Just What We Need: More Businesses Begging for Public Funds

The Virginia State Rail Plan is a dangerous document. The Kaine administration report, prepared by the Virginia Department of Rail and Public Transportation, lays out an intellectual justification for aggressive expansion of state planning and funding not only for commuter rail, as one might expect, but for freight rail.

The plan is dangerous because, if acted upon, it would transform Virginia’s private railroad companies – Norfolk Southern, CSX Corp., and any short lines that may do business here – into supplicants of the state. The politicization of Virginia’s freight rail system would encourage yet another special interest to raise PAC money to sway legislators, hire lobbyists to roam the halls of the state capital, and form business coalitions to persuade Virginians to part with hard-earned tax dollars to support another mendicant industry.

Some elements of the rail plan are worthwhile. It contains a cornucopia of data for public policy junkies, and it makes some worthwhile recommendations, such as acting to preserve abandoned rail corridors for possible future use. Even the emphasis on the critical importance of the privately operated freight rail is not entirely misplaced. Diverting more freight from trucks to railroads serves the laudable purpose of taking traffic off of Virginia’s increasingly congested Interstate highways.

But the report leaps from that last, uncontroversial observation to the unfortunate conclusion that it is the state’s role to accelerate that shift – implicitly assuming that market forces in the form of rising energy and congestion costs are not sufficient to induce the change. Arguing that railroads can help alleviate congestion on state Interstates, a goal that has widespread public support, the rail report proceeds to spell out how the state can help make it happen.

Here are key objectives spelled out in the report, listed under the goals of “Economic Competitiveness and Quality of Life” and “Virginia DRPT Public-Private Partnership Efforts and Program Delivery.”

Objective: Provide incentives for businesses to ship by rail whenever this is the most effective method available.
Future Strategy – Virginia DRPT should continue to connect businesses to rail and work to improve the overall freight rail system to improve its competitiveness and value against other modes. Virginia DRPT should track progress toward this objective by accounting for the value of freight traffic shifted to rail following the implementation of industrial connections and/or the improvement of main line corridors.
(Bacon: If shipping by rail is the “most effective method available,” why are incentives required?)

Objective: Promote continued dialog and cooperation between Virginia DRPT and the freight railroads to maximize system efficiency and investments.
Status – In addition to the support provided to Virginia’s short line railroads, Virginia DRPT is actively leading major investment studies involving public-private partnerships.
Future Strategy – Virginia DRPT should continue maintaining an open dialog with the private railroads and shippers to promote a unified vision of an efficient and competitive rail network for the Commonwealth.
(Bacon: In theory, public-private partnerships are a tool to induce railroads to make private investments with public benefits they might not otherwise make. But almost any project can be justified on the basis of public benefits– and you can be sure that railroad companies, once trained to seek state funds, will start identifying public benefits in everything they do.)

Objective: Secure stable and sufficient funding for a program of rail investment that will include funding for operating, constructing, and maintaining the rail network.
Status – Virginia DRPT administers several programs with generally continuous funding and advocates for additional funding for important strategic initiatives, including interstate corridor projects.
Future Strategy – Virginia DRPT should continue to advocate for increased and continuous investment in rail. Virginia DRPT should track its progress in securing funding by assigning a probability of funding to future projects.
(Bacon: Aaaargh!)

I will give the rail study credit for one recommendation not always heard in public policy circles: It advocates measuring “cost effectiveness of investments” in terms of air pollution reduced, traffic congestion ameliorated, etc. Unfortunately, such objective considerations are routinely ignored when a project has been turned over to the tender mercies of lobbyists and politicians.

To this point, the big rail companies have shown little interest in plundering the state purse. Once they are persuaded that it is easier and cheaper to financing their capital spending programs by hiring lobbyists and organizing PACs than taking their case to Wall Street, citizens and taxpayers will be the inevitable losers.

