High Speed Rail: Learning From Service Start-ups, Prospects for Increased Industry Investment, and Federal Oversight Plans
Published: 2010-06-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The American Recovery and Reinvestment Act (Recovery Act) and subsequent appropriations have dramatically increased federal funds available for high speed intercity passenger rail from $120 million in fiscal year 2008 and fiscal year 2009 combined to $10.5 billion available in fiscal year 2010. Other issues, such as developing industry capacity to supply rail equipment and fostering multiyear public support for such systems must be resolved. As part of its efforts to assess Recovery Act initiatives, GAO reviewed (1) how states started or improved passenger rail services in the recent past, (2) rail industry plans to accommodate the increased passenger rail investments, and (3) Federal Railroad Administration (FRA) plans to oversee the use of federal intercity passenger rail funds. GAO reviewed federal legislation; interviewed state, industry and federal officials; and reviewed selected literature. GAO is not making any recommendations. The Department of Transportation did not express an overall opinion on a draft of this report. It did provide technical and clarifying comments, which GAO incorporated.
section_title: What GAO Found
paragraphs: State successes to initiate or improve intercity passenger rail services in the recent past (the last 15 years), hinged largely on their abilities to build public and political support, secure funding, obtain equipment, and manage their services. Public and political support and funding provided a foundation for these services. States acquired equipment by using collaborative and cost-saving approaches. Further, states managed their rail services by building consensus with stakeholders, borrowing expertise, and developing state capacity. All of these activities will be important for states that seek to initiate or improve services in the future, including developing conventional passenger rail (operating at speeds up to 79 miles per hour), higher speed passenger rail (operating at speeds up to 150 miles per hour), and even high speed rail services (operating at speeds of 150 miles per hour or more). Rail industry stakeholders are optimistic that they can meet increased public investment in intercity passenger rail; however, they are looking for (1) federal leadership in setting safety standards for high speed rail and in promoting interstate cooperation for service across state lines, among other things, and (2) stable funding to create a structure for developing a passenger rail marketplace. Additionally, stakeholders said that a stable federal funding stream would encourage firms to enter and invest in the intercity passenger rail marketplace. However, even with strong federal leadership and funding it could take several years to provide the necessary infrastructure, such as for building new passenger rail cars, potentially making it difficult to spend some Recovery Act high speed rail funds by 2017, as required by law. As a result of Recovery Act funding and the Passenger Rail Investment and Improvement Act of 2008, FRA has had to develop a rail program and an oversight approach. Among other things, FRA had to quickly draft a preliminary national rail plan and a high speed rail strategic vision, as well as develop a program to distribute Recovery Act funds. As a result, FRA officials stated that they concentrated their efforts on meeting these requirements and they are currently designing their oversight program. FRA is in its early stages of setting up agreements with its state grantees and hiring both FRA and contractor personnel to oversee how the federal funds are used. FRA is planning to release another version of its national rail plan in September 2010 which it expects to discuss issues such as the roles of federal, state, and local governments in rail transportation and public and private funding sources. The strategic vision did not define the goals, stakeholder roles, or objectives for federal involvement in high speed intercity passenger rail and the preliminary national rail plan did not have any recommendations for future action. While states will be the recipients of Recovery Act funds, many states do not have state rail plans that would establish strategies and priorities, capital investments, and public benefits of rail investments in the state. To try to stimulate the economy quickly, Congress exempted projects funded by the Recovery Act and recent appropriations from being in state rail plans.

section_title: Letter
paragraphs: Interest in passenger rail service in the United States is high. Recent  legislation, especially the American Recovery and Reinvestment Act of  2009 (Recovery Act), has established a new federal role in and provided an  unprecedented amount of federal funds for intercity passenger rail. Thirty- seven states and the District of Columbia submitted 259 applications  totaling approximately $57 billion for the $8 billion that the Recovery Act  made available for new passenger rail corridors or improvements to  existing service. Passenger rail operators and suppliers from around the  world are showing interest in making and operating high speed passenger  trains for a possible emerging U.S. market. In addition, prominent  statements by the President, the Vice President, the Secretary of  Transportation, and others have elevated the profile of intercity passenger  rail service and promoted its possible public benefits including energy  efficiency, reductions in greenhouse gas emissions, and road and airport  congestion reduction.
However, while there is a palpable excitement created by the Recovery  Act’s funding for new high speed rail service, establishing new service is a  difficult, multiyear effort. This effort hinges on, among other things, the  availability of federal capital and state operating funds to build and  operate systems that go far beyond the funds provided by the Recovery  Act in a time of continuing federal and state deficits; the ability of states to  work together for service that crosses state lines; gaining the cooperation  from private railroads which own most of the rail infrastructure in the  United States; and obtaining equipment, such as rail cars, which can take  years to design, test, and build. In addition, the Federal Railroad  Administration (FRA) recognizes that it has to transform itself from  essentially a rail safety organization to one that can make multibillion  dollar investment choices while simultaneously carrying out its safety  mission.
To provide some insight into these issues, this report, as part of our overall  effort to assess Recovery Act spending, focuses on (1) how states started  or improved passenger rail services in the recent past; (2) rail industry’s  plans to accommodate increased passenger rail investments; and (3) FRA’s  plans to oversee the use of federal intercity passenger rail funds.
Our overall approach to addressing these topics was to (1) review federal  legislation, regulations, plans, and other guidance; (2) interview a broad  cross-section of intercity passenger rail stakeholders, including FRA,  states that have established or improved intercity passenger rail service,  freight railroads, the National Railroad Passenger Corporation (Amtrak),  and other potential operators of intercity passenger rail service; passenger  rail car manufacturers; railroad construction contractors; and industry and  transportation associations; and (3) review studies by various  organizations, including the American Association of State Highway and  Transportation Officials, the Transportation Research Board, and the  Congressional Research Service, as well as our reports on high speed rail.  To gain some insight into the types of infrastructure improvements  necessary to increase speeds and improve the performance of intercity  passenger rail service, we visited railroad projects in Indiana, Michigan,  and Illinois designed to reduce rail congestion and increase train speeds.  To provide principles of grants oversight that could be used by FRA as it  formulates its grants management program, we identified important  elements of an effective grants oversight program from information  provided by the Comptroller General’s Domestic Working Group and  contained in our reports evaluating various federal grants programs.
