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U.S. bullet train proposals shun public funds, favor private cash

China Railway High-speed Harmony bullet trains are seen at a high-speed train maintenance base in Wuhan, Hubei province, early December 25, 2012. REUTERS/Stringer/File photo (Reuters)

By Robin Respaut

(Reuters) - It took years of lawsuits and political battles for California to finally break ground last year on the nation’s first bullet train, which aims to connect San Francisco to Los Angeles by 2029.

High-speed rail advocates had hoped the line, supported by more than $13 billion in state and federal money, would inspire similar government-financed projects. Instead, its many delays have left rail groups wary of accepting public funds for projects they are proposing in three other states.

Companies in Texas, Minnesota and Nevada all plan to tap private cash from investors globally, with help from foreign train makers and governments eager to export train technology. The projects would rely on partnerships with Japanese or Chinese firms that face saturated train markets at home.


“The United States is the Holy Grail of deployment for Japan, China, France, Germany and Spain,” said Tim Keith, Texas Central CEO.

California's example shows that taking taxpayer money opens the door to political and legal challenges that can drag out planning, bidding and approvals for years, private rail advocates said. Companies now see a quicker - even cheaper - path by largely avoiding such headaches.

“All the rules relating to public engagement start the day you take public funding,” said Wendy Meadley, chief strategy officer for North American High Speed Rail Group’s project in Minnesota. With private financing, she said, opponents "can’t make thousands of public records requests and run the project over.”

The company said last year it would seek money from Chinese investors. Now, it said it is considering two foreign partners for the $4.2 billion project, which seeks to connect the twin cities of Minneapolis and St. Paul to Rochester, Minnesota, by 2022.

Texas Central is paying for engineering studies with $75 million from Texas investors, $40 million from a state-backed Japanese development fund and about $130 million in design work from two firms. The Dallas-to-Houston rail line is projected to cost $12 billion and be completed by 2021.

In Nevada, privately financed XpressWest plans to link Las Vegas to Southern California. Started by Las Vegas developer Marnell Companies, the company formed a joint venture last fall with a consortium of Chinese firms, infusing $100 million into the project expected to break ground as soon as this year.

XpressWest officials declined to comment.


Some experts remain skeptical that bullet trains can work without government money to finance initial legs of construction.

Rail lines are generally profitable once in operation, said Jim Steer, director of UK-based high-speed rail research organization Greengauge 21. But operating profits are unlikely to be enough to repay massive construction costs.

“No private party is actually going to stump up the kind of money needed to create these things,” said Steer.

Supporters of the new rail lines said investors can expect solid returns based on ticket sales and profits from high-end real estate developments near stations.

Current economic trends also make private financing for infrastructure projects easier to secure. Interest rates at historic lows have created global demand for stable, long-term investments, igniting interest in infrastructure projects from banks and major investors, such as pension funds.

The number of institutional investors in infrastructure, such as roads, airports and rail, more than doubled since 2011, according to Preqin, an alternative investments research firm.

“There’s a lot of money swimming around the world that doesn’t know where to go,” said Dr. Alexander Metcalf, president of TEMS, Inc., a transportation consulting firm. “We’ve seen huge increases in institutional money that is willing to go into transportation.”

Longstanding U.S. skepticism of expensive train projects does not necessarily extend to foreign investors, Meadley said.

“People outside of this country believe this will happen more than Americans believe this will happen,” she said.


The U.S. is decades behind Europe and Asia in building fast trains.

In the early 1990s, French and German companies made plays to construct a high-speed network across Texas. But the project relied in part on taxpayer money, and the proposal collapsed when local political support waned.

Texas train officials now see private financing as the faster, cheaper - and only - avenue. If their project relied on public subsidies, “we’d end up pulling the plug,” said Robert Eckels, a director at Texas Central.

Project officials say they have avoided U.S. federal funding in part because it includes a requirement that American workers manufacture the trains - even though no such U.S. factory currently exists.

Since 2009, the government has spent $10 billion to improve passenger rail service in the U.S. California was the only recipient constructing a high-speed rail line, and the money will only go so far. The state will likely need private money to finance much of the project's estimated $64 billion cost.

State rail officials overseeing the California project, considered the most ambitious planned in the U.S. and the farthest along, say there’s growing interest from foreign governments and international firms to finance the second leg to Los Angeles.

In February, the state announced the opening of the train’s first leg, a 250-mile line from the rural Central Valley to Silicon Valley, would be pushed back by three years to 2025.

The progress has been measured in decades rather than years. California Governor Jerry Brown first signed legislation to study high-speed rail during a previous tenure in office - in 1982.

“Everything big runs into opposition,” Brown said at the rail line's groundbreaking in January 2015.


Texas Central plans to acquire train technology from Central Japan Railway, a private company that was once part of now-dismantled, government-owned Japanese National Railways. State-owned Japan Bank of International Cooperation, which provides low-interest financing for overseas infrastructure, is prepared to help finance the project, Japanese officials said.

“It might be difficult to raise all the funding from private investors alone,” said Hiroki Nakayama, of the Railway Bureau at the Ministry of Land, Infrastructure, Transport and Tourism. “The key to success for big rail projects is access to low-interest financing.”

Japan has the world’s longest history operating high-speed rail. China has built the world’s largest network in less than a decade. Both countries see U.S. high-speed rail as an opportunity to showcase their technology.

“The U.S. is a very big market,” said Shi Yonghong, vice-president of the China Chamber of Commerce for Import & Export of Machinery and Electronic Products, who traveled to the U.S. in 2014 to meet with rail authorities. “If you're operating in the U.S. market, then other countries should accept your products more easily.”

(Additional reporting by Brenda Goh in Shanghai and Tim Kelly in Tokyo; Editing by Brian Thevenot)