Should we reform the USRA?

David Benton wrote: ↑Tue Mar 31, 2020 4:52 am Yeah, that's the worst thing about not living in America, your working hard ,minding your own business,and next minute, the governnents taken all your asset s, and not paid for them.

Very funny. It's a real problem. And it doesn't have to be all your assets. Our laws protect against the government taking even one penny let alone all your assets. Or restricting your assets to make them less-marketable.

If you want to read up on a very germane case, read Penn Central v. New York. In short, the landmarks commission made it hard to modify Grand Central Terminal. This seems good, until you realize that Penn Central was bankrupt and at the time, 1968, Amtrak and Conrail were not a sure thing. The public was served by Penn Central trains and the sale of station space funded commuter train operation. PC sued the city in order to remove landmark restrictions, which they claimed were a taking. https://en.wikipedia.org/wiki/Penn_Cent ... _York_City

Whether or not you find that case to be a taking, it is an important process that protects risk-taking, development, and our economy. Consider if the Penn Central example were downsized a bit. Your family owns a large department store in Dayton, Ohio. It's in a famous old limestone building. Amazon comes along and your revenues tank. You want to sell the property to a Chevy dealer or minor league baseball team and retire, maybe help pay for your kids college. The city says no, that it's a landmark, you must keep this building. Nobody wants your building, and you have to keep paying $10,000/year in property taxes plus a security guard $30,000/year. You get negative economic value, there is no job creation, and it hurts your child's ability to pay for college, which creates negative economic value there, too.

This balance is actually very important to the railroads. Landmarking became what it is when PC bulldozed NYP. Some guys want to landmark every signal bungalow, and that's too much. Other guys don't want any landmarks, and that might be too little.

They only take all your assets in places like China, Venezuela, or Cuba.

I don't think there's an actual claim here in the board that anyone is suggesting simply seizing the railroads. Why wouldn't shareholders be bought out?

As of right now,
* UP - market capitalization $97.4B
* BNSF - privately held, but has a book value of $63.5B. Let's just guesstimate that it's roughly the same market value as UP
* NS - market capitalization $41.05B
* CSX - market capitalization $44.33B
* KCS - market capitalization $12.15B

That totals to $292B. Add in a 20% premium for their trouble and we're at $350B for all the US Class 1 track less that owned by CN & CP. This is a lot of money for us mortals, but in the grand scheme of things isn't all that much for the Government, especially when purchasing a money making asset at rock-bottom interest rates for public debt

Lets assume you do buy the entire network. What does that get you? Now we have the entire rail network run poorly instead of just the passenger trains. See pre-1995 CN. It was a basket case. The Canadian feds had been cutting CN ever since 1960 and were still bleeding money by 1995.

There's a reason PSR seemed to work at CN - they were just right-sizing it. There's a reason PSR didn't work so well at CSX - John Snow had taken a reasonably trim railroad and trimmed it very lean, there was nothing left. The contrast is that you have a public crown company that has to do everything for everybody, and is fat, versus a lean public company that makes good money for shareholders, and is lean.

CN and most of the railroads that proceeded it was a political project. It was operated with various constituencies and various non-business, often public-interest goals in mind such as passenger service, rural development, national economic integration and political patronage and others from long before nationalization (see the Grand Trunk Pacific or the Intercolonial Railway for examples).

When in the late 1970s it was decided that it should be more of a business and less of a public service, they were able to to turn it into a profitable enterprise before privatization, especially with the appointment of more business-oriented management in 1992.

This is the same story at Conrail or BC Rail or other government-run railroads. They're businesses if there is a political will to make them businesses, which is arguably true of Amtrak if you accept the fundamentally political nature of the Long Distance Network and it's basic inability to return profits under contemporary economic conditions. If there is a political will to not run these as businesses, that's not in itself illegitimate either

Alex M wrote: ↑Tue Mar 31, 2020 7:48 amThis reminds me of the last time nationalization of the rail network was brought up was when Penn Central went belly up in 1970.

Uncle Sam nationalized most of the Class I lines in the Northeast, and made a profit!

bdawe wrote: ↑Tue Mar 31, 2020 10:13 am I don't think there's an actual claim here in the board that anyone is suggesting simply seizing the railroads. Why wouldn't shareholders be bought out?

