dakotafred Sam1 Irrespective of which political party controls the state legislature, it appears that the agreements governing the NCRR’s operations, especially those with Norfolk Southern, would prohibit a wholesale transfer of its assets for non-railroad purposes, at least in the short run. For example, in 2011, the company had only approximately $130,000 of uncommitted cash after apparent agreed operating and capital outlays that the politicians could have been grabbed. Zat so? Makes you wonder how those wily, raiding Republicans think they are going to siphon off $55 million over 10 years. Pardon me for doubting they are as bad at math as all that.
Sam1 Irrespective of which political party controls the state legislature, it appears that the agreements governing the NCRR’s operations, especially those with Norfolk Southern, would prohibit a wholesale transfer of its assets for non-railroad purposes, at least in the short run. For example, in 2011, the company had only approximately $130,000 of uncommitted cash after apparent agreed operating and capital outlays that the politicians could have been grabbed.
Irrespective of which political party controls the state legislature, it appears that the agreements governing the NCRR’s operations, especially those with Norfolk Southern, would prohibit a wholesale transfer of its assets for non-railroad purposes, at least in the short run. For example, in 2011, the company had only approximately $130,000 of uncommitted cash after apparent agreed operating and capital outlays that the politicians could have been grabbed.
Zat so? Makes you wonder how those wily, raiding Republicans think they are going to siphon off $55 million over 10 years. Pardon me for doubting they are as bad at math as all that.
If they are like most politicians, they probably took a quick look at the 2011 net income, multiplied it by 10, and concluded that they could grab $55 million over ten years. Apparently they did not look at the cash flow statement, which in many respects is more important than the income statement, or consider the need to allow the railroad to generate income to offset the accumulated losses.
dakotafredState highways are not a business entity as such and make no money for pass-through to the general fund. Indeed, they require federal help to simply maintain themselves.
But it doesn't have to be that way, Fred. In my own state (New Jersey) our previous Governor, Jon Corzine, proposed that we sell the New Jersey Turnpike to a private company and use the money to bay our state's debt. The legislature voted it down but it would have been possible.
Of course the New Jersey Turnpike is a toll road. But today many people use EZ pass, a box mounted on your windshield that is automatically read and every month subscribers get a bill for tolls owed. This system could be used on any highway, even highways that are now free. I don't suggest that we sell our state and Federal highway systems but if we wanted to we certainly could to companies who would collect tolls to operate the highways.
The North Carolina Railroad (NCRR) was granted a charter by the state legislature in 1849 to build a railroad line from Charlotte to Goldsboro. Until 1998 the state owned 75 per cent of the shares. Private investors held the other 25 per cent. In 1998 the state bought out the private investors, thereby becoming the sole owner of the railroad. Norfolk Southern is responsible for freight operations and maintenance on the railroad.
North Carolina Railroad Inc., a wholly owned subsidiary of the company, was formed in 2006. It engages in a variety of taxable commercial activities that give rise to the small income tax burden mentioned below.
The company’s major source of revenue is rent paid to it by the Norfolk Southern in exchange for trackage rights. The base agreement is $11 million per year adjusted for a capped inflation factor of 4.5 per cent per year.
NCRR plows most of its earnings into capital projects. For example, in 2011 it generated cash of $13.2 million, and it used a tad over $13 million for the purchase of property, equipment, and funded capital projects. But it gets plenty of help from others.
According to information from its website, the company has numerous capital projects on the books through 2017. The estimated cost of these projects is $353 million. The company’s share is $213.8 million or 60.6 per cent of the total. The remainder is coming from Norfolk Southern, NCDOT and communities impacted by the railroad.
In 2011 the company had net income of $5.7 million. It had an accumulated deficit of $38.4 million in shareholder equity (retained earnings), which means it has been a net user of funds provided by the state and the private shareholders. The North Carolina taxpayers, who own the railroad, are net losers. However, if the railroad continues to perform as it has in 2011, which appears to be likely, the negative shareholder equity position could turn positive in time.
A substantial portion of the company’s income is exempt from federal and state income taxes, as per Section 11146 of the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005. Income taxes in 2011 were $60,772 or 1.1 per cent of net income before taxes. The company also paid $416,678 in franchise and property taxes, for a total tax bill of $477,950 or 7.8 per cent of net income. For comparative purposes, as an example, the Norfolk and Southern Corporation had an effective tax rate of 38 per cent in 2010. As is often times the case, a state owned corporation is able to look good compared to its private capital competitors because of its lower tax bill.
