Report No. 80-22 E :1‘ T‘ ‘, .. '; 1 ”._ h 35’ I.‘ ) ;.._ _ V . . ix ' 1 (5 J’ 7.‘, ‘.‘ i’ I‘: x. , _‘ J’ 55 :' I r’ . 3 ; "v._! . . R‘ 7 '5 .; ~~ 15> - .,-...-.. "" '~ I =14,‘ /J; .-' 3- ‘ , " J‘ K!‘ H ., ,, by John W. Fischer Analyst in Transportation Economics Division .- , r;.::~ . :« - ‘ v w A ,._»;;, - r. _x -_; >4 “~1A_.‘._,:.“I‘._u.; —_K,' :2‘ w .- ..-. .. .. ., .- 1, " . ~ - . 1 3*: ',: ,-(3--.u«-rru a » - .A V. _ 2 as 1 1’. ., ‘ a J. 2 -.1 :_.-' —?~ ta‘ K ,.){-_,‘,_.¢«‘.; 3* ‘D. .. ‘ .. — .—~.——, -' -* r~~*.:: 2:. -".:**::':“.**“‘t'v-‘T'**«_ vcr :-,~>~.-.--';:an-.~—:»L- —= - r"-W“ * ...,.z;».t.xz*:.(.u--»»~ -~ LOCAL RAIL SERVICE: THE STATE EXPERIENCE CONGRESSIONAL RESEARCH SERVICE LIBRARY OF CONGRESS February 1, 1980 ""'—=' E lllllll HE 1001 U.S. B U'iTiisW/i “TOT 3 010-10 860537 M a ||H||l The Congressional Research Service works exclusively for the Congress, conducting research, analyzing legislation, and providing information at the request of committees, Mem- bers, and their staffs. The Service makes such research available, without parti- san bias, in many forms including studies, reports, compila- tions, digests, and background briefings. Upon request, CRS assists committees in analyzing legislative proposals and issues, and in assessing the possible effects of these proposals and their alternatives. The Service’s senior specialists and subject analysts are also available for personal consultations , in their respective fields of expertise. ABSTRACT The Federal local rail service assistance program created as part of the Regional Rail Reorganization Act of 1973, and refined by successive legisla- tion, has now been in operation for four years. In that time, the nature and direction of the program has changed from one of operating service on rail lines abandoned by major carriers to one of trying to prevent the necessity of abandonment from occurring. The program leaves much of the mechanics of its operation to the States. This report catalogs a selected sample of these State actions and attempts to identify the direction in which the States are moving. CONTENTS OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. THE ABANDONMENT ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. THE BEGINNINGS OF FEDERAL INTERVENTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. THE LOCAL RAIL SERVICE ASSISTANCE ACT OF 1978 . . . . . . . . . . . . . . . . . . . . . . . . . . .. THE STATE ROLE . . . . . . . . . . . . . . . . . . ..g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i . . . . . . . .. Pennsylvania . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. California . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . ., . . . . . . . . . .. Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. The Crab Orchard and Egyptian Steam Railroad . . . . . . . . . . . . . . . . . . . . . . .. SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Secretarial assistance provided by Nancy Drexler and Hal Jennings. 6 7 9 10 13 15 18 19 20 20 LOCAL RAIL SERVICE: THE STATE EXPERIENCE OVERVIEW The local rail service assistance program affects only a very small portion of the Nation's vast railroad system. The program has failed the expectation of supporters who hoped it would save all the Nation's branchlines from being aban- doned and bring them back to economic health. The program has, however, kept the railroads operating long enough for some comunities to deal with the larger question of the actual necessity of the rail line. Under changes made to the law in 1978 the program provides communities the option of improving the rail service before abandoning the service is considered. While the program's effect on the Nation's rail system may be limited, it is not necessarily a small program. Program entitlements available to the States in fiscal year (FY) 1980 will amount to to $90.5 million ($80 million from FY 1980 appropriations and $10.5 million from FY 1979 unobligated funds). This amount is available for projects on the 35,460 miles of track eligible for assistance under current legislation, which works out to approximately $2,552 of Federal aid for each mile of track. Because these funds are distributed to the States according to a formula and may be spent on rail improvement, purchase, or sub- sidy, the States have wide options in deciding how the funds will be spent and in choosing the lines on which to concentrate their effort. CRS-2 THE ABONDONMENT ISSUE In 1929 there were 249,433 miles of railroad line in the United States. By 1977, railroads had shrunk to 191,105 miles, a drop of 58,228 miles or 23 percent. 