Intermodal Rail Freight: A Role for Federal Funding?

Order Code RL31834

CRS Report for Congress

Received through the CRS Web

Intermodal Rail Freight:

A Role for Federal Funding?

Updated August 18, 2004

John F. Frittelli

Specialist in Transportation

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Intermodal Rail Freight: A Role for Federal Funding?

Summary

As the freight industry enters the peak fall shipping season, many government

officials and industry observers are concerned that the railroads could be

overwhelmed by record volumes of freight. The Surface Transportation Board, the

federal agency that regulates railroads, has taken the unprecedented step of requiring

each railroad to submit a plan on how they intend to prepare for this year’s peak

season. Other industry experts point to recent service disruptions as “early warning

signs”of a possible “capacity crunch” in the nation’s intermodal rail system.

Keeping up with trade growth will require substantial investment to expand

capacity on rail rights-of-way. However, many rail analysts question whether the

freight railroads have the financial means to add capacity at sufficient pace to meet

the anticipated demand. This raises the issue of whether the government could or

should assist the railroads in expanding the capacity of their infrastructure. And if

so, how a funding program could be arranged. Several proposals have been

introduced in the 108th Congress to accelerate investment in the rail network.

A number of concerns have been raised about federal assistance for the

development of freight rail facilities. Some contend that an aid program is

unnecessary, others object to providing public aid for privately owned infrastructure,

and some warn that public aid will do more harm than good.

On the other side of the issue, a number of public benefits can be associated

with improving freight rail infrastructure. One view is that public aid should be

directed to those rail or rail-related projects which improve passenger mobility.

Projects that mitigate grade-crossing delays or upgrade passenger rail corridors are

primary examples. Another popularly held assumption is that public aid should be

provided because there are energy, safety, and environmental benefits to rail

transportation. There are also those who support public aid for rail projects for the

purpose of enhancing freight mobility. This view holds that freight railroads are so

critical to the national economy that upgrading and expanding their infrastructure is

a national concern.

Freight railroads primarily finance projects themselves with almost no

government assistance. The railroads have been investing heavily in their service

capacity, particularly with respect to intermodal terminals. The question is if their

pace of investment is sufficient to meet anticipated demand. There is a growing

sense by some parties that public support for intermodal rail projects must become

more common if growing congestion and inefficiencies in the nation’s intermodal

transportation system are to be corrected.

One proposal is to create a rail trust fund similar to the highway, inland

waterway, and aviation trust funds to provide a regular funding stream. Others

suggest that existing federal programs could be modified to make it easier for freight

rail projects to qualify for federal monies. A related issue is how projects deserving

public support could be identified. This report will be updated as warranted.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

What is Intermodal Rail? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Historical Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Factors Inspiring this Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Economic and Trade Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Highway Congestion Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Grade Crossing Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Railroad Revenue Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Concerns with Federal Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Inadequate Revenue or Inadequate Competition? . . . . . . . . . . . . . . . . . . . . . 7

Private Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Detrimental to Industry Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Potential Congestion Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Public Benefits of an Aid Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Passenger Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Freight Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Infrastructure Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Military Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Current Funding Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Private Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Federal Funding is Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

State and Local Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

The Alameda Corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Policy Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Modal Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Rail Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Multimodal Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Modify Existing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Railway User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Intermodal Freight Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Legislative Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

List of Figures

Figure 1. Rail Intermodal Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Intermodal Rail Freight:

A Role for Federal Funding?

Introduction

As the freight industry enters the peak fall shipping season, many government

officials and industry observers are concerned that the railroads could be

overwhelmed by record volumes of freight. Railroads move approximately 40% of

the nation’s freight as measured in ton-miles (the movement of one ton of freight one

mile) and 6% as measured in value. The Surface Transportation Board (STB), the

federal agency that regulates railroads, has taken the unprecedented step of requiring

each railroad to submit a plan on how they intend to prepare for this year’s peak

season. Other industry experts point to recent service disruptions as “early warning

signs”of a possible “capacity crunch” in the nation’s intermodal rail system.1 They

contend that the intermodal rail network is in a fragile state where seemingly local

problems quickly spread throughout the national network because the system is

operating at maximum capacity.

Peak season shipping problems, according to some, are indicative of a longerterm, underlying capacity problem. A recent Transportation Research Board study

entitled Freight Capacity for the 21st Century points to several trends in the rail

industry as consistent with a condition of tightening capacity.2 These trends include

long-run contraction of the extent of the network, declining net capital stock, rising

profits, slowing train speed, and sporadic service failures. Meanwhile, growing

congestion on certain portions of the nation’s interstate highway system, has also

focused the interest of policymakers on the capability of the railroads to divert more

truck traffic to the rail mode. And increasing demand for commuter rail, whose

trains run on freight track in parts of the country, has put further strain on rail

infrastructure capacity. A recent DOT Inspector General report finds that, “Despite

the [freight] railroads’ investments, certain parts of the railroad system have become

severely congested and cannot accommodate the conflicting demands of both

increasing freight movement and increasing commuter and intercity passenger rail

traffic.”3

1

See for instance, “Intermodal Storm Ahead,” Traffic World, July 12, 2004, p.11.

“Warnings on Intermodal Rail,” Journal of Commerce, March 29-April 4, 2004, p.47.

“Capital Crunch Constrains Intermodal Growth,” American Shipper, Nov. 2003, p. 20.

2

Transportation Research Board, Freight Capacity for the 21st Century, Special Report 271,

National Academy Press, Washington, D.C. 2003, p. 65.

3

U.S. DOT, Office of Inspector General, FRA Oversight of Use of Slow Orders and Track

Reclassification, December 10, 2003, Control # MH-2004-047.

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Keeping up with trade growth, diverting more truck traffic to rail, and

accommodating more frequent passenger trains will require substantial investment

to expand capacity on rail rights-of-way. However, many rail analysts question

whether the freight railroads have the financial means to add capacity at sufficient

pace to meet the anticipated demand. This raises several important but complex

policy issues for Congress.4 Should federal rail policy remain relatively “hands-off”

or does the current situation require a more activist policy? Should government

assist the railroads in expanding capacity on the intermodal network? If so, how

should government funding be arranged? How would rail projects deserving

government support be selected?

The first section of this report provides historical context and reviews some of

the factors inspiring debate on these questions. The next section examines arguments

for and against government involvement in financing rail infrastructure and discusses

the types of rail projects being proposed for public funding. The following section

describes current funding mechanisms and discusses the pros and cons of some

alternative mechanisms for funding and planning rail infrastructure improvements.

The last section identifies legislation introduced in the 108th Congress to accelerate

the pace of investment in rail infrastructure.

Background

What is Intermodal Rail?

