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 new 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 that they too could qualify for a share of the pie. The prize looked particularly attractive because the dollars will flow directly to the recipient states without requiring a local match.
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. While 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. Only California and Florida have proposed construction of dedicated new track that would allow true high speeds, i.e. top speeds of 150 mph and higher (however, Florida’s Tampa-to-Orlando project is expected to operate only at average speeds of 86 mph; see “Weighing the Future of High-Speed Rail in America,” NewsBrief, October 29, 2009).
For the Administration, there was a political incentive to focus on the projects requiring upgrades to existing infrastructure. While the Florida and California high-speed lines will take years to complete, long after the present generation of political leaders has left office, most of the “upgrades” could become operational in a shorter time frame and become part of this Administration’s catalogue of accomplishments to be proudly cited in the 2012 presidential election campaign. Major grants have been awarded for improvements in the Chicago-St.Louis, Madison-Milwaukee, Seattle-Portland, Raleigh-Charlotte and Cleveland-Cincinnati corridors. These projects typically will involve reconstructing track to meet more stringent requirements for higher speed operations, building bypass tracks, eliminating grade crossings, installing advance signal systems and implementing positive train control technology.
Since virtually all the existing rail infrastructure in America is owned by private railroads, the ticket of admission to the federal HSR grant program has been the instrument of an operating “Stakeholder Agreement” that the prospective state grantees are required to sign with Class I railroads whose facilities they intend to use for passenger rail service. Execution of such an agreement (which also involves a service operator, such as Amtrak) is a condition of participating in the capital portion of the HSR program.
On May 12, the Federal Railroad Administration issued a 19-page directive setting forth the proposed terms of these agreements. The directive includes specific quantitative performance measures. It stipulates that the freight railroads and the 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. If a railroad fails to meet those targets, it must “at its sole expense” take all necessary corrective 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. To protect the public investment, 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, Buy America requirement, environmental protection, etc) .
Although the FRA directive was couched in the form of an advisory “guidance,” railroad executives soon found out that FRA intended its provisions to be mandatory and would reject any operating agreement that did not include the recommended performance standards. Many agreements, some of which had taken months to negotiate on the strength of earlier understandings, ran the risk of being rendered invalid because they did not meet FRA’s stipulations. According to published reports, one railroad company, which had already negotiated agreements with two state DOTs, had the performance standards stipulated in its agreements rejected by FRA as inadequate.
Railroad Industry Reaction
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 and surprise to the private railroad executives who are unaccustomed to the complexities of the federal procurement and grant-making process and to dealing with the often inflexible posture of the federal bureaucracy. “OMB Circular A-87,” “49 CFR Part 18” and other arcana of the federal financial assistance program are not part of the railroad executives’ vocabulary. Upset at what they regarded as excessive and unreasonable demands, burdensome requirements and an inflexible bureaucracy, these railroad executives seemed in no mood to accept unquestioningly the FRA dictates. 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 that there are limits to how far they were 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 be pushed around,” one long time rail industry insider told us. “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.”
Indeed, the railroads are not without leverage. They know that achieving progress with the high-speed rail program — one of President Obama’s signature initiatives– ranks high on the Administration’s list of priorities. “There’s a sense of urgency; we need to get going. We want some of this work to begin this year,” Secretary LaHood was quoted in one press account as urging the railroad executives at a June 9 meeting. 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.
Seeking a Compromise
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 all 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 that 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.”
The final act in this imbroglio has yet to be written. In the months ahead, a number of Stakeholder Agreements will be executed and submitted to FRA for approval. The agency will have an opportunity to acknowledge the railroads’ concerns and demonstrate flexibility by accepting the terms of these Agreements as negotiated by the the States and their railroad partners. We hope the Administration will come to realize that there is too much at stake to let overly stringent performance standards and rigid grant-making procedures become obstacles to gaining the railroads’ active support and cooperation. Surely, there are ways of protecting the public investment without imposing draconian conditions and unrealistic requirements that would lead to endless disputes and litigation—and delay completion of the work past the 2012 elections. We think that with good will on both sides, a workable compromise can be found.
Innovation Briefs, now in their 20th year of publication, are published by Ken Orski. Cascadia Prospectus reprints them with permission.