1/ This reduction eliminated, in many cases, superfluous lines built around the turn of the century during the period of greatest railroad expansion. Many of these lines were hastily built, without considering adequately the poten- tial traffic base, in order to obtain land grants made available by the Federal Government as an incentive to rail construction and consequently settlement of the region. Many lines continued to operate regardless of whether the settle- ment actually occured. Other lines were constructed for political rather than economic reasons and handled light traffic even when railroads enjoyed a monopoly on ground transportation. Declining population in rural areas, the availability of other forms of transportation, and changing economic conditions further eroded the limited traffic base. Railroads consequently sought to reduce their costs by abandoning unprofitable lines. The Transportation Act of 1920 gave the Interstate Commerce Commission (ICC) authority over the abandonment of railroad lines. Over the years, the ICC devel- oped a number of guidelines and regulations for dealing with applications for abandonment. It approved far more abandonment applications than it denied: 90 percent in the 30 years following 1946. Its method of handling applications [was cumbersome and often slow._2/ Few communites gave up their rail line without _l/ Association of American Railroads, Yearbook of Railroad Facts, 1979 Edition, p. 46. 2/ Spraggings, H. Barry, Rationalization of Rail Line Abandonment Policy in the Midwest under the Railroad Revitalization and Regulatory Reform Act of 1976, Transportation Journal, Fall 1978, p. 5. CRS-3 reluctance. The railroad was, to many, the way to future commercial expansion of an area. To lose the railroad was held to be tantamount to abandoning for- ever the industrialization of the community. The comunities and the railroads often hotly contested the abandonment. In the interim the railroad was obli- gated to continue operating the line at a loss. The financial collapse of the Penn Central and several other (primarily) northeastern railroads in the early 1970s gave impetus to the formation of a new abandonment policy. Through these bankruptcies, many areas were faced with the possibility of wholesale abandonment of their rail lines. With the exception of the bankruptcy and wholesale abandonment of the New York, Ontario, and Western Railroad in the early 1950s, there was little experience upon which to draw in instances involving the complete cessation of rail service by a bankrupt railroad. While the large number of unprofitable branch lines operated by the Penn Central has been a contributing cause to the railroad's collapse, some economically un- viable branches were regarded as essential to certain communities and industries. THE BEGINNINGS OF FEDERAL INTERVENTION The Regional Rail reorganization Act of 1973 (Public Law 92-366--generally referred to as the 3R Act) was the first Federal attempt to address the problem of unprofitable branch lines. Section 401 of the 3R Act provided for the creation of a Federal program to subsidize rail service on certain lines, not included in Conrail, by funding their rehabilitation or purchase by the State. The program was limited to the 17 northeastern and midwestern States in which the bankrupt railroads had operated. The 3R Act also called for each State to develop a rail plan and provided Federal planning assistance for this purpose. CRS-4 Provisions of the Railroad Revitalization and Regulatory Reform Act of 1976 (Public Law 94-210--The 4R Act) significantly expanded the program envi- sioned by the 3R Act even before the program became operative. The 4R Act's Section 803 expanded the scope of the subsidy program to include the 48 contig- uous States. The 4R Act increased the level of Federal assistance but establish- ed a declining scale of assistance for projects, calling for 100 percent funding during the first year but decreasing to 70 percent during the fourth and fifth years. All rail lines for which abandonment had been approved by the ICC were eligible for assistance. For a period of two years the 3R and 4R subsidy programs were administered separately, but then the 3R programs were merged into the 4R programs. The 4R Act also significantly altered the ICC's abandonment policy. The railroads were to identify all lines potentially set for abandonment of service. They submitted maps to the ICC, placing each line in one of four catagories, depending upon the iminence of the proposed abandonment. Once an application for abandonment was filed with the ICC, the ICC was required to act within strict time constraints either to approve or reject the application. Meanwhile, the local comunity, affected shippers, and the State were given the opportunity to offer a subsidy to continue service on the line, or to agree to purchase the line. THE LOCAL RAIL SERVICE ASSISTANCE ACT OF 1978 (Public Law 95-607) The local Rail Service Assistance Act of 1978 was a recognition by the Congress and the Administration of problems in the program instituted by the 3R and 4R Acts. Because the 4R Act program was to be terminated in 1981, many States and shippers were reluctant to participate. The 1978 Act made the CRS-5 program permanent, but subject to the annual appropriations process. The 1978 Act also changed the emphasis of the program from attempting to revitalize lines on which service already has been abandoned to encouraging the survival of lines identified for potential abandonment. The 1978 Act made major changes to the structure of the subsidy program. Federal subsidy assistance was limited to three years for any line. The