In 2011 the auditors found that the company could not account for a $2.7 million capital transfer from NCDOT. Also, the auditors could not determine that the company had accounted properly for prior year transfers from the NCDOT, which totaled more than $76 million. Being unable to do so called into question $6.6 million in depreciation expense, which would have had a significant impact on net income. Accordingly, the auditors issued a qualified audit report. This is a serious discrepancy and presumably is receiving the attention of the NCRR Board of Directors.
Irrespective of which political party controls the state legislature, the agreements governing the NCRR’s relationship with Norfolk Southern, as well as Amtrak, would prohibit a wholesale transfer of its assets for non-railroad purposes, at least in the short run. After accounting for operating and capital outlays in 2011, the company had approximately $130,000 of uncommitted cash that the politicians could have been grabbed.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
dakotafred State highways are not a business entity as such and make no money for pass-through to the general fund. Indeed, they require federal help to simply maintain themselves.
State highways are not a business entity as such and make no money for pass-through to the general fund. Indeed, they require federal help to simply maintain themselves.
Exactly. And the NCRR has found a way to self finance and avoid those subsidies while serving the people of NC. Now the legislature wants to undermine that. It will be followed by "I'm sorry, but we just don't have the money to upgrade those grade level crossings where people are colliding with the trains. Maybe sometime in the next few years." It's not unlike selling the public on a new toll road by telling them it will provide the money to build roads and then diverting it to the general fund. It is political slight of hand like state lotteries.
Dave
Lackawanna Route of the Phoebe Snow
I would suppose it is a "raid" as the highway freight lobby is not being asked to support the state's general fund. Both the NC railway and interstate network are owned by the state.
John WR Fred, But isn't the use of the NCRR's earnings up to the people of North Carolina to resolve?
Fred,
But isn't the use of the NCRR's earnings up to the people of North Carolina to resolve?
Absolutely, John, through their representatives at the Legislature -- and that is what is happening now. I've just been saying that, if a change is made, it's not the "raid" alleged by the original poster.
But isn't the use of the NCRR's earnings up to the people of North Carolina to resolve? I don't know what the resolution will be.
I live in New Jersey were we have a somewhat similar situation. The Port Authority of New York and New Jersey is owned by both states and makes enormous amounts of money. We taxpayers, however, never get a dime of it.
John WR dakotafredPrivate railroads that make money plow some of it into ROW upgrades, like the NCRR is doing ... but also return some of it to the shareholders. Actually, there are many private railroads that reinvested their earnings in their physical plant and did not pay dividends. Unlike bond interest there is no obligation to pay dividends. Of course an industry may choose to pay a dividend and many do. But there is no obligation.
dakotafredPrivate railroads that make money plow some of it into ROW upgrades, like the NCRR is doing ... but also return some of it to the shareholders.
Actually, there are many private railroads that reinvested their earnings in their physical plant and did not pay dividends. Unlike bond interest there is no obligation to pay dividends. Of course an industry may choose to pay a dividend and many do. But there is no obligation.
Correct ... but then the shareholders are typically getting "paid" by gain in the stock price they can realize when they sell. But there is no such payoff for the citizens of North Carolina, who have no shares to sell. Their only monetary payoff is when some of the earnings from their railroad are used to lighten their tax load, as was the case before 2006.
Again, there is no reason not to use some of the profits for general-fund purposes. The railroad is not an end in itself, or it would still be in private hands. Again, I will refer people to North Dakota and our state owned mill & elevator and our state-owned bank.
These were founded as "self-help" enterprises nearly 100 years ago when we were tired of being taken advantage of by out-of-state interests. That day and original purpose having long since passed -- and the enterprises having proven financially successful beyond anybody's dreams -- the mill and bank now help pull the budget train.
What else would they be for? Should they instead devote all their resources to themselves, growing bigger and grander? To what purpose?
By the way, all seven U.S./Canadian Class Ones pay dividends on their common stock at present (KCS having resumed earlier this year).
support your fat calf business buddys by killing passenger rail one state ( route ) at a time. slip that money into someone's pocket ? The NS CNO&TP has been upgraded by Cincinnati reinvesting in the ROW. ( I know that may be over simplified ). It has paid off for the city to get much property tax revenue over the years. CIN is a clean city that has not had the financial doldrums that many other cities have had that are east of the Mississippi river.
Agree, around here they refer to roads as economic development tools, not cash producing investments. Why should the railroad be treated differently. Further, say you ask for income, driving costs up relative to road haulage of freight, which is significantly more dangerous to the public per ton-mile. You didn't save anybody anything, the market reacts to costs and shifts modes, you just increased the cost of healthcare on the rest of society and reduced our "petroleum independence" as you also burn 3x the fuel versus rail.
