Surface Infrastructure: High-Speed Rail Projects in the United States
(Letter Report, 01/01/99, GAO/RCED-99-44).

Pursuant to a congressional request, GAO reviewed the status of
high-speed rail development in the United States, focusing on:  (1)
project plans for the Florida corridor for which detailed studies on
building a new high-speed rail system between Miami, Orlando, and Tampa
have begun; (2) the estimated cost, financing, ridership, and schedule
for the Florida Overland Express (FOX) rail project; (3) the status of a
new federal transportation infrastructure financing program and how
federal funding decisions for the FOX project might affect the new
program; and (4) the status of other planned high-speed rail corridors
in the United States.

GAO noted that:  (1) because the Florida project is in the early phases
of development, it faces uncertainties; (2) overall, it will be at least
2 more years before sufficient information is available to
comprehensively assess the project's cost, financing, ridership, and
schedule; (3) the project's current estimated cost ranges from $6
billion to +$8 billion, however, the accuracy of the estimate is
uncertain because the project is only at a 5-percent level of
engineering design; (4) the finance plan, which relies heavily on debt,
is incomplete, and the project's sponsors have secured only 5 percent of
the estimated needed funding for the project; (5) the ridership forecast
for the project relies on optimistic assumptions and could be overstated
by 30 percent or more; (6) adjusting the forecast to reflect more
conservative assumptions would reduce expected future system revenues
and increase risks to the project's financial viability; (7) the
project's ambitious schedule calls for the train to begin operating over
a 320-mile route in 2005, but several factors will make it difficult to
meet this schedule; (8) to help pay for the Florida project's capital
costs, the project's sponsors will seek a $2 billion federal loan under
the Department of Transportation's new Transportation Infrastructure
Finance and Innovation Act program; (9) the Department anticipates
issuing regulations and guidance for this program in April 1999 and has
not yet funded any projects under the program; (10) under the Federal
Credit Reform Act of 1990, the Department must consider a project's risk
of default and estimate the cost to the federal government of the credit
provided for each project funded through the program; (11) the
Transportation Infrastructure Finance and Innovation Act provided a
total of $530 million for fiscal years 1999 through 2003 to cover the
costs of providing all selected projects with credit; (12) in order to
cover the cost associated with a $2 billion loan to the Florida project,
the Department may need to obligate over one-half of the program's $530
million; (13) providing the Florida project with a $2 billion federal
loan would constrain the Department's ability to fund other projects
that are potential candidates for credit assistance; (14) at least 11
other corridors in the United States are in various stages of developing
high-speed rail projects; (15) unlike the Florida project, most of the
other corridors have not determined their funding sources; and (16)
these 10 projects have preliminary cost estimates ranging from $315
million to $4 billion.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-99-44
     TITLE:  Surface Infrastructure: High-Speed Rail Projects in the 
             United States
      DATE:  01/01/99
   SUBJECT:  Railroad transportation operations
             Federal aid to railroads
             Projections
             Cost analysis
             Construction costs
             Federal/state relations
IDENTIFIER:  Florida
             Florida Overland Express Project (FL)
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Chairman, Committee on the Budget, House of
Representatives

January 1999

SURFACE INFRASTRUCTURE -
HIGH-SPEED RAIL PROJECTS IN THE
UNITED STATES

GAO/RCED-99-44

High-Speed Rail Projects in the United States

(348118)


Abbreviations
=============================================================== ABBREV

  DOT - Department of Transportation
  FDOT - Florida Department of Transportation
  FOX - Florida Overland Express
  FHWA - Federal Highway Administration
  FRA - Federal Railroad Administration
  OMB - Office of Management and Budget
  NPRM - Notice of Proposed Rulemaking
  TGV - train a grande vitesse
  TIFIA - Transportation Infrastructure Finance and Innovation Act of
     1998

Letter
=============================================================== LETTER


B-280830

January 14, 1999

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

High-speed rail systems that travel 90 miles per hour or more are a
common mode of ground transportation throughout Europe and Japan. 
The systems in operation have proven to be a relatively safe and
effective means of transportation.  Most systems receive some
operating or capital subsidies from their governments.  While
high-speed rail is not in widespread use in the United States, these
systems may be an effective alternative in corridors where travel is
increasing and it is difficult to expand highway and airport
capacity.  However, high-speed rail systems are costly, and thus
ridership levels may not be high enough in the United States for
systems to cover their costs. 

Concerned about the role that federal financial assistance might play
in developing such systems, you asked us to review the status of
high-speed rail development in the United States.  In particular, you
asked us to focus on project plans for the Florida corridor, under
which, detailed studies on building a new high-speed rail system
between Miami, Orlando, and Tampa have begun.  Sponsors for the
project, known as the Florida Overland Express (FOX) project, will
request significant federal capital assistance in the near future. 
This report provides information on (1) the estimated cost,
financing, ridership, and schedule for the FOX rail project; (2) the
status of a new federal transportation infrastructure financing
program and how federal funding decisions for the FOX project might
affect the new program; and (3) the status of other planned
high-speed rail corridors in the United States.  To respond to these
objectives, we reviewed cost, finance, and ridership documents on the
FOX project; interviewed federal officials on the new infrastructure
finance program; and interviewed state officials responsible for 11
other potential high-speed rail corridors in the United States. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Because the Florida project is in the early phases of development, it
faces uncertainties.  Overall, it will be at least 2 more years
before sufficient information is available to comprehensively assess
the project's cost, financing, ridership, and schedule.  First, the
project's current estimated cost ranges from $6 billion to $8
billion.  However, the accuracy of the estimate is uncertain because
the project is only at a 5-percent level of engineering design. 
Second, the finance plan, which relies heavily on debt, is
incomplete, and the project's sponsors have secured only 5 percent of
the estimated needed funding for the project.  Third, the ridership
forecast for the project relies on optimistic assumptions, and could
be overstated by 30 percent or more.  Adjusting the forecast to
reflect more conservative assumptions would reduce expected future
system revenues and increase risks to the project's financial
viability.  Finally, the project's ambitious schedule calls for the
train to begin operating over a 320-mile route in 2005, but several
factors will make it difficult to meet this schedule.  For example,
the sponsors assume they can complete a very complex environmental
review in 2.6 years--a process that we have reported takes on average
over 5 years to complete. 

To help pay for the Florida project's capital costs, the project's
sponsors will seek a $2 billion federal loan under the Department's
new Transportation Infrastructure Finance and Innovation Act program. 
The Department anticipates issuing regulations and guidance for this
program in April 1999 and has not yet funded any projects under the
program.  The program was created 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 providing credit assistance through secured
loans, lines of credit, or loan guarantees.  Recipients of the
program's funds must repay the assistance, in whole or in part, from
a dedicated revenue stream such as tolls.  Under the Federal Credit
Reform Act of 1990, the Department must consider a project's risk of
default and estimate the cost to the federal government of the credit
provided for each project funded through the program.  The
Transportation Infrastructure Finance and Innovation Act provided a
total of $530 million for fiscal years 1999 through 2003 to cover the
costs of providing all selected projects with credit.  In order to
cover the cost associated with a $2 billion loan to the Florida
project, the Department may need to obligate over one-half of the
program's $530 million.  Providing the Florida project with a $2
billion federal loan would constrain the Department of
Transportation's ability to fund other projects that are potential
candidates for credit assistance. 

At least 11 other corridors in the United States are in various
stages of developing high-speed rail projects.  Unlike the Florida
project, most of the other corridors have not determined their
funding sources.  Most of the corridors are in the early stages of
project planning, but officials in Amtrak's Northeast
corridor--between Washington, D.C., and Boston--have been upgrading
their system for several years, and officials in the Pacific
Northwest corridor--between Vancouver, British Columbia, and Eugene,
Oregon--have bought high-speed trains and plan to upgrade their
track.  Ten of the 11 corridors have proposed upgrading track, signal
systems, and train equipment on existing rail rights-of-way, thereby
obtaining incremental increases in train speeds.  These 10 projects
have preliminary cost estimates ranging from $315 million to $4
billion.  In contrast, officials in the California corridor have
proposed a new, dedicated rail line employing either very-high-speed
or magnetic levitation technology.  California's preliminary proposal
could cost as much as $29 billion. 


   BACKGROUND
------------------------------------------------------------ Letter :2

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 yearï¿½access capital by using
federal funds to leverage substantial private investment.\1 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 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.\2 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.\3 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. 


--------------------
\1 The act establishes a lower threshold--$30 million--for projects
that principally involve the installation of intelligent
transportation systems--computer and telecommunications technologies
designed to enhance the safety and efficiency of surface
transportation. 

\2 Under TIFIA, the Secretary may provide limited funding before a
project receives an investment-grade rating for its senior debt
obligations. 

\3 The TGV is an electric powered train operating in France.  In
commercial service, it runs at a maximum speed of 186 mph. 


   THE FOX PROJECT FACES SEVERAL
   CHALLENGES
------------------------------------------------------------ Letter :3

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. 


      PRELIMINARY COST ESTIMATES
      RANGE FROM $6 BILLION TO $8
      BILLION
---------------------------------------------------------- Letter :3.1

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 only are based on 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 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. 


      THE PROJECT'S FINANCING IS
      INCOMPLETE
---------------------------------------------------------- Letter :3.2

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. 

   Figure 1:  Sources of Funds for
   the FOX Project

   (See figure in printed
   edition.)

Source:  GAO's presentations of data from FDOT. 

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 $70 million-per-year state commitment 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.\4 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 will have the last
claim on revenues and will 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.\5

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.  The projects' funding
balances and interest earnings amount to $588 million. 

In total, the sponsors must secure nearly $9.3 billion to finance the
$6.3 billion in initial capital costs.  According to the project's
sponsors, the financing needs exceed the estimated capital costs by
about $3 billion because the project must account for inflation, pay
interest on state and system infrastructure bonds during the
construction period, establish reserve funds required by bondholders,
and cover the costs of issuing the bonds.  As of December 1998, the
project's sponsors had secured commitments for about $436
million--$349 million from the FOX consortium and about $87 million
from the state of Florida.  Over the next 2 years, the project's
sponsors will have to secure the remaining funding--about $8.8
billion.  Should the cost estimates increase as the sponsors complete
more detailed engineering, FDOT's financial manager for the project
stated that the sponsors would likely issue more bonds or work with
bond issuers to lower reserve funding requirements. 


--------------------
\4 A November 1996 agreement between FDOT and FOX stipulates that FOX
receive, on average, a proposed 15-percent yearly after-tax return on
its $349 million equity investment.  The agreement also provides that
a partial return on equity of $28.5 million each year be paid to FOX
before the project makes any payments to system infrastructure
bondholders. 

\5 Under TIFIA, a secured federal loan would not be subordinate to
claims from other project obligations in the event of bankruptcy. 


