A tale of two (or more) Talgos

Written by William C. Vantuono, Editor-in-Chief
ODOT Talgo Ribbon Cutting Event July 26 2013

The Oregon Department of Transportation (ODOT) has taken delivery on the second of two new Talgo Series 8 13-car trainsets the State of Oregon purchased with federal stimulus funds administered in 2009. The first trainset entered service on July 26.

The Series 8 trainsets, named Mt. Jefferson and Mt. Bachelor, are being used alongside five Talgo sets, three owned by the State of Washington and two owned by Amtrak, for Cascades services from Eugene, Ore., to Seattle and Vancouver, B.C. According to ODOT, the service pattern on this route was stretching the existing fleet beyond capacity, and additional rolling stock is required for the launch of two additional daily services between Portland and Seattle in 2017.

Each trainset seats 286 passengers and has features including catering facilities, a bicycle storage car, business class accommodations, at-seat passenger electrical outlets, and 4G Wi-Fi.

ODOT says it has spent $38.4 million on the two trainsets, plus an additional $6 million on consultants, spare parts, testing, and the addition of Wi-Fi equipment.

ODOT Talgo Ribbon Cutting Event  July 26 2013More than 1,000 people turned out for a ribbon-cutting ceremony and tours of the equipment on Oct. 19 in Portland. In the photo, Talgo USA President and CEO Antonio Perez and local officials from Amtrak, ODOT, and the Oregon state legislature join Congressman Peter DeFazio (D-Ore.) and Eugene Mayor Kitty Pierce, who are cutting the ceremonial ribbon.

The trainsets were originally due to enter service in autumn 2012, but a decision by the State of Wisconsin and its Republican governor, Scott Walker (who killed the state’s plans for implementing higher-speed passenger rail) to cancel its order for Talgo trains delayed testing, approval, and delivery of the Oregon equipment. Walker’s decision created a political firestorm in his state, as columnist Bruce Murphy wrote on May 31, 2012, on the Urban Milwaukee website:

“For more than a year, Talgo CEO Antonio Perez has held his tongue as detractors dumped on his company and its trains, until finally he could take no more. Perez cannot believe the State of Wisconsin has chosen to terminate two contracts it signed with Talgo nearly three years ago. His company has put almost three years of work into a project to build and maintain trains in a warehouse in Milwaukee’s 30th Street Corridor, the long-dormant industrial area Gov. Scott Walker has pledged to help revive with a new, $100 million dollar plan. Yet his administration will kill the only viable company now operating there, Talgo.

“‘What message does this send to other businesses?’ Perez asks. ‘They should be careful of doing business here because Gov. Walker does not keep his word. It’s like we’re talking about a Third World country, where people don’t have respect for their contracts.”

“Wisconsin’s commitment to Talgo and trains goes back to the days of Gov. Tommy Thompson, who served on the Amtrak board of directors. Thompson made Wisconsin ‘a leading member of the Midwest Regional Rail Initiative’ and ‘developed an implementation plan for high[er] speed passenger rail in the state,’ as a 2001 Blue Ribbon Task Force established by him noted.

“At the heart of that approach was Talgo, which won a 1999 bid process by three states, including Wisconsin, for a Midwest Regional Rail Plan that was never able to get funding. The 2001 task force, which reported its findings under Gov. Scott McCallum, continued that momentum, and his successor, Gov. Jim Doyle, signed two contracts with Talgo in 2009, one for the purchase of two trainsets (for the Milwaukee to Chicago corridor) and one for a 20-year maintenance contract. Doyle envisioned buying two more Talgo trainsets with the help of federal high speed rail funding, which would be needed to create the Milwaukee-to-Madison line.

“‘The state of Wisconsin has been planning this for ten years,’ says Nora Friend, Talgo’s vice president for public affairs. ‘It was Tommy Thompson’s vision that Jim Doyle put into implementation.’

