California High-Speed Rail High-Speed Rail Taiwan

Securing the Financial Health of New High-Speed Projects

» The recent failure of Taiwan High-Speed Rail raises questions about the role of private investment in new trains systems.

The California High-Speed Rail Authority projects that it will need about 33 billion in 2008 dollars to complete its initial San Francisco-Anaheim link, a reasonable estimate considering the cost of peer systems. In addition to the $9 billion in state funds devoted to the project by last November’s referendum, the Authority is banking on $2-3 billion in local money and $12-16 billion in federal contributions. Because this aid won’t be enough to cover the full costs of the line, the state will also demand $6.5-7.5 billion in help from public/private partnerships. In other words, the Authority is hoping it can raise 20% of construction costs with the help of corporate interests that would be able to benefit from some of the line’s operating profit.

The international experience, however, could put a damper on hopes for private involvement. This week, Taiwan High-Speed Rail fully revealed its fiscal impotency; the national government will have to take over the operating company, three years after the project opened to the public. The Taiwanese system, which cost more than $15 billion, was the first in the world built entirely with private funds — 80% of which were secured through bank loans at high interest rates. Though the line’s fare revenues, lower than projected, make up for operations, maintenance, and even most interest payments on the initial capital costs, elevated depreciation charges put the railroad into its misery. The recession, which decreased interest in travel, put the final stake in the company’s heart.

A government bailout plan will essentially force the public to assume the costs of paying back loans that provided for the system’s construction. No one would argue with the fact that pure government spending on the line’s construction, either direct through tax-based spending or with the support of loans at a low marginal rate, would have cost less money in the long-term, simply because of lower interest payments.

Taiwan’s experience is directly comparable to that of the United Kingdom’s High-Speed One, which was undertaken by London & Continental Railways under the initial presumption that the project would be entirely a product of private investment. Earlier this year, however, the European Union agreed to allow the British government to bailout the operation, which had gone bankrupt after construction was completed in 2007. Incompetence on the part of the corporations involved with the project had already forced the government to support £3.7 billion of bonds in 2006; aid this year amounts to £5.7 billion, compared to the initial capital cost of £5.8 billion.

In both cases, one wonders why private industry was involved at all if the respective governments were eventually going to to have to find the money to cover the price of the whole project anyway — plus pay interest on debt accumulated by failed companies.

Of course, California’s plans are different. While both the Taiwanese and British projects relied on bank loans that accounted for 80% of construction costs, the U.S. project will only be dependent on a 20% private investment. Revelations last week of SNCF’s expression of interest in involvement in the California system demonstrate that foreign companies see U.S. high-speed systems as potential money makers — and the French company’s report specifically argues that the U.S. project’s economics are sound. But just how much private money is an acceptable risk? Having the California High-Speed Rail project default on its obligations is unacceptable, because it would put a dent in plans for train systems throughout the country by dramatically illustrating “wasteful” spending in action — specifically the kind of example we cannot give anti-infrastructure conservatives.

The two experiences cited above indicate that a fully private project is very risky, and that makes sense; making up a huge initial capital cost like that of a rail line through loan back payments requires enormous revenues and limited operating needs. California’s estimates demonstrate annual fare revenues ($2.3-2.5 billion) that are about double operations costs ($1.1-1.3 billion); Taiwan’s system has similar financials, but paying back the bank has bankrupted the company.

Is a 20% private share acceptable? A $7 billion private investment would require roughly $560 million a year in payments at 5% interest over a short 20 year-period (totaling about $4.2 billion in interest). California’s system would provide a generous profit of $500 million for the operating company if revenues and operating costs are as expected; in bad years, or if ridership estimates are too high, the system could sustain revenues 20% lower than projected without going into the red. This seems reasonable.

California’s interest in a limited private involvement, then, avoids the risk inherent in a fully private project like that in Taiwan. Even so, one wonders whether there’s any point in taking the risk at all. The Authority projects a high benefits-cost ratio of 2.84 when considering passenger revenue, benefits to rail travelers, and reduction of road congestion, air pollution, car accidents, and airline delays. There is a clear government interest in building the high-speed line — so why do we need corporations to get involved?