We conducted this performance audit from June 2009 to June 2010 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
subsections: section_title: Background
paragraphs: Since Amtrak started operations in 1971, federal involvement in funding  intercity passenger rail has mainly consisted of capital and operating  subsidies to Amtrak annually appropriated from general funds. However,  recent legislation has vastly increased the federal role in and federal funds  for developing intercity passenger rail service, making the federal  government a major investor with state governments in passenger rail  service. The Passenger Rail Investment and Improvement Act (PRIIA),  enacted in October 2008, authorized over $3.7 billion for three different  federal programs for high speed rail, intercity passenger rail congestion,  and capital grants. PRIIA required that projects funded through two of  these three programs be included in a state rail plan. A state rail  transportation authority would develop a statewide rail plan coordinated  with other state transportation planning programs that, among other  things, must include an explanation of the state’s passenger rail service  objectives; an analysis of rail’s transportation, economic, and  environmental impacts in the state; and a long-range investment program  for current and future freight and passenger infrastructure in the state.  PRIIA also called for the Department of Transportation to establish  minimum standards for the preparation and periodic revision of state rail  plans. It also called for FRA to create a preliminary national rail plan  within 1 year of passage of the law as well as a long-range national rail  plan that is consistent with approved state rail plans. FRA released a  preliminary national rail plan in October 2009.
The Recovery Act appropriated $8 billion for the three PRIIA-established  intercity passenger rail programs. This funding represented a dramatic  increase in federal funding for intercity passenger rail projects. The  Recovery Act provided up to 100 percent federal funding available for  expenditure until 2017 and exempted projects from having to be included  in a state rail plan; however, it did require, by incorporating the programs  and the requirements of PRIIA, that the funds be competitively awarded  and that the Department of Transportation develop a strategic plan to use  these funds. The department released its strategic plan to use these funds  in April 2009. In December 2009, the Department of Transportation’s  fiscal year 2010 appropriation also included $2.5 billion for high speed rai and intercity passenger rail projects. These funds are subject to a 20  percent nonfederal matching requirement and the law also exempte d these  projects from having to be included in a state rail plan. The fiscal year 2011  budget proposal includes another $1 billion in intercity passenger rail  funding.
Amtrak, the nation’s only intercity passenger rail operator, currently  carries about 28 million passengers per year, which amounts to less than 1  percent of the country’s total intercity passenger miles, although Amtrak’s  market share when compared to air service is higher in certain corridors.  Amtrak operates long and short distance routes, as well as provides some  commuter rail service through contracts with transit providers. Most of  the nation’s railroad network is owned by private, for-profit freight  railroads with the primary exception of the Amtrak and state-owned  Northeast Corridor from Washington, D.C., to Boston and almost 100  miles in southwest Michigan. As a result, about 70 percent of Amtrak’s  train miles are over tracks owned by other railroads. Top speeds are  limited by track conditions. Amtrak’s trains are generally limited to top  speeds of 79 miles per hour off the Northeast Corridor and up to 150 miles  per hour on the corridor.
States provide financial support to certain intercity passenger rail  corridors. In fiscal year 2010, 14 states funded short distance service in  their states or between states by contract with Amtrak. Between 1995 and  2009, states initiated six new services and improved or increased the speed  on seven existing intercity passenger rail services. (See table 1.)
Domestic passenger rail car manufacturing capacity has been in decline,  along with the decline in intercity passenger rail service, since the 1950s.  Foreign passenger rail car manufacturers have established factories in the  United States—although mainly for the domestic rail transit market as  Amtrak has not made a large capital purchase of passenger rail cars since  the Acela trains in the late 1990s.
FRA is the primary federal agency responsible for formulating and  enforcing railroad safety regulations and for distributing federal funds for  intercity passenger rail service. The agency sets regulations for railroad  safety, including rail car maintenance standards and track standards for  operating passenger and freight trains at various speeds. Through grant  agreements, FRA administers federal operational and capital grants to  Amtrak, which have averaged between $1 billion and $1.3 billion per year  since fiscal year 2003. FRA also approves Railroad Rehabilitation and  Improvement Financing loans and Rail Line Relocation and Improvement  Capital Grants, and is the granting agency for the $120 million in fiscal year  2008 and fiscal year 2009 capital funds to states for intercity passenger rail  projects.
In addition to the increase in federal funds, PRIIA and the Recovery Act  have created new responsibilities for FRA to plan, award, and oversee the  use of federal funds for intercity passenger rail. After passage of the  Recovery Act, FRA officials said that they set their priorities to meet these  responsibilities. According to these officials, FRA’s immediate priorities  included quickly awarding the funds responsibly and getting all of the  Recovery Act funds obligated within 2 years. They also stated that their  intermediate and long-term priorities included helping states advance their  corridors and projects and gauging the effectiveness of the federal  investments, respectively. FRA staff and management worked to meet  these priorities by releasing a notice of funding availability and interim  guidance on the high speed rail program, creating an overall strategic  plan for implementing federal grants for high speed rail and releasing a  preliminary national rail plan. FRA staff and management held  informational sessions with states and other stakeholders across the  country and worked with state applicants to answer questions, evaluate,  and provide feedback on preapplications for these funds. In the 5 months  between the application deadlines and the grant award announcement,  FRA and other department staff used criteria such as public return on  investment, economic recovery benefits, and timeliness to completion to  evaluate 259 grant applications from 37 states and the District of  Columbia.