      THE PROJECT MUST MEET
      SEVERAL FINANCING CHALLENGES
---------------------------------------------------------- Letter :3.3

The project's sponsors face several challenges in obtaining the
nearly $8.8 billion in estimated additional funding needed for the
project.  The major challenges include issuing two sets of bonds on
favorable terms and obtaining the federal loan.  To issue about $5.4
billion in state and system infrastructure bonds, sponsors must
convince the bond market that the project will have sufficient state
and operating revenues to repay the bonds.  To do this, sponsors must
demonstrate that the state legislature will support a $70 million
yearly funding commitment for 40 years and that the ridership
estimates and revenue projections are valid.  To obtain the $2
billion federal loan, the sponsors must also show that the project
meets the criteria for assistance under TIFIA and deserves funding. 


         CHALLENGES IN ISSUING
         STATE AND SYSTEM
         INFRASTRUCTURE BONDS
-------------------------------------------------------- Letter :3.3.1

The project's sponsors must convince the bond market that the state
and system infrastructure bonds are a good investment.  Potential
investors will be more likely to buy the bonds if the bonds provide
competitive returns on investment and if the project has a reliable
source of revenue to pay back the principal and interest.  According
to FDOT officials, the state will provide $70 million each year for
the next 40 years to secure the $2.1 billion in state infrastructure
bonds.  In addition, future operating revenues will secure the $3.3
billion in system infrastructure bonds. 

FDOT's lead attorney for the project stated that in early 2000, FDOT
will seek the state legislature's commitment to provide the $70
million in annual funding.  The state's commitment is uncertain,
however, because several members of the legislature have raised
concerns about the project and the state's new governor has indicated
skepticism about the project.  In addition, should the legislature
approve the 40-year funding commitment, FDOT must still obtain an
annual appropriation.  FDOT's lead attorney for the project stated
that the legislature has appropriated funds for other transportation
projects that were previously authorized and that he viewed the risk
of not obtaining the appropriation as minimal. 

In contrast to the state infrastructure bonds, the system
infrastructure bonds will not be backed by a known amount of revenue. 
Instead, these bonds will be backed by operating revenues, which can
fluctuate each year depending on the success of the system.  On the
basis of a 1998 FOX ridership study, the project's sponsors forecast
that system revenues will be sufficient to repay the principal and
interest on $3.3 billion in system infrastructure bonds.  The
sponsors are confident that bond-rating agencies will accept the
revenue estimates and are planning to provide them with the cost,
ridership, and revenue information needed to assess the bonds'
creditworthiness and to thereafter issue a bond rating.  FDOT's
financial manager for the project does not anticipate issuing state
or system infrastructure bonds until cost estimates are more precise
and the amount of bonds needed is better known.  The current plan is
for the project's sponsors to receive a preliminary opinion from
rating agencies in 1999 and obtain a final rating and issue the bonds
in 2001. 

Our discussions with officials from three bond-rating
agencies--Moody's Investors Service, Standard and Poor's, and Fitch
IBCA--revealed that these agencies have little detailed information
about the FOX project.  Of the three, Fitch's officials had the most
knowledge of the project.  Fitch officials told us that, in general,
bond-rating agencies have little or no experience reviewing
high-speed rail projects, but when asked to rate the project's
proposed bonds, they will focus on the reliability of the ridership
estimates and other important factors in assessing the project's
revenue projections.  On the basis of preliminary observations, one
Fitch official stated that some of the assumptions used in the
ridership study were optimistic and that the overall ridership
estimate could be high.  However, Fitch officials said it was too
early to make any definitive statement about potential bond ratings
for the project. 

In addition to the ridership estimates, another factor that may
affect the rating for the system infrastructure bonds is the order in
which the project will pay its obligations.  According to the
November 1996 agreement between FOX and FDOT, the project must first
cover its operating costs, principal, and interest payments for the
debt-financed train equipment and pay the FOX consortium a partial
return on its investment before it pays back system infrastructure
bond investors.  This agreement subordinates the system
infrastructure bondholders' claims on revenues and thereby makes the
bonds less secure.  FDOT's financial manager for the project stated
that this agreement may make the system infrastructure bonds riskier
to potential investors and therefore more difficult to sell.  Our
discussions with Fitch officials also revealed that potential
bondholders would consider the structure of the FDOT and FOX
agreement as something that adds risks to the bonds. 


         CHALLENGES IN OBTAINING A
         FEDERAL LOAN
-------------------------------------------------------- Letter :3.3.2

The project's sponsors intend to seek a $2 billion federal loan from
the U.S.  Department of Transportation under the new TIFIA program. 
The sponsors cited language in the Transportation in Equity Act for
the 21st Century (TEA-21) conference report as evidence of federal
support for the project.  The conference report noted the national
significance of the FOX project and suggested that the Department
favorably review the project's request for TIFIA funds as long as it
meets the program's criteria.  The project's sponsors intend to apply
for a TIFIA loan as soon as the Department begins soliciting project
applications.  The sponsors anticipate a favorable preliminary
decision by the Department by fall 1999.  However, unanswered
questions regarding the TIFIA program, the bond market's views of the
project, and the impact of a single $2 billion loan on the TIFIA
program could have an impact on the timing and outcome of the
Department's funding decisions. 

As of December 1998, the Department was developing regulations to
implement the TIFIA program, including the criteria it will use to
select projects.  The regulations and selection criteria will affect
the FOX project.  For example, during a September 1998 outreach
session on the TIFIA program, an official from the Department said
that TIFIA funds may not be forthcoming for projects that have not
completed the environmental review process.  If this criterion is
part of the Department's TIFIA regulations, the FOX project would be
unable to receive a commitment for TIFIA capital assistance until it
completes its environmental review, projected for the end 2000.  In
addition, TIFIA requires that a project's sponsors provide a
preliminary rating letter from at least one bond-rating agency
indicating that the project's senior obligations have the potential
to achieve an investment-grade rating.  An investment-grade rating
indicates a relatively low probability of default.  Until the project
develops firmer cost and financing estimates for bond-rating agencies
to review, a preliminary rating for the FOX project may not be
forthcoming.  Furthermore, TIFIA requires that, when selecting
projects, consider the amount it must obligate to fund the credit
assistance.  As discussed later in this report, providing the FOX
project with the full $2 billion loan would require the Department to
obligate a significant amount of the program's available funding and
would limit the funds that the Department has available to fund other
projects through TIFIA. 


      LOWER RIDERSHIP MAY AFFECT
      THE PROJECT'S FINANCING
---------------------------------------------------------- Letter :3.4

The FOX project's sponsors forecast that the system will carry 8.26
million passengers in 2010.  Our analyses of the ridership study
data, an independent review of the ridership forecast, and other data
found that the ridership forecast for the project may be overstated
by 30 percent or more because it relies on optimistic assumptions. 
Using more conservative assumptions could reduce the ridership
forecast to 5.59 million passengers or less in 2010.  Because lower
ridership would reduce the amount of fare revenues that the system is
expected to generate, revising the forecast could affect the debt
rating needed to obtain private capital and the federal loan. 


         PROJECT'S SPONSORS
         FORECAST 8.26 MILLION
         PASSENGERS IN 2010
-------------------------------------------------------- Letter :3.4.1

Official forecasts prepared for the proposed FOX system have
estimated that the project's ridership could range from 8.01 million
to 8.50 million; a consensus average is 8.26 million passengers in
2010.\6 Table 1 shows the estimated number of annual FOX high-speed
rail riders in 2010, categorized by the sources of the riders. 



                                Table 1
                
                 Annual Ridership Forecasts for the FOX
                             Project, 2010

                                                  Consensus average
                                                ----------------------
Sources of               KPMG Peat
FOX                      Marwick's    SYSTRA's
passengers                estimate    estimate      Number  Percentage
----------------------  ----------  ----------  ----------  ----------
Diverted from            4,509,000   3,996,000   4,253,000          52
 automobiles
Transfer through code-   1,476,000   1,477,000   1,477,000          18
 share agreement with
 airlines\a
Induced                    865,000   1,787,000   1,326,000          16
Diverted from            1,158,000   1,244,000   1,201,000          15
 intrastate flights
======================================================================
Total annual riders      8,008,000   8,504,000   8,256,000
----------------------------------------------------------------------
Note:  Totals may not be precise because of rounding. 

\a A code share is an agreement between pasenger carriers whereby one
carrier (in this case, the airline) purchases seats on selected
routes on other carriers (FOX, in this case) and markets these FOX
seats as an airline flight.  Under such an agreement, the airline
ticket would cover air transportation, a seat on FOX, and necessary
baggage handling. 

Source:  GAO's presentation of data from FOX, KPMG Peat Marwick, and
SYSTRA. 

As table 1 shows, the project's sponsors expect that over 50 percent
of the high-speed rail riders will be people who would otherwise use
automobiles to travel along the Tampa-Orlando-Miami corridor.  The
next largest source of riders is from the air transfer market, that
is, those travelers who fly for one portion of their trip, but
through a code-share agreement between FOX and an airline, are
expected to transfer to or from FOX to reach their destination.  The
project's sponsors also forecast that the new high-speed rail service
will induce 1.3 million new trips in the corridor that otherwise
would not have been taken if high-speed rail were not available.  The
remaining 1.2 million riders would be diverted from the local air
market--those air trips that have their origins and destinations
within the high-speed rail corridor. 


--------------------
\6 The project's sponsors hired two firms to produce independent
ridership forecasts for the project.  These firms were KPMG Peat
Marwick and SYSTRA, a French transportation consulting firm.  Both of
these companies have extensive experience in producing high-speed
rail ridership forecasts.  Each firm produced a forecast; officials
then averaged the two estimates to arrive at an official agreed-upon
ridership forecast. 


         ALTERNATIVE ASSUMPTIONS
         COULD PRODUCE A
         SIGNIFICANTLY LOWER
         RIDERSHIP FORECAST
-------------------------------------------------------- Letter :3.4.2

Experts in travel demand forecasting acknowledge that forecasting
ridership for high-speed rail is difficult and that the results
depend upon future assumptions that may or may not become reality. 
The ridership forecast is extremely important because it is the basis
for determining the expected revenues of a system and whether a
system can be financially viable.  On the basis of our review of an
independent report on the ridership forecasts, actual average airline
ticket data from the Department, the Federal Railroad
Administration's (FRA) estimates of induced travel--new travel made
solely because a transportation system exists--and our interviews of
airline industry officials, we concluded that the FOX ridership
forecast is too high because some of the assumptions used to prepare
the ridership studies were optimistic.  Using alternative scenarios,
based on less optimistic assumptions, could produce a ridership
estimate of 5.59 million or lower in 2010.  Table 2 summarizes the
results of our analysis of how less optimistic assumptions about the
air transfer market, lower airfares, and induced or new travel could
reduce total ridership estimates for the FOX system. 



