Tax cut bill is good news for short line railroads

While the nearly $860 billion tax cut bill is heading to President Obama to be signed into law, it would not only mean that income taxes remain at current levels, it would also mean good news is coming down the track for short line railroads.

If enacted, this legislation would extend short line railroad track maintenance credit for two years. This credit, which had been in place since 2005, expired on December 31, 2009. Once this extension is made official, it will cover tax years 2010 and 2011.

This bill is identical to legislation—H.R. 1132 and S. 461, Extension of the Section 45G Railroad Track Maintenance Credit—which was introduced by Rep. Earl Pomeroy (D-ND), Sen. Jerry Moran (R-KS), Sen. Blanche Lincoln (D-AR), and Sen. Mike Crapo (R-ID) during the 111th Congress with the objective to extend and improve the short line railroad tax credit, the bipartisan authors are calling for an incentive for short line railroads to invest in track rehabilitation by providing a tax credit of 50 cents for every dollar the railroad spends on track improvements. According to legislation, the credit is capped based on a mileage formula.

The short line railroad track maintenance credit is supported by the American Short Line & Regional Railroad Association (ASLRRA) who said the credit “represents real and immediate infrastructure investment and job creation that preserves transportation and economic development opportunities.”

And on top of that, this legislation provides myriad benefits for railroad and intermodal shippers and carriers alike.

“The real benefit is accruing to the [shipper],” said Adam Nordstrom a lobbyist for the ASLRRA and a partner in the Washington, D.C.-based law firm Chambers, Conlon & Hartwell, LLC. “This bill is not about saving short line railroads; it is about keeping short line railroad customers connected to the national railroad network with adequate and safe rail service, which is why this provision has such broad appeal.”

There are more than 500 short line railroad carriers in 49 states, which serve as the first and last mile for more than 11,000 rail shippers. And preserving and upgrading short line railroad tracks is critically important to so many economies and communities throughout the U.S.

When freight railroads were deregulated in the U.S. in 1980 through the Staggers Act, there were 200 short line railroads, and today there are more than 550. Deregulation in effect encouraged the creation of short lines, which would have otherwise been abandoned, and short lines were previously owned by Class I railroads whom did not want to operate them anymore, because they were not past of the Class I’s core networks and were not financially viable for them, although they were financially viable for short line operators. What’s more, abandoned short lines had suffered from decades of deferred maintenance, which supported the point of passing the tax credit to create a way of effectively lowering the costs of infrastructure upgrades so that more infrastructure upgrades could take place and preserve rail lines that would have otherwise been abandoned.

“When you abandon a rail line, the shipper on that line loses his connection to the freight rail network and from the standpoint of Congress, it was a mindset to preserve as many miles as possible,” said Nordstrom. “Without this credit, there would have been many more abandoned miles.”

In terms of financing, Nordstrom said that there are more than $330 million in short line infrastructure investments per year made to short line railroads. The tax credit, if fully utilized, would amount to $165 million in tax credits each year it is in effect. But in order for those credits to be earned, for every dollar spent no more than 50 cents in tax credits are earned.

Nordstrom explained that short line railroads, as well as their customers, are allowed to earn the tax credit, and that there are lots of instances where short line railroads and their customers partner to fund infrastructure upgrades, with customers claiming the tax credit on their tax return as the entity paying for the upgrade.

“There are tens of millions of dollars per year that are actually customer-funded upgrades as opposed to solely railroad-funded upgrades,” said Nordstrom.