Topic # 3: do we still believe in the market?

[Anonymous]

QUOTE: Originally posted by gabe

Futuremodal,

I am not trying to be antagonistic to you or anything, but I think a the moral or legal problem that you describe has existed throughout the majority of railroads' history in one form or another.

There are the points that futuremodal made, and to add to them, the land grant system, which really launched a number of major railroads in this country, is replete with the type of government financing that you say cannot be allowed.

Gabe

Different times, different regulatory atmosphere, different market characteristics back then as compared to now. Back then, there were literally hundreds of railroad companies, and those which were either visionary or foolish enough to build westward were rewarded for the most part with the land grants you mention. Of course, it was a different regulatory environment, and there was much more competition between railroads even in the farthest reaches of the country, i.e. no real captive shippers. Plus, the land grants were used soley to encourage new rail construction, not to aid the railroads in maintaining nor upgrading an already existing rail infrastructure

Today it is a completely different situation. The partial deregulation of the railroad industry has fostered a climate of monopolistic practices toward captive shippers. These captive shippers are also taxpayers, and they would oppose any aid to railroads without some caveat of forced competition, and the railroads will not aquiecse on that issue (at least for the time being).

The only type of aid that would even be considered would not be anything akin to the land grants of the 1800's, it would have to come from tax receipts or deficit spending. Congress tends to be a little less inclinded to give this type of money directly to large private corporations, especially those which are not in immediate danger of collapsing. There would be some serious legal hurdles to be overcome and some real serious threat of rail industry collapse before you'd see anything like the Chrysler or Conrail bailout situations again. Plus, there is the obvious moral backslide of giving taxpayer money to giant monopolies.

There may very well be a need for an infusion of cash for rail infrastructure improvements, but it won't come from the taxpayers. It's a pity that land grants probably won't even be considered today. The federal government owns nearly 800,000,000 acres of land today, and this land tends to be managed (mismanaged?) in such a way as to induce recessionary economic pressures on the locales in which this land lies. Much of it would be better suited being tranferred to the private sector, or even to the states in some form of revenue endowment, with reciepts being used to pay dividends or interest on rail transportation construction bonds.

If you've read past posts, I have suggested some form of land grant (or land use grant) to aid in adding open access rail corridors to the existing Western U.S. proprietary rail grid, e.g. the Alaska - Canada Rail Link, the Missoula MT to Lewiston ID rail link, Billings MT to Rapid City SD rail link, et al. This would allow some of the capacity bottlenecks out West to be fluidized, and the new rail lines would be open to all existing Class I and Class II rail operators that exist in those locales. Of course, it would also expose some current captive shippers to new rail competition, and those Class I's who currently have such monopoly feifdoms would be loathe to give them up even for gift infrastructure capacity improvements.

I also suggested that the feds extend the 18 cents per gallon diesel fuel tax to the railroads as well, and use their portion of the receipts strictly for rail infrastructure improvements. If you remember, that too went over like a lead balloon.

Bottom line is this: Until open access is instituted to some degree and in some form that allows shippers access to true rail rate competition, you will not see any significant federal aid given directly to Class I railroads. To do so would be a crime, either de jure or de facto.

[Overmod]

Futuremodal, what's your opinion on tax moratoria or exemptions for railroad property? Should tax exemption be tied to 'open access' or to an operating model similar to John Kneiling's "iron ocean" (which in principle eliminates the distinction between 'public' roads and railroads from a public-use point of view)?

Seems to me that something like a 20- to 50-year tax exemption is pretty much standard fare for any large capital project in cities... it certainly has been in Memphis, for example, in recent years. I would think there could be substantial economies for both 'maintaining' and 'operating' companies if there were no local tax burden to be carried... and that these economies would be far more substantial in just about any economic respect than the consequences of land grants would be, at least in the majority of cases mentioned.

[gabe]

Dave,

Once again, I am not trying to be antagonistic and I may even be sympathetic with more of your underlying premisies than you may know.