California’s inclusion of private cash is a reflection of political reality: it is easier to claim that a project is financially viable when it has private money backing it up. In addition, the federal government is limited in the amount it can be expected to contribute, since it must also provide for projects in other parts of the country. It’s a good thing, though, that no one’s promoting a fully private system for the state, because that would likely result in more costs to a government forced to bailout a bankrupt company.

Bay Area California High-Speed Rail

Platform Shortage Could Threaten CAHSR into Transbay Terminal

Six tracks won’t be nearly enough to handle the rail traffic into San FranciscoTransbay Terminal

San Francisco’s been planning the Transbay Terminal Center for several years now with the goal of creating a “Grand Central Terminal of the West” – a magnificent entry point for those arriving from around the state by train or bus. The center, several blocks long, would serve intercity bus lines on top and Caltrain and high-speed rail trains underground. The problem, as Rafael over at California High-Speed Rail blog pointed out last week, is that the terminal will not be able to handle the 12 fast trains an hour the state plans to run into the facility by 2030.

Building this new terminal and the 1.3-mile connecting track would be helpful for San Francisco: it will allow commuters on fast trains to make it directly downtown and it will relieve the inadequate 4th and King Streets station where Caltrain currently terminates. But the terminal’s planned six tracks – with two reserved for the commuter system and the other four going to high-speed – aren’t enough. Increasing the number of planned platforms would require increasing the price of the terminal from the already-astronomical $4.2 billion to more than $5 billion. The board of directors of the Transbay Joint Powers Authority will meet about this problem today.

Rafael proposes a system by which crews clean trains at a quick pace to deal with the capacity issues, allowing trains to get in and leave the station within 30 minutes. That seems like an acceptable solution to a seemingly intractable problem, but what about opening up the Authority to the idea of letting trains terminate at the Transbay Terminal and at 4th and King, just as Caltrain service is supposed to operate by the time Transbay opens? Such a solution would make the expansion of plans for the Terminal unnecessary.

Most trains during non-rush hours would arrive at the Transbay Center, but at rush times, trains would depart and arrive from both San Francisco stations. It is true that this might cause some confusion among riders, but there are several cities in Europe where high-speed trains operating on the same corridor depart from more than one station: Berlin and Lyon come to mind. Giving customers the opportunity to arrive at 4th and King would make getting to and from the southern areas of the city easier because of that station’s direct connection with the Muni T-Third LRT line; the future Central Subway would make getting to Chinatown from 4th and King very simple. Stopping high-speed trains there would also encourage the development of the rapidly-growing Mission Bay district.

So, let’s stop trains at both locations, aiding the expansion of two parts of the city simultaneously.

Image above: Computer-generated depiction of CAHSR at San Francisco’s Transbay Terminal, from California High-Speed Rail Authority

California High-Speed Rail New York

MTA Deal Approaches; California HSR Under Threat in Peninsula

New York City may finally be getting the deal for which it’s been pleading for years

Streetsblog reports that New York’s Metropolitan Transportation Authority may be getting at least part of the deal described by the Ravitch Commission I discussed last December. The plan would implement tolls for cars “at the price of a single ride MetroCard” (currently $2) on the currently free East and Harlem River bridges, including the Brooklyn, Manhattan, and Williamsburg spans. Trucks are likely to be charged a lot more.

This agreement represents the end of Assembly Speaker Sheldon Silver’s manic attempts beginning two years ago to prevent the implementation of Mayor Michael Bloomberg’s congestion charge plan, which would have enforced a fee for cars entering, leaving, or moving about the lower half of Manhattan. This plan will transfer ownership of the bridges from the New York City Department of the Transportation to the MTA, which already controls several of the city’s tunnels and bridges the George Washington Bridge.  It will (at least partially) rescue the MTA, which is facing a huge $1.2 billion budget deficit in the next fiscal year. The charges on the bridges will bring in something in the realm of $400 million a year.