                                Table 2
                
                Effect of Less Optimistic Assumptions on
                               Ridership

                   (Thousands of passengers in 2010)

                                 Reduction
                                 from KPMG     Reduction       Average
                                      Peat          from     reduction
Calculation of less              Marwick's      SYSTRA's          from
optimistic forecast               Forecast      forecast     forecasts
----------------------------  ------------  ------------  ------------
Original KPMG Peat Marwick           8,008         8,504         8,256
 and SYSTRA forecasts
Assume no transfers through         -1,476        -1,477        -1,477
 airline agreements
Assume lower airfares                  -60          -761          -410
Assume lower rate of induced          -298        -1,263          -781
 travel
======================================================================
Revised forecast                     6,174         5,003         5,589
----------------------------------------------------------------------
Note:  Totals may not be precise because of rounding. 

Source:  GAO's analysis, based on data from FOX, KPMG Peat Marwick,
SYSTRA, and the Department. 

First, the ridership forecasts for the FOX project assume that nearly
1.5 million passengers will be supplied to the FOX system by airlines
operating in Florida markets.  The assumption is that some airlines
with hubs in Miami and Orlando will establish code-share agreements
with FOX, thereby transferring short-haul intrastate air passengers
to FOX so the airlines can maximize revenues on long-haul flights. 
For example, the ridership forecasts assume that through a code-share
agreement, passengers flying to Miami or Orlando could transfer to
the FOX system to reach another Florida destination in the high-speed
rail corridor.  An independent review of the ridership forecasts
completed by Wilbur Smith Associates found that this assumption was
unverified, and questioned the entire forecast of passengers
transferring through airline agreements.\7 In addition, officials
from American Airlines, Delta Airlines, the Air Transport
Association, and the Miami International Airport told us that
airlines would not be interested in establishing a code-sharing
agreement with a competitor such as high-speed rail.  Accordingly,
they contended that the forecast for passenger transfers through
code-share agreements was unsupported.  Without passengers from the
air connect market, the FOX ridership forecast is reduced by about
1.47 million passengers.  (See table 2.)

Second, the FOX ridership forecasts assume that some air passengers
will choose FOX instead of air travel in local air markets.  To
divert these passengers, FOX's fares must be comparable with
airfares.  However, average 1997 airfares actually charged were
generally lower than the fares assumed by the FOX ridership
forecasts.\8 This assumption could lead to an overestimate of the
number of travelers who would use FOX instead of flying.  The actual
airfares charged by airlines in 1997 were, in some cases, 21 percent
less than the airfares assumed in the ridership forecasts.  For
example, in the Fort Lauderdale-to-Orlando market, the ridership
forecasts assumed an average one-way airfare of between $62 and $66,
while the actual average airfare according to the Department's data,
was $52.  In addition, FOX's forecast assumed that airfares would
remain constant in real terms from 1997 through 2010.  However,
officials from one major airline stated that they would likely reduce
fares in response to the introduction of high-speed rail service. 
Furthermore, the Department has found that over the past few years,
established airlines have responded to the entry of a new competitor
by selling large numbers of seats at low fares. 

In preparing their ridership estimates, both KPMG Peat Marwick and
SYSTRA developed alternative scenarios that were based on lower
airfares.  KPMG Peat Marwick found that a 20-percent decrease in
assumed airfares would reduce total high-speed rail ridership by
60,000 passengers, while SYSTRA found a 20-percent reduction in
airfares would lead to 761,000 fewer high-speed rail passengers.  We
use these numbers to reflect the effect of more conservative
assumptions on ridership.  (See table 2.)

Third, the forecasts of passengers using the FOX system because of
induced or new demand may also be optimistic.  KPMG Peat Marwick's
and SYSTRA's estimates for induced demand represent 11 and 21 percent
of total forecast ridership on the FOX system, respectively.  The
consensus estimate--an average of the two forecasts--projects that 16
percent of the total riders will be induced travelers.  However,
Wilbur Smith Associates expressed concern about the amount of induced
travel that the FOX system will actually produce.  In addition, a
1997 FRA report noted that estimates of new demand are controversial
because little historical data exist; defining and quantifying such
demand is methodologically difficult.\9 The FRA study assumed that
the new or induced demand generated by high-speed rail service would
equal 10 percent of the traffic diverted from local air and
automobile travel.  Using FRA's assumption for induced traffic, KPMG
Peat Marwick's estimate would be reduced by 298,000 passengers, while
SYSTRA's estimate would be reduced by 1.26 million passengers.  (See
table 2.)

Finally, the consensus ridership forecast also predicts that over 4.2
million passengers--52 percent of the total FOX ridership--will use
the FOX system instead of automobiles.  In its independent review
report, Wilbur Smith Associates stated that the ability of a new
high-speed rail system to cause travelers to choose it rather than to
travel by automobile has not yet been proven in the United States. 
The report stated that while the level of diversion forecast by FOX
could occur, lesser rates of diversion from private automobiles are
also possible, which would result in lower ridership.  Although we
did not attempt to quantify the impact of a more conservative
assumption regarding automobile diversion on the overall ridership
forecast, reductions in the rate of auto diversion could reduce
ridership below the 5.59-million passenger forecast resulting from
the analyses shown in table 2. 


--------------------
\7 Wilbur Smith Associates is a transportation consulting firm that
has conducted numerous high-speed rail forecasts both in the United
States and abroad.  Wilbur Smith Associates was hired by the Florida
Transportation Commission, an organization that oversees FDOT, to
review the ridership forecasts.  Wilbur Smith Associates issued its
report in August 1998. 

\8 The ridership forecasts used 1997 airfare data to help make the
2010 ridership estimate. 

\9 High Speed Ground Transportation for America, U.S.  Department of
Transportation, Federal Railroad Administration (Sept.  1997). 


         THE UNCERTAINTY IN
         RIDERSHIP ESTIMATES
         INCREASES RISKS TO THE
         PROJECT'S FINANCIAL
         VIABILITY
-------------------------------------------------------- Letter :3.4.3

Lower ridership would reduce the fare revenues the FOX system
generates.  Lower fare revenues, in turn, would affect the project's
ability to repay its infrastructure bonds and the federal loan.  On
the basis of their current ridership estimate of 8.26 million
passengers in 2010, the project's sponsors predict that fare revenues
will be sufficient to pay all operating costs and to repay
bondholders and the federal government.  However, if a lower
ridership estimate, such as 5.59 million, is used, it is not clear
whether the project can meet all of its obligations, given the lower
fare revenues that would result.  On the basis of the 8.26-million
passenger estimate, sponsors anticipate that revenues will be 1.5
times principal and interest requirements for the system's
infrastructure bonds and 1.3 to 1.4 times the principal and interest
requirements for the federal loan. 

The FOX project's sponsors are in the process of analyzing financial
scenarios and preparing updated cash flow statements.  If the updated
cash flow statements indicate that debt service payments are
potentially in jeopardy, the bond-rating agencies have indicated that
they will be less inclined to provide the project's senior debt
obligations with the investment-grade debt rating that is necessary
for participation in the TIFIA program.  In addition, a lower rating
for project debt would increase future interest costs for the
project. 


      THE PROJECT'S SCHEDULE IS
      AMBITIOUS
---------------------------------------------------------- Letter :3.5

The FOX project is currently in the preliminary engineering stage of
development; and therefore, many tasks must be completed before
construction can begin in 2001.  Staying on schedule will require
completing an extensive environmental review process,\10 securing
needed financing, passing several pieces of state legislation, and
finalizing federal high-speed rail safety standards in a timely
manner.  The project's sponsors do not have direct control over these
matters, and staying on schedule will be challenging. 

An August 1996 agreement between FDOT and the FOX consortium sets out
three phases for developing the FOX system prior to construction--the
preliminary phase, the certification phase, and the final design
phase.\11 The preliminary phase runs through January 31, 1999. 
During this phase, the project's sponsors will refine the project's
concept, identify proposed alignments, refine capital cost estimates,
and develop finance plans.  Prior to January 31, 1999, FDOT and FOX
must jointly assess the prospects for successful system development
and decide whether they should continue the project and enter the
certification phase.  If they decide to terminate the project, a
November 1996 agreement requires FDOT to reimburse FOX for eligible
costs incurred through the preliminary phase, or about $5.59 million. 
If the sponsors choose to proceed beyond the preliminary phase and
complete remaining tasks on schedule, construction could begin in
2001.  According to the current schedule, the construction of the
Miami-to-Orlando segment would take about 4 years, and revenue
operations on that segment would begin in 2005.  Revenue operations
on the Orlando-to-Tampa segment would begin in 2006. 

The project's sponsors face many challenges in keeping the project on
schedule.  The environmental review could pose a significant
challenge to the FOX project's schedule.  According to the Federal
Highway Administration's (FHWA) Florida Assistant Division
Administrator, whose office has overall responsibility for this
federal environmental review process, the environmental impact
statement for this project will be among the largest in scope and the
most complex the office has undertaken.  The 320-mile FOX system
could have an impact on wetlands, encroach on the habitats of
threatened and endangered species, cause noise pollution, and
adversely affect the region's water quality.  The project's sponsors
must study these and other impacts and, where necessary, develop
plans to mitigate them.  For example, if the project has a
significant impact on wetlands, the project's sponsors will have to
create new or improve existing wetlands.  Depending on the proposed
alignment, preliminary estimates by FOX show that mitigation plans
may be needed for over 700 acres of wetlands affected by the
project's construction.  Construction cannot proceed until sponsors
obtain a wetlands permit from the U.S.  Army Corps of Engineers.  To
resolve these issues, FDOT must coordinate efforts among at least 15
state and federal agencies.  Both FHWA and FDOT officials stated that
the project is on schedule, and they are confident that they will
complete the entire environmental review process in 2.6 yearsï¿½by
January 2001.  Our previous work has found that the average time for
completing complex FHWA-led environmental reviews for projects
affecting wetlands was over 5 years.\12

The availability of TIFIA funding could also affect the FOX project's
schedule.  FDOT officials have stated that they cannot build the
project, as currently proposed, without the federal loan.  The
project's sponsors plan to obtain a preliminary TIFIA funding
decision in the fall of 1999--about 2 years prior to construction. 
However, as of December 1998, the Department had not issued the
regulations for implementing the TIFIA program.  According to a
Department official, TIFIA's regulations could preclude the
Department from making construction funding commitments to projects
that have not completed the environmental review process.  If the FOX
project cannot secure a TIFIA funding commitment until its
environmental review is completed, the project's ability to secure
bond financing could also be delayed.  These financing delays could
delay the construction schedule. 

