STATEMENT OF WILLIAM E. LOFTUS
PRESIDENT THE AMERICAN SHORT LINE RAILROAD ASSOCIATION
before the
SUBCOMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
of the
SENATE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
in regard to
THE INTERMODAL SURFACE TRANSPORTATION EFFICIENCY ACT (ISTEA) AND PROGRAM ELIGIBILITY
March 13, 1997

Senator Warner, and members of the Subcommittee, I am William E. Loftus, President of the American Short Line Railroad Association (ASLRA). I appreciate the opportunity to appear before you today to testify concerning a subject of critical importance to this Nation's transportation network - - program eligibility under the new legislation which will replace ISTEA.

ASLRA is a non-profit trade association which represents the interests of its more than 400 short line and regional railroad members in legislative and regulatory matters. Short line and regional railroads are an important and growing component of the railroad industry. Today, they operate and maintain over 45,000 miles of track (27 percent of the American railroad industry's total route mileage); and employ approximately 24,000 persons (11 percent of the rail industry total). These small railroads serve every state in the nation and thousands of small shippers and small communities.

In connection with ISTEA reauthorization, ASLRA is working together with another organization, Regional Railroads of America (RRA), toward our common goal of clarifying eligibility provisions of ISTEA so that projects involving small freight railroads can be eligible to be selected by state and local decision-makers to receive ISTEA funds under certain circumstances. By "small freight railroads," I refer to Class II and Class III railroads as defined by the Surface Transportation Board, more commonly referred to as regional and short line railroads. It is only projects involving these carriers, i.e., Class II and Class III railroads, that our proposal addresses.

Our request for eligibility for small or local railroad projects under ISTEA, should be viewed in terms of what is happening to the rail network in each state. The restructuring of the nation's rail system is still underway. Recent mergers of the giant rail systems in the West and the forthcoming merger of the giant rail systems in the East present a significant challenge to each state and each region within a state. They have to deal with the reality that trunk line rail service is shrinking to about a 100,000 mile rail network, when it had been 250,000 miles a few years ago. At the same time the growth of the short line and regional railroad system is the vital linkage that each state. Regions within the state must depend upon small railroads for connectivity to the national rail network in order to maintain their economic base and economic future.

In 1970, the state of Georgia had 90 miles of short line railroad service. Today it has 1,200 miles. The entire New England region has only one Class I railroad line, Conrail's Albany to Boston mainline; the rest of the region is served by short line and regional railroads. The same statistics are repeated in Alabama and Mississippi, Pennsylvania and Ohio, Indiana and Illinois, Oregon and California - - anywhere you look. There is a vital, small railroad network in every state that must be preserved, enhanced and allowed to grow. It is a valuable, irreplaceable transportation asset.

I feel very strongly, that without direct financial assistance, the railroad feeder line system in the states will not be able to fully serve the needs of the state and its regions. That is the fundamental reason I am here today to seek the Committee's support for permitting states and local communities the ability to direct some of their ISTEA funds to rail projects, which will not only help preserve the rail network but will continue to generate economic growth in non-urban areas.

Under the current ISTEA provisions, more than $180 million has been spent on the Rails to Trails program. We have no quarrel with the conversion of abandoned railroad rights-of-way to hiking trails and such, but we are concerned that the nation's priorities are out of sync. If no ISTEA funds can be spent by a state or community to preserve and enhance its local railroad network in order to prevent rail line abandonments, but $180 million, and more, is available for trails after the community loses a rail line, I question those priorities.

The joint ASLRA/RRA effort is particularly focused on clarification of eligibility in regard to Surface Transportation Program (STP) funds. Small railroad projects are already eligible to receive funds under the limited CMAQ and Enhancements Programs, and under the Section 130 Program for funding highway-rail grade crossing warning devices which is set aside from STP. Under the ASLRA/RRA proposal, eligibility of freight projects involving small railroads to receive funds under CMAQ, Enhancements, Section 130, and STP as a whole should be clarified.

Small railroad eligibility for ISTEA funding should not be viewed as an unwarranted incursion into STP funds. ISTEA is not exclusively a highway program today. Congress has recognized that a multi-modal approach is most appropriate, and there is eligibility for funding for intermodal connectors and private bus companies and commuter transit and biking/hiking trails and, yes, some freight railroad projects. State infrastructure banks (SIB's) provide a system for funding flexible alternatives. All these various non-highway categories eligible for funds under ISTEA share a common feature: all can benefit the highway system and highway users, either by enabling a smoother transportation flow, or by offering an alternative to get some users off the highway system. Small railroad freight projects fit this mold perfectly.

Small freight railroad projects have a positive benefit to the efficient functioning of an overall multi-modal transportation system, and can represent a more efficient use of federal transportation funds in some cases. Indeed, these projects can have demonstrable highway benefits by relieving highway congestion, reducing wear and tear, avoiding expenditures for upgrading highways and bridges, and reducing air pollution and fuel consumption.

