, Columbus, and Cincinnati, for example, could actually cover its operating costs if it achieved speeds of 110 mph. (Full disclosure: I worked on one of the teams conducting an economic development assessment for the Ohio Rail Development Commission as a consultant in the mid-2000s.)

Unfortunately, most of the recent high profile high-speed rail projects have been political, economic and implementation debacles. The California high-speed rail project has been riddled with exaggeration, optimism bias, and fanciful assumptions about ridership. The Tampa-Orlando project was almost laughably inappropriate because of the short corridor and multitude of alternatives that were quicker and more efficient. Even the most recent Desert Express linking LA and Las Vegas appears to be falling into the all too familiar trap of overly optimistic ridership forecasts and under-estimation of costs. All these projects were also depending on a healthy dose of taxpayer subsidy to get off the ground.

That’s why the Texas and the FECI (Florida) projects are so important. If they succeed, they will demonstrate the viability of intercity passenger rail within a fiscally responsible implementation framework. That should open the door for even more projects.

Sam Staley is Associate Director of the DeVoe L. Moore Center at Florida State University in Tallahassee.

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