High-speed rail to aid freight

By Bruce Rushton - GateHouse News Service

A Union Pacific freight train travels through Springfield. (GateHouse News Service)

SPRINGFIELD – High-speed passenger rail – that’s what the government calls it.

But spending billions of dollars in federal stimulus money on rail also could bring big benefits to freight rail companies.

“They have a very strong interest in getting as much of their infrastructure subsidized as possible,” said Samuel Staley, director of urban growth and land use policy for the Reason Foundation, a nonprofit think tank that leans libertarian.

And that’s exactly what’s happening.

The Illinois Department of Transportation is asking the federal government for more than $4 billion for improvements to Union Pacific Railroad track between St. Louis and Chicago, including installation of a new parallel track. Freight rail companies would pay little or nothing.

Public spending on airports and highways has benefited airlines and trucking companies, but significant government investment in privately owned rail systems is new. Transportation experts say taxpayer investment in railroad properties will separate passenger trains from freights, increasing rail capacity, improving safety and boosting speeds for everyone.

“It’s sort of an odd situation,” says Rod Massman, administrator of railroads for the Missouri Department of Transportation. “The Union Pacific is a private company, and we’re using public funds to help build private infrastructure that will be theirs once it is built.

“The issue is, what other options do we have?” he asks.

New, publicly owned rail corridors could allow faster passenger trains, but would cost billions more than sharing track with freight companies. The challenge is figuring out ways to speed up passenger trains while also providing reasons for freight rail companies to become partners with the government. In some cases, that boils down to taxpayers footing the bills.

The freight rail industry liked what it heard Oct. 14, when Joseph Szabo, head of the Federal Railroad Administration, told a House subcommittee that the Obama administration was committed to a world-class freight rail system and that the public benefits when the government spends money on tracks owned by freight companies.

“My CEO came out of there with a grin on his face,” said Holly Arthur, spokeswoman for the Association of American Railroads, which includes the nation’s biggest freight carriers as well as Amtrak.

Freight rail companies traditionally have tried to keep bureaucrats out of their business. They realized a big part of that goal in 1980, when the federal government largely deregulated the freight rail industry.

At the time, freight railroads were teetering, facing capital costs as high as $15 billion, recalls Robert Gallamore, a former Union Pacific executive and deputy administrator of the Federal Railroad Administration when Jimmy Carter was president.

Gallamore and other railroad experts credit deregulation with reviving the freight rail industry. Dozens of railroads consolidated into seven major players with lines crisscrossing the nation. Unprofitable routes were shut down. And profits rose to the point that billions of private dollars have been spent on track improvements and deferred maintenance.

The railroads have attracted attention from such big-time investors such as Warren Buffett, who started buying railroad stocks in 2007 and boosted his stake in the BNSF Railway to more than 20 percent this year. Between 2003 and 2008, railroad stocks went up 250 percent, with some rising as high as 350 percent. Thanks to increasing operational efficiency, railroads have even earned profits during the economic downturn.

“I think freight railroads are an amazing success story, the way regulation was reduced and firms behaved,” says William Garrison, a professor emeritus of civil engineering at the University of California-Berkeley who is considered one of the leading geographers of the 20th century. “They’ve got good management, good attitudes. They understand their technology. They run tight ships. They know their markets.”

Garrison says he doesn’t believe high-speed passenger rail will prove either popular or cost effective, and he can’t understand why railroads would consider partnerships with the government after decades of fighting to be left alone.

“If I were a freight railroad, I would be very wary of this,” Garrison said. “In my judgment, they would not benefit. I think they’re getting in bed with the devil.”

But cooperation is key to the future of passenger rail, Gallamore said.

“The way we’re going to get improvements in rail passenger service is to come up with smart ways of joint operation between freight and passenger and smart ways of paying for it,” Gallamore said.

Expansion needed

A 2007 study on freight infrastructure needs funded by the Association of American Railroads paints a mixed picture over the next three decades.

The amount of freight hauled by railroads will increase by nearly 90 percent through the year 2035, according to the study, but the system in many places would slow to a near halt without major capacity enhancements.

Collectively, the nation’s seven largest railroads can afford to spend $96 billion to handle the projected flood of freight, but their total bill for capacity enhancements comes to $135 billion, according to the study performed by Cambridge Schematics.

“I think that’s as good an estimate as you can find at this point–those numbers are what I would estimate,” said Hani Mahmassani, director of the Northwestern University Transportation Center near Chicago.

Mahmassani says government subsidies for freight rail aren’t necessarily a bad thing. A healthy economy, subsidy supporters say, depends on reliable ways to quickly and efficiently move cargo around the country. And rail is a more environmentally friendly way to move goods than trucks.

“The question is, what is the quid pro quo here?” Mahmassani said. “Ultimately, who is going to have the final say in how that track is going to be utilized? Will the private companies relinquish authority on track because some of it is federally funded?”

Since August, states have asked the federal government for more than $100 billion to pay for rail projects, many of which would help freight railroads move more cargo faster.

“It’s a breath of fresh air,” Mahmassani said. “Everyone’s trying to maximize what they can get out of it.”

Arthur said the Association of American Railroads is working on revisions to the two-year-old freight rail infrastructure study.

“What has changed is the projected expansion in passenger rail,” Arthur said.

Arthur said it’s too soon to say whether the price tag for improvements will shrink or grow, but one thing is certain.

“There will certainly be some kind of gap between what we’re able to provide and what’s expected or demanded,” she said.

Who pays?

On Wall Street, analysts say public spending on passenger rail could help freight railroad companies, but the extent is hard to know.

“It’s hard to handicap what the impact on the freight rails would be,” says Kevin Kirkeby, a railroad analyst for Standard & Poors. “The big factor has to be the infrastructure: Who’s going to pay for it, and who’s going to pay to maintain it?”

Anthony Hatch, a New York consultant who specializes in railroad financing, says he believes public spending on passenger rail could make a real difference for freight companies.

“I think it can help alleviate their costs,” Hatch said. “There’s just tremendous opportunities that people are just now becoming aware of.”

Beyond capacity improvements, one possibility for freight companies is positive train control, a system designed to override humans and automatically stop trains to avert collisions.

After a head-on collision between a freight and passenger train killed 25 people near Los Angeles last year, Congress ordered that positive train control systems be installed on major tracks throughout the nation by 2015. Such systems could cost as much as $10 billion, Hatch said.

It’s a cost the Cambridge study didn’t consider, and it’s unclear who would pay. Since positive train control improves safety for passenger trains that share tracks with freight operators, Hatch said he believes there’s a good chance taxpayers will pick up at least some costs.

Cooperation between government-subsidized passenger rail and private freight rail companies makes sense when it comes to infrastructure improvements, Hatch said.

“On this one issue, they have really decided to bury the hatchet and work together,” Hatch said. “They have more in common than they don’t.”

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