This Week at Amtrak; March 12, 2008

A weekly digest of events, opinions, and forecasts from
United Rail Passenger Alliance, Inc.
1526 University Boulevard, West, PMB 203
Jacksonville, Florida 32217-2006 USA
Telephone 904-636-7739, Electronic Mail info@unitedrail.org
http://www.unitedrail.org



Volume 5, Number 11



Founded over three decades ago in 1976, URPA is a nationally known policy institute that focuses on solutions and plans for passenger rail systems in North America. Headquartered in Jacksonville, Florida, URPA has professional associates in Minnesota, California, Arizona, New Mexico, the District of Columbia, Texas, and New York. For more detailed information, along with a variety of position papers and other documents, visit the URPA web site at http://www.unitedrail.org.


URPA is not a membership organization, and does not accept funding from any outside sources.


1) IMPORTANT NEWS UPDATE ABOUT THE SUNSET LIMITED. The moment may be close at hand. Reports from various reliable sources have indicated the Sunset Limited may be back in Florida, perhaps as early at the first of June.

A recent meeting in New Orleans involving various state representatives and an honorable high Amtrak operating official focused on service east of New Orleans. The Amtrak operating official reportedly indicated he was in favor of restoration of passenger train service east of New Orleans, but it would ultimately be up to Amtrak’s Board of Directors to make a final decision.

Keep in mind NOTHING comes before the Amtrak board unless it has gone through Amtrak’s executive bureaucracy. If a project has been blessed by Amtrak executives, it is usually blessed by the board of directors.

If this proves to be true, it would involve full train service including sleepers and food service cars.

We will keep you posted of any further developments or other verifiable information.



2) Here are two more important reprint from Innovation NewsBriefs, Volume 19, Numbers 6 and 7, published earlier in 2008. Further information can be found at www.innobriefs.com.

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No. 7

January 25, 2008

Financing the Nation’s Infrastructure Deficit

"...We have to rebuild America. I am proposing a National Infrastructure Reinvestment Bank that will invest $60 billion over ten years." – Sen. Barack Obama, February 13, 2008

With this succinct phrase, presidential candidate Sen. Barack Obama has injected a new idea into the ongoing debate about infrastructure financing. Instead of endorsing new taxes or direct user fees to fund the nation’s infrastructure deficit, he has embraced the concept of a federal capital infrastructure budget. It’s an idea that also has been advanced by Senators Christopher Dodd (D-CT) and Chuck Hagel (R-NE) in their bill, the National Infrastructure Bank Act of 2007. Obama, by virtue of his prominence as a presidential candidate, has automatically ensured that this novel financing concept will figure prominently in the national dialogue about the future of infrastructure investment. The need for fresh thinking about infrastructure financing has received a further boost from an influential coalition launched last month by Governors Ed Rendell and Arnold Schwarzenegger and Mayor Bloomberg (see below).

The National Infrastructure Bank Act of 2007

The Dodd-Hagel bill (S.1926 and HR.3401) would create a new mechanism through which the federal government would finance infrastructure projects of substantial regional or national significance. The bill proposes to create an independent national bank financed with a $60 billion bond issue, the same amount as proposed by Sen. Obama. Long-term bonds (up to 50 years) issued by the bank would align the financing of infrastructure investments with the benefits they create. The repayment of those bonds would allow the Bank to be self-financing. In other words, the dedicated bond fund would create a de facto national capital infrastructure budget.

The Bank would give preference to large "capacity-building" infrastructure projects that are not adequately served by current financing mechanisms and existing formula grants. Projects "of substantial regional and national significance," would include roads, bridges, mass transit systems and wastewater treatment facilities. Candidate projects would be brought to the Bank’s attention by state and local sponsors. Once a level of investment in a given project has been determined, the Bank would develop a financing package backed by the full faith and credit of the Federal Government.

The Rohatyn-Rudman Report

Sen. Obama’s proposal and the Dodd-Hagel bill have their conceptual antecedents in a 2004 report of the Commission on Public Infrastructure created under the auspices of the Center for Strategic and International Studies (CSIS).The report, authored by the Commission’s co-chairmen, Felix Rohatyn and Warren Rudman, proposed a National Investment Corporation (NIC) that, like Obama’s proposed Infrastructure Bank, would have the authority to issue federally guaranteed 50-year bonds to finance large-scale infrastructure projects. (The authors summarized their proposal in a December 13, 2005 op-ed in the Washington Post entitled "It’s Time to Rebuild America.")

In 2006, the Commission on Public Infrastructure reinforced its proposal with a set of "Guiding Principles for Strengthening America’s Infrastructure." In a preamble, the Commission noted that the nation is both under-investing in infrastructure and investing in the wrong projects. "New investments are critically needed," the Commission stated, "but we lack the policy structures to make the correct choices and investments." The proposed NIC, the authors suggested, would provide the needed allocation mechanism. Among the statement’s signatories were Senators Dodd and Hagel, and Governors Rick Perry (TX), Arnold Schwarzenegger (CA), and Tom Vilsack (former governor of Iowa).

