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The Cotton Belt conundrum

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Garl B. Latham

Ruminations of a foaming professional.

The Cotton Belt conundrum

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I really hate this.

I can count on one hand with fingers left over the number of times this has ever happened to me: a passenger service initiative which I'm not only unable to support, but find myself actively opposing. Worse yet, it's a proposal that honestly looks good - at least as a line drawn on a map.

I also hate it that knowledgeable planners have inadvertently worked with unknowledgeable elected officials, effectively placing me in this position.

The Transportation Department of the North Central Texas Council of Governments, under the direction of Michael Morris, is universally respected. It has earned that respect. Regrettably, its primary goal regarding this proposal has nothing to do with the movement of people.

Instead, it's an experiment designed to see if a new type of financing arrangement might be cobbled together which would provide the money necessary to construct and - are you ready? - operate regularly scheduled passenger train service.

Their plan is called the "Innovative Finance Initiative" (or "iFi" for short - presumably pronounced "eye-fie." Cute, huh?).

In quick summation, the basic idea is to incorporate "value capture methods" into the government sponsored rail-based transit/regional passenger service world. The "iFi" concept involves transferring a portion of the revenue obtained from real estate/transit-oriented development along a service corridor back to the operators of the transportation line, itself.

And why not? After all, T.O.D. is a proven methodology for the effective use of properties adjacent to a new transit line, especially the areas around stations. Why shouldn't a public transportation agency or a railroad (or some other private company) stand to benefit from the increased commercial value, since it was the proximity to trains which caused the increase? There are many historical examples where such a scheme has worked well for our industry. Combine the logic of T.O.D. with other sustainable development patterns and we may have a winning formula.

Sadly, however, major compromises in the planning and design of the railway line itself have been made, simply in an effort to get this specific project to the point where the "iFi" concept can be implemented.

The route of which I speak is the Cotton Belt corridor, basically designed to tie the Dallas/Fort Worth International Airport directly to downtown Fort Worth and Dallas' northern suburbs.

Named for the line's former owner (Espee's St. Louis Southwestern Railway), the route is not necessarily the next logical step in restoring rail-based passenger transport to the region. Other lines-on-a-map could also make the grade and offer far more transit benefits. Moreover, adequate plans were never made for connecting services to interface with the route. The junction point with DART's Green Line in downtown Carrollton is bad enough; the plan for Red Line interface in Plano is ridiculous.

The equipment of choice (perhaps I should say "by law") has remained a real thorn in my side. One of the reasons I wrote Oh, to be compliant was because of the rolling stock being touted for this service:

"DART has committed itself (and anyone else wanting to play) to use...passenger equipment...which will combine some of the least desirable characteristics of light rail technology (size, comfort and cost among them) with some of the least desirable characteristics of commuter train technology (weight, flexibility and motive power among them). Their stated wish is to develop, as part of the combined project, an F.R.A.-compliant hybrid, to be called the 'North Texas Regional Rail Vehicle' (a.k.a. 'L.R.N.T.' or 'Light Rail New Technology')."


The closest thing on the market today is Stadler's Gelenktriebwagen (or G.T.W. for short), which is not fully compliant with existing F.R.A. regulations. Even with route-specific wavers in place, we're still not discussing a car which can ever be "a one-size-fits-all, go-anywhere/do-anything self-propelled railroad passenger vehicle, able to 'cross all track barriers: commuter, freight, and light-rail' (according to one of the local documents)."
We've discussed this before. "What DART will probably end up with is a new vehicle which, by definition, will be far more costly to build and far less comfortable to ride than its conventional commuter train counterparts, unsuited for long trips...and, due to its unique nature, difficult and expensive to maintain."
So, why would such a decision regarding equipment (or any other decisions, for that matter) have been made prior to the completion of preliminary engineering work?

In a word, ladies and gentlemen, it's politics. Surprised?
Everything we see regarding the planning and execution of passenger service along the eastern half of the Cotton Belt is happening with but one thing in mind: keeping a few home owners in far north Dallas placated.
The City of Dallas (and, in a sense, DART) has basically committed itself to a bad plan in an effort to gain tacit support of various residents along the corridor. For years, City Council members representing the most vocal district have been elected, in part, on the basis of how they stood regarding this singular issue...from Sandy Greyson to Ron Natinsky, author of the so-called "Natinsky Plan".
According to Natinsky, locals have been primarily concerned with "vehicle technology, design and corridor safety" (which is very interesting, since all I ever remember hearing them scream about was their "property values"). You know, it makes me wonder: If these folks think trains are such a bad thing, why did they purchase houses next to a railroad track in the first place? Of course, I've had some look me right in the eye and seriously claim they never knew traffic levels might increase! Even if that's the unvarnished truth, why should this entire region suffer because these home buyers never heard of "due diligence"?!
Specific aspects of the Natinsky Plan - a 2006 resolution to which both the City and DART agreed - include the absolute elimination of common carrier freight operations within the district in question (and, therefore, all through service), limiting the route to a single main line (regardless of operational requirements) and placing the trackage inside a long trench (which just happens to be in a 100-year flood plain).

