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Financing high speed rail and Maglev systems in Europe and the United States : implications for systems financing in Flo...


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Financing high speed rail and Maglev systems in Europe and the United States : implications for systems financing in Florida : executive summary
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Florida State University. Center for Economic Forecasting and Analysis;
University of South Florida. Center for Urban Transportation Research
State of Florida. Dept. of Transportation
Center for Urban Transportation Research (CUTR)
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Tampa, Fla
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High speed trains--Florida--Finance   ( lcsh )
High speed ground transportation--Florida--Finance   ( lcsh )
letter   ( marcgt )

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Financing high speed rail and Maglev systems in Europe and the United States : implications for systems financing in Florida : executive summary
Tampa, Fla
b Center for Urban Transportation Research (CUTR)
c 1992
High speed trains--Florida--Finance
High speed ground transportation--Florida--Finance
2 710
Florida State University. Center for Economic Forecasting and Analysis;
University of South Florida. Center for Urban Transportation Research
State of Florida. Dept. of Transportation
Lynch, Thomas A. (Thomas Anthony)
1 773
t Center for Urban Transportation Research Publications [USF].
4 856


. . FINANCING IDGH SPEED RA.a AND MAGLEV SYSfEMS IN EUROPE JAPAN AND 1HE UNITED STATES: IMPLICATIONS FOR SYSTEMS FINANCING IN FLORIDA JANUARY 12,1992 .... -... . . ' . . <. .. .. ,, .J.?. . :::.: V'Y -. ... . -. . .:... . . --. 'fBE 199Z.ANl'

EXECUTIVE SUMMARY PUBLIC TRANSPORTATION POLICY DEVEWPMENT WITHIN EUROPE, JAPAN AND TilE UNITED STATES Several important common traits are identifiable among nations surveyed with existing or newly proposed high speed rail (HSR) or maglev systems: o In each nation a close and cooperative government -industry pannership exists to achieve the goals of HSR/maglev development and deployment. These models of teamwork are instrumental to system development and implementation success. o At the close of World War II (WW!l) a number of developed nations rebuilt and modernized transportation (and other) infrastructure. o Large scale reinvestment in transportation infrastructure was deemed essential to domestic economic growth and well-being, and financed as a public investment. o The rail systems evolved into powerful national public entities and provided a vital public service public transportation. o In Europe, historically, the national tail systems were the principal means of moving large volumes of troops and equipment in two recent world wars. These systems were viewed, therefore, as national defense systems. Further investments to upgrade these systems were viewed as integral to the national defense interests of each nation. By contrast, in post WWU years in the U.S .. major transporta tion emphasis was on investments in the multi billion dollar National Defense Highway system o A clear circular trend is evident when comparing the evolution of rai l p ubl i c policy in the U.S to other nations. Each point in this circle begets the next and so on until the last point again begets the first point. The points include : I. Substantial levels of public investments result in high levels and quality of public transportation and HSR service levels. 2. Substantial levels of service and quality (and compe tit i ve fares) beget h igh levels of public usage and modal share; 3. High levels of ridership (as a percent of the total population) generate large public support for public investments in these transportation investments 4. Public support for the systems investments generate high per capita tax levels and public investment for public transit and intercity HSR. I


