- Current political and economic issues succinctly explained.
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Rail is an essential component of a balanced national transportation (PDF) system and a globally competitive economy. The American Society of Civil Engineers, which graded U.S. rail infrastructure with a C-, notes that the rail industry requires $200 billion in investment by 2035 to meet projected future demand. In the United States, modern freight and passenger rail systems share the same corridors and infrastructure. But while privately owned U.S. freight has succeeded in remaining competitive with other transportation modes, federally run passenger rail has struggled. Experts say the continued success of freight rail will require billions in new funding to avoid congestion, particularly if plans for expanding passenger rail proceed.
Funding for the upkeep and expansion of passenger rail--which receives significantly less in federal subsidies than other transportation modes--has remained a controversial issue in Washington. The Obama administration’s plan to expand high-speed rail (sustained speeds of more than 125 miles per hour) faces fierce opposition. Supporters cite the unique benefits of high-speed rail, including energy savings, more efficient mobility, and greater manufacturing opportunities for U.S. companies. Moreover, many U.S. economic competitors in Asia and Europe are making significant investments in HSR (WashPost). Opponents argue the economic benefits of HSR rarely surpass the costs, and point out that most systems do not turn a profit and rely heavily on government subsidies.
The Shakeup of U.S. Rail
The mid-to-late nineteenth century saw thousands of miles of track laid across the United States, and by the turn of the twentieth century, rail companies--which offered both passenger and freight rail services at the time--provided one of the cheapest and most efficient modes of transport. In the 1930s, rail transportation began to struggle in competition with commercial aviation and the increasingly popular automobile. Meanwhile, freight regulations put in place by the Interstate Commerce Commission, along with labor union restrictions, stifled the industry further.
By 1968, the Pullman Palace Car Company, a major manufacturer of passenger railroad cars, had gone bankrupt. In an effort to give the industry a much-needed boost, the Penn Central Transportation Company was formed that same year, only to declare shortly thereafter the largest corporate bankruptcy in history (Time).
Freight railroad is maintained with little taxpayer money, unlike alternate forms of freight transport such as trucks and barges, for which the government maintains the highway infrastructure.
The 1970s and 1980s were a turning point for U.S. rail. Amtrak was established by law in 1971 and ushered in a new era of publicly owned and subsidized passenger rail. The modern freight rail industry was created by the Staggers Act of 1980, which partially deregulated the industry and contributed to mass consolidation and increased investment. As part of the Staggers process, the U.S. government allowed freight carriers to exit the passenger business in exchange for donating equipment to Amtrak and pouring $200 million into the new system. Most of the approximately 22,000 miles of track over which Amtrak runs are still owned by freight railroads. Amtrak pays freight carriers for the right to operate on their tracks and for priority over other customers.
The Staggers law also granted railroads the freedom to change prices and negotiate private contracts with shipping companies. Following enactment, the number of large railroad carriers shrank from twenty-six to seven, and the amount of track owned by these companies declined from nearly 165,000 miles in 1980 to about 94,000 in 2008.
The Success of Freight Rail
The U.S. freight rail industry continues to thrive today. "America’s freight railways are one of the unsung transport successes of the past thirty years," says the Economist. "They are universally recognized in the industry as the best in the world." Freight railroad is maintained with little taxpayer money, unlike alternative forms of freight transport such as trucks and barges, for which the government maintains the infrastructure. Over the last several decades, U.S. freight companies have made billion-dollar investments in the national rail network. Warren Buffett highlighted this trend in 2009, increasing Berkshire Hathaway’s holdings of BNSF (USA Today)--the nation’s second largest railroad--by $26 billion. Remarking on the historic investment, which was the largest in the history of Berkshire, Buffett said, "Our country’s prosperity depends on its having an efficient and well-maintained rail system."
Compared to other modes of freight transport, rail also has a smaller environmental impact, better fuel efficiency, and lower costs over large distances. Steel wheel technology makes rail far more efficient than truck freight due to limited rolling resistance: railcars become more efficient as more weight is added. Trains can now move one ton of cargo approximately 484 miles on just one gallon of fuel, according to the American Association of Railroads. Lower freight rail costs save consumers money and help keep U.S. manufacturers globally competitive. According to Dr. Pasi Lautala, director of the Rail Transport Program at Michigan Technological University, "If you talk to industry experts, everyone has a positive outlook on the future of the freight rail industry, because it makes sense if you look at the world right now. You look at the economic advances, especially in fuel consumption compared to truck traffic and the limitations of marine transportation."
But challenges remain. Freight rail will need substantial investment in the future, despite its current success. Congestion is on the rise, and capacity must increase by approximately 90 percent to meet estimated demands by 2035, according to the U.S. Transportation Department. Re-regulation and the potential for track sharing with high-speed and express intercity rail could also put the freight industry under strain. President Obama has proposed a 110 mile-per-hour intercity passenger speed limit, which could create congestion problems for slower-running freight trains.
