Florida East Coast Railway is about to get a new look, with its new, all-private passenger rail line. Photo: Flickr / Dr. Purp Thumb

But now, a private company is setting out to do it alone – no public support needed. Florida East Coast Industries has announced that it will start operating passenger service between South Florida and Orlando in 2014. They’re calling it All Aboard Florida, and it comes just about a year after Governor Rick Scott rejected $2.4 billion in federal funds to build a far less ambitious 85-mile line from Tampa to Orlando. It’s no coincidence that All Aboard Florida’s 240-mile line also centers on Orlando, the most-visited city in the United States according to Forbes. (Miami is number five.) A Tampa-to-Jacksonville segment could be added on later.

Amtrak has been angling to beef up its Jacksonville-to-West Palm Beach service, just a little north and east of the All Aboard Florida line — also on FEC tracks.

Some observers say the All Aboard Florida initiative is a hopeful sign that inter-city passenger rail has a bright future. Most private railroads focus their attention solidly on freight, where the money is, but that’s beginning to change.

“All of the Class Ones are now getting back into the passenger rail service,” former Amtrak Chairman and CEO Tom Downs recently told a roundtable in Chicago. (Downs now serves as chairman of the North American board of Paris-based Veolia Transportation.) He said Union Pacific is going after Chicago-to-St. Louis service, and Burlington Northern Santa Fe and Norfolk-Southern both want to run any passenger rail that would operate on their tracks.

So does FECI really think it can make a profit off of passenger rail without subsidies? Its promotional materials emphasize that “the State and taxpayers shoulder zero operating risk – this privately owned rail system will be 100% privately operated and maintained.”

FECI is starting with some significant assets: The 200 miles of track between the two destinations it already owns and operates as a freight rail line. But the company is planning to spend $1 billion to upgrade its existing track and build the remaining 40 miles of track.

The service will take about three hours, according to FECI’s announcement. Driving between Orlando and Miami takes about four hours. The time savings are one good reason to be optimistic that train service could be popular. The $16.70 drivers pay in tolls between the two cities also helps make train service competitive (though FECI hasn’t released ticket prices yet).

Stefan Kamph, blogging for the Broward-Palm Beach New Times, is cautiously optimistic about the new line:

Well, that sounds fantastic. We’re sure the grandmas and Germans at Disney World might be tempted to pop down to South Beach for an extra couple of days. But for one of the pitfalls of operating passenger trains on dedicated freight lines, look to Amtrak: Those trains sometimes have to pull over for hours to let a scheduled freight train keep its timetable.

Which is one reason train service is notoriously hard to make a profit on. Only the dense Northeast Corridor turns a profit for Amtrak – largely because of Acela service, which has the luxury of not sharing track with freight.

Paul Druce, who writes for the blog Reason & Rail, said sharing with freight might not be as onerous in Florida as it is elsewhere.

“I don’t think it will be much of a problem, largely because Florida East Coast runs a very fast freight business,” Druce told Streetsblog. “From what I understand, they normally go up to 60 mph with their freight. It’s mostly double-tracked line, or where it’s not it can be restored to double track. They ride with cab signals and speed restrictions…  that allows them to go faster than they normally would be allowed to do.”

The company claims the service “will remove up to three million cars from our roadways annually, mitigating traffic congestion and lowering carbon emissions.” It also promises more than 6,000 new jobs building the line and another 1,000 permanent jobs operating it – “not counting additional jobs from property development around the rail system that could create even more employment opportunities.”

That last part might give a clue as to why FECI is interested in this venture when it will be hard pressed to make back the $1 billion it’s investing in the rail service. Druce speculated that the profits could come not from ridership but from the increased value of properties along the line:

While it would run on Florida East Coast Railway track, the announcement was made by their holding company Florida East Coast Industries which describes itself as a major real-estate owner and developer in the state of Florida. Looking into their holdings, we find one very prominent eight acre parcel in downtown Miami that is especially interesting. This used to actually be the location of the FEC Miami station and skirting the northern edge of the property there remains a single tracked FEC line. It also currently possesses an entitlement for up to 2.5 million square feet of mixed use development.

While this area is certainly valuable enough as is, both due to its inherent location as well as its proximity to Metrorail and Metromover stations, the addition of easily accessible intercity rail connections to the rest of the state greatly boosts that value, especially if developed with an eye towards the tourist trade.

Druce told me that running freight to Orlando on its new line will also be a money-maker.

Transit construction is sometimes financed with taxes and fees on property owners and merchants along the route who will benefit from the line, but FECI isn’t trying to demand anything from other property owners. “Increased tax revenues from rising property values near stations can be applied towards local needs (e.g. schools, parks, public works, police and fire protection),” the company said in its announcement.

William Lindley, writing for the United Rail Passenger Alliance blog, said the All Aboard Florida service is a warning signal to Amtrak:

After years, if not decades, of Florida receiving little satisfaction from Amtrak over new routes, the message is clear:

Amtrak is the middle-man. If you want Amtrak to run a train, you will have to deal with the host railroad anyway, so why not just telephone them directly and eliminate the middle-man?

Everyone will be paying attention to All Aboard Florida to see if it works better than Amtrak. Conservatives will look to it as proof that the private sector can operate passenger trains better than the quasi-governmental, subsidized Amtrak service. Rail advocates looking for any way to bring rail travel into the 21st century will see it as a solution. Even Amtrak, which has been trying to attract private partners, could see it as a hopeful sign that the private sector can make rail lucrative.

