Sunday, July 13, 2008

America's rail crisis

From the 14 July 2008 Greater Niagara Newspapers

By Bob Confer

The Golden Spike is one of the most iconic items in American history. When this spike was driven into the Transcontinental Railroad in 1869 it marked the union of the West Coast and East Coast, fulfilling our young nation’s Manifest Destiny. The spike proved to be just as golden in a figurative sense as it was in a literal sense as the rail’s ability to move freight and people across the continent in days and not months instantly brought on a Golden Age of economic growth.

The rail system is just as important now as it was back then. Many people may perceive it to be an archaic form of transportation, but it is key to our past, present, and future. There are 140,000 miles of track in the US, over which 2 billion tons of freight are moved annually. This accounts for approximately 15% of all freight tonnage transported across the States and its contribution been growing at a 5% annual rate. This tame growth in rail freight is expected to explode in the next few years as high gasoline prices remain the norm, stifling development in truck transportation. Because of that $4 gas as well as roadway congestion brought on by our rapidly-growing population (there will be a third more Americans by 2040) and the shortage of truck drivers, too, the expectations for rail freight are expected to double by 2030.

Unfortunately, as good as that may sound for the rail companies, it’s nearly impossible. The rails are already congested as it is. Due to outdated single track systems in heavy trade corridors and severely-undersized hubs in major metro areas, goods often times can’t move at rates that logistics managers would hope. Case in point, Chicago handles over 70,000 trains per year which is over a third of US train traffic. Because of limitations in the antiquated 150-year old hub it is not uncommon for trains to be stranded in the Windy City for two or three days at a time because of gridlock.

This boom in train traffic, at once welcoming and frustrating, was facilitated by the Staggers Act of 1980. After some very dark days in the 1970’s when the rails suffered greatly because of the accumulation of decades of burdensome government regulation, the act cut off the government’s invisible hand, deregulating the market and allowing private investment to take hold. Capitalists were able to streamline services and markedly improve the efficiency, profitability, and affordability of rail freight. In 2006, these same investors pumped in an astounding $8 billion in infrastructure improvements, double what they did five years earlier. But, that’s not enough and the government may have to get involved again for the benefit of the common good.

It is estimated that upgrading the network will cost $195 billion to achieve what is required is capacity by 2030. All things being equal, the private sector will be able to support 75% of that need. That leaves nearly $50 billion that needs to be addressed somehow, maybe by the public sector. This can be accomplished in one of two ways, direct investment or incentives.

Being that the rails benefit all by moving goods to and fro and driving our consumer economy, a case could be made for public funds. $50 billion over 10 years is chump change by federal standards, considering that the federal budget for 2009 is pegged at $3.1 trillion. But, these are public funds nonetheless and should not be used to provide life support to a private enterprise. Yes, the consumers will benefit from the expenditure but more so than they will the owners of the rail lines. The point of the Staggers Act was to eliminate such bonding.

That’s why the only feasible option for improving our nation’s infrastructure is tax incentives that will induce the firms to further their expenditures. Analysts believe that a 25% tax credit for new rails will cause the railroad companies to increase their annual spending by 75% which should fully fund their needs. What the federal government forgoes in tax receipts it will more than make up for in the form of taxes from the economic development allowed to occur by the ability of the railroads to meet what is expected by our nation’s consumers. This tax credit is manifested in the Freight Rail Infrastructure Capacity Expansion Act of 2007, something that has been in Washington’s limbo since the Spring of 2007.

Hopefully the next Congress picks up this cause and can move the bill through the House and Senate. If they don’t, our economy (once it gets back on track) could be limited in how far it goes by how far our products and resources cannot go.

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