Q: AND A: with Joseph Vranich, President and Chief Executive Officer, High Speed Rail-Maglev Association
So near, but yet so far?
Each passing year seems to bring high-speed rail one step closer to becoming a reality in the United States. Last year, the federal government changed an important tax law, making it easier for states to pay for high-speed rail using tax-exempt bonds.
Several states in recent years have contemplated spending billions of dollars to build a line. A select few states, including Florida and Texas, came very close to breaking ground. But to date no state has actually taken the plunge.
Proponents say the time is right for superfast passenger trains in the United States, running on electricity and unclogging our highways and airports.
Others are more skeptical, saying the huge construction and debt service costs involved are not yet justified.
Joseph Vranich, president and chief executive officer of the High Speed Rail-Maglev Association, is one of the most knowledgeable and vocal proponents of high-speed rail.
Vranich wrote "Supertrains: Solutions to America's Transportation Gridlock," published in 1991 by St. Martin's Press.
He has worked on transportation issues in Washington, D.C., for the last two decades. His previous employers include Boeing, the Grumman Corp., and Amtrak. He also serves on the board of trustees of the International Institute for Surface Transportation Policy Studies.
Here Vranich discusses the present and future of highspeed rail with staff reporter Dean Patterson.
Q: What is high-speed rail?
A: I define it as train service capable of competing with aviation in shortto medium-distance corridors. I look at it in a marketing sense. There are people who say it uses a certain technology or has a certain minimum speed. I stay away from these definitions because different trains work in different situations.
Q: So the only high-speed rail operating now is in the Northeast corridor?
A: That's correct. Amtrak carries more people than any single airline between Washington and New York. Including Philadelphia and Baltimore, Amtrak carries more passengers than all airlines combined in the Northeast corridor.
Q: Where in the United States might we see the first high-speed rail line using advanced technology?
A: It could happen first in Pittsburgh. In May, an organization called Maglev Inc. released a study concluding there is tremendous demand for a high-speed rail line between the airport and the downtown area. The line could be used as a base for expansions to other mid-Atlantic cities, such as Cleveland, Philadelphia, and Washington.
Pittsburgh is saying, "Not only do we want to solve our mobility problem, but we also want to be the U.S. headquarters for this expertise and manufacturing in the future." Another factor is that USAir is an equity partner in Maglev Inc. It's quite possible that someday you'll see a highspeed train running in Pittsburgh with USAir written on the side. And I encourage that because I think it is important to integrate short-and medium-distance trains with aviation.
Pittsburgh is running neck and neck with a proposed line running from the Orlando International Airport to a new resort near Disney World. The organization behind this is called Maglev Transit Inc. The president recently said he is on the verge of releasing a new financial plan.
Also, Florida's department of transportation is still talking about building a high-speed rail line between Miami, Orlando, and Tampa. This proposal has been around for awhile. It was the first proposal that was to be funded by selling development rights. But when the real estate market in Florida fell apart, this project fell apart.
Q: The Florida line came very close to being built?
A: It came surprisingly close. Now, the new proposal in Florida realizes that there has to be state involvement. Therefore, the state is putting up $70 million a year for the next several years to help fund the advanced planning. That really isn't that much money -- $70 million buys you one highway interchange.
This touches on something that I think would interest your readers. What's been absent from most highspeed rail proposals is serious upfront money from either a state or the federal government. The planning process is expensive. We have overburdened high-speed rail organizations with the environmental review and everything else.
For example, in Texas the highspeed rail group had to pay 100% of the environmental review. The state keeps increasing the cost of it because it does not have to pay for it. The train builders get demoralized. They have to answer to their shareholders. It's a ridiculous situation. In Texas, public money is used for the environmental reviews for highways and airports.
Q: Is the Texas project dead?
A: It's not my job to say. Obviously, it's in trouble. The primary reason is that Southwest Airlines has spent several million dollars to kill the project. Tax-exempt bonds was one of the battlegrounds. The airline opposed the use of tax-exempt bonds for high-speed rail, calling it a subsidy. They said aviation is not subsidized. I'm sorry, but your readers know that billions of dollars are available through the tax-exempt bonding process for airports.
The Texas legislature passed a law prohibiting any state money from going into the Texas high-speed rail program. It was a major fight for equity. It's an uphill battle.
Q: The federal government last year lifted the 25% private-activity volume cap for government-owned, highspeed rail projects. What effect has that had?
A: The change in the law was truly significant.
Wall Street is not ready to buy high-speed rail bonds tomorrow. But a lot of studies are conducted on Wall Street about high-speed rail. And all of a sudden the nature of those studies has changed. They've gone from negative to positive. They used to say, "We don't know how these projects could be financed." Now they say, "They could be financed if such and such happens next."