The project's sponsors must also secure the state legislature's
timely approval of several pieces of legislation needed to begin
construction.  FDOT expects to introduce the legislation in spring
2000, when it will also request that the legislature approve the $70
million per year, 40-year funding commitment for the project.  If
approved, the proposed legislation would provide FOX with an
exclusive right to develop high-speed rail in Florida, limit the
project sponsors' liability in the event of an accident, and
streamline and clarify the project certification process.  FDOT
expects the legislation to pass easily.  However, should the
legislation encounter difficulties or be held up by opponents to the
project, the project could be delayed. 

Finally, FOX officials stated that a delay in the issuance of new
federal high-speed rail safety standards could affect the project's
schedule.  In February 1997, FOX petitioned FRA to develop a rule
establishing safety standards for the FOX system.  The project's
sponsors requested the rule because FRA's safety regulations did not
address a system with trains traveling at speeds of up to 200 mph. 
In December 1997, FRA issued a proposed rule containing a draft of
the new safety standards for the FOX system.  Having received public
comments, FRA is now drafting the final rule.  FRA officials stated
that they are strongly committed to completing the final rule for the
FOX system in a timely manner.  However, they also stated that they
have a large workload of other pressing safety issues to address,
including some required by the Congress, and therefore, have no
timetable for issuing the final rule.  Since the final rule may
affect the design and cost of the trains, track, and other
infrastructure, the project's sponsors believe they need a final rule
before they can arrange financing for the project.  FRA officials
disagree and believe the proposed rule serves as an excellent basis
for financing the project because it addressed key elements of FOX's
petition. 


--------------------
\10 We use the phrase ï¿½environmental review processï¿½ to collectively
refer to review processes required by the National Environmental
Policy Act and the Clean Water Act (wetlands permitting). 

\11 During the certification phase, the project's sponsors must
ensure that the project completes various requirements, including
federal, state, and local environmental requirements. 

\12 Highway Planning:  Agencies Are Attempting to Expedite
Environmental Reviews, but Barriers Remain (GAO/RCED-94-211, Aug.  2,
1994).  In the report, the length of the environmental review process
was measured from the date that FHWA issued a Notice of Intent to
prepare an environmental impact statement until the Corps of
Engineers issued a wetlands permit. 


   FUNDING FOX WOULD CONSTRAIN
   DOT'S NEW FINANCE PROGRAM
------------------------------------------------------------ Letter :4

Enacted in June 1998, the Transportation Infrastructure Finance and
Innovation Act established a new transportation infrastructure
finance program.  The program is designed to help large
infrastructure projects access capital by providing federal credit
assistance.  The FOX project's sponsors intend to seek a $2 billion
loan through the program to help finance their high-speed rail
project.  The result of providing the full $2 billion to the FOX
project may be that the Department dedicates over one-half of the
funds available for subsidy costs under TIFIA to one project, thereby
constraining the program's ability to fund other projects. 


      THE DEPARTMENT IS DEVELOPING
      REGULATIONS FOR THE TIFIA
      PROGRAM
---------------------------------------------------------- Letter :4.1

The Department has created a multiagency Credit Program Steering
Committee and Working Group to coordinate and monitor all policy
decisions and implementation actions associated with the Department's
credit programs, including TIFIA.  The Steering Committee and Working
Group are composed of representatives from the Department's Office of
Budget and Programs, Office of Intermodalism, FHWA, FRA, Federal
Transit Administration, as well as other departmental agencies and
offices.  As of December 1998, the Department and the Office of
Management and Budget (OMB) were reviewing a draft Notice of Proposed
Rulemaking (NPRM) for TIFIA.  The current timetable calls for the
NPRM to be published in late December 1998 or early January 1999. 
After receiving public comments and making necessary revisions, the
Department plans to submit final regulations to OMB for review and
clearance by April 1999.  Both the final regulations and general
policy guidelines should be published in April 1999.  Once the
regulations and guidelines are issued, the Department will begin
accepting applications for TIFIA funds. 

Before the Department can issue the regulations, an FHWA official
stated that the Department must address a number of issues that will
influence the program's structure.  First, the Department must
develop a clear and objective process, including criteria for
selecting projects.  Second, the Department must determine whether it
should establish one deadline for applications or allow multiple
deadlines since some projects may not be ready to apply at a
particular time.  Third, the Department must develop a methodology
for comparing the relative merits of different types of projects
(highway, rail, and port projects, e.g.).  Fourth, the Department
must determine whether a project should be at a certain stage of
development before it is eligible for assistance under TIFIA.  For
example, an FHWA official said that the Department might require that
a project complete the environmental review process before the
Department can provide a commitment for TIFIA construction funding. 
Fifth, the Department must decide what level of input from financial
markets is necessary for the Department to determine whether a
project is creditworthy and at what point in the process should
financial markets become involved.  Furthermore, the Department must
determine how long it will take to review applications. 

OMB is working with the Department to complete the TIFIA regulations. 
OMB officials told us that TIFIA funding decisions should be based on
fair, objective, and transparent analyses.  To ensure that this goal
is met, they stressed that the process would benefit from having
detailed information on all projects applying for TIFIA funds, such
as a completed environmental impact statement, a cost estimate based
on detailed engineering plans, and a finance plan with well defined
and secured nonfederal funding commitments.  The officials said that
having this type of detailed information will enhance the
Department's ability to make sound decisions on the financial
viability of projects applying for TIFIA funds. 

In addition to working with OMB, the Department is holding outreach
sessions with stakeholders such as bond market rating agencies and
state highway agencies to help develop the regulations.  An FHWA
official stated that a number of issues remain undecided, including
what appropriate criteria should the Department use to make
decisions, what level of information is needed to assess projects,
and whether the Department can make funding commitments prior to and
contingent on the resolution of certain events such as completing an
environmental review.  He stated that the Department's legal counsel
needed to address many of these issues, and no decisions had been
made. 


      THE DEPARTMENT MUST
      DETERMINE THE RISK LEVEL OF
      CREDIT FOR PROJECTS FUNDED
      THROUGH TIFIA
---------------------------------------------------------- Letter :4.2

Under the Federal Credit Reform Act of 1990, the Department has to
obligate funds to cover the cost of the credit provided through
TIFIA.  The amount obligated, which is known as a subsidy amount,
covers the expected long-term cost of the credit in case of default. 
The Department, in consultation with OMB and the applicable rating
agency, will calculate the subsidy amount associated with the
assistance to be provided for each project.  The subsidy amount is
based on the risk level of the credit--the more risky the credit, the
greater the potential long-term cost and the greater the subsidy
amount.  TIFIA, as amended by the TEA-21 Restoration Act, provides
$530 million over fiscal years 1999 through 2003 to cover the cost of
up to $10.6 billion in credit.  The annual amounts provided and the
credit limits are shown in table 3. 



                                Table 3
                
                 Authorized TIFIA Funding, Fiscal Years
                           1999 Through 2003

                         (Dollars in millions)

                                   Funding
                                     level
                                (available                Subsidy cost
                                  to cover                        as a
                                   subsidy       Maximum    percentage
Fiscal year                          cost)  credit level     of credit
----------------------------  ------------  ------------  ------------
1999                                   $80        $1,600             5
2000                                    90         1,800             5
2001                                   110         2,200             5
2002                                   120         2,400             5
2003                                   130         2,600             5
======================================================================
Total                                 $530       $10,600             5
----------------------------------------------------------------------
Source:  GAO's presentation of TEA-21's data. 

As table 3 shows, the yearly authorized funding levels are equal to 5
percent of the annual maximum credit limit.  Therefore, in order for
the Department to issue the maximum amount of credit--$10.6
billion--the average subsidy amount must be 5 percent.  However, if
the Department and OMB determine that credit for a particular project
is more risky than this assumed average, they will require a greater
risk subsidy percentage for the project.  This means that to still
provide the maximum amount of credit, the Department would have to
fund other, less risky projects that require lower risk subsidies to
be set aside.  Ultimately, whether the Department will be able to
provide the full $10.6 billion in credit will depend on the risk
level of the projects it chooses to fund. 


      THE FOX PROJECT COULD
      REQUIRE OVER HALF OF TIFIA'S
      FUNDS
---------------------------------------------------------- Letter :4.3

The FOX project's sponsors intend to seek a $2 billion loan through
the TIFIA program.  In connection with this loan, the Department, in
consultation with OMB and the applicable rating agency, will have to
prepare a risk analysis of the project and determine the subsidy
amount associated with the loan.  While it is too early to tell
exactly what the subsidy amount will be, the subsidy amount for a $2
billion loan could require a significant amount of TIFIA's total
authorized funding.  Table 4 shows a range of potential subsidy
levels for a $2 billion loan. 



                                Table 4
                
                   Range of Potential Subsidy Amounts

                         (Dollars in millions)

                                                            Percentage
                                                            of TIFIA's
                                   Subsidy       Subsidy        5-year
Loan amount                     percentage        amount       funding
----------------------------  ------------  ------------  ------------
$2,000                                5.00          $100            19
2,000                                10.00           200            38
2,000                                14.75           295            56
2,000                                20.00           400            75
2,000                                26.50           530           100
----------------------------------------------------------------------
Source:  GAO's analysis. 

As table 4 shows, the FOX project could require a substantial portion
of TIFIA's total 5-year funding.  In comparison, on the Alameda
Corridor project, the Department and OMB determined that a subsidy
amount of $59 million would cover the long-term cost of a $400
million federal loan--a risk subsidy of about 14.75 percent.\13 If
they use the same subsidy rate for the FOX project, the Department
would have to obligate $295 million to support the $2 billion loan,
which would be 56 percent of TIFIA's $530 million total authorized
funds.  Bond market and OMB officials we contacted stated that in
their opinion, a loan to the FOX project appears to be more risky
than the loan to the Alameda Corridor and that the subsidy rate for
FOX could be higher.  They regarded the FOX project's risk as higher
because it will depend on unproven high-speed rail passenger revenues
to secure the federal loan, while the Alameda Corridor project used
cargo revenues from one of the nation's largest established port
complexes.  With a higher subsidy rate, the Department would have to
obligate more than $295 million. 

The Department has not developed a list of projects that may apply
for TIFIA funding.  However, in 1997, FHWA identified 31 projects
nationwide, including FOX, that could be candidates for federal
credit assistance.  These projects include bridge, highway, and other
types of projects, as well as high-speed rail.  Our review of the
report indicates that these projects' estimated capital costs range
from $100 million to over $16 billion and that 10 of the projects are
estimated to cost $1 billion or more.  (App.  I contains a list of
these projects and their estimated costs.) It is uncertain whether
these projects will request TIFIA assistance or how much they might
request.  Given the large costs and scope of some of these projects,
any one of several could require most of TIFIA's authorized funds if
it applied for a large secured loan.  However, limited TIFIA funds
would be available for these projects if the Department decides to
provide FOX with a $2 billion loan. 


