Florida,Colorado,Maine,New York, Buying railroads tracks

A number of states have bought railroad lines from class ones for passenger or freight preservation. Florida of course way overpaid for its lines and Colorado is buying a line for its regional rail service. The State of Vermont owns the land under Vermont railways In our own backyard the NY State owns parts of the Erie in the southern tier. The problem I have with this is that the states usaley lease back the tracks to the class one that owned it in the first place for less then they would pay in taxes. If the state owns the tracks should it not be considered a highway and be open acesss in the public intrest. Now that Maine will own the Bangor and Arroostik any group that wants to run a train (safely) should be able to do so. The railroads are getting there cake and eating it too

Mod Note: Off topic, we're going to shift this topic to another forum and leave a shadow topic in place.


As a contributor and not a mod: the case can be made that states have and continue to punitively tax railroads. New York and New Jersey are especially notable offenders. I would not use the prior taxation as a "fair" price for access to railroads. Further, when a state owns, uses, and dispatches a stretch of railroad, the utility to the freight line is diminished, resulting in a less valuable railroad line. If you bought a railroad from me, started running passenger trains on it and dispatching it, I wouldn't pay you the same access fees as I once did. I don't control the right of way, nor can I move the same volume of freight.

In a "perfectly capitalistic" society, governmental interference with the conduct of free enterprise (that is, enterprise that seeks no governmental aid in any form) would be prohibited, and taxation would be essentailly a "user charge" for those services which the electorate deemed essential.

Obviously, that is never going to happen, and by their very nature, all forms of transportation have to involve government participation. But with the specialized exception of pipelines, no form of transportation other than rail provides and maintains its own right of way.

And the railroads' economic troubles really intensified when competition developed in the form of truckers and barge canals for freight and airlines for passengers, all of whom use a right-of-way provided by government at some level. Granted, they usually pay something toward the upkeep, but it's debatable whether all the costs are covered, and when the competitors don't operate, or diminish their activity, they don't pay as much. The railroads' costs, on the other hand, are largely fixed, in good times and bad.

And most inerestingly of all, while the other carriers have wrestled with several issues in a destabilized market for the past 25 years, the freight railroads have rebuilt their plant, refomerd their operating conditions, and returned to prosperity, with no help other than the one-time infusion of aid via Conrail --- a public-sector measure which actually succeeded.

But now the rail industry is down to a handful of major players, the attitudes of which run from outright government ownership (Canadian National) to Union Pacific's "bunker mentality". That generalization doesn't include areas like Amtrak and commuter operations which finally arose from the conclusion that even Uncle Sam can't get blood from a stone.

So where does it all go from here? The current Administration rode to the White House on a wave of resentment and mistrust toward private enterprise unseen since the "New Deal referendum" election of 1936, and it has clearly indicated that it sees the addictive "rationale" of forcing further sectors of the economy under stricter Federal oversight as suited to its agenda. Exactly how much of the electorate buys into this line of thinking is likley to be determined over the next six months.

The idea of keeping the rolling stock, but turning responsibility for maintenance and, possibly, traffic contol over to the public sector is nothing new. And it might be argued that the complete re-orientation of the communications sector of which the A T & T break-up in 1985 was the linchpin, has paid large dividentds. But certain technological and market trends also appear to be working in favor of a further concentration of an industry which, due to the fixed nature of its assets, can't afford to be portrayed as an evil by a media which often shows a painful ignorance of actual industry operating conditions.

Hopefully, it's time for all the players in the nation's energy/transportation/infrastructural issue to engage in some deep and serious discourse.

Hate to point it out, but CN hasn't been a Crown Corporation for 15 years now. They were privatized in 1995.
Cheers,
Nick

With regard to CN, my concern isn't so much with its corporate status, as to whether it is required to operate under the same market discipline as its completely-private competition. Unless it is publicly traded, and subject to the same scrutiny as its private-sector brethern, it can either hold an unfair advantage, or be deliberatly operated at a loss for political reasons.

As previously admitted, the railroad is so tightly interwoven into the mixed economy that it can't operate under laissez-faire rules. But that should be the goal whenever possible. And the development of new forms of entrepreneurship probably represents the most practical step in that direction.

2nd trick op wrote:With regard to CN, my concern isn't so much with its corporate status, as to whether it is required to operate under the same market discipline as its completely-private competition. Unless it is publicly traded, and subject to the same scrutiny as its private-sector brethern,

It is. I own stock in it. The Canadian government doesn't.

Unfortunately, privatizing monopolies usually has bad results. CN has some competition from Canadian Pacific in Canada -- but there are large parts of Canada where it simply has no competition at all. From a public benefit perspective, natural monopolies such as transportation routes really have to be controlled by government, because competition simply doesn't work right for them. The public utility regulation scheme sort of works, but has serious pitfalls ranging from excess profit-taking by the companies, to excess cash extraction by the government. Of course outright government operation also features a nasty habit of forced below-market pricing. Perhaps one answer is to have the government own the underlying monopoly assets -- the track, in this case -- to specify the desired minimum service level, and then to use contractors fireable on less than a year's notice to operate the trains. This allows for some level of competition, which is otherwise nonexistent in both the "privatized" and "government-run" models (except when it's wasteful and unwanted in the private model, as when two railroads build redundant and competing parallel track).