Federal share for all types of assistance was set at 80 percent, except during the third year of subsidy operation when the Federal share was lowered to 70 percent. Rail lines eligible for assistance as part of the 3R Act retain that eligibility until September 30, 1981. All lines eligible for assistance under the 4R Act retain their eligibility. Under the 1978 Act, all lines handling 3 million gross tons of freight or less per mile are eligible for assistance up to the funding limits set in the Act for each State for the year in question. That is, the State must allocate the priorities, with certain guidelines, up to the State's maximum allotted amount. Where the Secretary of Transportation has designated the service to be essential, lines carrying between 3 million and 5 million gross tons of freight per mile also are eligible. The formula by which aid is distributed to the States was changed by the 1978 Act to reflect the new emphasis on lines potentially set for abandonment. Beginning in FY 1980, one third of the State's entitlement would be based on the number of previously abandoned lines within the State and two thirds of the entitlements would be based on the State's share of total rail miles in the categories of lines pending abandonment and lines on which abandonment might be sought at some future date. In no case, however, would a State receive less than one percent of the total available funding for the year. Of the State's total entitlement it can elect to spend up to $100,000 or 5 percent of its en- titlement, whichever is greater, on planning. / CRS-6 THE STATE ROLE The State assistance program has been a very effective way of developing State interest in railroads. Prior to the Federal program, few States appeared to show much interest in rail roads, except for regulating them. Most State highway and transportation departments lacked the expertise or the money to plan railroad systems. Interest in railroads varies greatly among the States, even with the Fed- eral assistance available under the program. Some States regard railroads as a necessary part of the total State transportation system. In these States, rail- roads might constitute a separate division within the State DOT. Other States regard railroads of minor importance compared to highways, the traditional State transportation concern. In these States, railroad matters generally are buried deeply within the transportation department, whose employees usually are concern- ed with matters other than railroads. Interest in railroads often appears to vary with the extent of the railroad crisis within the State. States with healthy rail systems have felt that they have little need for extensive rail planning. States facing the loss of a sig- nificant part of their rail system, such as those in the Northeast and Midwest, including those served by the Milwaukee Road and the Rock Island, have larger and much more active programs. There are exceptions and with time, as the State assistance program is integrated into the State's normal transportation picture, these distinctions may narrow. The approach States take in attempting to deal with their rail problems- also varies. The scope of the program allows the State to direct its efforts into subsidizing operations, upgrading track and other fixtures, purchasing track for current use or for a rail bank (lines which are currently unneeded but CRS-7 serve some resource, such as coal, for which future rail service may be desirable), and constructing new track to make freight handling more efficient. Although some States in the Northeast and Midwest have served as models for States with newer programs, each State program retains a great deal of latitude in its em- phasis. A telephone survey has highlighted the direction taken by some of the State programs and some of their unique features. Information from this survey and State rail plans have been examined to develop an overview of efforts within each State. Because it is impossible to compare programs directly, the follow- ing section contains general information and ideas useful in determining options available to all State rail programs. Florida_§/ According to its State rail plan, Florida has a relatively healthy freight railroad system. None of its major carriers is in serious financial difficulty. Florida does not perceive itself as suffering from serious deficiencies as a result of prior abandonments of rail freight lines. Florida's State assistance program is still relatively new. The State has maintained an active interest in rail safety, and is actively planning improve- ments in the rail passenger system. The Rail Section within the Surface Bureau of the Division of Public Transportation, Florida DOT, currently has a staff of five dealing with the State assistance program, railroad safety, and railroad engineering. Planning is handled by another branch of Florida DOT as needed. The State called on outside consultants to prepare its State rail plan. .