In January 2010, FRA announced that 62 projects in 23 states and the  District of Columbia would receive approximately $8 billion in Recovery  Act funds. (See fig. 1.) The announced awards went to several types of  intercity passenger rail projects—including almost $2.3 billion for initial  investments in the planned over 200 miles per hour service between Los  Angeles and San Francisco and, eventually, Sacramento and San Diego;  $1.1 billion to increase top speeds to 110 miles per hour for existing  service between Chicago and St. Louis; $400 million for new service with a  top speed of 79 miles per hour between Cincinnati and Cleveland; and $4  million for signal timing improvements in Texas to benefit Amtrak’s  existing Heartland Flyer service. All of the states that have initiated or  improved services over the last 15 years were awarded about 62 percent of  all Recovery Act high speed rail funds (about $4.9 billion of the $8 billion  available).
section_title: States Developed Services by Generating Support, Securing Funding, Obtaining Equipment, and Managing Services
paragraphs: Officials from states that initiated or improved intercity passenger rail  services in the recent past told us that their ability to start or upgrade their  services largely hinged on their ability to resolve a number of issues. First,  public and political support and funding provided a foundation for  initiating and improving their services. Second, states acquired equipment  for their services through collaborative and cost-saving approaches. States  also built consensus with stakeholders, borrowed expertise, and  developed state capacity to effectively manage their rail services.
The activities that helped states initiate and improve their services will be  important for states seeking to initiate or improve services in the future— including developing conventional passenger rail, higher speed passenger  rail, and high speed rail. Learning ways to build support, secure funding,  obtain equipment, and effectively manage rail services will be even more  crucial to states developing high speed rail because they will face long  time frames, high costs, and a lack of experience in the U.S. passenger rail  market for all stages of developing and managing these new passenger rail  services. While other countries have experience with high speed passenger  rail service, no state currently supports high speed intercity passenger rail  service. While there are differences between conventional passenger and  high speed passenger rail services, some of the lessons learned by states  apply to both. As such, our review of state experiences with conventional  passenger rail service could provide some insight into how states might  accomplish both initiating and improving conventional passenger rail  services, as well as developing higher and high speed passenger rail  services.
subsections: section_title: Public and Political Support and Funding Provided a Foundation for States to Develop Passenger Rail Services
paragraphs: State officials favoring investment in intercity passenger rail services  secured funding to initiate or expand such services by achieving public  and political support and by using innovative approaches for funding both  capital and operating costs. Support from passenger rail proponents  including governors, state legislators, passenger rail advocacy groups, and  communities helped develop public and political support for committing  state funds to capital and operating costs of passenger rail services. For  example, corridor coalitions of grassroots supporters, advocates, and  elected officials aided Illinois’ efforts to gain support for making  improvements and operating a new service.
Infrastructure improvements for these services required significant  investments from states to upgrade track, signals, crossings, and stations.  The costs of these improvements varied, from small individual projects  costing several million dollars to more extensive projects totaling more  than $100 million. States drew upon a range of sources to supplement  limited general funding available for capital improvements. Four states we  interviewed established dedicated funding sources for capital  improvements or acquired flexible federal funds to develop  infrastructure. For example, Virginia used its rail enhancement fund,  funded in part from a state rental car tax, in cooperation with a freight  railroad to make $33 million in capacity improvements to initiate a new  service. North Carolina used a combination of federal transportation  enhancement funds, congressional directives (commonly called  earmarks), and the state’s share of a federal Congestion Mitigation and Air  Quality Improvement Program grant for investments in capital  improvements.
Some states shared costs or offered incentives to Amtrak, freight railroads,  and local governments to attract nonstate funds to support intercity  passenger rail service. For example, North Carolina partnered with  communities to redevelop train stations and Washington state recently  established grant and loan incentive programs for public agencies and  private right-of-way owners to help fund improvements on railroad  infrastructure to improve the passenger and freight rail services in the  state.
The capital costs of high speed rail systems are expected to be of a  magnitude far greater than for initiating or improving conventional and  higher speed passenger rail services. Based on reported projections,  construction costs to initiate new conventional service on existing right-of- way between Cleveland, Columbus, and Cincinnati, Ohio, would be about  $1.4 million per mile. Similarly, improving existing services to higher  speeds could cost about $1.9 million per mile for services in both  Pennsylvania and Michigan; $11.8 million per mile for service from New  York City to Niagara Falls, New York; and $15.2 million per mile to  establish higher speed service from Charlotte, North Carolina, to  Washington, D.C. These estimates are lower than projections to develop  new high speed rail services in Florida and California, which would both  require building new dedicated track instead of using existing  infrastructure. Based on reported projections, final design and  construction for high speed rail service between Tampa and Orlando,  Florida, would cost approximately $36.7 million per mile, and capital  costs for high speed rail between Los Angeles and Anaheim, California,  would be about $75.5 million per mile.
To secure annual operating subsidies, state rail officials gained support for  their passenger rail services. According to state rail officials, this  reporting, as well as support from governors, legislators, metropolitan  planning organizations, or public grassroots efforts helped rail proponents  obtain operating funds for passenger rail services. States reported  performance indicators and other metrics such as ridership, on-time  performance, and customer satisfaction to communicate the value of their  services. A few states reported these indicators on an annual basis.
States use state funds to support passenger rail operations, ranging from  $1.5 million to $32.2 million per service annually. Support from these  states covers 26 percent to 100 percent of the annual operating costs for  these services. (See table 2.) Three states established dedicated state  funding sources, and another two states used flexible federal  transportation funds to overcome funding limitations to operate their  services. For example, Pennsylvania established a public transportation  trust fund with a set-aside for passenger rail operating expenses to avoid  obtaining funding each year from the state legislature, and California  derives operating support from a portion of the state sales tax on diesel  fuel (with a portion of the state gas tax supporting capital expenditures).  In addition, Vermont and Maine drew upon flexible federal funding from  their states’ Congestion Mitigation and Air Quality Improvement Program  allocation, which provided 80 percent of initial operating costs. To meet its  $13.5 million operating budget, Maine contributes $1.2 million from  general revenues and draws upon $4.8 million in federal Congestion  Mitigation and Air Quality Improvement Program funds.
section_title: States Used Collaborative and Cost-saving Approaches to Acquire Equipment for Their Services
paragraphs: To secure passenger rail cars, states worked with Amtrak to use existing  passenger rail cars efficiently or refurbished older equipment. Several  states partnered with Amtrak during early stages of planning their  services, which led to agreements for equipment and operations. For  example, Illinois developed agreements in which Amtrak reallocated its  equipment on other corridors to commit rail cars to the state’s service, and  Virginia and Amtrak jointly developed an operating service and capital  improvement agreement in which Amtrak committed out-of-service  passenger rail cars to the state’s new service for which Virginia shared in  the rehabilitation cost.