Intermodal rail is the movement of cargo in combination with at least one other

mode of transport but under a single bill of lading. Although intermodal rail could

include many types of commodities, such as grain or coal, the rail industry limits the

term to mean the carriage of truck-trailers (with wheels) or containers (without

wheels) by rail. Trucking is critical to intermodal rail transport. Trucks are utilized

for the pick up or delivery of the trailer or container to the shipper at either end of the

rail segment.5 Import and export moves through seaports involve water, in addition

to rail and truck modes. Import and export containers may be transferred directly

between ship and rail if the port has an “on-dock” rail facility. If the rail facility is

located “off-dock,” a truck will transfer the container between the port and railroad.6

A truck may also transfer a container between two rail terminals if the transit

involves two rail networks that do not share a common terminus.7

The most common forms of intermodal rail are trailer-on-flatcar (TOFC),

container-on-flatcar (COFC), and double-stack container (DST). Railroads generally

4

For further information on this topic, see also Jeremy F. Plant, “Railroad Policy and

Intermodalism: Policy Choices After Deregulation,” The Review of Policy Research, June

22, 2002, and John M. Scheib, “Government and Industry Partnership to Develop Rail

Infrastructure in the United States,” Transportation Quarterly, Summer 2002.

5

Often referred to as “store-door” trucking or a “door” move.

6

Often referred to as “bridge” trucking.

7

Often referred to as “crosstown” trucking.

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serve as wholesale operators for intermodal rail services, rather than dealing directly

with shippers. Their intermodal customers are parcel carriers, trucking companies,

ocean container lines, and intermodal marketing companies (IMCs).8

Figure 1 shows the relative traffic densities (based on tonnage) of intermodal

rail routes in the United States.

Figure 1. Rail Intermodal Flows9

(Rail freight density in tons)

Source: U.S. DOT, FHWA, Office of Freight Management and Operations.

Historical Context

Although today the railroads may be operating close to their physical capacity,

it was not very long ago that they were burdened with too much capacity. This

dramatic change in circumstances over the past 20 to 30 years is largely due to

technological innovations coinciding with deregulation and trade growth.

8

United Parcel Service is the railroads’ largest intermodal customer.

9

John Williamson, CRS Technical Information Specialist, assisted in producing this figure.

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A significant development in the recent history of intermodal rail was the

implementation of double-stack container cars in the early 1980s. In 1984, only one

double-stack train per week originated from the West Coast and served only one

inland market. Today over 241 double-stack trains per week originate on the West

Coast and serve all the major U.S. long haul markets.10 Double-stack cars allow

railroads to potentially carry double the amount of containers for a given train length.

This produces cost savings in terms of per unit crew costs and shortens the length of

track needed in switching yards. However, double-stack trains also require higher

clearances for overpasses and tunnels and require expensive lift-on and lift-off

equipment in terminals.

Because intermodalism (and containerization) is a relatively recent

phenomenon, the rail network was largely built before and is not specifically

designed for this type of cargo. This creates some inherent inefficiencies in the

network’s connectivity. For instance, to move a container across the country requires

carriage by more than one railroad. In many instances, depending on the destination,

the western railroad’s track does not directly connect to the eastern railroad’s track,

often requiring a truck to transfer the container “crosstown” between rail terminals.

This most often occurs in Chicago where it is estimated that 3,500 containers a day

are transferred by truck between rail terminals.11 This truck traffic contributes

significantly to the region’s road congestion. St. Louis, Kansas City, Memphis, and

New Orleans are other important interchange points between the eastern and western

rail networks.

When double-stack trains first came into use in the early 1980s, the new

intermodal traffic consumed under-utilized rail capacity. Today, however, due in

large part to deregulation, supply and demand are closer to equilibrium. As a result

of a series of de-regulatory acts, most notably the Staggers Rail Act of 1980 (P.L. 96448), and culminating in the Interstate Commerce Commission Termination Act of

1995 (P.L. 104-88), railroads were given more freedom to abandon unprofitable lines

and concentrate traffic on a limited number of high density routes. Deregulation also

spurred industry concentration. Today there are six large freight railroads in North

America: two in the West, two in the East, and two in Canada (with U.S. routes).

The disappearance of excess capacity was also partly a result of the decline of

passenger trains. To support passenger train operations, multiple track, yard

bypasses, and sophisticated signaling systems were installed. This infrastructure

generated additional capacity by allowing trains of varying speeds to use the same

rights-of-way. However, the Rail Passenger Service Act of 1970 created Amtrak,

allowing the private railroads to focus on moving freight. The freight railroads

“economized by strategies such as single tracking and lowering maintenance (track

10

AAR, AAR News, “Intermodal the ‘Best Means’ of Addressing the Dramatic Increase in

Freight Demand,” available at [http://www.aar.org].

11

Critical Cargo: A Regional Freight Action Agenda, Business Leaders for Transportation,

April 2002, p. 7.

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speed) standards.”12 If the railroads are to absorb additional traffic forecasted, or

contribute to highway congestion relief by carrying additional truck traffic, they will

need to make (and are making) substantial investments to expand their track and

terminal network.

Factors Inspiring this Issue

Economic and Trade Growth. Concerns about the pace of investment in

intermodal rail facilities is fueled by economic and trade growth. The DOT

completed a freight forecasting study with DRI-WEFA (now known as Global

Insight) which predicts that over the next 20 years, U.S. freight volumes, in tons, will

increase by nearly 70%. International freight volumes are growing faster than

domestic volumes and are forecasted to nearly double by 2020.13 A major study on

freight rail expects that rail traffic, measured in ton-miles, will increase 47% by

2020.14 This forecast continues trends experienced in recent years. Intermodal has

been the fastest growing segment of rail traffic in the last decade. In the last two

decades, intermodal rail volume has almost quadrupled from 3.1 million trailers and

containers in 1980 to 12.1 million units in 2003.15 In 2003, intermodal surpassed

coal for the first time as the leading revenue source for U.S. freight railroads.16 Much

of the increase in intermodal volumes is the result of burgeoning trade volumes,

particularly in marine containers. Approximately half of U.S. intermodal rail traffic

is generated by imports or exports.

In addition to trade growth, port rationalization strategies by ocean carriers is

also fueling the demand for intermodal rail services. In anticipation of rising

container volumes, ocean lines are deploying larger container ships. Because there

are economies of ship size at sea, but dis-economies of ship size at port, these larger

container ships are calling at fewer U.S. ports. Fewer port calls will, in turn, place

greater reliance on the railroads to disperse and gather container cargo to and from

the hinterland.

Highway Congestion Relief. Many observers believe that intermodal rail,

which is essentially trucks on trains, can provide at least a partial solution for

relieving highway congestion. According to the Texas Transportation Institute’s

Urban Mobility Study, the cost of traffic congestion nationwide totals $78 billion in

12

Robert E. Gallamore, “Perspectives and Prospects for American Railroad Infrastructure,”

Infrastructure, Summer 1998, p. 36.