Setting up the regulation of markets correctly is tricky in areas where market failure is rampant, such as any area with strong network effects. Allowing private monopolies to dominate is not a reasonable answer; it's probably the worst of all possible choices. The government of Ontario is now having to pay large sums to buy back passenger trackage from the stockholders of CN which was owned by the Canadian federal government until recently -- probably at a profit to CN. Clearly the trackage should have been retained in the first place. Likewise, a thoughtful government would have retained the core Conrail passenger trackage -- at least someone thought to give the NEC and the eastern Keystone to Amtrak, but the Empire Corridor should have been kept too. Now it has to get bought back at an inflated price.

It's the typical game: Privatize profits, socialize losses; it would be nice if this nasty habit would stop, both in Canada and in the US.

As a point of interest, Norfolk Southern execs have made statements indicating that they'd love nothing more than to be tenants on government-owned tracks -- saves them the maintenance costs, I guess. They *are* actually in that position on the Raleigh-Charlotte line already and seem to be quite happy with it.

Buffalobill wrote:The problem I have with this is that the states usaley lease back the tracks to the class one that owned it in the first place for less then they would pay in taxes.

The crucial point is that the leases are short-term. Usually in less than five years the state can get out of it and lease it to someone else, if the current tenant is doing a bad job.

States should *not* enter into super-long-term leases of track (like the 99-year lease of the North Carolina Railroad to Norfolk & Western -- rather exciting things happened when that expired, as the state declined to renew the unconditional lease, and instead took an active management role).

A few comments on this ever-interesting subject:

1) Punitive (discriminatory) taxation of railroad property was prohibited by the 4R Act (that created Conrail) in 1976. It requires that states tax railroad land at the same rate as "other commercial property". New York State has been slow to comply, but after CSX threatened a Federal lawsuit a few years back, began requiring localities to reduce their taxes on rail property, compensating them from state funds for any loss of revenue. New Jersey's system changed years ago.

2) It's one of the oddities of our transportation policy that we have a network that is partially private and partially public. Highways, of course, do not yield any property tax income to anyone, and truck fuel taxes do not even pay for the damage they cause. So calling railroads "monopolies" when their competitors enjoy a public subsidy is just a tad wrongheaded. Oh, and waterways are publicly funded as well.

3) States began buying railroad tracks that might otherwise have been subject to abandonment back when Conrail was created in the 1970s. Some of this trackage was abandoned, and the corridors used for other purposes (hiking/biking trails, utility corridors), some was leased to short line operators and continued in rail service. But calling it "having their cake and eating it too" is just as wrong-headed as calling railroads "monopolies'. The operator is usually a short line (not the selling Class I), and although the trackage yields no property tax revenues, the operator is generally responsible for maintenance of the track. Shippers get continued rail service, usually at rates lower than trucks would charge (despite their enjoyment of subsidized ROW).

4) I do transportation policy for a living, and I would (as a matter of economic efficiency) much prefer to see tolls on most or all highways, and trucks pay a fair usage fee. That would, of course, greatly aid railroads' profitability. But it would also produce higher transportation rates for everything, and is probably a political non-starter. Therefore, the government has started making funding available to railroads when there are demonstrable public benefits (less congestion, less pollution, lower road maintenance costs) that offset the public share of costs.

To the first poster who started this thread: you need to read something about transportation that was published (at least) in the 20th Century. You're firmly mired in the 19th.

NellieBly wrote: 2) It's one of the oddities of our transportation policy that we have a network that is partially private and partially public. Highways, of course, do not yield any property tax income to anyone, and truck fuel taxes do not even pay for the damage they cause. So calling railroads "monopolies" when their competitors enjoy a public subsidy is just a tad wrongheaded. Oh, and waterways are publicly funded as well.

Fair point, railroads are only effective monopolies in certain cargos and along certain routes, certainly not as a general principle. For *efficient passenger transportation* control of a railroad route often *does* confer a monopoly, and this is what I was actually thinking of. The same can be true for coal hauling routes. Even in England where competing routes were built, one was often head and shoulders better than the rest and it was sometimes quite impossible to create a real competitor. As a more general point, any system with network effects tends towards monopoly due to tremendous economies of scale. There's a reason there are only two long-distance rail haulers in the Eastern US, two in the Western US, and two in Canada (and there would be fewer if the STB hadn't refused various mergers). There's a reason most smaller airports have only one carrier serving them. There's a reason practically nowhere has two competing fiber-optic-to-the-home providers. There's a reason the entire road system is effectively operated as a single monopoly (much though I like the idea of localities setting up checkpoints at the exit from state roads and having separate local driver's license requirements ). These reasons are economic.