The deal is also likely to significantly reduce truck traffic in Lower Manhattan and increase ridership on the subways. Though I’m a bit perplexed that people riding mass transit should have to pay the same amount to get across a bridge as people driving in cars, it’s better than nothing. That said, the MTA still needs more money to get through this fiscal crisis.

The New York State Assembly, which has been notoriously anti-toll in the past, will have to approve this plan before it can take effect…

Palo Alto finding ways to push California High-Speed Rail to the sidelines

Meanwhile, across the continent, California High-Speed Rail Blog reports that Palo Alto’s city council has sent a letter to the state’s high-speed rail authority, asking it to consider tunneling the fast trains under the city or rerouting them through the East Bay, rather than up the west side of the peninsula. As Robert argues, Palo Alto needs to accept the limited negative effects of new high-speed rail service in return for the great benefits that will be accrued from fast trains heading to Los Angeles and San Diego.

We’re going to be facing a lot of opposition like this as high-speed rail projects are pushed around the country.

Forgive me for my limited posting today; it’s been a hectic one.

California High-Speed Rail High-Speed Rail

HSR in CA, NV, and TX

For whatever reason, the Christmas holiday brought news about a variety of major high-speed rail projects around the country. Here’s the roundup:

The San Francisco Chronicle reports that California‘s High-Speed Rail planners are hoping to get $15 to 20 billion out of the coming economic stimulus package. This money, in addition to the $10 billion tax payers approved in November, as well as a few billion more from municipalities and private groups, would allow for the completion of the first stage of the project, from San Francisco to Los Angeles.

The potential flaw in this plan to take some of the federal stimulus money is that those funds are intended to “ready-to-build” projects, which the California High-Speed rail system certainly is not. In fact, current plans have construction on the project beginning in 2012 – and presumably (hopefully!) we’ll be out of the recession by then. One possible alternative, however, is to begin construction on grade crossings in identified segments of the corridor, individual projects that could be easily designed and built within the next year.

Nevada and California are simultaneously pushing forward the long-held idea of a maglev train between Anaheim and Las Vegas. The system, described on Wikipedia, has been appropriated small preliminary funds from the federal government, but those few millions are nothing compared to the billions a 269-mile long line would cost. They’d like to see this project, too, garner money from the economic stimulus bill.

We’ve never discussed this project on the transport politic before, but let it be clear that there are several reasons why its current form makes little sense:

  • Maglev is far more expensive to build than regular HSR, and it’s not even that much faster. So what’s the big deal about it?
  • As long as we know that California’s traditional HSR line is being built, isn’t this line to Nevada an obvious candidate for expansion? By using maglev technology, trips could only occur between the two cities at each end. If traditional HSR were used, however, direct trains could connect San Francisco and Vegas, or Vegas and San Diego, rather than just Vegas and Anaheim.
  • The route’s terminus in Anaheim is completely nonsensical. Such a huge project deserves a connection to the biggest city in the Western United States, Los Angeles, not a secondary city.

We’ll keep the tabs on this project, obviously, but let it be known (if it matters to anyone), we will oppose it vehemently in its current form.

Meanwhile, the AP brings us news that the state of Texas is looking into taking advantage of the federal high-speed rail request for proposals that Secretary Mary Peters and Representative John Mica announced just before the holidays. The state’s major project, which has been labeled the “T-bone,” would connect Houston, San Antonio, Dallas, and of course the capital Austin. This would be an ambitious project but would dramatically improve the connections between these cities, which are just the right distance apart to make HSR a valuable alternative.

California High-Speed Rail High-Speed Rail President

Next Steps for High-Speed Rail

We got good news today in hearing of John Kerry’s introduction of the High-Speed Rail for America Act. This proposed bill will go a long way in helping the construction of California’s high-speed rail system. The passage of Proposition 1A in California two weeks ago means $10 billion of guaranteed state-level funding for high-speed rail. The system as initially built will provide 225-mph service from Los Angeles to San Francisco; future extensions will include lines to Sacramento and San Diego.

