California rail corridor expansion boosts private developer

DesertXpress, a privately financed initiative to link Nevada and California via a high speed rail line, has gained new momentum after the two states agreed to extend California’s high speed rail corridor to Las Vegas. The extension is expected to cost between $3.5bn and $4bn.

A private sector developer’s dream of linking the metropolitan areas of Los Angeles, California and Las Vegas, Nevada via a 184-mile high speed rail line has received a stamp of approval from the public sector after the two states agreed to extend California’s high speed rail corridor to Las Vegas.

DesertXpress Enterprises, a privately funded initiative that has devoted $25 million over the last seven years to gain environmental permitting for the project, is now poised to develop the California-to-Nevada leg of the expanded corridor.

The corridor designation comes with potential financial benefits. The $787 billion American Recovery and Reinvestment Act set apart $8 billion for the development of high speed rail. The programme is meant to reduce highway congestion by spurring the construction of rail lines exclusively devoted to trains that can travel between 150 and 200 miles per hour. The 10 federally-designated corridors, including California, are priority regions for the stimulus funding, though all states may apply for the money.

Nevada: new entrant on the corridor map
Source: Federal Railroad Administration

“Becoming a part of California extension always keeps the door open so that they can receive federal funding,” Robert Kulat, a spokesperson for the Federal Railroad Administration, told InfrastructureInvestor.

But DesertXpress will not seek stimulus financing. Andrew Mack, vice president of DesertXpress, said the funding for the project, expected to cost between $3.5 billion and $4 billion, will instead resemble private toll road financing, where private equity investors put up a certain percentage of equity and supplement the rest with debt.

“There’s been tremendous equity interest from the usual players,” Mack said, listing private equity infrastructure funds, pension funds and concessionaires among the interested parties.

The debt side of the funding equation, though, has proven more difficult.

DesertXpress: gaining

“Given the global credit crisis and basic lack of credit facilities out there in the private market, we are exploring federal loan options,” Mack said. These options include financing under the US’ Transportation Infrastructure Finance and Innovation Act (TIFIA) – the government’s infrastructure credit programme – and Private Activity Bonds, a form of tax-exempt financing for infrastructure projects. The Federal Railroad Administration Railroad Rehabilitation and Improvement Financing programme is also being considered, Mack said.

On the California side of the corridor, the California High Speed Rail Authority, the entity in charge of California’s high speed rail project, has made clear that it will compete for as much of the $8 billion as possible to meet the $40 billion price tag of its high speed rail system. That includes $10 billion in state funding in the form of voter-approved bonding. Another $10 billion or more is expected to come from the private sector, with the remainder coming from federal and local sources.

That financing does not include DesertXpress’ route, which will be a separate project within the corridor. A senior official at the California High Speed Rail Authority described the corridor expansion as the addition of a California-to-Nevada “spur” that will “create more robust demand” for high speed rail in the region. But it will not expand the authority’s jurisdiction to the DesertXpress project.  DesertXpress will instead manage the 184-mile route between the two states – including the piece within California, the person said.

The private investment made to date by the DesertXpress Enterprises has positioned the DesertXpress project to be the first shovel-ready high speed rail project in the entire country

Sen. Harry Reid

DesertXpress is aiming to begin construction on the route next year. The firm expects to receive its final environmental impact statement – a regulatory approval for the project that the firm has been pursuing with private capital since 2002 – by the end of this year.

At a press conference announcing the expansion of the corridor, politicians lauded the firm’s up-front investment for the impact statement as a success factor in moving the project forward.

“The private investment made to date by the DesertXpress Enterprises has positioned the DesertXpress project to be the first shovel-ready high speed rail project in the entire country,” Nevada Senator and US Senate Majority Leader Harry Reid said during the conference.

DesertXpress welcomed the Senator’s statement as a stamp of approval for its vision for the corridor.

“It acknowledges the importance of the corridor and that the demand is there,” Mack said.