With me so far?
Okay, then. Let's get back to our original topic: fancy financing.
It all started with a seven-digit-figure study, naturally.
I say "naturally" because almost nothing is done in the domestic railroad passenger transportation world today with out a study or two (or three or four). These studies are often not for something substantive (like project engineering) but something far more nebulous (like project "feasibility").

Well, here's a truism, free of charge: throw enough money at a project and it'll magically become "feasible."

Unfortunately, money usually isn't available to simply throw around. In fact, as we've already discussed, with the Cotton Belt project, the entire study deals with ways to secure the necessary financing. Feasibility is presumed (although it shouldn't be).
So, how does one entice private firms to invest in an industry segment which, overall, hasn't made much profit (if any) for at least the past 85 years? That's a fair question, too. After all, passenger train services tend to lose money: individually or as a group, by route or system, from local transit to intercity express, they lose money. Worse yet, in the short-haul world, the more people who're willing to ride and the more trains that are operated, the larger the deficits incurred. The financials remind me of the Penn Central school of economics: we may lose money on every car load, but we'll make up for it in volume.
In fact, a private company could be given the needed infrastructure, along with brand-new equipment and beautifully designed station facilities - with a guaranteed source of "free" cash to maintain the lot - and that company would still walk away from the deal, since passenger fares would not even begin to cover operations.
It gets worse.
For the past couple of years, Peter M. Rogoff of the Federal Transit Administration has been trying to tell Cotton Belt route proponents (and anyone else who'd listen) that simply emulating the toll road industry by encouraging private investment in railway passenger service is a financial dead end. Whether it's the (deserved) reputation of passenger trains as loss leaders or the U.S.' recessionary climate (or both), most private firms have lost interest in the concept of doing for trains what they've done for automobiles.
When asked for details, Rogoff explained that the "F.T.A. has had a mixed experience with public-private partnerships." Risk transfer, crucial to almost all turnpike deals, is notably impotent in many rail-based proposals. His agency has noticed that "the private entity wants to take on little to no risk and take something off the top, when the public sector and the transit agencies still bear the vast majority of the risk of cost overruns or the risk of ridership not materializing as envisioned."
In the rare instances where private firms might indicate a willingness to accept up-front risk in passenger schemes, Rogoff believes transit agencies must structure agreements with great care. "You have to have hard guarantees as to frequency of service and reliability of service and have to be able to really not just finance the project but also require ... [the private firm] to operate the project for a real period of time," he said. "Then you need to hold that partnership accountable for delivering."
But why would any private operator want to be "accountable for delivering" when they have no say-so in how a given project is designed and precious little input in the way it's built?

Ay, there’s the rub.
The Cotton Belt route's biggest flaw - its fatal flaw - has nothing to do with that single line on the map or what it represents. It's not how our local Metropolitan Planning Organisation is attempting to find alternative means of financing. It's not any of the usual vacuous arguments against mass transit (especially the rail-based kind).
No; as it now stands, the Cotton Belt service proposal is doomed to failure because it's been designed by politicians for political purposes.

Period.

For a long time, I looked at this proposal from both a passenger's and railroader's perspective. In doing so, I completely lost track of reality. The Cotton Belt project exists as a political animal, designed to generate jobs and score points. If it actually serves the train riding public, so much the better; but, that's not what it's ultimately designed to do.

During my tenure at DART, I was blessed with two wonderful superiors: my boss and his boss. It was my boss' boss who occasionally reminded me how applying logic to agency matters could be a very dangerous thing.
While considering the realities of the Cotton Belt proposal, I forgot to also consider his wisdom.
I forgot that DART's Public-Private Partnership (3P) agreement stipulates the service should maintain "the same type of vehicle and operating characteristics on the entire corridor" (including Fort Worth Transit Authority's proposed downtown to D/FW International Airport "TEXRail" service) and that DART's resolution can (and probably will) force all DART-owned segments of the Cotton Belt to use the new LRNT vehicle (however that ends up being defined) - even though DART has previously stated that the operational "conditions [which caused the need for their LRNT vehicle in first place] are currently specific only to the north Dallas section of the corridor between Addison and the Red Line."