Build America Bonds

A dedicated infrastructure program backed by a large public bond issue has been also behind the "Build America Bonds" Act (S. 2021), introduced by Senators John Thune (R-SD) and Ron Wyden (D-OR) in September 2007. The senators have proposed raising $50 billion for transportation infrastructure through a one-time bonding program. In lieu of interest, bond holders would receive tax credits. The bonds would be available to corporate and individual investors in different denominations, "providing all Americans with the opportunity to invest in upgrading America’s transportation infrastructure."

"Building America’s Future" Coalition

Reinforcing the call to rebuild the nation’s aging infrastructure is a coalition formed by Pennsylvania Governor Edward Rendell, California Governor Arnold Schwarzenegger, and New York City Mayor Michael Bloomberg. In announcing the coalition, the three political leaders stressed that this is an issue that crosses party lines. The coalition will work with both nominated presidential candidates and the Republican and Democratic parties "to ensure that the next president understands the enormity of the infrastructure crisis, is committed to increasing federal funding, and that both party platforms reflect these commitments."

At a press conference on February 24 held in conjunction with the winter meeting of the National Governors Association, the three coalition co-chairmen were joined by six other governors: Florida’s Charles Christ (R), New York’s Eliot Spitzer (D), Maryland’s Martin O'Malley (D), Arizona’s Janet Napolitano (R), Massachusetts’ Deval Patrick (D) and New Jersey’s John Corzine (D). All of them emphasized the same theme: the need for national infrastructure investment. In the words of Gov. Spitzer, "we will do our part but we need a partnership with the federal government." Or, as Gov. Schwarzenegger put it, "it’s time for the federal government to step up and do its share."

Not everyone is enamored of the idea of a centrally directed program of infrastructure investment. Reason Foundation’s Robert Poole, for example, thinks there is no need to expand the role of the federal government or further increase the national debt to substitute for what dozens of private infrastructure investment funds are willing, able and eager to do. "Large-scale, strategic investments in highways, bridges, water and wastewater systems are all precisely the kinds of thing that the capital markets are well-equipped to fund," he contends. He is not alone. Transportation Secretary Mary Peters likewise has argued in favor of relying more heavily on market forces to direct private investment into needed infrastructure. "Unleashing the investment locked in the private sector by partnering with business is the most efficient path to the transportation future this country needs and deserves," she said in a recent speech to the Associated General Contractors. The Rohatyn-Rudman Commission on Public Infrastructure also recognized the need for the private sector to play a more central role in infrastructure provision. "Entrepreneurs should be encouraged to put their capital at risk in order to create infrastructure that meets the needs of users," the Commission stated in its Guiding Principles.

And indeed, large portions of the needed new capacity in major travel corridors could be probably financed with a combination of private equity capital and bonds backed by toll revenue. As many as 14 states are currently considering toll revenue financing as a means of expanding road capacity. But new facilities in sparsely populated states and less heavily traveled corridors would still need public funding. Should the source of that funding be higher gasoline taxes, as recommended by the congressionally-chartered National Transportation Policy and Revenue Commission? Or should the needed funds be raised through a National Infrastructure Bank and federally guaranteed bonds?

Although the Coalition has been careful not to endorse the National Infrastructure Bank or the concept of a federal capital infrastructure budget, Sen. Obama’s embrace of these concepts virtually guarantees that they will receive serious attention in the presidential campaign as an alternative to higher fuel taxes.

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No. 6

February 17, 2008

Urban Rail Transit and Freight Railroads: A Study in Contrasts

Investment in Urban Rail Transit Has Peaked

Two years ago we suggested that the era of multi-billion dollar system-building investments in urban rail transit is coming to an end. We wrote:

"The 30-year effort to retrofit American cities with rail infrastructure, begun back in the Nixon Administration, appears to be just about over. To be sure, federal capital assistance to transit will continue, but its function will shift to incrementally expanding existing rail networks and commuter rail services rather than embarking on construction of brand new rail transit systems. ("The New Starts Program is Changing Its Emphasis," March/April 2006)."

The newly released Fiscal Year 2009 Budget Proposal of the U.S. Department of Transportation confirms the truth of that speculation. Of the 30 transit capital projects proposed for funding in FY 2009 17 are rail projects and only two among them are new projects recommended for full funding grant agreements (FFGA) (the projects in question are light rail transit extensions in Denver and Seattle). The remaining 13 projects are modestly funded "Small Starts," of which 11 are Bus Rapid Transit (BRT) projects. Twelve additional rail projects are in Final Design or Preliminary Engineering, for a total of 29 rail projects in construction or the engineering pipeline. By contrast, seven years ago, the FY 2002 budget listed a total of 69 rail projects in construction or engineering stage (NewsBrief, "The Prospects for Rail Transit," Sept/Oct 2001.) Even as recently as FY 2007, seven new rail projects were recommended for FFGAs.

