Rail re-regulation may be catastrophic public policy
America has the greatest freight rail network in the world. Our system is the most efficient of its kind, and relies on virtually no subsidies from the federal government. Over a century ago, America’s railroads ushered in the great advancements in industry, which sparked America’s emergence as an economic power on the world stage. America’s railroads revolutionized transportation, gave promise to freedom of movement, and made business more efficient.
Today, we find ourselves in the midst of a freight rail renaissance. America’s freight railroads carried over 2.26 billion tons of freight in 36 million cars over 140,000 miles of track in 2008. Dollar for dollar, the freight rail industry carried this cargo more efficiently and at a lower operating cost than other modes of transportation with rail fuel efficiency up 94 percent since 1990.
Yet given their successes and self-reliance, the railroad industry is in Congress’s crosshairs. Stark choices will be made that will have important implications for railroads and the American economy. The question is this: Will America’s railroads continue to be given the freedom necessary to grow their industry without direct interference by the federal government, or will Congress re-regulate it?
Re-regulation would be a potentially catastrophic public policy that could erase 30 years of positive growth, and threaten to reduce the railroads to the ruinous decreases in services and disinvestment not seen since the 1970s. I firmly believe that if Congress re-regulates rail, it will be only a matter of time before our once self-reliant railroads are forced to rely on taxpayer dollars to invest in infrastructure and safety improvements as federal mandates mount.
These debates are occurring at a time when the rail industry is already dealing with massive new mandates that threaten to undermine our rail renaissance. Recent unfunded mandates to retrofit equipment with Positive Train Control systems are expected to cost in excess of $10 billion, with limited operational benefit. This mandate will divert scarce capital from critical investments in one of the most capital-intensive businesses in the world.
The rail industry already spends a large amount of its revenues on capital investment. Between 1996 and 2005 freight rail spent 17.2 percent of its revenue on capital spending. Compare this number to other industries in the same time period. Electrical utilities invested 12.6 percent of their revenues in capital investment; 4.4 percent for the R&D heavy computer electronics industry; and only 2.7 percent of revenues for the petroleum and coal products manufacturing industry.
If railroads are not free to put their dollars into the projects that make the most economic sense, and are instead forced to spend their profits complying with legislative mandates, the long-term viability of the industry is threatened.
The Obama administration’s most recent budget also proposed a new tax on freight rail to pay for the Federal Railroad Administration’s safety enforcement program. However, the rail industry does not have unlimited capital to pay for new regulatory measures imposed by Washington. Fortunately, this proposal has received bipartisan opposition on the Transportation and Infrastructure Committee. To proceed with this new tax would be both shortsighted and harmful.
Instead of penalizing the rail industry for its success, Washington should be promoting new investment to keep America’s railroads in the driver’s seat of the global economy. That’s why I support tax credits for the expansion and rehabilitation of the nation’s rail infrastructure.
Tax credits are a proven policy tool to encourage businesses to invest in worthwhile projects. Because the railroads still pay for their projects under tax credit plans, tax credits ensure that the railroads will only pursue projects that make sense. Direct grants, on the other hand, could be seen as “free money” that would not be subject to the same rigorous business decisions. There are two tax credit bills that I support, including a 25 percent tax credit for rail projects that expand the rail network and ease congestion, and a short line tax credit that expired at the end of last year.
America’s railroads are at a crossroads. The direction Congress moves will have a lasting impact on American competitiveness. Washington must resist the urge to over-regulate an industry that has proven to be largely self-sufficient and capable of weathering economic stress. I will do my part as a member of the Transportation and Infrastructure Committee to make sure it does not happen.
Shuster is a member of the House Transportation and Infrastructure Committee.