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

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.

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 is 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 the FECI 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.