oversight

Surface Infrastructure: High-Speed Rail Projects in the United States

Published by the Government Accountability Office on 1999-01-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman, Committee on
                 the Budget, House of Representatives



January 1999
                 SURFACE
                 INFRASTRUCTURE
                 High-Speed Rail
                 Projects in the United
                 States




GAO/RCED-99-44
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-280830

                   January 14, 1999

                   The Honorable John R. Kasich
                   Chairman, Committee on the Budget
                   House of Representatives

                   Dear Mr. Chairman:

                   High-speed rail systems that travel 90 miles per hour or more are a
                   common mode of ground transportation throughout Europe and Japan.
                   The systems in operation have proven to be a relatively safe and effective
                   means of transportation. Most systems receive some operating or capital
                   subsidies from their governments. While high-speed rail is not in
                   widespread use in the United States, these systems may be an effective
                   alternative in corridors where travel is increasing and it is difficult to
                   expand highway and airport capacity. However, high-speed rail systems
                   are costly, and thus ridership levels may not be high enough in the United
                   States for systems to cover their costs.

                   Concerned about the role that federal financial assistance might play in
                   developing such systems, you asked us to review the status of high-speed
                   rail development in the United States. In particular, you asked us to focus
                   on project plans for the Florida corridor for which detailed studies on
                   building a new high-speed rail system between Miami, Orlando, and
                   Tampa have begun. Sponsors for the project, known as the Florida
                   Overland Express (FOX) project, will request significant federal capital
                   assistance in the near future. This report provides information on (1) the
                   estimated cost, financing, ridership, and schedule for the FOX rail project;
                   (2) the status of a new federal transportation infrastructure financing
                   program and how federal funding decisions for the FOX project might
                   affect the new program; and (3) the status of other planned high-speed rail
                   corridors in the United States. To respond to these objectives, we
                   reviewed cost, finance, ridership, and schedule documents on the FOX
                   project; interviewed federal officials on the new infrastructure financing
                   program; and interviewed state officials responsible for 11 other potential
                   high-speed rail corridors in the United States.


                   Because the Florida project is in the early phases of development, it faces
Results in Brief   uncertainties. Overall, it will be at least 2 more years before sufficient
                   information is available to comprehensively assess the project’s cost,
                   financing, ridership, and schedule. First, the project’s current estimated




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cost ranges from $6 billion to $8 billion. However, the accuracy of the
estimate is uncertain because the project is only at a 5-percent level of
engineering design. Second, the finance plan, which relies heavily on debt,
is incomplete, and the project’s sponsors have secured only 5 percent of
the estimated needed funding for the project. Third, the ridership forecast
for the project relies on optimistic assumptions and could be overstated by
30 percent or more. Adjusting the forecast to reflect more conservative
assumptions would reduce expected future system revenues and increase
risks to the project’s financial viability. Finally, the project’s ambitious
schedule calls for the train to begin operating over a 320-mile route in
2005, but several factors will make it difficult to meet this schedule. For
example, the sponsors assume they can complete a very complex
environmental review in 2.6 years—a process that we have reported takes
on average over 5 years to complete.

To help pay for the Florida project’s capital costs, the project’s sponsors
will seek a $2 billion federal loan under the Department of
Transportation’s new Transportation Infrastructure Finance and
Innovation Act program. The Department anticipates issuing regulations
and guidance for this program in April 1999 and has not yet funded any
projects under the program. The program was created to help large
infrastructure projects—those costing at least $100 million or 50 percent
of a state’s federal-aid highway apportionment for the preceding fiscal
year—access capital by providing credit assistance through secured loans,
lines of credit, or loan guarantees. Recipients of the program’s funds must
repay the assistance, in whole or in part, from a dedicated revenue stream
such as tolls. Under the Federal Credit Reform Act of 1990, the
Department must consider a project’s risk of default and estimate the cost
to the federal government of the credit provided for each project funded
through the program. The Transportation Infrastructure Finance and
Innovation Act provided a total of $530 million for fiscal years 1999
through 2003 to cover the costs of providing all selected projects with
credit. In order to cover the cost associated with a $2 billion loan to the
Florida project, the Department may need to obligate over one-half of the
program’s $530 million. Providing the Florida project with a $2 billion
federal loan would constrain the Department’s ability to fund other
projects that are potential candidates for credit assistance.

At least 11 other corridors in the United States are in various stages of
developing high-speed rail projects. Unlike the Florida project, most of the
other corridors have not determined their funding sources. Most of the
corridors are in the early stages of project planning, but officials in



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             Amtrak’s Northeast corridor—between Washington, D.C., and
             Boston—have been upgrading their system for several years, and officials
             in the Pacific Northwest corridor—between Vancouver, British Columbia,
             and Eugene, Oregon—have bought high-speed trains and plan to upgrade
             their track. Ten of the 11 corridors have proposed upgrading track, signal
             systems, and train equipment on existing rail rights-of-way, thereby
             obtaining incremental increases in train speeds. These 10 projects have
             preliminary cost estimates ranging from $315 million to $4 billion. In
             contrast, officials in the California corridor have proposed a new
             dedicated rail line employing either very-high-speed or magnetic levitation
             technology. California’s preliminary proposal could cost as much as
             $29 billion.


             High-speed ground transportation, which includes rail or magnetic
Background   levitation (maglev) systems capable of speeds of 90 miles per hour (mph)
             or more, could be developed in a number of ways. System developers can
             (1) make incremental improvements to existing tracks, signaling systems,
             and grade crossings and purchase modern trains that could permit speeds
             between 90 and 150 mph on existing rights-of-way; (2) build completely
             new rail infrastructures to support very-high-speed operations of 200 mph
             or more; or (3) build maglev systems that could permit speeds around 300
             mph. Typically, the cost to implement these options grows as the
             sophistication of the technology and speed increase.

             Since 1975, most federal funding for high-speed rail development in the
             United States has been focused on making infrastructure improvements to
             Amtrak’s Northeast corridor. However, high-speed rail corridors across
             the United States may have access to federal funds through the
             High-Speed Rail program, the Magnetic Levitation Transportation
             Technology Deployment program, the Railroad Rehabilitation and
             Improvement Financing program, and the finance provisions under the
             Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA)
             program. The TIFIA program is designed to help large infrastructure
             projects—those costing at least $100 million or 50 percent of a state’s
             federal-aid highway apportionment for the preceding fiscal year—access
             capital by using federal funds to leverage substantial private investment.1
             TIFIA authorizes the Secretary of Transportation to make secured loans,
             loan guarantees, and lines of credit available to eligible projects that will
             repay the assistance, in whole or in part, from dedicated revenue streams,

             1
              The act establishes a lower threshold—$30 million—for projects that principally involve the
             installation of intelligent transportation systems—computer and telecommunications technologies
             designed to enhance the safety and efficiency of surface transportation.



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such as tolls or passenger fares. TIFIA requires the Secretary of
Transportation to establish criteria for selecting projects and includes
general selection criteria such as whether a project is creditworthy and
nationally or regionally significant and whether the use of federal funds
would expedite implementing the project.

The three credit instruments under TIFIA—secured loans, loan guarantees,
and lines of credit—can be used to fund up to one-third of the costs of a
project. A secured loan would typically provide the project’s sponsors with
an infusion of capital needed to help pay for construction costs. The loan
would have to be payable, in whole or in part, from some form of
dedicated revenue and would typically be subordinate to other project
debt. In general, TIFIA loans are contingent on the receipt of an
investment-grade rating for a project’s senior debt.2 This measure helps
ensure that the project is creditworthy. The second type of instrument,
loan guarantees, involves a pledge by the Secretary to pay all or part of the
principal of and interest on a loan or other debt obligation of the project. A
loan guarantee would help a project obtain capital by providing added
security to the debt. Finally, a line of credit is an agreement made by the
Secretary to provide a project with a secured loan, if needed, during a
project’s initial 10-year operating period.

One project that plans to use very-high-speed French train a grande vitesse
(TGV) technology and obtain TIFIA funding is FOX.3 The FOX system would
link Miami, Orlando, and Tampa, cover 320 miles, and have seven stops
along the route. Proponents of the system believe high-speed rail is needed
to alleviate the future highway and airport congestion that will be caused
by the anticipated growth in Florida’s population and tourism. Trains
could reach speeds of up to 200 mph, and the system would have no
ground-level pedestrian or vehicle crossings. To help design, construct,
and operate the system, the Florida Department of Transportation (FDOT)
entered into a system franchise agreement in 1996 with the FOX
consortium. The FOX members include Fluor Daniel, a U.S.-based
engineering and construction firm; Alstom, the manufacturer of French
TGV trains; and Bombardier, a manufacturer of rail passenger cars. The
franchise agreement between FDOT and FOX (collectively referred to as the
project’s sponsors) calls for a public-private partnership to plan, design,
build, operate, and finance the system.

2
 Under TIFIA, the Secretary may provide limited funding before a project receives an investment-grade
rating for its senior debt obligations.
3
 The TGV is an electric train operating in France. In commercial service, it runs at a maximum speed of
186 mph.



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                             The FOX project is in the early phases of development and faces several
The FOX Project Faces        uncertainties regarding its cost, financing, ridership, and schedule. The
Several Challenges           project’s sponsors are developing the detailed information needed to
                             assess whether the high-speed rail project is viable. It will be at least 2
                             more years before sufficient information is available to comprehensively
                             assess the project.


Preliminary Cost Estimates   FOX’s engineer responsible for developing the cost estimate stated that the
Range From $6 Billion to     capital cost to construct the project may range from $6 billion to $8 billion
$8 Billion                   (in 1997 dollars). This range reflects up to 54 potential route options for
                             the new track under study in the environmental review process. Both FDOT
                             and FOX officials stated that the estimates are preliminary because they are
                             based on only a 5-percent level of design. These officials noted that by the
                             end of 2000, the project will be at a 35-percent level of design, and
                             therefore the cost estimate available at that time will be more precise.

                             The project’s sponsors were unable to provide us with a detailed line-item
                             breakout of the project’s high and low cost estimates, nor were they able
                             to provide detailed documentation explaining the $2 billion difference
                             between the estimates. However, according to FOX’s engineer, the
                             $2 billion range reflects whether track for the various alignments must be
                             elevated to cross roads and rivers and the degree to which the alignments
                             can use existing rights-of-way. In general, the $8 billion estimate assumes
                             an alignment from Miami to Orlando that traverses urban areas on the east
                             coast, using a significant amount of elevated track to avoid over 100 grade
                             crossings and cross several rivers. In contrast, the $6 billion estimate
                             assumes a more westerly alignment that requires less elevated track and
                             uses more state-owned rights-of-way along interstate highway corridors.

                             To develop more precise estimates over the next 2 years, FOX engineers
                             will take field measurements to either validate or adjust the earlier
                             conceptual estimates, according to FOX’s engineer. Engineers will perform
                             such tasks as taking instrument surveys to get actual measurements of
                             potential alignments, calculate the alignments’ grades and curvatures,
                             determine soil conditions, and determine the exact nature of any bridge
                             clearance problems. When completed by the end of 2000, this detailed
                             engineering work will provide FOX with a 35-percent level of design—a
                             level that will give FOX sufficient information to agree with FDOT on a
                             fixed-price construction contract for building the system.




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                             To help ensure the accuracy of the FOX estimates, FDOT officials have hired
                             an independent engineering consultant to review the estimates. The initial
                             review is focusing on the methods that FOX used to develop the current
                             cost estimates. The review will report on whether FOX used
                             industry-accepted estimation techniques and whether the estimates cover
                             all capital cost components. It will also include spot audits of FOX’s
                             estimates for quantities and unit prices. FDOT officials said that they would
                             continue to use independent engineering reviews throughout the cost
                             estimation process.


