Private and Profitable High Speed Rail Coming to Florida

As Americans head off for summer vacation, few plan to go by train. Travelling by train simply does not make sense for most people. But a private transportation company in Florida, Florida East Coast Industries, is investing in a high-speed rail system called All Aboard Florida that would connect Miami and Orlando along the Atlantic coast. Unlike other rail systems, such as Amtrak, this one would cover its costs and make a profit.

Cars and planes are generally better transportation options for Americans than trains for travelling long distances. According to the Census Bureau, over 90 percent of American households have access to a car, van, or pickup truck. While the interstate highway system connects the entire country, the same cannot be said for rail. Most cities in the United States are spread too far apart for rail to be an efficient transportation option.

High-speed rail projects such as All Aboard Florida attempt to bridge the gap between ground (cars, buses) and air transportation.  For travel distances less than 100 miles, automobiles are simply more convenient. Air travel is much faster for distances of more than 500 miles. Between 100 and 500 miles, however, high-speed rail is more convenient than air (passengers do not have to worry about the TSA and other restrictions), but faster than personal automobiles.

Robert Poole, director of transportation policy at the Reason Foundation, supports the All Aboard Florida project, explaining that it is superior to other proposed high-speed rail systems for three reasons. First, All Aboard Florida identified a market niche where passenger rail is faster than auto travel and less of a hassle than air travel. Second, the project’s parent company, Florida East Coast Industries, owns most of the right of way and track along the proposed line. Third, All Aboard Florida represents “value capture” by the parent company. Florida East Coast expects to make a lot of money from their real-estate investments in and around the new rail stations.

The route is displayed below.

One of the biggest concerns about American high-speed rail in the past has been the risk of underestimated costs. Research shows that 90 percent of high-speed rail projects around the world have capital cost overruns. The average cost overrun is 40 percent more than allotted for in the budget. These overruns are usually the result of public funding. With no profit incentive to minimize costs, governments often overspend on public projects. 

Another concern is the risk of overestimated ridership. Due to lower than expected ridership, revenue falls below operating costs for many high-speed rail projects. On average internationally, governments have to give over $1 billion in subsidies for these systems to continue operating. In the United States, for example, Amtrak receives nearly $1 billion per year from the federal government to cover operating costs.

So far, All Aboard Florida seems to be a profitable venture for the parent company. Florida East Coast has refused to directly accept any public funding or subsidies for the project. 

However, two claims that Florida East Coast is receiving public funds have emerged. 

First, road crossing upgrades must be performed for the train to operate safely. These updates are being partially paid for by county governments. It makes sense, though, for the owners of the roads to contribute at least a little to the funding. 

Second, the Orlando International Airport has received a $214 million loan from the Florida Department of Transportation to build a long-planned intermodal center, similar to the one in Miami. Some critics view the loan as a subsidy for All Aboard Florida. However, the project is paying the airport about $4.5 million per year for lease space, so Florida East Coast is not getting a free ride.

The State of Florida and the federal government must resist the urge to contribute to All Aboard Florida. If it becomes a profitable venture, it could serve as a model to others, allowing more Americans to go on vacation by train in a way that does not waste tax dollars.

Jonathan Nelson is a contributor to Economics21. Follow him on Twitter here.

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