But, I am not sure I agree with your characterizations of land grant railways. First of all, the first one didn't even run west. It ran south (the Illinois Central). In in most instances, where the land grant railways were built, they were absolute monopolies, the Illinois Central again being a good example. You may argue that that wasn't the case for long, but it certainly was when it was built.

Gabe

[Anonymous]

QUOTE: Originally posted by Overmod

Futuremodal, what's your opinion on tax moratoria or exemptions for railroad property? Should tax exemption be tied to 'open access' or to an operating model similar to John Kneiling's "iron ocean" (which in principle eliminates the distinction between 'public' roads and railroads from a public-use point of view)?

Seems to me that something like a 20- to 50-year tax exemption is pretty much standard fare for any large capital project in cities... it certainly has been in Memphis, for example, in recent years. I would think there could be substantial economies for both 'maintaining' and 'operating' companies if there were no local tax burden to be carried... and that these economies would be far more substantial in just about any economic respect than the consequences of land grants would be, at least in the majority of cases mentioned.

Let me first say that, as most of you know, my sympathies are prioritized for the shippers first, transport modes second. Therefore, any solution that does not provide a framework for competitive transportation rates for shippers is to me pointless in terms of the macro-economy.

That being said, I do support both a property tax exemption (into perpetuity) for any railroad right of way in which the online shippers can access competitive rail rates and other potential operators can take a stab at developing online business, and the idea of depreciation tax credits (in the 20 to 50 year range)that the open access rail infrastructure owners can tranfer to any of their online customers (similar to the shortline tax credit recently passed by Congress). That combination would allow railroads to approach that "equalization" standing with highways, airports, and waterways, e.g. removing the excessive burden of right of way maintenance while still hosting multiple operating companies (who can easily enter and exit said market without destroying the pathway of conveyance if an operator fails).

I firmly believe that this method of multimodal equalization would result in an increased share of intercity freight for railroads.

[Anonymous]

QUOTE: Originally posted by gabe

Dave,

Once again, I am not trying to be antagonistic and I may even be sympathetic with more of your underlying premisies than you may know.

But, I am not sure I agree with your characterizations of land grant railways. First of all, the first one didn't even run west. It ran south (the Illinois Central). In in most instances, where the land grant railways were built, they were absolute monopolies, the Illinois Central again being a good example. You may argue that that wasn't the case for long, but it certainly was when it was built.

Gabe

Gabe,

It's only antagonistic if the tone of the message is insulting in some way. Otherwise, it is excellent fodder for discussion.

Regarding IC, I consider them an anomaly, being one of the few north south railroads in existence. Their primary competition was the MIssissippi steamboat (later barge) lines, so there has always been an inherent competitive factor for that corridor.

What I am saying is that the land grant railroads rarely had any significant territory to themselves. It seems that nearly every part of the country had at one time or another at least two railroads to provide rail service in competition with each other. Contrast that with the situation today, where large tracts of the nation have only one railroad (if that) within a 50 to 100 mile distance. Couple that with the monopolistic characteristics of differential pricing, and one comes to a conclusion that giving taxpayer money to a monopolistic situation runs counter to the ideals of improving peoples' economic lives via price competition.

[Anonymous]

Land grand railroads abused monopoly power against farmers from the beginning. Federal government regulation of business didn’t exist until the Interstate Commerce Commission had to be created to ban railroads from charging farmers punitive rates while charging favored customers far less in secret agreements and banning price fixing between railroads who should have been competing on price but weren’t outside of the cities.

