Texas is proud of the fact that it plans to build a high-speed rail network linking Houston, Dallas-Fort Worth, and San Antonio without federal money. So why has the $5 billion project touched off a lobbying battle in Washington? It turns out that building the Texas fast-rail system hinges on the indirect subsidy of tax-exempt industrial-development bonds. And Texas wants Congress to exempt the rail link from the limits that it has imposed on such bonds. Morrison Knudsen Corp. in Boise, Idaho, the prime contractor for the rail system, is spearheading the lobbying for such a waiver. But Dallas-based Southwest Airlines Co., which stands to lose intrastate traffic to the new fast trains, is leading the counterattack.

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