We continue to review the PennDesign proposal for high-speed rail in the Northeast Corridor. Earlier posts examined the proposal's vision and the argument for making the investment, while the post below summarizes the proposal's major strategies for successful implementation. To learn more about the proposal, see our first post here or visit the PennDesign HSR Studio website.
»In order to make high-speed rail in the Northeast Corridor a reality, a 2011 report by the PennDesign HSR Studio proposes making improvements to America's public financing programs and a new, regional public benefits corporation whose sole mission is the success of HSR.
The challenges to completing HSR in the Northeast are immense: the complex institutional framework involving eight states and the District of Columbia, Congress's flagging commitment to transportation infrastructure, and a price tag of approximately $100 billion, to name a few.
The PennDesign proposal aims to address these challenges with clear strategies for construction, finance, governance, and advocacy. The proposal draws upon successful cases in Europe to identify best practices and builds off of existing strategies and institutions already at work in the Northeast. The proposal's recommendation are extremely valuable for advocates, because they provide a realistic set of options for achieving HSR in the NEC.
An Agressive Timeline
The proposal offers an ambitious timeline for completing a HSR line in the NEC. Construction would be completed in phases, with the entire system operational in under 25 years by 2035:
- Early action items (environmental review, environmental mitigation, and land acquisition) and improvements to existing NEC. (2012-2020)
- Phase 1: Construction of NYC to Philadelphia. (2015 - 2024)
- Phase 2: Construction of Philadelphia to Washington DC, and NYC to Boston. (2025 - 2035)
There are several benefits to this approach. First, early improvements to the existing NEC will enable the corridor to add capacity and improve speed to meet the growing demand that cannot wait for HSR. Second, the Phase 1 project will allow the HSR system to begin to generate operating revenue even before the full system is in place. Third, the Phase 1 segment is projected to the most profitable part of the line and will largely utilize the existing NEC ROW, making it easier to construct. If additional public funding is in jeopardy, the success of Phase 1 could generate additional political and citizen enthusiasm for Phase 2. Finally, the Phased approach enables the Northeast to get started right away. While the environmental review for some parts of the project may take several years, other projects, like some of the improvements to the existing NEC and parts of Phase 1, could begin much sooner.
The Financing Challenge
The most obvious challenge to implementing high-speed rail is its high cost. The government is unlikely to hand planners a check for $102 billion. According to the proposal, the solution is a public-private partnership (P3). In looking at successful cases in Europe and Asia, the students found that no major high-speed rail program has been completed without a strong, upfront commitment by the public sector. While private investors have been willing to participate, the government's participation is essential to minimizing the risk of the large investment.
The proposal offers two basic options for financing the project using a mix of private and public dollars. The first option relies on utilizing public financing tools to minimize public grants and attract private investors. For example, the proposal recommends expanding existing public financing programs, like TIFIA (Transportation Infrastructure Finance & Innovation Act) and RRIF (Railroad Rehabilitation and Improvement Financing), which offer government loans and loan guarantees. The proposal also recommends that the U.S. pursue an infrastructure bank, modeled after the European Infrastructure Bank, which can leverage government dollars to attract private investors. Finally, the proposal recommends new tax-credit programs, modeled after existing ones, which encourage investment by providing tax credits in lieu of a return, which can substantially lower the government's cost of borrowing. By combining these recommendations, the proposal estimates that government grants could be limited to around $26.5 billion and that 74% of the project's expenses could eventually be repaid.
The proposal's second financing option recommends leasing the HSR infrastructure to private investors as a concession contract. Under a concession contract, the public sector retains ownership of the rail infrastructure, but leases it out to a private investor, who pays a one-time fee for the right to control and collect revenue over a certain period of time (e.g. 10 years). Like an infrastructure bank, concession contracts have worked well in European countries, most notably the U.K., where the high-speed rail infrastructure is controlled by a private investor. As time elapses, the government can perform additional concessions, thereby collecting additional revenue to invest in the infrastructure or to defray the initial capital investment. According to the proposal, a concession contract model could cover up to 35% of the total project expenses by 2065.
Overall, the proposal's recommendations are very encouraging. By basing their recommendations on successful models in Europe and building off of existing programs in the U.S., their financing proposals are realistic and practical. We already know that the government will not hand the Northeast a $100 billion check with no strings attached. In July, Rep. John Mica (R-FL), Chairman of the House Transportation & Infrastructure Committee, indicated that he wants HSR to proceed in the Northeast, but that any HSR project will have to include a mix of private and public dollars. In this regard, the PennDesign proposal is right on the mark.
The financing recommendations are particularly strong because they are not overly prescriptive. The truth is that decision-makers will ultimately embrace a financing strategy ultimately that reflects political goals just as much as financial realities. If Congress is not willing to make grants, for example, then a financing package will have to rely more heavily on public financing. By offering a range of financing options, the proposal makes clear that there is no single way to successfully finance HSR. Instead, U.S. decision-makers can mix and match the financing strategies that best fit with our current financial and political framework.
