The Florida High Speed Rail Project: Financed by Taxpayer Guaranteed "Junk Bonds"

Number 17 January 1998

The Florida High Speed Rail Proposal:
Financed by Taxpayer Guaranteed
"Junk Bonds"

Around the nation, transportation officials wrestle with highway and airport congestion. Florida thinks it has found an answer --- high speed rail. Trains would operate at 200 miles per hour along a corridor between Miami, Orlando and Tampa. Promoters claim that high speed rail would be able to carry the equivalent of 10 highway lanes. The Florida Department of Transportation (FDOT) has awarded a franchise to Florida Overland Express to build and operate the line for 40 years. A final decision will be made on the project by June 30, 2000.

High speed rail has operated for some years in both Japan and Europe. But Florida resembles neither. Population density is small compared to Japan and Europe, and there are no highly utilized city transit or intercity rail services to feed the line. Moreover, even in Japan and Europe part of high speed rail's success is artificial. It has been protected from deregulated air competition and the cost of driving is similar to rail fares. France has even banned competing bus service.

Precisely the opposite is true in Florida. The cost of driving is only a fraction of the rail fare. Air fares have dropped to 33 percent below the projected rail fare --- 60 percent below the level assumed by the FOX planners. Yet promoters claim that high speed rail will attract 65 percent of the air market between the Florida cities. In contrast, between Washington and New York, where rail fares are 40 percent lower than air fares, Amtrak attracts only 40 percent of the point-to-point air and rail market.

Projections indicate that nearly 30 percent of the ridership would be carried in the 90 mile Tampa- Lakeland-Orlando corridor. Yet it seems unlikely that people would pay six times as much to take the train as to drive their cars, and get there more slowly as a result. A 500 mile per hour passenger jet cannot compete with the convenience and speed of the automobile on a 90 mile trip and neither can a 200 mile per hour train.

The promoters' projections, excessive as they are, demonstrate that high speed rail would have little impact.

Even if the 65 percent air market share were achieved, commercial air flights at the three international airports would be reduced by only two percent in 2010.
The highway traffic reduction would average only 1/30th of a single highway lane's capacity --- somewhat short of the promoters' 10 lane claim (though missing the target by 97 percent may be "close enough for government work").

In short, neither drivers nor air passengers will be able to tell the difference in congestion levels if high speed rail is built. So few people will be attracted from cars and planes that it would be considerably more cost effective to expand highways and airports.

All three international airports intend to expand to meet rising demand. But FDOT has embraced ideology over reality by adopting a policy that favors high speed rail over highway improvement. Perhaps most surprising is that despite rail's superlative safety record, the same money invested in better highways would save more lives than building high speed rail.

All of this would be of little concern if the high speed rail line were a private venture. But taxpayers are being asked to finance the project --- not just Florida taxpayers, but also federal taxpayer. State and local subsidies to the $6.5 billion project would be more than $3 billion (1995$), while Washington is being asked for a handout of $300 million. Much more ominously, the federal government is also being asked to guarantee the debt. Federal taxpayers could be on the hook for much more than $6.5 billion if the usual cost overruns are experienced. A recent Transportation Research Board (National Academy of Sciences) study found that "cost overruns of 50 to 100 percent are common for large infrastructure projects" and overruns above 100 percent "are not unusual." Just matching the lower air fares in competing markets would require an additional $6 billion from taxpayers. The ultimate cost overrun (read taxpayer liability) could be substantially more.

Further, if Washington guarantees bonds for Florida infrastructure projects, it assumes a moral obligation to do the same for other states. In the longer term, a bailout of federal infrastructure guarantees could overshadow the costly savings and loan bailout.

With so much at stake, it would be expected that FDOT would have subjected the proposal to critical analysis. Nothing could be further from the truth. FDOT has simply accepted the hype of the promoters without assessing the actual impact of its projections on highway and air traffic congestion. Worse, FDOT is funneling millions of dollars to the promoters to carry out further studies.

It is inappropriate for either Florida or the federal government to bankroll such a frivolous project, especially in light of the public service and fiscal challenges ahead. The Florida Overland Express would provide virtually no public benefit, at great public cost. Its overblown claims are reminiscent of the promises of Florida real estate promoters who sold swamp land lots to unsuspecting buyers in the 1920s. By proceeding, the state and federal governments will obligate taxpayers to and open-ended guarantee of the what amounts to "junk bonds."

This article is adapted from a report published by the
James Madison Institute in Tallahassee, Florida