The real issue here is how are the taxpayer's interests best served. Are they better off with the capital gains of an expanding railroad company or are they better off with dividends. However, a state owned railroad is a special situation. Usually investors get no immediate direct benefit when a company pays no dividend but plows the money back into the company. However, with this railroad and expansion in size and activity leads to employment of more people who wind up paying more taxes as well as spending their money in the local economy.
Where did you get the idea that government is a capitalist enterprise?
The government owns the roads. Are the taxpayers entitled to a monetary return on their investment?
The NCRR exists to provide rail service for the taxpayers, not to earn money for the general fund. They are responsible stewards of the income they get from NS & CSX. Some of the funds get used for other transportation projects.
I know I made the political point that this occurred when the Republicans got control of the state government for the first time in 100 years, but they are by no means the only politicians who cant keep their fingers out of a big pot of money. In NY the Democrats have been trying to raid the state employees retirement fund for thirty years. Every year the Comptroller sues and the court makes them put it back.
Capitalism is so foreign to some people, when not actually a dirty word, that they don't know how to apply basic business principles.
The NCRR "isn't subsidized by the taxpayers" ... no, it's OWNED OUTRIGHT by them. They bought it, they are the shareholders and, as such, entitled to a return on their investment in a money-making enterprise.
Private railroads that make money plow some of it into ROW upgrades, like the NCRR is doing ... but also return some of it to the shareholders. The newspaper story says the NCRR itself did this between 1998 and 2006. The bad old Republicans are only looking at having it resume doing what it did before.
The NCRR is not an end in itself but in the service of its owners, the people of North Carolina. The people's representatives in the Legislature have the job of determining how this service can best be rendered, tweaking policy as needed from time to time. If the people don't like the job their representatives are doing, they can make the kind of changes they did in N.C. in 2010.
That's civics ... not hard to understand.
Whether they are running on cash flow or profit, they are not being subsidized and they are improving and upgrading the railroad. The Piedmont train runs entirely on that ROW. That will be seriously impacted if they divert the resources to the general fund which will be a serious loss to the people of NC.
Phoebe Vet ... and are now taking aim at the state owned railroad, which doesn't get a penny of taxpayer money. It actually makes money.
... and are now taking aim at the state owned railroad, which doesn't get a penny of taxpayer money. It actually makes money.
I don't doubt that they have positive cash flow, but I'm not so sure they have a profit ("makes money") if GAAP were applied. Politicians, and the reporters who print whatever they say, at times have remarkable definitions of economic terms once widely understood. I looked at their website, but apparently it doesn't present any financial information.
Those railroads are subsidized by the taxpayers. NCRR is not. They roll their profits back into the ROW. They are upgrading track in preparation for the Southeast Corridor which is in the preliminary stages and they are improving grade level crossings with 4 quadrant gates and center barricades. If NC takes that money it will greatly slow down those improvements. They have been making those improvements for ten years. Last year they actually tried to sell it, but couldn't get enough votes.
Look at the commuter railroads owned and operated by states and or their appointed agencies: NY, NJ, CT, PA, MA, CA, etc....it is cheaper that building new roads to non existent parking spaces.
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We the people have indebted ourselves up to our eyeballs and the scramble for extra income has only just begun. Even so, expecting income from a publicly owned railroad is not with out precedent.
The City of Cincinnati owns the 337 mile long Cincinnati Southern Railway which in turn is leased by the Norfolk Southern owned Cincinnati, New Orleans and Texas Pacific Railway Company. As per the lease:
"In 1987, a Supplementary Agreement was negotiated in which the basic rent was established at $11,000,000 per year, coupled with an escalator clause with a formula based upon the Implicit Price Deflator for Gross National Product (IPD-GNP)." http://cincinnatisouthernrailway.org/documents/2011-CSR-Audit.pdf
The lease of the North Carolina Railroad comes due in 2014. Looks like my NS dividend may take a hit.
Editor Emeritus, This Week at Amtrak
Give me a break. It's state-owned; why shouldn't it pay part of its earnings into the state treasury? In North Dakota, we have a state-owned mill & elevator and a state-owned bank, and you'd better believe they contribute to the general fund.
Since the Republicans gained control of the NC legislature in the mid term elections for the first time in 100 years, they have laid off hundreds of teachers and are now taking aim at the state owned railroad, which doesn't get a penny of taxpayer money. It actually makes money.
http://www.charlotteobserver.com/2012/10/23/3615217/road-worrier-north-carolina-tries.html
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