Refurbishing old equipment and pooling equipment orders were other  ways that states managed equipment costs. North Carolina officials said  that although purchasing used equipment and refurbishing it was not the  state’s preferred approach, it reduced the cost of rail cars by 50 percent  and gave the state more control over the amenities and appearance of its  passenger rail cars. Additionally, some states reduced their procurement  costs by pooling equipment orders. For example, California left options  open on an order for new locomotives, which allowed other states and  commuter agencies to obtain locomotives at a reduced per unit cost.
Procuring equipment for high speed rail systems will also be difficult, in  part because no equipment or specifications are currently available for  these systems in the United States. According to FRA’s High Speed  Passenger Rail Safety Strategy, as a general best practice, to travel at  speeds exceeding 150 miles per hour, passenger trains should operate on  dedicated right-of-way. To achieve these high speeds, rail cars are  designed to weigh much less than conventional intercity passenger rail  equipment and are powered by electric locomotives, which are much  lighter than diesel locomotives. Based on weight estimates from two  manufacturers, a high speed rail car could weigh as much as 29 percent  less than a conventional passenger rail car, depending on safety standards  and design factors, and an electric locomotive could weigh as much as 33  percent less than a diesel locomotive. The cost of high speed rail cars and  locomotives would also depend on safety and design factors that have not  been defined by FRA.
section_title: States Managed Services by Building Consensus with Stakeholders, Borrowing Expertise, and Developing State Capacity
paragraphs: States developed a variety of planning processes and approaches to  stakeholder involvement as a way to build consensus among freight  railroads, Amtrak, and other states. For example, California works with  railroads to ensure freight capacity is maintained and accommodates  projected freight growth through appropriate capital improvements.  Additionally, Virginia worked for 5 months with diverse stakeholders such  as Amtrak, freight railroads, a commuter rail operator, and local  communities to agree to memoranda of understanding for using right-of- way and operating new services. Pennsylvania developed a Web site, held  public meetings, and used other outreach activities to educate  stakeholders about station area planning and redevelopment processes to  bridge potential communication gaps between state passenger rail staff  and public participants. In addition to these approaches to working with  stakeholders, states leveraged outside expertise and built their own  capacity to manage their services. For example, Illinois obtained support  from Amtrak, which worked on the state’s behalf to negotiate use  agreements with freight railroads; Pennsylvania received planning  assistance from FTA and FRA for its service; and Virginia worked with a  freight railroad to develop a technical model for forecasting the impacts of  its new passenger rail service on affected stakeholders.
Developing high speed rail systems would involve long time frames, in part  because acquiring dedicated right-of-way could involve many more local  communities and private interests, lengthy environmental approval, and  would require states to build consensus among a greater number of  stakeholders than developing conventional passenger rail services on  existing rights-of-way. We have reported that coordinating high speed rail  projects among numerous stakeholders without an established  institutional framework would make developing high speed rail difficult.
Several states initiated their services with support from consultants and  later developed management capacity within their state departments of  transportation. These states developed their services by changing their  management approaches and by building technical expertise. For  example, Washington state revamped its passenger rail programs to  facilitate communication with freight railroads and reorganized its rail  division to more actively manage relationships with freight railroads and  Amtrak. Additionally, California rail officials learned over time how to  work most effectively with freight railroads on passenger rail projects and  developed their own technical expertise and modeling knowledge over  time. In addition to these approaches, two states established independent  authorities to oversee their intercity passenger rail operations as a way to  focus on the management needs of their services. For example, Maine  created an independent authority to focus resources on managing its  passenger rail service as well as managing relationships with multiple  states, Amtrak, and a commuter railroad. Washington state rail officials  reported that the state department of transportation’s management change  was successful and resulted in growth, improved on-time performance,  and projects completed on time and under budget.
Similarly, states that develop high speed rail services would need to build  capacity to manage their programs. The administrative structures and  technical expertise needed to manage these services would require  consideration from states and affected stakeholders. Several state officials  said that state departments of transportation would need additional  technical expertise and staff resources to develop new high speed rail.
section_title: Industry Stakeholders View Federal Leadership as Important in Creating a Robust Intercity Passenger Rail Market
paragraphs: Rail industry stakeholders, such as passenger rail operators, freight rail  right-of-way owners, passenger rail car manufacturers, and general  contractors are optimistic that they can meet increased public investment  in intercity passenger rail, but they are looking for federal leadership and  funding to create a structure for developing high speed rail. Additionally,  stakeholders said that a stable federal funding stream would encourage  firms to enter and invest in the intercity passenger rail marketplace.  However, even after guidance is given on the application of federal laws  and states advertise contracts, it could take several years to provide the  necessary infrastructure such as new passenger rail cars, potentially  making it difficult to spend Recovery Act high speed rail funds by  September 30, 2017, as required by law.
subsections: section_title: Industry Stakeholders Are Optimistic They Can Meet Increased Public Investment in Intercity Passenger Rail Given Federal Leadership
paragraphs: Industry stakeholders said that the rail industry is in decline due to the  recession; however, once the federal government distributes funding and  establishes standards, rail industry stakeholders stated that they can begin  to increase capacity to meet the increased investments. Stakeholders we  interviewed stated that they are ready to increase capacity because several  rail industry companies have been forced to lay off workers.
While industry stakeholders are optimistic, it may take some time to build  products and develop services to meet the increased public investment.  For example, passenger rail car manufacturers, the Secretary of  Transportation, and the FRA Administrator have stated that the Recovery  Act funding could revive the U.S. market for these rail cars. Foreign  passenger rail cars could not be used in this country because U.S. safety  standards focus more on crash survival rather than crash avoidance,  which is the norm for other countries’ safety standards. Most  manufacturers we spoke with said that the capacity to design and  manufacture intercity passenger rail equipment existed in the United  States and that they were eager to have orders placed. However, they also  advised that it could take years to design and test new rail cars before they  can be manufactured. (See fig. 2.) For example, industry stakeholders  told us that design, testing, and production of new passenger rail cars can  take anywhere from almost 2.5 years to almost 9 years. Consequently, if  states do not place rail car orders relatively soon, it could be difficult to  spend Recovery Act funds before 2017. Some states that were awarded  funding may be able to spend these funds before 2017 more easily than  others. For example, Illinois’ Chicago to St. Louis corridor already has  project plans and agreements with freight railroads in place to use their  astructure, whereas Ohio’s “3-C”  federal funds to improve the rail infrastructure, whereas Ohio’s “3-C”  corridor is still in the preliminary planning stages.  corridor is still in the preliminary planning stages.