But $10 billion in bonds isn’t nearly enough to pay for the entire project – the likely cost just for the first phase is three times that. The California High-Speed Rail Authority has been planning for this, and recognizes that it will have to find other sources, and so it has always recognized that its first challenge after winning public approval of the bond will be getting federal and private sources to chip in. While we’re a little skeptical of just how much private industry will get involved, especially considering the current economic climate, there is good evidence – compounded by news of Kerry’s bill – that the federal government will pay for a substantial amount of the project and make its construction by 2018 a real possibility.

Barack Obama’s stimulus plan will range, as predicted, from $150-300 billion dollars, a good sign, especially since Maryland Representative Chris Van Hollen argued that it would “more likely” be in the vicinity of $300 billion, according to U.S. News. Considering that high-speed rail will play a major role in carbon footprint reduction (Obama campaigned for $150 billion over the next 10 years for projects that contribute to that goal), as well as produce a large number of jobs, it is possible that the President-elect will include specific funds dedicated to high-speed rail.

And, in fact, Congress has prepared the Executive branch for the execution of just such a proposal with the passage of this year’s Passenger Rail Investment and Improvement Act, which also provided direct funds to Washington’s Metro and Amtrak. That bill has two significant provisions: one, providing direct matching grants to state governments that are interested in creating new intercity rail services; two, allowing for the funding of “high-speed” rail services, meaning anything traveling above 110-mph. These two elements essentially make it possible for state governments to get funding from the federal Department of Transportation for rail, just as they already do for highways.

The comparison with highways is an important one. Currently, states can receive up to 80% of funding for new interstate freeways from Washington. The Passenger Rail bill does not specify what percentage of the cost of new rail systems will be funded by the federal government, but if we consider rail to be a fundamental part of the national transportation network, 80% would be most fair. Realistically, however, such a constribution isn’t likely because of entrenched pro-highway and anti-rail forces, and that’s why California’s High-Speed Rail Authority pushed so hard to get the state to fund for itself the $10 billion bond, roughly a third of the total cost. If the state can argue that the federal government, in paying for highway programs, has set a precedent for future rail programs, it would be reasonable to suggest that the federal government cover two-thirds, or roughly $20 billion of the cost. If the Department of Transportation is unwilling to fund one project with so much of its budget, California’s congresspeople will have to consider earmarks to pay for the program. The system will not be built without significant federal dollars.

This is why John Kerry’s new high-speed rail bill, which he introduced to the Congress yesterday, is so important. We’ve been looking forward to this proposal for a few months now, and if passed, it would provide $10 billion over 10 years (of which $8 billion in six years) for projects in the Northeast and California, and $5.4 billion over 6 years for 10 other rail corridors around the country. Kerry’s press release quotes the Senator as saying that “A first-rate rail system would protect our environment, save families time and money, reduce our dependency on foreign oil, and help get our economy moving again. The High-Speed Rail for America Act will help fix our crumbling infrastructure system, expand our economy, and match high-tech rail systems across the globe.” Indeed, we couldn’t agree more.

Yet, and we hate to say it, Kerry’s bill – if passed – won’t provide enough funding. California needs $20 billion over the next ten years, not $10 billion to be shared with the Northeast Corridor, which also needs significant improvement in order to provide adequate service. And though $5.4 billion will do some for the other corridors, especially in terms of planning, far more than that will be needed to actually implement those programs.

We need another Interstate system, this time for rail. Kerry’s bill is a nice dip into the pond, but it’s nothing compared to the hundreds of billions of dollars being invested in rail infrastructure in Europe and Asia. France alone is investing more than 16 billion euros (this is just the national contribution) for 2000 more kilometers of TGV lines by 2020. China is investing one hundred billion dollars for thousands of miles of lines. And Spain has a plan for 7000 km of high-speed lines by 2010. Those are the kinds of step we need to make if we want to a make a vision of alternative mobility a realistic one.