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Amtrak, Virginia Railway Express, and the Future of Privately Run Transit

3:48 PM EST on November 4, 2009

Virginia Railway Express (VRE), the commuter network that links northwest Virginia to Washington D.C., today refused a challenge by Amtrak to its decision to switch operating providers to the U.S. arm of Keolis, a private French transit company.

mannheim_22nd02.jpgChicago's earliest rail transit line, pictured here, was run by a private company. (Photo: Franzosenbusch Project)

Although Amtrak based its challenge on Keolis' inexperience operating American rail lines, the latter company maintains a sizable transit presence as a subsidiary of SNCF, the French national high-speed railway.

Moreover, Keolis submitted a notably lower bid to take over VRE operations, undercutting Amtrak by $500,000 on first-year transition costs and $300,000 in annual operating costs. The French-owned company's winning bid totaled $85 million for five years, offering VRE workers the option of shifting to another Amtrak line or staying on under the new management.

Looking beyond the local implications of VRE's switch to Keolis, the new contract is part of a larger trend toward transit privatization that has seen recent deals struck in New Orleans, Savannah, and Phoenix. The Obama administration is encouraging greater use of public-private partnerships to help fund and operate transport networks, making these agreements something of a portent.

But substantial hurdles remain to the effective participation of private companies in the business of transit. Independent auditors at the Government Accountability Office submitted a report [PDF] to Congress last week after taking a yearlong look at how the federal transit funding process affects the ability of local officials to join forces with the private sector.

And what the GAO found was a whole lot of hurdles, many of them unique to the cumbersome rules of Washington's New Starts transit program. From the report (emphasis mine):

Consultants to the Dulles Silver Line project sponsor told us that through the New Starts process, [the Federal Transit Administration] has complete control over a project’s schedule, and project sponsors have to put project work on hold while waiting for FTA’s approval to advance into the next project phase. They also told us that construction activities on the Dulles Silver Line could not begin until the approval of a full funding grant agreement — as design and construction activities cannot be completed at the same time — and so some of the time-saving benefits of the design-build approach were lost.

Dulles Silver Line sponsors also nearly lost the tax-increment financing that was intended to fund the project, according to the GAO, when a full funding agreement under New Starts took five years instead of the estimated two or three. A similar situation arose in Houston, where a public-private partnership on a local light rail network told auditors "that FTA required them to submit and resubmit entire project documents to FTA multiple times, which led to delays."

By contrast, private participation in new transit projects on the international level has included equity financing in addition to operations and maintenance of the new lines. Citing World Bank data, the GAO found international public-private transit projects in the United Kingdom, Thailand, Brazil, Canada, Hong Kong, France, Malaysia, the Philippines, and South Africa.

Given the already considerable obstacles to successful public-private partnerships in U.S. transit -- the need for private companies to cede the right to hike fares, for one -- it would seem grievously counter-productive to keep a system in place that impedes the use of the same "creative" financing methods being urged by President Obama.

But for now, the New Starts funding process remains in effect and providing that disincentive. The GAO's report recommends that the FTA introduce more flexibility into its current public-private partnership pilot program and "better equip project sponsors" to take advantage of alternative approaches, but large-scale change was not discussed.

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