Congress brainstorms PPPs for high-speed rail

Gathered in New York’s Grand Central Terminal, House Transportation and Infrastructure Committee Chairman John Mica threatened to use subpoena power to show that previous legislation had been written with a goal to 'discourage' and 'dissuade' private involvement in rail and vowed 'it's not going to happen again'.

Taking a cue from President Barack Obama, 16 members of Congress gathered at New York’s busy Grand Central Station train terminal to brainstorm ways to get private capital involved in building a high-speed rail line for the northeastern US.

The hearing, sponsored by the House Transportation and Infrastructure Committee, came just two days after President Barack Obama challenged Congress “to give 80 percent of Americans access to high-speed rail in 25 years”.

Congress must reject the privatisation of the Northeast Corridor

Robert Scardelletti



“We need to get real,” Ed Rendell, former Governor of Pennsylvania, told the committee in his opening remarks. “The way we’re doing high-speed rail now will amount to nothing.”

Rendell was criticising an existing funding measure, the $8 billion Congress dedicated to high-speed rail in the 2009 stimulus bill. He said the funding was “too diffuse” and resulted in insignificant awards like Pennsylvania’s $27 million, which looked good politically but wasn’t enough to make a difference.

We'll have private-public partnerships considered, and the opportunity to compete

John Mica



“We can’t do this politically,” Rendell said. “It’s too important.” As an alternative, he offered a plan put forth my Amtrak, the government-owned rail carrier, to build a 137 mile-per-hour, high-speed rail service on Amtrak’s 437-mile Northeast Corridor line linking Boston and Washington DC.

Congressinal meeting at
Grand Central Terminal in
New York City

The project would cost $117 billion and take 30 years, but Rendell said involving the private sector could help deliver the project more quickly . “Open it up to private competition,” he urged.

Rendell’s views sparked the ire of Robert Scardelletti, president of the Transportation Communications International Union, who said the government could build high-speed service on the Northeast Corridor on its own by providing Amtrak a “dedicated, long-term funding source”.

We can't do this politically. It's too important

Ed Rendell


“Congress must reject the privatisation of the Northeast Corridor. We know from experience that passenger rail is better left to the public sector,” Scardelletti said. “We do not understand how the public will benefit by allowing a private operator to take over one of Amtrak’s more successful routes.”

“We just don’t have the luxury of ruling out anything,” New York City Mayor Michael Bloomberg said in response to Scardelletti. “I think the best thing for government is to have the private sector compete with government. That’s what holds our feet to the fire; that’s what makes us more efficient.”

We just don't have the luxury of ruling anything out

Michael Bloomberg



Committee Chairman John Mica, a Republican Representative from Florida, said prior legislation had been written in such a way that the private sector could not compete for the Northeast Corridor.

“I can tell you everything was done to discourage, dissuade and actually make certain the private sector did not offer a proposal. And if I have to, I will subpoena people in and we’ll have people reveal what took place,” Mica said.

“I’m telling you it’s not going to happen again, and we will have private-public partnerships considered, and the opportunity to compete,” he added.

Private sector perspectives

Later in the day, a group of high-profile lawyers and bankers provided the committee with the private sector’s perspective on what would be required to make public-private partnerships work for high-speed rail, with effective risk-sharing between the two sectors topping the list.

“While there is potentially tremendous benefit to transfer some of these risks to the private sector . . . if there is simply too much risk, that’s hard for equity investors . . . to price in,” Goldman Sachs managing director John Ma told the committee.

“Structuring these public-private transactions are always a delicate balancing act of what risks the public sector will retain and what risks you’ll try to transfer to the private sector,” he added.

Private equity firm Fortress Investment Group, which owns a freight rail carrier in Florida, had one of its managing directors point out to the committee that investors need to see a return right away from their deals, including from high-speed rail.

The difference between having a defined cashflow stream in two years instead of six years is huge

Joseph Adams



“I think one of the biggest deterrents though for looking at this for any private equity investor is to invest and commit money now and not see returns for five or seven or 10 years,” said Fortress managing director Joseph Adams.

Adams cited lengthy environmental reviews as one reason why high-speed rail projects could potentially slow down the flow of returns and make such investments less attractive to investors.

“The difference between having a defined cashflow stream in two years instead of six years is huge,” Adams said.

Alexandra Atiya contributed reporting to this story.