The U.S. makes up a small portion of the world's investment in PPPs, but elected officials here are expressing growing interest in them. Image: Brookings

When government types start to talk about expanding infrastructure, you’re likely to hear the phrase “public-private partnership” thrown around a lot. PPPs (or P3s, or 3Ps) are one of the “innovative financing tools” that policymakers love to hold up as a way to expedite expensive infrastructure projects that taxpayers want but aren’t willing to pay for – or that elected officials want to build but won’t take any political risks to support.

In one form of PPP, the government bundles several responsibilities — like the design, financing, construction, and maintenance of new infrastructure — into a single contract, and bids it out to a private company. Essentially, the company provides the infrastructure, and the government pays that company a service fee for each year of the contract, plus interest to repay construction costs.

When successful, a PPP lets government get more bang for its buck, but there are other kinds of PPP, too. One of those other variations, which some experts wouldn’t even consider a “true” PPP, involves taking some piece of publicly-built-and-paid-for infrastructure and leasing it out to a private company. Chicago did this with their parking system in 2008, and got burned, receiving far less from the contractor than the value of the meters would dictate. The main function of the PPP, in this case, was to “outsource to political will” to raise the price of on-street parking.

America is somewhat late to the table when it comes to PPPs, though the idea is gaining traction — and attracting criticism. While some, including President Obama, hope that PPPs are the ticket to infrastructure expansion in a public-spending-averse political climate, others see it as the kind of crony capitalism that made Solyndra a household name. Like Mitt Romney, for example (although, no surprise here, he has personally benefited from PPPs in the past).

Nevertheless, PPPs have managed to attract support from across the political spectrum. The conservative think tank The Heritage Foundation came out with a report this month that suggests:

“P3s have demonstrated the ability to raise substantial sums of money for major infrastructure projects, especially to add needed capacity in congested corridors.”

Compare that to a Brookings report [PDF] from last December:

“Public/Private Partnerships could contribute to how we pursue infrastructure investments in the United States because they represent a sharing of responsibilities and costs between the public and private sector in project finance and delivery… The U.S. is a latecomer in the area of PPPs, but states have been very active in the last three years both in building capacity and in closing PPP deals.”

Brookings and Heritage don’t often agree on much, so this is a little unusual. What’s interesting is where they differ, because it helps illustrate the different ways that PPPs can be applied in the context of building transportation infrastructure. Just because both groups express support for PPPs, it doesn’t mean they’re talking about the same things.

Brookings gives three examples of PPPs being used to various degrees in transit projects — in New Jersey, Denver, and San Francisco — and points out that out of 31 states to adopt PPP legislation, 21 facilitate transit PPPs. Heritage, on the other hand, seems to think transit has an unfair political advantage, and suggests giving toll roads a boost in getting federal infrastructure loans.

Two of Heritage’s recommendations, a large expansion of the TIFIA loan program (which has already been put to use in some PPPs) and an alteration to selection criteria to make toll roads more competitive, were included in the Senate Environment and Public Works’ transportation bill that unanimously cleared its committee last month.

Heritage does point out that the EPW bill is entirely silent on the subject of PPPs. However, given the President’s past support for the concept, and given that transportation reauthorization is high on Congress’ priority list, “public-private partnership” could be a phrase to listen for in next Tuesday’s State of the Union address – and on the campaign trail.

This is the old Tysons Corner. Photo: Restonian

“That strip mall just got rezoned for high rise buildings.” “These auto dealerships are going to disappear.”

Those aren’t words you hear very often in suburbia, but if you’re hanging out in Tysons Corner, Virginia, you’d better get used to it. This office enclave, which sits dead center between Washington, DC and Dulles International Airport, is experiencing a rare and dramatic transformation – from traffic-choked “edge city” to walkable urban center.

Fifty years ago this area was dairy farms. But fueled by employment at the headquarters of several major defense contractors, Tysons is now the 12th biggest business district in the country, and the single biggest outside a major city. Even during the recession, office vacancy has stayed comparatively low at 14 percent.

The new Tysons Corner. Image: Fairfax County

Tysons is also a retail heavyweight, with the fifth biggest shopping mall in the U.S. And no wonder – it sits in Fairfax County, consistently ranked one of the wealthiest in the country.

But even with all these jobs and shopping opportunities, it lacks people. There are 105,000 jobs in Tysons but only 17,000 residents. Nobody lives there.

Almost four years ago, Time gave Tysons this back-handed compliment: “That it is also a strip-malled, traffic-clogged mess does not take away from the fact that it is one of the great economic success stories of our time.”

All of this presents a unique opportunity for planners. How do you take an existing business district — dysfunctional but also thriving in its own way — and re-fashion it into a real urban center? And how do you get community support for a project that’s going to mean decades of disruptive construction and the uprooting of much existing infrastructure?

Fairfax County planner Tracy Strunk admits that re-planning something this big is incredibly ambitious. While they looked to development along the much-lauded Rosslyn-Ballston metro corridor for inspiration, “You get a few blocks from Rosslyn station and you’re in single-family detached. This isn’t going to be single-family detached.”

And making a walker’s nightmare into a walker’s paradise will be difficult. They’re building new city streets to fill in a semblance of a grid where now there are only wide arterial roads with long stretches between intersections. To do that, planners need to negotiate with business owners for their property, and their leases all expire at different times. And since Tysons is an unincorporated part of the county, and the county doesn’t control its own streets, this all requires a lot of negotiation with VDOT as well.