The Project’s Financing Is   In developing their finance plan, the project’s sponsors have assumed that
Incomplete                   the FOX system will cost $6.3 billion (in 1997 dollars) to build. The project’s
                             sponsors are seeking federal, state, and private funds to finance these
                             capital costs. As of December 1998, they had secured only $436 million in
                             financing and faced significant challenges in securing the remaining funds
                             needed to build the project.

                             As figure 1 shows, the project’s sponsors expect to use state infrastructure
                             bonds and system infrastructure bonds—bonds backed by the state and
                             future system revenues, respectively—and a $2 billion federal loan to pay
                             for about 81 percent of the project’s financing needs. State cash
                             contributions prior to issuing the bonds, contributions from the FOX
                             consortium, private debt financing for the train equipment, and other
                             income sources make up the rest of the project’s financing.




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Figure 1: Sources of Funds for the
FOX Project
                                                                                      3%
                                                                                      State-contributed equity ($256
                                                                                      million)

                                                                                      4%
                                                                                      FOX consortium-contributed equity
                                                                                      ($349 million)

                                                                                      6%
                                                                                      Train equipment financing ($569
                                                                                      million)

                                                                                      6%
                                                                                      Interest earnings and balances
                                                                                      ($588 million)


                                                        •
                                                    •
                                                                23% •                 State infrastructure bonds ($2.146
                                                    •                                 billion)
                                                •


                                           22%
                                             •


                                                                36% •                 System infrastructure bonds
                                                                                      ($3.346 billion)



                                                                                      Federal loan ($2.0 billion)



                                     Source: GAO’s presentation of data from FDOT.




                                     The project’s sponsors would rely on four sources of debt financing to
                                     raise most of the needed funding. One source of debt financing would be
                                     state infrastructure bonds. These bonds would be tax-exempt and backed
                                     by a dedicated state committment of $70 million per year for 40 years,
                                     adjusted for inflation at 4 percent per year, beginning in 2001. The
                                     project’s sponsors anticipate that the bonds will have a 30- to 35-year
                                     maturity, with an interest rate of 6.67 percent. A second source of debt



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financing would be system infrastructure bonds. These bonds would be
tax-exempt and secured by a senior lien on net system revenues. A senior
lien means that bondholders would have the first claim on available
revenues after the payment of annual operating costs, principal, and
interest payments on train equipment debt and a portion of FOX’s return on
equity.4 The project’s sponsors anticipate that the bonds will have a 30- to
35-year maturity, with an interest rate of 6.67 percent. A third source of
debt financing would be private-sector financing for most of the train
equipment. Sponsors are considering using either a lease or private bonds.
The train equipment would secure the debt, and repayment of the debt
would have the first claim on system revenues available after the project
pays its annual operating costs. Finally, the fourth source of debt financing
would be a $2 billion federal loan secured by a junior lien on the net
system revenues. A junior lien means that the federal government would
have the last claim on revenues and would be repaid after the project pays
the annual operating costs, train equipment debt service, a portion of FOX’s
return on equity, and system infrastructure bondholders.5

The remaining funds will come from equity contributions made by the
state and FOX, project balances, and interest earned on those balances.
State equity consists of state contributions made before the state
infrastructure bonds are issued. The FOX equity contributions include
$58 million to pay for project development and $291 million to pay for
some of the trains. The project’s funding balances and interest earnings
amount to $588 million.

In total, the sponsors must secure nearly $9.3 billion to finance the $6.3
billion in initial capital costs. According to the project’s sponsors, the
financing needs exceed the estimated capital costs by about $3 billion
because the project must account for inflation, pay interest on state and
system infrastructure bonds during the construction period, establish
reserve funds required by bondholders, and cover the costs of issuing the
bonds. As of December 1998, the project’s sponsors had secured
commitments for about $436 million—$349 million from the FOX
consortium and about $87 million from the state of Florida. Over the next
2 years, the project’s sponsors will have to secure the remaining
funding—about $8.8 billion. Should the cost estimates increase as the
sponsors complete more detailed engineering, FDOT’s financial manager for

4
 A November 1996 agreement between FDOT and FOX stipulates that FOX receive, on average, a
proposed 15-percent yearly after-tax return on its $349 million equity investment. The agreement also
provides that a partial return on equity of $28.5 million each year be paid to FOX before the project
makes any payments to system infrastructure bondholders.
5
 Under TIFIA, a secured federal loan would not be subordinate to claims from other project
obligations in the event of bankruptcy.


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                                  the project stated that the sponsors would likely issue more bonds or
                                  work with bond issuers to lower reserve funding requirements.


The Project Must Meet             The project’s sponsors face several challenges in obtaining the nearly $8.8
Several Financing                 billion in estimated additional funding needed for the project. The major
Challenges                        challenges include issuing two sets of bonds on favorable terms and
                                  obtaining the federal loan. To issue about $5.4 billion in state and system
                                  infrastructure bonds, sponsors must convince the bond market that the
                                  project will have sufficient state and operating revenues to repay the
                                  bonds. To do this, sponsors must demonstrate that the state legislature
                                  will support a $70 million yearly funding commitment for 40 years and that
                                  the ridership estimates and revenue projections are valid. To obtain the
                                  $2 billion federal loan, the sponsors must also show that the project meets
                                  the criteria for assistance under TIFIA and deserves funding.

Challenges in Issuing State and   The project’s sponsors must convince the bond market that the state and
System Infrastructure Bonds       system infrastructure bonds are a good investment. Potential investors will
                                  be more likely to buy the bonds if the bonds provide competitive returns
                                  on investment and if the project has a reliable source of revenue to pay
                                  back the principal and interest. According to FDOT officials, the state will
                                  provide $70 million each year for the next 40 years to secure the
                                  $2.1 billion in state infrastructure bonds. In addition, future operating
                                  revenues will secure the $3.3 billion in system infrastructure bonds.

                                  FDOT’s lead attorney for the project stated that in early 2000, FDOT will seek
                                  the state legislature’s commitment to provide the $70 million in annual
                                  funding. The state’s commitment is uncertain, however, because several
                                  members of the legislature have raised concerns about the project and the
                                  state’s new governor has indicated skepticism about the project. In
                                  addition, should the legislature approve the 40-year funding commitment,
                                  FDOT must still obtain an annual appropriation. FDOT’s lead attorney for the
                                  project stated that the legislature has appropriated funds for other
                                  transportation projects that were previously authorized and that he viewed
                                  the risk of not obtaining the appropriation as minimal.

                                  In contrast to the state infrastructure bonds, the system infrastructure
                                  bonds will not be backed by a known amount of revenue. Instead, these
                                  bonds will be backed by operating revenues, which can fluctuate each
                                  year depending on the success of the system. On the basis of a 1998 FOX
                                  ridership study, the project’s sponsors forecast that system revenues will
                                  be sufficient to repay the principal and interest on $3.3 billion in system



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                            infrastructure bonds. The sponsors are confident that bond-rating agencies
                            will accept the revenue estimates and are planning to provide them with
                            the cost, ridership, and revenue information needed to assess the bonds’
                            creditworthiness and to thereafter issue a bond rating. FDOT’s financial
                            manager for the project does not anticipate issuing state or system
                            infrastructure bonds until cost estimates are more precise and the amount
                            of bonds needed is better known. The current plan is for the project’s
                            sponsors to receive a preliminary opinion from rating agencies in 1999 and
                            obtain a final rating and issue the bonds in 2001.

                            Our discussions with officials from three bond-rating agencies—Moody’s
                            Investors Service, Standard and Poor’s, and Fitch IBCA—revealed that
                            these agencies have little detailed information about the FOX project. Of
                            the three, Fitch’s officials had the most knowledge of the project. Fitch
                            officials told us that, in general, bond-rating agencies have little or no
                            experience reviewing high-speed rail projects, but when asked to rate the
                            project’s proposed bonds, they will focus on the reliability of the ridership
                            estimates and other important factors in assessing the project’s revenue
                            projections. On the basis of preliminary observations, one Fitch official
                            stated that some of the assumptions used in the ridership study were
                            optimistic and that the overall ridership estimate could be high. However,
                            Fitch officials said it was too early to make any definitive statement about
                            potential bond ratings for the project.

                            In addition to the ridership estimates, another factor that may affect the
                            rating for the system infrastructure bonds is the order in which the project
                            will pay its obligations. According to the November 1996 agreement
                            between FOX and FDOT, the project must first cover its operating costs,
                            principal and interest payments for the debt-financed train equipment and
                            pay the FOX consortium a partial return on its investment before it pays
                            back system infrastructure bond investors. This agreement subordinates
                            the system infrastructure bondholders’ claims on revenues and thereby
                            makes the bonds less secure. FDOT’s financial manager for the project
                            stated that this agreement may make the system infrastructure bonds
                            riskier to potential investors and therefore more difficult to sell. Our
                            discussions with Fitch officials also revealed that potential bondholders
                            would consider the structure of the FDOT and FOX agreement as something
                            that adds risks to the bonds.

Challenges in Obtaining a   The project’s sponsors intend to seek a $2 billion federal loan from the
Federal Loan                U.S. Department of Transportation under the new TIFIA program. The
                            sponsors cited language in the Transportation Equity Act for the 21st



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                       Century (TEA-21) conference report as evidence of federal support for the
                       project. The conference report noted the national significance of the FOX
                       project and suggested that the Department favorably review the project’s
                       request for TIFIA funds as long as it meets the program’s criteria. The
                       project’s sponsors intend to apply for a TIFIA loan as soon as the
                       Department begins soliciting project applications. The sponsors anticipate
                       a favorable preliminary decision by the Department by fall 1999. However,
                       unanswered questions regarding the TIFIA program, the bond market’s
                       views of the project, and the impact of a single $2 billion loan on the TIFIA
                       program could have an impact on the timing and outcome of the
                       Department’s funding decisions.

                       As of January 1999, the Department was developing regulations to
                       implement the TIFIA program, including the criteria it will use to select
                       projects. The regulations and selection criteria will affect the FOX project.
                       For example, during a September 1998 outreach session on the TIFIA
                       program, an official from the Department said that TIFIA funds may not be
                       forthcoming for projects that have not completed the environmental
                       review process. If this criterion is part of the Department’s TIFIA
                       regulations, the FOX project would be unable to receive a commitment for
                       TIFIA capital assistance until it completes its environmental review,
                       projected for the end of 2000. In addition, TIFIA requires that a project’s
                       sponsors provide a preliminary rating letter from at least one bond-rating
                       agency indicating that the project’s senior obligations have the potential to
                       achieve an investment-grade rating. An investment-grade rating indicates a
                       relatively low probability of default. Until the project develops firmer cost
                       and financing estimates for bond-rating agencies to review, a preliminary
                       rating for the FOX project may not be forthcoming. Furthermore, TIFIA
                       requires that, when selecting projects, the Department consider the
                       amount it must obligate to fund the credit assistance. As discussed later in
                       this report, providing the FOX project with the full $2 billion loan would
                       require the Department to obligate a significant amount of the program’s
                       available funding and would limit the funds that the Department has
                       available to fund other projects through TIFIA.