However, one passenger rail car manufacturer stated that there are many factors that  affect the time it takes to deliver rail cars, such as, the type of equipment, whether there  are new design features that require extensive testing, and requirements in the customer’s  technical specifications.
Ohio’s “3-C” corridor is approximately 256 miles long and will connect Cleveland,  Columbus, and Cincinnati. conditions, legal environment, and infrastructure. Even Amtrak, with  already established operations and agreements with freight railroads and  other railroads, may have to amend its existing agreements or negotiate  new agreements with each state and freight right-of-way owner for any  new service it operates. The time required to negotiate these agreements  can range from a few months to several years. Some stakeholders stated  that Amtrak has advantages that might make it difficult for other potential  operators to compete in the intercity passenger rail market. For example,  Amtrak has three statutory rights that no other operator has: (1) access to  tracks and facilities of privately owned railroads and regional  transportation authorities, (2) access to that railroad infrastructure at  incremental cost, and (3) priority over freight trains.
Stakeholders are looking for federal leadership and funding to create a  structure for high speed rail development, among other things. Federal  leadership is important as most passenger trains operate over the national  rail network and federal involvement could help states work cooperatively  to develop routes that cross state lines. Aside from funding, stakeholders  said that they were looking for a stronger federal policy and programmatic  role. For example, stakeholders mentioned the need for a federal role in  promoting interagency and interstate cooperation, and identified other  potential federal roles, such as setting additional safety standards,  promoting intermodal models of transportation, and assisting with right- of-way acquisition. The Recovery Act will provide a one-time infusion of  federal funds, and PRIIA, among other things, provided the basis for a  federal structure by mandating a national rail plan. However, stakeholders  suggested that more funding and structure is needed.
Although industry stakeholders are optimistic regarding intercity  passenger rail implementation, they told us federal guidance could help  provide structure to the intercity passenger rail market. According to  industry stakeholders, there are several areas where federal guidance  could help provide that structure: liability laws, safety regulations, Buy  America requirements, and equipment standardization. (See table 3.) For  example, industry stakeholders cited liability against accident and other  train-related risks as a major challenge to high speed intercity passenger  rail. This is a challenge because federal law provides limited protection to  the operator or right-of-way owner since it only covers the claims of  passengers, not third-party claims.
Freight railroads, for example, do not want to allow such service on their  rights-of-way unless they are protected from liability. Freight railroads’  liability insurance policies cover accidents related to their freight  operations; however, when a freight railroad allows passenger rail service  to operate over its right-of-way, it is exposed to additional risks as  passengers may sue the passenger rail operator, as well as the right-of-way  owner. As a result, freight railroad officials believe that passenger rail  operators must contractually indemnify freight railroads against all  liability and obtain insurance as a guarantee that payments will be made  for any damages. The costs of providing this coverage could present a  hurdle for new passenger rail operators.
Potential operators were also concerned that Congress might be willing to  raise the $200 million per accident federal liability limit which could make  it even more expensive for new passenger rail operating firms to enter the  marketplace. Because the application of this liability cap has been  untested in court, many freight and passenger railroads are hesitant to rely  upon this statute to cover the full extent of their potential liability. In  addition, the federal liability limit does not cover third-party claims, such  as from bystanders or property owners along the rights-of-way. As a result,  liability agreements between freight railroads and commuter rail operators  can range from $75 million to $500 million per accident.
The proposed high speed rail corridors also present new liability issues  that will increase costs as, according to one right-of-way owner, operator  risk and damage will likely increase at higher speeds. In addition, some  freight railroads are requesting that operator agreements include covering  third parties (such as bystanders) which would also increase operator  costs. For example, CSX Corporation and Norfolk Southern Corporation  have requested liability insurance of $500 million per incident as an  element of new access agreements with Virginia Railway Express  commuter rail service in the Washington, D.C., area. Furthermore, changes  in state liability law may influence negotiations between passenger rail  operators and freight rail right-of-way owners. Commuter railroads face  similar issues to intercity passenger rail operators because they run trains  over the same rail network and have to negotiate with the same freight  railroads. Options for facilitating negotiations on liability and indemnity  provisions could include amending current law; exploring alternatives to  traditional commercial insurance; providing commuter rail agencies with  more leverage in negotiations; and separating passenger and freight traffic,  either physically or by time of day. With regard to high speed rail, some  stakeholders suggested a variety of solutions to this issue, including (1)  publicly provided passenger rail insurance coverage, (2) government  funding of passenger rail insurance to provide an additional layer of  protection to railroad-purchased insurance, (3) pooled insurance across  railroads, and (4) additional liability caps.
section_title: Industry Stakeholders Noted the Importance of a Stable Public Funding Source for a Robust Intercity Passenger Rail Marketplace
paragraphs: Industry stakeholders agreed that the time frame for building more  intercity passenger rail capacity in the United States depends upon the  level of public funding committed. They further stated that a stable federal  funding stream would encourage firms to enter the marketplace and to  make investments. For example, passenger rail car manufacturers  discussed the time commitment involved in designing, testing, and  manufacturing passenger rail cars. As a result, they stated that they need  to ensure that funding will be available throughout the entire process.  While the Recovery Act funding waives the PRIIA nonfederal match  requirements for capital investments, the fiscal year 2010 appropriation for  intercity passenger rail projects requires at least 20 percent of the project’s  capital costs to come from nonfederal funding sources. If states or other  grantees do not come up with their share, they will be unable to use the  federal funds. Industry stakeholders stated that, in order to be successful,  intercity passenger rail service would need stable state operating support  in addition to capital funding provided by the federal government because  all of the passenger rail systems we studied required some level of public  operational and capital subsidy. One freight railroad official noted that,  historically, state fluctuations in ridership and inaccurate ridership and  revenue predictions have resulted in a financial shortfall that put private  railroads at risk, leaving right-of-way owners concerned about the  potential sunk costs of underutilized passenger rail equipment and higher  speed rail infrastructure. However, during the current economic  environment, it is uncertain the extent to which states will be able to  provide funding support—capital or operating—as simulations show near- term projected state and local deficits continuing for several years into the  future.
