Written assurances from Miami International Airport and Orlando International Airport that their aggregate contribution to the project of $150 million is "reasonable and obtainable."⁽⁵⁶⁾

Currently, approximately $9.5 million is being spent on additional studies and legislative advocacy ($435,000). Most of the work, including a $2.25 million detailed ridership projection, is being performed by FOX, which is being reimbursed by FDOT at a 75 percent rate. If the current agreement ("Pre-Certification Post-Franchise Agreement") is terminated before January 31, 1998, FDOT would be obligated to pay 100 percent of FOX's costs (even if the termination is initiated by FOX).

The Market

Despite being the nation's fourth largest state and having four metropolitan areas of a million or more, conditions for high-speed rail are less favorable in Florida than in the other markets. Mass transit is sparse and ridership per capita is half that of the national average. There is virtually no network of connecting rail service (see Table 5).⁽⁵⁷⁾

The developed areas of Miami-Fort Lauderdale-West Palm Beach, Orlando and Tampa-St-Petersburg could accommodate the population of Tokyo, Nagoya and Osaka respectively with room left for Orlando and Fort Myers-Cape Coral (Chart 1: Comparison of Florida and Japan Rail Corridor Urban Population).⁽⁵⁸⁾

The developed area of Tampa-St. Petersburg could accommodate the 13 million people who live in the Chicago and Dallas-Fort Worth metropolitan areas at Paris metropolitan densities.

Developed Orlando could accommodate the metropolitan populations of Seattle, Denver and Portland (Oregon) combined at Paris metropolitan densities.

Other high-speed rail corridors are more densely populated, which increases demand. The Tokyo-to-Osaka population per route mile is 163,000; Paris-to-Lyon is 46,000, and Washington-to-New York is 113,000. In contrast, the Miami-Orlando-Tampa corridor population per route mile is only 26,000, barely half the weakest high-speed rail market. Even Florida's high rate of growth will change these ratios little in the foreseeable future. The relatively low population density along the Miami-Orlando-Tampa corridor would make it more difficult to attract riders.

Local Transit Connections: Unlike other high-speed rail applications, the FOX system would not be supported by either extensive transit connections or by a proclivity on the part of Floridians to use transit services. Comprehensive metropolitan rail transit systems serve high-speed rail stations in Tokyo, Nagoya, Osaka, Paris, Lyon, New York, and Washington, together with frequent bus service.

Transit ridership in the Tokyo area is more than double that of the entire United States, while combined Tokyo-Nagoya-Osaka transit ridership is nearly four times total U.S. ridership.⁽⁵⁹⁾

Paris and Lyon transit ridership is more than 3 billion annually, while New York-Washington corridor ridership is more than 2.5 billion. In contrast, all of the transit systems in the Miami-Orlando-Tampa corridor combined carry less than 120 million passenger trips--less than 1/20th that of the New York-Washington or Paris-Lyon corridor and nearly 1/200th that of Tokyo-Nagoya-Osaka.⁽⁶⁰⁾

Among the 39 U.S. metropolitan areas of more than one-million population in 1990, Miami-Fort Lauderdale ranks 18th in per capita annual ridership; Tampa-St Petersburg is 38th and Orlando is 39th (last). Weak Miami-Orlando-Tampa corridor transit ridership would be a significant deterrent to high-speed rail ridership. This deficiency is so severe that it cannot be corrected by a FOX shuttle bus system or any transit improvements under consideration.

Connecting Intercity Rail Network: While Japanese and French high-speed rail lines are supported by extensive intercity rail connections serving 100 million or more people, almost no one can connect to the FOX line by frequent rail service. Two daily round trip Amtrak trains serve Orlando and one serves Tampa (in the middle of the night). Despite its close proximity to Florida, there is no direct service to Atlanta. An Amtrak trip from Atlanta to Orlando would require routing through Washington, D.C., and take more than 39 hours for a trip that can be made by auto in under eight hours.⁽⁶¹⁾

Tourism: FOX anticipates substantial growth in tourism, which would generate higher ridership. But future growth may be much more limited than expected. After years of steady growth, tourism in the Miami-Orlando-Tampa corridor has declined. From 1990 to 1994, tourism dropped by 3.4 percent, a 0.9 percent annual decline. FOX attributes this drop to the "national and international recession early in this decade." Yet during a similar period, 1980-1984, Florida's tourism grew 36 percent, an annual increase of 8.1 percent.⁽⁶²⁾

The periods were similar in economic growth and both included recessions. Continuing stagnation or a lower growth rate could make it more difficult for FOX to achieve its ridership and revenue projections.

Competitive Analysis: Airlines

High-speed rail competes with airlines over distances of less than 500 miles, performing virtually the same function as an airline. FOX projects that high-speed rail would attract more than 65 percent of the air market between Tampa and South Florida and between Orlando and South Florida. FOX expects to attract 80 percent of the Miami-to-Orlando air market. (Chart 2: Projected Market Share: 2010).

Air and Rail Travel Time: Door-to-door high-speed rail travel times are likely to be similar to airline times from South Florida to Orlando.

High-speed rail travel times should have up to a 15 minute advantage from Miami to Orlando Attractions. FOX would have an "overhead" time advantage⁽⁶³⁾

to Orlando Attractions by virtue of its station at that location. Travelers to that station would arrive closer to recreational and entertainment sites, reducing overall travel time compared to airlines.

However, FOX would have up to a 15 minute disadvantage to Orlando destinations served from the Orlando International Airport station.

High-speed rail is also likely to have a considerable disadvantage--up to one hour--from Tampa to Miami. This is because FOX would operate over a longer route through Orlando. Despite an hour travel time disadvantage, FOX predicts that it would attract more than 50 percent of the Miami-Tampa air market.

Airline service is much faster between Tampa and South Florida because it operates directly between Tampa and South Florida, not through Orlando (see Table 7, page 25). This illustrates one of high-speed rail's most daunting difficulties--the inflexibility of its route infrastructure. High-speed rail requires expensive infrastructure between terminals, making it prohibitively expensive to provide speedy service to more than one market. Airline route infrastructure is much less expensive, and consists primarily of computers.