§/ Source: Telephone conversation with James Rankin, Administrator, Rail- road Section Division of Public Transportation Operations, Florida DOT. CRS-8 Under existing State law, there is no legislative authority for a State assistance program. The State constitution precludes the use of State funds to assist private enterprises. Consequently, Florida currently is limited in the projects it can support to those with matching funds from sources other than from the State. Legislation has been proposed, however, to address the question of State participation in projects with privately owned railroads. The State is now involved in projects to rehabilitate two branchlines. One is designed to improve the weaker of the two existing lines serving the port at Pensacola where the State believes rail capability should be maintained to provide for competition. The second line serves an industrial area near Orlando. In both cases, shippers and other local sources are supplying the matching funds. The railroad is carrying out the actual rehabilitation work. Florida is also actively contemplating rail right of way purchases, pri- marily for use as public transportation corridors. The State currently is in the process of buying from the Seaboard Coast Line a 40-mile route in Pinellas< County. This route could provide a link for future Tampa to Orlando to Daytona rail passenger service. Use of an abandoned line in the Clearwater region for a future light rail system with a concomitant purchase of the right of way is also under consideration. Florida DOT is considering several other acquisitions, but is moving slowly until the legislature provides a legal foundation for the program. Florida DOT's rail plan suggests that the legislature give the State preferential rights to acquire abandoned rail properties in the State. The use of these properties will not necessarily be confined to railroads. Because Florida DOT has a significant interest in improving rail passenger service within the State, it devotes a large portion of its rail plan to passenger matters. The current energy shortage has so heightened interest in the rail CRS-9 passenger area that large scale improvements to the existing rail passenger system are under discussion. Carrying out these improvements will have a significant effect on some rail-banked properties. Tennessee 4/ Tennessee, like Florida, is still new to the rail service assistance pro- gram. The Bureau of Waterways and Rail within Tennessee DOT administers the local assistance program, as well as programs dealing with rail safety and waterway programs. A staff of five carries out these functions, although a budget has been allocated for a staff of ten. Planning is the responsibility of the State DOT's Bureau of Planning and Programming. Although new to the field, the State has participated in a major rail improvement project, serving as coordinator of efforts by several local elements and the Tennessee Valley Authority (TVA) to preserve rail service on a SO-mile branch, formerly operated by the Louisville and Nashville Railroad between Paris and Maysville. The South Central Tennessee Railroad Authority now owns and operates the line. The Authority is the creation of four counties served by the line. The Authority considers the line essential to local industry and potentially useful as a coal hauling route. The TVA, which may have need of the line's coal hauling potential, assisted the local authority by providing a low-interest loan for purchase of the line. With State coordination the purchase of the line was arranged and operations were resumed. The line now receives Federal funds for subsidy and for accelerated maintenance. The State administers these funds 4/ Telephone conversation with H.W. Derthick, Director, Bureau of Waterways and Rail, Tennessee DOT. Also State Rail Plan. CRS-10 and provides matching funds. Now in its second year of rehabilitation, the line should be able to support itself when the threefyear limit on Federal subsidy payment is reached. The State has identified nine lines eligible for the local assistance program, but has not yet determined which lines can be salvaged with outside assistance. Because of limited resources, all these lines are unlikely to be aided. Available funds will be concentrated on lines the State feels have the greatest chance of returning to health. The State now provides from its general funds all the matching funds needed to obtain Federal assistance. It does so to guarantee that available Federal aid is not lost for lack of a local match. In future projects, however, the State would like local sources to participate to a greater extent. Pennsylvania 2/ Because of the bankruptcy of the Penn Central, the Reading, and other lines, Pennsylvania has considerable experience with rail problems. The 3R program enabled the State to keep in operation a large portionof its trackage that would iotherwise have been abandoned. The 1978 Act could, however, cause the State serious difficulty in the months ahead as the 1980 budget allocations are made available. Further, the shaky condition of Conrail, which provides the bulk of rail service in the State, is much like the condition of the railroads in the State prior to passage of the 3R Act. 5/ Telephone conversation