Asking the Real Questions about Capacity

Asking the Real Questions about Capacity

It's easy to ask questions. The real skill comes from knowing what questions to ask. 

Too many times when people focus on railroads they ask the wrong questions. They focus on short-term events or conditions instead of looking at the big picture. And the big picture is the coming freight transportation crisis in this country and what we should do to avert it.

Already traffic congestion costs our national economy tens of billions of dollars every year. Bad as that is, it's only going to get worse unless action is taken now to expand our nation's transportation infrastructure.

Consider this: By the year 2020 freight transportation in the United States will grow nearly 70 percent. Imagine almost twice as many trucks and cars on our local roads and highways. Picture the increased danger, wasted personal time, lost business productivity, additional pollutants and overall reduced quality of life. 

There is no single solution to this looming transportation crisis. It will require a concerted and coordinated effort to expand capacity across all modes. Transportation experts agree that freight rail most assuredly must be a significant part of the transportation solution.

Yet today the rail system is already approaching capacity at certain times of the year and in some areas of the country. That capacity to carry freight must be increased to take the strain off the highway system and retain the competitive edge that a fluid, reliable transportation system gives the United States.

A recent study by the American Association of State Highway and Transportation Officials pointed out if the nation's railroads continued with their current level of investment, the railroad industry would not keep pace with its proportionate share of the increased freight traffic. And that level has increased as earnings have permitted. This year, the industry will invest a record $8.3 billion to improve and expand. But that's not enough. According to AASHTO, railroads would need to spend $10 billion or more annually to keep up with demand.

If we don't close that gap, the consequences would be substantial and unpleasant. According to AASHTO, this would shift additional traffic to the highway system, "costing shippers $162 billion, costing highway users $238 billion (in travel time, operating and accident costs) and adding $10 billion to highway costs over the 20-year period. Inclusion of costs for bridges, interchanges, etc., could double this estimate."

How do we close that gap?

One way would be by supporting the bipartisan Freight Rail Infrastructure Capacity Expansion Act, introduced by Sens. Trent Lott, R-Miss., and Kent Conrad, D-N.D., and endorsed by a wide-ranging group of businesses and trade associations. This legislation would provide a 25 percent tax credit for businesses investing in new rail track, intermodal facilities, rail yards, locomotives and other rail expansion projects.

AASHTO and other transportation experts say that a relatively modest public investment in railroads will translate into dramatic public benefits, including reduced highway congestion, reduced fuel consumption and reduced air pollution.

Railroads are one of the nation's most capital-intensive businesses, investing on average 17 percent of our revenues on infrastructure, compared with the 3.7 percent invested by the average U.S. manufacturer.

But even with this record level of investment, we are not adding infrastructure fast enough to maintain our long-term market share.

Americans want freight to move by rail. They said so by a large majority in a recent Harris poll. We all know that there just isn't money or public sentiment to keep building more and more highways.

The substantial expansion of rail infrastructure required to meet the coming freight transportation crunch clearly will benefit the public, and it's fair for government to pay its share for those public benefits.

Railroads are responsible to our shareholders in making sure that our investment in infrastructure is justified by the potential returns. Tax credits will serve to speed investment in rail infrastructure and push it to areas where the returns might not be sufficient on their own. Lott's legislation will also promote tax equity among modes. Railroads fund, build, maintain and pay taxes on our tracks and facilities and must depreciate these investments over many years. Highway, water and air carriers, on the other hand, benefit from substantial taxpayer support in the form of publicly financed infrastructure enhancements and can deduct what they do pay in user fees each year.

While the legislation would not change the taxpayer support of competitive modes, it would allow the railroads to similarly deduct their annual infrastructure investment.

Tax credits also will promote equity and competition among transportation modes. Railroads fund, build, maintain and pay taxes on our tracks and facilities. Highway, water and air carriers, on the other hand, benefit from substantial taxpayer support in the form of publicly financed infrastructure enhancements.

Tax credits will enhance the efforts of more than just railroads. Trucking companies, ports, shippers, receivers and other transportation-related businesses would be eligible for the credit, too.

Tax credits will make a real and noticeable difference. They deserve the support of all transporters and shippers alike.