o Since the end of WWII these nations (along with the U.S.) all experienced a considerable growth in demand for automobile travel. o While per capita auto ownership in these countries was historically only a fraction (50% to 75%) of U.S. levels. These differences in auto ownership levels are decreasing each year. Autos per capita increased by 120% and !03% in Germany and France respectively over the 1965-82 time frame, while only increasing 37% over that period in the U.S. o In each country substantial growth in the airlines industry (also largely publicly owned) was also being felt. o In each country (including the United States) rail transportation planners were realizing the rapid erosion of intermediate distance travel markets to the automobile, and longer distance travel markets to the air mode. o Each country with a mature HSR system (Japan, France and Germany and to a lesser extent the other European and Asian Rim nations) realized that HSR service would provide a much more competitive new travel alternative to the air and auto mode helping to stem the large scale rail ridership erosion being experienced world wide. In the United States, this rationalization of transportation reality never materialized as the dominance of the "new" air and auto modes were allowed full expression with no consideration of "new" rail. o In th.e U.S. as elsewhere, the automobile is subsidized. In the United States, however, th.e subsidiary is considerably higher than in Europe and Japan. Increasingly in other nations, an environmental and other externality fee is attached to the automobile mode to more equalize the subsidies between modes. o In each. case the National Interregional Rail system (and transit) receives both operating and capital subsidies ranging from 29% to almost 70% of total combined expense. Public transit is similarly subsidized there and here o These public rail subsidies (and relatively low regulated fares) resulted in accumulation of substantial National Rail system debt for the nations examined. In each case (Japan, France, and Germany), by general agreement, the federal public sector is assuming responsibility for the vast majority of that debt. [Jigh Speed Rail iliSRl System In Japan, France, Germany (and elsewhere in Europe) a HSR system was developed >n top of an already highly-matured conventional rail system. As a result, much of the idersbip on the consioe[l!ply HSR smice routes is diverted from the substantial ase of c;Qnventional rail ridership. 2


o In each case, a pan of HSR capi!al construction costs is subsidized. The TGV Paris Lyon Southeast system may be an exception to this finding, but all accounts are not clear. Specific financing details are not available, but the evidence provided to date by SNCF suggests the TGV system does pay for all operating costs and a considerable amount of debt interest and (apparently) purchase and lease fees for rolling stock and initial HSR line construction deb t and interest. In the case of the TGV Atlantic the federal grant subsidy was precisely 30% of capital costs (or approximately $600 million 1991 dollars). o In each case where HSR is put into revenue service these systems Ontribyt e positively (or deter debt growth) to the national rail system's revenue earnings and throw off a surplus system profit. The financial profit to SNCF for the TGV Paris Lyon system is 15% of total revenues, while the intermediate speed IC servi ce generates a 9% surplus profit (over expenses) for the Germany National Railway. A similar (but not reported) positive return is generated by the Shinkansen in Japan, the U.S. Amtrak Metroliner service and (presumably) other HSR services across the world. These "profits" help sustain unprofitable conventional rail services elsewhere across the system and lower overall system accumulated debt. o Financing of HSR systems have at least two principal reven ue stream philosophies. The first is represented by the French TGV approach of exclusively focusing on a light" HSR system that transports passengers and light packages only. The alternative is represented by the "heavy" HSR approach of building a system to commercially carry both passeneers and The potential increases in revenue earnings must be balanced off again st considerably higher (as much as double from $16 to $32 million a mile) HSR system capital infrastruc tu re costs and potentially higher O&M costs. The latter is not yet clearly established. o The Europeans have established an important method to financing expensive new HSR rolling stock in at the lowest poss ible costs. They established a publicly held multi natio nal rail financing corporation. The 16 European (governmental owned) railway systems created Eurofima, a joint stock company under Swiss law for financing rolling stock, with an established triple A credit ra ting. The company can purchase vehicles in large series from international tender and provide advantageous fund ing for purchase or lease of these i nvestments to member railway systems. The aggregate value of equipment fmanced from 1956 10 1989 is approximately 25.7 billion Swiss francs. o A number of specific references are made to limited and even substan t ial real estate related gains associated with rail systems developments across the world. Fo r example JNR, (much lik e early U.S. rail expansions) initially developed considerable real estate assets as a basis for generating revenue and ridership in its ear l y years. Also, currently in Japan real estate revenues do retain an imponant part in private sector railroad systems balance sheets. In the U.S., Amtrak real estate revenues 3