As of right now,
* UP - market capitalization $97.4B
* BNSF - privately held, but has a book value of $63.5B. Let's just guesstimate that it's roughly the same market value as UP
* NS - market capitalization $41.05B
* CSX - market capitalization $44.33B
* KCS - market capitalization $12.15B

That totals to $292B. Add in a 20% premium for their trouble and we're at $350B for all the US Class 1 track less that owned by CN & CP. This is a lot of money for us mortals, but in the grand scheme of things isn't all that much for the Government, especially when purchasing a money making asset at rock-bottom interest rates for public debt

I think you'd need a bigger premium, NZ Govt drew alot of criticism for paying Toll(an Aussie company), $ 600 m for the network it had paid $150m for a few years before. Its reasoning was , in order to keep companies investing in NZ in a global market , they need to see the Govt would compensate fairly in event of a dispute.(over track access in this case).But then i'm only proposing buying the network , they keep the trains etc , so the figure is probably in the ball park .
As to why "nationalize",presumably at some stage more freight (and to a lessor degree passenger) will need to be moved to rail to have any chance of meeting carbon emission targets. But the playing field is not level . Trucks are benefiting for having a right of way provided that they are not paying the full ( or anywhere near ) cost of providing. Making them pay that cost does not appear to be politically possible in the USA. The other possibility is to provide the railroads with a right of way at a similar subsidy. Buy the track , make it open access , competition provides better services at lower prices,and presumably traffic moves to rail. Simply providing money to monopolistic or duopolistic companies would not achieve this , nor be politically acceptable. Amtrak(or private passenger) becomes one more player paying for track access.
What the airline bailout that must come looks like may give a few pointers to how this works .

R36 Combine Coach wrote: ↑Tue Mar 31, 2020 3:42 pm

Alex M wrote: ↑Tue Mar 31, 2020 7:48 amThis reminds me of the last time nationalization of the rail network was brought up was when Penn Central went belly up in 1970.

Uncle Sam nationalized most of the Class I lines in the Northeast, and made a profit!

Uncle sam only nationalized the northeastern carriers after they were functionally bankrupt for 20 years, then utterly insolvent. Meanwhile Uncle Sam and local jurisdictions wouldn't let the railroads set market rates for services, abandon unused services, pay reasonable property taxes.

Penn Central didn't go bankrupt and crush the stockholder value of the once largest company in the world for kicks. They did it because the railroad was out of options, and had been for 20 years.

And the profit was made by over-rationalizing anything Conrail owned. As a result, we lost the PRR mainline and Valpo commuter service, Broadway Limited, etc... as well as any semblance of a reasonable route to Indy for passenger trains.

Fair points about the factors external to Penn Central; it’s also fair to say that the constituent parts of Penn Central entirely mismanaged a bad situation. Had there been no mega-merger, New Haven would probably still have become a ward of the state and been broken up accordingly, and it isn’t unlikely that PRR would have undergone Chapter 13 liquidation and reorganization as a mini-Conrail, but it’s also quite possible that the New York Central System could have entered Chapter 11 protection and left on its own two feet. This is still assuming that a RPSA would have freed American railroads of intercity passenger rail, that a 3R Act would have recreated USRA to oversee the bankruptcy process, that a 4R Act would have assigned certain other Northeastern carriers (in part or in whole) to New York Central as well as to the bloated remains of the Pennsy, and that a large number of unnecessary lines still be abandoned or sold.

Should American railroads enter another crisis period where one or more roads enter Chapter 11 protection (or worse, Chapter 13), it will probably be necessary to create yet another United States Railroad Administration to manage the fallout. It’s unclear to me whether a new USRA would be needed before then, though depending on its powers & mission both the government and the carriers might welcome it.

mtuandrew wrote: ↑Tue Mar 31, 2020 6:44 pm Had there been no mega-merger, New Haven would probably still have become a ward of the state.

Would the States of New York, Connecticut and Massachusetts still purchased their segments of the New Haven main line along with key branches, as they do now?

David Benton wrote: ↑Tue Mar 31, 2020 4:52 am Yeah, that's the worst thing about not living in America, your working hard ,minding your own business,and next minute, the governnents taken all your asset s, and not paid for them.

Talk to anyone who owns shares in an airline, hotel chain, or cruise company.... Minding their own business, working hard, and over the course of two weeks (not a minute), billions of shareholder equity evaporated along with the career futures for hundreds of thousands of employees.

The US government has proven they can't manage lots of things, including passenger rail. Build a separate network if needed, but leave private industry alone.

R36 Combine Coach wrote: ↑Tue Mar 31, 2020 7:05 pm

mtuandrew wrote: ↑Tue Mar 31, 2020 6:44 pm Had there been no mega-merger, New Haven would probably still have become a ward of the state.