Developers are enthusiastic partners in this enterprise. Promised unlimited density within a quarter-mile radius around new metro stations (and there are four new stations planned for a four-mile strip), they are champing at the bit to tax themselves. They’ve agreed to a $480 million tax assessment district (22 cents per $100 of assessed property value) for the first phase and up to $300 million (10 cents per $100) for the second phase of building. Developers are also willing to build roads – and even schools and fire stations – on their properties, to serve the 30-odd story towers they’re planning to build.

A major impetus for all this change is the Metro extension to Dulles Airport. The new silver line will have 11 stations along a 23-mile rail extension. It represents a 25 percent increase over Metro’s current capacity, according to Marcia McAllister of the Metropolitan Washington Airports Authority. She spoke to a group from the Rail~Volution conference last week.

The rail extension has attracted a lot of attention for its cost overruns and a prolonged debate over whether to build above ground or below ground. There are disagreements over whether to mandate the use of union labor. And financing is still in question: While tolling on the Dulles Toll Road is expected to meet 57 percent of the funding goals for Phase One (the first five stations, including all four in Tysons), some officials balk at the idea of letting tolls finance Phase Two (the last six stations, including the airport) as well. And while the federal government is ponying up about 15 percent of the cost of Phase One, so far it hasn’t offered a dime for Phase Two.

McAllister and the MWAA say the first phase will be operational by mid-2013, but delays have made some suspicious that that timeline is unrealistic.

Metrorail construction in Tysons Corner.

Still, the changes in Tysons are already visible. Anywhere you stand, you can see Metro construction. None of the four Tysons stations will have any commuter parking whatsoever. (All of the Phase Two stations will have parking garages except for the one at the airport.) Indeed, the new Tysons will have parking maximums that are lower than the original parking minimums.

And the car dealerships dotting the landscape will go the way of the dinosaurs, planners say: When the value of real estate skyrockets, their large surface parking lots will become impractical.

Of course, they’re building a Walmart where there used to be a car dealership. Nobody said this is the kind of urbanism that you’d find in, you know, a city. The Washington Post recently profiled an imagined 2014 Tysons and noted that there are still Exxon stations and McDonalds restaurants surrounded by parking, and the Post isn’t so optimistic that the auto dealerships will disappear entirely. They envision quarter-mile “blocks” still lined with them.

The new development won’t have the historic rowhouses with front porches or the charming old apartment buildings you find in Washington, but its new walkability, transit access, and mixed-use vitality could be enough to draw people looking for an urban-ish experience away from the grit of DC.

Fairfax planner Matt Ladd said he doesn’t think new Tysons residents will come primarily from DC, because it’s a “different market,” but to explain that, he went on to say that Fairfax has far better public schools (some of the best in the country, as opposed to some of the worst in DC). And office rents are lower. Residential rents will likely be “comparable,” he says – but that’s comparing brand-new units with smaller, older apartments in the city.

No one intentionally sets out live in a place with high rents and crappy schools, so let’s assume, yes, Tysons could well be a draw for many city dwellers. And given that there are such significant employment centers in Tysons and the surrounding area, along the Dulles Toll Road and Routes 66 and 270, taking up residence in Tysons could mean a shorter commute for many people. The guarantee that developers will build 20 percent of residential units as “workforce” units, priced below market value, will make the area even more attractive.

The new Tysons street map. It's no urban grid, but it's getting filled in. Image: Fairfax County

That’s all part of the plan. The ultimate goal is to increase employment in Tysons by nearly 100 percent, to 200,000 jobs, and to increase residential nearly sixfold, to 100,000 residents.

What happens, though, if the wars in the Middle East finally end and Congress accepts significant cuts to the defense budget, and the defense contracting sector shrinks? With such a major source of employment diminished, could the plans for Tysons’ revitalization survive? Or is it all a by-product of what has been called Washington’s “Doom Boom,” the vibrant jobs market surrounding an increased federal dedication to war and homeland security?

No sweat, the developers and planners say: Tysons has done a good job diversifying its employer base. Not only are Mitre, Booz Allen Hamilton, SAIC and other defense contractors located there, but Tysons is also home to Capital One, PNC Bank, Hilton Worldwide, Freddie Mac, Sprint Nextel and USA Today/Gannett Publications.

Whether Phase One is finished on time in 2013 or a bit later, it will transform an emblem of sprawl into a signal to the rest of the country that you don’t need a greenfield to make a new, livable community a reality.

Developers and the public are together preparing to turn White Flint's Rockville Pike from this...

... into this. Images: MontCo Planning Director's Blog (above) and White Flint Partnership (below).

But instead, it’s “sprawling suburbia,” covered in surface parking lots and lacking a true road network. “Community members say they’re within spitting distance of White Flint Mall but they have to drive to get there because of the road network,” says developer Francine Waters, who manages the transportation and smart growth program at Lerner Enterprises.

Seeing the wasted potential of the area, Lerner and five other developers that own much of the land in White Flint came together to figure out how to make Rockville Pike, White Flint’s main artery, a destination and not just a thoroughfare. Waters told the story this week at Rail~Volution to an audience eager to learn how public-private partnerships and value capture strategies could work in their neck of the woods.

Not only are the White Flint developers looking to include more mixed-use development in the community, they want to build new local streets to fill in a viable street grid and redesign the eight-lane Rockville Pike into a “21st century boulevard” with wide sidewalks, bike lanes, six rows of trees, and dedicated transit lanes. They want to fill those lanes with bus rapid transit to take short-haul commuters off of the at-capacity red line.