“And Talgo was the natural partner. Founded in 1942, Talgo has 190 trainsets in operation across the globe, and has helped make Spain one of the world’s leading innovators in high speed rail. And because there is no American company that builds high speed passenger trains, Talgo, Inc., a separate subsidiary of the Spanish company created in the U.S. in 1993, is as good as it gets when it comes to creating American jobs. Only its frames are built in Spain; 65% of its parts are sourced from American suppliers, and all of its maintenance jobs are in America.

“In 1993, when Washington State decided to try Talgo trains for the Seattle-to-Portland line, there were doubts about how well it would work, so the state decided to try a six-month test replacing the Amtrak [Amfleet equipment]. The state leased the Talgo trains, found ridership went up immediately, then extended the lease, and finally bought the cars. Today it [operates] five Talgo trainsets and ridership has grown by more than 800% in 19 years.

“In Wisconsin, the state signed a July 15, 2009 contract to pay $47.5 million to purchase two trainsets, and a December 30, 2009, contract to pay Talgo $4 million annually for 20 years for maintenance of the trains. To help attract Talgo’s plant to Milwaukee, the city spent nearly $11 million and the state invested another $3.5 million to upgrade the 82-acre site Talgo now occupies, paying for new tracks and pavement and retrofitting and making additions to the old AO Smith warehouse Talgo now uses.

“While the election of Scott Walker put an end to the high speed rail plan for Chicago to the Twin Cities via Milwaukee and Madison, Walker made it clear he would honor the state contract for the Hiawatha line from Chicago to Milwaukee. ‘Gov. Walker called us,’ Friend recalls. ‘He said [he is] a supporter of the Hiawatha Project. I have no issue with it.’

“Friend accuses Walker of ‘manipulating data’ to justify killing Talgo’s contract for the Hiawatha trains. But news accounts suggest the Walker Administration was reluctantly painted into a corner on this issue by Republicans on the Legislature’s Joint Finance Committee.

“Republican committee members were highly critical of former Gov. Doyle and Talgo. Perez and Friend attended its meetings but were not allowed to speak to the committee. ‘Sen. Lena Taylor (a Milwaukee Democrat) said, the head of the company is here, why don’t you ask them to speak?’ Friend recalls.

“At the urging of the Joint Finance Committee, the state Department of Transportation asked the Legislative Fiscal Bureau to study the relative costs of sticking with Amtrak [equipment] vs. honoring the contract with Talgo. By then the state had already paid some $35 million to Talgo for the trains—‘more than 75% of their cost,’ Perez notes. The state would also have to spend money to store the unused trains, since there seems little possibility of a quick sale to any other state.

“Yet even if it ate those costs, the state would still save $10 million a year over the 20-year life of the contract with Talgo, a Legislative Fiscal Bureau study concluded. But the report did not take account of savings on fuel for the lighter Talgo cars, which the company says would save some $300,000 a year. Nor did it take account of potential revenue increases from switching to the state-of-the-art Talgo [equipment], which attracted a 40% increase in ridership in Washington State in the first year there. Nor did it factor in the $11 million spent by Milwaukee, nor the possibility that Illinois might chip in some subsidy for the Talgo trains (that state now pays 25% of the [operating] cost of the Hiawatha line).

“Friend charges that the study was based on assumptions ‘to create a scenario that would look bad for these trains.’

“Certainly, the legislature can dictate the assumptions to be used by the Fiscal Bureau. Jon Dyck, who did the Bureau’s study, concedes that the potential for fuel savings and ridership increases could lower the annual cost for Talgo’s trains, but he’s not convinced the impact would be that great.

“Adding insult to injury, Dyck’s report even suggests a way to evade a suit by Talgo, noting the terms of its contract are only applicable the Department of Transportation, so if it fails to meet its contractual obligations ‘due to insufficiency of funds provided by the Legislature,’ it would not be the department’s fault. That sort of legal trick would seem to send a ‘beware of doing business with Wisconsin’ warning to any potential private sector partners.

“Talgo’s executives seems stunned by this turn of events. If Tommy Thompson had created the rail plan, Friend says, Republicans would have been fine with it. But because it was a Democratic successor who succeeded in implementing it, ‘we are being punished for it. We went ahead in good faith continuing here, and now…’

“Friend trails off, searching for the right word: ‘It’s atrocious what’s happened.’”

