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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2015. Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22149.
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n a t i o n a l C o o P E R a t i V E R a i l R E S E a R C H P R o G R a M nCRRP REPORT 1 TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2015 www.TRB.org Research sponsored by the Federal Railroad Administration Subscriber Categories Finance  •  Passenger Transportation  •  Railroads Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects CPCS Ottawa, ON, Canada i n a s s o c i a t i o n w i t h Harral Winner Thompson Sharp Klein, Inc. Potomac, MD, and London, England Thompson, Galenson and Associates, LLC Saratoga, CA First Class Partnerships Limited London, England Portscape, Inc. Lexington, MA

NCRRP REPORT 1 Project 07-01 ISSN 2376-9165 ISBN 978-0-309-30838-0 Library of Congress Control Number 2015931024 © 2015 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FRA, FTA, or Transit Development Corporation endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The project that is the subject of this report was a part of the National Cooperative Rail Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the National Cooperative Rail Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report. Published reports of the NATIONAl COOPERATIvE RAIl RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America NATIONAl COOPERATIvE RAIl RESEARCH PROGRAM The National Cooperative Rail Research Program (NCRRP) conducts ap- plied research on problems important to freight, intercity, and commuter rail operators. Research is necessary to solve common operating problems, to adapt appropriate new technologies from other industries, and to introduce innova- tions into the rail industry. The NCRRP carries out applied research on prob- lems that are shared by freight, intercity, and commuter rail operating agencies and are not being adequately addressed by existing federal research programs. The NCRRP undertakes research and other technical activities in a variety of rail subject areas, including design, construction, maintenance, operations, safety, security, policy, planning, human resources, and administration. The NCRRP was authorized in October 2008 as part of the Passenger Rail Investment and Improvement Act of 2008 (PL 100-432, Division B). The Pro- gram is sponsored by the Federal Railroad Administration (FRA) and managed by the National Academies, acting through its Transportation Research Board (TRB), with program oversight provided by an independent governing board (the NCRRP Oversight Committee) including representatives of rail operating agencies. The NCRRP carries out applied research on problems that (1) address, among other matters, intercity rail passenger and freight rail services, includ- ing existing rail passenger and freight technologies and speeds, incrementally enhanced rail systems and infrastructure, and new high-speed wheel-on-rail systems; (2) address ways to expand the transportation of international trade traffic by rail, enhance the efficiency of intermodal interchange at ports and other intermodal terminals, and increase capacity and availability of rail service for seasonal freight needs; (3) consider research on the interconnectedness of commuter rail, passenger rail, freight rail, and other rail networks; and (4) give consideration to regional concerns regarding rail passenger and freight trans- portation, including meeting research needs common to designated high-speed corridors, long-distance rail services, and regional intercity rail corridors, proj- ects, and entities. The NCRRP considers research designed (1) to identify the unique aspects and attributes of rail passenger and freight service; (2) to develop more accurate models for evaluating the impact of rail passenger and freight service, including the effects on highway, airport, and airway congestion, environmental qual- ity, and energy consumption; (3) to develop a better understanding of modal choice as it affects rail passenger and freight transportation, including develop- ment of better models to predict utilization; (4) to recommend priorities for technology demonstration and development; (5) to meet additional priorities as determined by the advisory board established under subsection (c), including any recommendations made by the National Research Council; (6) to explore improvements in management, financing, and institutional structures; (7) to address rail capacity constraints that affect passenger and freight rail service through a wide variety of options, ranging from operating improvements to dedicated new infrastructure, taking into account the impact of such options on operations; (8) to improve maintenance, operations, customer service, or other aspects of intercity rail passenger and freight service; (9) to recommend objective methodologies for determining intercity passenger rail routes and services, including the establishment of new routes, the elimination of existing routes, and the contraction or expansion of services or frequencies over such routes; (10) to review the impact of equipment and operational safety standards on the further development of high-speed passenger rail operations connected to or integrated with non-high-speed freight or passenger rail operations; (11) to recommend any legislative or regulatory changes necessary to foster further development and implementation of high-speed passenger rail operations while ensuring the safety of such operations that are connected to or integrated with non-high-speed freight or passenger rail operations; (12) to review rail cross- ing safety improvements, including improvements using new safety technology; and (13) to review and develop technology designed to reduce train horn noise and its effect on communities, including broadband horn technology. The primary participants in the NCRRP are (1) an independent governing board, the NCRRP Oversight Committee (ROC), appointed by the Secretary of the U.S. Department of Transportation with representation from freight, intercity, and commuter rail operating agencies, other stakeholders, and rel- evant industry organizations such as the Association of American Railroads (AAR), the American Association of State Highway and Transportation Offi- cials (AASHTO), the American Public Transportation Association (APTA), and the National Association of Railroad Passengers (NARP) as vital links to the rail community; (2) the TRB as program manager and secretariat for the govern- ing board; and (3) the FRA as program sponsor. The NCRRP benefits from the cooperation and participation of rail professionals, equipment and service suppliers, other rail users, and research organizations. Each of these participants has different interests and responsibilities, and each is an integral part of this cooperative research effort.