Further, FOX will not have an advantage typical of most high-speed rail systems--downtown stations--which make high-speed rail competitive with airlines for downtown oriented trips. FOX's only downtown station, Tampa, serves a relatively weak commercial center that contains only 3 percent of the metropolitan area's employment.

Air and Rail Travel Costs: FOX anticipates a considerable price advantage relative to airlines. First class rail fares are to be 28 percent below airline first class fares and full economy fares are to be 40 percent below airline economy fares.

However, the projected FOX rail fare advantage over air fares has already disappeared. Within the last two years, the nation's leading low fare airline, Southwest Airlines, entered the Tampa-to-Fort Lauderdale market. And in 1996, Southwest entered the Orlando-to-Fort Lauderdale market. As has routinely occurred in other U.S. air markets, major airlines have matched the new lower fares of the new market entrant. Further, the impact of lower fares is felt in adjacent airline markets in the same metropolitan areas. Air patrons in the Miami-Fort Lauderdale area are served by two airports with substantial commercial service, Miami International and Fort Lauderdale International. The considerably lower fares in the Fort Lauderdale-to-Orlando and Tampa markets attract patrons that might otherwise fly from other airports, especially Miami. Fort Lauderdale's market share of Miami/Fort Lauderdale-to-Orlando air travel nearly doubled after Southwest Airlines entered the market⁽⁶⁴⁾

(Chart 3: Airline Market share: Orlando to South Florida; 1996: First Nine Months & Last Three Months).

Moreover, the cost competition at Fort Lauderdale has put downward pressure on fares at Miami International Airport. Air fares have dropped substantially since 1995 (see Table 6). The average fare in all markets combined had dropped to 44 percent below FOX's projected airline discount economy fare and 59 percent below FOX's projected full economy air fare. In recent months, airline fares have dropped more than 30 percent in Florida, which, according to FRA, should reduce high-speed rail ridership by at least 30 percent (Section III, above) to 4.2 million or less. Average air fares in 1996⁽⁶⁵⁾

are estimated to be at least 15 percent below the proposed average FOX fare in 2010.⁽⁶⁶⁾

The 1996 fares still may not reflect the full effect of the increasing competition in Florida's air markets, because they do not reflect a complete year of heightened competition. In the first full quarter after Southwest Airlines entered the Orlando-to-Fort Lauderdale market, the average fare dropped 22 percent to $43.80.⁽⁶⁷⁾

By March 1997, Southwest Airlines' unrestricted one-way fares between Tampa and Fort Lauderdale and between Orlando and Fort Lauderdale were $65. It was not possible to pay a higher fare. Discount fares had dropped to as low as $22 between Miami and Orlando.⁽⁶⁸⁾

Competitive Positioning: Moreover, it is reasonable to expect that the airlines will become even more competitive as time passes.

U.S. airline fares per passenger mile have been steadily declining, a drop of more than 40 percent from 1984 to 1994 (inflation adjusted).⁽⁶⁹⁾

Preliminary data indicates a continuation of the same rate through 1996.⁽⁷⁰⁾

Smaller regional jets will replace propeller driven aircraft on shorter routes, which will further reduce costs. Some of the commercial flights in the Miami-Orlando and Miami-Tampa markets are propeller driven. Because many people avoid propeller driven aircraft, substitution of jet for propeller aircraft will increase the attractiveness of air service.

Table 6 Comparison of FOX 1995 Air Fares and Actual 1996 Air Fares
Market	FOX 1995 fares			1996 Fares
	Full Economy	Discount Economy	Restricted Economy	Average Fare	Compared to 1995 Discount Economy
Orlando-Miami	$204.00	$145.00	$69.00	$84.66	-41.6%
Orlando-Fort Lauderdale	$213.00	$160.00	$65.00	$55.80	-65.1%
Orlando-West Palm Beach	$262.00	$149.00	$99.00	$90.42	-39.3%
Tampa-Miami	$199.00	$154.00	$29.00	$80.48	-47.7%
Exhibit: Tampa-Fort Lauderdale(71)				$51.46
Weighted Average	$205.73	$150.64	$57.18	$83.74	-44.4%
Excludes Passenger Facility Charge ($3.00)

Larger, more efficient jets are also being introduced. For example, Southwest Airlines will soon operate 162-passenger Boeing 737-800 jets. Other carriers may substitute larger and more fuel efficient aircraft, such as Boeing 757's, next generation McDonnell-Douglas MD-80s or new Airbus models. This is likely to reduce airline costs in the Tampa- and Orlando-to-South Florida markets and will make it possible for airlines to accommodate a substantial increase in passengers without adding flights.

The more established, larger airlines are likely to continue to become more cost effective as they implement more efficient labor-management work practices and establish more competitive subsidiaries (such as the United Airlines' "Shuttle").

Additional entrepreneurial airlines may enter the market.

The airlines are already providing daily departures in excess of the 24 that FOX asserted would not be possible. Air service frequencies now exceed FOX's "impossible" threshold by 30 percent in both the Orlando-Miami and Tampa-Miami markets. In these and other markets the only barrier to higher service levels in other markets is insufficient demand.⁽⁷²⁾

The airline industry is dynamic and volatile. The average airline fare in the Tampa-South Florida and Orlando-South Florida markets is already below the proposed average rail fares. It is probable that air fares will continue to decline in real terms. But even if they were to increase, airlines can be expected to respond to a new entrant's lower fares by meeting them, as they have in virtually every previous case.

Competitive Analysis: Automobile

High-speed rail has been more successful in attracting airline passengers than auto users. FOX projects that its trains would attract a much smaller percentage of the automobile market, 6 percent. However in some markets, the FOX projects that rail market share would be higher at more than 15 percent in the Miami-Orlando market and 11 percent in the Orlando-Ft. Lauderdale market.

Auto and Rail Travel Times: FOX trains are likely to provide door-to-door improvements over automobiles of 1:15 to 1:30 from Miami to Orlando and Tampa. However, the automobile is likely to be 25 or more minutes faster than high-speed rail from Tampa to Orlando (see Table 7).⁽⁷³⁾

Moreover, the cost of automobile travel has been declining in inflation adjusted terms. From 1980 to 1994, the total cost per vehicle mile of automobile travel declined by 20 percent (inflation adjusted).⁽⁷⁵⁾

A continuation of this trend would make FOX travel less attractive for automobile trips.