Earlier this year, Scott Walker’s folly became Illinois’—indeed, the Midwest’s and even other states’—faster-track to improved passenger rail. Wisconsin’s high speed rail funding—like Florida’s, which Republican Gov. Rick Scott rejected in 2011—was redistributed to programs in other states. California got some of Wisconsin’s funds. Florida’s funds went to Amtrak, for the Northeast Corridor. As columnist James Rowen opined on March 22, 2013, on The Political Environment website:

“When Scott Walker forced the cancellation of a Madison-to-Milwaukee Amtrak line in 2011, he and legislators also broke a contract to build train equipment for several states at a developing Milwaukee factory in the economically-depressed 30th St. corridor—all to satisfy a Walker campaign promise to block the federally funded Madison-to-Milwaukee high speed rail construction plan that Walker said would cost the state $10 million annually (horrors! — when governors routinely budget billions to build and millions to repair, maintain, and plow highways)—but that state officials said would cost the state as little as $750,000 annually, and to deny a legacy to [Democratic] Gov. Jim Doyle, who had set these wheels in motion in cooperation with President Obama—even if it meant squashing a new industry in the state with regional and national implications. 

“Today, Illinois is celebrating the news that $808 million for new trains will be managed or built in Illinois for delivery to five states—with manufacturing to take place at a plant in Rochelle, Ill., that is about 25 miles south of Beloit. [Trainsets] capable of exceeding the 110-mph speed limit on the passenger rail corridor between Chicago and St. Louis will be bought for Illinois and four other states under a process the Illinois Department of Transportation (IDOT) will lead, officials said.

“The Federal Railroad Administration selected IDOT to manage the multistate procurement of [next-generation rolling stock] for high speed rail corridors in Illinois, California, Michigan, Missouri, and Washington State, Gov. Pat Quinn said. The Illinois Governor spelled it out: ‘Today’s announcement is part of the governor’s commitment to bring Illinois’ and our nation’s transportation systems into the 21st century. This decision by the federal government is a testament to Illinois’ role as a national leader in high-speed rail. This important multi-state procurement is a key to success for high speed rail throughout the nation, and I have directed my administration to move forward quickly.’

“More lost jobs for Wisconsin, where Walker’s 250,000 new jobs promise is failing in part because he killed rail construction, manufacturing, R&D, and repair employment in our state.

“In the initial announcement of the Milwaukee contracts: ‘Not only will Wisconsin’s Talgo trains be built in Milwaukee, the Talgo railcar assembly plant will support the delivery of Talgo trains throughout the country and create hundreds of jobs through its supply chain vendors in the Midwest and U.S. Last week, the state of Oregon announced it has purchased two Talgo trainsets that will be assembled in Wisconsin—saving both states millions of dollars.

“This means Walker and his ideologically motivated legislative allies snatched paychecks and economic security right out from under Wisconsin workers and families. Food off their tables. Shoes from the kids. Walker also sent wind energy jobs to Illinois.

“Walker a job creator? He did more than stick it to Milwaukee, where wind turbines are made and trainsets were on the table. He harpooned us. For God’s sake: What a fraud.”

The two Talgo trainsets built for Chicago-Milwaukee Hiawatha service are currently in storage as a lawsuit Talgo filed against the State of Wisconsin plays out. After an unsuccessful attempt at mediation, in November 2012 Talgo filed a lawsuit in Dane County Circuit Court asking Judge Juan Colas to declare that Talgo had the right to terminate the contract. If it prevails, Talgo would get to keep the trainsets and the $42 million the state has paid to it. The company claims it is owed another $10 million on top of what it has already been paid. If Talgo is able to keep the trainsets, it will sell them to another state, the company’s attorney said.

Talgo chief executive Antonio Perez said in a statement that Wisconsin has “used every conceivable excuse, whether fair or not and whether lawful or not, to ensure that Talgo did not receive what it bargained for, including by refusing to pay for the trains that Talgo completed. I don’t see how any company would in the future choose to do business with the State of Wisconsin when the state has shown that it cannot be trusted to honor contracts that it signed.”

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