Industry stakeholders said that it is important to recognize that effective  high speed rail operations will require a long-term investment of resources  for ongoing maintenance and operations. Without long-term public funding  commitments for capital investments and operations, projects may not be  completed and the intercity passenger rail market may not stabilize. The  current level of public funding for high speed rail is not as stable as  industry stakeholders said it would need to be to create a robust industry.  For example, after the initial one-time $8 billion infusion of Recovery Act  funding, $2.5 billion was appropriated in fiscal year 2010 and, most  recently, the administration’s fiscal year 2011 budget proposed $1 billion  for high speed rail. These funds are derived from general funds rather than  a dedicated funding source. Future federal appropriations for intercity  passenger rail projects from general funds will have to compete annually  with other transportation and nontransportation expenditures, such as  national defense and health care. Industry stakeholders did not view this  level of funding as enough to sustain a high speed passenger rail system.  However, industry stakeholders commented that, although small, the  Recovery Act funding for high speed rail has created an interest in the U.S.  passenger rail market.
Both current and former domestic high speed rail project sponsors have  sought private financing but found it difficult to obtain private sector  participation, given the significant financial risks high speed rail projects  pose. Other countries have had success implementing public-private  partnerships in which foreign governments’ shared the financial risks of  their expanding high speed rail systems with private partners. Some state  officials said there was greater interest in entering public-private  partnerships with regard to station development, train operation, and  track maintenance before the economic downturn. In addition, a potential  passenger rail operator said that the private sector could not provide  enough money to meet the initial capital costs of starting intercity  passenger rail service; the vast majority of funding would have to come  from the public sources.
section_title: FRA’s New Responsibilities Have Held Back Developing a National Rail Plan, Strategic Vision, and Grant Oversight Plan
paragraphs: FRA’s responsibilities and federal funding for intercity passenger rail  investments significantly increased under PRIIA and the Recovery Act— posing risks for the use of federal intercity passenger rail funds. Among  other things, recent legislation required FRA to draft a preliminary  national rail plan and quickly develop a strategic vision for high speed rail  while creating a new federal program to distribute and oversee a large  increase in federal funds. A national rail plan, consistent with state rail  plans, as required in federal law, that defines goals, roles for stakeholders,  and objectives for federal investment in rail projects could help FRA  develop an oversight program that would ensure accountability for these  funds. Inclusion of sound grants management principles could also  enhance FRA’s grant oversight program to ensure grantees use federal  funds effectively, measure and demonstrate success, and regularly assess  and enhance program performance.
subsections: section_title: Federal and State Capacity to Accommodate Dramatically Increased Funds and New Responsibilities Poses Risks for the Use of High Speed Rail Funds
paragraphs: The confluence of several factors resulting from the Recovery Act’s  funding for intercity passenger rail projects pose risks for the use of  federal funds for investments in high speed rail projects. First, the act  dramatically and quickly increased the amount of funds available for  federal investment in high speed rail projects. The $8 billion in funding  along with the $2.5 billion fiscal year 2010 appropriation for intercity  passenger rail projects represent an increase of over 87 times the $120  million appropriated for intercity passenger rail projects in fiscal years  2008 and 2009 combined.
Second, FRA officials have been simultaneously carrying out several new  responsibilities, including:    developing a preliminary national rail plan and strategic vision for high    creating a rail development program to use Recovery Act funds;    soliciting and evaluating applications and making award decisions;    negotiating letters of intent and cooperative agreements with states    creating a grants oversight plan;    hiring new personnel for grants oversight; and    determining awards for fiscal year 2010 high speed rail capital grants.
As a result, FRA officials stated that they have been working to meet these  new responsibilities and have had personnel from other Department of  Transportation agencies, such as FTA and the Research and Innovative  Technology Administration, help them review state applications for  Recovery Act funds.
Third, while federal law requires a project management oversight program  be in place for one of the three federal intercity passenger rail grant  programs, the other two federal rail grant programs do not have this  requirement. However, according to FRA officials, its high speed rail  program will outline how the agency will administer and oversee all  federal high speed rail grants. FRA officials stated that they are drawing  from a number of resources in developing a robust oversight and  monitoring program for high speed rail projects, including existing agency  procedures and new high speed intercity passenger rail program-specific  protocols. For example, FRA is planning to use letters of intent with  grantees which will define milestones and conditions that must be  satisfied prior to the obligation and disbursement of federal funds. FRA is  also planning to use cooperative agreements with its grantees which will  allow for greater federal participation in risk management, oversight, and  technical assistance than under standard grant agreements.
In addition, FRA is planning to incorporate best practices and lessons  learned from other major federal transportation investment programs in  its oversight program, including those employed by FTA and the Federal  Highway Administration. FRA is adopting several project oversight tools  similar to those employed by FTA’s New Starts Program—specifically  through the required development of Project Management Plans for major  capital projects, and the use of project management oversight contractors  to aid FRA staff in project oversight. FRA officials stated that they are  planning to hire consultants to provide on-site, day-to-day project  management oversight and to ensure that the development and  implementation of each project complies with all applicable statutes,  regulations, and FRA guidance. FRA will establish a point of contact for  each state for additional oversight and to provide coordination for any  other federal funds for these projects. FRA will also adopt the Federal  Highway Administration’s Major Projects risk management approach,  using three primary risk management tools: a project management plan, a  financial plan, and a comprehensive risk-based cost-estimate review. FRA  anticipates its internal grant management manual describing this program  to be ready in June 2010. This program’s development is critical as it is  important to hold grantees accountable by verifying that they are making  progress toward stated objectives and ensuring that grant funds are used  efficiently to support the program’s objectives.