FOX would effectively compete for longer auto business trips along the corridor. FOX's more than one-hour time advantage may negate some or all of its disadvantage in price as long as no more than one person is on the trip. FOX would be at a great disadvantage in the nonbusiness auto trip market, where its relative costliness is unlikely to offset its travel time advantages.

Short Trips: FOX projects that more than 1.7 million passengers would be attracted annually from the Interstate 4 corridor between Tampa and Orlando, more than 5 percent of the automobile market. This includes trips between Tampa and Lakeland (35 miles), Lakeland and Orlando (49 miles), and Tampa and Orlando (84 miles). FOX's projections are so dependent upon the I-4 corridor that only 40 percent of passenger diversions from auto to high-speed rail come from other portions of the route.

U.S. Department of Transportation data indicates that the overwhelming majority of intercity trips of less than 100 miles are by automobile. Less than 0.5 percent of such trips are by airplane. Air travel tends to be slower than auto travel times because of the overhead time--traveling to the airport, checking in, and waiting to depart. As a result, approximately 99 percent of travel in such short travel markets is by auto. High-speed rail would face virtually the same competitive disadvantages.

In a short corridor, an automobile averaging 45 to 60 miles per hour (or faster) can provide a faster door-to-door trip than an airplane capable of 600 miles per hour or a train capable of 200 miles per hour. If Tampa-Orlando were a lucrative high-speed market, significant numbers of people would be using airlines today, but they are not. An additional factor limiting airline and high-speed rail in short corridors is their high cost compared to automobile travel (see Table 8).

In contrast, FOX projects a much smaller diversion from automobiles in the Miami-to-West Palm Beach corridor, despite its similar length and much higher travel demand. FOX projects the Miami-West Palm Beach corridor auto diversion at less than 1/15th the I-4 corridor rate. Most improbably, auto users are projected to use FOX in the 35 mile Tampa-to-Lakeland market more than in the 75 mile Miami-to-West Palm Beach market. FOX does not explain why people in central Florida would have such a greater propensity to ride high-speed rail than people in South Florida.⁽⁷⁷⁾

Evaluation

Prospects for high-speed rail appear less than favorable in the Miami-Orlando-Tampa corridor.

Florida and Other High-Speed Travel Markets: The Florida market is considerably less favorable for high-speed rail than other markets.

Low population and population density: Population and population density are considerably less favorable for high-speed rail in Florida than in Japan, France, or even the New York to Washington corridor.

No ridership from connecting intercity rail: Unlike Japan and France, Florida would have no market of existing rail riders to make up the bulk of high-speed rail ridership, as other rail services of significance do not exist. In both Japan and France a significant percentage of high-speed rail riders have been attracted from other existing rail services.

Weak and poorly used transit systems: Transit use and connections are meager in the Miami-Orlando-Tampa corridor.

Competitive airline market: Unlike Japan and France, high-speed rail in Florida would not be protected from competition by government policy. Air fares, therefore, are likely to be the same as rail fares.

Far less expensive auto travel: Unlike other high-speed rail corridors, automobile trips would be considerably less costly in Florida (Chart 5: Personal Trip Costs).

The FDOT-FOX projections reflect the weakness of the Florida market. While Japan's most successful line carries 138,000 person miles of travel per route mile each day, the FOX system would carry 7 percent as many person miles, less than 10,000 persons.⁽⁷⁸⁾

Ridership: The FOX ridership projection appears to be extremely optimistic for the following reasons:

FOX's forecast of a 65 percent capture of the air market is exceedingly high. In the New York-Washington market, Amtrak's high-speed services attract only 40 percent of the market despite a more than 40 percent price advantage. FOX is not likely to have a fare advantage and seems likely to do less well than Amtrak.

Diversion from automobiles appears to be overstated, especially in the Orlando-Tampa market. Further, FOX auto diversion projections are high in Orlando-to-South Florida markets. FOX anticipates attracting more than 11 to 15 percent of Orlando-Miami and Orlando-Fort Lauderdale automobile trips. Diversion from autos in the Paris-Lyon corridor is only 10 percent, despite perceived automobile costs that are 20 percent above rail fares. In Florida, the perceived cost of traveling by auto in this corridor is approximately 50 percent below the economy rail fare.

FOX projected ridership appears to be higher than the total ridership within the Paris-Lyon corridor, where 75 percent of the riders begin or end their trips at points beyond Paris and Lyon.

Revenue: Similarly, the FOX commercial revenue projections appear to be overly optimistic. Without much larger subsidies, average FOX fares could be no more than the going market rate--the average airline fare.

It is inconceivable that FOX would be able to price its tickets at 28 percent to 40 percent below airline fares. Airline fares have already fallen below FOX projected fares.⁽⁷⁹⁾

The airlines would have more flexibility to reduce air fares than FOX, because airline fixed costs (capital costs and debt service) are a much lower percentage of overall costs. Airlines typically have fixed costs of below 25 percent,⁽⁸⁰⁾

while FOX's fixed costs would be at least 55 percent, assuming that its operating and capital costs are no higher than projected. If airline productivity continues to improve at 1980-1996 rates, FOX fares would need to be set below the level required to cover fixed costs.

National studies have predicted that commercial revenues would fall far short of system costs. FRA projected commercial revenues at 37.7 percent of Miami-Orlando-Tampa costs in 2020. In that year FOX projects a profit.

Operating Costs: FOX operating costs appear to be optimistic. According to FDOT, FOX operating expenses "appear to be underestimated by at least 10 percent."⁽⁸¹⁾

High-speed rail operating costs have been estimated at from 29 percent to 122 percent above FOX proposed costs.⁽⁸²⁾

FOX's costs per train mile are projected at less than one-half those of Amtrak.

