The first meeting of the Short Line Railroad Revitalization Task Force was held on Thursday, November 8, 2007, at 10:00 AM, in Room 171 of the Capitol Annex. Senator Brett Guthrie, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Brett Guthrie, Co-Chair; Representative Brandon Spencer, Co-Chair; Senator Tom Buford; Representatives Hubert Collins and Fred Nesler; Mike Hancock, Sarah McCann, Fred Mudge, Tony Reck, and Ken Robinson.
Guests Appearing Before the Task Force: Tony Reck, President, Paducah and Louisville Railway, Inc. (P&L); and a member of the Task Force; Randall Clark, President, TransKentucky Transportation, Inc.; John Licht, Director of Business Development, Western Bluegrass Terminal LLC; and Brandon White, LRC staff.
LRC Staff: John Snyder, Brandon White, Lou Pierce, and Linda Hughes.
Following Chairman Guthrie's informing the members of the informational materials contained in the members' folders, Brandon White, LRC staff, presented railroad revitalization incentive programs in other states pertaining. Mr. White stated that Ohio uses General Fund dollars to support the safety and track improvements in their charge. No dedicated tax is levied in Ohio to fund these programs, and the majority of money is spent in the safety area, such as improving safety at grade crossings.
Pennsylvania's Capital Budgets program offers grants to all classes of railroads and the Rail Freight Assistance Program gives grants to up to $750,000 for construction and maintenance projects for Class II railroads. Funding for these programs is from a state bond issue and General Fund appropriations, no dedicated tax is levied.
Tennessee levies a 6 percent tax on the purchase price of diesel fuel sold or used by a common carrier when used in the operation of locomotives or railcars for the carriage of persons or property in interstate commerce. The tax collected is distributed to the transportation equity trust fund. Essentially 100 percent of money collected from this tax goes toward railroad inspection and railroad bridge rehabilitation. In 2005/2006 Tennessee collected $9.1 million from these taxes, $10.7 million in 2006/2007, and it is estimated that in 2007/2008 $11.6 million will be generated from this tax.
Mississippi levies a of 3/4 a cent per gallon tax on locomotive diesel fuel, with proceeds going into the Railroad Revitalization Fund. This fund is administered by the state's DOT and may be used to provide "...assistance to railroads for the for the rehabilitation or improvement of rail lines; and construction, improvement, or rehabilitation of railroad facilities."
Indiana has created an Industrial Rail Service Fund which is financed by 0.33 percent of all state gross retail, use taxes collected, plus the money from the sale of rail properties owned by the state. The fund provides loans to railroads for the purchase or rehabilitation of real or personal property that will be used by the railroad in providing railroad transportation services. It also provides $50,000 annually to the state's DOT for rail planning activities, provides money for the high speed rail development fund, provides grants to a railroad owned or operated by a port authority, and issues grants to Class II or a Class III railroad for the rehabilitation of railroad infrastructure or railroad construction. Grant recipients are required to pay 25 percent of the cost of the project.
Kansas has a railroad loan guarantee program, rail service assistance program loan guarantee fund, and a rail service improvement program and fund. The railroad loan guarantee program sets forth the qualifications for the issuance of rail related loans. The rail service assistance program loan guarantee fund is established to facilitate the financing, acquisition, and rehabilitation of railroads pursuant to the rail service assistance program. The rail service improvement program and fund makes loans or grants for the purpose of facilitating the financing, acquisition, or rehabilitation of railroads and rolling stock in the state of Kansas. This particular program and fund is funded with a combination of federal money under the local freight assistance program and $3 million from the state highway fund.
Oregon has established the Short Line Credit Premium Account as an account within the Oregon Transportation Infrastructure Fund. A short line railroad may apply for infrastructure assistance and priority is given to projects that enhance public safety, the environment, promotes rural economic development, reduces demand for expansion of highway capacity, preserves or enhance rail or intermodal service to small communities or rural areas, and operated by a short line railroad with Federal credit assistance.
The state of North Carolina has a North Carolina Short Line Infrastructure Assistance Program. This program, established in 2004, is dedicated to various modes of transportation to increase available money for maintenance and increase jobs. In 2004 $4 million of the Transportation Budget was used for this purpose. The program has continued in 2005, through 2007, with varying amounts taken out each year from the highway fund. The future funding for this program is undecided, however three separate bills currently in the NC General Assembly would appropriate $5 million in FY 2008 for this purpose.
Tony Reck, President of P&L as well as a Task Force member who has worked in the railway industry for 38 years, 22 of those years on short line railroads, discussed the industry. He said that most of the short lines were spun-off from Class I railroads as a result of the Stagers Act of 1980, which deregulated railroads. Up until recently most railroads never made their cost-to-capital. He stated that it is a very capital intensive type business, which is how most of the short lines came about.
