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This Week at Amtrak; 2012-04-19

April 20th, 2012

Volume 9, Number 3

From the Editors…

This Week goes to Washington to see what the transportation thinkers are thinking.

Editors: D & D Carleton                Proofreading: Black Bear Wordsmiths (blackbearws@yahoo.com)

The end of the era of seemingly free money

By Daniel Carleton

By October [1908] the race to become the [Georgia & Florida] shop town was in full swing. Civic boosters realized that inducements were expected; railroads had long made such demands. Understandably officials received several proposals for “this ripe, mellow plum.” Augusta offered thirty acres and $20,000 or $30,000 without the land; Douglas tendered 100 acres and $10,000, Hazlehurst volunteered 100 acres and $5000, and Vidalia replicated the Hazlehurst deal. Valdosta, though, did not propose a specific amount of either real estate or cash incentives. – H. Roger Grant, Rails Through the Wiregrass, A History of the Georgia & Florida Railroad, Northern Illinois University Press, 2006

One might be forgiven the notion for thinking the above transactions were translated from ancient hieroglyphics on some wall in the Valley of the Kings. It is almost impossible to believe that this was just over a century ago, let alone the notion that, once upon a time, cities would do all that they could to coerce a private transportation company to build infrastructure there. It was quid pro quo; the railroads received the land and resources for infrastructure, and the town received a source of stable employment and property taxes.

It was at about the same time that maleficent forces of social engineering began to upend this long standing balance. In 1906, the Hepburn Act gave teeth to the perceived weak Interstate Commerce Commission. This exercise would cause apoplexy for private investment to the American Railroads over the next seven decades. Then, following advances in internal combustion (and forgetting the lesson of the National Road debacle of the early Nineteenth Century), minions of a “Progressive” bent set an agenda that fomented a litany stipulating that capital investment and maintenance of transportation infrastructure be the exclusive purview of minor and major branches of government. Instead of voluntarily ceding money and property for the benefit of the greater good, both would now be taken with or without consent under the auspices of the National Interest. One century later, we are just beginning to awaken to the aftermath of this invocation.

More than just another Friday in Washington

Sponsored by Norfolk Southern and hosted by The Washington Post at its building in Washington, D.C. was the conference entitled Fixing America’s Foundation: Rebuilding Transportation Infrastructure held October 14, 2011. Highlights of the discourses were covered in a special section of the October 23rd Washington Post. All those from the Post who were involved in this affair are to be commended for opening their “home” to us outsiders for a glimpse into their world.

Even so, as with most modern media, an enlightened look at its coverage reveals just how disconnected the Fourth Estate has become with the infrastructure which makes everything else work. On the front of the special section is an illustrated panorama depicting planes, trains, automobiles, and ships, with a number worked into each stylized depiction. The number is purported to reflect the ranking of domestic infrastructure as calculated by The Global Competitiveness Report 2011-12, World Economic Forum, but there is no formula given as to how this status was obtained. If the picture is to be believed, then American railroad infrastructure is 20th in the world, as are U.S. roads. Domestic air travel infrastructure is 31st and ports are 23rd. Moreover, in the opening paragraph introducing the discussion, it was stated, “There was an epic push to build railroads in this country a century ago and then an impressive plan to build interstate highways from 1956 to 1992. But little investment and maintenance has happened since.” Comparing the initial construction of railroads and highways totally misses the point, and is enough to give a historian a migraine; but to say there has been “little investment and maintenance” in railroads will give the railroad proponent chest pains.

“We need to find pots of money…”

U.S. Department of Transportation Secretary Ray LaHood highlighted the plans of the administration: Fifty billion dollars for roads, bridges, transit, and high-speed rail. It is easy to see that the Secretary still believes in the concept of the money trough: “…We need to find pots of money to do big things and to leverage that money against private money in the country. No better way to do it than the infrastructure bank.” The railroads, even when they were built with public money, were owned, operated and maintained with private money. The interstate highway program was different, relying on a trust fund held by the federal government.

Florida’s favorite son, U.S. Representative John Mica, Chairman of the House Transportation and Infrastructure Committee, sees the problem quite differently. He does not reject the idea of infrastructure banking outright; however he does point out other limiting issues: “It’s a good idea, but I have 33 states that already have infrastructure banks, and we had some of them testify. They have no money. It would take a year to set up an infrastructure bank under the terms of the legislation that we’ve reviewed. It would take about $270 million [per year] to operate it in the incumbent bureaucracy, plus having people on bended knees to get an approval.” It would appear Mr. Mica has a handle on what all is involved in the workings of dispensing public monies.

