Tuesday, December 09, 2014

Revisiting a national railroad trust fund

Written by  Charles P. Fischbach, for Railway Age
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President Barack Obama’s Fiscal 2014 budget for the Federal Railroad Administration (FRA) provides for a comprehensive multi-year reauthorization of expired portions of the Railroad Safety Improvement Act (RSIA) and Passenger Railroad Investment and Improvement Act (PRIAA) of 2008.

According to outgoing FRA Administrator Joseph Szabo, the fundamental objective of this reauthorization proposal is to develop a coordinated approach to enhance the nation’s rail system and institute an integrated strategy that addresses numerous safety requirements, and freight and passenger service improvements through capital investment, and research and development.

The major priorities integral to this federal multi-year commitment include modernizing the nation’s rail infrastructure. Such modernization involves upgrading the nationwide network of more than 50,000 switches and signals already in use; rehabilitating tracks, facilities, bridges and tunnels; adding a network of fiber-optic cable, cellular and satellite equipment and creating software platforms to run it all; and installing Positive Train Control (PTC).

According to the Association of American Railroads (AAR), the estimated amount freight railroads will invest in 2014 to modernize and maintain their infrastructure is approximately $26 billion. Freight carriers have already invested nearly $550 billion into the railroad network since 1980, including $115 billion in the past five years alone. From improvements to bridges and tunnels to new tracks and facilities, freight rail infrastructure is constantly maintained and upgraded to meet the demands of an evolving economy.

Even recognizing the freight railroads’ private investment of billions of dollars, the need for sustained and sufficient funding is critical when considering the magnitude of modernizing the nation’s rail infrastructure. This potential source of funding is rooted in the treatment of other modes of transportation, where Congress, over many years, has funded highway construction and infrastructure upgrades, and public transit and aviation projects through multi-year authorizations that provided guaranteed appropriations. The time is ripe for Congress to enact legislation providing similar guaranteed appropriations for railroad projects to help defray the estimated expenditures for rail infrastructure and transportation improvements.

In retrospect, the need for comprehensive federal funding for the nation’s railroads in not a novel concept. Decades ago, several elected officials became acutely aware of the inadequate funding arrangements for rebuilding and maintaining freight and commuter railroads, transit systems, and airport facilities. Their concern resulted in the proffer of legislative financial relief beginning with the legislation that Senators Edward Kennedy (D-Mass.) and Charles Percy (R-Ill.) introduced in the 92nd Congress.

Senator Kennedy’s bill, S.295, introduced on January 26, 1971, sought the enactment of a National Transportation Trust Fund for highway, rail, and airport research, planning and funding under the National Transportation Act of 1971. On March 23, 1971, Senator Percy proposed comparable legislation, S.1344, in conformity with a National Transportation Development Act. Neither bill, however, survived committee scrutiny in the Senate.

In the U.S. House of Representatives, then Representative Edward I. Koch (D-N.Y.), also in the 92nd Congress, introduced two legislative measures: H.R. 10627 on Sept. 13, 1971, and H.R. 13362 on Feb. 23, 1972. Unlike the long-term funding envisioned in the Senate bills, Koch’s first proposal was coupled with emergency relief grants to maintain rights-of-way. His second legislative proposal under an emergency mass transit passenger act authorized additional funding based on regional ridership. Later, Koch submitted another bill, H.R. 4571, on March 5, 1972, authorizing the establishment of a United Transportation Trust Fund to combine highway, mass transit, and airport programs under a common fund. Like the Senate, the House paid little heed to Koch’s legislative initiatives.

Also, in 1972, U.S. Secretary of Transportation John Volpe, with President Nixon’s concurrence, recommended a Single Urban fund to consolidate and permit some Highway Trust Fund monies earmarked for urban roads to be used for mass transit systems. This proposed use did not include freight railroads.

Although Secretary Volpe’s recommendation was not adopted by Congress, the federal government did begin the practice of allowing a portion of uncommitted highway funds to be made available for mass transit construction projects. The Ford Administration would subsequently question the diversion and use of Highway Trust Fund monies for other modes of transportation.

Renewed efforts to establish a railroad trust fund gained momentum in 1975 within the railroad industry and in Congress. The industry’s interest was expressed in the so-called “Union Pacific” plan that was submitted to Congress in July of that year. The funding mechanism under this plan appeared similar to the one underlying the Highway Trust Fund, which obtained revenue through user charges imposed on truckers.

Accordingly, it was perceived that a portion of uncommitted Highway Trust Fund monies would be diverted to a new railroad trust fund. Some members of Congress, however, advocated another source of funding and recommended imposing a surcharge on freight users of diesel fuel, including truckers, to create and fund a railroad trust fund.

The leading Congressional proponent of this separate fund was Representative Bud Shuster (R-Pa.) who supported the proposed surcharge because “it would be more palatable to the truckers to let [a] railroad tax go to railroads and some of the truck tax [diverted from the Highway Trust Fund] go to mass transit.” From Rep. Shuster’s perspective, this funding arrangement would establish a sense of “parity” between railroads and truckers. (“A trust fund for railroads,” Railway Age, Sept. 29, 1975.)

Congress’ attempt to establish a railroad trust fund was thwarted by the Ford Administration. Asaph Hall, the Federal Railroad Administrator speaking for the Administration, opposed such a fund and also opposed diverting uncommitted Highway Trust Fund monies to mass transit and railroads. Hall even voiced opposition to the Highway Trust Fund and unsuccessfully tried to have it terminated by Congress. His preferred means of helping fund the rebuilding of the railroads’ infrastructure was through the $2 billion in loan guarantees provided in the Administration’s Railroad Revitalization Act of 1975. In light of the conflict over the different methods of funding, Congress did not create a railroad trust fund.