13

U.S. DOT, Federal Highway Admin., Press Release FHWA 41-02, Oct. 3, 2002. For

further information on DOT’s freight forecast, see [http://www.ops.fhwa.dot.gov/freight].

14

American Association of State Highway and Transportation Officials, Freight-Rail

Bottom Line Report, n.d., p. 51.

15

16

AAR, Railroad Facts.

Craig F. Rockey, “Progress and Promise of Rail Intermodal,” Journal of Transportation

Law, Logistics, and Policy, v. 71, no. 2, Winter 2004.

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wasted time and fuel.17 In the 1990s, truck traffic increased by 37%18 and is expected

to increase by more than one-third by 2010.19

Grade Crossing Conflicts. As rail traffic increases, at-grade rail-highway

crossings increasingly delay automobile and truck traffic. A freight train can be over

a mile long, blocking several road crossings at a time. Most rail terminals are located

in urban areas. Long, slow-moving trains can also delay emergency vehicles.

Replacing at-grade (ground-level) crossings by constructing overpasses,

underpasses, rail trenches, or even relocating track or roads so that they do not

intersect, are very expensive projects. In some cases, railroads have contributed to

the cost of grade-separation projects if they believe the project will improve train

speed. In other cases, railroads may not be interested in the project because they are

satisfied with train speed through the area and believe the project primarily benefits

vehicular traffic. There are also some potential disincentives in law that may cause

railroads not to seek a greater role in crossing elimination projects pursued by

localities.20 Because of the expensive nature of grade separation projects, and

because it is a uniform problem occurring nationwide, many advocate that the federal

government provide substantially more funds to mitigate this problem.

Railroad Revenue Shortfall. Many rail industry observers are concerned

with the industry’s ability to invest in added capacity to meet anticipated demand.

Current investment levels appear to approach the level needed to maintain the

system, but not to add capacity. A railway consultant has estimated that Class I

railroads need to invest $8 billion per year just to maintain their network in its current

condition.21 However, in the decade of the 1990s, total Class I rail capital

expenditures fell far short of this mark, ranging from $4.5 billion in 1990 to $6.6

billion in 1999.22 The Surface Transportation Board (STB)23 has found that most

railroads are “revenue inadequate,” meaning that the railroads can not earn enough

17

As quoted in “Hurry Up and Wait,” Logistics Management and Distribution Report, June

2001, p.17.

18

Stuck in Traffic: How Increasing Traffic Congestion is Putting the Brakes on Economic

Growth, The Road Information Program, May 2001, [http://www.tripnet.org].

19

According to the American Highway Users Alliance, as quoted in Traffic World, June 4,

2001, p.9.

20

Railroads are not required to contribute more than 5% of the cost of the project which may

be limited to that portion of the project that crosses their right-of-way. See 23 CFR 646.210.

21

Testimony of Dr. Allan Zarembski, Zeta-Tech Assocs. U.S. Senate, Committee on

Commerce, Science, and Transportation, Subcommittee on Surface Transportation and

Merchant Marine, Oversight Hearing on the State of the Railroad Industry, May 9, 2001.

22

Testimony of William Rennicke, Mercer Management Consulting, Inc. U.S. Senate,

Committee on Commerce, Science, and Transportation, Subcommittee on Surface

Transportation and Merchant Marine, Oversight Hearing on the State of the Railroad

Industry, May 9, 2001.

23

The Surface Transportation Board is an independent adjudicatory body administratively

housed in the Dept. of Transportation, responsible for the economic regulation of railroads.

[http://www.stb.dot.gov].

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revenues to meet the industry cost of capital. For instance, from 1990 to 1997, while

the cost of capital remained between 11.4% and 12.2%, the railroads’ return on

investment ranged from 1.3% to 9.4%.24

Concerns with Federal Aid

A number of concerns have been raised about federal aid for the development

of freight rail facilities. Some contend that an aid program is unnecessary, others

object to public aid for private infrastructure, and some warn that public aid will do

more harm than good. Still others question the potential of intermodal rail to

alleviate highway congestion.

Inadequate Revenue or Inadequate Competition?

Some dispute the STB’s determination of railroad revenue inadequacy. The

STB’s determination of revenue inadequacy is a long standing controversy that dates

back to the Board’s precursor, the Interstate Commerce Commission. Shipper groups

question how railroads could be considered revenue inadequate at the same time they

were able to attract substantial capital for recent mergers or acquisitions. In

testimony before Congress, a transportation economist questioned the disparity

between the individual railroad data presented in annual reports to shareholders and

the industry-wide data that the STB used to determine revenue adequacy.25 The

witness argued that the STB should use the “real world” data in railroad annual

reports as their basis for determining revenue adequacy.

Policymakers are likely to closely examine the financial health of the railroad

industry in debating the issue of government aid. Opinions differ as to whether or

not the railroads need an external source of capital to augment their reinvestment

capacity. Economists might contend that private investors are not shortsighted and

possess the most skill in supplying the right level of capital to the rail industry. They

may argue that if the pace of commerce and growing truck congestion dictates greater

demand for rail services, private capital, attracted by the prospect of good returns,

will flow to the industry without special government encouragement.

Others contend that natural market forces keep supply of rail facilities in check.

Commentators have suggested that investors “would rather see a rail system that is

capacity-restricted so that railroads can better dictate the price of their service,

leading to higher rates, higher revenues, and higher returns on invested capital.”26

Skeptics opposed to providing federal assistance to the railroads contend that the

24

General Accounting Office, Railroad Regulation, April 1999, GAO/RCED-99-93, p. 45.

25

Testimony of Harvey A. Levine, U.S. Senate, Committee on Commerce, Science, and

Transportation, Subcommittee on Surface Transportation and Merchant Marine, Oversight

Hearing on the State of the Railroad Industry, May 9, 2001.

26

Testimony of Curt Warfel, National Industrial Transportation League, U.S. House of

Representatives, Committee on Transportation and Infrastructure, Subcommittee on

Railroads, Hearing on Obstacles to Rail Infrastructure Improvements, May 22, 2001.

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need for public funds is really “driven by disenchanted investors unhappy with

railroad profits” rather than a need to increase rail capacity.27 Another view is that

a rail system at or near capacity is exactly where it should operate in a deregulated

environment. As one rail executive stated, “neither customers nor stockholders like

paying for excess capacity. If you make a mistake in estimating need, it takes a long

time to compensate.”28

Other observers argue that the shortage of rail infrastructure is not due to

inadequate revenue but inadequate competition. They contend that if one is looking

for an explanation of why there seems to be a chronic shortage of rail service, one

only needs to open an economics textbook and turn to the chapter on monopolistic

behavior. Economic theory suggests, they argue, that in an imperfectly competitive

market, profit-maximizing firms tend to under produce a good and may opt for

different levels of quality than would perfectly competitive firms. The Alliance for

Rail Competition, for instance, argues that more rail to rail competition would drive

efficiencies and provide incentive for rail carriers to raise service quality to levels

that customers demand.