We recognize that the matter of private sector railroads receiving public funds is of concern to some. However, there are established ways of providing such assistance within federal guidelines and with full protection of the public investment. These types of small railroad projects should be eligible for funding from SIB's including pay-back requirements, and other innovative financing mechanisms which may be in ISTEA reauthorization.

In order to be chosen for funding, small railroad projects would need to clear the hurdle of a strict public benefit test: any short line or regional rail freight project would have to be found by the state or local decision-makers to be a better, more cost-effective use of transportation dollars than other transportation projects with which they are compared. The local decision may indeed favor the highway project, but at least the local decision-makers would not arbitrarily be restricted from considering investing in its rail network. The option to allow consideration of railroad freight projects as part of an overall, multi-modal state or local transportation plan represents good government policy. Based on my contacts with many state and Metropolitan Planning Organization (MPO) officials, they want this flexibility.

We are not seeking entitlements or set-asides for small railroads. Our proposal would, in essence, put small railroads at the table to argue, along with advocates of every other type of eligible transportation project, for consideration as the MPO or statewide planners weigh the best use of their federal transportation dollars to meet their community or regional transportation needs and plans. From across the country, we are aware of examples in which local or statewide planners would like to have the ability to fund a short line railroad project today, because it makes the most sense to them and represents the most efficient use of transportation dollars.

Attached to my testimony is a copy of the statement given last summer at a U.S. Department of Transportation field hearing in Huntington, West Virginia by Mr. Leo Howard, Chairman of the West Virginia State Rail Authority. In his prepared statement, Mr. Howard explains the critical role that federal LRFA funds played in the start-up of the South Branch Valley Railroad in 1978. In response to a question from then-Federal Highway Administrator Rodney E. Slater, who chaired the Huntington hearing, about why federal transportation dollars should go to a rail project, Mr. Howard explained that a perfect example was to be found in a 132-mile CSXT line slated to be abandoned between Tygart and Bergoo, West Virginia. An investment of under $5 million to save this rail line would allow the State Highway Department to avoid expenditure of between $25 and $40 million that would be required to upgrade secondary roads and bridges to handle the large tonnages of coal and lumber traffic they will be required to carry if the railroad goes away.

On Virginia's Eastern Shore, the Accomac Northampton Transportation District Commission owns and operates the Eastern Shore Railroad. It links the Eastern Shore of Delaware, Maryland and Virginia with the Norfolk Southern and CSXT's national systems by operating a freight car barge across Hampton Roads and 70 miles of mainline. The Eastern Shore Railroad requires an investment of $250,000 to upgrade 38 miles of its mainline trackage to 25 mph in order to attract more customers and operate more efficiently. Those funds could come from ISTEA, under our proposal, if the Transportation District had the ability to decide to use Federal ISTEA funds for track rehabilitation work.

Another example of the need for states to have more flexibility can be seen in Maine and New Hampshire, where a major port development project is dependent upon upgrading rail access - - as an alternative to highway access - - so that overall investment costs can be justified and the economic benefits obtained. The states are in the best position to decide whether to invest in upgrading the rail line or investing in highway access facilities.

A few freight railroad projects already have benefited from innovative funding in states which managed to "stretch the envelope" in terms of eligibility under the current ISTEA. Based on a report prepared by the U.S. Department of Transportation's Federal Railroad Administration in September, 1996, these include:

Up to $5 million per year of STP funds set aside for high-speed rail crossing improvements.

-- $2.5 million from STP funds for a new intermodal bridge to bring rail services directly into the Port of Seattle (total project cost $300 million).

-- Ventura County, California's Transportation Commission is purchasing two partially abandoned rail corridors, one existing rail corridor, 40 miles of rail track and contiguous land to expand rail freight service. Projected funding includes $4.2 million in STP grants, $3.5 million in STP enhancement funds, and $1.0 million local matching funds.

-- Santa Teresa, New Mexico, proposed new intermodal terminal will apply advanced technology to speed truck and rail freight between New Mexico and Mexico. A blending of STP, state, and private railroad funds has been used for planning and research.

-- Ft. Collins, Colorado, track consolidation project. This $2.75 million public-private partnership used a combination of local, state and STP funds as well as private funds from affected railroads.

-- Hiawatha line improvements, Illinois and Wisconsin. STP and interstate maintenance funds are being used for Amtrak's Hiawatha line connecting Chicago and Milwaukee.

(A copy of relevant pages from the September, 1996, FRA report is attached). When passed by the Congress and signed into law by President Bush in December of 1991, ISTEA refocused this Nation's transportation policy, moving away from the emphasis on building the interstate highway system which had dominated U.S. transportation policy since the 1950's, to a focus on enhancing that system's performance and productivity. In addition, ISTEA moved transportation policy into the era of multi-modal planning and investment.

Small railroads preserve and maintain rail infrastructure that might otherwise have been lost to abandonment. They are the vital link connecting communities and regions to the national rail system, aiding in creation and preservation of jobs, and economic development efforts. Railroads are a fuel-efficient and environmentally-friendly way to move freight, and contribute to reducing, postponing or avoiding gridlock on roads and highways.

