High-speed ground transportation, which includes rail or magnetic levitation (maglev) systems capable of speeds of 90 miles per hour (mph) or more, could be developed in a number of ways. System developers can (1) make incremental improvements to existing tracks, signaling systems, and grade crossings and purchase modern trains that could permit speeds between 90 and 150 mph on existing rights-of-way; (2) build completely new rail infrastructures to support very-high-speed operations of 200 mph or more; or (3) build maglev systems that could permit speeds around 300 mph. Typically, the cost to implement these options grows as the sophistication of the technology and speed increase. Since 1975, most federal funding for high-speed rail development in the United States has been focused on making infrastructure improvements to Amtrak’s Northeast corridor. However, high-speed rail corridors across the United States may have access to federal funds through the High-Speed Rail program, the Magnetic Levitation Transportation Technology Deployment program, the Railroad Rehabilitation and Improvement Financing program, and the finance provisions under the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) program. The TIFIA program is designed to help large infrastructure projects—those costing at least $100 million or 50 percent of a state’s federal-aid highway apportionment for the preceding fiscal year—access capital by using federal funds to leverage substantial private investment.TIFIA authorizes the Secretary of Transportation to make secured loans, loan guarantees, and lines of credit available to eligible projects that will repay the assistance, in whole or in part, from dedicated revenue streams, such as tolls or passenger fares. TIFIA requires the Secretary of Transportation to establish criteria for selecting projects and includes general selection criteria such as whether a project is creditworthy and nationally or regionally significant and whether the use of federal funds would expedite implementing the project. The three credit instruments under TIFIA—secured loans, loan guarantees, and lines of credit—can be used to fund up to one-third of the costs of a project. A secured loan would typically provide the project’s sponsors with an infusion of capital needed to help pay for construction costs. The loan would have to be payable, in whole or in part, from some form of dedicated revenue and would typically be subordinate to other project debt. In general, TIFIA loans are contingent on the receipt of an investment-grade rating for a project’s senior debt. This measure helps ensure that the project is creditworthy. The second type of instrument, loan guarantees, involves a pledge by the Secretary to pay all or part of the principal of and interest on a loan or other debt obligation of the project. A loan guarantee would help a project obtain capital by providing added security to the debt. Finally, a line of credit is an agreement made by the Secretary to provide a project with a secured loan, if needed, during a project’s initial 10-year operating period. One project that plans to use very-high-speed French train a grande vitesse (TGV) technology and obtain TIFIA funding is FOX. The FOX system would link Miami, Orlando, and Tampa, cover 320 miles, and have seven stops along the route. Proponents of the system believe high-speed rail is needed to alleviate the future highway and airport congestion that will be caused by the anticipated growth in Florida’s population and tourism. Trains could reach speeds of up to 200 mph, and the system would have no ground-level pedestrian or vehicle crossings. To help design, construct, and operate the system, the Florida Department of Transportation (FDOT) entered into a system franchise agreement in 1996 with the FOX consortium. The FOX members include Fluor Daniel, a U.S.-based engineering and construction firm; Alstom, the manufacturer of French TGV trains; and Bombardier, a manufacturer of rail passenger cars. The franchise agreement between FDOT and FOX (collectively referred to as the project’s sponsors) calls for a public-private partnership to plan, design, build, operate, and finance the system. The FOX project is in the early phases of development and faces several uncertainties regarding its cost, financing, ridership, and schedule. The project’s sponsors are developing the detailed information needed to assess whether the high-speed rail project is viable. It will be at least 2 more years before sufficient information is available to comprehensively assess the project. FOX’s engineer responsible for developing the cost estimate stated that the capital cost to construct the project may range from $6 billion to $8 billion (in 1997 dollars). This range reflects up to 54 potential route options for the new track under study in the environmental review process. Both FDOT and FOX officials stated that the estimates are preliminary because they are based on only a 5-percent level of design. These officials noted that by the end of 2000, the project will be at a 35-percent level of design, and therefore the cost estimate available at that time will be more precise. The