With all the record profits by railroads this year why not give tax credits for additional capital improvements.
I am sure someone out there could compile what the 7 class ones paid in taxes in 2013 to the federal government.
In my former life I was a farmer and there were years we were allowed to write off in one year a certain amount of capital expenditures as opposed to depreciating them. The idea was to stimulate the economy.
The only reason I put this on the passenger thread is suppose Amtrak decided which project to approve etc (instead of the railroads which is probally more logical). If NS would like to invest a billion in improving the line between Cincinnati and Jacksonville they could get a billion in tax credit, maybe Amtrak would get a 200 million additional credit pass through for new equipment and maybe NS has to agree to allowing one daily passenger train.
So it means when Union Pacific wanted $750 million to make the Sunset Limited daily there would be a means to do this. Amtrak would decide is this a fair purposal, UP agress to take the train, and maybe with some kind of 80/20 ratio Amtrak gets 187 million of new equipment.
In 2012 the Class I railroads paid $5.8 billion in taxes, of which $4.7 billion were for federal and state income taxes. These numbers, which are found in the American Association of Railroads statistics, are the latest ones that I could find.
Political reality - giving a tax credit to a profitable (or even profit-making) organization would bring all the anti-big government people out for a feeding frenzy.
Political reality 2 - Amtrak is a Federal Government entity. It getrs what Congress (grudgingly) gives it, and not a penny more.
Bottom line - Any pol who even suggested giving tax credits to the railroads would be looking for honest work immediately after the next election, if not sooner.
Chuck
tomikawaTT Political reality - giving a tax credit to a profitable (or even profit-making) organization would bring all the anti-big government people out for a feeding frenzy. Political reality 2 - Amtrak is a Federal Government entity. It getrs what Congress (grudgingly) gives it, and not a penny more. Bottom line - Any pol who even suggested giving tax credits to the railroads would be looking for honest work immediately after the next election, if not sooner. Chuck
Without getting into all the details, the railroads benefited from some of the provisions of ARRA, i.e. ability to expense equipment purchased in one year, as opposed to depreciating it over the life of the asset, and low cost loans for several projects. Actually, every business that bought qualifying assets during the open window period could expense them.
Expensing an item straight-a-way, as opposed to depreciating it, usually results higher expense, lower net income, and lower federal tax for the period.
Since deregulation America's freight railroads have been performing great. I don't believe that they need a lot of government help. My hope is that those who would again thrown them under the mantle of government regulation - commerical as opposed to health and safety standards - will be held at bay.
Dixie Flyer With all the record profits by railroads this year why not give tax credits for additional capital improvements. I am sure someone out there could compile what the 7 class ones paid in taxes in 2013 to the federal government. In my former life I was a farmer and there were years we were allowed to write off in one year a certain amount of capital expenditures as opposed to depreciating them. The idea was to stimulate the economy. The only reason I put this on the passenger thread is suppose Amtrak decided which project to approve etc (instead of the railroads which is probally more logical). If NS would like to invest a billion in improving the line between Cincinnati and Jacksonville they could get a billion in tax credit, maybe Amtrak would get a 200 million additional credit pass through for new equipment and maybe NS has to agree to allowing one daily passenger train. So it means when Union Pacific wanted $750 million to make the Sunset Limited daily there would be a means to do this. Amtrak would decide is this a fair purposal, UP agress to take the train, and maybe with some kind of 80/20 ratio Amtrak gets 187 million of new equipment.
Without getting into specifics, it seems like there are some broad benefits there. Certainly the concept bears consideration, not almost immediate rejection.
C&NW, CA&E, MILW, CGW and IC fan
It appears that at the present Credits would not be of much help. The demand for capacity improvements is maxing out manufacturers' ability to build more equipment. As MC pointed out rail manufacturing capacity is at a max and orders may be backed up 1-2 years ? So RRs would be unable to lay more rail than what was planned for 1 - 2 years in the future ? + The heavier traffic is going to wear current rail, switches,, cross ties, & Ballast quicker. That requires more MOW work windows slowing down traffic. Used rail might have some life left by being relaid on secondary lines ? One has to suspect it might take 2 -3 years to catch up on capacity improvements as traffic increases ?
Another factor about rail is FRA and independent testers are finding many more defects so in short term may require more rail replacement ?
An investor owned business has to weigh carefully the pros and cons of expansion. If it expands capacity, will it be able to earn a sustaining return on the incremental increase in plant, equipment, and labor? This is the question that the CEO and CFO for each of the railroads must address.
As I understand it two of the major contributors to the current backlog are the bumper grain crop, which was held-up in part by bad weather last year, and the increased shipments of oil.
What happens to the capacity constraints once the grain backlog has been cleared? Also, what happens to shale oil demand if the bottom falls out of the oil market. On Friday Bent Crude closed at $86.13 whilst West Texas Light Crude closed at $81.01. These are factors that management has to deal with in determining whether it makes economic sense to expand capacity.
If there is a compelling case to expand capacity, the nation's freight railroads could turn to overseas suppliers for materials. They are not constrained by politics as is the case for Amtrak, commuter rail, at least in some cases, and transit systems.
