FDOT-FOX HIGH SPEED RAIL PROPOSAL
Submitted to the
By Wendell Cox,
The 1997 James Madison Institute report concluded that the proposed Miami-Orlando-Tampa
high speed rail line would carry many fewer passengers than projected, cost much more than
projected and expose the taxpayers of the state to enormous financial exposure.
I. TAXPAYER RISK: CAPITAL COST OVERRUNS ARE LIKELY
Florida taxpayers face a substantial risk from capital cost overruns.
A. National Academy of Sciences research: Large capital cost overruns: The
James Madison Institute report estimated that capital cost overruns on the project
were likely to be in the range of 15 percent to 115 percent (65 percent "Realistic
case"). A recent study published by the National Academy of Sciences notes that
large transportation infrastructure costs are commonly 50 to 100 percent or more
above projections, confirming the reasonableness of the James Madison Institute
B. A large capital cost overrun is projected. A capital cost overrun of $1.4 billion
to $11.2 billion ($6.3 billion, "Realistic Case") is projected in the James Madison
Institute report. The promoters claim that taxpayer risks for cost overruns can be
eliminated through performance guarantees, a pledge of corporate assets and other
mechanisms designed to be bankruptcy proof ("Florida's Investment in a High
Speed Rail System," Briefing Document Compiled by Senate Transportation
Committee Staff and Florida Department of Transportation). Performance
guarantees and other mechanisms designed to be bankruptcy proof will do nothing
to protect Florida taxpayers from the much greater risk of large operating deficits
(See #2, below).
C. Iron-clad capital cost guarantees are required. The taxpayers should be
protected against capital cost overruns, with "iron-clad" guarantees that are
bankruptcy proof. Possible approaches include performance bonds that would
guarantee the agreed upon price, or a pledge of the assets of the parent companies
of the sponsors. The FOX sponsors (subsidiary companies) do not have sufficient resources to provide sufficiently reliable financial
II. TAXPAYER RISK: HIGHER OPERATING DEFICITS
Operating deficits would be the combined result of operating cost overruns and shortfalls in
passenger revenue. Lower revenue would be the result of lower than projected ridership. There
are a number of indications that the ridership and revenue projections are overly optimistic:
A. The USDOT Federal Railroad Administration forecasts are considerably lower than the new forecasts: Revenue projections by the Federal Railroad Administration (FRA) for virtually the same route are at least 35 percent lower than the FOX projections. A forecasting error of this magnitude could require $6.5 billion to $8.5 billion in additional Florida taxes.
B. Proposed high speed rail fares will need to be reduced to compete with air
fares: To compete for airline passengers, high speed rail will need to charge fares
that are no higher than air fares. Airlines routinely reduce fares to compete with
low cost carriers, and there is no reason to believe that high speed rail would be
able to charge lower fares than the airlines. Currently air fares are lower than
projected high speed rail fares, and could fall to at least 32 percent below in
response to high speed rail competition. Lowering fares to equal air fares could
require up to $6 billion in additional Florida taxes.
C. The connecting passenger airline market potential appears to be nil. The high
speed rail promoters assume that nearly 1.5 million annual connecting ("air
connect") passengers will be supplied by airlines operating in Florida markets.
The promoters assume that airlines could reduce operating losses by using high
speed rail for connecting passengers, instead of short distance airline flights. But
it appears that airlines are earning profits on short distance flights, and they are
making major capital investments in more efficient aircraft to increase their
operating margins on such services. Further, the promoters appear to have
overestimated the size of the air connect market. The air connect projection was
considered questionable by the Independent View of Florida's High Speed Rail
Ridership Forecasts by Wilbur Smith Associates. There seems to be no realistic
prospect for high speed rail to attract a material portion of the "air connect"
market. This apparent invalid forecasting assumption incorrectly raises high speed
rail revenues by $7 billion, which would have to be made up by Florida taxpayers.
D. Europe: Lower ridership and higher costs: The two London-Paris-Brussels
Eurostar high speed rail trains carry fewer riders than are projected by the Florida
promoters. The Eurostar trains serve a market three times larger than the
projections for the proposed Florida route. Both automobile costs and air fares are
higher than high speed rail fares.
E. Auto users will have no financial incentive to use high speed rail. Depending
on the size and nature of automobile travel, high speed rail will cost from 1.5 to
25 times as much as driving an automobile over the same route. To attract a
significant number of automobile users would require far lower fares.
F. National Academy of Sciences research: Large operating deficits: The
Academy of Sciences report also found over-projection of ridership in major
projects, on the order of 20 to 60 percent and that operating costs are often higher
G. Large operating deficits are projected. The James Madison Institute report projected unplanned operating deficits ranging from $9.5 billion to $24 billion ($17 billion "Realistic Case"). The projected operating deficit is considerably larger than the projected capital cost overrun (See #1, above). There are no plans to require a performance guarantee or pledge of parent company assets to protect Florida taxpayers from risk. The James Madison Institute projection is similar to forecasting errors found in the National Academy of Sciences research.
III. AIR AND HIGHWAY CONGESTION WILL REMAIN UNCHANGED
Despite the claims of promoters, air and highway congestion will be virtually the same
regardless of whether high speed rail is built:
A. High speed rail would not reduce air traffic congestion. All airports in the
Miami-Orlando-Tampa corridor are expanding or intend to expand to
accommodate rising demand. Even if the optimistic FOX projections were
accurate, airline operations would be reduced by only two percent.
B. High speed rail would not reduce traffic congestion. FOX would remove so
few automobiles from highways that traffic congestion would remain continue to
grow. Diversion from automobiles would average three percent of the traffic in a
single highway lane. High speed rail would not reduce the demand for highway
IV. THE RISK TO FLORIDA TAXPAYERS: $11 TO $37 BILLION EXTRA
Once the bonds are issued, the taxpayers will have little or no financial control, because of the
state's covenant to complete and operate the high speed rail system.
A. James Madison Institute: Substantial Deficits Projected for FOX: At these
rates --- all below or within the range suggested by the National Academy of
Sciences research, Florida taxpayers would be required to pay an additional $11
billion in subsidies. In the worst case, additional taxpayer subsidies of more than
$37 billion could be required --- a range similar to that suggested by application
of the National Academy of Sciences research findings.
B. Similarity to previous forecasting errors: The optimistic ridership and cost
forecasts prepared by high speed rail promoters are reminiscent of the major
forecasting errors in previous projects, such as Miami's Metrorail and
Jacksonville's "Sky-Express" and South Florida's "Tri-Rail." It is unlikely that the
high speed rail project will generate enough revenue to pay its debt beyond its
third year of operation, much less earn a profit.
C. Florida taxpayers: shouldering the risk: In the final analysis, the taxpayers of
Florida will take the entire risk for both over projection of revenues as well as
under projection of capital and operating costs.
(1) The high speed rail developers will be liable only to the extent of their
investment (less than 5 percent of project capital and debt service cost).
(2) Private bondholders will be protected by a state guaranteed "covenant to
complete and operate," which will have the same effect as the full faith
and credit of the state of Florida. While the promoters claim that the public
will be protected by "performance bonds," there is virtually no prospect of
obtaining performance bonds of sufficient value to protect the public.
(3) The federal funding will either be in the form of loans or loan (bond)
guarantees --- payable by the state of Florida. Any shortfall of revenues
relative to expenses will be the responsibility of the state and its taxpayers.
Evaluation of the FDOT-FOX Miami-Orlando-Tampa High Speed Rail Proposal (4-97)
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