Receipt of federal funding could substantially increase operating costs. Federal passenger rail and transit assistance has been subject to federal labor protection provisions that require up to six years (yes, years) severance pay to laid-off employees. FOX has indicated that it does not expect to be subject to federal labor protection, which would make FOX the only federally funded surface transportation so exempted. This seems unlikely. Federal labor protection provisions are expensive. In Amtrak's case, potential labor protection costs have been estimated at between $2 billion and $5 billion. Transit costs are estimated to be up to $2.5 billion higher annually because of federal labor protection (15 percent of operating costs).⁽⁸³⁾

There is considerable uncertainty surrounding high-speed rail operating costs. No similar high-speed rail technology has been operated in the United States, and operating cost forecasts have been inaccurate on many other infrastructure projects (Section IV).

Capital Costs: The costs of constructing high-speed rail in the United States have been estimated at from 14 percent to 114 percent above FOX projections. Some large infrastructure projects have experienced much greater cost escalation, up to 300 percent. It would be prudent to plan for capital costs escalation of up to 100 percent (Section IV).

Any delay after construction starts would produce an estimated $250 million in interest charges annually. And acceptance of federal funding could substantially increase capital costs due to federal mandates and labor protection provisions.

Overall Evaluation: Three cases were prepared for evaluation of the FOX proposal (see Table 9 and Appendix)

Optimistic Case: The Optimistic Case assumes that FOX would be able to achieve its anticipated average fare per passenger and would attract 35 percent of the air market. This is nearly as much as rail in the New York-Washington market, which has substantial fare advantage relative to airlines. The automobile market share is assumed at the Paris-Lyon rates. In all three cases, an adjustment is made to reflect a more realistic estimate of FOX's ability to attract automobiles in the Orlando-Tampa corridor. The most conservative operating and capital cost escalation values are used. This case is considered highly optimistic because (1) rail does not attract such a large air market share where fares are competitive, (2) the highly automobile-oriented Florida market is less likely to switch to rail, (3) and large infrastructure projects are often far more costly to build and operate than the low cost escalation assumptions used.

Realistic Case: The Realistic Case assumes that FOX fares would drop to meet the current 13.6 percent airline average fare advantage. A 25 percent air market share is assumed, while attraction from automobiles is reduced by approximately 30 percent. Capital and operating cost escalation is estimated at the midpoint between the Optimistic Case and the Pessimistic Case.

Pessimistic Case: The Pessimistic Case assumes that FOX fares would have to be reduced by 47.5 percent to meet the lower airline fares permitted by continued airline productivity improvements and that high-speed rail's air market capture would be 20 percent. Attraction from automobiles is estimated at Swedish rates. The highest cost escalation estimates (over 100 percent) are used. Cost escalation could be more significant, however, because large infrastructure projects have experienced cost escalation of up to 300 percent.

Table 9 Evaluation Assumptions: Summary
	Optimistic Case	Realistic Case	Pessimistic Case
Market Rate Fare*	100% of FOX Plan	13.6% Below FOX Plan	47.5% Below FOX Plan
Air Market Share	35% Share	25% Share	20% Share
Diversion from Autos	Scaled to Paris-Lyon Rate; Downward Orlando-Tampa Adjustment	Midpoint of Optimistic Case & Pessimistic Case. Downward Orlando-Tampa Adjustment	Scaled to Sweden Capture Rate; Downward Orlando-Tampa Adjustment
Induced Travel	Air & Auto Ratio	Air & Auto Ratio	Air & Auto Ratio
Operating Costs	28.7% over FOX	75.2% over FOX	121.7% over FOX
Capital Costs	14.5% over FOX	64.8% over FOX	115.0% over FOX
* Average Air Fare

The results of this evaluation follow (see Table 10):

Optimistic Case: Ridership would be 2.8 million, 55 percent below the FDOT-FOX projection. The net present value on the FDOT subsidies would be $4.3 billion (as contrasted with the $0.285 billion projected by FDOT-FOX [1996$]). Project revenues would be insufficient to service debt by 2007. To keep the system afloat, the state would need to appropriate $10.8 billion in addition to the planned $3.0 billion.

Realistic Case: Ridership would be 2.0 million, 66 percent below the FDOT-FOX projection. The net present value on the FDOT subsidies would be $9.9 billion (1996$). Project revenues would be insufficient to service debt by 2006. To salvage the project, the state would need to appropriate $23.0 billion in addition to the planned $3.0 billion.

Pessimistic Case: Ridership would be 1.1 million, 82 percent below the FDOT-FOX projection. The net present value on the FDOT subsidies would be $15.1 billion (1996$). Project revenues would be insufficient to service debt by 2005. To keep the project operating, the state would need to appropriate $35.5 billion in addition to the planned $3.0 billion.

Table 10 Evaluation Results: Summary With On-Time Opening
	FOX Proposal	Optimistic Case	Realistic Case	Pessimistic Case
Annual Ridership: 2010	6.2 million	2.8 million 55% below FOX	2.0 million 68% below FOX	1.1 million 82% below FOX
Commercial Revenue: 2010	$420 million	$237 million 44% below FOX	$145 million 66% below FOX	$51 million 88% below FOX
State Subsidy Required	$3.0 billion	$13.8 billion	$26.0 billion	$38.5 billion
Net Present Value of State Subsidy (1996$)	$0.3 billion	-$4.3 billion	-$9.9 billion	-$15.1 billion
State Subsidy per 2020 Household	$366	$1,708	$3,209	$4,750
First Year Revenues Insufficient to Pay Debt Service	Never	2007 (4th Year)	2006 (3rd Year)	2005 (2nd Year)
1995$ unless otherwise noted.

Construction delays could worsen the results. An 18 month delay, similar to the delay that occurred at Denver International Airport, would have the following impacts (see Table 11):

Optimistic Case: The net present value of state subsidy would decline to $4.7 billion (1996$).⁽⁸⁴⁾

Realistic Case: The net present value of state subsidy would decline to $10.1 billion (1996$).

Pessimistic Case: The net present value of state subsidy would decline to $15.7 billion (1996$).

Table 11 Evaluation Results: Summary With 18 Month Delay in Opening
	FOX Proposal	Optimistic Case	Realistic Case	Pessimistic Case
State Subsidy Required	$3.3 billion	$14.3 billion	$26.6 billion	$39.3 billion
Net Present Value of State Subsidy (1996$)	-$8.2 million	-$4.7 billion	-$10.1 billion	-$15.7 billion
State Subsidy per 2020 Household	$412	$1,760	$3,285	$4,849
No adjustment made for higher operating costs that could occur from the delay. No adjustment made for delayed growth in ridership.