Rail carriers respond that intermodal traffic is highly competitive because of the

container’s easy transferability among modes. Intermodal customers often have

various shipping options. For instance, customers may have a choice of more than

one railroad, they could choose to simply truck the container, or, for transcontinental

traffic, they could choose to utilize the all-water route and ship the container through

the Panama Canal. On a limited number of routes, container-on-barge may be an

additional option. Railroads also note that rail supply shortages mainly occur during

the peak season, lasting only a few weeks a year. They argue that they cannot be

expected to build their physical plant around a relatively short-lived spike in demand

while the rest of the year the infrastructure is underutilized.

Private Infrastructure

Federal support for freight rail raises difficult issues because the freight railroads

operate differently than other modes. An important difference is that, unlike

highways, waterways, and airways, which all use public infrastructure, rail track is

privately owned. This raises the difficult question of whether public funding should

be used to support projects in private ownership and under private control.

Another important difference is that, unlike the other modes, railroads generally

do not share their infrastructure with competing railroads. This raises the issue of

open access. If competitive equity is the rationale for providing railroads with some

form of regular public assistance, some would extend this argument further to include

rail-to-rail competition. In other words, like the other modes, railroads could receive

federal support for infrastructure, but in exchange railroads should compete with each

other over the same track. As one industry analyst stated, “the cost of railroad access

27

28

“Aluta Continua,” Traffic World, May 21, 2001, p. 14.

James McClellan, Norfolk Southern Railroad, as quoted in “U.S. Military Preparedness,

Jammed in the Traffic?” Transportation Research News, Nov.- Dec. 2000, p. 18.

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to federal funds will be some form of open access to railroad lines.”29 However, rail

carriers argue vehemently that imposing open access (‘forced access’ from their point

of view, ‘competitive access’ from the shippers’ point of view) would be detrimental

to the financial health of their industry. Railroads contend that the best way to raise

capital for reinvestment in rail infrastructure is to allow them to continue to operate

without “intrusive” government intervention.

Detrimental to Industry Efficiency

Policymakers are likely to debate whether federal aid to the railroad industry

might do more harm than good to the industry. Topics of discussion include whether

federal support would reduce the rail industry’s efficiency, whether it would actually

slow down the rate of construction in new facilities, and whether it would lead to

investment in uneconomic facilities.

Some industry analysts are concerned that government support for rail projects

could create less incentive for the railroads to continue their cost-cutting initiatives.

Railroads have been improving profitability through mergers, increasing labor

productivity, consolidating terminals, striving to capture more market share from

trucks through service improvements, selling light density track to regional and

shortline railroads, and investing in more fuel efficient locomotives and freight cars.

Further application of technology could not only offer railroads additional cost saving

opportunities but also increase the throughput capacity of existing infrastructure.

Examples of technology deployment include further expansion of double-stack

intermodal trains, computer-aided dispatching systems, and sensors for improving

shipment tracking. Some analysts fear that public aid could dampen the industry’s

pursuit of these cost saving strategies.

Other concerns include possible conflicts between public and private planning

horizons and excessive politicization of the project selection process. Critics

question if public involvement would have the opposite of the intended effect and

actually slow the pace of facility improvements. The public sector generally operates

under a longer term planning horizon and is motivated by broadly-defined needs.

Railroads, on the other hand, are driven by specific customer needs and require faster

return on investments. Some also question whether government can target the right

projects to finance. They are concerned that political considerations will dominate

the selection process.

If federal assistance were in the form of public funds, it could lead to

overinvestment in rail capacity in some places. To the extent that public funds are

available for construction of a new project, the project may have to pass a lower

hurdle in terms of evaluating risk and return than if the project was financed by a

railroad on a stand-alone basis. As is often said in this regard, “you never spend

somebody else’s money as carefully as you spend your own.” Underestimating

investment risk in new facilities could also lead to the development of uneconomic

facilities. For example, due to a slowdown in global trade or changes in shipping

29

Anthony Kruglinski, “Open access: Not if, but when,” Railway Age, Nov. 2001, p. 12.

CRS-10

routes as a result of rail mergers or terminal consolidation, the physical life of a

facility could outlive its economic life.

Potential Congestion Relief

Growing congestion on the nation’s highway system has raised the issue of the

possible need to divert more truck traffic from road to rail. However, when

evaluating the ability of the railroads to take trucks off the highways, it is important

to recognize some of the limitations of intermodal rail in reducing truck traffic.

Intermodal rail almost always relies on trucks for the pickup and delivery portion of

the haul. This truck move frequently occurs in urban areas where the problem of

congestion is most acute. Therefore, intermodal rail’s contribution to congestion

relief is probably most applicable to reducing the number of long-haul trucks on the

interstates connecting cities, rather than reducing the number of short-haul trucks on

urban streets and circumferential highways.

When assessing the potential of the railroads to take trucks off the highways, it

is also important to recognize a distinction between international and domestic

intermodal service. Railroads have demonstrated their ability to successfully capture

the inland portion of international container shipments. However, international

marine container shippers are generally less service sensitive and more price-elastic

than domestic truckload shippers. A one or two day delay, in the context of a week

to three week ocean transit, is not completely unexpected. Domestic shippers, on the

other hand, demand more precise schedules. The time and cost of the truck pick up

or delivery at either end of a rail move must be considered. In the words of one rail

analyst:30

The trouble with intermodal transport is that complexity increases the risk of

failure. In theory, any good 4x100-m relay team should beat the world champion

400-m sprinter, but the relay team has higher risk of a dropped baton, or even late

arrival at the stadium. So, no matter how elegant the piece parts, if more

complexity reduces reliability and margins for error are too slim, what ought to

be possible just might not be.

An additional consideration in evaluating the potential of rail to alleviate

highway congestion is the economics of short-haul intermodal traffic. Short-hauls

generate the greatest amount of truck traffic. However, intermodal rail generally is

not competitive with trucks for hauls less than about 500 miles, which is the point

where double-stack trains also generally break even. Although the market potential

for short-haul rail is large, it offers even thinner profit margins (or none at all) for the

railroads compared with long-haul intermodal. One of the difficulties for the

railroads in capturing this market is that the highway system has dispersed

manufacturing and distribution centers. Similar to passenger rail, successful freight

rail requires high density. Trucks have less difficulty in finding a load for the

backhaul portion of a move because they are not limited by track. Trucks can also

offer shippers more flexible scheduling.

30

Robert E. Gallamore, “Perspectives and Prospects for American Railroad Infrastructure,”

Infrastructure, Summer 1998, p. 36.

CRS-11

Public Benefits of an Aid Program

An important topic of discussion in the debate about aiding and assisting rail

infrastructure development is clarifying under what conditions public aid might be

provided. One view, which is well established, is that public aid should be directed

to those rail or rail-related projects which improve passenger vehicle mobility.