Sounds crazy to give an all ready profitable industry additional tax credits. They need to reinvestment thier profits in infrastructure and people
Sam1 As I understand it two of the major contributors to the current backlog are the bumper grain crop, which was held-up in part by bad weather last year, and the increased shipments of oil. What happens to the capacity constraints once the grain backlog has been cleared? Also, what happens to shale oil demand if the bottom falls out of the oil market. If there is a compelling case to expand capacity, the nation's freight railroads could turn to overseas suppliers for materials.
What happens to the capacity constraints once the grain backlog has been cleared? Also, what happens to shale oil demand if the bottom falls out of the oil market.
If there is a compelling case to expand capacity, the nation's freight railroads could turn to overseas suppliers for materials.
1. That may be assuming that the growth is all oil and grain. But is it ? Present stats show a growth of non oil and grain 5 - 7 % over comparable weeks for last year. That certainly is not linear over the whole USA rail system. We actually have some routes down in total trafic and others up much more and oil & grain is almost none.
2. Deliivery costs of out of USA equipment especially rail might be very expensive. As well do any overseas builders even make RE rail to AAR standards ? There is only one manufacturer now left in the USA.
3. The DOT projections of 2040 traffic growth of 40% + were completed before the oil boom was even a thought. The grain plenty of these two years may be continuing or not. That makes capital and equipment purchasing problemmatic ? How much long term planning is needed to ramp up equipment production ? .
blue streak 1 Sam1 As I understand it two of the major contributors to the current backlog are the bumper grain crop, which was held-up in part by bad weather last year, and the increased shipments of oil. What happens to the capacity constraints once the grain backlog has been cleared? Also, what happens to shale oil demand if the bottom falls out of the oil market. If there is a compelling case to expand capacity, the nation's freight railroads could turn to overseas suppliers for materials. 1. That may be assuming that the growth is all oil and grain. But is it ? Present stats show a growth of non oil and grain 5 - 7 % over comparable weeks for last year. That certainly is not linear over the whole USA rail system. We actually have some routes down in total trafic and others up much more and oil & grain is almost none. 2. Deliivery costs of out of USA equipment especially rail might be very expensive. As well do any overseas builders even make RE rail to AAR standards ? There is only one manufacturer now left in the USA. 3. The DOT projections of 2040 traffic growth of 40% + were completed before the oil boom was even a thought. The grain plenty of these two years may be continuing or not. That makes capital and equipment purchasing problemmatic ? How much long term planning is needed to ramp up equipment production ? .
As noted oil and grain appear to be two major contributors. They are not the only contributors.
Interestingly, according to the American Association of Railroads (AAR), total carloads of freight for 2013, which was approximately 1.8 million, were fewer than the 1.9 million carloads hauled in 2008. The number of carloads of petroleum has increased by more than 33 per cent from 2012, but still puts them as a small percentage of total carloads.
In 2012, according to the Class I statistics published by the AAR in July 2013, which is the last easy to access comparative statistics that I could find, coal made up 41 per cent of the tons originated by the Class 1s and generated 21.6 per cent of revenues. Petroleum products (oil, fracking sand, etc.) made up 2.5 per cent of the tons originated and generated 3.4 per cent of the reveunes. Even after accounting for the dramatic increase in the amount of oil being shipped by rail, it still constitutes a relatively small part of the total tons moved by rail. But it along with the increase in the amount of grain being shippped could be the straw that has broken the camel's back or at least given it a heck of a backache.
My point was that before the railroads make a major investment in their plant, they need to be sure that the increase in traffic will be on-going and not a one-off. Unlike a government enterprise, which can fob its mistakes off on the taxpayers, an investor owned company's shareholders have to eat its mistakes.
My idea was to reduce the risk to the railroad since capacity improvemnets would be paid for with money going for taxes anyway. The question would be can you justify paying to maintain the improvement. A more fluid rail system creates new possibilities.
I think the railroads would be inclined to say, "keep your billion and build something on your own to run passenger trains on" I know CSX's policy is "No new passenger trains on core routes. Period." NS seems more flexible, but there's the old "camels nose under the tent" analogy....
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
blue streak 1 Another factor about rail is FRA and independent testers are finding many more defects so in short term may require more rail replacement ?
FRA has no rail inspection resources, so they aren't finding any and the "independent" inspectors are working under contract for the owning railroad. All FRA does is specify minimum inspection intervals, most railroads inspect far more frequently. And the with the new generation of rail steels, degassed, con cast etc. there are by far fewer defects than in the past. When I started in the business a rail life of 400MGT was considered good, now there are some locations reporting more than 2000MGT. Imported rail has been a fact of life in North America for several decades now.
blue streak 1 Deliivery costs of out of USA equipment especially rail might be very expensive. As well do any overseas builders even make RE rail to AAR standards ? There is only one manufacturer now left in the USA.
Deliivery costs of out of USA equipment especially rail might be very expensive. As well do any overseas builders even make RE rail to AAR standards ? There is only one manufacturer now left in the USA.
Several problems here. There are no AAR standards for rail. AAR only issues standards and recommended practices for interchange related issues which rail is not. The relevant organization is the American Railway Engineering and Maintenance Association (AREMA). Their specifications are totally voluntary and a railroad is free to purchase items meeting their specifications or not. Secondly last I checked rail was still being rolled in Steelton PA and Pueblo CO. Imported rail (both Japan and Europe) has been a major factor in the rail market for several decades now.
Hi,
Please challenge each other, but be respectful when doing so. Edit your posts to comply.
Thanks.
Angela Pusztai-Pasternak, Production Editor, Trains Magazine
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