The results are considerably less favorable than the FOX projections primarily because adjustments are made to compensate for two excessively optimistic FOX expectations:

FOX's airline market share projection of more than 65 percent is above any reasonably achievable level in the competitively priced air market that has developed.

FOX's projected Orlando-Lakeland-Tampa attraction of passengers from automobiles is considerably higher than can be reasonably expected in such a short travel market.

The commercial revenues projected in the Realistic Case are nearly identical to the level forecast for the Miami-Orlando-Tampa corridor by FRA.⁽⁸⁵⁾

Sensitivity: Relatively minor forecasting errors could significantly increase the state's obligation.

If FOX were to achieve its projected ridership (highly unlikely), charge market fares (no higher than airline fares) and experience no capital and operating cost escalation, additional state appropriations of $2.5 billion would be required.

If FOX were to achieve its projected ridership (highly unlikely), charge market fares (no higher than airline fares) and experienced a modest 10 percent cost escalation, an additional state appropriation of $4 billion would be required, and project revenues would be insufficient to make bond payments by 2012.⁽⁸⁶⁾

The policy initiatives that could theoretically make it possible for FOX to meet its revenue projections are improbable. The airline industry is unlikely to be returned to the expensive and non-competitive regime of regulation. It is inconceivable that gasoline taxes would be raised to Japanese, much less European, rates. And, if gas taxes were raised, there would be no need for high-speed rail because Florida's tourism industry would be decimated. Automobile tourism would be significantly reduced, while the resulting economic dislocation would make air travel unaffordable to many people.

The conditions under which high-speed rail could be successful are not reasonably achievable.

...it appears that HSGT (high-speed rail) could break even only if costs were low compared with typical estimates for such systems, if fares were high compared with current air fares, and the new system captured a market equal to or greater than the current air travel volume in the corridor. Such a combination of factors, though possible, is remote.⁽⁸⁷⁾

Financial Arrangements

Infrastructure Debt: The high-speed rail system would require federal credit enhancements that could involve bond guarantees of up to $6.5 billion, as proposed. (It seems unlikely that the bonds would be marketable with less than 100 percent federal backing.) Federal credit enhancements could create a contingent financial liability of up to $130 billion for the federal government, as other states seek similar treatment for their own future infrastructure bond issues.⁽⁸⁸⁾

While FOX's financial risk is limited, the state's is not. The project would require a state guarantee to debt holders that the FOX rail line would be completed and operated (completion covenant). In the likely event that project funds are insufficient to meet bond payments:

The project could be canceled after construction begins. If cost escalation is at Denver International Airport, Central Artery, etc. rates, it could be more prudent to cancel the project before completion and simply pay the debt holders. But cost escalation occurs little by little. There is rarely a point in a project's development that the incremental cost escalation appears to be so significant that policy makers find cancellation a viable option. And, as time goes on the prospects for cancellation diminish. However, given the two stage construction schedule (Orlando-to-Miami followed by Orlando-to-Tampa), there might be some potential for canceling the Orlando to Tampa segment in response to the cost escalation.

The special district could negotiate a financial bailout, following the model of Eurotunnel. This could involve significant losses to both the state and debt holders.

The special district could default on debt service, as occurred in the 1980s with the Washington Public Power Supply System (WPPSS).⁽⁸⁹⁾

But the completion covenant would still bind the state, while the federal government would be required to pay the bonds (assuming a federal government bond guarantee). No state of Florida agency has defaulted on bonds during the last 100 years.

The FOX bonds would not be guaranteed by the "full faith and credit" of the state. However the state's completion covenant produces virtually the same effect, the state would ensure that the system would be completed and operated. Moreover, FDOT has noted that the FOX bonds could have a negative effect on the state's credit rating⁽⁹⁰⁾

--the state's ability to finance school construction or other important public purposes could be impaired.

Minimum Support Payment: In January 1996, FDOT indicated its determination to limit minimum support payments to $70 million annually (current dollars) through 2029, without adjusting upward for inflation. FDOT has since agreed to escalate minimum support payments by 33 percent above inflation annually, and extend the payments through 2039.⁽⁹¹⁾

This represents a 117 percent increase over the maximum amount FDOT indicated would be an acceptable condition for continuing the project ($1.6 billion in 1995$).⁽⁹²⁾

Considerable future increases are anticipated by this report.

Fixed Price Contract: It is anticipated that FOX would build the system for a guaranteed maximum cost. A number of factors could make this impossible, such as unforeseen environmental or other project requirements and the uncertainty attendant to cost estimates for technology unfamiliar to the U.S. environment. Moreover, the guaranteed maximum price could be substantially above current estimates, similar to the Denver International Airport cost escalation that occurred in the early months of construction.

Conflict of Interest: FDOT expressed concern that "inherent conflicts of interest" existed in the FOX proposal because FOX or its affiliates would hold contracts for "design, construction, equipping⁽⁹³⁾

and operation of the system." Subsequent agreements have not substantially altered this situation.

... conflict of interest considerations should dictate that firms involved in the planning analysis be prohibited from a major role in the design contracts.⁽⁹⁴⁾

By this standard, FOX has a significant conflict of interest.

The Public-Private Partnership: The FOX system is a public-private partnership in which state subsidies, federal subsidies, and airport contributions represent approximately 90 percent of non-commercial funding, while the private contribution is approximately 10 percent.

Further, under the FDOT-FOX agreements, the FOX profit is paid from system revenues before state bond payments are made. Thus, FDOT could be required to pay FOX a guaranteed rate of profit (12.68 percent of commercial revenues) even if revenues were insufficient to pay infrastructure bonds. FOX and FDOT intend to identify a return on investment level to which FOX would be entitled over the 40 year project life. FOX hopes to earn a healthy 15 percent after tax return on investment. FOX or FOX partners would make additional profits in producing planning studies, rail cars, and constructing the infrastructure.

