By Matt Kelly
A battle over railroads is underway in the Sunshine State. Activists in Florida have stridently protested All Aboard Florida (AAF), which will launch the United State’s first privately funded and operated intercity rail service in over 50 years. AAF’s opponents strongly doubts the enterprise’s financial viability. Generally, rail services across the country do often have a negative return on investment and most around the world struggle to break even. However, there is reason to think that a private firm could operate more efficiently.
Florida TaxWatch, a policy research center based in Tallahassee, has noted that Florida is growing much faster than the rest of the country, putting stress on existing infrastructure. Alternative forms of transportation are being pursued to reduce congestion and improve amenities.
All Aboard Florida is owned by Florida East Coast Industries, which was founded in 1892 by railroad entrepreneur Henry Flagler. By 1896, Flagler’s East Coast Railway connected Miami with the northeast United States. Since then, passenger trains have become less profitable, and today most are government sponsored enterprises or public-private partnerships. However, Florida East Coast Industries has bet billions of dollars that an intercity rail service between Miami and Orlando could be profitable for years to come.
An organization called CARE FL has been AAF’s most vocal opponent, arguing the project will bring noise and traffic to communities along its path. Some of these worries are unfounded. Chugging along at 90 mph, AAF’s light train cars can clear railroad crossings much faster and quieter than the freight trains that currently traverse the same route.
AAF’s financial sustainability remains a more legitimate concern. A study commissioned by CARE FL and written by Dr. John Friedman of Brown University, concludes, “Miami and Orlando are not cities with characteristics in which passenger trains can thrive.” Friedman predicts that AAF will lose over $100 million annually and fail to pay back its creditors.
However, some question the study’s conclusions and methodology. The Reason Foundation has challenged Friedman’s revenue estimates, since they are based on overly pessimistic assumptions concerning ridership. By contrast, AAF’s own analysis “reflects a far more detailed assessment of demand…” Since it’s AAF’s money on the line, it makes sense that its analysis would be more rigorous
Friedman also claims “AAF will receive $50 to $73 million of subsidies annually.” However, that conclusion depends on one’s definition of “subsidy.” Florida’s taxpayers are indeed providing a loan to be paid back with interest, but not a direct subsidy as Friedman suggests. He also says the $1.75 billion in tax-exempt bonds that AAF may issue are a subsidy, yet such financing is the norm for transportation investments, public and private, and amounts to foregone tax revenue rather than actual spending.
Florida East Coast rail enterprise may indeed be unprofitable as Friedman suggests. Only time will tell. Unlike the many publicly operated railways around the U.S., however, AAF’s losses would be limited to its shareholders. Public transportation enterprises can afford to incur financial losses, since taxpayers cover any gaps between revenues and expenses. With skin in the game, All Aboard Florida is more likely to be financially sustainable than its publicly run counterparts, and Florida’s taxpayers need not worry about absorbing potential losses of this privately funded company.