I forgot that a major driving force behind the development of a North Texas Regional Rail Vehicle is the prospect that the builder of the winning design will set up a manufacturing plant in this area, with the transit agencies and the R.T.C. dutifully requiring all future lines to use the new product. [Anyone who has seen a real commuter railroad at work, like Metro North or Metra or Caltrain - forget about it!] We should just remain thankful that the Trinity Railway Express is already in operation! [Suddenly, the corridor's preliminary estimate of 6,000 riders per day through far north Dallas makes a lot more sense!]

I forgot that the project stands to be quite entertaining, in a macabre sort of way. The possibility rail fares will be high and parking will cost money and the "private" side of the project will demand a PROFIT (the fourth "P"!) all lends itself to a major-class spectacle - especially once reality sets in and the operator(s) realise(s) the United States still doesn't have a national transportation policy in place and that the feds will still be competing against passenger train service through all their direct and indirect subsidies toward roadways. Profits will be privatised and losses will be socialised and we'll end up holding the bag.

It all makes for quite a conundrum; even some sort of Gordian Knot. Unfortunately, this one will not be solved by simply applying outside-the-box thinking (a la Alexander's sword), since it has been outrageously ineffective and potentially disastrous outside-the-box thinking which has brought us to this point in the first place!

Yes, I forgot...but it's all coming back to me, now!

And I really hate this.


  • Garl:  Your latest essay demonstrates my oft-stated view that rail passenger afficionadoes (foamers, if you will) are their own worst enemies.

  • Another brilliant piece!  I'll have to keep my comments brief as the verbose responses tend to disappear!   I recently attended a conference where an S&P analyst attempted to shed some light on the prospects of launching successful 3P projects. I found S&P's credit rating of potential private partners most interesting.

    Here are the latest Debt/EBIT (Earnings before taxes) for the different companies:

    BNSF     2.6x

    UP          2.0x

    CSX        2.4x

    NS          2.2x

    CN          1.7x

    CP           3.4x

    They also rated several international carriers who are considered private operators:

    DB          4.4x

    SNCF     6.6x

    E Japan 4.8x

    It was also interesting to note that the East Japan Railway company, even with its relatively high debt load has a higher credit rating than any of the North American railroads.  According to the S&P Presenter, this is related to the reliability of the revenue derived from the Japanese system; a portion of which is derived from real estate developments along the corridor.

  • Most interesting, Blaine.  Thanks.  The East Japan example demonstrates how important it is to peel back a layer or two when trying to evaluate.  Any explanation or theory on why the foreign rail companies have so much higher debt/EBIT rations than U.S. railroads?  And, is CN more an American railroad while CP is not?

  • Larry,  I don't know why the debt ratios for those foreign roads may be higher but it may have something to do with the fact that our North American railroads had a banner year in 2011?  I would venture a guess that, based on the S&P analysts comments, the foreign railroads profits while more consistent are likely lower than might otherwise be expected from such large companies.

    With respect to CP and CN, I have my own suspicions about their differences.  Suffice it to say that CN was once a gov't owned entity (up until 1994 or so if my memory serves correctly); I suspect that the private entity still benefits from years and years of higher capital investments.

  • Blaine:  Don't forget that in most of the world, the state considers rail infrastructure to be a strategic asset of the state and returns ownership, leasing operating rights to what we might call railroad operating companies.  They really are glorified real estate owners and that very well may account for the significantly different debt/EBIT ratios.  As for CN and CP, until recent years CP always had to be just a little better than "the people's railroad" - CN.  Its capex had to be justified to stockholders and creditors, while CN undoubtedly was the beneficiary of Canadian government largesse.

  • Larry:

    Good points!

    I too have used the TRE in Dallas to get from the airport to downtown.  The bi-level Bombardier cars made for a most productive and enjoyable commute.  Cafe style booths on the upper level complete with AC outlets made it possible for me to check my email on my notebook. I glanced every few minutes at the multiple lanes of autos crawling through traffic to further appreciate the convenience of the service.  The only down-side related to the TRE service from DFW is related to the two rubber tired shuttles I had to take to reach the nearest TRE station; no idea of how long those shuttles could take as they mix with traffic.  The TRE, on the otherhadn, ran on a very precise schedule on the 2-3 different times I used it.