Projects that mitigate grade-crossing delays or upgrade passenger rail corridors are

primary examples. Another popularly held assumption is that public aid should be

provided because there are energy, safety, and environmental benefits to rail

transportation. In this view, these external benefits are justifiably not likely reflected

in the rail industry’s investment decisions. The market’s tendency to under-produce

these public goods, it is argued, warrants a role for government. There are also those

who support public aid for rail projects for the purpose of enhancing freight mobility.

This view holds that freight railroads are so critical to the national economy that

upgrading and expanding their infrastructure is a national concern. An argument

could also be made that public assistance for rail infrastructure is advisable for

national security reasons.

Passenger Mobility

Grade crossing separation and crossing signal upgrades are well established as

rail-related projects with strong public interest. Grade crossing separation is

traditionally viewed as a public good because it improves the safety and mobility of

vehicular traffic. As a side benefit, it may also improve the flow of train traffic. The

Rail-Highway Grade Crossing Program (23 U.S.C. 130) provides funds for

improving grade crossings.

Public benefits are also traditionally associated with improving infrastructure

on intercity passenger or commuter rail corridors. Passenger rail financing is

inextricably linked with freight trains because most passenger trains run on track

owned by the freight railroads. Investment in positive train control technologies and

upgrading right of way for high-speed rail are projects that improve passenger

mobility but may also have collateral benefits for freight train operations. The

freight railroads are cautious of accepting public funding for track upgrades for

passenger operations because they fear loss of control over future investment

decisions. They are also skeptical of the long-term physical compatibility of freight

and passenger trains sharing the same track.31 One advantage of accepting public

funding for passenger rail upgrades is that the freight railroads can access capital at

lower interest rates from public sources than from private money markets.32

Another rationale for funding rail projects is that cities need intermodal options

because of serious congestion problems on urban highways. Many argue that

building additional highway lane miles will not improve highway mobility in the long

run. Due to the expensive nature of highway construction and limited space for

31

32

“Why One Problem at a Time Won’t Work,” Railway Age, Sept. 2001.

Charles H. Banks, “Point of View, Freight Railroads Need Passenger Trains,” Railway

Age, Nov. 2001, p. 14.

CRS-12

widening highways in many urban areas, many believe cities need to find more

integrated transportation solutions. Proponents of intermodal rail assert that

improving the rail links with ports and between rail terminals in metropolitan areas

could significantly reduce the amount of “bridge” and “crosstown” truck traffic. This

would not only expedite the flow of goods but also reduce the amount of truck traffic

intermingling with highway commuter traffic. Mitigating highway congestion can

also generate air quality improvements. Finally, it is argued that taking heavy trucks

off highways can reduce highway maintenance costs.

Freight Mobility

Due to economic and trade growth, some policymakers believe a “bolder vision”

of rail’s place in the nation’s transportation system is necessary. Freight advocates

believe that the nation’s intermodal infrastructure is failing to keep pace with

international commerce. In the words of one industry representative:

The key aspect of our future is simply this. If the U.S. economy is going to

continue its amazing growth, there needs to be a renaissance of the North

American railroad industry. Renaissance does not come easily. I realize that

many who call for dramatic change are branded as heretics, but the situation with

the major railroads has to change - for everyone’s sake.33

The National Center for Intermodal Transportation presents another view:34

Just as the construction of the Interstate Highway System, which began a half

century ago, served as a catalyst for a period of economic growth unrivaled in

world history, the development of an integrated, efficient, and seamless

intermodal transportation system will enable other economic sectors to enjoy

enhanced productivity as well, thereby enhancing overall economic growth and

securing a competitive position for the U.S. in the global economy.

Proponents of intermodalism, such as those cited above, contend that it

increases the overall efficiency of the nation’s freight transportation system because

it optimizes the strengths of each mode. Rail transportation’s fundamental advantage

derives from steel wheels on steel track, reducing the friction of moving heavy loads.

According to one study, rail transportation is three or more times more fuel efficient

than trucks,35 which could also translate into lower freight rates for shippers.

Intermodal rail could also benefit the trucking industry. Some trucking firms

utilize rail service for the long-haul portion of a move, passing on the cost savings

to their customers. Partnering with railroads can also reduce wear and tear on truck

33

Ed Emmett, President of the National Industrial Transportation League, speech titled

“Railroads’ Renaissance - The Key to Economic Growth,” March 3, 2001. Available at

[http://www.nitl.org/railsp.htm].

34

National Center for Intermodal Transportation, A New Transportation Agenda for

America, Nov. 2001. Available at [http://www.ie.msstate.edu/ncit/].

35

American Association of State Highway and Transportation Officials, Freight-Rail

Bottom Line Report, n.d. p. 29.

CRS-13

drivers. It is argued that if rail is used for the long-haul portion of a move while

trucks are used for the short-haul pick up and delivery, truck drivers can work more

conventional hours and stay closer to home. This can lessen the fatigue factor for

drivers and help reduce driver turnover.

Infrastructure Constraints. To enhance freight mobility, the railroads have

identified where they need to increase intermodal capacity. Although price is always

important, in a “just-in-time” delivery environment, reliability is paramount and

service reliability demands quality infrastructure. Relieving capacity constraints at

identified bottlenecks is especially critical. Rail and road connections with ports and

inland terminals are often choke points in the intermodal network.

The main rail lines are experiencing high track utilization rates. Most of the

main line system is single tracked. Double tracking and increasing the number of

sidings in some regions would allow time sensitive intermodal trains to pass less

service sensitive trains. Another capacity constraint occurs in urban areas where train

speed has to be greatly reduced at present. Inadequate terminal capacity is a major

cause of traffic buildup on tracks leading to terminals. Tunnels and bridges with

clearances too low for double-stack trains are other physical constraints, especially

in the East.

Military Mobility

The rail network, particularly intermodal, is also viewed as important for

military mobilization. Rail is used to move unit equipment and munitions to the

Department of Defense’s designated strategic seaports in the United States. DOD

contracts with private commercial carriers, including railroads, to supply more than

85% of its transportation needs in both peacetime and wartime.36 Many are

concerned that adequate transportation infrastructure may not exist, particularly

during peak shipping seasons, to handle a rapid surge in case of a military crisis. As

one columnist noted:37

The concern is well founded. Continued traffic growth accompanied by asset

rationalization has brought supply and demand into closer balance. The network

no longer enjoys the luxury of overcapacity. As a nation, we reap the

efficiencies brought about by transportation deregulation... Many people forget

that, prior to deregulation, overcapacity was a specific public goal. Carriers had

protected business segments in exchange for maintaining excess capacity, which

would be called upon in times of national emergency.

36

“U.S. Military Preparedness, Jammed in the Traffic?” Transportation Research News,

Nov.-Dec. 2000, p. 22.

