» If the government invests billions in this fast train project, it is not unreasonable to expect the line to cover its operating costs.
The first phase of Florida’s high-speed rail plan is by no means perfect: It is too short to produce major time savings over car trips and it fails to serve a number of downtowns along its route. Nevertheless, its construction is now fully funded and when completed in 2015 as planned it will be America’s first new fast train line. From the perspective of the Obama Administration, the project’s limited scale is a major benefit, as its relatively small budget makes it more realizable in the short term and thus more likely to serve as a model for the development of a nationwide network of similar projects.
Getting the project’s financing and construction done right, then, is of essential concern to anyone interested in establishing a well-functioning intercity rail system in the United States. Making that happen will require a serious effort to keep costs in line. A new report from the Reason Foundation notes some useful ways to do so that are worth consideration.
New Florida Governor Rick Scott, a Republican who was elected in November 2010, has not yet indicated a serious commitment to the 84-mile project that would connect Downtown Tampa with Orlando Airport. Despite the U.S. government’s decision to grant the project almost $2.4 billion of the project’s $2.7 billion budget, some Florida politicians have recently signaled that they would decline the funds if given the chance, just as have the states of Ohio and Wisconsin. The governor has suggested that he will wait until the release of updated cost and ridership reports due in February or March to make a decision; Mr. Scott says he does not want to commit any more of the state’s taxpayer dollars to what he considers a superfluous scheme.
In order to receive the federal funds, the state agreed to pay at least $280 million for the construction of the project, which would be covered by the Florida Rail Enterprise, a publicly-funded authority.
The Reason Foundation, a libertarian think-tank, released a report this week by Wendell Cox that argues that the Florida rail project’s cost and ridership estimates are likely to be way off track and that the state’s assumption that the project will be operationally profitable is not necessarily correct. The line is expected to attract 2.4 million riders annually. The Reason Foundation, and Mr. Cox himself, have established themselves as against public transport and intercity rail projects everywhere in the nation.
The report, as Robert Cruickshank chronicles extensively, has its problems. It compares projected ridership on Florida’s line to that on the Acela Express, stating that it is unrealistic for the Sunshine State’s project to attract 2/3rds of the riders of the Northeast’s premier rail line. Of course, the study neglects to mention that other rail services in the Northeast, including Amtrak Regional and many commuter rail lines, attract many times that ridership. It compares Florida’s cost estimates to those California’s high-speed project, arguing that the Tampa-Orlando corridor will cost more than estimated, without noting that Florida’s right-of-way is already entirely reserved, unlike that of the Golden State. It suggests that the project will not be operationally profitable, despite the fact that nearly every high-speed rail project completed anywhere in the world has achieved as much. (In October 2010 YTD, for instance, the Acela Express made a profit of $17.7 million on total revenues of $45.7 million.)
That said, many of the report’s conclusions — that the state either abandon the project or develop a strict and comprehensive system by which to guarantee cost controls — are reasonable and should be implemented if Florida is to move forward.
Fundamentally, Mr. Cox argues that the state should enter into an agreement with a private builder and operator that would ensure that Florida taxpayers are not stuck with construction cost overruns or operations losses. If high-speed rail projects around the world have been operationally profitable, so should the Tampa-Orlando line, and private corporations should be able to accept the risk in buying train cars and beginning services, especially since the project’s construction costs are entirely covered by the federal and state governments.
The rail authority previously announced that it expects to award a build-operate contract to a private consortium later this year. Many foreign and domestic firms have already expressed their interest in the program.
The study notes five conditions: One, the winning private bidder should assume all risks for construction cost overruns; Two, the state should have to provide no operating subsidies; Three, any changes in the project’s design that would increase costs should have to approved directly by the governor; Four, the government should provide no guarantees on debt taken on by the private companies (which should be minimal considering that the government is paying for construction); and Five, the project should be built in stages to guarantee cost controls.
Apart from the fifth condition, which seems largely unnecessary if the other four are implemented, these conclusions amount to reasonable advice to the new governor. If Florida is set on contracting out operations to a private operator (and it has been for a long time), it should take steps to ensure that risks on construction and operations are absorbed by that entity rather than by taxpayers. Similar agreements have become standard abroad.
If Mr. Scott commits to these rules, he should have no fear about devoting (largely federal) government dollars to the project — giving up on the project before at least attempting to construct it under these guidelines would be a mistake. Considering the positive response by companies far and wide to the project thus far, getting a bidder to agree to these conditions should not present much of a difficulty.
Image above: Proposed Orange County Convention Center Station, from Florida High-Speed Rail