Op-Ed: Good Public Policy Drives Freight Rail Investment (Not Public Funding)
President Trump and many in Congress have placed a high priority on infrastructure investment. The Administration’s plan has significant federal funding associated with it, primarily aimed at attracting more non-federal dollars into infrastructure, including private sector investment. As Congress and the Administration consider this approach, it should be reassuring that substantial private investment is already being made to maintain and expand the nation’s freight rail network. Freight railroads have invested around $26 billion a year over the last five years, and more than $635 billion since 1980, on capital expenditures and maintenance expenses related to locomotives, freight cars, tracks, bridges, tunnels and other infrastructure and equipment. That’s more than 40 cents out of every revenue dollar plowed back into the rail network — about six times the rate of reinvestment of the average U.S. manufacturer.
To facilitate this investment, freight railroads require a growing economy and good public policy; federal policy makers (thankfully) don’t need to provide the funds that railroads spend. But regulatory and other transportation policies have a large impact on freight rail investment, and the wrong policies can dampen what freight railroads spend. Therefore, it’s important to keep in mind how private sector rail investment is impacted by public policy, especially as infrastructure investment proposals progress through Congress.
First, pro-growth policies support freight rail investment; freight railroads invest to meet the growth in demand from customers. The recently passed tax reform bill is helping to drive growth which, in turn, should drive more railroad investment. Good trade policy is also important to customer growth. Almost 35% of freight rail revenues are derived from trade-related freight.
Turning to transportation policies, ongoing infusions of General Funds into federal highways subsidizes freight that goes over the highway. Since “you get more of what you subsidize,” over time this will hurt freight railroad growth and related investment. Finding user-based revenue alternatives to the gas tax is a long-term goal whose time is coming, even if initially just for commercial users of the highways.
Finally, if federal regulatory policies reduce returns, strand capital or require inefficient operations, freight rail investment will be impacted. Safety regulations should encourage the use of new technologies and operating practices that provide for safe, and more efficient, operations. And economic regulation must permit adequate returns to support investment. Growth and improved freight rail earnings have allowed railroads to afford the massive spending necessary for maintaining infrastructure and equipment and provide the service customers require.
The supply chain is changing, driven by greater demands placed on transportation networks by e-commerce and changes in the industrial economy and energy markets. But one thing is certain, the nation will need more private freight rail investment and productivity, not less. While Congress and the Administration grapple with the reality that the country’s publically-funded highways and bridges require more investment, they can take comfort in the fact that public policies supporting private investment in freight rail networks are relatively easier to achieve, and freight railroads are investing.