In the wake of Congressional inaction, former Colorado Senator Gary Hart, in a speech to the National Conference of State Legislatures in August 1986, addressed the need to create a federal trust fund to systematically rebuild the nation’s transportation systems during the ensuing decades. Nevertheless, the type of mass transportation funding under an omnibus nationwide trust fund for railroads operating in freight and in inter/intra-city rail passenger service never materialized.

Creation of a railroad trust fund resurfaced in 2002, when it was reported that Representative William Lipinski (D- Ill.) planned to offer legislation establishing a $5 billion fund to pay for railroad infrastructure improvements. According to Lipinski, the fund he envisioned would provide money to upgrade the rails to “alleviate the worsening railroad bottlenecks that delay trains, block streets, and throw commuter railroads and Amtrak off schedule.” (“Lipinski to propose rail upgrade fund,” Bob Tita, Crain’s Chicago Business, Sept. 2, 2002.)

Without this infusion of federal funding for freight railroads to rectify these particular problems, Lipinski opined that “shippers [will] turn to the trucking industry for delivery services that slow-moving railroads can’t provide.” This concern was similarly addressed by railroad executives who acknowledged that “the projected doubling of freight rail traffic in the next 20 years would make an already-crowded rail system even more congested and overwhelm our ability to pay for more tracks, equipment improvements, and rail facilities.” (“Lipinski eyes aid for rail shipping,” Jon Hilkevitch, Chicago Tribune, Dec. 4, 2002.)

To generate the necessary revenue for these improvements, Lipinski proposed an increase in the federal gasoline tax; and new taxes on cargo or waybills, locomotives, and freight and passenger cars, and on Amtrak and commuter rail ticket sales. To supplement this revenue, Lipinski also proposed that percentages of the diesel fuel tax paid by freight railroads and import duties tax that were deposited in the General Revenue Fund, in addition to oil and gas royalties on federal lands, be reallocated to subsidize a railroad trust fund.

The railroad industry objected to his proposal with regard to the diesel fuel tax, of which they disapproved and wanted Congress to repeal instead. Lacking support from a key constituency, the railroad trust fund bill Lipinski planned to introduce did not come to fruition in 2002-2003, or in any subsequent session of Congress.

Despite past unsuccessful initiatives, Congress and rail industry executives should collaborate and shape a meaningful dialogue that will culminate in long-term financial relief for freight and commuter rail systems. To that end, new legislation should be introduced establishing a multi-billion-dollar “National Railroad Trust Fund” to help pay for transportation improvements. Such funding would be used to modernize the nation’s rail infrastructure in order to expand the capacity of freight railroads, relieve gridlock, and improve the quality of life in communities where residents are affected by freight trains blocking grade crossings and causing noise and air pollution while idling for hours.

In the latter respect, improving and expanding the nation’s rail infrastructure through a reliable and dedicated source of funding will inevitably increase various industries’ use of freight rail. The scope of such usage will help reduce our country’s air pollution and levels of carbon emissions caused to some degree by long-haul truck activity. This point has been addressed by John Lovenburg, Vice President of Environmental, BNSF Railway, who observed, “One intermodal freight train is equivalent to removing 280 long-haul trucks from the nation’s roadways.” Based on this observation, he, too, believes that using freight rail instead of long-haul trucks to transport industrial commodities and equipment will ultimately result in extensive environmental air-quality benefits. (The Wall Street Journal, July 5, 2014.)

The creation of a railroad trust fund would complement existing aviation and highway trust funds. In this regard, the proposed funding mechanism to improve the nation’s railroad system (including, within its parameters, intercity commuter rail service like Amtrak) would likely involve the reallocation of certain current revenue and the consideration of a series of new taxes.

Specifically, the monies earmarked for a railroad trust fund could be produced from some of the revenue sources that former Rep. Lipinski suggested in 2002. Although the rail industry may still object to any diversion of taxes railroads pay on diesel fuel into a trust fund to pay for capital improvements, the underlying reason for such an objection can be traced to the rail industry’s desire to have the diesel fuel tax repealed and not, as indicated by the “Union Pacific” plan submitted to Congress in 1975, to the creation of a railroad trust fund based on other revenue sources as well.

Whatever objections are raised should not deter Congress from creating and enacting a “National Railroad Trust Fund.” As noted, this fund will be used to defray a portion of the costs the freight railroads would otherwise incur and pay from their own sources of revenue to modernize the nation’s rail infrastructure and facilities.

Moreover, the savings that freight railroads would realize where infrastructure improvements are, to some extent, paid from monies distributed under a railroad trust fund might serve to create jobs in this industry. Judging from information ascertained by AAR, the freight railroads have estimated that they would hire thousands of employees in the immediate future. Conceivably, the savings realized as a result of a railroad trust fund can be utilized to train new hires to assume the tasks associated with the modernization of the rail infrastructure.

Record investments and hiring by the nation’s railroads clearly demonstrate, in AAR’s opinion, how America’s growing economy “rides the rails.” These facts support the need for a “National Railroad Trust Fund.”

Charles P. Fischbach is ans attorney and President of Charles P. Fischbach Ltd., Chicago. From 1977 to 1982, he served aas Chief Labor Relations Officer at the Chicago, Rock Island & Pacific Railroad. He authored the "Bankrupt Railroad Preservation and Employee Protection Act of 1982," which provided $35 million in labor protection for former Rock Island employees. From 1985 to 2012, Fischbach served as an arbitrator in the public and private sectors. 

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