project’s sponsors were unable to provide us with a detailed line-item breakout of the project’s high and low cost estimates, nor were they able to provide detailed documentation explaining the $2 billion difference between the estimates. However, according to FOX’s engineer, the $2 billion range reflects whether track for the various alignments must be elevated to cross roads and rivers and the degree to which the alignments can use existing rights-of-way. In general, the $8 billion estimate assumes an alignment from Miami to Orlando that traverses urban areas on the east coast, using a significant amount of elevated track to avoid over 100 grade crossings and cross several rivers. In contrast, the $6 billion estimate assumes a more westerly alignment that requires less elevated track and uses more state-owned rights-of-way along interstate highway corridors. To develop more precise estimates over the next 2 years, FOX engineers will take field measurements to either validate or adjust the earlier conceptual estimates, according to FOX’s engineer. Engineers will perform such tasks as taking instrument surveys to get actual measurements of potential alignments, calculate the alignments’ grades and curvatures, determine soil conditions, and determine the exact nature of any bridge clearance problems. When completed by the end of 2000, this detailed engineering work will provide FOX with a 35-percent level of design—a level that will give FOX sufficient information to agree with FDOT on a fixed-price construction contract for building the system. To help ensure the accuracy of the FOX estimates, FDOT officials have hired an independent engineering consultant to review the estimates. The initial review is focusing on the methods that FOX used to develop the current cost estimates. The review will report on whether FOX used industry-accepted estimation techniques and whether the estimates cover all capital cost components. It will also include spot audits of FOX’s estimates for quantities and unit prices. FDOT officials said that they would continue to use independent engineering reviews throughout the cost estimation process. In developing their finance plan, the project’s sponsors have assumed that the FOX system will cost $6.3 billion (in 1997 dollars) to build. The project’s sponsors are seeking federal, state, and private funds to finance these capital costs. As of December 1998, they had secured only $436 million in financing and faced significant challenges in securing the remaining funds needed to build the project. As figure 1 shows, the project’s sponsors expect to use state infrastructure bonds and system infrastructure bonds—bonds backed by the state and future system revenues, respectively—and a $2 billion federal loan to pay for about 81 percent of the project’s financing needs. State cash contributions prior to issuing the bonds, contributions from the FOX consortium, private debt financing for the train equipment, and other income sources make up the rest of the project’s financing. System infrastructure bonds ($3.346 billion) Federal loan ($2.0 billion) The project’s sponsors would rely on four sources of debt financing to raise most of the needed funding. One source of debt financing would be state infrastructure bonds. These bonds would be tax-exempt and backed by a dedicated state committment of $70 million per year for 40 years, adjusted for inflation at 4 percent per year, beginning in 2001. The project’s sponsors anticipate that the bonds will have a 30- to 35-year maturity, with an interest rate of 6.67 percent. A second source of debt financing would be system infrastructure bonds. These bonds would be tax-exempt and secured by a senior lien on net system revenues. A senior lien means that bondholders would have the first claim on available revenues after the payment of annual operating costs, principal, and interest payments on train equipment debt and a portion of FOX’s return on equity. The project’s sponsors anticipate that the bonds will have a 30- to 35-year maturity, with an interest rate of 6.67 percent. A third source of debt financing would be private-sector financing for most of the train equipment. Sponsors are considering using either a lease or private bonds. The train equipment would secure the debt, and repayment of the debt would have the first claim on system revenues available after the project pays its annual operating costs. Finally, the fourth source of debt financing would be a $2 billion federal loan secured by a junior lien on the net system revenues. A junior lien means that the federal government would have the last claim on revenues and would be repaid after the project pays the annual operating costs, train equipment debt service, a portion of FOX’s return on equity, and system infrastructure bondholders. The remaining funds will come from equity contributions made by the state and FOX, project balances, and interest earned on those balances. State equity consists of state contributions made before the state infrastructure bonds are issued. The FOX equity contributions include $58 million to pay for project development and $291 million to pay for some of the trains.