What accounts for this profound transformation in the federal transit program? The simplest and most obvious explanation is that after 30 years of sustained federal investment in urban rail systems— an investment program that resulted in the construction of 22 new light rail systems and 5 new heavy rail systems— the New Starts program is beginning to run out of cities that can afford or justify cost-effective rail transit investment. Norfolk, VA, has been the only new urban area to have joined the "club" of rail cities in recent years. The only other cities that can hope to join the rail club in the foreseeable future are Charlotte, NC and Orlando, FL, (their projects are currently in preliminary engineering.) The bulk of future investment in rail transit will almost certainly take the form of incremental additions to existing rail networks.

Also responsible for the decline in rail projects is the rising attraction of the more affordable bus rapid transit (BRT) alternative with its incentive of a simplified FTA evaluation and rating process. Indeed, a recent GAO report noted that "bus rapid transit has become the most common transit mode for projects in the New Starts pipeline." (Future Demand Is Likely for New Starts and Small Starts, July 2007). While rail projects still represent a major share of the latest New Starts budget (87.5% of the $1.62 billion capital investment budget in FY 2009 ), the share of capital assistance devoted to rail projects is expected to decline as existing major rail grant commitments are fulfilled and the pipeline fills with more affordable "Small Starts" projects of the BRT variety.

Freight Railroads Are Undergoing a Dramatic Expansion

In the meantime another rail sector — the freight railroads— is experiencing unprecedented expansion. "For the first time in nearly a century railroads are making large investments in their networks," wrote Daniel Machalaba in a well-documented front-page article in the Wall Street Journal ("New Era for Rail Building," WSJ, February 13, 2008). "Their campaign is altering the corridors of American commerce, more so than any other development since interstate highways spread to the interior," Machalaba noted. Since 2000, freight railroads have spent $10 billion to expand track, build freight yards and buy rolling stock and they have $12 billion more in upgrades planned. "It’s been a century since railroads embarked on a similar spate of capital investment," Machalaba observed.

The catalyst for this burst of investment has been the rapid growth of international trade and its rising demands to move containers of finished goods from ports to major cities. Demand for rail service increased sharply when Asian imports intensified starting in 2003. While long-haul trucking continues to be the backbone of the nation’s land-based freight system, railroads are stepping in to supplement the goods carrying capacity in many corridors. Burlington Northern was the first to begin expanding the physical capacity of its rail network by adding a second set of tracks to portions of its Chicago-Los Angeles Transcon line, now nearing completion. Union Pacific followed with an upgrade of its Sunset Corridor from Los Angeles to El Paso, Texas. Norfolk Southern is improving access to the ports of New Orleans and Norfolk by expanding the capacity of its Crescent (New York- New Orleans) and Heartland (Chicago-Norfolk) rail corridors. CSX is doing the same in its Chicago-to-Florida Southeast Corridor.

What is remarkable, is that this massive expansion and modernization of freight rail infrastructure has been accomplished without the help of any public funds. From 1980, when the Staggers Rail Act partially deregulated railroads, through 2006, railroads have invested some $400 billion of private capital in their systems according to the Association of American Railroads (AAR). Currently, railroad companies are investing 18 percent of their revenue in new infrastructure, more than any other industry, says AAR. They are able to do so because dramatic increases in freight volume due to booming international trade have led to record earnings. Forecasts are for continued profitability, with railroads prepared to continue funding internally the vast majority of its planned rail infrastructure investment.

Could highways become more like freight railroads? Could future highway infrastructure be financed with user fees and private capital, just like rail infrastructure? Or is the notion that highways are a public good to be supported primarily by taxpayers too deeply ingrained to allow for such a radical change in approach? The debate on this score has just begun and its eventual outcome is uncertain. Ultimately, the answer may hinge less on how Congress decides to fund the federal contribution to the surface transportation program than on how governors, state legislatures and local governments across the nation decide to approach the long term challenge of financing new road infrastructure. The signals from many state capitals suggest that user fees in the form of tolls are increasingly being considered as the principal means of financing future highways and bridges. Governors and legislative committees in as many as 14 states are contemplating adding tolls to their arsenal of revenue measures. This does not mean that the need for fuel taxes will disappear. The gas tax will continue to be needed to fund the ever-growing requirements to preserve and modernize the nation's aging road facilities. However, finding the resources to pay for new capacity will require a more entrepreneurial approach, with the freight railroads serving as a possible financing model. User fees in the form of tolls may turn out to be the most sensible way to ensure the long-term integrity of the highway system without imposing an unacceptable tax burden on the American people.

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J. Bruce Richardson
President
United Rail Passenger Alliance, Inc.
1526 University Boulevard, West, PMB 203
Jacksonville, Florida 32217-2006 USA
Telephone 904-636-7739
brucerichardson@unitedrail.org
http://www.unitedrail.org