37

Theodore Prince, “Warnings, war and the wall,” American Shipper, Nov. 2001, p.76.

CRS-14

Current Funding Mechanisms

Private Funds

Class I freight railroads primarily finance projects themselves with almost no

public assistance. An intermodal transportation research group estimates that

railroads contribute approximately 87% of the total cost of rail infrastructure projects.

The remaining 13% is provided by federal funding (3%), and state and local

governments (5% each).38 Railroads raise money through bond and stock sales, bank

loans, and revenues generated internally. A rail executive briefly outlined what could

be described as a “market-driven” approach to investment decisions:39

!

!

!

Market determines infrastructure needs

Infrastructure needs dictate investment requirements

Return on investment determines whether market is worth serving.

As industry trade journals frequently describe, railroads have been investing

heavily in their service capacity, particularly with respect to intermodal terminals.

The railroads have been consolidating intermodal terminals and in some cases

moving terminals from city centers to the outskirts. In 1999 and 2000, the rail

industry spent about one-fifth of its revenue base on intermodal infrastructure.40

Federal Funding is Limited

In modern times, federal programs have funded some rail related projects but

relative to other modes, funding is limited. Three programs in the Federal-aid

highway program detailed in TEA-21 that have been used for rail or rail related

projects are the Surface Transportation Program (STP), the Congestion Mitigation

and Air Quality Improvement program (CMAQ), and the Corridors and Borders

Program (CORBOR).

STP funds have been used primarily for safety improvements to existing rail

grade crossings, such as installing warning devices or improving grade crossing

surfaces. The Rail-Highway Grade Crossing Program (Section 130, Title 23 of the

U.S. Code) provides funds for the separation of grade-crossings, including relocating

roadways or rail lines to eliminate road and rail intersections. Current funding is

approximately $155 million per year.

CMAQ funds have been used to improve rail links to ports or links between rail

networks where truck traffic and their emissions are reduced in air quality non-

38

Foundation for Intermodal Research and Education, “Intermodal Building Blocks:

Blueprint for change.” Third Freight Roundtable, Newport Beach, CA., July 24-25, 2001.

Available at [http://intermodal.org/FIRE/thirdroundtable.html].

39

Jim McClellan, Norfolk Southern, “Rail Freight Infrastructure: A Role for Public

Financing?” St. Louis, MO. Apr. 30, 2001. Available at [http://www.fhwa.dot.gov/freight].

40

“Intermodal Set to Become Railroads’ Biggest Source of Revenue Growth,” U.S. Rail

News, Oct. 9, 2002, p.162.

CRS-15

attainment areas. Examples of rail related projects that were partly financed with

CMAQ funds include the Columbia Slough Intermodal Expansion Bridge. This

project expanded a rail bridge connecting the Port of Portland in Oregon with inland

rail yards. The rail link eliminated the need for truck drayage between the port and

the rail yards. CMAQ funds provided $1 million of the $6 million total cost of the

project.41 CMAQ funds also partially financed improvements to Canadian Pacific’s

Bensenville Rail Yard in Chicago. Improvements included reducing rail and traffic

conflicts at grade crossings, new track, interlockings, and signals. CMAQ funds

provided $2.1 million of the $35 million total cost of the project.42

The “Corridors and Borders”program (CORBOR, section 1118 and 1119 of

TEA-21) was established to support planning studies and infrastructure development

at the national border crossings and along major freight corridors. This program has

helped finance the FAST (Freight Action Strategy for the Seattle-Tacoma region)

project which will eliminate 12 grade crossings on access roads to the seaports in this

region. CORBOR funds provided $10 million of the estimated $400 million total

cost of this project.43

A third TEA-21 program, the Railroad Rehabilitation and Improvement

Financing program (RRIF), is intended to make funding available through lowinterest loans and loan guarantees for railroad capital improvements. Improvements

can include “acquiring or improving intermodal terminals, rail facilities, track,

bridges, buildings and shops.”44 However, this program has been slow in getting

underway. As of 2003, less than a handful of loans have been approved.

Railroads may find two provisions in the FRA eligibility requirements overly

restrictive: (1) the requirement that an applicant show proof of at least one loan

denial from a commercial lender that previously loaned the railroad money and (2)

that the railroad provide collateral for recovery of 100% of principal and interest.45

Railway financial observers assert that because revenue inadequacy is at least part of

the problem, a loan or loan guarantee program such as RRIF, that relies heavily on

rail revenue as a source of funds, is not a practical solution.

Although there are examples in which TEA-21 programs have funded

intermodal rail projects, such as those cited above, they are few relative to other

modes. There is a growing sense by some parties that intermodal freight projects

must become more common if increased congestion and inefficiencies in the

transportation system are to be corrected. Some parties suggest that a federal

program be established to regularize funding for these types of projects. There is not

41

U.S. DOT, Office of Operations, Freight Finance

[http://ops.fhwa.dot.gov/freight/freight_analysis/financing.htm].

42

Report,

n.d.

Ibid.

43

U.S. DOT, FRA, Intercity Freight and Passenger Rail: State and Local Project Reference

Guide, April 2001, p. 14.

44

Speech by FRA Administrator Allan Rutter at the American Shortline and Regional

Railroad Conference, Orlando, FL, April 29, 2002.

45

“Congressional Displeasure,” Traffic World, May 7, 2001.

CRS-16

a TEA-21 program designed specifically for freight or intermodal projects. Critics

argue that the present approach significantly delays and complicates intermodal

infrastructure funding.

State and Local Initiatives

State and local governments have also contributed funds for rail projects. The

state of Pennsylvania assisted Conrail in making a number of its lines accessible to

double-stack container trains.46 The state of Delaware is funding the cost of

rehabilitating a train bridge serving the Port of Wilmington. Norfolk Southern

Railroad, which owns the bridge, will reimburse the state through a fee for each rail

car crossing the bridge.

The Alameda Corridor

Another example of a “toll railway” is the Alameda Corridor. It connects the

Ports of Los Angeles and Long Beach with a terminus for the transcontinental rail

network located 20 miles north of the ports. The ports purchased the rail right of way

from the railroads and eliminated 200 at grade road and rail intersections by lowering

the rail track in a ten mile trench and constructing overpasses and underpasses for the

roadways. The railroads will reimburse part of the construction costs to the ports by

paying a per container fee for use of the corridor. The idea for the corridor was

proposed in 1984 by the Southern California Association of Governments (SCAG)

which is the local Metropolitan Planning Organization (MPO). Construction began

in April 1997 and was completed in April 2002.

A broad array of analysts have suggested that the Alameda Corridor is a model

for improving the nation’s freight transportation system that could be repeated at

other major cargo hubs. The key to success for such a project is an alignment of

stakeholder interests, with a strong willingness on the part of rail companies to

participate. Unlike the Alameda Corridor, the Alameda Corridor East (ACE) project

has not apparently had the active participation of the Union Pacific Railroad. ACE

is a project to eliminate grade crossings on rail track extending east from the northern

terminus of the Alameda Corridor.