--------------------
\13 The Alameda Corridor project is designed to improve the movement
of freight between the ports of Los Angeles and Long Beach and
railroad switchyards near downtown Los Angeles.  As security for the
$400 million federal loan, the project pledged revenues from cargo
activities at the ports.  The Department considers the Alameda
funding agreement a model for the TIFIA program. 


   MOST CORRIDORS WILL USE THE
   INCREMENTAL APPROACH TO
   HIGH-SPEED RAIL
------------------------------------------------------------ Letter :5

In addition to the FOX project, we have identified 11 corridors in
the United States that are either planning or implementing forms of
high-speed rail (see table 5).\14 Most of the corridors are in the
early stages of project planning, but officials in Amtrak's Northeast
corridor--between Washington, D.C., and Boston--have been upgrading
Amtrak's system for several years, and officials in the Pacific
Northwest corridor, between Vancouver, British Columbia, and Eugene,
Oregon, have bought high-speed rail trains and secured funding to
upgrade its track.  Appendix II shows the locations of these
corridors.  Ten of the corridors will use an incremental approach to
high-speed rail, which provides gradual speed increases by making
incremental improvements to existing rail infrastructure or
equipment.  In contrast, the California corridor is considering the
development of a new high-speed rail system that may use technologies
similar to those of FOX or even more advanced technology capable of
reaching speeds up to 310 mph.  The preliminary cost estimates of
these systems range from $315 million to $29 billion.  Like FOX, most
of these corridors are developing their financing plans.  Unlike FOX,
however, most of the corridors have not determined their funding
sources.  Two corridors have expressed interest in applying to the
TIFIA program for funding, but none besides FOX have approached the
Department about doing so.  Some corridors are beyond the preliminary
stages and have already begun to implement aspects of high-speed
rail. 

The 10 corridors that are concentrating on the incremental approach
will upgrade current rail lines to accommodate higher-speed passenger
rail traffic, as shown in table 5.  Under this approach, the
projects' sponsors would improve track, signals, and safety systems
along existing rail lines.  Improving track often involves
modernizing switches, replacing wooden ties with concrete ties, and
creating additional track capacity.  More sophisticated signal and
collision avoidance systems are also needed to handle the higher
train speeds and the higher traffic density that accompanies
high-speed rail. 



                                Table 5
                
                Scope, Approach, and Costs for 11 High-
                          Speed Rail Corridors

                         (Dollars in millions)

                                                             Estimated
Corridor                      Scope             Approach          cost
----------------------------  ------------  ------------  ------------
California                    Sacramento/    Considering      $21,000-
                               San             new high-       $29,000
                               Francisco      speed rail
                               to San       (220 mph) or
                               Diego (676    maglev (310
                               miles)               mph)
Chicago-St. Louis             Chicago,       Incremental           350
                               Ill., to        (110 mph)
                               St. Louis,
                               Mo. (282
                               miles)
Chicago-Detroit               Chicago,       Incremental           800
                               Ill., to        (110 mph)
                               Detroit,
                               Mich. (279
                               miles)
Chicago-Milwaukee             Chicago,       Incremental           471
                               Ill., to        (110 mph)
                               Milwaukee,
                               Wis. (85
                               miles)
Wisconsin-Illinois-           Chicago,       Incremental         To be
 Minnesota                     Ill., to           (speed    determined
                               Minneapolis      unknown)
                               , Minn.
                               (418 miles)
Empire (N.Y.)                 Buffalo to     Incremental           315
                               Albany to       (125 mph)
                               New York
                               City (431
                               miles)
Pacific Northwest             Vancouver,     Incremental         1,865
                               B.C., to        (125 mph)
                               Eugene,
                               Oreg. (466
                               miles)
Southeast                     Washington,    Incremental         To be
                               D.C., to        (110 mph)    determined
                               Charlotte,
                               N.C. (390
                               miles)
Keystone (Pa.)                Philadelphia   Incremental         To be
                               to              (110 mph)    determined
                               Harrisburg
                               (104 miles)
Northeast corridor            Washington,    Incremental         4,000
                               D.C., to        (150 mph)
                               Boston,
                               Mass. (457
                               miles)
Gulf Coast                    Houston,       Incremental         To be
                               Tex., to           (speed    determined
                               Birmingham,      unknown)
                               Ala. (719
                               miles)
----------------------------------------------------------------------
The lengths of the corridors currently considering high-speed rail
range from 85 miles on the Chicago-to-Milwaukee corridor to 719 miles
on the Gulf Coast corridor.  Costs range from $315 million on the
Empire corridor in New York to between $21 billion and $29 billion on
the California corridor.  Some corridors, such as the
Wisconsin-Illinois-Minnesota and Gulf Coast corridors, are still in
the process of developing feasibility studies for their proposed
high-speed rail lines.  As of December 1998, other corridors were
implementing some high-speed rail improvements.  For example, the
Empire corridor was running trains at speeds approaching 110 mph. 
Also, the Pacific Northwest corridor had purchased two high-speed
rail trains that will operate initially at about 79 mph but can
operate at higher speeds (125 mph) once the corridor is prepared for
high-speed traffic.  Appendixes III through XIV provide status
reports on the 11 corridors with active high-speed rail plans and on
the Texas Triangle corridor, where high-speed rail is not now under
active consideration. 


--------------------
\14 A 12th corridor, the Texas Triangle, also considered building a
new high-speed rail system using French TGV technology but
discontinued its efforts in 1994 because of a lack of funding. 
Currently, the corridor has no firm high-speed rail plans. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

With TIFIA funds soon to be available to support large transportation
projects nationwide, proposed high-speed rail systems and other types
of transportation projects in the United States will have an
important source of federal financing to further their development. 
The Florida Overland Express project's sponsors will ask the
Department of Transportation to provide the project with a $2 billion
loan in the near future.  As a result of making this loan, the
Department could provide at least one-half of the funding available
for subsidy costs under TIFIA to this one project.  However, the
project's sponsors are at least 2 years from developing the
information needed to determine whether the project is economically
viable.  Currently, there is great uncertainty about whether (1) the
project can be built for the $6.3 billion that the project's most
recent finance plan assumes, (2) the project's sponsors can secure
the needed funds to complete the project's financing, (3) the
estimated ridership levels are accurate and, thus, whether the
project will be able to generate sufficient revenues to repay the
bonds and federal loan, and (4) the sponsors can complete the complex
environmental review and mitigation process in time for construction
to begin by 2001. 

Similar to the FOX project, other large transportation projects
applying for TIFIA funding will face challenges in developing
accurate capital cost estimates, securing financing for those costs,
generating sufficient revenues needed to repay project debt, and
minimizing impacts on the environment.  Some of these projects also
have the potential to require most of TIFIA's funds, which would
constrain the TIFIA funding available to other projects.  Therefore,
the Department must make informed decisions on each project's
technical merits and must obtain and evaluate detailed information on
the projects' costs, financing plans, revenue projections, and
environmental impacts.  As of December 1998, the Department was still
developing regulations for the TIFIA program; therefore, the extent
to which the Department will require this type of information is
unclear.  Without this important information, the Department cannot
ensure that TIFIA funds are targeted to financially viable
transportation infrastructure projects. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

In implementing the Transportation Infrastructure Finance Innovation
Act program, we recommend that the Secretary of Transportation direct
appropriate Department officials to evaluate the economic feasibility
of projects applying for the program's funds.  Before providing a
substantial amount of federal dollars to projects, such as the
Florida Overland Express project, the Secretary should obtain and
independently evaluate information including (1) a capital cost
estimate based on detailed engineering plans, (2) a financial plan
that is based on the detailed cost estimate and that specifies the
source and security of all public and private-sector financial
commitments, and (3) an operating plan that enumerates the project's
future revenues and assesses the risks to the federal credit
instrument should revenues be lower than projected.  The Department's
regulations or general policy guidelines on the program should
indicate that the Department will conduct this evaluation.  The
Secretary should also ensure that the environmental review process
has been completed before it makes substantial Transportation
Infrastructure Finance Innovation Act program funding commitments. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

We provided the Department, OMB, and FDOT with a draft of this report
for review and comment.  We also discussed the report with officials
from the Department and FDOT--including the Associate Administrator
for Railroad Development, FRA; the Director of Financial Management
and Budgeting, FHWA; and the Manager, High-Speed Rail program,
FDOT--to discuss their comments on the report.  Overall, the
Department's officials generally agreed with the report's findings
and conclusions, while officials from Florida stated that the report
was thorough.  Officials from the Department and FDOT had specific
comments on the report's:  (1) analyses of the FOX project's
ridership forecast, (2) recommendation, (3) discussion of the impacts
of a loan to the FOX project through the Transportation
Infrastructure Finance and Innovation Act program, and (4) discussion
of the timeframes for completing the FOX project's environmental
review. 

With regards to our analysis of the FOX project's ridership forecast,
FRA officials stated that we should adopt a less pessimistic stance
on certain aspects of the project's ridership forecast. 
Specifically, the FRA officials stated that it was too early to
expect the airlines to enter into code-sharing agreements with the
FOX system; therefore, our ridership analysis should not entirely
dismiss the forecasted number of passengers that these agreements
could generate.  The FDOT officials also affirmed their forecast's
assumption that airlines will establish code-sharing agreements with
FOX and therefore transfer a substantial number of air passengers to
the FOX rail system.  As a result, they stated that our ridership
analysis should include these passengers. 

The FDOT officials also disagreed with our assertion that the
airfares used in their ridership forecast overstated the cost of air
travel within Florida.  They noted that their forecast accurately
reflected the fares paid by passengers and cited first quarter of
1998 airfare statistics that airlines reported to the Department as
evidence.  Accordingly, they contend that we should not reduce our
ridership estimate on the basis of the assumption of lower airfares. 

The FDOT officials further stated that our estimate of new, or
induced, ridership was too low.  They stated that their estimate was
based on the state's intercity travel surveys, surveys that they
contend are more precise than FRA's estimates in our report. 

As a final point on ridership, FRA officials stated that our report
implied that FOX's fares must always be lower than the airlines'
fares in order to remain competitive.  The officials stated that this
assumption was too simplistic because FOX's ridership would not
solely be based on ticket prices.  They noted that the FOX system
could also attract passengers because it will have a higher quality
of service and shorter trip times.  The FRA officials further
questioned whether the airlines could maintain low airfares over the
long term and thereby remain competitive with FOX. 

