High-Speed Rail Program Hits Snag Due to Government Mandates

Published June 18, 2010

Ever since President Obama announced his high speed rail (HSR) program initiative and Congress approved $8 billion to fund it as part of the American Recovery and Reinvestment Act in February 2009, many states have lined up to stake out a share of the money.

States that had been working on high-speed rail plans for years saw it as an opportunity to finally bring their projects to fruition, while others scrambled to get rail corridor planning underway so they too could qualify for a share of the pie. The prize looked particularly attractive because the dollars would flow directly to the recipient states without requiring a local match.

‘Guidance’ Becomes ‘Mandates’
For most states, competing for a piece of the action meant developing a plan in cooperation with the Class I freight railroads to upgrade existing infrastructure to accommodate passenger rail service at speeds higher than 79 mph. Although such speeds would hardly qualify as “high-speed” in Europe and the Far East, they became the de facto threshold standard for qualifying under the HSR program.

Now plans with freight railroads are at risk because advisory “guidance” is being made mandatory.

Virtually all the existing rail infrastructure in America is owned by private railroads, so the ticket of admission to the federal HSR grant program has been an operating “Stakeholder Agreement” the prospective state grantees are required to sign with Class I railroads whose facilities they intend to use for passenger rail service.
On May 12, however, the Federal Railroad Administration issued a 19-page directive setting forth the proposed terms of these agreements. The directive includes specific performance measures. It stipulates freight railroads and grant recipients (in most cases state departments of transportation) must agree to “measurable service outcomes” in terms of number of daily trips, trip time, and on-time performance for the proposed passenger rail service.

Big Spending Mandated
If a railroad fails to meet those targets, it must “at its sole expense” take all necessary measures to achieve compliance within two months. If failure to achieve the stipulated outcomes continues over the long term, the railroad must repay a pro-rata share of the federal grant. Any new capacity created by the federal grant must be reserved for future passenger train use and may not be used to increase freight carrying capacity.

In addition, the railroad must agree to a number of audit, labor, reporting, and other federal procurement requirements (Davis-Bacon wage rules, Buy America requirement, environmental protection, etc.).

Although the FRA directive was couched in the form of an advisory “guidance,” railroad executives soon found out FRA intended its provisions to be mandatory and would reject any operating agreement that did not include the recommended performance standards.
Executives Stunned
The FRA directive reportedly stunned the railroad industry. What the U.S. DOT’s customary clientele assumes and tolerates as the price of doing business with the federal government—the myriad requirements and the peremptory style in which they often are delivered—must have come as a genuine shock to these private railroad executives unaccustomed to the complexities of the federal procurement and grant-making process and to dealing with the often inflexible posture of the federal bureaucracy.

Although none of the parties would go on record as threatening to break off negotiations and walk away from the high-speed rail program, several senior railroad executives have left no doubt there are limits to how far they are willing to compromise their paramount objectives of maintaining safe operations and keeping commitments to their customers—objectives that require giving precedence to freight operations, especially in the capacity-constrained Class I rail corridors.

“These are not people accustomed to being pushed around,” one longtime rail industry insider told me. “The administration may want to bully them, but they will fight tooth and nail, and they have the ability to push back and push back hard.”

The railroads are not without leverage. They know achieving progress with the high-speed rail program—one of President Obama’s signature initiatives — ranks high on the administration’s list of priorities.

Could Be Derailed
Abandoning cooperative efforts on the joint operations projects would “effectively derail the Obama administration’s high-speed passenger rail program,” wrote one railroad industry observer.

The Federal Railroad Administration has tried to minimize the conflict. Federal Railroad Administration Administrator Joseph C. Szabo said, “We are fully committed to working with states and freight railroads to help them reach mutually beneficial agreements that promote the public interest and satisfy private sector interests.” An FRA spokesman tried to reassure the railroad industry that the agency’s mind is not completely made up: “We are aware of the freight railroads’ concerns and have asked them to meet with us for dialogue.”

Nor is the FRA without its defenders. Former Transportation Secretary James Burnley (the only one of the many sources we contacted for this story who agreed to speak to us on the record) thought the U.S. DOT is wisely attempting to fashion stakeholder agreements that reduce the “substantial danger that most of the federal grants will end up in the pockets of the Class I freight railroads,” adding that the Department “will have to be aggressive in enforcing them.”

C. Kenneth Orski ([email protected]) is editor/publisher of Innovation NewsBriefs, where a version of this article first appeared. Used with permission.