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. C. D. Mote, Jr., is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Victor J. Dzau is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. C. D. Mote, Jr., are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transporta- tion Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individu- als interested in the development of transportation. www.TRB.org www.national-academies.org

C O O P E R A T I V E R E S E A R C H P R O G R A M S CRP STAFF FOR NCRRP REPORT 1 Christopher W. Jenks, Director, Cooperative Research Programs Lawrence D. Goldstein, Senior Program Officer Anthony P. Avery, Senior Program Assistant Eileen P. Delaney, Director of Publications Hilary Freer, Senior Editor NCRRP PROJECT 07-01 PANEl Field of Administration John W. Fischer, Annapolis, MD (Chair) Joan Bray, Midwest Interstate Passenger Rail Commission, St. Louis, MO David L. Ganovski, David Ganovski & Associates, LLC, Berlin, MD Peter Gertler, Global Services, Consulting | AEC/ENI, San Francisco, CA Alex P. Goff, URS Corporation, Waltham, MA Paul O’Brien, Sandy, UT Simon R. H. Taylor, Maryland Aviation Administration, Baltimore, MD Michael Murray, FRA Liaison Richard Weaver, APTA Liaison Scott Babcock, TRB Liaison

NCRRP Report 1: Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects identifies alternative funding and financing tools that can be used to realize passenger and freight rail project development, including capital investments, operations, and maintenance. The research produced by Project 07-01 resulted in NCRRP Report 1, a comprehensive guidebook for practitioners, and a separate report summary geared to policy- makers and decisionmakers. NCRRP Report 1 provides an assessment of broad financing and funding requirements in the context of intercity passenger and freight rail systems, a detailed review of funding and financing options and associated considerations, and an in-depth assessment of implementation requirements for a broad spectrum of rail projects and services. The report summary, available separately, highlights the significant issues that underlie consideration of how to pay for rail projects and services that have an identified funding gap, including the policy considerations that must be addressed to bridge that gap. Recent years have seen an increasing demand for passenger rail service in the United States; however, no stable source of funding exists for developing or expanding intercity passenger systems. Passenger rail operating revenues are insufficient, on their own, for either capital development or operations and maintenance and, therefore, generally depend on public funding support. In contrast, freight rail, primarily developed and operated by the private sector, typically at a profit, has access to traditional financing streams. Some short-line freight rail or corridor improvement projects, however, cannot be financed privately and require alternative funding and financing approaches to be financially viable. The key question is how to fund and finance passenger and rail projects that, on their own, have a funding gap. Under NCRRP Project 07-01, the CPCS team was tasked to identify alternative methods for funding and financing intercity passenger and freight rail project development, includ- ing capital investment, operations, and maintenance, when traditional sources of funding and financing on their own are insufficient or inadequate. The resulting guidebook and report summary together (1) provide a “tool box” of approaches and methods for funding and financing rail projects and (2) identify a broad range of funding and financing consider- ations, including requirements for implementation. The guidebook clarifies the significant distinction between funding and financing and the related implications for realizing rail projects. It also identifies a framework for classifying projects in a net public-benefit vs. net- financial-returns matrix to provide context for when funding and financing models may be most appropriate. In addition, the guidebook provides a set of case studies demonstrating how to choose among and apply potential alternative mechanisms, thereby helping plan- ners, developers, and decisionmakers to navigate through the selection, evaluation, and implementation process. F O R E W O R D By Lawrence D. Goldstein Staff Officer Transportation Research Board