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  1. Larry Gross Avatar
    Larry Gross

    The problem with JB’s blog is he makes me look up words/phrases like “mendicant industry”!

    or perhaps.. I’m just revealing even more of my abject ignorance…

    at any rate…

    are some of these “mendicant” industries the existing trucking and port interests that “depend” on “free” roads for their profit-seeking ventures…. on the premise…as often espoused by folks like Ray… that it is justified because we all depend on goods delivered by trucks…????

    what is the role of the State in “roading” the State?

    what is the role of the State in “railing” the State?

    we have folks who are bitterly opposed to public-private road ventures deciding where to put roads but we seem to be perfectly fine with letting private industry decide where to put – or not put – rail?

    so.. my question… should the State play a role in deciding where to put rail?

    If the state decides to put rail down…. for NS/CSX..then why is that any different than the state paving I-81 for Walmart and Roadway Trucking?

    If we say that one of the problems with trucking on the roads is that there are no rail alternatives for moving freight… is that the sole job of NS/CSX …or is the state a “stakeholder”?

    bonus question: should the State have ONE Policy with regard to freight mobility no matter what mode?

  2. Anonymous Avatar

    “The plan is dangerous because, if acted upon, it would transform Virginia’s private railroad companies – Norfolk Southern, CSX Corp., and any short lines that may do business here – into supplicants of the state.”

    Huh? Last time I checked NS, CSX and short lines are all private corporations. In fact, those “supplicants” are doing quite well at the moment in a traditional profit/loss sense.

    The problem is that there is no fiduciary responsibility for private, for-profit railroads to build public, passenger lines. They have absolutely no legal obligation to do so and if they did, their shareholders would likely batter them with lawsuits.

    The last time a major railroad undertook a major investment effort in this area was back in the 1940s and 1950s when Atlantic Coast Line doubletracked its Richmond to Florida line with high grade steel rail and upgraded its rolling stock. ACL became SCL and then CSX and the passenger service went to Amtrak way back in the 1970s.

    The problem that Jim Bacon alludes to and doesn’t address is that the kind of rail service that he and EMR-style dreamers envision (and who can blame them?) will cost billions. The private, for-profit railroads are not going to pay for it. Public-private deals can’t work entirely. Given the impotence of the General Assembly to do ANYTHING about transportation, don’t expect help there.

    Sounds like true Republicans — you want something but you don’t want to pay for it. And if you raise any suggestion of of public payment, you are instantly branded as a lying, untrustworthy liberal.

    Peter Galuszka

  3. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    You build the stadium, the team owners make the profit. That’s where we are headed with this rail plan, which quickly turns into a state vs state issue. Where does a new transfer station go, maintenance yards, or any other critical infrastructure?

    What’s missing is a national policy on freight transportation, not just a state plan. After all, freight is an interstate function no different than freeways. In computer parlance, Virginia’s rail plan is a bit level solution to a packet level problem. We are merely shifting the bottleneck further down the line. It is a stadium the paying public can’t even sit in.

  4. Anonymous Avatar

    Many rural telephone or electric companies borrow money from the USDA for network improvements. This opens access to below-cost funding for network improvements, but it also opens them to USDA’s accounting rules and other controls. For example, it would be impossible for a rural electric or telco to pay its CEO $3 million, while borrowing from the RUS.

    The same principles should apply to any business obtaining funding from Uncle Sam or, in this case, good Cousin Tim. Free markets means no public trough, but restrictions.

    If Virginia taxpayers fund the building of rail lines or baseball stadiums, regulation of the associated business should come along. This should apply to Fluor/Transurban as well.


  5. Jim Bacon Avatar
    Jim Bacon

    Peter, Yes, exactly — NS, CSX and the short lines are private companies. Right now, they don’t pay much attention to Virginia politics or public policy (except for little stuff like railroad crossings). The state doesn’t give them any money — and they don’t spent a lot of resources on PACs and lobbyists. They are not “supplicants” now. But they will turn into beggars if Virginia starts doling out a lot of money with an goal of improving the freight railroad system.

    As for the kind of rail service that I supposedly envision… Yes, I think rail service is potentially an alternative to roads/highways for maybe 10 to 20 percent of the population. I’m also well aware that it’s very expensive to build and maintain. That’s why I’m skeptical of the notion of shoveling a lot of money into passenger rail without very careful cost-benefit analysis.