New Institutions for HSR
The proposal also takes on a challenge that is less visible than financing, but potentially even more important. The PennDesign report recognizes that the current institutional system governing rail infrastructure in the Northeast is inadequate. Currently, the NEC infrastructure is managed by multiple owners, which creates delays and conflicts among operators, and each state tends to prioritize investments in commuter rail over intercity service. And while these issues could be overcome, the proposal argues that the current institutional framework is too weak for the nine major governments along the NEC to cooperate and make major investments.
To solve these problems, the proposal takes its cues from successful examples in Europe. Specifically, the proposal recommends separating infrastructure operations from rail operations and creating a new public-benefit corporation (PBC) that would manage the high-speed rail infrastructure. This PBC, which they dub, "NECSA - the Northeast Corridor Systems Authority," would represent the major governments on the line and would be responsible for constructing and managing the high-speed rail infrastructure. NECSA would not, however, run any high-speed rail trains, but would be responsible for contracting with operators to run service. Under this model, a corporation like Amtrak could continue to run on the NEC, but would no longer own the infrastructure or be responsible for its maintenance.
According to the proposal, there are two main benefits to separating infrastructure from rail operations. The first benefit is that it provides a reliable source of revenue. Under this model, each rail operator pays an access fee to the infrastructure manager, based on its proportional use of the system. While rail operators can make a profit from ticket revenue, the infrastructure manager maintains a source of revenue to perform maintenance or to pay off capital expenses. The second benefit is that the infrastructure manager serves as a neutral dispatcher, which more effectively optimizes rail operations. Right now, train movements on the NEC are subject to the various owners of the line. During the morning rush, for example, multiple commuter trains may be delayed to minimize the delay of a single Amtrak train. A neutral dispatcher, however, can ensure that everyone has equal access to infrastructure and minimize delays for all riders.
NECSA, would also provide a number of new advantages. First, as a regional entity, NECSA would create an opportunity for the state-level planners to work together and formulate a plan that meets the region's full needs. Second, the PBC would have a single purpose, making it highly accountable for a clearly defined mission. Finally, it would also solve the problems caused by the line's split ownership. As we saw earlier this summer, poor investment by one state impacts every part of the line. Investments on one part of the corridor are invariably constrained by investments on another. By consolidating ownership under a single entity, these investments can be managed to ensure they optimize service along the entire corridor.
Like the public financing tools described above, these governance recommendations smartly build off existing institutions. Already, the PRIIA legislation has mandated the creation of the Northeast Corridor Infrastructure & Operations Advisory Commission (NECIOAC), which is tasked with managing the future direction of the NEC. By taking on ownership of the NEC and being given the authority to construct the HSR system, a public benefits corporation, like NECSA, would be a significant step forward for the regional governance.
And while the separation of infrastructure and operations is not found in many parts of the American rail system, it is actually quite similar to the way we run our airports and roads. While a regional port authority may own and operate an airport, a mix of operators utilize the facility. This approach makes the PennDesign proposal extremely attractive from a political perspective. For example, one of the major points of controversy surrounding Rep. Mica's plan to privatize the NEC and initiate HSR is its whole-sale removal of Amtrak from the line. Under the PennDesign proposal, Amtrak can still play an important role as a rail operator (but would no longer be saddled with the maintenance problems that plague the NEC). Rather than answer the controversial question of whether Amtrak should run the service, the PennDesign team empowers regional decision-makers to choose the best option for the NEC.
Changing the Conversation
The proposal recognizes that HSR will require an enormous amount of political support to become a reality. Our transportation needs call for long-term investment, but the political will for large-scale projects appears to be fading.
In order to address this challenge, the proposal calls for making the benefits of high-speed rail relatable and accessible to average citizens. For families, HSR means more time together. For business travelers, HSR means a faster, more comfortable trip. For motorists, HSR means better roads and fewer delays. The proposal even goes so far as to envision what a high-speed rail advertising campaign might look like, drawing upon successful examples from abroad.
In addition, the proposal outlines the key levers for achieving broad support on several levels. The proposal recommends targeting media outlets, elected officials, and real estate developers who stand to gain from HSR.
While the PennDesign proposal offers an exciting vision of HSR and a compelling case for making such a major investment, the implementation strategies described are by far their most valuable feature. Even among transportation advocates in the Northeast there is some skepticism about the potential for HSR, which is understandable after the setbacks and failed efforts over the past several decades.
The PennDesign proposal, however, makes it clear that HSR is a distinct possibility for the United States. We already have many of the financing tools and institutional models we need to make HSR work. And, while we will have to make changes to the certain systems work, the risk of those changes is quite low. The experience of our peers in Europe and Asia have already shown us what works and what does not. Overall, the PennDesign proposal sends the message to all HSR skeptics that we can make HSR a reality in the Northeast.
High-Speed Rail in the Northeast Megaregion: From Vision to Reality. University of Pennsylvania. 2011. Link.