In responding to these ridership comments, we recognize that making
estimates of how many people will use a high-speed rail system, where
none previously existed, is more an art than a science.  The
assumptions used can significantly affect the forecasted level of
ridership.  What we have developed in this report is a ridership
forecast that is based on alternative scenarios that use less
optimistic assumptions than those used in FOX's estimate but still
quite plausible assumptions.  Our first alternative scenario
evaluates whether the airlines, in a highly competitive Florida air
market, would willingly give up their passengers to a new
competitor--FOX.  We acknowledge that FOX and some airlines might
establish code-sharing agreements in the future and that FOX
officials have cited positive statements made to them by at least one
major airline to this effect.  However, FOX officials could not
provide us with any documentation showing that such agreements were
likely.  In addition, our discussions with two major airlines, the
Air Transport Association, and the Miami airport found little, if
any, airline interest in establishing code-sharing agreements with
FOX.  Wilbur Smith Associates also questioned the viability of these
potential agreements.  On the basis of this evidence, we made no
changes to our ridership analysis with regard to the possibility of
ridership resulting from code-share agreements. 

Our second alternative scenario evaluates whether the FOX ridership
forecast assumed airfares consistent with what the major airlines
reported to the Department.  Using data from the first quarter of
1998, the FDOT officials stated that Florida airfares are comparable
to proposed FOX fares, thus potentially enhancing FOX's competitive
position with the airlines.  This contrasts with our use of 1997
average reported airfares that are, in some cases, 21 percent lower
than the ones FOX used in its ridership forecast.  We used the
average airfares for all of 1997 in reviewing the FOX forecast
because (1) it is the same year as that for other data used
throughout the FOX forecast and (2) a yearly average provides a more
constant picture of the air market than a single quarter. 
Accordingly, we made no changes to our ridership analysis with
regards to the level of airfares. 

Our third alternative scenario assessed the project's assumptions
regarding induced demand.  The FDOT officials' suggestion that we use
their assumption regarding induced demand rather than FRA's
assumption highlights the uncertainty in making estimates of induced
demand.  Forecasting induced ridership is a subject of great
uncertainty and controversy since induced demand attempts to predict
how many people will use a system simply because it provides a new
service.  The FDOT officials said that their assumption was more
accurate than FRA's.  However, FRA has reported that because of the
uncertainty in forecasting induced demand, high-speed rail proponents
should use caution when preparing such estimates.  We agree and
therefore have not revised our analysis to reflect the higher FOX
assumption. 

In addition, the FRA officials presented no evidence to support their
assertion that the airlines may not be able to sustain lower airfares
over the long-term in competition with FOX.  The experience of
Southwest Airlines supports just the opposite conclusion.  Southwest
Airlines has established significant market shares in new markets
while charging low fares and has sustained these markets in the long
term.  Nonetheless, we agree with the FRA officials' comment that FOX
could have a competitive advantage over the airlines because it may
provide better service and faster trip times in some markets.  Since
the FOX forecast already assumed this service differential in its
ridership assumptions and we did not question them, no change to our
ridership analysis is needed. 

Regarding our recommendation, officials from the Department stated
they did not plan to independently verify information on the costs,
financing, revenue estimates, and environmental impacts of projects
applying for TIFIA program funds.  They said that the Department
would rely on the financial markets in the private sector to analyze
these factors rather than on the Department to conduct its own
independent analysis.  They also stated that since the Department is
responsible for completing the environmental review process, it did
not need to independently validate the results of environmental
reviews. 

In regards to these comments, we agree that the Department cannot
independently evaluate its own environmental document.  As a result,
we have changed our recommendation to reflect the importance of
having the environmental review process completed before the
Department provides substantial TIFIA funds to a project.  However,
we disagree with the assertion that the financial markets' assessment
of a project's costs, financing and revenue estimates will provide
the independent evaluation that we call for in our recommendation. 
The financial markets' input, generally in the form of a bond rating,
is important information that the Department can use to supplement
its equally important engineering, financial, and transportation
planning expertise.  However, the Department must produce an
independent assessment of the merits of projects seeking TIFIA funds. 
This is particularly important because the Department has the
expertise to compare (for example) a highway project to a rail or
transit project that might apply for TIFIA funds.  As of December
1998, the Department had not yet determined which of its agencies
will have the lead responsibility for performing such evaluations. 
Therefore, our recommendation is targeted to the Secretary of
Transportation, who can ensure that the Department uses its
analytical expertise as a basis for awarding federal funds. 

Regarding a potential federal loan to the FOX project, the FDOT
officials disagreed with our assertion that by funding the FOX
project, the TIFIA program would use over half of its available
funding.  The officials stated that the subsidy rate that the
Department used for the Alameda Corridor projectï¿½a freight rail
improvement project in Southern California--was conservative and we
should not use it to estimate the subsidy cost of a federal loan to
the FOX project.  The FDOT officials believe that the subsidy rates
for TIFIA-funded projects would be less than 10 percent rather than
the 14.7 percent used for the Alameda Corridor. 

The FDOT officials' questioning our use of the subsidy level for the
Alameda Corridor project's loan as a model for other TIFIA-funded
projects is not based on evidence from OMB or the bond rating
agencies we contacted.  These groups will play critical roles in
determining FOX's loan subsidy amount.  OMB officials believe that
the 14.7-percent subsidy cost for the Alameda Corridor was accurate. 
In addition, both OMB and bond-rating agency officials we contacted
stated that a federal loan to FOX is riskier that the loan to the
Alameda Corridor because the loan repayment is premised on unproven
revenues from future ridership.  In contrast, the loan repayment for
the Alameda Corridor comes from proven cargo revenues from one of the
nation's largest ports. 

In terms of the environmental review process, officials from both
FHWA and Florida expressed confidence that the project will complete
the environmental review process on schedule.  The Florida officials
stated that our skepticism of their projected date for completing the
environmental review process is unwarranted.  Because they have
worked early and closely with environmental review agencies to
identify impacts, they expect to meet their timetable for completing
the environmental review. 

We have added language in the report to reflect the agencies'
confidence in meeting their schedule.  However, to accomplish this
over the next 2 years, project sponsors must assess the 320-mile-long
project's impact on wetlands (over 700 acres), endangered and
threatened species, and water quality; seek and incorporate public
comments; develop mitigation plans acceptable to at least 15 state
and federal agencies; and obtain wetlands permits from the Army Corps
of Engineers.  An FHWA official characterized the environmental
review for the FOX project as one of the largest and most complex
ever undertaken by the office.  The complexity and amount of work
remaining to be done continue to suggest that it might take longer
than planned to complete the required environmental reviews. 

Finally, officials from FRA, FHWA, the Department's Office of the
Secretary, OMB, and the Florida High-Speed Rail program offered
additional technical comments that we incorporated throughout the
report, where appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To identify the status of the FOX project's costs, financing,
ridership estimates, and schedule, we reviewed project documents,
including the engineering cost report, the finance agreement, the
ridership studies, and project status reports.  To learn more about
the status of the project, we also interviewed officials from FDOT's
High-Speed Rail Office and the FOX consortium.  To identify
challenges facing the project, we reviewed independent analyses of
the project and contacted numerous officials with knowledge of the
project.  For example, to identify issues surrounding the ridership
forecast and the potential for the airlines to agree to transfer
passengers to the FOX project, we reviewed the Wilbur Smith
Associates' independent review of the ridership forecast and
interviewed officials from the U.S.  airline industry, including
officials from the Miami and Orlando airports, several U.S.  airlines
serving Florida, and the Air Transport Association.  In addition, to
identify issues surrounding the financial plan and the environmental
mitigation for the project, we contacted bond-rating agencies and
state and federal environmental review agencies. 

To obtain information about the TIFIA program, we reviewed the act as
established in the Transportation Equity Act for the 21st Century,
and as amended by the TEA-21 Restoration Act.  To learn more about
the goals and objectives of the program, we discussed the program
with FHWA's credit program manager, attended a TIFIA outreach session
in New York City in September 1998, and reviewed FHWA documentation
regarding the TIFIA program.  We also contacted OMB and bond-rating
agency officials to obtain their views on the potential risks to the
federal government of providing a $2 billion loan to the FOX project. 

To obtain information on the current status of other high-speed rail
corridors, we reviewed information published by FRA and the
High-Speed Ground Transportation Association.  To obtain further
information on the specifics of other high-speed rail projects, we
contacted officials in states responsible for planning and developing
the projects and reviewed the status reports they provided. 

We performed our work from July 1998 through December 1998 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

We will send copies of this report to cognizant congressional
committees; the Secretary of Transportation; the Administrator, FHWA;
the Administrator, FRA; the Director, OMB; the state of Florida's
Governor and Secretary of Transportation; and other interested
parties.  We will make copies available to others upon request. 
Please call me at (202) 512-2834 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
XV. 

Sincerely yours,

Phyllis F.  Scheinberg
Associate Director, Transportation Issues


CANDIDATES FOR FEDERAL CREDIT
ASSISTANCE
=========================================================== Appendix I

In November 1997, the Federal Highway Administration (FHWA) issued a
draft report entitled Federal Credit for Surface Transportation: 
Exploring Concepts and Issues.  In that report, FHWA identified 30
projects besides the Florida Overland Express that could be
candidates for federal credit assistance.  The projects are listed in
table I.1. 



                               Table I.1
                
                    Projects That FHWA Identified as
                Candidates for Federal Credit Assistance

                         (Dollars in millions)

Project                         Location                Estimated cost
------------------------------  ------------------  ------------------
Dalton Highway                  Alaska                            $165
Hoover Bridge                   Arizona-Nevada                    $120
South Mountain Toll Road        Phoenix, Arizona                  $380
Shreveport-to-Kansas City       Arkansas,                       $2,380
 High-Priority Corridor          Louisiana, Mo.
California High-Speed Rail      Los Angeles,                   $16,800
                                 Calif. to San
                                 Francisco, Calif.
Foothill-South Transportation   Orange County,                  $1,500
 Corridor                        Calif.
Port of Oakland Intermodal      Oakland, Calif.                   $750
 Terminal
SR 125 Toll Road                San Diego, Calif.                 $400
E-470 Public Highway Phase IV   Denver, Colo.                     $230
Quinnipiac River Bridge         New Haven, Conn.                  $375
Miami Intermodal Center         Miami, Fla.                     $1,700
Atlanta Multi-Modal Passenger   Atlanta, Ga.                      $183
 Terminal
High-Priority Corridor 18 (I-   Indiana, Kentucky,              $7,250
 69 Extension)                   Tennessee,
                                 Mississippi,
                                 Arkansas,
                                 Louisiana, and
                                 Texas
Louisville Bridges              Louisville, Ky                    $507
I-75 at Ambassador Bridge       Detroit, Mich.                    $107
US 82 Mississippi River Bridge  Greenville, Miss.                 $166
Meadowlands Rail Transfer       East Rutherford,                  $374
 Station                         N.J.
Farley/Penn Station Project     New York, N.Y.                    $315
Midtown-Kennedy Airport Rail    New York, N.Y.                    $800
 Link
Maumee River Crossing           Toledo, Ohio                      $220
South-North Light Rail Transit  Portland, Oregon                $1,300
 Project
Freight Rail Improvement/       Rhode Island                      $247
 Access Road Project
Grace Bridge Project            Charleston, S.C.                  $400
Camino Columbia Toll Road       Laredo, Texas                     $100
ITS Deployment: Weber, Davis,   Utah                              $220
 Salt Lake, Summit, and Utah
 Counties
I-15 Reconstruction             Salt Lake City,                 $1,600
                                 Utah
Hampton Roads Bridge-Tunnel     Virginia                        $2,000
Woodrow Wilson Bridge           Virginia-Maryland               $1,750
North Duwamish Intermodal       Seattle, Wash.                  $1,000
 Facility
Tacoma Narrows Bridge           Seattle-Tacoma,                   $800
                                 Wash.
----------------------------------------------------------------------

HIGH-SPEED RAIL CORRIDORS IN THE
UNITED STATES
========================================================== Appendix II



   (See figure in printed
   edition.)


