BNSF chief says railroads need investment tax credit
The U.S. government should use tax credits rather than a trust fund to help freight railroads expand their congested networks, because decisions about where improvements are needed should remain in the hands of industry professionals, said Matthew Rose, chairman and chief executive officer of BNSF Railway.
Sen. Trent Lott, R-Miss., is expected to file soon a bill backed by the railroads for a 25 percent tax credit companies that invest in rail expansion projects.
Railroads are investing in new infrastructure, but are not able to keep up with strong demand from retailers, utilities, exporters and manufacturers. Tax incentives would speed up the pace of expansion, Rose said Tuesday at the Bear Stearns investment conference in New York.
“Incentivizing the rails to make investments sooner and then giving them a tax credit that will benefit the public is the right approach to this problem,” he said.
The trust funds with fees collected from system users do not work, he said, pointing to the highway, harbor maintenance and inland waterway trust funds as examples of failed funding schemes. Billions of dollars are stored in these trust funds, but are often not spent because Congress uses the money to mask the federal deficit and appropriations that are made often go to lawmakers’ pet projects.
“We don’t want Congress to be directing investments,” Rose told the overflow crowed of investors, shippers and transportation professionals. “They do not know where the bottlenecks are. We deal with them daily.”
Rose explained during a brief interview that the industry is not looking for a handout.
“If public policymakers believe that the railroads need to invest sooner, then they should give a tax break, but only if it is in the public interest.
“Railroads will continue to increase capacity. The question is whether they can do it fast enough,” Rose said.
Major railroads are spending $10 billion to $12 billion per year to maintain existing tracks, beds, bridges, yards, signals and equipment and plan capital expenditures in excess of $8 billion this year to double and triple tracks on certain corridors, build intermodal yards, raise tunnels for double-stack trains and other expansion projects.
Demand for service is at an all-time high, fueled by imports from Asia, trucking capacity shortages, record diesel fuel prices, more coal generation, and port and inland waterway capacity limits. The government estimates freight traffic will grow nearly 70 percent by 2020.
High demand has given railroads pricing power, and they have begun to invest more as profits have risen in the past couple of years. In the past, railroads deferred major capital expenditures because they said the returns on investment did not justify the outlays. A handful of railroads, including BNSF, earned their cost of capital last year.
Rose said that BNSF is investing heavily in its intermodal and coal businesses because they are earning their cost of capital.
“We will be very comfortable making investments in our intermodal business because it will exceed our cost of capital,” he said. Afterwards he added, “We have improved the margins on our railroad for intermodal that support reinvestment. We wouldn’t do it otherwise.”
BNSF’s intermodal business, which handles consumer products that drive the economy, is booming and accounts for 38 percent of the company’s revenues.
BNSF’s earnings per share rose 91 percent to $4.01 in 2005, based on non-adjusted figures.
