Funding High-Speed Transportation in America with Public-Private Partnerships

Also, legislation is required to expedite land acquisition for HSR right of way and areas around HSR train stations for transit-oriented development (TOD). Another critical legislative initiative will be requisite to facilitate the value capture of project revenues from existing properties in the proposed HSR station areas.

Developers must be allowed to assume that when calculating the return on investment (ROI) for the HSR project that they could include not only revenues from HSR fares, but also from rent and lease payments flowing from commercial and residential properties at the TOD sites.

Government entities would procure the HSR right of way as well as the TOD-related properties. The government would be responsible for all zoning, permitting and environmental (NEPA) work, so as to minimize the red-tape risk to the private firms. These TOD properties and ROW’s would be leased, at very favorable terms, to the private contractor or syndicate for 35 to 50 or more years. For existing properties, the private entity would be contractually obligated to return these properties to the governmental authority at the end of the lease in as good or better condition than when first received. For to-be-built properties, there would be a strict construction schedule, with severe penalties to the contractor for non-performance. Lastly, importantly, and perhaps most controversially, is the requirement to prime the pump with a steady, predictable cash inflow of, on average, $10 billion per year and an initial government-backed bond offering of $100 billion. The bond offering would be secured by the yearly cash flow, thereby providing the financial liquidity that would enable the governmental entities to purchase and prepare the acquired land for development.

Public Sector Funding Mechanism

So just where would that $10 billion a year infusion come from? The answer: a proposed High Speed Passenger Transportation (HSPT) fund. This transportation fund would address needs in both air travel as well as high-speed rail.

Air travel and HSR are linked together because these modes are both competitive and complementary, just as automobile travel and public transit are both competitive and complementary. The gist of this proposal would be to put a user fee of 6 percent on airline tickets, charter flights, air freight revenues, Amtrak tickets, and future HSR tickets to fund a High Speed Passenger Transportation (HSPT) fund. Proceeds would be in the vicinity of $10 billion annually.

The proposal would allocate 60 percent ($6 billion) to build high-speed rail, 20 percent ($2 billion) to the airline industry to deploy a state-of-the-art next-generation air traffic control (NextGen ATC) system, and 20 percent ($2 billion) to subsidize and improve the performance of existing intercity rail.

HSPT fund benefits

HSR Construction: HSR construction is the key component of this bill. Lack of assured, predictable funding is holding back deployment. Assuming the $6 billion annual revenue stream for HSR, allocate $3 billion for bond interest payments (the $3 billion will float $100 billion bond offering at 3 percent coupon rate), and remaining $3 billion for ongoing government actions that will minimize the risk to private developers.

With the initial $100 billion capital infusion and the annual $3 billion from the HSPT fund, the HSR program can be jump started. The government can take the following actions: buying rights of way (ROW) for the rail lines, purchasing land around HSR stations for transit-oriented development, starting and completing all zoning and permitting, negotiating mitigation settlements, and most importantly, completing all NEPA studies and reviews, and securing the required NEPA approvals.

Government can also make progress payments to the private sector for long lead time items. One example would be to incent manufacturers to invest in factories that develop and manufacture American-built train sets and other equipment for the HSR lines. Future HSR fare revenues will be used to pay off debt and fund more HSR lines.

NextGen ATC: The existing air traffic control system is 50 years old, obsolete and unable to handle current traffic in high volume markets such as greater New York City. Congestion in this market ripples in both directions, delaying flights from the west (Midwest, California) and the east (Europe).