    In response to the other comments… Part of our problem in this country is that there are so many subsidies, cross-subsidies, taxes and other government intrusions in the transportation marketplace (including land-use zoning) that nobody has a clear idea of which transportation mode is more cost effective than the other. My argument is that we should endeavor to put all transportation modes on a level playing field (using taxes as a way to capture externalities like pollution) and creating a system where, to the greatest degree possible, decisions on what and where to build are decided by the marketplace and free consumer choices.

    Is that a pipe dream in an economy, which is shaped as much by government as the market… and a political economy in which supercapitalism has driven private players to manipulate the political system to shape laws and regulations in their favor? Maybe so. Perhaps I speak of a political economy that can never be. But at least a vision of market-driven transportation can provide a lodestar for citizens and taxpayers to fight back against the rent seekers.

  6. Groveton Avatar

    I see no way to reconcile eminent domain and free market economics. Electric companies, road operators, railways, etc are all beneficiaries of eminent domain. They are not free market companies since there is limited opportunity for substitution given the need for government sponsored eminent domain.

    The problem is that our do-nothing General Assembly has provided the oligopolies (monopolies?) with the benefits of state sanctioned eminent domain. However, they have failed to effectively regulate these quasi-government entities (including, but not limited to, serious caps on executive compensation).

    I am with Peter here. “Sounds like true Republicans — you want something but you don’t want to pay for it.”. However, I’d add another point – these same “free market” Republicans seem incapable of understanding that the government has been subsidizing these companies for over 100 years. They are not “free market entities” and should be regulated on a strict basis.

  7. Anonymous Avatar

    Your perspective seems somewhat skewed here.
    First off, the only two railroads of any size operating in Virginia are CSX and Norfolk Southern. These two dominate just about every state east of the Mississippi and have inroads to places like Kansas.
    Their motivation and their source of revenues will still be making profits in private, freight-hauling operations and providing a good return to their shareholders.
    Given that Virginia is a tiny part of the markets they cover — given the number of states involved — it is very doubtful that any passenger rail, public-private plan developed in Virginia alone will amount to a hill of beans.
    A new federal plan might, however.

    Peter Galuszka

  8. Larry Gross Avatar
    Larry Gross

    " The Roanoke Region Intermodal Facility is part of the multistate Heartland Corridor freight rail initiative, which will increase capacity and reduce freight shipping time between the Port of Hampton Roads, VA, and Chicago by up to 1.5 days.

    Intermodal facilities serve as a transfer point for freight shipping between trucks and rail. Just one intermodal train has the equivalent carrying capacity of 300 long haul trucks, providing a competitive shipping option and reducing the number of trucks on highways.

    A report released earlier this year by the Virginia Department of Rail and Public Transportation concludes that the intermodal facility could provide significant economic benefits for the Roanoke region, including an increase in annual employment of up to 2,900 jobs and tax revenues of up to $71 million annually.

    Additional public benefits identified in the report include 189 million gallons of fuel saved, 1.9 million trucks removed from Virginia highways and over 700,000 tons of carbon dioxide emissions avoided in the first 15 years of operation. The rate of return on the commonwealth's investment in the Heartland Corridor project and this facility would be over 20 percent and the project would pay for itself within five years."

    From the Article: "Increasing Capacity Along The Heartland Corridor"


    Now… when we look at this and compare it to the initiatives for taxpayers/drives to pay for a new US-460 and/or 3rd crossing….

    ..what does all of this means with respect to Virginia Governments role in rail/road transportation and eminent domain?

    … the question is – should Virginia do NO ED for road or rail?

    or…. do we pretend that ED for roads is "different" than ED for rail?

    … Does anyone really believe that when we say …"no ED for rail" .. that we are not already doing ED for roads for trucks?

  9. Anonymous Avatar

    1. what is the role of the State in “roading” the State?

    2. what is the role of the State in “railing” the State?

    Gee … I am taxed for roads and I can drive on them.

    I really can’t use frieght rail lines that serve a private, for-profit business.

    Do we have highways built for exclusive truck traffic?


  10. Larry Gross Avatar
    Larry Gross

    Reid – I thought the fru fru in HR/TW was the food fight over who would pay for the trucks moving goods from the ports?


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