with Elaine King, Bureau of Mass Transit, Pennsyl- vania DOT. Also State Rail Plan. CRS-ll The State is in a better position to solve these problems than when they first occurred. A staff of four in the Division of Goods Movement of the Bureau of Mass Transit, Pennsylvania DOT, deals with the State assistance pro- gram. In addition, four planners in another Bureau of the State DOT work at least part time on rail matters. State contribution to the program has grown primarily in response to the available Federal funds and State needs. In FY 1979 the State received about $9 million in Federal assistance. Under the new formula taking effect in FY 1980, Pennsylvania will receive $2.6 million. The new formula's heavy emphasis on category 1 and 2 lines_§/ hurts Pennsylvania where most contemplated abandonment action transpired as part of the formation of Conrail. The State is also faced with the deadline of September 30, 1981, when lines will be no longer eligible for 3R Act subsidies. Pennsyl- vania has also been hurt as have some other States, by the 1978 Act's guarantee that each State receive at least one percent of the total available funding. Wyoming, with 9.1 miles of eligible mileage, is entitled to $905,085, while Pennsylvania with 1,599.6 eligible miles receives only $2.6 million. The Pennsylvania program has concerned itself principally with subsidizing lines abandoned as part of the 3R and 4R Act reorganizations. Despite the subsidy, the State recognizes that many of these lines have little potential economic viability. Operations on many of these lines have been allowed to lapse. The imminent Federal funding cutback will cause further reductions in the subsidy program. Action by the State, however, may insure continuedl Q] Category 1 lines are those lines potentially to be abandoned within three years. Category 2 lines are those under study for abandonment in less than three years. CRS-12 operations on some lines not covered by Federal assistance. For example, of the approximately forty lines now under the subsidy program the State is looking into the possible acquisition of about half. Where rail service is abandoned, the State will assist shippers to transfer their shipments to other means of transportation, where feasible. In operating abandoned sections, the State normally has contracted with the owning carrier, usually Conrail, to continue services. In some cases, it has~opted instead for operation by a short line railroad; for example, the Gettysburg Railroad. _Pennsylvania's experience with short lines has been mixed. New short lines often lack a cohesive manage- ment team. For example, a potential management team may have competent opera- tors, but lack competent accountants. As a result the State must often pay high administrative costs in starting up a short line, but without guarantee of the short line's survival.. In setting up short lines the State has also become wary of rail fans,‘ whose extensive experience with model railroads encourages them in the belief they are eminently qualified to operate a real railroad. There are certain advantages to short line operations, however, that should not be overlooked. Short line operators usually are local businessmen who can often offer shippers more personal and better service than distant, often seemingly uninterested, contracted railroad operators. Short lines, usually lacking the burdens of prevailing labor contracts, can often operate at substantially reduced costs. The key to any successful operation, however, will be its ability to attract traffic. A short line may have great success in this regard, but the line itself will not revive an area's economy and may need subsidies for several years before either becoming profitable or being abandoned. CRS-13 Pennsylvania has also engaged in accelerated maintenance on a number of branch lines. As subsidies end, programs will emphasize rehabilitation and track improvement on lines retained by the State. Lines potentially needed to carry the State's coal will probably be purchased, though the lines them- selves may not be operated. For its matching share, Penn DOT relies primarily on general funds. It provides funds for rail assistance substantially beyond those required by the State assistance program. For example, the State is involved in providing assistance to the financially marginal Delaware and Hudson Railroad. Because Conrail's uncertain future will be decided by Congressional action, Pennsylvania appears reluctant to offer major assistance to rehabilitate Con- rail lines within the State. If Conrail is dismembered, as some believe it might, the State would prefer to deal with the railroad that will actually operate the line in the future. The State has identified about 1,000 miles of current Con- rail lines needed to maintain adequate rail service within the State. If a reha- bilitation program is pursued, the State will probably ask voters to approve a $25 million bond issue to pay for it. In addition, the State legislature is also contemplating a change in tax laws to encourage the upgrading of railroads by allowing tax credits for rail