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The new Republican majority aims at the state owned RR

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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.
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