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All Aboard Florida All Aboard Florida

All Aboard Florida, the emerging train service between Miami and Orlando, passed two major hurdles last week—bringing private U.S. passenger rail, at this point dead for decades, that much closer to a triumphant resurrection.

First the Federal Railroad Administration completed its final environmental impact statement report on the project (a requirement for the federally backed loan AAF is seeking via the underused Railroad Rehabilitation and Improvement Financing program). Then the railroad won approval from a state finance commission to sell $1.75 billion in tax-exempt bonds (despite intense opposition from local counties concerned about noise and other hazards). Together the milestones bring AAF that much closer to launching service in 2017 as currently planned.

Not everyone is happy about the news. Throw a dart at a Florida newspaper and you have a pretty good chance of hitting a columnist or op-ed writer cranky about the Miami-Orlando line. Here’s Carl Hiaasen of the Miami Herald:

Bottom line: It will be impossible for the train project to ever make a profit. If your broker calls up and tries to sell you some of these bonds, fire the fool.

And Michael Mayo of the Sun Sentinel:

An AAF consultant has projected the rail line will have 753,700 passengers and $32 million in fare revenue in 2017, swelling to 5.3 million passengers and $343.9 million in fare revenue by 2020. AAF officials say the figures are realistic. To me, they sound wildly optimistic to borderline delusional.

And Congressman Bill Posey, writing in the Orlando Sentinel:

[A] recent independent economic analysis conducted by John Friedman concludes that even under all optimistic assumptions, AAF will generate annual losses of more than $100 million and will be unable to service its debt burden.

The concern uniting this choir of negativity is whether or not All Aboard Florida will generate enough riders to make a profit. That fear was fanned in a recent report (referenced by Posey) from economist and public policy scholar John Friedman of Brown University. Using ridership patterns in the Northeast Corridor as a point of comparison, Friedman concludes that All Aboard Florida will attract, at best, 2.27 million riders—well below its projection of 3.5 million.

Friedman’s rationale:

AAF will have only four stops and link just two metro areas with a total of 9.4 million people; the dense Northeast Corridor has 30 stops and links four major metros with 48 million residents.

Neither Orlando nor Miami has a strong public transit network linking AAF stations to key destinations—a particular problem at the Orlando station, which will be located at the airport instead of downtown.

Businesses and people are more widely dispersed in Miami and Orlando than in the Northeast corridor, where some 40 percent of the population lives within 10 miles of a city center. In Miami, by comparison, that’s only true of 23 percent.

As a result, argues Friedman, All Aboard Florida won’t generate enough fare revenue to keep it in the black, and could see annual losses of $110 million when factoring in debt payment. “If you believe that AAF will have twice as many riders as Amtrak in the Northeast Corridor (adjusting for population differences), then my framework would say that AAF would be profitable,” Friedman tells CityLab via email. “My own view (and I think that of many others) is that this is a bit ridiculous, hence my conclusions.”

Friedman’s report has a number of glaring holes, beginning with its funding source: CARE FL, or Citizens Against Rail Expansion in Florida, an opposition group. (Friedman says the analysis required such funding because it was “too narrow” to publish in an academic journal, but calls his conclusions his own. “I refuse to accept projects like this when there is any possibility I might have to skew my results to suit the funders,” he emails.) It also fails to consider potential “real estate profits,” which as Henry Grabar reported for our Future of Transportation series, represent a big component of the AAF’s financial plans.

Value capture around the Miami Station (above, a rendering) is a big part of All Aboard Florida’s financial plan. All Aboard Florida

Conflict of interest and development money aside, Friedman’s analysis lacks enough technical insight into AAF’s business plan to draw an accurate conclusion, according to a response published by the infrastructure firm Louis Berger, which has prepared official ridership and revenue forecasts for the railroad. The key shortcomings center on the travel market’s size and character. Whereas Friedman assumes AAF will operate like a scaled-down Northeast Corridor, the Berger ridership estimate accounts for much more than population, including short- and long-distance travel patterns in specific parts of Florida, traffic counts on regional highways, an 8,000-person travel survey, a careful study of factors like travel time and cost in “several hundred” travel zones, and vacationers to tourist-magnet Orlando.

In short, Friedman built a ridership model based on general assumptions, rather than specific details; the Louis Berger response summarizes:

While we agree that a top-down aggregate calculation of ridership and fare revenue potential can often be a valuable exercise in understanding and confirming more detailed ridership estimates, we believe that Prof. Friedman lacked some key information regarding the travel market which contributes to a substantial underestimate of ridership and revenue potential in his conclusions.

AAF ridership estimates do seem to be a moving target. The Louis Berger estimate of 3.5 million riders by 2019, rising to 4 million by 2030, is cited in the Federal Railroad Administration’s impact statement. But documents prepared for the tax-exempt bond approval estimate a 2019 ridership of 4.16 million—eventually rising to 5.5 million by 2021.

“If the project fails, it is the investors of equity and purchasers of bonds that will be on the hook, not taxpayers.”

Whatever the precise figures, the real question is why the ridership forecasts and revenue projections are a problem for anyone other than those invested in the railroad. The tax-exempt bond status might deprive the public of millions in bond revenue, as Friedman suggests, but it seems warranted for infrastructure that serves the general welfare. In its environmental impact statement, for instance, the railroad administration estimates that AAF will take some 1.2 million cars off the road by 2019 and reduce greenhouse gas emissions accordingly.

Even outspoken opponents of publicly funded rail projects don’t seem to mind the prospect of train travel now that taxpayer money isn’t attached to the tracks. Florida Governor Rick Scott, who shot down the Obama administration’s high-speed rail ambitions in the state, has said taxpayers are “not on the hook” for the bond debt because “it’s a private company.” Transport scholar Bob Poole of the Reason Foundation, who has advised Scott, echoed that sentiment in a recent newsletter:

All Aboard Florida is not taxpayer subsidized, and it appears to have a plausible business plan. Whether or not its market analysis is correct should be no concern to public policy. If the project fails, it is the investors of equity and purchasers of bonds that will be on the hook, not taxpayers.

And if the project succeeds, private U.S. passenger rail will once again have its day.