The infrastructure total is estimated to cost $601 million – and the federal government isn’t picking up a dime of it.

White Flint is at the forefront of a new kind of infrastructure financing – one which involves the private sector more than the government. As federal funds dry up, all eyes have turned to public-private partnerships, but the topic is still often the subject of much head-scratching and hand-wringing in Congress. Indeed, some have rung the alarm bell about over-reliance on the private sector when it comes to building high-speed rail, saying the public often bears too much of the risk while the private developers carry off all the profit.

Through an extended series of community consultations, White Flint’s developers appear to have gained the public’s trust, and now they’re charging forward with ambitious plans to remake an auto-centric suburban sprawl zone. And by bypassing federal aid, they’re also bypassing the reams of paperwork and bureaucratic processes that come with it, which often add years and millions of dollars to total project cost.

The developers are taking most of the money out of their own hide – paying $280 million for infrastructure improvements, including street-building, on their own individual properties, as well as $169 million that they’ll pay through a development district tax. The remaining $152 million for public roads, schools, and community centers will come from the county.

The developers, of course, are not rebuilding White Flint out of some higher civic-minded purpose. They’re doing it in exchange for higher density caps and to add value to their holdings. But they’re willing to pay upfront to bring that change.

There are many other ways to craft public-private partnerships, also known as PPPs or P3s. Around the Washington area, especially, sometimes it’s as simple as a government agency agreeing to be a tenant in a new building, filling the building with a guaranteed number of office employees. Or sometimes all the government needs to do is help out with some “pre-development” money – laying out money for project assessments when the future is still too uncertain for developers to want to spend any of their own money.

New Jersey developer Chris Kane said a recent major redevelopment at the Hudson-Bergen light rail station in Jersey City was done “the old way” – through state and federal grants – “so there was no pressure at the time to get beneficiaries contributing to the project.” The result: Tremendous value was added to real estate holdings, but none of that value was used to fund the project. And it’ll be harder to get stakeholders to contribute later on to maintenance or operations costs if needed.

“Value capture” is defined by Ian Carlton of TransACT as “the process by which all or a portion of increments in land value attributed to ‘community interventions’ – rather than landowner actions – are recouped by the public sector.”

Often, all that’s needed to get developer buy-in is a promise that they can double their density. Much of the explosive re-generation of Tyson’s Corner, Virginia, is made possible by developers tempted by newly unrestricted density near metro stations.

But there are lots of ways to capture value. Portland led the way, financing its streetcar system primarily with value capture strategies. They created two assessment districts, meaning that landowners near the proposed streetcar line paid extra taxes to help fund the transit because it would add value to their properties. The city also levied parking fees to help pay for it.

Washington, DC’s Metro agency has also been successful at implementing value capture, which currently covers about 0.7 percent of its annual budget.

The most common value capture strategy is joint development, meaning a transit agency collaborates with a private company to develop land or buildings the agency owns. About 60 percent of transit agencies say they’ve used it, compared with just 11 percent that have used tax increment financing, for example, which captures projected increases in tax revenue to fund the project.

In other cases, like White Flint, developers and local governments can use a process of “negotiated exaction” to determine what private holdings will be developed as part of the public commodity – to build new station-area parking or access roads, for example.

Carlton of TransACT said impact fees can be a form of value capture too. An impact fee is levied, for example, in greenfield development, when the new housing a developer wants to build would create more traffic. In that case, the developer sometimes helps pay for a new road to be built. Of course, rather than mitigate the impact of the new housing, this kind of building usually just creates more sprawl and more congestion.

In one case, developers wanted to redevelop a 600-acre abandoned railyard near National Airport, just outside of DC. They couldn’t get a permit, said Rick Rybeck of consulting firm Just Economics, because traffic on Route 1 is already maxed out during rush hour. But, local officials said, the yellow and blue metro lines run right through the property. If there were a station there, officials said, they’d consider it.

The developers, according to Rybeck, decided it was worth it to pay 100 percent of the cost of a new transit station at the lot, allowing them to develop the site without exacerbating traffic.

Unfortunately, citizens were too afraid of the prospect of increased density to appreciate the added amenities the development and transit access would bring, and they forced the lot to be down-zoned for lower density. Once the area was down-zoned, it would no longer be profitable enough for the developers, and they ended up abandoning the project.

Without value capture, the city or county may at some point build the new road or transit station, but the landowners will simply wait until the new road is built, which increases the value of the land, to develop it. In that way, they’ve benefited from the public investment without contributing to it.

Value capture helps transit agencies realize the potential of TOD. Without it, the temptation to build transit in lower value areas might be too great. But with enthusiastic buy-in – and funding – from nearby landowners, agencies can be persuaded to build transit where it’s needed, in the center of urban activity.

Nadine Fogarty of Strategic Economics said the best predictor of successful development is finding sites where the value of the land underneath a building is high relative to what’s on top if it. If you get rid of the building and build something new, you’ll get a big bang for your buck. That’s the sort of opportunity that developers are looking for, and that’s the sort of value increase transit can create.

Privatization of Amtrak service could disrupt commuter rail lines that run on its tracks. Source: GAO

House Transportation Committee Chair John Mica (R-FL) is moving forward with his plan to hand over the Northeast Corridor to private companies, despite (or because of) the fact that such a move could write Amtrak’s obituary.

