Committee Republican Leaders Oppose Re-Regulation of Rail Industry

WASHINGTON — Republican Members of the House Transportation and Infrastructure Committee warned that re-regulation of the nation’s successful railroad industry could spell a return to a highly inefficient “Soviet-style” rail system that eliminates private investment and relies primarily on government subsidies.

The Committee conducted a hearing Sept. 25 on rail competition and service.

“Thirty years ago, our nation’s rail system was literally falling apart,” said U.S. Rep. John L. Mica, R-Fla., Transportation and Infrastructure Committee Republican Leader. “Twenty-five percent of the system had to be operated at reduced speed due to dangerous track conditions. More rail lines were bankrupt than in the Great Depression of the 1930’s.

“Luckily, instead of nationalizing our freights, Congress decided to attack the root of the problem: excessive government regulation,” Mica said. “Today, U.S. freight rails comprise one of the least subsidized and best operated – and actually profitable – rail systems in the world.

“If we want a strong, efficient, financially viable rail system, the answers lie in working with the rail industry to create additional competition, adopting a tax policy that encourages better planning, and supporting even more private investment in an industry that is capital intensive.”

Statistics show that the railroads require more capital investment but have much lower returns than other industries, Republicans said.

The pre-1980 rail regulatory regime prevented the railroads from responding to the marketplace in an efficient manner. Infrastructure deteriorated as the railroads were forced to maintain uneconomic lines and services.

At the same time, competition from trucks took a significant portion of the railroads’ share of the freight market, while air carriers and increased use of private automobiles reduced intercity passenger rail demand. The net result was the economic destruction of the railroad industry.

“In 1970, one of the largest companies in the world, Penn Central Railroad, went bankrupt,” said U.S. Rep. Bill Shuster, R-Pa., Ranking Republican on the Railroads, Pipelines and Hazardous Materials Subcommittee. “Penn Central owned over 4,000 locomotives, 200,000 freight cars and 5,000 passenger cars.  The Penn Central bankruptcy was a financial disaster, and a number of other entities were dragged down with it.  The root cause of the Penn Central bankruptcy – and the decline of the entire rail industry – was government regulation.”

In order to address the inefficiencies and bankruptcies rampant in the rail industry, Congress chose the route of deregulation when it passed the Staggers Act in 1980.

“Since Congress deregulated the railroads, the turnaround has been amazing – and it has been done mostly with private capital,” Shuster said. “Our rail system now earns a profit, is gaining business and has a bright future ahead. … But government regulation is still a problem. A great concern of mine is that re-regulation would return us to the days of low or no-profit for our railroads. And no profit means no private investment.

“The railroads are already one of our nation’s most capital intensive industries. In 2006, the railroads spent $10.6 billion on capital projects and right-of-way maintenance,” Shuster said. “The rail industry re-invests 18 percent of every revenue dollar, while other industries such as chemicals or auto manufacturing only re-invest about 5 percent to 7 percent. If we move toward re-regulation, this private investment in railroads will disappear. Are we really willing to ask the government to replace this private spending with taxpayers dollars?

“If we pass re-regulation now, in 5 or 10 years we will be arguing over a railroad bailout plan, just like we did in the 1970’s,” Shuster said.

— Special to News Wire