Rail tax credit faces uphill climb in Congress
The U.S. freight railroad industry's optimism that Congress will this year pass a 25 percent tax credit for investment in additional capacity is misplaced, according to lobbyists in other transportation modes.
The new Democratic Congress has 'very little appetite' for corporate tax bills, 'so it’s not going to happen,' said Tom Jensen, vice president for government affairs at UPS.
Jensen spoke last month at the Transportation Research Board's annual conference in Washington.
Sen. Trent Lott, R-Miss., is expected to reintroduce a rail tax credit bill this year designed as an incentive for railroads, shippers and others that operate on rail networks to invest in new track, yards and sidings.
Railroads spend billions of dollars each year on new track, equipment and infrastructure, but the bulk of the money goes to maintain the existing network. Railroads argue that the capital-intensive nature of the business — roughly 17 percent of revenues are plowed back into equipment and infrastructure — prevents them from rapidly increasing capital expenditures without being punished by Wall Street. Although major railroads have earned record profits the past two years on growth of intermodal, coal and agriculture shipments, and some have started to receive a return on invested capital, the gains come after years of weak returns. Railroad executives don't want to make further investments that drive their returns down and upset shareholders.
Eric Mensing, vice president of government trade and affairs for Singapore-based ocean carrier APL Ltd., agreed at Friday's Transportation Table luncheon that a rail tax credit will be 'a tough sell' on Capitol Hill at a time when railroads are making great profits.
Intermodal rail traffic has nearly doubled during the past 15 years and the trend is expected to continue, but railroads are not investing fast enough to keep up with growth in international trade and overall demand for freight service.
Spurring railroads to accelerate their investment in expansion projects is why a rail tax credit is 'critical' to help ease the capacity crunch on the rail networks, Mensing said. 'I certainly see the merits in it.'
UPS doesn't support the rail tax credit because it wants government oversight over how the money is used. Instead it has argued for a railroad trust fund to help investment in rail network improvements. Railroads have opposed the trust fund concept used by the government to pay for highways, pipelines, harbor and the aviation system improvements, saying they know better than the government where the investments in the system need to be made to reduce bottlenecks.
John Gibson, vice president of operations planning and research for Class I railroad CSX Transportation, said at a separate TRB session that the federal government would likely demand rail improvements in urbanized areas to take the pressure off of commuters, but that railroads prefer to the look at the whole corridor or network. That means that some fixes are made where the population — and the number of votes — is not as large.
Gibson surmised that the government would seek to approve funding for projects that could incorporate a commuter rail option.
Railroad executives point out that a tax credit for short-line railroads has been successful in bringing new projects on line for handling heavier traffic that otherwise would fall by the wayside.