Spending on U.S. rail seen stuck at the station

Originally published August 12, 2009

By Ian Sherr

CHICAGO (Reuters) – ANALYSIS – Major U.S. freight railroads and their advocates have argued for years that government investment is needed in the country’s rail system to take freight off congested highways and keep the economy moving.

But supporters say rail investments have been largely ignored by Congress, suggesting political support is lacking, despite warnings action must be taken sooner rather than later.

“We’re in a growing crisis in terms of investment,” Republican Congressman Tom Petri of Wisconsin, who is a member of the House Transportation and Infrastructure Committee, said in an interview. “Any serious country needs to take a long-term perspective and make reasoned investments in its future.”

But many rail analysts are skeptical government will act.

“After all of the money that has been spent on bank bailouts and the stimulus package, I doubt there will be enough political will to support significant investment in railroads,” said Jason Seidl, an analyst at brokerage Dahlman Rose.

The top domestic carriers include Burlington Northern Santa Fe Corp, Norfolk Southern Corp, Union Pacific Corp, and CSX Corp.

Unlike highways that receive public funding, private U.S. railroads foot the bill for rail investments — spending called insufficient to meet the country’s future transport needs by Petri and many industry executives at a meeting this week.

“There is not a long tradition of funding freight infrastructure — yet,” said MarySue Barrett, president of Chicago’s Metropolitan Planning Council, at the event looking at how to get rail freight investment included in the Surface Transportation Reauthorization Bill.

Currently, the funding blueprint making its way through Congress mainly for federal highway and transit programs, includes provisions to streamline freight movement, improve infrastructure and boost safety.

For instance, a Senate provision would authorize a 10 percent shift in freight traffic from trucks to rail and other modes by 2020.

U.S. freight railroads are lobbying for greater, long-term government investment and have proposed tax incentives to expand capacity and favor public-private partnerships for infrastructure projects.

Much of the concern comes from U.S. Department of Transportation estimates that rail freight tonnage will rise 88 percent by 2035.

A 2007 study compiled for the Association of American Railroads estimated the industry would require investments of $148 billion for infrastructure expansion over that period to keep pace with the forecast demand. About $96 billion of those funds could come from private railroads, it said.

While demand is set to grow, available track in the country is shrinking. Logistics professor Tom Mentzer of the University of Tennessee said that, when he started watching railroads in 1975 there were 225,000 miles of rail in the United States. Today, that number is about 150,000 miles. But he was not optimistic about big government spending any time soon.

“I don’t see things changing without a crisis,” he said, citing taxpayer sentiment. “Rail is just not a popular issue.”

A study issued last week by the Economic Intelligence Unit for consultant KPMG polled 118 U.S. infrastructure executives and found more than 90 percent were concerned the current level of rail infrastructure cannot support long term economic growth. More than a quarter called for government involvement.

Kristine Burr, Assistant Deputy Minister of Policy for Transport Canada, told reporters at the Chicago meeting that the urgency of Canada’s own transport situation had helped the government take actions that included increased rail spending.

“We were facing a crisis — there was a lot of congestion,” she said.

Executives hope the United States will take a similar approach.

“The movement of goods around the country is something people take for granted,” said McCain Foods VP of Planning, Distribution and Customer Service Ron Pillsbury.

“We need to educate constituencies around the country about what this means to them and their daily lives,” he added. “We need to help build political support.”

(By Ian Sherr. Published Aug. 12, 2009 on the wire at Reuters News, here.)