If death and taxes are certainties in life, so too now is the fact that America’s public infrastructure is failing. Without real leadership and dollars, this will not change.
The American Society of Civil Engineers recently graded America’s infrastructure a “D+” and estimated $4.59 trillion in needed spending over the next decade to rectify the situation. “The only infrastructure sector to receive a B in this year’s report was rail, where private freight companies have invested heavily—$27.1 billion in 2015—to improve service,” reports the Wall Street Journal, noting the grade was the highest of 16 graded sectors.
The above-satisfactory grade for rail, while far from perfect (passenger railroads face significant funding problems), clearly demonstrates that quality infrastructure requires large, sustained bankrolling. And for freight railroads, constant spending is essential because while taxpayers bankroll roads and waterways, they pay almost nothing for this vital infrastructure that moves the U.S. economy.
But the ASCE grade also demonstrates an important corollary – policy makers must curtail regulatory efforts that would impede private investments in rail infrastructure and push policies that encourage more.
First, policymakers must not succumb to the attempts by select railroad shippers to hijack the railroads’ economic regulatory framework for their own benefit. It is nothing short of rent-seeking, and it threatens to undo the success of industry-saving partial deregulation enacted in 1980.
To gain a backdoor to lower rates for themselves, certain rail shippers are looking to inject what they ironically characterize as “free market” and “pro-competition” changes – through government dictates. Known as “forced access,” these shippers want the government to order one rail company to use its own privately owned facilities on behalf of a competitor, and then in some cases they want the government to decide what rate will be paid for the service.
In addition to overriding free market forces and dynamics, forced access would slow rail traffic, reduce network efficiencies and push freight onto the very roads and bridges that received a “D” and “C+”, respectively from ASCE. This will reduce revenues railroads need to earn and invest to maintain America’s best infrastructure and increases the amount of money needed to fix public infrastructure. Today’s B may well revert back to yesterday’s F.
And a B is still not an A. There is room for improvement – particularly with pro-growth policies under discussion, such as tax reform and streamlining federal regulatory processes to promote innovation.
Lowering the U.S. business tax rate would encourage greater capital spending among businesses and improve the global competitiveness of U.S. manufacturers and other firms. By improving returns on expenditures by private companies, a more competitive rate would lead to more domestic production and less offshoring. This promotes greater technological creation and higher productivity across the spectrum, with rail leading the way to move many of these industries.
Similarly, by streamlining government processes and incentivizing rule makers to focus less on prescriptive steps and more on desired outcomes, railroads can gain efficiencies that would increase rail traffic and revenues to put back into the network. Today, virtually every component of railroad operations is subject to strict regulatory oversight, which increases compliance costs and chills modernization. If all the many decades’ worth of prescriptions – inspections, tests, certifications, paperwork and the like – that currently saddle our industry were reset tomorrow, the railroads would still prioritize safety as they do today, continuing their relentless drive towards zero accidents and zero injuries.
Fixing America’s overall infrastructure is a tall task that requires sustained commitment from all stakeholders. It will require the re-instilling of modal equity – meaning trucks pay for their fair use of public roads and bridges – and forging sustainable solutions to avoid further taxpayer subsidization of others’ infrastructure use. Users of infrastructure must ultimately pay for that infrastructure. The Trump administration, Congress and the American people can at least rest easy knowing rail – America’s best performing infrastructure – will continue to play a key role and never stop striving for a top-of-the-class grade.
Edward R. Hamberger is president and CEO of the Association of American Railroads. Follow: @AAR_FreightRail.
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