CALIFORNIA INTERCITY HIGH-SPEED
RAIL CORRIDOR
========================================================= Appendix III


         BACKGROUND
--------------------------------------------------- Appendix III:0.0.1

The California Intercity High-Speed Rail Commission was created in
1993 to study the feasibility of implementing a high-speed ground
transportation system in California.  In 1996, the Commission issued
its study, which found that high-speed rail offered California an
environmentally and physically feasible alternative to highway and
air transportation for accommodating future growth in intercity
travel.  The report also found that revenues from the high-speed rail
system would be able to cover its operating costs but not all
construction costs.  The report concluded that construction of the
system would rely on substantial public investments.  In 1996, the
state legislature created the High-Speed Rail Authority, which now is
responsible for implementing the system. 


         PROPOSED TECHNOLOGY
--------------------------------------------------- Appendix III:0.0.2

A new high-speed rail or magnetic levitation (maglev) system. 


         PROJECT'S GOALS/SCOPE
--------------------------------------------------- Appendix III:0.0.3

To build a high-speed ground transportation system to link northern
and southern California.  The proposed system covers 676 miles and
would link Sacramento, the San Francisco Bay Area, the Central
Valley, Los Angeles, and San Diego.  The project's sponsors are
considering using either a new high-speed rail system with speeds
reaching up to 220 mph or a maglev system with speeds up to 310 mph. 
A new high-speed rail system could carry up to 19.8 million
passengers per year in 2015, while a maglev system could carry 26.4
million passengers. 


         COST ESTIMATES
--------------------------------------------------- Appendix III:0.0.4

The current cost estimates range from $21 billion for the new
high-speed rail system to $29 billion for a maglev system. 


         STATUS
--------------------------------------------------- Appendix III:0.0.5

The Commission is continuing to study the feasibility of the system
and is trying to secure financing.  The current schedule calls for a
statewide vote on the proposal by 2000. 


CHICAGO-ST.  LOUIS HIGH-SPEED RAIL
CORRIDOR
========================================================== Appendix IV


         BACKGROUND
---------------------------------------------------- Appendix IV:0.0.1

Under the Intermodal Surface Transportation Efficiency Act of 1991
(ISTEA), the Secretary designated the Chicago-to-St.  Louis corridor
as a high-speed rail corridor.  In May 1994, the State of Illinois
published a feasibility study on the financial potential of
implementing high-speed passenger rail service in the corridor.  The
study found that revenues from projected ridership would cover all
the operating and maintenance costs and a portion of the capital
improvement costs for the project.  The state hopes to cover the
remainder of the capital costs with federal or state government
assistance. 


         PROPOSED TECHNOLOGY
---------------------------------------------------- Appendix IV:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
---------------------------------------------------- Appendix IV:0.0.3

To create a high-speed rail system connecting Chicago and St.  Louis. 
The proposed system covers 282 miles and would also link Springfield,
Illinois and Bloomington-Normal, Illinois to Chicago and St.  Louis. 
The Illinois Department of Transportation (IDOT) plans to improve
grade crossings across the state, rebuild track in the East St. 
Louis area, and develop a new signal system on an existing rail line
between Chicago and St.  Louis.  Currently, trains in the corridor
travel at a top speed of 79 mph, with the proposed improvements
increasing speed up to 110 mph. 


         COST ESTIMATE
---------------------------------------------------- Appendix IV:0.0.4

IDOT estimates the cost of the project to be $350 million. 


         STATUS
---------------------------------------------------- Appendix IV:0.0.5

IDOT is currently working on a draft environmental impact statement
for the corridor and developing a grade crossing arrestor net that
will block the road when trains approach to prevent train-vehicle
collisions.  Also, IDOT is working with the Association of American
Railroads and the Federal Railroad Administration to develop a train
control system that will increase safety along the line by overriding
certain engineer actions.  For example, the control system would
automatically stop a train if the engineer runs a red signal or
exceeds the speed limit.  Once these tasks are complete, IDOT will
seek a private sector partner for the project.  IDOT hopes high-speed
service could begin in 2003. 


CHICAGO-DETROIT HIGH-SPEED RAIL
CORRIDOR
=========================================================== Appendix V


         BACKGROUND
----------------------------------------------------- Appendix V:0.0.1

Since 1981, the State of Michigan has been exploring high-speed rail
technology.  Under ISTEA, the Secretary designated the
Chicago-to-Detroit corridor as a high-speed rail corridor.  The State
of Michigan has developed a plan of incremental improvements for the
corridor. 


         PROPOSED TECHNOLOGY
----------------------------------------------------- Appendix V:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
----------------------------------------------------- Appendix V:0.0.3

To create a high-speed rail system connecting Chicago and Detroit. 
The system would run approximately 279 miles and also link Ann Arbor,
Michigan and Kalamazoo, Michigan with Chicago and Detroit.  The
Michigan Department of Transportation (MDOT) and Amtrak plan to
rebuild stations and improve signals on an existing rail line between
Chicago and Detroit to accommodate trains traveling at speeds up to
110 mph.  Trains would also need to be refurbished.  MDOT estimates
that if the line is fully upgraded, 3.5 million passengers will ride
the corridor's trains annually by 2010. 


         COST ESTIMATE
----------------------------------------------------- Appendix V:0.0.4

MDOT estimates the cost for the improvements to be $800 million. 


         STATUS
----------------------------------------------------- Appendix V:0.0.5

MDOT and Amtrak are working on an automatic control system that would
help avoid collisions by using a computer to alert train engineers to
hazards out of their line of sight.  It has also closed a number of
grade crossings and is constructing new stations and renovating
existing stations.  MDOT and Amtrak plan on beginning high-speed
service along a portion of the corridor sometime in 1999 and along
the full corridor by 2006. 


CHICAGO-MILWAUKEE HIGH-SPEED RAIL
CORRIDOR
========================================================== Appendix VI


         BACKGROUND
---------------------------------------------------- Appendix VI:0.0.1

The states of Illinois and Wisconsin completed a feasibility study
for the Chicago-to-Milwaukee high-speed rail corridor in 1994.  The
study identified the existing Amtrak route between Chicago and
Milwaukee as the preferred route for high-speed service.  The study
also concluded that operating revenues from a system with trains
operating at 110 mph or 125 mph would cover operating costs and some
capital costs.  The study also mapped out a comprehensive plan to
allow the right-of-way to be shared by high-speed rail, Amtrak,
freight lines, and Metra, a Chicago area commuter rail service. 


         PROPOSED TECHNOLOGY
---------------------------------------------------- Appendix VI:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
---------------------------------------------------- Appendix VI:0.0.3

To create a high-speed rail system between Chicago and Milwaukee. 
The system would run approximately 85 miles, most likely along an
existing Amtrak route.  The Wisconsin Department of Transportation
(WisDOT) plans to improve track and stations along an existing rail
line between Chicago and Milwaukee to accommodate trains traveling up
to 110 mph. 


         COST ESTIMATES
---------------------------------------------------- Appendix VI:0.0.4

WisDOT's cost estimate for the project is $471 million. 


         STATUS
---------------------------------------------------- Appendix VI:0.0.5

WisDOT is currently working with a nine-state coalition to determine
funding sources for high-speed rail.  WisDOT has no construction
planned at this time and has not set a date for the start of revenue
service, although they hope to have some high-speed service running
by 2006. 


WISCONSIN-ILLINOIS-MINNESOTA
HIGH-SPEED RAIL CORRIDOR
========================================================= Appendix VII


         BACKGROUND
--------------------------------------------------- Appendix VII:0.0.1

In 1991, the Minnesota Department of Transportation (MN/DOT), along
with the Illinois and Wisconsin transportation departments, completed
a feasibility study for a Chicago-Milwaukee-Twin Cities high-speed
rail system.  The study looked at the engineering, environmental,
financial, and economic impacts of a high-speed rail system and
concluded that such a system might be economically viable.  The
Minnesota legislature provided $500,000 for a more detailed
feasibility study that is in progress.  The second study will deal
with the engineering and environmental issues associated with a
high-speed rail system, while also determining ridership and revenue
projections, as well as other issues. 


         PROPOSED TECHNOLOGY
--------------------------------------------------- Appendix VII:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
--------------------------------------------------- Appendix VII:0.0.3

To create a high-speed rail system between Chicago and
Minneapolis-St.  Paul.  The system would run approximately 418 miles
and link Chicago and Minneapolis with Milwaukee and perhaps Madison,
Wisconsin and Wisconsin Dells.  The project's sponsors plan on
incrementally improving an existing rail line between the two end
points to accommodate high-speed trains.  The exact speed of trains
and form of improvements along the corridor are still to be
determined. 


         COST ESTIMATE
--------------------------------------------------- Appendix VII:0.0.4

The project's sponsors have not released any cost estimates at this
time. 


         STATUS
--------------------------------------------------- Appendix VII:0.0.5

The second, more detailed feasibility study is under way and should
be completed in early 1999.  Future actions are uncertain and depend
on MN/DOT identifying sources of funding. 


EMPIRE HIGH-SPEED RAIL CORRIDOR
======================================================== Appendix VIII


         BACKGROUND
-------------------------------------------------- Appendix VIII:0.0.1

The Transportation Equity Act for the 21st Century (TEA-21)
designated the Empire corridor as a federally recognized high-speed
rail corridor.  On September 29, 1998, the state of New York and
Amtrak announced a plan to split $185 million in rail line
improvements to the Empire corridor. 