Policy Options for Congress

Concern about the capability of the railroads to self-finance additional capacity

as well as the financial and environmental constraints of building additional highway

lanes raises several potential issues for Congress as it reevaluates surface

transportation funding programs in TEA-21. The broad policy issue is finding the

right balance between a “market-driven” versus a “policy-driven” approach to rail

investment. Key questions under consideration are: should the federal government

46

For further examples of government assistance for rail projects, see FRA, Intercity Freight

and Passenger Rail: State and Local Project Reference Guide, April 2001. And U.S. DOT,

Office of Freight Management and Operations, Funding and Institutional Options for

Freight Infrastructure Improvements, n.d.

CRS-17

engage in a public-private partnership with the railroads to ensure capacity for

industry growth? Are current funding levels and programs adequate or are new

sources of funding needed? How should government funding be arranged? Should

funding be rail specific or is this an opportunity for a multimodal funding program?

How would projects deserving public aid be identified?

Modal Equity

Despite concerns about capital shortfalls, the North American freight railroads

are arguably the most self-sufficient railroads in the world, freight or passenger.

When considering how government could engage in a more cooperative relationship

with the railroads, many suggest, the railroads first among them, that the government

“first do no harm.” The railroads and others contend that the most economically

efficient policy the government could pursue to assist the pace of railway

development is a mode-neutral transportation policy. If federal funding distorts

modal choice, the nation as a whole, in this view, may pay a larger freight bill than

is necessary. While a subsidized carrier may offer a lower rate, the real cost of

transport may not be lower. The cost difference is merely transferred to others. The

real total cost (the lower rate plus the amount of subsidy) may be greater than an unaided competing mode may be willing to offer. While some economists agree that

federal funding should not be biased in favor of or against any one mode, Congress

has not previously adopted modal equity as a policy goal.

One controversial policy option is to refine current modal funding programs so

that all surface freight modes pay the full cost of their infrastructure. According to

a DOT study on highway cost allocation, the heaviest trucks pay only about 80% of

their full cost of highway use.47 According to a CBO report, barges pay only about

10% of the cost of their rights-of-way.48 Proposals for how best to aid rail capacity

are likely to renew debate on the long standing issue of modal equity.

Rail Trust Fund

The railroads are the only transportation mode in the United States that do not

benefit from a federal trust fund. One proposal being discussed is to create a railway

trust fund, analogous to the highway, waterway, and airway trust funds. These

existing trust funds are financed with levies on the users of the transportation system

provided. They vary in the type and combination of surcharges imposed but may

include taxes on fuel, new equipment, cargo waybills, and passenger fares.

The rationale of transportation trust funds is to provide a dedicated pool of funds

for infrastructure projects, thus ensuring a regular, systematic funding stream. A rail

trust fund set up in the manner of the highway trust fund could provide a steady and

predictable source of funds for rail infrastructure projects. A rail trust fund could

47

For further information on truck cost allocation, see U.S. DOT, FHWA, Federal Highway

Cost Allocation Study, 1997, with addendum in May 2000.

Available at

[http://www.fhwa.dot.gov/policy/hcas/addendum.htm].

48

Congressional Budget Office, Paying for Highways, Airways, and Waterways: How Can

Users Be Charged? May 1992.

CRS-18

also entice private sector and local government participation by leveraging federal

dollars with contributions from local sources. Federal funds could serve as a catalyst

for getting projects underway.

Critics of a rail trust fund argue that such a program puts the government in a

position of “giving with one hand while taking away with the other.” If the goal is

to shift additional resources to rail improvement projects, some question how taxing

the railroads and then handing it back, with directions on how to spend it, would

accomplish this goal. Decision makers may also consider the impact of a rail trust

fund on rail competitiveness. If rail surcharges increase the cost of rail vis-a-vis

truck or barge, it may divert freight to these competing modes. An additional

concern with a rail trust fund is that once established, it may prove difficult to

terminate if changing economic circumstances invalidate the need for the fund.

Multimodal Trust Fund

Many observers believe that a major obstacle to achieving the goal of a national

intermodal transportation network as envisioned in the Intermodal Surface

Transportation and Efficiency Act (ISTEA, P.L. 102-240) is that the modes are

separately managed and funded. Creating a separate trust fund for rail projects could

reinforce what these observers describe as a stovepipe approach to transportation

planning and finance. Intermodal supporters argue the focus should be on improving

the connectivity and interoperability among modes. Public funding should be

directed at improving the “intermodal connectors,” that is, the roadways or railways

that link to seaports, airports, and rail yards. A resource paper prepared for the

Transportation Research Board noted:

Every Federal reauthorization act for transportation has categorized funding into

discrete programs for specific classes of projects, typically along modal lines.

Because the old modal boundaries are becoming increasingly blurred at critical

nodes and along key corridors, a compartmentalized approach presents clear

challenges to DOT in advancing these important types of investments.49

This raises the matter of how a multimodal trust fund could be financed. Could

funds be generated from an all mode freight surcharge? Could a pool of resources be

generated from a portion of existing trust funds? These are complex policy questions

with no easy answers or consensus among stakeholders.

Modify Existing Programs

Rather than creating additional trust funds, another option being debated is

making it easier for rail projects to qualify for existing highway trust fund (HTF)

financed programs. Federal assistance could, for example, be targeted to rail projects

where the alternative highways are heavily congested. Use of highway trust fund

monies for non-highway projects is a long standing debate. Although ISTEA’s

language encouraged an intermodal approach for solving transportation needs, it did

49

Transportation Research Board, “Planes, Trains, and Automobiles: Multi-modal

Reauthorization Opportunities,” Scottsdale, AZ., Aug. 21, 2000, p. 8.

CRS-19

not mandate it. State DOTs, consulting with Metropolitan Planning Organizations

(MPOs), are given the power and flexibility to decide which projects get funded.

Intermodal freight, particularly rail freight, has not received significant amounts of

funding from ISTEA, nor TEA-21. Intermodalism has largely been a market-driven

rather than a policy-driven development. The real focus of intermodalism in these

laws is that it allowed the use of highway trust fund money more broadly for mass

transit projects.

An advantage of allowing HTF funds to be used for non-highway projects is that

it increases the options of state and local planners in solving their transportation

needs. It should be noted that some state laws prohibit gas tax money being used for

non-road projects. Nevertheless, more options could lead to more cost efficient

systemwide solutions. For example, it could be less expensive to improve an existing

rail line to handle more traffic than to build additional highway lane miles. Another

advantage of this approach is that it maintains the basic program framework created

by ISTEA and TEA-21.