That was a big first step. The marketplace isn't holding high-speed rail back. It's the institutional impediments. If laws treated high-speed rail the same as aviation, then we would already have high-speed rail lines in several short-distance corridors. They include: Miami to Orlando, Dallas to Houston, San Francisco to Los Angeles to San Diego, Philadelphia to Pittsburgh, and Chicago to Detroit.
Q: The volume cap was lifted only for government-owned projects. Does that doom future high-speed rail lines to be strictly owned and operated by state and local governments?
A: Not at all. A particular facility would technically be owned by a government. But there has got to be a government role anyway, just like with other transportation infrastructure, such as airports and highways. Without that there would be no high-speed rail. But there can be a lot of variation in how you put a system together. You have franchisees paying fees to operate various parts of a system. But it need not occur for all of a line.
This all gets back to the idea of public-private partnership. This partnership is not only possible; it's probable. Franchise holders can also be expected to build parts of a line and enjoy the advantages of tax-exempt financing. This is especially likely when the line is tied in with another government-owned facility, such as putting a high-speed rail terminal in an airport or building a rail line along a highway.
Q: What would you like to see the federal government do next in terms of changes to existing laws and regulations?
A: We're satisfied for the moment regarding bonds. We got what we wanted last year, which is equity with aviation. But we are taking a look at investment tax credits. But we know they aren't very popular these days. We know that aviation has asked for changes in such laws, and we're thinking about asking for something. Honestly though, I don't know what we'd ask for at this point except that we want parity with aviation.
What we really need to work on next is the next version of the Intermodal Surface Transportation Efficiency Act. The existing act did a number of wonderful things. But the problem is that planners are still required to pay for all the costly advanced planning, which can go as high as $100 million.
Q: Some on Wall Street say high-speed rail needs a large chunk of federal money to get it off the ground, like the interstate highway system. What are your thoughts on that?
A: I agree with that idea partially. The analogy is incorrect in that high-speed rail will never be as widespread as highways. However, the analogy is useful. No form of transportation since the Roman roads has progressed very far without government investment. It's the government's job to provide the infrastructure to move people around and for the good of commerce. For example, Wall Street in the 1930s was not interested in funding the Pennsylvania Turnpike until the federal government chipped in.
I like to point out that the Federal Bureau of Roads initially said the Pennsylvania Turnpike was a bad idea. They said only 715 cars per day would use the road. But when it opened, about 10,000 actually used the road. The same thing would happen with high-speed rail; we need one new fast line up and running to demonstrate.
Eventually, the federal government paid for 90% of the federal interstate highway system. We need some sort of partnership with the federal government as highways and aviation have enjoyed. Until we get that, it is going to be difficult for us.
Q: Is tax-exempt funding essential to the future of high-speed rail?
A: I do view it as essential. The days of big infrastructure spending in Washington are fading. I know there have been gains in funding for airports and highways. But considering the national debt and growth in entitlements, I don't know where we are going to get enough money to pay for everything.
In the coming years, I think privatization is going to rear its head in a big way. We already saw some of that in the Reagan years. But I expect it to be bigger the next time around. I doubt that the Denver Airport would have been built without tax-exempt bonds.
Q: Are there any high-speed rail lines that actually make a profit?
A: The answer is yes, yes, yes. One of the biggest myths in America is that no high-speed rail line in the world runs at a profit. Three out of five of the lines in Japan operate at a profit. The other two were built for social reasons -- to foster development in remote regions. Japan used high-speed rail as a development tool just as the United States used railroads a hundred years ago. Lines in France, Germany, and Spain also run at a profit.
Q: Anything else you'd like to talk about on the financial side?
A: For one, we're taking a longer-range perspective on the highway and aviation trust funds. For example, let's say we ran a high-speed rail line along a highway. And what if that line made a measurable contribution to unclogging traffic congestion and reducing air pollution. Isn't it logical to tap into the highway's trust fund to help pay to build the train line?
Shouldn't we think in terms of mobility and not mode? We think so. And we will have recommendations to make to Congress prior to the next revision of ISTEA in 1996.
Q: The Bond Buyer last year ran a story saying Wall Street wasn't very interested in high-speed rail.
A: I remember the story. There were comments made that were less than favorable about high-speed rail. But it didn't bother me. The fact that you, Fortune, BusinessWeek, and Forbes, among others, have run stories on high-speed rail says to me that Wall Street is now interested. The fact that everyone is not saying what I would like them to is inconsequential because everyone is entitled to their opinion.
It's my job to get the facts out, which can change people's opinions. Wall Street has every right to bring up serious questions about these projects. This is a new step for the U.S. in terms of transportation. Keep in mind that Wall Street already finances high-speed travel, such as when it sells bonds for an airport. Ironically, in certain areas high-speed trains can offer faster service than aviation. It's my job to improve the understanding of that.
I've seen progress lately in Wall Street's understanding of high-speed rail. I've seen reports from brokerage houses that are surprisingly upbeat, which we never would have seen 10 years ago.