exceeded $25 million annually in late 1980's, and Amtrak continues to attempt to increase those earnings. In Canada, France (Paris and Lyon), Germany, Sweden (and elsewhere) real estate development proceeds at and near station location s are valuable rail system attributeS. However, real estate returns are not anywhere reponed as a sienificant percent or wni.on of the system's strej\IJJ for specifically financing the HSR services in these countries. o Despite current extent of HSR systems deployment in each nation conventional rail service continues to loose ridersh ip. Auto and air modes continue to increase and dominate many segments of grow i ng travel demand. rail planners in these nations recognize in order to funher stem the tide of co ntinual erosion, increased investments in HSR!magtev public transportation systems will be warranted in the future. Dj[ferences Between European-Japanese and U.S. Public Transportation-HSR I!QUcies. Distinctly different and spec ifical ly focused public policies have evolved in the E uropean-Japanese nations (relative to the United States) i n support of the high speed (and ot. her) rail modes. These include (but are not limited to): o The Japanese and European mode l of close Government-private comoration partnership and cooperation is one of the primazy roots of sustained HSR and Maglev rese arc h achievements and de.ployment s uccesses Th i s teamwork in turn more easily begets public support. o In each country the major successes of HSR and Maglev research and development has been under written by public funds w ith substantial private industry research involvement. o Very powerful public agencies own and operate the national public rail systems. (Japan recently moved to privatize JNR, but '!las totally public un t il 1988 ) o The cost of automobile use is consi d erably higher in Eur o pe and Japan. This is true despite the fact that the U.S. auto fleet consumes more energy on average than any other nation examined. o These higher automobile ownership and operation costs are m ostly attributable to consciously applied public polic ies in each country with much h igher fue l and vehicle purchase tax levels. o Second, each HSR nation has an explicit policy of high motor oil (diesel and gasoline) taxes. The cost of the gasoline tax in every nation surveyed (except the U.S. and Canada) exceeds the cost of the fuel itself by a considerable amount. In Italy and 4


Denmark, as an example, the cost of tax exceeds the cost of the easoline 285% and 355%. respectiveb: while the tax is only 25% of tb.e fue l cost in Ihe U S. in 1991.1 o Gasoline prices in the U,S, in real terms, are exp_ensj ve today tb an at time since the end of WWIJ. This is attributable to the sustained low tax rate (i n real terms) in the U S. The spending value of federal and local gasoline taxes severely eroded up through the 1990's to be only a fraction of its value over the 19501 97 0 time period. This under priced value of the petroleum resource acce l erates waste ful over consumptive use of the resource in th e U.S., and detracts from the attractiveness of the public mod es o Sal e s tax prices on new U.S automobiles i s only 5% of a new car price while it is 14% in Germany 33% in France and 40% to 50% i n much of the rest of Europe and 186% of purchase price in Denmark. o Ave rage annual taxation o f a stan d ar d car in the U.S. (1982$) is only $119 while in Europe the average tax varies from $450 to $825. o Land use policies i n Europe and Canad a e i ther explici tl y prohib i t sprawled suburban developm e n t or stro n g ly encourage h i g h -density cl uster development, while in t he U.S. sprawl urban i zation i s systemat i cally e n couraged at all levels of governme n t im plicitly and exp licitly o Japanese, Frenc h and G e r man governments hav e the abi l ity to set p u blic po l icy procedures restricting comm e rcial transportation systems competition with HSR mode s Japanese French and German airlines are predominantly governmentally owned and al l c har ge air fares consi d e rably h i gher than U. S carriers (over s imilar ro ute mil e s ) and t h e domes t ic HSR s ystem f ares. Th e German government can dicta t e po lic y tha t will direct the H SR/air modes to b e complimentary an d not competi ti ve to thei r respective economic death For examp l e: In Frankfurt (and elsewhere) the i m e rnat i on al airport wa s dev el oped to interand intra-regional rail travel by providing djrt ac c ess, in airport, to both inter-regional HSR s ervic e and l ocal ligh t urban rail serv ice The German governm e nt encouraged its national air li ne Lu f thansa, to invest and own the interreg i onal rail business shuttl ing passengers between ai rpons on the Luf t hansa shuttle exp r ess rail system l !"ul>lic-Tn.o.!pC!rtllioo Filwtc!:\c Wid Suli di(l bx M2d iz, \bf tJMtc.d Sul:-J, A rqn t0 the-Hi&:b Spud lWI At)itlioo Conlcte'f'lc t T Florida St.a1e U4ivenily, M-y 7 l99 1 5


