Hemphill's January column - Government dole

Trains Magazine General Discussion
1

I apologize guys and gals, I hit the wrong button and this post was posted before I typed anything.

Hemphill’s latest poses the question as to whether the railroads should get/take any subsidy from the government? The answer is NO!!! Unless you are of the persuasion that you think the government does best.
Of which case I think you would like the V.A.T.(value added tax) that is added to everything in Great Britain and Canada. That 17.5% tax pays for their “free” health care program that stinks.
We don’t want the railroads to get into any deeper clutches of the government, do we? Amtrak is already subsidized and they can not live without it. That is what usually happens. Once you start depending on outside sources for support, you lose your creativity at learning to live within your means and seeking to get money honestly.
What do you think?

2

I think what Mark said was valid. He said either give support (not necessarily subsidy) to all OR to none.

LC

3

MWC: I’m trying to get my mind wrapped around your macroeconomic statements in your recent post in this thread:

“We will road-subsidize, real-estate-developer-subsidize, and airport-subsidize our country into an economic hole-in-the-ground from which we will find it difficult to dig out.”

What hole-in-the ground? Was the U.S. economic growth of the 20th century an illusion? Compared with which other country(ies)? The the real-estate-constrained, railroad-subsidizing, fly-by-government-fiat states of Europe?

“We have a wonderful transportation system in this country, but its operating costs, and the operating costs of the residential, industrial, and commercial patterns the transportation system enables, are person-for-person the most expensive in the world.”

Are they not the most productive in the world? I’m sure the bicycle-driven economy of India has a lower per capita transportation cost, but the Indians sure don’t want to stay mired in that mud.

“As long as we get sufficient value for the dollars we spend, we can get away with anything. The market says we are NOT getting sufficient value. That’s why the dollar is plunging like a bus into a third-world ravine.”

Currency value fluctuations are being driven by the relative transportation costs across borders? Alan Greenspan must have missed that! When the $US was strong against the Euro, say three years ago, was the U.S. economy structurally different?

“Unless we want to personally experience what the fall of Rome felt like, we might want to look around for cheaper transportation solutions.”

Gosh, I didn’t realize it was all those subsidized paved Roman ROADS that caused the fall! And the Mediterranean was right under their noses!

"I think railroads will give u

4

Mark-

Point taken. I think your position has definite merit.

A rational transportation funding policy would certainly have benefits for both the present and the future. The capacity of our highways is not endless and the vastly increased costs security, particularly in passenger aviation would certainly seem to make investment in rail capacity a necessity.

LC

5

Mark: I’m puzzled by your pessimism over the prospects for the U.S. economy, but it is not uncommon for informed minds to differ over that. But let’s keep a clear eye on the real world. REAL GDP has had the following increases so far this century (surely we don’t differ that the U.S. economy did reasonably well over, say, the previous 50 years):

Each year compared to the previous year:

2000 +0.8%
2001 +1.9%
2002 +3.0%
2004 +4.0% (Est)

What is elusive about that growth?

I respect your bias in favor of the railroads in the public policy arena, yet you have a confidence in your implicit view that a “sensible policy” would have a dramatic and positive impact on railroads for which I see little empirical evidence. Again, I offer the Euopean experience as suggestive of the likely outcome.

6

MWC:

“I think railroads will give us some cheaper solutions, but the economic bias we’re creating by our heavy subsidies to other transportation forms (as well as our closely linked real-estate tax policies that favor urban sprawl) are preventing us from finding out if railroads really are cheaper.”

Mark, I want to keep this light! ( :~)! But the above quote(which contains the word “bias” (:~) ) seems to me to indicate an “implicit view” (my words)! (:~)

7

Cool. I have got to see this.

A light discussion about implicit views concerning the subsidation of the transportation industry.

Gabe

P.S. I am really there with you on the urban sprawl issue. That is one of my pet projects.

8

A subtle but important distinction! Well said!

9

One of the interesting points in Mark’s article is that the Fed DOT is organized into “silos” by mode. This appears to prevent the department from pursuing the greatest good much like marketing and operations can sometimes work at cross purposes on a RR.

Anytime you apply some artificial constraints to a system, you’ll suboptimize it. However, anytime you try to organize something, you wind up applying contraints that are, if not artificial, are at least arbitrary. The trick is to organize to make the “game” match reality as best you can.

An example of how this how the RRs are generally organized into freight and passenger companies (e.g. Amtrak, NJT, NS, CSXT, etc). Because of this, it is very difficult and sometimes overly costly to operate freight on passenger RR owned track. You also wind up with “Bozo” decisions like the South Jersey Light Rail line where operation is segregated by the clock. There is even some “conventional wisdom” that says mixing frt and passenger is “Bad”. When the RRs operated both frt and passenger, we didn’t have these problems (we had other ones!).