FRA officials stated that as FRA strives to meet these new responsibilities,  it is increasing its staff dedicated to high speed passenger rail. Before the  Recovery Act, FRA officials said that it had 23 staff dedicated to passenger  rail activities. FRA officials stated that FRA received funding for 20  additional personnel, for its passenger rail program in fiscal year 2010.  FRA will need to dedicate resources over the next months and years to  hire and train these additional personnel as well as find and acclimate the  project management consultant firms it plans to retain to oversee the day- to-day project management for each state grantee or large project.
Other federal agencies have faced a similar increase in new  responsibilities in critical situations or in quickly handling unprecedented  amounts of federal funds. For example, as the federal Office of Financial  Stability’s assumed responsibility for the $700 billion Troubled Asset Relief  Program, it faced a key challenge of developing comprehensive oversight  procedures as it had to quickly react to financial market events, increase  staff at the newly created agency, and attempt to develop and  communicate a strategy for the federal role in the financial marketplace  while simultaneously developing and implementing a program to carry out  the strategy. Similar issues existed at the Department of Commerce and  the Department of Agriculture as they hired contractors to handle their  multiple new award and oversight responsibilities that accompanied a  Recovery Act increase in funding of 97 times the previous annual average  amount for broadband infrastructure grants. FRA’s efforts to meet these  responsibilities could also be complicated in the near term. Although  funds available for oversight of Recovery Act projects expire in September  2014, FRA funds for projects funded with fiscal year 2010 appropriations  are available until expended.
Finally, according to FRA officials, no state or federal agency currently has  the management capability to oversee such a large passenger rail program  so recently established. They noted that while FRA is building its own  capacity to initiate and sustain this program, some state departments of  transportation are even further behind in developing their capacity to  apply for grants and manage passenger rail projects. While they found that  some states are more advanced in their planning for passenger rail  projects than others, some have no state resources dedicated to rail and  many do not have a state rail plan to guide their efforts.
section_title: Development of a National Rail Plan Consistent with State Rail Plans Could Increase the Accountability and Transparency of Federal High Speed Rail Funds
paragraphs: FRA’s Preliminary National Rail Plan recognizes the importance of these  state rail plans and anticipates coordinating its National Rail Plan with  them into an “efficient national system…meeting both regional and  national goals.” However, FRA officials stated that as the agency is  developing its capacity and processes to manage this new intercity  passenger rail program, some states are further behind in developing their  capacity and processes to apply for passenger rail funds. For example, a  California department of transportation official stated that it has been  planning for and running its intercity passenger rail service since 1976. In  contrast, Ohio commissioned Amtrak to conduct a feasibility study for its  “3-C” service in late 2008 and received it in late 2009. As a result, Congress  specifically exempted projects funded with Recovery Act funds and fiscal  year 2010 appropriations from this requirement to speed their distribution  and use. In addition, this exemption allowed those states without state rail  plans to apply for and receive federal funding awards without establishing  statewide strategies, priorities, capital investments, or possible public  benefits for rail service.
Due to the pace and scale of the Recovery Act grants, FRA officials have  not been able to develop a detailed strategic plan for how high speed rail  fits into the national transportation system or the federal role in high  speed intercity passenger rail, as required in the act. FRA has published a  strategic vision and a preliminary national rail plan as it concentrated on  preparing for and then awarding the Recovery Act funds. The strategic  vision outlined FRA’s proposed strategy to implement the act’s funding for  high speed rail corridors; however, it did not define the goals, roles of  stakeholders, or objectives for federal involvement in high speed intercity  passenger rail. The Preliminary National Rail Plan, while offering broad  objectives for high speed intercity passenger rail, did not offer specific  recommendations for future action and is designed to serve as a  “springboard for further discussion” with states and freight railroads.
We have reported that the United States is not well positioned to reform  its intercity passenger rail system as the goals and expected outcomes of  U.S. rail policy are ambiguous, stakeholder roles are unclear, and funding  is limited. A national rail plan could define several important aspects of  such a rail policy by describing:  the vision and goals for U.S. high speed rail;   how passenger rail might fit into the national transportation system; and  the appropriate federal role in achieving the established goals.
As a result, we recommended that the Department of Transportation  prepare a strategic vision for high speed rail, particularly in relation to the  role that high speed rail can play in the national transportation system,  that clearly identifies potential objectives and goals for high speed rail  systems and the roles that the federal government and others can play in  achieving each objective and goal. With the federal interest clearly  defined, policymakers can clarify the goals for federal involvement and the  roles of all stakeholders toward those goals. FRA officials stated that the  National Rail Plan to be released in September 2010 will attempt to better  define the role of passenger and freight rail in the national transportation  system, as well as appropriate roles for rail stakeholders.
section_title: Sound Grants Management Practices Could Also Help FRA in Developing Its Oversight Efforts
paragraphs: A well-designed and implemented grant oversight program is critical to  ensuring effective use of federal grant funds. In addition to meeting agency  and congressional goals and providing public benefits, effective use of  federal funds is important in light of the federal government’s long-term  fiscal imbalance. Simply monitoring and reporting performance may  encourage accountability and grant guidelines can establish uniform  outcome measures for evaluating grantees’ performance toward specific  goals. Incentives or penalties in the grant agreements can also create  clear links between performance and funding which help hold grantees  accountable for achieving desired results.
Some grants management practices identified by the Comptroller  General’s Domestic Working Group could help FRA in developing these  aspects of its grant management program. The Domestic Working Group  identified several promising practices which could improve grants  management including: managing grantee performance, using results of  the grant program, and assessing and developing performance measures  for grantees. These specific principles will become important as FRA  transitions from awarding grants to overseeing their performance. FRA is  planning to address these principles in its grant oversight approach. (See  table 4.)
