Can Public AND Private Money Be Used For Passenger Rail?

New Report Examines Whether Passenger Rail in Arizona and the U.S. Should Be Public, Private or Both

A first-of-its-kind report released today examines whether high-speed rail should be public, private or both. The research report released by the Arizona PIRG Education Fund examines the experience with public-private partnerships for high-speed rail in the U.S. and other countries.  In addition to outlining the promise and pitfalls, the report recommends ten principles to protect taxpayers and the public interest under private financing deals.

The report comes after the State Transportation Board in Arizona approved a historic State Rail Plan in March 2011 and as the Arizona Department of Transportation is developing plans for linking Phoenix and Tucson via passenger rail. There is also a heated debate in Congress about future funding for high-speed rail and the U.S. House Transportation and Infrastructure chair has proposed privatizing Amtrak with the hope of garnering private financing for new bullet trains along the Northeast. California is seeking private funds as part of a planned route connecting Los Angeles and San Francisco.

“Private financing can be a supplement, but not a substitute, for public commitments to support passenger rail,” said Serena Unrein, Public Interest Advocate for the Arizona PIRG Education Fund. “As Arizona develops plans for our future transportation infrastructure, it is important to factor in how the public’s interest will be protected in any public-private partnership deals.”

The report cautions that public-private partnerships in other countries have often run into trouble. When private financing has been used as a short-cut around public funding, taxpayers often end up paying. Partnerships must have the highest levels of transparency, clear rules of accountability, and strong public capacity for monitoring and enforcing agreements, according to the Arizona PIRG Education Fund. “In other nations the majority of support for rail comes from the public sector. The rail companies overseas often have public ownership and the public on their board like a public utility or Amtrak,” said Unrein.

Arizona’s new State Rail Plan follows a national trend of looking to passenger rail as a way to improve infrastructure.  President Obama has put forth the goal of linking 80 percent of the U.S. population via high-speed rail by 2035. Compared to the U.S., other industrialized nations around the globe tend to be far ahead of the U.S. in developing high-speed rail and invest a far greater portion of Gross Domestic Product on infrastructure.

“While many in Congress and Arizona are having trouble finding money to invest in public transportation, they need to consider the costs of not moving forward,” said Unrein. “Passenger rail is a necessity to connect Arizona because we will reach a point where we cannot build more airport runways or further expand our highways.”

The report is available for download from Arizona PIRG. Here is a small sample of what is mentioned:

“Public-private rail partnerships have the potential to tap private capital, expertise, technology and economies of scale, and can also help mitigate the risk of high-speed rail projects to taxpayers. However, PPPs also come with a number of risks and costs, including:

• Higher costs for capital, as well as costs related to the profits paid to private shareholders.
• Heightened risk for the public once a project has begun, due to the ability of private-sector actors to hold projects hostage and demand increased subsidies or other concessions from government.
• The costs of hiring and retaining the lawyers, financial experts and engineers needed to protect the public interest in the negotiation of PPP agreements and to enforce those agreements over time.
• Loss of control over the operation of the high-speed rail line, which can result in important transportation assets being operated primarily to boost private profit rather than best advance public needs.
• Delays in the early stages of a project, as government and private partners engage in the difficult and complex task of negotiating PPP agreements.”