Is privatizing the corridor a good move? Mica and Rep. Bill Shuster (R-PA) say that with the participation of private companies, they can build “real high-speed rail on NEC – less than two hours between WDC and NYC” and they can “double total intercity rail traffic on NEC.” They claim they can do all that for far less than Amtrak’s proposed price tag of $117 billion.

Commuter Rail

But some say that’s “not a rational plan.” One Hill staffer working on transportation issues said that Mica’s idea “just doesn’t work.” After all, she says, as long as commuter rail shares the track with intercity rail, there’s no way to double intercity service and run it at 120-mph speeds while still accommodating local train service. She says unless their plan is to raise fares exponentially to gather funds to build a whole new parallel track, it’s impossible to meet Mica’s goals under the terms he’s setting.

A 2006 GAO report [PDF], foreseeing the GOP attack on Amtrak, found that an “abrupt Amtrak cessation” would be severely disruptive to transit agencies up and down the corridor. “Seven of the nine commuter rail agencies in the Northeast operate over Amtrak-owned portions of the Northeast Corridor,” the GAO found. “According to officials from these agencies, access to Amtrak’s infrastructure is essential to their services.”

Even if services kept running but the management switched to a private company, the GAO warned that the transition “would take months, not weeks” and would involve complex labor and liability issues. “So we’re just putting everyone through all this upheaval to essentially put in the exact same thing, just under a different name,” said the staffer.

All We Are Saying is Give Amtrak a Chance

Meanwhile, PRIIA, the law that reauthorized Amtrak in 2008 [PDF], is still in its infancy. It re-invested in the state of good repair of Amtrak’s infrastructure and sought to resolve its debts. Some say it’s too early in that process to bury Amtrak now. Besides, Amtrak itself is inviting the private sector to collaborate with them on upgrading the NEC. Proposals were just due two weeks ago. Again, to many, it’s premature to interrupt this process.

Federal Assets

More reasons to oppose the privatization scheme are coming out of the woodwork each day. Sen. Dick Durbin (D-IL) just introduced a bill, the Protecting Taxpayers in Transportation Asset Transfers Act, which draws attention to another problem with the plan: that privatization squanders federal investments in public infrastructure.

Durbin’s bill would help ameliorate that issue by requiring repayment to the federal government, as well as mandating the consideration of factors such as the environment, public health, commerce and national security. It also introduces new accountability measures to ensure sound maintenance and the disclosure of anticipated effects on wages and employment.

“The last transportation bill alone provided states with an average of $48 billion per year for upgrades to roads, bridges and mass transit systems,” said Durbin. “Any deal to sell or lease these assets should be closely examined and include a return on the federal taxpayer investment.”

Bailouts

If that weren’t enough reason for liberals and conservatives alike to flee, screaming, from any plan to sell off our most valuable transportation asset, consider this: Reconnecting America says, “Globally, rail privatization has led to costly government bailouts of private companies that have acquired too much risk.”

“Investors have an implicit assumption that taxpayers will provide a backstop for companies that make risky choices to maximize profits,” Reconnecting America continues. “This approach will require an unknown amount of taxpayer funds in an effort to attract private investors to upgrade, maintain and operate the NEC.”

British Government support to the rail system, 1985-present. Source: Reconnecting America/Office of the Rail Regulator, UK DIT

Republicans constantly point to Virgin Rail in the UK as a great privatization success story, but in fact, the company that took over the rail infrastructure went bankrupt just five years after assuming ownership and the government had to take over the company, with the net effect that the taxpayer portion of passenger rail funding increased after privatization. Virgin, the operator, stayed afloat – but according to Darnell Grisby of Reconnecting America, “If Virgin had to cover its own maintenance and capital needs, its balance sheet would be bleeding as well.” This is the model Mica and Shuster are looking to for guidance on the NEC.

Add to all of these pitfalls the fact that by taking the profitable NEC off Amtrak’s books, the lucrative Acela line can no longer help pay for long-distance rail service in the rest of the country. If the GOP thinks per-passenger federal subsidies on those money-losing lines are high now, just wait until Amtrak has no ability of its own to help cover those services.

From left: Chamber of Commerce President Tom Donohue, Mesa Mayor Scott Smith, Rep. John Mica, LA Mayor Antonio Villaraigosa, Sen. Barbara Boxer, AFL-CIO President Rich Trumka. Photo: Senate Photographic Studio

The “Tom and Rich Show” continued on Capitol Hill yesterday. Chamber of Commerce President Tom Donohue and AFL-CIO President Rich Trumka joined up for yet another event to show that business and labor, which don’t agree on anything, agree on a major infusion of federal investment for infrastructure.

They weren’t the only strange bedfellows there. Democratic Senator Barbara Boxer and Republican Congressman John Mica were practically holding hands through the entire press conference. Los Angeles Mayor Antonio Villaraigosa (a Democrat) found common cause with Mesa Mayor Scott Smith (a Republican).

“We have Democrats, Republicans, House, Senate, labor, business, lambs, lions, cats, dogs lying down together,” said Mayor Smith. “But there’s no apocalypse on the horizon. There’s a new dawn.”

In the past, even as other leaders in Boxer’s party have called for an infrastructure bank, she has hesitated to join them, expressing support for a strengthened and expanded TIFIA loan program instead. She’s said that rather than create a new federal bureaucracy, she’d rather stick with an existing program with a proven track record. But now she’s saying those approaches can each work in conjunction. “They’re definitely complementary,” she said yesterday. “I’m supporting the infrastructure bank, a strengthened TIFIA, and the Wyden approach [to renew the Build America Bonds program]. They’re all complementary. It’s all about leverage, leverage, leverage.”