A drawback of using the HTF for non-highway projects is the problem of

“eligibility creep.” Expanding eligibility may dilute the political support for the fund

if the interests benefitting from it are too widely dispersed. Using the gas tax to

support non-road projects could also reduce the “users-pay” principle - the principle

that those who benefit must pay for the cost. The existing gas tax is an imperfect

pricing system, however, because all users do not necessarily pay their full costs. For

example, the fuel tax does not capture the costs of congestion delays and air pollution

and cross-subsidizes certain classes of system users.

Expanding the eligibility of existing programs for rail does not guarantee that

rail projects will be funded. State DOTs and local MPOs may favor highway and

passenger related projects over freight rail concerns. Freight rail projects face stiff

competition from highway and transit needs for limited resources in the HTF. Local

governments may perceive the benefits of freight rail projects as flowing outside their

geographic boundaries. Another downside of increasing availability of HTF dollars

for rail projects is that it may make railroads dependent on public aid to get certain

types of projects underway. Private carriers may then demand government aid on a

routine basis for private infrastructure improvements.

Railway User Charges

Toll railways, such as the examples cited above in Delaware and southern

California, are an alternative solution that some policymakers suggest could be

repeated elsewhere. The advantage is that they overcome the economic hurdle

railroads face with large initial capital outlays for new construction. The initial outlay

is provided with public funds or by a regional transportation authority. The railroads

repay some portion of the construction costs over a period of time. The rate of

repayment is based on traffic volume with a per car user fee. The disadvantage of

this proposal is that it probably can not be applied on a national basis. This option

is more well suited to a geographically limited corridor.

CRS-20

Intermodal Freight Planning

The issue of how an aid program might be arranged raises a related issue of how

projects deserving public support might be identified. A premise of ISTEA and

TEA-21 is that states and MPOs are in the best position to identify and prioritize

transportation projects needed in their area of jurisdiction. However, intermodal rail

shipments are typically broader in scope geographically than the jurisdiction of a

single MPO or state DOT. A significant portion of intermodal rail shipments move

from one region of the country to another if not across the entire country. As

mentioned earlier, half of all intermodal rail loadings are imports and exports.

At issue is how to select freight projects that could optimize the network

nationally with a transportation planning process that is largely decentralized. To

state the issue another way, how can national interests be weighed with local

concerns? Freight stakeholders contend that the existing transportation planning

process results in an incremental approach to solving bottlenecks. Expanding freight

capacity at one node in the network can have adverse repercussions for the

surrounding community of the next hub downstream if additional traffic overloads

their facilities. From a freight stakeholder’s point of view, simply moving the choke

point to the next hub does little to enhance the overall flow of goods. As one

observer noted, you can not fit an 18” pipe into a 9” pipe. On the other hand, if

MPOs or states do not coordinate their activities, they could end up competing with

one another for the same freight business. This could lead to overcapacity.

One option is for MPOs and state governments to work together to create a

regional planning perspective. Some states are already participating in multi-state

studies on corridors that cross state lines. In the reauthorization debate, policymakers

may consider whether to formalize these multijurisdictional arrangements or allow

them to continue informally. Another proposal is to create a “national rail map”

similar to the national highway system identified under the National Highway System

Designation Act of 1995 (P.L. 104-59) that would identify nationally significant rail

corridors and target funding to projects on those corridors.50 This proposal represents

a “top-down” approach to transportation planning in which the federal government

actively identifies and evaluates projects deserving federal support.

Legislative Activity

Several proposals have been introduced in the 108th Congress with the intent

of accelerating the pace of investment in the nation’s rail network. Representative

Lipinski introduced a bill (H.R. 1617), which was referred to the House

Subcommittee on Railroads, to create a rail trust fund to provide a steady source of

funding for rail infrastructure. The bill would finance the fund by redirecting the 4.3

cent per gallon diesel tax from the General Fund to the rail trust fund, impose a one

percent freight waybill tax, redirect a portion of Customs import duties to the rail

fund, impose a five percent tax on rail commuter tickets, impose a five percent tax

on freight and passenger rolling stock sales, impose a five percent tax on locomotive

50

Jeremy F. Plant, “Railroad Policy and Intermodalism: Policy Choices After Deregulation,”

The Review of Policy Research, June 22, 2002.

CRS-21

sales, impose a new Amtrak ticket tax, and redirect a portion of federal oil and gas

royalties to the trust fund. Representative Young introduced a bill (H.R. 2571) titled

the Rail Infrastructure Development and Expansion Act for the 21st Century (RIDE21) which was reported by the House Committee on Transportation and

Infrastructure. One provision of the bill particularly relevant to freight rail

infrastructure would expand the RRIF program from $3.5 billion to $35 billion and

make it easier for railroads to qualify for RRIF loans and loan guarantees.

Representative Millender-McDonald introduced the Goods Movement Act of 2003

(H.R. 3398) which was referred to the House Subcommittee on Highways, Transit,

and Pipelines. Among other things, the bill would provide grants from the Highway

Trust Fund to improve truck routes to intermodal freight transfer facilities and

separate railroad and road crossings. Senator Hollings introduced the American

Railroad Revitalization, Investment and Enhancement Act (ARRIVE-21, S. 1961)

which was referred to the Senate Committee on Commerce, Science, and

Transportation. This bill would establish a Rail Infrastructure Finance Corporation,

a non-profit, public-private partnership that would have authority to issue $30 billion

in tax-credit bonds to fund rail infrastructure improvements over a six year period.

The bill also would require the DOT to develop a national rail plan and a “50-Year

Intermodal Blueprint” to promote an efficient transportation system.

Legislation reauthorizing TEA-21 (TEA-LU, H.R. 3550 and SAFETEA, S.

1072), currently in conference, contain several provisions particularly important for

intermodal freight transportation. Both the House and Senate versions of the bill

create an “Intermodal Connectors” program which would set aside a portion of a

state’s highway funds to improve the roads leading to intermodal freight terminals.

Both the House and Senate bills also include language intended to ensure greater

consideration of freight transport in state and MPO transportation planning processes.

The Senate bill requires each state DOT to designate a “freight transportation

coordinator” whose responsibility will be to ensure that freight considerations are

integrated into the planning process, coordinate with other states to solve regional

transportation problems, foster collaboration between public and private interests,

and build professional capacity to better understand freight transportation needs

within a state. The House bill requires the U.S. DOT to establish a “Freight Capacity

Building Program” in order to better target investments in freight transportation

systems and to strengthen the decision making process of state and local

transportation agencies with regard to freight transport. A provision particular to rail

transportation is in the Senate bill and establishes a grant program to assist

municipalities in relocating rail track in order to improve public safety, the flow of

motor vehicle traffic, or for economic development reasons. Under this provision, the

Secretary of Transportation is required to conduct a costs-benefits analysis before

awarding a grant to any particular rail relocation project. The Senate bill also

contains a provision prohibiting the use of highway account funds for rail projects

unless they produce a public benefit.