By Edward G. Rendell and Peter A Peyser

President Obama was right to emphasize high-speed rail development in his January State of the Union address. Investing in our passenger rail infrastructure will create construction jobs, keep our steel factories busy, and make our economy more competitive. Unfortunately, even with a commitment from the president, the current fiscal situation in Washington does not allow for a large and sustained investment of federal money.

But there is a way to fund high-speed rail in a place where leaders in both parties support it—the Northeast Corridor from Boston through New York and Philadelphia to Washington, D.C. How? By creating a partnership among the federal government, state governments and the private sector.

The market for high-speed rail along the Northeast Corridor is already established, the dedicated right-of-way already assembled, and the economy there already reliant on passenger rail service. But today’s Amtrak service—under the Acela brand name—is by international standards a joke. It takes two hours and 45 minutes to make a 225 mile journey from New York to Washington. The train rarely gets above 100 miles per hour. Even so, the Acela captures about as many passengers as the air shuttles in the same corridor.

Imagine if the service were upgraded to 200 mph or faster so the same trip could be completed in under two hours. That service would lessen the need for air shuttles between New York and Washington and free up precious take-off and landing slots at Reagan and LaGuardia airports for higher value flights to destinations that can’t be served by rail. It would also significantly reduce tarmac waiting time at Newark, Philadelphia and Baltimore-Washington.

A September 2010 study by Amtrak showed that a railroad operating at 220 mph in the Northeast Corridor would generate a $900 million annual operating profit. Undoubtedly, improving the service will be costly. It will require constructing a dedicated track that won’t be used by freight or commuter lines. Can such sums be raised to create a world-class railroad in the United States? We think so.

The first step is for the federal government, which ultimately controls Amtrak, to break off the Northeast Corridor into a separate company. It could then package the railroad for transfer out of federal control. The new railroad should be a public-private partnership. Fifty-one percent of this new company would be owned by a multistate compact among the nine states along the corridor and the District of Columbia. The remaining 49% would be owned by a private consortium that would likely include an investment bank/private-equity group, a railroad operating company, railroad unions and equipment vendors.

The federal government’s financial obligation to the corridor would be to allocate funds up front, perhaps on a five-year payout, to compensate the new owner for the fact that it is obtaining an asset in rundown condition. Federal legislation could limit the size of this up-front payment by requiring the states to pick a private-sector partner based in part on which one proposes the lowest federal subsidy. Whatever the payment is, it will represent a long-term savings as compared to the open-ended commitment of hundreds of millions of dollars per year now going to Amtrak service along the corridor.

The governors of the states and the mayor of Washington would have the difficult task of negotiating among themselves and the private sector to determine how much (or little) state funding would be required to get the railroad moving. With state budgets along the corridor in distress, the prospect for major funding is certainly problematic. But if private partners are to take full advantage of the real-estate development opportunities presented by property now owned by Amtrak, as well as concession opportunities and various marketing partnerships, the need for state funding will be reduced.

There is precedent in the U.S. rail industry for such a federal-state-private partnership. In recent years, federal grants were given to Norfolk Southern’s Five-State Crescent Corridor Plan between Louisiana and New Jersey and CSX’s Six-State National Gateway connecting the Mid-Atlantic and the Midwest. In both plans, the participating states kicked in a total of one-third of the project cost. While these are freight projects and not for passengers, they demonstrate how cost-sharing among the private sector, state governments and the federal government can work.

Investment banks and private equity firms have established infrastructure funds that currently have billions of dollars sitting on the sidelines awaiting opportunities to invest in public-private partnerships. It’s time to put that money to work by kicking off a process like the one suggested here. The first step is federal legislation to create the new Northeast Corridor railroad and the strategy for selling it.

Mr. Rendell is the former governor of Pennsylvania. Mr. Peyser is Managing Principal of Blank Rome LLC.

Original article here