[Anonymous]

As an old Sonny and Cher song went, "And the Beat Goes On." This discussion has been a part of the discussion of free persons that value properity and liberty since the beginning of the rule of law going back 3500 to 4000 years. Great lawgivers such as Asherbanaphal, Hamirabi, Moses, a few Ceasars, The Tutors, Bourbons, Madison, Marshall and even the discredited historical lunitics Marx and Mao have had to wrestle with this discussion of where do the rightes of the crown (governments of all kinds) begin and the liberties and privledges of individuals begin? If any of you might guess my feelings are close to Mark's in this area with very few reservations. However that does not mean that anyone of you does not have a place that I can agree with you in one way or another. Being a veteran of more than one industry I can tell you that there is not one business that has not at one time or another benefited from government benefits, aquiessance, tolleration permission, grants, contracts or even largess during their development phases with very few exceptions (Whiskey might be one that could make a MODERN exception). Do we believe in the market? It might help to define exactly what the market is rather than try to examine the relative philosophical leanings of what we think life is about or what government is not about. Governments either react or respond to given interests that are in the main their own interests and hopfully those of the governed.

[Anonymous]

"very few exceptions (Whiskey might be one that could make a MODERN exception). Do we believe in the market?"
piouslion,
you are more correct than you give yourself credit for, ei, even your exception follows the rule.
government subsidy programs to corn farmer create artificial profitability, which encourages corn acres and production in excess of what prevailing prices would dictate. this allows end users of grain to acquire supplies at prices lower that would be expected in the absence of government subsidy,ie, subsidy encourages added production, added production weighs on market price.
cheaper raw material cost is a direct benefit to alcohol and ethanol producers.

[Anonymous]

On the other hand 'special treatment' for certain industries increases costs to society and creates more hidden taxes to consumers. I've read allegations that Railroads have a special deal with the Feds where, unlike gas, oil amd other utilities, they are able to block bulk-commodity pipelines from crossing their right of way, effectively shutting down a way to ship coal which is claimed to be an order of magnitude cheaper and more efficient than rail. Electric utilities don't particularly care since they pass on their fuel costs to consumers, so in a sense we're paying more for electricity than we could be, effectively subsidizing those coal trains we love to watch. Perhaps accepting government money would mean a level playing field between rail and coal-slurry pipelines?

But short of lowering the speed limit for trucks on the Interstates to 35 mph, I still don't see how any of this will let UP/CSX get the Lettuce from field to New York in 3 days. IMO trucks and trains are 2 different types of transportation options, as is air freight and barges. Stuff that has to get there tommorow goes by air, stuff that needs to get there in 2 or 3 days goes by truck, less time sensitive stuff goes by train, and the really slow stuff by barge or pipeline. As shippers needs change along with the price of fuel, availability of drivers, some trucks shift to rail when the market and economics decide that's appropriate. Bring back $13/barrel oil and the railroads might see a lot less TOFC traffic. Crank it up to $75/barrel and they'll get a lot more.

The expense for airports, highways, rail projects, etc. whether financed by corporations or through taxes and user fees on corporations, fuels, or whatever all eventually come back to the consumer and investors in one way or another. When the Bush admin imposes a tarriff on imported steel, the importer raises his price and everyone down the line does likewise until the consumer ultimately gets the bill. That's what I mean by hidden taxes.

[Overmod]

Coal-slurry pipelines always reminded me of those fabulous schemes to get canals over the Alleghenies and other mountain ranges -- failing for the same general reason.

Sure, there are economies in operation, etc. But... just as it's difficult to find large springs of water at the tops of mountain ranges... there's not that much water available where the coal is, to produce the slurry in the volume needed to make the capital investment in the pipeline system worthwhile.