rehabilitation work. California_Z/ California DOT's (Caltrans) is actively engaged in railroad freight and passenger projects. The Rail Projects Branch of the Division of Mass Transit has a staff of three and will soon add one new employee. In addition, at least 11/ Telephone conversation with Ed Boyle, Division of Mass Transit, Caltrans. CRS-14 one person in each of Caltrans’ ll field offices works at least part time on rail matters. In addition to the Federal assistance program, the Rail Projects Branch also administers State funded projects for abandoned right of way acqui-_ sition and grade separation, between rail and highway, along rail passenger lines. At present, Caltrans is pursuing two projects with State assistance funds. The first project, costing approximately $100,000, has restored to a plant of the Richmond Corporation in Redlands the rail service it lost through a Southern Pacific abandonment. Because bulk polymers the plant requires are not easily or economically transported by truck, the plant was to be closed. lTo restore rail service, a spur was constructed to the plant from a nearby Santa Fe line. Matching funds for the project were provided by the Richmond Corporation. As the Federal Railroad Administration (FRA) requires State ownership of the line, the State has leased it back to the Richmond Corporation for 49 years. A second and larger project is the construction of a new rail freight yard in San Yisidro, as part of the San Diego Metropolitan Transportation Development Board's (MTDB) conversion of a right of way of the San Diego and Arizona Eastern Railroad (SD&AE) into a joint light-rail passenger and short- line freight operation. The Southern Pacific (SP) filed to abandon the 108-mile segment because of flood damage several years ago. The State protested the aban- donment, along with San Diego MTDB, and saw the purchase of the line as an oppor- tunity to provide light rail service and to maintain a second freight carrier in the region. The SP agreed to sell the SD&AE to the MTDB, and to repair the flood damage as a condition of the sale. MTDB has begun reconstructing the segment for light-rail use and has contracted with the Kile Railroad, a short line operator, to operate freight rail service. The freight yard project, which will cost $1 million, is designed to improve the efficiency of the rail freight operation. CRS-15 Caltrans is studying the possiblity of using State assistance funds to con- struct multimodal terminals (tranfer points between rail, truck, and water trans- port) in Richmond and San Francisco. The State believes these projects could increase traffic on light density lines in the region. Caltrans has developed a set of qualifying criteria to decide which projects to fund. The first criterion is the availability of local or private matching funds. At present, the State is not providing any matching funds. The second criterion is the urgency of the project. The Richmond Corporation project is needed to save jobs. The State, objecting to the abandonment of the SD&AE, saw a need to restore freight operation over the MTDB line as rapidly as possible. Caltrans is also engaged in the purchase of abandoned rights of way for various uses. The State is developing priorities for the purchase of the approx- imately 60 abandoned lines. It has $6.5 million available for this purpose. The State also expects the legislature to approve a program for the purchase of addi- tional lines having potential as transit rights of way. Caltrans believes the Federal program has been moving in the right direction by moving away from operating subsidy. It considers subsidy of rail service an inappropriate response and regards rehabilitation as having much greater poten- tial. The State would like an expanded Federal program that would include those light-density lines having greater tonnage. South Dakota 8/ South Dakota's rail program is expanding rapidly to counteract the expected discontinuance of much of the service currently provided by the Milwaukee Railroad. 8/ Telephone conversation with James Meyers, Division of Railroads, South Dakota DOT. D CRS-16 The Divison of Railroads, South Dakota DOT, has a staff of nine, up from three in 1978. The staff will likely soon grow by an additional seven. The Division of Railroads operating budget is increasing correspondingly. In FY 1978 the State added $62,000 to the Federal $100,000 planning funding. In FY l980 State funds will rise to $360,000 while the Federal share will remain ati $100,000. Proposed State funding for FY 1981 will be $560,000. South Dakota had one of the first projects in the Nation under the 4R Act. This project, to restore a 47-mile branch line in the southeast corner of the State, is considered a failure, as it did not return the line to profitability. The Division of Railroads is currently involved in several projects, as coordinator or participant, under the State assistance program. A major pro- ject involves $l.2 million in Federal funding and a match of $360,000, supplied by the line's users, for a Milwaukee mainline in the northern part of the State. This assistance is expected