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Opponents Try to Sink All Aboard Florida Rail Project

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(Editor’s note: If high speed rail can work in Florida without government subsidy, maybe we can do the same here in Virginia under the right circumstances.)

As regular readers of this newsletter will recall, I have been generally supportive of the effort by a division of the company that owns and operates the Florida East Coast Railway to develop the first private-enterprise higher speed passenger rail service since Amtrak took over money-losing passenger services from the major railroads back in 1971. In my initial assessment I saw several factors that differ significantly from other high-speed rail projects being attempted around the country. First, the proposed venture—All Aboard Florida—appears to have identified a market niche where fast (up to 125 mph) passenger rail is quicker than auto travel and less of a hassle than air travel: Miami to Orlando, with intermediate stops at Fort Lauderdale and West Palm Beach. Although AAF has not released their traffic and revenue study, they have said from day one that they believe the passenger service will not need any government subsidies or any government capital grants.

That’s at least plausible, because FEC Railway already owns most of the right of way and track, apart from a short east-west stretch from its east-coast main line to the Orlando airport, a second success factor. Third, this project represents an excellent case of “value capture” by the parent company, since it expects to make a lot of money via its real-estate investments in and around the new stations it will build in Miami, Fort Lauderdale, and West Palm Beach. That is the key to the success of the Hong Kong’s profitable Mass Transit Railway Corporation.

But while the initial reaction to the project was nearly all favorable, in recent months it has come under a variety of attacks. A whole populist conservative opposition has sprung up, producing a conspiracy theory that the passenger rail plan is simply a Trojan Horse to get government support for FEC’s already under way plans to improve its freight rail services from the ports of Miami and Ft. Lauderdale, which are deepening their channels to attract the larger container ships that will be traversing the Panama Canal in a few years. Much of this propaganda is very ill-informed, but one of its major points has gained credibility with fiscal conservatives—namely that AAF has applied for two loans from the Federal Railroad Administration under its long-standing Railroad Rehabilitation & Improvement Financing (RRIF) program. The two loans, if granted, would cover $1.6 billion of the project’s $2.5 billion capital cost. So AAF is being criticized for depending on “federal funding” after all.

Some of those capital costs include adding parallel tracks on a portion of the east coast freight right of way, so that the faster passenger trains don’t interfere with slower freight trains. The conspiracy buffs expect the passenger project to tank, with the loans turning into de-facto grants to FEC Railway’s freight operation. That’s silly. First of all, most FRA loans already go to freight railroads for track and rolling stock investments. So there was no need to create a passenger rail service in order to get RRIF loans. Second, FRA’s application guidelines ask the applicant to spell out the collateral being offered to back the loans, and AAF has announced that it is putting up rolling stock, tracks, and right of way for the requested loans. Third, it is very standard for railroads and other infrastructure companies to finance major projects with a mixture of debt and equity. AAF is readying a $405 million offering of five-year notes as part of the financing. Combined with the $1.6 billion in RRIF loans, that would mean the financing structure would be 80% debt/20% equity, a pretty typical ratio for large infrastructure projects such as PPP toll roads. I have previously written that RRIF has fewer safeguards than the federal TIFIA program, but AAF’s applying for available federal loans is no more surprising than private toll road companies applying for available TIFIA loans.

Fiscal conservatives also claim that Florida DOT is providing a $204 million grant to AAF to build its new station at the Orlando International Airport. The Legislature’s FDOT budget approved earlier this year does provide a grant in that amount, but to the airport, for its long-planned multi-modal terminal, somewhat like the Miami Intermodal Center at Miami International Airport. Both of these are airport projects, enabling air travelers to connect with a number of ground transportation options.

There are some real concerns that are not part of right-wing conspiracy theories. One is the increase in daily train operations through many east coast communities, with 32 daily passenger trains and, over time, FEC’s hoped-for increase in container trains to and from the two ports. There will need to be safety upgrades at many grade crossings, and under current law much of that expense belongs to the roadway owners, not the railroad. People who live in the counties north of West Palm Beach are angry that they will suffer from increased waiting times at grade crossings, as well as increased noise from the trains, even though they won’t be able to ride them. But increases and decreases in train volumes are a fact of life if a rail line runs through your town. FEC has been in place, originally operating both passenger and freight service, for over 100 years.

A problem relatively unique to Florida is a number of railroad drawbridges which are normally kept in the up position to accommodate large numbers of boats (e.g., 236 per day at the Loxahatchee River entering the Jupiter inlet). Because they are built at ground level, only very small boats can pass beneath them when they are down. Current operating protocols call for a 15-minute lead time to open the bridge before a train arrives, plus three minutes for the train to cross and another two minutes to open the bridge so boats can pass. AAF has said they plan improvements to the bridges, but I have not seen any specifics, so the boating community is very concerned.

My assessment at this point is that this still looks like a worthwhile effort to re-introduce passenger rail service on a commercial basis. Most of the concerns raised by opponents are not serious, and I expect AAF will be providing more specifics on its plans for grade crossing and drawbridge improvements.

(This article first ran in Surface Transportation Innovations newsletter in July 2014)

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