Tom Donohue’s persistent, at times strident calls for strong federal infrastructure investment have been at odds with the calls from the fiscal conservatives the Chamber helped elect. While many in the House are bracing for a smaller reauthorization bill than hoped for – possibly even smaller than the last one, passed in 2005 – and calling for increased public-private partnerships to pick up the slack, Donohue knows that’s not going to cut it. He’s calling for a big bill, funded with a significant increase in the gas tax, which everyone in the transportation industry supports and everyone in Washington shuns.

Chamber spokesperson Janet Kavinoky explained why public-private partnerships can’t just replace adequate federal investment.

“You have to have revenue to do transportation projects,” she said. “So even if you’re doing public-private partnerships, even if you’re offering leveraging tools, you still have to have revenue to pay interest on debt and to pay returns on equity. That’s true if you take out a mortgage, it’s true if you have a credit card, it’s true if you do infrastructure. So we don’t want people to lose sight of the fact that public private partnerships, TIFIA, banks aren’t a magic solution for everything. We still gotta have the money.”

The unlikely allies came together yesterday to promote a new initiative they’re calling America Fast Forward, a new plan building on L.A.’s proposed 30/10 program to use targeted federal investments to leverage locally-raised money for transportation projects. They say it will create jobs, support business, and empower local communities without adding to the nation’s deficit.

As part of this, more than 100 mayors from around the country, including Smith and Villaraigosa, sent a letter last week to the chairs and ranking members of four of the main Congressional committees that will be crafting the transportation bill. The letter asks them to support an expanded TIFIA loan program to provide “credit assistance for surface transportation projects of national and regional significance” as well as Qualified Transportation Improvement Bonds, which the federal government subsidizes by paying most or all of the interest cost in the form of tax credits for investors.

Denver's Union Station, site of the FasTracks transit plan that is still in line for federal PPP funds. (Photo: Inside Lane)

But at a House transport committee hearing today, both lawmakers and witnesses raised questions about the success of existing federal involvement in PPPs, suggesting that more transparency and a streamlined process could be needed before a new infrastructure fund would be created to leverage private investment in infrastructure.

Rep. Pete DeFazio (D-OR), chairman of the committee's highways and transit panel, wondered aloud whether Congress should leave aside the Obama administration's $4 billion "I-Fund" and simply expand an existing U.S. DOT program that offers loans and lines of credit for local planners to sway more private funding -- the effort known as TIFIA, or the Transportation Infrastructure Finance and Innovation Act.

"Maybe all of it should just go into TIFIA right now," DeFazio said.

Chris Bertram, chief financial officer at the U.S. DOT, defended the I-Fund plan by noting that it could provide more up-front financing than TIFIA, which is now limited to covering one-third of any transportation project's total cost. 

Yet the hearing offered several examples of scattershot progress on existing federal PPP programs, including TIFIA. Eugene Conti, North Carolina's state transportation secretary, said his state had decided to move forward on its Yadkin River Bridge replacement using federal GARVEE bonds after winning a federal stimulus TIGER grant that covered only one-thirtieth of the project's total cost.

"We need to know what the rules are for this program ... we need a lot more transparency," Conti said.

Under questioning from DeFazio, Denver Regional Transportation District CEO Phillip Washington also acknowledged that while he believes he has satisfied the federal requirements to receive money from the U.S. DOT's transit PPP pilot program, the actual funds have yet to arrive -- nearly three years after his city was first selected to participate.

Washington told DeFazio that he anticipates federal aid arriving "in 2011, or whenever [a new federal transport] bill passes."

Rep. Chris Carney (D-PA) raised another concern, asking Bertram about the privately run San Diego toll road that filed for bankruptcy last month after winning $140 million in TIFIA loans. The South Bay Expressway, as it was known, is the first TIFIA recipient to become insolvent, and Bertram referred to "springing lien" language in the toll road's loan agreement that could put other private-sector creditors ahead in line for reimbursement.

Riders in Dallas, where a public-private partnership could be the ticket to a new expansion. (Photo: JCWinnie.biz)

Denver officials hope to accomplish the tricky feat of wooing private capital to transit by executing a deal directing sales-tax revenue to the winning bidder, which would provide immediate financing and collect operating profits. From yesterday's Dow Jones report:

Denver's transit agency hopes to skirt the dilemma by using a portion of its dedicated sales-tax revenue to essentially lease the completed rail lines, vehicles and maintenance facility from the winning investment group under a 40-year agreement, in exchange for the up-front investment and ongoing operation.

If the plan comes to fruition, the agency will maintain ownership of the project and control over fares, but provide the investors with a profitable, long-term revenue stream. ...

The arrangement, known as "availability financing," is relatively commonplace in Europe but has been used only rarely in the U.S., where privatization of public infrastructure and services in general has been much slower to catch on.

In Dallas, the local transit agency is weighing a plan to expedite construction of a new rail line with no upfront contribution from the public. The proposed link between Fort Worth and Wylie, Texas, known as the "Cotton Belt," would be paid for using "value capture" taxation methods that aim to harness the economic benefits of rail for local businesses.

But as the Dallas Morning News noted last week, the new financing pitch "would most likely include much steeper fares for the Cotton Belt [and] paid parking." From Michael Lindenberger's local report on the transit expansion:

Dallas City Council member Ron Natinsky urged colleagues to embrace the idea, and said he was ready to vote Thursday.