Lower Ridership May    The FOX project’s sponsors forecast that the system will carry 8.26 million
Affect the Project’s   passengers in 2010. From our analyses of the ridership study data, an
Financing              independent review of the ridership forecast, and other data we found that
                       the ridership forecast for the project may be overstated by 30 percent or
                       more because it relies on optimistic assumptions. Using more conservative
                       assumptions could reduce the ridership forecast to 5.59 million passengers



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                                      or fewer in 2010. Because lower ridership would reduce the amount of fare
                                      revenues that the system is expected to generate, revising the forecast
                                      could affect the debt rating needed to obtain private capital and the
                                      federal loan.

Project’s Sponsors Forecast           Official forecasts prepared for the proposed FOX system have estimated
8.26 Million Passengers in 2010       that the project’s ridership could range from 8.01 million to 8.50 million; a
                                      consensus average is 8.26 million passengers in 2010.6 Table 1 shows the
                                      estimated number of annual FOX high-speed rail riders in 2010, categorized
                                      by the sources of the riders.

Table 1: Annual Ridership Forecasts
for the FOX Project, 2010             Sources of                 KPMG Peat
                                      FOX                         Marwick’s             SYSTRA’s              Consensus average
                                      passengers                   estimate              estimate              Number           Percentage
                                      Diverted from
                                      automobiles                   4,509,000            3,996,000            4,253,000                    52
                                      Transfer through
                                      code-share
                                      agreement with
                                      airlinesa                     1,476,000            1,477,000            1,477,000                    18
                                      Induced                         865,000            1,787,000            1,326,000                    16
                                      Diverted from
                                      intrastate flights            1,158,000            1,244,000            1,201,000                    15
                                      Total annual
                                      riders                        8,008,000            8,504,000            8,256,000
                                      Note: Totals may not be precise because of rounding.
                                      a
                                       A code share, or code sharing, is an agreement between passenger carriers whereby one
                                      carrier (in this case, the airline) purchases seats on selected routes on another carrier (FOX, in
                                      this case) and markets these FOX seats as it would market an airline flight. Under such an
                                      agreement, the airline ticket would cover air transportation, a seat on FOX, and necessary
                                      baggage handling.

                                      Source: GAO’s presentation of data from FOX, KPMG Peat Marwick, and SYSTRA.



                                      As table 1 shows, the project’s sponsors expect that over 50 percent of the
                                      high-speed rail riders will be people who would otherwise use automobiles
                                      to travel along the Tampa-Orlando-Miami corridor. The next largest source
                                      of riders is from the air transfer market, that is, those travelers who fly for
                                      one portion of their trip, but through a code-share agreement between FOX


                                      6
                                       The project’s sponsors hired two firms to produce independent ridership forecasts for the project.
                                      These firms were KPMG Peat Marwick and SYSTRA, a French transportation consulting firm. Both of
                                      these companies have extensive experience in producing high-speed rail ridership forecasts. Each firm
                                      produced a forecast; officials then averaged the two estimates to arrive at an official agreed-upon
                                      ridership forecast.



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                                     and an airline, are expected to transfer to or from FOX to reach their
                                     destination. The project’s sponsors also forecast that the new high-speed
                                     rail service will induce 1.3 million new trips in the corridor that otherwise
                                     would not have been taken if high-speed rail were not available. The
                                     remaining 1.2 million riders would be diverted from the local air
                                     market—those air trips that have their origins and destinations within the
                                     high-speed rail corridor.

Alternative Assumptions Could        Experts in travel demand forecasting acknowledge that forecasting
Produce a Significantly Lower        ridership for high-speed rail is difficult and that the results depend upon
Ridership Forecast                   future assumptions that may or may not become reality. The ridership
                                     forecast is extremely important because it provides the basis for
                                     determining the expected revenues of a system and whether a system can
                                     be financially viable. On the basis of our review of an independent report
                                     on the ridership forecasts, actual average airfare data from the
                                     Department, the Federal Railroad Administration’s (FRA) estimates of
                                     induced travel—new travel made solely because a transportation system
                                     exists—and our interviews of airline industry officials, we concluded that
                                     the FOX ridership forecast is too high because some of the assumptions
                                     used to prepare the ridership studies were optimistic. Using alternative
                                     scenarios based on less optimistic assumptions could produce a ridership
                                     estimate of 5.59 million or lower in 2010. Table 2 summarizes the results of
                                     our analysis of how less optimistic assumptions about the air transfer
                                     market, lower airfares, and induced or new travel could reduce total
                                     ridership estimates for the FOX system.

Table 2: Effect of Less Optimistic
Assumptions on Ridership             Thousands of passengers in 2010
                                                                      Reduction from
                                                                         KPMG Peat          Reduction from            Average
                                     Calculation of less                  Marwick’s             SYSTRA’s        reduction from
                                     optimistic forecast                   Forecast               forecast           forecasts
                                     Original KPMG Peat
                                     Marwick and SYSTRA
                                     forecasts                                    8,008              8,504                 8,256
                                     Assume no transfers
                                     through airline agreements                  –1,476             –1,477                –1,477
                                     Assume lower airfares                          –60               –761                 –410
                                     Assume lower rate of
                                     induced travel                                –298             –1,263                 –781
                                     Revised forecast                             6,174              5,003                 5,589
                                     Note: Totals may not be precise because of rounding.

                                     Source: GAO’s analysis, based on data from FOX, KPMG Peat Marwick, SYSTRA, and the
                                     Department.




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First, the ridership forecasts for the FOX project assume that nearly
1.5 million passengers will be supplied to the FOX system by airlines
operating in Florida markets. The assumption is that some airlines with
hubs in Miami and Orlando will establish code-share agreements with FOX,
thereby transferring short-haul intrastate air passengers to FOX so the
airlines can maximize revenues on long-haul flights. For example, the
ridership forecasts assume that through a code-share agreement,
passengers flying to Miami or Orlando could transfer to the FOX system to
reach another Florida destination in the high-speed rail corridor. An
independent review of the ridership forecasts completed by Wilbur Smith
Associates found that this assumption was unverified, and questioned the
entire forecast of passengers transferring through airline agreements.7 In
addition, officials from American Airlines, Delta Airlines, the Air Transport
Association, and the Miami International Airport told us that airlines
would not be interested in establishing a code-share agreement with a
competitor such as high-speed rail. Accordingly, they contended that the
forecast for passenger transfers through code-share agreements was
unsupported. Without passengers from the air connect market, the FOX
ridership forecast is reduced by about 1.47 million passengers. (See table
2.)

Second, the FOX ridership forecasts assume that some air passengers will
choose FOX instead of air travel in local air markets. To divert these
passengers, FOX’s fares must be comparable with airfares. However,
average 1997 airfares actually charged were generally lower than the fares
assumed by the FOX ridership forecasts.8 This assumption could lead to an
overestimate of the number of travelers who would use FOX instead of
flying. The actual airfares charged by airlines in 1997 were, in some cases,
21 percent less than the airfares assumed in the ridership forecasts. For
example, in the Fort Lauderdale-to-Orlando market, the ridership forecasts
assumed an average one-way airfare of between $62 and $66, while the
actual average airfare according to the Department’s data, was $52. In
addition, FOX’s forecast assumed that airfares would remain constant in
real terms from 1997 through 2010. However, officials from one major
airline stated that they would likely reduce fares in response to the
introduction of high-speed rail service. Furthermore, the Department has
found that over the past few years, established airlines have responded to


7
 Wilbur Smith Associates is a transportation consulting firm that has conducted numerous high-speed
rail forecasts both in the United States and abroad. Wilbur Smith Associates was hired by the Florida
Transportation Commission, an organization that oversees FDOT, to review the ridership forecasts.
Wilbur Smith Associates issued its report in August 1998.
8
 The ridership forecasts used 1997 airfare data to help make the 2010 ridership estimate.



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the entry of a new competitor by selling large numbers of seats at low
fares.

In preparing their ridership estimates, both KPMG Peat Marwick and
SYSTRA developed alternative scenarios that were based on lower
airfares. KPMG Peat Marwick found that a 20-percent decrease in assumed
airfares would reduce total high-speed rail ridership by 60,000 passengers,
while SYSTRA found a 20-percent reduction in airfares would lead to
761,000 fewer high-speed rail passengers. We used these numbers to
reflect the effect of more conservative assumptions on ridership. (See
table 2.)

Third, the forecasts of passengers using the FOX system because of induced
or new demand may also be optimistic. KPMG Peat Marwick’s and
SYSTRA’s estimates for induced demand represent 11 and 21 percent of
total forecast ridership on the FOX system, respectively. The consensus
estimate—an average of the two forecasts—projects that 16 percent of the
total riders will be induced travelers. However, Wilbur Smith Associates
expressed concern about the amount of induced travel that the FOX system
will actually produce. In addition, a 1997 FRA report noted that estimates of
new demand are controversial because little historical information exists;
defining and quantifying such demand is methodologically difficult.9 The
FRA study assumed that the new or induced demand generated by
high-speed rail service would equal 10 percent of the traffic diverted from
local air and automobile travel. Using FRA’s assumption for induced traffic,
KPMG Peat Marwick’s estimate would be reduced by 298,000 passengers,
while SYSTRA’s estimate would be reduced by 1.26 million passengers.
(See table 2.)

Finally, the consensus ridership forecast also predicts that over 4.2 million
passengers—52 percent of the total FOX ridership—will use the FOX system
instead of automobiles. In its independent review report, Wilbur Smith
Associates stated that the ability of a new high-speed rail system to cause
travelers to choose it rather than to travel by automobile has not yet been
proven in the United States. The report stated that while the level of
diversion forecast by FOX could occur, lesser rates of diversion from
private automobiles are also possible, which would result in lower
ridership. Although we did not attempt to quantify the impact of a more
conservative assumption regarding diversion from automobiles on the
overall ridership forecast, reductions in this rate of diversion could reduce

9
  High Speed Ground Transportation for America, U.S. Department of Transportation, Federal Railroad
Administration (Sept. 1997).



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                                    ridership below the 5.59-million-passenger forecast resulting from the
                                    analyses shown in table 2.

The Uncertainty in Ridership        Lower ridership would reduce the fare revenues the FOX system generates.
Estimates Increases Risks to        Lower fare revenues, in turn, would affect the project’s ability to repay its
the Project’s Financial Viability   infrastructure bonds and the federal loan. On the basis of their current
                                    ridership estimate of 8.26 million passengers in 2010, the project’s
                                    sponsors predict that fare revenues will be sufficient to pay all operating
                                    costs and to repay bondholders and the federal government. However, if a
                                    lower ridership estimate, such as 5.59 million, is used, it is not clear
                                    whether the project can meet all of its obligations, given the lower fare
                                    revenues that would result. On the basis of the 8.26-million-passenger
                                    estimate, sponsors anticipate that revenues will be 1.5 times the principal
                                    and interest requirements for the system infrastructure bonds and 1.3 to
                                    1.4 times the principal and interest requirements for the federal loan.

                                    The FOX project’s sponsors are in the process of analyzing financial
                                    scenarios and preparing updated cash flow statements. If the updated cash
                                    flow statements indicate that debt service payments are potentially in
                                    jeopardy, the bond-rating agencies have indicated that they will be less
                                    inclined to provide the project’s senior debt obligations with the
                                    investment-grade debt rating that is necessary for participation in the TIFIA
                                    program. In addition, a lower rating for project debt would increase future
                                    interest costs for the project.


The Project’s Schedule Is           The FOX project is currently in the preliminary engineering stage of
Ambitious                           development; therefore, many tasks must be completed before
                                    construction can begin in 2001. Staying on schedule will require
                                    completing an extensive environmental review process,10 securing needed
                                    financing, passing several pieces of state legislation, and finalizing federal
                                    high-speed rail safety standards in a timely manner. The project’s sponsors
                                    do not have direct control over these matters, and staying on schedule will
                                    be challenging.