The current “intermodal” approach to DOT spending (ISTEA et. al.) is a patch applied on top of the “silos”. There has to be a better way… Any ideas?

10

What drove this decision…was it safety (inability of a light rail car to withstand a potential collision with a freight train) or scheduling (local freights would tie up the line, preventing passneger trains from running on schedule).

11

[quote]
QUOTE: Originally posted by Dick_Lewis

MWC: I’m trying to get my mind wrapped around your macroeconomic statements in your recent post in this thread:

“We will road-subsidize, real-estate-developer-subsidize, and airport-subsidize our country into an economic hole-in-the-ground from which we will find it difficult to dig out.”

What hole-in-the ground? Was the U.S. economic growth of the 20th century an illusion? Compared with which other country(ies)? The the real-estate-constrained, railroad-subsidizing, fly-by-government-fiat states of Europe?

“We have a wonderful transportation system in this country, but its operating costs, and the operating costs of the residential, industrial, and commercial patterns the transportation system enables, are person-for-person the most expensive in the world.”

Are they not the most productive in the world? I’m sure the bicycle-driven economy of India has a lower per capita transportation cost, but the Indians sure don’t want to stay mired in that mud.

“As long as we get sufficient value for the dollars we spend, we can get away with anything. The market says we are NOT getting sufficient value. That’s why the dollar is plunging like a bus into a third-world ravine.”

Currency value fluctuations are being driven by the relative transportation costs across borders? Alan Greenspan must have missed that! When the $US was strong against the Euro, say three years ago, was the U.S. economy structurally different?

“Unless we want to personally experience what the fall of Rome felt like, we might want to look around for cheaper transportation solutions.”

Gosh, I didn’t realize it was all those subsidized paved Roman ROADS that caused the fall! And the Mediterranean was right unde

12

Joe, point taken! But I guess the U.S. will go over the edge well after Europe!

13

***,

In order to share Mark’s pessimism on the U.S. economy/transportation system, you have to take his claim of other forms of transportation being subsidized as an absolute truth, which of course it is not. As many of us have pointed out, on the federal level the majority of highway funds for the movement of intercity freight is paid for by user fees, with a very small porportion paid out of the general fund, and those usually come from economic development grants. It is true on the state and local level that highway funds come from non-user fees such as construction bonds or sales and property taxes, but that is by the choice of those state and local officlals, and such is not really germaine to a conversation on federal transportation policy, i.e. state’s rights, not something the feds could get the states to change to true user fees.

If what Mark desires is some form of equalization where each transport mode has the same percentage of user fees and subsidies at each government level, we would have to start with including railroads in the federal diesel fuel tax of 18 cents per gallon, charge railroads additional fees per axle loadings and gross train weight, add a little more in the form of funds out of the general fund, and then the government would turn around and reinvest this money into the rail infrastructure, and of course states and localities would have to chip in their share via their own fuel taxes/property taxes/bonds/etc. So on one hand, the railroads would be paying through the nose, cutting into their gross revenues, but would not have the liability of actually taking care of the tracks, which drastically cuts back on their expenses. Of course, Mark does correctly point out that allowing direct subsidy of what he describes as “franchise ownership” of the rails would be an issue, and you’d have the inherent red tape and beauracratic overhead of having the government in control of the maintenance of the rail infrastructure. But then again, that’s how highways and

14

In Logistics, time is waste. A product in transit or in a warehouse is a product not in use. Surplus products are needed to cover delays and potential delays of products that are on their way. A freight train’s cargo is very expensive and it isn’t adding value until it is put to use. This expense and delay produces expenses and delays throughout the supply chain. Inventory must be on hand, warehouses must store the inventory, extra delays must be added to ensure enough products will be available, and when demand for a product falls all those surplus products become garbage.

Competitive advantage in the global economy is adapting to change faster. Company profits for most businesses depend on this more than shipping costs or fuel costs.

Railroads must find ways to compete with trucks on delivery time. If they can that may be worth taxpayers money. If they can’t lower shipping and fuel costs won’t save them from decline.

15

I am in favor of Mark’s solution: Subsidies for railroads where there is a definite government expenditure reducing and/or tax revenue increasing benefit. This includes help to shortlines to handle heavier cars so important tax-paying industries can stay in business. It includes capacity increases so that very expensive highway expansion can be avoided. It includes subsidies to passenger rail where:

  1. The image of the USA suffers internationally and tourism suffers becuase of a nonexistant or decrepit truly national passenger rail system.

