Shippers support proposed tax credit scheme for railroads
A proposed 25 percent tax credit for investments in railroad infrastructure is gaining steam among large U.S. shippers who rely on rail transportation, but they caution that certain conditions should apply.
“We may very well support such a federal incentive, so long as it was part of a package of legislation that also addressed the concerns of rail customers that find themselves subject to railroad monopoly power, and so long as the tax credit is also available to rail customers when they make similar investments in infrastructure to improve overall rail capacity,” said Glenn English, chief executive officer for the National Rural Electric Cooperative Association, in testimony before the House Transportation and Infrastructure’s Railroads Subcommittee on Wednesday.
The Portland Cement Association similarly told House lawmakers it would support a tax credit if the Class 1 railroads aim to provide relief to “captive” shippers.
“This requirement would have the benefit of reducing highway congestion, creating a more efficient freight rail system for all shippers, including particularly domestic shippers who generally are the ones that are captive, and heavy truck traffic on our highways and local streets, thus reducing highway maintenance cost,” said John White, vice president of logistics for Buzzi Unicem USA, on behalf of the association.
UPS, the largest corporate customer of the Class 1 railroads, recommended that a more comprehensive plan is needed to improve the nation’s stressed rail infrastructure.
“Spot investment — a few miles of track here, fixing a bottleneck there — will not make our rail system more efficient and the national economy will suffer for it,” testified Burt Wallace, vice president of transportation for UPS.
Wallace also questioned why the highway and aviation industries have successful trust funds set up by the federal government for infrastructure improvements and railroads still do not.
“We need a public-private investment plan to address the serious challenges facing the industry,” Wallace said. “Yet, the user-funded trust concept has not gained traction, while service levels diminish and rates continue to rise.”
Sen. Trent Lott, R-Miss., is considered the lead architect of the proposed 25-percent tax credit scheme, which he hopes will encourage railroads to make more investments for infrastructure improvements and expansion.
The railroads support the proposed tax credit measure. “It is an example of public policy that will incent continued investments for capacity expansion by our industry, while providing an environmental review mechanism that allows good projects to come on line in time to meet capacity demands,” said Matthew K. Rose, chairman, president and CEO of the Burlington Northern Santa Fe Corp., to the House subcommittee.
In 2005, BNSF spent about $400 million in capital expansion. The railroad plans to spend a similar amount again this year.
Overall last year, railroads invested $9.25 billion in their networks, with federal funds contributing about $170 million. About $155 million of that federal portion was used for grade crossings and not for new capacity, Rose noted.
Railroads point out that tax credit deals already in place are paying off. The Florida Northern and Florida Central railroads, both short-lines, have used a tax credit to support a $14 million track upgrade to increase train speeds from 25 mph to 40 mph, and handle additional cars.
“We are collecting dozens of such stories from around the country and they all share a common theme,” said Richard F. Timmons, president of the American Short Line and Regional Railroad Association, in testimony. “The tax credit is allowing light density lines to take on or accelerate projects that would otherwise fall by the wayside.
“These projects are allowing us to handle more traffic, pick up and deliver the heavier longer trains of the Class I system and help our customers reduce their transportation costs,” he said.
