Only California Remains As XpressWest Funding Slips Away

BMI View : We believe that the prospects of the XpressWest High Speed Rail project are looking slim after the federal government decided to suspend the loan application for the project . With this project now unlikely to happen, the California high speed rail remains the last project standing. Although questions were raised over the feasibility of XpressWest , we believe it is the lack of adherence to the 'Buy America' policy that final ly undone the project . The issue highlights the lack of a domestic high speed rail industry; however with limited demand from new projects, there remains little motivation for one to be developed.

The XpressWest (formerly Desert Express) high speed rail project has never been factored into our forecasts for railways infrastructure industry value, given the uncertainties surrounding the project. Indeed, we have refrained from incorporating any of the US' multiple high speed rail projects into our outlook given the weak foundations for the transportation mode - namely divided political opinions, high costs and uncertain demand.

No High Speed Priced In
US Railways Infrastructure Industry Value And Growth

The XpressWest project was widely criticised for all of these issues. A privately proposed high speed rail line, XpressWest would link Victorville in southern California to Las Vegas. The project is envisaged as a park and ride style scheme, whereby travellers would drive to Victorville (located 100 miles east of Los Angeles off I-15), park their cars and take the 80 minute rail journey to Las Vegas. In theory the project sounds realistic given that the same distance would take three hours to drive;l however, given the driving culture in the US as well as the ability to fly or take a bus between LA and Las Vegas, demand is definitely a risk.

The developers submitted a loan request to the US Department of Transport under the Railroad Rehabilitation and Improvement Financing Program, bringing the feasibility of the project into the public sphere. The US$5.5bn 35-year low-interest loan would have covered 80% of the project's financing; however, many commentators reacted negatively to the idea of federal funding supporting the project.

However, these considerations were not the nail in the coffin for the project; rather, the issue was regarding the 'Buy America' policy, according to a letter from then-Secretary of Transportation Ray LaHood. The letter, which explains that consideration of funding has been suspended, highlights the insufficient impact on US industry of the project making it ineligible for the loan. Buy America is a Department of Transportation initiative which aims to ensure infrastructure projects are built using US products in order to support local industry and jobs. XpressWest has responded by saying that LaHood required all trains used for the railway to be 100% US made; however, given the absence of a domestic high speed rail industry, the company states that this is not possible. They also note that they have offered to only use the loaned funds to acquire US materials.

Regardless of the specific dispute, the issue stands that this project stagnation leaves only one high speed rail plan on the table, and that is not sufficient to build an entire domestic industry around. In California, a similar dispute is underway. The railway benefitted from American Recovery and Reinvestment Act Funding which also comes with a Buy America Stipulation. However, this requirement is difficult to be met as there is not only a lack of high speed rail equipment, but also any experienced operators - as Amtrak is the only passenger rail operator, international companies will need to be involved. Consequently, some flexibility will be needed in the Buy America requirements if any high speed rail industry is to be developed.

This article is tagged to:
Sector: Infrastructure
Geography: United States

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