SURFACE REFLECTIONS BY LAWRENCE H KAUFMAN: IF YOU CAN'T BEAT 'EM, EMBRACE 'EM

SURFACE REFLECTIONS BY LAWRENCE H KAUFMAN: IF YOU CAN'T BEAT 'EM, EMBRACE 'EM

With varying degrees of zeal or animosity over the last 30 years, U.S. freight railroads have wished that passenger service, particularly that provided by Amtrak, the national rail passenger system, would go away. Now, though, a rapprochement may be in the making. Amtrak increasingly is being viewed not as a nuisance that gets in the way of freight operations, but as a vehicle for obtaining much-needed public funding for rail infrastructure.

The scenario is fairly simple.Railroads need to invest large amounts of capital in order to provide improved service and handle the traffic growth that improved service will generate. Current returns on investment don't cover the cost of capital and result in depressed railroad stock prices, which makes it even more difficult to raise new capital.

Add into the mix the fact that all of the modes of transportation with which railroads compete receive public funding.

Inland water carriers operate on publicly provided rights of way and pay only a fuel tax that does not cover maintenance much less capital cost of the facilities they use. Motor carriers pay user taxes that come closer to paying for the aliquot share of the highway system, but every independent study over the last quarter century has concluded that they do not pay their fully allocated share.

Further, barge and truck operators pay user charges only when they operate. If business turns down, they can park their vehicles and stop paying user charges, which allows them to price closer to variable cost. But railroads have large fixed costs in their infrastructure that must be paid whether business is good or not. Railroads not only maintain their own rights of way, they get to pay ad valorem (property) taxes for the privilege. As the late Graham Claytor, former president of Amtrak, once said: 'I've never seen a Greyhound snowplow out there.'

It's difficult to conduct the public investment debate comparing apples to apples. The railroad right of way is, of course, private. Until the open-access lobby has its way, the rail track system is not shared by competitors except where specific arrangements called trackage or haulage rights have been negotiated. In the eyes of many, that's reason enough to bar railroad access to public funding.

Let's look at this another way.

We are fortunate to live in a country with a growing economy. Highways increasingly are congested and in many parts of the country states are having a tough time coming up with maintenance money to keep highways in good condition. Highway construction costs are approaching the astronomical and $100 million a mile is common in urban areas.

Cost alone makes it improbable that we're going to build a lot of additional highway mileage. The same applies to inland waterways, where an investigation of the civil division of the Army Corps of Engineers revealed that the 'dig-we-must' mentality has led to fiddling with numbers concerning the cost benefits of the lock-and-dam system to justify projects that do not meet criteria for public investment.

Railroads are the one mode that can expand capacity incrementally and at lower cost. But where is the public benefit that justifies spending taxpayer dollars on private property? Aha! Amtrak and commuter rail.

Highways and waterways aren't the only congested rights of way. The nation's airport and airway system is perhaps in even worse shape - and their aren't any new airports being built in the United States. An occasional new runway at Denver or Dallas/Fort Worth or Atlanta will contribute only minuscule capacity to the national system. The FAA-managed airway system is trying to operate in the 21st century with 30-year-old, 20th-century technology.

Demand for high speed passenger rail service is growing. At the recent Southeast High Speed Rail Conference in Richmond, Va., I was struck by the difference in attendance. Conferences like this one used to draw rail fans who tended to have a gleam in their eyes and a disconnect from reality. Not any longer. The Richmond meeting drew business and government leaders. One panel of five executives included the president of a regional Federal Reserve Bank. Any one of the panelists could have been a keynote speaker.

Momentum is building for increased public funding to develop designated high-speed rail corridors. States recognize the need. Business recognizes the need. The prospect of real rail growth will bring rail labor into the debate. Rail equipment suppliers can hardly wait. Bottom up pressure eventually will result in money being made available.

Here is where railroad-Amtrak rapprochement comes in. The same dollars that politicians might not want to justify giving to railroads can be given to Amtrak and the states for high-speed rail investment. That way, public expenditures will go for public purposes. The freight railroads already have the right of way. Rail capacity can be built for less than new highways or locks and dams.

We're already seeing a move in the East. Norfolk Southern Corp. is seeking public funding to double-track its Shenandoah line that parallels Interstate 81, which is scheduled to be widened by four lanes at far more than the cost of expanding rail capacity. NS maintains that expanded rail capacity will benefit the public by taking thousands of trucks off the highway at lower cost, and that it can repay the public investment through per-trailer charges or a similar mechanism.

This one isn't likely to happen in the next year, but watch for the pressure to grow on Capitol Hill.

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Surface Reflections will appear next in the first week of January. I wish all of you a very Happy New Year. For shippers, may your freight consistently be delivered on time and damage free. For carriers, may you deliver your customers freight on time, damage free and receive a fair price for your service. For all of you who helped with this column over the last year by providing suggestions and criticism, please accept my sincere appreciation.

Lawrence Kaufman can be reached at lkauf81509@aol.com.