Off the Kuff Rotating Header Image

Financing the high speed rail line

A long story in the Trib about Texas Central High-Speed Railway and its ambitious Dallas to Houston rail line. It’s a good primer if you haven’t been paying close attention to the story and want to cover all the basics. A couple of points:

Central Japan Railway Co., also known as J.R. Central, sees a huge opportunity for exporting its technology to America, where the busiest passenger rail line takes about seven hours to slog the 400 miles between Washington and Boston.

Today, there are only three significant high-speed rail projects in advanced development in the U.S. — in Texas, Florida and California. At some point during the early planning of all three ventures, J.R. Central offered to sell its trains to those states but only found sure footing in Texas. The Texas project, led by a private local company working with J.R. Central, is by far the most ambitious.

Texas Central High-Speed Railway is promising to connect Houston and Dallas with the fastest trains at 205 mph, developed on a relatively snappy timeline with little support from taxpayers. By contrast, the California train will be heavily subsidized and take years longer to develop. Texas Central Railway has set a 2021 target date for beginning operations while the California line isn’t expected to connect Los Angeles to San Francisco until 2029. In Florida, a privately funded project could begin service between Miami and West Palm Beach as early as 2016 but is projected to be the slowest of the three, traveling at less than 100 mph through some areas, and run on a congested century-old right-of-way, including a portion that will run on a converted freight line.

Texas Central officials have said the project will be privately funded and not require any public funding to subsidize its operational costs. If the private financing can be secured, the Houston-Dallas connection would be the fastest high-speed rail line in the nation and among the first successful private passenger rail projects in recent American history. It would essentially be the modern Sun Belt’s first new intercity passenger rail line of any sort in over a decade. If successful, it could mark a turning point in the urbanization of the U.S., and a high-profile rebuff to more progressive coastal cities that have struggled to modernize transit systems with the high-speed technology that has already reshaped Asia and Europe.

The Texas project would also be a huge feather in J.R. Central’s conductor’s cap. The company is about to start construction in Japan on a nearly unsubsidized cutting-edge maglev — short for magnetic levitation — train line, connecting three major metropolitan areas and powered by electromagnetic propulsion rather than a fossil-fuel-powered engine. Yet much more expansion is unlikely in Japan, where low population growth means less demand for new infrastructure. To keep growing, the company must look abroad.

As the Texas proposal has drawn more attention, supporters are framing it as a key opportunity for the state to burnish a reputation as a trendsetter on the national stage.

“As Texans, we take great pride in blazing a path for the rest of the country to follow,” the mayors of Houston, Dallas and Fort Worth wrote in a letter endorsing the project in April. “This project will do just that.”

Over the last year, officials with Texas Central have traveled around the state, touting their plan to profitably ferry passengers from Houston to Dallas in 90 minutes or less, with as many as 34 trips a day in each direction. In explaining their confidence that the plan will become reality, Texas Central officials have pointed to the state’s regulatory framework, which Gov. Rick Perry often proclaims as more predictable and less burdensome than those in other states. Texas also has a history of embracing the private sector for infrastructure projects, particularly toll roads.

The best-known of those projects, a privately financed, 41-mile stretch of State Highway 130 in Austin that sports an 85 mph speed limit, the fastest in the country, technically defaulted on its debt in July, according to Moody’s Investors Service.

Yeah, maybe not the ideal association for this project.

While Texas Central knows where it won’t get the money for its train lines, it’s less clear where it will get the needed backing. Texas Central Railway says it intends to raise most of the money in the U.S., but so far, its ability to draw the billions of dollars in investment is merely speculative.

The experience of All Aboard Florida could be instructive. The company is in the process of cutting a number of land deals with various levels of government for stations and transit-oriented developments around them, and has won a commitment from the state to build its terminal at Orlando International Airport. The Texas project is expected to follow a similar approach to development, though company officials have already nixed the idea of developing stations at airports.

Just recently, All Aboard Florida took its biggest step yet to realizing its passenger project, one that Texas Central will eventually have to emulate: It sold $405 million in debt to private investors to finance the initial South Florida leg, from Miami to Fort Lauderdale.

All Aboard Florida offered investors a 12 percent annual return on the five-year bonds. The high-yield offering sold quickly, surprising observers who predicted investors would be scared off by the fact that All Aboard will have no cash flow until the railway is operating, which won’t be for at least another two years. But while the success of the sale could bode well for Texas Central, the projects could also be received very differently. In its coverage of the All Aboard bond sale, Reuters reported that private investors were attracted to the project in part because it involves repurposing and expanding an existing freight railway and doesn’t require as much higher-risk, ground-up construction as the Texas project. Another draw for investors, Reuters reported, was the possibility of government financing down the line, again something that the Texas project doesn’t offer.

This is not the first time a private firm has attempted to build a high-speed rail line in Texas. Back in the late 1980s, two European-backed firms were competing to win a state franchise to connect the so-called Texas triangle of Houston, Dallas, Austin and San Antonio. Dallas-based Southwest Airlines waged an aggressive campaign against the awarding of the franchise, arguing that it would force the carrier to severely scale back its operations in Texas. State officials ultimately granted French-backed Texas TGV a franchise, only to see the company give up on the project after failing to come up with enough capital.

This time around, Southwest Airlines has said it is neutral on the Texas Central Railway project. Eckels and airline industry experts have predicted that the airline will maintain its neutrality, as Southwest has diversified its business enough that it would not likely view a high-speed rail project as a threat to its business.

Hard to know what to make of the past history here. This project is different in many ways, and there really isn’t a good analogy for it. I’m a fan of this project and I’m rooting for them to succeed, but I find myself a little queasy at the animosity that exists, mostly on the Republican side, for public financing of rail projects, and increasingly of any non-road-oriented transit project at all. That’s not TCR’s responsibility, it’s just another unfortunate sign of the debasement of Republican politics. Other than a change in attitude from that side, I suppose the best thing that could happen would be for TCR to be a big success and be the starting point for additions, extensions, and connections that will be part of the public investment in infrastructure. We’re going to solve our problems by doing things that work, not by doing what we insist is the only thing that can work.

Related Posts:

One Comment

  1. PDiddie says:

    I recall — in our bloggers’ get-together about the TCR with Judge Eckels and Benzion and the others — that they made note of the fact that the conservative blogosphere was a hard sell. Essentially the stumbling block was, IIRC, that they (bloggers) wouldn’t buy that it was going to be a completely privately-funded project. That it would eventually require federal funding of some sort.

    I never ceased to be amazed at the conservative hive mind that is forever fearful of what might happen, with no particular concern about what is already happening.

    They can’t even be supportive of a private initiative by Republicans, they’re so scared of what the future might bring.

Bookmark and Share