                                    An August 1996 agreement between FDOT and the FOX consortium sets out
                                    three phases for developing the FOX system prior to construction—the
                                    preliminary phase, the certification phase, and the final design phase.11

                                    10
                                     We use the phrase “environmental review process” to collectively refer to review processes required
                                    by the National Environmental Policy Act and the Clean Water Act (concerning wetlands permits).
                                    11
                                      During the certification phase, the project’s sponsors must ensure that the project completes various
                                    requirements, including federal, state, and local environmental requirements.



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The preliminary phase runs through January 31, 1999. During this phase,
the project’s sponsors will refine the project’s concept, identify proposed
alignments, refine capital cost estimates, and develop finance plans. Prior
to January 31, 1999, FDOT and FOX must jointly assess the prospects for
successful system development and decide whether they should continue
the project and enter the certification phase. If they decide to terminate
the project, a November 1996 agreement requires FDOT to reimburse FOX
for eligible costs incurred through the preliminary phase, or about
$5.59 million. If the sponsors choose to proceed beyond the preliminary
phase and complete remaining tasks on schedule, construction could
begin in 2001. According to the current schedule, the construction of the
Miami-to-Orlando segment would take about 4 years, and revenue
operations on that segment would begin in 2005. Revenue operations on
the Orlando-to-Tampa segment would begin in 2006.

The project’s sponsors face many challenges in keeping the project on
schedule. The environmental review could pose a significant challenge to
the FOX project’s schedule. According to the Federal Highway
Administration’s (FHWA) Florida Assistant Division Administrator, whose
office has overall responsibility for this federal environmental review
process, the environmental impact statement for this project will be
among the largest in scope and the most complex the office has
undertaken. The 320-mile FOX system could have an impact on wetlands,
encroach on the habitats of threatened and endangered species, cause
noise pollution, and adversely affect the region’s water quality. The
project’s sponsors must study these and other impacts and, where
necessary, develop plans to mitigate them. For example, if the project has
a significant impact on wetlands, the project’s sponsors will have to create
new or improve existing wetlands. Depending on the proposed alignment,
preliminary estimates by FOX show that mitigation plans may be needed for
over 700 acres of wetlands affected by the project’s construction.
Construction cannot proceed until sponsors obtain a wetlands permit from
the U.S. Army Corps of Engineers. To resolve these issues, FDOT must
coordinate efforts among at least 15 state and federal agencies. Both FHWA
and FDOT officials stated that the project is on schedule, and they are
confident that they will complete the entire environmental review process
in 2.6 years—by January 2001. Our previous work has found that the
average time for completing complex FHWA-led environmental reviews for
projects affecting wetlands was over 5 years.12

12
 Highway Planning: Agencies Are Attempting to Expedite Environmental Reviews, but Barriers
Remain (GAO/RCED-94-211, Aug. 2, 1994). In the report, the length of the environmental review
process was measured from the date that FHWA issued a notice of intent to prepare an environmental
impact statement until the Corps of Engineers issued a wetlands permit.



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The availability of TIFIA funding could also affect the FOX project’s
schedule. FDOT officials have stated that they cannot build the project, as
currently proposed, without the federal loan. The project’s sponsors plan
to obtain a preliminary TIFIA funding decision in the fall of 1999—about 2
years prior to construction. However, as of January 1999, the Department
had not issued the regulations for implementing the TIFIA program.
According to a Department official, TIFIA’s regulations could preclude the
Department from making construction funding commitments to projects
that have not completed the environmental review process. If the FOX
project cannot secure a TIFIA funding commitment until its environmental
review is completed, the project’s ability to secure bond financing could
also be delayed. These financing delays could delay the construction
schedule.

The project’s sponsors must also secure the state legislature’s timely
approval of several pieces of legislation needed to begin construction.
FDOT expects to introduce the legislation in spring 2000, when it will also
request that the legislature approve the $70 million per year, 40-year
funding commitment for the project. If approved, the proposed legislation
would provide FOX with an exclusive right to develop high-speed rail in
Florida, limit the project sponsors’ liability in the event of an accident, and
streamline and clarify the project certification process. FDOT expects the
legislation to pass easily. However, should the legislation encounter
difficulties or be held up by opponents to the project, the project could be
delayed.

Finally, FOX officials stated that a delay in the issuance of new federal
high-speed rail safety standards could affect the project’s schedule. In
February 1997, FOX petitioned FRA to develop a rule establishing safety
standards for the FOX system. The project’s sponsors requested the rule
because FRA’s safety regulations did not address a system with trains
traveling at speeds of up to 200 mph. In December 1997, FRA issued a
proposed rule containing a draft of the new safety standards for the FOX
system. Having received public comments, FRA is now drafting the final
rule. FRA officials stated that they are strongly committed to completing
the final rule for the FOX system in a timely manner. However, they also
stated that they have a large workload of other pressing safety issues to
address, including some required by the Congress, and therefore have no
timetable for issuing the final rule. Since the final rule may affect the
design and cost of the trains, track, and other infrastructure, the project’s
sponsors believe they need a final rule before they can arrange financing
for the project. FRA officials disagree and believe the proposed rule serves



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                             as an excellent basis for financing the project because it addresses key
                             elements of FOX’s petition.


                             Enacted in June 1998, the Transportation Infrastructure Finance and
Funding FOX Would            Innovation Act established a new transportation infrastructure financing
Constrain the                program. The program is designed to help large infrastructure projects
Department’s New             access capital by providing federal credit assistance. The FOX project’s
                             sponsors intend to seek a $2 billion loan through the program to help
Financing Program            finance their high-speed rail project. The result of providing the full
                             $2 billion to the FOX project may be that the Department dedicates over
                             one-half of the funds available for subsidy costs under TIFIA to one project,
                             thereby constraining the program’s ability to fund other projects.


The Department Is            The Department has created a multiagency Credit Program Steering
Developing Regulations for   Committee and Working Group to coordinate and monitor all policy
the TIFIA Program            decisions and implementation actions associated with the Department’s
                             credit programs, including TIFIA. The Steering Committee and Working
                             Group are composed of representatives from the Department’s Office of
                             Budget and Programs, Office of Intermodalism, FHWA, FRA, Federal Transit
                             Administration, as well as other departmental agencies and offices. As of
                             January 1999, the Department and the Office of Management and Budget
                             (OMB) were reviewing a draft notice of proposed rulemaking (NPRM) for
                             TIFIA. The current timetable calls for the NPRM to be published in
                             January 1999. After receiving public comments and making necessary
                             revisions, the Department plans to submit final regulations to OMB for
                             review and clearance by April 1999. Both the final regulations and general
                             policy guidelines should be published in April 1999. Once the regulations
                             and guidelines are issued, the Department will begin accepting
                             applications for TIFIA funds.

                             Before the Department can issue the regulations, an FHWA official stated
                             that the Department must address a number of issues that will influence
                             the program’s structure. First, the Department must develop a clear and
                             objective process, including criteria for selecting projects. Second, the
                             Department must determine whether it should establish one deadline for
                             applications or allow multiple deadlines since some projects may not be
                             ready to apply at a particular time. Third, the Department must develop a
                             methodology for comparing the relative merits of different types of
                             projects (e.g., highway, rail, and port projects, e.g.). Fourth, the
                             Department must determine whether a project should be at a certain stage



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                           of development before it is eligible for assistance under TIFIA. For example,
                           an FHWA official said that the Department might require that a project
                           complete the environmental review process before the Department can
                           provide a commitment for TIFIA construction funding. Fifth, the
                           Department must decide what level of input from financial markets is
                           necessary for the Department to determine whether a project is
                           creditworthy and at what point in the process financial markets should
                           become involved. Furthermore, the Department must determine how long
                           it will take to review applications.

                           OMB  is working with the Department to complete the TIFIA regulations. OMB
                           officials told us that TIFIA funding decisions should be based on fair,
                           objective, and transparent analyses. To ensure that this goal is met, they
                           stressed that the process would benefit from having detailed information
                           on all projects applying for TIFIA funds, such as a completed environmental
                           impact statement, a cost estimate based on detailed engineering plans, and
                           a finance plan with well defined and secured nonfederal funding
                           commitments. The officials said that having this type of detailed
                           information will enhance the Department’s ability to make sound
                           decisions on the financial viability of projects applying for TIFIA funds.

                           In addition to working with OMB, the Department is holding outreach
                           sessions with stakeholders such as bond market rating agencies and state
                           highway agencies to help develop the regulations. An FHWA official stated
                           that a number of issues remain undecided, including what appropriate
                           criteria the Department should use to make decisions; what level of
                           information is needed to assess projects; and whether the Department can
                           make funding commitments prior to and contingent on the resolution of
                           certain events, such as completing an environmental review. He stated that
                           the Department’s legal counsel needed to address many of these issues,
                           and no decisions had been made.


The Department Must        Under the Federal Credit Reform Act of 1990, the Department has to
Determine the Risk Level   obligate funds to cover the cost of the credit provided through TIFIA. The
of Credit for Projects     amount obligated, which is known as a subsidy amount, covers the
                           expected long-term cost of the credit in case of default. The Department,
Funded Through TIFIA       in consultation with OMB and the applicable rating agency, will calculate
                           the subsidy amount associated with the assistance to be provided for each
                           project. The subsidy amount is based on the risk level of the credit—the
                           more risky the credit, the greater the potential long-term cost and the
                           greater the subsidy amount. TIFIA, as amended by the TEA-21 Restoration



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                                     Act, provides $530 million over fiscal years 1999 through 2003 to cover the
                                     cost of up to $10.6 billion in credit. The annual amounts provided and the
                                     credit limits are shown in table 3.

Table 3: Authorized TIFIA Funding,
Fiscal Years 1999 Through 2003       Dollars in millions
                                                                         Funding level
                                                                          (available to                     Subsidy cost as a
                                                                        cover subsidy      Maximum credit      percentage of
                                     Fiscal year                                 cost)              level              credit
                                     1999                                           $80            $1,600                    5
                                     2000                                            90             1,800                    5
                                     2001                                           110             2,200                    5
                                     2002                                           120             2,400                    5
                                     2003                                           130             2,600                    5
                                     Total                                          $530          $10,600                    5
                                     Source: GAO’s presentation of TEA-21’s data.



                                     As table 3 shows, the yearly authorized funding levels are equal to 5
                                     percent of the annual maximum credit limit. Therefore, in order for the
                                     Department to issue the maximum amount of credit—$10.6 billion—the
                                     average subsidy amount must be 5 percent. However, if the Department
                                     and OMB determine that credit for a particular project is more risky than
                                     this assumed average, they will require a greater risk subsidy percentage
                                     for the project. This means that to still provide the maximum amount of
                                     credit, the Department would have to fund other, less risky projects that
                                     require lower risk subsidies. Ultimately, whether the Department will be
                                     able to provide the full $10.6 billion in credit will depend on the risk level
                                     of the projects it chooses to fund.


The FOX Project Could                The FOX project’s sponsors intend to seek a $2 billion loan through the TIFIA
Require Over Half of                 program. In connection with this loan, the Department, in consultation
TIFIA’s Funds                        with OMB and the applicable rating agency, will have to prepare a risk
                                     analysis of the project and determine the subsidy amount associated with
                                     the loan. While it is too early to tell exactly what the subsidy amount will
                                     be, the subsidy amount for a $2 billion loan could require a significant
                                     amount of TIFIA’s total authorized funding. Table 4 shows a range of
                                     potential subsidy levels for a $2 billion loan.