As for the local scene, perhaps Richard Sarles, General Manager and CEO of WMATA said it best:

“We talk about Washington Metro, it’s an example of what happens after ribbons are cut. Systems are ignored. It begins to set and decay. When decay sets in, there’s less popular support for funding. And when that happens, you’re in a slow, agonizing descent to the bottom.”

(As an aside, this writer, who used the METRO as a means of attending this conference, was delayed over an hour due to some nebulous “major backup downtown” followed by “There’s nothing we can do.” Apparently the “agonizing descent” has begun.)

Pick your priorities

Later, a panel discussion of four participants, including WMATA’s Sarles, was outlining its world view of national infrastructure priorities. It should come as no surprise that T. Peter Ruane, President and CEO of the American Road and Transportation Builders Association, declared, “The No.1 priority is for the [U.S.] Congress to do its job…and pass a long-term surface transportation reauthorization program.” Of course that is easier said than done. The representative from the U.S. Chamber of Commerce relayed the message from her members to fix the roads and rebuild the interstate highway system, but added the national presence of a “mindset” that these roads are bought and paid for with no further need of investment. Such is the result of labeling your road a “freeway.” The figure of $50 billion was cited to describe the backlog of work needed in transit; METRO’s maintenance backlog was staked at $10 billion. Otherwise, there were no real specific priorities mentioned.

The bottom line

Following a break, there was another panel discussion, this time addressing the big unknown: How to pay for it all. Most of the revelations, however, were not too revealing, merely citing what used to work and what no longer works. One breath of fresh air came from Robert Puentes, Senior Fellow of the Brookings Institution’s Metropolitan Policy Program:

They’re talking about raising gasoline taxes in Iowa. In Maryland, they’re talking about land value capture [raising funds for transportation by capturing a portion of land value gains associated with public infrastructure]. Minnesota’s looking into that, too. In Salt Lake City, in Phoenix, Oklahoma City, Los Angles – these places are going to their voters and raising their own taxes at the ballot box.”

One point was made very, very clear: The traditional sources of revenue for transportation, i.e. federal gas tax, state gas tax, and public debt through municipal bonds, are irrevocably broken. This old way of doing business was dependant upon the ever-rising sales of gasoline and the garnering of said taxes. The sale of gas in this country peaked in August, 2007. Coincident with all of this are the trends of teenagers postponing getting their driver’s licenses, and teens/20-somethings driving less than previous generations. This is a sea change in what was once a cyclical system, with one participant going so far as to say, “The gas tax is now a minority source of funds.” The Highway Trust fund was bailed out by federal stimulus funds, and through it 35,000 miles of roads were renewed in 11 months; but no one in that room was so naïve so as to believe this would happen again.

Those who took the time to attend this meeting were predominantly highway builders and proponents. Most of these people, long rewarded for their work in the field of laying asphalt, have seen the money well run dry. What they really want most of all in the whole wide world is to see a reverse in the trend of declining automobile passenger miles and gasoline consumption. Well, good luck with that.

There is always one in the crowd (thank goodness)

Despite all the anemic news and seemingly dead-end discussion, there was one very bright spot in the world of American transportation. Edward Hamberger, President and CEO of the Association of American Railroads, showed everyone else how it was done:

Thirty-one years ago, Jimmy Carter, the President, signed the Staggers Rail Act, which partially deregulated the freight rail industry in the country. At that time, 25 percent of the industry was in bankruptcy. We had something called deferred maintenance.

Today, Secretary LaHood referred to the [freight rail] industry as the envy of the world. That’s because we’ve spent $480 billion in the last 31 years. In February, the President said to private America: Get off the sidelines; spend money and hire people. We’re spending $13 billion in [capitol expenditure] this year and hiring 15,000 people.

Just to make it clear, not everybody knows it: We are privately owned, privately maintained, pay taxes on our right of way.

Of course, as this meeting was in Washington, D.C., there was the obligatory government representative who had the unenviable task of justifying his (public salary) job. This person addressed the popular desire to streamline the environmental review process, stating that the problem was not the process, but the lack of funding for the project requiring the review.

