Considering how much the Obama administration has encouraged high-speed rail, the Department of Transportation's recent decision to suspend consideration of a loan for the XpressWest line between Las Vegas and Southern California came as a bit of a surprise. DOT's reasoning was even more unexpected. The problem had nothing to do with the cost or promise of the Vegas HSR line — both of which have been questioned in the past — and everything to do with a rule requiring rail operators to buy their all material from U.S. manufacturers.
Some background: the XpressWest plans were far from perfect. The initial phase of the multi-billion-dollar route would connect Vegas with Victorville, California, nearly a hundred miles east of Los Angeles. Eventually the tracks would reach Palmdale, making the full trip from L.A. accessible by rail; in the meantime, however, the idea that people driving to Vegas would pull over in Victorville and hop on the fast train felt more than a little naïve.
But in his letter to XpressWest, made public in slightly redacted form a couple weeks ago, outgoing DOT chief Ray LaHood cited none of these concerns. Instead, LaHood invoked the "Buy America" provision, an early 1980s relic that directs the transportation secretary to approve federal rail loans "only if the steel, iron, and manufactured goods used in the project are produced in the United States." LaHood writes:
The RRIF Program prioritizes projects that promote economic development and enable U.S. companies to be more competitive in international markets. To that end, the Department has made clear that we prioritize projects that build a foundation for economic competitiveness by advancing domestic rail manufacturing in the United States.
The problem, of course, is that the United States doesn't really have a domestic high-speed rail manufacturing industry at the present time. That makes meeting the Buy America provision "not commercially possible" in this particular case, counters XpressWest in a statement posted on its website. XpressWest says it suggested a "realistic" work-around, but LaHood's letter makes clear that this counterproposal was either incomplete or insufficient or both.
When the Obama administration made its high-speed rail push a few years back, it anticipated this exact problem with respect to Buy America principles. In a primer for loan applicants, the Federal Rail Administration explained how to satisfy the requirement when technology is "not readily available domestically." In such instances the grantee is supposed to look for the bidder with the "highest domestic content" — and failing that, there's always the possibility of applying for a Buy America waiver.
But LaHood's letter alludes to several reasons why XpressWest wasn't eligible for such a waiver, most notably "the size of the requested loan." ("The multi-billion-dollar loan you propose would be the largest that the Department has ever been asked to consider," he wrote.) While the letter doesn't explicitly kill the project — and Senator Harry Reid of Nevada, for one, says he'll continue to fight for it — XpressWest clearly has to adjust its project if it hopes to secure any federal money.
Still, major transportation projects do get relief from Buy America now and then. The Systemic Failure blog astutely points out that, just this month, the federal government gave a billion-dollar highway project additional time to meet a new Buy America stipulation that requires "all" related contracts to meet the requirement — even, for instance, the relocation of utility lines. The fact that XpressWest wasn't granted that same leniency raises the possibility that the Buy America provision was simply a pretense for some larger discontent with the plans.
The purpose of Buy America is no doubt a noble one: use American workers to build American projects. But as presently conceived the provision may do more harm than good. By reducing competition, the rule can increase the cost of projects considerably, which is bad for all taxpayers. Determining the fate of transportation projects on the basis of short-term job creation, as opposed to long-term mobility needs, is also a risky precedent to establish. So before the federal government considers the next loan request for a major new rail project, it should probably spend a moment reconsidering the well-intentioned but very flawed provision that may have killed the last one.