         PROPOSED TECHNOLOGY
-------------------------------------------------- Appendix VIII:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
-------------------------------------------------- Appendix VIII:0.0.3

To increase the maximum speed on portions of the existing high-speed
rail line between New York City and Buffalo to 125 mph.  The line
would link Rochester, Syracuse, and Albany with New York City and
Buffalo.  The project's sponsors plan to embark on a capital
investment plan to improve the condition and technology of the
existing rail service between these cities.  Currently, the trains'
top speed is 110 mph, although only a portion of the corridor is
capable of handling trains at that speed.  The line will be
approximately 431 miles long.  The New York Department of
Transportation (NYDOT) estimates that once the corridor is finished,
annual ridership will be approximately 3 million. 


         COST ESTIMATE
-------------------------------------------------- Appendix VIII:0.0.4

The funding for the current round of improvements is set at $185
million.  Future planned improvements would bring the total cost of
upgrading the corridor to $315 million. 


         STATUS
-------------------------------------------------- Appendix VIII:0.0.5

Amtrak and NYDOT have acquired funding and will soon begin work on
adding a second track for a portion of the corridor, improving curves
so trains can negotiate them at faster speeds, and upgrading seven
trains to travel at speeds of up to 125 mph.  The work should be
completed by 2004. 


PACIFIC NORTHWEST HIGH-SPEED RAIL
CORRIDOR
========================================================== Appendix IX


         BACKGROUND
---------------------------------------------------- Appendix IX:0.0.1

In 1993, the states of Washington and Oregon began funding additional
train service along Amtrak's Pacific Northwest line.  Since then,
ridership on the line has nearly doubled.  The Washington State
Department of Transportation (WSDOT) leased two Talgo trains for the
line.  Talgo trains are made in Spain, have tilt technology that
allows them to travel around curves faster than a conventional train,
and have a top speed of 125 mph.  However, in the Pacific Northwest
corridor they are limited to 79 mph because of track conditions. 
WSDOT and Amtrak have purchased three new Talgo trains to replace the
leased ones. 


         PROPOSED TECHNOLOGY
---------------------------------------------------- Appendix IX:0.0.2

Incremental improvements. 


         PROJECT GOALS/SCOPE
---------------------------------------------------- Appendix IX:0.0.3

To create a high-speed rail corridor between Vancouver, British
Columbia, and Eugene, Oregon.  The line would run approximately 466
miles and link Portland and Seattle with Vancouver and Eugene.  The
project's sponsors plan to install a new signal and monitoring system
using global positioning satellites, renovate stations and improve
grade crossings along the current rail line between these cities. 
Also, new sidings and track will be added in some places to add
capacity to the line, which will serve freight, commuter, and
high-speed trains. 


         COST ESTIMATE
---------------------------------------------------- Appendix IX:0.0.4

WSDOT estimates the total cost for bringing 125 mph service to the
corridor at $1.865 billion. 


         STATUS
---------------------------------------------------- Appendix IX:0.0.5

The State of Washington and Amtrak have purchased three Talgo trains
capable of traveling 125 mph.  These trains were scheduled for
service on the existing Amtrak line in late 1998.  The new trains
will reduce the travel times along the route because of their speed
around curves.  Also, WSDOT and the Oregon Department of
Transportation are currently preparing an environmental impact
statement and a 20-year investment plan for the corridor.  The
project's sponsors have not announced any schedule for the start of
high-speed rail service. 


SOUTHEAST HIGH-SPEED RAIL CORRIDOR
=========================================================== Appendix X


         BACKGROUND
----------------------------------------------------- Appendix X:0.0.1

Under ISTEA, the Secretary designated the Washington-to-Charlotte
corridor as a high-speed rail corridor.  The states of North Carolina
and Virginia are working together to develop the corridor.  The
Virginia Department of Rail and Public Transportation (VDRPT) and the
North Carolina Department of Transportation (NCDOT) have done a
preliminary engineering study.  Currently, the project's sponsors are
performing an environmental impact study of the corridor. 


         PROPOSED TECHNOLOGY
----------------------------------------------------- Appendix X:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
----------------------------------------------------- Appendix X:0.0.3

To create a high-speed rail line between Washington, D.C., and
Charlotte, North Carolina.  The line would run approximately 390
miles and link Richmond, Virginia; Raleigh, North Carolina; and
Greensboro, North Carolina; with Washington, D.C.  and Charlotte,
North Carolina.  The project's sponsors plan to straighten curves,
add track, and improve signals along an existing right-of-way between
the end points, and eventually run rail service at speeds up to 110
mph. 


         COST ESTIMATE
----------------------------------------------------- Appendix X:0.0.4

No cost estimates have been released for the corridor.  However,
VDRPT has estimated the cost of adding another track on the corridor
at $350 million. 


         STATUS
----------------------------------------------------- Appendix X:0.0.5

The State of Virginia has approved a six-stage high-speed rail plan
for the Washington-to-Richmond corridor.  The plan allocates funding
to straighten curves, improve signals, and eliminate speed
restrictions along this corridor.  This work should be completed in
2002 and allow the maximum train speed in the corridor to rise to 90
mph.  Future improvements on the corridor have not yet been
determined.  The project's sponsors are negotiating with CSX
Transportation Corporation to purchase some rights-of-way.  The
project's sponsors have not set a starting date for 110 mph service. 


KEYSTONE HIGH-SPEED RAIL CORRIDOR
========================================================== Appendix XI


         BACKGROUND
---------------------------------------------------- Appendix XI:0.0.1

In 1995, Amtrak sought help from the Pennsylvania Department of
Transportation (PennDOT) to save the deteriorating rights-of-way
between Philadelphia and Harrisburg.  PennDOT began giving Amtrak
$2.6 million per year to help operate service along the corridor. 
TEA-21 designated this corridor as a high-speed rail corridor.  The
corridor is already electrified, although few electric trains now
serve the corridor.  A few sections of track along the corridor are
capable of handling 90 mph service. 


         PROPOSED TECHNOLOGY
---------------------------------------------------- Appendix XI:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
---------------------------------------------------- Appendix XI:0.0.3

To create a high-speed rail line between Harrisburg and Philadelphia. 
The line would run 104 miles.  PennDOT hopes to improve track,
overhead wiring, and stations along existing, electrified
rights-of-way to reduce travel times between Harrisburg and
Philadelphia. 


         COST ESTIMATES
---------------------------------------------------- Appendix XI:0.0.4

The project's sponsors have not released any cost estimates for the
project. 


         STATUS
---------------------------------------------------- Appendix XI:0.0.5

FRA, PennDOT, and Amtrak are working on identifying the corridor's
investment needs.  PennDOT is negotiating the purchase of trains
capable of traveling 110 mph.  PennDOT has not set a starting date
for high-speed rail service. 


TEXAS TRIANGLE HIGH-SPEED RAIL
CORRIDOR
========================================================= Appendix XII


         BACKGROUND
--------------------------------------------------- Appendix XII:0.0.1

In 1989, the Texas state legislature created the Texas High-Speed
Rail Authority to award a franchise to build a high-speed rail system
in Texas.  The Texas TGV Corporation eventually won this franchise
but could not arrange financing for the project.  In early 1994, the
Authority determined that Texas TGV had not fulfilled the terms of
the franchise agreement and terminated the franchise. 


         PROPOSED TECHNOLOGY
--------------------------------------------------- Appendix XII:0.0.2

Texas TGV was planning on building a new high-speed rail system using
French train a grande vitesse (TGV) technology. 


         PROJECT'S GOALS/SCOPE
--------------------------------------------------- Appendix XII:0.0.3

The franchise intended to link Dallas, Houston, and San Antonio, a
distance of 436 miles. 


         COST ESTIMATE
--------------------------------------------------- Appendix XII:0.0.4

The final cost estimate for the project was $4 billion. 


         STATUS
--------------------------------------------------- Appendix XII:0.0.5

Plans for a new high-speed rail system are dormant.  As of December
1998, the Texas Department of Transportation was in discussions with
private investors and a major railroad about taking an incremental
improvement approach to high-speed rail in Texas, but the proposal
remains in the planning stage. 


NORTHEAST HIGH-SPEED RAIL CORRIDOR
======================================================== Appendix XIII


         BACKGROUND
-------------------------------------------------- Appendix XIII:0.0.1

With the introduction of the Metroliner in 1969, the Northeast
corridor between Washington, D.C., and Boston became the first
high-speed rail corridor in the United States.  In fiscal year 1997,
the Northeast corridor carried over 9 million of Amtrak's passengers,
making it the most highly utilized Amtrak route.  In 1990, the
Congress directed Amtrak to upgrade service on the corridor. 


         PROPOSED TECHNOLOGY
-------------------------------------------------- Appendix XIII:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
-------------------------------------------------- Appendix XIII:0.0.3

To improve the existing high-speed rail line between Washington,
D.C., and Boston by electrifying the corridor north of New Haven,
Connecticut, installing continuous welded rail and concrete ties,
rebuilding bridges, and making numerous other improvements.  The line
is 457 miles long and links Washington and Boston with New York,
Baltimore, Philadelphia, and New Haven.  High-speed trains will
operate at up to 150 mph. 


         COST ESTIMATE
-------------------------------------------------- Appendix XIII:0.0.4

The total cost for the improvement project will be approximately $4
billion. 


         STATUS
-------------------------------------------------- Appendix XIII:0.0.5

Work is under way to mitigate environmental impacts, straighten
curves to allow higher speeds, install concrete ties for a smoother
ride, and improve the existing signal system.  This work is to be
completed by 2001.  Electrification of the section of track between
New Haven and Boston will be completed by 1999.  Amtrak is buying 20
new electric trains capable of traveling 150 mph.  New trains are set
to begin service in fall 1999, with higher speed operation beginning
sometime in 2000. 


GULF COAST HIGH-SPEED RAIL
CORRIDOR
========================================================= Appendix XIV


         BACKGROUND
--------------------------------------------------- Appendix XIV:0.0.1

Under TEA-21, the Secretary designated the Houston-to-Birmingham
corridor as a high-speed rail corridor.  The states of Mississippi,
Alabama and Louisiana are working together to obtain funding for the
Gulf Coast corridor. 


         PROPOSED TECHNOLOGY
--------------------------------------------------- Appendix XIV:0.0.2

Incremental improvements. 


         PROJECT'S GOALS/SCOPE
--------------------------------------------------- Appendix XIV:0.0.3

To create a high-speed rail system linking Houston, New Orleans, and
Birmingham.  The line would be approximately 719 miles.  No further
plans have been created. 


         COST ESTIMATE
--------------------------------------------------- Appendix XIV:0.0.4

The project's sponsors have not released any cost estimates. 


         STATUS
--------------------------------------------------- Appendix XIV:0.0.5

A ridership and feasibility study is under way. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix XV

Joseph Christoff
Lewison Lem
David Lichtenfeld
Ray Sendejas


*** End of document. ***