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Table 4: Range of Potential Subsidy
Amounts                               Dollars in millions
                                                                                                                        Percentage of
                                                                                Subsidy                                 TIFIA’s 5-year
                                      Loan amount                            percentage       Subsidy amount                  funding
                                      $2,000                                         5.00                   $100                     19
                                      2,000                                         10.00                    200                     38
                                      2,000                                         14.75                    295                     56
                                      2,000                                         20.00                    400                     75
                                      2,000                                         26.50                    530                    100
                                      Source: GAO’s analysis.



                                      As table 4 shows, the FOX project could require a substantial portion of
                                      TIFIA’s total 5-year funding. In comparison, on the Alameda Corridor
                                      project, the Department and OMB determined that a subsidy amount of
                                      $59 million would cover the long-term cost of a $400 million federal
                                      loan—a risk subsidy of about 14.75 percent.13 If it uses the same subsidy
                                      rate for the FOX project, the Department would have to obligate
                                      $295 million to support the $2 billion loan, which would be 56 percent of
                                      TIFIA’s $530 million in total authorized funds. Bond market and OMB
                                      officials we contacted stated that in their opinion, a loan to the FOX project
                                      appears to be more risky than the loan to the Alameda Corridor and that
                                      the subsidy rate for FOX could be higher. They regarded the FOX project’s
                                      risk as higher because it will depend on unproven high-speed rail
                                      passenger revenues to secure the federal loan, while the Alameda Corridor
                                      project used cargo revenues from one of the nation’s largest established
                                      port complexes. With a higher subsidy rate, the Department would have to
                                      obligate more than $295 million.

                                      The Department has not developed a list of projects that may apply for
                                      TIFIA funding. However, in 1997, FHWA identified 31 projects nationwide,
                                      including FOX, that could be candidates for federal credit assistance. These
                                      projects include bridge, highway, and other types of projects, as well as
                                      high-speed rail. Our review of the report indicates that these projects’
                                      estimated capital costs range from $100 million to over $16 billion and that
                                      10 of the projects are estimated to cost $1 billion or more. (App. I contains
                                      a list of these projects and their estimated costs.) It is uncertain whether
                                      these projects will request TIFIA assistance or how much they might

                                      13
                                       The Alameda Corridor project is designed to improve the movement of freight between the ports of
                                      Los Angeles and Long Beach and railroad switchyards near downtown Los Angeles. As security for the
                                      $400 million federal loan, the project pledged revenues from cargo activities at the ports. The
                                      Department considers the Alameda funding agreement a model for the TIFIA program.



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                      request. Given the large costs and scope of some of these projects, any one
                      of several could require most of TIFIA’s authorized funds if it applied for a
                      large secured loan. However, limited TIFIA funds would be available for
                      these projects if the Department decides to provide FOX with a $2 billion
                      loan.


                      In addition to the FOX project, we have identified 11 corridors in the United
Most Corridors Will   States that are either planning or implementing forms of high-speed rail
Use the Incremental   (see table 5).14 Most of the corridors are in the early stages of project
Approach to           planning, but officials in Amtrak’s Northeast corridor—between
                      Washington, D.C., and Boston—have been upgrading Amtrak’s system for
High-Speed Rail       several years, and officials in the Pacific Northwest corridor, between
                      Vancouver, British Columbia, and Eugene, Oregon, have bought
                      high-speed rail trains and secured funding to upgrade its track. Appendix
                      II shows the locations of these corridors. Ten of the corridors will use an
                      incremental approach to high-speed rail, which provides gradual speed
                      increases by making incremental improvements to existing rail
                      infrastructure or equipment. In contrast, the California corridor is
                      considering the development of a new high-speed rail system that may use
                      technologies similar to those of FOX or even more advanced technology
                      capable of reaching speeds up to 310 mph. The preliminary cost estimates
                      of these systems range from $315 million to $29 billion. Like FOX, most of
                      these corridors are developing their finance plans. Unlike FOX, however,
                      most of the corridors have not determined their funding sources. Two
                      corridors have expressed interest in applying to the TIFIA program for
                      funding, but none besides FOX have approached the Department about
                      doing so. Some corridors are beyond the preliminary stages and have
                      already begun to implement aspects of high-speed rail.

                      The 10 corridors that are concentrating on the incremental approach will
                      upgrade current rail lines to accommodate higher-speed passenger rail
                      traffic, as shown in table 5. Under this approach, the projects’ sponsors
                      would improve track, signals, and safety systems along existing rail lines.
                      Improving track often involves modernizing switches, replacing wooden
                      ties with concrete ties, and creating additional track capacity. More
                      sophisticated signal and collision avoidance systems are also needed to
                      handle the higher train speeds and the higher traffic density that
                      accompanies high-speed rail.


                      14
                       A 12th corridor, the Texas Triangle, also considered building a new high-speed rail system using
                      French TGV technology but discontinued its efforts in 1994 because of a lack of funding. Currently, the
                      corridor has no firm high-speed rail plans.



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Table 5: Scope, Approach, and Costs
for 11 High-Speed Rail Corridors      Dollars in millions
                                      Corridor               Scope                         Approach       Estimated cost
                                      California             Sacramento/San          Considering new
                                                             Francisco to San          high-speed rail
                                                             Diego (676 miles)           (220 mph) or
                                                                                     maglev (310 mph)    $21,000-$29,000
                                      Chicago-St. Louis      Chicago, Ill., to St.
                                                             Louis, Mo. (282         Incremental (110
                                                             miles)                              mph)                350
                                      Chicago-Detroit        Chicago, Ill., to
                                                             Detroit, Mich. (279     Incremental (110
                                                             miles)                              mph)                800
                                      Chicago-Milwaukee      Chicago, Ill., to
                                                             Milwaukee, Wis.         Incremental (110
                                                             (85 miles)                          mph)                471
                                      Wisconsin-Illinois-    Chicago, Ill., to
                                      Minnesota              Minneapolis, Minn.          Incremental
                                                             (418 miles)             (speed unknown)     To be determined
                                      Empire (N.Y.)          Buffalo to Albany
                                                             to New York City        Incremental (125
                                                             (431 miles)                         mph)                315
                                      Pacific Northwest      Vancouver, B.C.,
                                                             to Eugene, Oreg.        Incremental (125
                                                             (466 miles)                         mph)              1,865
                                      Southeast              Washington, D.C.,
                                                             to Charlotte, N.C.      Incremental (110
                                                             (390 miles)                         mph)    To be determined
                                      Keystone (Pa.)         Philadelphia to
                                                             Harrisburg (104         Incremental (110
                                                             miles)                              mph)    To be determined
                                      Northeast corridor     Washington, D.C.,
                                                             to Boston, Mass.        Incremental (150
                                                             (457 miles)                         mph)              4,000
                                      Gulf Coast             Houston, Tex., to
                                                             Birmingham, Ala.            Incremental
                                                             (719 miles)             (speed unknown)     To be determined

                                      The lengths of the corridors currently considering high-speed rail range
                                      from 85 miles on the Chicago-to-Milwaukee corridor to 719 miles on the
                                      Gulf Coast corridor. Costs range from $315 million on the Empire corridor
                                      in New York to between $21 billion and $29 billion on the California
                                      corridor. Some corridors, such as the Wisconsin-Illinois-Minnesota and
                                      Gulf Coast corridors, are still in the process of developing feasibility
                                      studies for their proposed high-speed rail lines. As of December 1998,
                                      other corridors were implementing some high-speed rail improvements.




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              For example, the Empire corridor was running trains at speeds
              approaching 110 mph. Also, the Pacific Northwest corridor had purchased
              two high-speed rail trains that will operate initially at about 79 mph but
              can operate at higher speeds (125 mph) once the corridor is prepared for
              high-speed traffic. Appendixes III through XIV provide status reports on
              the 11 corridors with active high-speed rail plans and on the Texas
              Triangle corridor, where high-speed rail is not now under active
              consideration.


              With TIFIA funds soon to be available to support large transportation
Conclusions   projects nationwide, proposed high-speed rail systems and other types of
              transportation projects in the United States will have an important source
              of federal financing to further their development. The Florida Overland
              Express (FOX) project’s sponsors will ask the Department of
              Transportation to provide the project with a $2 billion loan in the near
              future. As a result of making this loan, the Department could provide at
              least one-half of the funding available for subsidy costs under TIFIA to this
              one project. However, the project’s sponsors are at least 2 years from
              developing the information needed to determine whether the project is
              economically viable. Currently, there is great uncertainty about whether
              (1) the project can be built for the $6.3 billion that the project’s most
              recent finance plan assumes; (2) the project’s sponsors can secure the
              needed funds to complete the project’s financing; (3) the estimated
              ridership levels are accurate and, thus, whether the project will be able to
              generate sufficient revenues to repay the bonds and federal loan; and
              (4) the sponsors can complete the complex environmental review and
              mitigation process in time for construction to begin by 2001.

              Similar to the FOX project, other large transportation projects applying for
              TIFIA funding will face challenges in developing accurate capital cost
              estimates, securing financing for those costs, generating sufficient
              revenues needed to repay project debt, and minimizing impacts on the
              environment. Some of these projects also have the potential to require
              most of TIFIA’s funds, which would constrain the TIFIA funding available to
              other projects. Therefore, the Department must make informed decisions
              on each project’s technical merits and must obtain and evaluate detailed
              information on the projects’ costs, financing plans, revenue projections,
              and environmental impacts. As of January 1999, the Department was still
              developing regulations for the TIFIA program; therefore, the extent to
              which the Department will require this type of information is unclear.
              Without this important information, the Department cannot ensure that



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                     B-280830




                     TIFIAfunds are targeted to financially viable transportation infrastructure
                     projects.


                     In implementing the Transportation Infrastructure Finance and Innovation
Recommendations      Act program, we recommend that the Secretary of Transportation direct
                     appropriate Department officials to evaluate the economic feasibility of
                     projects applying for the program’s funds. Before providing a substantial
                     amount of federal dollars to projects, such as the Florida Overland
                     Express project, the Secretary should obtain and independently evaluate
                     information including (1) a capital cost estimate based on detailed
                     engineering plans, (2) a finance plan that is based on the detailed cost
                     estimate and that specifies the source and security of all public and
                     private-sector financial commitments, and (3) an operating plan that
                     enumerates the project’s future revenues and assesses the risks to the
                     federal credit instrument should revenues be lower than projected. The
                     Department’s regulations or general policy guidelines on the program
                     should indicate that the Department will conduct this evaluation. The
                     Secretary should also ensure that the environmental review process has
                     been completed before it makes substantial Transportation Infrastructure
                     Finance and Innovation Act program funding commitments.


                     We provided the Department, OMB, and FDOT with a draft of this report for
Agency Comments      review and comment. We also discussed the report with officials from the
and Our Evaluation   Department and FDOT—including the Associate Administrator for Railroad
                     Development, FRA; the Director of Financial Management and Budgeting,
                     FHWA; and the Manager, High-Speed Rail program, FDOT—to discuss their
                     comments on the report. Overall, the Department’s officials generally
                     agreed with the report’s findings and conclusions, while officials from
                     Florida stated that the report was thorough. Officials from the Department
                     and FDOT had specific comments on the report’s (1) analyses of the FOX
                     project’s ridership forecast, (2) recommendations, (3) discussion of the
                     impacts of a loan to the FOX project through the Transportation
                     Infrastructure Finance and Innovation Act program, and (4) discussion of
                     the time frames for completing the FOX project’s environmental review.

