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High-speed rail still on slow track in state: Economic study, innovative financing explored

November 26, 2007

The effort to put high-speed trains into service in Indiana and eight other Midwestern states sometimes seems as fanciful as the first manned flight to Mars.

There have been years of talk and countless meetings. And it will be many more years before a vehicle is fueled-and-ready, if ever.

In the 13 years since the Indiana High Speed Rail Association was formed in Highland, the closest thing to high-speed rail Hoosiers have seen is an occasional speedy European locomotive brought to the states for demonstration runs.

In fact, association VP Dennis Hodges laments that while Illinois, Michigan, and Ohio-and to a lesser degree, Wisconsin-are most active in the Midwest Regional Rail System Initiative, the interest in Indiana is "to almost no degree."

But Hodges and others are soldiering on, and next want to conduct a privately funded economic cost benefits study. The first phase of the Midwest high-speed rail network would connect Chicago and parts of Michigan and Ohio, through northern Indiana.

A second phase under the Midwest Initiative-a consortium to which the Indiana Department of Transportation belongs-includes a Chicago-to-Indianapolis-to-Cincinnati corridor. The Indiana High Speed Rail Association helped lobby to get those corridors federally designated.

Hodges said Gov. Mitch Daniels' administration wants to see an economic case made for the proposed 110-mile-perhour routes, the funding for which would likely require a combination of federal and state money.

Over the years, ideas for achieving the goal have ranged from upgrading existing freight rail lines used by Amtrak to building new tracks parallel with existing freight tracks and in the same right-of-way.

The association is taking a chapter from Daniels' own playbook-privatization as a solution. Daniels successfully pushed the privatization of the Indiana Toll Road in 2006. Spanish-Australian consortium Cintra-Macquarie paid the state $3.8 billion for a 75-year lease of the 157-mile highway.

As for the Midwest rail system, estimated to cost upwards of $6 billion, "I agree with a lot of people who say the government can't afford this" alone, Hodges said.

At the association's annual Golden Spike Seminar, on Nov. 16 in Indianapolis, one of the most anticipated presentations came from Michael Claytor, a CPA and capital projects expert at Crowe Chizek.

Privatization could take the form of a management agreement, as in the case of France-based Veolia's operating the Indianapolis Water Co. for the city, or a longterm infrastructure lease.

Claytor told rail proponents that taxexempt bonds could be issued for privately developed and -operated projects under a federal transportation program. Federal law limits the total amount of such bonds to $15 billion nationally and leaves it to the U.S. Department of Transportation to review eligible projects.

Tax-exempt bonds effectively can shave the interest rate 1 percent to 2 percent, which is "some real money," Claytor said, given how some have estimated the cost to build out high-speed rail in Indiana at $2.5 billion.

But one challenge to enticing private investors is the lack of a track record for high-speed rail in Indiana. By contrast, Cintra-Macquarie had decades of financial history available to it when bidding on the Indiana Toll Road privatization.

"It's easier to privatize an existing project than to privatize a new project," Claytor said. "It can be done, but it's more difficult than doing it for a proven asset."

One thing that would enhance the outlook for high-speed rail in Indiana would be its connection to a much larger Midwestern rail system, which would drive traffic through the state.

"It needs to be either a regional or super-regional concept to really make the [individual] transportation corridors work," Claytor added.

The first phase of the proposed 3,000-mile Midwest high-speed rail network would be a route from Chicago to Detroit, with construction possibly beginning in 2012. When a Chicago-Indianapolis-Cincinnati corridor could be built is anyone's guess.

At 630 miles, "we have more miles of federally designated corridor than any other state" in the Midwest, Hodges said.

Current passenger rail service, operated by Amtrak, runs to Chicago on track shared with freight railroads. Not only is the track condition too rough to allow high speeds, but bottlenecks near Gary can push total travel time longer than four hours. That's not competitive with driving, or with flying when the planes take off and land on schedule.

A report released by the Midwest rail initiative in 2004 estimated that the highspeed network in nine states would boost the level of ridership over current passenger service by fourfold, attracting 13.6 million passengers annually.
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