"There is no downside here," he said. "This simply says we're going to solicit bids. Those bids have to be returned, and if they aren't to our liking, we can turn them down. And we're no worse off than we are now."

No matter who is in charge of negotiating the deal, a privately financed rail line will represent a seismic shift in how passenger rail is built in Texas, just as Gov. Rick Perry's pursuit of privatized toll roads has transformed the way those roads are paid for.

As with toll road deals, private partners who invest in rail lines would insist that every service decision – from ticket costs, to station locations, to schedules and parking fees – be examined with an eye on how much revenue they could produce. 

A ribbon-cutting in Dubuque, IA, for IBM's new tech center. (Photo: Gazette)

Last September, city fathers in Dubuque, Iowa, lured three members of the White House cabinet to the banks of the Mississippi River on the same day they welcomed officials from one the world’s biggest corporations, IBM. ...

Meanwhile, Dubuque’s private sector guest, IBM, was over at the convention center announcing plans to make the city a living laboratory for its Smarter Planet program. Up to 1,300 new IBM employees will begin fielding tech service calls later this year at the Roshek building, and the company hopes those workers will also be able to enjoy the fruits of a sweeping partnership between IBM and its host city — a partnership aimed at creating an integrated transportation system involving smart new bus routes, pedestrian-friendly streets, and arterial roads to take trucks out of neighborhoods.

It sounds positively idyllic, but there is, of course, a catch.

That catch was a $50 million federal investment -- and though it would be technically correct to say Dubuque was seeking a handout from Washington, it's in good company. More than 650 localities have lobbyists chasing federal transportation funding on their behalf, according to the CPI.

So perhaps Dubuque's quest is simply part of the un-grand scheme by which transportation money flows to states and metro areas. But with the city offering a reported $22 million in incentives to attract a deal with IBM, which has already started work on its new tech service center, is the federal government the right partner for the project?

Thinking broadly, Dubuque's type of public-private partnership would be a natural fit for the National Infrastructure Bank that is attracting new momentum as part of the Capitol Hill job-creation push. If a city and a company need help financing a project that promises to be the first step in an urban revitalization, that funding should be easier to get than it is now -- from private as well as public sources.

The future of public-private partnerships? Hopefully not. (Photo: Time Out NY)

[T]he agreement ... will include putting Subway restaurants as well as Dunkin' Donuts locations in the centers, according to a Carlyle spokesman. Dunkin' Donuts is owned by Carlyle.

Meanwhile, the same Connecticut governor who called Carlyle's donut investment "an unprecedented commitment to ... meeting the needs of the traveling public" recently vetoed legislation that would have eliminated the need for significant transit fare hikes.

Is this what President Obama meant when he called for "more creative, new approaches" to fixing "infrastructure that is falling apart"? Let's hope not.

Given that government audits have found existing federal transit regulations riddled with obstacles to attracting successful PPPs, perhaps it's not surprising that Carlyle chose to go the donuts route rather than collaborating on Connecticut transit-oriented development projects in the vein of the New York MTA's Beacon Station revitalization.

But that's no reason for Carlyle to take a victory lap while plans for a National Infrastructure Bank (NIB) remain frustratingly unclear. If the administration follows through on its NIB plans, information-sharing and incentives will be needed to prod private capital into genuinely beneficial projects rather than new fast food joints.

For a taste of how groundbreaking federal infrastructure PPPs could happen on the local level, this presentation [PDF] by the deputy general manager of the Boston area's Massachusetts Bay Transportation Authority is a good place to start.

Chicago's earliest rail transit line, pictured here, was run by a private company. (Photo: Franzosenbusch Project)

Although Amtrak based its challenge on Keolis' inexperience operating American rail lines, the latter company maintains a sizable transit presence as a subsidiary of SNCF, the French national high-speed railway.

Moreover, Keolis submitted a notably lower bid to take over VRE operations, undercutting Amtrak by $500,000 on first-year transition costs and $300,000 in annual operating costs. The French-owned company's winning bid totaled $85 million for five years, offering VRE workers the option of shifting to another Amtrak line or staying on under the new management.

Looking beyond the local implications of VRE's switch to Keolis, the new contract is part of a larger trend toward transit privatization that has seen recent deals struck in New Orleans, Savannah, and Phoenix. The Obama administration is encouraging greater use of public-private partnerships to help fund and operate transport networks, making these agreements something of a portent.

But substantial hurdles remain to the effective participation of private companies in the business of transit. Independent auditors at the Government Accountability Office submitted a report [PDF] to Congress last week after taking a yearlong look at how the federal transit funding process affects the ability of local officials to join forces with the private sector.

And what the GAO found was a whole lot of hurdles, many of them unique to the cumbersome rules of Washington's New Starts transit program. From the report (emphasis mine):

Consultants to the Dulles Silver Line project sponsor told us that through the New Starts process, [the Federal Transit Administration] has complete control over a project’s schedule, and project sponsors have to put project work on hold while waiting for FTA’s approval to advance into the next project phase. They also told us that construction activities on the Dulles Silver Line could not begin until the approval of a full funding grant agreement — as design and construction activities cannot be completed at the same time — and so some of the time-saving benefits of the design-build approach were lost.

Dulles Silver Line sponsors also nearly lost the tax-increment financing that was intended to fund the project, according to the GAO, when a full funding agreement under New Starts took five years instead of the estimated two or three. A similar situation arose in Houston, where a public-private partnership on a local light rail network told auditors "that FTA required them to submit and resubmit entire project documents to FTA multiple times, which led to delays."