Would the States of New York, Connecticut and Massachusetts still purchased their segments of the New Haven main line along with key branches, as they do now?

Probably. I think the State of Wisconsin is a model for what happens without a mega-merger. The State owns hundreds of miles of former MILW and CNW mainline, and leases it out to WSOR and ELS. WSOR leases more track than they own.

The rest was railbanked...

eolesen wrote: ↑Wed Apr 01, 2020 12:11 amProbably. I think the State of Wisconsin is a model for what happens without a mega-merger. The State owns hundreds of miles of former MILW and CNW mainline, and leases it out to WSOR and ELS. WSOR leases more track than they own.

The rest was railbanked...

Connecticut is a pretty good example too, they’ve railbanked a significant amount of ex-New Haven track, and kept some other segments in operation via shortline partners.

I do wish that 3R, 4R and Staggers had made railbanking mandatory upon abandonment, or at least subject to review. Some routes in urban areas would still have been obliterated and built over, but others would be available as freight routes (or at least we would have made bike-riders happy!) If a road wanted to sell the land for development or let it revert to the owner if not self-owned, the government should have had the automatic nationwide right to execute eminent domain - that’s one area USRA could have been helpful in.

mtuandrew wrote: ↑Tue Mar 31, 2020 6:44 pm Fair points about the factors external to Penn Central; it’s also fair to say that the constituent parts of Penn Central entirely mismanaged a bad situation. Had there been no mega-merger, New Haven would probably still have become a ward of the state and been broken up accordingly, and it isn’t unlikely that PRR would have undergone Chapter 13 liquidation and reorganization as a mini-Conrail, but it’s also quite possible that the New York Central System could have entered Chapter 11 protection and left on its own two feet. This is still assuming that a RPSA would have freed American railroads of intercity passenger rail, that a 3R Act would have recreated USRA to oversee the bankruptcy process, that a 4R Act would have assigned certain other Northeastern carriers (in part or in whole) to New York Central as well as to the bloated remains of the Pennsy, and that a large number of unnecessary lines still be abandoned or sold.

With all due respect, your conclusions don't really add up.

1. Why were the constituent parts mismanaged? Why was the New Haven by itself in awful shape? It keeps going back to the lack of ability to self-determine rates and service offerings. When you can't invest the once-respectable cash hoard back in the railroad and get a good return, you diversify (keep in mind the conglomerate was basically invented in the post-war decades - LTV, IC Industries, General Dynamics). Your statements about mismanagement are not wrong, but it didn't happen in a vacuum. A generation prior to the PC failure saw the continuing bankruptcy of the New Haven. It wasn't really healthy since 1920. David Bevan may have been a crook, but Jim Symes was not. Robert Young may have been a dreamer, but he was not a crook.

2. If you read Rush Loving's book: RPSA would've never happened without PC bankruptcy. 3R, 4R, and Staggers only happened because Conrail was at first a failure. That's a piece that many of us, myself included, skip over. The first four years of Conrail were a disaster. After a few years of Uncle Sam writing blank checks, they got serious about right-sizing the cost structure. We tend to "romanticize" the creation of Conrail by thinking that within 1976 they went to 2-man, FRED, and dropped all the branches and secondary mains. Yes, the Erie Lines West was dropped fast and Annie was left out, but that had more to do with CR managers being Pennsy guys in blue hats. They never wanted Erie and they knew Annie was an albatross with the ferries. It took 25 years for them to drop the PRR Chicago line. I'm still not sure why they kept the NYC Chicago line over the PRR Chicago line, other than the Elkhart yard was/is a beast.

Tad: I’ll dig out my copy of The Men Who Loved Trains this week because I have thoughts on your post, but wanted to clarify the record: RPSA (formation of Amtrak) and 3R (formation of the second USRA) happened as a direct response to the Penn Central bankruptcy, USRA then released its final system plan upon which 4R sealed the deal on Consolidated Railroad Corporation. Staggers was as much a response to Conrail’s unmet needs as it was to the Rock and Milwaukee bankruptcies and the weak financial positions of other roads (in particular SP and MP, if I recall correctly.)

I hope you all realize if our government nationalizes the railroads, they will compete for scarce resources (appropriation dollars) WITH EVERY OTHER AGENCY AND DEPARTMENT in the USG.

The standard USG solution is FAST and CHEAP from the old menu: Fast, Good, Cheap. Pick any two.

But continue pipe dreaming, it’s entertaining.