The week of broken trains

Posted by Fred Frailey
on Saturday, February 16, 2019

There’s no way to put a pretty face on the passenger train news this past week (although at the end of this piece I will try). On Tuesday, California’s new governor, Gavin Newsom, applied the brakes to that state’s San Francisco-to-San Diego bullet train. He’s not ditching it, he later explained, but wants to finish the 119-mile Central Valley part that’s already under construction, from Madera (between Merced and Fresno) to just north of Bakersfield, and then take stock. “Let’s be real,” he said, and I sadly agree. I say sadly because if built, the bullet train would become popular and easily pay its operating and maintenance costs. But the way California went about this, it would never come close to paying back what it cost to build.

The truth is, America cannot build big things any longer. Washington Post commentator Megan McArdle explained why in an opinion piece this week (good luck getting past the Post’s firewall). First, we study projects to death, including their environmental impact; there’s an army of people who make good livings doing just this. I’m not saying an EIS is a bad thing, only that it takes forever, and costs money and you may have to pay to relocate entire species. Every level of government needs to be assuaged. Then the consultants arrive to underestimate the cost of whatever we are building and overestimate the economic good that will come of it. Because we’re a wealthy nation and there’s very little cheap land anyone wants to build on, either you pay through the nose for the property or fight the NIMBYs and their legal armies hammer and tong and usually both. Because the federal government pays most of the tab, everyone who actually performs the work is paid the union wage. And to supervise them, governments bring in still more consultants, as the California High Speed Rail Authority has done throughout its life. When whatever big thing we are building is completed years late and miles over budget, taxpayers have a right to feel cheated and this poisons the well for all the big projects that want to follow. (If you don’t know what I mean by that last sentence, check out this New York Times blockbuster about good intentions run amok.)

All of this has to do with California’s bullet train, which was bungled from day one. But it’s just as true in places like Illinois. Where is the twice-daily service between Chicago and the Quad Cities which your taxpayer dollars paid for? For that matter, whatever happened to higher-speed (110-mph) trains between Chicago and St. Louis? Hell, unless we bring the Germans in to do it for us, we cannot even build passenger cars on this continent—witness the debacles of CAF trying to construct cars for Amtrak and the failure of Nippon Sharyoto put together next-generation bilevel cars for state-supported Amtrak routes.

So Newsom has it right, alas. Let’s build what we have the money to pay for, which is 119 miles, and if we try again to connect the biggest cities of that state, learn from the mistakes that were made. If a Democrat lives in the White House in 2021 and California tries to revive the bullet train in just the manner it had up to now, disaster awaits us.

I’d hoped for several years that if anyone could succeed commercially at intercity passenger rail, it was the folks at Fortress Investment Group, who set out to connect Miami with Orlando. It owned in Florida East Coast Railway all but 40 or so of the 235 miles of needed track. It would not be swarmed by consultants. It is not directly subsidized by any government and can build economically. It would pay contractors and workers competitive and not inflated amounts. And the Miami-Orlando project was undertaken at the same time that Fortress funds developed land in Miami, Fort Lauderdale and West Palm Beach, thus making the rail project more practical financially. I still think this idea could fly on its own and pay back its cost of capital fairly quickly.

Maybe Fortress tried to run too fast with this. Its All Aboard Florida became Brightline and then Virgin Trains USA in partnership with a new investor, the parent of Britain’s Virgin Airlines. Then in quick order it announced that it wanted to connect its Orlando station (at the airport) to Disney World and Tampa, 85 miles, by building between or alongside Interstate 4, revealed that it had bought XpressWest, a proposed high-speed railroad between Las Vegas and Victorville, Cal., and began a road show for an initial public offering of stock.

Whoa! I’m grateful for the IPO prospectus because it reveals all the underlying assumptions. But I suspect this was all too much too soon too fast for the investment community, coupled with the fact that Virgin Trains to date operates only between Miami and West Palm and at a substantial loss. I understand the loss, but Wall Street probably does not. In any event, also on Tuesday the IPO was shelved. Said the company in a statement: “As we explored a public offering, a number of alternative financing sources became available that allowed us to keep the company private and meet our growth strategies.” Do you believe that? How easily Virgin turns its back on $500 million in capital. And would you have bought shares? My suspicion is that it “discovered” alternative sources of funding when underwriters found the enthusiasm for the offering soft and spongy. To be continued. I’d put money on Virgin Trains USA long before I would California’s bullet train.

I do not want to leave you bummed out. I had dinner a few Sundays ago with Henry Posner III, cofounder (with Bob Pietrandrea) and chairman of Railroad Development Corp. RDC owns a bevy of things, including Iowa Interstate Railroad (Chicago-Council Bluffs, Iowa) and various rail ventures in Europe and Latin America. Henry was aglow in the company of his daughter and coworker Ida and their plans to demonstrate “Pop-Up Metro” in spring 2020 on a 2.3-mile Iowa Interstate branch line in Altoona, Iowa, just west of Des Moines. Pop-Up Metro is a creation of RDC subsidiary Vivarail, which owns former London Underground rolling stock that has been converted to battery power. The cars have a 60-mile range and completely recharge in 10 minutes from mobile charging stations placed at stations. A flyer he handed me across the dinner table says this is an “opportunity to test and evaluate potential rail transit operations” over existing light-duty freight lines “for less than the cost of a consultant study.” I got a laugh out of that, but Henry is serious. The ex-Underground cars will carry potential customers on an as-needed basis, and I wish him well selling these critters. Passenger rail needs something that costs less than the GDP of Kansas.—Fred W. Frailey

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