Do not forget that coal-slurry lines have a couple of additional issues: You have to keep them moving, or the slurry tends to precipitate out... so you need to be careful at the head end and also ensure you don't overload your receiving-end arrangements (either to dewater the slurry or otherwise prep it for injection, including keeping the suspension going in holding tanks). Also, there aren't many things other than coal slurry that can be effectively transported in one of these lines, unlike oil pipelines which can effectively transport 'slugs' of all kinds of petroleum products in a single line... and certainly unlike a railroad 'equivalent', which can also transport intermodal and carload freight, passengers, specialty and maintenance equipment, etc. etc. etc. and has virtually no problem (especially by comparison!) with emergency rerouting, speed restrictions, and so forth either. You have to ask yourself whether the high capital cost of the slurry line can effectively be recovered ONLY by consumption in powerplants... with all the risk of changing Government regulation, pollution, alternative fuels, bankrupt energy providers, etc. ... with the industrial uses of direct pulverized-coal combustion becoming less and less, and gasification/synthesis plants very likely being located near mine mouths for the same rather obvious reasons that apply today to powerplants. Methinks the 'market' has spoken rather eloquently on this point... compare coal traffic from the PRB, for example, on rail vs. pipeline...

[Anonymous]

Mark,

The ETSI case was largely over water rights illegally granted by the Feds. Eminent domain rights for pipelines and permission to cross RR ROW's is still listed as an issue in the following source on Coal Log Pipelines.

http://www.missouri.edu/~cprc/Facts%20about%20CLP.html

Regarding electric utilities, many are still state regulated and a major factor in granting rate increases is a fixed profit percentage they're allowed to earn. Since 10% of nothing is nothing, 10% of more is more, and 10% of a lot more is a lot more, there's actually an incentive to keep revenue and cash flow high. In Illinois for exampe, ComEd has been allowed to bill a monthly adjustment for Fuel Expense directlly to consumers. As utilities are de-regulated, this will change and stockholders will take part of the hit in the form of reduced earnings, as is the case in other de-regulated industries.

[Anonymous]

In the ETSI vs. BN case you cited, the reason BN and the other roads lost or settled(i heard it was closer to $1b total) was because the court found that "the railroads had colluded to block the pipeline". The railroads had also been parties to other suits against ETSI filed by environmental groups, farmers, water districts etc.

The allegation was again raised by the Western Coal Traffic League in arguments against the UP/SP merger. For a better reference than the one I originally read see -

http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=dc&navby=case&no=961373a

If the railraods are so unafraid of pipelines, why all the fuss.

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill

You heard it was closer to $1 billion. OK. I didn't. My sources are Coal Age, Railway Age, and Findlaw.

Your source? And the source that the railroads "have a special deal with the Feds?"

If you go back through the BN/ETSI case, you'll find references to a number of federal & state politicinas and the legislation they had passed or proposed on behalf of the railroads.

I'm not picking on railroads for defending their turf. Every established industry does that and looks for competitive advantage. They all have friends in high places, they all want a subsidy a tax break or special treatment, and they all want their competition not to. It's all about self-interest and except in rare cases, the playing field is rarely level. That's why there's a hord of lobbiests in D.C.(yeah, they're like Martians), that's also why so-called tax bills are thousands of pages long and impossible for the politicians themselves to read, let alone the taxpayer.

But the market does work to pick winners & loosers and to eventually force change on industries which have become lazy and run on momentum. In most cases proping them up throgh subsidies, protectionist legistlaion, and special favors just delays the inevitable and prevents more efficient alternatives from emerging.

The railroads problems started well before Interstate Highways and the Boeing 707. They also have no problem raising huge amounts of capital for mergers and most pundits don't believe the game is over. Why should my tax dollars be used to finance the next mega-merger??

[daveklepper]

Under my proposals you would not be subsidizing the next mega merger. You would be preserving certain local industries by keeping their transportation costs reasonable by getting help to shortlines to meet the requirements of the heavier car interchange rules . You would provide rail alternatives to particular choke point highway congestion, first in commuter and corridor rail, and then possibly in freight like the LA-Longbeach corridor project. You would keep Amtrak service for small localities where it remains a necessity and draw more tourists to see the beautiful spots in the USA that can be seen from a train window, like the Rockies, Sierras, Birkshires, etc., the Hudson River Valley, the Pacific Coast line, etc. Properly planned it should be boost for the private sector of the economy.