Over the past two decades, Local Rail Freight Assistance (LRFA) funding from the federal government provided more than $200 million in grants to short line and regional railroads for rehabilitation of track and bridge structures. In most instances, the assistance was provided in the early stages of a railroad's start-up operation, soon after acquisition from a major Class I railroad. This is the critical time when the new owner/operator has to deal quickly and effectively with the problem of deferred track and bridge maintenance, acquisition of locomotive power, rebuilding a traffic base that had lost customers to other modes - - all while meeting the debt service on commercial loans used to acquire the line. Attached to my testimony is a copy of the statement given last summer at a U.S. Department of Transportation field hearing in Missoula, Montana by Ms. Carla Allen, General Manager of Central Montana Rail, Inc. Ms. Allen underscored the critical role federal funding played at start-up of this 87-mile grain line. However, since 1996, Congress has chosen not to reauthorize or provide funding for the LRFA program, apparently finding it hard to justify the time and effort required in the annual appropriation process and periodic reauthorization process for such a relatively small federal program. However, this should not preclude the states from being able to do what Congress had been doing since 1976, and that is exactly what our ISTEA reauthorization proposal would do. Support for our proposal in both Houses of Congress is growing. Copies of bipartisan letters of support in the House and Senate are attached.

The restructuring of the American rail system into a core network and feeder line system has had enormous economic benefits for every section of the country in the form of continued rail service, often with an increase in both the number of shippers and the amount of traffic coming back to the railroads. The restructuring process is continuing in all regions of the country. The Staggers Act and the policies of the Surface Transportation Board (formerly the Interstate Commerce Commission) have been the foundation of these benefits. The need for some one-time infrastructure investment support for start-up operators who face an uphill struggle to deal with long-deferred maintenance issues will only continue to grow in coming years as more lines are spun off.

It is critically important that state and local decision-makers, who will be faced with tough choices and many tradeoffs as they make transportation policy and investment decisions, have all transportation options available. Funding choices should allow sufficient flexibility to preserve and enhance short line and regional railroad freight facilities if the local planners decide that is the best use of their transportation funds.

OTHER ISSUES

The short line and regional railroads fully support the priorities of the railroad industry as a whole. As explained in more detail in testimony presented today by Karen B. Phillips, Senior Vice President of the Association of American Railroads, these include: funding for highway/rail grade crossing warning devices (Section 130 funds), including both continued earmarking of these funds for their critical safety purpose, and an increase in amount, maintaining the status quo with regard to truck sizes and weights, and availability of funding for intermodal connectors.

The Section 130 Program

The Highway Safety Act of 1973 created and funded a national highway safety program, now called the Section 130 program, which has enhanced safety at highway-rail grade crossings by providing for necessary engineering and warning device improvements. In fiscal year 1996, approximately $150 million was apportioned to the states for this program. Since the 1973 Act was passed, a total of $3.2 billion has been distributed.

The Section 130 program has had a significant and positive impact on the number of accidents, fatalities and injuries occurring at highway/railway grade crossings. As a direct result of federal funding for grade crossing improvements, annual crossing accident and fatality rates have been reduced by over 50 percent. The Federal Highway Administration has estimated that the Section 130 program has prevented over 8,000 fatalities and 36,000 injuries since 1974, with an overall benefit/cost ratio of approximately 2.7.

To remain fully effective, I believe that the earmarked annual Federal Highway Administration funding for the Section 130 program should not be lumped in with other categorical grants to be given to the states on a lump sum basis. I fear that some grade crossing funds could be diverted to other highway safety issues.

The level should be increased to at least $185 million to maintain overall safety performance, and to provide some important relief for small railroads. Currently the funds are limited to the installation of new devices. I believe that a portion of the funds should be directed to upgrading and replacing existing devices, particularly when damaged in accidents and from storm activity. Railroads now fund all maintenance costs at grade crossings, including the repaving of crossing surfaces. I seek your support to correct these inequities. I can assure you that the cost of annual maintenance of public grade crossing warning systems and crossing surfaces is a heavy and unfair burden on small railroads.

In addition to Section 130 funding, other important federal initiatives critical to improving grade crossing safety include standards for closure and elimination of redundant crossings, separation of crossings where feasible, and a vigorous public information campaign under the leadership of Operation Lifesaver, Inc. to increase awareness of drivers and to prevent trespassing.

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In summary, I urge you to clarify eligibility of projects involving small freight railroads for funding as part of ISTEA reauthorization. To do so represents good, multi-modal public policy, and will allow state and local decision-makers to make the transportation investment decisions they find best suited to their needs. Projects involving small freight railroads can, in some cases, demonstrate sufficient highway benefits to meet the test of being the best use of transportation funds. Public/private partnerships should be encouraged. I look forward to working with you as you draft the legislation. Suggested legislative language to clarify small railroad eligibility is attached.