                     With regard to our analysis of the FOX project’s ridership forecast, FRA
                     officials stated that we should adopt a less pessimistic stance on certain
                     aspects of the project’s ridership forecast. Specifically, the FRA officials
                     stated that it was too early to expect the airlines to enter into code-sharing
                     agreements with the FOX system; therefore, our ridership analysis should



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B-280830




not entirely dismiss the forecast number of passengers that these
agreements could generate. The FDOT officials also affirmed their forecast’s
assumption that airlines will establish code-sharing agreements with FOX
and therefore transfer a substantial number of air passengers to the FOX
rail system. As a result, they stated that our ridership analysis should
include these passengers.

The FDOT officials also disagreed with our assertion that the airfares used
in their ridership forecast overstated the cost of air travel within Florida.
They noted that their forecast accurately reflected the fares paid by
passengers and cited first quarter 1998 airfare statistics that airlines
reported to the Department as evidence. Accordingly, they contend that
we should not reduce our ridership estimate on the basis of the
assumption of lower airfares.

The FDOT officials further stated that our estimate of new, or induced,
ridership was too low. They stated that their estimate was based on the
state’s intercity travel surveys, surveys that they contend are more precise
than FRA’s estimates used in our report.

As a final point on ridership, FRA officials stated that our report implied
that FOX’s fares must always be lower than the airlines’ fares in order to
remain competitive. The officials stated that this assumption was too
simplistic because FOX’s ridership would not solely be based on ticket
prices. They noted that the FOX system could also attract passengers
because it will have a higher quality of service and shorter trip times. The
FRA officials further questioned whether the airlines could maintain low
airfares over the long term and thereby remain competitive with FOX.

In responding to these comments on ridership, we recognize that making
estimates of how many people will use a high-speed rail system, where
none previously existed, is more an art than a science. The assumptions
used can significantly affect the forecast level of ridership. We have
developed a ridership forecast that is based on alternative scenarios that
use less optimistic—but still quite plausible— assumptions. Our first
alternative scenario evaluates whether the airlines, in a highly competitive
Florida air market, would willingly give up their passengers to a new
competitor—FOX. We acknowledge that FOX and some airlines might
establish code-sharing agreements in the future and that FOX officials have
cited positive statements made to them by at least one major airline to this
effect. However, FOX officials could not provide us with any
documentation showing that such agreements were likely. In addition, our



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discussions with two major airlines, the Air Transport Association, and the
Miami airport found little, if any, airline interest in establishing
code-sharing agreements with FOX. Wilbur Smith Associates also
questioned the viability of these potential agreements. On the basis of this
evidence, we made no changes to our ridership analysis with regard to the
possibility of ridership resulting from code-share agreements.

Our second alternative scenario evaluates whether the FOX ridership
forecast assumed airfares consistent with what the major airlines reported
to the Department. Using data from the first quarter of 1998, the FDOT
officials stated that Florida airfares are comparable to proposed FOX fares,
thus potentially enhancing FOX’s competitive position with the airlines.
This contrasts with our use of 1997 average reported airfares that are, in
some cases, 21 percent lower than the ones FOX used in its ridership
forecast. We used the average airfares for all of 1997 in reviewing the FOX
forecast because (1) it is the same year as that for other data used
throughout the FOX forecast and (2) a yearly average provides a more
constant picture of the air market than a single quarter. Accordingly, we
made no changes to our ridership analysis with regard to the level of
airfares.

Our third alternative scenario assessed the project’s assumptions
regarding induced demand. The FDOT officials’ suggestion that we use their
assumption regarding induced demand rather than FRA’s assumption
highlights the uncertainty in making estimates of induced demand.
Forecasting induced ridership is a subject of great uncertainty and
controversy, since induced demand attempts to predict how many people
will use a system simply because it provides a new service. The FDOT
officials said that their assumption was more accurate than FRA’s.
However, FRA has reported that because of the uncertainty in forecasting
induced demand, high-speed rail proponents should use caution when
preparing such estimates. We agree and therefore have not revised our
analysis to reflect the higher FOX assumption.

In addition, the FRA officials presented no evidence to support their
assertion that the airlines may not be able to sustain lower airfares over
the long term in competition with FOX. The experience of Southwest
Airlines supports just the opposite conclusion. Southwest Airlines has
established significant market shares in new markets while charging low
fares and has sustained these markets in the long term. Nonetheless, we
agree with the FRA officials’ comment that FOX could have a competitive
advantage over the airlines because it may provide better service and



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B-280830




faster trip times in some markets. Since the FOX forecast already assumed
this service differential in its ridership assumptions and we did not
question them, no change to our ridership analysis is needed.

Regarding our recommendations, officials from the Department stated
they did not plan to independently verify information on the costs,
financing, revenue estimates, and environmental impacts of projects
applying for TIFIA program funds. They said that the Department would
rely on the financial markets in the private sector to analyze these factors
rather than on the Department to conduct its own independent analysis.
They also stated that since the Department is responsible for completing
the environmental review process, it did not need to independently
validate the results of environmental reviews.

In regard to these comments, we agree that the Department cannot
independently evaluate its own environmental document. As a result, we
have changed our recommendation to reflect the importance of having the
environmental review process completed before the Department provides
substantial TIFIA funds to a project. However, we disagree with the
assertion that the financial markets’ assessment of a project’s costs,
financing, and revenue estimates will provide the independent evaluation
that we call for in our recommendation. The financial markets’ input,
generally in the form of a bond rating, is important information that the
Department can use to supplement its equally important engineering,
financial, and transportation planning expertise. However, the Department
must produce an independent assessment of the merits of projects seeking
TIFIA funds. This is particularly important because the Department has the
expertise to compare, for example, a highway project to a rail or transit
project that might apply for TIFIA funds. As of January 1999, the
Department had not yet determined which of its agencies will have the
lead responsibility for performing such evaluations. Therefore, our
recommendation is targeted to the Secretary of Transportation, who can
ensure that the Department uses its analytical expertise as a basis for
awarding federal funds.

Regarding a potential federal loan to the FOX project, the FDOT officials
disagreed with our assertion that by funding the FOX project, the TIFIA
program would use over half of its available funding. The officials stated
that the subsidy rate that the Department used for the Alameda Corridor
project—a freight rail improvement project in Southern California—was
conservative and we should not use it to estimate the subsidy cost of a
federal loan to the FOX project. The FDOT officials believe that the subsidy



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B-280830




rates for TIFIA-funded projects would be less than 10 percent rather than
the 14.7 percent used for the Alameda Corridor.

The FDOT officials’ questioning our use of the subsidy level for the Alameda
Corridor project’s loan as a model for TIFIA-funded projects is not based on
evidence from OMB or the bond rating agencies we contacted. These
groups will play critical roles in determining FOX’s loan subsidy amount.
OMB officials believe that the 14.7-percent subsidy cost for the Alameda
Corridor was accurate. In addition, both OMB and bond-rating agency
officials we contacted stated that a federal loan to FOX is riskier than the
loan to the Alameda Corridor because the loan repayment is premised on
unproven revenues from future ridership. In contrast, the loan repayment
for the Alameda Corridor comes from proven cargo revenues from one of
the nation’s largest ports.

In terms of the environmental review process, officials from both FHWA and
Florida expressed confidence that the project will complete the
environmental review process on schedule. The Florida officials stated
that our skepticism of their projected date for completing the
environmental review process is unwarranted. Because they have worked
early and closely with environmental review agencies to identify impacts,
they expect to meet their timetable for completing the environmental
review.

We have added language in the report to reflect the agencies’ confidence
in meeting their schedule. However, to accomplish this over the next 2
years, the project’s sponsors must assess the 320-mile-long project’s
impact on wetlands (over 700 acres), endangered and threatened species,
and water quality; seek and incorporate public comments; develop
mitigation plans acceptable to at least 15 state and federal agencies; and
obtain wetlands permits from the Army Corps of Engineers. An FHWA
official characterized the environmental review for the FOX project as one
of the largest and most complex ever undertaken by the office. The
complexity and amount of work remaining to be done continue to suggest
that it might take longer than planned to complete the required
environmental reviews.

Finally, officials from FRA, FHWA, the Department’s Office of the Secretary,
OMB, and the Florida High-Speed Rail program offered additional technical
comments that we incorporated throughout the report, where appropriate.




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              B-280830




              To identify the status of the FOX project’s costs, financing, ridership
Scope and     estimates, and schedule, we reviewed project documents, including the
Methodology   engineering cost report, the finance agreement, the ridership studies, and
              project status reports. To learn more about the status of the project, we
              also interviewed officials from FDOT’s High-Speed Rail Office and the FOX
              consortium. To identify challenges facing the project, we reviewed
              independent analyses of the project and contacted numerous officials with
              knowledge of the project. For example, to identify issues surrounding the
              ridership forecast and the potential for the airlines to agree to transfer
              passengers to the FOX project, we reviewed Wilbur Smith Associates’
              independent review of the ridership forecast and interviewed officials
              from the U.S. airline industry, including officials from the Miami and
              Orlando airports, several U.S. airlines serving Florida, and the Air
              Transport Association. In addition, to identify issues surrounding the
              finance plan and the environmental mitigation for the project, we
              contacted bond-rating agencies and state and federal environmental
              review agencies.

              To obtain information about the TIFIA program, we reviewed the act as
              established in the Transportation Equity Act for the 21st Century, and as
              amended by the TEA-21 Restoration Act. To learn more about the goals
              and objectives of the program, we discussed the program with FHWA’s
              credit program manager, attended a TIFIA outreach session in New York
              City in September 1998, and reviewed FHWA documentation regarding the
              TIFIA program. We also contacted OMB and bond-rating agency officials to
              obtain their views on the potential risks to the federal government of
              providing a $2 billion loan to the FOX project.

              To obtain information on the current status of other high-speed rail
              corridors, we reviewed information published by FRA and the High-Speed
              Ground Transportation Association. To obtain further information on the
              specifics of other high-speed rail projects, we contacted officials in states
              responsible for planning and developing the projects and reviewed the
              status reports they provided.

              We performed our work from July 1998 through January 1999 in
              accordance with generally accepted government auditing standards.


              We will send copies of this report to cognizant congressional committees;
              the Secretary of Transportation; the Administrator, FHWA; the
              Administrator, FRA; the Director, OMB; the state of Florida’s Governor and



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Secretary of Transportation; and other interested parties. We will make
copies available to others upon request. Please call me at (202) 512-2834 if
you or your staff have any questions. Major contributors to this report are
listed in appendix XV.