By contrast, private participation in new transit projects on the international level has included equity financing in addition to operations and maintenance of the new lines. Citing World Bank data, the GAO found international public-private transit projects in the United Kingdom, Thailand, Brazil, Canada, Hong Kong, France, Malaysia, the Philippines, and South Africa.

Given the already considerable obstacles to successful public-private partnerships in U.S. transit -- the need for private companies to cede the right to hike fares, for one -- it would seem grievously counter-productive to keep a system in place that impedes the use of the same "creative" financing methods being urged by President Obama.

But for now, the New Starts funding process remains in effect and providing that disincentive. The GAO's report recommends that the FTA introduce more flexibility into its current public-private partnership pilot program and "better equip project sponsors" to take advantage of alternative approaches, but large-scale change was not discussed.

New Orleans streetcars, such as the one pictured above, are about to be outsourced to a private French company. (Photo: NYT)

New Orleans plans to outsource nearly every aspect of its mass-transit system to a French company, an approach that could appeal to other cash-strapped American cities looking to cut spending without eliminating bus or rail services.

Under terms of a deal struck earlier this month, the New Orleans Regional Transit Authority will pay a subsidiary of Veolia Environnement about $56.3 million each year, and potentially $600 million over the next decade, to finance, manage and operate the city's bus and streetcar lines.

The deal could eventually save Norta -- which spends about $72 million a year to run its system -- as much as 30%, said Chairman Cesar Burgos.

Transit outsourcing is a notion that sounds reasonable enough, particularly given Congress' reluctance to let large cities use federal money on operating costs. But the Journal omitted a notable detail about Veolia, the French company that's poised to run transit networks in New Orleans and Savannah, Georgia: It is battling Los Angeles' Metrolink commuter rail in court over a September crash that killed 25 people.

That crash occurred when Robert Sanchez, a Metrolink engineer hired by Veolia, ran a red light and hit a Union Pacific freight train. Sanchez was later revealed to be sending text messages 22 seconds before impact, and federal investigators found that he invited a local teen to try driving his train.

Veolia strongly defended its safety record following the Metrolink crash, though L.A. has since scaled back its use of private transit contractors amid local reports that listed the company's past missteps.

Veolia's website notes that its deals are not "privatization" -- a word that carries a somewhat loaded political subtext -- but "outsourcing," which does not entitle a private firm to "the acquisition of all of the public company's assets."

But no matter what term is used, letting contractors bid to manage local transit raises the question of whether safety and service trade-offs are inevitable as the firms work to maximize their profit potential.

The rest of the Journal's article on transit outsourcing is viewable in full after the jump.

"This is a model that will grow jobs...and create an enormous opportunity for cities," said Mark Joseph, chief executive of Veolia's transportation unit.

Outsourcing can introduce new risks, including the financial soundness of the companies involved and the potential for a backlash if residents come to feel a deal isn't in the public interest. In the past year, financial issues have grounded or delayed deals to privatize Chicago's Midway Airport and build a new tunnel to the Port of Miami.

It is unusual for a big-city transit agency in the U.S. to delegate so much control to a private company, but the New Orleans transit deal shows how far some cities may go to preserve key services as the recession drags on.

Across the country, the traditional revenue streams that transit agencies rely on are declining, but interest in bus and rail service is growing. Faced with a budget crunch, an increasing number of cities may join New Orleans in seeking to curb costs by turning operations over to private companies that can potentially run systems more efficiently.

Officials in Savannah, Ga., are negotiating a similar contract with Veolia to the one New Orleans worked out. Patrick Shay, a board member of the regional authority who has been involved in the talks, said Savannah needs help in areas ranging from software to supply-chain management in order to improve its bus system.

In the Phoenix area, Valley Metro's new 20-mile light-rail line is being operated by private contractor Alternate Concepts Inc., and the transit authority plans 37 miles of new rail service in the years ahead. Already, Valley Metro outsources its bus services. "We live, breathe and eat with our contractors," said Susan Tierney, a Valley Metro spokeswoman.

In March, the transit authority in Houston awarded a $1.5 billion contract to a division of Parsons Corp. to build, operate and maintain four new light-rail lines. Transit agencies in Dallas and Fort Worth, Texas, are seeking a private partner to finance, build, maintain and run a 67.7-mile passenger-rail network starting in 2013.

Outsourcing, particularly the kind of wholesale delegation coming to New Orleans, doesn't work for every transit agency. In Los Angeles, the Metropolitan Transportation Authority contracts out service on 21 of its 200 bus lines at savings of roughly $45 per hour of operation, according to spokesman Rick Jager. Despite the savings, Mr. Jager said the authority has no further plans to outsource because labor agreements with its unionized work force prevent it.

Many agencies with older systems "can't get off first base with contracting because the labor unions are so powerful," said Cal Marsella, general manager at Denver's Regional Transportation District.

The Amalgamated Transit Union, which represents bus drivers across the country, didn't respond to requests for comment.

Mr. Marsella's agency outsources about 47% of its fixed-route bus service to Veolia and Ohio-based First Transit Inc. Buses operated by the companies are on time at roughly the same rate as the buses driven by RTD employees, Mr. Marsella said, but the privately run buses produce cost savings of roughly $30 an hour. Among the reasons: Starting pay for bus drivers employed by RTD is $15.49 per hour, versus $12.25 for ones the companies hire.

In New Orleans, the city's unionized bus drivers will become Veolia employees, and their labor agreements will be honored, Mr. Joseph said.