Hurdles for Expanding Passenger Rail
The government created Amtrak to preserve a passenger system it knew to be unprofitable and would likely not have survived without its intervention. To date, it continues to lose money and is expected to receive $1.42 billion in federal funding (FY 2012) despite hitting an all-time passenger high of 30 million and ticket sales of $1.9 billion in 2011. The only passenger trains reported to cover their operating costs, according to the Congressional Research Service, are the high-speed Acela trains running in and out of New York City along the Northeast Corridor between Boston and Washington, D.C. Indeed, to increase profitability, Brookings’ Robert Puentes urges Amtrak to "focus on and prioritize short-haul corridors that connect our nation’s major metros." Others, including some Republicans in Congress, suggest the government should exit the passenger business altogether, including handing the operations of profitable corridors over to private interests (WashPost).
However, Amtrak and the expansion of high-speed rail development have garnered significant attention at the federal level, particularly as lawmakers grapple with high gasoline prices and begin to think strategically about climate policy. The Obama administration reignited interest in HSR in 2009 with a proposal that included a multi-billion dollar investment. Amtrak’s only high-speed rail line, Acela Express, has a maximum capacity speed of 150 miles per hour, though trains often run slower due to track sharing with typical passenger cars.
Proponents of HSR highlight job creation, environmental friendliness, and reduced congestion in other transportation industries, while opponents point to HSR’s high costs and questionable utility. So far Acela is making money, but critics say its success is unlikely to be reproduced in other areas since the line already runs in Amtrak’s most profitable corridor.
Economic uncertainties for expanding high-speed rail remain, including the projected number of passengers, average cost, and public benefits. Republicans generally prefer private investment as opposed to government funding for such high-risk ventures. The debate in California is a prime example of the overall contention surrounding HSR innovation in the United States. Many in the state legislature support the concept of a California HSR network (Reuters), but the projected cost of nearly $100 billion has lawmakers rattled.
William J. Mallett, transportation policy specialist at the Congressional Research Service, notes: "I’m not convinced high-speed rail is the answer to some people’s prayers, because the geography of the United States is different than Europe… a high-speed rail network that covers the whole country is probably not feasible." Countries with HSR generally have higher population densities, smaller land areas, and lower rates of car ownership than the United States.
Proponents of high speed rail highlight job creation, environmental friendliness, and reduced congestion in other transportation industries, while opponents point to high costs and question its utility.
Many European and Asian countries, where motor fuel costs tend to be significantly higher, have been investing in HSR innovation for decades, developing trains with the ability to reach speeds that far surpass those of Amtrak’s Acela Express. China’s rail system, said to be the largest transport infrastructure project in the world, is also the longest high-speed rail network (CNN) in the world. Funding from the government’s economic stimulus package is expected to aid in the development of thousands of new high-speed rail lines. Operating speeds were lowered after a July 2011 collision killed forty passengers. Nevertheless, the Chinese government (FT) plans to continue to expand the HSR network.
Japan’s Shinkansen HSR system, which broke ground in 1964, is the oldest, fastest and highest-volume HSR system in the world. But even as it boasts the highest ridership of any HSR system, the Shinkansen system still does not turn a profit and must rely on government subsidies. Western European countries such as Germany, Spain, and France have been developing their high-speed rail networks for decades, and Spain currently boasts the largest high-speed rail network in Europe. But as in Japan, European HSR systems survive because of government subsidies.
Over the past three decades, aviation and highway infrastructure have received more than a trillion more federal dollars than rail. For nearly a decade, Amtrak’s federal funding was stagnant or falling. But in 2008, a year with historically high gasoline prices, Congress nearly doubled rail funding (WSJ).
When President Obama took office in 2009, as part of the American Recovery and Reinvestment Act, he allocated $8 billion for high-speed rail projects. The administration also announced the creation of the High-Speed Intercity Passenger Rail program. The proposal included a $1 billion per year allocation for the next five years for high-speed rail investment in strategic areas around the country, such as Chicago, New York, and Los Angeles. The HSIPR program was also designed to address other outstanding rail transport problems around the country, and sought to upgrade existing passenger rail lines to increase speed and efficiency of services. In February 2011, Vice President Biden announced a six-year plan to build a HSR network that would fulfill President Obama’s promise to grant HSR access to 80 percent of the country within twenty-five years.
But in November 2011 the U.S. Senate and the House of Representatives killed HSR stimulus funding (USA Today), a measure that was controversial from the start. It faced opposition at the state level, where some lawmakers and policy analysts claimed high-speed rail was impractical and a waste of taxpayer dollars. Republican governors from Florida, Ohio, and Wisconsin rejected their HSR stimulus grants (TransportationNation), calling for the redistribution of funds to other infrastructure and transportation projects. In spite of the funding setback, the Department of Transportation announced in its 2011 DoT Year in Review the accumulation of $9.4 billion in Federal Railroad Administration grants for HSR innovation.
Some experts see a national infrastructure bank as a way to fund new transportation projects, including rail, and avoid these types of fights. Proponents claim that it would promote federal spending allocation based on merit as opposed to more traditional methods, such as earmarking. It would also provide credit assistance and low-interest loans to local and state government investment and encourage private investment. Several congressional bills, such as the American Infrastructure Investment Fund Act of 2011, would create an infrastructure bank-like entity.
Washington Monthly’s Philip Longman notes that "the choice of infrastructure projects is de facto industrial policy; it’s also de facto energy, land use, housing, and environmental policy, with implications for nearly every aspect of American life going far into the future."