Sincerely yours,




Phyllis F. Scheinberg
Associate Director,
  Transportation Issues




Page 32                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Page 33   GAO/RCED-99-44 High-Speed Rail Projects in the United States
Contents



Letter                                                                                     1


Appendix I                                                                                38
Candidates for
Federal Credit
Assistance
Appendix II                                                                               40
High-Speed Rail
Corridors in the
United States
Appendix III                                                                              41
California Intercity
High-Speed Rail
Corridor
Appendix IV                                                                               42
Chicago-St. Louis
High-Speed Rail
Corridor
Appendix V                                                                                43
Chicago-Detroit
High-Speed Rail
Corridor
Appendix VI                                                                               44
Chicago-Milwaukee
High-Speed Rail
Corridor



                       Page 34   GAO/RCED-99-44 High-Speed Rail Projects in the United States
                       Contents




Appendix VII                                                                               45
Wisconsin-Illinois-
Minnesota High-Speed
Rail Corridor
Appendix VIII                                                                              46
Empire High-Speed
Rail Corridor
Appendix IX                                                                                47
Pacific Northwest
High-Speed Rail
Corridor
Appendix X                                                                                 48
Southeast High-Speed
Rail Corridor
Appendix XI                                                                                49
Keystone High-Speed
Rail Corridor
Appendix XII                                                                               50
Texas Triangle
High-Speed Rail
Corridor
Appendix XIII                                                                              51
Northeast High-Speed
Rail Corridor




                       Page 35    GAO/RCED-99-44 High-Speed Rail Projects in the United States
                        Contents




Appendix XIV                                                                                            52
Gulf Coast
High-Speed Rail
Corridor
Appendix XV                                                                                             53
Major Contributors to
This Report
Tables                  Table 1: Annual Ridership Forecasts for the FOX Project, 2010                   12
                        Table 2: Effect of Less Optimistic Assumptions on Ridership                     13
                        Table 3: Authorized TIFIA Funding, Fiscal Years 1999 Through                    21
                          2003
                        Table 4: Range of Potential Subsidy Amounts                                     22
                        Table 5: Scope, Approach, and Costs for 11 High-Speed Rail                      24
                          Corridors
                        Table I.1: Projects That FHWA Identified as Candidates for                      38
                          Federal Credit Assistance


Figure                  Figure 1: Sources of Funds for the FOX Project                                   7




                        Abbreviations

                        DOT        Department of Transportation
                        FDOT       Florida Department of Transportation
                        FOX        Florida Overland Express
                        FHWA       Federal Highway Administration
                        FRA        Federal Railroad Administration
                        NPRM       notice of proposed rulemaking
                        OMB        Office of Management and Budget
                        TGV        train a grande vitesse
                        TIFIA      Transportation Infrastructure Finance and Innovation Act of
                                         1998


                        Page 36                GAO/RCED-99-44 High-Speed Rail Projects in the United States
Page 37   GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix I

Candidates for Federal Credit Assistance


                                       In November 1997, the Federal Highway Administration (FHWA) issued a
                                       draft report entitled Federal Credit for Surface Transportation: Exploring
                                       Concepts and Issues. In that report, FHWA identified 30 projects besides the
                                       Florida Overland Express that could be candidates for federal credit
                                       assistance. The projects are listed in table I.1.

Table I.1: Projects That FHWA
Identified as Candidates for Federal   Dollars in millions
Credit Assistance                      Project                           Location                                  Estimated cost
                                       Dalton Highway                    Alaska                                               $165
                                       Hoover Bridge                     Arizona-Nevada                                       $120
                                       South Mountain Toll Road          Phoenix, Arizona                                     $380
                                       Shreveport-to-Kansas City         Arkansas, Louisiana,
                                       High-Priority Corridor            Missouri                                           $2,380
                                       California High-Speed Rail        Los Angeles, Calif. to San
                                                                         Francisco, Calif.                                 $16,800
                                       Foothill-South Transportation     Orange County, Calif.
                                       Corridor                                                                             $1,500
                                       Port of Oakland Intermodal        Oakland, Calif.
                                       Terminal                                                                               $750
                                       SR 125 Toll Road                  San Diego, Calif.                                    $400
                                       E-470 Public Highway Phase        Denver, Colo.
                                       IV                                                                                     $230
                                       Quinnipiac River Bridge           New Haven, Conn.                                     $375
                                       Miami Intermodal Center           Miami, Fla.                                        $1,700
                                       Atlanta Multi-Modal               Atlanta, Ga.
                                       Passenger Terminal                                                                     $183
                                       High-Priority Corridor 18 (I-69 Indiana, Kentucky,
                                       Extension)                      Tennessee, Mississippi,
                                                                       Arkansas, Louisiana, and
                                                                       Texas                                                $7,250
                                       Louisville Bridges                Louisville, Ky                                       $507
                                       I-75 at Ambassador Bridge         Detroit, Mich.                                       $107
                                       US 82 Mississippi River           Greenville, Miss.
                                       Bridge                                                                                 $166
                                       Meadowlands Rail Transfer         East Rutherford, N.J.
                                       Station                                                                                $374
                                       Farley/Penn Station Project       New York, N.Y.                                       $315
                                       Midtown-Kennedy Airport           New York, N.Y.
                                       Rail Link                                                                              $800
                                       Maumee River Crossing             Toledo, Ohio                                         $220
                                       South-North Light Rail Transit Portland, Oregon
                                       Project                                                                              $1,300
                                                                                                                       (continued)




                                       Page 38                         GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix I
Candidates for Federal Credit Assistance




Dollars in millions
Project                        Location                                 Estimated cost
Freight Rail                   Rhode Island
Improvement/Access Road
Project                                                                            $247
Grace Bridge Project           Charleston, S.C.                                    $400
Camino Columbia Toll Road      Laredo, Texas                                       $100
ITS Deployment: Weber,         Utah
Davis, Salt Lake, Summit,
and Utah Counties                                                                  $220
I-15 Reconstruction            Salt Lake City, Utah                              $1,600
Hampton Roads                  Virginia
Bridge-Tunnel                                                                    $2,000
Woodrow Wilson Bridge          Virginia-Maryland                                 $1,750
North Duwamish Intermodal      Seattle, Wash.
Facility                                                                         $1,000
Tacoma Narrows Bridge          Seattle-Tacoma, Wash.                               $800




Page 39                     GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix II

High-Speed Rail Corridors in the United
States


                       Vancouver


      Pacific            Seattle
      Northwest
      Corridor

                                                                                                 Empire
                                                                                                 Corridor
                  Eugene                                            Minneapolis
                                                           Chicago -                                          Albany        Boston
                                                           Minneapolis                            Buffalo
                                                           Corridor
                                                                       Milwaukee              Detroit                    New York
                                                                          Chicago
                                                                                          Chicago - Detroit                    Northeast
                  Sacramento
San Francisco                                                                             Corridor                             Corridor
                                                                    Chicago -
                                                                                                                       Washington, D.C.
                                                                    St. Louis St. Louis
     California                                                     Corridor
                                                                                                                               Southeast
     Corridor                                                                                                                  Corridor
                                                                                              Charlotte

                       San Diego                                                          Birmingham
                                                           Dallas

                                               Texas
                                               Triangle
                                                                              New Orleans                   Orlando
                                             San Antonio            Houston Gulf          Tampa                  Florida
                                                                            Coast                                Corridor
                                                                            Corridor                            Miami




                                   Page 40                            GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix III

California Intercity High-Speed Rail
Corridor

Background              The California Intercity High-Speed Rail Commission was created in 1993
                        to study the feasibility of implementing a high-speed ground transportation
                        system in California. In 1996, the Commission issued its study, which
                        found that high-speed rail offered California an environmentally and
                        physically feasible alternative to highway and air transportation for
                        accommodating future growth in intercity travel. The report also found
                        that revenues from the high-speed rail system would be able to cover its
                        operating costs but not all construction costs. The report concluded that
                        construction of the system would rely on substantial public investments.
                        In 1996, the state legislature created the High-Speed Rail Authority, which
                        now is responsible for implementing the system.

Proposed Technology     A new high-speed rail or magnetic levitation (maglev) system.

Project’s Goals/Scope   To build a high-speed ground transportation system to link northern and
                        southern California. The proposed system covers 676 miles and would link
                        Sacramento, the San Francisco Bay Area, the Central Valley, Los Angeles,
                        and San Diego. The project’s sponsors are considering using either a new
                        high-speed rail system with speeds reaching up to 220 mph or a maglev
                        system with speeds up to 310 mph. A new high-speed rail system could
                        carry up to 19.8 million passengers per year in 2015, while a maglev system
                        could carry 26.4 million passengers.

Cost Estimates          The current cost estimates range from $21 billion for the new high-speed
                        rail system to $29 billion for a maglev system.

Status                  The Commission is continuing to study the feasibility of the system and is
                        trying to secure financing. The current schedule calls for a statewide vote
                        on the proposal by 2000.




                        Page 41                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix IV

Chicago-St. Louis High-Speed Rail Corridor


Background              Under the Intermodal Surface Transportation Efficiency Act of 1991
                        (ISTEA), the Secretary designated the Chicago-to-St. Louis corridor as a
                        high-speed rail corridor. In May 1994, the State of Illinois published a
                        feasibility study on the financial potential of implementing high-speed
                        passenger rail service in the corridor. The study found that revenues from
                        projected ridership would cover all the operating and maintenance costs
                        and a portion of the capital improvement costs for the project. The state
                        hopes to cover the remainder of the capital costs with federal or state
                        government assistance.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail system connecting Chicago and St. Louis. The
                        proposed system covers 282 miles and would also link Springfield, Illinois
                        and Bloomington-Normal, Illinois to Chicago and St. Louis. The Illinois
                        Department of Transportation (IDOT) plans to improve grade crossings
                        across the state, rebuild track in the East St. Louis area, and develop a new
                        signal system on an existing rail line between Chicago and St. Louis.
                        Currently, trains in the corridor travel at a top speed of 79 mph, with the
                        proposed improvements increasing speed up to 110 mph.

Cost Estimate           IDOT estimates the cost of the project to be $350 million.

Status                  IDOT is currently working on a draft environmental impact statement for
                        the corridor and developing a grade crossing arrestor net that will block
                        the road when trains approach to prevent train-vehicle collisions. Also,
                        IDOT is working with the Association of American Railroads and the
                        Federal Railroad Administration to develop a train control system that will
                        increase safety along the line by overriding certain engineer actions. For
                        example, the control system would automatically stop a train if the
                        engineer runs a red signal or exceeds the speed limit. Once these tasks are
                        complete, IDOT will seek a private sector partner for the project. IDOT
                        hopes high-speed service could begin in 2003.




                        Page 42                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix V

Chicago-Detroit High-Speed Rail Corridor


Background              Since 1981, the State of Michigan has been exploring high-speed rail
                        technology. Under ISTEA, the Secretary designated the Chicago-to-Detroit
                        corridor as a high-speed rail corridor. The State of Michigan has developed
                        a plan of incremental improvements for the corridor.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail system connecting Chicago and Detroit. The
                        system would run approximately 279 miles and also link Ann Arbor,
                        Michigan and Kalamazoo, Michigan with Chicago and Detroit. The
                        Michigan Department of Transportation (MDOT) and Amtrak plan to
                        rebuild stations and improve signals on an existing rail line between
                        Chicago and Detroit to accommodate trains traveling at speeds up to 110
                        mph. Trains would also need to be refurbished. MDOT estimates that if the
                        line is fully upgraded, 3.5 million passengers will ride the corridor’s trains
                        annually by 2010.

Cost Estimate           MDOT estimates the cost for the improvements to be $800 million.

Status                  MDOT and Amtrak are working on an automatic control system that
                        would help avoid collisions by using a computer to alert train engineers to
                        hazards out of their line of sight. It has also closed a number of grade
                        crossings and is constructing new stations and renovating existing
                        stations. MDOT and Amtrak plan on beginning high-speed service along a
                        portion of the corridor sometime in 1999 and along the full corridor by
                        2006.




