The third meeting of the Short Line Railroad Revitalization Task Force was held on Thursday, December 13, 2007, at 10:15 AM, in Room 129 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; Senators Tom Buford and Ed Worley; Representatives Hubert Collins and Fred Nesler; Sarah McCann, Fred Mudge, Tony Reck, and Ken Robinson.
Guests Testifying Before the Task Force: Pete Petree, President, R.J. Corman Railroad Company.
LRC Staff: John Snyder, Brandon White, Lou Pierce, and Jo Ann Paulin.
Senator Buford moved to approve the Task Force's minutes from its December 4, 2007 meeting, as submitted. Representative Collins seconded the motion, which passed by voice vote.
Chairman Guthrie stated that an overview of actual expense to extend the short line railroad lines was requested for this meeting. There were some concerns at the last meeting that the limits of the incentives being discussed would not be sufficient to cover those costs. Following staff's presentation Chairman Guthrie asked for Mr. Mudge's or Mr. Reck's comments.
Mr. Mudge said that all of the statistics show there will be an increase in highway use of 70 and 90 percent in the next 10-15 years. This increase will put a burden upon Kentucky's already strained roads. Mr. Mudge said that he did not believe a $3,500 cap would be sufficient to aid the railroads. He said that he even believed that a 50 percent cap would constrain the railroads. He advocated raising the cap to 100 percent for a period of time to allow the railroads to make necessary infrastructure adjustments.
Mr. Reck stated in his views a 100 percent cap would be great, but given the state's current financial constraints, unrealistic. He stated a 50 percent would be a significant start. He said historically over the 22 years in service, after the first year of renovation, P&L Railroad has dedicated around $5 million per year for maintenance and upgrading. He said that P&L does not plan on doing any extensive upgrading.
Representative Collins said he did not want to take funds away from the trucking industry in order to aid the railroads. He said any incentive will help, but he is not comfortable with eliminating the incentive cap. He said that he would not support an open ended bill.
Chairman Guthrie presented the members with four options for the Task Force: 1) endorsing or adopting Representative Nesler's bill with limits; 2) prefiling a bill without limits; 3) extending the Task Force through the 2008 and addressing the issue during the 2010 budget session; or 4) forwarding a memorandum to LRC stating a general Task Force recommendation and setting out in detail the findings of the Task Force.
Chairman Guthrie referred the members to a draft recommendation memorandum to LRC developed by staff at his request. Following a brief discussion Senator Worley moved to adopt the memorandum as the Task Force's final report of the task force. Mr. Mudge seconded the motion.
Upon further discussion Senator Worley offered an amendment to the recommendation, seconded by Representative Nesler to include the following language after the first sentence of the recommendation: "Such incentives should include, but not be limited to, tax credit legislation similar to that already established on the federal level." This addition was adopted by voice vote.
Mr. Pete Petree, President of the RJ Corman Railroad Company was recognized by the Chairman for the opportunity to speak concerning the short line revitalization and funding. He said he had done an analysis on specific pieces of railroads on a Class I and could certainly testify to support what Mr. Reck said as to when a railroad is sold to a short line, that from a maintenance and business standpoint they are usually suffering from extreme form of "malnutrition."
Mr. Petree said that railroads can be a solution to Kentucky's need for business growth and development across the state. The railroads need the support of the state to have regular mechanisms to support short lines in maintaining and expanding the retail network to provide a safe reliable transportation system to handle the traffic needs of commerce in a growing marketplace. He said with fuel and oil prices as high as we have seen, RJ Corman does not support a diesel fuel tax on railroads and that a tax credit would be a place to start.
Representative Collins asked Mr. Petree what incentives other states offered to the railroads. Mr. Petree said that in Maine it is as much as $8 million a year for the short line industry. Representative Collins asked if this was one of the better states. Mr. Petree said the state of Ohio offered money from its transportation budget of around $1 to $2 million last year. Representative Collins asked if that had to do with matching funds. Mr. Petree said that all of the states have a small percentage of matching funds for a grant which is in the 10 to 20 percent range.
Following Mr. Petree's presentation the Task Force adopted the memorandum as its final report to the Legislative Research Commission by a 9-0-0 roll call vote.
Senator Buford said that Kentucky has no authority to provide incentive funding to railroads and asked Task Force member Ken Robinson, representing the Economic Development Cabinet, what was needed from the state to entice businesses to the Commonwealth.
Mr. Robinson said that Senator Buford raised a very good point. Economic Development operates with a set of tools to make deals happen. He said that what the task force did is going to be a significant help to the Economic Development Cabinet. He said he was not prepared to give the cabinet's position at this time on whether it recommended 100 percent or $3,500, but felt this discussion was going in the right direction.
Representative Collins inquired as to the federal incentives. Mr. Reck said there are no federal incentives for Class I railroads, only for the short lines. He said federal incentives offer a $3,500 per mile tax credit for Class II and III railroads upon them spending $7,000, which is identical to Representative Nesler's bill.
With no further business before the task force, the meeting adjourned at 11:10 a.m.