1 Summary 10 Chapter 1  Introduction 10 1.1 Background 11 1.2 Project Overview 11 1.3 Purpose of This Guidebook 12 Chapter 2  U.S. Rail Industry Structure and Financial Dynamics 12 2.1 Rail Project/Service Types and Their Financial Dynamics 14 2.2 A Brief History of the U.S. Rail Sector and Financial Implications 23 Chapter 3  Rail Project Costs and Financial Considerations 23 3.1 Rail Project Costs 23 3.2 Capital Expenditures (Capex) 27 3.3 Operating Expenditures (Opex) 28 Chapter 4  Funding and Financing Rail Projects 28 4.1 Funding vs. Financing 29 4.2 Service or Asset-Related Revenues (Funding) 30 4.3 Financing as a Means of Bridging Timing of Costs and Revenues 32 4.4 How to Realize Rail Projects That Have a Funding Gap? 34 Chapter 5   Key Considerations in Rail Funding  and Financing Decisions 34 5.1 Public Benefits vs. Private (Financial) Return 36 5.2 Other Motivations and Interests in Funding and Financing Rail Projects 38 5.3 Funding and Financing Strategies to Achieve Desired Outcomes 40 Chapter 6   Alternative Funding and Financing Mechanisms  for Rail Projects and Services 40 6.1 Service or Asset-Related Revenue (Funding) Mechanisms—Overview 41 6.2 Public Revenue (Funding) Mechanisms—Overview 41 6.3 Financing Mechanisms (Private and Public)—Overview 44 6.4 Service or Asset-Related Revenue (Funding) Mechanisms 57 6.5 Public Revenue (Funding) Mechanisms 76 6.6 Financing Mechanisms 91 Chapter 7   Case Studies: Potential Application of Alternative  Funding and Financing Mechanisms 91 7.1 Case Study Approach 92 7.2 Lessons on Application of Alternative Financing and Revenue Mechanisms C O N T E N T S

93 Chapter 8   Beyond Revenue and Financing Mechanisms:  Opportunities and Potential Strategies to Realize  Rail Projects with a Funding Gap 93 8.1 Measuring Public Benefits, Policy, and Funding for Rail Projects 96 8.2 Establishing a Stable, Predictable Funding Source for Passenger Rail 99 8.3 Multi-Modal Project Grant Funding: TIGER 101 8.4 Establish Model Institutional and Commercial Frameworks for Complex, Multi-Party Corridor Improvement Projects 102 8.5 Create PPP Expertise and Resources Available at the National Level 104 8.6 Improve Insurance Market for Shared Corridors 107 8.7 Concessions/Funding 109 Chapter 9   Conclusions 110  Acronyms and Abbreviations 114 Appendix A  U.S. Federal Rail Funding and Financing Programs 125 Appendix B  State Rail Funding Programs 135 Appendix C  U.S. Commuter Rail and Track Ownership 136 Appendix D   Global Scan of Rail Industry Structures, Funding  and Financing Approaches 148 Appendix E   Case Studies on Potential Application of  Alternative Funding and Financing Mechanisms Note: Photographs, figures, and tables in this report may have been converted from color to grayscale for printing. The electronic version of the report (posted on the web at www.trb.org) retains the color versions.

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TRB’s National Cooperative Rail Research Program (NCRRP) Report 1: Alternative Funding and Financing Mechanisms for Passenger and Freight Rail Projects identifies alternative funding and financing tools that can be used to realize passenger and freight rail project development, including capital investments, operations, and maintenance. The report summary is available online.

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