to help retain the line as part of the Milwaukee System under any reorganization approved as part of the Milwaukee bankruptcy. It is expected that the reorganized Milwaukee will apply for further Federal assistance through Section 5 of the 4R Act to upgrade the line. The State has decided that its finite funding can best be expended on what it considers feeder lines, or regional collectors. It feels that the main lines should be able, for the most part, to continue as profitable por- tions of major railroads. The function of branch lines has in many cases been usurped by the truck, which provides access to shipping and receiving points on the feeder lines. Although abandonment of branch lines in the State . is not encouraged, feeder lines are regarded as essential to a healthy State rail system. Unfortunately, as far as the State is concerned, Federal funding for feeder lines is difficult to obtain because of the Federal tonnage require- ments. CRS-17 The State intends to set aside $1.2 million in Federal funds from the State assistance program for projects on branch lines. It will, however, require local sources to provide the State matching share. By contrast, the Division of Rail- roads projects an expenditure of $6.2 million ($5 million Federal, $1.2 million State) for projects on core or feeder lines in the State. The State has taken the position that none of its funds nor any Federal funds should be used to subsidize the operation of a line. Money spent in this manner would not, in its opinion, upgrade the system. Required subsidy should be provided by users, or not at all. In response to the discontinuance of service by the Milwaukee, the State is discussing raising about $15 million dollars to purchase and retain service on former Milwaukee lines. It is hoped that some Federal funds will also be avail- able for line purchases. The State will pay for this by imposing a tax, or user charge, on those benefitting from the retention of rail service. Some sort of general fuel tax has also been proposed. South Dakota is wary of short line operators. Investors interested in collecting per diem charges (a form of rental paid by one railroad to another for use of its equipment) operate short lines as a profit center with little regard for the actual operation of the one they own. Instead something similar to a terminal railroad operation is under consideration as an operator for dis- continued lines. ( A terminal railroad is normally jointly owned and operated by several railroads for mutual benefit. They are most commonly found at major rail interchange points, such as at St. Louis.) At present, however, consider- ation of this arrangement is preliminary. At one point last year, a proposal to restrict truck use on certain high- ways, or to restrict trucks moving certain commodities, was considered as a CRS-18 means of diverting traffic onto the rails. After discussion it was decided that such restrictions would unjustly punish an industry for doing a good job, because trucks have attracted an increasing share of goods movement in the State by offering lower prices and often better service. Michigan 9/ Michigan was in danger of losing a great deal of service as a result of the Penn Central and Ann Arbor bankruptcies. With the help provided by the 4R Act, and with subsidization by the State, most essential rail lines were retained in service. At the beginning of 1980, the State was subsidizing operations on 841 miles of line throughout the State. The cost of this oper- ation in FY 1979 amounted to $14.1 million. From the beginning of the program, the State DOT decided not to subsidize operation by the existing carrier, but to encourage formation of new shortline railroads. Some of the resulting railroads are somewhat larger than what nor- mally are considered shortlines. For example, the Ann Arbor Railroad, operated by the Michigan Interstate Railway Company, is 323 miles long. The Hillsdale County Railway, on the other hand, is 38.8 miles long. In some cases, the subsidy to a line has been reduced since the program was initiated. In the majority of cases, however, the reverse has been the case. While the State will receive in the future less Federal funding for subsi- dization of 3R lines, it has apparently decided that continued operation of many of these lines is essential to the State's economy, and that the additional 9/ Michigan State Rail Plan, Michigan DOT, 1979 Michigan DOT submission to State legislature, January 1980. 