For example, if passenger revenues were 50 percent below projection, FOX would be paid $275 million in profits, while the state would have to increase its subsidy by $9 billion. If, in addition, construction costs doubled, FOX would be paid the same $275 million profit, but the state would have to increase its subsidy by $18.5 billion.

FOX, like any other commercial enterprise, would seek to achieve the projected results. However, virtually all of the "downside" risk belongs to the state. FOX's profits are paid before debt service. The state has a much greater financial stake in the project. Its minimum commitment of $3.0 billion is equal to 13 percent of state taxes in 1997. FOX's commitment of $350 million is approximately one percent of the gross revenues of the four partners, and less than half of 1996 pre-tax net profits (after taxes).⁽⁹⁵⁾

Safety

It is not clear that FOX would improve safety. At equal levels of usage high-speed rail is safer than automobile travel. But highway investment, especially construction of interstate standard highways, reduces traffic and injuries. It has been estimated that each $1.7 million spent constructing interstate standard roadways reduces traffic fatalities by one and injuries by 60.⁽⁹⁶⁾

A $3.0 billion higher FDOT investment in expressway construction or improvement could reduce traffic fatalities by 1,700 and injuries by 105,000 over the next 40 years.⁽⁹⁷⁾

On the other hand, automobile traffic diverted to FOX could be expected to reduce traffic fatalities by 400 and injuries by 34,000.⁽⁹⁸⁾

Diversion of travel from airlines is projected to reduce fatalities by three and injuries by one.⁽⁹⁹⁾

Even at the inflated FOX ridership projections, state investment in FOX trains would yield a lesser safety return than highway investment, increasing traffic fatalities by nearly 1,300 and injuries by 71,000. This perhaps surprising conclusion results from the relatively small percentage of highway users that FOX estimates would be diverted from Florida's highways.

Winglock

The extent of air traffic congestion (winglock) has been overstated. In fact, more air space is being built by advances in the air traffic control system, free-flight routing, and global positioning systems. Commercial airlines are capable of carrying any reasonably expected demand in the United States, including Tampa-South Florida and Orlando-South Florida. Perhaps the most important barrier is the outdated state of the nation's air traffic control system, which is to be significantly improved by 2010.

Even so, FOX would have little impact on Florida's airports. The FDOT projected reduction of 21,000 flights in 2010 is simply not significant in 2010. It is only 60 flights daily, barely 2 percent of the daily air carrier operations at the five airports. Moreover, all airports intend to expand to accommodate the increasing demand. Miami International Airport has begun an expansion project that will nearly double its capacity. Tampa International Airport intends to expand as required. Orlando International Airport, currently operating at 74 percent of capacity, is planning expansion as demand requires; it has sufficient land for unconstrained growth.⁽¹⁰⁰⁾

None of Florida's airports is scaling back future investment plans in response to high-speed rail.

High-speed rail versus airport expansion: High-speed rail is not a cost effective alternative to airport expansion. The capital cost of high-speed rail per annual passenger is at least seven times as much as the cost per annual passenger of the current Miami International Airport expansion.⁽¹⁰¹⁾

Indeed, high-speed rail's construction cost per annual passenger is five times that of Denver International Airport despite that facility's reputation for cost escalation.⁽¹⁰²⁾

Moreover, airport expansion would be paid for by users,⁽¹⁰³⁾

unlike the FOX high-speed rail line, which would require billions in non-user subsidies. Further, a large proportion of the air system user revenues that finance airport expansion would be paid by people from outside Florida, while most of the public subsidy for FOX would be paid by Floridians.

Gridlock

It is more difficult to control the increase in automobile traffic congestion, but the FOX and FDOT data demonstrate that high-speed rail would provide little relief (see Table 12).⁽¹⁰⁴⁾

Diversion from Autos: Peak and Lowest Traffic Points: High-speed rail would attract a minuscule percentage of autos at peak highway traffic points.

In the Miami-Orlando corridor, FOX projected diversion from autos represents 0.5 percent of traffic at the busiest point (Broward County, I-95, and Florida's Turnpike), one out of every 200 cars. The Realistic Case projects one out of every 500 cars.

In the Miami-Tampa corridor, FOX projected diversion from autos represents 0.2 percent of traffic at the busiest point (Hillsborough County, I-75),⁽¹⁰⁵⁾

one out of every 500 cars. The Realistic Case projects one out of every 1,000 cars.

High-speed rail would attract a greater portion of traffic where there is little congestion and no immediate need for expanded highway capacity.

In the Miami-Orlando corridor, FOX projected diversion from autos represents 11.3 percent of traffic at the lowest point (Osceola County, Florida's Turnpike), one out of every nine cars. The Realistic Case projects one out of every 18 cars. Traffic growth is unlikely to require additional lanes until 2040.⁽¹⁰⁶⁾

In the Miami-Tampa corridor, FOX projected diversion from autos represents 1.4 percent of traffic at the lowest point (Collier County, I-75), one out of every 70 cars. The Realistic Case projects one out of every 165 cars. Traffic growth is unlikely to require additional lanes until after 2050.

Table 12 Daily High-Speed Rail Diversion from Automobiles and Highway Travel Demand: 2010
	Peak Traffic Point		Low Traffic Point
	Miami-Orlando	Miami-Tampa	Miami-Orlando	Miami-Tampa
Daily Traffic	487,000	118,000	22,000	13,000
Fox Ridership	2,408	186	2,486	186
Percentage	0.5%	0.2%	11.3%	1.4%
This Evaluation Ridership	1,196	78	1,218	78
Percentage	0.2%	0.1%	5.5%	0.6%

High-speed rail versus highway expansion: One of the fundamental public purposes of high-speed rail is to alleviate traffic congestion, thereby reducing the need for highway expansion. At its highest point of diversion from automobiles (between West Palm Beach and Orlando), fewer than 80 cars per hour would be removed from the highway, 3 percent, or 1/30th of a single lane's capacity. Even if peak hourly volumes were double this figure, high-speed rail would divert the equivalent of only 6 percent, 1/17th of a highway lane's capacity (Chart 6: Average Hourly High-Speed Rail Diversion from Autos Compared to Single Highway Lane Capacity).⁽¹⁰⁷⁾

High-speed rail's minuscule impact on traffic congestion renders it an exorbitantly expensive alternative to highway expansion. Using U.S. Department of Transportation data, it is estimated that a new six lane expressway could be built along the entire corridor for $4.6 billion⁽¹⁰⁸⁾

, which is considerably less than FOX's claim of $8.9 billion for a four-lane expressway, and $750 million less than the FOX high-speed rail line. Adjusted to hourly one-way capacity, a single lane highway expansion is considerably more cost efficient than FOX. The highway lane would cost $1,100 per person (hourly capacity), while the high-speed rail line would cost $64,000, 56 times as much based on FDOT and FOX projections. Under the Realistic Case, high-speed rail would cost $97,000 per person, 86 times as much as a new highway lane ⁽¹⁰⁹⁾

(which could be built for less than the FDOT planned subsidy to FOX).

