The Press devotes a cover story to the proposed Houston-Dallas high speed rail line. Most of what’s there will be familiar to anyone who has been following this along with me, but this bit from the story caught my eye.
Financing will be complex. Tim Keith, a North Texas native with a quarter century’s experience in finance, was named Texas Central’s CEO in July. Keith says about a third of the project, around $4 billion, will be funded by institutional investors — pension funds, insurance companies and the like looking for projects likely to yield reliable dividends for years. “There’s a very large appetite by institutional investors for U.S. infrastructure investment,” Keith says.
The rest of the money will come from loans. Keith expects the Japan Bank for International Cooperation to front several billion dollars. In a subtle shift away from Texas Central’s long-standing pledge that the project won’t be backed by public funds, Keith said the company plans on pursuing loans through a couple of federal sources, the Transportation Infrastructure Finance and Innovation Act and the Railroad Rehabilitation & Improvement Financing program. Texas Central officials may also look into securing approval to sell private-activity bonds, a form of tax-exempt debt often used for public-private infrastructure projects. ([Texas Central President Robert] Eckels, meanwhile, says that the company never pledged not to pursue loans and bonds that are available to any company.)
Various high-speed-rail experts have speculated that Texas Central will rely on real estate development around its stations for revenue. Art Guzzetti, vice president for policy at the American Public Transportation Association, says that JR Central gets more than a third of its revenue from station-related development, including the 774-room Marriott in Nagoya, Japan.
Baruch Feigenbaum, a Reason Foundation analyst who supports Texas Central despite his skepticism concerning most U.S. high-speed rail projects, expects the company to charge between $50 and $60 per ticket. However, Feigenbaum’s calculations are based on the assumption that the company will own and develop the land around its stations. Otherwise, fares will have to be set significantly higher. Such speculation intensified when Jack Matthews, a powerhouse Dallas developer, was appointed to Texas Central’s board. Matthews has holdings in the Cedars neighborhood south of downtown Dallas, where Texas Central plans to build its Dallas station.
But Texas Central officials insist that their business model relies almost entirely on fares, not on making money off things like parking and concessions. The company expects to pull in some profit from station-related development, but that’s not what it’s focused on when selling the concept to potential investors.
The real estate stuff is interesting, but I don’t know how much to make of it. In theory, at least to begin, there will only be two stations, one at each end, so the amount of investment available may be limited. To some extent, this is related to the opposition to the rail line – the rural counties that the line may pass through don’t see any benefit to them because there won’t be any stations outside of Houston and Dallas, at least not in the foreseeable future. If there were talk of stops between Houston and Dallas, perhaps some of the opposition would be geared towards lobbying for a station instead. Just a thought.
It’s the ticket price speculation that I want to talk about. I recently had to drive to Dallas for a memorial service. For a variety of reasons, I went up and came back on the same day. Had there been the option to take a train, I’d have gladly done so, because driving for eight hours even in benign traffic conditions is hell, and I’d have had more time to spend with the people I went to see if I could have ridden the rail. More to the point, gas was $2.49 a gallon at the Madisonville Buc-ee’s, where I stopped each way. If you assume this is about a 500 mile round trip – from where I enter I-45 to where it becomes US 75 is about 235 miles – then the average traveler probably uses at least 20 gallons of gas, which at that price is $50. In other words, for what I spent on gas, I could have bought a ticket for a trip that would take less than half the time (even factoring in the trips to and from the train station) and would have been free to read, surf, nap or whatever while in transit. That sure sounds appealing to me.
Now, how many people need to make this kind of trip on a given day is an open question, and the economics changes when you have more than one people involved – if I’d brought Tiffany and the kids with me to Dallas, I’d have spent the same amount on gas, but four times as much on train tickets. The calculations get way too complex for me very quickly. I do believe this is a good idea, I know for a fact it will never get any easier to build something like this, and while I have sympathy for the rural folks who won’t see the benefit of the line, it has always been the case that large infrastructure projects create some amount of hardship for some number of people. Ask the former residents of the Fourth Ward about the effect I-45 had on their neighborhood, for example. We should do what we can do mitigate the effects of these hardships, but their existence should not be a reason to not do this.