The federal Gennan government has instituted a national uansportation policy that no domestic commercial airlin e Oiellts will o pera te within the national boundaries of Germany by 1995. All jntcmal travel will be on auto. sur{ace HSR or other carriers The federal govern ments, as in the case of France, can effectively regulate nat io nal airline fares and thereby keep unwarranted price w ars and unc orn petitive market gouging from go in g o n within cenain corridor s. While the ability to regulate fares can be an asset, it can also operate as a constraint in differing settings. This ability can facilitate maintaining low HSR fares (as they are in France, Japan and Germany and all other cases examined especially relative to the air mode) and this can greatly facilitate increasing travel and access to these markets to a wide spectrum of society. This ability to regulat e fares can also tend to facilitate building of broad social support for the systems. The constraining nature of this governm ental prerogative can also be very deb ilitating to a s y ste m as it was in Japan. If rates are artificially maintained at too low a level for too long insuffi cient revenue is genera ted and general debt becomes substantially bloated The general tr aveling public becomes accustomed to very inexpensive trave l costs (as the U .S. is with the price of gasoline ) and resistant to any measurable increase in travel costs. Very low (governmentally regulated) JNR rail fares, resulted in the national railway accumulating a very large debt. This, in tum, resulted in inevitable fare adjustments in the mid-1980 s which resulted in a brief general strike on the part of consumers and eventual governmental assu mption of the huge deb t and the di smembermen t of the JNR nat ional railways itse lf. o The Euro pean nations examined ev aluate the financial and socioeconom ic feasibi l i ty oi development of alternative HSR corridor developments in their analysis Given that the accepted public purpose of these nationally owned HSR systems is to deliver transportation and other social and economic services (jobs, e.fficient economic growth and so forth), these public sector returns are calculated into the corridor feasibility ev al uation. For example, while the TGY Southeast estimates a 15% financial Internal Rate of R eturn (IRR) for the Fren ch N ational Railroad syst em planner s also estimate a 30% socioeconom ic IRR for that alignment. Similar ly. the fi nancial and eco nomic returns for the TGY Atlantic are 12% and 23%, IRR respectively o The Commun ity of E uropean Railways estima t ed that as much as $120 billion investment in 5,600 miles of very high (155-200 mph) rail corridor and 9,200 miles of intermediate speed (up to 130 mph) HSR service will be developed by 2010. They have estimated that this European HSR network will yield the following immedi ate 6


and longer run economic and financial returns to the rail companies and economic and socio-economic returns to the localities. European Hieh Speed Rail Network Financial Economic Viabilit}!' Financial Investments Internal Rate of Return Network Service VI (1995) V2 (2005) V3 (2015) Source: European Rail Community At Date of Entry Into Service 9.4% in 1995 9.8% i n 2005 10.8% in 2015 1 0 Years after Entry Into Service 13.3% in 2005 14.1% in 2015 15.5% in 2025 European High Speed Rail Network Financial and Socioeconomic Inlernru Rat e o f Return' Network Service VI (1995) V2 (2005) V3 (2015) At Date of Entry Into Serv ic e 17 .7% in 1995 19.3% in 2005 20.1% in 2015 10 Years after Entry Into Service 24 .1 % in 2005 26.4% in 2015 28. 1% in 20254 2 Cktatdi:D. 8 .. r&aadrc tbc-Er.lrt'lptCI fiiab Speed Ttala NawOI't, PllMio& llloCI Tr&!!:!p9tt g m .arch and Came...._OOn. Vol. P'l20. J 9l9 .pp HS. E. PTRC, Gcrv4., 7


IMPLICATIONS FQRIMI?T..EMENTATION AND FINANCING OF HSRIMAGLEV ELSLOWHERE IN THE UNITED STATES This review of HSR and other public transportation s ystems financing in Europe and Japan offer some clear implications for financing HSR systems in Florida. These include: FINANCE o Initial public support for HSR cap ital costs (for right-of-way, rail line construction, land purchase and so fonh) is essential, to some extent, on virtually every proposed alignment. o Levels of pub li c support for infrastructure will vary considerably between different urban corridors o State and Federal (or a public/private cooperative venture offering) low interest loans for additional capital sru! rolling stock purchases are essential to maintain a HSR positive cash flow. o H igh quality and competitively p riced HSR service will command substantial and loyal ridership base. This ridership base may, however, require a number of years to mature. o Ridersh i p revenues will, at a minimum, pay all operation costs and t ypically be able to offer some repayment of capital debt needs. This capability will expand w i th the maturing of the ridership base given the lack of substantial existing rail use. o Evaluation of possible HSR freight markets within corridors shou ld be examined. o Direct real estate revenues from joint or indiv i dual developments can offer attract iv e returns but these prospectS are typically loc alized to the sta tion area (within a m ile) or physically linked to the rail system These revenues can most effectively be captured with development planned and executed in the earliest stages of rail system development and only be effective with local government cooperat ion o Capture of rail induced property value land appreciations n ear the rail alignment can be accomplished through special assessment districts. T hese reven ue s can most effectively be captured with local government cooperation. o Rail fares should offer travel cost incentives below conventional air services. o HSR corridor evaluations shou l d comprehensively include socio-economic and environmental benefits and fairly compare system economic returns to the alternative modes. 8