  2. Expensive airport expansion and/or very expensive expansion of air traffic control locally can be avoided.

  3. Expensive efforts to keep highways open with large snow accumulation a can have better priorities because the help passenger trains provide.

  4. Expansion of Interstate and other key highways can be avoided.

  5. Reduction of traffic congestion, particularly at choke points, without any possible immediate remedy, is needed NOW.

  6. Preperations for a “just-in-case” National Defense effort so the long-term solution to Global Terror (modification of the Saudi educational system so kids don’t grow up thinking the the Eternal intended all but Wahabee Muslims to be treated like animals) canb have some teeth.

16

Exactly! You choose std commuter equipment for the route and you don’t have the problem. You have to rearrange things in Camden and Trenton a bit, though.

The issue of providing late night service from Rivershark games and Sony Center would also be solved.

You also would gain the ability to run direct to 30th St Sta and Atlantic City by restoring connection at Delair Bridge.

Of course, this would involve having NJT negotiate with SEPTA, Amtrak and Conrail.

I stand by my “Bozo” characterization!

17

Dave-

I think you are falling victim to the thinking that is causing the problem. That is, that each mode of transport is it’s own end. That is the transportation provider’s point of view, not the transportation consumer’s point of view.

If the point is to move people or goods and the government’s proper roll is to facilitate such movement, then investment or other government support would be decoupled from revenue source and directed to provide greatest good.

Fuel taxes and airport ticket taxes are certainly not fair and equally applied “user fees”. For example, trucks cause 95x the wear and tear on the interstate highways but don’t pay 95x more toll and fuel tax. My property tax pays for local police that patrol the interstate highway in my county that is at least 1/2 thru traffic. My property taxes pay for my local schools but my house doesn’t go to school.

If a 5% increase in fuel tax would be required to build additional highway capacity to relieve congestion by building new highways, but a 2% increase would produce the same reduction in congestion if invested in rail capacity (to remove trucks and commuters) which would be the wise choice?

18

futuremodal: Which U.S. railroad is earning monopoly profit? ATT existed in its former state because of the great 1913 compromise: regulated monopoly returns in exchange for universal telephone service. Technological advances and “private carriage” (railroad telegrph/telephone systems morphing into de facto “contract carriers,” etc.) rendered the old model obsolete, and the long-haul market was deregulated in 1984. Ironically, the railroad industry experience was almost a circus mirror image of that of the telephone industry: heavily rate- and service-regulated without monopoly returns, and with the explicit regulatory objective of fostering enhanced competition from pipelines, barges and trucks. Gradually, “umbrella” rate regulation was ended (1958 legislation), then service and route regulation substantially ended (1970’s and 80’s legislation). These belated actions were taken to save the railroad industry from the effects of misguided regulation, not to protect the public and enhance competition, as was the case in the AT&T breakup.

Ironically, for “open access” proponents, the FCC has finally bowed to the will of Congress as expressed in 1996 legislation and has ended “open access” in local telephone markets. Investment and innovation had atrophied under a regime more aptly named “forced access.”

The practicalities of fragmented railroad network ownership (separating so-called infrastructure from the operating entities) are so daunting that only those posessing a blind faith in the wisdom of regulators would seriously propose it. The most recent real-world test of such a scheme with which I am acquainted is the debacle in England. And there, the split was of a nationalized system, not of private properties.

Your idea of “prepaid” tolls compensating shareholders for the taking of right-of-way, track, structures, signals, dispatching centers, computer centers, and most importantly, franchise value, is simply not feasible. Who can possibly have the wisdom and k

19

***,

I’m not sure where you are getting your information. If you are denying the tremendous explosion in telecommunications innovation, employment, market entry and exit, et al, since the AT&T breakup, then there’s no point in explaining the similar benefits of maximizing access to the rail grid.

BTW, England may be the only example of open access referenced by U.S. opponents of open acess, but it is not the only place in the world where open access is in place. To compare the British rail system to the U.S. rail system, then, now, and in the future, is to compare trolleys to SUV’s.

And of course, if you want examples of railroads earning monopoly profits, just ask any captive rail customer charged differential pricing. Differentlal pricing is monopoly pricing. They are one and the same.

20

I am all in favor of local jurisdictions having a local option tax, including additional fuel taxes, if there is a direct benefit to freighters and commuters, e.g. a reduction in the costs of maintaining local roads and highways. Of course, this is something that is out of the hands of the federal government.

What I would strongly oppose is additional fuel taxes on gasoline and diesel nationwide to be parlayed to railroads in their current monopolistic form. We cannot use tax money to feed corporations. The only way you can justify giving tax dollars to railroads is if infrastructure is separated from operating companies, and that assumes some form or degree of the infrastructure entity being comprised of