1 CRS-19 cost will come from State funds. The State has accelerated maintenance projects on many lines and expects to spend substantial additional Federal and State funds on rehabilitaiton and track improvements in the near future. Illinois 10/ Illinois has basically operated a subsidy program steming from the 3R and 4R Act programs. In many instances the State put its faith in subsidizing short line carriers to fill the void left by the bankrupts. Experience, how- ever, has changed the State's view of short lines. Since the program began, the short lines have continually lost money, without real prospect for improve- ment. The State investigated cutting costs on these lines, but found few costs could be cut. Administrative costs of operating a short line do not necessarily reflect the size of the operation. From this perspective, it would have been cheaper for the State to subsidize an existing carrier, such as Conrail, to operate a line. It was considered unlikely, however, that subsidies would induce a carrier to much of an effort to improve service and attract business to the line. As a result, the State DOT has concluded that the State has little business trying to operate or to administer the day-to-day operation of a railroad. While subsidy will be continued on some lines, at least until the ending date of 3R line eligibility, the State will enter into no further subsidy arrangements. Instead the State, in a sense following the lead of the 1978 Act, will concentrate its effort on rehabilitating existing rail lines to improve service and attract 10/ Malone, Frank, Illinois: Away from Railroading, into Track Improve- ments. Railway Age, December 31, 1979, p. 31. CRS-20 new traffic. Illinois DOT feels that it can serve best as a broker, with money available for projects for both shippers and railroads. The Crab Orchard and Egyptian Steam Railroad 11/ One short line in Illinois has had modest success without State partici- pation. Begun as asmall tourist passenger railroad in 1973 on an abandoned Illinois Central Gulf right of way, the railroad moved into freight operations. in 1977., The local government in Marion, which purchased 22 miles of track from the Illinois Central Gulf for $200,000, helped start the railroad. The new company then sold $300,000 in stock, which was used in part to construct an interchange with a nearby Missouri Pacific Railroad mainline. Cars were obtained from Itel, a major car leasing firm, and local businesses were induced to use the line. In 1979, the line expected to move 2,100 cars and-have a net income of $33,000. Traffic continues to expand with hope for even greater improvement over the next few years. SUMMARY Experience in administering the Federal State assistance program is as varied as the history of the individual States. Yet, common themes recur. Primary among these is that a program in one region will not necessarily meet ‘the needs of another. While Florida may learn from Pennsylvania's effort, Florida's different needs require altogether different solutions. Endless subsidy from Federal and State coffers to operate unprofitable rail lines is no longer seen as the best solution. Where service is essential, a ll/ McGlynn, Brian, It Couldn't be Done, But it Was, Forbes, August 20, 1979, p. 108. CRS-21 way to continue it will often be found, sometimes without public assistance. The Northeast and Midwest, hurt the most by the changes in the 1978 Act, will have the most difficulty in resolving the question of continued subsidy as Federal assistance ceases in September l98l. Short lines, originally seen as a hope for saving service, have an uneven record in curing local rail problems. ‘Making a successful short line rail- road takes more than an interest in railroading and equipment. Before a short line can operate profitably, it needs a sound economic framework in which to operate, and as often as not, if such a framework had existed, service on the line would not have been discontinued in the first place. Circumstances do change, however, with time. A line located through a coal field, not profit- able today, could be valuable tomorrow. Timing and sound management are essential requirements in establising a short line. Rehabilitation now appears the most desirable alternative to State assistance. With proper planning, a more efficient operation can help attract additional traffic and bring the line back to health. State officials gener- ally seem to have high hopes for rehabilitation. They believe, however, that the current law's definition (in terms of tonnage) of lines eligible for assistance is too narrow. Lines with 3 million or more gross tons of traffic are often more worthwhile than the branch lines that feed them. The condition of some of these lines is poor and many need extensive rehabilitation. Yet, by current law it is difficult for the State to offer assistance, if it is possible at all. Whatever transpires from the bankruptcies of the Rock Island Railroad and the Milwaukee Railroad, the affected States will be limited in their ability to maintain service using State assistance funds. Lines on which CRS-22 Federal money has already been spent will perhaps be further jeopardized by the outcome of these bankruptcy proceedings. Conrail poses a similar dilemmai for other States. While mass abandonments in the Conrail region are unlikely, any reorganization will have an unknown effect on lines currently receiving State assistance funding. The State assistance program and the Nation's railroads are operating in uncertainty. Major changes to the national rail network can be expected. These changes will determine whether the money already spent in the State assistance program has been spent wisely and whether the program itself will remain viable. nd/hj