rUBLIC POLICY > The first adjenda is to design and implement a powerful and new American model Qf government/private sector cooperative Rartnership. This team must !>e forged immediat ely with a common purpose to research. build and deploy HSR and Maglev systems within the Un jted > The common mission of this new joint public/private partnership must be to deliver one service high quality and efficient public transportation. > The financial base of this new relationship should be joi nt public/private with dominant funding from public sources and private sector initiatives functioning to develop patients and properly capitalize on implementation and operation aspects Coordinated Fed eral state and local government public policy and environmental reviews must operate to facilitate HSR system ridership growth. HSR systems must be efficiently integrated with airports, pub lic mass trans it systems, conventional rail systems, and automobile modes. These complimentary mul t i modal linkages are central to success or failure of HSR ridership growth Extensive expansion of competitive inter-urban tran sportation networks should be d iscouraged. For example HSR airport linkage s (and associated costs) shou l d be explored instead of expansion of regional airports capacity. Continued highway capacity expansion should be halted in corridors competitive with deployed HSR services. Compatible land use and comprehensive plan designations adjo i ning the HSR alignment and stations must be ensured. A broad based public policy evaluation, and public education and communication program should accompany HSR system development. This program should explore the p u b lic services delivered by the HSR system and generate conclusions of that research to ensure publ ic support. 9


Center For Eecmoml c Dr. Tim Lynch, Dirutor The Cenur for Economie Foreeaating and Analyaio (CEFAl, loc:a!A!d at Florida Stab! Univeraity, apeeialiua in tho conotnu:tion of computer-buod nomic uattament and forocuting models. Analyzio ia eonduciA!d in a range of reeearch areu ineludina envi.ronmen tal and transportation, revenue forecasting, fiacal impacts, compre.henaive planning and capitol and infrutructuro evaluation, and real utau and land uae planning. The een!A!r provides IA!chnical oupport, training, and eonaultation in tho areas of benefit/coat and eoat/efl'ectivenesa analysia, atatatical and computer model development, and other areao of nomic anaJysiL Select projecto and studieo include : Development of a sa lea tu economic forecasting and impact model, for assessing the diverse fiscal and societal implication& of a proposed one percent local option sales tax inerease for transit in Dade eount;y. Evaluation of tranaportatlon rela!A!d btnefito in Dado eounty from lower fares and u pgraded rail and bus transit serviees seroaa the coun ty. Development of an environmental economic model, and analywU for the South Florida Water Management Diltrict to auesa the eoata and benefit& of the Everglade. compr&henaive restoration and protection plan Deve lopment ofmodela, and comple tion of economic and fiacal analyoio for the Florida Department of Tranaportation, Offiee ofHJab Speed Transportation on p ropooed mac netic l evitation and high opeed rail oya!A!ms. Training and development for tho atoll' of public and privatA! agencies in the areas ofbenefitleoat and coat/ etTeetivenesa analysia, atatiatical and computer mode ling, and guidanee on federal and otate economic impact auessment. statements. Dr. Lynch currently servu as Visiting Scientist for Argonne National Laboratory developing transportation-related environ mental assessment models He is a member of the U S Senate Magnetic Levitation Technical Advisory Committee. Recently appointed, Dr. Lynch also serves on the National Academy or Scien ce Federal Levita tio n D e v elopment Program Advisory Boa r d. TM Ctnt