Further, unlike high-speed rail, the highway expansion would be wholly financed by users, primarily through fuel taxes, without net public subsidy.⁽¹¹⁰⁾

The diversion from automobiles projected by FOX is so small as to provide virtually no reduction in state requirements for expanding or building new highways or highway lanes.

This is not to suggest that highway expansion is the only answer to Florida's growing traffic congestion. However, at its exorbitant cost and negligible impact, high-speed rail is not part of the answer. Traffic congestion would be virtually the same with or without high-speed rail.

High-Speed Rail Capacity

The FOX high-speed rail line would be significantly overbuilt.

1. Under the most favorable circumstances, high-speed rail might be able to move 10 lanes of highway traffic, as FOX claims (Section I). The busiest high-speed rail line in the world (Tokyo) carries nearly as many people per peak hour (23,000) as 10 highway lanes if only one person is in each vehicle.⁽¹¹¹⁾

2. FOX's infrastructure capacity will be substantially smaller at 3,540 per hour (each direction). Capacity could be raised to 5,300 through the use of double-deck trains. FOX does not propose their use in the first 40 years, since demand is so small.

3. More importantly, FOX will operate only enough trains to carry 500 passengers per hour. FOX's actual capacity would be one-seventh its infrastructure capacity and 1/50th the theoretical capacity of high-speed rail. Even with only one person in each vehicle, a highway lane can carry the equivalent of five FOX high-speed rail lines with every seat filled (Chart 7: Hourly One-Way Capacity: Highway Lane Compared to FOX Theoretical and Actual). Of course, it would be impossible to achieve such ridership levels even if five high-speed rail lines were built in the corridor.

4. The actual usage would be even less. In 2010, FOX estimated average hourly ridership would be less than 350, while the Realistic Case projects under 175.

FOX intends to operate one-tenth as much service as its infrastructure would allow, claiming that this large unused capacity would provide a " wide margin for growth." Similar logic could lead the University of Florida to expand its football stadium to seat 800,000 people, providing a "wide margin for growth" over the present 83,000 capacity. FOX's infrastructure could, theoretically at least, provide for centuries, if not millennia of growth. Both high-speed rail's theoretical capacity and the much lower FOX infrastructure capacity bear no relationship to the reality. There is at most only modest demand for high-speed rail in Florida.

Environment

Environmental concerns have been raised with respect to high-speed rail.

High-speed rail's ability to materially reduce air pollution and energy consumption is dependent upon significantly reducing automobile and airline use. The FDOT and FOX projections, already optimistic, anticipate so few people transferring from autos and air that any air pollution or energy gain would be inconsequential.

Further, construction of major infrastructure projects consumes energy. It has been estimated that San Francisco's BART rapid transit system consumed more energy in construction than the future diversion from automobiles would save.⁽¹¹²⁾

Most Florida electric power is generated by burning fossil fuels, a process that expends approximately two times as much energy as it produces. Electric propulsion thus loses some of its advantage over fossil fuel propulsion.

High-speed rail produces considerable amounts of noise, which has generated strong opposition to extension in France. The problem becomes much worse at speeds above 186 miles per hour.⁽¹¹³⁾

FOX would operate at up to 200 miles per hour.

French champagne growers claim that high-speed rail embankments trap cold air, threatening their crops.⁽¹¹⁴⁾

A similar effect in Florida could make preservation of adjacent citrus crops more challenging. Environmental objections slowed development of high-speed rail in Germany and Belgium and mitigation measures sharply increased capital costs.⁽¹¹⁵⁾

The proposed routing on a flood control levee along the eastern edge of the Everglades is cause for environmental concern.⁽¹¹⁶⁾

Economic Impact

Proper evaluation of an investment requires comparison to one or more alternatives. An alternative use for the proposed FDOT subsidy to FOX is expansion of highways in the Miami-Orlando-Tampa corridor.⁽¹¹⁷⁾

(Airport expansion is already underway and so is not an alternative investment strategy). Because high-speed rail would attract such a small percentage of automobile (and airline) users:

Highway (and airport) investments are considerably more cost effective than high-speed rail.

Highway expansion would be more effective in reducing the costs of automobile accidents.

In addition:

Expanded highways are likely to produce at least as much new economic activity as a high-speed rail system, due to their much greater use. It has been estimated that the nation's interstate highway system has produced three times as much economic benefit as its cost of construction.⁽¹¹⁸⁾

Use of funding for high-speed rail would exacerbate traffic congestion, which would continue to grow at virtually the same rate as without high-speed rail. Use of the funding for general mobility improvements would produce substantially greater benefits.

Increasing traffic congestion will add to the cost of commercial transportation and could negatively impact Florida industry and agriculture in the increasingly competitive world economy.

The large rail related bond issues could negatively impact the state's credit rating and bonding ability, making it more difficult to finance other public needs.

The economic disadvantages of subsidizing high-speed rail would become more severe if financial performance is below forecast (as seems likely):

Higher than planned state appropriations could diminish the state's ability to meet other needs, such as education and health care.