                        Page 43                  GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix VI

Chicago-Milwaukee High-Speed Rail
Corridor

Background              The states of Illinois and Wisconsin completed a feasibility study for the
                        Chicago-to-Milwaukee high-speed rail corridor in 1994. The study
                        identified the existing Amtrak route between Chicago and Milwaukee as
                        the preferred route for high-speed service. The study also concluded that
                        operating revenues from a system with trains operating at 110 mph or 125
                        mph would cover operating costs and some capital costs. The study also
                        mapped out a comprehensive plan to allow the right-of-way to be shared
                        by high-speed rail, Amtrak, freight lines, and Metra, a Chicago area
                        commuter rail service.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail system between Chicago and Milwaukee. The
                        system would run approximately 85 miles, most likely along an existing
                        Amtrak route. The Wisconsin Department of Transportation (WisDOT)
                        plans to improve track and stations along an existing rail line between
                        Chicago and Milwaukee to accommodate trains traveling up to 110 mph.

Cost Estimates          WisDOT’s cost estimate for the project is $471 million.

Status                  WisDOT is currently working with a nine-state coalition to determine
                        funding sources for high-speed rail. WisDOT has no construction planned
                        at this time and has not set a date for the start of revenue service, although
                        it hopes to have some high-speed service running by 2006.




                        Page 44                  GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix VII

Wisconsin-Illinois-Minnesota High-Speed
Rail Corridor

Background              In 1991, the Minnesota Department of Transportation (MN/DOT), along
                        with the Illinois and Wisconsin transportation departments, completed a
                        feasibility study for a Chicago-Milwaukee-Twin Cities high-speed rail
                        system. The study looked at the engineering, environmental, financial, and
                        economic impacts of a high-speed rail system and concluded that such a
                        system might be economically viable. The Minnesota legislature provided
                        $500,000 for a more detailed feasibility study that is in progress. The
                        second study will deal with the engineering and environmental issues
                        associated with a high-speed rail system, while also determining ridership
                        and revenue projections, as well as other issues.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail system between Chicago and Minneapolis-St.
                        Paul. The system would run approximately 418 miles and link Chicago and
                        Minneapolis with Milwaukee and perhaps Madison, Wisconsin and
                        Wisconsin Dells. The project’s sponsors plan on incrementally improving
                        an existing rail line between the two end points to accommodate
                        high-speed trains. The exact speed of trains and form of improvements
                        along the corridor are still to be determined.

Cost Estimate           The project’s sponsors have not released any cost estimates at this time.

Status                  The second, more detailed feasibility study is under way and should be
                        completed in early 1999. Future actions are uncertain and depend on
                        MN/DOT identifying sources of funding.




                        Page 45                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix VIII

Empire High-Speed Rail Corridor


Background              The Transportation Equity Act for the 21st Century (TEA-21) designated
                        the Empire corridor as a federally recognized high-speed rail corridor. On
                        September 29, 1998, the state of New York and Amtrak announced a plan
                        to split $185 million in rail line improvements to the Empire corridor.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To increase the maximum speed on portions of the existing high-speed rail
                        line between New York City and Buffalo to 125 mph. The line would link
                        Rochester, Syracuse, and Albany with New York City and Buffalo. The
                        project’s sponsors plan to embark on a capital investment plan to improve
                        the condition and technology of the existing rail service between these
                        cities. Currently, the trains’ top speed is 110 mph, although only a portion
                        of the corridor is capable of handling trains at that speed. The line will be
                        approximately 431 miles long. The New York Department of
                        Transportation (NYDOT) estimates that once the corridor is finished,
                        annual ridership will be approximately 3 million.

Cost Estimate           The funding for the current round of improvements is set at $185 million.
                        Future planned improvements would bring the total cost of upgrading the
                        corridor to $315 million.

Status                  Amtrak and NYDOT have acquired funding and will soon begin work on
                        adding a second track for a portion of the corridor, improving curves so
                        trains can negotiate them at faster speeds, and upgrading seven trains to
                        travel at speeds of up to 125 mph. The work should be completed by 2004.




                        Page 46                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix IX

Pacific Northwest High-Speed Rail Corridor


Background            In 1993, the states of Washington and Oregon began funding additional
                      train service along Amtrak’s Pacific Northwest line. Since then, ridership
                      on the line has nearly doubled. The Washington State Department of
                      Transportation (WSDOT) leased two Talgo trains for the line. Talgo trains
                      are made in Spain, have tilt technology that allows them to travel around
                      curves faster than a conventional train, and have a top speed of 125 mph.
                      However, in the Pacific Northwest corridor they are limited to 79 mph
                      because of track conditions. WSDOT and Amtrak have purchased three
                      new Talgo trains to replace the leased ones.

Proposed Technology   Incremental improvements.

Project Goals/Scope   To create a high-speed rail corridor between Vancouver, British Columbia,
                      and Eugene, Oregon. The line would run approximately 466 miles and link
                      Portland and Seattle with Vancouver and Eugene. The project’s sponsors
                      plan to install a new signal and monitoring system using global positioning
                      satellites, renovate stations and improve grade crossings along the current
                      rail line between these cities. Also, new sidings and track will be added in
                      some places to add capacity to the line, which will serve freight,
                      commuter, and high-speed trains.

Cost Estimate         WSDOT estimates the total cost for bringing 125 mph service to the
                      corridor at $1.865 billion.

Status                The State of Washington and Amtrak have purchased three Talgo trains
                      capable of traveling 125 mph. These trains were scheduled for service on
                      the existing Amtrak line in late 1998. The new trains will reduce the travel
                      times along the route because of their speed around curves. Also, WSDOT
                      and the Oregon Department of Transportation are currently preparing an
                      environmental impact statement and a 20-year investment plan for the
                      corridor. The project’s sponsors have not announced any schedule for the
                      start of high-speed rail service.




                      Page 47                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix X

Southeast High-Speed Rail Corridor


Background              Under ISTEA, the Secretary designated the Washington-to-Charlotte
                        corridor as a high-speed rail corridor. The states of North Carolina and
                        Virginia are working together to develop the corridor. The Virginia
                        Department of Rail and Public Transportation (VDRPT) and the North
                        Carolina Department of Transportation have done a preliminary
                        engineering study. Currently, the project’s sponsors are performing an
                        environmental impact study of the corridor.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail line between Washington, D.C., and Charlotte,
                        North Carolina. The line would run approximately 390 miles and link
                        Richmond, Virginia; Raleigh, North Carolina; and Greensboro, North
                        Carolina; with Washington, D.C. and Charlotte, North Carolina. The
                        project’s sponsors plan to straighten curves, add track, and improve
                        signals along an existing right-of-way between the end points, and
                        eventually run rail service at speeds up to 110 mph.

Cost Estimate           No cost estimates have been released for the corridor. However, VDRPT
                        has estimated the cost of adding another track on the corridor at
                        $350 million.

Status                  The State of Virginia has approved a six-stage high-speed rail plan for the
                        Washington-to-Richmond corridor. The plan allocates funding to
                        straighten curves, improve signals, and eliminate speed restrictions along
                        this corridor. This work should be completed in 2002 and allow the
                        maximum train speed in the corridor to rise to 90 mph. Future
                        improvements on the corridor have not yet been determined. The project’s
                        sponsors are negotiating with CSX Transportation Corporation to
                        purchase some rights-of-way. The project’s sponsors have not set a
                        starting date for 110 mph service.




                        Page 48                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix XI

Keystone High-Speed Rail Corridor


Background              In 1995, Amtrak sought help from the Pennsylvania Department of
                        Transportation (PennDOT) to save the deteriorating rights-of-way between
                        Philadelphia and Harrisburg. PennDOT began giving Amtrak $2.6 million
                        per year to help operate service along the corridor. TEA-21 designated this
                        corridor as a high-speed rail corridor. The corridor is already electrified,
                        although few electric trains now serve the corridor. A few sections of
                        track along the corridor are capable of handling 90 mph service.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail line between Harrisburg and Philadelphia. The
                        line would run 104 miles. PennDOT hopes to improve track, overhead
                        wiring, and stations along existing, electrified rights-of-way to reduce
                        travel times between Harrisburg and Philadelphia.

Cost Estimates          The project’s sponsors have not released any cost estimates for the
                        project.

Status                  FRA,  PennDOT, and Amtrak are working on identifying the corridor’s
                        investment needs. PennDOT is negotiating the purchase of trains capable
                        of traveling 110 mph. PennDOT has not set a starting date for high-speed
                        rail service.




                        Page 49                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix XII

Texas Triangle High-Speed Rail Corridor


Background              In 1989, the Texas state legislature created the Texas High-Speed Rail
                        Authority to award a franchise to build a high-speed rail system in Texas.
                        The Texas TGV Corporation eventually won this franchise but could not
                        arrange financing for the project. In early 1994, the Authority determined
                        that Texas TGV had not fulfilled the terms of the franchise agreement and
                        terminated the franchise.

Proposed Technology     Texas TGV was planning on building a new high-speed rail system using
                        French train a grande vitesse (TGV) technology.

Project’s Goals/Scope   The franchise intended to link Dallas, Houston, and San Antonio, a
                        distance of 436 miles.

Cost Estimate           The final cost estimate for the project was $4 billion.

Status                  Plans for a new high-speed rail system are dormant. As of December 1998,
                        the Texas Department of Transportation was in discussions with private
                        investors and a major railroad about taking an incremental improvement
                        approach to high-speed rail in Texas, but the proposal remains in the
                        planning stage.




                        Page 50                  GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix XIII

Northeast High-Speed Rail Corridor


Background              With the introduction of the Metroliner in 1969, the Northeast corridor
                        between Washington, D.C., and Boston became the first high-speed rail
                        corridor in the United States. In fiscal year 1997, the Northeast corridor
                        carried over 9 million of Amtrak’s passengers, making it the most highly
                        utilized Amtrak route. In 1990, the Congress directed Amtrak to upgrade
                        service on the corridor.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To improve the existing high-speed rail line between Washington, D.C.,
                        and Boston by electrifying the corridor north of New Haven, Connecticut,
                        installing continuous welded rail and concrete ties, rebuilding bridges, and
                        making numerous other improvements. The line is 457 miles long and links
                        Washington and Boston with New York, Baltimore, Philadelphia, and New
                        Haven. High-speed trains will operate at up to 150 mph.

Cost Estimate           The total cost for the improvement project will be approximately
                        $4 billion.

Status                  Work is under way to mitigate environmental impacts, straighten curves to
                        allow higher speeds, install concrete ties for a smoother ride, and improve
                        the existing signal system. This work is to be completed by 2001.
                        Electrification of the section of track between New Haven and Boston will
                        be completed by 1999. Amtrak is buying 20 new electric trains capable of
                        traveling 150 mph. New trains are set to begin service in fall 1999, with
                        higher speed operation beginning sometime in 2000.




                        Page 51                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix XIV

Gulf Coast High-Speed Rail Corridor


Background              Under TEA-21, the Secretary designated the Houston-to-Birmingham
                        corridor as a high-speed rail corridor. The states of Mississippi, Alabama
                        and Louisiana are working together to obtain funding for the Gulf Coast
                        corridor.

Proposed Technology     Incremental improvements.

Project’s Goals/Scope   To create a high-speed rail system linking Houston, New Orleans, and
                        Birmingham. The line would be approximately 719 miles. No further plans
                        have been created.

Cost Estimate           The project’s sponsors have not released any cost estimates.

Status                  A ridership and feasibility study is under way.




                        Page 52                 GAO/RCED-99-44 High-Speed Rail Projects in the United States
Appendix XV

Major Contributors to This Report


               Joseph Christoff
               Helen DeSaulniers
               Lewison Lem
               David Lichtenfeld
               Ray Sendejas




(348118)       Page 53             GAO/RCED-99-44 High-Speed Rail Projects in the United States
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