As FRA is working on agreements with states to monitor their  performance on Recovery Act projects, FRA officials have stated that their  grant oversight program will incorporate reviews and site visits to measure  grantees’ performance; the development of a tool to track grantees’  performance; and processes to use the results of the reviews, site visits,  and tracking tool to improve the overall program. Although some  performance measures, such as ridership, revenue, and revenue-to-cost  metrics exist, FRA officials told us that they are developing more robust  metrics for accurately measuring the public benefits of passenger rail  investments. FRA’s high speed rail interim program guidance includes  such potential benefits as congestion reduction, environmental quality,  safety, energy efficiency, and the creation of livable communities. We have  recognized that the valuation of public benefits is difficult and have  recommended that the Department of Transportation develop specific  policies that include performance measures of public benefits in its  intercity passenger rail grant award decisions. In addition, assessing the  grant program and incorporating the results of that assessment could be  critical as FRA gains experience with this new program and as future  federal funds are appropriated for high speed intercity passenger rail  projects.
section_title: Concluding Observations
paragraphs: The federal government has embarked on a new role in transportation by  designating an unprecedented amount of federal funds for high speed  passenger rail. Federal, state, and local officials have welcomed the  investment and have cited the possible public benefits of passenger rail  service for the nation, regions, states, and communities. However, this  new opportunity will come with many years of planning, testing, and  construction, and brings new concerns. While the rail industry and some  states are ready to take advantage of this opportunity, the federal  government and many states do not have any experience in contracting for  intercity passenger rail service. States that have established intercity  passenger rail service have taken years to build public support, secure  funding, obtain equipment, and manage their services. More passenger rail  service, especially services at higher and high speeds, will require new  safety rules, constant public capital investment and operating subsidies,  and balance with freight rail service and the rest of the national  transportation system—and currently only some of these elements are in  place.
While the recent federal funds may serve as a catalyst for many projects  and have generated high public expectations, the planning necessary to  meet the many concerns outlined above has not yet occurred. In  particular, some states do not have a state rail plan that identifies the  states’ strategies, priorities, and possible public benefits of public  investment in rail transportation. While it is understandable that Congress  exempted projects funded by the Recovery Act from this requirement to  stimulate the economy, it remains nonetheless important to know how  states plan to use federal funds for passenger rail projects over the long  term. PRIIA established that states should plan how they use federal  passenger rail funds and we believe this kind of planning can provide the  basis for sound investment of federal funds. Additionally, on a national  level, FRA’s definition of federal role, goals, and objectives, in conjunction  with a robust grant oversight program, are critical to making sound federal  investments. These elements will become even more important as more  federal funds are appropriated and distributed and as states and the  federal government gain experience in investing and managing intercity  passenger rail service. We are not recommending that FRA include these  elements in its next version of its National Rail Plan at this time, as the  agency appears to be on a path to doing so. We will continue to monitor  FRA’s efforts in this regard.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Transportation for  review and comment. The department did not express an overall view on  the draft report. It did provide technical comments and clarifications,  which we incorporated.
We are sending copies of this report to congressional subcommittees with  responsibilities for surface transportation issues; the Director, Office of  Management and Budget; the Secretary of Transportation; and the  Administrator of the Federal Railroad Administration. In addition, this  report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-2834 or flemings@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made key contributions to this  report are Heather Chartier, Gregory Hanna, James Ratzenberger, and  Caitlin Tobin.
section_title: Appendix I: Scope and Methodology
paragraphs: To report on how states successfully initiated or improved their intercity  passenger rail services over the past 15 years, we reviewed documentation  about states that provided operational support to intercity passenger rail  services; interviewed state, association, and industry officials; and  identified parallels between developing conventional passenger rail and  higher and high speed passenger rail services. (For a list of the  organizations interviewed, see table 5 at the end of this appendix.) We  identified states that initiated or improved intercity passenger rail services  over the last 15 years by reviewing reports and background information  about recent intercity passenger rail services, as well as by conducting  interviews with the Federal Railroad Administration (FRA), National  Railroad Passenger Corporation (Amtrak), and association officials  knowledgeable of state-supported passenger rail services. We conducted  semistructured interviews with state rail officials from 8 states, including 4  states that initiated new services and 4 states that improved existing  services, including 1 state that improved an existing service to higher  speeds. We also reviewed documentation provided by states about these  passenger rail systems and conducted semistructured interviews with  industry officials about these state-supported services.
To gain some insight into the types of infrastructure improvements states  would need to invest in to increase speeds and improve the performance  of intercity passenger rail service, we visited railroad projects in Indiana,  projects on Amtrak-owned infrastructure in Michigan which will soon  allow a top speed for passenger trains of 110 miles per hour, and projects  on various freight railroad rights-of-way in Illinois designed to reduce rail  congestion and increase train speeds, respectively. Additionally, we  reviewed information about states and projects awarded Recovery Act  funding and reviewed our previous work about intercity passenger rail and  high speed rail to determine how state experiences developing intercity  passenger rail can be applied to developing conventional intercity  passenger rail and high speed rail services.
We met with industry stakeholders to obtain their views regarding how the  rail industry plans to accommodate the increased investment in passenger  rail service. To identify these stakeholders, we met with railroad  associations, attended rail conferences, and drew upon internal and  external subject matter experts to identify companies in each area. We  conducted semistructured interviews with potential operators, right-of- way owners, passenger rail car manufacturers, and general rail industry  contractors to obtain their views on the capacity of the rail industry to  accommodate the increased public investment and to identify issues  related to this increased investment. We reviewed and analyzed federal  laws and regulations such as the Buy America provision in the Recovery  Act, and FRA’s Passenger Rail Safety Study, to describe the rules that  govern the industry. We reviewed information from our reports related to  stakeholder-identified rail industry challenges to see if these challenges  have changed with the onset of the Recovery Act funding.
We reviewed federal laws including the Recovery Act and the Passenger  Rail Investment and Improvement Act of 2008 to describe FRA’s new  responsibilities regarding passenger rail investment. To provide grant  oversight principles that could be used by the FRA in its grants  management program, we identified important grant oversight elements  from the Comptroller General’s Domestic Working Group report on grants  management and from our reports evaluating various federal grant  programs. We compared them to statements made by FRA officials  regarding their oversight program. We analyzed FRA’s strategic vision for  high speed rail, its preliminary national rail plan, and its interim guidance  for its high speed passenger rail program for information on the stated  federal role in intercity passenger rail and how it fits within the national  transportation system. We also interviewed FRA officials responsible for  passenger rail development to determine how FRA is planning to oversee  the use of Recovery Act and other federal funds for intercity passenger rail  investments.
We focused on the state, industry, and federal efforts to fund capital  investments in state-supported intercity passenger rail corridors and  projects as these projects were the types of projects eligible for Recovery  Act and subsequent federal funding.