Higher than planned state appropriations could necessitate enactment of new taxes or higher tax rates. Higher taxes reduce economic growth which slows job creation. It has been estimated that each additional dollar in taxation destroys $1.40 in economic growth.⁽¹¹⁹⁾

The state has a 10 year funding shortfall of more than $40 billion in highway transportation projects. Local jurisdictions have begun to provide funding for state highway projects that FDOT cannot now afford, with FDOT repayment expected later.⁽¹²⁰⁾

Higher state appropriations to FOX could increase that shortfall.⁽¹²¹⁾

Other strategies are likely to provide greater traffic relief and general mobility, such as intelligent transportation options that increase the capacity of existing highways, or programs to encourage telecommuting. High-speed rail is a relatively inefficient and ineffective use of state appropriations both in terms of economic benefits and the use of state appropriations. Its comparatively small market share, even by FDOT and FOX projections, represents no more than a "niche" or "boutique" market, the investment in which reduces the state's ability to improve mobility necessary for economic growth.

Additional Issues

Additional issues not analyzed in this report include:

The proposed FDOT-FOX partnership could be in violation of Article 7 Section 10 of the Florida Constitution:

Neither the State nor any county, school district, municipality, special district, or agency of any of them, shall become a joint owner with, or stockholder of, or give or lends or use its taxing power or credit to aid any corporation, association, partnership or person...⁽¹²²⁾

FOX seeks state legislation to limit its insurance liability for train operations. In view of high-speed rail safety claims, this seems unnecessary.

FOX average speed estimates might not be achievable. This could reduce ridership and increase operating costs.

Diversion of automobile traffic could reduce the toll revenues of Florida's Turnpike and the Everglades Parkway (Alligator Alley).

Diversion of airline traffic could reduce passenger facility fees at the five major airports. If FOX projected ridership were achieved, this could amount to nearly $1 billion over 40 years.⁽¹²³⁾

At Realistic Case rates, the figure would be approximately $450 million. This would be in addition to the $150 million to be contributed by Orlando International Airport and Miami International Airport.

In reality, the highway toll and airport revenue reductions are likely to be small. Nonetheless, they should be included in the FDOT's financial analysis.

VI. DECISION MAKING BASED UPON ANALYSIS NOT ASSUMPTIONS

Assumption Based Planning

The problem of traffic congestion and the difficulty in financing and developing new transportation investments has been defined (though insufficiently with respect to airports). High-speed rail has been proposed as an alternative investment strategy. While the FDOT and FOX documents cite high-speed rail's theoretical capabilities, they contain no analysis of its actual problem-solving impacts. (Chart 8: High-Speed Rail: Assumption Based Planning).

Analysis Based Planning

The state has a duty to conduct an objective planning process that does not prejudice the outcome by the acceptance of unproven assumptions. The critical question must be analyzed: can high-speed rail attract enough people from automobiles and airplanes to materially reduce congestion or investment requirements? The conclusions of such an analysis would lead either to authorization or rejection of publicly financed high-speed rail (Chart 9: High-Speed Rail: Analysis Based Planning).

^30.. National Research Council.

31.

^31.. Overview Report: High Speed Ground Transportation for America (Washington, D.C.: Federal Railroad Administration, United States Department of Transportation, August 1996).

32.

^32.. Section 1036 of the 1991 Intermodal Surface Transportation Act of 1991 required the U.S. Department of Transportation to conduct a study on the commercial feasibility of high speed rail. The report appears to have violated the Congressional mandate, by evaluating high speed rail on a non-commercial basis. USDOT counted non-user benefits and consumer surplus as commercial revenues. Consumer surplus is the difference between the price paid by a purchaser and the price that the purchaser would be willing to pay for the good or service. No amount of rationalization can convert non-user benefits and consumer surplus into commercial revenues -- they are simply not real money. If they were, the rates of non-user benefit and consumer surplus used by USDOT could be used by Congress and the President to balance the federal budget this year and forever, pay off the national debt in three years and cancel state and local taxation in perpetuity.

33.

^33.. Requested data that would have permitted a more complete review of the USDOT report was not made available.

34.

^34.. Calculated from data in Denver International Airport: Information on Selected Financial Issues (Washington, D.C.: U.S. Government Accounting Office, September 20, 1995).

35.

^35.. "Eurotunnel: Au Revoir Alastair," The Sunday Times (London), October 6, 1997. Figures converted to US$ at 1.5938 (exchange rate at March 20, 1997).

36.

^36.. Calculated from data in David Luberoff and Alan Altshuler, Mega-Project: A Political History of Boston's Multi-billion Dollar Artery/Tunnel Project (Cambridge, MA: John F. Kennedy School of Government, Harvard University, April 1996) and Transportation Infrastructure: Managing the Costs of Large-Dollar Highway Projects (Washington, D.C.: U.S. Government Accounting Office, February 28, 1997).

37.

^37.. "Intercity Passenger Rail: Amtrak's Financial Viability Continues to be Threatened," U.S. Government Accounting Office testimony before the Committee on Transportation and Infrastructure, U.S. House of Representatives, March 12, 1997.

38.

^38.. Don Pickrell, Urban Rail l Transit Projects: Forecast Versus Actual Ridership and Costs (Washington, D.C.: Urban Mass Transportation Administration, U.S. Department of Transportation, October 1989).

39.

^39.. The author was a policy board member of the Los Angeles County Transportation Commission from 1977 to 1985, which included this project's planning period.

40.

^40.. Analysis board meeting documents and Final Environmental Impact Report: The Long Beach-Los Angeles Rail Transit Project, Los Angeles County Transportation Commission, March 1985.

41.

^41.. Metro-Dade Transit: Annual Performance Report Fiscal Year 1994-1995.

42.

^42.. Urban Mass Transportation Administration

43.

^43.. Metro-Dade Transit

44.

^44.. Urban Mass Transportation Administration

45.

^45.. Urban Mass Transportation Administration

46.

^46.. Fawn Germer, "Commuter Line Delayed," The Miami Herald, February 5, 1988 and National Transit Database.

47.

^47.. "Tri-Rail's Future," Sun-Sentinel, February 12, 1997.

48.

^48.. Data from National Transit Database.

49.

^49.. Florida Department of Transportation - Turnpike District, Traffic Engineer's Annual Report: Fiscal Year 1996 (Tallahassee, FL: URS Consultants, December 15, 1996).

50.

^50.. The New York-Washington market has a strong history of ridership. The airlines entered the rail market, not the other way around.

51.