Online Exclusive

High-Speed Rail Summit: How Do We Pay For National Projects

How to fund high-speed rail was one of the primary points that kept coming up at the USHSR High-Speed Rail Conference in Washington, D.C., February 11-13.

The session "Private Investment & Financing High-Speed Rai was led off by Association for Public Transportation President Richard Arena. He stressed this is the issue right now because if we don't figure out how to fund this grand railroad we're planning, everything we're doing is just academic.
One of the first things that has to be done is defining what is infrastructure. Arena mentioned that there is a state out there that's floating 10 and 20-year bonds to pay for things like pot hole maintenance and lawn mowing -- things that should be called maintenance. "We're misclassifying infrastruture; that's one reason we're having difficulty funding it."

In the "old days," Arena said you could get a surface transportation bill through Congress because there were earmarks for the congressman to bring some project to their state and that was used as leverage. Since the earmarks have been abolished, that can't be done anymore and what's replaced it is hurricane relief. In the Sandy rebuild bill, there were other maintenance items written in. "You can't lurch from disaster to disaster," Arena said. "If you're a supplier, you can't pray for a hurricane."

For the private sector to fund these large projects there's too much risk and too much less tape, unless there were some assurances that the system's going to work as planned. For public-private partnerships there is potential but more work has to be done on the government side so people get what they need, such as the land rights.

Value capture can be used as a funding mechanism in projects where there is no infrastructure yet in place. To kick-start the project the government can bring something of value to the table, such as dedicated tax revenues or land grants.

In the three stages of a project, there is first the proposal and design, second the construction and development and finally, the revenue cash flow and that's where you get the value out of it. Two examples Arena discussed were the Transbay Transit Center in San Francisco and the Hudson Yards Development in New York. While they look similar, the transit center was the reason for the development in San Francisco and in New York, it was the opposite: it too building the No. 7 line to make the rest of the development make sense.

Arena stressed, "Job 1 in 2013 for high-speed rail stakeholders is that we've got to get a funding source; that's what we have to do."

"Public-Private Partnerships in High-Speed Rail: An Untapped Opportunity?" was presented by Cornell University Associate Professor Richard Geddes. Compared to the international practice of bringing in private sector participation, Geddes said we're behind the curve.

He mentioned when talking to the highway people, the largest benefit is that there's an enforced maintenance schedule over time. The contracts typically include key performance indicators with clear rewards and penalties, and required renovations and expansions.

With the key performance indicators, it creates precise, focused incentives and allows for the latest technology to be included in contractural requirements. And developing this contract forces the public sector to carefully think about what they want and about the life-cycle performance.

Competition is considered one of the most powerful forces for good projects and P3s allow that to come into play. And while at every stage there's risk, unless you have private investor participation, those risks are shouldered by the taxpayers.