Ostensibly it goes like this: Some politico requests a review of some project with no guarantee that the project will be funded or even move further than the drawing board. As this is the case, then maybe one or two people will be assigned to the review just to placate the politico even though the money was not and may never be there. Mr. Hamberger immediately retorted that, in the case of the railroads, the money was there. He should know. Recently Norfolk Southern placed a newly-built (from scratch) five mile stretch of track in service in western Pennsylvania; it took six years. Three and half years were just for permitting, with the final year and a half for construction. The time for actual installation of track? Two months. After almost 200 years of railroading, should it really take six years to build five miles of track?

It is time to pay the piper…and he is NOT accepting credit

The simple reality is that the condition of the national infrastructure is just another can that has been kicked down the road for multiple terms and administrations. Unfortunately, that can has now fallen into a pothole; a pothole the size of the Grand Canyon. That the U.S. Highway Trust Fund has run dry should not be a surprise to anyone, especially those in the nation’s Capitol:

“In May 2002, the full coalition met with [Federal Highway Administrator Mary] Peters on its annual trip to Washington, and she assured the members that there was still a ‘federal interest’ in I-69. But there was no money for it. ‘We are in a zero-sum game,’ she told them. The federal gas tax, which had been the main source of money for highways since 1956, was losing its effectiveness, she explained, because as cars were becoming more efficient, drivers were paying less per mile…She told the coalition that it was time to look hard at innovative financing to augment or even replace the gas tax.” – Matt Dellinger, Interstate 69, The Unfinished History of the Last Great American Highway, Scribner, 2010

During the luncheon discussion that closed out the meeting, there was an innovative exercise in audience participation. Each of us found a small electronic selector box placed alongside his silverware. As we ate, questions were asked, and the results were immediately tabulated on large video screens. Of note, when asked what should have the priority in transportation – passenger or freight – the overwhelming response was freight. When the subject of gas taxes was raised, the likely choices included raising the federal gas tax, imposing a vehicle mileage tax or raising state taxes. No one believed the public would stomach a higher federal tax; the vast majority looked to higher state and local gas taxes.

Thus, it appears the federal gas tax is dead. Everyone involved with highway engineering, design or planning is on one of the five steps of the Kübler-Ross model. Hopefully, this conference will help some of them get to “acceptance” of the end of the free ride. They will be in the role of the displaced, as transportation shifts from an imperious edict of political hubris to refocusing on transportation where it is needed and warranted.

As for the railroads, they are holding their own, investing their own dollars into their own physical plant as dictated by the actual needs and growth of their customers. With this in mind, both Ed Hamberger and Wick Moorman, Norfolk Southern President and CEO, were asked separately why the railroads would organize and participate in such a conference. After all, if the competing modes of transportation are “chasing their own tails,” would that not be all the more beneficial for the railroads? Both Hamberger and Moorman gave the same answer: All modes of transportation are interdependent of one another. The railroad may move the container from one intermodal yard to another, but without the roads completing “the last mile,” then the move is for naught. The railroad may move the train to the port, but if the port cannot efficiently load and unload the freight, then the railroad’s efficacy is lost.

Norfolk Southern realizes all too well that its existence is dependent on these other modes; modes which, due to actions a century ago, are dependent upon public monies to effect a state of good repair. The railroads recognize and support the National Interest, not as a means of political gain, but rather as a necessity for financial survival.

Businesses are beginning to awaken to the reality of this new era of transportation in which they now find themselves. If there is any lesson to be learned from this October soirée, it is simply that if one pins the success of one’s enterprise solely on publicly-funded transportation, one’s enterprise is likely to stagnate or fail. Yes, in good times past, the priority was for public funds to placate political hubris.

A century ago the hypothesis for the experiment of socialized transportation proposed that government owned/operated transportation was the proper tonic for “railroad monopolists.” The French philosopher Denis Diderot once observed, “In order to shake a hypothesis, it is sometimes not necessary to do anything more than push it as far as it will go.” Socialized transportation reached its zenith in August of 2007 when motor fuel demand, along with fuel tax revenue, peaked. The hypothesis has been pushed as far as it will go, but there are those whose priority is to push it further even if this means stimulus from the general revenue stream. Now is the time to redefine those priorities.

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