Mr. Reck said that short lines were basically Class I businesses that had worn out, hadn't been maintained, and didn't have the volume of freight necessary to meet an expected revenue adequacy. He said 22 years ago there were only 75 short lines in this country, as opposed to the 500 companies now operating throughout the nation. He said that P&L is a perfect example, it was spun off from the former Illinois Central Railroad, mostly because chemical companies would not ship over that portion of the Illinois Central lines because they felt they could not do so without derailment. Two gentlemen purchased what is now P&L from Illinois Central, updated and increased the lines and now chemicals are being shipped from Paducah to Louisville with several branch lines going to Elizabethtown, Mayfield, and another site west of Paducah.
Mr. Reck said that P&L has difficulty maintaining some of its low density lines, such as the line to Mayfield. Mayfield lost the General Tire Company and several other companies who used the P&L rail system. Presently P&L does not have adequate rail business going into Mayfield but they do not want to abandon that branch of line.
Mr. Reck said bridges are the other problem area. Class I railroads have continued to increase their car size and the short lines were not built for the size cars that are being used today. In the last several years the car sizes have gone from a gross weight of 263,000 pounds to 286,000 pounds, which has placed a strain on old antiquated rail and bridge structures. He said for this reason Federal government has initiated a tax credit in the last three years which allows short lines to recoup 50 percent, up to $7,500, of their investment in improving their infrastructure. While this is welcomed, Mr. Reck said it does not go far enough, especially when dealing with bridge structures.
Randall Clark, President, TransKentucky Transportation, Inc. (TTI), said that he wanted to commend the Kentucky General Assembly for recognizing the important role railroads play in the state's economy, and for establishing a task force to consider legation that may help ensure a strong rail infrastructure in the Commonwealth. He said that the demand for freight transportation in Kentucky and throughout the nation will grow sharply in the future and to meet this demand rail infrastructure must also grow. Kentucky's freight railroads are investing record amounts in their systems, however it won't be enough to take full advantage of the railroad's potential to meet transportation needs.
Mr. Clark said that TTI operates a 50 mile line that runs through Bourbon, Nicholas, Fleming and Mason Counties. Its primary commodity is coal, which originates in eastern Kentucky (CSX), transported to Paris, Kentucky where TTI picks up 90 car train and delivers it to Maysville. Since TTI began in 1984 it has moved over 70 million tons of coal through its system.
Mr. Clark said that tax incentives for freight rail enhancements would help bridge the funding gap by leveraging private investment, producing public benefits (including reduced highway congestion and construction costs) that would far exceed the cost of the tax incentives. In order to have a strong manufacturing base, Kentucky must have a strong, reliable rail network.
Mr. Clark noted four major benefits railroads offer to Kentucky. They are (1) fuel efficiency - railroads are three time more fuel efficient than trucks; (2) less highway congestion - which lessens the costs of maintaining existing highways and the pressure to build expensive new roadways; (3) pollution - railroads emits less nitrogen oxides and carbon dioxide than a typical truck; and (4) safety - trucking fatality rates are four times higher and those associated with freight rail transportation.
John Licht, Director of Business Development, Western Bluegrass Terminal LLC, was the last person to testify. Mr. Licht said that his firm provides on-line rail service for a variety of business ranging from a aluminum recycling firm to a steel service center. It also offers trans-loading services, which is transferring or cross docking commodities from "truck to rail" and vice versa. This service permits shippers to have a more cost efficient, environmentally friendly service with the convenience of truck delivery.
Mr. Licht said its international terminal receives inbound Canadian box cars of aluminum ingots and exports tank cars of glycerin to Mexico. He said that it is currently developing two new projects - one to export box car loads of lumber to Mexico for a client that lost his rail service over 20 years ago, and the other to reactivate a rail service to a vacant lumber yard that will be used as a forest product distribution complex. Mr. Licht said that these two new projects will increase Western Bluegrass Terminal LLC's annual car volume from 24 cars to over 125 cars annually.
In closing, Mr. Licht said that it is estimated that there will be 70 percent more traffic volume in the year 2020. He said that railways can assist states in coping with the problems resulting from such traffic increases. However, progress comes with a price tag and he said that Western Bluegrass Terminal LLC, as well as other short lines, need the state's financial support in order to meet not only today's demand, but also tomorrows rail traffic volumes.
Future meetings were next discussed. Following a brief discussion, Chairman Guthrie noted that the Task Force would ask the Legislative Research Commission for permission to meeting on December 4th at 10:00 a.m. and December 13th at 10:00 a.m. Chairman Guthrie informed the members that if approval was granted staff would notify the members.
Before adjourning the Task Force briefly discussed previous legislation, 2006 HB 539, sponsored by Representative Nesler. Chairman Guthrie noted that a copy of this legislation would be included in the Task Force's next meeting materials.
With no further business before the Task Force the meeting adjourned at 11:50 a.m.